<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported): October 1, 1998
Cox Communications, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
1-6590 58-2112288
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(Commission File Number) (I.R.S. Employer Identification Number)
1400 Lake Hearn Drive
Atlanta, Georgia 30319
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(Address of principal executive offices) (Zip Code)
(404) 843-5000
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(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 1, 1998, Cox Communications, Inc. ("CCI") completed the
acquisition of a cable television system located in Las Vegas, Nevada, and
certain related businesses owned by Prime South Diversified, Inc. ("PSDI") for
a combination of cash and CCI stock (the "Las Vegas Acquisition") with an
aggregate value of approximately $1.3 billion, including the refinancing of
certain PSDI indebtedness. A copy of CCI's press release announcing
consummation of the Las Vegas Acquisition is being filed as exhibit 99.1 with
this report.
As part of the Las Vegas Acquisition, CCI acquired (i) Community Cable
TV ("CCTV"), the cable television system serving Las Vegas; (ii) Hospitality
Network, Inc., a provider of resort-hotel room video entertainment and
interactive services in Las Vegas and other gaming cities domestically and
internationally; (iii) PrimeTel of Nevada, a provider of video, voice and data
to multiple dwelling units; (iv) a 35% interest in NextLink Nevada, a
facilities-based provider of commercial local and interexchange
telecommunications services; (v) a 33% interest in Las Vegas One, the market's
only 24-hour television news operation; and (vi) various ownership interests in
other diversified PSDI investments.
The Las Vegas Acquisition was structured as a merger of PSDI with and
into Cox Communications Las Vegas, Inc., a wholly owned subsidiary of CCI
("CCLV"), with CCLV as the surviving corporation. G.C. Investments and Barbara
J. Greenspun, as trustee of the Unified Credit Trust created under a
Declaration of Trust dated December 6, 1988, (collectively, the "Greenspun
Shareholders") owned a majority interest in PSDI, and the remaining PSDI
interests were held by Prime Cable of Austin, Texas, and various individual and
institutional investors. Prime Cable and the other investors received an
aggregate of approximately $138.2 million in cash for their interests in PSDI,
and the Greenspun Shareholders received approximately $50.9 million in cash,
5,667,709 shares of CCI's Class A Common Stock and 2,418,186 shares of CCI's
Series A Convertible Preferred Stock (the "Series A Stock"). In addition, CCI
assumed and refinanced approximately $775 million of outstanding PSDI
indebtedness, including certain contingent interest obligations, in connection
with the Las Vegas Acquisition. To refinance the PSDI indebtedness and fund the
cash payments to PSDI shareholders, CCI used a combination of a portion of the
proceeds from its July public offerings of debt securities and drawdowns from
its commercial paper program and revolving credit facilities.
The Series A Stock is a newly created series of preferred stock issued
in accordance with CCI's certificate of incorporation, which authorizes
5,000,000 shares of preferred stock. All of the issued and outstanding shares
of Series A Stock are held by the Greenspun Shareholders. CCI has no other
issued or outstanding preferred stock. The following summary of the material
terms of the Series A Stock is qualified in its entirety by reference to the
Certificate of Designations of Powers, Preferences and Rights of the Series A
Stock, a copy of which is being filed as exhibit 3.1 to this report.
<PAGE> 3
- - Dividends. Holders of Series A Stock are entitled to dividends only
when, and to the extent that, dividends are declared on the Series A
Stock by the board of directors of CCI.
- - Ranking. In the event that CCI liquidates, holders of Series A Stock
are entitled to receive $44.275 per share, plus any accrued and unpaid
dividends (the "Liquidation Price"), before holders of CCI's common
stock receive any distributions.
- - Voting. Holders of Series A Stock are entitled to one vote per share,
and such holders vote together with the holders of Class A Common
Stock on all matters upon which holders of Class A Common Stock are
entitled to vote.
- - Antidilution. The number of outstanding shares of Series A Stock is
subject to adjustment upon the occurrence of certain diluting events
which affect the number of outstanding shares of Class A Common Stock.
- - Pre-emptive Rights. Holders of Series A Stock have the right to
purchase additional shares of Series A Stock if CCI or its affiliates
contribute assets or cash to CCLV.
- - Conversion. Shares of Series A Stock are convertible into shares of
Class A Common Stock at the option of the holders (an "Optional
Conversion") only after October 1, 2003, a change in control of CCI or
notification of the liquidation of CCI, whichever first occurs. Shares
of Series A Stock representing at least a majority of such shares then
outstanding must be converted in any Optional Conversion, and holders
of Series A Stock are entitled to a total of two Optional Conversions.
Shares of Series A Stock are convertible into shares of Class A Common
Stock pursuant to a formula based upon the fair market value of CCLV
and the average closing price of the Class A Common Stock over a
specified ten-day period (the "Average Closing Price"). Shares of
Series A Stock will automatically convert into shares of Class A
Common Stock if CCLV makes a distribution on its capital stock. The
number of shares of Series A Stock to be automatically converted in
the event of such a distribution will be determined by a formula based
on the fair market value of the distribution and the Average Closing
Price. In addition, upon any sale of all or substantially all of the
assets of CCI, all outstanding shares of Series A Stock will
automatically convert into shares of Class A Common Stock pursuant to
a formula based on the fair market value of CCLV and the Average
Closing Price.
- - Redemption. Any time after October 1, 2028 or in the event that the
Greenspun Shareholders no longer hold the investment power with
respect to at least 50% of the then outstanding shares of Series A
Stock, CCI may redeem all, but not less than all, of the outstanding
shares of Series A Stock at the Liquidation Price.
CCI also agreed that any acquisition or merger involving a
communications business in the Las Vegas area would be effected through CCLV
and that, prior to any sale of a controlling
<PAGE> 4
interest in CCLV, substantially all of the assets of CCLV, CCTV or a
line-of-business of CCLV, CCI shall first offer the Greenspun Shareholders an
opportunity to purchase such controlling interest, assets, CCTV or line-of
- -business, as the case may be. Separately, CCI granted the Greenspun
Shareholders certain demand and "piggy back" registration rights with respect
to the shares of Class A Common Stock held by them or receivable upon
conversion of the Series A Stock. The Greenspun Shareholders have agreed to
only sell shares of Series A Stock for cash and that, prior to any sale of
Series A Stock, they will first offer such shares of Series A Stock to CCI.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
Audited financial statements of PSDI as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997,
as well as unaudited financial statements for the six months ended
June 30, 1998, are included in this report beginning on page F-1.
(b) Pro Forma financial information.
Pro forma financial statements of CCI reflecting the Las Vegas
Acquisition are included in this report beginning on pages P-1.
(c) Exhibits.
2.1 Agreement and Plan of Merger among CCI, CCLV, PSDI and the
Greenspun Shareholders (incorporated by reference to CCI's
report on Form 8-K dated May 8, 1998)
3.1 Certificate of Designations of Powers, Preferences and Rights
of the Series A Convertible Preferred Stock of CCI
10.1 Registration Rights Agreement, dated as of October 1, 1998,
among CCI and the Greenspun Shareholders
10.2 First Offer Agreement, dated as of October 1, 1998, among CCI
and the Greenspun Shareholders
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
99.1 Press Release dated October 1, 1998
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COX COMMUNICATIONS, INC.
Dated: October 14, 1998 By: /s/ Andrew A. Merdek
----------------------------
Andrew A. Merdek
Corporate Secretary
<PAGE> 6
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF PRIME SOUTH DIVERSIFIED, INC. AND
SUBSIDIARIES
<TABLE>
<S> <C>
Audited Financial Statements
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997.............. F-3
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1997.......................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Deficiency in Assets for each of the three years in the
period ended December 31, 1997....................................... F-5
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997.......................... F-6
Notes to the Consolidated Financial Statements......................... F-8
Unaudited Interim Financial Statements
Unaudited Condensed Consolidated Balance Sheet at June 30, 1998........ F-28
Unaudited Condensed Consolidated Statements of Operations for
the six months ended June 30, 1998 and 1997.......................... F-29
Unaudited Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1998 and 1997.......................... F-30
Notes to the Unaudited Condensed Consolidated Financial Statements..... F-32
</TABLE>
F-1
<PAGE> 7
Report of Independent Auditors
To the Board of Directors
Prime South Diversified, Inc.
We have audited the accompanying consolidated balance sheets of Prime South
Diversified, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and
1997, and the related consolidated statements of operations, redeemable
convertible preferred stock and deficiency in assets and cash flows for each of
the three years in the period ended December 31, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Prime South
Diversified, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
March 25, 1998, except for the
third paragraph of footnote 12,
as to which the date is
October 9, 1998
F-2
<PAGE> 8
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997
(thousands of dollars)
<TABLE>
<CAPTION>
1996 1997
--------- ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,294 $ 8,349
Accounts receivable, net 7,683 8,954
Notes receivable 4,871 4,639
Prepaid expenses 387 442
Investments in affiliates 6,371 6,568
Construction in progress and inventories 11,046 11,850
Property, plant and equipment, net 161,965 191,811
Intangible assets:
Goodwill 126,730 126,730
Hotel contracts 12,384 12,427
Other intangibles 670 515
--------- ---------
139,784 139,672
Less: accumulated amortization (48,356) (63,424)
--------- ---------
91,428 76,248
Deferred debt issuance costs, net 5,392 4,546
Other assets 47 586
--------- ---------
Total assets $ 296,484 $ 313,993
========= =========
LIABILITIES AND DEFICIENCY IN ASSETS
Accounts payable and accrued expenses $ 18,705 $ 19,589
Accrued interest 4,315 5,881
Current income taxes payable -- 125
Subscriber deposits and unearned income 6,837 7,596
Long-term debt 571,000 622,000
Contingent interest payable 23,228 24,556
Capitalized lease obligation 4,428 4,593
Deferred compensation liability 137 --
--------- ---------
Total liabilities 628,650 684,340
Commitments and contingencies
Minority interest in equity of consolidated subsidiary 2,331 4,669
Class I convertible, redeemable preferred stock, $.01 par value,
225,000 shares authorized and issued; none outstanding
at December 31, 1996 and 1997 -- --
Class II 8% cumulative, convertible preferred stock, $.01 par value,
20,875 shares authorized and issued; 8,419 and 5,849 shares outstanding
at December 31, 1996 and 1997, respectively; ($16,813,000 (1996)
and $12,616,000 (1997) liquidation value) 16,813 12,616
Deficiency in assets:
Common stock, $.01 par value, 100,000 shares of Class A convertible
and 10,000 shares each of non-voting Class B convertible and
Class C authorized; 48,256.1322 shares of Class A and
1,743.8678 shares of Class B issued and outstanding at
December 31, 1996 and 1997 1 1
Accumulated deficit (351,311) (387,633)
--------- ---------
Total deficiency in assets (351,310) (387,632)
--------- ---------
Total liabilities and deficiency in assets $ 296,484 $ 313,993
========= =========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-3
<PAGE> 9
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1996 and 1997
(thousands of dollars)
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 121,729 $ 144,399 $ 163,524
Operating expenses:
Cable television and video system expenses 65,792 75,830 87,117
Management fees and other administrative expenses 5,175 6,071 6,823
Depreciation and amortization 43,936 44,992 49,292
--------- --------- ---------
Income from operations 6,826 17,506 20,292
Interest expense (51,195) (57,076) (52,268)
Interest income 449 1,903 1,529
Gain (loss) on disposal of assets (538) 595 (259)
Writedown of investment -- -- (1,967)
Writedown of assets -- (51) --
Litigation settlement income 8 -- --
--------- --------- ---------
Loss before equity in income (loss) of affiliates, net,
income tax benefit (expense) and minority interest (44,450) (37,123) (32,673)
Equity in income (loss) of affiliates, net (8,701) 22,729 189
Income tax benefit (expense) 1,450 (350) (197)
--------- --------- ---------
Net loss before minority interest (51,701) (14,744) (32,681)
Minority interest in net income of
consolidated subsidiary -- (2,361) (2,338)
========= ========= =========
Net loss $ (51,701) $ (17,105) $ (35,019)
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-4
<PAGE> 10
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND DEFICIENCY IN ASSETS
(thousands of dollars, except share data)
<TABLE>
<CAPTION>
Redeemable Convertible Deficiency in Assets
Preferred Stock ---------------------------------------------
----------------------------- Common Accumulated
Class I Class II Stock Deficit Total
------------ -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances,
December 31, 1994 $ 65,000 $ 35,730 $ 1 $ (277,422) $ (277,421)
Redemption of 6,780 shares of
Class I preferred stock (6,780) - - - -
Accrued dividends - 2,859 - (2,859) (2,859)
Net loss for the year
ended December 31, 1995 - - - (51,701) (51,701)
----------- ------------- ------------ ------------- ------------
Balances,
December 31, 1995 58,220 38,589 1 (331,982) (331,981)
Redemption of 58,220 shares of
Class I preferred stock (58,220) - - - -
Accrued dividends - 2,224 - (2,224) (2,224)
Redemption of 12,456 shares of
Class II preferred stock - (24,000) - - -
Net loss for the year
ended December 31, 1996 - - - (17,105) (17,105)
------------ -------------- ------------- -------------- --------------
Balances,
December 31, 1996 - 16,813 1 (351,311) (351,310)
Redemption of 2,570 shares
of Class II preferred stock - (5,500) - - -
Accrued dividends - 1,303 - (1,303) (1,303)
Net loss for the year
ended December 31, 1997 - - - (35,019) (35,019)
------------ -------------- ------------- -------------- --------------
Balances,
December 31, 1997 $ - $ 12,616 $ 1 $ (387,633) $ (387,632)
============ ============== ============= ============== ==============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-5
<PAGE> 11
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1996 and 1997
(thousands of dollars)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(51,701) $(17,105) (35,019)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 23,796 27,658 34,120
Amortization of intangibles 20,140 17,334 15,172
Contingent and deferred interest 10,177 10,299 1,328
Deferred taxes benefit (872) -- --
Amortization of deferred debt issuance costs 1,193 1,194 967
(Gain) loss on disposal of assets 303 (595) 259
Writedown of investment -- -- 1,967
Writedown of assets 238 51 --
Equity in (income) loss of affiliates, net 8,701 (22,729) (189)
Litigation settlement income (8) -- --
Minority interest in net income of
consolidated subsidiary -- 2,361 2,338
-------- -------- -------
11,967 18,468 20,943
Net increase in accounts receivable,
prepaid expenses and other assets (351) (2,428) (1,831)
Net increase (decrease) in accounts payable, accrued
expenses, income taxes payable, subscriber deposits and
unearned income and deferred compensation liability 3,101 (5,831) 3,176
-------- -------- -------
Net cash provided by operating activities 14,717 10,209 22,288
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Prime Cable Income Partners, L.P. 40 3,903 508
Distributions from Prime Cable of Fort Bend, L.P. -- 300 38
Distributions from Prime Cable Growth Partners, L.P. 5 244 266
Distributions from Prime Cable of Hickory, L.P. -- -- 425
Distributions from Prime Venture I Holdings, L.P. 7,100 14,118 2,920
Increase in intangible assets (1,316) (3,864) --
Purchase of property, plant and equipment;
construction in progress and inventories (43,692) (57,826) (64,779)
Investment in Nextlink Nevada -- (1,595) (5,498)
Investment in MultiTechnology Services, L.P. -- (3,500) (590)
Investment in Las Vegas One -- -- (50)
Issuance of notes receivable (3,522) (171) --
Collection of notes receivable -- 129 232
Proceeds from disposal of assets 83 169 236
-------- -------- -------
Net cash used in investing activities (41,302) (48,093) (66,292)
-------- -------- -------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-6
<PAGE> 12
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1996 and 1997
(thousands of dollars)
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 34,400 124,600 54,500
Repayment of bank debt - (2,000) (3,500)
Repayment of capitalized lease obligation (232) (255) (320)
Redemption of Class I preferred stock (6,780) (58,220) -
Redemption of Class II preferred stock - (24,000) (5,500)
Dividend to minority shareholder of
consolidated subsidiary - (30) -
Deferred debt issuance costs (8) (1,332) (121)
------------- ------------- -----------
Net cash provided by financing activities 27,380 38,763 45,059
CASH AND CASH EQUIVALENTS:
Increase during the year 795 879 1,055
Beginning balance 5,620 6,415 7,294
------------- ------------- --------------
Ending balance $ 6,415 $ 7,294 $ 8,349
============= ============= ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest paid $ 38,317 $ 55,333 $ 48,408
============= ============= ==============
Reimbursement of fiber construction
costs through issuance of note receivable $ 858
=============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligation incurred $ 2,589 $ 485
============= ==============
Cancellation of note receivable in
exchange for partnership interest of CSLV $ 3,691
=============
Note received in consideration of assets
sold to Telecommunications of Nevada, LLC $ 5,000
=============
Accrual of dividends on preferred stock $ 2,859 $ 2,224 $ 1,303
============= ============= ==============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-7
<PAGE> 13
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Formation and Organization
Prime South Diversified, Inc. ("PSD"), a Delaware corporation, was
organized in December 1993 to participate in the ownership and
operation of cable television systems and related media and
communications services.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of PSD and
its subsidiaries Community Cable TV (CCTV), Prim South Holdings, Inc.
(PSH) and Prime Venture I, Inc. (Venture) (collectively "Diversified").
All intercompany items and transactions have been eliminated.
Investments
Investments of PSD and its consolidated subsidiaries in less than
majority-owned entities over which they or their affiliates exercise
significant influence regarding operating and financial policies are
accounted for using the equity method. Equity in losses from limited
partnership interests are recorded until such time as the investments
are reduced to zero. Equity in losses from general partnership
interests are recorded as allocated in accordance with the partnership
agreement until such time as all limited partnership interests are
reduced to zero, at which time all of the entities' losses are recorded
up to the maximum exposure of the general partner.
Construction in Progress and Inventories
Inventories are carried at the lower of cost (weighted average unit
cost) or market. Construction in progress is reclassified to cable
television distribution systems as each segment of the plant is
activated. Construction in progress includes internal and external
costs incurred in the construction of the cable television distribution
systems. Internal costs include direct labor, transfers from
inventories, and construction overhead costs.
F-8
<PAGE> 14
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
2. Summary of Significant Accounting Policies, continued
Property, Plant and Equipment
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets (9 to 12 years) for cable television
distribution systems and the lesser of useful life or hotel contract
term (generally 5 years) for video systems equipment. Assets recorded
under capital leases are amortized by the straight-line method over the
initial term of the lease and included in depreciation. The composite
method is used for cable television distribution systems. Under the
composite method, proceeds from retirements of cable television
distribution system assets are credited to accumulated depreciation.
Gains or losses on disposition of property, plant and equipment (other
than cable television distribution systems) are credited or charged to
income. Maintenance and repairs are charged to expense as incurred.
Expenditures for major renewals and betterments are capitalized.
Intangible Assets
Intangible assets are amortized over periods ranging from 3 to 10
years, depending on the remaining legal or estimated useful life of the
asset involved. It is Diversified's policy to assess, on an ongoing
basis, the recoverability of recorded intangible assets by considering,
among other things, estimates of undiscounted cash flows from
operations. Diversified also evaluates, on an ongoing basis, the
amortization periods of intangible assets to determine whether those
lives remain appropriate given current events or circumstances.
Deferred Debt Issuance Costs
Debt issuance costs are deferred and amortized over the term of the
related debt using a method that approximates the interest method.
Revenue Recognition
Cable television subscribers are billed in advance for most revenues.
Such billings are deferred until the period in which earned. For all
other services, CCTV and Subsidiaries bills and recognizes revenues in
the period they are earned.
Advertising Expenses
CCTV and Subsidiaries expenses advertising costs as incurred.
Advertising expenses, net of reimbursements, were approximately
$673,000, $914,000 and $1,394,000 for the years ended December 31,
1995, 1996 and 1997, respectively.
F-9
<PAGE> 15
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
2. Summary of Significant Accounting Policies, continued
Income Taxes
Diversified accounts for income taxes using the liability method as
required by the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the
years in which the differences are expected to reverse. Changes in tax
rates are recognized in the year the new legislation is enacted.
Diversified files a consolidated tax return which includes the
operations of PSH, Venture and CCTV and Subsidiaries. A tax-sharing
agreement has been entered into by members of the Diversified
consolidated group which calls for payments to be made to PSD only if
the member (on a separate company basis) and the group (on a
consolidated basis) have a current income tax liability.
Cash and Cash Equivalents
Diversified considers all highly liquid investments with a maturity of
three months or less, when acquired, to be cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject Diversified to
concentrations of credit risk are primarily cash, temporary
investments, and accounts receivable. Excess cash is invested in high
quality short-term liquid money instruments issued by highly-rated
financial institutions.
Though limited to one geographical area, the concentration of credit
risk with respect to CCTV's receivables is minimized due to the large
number of customers, individually small balances, short payment terms
and required deposits.
Fair Value of Financial Instruments
Fair value and carrying amounts for financial instruments may differ
due to instruments which provide fixed interest rates or contain fixed
interest rate elements. Inherently, such instruments are subject to
fluctuations in fair value due to subsequent movements in interest
rates. The carrying amounts of cash, cash equivalents and receivables
approximate fair value due to their short-term nature. The carrying
amount of Diversified's borrowings under its bank debt approximates
fair value.
F-10
<PAGE> 16
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
2. Summary of Significant Accounting Policies, 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 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.
Reclassification
Certain amounts from prior years have been reclassified for comparative
purposes.
3. Management and Consulting Agreements with Related Parties
Venture is a party to a management agreement under which Prime II
Management, L.P. ("PMLP") manages, at no expense to Venture, the day to
day operations of Venture. In addition, PMLP provides management
services to Venture's investee affiliates and is paid management fees
based on the revenues of the cable television systems, generally at a
rate of 5%. In connection with this agreement, Venture receives 20% of
all management fees earned by PMLP under contracts with entities in
which Venture has a direct investment, excluding the CCTV management
agreement. During the years ending December 31, 1995, 1996 and 1997,
Venture earned $904,000, $620,000 and $15,000, respectively, pursuant
to the agreements.
CCTV is a party to management and consulting agreements with PMLP and
Greenspun, Inc. Under the agreements, PMLP and Greenspun, Inc. receive
fees equal to 3% and 1%, respectively, of the consolidated revenues of
CCTV and Hospitality Network, Inc. In addition to the management fees,
PMLP is reimbursed for certain out-of-pocket expenses. Fees incurred
under the agreements were $4,876,000, $5,855,000 and $6,637,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
PMLP and the Greenspuns are shareholders of PSD. PSD's officers are
shareholders of Greenspun, Inc. and Prime II Management, Inc., the
general partner of PMLP.
F-11
<PAGE> 17
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
4. Accounts Receivable
Accounts receivable consisted of the following (thousands of dollars):
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1997
--------- -----------
<S> <C> <C>
Accounts receivable, trade $ 7,694 $ 9,257
Accounts receivable, affiliates 339 149
Accounts receivable, other 741 848
Less allowance for doubtful accounts (1,091) (1,300)
--------- -----------
Accounts receivable, net $ 7,683 $ 8,954
========= ===========
</TABLE>
F-12
<PAGE> 18
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
5. Notes Receivable and Investments in Affiliates
The following equity investments were held at December 31, 1997:
<TABLE>
<CAPTION>
(000's)
-------
December 31, 1997 share
1997 of
Investment book value income (loss)
----------------------------------------------- ------------ ------------
<S> <C> <C>
Venture
-------
Prime Venture I Holdings, L.P.
