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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 0-16899
CENTURY COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
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New Jersey 06-1158179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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50 Locust Avenue
New Canaan, Connecticut 06840
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 972-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X] No [ ]
As of July 26, 1999, there were 33,488,833 shares of Class A Common
Stock outstanding and 42,322,059 shares of Class B Common Stock outstanding. The
aggregate market value of the Class A Common Stock held by non-affiliates of the
Company, based upon the last reported sale price of the Class A Common Stock on
The Nasdaq Stock Market on July 26, 1999 of $43 1/16 per share, was
$1,393,083,071.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's Proxy Statement to be filed with the
Commission pursuant to Rule 14a-6 under the Securities Exchange Act of 1934 in
connection with the Company's 1999 Annual Meeting of Shareholders are
incorporated by reference in Part III, Items 10-13 of this Annual Report on Form
10-K.
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TABLE OF CONTENTS
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Page
PART I
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Item 1. Business................................................................... 2
Item 2. Properties................................................................. 16
Item 3. Legal Proceedings.......................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........................ 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....... 19
Item 6. Selected Financial Data..................................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 23
Item 7A. Quantitative and Qualitative Disclosure About Market Risk................... 39
Item 8. Financial Statements and Supplementary Data................................. 40
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................... 40
PART III
Item 10. Directors and Executive Officers of the Registrant........................... 40
Item 11. Executive Compensation....................................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................................... 41
Item 13. Certain Relationships and Related Transactions............................... 41
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 42
Signatures.......................................................... II-1
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PART I
ITEM 1. Business
General
The Company was incorporated in New Jersey on December 5, 1985 as the
holding company for a corporation of the same name incorporated in Texas on June
12, 1973 ("Century Texas"). As used in this Annual Report on Form 10-K, unless
the context otherwise requires, the term "Company" means Century Communications
Corp., a New Jersey corporation, and its subsidiaries. The Company is engaged
primarily in the ownership and operation of cable television systems, with
significant concentrations of basic subscribers in California, Colorado and
Puerto Rico. References to a "fiscal" year mean the Company's fiscal year ended
May 31.
At May 31, 1999, the Company owned and operated 72 cable television
systems in 25 states and Puerto Rico. At that date, the Company's cable systems
passed approximately 2,369,000 homes and served a total of approximately
1,340,000 primary basic subscribers. Certain of the Company's cable systems
referred to above are owned 50% by the Company and 50% by unaffiliated entities.
At May 31, 1999, these systems passed approximately 632,000 homes and served
approximately 335,000 primary basic subscribers.
On March 5, 1999, the Company and Adelphia Communications
Corporation ("Adelphia") jointly announced the signing of a definitive agreement
(the "Merger Agreement") for the merger (the "Merger") of the Company with and
into a newly formed direct, wholly-owned subsidiary of Adelphia (the "Merger
Sub"). The Merger Sub will continue as the surviving company in the Merger. The
Merger is expected to close in the third calendar quarter of 1999. The
consolidated financial statements have been prepared on a historical basis and
do not include any adjustments that might result from the completion of the
Merger.
Pursuant to the Merger Agreement, the Company's Class A Common
stockholders will have the right to elect, on a share-by-share basis, to receive
either 0.77269147 of a share of Adelphia Class A common stock or $44.14 in cash
for each share of the Company's Class A Common Stock that they own, and the
Company's Class B Common stockholders will have the right to elect, on a
share-by-share basis, to receive either 0.84271335 of a share of Adelphia Class
A common stock or $48.14 in cash for each share of the Company's Class B Common
Stock that they own.
Notwithstanding an election made by one of the Company's stockholders,
at the effective time of the Merger (i) the aggregate number of shares of the
Company's Class A Common Stock that may be converted into the right to receive
cash in the Merger is equal to 20.76% of the number of shares of the Company's
Class A Common Stock outstanding immediately prior to the effective time of the
Merger (excluding shares held by dissenting stockholders), (ii) the aggregate
number of shares of the Company's Class A Common Stock which may be converted
into the right to receive shares of Adelphia Class A Common Stock in the Merger
is equal to 79.24% of the number of such shares of the Company's Class A Common
Stock outstanding immediately prior to the effective time of the Merger
(excluding shares held by dissenting stockholders), (iii) the aggregate number
of shares of the Company's Class B Common Stock that may be converted into the
right to receive cash in the Merger is equal to 24.54% of the number of shares
of the Company's Class B Common Stock outstanding immediately prior to the
effective time of the Merger (excluding shares held by dissenting stockholders)
and (iv) the aggregate number of shares of the Company's
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Class B Common Stock which may be converted into the right to receive shares of
Adelphia Class A Common Stock in the Merger is equal to 75.46% of the number of
shares of the Company's Class B Common Stock outstanding immediately prior to
the effective time of the Merger (excluding shares held by dissenting
stockholders).
