<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CONTINENTAL CABLEVISION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4841 04-2370836
(STATE OF INCORPORATION) (PRIMARY STANDARD (IRS EMPLOYER
INDUSTRIAL IDENTIFICATION NO.)
CLASSIFICATION CODE
NUMBER)
THE PILOT HOUSE, LEWIS WHARF,
BOSTON, MA 02110
(617) 742-9500
(ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
AMOS B. HOSTETTER, JR.
CONTINENTAL CABLEVISION, INC.
THE PILOT HOUSE, LEWIS WHARF
BOSTON, MA 02110
(617) 742-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
----------------
COPIES TO:
PATRICK K. MIEHE BRUCE K. DALLAS
SULLIVAN & WORCESTER CHARLES S. WHITMAN, III
A REGISTERED LIMITED LIABILITY DAVIS POLK & WARDWELL
PARTNERSHIP 450 LEXINGTON AVENUE
ONE POST OFFICE SQUARE NEW YORK, NY 10017
BOSTON, MA 02109 (212) 450-4000
(617) 338-2800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, $.01
par value.................. $345,000,000 $118,966
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(o) of the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONTINENTAL CABLEVISION, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF
REGULATION S-K BETWEEN
PART I OF FORM S-1 AND PROSPECTUS
<TABLE>
<CAPTION>
ITEM
NO. DESCRIPTION IN FORM S-1 CAPTION IN PROSPECTUS
---- ----------------------- ---------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Front Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of Prospectus.................. Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Risk Factors
4. Use of Proceeds.................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of Prospectus;
Underwriters
6. Dilution......................................... Risk Factors; Dilution
7. Selling Security Holders......................... Inapplicable
8. Plan of Distribution............................. Outside Front Cover Page of Prospectus;
Underwriters
9. Description of the Securities to be Registered... Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of Capital
Stock; Dividend Policy
10. Interests of Named Experts and Counsel........... Experts; Legal Opinions
11. Information with Respect to Registrant........... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy; Capitalization;
Business; Legislation and Regulation;
Management; Beneficial Ownership of Common
and Preferred Stock; Certain Transactions;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Credit Arrangements of the Company; Pro Forma
Condensed Consolidated Financial Information;
Selected Consolidated Financial Information;
Description of Capital Stock; Underwriters;
Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Inapplicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
This registration statement contains two prospectus cover pages: one to be
used for a prospectus in connection with a United States and Canadian offering
of the registrant's Class A Common Stock (the "U.S. Prospectus") and one to be
used for a prospectus in connection with a concurrent international offering of
the Class A Common Stock (the "International Prospectus" and, together with the
U.S. Prospectus, the "Prospectuses"). The International Prospectus will be
identical to the U.S. Prospectus except that it will have a different front
cover page. The front cover page to be used in the International Prospectus is
located at the end of the U.S. Prospectus. The front cover page for the
International Prospectus has been labeled "Alternate Cover Page for
International Prospectus."
If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, as amended, ten copies of each of the
Prospectuses in the forms in which they are used will be filed with the
Securities and Exchange Commission.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+ WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+ SECURITIES LAW OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject To Completion)
Issued October 19, 1995
[LOGO OF CONTINENTAL Shares
CABLEVISION, INC. Continental Cablevision, Inc.
APPEARS HERE] CLASS A COMMON STOCK
-----------
ALL OF THE SHARES OF CLASS A COMMON STOCK OF CONTINENTAL CABLEVISION, INC. (THE
"COMPANY" OR "CONTINENTAL") , $.01 PAR VALUE PER SHARE ("CLASS A COMMON STOCK"),
BEING OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE SHARES OF CLASS A
COMMON STOCK BEING OFFERED HEREBY, ARE BEING OFFERED INITIALLY IN THE
UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND ARE BEING OFFERED
INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
-----------
THE COMPANY'S AUTHORIZED CAPITAL STOCK CONSISTS OF CLASS A COMMON STOCK, CLASS B
COMMON STOCK, $.01 PAR VALUE PER SHARE ("CLASS B COMMON STOCK," AND TOGETHER
WITH THE CLASS A COMMON STOCK, "COMMON STOCK"), AND PREFERRED STOCK, $.01 PAR
VALUE PER SHARE ("PREFERRED STOCK"), A PORTION OF WHICH HAS BEEN DESIGNATED
SERIES A PARTICIPATING CONVERTIBLE PREFERRED STOCK ("SERIES A PREFERRED STOCK").
THE ECONOMIC RIGHTS OF EACH CLASS OF COMMON STOCK ARE IDENTICAL, BUT EACH SHARE
OF CLASS B COMMON STOCK ENTITLES ITS HOLDER TO TEN VOTES, WHEREAS EACH SHARE OF
CLASS A COMMON STOCK ENTITLES ITS HOLDER TO ONE VOTE, IN RESPECT OF MATTERS
SUBMITTED FOR THE VOTE OF ALL HOLDERS OF COMMON STOCK. EACH SHARE OF CLASS B
COMMON STOCK IS CONVERTIBLE AT ANY TIME INTO ONE SHARE OF CLASS A COMMON STOCK
AT THE OPTION OF THE HOLDER AND AUTOMATICALLY CONVERTS UPON CERTAIN TRANSFERS.
SEE "DESCRIPTION OF CAPITAL STOCK."
-----------
APPLICATION WILL BE MADE FOR QUOTATION OF THE CLASS A COMMON STOCK ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL " ."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................ $ $ $
Total(3)................. $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares of Class A Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ and $ , respectively.
See "Underwriters."
-----------
The shares of Class A Common Stock are offered, subject to prior sale, when,
as and if accepted by the Underwriters named herein and subject to approval of
certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters.
It is expected that delivery of the shares of Class A Common Stock will be made
on or about , 1995, at the office of Morgan Stanley & Co. Incorporated,
New York, N.Y., against payment therefor in New York funds.
-----------
MORGAN STANLEY & CO.
Incorporated
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
LAZARD FRERES & CO. LLC
, 1995
<PAGE>
[MAP]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
----------------
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE TAKEN
IN ANY JURISDICTION BY THE COMPANY OR ANY UNDERWRITER THAT WOULD PERMIT A
PUBLIC OFFERING OF THE CLASS A COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED,
OTHER THAN IN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS
COMES ARE REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES
ABOUT, AND TO OBSERVE ANY RESTRICTIONS AS TO, THE OFFERING OF THE CLASS A
COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 10
The Company.............................................................. 15
Use of Proceeds.......................................................... 16
Dilution................................................................. 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Pro Forma Condensed Consolidated Financial Information................... 18
Selected Consolidated Financial Information.............................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business................................................................. 41
Legislation and Regulation............................................... 67
Management............................................................... 78
Beneficial Ownership of Common Stock and Preferred Stock................. 85
Certain Transactions..................................................... 89
Description of Capital Stock............................................. 90
Credit Arrangements of the Company....................................... 96
Shares Eligible for Future Sale.......................................... 101
Certain United States Federal Tax Consequences to Non-United States Hold-
ers of Common Stock..................................................... 104
Underwriters............................................................. 107
Legal Matters............................................................ 110
Experts.................................................................. 110
Additional Information................................................... 112
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
Unless otherwise indicated, all industry data set forth in this Prospectus
are based upon information compiled by the National Cable Television
Association ("NCTA"), Paul Kagan Associates and/or Warren Publishing Co., and
median household income data are derived from demographic information provided
by Equifax Marketing Decision Systems, Inc. The demographic information was
provided by zip code area and was averaged by Continental (weighted by the
number of households in each zip code area) (i) for all of the zip code areas
Continental serves and (ii) for the zip code areas in each of Continental's
five U.S. cable television management regions. Equifax Marketing Decision
Systems, Inc. developed the 1995 demographic information by adjusting 1990
census data to take into account estimated growth rates which were developed by
the WEFA Group (formerly Wharton Econometric Forecasting Associates and Chase
Econometrics).
The Company logo is a trademark of the Company. All other brand names and
trademarks appearing in this Prospectus are the property of their respective
holders.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Continental Cablevision, Inc. is
referred to herein as the "Company" or "Continental," which terms include its
consolidated subsidiaries unless the context indicates otherwise. The
subscriber-related information for 1995 in this Prospectus, except as otherwise
provided, gives effect to (i) the acquisition on October 5, 1995 by Continental
of the cable television businesses and assets of Providence Journal Company
("Providence Journal") through the merger of Providence Journal with and into
Continental and related transactions (the "Merger"); (ii) the recent
acquisitions of systems serving approximately 88,000 basic subscribers in
Chicago, Illinois ("Cablevision of Chicago"), 74,000 basic subscribers in
Michigan ("Columbia Cable of Michigan") and 12,000 basic subscribers in
Northern California ("Consolidated Cablevision of California," collectively the
"Recent Acquisitions"); and (iii) the pending acquisition of the remaining
66.2% interest in N-COM Limited Partnership II ("N-COM"), which owns systems
serving approximately 56,000 basic subscribers in Michigan (the "Pending N-COM
Buyout," collectively with the Merger and the Recent Acquisitions, the "1995
Acquisitions"). In addition, the share information in this Prospectus, except
as otherwise provided, (i) gives effect to a stock dividend, effective
September 29, 1995, of 24 shares of the respective class of Common Stock for
each share of Class A Common Stock and Class B Common Stock outstanding on the
record date for such stock dividend and (ii) assumes that the U.S.
Underwriters' over-allotment option is not exercised.
THE COMPANY
OVERVIEW
Continental is a leading provider of broadband communications services. As of
June 30, 1995, the Company's systems and those of its U.S. affiliates passed
approximately 7.1 million homes and provided service to approximately 4.1
million basic subscribers, making the Company the third-largest cable
television system operator in the United States. In addition, Continental has
pursued and continues to pursue investments that are complementary to its core
business, including (i) international broadband communications ventures; (ii)
interests in the telecommunications and technology industries, including
companies offering competitive-access telephony and direct broadcast satellite
("DBS") service; and (iii) interests in programming services. Continental's
business strategy is to capitalize on its clustered systems, technologically
advanced broadband networks, management expertise and reputation for quality to
compete effectively in new and existing businesses and markets. For 1994, the
Company's pro forma revenues were approximately $1.6 billion and its pro forma
operating income before depreciation, amortization and non-cash compensation
was $675.9 million.
Cable Television Systems. The Company's five management regions operate
systems that are organized into 19 operating clusters in 20 states. As of June
30, 1995, approximately 55.9% of Continental's subscribers were located in the
Company's seven largest operating clusters. The 1995 Acquisitions increase the
total number of subscribers in these clusters by approximately 42.8%, to more
than 2.2 million. Continental believes that its operating scale in key markets
generates significant benefits, including lower programming costs and other
operating efficiencies, and enhances its ability to develop and deploy new
technologies and services.
Continental's systems have channel capacity and addressability that are among
the highest in the cable industry. The Company's systems are located
principally in suburban communities adjacent to major metropolitan markets, as
well as mid-sized cities, that generally have attractive demographics and are
geographically diverse. These systems serve communities with a median household
income of approximately $42,300 versus the national median of approximately
$37,900. Continental believes that its technologically advanced broadband
networks and the demographic profile of its subscriber base, coupled with its
effective marketing, are essential to its ability to sustain pay to basic
penetration rates and total monthly revenue per average basic subscriber that
are among the highest in the cable industry. Continental believes that the
geographic diversity of its system clusters reduces its exposure to economic,
competitive or regulatory factors in any particular region.
4
<PAGE>
International. Continental participates in several broadband communications
ventures outside the United States. The Company owns a 50% interest in Fintelco
S.A. ("Fintelco"), the largest cable television system operator in Latin
America, which currently serves over 620,000 subscribers in Argentina.
Continental has also formed a joint venture ("Optus Vision") in Australia, in
which it holds a 46.5% equity interest. Optus Vision is constructing a
broadband communications network to provide local telephony, cable television
and a variety of advanced interactive services to business and residential
customers. Continental has a 25% equity interest in Singapore Cablevision Pte
Ltd ("SCV"), a joint venture that is constructing a broadband network to
provide cable television and a variety of advanced interactive services to
substantially all households in Singapore. Continental also has recently signed
a memorandum of understanding relating to the provision of cable television,
telephony, multimedia and interactive services in Japan and continues to pursue
other international opportunities, principally in Latin America and the Pacific
Rim.
Telecommunications and Technology. The Company has investments in the
telecommunications and technology industries, including: (i) a 20% ownership
interest in Teleport Communications Group Inc. ("TCG"), a provider of local
telecommunications services to high-volume business customers in major
metropolitan areas nationwide; (ii) controlling interests in two companies that
provide local telecommunications services to business customers in Richmond,
Virginia and Jacksonville, Florida; and (iii) an approximate 10% ownership
interest in PrimeStar Partners, L.P. ("PrimeStar"), a provider of medium-
powered, 73-channel DBS service to over 500,000 subscribers nationwide.
Programming. The Company has made and continues selectively to make
investments in programming services. The Company's programming investments
include interests in Turner Broadcasting System ("Turner"), E! Entertainment
Television ("E!"), New England Cable News, Home Shopping Network ("HSN"),
Viewer's Choice, Digital Cable Radio Associates ("Music Choice"), the Golf
Channel and the Food Channel.
BUSINESS STRATEGY
Continental's business strategy is to capitalize on its clustered systems,
technologically advanced broad-band networks, management expertise and
reputation for quality to compete effectively in new and existing businesses
and markets.
U.S. Operations. The Company's strategy in the United States is to acquire
and retain customers that will subscribe to a broad range of video, high-speed
data, telephony and other telecommunications services. Execution of this
strategy involves the following key operating principles: (i) expansion of its
nationwide operating scale (as measured by homes passed); (ii) further
development of large regional system clusters in demographically attractive
markets; (iii) development of technologically advanced broadband networks
capable of providing expanded video, high-speed data, telephony and other
telecommunications services; (iv) dedication to decentralized and locally
responsive management; (v) increased focus on marketing; (vi) commitment to
superior customer service and community relations; and (vii) continued
leadership in regulatory and other industry matters.
The telecommunications industry, including the cable television and telephony
industries, is in a period of consolidation characterized by mergers, joint
ventures, acquisitions, cable system exchanges and similar transactions.
Management believes that the Company is well-positioned to participate in this
consolidation due to its clustered systems, the technical quality of its cable
plant, its management expertise and its strong relationships within the cable
industry. Continental has recently acquired and will continue selectively to
acquire cable television systems that are contiguous, or in close proximity, to
its existing systems. The Company also reviews opportunities to exchange its
systems for those of other cable television system operators in order to
enlarge and enhance its regional system clusters and may acquire cable
television systems that would form the basis for new system clusters.
Continental generates incremental operating income from such acquisitions and
exchanges through the expansion of service offerings and efficiencies resulting
from system consolidation.
5
<PAGE>
Continental is currently rebuilding and upgrading its U.S. systems to create
advanced hybrid fiber-optic and coaxial cable networks that will serve as the
infrastructure for the provision of enhanced video, high-speed data, telephony
and other telecommunications services. Continental anticipates making the
incremental capital investment required to provide new services as regulations
permit and customer demand expands. Continental anticipates that it will be a
facilities-based provider of enhanced video, high-speed data and certain
telephony services. The Company expects, however, to resell certain services
such as wireless and long distance telephony. Continental is currently
exploring various business arrangements to provide telephony services in
selected markets. Continental's options, which may differ by market, include:
(i) affiliating with other cable television companies; (ii) affiliating with a
Regional Bell Operating Company ("RBOC") or an Interexchange Carrier ("IXC");
and (iii) entering the business independently. Continental believes that it is
well-positioned to provide these services, given its national operating scale,
large regional system clusters in demographically attractive markets,
technologically advanced broadband networks, existing sale and service
organization and reputation for quality.
International Operations. Continental has made and continues selectively to
pursue investments in international broadband communications networks,
principally in Latin America and the Pacific Rim. These investments represent
opportunities for Continental to capitalize on its managerial, technical and
marketing expertise in international markets. Continental intends to apply its
U.S. operating principles, as appropriate, to its international ventures. In
addition, Continental receives valuable information and operating experience in
businesses, such as telephony, that Continental intends to develop in the
United States. In considering such investments, Continental seeks the following
characteristics: (i) favorable demographics and attractive growth prospects;
(ii) well-capitalized investment partners with extensive knowledge of the local
markets; and (iii) favorable political, regulatory and competitive
environments.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered:
U.S. Offering......................................... shares
International Offering................................ shares
------------------
Total............................................... shares
==================
Common Stock to be outstanding after the Offering:
Class A Common Stock.................................. shares
Class B Common Stock.................................. 109,196,050 shares
------------------
Total............................................... shares
==================
Series A Preferred Stock to be
outstanding after the Offering......................... 1,142,858 shares (28,571,450 shares
of Class B Common Stock on a
Common Stock equivalent basis)
</TABLE>
Voting rights...................... While each class of Class A Common Stock has
identical economic rights to those of the
Class B Common Stock, the voting rights
differ. Each share of Class A Common Stock
is entitled to one vote, and each share of
Class B Common Stock is entitled to ten
votes. The Class A Common Stock and Class B
Common Stock vote as a single class with
respect to all matters submitted to
stockholders for a vote. Series A Preferred
Stock is entitled to 250 votes per share and
is convertible into 25 shares of Class B
Common Stock, unless transferred to a person
other than a permitted transferee and in
certain other circumstances, in which case
it is entitled to 25 votes per share and is
convertible into 25 shares of Class A Common
Stock. Upon completion of the Offering,
Continental's Directors and officers as a
group will own or control approximately % of
the voting power of the outstanding voting
stock of the Company. See "Description of
Capital Stock."
Use of proceeds.................... The net proceeds to the Company from the
Offering will be used to repay a portion of
indebtedness under a revolving credit
facility. The Company expects to borrow
under such facility in the future for
general corporate purposes, including
capital expenditures, investments and
acquisitions. See "Use of Proceeds."
Nasdaq symbol...................... .
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY CERTAIN MATTERS RELATING TO
AN INVESTMENT IN THE COMPANY. SEE "RISK FACTORS."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------- ----------------------------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(1)
---------------------------------- ---------- ------------------ --------
1992 1993 1994 1994 1994 1995 1995
---------- ---------- ---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $1,113,475 $1,177,163 $1,197,977 $1,586,829 $589,390 $650,048 $840,220
Operating, selling,
general and
administrative expenses.. 625,145 649,571 672,884 910,921 327,401 375,178 492,704
Depreciation and amorti-
zation.................. 272,851 279,009 283,183 383,451 135,523 148,412 196,299
Restricted stock purchase
program(2).............. 9,683 11,004 11,316 11,316 5,675 5,905 5,905
---------- ---------- ---------- ---------- -------- -------- --------
Operating income......... 205,796 237,579 230,594 281,141 120,791 120,553 145,312
Interest expense (net)... 296,031 282,252 315,541 371,961 147,910 166,314 200,726
Loss before extraordinary
item and cumulative ef-
fect of accounting
change.................. (102,960) (25,774) (68,576) (72,265) (23,621) (33,067) (37,869)
Extraordinary item....... -- -- (18,265) (18,265) -- -- --
Cumulative effect of
accounting change....... -- (184,996) -- -- -- -- --
Net loss................. (102,960) (210,770) (86,841) (90,530) (23,621) (33,067) (37,869)
Preferred stock prefer-
ences................... (16,861) (34,115) (36,800) (36,800) (17,887) (19,347) (19,347)
Loss applicable to common
stockholders............ $ (119,821) $ (244,885) $ (123,641) $ (127,330) $(41,508) $(52,414) $(57,216)
Per common share:
Loss before extraordi-
nary item and cumula-
tive effect of account-
ing change............. $ (1.00) $ (.53) $ (.92) $ $ (.36) $ (.45) $
Extraordinary item...... -- -- (.16) -- -- --
Cumulative effect of
accounting change...... -- (1.62) -- -- -- -- --
---------- ---------- ---------- ---------- -------- -------- --------
Net loss................ $ (1.00) $ (2.15) $ (1.08) $ $ (.36) $ (.45) $
========== ========== ========== ========== ======== ======== ========
Weighted average common
shares outstanding (in
thousands).............. 119,544 114,055 114,334 114,084 117,627
OTHER DATA:
EBITDA(3)................ $ 488,330 $ 527,592 $ 525,093 $ 675,908 $261,989 $274,870 $347,516
EBITDA as a % of reve-
nues.................... 43.9% 44.8% 43.8% 42.6% 44.5% 42.3% 41.4%
Net cash provided from
operating activities.... $ 215,045 $ 250,504 $ 236,304 $123,568 $ 77,526
Capital expenditures..... $ 145,189 $ 185,691 $ 300,511 $109,984 $231,021
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
-----------------------
PRO
ACTUAL FORMA(4)
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................... $ 15,342 $ 16,886
Total assets........................................... 2,693,894 4,900,943
Total debt............................................. 3,728,101 4,645,751
Redeemable common stock................................ 242,721 242,721
Stockholders' equity (deficiency)...................... (1,725,035) (857,766)
</TABLE>
SUBSCRIBER DATA FOR U.S. CABLE SYSTEMS (5)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------------- -------------------------
ACTUAL ACTUAL PRO FORMA (4)
---------------------------------- ---------- -------------
1992 1993 1994 1995 1995
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Homes passed by ca-
ble(6)................. 4,981,000 5,192,000 5,372,000 5,437,000 7,116,000
Number of basic sub-
scribers(7)............ 2,856,000 2,895,000 3,081,000 3,133,000 4,117,000
Basic penetration(8).... 57.3% 55.8% 57.4% 57.6% 57.9%
Number of premium
subscriptions(9)....... 2,545,000 2,454,000 2,635,000 2,666,000 3,347,000
Premium penetra-
tion(10)............... 89.1% 84.8% 85.5% 85.1% 81.3%
Monthly revenue per av-
erage basic subscrib-
er(11)................. $34.46 $35.76 $35.29 $35.65 $34.63
</TABLE>
(footnotes on following page)
8
<PAGE>
- --------
(1) Gives effect to (i) the acquisitions in 1994 of systems serving
approximately 44,000 basic subscribers in Manchester, New Hampshire (the
"New Hampshire Acquisition") and 34,000 basic subscribers in Florida (the
"Florida Acquisition"); (ii) the closing of a reducing revolving credit
facility in 1994 (the "1994 Credit Facility"); (iii) the redemption in 1994
of 12 7/8% Subordinated Debentures (the "12 7/8% Debentures"); (iv) the
1995 Acquisitions; (v) the closing of a reducing revolving credit facility
in connection with the Merger (the "1995 Credit Facility"); and (vi) the
Offering and the application of the net proceeds therefrom (assuming an
initial public offering price of $ per share of Class A Common Stock) as
though each transaction had occurred as of January 1, 1994. See "Pro Forma
Condensed Consolidated Financial Information."
(2) Represents the difference between the consideration paid by employees for
shares of Common Stock under the Company's Restricted Stock Purchase
Program and the fair market value of such shares (as determined by the
Company's Board of Directors) at the date of issuance, amortized over such
shares' vesting schedule. See Note 11 to the Company's Consolidated
Financial Statements.
(3) Operating income before depreciation and amortization and non-cash stock
compensation. Based on its experience in the cable television industry, the
Company believes that EBITDA and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA should not be considered by the reader as
an alternative to operating or net income (as determined in accordance with
generally accepted accounting principles ("GAAP")) as an indicator of the
Company's performance or as an alternative to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity. Substantially all of the Company's financing agreements contain
covenants in which EBITDA is used as a measure of financial performance.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(4) Gives effect to (i) the 1995 Acquisitions; (ii) the closing of the 1995
Credit Facility; and (iii) the Offering and the application of the net
proceeds therefrom (assuming an initial public offering price of $ per
share of Class A Common Stock), as though each transaction had occurred as
of June 30, 1995. See "Pro Forma Condensed Consolidated Financial
Information."
(5) In reporting subscriber and other data for U.S. cable systems not
controlled or managed by the Company, only that portion of data
corresponding to the Company's percentage interest is included.
(6) Represents estimated dwelling units located sufficiently close to the
Company's cable plant to be practicably connected without any further
extension of principal transmission lines.
(7) A "basic subscriber" means a person who, at a minimum, subscribes to the
Company's Basic Broadcast Tier which consists of broadcast television
signals available off-air locally, local origination and public,
educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis, dividing aggregate
Basic Broadcast Tier revenues by the stated Basic Broadcast Tier rate.
(8) Basic subscribers as a percentage of homes passed by cable. The Company's
basic penetration for the years ended December 31, 1993 and 1994 and the
six months ended June 30, 1995, reflects the Federal Communications
Commission's (the "FCC") rate regulation rules adopted on April 1, 1993,
which for the first time provided a standardized definition of
"households."
(9) Equals the number of premium services subscribed to by basic subscribers.
Premium services include only single channel services offered for a monthly
fee per channel and do not include packages of channels offered for a
single monthly fee.
(10) Premium subscriptions as a percentage of basic subscribers. A basic
subscriber may purchase more than one premium service, each of which is
counted as a separate premium subscription. This ratio may be greater than
100% if the average customer subscribes to more than one premium service.
(11) Cable revenues (excluding DBS service) divided by the weighted average
number of basic subscribers for the Company's consolidated subsidiaries
during the twelve-month period ended December 31 for each year presented
and the six-month period ended June 30, 1995. On a pro forma basis, pro
forma revenues divided by the sum of the weighted average number of basic
subscribers for the Company's consolidated subsidiaries and the average
basic subscribers for the systems acquired in the 1995 Acquisitions for
the six-month period ended June 30, 1995.
9
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors in
addition to the other information set forth in this Prospectus in evaluating an
investment in the shares of Class A Common Stock offered hereby.
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation on the
federal, state and local levels. Many aspects of such regulations are currently
the subject of judicial proceedings and administrative or legislative
proposals. The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") significantly expanded the scope of cable television
regulation. The FCC has completed a number of rule-making proceedings under the
1992 Cable Act, including those that permit franchising authorities to set
rates for basic service and the provision of cable-related equipment. To the
extent that existing rates are found to exceed those permitted by the FCC,
franchising authorities will be able to require cable television systems to
reduce the rates and provide refunds for up to a one-year period initially
calculated from the effective date of the FCC's regulations. The FCC will also,
upon a complaint by a customer or franchising authority, determine whether
rates for regulated non-basic service tiers (except for services offered on a
per-channel or per-program basis) are unreasonable and, if so found, reduce
such rates and provide refunds from the date of such complaint. In addition,
the FCC's regulations, as they now stand, limit a cable operator's ability to
increase rates for regulated services. It is possible that, pursuant to further
review by the franchising authorities and the FCC, certain additional rate
reductions may be required.
In order to resolve a variety of significant regulatory issues and obtain
more certainty in the regulatory environment, on August 3, 1995, the FCC
adopted a social contract with Continental (the "Social Contract"), which is
the first comprehensive rate agreement involving cable television ever approved
by the FCC. The Social Contract extends through the year 2000 and settles most
of the Company's current rate cases. As part of the resolution of these cases,
the Company has agreed to (i) invest at least $1.35 billion in system upgrades
in the United States from 1995 through 2000 to expand channel capacity and
improve system reliability and picture quality and (ii) make in-kind refunds to
affected subscribers totaling approximately $9.5 million. See "Business--U.S.
Operating Strategy--Regulatory Strategy; Social Contract" for a more detailed
description of the Social Contract and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Various cable operators have initiated litigation challenging certain aspects
of the 1992 Cable Act. The constitutionality of the basic scheme of rate
regulation under the 1992 Cable Act has been upheld by a federal district
court, and the FCC's rate regulation rules were upheld by a federal appeals
court in June 1995. The outcome of the balance of this litigation cannot be
predicted. The Company believes that the regulation of the cable television
industry, including the rates charged for regulated services under present FCC
rules and the cable industry's restructuring of rates and services in response
to the 1992 Cable Act, remains a matter of interest in Congress, the FCC and
other regulatory authorities. The U.S. Senate and House of Representatives
recently approved separate bills that would significantly modify the rate
regulation provisions of the 1992 Cable Act. If legislation is passed that is
more favorable to the Company than the terms of the Social Contract, the
Company would be allowed to benefit from such legislation. There can be no
assurance as to what, if any, future actions such legislative and regulatory
authorities may take or the effect thereof on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Legislation and Regulation."
COMPETITION
Continental's systems compete with other communications and entertainment
media, including conventional off-air television broadcasting services,
newspapers, movie theaters, live sporting events and home video products. Cable
operators also compete with other distribution systems capable of delivering
television programming to homes such as Multi-channel Multi-point Distribution
Services ("MMDS") and DBS services. Three companies currently provide DBS
services in the United States, including PrimeStar, in which Continental owns a
10.4% interest. Recent court and administrative decisions have removed certain
10
<PAGE>
of the restrictions that have limited entry into the cable television business
by certain potential competitors, such as telephone companies, and bills
recently under consideration by Congress and cases currently pending in the
courts could result in the elimination of other such restrictions. The U.S.
Senate and the House of Representatives recently passed separate bills that
would permit telephone companies to provide cable television services,
conditioned on the establishment of safeguards to prevent cross-subsidization
between telephone and cable television operations. Cable television companies
operate under non-exclusive franchises granted by local authorities which are
subject to renewal and renegotiation from time to time. The 1992 Cable Act
prohibits franchising authorities from granting exclusive cable television
franchises and from unreasonably refusing to award additional competitive
franchises; it also permits municipal authorities to operate cable television
systems in their communities without a franchise. The Company cannot predict
the extent to which competition will materialize from potential competitors
such as the telephone companies, other distribution systems for delivering
television programming to the home or other cable operators, or the extent of
its effect on the Company. See "Business--Competition" and "Legislation and
Regulation."
The Company has not traditionally provided telephony and high-speed data
services. The two-way switched voice and high-speed data markets are currently
dominated by local telephone companies (or "LECs"), which include RBOCs. Due to
historical regulatory constraints, the LECs currently have a virtual monopoly
over these markets. As the regulatory barriers have weakened in some states,
other "alternate access" carriers have entered these markets. All new entrants
to these markets, however, currently depend upon the LECs for interconnection
of equipment, access to customers and allocation of telephone numbers. The LECs
have financial and other resources that are significantly greater than those of
the Company. Moreover, if certain regulatory barriers are eliminated, the LECs
may be permitted to provide cable television services, thereby creating
potentially significant sources of competition for the Company.
SUBSTANTIAL LEVERAGE AND HISTORY OF LOSSES
The Company is substantially leveraged due to the indebtedness it has
incurred over time primarily to finance acquisitions and expand its operations
and, to a lesser extent, to repurchase shares of its capital stock. As of June
30, 1995, the Company's aggregate debt was $3.7 billion. As of June 30, 1995,
after giving effect to the 1995 Acquisitions, the closing of the 1995 Credit
Facility and the Offering, the Company would have had approximately $4.6
billion of debt and a stockholders' deficiency of approximately $857.8 million.
See "Pro Forma Condensed Consolidated Financial Information." The Company may
incur additional indebtedness for capital expenditures, investments and
acquisitions in the future and to satisfy its obligations in 1998 and 1999
under its stockholder liquidity program, among other things. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--1998-1999 Share Repurchase Program." The
Company anticipates that, in light of the amount of its existing indebtedness,
it will continue to have substantial leverage for the foreseeable future.
The Company has a history of net losses, which have contributed to its
stockholders' deficiency of $1.7 billion as of June 30, 1995. The Company
reported net losses from continuing operations, before extraordinary items and
the cumulative effect of the change in accounting for income taxes, of $25.8
million and $68.6 million for the years ended December 31, 1993 and 1994,
respectively, and $33.1 million for the six months ended June 30, 1995. After
giving effect to the New Hampshire Acquisition, the Florida Acquisition, the
closing of the 1994 and 1995 Credit Facilities, the redemption of the 12 7/8%
Debentures, the 1995 Acquisitions and the Offering, the Company would have
reported losses from continuing operations before extraordinary items of $72.3
million and $37.9 million for the year ended December 31, 1994 and the six
months ended June 30, 1995, respectively. See "Pro Forma Condensed Consolidated
Financial Information." The high level of depreciation and amortization
associated with the Company's acquisitions and capital expenditures related to
continued construction and upgrading of the Company's systems and interest
costs related to its financing activities will cause the Company to continue to
report net losses for the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
11
<PAGE>
Historically, cash generated from the Company's operating activities in
conjunction with borrowings and proceeds from private equity issuances has been
sufficient to fund its debt service requirements, stock repurchase obligations,
capital expenditures, investments and acquisitions. The Company believes that
cash generated from operating activities, together with borrowings from
existing and future credit facilities and the net proceeds from the Offering
and from future equity issuances, will be sufficient to fund its future debt
service requirements and stock repurchase obligations, and to make anticipated
capital expenditures, investments and acquisitions. However, there can be no
assurances in this regard. Furthermore, there can be no assurances that the
terms available for any future debt or equity financing would be favorable to
the Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
POTENTIAL FOR REDEMPTION OF CERTAIN EQUITY SECURITIES
The Company is required to repurchase in late 1998 or early 1999 an aggregate
of 16,684,150 shares of Class A Common Stock and Class B Common Stock
(collectively, the "Redeemable Common Stock") from certain stockholders at a
purchase price, which is equal to the greater of (i) the dollar amount that a
holder of Common Stock would receive per share of Common Stock upon a sale of
Continental as a whole pursuant to a merger or a sale of stock or, if greater,
the dollar amount a holder of Common Stock would then receive per share of
Common Stock derived from the sale of Continental's assets and subsequent
distribution of the proceeds therefrom (net of corporate taxes, including sales
and capital gains taxes in connection with such sale of assets), in either case
less a discount of 22.5% or (ii) the dollar amount equal to the net proceeds
which would be expected to be received by a stockholder of Continental from the
sale of a share of Common Stock in an underwritten public offering at the time
the shares are to be repurchased after, under certain circumstances, being
reduced by pro forma expenses and underwriting discounts. For illustrative
purposes, assuming the dollar amount under clause (ii) above equaled the
initial public offering price less underwriting discounts and commissions per
share of Class A Common Stock at the date of repurchase, and that such price is
higher than the price per share a stockholder would receive if the Company were
sold in a private transaction (less a discount of 22.5%), the maximum aggregate
redemption price to be paid by the Company for the Redeemable Common Stock in
1998 or 1999 would be $ . See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--1998-1999 Share Repurchase Program."
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Class A
Common Stock. There can be no assurance that an active public market for the
Class A Common Stock will develop or be sustained after the Offering or that
the initial public offering price will correspond to the price at which the
Class A Common Stock will trade in the public market subsequent to the
Offering. The initial public offering price for the Class A Common Stock will
be determined by negotiations between the Company and the Underwriters based on
the factors described under "Underwriters." In addition, the stock market may
experience volatility that affects the market prices of companies in ways
unrelated to the operating performance of such companies. These market
fluctuations could adversely affect the market price of the Class A Common
Stock.
NO INTENTION TO PAY DIVIDENDS
The Company does not intend to pay cash dividends on its Common Stock or
Series A Preferred Stock in the foreseeable future. In addition, under the
terms of certain of the Company's financing agreements, the Company is subject
to certain restrictions on paying cash dividends on its capital stock. See
"Credit Arrangements of the Company" and "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
There will be shares of Class A Common Stock, 109,196,050 shares of Class
B Common Stock and 1,142,858 shares of Series A Preferred Stock (28,571,450
shares of Class B Common Stock on a Common
12
<PAGE>
Stock equivalent basis) outstanding immediately after this Offering, including
the shares of Class A Common Stock offered hereby. Upon the completion of
the Offering, all the shares of Class A Common Stock offered hereby will be
eligible for public sale without restriction, except for shares purchased by
"affiliates" of the Company. The 30,142,732 shares of Class A Common Stock
issued in the Merger were subject to a registered exchange offer under the
Securities Act of 1933, as amended (the "Securities Act"), and are eligible for
public sale without restriction, except that they are subject to contractual
restrictions on transfer until October 5, 1996. The remaining 39,411,107 shares
of Class A Common Stock and all of the outstanding shares of Class B Common
Stock and Series A Preferred Stock are "restricted securities" and may be sold
only pursuant to Rule 144 ("Rule 144") promulgated under the Securities Act or
another exemption.
Only the Class A Common Stock will be included for quotation on the Nasdaq
National Market. Treating the restricted Class B Common Stock and the Series A
Preferred Stock as if all outstanding shares thereof were converted into Class
A Common Stock, there would be approximately 143,662,429 shares of restricted
Class A Common Stock outstanding (excluding any unvested shares granted as part
of incentive compensation to officers of Continental and its subsidiaries and
shares subject to Rule 701 under the Securities Act ("Rule 701 Shares")); of
such shares, immediately following the Offering, (x) approximately 47,482,183
shares would be eligible for sale without regard to volume or certain other
limitations under Rule 144(k) of the Securities Act ("Rule 144(k) Shares") and
(y) approximately 90,282,100 shares would be eligible for sale, subject to
compliance with volume and other limitations under Rule 144 ("Rule 144
Shares"). The remaining shares of currently outstanding Class A Common Stock or
shares of Class A Common Stock issuable upon conversion of currently
outstanding convertible securities (including the outstanding shares of Class B
Common Stock) would become eligible for sale at various times thereafter. In
addition, certain stockholders of the Company have demand or "piggyback"
registration rights with respect to certain of their shares. See "Shares
Eligible for Future Sale--Outstanding Registration Rights." The Company and all
its officers and Directors and certain other stockholders of the Company,
holding an aggregate of approximately Rule 144(k) Shares, Rule 144 Shares
and Rule 701 Shares (excluding unvested shares), subject to certain
exceptions (including, with respect to the Company, the right to issue up to an
aggregate of % of the shares of Common Stock outstanding on the date of this
Prospectus in connection with acquisitions by the Company), have agreed not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, the economic consequences
of ownership of the Common Stock, whether any such transactions described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise for a period of 180 days after the date of
this Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. See "Shares Eligible for Future Sale" and "Underwriters."
No predictions can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price for
the Class A Common Stock prevailing from time to time. Sales of substantial
numbers of shares of Class A Common Stock in the public market could adversely
affect the market price of the Class A Common Stock.
DISPARATE VOTING RIGHTS AND VOTING CONTROL
The Class A Common Stock entitles its holders to one vote per share on all
matters submitted generally to a vote of the Company's stockholders, while the
Class B Common Stock entitles its holders to 10 votes per share. The holders of
Series A Preferred Stock vote as if they had converted each of their shares
into 25 shares of Class B Common Stock (i.e., 250 votes per share of Series A
Preferred Stock). If the holders of the Series A Preferred Stock transfer their
shares to persons other than certain permitted transferees, the new holders
will vote as if each of their shares of Series A Preferred Stock had been
converted into 25 shares of Class A Common Stock (i.e., 25 votes per share of
Series A Preferred Stock). Accordingly, as of the
13
<PAGE>
consummation of the Offering, the holders of the Class B Common Stock and the
holders of the Series A Preferred Stock will have sufficient voting power to
determine the outcome of most matters submitted to the stockholders for
approval.
Upon completion of the Offering, Continental's Directors and officers as a
group will own or control approximately % of the voting power of the
outstanding voting securities of the Company. Accordingly, such management
group will, in effect, be able to control the vote on all matters submitted to
a vote of the holders of the Company's voting securities, except to the extent
the Company's Restated Certificate of Incorporation (the "Restated
Certificate") or applicable law requires a 66 2/3% vote and on those matters
requiring a separate class vote. See "Beneficial Ownership of Common and
Preferred Stock" and "Description of Capital Stock."
DILUTION
Persons purchasing shares of Class A Common Stock in the Offering will
sustain immediate dilution in tangible net worth per share of Common Stock of
approximately $ (assuming an initial public offering price of $ per share
of Class A Common Stock). Dilution for this purpose represents the difference
between the per share initial public offering price of the Class A Common Stock
and the pro forma deficit in tangible net worth per share of Class A Common
Stock after the Offering. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS
Certain provisions of the Company's Restated Certificate and Amended and
Restated By-Laws (the "By-Laws") could have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
acquiring, a majority of the outstanding capital stock of the Company and could
make it more difficult to consummate certain types of transactions involving an
actual or potential change in control of the Company, such as a merger, tender
offer or proxy contest. See "Description of Capital Stock--DGCL and Certain
Provisions of the Restated Certificate and the By-Laws." The most significant
of these is the disparate voting rights of the Class B Common Stock described
above. See "Disparate Voting Rights and Voting Control." The Restated
Certificate also provides for three classes of Directors to be elected on a
staggered basis--one class each year--which enables existing management to
exercise significant control over the Company's affairs. Certain institutional
investors and The Providence Journal Company currently have the right to
designate nominees to stand for election to the Company's Board of Directors.
See "Management--Directors, Executive Officers and Other Officers." Pursuant to
the Restated Certificate, shares of the Company's Preferred Stock may be issued
in the future without further stockholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board of
Directors may determine. See "Management--Directors, Executive Officers and
Other Officers" and "Description of Capital Stock."
RELIANCE ON KEY PERSONNEL
The success of the Company's business will partially depend upon the
continued availability of the services of certain key individuals, including
Amos B. Hostetter, Jr., Chairman of the Board of Directors and Chief Executive
Officer of the Company. The Company does not have employment contracts with,
nor does it maintain key man insurance on, any of its executive officers. See
"Management."
INTERNATIONAL INVESTMENTS
The Company has made investments in non-U.S. broadband communications
ventures and intends to continue to consider investments in Latin America and
the Pacific Rim. See "Business--International Operations." Such investments are
subject to risks and uncertainties relating to the indigenous political, social
and economic structures of those countries. Risks specifically related to
investments in non-U.S. ventures may include risks of fluctuations in currency
valuation, expropriation, confiscatory taxation and nationalization, increased
regulation and approval requirements and governmental policies limiting returns
to foreign investors.
14
<PAGE>
THE COMPANY
OVERVIEW
Continental is a leading provider of broadband communications services. As of
June 30, 1995, the Company's systems and those of its U.S. affiliates passed
approximately 7.1 million homes and provided service to approximately 4.1
million basic subscribers, making the Company the third-largest cable
television system operator in the United States. In addition, the Company has
pursued and continues to pursue investments that are complementary to its core
business, including (i) international broadband communications ventures; (ii)
interests in the telecommunications and technology industries, including
companies offering competitive-access telephony and DBS service; and (iii)
interests in programming services. Continental's business strategy is to
capitalize on its clustered systems, technologically advanced broadband
networks, management expertise and reputation for quality to compete
effectively in new and existing businesses and markets. For 1994, the Company's
pro forma revenues were approximately $1.6 billion and its pro forma operating
income before depreciation, amortization and non-cash compensation was $675.9
million. The Company was incorporated in the State of Delaware in 1963. The
Company's principal offices are located at The Pilot House, Lewis Wharf,
Boston, Massachusetts, and its telephone number is (617) 742-9500.
RECENT TRANSACTIONS
The Company has recently completed a series of acquisitions in the United
States, the most significant of which was the acquisition of the cable
television businesses and assets of Providence Journal. On October 5, 1995,
pursuant to the terms of an Agreement and Plan of Merger, dated as of
November 18, 1994, as amended and restated as of August 1, 1995 (the "Merger
Agreement"), by and among Continental, Providence Journal, The Providence
Journal Company, King Holding Corp. and King Broadcasting Company, Continental
acquired all of the cable television businesses and assets of Providence
Journal ("Providence Journal Cable") in a series of related transactions, the
result of which was that Providence Journal, following an internal corporate
restructuring in which the non-cable businesses and assets of Providence
Journal were transferred to a new company ("The Providence Journal Company"),
merged with and into Continental. Continental issued 30,142,732 shares of Class
A Common Stock to Providence Journal stockholders in the Merger. The shares of
Class A Common Stock received in the Merger are not transferable by the former
Providence Journal stockholders except for transfers not for value to certain
specified permitted transferees until October 5, 1996.
As part of the Merger, Continental also purchased certain cable television
systems owned by a subsidiary of Providence Journal for a purchase price of
$405.0 million and discharged approximately $410.0 million of Providence
Journal indebtedness. The Company funded both of these obligations with
borrowings under the 1995 Credit Facility. The systems acquired in the Merger
as of June 30, 1995 passed approximately 1.3 million homes and served
approximately 773,000 basic subscribers in nine states. Such systems are, for
the most part, located in communities contiguous, or in close proximity to,
Continental systems. See "Business--U.S. Acquisitions and Investments" for a
description of other recent U.S. acquisitions by the Company.
In connection with the Merger, Continental's stockholders adopted an
amendment to the Restated Certificate that increased the number of authorized
shares of capital stock of Continental from 17.7 million to 825 million,
including an increase in the number of authorized shares of Class A Common
Stock to 425 million and Class B Common Stock to 200 million, and the
Continental Board of Directors declared a stock dividend in the form of (a) 24
shares of Continental Class A Common Stock for each share of Continental Class
A Common Stock outstanding on the record date for such stock dividend and (b)
24 shares of Continental Class B Common Stock for each share of Continental
Class B Common Stock outstanding on the record date for such stock dividend,
effective September 29, 1995.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $282.5 million (or approximately $325.0 million if the U.S.
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and Offering expenses.
The net proceeds to the Company from the Offering will be used to repay
approximately $282.5 million in aggregate principal amount of indebtedness
outstanding under its 1994 Credit Facility, which is a reducing revolving
credit facility with a final maturity date of October 10, 2003. Subject to the
terms of the 1994 Credit Facility, the Company may reborrow the amounts that
are repaid thereunder with the net proceeds of this Offering. As of September
30, 1995, $2,032.2 million was outstanding under the 1994 Credit Facility. The
weighted average interest rate at September 30, 1995 on the indebtedness
outstanding under the 1994 Credit Facility was approximately 7.6%. See "Credit
Arrangements of the Company." The Company expects to borrow under the 1994
Credit Facility in the future for general corporate purposes, including capital
expenditures for U.S. system rebuilds and upgrades, and investments and
acquisitions. See "Business--Acquisitions and Strategic Investments." As a
result of the Offering, the holders of $100.0 million of Senior Subordinated
Floating Rate Debentures Due 2004 (the "Floating Rate Debentures") may require
that the Company redeem the Floating Rate Debentures. The Company would use
cash on hand and borrow under the 1994 Credit Facility to fund such
redemptions, if any. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Credit Arrangements of the Company."
DILUTION
As of June 30, 1995, after giving effect to the 1995 Acquisitions, the
Company had a pro forma deficit in tangible net worth of approximately $3,727.4
million or $36.83 per share of Common Stock. The deficit in tangible net worth
per share of Common Stock represents the excess of total liabilities over
tangible assets, divided by the total number of shares of Common Stock
outstanding. After giving effect to the Offering at an assumed initial public
offering price of $ per share, the pro forma deficit in tangible net worth
would be approximately $ million or $ per share. This represents an
immediate dilution of $ per share. The following table illustrates such
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Pro forma deficit in tangible net worth per share at June
30, 1995................................................... $(36.83)
Increase in tangible net worth per share attributable to new
investors..................................................
-------
Pro forma deficit in tangible net worth per share at June 30,
1995 after giving effect to the Offering..................... $( )
-----
Dilution per share to new investors........................... $
=====
</TABLE>
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock or its Series A
Preferred Stock and does not intend to do so in the foreseeable future. In
addition, under the terms of certain of the Company's financing agreements, the
Company is subject to certain restrictions on paying cash dividends and making
stock repurchases. See "Credit Arrangements of the Company."
16
<PAGE>
CAPITALIZATION
The following table sets forth at June 30, 1995 (i) the actual capitalization
of the Company; (ii) the pro forma capitalization of the Company, after giving
effect to the 1995 Acquisitions and the closing of the 1995 Credit Facility;
and (iii) the pro forma capitalization of the Company as adjusted for the
Offering and the application of the net proceeds therefrom (assuming an initial
public offering price of $ per share of Class A Common Stock). This table
should be read in conjunction with "Pro Forma Condensed Consolidated Financial
Information" and the historical financial statements appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
--------------------------------------------
PRO FORMA FOR THE
ACQUISITIONS AND
PRO FORMA AS ADJUSTED
FOR THE FOR THE
ACTUAL ACQUISITIONS OFFERING
----------- ------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior debt:
8 1/2% Senior Notes due 2001.... $ 200,000 $ 200,000 $ 200,000
8 5/8% Senior Notes due 2003.... 100,000 100,000 100,000
8 7/8% Senior Debentures due
2005........................... 275,000 275,000 275,000
9% Senior Debentures due 2008... 300,000 300,000 300,000
9 1/2% Senior Debentures due
2013........................... 525,000 525,000 525,000
1994 Credit Facility............ 1,663,740 1,824,890 1,542,390
1995 Credit Facility............ -- 1,039,000 1,039,000
Prudential Notes................ 138,250 138,250 138,250
----------- ------------ ------------
Total senior debt.............. 3,201,990 4,402,140 4,119,640
Subordinated debt:
10 5/8% Senior Subordinated
Notes due 2002................. 100,000 100,000 100,000
11% Senior Subordinated Deben-
tures due 2007................. 300,000 300,000 300,000
Senior Subordinated Floating
Rate Debentures due 2004....... 100,000 100,000 100,000
----------- ------------ ------------
Total subordinated debt........ 500,000 500,000 500,000
Other debt....................... 26,111 26,111 26,111
----------- ------------ ------------
Total debt..................... 3,728,101 4,928,251 4,645,751
----------- ------------ ------------
Redeemable Common Stock, $.01 par
value; 16,684,150 shares
outstanding..................... 242,721 242,721 242,721
----------- ------------ ------------
Stockholders' equity (deficien-
cy):
Series A Preferred Stock........ 11 11 11
Class A Common Stock............ 86 387
Class B Common Stock............ 926 926 926
Additional paid-in capital...... 618,027 1,202,495
Unearned compensation........... (51,708) (51,708) (51,708)
Net unrealized holding gain on
marketable equity securities... 49,104 49,104 49,104
Deficit......................... (2,341,481) (2,341,481) (2,341,481)
----------- ------------ ------------
Stockholders' equity (defi-
ciency)....................... (1,725,035) (1,140,266) (857,766)
----------- ------------ ------------
Total capitalization.......... $ 2,245,787 $ 4,030,706 $ 4,030,706
=========== ============ ============
Shares authorized and outstand-
ing:
Preferred Stock, $.01 par value:
Authorized, none outstanding... 198,857,142 198,857,142 198,857,142
Series A Preferred Stock, $.01
par value; liquidation
preference of $507,123,000;
authorized and outstanding..... 1,142,858 1,142,858 1,142,858
Class A Common Stock, $.01 par
value:
Authorized...................... 425,000,000 425,000,000 425,000,000
Outstanding..................... 8,581,300 38,724,032
Class B Common Stock, $.01 par
value:
Authorized...................... 200,000,000 200,000,000 200,000,000
Outstanding..................... 92,617,025 92,617,025 92,617,025
</TABLE>
17
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Consolidated Financial
Information is based on the historical financial statements appearing elsewhere
in this Prospectus. The Unaudited Pro Forma Condensed Consolidated Balance
Sheet gives effect to (i) the 1995 Acquisitions; (ii) the closing of the 1995
Credit Facility; and (iii) the Offering and the application of the net proceeds
therefrom (assuming an initial public offering price of $ per share of Class
A Common Stock), as though each transaction had occurred as of June 30, 1995.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the
year ended December 31, 1994 and the six months ended June 30, 1995 give effect
to (i) each of the above transactions; (ii) the New Hampshire Acquisition and
the Florida Acquisition; (iii) the closing of the 1994 Credit Facility; and
(iv) the redemption of the 12 7/8% Debentures, as though each transaction had
occurred as of January 1, 1994.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable and are described in the
notes accompanying the Unaudited Pro Forma Condensed Consolidated Balance Sheet
and the Unaudited Pro Forma Condensed Consolidated Statements of Operations.
The unaudited Pro Forma Condensed Consolidated Financial Information does not
purport to represent what the Company's financial position or results of
operations would actually have been had the transactions in fact occurred at
such dates or to project the Company's financial position or results of
operations at or for any future date or period. In the opinion of management,
all adjustments necessary to present fairly such Pro Forma Condensed
Consolidated Financial Information have been made. The unaudited Pro Forma
Condensed Consolidated Financial Information should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements appearing
elsewhere in this Prospectus.
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
----------------------------------------------------------------------
PRO FORMA
FOR THE
ADJUSTMENTS PRO FORMA ADJUSTMENTS ACQUISITIONS
FOR THE FOR THE FOR THE AND THE
ACTUAL ACQUISITIONS(1) ACQUISITIONS OFFERING OFFERING
----------- --------------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 15,342 $ 1,544 $ 16,886 $ -- $ 16,886
Accounts receivable
(net).................. 60,203 26,448 86,651 -- 86,651
Prepaid expenses and
other.................. 3,536 5,550 9,086 -- 9,086
Supplies................ 76,542 7,198 83,740 -- 83,740
Marketable equity secu-
rities................. 120,042 -- 120,042 -- 120,042
Investments............. 432,487 -- 432,487 -- 432,487
Property, plant and
equipment (net)........ 1,482,638 563,915 2,046,553 -- 2,046,553
Other assets (net)...... 503,104 1,602,394 2,105,498 -- 2,105,498
----------- ---------- ----------- --------- -----------
Total............... $ 2,693,894 $2,207,049 $ 4,900,943 $ -- $ 4,900,943
=========== ========== =========== ========= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Accounts payable........ $ 71,062 $ 12,820 $ 83,882 $ -- $ 83,882
Accrued interest........ 74,061 -- 74,061 -- 74,061
Accrued and other lia-
bilities............... 197,451 43,376 240,827 -- 240,827
Debt.................... 3,728,101 401,150 4,928,251 (282,500)(2) 4,645,751
815,000
(16,000)
Deferred income taxes... 101,735 354,634 456,369 -- 456,369
Minority interest in
subsidiaries........... 3,798 11,300 15,098 -- 15,098
Redeemable common
stock.................. 242,721 -- 242,721 -- 242,721
Stockholders' equity
(deficiency):
Series A Preferred
Stock................ 11 -- 11 -- 11
Common Stock.......... 1,012 301 1,313 (2)
Additional paid-in
capital.............. 618,027 584,468 1,202,495 (2)
Unearned compensa-
tion................. (51,708) -- (51,708) -- (51,708)
Net unrealized holding
gain on marketable
equity securities.... 49,104 -- 49,104 -- 49,104
Retained earnings
(deficit)............ (2,341,481) -- (2,341,481) -- (2,341,481)
----------- ---------- ----------- --------- -----------
Stockholders' equity
(deficiency)......... (1,725,035) 584,769 (1,140,266) 282,500 (857,766)
----------- ---------- ----------- --------- -----------
Total............... $ 2,693,894 $2,207,049 $ 4,900,943 $ -- $ 4,900,943
=========== ========== =========== ========= ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1)The 1995 Acquisitions have been or will be accounted for under the purchase
method of accounting. The following adjustments are recorded to reflect the
1995 Acquisitions as of June 30, 1995. See "Business--U.S. Acquisitions and
Investments." A summary of the combined purchase adjustment is as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Purchase price:
Ascribed value of shares issued to shareholders of Providence
Journal...................................................... $ 584,769
Indebtedness incurred in connection with the Merger.......... 815,000
Purchase price of the Recent Acquisitions and the Pending N-
Com Buyout.................................................. 347,242
----------
1,747,011
Liabilities and minority interest of Providence Journal Cable
assumed..................................................... 96,822
Working capital deficit and liabilities of the Recent Acqui-
sitions and the Pending N-Com Buyout........................ 78,258
----------
$1,922,091
==========
Allocation of purchase price:
Estimated fair value of property, plant and equipment........ $ 563,915
Estimated fair value of acquired franchises.................. 1,358,176
Deferred taxes related to property, plant and equipment and
acquired franchise
write-up (($1,922,091 - $1,233,455) X 39%).................. (268,568)
----------
1,653,523
----------
Excess of purchase price over property, plant and equipment and
acquired franchises........................................... $ 268,568
==========
</TABLE>
The adjustment for goodwill and deferred taxes represents the preliminary
estimate of the excess of the purchase price plus net liabilities assumed over
the estimated fair value of property, plant and equipment and acquired
franchises. Other adjustments are as follows: to record the ascribed value of
$584.8 million for the 30,142,732 shares of Class A Common Stock issued to
shareholders of Providence Journal in the Merger; to record $815.0 million of
indebtedness incurred in connection with the Merger, which was funded under
the 1995 Credit Facility; and to record the working capital deficit of
approximately $16.0 million. Prior to the closing of the Merger, Providence
Journal paid certain current liabilities of Providence Journal Cable;
therefore, the preliminary net working capital adjustment was zero. The
Company borrowed or will borrow a total of $401.2 million under the 1994
Credit Facility and 1995 Credit Facility to finance the Recent Acquisitions
and Pending N-COM Buyout. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Capital Expenditures and U.S. Acquisitions." As of June 30, 1995,
Continental had funded an escrow deposit of $7.5 million relating to the
acquisition of Columbia Cable of Michigan and an escrow deposit of $16.9
million relating to the acquisition of Cablevision of Chicago, which were
included in Other Assets. The Cablevision of Chicago acquisition and the
Consolidated Cablevision of California acquisition closed in August 1995 and
September 1995, respectively. The Merger and the Columbia Cable of Michigan
acquisition closed in October 1995. It is anticipated that the Pending N-COM
Buyout will close in the fourth quarter of 1995. The preliminary estimates of
the fair value of property, plant and equipment and acquired franchises may
change upon final appraisal.
The following table sets forth as of June 30, 1995 (i) the estimated fair
value of the property, plant and equipment, franchise costs and certain
assets, current liabilities and minority interest of the 1995 Acquisitions;
(ii) the ascribed value of the Class A Common Stock issued to shareholders of
Providence Journal as a result of the Merger; and (iii) the debt incurred to
finance the 1995 Acquisitions.
<TABLE>
<CAPTION>
PROVIDENCE CONSOLIDATED PENDING
JOURNAL CABLEVISION OF COLUMBIA CABLE CABLEVISION N-COM
CABLE CHICAGO OF MICHIGAN OF CALIFORNIA BUYOUT TOTAL
---------- -------------- -------------- ------------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 210 $ -- $ -- $ -- $ 1,334 $ 1,544
Accounts receivable--
net.................... 25,423 -- -- -- 1,025 26,448
Prepaid expenses and
other.................. 5,396 -- -- -- 154 5,550
Supplies................ 7,198 -- -- -- -- 7,198
Property, plant and
equipment--net......... 423,321 50,550 46,500 5,100 38,444 563,915
Other assets--net....... 1,322,122 101,100 101,000 11,900 66,272 1,602,394
---------- -------- -------- ------- -------- ----------
Total.................. $1,783,670 $151,650 $147,500 $17,000 $107,229 $2,207,049
========== ======== ======== ======= ======== ==========
LIABILITIES
Accounts payable........ $ 12,466 $ -- $ -- $ -- $ 354 $ 12,820
Accrued and other
liabilities............ 41,217 -- -- -- 2,159 43,376
Debt.................... 815,000 151,650 147,500 17,000 85,000 1,200,150
(16,000)
Deferred income taxes... 334,918 -- -- -- 19,716 354,634
Minority interest in
subsidiary............. 11,300 -- -- -- -- 11,300
Common Stock............ 301 -- -- -- -- 301
Additional paid-in
capital................ 584,468 -- -- -- -- 584,468
---------- -------- -------- ------- -------- ----------
Total.................. $1,783,670 $151,650 $147,500 $17,000 $107,229 $2,207,049
========== ======== ======== ======= ======== ==========
</TABLE>
(2)To record the estimated net proceeds of the Offering of $282.5 million
(assuming an initial public offering price of $ per share of Class A Common
Stock, net of estimated underwriting discounts and commissions and offering
expenses) and the application of the net proceeds therefrom.
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------------------
PRO FORMA
FOR THE
ADJUSTMENTS PRO FORMA ADJUSTMENTS ACQUISITIONS
FOR THE FOR THE FOR THE AND THE
ACTUAL ACQUISITIONS ACQUISITIONS OFFERING OFFERING
---------- ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................ $1,197,977 $388,852 (1) $1,586,829 $ -- $1,586,829
Costs and expenses:
Operating.............. 405,535 157,565 (1) 563,100 -- 563,100
Selling, general and
administrative........ 267,349 80,472 (1) 347,821 -- 347,821
Restricted stock pur-
chase program......... 11,316 -- 11,316 -- 11,316
Depreciation and amor-
tization.............. 283,183 100,268 (1) 383,451 -- 383,451
---------- -------- ---------- -------- ----------
Total.................. 967,383 338,305 1,305,688 -- 1,305,688
---------- -------- ---------- -------- ----------
Operating income........ 230,594 50,547 281,141 -- 281,141
Interest expense (net).. 315,541 91,186 (1) 391,736 (19,775)(5) 371,961
(16,133)(2)
1,142 (3)
Other (income) expenses
(net).................. 24,253 (2,896)(1) 21,357 -- 21,357
Minority interest....... (205) -- (205) -- (205)
---------- -------- ---------- -------- ----------
Loss from operations.... (108,995) (22,752) (131,747) 19,775 (111,972)
Income tax (benefit) ex-
pense.................. (40,419) (7,000)(4) (47,419) 7,712 (4) (39,707)
---------- -------- ---------- -------- ----------
Net loss before extraor-
dinary item............ $ (68,576) $(15,752) $ (84,328) $ 12,063 $ (72,265)
========== ======== ========== ======== ==========
Loss per share before
extraordinary item(6).. $ (.92) (.84) $ ( )
Weighted average common
shares outstanding..... 114,334 144,477 (7)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
-------------------------------------------------------------------
PRO FORMA
FOR THE
ADJUSTMENTS PRO FORMA ADJUSTMENTS ACQUISITIONS
FOR THE FOR THE FOR THE AND THE
ACTUAL ACQUISITIONS ACQUISITIONS OFFERING OFFERING
-------- ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................ $650,048 $190,172 (1) $840,220 $ -- $840,220
Costs and expenses:
Operating.............. 224,846 78,333 (1) 303,179 -- 303,179
Selling, general and
administrative........ 150,332 39,193 (1) 189,525 -- 189,525
Restricted stock pur-
chase program......... 5,905 -- 5,905 -- 5,905
Depreciation and amor-
tization.............. 148,412 47,887 (1) 196,299 -- 196,299
-------- -------- -------- -------- --------
Total.................. 529,495 165,413 694,908 -- 694,908
-------- -------- -------- -------- --------
Operating income........ 120,553 24,759 145,312 -- 145,312
Interest expense (net).. 166,314 45,006 (1) 211,320 (10,594)(5) 200,726
Other (income) expenses
(net).................. 2,056 (3,393)(1) (1,337) -- (1,337)
Minority interest....... (40) -- (40) -- (40)
-------- -------- -------- -------- --------
Loss from operations.... (47,777) (16,854) (64,631) 10,594 (54,037)
Income tax (benefit) ex-
pense.................. (14,710) (5,590)(4) (20,300) 4,132 (4) (16,168)
-------- -------- -------- -------- --------
Net loss before extraor-
dinary item............ $(33,067) $(11,264) $(44,331) $ 6,462 $(37,869)
======== ======== ======== ======== ========
Loss per share before
extraordinary item(6).. $ (.45) $ (.43) $ ( )
Weighted average common
shares outstanding..... 117,627 147,770 (7) (7)
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(1)To record the results of operations for the New Hampshire Acquisition, the
Florida Acquisition and the 1995 Acquisitions. The results of operations for
certain cable television systems have been adjusted, where necessary, from a
September 30 fiscal year end to a December 31 fiscal year end. The results of
operations have been adjusted to reverse historical interest expense of $65.8
million and record interest expense of $91.2 million (the pro forma interest
expense is net of amounts recorded by the Company as a result of cable
television systems already acquired and deposits paid) for the year ended
December 31, 1994, as a result of (i) approximately $533.0 million of
additional debt incurred to finance certain cable television systems acquired
in 1994 and acquired or to be acquired in 1995 and (ii) the $815.0 million of
indebtedness incurred in connection with the Merger and a working capital
deficit of $16.0 million. The results of operations have been adjusted to
reverse historical interest expense of $33.8 million and record interest
expense of $45.0 million for the six months ended June 30, 1995, as a result
of approximately $401.2 million of additional debt incurred or to be incurred
to finance the Recent Acquisitions and Pending N-COM Buyout, and the net
$799.0 million increase in debt as a result of the Merger. The incremental
interest rate used to calculate pro forma interest expense for the year ended
December 31, 1994 and six months ended June 30, 1995 was 7% and 7.5%,
respectively. Continental's equity in net loss includes a loss of $2.4 million
and $1.5 million for the year ended December 31, 1994 and the six months ended
June 30, 1995, respectively, relating to its 33.8% interest in N-COM. This
amount has been eliminated to reflect the results of operations of N-COM as if
it was wholly owned by Continental during 1994 and 1995. The results of
operations have also been adjusted to reverse historical depreciation and
amortization expense of $119.1 million and $55.9 million for the year ended
December 31, 1994 and the six months ended June 30, 1995, respectively, and
record depreciation and amortization expense of $100.3 million and $47.9
million for the year ended December 31, 1994 and the six months ended June 30,
1995, respectively, based on the fair value of the assets acquired and the
current expected lives of these assets. Depreciation expense for property,
plant and equipment has been determined based on an estimated weighted average
life of ten years. Costs of acquired franchises and goodwill arising from the
acquisitions are amortized over 40 years. Such depreciation and amortization
may change upon final appraisal. Allocated corporate overhead from parent
companies recorded by Providence Journal Cable has been eliminated. These
costs relate to allocated corporate overhead, such as executive salaries and
other corporate departments including treasury, tax, human resources, and
include certain management fees. The Company will not be incurring these costs
in the future.
The following table sets forth the historical results of operations of the
New Hampshire Acquisition and the Florida Acquisition for the period in which
they were not owned by the Company and the 1995 Acquisitions for the year
ended December 31, 1994 and the six months ended June 30, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------------------------------
CABLE TELEVISION
SYSTEMS ACQUIRED
IN 1994 1995 ACQUISITIONS
----------------- -------------------------------------------------------
PROVIDENCE CABLEVISION COLUMBIA CONSOLIDATED PENDING
NEW JOURNAL OF CABLE OF CABLEVISION N-COM PRO FORMA
HAMPSHIRE FLORIDA CABLE CHICAGO MICHIGAN OF CALIFORNIA BUYOUT ADJUSTMENTS TOTAL
--------- ------- ---------- ----------- -------- ------------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............ $6,391 $10,404 $284,993 $34,395 $26,428 $ 4,921 $ 21,320 $ -- $388,852
Costs and expenses:
Operating.......... 3,950 4,032 114,868 14,402 10,144 2,214 7,955 -- 157,565
Selling, general
and
administrative.... 753 1,782 58,152 9,092 5,941 924 3,828 -- 80,472
Allocated corporate
overhead from
parent companies.. -- -- 11,034 -- -- -- -- (11,034) --
Depreciation and
amortization...... 831 2,430 85,783 5,288 7,620 4,110 13,001 (18,795) 100,268
------ ------- -------- ------- ------- ------- -------- -------- --------
Total............. 5,534 8,244 269,837 28,782 23,705 7,248 24,784 (29,829) 338,305
------ ------- -------- ------- ------- ------- -------- -------- --------
Operating income
(loss)............. 857 2,160 15,156 5,613 2,723 (2,327) (3,464) 29,829 50,547
Interest expense
(net).............. -- 2,012 41,318 10,280 -- 1,591 10,549 25,436 91,186
Other (income)
expenses (net)..... -- 17 (555) 53 (9) (2) -- (2,400) (2,896)
------ ------- -------- ------- ------- ------- -------- -------- --------
Income (loss) from
operations before
income taxes....... $ 857 $ 131 $(25,607) $(4,720) $ 2,732 $(3,916) $(14,013) $ 6,793 $(37,743)
====== ======= ======== ======= ======= ======= ======== ======== ========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
--------------------------------------------------------------------------
1995 ACQUISITIONS
----------------------------------------------------
CONSOLIDATED
PROVIDENCE COLUMBIA CABLEVISION PENDING PRO
JOURNAL CABLEVISION CABLE OF OF N-COM FORMA
CABLE OF CHICAGO MICHIGAN CALIFORNIA BUYOUT ADJUSTMENTS TOTAL
---------- ----------- -------- ------------ ------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $145,380 $17,766 $14,046 $ 2,425 $10,555 $ -- $190,172
Costs and expenses:
Operating.............. 59,941 7,065 5,501 1,151 4,675 -- 78,333
Selling, general and
administrative........ 29,106 5,035 3,014 426 1,612 -- 39,193
Allocated corporate
overhead from parent
companies............. 3,818 -- -- -- -- (3,818) --
Depreciation and amor-
tization.............. 42,314 2,541 3,915 1,767 5,349 (7,999) 47,887
-------- ------- ------- ------- ------- -------- --------
Total................. 135,179 14,641 12,430 3,344 11,636 (11,817) 165,413
-------- ------- ------- ------- ------- -------- --------
Operating income
(loss)................. 10,201 3,125 1,616 (919) (1,081) 11,817 24,759
Interest expense (net).. 21,234 5,543 -- 914 6,061 11,254 45,006
Other (income) expenses
(net).................. (1,899) 33 7 7 -- (1,541) (3,393)
-------- ------- ------- ------- ------- -------- --------
Income (loss) from oper-
ations before income
taxes.................. $ (9,134) $(2,451) $ 1,609 $(1,840) $(7,142) $ 2,104 $(16,854)
======== ======= ======= ======= ======= ======== ========
</TABLE>
(2) To record the net decrease in interest expense as a result of the
redemption by Continental of the $325.0 million of 12 7/8% Debentures in
November 1994. The adjusted interest rate was 6 1/2% for the ten months
ended October 31, 1994.
(3) To record the net increase in interest expense associated with the
amortization of deferred financing costs of the 1994 Credit Facility and
the 12 7/8% Debentures.
(4) To record income tax expense (benefit) of the 1995 Acquisitions and the
income tax effect on the pro forma adjustments at an effective rate of
39%.
(5) To record the decrease in interest expense as a result of the $282.5
million repayment of borrowings outstanding under the 1994 Credit Facility
with the net proceeds from the Offering. The incremental interest rate
used to calculate the adjustment to interest expense was 7% for the year
ended December 31, 1994 and 7.5% for the six months ended June 30, 1995.
(6) Net loss before extraordinary item has been increased for Preferred stock
preferences of $36.8 million for the year ended December 31, 1994 and
$19.3 million for the six months ended June 30, 1995 in order to calculate
loss per common share.
(7) Represents the actual weighted average shares outstanding during the year
ended December 31, 1994 and six months ended June 30, 1995 adjusted for
the issuance of 30,142,732 shares of Class A Common Stock in connection
with the Merger and the issuance of shares of Class A Common Stock in
the Offering.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial information for and as of each year in the
five-year period ended December 31, 1994 has been derived from the Consolidated
Financial Statements of the Company, audited by Deloitte & Touche llp. The
selected consolidated financial information for and as of the six-month periods
ended June 30, 1994 and 1995 has been derived from unaudited financial
statements of the Company which, in the opinion of management, include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
and consistent presentation of such information. The results for the six months
ended June 30, 1995 are not necessarily indicative of results to be expected
for the full year. This selected consolidated financial information should be
read in conjunction with the Consolidated Financial Statements of the Company
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
--------- ---------- ---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 938,032 $1,039,163 $1,113,475 $1,177,163 $1,197,977 $589,390 $650,048
Costs and expenses:
Operating.............. 316,199 347,469 365,513 382,195 405,535 198,618 224,846
Selling, general and
administrative........ 231,338 246,986 259,632 267,376 267,349 128,783 150,332
Depreciation and
amortization.......... 262,703 267,510 272,851 279,009 283,183 135,523 148,412
Restricted stock
purchase program(1)... 6,903 10,067 9,683 11,004 11,316 5,675 5,905
--------- ---------- ---------- ---------- ---------- -------- --------
Total.................. 817,143 872,032 907,679 939,584 967,383 468,599 529,495
--------- ---------- ---------- ---------- ---------- -------- --------
Operating income........ 120,889 167,131 205,796 237,579 230,594 120,791 120,553
--------- ---------- ---------- ---------- ---------- -------- --------
Interest expense (net).. 313,858 324,976 296,031 282,252 315,541 147,910 166,314
Other (income)
expenses(2) 1,000 1,936 11,071 (10,978) 24,048 7,806 2,016
--------- ---------- ---------- ---------- ---------- -------- --------
Total.................. 314,858 326,912 307,102 271,274 339,589 155,716 168,330
--------- ---------- ---------- ---------- ---------- -------- --------
Loss before income
taxes, extraordinary
item and cumulative
effect of accounting
change................. (193,969) (159,781) (101,306) (33,695) (108,995) (34,925) (47,777)
Benefit (provision) for
income taxes........... (1,482) (1,861) (1,654) 7,921 40,419 11,304 14,710
--------- ---------- ---------- ---------- ---------- -------- --------
Loss before
extraordinary item and
cumulative effect of
accounting change...... (195,451) (161,642) (102,960) (25,774) (68,576) (23,621) (33,067)
Extraordinary item...... -- -- -- -- (18,265) -- --
--------- ---------- ---------- ---------- ---------- -------- --------
Loss before cumulative
effect of accounting
change................. (195,451) (161,642) (102,960) (25,774) (86,841) (23,621) (33,067)
Cumulative effect of
accounting change...... -- -- -- (184,996) -- -- --
--------- ---------- ---------- ---------- ---------- -------- --------
Net loss................ (195,451) (161,642) (102,960) (210,770) (86,841) (23,621) (33,067)
Preferred stock
preferences............ (61,102) (5,771) (16,861) (34,115) (36,800) (17,887) (19,347)
--------- ---------- ---------- ---------- ---------- -------- --------
Loss applicable to
common stockholders.... $(256,553) $ (167,413) $ (119,821) $ (244,885) $ (123,641) $(41,508) $(52,414)
========= ========== ========== ========== ========== ======== ========
Per common share:
Loss before
extraordinary item and
cumulative effect of
accounting change..... $ (2.19) $ (1.42) $ (1.00) $ (.53) $ (.92) $ (.36) $ (.45)
Extraordinary item..... -- -- -- -- (.16) -- --
Cumulative effect of
accounting change..... -- -- -- (1.62) -- -- --
--------- ---------- ---------- ---------- ---------- -------- --------
Net loss............... $ (2.19) $ (1.42) $ (1.00) $ (2.15) $ (1.08) $ (.36) $ (.45)
========= ========== ========== ========== ========== ======== ========
Weighted average common
shares outstanding (in
thousands)............. 117,055 117,534 119,544 114,055 114,334 114,084 117,627
OTHER DATA:
EBITDA(3)............... $ 390,495 $ 444,708 $ 488,330 $ 527,592 $ 525,093 $261,989 $274,870
EBITDA as a % of
revenues............... 41.6% 42.8% 43.9% 44.8% 43.8% 44.5% 42.3%
Net cash provided from
operating activities... $ 82,196 $ 123,543 $ 215,045 $ 250,504 $ 236,304 $123,568 $ 77,526
Capital expenditures.... $ 166,938 $ 145,846 $ 145,189 $ 185,691 $ 300,511 $109,484 $231,021
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------- AS OF JUNE 30,
1990 1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (IN THOUSANDS)
Cash.................... $ 10,377 $ 14,265 $ 27,352 $ 122,640 $ 11,564 $ 15,342
Total assets............ 2,175,120 2,082,182 2,003,196 2,091,853 2,483,639 2,693,894
Total debt.............. 3,127,347 3,338,281 3,011,669 3,177,178 3,449,907 3,728,101
Redeemable preferred
stock.................. 157,835 -- -- -- -- --
Redeemable common
stock.................. 436,700 445,463 223,716 213,548 232,399 242,721
Stockholder's equity
(deficiency)........... (1,759,535) (1,919,525) (1,486,231) (1,667,088) (1,688,334) (1,725,035)
</TABLE>
- --------
(1) Represents the difference between the consideration paid by employees for
purchases of shares of Common Stock of the Company under the Company's
Restricted Stock Purchase Program and the fair market value of such shares
(as determined by the Company's Board of Directors) at the date of
issuance, amortized over the vesting schedule of such shares. See Note 11
to the Company's Consolidated Financial Statements.
(2) Includes equity in net income (loss) of affiliates, minority interest in
net loss of subsidiaries, other non-operating income and expenses, gains
on sale of marketable equity securities of $10.3 million, $17.1 million
and $24.1 million from the Company's sales of its investment in affiliates
in 1992 and 1993 (before post-closing adjustments), and sale of an
investment and marketable equity securities during the six months ended
June 30, 1995, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(3) Operating income before depreciation and amortization and non-cash stock
compensation. Based on its experience in the cable television industry,
the Company believes that EBITDA and related measures of cash flow serve
as important financial analysis tools for measuring and comparing cable
television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA should not be considered by the reader as
an alternative to operating or net income (as determined in accordance
with GAAP) as an indicator of the Company's performance or as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Substantially all of the
Company's financing agreements contain certain covenants in which EBITDA
is used as a measure of financial performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with, and is qualified
in its entirety by reference to, the Consolidated Financial Statements of the
Company appearing elsewhere in this Prospectus.
GENERAL
Continental is a leading provider of broadband communications services.
Continental's operations consist primarily of U.S. cable television systems
with complementary operations and investments in three other areas: (i)
international broadband communications ventures; (ii) the telecommunications
and technology industries, including companies offering competitive-access
telephony and DBS service; and (iii) programming services.
Substantially all of Continental's revenues are earned from customer fees for
basic cable programming and premium television services, the rental of
converters and remote control devices, and cable installation fees. Additional
revenues are generated by the sale of advertising, pay-per-view programming
fees, DBS service and payments received as a result of revenue sharing
agreements for products sold through home shopping networks. Continental
expects that advertising and home shopping revenues (which currently represent
approximately 6.0% of Continental's total revenues) may become a larger
percentage of total revenues. These sources of revenues tend to be cyclical and
seasonal in nature and could increase the cyclicality and seasonality in
Continental's total revenues.
During the period from January 1, 1991 through December 31, 1993,
Continental's revenues increased at a compound annual growth rate of 8.0%
primarily through basic subscriber growth and increases in monthly revenue per
average basic subscriber. Revenues for the year ended December 31, 1994
increased only 1.8% compared to 1993 primarily as a result of basic rate
reductions and non-cash revenue reserves recorded in connection with the FCC
rate regulations. Revenues for the six months ended June 30, 1995, however,
increased 10.3% (8.1% excluding the New Hampshire and Florida Acquisitions) as
compared to the same period in 1994. Continental's business is subject to
significant regulatory developments, including recent federal laws and
regulations, which regulate rates charged by Continental for certain cable
services. Such laws and regulations will limit Continental's ability to
increase or restructure its rates for certain services. On August 3, 1995, the
Social Contract between Continental and the FCC was adopted, which covers all
of Continental's existing franchises (excluding the systems acquired in the
1995 Acquisitions), including those that are currently unregulated, and is the
first comprehensive rate agreement involving cable television ever approved by
the FCC. The Social Contract settles Continental's pending cost-of-service rate
cases and its benchmark CPS tier rate cases. See "Legislation and Regulation"
and "Business--U.S. Operating Strategy-- Regulatory Strategy; Social Contract."
The high level of depreciation and amortization associated with Continental's
capital expenditures and acquisitions and the interest costs related to
financing activities, have caused Continental to report net losses. Continental
believes that such net losses are common for cable television companies.
The Company has recently completed a series of acquisitions in the United
States, the most significant of which was the acquisition of the cable
television businesses and assets of Providence Journal. See "Pro Forma
Condensed Consolidated Financial Information" and "Results of Operations--
Providence Journal Cable."
26
<PAGE>
RESULTS OF OPERATIONS--CONTINENTAL
The following table sets forth, for the periods indicated, certain items in
the Company's Selected Consolidated Financial Information. See the footnotes to
"Selected Consolidated Financial Information" and, as to subscriber
information, "Business--U.S. Systems."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ------------------
1992 1993 1994 1994 1995
--------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Revenues:
Basic cable service...... $ 790,508 $ 845,213 $ 849,889 $419,215 $457,539
Premium cable service.... 249,020 242,956 245,605 121,793 126,480
Advertising.............. 43,392 52,618 57,896 27,554 30,259
Pay-per-view............. 22,191 25,746 24,523 12,748 13,158
Other.................... 7,319 8,875 14,035 7,222 8,433
DBS...................... 1,045 1,755 6,029 858 14,179
--------- --------- --------- -------- --------
Total.................. 1,113,475 1,177,163 1,197,977 589,390 650,048
Operating, selling, general
and administrative
expenses.................. 625,145 649,571 672,884 327,401 375,178
Depreciation and amortiza-
tion...................... 272,851 279,009 283,183 135,523 148,412
Restricted stock purchase
program................... 9,683 11,004 11,316 5,675 5,905
--------- --------- --------- -------- --------
Operating income........... 205,796 237,579 230,594 120,791 120,553
Interest expense, net...... 296,031 282,252 315,541 147,910 166,314
Other (income) expenses...... 11,071 (10,978) 24,048 7,806 2,016
--------- --------- --------- -------- --------
Loss before income taxes,
extraordinary item and cu-
mulative effect of ac-
counting change........... (101,306) (33,695) (108,995) (34,925) (47,777)
Benefit (provision) for in-
come taxes................ (1,654) 7,921 40,419 11,304 14,710
--------- --------- --------- -------- --------
Loss before extraordinary
item and cumulative effect
of accounting change...... (102,960) (25,774) (68,576) (23,621) (33,067)
Extraordinary item......... -- -- (18,265) -- --
--------- --------- --------- -------- --------
Loss before cumulative ef-
fect of accounting
change.................... (102,960) (25,774) (86,841) (23,621) (33,067)
Cumulative effect of
accounting change ........ -- (184,996) -- -- --
--------- --------- --------- -------- --------
Net loss................... $(102,960) $(210,770) $ (86,841) $(23,621) $(33,067)
========= ========= ========= ======== ========
OTHER DATA:
EBITDA..................... $ 488,330 $ 527,592 $ 525,093 $261,989 $274,870
EBITDA as a % of revenues.. 43.9% 44.8% 43.8% 44.5% 42.3%
</TABLE>
SUBSCRIBER DATA FOR U.S. CABLE SYSTEMS
<TABLE>
<CAPTION>
ACTUAL
--------------------------------------------------
AS OF DECEMBER 31,
---------------------------------- AS OF JUNE 30,
1992 1993 1994 1995
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Homes passed by cable...... 4,981,000 5,192,000 5,372,000 5,437,000
Number of basic
subscribers............... 2,856,000 2,895,000 3,081,000 3,133,000
Basic penetration.......... 57.3% 55.8% 57.4% 57.6%
Number of premium
subscriptions............. 2,545,000 2,454,000 2,635,000 2,666,000
Premium penetration........ 89.1% 84.8% 85.5% 85.1%
</TABLE>
27
<PAGE>
The following discussion does not include the results of operations for the
1995 Acquisitions.
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30,
1994. Revenues increased 10.3% (or $60.7 million) to $650.0 million from $589.4
million. The cable television systems acquired in the New Hampshire Acquisition
and the Florida Acquisition served approximately 78,000 basic subscribers and
accounted for $13.2 million of such revenue increase. See "Business--U.S.