17% GP interest $1,779 $ 2,338
Prime Cable Growth Partners, L.P.
("Growth Partners")
1% GP interest 257 141
Divested entities 1,103
CCTV and Subsidiaries
---------------------
Telecommunications of Nevada, LLC
("Nextlink Nevada")
35% GP interest 3,482 (2,271)
MultiTechnology Services, L.P. ("MTS")
6.30% Class A interest/ Cable Plus 1,000 (1,122)
Las Vegas News Channel, LLC
("Las Vegas One")
33% interest 50 --
------ -------
$6,568 $ 189
====== =======
</TABLE>
Prime Cable Income Partners, L.P./Prime Cable of Ft. Bend, L.P.
Venture held a 1% general partner interest in Prime Cable Income
Partners, L.P. ("PCIP") and a 1% limited partner interest in Prime Cable
of Fort Bend, L.P. ("Ft. Bend"). PCIP and Fort Bend owned and operated
cable television systems in Houston, Texas and surrounding areas.
On May 8, 1996, Ft. Bend and PCIP sold their cable systems for a combined
sales price of $300,000,000 pursuant to an agreement executed in October
1995. In 1996, Venture received $300,000 from its Ft. Bend interest and
$3,893,367 from its PCIP interest. Additionally, Venture received
$14,361,000 in 1996 through its interests in Growth Partners and PVIH,
both of which held interests in Ft. Bend.
F-13
<PAGE> 19
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
5. Notes Receivable and Investments in Affiliates, continued
In 1997, Venture received residual distributions of $508,115 and
$37,500 from PCIP and Ft. Bend, respectively. Additionally, Venture
received $651,860 combined from PVIH and Growth Partners as a result of
their interests in Ft. Bend.
Prime Cable of Hickory, L.P.
Venture holds a 1.6% general partner interest in Prime Cable of
Hickory, L.P. ("Hickory"). On February 7, 1997, Hickory sold its cable
television systems under an agreement executed in August 1996. On
February 14, 1997, $24.4 million was distributed to Hickory's partners,
of which Venture received related distributions of $353,985 and
$1,150,553, the latter being a distribution from PVIH, which holds a
general partner interest in Hickory. On November 17, 1997, the Hickory
indemnity escrow fund was released. Venture received a total of
$300,547 in related distributions, $229,841 from PVIH.
Nextlink Nevada
On April 20, 1995, CCTV entered into a loan agreement with City Signal
of Las Vegas Limited Partnership ("CSLV"), an unrelated Nevada limited
partnership which provided telephony services in and around Las Vegas,
Nevada. Under the terms of the agreement, CCTV provided a term loan in
the amount of $3,053,000 and revolving loans of $1,317,000 to CSLV (the
"CSLV Notes").
Proceeds from the loans were used by CSLV to pay creditors and make
distributions to its partners, to pay CCTV $858,000 in connection with
an agreement to equalize certain expenditures related to the
construction of a fiber optic network, and for working capital
purposes. Contemporaneously with the loan agreement, CCTV entered into
an option agreement which granted CCTV the option to purchase 100% of
the equity of CSLV.
On April 16, 1996, CCTV formed a wholly-owned subsidiary, Community Tel
("CT"), a Nevada corporation, and subsequently contributed capital to
CT consisting of CCTV's option to purchase 100% of the partnership
interests of CSLV and the CSLV Notes. On April 30, 1996, CT exercised
the CSLV option in accordance with its terms, which called for $100
cash consideration and cancellation of CSLV's obligations under the
CSLV Notes. CSLV was subsequently liquidated.
On April 30, 1996, CT contributed $875,000 for a 35% ownership interest
in Nextlink Nevada. Nextlink Nevada is a Delaware limited liability
corporation formed in April 1996 to provide telecommunications services
in the Las Vegas metropolitan area and in the State of Nevada.
Through December 31, 1997, CT had contributed $7,000,000 to Nextlink
Nevada, the full amount of its capital commitment. CT accounts for this
investment using the equity method.
F-14
<PAGE> 20
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
5. Notes Receivable and Investments in Affiliates, continued
Contemporaneously with the initial capital contribution, CT sold to
Nextlink Nevada all of the assets acquired from CSLV, and Nextlink
Nevada assumed the related liabilities, all in exchange for a
$5,000,000 note receivable. After elimination of the 35% intercompany
portion, CCTV and Subsidiaries recorded a gain of $700,000 on this sale
transaction. The note receivable bears interest at the rate of 17.5%
per annum, and is payable in equal quarterly installments of $266,885,
with any remaining interest and principal due on the April 30, 2006
maturity date. The note is collateralized by substantially all of the
assets of Nextlink Nevada.
Also on April 30, 1996, Nextlink Nevada and CCTV entered into a
transmission capacity agreement whereby Nextlink Nevada may utilize
designated portions of the excess fiber optic capacity in CCTV's fiber
optic network for the provision of certain telecommunications services.
The agreement provides for monthly payments to CCTV of $195,250 (to be
adjusted for use of any expanded fiber capacity), and has an initial
term of ten years, with a renewal option for an additional ten years at
the lower of $104,167 per month (plus expansion adjustments) or market
rates.
MTS
On December 20, 1996, CCTV contributed $3,500,000 for a 6.30% Class A
interest in MTS, a Texas limited partnership which provided local and
long distance telephone, private cable television, energy management
and related services to multi-dwelling units in designated markets.
During 1997, CCTV invested an additional $588,000 in MTS. Due to the
extent of the collective holdings owned by CCTV and its affiliates,
CCTV's investment in MTS was accounted for using the equity method.
On December 8, 1997, through a series of transactions, Cable Plus
Holding Company ("Cable Plus") acquired all of the MTS partnership
interest, issuing Cable Plus stock and warrants as consideration for
the acquisition. As a result, CCTV currently owns less than 1% of the
Cable Plus common stock and accounts for this investment using the cost
method.
Through December 8, 1997, CCTV recognized losses totaling $1,122,000
from the results of MTS operations. In December 1997, CCTV's net
investment in Cable Plus was written down from $2,967,000 to
$1,000,000, based on management's estimate of the approximate fair
value of the investment.
F-15
<PAGE> 21
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
5. Notes Receivable and Investments in Affiliates, continued
Las Vegas One
CCTV has committed to invest approximately $2,600,000 over a five-year
period in Las Vegas One, a Delaware limited liability corporation
formed in December 1997 for the purpose of operating a 24-hour local
news cable TV channel in the greater Las Vegas, Nevada metropolitan
area. CCTV will have a one-third ownership interest in Las Vegas One,
and an affiliate of CCTV will own a one-third interest. CCTV made a
capital contribution of $50,000 in 1997 and an additional $200,000
contribution in February 1998. CCTV accounts for its investment in Las
Vegas One under the equity method.
6. Property, Plant and Equipment
Property, plant and equipment, at cost, consisted of the following
(thousands of dollars):
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Cable television and video distribution
systems $ 295,067 $ 351,263
Transportation equipment 3,984 5,024
Furniture and equipment 9,224 9,979
Land and buildings 49 49
Property under capital leases 5,339 5,810
--------- ---------
313,663 372,125
Less accumulated depreciation (151,698) (180,314)
--------- ---------
Property, plant and equipment, net $ 161,965 $ 191,811
========= =========
</TABLE>
7. Intangible Assets
On March 28, 1996, CCTV acquired the cable television distribution
system assets and the rights to serve related subscribers from the
owner and operator of certain private cable television systems in
apartment complexes located in the Las Vegas metropolitan area. The
acquisition was accounted for as a purchase transaction, with
$1,942,000 of the total $5,777,000 acquisition cost allocated to
property, plant and equipment based upon current value. The allocation
resulted in an excess of cost over net assets acquired of $3,835,000.
F-16
<PAGE> 22
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
8. Long-Term Debt
Long-term debt consisted of the following (thousands of dollars):
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Revolving bank loan agreement $321,000 $372,000
Subordinated loan agreement 250,000 250,000
-------- --------
$571,000 $622,000
======== ========
</TABLE>
Bank Loan Agreement
CCTV consummated a bank loan agreement (the "1994 Loan Agreement")
using the proceeds to pay off the entire amount outstanding under
existing CCTV and Hospitality bank loan agreements. On June 6, 1996,
CCTV and Subsidiaries entered into an amendment to the 1994 Loan
Agreement (see Note 12). CCTV and Subsidiaries has $405,000,000
($33,000,000 remaining available) under the amended loan agreement,
with borrowings bearing interest at the bank's prime rate plus 0.625%.
At CCTV and Subsidiaries' option, all or a specified portion of the
indebtedness may be fixed for periods ranging from one month to one
year based on Eurodollar rates (adjusted for reserve requirements) plus
1.625% under the amended loan agreement. The interest rates are subject
to reduction of up to .625% per annum for prime rate advances and up to
0.875% per annum for Eurodollar advances if certain financial tests are
met. Based on the results of financial tests at December 31, 1997, the
interest rates were reduced by .25%. At December 31, 1997, the rates of
interest, including adjustments, on all outstanding advances under the
loan agreement were fixed under short-term (up to three months)
Eurodollar contracts ranging from 7.2% to 7.4%.
CCTV and Subsidiaries is required to pay a commitment fee equal to
.375% per annum on the unused portion of the loan commitment. Interest
and fees are payable quarterly.
Beginning June 30, 1999, the loan commitment is reduced at the end of
each calendar quarter as follows:
<TABLE>
<CAPTION>
Quarterly Reduction of
Revolving Loan Commitment
-------------------------
<S> <C>
1999 $ 6,750,000
2000 $10,125,000
2001 $10,125,000
2002 $15,187,500
2003 $20,250,000
2004 $20,250,000
2005 $40,500,000
</TABLE>
The loan facility matures June 30, 2005.
F-17
<PAGE> 23
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
8. Long-Term Debt, continued
While CCTV and Subsidiaries may elect to reduce amounts due and
available under the loan agreement through prepayments of not less than
$5,000,000, commencing on May 1, 1999, a mandatory prepayment is
required each May if, for the prior year ended December 31, CCTV and
Subsidiaries' Operating Cash Flow (defined as net income before
extraordinary items and gains and losses on asset sales, plus interest
expense, bank fees, income taxes, depreciation, amortization, and other
non-cash expenses) exceeds payments made for management and consulting
fees, capital expenditures, capital lease obligations, required debt
service, taxes, permitted shareholder distributions and permitted
investments. CCTV and Subsidiaries is required to make a prepayment in
the amount of 50% of such excess. Additionally, a mandatory prepayment
may be required in the event of asset sales (other than dispositions of
obsolete inventory and equipment in the ordinary course of business) or
private or public debt or equity offerings.
All such prepayments permanently reduce the amounts due and available
under the loan agreement. The loan agreement is collateralized by all
CCTV and Subsidiaries' assets, guarantees from all of CCTV's
subsidiaries, the capital stock of CCTV, and a pledge of all rights by
PMLP and Greenspun, Inc. under their management and consulting
agreements. In addition, numerous requirements and restrictions are
imposed, including limitations on indebtedness, payments, purchases and
capital expenditures. In addition, certain financial ratios must be
maintained.
In connection with the June 1996 amendment to the loan agreement, CCTV
paid $1,333,000 in bank and legal fees which are being amortized to
interest expense over the term of the agreement.
CCTV has entered into an interest rate protection arrangement whereby a
notional amount of $175,000,000 is capped at a rate of 8% for a two
year period ending June 23, 1999. Related transaction fees totaling
$121,000 are being amortized to interest expense over the term of the
agreement.
Subordinated Loan Agreement
Diversified consummated a $250,000,000 term credit agreement (the "Bell
South Loan") with Bell South Enterprises, Inc. ("Bell South") available
in one or more advances during the three years ending January 14, 1997.
Proceeds from the $250,000,000 advanced were used to acquire CCTV stock
for $25,000,000 with the remaining $225,000,000 used to redeem Class I
and II preferred stock.
F-18
<PAGE> 24
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
8. Long-Term Debt, continued
Borrowings bear interest at 10% per annum payable semi-annually on June
30 and December 31, subject to increase after December 31, 1995 to 11%
based upon Diversified's ratio of total debt to annualized operating
cash flow. Interest in excess of 10% will generally be deferred and
payable at maturity, with such deferred interest treated as principal
for purposes of calculating total debt and in determining the amounts
available for borrowing.
Upon full payment of the Bell South Loan or upon exercise of the
Subsequent Option (hereinafter defined), Diversified will pay Bell
South "Contingent Interest" equal to 15% of the CCTV Value (defined as
fair market value of CCTV less $250,000,000 and less any deferred
interest outstanding under the Bell South Loan agreement). Contingent
Interest is accrued ratably over the period from the merger date to
January 2000 based on an estimate of the CCTV Value at each year end.
Included in the accrued interest liability at December 31, 1997 and
interest expense for 1997, 1996 and 1995 is Contingent Interest expense
of $1,328,000, $10,398,000 and $10,176,000, respectively. Diversified
must also pay Contingent Interest equal to 15% of any dividends or
distributions received from CCTV, except for such amounts received
related to the redemption of PSD's preferred stock or Class C common
stock. No such payments were required in 1997, 1996 or 1995.
Concurrent with consummation of the Bell South Loan agreement, PSD's
stockholders granted Bell South options to acquire all PSD common and
Class I preferred stock in two phases. The Initial Option (first phase)
was not exercised by Bell South.
Under the Subsequent Option (second phase), which may be exercised in
January 2000 or January 2001, Bell South can acquire all shares of
PSD's outstanding common stock (with the exception that certain shares
may be excluded at the option of a specified shareholder). The exercise
price of the Subsequent Option is equal to the CCTV Value reduced by
the amount of outstanding Contingent Interest, prorated based on the
number of shares being purchased. Prior to 1996, Class I preferred
stock was outstanding and included as a component of the Subsequent
Option calculation. As noted above, this stock has been redeemed and is
no longer included as such.
The option agreement terminates at the earlier to occur of (a) January
14, 2001; (b) in the event the Bell South Loan is accelerated due to a
default in connection with management changes, the date of such event
of default; (c) after the fourth anniversary of the option agreement,
on the date that all obligations under the Bell South Loan are
satisfied and Bell South does not make an offer to purchase more than
50% of outstanding PSD common stock; or (d) upon a foreclosure sale of
the Bell South Loan collateral.
F-19
<PAGE> 25
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
8. Long-Term Debt, continued
The Bell South Loan matures on the later of January 14, 2001 or six
months after the closing or expiration of the Subsequent Option.
However, maturity of the loan will be accelerated in the event of the
sale of 50% or more of PSD's common stock, or the sale of all of the
outstanding stock of PSH, or the sale of substantially all of PSD's
assets or of CCTV, in which event, maturity will be at the closing date
of such a sale.
The Bell South Loan is subordinate in all respects to amounts
outstanding under the CCTV Bank Loan Agreement and is collateralized by
a pledge of all PSD and PSH common stock. In addition, it subjects
Diversified to numerous requirements and restrictions, including
limitations on indebtedness, asset sales, payments, and purchases. In
addition, certain financial ratios must be maintained.
Commencing on the third anniversary of the Bell South Loan, the loan
may be prepaid in full, but not in part, with prepayment penalties
ranging from 6% during the fourth year of the loan to 1.5% in the
seventh year.
Diversified paid bank and legal fees during 1994 of approximately
$1,258,000 which are being amortized to interest expense over the life
of the agreement.
9. Preferred Stock and Common Stock
In January and May 1996, 58,220 shares of Class I preferred stock
(representing the remaining outstanding shares) were redeemed for
$58,220,000.
The Class II preferred stock is non-voting, and accrues dividends
cumulatively at 8% per annum, whether or not declared and whether or
not there are profits, surplus, or other funds available. Such
dividends cannot be paid until all Class I preferred stock is redeemed
(which occurred in 1996). Upon redemption or conversion of all Class I
preferred stock, the Class II preferred stock is subject to ratable
mandatory redemption at $1,587 per share plus accrued, unpaid
dividends. Accrued and unpaid dividends were approximately $5,464,000,
$3,451,00 and $3,332,000 as of December 31, 1995, 1996 and 1997,
respectively. Upon Bell South's exercise of the Subsequent Option,
Class II preferred stock automatically converts at its redemption price
into Class A common stock, or at the election of the holder, Class B
common stock. The conversion price of the common stock is based on the
CCTV Value. The holders of Class II preferred stock have a liquidation
preference over holders of common stock.
In May and September 1996, a total of 12,456 shares of Class II
preferred stock were redeemed for $24,000,000. On November 25, 1997,
2,570 shares of Class II preferred stock were redeemed for $5,500,000.
To fund these and the above-mentioned Class I redemptions, $64,000,000
was advanced under the Bell South Loan with the remainder funded from
investee distributions.
F-20
<PAGE> 26
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
9. Preferred Stock and Common Stock, continued
The Class A common stock is voting, participates in dividends only
after the full redemption or conversion of both classes of preferred
stock, and is convertible at any time into the same number of shares of
Class B common stock.
The Class B common stock is non-voting and participates in dividends
only after the full redemption or conversion of both classes of
preferred stock. In the event of a public offering or public sale of
Class A common stock or a sale under the Bell South option, Class B
common stock is convertible, at the holder's option, one for one, into
Class A common stock.
The Class C common stock is non-voting, and is entitled to dividends
equal to proceeds received by Diversified from limited partnership
investments acquired with funds designated for redemption of Class I
preferred stock made available by the designation of shares as excluded
shares. The holders of Class C common stock have a liquidation
preference over holders of all other classes of common stock for such
unpaid dividends.
10. Income Taxes
Significant components of deferred tax assets and liabilities are as
follows (thousands of dollars):
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997
--------- --------
<S> <C> <C>
Deferred tax assets:
Interest expense for books
not deducted for tax $ 8,130 $ 8,595
Tax basis of investments in partnerships in
excess of book basis 3,699 1,204
Loss and credit carryforwards 25,157 32,673
Other 1,524 2,542
--------- -------
Total deferred tax assets 38,510 45,014
Valuation allowance (29,177) 36,581)
--------- -------
Net deferred tax assets 9,333 8,433
Deferred tax liabilities:
Book basis in property, plant & equipment
& intangibles in excess of tax basis (9,333) (8,215)
Other (218)
--------- -------
Total deferred tax liabilities (9,333) (8,433)
--------- -------
Net deferred tax liability $ -0- $ -0-
========= =======
</TABLE>
F-21
<PAGE> 27
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
10. Income Taxes, continued
At December 31, 1997 Diversified has tax net operating loss
carryforwards of $89,240,000, investment tax credit carryforwards of
$621,000 and alternative minimum tax credit carryforwards of $796,000.
The net operating loss carryforwards and investment tax credit
carryforwards will expire beginning in 2001 and 1998, respectively. The
alternative minimum tax credits do not expire. Approximately
$42,829,000 of the net operating loss and all of the investment tax
credit carryforwards resulted from losses of CCTV and Venture prior to
their acquisition by PSD and utilization of the carryforwards is
subject to the separate return limitations and ownership change
limitations.
A valuation allowance has been recognized to offset a portion of the
deferred tax assets related to these carryforwards. When realized, the
tax benefits associated with CCTV's and Venture's pre-acquisition
activity will be applied to reduce goodwill and other non-current
intangibles related to the acquisitions of CCTV and Venture and then
income tax expense.
The valuation allowance increased by $7,404,000 during 1997 as a result
of operating losses incurred, the benefits of which may not be
realizable.
The significant components of income tax benefit (provision) are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1995 1996 1997
------- ------- ------
<S> <C> <C> <C>
Current state $ 578 $ (68) $ (276)
Current federal - (282) 79
Deferred state - - -
Deferred federal 872 - -
------- ------ ------
Total $ 1,450 $ (350) $ (197)
======= ====== ======
</TABLE>
The Company's provision for income taxes differs from the expected
provision (benefit) amount computed by applying the statutory federal
income tax rate of 34% to income (loss) before income taxes and
minority interest for 1995, 1996 and 1997 as a result of the following
(in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Benefit computed at statutory rate 35% 35% 35%
State income taxes, net of federal affect 1.1 (0.5) (0.8)
Future benefits not currently recognized (33.4) (36.9) (34.8)
----- ----- -----
Total benefit (provision) 2.7% (2.4)% (0.6)%
===== ===== =====
</TABLE>
F-22
<PAGE> 28
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
11. Commitments and Contingencies
Obligation to Service PSD Debt
Advances under the Bell South Loan are subordinate in all respects to
amounts outstanding under CCTV's bank loan agreement and are
collaterized by a pledge of all PSD and PSH stock.
Upon the occurrence of an Event of Default, as defined in the Bell
South Loan agreement, the holder of the note issued in connection with
the agreement (the "Bell South Noteholder") may declare the loan
immediately due and payable and may purchase from the banks the entire
amount of their interest in CCTV's bank loan agreement. If the
accelerated amounts due are not paid in full, including the amounts due
under the bank loan agreement, and if such amounts have been
accelerated under the terms of that agreement, the Bell South
Noteholder may exercise its rights under the security agreements,
including voting the stock of PSD and PSH, assuming operational control
of PSD, CCTV and their 100% owned subsidiaries, and selling all or part
of the stock of PSD or PSH with the proceeds to be applied to the
outstanding loans and to expenses incurred in connection with the
acceleration and sale, with any excess payable to the shareholders in
proportion to their interests in the assets sold. Dividends of
$17,809,000, $32,418,000 and $24,999,000 were paid by CCTV in 1995,
1996 and 1997, respectively, to provide PSD with funds to service the
loan.
F-23
<PAGE> 29
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
11. Commitments and Contingencies, continued
Lease Arrangements
CCTV, as an integral part of its operations, has entered into
short-term operating lease contracts for pole and conduit use, office
facilities and equipment. Future annual minimum aggregate rentals under
such operating leases approximate $1,243,000 at December 31, 1997. Rent
expense for the years ended December 31, 1995, 1996 and 1997 was
$1,411,000, $1,400,000 and $1,411,000, respectively.
In November 1992 and September 1996, CCTV entered into two separate ten
year non-cancelable capital leases with a related party. At December
31, 1997, approximate future minimum lease payments under the
capitalized lease obligations were as follows:
<TABLE>
<S> <C>
1998 $ 713,000
1999 713,000
2000 713,000
2001 711,000
2002 642,000
Later years 2,929,000
-----------
Net minimum lease payment 6,421,000
Less amount representing interest (4,028,000)
-----------
Present value of net minimum lease payments 2,393,000
Guaranteed residual value 2,200,000
===========
Present value of capitalized lease obligations $ 4,593,000
===========
</TABLE>
Contingent Payment Upon Sale
In connection with the June 1986 purchase transactions, the Greenspuns
agreed to pay or cause CCTV to pay to Times Mirror Company $2,500,000
at such time as the Greenspuns sold more than 50% of CCTV's common
stock they held immediately after the June 27, 1986 stock transactions,
or if all or substantially all of the assets of CCTV were sold.