If the aggregate number of shares of the Company's Class A Common
Stock or the Company's Class B Common Stock with respect to which elections have
been made exceeds the aggregate number of shares of the Company's common stock
of that class that may be converted into the right to receive a particular form
of consideration in the Merger, then each share of the Company's common stock
electing to receive the undersubscribed consideration will receive that
consideration; and each share of the Company's common stock electing to receive
the oversubscribed consideration will receive a portion of the Merger
consideration in cash and a portion of the Merger consideration in Adelphia
Class A Common Stock.
Whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Merger, the Merger Agreement and the
transactions contemplated by the Merger Agreement will be paid by the party
incurring such expenses. However, in the event the Company enters into or
consummates a merger, consolidation or other business combination with a third
party within twenty-four months after the date of termination of the Merger
Agreement, the Company will be required to reimburse Adelphia's costs and
expenses in connection with the Merger Agreement (subject to a maximum of $10
million) and pay Adelphia a termination fee of $100 million.
On or about March 10, 1999, a lawsuit was commenced by the filing of a
class action complaint (the "Complaint") by one of the Company's Class A Common
stockholders on behalf of himself and all others similarly situated naming the
Company's Class B Common stockholders and all of the Company's Directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. The Company and Adelphia were also named as defendants
for allegedly aiding and abetting in the foregoing alleged breaches of fiduciary
duty. The Complaint seeks damages in an unspecified amount and such other relief
as may be appropriate. On July 21, 1999, the court granted the Company's and the
other defendants' motion for extension of time to answer or otherwise respond to
the complaint to the earlier of November 15, 1999 or twenty days after the
effective date of the Merger. See Item 3. Legal Proceedings.
The closing of the Merger is subject to certain customary conditions,
including the approval of the Merger by the shareholders of the Company and
Adelphia, each party obtaining the required consents and all appropriate
regulatory and other approvals, including from the Federal Communications
Commission and local franchising authorities and under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). On April 20,
1999, the waiting period under the HSR Act for the Merger terminated. In
connection with the Merger, the Company has completed filing the material
applications seeking transfer of the Company's applicable franchises with the
FCC and local franchising authorities. There is no assurance that the Company
will obtain such approvals or that such transaction will be consummated.
At the effective time of the Merger, Adelphia will purchase Citizens
Utilities Company's ("Citizens") 50% interest in the Century/Citizens Joint
Venture, one of the Company's 50% owned joint ventures, for a purchase price of
approximately $157.5 million, comprised of approximately $27.7 million in cash,
approximately 1.85 million shares of Adelphia Class A common stock and the
assumption of indebtedness. This joint venture serves approximately 91,800 basic
subscribers in California and is jointly owned by the Company and Citizens Cable
Company, a subsidiary of Citizens.
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In addition, the Company, Adelphia and Dr. Leonard Tow, Chairman and
Chief Executive Officer of the Company, have agreed that the Company will sell
its shares of Class A Common Stock of Citizens to Dr. Tow at the effective time
of the Merger at fair market value, based on the closing market price of such
shares on the date the Merger Agreement was signed. Based on that closing price,
the aggregate purchase price will be approximately $39.8 million. As of July 26,
1999, these shares constituted approximately 2% of the outstanding stock of
Citizens.
On January 7, 1999, Centennial Cellular Corp. ("Centennial"), a former
subsidiary of the Company, completed the previously announced merger of CCW
Acquisition Corp., a company organized at the direction of Welsh, Carson,
Anderson & Stowe, with and into Centennial (the "Centennial Merger"). As of the
completion of the Centennial Merger, the Services Agreement between the Company
and Centennial was terminated. As a holder of 8,561,819 shares of Class B Common
Stock and 3,978 shares of Second Series Convertible Preferred Stock of
Centennial, the Company received for its interest in Centennial approximately
$360.1 million in cash. The Company has utilized and will continue to utilize
these proceeds for general corporate purposes, including, but not limited to,
the financing of capital expenditures, investments, purchases and acquisitions.