Acquisitions and Investments--Other U.S. Acquisitions." Excluding the effects
of such acquisitions, revenues increased 8.1% (or $47.5 million) as a result of
a 3.2% increase in ending basic cable subscribers, an increase in monthly basic
cable revenue per average basic subscriber and increases in premium, DBS
service and other revenues. Excluding the acquisitions and DBS service revenue,
monthly cable revenue per average basic subscriber increased from $35.29 to
$35.94. The $.65 increase in monthly cable revenue per average basic subscriber
reflects an increase in basic rates during the six months ended June 30, 1995,
the recording of non-cash revenue reserves during the six months ended June 30,
1994 in connection with the FCC's rate regulations, (see "Liquidity and Capital
Resources--Recent Legislation") and an increase in premium and other revenue
categories. Revenues from premium cable services increased by $2.4 million
(excluding the acquisitions and DBS services) due primarily to a 3.6% increase
in premium subscriptions. The increase in revenues (excluding the acquisitions
and DBS services) was also due to a $2.7 million increase in advertising
revenues, a $1.1 million increase in home shopping revenues and a $188,000
increase in pay-per-view revenues. Revenues from DBS services increased by
$13.3 million to $14.2 million principally as a result of an increase in DBS
service subscribers from approximately 5,000 to over 48,000 as of June 30,
1995.
Operating, selling, general and administrative expenses increased 14.6% to
$375.2 million due to the acquisitions, the provision of DBS service, and
increases in programming costs and wages. Depreciation and amortization
expenses increased 9.5% to $148.4 million due to the acquisitions and increased
levels of capital expenditures in 1994 and 1995. Operating income decreased
0.2% to $120.6 million. Interest expense increased 12.4% to $166.3 million as a
result of a 12.0% increase in average debt outstanding. The effective interest
rate remained constant at 9.3%. Other (income) expenses included a gain of
$23.0 million on the sale of Continental's shares of QVC, Inc. ("QVC") common
stock and a gain of $1.0 million on the sale of a portion of an investment in
National Cable Communications, L.P. ("NCC"). Other (income) expenses also
includes equity in net loss of affiliates, which increased from $9.8 million to
$25.8 million primarily due to Continental recording its proportionate share of
losses from TCG, the Golf Channel and its international investments in
Argentina and Singapore. As a result of such factors, the net loss before
extraordinary item for the six months ended June 30, 1995 compared to June 30,
1994 increased by $9.5 million to $33.1 million.
Year Ended December 31, 1994 Compared to Year Ended December 31,
1993. Revenues increased by 1.8% (or $20.8 million) to $1,198.0 million. The
cable television systems acquired in the New Hampshire Acquisition and the
Florida Acquisition served approximately 78,000 basic subscribers and accounted
for $8.0 million of such increase. See "Business--U.S. Acquisitions and
Investments--Other U.S. Acquisitions." Excluding the effects of such
acquisitions, revenues increased 1.1% (or $12.8 million) as a result of a 3.7%
increase in ending basic subscribers and an increase in premium and certain
other revenue. Monthly revenue per average basic subscriber decreased from
$35.76 to $35.41. The $.35 decrease was primarily due to rate reductions and
non-cash revenue reserves recorded during 1994 in connection with the FCC's
rate regulations; net of a $.12 increase in premium, advertising, DBS service
and other revenue. See "Liquidity and Capital Resources-- Recent Legislation"
and "Legislation and Regulation." Revenues from premium cable services
increased by $1.3 million (excluding the acquisition of cable television
systems) due to an increase in premium subscriptions from 2,454,000 to
2,594,000. The increase in revenues (excluding the acquisition of cable
television systems) was also due to a $5.0 million increase in advertising
revenue, a $4.3 million increase in DBS service revenue and a $5.1 million
increase in other revenue due to continued growth in home shopping revenue,
less a $1.2 million decrease in pay-per-view revenue. Pay-per-view revenue
decreased due to the lack of availability of special events offered as compared
to 1993, reflecting industry-wide trends.
28
<PAGE>
Operating, selling, general and administrative expenses increased 3.6% to
$672.9 million, primarily due to the acquisitions and increases in programming
costs and wages. Depreciation and amortization expenses increased 1.5% to
$283.2 million due to an increase in capital expenditures. Non-cash stock
compensation increased 2.8% to $11.3 million due to the vesting of a greater
percentage of shares issued under Continental's Restricted Stock Purchase
Program as compared to 1993. Operating income decreased 2.9% to $230.6 million.
Interest expense increased approximately 11.8% to $315.5 million due to a 5.0%
increase in average debt outstanding and an increase in the effective interest
rate from 9.1% to 9.7%. Other (income) expenses decreased as a result of equity
in net loss of affiliates which increased from $12.8 million to $25.0 million,
primarily due to Continental recording its proportionate share of losses from
PrimeStar and TCG and its affiliates. Continental also recorded an
extraordinary loss of $18.3 million due to the extinguishment of debt.
As a result of such factors, loss before the cumulative effect of the
accounting change for the year ended December 31, 1994, compared to December
31, 1993, increased by $61.1 million to $86.8 million, and net loss for the
year ended December 31, 1994, compared to December 31, 1993, decreased from
$210.8 million to $86.8 million. Continental implemented Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") as of
January 1, 1993. The cumulative effect of this change was a non-recurring
increase in net loss of $185.0 million in 1993.
Year Ended December 31, 1993 Compared to Year Ended December 31,
1992. Revenues increased 5.7% or $63.7 million to $1,177.2 million, as a result
of a 1.4% increase in basic subscribers to 2,895,000 and an increase in monthly
revenue per average basic subscriber from $34.46 to $35.76. The $1.30 increase
reflected primarily (i) an increase of $1.34 due to basic rate increases prior
to the imposition of the FCC's rate regulation and revenue growth from other
basic services, (ii) an increase of $.29 in advertising and pay-per-view
revenue, and (iii) a decrease of $.33 in premium subscription revenue, which
was due to the decrease in the pay-to-basic percentage from 88.5% to 84.2%,
reflecting industry-wide trends. The total number of premium subscriptions
decreased from 2,545,000 to 2,454,000 in 1993.
Operating, selling, general and administrative expenses increased 3.9% to
$649.6 million, a rate of growth less than that of revenues, reflecting
continued operating efficiencies. Depreciation and amortization expenses
increased 2.3% to $279.0 million. Non-cash stock compensation increased 14.0%
to $11.0 million due to the vesting of a greater percentage of shares issued
under Continental's Restricted Stock Purchase Program as compared to 1992.
Operating income increased 15.4% to $237.6 million. Interest expense decreased
4.7% to $282.3 million due to lower effective interest rates and a 1.3%
reduction in the average debt outstanding during 1993.
Other (income) expenses included a gain of $4.3 million on the sale of
marketable equity securities and a gain of $17.1 million on the sale of
investments, which consisted of a gain of $15.9 million due to the exchange of
Continental's equity interest in Insight Communications Company U.K., L.P. for
stock representing a minority interest in International CableTel, Incorporated
and a gain of $1.1 million due to a post-closing adjustment in connection with
the sale of Continental's interest in North Central Cable Communications
Corporation ("North Central Cable"). Other (income) expenses also included a
gain of $2.3 million relating to the reversal of previously accrued liabilities
recorded in connection with litigation relating to four partnerships managed by
a subsidiary of Continental, which was settled in 1993. Equity in net loss of
affiliates increased to $12.8 million primarily due to Continental recording
its proportionate share of losses from TCG and its affiliates. See "Business--
Telecommunications and Technology--TCG."
SFAS 109 required a change from the deferred to the liability method for
computing deferred income taxes. Continental implemented SFAS 109 as of January
1, 1993, and the cumulative effect of this change was a non-recurring increase
in net loss of $185.0 million. The cumulative change resulted from net deferred
tax liabilities recognized for the difference between the financial reporting
and tax bases of assets and liabilities. Income tax expense (benefit) changed
from an expense of $1.7 million in 1992 to a benefit of $7.9 million in 1993
due to deferred tax benefits recognized under SFAS 109. The income tax benefit
for 1993 was decreased by $4.2 million as a result of applying the newly
enacted federal tax rates to deferred tax balances as of January 1, 1993.
29
<PAGE>
As a result of such factors, net loss before the cumulative effect of this
accounting change for the year ended December 31, 1993 decreased by $77.2
million to $25.8 million, and net loss for the year ended December 31, 1993
increased from $103.0 million to $211.0 million.
EBITDA. Based on its experience in the cable television industry, Continental
believes that EBITDA and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television companies
in several areas, such as liquidity, operating performance and leverage. EBITDA
should not be considered as an alternative to operating or net income (measured
in accordance with GAAP) as an indicator of Continental's performance or as an
alternative to cash flows from operating activities (measured in accordance
with GAAP) as a measure of Continental's liquidity. For the six months ended
June 30, 1995, EBITDA increased 4.9% to $274.9 million, as compared to the same
period in 1994, as a result of increases in revenue. DBS service accounted for
($844,000) and $1.2 million of EBITDA for the six months ended June 30, 1994
and 1995, respectively. EBITDA decreased 0.5% to $525.1 million for the year
ended December 31, 1994, primarily due to rate reductions and non-cash revenue
reserves recorded in connection with the FCC's rate regulations. EBITDA
increased 8.0% to $527.6 million during the year ended December 31, 1993,
primarily due to increases in revenue.
Inflation. Certain of Continental's expenses, such as those for wages and
benefits, for equipment repair and replacement and for billing and marketing,
increase with general inflation. However, Continental does not believe that its
results of operations have been, or will be, adversely affected by inflation,
provided that it is able to increase its service rates periodically. See
"Legislation and Regulation" for a description of recent laws and regulation
that may limit Continental's ability to raise its rates for certain services.
Recent Accounting Pronouncements. In May 1993, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115") , which was effective for fiscal years beginning after December 15, 1993.
SFAS 115 established standards for the accounting and reporting of investments
in equity securities that have readily determinable fair values and for all
investments in debt securities. Effective January 1, 1994, Continental
implemented SFAS 115, which resulted in a net unrealized holding gain of $84.7
million on marketable equity securities after recording deferred income taxes
of $56.4 million and was reported as a reduction of stockholders' deficiency.
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairments of a Loan" ("SFAS 114"), which
was effective for fiscal years beginning after December 15, 1994. SFAS 114
addressed the accounting for certain loans, which may be deemed impaired made
by Continental to affiliates and certain employees. The effect of implementing
SFAS 114 will be immaterial to Continental's financial position and results of
operation.
In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 119 ("SFAS 119"), which was effective for fiscal years ending after
December 15, 1994 and requires disclosure about amounts, nature and terms of
derivative and other financial instruments held.
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), which is effective for fiscal years beginning after
December 15, 1995. SFAS 121 addresses the accounting for potential impairment
of long-lived assets. The effect of implementing SFAS 121 is expected to be
immaterial to Continental's financial position and results of operations.
RESULTS OF OPERATIONS--PROVIDENCE JOURNAL CABLE
The Company acquired the cable television businesses and assets of Providence
Journal on October 5, 1995 in the Merger. The following discussion and analysis
was derived from information prepared by Providence Journal management.
30
<PAGE>
The combined statement of operations data for the year ended December 31,
1992, 1993 and 1994 and the combined balance sheet data as of December 31,
1992, 1993 and 1994 have been derived from the audited combined financial
statements of Providence Journal Cable.
The combined statement of operations data for the six months ended June 30,
1994 and 1995 and the combined balance sheet data as of June 30, 1995 have been
derived from the unaudited financial statements of Providence Journal Cable
that, in the opinion of the management of Providence Journal, include all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods. Operating results for the six months ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1995.
Four cable entities comprised all of the cable television systems that were
owned or partially owned by Providence Journal. These entities were Colony
Communications, Inc. ("Colony") (a wholly owned subsidiary of Providence
Journal), Colony Cablevision (a division of Providence Journal) ,
Copley/Colony, Inc. (a formerly 50% owned joint venture of Colony), and King
Videocable Company ("King Videocable") (a formerly 50% owned joint venture of
Providence Journal). The selected financial data contained in the text and
tables herein was prepared on a combined basis for Providence Journal Cable
with appropriate elimination of intercompany transactions, allocation of
corporate overhead and interest expense.
Although Providence Journal accounted for the operations of investments in
the 50% joint ventures under the equity method, the operations of such ventures
have been fully combined on the basis that they were managed, together with all
wholly owned and majority-owned cable television businesses, by Providence
Journal and its subsidiaries.
Providence Journal Cable's revenue growth has been achieved primarily by
internal subscriber growth, acquisitions and increases in rates for services
provided. Significant acquisitions included the purchase of a 50% ownership
interest in King Videocable and the purchase of cable systems of Colony
Cablevision (formerly owned by Palmer Communications, Inc.) in November and
December 1992. These two acquisitions more than doubled the number of basic
subscribers served by Providence Journal Cable.
Federal laws reregulating the cable television industry were implemented by
the FCC effective September 1, 1993 and limited Providence Journal Cable's
ability to increase rates for certain subscriber services and to restructure
its rates for certain services.
Substantially all of Providence Journal Cable's revenues are earned from
subscriber fees for basic cable programming and premium television services,
the rental of converters and remote control devices, and installation fees.
Additional revenues are generated by pay-per-view programming fees, the sale of
advertising, and payments received as a result of revenue sharing agreements
for products sold through home shopping networks.
This discussion should be read in conjunction with the accompanying audited
combined financial statements of Providence Journal Cable and notes thereto.
The results of operations for Providence Journal Cable represent the combined
operations of all of the cable television systems owned or partially owned by
Providence Journal. These historical financial results do not necessarily
reflect the results of operations that would have existed had Providence
Journal Cable been an independent company.
31
<PAGE>
The following table summarizes Providence Journal Cable's financial results:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Basic cable service........ $141,262 $205,846 $202,654 $101,906 $104,429
Premium cable service...... 38,193 44,643 45,395 22,602 22,789
Advertising sales............ 9,946 14,042 17,410 7,649 7,815
Pay-per-view................. 3,727 4,887 5,145 2,687 3,052
Other........................ 6,556 12,175 14,389 6,860 7,295
-------- -------- -------- -------- --------
Total.................... 199,684 281,593 284,993 141,704 145,380
Operating expenses........... 76,523 105,037 114,868 56,528 59,941
Selling, general and
administrative expenses..... 45,180 62,446 58,152 29,650 29,106
Depreciation and
amortization................ 58,750 99,554 85,783 45,610 42,314
Allocation of corporate
overhead.................... 6,513 9,651 11,034 3,703 3,818
-------- -------- -------- -------- --------
Operating income............. 12,718 4,905 15,156 6,213 10,201
Allocated interest expense
from parent companies....... (16,516) (39,938) (41,318) (20,035) (20,880)
Other, net................... 591 (1,841) 555 1,121 1,545
-------- -------- -------- -------- --------
Loss before income taxes and
cumulative effect of change
in accounting principle..... (3,207) (36,874) (25,607) (12,701) (9,134)
Provision for income taxes... 694 (11,219) (8,182) (3,994) (2,621)
-------- -------- -------- -------- --------
Loss before change in
accounting principle........ (3,901) (25,655) (17,425) (8,707) (6,513)
-------- -------- -------- -------- --------
Cumulative effect of change
in accounting principle..... 4,831 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before minority
interests................... $ 930 $(25,655) $(17,425) $ (8,707) $ (6,513)
======== ======== ======== ======== ========
</TABLE>
SUBSCRIBER DATA FOR U.S. CABLE SYSTEMS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- JUNE 30,
1992 1993 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Homes passed by cable ........ 1,202,000 1,224,000 1,253,000 1,262,000
Number of basic subscribers... 722,000 738,000 771,000 773,000
Basic penetration............. 60.1% 60.3% 61.5% 61.3%
Number of premium
subscriptions................ 440,000 467,000 510,000 512,000
Premium penetration........... 60.9% 63.3% 66.2% 66.2%
</TABLE>
Six Months Ended June 30, 1995 Compared to Six Months Ended June 30,
1994. Revenues increased by 2.6% (or $3.7 million) to $145.4 million. Basic
subscribers increased by 3.9% to 773,000. Due to the seasonality inherent in
certain of Providence Journal's cable systems in Florida, the number of basic
subscribers may fluctuate over the course of the year. Monthly revenue per
average basic subscriber decreased to $29.50 from $29.92. Revenue per
subscriber decreased because of the FCC mandated rate reductions implemented on
July 14, 1994 and refund reserves accrued as a result of rate reviews by local
and FCC authorities.
Premium cable service revenue increased by .8% to $22.8 million while premium
subscriptions increased by 3.6% to 512,000. Premium penetration remained flat
at 66.2%, and average monthly premium revenue per subscription decreased by
$.41 to $7.36 due to promotional programs used to attract new premium
subscribers at discounted rates.
32
<PAGE>
Operating, selling, general and administrative expenses, excluding
depreciation and amortization and allocated corporate overhead, increased by
3.3% to $89.0 million. The overall increase in these expenses was primarily due
to higher programming costs and technical costs related to increased basic
subscriber levels. Depreciation and amortization expense decreased 7.2%
reflecting a lower asset base.
Operating loss before minority interests declined from $(8.7) million to
$(6.5) million, primarily as a result of the improved operating results.
Year Ended December 31, 1994 Compared to Year Ended December 31,
1993. Revenues increased by 1.2% (or $3.4 million) to $285.0 million due to a
4.5% increase in basic subscribers to 771,000. The highest growth in basic
subscribers was in Hialeah, Florida, Los Angeles, California and Minneapolis,
Minnesota. Monthly revenue per average basic subscriber decreased to $29.44
from $30.63 in 1993. The $1.19 decrease in monthly revenue per average basic
subscriber was the result of FCC mandated rate reductions implemented on
September 1, 1993 and again on July 14, 1994.
Premium cable service revenue increased by 1.7% to $45.4 million. Premium
subscriptions increased 9.2% from 467,000 to 510,000 as a result of new
promotional programs. Premium penetration increased from 63.3% to 66.2%.
Average monthly premium revenue per subscription decreased $.52 to $7.70 due to
promotional programs used to attract new premium subscribers at discounted
rates.
Operating, selling, general and administrative expenses, excluding
depreciation and amortization and allocated corporate overhead, increased 3.3%
to $173.0 million primarily due to the following: (1) higher programming costs;
(2) technical costs related to increased basic subscriber levels; and (3) a
change in the method of accounting to expense rather than capitalize the
installation of wiring and additional outlets located in cable customers'
homes. Depreciation and amortization expense decreased 13.8% reflecting this
change in capitalization policy as well as full amortization of certain
intangible assets associated with the acquisitions of King Videocable Company
and Colony Cablevision.
The increase in allocation of corporate overhead from $9.7 million to $11.0
million is primarily due to increased compensation costs associated with
Providence Journal's executive compensation programs. Corporate overhead has
been allocated on the basis of revenue of Providence Journal Cable to total
Providence Journal owned and managed revenue; however, these charges are not
necessarily indicative of the level of expenses that might have been incurred
by Providence Journal Cable on a stand-alone basis.
Loss before minority interests declined from $(25.7) million to $(17.4)
million due primarily to lower depreciation and amortization expense.
Year Ended December 31, 1993 Compared to Year Ended December 31,
1992. Revenues increased by 41.0% (or $81.9 million) to $281.6 million as a
result of the acquisitions of Colony Cablevision and King Videocable. Colony
Cablevision (formerly owned by Palmer Communications, Inc.) added approximately
168,000 basic subscribers to Providence Journal Cable, and Providence Journal's
purchase of the cable television systems of Palmer Communications, Inc. (the
"Palmer Systems") in December 1992 represented an approximate $56.0 million
increase in revenue from 1992 to 1993. Providence Journal's investment in King
Videocable added approximately 222,000 basic subscribers to Providence Journal
Cable as of February 25, 1992, representing an approximate $18.0 million
increase in revenue from 1992 to 1993. These acquisitions were accounted for as
purchases and their results of operations have been included in the combined
financial statements from the date of acquisition. As a result of these
acquisitions, the number of basic subscribers serviced by Providence Journal
Cable more than doubled to 722,000 by the end of 1992. Through further internal
growth, basic subscribers grew by 2.2% to 738,000 at the end of 1993.
Monthly revenue per average basic subscriber declined from $30.78 to $30.63,
reflecting the impact of FCC mandated rate reductions and lower subscriber
rates in acquired companies. Effective September 1, 1993, all of Providence
Journal Cable's systems had their rates set using the FCC's benchmark
methodology.
33
<PAGE>
The impact of adjusting rates to the FCC benchmark was a $4.9 million reduction
in Providence Journal Cable's revenues for the four months ended December 31,
1993.
Premium subscriptions increased by 6.1% to 467,000 from 440,000. Premium
penetration increased from 61.0% to 63.3%. Average monthly premium revenue per
subscription decreased by $.58, to $8.22, reflecting price discounting in
promotional programs targeted to increase premium subscriptions.
Operating and selling, general and administrative expenses increased by
37.6%, consistent with the 41.0% increase in revenue and reflecting the full-
year impact of Providence Journal Cable's system acquisitions. The increase in
operating and selling, general and administrative expenses associated with the
King Videocable and Colony Cablevision acquisitions was approximately $42.0
million from 1992 to 1993. Significantly higher depreciation and amortization
expense, which increased by 69.5% to $99.6 million, reflected increased capital
spending levels, a full year of depreciation and amortization from the
acquisitions and accelerated depreciation of cable home wiring. Due to
provisions of the 1992 Cable Act that effectively transferred to cable
customers ownership of wiring and additional outlets located in cable
customers' homes, Providence Journal Cable reduced the estimated useful lives
of these related assets to reflect customer churn rates and accelerated
depreciation on older related assets, resulting in a $6.8 million increase in
depreciation expense.
The increase in allocation of corporate overhead from $6.5 million to $9.7
million is primarily due to increased corporate costs associated with
Providence Journal's executive compensation programs.
Operating income decreased by 61.4%. Providence Journal Cable's revenue
growth and operating income continued to be adversely affected in 1994 by the
effect of the FCC's ongoing reregulation activities.
The loss before minority interest of $(25.7) million in 1993 included
allocated intercompany interest expense of $40.0 million, primarily associated
with the intercompany financing of the cable system acquisitions in 1992.
Advances due to parent companies was $593.1 million at December 31, 1993 with
an average effective interest rate of 7.6% for 1993.
* * * *
LIQUIDITY AND CAPITAL RESOURCES
The cable television business requires substantial financing for the
construction, expansion and maintenance of plant and for acquisitions and
investments. Continental has historically funded its capital expenditures,
acquisitions and investments through long-term debt, cash provided from
operating activities and, to a lesser extent, through private issuances of
equity. Continental's ability to generate cash adequate to fund its needs
depends generally on the results of its operations and the availability of
external financing. Continental believes that cash generated from operating
activities, together with borrowings from existing and future credit
facilities, the net proceeds from the Offering and proceeds from future equity
issuances, will be sufficient to fund its future debt service requirements and
stock repurchase obligations, and to make anticipated capital expenditures,
investments and acquisitions.
34
<PAGE>
The following table sets forth for the period indicated certain items from
the Company's Statement of Consolidated Cash Flows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995
--------------
(IN THOUSANDS)
<S> <C>
Net cash provided from operating activities................... $ 77,527
=========
Net cash provided from (used for) financing activities:
Net borrowings.............................................. $ 278,194
Other....................................................... 1,047
---------
Total..................................................... $ 279,241
=========
Net cash provided from (used for) investing activities:
Property, plant and equipment............................... (231,021)
Investments................................................. (121,719)
Other assets................................................ (28,788)
Proceeds from sale of marketable equity securities.......... 27,357
Proceeds from sale of investments........................... 1,181
---------
Total..................................................... $(352,990)
=========
</TABLE>
Recent Financing Activities. On October 17, 1994, Continental entered into
its 1994 Credit Facility, which represents an amendment and restatement of its
1990 Credit Agreement. The 1994 Credit Facility is an unsecured, reducing
revolving credit facility with maximum credit availability of $2.2 billion.
Credit availability under the 1994 Credit Facility will decrease annually
commencing December 31, 1997 with a final maturity in October 2003. The net
proceeds from the Offering will be used initially to repay $282.5 million of
the indebtedness outstanding under the 1994 Credit Facility. Subsequent
borrowings under the 1994 Credit Facility will be used for general corporate
purposes including capital expenditures, investments and acquisitions. As of
October 16, 1995, Continental had credit availability of $169.4 million under
the 1994 Credit Facility. See "Credit Arrangements of the Company."
On July 18, 1995, certain of Continental's subsidiaries entered into the 1995
Credit Facility, which is an unsecured, reducing revolving credit facility. The
maximum credit availability under the 1995 Credit Facility is $1.2 billion
which will decrease annually commencing December 31, 1998, with a final
maturity in September 2004. Such facility has other terms and conditions which
are similar in certain respects to those contained in the 1994 Credit Facility.
In October 1995, Continental borrowed under the 1995 Credit Facility to fund
approximately $815.0 million in connection with the Merger and approximately
$155.0 million for the acquisition of Columbia Cable of Michigan. Subsequent
borrowings under the 1995 Credit Facility will be used to fund the Pending N-
COM Buyout for approximately $85.0 million in the fourth quarter of 1995 and
general corporate purposes, including capital expenditures for the Providence
Journal Cable, Columbia Cable of Michigan and N-COM systems. As of October 16,
1995, certain of Continental's subsidiaries had credit availability of $224.0
million under the 1995 Credit Facility. See "Credit Arrangements of the
Company."
Credit Arrangements of Continental. On June 30, 1995, Continental had cash on
hand of $15.3 million and the following credit arrangements: (i) approximately
$1.7 billion outstanding under the 1994 Credit Facility; (ii) approximately
$138.3 million of 10.12% Senior Notes Due 1999 to the Prudential Life Insurance
Company (the "Prudential Notes") ; (iii) $200.0 million of 8 1/2% Senior Notes
Due 2001; (iv) $100.0 million of 8 5/8% Senior Notes Due 2003; (v) $275.0
million of 8 7/8% Senior Debentures Due 2005; (vi) $300.0 million of 9% Senior
Debentures Due 2008; (vii) $525.0 million of 9 1/2% Senior Debentures Due 2013;
(viii) $100.0 million of 10 5/8% Senior Subordinated Notes Due 2002; (ix)
$100.0 million of the Floating Rate Debentures; and (x) $300.0 million of 11%
Senior Subordinated Debentures Due 2007. Other miscellaneous debt was
approximately $26.1 million as of June 30, 1995.
35
<PAGE>
In addition, a subsidiary of Continental has issued a standby letter of
credit of approximately $56.3 million on behalf of PrimeStar, which guarantees
a portion of the financing PrimeStar incurred to construct a successor
satellite system. Continental anticipates that the obligations under such
letter of credit will increase next year up to a maximum of approximately $70.6
million. The letter of credit is secured by certain marketable equity
securities with a fair market value of approximately $120.0 million as of June
30, 1995.
The annual maturities of Continental's indebtedness for the years ending
December 31, 1995, 1996, 1997, 1998 and 1999 will be approximately $24.3
million, $27.3 million, $30.6 million, $33.3 million and $35.0 million,
respectively.
The Offering will trigger the rights of each of the holders of $100.0 million
of the Floating Rate Debentures to require that the Company redeem all of such
holder's Floating Rate Debentures at the principal amount plus accrued interest
and certain other amounts relating to breakage costs and taxes. To the extent
that any such holders tendered their Floating Rate Debentures, the Company
would borrow funds under the 1994 Credit Facility to fund such redemptions. The
maximum amount that the Company would be required currently to pay in the event
that all such holders tendered their Floating Rate Debentures would be
approximately $102.0 million. The Floating Rate Debentures currently bear
interest at a rate per annum of approximately 8.9% (three-month LIBOR plus
3.0%). The interest spread increases to 4.5% in November 1996. See "Credit
Arrangements of the Company."
Interest Rate Protection Products. Continental's policy is to use interest
rate protection products (including interest rate exchange agreements and
interest rate cap agreements) to hedge its interest rate risk. In accordance
with both the 1994 Credit Facility and the 1995 Credit Facility, Continental is
currently required to maintain interest rate protection (including fixed
interest rate indebtedness) covering a minimum of 50% of its total debt.
Interest rate exchange agreements ("Swaps") are matched with either fixed or
variable rate debt. Continental accounts for outstanding Swaps on a settlement
basis as an adjustment to interest expense. Gains or losses resulting from the
termination of Swaps are amortized over the remaining life of the underlying
debt or the Swap, whichever is less. As of June 30, 1995, Continental had Swaps
pursuant to which it pays fixed interest rates averaging approximately 9.0% on
notional amounts of $900.0 million (expiring in 1995 through 2000) and variable
interest rates on notional amounts of approximately $1.6 billion (expiring in
1998 through 2003). The variable interest rates are based on 6-month LIBOR,
which currently is approximately 6.0%.
As of June 30, 1995, Continental had $800.0 million of interest rate cap
agreements ("Caps"), which limit 6-month LIBOR to approximately 8.0%.
Continental amortizes the cost of its Caps over the life of the Cap agreement
as an adjustment to interest expense.
As of June 30, 1995, Continental's ratio of fixed interest rate debt (which
factors in Swaps, Caps and debt fixed by its terms) to total debt was
approximately 56.0%. Continental's exposure, if the other parties fail to
perform under both Swaps and Caps, would be limited to the impact of variable
interest rate fluctuations and the periodic settlement of amounts due under
these agreements.
Capital Expenditures and U.S. Acquisitions. Continental's expenditures for
property, plant and equipment totaled $231.0 million for the six months ended
June 30, 1995 ($32.8 million of which was related to the provision of DBS
service through PrimeStar). Excluding the 1995 Acquisitions, Continental
anticipates that it will spend approximately $375.0 million for capital
expenditures for its existing systems during 1995. In addition, Continental
anticipates spending approximately $55.0 million in 1995 for DBS home-premises
equipment in connection with its role as a distributor for PrimeStar. The
anticipated increase in capital expenditures for 1995 as compared to 1994 is
due to Continental's intention (i) to further deploy addressable technology and
to expand channel capacity in its systems and (ii) to provide PrimeStar's DBS
service. Continental anticipates funding its capital expenditures in 1995 with
proceeds from the 1994 Credit Facility
36
<PAGE>
and cash provided from operating activities. In accordance with the recently
adopted Social Contract with the FCC, Continental has agreed to invest a
minimum of $1.35 billion in system rebuilds and upgrades in the United States
from 1995 to 2000 to expand channel capacity and improve system reliability and
picture quality. See "Business--U.S. Operating Strategy--Regulatory Strategy;
Social Contract."
In November 1994, Continental entered into: (i) the Merger Agreement,
providing for the acquisition of Providence Journal Cable for total
consideration of approximately $1.4 billion, and (ii) a purchase and sale
agreement to acquire Columbia Cable of Michigan's cable television systems for
approximately $155.0 million, of which $7.5 million was funded in escrow and
included in Other Assets in 1994. Subsequent to December 31, 1994, Continental
entered into purchase and sale agreements to purchase the cable television
systems of Cablevision of Chicago and Consolidated Cablevision of California
for approximately $168.5 million and $17.0 million, respectively. See "Other
Financing and Investment Activities." Continental also entered into an
agreement, which is being renegotiated, to acquire the remaining ownership
interests and assume certain liabilities of N-COM, a limited partnership that
owns and operates cable television systems in Michigan, for total consideration
of approximately $85.0 million. Continental currently owns a 33.8% limited
partnership interest in N-COM. The Cablevision of Chicago and the Consolidated
Cablevision of California acquisitions closed in August 1995 and September
1995, respectively, and both the Merger and Columbia Cable of Michigan
acquisitions closed in October 1995. The Pending N-COM Buyout is expected to
close in the fourth quarter of 1995. All of these cable television systems
primarily serve communities that are contiguous or in close proximity to
Continental's existing systems. Continental has funded and will fund the cable
system acquisitions in Michigan with borrowings under the 1995 Credit Facility.
Continental funded the Cablevision of Chicago and the Consolidated Cablevision
of California acquisitions with borrowings under the 1994 Credit Facility.
Continental funded the Merger with borrowings under the 1995 Credit Facility as
well as through the issuance of 30,142,732 shares of Class A Common Stock. See
"Business--U.S. Acquisitions and Investments--Providence Journal Transaction"
and "Other U.S. Acquisitions."
Management believes that the 1995 Acquisitions will result in enhanced
prospects and opportunities for growth for Continental, including increases in
operating scale, system clustering and operating income. The Company
anticipates reductions in the overhead expenses attributable to the systems
acquired and other cost savings arising from the integration of such systems
into Continental's larger operations.
Investments. For purposes of the Statements of Consolidated Cash Flows, the
Company's investments include telecommunications and technology investments,
international investments and other investments.
International Investments. Continental has advanced US$148.0 million to
Fintelco, a company which owns and operates cable television systems serving
over 620,000 subscribers in Argentina. Continental currently holds an
approximate 50% interest in Fintelco. See "Business--International Operations."
In addition, Continental has recorded commitments to contribute an additional
US$33.5 million to Fintelco in order to finance a portion of certain
acquisitions of Argentine cable television systems. Continental anticipates
funding such commitments with borrowings under the 1994 Credit Facility and
cash provided from operating activities. In addition, Fintelco is in the
process of arranging an aggregate of approximately US$180.0 million in senior
credit facilities, including a US$140.0 million credit facility with a group of
financial institutions. Proceeds from such facilities will be used to refinance
existing short-term indebtedness and for general corporate purposes, including
capital expenditures. Such facilities may reduce the amount of future advances
from Fintelco's shareholders, including Continental. As of October 16, 1995
Fintelco had received commitments, which are subject to final documentation, in
excess of US$200.0 million for the US$140.0 million credit facility. No
assurance can be given at this time that such facilities will be successfully
arranged.
Continental and Optus Communications Pty Limited ("Optus"), a provider of
long-distance and cellular telephone services in Australia, have formed a joint
venture to create a broadband communications network in Australia. The venture,
called Optus Vision, is owned 46.5% by Continental, 46.5% by Optus, 5% by
Publishing and Broadcasting Limited ("Nine"), the parent company of Kerry
Packer's Nine Network and 2% by Seven Network Limited ("Seven"). Each of Nine
and Seven has an option to increase its shareholdings
37
<PAGE>
at fair market value to 20% and 15%, respectively, at any time prior to July 1,
1997. Optus Vision is providing cable television, and will provide local
telephone and a variety of advanced broadband interactive services to
businesses and residential customers in Australia's major markets.
As of June 30, 1995, Continental had invested approximately US$33.4 million
in Optus Vision. Optus Vision anticipates at this time that the required
funding needs of the project will total over US$1.5 billion (based upon
exchange rates at June 30, 1995) through 1999, which will be provided by a
combination of equity from the joint venture partners and third-party debt.
Continental anticipates funding its share of the equity contributions to Optus
Vision with borrowings under the 1994 Credit Facility, cash provided from
operating activities, and other capital transactions, which could include the
issuance of new indebtedness and/or equity. Continental's funding requirements
would be reduced if either or both of Nine and Seven exercise their options to
increase their equity interests in Optus Vision to 20% and 15%, respectively,
but there can be no assurances that Nine and/or Seven will exercise their
options.
In September 1994, Continental acquired a 25% equity interest in SCV, which
will construct, own and operate a cable television system in Singapore. SCV has
the exclusive right, through June 2002, to provide traditional cable television
service in Singapore. As of June 30, 1995, Continental had made capital
contributions of US$17.6 million and committed to contribute up to
approximately US$27.0 million (based on exchange rates as of June 30, 1995) in
additional capital through 1996. In addition, Continental has committed to lend
up to approximately US$45.0 million (based on exchange rates as of June 30,
1995) to SCV if third-party debt financing is unavailable. Continental
anticipates funding such commitments with borrowings under the 1994 Credit
Facility and cash provided from operating activities. SCV has arranged an
aggregate of S$106.0 million in senior credit facilities and is in the process
of arranging an additional S$100.0 million of senior credit facilities. Such
facilities may reduce the amount of future advances from SCV's shareholders,
including Continental. No assurance can be given at this time that all such
facilities will be successfully arranged.
Investments in Telecommunications and Technology. Continental has made
numerous investments which are related to its ownership interests in TCG and
PrimeStar.
In 1993, Continental purchased 20% of TCG for a purchase price of $66.0
million. In addition, Continental has committed to lend up to $69.9 million to
TCG through 2003, of which $53.8 million was advanced as of June 30, 1995.
Continental has also invested $50.5 million in joint ventures involving TCG and
other cable operators and may in the future make additional investments in TCG
and joint ventures involving TCG. Such future possible investments cannot be
quantified at this time and will be evaluated by Continental on a project-by-
project basis. On May 22, 1995, TCG entered into a $250.0 million revolving
credit facility with a group of financial institutions. Borrowings under the
facility may be used for general corporate purposes of TCG, including capital
expenditures. Such facility may reduce the amount of future advances from TCG's
shareholders, including Continental.
Continental also owns an approximate 10.4% partnership interest in PrimeStar
and had a net investment of $13.5 million as of June 30, 1995. See "Business--
Telecommunications and Technology." Continental has made cash investments to
fund PrimeStar's ongoing operations and may in the future make additional
investments in PrimeStar. Continental anticipates funding any additional
investments in PrimeStar with cash provided from operating activities and
borrowings under the 1994 Credit Facility.
Other Financing and Investment Activities. In January 1995, Continental sold
its shares of QVC common stock in a tender offer for approximately $27.4
million and sold a portion of its investment in NCC for approximately $1.2
million. The proceeds from these sales were used to repay amounts outstanding
under the 1994 Credit Facility. In exchange for its shares of Turner stock,
Continental will receive approximately 4.4 million shares of Time Warner Inc.
common stock if the merger between Turner and Time Warner Inc. is consummated
as proposed. See "Business--Telecommunications and Technology."
38
<PAGE>
Other assets increased by $28.8 million during the six months ended June 30,
1995 due primarily to a $16.9 million deposit in connection with the
Cablevision of Chicago acquisition, which closed in August 1995, and
approximately $13.0 million of loans to certain employees to cover tax
obligations in connection with Continental's Restricted Stock Purchase Program.
See Note 11 to Continental's Consolidated Financial Statements.
1998-1999 Share Repurchase Program. Continental is a party to a liquidity
agreement (the "Stock Liquidation Agreement") with certain stockholders,
including H. Irving Grousbeck (a co-founder of Continental) , and the partners
of certain general investment limited partnerships managed by Burr, Egan,
Deleage & Co. (collectively, the "Subject Stockholders"). Since 1989,
Continental has repurchased approximately 9.7 million shares of Redeemable
Common Stock for an aggregate purchase price of approximately $139.6 million.
In addition, in a series of negotiated transactions, the Company has converted
approximately 11.9 million shares of Redeemable Common Stock into the same
number of shares of Common Stock. As a result, Continental's remaining
obligation under the Stock Liquidation Agreement has been reduced to the
repurchase of approximately 16.7 million shares (representing approximately %
of its outstanding shares of Common Stock on a fully diluted basis, assuming
conversion of the outstanding shares of Series A Preferred Stock and after
giving effect to the Offering) of Redeemable Common Stock held by the Subject
Stockholders, as well as by the other stockholders who elected to participate
in this aspect of the liquidity program (collectively, the "Selling
Stockholders"), on December 15, 1998 (or January 15, 1999, at each Selling
Stockholder's election). The purchase price for such redemption is equal to the
greater of (i) the dollar amount that a holder of Common Stock would receive
per share of Common Stock upon a sale of Continental as a whole pursuant to a
merger or a sale of stock or, if greater, the dollar amount a holder of Common
Stock would then receive per share of Common Stock derived from the sale of
Continental's assets and subsequent distribution of the proceeds therefrom (net
of corporate taxes, including sales and capital gains taxes in connection with
such sale of assets), in either case less a discount of 22.5%, or (ii) the
dollar amount equal to the net proceeds which would be expected to be received
by a stockholder of Continental from the sale of a share of Common Stock in an
underwritten public offering at the time the shares are to be repurchased
after, under certain circumstances, being reduced by pro forma expenses and
underwriting discounts. In the event Continental is unable to perform its
obligation to complete the 1998-1999 Share Repurchase Program within six months
of the payment date therefor, Continental is obligated, at the request made
within such six-month period by any one or more Subject Stockholders or
transferees holding an aggregate of at least 2.5 million shares of such
transferred shares of Redeemable Common Stock, to use its best efforts (subject
to compliance with applicable laws and regulations) to cause the sale of all or
substantially all of the assets of Continental and, following the consummation
of such sale, to liquidate Continental.
Capital Resources. Historically, cash generated from Continental's operating
activities in conjunction with borrowings and, to a lesser extent, proceeds
from private equity issuances have been sufficient to fund its debt service
requirements, stock repurchase obligations and to make capital expenditures,
investments and acquisitions. Continental believes that cash generated from
operating activities, together with borrowings from existing and future credit
facilities, and net proceeds from the Offering and future equity issuances,
will be sufficient to fund its future debt service requirements and stock
repurchase obligations and to make anticipated capital expenditures,
investments and acquisitions. However, there can be no assurance in this
regard. Furthermore, there can be no assurance that the terms available for any
future debt or equity financing would be favorable to Continental.
Recent Legislation. In October 1992, Congress enacted the 1992 Cable Act,
which, among other things, authorizes the FCC to set standards for governmental
authorities to regulate the rates for certain cable television services and
equipment and gives local broadcast stations the option to elect mandatory
carriage or require retransmission consent.
Pursuant to authority granted under the 1992 Cable Act, the FCC in April 1993
promulgated rate regulations that established maximum allowable rates for cable
television services, except for services offered on a per-channel or per-
program basis. On February 22, 1994, the FCC adopted a revised regulatory
scheme
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which included, among other things, interim cost-of-service standards and a new
benchmark formula to determine certain service rates. In creating the new
benchmark formula, the FCC authorized a further reduction in rates for certain
regulated services. As a result, rates for certain regulated services in effect
were then reduced by as much as 17% below their September 30, 1992 levels if
they exceeded the new per-channel benchmark rates. The old benchmark formula
called for a reduction of up to 10%. As part of the implementation of the
regulations, the FCC froze rates for regulated services from April 1, 1993
through May 15, 1994.
The regulations require rates for equipment to be cost-based and require
reasonable rates for regulated cable television services to be established
based on, at the election of the cable television operator, either application
of the FCC's benchmarks or a cost-of-service showing pursuant to standards
adopted by the FCC.
To the extent that a cable television system's rates are found to exceed the
reasonable rate determined by the methodology selected by the cable television
operator, the rates will be subject to "rollbacks" and, in some cases, refunds.
In addition, if a cable television system's rates for regulated services do not
need to be reduced by 17% in order to reach the new benchmark adopted on
February 22, 1994, such rates may nonetheless be subject to further reduction,
up to a maximum reduction of 17% from the rates in effect on September 30,
1992, based upon the results of a pending FCC study of the operating costs of
such cable television systems. See "Legislation and Regulation." The timing and
amount of such rollbacks, refunds and further reductions, if any, for any
system will depend on a number of factors, including the method of rate
determination selected by the cable television operator, further clarification
of the benchmark and cost-of-service methodologies adopted on February 22,
1994, the ability of the FCC to efficiently process cost-of-service showings
submitted by cable television operators, the success on the merits of such
cost-of-service showings and the outcome of pending litigation challenging
various aspects of the 1992 Cable Act.
Under current FCC regulations, a rate complaint or certification of a local
franchising authority is required to regulate a system. In accordance with the
regulations, Continental has either reduced rates under the FCC's benchmark
methodology or supported current rates by cost-of-service showings for these
regulated franchises. Certain positions taken by Continental in its cost-of-
service filings were based on provisions of the FCC's interim cost-of-service
rules that allow certain "presumptions" in the rules to be overcome on a case-
by-case basis. While Continental believes that its showings in this regard were
sufficient, the results of these cases were unknown at the time. As a result
Continental recorded a non-cash revenue reserve in 1994.
Continental has settled all of its pending cost-of-service rate cases and all
of its benchmark Cable Programming Service tier rate cases through the recently
adopted Social Contract with the FCC. Benchmark Basic Broadcast Tier cases will
continue to be resolved by Continental and local franchising authorities. For a
description of the Social Contract, see "Business--U.S. Operating Strategy--
U.S. Regulatory Strategy; Social Contract."
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BUSINESS
GENERAL
Continental is a leading provider of broadband communications services. As of
June 30, 1995, Continental's systems and those of its U.S. affiliates passed
approximately 7.1 million homes and provided service to approximately 4.1
million basic subscribers, making the Company the third-largest cable
television system operator in the United States. In addition, Continental has
pursued and continues to pursue investments that are complementary to its core
business, including (i) international broadband communications ventures; (ii)
interests in the telecommunications and technology industries, including
companies offering competitive-access telephony and DBS service; and (iii)
interests in programming services. Continental's business strategy is to
capitalize on its clustered systems, technologically advanced broadband
networks, management expertise and reputation for quality to compete
effectively in new and existing businesses and markets. For 1994, the Company's
pro forma revenues were approximately $1.6 billion and its pro forma operating
income before depreciation, amortization and non-cash compensation was $675.9
million.
CABLE TELEVISION SYSTEMS. The Company's five management regions operate
systems that are organized into 19 operating clusters in 20 states. As of June
30, 1995, approximately 55.9% of Continental's subscribers were located in the
Company's seven largest operating clusters. The 1995 Acquisitions increase the
total number of subscribers in these clusters by approximately 42.8%, to more
than 2.2 million. Continental believes that its operating scale in key markets
generates significant benefits, including lower programming costs and other
operating efficiencies, and enhances its ability to develop and deploy new
technologies and services.
Continental's systems have channel capacity and addressability that are among
the highest in cable industry. The Company's systems are located principally in
suburban communities adjacent to major metropolitan markets, as well as mid-
sized cities, that generally have attractive demographics and are
geographically diverse. These systems serve communities with a median household
income of approximately $42,300 versus the national median of approximately
$37,900. Continental believes that its technologically advanced broadband
networks and the demographic profile of its subscriber base, coupled with its
effective marketing, are essential to its ability to sustain pay-to-basic
penetration rates and total monthly revenue per average basic subscriber that
are among the highest in the cable industry. Continental believes that the
geographic diversity of its system clusters reduces its exposure to economic,
competitive or regulatory factors in any particular region.
INTERNATIONAL. Continental participates in several broadband communications
ventures outside the United States. The Company owns a 50% interest in
Fintelco, the largest cable television system operator in Latin America, which
currently serves over 620,000 subscribers in Argentina. Continental has also
formed a joint venture in Australia, in which it holds a 46.5% equity interest.
Optus Vision is constructing a broadband communications network to provide
local telephony, cable television and a variety of advanced interactive
services to business and residential customers. Continental has a 25% equity
interest in SCV, a joint venture that is constructing a broadband network to
provide cable television and a variety of advanced interactive services to
substantially all households in Singapore. Continental also has recently signed
a memorandum of understanding relating to the provision of cable television,
telephony, multimedia and interactive services in Japan and continues to pursue
other international opportunities, principally in Latin America and the Pacific
Rim.
TELECOMMUNICATIONS AND TECHNOLOGY. The Company has investments in the
telecommunications and technology industries, including: (i) a 20% ownership
interest in TCG, a provider of local telecommunications services to high-volume
business customers in major metropolitan areas nationwide; (ii) controlling
interests in two companies that provide local telecommunications services to
business customers in Richmond, Virginia and Jacksonville, Florida; and (iii)
an approximate 10% ownership interest in PrimeStar, a provider of medium-
powered, 73-channel DBS service to over 500,000 subscribers nationwide.
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PROGRAMMING. The Company has made and continues selectively to make
investments in programming services. The Company's programming investments
include interests in Turner, E!, New England Cable News, HSN, Viewer's Choice,
Music Choice, the Golf Channel and the Food Channel.
BUSINESS STRATEGY
Continental's business strategy is to capitalize on its clustered systems,
technologically advanced broadband networks, management expertise and
reputation for quality to compete effectively in new and existing businesses
and markets.
U.S. OPERATIONS. The Company's strategy in the United States is to acquire
and retain customers that will subscribe to a broad range of video, high-speed
data, telephony and other telecommunications services. Execution of this
strategy involves the following key operating principles: (i) expansion of its
nationwide operating scale (as measured by homes passed); (ii) further
development of large regional system clusters in demographically attractive
markets; (iii) development of technologically advanced broadband networks
capable of providing enhanced video, high-speed data, telephony and other
telecommunications services; (iv) dedication to decentralized and locally
responsive management; (v) increased focus on marketing; (vi) commitment to
superior customer service and community relations; and (vii) continued
leadership in regulatory and other industry matters.
INTERNATIONAL OPERATIONS. Continental has made and continues selectively to
pursue investments in international broadband communications networks,
principally in Latin America and the Pacific Rim. These investments represent
opportunities for Continental to capitalize on its managerial, technical and
marketing expertise in international markets. Continental intends to apply its
U.S. operating principles, as appropriate, to its international ventures. In
addition, Continental receives valuable information and operating experience in
businesses, such as telephony, that Continental intends to develop in the
United States. In considering such investments, Continental seeks the following
characteristics: (i) favorable demographics and attractive growth prospects;
(ii) well-capitalized investment partners with extensive knowledge of the local
markets; and (iii) favorable political, regulatory and competitive
environments.
U.S. CABLE TELEVISION BUSINESS
Cable television is a service that delivers a wide variety of channels of
television programming, consisting primarily of video entertainment, sports and
news, as well as informational services, locally originated programming and
digital audio programming, to the homes of subscribers who pay a monthly fee
for the service. Television and radio signals are received by off-air antennas,
microwave relay systems and satellite earth stations and then distributed to
subscribers' homes over networks of coaxial and fiber-optic cables.
Continental's systems offer subscribers various levels (or "tiers") of cable
services consisting of broadcast television signals available off-air in any
locality, television signals from so-called "superstations" originating in
distant cities (such as WTBS, WGN and WWOR), various satellite-delivered, non-
broadcast channels (such as Entertainment and Sports Programming Network
("ESPN"), Cable News Network ("CNN"), the USA Network ("USA"), and Music
Television ("MTV")), displays of information featuring news, weather and stock
market reports and programming originated locally by the systems (such as
public, educational and governmental access channels). Continental's systems
also provide premium services to basic subscribers for an extra monthly charge.
These premium services include Home Box Office ("HBO"), Cinemax, Showtime, The
Movie Channel, Encore, The Disney Channel and certain regional sports networks,
which are satellite-delivered channels that consist principally of feature
films, live sporting events and other special-entertainment features, usually
presented without commercial interruption. Certain of Continental's systems
also carry "multiplexed" premium services, which are available from certain
premium-service providers such as HBO. Multiplexing allows a premium-service
provider to offer its programming on two or more channels simultaneously, but
scheduled differently, so as to provide the subscriber with an expanded choice
of programs at any given time.
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Although services vary from system to system because of differences in
channel capacity and viewer interest, each of Continental's systems offers a
Basic Broadcast Tier ("BBT") as the lowest-priced tier (consisting generally of
broadcast television signals available locally off-air, local origination and
public, educational and governmental access channels), one or more Cable
Programming Service ("CPS") tiers (which include satellite-delivered cable
programming services) and several premium and pay-per-view channels.
Subscribers may choose various combinations of such services. A limited number
of Continental's systems offer certain satellite-delivered, non-broadcast
services as a New Product Tier ("NPT"), which the FCC has indicated it will
forebear from regulating. See "Legislation and Regulation" for a description of
recent legislation and regulation, which limits Continental's ability to price
and tier certain programming services. Continental may offer such NPTs to
subscribers in additional systems as it expands channel capacity in such
systems. As a result of the Social Contract, Continental is permitted on each
existing system (currently excluding the systems acquired in the 1995
Acquisitions) to move up to four existing services on CPS tier(s) to a single
Migrated Product Tier, provided such tier is offered without requiring
customers to purchase any tier other than the BBT. The rates of the Migrated
Product Tier will be regulated under the Social Contract until January 1997 and
then may be converted into NPTs.
A customer generally pays an initial installation charge and fixed monthly
fees for the BBT, CPS, NPT, Migrated Product Tier and premium programming
services. Such monthly service fees constitute Continental's primary source of
revenues. In addition to these monthly revenues, Continental's systems
currently generate revenues from additional fees paid by customers for pay-per-
view programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. Continental's systems
also offer home shopping services, from which Continental receives a share of
revenues from sales of merchandise in its service areas.
U.S. OPERATING STRATEGY
Continental's strategy in the United States is to acquire and retain
customers that will subscribe to a broad range of video, high-speed data,
telephony and other telecommunications services. Execution of this strategy
involves the following key operating principles:
OPERATING SCALE. Continental is committed to preserving and further expanding
its operating scale in key markets (as measured by the number of homes passed)
through internal growth and strategic system acquisitions and exchanges.
Continental believes that operating scale is critical to its ability to meet
the growing capital and technical requirements that are vital to its long-term
competitiveness and will enable it to realize lower programming costs and other
operating efficiencies, enhance its ability to develop and deploy new
technologies and provide new services. The 1995 Acquisitions increase the
Company's basic subscribers by 31.4% and homes passed by 30.9% as of June 30,
1995.
LARGE REGIONAL SYSTEM CLUSTERS. Since its inception, Continental has
concentrated its operations in large regional system clusters located primarily
in suburban communities adjacent to major metropolitan markets, as well as mid-
sized cities, that generally have attractive demographics and are
geographically diverse. Continental believes that clustering creates operating
efficiencies through reduced marketing and personnel costs and lower capital
expenditures, particularly in systems where cable service can be delivered to
several communities within a single region through a central headend reception
facility. Regional system clusters are attractive to advertisers in that they
maximize the scope and effectiveness of advertising expenditures. Large system
clusters also enable Continental to attract and retain high-quality management
at the system level and to more effectively deploy new products and services.
In addition to selectively acquiring systems, Continental is exploring
opportunities to enlarge and enhance key regional system clusters by exchanging
certain systems with other cable television operators. Such transactions would
enable Continental to further realize the benefits of clustering without
further commitment of capital.
Giving effect to the 1995 Acquisitions, as of June 30, 1995, approximately
55.9% of Continental's total basic subscribers were located in the Company's
seven largest operating clusters, which include the greater metropolitan areas
of Boston, Chicago, Los Angeles and Detroit. The 1995 Acquisitions increase the
total
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number of basic subscribers in these seven operating clusters by approximately
42.8%, to more than 2.2 million. More specifically, the Company's two largest
operating clusters, the greater metropolitan areas of Boston and Los Angeles,
have increased their subscriber base by approximately 24.0% and 45.6%,
respectively, as a result of the Merger.
Communities that are served by Continental's systems have a median household
income of approximately $42,300, versus the national median of approximately
$37,900. Continental's systems are currently located in 20 states and are
divided into five management regions, with no single region accounting for more
than 25.2% of total basic subscribers. Continental believes that this
geographic diversity reduces its exposure to economic, competitive or
regulatory factors in any particular region.
TECHNOLOGICALLY ADVANCED SYSTEMS. Continental strives to maintain the highest
technological standards in the industry and is continually upgrading its
systems. By deploying high-capacity fiber-optic cable and addressable
technology in its broadband network, Continental continues to develop the
foundation from which to provide a broad range of video, high-speed data,
telephony and other telecommunications services. Fiber-optic cable provides the
capacity necessary to offer such services. Addressable technology, which
enables Continental to control electronically the cable television services to
be delivered to each customer, is essential to realize the full growth
potential of pay-per-view, tiered programming offerings such as NPTs and
Migrated Product Tiers and other interactive video services. Continental's
continuing investment in its systems enhances picture quality and signal
reliability, reduces operating costs and improves overall customer
satisfaction.
Continental is currently rebuilding and upgrading its U.S. systems to create
advanced hybrid fiber-optic and coaxial cable networks that will serve as the
infrastructure for the provision of enhanced video, high-speed data, telephony
and other telecommunications services. Continental anticipates making the
incremental capital investment required to provide new services as regulations
permit and customer demand expands. Continental believes it is currently among
the leaders in the cable industry in the deployment of fiber-optic cable.
Although Continental believes that demand exists to support the entry of cable
television companies into the telephony business, the offering of these
services will require the removal of existing regulatory and legislative
barriers to local telephone competition. See "Competition" and "Legislation and
Regulation."
Continental intends to use its existing broadband communications network and
sale and service organization as the platform to provide a bundled package of
enhanced video, high-speed data, telephony and other telecommunications
services in selected markets. Continental anticipates that it will be a
facilities-based provider of enhanced video, high-speed data and certain
telephony services. The Company expects, however, to resell certain services
such as wireless and long distance telephony. Continental is currently
exploring various business arrangements, which may differ by market, including:
(i) affiliating with other cable television companies; (ii) affiliating with an
RBOC or an IXC; and (iii) entering the business independently. Continental
believes that it is well-positioned to provide these services, given its
national operating scale, large regional system clusters in demographically
attractive markets, technologically advanced broadband networks, existing sales
and service organization and reputation for quality.
Continental continues to upgrade its systems with addressable technology and
fiber-optic cable. As of June 30, 1995, Continental provided at least 54-
channel capacity in systems serving over 72.0% of its basic subscribers. In
addition, Continental has addressable technology in systems serving over 86.0%
of its basic subscribers. The Company anticipates that approximately 82.1% of
its basic subscribers will be served by systems with at least 78-channel
capacity and that approximately 54.0% of its basic subscribers will be served
by systems with 110-channel capacity, by the end of 1998. Continental will also
begin to deploy digital converter boxes, as they become commercially available,
to certain basic subscribers. Digital compression significantly increases the
number of video channels that can be carried on a system and greatly increases
Continental's ability to provide enhanced video, high-speed data, telephony and
other telecommunications services. In addition to upgrading its systems,
Continental is deploying an information technology system in order to increase
operating efficiencies (including customer billing) and capitalize on the
increasing household use of on-line computer services.
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Continental has recently installed digital advertising insertion systems in
several markets including Boston, Richmond, Jacksonville, Pompano, Dayton,
Fresno and Detroit. These digital advertising insertion systems allow
Continental to download advertisements electronically to certain headends,
thereby significantly enhancing the flexibility and reliability of
Continental's advertising sales. Continental's New England region employs high-
speed Asynchronous Transfer Mode switches, which, in addition to facilitating
advertising insertion, have other potential uses, including improving
Continental's ability to provide enhanced video, voice and data offerings.
Asynchronous Transfer Mode is a new high-speed data transport and packaging
protocol that allows data, video and voice to be sent simultaneously over the
same communication line.
DECENTRALIZED AND LOCALLY RESPONSIVE MANAGEMENT. Continental has developed a
decentralized and locally responsive management structure that brings
significant management expertise and stability to every region and allows
Continental to respond effectively to the specific needs of the communities it
serves. Broad operating authority has been delegated to the Senior Vice
President managing each region, who has, on average, 12 years of experience
with Continental and 18 years within the cable industry. Certain employees,
including the regional Senior Vice Presidents, are awarded equity compensation
in the form of restricted stock grants, which vest over time, as an additional
incentive to maximize stockholder value. Continental believes that the
expertise, stability and commitment of its regional management is integral to
its ability to provide superior customer service, maintain strong community and
local regulatory relations and maximize growth potential.
EFFECTIVE MARKETING. Continental seeks to maximize revenues by increasing
subscriptions to its BBT, CPS, NPT, Migrated Product Tier, premium and pay-per-
view programming services through effective marketing, combined with a local
focus on customer service and community relations. Continental markets cable
television services through telemarketing, direct mail and door-to-door
solicitation, reinforced by radio, cable television, off-air television and
newspaper advertising. Continental seeks to attract and retain long-term
subscribers and increase the percentage of homes in its service areas that
subscribe to expanded service offerings. Continental believes that its
technologically advanced systems and the demographic profile of its subscriber
base, coupled with its effective marketing, are essential to its ability to
sustain pay-to-basic penetration rates and total monthly revenue per average
basic subscriber among the highest in the cable industry. As of June 30, 1995,
Continental's 81.3% ratio of premium service subscriptions to basic subscribers
was one of the highest in the industry, and, as a result, Continental's total
pro forma monthly revenue per average basic subscriber of $34.63 as of June 30,
1995 was also among the highest in the cable industry.
Continental has been recognized repeatedly by the cable industry for its
effective marketing. Each year the Cable Television Administration and
Marketing Society, Inc., the industry's marketing professional society,
presents "MARK" Awards to companies with the best marketing efforts in the
industry. Continental has won significantly more MARK awards over the last five
years than any other cable company.
CUSTOMER SERVICE AND COMMUNITY RELATIONS. Continental believes that it is an
industry leader in addressing the needs of its local customers. Continental
received the "Operator of the Year" Award, which rated it the "most admired
company in the cable industry," from Cablevision Magazine for the three years
in which the award was based upon a poll of its readers (1988-1990). Through
the use of surveys, focus groups, and other research tools, and by continually
investing in information technology and training programs, Continental believes
it has created one of the most extensive customer service programs in the
industry, supported by training centers in each of its regions. To improve its
customer service efforts, Continental is in the process of incorporating wide-
area computer networks into its customer service functions, which will enable
customer service representatives to more effectively interact with the
customer.
Continental's emphasis on customer service has helped it to foster and
sustain good relationships with the communities it serves. With 19 Beacon
Awards in the past three years, Continental has received more public service
awards from the Cable Television Public Affairs Association (the "CTPAA") than
any other cable company during that period. In addition, CTPAA awarded to Amos
B. Hostetter, Jr., Continental's
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Chairman and CEO, its 1992 Crystal Beacon Award for his and Continental's
commitment to public affairs. In 1993 and 1994, Continental received the
Partnership in Education award for its outstanding record in partnering with
local schools. In 1991 and 1992, Continental also won Community Action Network
Awards for applying the resources of cable television to help solve social
problems in various communities. In 1990, Continental received a Broadcasting
Award from the National Education Association ("NEA") for its work in
supporting education, the first time the NEA had so recognized a cable
operator. Continental is a founder of Cable in the Classroom, an industry-wide
initiative providing 525 hours of commercial-free educational programming each
month to more than 3,000 public and private schools in the communities it
serves. Amos B. Hostetter, Jr. served as the first Chairman of Cable in the
Classroom.
Continental believes that its focus on customer service and community
relations and reputation for quality will provide a competitive advantage as it
plans to market a broad range of video, high-speed data, telephony and other
telecommunications services to homes in its operating regions, frequently in
competition with other providers of these services. See "Competition."
LEADERSHIP IN REGULATORY AND OTHER INDUSTRY MATTERS. Continental has fostered
strong regulatory relations at the federal and local levels. In order to
resolve a variety of significant regulatory issues and obtain more certainty in
the regulatory environment, on August 3, 1995, the FCC adopted the Social
Contract with Continental, which is the first comprehensive rate agreement
involving cable television ever approved by the FCC. The Social Contract
extends through the year 2000 and settles most of the Company's current rate
cases. See "U.S. Regulatory Strategy; Social Contract."
Continental has also been a leader in other significant cable industry
matters. For instance, the Company is a founder of Cable in the Classroom and
is the first major cable television company to reach a retransmission consent
agreement with a broadcaster not requiring cash compensation in exchange for
the right to carry the broadcaster's local television signals. See
"Programming." Continental believes that its leadership on regulatory and other
industry matters will provide a competitive advantage as its markets a broad
range of video, high-speed data, telephony and other telecommunications
services.
EXPANDED SERVICE OFFERINGS. Continental believes that its operating strategy
has generated and will continue to generate additional revenues from numerous
sources, as customer demand expands and regulations permit.
Increased channel capacity and addressability enable Continental to offer
expanded video services such as "tiered" and "multiplexed" services.
Continental believes that the "tiering" of programming services, which includes
providing Migrated Product Tiers and NPTs, leads to increased customer
satisfaction by offering subscribers a wider variety of programming and pricing
packages from which to choose. In addition, Continental currently uses
"multiplexing" in many systems to enhance the perceived value of certain of its
premium service offerings such as HBO.
In recent years, Continental has begun to generate revenues from additional
sources, including advertising, pay-per-view and home shopping services.
Continental derives revenues from the sale of advertising time on advertising-
supported, satellite-delivered networks such as ESPN, MTV and CNN, as well as
on locally originated programming. Continental's advertising revenues increased
from $18.0 million for the year ended December 31, 1989 to $58.0 million for
the year ended December 31, 1994 (representing a 26% compound annual growth
rate in advertising revenues) and accounted for 4.8% and 4.7% of Continental's
total revenues for the year ended December 31, 1994 and the six months ended
June 30, 1995, respectively. Continental has increased its advertising sales
through its participation in several regional cable advertising interconnects
(associations of cable companies designed to effectively deliver a large market
to advertisers), as well as through the deployment of advanced technologies,
including digital advertising insertion systems and Asynchronous Transfer Mode
switches. Continental also participates in the national development of cable
advertising through its ownership interest in NCC, the largest cable
advertising representation firm in the country.
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Pay-per-view programming is offered to subscribers on an individual event
basis and consists of recently released movies and special events (including
boxing matches, other sporting events and concerts). Continental realized 14%
compound annual growth in pay-per-view revenues from December 31, 1989 to
December 31, 1994; for the year ended December 31, 1994, and the six months
ended June 30, 1995 pay-per-view revenues accounted for approximately 2.0% of
Continental's total revenues.
Continental believes that increased channel capacity and the further
deployment of addressable technology in its systems will enable it to expand
the number of channels dedicated to pay-per-view services and increase the
number of subscribers with access to pay-per-view programming. Continental will
be conducting marketing and engineering trials in its Natick, Massachusetts
system to evaluate the viability of enhanced pay-per-view or near video-on-
demand ("NVOD") services. The Natick trials are scheduled to begin in early
1996 and will cover approximately 1,500 homes. Based on the results of these
tests, Continental may offer enhanced pay-per-view or NVOD services in certain
of its other systems by early 1997.
Continental also receives a percentage of the proceeds from subscribers'
purchases of merchandise offered on home shopping programming services such as
QVC, HSN and Valuevision. Combined, advertising, pay-per-view and home shopping
revenues have increased at a compound annual rate of 22% over the past five
years. Continental believes that these and other services could become more
substantial sources of revenue over time, however, there can be no assurance in
this regard.
In addition, Continental has created an advanced broadband telecommunications
network for Boston College in Newton, Massachusetts, which is a fully
interactive, 750 MHz network providing service to 2,500 classrooms, 400
administrative locations and 6,000 dormitory locations on campus. The network
provides video and high-speed data services, including full access to library
resources and the Internet from each dormitory room, and will provide
telecommuting services to faculty, administrators and students. The project
represents an opportunity for Continental to capitalize on its existing network
infrastructure to provide comprehensive broadband network services. Based on
its experience providing these services to Boston College, Continental may make
these services available on its systems in other markets.
Continental intends to use its existing broadband communications network and
sale and service organization as the platform to provide a bundled package of
enhanced video, high-speed data, telephony and other telecommunications
services in selected markets. Continental anticipates that it will be a
facilities-based provider of enhanced video, high-speed data and certain
telephony services. The Company expects, however, to resell certain services
such as wireless and long distance telephony. Continental is currently
exploring various business arrangements, which may differ by market, including:
(i) affiliating with other cable television companies; (ii) affiliating with an
RBOC or an IXC; and (iii) entering the business independently. Continental
believes that it is well-positioned to provide these services, given its
national operating scale, large regional system clusters in demographically
attractive markets, technologically advanced broadband communications network,
existing sale and service organization and reputation for quality.
Continental currently provides competitive-access telephony service to
business customers in Jacksonville, Florida and Richmond, Virginia through its
subsidiaries, Continental Fiber Technologies, Inc. and Alternet of Virginia,
Inc. Continental is currently certificated to provide residential telephony
service in Florida and has already installed telephony switching equipment in
Jacksonville, Florida. The Company plans to provide residential telephone
service initially to multiple-dwelling units in selected Florida communities in
early 1996 and introduce residential telephone service to single-family homes
by the end of 1996. Based on its results in Florida, the Company will seek to
provide telephony services in additional markets as regulation permits and as
customer demand expands. Continental has applied for certification to provide
telephony services in California and will likely apply for certification in
Massachusetts, Illinois, Ohio, Virginia and New Hampshire during 1996. The U.S.
residential and business telephony markets generated over $100.0 billion of
revenues in 1994, which is approximately five times larger than the 1994 U.S.
cable television market.
47
<PAGE>
Finally, the Company currently acts as a local distributor of the PrimeStar
DBS service. In this role, it sells to, services, and collects monthly fees
from consumers. PrimeStar, of which Continental owns 10.4%, currently offers a
wide range of programming, including 73 channels of cable and network
television, sports and movies as well as several audio channels. As of June 30,
1995, Continental served over 48,000 of PrimeStar's 492,000 customers. In
addition, Continental generated DBS service revenue of $14.2 million and EBITDA
of $1.2 million for the six months ended June 30, 1995. See "Telecommunications
and Technology--PrimeStar."
U.S. REGULATORY STRATEGY; SOCIAL CONTRACT. In October 1992, Congress enacted
the 1992 Cable Act, which, among other things, authorizes the FCC to set
standards for governmental authorities to regulate the rates for certain cable
television services and equipment and gives local broadcast stations the option
to elect mandatory carriage or require retransmission consent.
After extensive evaluation of cost-of-service principles and economic and
legal analyses by experts in the rate regulation area, Continental decided to
defend certain of its service rates using the FCC's benchmark methodology in
regulated systems serving approximately 20% of its BBT subscribers and 24% of
its CPS tier subscribers, and certain of its service rates using the cost-of-
service methodology in regulated systems serving approximately 18% of its BBT
subscribers and 29% of its CPS tier subscribers. The decision to rely on cost-
of-service showings was based in part on the fact that Continental's systems
generally have substantially higher channel capacities and addressability than
the industry as a whole, reflecting greater capital investment on a per
subscriber basis. Having decided to pursue the cost-of-service process in some
of its systems, Continental added the resources and acquired the expertise
needed to support the filings both at the FCC and locally.
On August 3, 1995, the FCC adopted the Social Contract with Continental,
which covers all of Continental's existing franchises (currently excluding the
systems acquired in the 1995 Acquisitions), including those that are currently
unregulated, and is the first comprehensive rate agreement involving cable
television ever approved by the FCC. The Social Contract is designed to (1)
assure fair and reasonable rates for Continental's cable service customers; (2)
improve Continental's cable service by substantially upgrading the channel
capacity and technical reliability of its U.S. systems; and (3) reduce the
administrative burden and costs of regulation for local governments, the FCC
and Continental. The Social Contract settles Continental's pending cost-of-
service rate cases and its benchmark CPS tier rate cases. Benchmark BBT cases
will be resolved by Continental and local franchising authorities. As part of
the Social Contract, Continental agreed to, among other things, (i) invest at
least $1.35 billion in system rebuilds and upgrades in the United States from
1995 through 2000 to expand channel capacity and improve system reliability and
picture quality; (ii) make in-kind refunds to affected subscribers with a
retail value of approximately $9.5 million (for which adequate reserves have
been recorded in Continental's financial statements); and (iii) restructure its
BBT and CPS tier rates, as described below. The resolution of pending rate
cases is without any finding by the FCC of any wrongdoing by Continental. To
the extent new legislation is adopted that is more favorable to Continental
than the terms of the Social Contract, Continental will not be bound by the
terms of the Social Contract.
Pursuant to the Social Contract, Continental agreed to convert, by no later
than January 1, 1996, all of its existing BBT services to a low price "lifeline
basic" tier by setting rates at levels specified in the Social Contract and
then reducing those rates 15% to 20%. The specified levels of BBT rates before
the reduction are: (i) the benchmark rates, where Continental defended
regulated rates by the FCC's benchmark formula; (ii) the lower of the current
rate or the benchmark rate, where Continental defended regulated rates using
the cost-of-service methodology; and (iii) current rates in unregulated
franchise areas. Continental must reduce the BBT rates by 15%, but it has
discretion to reduce them as much as 20% where BBT rates in franchise areas
within a single system vary and the deeper reduction would achieve greater
uniformity of rates. Generally, the programming for the "lifeline basic" tier
(consisting generally of broadcast television signals locally available off-
air, local origination and public, educational and governmental access
channels) will be maintained for the life of the Social Contract. The Social
Contract will allow Continental to offset
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<PAGE>
BBT revenue reductions resulting from the creation of "lifeline basic" tiers
with adjustments to rates on its CPS tiers. In the future, rates for the
"lifeline basic" tier can be increased for external cost increases and
inflation. Local franchise authorities will be given a limited right to opt out
of the BBT refund provision of the Social Contract with respect to the cost-of-
service BBT cases over which they have jurisdiction, but none have elected to
do so. In some cases, Continental has waived the 12-month rule and must defend
its rates under cost-of-service principles from the start of regulation until
rates are restructured. Local franchise authorities may not opt out of any
other provisions of the Social Contract. In unregulated areas or in areas where
rates were defended using the FCC's benchmark formula, local franchise
authorities may not opt out of any provisions of the Social Contract.
Pursuant to the Social Contract, by January 1, 1996, (i) all regulated CPS
tier rates that are determined according to the FCC's benchmark formula will be
set at the benchmark rate and (ii) all regulated CPS tier rates that are
currently defended using the cost-of-service methodology, as well as
unregulated CPS tier rates, will be maintained at current levels. In each case,
Continental will be permitted to adjust its CPS tier rates to offset the 15% to
20% reductions in its BBT rate and to allow for external cost increases,
inflation and channel additions permitted by the FCC's "going forward" rules
(the "Going Forward Rules"). Under the Going Forward Rules, Continental, along
with other cable operators, during the two-year period beginning January 1,
1995, is permitted, subject to limits prescribed in those rules, to add new
services and to reflect the cost of those new services by an amount not to
exceed $.20 per added channel up to an aggregate of $1.20, plus the actual
license fees for the added channels not to exceed a total of $.30. In 1997, a
seventh channel may be added at a rate of $.20 plus the license fee.
Pursuant to the Social Contract, Continental is permitted to conduct a second
round of channel additions during the three-year period commencing January 1,
1998 on the same terms as the first round under the Going Forward Rules.
Continental is the first cable operator that has been afforded a second round
of channel additions under the Going Forward Rules.
Pursuant to the Social Contract, Continental is permitted to average broad
categories of equipment and various installation costs for all its systems on a
state-wide or region-wide basis, rather than on a franchise by franchise basis.
Those rates will be reviewed and approved by the FCC, subject to enforcement by
local franchise authorities.
Finally, Continental is permitted on each system to move up to four existing
services on CPS tier(s) to a single Migrated Product Tier, provided the
Migrated Product Tier is offered without requiring customers to purchase any
tier other than the BBT. The rates of the Migrated Product Tier will be
regulated in accordance with price limits contained in the Social Contract
until January 1, 1997, at which point Continental systems may elect to convert
their Migrated Product Tiers into NPTs, as defined by the Going Forward Rules,
provided the tiers continue to be offered without requiring customers to
purchase any tier other than the BBT. The rates for the NPTs are regulated by
market forces. See "Legislation and Regulation--Federal Regulation--Rate
Regulation." In addition, Continental has the right to add an unlimited number
of new channels to its Migrated Product Tier at $.20 per channel, plus the
actual license fees for the added channels.
Continental has the right to petition the FCC to incorporate future
acquisitions of cable television systems under the Social Contract. No final
determination has been made at this time on whether or not to seek to include
systems acquired in the 1995 Acquisitions under the Social Contract. See "U.S.
Acquisitions and Investments--Other U.S. Acquisitions."
The rate restructuring, Migrated Product Tier and "Going Forward" adjustments
that Continental has implemented under the Social Contract will continue to
apply to systems divested by Continental through a system sale or exchange.
Other rights and obligations will apply only if the new owner notifies the FCC
that it agrees to be bound by the same or similar terms and conditions as those
contained in the Social Contract. Continental will not be relieved of its total
capital investment requirement under the Social Contract by reason of these
divestitures.
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<PAGE>
U.S. SYSTEMS
The following table summarizes the growth of Continental and its affiliates
within the United States since December 31, 1992 and includes certain pro
forma operating data of Continental's U.S. systems and its U.S. affiliates,
giving effect to the 1995 Acquisitions.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1995
------------------------------- --------------------
1992 1993 1994 ACTUAL PRO FORMA
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Homes passed by ca-
ble(1)................. 4,981,000 5,192,000 5,372,000 5,437,000 7,116,000
Number of basic sub-
scribers(2)............ 2,856,000 2,895,000 3,081,000 3,133,000 4,117,000
Basic penetration(3).... 57.3% 55.8% 57.4% 57.6% 57.9%
Number of premium
subscriptions(4)....... 2,545,000 2,454,000 2,635,000 2,666,000 3,347,000
Premium penetration(5).. 89.1% 84.8% 85.5% 85.1% 81.3%
Monthly revenue per av-
erage basic subscrib-
er(6).................. $34.46 $35.76 $35.29 $35.65 $34.63
</TABLE>
- --------
(1) Represents estimated dwelling units located sufficiently close to
Continental's cable plant to be practicably connected without any further
extension of principal transmission lines. In reporting homes passed and
subscriber and other data for systems not controlled or managed by
Continental, only that portion of data corresponding to Continental's
percentage ownership is included.
(2) A "basic subscriber" means a person who subscribes, at a minimum, to
Continental's BBT, which generally consists of broadcast television
stations available locally off-air, local origination and public,
educational and governmental access channels. Bulk subscribers are
accounted for on an "equivalent billing unit" basis, by dividing aggregate
BBT bulk-billed revenues by the stated BBT rate.
(3) Basic subscribers as a percentage of homes passed by cable. Continental's
basic penetration for the years ended December 31, 1993 and 1994, and the
six months ended June 30, 1995 reflects the FCC's rate regulation rules
adopted on April 1, 1993, which for the first time provided a standardized
definition of "households."
(4) Equals the number of premium services subscribed to by subscribers.
Premium services include single channel services offered for a monthly fee
per channel.
(5) Premium subscriptions as a percentage of basic subscribers. A subscriber
may purchase more than one premium service, each of which is counted as a
separate premium subscription. This ratio may be greater than 100% if the
average customer subscribes to more than one premium service.
(6) Cable revenues (excluding DBS service) divided by the weighted average
number of basic subscribers for Continental's consolidated subsidiaries
during the twelve-month period ended December 31 for each year presented
and the six-month period ended June 30, 1995. On a pro forma basis, pro
forma revenues divided by the sum of the weighted average number of basic
subscribers for the Company's consolidated subsidiaries and the average
basic subscribers for the systems acquired in the 1995 Acquisitions for
the six-month period ended June 30, 1995.
50
<PAGE>
The following table sets forth operating information pertaining to
Continental's U.S. systems and the systems of certain U.S. affiliates as of
June 30, 1995, giving effect to the 1995 Acquisitions.
<TABLE>
<CAPTION>
HOMES NUMBER OF NUMBER
PASSED BY BASIC BASIC OF PREMIUM PREMIUM
MANAGEMENT REGIONS CABLE SUBSCRIBERS PENETRATION SUBSCRIPTIONS PENETRATION
- ------------------ --------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
NEW ENGLAND REGION
Eastern New England (MA)...... 426,057 287,130 67.4% 230,464 80.3%
Southern New England (RI,
MA).......................... 426,048 303,763 71.3% 241,645 79.6%
Northern New England (NH,
ME).......................... 229,637 177,502 77.3% 88,294 49.7%
Western New England (MA, CT).. 221,512 151,308 68.3% 120,736 79.8%
New York
(Haverstraw/Ossining)........ 149,141 118,835 79.7% 97,802 82.3%
--------- --------- ---- --------- -----
Total....................... 1,452,395 1,038,538 71.5% 778,941 75.0%
========= ========= ==== ========= =====
WESTERN REGION
Southern California........... 1,408,220 550,711 39.1% 592,109 107.5%
Greater Metropolitan Fresno... 331,359 158,677 47.9% 146,778 92.5%
Greater Metropolitan Stock-
ton.......................... 192,887 111,068 57.6% 80,499 72.5%
Yuba City, California......... 43,971 32,904 74.8% 19,915 60.5%
Reno, Nevada.................. 13,640 9,736 71.4% 6,391 65.6%
Northern
California/Washington/Idaho.. 54,172 36,549 67.5% 17,273 47.3%
--------- --------- ---- --------- -----
Total....................... 2,044,249 899,645 44.0% 862,965 95.9%
========= ========= ==== ========= =====
SOUTHEAST REGION
Jacksonville, Florida......... 411,337 242,581 59.0% 223,623 92.2%
Pompano/Hialeah, Florida...... 382,994 228,134 59.6% 156,243 68.5%
Naples, Florida............... 175,777 106,260 60.5% 55,615 52.3%
Richmond, Virginia............ 243,960 161,246 66.1% 118,506 73.5%
--------- --------- ---- --------- -----
Total....................... 1,214,068 738,221 60.8% 553,987 75.0%
========= ========= ==== ========= =====
MICHIGAN/OHIO REGION
Greater Dayton................ 248,596 169,842 68.3% 106,858 62.9%
Greater Metropolitan Detroit.. 390,090 251,163 64.4% 208,025 82.8%
Lansing and Greater
Metropolitan Lansing......... 125,504 87,694 69.9% 41,161 46.9%
Greater Metropolitan Cleve-
land......................... 121,259 84,973 70.1% 57,679 67.9%
North Central Ohio............ 120,767 81,618 67.6% 53,335 65.3%
--------- --------- ---- --------- -----
Total....................... 1,006,216 675,290 67.1% 467,058 69.2%
========= ========= ==== ========= =====
CENTRAL REGION
Greater Metropolitan Chicago
(West)....................... 612,880 338,974 55.3% 346,727 102.3%
Southern Illinois............. 84,860 61,335 72.3% 33,433 54.5%
St. Louis, Missouri........... 173,018 98,158 56.7% 114,319 116.5%
Minneapolis/St. Paul, Minneso-
ta........................... 308,626 147,928 47.9% 110,785 74.9%
--------- --------- ---- --------- -----
Total....................... 1,179,384 646,395 54.8% 605,264 93.6%
========= ========= ==== ========= =====
Affiliated Companies(1)....... 219,663 118,683 54.0% 78,399 66.1%
--------- --------- ---- --------- -----
Total....................... 7,115,975 4,116,772 57.9% 3,346,614 81.3%
========= ========= ==== ========= =====
SYSTEMS DESIGNATION:
Consolidated Systems.......... 6,896,312 3,998,089 58.0% 3,268,215 81.7%
Affiliated Companies(1)....... 219,663 118,683 54.0% 78,399 66.1%
--------- --------- ---- --------- -----
Total....................... 7,115,975 4,116,722 57.9% 3,346,614 81.3%
========= ========= ==== ========= =====
</TABLE>
- --------
(1) Affiliated Companies are those companies not majority-owned or controlled
by Continental. The systems held by Affiliated Companies consist of
systems held by five limited partnerships. See "U.S. Acquisitions and
Investments--U.S. Minority Cable Investments." Continental owns less than
50% of the outstanding limited partnership interests of each such
partnership. None of the systems owned by Affiliated Companies are managed
by Continental. In reporting subscriber and other data for systems not
controlled or managed by Continental, only that portion of data
corresponding to Continental's percentage ownership is included.