Certificates of Obligation
In May 1988, CCTV issued Certificates of Obligation to holders of
CCTV's debt securities as additional consideration to consent to the
investment in Hospitality Network of Las Vegas (the "Joint Venture").
The Joint Venture merged into Hospitality Network, Ltd. in 1991. The
Certificates provide for the Certificate holders to receive,
collectively, participation interests equal to 10% of the excess
distributions and proceeds from the Joint Venture after CCTV has
recovered its capital investment. In connection with the retirement of
senior secured notes and senior subordinated debentures, CCTV acquired
57.14% of the issued Certificates of Obligation.
F-24
<PAGE> 30
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
11. Commitments and Contingencies, continued
Employee Benefit Plans
CCTV participates with other affiliated entities in a defined
contribution pension plan sponsored by PMLP covering substantially all
full-time employees who have completed one year of service. In 1992,
Hospitality Network, Ltd. established a defined contribution plan for
its employees over the age of 21 with one year of service. Both plans
are subject to the provisions of Internal Revenue Code, Section 401(k).
Contributions under the plans are determined as a percent of
participating employee contributions and are at the discretion of the
plans' sponsors. Matching contributions totaled $217,000, $149,000 and
$83,000 for fiscal years 1997, 1996 and 1995, respectively.
Litigation
A class action complaint has been served against CCTV alleging improper
late fee charges. Should a decision be rendered in favor of the
plaintiff, this litigation could have a material adverse effect on
CCTV's financial position and results of operations. Management
believes that CCTV's late fee charges are fair and reasonable based on
actual costs incurred, and that the amount of any potential damages
resulting from a subsequent trial or settlement is currently not
determinable, therefore, no provision for liability has been made in
the financial statements.
Diversified is involved in various lawsuits and legal proceedings which
have arisen in the normal course of business. While the ultimate
results of these matters cannot be predicted with certainty, management
does not expect them to have a material adverse effect on the
consolidated financial position of Diversified.
Franchise Fee Audit
In connection with an audit by Clark County on behalf of the various
franchising authorities for the period January 1994 through December
1996, the county has disputed certain aspects of the methodology used
by CCTV in the calculation of franchise fees which could result in the
assessment of additional fees, penalties and interest totaling
approximately $1,000,000. CCTV will appeal the audit findings, and
management believes it has adequately reserved for potential losses.
Cable Service Rate Regulation
Beginning in April 1993, the Federal Communications Commission ("FCC")
adopted regulations implementing the Cable Television Consumer
Protection and Competition Act of 1992. Included are rules governing
rates charged by cable operators for the basic service tier, the
installation, lease and maintenance of equipment (such as converter
boxes and remote control units) used by subscribers to receive this
tier and for cable programming services other than programming offered
on a per-channel or per-program basis (the "regulated services").
F-25
<PAGE> 31
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
11. Commitments and Contingencies, continued
Generally, the regulations require affected cable systems to charge
rates for regulated services that have been reduced to prescribed
benchmark levels, or alternatively, to support rates using
costs-of-service methodology. The FCC regulates CCTV's cable
programming service ("CPS") rates and the local franchising authorities
regulate CCTV's basic service rates.
In February 1995, the FCC notified CCTV that a valid complaint had been
filed in 1993 and requested filings supporting CPS rates implemented in
September 1993 and CPS rates in effect on May 15, 1994. During 1996,
the FCC approved CCTV's CPS rates.
Current basic service and equipment rates have been approved by the
local franchising authorities. CCTV has filed documents with the
franchising authorities to support a basic service rate increase
effective March 1, 1998. A filing with the FCC will only be required if
the franchising authorities, upon receipt of customer complaints,
request the FCC to review CPS rates.
In February 1996, the Telecommunications Competition and Deregulation
Act of 1996, which impacts the cable industry, was signed into federal
law. Most notably, the bill allows cable system operations to provide
telephony services, allows telephone companies to offer video services,
and provides for deregulation of CPS rates during 1999. Management of
Diversified believes the bill will not have a significant adverse
impact on its consolidated financial position or consolidated results
of operations.
Year 2000 Issue - (Unaudited)
Diversified has developed a plan to modify its information technology
to be ready for the year 2000 and has begun converting critical data
processing systems. Diversified anticipates there will be no
significant additional costs associated with these conversions and
expects to complete this project by early 1999 with no significant
effect on operations.
12. Subsequent Events
Bank Loan Agreement
On March 27, 1998, CCTV and Subsidiaries amended the June 6, 1996 loan
agreement (Note 8). This new arrangement contains the following
significant changes from the prior agreement: a total commitment of
$525 million (vs. $405 million), a maturity date of September 30, 2006
(vs. June 30, 2005) and mandatory prepayments of excess cash flows
begin May 1, 2001 (vs. May 1, 1999). There were no other significant
amendments as a result of this re-financing.
F-26
<PAGE> 32
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
12. Subsequent Events, continued
Nextlink Nevada
On January 29, 1998, CCTV entered into a Loan and Security Agreement
with Nextlink Nevada. Under terms of the agreement, CCTV is obligated
to loan Nextlink Nevada up to $10,000,000. Interest accrues at the rate
of 12% per annum and is payable quarterly with any remaining interest
and principal due on the December 29, 2000 maturity date. CCTV funded
$1,250,000 of this commitment on January 30, 1998.
Sale of PSD Stock
On May 4, 1998, an agreement was reached under which Cox
Communications, Inc. ("Cox") will purchase PSD's outstanding stock for
$1.325 billion reduced by the amount of outstanding debt and other
liabilities totaling approximately $780,000. This transaction closed on
October 1, 1998. However, the transfer of certain assets is subject to
regulatory approval, which approval is expected in the fourth quarter
of 1998.
F-27
<PAGE> 33
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
(thousands of dollars)
<TABLE>
<CAPTION>
June 30,
1998
---------
ASSETS
<S> <C>
Cash and cash equivalents $ 9,030
Accounts receivable, net 8,600
Notes receivable 8,756
Prepaid expenses 470
Investments in affiliates 3,716
Investment in marketable equity securities 1,781
Construction in progress and inventories 9,735
Property, plant and equipment, net 208,372
Intangible assets, net 69,159
Deferred debt issuance costs, net 1,549
Other assets 837
---------
Total assets $ 322,005
=========
LIABILITIES AND DEFICIENCY IN ASSETS
Accounts payable and accrued expenses $ 20,123
Accrued interest 5,855
Subscriber deposits and unearned income 8,022
Long-term debt 646,000
Contingent interest payable 93,030
Capitalized lease obligation 5,611
---------
Total liabilities 778,641
Commitments and contingencies
Minority interest in equity of consolidated subsidiary 2,100
Class II 8% cumulative, convertible preferred stock, $.01 par value,
20,875 shares authorized and issued; 5,849 shares outstanding
at June 30, 1998 13,098
Deficiency in assets:
Common stock, $.01 par value, 100,000 shares of Class A convertible
and 10,000 shares each of non-voting Class B convertible and
Class C authorized; 48,256.1322 shares of Class A and
1,743.8678 shares of Class B issued and outstanding at
June 30, 1998 1
Accumulated deficit (471,267)
Net unrealized holding loss on marketable equity securities (568)
---------
Total deficiency in assets (471,834)
---------
Total liabilities and deficiency in assets $ 322,005
=========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-28
<PAGE> 34
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 1997 and 1998
(thousands of dollars)
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Revenues $ 78,717 $ 90,797
Operating expenses:
Cable television and video system expenses 40,428 46,593
Management fees and other administrative expenses 3,536 3,701
Depreciation and amortization 24,132 26,183
-------- --------
Income from operations 10,621 14,320
Interest expense (24,725) (94,658)
Interest income 731 823
Gain (loss) on disposal of assets 10 (235)
-------- --------
Loss before equity in income (loss) of affiliates, income tax
benefit (expense), extraordinary loss and minority interest (13,363) (79,750)
Equity in income (loss) of affiliates 1,797 (1,028)
Income tax benefit (expense) (75) 110
-------- --------
Loss before extraordinary loss and minority interest (11,641) (80,668)
Extraordinary loss on early extinguishment of debt -- (3,906)
Minority interest in consolidated subsidiary (2,110) 1,422
======== ========
Net loss $(13,751) $(83,152)
======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-29
<PAGE> 35
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 1997 and 1998
(thousands of dollars)
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,751) $(83,152)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 24,132 26,183
Contingent interest -- 68,474
Amortization of deferred debt issuance costs 559 304
(Gain) loss on disposal of assets (10) 235
Equity in (income) loss of affiliates, net (1,797) 1,028
Extraordinary loss on early extinguishment of debt -- 3,906
Minority interest in consolidated subsidiary 2,110 (1,422)
-------- --------
11,243 15,556
Net (increase) decrease in accounts receivable,
prepaid expenses and other assets (659) 258
Net increase in accounts payable, accrued expenses,
income taxes payable, subscriber deposits and
unearned income and deferred compensation liability 304 626
-------- --------
Net cash provided by operating activities 10,888 16,440
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distribution from Prime Cable Income Partners, L.P. 509 --
Distribution from Prime Cable of Fort Bend, L.P. 38 --
Distribution from Prime Cable Growth Partners, L.P. 119 --
Distribution from Prime Cable of Hickory, L.P. 354 --
Distribution from Prime Venture I Holdings, L.P. 1,684 --
Increase in intangible assets (1) --
Purchase of property, plant and equipment;
construction in progress and inventories (31,102) (32,590)
Investment in Nextlink Nevada (3,327) --
Investment in MultiTechnology Services, L.P. (440) --
Investment in Las Vegas One -- (527)
Issuance of note receivable -- (4,250)
Collection of notes receivable 115 134
Increase in intangible assets -- (6)
Proceeds from disposal of assets 133 30
-------- --------
Net cash used in investing activities (31,918) (37,209)
-------- --------
</TABLE>
The accompanying notes are an integral
part of the financial statements
F-30
<PAGE> 36
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended June 30, 1997 and 1998
(thousands of dollars)
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 27,000 403,500
Repayment of bank debt (1,000) (379,500)
Repayment of capitalized lease obligation (148) (190)
Deferred debt issuance costs (121) (1,213)
Dividend to minority shareholder of
consolidated subsidiary 0 (1,147)
-------- ---------
Net cash provided by financing activities 25,731 21,450
CASH AND CASH EQUIVALENTS:
Increase during the year 4,701 681
Beginning balance 7,294 8,349
-------- ---------
Ending balance $ 11,995 $ 9,030
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest paid $ 23,251 $ 25,906
======== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligation incurred $ 350 $ 1,208
======== =========
Marketable securities distributed
from investees $ 2,349
=========
</TABLE>
The accompanying notes are an integral
part of the financial statements
F-31
<PAGE> 37
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Please refer to the notes attached to the December 31, 1997 audited financial
statements for additional disclosures that are an integral part of the financial
information presented in the preceding financial statements. As of June 30,
1998, there have been no significant changes to those notes, except for the
following:
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 1998 may
not be indicative of the results for the year ended December 31, 1998.
2. Recently Issued Pronouncements
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net income or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which
prior to adoption were reported separately in shareholders' equity, to
be included in other comprehensive income.
Total comprehensive loss for the six months ended June 30, 1997 and
1998 amounted to approximately $0 and $83,720,000, respectively.
3. Sale of PSD Stock
On May 4, 1998, an agreement was reached under which Cox
Communications, Inc. ("Cox") will purchase PSD's outstanding stock for
$1.325 billion reduced by the amount of outstanding debt and other
liabilities totaling approximately $780 million. Closing of the
transaction, which is subject to government and regulatory approvals,
is expected to occur in the fourth quarter of 1998.
F-32
<PAGE> 38
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
-------------------------------
4. Bank Debt
On March 27, 1998, CCTV and Subsidiaries consummated a new bank loan
agreement (the "1998 Loan Agreement") using the proceeds to pay off the
entire amount outstanding under the previous bank loan agreement. Under
the new agreement, CCTV and Subsidiaries has $275,000,000 available
under a revolving loan commitment and $250,000,000 available under a
term loan commitment. Borrowings under the 1998 Loan Agreement bear
interest at the bank's prime rate plus an applicable margin, or at CCTV
and Subsidiaries' option, all or a specified portion of the
indebtedness may be fixed for periods ranging from one month to one
year based on Eurodollar rates (adjusted for reserve requirements) plus
an applicable margin. The maximum applicable margin under both the
revolving and term loan commitments is 0.5% for prime rate advances and
1.5% for Eurodollar advances, subject to reduction based on quarterly
financial results of CCTV and Subsidiaries. Based upon the financial
results for the three months ended June 30, 1998, the applicable
margins were reduced to zero for prime rate advances and .875% for
Eurodollar advances. CCTV and Subsidiaries is required to pay a
commitment fee of up to .375% per annum (dependent on quarterly
financial results) on the unused portion of the revolving loan
commitment. Interest and fees are payable quarterly.
Beginning March 31, 2001, the term and revolving loan commitments are
reduced at the end of each calendar quarter as follows:
<TABLE>
<CAPTION>
Quarterly Payment Amount Quarterly Reduction of
Under the Term Loan Revolving Loan Commitment
------------------- -------------------------
<S> <C> <C>
2001 $ 6,250,000 $ 6,875,000
2002 $ 6,250,000 $ 6,875,000
2003 $ 9,375,000 $10,312,500
2004 $ 9,375,000 $10,312,500
2005 $14,062,500 $15,468,750
2006 $22,916,667 $25,208,333
</TABLE>
F-33
<PAGE> 39
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
-----------------------------------
4. Bank Debt, continued
While CCTV and Subsidiaries may elect to reduce amounts due and
available under the 1998 Loan Agreement through prepayments of not less
than $5,000,000, beginning in 2001 a mandatory prepayment is required
each May, if, for the prior year ended December 31, CCTV and
Subsidiaries' Operating Cash Flow (defined as net income before
extraordinary items and gains and losses on asset sales, plus interest
expense, bank fees, income taxes, depreciation, amortization and other
non-cash expenses) exceeds payments made for management and consulting
fees, capital expenditures, capital lease obligations, required debt
service, taxes, permitted shareholder distributions and permitted
investments.
CCTV and Subsidiaries is required to make a prepayment in the amount of
50% of such excess. Additionally, a mandatory prepayment may be
required in the event of asset sales (other than dispositions of
obsolete inventory and equipment in the ordinary course of business) or
private or public debt or equity offerings. All such prepayments
permanently reduce pro-rata, the amounts due and available under the
revolving and term loans.
The 1998 Loan Agreement is collateralized by all of CCTV and
Subsidiaries' assets, guarantees from all of the CCTV subsidiaries, the
capital stock of CCTV, and a pledge of all rights by PMLP and
Greenspun, Inc. under their management and consulting agreements. In
addition, the 1998 Loan Agreement imposes numerous requirements and
restrictions, including limitations on indebtedness, payments,
purchases and capital expenditures. In addition, certain financial
ratios must be maintained.
In connection with the initial funding under the 1998 Loan Agreement,
CCTV paid bank fees of approximately $1,064,000 which will be amortized
to interest expense over the life of the agreement. Concurrently,
unamortized deferred debt issuance costs totaling $3,906,000 relating
to the previous bank loan agreement were written off, resulting in a
loss from the early extinguishment of debt.
F-34
<PAGE> 40
PRIME SOUTH DIVERSIFIED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
-----------------------------------
5. Shareholder Distributions
In February 1998, Prime Venture I, Inc. ("PVI") received a total of
293,702 shares of General Communication, Inc. ("GCI") Class A common
stock as distributions from Prime Cable Growth Partners, L.P. and Prime
Venture I Holdings, L.P. In July 1998, 256,327 of these shares were
distributed to the PVI Class C shareholder with the remaining 37,375
GCI shares distributed to the PSD Class II Preferred shareholders. In
the latter case, the fair market value of the distributed shares
reduced the overall liquidation value of the Class II Preferred stock
by $205,563.
F-35
<PAGE> 41
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet has been
prepared based upon the historical consolidated balance sheets for Cox
Communications, Inc. ("Cox") and Prime South Diversified, Inc. and Subsidiaries
("PSDI") as of June 30, 1998, and give effect to the acquisition of the cable
television system located in Las Vegas, Nevada, and certain related businesses
owned by PSDI (the "Las Vegas Acquisition") assuming such events had occurred on
that date. Cox has not yet received an appraisal of the assets and properties of
PSDI. The pro forma information presented may be adjusted once complete
information of the fair value of PSDI assets and liabilities is developed. This
statement should be read in conjunction with the historical financial statements
of Cox and PSDI including the notes thereto and the notes to this unaudited pro
forma combined condensed balance sheet.
<TABLE>
<CAPTION>
JUNE 30, 1998 ADJUSTMENTS
------------------------------- --------------------------------
COX PSDI DEBIT CREDIT PRO FORMA
-------------- ------------ -------------- -------------- --------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 20,648 $ 9,030 $ $ $ 29,678
Accounts and notes receivable, less allowance
for doubtful accounts 138,311 17,356 155,667
Net plant and equipment 2,117,980 218,107 18,893 (7) 2,354,980
Investments 2,037,857 5,497 2,043,354
Intangible assets 2,620,866 69,159 1,101,500 (10) 69,159 (4)
385,525 (11) 33,064 (11) 4,074,827
Other assets 87,166 2,856 1,549 (2) 88,473
Purchase price to be allocated 229,856 (1) 5,855 (3)
1,549 (2) 18,893 (7)
527,327 (4) 2,100 (9)
5,000 (5) 1,101,500 (10)
358,003 (6)
6,613 (8) -
------------- ------------ ----------- ----------- -------------
Total assets $ 7,022,828 $ 322,005 $ 2,634,266 $ 1,232,120 $ 8,746,979
============= ============ =========== =========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable & accrued expenses $ 255,918 $ 25,978 $ 5,855 (3) $ 5,000 (5) $
33,064 (11) 247,977
Deferred income 27,377 8,022 35,399
Deferred income taxes 941,247 6,613 (8)
385,525 (11) 1,333,385
Other liabilities 73,359 73,359
Contingent interest payable 93,030 94,469 (1) 1,439 (1) -
Debt 3,071,280 651,611 29,163 (1)
293,723 (1) 4,045,777
Amounts due to Cox Enterprises, Inc. (
"CEI") 49,689 49,689
------------- ------------ ----------- ----------- -------------
Total liabilities 4,418,870 778,641 133,388 721,463 5,785,586
------------- ------------ ----------- ----------- -------------
Minority interest in equity of consolidated
subsidiary - 2,100 2,100 (9) -
SHAREHOLDERS' EQUITY
Preferred Stock - - 2,418 (6) 2,418
Class A Common Stock 257,562 - 5,668 (6) 263,230
Class C Common Stock 13,799 - 13,799
PSDI Class A convertible Common Stock - 1 1 (4) -
Additional paid-in capital 1,796,291 - 349,917 (6) 2,146,208
Retained earnings (accumulated deficit) (34,560) (458,169) 458,169 (4) (34,560)
Foreign currency translation adjustment 15,332 - 15,332
Net unrealized gain on securities 555,534 (568) 554,966
------------- ------------ ----------- ----------- -------------
Total shareholders' equity 2,603,958 (458,736) 1 816,172 2,961,393
------------- ------------ ----------- ----------- -------------
Total liabilities and
shareholders' equity $ 7,022,828 $ 322,005 $ 135,489 $ 1,537,635 $ 8,746,979
============= ============ =========== =========== =============
</TABLE>
P-1
<PAGE> 42
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(Thousands of Dollars)
The following adjustments are presented to reflect the effects of recording the
Las Vegas Acquisition and applying purchase accounting to the accounts of PSDI.
A summary of the basis for these adjustments is as follows:
<TABLE>
PURCHASE PRICE PLUS NET LIABILITIES ASSUMED:
<S> <C>
Assumption of PSDI debt $ 680,774
Cash to be paid (see Note (1) below) 293,723
Issuance of Cox's Series A Convertible Preferred
Stock (see Note (6) below) 107,065
Issuance of Cox's Class A Common Stock (see Note (6)
below) 250,938
-------------
Total purchase price 1,332,500
-------------
ALLOCATION OF PURCHASE PRICE TO TANGIBLE ASSETS:
Estimated fair value of plant and equipment 237,000
Deferred taxes related to plant and equipment
write-up (6,613)
Net working capital deficit and other
assets/liabilities of PSDI assumed or acquired 613
-------------
231,000
-------------
Excess of purchase price over tangible assets $ 1,101,500
=============
</TABLE>
- ---------------
(1) To record net borrowings of $1.4 million of incremental Bell South
contingent interest, $29.2 million of incremental debt borrowings to
be assumed by Cox, and $293 million for cash merger consideration to be
paid to PSDI shareholders. The existing PSDI debt, incremental debt
borrowings and cash merger consideration were refinanced by Cox in
connection with the consummation of the Las Vegas Acquisition with
proceeds from a combination of Cox's July fixed rate offering and draw
down on Cox's commercial paper program and credit facilitates.
Cash paid by Cox upon consummation of the Las Vegas Acquisition includes
the following:
<TABLE>
<S> <C>
Cash payments to PSDI shareholders $ 189,076
Repayment of Bell South contingent interest 94,469
Other cash payments 2,678
Cox merger related costs and non-compete
agreement 7,500
-------------
$ 293,723
=============
</TABLE>
(2) To eliminate PSDI deferred debt issuance costs. As described in Note (1),
the existing PSDI debt will be refinanced in connection with the
consummation of the Las Vegas Acquisition.
(3) To eliminate PSDI accrued interest. As described in Note (1), the existing
PSDI debt will be refinanced in connection with the consummation of the
Las Vegas Acquisition.
(4) To eliminate historical goodwill and equity accounts of PSDI.
(5) To record estimated late fee accrual assumed by Cox as part of the Las
Vegas Acquisition.
(6) To record estimated fair value of 2,418,186 shares of Series A Convertible
Preferred Stock (the "Series A Stock") and 5,667,709 shares of Class A
Common Stock issued to certain PSDI shareholders. The fair value is based
on the average closing price of the Class A Common Stock over a specified
ten-day period.
(7) To adjust plant and equipment of PSDI to estimated fair value based on
preliminary estimates.
(8) To record additional deferred income taxes related to the adjustment of
plant and equipment to estimated fair value. Because the Las Vegas
Acquisition was structured as a tax free reorganization, a temporary
difference, for which deferred taxes must be recorded, results from the
adjustment of plant and equipment to fair value.
(9) To eliminate minority interest of a PSDI subsidiary not acquired by Cox.
(10) To record intangibles resulting from the Las Vegas Acquisition. This
adjustment amount represents the preliminary estimate of the excess of the
purchase price plus net liabilities assumed over the fair value of
tangible assets acquired, reduced by the intangibles previously recorded
by PSDI.