The Company recorded a pre-tax gain in relation to the sale of Centennial of
approximately $322 million during the year ended May 31, 1999.
The Company has had interests in businesses in the pay television
industry in Australia. The interests included investments in entities, which
include East Coast Pay Television Pty. Limited ("ECT") and XYZ Entertainment
Pty. Limited ("XYZ"). The Company sold to UIH Asia/Pacific Communications Inc.
("UAP"), a unit of United International Holdings, Inc. ("UIH"), the Company's
25% ownership interest in XYZ for approximately $24.6 million. Approximately 95%
of the sales price was paid in the form of UIH Series B Convertible Preferred
Stock ("UIH Convertible Stock") which is convertible at any time into
approximately ten shares of UIH Class A Common Stock for each share of UIH
Convertible Stock, at a conversion price of $21.25 per share. The Company may
not sell, assign, pledge, transfer or otherwise convey any UIH securities prior
to September 11, 1999.
In fiscal 1999, ECT sold substantially all of its operating assets to
Austar Entertainment Pty. Ltd. ("Austar"), a wholly owned subsidiary of UAP, for
approximately $6.1 million in the form of UIH Convertible Stock. ECT has
finalized the shutdown of its operations, including the liquidation of its
current liabilities. On December 16, 1998, the creditors of ECT (including the
Company) entered into an Intercreditor Agreement pursuant to which substantially
all of the remaining assets of ECT have been distributed among them and the
Company has received 5,652 units of UIH Convertible Stock. The Company will
receive 92.4% of any additional remaining assets of ECT. Such amounts are not
expected to be material.
At July 26, 1999, the closing price of the UIH Class A Common Stock on
the Nasdaq National Market was $77 1/8.
The Company recorded a pre-tax gain of approximately $18 million as a
result of the sale of its Australian business segment during the year ended May
31, 1999.
The Company reduced its valuation allowance applied against its
deferred tax assets by approximately $104 million as a result of the sale of
Centennial and the Australian Operations.
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On November 18, 1998, the Company and TCI Communications, Inc. ("TCI")
entered into a definitive agreement to establish a strategic partnership (the
"Partnership"). TCI will contribute to the Partnership all the assets related to
the businesses of certain cable television systems owned and operated by TCI
serving approximately 243,400 primary basic subscribers in the area of southern
California. The Company will contribute to the Partnership all the assets
related to the businesses of certain cable television systems owned and operated
by the Company serving approximately 528,700 primary basic subscribers in the
area of southern California, including approximately 94,400 primary basic
subscribers to be acquired in an exchange of cable systems described below as
well as approximately 19,000 primary basic subscribers related to the Company's
pending acquisition of the cable television systems serving Moreno Valley and
certain portions of Riverside County, California. The Company will manage the
newly combined cable systems and own approximately 69.5 percent of the
Partnership. See "The Cable Television Systems."
Cable Television
Cable television is a service that delivers a variety of channels of
television programming, primarily video entertainment and information, to
subscribers who pay a monthly fee for the service.
The primary level of cable television service is commonly referred to
as "basic service" and must be taken by all subscribers. The content of basic
service varies widely from system to system but, pursuant to the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"), must include local television signals and public, governmental and
educational access channels. Basic service may also include certain
satellite-delivered cable programming channels. In addition to basic service,
one or more expanded tiers of service may also be offered to subscribers. These
expanded tiers of service usually include additional satellite-delivered cable
programming channels and are available for additional monthly fees. Basic
service and expanded cable programming service tiers are generally subject to
the rate regulation provisions of the 1992 Cable Act and the Telecommunications
Act of 1996 (the "1996 Act").
Most cable television systems also offer premium services, such as Home
Box Office, Showtime, The Movie Channel and Cinemax, on a per channel basis or
as part of a package of premium services for an extra monthly fee and may also
offer sporting events, concerts and other entertainment programming as a premium
service on a per program basis. Per channel and per program services are not
subject to the rate regulation provisions of the 1992 Cable Act.
See "Business - Regulation and Legislation - Federal Regulation" and
"Business - Regulation and Legislation - Rates."