51
<PAGE>
MANAGEMENT REGIONS. A description of Continental's five U.S. cable television
management regions and their significant operating clusters is set forth below.
The operating information given as of June 30, 1995 gives effect to the 1995
Acquisitions.
New England. The New England region is Continental's largest management
region, representing approximately 20.4% of Continental's total homes passed
and 25.2% of its total basic subscribers as of June 30, 1995. As a result of
the Merger, the New England region's basic subscriber base increased by
approximately 24.0% to more than one million basic subscribers. This region
includes systems in the New England states of Maine, New Hampshire,
Massachusetts, Connecticut and Rhode Island, as well as in and around
Westchester County, New York. Significant operating clusters in Massachusetts,
which include greater metropolitan Boston and the city of Springfield and the
surrounding communities in the western part of the state, represent
approximately 70.0% of the region's total basic subscribers. The New England
region commenced a five-year rebuild program in 1994, which upon completion
will result in a combination of 550 MHz and 750 MHz capacity for most of the
region. The median household income for the communities served by Continental
in the New England region is approximately $47,700, versus the national median
household income of $37,900.
Western. The Western region represented approximately 28.7% of Continental's
total homes passed and 21.9% of its total basic subscribers as of June 30,
1995. As a result of the Merger and the Consolidated Cablevision of California
acquisition, the Western region's basic subscriber base increased by
approximately 53.0% to more than 890,000 basic subscribers. This region
includes systems in the city and county of Los Angeles, where Continental is
the largest cable operator, with approximately 36.7% of its basic subscribers
clustered in geographically contiguous franchises served by two headends. This
region also includes Continental's Northern California systems, which include
the cities of Fresno, Visalia, Stockton, and Yuba City, as well as Reno,
Nevada. An upgrade of the Los Angeles systems, that will bring capacity to 750
MHz, is currently under way. The median household income for the communities
served by Continental in the Western region is approximately $41,300.
Southeast. The Southeast region represented approximately 17.1% of
Continental's total homes passed and 17.9% of its total basic subscribers as of
June 30, 1995. As a result of the Merger, the Southeast region's basic
subscriber base increased by approximately 34.0% to more than 738,000 basic
subscribers. This region includes significant operating clusters serving the
communities surrounding Jacksonville, Naples and Pompano, Florida and Richmond,
Virginia. The Jacksonville cluster is one of Continental's largest, serving
over 242,000 basic subscribers. In 1994, the Jacksonville and Pompano systems
commenced rebuild projects which will provide 750 MHz capacity to fiber nodes
serving approximately 1,000 or fewer homes by 1997. The median household income
for the communities served by Continental in the Southeast region is
approximately $35,600.
Michigan/Ohio. The Michigan/Ohio region represented approximately 14.1% of
Continental's total homes passed and 16.4% of its total basic subscribers as of
June 30, 1995. As a result of the Columbia Cable of Michigan acquisition and
the Pending N-COM Buyout, the Michigan/Ohio region's basic subscriber base
increased by approximately 23.0% to more than 675,000 basic subscribers. This
region includes systems in greater metropolitan Detroit and Lansing, which
includes the communities of Southfield, Dearborn Heights, Westland, and
Jackson. In Ohio, systems serve the greater Dayton and Cleveland communities,
as well as several communities throughout North Central Ohio. The Dayton
systems have recently been rebuilt to provide 550 MHz capacity to fiber nodes
serving approximately 2,000 or fewer homes. The median household income for the
communities served by Continental in the Michigan/Ohio region is approximately
$40,000.
Central. The Central region represented approximately 16.6% of Continental's
total homes passed and 15.7% of its total basic subscribers as of June 30,
1995. As a result of the Cablevision of Chicago acquisition and the Merger,
basic subscribers in this region increased by approximately 36.0% to more than
646,000 basic subscribers. This region includes systems in metropolitan Chicago
and Southern Illinois, St. Paul, Minnesota, and St. Louis, Missouri.
Continental's metropolitan Chicago cluster, which includes the Chicago
52
<PAGE>
suburban communities of Elmhurst, Forest Park, Oak Brook, Rosemont, Northfield,
Westchester, and Willmette, is one of Continental's largest, with approximately
251,000 basic subscribers served by four headends. All of the Central region's
systems are scheduled to be rebuilt or upgraded by 1997, at which time all
major markets will have between 600 MHz and 750 MHz capacity. The median
household income for the communities served by Continental in the Central
region is approximately $44,800.
FRANCHISES. Continental believes it has maintained good relations with its
local franchise authorities. Continental has never had a franchise revoked, and
to date all of its franchises have been renewed or extended at their
expirations, frequently on modified but satisfactory terms. Continental's
franchises establish the terms and conditions under which its systems are
operated. Typically, they establish certain performance and safety standards
related to Continental's construction and maintenance of facilities in, under
and over public streets and rights of way in the franchise areas. Some, but not
all, of these franchises specify the services to be offered. Nearly all of
Continental's franchises provide for the payment of fees to the local
franchising authorities, which currently average approximately 3.0% of gross
revenues. The Cable Communications Policy Act of 1984 (the "1984 Cable Act")
prohibits local franchising authorities from imposing annual franchise fees in
excess of 5.0% of gross revenues and also permits the cable system operator to
seek renegotiation and modification of franchise requirements if warranted by
changed circumstances. Continental's franchises are usually issued for fixed
terms ranging from 10 to 15 years and must periodically be renewed. Most of
such franchises can be terminated prior to their stated expirations for breach
of material provisions.
Franchises representing approximately 1.5 million basic subscribers
(approximately 37.0% of the basic subscribers of Continental and its U.S.
affiliates (including the 1995 Acquisitions) as of June 30, 1995) are scheduled
to expire through 1999. The 1984 Cable Act provides, among other things, for an
orderly franchise renewal process in which a franchise renewal will not be
unreasonably withheld or, if renewal is withheld and the system is acquired by
the franchise authority or a third party, the franchise authority must pay the
operator the "fair market value" of the system covered by such franchise. In
addition, the 1984 Cable Act establishes comprehensive renewal procedures which
require that an incumbent franchisee's renewal application be assessed on its
own merit and not as part of a comparative process with competing applications.
See "Legislation and Regulation--Cable Communications Policy Act of 1984."
PROGRAMMING. Continental provides programming to its subscribers pursuant to
contracts with programming suppliers. Continental generally pays a flat monthly
fee per subscriber for programming on its basic and premium services. Some
programming suppliers provide volume discount pricing structures and/or offer
marketing support to Continental. Continental's programming contracts are
generally for fixed periods of time ranging from 3 to 10 years and are subject
to negotiated renewal. The costs to Continental to provide cable programming
have increased in recent years and are expected to continue to increase due to
additional programming being provided to basic subscribers, increased costs to
produce or purchase cable programming, inflationary increases and other
factors. Increases in the cost of programming services have been offset in part
by additional volume discounts as a result of the growth of Continental and its
success in selling such services to its customers. Effective in May 1994, the
FCC's rate regulations under the 1992 Cable Act permit operators to pass
through to customers increases in programming costs in excess of the inflation
rate. Management believes that Continental will continue to have access to
programming services at reasonable price levels. See "Legislation and
Regulation."
MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains new broadcast
signal carriage requirements, and the FCC has adopted regulations which are
currently in force implementing such statutory carriage requirements. These new
rules allow local commercial television broadcast stations, commencing on June
17, 1993 and every three years thereafter, either to elect required carriage
("must-carry" status), or to require a cable television system to negotiate for
"retransmission consent" rights. A cable television system generally is
required to devote up to one-third of its activated channel capacity for the
mandatory carriage of local commercial television stations. Local non-
commercial television stations are also given mandatory carriage rights on
cable television systems under the 1992 Cable Act and the FCC's rules; however,
such
53
<PAGE>
stations are not given the option to negotiate for retransmission consent
rights. Additionally, as of October 6, 1993, cable television systems were
required to obtain retransmission consent for all "distant" commercial
television stations (except for commercial satellite-delivered independent
"superstations" such as WTBS), commercial radio stations and certain low-power
television stations carried by cable television systems.
With its 1993 agreement with Capital Cities/ABC Inc. ("Capital Cities") and
The Hearst Corporation ("Hearst"), Continental was the first major cable
television company to reach a retransmission consent agreement with a
broadcaster not requiring cash compensation in exchange for the right to carry
the broadcaster's local television signals. In exchange for permission to carry
the local television signals of broadcast stations owned by Capital Cities and
Hearst, Continental agreed to carry ESPN2, a national sports programming
network owned by Capital Cities and Hearst. Since then, Continental has been
successful at reaching retransmission consent agreements, for terms generally
ranging from three to seven years, with virtually all of the local broadcast
stations that elected retransmission consent (all without payment of cash
compensation), and only in a very few instances has Continental been forced to
drop a local broadcast signal from its programming. Some of Continental's
systems have been required to carry television broadcast stations that they
otherwise would not have elected to carry due to must-carry elections. At this
time, Continental cannot predict the outcome of any future must-carry elections
by and retransmission consent negotiations with local broadcasters.
U.S. ACQUISITIONS AND INVESTMENTS
The telecommunications industry, including the cable television and telephony
industries, is in a period of consolidation characterized by mergers, joint
ventures, acquisitions, cable system exchanges and similar transactions.
Management believes that the Company is well-positioned to participate in this
consolidation due to its clustered systems, the technical quality of its
network, its management expertise and its strong relationships within the cable
industry. Continental has recently acquired and will continue selectively to
acquire cable television systems that are contiguous or in close proximity to
its existing systems. The Company also reviews opportunities to exchange its
systems for those of other cable television system operators in order to
enlarge and enhance its regional system clusters and may acquire cable
television systems that would form the basis for new system clusters.
Continental generates incremental operating income from such acquisitions and
exchanges through the expansion of service offerings and efficiencies resulting
from system consolidation. Continental, like other cable television companies,
has participated from time to time and will continue to participate in
discussions with third parties regarding a variety of potential transactions,
any of which, if consummated, might be material to Continental and its
stockholders.
PROVIDENCE JOURNAL MERGER. On October 5, 1995, Continental acquired all of
the cable television businesses and assets of Providence Journal in the Merger.
Continental issued 30,142,732 shares of Class A Common Stock to Providence
Journal stockholders in the Merger. In addition, Continental purchased certain
cable television systems owned by a subsidiary of Providence Journal for a
purchase price of $405.0 million and discharged approximately $410.0 million of
Providence Journal liabilities in connection with the Merger, both of which
were financed with borrowings under the 1995 Credit Facility.
Management believes that the Merger will result in enhanced prospects and
opportunities for growth for Continental, including increases in operating
scale, system clustering and operating income. The Company anticipates
reductions in the overhead expenses attributable to the systems acquired in the
Merger and other cost savings arising from the integration of such systems into
Continental's larger operations. The former Providence Journal systems are, for
the most part, contiguous or in close proximity to existing Continental
systems.
OTHER U.S. ACQUISITIONS. The following is a summary of other recent and
pending acquisitions of U.S. cable systems.
54
<PAGE>
In June 1994, Continental acquired a system serving approximately 44,000
basic subscribers in Manchester, New Hampshire and its surrounding communities
for a purchase price of approximately $48.0 million. The Manchester system is
adjacent to several of Continental's existing systems in the New England
region.
In November 1994, Continental acquired Clay Cablevision's systems serving
approximately 34,000 basic subscribers in Florida for a purchase price of
approximately $67.0 million. These systems are in close proximity to
Continental's existing systems in the Southeast region.
In August 1995, Continental acquired Cablevision of Chicago's systems
serving approximately 88,000 basic subscribers in the Chicago, Illinois area
for a purchase price of approximately $168.5 million. These systems are in
close proximity to Continental's existing systems in its Central region.
In addition, in September 1995, Continental acquired Consolidated
Cablevision of California's systems serving approximately 12,000 basic
subscribers in Northern California for approximately $17.0 million. These
systems are in close proximity to Continental's existing systems in its
Western region.
In October 1995, Continental purchased Columbia Cable of Michigan's systems
serving approximately 74,000 basic subscribers in Michigan for approximately
$155.0 million. Continental has also entered into an agreement, which is in
the process of being renegotiated, to acquire the remaining partnership
interests of N-COM, a limited partnership that operates cable television
systems serving approximately 56,000 basic subscribers in the Detroit suburbs.
Continental currently owns a 33.8% limited partnership interest in such
partnership. The purchase price for the remaining interests is approximately
$85.0 million. The Columbia Cable of Michigan and N-COM systems are in close
proximity to Continental's existing systems in its Michigan/Ohio region. The
Pending N-COM Buyout is expected to close in the fourth quarter of 1995.
U.S. MINORITY CABLE INVESTMENTS. The acquisition of minority ownership
interests in various U.S. cable television companies has contributed to
Continental's nationwide operating scale. As of June 30, 1995, through wholly
owned subsidiaries, Continental held minority ownership positions in the
following U.S. cable companies:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
---------------------------------------
HOMES TOTAL BASIC TOTAL PERCENTAGE
INVESTMENT PASSED SUBSCRIBERS DEBT OWNERSHIP
---------- ------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Insight Communications Company, L.P... 298,961 157,458 $167,604 34.4%
Meredith/New Heritage Strategic Part-
ners, L.P............................ 236,947 120,447 92,746 37.9%
N-COM Limited Partnership II(1)....... 91,791 56,246 81,925 33.8%
Prime Cable of Hickory, L.P........... 51,798 35,688 38,200 33.3%
Inland Bay Cable TV Associates........ 19,815 14,188 4,861 49.0%
</TABLE>
- --------
(1) Continental anticipates that in the fourth quarter of 1995 it will acquire
the remaining ownership interests in N-COM from the other partners and
assume certain liabilities for total consideration of approximately $85.0
million. No assurances can be made at this time that such transaction will
be consummated. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Capital Expenditures and U.S. Acquisitions."
55
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INTERNATIONAL OPERATIONS
Continental has made and continues selectively to pursue investments in
international broadband communications networks, principally in Latin America
and the Pacific Rim. These investments represent opportunities for Continental
to capitalize on its managerial, technical and marketing expertise in
international markets. Continental intends to apply its U.S. operating
principles, as appropriate, to its international ventures. In addition,
Continental receives valuable information and operating experience in
businesses, such as telephony, that Continental intends to develop in the
United States. In considering such investments, Continental seeks the following
characteristics: (i) favorable demographics and attractive growth prospects,
(ii) well-capitalized investment partners with extensive knowledge of the local
markets; and (iii) favorable political, regulatory and competitive
environments. See "Risk Factors--International Investments."
The Company owns a 50% interest in Fintelco, the largest cable television
system operator in Latin America, which currently serves over 620,000
subscribers in Argentina. Continental has also formed a joint venture in
Australia (Optus Vision), in which it holds a 46.5% equity interest. Optus
Vision is constructing a broadband communications network to provide local
telephony, cable television and a variety of advanced interactive services to
business and residential customers. Continental has a 25% equity interest in
SCV, a joint venture that is constructing a broadband network to provide cable
television and a variety of advanced interactive services to substantially all
households in Singapore. Continental also has recently signed a memorandum of
understanding relating to the provision of cable television, telephony,
multimedia and interactive services in Japan.
ARGENTINA. In 1994, Continental acquired an approximate 50% interest in
Fintelco, an Argentine cable television operator. Fintelco is the largest cable
television operator in Argentina, with over 620,000 subscribers in regional
system clusters in the Argentine provinces of Buenos Aires, Cordoba and Santa
Fe. These systems are currently managed by Continental's Argentine partner,
with technical assistance provided by Continental.
Fintelco's operating strategy focuses on creating large regional system
clusters in key markets. As of June 30, 1995, Fintelco had over 317,000
subscribers in the province of Buenos Aires, 190,000 subscribers in the
province of Cordoba and 113,000 subscribers in the province of Santa Fe.
Average monthly subscriber rates for Fintelco's cable television services are
the equivalent of approximately US$30. There is currently no regulation of
cable subscription rates in Argentina. Most systems in Argentina provide a
single package of services, which typically includes premium movie channels
such as HBO Ole. For the six months ended May 31, 1995, Fintelco recorded
revenues of approximately US$124.0 million and operating income before
depreciation and amortization of approximately US$23.1 million.
Fintelco was one of Argentina's first cable television operators through its
primary operating subsidiary in Buenos Aires, Video Cable Communicacion, S.A.
("VCC"). In the late 1980's VCC grew through the construction of cable
television systems in Buenos Aires as well as through strategic acquisitions of
smaller systems in the region. More recently, Fintelco's growth has come
through strategic acquisitions in the provinces of Cordoba and Santa Fe.
Approximately 66.0% of the country's population is located in the provinces of
Buenos Aires, Cordoba and Santa Fe. Fintelco will continue to seek
opportunities over time to grow through acquisitions in these regions.
Argentina has a population of approximately 33.0 million, with over 9.1
million television households, and VCR and pay television (which includes
wireline cable and MMDS) penetration rates of approximately 32% and 45%,
respectively. Argentina has one of the most developed cable television
industries in Latin America, with an estimated four million total subscribers
nationwide as of December 31, 1994. Total Argentine cable revenues for 1994 are
estimated to be over US$1 billion. The television audience in Buenos Aires has
access to five major national broadcast "networks" and over 90 satellite-
delivered cable channels, including both Argentine and international
programming.
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<PAGE>
Cable operators in Argentina are issued non-exclusive broadcast licenses for
the carriage of their programming services, and may compete with other cable
operators for the same subscribers. The multi-channel television industry in
Argentina is extremely competitive. Fintelco competes in certain areas of
Buenos Aires, Cordoba and Santa Fe. Fintelco believes that competition is
primarily based on price, program offerings, customer satisfaction and quality
of the system network. Other cable operators in Buenos Aires include:
Cablevision (which is currently 51% owned by U.S. cable operator Tele-
Communications, Inc. ("TCI")), Grupo Clarin (d/b/a Multicanal) and Fin Cable
S.A. (d/b/a Telefe).
In November 1990, the Argentine telephone system was privatized and two
companies, Telefonica de Argentina S.A. ("Telefonica") and Telecom Argentina
STET-France Telecom S.A. ("Telecom"), were granted exclusive licenses to
provide local and long distance telephony service. The exclusivity of these
licenses is scheduled to expire in 1997, but may be extended for an additional
three-year period if the licensees have met certain mandatory standards for the
expansion of their telephone networks and improvements in quality of service.
No assurance can be given, however, that cable operators in Argentina will be
permitted to offer telephony services in 1997, in 2000 or at any other time in
the future. During the period their licenses are exclusive, Telefonica and
Telecom are not permitted to provide cable television on a commercial basis
over their networks.
As of June 30, 1995, Continental had invested approximately US$148.0 million
in Fintelco and its subsidiaries and had committed to invest an additional
US$33.5 million in order to finance a portion of certain acquisitions of
Argentine cable television systems. Continental anticipates funding such
commitments with borrowings under the 1994 Credit Facility and cash provided
from operating activities. In addition, Fintelco is in the process of arranging
an aggregate of approximately US$180.0 million in senior credit facilities,
including a US$140.0 million credit facility. As of October 16, 1995 Fintelco
had received commitments, which are subject to final documentation, in excess
of US$200.0 million for the US$140.0 million credit facility. Proceeds from
such facilities will be used to refinance existing short-term indebtedness and
for general corporate purposes, including capital expenditures. Such facilities
may reduce the amount of future advances from Fintelco's shareholders,
including Continental. No assurance can be given at this time that such
facilities will be successfully arranged.
AUSTRALIA. Continental has entered into an agreement with Optus, a provider
of long-distance and cellular telephone services in Australia, Nine, and Seven
to create a broadband communications network in Australia. The venture, Optus
Vision, is owned 46.5% by Continental, 46.5% by Optus, 5% by Nine and 2% by
Seven. Nine and Seven represent two of Australia's three major commercial
television networks. Each of Nine and Seven has an option to increase its
shareholding at fair market value to 20% and 15%, respectively, at any time
prior to July 1, 1997. Optus Vision is providing cable television, and will
provide local telephone and a variety of advanced broadband interactive
services to business and residential customers in Australia's major markets.
Optus Vision plans to begin offering local telephone service in the first
quarter of 1996.
Australia has a population of approximately 17.8 million, with over 5.6
million television households and VCR penetration of approximately 71%.
Construction of the Optus Vision network began in March 1995. Optus Vision's
plan anticipates passing approximately 2.9 million households throughout
Australia by mid-1998, beginning with the major metropolitan centers of Sydney,
Melbourne and Brisbane. The planned network will be bi-directional, and is
anticipated to be the first of its kind in the world to transmit telephone
calls and video exclusively over a single fiber-coaxial network.
Although the network will have capacity for 64 channels, Optus Vision began
providing an initial video programming package of 11 channels in September
1995, including two movie channels, two sports channels and a variety of local
and international programming. The movie channels will include movies from
Warner Brothers, Disney, MGM/UA, Village Roadshow and New Regency. The sports
channels will include major Australian sporting events as well as significant
international sports sourced through ESPN International. Nine and Seven will
also provide local sports programming (including rugby and cricket).
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<PAGE>
The subscription television industry in Australia has been and is expected to
continue to be competitive. Optus Vision expects to compete in Australia with,
among others, (i) FOXTEL, the joint venture between Telstra Corporation
Limited, the government-owned Australian national telecommunications carrier,
and The News Corporation Limited, a major international media and entertainment
company, which will provide subscription television services under the name
FOXTEL over a cable television network, and (ii) Australis Media Ltd.
("Australis"), which currently provides subscription television services by way
of MMDS under the name Galaxy to a reported 31,000 customers and will provide
services by way of both MMDS and DBS technology in the future.
FOXTEL has entered into a long-term programming agreement for the exclusive
distribution of Australis' programming. Australis and FOXTEL have recently
announced an agreement to merge their operations. This transaction is subject
to shareholder and regulatory approvals and the completion of due diligence and
other customary closing conditions. There can be no assurance that this
transaction will be consummated.
Optus Vision currently employs approximately 900 people, including several
Continental employees. Frank Anthony, the former Senior Vice President and
General Manager of Continental's New England region, serves as the Chief
Operating Officer of Optus Vision.
As of June 30, 1995, Continental had invested approximately US$33.4 million
in Optus Vision. Optus Vision anticipates that the required funding needs of
the project will total over US$1.5 billion (based upon exchange rates as of
June 30, 1995) through 1999, which will be provided by a combination of equity
from the joint venture partners and third-party debt.
SINGAPORE. In 1994, Continental acquired 25% of the outstanding capital stock
of SCV, which is constructing a high-capacity network to provide cable
television and a variety of interactive services to substantially all of
Singapore's approximate 820,000 households. Singapore has approximately 2.8
million residents. SCV has the exclusive right, through June 2002, to provide
traditional cable television service in Singapore. Cable television service has
not previously been available in Singapore. Continental's partners in this
venture are Singapore Technologies Venture Pte. Ltd., Singapore International
Media Pte. Ltd. and Singapore Press Holdings Limited, each of which is
affiliated with the government of Singapore. The system activated its first
subscribers in June 1995, and by 1999, when construction is expected to be
completed, it is anticipated that there will be nearly one million households
in Singapore. SCV's service offerings include both Mandarin and English
language programming. Continental is managing the system's construction and
ongoing operations under a five year renewable agreement, for which it will
receive a management fee based upon the gross revenues generated by the system.
As of June 30, 1995, Continental had made capital contributions of US$17.6
million and committed to make additional capital contributions to SCV of
approximately US$27.0 million (based upon exchange rates as of June 30, 1995)
to be paid through 1996. In addition, Continental has made commitments to SCV
to lend up to approximately US$45.0 million (based upon exchange rates as of
June 30, 1995) if third party debt financing cannot be obtained. SCV has
arranged an aggregate of S$106.0 million in senior credit facilities and is in
the process of arranging with certain other financial institutions an
additional S$100.0 million of senior credit facilities. Such facilities may
reduce the amount of future advances from SCV's shareholders, including
Continental. No assurances can be given at this time that all such facilities
will be successfully arranged. Continental anticipates that it may explore
additional investments in the Pacific Rim, including investments with certain
of its SCV partners. Randall Coleman, the former Vice President and General
Manager of Continental's St. Paul, Minnesota system, serves as President of
SCV.
JAPAN. In March 1995, Continental and Tomen Corporation, a leading Japanese
trading company, signed a memorandum of understanding relating to the provision
of cable television, telephony, multimedia and interactive services in Japan.
In addition to conducting feasibility studies, Continental and Tomen
Corporation have formed a new company, CT Telecom, which may, either
individually or in conjunction
58
<PAGE>
with other Japanese companies, seek to obtain licenses to provide these
services to markets with a total of at least one million homes in Japan. At
this time, the terms of the joint venture have not been finalized.
Currently, approximately 1.6 million of Japan's 44.0 million households
receive broadcast and cable networks over cable television systems. However,
recent reforms of its cable television and telecommunications laws have
encouraged foreign investment in cable television companies and the creation of
multiple system operators in Japan, where cable television licenses are awarded
on a non-exclusive basis.
Tomen Corporation has ownership interests in four cable television systems in
Japan, one of which is conducting a 300-home technology and market test
involving telephony, telecopy, personal computer and NVOD services. Tomen
Corporation is also the contractor for telecommunications networks in Thailand,
the Philippines, Malaysia, Indonesia and Romania.
Continental's capital commitment to CT Telecom will be dependent upon the
licenses received, the associated construction schedule and the other equity
partners involved. Additionally, no assurances can be given at this time as to
the degree of success that CT Telecom will have in obtaining licenses to
provide cable television and telecommunications services in Japan.
TELECOMMUNICATIONS AND TECHNOLOGY
Continental is currently rebuilding and upgrading its U.S. systems to create
advanced hybrid fiber-optic and coaxial cable networks that will serve as the
infrastructure for the provision of enhanced video, high-speed data, telephony
and other telecommunications services. Continental anticipates making the
incremental capital investment required to provide such services as regulations
permit and customer demand expands. Although Continental believes that demand
exists to support the entry of cable television companies into the telephony
businesses, the offering of these services will require the removal of existing
regulatory and legislative barriers to local telephone competition. See
"Competition" and "Legislation and Regulation."
TCG. Continental has a 20% equity interest in TCG, the largest "competitive-
access provider" in the United States. TCG is a local telecommunications
services provider and a leading fiber-optic-based competitor to local telephone
companies nationwide. Continental believes that its involvement in TCG is an
effective means of utilizing its existing fiber-optic and coaxial cable network
to participate in the growth of the local competitive access telephony
business.
TCG provides local telecommunications services over high-capacity fiber-optic
networks (which it owns or leases from cable operators such as Continental) to
meet the voice, data and video transmission needs of high-volume business
customers in major metropolitan areas throughout the United States. TCG's
customers include long-distance carriers and resellers, international telephone
carriers, financial services firms, banking and brokerage institutions, media
companies and other telecommunications-intensive businesses. In competition
with the RBOCs and other LECs, TCG offers its customers vendor diversity for
local service, superior quality, competitive pricing and state-of-the-art
technology.
Since 1985, TCG has owned and operated the nation's largest non-LEC local
telecommunications network in the New York City metropolitan area, the
country's leading telecommunications market. Beginning in 1988 with the
construction of a Boston network, TCG has actively expanded its network
operations to 24 telecommunications markets in the United States, including Los
Angeles, Chicago, San Francisco, Dallas, Detroit, Miami, Houston, Seattle, San
Diego and Milwaukee. In several of these markets, Continental is a partner and
a primary network provider for TCG. As of June 30, 1995, TCG provided service
to more than 3,240 buildings and had networks which spanned over 4,700 route
miles.
TCG has emphasized the expansion of the telecommunications services and
products it offers to its customers. TCG was the first competitive access
telephony provider to offer local switched services using sophisticated digital
switching devices capable of routing a call over different available circuits
to reach the
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<PAGE>
intended termination point of the call anywhere on the public switched
telephone network. Local dedicated line and special access services represent
an available market of approximately $5.9 billion nationally, and switched
access services for business represent approximately $20.0 billion of the $98.7
billion local telecommunications services market in the United States.
Through June 30, 1995, Continental had invested $116.5 million in TCG and
related joint ventures. In addition to these investments, Continental has made
commitments to TCG to loan up to $69.9 million through 2003, of which $54.0
million was outstanding as of June 30, 1995. In May 1995, TCG entered into a
$250.0 million revolving credit facility with a group of financial institutions
to fund general corporate purposes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In addition to Continental, the other partners in TCG currently include Cox
Cable Communications, Inc. ("Cox"), TCI and Comcast Corporation ("Comcast"),
which have interests of approximately 30%, 30% and 20%, respectively.
A recently formed joint venture (the "Sprint Venture") among TCI, Cox and
Comcast (collectively, the "Cable Partners") and Sprint contemplates the
contribution to the Sprint Venture of the Cable Partners' interests in TCG, in
the local joint ventures among the Cable Partners and TCG and in other
competitive access assets owned by them. The contribution of the Cable
Partners' interests in TCG to the Sprint Venture would require the prior
consent of Continental. Should it be in its best interest, Continental would
negotiate with the Cable Partners regarding the acquisition of Continental's
interests in TCG and TCG's local joint ventures. William T. Schleyer, the
President and Chief Operating Officer of Continental, and Nancy Hawthorne, a
Senior Vice President and Chief Financial Officer of Continental, serve on the
Board of Directors of TCG.
OTHER TELECOMMUNICATIONS ACTIVITIES. Continental is currently exploring
various business arrangements to provide telephony services in selected
markets. Continental anticipates that it will be a facilities-based provider of
enhanced video, high-speed data and certain telephony services. The Company
expects, however, to resell certain services such as wireless and long distance
telephony. Continental's options, which may differ by market, include: (i)
affiliating with other cable television companies; (ii) affiliating with an
RBOC or an IXC; and (iii) entering the business independently. Continental
believes that it is well-positioned to provide these services, given its
national operating scale, large regional system clusters in demographically
attractive markets, technologically advanced broadband networks, existing sale
and service organization and reputation for quality. See "Expanded Service
Offerings."
Continental also owns an 80.0% interest in Continental Fiber Technologies,
Inc. and a 63.0% interest in Alternet of Virginia, Inc. Continental Fiber
Technologies, Inc. and Alternet of Virginia, Inc. have fiber-optic networks,
which they own or lease from Continental. Such networks provide local telephony
service to business customers in Jacksonville, Florida and Richmond, Virginia,
respectively.
Continental is one of six cable television operators participating in Cable
Television Laboratories' ("CableLabs") telecommunications Request for Proposal
("RFP"), which is an initiative to achieve a uniform network architecture for
delivery of expanded video, high-speed data and telephony services. CableLabs
has received quotes on this RFP from approximately 45 equipment manufacturers.
PRIMESTAR. Continental currently owns a 10.4% interest in PrimeStar, a
nationwide provider of DBS service. The remaining interests in PrimeStar are
held by GE Americom Services, Inc. (an affiliate of General Electric) with
16.6% and five other cable television operators (TCI and Time Warner Cable own
20.9% each; Comcast, Cox and Newhouse Broadcasting Corp. own 10.4% each).
PrimeStar is the primary vehicle for Continental's plan to use DBS to extend
beyond the reach of Continental's existing video network and expand the total
potential market and Continental's share of such market. Continental views
PrimeStar as an effective response to competition from other DBS service
providers in Continental's service areas. Moreover,
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<PAGE>
PrimeStar provides additional programming to cable subscribers with limited
programming options. Continental understands that PrimeStar has estimated the
potential market for DBS service to be 12 to 15 million households, including
10 to 11 million households that are not currently passed by cable.
PrimeStar provided medium-powered DBS service to approximately 492,000
subscribers nationwide as of June 30, 1995. PrimeStar acts as a wholesaler of
DBS services, securing programming services for eventual resale to consumers
and arranging for the transmission of the programming via satellite. PrimeStar
does not sell directly to end users, but rather sells the rights to resell
programming to local distributors, including Continental and its other cable
partners, who in turn sell to, service, and collect monthly fees from
consumers. Continental served over 48,000 of PrimeStar's 492,000 subscribers as
of June 30, 1995. During the six months ended June 30, 1995, Continental
recorded DBS service revenue of $14.2 million and EBITDA of $1.2 million.
PrimeStar currently offers a wide range of programming, including 73 channels
of cable and network television, sports and movies, as well as several music
channels. In order to expand its service, PrimeStar's partners have committed
to support the construction of two high-powered replacement satellites, which
would enable PrimeStar to offer up to 200 channels of service. The number of
channels of programming that PrimeStar will be able to offer over the new DBS
satellite system is presently uncertain and is dependent on the outcome of an
auction to be held in January 1996 at which time the FCC will auction DBS
frequencies which had previously been awarded to another party. The outcome of
this auction may determine whether PrimeStar will obtain access to additional
channel capacity in a timely manner. If PrimeStar is unable to obtain access to
this additional channel capacity, it may impair its future ability to offer a
full range of DBS service. In the meantime, PrimeStar will continue to provide
medium-powered DBS service.
Continental's net investment in PrimeStar was $13.5 million as of June 30,
1995. In addition, a subsidiary of Continental has issued a $56.3 million
standby letter of credit on behalf of PrimeStar to guarantee a portion of the
financing that PrimeStar is incurring to construct a successor satellite
system. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Jeffrey T. DeLorme, an
Executive Vice President of Continental, serves on the Partner Committee of
PrimeStar.
The following is a summary of financial and operating statistics for
PrimeStar, which commenced operations in 1991. For purposes of calculating
revenue growth for the six months ended June 30, 1995, revenue has been
annualized.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------- JUNE 30,
1992 1993 1994 1995
------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................. $ 5,200 $ 10,900 $ 27,800 $58,322
Growth rate.......................... 643% 110% 155% 320%
Subscribers (at period end).......... 44,200 66,800 230,800 491,600
Growth rate.......................... 235% 51% 246% 113%
</TABLE>
PROGRAMMING AND OTHER INVESTMENTS
Continental has made and continues to make minority investments in
programming services based upon Continental's belief that programming is a
means of generating additional interest in cable television. To date,
Continental has made approximately $62.0 million in programming investments
(excluding Turner, QVC and HSN). The following summarizes certain of
Continental's programming investments:
TURNER BROADCASTING SYSTEM AND HOME SHOPPING NETWORK, INC. Continental holds
marketable equity securities of Turner and HSN. As of June 30, 1995, the
approximate market values of Continental's investments in Turner and HSN were
$115.9 million and $4.2 million, respectively. On September 22, 1995, Turner
and Time Warner Inc. ("Time Warner") entered into a merger agreement providing
for the merger
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of Turner into a wholly owned subsidiary of Time Warner. The merger agreement
provides that all outstanding shares of Turner capital stock will be converted
into shares of Time Warner common stock. If the merger is consummated, the
Company will receive approximately 4.4 million shares of Time Warner common
stock in exchange for its shares in Turner capital stock. The merger is subject
to a number of conditions, including regulatory approvals. There can be no
assurances that all of the conditions to the consummation of the merger will be
satisfied or that, as a condition to the grant of regulatory approvals, changes
will not be required to the terms of the merger. The approximate market value
of the Time Warner shares that Continental would have received had the merger
taken place would have been $167.7 million as of October 17, 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Timothy P. Neher, Director and
Vice Chairman of the Board of Continental, serves on the Board of Directors of
Turner.
E! ENTERTAINMENT TELEVISION, INC. Continental owns a 10.4% interest in E!,
whose programming includes entertainment related news, information and
features. E! has agreements with every major U.S. cable television operator
and, as of December 31, 1994, was distributed to over 27.0 million customers,
representing 48% of U.S. cable television subscribers. The other shareholders
in E! include Comcast, Cox and TCI, each with an approximate 10.4% interest,
and Time Warner Cable, with a 48% interest. Robert A. Stengel, a Senior Vice
President of Continental, serves on the Board of Directors of E!.
The following is a summary of financial and operating statistics for E! For
purposes of calculating revenue growth for the six months ended June 30, 1995,
revenue has been annualized.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- JUNE 30,
1992 1993 1994 1995
------- ------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................... $22,100 $31,700 $49,100 $33,695
Growth rate............................ 53.5% 43.4% 54.9% 37.3%
Subscribers (at period end)............ 19,700 25,800 27,800 31,300
Growth rate............................ 8.1% 30.1% 7.8% 12.6%
</TABLE>
NATIONAL CABLE COMMUNICATIONS, L.P. Continental has a 12.5% limited
partnership interest in NCC, a partnership that represents cable television
companies to advertisers. NCC is the largest representation firm in spot cable
advertising sales. It enhances affiliated cable television systems' ability to
generate advertising sales by enabling advertisers to place spots in selected
systems on a regional or national basis. The other limited partners in NCC are
Cox, Time Warner Cable and Comcast, each with a 12.5% interest. NCC's managing
partner is Katz Cable Corporation, with a 50% interest. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
NEW ENGLAND CABLE NEWS. Continental and Hearst each own 50% of New England
Cable News, a regional cable news network featuring news, sports and weather
programming on an exclusive basis to cable television systems in the New
England area. New England Cable News had revenues of $4.0 million for the year
ended December 31, 1994. William T. Schleyer, the President and Chief Operating
Officer of Continental, and Nancy Jackson, a Vice President of Marketing in
Continental's New England region, serve on the Board of Directors of New
England Cable News.
VIEWER'S CHOICE. PPVN Holding Co. ("PPVN"), which operates under the brand-
name Viewer's Choice, is a cable operator-controlled buying cooperative and
distributor for pay-per-view programming. Continental holds a 10% interest in
PPVN.
THE GOLF CHANNEL. Continental owns an approximate 20% interest in The Golf
Channel, a cable programming service which provides golf-related programming 24
hours a day. Timothy P. Neher, Director and Vice Chairman of the Board of
Continental, serves on the Board of Directors of The Golf Channel.
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THE FOOD CHANNEL. Continental owns an approximate 15% interest in The Food
Channel, a cable operator-owned programming service which offers programs on
cooking, food preparation and other related topics. Robert A. Stengel, a Senior
Vice President of Continental, serves on the Management Committee of The Food
Channel.
THE SUNSHINE NETWORK JOINT VENTURE. Continental owns an approximate 8%
interest in The Sunshine Network Joint Venture ("Sunshine Network"), a joint
venture which provides programming consisting of Florida sporting events,
sports news and related programs, as well as local public affairs programs.
Jeffrey T. DeLorme, an Executive Vice President of Continental, serves on the
Board of Directors of The Sunshine Network.
MUSIC CHOICE. Music Choice distributes audio programming in digital format
via coaxial cable. The service allows cable television customers to receive
compact disc quality sound in several music formats. Continental owns an
approximate 10% interest in Digital Cable Radio.
COMPETITION
Management believes that the Company's operating strategy improves its
ability to compete with new providers of video services. Continental's
investment in advanced technologies will further strengthen Continental's
competitive position in video markets, as well as position the Company to
compete in telephony markets.
CABLE TELEVISION COMPETITION. Continental's systems compete with other
communications and entertainment media, including conventional off-air
television broadcasting services, newspapers, movie theaters, live sporting
events and home-video products. Cable television service was first offered as a
means of improving television reception in markets where terrain factors or
distance from major cities limited the availability of off-air television. In
some of the areas served by the systems, a substantial variety of television
programming can be received off-air. For the last several years, the FCC has
been authorizing the creation of additional low-power UHF television stations,
which will increase the number of television signals in the country and provide
off-air television programs to limited local areas. The extent to which cable
television service is competitive depends upon a cable television system's
ability to provide, on a cost-effective basis, an even greater variety of
programming than that available off-air or through other alternative delivery
sources.
Since Continental's U.S. cable television systems operate under non-exclusive
franchises, other companies may obtain permission to build cable television
systems in areas where Continental presently operates. While Continental
believes that the current level of overbuilding is not material, it is
currently unable to predict the extent to which overbuilds may occur in its
franchise areas and the impact, if any, such overbuilds may have on Continental
in the future.
Additional competition may come from satellite master antenna television
("SMATV") systems serving condominiums, apartment complexes and other private
residential developments. The operators of these private systems often enter
into exclusive agreements with apartment building owners or homeowners'
associations that preclude operators of franchised cable television systems
from serving residents of such private complexes. The widespread availability
of reasonably priced earth stations enables private cable television systems to
offer both improved reception of local television stations and many of the same
satellite-delivered program services that are offered by franchised cable
television systems. FCC regulations permit SMATV operators to use point-to-
point microwave service to distribute video entertainment programming to their
SMATV systems. A private cable television system normally is free of the
regulatory burdens imposed on franchised cable television systems. Although a
number of states have enacted laws to afford operators of franchised systems
access to private complexes, the U.S. Supreme Court has held that cable
companies cannot have such access without compensating the property owner. The
access statutes of several states have been challenged successfully in the
courts, and others are currently being challenged, including statutes in states
in which Continental operates.
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In recent years, the FCC has initiated new policies and authorized new
technologies to provide a more favorable operating environment for certain
existing technologies and to create substantial additional competition to cable
television systems. These technologies include, among others, DBS services
which transmit signals by satellite to receiving facilities located on
customers' premises. Although satellite-delivered programming has been
available to backyard earth stations for some time, new, high-powered direct-
to-home satellites make possible the wide-scale delivery of programming to
individuals throughout the United States using roof-top or wall-mounted
antennas. Companies offering DBS services use video compression technology to
increase satellite channel capacity and to provide a package of movies,
broadcast and other program services competitive with those of cable television
systems. Several companies are preparing to have DBS systems in place during
this decade, and two companies began offering high-powered DBS service in 1994
in competition with cable television operators and PrimeStar. Continental has
invested in PrimeStar, a medium-powered DBS service provider, which currently
offers 73 channels of video and audio service. Several companies, including
PrimeStar, intend to offer more than 100 channels of service over high-powered
satellites using video compression technology. DBS service providers may be
able to offer new and highly specialized services using a national base of
subscribers. The ability of DBS service providers to compete with the cable
television industry will depend on, among other factors, the availability of
reception equipment at reasonable prices. Although it is not possible at this
time to predict the likelihood of success of any DBS services venture, initial
sales of DBS services indicate that it may offer substantial competition to
cable television operators in the future. See "--Telecommunications and
Technology Investments."
Cable television systems also may compete with wireless program distribution
services such as MMDS, commonly called wireless cable systems, which are
licensed to serve specific areas. MMDS uses low-power microwave frequencies to
transmit television programming over-the-air to subscribers. MMDS systems'
ability to compete with cable television systems has previously been limited by
a lack of channel capacity, the inability to obtain programming and regulatory
delays. However, NYNEX Corp. and Bell Atlantic Corporation agreed to invest up
to $100.0 million in CAI Wireless Systems Inc., an MMDS operator. In addition,
Pacific Telesis Group has acquired Cross Country Wireless Inc., another MMDS
operator. A series of actions taken by the FCC, including reallocating certain
frequencies to the wireless services, are intended to facilitate the
development of wireless cable television systems as an alternative means of
distributing video programming. The FCC also initiated a new rule-making
proceeding to allocate frequencies in the 28 GHz band for a new multi-channel
wireless video service. Continental is unable to predict the extent to which
additional competition from these services will materialize in the future or
the impact such competition would have on Continental's operations.
Continental believes that as a result of its investment in technologically
advanced systems, it is well-positioned to offer new services such as video
game channels, on-line services, data communications and telephony. Continental
believes that the ability to offer interactive services over a high-capacity,
two-way network provides a distinct competitive advantage over DBS and MMDS,
which are currently one-way services.
Other new technologies may become competitive with non-entertainment services
that cable television systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and to businesses. The FCC also permits commercial and non-commercial
FM stations to use their subcarrier frequencies to provide non-broadcast
services, including data transmissions. The FCC established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. Telephone companies and other common carriers also provide facilities
for the transmission and distribution of data and other non-video services.
In the past, federal cross-ownership restrictions have limited entry into the
cable television business by potentially strong competitors such as telephone
companies. Proposals recently adopted by the FCC, pending litigation and
potential legislation, could make it possible for companies with considerable
resources, and, consequently, a potentially greater willingness or ability to
overbuild, to enter the cable television and
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telecommunications business. The FCC recently amended its rules to permit local
telephone companies to offer "video dialtone" service for video programmers,
including channel capacity for the carriage of video programming and certain
non-common carrier activities such as video processing, billing and collection
and joint marketing agreements. Furthermore, several federal district courts
have struck down as unconstitutional a provision in the 1984 Cable Act, which
prevents local telephone companies from offering video programming on a non-
common carrier basis directly to subscribers in their local telephone service
areas. Two such district court decisions have been upheld by the United States
Courts of Appeals for the Fourth Circuit and the Ninth Circuit. The Supreme
Court has agreed to hear arguments on this issue on December 16, 1995. Separate
bills to repeal the telco/cable cross-ownership ban, subject to certain
regulatory requirements, have been passed by the U.S. House of Representatives
and the U.S. Senate. Under the terms of these bills, a telephone company could
build and operate a cable television system within its region or acquire an in-
region cable operator in smaller markets, under certain circumstances. These
bills would also, inter alia, preempt state and locally-imposed barriers to the
provision of intrastate and interstate telecommunications services by cable
system operators in competition with local telephone companies. Even in the
absence of further changes in the cross-ownership restrictions, the expansion
of telephone companies' fiber-optic systems may facilitate entry by other video
service providers in competition with cable systems. Ameritech Corporation, for
example, has obtained a franchise to build a cable system in several of the
communities served by N-COM, which Continental expects to acquire in the fourth
quarter of 1995. The total number of subscribers is not material in relation to
Continental's total subscriber base, but there can be no assurances with
respect to the number of communities for which Ameritech Corporation may obtain
franchises in the future. See "Legislation and Regulation--Federal Regulation."
TELEPHONY COMPETITION. The two-way switched voice and data market is
currently dominated by local telephone companies, also known as LECs. The LECs
provide a full range of local telecommunications services and equipment to
customers as well as origination and termination access to their local networks
to interexchange carriers and mobile radio service providers. In many states
the LEC has an exclusive franchise by law to provide telephone service. As a
consequence of this present monopoly position, the LECs have established
relationships with their customers and provide those customers with various
transmission and switching services that other potential telecommunications
service providers may not currently be permitted by law to offer.
While several states are engaged in legislative or regulatory efforts to
remove local telecommunications market entry restrictions, new market entrants
maintain a high degree of dependance upon the incumbent LEC for interconnection
to LEC customers and LEC allocation of telephone numbers.
In addition to the LECs and existing competitive access providers,
competition potentially capable of offering private line, special access and
switched services include individual cable television companies, electric
utilities, long distance carriers, microwave carriers, wireless service
providers and private networks built by large end-users.
Legislative initiatives, as well as an increased level of competition and
consolidation among LECs, interexchange carriers, cellular service providers
and cable companies and the introduction of PCS, all increase the likelihood
that barriers to local exchange competition will be removed. The introduction
of such competition, however, also increase the possibility that the RBOCs will
be authorized to provide inter-exchange services.
PROPERTIES
Continental's principal physical assets consist of cable television systems,
including signal receiving, encoding and decoding apparatus, headends,
distribution systems, and subscriber house drop equipment for each of its
systems. The signal receiving apparatus typically includes a tower, antenna,
ancillary electronic equipment, and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving
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devices. Continental's distribution systems consist of coaxial and fiber-optic
cables and related electronic equipment. Subscriber equipment consists of taps,
house drops, converters and analog addressable converters. Continental owns its
distribution system, various office and studio fixtures, test equipment and
service vehicles. The physical components of Continental's systems require
maintenance and periodic upgrading to keep pace with technological advances.
Continental's coaxial and fiber-optic cables are generally attached to
utility poles under pole rental agreements with local public utilities,
although in some areas the distribution cable is buried in underground ducts or
trenches. The FCC regulates pole attachment rates under the Federal Pole
Attachments Act. See "Legislation and Regulation--Federal Regulation--Pole
Attachments."
Continental owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices.
Continental owns the building which houses its headquarters in Boston,
Massachusetts.
Continental believes that its properties, both owned and leased, are in good
operating condition and are suitable and adequate for its business operations.
EMPLOYEES
Continental currently has approximately 8,500 full-time employees, including
approximately 100 employees located at Continental's Boston headquarters, who
provide staff support in the areas of corporate planning, finance, marketing,
program acquisition, employee training and benefits administration, government
relations, internal auditing, financial and tax reporting and regulatory
compliance. Continental believes that its relations with its employees are
good. As a result of the Merger, the Company has one collective bargaining
agreement relating to twelve cable employees in Twin Falls, Idaho.
Approximately 40 employees in Hialeah, Florida have taken certain steps to seek
union representation.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against Continental.
Continental is subject to legal proceedings and claims which arise in the
ordinary course of business, none of which is material to its consolidated
financial condition or results of operations in the opinion of management.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state governments
and substantially all local governments. In addition, various legislative and
regulatory proposals under consideration from time to time by Congress and
various federal agencies may materially affect the cable television industry.
The following is a summary of federal laws and regulations affecting the growth
and operation of the cable television industry and a description of certain
state and local laws.
CABLE COMMUNICATIONS POLICY ACT OF 1984
The 1984 Cable Act became effective in December 1984. This federal statute,
which amended the Communications Act, creates uniform national standards and
guidelines for the regulation of cable television systems. Violations by a
cable television system operator of provisions of the 1984 Cable Act, as well
as of FCC regulations, can subject the operator to substantial monetary
penalties and other sanctions. Among other things, the 1984 Cable Act affirmed
the right of franchising authorities (state or local, depending on the practice
in individual states) to award one or more franchises within their
jurisdictions. It also prohibited non-grandfathered cable television systems
from operating without a franchise in such jurisdictions. In connection with
new franchises, the 1984 Cable Act provides that in granting or renewing
franchises, franchising authorities may establish requirements for cable-
related facilities and equipment, but may not establish or enforce requirements
for video programming or information services other than in broad categories.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
Overview. In October 1992, Congress enacted the 1992 Cable Act. This
legislation made significant changes to the legislative and regulatory
environment in which the cable industry operates. It amended the 1984 Cable Act
in many respects. The 1992 Cable Act became effective in December 1992,
although certain provisions, most notably those dealing with rate regulation
and retransmission consent, became effective at later dates. The legislation
required the FCC to initiate a number of rule-making proceedings to implement
various provisions of the statute, the majority of which, including certain of
those related to rate regulation, have been completed. The 1992 Cable Act
allows for a greater degree of regulation of the cable industry with respect
to, among other things: (i) cable system rates for both basic and certain cable
programming services; (ii) programming access and exclusivity arrangements;
(iii) access to cable channels by unaffiliated programming services; (iv)
leased access terms and conditions; (v) horizontal and vertical ownership of
cable systems; (vi) customer service requirements; (vii) franchise renewals;
(viii) television broadcast signal carriage and retransmission consent; (ix)
technical standards; (x) customer privacy; (xi) consumer protection issues;
(xii) cable equipment compatibility; (xiii) obscene or indecent programming;
and (xiv) subscription to tiers of service other than basic service as a
condition of purchasing premium services. Additionally, the legislation
encourages competition with existing cable television systems by: allowing
municipalities to own and operate their own cable television systems without a
franchise; preventing franchising authorities from granting exclusive
franchises or unreasonably refusing to award additional franchises covering an
existing cable system's service area; and prohibiting the common ownership of
cable systems and co-located MMDS or SMATV systems. The 1992 Cable Act also
precludes video programmers affiliated with cable television companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multi-channel video distributors.
Various cable operators have filed actions in the United States District
Court in the District of Columbia challenging the constitutionality of several
sections of the 1992 Cable Act. Pursuant to special jurisdictional provisions
in the 1992 Cable Act, a challenge to the must-carry provisions of the 1992
Cable Act was heard by a three-judge panel of the district court. In April
1993, the three-judge court granted summary judgment for the government,
upholding the constitutional validity of the must-carry provisions of the 1992
Cable Act. That decision was appealed directly to the United States Supreme
Court. In June 1994, the United States Supreme Court remanded the case to the
district court. Pending the outcome of further proceedings before the district
court, the must-carry statutes and the FCC regulations remain in place.
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The cable operators' constitutional challenge to the balance of the 1992
Cable Act provisions was heard by a single judge of the district court. In
September 1993, the court rendered its decision upholding the constitutionality
of all but three provisions of the statute (multiple ownership limits for cable
operators, advance notice of free previews for certain programming services,
and channel set-asides for DBS operators). This decision has been appealed to
the United States Court of Appeals for the District of Columbia Circuit and the
appeal will be heard by that court in November 1995. Appeals were also filed in
that court from the FCC's rate regulation rule-making decisions. The FCC's rate
regulations were substantially upheld in June 1995.
FEDERAL REGULATION
The FCC, the principal federal regulatory agency with jurisdiction over cable
television, has promulgated regulations covering such areas as the registration
of cable television systems, cross-ownership between cable television systems
and other communications businesses, carriage of television broadcast
programming, consumer education and lockbox enforcement, origination,
cablecasting and sponsorship identification, children's programming, the
regulation of basic cable service rates in areas where cable television systems
are not subject to effective competition, signal leakage and frequency use,
technical performance, maintenance of various records, equal employment
opportunity, and antenna structure notification, marking and lighting. The FCC
has the authority to enforce these regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the
imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities often used in
connection with cable operations. The 1992 Cable Act required the FCC to adopt
additional regulations covering, among other things, cable rates, signal
carriage, consumer protection and customer service, leased access, indecent
programming, programmer access to cable television systems, programming
agreements, technical standards, consumer electronics equipment compatibility,
ownership of home wiring, program exclusivity, equal employment opportunity,
and various aspects of DBS system ownership and operation. A brief summary of
certain of these federal regulations as adopted to date follows.
Rate Regulation. The 1984 Cable Act codified existing FCC preemption of rate
regulation for premium channels and optional CPS tiers. The 1984 Cable Act also
deregulated basic cable rates for cable television systems determined by the
FCC to be subject to effective competition. The 1992 Cable Act substantially
changed the 1984 Cable Act and FCC rate regulation standards then in existence.
The 1992 Cable Act replaced the FCC's old standard for determining effective
competition, under which most cable systems were not subject to local rate
regulation, with a statutory provision that results in nearly all cable
television systems becoming subject to local rate regulation of basic service.
Additionally, the legislation eliminates the 5% annual rate increase for basic
service previously allowed by the 1984 Cable Act without local approval;
requires the FCC to adopt a formula for franchising authorities to enforce, to
assure that basic cable rates are reasonable; allows the FCC to review rates
for CPS tiers (other than per-channel or per-event services) in response to
complaints filed by franchising authorities and/or cable customers; prohibits
cable television systems from requiring subscribers to purchase service tiers
above basic service in order to purchase premium services if the system is
technically capable of doing so; requires the FCC to adopt regulations to
establish, on the basis of actual costs, the price for installation of cable
service, remote controls, converter boxes and additional outlets; and allows
the FCC to impose restrictions on the retiering and rearrangement of cable
services under certain limited circumstances. The FCC issued rule-making
decisions designed to implement these rate regulation provisions in April 1993.
The FCC's regulations adopted in April 1993 set standards for the regulation
of basic and CPS tier rates. The April 1993 rate regulations adopted a
benchmark price cap system for measuring the reasonableness of existing basic
and cable programming service rates. Regulated services include: (i) the basic
service tier required to be established by the 1992 Cable Act, consisting, at a
minimum, of all broadcast signals carried by such system except those imported
by satellite from another market (i.e., superstations) and all public,
educational and governmental access programming and (ii) other CPS tiers (above
the basic service tier, excluding per-channel and per-program programming).
Alternatively, cable operators are given the
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opportunity to make a cost-of-service showing to justify rates above the
applicable benchmarks. If a cost-of-service showing is unsuccessful, the rates
for a system may be reduced below the applicable benchmark. The FCC has
published regulations setting forth the procedures to be utilized in such a
cost-of-service showing; however, the rules are not yet final. The rules
regarding rate regulation also require that charges for cable-related equipment
(e.g., converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus
a reasonable profit and established a formula for evaluating future rate
increases. Local franchising authorities (if certified by the FCC) and/or the
FCC are empowered to order a reduction of existing rates. Refund liability for
basic cable rates is limited to a one-year period, initially calculated from
the effective date of the FCC's regulations. Refund liability for cable
programming service rates is calculated from the date a complaint is filed with
the FCC until the refund is implemented. A complaint alleging an unreasonable
rate for a cable programming service in effect on September 1, 1993, must have
been filed by February 28, 1994. After that date, a complaint regarding a rate
increase for a cable programming service must be filed with the FCC within 45
days from the date that the complainant receives the bill. In general, in order
to avoid refund liability, cable operators whose rates were above FCC benchmark
levels were required, absent a successful cost-of-service showing, to reduce
those rates to the benchmark level or by up to 10% of the rates in effect on
September 30, 1992, whichever reduction was less, adjusted for inflation and
channel modifications occurring subsequent to September 30, 1992. The FCC,
however, reserved the right to raise or lower the benchmarks that it
established. The regulations also provided that future rate increases could not
exceed an inflation-indexed amount, plus increases in certain costs beyond the
cable operator's control, such as taxes, franchise fees and increased
programming costs that exceed the inflation index.
On February 22, 1994, the FCC adopted a revision of its benchmark regulations
effective May 15, 1994. The FCC allowed a sixty day transition period for
implementing the new rates to July 15, 1994. The new benchmarks subject cable
television systems to rate reductions, absent a successful cost-of-service
showing, of up to 17% of the rates in effect on September 30, 1992, adjusted
for inflation, channel modifications, equipment costs and certain increases in
programming costs. Further rate reductions for cable systems whose rates are
below the revised benchmark levels will be held in abeyance pending completion
by the FCC of cable system cost studies, as will reductions that would require
operators to reduce rates below benchmark levels in order to achieve a 17% rate
reduction. These additional rate reductions below the new benchmarks would be
required only if validated by the studies. The FCC also announced its intention
to investigate cable systems whose rates are substantially above the permitted
benchmark levels. Those studies have not been completed by the FCC nor has the
FCC instigated such investigations.
The FCC, on November 10, 1994 revised its regulations governing the manner in
which cable operators may charge subscribers for new cable programming
services. These are commonly referred to as the Going Forward Rules. The FCC
instituted a three-year flat fee mark-up plan for charges relating to new
channels of cable programming services in addition to the present formula for
calculating the permissible rate for new services. Commencing on January 1,
1995, operators may charge for new channels of cable programming services added
after May 14, 1994 at a markup of up to 20 cents per channel over actual
programming costs, but may not make adjustments to monthly rates totaling more
than $1.20, plus an additional 30 cents solely for programming license fees,
per subscriber over the first two years of the three-year period for these new
services. Cable operators may charge an additional 20 cents in the third year
only for channels added in that year. Cable operators electing to use the 20
cent per channel adjustment may not take a 7.5% mark-up on programming cost
increases, which is permitted under the FCC's current rate regulations. The FCC
requested further comment on whether cable operators should continue to receive
the 7.5% mark-up on increases in license fees on existing programming services.
Additionally, the FCC will permit cable operators to offer NPTs at rates
which they elect so long as, among other conditions, other service tiers that
are subject to rate regulation are priced in conformity with applicable FCC
regulations, and cable operators do not remove programming services from
existing service tiers and offer them on the NPT.
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In 1995, the FCC significantly streamlined its rules for how cable operators
may increase rates, allowing such increases to be taken annually rather than in
quarterly installments. The FCC allowed such increases for the first time to
reflect estimated prospective cost increases rather than solely costs
previously incurred.
Many franchising authorities have become certified by the FCC to regulate the
rates charged by Continental for basic cable service and associated basic cable
service equipment. In addition, a number of the Company's customers have filed
complaints with the FCC regarding the rates charged for cable programming
services. Some local franchising authority decisions have been rendered that
were adverse to Continental. Several of these have been appealed to the FCC,
and it is likely that some refunds will be ordered in the future. Continental's
revenues could be materially and adversely affected if the Company was required
to reduce its rates and pay refunds, or if the ability to implement rate
increases consistent with past practices was materially limited by the
regulations that the FCC has adopted.
The FCC also has publicly announced that it will consider "social contracts"
as an alternative form of rate regulation for cable operators. Continental has
negotiated a social contract with the FCC, which settles all of its pending
cost-of-service rate cases and all of its benchmark CPS tier rate cases.
Benchmark BBT cases will be resolved by Continental and local franchising
authorities. See "Business--U.S. Operating Strategy--U.S. Regulatory Strategy;
Social Contract."
Separate bills recently approved by the U.S. Senate and House of
Representatives would significantly modify the rate regulation provisions of
the 1992 Cable Act. Continental cannot predict the likelihood of passage of
this or other legislation that would reduce the regulatory restrictions on its
ability to market and price the Company's services.
Other Regulations under the 1992 Cable Act. In addition to the foregoing rate
regulations, the FCC has adopted regulations pursuant to the 1992 Cable Act
which require cable systems to permit customers to purchase video programming
on a per-channel or a per-event basis without the necessity of subscribing to
any tier of service, other than the basic service tier, unless the cable system
is technically incapable of doing so. Generally, this exemption from compliance
with the statute for cable systems that do not have such technical capability
is available until a cable system obtains the capability, but not later than
December 2002. The FCC also has adopted a number of measures for improving
compatibility between existing cable systems and consumer equipment. In
conjunction therewith, the FCC rules prohibit cable operators from scrambling
program signals carried on the basic tier, absent a waiver. The FCC also is
proposing to extend this prohibition to cover all regulated tiers.
The FCC also has adopted regulations in connection with its cost-of-service
proceedings which govern programming charges for affiliated entities. These
rules apply to systems subject to regulation under both the benchmark and cost-
of-service regulations. The cost of programming to affiliated entities must be
the prevailing company price, based on the sale of programming to third
parties, or a price equal to the lower of the programming service's net book
cost and its estimated fair market value.
Carriage of Broadcast Television Signals. The 1992 Cable Act contains new
signal carriage requirements. These new rules allow commercial television
broadcast stations which are "local" to a cable system, i.e., the system is
located in the station's Area of Dominant Influence, to elect every three years
whether to require the cable system to negotiate for "retransmission consent"
to carry the station. The first such election was made in June 1993. A recent
amendment to the Copyright Act will in some cases increase the number of
stations that may elect must-carry status on cable systems located within such
stations' Areas of Dominant Influence. Local non-commercial television stations
are given mandatory carriage rights, subject to certain exceptions, within the
larger of: (i) a 50-mile radius from the station's city of license or (ii) the
station's grade B contour (a measure of signal strength). Unlike commercial
stations, noncommercial stations are not given the option to negotiate
retransmission consent for the carriage of their signal. In addition, cable
systems have to obtain retransmission consent for the carriage of all "distant"
commercial broadcast stations, except for certain "superstations" (i.e.,
commercial satellite-delivered independent stations such as WTBS).
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The must-carry provisions for non-commercial stations became effective in
December 1992. Implementing must-carry rules for non-commercial and commercial
stations and retransmission consent rules for commercial stations were adopted
by the FCC in March 1993. All commercial stations entitled to carriage were to
have been carried by June 1993, and any non-must-carry stations (other than
superstations) for which retransmission consent had not been obtained could no
longer be carried after October 5, 1993.
Nonduplication of Network Programming. Cable television systems that have
1,000 or more customers must, upon the appropriate request of a local
television station, delete the simultaneous or nonsimultaneous network
programming of a distant station when such programming has also been contracted
for by the local station on an exclusive basis.
Deletion of Syndicated Programming. FCC regulations enable television
broadcast stations that have obtained exclusive distribution rights for
syndicated programming in their market to require a cable system to delete or
"black out" such programming from other television stations which are carried
by the cable system. The extent of such deletions will vary from market to
market and cannot be predicted with certainty. However, it is possible that
such deletions could be substantial and could lead the cable operator to drop a
distant signal in its entirety. The FCC also has commenced a proceeding to
determine whether to relax or abolish the geographic limitations on program
exclusivity contained in its rules, which would allow parties to set the
geographic scope of exclusive distribution rights entirely by contract, and to
determine whether such exclusivity rights should be extended to noncommercial
educational stations. It is possible that the outcome of these proceedings will
increase the amount of programming that cable operators are required to black
out. Finally, the FCC has declined to impose equivalent syndicated exclusivity
rules on satellite carriers who provide services to the owners of home
satellite dishes similar to those provided by cable systems.
Franchise Fees. Although franchising authorities may impose franchise fees
under the 1984 Cable Act, such payments cannot exceed 5% of a cable system's
annual gross revenues. Franchising authorities are also empowered in awarding
new franchises or renewing existing franchises to require cable operators to
provide cable-related facilities and equipment and to enforce compliance with
voluntary commitments. In the case of franchises in effect prior to the
effective date of the 1984 Cable Act, franchising authorities may enforce
requirements contained in the franchise relating to facilities, equipment and
services, whether or not cable-related. The 1984 Cable Act, under certain
limited circumstances, permits a cable operator to obtain modifications of
franchise obligations.
Renewal of Franchises. The 1984 Cable Act established renewal procedures and
criteria designed to protect incumbent franchises against arbitrary denials of
renewal. While these formal procedures are not mandatory unless timely invoked
by either the cable operator or the franchising authority, they can provide
substantial protection to incumbent franchisees. Even after the formal renewal
procedures are invoked, franchising authorities and cable operators remain free
to negotiate a renewal outside the formal process.
Nevertheless, renewal is by no means assured, as the franchisee must meet
certain statutory standards. Even if a franchise is renewed, a franchising
authority may impose new and more onerous requirements such as upgrading
facilities and equipment, although the municipality must take into account the
cost of meeting such requirements.
The 1992 Cable Act makes several changes to the process under which a cable
operator seeks to enforce its renewal rights that could make it easier in some
cases for a franchising authority to deny renewal. While a cable operator must
still submit its request to commence renewal proceedings within 30 to 36 months
prior to franchise expiration to invoke the formal renewal process, the request
must be in writing and the franchising authority must commence renewal
proceedings not later than six months after receipt of such notice. The four-
month period for the franchising authority to grant or deny the renewal now
runs from the submission of the renewal proposal, not the completion of the
public proceeding. Franchising authorities may consider the "level" of
programming service provided by a cable operator in deciding whether to renew.
Franchising authorities are no longer precluded from denying renewal based on
failure to substantially
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comply with the material terms of the franchise where the franchising authority
has "effectively acquiesced" to such past violations. However, the franchising
authority is estopped from denying renewal if, after giving the cable operator
notice and opportunity to cure, it fails to respond to a written notice from
the cable operator of its failure or inability to cure. Courts may not reverse
a denial of a renewal based on procedural violations found to be "harmless
error."
Channel Set-Asides. The 1984 Cable Act permits local franchising authorities
to require cable operators to set aside certain channels for public, education
and governmental access programming. The 1984 Cable Act further requires cable
television systems with 36 or more activated channels to designate a portion of
their channel capacity for commercial leased access by unaffiliated third
parties. While the 1984 Cable Act allowed cable operators substantial latitude
in setting leased access rates, the 1992 Cable Act required leased access rates
to be set according to an FCC-prescribed formula. The FCC adopted such a
formula and implemented regulations in April 1993, but various parties have
filed petitions requesting the FCC to reconsider its decision.
Competing Franchises. Questions concerning the right of a municipality to
award de facto exclusive cable television franchises and to impose certain
franchise restrictions upon cable television companies are under consideration
in Preferred Communications, Inc. v. City of Los Angeles, involving a proposed
applicant for a franchise in one of Continental's service areas, in which the
United States Supreme Court declared that cable television operators have First
Amendment rights which cannot be abridged in the absence of overriding
governmental interests. While establishing this broad judicial standard, the
Supreme Court remanded the case to a lower federal court for trial on the
factual issues surrounding a cable television operator's use of public rights-
of-way and a municipality's interest in awarding a de facto exclusive
franchise, or placing a limit on the number of franchisees. Recently, the
United States Supreme Court denied a petition to review the Ninth Circuit's
January 1994 decision reaffirming that a municipality may not constitutionally
restrict the award of a cable franchise to a single entity. Until the United
States Supreme Court rules definitively on the scope of cable television's
First Amendment protections, the legality of the franchising process and of
various specific franchise requirements is likely to be in a state of flux. It
is not possible at the present time to predict the constitutionally permissible
bounds of cable franchising and particular franchise requirements. However, the
1992 Cable Act, among other things, prohibits franchising authorities from
unreasonably refusing to grant franchises to competing cable television systems
and permits franchising authorities to operate their own cable television
systems without franchises.
Ownership and Cross-Ownership Limitations. The 1984 Cable Act codified
existing FCC cross-ownership regulations, which, in part, prohibit LECs from
providing video programming directly to customers within their local exchange
telephone service areas, except in rural areas or by specific waiver of FCC
rules. Several federal district courts have struck down the 1984 Cable Act's
telco/cable cross-ownership prohibition as facially invalid and inconsistent
with the First Amendment. Two district court decisions have been upheld by the
United States Courts of Appeals for the Fourth Circuit and the Ninth Circuit.
The Supreme Court has agreed to hear arguments on this issue during its 1995-96
term. The FCC in 1992 amended its rules to permit local telephone companies to
offer "video dialtone" service for video programmers, including channel
capacity for the carriage of video programming and certain noncommon carrier
activities such as video processing, billing and collection and joint marketing
arrangements. The FCC recently issued an order on reconsideration reaffirming
its initial decision, and this order has been appealed. Several LECs in the
service areas of Continental's cable systems have applied to the FCC for
permission to offer video dialtone service, and some of these applications have
been granted. In its video dialtone order, the FCC concluded that neither the
1984 Cable Act nor its rules apply to prohibit the IXC's (i.e., long distance
telephone companies such as AT&T) from providing such services to their
customers. Additionally, the FCC also concluded that where a LEC makes its
facilities available on a common carrier basis for the provision of video
programming to the public, the 1984 Cable Act does not require the LEC or its
programmer customers to obtain a franchise to provide such service. This aspect
of the FCC's video dialtone order was upheld on appeal by the U.S. Court of
Appeals for the D.C. Circuit. Because cable operators are required to bear the
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costs of complying with local franchise requirements, including the payment of
franchise fees, the FCC's decision could place cable operators at a competitive
disadvantage vis-a-vis services offered on a common carrier basis over local
telephone company-provided facilities. The FCC is currently examining whether a
LEC is required to obtain a franchise, and meet other regulatory requirements
of cable systems, if and when a LEC acts as a programmer over its own video
dialtone facilities because of a court's removal of the statutory prohibition
on such programming activities. Ameritech Corporation has applied for and
received a franchise to build a cable television system in competition with one
of the N-COM systems that Continental is under contract to acquire in the
fourth quarter of 1995.
As part of the same proceeding in which it approved video dialtone, the FCC
recommended that Congress amend the 1984 Cable Act to allow LECs to provide
their own video programming services over their facilities in competition with
their customers' services. The FCC also decided to loosen ownership and
affiliation restrictions currently applicable to telephone companies, and has
proposed to increase the numerical limit on the population of areas qualifying
as "rural" and in which LECs can provide cable service without FCC waiver.
Separate bills to repeal the telco/cable cross-ownership ban, subject to
certain regulatory requirements, have been passed by the United States Senate
and the House of Representatives. Under the terms of these bills, a telephone
company could build and operate a cable television system within its region or
acquire an in-region cable operator, under certain circumstances. These bills
would also, inter alia, preempt state and locally-imposed barriers to the
provision of intrastate and interstate telecommunications services by cable
system operators in competition with local telephone companies. The outcome of
these FCC legislative or court proceedings and proposals or the effect of such
outcome on cable system operations cannot be predicted.
The 1984 Cable Act and the FCC's rules also prohibit the common ownership,
operation, control or interest in a cable system and a local television
broadcast station whose predicted grade B contour (a measure of a television
station's significant signal strength as defined by the FCC's rules) covers any
portion of the community served by the cable system. Common ownership or
control has historically also been prohibited by the FCC (but not by the 1984
Cable Act) between a cable system and a national television network, although
the FCC has adopted an order that substantially relaxes the network/cable
cross-ownership prohibitions subject to certain national and local ownership
limits. As a part of the same action, the FCC also voted to recommend to
Congress that the broadcast/cable cross-ownership restrictions contained in the
1984 Cable Act be repealed. Finally, in order to encourage competition in the
provision of video programming, the FCC adopted a rule prohibiting the common
ownership, affiliation, control or interest in cable television systems and MDS
facilities having overlapping service areas, except in very limited
circumstances. The 1992 Cable Act codified this restriction and extended it to
co-located SMATV systems. Permitted arrangements in effect as of October 5,
1992 were grandfathered. In January 1995, the FCC loosened its previously
stringent interpretation of the lack of ability of a cable operator to purchase
a SMATV system in the same franchise area. The 1992 Cable Act permits states or
local franchising authorities to adopt certain additional restrictions on the
ownership of cable television systems. Many of these cross-ownership
limitations would be eliminated or modified by the bills recently approved by
the United States Senate and the House of Representatives.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more
than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder
of more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the United States District Court
decision holding the multiple ownership limit provision of the 1992 Cable Act
unconstitutional.
The FCC has also adopted rules which limit the number of channels on a cable
system which can be occupied by programming in which the entity that owns the
cable system has an attributable interest. The limit is 40% of all activated
channels.
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Broadband PCS Auctions. Personal communications services ("PCS") represents
mobile radio communications services that can be integrated with a variety of
networks. The FCC has allocated 120 MHz of spectrum in the 2GHz band to be
licensed to competing broadband PCS providers, who it is anticipated will offer
advanced digital wireless services in competition with current cellular and
specialized mobile radio services as well as with landline telephone service.
Broadband PCS spectrum will be auctioned by the FCC in three separate auctions
that began in December 1994. Six licenses will be auctioned in each service
area, and FCC rules permit some aggregation of PCS spectrum by PCS operators.
The first broadband PCS auction, which was completed in the first quarter of
1995 included 30 MHz frequency blocks of spectrum (Blocks "A" and "B") licensed
by MTA. The next auction is expected to commence in 1995 at a date yet to be
determined, and will be for spectrum Block C, a 30 MHz frequency block which is
available only to parties that meet specific FCC eligibility criteria and will
be licensed using Basic Trading Areas. The final auctions will include three
Basic Trading Area 10 MHz blocks of spectrum, Blocks D, E and F, at least one
of which will be subject to the additional eligibility requirements imposed on
Block C.
Equal Employment Opportunity. The 1984 Cable Act includes provisions to
ensure that minorities and women are provided equal employment opportunities
within the cable television industry. The statute requires the FCC to adopt
reporting and certification rules that apply to all cable system operators with
more than five full-time employees. Pursuant to the requirements of the 1992
Cable Act, the FCC has imposed more detailed annual Equal Employment
Opportunity ("EEO") reporting requirements on cable operators and has expanded
those requirements to all multi-channel video service distributors. Failure to
comply with the EEO requirements can result in the imposition of fines and/or
other administrative sanctions, or may, in certain circumstances, be cited by a
franchising authority as a reason for denying a franchisee's renewal request.
Privacy. The 1984 Cable Act imposes a number of restrictions on the manner in
which cable system operators can collect and disclose data about individual
system customers. The statute also requires that the system operator must
periodically provide all customers with written information about its policies
regarding the collection and handling of data about customers, their privacy
rights under federal law and their enforcement rights. In the event that a
cable operator is found to have violated the customer privacy provisions of the
1984 Cable Act, it could be required to pay damages, attorneys' fees and other
costs. Under the 1992 Cable Act, the privacy requirements are strengthened to
require that cable operators take such actions as are necessary to prevent
unauthorized access to personally identifiable information.
Anti-Trafficking. The 1992 Cable Act precludes cable operators from selling
or otherwise transferring ownership of a cable television system within 36
months after acquisition or initial construction, except for: resales required
by the terms of a contract covering the acquisition of multiple systems; tax-
free sales or reorganizations; governmentally required divestitures; or
internal transfers to a commonly controlled entity. The anti-trafficking
restriction applies to systems acquired prior to the effective date of the new
law (i.e., December 4, 1992) as well as subsequent acquisitions. The FCC may
waive the foregoing restrictions where generally consistent with the public
interest, unless the franchising authority has refused to grant any required
approval. The 1992 Cable Act also requires franchising authorities to act on
any franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
Registration Procedure and Reporting Requirements. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they will
carry and certain other information. Additionally, cable operators periodically
are required to file various informational reports with the FCC. Cable
operators who operate in certain frequency bands are required on an annual
basis to file the results of their periodic cumulative leakage testing
measurements. Operators who fail to make this filing or who exceed the FCC's
allowable cumulative leakage index risk being prohibited from operating in
those frequency bands in addition to other sanctions.
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Technical Requirements. Historically, the FCC has imposed technical standards
applicable to the cable channels on which broadcast stations are carried, and
has prohibited franchising authorities from adopting standards that were in
conflict with or more restrictive than those established by the FCC. The FCC
has recently revised such standards and made them applicable to all classes of
channels which carry downstream National Television System Committee video
programming. Local franchising authorities are permitted to enforce the FCC's
new technical standards. The FCC also has adopted additional standards
applicable to cable television systems using frequencies in the 108-137 MHz and
225-400 MHz bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
system signal leakage. The 1992 Cable Act requires the FCC to periodically
update its technical standards to take into account changes in technology and
to entertain waiver requests from franchising authorities who would seek to
impose more stringent technical standards upon their franchised cable
television systems. Although the 1992 Cable Act requires the FCC to establish
"minimum technical standards relating to cable televisions systems' technical
operation and signal quality," the FCC has announced that its recently
completed cable television technical standards rule-making satisfies the new
statutory mandate.
Pole Attachments. The FCC currently regulates the rates and conditions
imposed by certain public utilities for use of their poles, unless under the
Federal Pole Attachments Acts state public utility commissions are able to
demonstrate that they regulate rates, terms and conditions of the cable
television pole attachments. A number of states and the District of Columbia
have certified to the FCC that they regulate the rates, terms and conditions
for pole attachments. In the absence of state regulation, the FCC administers
such pole attachment rates through use of a formula which it has devised and
from time to time revises. Legislation pending before the United States
Congress could, if enacted, significantly increase the costs of pole
attachments for cable operators that offer voice and data services as well as
video services. See "Business-Competition".
Other Matters. FCC regulation also includes matters regarding a cable
system's carriage of local sports programming; restrictions on origination and
cablecasting by cable system operators; application of the rules governing
political broadcasts; customer service; home wiring and limitations on
advertising contained in nonbroadcast children's programming.
Implementing provisions of the 1993 Budget Act, the FCC adopted requirements
for payment of 1994 annual "regulatory fees." Cable television systems were
required to pay regulatory fees of $.37 per subscriber, which may be passed on
to subscribers as "external cost" adjustments to rates for basic cable service.
This amount was increased to $.49 per subscriber in 1995. Fees are also
assessed for other licenses, including licenses for business radio and cable
television relay systems and earth stations, which, however, may not be
collected directly from subscribers. Beginning in 1995, no fee is assessed for
receive-only cable-earth stations.
COPYRIGHT REGULATION
Cable television systems are subject to federal copyright licensing covering
carriage of broadcast signals. In exchange for making semi-annual payments to a
federal copyright royalty pool and meeting certain other obligations, cable
operators obtain a statutory license to retransmit broadcast signals. The
amount of this royalty payment varies, depending on the amount of system
revenues from certain sources, the number of distant signals carried and the
location of the cable system with respect to over-the-air television stations.
Cable operators are liable for interest on underpaid and unpaid royalty fees,
but are not entitled to collect interest on refunds received for the
overpayment of copyright fees. Originally, the Federal Copyright Royalty
Tribunal was empowered to make and, in fact, did make several adjustments in
copyright royalty rates. This tribunal was eliminated by Congress in 1993. Any
future adjustment to the copyright royalty rates will be done through an
arbitration process to be supervised by the U.S. Copyright Office. Present
rates will remain in place through 1995, barring the successful filing of a new
petition for ratemaking with the Copyright Office and any changes in the FCC's
signal carriage, syndicated exclusivity or sports blackout rules.
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Various bills have been introduced into Congress over the past several years
that would eliminate or modify the cable television compulsory license. The FCC
has recommended to Congress that it repeal the cable industry's compulsory
copyright license. The FCC determined that the statutory compulsory copyright
license for local and distant broadcast signals no longer serves the public
interest and that private negotiations between the applicable parties would
better serve the public. Without the compulsory license, cable operators might
need to negotiate rights from the copyright owners for each program carried on
each broadcast station in the channel lineup. Such negotiated agreements could
increase the cost to cable operators of carrying broadcast signals. The 1992
Cable Act's retransmission consent provisions expressly provide that
retransmission consent agreements between television broadcast stations and
cable operators do not obviate the need for cable operators to obtain a
copyright license for the programming carried on each broadcaster's signal.
Copyright music performed in programming supplied to cable television systems
by pay cable networks (such as HBO) and cable programming networks (such as
USA) has generally been licensed by the networks through private agreements
with the American Society of Composers and Publishers ("ASCAP") and BMI, Inc.
("BMI"), the two major performing rights organizations in the United States.
ASCAP and BMI offer "through to the viewer" licenses to the cable networks,
which cover the retransmission of the cable networks' programming by cable
television systems to their customers. The cable industry has not yet concluded
negotiations on licensing fees with music performing rights societies for the
use of music performed in programs locally originated by cable television
systems.
STATE AND LOCAL REGULATIONS
Because cable television systems use local streets and rights-of-way, cable
television systems are subject to state and local regulation, typically imposed
through the franchising process. State and/or local officials are usually
involved in franchise selection, system design and construction, safety,
service rates, consumer relations, billing practices and community related
programming and services.