(11) To reflect goodwill, additional deferred taxes and reduced current income
taxes related to the excess purchase price over tangible assets acquired
(see Note (10) above).
P-2
<PAGE> 43
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
The following unaudited pro forma combined condensed statement of operations
for the six months ended June 30, 1998 has been prepared from the historical
results of operations of both Cox and PSDI for the period presented. This
statement presents the combined revenues and expenses of Cox and PSDI as if the
Las Vegas Acquisition had been consummated on January 1, 1997. This statement
should be read in conjunction with the historical financial statements of Cox
and PSDI, including the notes thereto, the unaudited pro forma combined
condensed balance sheet and the notes to this unaudited pro forma combined
condensed statement of operations. The pro forma combined results are not
necessarily indicative of the combined results of future operations, and do not
reflect any synergies and other cost reductions that may result from the
integration of PSDI operations with Cox.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------------------------
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
COX PSDI ADJUSTMENTS PRO FORMA
-------------- -------------- -------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 814,087 $ 90,797 - $ 904,884
COSTS AND EXPENSES
Operating 254,204 46,593 300,797
Selling, general and administrative 258,777 3,701 262,478
Depreciation 167,445 18,301 $ 1,181 (2) 186,927
Amortization 36,351 8,117 5,239 (3)
4,819 (4) 54,526
------------- ------------- ------------- --------------
OPERATING INCOME 97,310 14,085 (11,239) 100,156
Interest expense (104,128) (94,658) 63,905 (1) (134,881)
Equity in net losses of affiliated companies (270,685) (1,028) (271,713)
Gain on sale of affiliated companies 77,150 77,150
Gain on sale of businesses 37,274 37,274
Other, net 4,784 2,245 (1,422) (6) 5,607
------------- ------------- ------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS (158,295) (79,356) 51,244 (186,407)
Income taxes 44,130 110 7,655 (5) 51,895
------------- ------------- ------------- ---------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY LOSS $ (114,165) $ (79,246) $ 58,899 $ (134,512)
============== ============== ============== ===============
Pro Forma Per Share Data:
Income (loss) per common share of Class A
Common Stock $ (0.42) $ (0.49)
============== ===============
Basic weighted-average shares of Class A Common
Stock outstanding 271,268,152 276,935,861 (7)
============== ===============
</TABLE>
P-3
<PAGE> 44
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(1) To record additional interest expense as a result of the $293 million of
net borrowings to fund certain cash payments made in connection with the
consummation of the Las Vegas Acquisition as described in Note (1) to the
Pro Forma Combined Condensed Balance Sheet. The adjustment also eliminates
$68.5 million of interest accrued by PSDI related to Bell South contingent
interest. The assumed weighted average interest rate used in the
calculation was 6.3%.
(2) To record additional depreciation expense attributable to the preliminary
adjustment of PSDI's plant and equipment to fair values as discussed in
Note (7) to the Pro Forma Combined Condensed Balance Sheet. Such
depreciation adjustment has been determined based on an estimated weighted
average life of 8 years.
(3) To record amortization expense related to intangibles arising from the Las
Vegas Acquisition as discussed in Note (10) to the Pro Forma Combined
Condensed Balance Sheet. This adjustment reflects the amortization of the
preliminary estimate of intangibles over 40 years, net of the amount of
amortization previously recorded in PSDI's historical financial
statements.
(4) To record additional amortization expense related to goodwill arising from
the Las Vegas Acquisition as discussed in Note (11) to the Pro Forma
Combined Condensed Balance Sheet. This adjustment reflects the
amortization of the preliminary estimate of goodwill over 40 years.
(5) To record tax effects, at a marginal rate of 35%, of the adjustments
reflected in Notes (1), (2) and (3) above and the tax benefit of PSDI's
historical loss before income taxes for the six months ended June 30,
1998, which loss was previously unrecognized due to uncertainty of
realization. Note that amortization expense related to goodwill arising
from the Las Vegas Acquisition in Note (4) is not deductible for tax
purposes.
(6) To eliminate minority interest in net income of a PSDI subsidiary not
acquired by Cox.
(7) Represents shares to be outstanding following the issuance of Class A
Common Stock as part of the Las Vegas Acquisition as discussed in Note (6)
to the Pro Forma Combined Condensed Balance Sheet. Diluted loss per share
has not been presented since the assumed conversion, exercise or
contingent issuance of securities would have an anti-dilutive effect on
loss per share.
P-4
<PAGE> 45
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
DECEMBER 31, 1997
(UNAUDITED)
The following unaudited pro forma combined condensed statement of operations for
the year ended December 31, 1997 has been prepared from the historical results
of operations of both Cox and PSDI for the period presented. This statement
presents the combined revenues and expenses of Cox and PSDI as if the Las Vegas
Acquisition had been consummated on January 1, 1997. This statement should be
read in conjunction with the historical financial statements of Cox and PSDI,
including the notes thereto, the unaudited pro forma combined condensed balance
sheet and the notes to this unaudited pro forma combined condensed statement of
operations. The pro forma combined results are not necessarily indicative of
the combined results of future operations, and do not reflect any synergies and
other cost reductions that may result from the integration of PSDI operations
with Cox.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
COX PSDI ADJUSTMENTS PRO FORMA
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 1,610,364 $ 163,524 $ 1,773,888
COSTS AND EXPENSES
Operating 491,228 87,117 578,345
Selling, general and administrative 509,301 6,823 516,124
Depreciation 329,951 34,224 $ 2,362 (2) 366,537
Amortization 74,587 15,068 11,643 (3)
9,638 (4) 110,936
---------------- ---------------- ------------ --------------
OPERATING INCOME 205,297 20,292 (23,643) 201,946
Interest expense (202,136) (50,739) (10,874)(1) (263,749)
Equity in net income (losses) of affiliated companies (404,440) 189 (404,251)
Gain (loss) on sale and exchange of cable television systems 51,835 (259) 51,576
Gain on issuance of stock by affiliated companies 90,796 90,796
Gain on sale of affiliated companies 248,656 248,656
Loss on write down of affiliated company (183,914) (1,967) (185,881)
Other, net 3,918 (2,338) 2,338 (6) 3,918
---------------- ---------------- ------------ --------------
INCOME (LOSS) BEFORE INCOME TAXES (189,988) (34,822) (32,179) (256,989)
Income taxes 53,496 (197) 20,895 (5) 74,194
---------------- ---------------- ------------ --------------
NET INCOME (LOSS) $ (136,492) $ (35,019) $ (11,284) $ (182,795)
================ ================ ============ ==============
Per Share Data:
Income (loss) per common share of Class A Common
Stock $ (0.50) $ (0.66)
================ ==============
Basic weighted-average shares of Class A Common
Stock outstanding 270,500,791 276,168,500(7)
================ ==============
</TABLE>
P-5
<PAGE> 46
NOTES TO PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(1) To record additional interest expense as a result of the $293 million of
net borrowings to fund certain cash payment made in connection with the
consummation of the Las Vegas Acquisition as described in Note (1) to the
Pro Forma Combined Condensed Balance Sheet. The assumed weighted average
interest rate used in the calculation was 6.3%.
(2) To record additional depreciation expense attributable to the preliminary
adjustment of PSDI's plant and equipment to fair values as discussed in
Note (7) to the Pro Forma Combined Condensed Balance Sheet. Such
depreciation adjustment has been determined based on an estimated weighted
average life of 8 years.
(3) To record amortization expense related to intangibles arising from the Las
Vegas Acquisition as discussed in Note (10) to the Pro Forma Combined
Combined Condensed Balance Sheet. This adjustment reflects the
amortization of the preliminary estimate of intangibles over 40 years, net
of the amount of amortization previously recorded in PSDI's historical
financial statements.
(4) To record amortization expense related to goodwill arising from the Las
Vegas Acquisition as discussed in Note (11) to the Pro Forma Combined
Condensed Balance Sheet. This adjustment reflects the amortization of the
preliminary estimate of goodwill over 40 years.
(5) To record tax effects, at a marginal rate of 35%, of the adjustments
reflected in Notes (1), (2) and (3) above and the tax benefit of PSDI's
historical loss before income taxes for the year ended December 31, 1997,
which loss was previously unrecognized due to uncertainty of realization.
Note that amortization expense related to goodwill arising from the Las
Vegas Acquisition in Note (4) is not deductible for tax purposes.
(6) To eliminate minority interest in net income of a PSDI subsidiary not
acquired by Cox.
(7) Represents shares to be outstanding following the issuance of Class A
Common Stock as part of the Las Vegas Acquisition as discussed in Note (6)
to the Pro Forma Combined Condensed Balance Sheet. Diluted loss per share
has not been presented since the assumed conversion, exercise or
contingent issuance of securities would have an anti-dilutive effect on
loss per share.
P-6
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS
OF
POWERS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
COX COMMUNICATIONS, INC.
---------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
---------------------
COX COMMUNICATIONS, INC., a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that the following resolution was duly
adopted by action of the Executive Committee of the Board of Directors of the
Corporation by a unanimous written consent dated September 29, 1998.
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Executive Committee of the Board of Directors of the Corporation
by the provisions of Section C of Article V of the Certificate of Incorporation
of the Corporation, as amended from time to time (the "Certificate of
Incorporation"), and Section 151(g) of the General Corporation Law of the State
of Delaware, such Executive Committee of the Board of Directors hereby creates,
from the authorized shares of Preferred Stock, par value $1.00 per share (the
"Preferred Stock"), of the Corporation authorized to be issued pursuant to the
Certificate of Incorporation, a series of Preferred Stock, and hereby fixes the
voting powers, designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of the shares of such series as follows:
The series of Preferred Stock hereby established shall consist of
2,418,186 shares, increased or decreased in accordance with Section 2 hereof,
designated as "Series A Convertible Preferred Stock". The rights, preferences
and limitations of such series shall be as follows:
<PAGE> 2
1. Definitions. As used herein, the following terms shall have the
indicated meanings:
1.1 "Adjustment Events" shall mean stock splits (including
reverse stock splits), stock dividends, recapitalizations, reclassifications
and similar events which affect the number of outstanding shares of Class A
Common Stock on a pro rata basis.
1.2 "Advances" shall mean loans or advances to Merger Sub from
the Corporation or any Affiliate of the Corporation, and all Advances shall
bear interest which shall be payable by Merger Sub monthly at the Cost of Funds
for the period for which interest is payable with respect to such Advances.
1.3 "Affiliate" shall mean any Person directly or indirectly
controlling, controlled by, or under common control with, the Person with
respect to whom the term "Affiliate" is used.
1.4 "Asset Sale" shall mean a sale, conveyance, transfer or any
other disposition, including without limitation by exchange or merger, of all
or substantially all of the assets of Merger Sub to any Person which is not an
Affiliate of the Corporation.
1.5 "Asset Sale Date" shall have the meaning set forth in
Section 6.3 hereof.
1.6 "Average Closing Price" shall mean the sum of the Closing
Prices per share of the Class A Common Stock for the last ten consecutive
Trading Days immediately preceding the second Trading Day prior to the
Conversion Date, divided by ten.
1.7 "Board of Directors" shall mean the Board of Directors of
the Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.8 "Break Even" shall mean any four calendar quarter period in
which cash generated by Merger Sub's operations exceeds the sum of the
aggregate cash expenses of Merger Sub for such period, including (i) capital
expenditures, (ii) general and administrative expenses, (iii) operating and
programming expenses, (iv) service costs, (v) interest expense,
- 2 -
<PAGE> 3
whether or not capitalized, (vi) provision for taxes based on revenue received
or accrued, and (vii) debt service obligations including dividend requirements
with respect to the CCLV Preferred, but excluding principal payments on
Indebtedness and the redemption of the CCLV Preferred.
1.9 "Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in the
City of Atlanta, Georgia are authorized or obligated by law or executive order
to close.
1.10 "CCLV Preferred" shall mean a series of preferred stock of
Merger Sub authorized and designated to (i) be callable by Merger Sub at any
time on or after the fifth anniversary of the Effective Time, (ii) pay
cumulative monthly dividends equal to the Cost of Funds for the period for
which dividends cumulate on such CCLV Preferred and (iii) have a liquidation
preference over the common stock of Merger Sub equal to $1,000.00 per share.
1.11 "Capital Stock" shall mean any and all shares of corporate
stock, partnership interest, units or other interest in the equity of a Person
(however designated and whether representing rights to vote, rights to
participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.12 "Certificate" shall mean the certificate of the (i) voting
powers, designations and preferences, (ii) relative, participating, optional or
other special rights, and (iii) qualifications, limitations or restrictions
thereof, of the Series A Stock filed with respect to this resolution with the
Secretary of State of the State of Delaware pursuant to Section 151 of the
General Corporation Law of the State of Delaware.
1.13 "Change of Control" shall mean a transaction in which any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), other than the Permitted Holders, is or becomes the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities that
such person has the unconditional right to acquire, either immediately or
within 30 days), directly or indirectly, of a percentage of the total combined
voting power of the outstanding Voting Stock of the Corporation representing a
greater
- 3 -
<PAGE> 4
percentage of the total combined voting power of the outstanding Voting Stock
of the Corporation beneficially owned by the Permitted Holders in the aggregate
following such transaction, and a "Change of Control" shall be deemed to have
occurred on the date of the closing of such transaction.
1.14 "Class A Common Stock" shall mean the class of Class A
Common Stock, par value $1.00 per share, of the Corporation authorized at the
Effective Time, or any other class of stock resulting from stock splits
(including reverse stock splits), stock dividends, recapitalizations,
reclassifications and similar events which affect the number of outstanding
shares of Class A Common Stock on a pro rata basis, and in any such case
including any shares thereof authorized after the Effective Time, together with
any associated rights to purchase other securities of the Corporation which are
at the time of a Conversion represented by the certificates representing such
shares of Class A Common Stock.
1.15 "Closing Price" shall mean the last reported sale price of
the Class A Common Stock (regular way) as shown on the Composite Tape of the
NYSE, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices on the NYSE, or, if the Class A Common Stock is
not listed or admitted to trading on the NYSE, on the principal national
securities exchange on which such stock is listed or admitted to trading, or,
if it is not listed or admitted to trading on any national securities exchange,
the last reported sale price of the Class A Common Stock, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
in either case as reported by NASDAQ.
1.16 "Communication Business" shall mean any video or voice
distribution business or any high speed Internet access or data transmission
business, including, without limitation, (i) the distribution to subscribers of
video programming by electronic means, including providing cable television
services and distributing video programming by any alternative video
distribution system, including by single and multi-channel multi-point
distribution service, satellite master antenna distribution and video dial
tone, (ii) the provision of local telephone service and (iii) the distribution
of video programming by electronic means, including providing cable television
services, to gaming establishments and resorts, hotels, motels and similar
establishments; provided, however, that "Communication Business" shall not
include: (i) the ownership, operation and management of newspapers, magazines,
other periodical print publications and related businesses, including their
growth,
- 4 -
<PAGE> 5
expansion and development; (ii) the ownership, operation and management of high
speed data networks, which are primarily related to the distribution of any
newspaper, magazine or other periodical print publication by electronic means,
over the Internet by any high speed Internet access service provider; (iii) the
ownership, operation and management of any radio or television broadcasting
stations or operations; and (iv) the ownership, operation and management of
radio, television or wireless communication towers or an enterprise that builds
such towers or acquires or manages sites on which such towers are placed or
located.
1.17 "Contribution Date" shall mean the date of any Cox
Contribution.
1.18 "Conversion" shall mean the conversion of Series A Stock
either (i) into Class A Common Stock in accordance with Section 5.2, Section
6.1 or Section 6.3, or (ii) into other consideration in accordance with Section
6.8.
1.19 "Conversion Date" for purposes of Section 4.1, Section 5.2,
Section 6.1 and Section 6.3 shall mean the Contribution Date, the date on which
the Conversion Notice is received by the Corporation, the Distribution Date and
the date on which the definitive agreement(s) for an Asset Sale is executed by
the Corporation, respectively.
1.20 "Conversion Election" shall have the meaning set forth in
Section 5.2 hereof.
1.21 "Conversion Notice" shall mean written notice of an
election to convert shares of Series A Stock into shares of Class A Common
Stock pursuant to Section 5 hereof which is signed by holders representing at
least a majority of the shares of Series A Stock then outstanding.
1.22 "Conversion Percentage" shall have the meaning set forth in
Section 7 hereof.
1.23 "Conversion Value" shall have the meaning set forth in
Section 5.3 hereof.
1.24 "Converting Shares" shall have the meanings set forth in
Section 5.2, Section 6.1 and Section 6.3 hereof, as applicable.
- 5 -
<PAGE> 6
1.25 "Corporation" shall mean Cox Communications, Inc., a
Delaware corporation, and any of its successors by operation of law, including
by merger or consolidation.
1.26 "Cost of Funds" shall mean the weighted average interest
rate charged to the Corporation during a particular period or at a particular
time under the credit facilities and agreements set forth on Exhibit A hereto,
including deferrals, renewals, extensions, restatements, replacements,
restructurings, refinancings or refundings thereof or amendments, modifications
or supplements thereto.
1.27 "Cox Affiliate" shall mean each of Anne Cox Chambers,
Barbara Cox Anthony, Margaretta Johnson Taylor, Katharine Rayner, James Cox
Chambers, James C. Kennedy, Blair D. Parry-Okeden and any of their spouses,
descendants (including adopted persons) and any trust for the primary benefit
of any of the foregoing individuals (including, without limitation, the Anne
Cox Chambers Atlanta Trust, the Barbara Cox Anthony Atlanta Trust and the
Dayton Cox Trust), the estate of any of the foregoing individuals, or any
corporation, partnership, limited liability company or any other entity more
than 50 percent of the total combined voting power in which and at least
one-third of the Capital Stock in which is owned by one or more of the
foregoing Persons.
1.28 "Cox Contribution" shall have the meaning set forth in
Section 4.1 hereof; provided, however, "Cox Contribution" shall not include any
Advances or the purchase price paid to Merger Sub for shares of CCLV Preferred.
1.29 "Distribution" and "Distribution Notice" shall have the
meaning set forth in Section 6.1 hereof.
1.30 "Distribution Date" shall mean the date of any
Distribution.
1.31 "Effective Time" shall mean 12:01 A.M. Eastern Standard
Time, October 1, 1998.
1.32 "Electing Holder" and "Election Notice" shall have the
meanings set forth in Section 4.2 hereof.
- 6 -
<PAGE> 7
1.33 "Exchange Act" shall mean the Securities and Exchange Act
of 1934, as amended.
1.34 "Fair Market Value of Merger Sub" for purposes of any
Conversion, Cox Contribution or Distribution, as the case may be, shall mean
the cash price at which a willing seller would sell and a willing buyer would
buy all of the Capital Stock of Merger Sub as a going concern, both having full
knowledge of all relevant facts, including, without limitation, the Liabilities
of Merger Sub, and being under no compulsion to buy or sell, in an arm's length
transaction without time constraints as determined in accordance with Section 8
as of the month ended immediately prior to the Conversion Date, the
Contribution Date, or the Distribution Date, as the case may be.
1.35 "First Offer Agreement" means the First Offer Agreement,
dated as of October 1, 1998, by and between the Corporation, G.C. Investments
and Barbara J. Greenspun, as Trustee of the Unified Credit Trust created under
a Declaration of Trust dated December 6, 1988.
1.36 "GAAP" shall mean generally accepted accounting principles
as in effect from time to time.
1.37 "Greenspun Affiliate" shall mean Brian L. Greenspun,
Barbara Greenspun, Daniel Greenspun, Susan Fine, Janie Gale, Barbara J.
Greenspun, as Trustee of the Unified Credit Trust created under a Declaration
of Trust dated December 6, 1988, G.C. Investments, a Limited Liability Company,
any of their spouses or descendants (including adopted persons) of any of the
foregoing individuals, any trust for the primary benefit of any of the
foregoing individuals, the estate of any of the foregoing individuals, or any
corporation, partnership, limited liability company or any other entity more
than 50 percent of the total combined voting power in which and at least
one-third of the Capital Stock in which is owned by one or more of the
foregoing Persons.
1.38 "Indebtedness" shall mean money borrowed, indebtedness
represented by notes payable and drafts accepted representing extensions of
credit, all obligations evidenced by bonds, debentures, notes or other similar
instruments and all indebtedness upon which interest charges are customarily
paid.
- 7 -
<PAGE> 8
1.39 "Junior Stock" shall mean the Class A Common Stock, the
Class C Common Stock, par value $1.00 per share, of the Corporation and the
shares of any other class or series of Capital Stock of the Corporation which,
by the terms of the Certificate of Incorporation or of the instrument by which
the Board of Directors, acting pursuant to authority granted in the Certificate
of Incorporation, shall fix the relative rights, preferences and limitations
thereof, is designated as junior to the Series A Stock in respect of the right
to participate in any distribution of assets other than by way of dividends.
1.40 "Liabilities" shall mean (i) Indebtedness and all other
liabilities (actual or contingent) of Merger Sub classified as such by GAAP,
(ii) the aggregate liquidation value of and the sum of any cumulated and
accrued and unpaid dividends on all outstanding shares of CCLV Preferred, and
(iii) any other liability or obligation of Merger Sub that would affect the
value of Merger Sub.
1.41 "Liquidation Value" shall have the meaning set forth in
Section 11.1 hereof.
1.42 "Merger Agreement" shall mean the Agreement and Plan of
Merger, dated as of May 4, 1998, by and among the Corporation, Merger Sub,
Prime South Diversified, Inc. ("PSD") and certain of the shareholders of PSD,
as the same may be amended from time to time.
1.43 "Merger Sub" shall mean Cox Communications Las Vegas, Inc.,
a Delaware corporation and the surviving corporation in the merger transaction
contemplated in the Merger Agreement, and all of its consolidated subsidiaries,
if any.
1.44 "NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotation System.
- 8 -
<PAGE> 9
1.45 "Non-Electing Holder" shall have the meaning set forth in
Section 4.2 hereof.
1.46 "NYSE" shall mean the New York Stock Exchange, Inc.
1.47 "Operating Assets" shall mean (i) licenses, permits and
other authoriza tions issued by the Federal Communications Commission, the
Federal Aviation Administration, or any other federal, state or local
governmental authority and held in connection with the conduct of the business
or operation of any cable television system, including, without limitation,
initial authorizations, and amendments and renewals thereof, whether such
authorizations are designated as franchises, permits, licenses, resolutions,
contracts, certificates, agreements or otherwise, (ii) pole attachment and
conduit agreements, retransmission consent agreements, leases, non-governmental
licenses, employment agreements, subscriber agreements and other agreements,
including any amendments and other modifications thereto, which relate to the
business or operation of any cable television system, (iii) plant, machinery
and equipment which relate to the business or operation of any cable television
system, (iv) buildings and other improvements thereon used or held for use in
connection with the business or operation of any cable television system, and
(v) interests in any real property, including fee estates, leaseholds and
subleaseholds, purchase options, licenses, easements, rights to access, and
rights of way; provided, however, that "Operating Assets" shall not include (i)
cash, short-term deposits or other marketable securities, and (ii) any other
assets not used or held for use in connection with the business or operation of
the cable television systems or any other line of business owned or operated by
Merger Sub.