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Development of Cable Television Systems
The following table indicates the growth of the Company's cable
television systems since May 31, 1995:
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May 31,
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1999 1998 1997 1996 1995
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Homes passed by cable 2,369,000 2,333,000 2,245,000 2,060,000 1,790,000
Primary basic subscribers 1,340,000 1,319,000 1,273,000 1,250,000 1,100,000
Primary basic subscribers as a
percentage of homes passed 56.6% 56.5% 56.7% 60.7% 61.4%
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Management's estimate of homes passed in franchise areas is based on
local sources believed to be reliable, such as city directories, chambers of
commerce, public utilities, estimates of public officials and, where available,
actual house counts.
The Cable Television Systems
At May 31, 1999, the Company had 72 cable television systems in 25
states and Puerto Rico, with the largest concentrations of subscribers in its
systems in Southern California, Puerto Rico and Colorado Springs, Colorado. At
such date, substantially all of the Company's cable television systems were
wholly owned by the Company. The balance of the Company's systems, including
systems serving Brunswick, Georgia; Owensboro, Kentucky; Wauwatosa, Wisconsin;
Diamond Bar, Yorba Linda/Orange County, Glendora, Chino and Chino Hills,
California; and greater San Juan, Puerto Rico were owned through certain joint
ventures between the Company and third parties, thereby giving the Company a 50%
ownership in such systems.
The Company owns four of its systems in certain areas of Southern
California serving approximately 91,800 primary basic subscribers at May 31,
1999 through a joint venture with Citizens in which each owns 50% (the
"Century/Citizens Joint Venture"). On October 15, 1997, the Century/Citizens
Joint Venture acquired a cable television system located in Diamond Bar,
California serving approximately 20,000 primary basic subscribers for a purchase
price of approximately $34.16 million. On April 30, 1998, the Century/Citizens
Joint Venture acquired, for a purchase price of approximately $35.49 million, a
cable television system located in Yorba Linda/Orange County, California which
serves approximately 17,500 primary basic subscribers.
For information regarding common officers and directorships between
the Company and Citizens Utilities, see Item 4. "Executive Officers of the
Company."
In August 1998, the Company entered into an agreement to acquire a
cable television system which serves approximately 19,000 primary basic
subscribers in Moreno Valley and Riverside County, California. The purchase
price for this system is approximately $33 million. The Company currently
expects to fund the acquisition using cash on hand or available credit
facilities. The purchase of this system by the Company is subject to regulatory
approvals. There is no assurance that the Company will obtain such approvals or
that such acquisition will be consummated.
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On November 18, 1998, the Company and TCI entered into a definitive
agreement to establish the Partnership. TCI will contribute to the Partnership
all the assets related to the businesses of certain cable television systems
owned and operated by TCI serving approximately 243,400 primary basic
subscribers in the area of southern California. The Company will contribute to
the Partnership all the assets related to the businesses of certain cable
television systems owned and operated by the Company serving approximately
528,700 primary basic subscribers in the area of southern California, including
approximately 94,400 primary basic subscribers to be acquired in an exchange of
cable systems described below as well as approximately 19,000 primary basic
subscribers related to the Company's pending acquisition of the cable television
system serving Moreno Valley and certain portions of Riverside County,
California. The Company will manage the newly combined cable systems and own
approximately 69.5 percent of the Partnership. The cable systems contributed by
each party will be valued based upon the annualized cash flow of such
contributed systems as of the closing date of the transaction, subject to
certain fees and expenses. These values will be used in the process of
determining the ownership percentages of the respective parties at the closing
date of the transactions.
The Company is expected to manage the Partnership in return for a
management fee payable by the Partnership calculated based on a percentage of
the annual total gross revenues of the Partnership, in addition to payment of
certain fees and expenses. However, under the Agreement of Limited Partnership,
the Partnership may not, among other things, without the approval of the TCI
partner or the unanimous vote of all the members of the Partnership committee,
enter into certain transactions with affiliates, issue any Partnership or other
equity interest, permit any subsidiary to issue any equity interest, effectuate
certain mergers or other business combinations or incur in excess of certain
levels of indebtedness.
As part of the Partnership Transaction, the Company and TCI have
agreed to exchange cable systems owned by the Company in certain communities in
northern California for certain cable systems owned by TCI in southern
California, allowing each of them to unify operations in existing service areas.
TCI will exchange its East San Fernando Valley cable system serving
approximately 94,400 primary basic subscribers for the Company's northern
California cable systems (San Pablo, Benicia, Fairfield and Rohnert Park,
California), serving approximately 95,900 primary basic subscribers.