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and
in many cases are terminable if the franchise operator fails to comply with
material provisions. Although the 1984 Cable Act provides for certain
procedural protection, there can be no assurance that renewals will be granted
or that renewals will be made on similar terms and conditions. Franchises
usually call for the payment of fees, often based on a percentage of the
system's gross customer revenues, to the granting authority. Upon receipt of a
franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction, and even from city to city within the same state,
historically ranging from reasonable to highly restrictive or burdensome. The
1984 Cable Act places certain limitations on a franchising authority's ability
to control the operation of a cable system, and the courts have from time to
time reviewed the constitutionality of several general franchise requirements,
including franchise fees and access channel requirements, often with
inconsistent results. On the other hand, the 1992 Cable Act prohibits exclusive
franchises, and allows franchising authorities to exercise greater control over
the operation of franchised cable television systems, especially in the areas
of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multi-channel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of cable
television systems. Moreover, franchising authorities are immunized from
monetary damage awards arising from regulation of cable television systems or
decisions made on franchise grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws and regulations
under which it was granted directly affect the profitability of the cable
television system. Cable franchises generally contain provisions governing
charges for basic cable television services, fees to be paid to the franchising
authority, length of the
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franchise term, renewal, sale or transfer of the franchise, territory of the
franchise, design and technical performance of the system, use and occupancy of
public streets and number and types of cable services provided.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulations of a character similar to that of a public utility.
REGULATION OF TELECOMMUNICATIONS ACTIVITIES
As noted above under "Business--Telecommunications and Technology,"
Continental provides in certain of its systems alternate access local
telecommunications services over a portion of its fiber-optic cable facilities,
and Continental owns a 20% interest in TCG. Local telecommunications activities
are regulated by either the FCC or state public utility commissions, or both.
In some instances, Continental or TCG may be required to obtain regulatory
permission to offer such services, and may be required to file tariffs for its
service offerings, depending on whether particular alternate access activities
of Continental or TCG are classified as common carriage or private carriage.
See "Federal Regulation--Ownership and Cross--Ownership Limitations."
Separate bills to repeal the telco/cable cross-ownership ban, subject to
certain regulatory requirements, have been passed by the United States Senate
and the House of Representatives. Under the terms of these bills, a telephone
company could build and operate a cable television system within its region or
acquire an in-region cable operator, under certain circumstances. These bills
would also, inter alia, preempt state and locally-imposed barriers to the
provision of intrastate and interstate telecommunications services by cable
system operators in competition with local telephone companies. The outcome of
these FCC legislative or court proceedings and proposals or the effect of such
outcome on cable system operations cannot be predicted.
The foregoing does not purport to be a summary of all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing,
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings, and
administrative and legislative proposals which could change, in varying
degrees, the manner in which cable television systems operate. Neither the
outcome of these proceedings nor their impact upon the cable industry or
Continental can be predicted at this time.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS
The positions held by each Director, executive officer and other officer of
Continental are shown below. There are no family relationships among the
following persons.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR EXECUTIVE OFFICER POSITION WITH CONTINENTAL
- ------------------------------------- -------------------------
<S> <C>
Amos B. Hostetter,
Jr.(1)................. Chairman of the Board, Chief Executive Officer and Director
Timothy P. Neher........ Vice Chairman of the Board and Director
William T. Schleyer..... President and Chief Operating Officer
Roy F. Coppedge III..... Director
Stephen Hamblett........ Director
Jonathan H. Kagan(1).... Director
Robert B. Luick......... Director and Secretary
Henry F. McCance........ Director
Trygve E. Myhren........ Director
Lester Pollack.......... Director
Michael J. Ritter....... Director
Vincent J. Ryan(1)...... Director
Ronald H. Cooper........ Executive Vice President
Jeffrey T. DeLorme...... Executive Vice President
Nancy Hawthorne......... Senior Vice President and Chief Financial Officer
Andrew L. Dixon, Jr..... Senior Vice President-Human Resources
David M. Fellows........ Senior Vice President-Engineering and Technology
Richard A. Hoffstein.... Senior Vice President and Corporate Controller
Frederick C. Livings-
ton.................... Senior Vice President-Marketing
Robert J. Sachs......... Senior Vice President-Corporate and Legal Affairs
Robert A. Stengel....... Senior Vice President-Programming
Robert A. Strickland.... Senior Vice President-Information Systems
P. Eric Krauss.......... Vice President and Treasurer
Phyllis A. Erickson..... Vice President-Marketing
Nancy B. Larkin......... Vice President-Community Relations
R.B. Lerch.............. Vice President-Programming
Margaret A. Sofio....... Vice President and Counsel
Lawrence F.
Christofori............ Assistant Treasurer
Benjamin A. Gomez....... Assistant Treasurer
W. Lee H. Dunham........ Assistant Secretary
Patrick K. Miehe........ Assistant Secretary
</TABLE>
- --------
(1) Members of the Executive Committee
(2) The Company intends to appoint two Directors to serve on the Audit
Committee.
Continental has a classified Board composed of three classes. Each class
serves for three years, with one class being elected each year. The term of the
Class A Directors, Messrs. McCance, Coppedge, Ritter and Luick, will expire at
the 1996 Annual Meeting of Continental. The term of the Class B Directors,
Messrs. Neher, Ryan and Kagan, will expire at the 1997 Annual Meeting of
Continental. The term of the Class C Directors, Messrs. Hostetter, Pollack,
Hamblett and Myhren, will expire at the 1998 Annual Meeting of Continental.
Under the terms of certain stock purchase agreements with Continental,
Corporate Advisors, L.P. ("Corporate Advisors"), on behalf of the investors
(the "Continental Preferred Stock Investors") who purchased Series A Preferred
Stock, currently has the right to designate two persons, and Boston Ventures
Limited Partnership III, on behalf of itself and Boston Ventures Limited
Partnership IIIA, Boston Ventures
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Limited Partnership IV and Boston Ventures Limited Partnership IVA
(collectively, the "Boston Ventures Investors"), currently has the right to
designate one person, to be nominated as members of the Board of Directors.
Lester Pollack and Jonathan H. Kagan are the designees of the Continental
Preferred Stock Investors, and Roy F. Coppedge III is the designee of the
Boston Ventures Investors. Under the terms of the Merger Agreement, Providence
Journal designated two persons who were appointed to Continental's Board of
Directors as of the effective time of the Merger, and, on the expiration of
their initial term as nominees, The Providence Journal Company, the successor
Company to Providence Journal, has the right to designate two individuals to be
nominated as members of Continental's Board for another three year term.
The executive officers and other officers were elected by the Continental
Board of Directors on May 18, 1995. All executive officers and other officers
hold office until the first meeting of the Continental Board following the next
annual meeting of stockholders and until their successors are chosen and
qualified.
The following is a description of the business experience during the past
five years of each Director and officer and includes, as to Directors, other
directorships held in companies required to file periodic reports with the
Securities and Exchange Commission (the "Commission") and registered investment
companies.
Directors and Executive Officers
Amos B. Hostetter, Jr. (58), a cofounder of Continental, is the Chairman of
the Board and Chief Executive Officer of Continental. He has been a Director
since 1963. Mr. Hostetter is a past Chairman of the National Cable Television
Association ("NCTA") and currently serves on NCTA's Board and Executive
Committee. He is past Chairman and serves on the Executive Committee of the
Board of Directors of both Cable in the Classroom and C-SPAN and serves as a
Director and Chairman of the Audit Committee of Commodities Corporation (USA).
Timothy P. Neher (47) is the Vice Chairman of the Board of Continental. He
has been a Director since 1982 and has been employed by Continental since 1974.
Prior to 1991 he was President and Chief Operating Officer of Continental,
prior to 1986 he was an Executive Vice President of Continental, and prior to
1982 he was Vice President and Treasurer of Continental. He currently is on the
Board of Directors of Turner Broadcasting System, Inc.
William T. Schleyer (44) is the President and Chief Operating Officer of
Continental. Prior to March 15, 1995 he was an Executive Vice President and
prior to 1989 he was the Senior Vice President and General Manager of
Continental's New England management region. He is a member of the Boards of
Directors of CableLabs, the research and development arm of the cable industry,
TCG and Optus Vision. He has been employed by Continental since 1978.
Roy F. Coppedge III (47) has been a Director of Boston Ventures Management,
Inc. since 1983. He currently is on the Board of Directors of American Media
Inc. and Dial Page, Inc. He was elected to serve as a Director of Continental
in 1992.
Stephen Hamblett (60) has been the Chairman of the Board and Chief Executive
Officer and a Director of The Providence Journal Company (as successor to
Providence Journal) and Publisher of the Journal-Bulletin newspapers since
1987. He has been a Director of Continental since October 1995. Mr. Hamblett
also serves on the Boards of Directors of the Associated Press and the Inter-
American Press Association.
Jonathan H. Kagan (39) is Managing Director of Corporate Advisors and a
Managing Director of Lazard Freres & Co. LLC ("Lazard"). He has been associated
with Lazard since 1980. He was elected to serve as a Director of Continental in
1992. Mr. Kagan currently is on the Board of Directors of Tyco Toys, Inc. and
LaSalle Re Limited.
Robert B. Luick (84) is of counsel to the law firm of Sullivan & Worcester,
which firm has acted as counsel to Continental since its inception. Mr. Luick
has been with Sullivan & Worcester since 1943. He is a
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member of the Board of Directors of Ionics, Incorporated, a diversified water
treatment company. He has been Secretary and a Director of Continental since
1963.
Henry F. McCance (52) has been general partner of the following venture
capital partnerships (either directly or indirectly as the general partner of
the general partner of such partnerships) since their formation: Greylock
Ventures Limited Partnership (1983), Greylock Investments Limited Partnership
(1985), Greylock Capital Limited Partnership (1987), Greylock Limited
Partnership (1990) and Greylock Equity Limited Partnership (1994). He is also
President and Treasurer of Greylock Management Corporation, an investment
services organization, and a Director of Brookstone, Inc., Manugistics, Inc.
and Shiva Corporation and CATS Software Inc. Prior to 1990, Mr. McCance was a
Vice President and Treasurer of Greylock Management Corporation. Mr. McCance
has been a Director of Continental since 1972.
Trygve E. Myhren (58) has been President and Chief Operating Officer and a
Director of The Providence Journal Company (as successor to Providence Journal)
since 1990. He has been a Director of Continental since October 1995. Mr.
Myhren is a past Chairman of the NCTA and is currently a Director of Advanced
Marketing Services, Inc., Cable Labs, the research and development arm of the
cable industry, and Peapod Limited, a company that provides consumer on-line
grocery shopping services.
Lester Pollack (62) is Senior Managing Director of Corporate Advisors and
Chief Executive Officer of Centre Partners, L.P., investment partnerships
affiliated with Lazard, as well as a Managing Director of Lazard. He currently
is on the Board of Directors of SunAmerica Inc., Kaufman & Broad Home
Corporation, Tidewater, Inc., Loews Corporation, Parlex Corporation, Polaroid
Corporation and Sphere Drake Holdings Limited. He was elected to serve as a
Director of Continental in 1992.
Michael J. Ritter (54) has been a Director since 1991 and was employed by
Continental from 1980 until March 15, 1995, at which time he retired as the
President and Chief Operating Officer of Continental. Prior to 1991 he was an
Executive Vice President, and prior to 1988 he was the Senior Vice President
and General Manager of Continental's Michigan management region.
Vincent J. Ryan (59) has been Chairman of the Board and a Director of
Schooner Capital Corporation, a venture capital organization, since 1971. Mr.
Ryan is also Chairman of the Board of Iron Mountain Information Services, Inc.,
an information management company. He has been a Director of Continental since
1980.
Ronald H. Cooper (38) is an Executive Vice President of Continental. Prior to
1995, he was the Senior Vice President of Continental's Southern California
management region. Prior to 1990 he was the Senior Vice President of
Continental's Northern California management region. He has been employed by
Continental since 1982.
Jeffrey T. DeLorme (42) is an Executive Vice President of Continental. Prior
to March 1993, he was the Senior Vice President and General Manager of
Continental's Florida/Georgia management region. He was formerly the Director
of Corporate Services in Continental's Michigan management region. He has been
employed by Continental since 1980.
Nancy Hawthorne (44) is the Chief Financial Officer and a Senior Vice
President of Continental. Prior to December, 1993, she was also the Treasurer
of Continental, in addition to being Chief Financial Officer and a Senior Vice
President. Prior to December 1992, she was a Senior Vice President and the
Treasurer of Continental. Prior to 1988, she was a Vice President and the
Treasurer of Continental. She is a member of the Boards of Directors of Perini
Corporation, a construction company, New England Zenith Fund, a mutual fund,
TCG and Optus Vision. She has been employed by Continental since 1982.
Other Officers
Andrew L. Dixon Jr. (53) is Senior Vice President-Human Resources of
Continental. From 1985 to 1991, he was the Vice President of Human Resources of
Continental. He has been employed by Continental since 1982.
80
<PAGE>
David M. Fellows (43) is Senior Vice President-Engineering and Technology of
Continental. Prior to December 1992, he was the Vice President of Strategic
Operations and the President of Scientific Atlanta's Transmissions Systems
Business Division, where he was responsible for that company's headend, fiber
and digital compression products. He is a member of the Board of Directors of
Anadigics, Inc.
Richard A. Hoffstein (47) is a Senior Vice President and the Corporate
Controller of Continental. Prior to 1986, he was the Corporate Controller,
Assistant Treasurer and Assistant Secretary of Continental. He has been
employed by Continental since 1976.
Frederick C. Livingston (49) is Senior Vice President-Marketing of
Continental. Prior to 1988, he was a Vice President of Continental, and prior
to 1984 he was the Director of Marketing for Continental. He has been employed
by Continental since 1979.
Robert J. Sachs (46) is Senior Vice President-Corporate and Legal Affairs of
Continental. Prior to 1988, he was a Vice President of Continental, and prior
to 1983 he was Continental's Director of Corporate Development. He has been
employed by Continental since 1979.
Robert A. Stengel (53) is Senior Vice President-Programming of Continental.
Prior to 1988, he was a Vice President of Programming of Continental. He has
been employed by Continental since 1980.
Robert A. Strickland (32) is Senior Vice President-Information Systems of
Continental. He has been employed by Continental since August 1994. He was
formerly employed by Harvard Business School since 1991.
P. Eric Krauss (31) is a Vice President and the Treasurer of Continental.
Prior to January 1995, he was the Treasurer, and prior to December 1993, he
was the Assistant Treasurer of Continental. He has been employed by
Continental since January 1990. He was formerly employed by The First National
Bank of Boston since 1986.
Phyllis A. Erickson (43) is a Vice President-Marketing of Continental. She
has been employed by Continental since January 1995. She was formerly employed
by Nestle Foods Corp. and by Homeview Realty Centers.
Nancy B. Larkin (44) is a Vice President-Community Relations of Continental.
She has been employed by Continental since February 1988. She was formerly
employed by American Cablesystems Corporation, most recently as Vice President
of Corporate Communications and Training.
R. B. Lerch (34) is a Vice President-Programming of Continental. He has been
employed by Continental since October 17, 1988. Prior to January 1995, he was
the Director of Programming of Continental.
Margaret A. Sofio (53) is Vice President and Counsel for Continental. Prior
to May 1994 she was Vice President and Counsel for Continental Cablevision of
New England, Inc. She has been employed by Continental since 1981.
Lawrence F. Christofori (33) is an Assistant Treasurer of Continental. He
has been employed by Continental since October 1994. He was formerly employed
by The First National Bank of Boston since 1989.
Benjamin A. Gomez (29) is an Assistant Treasurer of Continental. He has been
employed by Continental since April 1994. He was formerly employed by The Bank
of New York since 1990.
W. Lee. H. Dunham (54) is an Assistant Secretary of Continental. He has been
a partner of the law firm of Sullivan & Worcester since 1974.
Patrick K. Miehe (47) is an Assistant Secretary of Continental. He has been
a partner of the law firm of Sullivan & Worcester since 1990.
Biographical information concerning the Directors, executive officers and
other officers is as of October 6, 1995.
81
<PAGE>
EXECUTIVE COMPENSATION
The following table (the "Summary Compensation Table") discloses
compensation received by Continental's Chief Executive Officer and the four
most highly compensated other executive officers of Continental (the Chief
Executive Officer and the other executive officers are hereinafter referred to
as the "Named Executive Officers") for the three fiscal years ended December
31, 1992, 1993 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- ---------------------------------------------------
RESTRICTED STOCK
OTHER ANNUAL AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR# SALARY($) BONUS($)(1) COMPENSATION($) ($)(2)(3) COMPENSATION($)(4)
- --------------------------- ----- --------- ----------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Amos B. Hostetter, Jr. 1994 $649,876 $ 97,991 $ $ $4,273
Chairman and Chief 1993 624,961 238,653 -- -- 4,273
Executive Officer 1992 615,154 203,470 -- 4,499,850 4,404
Michael J. Ritter (5) 1994 469,769 99,860 3,868
President and Chief 1993 439,845 146,691 -- -- 3,868
Operating Officer 1992 400,250 123,235 -- 2,999,900 3,910
William T. Schleyer(5) 1994 315,815 30,639 3,403
Executive Vice 1993 291,923 61,418 -- -- 3,403
President 1992 272,084 52,131 -- 1,499,950 3,360
Jeffrey T. DeLorme 1994 294,846 49,166 3,403
Executive Vice 1993 268,484 56,871 111,608(6) -- 3,403
President 1992 197,890 21,846 -- 1,437,317 3,361
Nancy Hawthorne 1994 241,938 18,331 3,403
Chief Financial 1993 224,896 46,590 -- -- 3,403
Officer and Senior Vice 1992 198,000 86,454 -- 979,823 3,361
President
</TABLE>
- --------
(1) See Note 11 to Consolidated Financial Statements. Continental has made
loans to these and other persons in amounts equal to the income taxes
incurred by them as a result of their restricted stock purchases. Such
loans were financed through cash provided from operating activities and
long-term borrowings. Continental charges interest on these loans
generally at rates ranging from 5% to 8% per annum and declares bonuses to
each of these persons in the amount of the interest due each year.
Continental declared no other bonus to any Named Executive Officer during
the years presented (other than a $50,000 bonus to Nancy Hawthorne in 1992
which is reflected in the Summary Compensation Table). As of October 1,
1995, the amounts of the loans outstanding to certain of the Named
Executive Officers and one other Executive Officer were as follows:
William T. Schleyer ($1,751,974), Jeffrey T. DeLorme ($1,311,077), Ronald
H. Cooper ($261,500) and Nancy Hawthorne ($1,100,277). The outstanding
principal balance of each such loan is generally payable upon the earlier
to occur of (i) the fifth anniversary of such loan or (ii) the termination
of such person's employment with Continental. Each of Mr. DeLorme and Mr.
Cooper has an additional loan from an Unrestricted Subsidiary of
Continental, of which the current amounts outstanding are: Mr. DeLorme
($400,000) and Mr. Cooper ($278,680). Since the beginning of the fiscal
year ended December 31, 1992, the largest aggregate amounts of
indebtedness of the following executive officers were as follows: William
T. Schleyer ($1,751,974), Jeffrey T. DeLorme ($1,711,077), Ronald H.
Cooper ($1,270,997) and Nancy Hawthorne ($1,100,277). See "Compensation
Committee Interlocks and Insider Participation" for loan amounts to
certain other Named Executive Officers.
(2) Shares of restricted stock are entitled to dividends at the same rate as
all other shares of Common Stock.
(3) Shown below are (i) the total number of unvested shares and market value
of such shares as of December 31, 1994 and (ii) the vesting schedule of
such shares for each of the Named Executive Officers (the shares will be
fully vested in two years):
<TABLE>
<CAPTION>
TOTAL RESTRICTED SHARES
HELD AS OF 12/31/94 VESTING OVER THREE YEARS FROM 12/31/94
------------------------ ---------------------------------------------
NAME SHARES VALUE SHARES VESTING IN 1995 SHARES VESTING IN 1996
---- ------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
Amos B. Hostetter, Jr... 123,750 $ 2,400,750 82,500 41,250
Michael J. Ritter....... 107,500 2,085,500 80,000 27,580
William T. Schleyer..... 41,250 800,250 27,500 13,750
Jeffrey T. DeLorme...... 46,475 901,615 26,400 20,075
Nancy Hawthorne......... 28,525 553,385 17,975 10,550
</TABLE>
82
<PAGE>
(4) Includes payment by Continental in the fiscal years ended December 31,
1992, 1993 and 1994, respectively, of premiums for term life insurance on
behalf of the Named Executive Officers: Amos B. Hostetter, Jr. ($1,350,
$1,125 and $1,125), Michael J. Ritter ($856, $720 and $720), William T.
Schleyer ($306, $255 and $255), Jeffrey T. DeLorme ($307, $255 and $255)
and Nancy Hawthorne ($307, $255 and $255). The remaining amounts for the
Named Executive Officers represents the employer matching contribution
under Continental's matched savings plan.
(5) Mr. Ritter retired as the President and Chief Operating Officer, and was
replaced by Mr. Schleyer, effective March 15, 1995.
(6) Represents a one-time reimbursement of moving and related expenses incurred
by Mr. DeLorme in connection with his relocation to Continental's Boston,
Massachusetts office (grossed up for income taxes incurred by Mr. DeLorme).
Compensation Committee Interlocks and Insider Participation. Base annual
compensation for executive officers was determined during the last fiscal year
by the Chairman, the Vice Chairman and the President of Continental. Pursuant
to authority delegated by the Continental Board of Directors, the Chairman also
awarded grants of restricted stock in 1992 and 1995 to key employees designated
by the Continental Board in accordance with Continental's Restricted Stock
Purchase Program. Amos B. Hostetter, Jr., Timothy P. Neher and Michael J.
Ritter, the Chairman, Vice Chairman and President (until March 14, 1995) of
Continental, respectively, are Directors and participate in deliberations
concerning executive officer compensation.
Continental has made loans to these three executive officers and other
persons in amounts equal to the income taxes incurred by them as a result of
their restricted stock purchases. Such loans were financed through cash
provided from operating activities and long-term borrowings. Continental
charges interest on these loans generally at rates ranging from 5% to 8% per
annum and declares bonuses to each of these persons in the amount of the
interest due each year. As of October 1, 1995, the amounts of the loans
outstanding to the three executive officers named above were as follows: Amos
B. Hostetter, Jr. ($3,379,546), Timothy P. Neher ($2,669,856) and Michael J.
Ritter ($1,689,612). Since the beginning of the fiscal year ended December 31,
1992, the largest aggregate amounts of indebtedness of such executive officers
were as follows: Amos B. Hostetter, Jr. ($3,379,546), Timothy P. Neher
($4,057,356) and Michael J. Ritter ($2,020,797). The outstanding principal
balance of each such loan is generally payable upon the earlier to occur of (i)
the fifth anniversary of such loan or (ii) the termination of such person's
employment with Continental. For information regarding loans to other executive
officers, see footnote (1) to the Summary Compensation Table.
On December 31, 1993, Continental accepted payment for loans incurred in
connection with restricted stock purchases pursuant to Continental's 1989
Restricted Stock Purchase Agreement ("RSPA III") which became due on such date
by (i) transfer to Continental and cancellation of vested shares of Common
Stock with a value equal to the loan outstanding, valued at $19.40 per share
(the "Stock-for-Loan Exchange"), (ii) payment in cash or (iii) a combination of
the two. Continental also made an offer (the "RSPA Offer") in January 1994 to
purchase shares of Common Stock up to a maximum of 1,334,975 shares at a
purchase price of $19.40 per share. The persons who were eligible to
participate in the Stock-for-Loan Exchange and to accept the RSPA Offer were
persons who held shares of Common Stock issued pursuant to RSPA III (current or
former employees and family members of employees and former employees). The
valuation of the shares at $19.40 was equal to the price last paid in a private
placement of shares of Class A Common Stock, which was consummated in November
1993. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." The three executive
officers named above repaid the following loan amounts in shares of Common
Stock in the Stock-for-Loan Exchange: Amos B. Hostetter, Jr. ($1,471,936),
Timothy P. Neher ($1,387,500) and Michael J. Ritter ($331,185), and sold the
following number of shares of Common Stock to Continental pursuant to the RSPA
Offer: Amos B. Hostetter, Jr. (0), Timothy P. Neher (29,800) and Michael J.
Ritter (9,925). For information regarding other executive officers, see
"Certain Transactions." In addition, the Hostetter Foundation, an entity
controlled by Mr. Hostetter, sold 29,600 shares of Class B Common Stock to
Continental in January 1994 for a purchase price of $19.40 per share.
Retirement Plans. The following table sets forth, as computed in accordance
with the basic benefit formula employed for purposes of Continental's
Retirement Plan (the "Continental Retirement Plan") and
83
<PAGE>
its Supplemental Executive Retirement Plan ("SERP"), the estimated annual
benefits payable upon retirement to employees of Continental in the following
compensation and years-of-service classifications. Such benefits are before
offset in recognition of the employer contribution toward social security
benefits.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
COMPENSATION 10 15 20 25 30 OR MORE
- ------------ ------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$150,000........................... $14,250 $21,375 $ 28,500 $ 35,625 $ 42,750
$200,000........................... 19,000 28,500 38,000 47,500 57,000
$300,000........................... 28,500 42,750 57,000 71,250 85,500
$400,000........................... 38,000 57,000 76,000 95,000 114,000
$500,000........................... 47,500 71,250 95,000 118,750 142,500
$600,000........................... 57,000 85,500 114,000 142,500 171,000
$700,000........................... 66,500 99,750 133,000 166,250 199,500
</TABLE>
Actual benefits are computed on the basis of (1) .95% of the employee's
average annual compensation less .37% of average annual compensation (limited
to social security covered compensation) multiplied by (2) the number of years
of service (not to exceed thirty years). Average annual compensation is the
average of a participant's compensation for the five consecutive years in which
compensation was the highest.
The SERP, effective in 1995, provides additional retirement benefits for any
employee of Continental whose accrued benefits under the Continental Retirement
Plan are limited by the Internal Revenue Code's (the "Code") limit (currently
$150,000) on compensation which may be taken into account under that plan or by
the Code's Section 415 limit on the size of retirement benefits which may be
funded under that plan. The SERP is an unfunded, non tax-qualified plan which
is intended to create for each participant a benefit upon termination of
employment generally equal in value to the excess of what his accrued vested
benefit in the Continental Retirement Plan would have been without the $150,000
compensation limit and the Section 415 limit on benefits which may be funded,
over the actual benefit under that plan. The benefit under the SERP is payable
upon termination of employment, at the participant's election, in a lump sum or
in equal annual installments (with interest) over 2, 5 or 10 years. A
participant may designate a beneficiary under the SERP to receive his benefit
should he die before its complete pay-out.
The covered compensation for each Named Executive Officer is based upon the
amounts shown in the "Salary" column of the Summary Compensation Table. For
each Named Executive Officer, the current compensation covered by the
Continental Retirement Plan does not differ substantially (by more than 10%)
from the aggregate compensation set forth in the Summary Compensation Table.
The Named Executive Officers have been credited with the following years of
service: Mr. Hostetter, 32 years; Mr. Ritter, 14 years; Mr. Schleyer, 17 years;
Mr. DeLorme, 15 years; and Ms. Hawthorne, 13 years.
COMPENSATION OF DIRECTORS
The members of the Continental Board of Directors who are not officers of
Continental currently receive an annual retainer of $10,000 and a fee of $2,500
for each meeting attended. In addition, Directors who reside outside the
Greater Boston Area are reimbursed for their travel expenses incurred in
connection with attendance at meetings of the Continental Board of Directors.
84
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK AND PREFERRED STOCK
The following table provides information as of October 16, 1995, with respect
to the shares of Common Stock and Series A Preferred Stock beneficially owned
by each person known by Continental to own more than 5% of the outstanding
Common Stock or Series A Preferred Stock, each Director of Continental, each
Named Executive Officer and by all Directors and executive officers of
Continental as a group. None of such persons will be selling shares in the
Offering. The table also reflects percentage of ownership of Common Stock and
percentage voting power after the Offering. As no shares of Preferred Stock
will be issued in the Offering, the percentage ownership of such class will not
change. The number of shares beneficially owned by each Director or executive
officer is determined according to rules of the Commission, and the information
is not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power and
also any shares which the individual or entity has the right to acquire within
60 days of October 16, 1995 through the exercise of an option, conversion
feature or similar right. Except as noted below, each holder has sole voting
and investment power with respect to all shares of Common Stock or Series A
Preferred Stock listed as owned by such person or entity.
85
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF OF OF
SHARES OF PERCENTAGE OF NUMBER OF SHARES OUTSTANDING OUTSTANDING PERCENTAGE
COMMON OUTSTANDING OF SERIES A SERIES A SHARES OF VOTING
STOCK(1) SHARES OF PREFERRED STOCK(2) SHARES OF COMMON POWER
BENEFICIALLY COMMON BENEFICIALLY PREFERRED STOCK AFTER AFTER THE
NAME OWNED STOCK OWNED STOCK THE OFFERING OFFERING
---- ------------ ------------- ------------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Amos B. Hostetter,
Jr.(3)................. 45,272,425 30.58% -- --
Timothy P. Neher(4)..... 1,671,725 1.13 -- --
William T. Schleyer..... 766,200 * -- --
Roy F. Coppedge III(5).. 7,514,075 5.08 -- --
Stephen Hamblett........ 100,305 * -- --
Jonathan H. Kagan(6).... 28,571,450 16.18 1,142,858 100.00%
Robert B. Luick(7)...... 229,575 * -- --
Henry F. McCance(8)..... 258,125 * -- --
Trygve E. Myhren........ 990 * -- --
Lester Pollack(6)....... 28,571,450 16.18 1,142,858 100.00
Michael J. Ritter....... 589,900 * -- --
Vincent J. Ryan(9)...... 5,719,825 3.86 -- --
Jeffrey T. DeLorme...... 391,525 * -- --
Nancy Hawthorne......... 209,325 * -- --
Directors and Executive
Officers as a Group (15
persons)(6)............ 91,474,720 51.80 1,142,858 100.00
H.Irving Grousbeck(10).. 10,033,000 6.78 -- --
Boston Ventures Company
Limited Partnership III
Boston Ventures Limited
Partnership III(11).... 3,034,525 2.05 -- --
Boston Ventures Limited
Partnership IIIA(11).. 799,825 * -- --
Boston Ventures Company
Limited Partnership IV
Boston Ventures Limited
Partnership IV(11).... 2,381,725 1.61 -- --
Boston Ventures Limited
Partnership IVA(11)... 1,298,000 * -- --
---------- ----- --------- ------
Total as a group ...... 7,514,075 5.08 -- 100.00
LFCP Corp. and Corporate
Advisors, L.P.(12)
Corporate Partners,
L.P.(12)............... 18,223,825 10.96 728,953 63.78
Mellon Bank, N.A. as
Trustee for First
Plaza Group
Trust(12)(13)......... 4,285,725 2.81 171,429 15.00
The State Board of
Administration of
Florida(12)........... 1,902,100 1.27 76,084 6.66
Vencap Holdings (1992)
Pte Ltd (12).......... 1,785,700 1.19 71,428 6.25
Corporate Offshore
Partners, L.P.(12).... 1,302,675 * 52,107 4.56
ContCable Co-Investors,
L.P.(12).............. 1,071,425 * 42,857 3.75
---------- ----- --------- ------
Total as a group....... 28,571,450 16.18%(14) 1,142,858 100.00%
</TABLE>
- --------
*Less than 1% of class.
(1) The Common Stock includes Class A Common Stock, which has one vote per
share, and Class B Common Stock, which has ten votes per share. As the
number of shares of Class A Common Stock currently represents 26.23% of
the Common Stock and approximately 2.74% of the voting power of the Common
Stock, the Class A Common Stock has not been shown as a separate class of
stock, but rather Common Stock has been treated as one class. Every
greater than 5% beneficial owner of Class B Common Stock would be a
greater than 5% beneficial owner of Class A Common Stock.
(2) Under the rules for determining beneficial ownership promulgated by the
Commission, each holder of Series A Preferred Stock is deemed to own
currently that number of shares of Common Stock into which the Series A
Preferred Stock is convertible. Each share of the Series A Preferred Stock
is presently convertible into Common Stock on a 25-for-one basis. The
table therefore shows the number of shares of Series A Preferred Stock
owned by each holder in the column for the Series A Preferred Stock and
includes that number of shares in the column for Common Stock into which
the Series A Preferred Stock would be convertible.
86
<PAGE>
(3) Mr. Hostetter has shared voting and investment power as to 42,843,550
shares of Common Stock held by the Amos B. Hostetter, Jr. 1989 Trust of
which Messrs. Hostetter and Neher are the sole trustees. Mr. Hostetter has
shared voting and investment power as to a further 446,400 shares of Common
Stock; as to 223,200 of such shares, he disclaims beneficial ownership.
Additionally, Mr. Hostetter disclaims beneficial ownership of 550,000
shares of Common Stock with respect to which his wife acts as a trustee
with Mr. Neher and 38,950 shares of Common Stock held by him as custodian
for four minor children. The shares listed in the table as being
beneficially owned by Mr. Hostetter include those as to which Mr. Hostetter
has shared voting and/or investment power and those as to which Mr.
Hostetter disclaims beneficial ownership. Mr. Hostetter's address is The
Pilot House, Lewis Wharf, Boston, Massachusetts 02110.
(4) Mr. Neher has shared voting and investment power as to 550,000 shares of
Common Stock with respect to which he acts as a trustee with Mrs.
Hostetter, and as to 42,843,550 shares of Common Stock with respect to
which he acts as a trustee with Mr. Hostetter. Mr. Neher disclaims
beneficial ownership as to such shares, and the table does not indicate
such shares as being beneficially owned by Mr. Neher. See footnote (3)
above. Additionally, Mr. Neher disclaims beneficial ownership as to 165,000
shares with respect to which he acts as trustee and 55,000 shares held by
his wife as custodian for their minor children, which are included in the
table as being beneficially owned by Mr. Neher.
(5) All the shares listed in the table as beneficially owned by Mr. Coppedge
are held by the four limited partnerships described in footnote (11) below.
Mr. Coppedge, a partner of each of the general partners of the limited
partnerships and a Director of Boston Ventures Management, Inc., which
manages the investments of the four limited partnerships, has shared voting
and investment power as to these shares. Mr. Coppedge is entitled to
beneficial ownership of an indeterminate number of these shares and
disclaims beneficial ownership as to the balance. Mr. Coppedge's address is
c/o Boston Ventures Management, Inc., 21 Custom House Street, Boston,
Massachusetts 02110.
(6) All shares listed in the table as being beneficially owned by Mr. Pollack
and Mr. Kagan are beneficially owned by Corporate Advisors. See footnote
(12) below. Mr. Pollack may be deemed to have shared voting and investment
power over such shares as the Chairman and Treasurer and as a Director of
LFCP Corp. and Mr. Kagan may be deemed to have shared voting and investment
power over such shares as the President of LFCP Corp. LFCP Corp. is the
sole general partner of Corporate Advisors and a wholly owned subsidiary of
Lazard. Mr. Pollack and Mr. Kagan are both Managing Directors of Lazard.
Mr. Pollack's and Mr. Kagan's address is c/o Corporate Advisors, L.P., 30
Rockefeller Plaza, New York, New York 10020. Mr. Pollack and Mr. Kagan
disclaim beneficial ownership of all such shares.
(7) The shares listed in the table as being beneficially owned by Mr. Luick
include 73,800 shares owned by Mr. Luick's daughter and 37,500 shares with
respect to which she acts as trustee for Mr. Luick's grandchildren. Mr.
Luick disclaims beneficial ownership of these shares.
(8) The shares listed in the table as being beneficially owned by Mr. McCance
include 225,000 shares held by Greylock Limited Partnership, of which Mr.
McCance is a general partner. Mr. McCance has shared voting and investment
power as to these shares, is entitled to beneficial ownership of an
indeterminate number of these shares and disclaims beneficial ownership as
to the balance. Of the remaining shares, Mr. McCance disclaims beneficial
ownership as to 12,500 shares with respect to which his wife acts as
trustee for his daughter and 12,500 shares held by his daughter.
(9) Mr. Ryan holds 131,125 shares of Common Stock. The remaining shares of
Common Stock listed in the table as being beneficially owned by Mr. Ryan
are held by Schooner Capital Corporation (and its subsidiaries), over
which Mr. Ryan has shared voting and investment power as the Chairman and
principal stockholder.
(10) All of these shares are subject to the Stock Liquidation Agreement
pursuant to which Mr. Grousbeck must sell such shares to Continental in
either 1998 or 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Recent Stock Repurchases and 1998-1999 Share Repurchase
Program." Mr. Grousbeck's address is Room 382, Graduate School of
Business, Stanford University, Stanford, California 94305.
(11) These four limited partnerships may be deemed to be a "group" of persons
acting together for the purpose of acquiring, holding, voting or
disposing of shares of Common Stock. Boston Ventures Company Limited
Partnership III ("BV Co. III"), as the sole general partner of each of
Boston Ventures Limited Partnership III and Boston Ventures Limited
Partnership IIIA, is deemed to be the beneficial owner of the shares held
by such limited partnerships and to have shared voting and investment
power with respect to such shares. Boston Ventures Company Limited
Partnership IV ("BV Co. IV"), as the sole general partner of each of
Boston Ventures Limited Partnership IV and Boston Ventures Limited
Partnership IVA, is deemed to be the beneficial owner of the shares held
by such limited partnerships and to have shared voting and investment
power with respect to such shares. BV Co. III disclaims beneficial
ownership of the shares beneficially owned by BV Co. IV; and BV Co. IV
disclaims beneficial ownership of the shares beneficially owned by BV Co.
III. Mr. Coppedge may be deemed to beneficially own all such shares. See
footnote (5).
(12) These stockholders may be deemed to be a "group" of persons acting
together for the purpose of acquiring, holding, voting or disposing of
shares of Series A Preferred Stock. Corporate Advisors, as the general
partner of Corporate Partners, L.P. ("Corporate Partners") and Corporate
Offshore Partners, L.P. ("Corporate Offshore Partners"), has sole voting
and investment power as to the shares held by them. Corporate Advisors
serves as investment manager over a certain investment management account
for The State Board of Administration of Florida ("SBA") and has sole
voting and dispositive power with respect to the shares of Series A
Preferred Stock held by SBA. Pursuant to the Co-Investment Agreement
dated as of April 27, 1992 (the "Co-Investment Agreement") by and among
Corporate Advisors, Corporate Partners, Corporate Offshore Partners,
First Plaza Group Trust ("FPGT"), Vencap Holdings (1992) Pte. Ltd.
("Vencap") and ContCable Co-Investors, L.P. ("ContCable"), Corporate
Advisors has sole voting and dispositive power with respect to the shares
held by Vencap and ContCable. The address of Corporate Advisors,
Corporate Partners, Corporate Offshore Partners, FPGT, SBA, ContCable and
Vencap is: c/o Corporate Advisors, L.P., 30 Rockefeller Plaza, New York,
New York 10020. See footnote (6) above.
(13) Mellon Bank, N.A. acts as the trustee for FPGT, a trust under and for the
benefit of certain employee benefit plans of General Motors Corporation
and its subsidiaries. The shares listed in the table may be deemed to be
beneficially owned by General Motors
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Investment Management Corporation ("GMIMC"), a wholly owned subsidiary of
General Motors Corporation. GMIMC's principal business is providing
investment advice and investment management services with respect to the
assets of certain employee benefit plans of General Motors Corporation and
its subsidiaries and with respect to the assets of certain direct and
indirect subsidiaries of General Motors Corporation and associated
entities. GMIMC is serving as FPGT's investment manager with respect to
these shares and, in that capacity, it has the sole power to direct Mellon
Bank, N.A. as to the voting and disposition of these shares. Because of its
limited role as trustee, Mellon Bank, N.A. disclaims beneficial ownership
of these shares. Pursuant to the Co-Investment Agreement, FPGT is
obligated, subject to its fiduciary duties under the Employee Retirement
Income Security Act of 1974, as amended, (i) to transfer shares held by it
only in a transaction in which the other parties to the Co-Investment
Agreement participate on a pro rata basis and (ii) to exercise all voting
and other rights with respect to such shares in the same manner as is done
by Corporate Advisors on behalf of Corporate Partners and Corporate
Offshore Partners.
(14) The percentage ownership for the group assumes the conversion of shares
of Series A Preferred Stock into Common Stock by all members of the
group. The percentage ownership for each individual member of the group
assumes conversion by only that stockholder.
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CERTAIN TRANSACTIONS
On June 22, 1992, Continental sold 1,142,858 shares of Series A Preferred
Stock to a group of investors, including 728,953 shares to Corporate Partners
for a purchase price of $255,133,550 and 52,107 shares to Corporate Offshore
Partners for a purchase price of $18,237,450, both of which are investment
partnerships affiliated with Lazard. Lester Pollack, a Director of Continental,
is Senior Managing Director of Corporate Advisors and a Managing Director of
Lazard. Jonathan H. Kagan, a Director of Continental, is Managing Director of
Corporate Advisors and a Managing Director of Lazard.
Corporate Advisors is the sole general partner of Corporate Partners and
Corporate Offshore Partners. A wholly owned subsidiary of Lazard is the sole
general partner of Corporate Advisors. Corporate Advisors is also an investment
manager for the SBA, which purchased 76,084 shares of Series A Preferred Stock
in a private placement subject to its investment management agreement with
Corporate Advisors. Certain entities controlled by Lazard also own limited
partnership interests in Corporate Partners and Corporate Advisors.
On June 22, 1992, Continental sold 42,857 shares of Series A Preferred Stock
to ContCable for a purchase price of $14,999,950. ContCable is an affiliate of
Chemical Bank, a co-agent of the 1994 Credit Facility, an agent of the 1995
Credit Facility and a provider of other banking services to Continental.
On July 15, 1992, Continental sold 3,034,525 shares of Class B Common Stock
to Boston Ventures Limited Partnership III for a purchase price of $39,570,206
and 799,825 shares to Boston Ventures Limited Partnership IIIA for $10,429,718.
On November 17, 1992, Continental sold 1,923,350 shares of Class B Common Stock
to Boston Ventures Limited Partnership IV for $26,134,480 and 1,756,375 shares
to Boston Ventures Limited Partnership IVA for $23,865,623. Roy F. Coppedge
III, a Director of Continental, is a general partner of each of the general
partners of these four limited partnerships and a Director of Boston Ventures
Management, Inc., which manages their investments.
Lazard received fees from Continental in an aggregate amount of approximately
$8.8 million for its services as an underwriter of $400.0 million of senior
subordinated notes and debentures and as agent in connection with private
placements involving the Continental Preferred Stock Investors and the Boston
Ventures Investors, and for certain other investment banking services during
the year ended December 31, 1992. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Lazard also received fees and underwriting discounts from Continental in an
aggregate amount of $7.4 million for its services as an underwriter to
Continental of $1.4 billion of senior notes and debentures during the year
ended December 31, 1993.
Lazard acted as a financial advisor to Continental in connection with the
negotiations and the consummation of the transactions with Providence Journal,
and, for such services, received a fee of $5.5 million. Continental also agreed
to reimburse Lazard for its reasonable out-of-pocket expenses, including fees
and expenses of legal counsel.
For a discussion of loans made to executive officers of Continental in
connection with Continental's Restricted Stock Purchase Program, see footnote
(1) to the Summary Compensation Table and "Compensation Committee Interlocks
and Insider Participation." For a description of Continental's Stock-for-Loan
Exchange and the RSPA Offer to repurchase shares of Common Stock, and
information regarding certain executive officers who are Directors
participating therein, see "Compensation Committee Interlocks and Insider
Participation." The following executive officers who are not Directors of
Continental participated in the Stock-for-Loan Exchange in the following
amounts: William T. Schleyer ($291,000), Jeffrey T. DeLorme ($155,000), Ronald
H. Cooper ($159,497) and Nancy Hawthorne ($274,464). In addition, William T.
Schleyer made a cash payment for the remaining $141,063 of his outstanding loan
incurred in connection with restricted stock purchases pursuant to RSPA III.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of Continental and certain
provisions of the Company's Restated Certificate and By-Laws is a summary and
is qualified in its entirety by the Restated Certificate and the By-Laws, which
documents are incorporated herein by reference.
The authorized capital stock of Continental consists of 425 million shares of
Class A Common Stock, 200 million shares of Class B Common Stock and 200
million shares of Preferred Stock, of which 1,142,858 shares have been
designated Series A Preferred Stock. As of October 16, 1995, there were
outstanding 38,828,632 shares of Class A Common Stock held by 639 holders of
record and 109,196,050 shares of Class B Common Stock. Certain stockholders
hold both Class A Common Stock and Class B Common Stock.
COMMON STOCK
Dividends. Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by Continental's Board of Directors out of funds
legally available for such purpose, but only after payment of dividends
required to be paid on outstanding shares of any other class or series of stock
having preference over Common Stock as to dividends, including the Series A
Preferred Stock. No dividend may be declared or paid in cash or property on
either class of Common Stock unless simultaneously the same dividend is
declared or paid on each share of the other class of Common Stock. In the case
of a stock dividend, holders of Class A Common Stock are entitled to receive
the same dividends, payable in Class A Common Stock, as the holders of Class B
Common Stock receive, payable in Class B Common Stock. Continental's ability to
pay cash dividends on its capital stock is subject to certain restrictions set
forth in its credit agreements. See "Credit Arrangements of the Company."
Voting Rights. Subject to voting rights granted to holders of the Preferred
Stock, including the holders of the Series A Preferred Stock who currently vote
as if they had converted each of their shares into 25 shares of Class B Common
Stock, holders of Class A Common Stock and Class B Common Stock vote as a
single class on all matters submitted to a vote of the stockholders, with each
share of Class A Common Stock entitled to one vote and each share of Class B
Common Stock entitled to ten votes. For a detailed description of voting rights
of the Preferred Stock, see "Series A Preferred Stock."
Under the Restated Certificate, the vote of holders of at least 66 2/3% of
the total votes of all outstanding voting stock (the "Voting Stock") is
required for the amendment or repeal of, or the adoption of any provision
inconsistent with, provisions in the Restated Certificate establishing a
classified Board of Directors, or provisions of the Restated Certificate
authorizing the Preferred Stock and Common Stock or specifying the terms of the
Class A Common Stock and the Class B Common Stock (including an amendment to
increase any shares of authorized capital stock). In addition to voting
together with all other shares of Voting Stock and in addition to any special
rights that the Series A Preferred Stock has as a series, the Preferred Stock
has, under the DGCL, a separate majority class vote with respect to any
amendment to the Restated Certificate to increase or decrease the authorized
shares of Preferred Stock, increase or decrease the par value of the shares of
such class or alter or change the powers, preferences or special rights of such
class so as to adversely affect it. Certain other provisions also require a 66
2/3% vote. See "DGCL and Certain Provisions of the Restated Certificate and the
By-Laws." There are no cumulative voting rights in the election of the
Continental Board of Directors.
Liquidation Rights. Upon liquidation, dissolution or winding up of
Continental, the holders of Class A Common Stock are entitled to share ratably
with the holders of Class B Common Stock in all assets available for
distribution after payment in full of amounts owing to creditors and holders of
the Preferred Stock. Thereafter, any remaining amount would be shared ratably
by both classes of Common Stock. Redeemable Common Stock shares ratably with
other Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
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Restrictions on Transfer of Continental Class B Common Stock and
Convertibility of Continental Class B Common Stock. The Class B Common Stock is
not transferable by a stockholder except to a "Permitted Class B Transferee"
(which term is defined generally below) of a "Class B Holder" (which term is
defined below). Accordingly, no trading market has or will develop in the Class
B Common Stock, and the Class B Common Stock will not be listed or traded on
any exchange or in any market. Any purported transfer of the economic, record
or beneficial ownership of shares of Class B Common Stock not permitted under
the Restated Certificate will result in the automatic conversion of such shares
into shares of Class A Common Stock, effective on the date of such purported
transfer. Each share of Class B Common Stock is convertible at any time at the
option of the holder into one share of Class A Common Stock.
Other than pursuant to conversions of Class B Common Stock into Class A
Common Stock as described above, shares of Class B Common Stock may be
transferred only to a Permitted Class B Transferee of the economic owner of
such shares of Class B Common Stock (the "Class B Holder"). An "economic owner"
is defined as a person who has a direct or indirect pecuniary interest in the
shares. "Permitted Class B Transferees" of a Class B Holder are generally
defined as certain affiliates of Class B Holders, such as family members,
family and other trusts controlled by the Class B Holder and other entities
controlled or owned by a Class B Holder or a Permitted Class B Transferee of
such Class B Holder.
Conversion of Class B Common Stock upon Certain Other Events. If at any time
(i) the number of outstanding shares of Class B Common Stock falls below 7 1/2%
of the aggregate number of issued and outstanding shares of Common Stock or
(ii) the Continental Board of Directors and the holders of a majority of the
outstanding shares of Class B Common Stock approve the conversion of all of the
Class B Common Stock into Class A Common Stock, then each outstanding share of
Class B Common Stock shall be converted into one share of Class A Common Stock
without further action by Continental or its stockholders.
Other Provisions. The Continental Board of Directors has the power to issue
shares of authorized but unissued Class A Common Stock, Class B Common Stock
and Preferred Stock without further stockholder action. Neither the holders of
Common Stock nor the holders of the Series A Preferred Stock are entitled to
preemptive or similar rights.
UNISSUED PREFERRED STOCK
The 198,857,142 shares of authorized and unissued Preferred Stock may be
issued with such designations, powers, preferences and other rights and
qualifications, limitations and restrictions thereon as the Continental Board
of Directors may authorize without further action by Continental's
stockholders, including but not limited to: (i) the designation of each series
and the number of shares that will constitute such series; (ii) the voting
rights, if any, of shares of such series; (iii) the dividend rate on the shares
of such series; restrictions, limitations or conditions upon the payment of
such dividends; and whether dividends shall be cumulative and the dates on
which dividends are payable; (iv) the prices at which, and the terms and
conditions on which, the shares of such series may be redeemed, if such shares
are redeemable; (v) the purchase or sinking fund provisions, if any, for the
purchase or redemption of shares of such series; (vi) any preferential amount
payable upon shares of such series in the event of the liquidation, dissolution
or winding up of Continental or the distribution of its assets; and (vii) the
prices or rates of conversion at which, and the terms and conditions on which,
the shares of such series may be converted into other securities, if such
shares are convertible. The rights of holders of shares of Common Stock as
described above will be subject to, and may be adversely affected by, the
rights of holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock may also have the effect of delaying, deferring or
preventing a change of control of Continental or other corporate actions.
SERIES A PREFERRED STOCK
The terms of the Series A Preferred Stock are set forth in a Certificate of
Designation that constitutes part of the Restated Certificate (the "Series A
Certificate of Designation"). All of the 1,142,858 shares of
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Preferred Stock that have been designated Series A Preferred Stock were issued
in a private placement that closed on June 22, 1992 for a purchase price per
share of $350 pursuant to a Stock Purchase Agreement by and between Continental
and the Continental Preferred Stock Investors (the "Preferred Stock Purchase
Agreement") and are still held by the Continental Preferred Stock Investors.
Dividends. The Series A Preferred Stock participates in all dividends (other
than dividends payable in shares of Common Stock) declared by the Continental
Board of Directors on the Common Stock as if such shares had been converted
into shares of Common Stock. The holders of Series A Preferred Stock are
entitled to receive payment of any dividend declared, (other than dividends
payable in shares of Common Stock) before any payment of such dividend is made
to the holders of Common Stock.
Voting Rights. The shares of Series A Preferred Stock are entitled to vote
together as a single class with the Common Stock on all matters voted on by
holders of Common Stock; each holder of Series A Preferred Stock is entitled to
cast the number of votes equal to the number of votes that could be cast by the
shares of Common Stock into which such holder's shares of Series A Preferred
Stock are then convertible. As long as each Continental Preferred Stock
Investor or its Allowed Transferees (as defined in "Conversion" below)
continues to hold its shares and to meet certain other requirements, each share
of Series A Preferred Stock will be entitled to 250 votes per share. See
"Conversion" below. If shares of Series A Preferred Stock are transferred to
persons other than Allowed Transferees, or if, under certain circumstances,
Corporate Advisors ceases to have voting and dispositive power over such
shares, such shares will be entitled to only 25 votes per share and will be
convertible at any time only into Class A Common Stock. See "Conversion" below.
The Series A Preferred Stock has separate voting rights as a series with
respect to certain matters. The affirmative vote of 66 2/3% of the Series A
Preferred Stock is necessary (A) to increase the authorized number of or issue
any additional shares of Series A Preferred Stock, (B) to change by amendment
to the Restated Certificate the aggregate authorized number or par value of the
Series A Preferred Stock or the powers, preferences or special rights of the
Series A Preferred Stock so as to affect the Series A Preferred Stock
adversely, or (C) to purchase any Series A Preferred Stock when dividends on
the Series A Preferred Stock are in arrears or there is a redemption default.
The Series A Preferred Stock also has separate class voting rights under the
DGCL as to (i) an increase or decrease in authorized shares of Preferred Stock,
(ii) an increase or decrease in the par value of shares of Preferred Stock and
(iii) an alteration or change in the powers, preferences or special rights of
Preferred Stock that would have an adverse effect on such class.
Board Representation. Corporate Advisors, on behalf of the Continental
Preferred Stock Investors has the right to designate two persons to be
nominated to serve on Continental's Board of Directors. See "Management--
Directors, Executive Officers and Other Officers." Mr. Hostetter has
contractually agreed to vote all shares of Common Stock owned by him in favor
of such nominees. The number of Directors Corporate Advisors is entitled to
designate for election is reduced to one if the Continental Preferred Stock
Investors do not beneficially own at least a 10% economic ownership interest in
Continental's then outstanding Voting Stock and to zero if the Continental
Preferred Stock Investors' economic ownership interest is less than 5% of
Continental's then outstanding Voting Stock (unless such reduction is caused by
Continental's issuance of additional Voting Stock).
In addition, holders of Series A Preferred Stock have the right (voting
separately as a class or as a class with the holders of any other capital stock
of Continental ranking on parity, either as to dividends or upon liquidation,
dissolution or winding up with the Series A Preferred Stock if such holders are
then entitled to elect additional Directors pursuant to any similar provision
of the Certificate of Designation for such stock) to elect two additional
Directors to the Continental Board of Directors ("Directors Upon Default") in
the event of (a) a breach by Continental of the Preferred Stock Purchase
Agreement or (b) a failure to declare or pay dividends or distributions on the
Series A Preferred Stock in accordance with "Dividends" above or to redeem
shares of Series A Preferred Stock when required. Upon such election, if the
Continental Preferred
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Stock Investors have two designees already serving on the Continental Board of
Directors one such designee must resign. Such right to designate two Directors
Upon Default continues until such time as Continental has cured the default, at
which time such Directors Upon Default must resign. Upon such resignation, the
Continental Preferred Stock Investors are entitled to designate an additional
Director to the extent they are entitled otherwise then to nominate two
representatives to the Continental Board of Directors.
Liquidation Preference. Upon any liquidation, dissolution or winding up of
Continental, holders of shares of Series A Preferred Stock are entitled to
receive an amount per share equal to the greater of (i) the Accreted Value (as
defined in "Redemption Rights" below) determined as of the date of such
liquidation, dissolution or winding up and (ii) the aggregate amount that would
be distributable to holders of Common Stock in respect of the number of shares
of Common Stock into which a share of Series A Preferred Stock is then
convertible, plus, in either case, unpaid dividends, if any, that have been
declared and are payable on the Series A Preferred Stock.
Redemption Rights. On June 22, 2002, any holder of the Series A Preferred
Stock has the right to cause Continental to redeem its Series A Preferred Stock
at a price per share (the "Series A Redemption Price") equal to $350 plus an
amount calculated to provide such holder with a yield of 8% thereon from June
22, 1992, compounded semi-annually in arrears, as adjusted to reflect any cash
dividends paid on the Series A Preferred Stock (the "Accreted Value").
Continental has the right to redeem all (but not less than all) of the Series A
Preferred Stock at the Series A Redemption Price by notifying the holders of
the Series A Preferred Stock of such election not more than 30 or less than 20
trading days prior to June 22, 2002. Continental may elect to pay all or any
portion of the Series A Redemption Price (other than unpaid dividends) in cash
or in shares of Common Stock based on the then current market value (determined
in accordance with the provisions set forth in the Restated Certificate) of the
Common Stock. If Continental does not exercise its redemption rights prior to
June 22, 2002, Continental will have the right on such date to redeem all (but
not less than all) of the Series A Preferred Stock not put to Continental by
the holders thereof on June 22, 2002, at a price per share equal to the
Accreted Value up to and including the date of redemption, which may be paid at
Continental's election, in cash or in shares of Common Stock or any combination
thereof.
At any time after June 22, 1997, provided that the current market value
(determined in accordance with the provisions set forth in the Restated
Certificate) of the number of shares of Common Stock into which a share of
Series A Preferred Stock is then convertible exceeds 137.5% of the then
Accreted Value (as of the date notice of conversion is given), Continental may
cause all (but not less than all) of the outstanding shares of Series A
Preferred Stock to be converted into Common Stock. As of June 22, 1997 the
Accreted Value will be $592.2 million. Therefore, in order for the Company to
cause conversion of the Series A Preferred Stock, the value of the Common Stock
would have to be at least $28.50 per share.
Conversion. Each share of Series A Preferred Stock is currently convertible
at the option of the holder at any time into 25 shares of Common Stock. If the
holder is one of the Continental Preferred Stock Investors (i.e. one of the
original purchasers) or an Allowed Transferee of a Continental Preferred Stock
Investor (which term has the same meaning as that ascribed to a Permitted Class
B Transferee, see "Restrictions on Transfer of Class B Common Stock and
Convertibility of Class B Common Stock"), such holder is entitled to receive
shares of Class B Common Stock upon conversion; otherwise the holder will
receive shares of Class A Common Stock.
If a capital reorganization or certain reclassification of Common Stock or
the consolidation or merger of Continental with any other entity or the sale or
conveyance of all or substantially all the assets of Continental occurs, each
share of Series A Preferred Stock will thereafter be convertible into the kind
and amount of securities and property (including cash) receivable upon such
event by a holder of that number of shares of Common Stock into which such
share of Series A Preferred Stock was convertible immediately prior to such
event.
Change of Control. If a Change of Control (as defined below) of Continental
occurs and at such time the current market value of the number of shares of
Common Stock into which the Series A Preferred Stock
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is then convertible is less than the then Accreted Value of the Series A
Preferred Stock, the holders of Series A Preferred Stock have the right to
require Continental to redeem the Series A Preferred Stock at a per share price
equal to the then Series A Redemption Price.
Continental may elect to redeem the Series A Preferred Stock by paying the
Series A Redemption Price in cash or Common Stock which, for purposes of
determining the number of shares to be issued, will be valued at 90% of its
then current market value (as determined in accordance with provisions set
forth in the Restated Certificate).
"Change of Control" means: (a) the acquisition by any individual, entity or
group of 50% or more of the combined voting or economic power of the then
outstanding Continental Voting Stock, but excluding, for this purpose, any such
acquisition by (i) Continental or any of its subsidiaries or (ii) any
corporation with respect to which, following such acquisition, more than 50% of
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of Directors is then
beneficially owned, directly or indirectly, by individuals and entities who
were the beneficial owners of Continental Voting Stock in substantially the
same proportion as their ownership, immediately prior to such acquisition; or
(b) approval by the stockholders of Continental of a reorganization, merger or
consolidation, in each case, with respect to which all or substantially all the
individuals and entities who were the respective beneficial owners of the
Voting Stock of Continental immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 50% of the combined voting
or economic power of the then outstanding Continental Voting Stock of the
combined corporation; or (c) the sale or other disposition of all or
substantially all the assets of Continental in one transaction or series of
related transactions.
Restrictions on Continental. If (a) Continental breaches its obligations
under the Preferred Stock Purchase Agreement, (b) any dividends or
distributions payable on the Series A Preferred Stock have not been declared or
paid or (c) shares of Series A Preferred Stock have not been redeemed as
required, neither Continental nor any of its affiliates, subject to certain
exceptions, can (i) declare or pay dividends or make any distribution on any
capital stock ranking junior to (including the Common Stock) or on a parity
with the Series A Preferred Stock, (ii) redeem or otherwise acquire any capital
stock ranking junior to or on a parity with the Series A Preferred Stock or
make any sinking fund or similar payment thereon or (iii) make any loan or
advance to any stockholder of Continental or any affiliates or associates
thereof.
Ranking with Other Preferred Stock. Continental may not issue a series or
class of convertible Preferred Stock that ranks prior to the Series A Preferred
Stock with respect to dividends, liquidation preference, or rights upon
dissolution and winding up.
DGCL AND CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE AND THE BY-LAWS
The Restated Certificate and the By-Laws contain certain provisions that
could delay or make more difficult the acquisition of Continental by means of a
tender offer, a proxy contest or otherwise. These provisions, as described
below, are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire
control of Continental first to negotiate with Continental. Continental
believes that the benefits of increased protection of Continental's ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure Continental outweigh the disadvantages of discouraging
such proposals because, among other things, negotiations with respect to such
proposals could result in an improvement of their terms.
Classified Board of Directors. The Restated Certificate and the By-Laws
provide for a Board of Directors that is divided into three classes of
Directors, with the term of each class expiring in a different year. See
"Management--Directors, Executive Officers and Other Officers." The By-Laws
provide that the number of Directors will be fixed from time to time
exclusively by the Continental Board, but shall consist of not less than three
Directors. The classified Board is intended to promote continuity and stability
of
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Continental's management and policies since a majority of the Directors at any
given time will have prior experience as Directors of Continental. Such
continuity and stability facilitates long-range planning of Continental's
business and ensures the quality of Continental's business operations. The
classification of Directors has the effect of making it more difficult to
change the composition of the Continental Board of Directors. At least two
annual stockholder meetings, instead of one, would be required to effect a
change in the majority control of the Continental Board, except in the event of
vacancies resulting from removal (in which case the remaining Directors will
fill the vacancies so created). See "Removal of Directors; Filling Vacancies on
the Continental Board of Directors."
Removal of Directors; Filling Vacancies on the Continental Board of
Directors. Pursuant to the DGCL, a member of the Board of Directors of a
corporation with a classified board may be removed by the stockholders only for
cause, at any time during his term of office by affirmative vote of the holders
of a majority of the shares then entitled to vote at an election of Directors.
The By-Laws and the Restated Certificate both provide that a vacancy on the
Continental Board, including a vacancy created by an increase in the size of
the Continental Board by the Directors, may be filled by a majority of the
remaining Directors or by a sole remaining Director, and if no Directors
remain, then by the stockholders. The Restated Certificate also provides that
any Director elected by the Continental Board to replace another Director of a
given class of Directors will hold office until the next election of such class
of Directors. These provisions are to ensure that a third-party would be
precluded from removing incumbent Directors and simultaneously gaining control
of the Continental Board by filling the vacancies created by such removal with
its own nominees. Moreover, even if a majority of the holders of the
outstanding Continental Voting Stock were to vote to remove Directors for
cause, only the remaining Directors would have the power to fill the vacancies
created by such removal, unless such vote provided for the removal of the
entire Continental Board of Directors for cause.
Amendment of Certain Provisions of the Restated Certificate and the By-
Laws. The Restated Certificate and the By-Laws contain provisions requiring the
affirmative vote of the holders of at least 66 2/3% of the Continental Voting
Stock, voting together as a single class, to amend certain provisions of the
Restated Certificate and the By-Laws. In addition to the provisions described
under "Common Stock--Voting Rights" above, this super-majority voting provision
also applies to (i) the provisions of the Restated Certificate authorizing
Continental to release the Directors of Continental from any liability for
monetary damages as a result of any breach of their fiduciary duties, with
certain exceptions mandated by the DGCL, (ii) the provisions allowing for the
indemnification of officers and Directors of Continental, and (iii) the
provisions imposing certain restrictions on Continental's stock to prevent any
violations of governmental regulations. Finally, the Restated Certificate
provides that the By-Laws may be amended only by a majority of the full
Continental Board of Directors or by the holders of at least 66 2/3% of the
total votes of all outstanding Continental Voting Stock. The DGCL provides that
by-laws may not be amended by a corporation's Board of Directors unless the
corporation's certificate of incorporation expressly authorizes such amendments
by the Board of Directors; the Restated Certificate includes such a provision.
Provisions Relating to Governmental Regulations. The Restated Certificate
includes provisions designed to ensure that the ownership or purchase of
Continental's shares in the public market or otherwise will not result in a
violation of any laws or regulations that would materially adversely affect
Continental's business. Specifically, Continental may seek information from
stockholders and persons to whom shares of Continental's capital stock are
proposed to be transferred in order to ascertain whether ownership of
Continental's shares by such persons would violate such laws or regulations. If
any person refuses to provide such information or Continental concludes in its
good faith judgment that such ownership would result in the violation of such
laws and regulations, Continental may (a) refuse to transfer shares to such
person, (b) refuse to allow such stockholder to exercise such rights with
respect to Continental's shares as would result in such violation or (c) redeem
such shares for cash or certain other securities, as provided in the Restated
Certificate.
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Continental may redeem shares of Continental's capital stock to the extent
necessary to prevent the loss or secure the reinstatement of any license or
franchise from any governmental agency held by Continental to conduct any
material portion of Continental's business in accordance with the terms that
are summarized in general as follows:
(1) the redemption price of the shares to be redeemed would be equal to
the lesser of (x) fair market value (as defined in the Restated
Certificate) or (y) if such stock was purchased by the stockholder within
one year of the redemption date, the price such stockholder paid for such
shares;
(2) the redemption price of such shares may be paid in cash, certain
securities of Continental, or any combination thereof; and
(3) Continental shall give thirty (30) days' written notice of such
redemption.
Each certificate representing shares of Preferred Stock, Class A Common Stock
and Class B Common Stock must bear a legend indicating that the shares are
subject to these restrictions on their transfer and these redemption rights.
Anti-Takeover Statute. Subject to certain exceptions set forth therein,
Section 203 of the DGCL provides that a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the date that such stockholder becomes an interested stockholder
unless (a) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder, (b) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares) or (c) on or subsequent to such date, the business combination
is approved by the Board of Directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Except as specified therein, an interested
stockholder is defined to mean any person that (i) is the owner of 15% or more
of the outstanding voting stock of the corporation, or (ii) is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date, or any affiliate or associate of such
person referred to in (i) or (ii) of this sentence. Under certain
circumstances, Section 203 of the DGCL makes it more difficult for an
interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may, by adopting
an amendment to the corporation's certificate of incorporation or by-laws,
elect not to be governed by this section, effective twelve months after
adoption. The Restated Certificate and the By-Laws do not exclude Continental
from the restrictions imposed under Section 203 of the DGCL. It is anticipated
that the provisions of Section 203 of the DGCL may encourage companies
interested in acquiring Continental to negotiate in advance with the
Continental Board.
TRANSFER AGENT
The Bank of New York serves as the Transfer Agent and Registrar for the Class
A Common Stock.
CREDIT ARRANGEMENTS OF THE COMPANY
The following is a summary description of the various material credit
arrangements which Continental has entered into with its lenders or, in the
case of the 1995 Credit Facility, which it has arranged on behalf of certain of
its subsidiaries. The summary does not purport to be complete and is qualified
in its entirety by reference to such agreements. Copies of such agreements have
been filed as exhibits or are incorporated by reference as exhibits to the
Registration Statement of which this Prospectus forms a part.
1994 Credit Facility. Continental and certain of its subsidiaries (the
"Restricted Group") are parties to the 1994 Credit Facility with various
financial institutions, which provides for revolving credit availability
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to Continental of $2.2 billion. Credit availability under the 1994 Credit
Facility will decrease on a schedule commencing December 31, 1997 with annual
reductions on each December 31 thereafter, with a final maturity of October 10,
2003. As of October 16, 1995, Continental had credit availability of $169.4
million under the 1994 Credit Facility. Continental's obligations under the
1994 Credit Facility are guaranteed by certain of its subsidiaries ("Restricted
Subsidiaries"), which are part of the Restricted Group.
The interest rates on indebtedness outstanding under the 1994 Credit Facility
fluctuate and are based, at Continental's election, on the "base" rate of the
agent, as from time to time in effect, or may be fixed for periods of up to 60
months based on the prevailing interest rates in selected interbank Eurodollar
markets ("Eurodollar" rates). Continental is required to pay a spread or margin
over these rates, which varies depending on the ratio of the consolidated total
debt of the Restricted Group, minus cash and certain cash equivalents held by
the Restricted Group ("Consolidated Total Debt"), to annualized consolidated
operating income, including income on account of management fees, before
depreciation, amortization, restricted stock purchase program, non-cash
regulatory reserves and non-operating expenses, interest and income taxes of
the Restricted Group ("Consolidated Operating Income"). The margins currently
in effect are .375% for base rate borrowings and 1.625% for Eurodollar
borrowings.
In accordance with the 1994 Credit Facility, Continental is required to
maintain interest rate protection (including fixed interest rate indebtedness)
covering a minimum of 50% of Consolidated Total Debt when the ratio of
Consolidated Total Debt to Consolidated Operating Income exceeds certain
levels. As of June 30, 1995, Continental's ratio of fixed interest rate debt
(which factors in Swaps, Caps and debt fixed by its terms) to total debt was
approximately 56%. Continental's policy is to use interest rate protection
products in order to hedge its interest rate risk. See "Liquidity and Capital
Resources--Interest Rate Protection Products."
Prepayments of borrowings under the 1994 Credit Facility are required in
certain circumstances out of a portion of the proceeds of certain sales of
Restricted Group assets.
In addition to customary financial covenants, covenants restricting the
incurrence of debt, investments and encumbrances on assets, and covenants
limiting mergers and acquisitions, the 1994 Credit Facility provides that (i)
the Restricted Group may not purchase or redeem, or pay cash dividends on,
capital stock of Continental and (ii) a Restricted Subsidiary may not pay cash
dividends on its capital stock (other than dividends paid to Continental or
another Restricted Subsidiary) if, at the time of such payment and giving
effect thereto, (i) there exists any default under the 1994 Credit Facility
(including defaults arising because of the existence of defaults under other
instruments relating to indebtedness) or (ii) the aggregate of all amounts
spent since June 30, 1994 for such repurchases of and dividends on capital
stock would exceed the sum of (a) $400.0 million plus (b) the excess, if any,
of (I) Consolidated Operating Income after June 30, 1994 over (II) 120% of
consolidated interest expense (all interest accruable or paid in cash by the
Restricted Group, including payments in the nature of interest under
capitalized leases) incurred after that date, plus (c) the aggregate net
proceeds received by Continental since June 30, 1994 from the issuance or sale
of capital stock of Continental. Approximately $610.2 million was available as
of June 30, 1995 for payments subject to this test.
In addition to customary events of default, it is an event of default under
the 1994 Credit Facility if Amos B. Hostetter, Jr., certain of his permitted
transferees and the other officers of Continental and its subsidiaries
(collectively, the "Management Group") fail to own at least 25% of the voting
power of Continental's capital stock; provided that such percentage may fall
below 25% after an offering and sale of capital stock of Continental so long as
the Management Group maintains a block of voting power larger than any block of
voting power held by any other person, together with such person's affiliates
and any members of a group with such person. After giving effect to the
issuance of Class A Common Stock pursuant to the Offering, Continental
anticipates that the Management Group will hold greater than 25% of the voting
power of Continental's capital stock.
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1995 Credit Facility. Continental recently arranged the 1995 Credit Facility
on behalf of certain of its subsidiaries. The 1995 Credit Facility provides
such subsidiaries, (collectively, the "Borrowers"), with maximum credit
availability of $1.2 billion. The following discussion summarizes certain
material terms of the 1995 Credit Facility, which generally contains terms and
conditions similar to those contained in the 1994 Credit Facility. Neither
Continental nor any other member of the Restricted Group has any obligations in
respect of the 1995 Credit Facility.
Borrowings under the 1995 Credit Facility were and will be used to fund (1)
approximately $410.0 million of the Providence Journal liabilities discharged
in connection with the Merger, (2) the purchase of cable television systems
from a subsidiary of Providence Journal for $405.0 million, (3) the acquisition
of Columbia Cable of Michigan for approximately $155.0 million, (4) the Pending
N-COM Buyout for approximately $85.0 million, and (5) general corporate
purposes of the Borrowers and their subsidiaries (collectively, the "New
Borrowing Group"), which includes future capital expenditures of Providence
Journal Cable, Columbia Cable of Michigan, and N-COM. See "Business--U.S.
Acquisitions and Investments--Providence Journal Merger". Each Borrower
guarantees each other Borrower's obligations under the 1995 Credit Facility,
and any subsidiaries of the Borrowers that subsequently become party to the
facility guarantee such obligations.
See "Business--U.S. Acquisitions and Investments." Borrowings under the 1995
Credit Facility are available to the Borrowers on a revolving basis. Credit
availability will decrease on a schedule commencing December 31, 1998 with
annual reductions each December 31 thereafter, and a final maturity date of
September 30, 2004.
As with the 1994 Credit Facility, the interest rates on indebtedness
outstanding under the 1995 Credit Facility fluctuate and are based, at the New
Borrowing Group's election, on the "base" rate of the agent, as from time to
time in effect, or may be fixed for periods of up to 60 months based on the
prevailing Eurodollar rates. The New Borrowing Group is required to pay a
spread or margin over these rates which varies depending on the ratio of the
combined total debt of the New Borrowing Group, minus cash and certain cash
equivalents of the New Borrowing Group ("Combined Total Debt"), to annualized
combined operating income of the New Borrowing Group, before depreciation,
amortization, non-cash regulatory reserves and non-operating expenses, interest
and income taxes of the New Borrowing Group ("Combined Operating Income").
The New Borrowing Group is required to maintain interest rate protection
(including fixed interest rate indebtedness) covering a minimum of 50% of
Combined Total Debt when the ratio of Combined Total Debt to Combined Operating
Income exceeds certain levels. The New Borrowing Group will use interest rate
protection products consistent with Continental's existing policy to hedge its
interest rate risk and to comply with such covenant.
In addition to customary financial covenants similar to those found in the
1994 Credit Facility, the 1995 Credit Facility prohibits the New Borrowing
Group from purchasing or redeeming, or paying cash dividends on, its capital
stock (other than, so long as no event of default results therefrom, certain
subordinated debt payments, the purchase of minority interests in any member of
the New Borrowing Group, dividends paid to another member of the New Borrowing
Group and certain dividends paid in respect of minority interests) when the
ratio of Combined Total Debt to Combined Operating Income exceeds 5.0 to 1. The
1995 Credit Facility does not impose any restrictions (other than that no
default exists) on any such dividend, purchase or redemption at any time when
the ratio of Combined Total Debt to Combined Operating Income is less than 5.0
to 1; provided, however, that the New Borrowing Group is required to
permanently reduce the 1995 Credit Facility in an amount equal to the amount of
any cash dividends paid or stock repurchases or redemptions made by the New
Borrowing Group.
Prepayments of outstanding borrowings under the 1995 Credit Facility are
required out of a portion of the proceeds of certain sales of New Borrowing
Group assets and of certain additional indebtedness.
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In addition to customary events of default, it is an event of default under
the 1995 Credit Facility (1) if Continental fails to own directly or indirectly
at least 80% of the voting power of each Borrower's capital stock, and (2) if
the Management Group fails to own at least 25% of the voting power of
Continental's capital stock; provided that such percentage may fall below 25%
so long as the Management Group maintains a block of voting power larger than
any block of voting power held by any other person, together with such person's
affiliates and any members of a group with such person and (3) cable television
franchises covering 25% (15% under certain circumstances) of the New Borrowing
Group shall have expired or been terminated without renewal, extension or
replacement.
Indentures for Notes and Debentures. Continental is currently party to
indentures for the following debt securities (collectively, the "Notes and
Debentures"):
(i) $300.0 million of 9% Debentures due September 1, 2008; $100.0 million
of 8 5/8% Notes due August 15, 2003; $200.0 million of 8 1/2% Notes due
September 15, 2001; and $275.0 million of 8 7/8% Debentures due September
15, 2005 (collectively, the "Non-Callable Notes and Debentures"); and
(ii) the Prudential Notes; $300.0 million of 11% Debentures due June 1,
2007; $100.0 million of 10 5/8% Notes due June 15, 2002; $525.0 million of
9 1/2% Debentures due August 1, 2013 and $100.0 million of the Floating
Rate Debentures which currently bear interest at a rate per annum equal to
three-month LIBOR, adjusted quarterly, plus 300 basis points (collectively,
the "Callable Notes and Debentures").
The Non-Callable Notes and Debentures are not redeemable at the option of
Continental prior to their maturity. At any time after June 1, 1999 for the 11%
Debentures, June 15, 1997 for the 10 5/8% Notes, and August 1, 2005 for the 9
1/2% Debentures, Continental may prepay all or any part of each such class of
securities at a premium (which differs for each class and which decreases on an
annual basis after the date on which a particular class becomes callable). The
Prudential Notes and the Floating Rate Debentures may be prepaid at the option
of Continental at any time, in whole or in part, at a premium.
The holders of each class of the Notes and Debentures are entitled to demand
prepayment of such securities, plus a premium (which differs for each class and
which decreases on an annual basis), if Continental, under certain defined
circumstances, proposes to (a) incur additional indebtedness or (b) repurchase
shares of its Continental Common Stock which are subject to the 1998-1999 Share
Repurchase Program. Such holders (other than holders of the Floating Rate
Debentures) are also entitled to demand prepayment, without a premium, if
Continental, in certain circumstances, proposes to redeem shares of its Series
A Preferred Stock in connection with a change of control of Continental. See
"Description of Capital Stock."
Continental is required to prepay the principal amount of the Prudential
Notes on a semi-annual amortization schedule with a final principal repayment
of $17.5 million due on July 1, 1999. Continental's obligations under the
Prudential Notes are guaranteed by substantially all of the Restricted
Subsidiaries. As of October 16, 1995, $125.8 million in aggregate principal
amount of the Prudential Notes was outstanding.
The Floating Rate Debentures are subject to mandatory prepayments at the
election of the holders if, under certain circumstances, Amos B. Hostetter, Jr.
and certain of his permitted transferees fail to own, directly or indirectly,
at least 30% of Common Stock. Continental anticipates that Mr. Hostetter and
such permitted transferees will hold less than 30% of the Common Stock after
giving effect to the issuance of Class A Common Stock pursuant to the Offering.
Upon such an event, each holder of the Floating Rate Debentures has the right
to tender all, but not less than all, of such holder's Floating Rate Debentures
to Continental for redemption at the principal amount thereof, plus (i) accrued
interest and (ii) certain other amounts relating to breakage costs and certain
taxes. Continental is required to give notice of the Change of Control Event
and the right of the holders to have their Floating Rate Debentures redeemed
within 10 days of the occurrence thereof by publishing a notice in certain
specified newspapers to that effect, which notice must include the date on
which payment will be made by Continental in respect of all Floating Rate
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Debentures tendered for redemption (which must be at least 31 and no more than
60 days after the date of Continental's notice). Any holder of Floating Rate
Debentures who elects to have its Floating Rate Debentures redeemed as a result
of the Change of Control Event must give notice to such effect to Continental
within 30 days after Continental's notice and the interest rate on the Floating
Rate Debentures increases to three-month LIBOR plus 450 basis points commencing
November 1996. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
The indentures for the Notes and Debentures contain customary financial and
other covenants, as well as a restriction against the redemption or repurchase
of, or the payment of cash dividends on, the capital stock of Continental
similar to those contained in the 1994 Credit Facility, as described above.
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SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Prior to this Offering, there has been no market for the Class A Common
Stock, and no predictions can be made as to the effect, if any, that market
sales of shares or the availability of such shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of Class A Common Stock in the public market could adversely affect
prevailing market prices.
Upon completion of this Offering, the Company will have outstanding
shares of Class A Common Stock, 109,196,050 shares of Class B Common Stock and
1,142,858 shares of Series A Preferred Stock. Of these shares, the shares
of Class A Common Stock sold in this Offering will be freely tradable without
restriction under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 promulgated under the Securities
Act ("Rule 144"). The 30,142,732 shares of Class A Common Stock issued in the
Merger were subject to a registered exchange offer under the Securities Act and
are eligible for public sale without restriction except that they are subject
to contractual restrictions as discussed below. See "Contractual Restrictions."
The remaining 39,411,107 shares of Class A Common Stock, all of the
outstanding shares of Class B Common Stock and all of the shares of Series A
Preferred Stock outstanding are "restricted securities", as that term is
defined in Rule 144 promulgated under the Securities Act. Disregarding
contractual restrictions and treating the Class B Common Stock and the Series A
Preferred Stock as if all outstanding shares thereof were converted into Class
A Common Stock, (i) there would be approximately 143,662,429 shares of
restricted Class A Common Stock outstanding (excluding any unvested shares
granted as part of incentive compensation to officers of Continental and its
subsidiaries and shares subject to Rule 701, which are discussed below) and,
(ii) of such shares, immediately following the Offering, (x) approximately
47,482,183 shares ("Rule 144(k) Shares") would be eligible for sale in the
public market without regard to volume or other limitations pursuant to Rule
144(k) of the Securities Act and (y) approximately 90,282,100 ("Rule 144
shares") shares would be eligible for sale, subject to compliance with volume
and other limitations under Rule 144. The remaining shares of currently
outstanding Class A Common Stock or shares of Class A Common Stock issuable
upon currently outstanding convertible securities would become eligible for
sale at various times thereafter.
RULE 144 AND OTHER RESTRICTIONS
Restricted securities may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including Rule 144. In general, under Rule 144 as currently in
effect, beginning November 29, 1995, a person (or persons whose shares are
aggregated) who has beneficially owned shares of Common Stock or shares of
Series A Preferred Stock (which is convertible into shares of Common Stock)
that have been outstanding and not held by any "affiliate" of Continental for a
period of at least two years is entitled to sell within any three-month period
a number of shares of Common Stock that does not exceed the greater of (a) one
percent of the then outstanding shares of the Common Stock (approximately
shares immediately after the Offering, treating Class A and Class B as one
class, but excluding the Series A Preferred Stock), or (b) the average weekly
reported trading volume of the Class A Common Stock during the four calendar
weeks preceding the date on which notice of such sale is given, subject to
certain manner of sale provisions, notice requirements and the availability of
current public information (which requirement as to the availability of current
public information is expected to be satisfied commencing 90 days after the
date of this Prospectus). As defined in Rule 144, an "affiliate" of an issuer
is a person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer.