1.48 "Permitted Holders" shall mean any of (i) Cox Enterprises,
Inc., (ii) any subsidiary or Affiliate of Cox Enterprises, Inc., (iii) any Cox
Affiliate, and (iv) any Affiliate of any Person described in clauses (i)-(iii)
of this definition.
1.49 "Person" shall mean an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
1.50 "Preemptive Consideration" and "Preemptive Right" shall
have the meanings set forth in Section 4.1 hereof.
1.51 "Preemptive Right Holder" shall mean any Person holding the
investment power (as such term is defined in Rule 13d-3 under the Exchange Act)
with respect to Series A Stock which is a Greenspun Affiliate.
- 9 -
<PAGE> 10
1.52 "Qualified Appraiser" shall have the meaning set forth in
Section 8 hereof.
1.53 "Redemption Price" shall have the meaning set forth in
Section 9.2 hereof.
1.54 "Requisite Holders" shall have the meaning set forth in
Section 8 hereof.
1.55 "Series A Stock" and "this Series" shall mean the series of
Preferred Stock of the Corporation authorized and designated as the Series A
Convertible Preferred Stock, including any shares thereof authorized and
designated after the Effective Time.
1.56 "Trading Day" shall mean, so long as the Class A Common
Stock is listed or admitted to trading on the NYSE, a day on which the NYSE is
open for the transaction of business, or, if the Class A Common Stock is not
listed or admitted to trading on the NYSE, a day on which the principal
national securities exchange on which the Class A Common Stock is listed is
open for the transaction of business, or, if the Class A Common Stock is not so
listed or admitted for trading on any national securities exchange, a day on
which the National Market System of NASDAQ is open for the transaction of
business.
1.57 "Triggering Event" shall have the meaning set forth in
Section 5.1 hereof.
1.58 "Voting Stock" shall mean, with respect to any Person, the
Capital Stock of any class or kind having the power to vote for the election of
directors, managers or other members of the governing body of such Person.
2. Series A Stock Issued and Outstanding.
2.1 As of the Effective Time there shall be 2,418,186 shares of
Series A Stock issued and outstanding.
- 10 -
<PAGE> 11
2.2 Upon the occurrence of any Adjustment Event, the number of
issued and outstanding shares of Series A Stock shall be increased or decreased
on an equal per share basis with the increase or decrease in the number of
shares of Class A Common Stock as a result of such Adjustment Event. Within 15
Business Days of an Adjustment Event, the Corporation shall give written notice
to the holders of Series A Stock as to the effect of the Adjustment Event on
the number of issued and outstanding shares of Series A Stock. The provisions
of this Section 2.2 shall apply to any successive Adjustment Events.
3. Dividends. Dividends on the Series A Stock shall accrue to the
extent, but only to the extent, that dividends are declared by the Board of
Directors on the Series A Stock. In the event such dividends are declared,
dividends on Series A Stock shall be payable out of funds legally available
therefor, and the amount payable to each holder of Series A Stock of record on
any dividend payment date shall be rounded to the nearest cent.
4. Preemptive Rights.
4.1 If at any time after the Effective Time the Corporation or
any of its Affiliates proposes to make a capital contribution to Merger Sub
through any direct or indirect transfer, in cash or other assets, regardless of
whether additional shares of Merger Sub are issued as consideration therefor (a
"Cox Contribution"), each Preemptive Right Holder shall have the right to
purchase additional shares of Series A Stock (the "Preemptive Right") for an
aggregate purchase price (the "Preemptive Consideration") equal to the product
of (i) the Conversion Percentage in effect immediately prior to the
Contribution Date, multiplied by (ii) the quotient of (x) the number of shares
of Series A Stock held by such Preemptive Right Holder immediately prior to the
Contribution Date divided by (y) the total number of shares of Series A Stock
outstanding immediately prior to the Contribution Date, multiplied by (iii) the
quotient of (x) the fair value of the Cox Contribution (net of any associated
liabilities) divided by one (1) minus the product of (A) the Conversion
Percentage in effect immediately prior to the Contribution Date, multiplied by
(B) the quotient of (x) the number of shares of Series A Stock held by all
Preemptive Right Holders immediately prior to the Contribution Date divided by
(y) the total number of shares of Series A Stock outstanding immediately prior
to the Contribution Date. The provisions of this Section 4.1 shall apply to any
successive Cox Contributions, unless or until the Preemptive Right terminates
in accordance with Section 4.3 hereof.
- 11 -
<PAGE> 12
4.2 The Corporation shall send a notice of a proposed Cox
Contribution at least twenty Business Days prior to the Contribution Date to
the Preemptive Right Holders, and the Preemptive Right Holders shall notify the
Corporation within fifteen Business Days prior to such Contribution Date (an
"Election Notice") of their intention to exercise their Preemptive Right (the
"Electing Holders"). If any Preemptive Right Holder fails to timely deliver an
Election Notice to the Corporation (the "Non-Electing Holders"), the
Corporation shall notify all Electing Holders of such failure at least ten
Business Days prior to the Contribution Date, and the Electing Holders shall
have the right to exercise the Preemptive Right of the Non-Electing Holders on
a pro rata basis or as otherwise agreed by such Electing Holders by notifying
the Corporation at least five Business Days prior to the Contribution Date. The
purchase price per share of Series A Stock paid in connection with the exercise
of any Preemptive Right shall be $44.275. Electing Holders may pay all or a
portion of the Preemptive Consideration through the payment to the Corporation
of cash or by transferring to the Corporation Class A Common Stock valued at
the Average Closing Price on the Contribution Date.
4.3 Failure of a Preemptive Right Holder to timely deliver an
Election Notice or failure of an Electing Holder to pay the full Preemptive
Consideration of such Electing Holder in immediately available funds or by
delivery of the certificate or certificates for shares of Class A Common Stock
on the Contribution Date shall constitute a waiver of the Preemptive Right with
respect to such Cox Contribution by such Preemptive Right Holder or Electing
Holder. The Preemptive Right as set forth in this Section 4 shall automatically
terminate as of such time that the Conversion Percentage, as adjusted in
accordance with Section 7 hereof, attributable to the Series A Stock held by
the Preemptive Right Holders is 0%.
4.4 The fair value of any Cox Contribution consisting of cash
shall be the amount of such cash. The fair value of any Cox Contribution
consisting of tangible or intangible assets (net of any associated liabilities)
shall be determined by the agreement of the Corporation and the Requisite
Holders or by the Qualified Appraiser(s) in connection with a determination of
Fair Market Value of Merger Sub pursuant to Section 8 in accordance with
Section 8, and such determination shall be final and conclusive on the
Corporation and the holders of Series A Stock.
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5. Optional Conversion.
5.1 Holders of Series A Stock shall have no Conversion rights
prior to the earliest of (i) a Change of Control, (ii) the fifth anniversary of
the Effective Time, or (iii) delivery of a Liquidation Notice (each a
"Triggering Event").
5.2 On or after the occurrence of a Triggering Event, the
holders of a majority of the shares of Series A Stock then outstanding may
elect (a "Conversion Election") to convert shares of Series A Stock
("Converting Shares") into such number of fully paid and nonassessable shares
of Class A Common Stock as is determined by dividing (i) the Conversion Value
of such Converting Shares determined as of the Conversion Date by (ii) the
Average Closing Price; provided, however, that in the event of a Conversion
pursuant to this Section 5.2 during the period described in the first sentence
of Section 6.3, the Conversion Value of the Converting Shares and the Average
Closing Price shall be determined in accordance with Section 6.3. The holders
of Series A Stock shall be entitled to a total of two Conversion Elections, and
the Converting Shares to which the first Conversion Election applies shall be
those shares of Series A Stock designated in the Conversion Notice held by the
holders delivering the Conversion Notice and shall equal at least 25% of the
shares of Series A Stock outstanding on the Conversion Date, and the Converting
Shares to which the second Conversion Election applies shall comprise all, but
not less than all, of the shares of Series A Stock outstanding on the
Conversion Date. The second Conversion Election shall be binding upon all
holders of the Series A Stock, whether or not such holders execute the
Conversion Notice applicable thereto. In the event of dissolution, liquidation
or winding up of the Corporation or the redemption of Series A Stock, the right
to convert shall terminate at the close of business on the last full day
preceding the date fixed for the payment of any amounts distributable on
dissolution, liquidation or winding up or payable on redemption to the holders
of Series A Stock.
5.3 The Conversion Value of the Converting Shares covered by a
Conversion Notice (or pursuant to a determination under Section 6.1 or pursuant
to the application of the second sentence of Section 6.3) shall be the product
of (i) the Fair Market Value of Merger Sub immediately prior to the Conversion
Date, multiplied by (ii) the Conversion Percentage immediately prior to the
Conversion Date, multiplied by the quotient of (x) the number of Converting
Shares to be converted under such Conversion Notice (or pursuant to a
determination under Section 6.1 or pursuant to the application of the second
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<PAGE> 14
sentence of Section 6.3) divided by (y) the total number of shares of Series A
Stock outstanding immediately prior to such Conversion Date.
5.4 Upon Conversion, each holder of Converting Shares shall be
entitled to receive that number of shares of Class A Common Stock that bears
the same ratio to the number of such holder's Converting Shares as the
aggregate number of shares of Class A Common Stock into which all Converting
Shares are convertible (as determined pursuant to Section 5.2) bears to the
total number of Converting Shares. The Corporation shall not be required to, in
connection with any Conversion of shares of this Series, issue a fraction of a
share of Class A Common Stock, and the Corporation shall make a cash payment
(rounded to the nearest cent) equal to such fraction multiplied by the Average
Closing Price.
5.5 (a) In the event of an election to convert pursuant to
Section 5.2 above, holders of Converting Shares shall surrender the certificate
or certificates for such Converting Shares at the office of the transfer agent
or agents therefor (or at such other place as the Corporation may designate by
notice to the holders of shares of this Series) during regular business hours,
duly endorsed to the Corporation or in blank, or accompanied by instruments of
transfer to the Corporation or in blank, or in form satisfactory to the
Corporation.
(b) If any such certificate or certificates shall have
been lost, stolen or destroyed, the holder shall, in lieu of delivering such
certificate or certificates, deliver to the transfer agent or agents therefor
(or such other place as the Corporation may designate by notice to the holders
of shares of this Series) an indemnification agreement and bond satisfactory to
the Corporation (provided, however, that in the case of a Greenspun Affiliate
no bond shall be required). The Corporation shall, as soon as practicable after
all the following events shall have occurred (i) the receipt of the Conversion
Notice, (ii) the deposit of certificates for the Converting Shares or delivery
of the indemnification agreement and bond (if required), (iii) the
determination of the Fair Market Value of Merger Sub and (iv) the application
of Section 5.2 hereof, issue and deliver at such office to the holder for whose
account such Converting Shares were surrendered, or to his nominee,
certificates representing the number of shares of Class A Common Stock and the
cash, if any, to which such holder is entitled upon such Conversion.
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<PAGE> 15
(c) Conversion shall be deemed to have been made as of
the Conversion Date; and the Person(s) entitled to receive the Class A Common
Stock issuable upon such Conversion shall be treated for all purposes as the
record holder of such Class A Common Stock on such date; provided, however,
that any Converting Shares of Series A Stock represented by certificates not
surrendered or for which an indemnification agreement and bond have not been
delivered shall not be entitled to any dividends or distributions payable on
the Class A Common Stock after such Conversion Date, unless and until such
certificates are surrendered or an indemnification agreement and bond (if
required) have been delivered, at which time all such dividends and
distributions shall be paid.
(d) On the Conversion Date, all rights with respect to
the Converting Shares shall terminate, including, without limitation, the
liquidation rights provided in Section 11 hereof, except for the right to
receive shares of Class A Common Stock upon Conversion of such Converting
Shares, and all certificates for Converting Shares shall be deemed to have been
retired and canceled and the Converting Shares represented thereby converted
into Class A Common Stock for all purposes, except as provided in Section
5.5(c), as of the Conversion Date.
6. Mandatory Conversion.
6.1 If at any time after the Effective Time, Merger Sub makes a
distribution of cash or other assets with respect to the Capital Stock of
Merger Sub, including, without limitation, a dividend or redemption, but
excluding any dividend or redemption with respect to the CCLV Preferred,
regardless of whether shares of Merger Sub are purchased or canceled (each a
"Distribution"), a number of shares of Series A Stock ("Converting Shares")
shall be converted in accordance with this Section 6.1. The number of
Converting Shares pursuant to this Section 6.1 shall equal the product of (i)
the number of shares of Series A Stock then outstanding multiplied by (ii) the
quotient of the fair value of the Distribution divided by the Fair Market Value
of Merger Sub immediately prior to the Distribution Date. Upon such
Distribution, the Converting Shares shall be automatically converted into such
number of fully paid and nonassessable shares of Class A Common Stock as is
determined by dividing (i) the Conversion Value of such Converting Shares
determined as of the Distribution Date by (ii) the Average Closing Price. No
later than the fifth Business Day after the Distribution Date, the Corporation
shall send a notice of the Distribution to holders of Series A Stock (the
"Distribution Notice"). The number of shares
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<PAGE> 16
of Series A Stock to be converted pursuant to this Section 6.1 shall be
converted by the holders thereof on a pro rata basis or as otherwise agreed by
such holders. Conversions pursuant to this Section 6.1 shall not affect the
number of Conversion Elections set forth in Section 5.2 hereof.
6.2 The fair value of any Distribution consisting of cash shall
be the amount of such cash. The fair value of any Distribution consisting of
tangible or intangible assets shall be determined by the agreement of the
Corporation and the Requisite Holders or by the Qualified Appraiser(s) in
connection with a determination of the Fair Market Value of Merger Sub pursuant
to Section 8 in accordance with Section 8 and such determination shall be final
and conclusive on the Corporation and the holders of Series A Stock.
6.3 From the date of the execution of definitive agreements(s)
relating to an Asset Sale until the closing of such Asset Sale (the "Asset Sale
Date") or the termination of such definitive agreement(s), in the event of a
Conversion pursuant to Section 5.2, the Converting Shares shall be converted
into such number of fully paid and nonassessable shares of Class A Common Stock
as is determined by dividing (i) the Conversion Value in effect on the date of
execution of such definitive agreements(s) by (ii) the Average Closing Price.
Immediately upon an Asset Sale Date, all of the Series A Stock then outstanding
(the "Converting Shares") shall be automatically converted into such number of
fully paid and nonassessable shares of Class A Common Stock as is determined by
dividing (i) the Conversion Value in effect on the date of executing definitive
agreement(s) with respect to the Asset Sale by (ii) the Average Closing Price.
No later than the fifth Business Day after the execution of the definitive
agreement(s) with respect to the Asset Sale, the Corporation shall send notice
of such execution to holders of Series A Stock. No later than the fifth
Business Day after the Asset Sale Date, the Corporation shall send a notice of
the Asset Sale to holders of Series A Stock (the "Asset Sale Notice").
6.4 Subsequent to receipt of the Asset Sale Notice or the
Distribution Notice, as the case may be, holders of Converting Shares shall
surrender the certificate or certificates for such Converting Shares at the
office of the transfer agent or agents therefor (or at such other place as the
Corporation may designate by notice to the holders of shares of this Series)
during regular business hours, duly endorsed to the Corporation or in blank, or
accompanied by instruments of transfer to the Corporation or in blank, or in
form satisfactory to the Corporation. If any such certificate or certificates
shall have been lost,
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<PAGE> 17
stolen or destroyed, the holder shall, in lieu of delivering such certificate
or certificates, deliver to the transfer agent or agents therefor (or such
other place as the Corporation may designate) an indemnification agreement and
bond satisfactory to the Corporation (provided, however, that in the case of a
Greenspun Affiliate no bond shall be required). The Corporation shall, as soon
as practicable after all of the following events shall have occurred (i) the
date of the Asset Sale Notice or the Distribution Notice, as the case may be,
(ii) the deposit of certificates for the Converting Shares or delivery of the
indemnification agreement and bond (if required), (iii) the determination of
the Fair Market Value of Merger Sub and (iv) the application of Section 6.1 or
Section 6.3 hereof, issue and deliver at such office to the holder for whose
account such Converting Shares were surrendered, or to his nominee,
certificates representing the number of shares of Class A Common Stock and the
cash, if any, to which such holder is entitled upon such Conversion.
6.5 Upon Conversion, each holder of Series A Stock shall be
entitled to receive that number of shares of Class A Common Stock that bears
the same ratio to the number of such holder's Converting Shares, as the
aggregate number of shares of Class A Common Stock into which all Converting
Shares are convertible (as determined pursuant to Section 6.1 or Section 6.3,
as the case may be) bears to the total number of Converting Shares applicable
to such Asset Sale Date or Distribution Date, as the case may be. The
Corporation shall not be required to, in connection with any Conversion of
shares of this Series, issue a fraction of a share of Class A Common Stock, and
the Corporation shall make a cash payment (rounded to the nearest cent) equal
to such fraction multiplied by the Average Closing Price.
6.6 Conversion shall be deemed to have been made as of the Asset
Sale Date or the Distribution Date, as the case may be; and the Person(s)
entitled to receive the Class A Common Stock issuable upon such Conversion
shall be treated for all purposes as the record holder of such Class A Common
Stock on such date; provided, however, that any Converting Shares represented
by certificates not surrendered or for which an indemnification agreement and
bond have not been delivered shall not be entitled to any dividends or
distributions payable after such Asset Sale Date or Distribution Date, as the
case may be, on the Class A Common Stock, unless and until such certificates
are surrendered or an indemnification agreement and bond (if required) have
been delivered, at which time all such dividends and distributions shall be
paid.
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<PAGE> 18
6.7 On the Asset Sale Date or the Distribution Date, as the case
may be, all rights with respect to the Converting Shares shall terminate,
including, without limitation, the liquidation rights provided in Section 11
hereof, except for the right to receive shares of Class A Common Stock upon
Conversion of such Converting Shares, and all certificates for Converting
Shares shall be deemed to have been retired and canceled and the Converting
Shares represented thereby converted into Class A Common Stock for all
purposes, except as provided in Section 6.6, as of the Asset Sale Date or the
Distribution Date, as the case may be.
6.8 In the event that on or after the Effective Time, (a) any
consolidation or merger to which the Corporation is a party, except for a
merger or consolidation in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification of, or change
(other than a change in par value or from par value to no par value, or as a
result of a subdivision or combination) in, outstanding shares of Class A
Common Stock, (b) any sale or conveyance of all or substantially all of the
property and assets of the Corporation or (c) any transaction in which holders
of Class A Common Stock receive consideration in exchange for such shares of
Class A Common Stock and which causes either the termination of the
registration of the Class A Common Stock under the Exchange Act or the
termination of the public trading of the Class A Common Stock, then lawful
provision shall be made as part of the terms of such transaction whereby each
share of Series A Stock shall upon the consummation of such transaction be
converted into or be exchanged for the kind and amount of shares of stock or
other securities, property and amount of cash receivable upon such
consolidation, merger, sale, conveyance or transaction in an amount equal to
the amount receivable with respect to the number of shares of Class A Common
Stock issuable upon Conversion of such shares of Series A Stock as of the date
of consummation of such transaction. For purposes of this Section 6.8, the term
"Corporation" shall refer to the Corporation (as defined in Section 1.25) as
constituted immediately prior to the merger, consolidation, sale, conveyance or
transaction referred to in this Section 6.8.
7. Conversion Percentage.
7.1 The Conversion Percentage shall be 20% at the Effective Time
and shall thereafter be determined from time to time in accordance with this
Section 7.
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<PAGE> 19
7.2 In the event of a Cox Contribution, the Conversion
Percentage immediately after such Cox Contribution shall be equal to the
quotient (expressed as a percentage) of (i) the sum of (A) the product of (i)
the Fair Market Value of Merger Sub immediately prior to the Contribution Date
and (ii) the Conversion Percentage immediately prior to the Contribution Date
and (B) the Preemptive Consideration paid by Electing Holders, divided by (ii)
the sum of (A) the Fair Market Value of Merger Sub immediately prior to such
Contribution Date, (B) the fair value of the Cox Contribution determined in
accordance with Section 4.4, and (C) the Preemptive Consideration.
7.3 In the event that, pursuant to Section 5.2, shares of this
Series A Stock are converted pursuant to a first Conversion Notice that does
not apply to all of the outstanding shares of Series A Stock outstanding
immediately prior to the Conversion Date applicable to such first Conversion
Notice, the Conversion Percentage immediately after such Conversion Date shall
be equal to the product of (i) the Conversion Percentage immediately prior to
such Conversion Date, multiplied by (ii) the quotient of (a) the number of
shares of Series A Stock outstanding immediately after such Conversion Date
divided by (b) the number of shares of Series A Stock outstanding immediately
prior to such Conversion Date.
7.4 The Conversion Percentage shall not be adjusted as a result
of a Distribution and Conversion pursuant to Section 6.1.
7.5 Within 15 Business Days of any adjustment to the Conversion
Percentage pursuant to this Section 7, the Corporation shall send a notice of
the new Conversion Percentage to the holders of Series A Stock.
8. Fair Market Value of Merger Sub.
8.1 This Section 8 shall be complied with to determine the Fair
Market Value of Merger Sub for purposes hereof; provided, however, that in
connection with an Asset Sale, the Fair Market Value of Merger Sub shall be the
price at which such Asset Sale shall occur pursuant to the definitive
agreement(s) for such Asset Sale plus the value of any assets retained by
Merger Sub following such Asset Sale. The Corporation and the Requisite Holders
shall negotiate in good faith to determine the Fair Market Value of Merger Sub.