It is anticipated that the Partnership will be funded by
approximately $900 million of indebtedness. There is no assurance that such
financing will be available to the Partnership or that the Partnership will be
able to obtain such financing on terms favorable to the Partnership.
The closing of the transactions between the Company and TCI is
subject to, among other things, each party obtaining the required consents and
all appropriate regulatory and other approvals, including from the Federal
Communications Commission and local franchising authorities and under the HSR
Act. On February 18, 1999, the waiting period under the HSR Act for the
Partnership Transaction terminated. In connection with the Partnership
Transaction, the Company has completed filing the material applications seeking
transfer of the Company's applicable franchise licenses with the FCC and local
franchising authorities. There is no assurance that the Company will obtain such
approvals or that such transactions will be consummated.
Subscriber Services and Rates
Like other cable television operators, the Company offers to its
subscribers multiple channels of television programming, primarily video
entertainment and information programming. Services vary from system to system
because of differences in channel capacity, regulatory requirements and viewer
interest.
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The Company's cable television revenues are derived principally from
monthly subscription fees. Rates to subscribers vary from market to market and
in accordance with the type of service selected. In addition to monthly
subscription fees, other sources of revenue for cable operators are the sale of
advertising time on locally originated and satellite-delivered programming and
revenues from services which offer merchandise for sale to subscribers. Such
services compensate cable television systems based upon a percentage of their
sales revenue. None of these revenue sources is subject to rate regulation.
Most of the Company's systems have a capacity of at least 35 channels
and all are fully built, except for upgrading, rebuilding and extension of
certain systems and continuing construction of cable plant in certain systems to
accommodate growth within the Company's franchise areas. As of May 31, 1999, all
or certain portions of 45 of the Company's systems, serving an aggregate of
approximately 1,196,000 primary basic subscribers, were equipped with
addressable decoding converters, which permit the Company to adjust service
received by a subscriber without making a service call and serve as a
computerized method of controlling the signals decoded and received by
subscribers. Such converters also facilitate the Company's ability to sell
optional pay-per-view programming.
Franchises
The Company's cable television systems operate pursuant to
non-exclusive franchises issued by governmental authorities. In many cases, a
system passes homes in more than one governmental subdivision and, occasionally,
more than one state. Generally, under the terms of the Company's franchises, a
franchise fee (ranging up to 5% of revenues of the cable system) is payable to
the governmental authority. As of May 31, 1999, the Company held 397 franchises
with unexpired terms ranging from under one year to over 15 years. These
franchises typically contain many conditions, such as standards of service,
including number of channels and provision of free service to schools and
certain other public institutions, time requirements on commencement and
completion of construction, and the maintenance of insurance and indemnity
bonds. State and local franchises are in certain respects subject to the
requirements of federal regulation under the Cable Communications Policy Act of
1984, the 1992 Cable Act and the 1996 Act. See "Business - Regulation and
Legislation - Federal Regulation."
Most of the Company's franchises can be terminated prior to their
stated expiration by the franchising authority, after due process, for breach of
material provisions of the franchise. All franchises are subject to renewal. To
date, the Company's franchises have generally been renewed or extended at or
effective upon their stated expirations, generally on modified but not unduly
burdensome terms. However, as a condition to the renewal of a franchise, some
franchising authorities have required improved facilities, increased channel
capacity or enhanced services.
The franchise for the City of Santa Monica, California, serving
approximately 25,500 primary basic subscribers as of May 31, 1999, was
terminated by the City of Santa Monica effective December 13, 1987, due to
alleged violations of the local ordinance with respect to the transfer of the
franchise to the Company prior to approval from the local authority. The parties
are currently negotiating the terms of a new franchise agreement and the Company
anticipates concluding an acceptable franchise agreement with the local
authority.
Programming Suppliers
The Company provides cable network programming to its subscribers
pursuant to contracts with program suppliers. The Company generally pays program
suppliers a monthly fee per subscriber. The costs to
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the Company to provide cable programming have increased in recent years and are
expected to continue to increase as a result of additional programming being
provided to subscribers, increased consumer identification with certain
programming permitting suppliers of such programming to charge increased fees,
inflationary increases and other factors. See "Business - Regulation and
Legislation - Carriage of Broadcast Television Signals."