Affiliates of Continental are also subject to the restrictions and
requirements of Rule 144 with respect to restricted securities of Continental
beneficially owned by them. In addition, sales by affiliates of Continental and
by affiliates of Providence Journal of shares of Common Stock that are not
"restricted securities" (such
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as shares acquired by affiliates in the public market following the Offering
and shares acquired in the Merger by affiliates of Providence Journal) are
subject to the Rule 144 restrictions and requirements, other than the two-year
holding period requirement.
Under Rule 144(k), a person who is not an affiliate of Continental at any
time during the three months preceding a sale, and who has beneficially owned
shares of Common Stock that were not acquired from Continental or an affiliate
of Continental within the previous three years, is entitled to sell such shares
without regard to volume limitations, manner of sale provisions, notification
requirements or the availability of current public information concerning
Continental.
Rule 144A under the Securities Act ("Rule 144A") provides a non-exclusive
safe harbor exemption from the registration requirements of the Securities Act
for specified resales of restricted securities to certain institutional
investors. Rule 144A allows unregistered resales of restricted securities to a
qualified institutional buyer, which generally includes an entity, acting for
its own account or the account of other qualified institutional buyers, that in
the aggregate owns and invests on a discretionary basis at least $100.0 million
in securities of unaffiliated issuers. Rule 144A does not extend an exemption
to the offer or sale of securities that, when issued, were of the same class as
securities listed on a national securities exchange or quoted in an automated
interdealer quotation system. Because the restricted shares of Class A Common
Stock, Class B Common Stock and Series A Preferred Stock, when they were
issued, were not of the same class as any listed or quoted securities, all of
such securities are eligible for resale under Rule 144A.
RULE 701
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
an exemption from the registration requirements of the Securities Act for the
resale of shares originally purchased from an issuer by its employees,
directors, officers, consultants or advisers pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such persons
before such issuer becomes subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Securities
issued in reliance on Rule 701 are "restricted"; however, beginning November
29, 1995, such shares may be sold (i) by persons other than affiliates of
Continental subject only to the manner of sale provisions of Rule 144 and (ii)
by affiliates of Continental under Rule 144 without compliance with its two-
year minimum holding period requirements, but subject to all other requirements
of Rule 144.
In January 1995, Continental issued 2,393,750 shares of Class B Common Stock
to certain of its officers and employees pursuant to its 1995 Restricted Stock
Purchase Program V, including 832,500 shares to persons deemed to be affiliates
of Continental and 1,561,250 shares to non-affiliates of Continental. Such
shares are subject to vesting over a period of seven years at 6-month
intervals, beginning on June 30, 1995. The vesting is not straight-line and
commences slowly, peaks in the middle years of the vesting schedule and then
slows again at the end of the vesting schedule. These shares of Class B Common
Stock are convertible into shares of Class A Common Stock and may be sold in
reliance on Rule 701 once they vest. Of such shares, 55,775 shares ("Rule 701
shares") held by affiliates and 104,600 shares held by non-affiliates vested on
June 30, 1995.
CONTRACTUAL RESTRICTIONS
All officers and Directors of the Company and certain other stockholders have
entered into contractual "lock-up" agreements providing that they will not,
subject to certain exceptions, (a) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell, or
grant any option, right or warrant to purchase or otherwise transfer or dispose
of, directly or indirectly, any shares of Class A Common Stock or any
securities convertible into or exercisable or exchangeable for Class A Common
Stock or (b) enter into any swap or other agreement that transfers, in whole or
in part, the economic consequences of ownership of Common Stock, whether any
such transaction described in clause (a) or (b) of
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this paragraph is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, for a period of 180 days after the date of
the Underwriting Agreement without the prior written consent of Morgan Stanley
& Co. Incorporated. See "Underwriters." As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144 and 144(k), an aggregate of Rule 144(k) Shares, Rule
144 Shares and Rule 701 Shares owned by them (treating the Class B Common Stock
and Series A Preferred Stock as if all outstanding shares thereof were
converted into Class A Common Stock) will not be able to be sold until the lock
up agreements expire. In addition, all former Providence Journal stockholders
are subject to transfer restrictions that prohibit all transfers of shares of
Class A Common Stock received in the Merger, except for transfers not for value
to certain specified permitted transferees until October 5, 1996.
OUTSTANDING REGISTRATION RIGHTS
Certain persons and entities (the "Continental Rightsholders") are entitled
to certain rights with respect to the registration under the Securities Act of
a total of 40,303,325 shares of Common Stock, assuming conversion of the Series
A Preferred Stock into Common Stock (the "Registrable Shares") under the terms
of agreements among Continental and the Continental Rightsholders (the
"Registration Agreements"). The Continental Preferred Stock Investors have the
right to request that Continental register the 1,142,858 shares of Series A
Preferred Stock outstanding or the Common Stock into which the Series A
Preferred Stock is convertible upon five occasions, with Continental paying
certain expenses of such registration upon four occasions. The Boston Ventures
Investors have the right to request that Continental register the 7,514,075
shares of Class A Common Stock that they own or would own upon conversion, upon
two occasions, certain expenses of which are to be paid by Continental. The
other purchasers who purchased Class B Common Stock at the same time as the
Boston Ventures Investors do not have the right to demand registration; however
they have the right to participate with respect to 4,217,800 shares in any
registration requested by the Preferred Stock Investors or the Boston Ventures
Investors. Each of the Registration Agreements also provides that in the event
Continental proposes to register any of its securities under the Securities Act
for its own account or upon the demand of a Continental Rightsholder, the
Continental Rightsholders shall be entitled, with certain exceptions, to
include Registrable Shares in such registration, unless the managing
underwriters of such offering recommend excluding for marketing reasons some or
all of such Registrable Shares from such registration.
In addition to the rights of the Continental Rightsholders described above,
MD Co. currently has the right to participate in registrations of Continental
capital stock, which is junior to the rights of the Continental Rightsholders,
and the right to demand registration of shares into which the 3,709,150 shares
of Class B Common Stock held by it are convertible. All of such rights cease to
exist upon a public offering of Continental capital stock where the aggregate
net proceeds are not less than $75.0 million and therefore would not exist
after the consummation of this Offering. Continental is required to use its
best efforts to effect such registrations, subject to certain conditions and
limitations.
Continental and The Providence Journal Company entered into a registration
rights agreement relating to the Class A Common Stock issued pursuant to the
Merger providing that (subject to the restrictions against transfer of such
shares for a period of one year) the Providence Journal stockholders are
entitled to two demand registrations and unlimited (subject to certain
exceptions) "piggyback" registrations with respect to primary public issuances
by Continental of Continental Class A Common Stock; provided, however, that
such registration rights will not be available to the extent that such shares
are then freely transferable in the manner contemplated by such request without
violation of the registration requirements of the Securities Act.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States Federal tax
consequences of the ownership and disposition of Class A Common Stock by a
holder that, for United States Federal income tax purposes, is not a "United
States person" (a "Non-United States Holder"). For purposes of this discussion,
a "United States person" means a citizen or resident (as determined for U.S.
Federal income tax purposes) of the United States; a corporation, partnership
or other entity created or organized in the United States or under the laws of
the United States or of any political subdivision thereof; or an estate or
trust the income of which is includible in gross income for United States
Federal income tax purposes regardless of its source. Resident alien
individuals will be subject to United States Federal income tax with respect to
the Class A Common Stock as if they were United States citizens.
THIS DISCUSSION IS BASED ON THE CODE AND THE ADMINISTRATIVE INTERPRETATIONS
AS OF THE DATE HEREOF, ALL OF WHICH MAY BE CHANGED EITHER RETROACTIVELY OR
PROSPECTIVELY. THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY, DOES NOT
CONSIDER ANY SPECIFIC FACTS OR CIRCUMSTANCES THAT MAY APPLY TO A PARTICULAR
NON-UNITED STATES HOLDER AND DOES NOT ADDRESS ANY TAX CONSEQUENCES ARISING
UNDER ANY STATE, MUNICIPALITY, FOREIGN OR OTHER TAXING JURISDICTION.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL TAX CONSEQUENCES OF OWNING AND DISPOSING OF CLASS A
COMMON STOCK (INCLUDING SUCH AN INVESTOR'S STATUS AS A UNITED STATES PERSON OR
NON-UNITED STATES HOLDER), AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER
THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30%, unless the
dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, (or, if an income tax
treaty applies, is attributable to a permanent establishment--as defined in the
treaty--maintained by the Non-United States Holder) in which case the dividend
will be subject to the rules described in the next paragraph. Non-United States
Holders should consult any applicable income tax treaties, which may provide
for reduced withholding or other rules different from those described above.
For purposes of determining whether tax is to be withheld at a 30% rate or a
reduced rate as specified by an income tax treaty, the Company ordinarily will
presume that dividends paid to an address in a foreign country are paid to a
resident of such country absent definite knowledge that such presumption is not
warranted. Nevertheless, under proposed U.S. Treasury regulations which have
not yet been put into effect, in order to claim the benefits of an income tax
treaty, a Non-United States Holder would be required to file with the Company
or its dividend paying agent certain forms accompanied by a statement from a
competent governmental authority of the treaty country attesting to the
Holder's status as a resident thereof. A Non-United States Holder who is
eligible for a reduced withholding tax rate or exemption pursuant to an income
tax treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim with the Internal Revenue Service (the "Service").
Upon the filing of Form 4224 of the Service with the Company or its dividend
paying agent, there will be no withholding tax on dividends that are
effectively connected with the Non-U.S. Holder's conduct of a trade or business
within the U.S. (or, if an income tax treaty applies, are attributable to a
permanent establishment--as defined in the treaty--maintained by the Non-United
States Holder). Instead, such dividends will be subject to regular U.S. income
tax in the same manner as if the Non-United States Holder were a U.S. person. A
non-U.S. corporation receiving effectively connected dividends also may be
subject to an additional "branch profits tax" which is imposed under certain
circumstances, at a rate of 30% (or such lower rate as may be specified by an
applicable treaty) of the non-U.S. corporation's effectively connected earnings
and profits, subject to certain adjustments, deemed to have been repatriates
from the United States.
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GAIN ON DISPOSITION
Subject to special rules applicable to individuals as described in the next
paragraph, a Non-United States Holder will generally not be subject to regular
United States Federal income or withholding tax on gain recognized on a sale or
other disposition of Class A Common Stock unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder (or, if an income tax treaty applies, is
attributable to a permanent establishment--as defined in the treaty maintained
by the Non-United States Holder) or by a partnership, trust or estate in which
the Non-United States Holder is a partner or beneficiary or (ii) the Company
has been, is or becomes a "United States real property holding corporation" for
United States Federal income tax purposes within the meaning of Section
897(c)(2) of the Code at any time within the shorter of the five-year period
preceding such disposition or such Non-United States Holder's holding period
for the Class A Common Stock. A corporation is generally a United States real
property holding corporation if the fair market value of its "United States
real property interests" within the meaning of Section 897(c)(1) of the Code
equals or exceeds 50% of the sum of the fair market value of its worldwide real
property interests plus the fair market value of any other of its assets used
or held for use in a trade or business. The Company believes that it has not
been, is not currently, and is not likely to become a United States real
property holding corporation. Gain that is effectively connected with the
conduct of a trade or business within the United States by the Non-United
States Holder (or, if an income tax treaty applies, is attributable to a
permanent establishment--as defined in the treaty--maintained by the Non-United
States Holder) will be subject to the United States Federal income tax on net
income that applies to United States persons (and, with respect to corporate
holders and under certain circumstances, the branch profits tax), but will not
be subject to withholding. Non-United States Holders should consult applicable
income tax treaties, which may provide for different rules. In addition to
being subject to the rules described above, an individual Non-United States
Holder who holds Class A Common Stock as a capital asset will generally be
subject to tax at a 30% rate on any gain recognized on the disposition of such
stock if such individual is present in the United States for 183 days or more
in the taxable year of disposition.
In 1990 and 1992, legislation was introduced that, if enacted, would under
certain circumstances have imposed federal income tax on gain realized from
dispositions of Class A Common Stock by certain Non-United States Holders who
owned at or prior to the time of disposition 10% or more of the Class A Common
Stock. There can be no assurance that similar legislation will not be proposed
and, if proposed, enacted.
FEDERAL ESTATE TAXES
Class A Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States Federal estate tax
purposes) of the United States at the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate-tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-United States
Holder the amount of dividends paid to, and the tax withheld with respect to,
such holder, regardless of whether tax was actually withheld. Pursuant to
certain income tax treaties and other agreements, that information may also be
made available to the tax authorities of the country in which the Non-United
States Holder resides.
United States federal backup withholding (which generally is withholding
imposed at the rate of 31% on certain payments to persons not otherwise exempt
who fail to furnish certain identifying information to the Service) will
generally not apply to dividends paid to a Non-United States Holder that is
subject to withholding at the 30% rate (or that is subject to withholding at a
reduced rate under an applicable treaty). Dividends paid to a Non-United States
Holder at an address within the United States may be subject to backup
withholding if the Non-United States Holder fails to establish an exemption or
to provide a correct
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tax identification number and other information to the Company or its dividend
paying agent. The payor of dividends may rely on the payee's foreign address in
determining that the payee is exempt from backup withholding, unless the payor
has knowledge that the payee is a United States person.
The backup withholding and information reporting requirements also apply to
the gross proceeds paid to a Non-United States Holder upon the disposition of
Class A Common Stock by or through a United States office of a United States or
foreign broker, unless the holder certifies to the broker under penalties of
perjury as to its name, address and status as a Non-United States Holder by
filing a U.S. Internal Revenue Service Form W-8 with the broker or the holder
otherwise establishes an exemption. Information reporting requirements (but not
backup withholding) will apply to a payment of the proceeds of a disposition of
Class A Common Stock by or through a foreign office of (i) a United States
broker, (ii) a foreign broker 50% or more of whose gross income for certain
periods is effectively connected with the conduct of a trade or business in the
United States or (iii) a foreign broker that is a "controlled foreign
corporation" for United States Federal income tax purposes, unless the broker
has documentary evidence in its records that the holder is a Non-United States
Holder and certain other conditions are met, or the Holder otherwise
establishes an exemption. Neither backup withholding nor information reporting
will generally apply to a payment of the proceeds of a disposition of Class A
Common Stock by or through a foreign office of a foreign broker not subject to
the preceding sentence.
Any amounts withheld under the backup withholding rules will be refunded or
credited against the Non-United States Holder's United States federal income
tax liability, provided that required information is furnished to the Service.
These backup withholding and information reporting requirements are under
review by the Service, and their application to the Class A Common Stock could
be changed by future regulations.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation and Lazard Freres & Co. LLC are acting as U.S.
Representatives, and the International Underwriters named below for whom Morgan
Stanley & Co. International Limited, Donaldson, Lufkin & Jenrette Securities
Corporation and Lazard Brothers & Co., Limited are acting as International
Representatives, have severally agreed to purchase, and the Company has agreed
to sell to them, severally, the respective numbers of shares of the Company's
Class A Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..............................
Donaldson, Lufkin & Jenrette Securities Corporation............
Lazard Freres & Co. LLC........................................
----
Subtotal.....................................................
----
International Underwriters:
Morgan Stanley & Co. International Limited.....................
Donaldson, Lufkin & Jenrette Securities Corporation............
Lazard Brothers & Co., Limited.................................
----
Subtotal.....................................................
----
Total......................................................
====
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
their counsel and to certain other conditions. The Underwriters are obligated
to take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the U.S. Underwriters' over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (a)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (b)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares
outside of the United States or Canada or to anyone other than a United States
or Canadian Person. Pursuant to the Agreement between U.S. and International
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions, (i) it is not purchasing any International Shares (as
defined below) for the account of any United States or Canadian Person and (ii)
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it has not offered or sold, and will not offer or sell, directly or indirectly,
any International Shares or distribute any prospectus relating to the
International Shares in the United States or in any province or territory of
Canada or to any United States or Canadian Person. The foregoing limitations do
not apply to stabilization transactions or to certain other transactions
specified in the Agreement Between U.S. and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of
the United States or of any province or territory of Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of
any United States or Canadian Person) and includes any United States or
Canadian branch of a person who is otherwise not a United States or Canadian
Person. All shares of Class A Common Stock to be purchased by the U.S.
Underwriters and the International Underwriters are referred to herein as the
U.S. Shares and the International Shares, respectively.
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of shares of Class A Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price of any
shares sold shall be the Price to Public set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in any province or territory of Canada in contravention of the
securities laws thereof and has represented that any offer of Class A Common
Stock in Canada will be made only pursuant to an exemption from the requirement
to file a prospectus in the province or territory of Canada in which such offer
is made. Each U.S. Underwriter has further agreed to send to any dealer who
purchases from it any shares of Class A Common Stock a notice stating in
substance that, by purchasing such Class A Common Stock, such dealer represents
and agrees that it has not offered or sold, and will not offer or sell,
directly or indirectly, any of such Class A Common Stock in any province or
territory of Canada or to, or for the benefit of, any resident of Canada in
contravention of the securities laws thereof and that any offer of Class A
Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made, and that such dealer will deliver to any other dealer
to whom it sells any of such Class A Common Stock a notice to the foregoing
effect.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that: (i) it has not
offered or sold and during the period of six months after the date hereof will
not offer or sell any shares of Class A Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their business or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Class A Common Stock
offered hereby in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on and will only issue or pass on to any person in
the United Kingdom any document received by it in connection with the issue of
the shares of Class A Common Stock, other than any document which consists of,
or is a part of, listing particulars, supplementary listing particulars or any
other document required or permitted to be published by listing rules under
Article IV of the Financial Services Act 1986, to any person of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995, or to any person to whom the document
may otherwise lawfully be issued or passed on.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the Price to Public set forth on the
cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price. The
Underwriters
108
<PAGE>
may allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or to certain dealers. After the initial offering
of the shares of Class A Common Stock, the offering price and other selling
terms may from time to time be varied by the Representatives.
The Company intends to apply to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol " ."
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to additional shares of Class A Common Stock at
the public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of Class A Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of
shares of Class A Common Stock offered by the U.S. Underwriters hereby.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated, it will not (a) register for sale or offer, issue,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any
shares of Class A Common Stock or any securities convertible into or
exercisable or exchangeable for Class A Common Stock or (b) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of Common Stock, whether any such transaction
described in clause (a) or (b) of this paragraph is to be settled by delivery
of Class A Common Stock or such other securities, in cash or otherwise, for a
period of 180 days after the date of the Underwriting Agreement, other than:
(i) the shares of Class A Common Stock offered hereby; (ii) any shares of Class
A Common Stock issued upon the exercise of an option or warrant or the
conversion of a security outstanding on the date of this Prospectus; (iii) any
shares of Common Stock issued pursuant to existing employee benefit plans of
the Company; and (iv) up to an aggregate of % of the shares of Common Stock
outstanding on the date hereof to be issued in connection with acquisitions by
the Company, provided that (1) the recipient of shares pursuant to this clause
(iv) shall agree to be bound by the provisions of clauses (a) and (b) above for
the balance of such 180-day period and (2) registration rights, if any, granted
in respect of shares issued pursuant to this clause (iv) shall not require the
Company to file, and the Company shall not file, a registration statement in
respect thereof prior to the end of such 180-day period. In addition,
stockholders of the Company holding an aggregate of shares of Class A
Common Stock (treating the Class B Common Stock and Series A Preferred Stock as
if all outstanding shares thereof were converted into Class A Common Stock)
have agreed not to (a) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Class A Common Stock or any securities
convertible into or exercisable or exchangeable for Class A Common Stock or (b)
enter into any swap or other agreement that transfers, in whole or in part, the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (a) or (b) of this paragraph is to be settled
by delivery of Class A Common Stock or such other securities, in cash or
otherwise, for a period of 180 days after the date of the Underwriting
Agreement without the prior written consent of Morgan Stanley & Co.
Incorporated. These restrictions do not apply to Common Stock (i) issued in the
Offering, (ii) transferred as a gift or gifts, provided the donee or donees
thereof agree in writing as a condition precedent to such gift or gifts to be
bound by the terms of the Underwriting Agreement, (iii) transferred to the
transferor's affiliates, as such term is defined in Rule 405 promulgated under
the Securities Act, provided that each transferee agrees in writing as a
condition precedent to such transfer to be bound by the terms of the
Underwriting Agreement or (iv) sold to the Company by certain employees under
Restricted Stock Purchase Agreements.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
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<PAGE>
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
From time to time, Morgan Stanley & Co. Incorporated and Lazard Freres & Co.
LLC provide certain financial advisory services to the Company. See "Certain
Transactions."
PRICING OF THE OFFERING
Although the Merger constituted the initial public offering of the Company,
there has been no public market for the Class A Common Stock. The public
offering price for the Class A Common Stock was determined by negotiations
among the Company and the Underwriters. Among the factors considered in
determining the public offering price were the sales, earnings and certain
other financial and operating information of the Company in recent periods, the
future prospects of the Company and its industry in general, and certain
ratios, market prices of securities and certain financial and operating
information of companies engaged in activities similar to those of the Company.
LEGAL MATTERS
Certain legal matters relating to the validity of the shares of Class A
Common Stock will be passed upon by Sullivan & Worcester, a Registered Limited
Liability Partnership. Certain legal matters with respect to the shares of
Class A Common Stock offered hereby will be passed upon for the Underwriters by
Davis Polk & Wardwell. Partners and of counsel attorneys of Sullivan &
Worcester, a Registered Limited Liability Partnership, own 606,500 shares of
Common Stock. Robert B. Luick, Secretary and a Director of the Company, is of
counsel to, and W. Lee H. Dunham, an Assistant Secretary of the Company and
Secretary and a Director of substantially all of the Company's subsidiaries,
and Patrick K. Miehe, an Assistant Secretary of the Company and substantially
all of its subsidiaries, are partners of Sullivan & Worcester.
EXPERTS
The portions of this Prospectus under the caption "Business--Competition" and
"Legislation and Regulation" have been reviewed by Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., Washington, D.C., and the statements therein have been
included herein in reliance upon their opinion.
The consolidated financial statements of Continental Cablevision, Inc. and
subsidiaries as of December 31, 1993 and 1994 and for each of the three years
in the period ended December 31, 1994 included in this Prospectus, the
consolidated financial statements from which the Selected Consolidated
Financial Data included in the Prospectus have been derived, and the related
financial statement schedule included elsewhere in this registration statement
have been audited by Deloitte & Touche llp, independent auditors, as stated in
their reports (which reports express an unqualified opinion and include an
explanatory paragraph referring to a change in the method of accounting for
income tax and investments in 1993 and 1994, respectively) included herein and
elsewhere, and are included in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
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The combined financial statements of Providence Journal Cable as of December
31, 1993 and 1994 and for each of the years in the three-year period ended
December 31, 1994 have been included in this Prospectus in reliance upon the
reports of KPMG Peat Marwick LLP and Deloitte & Touche llp, independent
auditors, appearing herein and elsewhere in this registration statement and
upon the authority of said firms as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to a change in accounting for income
taxes in 1992.
The consolidated financial statements of King Videocable Company as of
December 31, 1993 and 1994 and for the period February 25, 1992 to December 31,
1992 and for the years ended December 31, 1993 and 1994 (not included herein)
have been audited by Deloitte & Touche llp, independent auditors, as stated in
their report appearing herein and is included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements as of December 31, 1993 and 1994 and for each of the
two years ended December 31, 1994 of Columbia Cable of Michigan (a division of
Columbia Associates, L.P.) included in this Prospectus have been audited by
Arthur Andersen LLP, independent auditors, as stated in their report appearing
herein.
The financial statements as of September 30, 1994 and for the nine months
ended September 30, 1994 of Clay Cablevision (a division of Rifkin Cable Income
Partners, L.P.) included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of N-COM Limited Partnership II at
September 30, 1993 and 1994, and for each of the two years ended September 30,
1994, appearing in this Prospectus have been audited by Ernst & Young, LLP,
independent auditors, as stated in their report appearing herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Cablevision of Chicago (a limited partnership) as
of December 31, 1993 and 1994 and for each of the two years ended December 31,
1994 have been included in this Prospectus in reliance upon the report of KPMG
Peat Marwick LLP, independent auditors, appearing herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements described above are included in reliance upon such
applicable reports as given upon the authority of such firms as experts in
accounting and auditing.
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ADDITIONAL INFORMATION
Continental is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, is required to file reports and other information
with the Commission. Continental will file with the Commission a registration
statement under the Exchange Act, with respect to the Class A Common Stock and
will be required to file proxy statements with the Commission. Such reports,
proxy statements and other information can be inspected and copied at the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
7 World Trade Center, 13th Floor, New York, New York 10048. Copies of the
reports, proxy statements and other information can be obtained from the Public
Reference Section of the Commission, at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates
Continental has filed with the Commission a Registration Statement under the
Securities Act, with respect to the securities offered by this Prospectus. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information about Continental and the securities offered hereby,
reference is made to the Registration Statement and to the financial
statements, exhibits and schedules filed therewith. The statements contained in
this Prospectus about the contents of any contract or other document referred
to are not necessarily complete, and in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of each such document may be obtained from the Commission at
its principal office in Washington, D.C. upon payment of the charges prescribed
by the Commission.
112
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets, December 31, 1993 and 1994 and (Unaudited)
June 30, 1995........................................................... F-3
Statements of Consolidated Operations, Years Ended December 31, 1992,
1993 and 1994 and (Unaudited) Six Months Ended June 30, 1994 and 1995... F-4
Statements of Consolidated Stockholders' Equity (Deficiency), Years Ended
December 31, 1992, 1993 and 1994 and (Unaudited) Six Months Ended June
30, 1995................................................................ F-5
Statements of Consolidated Cash Flows, Years Ended December 31, 1992,
1993 and 1994 and (Unaudited) Six Months Ended June 30, 1994 and 1995... F-6
Notes to Consolidated Financial Statements............................... F-7
PROVIDENCE JOURNAL CABLE
Independent Auditors' Reports............................................ F-23
Combined Balance Sheets, December 31, 1993 and 1994 and (Unaudited) June
30, 1995................................................................ F-25
Combined Statements of Operations, for the Years Ended December 31, 1992,
1993 and 1994 and (Unaudited) Six Months Ended June 30, 1994 and 1995... F-26
Combined Statements of Changes in Group Equity, for the Years Ended
December 31, 1992, 1993 and 1994 and (Unaudited) Six Months Ended June
30, 1995................................................................ F-27
Combined Statements of Cash Flows, for the Years Ended December 31, 1992,
1993 and 1994 and (Unaudited) Six Months Ended June 30, 1994 and 1995... F-28
Notes to Combined Financial Statements................................... F-29
COLUMBIA CABLE OF MICHIGAN (A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
Report of Independent Public Accountants................................. F-38
Statements of Assets, Liabilities and Control Account, December 31, 1993
and 1994 and (Unaudited) June 30, 1995.................................. F-39
Statements of Operations and Control Account, for the Years Ended
December 31, 1993 and 1994 and (Unaudited) Six Months Ended June 30,
1994 and 1995........................................................... F-40
Statements of Cash Flows, for the Years Ended December 31, 1993 and 1994
and (Unaudited) Six Months Ended June 30, 1994 and 1995................. F-41
Notes to Financial Statements............................................ F-42
CLAY CABLEVISION (A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
Report of Independent Accountants........................................ F-45
Balance Sheet, September 30, 1994........................................ F-46
Statement of Operations, for the Nine Months Ended September 30, 1994.... F-47
Statement of Cash Flows, for the Nine Months Ended September 30, 1994.... F-48
Notes to Financial Statements............................................ F-49
N-COM LIMITED PARTNERSHIP II
Report of Independent Auditors........................................... F-52
Consolidated Balance Sheet, September 30, 1993 and 1994 and (Unaudited)
June 30, 1995........................................................... F-53
Consolidated Statement of Operations and Partners' Net Capital
Deficiency, for the Years Ended September 30, 1993 and 1994 and
(Unaudited) Nine Months Ended June 30, 1994 and 1995.................... F-54
Consolidated Statement of Cash Flows, for the Years Ended September 30,
1993 and 1994 and (Unaudited) Nine Months Ended June 30, 1994 and 1995.. F-55
Notes to Consolidated Financial Statements............................... F-56
CABLEVISION OF CHICAGO (A LIMITED PARTNERSHIP)
Independent Auditors' Report............................................. F-60
Balance Sheets, December 31, 1993 and 1994 and (Unaudited) June 30,
1995.................................................................... F-61
Statements of Operations and Partners' Deficiency, for the Years Ended
December 31, 1993 and 1994 and (Unaudited) Six Months Ended June 30,
1994 and 1995........................................................... F-62
Statements of Cash Flows, for the Years Ended December 31, 1993 and 1994
and (Unaudited) Six Months Ended June 30, 1994 and 1995................. F-63
Notes to Financial Statements............................................ F-64
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
CONTINENTAL CABLEVISION, INC.:
We have audited the accompanying consolidated balance sheets of Continental
Cablevision, Inc. and its subsidiaries as of December 31, 1993 and 1994 and the
related statements of consolidated operations, consolidated stockholders'
equity (deficiency) and consolidated cash flows for each of the three years in
the period ended December 31, 1994. 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, such consolidated financial statements of Continental
Cablevision, Inc. and its subsidiaries present fairly, in all material
respects, the financial position of the companies at December 31, 1993 and 1994
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Notes 12 and 4 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and investments in
1993 and 1994, respectively.
Deloitte & Touche llp
Boston, Massachusetts
February 10, 1995 (except for the
second paragraph of Note 1 to the
Consolidated Financial Statements
("Stock Dividend"), as to which
the date is September 29, 1995)
F-2
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, (UNAUDITED)
------------------------ JUNE 30,
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
------
Cash and Cash Equivalents............... $ 122,640 $ 11,564 $ 15,342
Accounts Receivable-net................. 44,530 58,212 60,203
Prepaid Expenses and Other.............. 4,800 14,321 3,536
Supplies................................ 31,638 62,517 76,542
Marketable Equity Securities............ 58,676 122,510 120,042
Investments............................. 136,186 335,479 432,487
Property, Plant and Equipment-net....... 1,211,507 1,353,789 1,482,638
Intangible Assets-net................... 387,719 421,420 377,359
Other Assets-net........................ 94,157 103,827 125,745
----------- ----------- -----------
Total............................... $ 2,091,853 $ 2,483,639 $ 2,693,894
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
-----------------------------
<S> <C> <C> <C>
Accounts Payable........................ $ 43,342 $ 82,083 $ 71,062
Accrued Interest........................ 72,424 82,040 74,061
Accrued and Other Liabilities........... 145,191 206,271 197,451
Debt.................................... 3,177,178 3,449,907 3,728,101
Deferred Income Taxes................... 105,041 116,482 101,735
Minority Interest in Subsidiaries....... 2,217 2,791 3,798
Redeemable Common Stock, $.01 par value;
16,767,050, 16,684,150 and 16,684,150
shares outstanding..................... 213,548 232,399 242,721
Commitments and Contingencies........... -- -- --
Stockholders' Equity (Deficiency):
Preferred Stock, $.01 par value;
1,557,142 shares authorized;
none outstanding...................... -- -- --
Series A Convertible Preferred Stock,
$.01 par value;
1,142,858 shares authorized and
outstanding; liquidation preference
$450,976,000, $487,776,000 and
$507,123,000.......................... 11 11 11
Class A Common Stock, $.01 par value;
425,000,000 shares authorized;
6,201,500, 8,585,500 and 8,581,300
shares outstanding.................... 62 86 86
Class B Common Stock, $.01 par value;
200,000,000 shares authorized;
91,310,500, 90,291,375 and 92,617,025
shares outstanding.................... 913 903 926
Additional Paid-In Capital............. 577,076 583,181 618,027
Unearned Compensation.................. (23,577) (12,097) (51,708)
Net Unrealized Holding Gain on
Marketable Equity Securities.......... -- 47,996 49,104
Deficit................................ (2,221,573) (2,308,414) (2,341,481)
----------- ----------- -----------
Stockholders' Equity (Deficiency)..... (1,667,088) (1,688,334) (1,725,035)
----------- ----------- -----------
Total............................... $ 2,091,853 $ 2,483,639 $ 2,693,894
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ------------------
1992 1993 1994 1994 1995
---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................ $1,113,475 $1,177,163 $1,197,977 $589,390 $650,048
Costs and Expenses:
Operating............. 365,513 382,195 405,535 198,618 224,846
Selling, General and
Administrative....... 259,632 267,376 267,349 128,783 150,332
Depreciation and
Amortization......... 272,851 279,009 283,183 135,523 148,412
Restricted Stock
Purchase Program..... 9,683 11,004 11,316 5,675 5,905
---------- ---------- ---------- -------- --------
Total............... 907,679 939,584 967,383 468,599 529,495
---------- ---------- ---------- -------- --------
Operating Income........ 205,796 237,579 230,594 120,791 120,553
---------- ---------- ---------- -------- --------
Other (Income) Expense:
Interest.............. 296,031 282,252 315,541 147,910 166,314
Equity in Net Loss of
Affiliates........... 9,402 12,827 25,002 9,807 25,817
Gain on Sale of
Marketable Equity
Securities........... -- (4,322) (1,204) (1,204) (23,032)
Gain on Sale of
Investments.......... (10,253) (17,067) -- -- (1,035)
Partnership
Litigation........... 10,280 (2,325) -- -- --
Minority Interest in
Net Income (Loss) of
Subsidiaries......... 136 184 (205) -- (40)
Dividend Income....... (330) (650) (824) (504) (319)
Other................. 1,836 375 1,279 (293) 625
---------- ---------- ---------- -------- --------
Total............... 307,102 271,274 339,589 155,716 168,330
---------- ---------- ---------- -------- --------
Loss From Operations
Before Income Taxes,
Extraordinary Item and
Cumulative Effect of
Change in Accounting
for Income Taxes....... (101,306) (33,695) (108,995) (34,925) (47,777)
Income Tax Expense
(Benefit).............. 1,654 (7,921) (40,419) (11,304) (14,710)
---------- ---------- ---------- -------- --------
Loss Before
Extraordinary Item and
Cumulative Effect of
Change in Accounting
for Income Taxes....... (102,960) (25,774) (68,576) (23,621) (33,067)
Extraordinary Item, Net
of Income Taxes........ -- -- (18,265) -- --
---------- ---------- ---------- -------- --------
Loss Before Cumulative
Effect of Change in
Accounting for Income
Taxes.................. (102,960) (25,774) (86,841) (23,621) (33,067)
Cumulative Effect of
Change in Accounting
for Income Taxes....... -- (184,996) -- -- --
---------- ---------- ---------- -------- --------
Net Loss................ (102,960) (210,770) (86,841) (23,621) (33,067)
Preferred Stock
Preferences............ (16,861) (34,115) (36,800) (17,887) (19,347)
---------- ---------- ---------- -------- --------
Loss Applicable to
Common Stockholders.... $ (119,821) $ (244,885) $ (123,641) $(41,508) $(52,414)
========== ========== ========== ======== ========
Loss Per Common Share:
Loss Before
Extraordinary Item
and Cumulative
Effect of Change in
Accounting for
Income Taxes........ $ (1.00) $ (.53) $ (.92) $ (.36) $ (.45)
Extraordinary Item... -- -- (.16) -- --
---------- ---------- ---------- -------- --------
Loss Before
Cumulative Effect of
Change in Accounting
for Income Taxes.... (1.00) (.53) (1.08) (.36) (.45)
Cumulative Effect of
Change in Accounting
for Income Taxes.... -- (1.62) -- -- --
---------- ---------- ---------- -------- --------
Net Loss............. $ (1.00) $ (2.15) $ (1.08) $ (.36) $ (.45)
========== ========== ========== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
NET UNREALIZED
SERIES A COMMON STOCK HOLDING GAIN ON
CONVERTIBLE -------------- ADDITIONAL MARKETABLE RETAINED
PREFERRED CLASS CLASS PAID-IN UNEARNED EQUITY EARNINGS
STOCK A B CAPITAL COMPENSATION SECURITIES (DEFICIT)
----------- ------ ------ ---------- ------------ --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1992................... $ -- $ 795 $ -- $ -- $(12,477) $ -- $(1,907,843)
Net Loss............... -- -- -- -- -- -- (102,960)
Accretion of Redeemable
Common Stock.......... -- -- -- (13,806) -- -- --
Reclassification of
Redeemable Common
Stock................. -- 75 39 141,848 -- -- --
Issuance of Series A
Convertible Preferred
Stock................. 11 -- -- 394,338 -- -- --
Conversion of Class A
to Class B Common
Stock................. -- (817) 817 -- -- -- --
Issuance of Class B
Common Stock.......... -- -- 117 153,722 -- -- --
Restricted Stock
Purchase Program:
Stock Issued.......... -- 26 -- 32,754 (32,779) -- --
Stock Vested.......... -- -- -- -- 9,683 -- --
Stock Forfeited....... -- -- -- (654) 654 -- --
Stock Exchanged for
Loans................ -- (1) -- (3,512) -- -- --
Stock Repurchased...... -- (40) (60) (146,161) -- -- --
----- ------ ------ --------- -------- -------- -----------
Balance, December 31,
1992................... 11 38 913 558,529 (34,919) -- (2,010,803)
Net Loss............... -- -- -- -- -- -- (210,770)
Accretion of Redeemable
Common Stock.......... -- -- -- (14,766) -- -- --
Issuance of Class A
Common Stock.......... -- 24 -- 46,476 -- -- --
Reclassification of
Redeemable Common
Stock to Class A
Common Stock.......... -- -- -- 5,085 -- -- --
Restricted Stock
Purchase Program:
Stock Issued (Class
B)................... -- -- -- 544 (544) -- --
Stock Vested.......... -- -- -- -- 11,004 -- --
Stock Forfeited....... -- -- -- (882) 882 -- --
Stock Exchanged for
Loans................ -- -- -- (6,526) -- -- --
Stock Repurchased...... -- -- -- (11,384) -- -- --
----- ------ ------ --------- -------- -------- -----------
Balance, December 31,
1993................... 11 62 913 577,076 (23,577) -- (2,221,573)
Adjustment due to
change in accounting
principle for
marketable equity
securities, net of
income taxes of
$56,434............... -- -- -- -- -- 84,650 --
Net Loss............... -- -- -- -- -- -- (86,841)
Accretion of Redeemable
Common Stock.......... -- -- -- (19,932) -- -- --
Restricted Stock
Purchase Program:
Stock Vested.......... -- -- -- -- 11,316 -- --
Stock Forfeited....... -- -- -- (164) 164 -- --
Stock Exchanged for
Loans................ -- -- -- (611) -- -- --
Conversion of Class B
to Class A Common
Stock................. -- 8 (8) -- -- -- --
Stock Repurchased...... -- -- (2) (3,672) -- -- --
Issuance of Class A
Common Stock.......... -- 16 -- 30,484 -- -- --
Change in Unrealized
Gain, net of income
taxes of $24,081...... -- -- -- -- -- (36,654) --
----- ------ ------ --------- -------- -------- -----------
Balance, December 31,
1994................... 11 86 903 583,181 (12,097) 47,996 (2,308,414)
(Unaudited)
Net Loss............... -- -- -- -- -- -- (33,067)
Accretion of Redeemable
Common Stock.......... -- -- -- (10,322) -- -- --
Restricted Stock
Purchase Program:
Stock Issued.......... -- -- 23 45,963 (45,985) -- --
Stock Vested.......... -- -- -- -- 5,905 -- --
Stock Forfeited....... -- -- -- (469) 469 -- --
Stock Exchanged for
Loans................ -- -- -- (326) -- -- --
Change in Unrealized
Gain, net of income
taxes of $748......... -- -- -- -- -- 1,108 --
----- ------ ------ --------- -------- -------- -----------
Balance, June 30, 1995.. $ 11 $ 86 $ 926 $618,027 $(51,708) $49,104 $(2,341,481)
===== ====== ====== ========= ======== ======== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- --------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss............... $ (102,960) $ (210,770) $ (86,841) $ (23,621) $ (33,067)
Adjustments to
Reconcile Net Loss to
Net Cash Provided from
Operating Activities:
Extraordinary Item... -- -- 18,265 -- --
Cumulative Effect of
Change in Accounting
for
Income Taxes........ -- 184,996 -- -- --
Depreciation and
Amortization........ 272,851 279,009 283,183 135,523 148,412
Restricted Stock
Purchase Program.... 9,683 11,004 11,316 5,675 5,905
Amortization of
Deferred Financing
Costs............... 6,552 5,554 5,759 2,618 4,366
Equity in Net Loss of
Affiliates.......... 9,402 12,827 25,002 9,807 25,817
Gain on Sale of
Marketable Equity
Securities.......... -- (4,322) (1,204) (1,204) (23,032)
Gain on Sale of
Investments......... (10,253) (17,067) -- -- (1,035)
Minority Interest in
Net Income (Loss) of
Subsidiaries........ 136 184 (205) -- (40)
Deferred Income
Taxes............... -- (9,788) (42,272) (12,346) (15,495)
Accrued Interest..... (10,965) 15,787 9,632 (857) (7,979)
Accounts Payable,
Accrued and Other
Liabilities......... 40,649 (3,633) 66,142 10,753 (21,092)
Other Working Capital
Changes............. (50) (13,277) (52,473) (2,780) (5,233)
----------- ----------- ----------- --------- ---------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES... 215,045 250,504 236,304 123,568 77,527
----------- ----------- ----------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from
Borrowings............ 918,000 1,502,304 1,709,980 118,750 383,100
Repayment of
Borrowings............ (1,292,712) (1,369,341) (1,456,061) (82,205) (104,906)
Premium Paid on
Extinguishment of
Debt.................. -- -- (20,924) -- --
Increase (Decrease) in
Minority Interests.... 389 (2,580) 779 386 1,047
Issuance of Series A
Convertible Preferred
Stock................. 394,349 -- -- -- --
Issuance of Common
Stock................. 153,840 46,500 30,500 -- --
Repurchase of Common
Stock and Redeemable
Common Stock.......... (233,984) (31,232) (4,755) (4,755) --
----------- ----------- ----------- --------- ---------
NET CASH PROVIDED FROM
(USED FOR)
FINANCING ACTIVITIES... (60,118) 145,651 259,519 32,176 279,241
----------- ----------- ----------- --------- ---------
INVESTING ACTIVITIES:
Acquisitions, Net of
Liabilities Assumed
and Cash Acquired..... -- -- (114,990) (49,573) --
Property, Plant and
Equipment............. (145,189) (185,691) (300,511) (109,484) (231,021)
Investments............ (17,908) (106,819) (192,119) (123,219) (121,719)
Other Assets........... (12,996) (7,182) (16,832) (833) (28,788)
Purchase of Marketable
Equity Securities..... -- (8,042) -- -- --
Proceeds from Sale of
Marketable Equity
Securities............ -- 5,719 17,553 17,553 27,357
Proceeds from Sale of
Investment--net....... 34,253 1,148 -- -- 1,181
----------- ----------- ----------- --------- ---------
NET CASH USED FOR
INVESTING ACTIVITIES... (141,840) (300,867) (606,899) (265,556) (352,990)
----------- ----------- ----------- --------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 13,087 95,288 (111,076) (109,812) 3,778
BALANCE AT BEGINNING OF
PERIOD................. 14,265 27,352 122,640 122,640 11,564
----------- ----------- ----------- --------- ---------
BALANCE AT END OF
PERIOD................. $ 27,352 $ 122,640 $ 11,564 $ 12,828 $ 15,342
=========== =========== =========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Continental Cablevision, Inc. (the Company) and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Stock Dividend
On September 28, 1995, the stockholders approved an increase in the number of
authorized shares of common stock to 625,000,000 (425,000,000 Class A and
200,000,000 Class B, respectively). In addition, the Company's Board of
Directors approved a stock dividend of 24 shares of Class A or B common stock
for each share of Class A or B common stock held as of the record date. Due to
the significance of this stock dividend to the Company's capital structure, all
share and per share information have been restated to present this stock
dividend as though it had occurred at the beginning of the earliest period
presented.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents. The carrying amount of cash and
cash equivalents approximates fair value due to the short maturity of these
investments.
Supplies and Property, Plant and Equipment
Supplies are stated at the lower of cost (first-in, first-out method) or
market. Property, plant and equipment are stated at cost and include
capitalized interest of $766,000, $908,000 and $2,377,000 in 1992, 1993 and
1994. Depreciation is provided using the straight-line group method over
estimated useful lives as follows: buildings, 25 to 40 years; reception and
distribution facilities, 3 to 15 years; and equipment and fixtures, 4 to 12 1/2
years. (See Note 6)
Intangible and Other Assets
Intangible assets consist primarily of franchise costs and goodwill recorded
in various acquisitions. Such amounts are generally amortized over 10 to 40
years. Franchise costs, net of accumulated amortization, at December 31, 1993
and 1994 and June 30, 1995 are $365,887,000, $355,488,000 and $312,118,000,
respectively. Other assets represent deferred financing costs and loans to
employees (see Note 11). Accumulated amortization for intangible and other
assets aggregated $622,453,000, $714,492,000 and $760,731,000 at December 31,
1993 and 1994 and June 30, 1995, respectively.
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of intangible assets by reviewing the
performance of the underlying operations, in particular, the future
undiscounted operating cash flows of the acquired entities.
Allowance for Doubtful Accounts
The allowance for doubtful accounts at December 31, 1993 and 1994 is
$9,435,000 and $9,771,000, respectively.
Investments
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115) requires that certain debt
and equity securities be categorized as either securities available for sale,
securities held to maturity or trading account securities. The Company has
classified all investments subject to SFAS 115 as available for sale and as
such reports these securities at fair value, with the unrealized gains or
losses, net of tax, reported as a separate component of stockholders' equity
(deficiency). Realized gains and losses are included in results of operations.
Prior to January 1, 1994, marketable equity securities were carried at either
the lower of cost or market. In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. (See Note 4)
F-7
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Investments in 20-50% owned affiliates are generally accounted for using the
equity method. The excess of the cost of equity investments over the underlying
value of the net assets is amortized over a period of approximately 10 years.
Investments in less than 20% owned companies whose equity securities do not
have a readily determinable market value are generally accounted for using the
cost method. Investments in debt securities not subject to SFAS 115 are
reported at amortized cost. (See Note 5)
Derivative Financial Instruments
The Company uses derivative financial instruments as a means of managing
interest-rate risk associated with current debt or anticipated debt
transactions that have a high probability of being executed. Derivative
financial instruments used include Interest Rate Exchange Agreements (Swaps)
and Interest Rate Cap Agreements (Caps). These instruments are matched with
either fixed or variable rate debt and periodic cash payments are accrued on a
settlement basis as an adjustment to interest expense. Derivative financial
instruments are not held for trading purposes. Any premiums associated with the
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized over
the shorter of the remaining term of the instrument or the underlying debt.
(See Note 7)
Income Taxes
The Company implemented Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109) as of January 1, 1993. Deferred tax
liabilities and assets are recognized for the future tax consequences of
temporary differences between the financial reporting and tax bases of existing
assets and liabilities. In addition, future tax benefits, such as net operating
loss and investment tax credit carryforwards, are recognized to the extent
realization of such benefits is more likely than not. (See Note 12)
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts. The fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1993 and 1994.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from the amounts
presented herein. The following is a summary of the estimated fair value and
carrying value of the Company's financial instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1993 1994
--------------------- ---------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Marketable Equity Securities (See
Note 4).......................... $ 58,676 $ 199,596 $ 122,510 $ 122,510
Cost Method Investments (See Note
5)............................... 27,740 40,543 33,175 47,322
LIABILITIES
Total Debt, Swaps and Caps (See
Note 7).......................... 3,177,178 3,510,020 3,449,907 3,516,588
Redeemable Common Stock (See Note
9)............................... 213,548 339,365 232,399 329,011
</TABLE>
The Company believes carrying value approximates fair value for all other
financial instruments.
F-8
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Loss per Common Share
Loss per common share is calculated by dividing the loss available to common
stockholders by the weighted average number of common shares outstanding of
119,544,000, 114,055,000, 114,334,000, 114,084,000 and 117,627,000 for the
years ended December 31, 1992, 1993 and 1994 and the six months ended June 30,
1994 and 1995, respectively. Shares of the Series A Convertible Preferred Stock
were not assumed to be converted into shares of common stock since the result
would be anti-dilutive by decreasing the loss per share for the years ended
December 31, 1992, 1993 and 1994 and the six months ended June 30, 1994 and
1995.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), which is effective for
fiscal years beginning after December 31, 1995. SFAS 121 addresses the
accounting for potential impairment of long-lived assets. The effect of
implementing SFAS 121 is expected to be immaterial to the Company's financial
position and results of operations.
Reclassifications
Certain amounts have been reclassified from previous presentation in the
accompanying consolidated financial statements.
Unaudited Information
In the opinion of management, the consolidated financial statements for the
unaudited periods include all adjustments of a normal recurring nature
necessary for a fair presentation of such information. The consolidated results
of operations and cash flows for the six months ended June 30, 1994 and 1995
are not necessarily indicative of results that would be expected for a full
year.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The following represents non-cash investing and financing activities and cash
paid for interest and income taxes during the years ended December 31, 1992,
1993 and 1994 and the six months ended June 30, 1994 and 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Dispositions:
Gain on Sale of Investment
(See Note 5)................. $ 10,253 $ 15,919 $ -- $ -- $ --
Deferred Gain on Sale of In-
vestment..................... -- 165 -- -- --
Bases of Assets Sold.......... -- 429 -- -- --
Gain on Sale of Marketable Eq-
uity Securities.............. -- 3,471 -- -- --
Bases of Properties Received.. -- (19,984) -- -- --
Promissory Note Issued to Buy-
er........................... 24,000 -- -- -- --
-------- -------- -------- -------- --------
Proceeds Received from Dis-
position................... $ 34,253 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Accretion of Redeemable Common
Stock.......................... $ 13,806 $ 14,766 $ 19,932 $ 10,100 $ 10,322
======== ======== ======== ======== ========
Accretion of Series A Convert-
ible Preferred Stock........... $ 16,861 $ 34,115 $ 36,800 $ 17,887 $ 19,347
======== ======== ======== ======== ========
Cash Paid During the Period for
Interest....................... $301,210 $261,846 $299,115 $145,111 $178,837
======== ======== ======== ======== ========
Cash Paid During the Period for
Income Taxes................... $ 1,259 $ 2,370 $ 2,411 $ 1,001 $ 845
======== ======== ======== ======== ========
</TABLE>
F-9
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
3. ACQUISITIONS
In June 1994, the Company purchased cable television systems in Manchester,
New Hampshire for approximately $47,990,000, and in November 1994 purchased
cable television systems in Florida for approximately $67,000,000. The
accompanying financial statements reflect the results of operations commencing
on the acquisition dates. Had these acquisitions occurred on January 1, 1993,
the results of operations of the Company would not have been materially
different for 1993 or 1994.
The Company, Providence Journal, King Holding Corp., King Broadcasting
Company and The Providence Journal entered into an agreement and plan of merger
(the Merger) which provides that Providence Journal (which at the time of the
Merger will include only the Providence Journal cable businesses) will be
merged with and into the Company and that the Company will purchase the cable
television businesses and assets of King Broadcasting Company (the King Cable
Purchase). The Company will issue shares of capital stock to stockholders of
Providence Journal in exchange for all shares of Providence Journal. The
ascribed value of the shares to be exchanged is estimated to be $584,769,000
and does not necessarily reflect the price at which such shares will trade
following the Merger. The Merger also provides for the assumption of
$410,000,000 of debt of Providence Journal, the King Cable Purchase for
$405,000,000, and working capital and capital expenditure adjustments which
will be settled in cash. The Merger and the King Cable Purchase will be
accounted for using the purchase method of accounting and closed in the fourth
quarter of 1995.
In 1994 and 1995, the Company entered into purchase and sale agreements (one
of which is currently being renegotiated) to purchase several cable television
systems in Michigan for approximately $155,000,000 and $85,000,000,
respectively. In 1995, the Company entered into a purchase and sale agreement
to purchase a cable television system in California for approximately
$17,000,000. These transactions will be accounted for using the purchase
method, and these transactions have closed or are expected to close in 1995.
Subsequent to June 30, 1995, the Company purchased for cash several cable
television systems in the Chicago, Illinois area for approximately
$168,500,000.
4. MARKETABLE EQUITY SECURITIES
At December 31, 1993, marketable equity securities were carried at cost and
had an aggregate market value of $199,596,000. Effective January 1, 1994, the
Company adopted SFAS 115 and classified marketable equity securities as
available for sale. These investments had a fair value of $183,245,000 and a
cost of $42,161,000 at the date of adoption. The unrealized gain of
$141,084,000, less income taxes of $56,434,000 was reported as an adjustment to
stockholders' equity (deficiency). These securities have an aggregate cost
basis of $42,161,000 and $37,837,000 as of December 31, 1994 and June 30, 1995,
respectively. During the year ended December 31, 1994, the Company recognized a
gross unrealized holding loss of $60,735,000 and a gross realized gain of
$1,204,000. During the six months ended June 30, 1995, the Company recognized a
gross unrealized holding gain of $22,585,000 and a gross realized gain of
$23,032,000.
F-10
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
5. INVESTMENTS
Investments consist of the following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
APPROXIMATE ----------------- JUNE 30,
OWNERSHIP 1993 1994 1995
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Equity Method Investments:
Teleport Communications Group,
Inc. (TCG) and TCG Partners...... 20% $ 67,473 $ 93,954 $103,095
Regional TCG Partnerships......... 10%-30% 19,056 34,609 42,527
Fintelco S.A. .................... 50% -- 146,040 174,978
Optus Vision Pty Ltd.............. 47% -- -- 33,147
Singapore Cablevision Pte Ltd. ... 25% -- 8,484 16,279
PrimeStar Partners, L.P. ......... 10% 19,521 12,500 13,481
Other............................. 20%-50% 2,396 6,717 12,676
-------- -------- --------
108,446 302,304 396,183
-------- -------- --------
Cost Method Investments............. 27,740 33,175 36,304
-------- -------- --------
Total........................... $136,186 $335,479 $432,487
======== ======== ========
</TABLE>
Management's estimated fair value of cost method investments are $40,543,000
and $47,322,000 as of December 31, 1993 and 1994, respectively, primarily based
on recent private transactions or other valuation methods.
In September 1992, the Company completed the disposition of its 50% interest
in North Central Cable Communications Corporation (NCCC) to Meredith/New
Heritage Strategic Partners, L.P. (Meredith) and simultaneously purchased an
ownership interest in Meredith. The Company sold a portion of its interest in
NCCC for $48,253,000 in cash and simultaneously invested $14,000,000 of the
proceeds in Meredith. In addition, the Company exchanged its remaining interest
in NCCC and issued a $24,000,000 promissory note to Meredith and, as a result,
currently has approximately a one-third ownership interest in Meredith. The
$10,253,000 preliminary gain represented the proceeds received less the basis
in NCCC, the cash investment in Meredith and the promissory note. In April
1993, an additional gain of $1,148,000 was recorded due to the receipt of
previously escrowed funds. The Company also received $14,000,000 from Meredith
as a prepayment for services provided by the Company which is included in
accrued and other liabilities on the balance sheet. Meredith operates several
cable systems in Minnesota.
In October 1993, the Company exchanged its equity interest in Insight
Communications Company U.K., L.P. for stock representing less than a 5%
interest in International CableTel, Incorporated (CableTel), a
telecommunications company operating in the United Kingdom. The Company
accounted for the investment in CableTel as a marketable equity security and
recorded a gain of $15,919,000. During the year ended December 31, 1994, the
CableTel marketable equity securities were sold and an additional gain of
$1,204,000 was realized.
In addition to its equity investment, the Company has made commitments to TCG
to loan up to $69,920,000 through 2003, of which $39,500,000 was outstanding as
of December 31, 1994 ($53,800,000 at June 30, 1995). These loans bear interest
at approximately 7%. TCG and its affiliates are telecommunications companies
which operate fiber optic networks in the United States. The initial investment
in TCG was acquired in 1993 at a cost of $66,000,000.
F-11
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
As of December 31, 1994, the Company has advanced $114,000,000 in cash
($148,000,000 at June 30, 1995) to Fintelco, S.A., which owns and operates
cable television systems in Argentina. Continental currently holds an
approximate 50% interest in Fintelco, S.A. subject to certain regulatory
approvals. In addition, the Company has recorded commitments to contribute an
additional $32,216,000 to Fintelco, S.A. ($33,469,000 at June 30, 1995). The
initial investment in Fintelco, S.A. was acquired in February 1994 at a cost of
$80,000,000.
In September 1994, the Company made an initial equity investment in Singapore
Cablevision Private Limited (SCV), which will construct, own and operate a
cable television system in Singapore. As of December 31, 1994, the Company is
committed to make additional capital contributions to SCV of approximately
$35,000,000 ($27,000,000 as of June 30, 1995) to be paid through 1996. In
addition, the Company has made commitments to SCV to loan up to approximately
$45,000,000, if third party debt financing cannot be obtained by SCV.
As of December 31, 1994, a wholly owned subsidiary of the Company issued a
standby letter of credit of $38,750,000 (subsequently increased to $56,250,000)
on behalf of PrimeStar Partners L.P. (PrimeStar), a limited partnership that
provides direct broadcast satellite services. The standby letter of credit
guarantees a portion of the financing PrimeStar incurred to construct a
satellite system and is collateralized by certain marketable equity securities
with a carrying value of $65,781,000 as of December 31, 1994 ($120,042,000 as
of June 30, 1995). As a result of the commitments and other qualitative
factors, the Company accounts for its investment in PrimeStar using the equity
method.
As of June 30, 1995, the Company has advanced approximately $30,000,000 in
cash to Optus Vision Pty Ltd (Optus Vision), a joint venture which will create
a broadband communications network in Australia. The Company currently holds a
46.5% interest in Optus Vision.
The Company also has various investments in cable television companies which
are not individually material to the Company. The Company has approximately a
one-third ownership interest in these companies and therefore accounts for
these investments using the equity method.
The major components of all equity method investees' combined financial
position as of the balance sheet dates and the results of operations for the
years then ended were as follows (reflects the Company's proportionate share
for the periods which the investments were owned):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Property, Plant and Equipment.................... $106,000 $226,000 $274,000
Total Assets..................................... 253,000 495,000 592,000
Total Liabilities................................ 196,000 387,000 475,000
Equity........................................... 57,000 108,000 117,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................. $ 49,000 $ 63,000 $146,000 $ 55,000 $113,000
Depreciation and Amorti-
zation.................. 20,000 22,000 27,000 12,000 19,000
Operating Loss........... (4,000) (5,000) (4,000) (2,000) (5,000)
Net Loss................. (21,000) (19,000) (28,000) (12,000) (23,000)
</TABLE>
F-12
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
6. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land and Buildings.................................... $ 50,040 $ 56,630
Reception and Distribution Facilities................. 1,893,925 2,122,304
Equipment and Fixtures................................ 249,192 288,950
---------- ----------
Total............................................... 2,193,157 2,467,884
Less Accumulated Depreciation......................... 981,650 1,114,095
---------- ----------
Property, Plant and Equipment-net................... $1,211,507 $1,353,789
========== ==========
</TABLE>
7. DEBT
Total debt outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Bank Indebtedness.................................. $ 754,550 $1,373,790
Insurance Company Notes............................ 171,500 150,000
Senior Notes and Debentures........................ 1,400,000 1,400,000
Subordinated Debt.................................. 825,000 500,000
Other.............................................. 26,128 26,117
---------- ----------
Total.......................................... $3,177,178 $3,449,907
========== ==========
</TABLE>
In October 1994, the Company amended and restated its bank indebtedness by
entering into a $2,200,000,000 unsecured reducing revolving credit agreement
(Reducing Revolver). Borrowings under the Reducing Revolver were utilized to
refinance the prior bank indebtedness agreements. Credit availability under the
Reducing Revolver will decrease annually commencing December 31, 1997 with a
final maturity in October 2003. Borrowings under the Reducing Revolver bear
interest at a rate between the agent bank's prime rate (8 1/2% as of December
31, 1994 and 9% as of June 30, 1995) and prime plus 1/2%, depending on certain
financial tests. At the Company's option, borrowings may bear interest at
spreads over LIBOR. The Company's obligations under the Reducing Revolver are
guaranteed by certain subsidiaries (the Restricted Subsidiaries), which
primarily represent the Company's owned and operated cable systems. Prepayments
are required from the proceeds of certain sales of Restricted Subsidiaries'
assets. As of June 30, 1995, $1,663,740,000 was outstanding under the Reducing
Revolver.
Subsequent to June 30, 1995, the Company entered into a $1,200,000,000
unsecured reducing revolving credit agreement. Borrowings under the new
facility will be utilized to finance the Merger with Providence Journal,
including the King Cable Purchase, and certain other acquisitions expected to
close in 1995.
The Insurance Company Notes are unsecured, bear interest at 10.12%, require
increasing semi-annual repayments through July 1, 1999 and rank pari passu in
right of payment with the Reducing Revolver. As of June 30, 1995, the remaining
balance outstanding on the Insurance Company Notes was $138,250,000.
F-13
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The Company's unsecured Senior Notes and Debentures rank pari passu in right
of payment with the Insurance Company Notes and Reducing Revolver
(collectively, Senior Debt) and are non-redeemable prior to maturity, except
for the 9 1/2% Senior Debentures. The 9 1/2% Senior Debentures are redeemable
at the Company's option at par plus declining premiums beginning in 2005. In
addition, at any time prior to August 1996, the Company may redeem a portion of
the 9 1/2% Senior Debentures at a premium with the proceeds from any offering
by the Company of its capital stock. No sinking fund is required for any of the
Senior Notes and Debentures. The Senior Notes and Debentures consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
8 1/2% Senior Notes, Due
September 15, 2001....... $ 200,000 $ 200,000
8 5/8% Senior Notes, Due
August 15, 2003.......... 100,000 100,000
8 7/8% Senior Debentures,
Due September 15, 2005... 275,000 275,000
9% Senior Debentures, Due
September 1, 2008........ 300,000 300,000
9 1/2% Senior Debentures,
Due August 1, 2013....... 525,000 525,000
---------- ----------
Total................... $1,400,000 $1,400,000
========== ==========
</TABLE>
The Company's Senior Debt limits Continental and certain of its subsidiaries
(the Restricted Group) with respect to, among other things, payment of
dividends and the repurchase of certain capital stock in excess of
$550,000,000, the creation of liens and additional indebtedness, property
dispositions, investments and leases, and require certain minimum ratios of
debt to cash flow and cash flow to related fixed charges.
The Company's Subordinated Debt is redeemable at the Company's option at par
plus declining premiums at various dates, and is subordinated to the Company's
Senior Debt. Subordinated Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
10 5/8% Senior Subordinated Notes, Due June 15,
2002................................................ $100,000 $100,000
12 7/8% Senior Subordinated Debentures, Due November
1, 2004............................................. 325,000 --
Senior Subordinated Floating Rate Debentures, Due No-
vember 1, 2004...................................... 100,000 100,000
11% Senior Subordinated Debentures, Due June 1,
2007................................................ 300,000 300,000
-------- --------
Total.............................................. $825,000 $500,000
======== ========
</TABLE>
In December 1993, the Company repurchased $25,000,000 of the 12 7/8% Senior
Subordinated Debentures at a premium of $3,075,000, which was recorded as
interest expense. During November 1994, the Company redeemed the remaining
$325,000,000 of these debentures for a price equal to 106.438% of their
principal amounts plus accrued interest thereon. As a result of the redemption
and the write-off of $7,176,000 of unamortized deferred financing costs, the
Company recorded an extraordinary loss of $28,100,000, less an income tax
benefit of $9,835,000.
The Senior Subordinated Floating Rate Debentures bear interest at LIBOR plus
3% through November 1996, increasing to LIBOR plus 6.5% through maturity.
As of December 31, 1994, the Company has Swaps pursuant to which it pays
fixed interest rates averaging 9.1% (9% as of June 30, 1995) on notional
amounts of $800,000,000 ($900,000,000 as of June 30,
F-14
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
1995) (expiring 1995 through 2000) and variable interest rates on notional
amounts of $1,575,000,000 ($1,575,000 as of June 30, 1995) (expiring 1998
through 2003). The variable interest rates are based on six month LIBOR (7% as
of December 31, 1994 and 6% as of June 30, 1995). In addition, the Company has
a notional amount of $800,000,000 of Caps, included in Other Assets, with a
carrying value of $1,176,000 as of December 31, 1994, expiring in 1995 and
1996, which limit six month LIBOR to approximately 8%. The Company's exposure,
if the other parties fail to perform under the agreements, would be limited to
the impact of variable interest rate fluctuations and the periodic settlement
of amounts due under these agreements. As of December 31, 1993 and 1994,
amounts receivable (payable) under Swaps were $658,000 and $(5,000,000),
respectively.
The variable-rate Swaps include $325,000,000 of Swaps that may be extended by
the counterparty at a certain time in the future at the existing contracted
rates. The Company entered into such Swaps to further manage its interest rate
risk. Such Swaps are related to specific portions of the Company's fixed-rate
debt and are with counterparties that are lenders to the Company under the
Reducing Revolver. Premium income or expense is amortized over the life of the
agreement and is included in the Company's results of operations.
The fair value of total debt, Swaps and Caps is estimated to be
$3,510,020,000 and $3,516,588,000 as of December 31, 1993 and 1994,
respectively, and is based on recent trades and dealer quotes. The components
of the fair value are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Carrying Value of Debt................................ $3,177,178 $3,449,907
Unrealized Loss/(Gain) on Debt........................ 238,295 (130,442)
Unrealized Loss on Floating to Fixed Rate Swaps....... 81,222 14,247
Unrealized Loss on Fixed to Floating Rate Swaps....... 13,325 184,903
Unrealized Gain on Interest Rate Cap Agreements....... -- (2,027)
---------- ----------
Total............................................... $3,510,020 $3,516,588
========== ==========
</TABLE>
Annual maturities of debt for the five years subsequent to December 31, 1994,
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1995.......................................................... $ 24,265
1996.......................................................... 27,250
1997.......................................................... 30,550
1998.......................................................... 33,250
1999.......................................................... 35,000
Thereafter.................................................... 3,299,592
----------
Total....................................................... $3,449,907
==========
</TABLE>
8. COMMITMENTS
The Company and its subsidiaries have entered into various operating lease
agreements, with total commitments of $34,952,000 as of December 31, 1994.
Commitments under such agreements for the years 1995-1999 approximate
$8,778,000, $7,534,000, $5,437,000, $4,189,000 and $3,230,000, respectively.
The Company and its subsidiaries also rent pole space from various companies
under agreements which are generally terminable on short notice. Lease and
rental costs charged to operations for the years ended December 31, 1992, 1993
and 1994 were $17,876,000, $18,378,000 and $20,113,000, respectively.
F-15
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
9. REDEEMABLE STOCK
Pursuant to a Stock Liquidation Agreement with certain stockholders (the
Selling Stockholders), the Company committed to repurchase 30,704,825 shares of
its common stock in December 1998 or January 1999 at a defined purchase price
(Purchase Price). The Purchase Price is the greater of the estimated amount of
net proceeds per share from an underwritten public offering of the Company's
common stock or, the net proceeds per share from the liquidation of the Company
less a 22.5% discount. The Stock Liquidation Agreement also required the
Company to offer to repurchase up to 7,500,000 shares from all stockholders by
October 15, 1993 (the Mandatory Tender Offer).
The fair value of the Redeemable Common Stock is estimated at $339,365,000
and $329,011,000 as of December 31, 1993 and 1994, respectively, based on the
estimate of the Purchase Price at these dates of $20.24 and $19.72 per share,
respectively, as determined by an investment banker of the Company.
In the event the Company is unable to meet its commitments under the Stock
Liquidation Agreement, the Selling Stockholders may cause the sale of all or
substantially all of the assets of the Company.
Pursuant to the Company's August 1992 Tender Offer, the Company repurchased
7,975,550 Redeemable Common shares, 3,985,925 Class A shares, and 5,932,550
Class B shares in October 1992 for approximately $239,852,000, of which
$5,868,000 was paid in January 1993. This transaction satisfied the Mandatory
Tender Offer and, together with agreements with certain stockholders to
withdraw from the 1998-1999 Share Repurchase, reduced the number of Redeemable
Common shares to 18,782,625 shares.
During 1993, the Company repurchased 1,604,400 Redeemable Common shares for
approximately $31,125,000 and during 1994, the Company repurchased 217,625 of
Class B shares and 27,475 of Class A shares. These transactions, together with
an agreement with a certain stockholder to withdraw from the 1998-1999 Share
Repurchase, reduced the number of Redeemable Common shares to 16,767,050 shares
and 16,684,150 shares at December 31, 1993 and 1994, respectively. The effect
of these transactions on certain accounts is as follows:
<TABLE>
<CAPTION>
REDEEMABLE ADDITIONAL
COMMON COMMON PAID-IN
STOCK STOCK CAPITAL
---------- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Repurchase of 17,894,025 Shares
(7,975,550 were Redeemable Shares).......... $ (93,591) $ (4) $(146,257)
Reclassification of 11,446,650 Shares to
Common Stock................................ (141,962) 4 141,958
--------- ---- ---------
Total for the Year Ended December 31,
1992...................................... $(235,553) $-- $ (4,299)
========= ==== =========
Repurchase of 1,604,400 Redeemable Shares.... $ (19,848) $-- $ (11,277)
Reclassification of 411,175 Shares to Common
Stock....................................... (5,085) -- 5,085
--------- ---- ---------
Total for the Year Ended December 31,
1993...................................... $ (24,933) $-- $ (6,192)
========= ==== =========
Repurchase of 245,100 Shares
(82,900 were Redeemable Shares)
Total for the Year Ended December 31,
1994...................................... $ (1,081) $-- $ (3,674)
========= ==== =========
</TABLE>
The initial estimated repurchase cost for the Redeemable Common Stock has
been adjusted by periodic accretions through the repurchase dates, based on the
interest method, of the difference between the initial estimate and the
subsequent estimates of the Purchase Price.
F-16
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
10. STOCKHOLDERS' EQUITY (DEFICIENCY)
In 1992, the Company adopted amendments to its Certificate of Incorporation
and By-laws which reclassified the Company's outstanding common stock, which
has one vote per share, as Class A Common Stock, and created a new class of
common stock, Class B Common Stock, which has ten votes per share. At June 30,
1995, there were 8,635,900 and 109,246,575 Class A and Class B shares of common
stock outstanding, respectively. Stockholders' Equity (Deficiency) reflects
only 8,581,300 and 92,617,025 Class A and Class B shares of common stock
outstanding, respectively, due to the classification of 16,684,150 shares as
Redeemable Common Stock.
During 1992, the Company sold 11,731,875 shares of Class B Common Stock for
approximately $153,839,000 after $1,161,000 of expenses related to the
offerings. In 1993 and 1994, the Company sold 2,396,900 shares of Class A
Common Stock for approximately $46,500,000 and 1,572,150 shares of Class A
Common Stock for approximately $30,500,000, respectively.
In 1992, the Company sold 1,142,858 shares of Series A Convertible Preferred
Stock (Convertible Preferred), $.01 par value, for $350 per share. Net proceeds
were approximately $394,349,000 after expenses related to the offering. Each
Convertible Preferred share is entitled to ten votes per share, shares equally
with each common share in all dividends and distributions, and is convertible
into one share of common stock, at any time, at the option of the holder. The
Convertible Preferred stockholders have the right to sell their shares in a
public offering by causing the Company to register such shares under the
Securities Act of 1933. Certain other stockholders of the Company have similar
registration rights.
The Convertible Preferred has a liquidation preference equal to the greater
of its Accreted Value or the amount which would be distributed to common
stockholders assuming conversion of the Convertible Preferred. The Accreted
Value assumes a yield of 8% per annum, compounded semi-annually in arrears on
the $350 purchase price per share. During the six months ended June 30, 1995,
the carrying value of the Convertible Preferred has been increased by
$19,347,000 to reflect the Accreted Value of $507,123,000 as of June 30, 1995.
After June 1997, if the value of the common stock is greater than 137.5% of
the then Accreted Value, the Company will have the right to convert each
outstanding share of Convertible Preferred into one share of common stock.
In June 2002, each outstanding share of Convertible Preferred may be
converted at the option of the holder or the Company into a number of common
shares which will have a value equal to the Accreted Value. The Company may, at
its sole option, purchase for cash at the Accreted Value all or part of the
Convertible Preferred instead of accepting or requiring conversion.
In connection with the above-referenced sale of shares of Convertible
Preferred Stock and Class B Common Stock, the issuance of subordinated debt,
senior notes, and debentures, and certain other investment banking services,
the Company paid aggregate fees and underwriting discounts to Lazard Freres &
Co. LLC (Lazard) of approximately $9,000,000 and $7,700,000 in 1992 and 1993,
respectively. Two directors of the Company are managing directors of Lazard and
are managing directors of Corporate Partners, L.P., which purchased 728,953
shares of Convertible Preferred on the same terms as all other purchasers of
Convertible Preferred.
11. RESTRICTED STOCK PURCHASE PROGRAM
The Company maintains a Restricted Stock Purchase Program under which certain
employees of the Company, selected by the Board of Directors, are permitted to
buy shares of the Company's common stock
F-17
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
at the par value of one cent per share. The shares remain wholly or partly
subject to forfeiture for five years, during which a pro rata portion of the
shares becomes "vested" at six-month intervals. Upon termination of employment
with the Company, an employee must resell to the Company, for the price paid by
the employee, the employee's shares which are not then vested. For financial
statement presentation, the difference between the purchase price and the fair
market value at the date of issuance (as determined by the Board of Directors)
is recorded as additional paid-in capital and unearned compensation, and
charged to operations through 2001 as the shares vest. Shares of common stock
issued under the program for the years ended December 31, 1992 and 1993 were
2,711,250 and 40,000, respectively, none were issued during 1994 and 2,370,425
shares were issued during the six months ended June 30, 1995. At December 31,
1993 and 1994, and June 30, 1995, 1,958,175, 1,003,925 and 2,918,850 shares,
respectively, were not yet vested. In connection with the Restricted Stock
Purchase Program, a wholly-owned subsidiary of the Company has loaned
approximately $14,035,000, $13,541,000 and $25,502,000 at December 31, 1993 and
1994 and June 30, 1995, respectively, to the participating employees to fund
their individual tax liabilities. These loans are due through 2001, bear
interest at a range from 5% to 8%, and are included in Other Assets in the
accompanying financial statements.
12. INCOME TAXES
Effective January 1, 1993, the Company implemented the provisions of SFAS 109
and recognized an additional charge of $184,996,000 for deferred income taxes.
Such amount has been reflected in the consolidated financial statements as the
cumulative effect of change in accounting for income taxes.
During 1993, the Company revised its estimated annual effective tax rate to
reflect a change in the federal statutory rate from 34% to 35%. The income tax
benefit for the year decreased approximately $4,182,000 as a result of applying
the newly enacted federal tax rates to deferred tax balances as of January 1,
1993.
The provision (benefit) for income taxes is comprised of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1992 1993 1994
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................... $ -- $ 647 $ (196)
State..................... 1,654 1,220 2,049
Deferred:
Federal................... -- (7,968) (35,549)
State..................... -- (1,820) (6,723)
------ ------- --------
Total................... $1,654 $(7,921) $(40,419)
====== ======= ========
Extraordinary Item--De-
ferred..................... $ -- $ -- $ (9,835)
====== ======= ========
</TABLE>
Differences between the effective income tax rate and the federal statutory
rates are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Federal Statutory Rate....................... (34.0)% (35.0)% (35.0)%
Enacted Tax Rate Change...................... -- 12.4 --
Net Operating Losses without Current Income
Tax Benefit................................. 14.8 -- --
Depreciation and Amortization Not Deductible
for Tax Purposes............................ 17.4 -- --
State Income Tax, Net of Federal Income Tax
Benefit..................................... 1.1 (1.2) (2.2)
Other........................................ 2.3 .3 .5
------- ------- -------
Total...................................... 1.6 % (23.5)% (36.7)%
======= ======= =======
</TABLE>
F-18
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Deferred income taxes prior to the implementation of SFAS 109 resulted
primarily from timing differences in the recognition of certain expense items
for tax and financial reporting purposes. The tax effect of each major
component is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1992
----
(IN THOUSANDS)
<S> <C>
Accelerated Depreciation and Amortization............. $ 7,811
Restricted Stock Purchase Program..................... 7,469
Gain on Sale of Investment............................ 3,486
Deferred Income....................................... (4,555)
Utilization of Accounting Net Operating Losses........ (7,669)
Other................................................. (6,542)
-------
Total............................................... $ --
=======
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Liabilities:
Depreciation and Amortization.................. $(482,320) $(506,560)
Unrealized Holding Gain on Marketable Equity
Securities.................................... -- (32,353)
Other.......................................... (14,989) (5,245)
Deferred Tax Assets:
Net Operating Loss Carryforwards............. 439,577 460,469
Tax Credit Carryforwards..................... 60,304 59,397
Other........................................ 49,858 60,836
Valuation Allowance.......................... (157,471) (153,026)
--------- ---------
Net Deferred Tax Liability..................... $(105,041) $(116,482)
========= =========
</TABLE>
The Company and its subsidiaries have net operating loss carryforwards of
approximately $1,000,000,000 at December 31, 1994 for federal income tax
purposes expiring through 2009, and investment tax credit carryforwards of
approximately $60,000,000 expiring through 2005.
Valuation allowances have been established for uncertainties in realizing
transitional investment tax credit carryforwards and the tax benefit of certain
limited use net operating losses for federal and state income tax purposes. If
in future periods the realization of tax credit and net operating loss
carryforwards acquired as a result of business combinations becomes more likely
than not, $29,000,000 of the valuation allowance will be allocated to reduce
goodwill and other intangible assets. The net change of the valuation allowance
during 1994 was a decrease of $4,445,000. The 1994 decrease relates primarily
to the expiration of investment tax credit carryforwards.
An affirmed tax court decision affecting the cable television industry
ratified the deductibility of certain franchise cost amortization. As a result,
the Company revised the estimated tax bases of certain intangible assets as of
December 31, 1993. This resulted in the Company adjusting the carrying values
of goodwill,
F-19
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
franchise costs and deferred tax relating to specific acquisitions by
$16,287,000, $54,506,000 and $70,793,000, respectively.
13. RETIREMENT AND MATCHED SAVINGS PLANS
The Company has a non-contributory defined benefit plan covering
substantially all employees. Benefits under the plan are determined based on
formulas which reflect employees' years of service and the average of the five
consecutive years of highest compensation. The Company's policy is to make
contributions sufficient to meet the minimum funding requirements of ERISA.
The components of net periodic pension expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1992 1993 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service Cost-Benefits Earned During the Year..... $ 2,479 $ 2,584 $ 2,934
Interest Cost on Projected Benefit Obligations... 1,118 1,336 1,576
Actual (Return) Loss on Plan Assets.............. (179) (136) 417
Other Items...................................... (422) (615) (1,514)
------- ------- -------
Total.......................................... $ 2,996 $ 3,169 $ 3,413
======= ======= =======
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Company's balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial Present Value of:
Vested Benefit Obligation............................. $ (8,384) $ (9,159)
Non-Vested Benefit Obligation......................... (1,647) (1,201)
-------- --------
Accumulated Benefit Obligation.......................... (10,031) (10,360)
Effect of Projected Salary Increases.................... (10,553) (12,691)
-------- --------
Projected Benefit Obligation............................ (20,584) (23,051)
Plan Assets at Market Value............................. 11,350 12,397
-------- --------
Funded Status........................................... (9,234) (10,654)
Deferred Transition Loss................................ 1,264 1,194
Unrecognized Prior Service Cost......................... (89) (511)
Unrecognized Net Loss................................... 1,884 2,233
-------- --------
Accrued Pension Cost................................ $ (6,175) $ (7,738)
======== ========
</TABLE>
The actuarial assumptions as of the year-end measurement date are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Discount Rate.................................................. 7.75% 8.75%
Expected Long-Term Rate of Return.............................. 9.00% 9.00%
Rate of Increase in Future Salary Levels....................... 4.75% 5.75%
</TABLE>
F-20
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
At December 31, 1994, plan assets consist of equity and debt securities, U.S.
Government obligations and cash equivalents.
The Company sponsors a defined contribution Matched Savings Plan covering
substantially all of its employees. The Company's contribution for this plan is
based on a percentage of each participant's salary. Total costs for the years
ended December 31, 1992, 1993 and 1994 were $2,418,000, $2,550,000 and
$2,652,000.
14. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have a material effect
on the consolidated financial position and results of operations of the
Company.
15. LEGISLATION AND REGULATION
Pursuant to the Cable Television Consumer Protection and Competition Act of
1992, the FCC in April 1993 promulgated rate regulations that establish maximum
allowable rates for cable television services, except for services offered on a
per-channel or per-program basis. On February 22, 1994, the FCC adopted a
revised regulatory scheme which included, among other things, interim cost-of-
service standards and a new benchmark formula to determine service rates. In
creating the new benchmark formula, the FCC authorized a further reduction in
rates for certain regulated services. As a result, rates for certain regulated
services may now be reduced as much as 17% below their September 30, 1992
level, adjusted for inflation, if they exceed the new per-channel benchmark
rates. The FCC's regulations require rates for equipment and installations to
be cost-based, and require reasonable rates for regulated cable television
services to be established based on, at the election of the cable television
operator, either application of the FCC's benchmark formula or a cost-of-
service showing pursuant to interim standards adopted by the FCC.
Under current FCC regulations, a rate complaint or certification of a local
franchising authority is required to regulate a system. In accordance with the
regulations, the Company either reduced rates under the FCC's benchmark
methodology or supported current rates by cost-of-service showings for
regulated franchises. Certain positions taken by the Company in its cost-of-
service filings are based on provisions of the FCC's interim cost-of-service
rules that allow certain "presumptions" in the rules to be overcome on a case-
by-case basis. While the Company believes that its showings in this regard were
sufficient, the results of these cases were unknown. As a result, during 1994
the Company recorded a revenue reserve.
On August 3, 1995, a Social Contract between the Company and the FCC (the
"Social Contract") was adopted. The Social Contract is a six-year agreement
covering all of the Company's existing franchises, including those that are
currently unregulated, and settles the Company's pending cost-of-service rate
cases and benchmark cable programming service tier (CPS) rate cases. Benchmark
broadcast service tier (BBT) cases will be resolved by the Company and local
franchising authorities. As part of the resolution of these cases, the Company
agrees to, among other things, (i) invest at least $1.35 billion in domestic
system rebuilds and upgrades in the next six years to expand channel capacity
and improve system reliability and picture quality, (ii) reduce its BBT service
rates and (iii) make in-kind refunds to affected subscribers with a retail
value of approximately $9.5 million (the revenue reserve discussed above is
adequate to cover the in-kind refunds). The resolution of pending rate cases is
without any finding by the FCC of any wrongdoing by the Company.