The term "Requisite Holders" shall mean (i) in the case of a Conversion in
accordance with Section 5.2, holders of a majority of the Converting Shares,
(ii) in the case of a Cox
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<PAGE> 20
Contribution in accordance with Section 4, Electing Holders holding a majority
of the Series A Stock held by all Electing Holders (or, if there are no
Electing Holders, the holders of a majority of the Series A Stock then
outstanding), and (iii) in all other cases, holder(s) of a majority of the
shares of Series A Stock then outstanding. If the Corporation and the Requisite
Holders cannot agree upon the Fair Market Value of Merger Sub within 30 days
after the Conversion Date, then either the Corporation or the Requisite Holders
may elect to have the Fair Market Value of Merger Sub determined by an
independent investment bank, accounting firm, appraisal firm or consulting firm
which is experienced in the cable television industry and in the valuation of
cable television and other media assets (a "Qualified Appraiser") in accordance
with the provisions of this Section 8 by giving written notice (an "Appraisal
Notice") to the other party (the "Non-Electing Party"). Within ten Business
Days of receipt of the Appraisal Notice by the Non-Electing Party, the
Corporation and the Requisite Holders will attempt to agree on one Qualified
Appraiser. If the Corporation and the Requisite Holders cannot agree on one
Qualified Appraiser within such ten Business Day period, one Qualified
Appraiser shall be appointed by the Corporation and one Qualified Appraiser
shall be appointed by the Requisite Holders on the date such ten Business Day
period expires. The Qualified Appraiser or Qualified Appraisers, as the case
may be, shall submit their final report of the Fair Market Value of Merger Sub
within 30 days of appointment. If the higher of the two appraisals is less than
or equal to 10% higher than the lower of the two, the final Fair Market Value
of Merger Sub shall be the average of the Fair Market Values of Merger Sub set
forth in each such appraisal. If the disparity between the Fair Market Value of
Merger Sub determined by the higher of the two appraisals as compared to the
lower of the two is greater than 10%, the Qualified Appraisers shall select a
third Qualified Appraiser. If they cannot agree upon a third Qualified
Appraiser within five Business Days of the later submitted appraisal of the
Fair Market Value of Merger Sub, then the third Qualified Appraiser shall be
selected by the Atlanta, Georgia office of the American Arbitration
Association, and such third Qualified Appraiser shall make its determination of
the Fair Market Value of Merger Sub within 30 days of appointment. The Fair
Market Value of Merger Sub shall be the average of the two Fair Market Values
set forth in such appraisals that are closest among the three appraisals;
provided that if each of the highest and lowest Fair Market Value of Merger Sub
set forth in such appraisals is equidistant from the middle Fair Market Value
of Merger Sub set forth in such appraisals, the Fair Market Value of Merger Sub
shall be such middle Fair Market Value of Merger Sub. The Asset Sale price, the
Fair Market Value of Merger Sub agreed upon by the Corporation and the
Requisite Holders, or the valuation decision of such
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<PAGE> 21
Qualified Appraiser(s) as determined in accordance with this Section 8(a) shall
be final and conclusive on the Corporation and all holders of Series A Stock.
The cost of the appraisal process shall be borne by the Corporation.
8.2 In determining the Fair Market Value of Merger Sub, the
following principles shall apply: (a) the valuation of any cable television
system will be based on a going concern basis, in conformity with standard
appraisal techniques, applying market factors then relevant; and (b) the
valuation shall consider all factors which reasonably might affect such
valuation, including, without limitation, if and as appropriate, industry
developments, and federal and local legislation or regulation including any
proposals therefor.
9. Redemption at Option of the Corporation.
9.1 The Corporation may at any time, at its sole option, redeem,
out of funds legally available therefor, all, but not less than all, of the
shares of outstanding Series A Stock on and after the earlier of (i) the
thirtieth anniversary date of the Effective Time or (ii) at any time after
Greenspun Affiliates hold the investment power (as such term is defined in Rule
13d-3 under the Exchange Act) with respect to less than 50% of the then issued
and outstanding shares of Series A Stock.
9.2 The redemption price shall be paid by the Corporation in
cash and shall be in an amount for each share in this Series equal to such
share's Liquidation Value plus any declared but unpaid dividends on the Series
A Stock to the date fixed for the redemption (the "Redemption Price").
9.3 The Corporation shall provide each holder of Series A Stock
with a written notice of redemption (addressed to the holder at its address as
it appears on the stock transfer books of the Corporation), not earlier than 60
nor later than 20 days before the date fixed for redemption. The notice of
redemption shall specify (i) the Series to be redeemed; (ii) the date fixed for
redemption; (iii) the Redemption Price; and (iv) the place the holders of
Series A Stock may obtain payment of the Redemption Price upon surrender of
their certificates. If funds are available on the date fixed for redemption,
then whether or not shares are surrendered for payment of the Redemption Price,
the shares shall no longer be outstanding and the holders thereof shall cease
to be shareholders of the Corporation with
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<PAGE> 22
respect to the shares redeemed on and after the date fixed for redemption and
shall be entitled to receive the Redemption Price without interest upon the
surrender of the share certificate.
10. Voting. The shares of this Series shall have no voting rights
except as required by law or as set forth below.
10.1 Each share of this Series shall be entitled to vote
together with holders of the shares of Class A Common Stock (and any other
class or series which may similarly be entitled to vote with the shares of
Class A Common Stock) as a single class upon all matters upon which holders of
Class A Common Stock are entitled to vote. In any such vote, the holders of
this Series shall be entitled to one vote per share of Series A Stock.
10.2 So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation
shall not, without the affirmative vote at a meeting or the written consent
with or without a meeting of the holders of shares of this Series representing
more than 50% of the aggregate voting power of shares of this Series then
outstanding, amend, alter or repeal any of the provisions of this Certificate
or the Certificate of Incorporation, so as in any such case to adversely affect
the voting powers, designations, preferences and other special rights, and
qualifications, limitations or restrictions of the shares of this Series.
10.3 Except as provided in Section 10.2, the holders of Series A
Stock shall have no right to vote separately as a class.
11. Liquidation Rights.
11.1 The Corporation shall provide not less than 30 days advance
notice of any dissolution, liquidation or winding up of the Corporation to each
holder of Series A Stock (a "Liquidation Notice"). Upon the dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
the holders of the shares of this Series shall be entitled to receive out of
the assets of the Corporation available for distribution to shareholders, in
preference to the holders of, and before any payment or distribution shall be
made on, Junior Stock, the amount of $44.275 per share (the "Liquidation
Value") plus an amount equal to all declared and unpaid dividends on the Series
A Stock, if any, to the date
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<PAGE> 23
of final distribution. The Liquidation Value shall be subject to adjustment
from time to time to appropriately give effect to any Adjustment Events.
11.2 Neither the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 11.
11.3 After the payment to the holders of the shares of this
Series of full preferential amounts provided for in this Section 11, the
holders of this Series shall have no right or claim to any of the remaining
assets of the Corporation.
12. Covenants of the Company.
12.1 Any acquisition of, or merger, consolidation or other
business combination with, a Communication Business in the Las Vegas ADI by or
with the Corporation or any Affiliate of the Corporation shall be effected
through or with Merger Sub.
12.2 Any transaction (other than Cox Contributions and
Distributions) between Merger Sub and the Corporation or any Affiliate of the
Corporation shall be fair from a financial point of view and on terms no less
favorable than those available from independent third parties. The financial
fairness of any transaction (other than Advances, the issuance of the CCLV
Preferred, the payment of dividends on the CCLV Preferred, the redemption of
the CCLV Preferred, Cox Contributions, and Distributions) in excess of $1.5
million shall be determined by the Board of Directors in good faith and such
determination shall be set forth in a resolution of the Board, and the
financial fairness of any transaction (other than Advances, the issuance of the
CCLV Preferred, the payment of dividends on the CCLV Preferred, the redemption
of the CCLV Preferred, Cox Contributions, and Distributions) in excess of $10
million shall be determined by a Qualified Appraiser selected by the
Corporation.
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<PAGE> 24
12.3 The Indebtedness of Merger Sub as of the Effective Time
shall equal the sum of Sections 2.2(a)(1)(t), (u), (v), (w) and (x) of the
Merger Agreement. From the Effective Time and until Break Even, the Corporation
shall fund all cash requirements of Merger Sub through Advances, and Merger Sub
shall not incur Indebtedness other than Advances. At Break Even, this covenant
shall immediately terminate and thereafter shall have no further force or
effect.
12.4 The Corporation shall allocate corporate overhead expenses
to Merger Sub in a manner consistent with the manner in which it allocates
corporate overhead expense to its other subsidiaries.
12.5 The Corporation shall reserve and keep available, free from
preemptive rights, out of its authorized but unissued stock, for the purpose of
effecting the Conversion of the shares of this Series, such number of its duly
authorized shares of Class A Common Stock (or, if applicable, any other shares
of Capital Stock of the Corporation) as shall from time to time be sufficient
to effect the Conversion of all outstanding shares of this Series into such
Class A Common Stock (or such other shares of Capital Stock) at any time
(assuming that, at the time of the computation of such number of shares, all
such Class A Common Stock (or such other shares of Capital Stock) would be held
by a single holder); provided, however, that nothing contained herein shall
preclude the Corporation from satisfying its obligations in respect of the
Conversion of the shares by delivery of purchased shares of Class A Common
Stock (or such other shares of Capital Stock) that are held in the treasury of
the Corporation. All shares of Class A Common Stock (or such other shares of
Capital Stock of the Corporation) which shall be deliverable upon Conversion of
the shares of this Series shall be duly and validly issued, fully paid and
nonassessable. Any shares of Class A Common Stock at any time outstanding shall
not include shares held in the treasury of the Corporation.
12.6 If any shares of Class A Common Stock which would be
issuable upon Conversion of shares of this Series hereunder require
registration with or approval of any governmental authority before such shares
may be issued upon Conversion, the Corporation will in good faith and as
expeditiously as possible cause such shares to be duly registered or approved,
as the case may be. The Corporation will use commercially reasonable efforts to
list the shares of Class A Common Stock required to be delivered upon
Conversion of shares
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<PAGE> 25
of this Series prior to such delivery upon the principal national securities
exchange upon which the outstanding Class A Common Stock is listed at the time
of such delivery.
12.7 The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Class A
Common Stock on Conversion (or pursuant to redemption or exchange) of shares of
this Series pursuant hereto. The Corporation shall not, however, be required to
pay any tax which is payable in respect of any transfer involved in the issue
or delivery of Class A Common Stock or such other shares of Capital Stock in a
name other than that in which the shares of this Series so converted were
registered, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Corporation the amount of such
tax, or has established, to the satisfaction of the Corporation, that such tax
has been paid.
12.8 The Corporation shall not cause Merger Sub to dissolve,
liquidate or wind up, or transfer any Operating Assets to any Person controlled
by or under common control with the Corporation.
12.9 The Corporation or its Affiliates shall not sell, and shall
not permit Merger Sub to sell, less than all of the Capital Stock in Merger Sub
to any Person other than the Corporation or any Affiliates of the Corporation.
13. Other Provisions.
13.1 All notices from the Corporation to the holders shall be
given by one of the methods specified in Section 13.2. With respect to any
notice to a holder of shares of this Series required to be provided hereunder,
neither failure to give such notice, nor any defect therein or in the
transmission thereof, to any particular holder shall affect the sufficiency of
the notice or the validity of the proceedings referred to in such notice with
respect to the other holders or affect the legality or validity of any
distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any such action. Any notice which was mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the
holder receives the notice.
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13.2 All notices and other communications hereunder shall be in
writing and shall be deemed given (i) on the first Business Day following the
date received, if delivered personally, (ii) on the Business Day following
timely deposit with an overnight courier service, if sent by overnight courier
specifying next day delivery and (iii) on the first Business Day that is at
least five days following deposit in the mails, if sent by first class mail to
(x) a holder at its last address as it appears on the transfer records or
registry for the Series A Stock and (y) the Corporation at the following
address (or at such other address as the Corporation shall specify in a notice
pursuant to this Section 13.2): Cox Communications, Inc., 1400 Lake Hearn
Drive, Atlanta, Georgia 30319, Attention: Secretary.
13.3 Any shares of this Series which have been converted,
redeemed, exchanged or otherwise acquired by the Corporation shall, after such
Conversion, redemption, exchange or acquisition, as the case may be, be retired
and promptly canceled, and the Corporation shall take all appropriate action to
cause such shares to obtain the status of authorized but unissued shares of
Preferred Stock, without designation as to series, until such shares are once
more designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all references to Series A Stock shall
be eliminated from the Certificate of Incorporation and the shares of Preferred
Stock designated hereby as Series A Stock shall have the status of authorized
and unissued shares of Preferred Stock and may be reissued as part of any new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors.
13.4 The shares of this Series shall be issuable in whole shares
or, if authorized by the Board of Directors (or any authorized committee
thereof), in any fraction of a whole share so authorized or any integral
multiple of such fraction.
13.5 The Corporation shall be entitled to recognize the
exclusive right of a Person registered on its records as the holder of shares
of this Series, and such record holder shall be deemed the holder of such
shares for all purposes.
- 26 -
<PAGE> 27
IN WITNESS WHEREOF, Cox Communications, Inc. has caused this
Certificate to be signed and attested this 30th day of September, 1998.
COX COMMUNICATIONS, INC.
By: /s/ James O. Robbins
----------------------------
Name: James O. Robbins
Title: President
Attest: /s/ Andrew A. Merdek
--------------------
Name: Andrew A. Merdek
Title: Secretary
- 27 -
<PAGE> 28
Exhibit A
Cox Communications, Inc.
Outstanding Debt Facilities
Commercial Paper Program
Up to $1,500,000,000, with maturities up to 270 days with interest based on
market rates.
Bank Facilities
$1,200,000,000 Revolving Credit Facility maturing October 8, 2001 with
interest based on LIBOR plus a spread, as defined.
$800,000,000 Credit Facility maturing September 29, 1999, with interest based
on LIBOR plus a spread, as defined.
Medium Term Notes
$21,898,000, 8.7% Medium Term Notes Due June 15, 1999
$6,246,000, 8.55% Medium Term Notes Due June 1, 2000
$8,367,000, 8.875% Medium Term Notes Due March 1, 2001
$33,000,000, 6.940% Medium Term Notes Due October 1, 2001
$27,000,000, 7.170% Medium Term Notes Due October 1, 2003
$100,000,000, 6.90% Medium Term Notes Due September 20, 2004
$5,000,000, 7.190% Medium Term Notes Due August 9, 2006
$60,000,000, 7.030% Medium Term Notes Due November 6, 2006
$1,785,000, 7.125% Medium Term Notes Due March 1, 2013
$100,000,000, 6.850% Medium Term Notes Due January 15, 2118
$1,250,000, 7.375% Medium Term Notes Due July 1, 2023
$100,000,000, 6.950% Medium Term Notes Due January 15, 2028
<PAGE> 29
Public Debt
$425,000,000, 6.375% Notes Due June 15, 2000
$200,000,000, 6.500% Notes Due November 15, 2002
$250,000,000, 6.164% Notes Due August 1, 2003
$375,000,000, 6.875% Notes Due June 15, 2005
$200,000,000, 6.423% Notes Due August 1, 2008
$100,000,000, 7.250% Debentures Due November 15, 2015
$150,000,000, 7.625% Debentures Due June 15, 2025
$200,000,000, 6.831% Debentures Due August 1, 2028
Other Debt
$150,000,000, 4.82% Floating Rate Reset Pass-Thru Asset Trust Securities
("PATS") Due June 15, 2009.
Intercompany Borrowings due to Cox Enterprises, Inc. at an interest rate equal
to CEI's commercial paper borrowing rate plus a spread of 50 basis points.
Note: In addition to interest, other costs of debt include commitment,
issuance, administrative, rating agency and trustee costs.
<PAGE> 1
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement"), dated as of
October 1, 1998, between Cox Communications, Inc., a Delaware corporation
("CCI"), on the one hand, and G.C. Investments, a Nevada limited liability
company, and Barbara J. Greenspun as Trustee of the Unified Credit Trust
created under a Declaration of Trust dated December 6, 1988 (collectively, the
"Stockholders"), on the other hand.
WHEREAS, pursuant to an Agreement and Plan of Merger, dated May 4, 1998
(the "Merger Agreement"), by and among CCI, Cox Communications Las Vegas, Inc.,
a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of CCI,
Prime South Diversified, Inc., a Delaware corporation ("PSD") and certain of
the shareholders of PSD, PSD has agreed to merge (the "Merger") into Merger
Sub, and pursuant thereto shares of Class A Common Stock of PSD, par value
$0.01 per share, and shares of Class B Common Stock of PSD, par value $0.01 per
share (collectively, "PSD Stock"), held by the Stockholders will be converted
into cash, shares of Class A Common Stock, par value $1.00 per share, of CCI
("Common Stock") and shares of Series A Convertible Preferred Stock, par value
$0.01 per share, of CCI (the "Series A Preferred Stock"); and
WHEREAS, pursuant to a Voting Agreement dated as of May 4, 1998, by and
among CCI and all of the shareholders of PSD, CCI has agreed to enter into this
Agreement to provide certain registration rights to the Stockholders, effective
as of the date hereof, with respect to the shares of Common Stock to be
received by them in the Merger and as a result of the conversion of the Series
A Preferred Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties agree as follows:
Section 1. Definitions. (a) As used herein, the following terms shall
have the following meanings:
(i) CCI Securities: shall mean shares of Common Stock,
Series A Preferred Stock or any other securities of CCI.
<PAGE> 2
(ii) Registrable Securities: (A) the shares of Common
Stock to be acquired by the Stockholders at the Effective Time pursuant
to the Merger Agreement or upon conversion of the Series A Preferred
Stock into Common Stock in accordance with the terms thereof and (B)
any CCI Securities issued or issuable with respect to any Common Stock
referred to in subdivision (A) by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise.
(Notwithstanding anything herein contained, the Series A Preferred
Stock shall not be considered as or included in Registrable
Securities.) As to any particular Registrable Securities, once issued
such securities shall cease to be Registrable Securities when (x) a
registration statement with respect to the sale of such securities
shall have become effective under the Securities Act of 1933, as
amended (the "Securities Act") and such securities shall have been
disposed of in accordance with such registration statement, (y) they
shall have been distributed to the public pursuant to Rule 144 or Rule
145 (or any successor provision) under the Securities Act or (z) they
shall have ceased to be outstanding.
(iii) Registration Expenses: all expenses incident to
CCI's performance of, or compliance with, this Agreement, including,
without limitation, all registration, filing and National Association
of Securities Dealers, Inc. fees, all fees and expenses of complying
with securities or blue sky laws, the fees and disbursements of counsel
for CCI and of its independent public accountants, including the
expenses of any special audits or "comfort" letters required by or
incident to such performance and compliance, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the
costs and expenses of CCI, its officers, directors, employees, counsel
and other agents related to participation by CCI in any "road show,"
presentations, premiums and other costs or policies of insurance
obtained by CCI against liabilities arising out of the public offering
of Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers, but
excluding fees and disbursements of counsel retained by any of the
Stockholders, premiums and other costs of policies of insurance
obtained by the Stockholders against liabilities arising out of the
public offering of the Registrable Securities being registered, any
fees and disbursements of underwriters customarily paid by sellers of
securities who are not the issuers of such securities, all underwriting
discounts and commissions and transfer taxes, if any, relating to
Registrable Securities.
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<PAGE> 3
(b) Capitalized terms used herein but not otherwise defined
herein shall have the same meaning as in the Merger Agreement.
Section 2. Registration on Request. (a) Request. During the period
commencing on the date hereof and ending on the tenth anniversary of the date
hereof (the "Registration Period"), Stockholders holding an aggregate of at
least 30% of the Registrable Securities outstanding as of the date of such
Request (as defined below) (the "Electing Holders") shall have the right upon
written notice to CCI (a "Request") to request that CCI effect the registration
under the Securities Act of all or part of the Registrable Securities then
owned by such Stockholder(s) (but in any event not less than an aggregate
number of shares of Common Stock, as adjusted to reflect any stock splits,
combinations of shares, reclassifications or comparable transactions, as shall
constitute at least 30% of the Registrable Securities outstanding as of the
date of such Request, or such lesser number of shares as shall then constitute
all of the Registrable Securities then outstanding taking into account all
Registrable Securities to be included in such registration); provided, however,
CCI shall not under any circumstance be obligated to effect any such
registration if the Registrable Securities which are the subject of any such
Request as of the date of such Request have a value of less than $50,000,000.
Upon receipt of any such Request, CCI will provide notice of such Request in
accordance with Section 9 (the "Registration Notice") to each of the
Stockholders not included in such Request and will use all reasonable efforts
(subject to Section 5(b)) to effect such registration of the Registrable
Securities which CCI has been so requested to register in the Request or by any
other Stockholder within 60 days after delivery of the Registration Notice (the
Stockholders requesting registration pursuant to this Section 2 or Section 3
hereof shall collectively be referred to as the "Participating Stockholders").
The Stockholders collectively shall be entitled to three Requests during the
Registration Period pursuant to this Section 2, provided that, regardless of
whether any securities are offered or sold pursuant thereto (other than as a
result of any action by CCI pursuant to Section 5(b)), no more than one Request
shall be made by any Stockholder during any twelve month period during the
Registration Period.
CCI may include in any such registration other securities for
sale for its own account or for the account of any other Person; provided that,
if the managing underwriter for the offering shall determine that the number of
shares proposed to be offered in such offering would be reasonably likely to
adversely affect such offering, then the securities to be sold by the
Stockholders shall be included in such registration before any securities
proposed to be sold for the account of CCI or any other Person and provided,
further, that the Stockholders agree that any reduction in the
3
<PAGE> 4
number of securities to be offered by the Stockholders pursuant to any Request
shall be on a pro rata basis, except that the securities offered by the
Electing Holders initiating such Request shall not be reduced to less than 50%
of such securities included in the initial Request unless no securities of any
other Stockholder are included therein. The Electing Holders shall be
responsible for any calculations relating to the foregoing and shall set forth
such calculations in a certificate to be delivered to CCI, on which certificate
CCI shall be entitled to rely.
(b) Registration Statement Form. CCI shall effect any
registration requested under this Section 2 by the filing of a registration
statement on such form as CCI may determine; provided that CCI shall not be
obligated to register any securities on a "shelf" registration statement
pursuant to Rule 415 under the Securities Act (or any successor provisions of
such Act) or otherwise to register securities on a continuous or delayed basis.
(c) Expenses. The Registration Expenses in connection with any
registration which may be requested under this Section 2 shall be borne by CCI.
The Participating Stockholders shall bear the expense of fees and disbursements
of counsel retained by the Participating Stockholders, premiums and other costs
of policies of insurance obtained by the Participating Stockholders against
liabilities arising out of the public offering of the Registrable Securities,
any fees and disbursements of underwriters customarily paid by sellers of
securities, all underwriting discounts and commissions and transfer taxes, if
any, relating to Registrable Securities, and the costs and expenses of any of
the Participating Stockholders related to participation by any of them in any
"road show" presentations, and any other expenses that do not constitute
Registration Expenses.
(d) Selection of Underwriters. The managing underwriter for any
registration requested under this Section 2 effected by means of a firm
commitment underwriting shall be selected by the Participating Stockholders,
and shall be reasonably acceptable to CCI and CCI shall have the right to
select the co-lead underwriter, which underwriter shall be reasonably
acceptable to the Participating Stockholders.