Other Technologies
Digital. The Company expects to utilize compressed digital video
technology, which converts, on average, from ten to 12 analog signals (now used
to transmit video) into a digital format and compresses such signals into the
space normally occupied by one analog signal. The digitally compressed signal is
uplinked to a satellite, which sends the signal back down to a cable system's
headend to be distributed, via optical fiber and coaxial cable, to the
customer's home. At the home, a set-top video terminal converts the digital
signal back into analog channels that can be viewed on a normal television set.
The implementation of digital technology will significantly enhance the quantity
and quality of channel offerings. It is expected that, initially, such digital
services will include expanded pay-per-view movies, additional packages of
premium services and satellite-delivered channels.
Cable Modem Services. The Company is presently in the initial
deployment stage of high-speed cable modem services. Cable modems are capable of
providing access to online information at much faster speeds than conventional
modems. On May 1, 1998, the Company entered into an agreement with @Home Network
("@Home"), a provider of high-speed internet services via cable infrastructure,
to deliver high-speed internet services in certain of the Company's markets
covering approximately 1,315,000 homes passed. The agreement has a term of six
years and contains mutual exclusivity provisions relating to the provision of
high-speed internet services in certain of the Company's systems covering the
same approximately 1,315,000 homes passed. In connection with the agreement, the
Company has received a warrant to purchase 5,260,000 shares of @Home's Series A
Common Stock at an exercise price equal to $5.25 per share, subject to
adjustment. The warrant becomes exercisable on a schedule based upon and subject
to the commercial deployment (as defined) of the @Home services by the Company,
which must be certified by the Company and @Home on or after March 31 of each
year during the term of the warrant for the 12 month period ending March 31. As
of both March 31, 1999 and May 31, 1999 no portion of the warrant had become
exercisable, therefore no asset has been recorded. From March 31, 1999 through
May 31, 1999, the Company has passed approximately 110,000 homes or 8.4% of the
commercial deployment specified in the Agreement. As of May 31, 1999, the
closing price of the @Home Series A Common Stock on the Nasdaq National Market
(adjusted for stock splits) was $63 3/8 per share.
Competition
General. The telecommunications services provided by the Company are
subject to strong competition and potential competition from various sources.
The Company's cable television systems generally compete for viewer attention
with the direct reception of broadcast television signals by the viewer's own
antenna. The extent of such competition is dependent upon the number and quality
of signals available and the alternative services offered by the cable system.
The Company's cable television service also faces competition from other
communications and entertainment media, including conventional off-air
television broadcasting services, newspapers, movie theaters, live sporting
events and home video products. The extent to which a cable communications
system is competitive depends, in part, upon the cable system's ability to
provide, at a reasonable price to consumers, a greater variety of programming
and other communications services than are
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available off-air or through other alternative delivery sources (see "Business -
Regulation and Legislation") and upon high-quality technical performance and
customer service.
The Company's cable modem and dial up Internet access business is
subject to strong competition and potential competition from a number of
sources. With respect to high speed cable modem service, telephone companies are
beginning to implement various digital subscriber line services (xDSL) that
allow high speed internet access services to be offered over telephone lines.
DBS companies offer high speed Internet access over their satellite facilities
and other terrestrial based wireless operators (e.g., multichannel multipoint
distribution systems ("MMDS")) are beginning to introduce high speed access as
well. In addition, there are now a number of legislative initiatives and efforts
at the FCC seeking to require cable television operators to provide open access
to their facilities to competitors that want to offer cable modem services. With
respect to dial up Internet access services, there are numerous competitive
Internet Service Providers ("ISP's") in virtually every franchise area. The
local telephone exchange company typically offers ISP services, as do a number
of other nationally marketed ISP's such as America Online, Compuserve and AT&T
Worldnet.
Proposals are currently before Congress and the FCC to require
cable operators to provide equal access over their cable systems to other ISPs.
To date, Congress and the FCC have declined to impose such requirements. This
same "open access" issue is being considered by some local franchising
authorities as well. Recently, a federal district court in Portland, Oregon,
upheld the authority of the local franchising authority to impose an open access
requirement in connection with a cable television franchise transfer and that
decision has been appealed to the U.S. Court of Appeals for the Ninth Circuit.
If the Company is required to provide such open access, it could adversely
impact the Company's anticipated revenues from high-speed cable modem services
and could complicate marketing and technical issues associated with the
introduction of such services.