F-21
<PAGE>
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for 1993, 1994 and 1995 are summarized below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1993
Revenues...................... $ 287,542 $ 297,238 $ 295,458 $ 296,925
Depreciation and
Amortization................. 68,010 68,817 70,087 72,095
Restricted Stock Purchase
Program...................... 2,690 2,689 2,690 2,935
Operating Income.............. 58,780 63,713 57,469 57,617
Loss Before Cumulative Effect
of Change in Accounting for
Income Taxes................. (5,397) (1,491) (13,487) (5,399)
Cumulative Effect of Change in
Accounting for Income Taxes.. (184,996) -- -- --
Net Loss...................... (190,393) (1,491) (13,487) (5,399)
Loss Applicable to Common
Stockholders................. (198,602) (9,819) (22,305) (14,159)
Loss Per Common Share:
Loss Before Cumulative Effect
of Change in Accounting for
Income Taxes................ (0.11) (0.08) (0.19) (0.12)
Cumulative Effect of Change
in Accounting for Income
Taxes....................... (1.63) -- -- --
Net Loss.................... (1.74) (0.08) (0.19) (0.12)
1994
Revenues...................... $ 290,764 $ 298,626 $ 296,246 $ 312,341
Depreciation and
Amortization................. 67,458 68,065 71,277 76,383
Restricted Stock Purchase
Program...................... 2,838 2,837 2,827 2,814
Operating Income.............. 59,284 61,507 53,565 56,238
Loss Before Extraordinary
Item......................... (13,640) (9,981) (21,871) (23,084)
Extraordinary Item............ -- -- -- (18,265)
Net Loss...................... (13,640) (9,981) (21,871) (41,349)
Loss Applicable to Common
Stockholders................. (22,518) (18,990) (31,309) (50,824)
Loss Per Common Share:
Loss Before Extraordinary
Item........................ (0.19) (0.16) (0.27) (0.28)
Extraordinary Item........... -- -- -- (0.16)
Net Loss..................... (0.19) (0.16) (0.27) (0.44)
1995
Revenues...................... $ 318,576 $331,472
Depreciation and
Amortization................. 74,422 73,990
Restricted Stock Purchase
Program...................... 2,850 3,055
Operating Income.............. 59,192 61,361
Net Loss...................... (6,902) (26,165)
Loss Applicable to Common
Stockholders................. (16,505) (35,909)
Loss Per Common Share:
Net Loss..................... (0.14) (0.30)
</TABLE>
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Providence Journal Company:
We have audited the accompanying combined balance sheets of Colony
Communications, Inc., Copley/Colony, Inc., Colony Cablevision, a division of
Providence Journal Company, and King Videocable Company, (collectively
"Providence Journal Cable"), as of December 31, 1993 and 1994, and the related
combined statements of operations, changes in group equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
combined financial statements are the responsibility of Providence Journal
Cable's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits. We did not audit the
consolidated financial statements of King Videocable Company, which statements
reflect total assets constituting 45 percent of the related combined totals in
1993 and 1994, and total revenues constituting 33 percent in 1992, and 30
percent in 1993 and 1994, respectively, of the related combined totals. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for King
Videocable Company, is based solely on the report of the other auditors.
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 and the report of the other
auditors provide a reasonable basis for our opinion.
The accompanying combined financial statements are intended to present the
cable television businesses owned or partially owned by Providence Journal
Company that are to be acquired by Continental Cablevision, Inc., pursuant to
an agreement and plan of merger described in note 1.
In our opinion, based on our audits and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the financial position of Providence Journal Cable as of December 31,
1993 and 1994, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in notes 1(h) and 9 to the combined financial statements,
Providence Journal Cable changed its method of accounting for income taxes in
1992.
KPMG Peat Marwick LLP
Providence, Rhode Island
February 10, 1995
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
King Videocable Company:
We have audited the consolidated balance sheets of King Videocable Company
and subsidiaries (a wholly owned subsidiary of King Broadcasting Company, a
subsidiary of King Holding Corp.) as of December 31, 1993 and 1994, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period February 25, 1992 (date acquired by King Holding Corp.) to
December 31, 1992 and for the years ended December 31, 1993 and 1994 (not
presented herein). 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, such consolidated financial statements present fairly, in all
material respects, the financial position of King Videocable Company at
December 31, 1993 and 1994, and the results of their operations and their cash
flows for the period February 25, 1992 (date acquired by King Holding Corp.) to
December 31, 1992 and for the years ended December 31, 1993 and 1994 in
conformity with generally accepted accounting principles.
Deloitte & Touche llp
Boston, Massachusetts
February 10, 1995
F-24
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Cash............................................. $ 543 $ 237 $ 210
Accounts receivable, less allowance for doubtful
accounts of $805 and $419 at December 31, 1993
and 1994, respectively.......................... 23,176 26,894 25,423
Inventory (note 4)............................... 5,914 6,131 7,198
Prepaid expenses................................. 3,629 5,124 5,396
Property, plant and equipment, net (note 5)...... 256,199 254,728 257,656
Franchise costs and other intangible assets, net
(note 6)........................................ 519,553 480,886 517,869
Other assets..................................... 4,292 3,102 4,881
-------- -------- --------
Total assets................................. $813,306 $777,102 $818,633
======== ======== ========
<CAPTION>
LIABILITIES AND GROUP EQUITY
----------------------------
<S> <C> <C> <C>
Accounts payable................................. 13,565 11,993 12,466
Accrued expenses................................. 18,815 22,313 27,178
Deferred revenue................................. 13,456 13,438 14,039
Deferred income taxes (note 9)................... 69,030 70,686 86,066
Minority interests in combined entities.......... 34,964 26,709 14,402
Amounts due to parent companies (note 8)......... 593,073 574,821 611,567
-------- -------- --------
Total liabilities................................ 742,903 719,960 765,718
Commitments and contingencies (notes 2, 10, 11
and 12)
Group equity..................................... 70,403 57,142 52,915
-------- -------- --------
Total liabilities and group equity........... $813,306 $777,102 $818,633
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------------
1992 1993 1994 1994 1995
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue (note 2)......... $199,684 $281,593 $284,993 $141,704 $145,380
-------- -------- -------- -------- --------
Operating costs and
expenses:
Operating.............. 76,523 105,037 114,868 56,528 59,941
Selling, general and
administrative........ 45,180 62,446 58,152 29,650 29,106
Depreciation and
amortization.......... 58,750 99,554 85,783 45,610 42,314
Allocated overhead from
parent companies (note
8(b))................. 6,513 9,651 11,034 3,703 3,818
-------- -------- -------- -------- --------
Total operating costs
and expenses........ 186,966 276,688 269,837 135,491 135,179
-------- -------- -------- -------- --------
Operating income......... 12,718 4,905 15,156 6,213 10,201
Other income (note 3).... 3,660 2,746 2,547 1,147 1,899
Interest expense (note
7)...................... (3,052) (1,908) (88) (26) (354)
Allocated interest
expense from parent
companies (note 8(a))... (16,516) (39,938) (41,318) (20,035) (20,880)
Loss on sale of assets... (17) (2,679) (1,904) -- --
-------- -------- -------- -------- --------
Loss before income taxes,
cumulative effect of
accounting change and
minority interests...... (3,207) (36,874) (25,607) (12,701) (9,134)
Provision for income
taxes (note 9).......... 694 (11,219) (8,182) (3,994) (2,621)
-------- -------- -------- -------- --------
Loss before cumulative
effect of accounting
change and minority
interests............... (3,901) (25,655) (17,425) (8,707) (6,513)
Cumulative effect at
January 1, 1992 of
change in accounting for
income taxes (note 9)... 4,831 -- -- -- --
-------- -------- -------- -------- --------
Income (loss) before
minority interests...... 930 (25,655) (17,425) (8,707) (6,513)
Minority interests in
combined entities....... 4,152 6,724 4,164 2,207 2,286
-------- -------- -------- -------- --------
Net income (loss)........ $ 5,082 $(18,931) $(13,261) $ (6,500) $ (4,227)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF CHANGES IN GROUP EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1991 (unaudited)............................ $ 61,470
Capitalization of King Videocable Company, net of minority interest
(note 3)........................................................... 22,782
Net income.......................................................... 5,082
--------
Balance at December 31, 1992........................................ 89,334
Net loss............................................................ (18,931)
--------
Balance at December 31, 1993........................................ 70,403
Net loss............................................................ (13,261)
--------
Balance at December 31, 1994........................................ $ 57,142
Net loss (unaudited)................................................ (4,227)
--------
Balance at June 30, 1995 (unaudited)................................ $ 52,915
========
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE>
PROVIDENCE JOURNAL CABLE
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)........... $ 5,082 $(18,931) $(13,261) $ (6,500) $ (4,227)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Change in accounting for
income taxes.............. (4,831) -- --
Depreciation and
amortization.............. 58,750 99,554 85,783 45,610 42,314
Loss on sale or abandonment
of assets................. 17 4,079 1,904 -- --
Equity in income of
affiliates................ (183) (1,187) (1,615) (691) (921)
Minority interests in
combined entities......... (4,152) (6,724) (4,164) (2,207) (2,286)
Deferred income taxes...... 2,261 (10,114) 1,656 -- --
Changes in assets and
liabilities:
Accounts receivable....... (3,616) (791) (3,718) 289 1,471
Prepaid expenses.......... (2,650) 748 (1,495) (90) (272)
Other assets.............. (309) (413) 1,290 (2,156) (1,311)
Accounts payable.......... 1,738 1,714 (1,572) 2,704 473
Accrued expenses.......... (3,470) 1,953 3,498 (107) 4,865
Deferred revenue.......... 5,116 52 (18) (2,344) 601
-------- -------- -------- -------- --------
Net cash provided by
operating activities.... 53,753 69,940 68,288 34,508 40,707
-------- -------- -------- -------- --------
Investing activities:
Cash distributions received
from affiliates............ 50 1,095 1,515 762 359
Purchase of minority
shareholders' interests.... -- -- -- -- (51,950)
Property, plant, and
equipment.................. (27,391) (49,094) (47,766) (23,142) (25,631)
-------- -------- -------- -------- --------
Net cash used in
investing activities.... (27,341) (47,999) (46,251) (22,380) (77,222)
-------- -------- -------- -------- --------
Financing activities:
Cash distributions to
minority shareholders...... (3,085) (2,982) (4,091) (1,633) (258)
Principal payments on long-
term debt.................. (5,000) (15,000) -- -- --
Increase (decrease) in
amounts due to parent
companies.................. (18,116) (3,812) (18,252) (10,594) 36,746
-------- -------- -------- -------- --------
Net cash (used in)
provided by financing
activities.............. (26,201) (21,794) (22,343) (12,227) 36,488
-------- -------- -------- -------- --------
Increase (decrease) in cash.. 211 147 (306) (99) (27)
Cash at beginning of period.. 185 396 543 543 237
-------- -------- -------- -------- --------
Cash at end of period........ $ 396 $ 543 $ 237 $ 444 $ 210
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993 AND 1994
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Basis of Presentation
The combined financial statements are intended to present the cable
television businesses owned or partially owned by Providence Journal Company
(Journal) that are to be acquired by Continental Cablevision, Inc.
(Continental) pursuant to an agreement and plan of merger dated November 18,
1994 and amended on August 1, 1995. On October 5, 1995, the Merger was
completed.
The cable television businesses included in the combined financial statements
are Colony Communications, Inc. ("Colony"), a wholly owned subsidiary of the
Journal; Copley/Colony, Inc. ("Copley"), a joint venture between Colony and
Copley Press Electronics Company; Colony Cablevision (formerly Palmer
Communications, Inc.) ("Cablevision"), a division of the Journal; and King
Videocable Company ("KVC"), (collectively, Providence Journal Cable). KVC is
wholly owned by King Broadcasting Company ("Broadcasting"), which in turn is
wholly owned by King Holding Corp. ("King Holding"), a joint venture between
the Journal and an investment banking organization (the Investor Stockholder).
All significant intercompany and affiliated company balances and transactions
have been eliminated in combination. The accompanying combined financial
statements do not reflect adjustments to the valuation of assets or for the
recognition of liabilities that may be required as a consequence of the
aforementioned merger. These combined financial statements include certain
allocations from the Journal and King Holding (collectively, the parent
companies).
Although Journal accounted for the operations of investments in the 50% joint
ventures under the equity method, the operations of such ventures have been
fully combined on the basis that they are managed, together with all wholly-
owned and majority owned cable television businesses, by the Journal and its
subsidiaries. In connection with the aforementioned merger, the Journal will
purchase the 50% joint venture partners interest and therefore, at the date of
merger with Continental, all acquired cable television businesses will be
wholly-owned.
Cable franchise areas are located in California, Florida, Massachusetts, New
York, Rhode Island, Minnesota, Idaho and Washington state. Providence Journal
Cable's credit risk is limited primarily to outstanding trade accounts
receivable from subscribers in these states.
(b) Cash
Providence Journal Cable participates in the cash management programs of the
Journal and King Holding. Under these programs, outstanding checks in excess of
cash are not accounted for as reductions of cash until presented to the bank
for payment. Consequently, at December 31, 1993 and 1994, Providence Journal
Cable reclassified outstanding checks to accounts payable totaling $6,132 and
$5,225 respectively.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Income taxes paid during the year (including federal
and certain state taxes paid to the parent companies
for returns filed on a combined basis)............... $11,863 $1,250 $3,648
======= ====== ======
Interest paid during the year, net of amounts
capitalized.......................................... $ 2,102 $2,092 $ 45
======= ====== ======
</TABLE>
F-29
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred; major improvements
are capitalized. Providence Journal Cable provides for depreciation using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements........................................ 5-20 years
Cable systems..................................................... 3-10 years
Furniture and fixtures............................................ 5-10 years
</TABLE>
When assets are sold or retired, the related cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
credited or charged to income.
When Providence Journal Cable determines that certain property, plant and
equipment is impaired, a loss for impairment is recorded for the excess of the
carrying value over the fair value of the asset.
(d) Franchise Costs and Other Intangible Assets
Franchise costs represent the amount paid to acquire the operating franchises
of Providence Journal Cable. These costs are amortized using the straight-line
method over three to forty years, beginning when the franchise is awarded.
Goodwill resulting from the excess of purchase price over fair value of net
assets acquired is generally amortized over 15-40 years.
Amortization expense on franchise costs and other intangible assets totaled
$18,968, $39,814 and $38,730 for the years ended December 31, 1992, 1993 and
1994, respectively.
Providence Journal Cable continually reviews its intangible assets to
determine whether any impairment has occurred. Providence Journal Cable
assesses the recoverability of intangible assets by reviewing the performance
of the underlying operations, in particular the future operating cash flows
(earnings before income taxes, depreciation, and amortization) of the acquired
operation.
(e) Investments in Affiliated Companies
Providence Journal Cable has investments in three media limited partnerships
which are accounted for using the equity method with voting interests of
approximately 10%, 10% and 50%. The excess of cost of one investment over
Providence Journal Cable's share of net partnership assets is being amortized
over the life of the related partnership agreement (7 years). These investments
are included with other assets in the accompanying combined financial
statements.
(f) Revenue Recognition
Providence Journal Cable bills subscribers one month in advance for certain
cable television services. These revenues are deferred and recognized when the
related service is provided.
(g) Fair Value of Financial Instruments
The carrying amount of substantially all of Providence Journal Cable's
financial instruments approximates fair value due to the short maturity of the
instruments.
F-30
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in the period that includes the enactment
date.
Effective January 1, 1992, Providence Journal Cable adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" and it has
reported the cumulative effect of that change in the method of accounting for
income taxes in the 1992 combined statement of operations (see note 9).
Colony and Cablevision are included in the consolidated Federal income tax
return of the Journal. KVC is included in the consolidated Federal income tax
return of Broadcasting and King Holding. Copley files its own Federal income
tax return. Federal income taxes are computed for Colony, Cablevision and KVC
as if those entities filed a separate Federal income tax return.
(i) Unaudited Combined Interim Financial Statements
The combined financial statements as of and for the six months ended June 30,
1994 and 1995 are unaudited, however, they include all adjustments (consisting
of normal recurring adjustments) considered necessary by management for
presentation of the financial position and results of operations for these
periods. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.
(2) LEGISLATION AND REGULATION
In October, 1992, the Congress of the United States passed the Cable
Television Consumer Protection and Competition Act of 1992 (Cable Act) which
among other matters, provides for the regulation of basic and cable programming
services (other than per-event and per-channel services), allows broadcast
television stations to choose either "must carry" rights or retransmission
consent rights, regulates the sale of cable programming and implements other
operational requirements.
In April 1993, the Federal Communications Commission (FCC) adopted
regulations governing rates for basic and cable programming services which
became effective September 1, 1993. Under the provisions of these regulations,
certain of Providence Journal Cable's revenues derived from cable television
are determined under either a "benchmark" or "cost of service" method.
Effective December 31, 1994, all but one of Providence Journal Cable's systems
had set their rates using the bench-mark method which compares Providence
Journal Cable's rates to those which are in effect at cable systems deemed by
the FCC to face effective competition.
In February 1994, the FCC significantly modified the September 1993 rate
regulations. These modifications were designed to further reduce subscriber
rates and most annual basic and cable programming service rate increases (other
than per-event and per-channel services). Management has implemented the rules
in a manner it believes to be consistent with the regulations promulgated by
the FCC.
As a result of the 1992 Cable Act, several cable television systems of
Providence Journal Cable are subject to regulation by local franchise
authorities and/or the FCC. Regulations imposed by the 1992 Cable
F-31
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
Act, among other things, allow regulators to limit and reduce the rates that
cable operators can charge for certain basic cable television services and
equipment rental charges. Providence Journal Cable has been notified by certain
franchise authorities that various regulated rates charged to subscribers were
in excess of the rates permitted. Providence Journal Cable has reviewed the
notifications as well as the disputed rates and has accrued for amounts it
believes it may be required to refund.
On December 22, 1994, the Federal Communications Commission (FCC) issued an
Order concerning one cable television system of Providence Journal Cable. The
Order ruled that certain "a la carte" channels offered by the system are
subject to rate regulation and directed the system to recalculate its maximum
permitted rates as determined under rules and regulations of the FCC.
Providence Journal Cable has filed a petition for reconsideration of this
decision with the FCC. If such petition does not result in adequate relief,
Providence Journal Cable can and presently intends to, pursue its remedies of
an appeal to the FCC and/or the courts. It is too early for management of
Providence Journal Cable to determine whether any rate refunds and prospective
rate reductions to subscribers may result from this action. Accordingly, no
amounts have been accrued for rate refund liabilities in the accompanying
combined financial statements.
On July 6, 1995, the City of Los Angeles issued a draft order that the a la
carte channels offered by the cable system servicing part of the Los Angeles
area should be treated as cable programming service tiers and therefor subject
to regulation. Providence Journal Cable has documented its opposition to the
City's conclusions and intends to seek relief with appeal to the FCC, if
necessary. Because of the uncertainty as to the ultimate outcome on
reconsideration by the City, or with appeal to the FCC, Providence Journal
Cable has established an accrual for potential refunds of $1.9 million as of
June 30, 1995.
Further rules and regulations are being considered by the FCC, however, these
regulations have not yet been finalized. The ultimate impact on the operations
of Providence Journal Cable resulting from existing rules and regulations and
proposed rules and regulations, if any, cannot be determined.
(3) ACQUISITIONS
Copley/Colony
In May 1995, Colony purchased the 50% interest of its joint venture party in
Copley/Colony for $47,790.
Colony Cablevision (Cablevision)
In 1992 the Journal completed the acquisition of the cable television assets
of Cablevision (formerly Palmer Communications, Inc.) for approximately
$326,000. Prior to the acquisition of Cablevision, Colony managed Cablevision
and received a management fee totaling $2,770 in 1992 which has been included
in other income in the accompanying combined statements of operations.
King Videocable Company (KVC)
In February 1992, King Holding acquired the outstanding capital stock of
Broadcasting for a purchase price of approximately $364,000 plus assumed
liabilities aggregating $183,000, resulting in a total purchase price of
$547,000. Based upon the 1992 appraisal of assets acquired, $327,000 of the
total purchase price was allocated to KVC.
Lakewood Cable, Inc.
In January, 1992, Colony completed the acquisition of Lakewood Cable, Inc.
("Lakewood") in Lakewood, California for $25,000.
F-32
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The aforementioned acquisitions were accounted for as purchases, and for
purposes of these combined financial statements have been presented as
purchases by Providence Journal Cable. The acquisition of KVC in 1992 resulted
in the contribution of capital (push-down of equity) to this entity of $22,782
(net of minority interest). The results of operations have been included in the
accompanying combined financial statements from the respective dates of
acquisition.
(4) INVENTORY
Inventory is recorded at cost and consists primarily of supplies used in
repairs and maintenance and construction inventory used in the construction of
cable plant.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Cable systems.............................................. $369,636 $384,563
Land and buildings......................................... 29,483 31,197
Machinery and equipment.................................... 23,953 33,582
Furniture and fixtures..................................... 7,543 8,214
Construction in progress................................... 4,381 8,843
-------- --------
434,996 466,399
Less accumulated depreciation.............................. 178,797 211,671
-------- --------
$256,199 $254,728
======== ========
</TABLE>
During 1992, 1993 and 1994, Providence Journal Cable capitalized interest
expense on construction in progress of $109, $223 and $300, respectively.
Depreciation expense on property, plant and equipment totaled $39,782, $59,740
and $47,053 in 1992, 1993 and 1994, respectively.
In 1993, due to provisions of the Cable Act (see note 2) which effectively
transferred to cable customers ownership of wiring and additional outlets
located in cable customers' homes, Providence Journal Cable accelerated the
depreciation of these assets based upon the customer churn rate and expensed
all costs of installation and wiring in the home as incurred effective January
1, 1993.
(6) FRANCHISE COSTS AND OTHER INTANGIBLE ASSETS
Franchise costs and other intangible assets consist of the following:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Franchise costs............................................ $446,760 $446,760
Goodwill................................................... 107,299 107,299
Non-compete agreements..................................... 19,683 19,683
Other intangible assets.................................... 16,328 15,719
-------- --------
590,070 589,461
Less accumulated amortization.............................. 70,517 108,575
-------- --------
$519,553 $480,886
======== ========
</TABLE>
F-33
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(7) LONG-TERM DEBT
During 1993, Providence Journal Cable had a note outstanding payable in
annual installments of $2,500. Interest expense on this note totaled $2,268 and
$1,546 in 1992 and 1993, respectively. In December 1993, Providence Journal
Cable settled this note payable and incurred a prepayment penalty equal to $546
(included with interest expense).
(8) RELATED PARTY TRANSACTIONS
(a) Amounts Due to Parent Companies
Substantially all financing arrangements are provided through the parent
companies. Amounts due to parent companies are the net result of transactions
occurring through the shared cash management systems, additions due to
intercompany financing in connection with the acquisitions discussed in note 3,
as well as amounts allocated by parent companies for income taxes, interest and
overhead. Major activity relating to amounts due to parent companies included
the following during 1993 and 1994:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Beginning balance........................................ $596,885 $593,073
Allocated interest and overhead.......................... 49,589 52,352
Repayments and other activity............................ (53,401) (70,604)
-------- --------
$593,073 $574,821
======== ========
</TABLE>
Interest expense was allocated by parent companies based upon average monthly
balances of amounts due to parent companies. The effective rates on interest
allocated were 7.57% and 8.21% during 1993 and 1994, respectively. Effective
interest rates are based upon parent company financing arrangements.
(b) Allocated Overhead
The parent companies provide certain services to Providence Journal Cable
including cash management, human resources, accounting, legal, tax, and other
corporate services. For purposes of the accompanying combined financial
statements corporate overhead relating to these services, totaling $6,513,
$9,651 and $11,034 in 1992, 1993 and 1994, respectively, has been allocated to
Providence Journal Cable. In the opinion of management these charges have been
made on a basis (revenue of each individual business to total revenue) that is
reasonable, however, these charges are not necessarily indicative of the level
of expenses that might have been incurred by Providence Journal Cable on a
stand-alone basis.
KVC, through King Holding, has entered into a consulting and advisory
services agreement with the Investor Stockholder and a management agreement
with the Journal under which the Journal will operate and manage KVC's cable
systems through 1997. In connection with these agreements, King Holding is
obligated to pay $3,500 in annual fees to the Journal and $1,000 to the
Investor Stockholder. For purposes of the accompanying combined financial
statements, a portion of the expenses incurred in relation to these agreements
has been allocated to KVC. Amounts totaling $2,131, $2,034 and $1,901 were
allocated to KVC in 1992, 1993 and 1994, respectively, on the basis of KVC
revenue to total King Holding revenue. These expenses have been included in the
allocation of corporate overhead discussed in the preceding paragraph.
F-34
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(9) INCOME TAXES
As discussed in note 1(h), Providence Journal Cable adopted Statement 109 as
of January 1, 1992. The cumulative effect of this change in accounting for
income taxes of $4,831 was determined as of January 1, 1992 and was reported
separately in the combined statement of operations for the year ended December
31, 1992.
Provision for income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1992:
U.S. Federal................................. $ (453) $ (496) $ (949)
State........................................ 2,376 (733) 1,643
------- ------- --------
$ 1,923 (1,229) 694
======= ======= ========
Year ended December 31, 1993:
U.S. Federal................................. $(4,247) (7,763) (12,010)
State........................................ 1,677 (886) 791
------- ------- --------
$(2,570) (8,649) (11,219)
======= ======= ========
Year ended December 31, 1994:
U.S. Federal................................. $(9,318) 2,201 (7,117)
State........................................ (519) (546) (1,065)
------- ------- --------
$(9,837) $ 1,655 $ (8,182)
======= ======= ========
</TABLE>
Provision for income tax expense (benefit) differed from the amounts computed
by applying the U.S. federal income tax rate of 34% to pretax income as a
result of the following:
<TABLE>
<CAPTION>
1992 1993 1994
------- -------- -------
<S> <C> <C> <C>
Computed "expected" tax......................... $(1,090) $(12,533) $(8,707)
Increase (reduction) in income taxes resulting
from:
State and local income taxes, net of federal
income tax benefit........................... 1,085 521 (703)
Amortization of goodwill...................... 1,211 1,198 1,165
Excess of fair value of securities, donated to
charitable foundation, over basis in those
securities................................... (304) -- --
Utilization of investment tax credit
carryforwards................................ -- (209) --
Other, net.................................... (208) (196) 63
------- -------- -------
$ 694 $(11,219) $(8,182)
======= ======== =======
</TABLE>
F-35
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1994 are presented below:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets:
State net operating loss carryforwards................. $ 5,658 $ 5,572
Alternative minimum tax credit carryforward............ 1,489 883
Uniform capitalization and Section 263A depreciation... 1,434 1,560
Deferred compensation and vacation accrual............. 655 776
Self-insurance reserves................................ 437 404
Partnership investment, principally due to basis
differences........................................... 1,084 2,235
Other.................................................. 722 930
------- -------
Total gross deferred tax assets...................... 11,479 12,360
Less valuation allowance............................. (5,456) (5,569)
------- -------
Net deferred tax assets.............................. 6,023 6,791
------- -------
Deferred tax liabilities:
Intangibles, principally due to differences in
amortization.......................................... 47,891 48,130
Plant and equipment, principally due to differences in
depreciation and capitalized interest................. 25,895 28,824
Other.................................................. 1,267 523
------- -------
Total gross deferred tax liabilities................. 75,053 77,477
------- -------
Total net deferred tax liability..................... $69,030 $70,686
======= =======
</TABLE>
The 1993 beginning valuation allowance for deferred tax assets was $4,867.
The net change in the total valuation allowance was an increase of $589 and
$113 in 1993 and 1994, respectively. Changes to the valuation allowance relate
principally to deferred tax assets recorded for state net operating loss
carryforwards.
At December 31, 1994, Providence Journal Cable has net operating loss
carryforwards for state income tax purposes of $99,000, which are available to
offset future state taxable income, if any, expiring in various years ending in
2008.
F-36
<PAGE>
PROVIDENCE JOURNAL CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(10) OPERATING LEASES
Providence Journal Cable has certain noncancelable operating leases with
renewal options for land, buildings and equipment. Leases for land and
buildings are subject to annual consumer price index adjustments. In 1992, 1993
and 1994, rental expense for all leases, including pole rentals, totaled
$3,973, $5,081 and $5,125, respectively.
At December 31, 1994, commitments under noncancelable lease agreements were
as follows:
<TABLE>
<S> <C>
1995............................................................... $ 2,583
1996............................................................... 2,011
1997............................................................... 1,636
1998............................................................... 1,403
1999............................................................... 1,184
Thereafter......................................................... 3,808
-------
$12,625
=======
</TABLE>
(11) RETIREMENT PLANS
Providence Journal Cable has three defined contribution retirement plans
which include a 401(k) plan and cover substantially all of its employees.
Providence Journal Cable matches participants' 401(k) contributions up to a
maximum of 1% of participants' compensation. Additionally, KVC participates in
a defined benefit plan sponsored by Broadcasting, covering substantially all
employees of KVC. Expenses recorded under these plans totaled $774, $1,516 and
$1,108 in 1992, 1993 and 1994, respectively. Prepaid pension costs with respect
to the defined benefit plan of $457 and $384 have been allocated to KVC at
December 31, 1993 and 1994, respectively.
(12) COMMITMENTS AND CONTINGENCIES
Providence Journal Cable is obligated to make capital improvements of $55,000
on an annualized basis from the date of the merger agreement with Continental
until the merger's closing date (see note 1). Providence Journal Cable also has
letter of credit commitments amounting to $3,203 at December 31, 1994.
Providence Journal Cable has, or participates with its parent companies in,
insurance programs for workers compensation, general liability, auto and
certain health coverages which are a form of self-insurance. Providence Journal
Cable's liability for large losses is capped, individually and in the
aggregate, through contracts with insurance companies. An estimate for claims
incurred but not paid is accrued annually.
The Journal has a revolving credit and term loan facility (totaling $243,655
at December 31, 1994) that is secured in part by a pledge of stock of Colony
Communications, Inc. and its subsidiaries. King Holding has a credit agreement
with a syndicate of banks (totaling $294,049 at December 31, 1994) that is
secured in part by a pledge of stock and assets of KVC.
Providence Journal Cable is a party to various claims, legal actions and
complaints arising in the ordinary course of business. In the opinion of
management, all such matters are without merit or are of such kind, or involve
such amounts, that unfavorable disposition would not have a material effect on
the financial position or results of operations of Providence Journal Cable.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Columbia Associates, L.P.:
We have audited the financial statements of Columbia Associates, L.P. as of
December 31, 1993 and 1994, and have issued our report thereon dated February
24, 1995. In connection therewith, we have also audited the statements of
assets, liabilities and control account of Columbia Cable of Michigan (a
division of Columbia Associates, L.P.) as of December 31, 1993 and 1994, and
the related statements of operations and control account and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Columbia Cable of Michigan as
of December 31, 1993 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Stamford, Connecticut,
February 24, 1995
F-38
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF ASSETS, LIABILITIES AND CONTROL ACCOUNT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1993 1994 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CASH.................................... $ 674,099 $ 385,054 $ 189,327
----------- ----------- -----------
SUBSCRIBER RECEIVABLES, net of allowance
for doubtful accounts of $213,482,
$162,191 and $197,607 in 1993, 1994 and
1995, respectively..................... 573,723 605,547 285,471
----------- ----------- -----------
INVESTMENT IN CABLE TELEVISION SYSTEMS
(Notes 3 and 4):
Property, plant and equipment, at
cost................................. 54,140,130 58,271,277 59,108,745
Less Accumulated depreciation......... (18,032,166) (23,441,707) (25,972,428)
----------- ----------- -----------
36,107,964 34,829,570 33,136,317
Franchising costs, net of accumulated
amortization of $13,245,295,
$14,882,450 and $15,706,990 in 1993,
1994 and 1995, respectively.......... 4,257,209 2,631,381 1,813,787
Goodwill and other intangible assets,
net of accumulated amortization of
$2,390,633, $2,663,051 and $2,814,991
in 1993, 1994 and 1995,
respectively......................... 637,415 332,766 180,827
----------- ----------- -----------
Total investment in cable television
systems............................ 41,002,588 37,793,717 35,130,931
----------- ----------- -----------
OTHER ASSETS, net....................... 991,729 1,058,194 846,115
----------- ----------- -----------
$43,242,139 $39,842,512 $36,451,844
=========== =========== ===========
<CAPTION>
LIABILITIES AND CONTROL ACCOUNT
-------------------------------
<S> <C> <C> <C>
LIABILITIES:
Accounts payable and accrued
expenses............................. $ 1,868,647 $ 2,070,908 $ 1,502,509
Subscriber advance payments and
deposits............................. 632,171 658,394 660,972
----------- ----------- -----------
Total liabilities................... 2,500,818 2,729,302 2,163,481
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2
and 6)
CONTROL ACCOUNT, excess of assets over
liabilities............................ 40,741,321 37,113,210 34,288,363
----------- ----------- -----------
$43,242,139 $39,842,512 $36,451,844
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-39
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF OPERATIONS AND CONTROL ACCOUNT
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ------------------------
1993 1994 1994 1995
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................. $ 25,130,342 $ 26,428,244 $13,044,425 $14,045,883
------------ ------------ ----------- -----------
EXPENSES:
Service costs.......... 9,402,956 10,143,788 5,008,173 5,500,963
Selling, general and
administrative
expenses.............. 4,168,761 4,491,103 2,233,886 2,266,580
Indirect expenses...... 1,413,452 1,449,917 699,950 747,663
Depreciation and
amortization
(Notes 3 and 4)....... 7,046,029 7,620,122 3,744,556 3,915,051
Other expense.......... -- 18,255 10,155 24,960
Gain on disposal of
equipment, net........ (57,958) (26,975) (200) (18,270)
------------ ------------ ----------- -----------
Total expenses....... 21,973,240 23,696,210 11,696,520 12,436,947
------------ ------------ ----------- -----------
Net income........... 3,157,102 2,732,034 1,347,905 1,608,936
CONTROL ACCOUNT,
beginning of period..... 39,723,609 40,741,321 40,741,321 37,113,210
ADVANCES TO PARENT....... (2,139,390) (6,360,145) (3,809,458) (4,433,783)
------------ ------------ ----------- -----------
CONTROL ACCOUNT, end of
period.................. $ 40,741,321 $ 37,113,210 $38,279,768 $34,288,363
============ ============ =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-40
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ------------------------
1993 1994 1994 1995
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................. $ 3,157,102 $ 2,732,034 $1,347,905 $1,608,936
----------- ----------- ---------- ----------
Adjustments to reconcile
division income to net
cash provided by operating
activities:
Depreciation and
amortization............ 7,046,029 7,620,122 3,744,556 3,915,051
Gain on disposal of
equipment............... (57,958) (26,975) (200) (18,270)
Change in assets and
liabilities--
(Increase) decrease in
subscriber
receivables........... (107,581) (31,824) 124,608 320,076
(Increase) decrease in
other assets.......... (213,137) (66,604) 320,578 212,079
Increase (decrease) in
accounts payable and
accrued expenses...... 115,297 202,261 42,115 (568,399)
Increase (decrease) in
subscriber advance
payments and
deposits.............. (2,984) 26,223 17,882 2,578
----------- ----------- ---------- ----------
Total adjustments.... 6,779,666 7,723,203 4,249,539 3,863,115
----------- ----------- ---------- ----------
Net cash provided by
operating
activities.......... 9,936,768 10,455,237 5,597,444 5,472,051
----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase in investment in
existing cable television
systems................... (7,574,365) (4,454,226) (2,460,807) (1,252,265)
Proceeds on disposal of
equipment................. 169,165 70,089 200 18,270
----------- ----------- ---------- ----------
Net cash used in
investing
activities.......... (7,405,200) (4,384,137) (2,460,607) (1,233,995)
----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances to parent......... (2,139,390) (6,360,145) (3,809,458) (4,433,783)
----------- ----------- ---------- ----------
Net cash used in
financing
activities.......... (2,139,390) (6,360,145) (3,809,458) (4,433,783)
----------- ----------- ---------- ----------
Net increase
(decrease) in cash.. 392,178 (289,045) (672,621) (195,727)
CASH, beginning of year...... 281,921 674,099 674,099 385,054
----------- ----------- ---------- ----------
CASH, end of period.......... $ 674,099 $ 385,054 $ 1,478 $ 189,327
=========== =========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-41
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
(1) PARTNERSHIP FORMATION AND SALE:
Columbia Cable of Michigan ("Michigan") is a division of Columbia Associates,
L.P. (the "Partnership"). The Partnership is a limited partnership which was
formed on March 7, 1985, under the laws of the State of Delaware and which
operates under the terms of the Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") dated as of June 2, 1992. The
Partnership will continue until March 1, 1995 unless previously dissolved in
accordance with the terms of the Partnership Agreement. The partners are
presently contemplating an extension of the Partnership Agreement.
On November 1, 1994, the Partnership entered into an agreement to sell
substantially all the assets and certain of the liabilities of Michigan for
$155 million, subject to closing adjustments. The sale was completed in October
1995.
(2) CABLE REGULATION:
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "Act") which, among other things, expanded
governmental regulation of rates for basic and other cable services. Pursuant
to the Act, the Federal Communications Commission (the "FCC") issued
regulations in April 1993. The FCC's regulations require rates for equipment to
be cost-based. Rates for basic and any regulated tiers of service were to be
based on, at the election of the cable operator, either the FCC's benchmark
rates or a cost-of-service showing based upon interim standards adopted by the
FCC. As a result of these regulations and the actions of the local franchise
authorities, Michigan is currently subject to regulation by the local franchise
authorities and the FCC.
Effective September 1, 1993, Michigan elected to use the FCC's benchmark
methodology. In February 1994, the FCC significantly modified the April 1993
regulations. The new regulations, among other things, ordered a lower benchmark
rate that became effective in May 1994 with allocable extensions until July
1994.
In July 1994, Michigan elected to justify its rates using a cost of service
showing instead of the benchmark methodology, but did not raise its rates to
the maximum permitted cost of service rates. Set forth below is a summary of
rates for the regulated tiers of service:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------
COST OF
BENCHMARK SERVICE
NUMBER OF RATE PER RATE PER
SYSTEM SUBSCRIBERS ACTUAL RATE FILING FILING
------ ----------- ----------- --------- --------
<S> <C> <C> <C> <C>
Michigan--Ann Arbor Filing.......... 63,043 $21.25 $20.42 $22.92
Michigan--Brighton Filing........... 12,353 21.00 20.24 23.50
</TABLE>
Michigan's cost of service filings are currently being reviewed by the local
franchise authorities and the FCC. Michigan believes it is in compliance in all
material respects with the provisions of the Act and current regulations, and
accordingly, no revenue reserves have been recorded.
(3) SIGNIFICANT ACCOUNTING POLICIES:
Basis of financial statement presentation--
Michigan's financial statements include all the direct costs of operating the
business. Costs specifically incurred by the Partnership on behalf of Michigan
were directly included in selling, general and administrative expenses and
service costs. Costs which were not incurred specifically for any of the
Partnership's divisions were allocated to Michigan based on Michigan's total
subscribers as a percentage of
F-42
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the Partnership's total subscribers. All the indirect cost incurred by the
Partnership which have been allocated to Michigan have been included as
"indirect expenses" in the accompanying statements of operations and control
account. Management believes the foregoing allocations were made on a
reasonable basis. Nonetheless, the financial information included herein may
not necessarily reflect the financial position and results of operations of
Michigan in the future or what the financial position or results of operations
of Michigan would have been as a separate stand-alone entity.
The control account consists of accumulated earnings/losses, allocated
expenses from the Partnership, as well as any payable/receivable balance due
to/from the Partnership resulting from cash transfers. No provision for
interest has been made to the control account. Set forth below is an analysis
of the control account for the years ended December 31, 1993 and 1994 and the
six months ended June 30, 1995:
<TABLE>
<S> <C>
Control account--December 31, 1992................................. $39,723,609
Net income--1993................................................... 3,157,102
Cash transfers to the Partnership.................................. (25,024,245)
Cash transfers from the Partnership................................ 16,950,000
Direct and indirect expenses....................................... 5,934,855
-----------
Control account--December 31, 1993................................. 40,741,321
Net income--1994................................................... 2,732,034
Cash transfers to the Partnership.................................. (26,789,688)
Cash transfers from the Partnership................................ 14,000,000
Direct and indirect expenses....................................... 6,429,543
-----------
Control account--December 31, 1994................................. 37,113,210
Net income--six months ended June 30, 1995......................... 1,608,936
Cash transfers to the Partnership.................................. (14,406,231)
Cash transfers from the Partnership................................ 6,200,000
Direct and indirect expenses....................................... 3,772,448
-----------
Control account--June 30, 1995..................................... $34,288,363
===========
</TABLE>
The average balance outstanding of the control account was approximately
$40,200,000, $38,900,000, and $35,700,000 during 1993, 1994 and the six month
period June 30, 1995, respectively.
Property, plant and equipment--
Property, plant and equipment is recorded at purchased cost, together with
labor and indirect labor costs amounting to approximately $446,000 and $364,000
in 1993 and 1994, respectively.
Intangible assets--
Franchise costs include the assigned fair value of the franchises from
purchased cable television systems and costs of original franchise
applications, which are deferred until the franchise has been granted, at which
time such costs are amortized. All costs related to unsuccessful franchise
applications are charged to expense when it is determined that the efforts to
obtain the franchises were unsuccessful. Franchise costs are amortized over the
remaining franchise life, while goodwill is amortized over ten years and other
intangible assets (primarily subscriber lists) are amortized over the average
period that a subscriber is expected to remain connected to the cable system.
Amortization of franchise costs, goodwill and other intangible assets amounted
to approximately $1,646,000, $263,000 and $48,000 respectively, in 1993 and
approximately $1,642,000, $261,000 and $44,000, respectively in 1994.
F-43
<PAGE>
COLUMBIA CABLE OF MICHIGAN
(A DIVISION OF COLUMBIA ASSOCIATES, L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
Revenue recognition--
Revenues are recognized as the services are provided.
Interim financial statements--
In the opinion of Michigan, the accompanying unaudited financial statements
contain all adjustments, all of which are of a normal recurring nature,
necessary to present fairly the financial position of Michigan as of June 30,
1995 and the results of its operations and changes in its cash flows for the
six month periods ended June 30, 1994 and 1995.
(4) PROPERTY, PLANT AND EQUIPMENT:
As of December 31, 1993 and 1994, property, plant and equipment consisted of:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Cable systems and equipment......................... $51,855,580 $55,994,897
Land, buildings and improvements.................... 808,174 809,696
Vehicles............................................ 770,857 753,121
Furniture and fixtures.............................. 705,519 713,563
----------- -----------
$54,140,130 $58,271,277
=========== ===========
</TABLE>
Depreciation is calculated on a straight-line basis over the following useful
lives:
<TABLE>
<S> <C>
Cable systems and equipment................................... 5 to 12 years
Buildings and improvements.................................... 15 to 20 years
Vehicles...................................................... 5 years
Furniture and fixtures........................................ 5 to 10 years
</TABLE>
(5) SALARY DEFERRAL PLAN:
The Partnership established a salary deferral plan (the "Plan") in accordance
with Internal Revenue Code Section 401(k), as amended, in 1989. The Plan
provides for discretionary and matching contributions by Michigan on behalf of
participating employees. Discretionary and matching contributions totaled
approximately $151,000 and $162,000 in 1993 and 1994, respectively.
(6) COMMITMENTS:
Under various lease and rental agreements, Michigan had rental expense of
approximately $114,000 and $112,000 in 1993 and 1994, respectively. Approximate
future minimum annual payments under these agreements are as follows:
<TABLE>
<S> <C>
1995.............................................. 38,000
1996.............................................. 39,000
1997.............................................. 32,000
1998.............................................. 18,000
1999.............................................. 18,000
Thereafter........................................ 46,000
</TABLE>
In addition, Michigan rents access to utility poles in its operations
generally under short-term, but recurring, agreements. Total rental expense for
utility poles was approximately $157,000 and $160,000 in 1993 and 1994,
respectively.
F-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Rifkin Cable Income Partners L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Clay Cablevision, a Division of Rifkin Cable Income
Partners L.P. (RCIP), at September 30, 1994 and the results of its operations
and its cash flows for the nine months then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Division's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
March 31, 1995
Denver, Colorado
F-45
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
BALANCE SHEET
SEPTEMBER 30, 1994
<TABLE>
<S> <C>
ASSETS
------
Cash............................................................. $ 24,383
Subscriber accounts receivable, net of allowance for doubtful
accounts of $87,179............................................. 216,384
Other receivables................................................ 29,700
Prepaid expenses and deposits.................................... 144,820
Property, plant and equipment, at cost:
Cable television transmission and distribution systems and
related equipment............................................. 19,994,782
Land, buildings, vehicles and furniture and fixtures........... 1,731,480
-----------
21,726,262
Less accumulated depreciation.................................. (10,177,292)
-----------
Net property, plant and equipment............................ 11,548,970
Franchise costs, net of accumulated amortization of $11,776,013.. 11,585,731
Other assets, net of accumulated amortization of $189,751........ 216,878
-----------
Total assets................................................. $23,766,866
===========
LIABILITIES AND DIVISION DEFICIT
--------------------------------
Accounts payable, trade.......................................... $ 110,711
Other accrued liabilities........................................ 811,940
Subscriber deposits and prepayments.............................. 262,616
Interest payable................................................. 1,154,445
Advances from RCIP............................................... 26,450,447
-----------
Total liabilities............................................ 28,790,159
Commitments (Note 3)
Division deficit................................................. (5,023,293)
-----------
Total liabilities and division deficit........................... $23,766,866
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
REVENUE
Service.......................................................... $8,901,680
Installation and other........................................... 451,149
----------
Total revenue.................................................. 9,352,829
==========
COSTS AND EXPENSES
Operating expense................................................ 3,658,130
Selling, general and administrative expense...................... 1,090,328
Depreciation and amortization.................................... 2,430,245
Management fees.................................................. 503,732
Loss on retirement of assets..................................... 16,544
----------
Total costs and expenses....................................... 7,698,979
----------
Operating income................................................... 1,653,850
Interest expense................................................... 2,012,487
----------
Net loss........................................................... $ (358,637)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss......................................................... $ (358,637)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.................................. 2,430,245
Loss on retirement of assets................................... 16,544
Decrease in accounts payable................................... (98,097)
Decrease in other liabilities.................................. (10,018)
Increase in subscriber deposits and prepayments................ 3,200
Increase in interest payable................................... 568,350
Decrease in subscriber accounts receivables.................... 43,400
Decrease in other receivables.................................. 17,282
Decrease in prepaid expenses and deposits...................... 10,726
----------
Net cash provided by operating activities.................... 2,622,995
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment....................... (589,797)
Proceeds from disposal of assets................................. 12,609
----------
Net cash used in investing activities........................ (577,188)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from RCIP............................................... 2,085,903
Repayments to RCIP............................................... (3,519,486)
Net change in division deficit................................... (615,296)
----------
Net cash used in financing activities........................ (2,048,879)
----------
Net decrease in cash............................................... (3,072)
Cash at beginning of period........................................ 27,455
----------
Cash at end of period.............................................. $ 24,383
==========
</TABLE>
Interest paid for the nine months ended September 30, 1994 was $1,444,137.
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information
Clay Cablevision (Clay, a Division of Rifkin Cable Income Partners L.P
(RCIP)) operates cable television (CATV) systems in Florida. RCIP was formed in
1986 as a limited partnership under the laws of the state of Delaware to
acquire and operate CATV systems. Rifkin Cable Management Partners L.P., an
affiliate of Rifkin and Associates, Inc., is the general partner of RCIP.
On August 24, 1994, RCIP signed an Asset Purchase Agreement ("Agreement")
providing for the sale of substantially all of the net assets of Clay to
Continental Cablevision of Jacksonville, Inc. On November 7, 1994, the sale was
finalized.
Basis of Presentation
The accompanying financial statements present Clay as if it had existed as a
company separate from RCIP and includes the historical assets, liabilities,
revenues, and expenses that are directly related to Clay's business.
Clay's financial statements include all the direct costs of operating the
business. General and administrative expenses specifically incurred by RCIP on
behalf of Clay were included while costs which were not incurred specifically
for any of RCIP's divisions were allocated to Clay based on Clay's total assets
as a percentage of RCIP's total assets. Management believes the foregoing
allocations were made on a reasonable basis. Nonetheless, the financial
information included herein may not necessarily reflect the financial position
and results of operations of Clay in the future or what the financial position
or results of operations of Clay would have been as a separate stand-alone
entity.
Revenue and Programming
Subscriber fees are recorded as revenue in the period the service is
provided. The cost to acquire the rights to the programming generally is
recorded when the product is initially available to be viewed by the
subscriber.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost, which in the
case of assets constructed includes amounts for material, labor, overhead and
interest, if applicable.
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings...................................................... 21-30 years
Cable television transmission and distribution systems and
related equipment............................................. 3-15 years
Vehicles and furniture and fixtures............................ 3- 5 years
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
F-49
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Franchise Costs
The costs to acquire cable television franchises are capitalized and
amortized using the straight-line method over the remaining lives of the
franchises as of the date they were acquired, ranging from four to fifteen
years.
Other Assets
Certain loan costs of RCIP have been deferred and are amortized over the term
of the related debt. A portion of RCIP's loan costs and related accumulated
amortization of $270,795 and $167,581, respectively, have been allocated to
Clay (Note 2).
Income Taxes
RCIP is not an income tax paying entity. Accordingly, no provision is made
for income taxes since the effects of RCIP's operations are reportable by its
partners on their income tax returns.
Advances from RCIP
The indebtedness of RCIP is joint and severally secured by the assets of all
of its divisions, including Clay, and accordingly, a portion of RCIP's debt has
been allocated to Clay (Note 2) as advances from RCIP.
Cash
The only cash balances allocated to Clay were the nominal cash balances
maintained at Clay's operating facilities.
Division Deficit
The division deficit account consists of accumulated earnings/losses as well
as any payable/receivable balance due to/from RCIP resulting from cash
transfers. No provision for interest has been made on interdivisional balances.
The net change in division deficit shown on the Statement of Cash Flows
represents the change in payable/receivable balance due to/from RCIP.
2. RELATED PARTY TRANSACTIONS
RCIP has entered into a management agreement with Rifkin and Associates, Inc.
(Rifkin). The management agreement provides that Rifkin shall act as manager of
RCIP's CATV systems, and shall be entitled to annual compensation of 5% of
RCIP's CATV revenues, net of certain CATV programming costs ("net CATV
revenue"). In addition, the management agreement provides for the reimbursement
by RCIP of certain costs and expenses incurred on its behalf by Rifkin,
including the expense of certain employees devoting time of providing services
to RCIP. This fee has been allocated to Clay based on Clay's net CATV revenue
as a percentage of RCIP's net CATV revenue.
The advances from RCIP of $26,450,447 at September 30, 1994, represent a
portion of RCIP's third-party debt allocated to Clay based on Clay's total
assets as a percentage of RCIP's total assets. The advances from RCIP bear
interest at approximately 7.48 percent, which represents RCIP's average monthly
overall borrowing rate. Interest allocated to Clay for the nine months totaled
$2,012,487, of which $1,154,445 is reflected as interest payable at September
30, 1994.
3. COMMITMENTS AND RENTAL EXPENSE
Clay leases certain real and personal property under noncancelable operating
leases expiring through the year 2002. Future minimum lease payments under such
noncancelable leases as of September 30, 1994
F-50
<PAGE>
CLAY CABLEVISION
(A DIVISION OF RIFKIN CABLE INCOME PARTNERS L.P.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
are: $5,341 remaining in 1994; $12,991 in 1995; $10,485 in 1996; $6,288 in
1997; $5,092 in 1998; and $17,882 thereafter, totaling $58,079.
Total rental expense for the nine months ended September 30, 1994 was
$127,822, including $94,180 relating to cancelable pole rental agreements.
4. CABLE REREGULATION
On September 14, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the Cable Act). On April 1, 1993, the
Federal Communications Commission (FCC) adopted, with effect from September 1,
1993, rules for implementing regulation of CATV subscriber rates. The rates may
be determined under one of two methods, calculation of benchmark rates or cost
of service showings. The Cable Act also gives subscribers and franchisors
certain rights with respect to challenging and regulating local rates.
Regulations to implement the Cable Act were issued in April 1993, and
management, using its best interpretation of regulations, calculated benchmark
rates for its systems, which it implemented effective September 1, 1993.
On February 22, 1994, the FCC issued a statement regarding regulations and
notices of proposed rule-making to implement further the provisions of the
Cable Act. These regulations included a number of significant changes to the
rules issued in 1993 and were intended to achieve a further overall reduction
in cable rates. Clay's calculations of the maximum permitted rates for
regulated programming services and equipment are based on management's best
estimates.
F-51
<PAGE>
REPORT OF INDEPENDENT AUDITORS
General and Limited Partners
N-COM Limited Partnership II
We have audited the accompanying consolidated balance sheets of N-COM Limited
Partnership II at September 30, 1993 and 1994, and the related consolidated
statements of operations, partners' net capital deficiency, and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of N-COM Limited
Partnership II at September 30, 1993 and 1994, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Detroit, Michigan
December 23, 1994
F-52
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- JUNE 30,
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash............................... $ 1,670,307 $ 1,484,300 $ 545,678
Subscriber and other accounts
receivable; less allowance for
doubtful accounts of $3,668 in
1993, $3,965 in 1994 and $10,136
in 1995........................... 1,086,328 933,394 1,025,175
Prepaid expenses................... 256,645 184,566 153,637
------------ ------------ ------------
Total current assets............. 3,013,280 2,602,260 1,724,490
Property, plant and equipment, at
cost:
Land and improvements.............. 16,000 16,000 16,000
Building and improvements.......... 332,501 338,921 354,410
Cable television distribution
systems........................... 14,915,497 16,662,687 17,308,542
Vehicles........................... 327,027 511,167 604,322
Other equipment and furniture...... 310,621 375,213 374,432
Construction in progress........... 710,744 975,838 6,278,398
------------ ------------ ------------
16,612,390 18,879,826 24,936,104
Less accumulated depreciation........ (4,164,921) (6,856,833) (8,630,541)
------------ ------------ ------------
Net property, plant and equipment.... 12,447,469 12,022,993 16,305,563
Other assets, at cost:
Intangible assets, less accumulated
amortization...................... 33,662,304 24,408,514 18,112,311
Other assets....................... 22,960 22,910 28,260
------------ ------------ ------------
33,685,264 24,431,424 18,140,571
------------ ------------ ------------
$ 49,146,013 $ 39,056,677 $ 36,170,624
============ ============ ============
<CAPTION>
LIABILITIES AND PARTNERS' NET CAPITAL DEFICIENCY
- ------------------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable................... $ 430,233 $ 463,774 $ 354,012
Accrued liabilities:
Programming costs.................. 343,479 473,986 307,785
Compensation and related taxes..... 96,449 64,093 51,324
Management fee..................... 70,000 70,000 48,482
State taxes........................ 97,467 9,200 --
Interest........................... 169,442 214,558 10,527
Other.............................. 392,899 293,828 669,400
Unearned subscriber revenues......... 1,071,722 947,731 1,070,768
Long-term debt due within one year... 1,770,366 3,775,000 3,000,000
------------ ------------ ------------
Total current liabilities........ 4,442,057 6,312,170 5,512,298
Deferred management fee.............. 676,100 912,400 1,130,582
Deferred incentive compensation...... 524,014 568,510 568,542
Long-term debt....................... 47,114,294 41,395,000 43,285,000
Promissory notes to partners......... 21,730,563 28,535,001 35,640,144
Partners' net capital deficiency..... (25,341,015) (38,666,404) (49,965,942)
------------ ------------ ------------
$ 49,146,013 $ 39,056,677 $ 36,170,624
============ ============ ============
</TABLE>
See accompanying notes.
F-53
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED STATEMENT OF OPERATIONS AND PARTNERS' NET CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30 JUNE 30,
-------------------------- --------------------------
1993 1994 1994 1995
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Subscriber............ $ 18,607,097 $ 18,830,785 $ 14,148,540 $ 14,777,770
Other................. 676,987 892,080 652,418 934,783
------------ ------------ ------------ ------------
19,284,084 19,722,865 14,800,958 15,712,553
Operating expenses:
Direct operating
expenses............. 7,653,673 8,403,794 6,216,054 6,776,535
Selling, general and
administrative....... 3,264,030 2,939,681 2,140,711 2,382,627
Management Fee........ 338,565 345,230 260,364 263,780
Depreciation and
amortization......... 11,750,559 12,079,983 8,895,808 8,578,257
------------ ------------ ------------ ------------
Operating loss.......... (3,722,743) (4,045,823) (2,711,979) (2,288,646)
Interest expense
(including partners'
amounts of $5,692,883,
$6,278,203, $4,506,590
and $6,038,034)........ 8,233,622 9,279,566 6,663,480 8,840,077
------------ ------------ ------------ ------------
Net loss................ (11,956,365) (13,325,389) (9,375,459) (11,128,723)
Partnership
Distribution........... -- -- -- (170,815)
Partners' net capital
deficiency at beginning
of year/period......... (13,384,650) (25,341,015) (25,341,015) (38,666,404)
------------ ------------ ------------ ------------
Partners' net capital
deficiency at end of
year/period............ $(25,341,015) $(38,666,404) $(34,716,474) $(49,965,942)
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-54
<PAGE>
N-COM LIMITED PARTNERSHIP II
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
-------------------------- ---------------------------
1993 1994 1994 1995
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss.............. $(11,956,365) $(13,325,389) $(9,375,459) $(11,128,723)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Deferred interest... 5,563,729 6,107,973 3,608,725 5,172,448
Depreciation and
amortization....... 11,750,559 12,079,983 8,895,808 8,578,257
Deferred management
fee and incentive
compensation....... 469,560 280,796 171,812 218,214
Loss (gain) on
disposal of
equipment.......... 81,828 106,806 (40,539) 84,871
Changes in cash due
to:
Accounts
receivable....... 174,663 152,934 (73,055) (91,781)
Prepaid expenses.. (69,952) 72,079 81,569 30,929
Accounts payable.. (149,237) 33,541 (84,978) (109,760)
Accrued
liabilities...... 68,423 (44,071) 70,883 (38,147)
Unearned
subscriber
revenue.......... (174,943) (123,991) 107,388 123,037
------------ ------------ ------------ -------------
Net cash
provided by
operating
activities..... 5,758,265 5,340,661 3,362,154 2,839,345
CASH FLOWS FROM
INVESTING ACTIVITIES
Capital expenditures.. (2,101,790) (2,402,656) (1,541,081) (6,175,195)
Other assets.......... (10,527) (105,817) (32,661) (479,651)
Payments on behalf of
partners ............ -- -- -- (170,815)
------------ ------------ ------------ -------------
Net cash used in
investing
activities..... (2,112,317) (2,508,473) (1,573,742) (6,825,661)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance
of long-term debt.... 49,759,502 1,477,450 1,417,934 6,232,694
Principal payment of
long-term debt and
capital lease
obligations.......... (52,029,872) (4,495,645) (3,330,000) (3,185,000)
------------ ------------ ------------ -------------
Net cash provided
by/(used in) financing
activities............. (2,270,370) (3,018,195) (1,912,066) 3,047,694
------------ ------------ ------------ -------------
Net increase
(decrease) in
cash........... 1,375,578 (186,007) (123,654) (938,622)
Cash, beginning of
period................. 294,729 1,670,307 1,670,307 1,484,300
------------ ------------ ------------ -------------
Cash, end of period..... $ 1,670,307 $ 1,484,300 $ 1,546,653 $ 545,678
============ ============ ============ =============
Supplemental disclosures
of cash flow
information:
Interest paid......... $ 4,459,959 $ 3,623,092 $ 2,913,118 $ 2,679,735
============ ============ ============ =============
</TABLE>
See accompanying notes.
F-55
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE MONTHS ENDED JUNE 30, 1994 AND 1995 IS
UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
N-COM Limited Partnership II (the Partnership) owns all of the outstanding
capital stock of N-COM Holding Corporation (the Company) which was incorporated
on October 9, 1985 and commenced operations on January 2, 1986 with the
purchase of the outstanding capital stock of Omnicom of Michigan, Inc. and
Clear Cablevision, Inc. In addition, the Company holds 99% partnership
interests in Irish Hills Cablevision Limited Partnership and 99.9% partnership
interest in Omnicom CATV Limited Partnership.
Net income and losses of the Partnership are allocated 17.67% to the General
Partner and 82.33% to the Limited Partners.
Description of Business
The Company operates cable television systems, all of which are located in
the state of Michigan. Subscribers served by each of the systems as of
September 30, 1994 are as follows:
<TABLE>
<CAPTION>
SUBSCRIBERS
-----------
<S> <C>
Omnicom of Michigan, Inc....................................... 33,099
Clear Cablevision, Inc......................................... 7,342
Irish Hills Cablevision Limited Partnership.................... 4,149
Omnicom CATV Limited Partnership............................... 8,384
------
Total subscribers.............................................. 52,974
======
</TABLE>
Summary of Significant Accounting Policies
Taxes
The Partnership is not a tax paying entity for state and federal income tax
purposes. Accordingly, the taxable income, or loss of the Partnership, which
may vary substantially from income or loss reported for financial reporting
purposes, is included in the state and federal income tax returns of the
Partners.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the assets and is computed on the straight-
line method for financial reporting purposes and on accelerated methods for
income tax purposes.
Unearned Subscriber Revenues
Unearned subscriber revenues represent advance billings for future services.
The related revenue is recognized as services are provided.
Unaudited Information
In the opinion of management, the consolidated financial statements for the
unaudited periods include all adjustments (consisting of a normal recurring
nature) necessary for a fair presentation of such information. The consolidated
results of operations and cash flows for the nine months ended June 30, 1994
and 1995 are not necessarily indicative of results that would be expected for a
full year.
F-56
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INTANGIBLE ASSETS
Intangible assets are being amortized on the straight-line method and consist
of the following:
<TABLE>
<CAPTION>
AMORTIZATION
CATEGORY PERIOD 1993 1994
-------- ------------ ----------- -----------
<S> <C> <C> <C>
Cost in excess of fair value of tangible
net assets acquired..................... 5.25 years $46,048,466 $46,048,466
Franchise agreements..................... 12 years 94,388 200,254
Organization costs....................... 5.25 years 832,785 832,785
Refinancing costs........................ 4-5 years 1,778,732 1,778,732
----------- -----------
48,754,371 48,860,237
Less accumulated amortization............ 15,092,067 24,451,723
----------- -----------
$33,662,304 $24,408,514
=========== ===========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Senior Secured Credit Agreement..................... $48,875,000 $45,170,000
Other notes payable................................. 9,660 --
----------- -----------
48,884,660 45,170,000
Less current portion due within one year............ 1,770,366 3,775,000
----------- -----------
$47,114,294 $41,395,000
=========== ===========
25% subordinated promissory notes to Partners
including deferred interest, interest payable
quarterly with option for deferral through March
31, 1997, at which time the entire balance is due.. $10,721,965 $14,968,264
Subordinated promissory notes to Partners including
deferred interest, fixed interest at 21% payable
quarterly, with option for deferral through March
31, 1997, at which time the entire balance is due.
Additional interest at 4% is payable upon payment
of the principal, contingent upon the Partnership
exceeding operating cash flow, as defined.......... 11,008,598 13,566,737
----------- -----------
$21,730,563 $28,535,001
=========== ===========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -----------
<S> <C>
1995........................................................ $ 3,775,000
1996........................................................ 3,500,000
1997........................................................ 34,785,001
1998........................................................ 8,500,000
1999........................................................ 11,062,500
Thereafter.................................................. 12,082,500
-----------
$73,705,001
===========
</TABLE>
As of December 31, 1992, the Company refinanced its revolving credit
agreement and entered into a Senior Secured Credit Facility with a consortium
of banks whereby the Company can borrow up to
F-57
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$60,000,000 comprised of a $50,000,000 term loan (Facility A) and a $10,000,000
revolving credit arrangement (Facility B). Interest under the facility (5.3125%
and 7.125% at September 30, 1993 and 1994, respectively) is based on a ratio of
debt to cash flow and will range from 3/8% to 1 1/8% above prime or 1 5/8% to 2
3/8% above LIBOR rate. Interest on a certain portion of such debt shall not
exceed 8% under an interest rate cap agreement. Facility A is charged an agency
fee of .125% per annum and Facility B is charged a commitment fee of one-half
of one percent per annum on the unused balance. The term loan is payable in
quarterly installments through December 31, 2000 and the revolving credit
facility has commitment reductions over its term. The Senior Secured Credit
Facility Agreement provides that the Company shall prepay the term loan in
amounts equal to 100% of excess cash flow, as defined, commencing December 31,
1993. Excess cash flow for calendar year 1994 is anticipated based on the
Company's estimate and accordingly, $1,900,000 has been classified as current.
The Senior Secured Credit Facility and the subordinated promissory notes
include significant restrictive covenants, which include the requirements that
the Company maintain certain financial ratios relating to leverage and cash
flows. The loans are collateralized by substantially all of the assets of the
Company. At March 31, 1994 and September 30, 1994, the Partners elected to
defer the quarterly interest payment then due on the subordinated notes, and
accordingly, waivers of default were obtained from the Partners.
4. RELATED PARTY TRANSACTIONS
N-COM Inc., the Partnership's general partner, charges the Partnership a
management fee for administrative salaries and related benefits, legal fees and
other administrative expenses. For the year ended September 30, 1993 and 1994,
the management fee amounted to $338,565 and $345,230, respectively. At
September 30, 1994, certain management fees were deferred totaling $912,400 (of
which $184,600 bears interest at prime and $727,800 bears interest at 25%) and
is due in 1997. At September 30, 1993 $676,100 of management fees were
deferred.
Annually, the Company pays to N-Com II Inc., an affiliate of the Company,
approximately $70,000 to compensate for certain tax effects of the January,
1992 restructuring transaction.
Continental Cablevision Investments, Inc., (Continental) a limited partner of
the Partnership, obtains programming services for the Company at rates more
favorable than would otherwise be available to the Company. The Company
reimburses Continental for such programming services at the higher service
costs and receives loans for the difference in programming service costs. Such
loans may be up to a maximum of $4,465,250 and bear interest at 25% (see Note
3). At September 30, 1994, the Company had loans together with deferred
interest totaling $3,984,881 ($1,808,176 at September 30, 1993).
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases tower sites, vehicles and administrative facilities under
noncancelable operating leases. Rent expense amounted to $273,400 and $278,000
for the year ended September 30, 1993 and 1994, respectively. Minimum future
lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1995............................................................ $114,410
1996............................................................ 99,388
1997............................................................ 75,210
1998............................................................ 10,195
1999............................................................ 20,351
Thereafter...................................................... 39,408
--------
$358,962
========
</TABLE>
F-58
<PAGE>
N-COM LIMITED PARTNERSHIP II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Incentive Plan
The Company provides an incentive compensation plan to key employees which is
contingent upon certain conditions including continuous employment through
December 31, 1996. The amount of the incentive payment for each employee is
based on the results of operations. Estimated incentive compensation is being
accrued over the period of the Plan. Incentive compensation expense amounted to
$324,792 and $0 for the years ended September 30, 1993 and 1994, respectively.
Payments under the plan are payable at the termination of the plan (1997) or
earlier upon certain sale transactions.
Franchise Renewal
Since 1992, the Company has been engaged in negotiations with a consortium of
four municipalities (representing approximately 25,000 of the Company's cable
subscribers), for the long term renewal of their respective cable television
franchises. Under the provisions of the Federal Cable Communications Policy Act
of 1984 (the "Cable Act"), the Company has submitted formal proposals for these
franchise renewals. In the context of the continuing negotiations, each of the
municipalities has made a preliminary assessment not to accept the Company's
formal proposal. If the negotiations do not result in mutually acceptable
franchise renewals, the municipalities are required to convene an
Administrative Hearing at which they would have to establish by a preponderance
of the evidence that the Company's formal proposals are not entitled to the
strong presumption of renewal provided under the Cable Act. One of the
municipalities has postponed its Administrative Hearing to an indefinite date,
and none of the other municipalities has scheduled an Administrative Hearing.
If necessary, the Company intends to pursue vigorously the franchise renewals
in any Administrative Hearings and, if needed, through its rights of appeal in
the federal or state courts, as provided under the Cable Act. The Company
expects in the near term to reach mutually agreeable franchise renewal terms
with the communities. In any event, it is the Company's opinion, based on the
opinion of legal counsel, that it is probable that the franchises will
ultimately be renewed.
Authority to Sell
As a result of the failure of the Partnership in 1994 to meet cash flow
levels, as defined, and failure to make quarterly interest payment due on
September 30, 1994, certain of the partners have the right to elect to cause
the business of the partnership to be sold during a period of one year from
such election subject to approval of terms of sale by a majority in interest of
the partners electing to sell. To date such election has not been made or
waived.
Other
The Company has performance bonds outstanding at September 30, 1994
aggregating $384,000 representing obligations under franchise and utility
license agreements.
6. CALL OPTION
Continental has the right to purchase 80% of the Partnership's interests at a
formula price based on cash flow anytime from December 31, 1996 through January
31, 1997 or in the event that the partnership is sold. If Continental exercises
the Call Option, the remaining Partners shall have the right to sell to
Continental the remaining 20% interest in the Partnership.
7. EVENT (UNAUDITED) SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT
On March 29, 1995 the partners of N-Com Limited Partnership II (the
"Partnership") executed an Agreement to Purchase Partnership Interests in N-Com
Limited Partnership II (the "Purchase Agreement"). If the transactions
contemplated by the Purchase Agreement are consummated, Continental Cablevision
Investments, Inc. will own 100% of the partnership interests in the
Partnership. The Purchase Agreement contains a number of closing conditions,
including obtaining all necessary franchise consents and certain franchise
renewals. The transaction is scheduled to close in 1995.
F-59
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Cablevision of Chicago:
We have audited the accompanying balance sheets of Cablevision of Chicago (a
limited partnership) as of December 31, 1993 and 1994, and the related
statements of operations and partners' deficiency and cash flows for the years
then ended. 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 financial position of Cablevision of Chicago as of
December 31, 1993 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Jericho, New York
March 3, 1995
F-60
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
Cash and cash equivalents................. $ 339 $ 11 $ 184
Accounts receivable-subscribers (less
allowance for doubtful accounts of $134,
$183 and $143)........................... 406 719 509
Other receivables......................... 492 335 711
Prepaid expenses.......................... 165 99 75
Property, plant and equipment, net........ 21,440 21,678 21,434
Deferred acquisition and development costs
(less accumulated amortization of $1,304,
$1,422 and $1,457)....................... 153 35 --
Deferred financing costs (less accumulated
amortization of $883, $1,185 and
$1,344).................................. 1,888 1,789 1,630
Other intangibles (less accumulated
amortization of $981, $1,165 and
$1,257).................................. 307 123 31
Deposits and other assets................. 103 186 175
-------- -------- --------
$ 25,293 $ 24,975 $ 24,749
======== ======== ========
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIENCY
------------------------------------
<S> <C> <C> <C>
Accounts payable.......................... $ 4,554 $ 4,992 $ 5,436
Accounts payable to affiliates, net....... 290 783 765
Subordinated amounts payable to
affiliates............................... 26,129 23,569 26,518
Accrued liabilities:
Interest................................ 621 983 653
Franchise fees.......................... 800 763 876
Payroll and related benefits............ 1,316 1,395 1,168
Other................................... 1,855 1,286 2,231
Debt:
Affiliates.............................. 12,314 12,314 12,314
Bank and other.......................... 65,575 71,771 70,120
-------- -------- --------
Total liabilities..................... 113,454 117,856 120,081
-------- -------- --------
Commitments & contingencies
Partners' deficiency
General partners........................ (1,149) (1,196) (1,221)
Limited partners........................ (87,012) (91,685) (94,111)
-------- -------- --------
Total partners' deficiency............ (88,161) (92,881) (95,332)
-------- -------- --------
$ 25,293 $ 24,975 $ 24,749
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------------
1993 1994 1994 1995
------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues--net................. $ 34,562 $ 34,395 $ 17,262 $ 17,766
Technical expenses (including
affiliate amounts of $1,482,
$1,184, $587 and $627)....... 14,045 14,402 7,117 7,065
Selling, general and
administrative expenses
(including affiliate amounts
of $2,432, $2,932, $1,255 and
$1,567)...................... 9,054 9,092 4,573 5,035
Depreciation and amortiza-
tion......................... 5,593 5,288 2,743 2,541
------------ ------------ -------- --------
Operating income.......... 5,870 5,613 2,829 3,125
------------ ------------ -------- --------
Other income (expense):
Interest income............. 31 30 -- --
Interest expense (including
affiliate amounts of
$4,507, $4,493, $2,228 and
$2,328).................... (9,760) (10,310) (4,969) (5,543)
Miscellaneous, net.......... (12) (53) (48) (33)
------------ ------------ -------- --------
(9,741) (10,333) (5,017) (5,576)
------------ ------------ -------- --------
Net loss.................. $ (3,871) $ (4,720) $ (2,188) $ (2,451)
============ ============ ======== ========
Partners' deficiency:
Beginning of year/period.... $ (84,290) $ (88,161) $(88,161) $(92,881)
Net loss allocated to gen-
eral partners.............. (39) (47) (22) (25)
Net loss allocated to lim-
ited partners.............. (3,832) (4,673) (2,166) (2,426)
------------ ------------ -------- --------
End of year/period.......... $ (88,161) $ (92,881) $(90,349) $(95,332)
============ ============ ======== ========
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1993 1994 1994 1995
------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................ $ (3,871) $ (4,720) $(2,188) $(2,451)
------------ ----------- ------- -------
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and
amortization................. 5,593 5,288 2,743 2,541
Amortization of deferred
financing costs.............. 287 302 156 159
Loss (gain) on sale of
equipment.................... (4) (39) (8) 3
Changes in asset and liability
accounts:
Accounts receivable--
subscribers................ 137 (313) (203) 210
Other receivables........... (235) 157 (147) (376)
Prepaid expenses............ 113 66 68 24
Deposits and other assets... (19) (83) (19) 11
Accounts payable and accrued
expenses................... 193 273 (71) 945
Accounts payable and
subordinated amounts
payable to
affiliates, net............ (4,320) (2,067) 2,709 2,931
------------ ----------- ------- -------
Total adjustments......... 1,745 3,584 5,228 6,448
------------ ----------- ------- -------
Net cash provided by (used
in) operating
activities............... (2,126) (1,136) 3,040 3,997
------------ ----------- ------- -------
Cash flows from investing
activities:
Capital expenditures............ (3,872) (5,278) (2,594) (2,225)
Proceeds from sale of
equipment...................... 5 93 11 52
------------ ----------- ------- -------
Net cash used in investing
activities............... (3,867) (5,185) (2,583) (2,173)
------------ ----------- ------- -------
Cash flows from financing
activities:
Proceeds from bank debt......... 70,750 10,971 2,250 449
Repayment of bank debt.......... (53,511) (4,750) (2,145) (2,100)
Payment of debt to affiliates... (10,072) -- -- --
Payments of capital lease
obligations.................... (79) (25) (22) --
Additions to deferred debt
financing...................... (1,035) (203) -- --
------------ ----------- ------- -------
Net cash provided by (used
in) financing
activities............... 6,053 5,993 83 (1,651)
------------ ----------- ------- -------
Net increase (decrease) in cash
and cash equivalents............. 60 (328) 540 173
Cash and cash equivalents at
beginning of year/period......... 279 339 339 11
------------ ----------- ------- -------
Cash and cash equivalents at end
of year/period................... $ 339 $ 11 $ 879 $ 184
============ =========== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-63
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE COMPANY
Cablevision of Chicago (the "Company") is a limited partnership, organized in
January 1979, under the provisions of the Uniform Limited Partnership Act of
the State of Illinois, for the purpose of constructing and operating cable
television systems. The partnership will terminate December 31, 2020, unless
earlier termination occurs as provided in the partnership agreement.
The partnership consists of two general partners and three limited partners.
The general partners are one individual and Cablevision Systems Services
Corporation (CSSC), a corporation wholly-owned by the individual general
partner. The limited partners of the Company are Cablevision of Illinois (C of
I), Chicago Cablevision Investments (CCI) and Cablevision Headquarters
Investment (CHI) which are all limited partnerships. The individual general
partner of the Company is also a general partner in C of I, CCI and CHI while
CSSC is a general partner in C of I. In addition, a subsidiary of Cablevision
Systems Corporation (CSC), a corporation controlled by the individual general
partner of the Company, is a general partner in CHI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property, Plant and Equipment
Property, plant and equipment, including construction materials, are recorded
at cost, which includes all direct costs and certain indirect costs associated
with the construction of cable television transmission and distribution systems
and the costs of new subscriber installations. Property, plant and equipment is
depreciated on the straight-line method over the estimated useful life of the
asset. Leasehold improvements are amortized over the shorter of their useful
lives or the terms of the related leases.
Revenue Recognition
The Company recognizes revenues as cable television services are provided to
subscribers.
Deferred Acquisition, Development Costs and Intangible Assets
Costs incurred to acquire cable television franchises and expenses incurred
during the initial development period were deferred until the date the first
subscriber was connected. Such costs are being amortized on the straight-line
basis over the average lives of the franchises. Intangible assets are being
amortized over periods ranging from seven to fifteen years on the straight line
basis.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized on the straight-line
basis over the term to maturity of the related debt.
Income Taxes
The Company operates as a limited partnership; accordingly, its taxable
income or loss is includable in the tax returns of the individual partners and
no provision for income taxes is made on the books of the
F-64
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Company. The partners are required to report their share of income or loss in
their income tax returns. The Company's income or loss is allocated to the
partners in accordance with the terms of the partnership agreement. At December
31, 1994, the carrying amount of net assets for financial statement purposes
was less than their tax bases by approximately $3,186.
Cash Flows
For purposes of the statements of cash flows, the Company considers all short
term investments with a maturity at date of purchase of three months or less to
be cash equivalents. The Company paid cash interest of approximately $14,444
(of which approximately $8,500 in 1993 represents interest on the CSSC
subordinated demand note) and $11,904 during the years ended December 31, 1993
and 1994, respectively.
Reclassifications
Certain 1993 amounts have been reclassified to conform with the 1994
presentation.
Unaudited Information
In the opinion of management, the financial statements for the unaudited
periods include all adjustments (consisting of a normal recurring nature)
necessary for a fair presentation of such information. The results of
operations and cash flows for the six months ended June 30, 1994 and 1995 are
not necessarily indicative of results that would be expected for a full year.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items which are
depreciated on the straight line basis over the estimated useful lives shown
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- ESTIMATED
1993 1994 USEFUL LIVES
------- ------- -------------
<S> <C> <C> <C>
Cable television transmission and distribution
systems:
Converters.................................... $11,496 $12,441 5 years
Headend....................................... 4,294 4,420 9 years
Distribution system........................... 60,553 63,272 12 years
Program, service and test equipment........... 3,977 4,166 7 years
Microwave equipment and satellite receivers... 2,771 2,771 7 1/2 years
Construction materials and supplies........... 99 112
------- -------
83,190 87,182
Land............................................ 410 410
Building........................................ 3,186 3,186 25 years
Furniture and fixtures.......................... 622 639 8 years
Vehicles........................................ 2,169 2,218 4 years
Leasehold improvements.......................... 1,722 1,744 Term of Lease
------- -------
91,299 95,379
Less accumulated depreciation and amortization.. 69,859 73,701
------- -------
$21,440 $21,678
======= =======
</TABLE>
F-65
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. DEBT
Debt at December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Partners:
CSC subordinated demand note, bearing interest at 14%
(Note 6)................................................ $12,314 $12,314
======= =======
Other:
Bank debt................................................ $65,550 $71,771
Capital lease obligation................................. 25 --
------- -------
Total other............................................ $65,575 $71,771
======= =======
</TABLE>
On February 5, 1993, the Company entered into a third amended and restated
credit agreement (the "New Credit Agreement") with a group of banks led by Bank
of Montreal, as agent. On June 21, 1994 the Company executed the First
Amendment to the New Credit Agreement with the Bank of Montreal and several
other banks which modified certain restrictive covenants through the maturity
date of the loan. The Company may borrow up to $80,306 under the New Credit
Agreement, of which $7,555 and $150 was restricted for certain letters of
credit at December 31, 1993 and 1994 respectively. Undrawn funds available to
the Company under the New Credit Agreement as of December 31, 1993 and 1994
amount to approximately $10,395 and $8,851 respectively.
The New Credit Agreement includes a $55,306 term loan, of which $58,000 and
$55,305 was outstanding at December 31, 1993 and 1994 respectively, and a
$25,000 revolving line of credit, of which $7,050 and $16,000 was outstanding
at December 31, 1993 and December 31, 1994, respectively. Repayment of the term
loan commenced March 31, 1993 with quarterly payments continuing through
December 31, 2000. The amount available under the revolving line of credit will
be reduced by $2,500 on each of December 31, 1996 and 1997, $3,125 on December
31, 1998, $5,625 on December 31, 1999, and the balance on December 31, 2000.
Based on the outstanding borrowings as of December 31, 1994, future payments
under the terms of the New Credit Agreement are as follows: 1995--$4,200;
1996--$7,800; 1997--$9,900; 1998--$11,100; 1999--$11,100; thereafter $11,205.
The Credit Agreement contains various restrictive covenants, among which are
limitations on various payments and the maintenance of various financial
ratios. The Company was in compliance with the covenants of its credit
agreement on December 31, 1994.
Borrowings bear interest at varying rates depending on the ratio of the
Company's debt to annualized cash flow, as defined in the new Credit Agreement.
The Company has the option of selecting either the bank's prime rate or the
London Interbank Offering Rate (LIBOR) as the borrowing base rate. At December
31, 1994, the weighted average interest rate on the bank debt was 7.96%. The
Company is obligated to pay fees to the banks of 3/8 of 1% per annum on the
unused portion of the loan commitment.
F-66
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The Company has entered into interest rate swap agreements with two banks on
a notional amount of $25,000 whereby the Company pays a fixed rate of interest
and receives a variable rate. Interest rates and terms vary in accordance with
each of the agreements. The lengths of the agreements range from one to two
years. As of December 31, 1994, the agreements have a weighted average
remaining life of two years. The Company is exposed to credit loss in the event
of nonperformance by the other parties to the interest rate swap agreements;
however, the Company does not anticipate nonperformance by the counterparties.
Substantially all of the assets of the Company have been pledged to secure
the borrowings under the Credit Agreement.
In September, 1994 the Company borrowed approximately $8,255, in accordance
with the terms of the New Credit Agreement, to repay $1,503 in accrued
management fees to Cablevision Systems Company and $6,753 in accrued interest
thereon.