Section 3. Piggyback Registrations. (a) Request for Registration. If
CCI proposes to file a registration statement under the Securities Act prior to
the expiration of the Registration Period with respect to an offering by CCI or
any holder of any CCI Securities (other than in connection with the
registration of CCI Securities issuable pursuant to an employee stock option,
stock purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in
4
<PAGE> 5
Rule 145(a) under the Securities Act), then CCI shall in each case give written
notice of such proposed filing to each Stockholder at least twenty (20)
business days before the anticipated filing date, and such notice shall
describe in detail the proposed registration and distribution (including those
jurisdictions in which registration under the securities or blue sky laws is
intended) and shall offer each Stockholder the opportunity to register any of
such Stockholder's Registrable Securities pursuant to such registration. Each
Stockholder shall have the right to include any of its Registrable Securities
in such offering by giving written notice thereof to CCI within ten (10)
business days after receipt of CCI's notice associated with such offering. If
such Stockholder elects to include any of its Registrable Securities in such
offering, CCI shall use all reasonable efforts to register such Registrable
Securities under the Securities Act and include such Registrable Securities in
such offering on the same terms and conditions as any CCI Securities that are
similar to such Registrable Securities which are included therein and otherwise
on terms that constitute the economic equivalent of the terms of inclusion of
any CCI Securities in such offering (each, a "Piggyback Registration");
provided, however, that CCI shall not be required under this Section 3 to
include any Registrable Securities of any Stockholder in any such offering,
unless such Stockholder accepts the terms of the underwriting as agreed upon
between CCI and the underwriter or underwriters selected by CCI for such
offering (collectively, the "CCI Underwriter") and performs its obligations
thereunder. Notwithstanding the foregoing, if the CCI Underwriter delivers a
written opinion that the total amount or kind of securities which any
Participating Stockholders, CCI and any other Persons intend to include in such
offering is sufficiently large to affect materially and adversely the
distribution of such securities, then the number of shares or units of
Registrable Securities to be offered for the account of each such Participating
Stockholder shall be reduced pro rata (based on the number of Registrable
Securities proposed to be sold by each such Participating Stockholder pursuant
to such offering) to the extent necessary to reduce the aggregate amount of
securities included in such offering to the amount recommended by the CCI
Underwriter. Each Participating Stockholder shall be permitted to withdraw all
or any portion of its Registrable Securities from a Piggyback Registration at
any time prior to the effective date of such Piggyback Registration. CCI shall
bear all Registration Expenses in connection with any Piggyback Registration
whether or not such Piggyback Registration becomes effective.
(b) No Registration of CCI Securities. CCI may, without the
consent of any Stockholder, delay, suspend, abandon or withdraw any
registration by CCI that is not a registration pursuant to Section 2 hereof and
any related proposed offering or other distribution in which any Stockholder
has requested inclusion of such Stockholder's Registrable Securities pursuant
to this
5
<PAGE> 6
Section 3; provided that the applicable Participating Stockholders shall be
entitled to continue such registration as a registration requested pursuant to
Section 2 following any such withdrawal by CCI to the extent that such
registration by the Participating Stockholders making such election would
otherwise satisfy the requirements of Section 2 and, provided, further, that
CCI shall be obligated to pay the Registration Expenses to the extent incurred
in connection with such proposed registration.
Section 4. Registration Procedures. If CCI is required to use all
reasonable efforts to effect the registration of Registrable Securities under
the Securities Act as provided in Section 2, CCI will as expeditiously as
possible:
(i) prepare and (within 45 days after the receipt of a
Request) file with the Securities and Exchange Commission (the "SEC")
the requisite registration statement to effect such registration and
use all reasonable efforts to cause such registration statement to
become effective, provided that before filing such registration
statement or any amendments thereto, CCI will furnish to the counsel
selected by the Participating Stockholders copies of all such documents
proposed to be filed, which documents will be subject to the review of
such counsel before any such filing is made, and CCI will comply with
any reasonable request made by such counsel to make changes in any
information contained in such documents relating to the Participating
Stockholders;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to maintain the effectiveness
of such registration and to comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such registration statement until the earliest of (A) the
termination of this Agreement pursuant to Section 17, (B) such time as
all of such securities have been disposed of and (C) the date which is
60 days after the date of initial effectiveness of such registration
statement;
(iii) furnish to the Participating Stockholders such
number of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in such
registration statements and any supplements thereto and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the
6
<PAGE> 7
Securities Act, and such other documents, including documents
incorporated by reference, as the Participating Stockholders may
reasonably request;
(iv) use all reasonable efforts to register or qualify
all Registrable Securities registered pursuant to such registration
statement under such other securities or blue sky laws of such
jurisdictions as the Participating Stockholders shall reasonably
request, to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable
the Participating Stockholders to consummate the disposition in such
jurisdictions of the securities owned by the Participating
Stockholders, except that CCI shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this subdivision (iv) be obligated to be so qualified, to be subject to
taxation or to consent to general service of process in any such
jurisdiction;
(v) use all reasonable efforts to cause all Registrable
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may
be necessary to enable the Participating Stockholders to consummate the
disposition of such Registrable Securities;
(vi) if such registration includes an underwritten public
offering, furnish to the Participating Stockholders a signed
counterpart, addressed to the Participating Stockholders (and the
underwriters), of (x) an opinion of counsel for CCI, dated the date of
the closing under the underwriting agreement, and (y) a "comfort
letter," dated the effective date of such registration statement (and a
supplement to such letter as of the closing date of such offering),
signed by the independent public accountants who have certified CCI's
financial statements included in such registration statement, covering
substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten public offerings of securities and, in the
case of the accountants' letter, such other financial matters, as the
Participating Stockholders (or the underwriters, if any) may reasonably
request;
7
<PAGE> 8
(vii) promptly notify the Participating Stockholders at
any time when CCI becomes aware that a prospectus relating to
Registrable Securities is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes 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 the light of the circumstances under which
they were made, and at the request of the Participating Stockholders
(and subject to Section 5(b)(ii)) promptly prepare and furnish to the
Participating Stockholders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include 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 under which they were made;
(viii) otherwise use all reasonable efforts to comply
with the Securities Act and the Securities and Exchange Act of 1934, as
amended (the "Exchange Act") and with all applicable rules and
regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date
of such registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act, and not file any
amendment or supplement to such registration statement or prospectus to
which the Participating Stockholders shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act;
(ix) provide a transfer agent and registrar for all
Registrable Securities covered by such registration statement not later
than the effective date of such registration statement; and
(x) use all reasonable efforts to list all Common Stock
covered by such registration statement on any securities exchange on
which any of the Common Stock is then listed.
8
<PAGE> 9
In the case of any underwritten offering involving at least $100
million in fair market value of shares of Common Stock (as estimated by CCI in
good faith based on the market value of the Shares at the time of the Request)
held by the Stockholders, upon the request of the Participating Stockholders,
CCI will participate in customary "road show" presentations as reasonably
requested by the managing underwriter. The identity of the officers of CCI
participating therein (which shall include senior executive officers) and the
number of cities visited shall be reasonably acceptable to CCI.
CCI may require the Participating Stockholders to furnish CCI
such information regarding the Participating Stockholders and the distribution
of such securities as CCI may from time to time reasonably request for the
purpose of registering the Registrable Securities pursuant to a Request
hereunder.
Each Stockholder agrees, by acquisition of the Registrable
Securities, that upon receipt of any notice from CCI of the happening of any
event of the kind described in subdivision (vii) of this Section 4, such
Participating Stockholder will forthwith discontinue its disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until the Participating Stockholder's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(vii) of this Section 4 and, if so directed by CCI, will deliver to CCI (at
CCI's expense) all copies of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice. Any delay pursuant to
this paragraph shall toll on a day for day basis the running of the 60 day
period referred to in Section 4(ii) hereof.
Section 5. (a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering of Registrable Securities by the
Participating Stockholders under a registration requested pursuant to Section
2, CCI will enter into a customary underwriting agreement with such
underwriters for such offering, to contain such representations and warranties
by CCI and such other terms as are customarily contained in agreements of this
type, including, without limitation, indemnities to the effect and to the
extent provided in Section 7. The Participating Stockholders shall be a party
to such underwriting agreement and may, at their option, require that any or
all of the representations and warranties by, and the other agreements on the
part of, CCI to and for the benefit of such underwriters shall also be made to
and for the benefit of the Participating Stockholders and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of the
Participating
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<PAGE> 10
Stockholders. The Participating Stockholders shall not be required to make any
representations or warranties to or agreement with CCI or the underwriters
other than representations, warranties or agreements regarding the
Participating Stockholders, their ownership of the Registrable Securities and
their intended method of distribution and any other representation required by
law.
(b) Holdback Agreement; Postponement. (i) The Stockholders agree
by acquisition of the Registrable Securities, if so required by the managing
underwriter, not to effect any public sale or distribution of such securities
during the seven days prior to and the 90 days after any underwritten offering
of securities by CCI (either for its own account or for the benefit of the
holders of any securities of CCI) has become effective (or such longer period
of time that the managing underwriter requires of other affiliates of CCI).
(ii) CCI may postpone any registration which is requested
pursuant to Section 2 or delivery of a prospectus or supplement or
amendment pursuant to Section 4(vii) if it determines that in view of
the advisability of deferring public disclosure of material corporate
developments, the disclosures required to be made pursuant thereto
would not be in the best interests of CCI at that time. In the event
CCI makes any such election, each Stockholder agrees to keep
confidential the fact of such election and any information provided by
CCI in connection therewith. No single postponement pursuant to this
Section 5(b)(ii) of any registration which is requested pursuant to
Section 2 or delivery of a prospectus or supplement or amendment
pursuant to Section 4(vii) shall exceed 90 days and all such
postponements shall not exceed 180 days in the aggregate.
Section 6. Preparation of Registration Statement. In connection with
the preparation and filing of the registration statement under the Securities
Act, CCI will give the Participating Stockholders, their underwriters, if any,
and their respective counsel, the opportunity to participate in the preparation
of such registration statement, each prospectus included therein or filed with
the SEC, and each amendment thereof or supplement thereto. Such opportunity to
participate shall include reasonable access for purposes of due diligence,
subject to the execution and delivery of appropriate confidentiality
agreements.
Section 7. Indemnification. (a) Indemnification by CCI. In the event of
any registration of any Registrable Securities of CCI under the Securities Act,
CCI will, and hereby does, indemnify and hold harmless the Participating
Stockholders, each other Person who participates as an
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underwriter in the offering or sale of such securities and each other Person
who controls any such underwriter within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Participating
Stockholders or any such underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the Securities
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading. CCI will reimburse
the Participating Stockholders and each such underwriter and controlling person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such losses, claim, liability, action or
proceedings; provided that CCI shall not be liable in any such case to the
extent that any such loss, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon (i) an untrue
statement or alleged untrue statement or omission or alleged omission in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to CCI by a Participating Stockholder for
use in the preparation thereof, (ii) the use of any prospectus after such time
as the obligation of CCI to keep the same effective and current has expired, or
(iii) the use of any prospectus after such time as CCI has advised the
Participating Stockholder that the filing of a post-effective amendment or
supplement thereto is required, except such prospectus as so amended or
supplemented, and provided, further, that CCI shall not be liable to any Person
who participates as an underwriter in the offering or sale of Registrable
Securities or any other Person, if any, who controls such underwriter within
the meaning of the Securities Act in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of such Person's failure to send or give a copy of the final
prospectus or supplement to the Persons asserting an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus or
supplement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Participating Stockholders or any
such underwriter or controlling person and shall survive the transfer of such
securities by the Participating Stockholders.
11
<PAGE> 12
(b) Indemnification by the Participating Stockholders. CCI may
require, as a condition to including any Registrable Securities of a
Participating Stockholder in any registration statement filed pursuant to
Section 2 or Section 3, that CCI shall have received an undertaking reasonably
satisfactory to it from such Participating Stockholder to indemnify and hold
harmless (in the same manner and to the same extent as set forth in subdivision
(a) of this Section 7) CCI, each other Participating Stockholder, each director
and officer of CCI and of each other Participating Stockholder, and each other
Person, if any, who controls CCI or any other Participating Stockholder, within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, with respect to any untrue statement or alleged untrue statement
of a material fact in, or omission or alleged omission to state a material fact
from, such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement
thereto, if 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 CCI by such Participating Stockholder for use in the
preparation of such registration statement preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however,
that a Participating Stockholder shall not be liable to the extent that the
losses, liabilities or expenses exceed the net proceeds received by such
Participating Stockholder from the sale of Registrable Securities in such
registration or that arise out of or are based upon (i) the use by CCI or
another Participating Stockholder of any prospectus after such time as the
obligation of CCI to keep the same effective and current has expired or (ii)
the use by CCI or another Participating Stockholder of any prospectus after
such time as such Participating Stockholder has advised CCI that the filing of
a post-effective amendment or supplement thereto is required with respect to
any information contained in such prospectus concerning such Participating
Stockholder, except such prospectus as so amended or supplemented. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of CCI, each other Participating Stockholder, or any such
director, officer, or controlling person and shall survive the transfer of such
securities by the Participating Stockholders.
(c) Notice of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 7,
such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action; provided that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 7, except
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<PAGE> 13
to the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgement a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, other than reasonable costs of investigation.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 7 (with appropriate
modifications) shall be given by CCI and the Participating Stockholders with
respect to any required registration or other qualification of securities under
any Federal or state law or regulation of governmental authority other than the
Securities Act.
(e) Indemnification Payments. The indemnification required by
this Section 7 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) Contribution. If for any reason the foregoing indemnity is
unavailable, or is insufficient to hold harmless an indemnified party, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of the expense, loss, damage or liability, (i) in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other
(determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission relates to information supplied
by the indemnifying party or the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission), or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law or provides a lesser sum to
the indemnified party than the amount hereinafter calculated, in the proportion
as is appropriate to reflect not only the relative fault of the indemnifying
party and the indemnified party, but also the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other, as
well as any other relevant equitable considerations. No indemnified party
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the
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Securities Act) shall be entitled to contribution from any indemnifying party
who was not guilty of such fraudulent misrepresentation.
Section 8. Covenants Relating to Rule 144/145. CCI will prepare and
file in a timely manner, information, documents and reports in compliance with
the Exchange Act so as to comply with the requirements of such Act and the
rules and regulations thereunder and will, at its expense, forthwith upon the
request of the Stockholders, deliver to the Stockholders a certificate, signed
by CCI's principal financial officer, stating (a) CCI's name, address and
telephone number (including area code), (b) CCI's Internal Revenue Service
identification number, (c) CCI's SEC file number, (d) the number of shares of
Common Stock outstanding as shown by the most recent report or statement
published by CCI, and (e) whether CCI has filed the reports required to be
filed under the Exchange Act for a period of at least 90 days prior to the
dates of such certificate and in addition has filed the most recent annual
report required to be filed thereunder. If at any time CCI is not required to
file reports in compliance with either Section 13 or Section 15(d) of the
Exchange Act, CCI at its expense will forthwith, upon the written request of
the Stockholders, make available adequate current public information with
respect to CCI within the meaning of paragraph (c)(2) of Rule 144 of the
General Rules and Regulations promulgated under the Securities Act.
Section 9. Notices, etc. All notices, requests, demands or other
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered personally (by courier service or otherwise), when delivered by
telecopy if receipt is confirmed by return telecopy, or five days after being
mailed by registered or certified mail, return receipt requested, in each case
to the applicable addresses set forth below:
If to CCI: Cox Communications, Inc.
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Secretary
Telecopier: (404) 843-7116
with a copy to: Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, DC 20036-6802
Attention: Stuart A. Sheldon, Esq.
Telecopier: (202) 776-2222
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<PAGE> 15
If to Stockholders: c/o G.C. Investments
Barbara Greenspun, Trustee
c/o Las Vegas Sun
800 South Valley View
Las Vegas, Nevada 89107
Attention: Brian Greenspun
Telecopier: (702) 259-4143
with a copy to: Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street
Suite 2200
Denver, Colorado 80202-4437
Attention: John R. Garrett, Esq.
Telecopier: (303) 623-1956
or to such other address as such party shall have designated by notice so given
to each other party.
Section 10. Amendments, Waivers, etc. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated
except by an instrument in writing signed by the party against whom enforcement
is sought or as expressly provided in Section 17. The failure of any party to
exercise any right, power or remedy provided under this Agreement or otherwise
available in respect hereof at law or in equity, or to insist upon compliance
by any other party with its obligations hereunder, and any custom or practice
of the parties at variance with the terms hereof, shall not constitute a waiver
by such party of its right to exercise any such or other right, power or remedy
or to demand such compliance.
Section 11. Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties relating to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. The provisions of this Agreement do not conflict with any other
registration rights agreement to which CCI is a party (it being understood that
CCI makes no representation with respect to any registration rights or similar
agreements to which PSD or any of its Subsidiaries is subject).
Section 12. Severability. If any term of this Agreement or the
application thereof to any party or circumstance shall be held invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such term to the other parties or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by
applicable law.
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<PAGE> 16
Section 13. Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of and be enforceable by the parties and
their respective successors and assigns; provided that neither the rights nor
the obligations of any party may be assigned or delegated without the prior
written consent of the other parties.
Section 14. Governing Law. This Agreement and all disputes hereunder
shall be governed by and construed and enforced in accordance with the laws of
the State of Delaware.
Section 15. Name, Captions. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall
not affect the interpretation or construction hereof.
Section 16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one instrument. Each counterpart may consist of
a number of copies each signed by less than all, but together signed by all,
the parties hereto.
Section 17. Termination. This Agreement shall terminate and be of no
further force and effect upon the expiration of the Registration Period;
provided that, notwithstanding this Section 17, the provisions of Section 7
shall survive the termination of this Agreement.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
COX COMMUNICATIONS, INC.
By: /s/ John M. Dyer
--------------------------------
Name: John M. Dyer
Title: Vice President Accounting
& Financial Planning
G.C. INVESTMENTS
By: /s/ Brian L. Greenspun
--------------------------------
Name: Brian L. Greenspun
Title: Manager
UNIFIED CREDIT TRUST, created under
a Declaration of Trust dated
December 6, 1988, by its Trustee:
By: /s/ Barbara J. Greenspun
--------------------------------
Barbara J. Greenspun, Trustee
<PAGE> 1
EXHIBIT 10.2
FIRST OFFER AGREEMENT
This First Offer Agreement (this "Agreement") is made and entered into
this October 1, 1998, by Cox Communications, Inc., a Delaware corporation
("CCI"), G.C. Investments, a Nevada limited liability company ("GCI"), and
Barbara J. Greenspun, as Trustee of the Unified Credit Trust created under a
Declaration of Trust dated December 6, 1988 (the "Unified Credit Trust").
RECITALS
A. CCI, Prime South Diversified, Inc., a Delaware corporation ("PSD"),
Cox Communications Las Vegas, a Delaware corporation ("CCLV"), and certain
shareholders of PSD are parties to an Agreement and Plan of Merger dated as of
May 4, 1998 (the "Merger Agreement").
B. The execution and delivery of this Agreement is a condition to the
obligations of CCI, PSD, CCLV and the Stockholders (as hereinafter defined) to
consummate the transactions contemplated by the Merger Agreement.
C. Capitalized terms used, but not defined, herein shall have the
meanings ascribed to such terms in the Certificate of Designations of the
Series A Convertible Preferred Stock of CCI (the "Certificate of
Designations").
IT IS HEREBY AGREED BY THE PARTIES as follows:
Section 1. The following terms shall have the following meanings for
purposes of this Agreement.
(a) "Affiliates" of any specified Person shall mean any
other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person.
(b) "Capital Stock" shall mean any and all shares of
corporate stock, partnership interest, units or other interest in the equity of
a Person (however designated and
<PAGE> 2
whether representing rights to vote, rights to participate in dividends or
distributions upon liquidation or otherwise with respect to such Person, any
division or subsidiary thereof, or any joint venture, partnership, corporation
or other entity).
(c) "control" when used with respect to any Person shall mean
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract, or
otherwise; "controlling" and "controlled" shall have the meanings correlative
to the foregoing.
(d) "Greenspun Affiliate" shall mean Brian L. Greenspun,
Barbara J. Greenspun, Daniel Greenspun, Susan Fine, Janie Gale, the Unified
Credit Trust, G.C. Investments, a Limited Liability Company, any of their
spouses or descendants (including adopted persons of any of the foregoing
individuals), trusts for the primary benefit of any of the foregoing
individuals, the estate of any of the foregoing individuals, or any
corporation, partnership, limited liability company or any other entity a
majority of the Capital Stock in which is owned by one or any group of the
foregoing individuals or Persons.
(e) "Newspaper Services" shall mean the utilization of
services provided by a daily newspaper of general circulation in the Las Vegas,
Nevada Area of Dominant Influence (as defined by The Arbitron Company).
(f) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust, joint venture, governmental
authority or other entity.
(g) "Prospective Transferee" shall mean, with respect to any
Greenspun Affiliate, any Person other than any Greenspun Affiliate, and with
respect to CCI or CCLV, any Person other than CCI, CCLV and any Affiliate
thereof; and
(h) "Stockholders" shall mean GCI, the Unified Credit Trust,
and any successor thereto or transferee thereof which is a Greenspun Affiliate.
Section 2 (a) At any time in connection with any proposed transfer to
a Prospective Transferee of (i) all or a controlling interest in the capital
stock of CCLV, (ii) all or substantially all of the assets of CCLV, (iii) the
cable television system serving the Las
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<PAGE> 3
Vegas, Nevada Area of Dominant Influence (as defined by The Arbitron Company)
(the "System") owned by CCLV, or (iv) any line of business of CCLV, CCI or
CCLV, as the case may be, shall, before it offers to make any such transfer to,
or negotiates to obtain an offer to purchase any such capital stock, assets,
System or line of business from, any Prospective Transferee, first provide
written notice (the "First Offer Notice") to GCI of the material terms and
conditions on which it is prepared to transfer any such capital stock, assets,
System or line of business to a Prospective Transferee (an "Offer"); provided,
however, that in the event the Offer involves a transaction in which CCI or
CCLV, as the case may be, would receive consideration other than cash, then the
Offer shall also set forth the material terms and conditions on which CCI or
CCLV, as the case may be, is prepared to consummate such a transfer of capital
stock, assets, System or line of business, as the case may be, to a Prospective
Transferee in a transaction in which CCI or CCLV, as the case may be, would
receive substantially similar consideration (taking into account tax costs and
other relevant factors).
(b) (i) If the First Offer Notice relates to a transfer of
all or a controlling interest in the capital stock, or all or substantially all
of the assets, of CCLV or of the System owned by CCLV, GCI shall provide
written notice (a "Response Notice") to CCI (in the case of a transfer of all
of the capital stock of CCLV) or CCLV (in such other cases), within fifteen
(15) days after the date of delivery of the First Offer Notice (the "15 Day
Consideration Period"), of its interest in purchasing all of such offered
capital stock, assets or the System on the terms and subject to the conditions
set forth in the First Offer Notice pursuant to definitive documentation
reasonably acceptable to CCI or CCLV, as the case may be, and GCI, which shall
be negotiated in good faith by the parties following delivery of the Response
Notice in accordance with the terms and conditions of the First Offer Notice.
GCI shall have until the expiration of 60 days after the date of any Response
Notice given pursuant to this Section 2(b)(i) to provide CCI or CCLV, as the
case may be, with evidence reasonably satisfactory to CCI or CCLV, as the case
may be (a "Financing Notice"), of adequate financing for such purchase and to
commit that the Person exercising the right provided for in this Section
2(b)(i) shall be, and shall at the closing of such transaction remain, and in
the case of a direct or indirect transfer of the System, at all times until the
third anniversary of such closing remain, either (I) a Greenspun Affiliate or
(II) a Person at least 33 1/3% of the Capital Stock (in the case of a sale of
the System) a majority of the Capital Stock (in all other cases), of which, on
a fully diluted basis, shall be owned by any one or group of Greenspun
Affiliates.