In addition the Company has a $2,000 overdraft note with the Bank of
Montreal, of which $466 is outstanding at December 31, 1994.
5. LEASES
The Company leases certain office and production facilities under terms of
leases expiring at various dates through 1999. Rent expense for operating
leases amounted to approximately $457 in 1993 and $499 in 1994.
In addition, the Company rents space on utility poles in its operations. The
Company's pole rental agreements are for varying terms, and management
anticipates renewals as they expire. Rental expense under these agreements was
approximately $196 in 1993 and $205 in 1994.
Future minimum payments under all noncancelable operating leases, including
pole rentals through December 31, 1998, at rates currently in force as of
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1995........................................................... $ 540
1996........................................................... 512
1997........................................................... 444
1998........................................................... 446
1999........................................................... 454
Thereafter..................................................... 124
------
Total future minimum lease payments............................ $2,520
======
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has an agreement with Cablevision Systems Company to provide the
Company with management services. Cablevision Systems Company is owned by the
individual general partner of the Company and certain trusts established for
the benefit of his family members. The agreement can be renewed
F-67
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
indefinitely at the option of Cablevision Systems Company and generally
provides for the payment, in addition to expense reimbursement, of a fee equal
to 3 1/2% of the Company's gross revenues. The fees accrued for 1993 and 1994
were approximately $1,209 and $1,203, respectively. In addition, interest
accrues on the unpaid balance at prime plus two percent. For 1993 and 1994 the
Company accrued approximately $1,097 and $1,188, respectively, for interest on
unpaid management fees. Cumulative unpaid management fees and interest thereon
at December 31, 1993 and 1994 amounted to $15,458 and $9,593, respectively.
Unpaid management fees and interest are included in subordinated amounts
payable to affiliates in the accompanying balance sheets. The Company paid
approximately $730 and $6,753 of accrued interest outstanding on unpaid
management fees in 1993 and 1994, respectively through available bank debt.
Subsequent payments are subject to certain limitations and restrictions as
defined in the New Credit Agreement.
CSC has made advances to or incurred expenses on behalf of the Company.
Unpaid amounts bear interest at the rate of 14% per annum. A portion of this
amount was converted to a subordinated demand note (the "CSC Demand Note"). The
principal balance of the CSC Demand Note at December 31, 1993 and 1994 amounted
to $12,314 and accrued interest thereon approximated $10,089 and $13,394 at
December 31, 1993 and 1994, respectively. The CSC Demand Note is subordinated
to bank debt and is restricted in accordance with certain provisions of the New
Credit Agreement. The amounts of unpaid interest are included in subordinated
amounts payable to affiliates in the accompanying balance sheets.
CSC also has interests in several companies engaged in providing cable
television programming and other services to the cable television industry,
including the Company. During 1993 and 1994 the Company was charged
approximately $1,482 and $1,184, respectively, by these companies primarily for
programming services. One of these companies subleases space in the Company's
main studio production facility, for which the Company was paid approximately
$567 in 1993 and $541 in 1994. Amounts owed these companies at December 31,
1993 and 1994 were approximately $830 and $900, respectively of which
approximately $161 and $318, respectively are included in accounts payable to
affiliates and approximately $582 in each year is included in subordinated
amounts payable to affiliates in the accompanying balance sheets.
The Company is charged for certain selling, general and administrative
expenses by CSC. For the years ended December 31, 1993 and 1994, these expenses
amounted to approximately $1,223 and $1,729, respectively. Amounts owed CSC at
December 31, 1993 and 1994 were approximately $264 and $723, respectively, and
are included in accounts payable to affiliates in the accompanying balance
sheets.
7. PENSION PLAN
The Company is a participant, with other affiliates, in a defined
contribution pension plan covering substantially all employees. The Company
contributed 1 1/2% of each eligible employees' annual compensation, as defined,
to the defined contribution portion of the Pension Plan (the "Pension Plan")
and an equivalent amount to the Section 401(k) portion of the plan (the
"Savings Plan"). Employees may voluntarily contribute up to 15% of eligible
compensation, subject to certain restrictions, to the Savings Plan, with an
additional matching contribution by the Company of 1/4 of 1% for each 1%
contributed by the employee, up to a maximum contribution by the Company of 1/2
of 1% of eligible base pay. Employee contributions are fully vested as are
employer base contributions to the Savings Plan. Employer contributions to the
Pension Plan and matching contributions to the Savings Plan become vested in
years three through seven. At December 31, 1993 and 1994, the cost associated
with these plans was approximately $130 and $118, respectively. The Company
does not provide any postretirement benefits for any of its employees.
F-68
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. CONTINGENCY
The Company has obtained thirty one franchises authorizing it to construct
and operate cable television systems in the suburban areas of Chicago,
Illinois. Certain franchises contain provisions granting the municipalities an
option, at the expiration of the franchise, to purchase the cable television
system for $1 plus any outstanding debt attributable to the system.
9. FINANCING
Since its inception, the Company has incurred substantial losses. Not
withstanding such losses, the Company's cash flow from operations and available
borrowings under its New Credit Agreement (note 4) have been sufficient to meet
its current obligations as a result of the deferral of payment of management
fees and interest thereon and the deferral of interest payments on the
subordinated demand note (note 4 and 6). Payment of the subordinated demand
note, including interest thereon, is restricted in accordance with certain
provisions of the New Credit Agreement. The Company believes that internally
generated funds as well as borrowings under the revolving lines of credit are
sufficient through year end 1995 to fund its requirements for existing cable
operations and meet its debt service requirements.
10. RECENT CABLE TELEVISION REGULATIONS
In October, 1992, the Congress of the United States passed the Cable
Television Consumer Protection and Competition Act of 1992 (Cable Act) which
among other matters, provides for the regulation of basic and cable programming
services. In April 1993, the Federal Communications Commission ("FCC") adopted
regulations governing rates for basic and cable programming services which
became effective September 1, 1993. Under the provisions of these regulations,
certain revenues derived from cable television are determined under either a
"benchmark" or "cost of service" method. Effective September 1, 1993 the
Company's systems had set their rates using the benchmark method which compares
the Company's rates to those which are in effect at cable systems deemed to
face effective competition by the FCC.
In February 1994, the FCC significantly modified the September 1993 rate
regulations. These modifications were designed to further reduce subscriber
rates and most annual basic and cable programming service rate increases (other
than per-event and per-channel services). Management has implemented the rules
in a manner it believes to be consistent with the regulations promulgated by
the FCC.
As a result of the 1992 Cable Act, many of the cable television systems of
the Company are subject to regulation by local franchise authorities and/or the
FCC. Regulations imposed by the 1992 Cable Act, among other things, allow
regulators to limit and reduce the rates that cable operators can charge for
certain basic cable television services and equipment rental charges.
Further rules and regulations are being considered by the FCC, however, these
regulations have not yet been finalized. The ultimate impact on the operation
of the Company resulting from existing rules and regulations and proposed rules
and regulations, if any, cannot be determined.
11. SUBSEQUENT EVENTS
In January 1995, the Company entered into an agreement with Continental
Cablevision, Inc. to sell its cable systems for a sale price of $168,500,
subject to post closing adjustments. The sale is expected to close in 1995.
F-69
<PAGE>
CABLEVISION OF CHICAGO
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
12. TAX INFORMATION (UNAUDITED)
The following represents a reconciliation of the losses allocated to the
partners for financial reporting purposes and that utilized for tax purposes.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Losses allocated to partners for financial reporting
purposes................................................... $(3,871) $(4,720)
Depreciation and amortization adjustments for tax purposes.. 2,347 1,564
Management fees and related interest........................ 1,576 (5,886)
Other....................................................... (385) 111
------- -------
Tax loss allocable to partners.............................. $ (333) $(8,931)
======= =======
Tax loss allocable to general partners...................... $ (4) $ (89)
======= =======
Tax loss allocated to limited partners...................... $ (329) $(8,842)
======= =======
</TABLE>
F-70
<PAGE>
[COMPANY LOGO HERE]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAW OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE COVER PAGE FOR INTERNATIONAL PROSPECTUS]
PROSPECTUS (Subject To Completion)
Issued October 19, 1995
Shares
(logo)Continental Cablevision, Inc.
CLASS A COMMON STOCK
-----------
ALL OF THE SHARES OF CLASS A COMMON STOCK OF CONTINENTAL CABLEVISION, INC. (THE
"COMPANY" OR "CONTINENTAL"), $.01 PAR VALUE PER SHARE ("CLASS A COMMON STOCK"),
BEING OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. OF THE SHARES OF CLASS A
COMMON STOCK BEING OFFERED HEREBY, ARE BEING OFFERED INITIALLY OUTSIDE
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. PRIOR TO THIS OFFERING THERE HAS BEEN NO PUBLIC MARKET FOR THE
CLASS A COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
-----------
THE COMPANY'S AUTHORIZED CAPITAL STOCK CONSISTS OF CLASS A COMMON STOCK, CLASS B
COMMON STOCK, $.01 PAR VALUE PER SHARE ("CLASS B COMMON STOCK", AND TOGETHER
WITH THE CLASS A COMMON STOCK, "COMMON STOCK"), AND PREFERRED STOCK, $.01 PAR
VALUE PER SHARE ("PREFERRED STOCK"), A PORTION OF WHICH HAS BEEN DESIGNATED
SERIES A PARTICIPATING CONVERTIBLE PREFERRED STOCK ("SERIES A PREFERRED STOCK").
THE ECONOMIC RIGHTS OF THE CLASS A COMMON STOCK ARE IDENTICAL TO THOSE OF THE
CLASS B COMMON STOCK, BUT EACH SHARE OF CLASS B COMMON STOCK ENTITLES ITS HOLDER
TO TEN VOTES, WHEREAS EACH SHARE OF CLASS A COMMON STOCK ENTITLES ITS HOLDER TO
ONE VOTE, IN RESPECT OF MATTERS SUBMITTED FOR THE VOTE OF ALL HOLDERS OF COMMON
STOCK. EACH SHARE OF CLASS B COMMON STOCK IS CONVERTIBLE AT ANY TIME INTO ONE
SHARE OF CLASS A COMMON STOCK AT THE OPTION OF THE HOLDER AND AUTOMATICALLY
CONVERTS UPON CERTAIN TRANSFERS. SEE "DESCRIPTION OF CAPITAL STOCK."
-----------
APPLICATION WILL BE MADE FOR QUOTATION OF THE CLASS A COMMON STOCK ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL " ."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................ $ $ $
Total(3)................. $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares of Class A Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ and $ , respectively. See
"Underwriters."
-----------
The shares of Class A Common Stock are offered, subject to prior sale, when,
as and if accepted by the Underwriters named herein and subject to approval of
certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters.
It is expected that delivery of the shares of Class A Common Stock will be made
on or about , 1995, at the office of Morgan Stanley & Co. Incorporated, New
York, N.Y., against payment therefor in New York funds.
-----------
MORGAN STANLEY & CO.
International
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
LAZARD CAPITAL MARKETS
, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission fee............................. $118,966
NASD filing fee.................................................... 30,500
Nasdaq National Market fees........................................ *
Blue Sky fees and expenses......................................... *
Printing and engraving fees........................................ *
Accountants' fees and expenses..................................... *
Legal fees and expenses............................................ *
Transfer agent and registrar's fees................................ *
Miscellaneous...................................................... *
--------
Total............................................................ $ *
========
</TABLE>
- --------
* To be provided by amendment.
The foregoing, except for the Securities and Exchange Commission fee and the
NASD filing fee, are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides, in effect, that any person made a party to
any action by reason of the fact that he is or was a Director, officer,
employee or agent of Continental may and, in certain cases, must be indemnified
by Continental against, in the case of a non-derivative action, judgments,
fines, amounts paid in settlement and reasonable expenses (including attorney's
fees) incurred by him as a result of such action, and in the case of a
derivative action, against expenses (including attorney's fees), if in either
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of Continental. This indemnification
does not apply, in a derivative action, to matters as to which it is adjudged
that the Director, officer, employee or agent is liable to Continental, unless
upon court order it is determined that, despite such adjudication of liability,
but in view of all the circumstances of the case, he is fairly and reasonably
entitled to indemnity for expenses, and, in a non-derivative action, to any
criminal proceeding in which such person had reasonable cause to believe his
conduct was unlawful.
Article VII of the Company's By-Laws in effect provides that the Company
shall indemnify each person who is or was an officer or director of the Company
to the fullest extent permitted by Section 145 of the DGCL.
Article Sixth of the Company's Restated Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
Director, except (i) for any breach of the duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) for any transaction
from which the director derived an improper personal benefit and (iv) for
liability under Section 174 of the DGCL relating to certain unlawful dividends
and stock repurchases.
Reference is made to Article VII of the Underwriting Agreement filed as part
of Exhibit 1 hereto, pursuant to which the Underwriters have agreed to
indemnify officers and directors of the Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Over the last three years, the Company has issued to employees under its
Restricted Stock Purchase Program as in effect from time to time (which is
described in Note 11 to the Consolidated Financial
II-1
<PAGE>
Statements of the Company contained in the Prospectus included as part of this
Registration Statement), the following shares of its Common Stock: (1) on
November 17, 1992, 15,000 shares of Class B Common Stock were issued to 1
employee for an aggregate consideration of $6.00; (2) on December 28, 1992,
141,250 shares of Class B Common Stock were issued to 5 employees for an
aggregate consideration of $56.50; and (3) on March 10, 1993, 15,000 shares of
Class B Common Stock were issued to 1 employee for an aggregate consideration
of $6.00. All of the shares referred to in this paragraph were issued in
reliance on the exemption from registration under the Securities Act provided
by Section 4(2) of the Securities Act. The Company issued the following shares
of its Class B Common Stock to the following numbers of employees for the
stated consideration under its Restricted Stock Purchase Program in reliance
upon Rule 701 of the Securities Act: 2,343,750 shares to 67 employees for
$937.50 in January 1995; 25,000 shares to one employee for $10.00 in February
1995; 12,500 shares to one employee for $5.00 in April 1995; and 12,500 shares
to one employee for $5.00 in June 1995. Each of the above persons represented
that he or she was acquiring the shares for investment and not with a view to a
distribution within the meaning of the Securities Act. The stock certificates
issued to all of the above persons bear restrictive legends. All of the
foregoing share numbers have been adjusted to reflect a 24 for 1 stock dividend
declared by the Board of Directors in September 1995.
No underwriters were engaged in connection with any of the foregoing sales.
On November 17, 1992, 3,679,725 shares were issued and sold to Boston
Ventures Limited Partnership IV and Boston Ventures Limited Partnership IVA for
$50,000,103 in reliance upon Section 4(2) of the Securities Act. The purchasers
of the Class B Common Stock represented that they acquired the shares for their
own accounts and not with a view to, or in connection with, a distribution
within the meaning of the Securities Act. The stock certificates issued to such
purchasers bear restrictive legends. A fee of $1.0 million was paid to Lazard
Freres & Co. LLC in connection with this and two other common equity placements
which took place earlier.
On the following dates, the Company issued and sold to the following
investors shares of Class A Common Stock for the stated aggregate offering
price:
(i) November 12, 1993, 2,396,900 shares to Thomas H. Lee Equity Partners,
L.P., THL-CCI Investors Limited Partnership, Providence Media Partners
L.P., John Hancock Venture Capital Fund Limited Partnership II, Hancock
Venture Partners III L.P., Mayflower Fund Limited Partnership, Falcon
Ventures II L.P., and The Aetna Casualty and Surety Company for
$46,499,860; and
(ii) October 24, 1994, 1,572,150 shares to TCG Partners to and for the
benefit and account of the Fidelity Non-Profit Management Foundation for
$30.5 million.
Such shares were issued and sold in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act. The purchasers of
the Class A Common Stock represented that they acquired the shares for their
own accounts and not with a view to, or in connection with, a distribution
within the meaning of the Securities Act. The stock certificates issued to such
purchasers bear restrictive legends.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Listed below are the exhibits which are filed as part of this registration
statement (according to the number assigned to them in Item 601 of Regulation
S-K). Each exhibit marked by an asterisk (*) is incorporated by reference to
Continental's Registration Statement No. 33-46510 (as amended), declared
effective by the Securities and Exchange Commission on June 15, 1992, each
exhibit marked by two asterisks (**) is incorporated by reference to
Continental's Registration Statement No. 33-59806, declared effective by the
Securities and Exchange Commission on May 27, 1993, each exhibit marked by
three asterisks (***) is incorporated by reference to Continental's
Registration Statement No. 33-65798, declared effective by the Securities and
Exchange Commission on August 6, 1993, and each exhibit marked by four
asterisks (****) is
II-2
<PAGE>
incorporated by reference to Continental's Registration Statement No. 33-57471,
declared effective by the Commission on August 31, 1995. Exhibit numbers in
parenthesis refer to the exhibit numbers in Registration Statements. Each
exhibit marked by a pound sign (#) is a management contract or compensatory
plan.
1.1 Form of Underwriting Agreement, dated , 1995, by and among Continental
Cablevision, Inc., Morgan Stanley & Co. Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation, Lazard Freres & Co. LLC, Morgan Stanley
& Co. International Limited, Donaldson, Lufkin & Jenrette Securities
Corporation and Lazard Brothers & Co., Limited. . . . Filed herewith as
Exhibit 1.1.
2.1 Agreement and Plan of Merger dated as of November 18, 1994, by and among
Continental, Providence Journal Company, The Providence Journal Company,
King Holding Corp. and King Broadcasting Company, as amended and restated
as of August 1, 1995.**** (2.1)
3.1 Restated Certificate of Incorporation of Continental.**** (3.1)
3.1A Certificate of Designation of Continental relating to the Continental
Series A Preferred Stock.**** (3.1A)
3.1B Form of Amendment to Continental's Restated Certificate of Incorporation,
increasing the number of authorized shares.**** (3.1B)
3.2A By-Laws of Continental.**** (3.2A)
3.2B Amendment to By-Laws of Continental.**** (3.2B)
4.1 Indenture dated as of June 22, 1992 between Continental and Morgan
Guaranty Trust Company of New York as Trustee, pertaining to
Continental's 10 5/8% Senior Subordinated Notes due 2002.* (4.1)
4.2 Indenture dated as of June 22, 1992 between Continental and Morgan
Guaranty Trust Company of New York as Trustee, pertaining to
Continental's 11% Senior Subordinated Debentures due 2007.* (4.2)
4.3 Indenture dated as of November 1, 1989 between Continental and The
Connecticut National Bank as successor trustee, pertaining to
Continental's Senior Subordinated Floating Rate Debentures due November
1, 2004.* (4.6)
4.4 Amended and Restated Note Agreement dated as of October 17, 1994 by and
among Continental and certain of its direct and indirect Subsidiaries as
Guarantors and The Prudential Insurance Company of America.**** (4.5)
4.5 Indenture dated as of June 1, 1993 between Continental and The First
National Bank of Chicago, as Trustee, pertaining to Continental's 8 5/8%
Senior Notes due 2003.** (4.10)
4.6 Indenture dated as of June 1, 1993 between Continental and The First
National Bank of Chicago, as Trustee, pertaining to Continental's 9%
Senior Debentures due 2008.** (4.11)
4.7 Indenture dated as of August 1, 1993 between Continental and the Bank of
New York, as Trustee, pertaining to Continental's 8 5/8% Senior
Debentures due 2005.*** (4.11)
4.8 Indenture dated as of August 1, 1993 between Continental and the Bank of
New York, as Trustee, pertaining to Continental's 9 1/2% Senior
Debentures due 2013.*** (4.12)
4.9 Indenture dated as of August 1, 1993 between Continental and the Bank of
New York, as Trustee, pertaining to Continental's 8 1/2% Senior Notes due
2001.*** (4.13)
5 Opinion of Sullivan & Worcester. . . . To be filed by amendment.
7 Opinion regarding liquidation preference for Continental Preferred Stock.
. . . To be filed by amendment.
10.1 Stock Liquidation Agreement dated as of March 6, 1989, as amended as of
September 28, 1990, replacing and restating the Stock Acquisition
Agreement made as of December 19, 1988 by and among Continental, H.
Irving Grousbeck, MD Co., Burr, Egan, Deleage & Co., Roderick A. MacLeod
and Amos B. Hostetter, Jr.* (10.2)
II-3
<PAGE>
10.2 Second Amendment to Stock Liquidation Agreement dated as of July 7, 1992
by and among Continental, Amos B. Hostetter, Jr., H. Irving Grousbeck, MD
Co., Burr, Egan, Deleage & Co. and Roderick A. MacLeod.** (10.2)
10.3 Form of Restricted Stock Purchase Agreement.*# (10.3)
10.4 Stock Purchase Agreement dated April 27, 1992 among Continental,
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The State
Board of Administration of Florida, Chemical Equity Associates, Mellon
Bank, N.A. as Trustee for First Plaza Group Trust, Vencap Holdings (1992)
Pte Ltd and Corporate Advisors, L.P.* (10.4)
10.5 Registration Rights Agreement dated June 22, 1992 among Continental,
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The State
Board of Administration of Florida, Chemical Equity Associates, Mellon
Bank, N.A. as Trustee for First Plaza Group Trust, Vencap Holdings (1992)
Pte Ltd and Corporate Advisors, L.P.* (10.5)
10.6 Amendment to Registration Rights Agreement dated July 15, 1992 among
Continental and Corporate Advisors, L.P. on behalf of Corporate Partners,
L.P., Corporate Offshore Partners, L.P., The State Board of
Administration of Florida, ContCable Continental Preferred Stock
Investors, L.P., Mellon Bank, N.A., as Trustee for First Plaza Group
Trust, and Vencap Holdings (1992) Pte Ltd.** (10.6)
10.7 Stock Purchase Agreement dated July 15, 1992, as amended on November 17,
1992, among Continental, Boston Ventures Limited Partnership III, Boston
Ventures Limited Partnership IIIA, Boston Ventures Limited Partnership IV
and Boston Ventures Limited Partnership IVA.** (10.7)
10.8 Stock Purchase Agreement dated July 15, 1992 among Continental, Thomas H.
Lee Equity Partners, L.P., THL-CCI Continental Preferred Stock Investors
Limited Partnership, Providence Media Partners L.P., Alta V Limited
Partnership, Customs House Partners and Ontario Teachers' Pension Plan
Board.** (10.8)
10.9 Registration Rights Agreement dated July 15, 1992 among Continental,
Boston Ventures Limited Partnership III, Boston Ventures Limited
Partnership IIIA, Boston Ventures Limited Partnership IV, Boston Ventures
Limited Partnership IVA, Thomas H. Lee Equity Partners, L.P., THL-CCI
Continental Preferred Stock Investors Limited Partnership, Providence
Media Partners L.P., Alta V Limited Partnership, Customs House Partners
and Ontario Teachers' Pension Plan Board.** (10.9)
10.10 Liquidation Rights Agreement dated as of July 7, 1992 by and between
Continental and MD Co.** (10.10)
10.11 Stock Purchase Agreement dated as of December 17, 1992 by and among
Teleport Communications Group Inc., Comcast Corporation, Comcast
Teleport, Inc., Continental and Continental Teleport, Inc.** (10.11)
10.12 Optus Vision Joint Venture-Optus Vision Shareholders Agreement dated May
19, 1995 by and among Continental Cablevision of Australia, Inc., Optus
Communications Pty Limited, Pay TV Holdings Pty Limited, Tallglen Pty
Limited, Optus Vision Pty Limited, Optus Networks Pty Limited and Optus
Administration Pty Limited.**** (10.12)
10.13 Management Incentive Plan. #**** (10.13)
10.14 Purchase Agreement dated as of November 1, 1994 by and among Columbia
Associates, L.P., Columbia Cable of Michigan, Inc., and Continental
Cablevision of Manchester, Inc.**** (10.14)
10.15 Supplemental Executive Retirement Plan. #**** (10.15)
10.16 Registration Rights Agreement with New Providence Journal. . . .Filed
herewith as Exhibit 10.16
10.17 Form of Restricted Stock Purchase Agreements for 1995. #**** (10.17)
II-4
<PAGE>
10.18 Voting Agreement by and among Continental, Providence Journal and
certain stockholders of Continental and Providence Journal.... Filed
herewith as Exhibit 10.18
10.19 First Amendment to the Purchase Agreement dated March 24, 1995 by and
among Columbia Associates, L.P., Columbia Cable of Michigan, Inc., and
Continental Cablevision of Manchester, Inc.**** (10.19)
10.19A Second Amendment to the Purchase Agreement dated September 30, 1995, by
and among Columbia Associates, L.P., Columbia Cable of Michigan, Inc.
and Continental Cablevision of Manchester, Inc.... Filed herewith as
Exhibit 10.19A
10.20 Purchase Agreement dated January 6, 1995 by and between Continental
Cablevision, Inc. and Cablevision of Chicago.**** (10.20)
10.21 Purchase Agreement dated March 29, 1995 between N-COM Limited
Partnership II and Continental Cablevision Investments, Inc.**** (10.21)
10.22 Amended and Restated Credit Agreement dated as of October 1, 1994 among
Continental and certain of its direct and indirect Subsidiaries as
Guarantors and The First National Bank of Boston, for itself and as
Administrative and Managing Agent, and certain financial institutions
named therein.**** (4.4)
10.23 Credit Agreement dated as of July 18, 1995 among PJC Financing
Corporation, Colony Communications, Inc., Columbia Cable of Michigan,
N-COM Acquisition Corporation and their respective Subsidiaries and
The Toronto Dominion Bank as Documentation Agent and Managing Agent,
The First National Bank of Boston for itself and as Administrative
and Managing Agent and The Bank of New York for itself and as
Syndication and Managing Agent and certain financial institutions named
therein.**** (4.11)
10.24 Amendment to Credit Agreement dated September 22, 1995 among Continental
and certain of its direct and indirect Subsidiaries and The First
National Bank of Boston, and certain financial institutions named
therein.... Filed herewith as Exhibit 10.24.
11.1 Schedule of computation of earnings per share.... Filed herewith as
Exhibit 11.1.
11.2 Schedule of computation of pro forma loss per share.... Filed herewith
as Exhibit 11.2
21 Subsidiaries of Continental.... To be filed by amendment.
23.1 Consent of Sullivan & Worcester.... To be filed by amendment.
23.2 Independent Auditors' Consent of Deloitte & Touche LLP.... Filed
herewith as Exhibit 23.2.
23.3 Independent Auditors' Consent of KPMG Peat Marwick LLP.... Filed
herewith as Exhibit 23.3.
23.4 Independent Auditors' Consent of Deloitte & Touche LLP.... Filed
herewith as Exhibit 23.4.
23.5 Independent Auditors' Consent of Arthur Andersen LLP.... Filed
herewith as Exhibit 23.5.
23.6 Independent Auditors' Consent of Price Waterhouse LLP.... Filed
herewith as Exhibit 23.6.
23.7 Independent Auditors' Consent of Ernst & Young LLP.... Filed herewith
as Exhibit 23.7.
23.8 Independent Auditors' Consent of KPMG Peat Marwick LLP.... Filed
herewith as Exhibit 23.8.
23.9 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C....
Filed herewith as Exhibit 23.9.
24 Power of Attorney.... Included as page II-7 of this Registration
Statement.
27 Financial Data Schedules.... Filed herewith as Exhibit 27.
99 Schedule II--Valuation and Qualifying Accounts and Reserves.... Filed
herewith as Exhibit 99.
FINANCIAL STATEMENT SCHEDULES
Valuation and Qualifying Accounts and Reserves
The schedule presents financial information for the years ended December 31,
1992, 1993 and 1994.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON,
COMMONWEALTH OF MASSACHUSETTS, ON THE 19TH DAY OF OCTOBER, 1995.
Continental Cablevision, Inc.
By: /s/ Amos B. Hostetter, Jr.
---------------------------------
AMOS B. HOSTETTER, JR.
CHAIRMAN OF THE BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED; AND EACH OF THE UNDERSIGNED OFFICERS AND
DIRECTORS OF CONTINENTAL CABLEVISION, INC. (THE "COMPANY"), HEREBY SEVERALLY
CONSTITUTE AND APPOINT AMOS B. HOSTETTER, JR., TIMOTHY P. NEHER, WILLIAM T.
SCHLEYER, NANCY HAWTHORNE, W. LEE H. DUNHAM AND PATRICK K. MIEHE, AND EACH OF
THEM, TO SIGN FOR HIM OR HER, AND IN HIS OR HER NAME IN THE CAPACITY INDICATED
BELOW, ALL AMENDMENTS TO SUCH REGISTRATION STATEMENT ON FORM S-1 RELATING TO
CLASS A COMMON STOCK FOR THE PURPOSE OF REGISTERING SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY RELATED REGISTRATION STATEMENT OR
AMENDMENT THERETO FILED PURSUANT TO RULE 462(B), HEREBY RATIFYING AND
CONFIRMING OUR SIGNATURES AS THEY MAY BE SIGNED BY OUR ATTORNEYS TO SUCH
REGISTRATION STATEMENTS AND ANY AND ALL AMENDMENTS THERETO.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Amos B. Hostetter, Jr. Director and October 19, 1995
- ------------------------------------- Chairman of the
AMOS B. HOSTETTER, JR. Board (principal
executive officer)
/s/ Timothy P. Neher Director and Vice October 19, 1995
- ------------------------------------- Chairman of the
TIMOTHY P. NEHER Board
/s/ William T. Schleyer President October 19, 1995
- -------------------------------------
WILLIAM T. SCHLEYER
/s/ Nancy Hawthorne Chief Financial October 19, 1995
- ------------------------------------- Officer and Senior
NANCY HAWTHORNE Vice President
(principal
financial officer)
/s/ Richard A. Hoffstein Senior Vice October 19, 1995
- ------------------------------------- President and
RICHARD A. HOFFSTEIN Corporate
Controller
(principal
accounting officer)
/s/ Michael J. Ritter Director October 19, 1995
- -------------------------------------
MICHAEL J. RITTER
</TABLE>
II-7
<PAGE>
SIGNATURES TITLE DATE
/s/ Roy F. Coppedge III Director October 19, 1995
- -------------------------------------
ROY F. COPPEDGE III
/s/ Jonathan H. Kagan Director October 19, 1995
- -------------------------------------
JONATHAN H. KAGAN
/s/ Robert B. Luick Director October 19, 1995
- -------------------------------------
ROBERT B. LUICK
/s/ Henry F. McCance Director October 19, 1995
- -------------------------------------
HENRY F. MCCANCE
/s/ Lester Pollack Director October 19, 1995
- -------------------------------------
LESTER POLLACK
/s/ Vincent J. Ryan Director October 19, 1995
- -------------------------------------
VINCENT J. RYAN
/s/ Stephen Hamblett Director October 19, 1995
- -------------------------------------
STEPHEN HAMBLETT
/s/ Trygve E. Myhren Director October 19, 1995
- -------------------------------------
TRYGVE E. MYHREN
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement, dated , 1995, by and among
Continental Cablevision, Inc., Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, Lazard Freres &
Co. LLC, Morgan Stanley & Co. International Limited, Donaldson,
Lufkin & Jenrette Securities Corporation and Lazard Brothers & Co.,
Limited. . . . Filed herewith as Exhibit 1.1.
2.1 Agreement and Plan of Merger dated as of November 18, 1994, by and
among Continental, Providence Journal Company, The Providence
Journal Company, King Holding Corp. and King Broadcasting Company,
as amended and restated as of August 1, 1995.**** (2.1)
3.1 Restated Certificate of Incorporation of Continental.**** (3.1)
3.1A Certificate of Designation of Continental relating to the
Continental Series A Preferred Stock.**** (3.1A)
3.1B Form of Amendment to Continental's Restated Certificate of
Incorporation, increasing the number of authorized shares.****
(3.1B)
3.2A By-Laws of Continental.**** (3.2A)
3.2B Amendment to By-Laws of Continental.**** (3.2B)
4.1 Indenture dated as of June 22, 1992 between Continental and Morgan
Guaranty Trust Company of New York as Trustee, pertaining to
Continental's 10 5/8% Senior Subordinated Notes due 2002.* (4.1)
4.2 Indenture dated as of June 22, 1992 between Continental and Morgan
Guaranty Trust Company of New York as Trustee, pertaining to
Continental's 11% Senior Subordinated Debentures due 2007.* (4.2)
4.3 Indenture dated as of November 1, 1989 between Continental and The
Connecticut National Bank as successor trustee, pertaining to
Continental's Senior Subordinated Floating Rate Debentures due
November 1, 2004.* (4.6)
4.4 Amended and Restated Note Agreement dated as of October 17, 1994 by
and among Continental and certain of its direct and indirect
Subsidiaries as Guarantors and The Prudential Insurance Company of
America.**** (4.5)
4.5 Indenture dated as of June 1, 1993 between Continental and The First
National Bank of Chicago, as Trustee, pertaining to Continental's 8
5/8% Senior Notes due 2003.** (4.10)
4.6 Indenture dated as of June 1, 1993 between Continental and The First
National Bank of Chicago, as Trustee, pertaining to Continental's 9%
Senior Debentures due 2008.** (4.11)
4.7 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 8 5/8%
Senior Debentures due 2005.*** (4.11)
4.8 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 9 1/2%
Senior Debentures due 2013.*** (4.12)
4.9 Indenture dated as of August 1, 1993 between Continental and the
Bank of New York, as Trustee, pertaining to Continental's 8 1/2%
Senior Notes due 2001.*** (4.13)
5 Opinion of Sullivan & Worcester. . . . To be filed by amendment.
7 Opinion regarding liquidation preference for Continental Preferred
Stock. . . . To be filed by amendment.
10.1 Stock Liquidation Agreement dated as of March 6, 1989, as amended as
of September 28, 1990, replacing and restating the Stock Acquisition
Agreement made as of December 19, 1988 by and among Continental, H.
Irving Grousbeck, MD Co., Burr, Egan, Deleage & Co., Roderick A.
MacLeod and Amos B. Hostetter, Jr.* (10.2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
10.2 Second Amendment to Stock Liquidation Agreement dated as of July 7,
1992 by and among Continental, Amos B. Hostetter, Jr., H. Irving
Grousbeck, MD Co., Burr, Egan, Deleage & Co. and Roderick A.
MacLeod.** (10.2)
10.3 Form of Restricted Stock Purchase Agreement.*# (10.3)
10.4 Stock Purchase Agreement dated April 27, 1992 among Continental,
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The
State Board of Administration of Florida, Chemical Equity
Associates, Mellon Bank, N.A. as Trustee for First Plaza Group
Trust, Vencap Holdings (1992) Pte Ltd and Corporate Advisors, L.P.*
(10.4)
10.5 Registration Rights Agreement dated June 22, 1992 among Continental,
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The
State Board of Administration of Florida, Chemical Equity
Associates, Mellon Bank, N.A. as Trustee for First Plaza Group
Trust, Vencap Holdings (1992) Pte Ltd and Corporate Advisors, L.P.*
(10.5)
10.6 Amendment to Registration Rights Agreement dated July 15, 1992 among
Continental and Corporate Advisors, L.P. on behalf of Corporate
Partners, L.P., Corporate Offshore Partners, L.P., The State Board
of Administration of Florida, ContCable Continental Preferred Stock
Investors, L.P., Mellon Bank, N.A., as Trustee for First Plaza Group
Trust, and Vencap Holdings (1992) Pte Ltd.** (10.6)
10.7 Stock Purchase Agreement dated July 15, 1992, as amended on November
17, 1992, among Continental, Boston Ventures Limited Partnership
III, Boston Ventures Limited Partnership IIIA, Boston Ventures
Limited Partnership IV and Boston Ventures Limited Partnership
IVA.** (10.7)
10.8 Stock Purchase Agreement dated July 15, 1992 among Continental,
Thomas H. Lee Equity Partners, L.P., THL-CCI Continental Preferred
Stock Investors Limited Partnership, Providence Media Partners L.P.,
Alta V Limited Partnership, Customs House Partners and Ontario
Teachers' Pension Plan Board.** (10.8)
10.9 Registration Rights Agreement dated July 15, 1992 among Continental,
Boston Ventures Limited Partnership III, Boston Ventures Limited
Partnership IIIA, Boston Ventures Limited Partnership IV, Boston
Ventures Limited Partnership IVA, Thomas H. Lee Equity Partners,
L.P., THL-CCI Continental Preferred Stock Investors Limited
Partnership, Providence Media Partners L.P., Alta V Limited
Partnership, Customs House Partners and Ontario Teachers' Pension
Plan Board.** (10.9)
10.10 Liquidation Rights Agreement dated as of July 7, 1992 by and between
Continental and MD Co.** (10.10)
10.11 Stock Purchase Agreement dated as of December 17, 1992 by and among
Teleport Communications Group Inc., Comcast Corporation, Comcast
Teleport, Inc., Continental and Continental Teleport, Inc.** (10.11)
10.12 Optus Vision Joint Venture-Optus Vision Shareholders Agreement dated
May 19, 1995 by and among Continental Cablevision of Australia,
Inc., Optus Communications Pty Limited, Pay TV Holdings Pty Limited,
Tallglen Pty Limited, Optus Vision Pty Limited, Optus Networks Pty
Limited and Optus Administration Pty Limited.**** (10.12)
10.13 Management Incentive Plan. #**** (10.13)
10.14 Purchase Agreement dated as of November 1, 1994 by and among
Columbia Associates, L.P., Columbia Cable of Michigan, Inc., and
Continental Cablevision of Manchester, Inc.**** (10.14)
10.15 Supplemental Executive Retirement Plan. #**** (10.15)
10.16 Registration Rights Agreement with New Providence
Journal. . . .Filed herewith as Exhibit 10.16
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
10.17 Form of Restricted Stock Purchase Agreements for 1995. #**** (10.17)
10.18 Voting Agreement by and among Continental, Providence Journal and certain stockholders of
Continental and Providence Journal.... Filed herewith as Exhibit 10.18
10.19 First Amendment to the Purchase Agreement dated March 24, 1995 by and among Columbia
Associates, L.P., Columbia Cable of Michigan, Inc., and Continental Cablevision of
Manchester, Inc.**** (10.19)
10.19A Second Amendment to the Purchase Agreement dated September 30, 1995, by and among
Columbia Associates, L.P., Columbia Cable of Michigan, Inc. and Continental Cablevision
of Manchester, Inc.... Filed herewith as Exhibit 10.19A
10.20 Purchase Agreement dated January 6, 1995 by and between Continental Cablevision, Inc.
and Cablevision of Chicago.**** (10.20)
10.21 Purchase Agreement dated March 29, 1995 between N-COM Limited Partnership II and
Continental Cablevision Investments, Inc.**** (10.21)
10.22 Amended and Restated Credit Agreement dated as of October 1, 1994 among Continental and
certain of its direct and indirect Subsidiaries as Guarantors and The First National Bank
of Boston, for itself and as Administrative and Managing Agent, and certain financial
institutions named therein.**** (4.4)
10.23 Credit Agreement dated as of July 18, 1995 among PJC Financing Corporation, Colony
Communications, Inc., Columbia Cable of Michigan, N-COM Acquisition Corporation and their
respective Subsidiaries and The Toronto Dominion Bank as Documentation Agent and Managing
Agent, The First National Bank of Boston for itself and as Administrative and Managing
Agent and The Bank of New York for itself and as Syndication and Managing Agent and
certain financial institutions named therein.**** (4.11)
10.24 Amendment to Credit Agreement dated September 22, 1995 among Continental and certain of
its direct and indirect Subsidiaries and The First National Bank of Boston, and certain
financial institutions named therein.... Filed herewith as Exhibit 10.24.
11.1 Schedule of computation of earnings per share.... Filed herewith as Exhibit 11.1.
11.2 Schedule of computation of pro forma loss per share.... Filed herewith as Exhibit 11.2
21 Subsidiaries of Continental.... To be filed by amendment.
23.1 Consent of Sullivan & Worcester.... To be filed by amendment.
23.2 Independent Auditors' Consent of Deloitte & Touche LLP.... Filed herewith as Exhibit 23.2.
23.3 Independent Auditors' Consent of KPMG Peat Marwick LLP.... Filed herewith as Exhibit 23.3.
23.4 Independent Auditors' Consent of Deloitte & Touche LLP.... Filed herewith as Exhibit 23.4.
23.5 Independent Auditors' Consent of Arthur Andersen LLP.... Filed herewith as Exhibit 23.5.
23.6 Independent Auditors' Consent of Price Waterhouse LLP.... Filed herewith as Exhibit 23.6.
23.7 Independent Auditors' Consent of Ernst & Young LLP.... Filed herewith as Exhibit 23.7.
23.8 Independent Auditors' Consent of KPMG Peat Marwick LLP.... Filed herewith as Exhibit 23.8.
23.9 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.... Filed herewith as
Exhibit 23.9.
24 Power of Attorney.... Included as page II-7 of this Registration Statement.
27 Financial Data Schedules.... Filed herewith as Exhibit 27.
99 Schedule II--Valuation and Qualifying Accounts and Reserves.... Filed herewith as
Exhibit 99.
</TABLE>
- --------
* Incorporated by reference to Continental's Registration Statement No.
33-46510 (as amended), declared effective by the Securities and Exchange
Commission on June 15, 1992.
3
<PAGE>
** Incorporated by reference to Continental's Registration Statement No.
33-59806, declared effective by the Securities and Exchange Commission on
May 27, 1993.
*** Incorporated by reference to Continental's Registration Statement No.
33-65798, declared effective by the Securities and Exchange Commission on
August 6, 1993.
**** Incorporated by reference to Continental's Registration Statement No.
33-57471, declared effective by the Commission on August 31, 1995. Exhibit
numbers in parenthesis refer to the exhibit numbers in Registration
Statements.
# Management contract or compensatory plan.
4
<PAGE>
_______________ Shares
CONTINENTAL CABLEVISION, INC.
CLASS A COMMON STOCK
PAR VALUE $.01 PER SHARE
UNDERWRITING AGREEMENT
October __, 1995
<PAGE>
October __, 1995
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Lazard Freres & Co. LLC
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036-8293
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette
Securities Corporation
Lazard Brothers & Co., Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
CONTINENTAL CABLEVISION, INC., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below)
____ shares of its Class A Common Stock, par value $.01 per share (the "Firm
Shares").
It is understood that, subject to the conditions hereinafter stated,
____________ Firm Shares (the "U.S. Firm Shares") will be sold to the several
U.S. Underwriters named in Schedule I hereto (the "U.S. Underwriters") in
connection with the offering and sale of such U.S. Firm Shares in the United
States and Canada to United States and Canadian Persons (as such terms are
defined in the Agreement Between U.S. and International Underwriters of even
date herewith), and __________ Firm Shares (the "International Shares") will be
sold to the several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Lazard Freres & Co. LLC
shall act as representatives (the "U.S. Representatives") of the several
<PAGE>
U.S. Underwriters, and Morgan Stanley & Co. International Limited, Donaldson,
Lufkin & Jenrette Securities Corporation and Lazard Brothers & Co., Limited
shall act as the representatives (the "International Representatives") of the
several International Underwriters. The U.S. Underwriters and the International
Underwriters are hereinafter collectively referred to as the Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional __________ shares of its Class A Common
Stock, par value $.01 per share (the "Additional Shares"), if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf of
the U.S. Underwriters, the right to purchase such shares of common stock granted
to the U.S. Underwriters in Section 3 hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the Shares. The
shares of Class A Common Stock, par value $.01 per share, and the shares of
Class B Common Stock, par value $.01 per share, of the Company to be outstanding
after giving effect to the sales contemplated hereby are hereinafter
collectively referred to as the Common Stock.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 33-____), including
a prospectus, relating to the Shares. The registration statement contains two
prospectuses to be used in connection with the offering and sale of the Shares:
the U.S. prospectus, to be used in connection with the offering and sale of
Shares in the United States and Canada to United States and Canadian Persons,
and the international prospectus, to be used in connection with the offering and
sale of Shares outside the United States and Canada to persons other than United
States and Canadian Persons. The international prospectus is identical to the
U.S. prospectus except for the outside front cover page. The registration
statement as amended at the time it becomes effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended
(the "Securities Act"), is hereinafter referred to as the "Registration
Statement;" the U.S. prospectus and the international prospectus in the
respective forms first used to confirm sales of Shares are hereinafter
collectively referred to as the "Prospectus." If the Company has filed an
abbreviated registration statement to register additional shares of Class A
Common Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462
Registration Statement"), then any reference herein to the term "Registration
2
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Statement" shall be deemed to include such Rule 462 Registration Statement.
1. Representations and Warranties. The Company represents and warrants
------------------------------
to, and agrees with, each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act, complied
when so filed in all material respects with the Securities Act and the
rules and regulations of the Commission thereunder, (ii) the Registration
Statement and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder and
(iii) the Registration Statement and the Prospectus do not contain and, as
amended or supplemented, if applicable, the Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph (b) do not apply to statements
or omissions in the Registration Statement or the Prospectus or any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware and is
duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(d) Each of the subsidiaries of the Company has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation and is duly qualified to
transact business and is in good standing in each
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jurisdiction in which the failure to so qualify would have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(f) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(g) The Shares have been duly authorized by all necessary corporate
action and, when issued, delivered and paid for in accordance with the
terms of this Agreement, will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(h) This Agreement has been duly authorized, executed and delivered
by the Company.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or
by-laws of the Company or any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company and
its subsidiaries, taken as a whole, or any judgment, or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, that is material to the Company and its subsidiaries, taken
as a whole, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares by the U.S.
Underwriters as contemplated by this Agreement, and except for those
required under the Securities Act and the rules thereunder (all of which
have been obtained).
(j) There has not occurred any material adverse change, or any
development of which the Company has knowledge involving a prospective
material adverse change, in the condition, financial or otherwise, or in
the earnings, business or operations of the Company and its subsidiaries,
taken as a whole from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
4
<PAGE>
Agreement).
(k) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not described or filed
as required.
(l) Each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 or Rule 462 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder.
(n) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(o) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
2. Agreements to Sell and Purchase. The Company hereby agrees to
-------------------------------
sell to the several Underwriters named in Schedules I and II hereto, and each
Underwriter, upon the basis of the representations and warranties herein
5
<PAGE>
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from the Company the respective numbers of Firm
Shares set forth in Schedules I and II hereto opposite their names at $_____ a
share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to __________
Additional Shares at the Purchase Price. If the U.S. Underwriters elect to
exercise such option, they shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the U.S. Underwriters and the date on
which such shares are to be purchased. Such date may be the same as the Closing
Date (as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 4 hereof solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Class A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock or (ii) enter into any swap or other
agreement that transfers, in whole or in part, the economic consequence of
ownership of Class A Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Class A Common Stock or
such other securities, in cash or otherwise. The foregoing sentence shall not
apply to (A) the Shares to be sold hereunder, (B) any shares
6
<PAGE>
of Class A Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof, (C) any
shares of Common Stock issued pursuant to existing employee benefit plans of the
Company or (D) up to an aggregate of ___% of the shares of Common Stock
outstanding on the date hereof to be issued in connection with acquisitions by
the Company, provided that (1) the recipient of shares pursuant to this clause
--------
(D) shall agree to be bound by the provisions of clauses (i) and (ii) above for
the balance of such 180 day period and (2) registration rights, if any, granted
in respect of shares issued pursuant to this clause (D) shall not require the
Company to file, and the Company shall not file, a registration statement in
respect thereof prior to the end of such 180 day period.
3. Terms of Public Offering. The Company is advised by you that the
------------------------
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
U.S.$_____ a share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of U.S.$____ a
share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of U.S.$____ a share, to
any Underwriter or to certain other dealers.
Each U.S. Underwriter hereby makes to and with the Company the
representations and agreements of such U.S. Underwriter contained in the fifth
paragraph of Article III of the Agreement Between U.S. and International
Underwriters of even date herewith. Each International Underwriter hereby makes
to and with the Company the representations and agreements of such International
Underwriter contained in the seventh, eighth and ninth paragraphs of Article III
of such Agreement.
4. Payment and Delivery. Payment for the Firm Shares shall be made
--------------------
by certified or official bank check or checks payable to the order of the
Company in New York Clearing House funds at the office of Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York, at 10:00 A.M., local time, on
____________, 1995, or at such other time on the same or such other date, not
later than _________, 1995, as shall be designated in writing by you. The time
and date of such payment are hereinafter referred to as the "Closing Date."
7
<PAGE>
Payment for any Additional Shares shall be made by certified or
official bank check or checks payable to the order of the Company in New York
Clearing House funds at the office of Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York, at 10:00 A.M., local time, on the date specified in
the notice described in Section 2 or on such other date, in any event not later
than _________, 1995, as shall be designated in writing by the U.S.
Representatives. The time and date of such payment are hereinafter referred to
as the "Option Closing Date." The notice of the determination to exercise the
option to purchase Additional Shares and of the Option Closing Date may be given
at any time within 30 days after the date of this Agreement.
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of
-------------------------------------------
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 4:30 P.M. (New York time) on the date hereof.
The several obligations of the Underwriters hereunder are subject to
the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) no stop order suspending the effectiveness of the
Registration Statement shall be in effect, and no proceedings for such
purpose shall be pending before or threatened by the Commission;
(ii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading, or review
for a possible downgrading, in the rating accorded any of the Company's
securities by any
8
<PAGE>
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act; and
(iii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement), that, in the Underwriters' reasonable judgment, is
material and adverse and that makes it, in the Underwriters' reasonable
judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clauses (i) and (ii) above, and to
the effect that (1) the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date,
(2) the Company has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied hereunder on or
before the Closing Date and (3) there has not occurred any material adverse
change or, to the knowledge of such officer, any development which is
likely to result in a material adverse change in the condition, financial
or otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, from that set forth in the Registration
Statement.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Sullivan & Worcester, a Registered Limited Liability Partnership
under the laws of the State of New York, counsel for the Company, dated the
Closing Date, to the effect that
(i) the Company has been duly incorporated, is validly existing
as a corporation in good
standing under the laws of the State of Delaware and is duly qualified
to transact business and is in good standing in each jurisdiction in
which the
9
<PAGE>
failure to so qualify would have a material adverse effect on the
Company;
(ii) each of Colony Communications, Inc., American Cablesystems
Corporation, Continental Cablevision of Ohio, Inc. and Continental
Cablevision of Massachusetts, Inc., wholly owned subsidiaries of the
Company listed in such opinion has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on the
Company;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
(v) the Shares have been authorized by all necessary corporate
action and, when issued, delivered and paid for pursuant to this
Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the
Company;
(vii) the execution, delivery and performance of this Agreement by
the Company will not contravene any provision of applicable law or the
certificate of incorporation or by-laws of the Company or, to the
knowledge of such counsel, any agreement or other instrument binding
upon the Company, and other than such consents, approvals or
authorizations as may be required by state securities or Blue Sky
laws, no consent, approval or authorization of any governmental body
is required for the performance by the Company of its
obligations under this Agreement, except such as are specified and
have been obtained;
10
<PAGE>
(viii) to such counsel's knowledge and except as otherwise provided
in the Prospectus, no holder of any shares of the Company's Common
Stock has a right to have any such shares registered under the
Registration Statement together with the Firm Shares;
(ix) the statements (1) in the Prospectus under the captions "Risk
Factors -- Shares Eligible for Future Sale," "Business -- Legal
Proceedings," "Description of Capital Stock," and "Shares Eligible for
Future Sale," and (2) in the Registration Statement in Items 14 and
15, in each case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x) after inquiry of various officers of the Company, such
counsel does not know of any legal or governmental proceedings pending
or threatened to which the Company or any of its subsidiaries is a
party or to which any property of the Company or any of its
subsidiaries is subject that is required to be described in the
Registration Statement or the Prospectus and is not so described, or
of any contract or other document which is required to be described in
the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not so described or
filed as required;
(xi) such counsel (A) is of the opinion that the Registration
Statement and the Prospectus and any supplements or amendments thereto
(except as to financial statements and other financial and statistical
data included therein as to which such counsel need not express any
opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder, (B) believes that (except as to financial
statements and other financial and statistical data included therein
as to which such counsel need not express any belief) the Registration
Statement and the prospectus included therein at the time the
Registration Statement became effective did not contain any untrue
statement of a material fact or omit to
11
<PAGE>
state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) that the Prospectus
(as amended or supplemented, if applicable) does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, provided
that such counsel may state that their opinion and belief is based
upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and
review and discussion of the contents thereof, but is without
independent check or verification, except as specified.
(d) The Underwriters shall have received on the Closing Date an
opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, special counsel
for the Company, dated the Closing Date, to the effect that the statements
in the Prospectus under "Risk Factors -- Regulation in the Cable Television
Industry," "Legislation and Regulation" and "Business -- Competition,"
insofar as such statements constitute a summary of the matters or
proceedings referred to therein fairly present the information called for
with respect to such matters or proceedings.
(e) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in subparagraphs (v), (ix)
(but only as to the statements in the Prospectus under "Description of
Capital Stock" and "Underwriters") and (xi) of paragraph (c) above.
The opinions of Sullivan & Worcester, a Registered Limited Liability
Partnership under the laws of the State of New York, and Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo described in paragraphs (c) and (d) above shall be
rendered to you at the request of the Company and shall so state therein.
(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in each case in form and substance satisfactory to
the Underwriters, from each of Deloitte & Touche LLP and KPMG Peat Marwick
LLP, independent public accountants, containing statements and information
of
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the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a "cut off
date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Class A Common Stock of the Company or any securities
convertible into or exercisable or exchangeable for such Class A Common
Stock, delivered to you on or before the date hereof, shall be in full
force and effect on the Closing Date.
(h) The Shares shall have been accepted for quotation on the Nasdaq
National Market on or before the Closing Date, subject only to official
notice of issuance.
The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the due
authorization and issuance of the Additional Shares and other matters related to
the issuance of the Additional Shares.
6. Covenants of the Company. In further consideration of the
------------------------
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 5:00 P.M. local time on the business day following the
date of this Agreement and, during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
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<PAGE>
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement, and not to file any such proposed amendment or supplement to
which you reasonably object and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur as a result of which it
is necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus
is delivered to a purchaser, not misleading, or if it is necessary to amend
or supplement the Prospectus to comply with law, forthwith to prepare and
furnish, at its own expense, to the Underwriters and to the dealers (whose
names and addresses you will furnish to the Company) to which Shares may
have been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented will
not, in the light of the circumstances when the Prospectus is delivered to
a purchaser, be misleading or so that the Prospectus will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including fees and disbursements of
counsel) in connection therewith as well as all filing fees payable in
connection with the review of the offering of the Shares by the National
Association of Securities Dealers, Inc. (the "NASD").
(e) To make generally available to the Company's security holders as
soon as practicable an earnings statement covering the twelve-month period
ending December 31, 1996 that satisfies the provisions of Section 11(a) of
the Securities Act and the rules and regulations (including Rule 158) of
the Commission thereunder.
(f) To use its best efforts to accomplish the listing of the Shares
on the Nasdaq National Market.
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(g) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the Shares offering by the NASD, (v) all fees and expenses
in connection with the preparation and filing of the registration statement
on Form 8-A relating to the Class A Common Stock and all costs and expenses
incident to listing the Shares on the Nasdaq National Market System, (vi)
the cost of printing certificates representing the Shares, (vii) the costs
and charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the Offering,
including, without limitation, expenses associated with the production of
road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of
the Company, travel and lodging expense of the representatives and officers
of the Company and any such consultants, and the cost of any aircraft
chartered by the Company in connection with the road show, and (ix) all
other costs and expenses incident to
15
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the performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section. It is understood, however,
that except as provided in this Section, Section 7 entitled "Indemnity and
Contribution", and the last paragraph of Section 9 below, the Underwriters
will pay all of their costs and expenses, including fees and disbursements
of their counsel, stock transfer taxes payable on resale of any of the
Shares by them, and any advertising expenses connected with any offers they
may make.
7. Indemnity and Contribution. (a) The Company agrees to indemnify
--------------------------
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
caused by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or the Prospectus (if used within the
period described in Section 6(c) and as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or any preliminary
prospectus or caused by 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, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to the Underwriters
furnished to the Company in writing by any Underwriter expressly for use
therein.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
each Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter expressly
for use in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any preliminary prospectus.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a) or (b) of this Section 7, such
16
<PAGE>
person (hereinafter, the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (hereinafter, the "indemnifying
party") in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel at the expense of the indemnifying party or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties, and that
all such fees and expenses shall be reimbursed as they are incurred. Such firm
shall be designated in writing by Morgan Stanley & Co. Incorporated in the case
of parties indemnified pursuant to the second preceding paragraph and by the
Company in the case of parties indemnified pursuant to the first preceding
paragraph. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the third sentence of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or
17
<PAGE>
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) To the extent the indemnification provided for in paragraph (a)
of this Section 7 is unavailable to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same respective proportions as the net proceeds from the offering (before
deducting expenses) received by the Company and the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to the aggregate Public Offering
Price of the Shares. The relative fault of the Company on the one hand and the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
- --- ----
such purpose) or by any other method of allocation that does
18
<PAGE>
not take account of the equitable considerations referred to in paragraph (d) of
this Section 7. The amount paid or payable by an indemnified party as a result
of the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 7 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(f) The indemnity and contribution agreements contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any other person controlling the Company and (iii) acceptance of and payment for
any of the Shares.
8. Termination. This Agreement shall be subject to termination in
-----------
your absolute discretion by notice given to the Company, if (a) after the
execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange, the NASD, the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities, or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial
19
<PAGE>
markets or any calamity or crisis that, in your reasonable judgment, is material
and adverse and (b) in the case of any of the events specified in clauses (a)(i)
through (iv), such event singly or together with any other such event makes it,
in your reasonable judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall
--------------------------------------
become effective upon the execution and delivery hereof by the parties hereto.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
10. Counterparts. This Agreement may be signed in two or more
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of New York.
12. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
20
<PAGE>
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
Very truly yours,
CONTINENTAL CABLEVISION, INC.
By
--------------------------
Accepted, October __, 1995
MORGAN STANLEY & CO.
INCORPORATED
DONALDSON LUFKIN & JENRETTE SECURITIES
CORPORATION
LAZARD FRERES & CO. LLC
Acting severally on behalf of
themselves and the several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co.
Incorporated
By
--------------------------
MORGAN STANLEY & CO.
INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LAZARD BROTHERS & CO., LIMITED
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co.
International Limited
By
----------------------------
21
<PAGE>
Schedule I
U.S. Underwriters
-----------------
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities
Corporation
Lazard Freres & Co. LLC
---------------
Total U.S. Firm Shares ...................
===============
</TABLE>
22
<PAGE>
Schedule II
International Underwriters
--------------------------
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette
Securities Corporation
Lazard Brothers & Co., Limited
---------------
Total International Firm Shares ..........
===============
</TABLE>
23
<PAGE>
Exhibit A
---------
[Form of Lock-up Contract]
--------------------------
____________, 199_
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Lazard Freres & Co. LLC
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036-8293
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette
Securities Corporation
Lazard Brothers & Co., Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that you, as Representatives of the
several Underwriters, propose to enter into an Underwriting Agreement with
Continental Cablevision, Inc., a Delaware corporation (the "Company") providing
for the public offering (the "Public Offering") by the several Underwriters,
including yourselves, of the Class A Common Stock, par value $.01 per share, of
the Company (the "Class A Common Stock" or the "Shares").
In consideration of the Underwriters' agreement to purchase and make
the Public Offering of the Shares, and for other good and valuable consideration
receipt of which is hereby acknowledged, the undersigned hereby agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated and
Morgan Stanley & Co. International Limited on behalf of the Underwriters, it
will not, during the period from the date hereof until 180 days after the date
of the prospectus (the "Prospectus") first used to confirm sales of Shares, (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option
A-1
<PAGE>
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Class A
Common Stock or any securities convertible into or exercisable or exchangeable
for Class A Common Stock, or (2) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to Common Stock (i)
issued in the Offering, (ii) transferred as a gift or gifts, provided the donee
or donees thereof agree in writing as a condition precedent to such gift or
gifts to be bound by the terms hereof, (iii) transferred to the transferor's
affiliates, as such term is defined in Rule 405 promulgated under the Securities
Act of 1933, provided that each transferee agrees in writing as a condition
precedent to such transfer to be bound by the terms hereof or (iv) sold to the
Company by certain employees under Restricted Stock Purchase Agreements. This
agreement shall terminate if a Prospectus is not issued in connection with the
Public Offering by _______________, 199_.
Very truly yours,
-----------------------------
(Name)
-----------------------------
(Address)
A-2
<PAGE>
Exhibit 10.16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of October 5, 1995 among CONTINENTAL CABLEVISION, INC., a Delaware
corporation (the "Company"), the holders of Registrable Securities named in
Schedule A hereto (collectively, the "Holders" and singly, a "Holder"), and The
- ----------
Providence Journal Company, a Delaware corporation, as the representative
hereunder (the "Representative") for the Holders of Registrable Securities.
RECITALS
--------
A. This Agreement is being entered into in connection with, and pursuant
to section 6.21(b) of, the Agreement and Plan of Merger, dated as of November
18, 1994, as amended and restated as of August 1, 1995, among Providence Journal
Company, The Providence Journal Company, King Holding Corp., King Broadcasting
Company and the Company (the "Merger Agreement").
B. The Company has heretofore entered into (i) a Registration Rights
Agreement dated as of June 22, 1992 with Corporate Partners, L.P. and certain
other signatories thereto (collectively, the "CP Purchasers") and (ii) an
amendment thereto dated as of July 15, 1992 (said Registration Rights Agreement
and amendment are hereinafter referred to as the "CP Agreement").
C. The Company has heretofore entered into a Registration Rights Agreement
dated as of July 15, 1992 with Boston Ventures Limited Partnership III and
certain other signatories thereto (collectively, the "BV Purchasers") (said
Registration Rights Agreement is hereinafter referred to as the "BV Agreement").
D. It is intended by the Company and the Representative that this
Agreement shall become effective immediately upon the issuance of the securities
to be issued pursuant to Article 1 of the Merger Agreement (the "Merger
Securities").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, the
Holders of Registrable Securities and the Representative, intending to be
legally bound, each hereby agrees as follows:
<PAGE>
ARTICLE 1.
REGISTRATION UNDER SECURITIES ACT
---------------------------------
Section 1.01 Registration Upon Request. (a) Request. Subject to the
------------------------- -------
provisions of this Agreement (including Section 4.13 hereof), at any time and
from time to time after the obligation of the Company under section 6.21(a) of
the Merger Agreement to effect a registered public offering of shares of Class A
Common Stock shall have either been satisfied or terminated, upon the written
request of the Representative on behalf of one or more Holders (the "Initiating
Holders") of at least fifteen percent (15%) of Registrable Securities requesting
that the Company effect the registration under the Securities Act of Registrable
Securities (which request shall specify the number of Registrable Securities to
be registered and the intended method of distribution thereof), the Company
shall provide prompt written notice of such request for registration to the
Representative (and the Representative shall be responsible for relaying such
notice to the Holders of Registrable Securities other than the Initiating
Holders) and to all record holders of CP/BV Registrable Securities (or to any
representative(s) of such holders to the extent, provided for under section 1.02
of the CP Agreement or the BV Agreement, as the case may be), and shall use its
best efforts to register under the Securities Act (a "Demand Registration"),
including by means of a shelf registration pursuant to Rule 415 under the
Securities Act if so requested in such request and if the Company is then
eligible to use such a registration, as expeditiously as may be practicable, the
Registrable Securities which the Company has been requested to register by the
Initiating Holders, together with all other Registrable Securities and CP/BV
Registrable Securities whose record holders (having received the aforementioned
written notice) shall have requested in writing to be included in such Demand
Registration within fifteen (15) days after the receipt of such written notice
(such holders together with the Initiating Holders are hereinafter referred to
as the "Selling Holders"), all to the extent requisite to permit the disposition
of such Registrable Securities and CP/BV Registrable Securities in accordance
with the plan of distribution set forth in the applicable registration
statement. In the case of any Demand Registration, the Initiating Holders must
request registration of Registrable Securities representing not less than such
number of Registrable Securities the Expected Proceeds of which, on the date of
the aforementioned written request, would equal at least $25 million.
Notwithstanding anything herein to the contrary, the rights of Holders of
Registrable Securities shall be subject to the provisions of the penultimate
sentence of Section 1.02(a) hereof.
-2-
<PAGE>
(b) Registration of Other Securities. Whenever the Company shall
--------------------------------
effect a registration pursuant to this Section 1.01 in connection with an
underwritten offering by one or more Selling Holders of Registrable Securities,
no securities other than Registrable Securities and CP/BV Registrable Securities
shall be included among the securities covered by such registration unless the
managing underwriter, if any, of such offering shall have advised the
Representative in writing that the inclusion of such other securities would not
adversely affect such offering.
(c) Registration Statement Form. Registrations under this Section
---------------------------
1.01 shall be on such appropriate registration form of the Commission as shall
be selected by the Company and available to it under the Securities Act. The
Company agrees to include in any such registration statement all information
which, in the opinion of counsel to the Selling Holders of Registrable
Securities so to be registered and counsel to the Company, is reasonably
required to be included therein under the Securities Act.
(d) Limitations on Registration; Expenses. The Company will not be
-------------------------------------
required to effect more than two (2) Demand Registrations pursuant to this
Section 1.01. Subject to the provisions of Sections 1.01(h) and 1.02(b) hereof,
the Company shall pay the Registration Expenses in connection with such Demand
Registrations provided, however, that holders of CP/BV Registrable Securities
-------- -------
(but not Holders of Registrable Securities) shall be responsible for paying to
the Company a portion of such Registration Expenses as and to the extent
provided in section 1.02(b) of the CP Agreement and the BV Agreement,
respectively.
(e) Effective Registration Statement. Subject to the provisions of
--------------------------------
Section 1.01(i) hereof, a registration requested pursuant to this Section 1.01
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective, (ii) if after it has become
effective, such registration is materially interfered with by any stop order,
injunction or similar order or requirement of the Commission or other
governmental agency or court for any reason not attributable to any of the
Selling Holders and has not thereafter become effective, or (iii) if the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied or waived, other
than by reason of a failure on the part of any of the Selling Holders.
(f) Selection of Underwriters. In the case of any Demand
-------------------------
Registration, (i) the selection of any managing underwriter(s) shall be made by
the Company (with the consent of the Representative, which consent shall not be
unreasonably
-3-
<PAGE>
withheld), provided, however, that, in the case of any Demand Registration where
-------- -------
the Expected Proceeds of the sale of all Registrable Securities and CP/BV
Registrable Securities to be included among the securities covered by such
registration pursuant to this Section 1.01 would exceed $75 million, the
Representative shall be entitled to select (with the consent of the Company,
which consent shall not be unreasonably withheld) one (1) managing underwriter
other than the lead managing underwriter, and (ii) the selection of the
underwriters (other than the managing underwriter(s)) shall be made by the
mutual agreement of the Company and the Representative.
(g) Certain Requirements in Connection with Registration Rights. In
-----------------------------------------------------------
the case of a Demand Registration, if the Initiating Holders requesting such
Demand Registration have determined to enter into one or more underwriting
agreements in connection therewith, all shares constituting Registrable
Securities and CP/BV Registrable Securities to be included in such Demand
Registration shall be subject to such underwriting agreements and no Person may
participate in such Demand Registration unless such Person agrees to sell his or
its securities on the basis provided in the underwriting arrangements and
completes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents which are reasonable and customary under the
circumstances.
(h) Priority in Demand Registration. If the managing underwriter of
-------------------------------
any underwritten offering shall advise the Company in writing (with a copy to
the Representative (and the Representative shall be responsible for relaying
such copy to the Holders of Registrable Securities) and each Selling Holder of
CP/BV Registrable Securities) that, in its opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering within a price range acceptable to the Selling Holders of
66-2/3% of the Registrable Securities requested to be included in such
registration, the Company will reduce to the number which the Company is so
advised can be sold in such offering within such price range (the "Actual Number
of Securities to be Registered"), the Registrable Securities and CP/BV
Registrable Securities requested to be included in such registration. Subject to
the provisions of Section 4.13 hereof, in such registration, each Selling Holder
shall be entitled to register up to such number of Registrable Securities or
CP/BV Registrable Securities, as the case may be, obtained by multiplying the
Actual Number of Securities to be Registered by a fraction, the numerator of
which is the number of Registrable Securities or CP/BV Registrable Securities
beneficially owned by such Selling Holder and the denominator of which is the
aggregate number of Registrable Securities and CP/BV Registrable Securities
beneficially owned by all Selling Holders. If one or more Selling Holders do not
-4-
<PAGE>
request the registration of the maximum number of Registrable Securities or
CP/BV Registrable Securities to which they are entitled in accordance with the
preceding sentence (such maximum number minus the number of Registrable
Securities or CP/BV Registrable Securities requested by such Selling Holder(s)
being referred to as the "Shortfall"), the other Selling Holders (the
"Participating Holders") shall be entitled to register securities in addition to
those to which they are entitled under the preceding sentence up to the amount
equal to the result obtained by multiplying the Shortfall by a fraction, the
numerator of which is the number of Registrable Securities or CP/BV Registrable
Securities, as the case may be, beneficially owned by such Participating Holder
and the denominator of which is the aggregate number of Registrable Securities
and CP/BV Registrable Securities beneficially owned by all Participating
Holders. The procedure set forth in the immediately preceding sentence shall
be applied until the Actual Number of Securities to be Registered is apportioned
among the Selling Holders in accordance with the preceding two sentences. If,
as a result of any such reduction in the number of securities requested to be
registered, the number of securities requested to be included in such
registration by the Holders of the Registrable Securities is reduced by twenty
percent (20%) or more because of the inclusion in such registration of CP/BV
Registrable Securities pursuant to the provisions of this Section 1.01, then
notwithstanding anything to the contrary contained in this Agreement or in any
other agreement or interpretation of any agreement between the Company and the
Holders of Registrable Securities, a Demand Registration in connection with such
registration will not be deemed to have been effected under Section 1.01(e)
hereof.
In the case of a registration which would have been deemed to be a
Demand Registration under Section 1.01(e) hereof but for the application of the
immediately preceding sentence of this Section 1.01(h) (a "Restricted
Registration"), the Company shall pay the Registration Expenses of the Holders
of the Registrable Securities in connection with one such Restricted
Registration (the "Paid Restricted Registration") and the Selling Holders shall
pay the Registration Expenses of any other Restricted Registration to the extent
provided for and in accordance with Section 1.02(b) hereof and of the CP
Agreement and the BV Agreement, provided, however, that the Initiating Holders
-------- -------
may elect by written notice to the Company (with a copy to the Representative,
and the Representative shall be responsible for relaying such notice to the
Holders of Registrable Securities other than the Initiating Holders), after the
Paid Restricted Registration, to have the Company pay the Registration Expenses
of the Holders of Registrable Securities in one (1) subsequent Restricted
Registration, in which case the number of Demand Registrations available to the
Holders of Registrable Securities under Section 1.01(d) hereof shall remain
-5-
<PAGE>
unchanged but the number of Demand Registrations the expenses of which will be
paid by the Company shall be reduced from two to one.
In connection with any such registration to which this paragraph (h)
is applicable, no securities other than Registrable Securities and CP/BV
Registrable Securities shall be covered by such registration.
(i) Certain Other Matters. For purposes of Section 1.01(e)(i)
---------------------
hereof, should a Demand Registration not become effective due to the failure of
the Representative or any of the Selling Holders to perform their respective
obligations under this Agreement or the inability of the Selling Holders to
reach agreement with the underwriters on price or other customary terms for such
transaction, or in the event the Selling Holders withdraw or do not pursue the
request for the Demand Registration (in each of the foregoing cases, provided
that at such time the Company is in compliance in all material respects with its
obligations under this Agreement), then such Demand Registration shall be deemed
to have been effected.
Under the circumstances in which a Demand Registration otherwise would
be deemed to have been effected under Section 1.01(e) hereof (including as
contemplated by this Section 1.01(i)), if the Selling Holders pay the
Registration Expenses (other than the Registration Expenses referred to in
clause (a) of the definition of Registration Expenses) incurred by the Company
through the date of abandonment of the registration, the Demand Registration
shall not be deemed to have been effected for purposes of Section 1.01(e) of
this Agreement, provided, however, that if on the date of abandonment of the
-------- -------
registration a preliminary prospectus related to the Demand Registration has not
been filed with the Commission, the Selling Holders shall be required to pay on
the date that is six (6) months following the date of such abandonment only one-
half (1/2) of the Company's out-of-pocket legal and accounting expenses incurred
specifically in connection with such registration. At any time during such 6-
month period, the Initiating Holders shall be entitled to reactivate the
abandoned registration, in which case the reactivated registration and abandoned
registration shall be deemed to be one registration, and the Selling Holders
shall not be required to pay any Registration Expenses.
(j) CP and BV Agreements. The Representative and the Holders of
--------------------
Registrable Securities acknowledge that the Holders of Registrable Securities
have no rights under this Agreement or otherwise to participate in a demand
registration initiated by any holder of CP/BV Registrable Securities under
Section 1.01 of the CP Agreement or the BV Agreement, respectively.
-6-
<PAGE>
Section 1.02 Incidental Registration. (a) Rights to Include. Subject to
----------------------- -----------------
the provisions of this Agreement (including Section 4.13 hereof), if, at any
time after the obligation of the Company under section 6.21(a) of the Merger
Agreement to effect a registered public offering of shares of Class A Common
Stock shall have either been satisfied or terminated, the Company proposes to
register the offering of any shares of Class A Common Stock under the Securities
Act on Form S-1, S-2 or S-3 (or any successor or similar form thereto) in
connection with a primary public offering of Class A Common Stock being offered
for the account of the Company, the Company shall furnish prompt written notice
to the Representative of its intention to effect such registration and the
intended method of distribution in connection therewith. The Representative
shall be responsible for relaying such notice to the Holders of Registrable
Securities. Upon the written request of any Holder of Registrable Securities
made to the Company within fifteen (15) days after the delivery of the
aforementioned notice by the Company to the Representative (five (5) days if the
Company is registering on Form S-3 and a shorter time is necessary because of a
planned filing date of such Form S-3), which request shall specify the number of
shares of Registrable Securities intended to be registered, the Company shall
include such Registrable Securities in such registration, subject however to the
following sentence of this Section 1.02(a) and to the provisions of Section
1.02(c) hereof. If the Company shall thereafter determine in its sole discretion
not to register or to delay the registration of such securities, the Company
may, at its election, provide written notice of such determination to the
Representative (and the Representative shall be responsible for relaying such
notice to the Holders of Registrable Securities) and (i) in the case of a
determination not to effect a registration, shall thereupon be relieved of the
obligation to register such Registrable Securities (but, under such
circumstances, the Company shall pay any Registration Expenses reasonably
incurred by the Holders of Registrable Securities who elected to request the
incidental registration of Registrable Securities until such time as such
Holders received the Company's written notice), and (ii) in the case of a
determination to delay a registration, shall thereupon be permitted to delay
registering any Registrable Securities for the same period as the delay in
respect of securities being registered for the Company's own account. No
incidental registration effected pursuant to this Section 1.02 shall be deemed
to have been effected or otherwise relieve the Company of any of its obligations
to the Holders of Registrable Securities pursuant to Section 1.01 hereof.
(b) The Holders of Registrable Securities whose securities are
actually registered in connection with any incidental registration as provided
in Section 1.02(a) hereof shall pay a portion of the Registration Expenses for
the
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<PAGE>
registration in question (other than Registration Expenses (i) specified in
clause (a) of the definition of Registration Expenses and (ii) incurred by or on
behalf of a selling holder (other than a holder of Registrable Securities or
CP/BV Registrable Securities) for its benefit or the benefit of persons other
than holders of Registrable Securities or CP/BV Registrable Securities), pro
rata based on the percentage of the aggregate number of shares registered
pursuant to such registration which are represented by the Registrable
Securities or CP/BV Registrable Securities of such holder; provided, however,
-------- -------
that if the Company should agree to bear the Registration Expenses of any other
stockholder of the Company in any incidental registration for any other
stockholder of the Company on terms more favorable than those applicable to the
Holders of Registrable Securities, the Company will provide the more favorable
terms to the Holders of Registrable Securities.
(c) Priority in Incidental Registrations. If the managing
------------------------------------
underwriter of any underwritten offering shall inform the Company by letter of
its belief that the number of Registrable Securities requested to be included in
such registration would substantially interfere with such offering, then the
Company will include in such registration, to the extent of the number and type
which the Company is so advised can be sold in (or during the time of) such
offering without such substantial interference, FIRST, all securities proposed
by the Company to be sold for its own account, SECOND, subject to the provisions
of Section 4.13 hereof, all securities of the Company ranking senior to or on a
parity with (as to rights to dividends and upon liquidation) the Company's
Series A Participating Convertible Preferred Stock ("Senior Securities"),
Registrable Securities and CP/BV Registrable Securities requested to be included
in such registration (such Senior Securities, Registrable Securities and CP/BV
Registrable Securities to be included in such registration pro rata on the basis
of the Expected Proceeds from the sale thereof), and THIRD, any other securities
of the Company requested to be included in such registration.
Section 1.03 Registration Procedures. If and whenever the Company is
-----------------------
required by the provisions of this Agreement to effect or cause the registration
of any Registrable Securities under the Securities Act as provided in this
Agreement, the Company shall, as expeditiously as practicable:
(a) In the case of each Demand Registration, use its best efforts to
prepare and file with the Commission and obtain the effectiveness of a
registration statement on such form as is available for the sale of Registrable
Securities by the holders thereof in accordance with the plan of distribution
set forth in
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<PAGE>
such registration statement; provided, however, if a request for registration
-------- -------
pursuant to Section 1.01 hereof is made within sixty (60) days before the end of
the Company's fiscal year and the Company is not then eligible to effect a
registration under the Securities Act by use of Form S-3 (or other comparable
short-form registration statement), the Company shall be entitled to delay the
filing of such registration statement until the earlier of (i) such time as the
Company receives audited financial statements for such fiscal year and (ii) the
expiration of 90 days after the last day of such fiscal year; and provided,
--------
further, that if the Company shall furnish to the Representative a
- -------
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed on the date filing would be required under this Agreement because
such registration would require premature disclosure of any acquisition,
corporate reorganization or other material transaction involving the Company and
that it is therefore essential to defer taking action with respect to the filing
of such registration statement, then the Company may direct that such request
for registration be delayed for a period not to exceed ninety (90) days, such
right to delay a request to be exercised by the Company not more than once in
any 12-month period. The Representative shall be responsible for relaying any
such certificate to the Holders of Registrable Securities.
(b) Prepare and file with the Commission such amendments, post-
effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for such period of time as is necessary to
complete the offering and the distribution of the securities covered thereby,
provided, however, that except with respect to any such registration statement
- -------- -------
filed pursuant to Rule 415 under the Securities Act, such period need not exceed
one hundred eighty (180) days (unless the Registrable Securities registered
thereunder have been sold or disposed of prior to the expiration of such 180-day
period), in each case exclusive of any period during which the prospectus used
in connection with such registration statement shall not comply with the
requirements of section 10 of the Securities Act; and to comply with the
provisions of the Securities Act applicable to the Company with respect to the
disposition of all securities covered by such registration statement during such
time as such registration statement is effective.
(c) Furnish to each seller of Registrable Securities and each
underwriter of the Registrable Securities being sold, as such seller and such
underwriter may reasonably request in order to facilitate the disposition of
Registrable Securities in
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<PAGE>
accordance with the plan of distribution set forth in such registration
statement, (i) such number of copies (including manually executed and conformed
copies) of such registration statement and of each such amendment thereof and
supplement thereto (including all annexes, appendices, schedules and exhibits),
(ii) such number of copies of the prospectus used in connection with such
registration statement (including each preliminary prospectus and the final
prospectus filed pursuant to Rule 424(b) under the Securities Act), and (iii)
such other documents incident thereto.
(d) Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions in which an exemption is not available as the
Representative and the managing underwriter shall reasonably request, and do any
and all other reasonable acts and things which may be necessary or advisable to
permit the offering and disposition of Registrable Securities in such
jurisdictions in accordance with the plan of distribution set forth in the
registration statement; provided, however, the Company shall not be required to
-------- -------
qualify generally to do business as a foreign corporation, subject itself to
taxation, or consent to general service of process, in any jurisdiction wherein
it would not, but for the requirements of this Section 1.03, be obligated to do
so.
(e) Use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with, or approved by, such other
public, governmental or regulatory authorities as may be necessary in the
reasonable judgment of counsel for the Selling Holders and the Company to
facilitate the disposition of such Registrable Securities in accordance with the
plan of distribution set forth in such registration statement.
(f) Notify each seller of any Registrable Securities covered by such
registration statement and the managing underwriter, if any, promptly and, if
requested by any such Person, confirm such notification in writing, (i) when a
prospectus or any prospectus supplement has been filed with the Commission, and,
with respect to such registration statement or any post-effective amendment
thereto, when the same has been declared effective by the Commission, (ii) of
any request by the Commission for amendments or supplements to such registration
statement or related prospectus, or any written request by the Commission for
additional information, (iii) of the issuance by the Commission of any stop
order or the receipt of notice of the initiation of any proceedings for such or
a similar purpose (and the Company shall make every reasonable effort to obtain
the withdrawal of any such order at the earliest possible moment and the Holders
of Registrable Securities shall cooperate in all reasonable respects in such
efforts), (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction or the receipt of notice of the initiation or
threatening of any proceeding for such purpose (and the Company shall make every
reasonable effort to obtain the withdrawal of any such suspension at the
earliest possible moment and the Holders of Registrable Securities shall
cooperate in all
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<PAGE>
reasonable respects in such efforts), (v) of the occurrence of any event during
the period when a prospectus with respect to the Registrable Securities is
required to be delivered under the Securities Act which requires the making of
any changes to such registration statement or related prospectus so that such
documents will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (and the Company shall promptly prepare and furnish to such
seller and any managing underwriter a reasonable number of copies of a
supplemented or amended prospectus or preliminary prospectus such that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus or preliminary 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, in light of the circumstances under
which they are made, not misleading), and (vi) of the Company's determination
that the filing of a post-effective amendment to such registration statement
shall be necessary or appropriate. Each Holder of Registrable Securities shall
be deemed to have agreed by acquisition of such Registrable Securities that upon
the receipt of any notice from the Company of the occurrence of any event of the
kind described in clause (v) of this Section 1.03(f), such Holder shall
forthwith discontinue such Holder's offer and disposition of Registrable
Securities until such Holder shall have received copies of an appropriately
supplemented or amended prospectus or preliminary prospectus and, if so directed
by the Company, shall deliver to the Company, at its expense, all copies (other
than permanent file copies) of the prospectus or preliminary prospectus covering
such Registrable Securities which are then in such Holder's possession. In the
event the Company shall provide any notice of the type referred to in the
preceding sentence, the 180-day period mentioned in Section 1.03(b) hereof shall
be extended by the number of days from and including the date such notice is
provided to and including the date when each seller of any Registrable
Securities covered by such registration statement and the managing underwriter
shall have received copies of the corrected prospectus contemplated by clause
(v) of this Section 1.03(f), plus an additional seven (7) days. The underwriters
or, if there are no underwriters, each seller of Registrable Securities shall
deliver such supplemented or amended
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<PAGE>
prospectus or preliminary prospectus to all purchasers or offerees of the
Registrable Securities sold by it to which such delivery may be required or
advisable under the Securities Act and any applicable state securities or "blue
sky" laws.