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<PAGE> 4
(ii) If the First Offer Notice relates to a
transfer of any line of business of CCLV (other than the System), GCI shall
provide a Response Notice to CCLV within seven (7) days after the date of
delivery of the First Offer Notice (the "7 Day Consideration Period") of its
interest in purchasing such offered line of business, on the terms and subject
to the conditions set forth in the First Offer Notice pursuant to definitive
documentation reasonably acceptable to CCLV and GCI, which shall be negotiated
in good faith by the parties following delivery of the Response Notice in
accordance with the terms and conditions of the First Offer Notice. GCI shall
have until the expiration of 30 days after the date of any Response Notice
given pursuant to this Section 2(b)(ii) to provide CCLV with a Financing Notice
for such purchase and to commit that the Person exercising the right provided
for in this Section 2(b)(ii) shall be and shall at the closing of such
transaction remain either (I) a Greenspun Affiliate or (II) a Person at least a
majority of the Capital Stock of which, on a fully diluted basis, shall be
owned by any one or group of Greenspun Affiliates.
(c) The closing of any transaction pursuant to the exercise
of GCI's right pursuant to this Section 2 shall in no event occur later than
one hundred eighty (180) days after the expiration of the 7 Day Consideration
Period or the 15 Day Consideration Period, as the case may be, subject to
reasonable extensions as necessary to obtain the receipt of all necessary
governmental consents and approvals which are a condition thereto as set forth
in such definitive documentation.
(d) (i) CCI or CCLV, as applicable, shall have no further
obligation to GCI pursuant to Section 2 (a) or (b) in connection with the
transaction which is the subject of a First Offer Notice as long as the terms
and conditions of any such transaction, in the aggregate, are no less favorable
to CCI or CCLV, as applicable, than the terms and conditions set forth in the
applicable First Offer Notice, if:
(A) GCI has not provided CCI or CCLV, as applicable,
with a Response Notice by the expiration of the 7 Day Consideration
Period or the 15 Day Consideration Period, as applicable; or
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<PAGE> 5
(B) GCI has provided CCI or CCLV, as applicable,
with a Response Notice, but has not provided CCI or CCLV, as
applicable, with a Financing Notice by expiration of the periods in
which such Financing Notices are to be given pursuant to Section
2(b)(i) or 2(b)(ii), as applicable; or
(C) if the closing for the transaction which is the
subject of such First Offer Notice pursuant to the exercise of GCI's
right pursuant to Section 2 has not occurred (other than as a result
of a material breach by CCI or CCLV, as the case may be, of any of its
covenants hereunder) by the expiration of the one hundred eighty (180)
day period referred to in Section 2(c) (unless such period is extended
as provided in Section 2(c)).
(ii) Notwithstanding the foregoing, if CCI or CCLV,
as applicable, has not entered into a definitive agreement with respect to any
transaction which is the subject of a First Offer Notice within two hundred
forty (240) days after the expiration of:
(A) the 7 Day Consideration Period or the 15 Day
Consideration Period, as applicable, if GCI has not provided CCI or
CCLV, as applicable, with a Response Notice by the expiration of the 7
Day Consideration Period or the 15 Day Consideration Period, as
applicable; or
(B) the period in which a Financing Notice is to be
given pursuant to Section 2(b)(i) or (b)(ii), as applicable, if GCI
has provided CCI or CCLV, as applicable, with a Response Notice, but
has not provided CCI or CCLV, as applicable, with a Financing Notice
by the expiration of such periods, as applicable; or
(C) the 180 day period referred to in Section 2(c)
(unless and to the extent such period is extended as provided in
Section 2(c)), if GCI has provided a timely Response Notice and
Financing Notice but the closing for any transaction pursuant to the
exercise of GCI's right pursuant to Section 2 has not occurred (other
than as a result of a material breach by CCI or CCLV, as the case may
be, of any of its covenants hereunder) by the expiration of such
period;
5
<PAGE> 6
then, any subsequent transfer of all or a controlling interest in the capital
stock of CCLV, all or substantially all of the assets of CCLV, the System owned
by CCLV or any line of business of CCLV, CCI or CCLV to a Prospective
Transferee shall once again be subject to the terms and conditions of this
Section 2.
Section 3. (a) At any time in connection with the transfer of all or
substantially all of the assets of CCI to a Prospective Transferee or a Change
of Control as defined in Section 1.13 of the Certificate of Designations, CCI
shall provide to GCI, within 15 days after the execution of the definitive
documentation therefor, written notice (the "CCI Sale Notice") of such transfer
or Change of Control and offer GCI the right to purchase from CCI that number
of shares of each class of capital stock of CCLV (other than CCLV Preferred)
held by CCI as of the date of such CCI Sale Notice equal to the (i) the
Conversion Percentage attributable to the Series A Preferred Stock of CCI held
by the Greenspun Affiliates as of such date, multiplied by (ii) the total
number of shares of each such class of capital stock of CCLV (other than CCLV
Preferred) for an aggregate purchase price equal to (i) the Conversion
Percentage attributable to the Series A Stock of CCI held by the Greenspun
Affiliates, multiplied by (ii) the Company Value (as defined in Section 3(e)
hereof).
(b) GCI shall provide written notice to CCI (the "CCI Sale
Response Notice") within fifteen (15) days after the date of delivery of the
CCI Sale Notice, to advise CCI of its interest in purchasing such shares of
capital stock pursuant to definitive documentation reasonably acceptable to CCI
and GCI, which shall be negotiated in good faith by the parties. GCI shall have
until the expiration of 60 days after the date of any CCI Sale Response Notice
to provide CCI with a Financing Notice for such purchase and to commit that the
Person exercising the right provided for in this Section 3(b) shall be and
shall at the closing of such transaction remain either (i) a Greenspun
Affiliate or (ii) a Person at least a majority of the Capital Stock of which,
on a fully diluted basis, shall be owned by any one or group of Greenspun
Affiliates. The closing of any such transaction pursuant to this Section 3
shall occur as soon as commercially practicable, subject to reasonable
extensions necessary to obtain the receipt of all necessary governmental
consents and approvals which are a condition thereto as set forth in such
definitive documentation.
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<PAGE> 7
(c) The closing of any transaction pursuant to the exercise
of GCI's rights pursuant to this Section 3 shall in no event occur later than
one hundred eighty (180) days after the date of delivery of the CCI Sale
Notice.
(d) CCI shall have no further obligation to GCI pursuant to
Section 3(a) or (b) in connection with a transaction that is the subject of a
CCI Sale Notice, if:
(A) GCI has not provided CCI with the CCI Sale
Response Notice by the expiration of the 15 day period in which such
CCI Sale Response Notice is to be given pursuant to Section 3(a); or
(B) GCI has provided CCI with a CCI Sale Response
Notice, but has not provided CCI with a Financing Notice by the
expiration of the period in which such Financing Notice is to be given
pursuant to Section 3(b); or
(C) the closing for any transaction which is the
subject of such CCI Sale Response Notice pursuant to the exercise of
GCI's right pursuant to Section 3 has not occurred (other than as a
result of a material breach by CCI of any of its covenants hereunder)
by the expiration of the one hundred eighty (180) day period referred
to in Section 3(c).
(e) (i) For purposes hereof, the "Company Value" is the cash
price at which a willing seller would sell and a willing buyer would buy all of
the Capital Stock of CCLV (other than the CCLV Preferred) as a going concern,
both having full knowledge of all relevant facts, including, without
limitation, the Liabilities (as defined in the Certificate of Designations),
and being under no compulsion to buy or sell, in an arm's length transaction
without time constraints as determined in accordance with the procedures set
forth in this Section 3(e) as of the month ended immediately prior to the date
of the CCI Sale Notice.
(ii) The parties hereto shall negotiate in good
faith to determine the Company Value of CCLV. If the parties cannot agree upon
the Company Value of CCLV within 30 days of the CCLV Financing Notice, then
either party may elect to have the Company Value determined by an independent
investment bank, accounting firm, appraisal firm or consulting firm which is
experienced in the cable television industry and in the
7
<PAGE> 8
valuation of cable television and other media assets (a "Qualified Appraiser")
in accordance with the provisions hereof by giving written notice (an
"Appraisal Notice") to the other party (the "Non-Electing Party"). Within ten
business days of receipt of the Appraisal Notice by the Non-Electing Party, the
parties will attempt to agree on one Qualified Appraiser. If the parties cannot
agree on one Qualified Appraiser within such ten business day period, one
Qualified Appraiser shall be appointed by CCI and one Qualified Appraiser shall
be appointed by GCI on the date such ten business day period expires. The
Qualified Appraiser or Qualified Appraisers, as the case may be, shall submit
their final report of the Company Value within 30 days of appointment. If the
higher of the two appraisals is less than or equal to 10% higher than the lower
of the two, the final Company Value shall be the average of the Company Values
set forth in each such appraisal. If the disparity between the Company Value
determined by the higher of the two appraisals as compared to the lower of the
two is greater than 10%, the Qualified Appraisers shall select a third
Qualified Appraiser. If they cannot agree upon a third Qualified Appraiser
within five business days of the later submitted appraisal of the Company
Value, then the third Qualified Appraiser shall be selected by the Atlanta,
Georgia office of the American Arbitration Association, and such third
Qualified Appraiser shall make its determination of the Company Value within 30
days of appointment. The Company Value shall be the average of the two Company
Values set forth in such appraisals that are closest among the three
appraisals; provided that if each of the highest and lowest Company Value set
forth in such appraisals is equidistant from the middle Company Value set forth
in such appraisals, the Company Value shall be such middle Company Value. The
agreed upon Company Value by the parties or the valuation decision of such
Qualified Appraiser(s) as determined in accordance herewith shall be final and
conclusive. The determination of GCI with respect to the Company Value shall
bind all the Greenspun Affiliates with respect to the Company Value for
purposes hereof. In determining the Company Value, the following principles
shall apply: (a) the valuation of any cable television system will be based on
a going concern basis, in conformity with standard appraisal techniques,
applying market factors then relevant; and (b) the valuation shall consider all
factors which reasonably might affect such valuation, including, without
limitation, if and as appropriate, industry developments, and federal and local
legislation or regulation including any proposals therefor. CCI shall bear the
costs and expenses of the Qualified Appraiser(s).
Section 4. (a) At any time in connection with any proposed transfer of
all or any of the Series A Convertible Preferred Stock, par value $1.00 per
share, of CCI (the "Series A
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<PAGE> 9
Stock") held by a Stockholder (including the proposed issuance of an option to
acquire such Series A Stock) to a Prospective Transferee by such Stockholder,
such Stockholder (a "Notifying Stockholder") shall, before it offers to
transfer the Series A Stock to, or negotiates to obtain an offer to purchase
the Series A Stock from, any Prospective Transferee, first provide written
notice (the "Stock First Offer Notice") to CCI of the material terms and
conditions on which it is prepared to transfer the Series A Stock to a
Prospective Transferee (a "Stock Offer"). In no event shall any Stockholder
sell any of the Series A Stock for consideration other than cash. Prior to the
pledge or other encumbrance of the Series A Stock, the Stockholder whose Series
A Stock will be subject to such pledge or other encumbrance shall cause the
pledgee or holder of such other encumbrance to acknowledge that the exercise by
such pledgee or holder with respect to such Series A Stock shall be subject to
CCI's rights set forth in this Agreement.
(b) CCI shall have the right to purchase the Series A Stock
of the Notifying Stockholder on the terms and subject to the conditions set
forth in the Stock First Offer Notice pursuant to definitive documentation
reasonably acceptable to CCI and such Stockholder, which shall be negotiated in
good faith by the parties in accordance with the terms and conditions of the
Stock First Offer Notice, exercisable by providing (i) written notice to a
Notifying Stockholder (the "Stock Response Notice") within 15 days of the date
of the Stock First Offer Notice (the "Stock Consideration Period"), and (ii)
evidence reasonably satisfactory to such Stockholder of adequate financing for
such purchase of the Series A Stock by CCI. The closing of such transaction
shall in no event occur later than sixty (60) days after the expiration of the
Stock Consideration Period, subject to reasonable extensions necessary to
obtain the receipt of all necessary governmental consents and approvals which
are a condition thereto as set forth in such definitive documentation.
(c) If CCI has not provided a Notifying Stockholder with a
Stock Response Notice by the expiration of the Stock Consideration Period, such
Stockholder shall be free to negotiate with any Prospective Transferee to
transfer, and transfer, the Series A Stock to such Prospective Transferee on
any terms and conditions as long as such terms and conditions, in the
aggregate, are no less favorable to such Stockholder than the terms and
conditions set forth in the Stock First Offer Notice; provided, however, that
if any Notifying Stockholder has not entered into a definitive agreement with
respect to any such transaction within one hundred eighty (180) days of the
expiration of the Stock Consideration Period, any subsequent transfer
9
<PAGE> 10
of the Series A Stock to a Prospective Transferee shall once again be subject
to the terms and conditions of this Section 4.
(d) All shares of Series A Stock transferred by any
Stockholder to a Greenspun Affiliate shall remain subject to the rights of CCI
set forth in this Section 4 and a transferring Stockholder shall deliver to CCI
in connection with any such transfer, a written acknowledgment from the
transferee Greenspun Affiliate, of its obligations hereunder. Any transfer of
Series A Stock in violation of this subsection (d) shall be null and void. Each
Stockholder hereby acknowledges and agrees that any Series A Stock it may hold
from time to time, no matter how acquired, shall be subject to this Agreement
Section 5. In the event that CCLV intends to utilize Newspaper
Services, CCLV shall first offer The Las Vegas Sun, Inc. ("LVS") the right of
first negotiation to provide such Newspaper Services on commercially reasonable
terms. Such right of first negotiation shall extend for a period of forty-five
(45) days after LVS receives written notice from CCLV, of its intention to
utilize Newspaper Services. During such forty-five (45) day negotiation period,
CCLV shall be free to negotiate with any other party concerning the provision
of Newspaper Services; provided, however, that CCLV may not enter into an
agreement for the provision of such Newspaper Services with a party other than
LVS on terms that are less favorable in any material respect to CCLV than the
terms offered by LVS during the forty-five (45) day negotiation period.
Section 6. This Agreement, all of its provisions, and all dealings by
and between the parties to this Agreement regarding this Agreement are and
shall remain confidential, and shall not in any way, directly or indirectly, be
disclosed, divulged or communicated to any Person not a party to this Agreement
(except for any attorney, employee, director, officer, consultant or advisor of
a party to this Agreement, who shall be informed of, and caused by such party
to be bound by the provisions of, this Agreement), except as may be required
for the consummation of the transactions contemplated hereby or as required by
applicable law, including, without limitation, applicable securities laws or
regulations and the rules and regulations of any securities exchange on which
the securities of the party so disclosing, divulging or communicating may be
listed or admitted for trading and in connection with legal proceedings
pursuant to subpoena or the request of a governmental authority. Any breach of
this Section 6 by a party to this Agreement shall entitle any other party to
this Agreement to
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<PAGE> 11
obtain injunctive relief to prevent further breaches of this Section 6, and to
obtain damages, including without limitation, reimbursement of expenses
relating to the breach, and the award of attorneys' fees.
Section 7. (a) Except as otherwise expressly provided in this
Agreement, all notices, requests and other communications to any party
hereunder shall be in writing (including a facsimile or similar writing) and
shall be given to such party at the address or facsimile number specified for
such party set forth below or as such party shall hereafter specify for the
purpose by notice to the other parties:
If to CCLV or CCI: Cox Communications, Inc.
1400 Lake Hearn Drive, N.E.
Atlanta, Georgia 30319
Attention: Legal Department
Telephone: (404) 843-5000
Telecopier: (404) 843-7116
With a copy to: Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
Attention: Stuart A. Sheldon, Esq.
Telephone: (202) 776-2000
Telecopier: (202) 776-2222
If to GCI or the
Unified Credit
Trust: G. C. Investments
901 North Green Valley Parkway
Henderson, NV 89014
Telephone: (702) 385-3111
Facsimile: (702) 259-4143
With a copy to: John Garrett, Esq.
Brownstein, Hyatt, Farber &
Strickland, P.C.
410 17th Street, 22nd Floor
Denver, CO 80202
Telephone: (303) 534-6335
Facsimile: (303) 623-1956
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<PAGE> 12
Each such notice, request or other communication shall be effective (i) if
given by facsimile, at the time such facsimile is transmitted and the
appropriate confirmation is received (or, if such time is not during a business
day, at the beginning of the next such business day), (ii) if given by mail,
five business days (or, if to an address outside the United States, seven
calendar days) after such communication is deposited in the mails with
first-class postage prepaid, addressed as aforesaid, or (iii) if given by any
other means, when delivered at the address specified pursuant to this Section
7(a).
(b) This Agreement is not intended to confer any rights or
remedies hereunder upon, and shall not be enforceable by, any Person other than
the parties hereto and their respective successors and assigns pursuant to
Section 7(i).
(c) No failure by any party to insist upon the strict
performance of any covenant, agreement, term or condition of this Agreement or
to exercise any right or remedy consequent upon a breach of such or any other
covenant, agreement, term or condition shall operate as a waiver of such or any
other covenant, agreement, term or condition of this Agreement. No waiver shall
affect or alter the remainder of this Agreement but each and every covenant,
agreement, term and condition hereof shall continue in full force and effect
with respect to any other then existing or subsequent breach. The rights and
remedies provided by this Agreement are cumulative and the exercise of any one
right or remedy by any party shall not preclude or waive its right to exercise
any or all other rights or remedies.
(d) This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings of the parties in connection herewith, and no
covenant, representation or condition not expressed in this Agreement shall
affect, or be effective to interpret, change or restrict, the express
provisions of this Agreement.
(e) This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which, taken together,
shall constitute one and the same instrument, which may be sufficiently
evidenced by one counterpart.
12
<PAGE> 13
(f) Each provision of this Agreement shall be considered
separable and if for any reason any provision or provisions hereof are
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
(g) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Nevada applicable to
contracts made and to be performed wholly within such State, and without regard
to the conflicts of laws principles of such State. Any suit brought with
respect to this Agreement, whether in contract, tort, equity or otherwise,
shall be brought in the state or federal courts sitting in Las Vegas, Nevada,
the parties hereby waiving any claim or defense that such forum is not
convenient or proper. Each party hereby agrees that any such court shall have
in personam jurisdiction over it, consents to service of process in any manner
authorized by Nevada law, and agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner specified by law.
(h) This Agreement shall be binding on and enforceable
against the successors and assigns of the parties hereto.
(i) The rights of GCI, and the obligations of CCI and CCLV,
as applicable, as set forth in Sections 2, 3 and 5 hereof shall automatically
terminate as of such time that the Conversion Percentage attributable to the
Series A Stock held by the Greenspun Affiliates in the aggregate is less than
10%.
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<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first written above.
COX COMMUNICATIONS LAS VEGAS, INC.
By: /s/ John M. Dyer
---------------------------------
Name: John M. Dyer
Title: Vice President
COX COMMUNICATIONS, INC.
By: /s/ John M. Dyer
---------------------------------
Name: John M. Dyer
Title: Vice President Accounting
& Financial Planning
G.C. INVESTMENTS
By: /s/ Brian L. Greenspun
---------------------------------
Name: Brian L. Greenspun
Title: Manager
UNIFIED CREDIT TRUST
By: /s/ Barbara J. Greenspun
---------------------------------
Name: Barbara J. Greenspun
Title: Trustee
14
<PAGE> 1
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-58531) of Cox Communications, Inc. of our report dated March 25,
1998 (except for the third paragraph of footnote 12, as to which the date is
October 9, 1998), with respect to the consolidated financial statements of Prime
South Diversified, Inc. and Subsidiaries included in this Current Report on Form
8-K dated October 1, 1998.
/s/ Ernst & Young LLP
October 9, 1998
Austin, Texas
<PAGE> 1
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-3766) of Cox Communications, Inc. of our report dated March 25, 1998
(except for the third paragraph of footnote 12, as to which the date is October
9, 1998), with respect to the consolidated financial statements of Prime South
Diversified, Inc. and Subsidiaries included in this Current Report on Form 8-K
dated October 1, 1998.
/s/ Ernst & Young LLP
October 9, 1998
Austin, Texas
<PAGE> 1
EXHIBIT 99.1
FOR RELEASE IMMEDIATELY OCTOBER 1, 1998
COX COMMUNICATIONS COMPLETES LAS VEGAS
TRANSACTION
ATLANTA - Cox Communications, Inc., announced today that it has
completed its acquisition of Prime South Diversified, Inc. (PSDI),
which operates a cable television system serving 319,000 residential
customers in Las Vegas, Nev., and 105,000 hotel units in Las Vegas and
other areas. The transaction is valued at $1.325 billion.
Included in the transaction are Community Cable TV (CCTV), the cable
television system serving Las Vegas; Hospitality Network, Inc., a
provider of resort-hotel room video entertainment and interactive
services in Las Vegas and other gaming cities domestically and
internationally; a 33% interest in Las Vegas One, the market?s only 24
hour television news operation; and various ownership positions in
other diversified PSDI investments. Cox is currently seeking approval
from the Nevada Public Utility Commission to transfer from PSDI
PrimeTel of Nevada, a provider of video, voice and data to multiple
dwelling units (MDUs) and a 35% interest in NextLink Nevada, a
facilities-based provider of commercial local and interexchange
telecommunications services.
Cox acquired the holdings from Prime Cable of Austin, Texas, and the
Greenspun family of Las Vegas. The transaction was structured so that
the Greenspun family, owner of the Las Vegas Sun, will continue as a
partner with Cox in all PSDI businesses.
The addition of Las Vegas solidifies Cox?s position as the premiere
provider of advanced video, voice and data services in the Southwest,
where Cox now serves 1.8 million customers and passes more than 3
million homes. Cox also owns and operates cable television systems in
the region in San Diego, Orange County, Bakersfield and Santa Barbara,
Calif., and Phoenix and Tucson, Ariz.
The Las Vegas system serves the entire metropolitan area, and ranks
among the 10 largest cable systems in the U.S. Operated from a single
headend with some 4,000 miles of hybrid fiber-coax plant, a system
upgrade is well under way to a 750MHz fiber rich platform and is
expected to be two-thirds completed by year-end 1998.
Daniels & Associates represented the sellers in this transaction.
<PAGE> 2
Cox Communications, Inc. (NYSE:COX) is among the nation?s largest
broadband communications companies, serving some 3.8 million
customers. As a full service provider of telecommunications products,
Cox offers an array of services, including cable television under the
Cox Cable brand; local and long distance telephone services under the
Cox Digital Telephone brand; high speed Internet access via Cox@Home;
commercial voice and data services under the Cox Fibernet and Cox@Work
brands; and advanced digital video programming services under the Cox
Digital TV brand. Cox is an equity partner in Sprint PCS, the nation's
first national wireless personal communications service (PCS); and is
also an investor in numerous programming networks, including Discovery
Channel. More information about Cox Communications can be accessed on
the Internet at www.cox.com.
# # #
CONTACT: News media:
Anthony Surratt, (404) 843-5124 Analysts and Investors:
Steve Schorr, (702) 383-0551 Mark Major, (404) 843-5477