(g) Otherwise use its best efforts in connection with each
registration and offering of Registrable Securities hereunder to comply with all
applicable rules and regulations of the Commission, as the same may hereafter be
amended, including section 11(a) of the Securities Act and Rule 158 thereunder.
(h) Use its best efforts to cause all such Registrable Securities
covered by such registration statement to be listed on each securities exchange
on which the same class of securities issued by the Company are then listed, if
the listing of such Registrable Securities is then permitted under the rules and
regulations of such exchange and, if requested by the Holders of Registrable
Securities, cause all such Registrable Securities that are of a different class
or series than those Company securities already listed or traded to be listed on
one (but not more than one) securities exchange reasonably requested by the
Representative.
(i) Engage and provide a transfer agent and registrar (which in each
case may be the Company) for all Registrable Securities covered by such
registration statement not later than the effective date of such registration
statement.
(j) Furnish to each seller of Registrable Securities a signed
counterpart of an opinion from counsel to the Company, and a "cold comfort"
letter from the Company's independent certified public accounting firm covering
such matters of the type customarily covered by such opinions and "cold comfort"
letters as any managing underwriter and the Representative shall reasonably
request.
(k) Subject to confidentiality restrictions reasonably required by
the Company, at reasonable times and upon reasonable notice, and as necessary to
permit a reasonable investigation with respect to the Company and its business
in connection with the preparation and filing of such registration statement,
make available for inspection by any seller of Registrable Securities covered by
such registration statement, by any managing underwriter or other underwriters
participating in any disposition of Registrable Securities, and by any attorney,
accountant or other agent, representative or advisor retained by any such seller
or underwriters, all pertinent financial and other records and corporate
documents of the Company; and cause all of the Company's officers, directors and
employees to discuss pertinent aspects of the Company's business with any such
seller, underwriter, accountant, agent, representative or advisor in
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<PAGE>
connection with such registration statement; provided, however, that the Company
-------- -------
shall not be obligated pursuant to this Section 1.03(k) to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information.
(l) Permit any Holder of Registrable Securities, which Holder, in the
judgment of its counsel, might be deemed to be a "control person" of the Company
(within the meaning of section 15 of the Securities Act or section 20 of the
Exchange Act), to participate in the preparation of such registration statement
and include therein material, furnished to the Company in writing which, in the
reasonable judgment of such Holder and its counsel, is required to be included
therein; and
(m) If any registration statement refers to any Holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company,
and if such Holder reasonably believes it is or may be deemed to be a control
person in relation to, or an Affiliate of, the Company, then such Holder shall
have the right to require (i) the insertion in such registration statement of
language, in form and substance reasonably satisfactory to such Holder, to the
effect that the ownership by such Holder of such securities is not to be
construed as and is not intended to be a recommendation by such Holder of the
investment quality of, or the relative merits and risks attendant to the
purchase of, the Company's securities covered thereby, and that such ownership
does not imply that such Holder will assist in meeting any future financial or
operating requirements of the Company, or (ii) in the case where the reference
to such Holder by name or otherwise is not required by the Securities Act or any
similar federal or state statute then in effect, the deletion of the reference
to such Holder.
Section 1.04 Underwritten Offerings. (a) Requested Underwritten
---------------------- ----------------------
Offerings. If requested by the underwriters for any underwritten offering by
- ---------
Holders of Registrable Securities pursuant to a Demand Registration, the Company
and the Selling Holders will use their best efforts to enter into an
underwriting agreement with such underwriters for such offering, such agreement
(i) to be reasonably satisfactory in substance and form to the Company, the
Representative and the underwriters and (ii) to contain such representations and
warranties by the Company and such other terms as are reasonable and customary
in the circumstances on the part of an issuer in agreements of that type,
including, without limitation, indemnities to the effect and to the extent
provided in Article 2 hereof. The Representative and the Holders of the
Registrable Securities proposed to be distributed by such underwriters shall
cooperate with the Company in the negotiation of the underwriting agreement.
Such Holders of Registrable Securities shall be
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<PAGE>
parties 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, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such Holders of Registrable Securities 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 such Holders of Registrable Securities. Any such Holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company other than representations,
warranties or agreements regarding such Holder, such Holder's Registrable
Securities and such Holder's intended method of distribution as otherwise
required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
---------------------------------
register any of its securities under the Securities Act as contemplated by
Section 1.02 hereof and such securities are distributed by or through one or
more underwriters, the Holders of Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting agreement between the
Company and such underwriters and may, at their option, require that any or all
of the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of such Holders of Registrable Securities 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 such
Holders of Registrable Securities. Any such Holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding such Holder, such Holder's Registrable Securities and such
Holder's intended method of distribution or as otherwise required by law.
(c) Limitations on Sale or Distribution of Other Securities.
-------------------------------------------------------
Anything herein to the contrary notwithstanding (including Section 1.01(a)
hereof), if a registration of any of the Company's securities shall be effected
by the Company, whether or not for its own account, by means of an underwritten
offering, each Holder of Registrable Securities shall be deemed to have agreed
by acquisition of such Registrable Securities not to effect any public sale or
distribution of any Registrable Securities, including any resale pursuant to
Rule 144 under the Securities Act, and to use such Holder's best efforts not to
effect any such public sale or distribution (other than as part of such
underwritten offering) of any other security which, with notice, lapse of time
and/or payment of monies, are exchangeable or exercisable for or convertible
into any Registrable
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<PAGE>
Securities, during the 15-day period prior to, and during the 120-day period (or
such longer period as shall have been requested by the managing underwriters)
commencing on, the effective date of the registration statement filed with the
Commission in connection with such underwritten offering.
(d) In order to ensure compliance with the provisions of Section
1.04(c) hereof, the Company hereby agrees to notify the Representative as to the
status and proposed effective date of any registration statement of the Company
which is filed with the Commission. The Representative shall be responsible for
relaying such notice to the Holders of Registrable Securities.
(e) The Company hereby agrees not to effect, except pursuant to
employee benefit plans, any public sale or distribution of any securities of the
same class as (or otherwise similar to) the Registrable Securities, or any
securities which, with notice, lapse of time and/or payment of monies, are
exchangeable or exercisable for or convertible into any such securities during
the 15-day period prior to, and during the 90-day period commencing on, the
effective date of a registration statement filed with the Commission in
connection with an underwritten offering effected pursuant to Section 1.01 of
this Agreement, except to the extent otherwise required by the CP Agreement or
the BV Agreement.
(f) Without limiting the generality of the foregoing, the provisions
of Section 1.04(c) hereof shall not apply to any Holder of Registrable
Securities if such Holder is prevented by statute or other applicable regulation
from agreeing to such provisions.
Section 1.05 Certain Agreements of the Company and Holders of Registrable
------------------------------------------------------------
Securities. (a) The Holders of Registrable Securities included in any
- ----------
registration shall furnish to the Company such information regarding such Holder
and the plan of distribution proposed by such Holder as the Company may
reasonably request and as shall reasonably be required in connection with any
registration, qualification or compliance referred to in this Agreement. In the
case of a Demand Registration, the Company agrees that any plan of distribution
included in the registration statement (which plan relates to the Holders of
Registrable Securities) shall be as reasonably specified by the Holders of
Registrable Securities.
If requested by the Company, information with respect to any Holder of
Registrable Securities required, in the opinion of counsel for the Company and
the Representative, to be included pursuant to the Securities Act in any
registration statement or prospectus for an offering of Registrable Securities
shall be furnished to the Company promptly by such Holder in writing in a
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<PAGE>
form specifically and expressly for use in such registration statement or
prospectus.
(b) If at the time of any transfer of any Registrable Securities,
such Registrable Securities shall not have been theretofore registered under the
Securities Act, the Company may require, as a condition of allowing such
transfer, that the Holder thereof or such Holder's transferee furnish to the
Company (i) such information as is necessary in order to establish that such
transfer may be made without registration under the Securities Act; and (ii) at
the expense of the Holder thereof or such Holder's transferee, an opinion of
legal counsel designated by such Holder or such Holder's transferee to the
effect that such transfer may be made without registration under the Securities
Act, except that nothing contained in this Section 1.05(b) shall relieve the
Company from complying with any request for registration, qualification or
compliance made pursuant to the other provisions of this Agreement.
(c) Each Holder of Registrable Securities agrees that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Holder may obtain from the Company, and which the
Company has marked "Confidential", "Proprietary" or "Secret" or has otherwise
identified as being such, pursuant to financial information, reports and other
materials and discussions with officers, directors, employees or agents made
available by the Company as required hereunder unless such information is or
becomes known to such Holder from a Person other than the Company (other than as
a result of a breach of a duty of confidentiality owed to the Company by such
Person) or is or becomes publicly known other than as a result of a breach of
this provision, or unless the Company gives its written consent to such Holder's
release of such information, except that no such written consent shall be
required (and such Holder shall be free to release such information) if such
information is to be provided to such Holder's counsel or accountant, or to an
officer, director, employee, advisor or partner of such Holder, provided that
--------
such Holder shall inform the recipient of the confidential nature of such
information, and shall require the recipient to treat the information as
confidential to the same extent as such Holder.
(d) In no event shall any sale of Registrable Securities be made
knowingly by any Holder of Registrable Securities, without the prior written
consent of the Company, to any Person (including Affiliates of any such Person)
which, to the knowledge of such Holder (or the knowledge of any underwriter for
such Holder), is (or would be after such sale) a "controlling person" of the
Company within the meaning of section 15 of the Securities Act or section 20 of
the Exchange Act.
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<PAGE>
(e) Each Holder of Registrable Securities agrees to perform any
further acts and to execute and deliver any further documents that may
reasonably be requested or necessary to confirm, or to carry out, the provisions
of this Agreement (including the provisions of Article 2 of this Agreement).
ARTICLE 2.
INDEMNIFICATION
---------------
Section 2.01 Indemnification. (a) With respect to each registration of
---------------
Registrable Securities pursuant to this Agreement, the Company hereby
indemnifies, to the fullest extent permitted by law, each Holder of Registrable
Securities included in such registration, its officers and directors, if any,
and each Person, if any, who controls such Holder within the meaning of section
15 of the Securities Act and section 20 of the Exchange Act, against all losses,
claims, damages, liabilities (or proceedings in respect thereof) and reasonable
expenses (under the Securities Act, common law and otherwise), joint or several,
caused by (i) any untrue statement or alleged untrue statement of a material
fact contained in the applicable registration statement or prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of such registration
statement (unless such statement is corrected in the final prospectus and the
Company has previously furnished copies thereof to any Holder of Registrable
Securities included in such registration which is seeking such indemnification
and to the underwriters of the registration in question), or contained in the
final prospectus (as amended or supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) if used within
the period during which the Company is required to keep the registration
statement to which such prospectus relates current, or the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that such indemnification shall not extend to
-------- -------
any such losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses which are caused (x) by any untrue statement or alleged
untrue statement contained in, or by any omission or alleged omission from,
information furnished in writing to the Company by any Holder of Registrable
Securities or any underwriter thereof specifically and expressly for use in any
such registration statement or prospectus or (y) any failure by such Holder of
Registrable Securities or any underwriter to deliver a prospectus or preliminary
prospectus (or
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<PAGE>
amendment or supplement thereto) as and when required under the Securities Act
after such prospectus has been timely furnished by the Company.
(b) In the case of an underwritten offering in which the registration
statement covers Registrable Securities, the Company agrees to indemnify the
underwriters, their officers and directors, if any, and each Person, if any, who
controls such underwriters within the meaning of section 15 of the Securities
Act and section 20 of the Exchange Act, to the extent customary in the
circumstances for an issuer in an underwritten public offering.
(c) In connection with any written information furnished to the
Company or any underwriter of any underwritten offering specifically and
expressly for use in a registration statement with respect to a Holder of
Registrable Securities, each such Holder hereby indemnifies severally (but not
jointly), to the fullest extent permitted by law, the Company, its officers and
directors and each Person, if any, who controls the Company within the meaning
of section 15 of the Securities Act and section 20 of the Exchange Act, against
any losses, claims, damages, liabilities (or proceedings in respect thereof) and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated or necessary to make the statements in the registration statement or
prospectus, or any amendment thereof or supplement thereto, in light of the
circumstances under which they were made, not misleading; provided, however,
-------- -------
that the indemnification set forth in this Section 2.01(c) shall only apply if,
and each such Holder shall be liable hereunder if and only to the extent that,
any such loss, claim, damage or liability arises solely out of or is based
solely upon an untrue statement or alleged untrue statement or omission or
alleged omission, made in reliance upon and in conformity with information
pertaining to such Holder, which is furnished in writing to the Company or any
underwriter of any underwritten offering by such Holder expressly for use in any
such registration statement or prospectus.
(d) In the case of an underwritten offering of Registrable
Securities, each Holder of Registrable Securities shall agree to indemnify such
underwriters, their officers and directors, if any, and each Person, if any, who
controls such underwriters within the meaning of section 15 of the Securities
Act and section 20 of the Exchange Act, to the extent customary in the
circumstances for a selling stockholder in an underwritten public offering.
Section 2.02 Notices of Claims. (a) Any Person seeking indemnification
-----------------
under the provisions of this Article 2 shall,
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<PAGE>
promptly after receipt by such Person of notice of the existence of such claim
or of the commencement of any action, suit, claim or proceeding, notify each
party against whom indemnification is to be sought in writing of the existence
or commencement thereof; provided, however, the failure so to notify an
-------- -------
indemnifying party shall not relieve the indemnifying party from any liability
which it may have under this Article 2 or from any liability which the
indemnifying party may otherwise have (except if and to the extent that it has
been prejudiced in any material respect by such failure). In case any such
action, suit, claim or proceeding is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent it may elect
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party, except as
otherwise provided in Section 2.02(c) hereof. Upon delivery of such notice by
the Company (if it is the indemnifying party) to such indemnified party and
approval of such counsel by such indemnified party, the Company will not be
liable under this Article 2 for any legal or other expenses subsequently
incurred by any Holder of Registrable Securities in connection with the defense
of such action, suit, claim or proceeding, except as otherwise provided in
Section 2.02(b) hereof.
(b) Notwithstanding the foregoing, the indemnified party shall have
the right to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such suit, action, claim or
proceeding, (ii) the indemnifying party shall not have employed counsel
(reasonably satisfactory to the indemnified party) to take charge of the defense
of such action, suit, claim or proceeding within a reasonable time after notice
of commencement of the action, suit, claim or proceeding, or (iii) such
indemnified party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
indemnifying party which, if the indemnifying party and the indemnified party
were to be represented by the same counsel, could result in a conflict of
interest for such counsel or materially prejudice the prosecution of the
defenses available to such indemnified party. If any of the events specified in
clauses (ii) or (iii) of the preceding sentence shall have occurred or such
clauses shall otherwise be applicable, then the fees and expenses of one counsel
or firm of counsel, plus one local or regulatory counsel or firm of counsel,
selected by a majority in interest of the indemnified parties shall be borne by
the indemnifying party.
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<PAGE>
(c) If, in any case, the indemnified party employs separate counsel,
the indemnifying party shall not have the right to direct the defense of such
action, suit, claim or proceeding on behalf of the indemnified party.
(d) Anything in this Article 2 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement or compromise of, or
consent to entry of any judgment with respect to, any action, suit, claim or
proceeding effected without its prior written consent (which consent in the case
of an action, suit, claim or proceeding exclusively seeking monetary relief
shall not be unreasonably withheld). Such indemnification shall remain in full
force and effect irrespective of any investigation made by or on behalf of an
indemnified party.
Section 2.03 Contribution. (a) If the indemnification from the
------------
indemnifying party as provided in this Article 2 is unavailable or is otherwise
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party shall, to the fullest extent permitted by law, contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified parties in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations,
subject to the provisions of Section 2.03(b) hereof. The relative fault of such
indemnifying party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made, or relates to information supplied by such indemnifying party, and
the parties, relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 2.02 hereof, any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Article 2 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 2.03(a).
(b) No Person guilty of fraudulent misrepresentation (within the
meaning of section 11(f) of the Securities Act) shall
-20-
<PAGE>
be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(c) If indemnification is available under this Article 2, the
indemnifying parties shall indemnify each indemnified party to the fullest
extent provided in Section 2.01 and Section 2.02 hereof without regard to the
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 2.03.
Section 2.04 Indemnification Payments. The indemnification and
------------------------
contribution required by this Article 2 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.
ARTICLE 3.
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms have the following respective meanings:
"Affiliate" shall have the meaning specified for "affiliate" in Rule 12b-2
under the Exchange Act.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Class A Common Stock" shall mean Class A Common Stock, par value $.01 per
share, of the Company.
"CP/BV Registrable Securities" shall mean the securities of the Company
which are defined as "Registrable Securities" under either the CP Agreement or
the BV Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time.
"Expected Proceeds" shall mean, as of any date, the aggregate proceeds that
would be expected to be received by a holder of securities from the sale of such
securities in an offering made on such date (without being reduced by any pro
forma expenses or underwriting discounts). The determination of Expected
Proceeds shall be made (a) if the offering is intended to be made in an
underwritten public offering, then by the intended managing underwriter of such
offering or (b) if the offering is not intended to be made in an underwritten
public offering, then by investment bankers mutually agreeable to the
-21-
<PAGE>
Company and the Representative, the fees and expenses of which shall be paid by
the Company.
"Person" shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.
"Register", "registered" and "registration" shall mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean, subject to the provisions of Sections
4.04(b) and 4.13 hereof, any and all Merger Securities which are shares of Class
A Common Stock. As to any particular Registrable Securities, such securities
shall cease to constitute Registrable Securities when (i) a registration
statement (other than the registration statement on Form S-4 with respect to the
Registrable Securities heretofore filed by the Company) with respect to the sale
of such securities shall have been declared effective under the Securities Act
and such securities shall have been disposed of in accordance with the methods
contemplated by the registration statement, (ii) such securities shall have been
sold in satisfaction of all applicable conditions to the resale provisions of
Rule 144 under the Securities Act (or any successor provision thereto), (iii)
such securities shall have been otherwise transferred, or (iv) such securities
shall have ceased to be issued and outstanding.
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with Article 1, including, without limitation, (a)
any allocation of salaries and expenses of Company personnel or other general
overhead expenses of the Company, or other expenses for the preparation of
historical and pro forma financial statements or other data normally prepared by
the Company in the ordinary course of business; (b) all registration,
application, filing, listing, transfer and registrar fees; (c) all NASD fees and
fees and expenses of registration or qualification of Registrable Securities
under state securities or "blue sky" laws pursuant to Section 1.03(d) hereof;
(d) all word processing, duplicating and printing expenses, messenger and
delivery expenses; (e) the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of customary "cold
comfort" letters required by or incident to such performance and compliance; and
(f) any fees and disbursements of underwriters and broker-dealers customarily
paid by issuers or sellers of securities; provided, however, that in all cases
-------- -------
in which the Company is required to pay Registration Expenses
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<PAGE>
hereunder, Registration Expenses shall exclude, and the sellers of the
Registrable Securities being registered shall pay, the fees and disbursements of
counsel to such sellers, and underwriting discounts and commissions and transfer
taxes in respect of the Registrable Securities being registered and, to the
extent such laws prohibit the Company from paying such expenses on behalf of the
holders of Registrable Securities, expenses of registering or qualifying
Registrable Securities under state securities or blue sky laws.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
ARTICLE 4.
MISCELLANEOUS
-------------
Section 4.01 Rule 144. If the Company shall have filed with the
--------
Commission and obtained the effectiveness of a registration statement covering
the Company's equity securities pursuant to the requirements of section 12 of
the Exchange Act or pursuant to the requirements of the Securities Act, the
Company agrees that it shall timely file the reports required to be filed by it
under the Securities Act or the Exchange Act (including, without limitation, the
reports under sections 13 and 15(d) of the Exchange Act referred to in paragraph
(c)(1) of Rule 144 under the Securities Act), and shall take such further
actions as the Representative may reasonably request, all to the extent
necessary to enable the holders to sell Registrable Securities, from time to
time, pursuant to the resale limitations of (a) Rule 144 under the Securities
Act, as such rule may be hereafter amended, or (b) any similar rules or
regulations hereafter adopted by the Commission. Upon the written request of
the Representative, the Company shall deliver to the Representative a
written statement as to whether it has complied with such requirements.
Section 4.02 Nominees for Beneficial Owners. In the event that
------------------------------
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its option, upon delivery to the Company of
such evidence of beneficial ownership as the Company may reasonably request, be
treated as the holder of such Registrable Securities for the purpose of any
request or other action by any Holder or Holders of Registrable Securities
pursuant to this Agreement (or any determination of any number or percentage of
shares constituting Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement).
-23-
<PAGE>
Section 4.03 Other Registration Rights. The Company hereby covenants and
-------------------------
agrees not to hereafter enter into any agreement, arrangement or understanding
with respect to its securities which is inconsistent or otherwise materially
interferes with the rights granted to the Holders of Registrable Securities
under Section 1.01 of this Agreement unless Holders of Registrable Securities
holding a majority of the Registrable Securities at the time outstanding shall
have consented thereto in writing. The Representative and the Holders of
Registrable Securities acknowledge and agree that the Company's entering into
any agreement, arrangement or understanding after the date hereof pursuant to
which the Company grants demand registration rights to a third party or parties
shall not be deemed to be inconsistent or to otherwise materially interfere with
the rights granted to the Holders of Registrable Securities under Section 1.01
of this Agreement so long as the rights so granted to such a third party or
parties shall not conflict with, and shall be subject to, the provisions of
Section 1.04(e) hereof.
Section 4.04 Assignment; Calculation of Percentage Interests in
--------------------------------------------------
Registrable Securities. (a) This Agreement shall be binding upon and inure to
- ----------------------
the benefit of and be enforceable by the Company, the Representative and the
Holders of Registrable Securities and, with respect to the Company, its
respective successors and assigns and, with respect to any Holder of any
Registrable Securities, subject to the provisions respecting the minimum numbers
of percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions, contained herein.
(b) The rights of Holders of Registrable Securities to cause the
Company to register Registrable Securities under Sections 1.01 and 1.02 hereof
may not be assigned or otherwise conveyed to any transferee or assignee of
Registrable Securities.
(c) For purposes of this Agreement, references to a percentage of the
Registrable Securities shall be calculated based upon the aggregate number of
shares of Registrable Securities outstanding at the date hereof, which aggregate
number is 30,142,732, unless otherwise expressly stated herein.
Section 4.05 Notices. Except as otherwise provided below, whenever it is
-------
provided in this Agreement that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon the
Company, the Representative or any Holder of Registrable Securities, or whenever
the Company, the Representative or any Holder of Registrable Securities desires
to provide to or serve upon any Person any other communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
-24-
<PAGE>
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or sent by registered or certified
mail (return receipt requested, postage prepaid), or by overnight mail, courier,
or delivery service or by telecopy and confirmed by telecopy answerback,
addressed as follows:
(a) If to the Company, to:
---------------------
Continental Cablevision, Inc.
The Pilot House
Lewis Wharf
Boston, Massachusetts 02110
Telephone: (617) 742-9500
Telecopy: (617) 742-0530
Attention: Vice President and Treasurer
---------
- With a copy to -
Sullivan & Worcester
One Post Office Square
Boston, Massachusetts 02109
Telephone: (617) 338-2800
Telecopy: (617) 338-2880
Attention: Patrick K. Miehe, Esq.
---------
(b) If to the Representative, to:
------------------------
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7286
Telecopy: (401) 277-7770
Attention: Secretary
---------
- With a copy to -
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7031
Telecopy: (401) 277-7857
Attention: John L. Hammond, Esq.
---------
- And a copy to -
Edwards & Angell
-25-
<PAGE>
2700 Hospital Trust Tower
Providence, Rhode Island 02902
Telephone: (401) 276-6647
Telecopy: (401) 276-6512
Attention: Walter G.D. Reed, Esq.
---------
(c) If to any Holder of Registrable Securities, to
------------------------------------------
such Holder at:
c/o The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7286
Telecopy: (401) 277-7770
Attention: Secretary
---------
- With a copy to -
The Providence Journal Company
75 Fountain Street
Providence, Rhode Island 02902
Telephone: (401) 277-7031
Telecopy: (401) 277-7857
Attention: John L. Hammond, Esq.
---------
- And a copy to -
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02902
Telephone: (401) 276-6647
Telecopy: (401) 276-6512
Attention: Walter G.D. Reed, Esq.
---------
or, in the case of the Company or the Representative, at such other address as
may be substituted by it by notice delivered as provided herein. The furnishing
of any notice required hereunder may be waived in writing by the party entitled
to receive such notice. Every notice, demand, request, consent, approval,
declaration or other communication hereunder shall be deemed to have been duly
delivered, furnished or served on (i) the date on which personally delivered,
with receipt acknowledged, (ii) the date on which telecopied and confirmed by
telecopy answerback, (iii) the next business day if delivered by overnight or
express mail, courier or delivery service, or (iv) three business days after the
same shall have been deposited in the United States mail, as the case may be.
Failure or delay in delivering copies
-26-
<PAGE>
of any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication. The Representative shall be
responsible for relaying any notice, demand, request, consent, approval,
declaration or other communication hereunder delivered, furnished or served upon
any Holder of Registrable Securities in care of the Representative pursuant to
Section 4.04(c) hereof to such Holder of Registrable Securities.
Section 4.05 Entire Agreement; Amendment. This Agreement represents the
---------------------------
entire agreement and understanding among the parties hereto with respect to the
subject matter hereof and supersedes any and all prior oral and written
agreements, arrangements and understandings among the parties hereto with
respect to such subject matter; and can be amended, supplemented or changed, and
any provision hereof can be waived, only by a written instrument making specific
reference to this Agreement signed by the Company, the Representative and the
Holders of Registrable Securities holding a majority of the Registrable
Securities at the time outstanding.
Section 4.07 Paragraph Headings, etc. The paragraph headings contained in
-----------------------
this Agreement are for general reference purposes only and shall not affect in
any manner the meaning, interpretation or construction of the terms or other
provisions of this Agreement. The terms "including", "includes" and "included"
shall not be limiting.
Section 4.08 Applicable Law. This Agreement shall be governed by,
--------------
construed and enforced in accordance with the laws of The Commonwealth of
Massachusetts, applicable to contracts to be made, executed, delivered and
performed wholly within such state and, in any case, without regard to the
conflicts of law principles of such state.
Section 4.09 Severability. If at any time subsequent to the date hereof,
------------
any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provision of this Agreement.
Section 4.10 Equitable Remedies. The parties hereto agree that
------------------
irreparable harm would occur in the event that any of the agreements and
provisions of this Agreement were not performed fully by the parties hereto in
accordance with their specific terms or conditions or were otherwise breached,
and that money damages are an inadequate remedy for breach of this Agreement
-27-
<PAGE>
because of the difficulty of ascertaining and quantifying the amount of damage
that will be suffered by the parties hereto in the event that this Agreement is
not performed in accordance with its terms or conditions or is otherwise
breached. It is accordingly hereby agreed that the parties hereto shall be
entitled to an injunction or injunctions to restrain, enjoin and prevent
breaches of this Agreement by the other parties and to enforce specifically the
terms and provisions hereof in any court of the United States or any state
having jurisdiction, such remedy being in addition to and not in lieu of, any
other rights and remedies to which the other parties are entitled to at law or
in equity.
Section 4.11 No Waiver. The failure of any party at any time or times to
---------
require performance of any provision hereof shall not affect the right at a
later time to enforce the same. No waiver by any party of any condition, and no
breach of any provision, term, covenant, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
Section 4.12 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same original instrument.
Section 4.13 Special Limitation and Termination of Registration Rights.
---------------------------------------------------------
Anything in this Agreement to the contrary notwithstanding:
(a) The Company shall only be required to include Registrable
Securities in any registration statement to the extent that, in the Company's
reasonable judgment, such registration would not materially interfere with, or
violate or conflict with, any registration rights which may then be held by any
holders of the Company's capital stock.
(b) The obligations of the Company to each Holder of Registrable
Securities with respect to its rights of registration provided for in Sections
1.01 and 1.02 hereof shall not apply to any proposed sales or other dispositions
or offers therefor of any Registrable Securities with respect to which Messrs.
Sullivan & Worcester or other counsel for the Company knowledgeable in
securities law matters has delivered a written opinion to the Company and the
Representative (and the Representative shall be responsible for relaying such
opinion to the such Holder of Registrable Securities proposing to make such
offer, sale or other disposition) to the effect that such Holder of Registrable
-28-
<PAGE>
Securities has no obligation to comply with the registration requirements of the
Securities Act or to deliver a prospectus meeting the requirements of section
10(a)(3) of the Securities Act with respect to such proposed sales or other
dispositions or offers therefor or only has such obligation because such Holder
of Registrable Securities is or may be, or is an Affiliate of a Person who is or
may be, a "controlling person" of the Company or Providence Journal Company
within the meaning of the Securities Act. Notwithstanding the provisions of the
immediately preceding sentence, the Company shall be obligated to provide the
rights of registration set forth in Sections 1.01 and 1.02 hereof if, within
twenty (20) days of the delivery of any opinion of counsel pursuant to either
such paragraph, the Holder of Registrable Securities to whom such opinion was
delivered shall have delivered to the Company an opinion of its counsel, which
counsel shall be knowledgeable in securities law matters, to the effect that it
cannot concur in the opinion of counsel for the Company. In any such event, the
Company shall have the right to submit the matter, at its expense, to counsel
independent of the Company and reasonably satisfactory to such Holder of
Registrable Securities, whose opinion shall be determinative and conclusive, or
to seek a no-action letter from the Commission.
(c) The obligations of the Company to each Holder of Registrable
Securities with respect to its rights of registration provided for in Sections
1.01 and 1.02 hereof shall cease and terminate upon the earlier of (i) six (6)
years after the date hereof and (ii) the date on which the aggregate number of
Registrable Securities issued and outstanding shall no longer exceed one third
(1/3) of the aggregate number of shares of Registrable Securities outstanding at
the date hereof .
(d) The rights of registration provided for in Sections 1.01 and 1.02
hereof are subject to and limited by the terms and provisions of Article XIII of
the Restated By-Laws of the Company effective as of May 14, 1992, as amended
through the date hereof.
Section 4.14 Representations of the Representative. The Representative
-------------------------------------
represents and warrants as follows: The Representative is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
All necessary action, corporate or otherwise, required to have been taken by or
on behalf of the Representative by applicable Law, its charter documents or
otherwise, or required to have been taken by Holders of Registrable Securities,
to authorize (i) the approval, execution and delivery by the Representative, as
agent for the Holders of Registrable Securities, of this Agreement and (ii) the
-29-
<PAGE>
performance by the Representative of its obligations under this Agreement, has
been taken. Each Holder of Registrable Securities has duly appointed the
Representative as his, her or its agent and has duly authorized the
Representative to execute this Agreement and to deliver it to the Company on
his, her or its behalf. This Agreement constitutes a valid and binding
agreement of the Representative and each of the Holders of Registrable
Securities, enforceable against the Representative and each such Holder in
accordance with its terms, except (i) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights, including without limitation, the
effect of statutory or other laws regarding fraudulent conveyances and
preferential transfers, and (ii) for the limitations imposed by general
principles of equity.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
CONTINENTAL CABLEVISION, INC.
By:/s/ P. Eric Krauss
-----------------------------
Name: P. Eric Krauss
Title: Vice President and
Treasurer
THE HOLDERS OF REGISTRABLE
SECURITIES NAMED IN SCHEDULE A
----------
HERETO
By: The Providence Journal
Company, as agent
By: /s/ Stephen Hamblett
------------------------------
Name: Stephen Hamblett
Title: Chairman
THE PROVIDENCE JOURNAL COMPANY, as
Representative
By: /s/ Stephen Hamblett
------------------------------
Name: Stephen Hamblett
Title: Chairman
-30-
<PAGE>
Schedule A has been omitted, but will be provided upon the request of the
Commission.
-31-
<PAGE>
Exhibit 10.18
-------------
VOTING AGREEMENT
This Voting Agreement, dated as of November 18, 1994 (this
"Agreement"), is by and among Continental Cablevision, Inc., a Delaware
corporation ("Acquiror"), Providence Journal Company, a Rhode Island corporation
(the "Company"), each person or entity listed as an "Acquiror Stockholder" on
the signature pages hereof (each, an "Acquiror Stockholder") and each person or
entity listed as a "Providence Journal Company Stockholder" on the signature
pages hereof (each, a "PJC Stockholder").
WHEREAS, each Acquiror Stockholder owns the number of shares of (i)
Class A Common Stock, par value $.01 per share, of Acquiror ("Acquiror Class A
Common Stock"), (ii) Class B Common Stock, par value $.01 per share, of Acquiror
("Acquiror Class B Common Stock") and (iii) Series A Convertible Preferred
Stock, par value $.01 per share, of Acquiror ("Acquiror Preferred Stock") set
forth opposite such Acquiror Stockholder's name on Exhibit A hereto (all shares
---------
of Acquiror Class A Common Stock, Acquiror Class B Common Stock and Acquiror
Preferred Stock now owned and which may hereafter be acquired by the Acquiror
Stockholders prior to the termination of this Agreement shall be referred to
herein as the "Acquiror Shares");
WHEREAS, each PJC Stockholder owns the number of shares of (i) Class A
Common Stock, par value $2.50 per share, of the Company ("Providence Journal
Class A Common Stock") and (ii) Class B Common Stock, par value $2.50 per share,
of the Company ("Providence Journal Class B Common Stock") set forth opposite
such PJC Stockholder's name on Exhibit B hereto (all shares of Providence
---------
Journal Class A Common Stock and Providence Journal Class B Common Stock now
owned and which may hereafter be acquired by the PJC Stockholders prior to the
termination of this Agreement, shall be referred to herein as the "Providence
Journal Shares");
WHEREAS, the Company and Acquiror propose to enter into an Agreement
and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which
provides, among other things, that the Company will merge with Acquiror pursuant
to the Merger (this and other capitalized terms used and not defined herein
shall have the meanings given to such terms in the Merger Agreement)
contemplated by the Merger Agreement;
WHEREAS, it is a condition to the willingness of Acquiror to enter
into the Merger Agreement that each PJC Stockholder agree, and in order to
induce Acquiror to enter into the Merger Agreement, each PJC Stockholder has
agreed, to enter into this Agreement; and
WHEREAS, it is a condition to the willingness of the Company to enter
into the Merger Agreement that each Acquiror Stockholder agree, and in order to
induce the Company to enter into
<PAGE>
the Merger Agreement, each Acquiror Stockholder has agreed, to enter into this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE 1
VOTING OF PROVIDENCE JOURNAL SHARES AND ACQUIROR SHARES
-------------------------------------------------------
SECTION 1.1. Voting Agreement. (a) Each PJC Stockholder hereby
----------------
agrees that during the time this Agreement is in effect, at any meeting of the
stockholders of the Company, however called, and in any action by consent of the
stockholders of the Company, such PJC Stockholder shall vote his, her or its
Providence Journal Shares: (i) in favor of the Merger, the Merger Agreement (as
amended from time to time) and the other transactions contemplated by the Merger
Agreement, the Preemptive Rights Waiver Amendment and, if applicable, the
Alternate Merger Agreement (as amended from time to time), and the transactions
contemplated by the Alternate Merger Agreement, (ii) against any proposal for
any recapitalization, merger, sale of assets or other business combination
between the Company or any of its Cable Subsidiaries and any person or entity
other than Acquiror, or any other action or agreement, that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement or the Alternate Merger
Agreement, as the case may be, or that would result in any of the conditions to
the obligations of the Company under the Merger Agreement or the Alternate
Merger Agreement, as the case may be, not being fulfilled, and (iii) in favor of
any other matter relating to the consummation of the transactions contemplated
by the Merger Agreement or the Alternate Merger Agreement, as the case may be.
Each PJC Stockholder acknowledges receipt and review of a copy of the Merger
Agreement (which contains a copy of the Alternate Merger Agreement).
(b) Each Acquiror Stockholder hereby agrees that during the time this
Agreement is in effect, at any meeting of the stockholders of Acquiror, however
called, and in any action by consent of the stockholders of Acquiror, such
Acquiror Stockholder shall vote his, her or its Acquiror Shares: (i) in favor
of the Merger, the Recapitalization Amendment, the Merger Agreement (as amended
from time to time) and the transactions contemplated by the Merger Agreement,
and, if applicable, the Alternate Merger Agreement and the other transactions
contemplated by the Alternate Merger Agreement, (ii) against any action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of Acquiror under the Merger
Agreement or the Alternate Merger Agreement, as the case may be, or that would
result in any of the conditions to the obligations of Acquiror under the Merger
Agreement or the Alternate Merger
<PAGE>
Agreement, as the case may be, not being fulfilled and (iii) in favor of any
other matter relating to the consummation of the transactions contemplated by
the Merger Agreement and the Alternate Merger Agreement, as the case may be.
Each Acquiror Stockholder acknowledges receipt and review of a copy of the
Merger Agreement (which contains a copy of the Alternate Merger Agreement).
(c) Anything herein to the contrary notwithstanding, the parties
hereto acknowledge and agree that nothing contained in this Agreement shall be
deemed to require an Acquiror Stockholder who is a director of Acquiror or a PJC
Stockholder who is a director of the Company to take any action or refrain from
taking any action in his or her capacity as such.
ARTICLE 2
REPRESENTATION AND WARRANTIES OF THE PJC STOCKHOLDERS
-----------------------------------------------------
Each PJC Stockholder hereby represents and warrants to Acquiror as
follows:
SECTION 2.1. Authority Relative to This Agreement. Such PJC
------------------------------------
Stockholder has all necessary power and authority to execute and deliver this
Agreement, to perform his, her or its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by such PJC Stockholder and the consummation by such PJC Stockholder
of the transactions contemplated hereby have been duly and validly authorized by
such PJC Stockholder, and no other proceedings on the part of such PJC
Stockholder are necessary to authorize the execution and delivery of this
Agreement or to consummate such transactions. This Agreement has been duly and
validly executed and delivered by such PJC Stockholder and, assuming the due
authorization, execution and delivery hereof by each other party hereto,
constitutes a legal, valid and binding obligation of such PJC Stockholder,
enforceable against such PJC Stockholder in accordance with its terms.
SECTION 2.2. No Conflict.
-----------
(a) The execution and delivery of this Agreement by such PJC
Stockholder do not, and the performance of this Agreement by such PJC
Stockholder shall not, (i) conflict with or violate any trust agreement,
charter, by-laws or other instrument or organizational document of such PJC
Stockholder (if any), (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to such PJC Stockholder or by which such
PJC Stockholder's Providence Journal Shares are bound or affected or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of such PJC Stockholder's
Providence Journal Shares pursuant to, any note, bond, mortgage,
<PAGE>
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such PJC Stockholder is a party or by which
such PJC Stockholder or such PJC Stockholder's Providence Journal Shares are
bound or affected, except, in the case of clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would not
prevent or delay the performance by such Stockholder of such PJC Stockholder's
obligations under this Agreement.
(b) The execution and delivery of this Agreement by such PJC
Stockholder do not, and the performance of this Agreement by such PJC
Stockholder shall not, require any consent, approval, authorization or permit
of, or filing with or notification to, any federal, state, local or foreign
regulatory body, except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay the performance by such PJC Stockholder of such PJC
Stockholder's obligations under this Agreement.
SECTION 2.3. Title to the Providence Journal Shares. Such PJC
--------------------------------------
Stockholder is the owner of the Providence Journal Shares set forth opposite
his, her or its name on Exhibit B free and clear of all security interests,
---------
liens, claims , pledges, options, rights of first refusal, agreements,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever. Such PJC Stockholder has not appointed or granted any proxy, which
appointment or grant is still effective, with respect to such Providence Journal
Shares. Such PJC Stockholder has sole voting power with respect to such
Providence Journal Shares, and the person(s) executing this Agreement have the
power to direct the voting of such Providence Journal Shares.
ARTICLE 3
REPRESENTATION AND WARRANTIES OF THE ACQUIROR STOCKHOLDERS
----------------------------------------------------------
Each Acquiror Stockholder hereby represents and warrants to the
Company as follows:
SECTION 3.1. Authority Relative to This Agreement. Such Acquiror
------------------------------------
Stockholder has all necessary power and authority to execute and deliver this
Agreement, to perform his, her or its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by such Acquiror Stockholder and the consummation by such Acquiror
Stockholder of the transactions contemplated hereby have been duly and validly
authorized by such Acquiror Stockholder, and no other proceedings on the part of
such Acquiror Stockholder are necessary to authorize the execution and delivery
of this Agreement or to consummate such transactions. This Agreement has been
duly and validly executed and delivered by such Acquiror Stockholder and,
assuming the due authorization, execution and delivery hereof by each other
party hereto, constitutes a legal, valid and binding obligation of such Acquiror
Stockholder enforceable against such Acquiror Stockholder in accordance with its
terms.
<PAGE>
SECTION 3.2. No Conflict.
-----------
(a) The execution and delivery of this Agreement by such Acquiror
Stockholder do not, and the performance of this Agreement by such Acquiror
Stockholder shall not, (i) conflict with or violate any trust agreement,
charter, by-laws or other instrument or organizational document of such Acquiror
Stockholder (if any), (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to such Acquiror Stockholder or by which
such Acquiror Stockholder's Acquiror Shares are bound or affected or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of such Acquiror Stockholder's
Acquiror Shares pursuant to, any note, bond, mortgage, indenture contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Acquiror Stockholder is a party or by which such Acquiror
Stockholder or by which such Acquiror Stockholder's Acquiror Shares are bound or
affected, except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay the performance by such Acquiror Stockholder of such Acquiror
Stockholder's obligations under this Agreement.
(b) The execution and delivery of this Agreement by such Acquiror
Stockholder do not, and the performance of this Agreement by such Acquiror
Stockholder shall not, require any consent, approval, authorization or permit
of, or filing with or notification to, any federal, state, local or foreign
regulatory body, except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay the performance by such Acquiror Stockholder of such Acquiror
Stockholder's obligations under this Agreement.
SECTION 3.3. Title to the Acquiror Shares. Such Acquiror Stockholder
----------------------------
is the owner of the Acquiror Shares set forth opposite his, her or its name on
Exhibit A. Such Acquiror Stockholder has sole voting power with respect to such
- ---------
Acquiror Shares or has the power to direct the voting of such Acquiror Shares.
ARTICLE 4
COVENANTS OF THE PJC STOCKHOLDERS
---------------------------------
SECTION 4.1. No Inconsistent Agreement. Each PJC Stockholder hereby
-------------------------
covenants and agrees that, except as contemplated by this Agreement, such PJC
Stockholder shall not enter into any voting agreement or grant a proxy or power
of attorney with respect to such PJC Stockholder's Providence Journal Shares
which is inconsistent with this Agreement.
<PAGE>
SECTION 4.2. Transfer of Title. Each PJC Stockholder hereby
-----------------
covenants and agrees that such PJC Stockholder shall not transfer ownership of
any of its Providence Journal Shares unless the transferee agrees in writing to
be bound by the terms and conditions of this Agreement.
ARTICLE 5
COVENANTS OF THE ACQUIROR STOCKHOLDERS
--------------------------------------
SECTION 5.1. No Inconsistent Agreement. Each Acquiror Stockholder
-------------------------
hereby covenants and agrees that, except as contemplated by this Agreement, such
Acquiror Stockholder shall not enter into any voting agreement or grant a proxy
or power of attorney with respect to such Acquiror Stockholder's Acquiror Shares
which is inconsistent with this Agreement.
SECTION 5.2. Transfer of Title. Each Acquiror Stockholder hereby
-----------------
covenants and agrees that such Acquiror Stockholder shall not transfer ownership
of more than 10% of such Acquiror Stockholder's Acquiror Shares unless the
transferee agrees in writing to be bound by the terms and conditions of this
Agreement; provided, however, from and after the date on which the holders of at
-------- -------
least 50.1% (the "Required Percentage") of the combined voting power of the
Acquiror Common Stock and the Acquiror Series A Preferred Stock have become
parties to this Agreement, no Acquiror Stockholder shall transfer ownership of
any of such Acquiror Stockholder's Acquiror Shares if, after giving effect to
such transfer, the Required Percentage of Acquiror Stockholders would no longer
be bound by the terms of this Agreement.
ARTICLE 6
MISCELLANEOUS
-------------
SECTION 6.1. Termination. This Agreement shall terminate on the
-----------
earlier to occur of (i) the consummation of the Merger Transactions, (ii)
December 31, 1995 and (iii) the termination of the Merger Agreement (or, if
applicable, the Alternate Merger Agreement).
SECTION 6.2. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 6.3. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties and supersedes all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.
<PAGE>
SECTION 6.4. Amendment. This Agreement may not be amended except by
---------
an instrument in writing signed by all of the parties hereto.
SECTION 6.5. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable or being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 6.6. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware regardless of the
laws that might otherwise govern under principles of conflicts of law applicable
hereto.
SECTION 6.7. Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
SECTION 6.8. Jurisdiction. The parties accept, generally and
------------
unconditionally, the exclusive jurisdiction of the State of Rhode Island or the
Commonwealth of Massachusetts in any action, suit or proceeding of any kind
which arises out of or by reason of this Agreement or any agreements
contemplated hereby.
SECTION 6.9. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 6.10 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given when delivered
in person, by telecopy with answerback, by express or overnight mail delivered
by a nationally recognized air courier (delivery charges prepaid) or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows: (a) if to any PJC Stockholder or Acquiror
Stockholder, to him, her or it at the location listed below such PJC
Stockholder's or Acquiror Stockholder's name on the signature pages hereof, (ii)
if to Acquiror, to it at The Pilot House, Lewis Wharf, Boston, MA 02110,
telecopy (617) 742-0530, attention: Amos B. Hostetter, Jr., and (iii) if to the
Company, to it at 75 Fountain Street, Providence, RI 02902, telecopy (401) 277-
7889, attention: Stephen Hamblett and John L. Hammond, Esq., or to such other
address as the party to whom notice is given may have previously furnished to
the others in writing in the manner set
<PAGE>
forth above. Any notice or communication delivered in person shall be deemed
effective on delivery. Any notice or communication sent by telecopy or by air
courier shall be deemed effective on the first business day at the place at
which such notice or communication is received following the day on which such
notice or communication was sent. Any notice or communication sent by
registered or certified mail shall be deemed effective on the fifth business day
at the place from which such notice or communication was mailed following the
day in which such notice or communication was mailed.
SECTION 6.11 Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise.
SECTION 6.12 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
CONTINENTAL CABLEVISION, INC.
By:/s/ Amos B. Hostetter, Jr.
--------------------------
Name:
Title:
PROVIDENCE JOURNAL COMPANY
By:/s/ Stephen Hamblett
--------------------------
Name:
Title:
ACQUIROR STOCKHOLDERS:
/s/ Amos B. Hostetter, Jr.
---------------------------------
Amos B. Hostetter, Jr., not in his
individual capacity but solely in his
capacity as Trustee of the Amos B.
Hostetter, Jr. 1989 Trust
<PAGE>
Address for notices:
The Pilot House, Lewis Wharf
Boston, MA 02110
Attn: Amos B. Hostetter, Jr.
/s/ Timothy P. Neher
------------------------------
Timothy P. Neher, not in his individual
capacity but solely in his capacity as
Trustee of the Amos B. Hostetter, Jr. 1989
Trust
Address for notices:
The Pilot House, Lewis Wharf
Boston, MA 02110
Attn: Amos B. Hostetter, Jr.
PROVIDENCE JOURNAL COMPANY STOCKHOLDERS:
/s/ John A. Bowers
-----------------------------
John A. Bowers
Address for notices:
2 Maryland Drive
West Warwick, RI 02893
/s/ Harry Dyson
------------------------------
Harry Dyson
Address for notices:
24 Metcalf Drive
Cumberland, RI 02864
/s/ Stephen Hamblett
------------------------------
Stephen Hamblett
Address for notices:
35 Benefit Street
Providence, RI 02906
<PAGE>
/s/ Trygve E. Myhren
-------------------------------
Trygve E. Myrhen
Address for notices:
30 Apple Tree Lane
Barrington, RI 02806
/s/ James F. Stack
------------------------------
James F. Stack
Address for notices:
5 Highridge Drive
Lincoln, RI 02865
/s/ Joel N. Stark
-----------------------------
Joel N. Stark
Address for notices:
137 Briarcliff Avenue
Warwick, RI 02889
/s/ James V. Wyman
-----------------------------
James V. Wyman
Address for notices:
6 Barway Lane
Cumberland, RI 02864
<PAGE>
Exhibit A
---------
<TABLE>
<CAPTION>
Acquiror Acquiror Acquiror
Class A Class B Preferred
Common Stock Common Stock Stock
------------ ------------ ---------
<S> <C> <C> <C>
Amos B. Hostetter, Jr.,
not in his individual
capacity but solely in
his capacity as Trustee
of the Amos B. Hostetter,
Jr. 1989 Trust 1,713,742
</TABLE>
<PAGE>
Exhibit B
---------
<TABLE>
<CAPTION>
Providence Providence
Journal Journal
Class A Class B
Common Stock Common Stock
------------ ------------
<S> <C> <C>
John A. Bowers 1
Harry Dyson 4
Stephen Hamblett 156 148
Trygve Myhren 3
James Stack 2
Joel Stark 3
James Wyman 6
</TABLE>
<PAGE>
SECOND AMENDMENT
----------------
SECOND AMENDMENT (the "Second Amendment"), dated as of September 29, 1995,
to the Agreement, dated as of November 1, 1994, as amended by the First
Amendment thereto, dated as of March 24, 1995 (collectively the "Agreement"), by
and among COLUMBIA ASSOCIATES, L.P., a Delaware limited partnership ("Seller"),
COLUMBIA CABLE OF MICHIGAN, INC., a Delaware corporation (the "Company") and
CONTINENTAL CABLEVISION OF MANCHESTER, INC., a Maryland corporation ("Buyer").
W I T N E S S E T H:
-------------------
WHEREAS, Seller is the owner of certain cable television systems located in
the State of Michigan (collectively the "Systems") and has agreed to sell
control of the Systems to Buyer pursuant to the terms and conditions of the
Agreement;
WHEREAS, the purchase of the Systems by Buyer will be accomplished by
Seller first contributing substantially all of the assets and certain of the
liabilities of the Systems to the Company in exchange for 100 shares of common
stock of the Company, par value $.10 per share (the "Shares"), which shall
constitute all of the issued and outstanding shares of capital stock of the
Company, and then by Seller selling and conveying to Buyer the Shares for the
purchase price provided for in the Agreement, all of which shall occur
simultaneously; and
WHEREAS, Seller, the Company and Buyer have agreed to amend the Agreement
pursuant to the terms of this Second Amendment in order to, among other things,
postpone the scheduled Closing Date (as such term is defined in the Agreement)
from September 29, 1995 to October 16, 1995.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms used herein, unless otherwise
-----------
defined herein, shall have the meanings ascribed to such terms in the Agreement.
2. Amendment to Agreement. The Agreement is hereby amended as follows as
----------------------
of the date hereof:
(a) The definition of "Calculation Date" set forth in Section 1.1 of
the Agreement is hereby amended in its entirety as follows:
<PAGE>
"Calculation Date" shall mean the last Business Day of the Billing
Period immediately preceding the Closing Date; provided, however, that in
-------- -------
the event that the Closing Date occurs on or after September 29, 1995 the
Calculation Date shall mean August 25, 1995."
(b) The first nine sentences of Section 3.3(a) of the Agreement are
hereby deleted in their entirety and the following provisions are hereby
inserted in place thereof:
"(a) If the Basic Number is less than the Applicable Subscriber
Number, then the Purchase Price shall be decreased by an amount equal to
the product of the Applicable Dollar Amount multiplied by the amount by
which the Basic Number is less than the Applicable Subscriber Number.
The Applicable Subscriber Number shall be 71,000 and the Applicable Dollar
Amount shall be $2,183.10. If the Basic Number is less than 95% of the
Applicable Subscriber Number (the "Minimum Subscriber Number"), the Buyer
may elect to terminate this Agreement, in which case this Agreement shall
be of no further force and effect and the Contract Escrow Amount, together
with all accrued interest thereon, shall be returned to Buyer; provided,
--------
however, that Buyer shall not be entitled to terminate this Agreement if
-------
the Basic Number is less than 95% of the Applicable Subscriber Number
solely as a result of the exercise of first refusal rights referred to in
Section 6.1(b) hereof relating to no more than 1,000 Basic Subscribers.
If, after the date of execution and delivery of this Agreement, but prior
to a scheduled Closing Date, a casualty or unforeseen event beyond Seller's
control occurs which reduces the Basic Number to less than the Minimum
Subscriber Number on such scheduled Closing Date (based on the Seller's
or Buyer's good faith estimate of the Basic Number), then Seller may, by
notice to Buyer setting forth in reasonable detail the nature of the
casualty or unforeseen event which has caused the Basic Number to fall
below the Minimum Subscriber Number, postpone the Closing until the last
Business Day of the second calendar month following such scheduled Closing
Date, but in no event shall the Closing Date be later than December 27,
1995."
(c) The fourth sentence of Section 3.3(b) of the Agreement is hereby
deleted in its entirety and the following provisions are hereby inserted in
place thereof:
"A final list of all such adjustments, as of the Closing, shall be
prepared jointly by Buyer and Seller within sixty (60) days after the
Closing Date."
-2-
<PAGE>
(d) Section 4.1 of the Agreement is hereby amended to read in its
entirety as follows:
"The closing of the transactions provided for herein (the "Closing")
shall take place at the offices of Seller's counsel, Rubin Baum Levin
Constant & Friedman ("RBLCF"), at 10:00 A.M. local time on October 16, 1995
or on any subsequent Business Day designated by Seller pursuant to at least
five (5) days prior written notice given by Seller to Buyer so long as on
or prior to such designated date the parties hereto have satisfied or
waived all of the conditions set forth in Section 7.3, other than such
conditions which can only be satisfied at the Closing (such date and time
being hereinafter called the "Closing Date"), provided that, at the time
notice of the satisfaction of such conditions is sent to Buyer as provided
below, Seller believes that the conditions in Section 7.1 will be satisfied
as of the Closing Date. Seller shall promptly deliver to Buyer notice of
the satisfaction of the conditions set forth in Section 7.3, but in no
event shall the Closing Date be earlier than October 16, 1995 or later than
October 31, 1995 (except as provided in Section 3.3(a)). By mutual
agreement, the parties may set a place, time or date for the Closing other
than as provided herein. The Closing shall be effective as of the close of
business on the Closing Date.
If by October 31, 1995 (subject to Section 3.3(a)) the conditions
referred to in Section 7.3 have not been fulfilled (or waived by Buyer and
Seller), then either Buyer or Seller may terminate this Agreement by notice
to the other, provided that at the time such notice is given, such
conditions have still not been fulfilled and the party giving such notice
is not in default of its obligations hereunder which default is the basis
of the failure of the condition to be fulfilled."
(e) Section 11.2 of the Agreement is hereby amended to read in its
entirety as follows:
"11.2 Assignment. No party hereto may assign or transfer its rights
----------
or obligations arising under this Agreement, without the consent of the
other parties; provided that (a) Buyer shall have the right in its sole
-------- ----
discretion to assign its rights and obligations under this Agreement and
the documents and agreements executed in connection herewith, including,
without limitation, the Closing Escrow Agreement, to a wholly owned
subsidiary of Continental Cablevision, Inc. if such assignment will not
serve to delay the Closing, it being understood and agreed that no such
assignment shall
-3-
<PAGE>
relieve Buyer of any of its obligations hereunder or under the documents
and agreements executed in connection herewith, including, without
limitation, the Closing Escrow Agreement, and (b) at or after the Closing,
the Seller may assign its remaining rights and obligations hereunder and
under the documents and agreements executed in connection herewith,
including, without limitation, the Closing Escrow Agreement, to or for the
benefit of (i) the Managing General Partner or any affiliate thereof or
(ii) any liquidating trust established in the event of the liquidation of
Seller and the winding up of its affairs; provided, however, that Seller
-------- -------
shall promptly notify Buyer of the name and address of the trustee thereof.
The parties hereto hereby agree that in the event of any assignment from
the Seller to the Managing General Partner or any affiliate thereof or a
liquidating trust pursuant to the preceding sentence, the Seller shall be
permitted to assign and convey to the Managing General Partner or any
affiliate thereof or such liquidating trust (and the Managing General
Partner or any affiliate thereof or such liquidating trust, as the case may
be, shall assume) all of the rights and obligations of the Seller under
this Agreement and any document or agreement executed in connection
herewith, including, without limitation, the Closing Escrow Agreement, in
respect of actions to be taken or decisions to be made hereunder or
thereunder during the period from and after the Closing Date under this
Agreement, including, without limitation, the full right, power and
authority to effect all post-closing adjustments and claims for
indemnification hereunder (including the adjudication and/or settlement of
all disputes with respect to such adjustments or claims) and the right to
retain and receive any and all amounts paid or payable by Buyer or the
Closing Escrow Agent under the Closing Escrow Agreement."
(f) The following provisions are hereby added as Section 11.11 of the
Agreement:
"11.11 Benefit Plan Transfers. (a) As of the Closing Date, Seller
----------------------
or any affiliate thereof shall cause the account balances in the Columbia
International, Inc. Savings Plan, a plan qualified and exempt under
Sections 401(a), 401(k) and 501(a) of the Code (the "Seller Plan"), of all
participants who are Continuing Employees of Seller to become fully vested
and nonforfeitable. From and after the Closing Date, Buyer shall permit
and cause each Continuing Employee of Seller to be eligible to participate
in the Continental Cablevision Matched Savings Plan (the "Buyer Plan").
Buyer shall cause each Continuing Employee of Seller to be granted credit
for
-4-
<PAGE>
his or her service with Seller for purposes of eligibility and vesting in
the Buyer Plan.
(b) At the option of Seller, if Seller reasonably determines in
light of the Internal Revenue Service's disposition of Form 5310 with
respect to the Seller Plan, the provisions of this paragraph (b) shall
apply. In such event, at the election of Buyer, the following clauses (i)
or (ii) shall apply:
(i) an amount in cash equal to the aggregate value of the
account balances in the Seller Plan attributable to the Continuing
Employees of Seller, which account balances shall include any employer
matching contributions in respect of employee contributions made prior
to the Closing Date and shall be valued, to the extent
administratively feasible, so as to include earnings and losses to a
date not more than thirty (30) days prior to the date of transfer,
will be transferred to the Buyer Plan, along with corresponding
liabilities. After the aforesaid transfer of account balances, the
payment of benefits under the Buyer Plan for Continuing Employees of
Seller shall be the sole obligation and responsibility of the Buyer
Plan and Buyer acknowledges and warrants to Seller that Seller and its
affiliates shall have no obligation, liability or responsibility
therefor; or
(ii) Seller will transfer the account balances of the Continuing
Employees of Seller in the Seller Plan to a plan which Seller will
create, which will be a "frozen" plan generally identical to the
Seller Plan (except for the fact that participation and contributions
to such plan are frozen). Buyer will become the sponsor of such plan
for all purposes and shall assume and be responsible for such plan in
its capacity as sponsor.
3. Miscellaneous.
-------------
(a) In consideration for Seller's agreement to postpone the scheduled
Closing Date from September 29, 1995 to October 16, 1995, Buyer hereby
acknowledges and agrees that notwithstanding any provision to the contrary
contained in the Agreement, the Required MDU Agreement Consent listed on Section
VII, Item B.20 (Strawberry Hill Apartments-Pittsfield Township) of Schedule 5.1
of the
-5-
<PAGE>
Disclosure Schedule to the Agreement shall no longer be deemed to be a Required
Consent pursuant to the terms of the Agreement. Buyer further acknowledges and
agrees that, as of the date hereof, Seller has obtained all of the Required
Consents pursuant to the terms of the Agreement, Buyer has been provided with a
copy of and has reviewed all of the Required Consents, and that each such
Required Consent is satisfactory in form and substance to the Buyer and its
counsel. Buyer further acknowledges and agrees that none of the Required
Consents require any payment by Buyer or require that Buyer grant any concession
that would materially adversely affect the ownership and operation by Buyer of
the properties or assets covered by the consent. The Buyer further acknowledges
and agrees that, as of the date hereof, it has been provided with a copy of and
has reviewed each of the Renewal Franchises and that each such Renewal Franchise
is satisfactory in form and substance to Buyer and its counsel and Buyer hereby
waives any and all claims it may have that such Renewal Franchises contain any
term or condition which imposes any obligation not contained in the expired or
expiring Franchise which would have to be performed by Buyer following the
Closing Date and which is materially more burdensome than the obligations set
forth in the existing Franchise.
(b) Notwithstanding any provision to the contrary contained in the
Agreement, Buyer hereby agrees that it has relinquished and waived any right it
may have under the Agreement to require Seller to obtain any consents or
approvals whereby Seller could assign or transfer to Buyer or the Company its
rights under any of the Programming Agreements listed on Section VI, Item A of
Schedule 5.1 of the Disclosure Schedule to the Agreement. The Buyer further
acknowledges and agrees that it will enter into agreements with the other
parties to the Programming Agreements listed on Section VI, Items A.2, A.4, A.5,
A.6, A.7B, A.8, A.10, A.11, A.13, A.14 and A.15 of Schedule 5.1 of the
Disclosure Schedule which will, as of the Closing Date, supersede such
Programming Agreements. The Buyer also agrees that it will use its best efforts
to enter into agreements with the other parties to the Retransmission Consent
Agreements listed on Section V, Items C, F and K of Schedule 5.1 of the
Disclosure Schedule which will, as of the Closing Date, supersede such
Retransmission Consent Agreements.
(c) Except as expressly amended hereby, the Agreement shall remain in
full force and effect following the execution and delivery of this Second
Amendment by the parties hereto.
(d) This Second Amendment may be executed in any number of separate
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Second Amendment by
signing any such counterpart.
-6-
<PAGE>
(e) Captions and section headings appearing herein are solely for
convenience of reference and are not intended to affect the interpretation of
any provision of this Second Amendment.
(f) This Second Amendment shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
executed in and to be wholly performed therein.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed as of the day and year first above written.
SELLER:
COLUMBIA ASSOCIATES, L.P.
By: COLUMBIA INTERNATIONAL, INC.,
its general partner
By: /s/ Scott N. Ledbetter
--------------------------------
Name: Scott N. Ledbetter
Title: Vice President
COMPANY:
COLUMBIA CABLE OF MICHIGAN, INC.
By: /s/ Scott N. Ledbetter
--------------------------------
Name: Scott N. Ledbetter
Title: Vice President
BUYER:
CONTINENTAL CABLEVISION OF
MANCHESTER, INC.
By: /s/ Jeffrey T. DeLorme
--------------------------------
Name: Jeffrey T. DeLorme
Title: Executive Vice President
-7-
<PAGE>
EXHIBIT 10.24
PJC FINANCING CORPORATION
COLONY COMMUNICATIONS, INC.
COLUMBIA CABLE OF MICHIGAN, INC.
N-COM ACQUISITION CORPORATION
CREDIT AGREEMENT
Amendment No. 1
---------------
This Agreement, dated as of September 22, 1995 is among PJC Financing
Corporation, a Delaware corporation, N-Com Acquisition Corporation, a Michigan
corporation, The Toronto-Dominion Bank, in its capacity as Documentation Agent
and as a Managing Agent for the Lenders, The First National Bank of Boston, in
its capacity as Administrative Agent and as a Managing Agent for itself and the
other Lenders, and The Bank of New York, in its capacity as Syndication Agent
and as a Managing Agent for itself and the other Lenders. The parties agree as
follows:
1. Reference to Credit Agreement; Definitions. Reference is made to the Credit
------------------------------------------
Agreement dated as of July 18, 1995, as in effect on the date hereof prior to
giving effect to this Agreement (the "Credit Agreement"), among PJC Financing
----------------
Corp., Colony (at such time as it shall become a party thereto in accordance
with Section 5.1.1 thereof), N-Com, Columbia (at such time as it shall become a
party thereto in accordance with Section 5.2.2 thereof), their respective
Subsidiaries from time to time party thereto, the Lenders from time to time
party thereto, the Documentation Agent, the Administrative Agent, the
Syndication Agent and the Managing Agents. Terms defined in the Credit
Agreement as amended hereby (the "Amended Credit Agreement") and not otherwise
------------------------
defined herein are used herein with the meanings so defined. References in this
Agreement to "Sections" and "Exhibits", except as the context otherwise
dictates, are references to sections hereof and exhibits hereto.
2. Amendments to Credit Agreement. Subject to all the terms and conditions
------------------------------
hereof, and in reliance upon the representations and warranties set forth in
Section 3, the Credit Agreement is hereby amended as follows:
2.1. Amendment to Section 1.73. Paragraph (a) of the definition of
-------------------------
"Lender Agreement" in Section 1.73 of the Credit Agreement is amended to read in
its entirety as follows:
"(a) this Agreement, the CCI Subordination Agreement and the
Notes, each as from time to time in effect;"
<PAGE>
2.2. Amendment to Section 1.105. The definition of "PJC Financing Corp."
--------------------------
in Section 1.105 of the Credit Agreement is amended to read in its entirety as
follows:
"1.105. "PJC Financing Corp." means PJC Financing Corporation, a
------------------
Delaware corporation and a wholly owned Subsidiary of the Company (a) which
was formed for the purpose of borrowing funds hereunder and immediately (i)
applying approximately $405,000,000 of such funds to purchase all of the
outstanding capital stock of King Videocable Company as part of the
Providence Journal Cable Acquisition and (ii) lending up to $410,000,000 of
such funds to Providence Journal Company immediately prior to, and solely
in connection with, the Providence Journal Cable Acquisition, and (b) which
will be merged into Colony after the consummation of the Providence Journal
Cable Acquisition."
2.3. Amendment to Section 7.9.4. Section 7.9.4 of the Credit Agreement is
--------------------------
amended to read in its entirety as follows:
"7.9.4. Investments consisting of (a) the purchase by PJC
Financing Corp. of all of the outstanding capital stock of King Videocable
Company for approximately $405,000,000 as part of the Providence Journal
Cable Acquisition and (b) a loan in a principal amount of up to
$410,000,000 by PJC Financing Corp. to Providence Journal Company
immediately prior to, and solely in connection with, the consummation of
the Providence Journal Cable Acquisition; provided, however, that the
-----------------
Company (i) shall assume such loan as part of the Providence Journal Cable
Acquisition and (ii) shall thereafter be released from its obligations
under such loan in accordance with Section 7.16(f)."
2.4. Amendment to Section 7.16(f). Section 7.16(f) of the Credit
----------------------------
Agreement is amended to read in its entirety as follows:
"(f) the transactions contemplated by the Providence Journal
Cable Acquisition (including, without limitation, the release of the
Company of its obligations to pay PJC Financing Corp. Indebtedness in a
principal amount of up to $410,000,000, together with all interest accrued
thereon, incurred solely in connection with the Providence Journal Cable
Acquisition);"
2.5. Amendment to Exhibit 1A. Exhibit 1A to the Credit Agreement is
-----------------------
amended to read in its entirety as set forth in Exhibit 1A hereto.
3. Representations and Warranties. In order to induce the Lenders to enter
------------------------------
into this Agreement, each of the Borrowers and the Guarantors represents and
warrants to each of the Lenders that immediately before and after giving effect
to this Agreement, no Default exists.
4. General. The Amended Credit Agreement and all of the Lender Agreements are
-------
each confirmed as being in full force and effect. This Agreement, the Amended
Credit Agreement and
-2-
<PAGE>
the other Lender Agreements referred to herein or therein constitute the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior and current understandings and agreements,
whether written or oral, with respect to such subject matter. The invalidity or
unenforceability of any provision hereof shall not affect the validity or
enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter, limit or
otherwise affect the meaning hereof. Each of this Agreement and the Amended
Credit Agreement is a Lender Agreement and may be executed in any number of
counterparts, which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties and their respective permitted successors
and assigns. This Agreement shall be governed by and construed in accordance
with the laws (other than the conflict of laws rules) of The Commonwealth of
Massachusetts.
-3-
<PAGE>
Each of the undersigned has executed this Agreement under seal by a duly
authorized officer as of the date first set forth above.
BORROWERS AND GUARANTORS:
PJC FINANCING CORPORATION
By /s/ P. Eric Krauss
-----------------------------------
Title: Vice President and Treasurer
N-COM ACQUISITION CORPORATION
By /s/ P. Eric Krauss
-----------------------------------
Title: Vice President and Treasurer
MANAGING AGENTS:
THE TORONTO-DOMINION BANK, as
Documentation Agent and as a Managing Agent
for the Lenders
By /s/ Peter J. Foley
-----------------------------------
Title: Managing Director
THE FIRST NATIONAL BANK OF BOSTON, as
Administrative Agent and as a Managing Agent
for itself and the other Lenders
By /s/
------------------------------------
Title: Director
THE BANK OF NEW YORK, as Syndication
Agent and as a Managing Agent for itself and
the other Lenders
By /s/
------------------------------------
Title: Vice President
-4-
<PAGE>
Each of the undersigned hereby consents to the foregoing Agreement:
AGENTS:
CHEMICAL BANK CIBC INC.
By /s/ By /s/
------------------------------ ------------------------------
Title: Managing Director Title: Vice President
CITIBANK, N.A. MELLON BANK, N.A.
By /s/ Mary S. Thomas By /s/
------------------------------ ------------------------------
Title: Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ Jennifer Obon Bishop
------------------------------
Title: Vice President
CO-AGENTS:
BANK OF MONTREAL THE BANK OF TOKYO
TRUST COMPANY
By /s/ Yvonne Bos By /s/ Charles Poer
------------------------------ ------------------------------
Title: Managing Director Title: Vice President
BANQUE NATIONALE DE BANQUE PARIBAS
PARIS
By /s/ By /s/ Philippe Vuarchex
------------------------------- ------------------------------
Title: SVP and Manager Title: Vice President
By /s/ Janice Ho By /s/ Errol R. Antzis
------------------------------- ------------------------------
Title: Vice President Title: Group Vice President
-5-
<PAGE>
COMPAGNIE FINANCIERE DE CIC CREDIT LYONNAIS CAYMAN
ET DE L'UNION EUROPEENNE ISLAND BRANCH
By /s/ Marcus Edward By /s/
--------------------------------- ------------------------------
Title: Vice President Title: Authorized Signature
By /s/ Brian O'Leary
---------------------------------
Title: Vice President
DEUSTCHE BANK AG, NEW YORK THE FIRST NATIONAL BANK
AND/OR CAYMAN ISLAND OF CHICAGO
BRANCHES
By /s/ John R. Lilly By /s/
--------------------------------- ------------------------------
Title: Vice President Title: Vice President
By /s/ Stephen E. Kohler
---------------------------------
Title: Assistant Vice President
THE FUJI BANK, LIMITED LTCB TRUST COMPANY
By /s/ Katsunori Nozawa By /s/ John A. Krob
--------------------------------- -----------------------------
Title: Vice President and Manager Title: Senior Vice President
MORGAN GUARANTY TRUST NATWEST BANK N.A.
COMPANY OF NEW YORK
By /s/ By /s/
-------------------------------- ------------------------------
Title: Title: Vice President
ROYAL BANK OF CANADA SHAWMUT BANK
CONNECTICUT, N.A.
By /s/ By /s/
-------------------------------- ------------------------------
Title: Senior Manager Title: Director
-6-
<PAGE>
SOCIETE GENERALE SWISS BANK CORPORATION,
NEW YORK BRANCH
By /s/ John Sadik-Khan By /s/ Phyllis J. Karn
-------------------------------- ------------------------------
Title: Vice President Title: Director
By /s/ James R. Williams
-------------------------------
Title: Director
UNION BANK
By /s/ Christine Ball
--------------------------------
Title: Vice President
OTHER LENDERS:
BANK OF IRELAND, GRAND THE DAI-ICHI KANGYO BANK,
CAYMAN BRANCH LIMITED, NEW YORK BRANCH
By /s/ By /s/ Seiji Imai
--------------------------------- ------------------------------
Title: Vice President Title: A.V.P.
THE DAIWA BANK, LIMITED DRESDNER BANK AG
NEW YORK AND GRAND
CAYMAN BRANCHES
By /s/ By /s/ Charles H. Hill
--------------------------------- ------------------------------
Title: Vice President and Manager Title: Vice President
By /s/ By /s/ William E. Lambert
-------------------------------- ------------------------------
Title: A.V.P. Title: Assistant Treasurer
FIRST HAWAIIAN BANK MIDLANTIC BANK, N.A.
By /s/ William B. Schink By /s/
--------------------------------- ------------------------------
Title: Vice President Title: Vice President
THE MITSUBISHI TRUST AND NATIONAL CITY BANK
BANKING CORPORATION
By /s/ By /s/ Renold D. Thompson, Jr.
--------------------------------- ------------------------------
Title: Senior Vice President Title: Senior Vice President
-7-
<PAGE>
NBD BANK THE SANWA BANK, LIMITED
By /s/ By /s/
------------------------------ ------------------------------
Title: Second Vice President Title: S.V.P.
THE SUMITOMO BANK, LIMITED, TORONTO DOMINION
CHICAGO BRANCH (NEW YORK) INC.
By /s/ Thiroyuki Iwami By /s/ R.C. Bingham
------------------------------ ------------------------------
Title: Joint General Manager Title: Managing Director
UNITED JERSEY BANK
By /s/
------------------------------
Title: Vice President
-8-
<PAGE>
EXHIBIT 11.1
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- ------------------
1990 1991 1992(1) 1993(1) 1994 1994 1995
--------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Loss Before
Extraordinary Item and
Cumulative Effect of
Change in Accounting
for Income Taxes....... $(195,451) $(161,642) $(102,960) $ (25,774) $ (68,576) $(23,621) $(33,067)
Extraordinary Item, Net
of Income Taxes........ -- -- -- (184,996) -- -- --
Cumulative Effect of
Change in Accounting
for Income Taxes....... -- -- -- -- (18,265) -- --
--------- --------- --------- --------- --------- -------- --------
Net Loss................ (195,451) (161,642) (102,960) (210,770) (86,841) (23,621) (33,067)
Preferred Stock
Preferences............ (61,102) (5,771) (16,861) (34,115) (36,800) (17,887) (19,347)
--------- --------- --------- --------- --------- -------- --------
Loss Applicable to
Common Shareholders.... $(256,553) $(167,413) $(119,821) $(244,885) $(123,641) $(41,508) $(52,414)
========= ========= ========= ========= ========= ======== ========
Loss Per Common Share
Before Extraordinary
Item and Cumulative
Effect of Change in
Accounting for Income
Taxes.................. $ (2.19) $ (1.42) $ (1.00) $ (.53) $ (.92) $ (.36) $ (.45)
Extraordinary Item Per
Common Share........... -- -- -- -- (.16) -- --
Loss Per Common Share
from Cumulative Effect
of Change in Accounting
for Income Taxes....... -- -- -- (1.62) -- -- --
--------- --------- --------- --------- --------- -------- --------
Loss Per Common Share... $ (2.19) $ (1.42) $ (1.00) $ (2.15) $ (1.08) $ (.36) $ (.45)
========= ========= ========= ========= ========= ======== ========
Weighted Average Number
of Shares Outstanding
During the Period...... 117,055 117,534 119,544 114,055 114,334 114,084 117,627
========= ========= ========= ========= ========= ======== ========
</TABLE>
- --------
(1) For purposes of calculating loss per common share for the year ended
December 31, 1992, 1993 and 1994 and six months ended June 30, 1994 and
1995, shares of the Series A Convertible Preferred Stock were not assumed
to be converted into shares of Common Stock since the result would be anti-
dilutive.
<PAGE>
EXHIBIT 11.2
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
PRO FORMA SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- ----------------
<S> <C> <C>
Pro Forma:
Net Loss.................................. $ (72,265) $(37,869)
Preferred Stock Preferences............... (36,800) (19,347)
--------- --------
Loss Applicable to Common Shareholders.... $(109,065) $(57,216)
========= ========
Loss Per Common Share..................... $ $
========= ========
Weighted Average Number of Shares
Outstanding
During the Year..........................
========= ========
</TABLE>
- --------
(1) For purposes of calculating pro-forma loss per common share for the year
ended December 31, 1994 and six months ended June 30, 1995, shares of the
Series A Convertible Preferred Stock were not assumed to be converted into
shares of Common Stock since the result would be anti-dilutive.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT
We consent to the use in this Registration Statement of Continental
Cablevision, Inc. and its subsidiaries on Form S-1 of our report dated February
10, 1995, (except for the second paragraph of Note 1 ("Stock Dividend") as to
which the date is September 29, 1995) (which contains an explanatory paragraph
regarding a change in accounting for income taxes and investments in 1993 and
1994, respectively), appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the headings "Selected
Consolidated Financial Information" and "Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
Continental Cablevision, Inc. and its subsidiaries listed in Item 21. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche llp
Boston, Massachusetts
October 19, 1995
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
The audits of the consolidated financial statements of Providence Journal
Company and Subsidiaries referred to in our report dated February 10, 1995,
except as to note 2 which is as of August 1, 1995, included financial statement
schedule VIII--Valuation and Qualifying Accounts, as of December 31, 1994, and
for each of the years in the three year period ended December 31, 1994,
included in this Registration Statement on Form S-1. Our report refers to a
change in method of accounting for income taxes and a change in method of
accounting for postretirement benefits in 1992. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports on the consolidated financial statements
of Providence Journal Company and Subsidiaries, and the combined financial
statements of Providence Journal Cable, included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick llp
Providence, Rhode Island
October 19, 1995
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Continental
Cablevision, Inc. and subsidiaries on Form S-1 of our report dated February 10,
1995 (relating to the financial statements of King Videocable Company not
presented separately herein) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the references to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche llp
Boston, Massachusetts
October 19, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement or amendment filed pursuant to Rule 462(b).
Arthur Andersen LLP
Stamford, Connecticut
October 19, 1995
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Continental Cablevision, Inc. of our
report dated March 31, 1995 relating to the financial statements of Clay
Cablevision (a Division of Rifkin Cable Income Partners, L.P.), which appears
in such Prospectus. We also consent to the references to us under the heading
"Experts" in such Prospectus.
Price Waterhouse LLP
Denver, Colorado
October 18, 1995
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 23, 1994, with respect to the financial
statements of N-Com Limited Partnership II included in this Registration
Statement and related Prospectus of Continental Cablevision, Inc.
Ernst & Young LLP
Detroit, Michigan
October 18, 1995
<PAGE>
EXHIBIT 23.8
INDEPENDENT AUDITORS' CONSENT
The Partners
Cablevision of Chicago:
We consent to the inclusion of our report dated March 3, 1995, with respect
to the balance sheets of Cablevision of Chicago as of December 31, 1993 and
1994 and the related statements of operations and partners' deficiency and cash
flows for the years then ended, which report appears in the Form S-1 of
Continental Cablevision and to the reference to our firm under the heading
"Experts" in the prospectus.
KPMG Peat Marwick LLP
Jericho, New York
October 19, 1995
<PAGE>
EXHIBIT 23.9
MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
701 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
ONE FINANCIAL CENTER TELEPHONE: 202/434-7300
BOSTON, MASSACHUSETTS 02111 FAX: 202/434-7400
TELEPHONE: 617/542-6000 TELEX: 753689
FAX: 617/542-2241
FRANK W. LLOYD DIRECT DIAL NUMBER: (202) 434-7309
October 19, 1995
Continental Cablevision, Inc.
The Pilot House, Lewis Wharf
Boston, Massachusetts 02110
Ladies and Gentlemen:
We have acted as special counsel for Continental Cablevision, Inc. (the
"Company") in connection with the registration on Form S-1 under the Securities
Act of 1933, as amended, of the securities identified therein (the
"Registration Statement").
We hereby consent to the reference to our firm under the heading "Experts" in
the Prospectus forming a part of the Registration Statement, and to the filing
of this letter with the Securities and Exchange Commission as an exhibit to the
Registration Statement.
Sincerely,
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
/s/ Frank W. Lloyd
By __________________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> JUN-30-1995 DEC-31-1994
<CASH> 15,342 11,564
<SECURITIES> 120,042 122,510
<RECEIVABLES> 60,203 58,212
<ALLOWANCES> 0 9,771
<INVENTORY> 76,542 62,517
<CURRENT-ASSETS> 0 0
<PP&E> 1,482,638 1,353,789
<DEPRECIATION> 0 1,114,095
<TOTAL-ASSETS> 2,693,894 2,483,639
<CURRENT-LIABILITIES> 0 0
<BONDS> 3,728,101 3,449,907
<COMMON> 40 39
0 0
11 11
<OTHER-SE> (1,722,482) (1,724,283)
<TOTAL-LIABILITY-AND-EQUITY> 2,693,894 2,483,639
<SALES> 0 0
<TOTAL-REVENUES> 650,048 1,197,977
<CGS> 0 0
<TOTAL-COSTS> 224,846 405,535
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 166,314 315,541
<INCOME-PRETAX> (47,777) (108,995)
<INCOME-TAX> (14,710) (40,419)
<INCOME-CONTINUING> (33,067) (68,576)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (18,265)
<CHANGES> 0 0
<NET-INCOME> (33,067) (86,841)
<EPS-PRIMARY> (11.14) (27.03)
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99
SCHEDULE II
CONTINENTAL CABLEVISION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END
DESCRIPTIONS OF PERIOD EXPENSES DEDUCTIONS (A) OTHER (B) OF PERIOD
- ------------ ---------- ---------- -------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Year Ended December 31,
1992................... $8,825 $11,947 $(11,700) $-- $9,072
====== ======= ======== ==== ======
Year Ended December 31,
1993................... $9,072 $12,793 $(12,430) $-- $9,435
====== ======= ======== ==== ======
Year Ended December 31,
1994................... $9,435 $12,791 $(12,798) $343 $9,771
====== ======= ======== ==== ======
</TABLE>
- --------
(A) Amounts written off, net of recoveries.
(B) Other represents acquisitions in 1994.
See Notes to Consolidated Financial Statements.