Other Technologies. Other technologies supply services that compete
with certain services provided by cable television. These technologies include:
(i) direct broadcast satellite to home transmission ("DBS"), whereby signals are
transmitted by satellite to receiving facilities located on the premises of
subscribers; (ii) "wireless cable" including MMDS and similar technologies,
which use low-power microwave frequencies to transmit programming over the air
to subscribers; (iii) satellite master antenna systems ("SMATV"), which use a
satellite earth station to receive signals and then transmit such signals by
cable to residences within a given building or complex; (iv) television
translator stations, which rebroadcast television broadcast signals at different
frequencies at lower power to improve reception; and (v) "low-power" television
stations, which have begun operations in certain communities, and may increase
the number of free and subscription broadcast television signals in many areas.
The FCC has implemented regulations to enhance the ability of cable
competitors to purchase and make available to home satellite dish owners certain
satellite-delivered cable programming at competitive costs. The 1996 Act and FCC
regulations implementing the 1996 Act preempt certain local restrictions on the
use of home satellite dishes and roof-top antennae to receive satellite
programming and over-the-air broadcasting services. See "Business - Regulation
and Legislation."
All the foregoing services and technologies have the capacity to
deliver multiple channels of video programming and other information to
subscribing homes and thus to compete directly with the cable services provided
by the Company. Federal law generally prohibits cable operators from owning and
operating certain competing technologies, such as SMATV and MMDS, within their
franchise service areas. As these technologies and services continue to develop,
and because of recent measures by the federal government
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<PAGE>
encouraging such development, as well as the existing regulatory framework,
there is expected to be increased competition adversely affecting the business
of the Company. In addition, certain provisions of the 1996 Act, such as the
change in the definition of a "cable system" so that competitive providers of
video services will only be regulated as a cable system if they use public
rights-of-way, could materially affect the growth and operation of the cable
television industry and the cable services provided by the Company. See
"Business - Regulation and Legislation - Cable Television - Federal Regulation."
Non-Exclusive Franchises. Because the Company's systems are operated
under non-exclusive franchises, other applicants may obtain franchises in areas
where the Company currently has franchises. For example, some Regional Bell
operating companies and local telephone companies have facilities which are
capable of delivering cable television service and could seek competitive
franchises. Franchising authorities may be more likely to grant a second
franchise for an area if they anticipate that increased competition will have
the effect of reducing rates charged or moderating increases in rates and
improving services offered by the franchise holders. In addition, franchising
authorities themselves may seek to operate cable systems in competition with
private cable operators.
Applications for competing franchises may be made at any time. It is
possible that well-financed businesses, including businesses from outside the
cable industry (such as the public utilities which own the facilities to which
the cable is attached), may become competitors for franchises or providers of
competing services. Congress has repealed the prohibition against the national
television networks owning cable systems, and telephone companies may now enter
the cable industry, as more fully discussed below.
Regulation. Pursuant to the 1996 Act, local telephone companies,
including the Regional Bell operating companies, which were previously barred
from the ownership and operation of cable systems in their service areas, are
now permitted to enter the cable television business. Local telephone companies
may obtain a local franchise and provide cable television service in direct
competition with cable operators. Alternatively, telephone companies may utilize
a concept called open video systems ("OVS") whereby telephone companies will be
able to become FCC-certified to offer channel capacity to third parties and to
offer video programming directly on up to one-third of the system's capacity. An
OVS operator will not have to obtain a local franchise, nor will it be subject
to rate regulation, but it will have to abide by a number of the rules that
govern cable operators.
The 1996 Act also provides that registered utility holding companies
and subsidiaries may provide telecommunications services (including cable
television), notwithstanding the Public Utility Holding Company Act of 1935, as
amended. Because of their substantial resources, telephone companies and
utilities could be formidable competitors to traditional cable systems, and
several have begun offering cable service.
Other new technologies, including Internet-based services, may become
competitive with services that cable communications systems can offer. The FCC
has authorized television broadcast stations to transmit textual and graphic
information. 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. Local
exchange carriers ("LECs") and other common carriers also provide facilities for
the transmission and distribution to homes and businesses of interactive
computer-based services, including the Internet, as well as data and other
non-video services.
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<PAGE>
Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable communications industry or on the
operations of the Company.
Regulation and Legislation
General. 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
the Congress and various federal agencies have in the past, and may in the
future, materially affect the Company and the cable television industry.
Federal Statutory Laws. The principal federal statute governing cable
television is the Communications Act of 1934, as amended. Amendments in 1984 and
1992 and amendments in 1996 (codified as the 1996 Act) have had particular
impact on the way in which cable systems are regulated. The 1984 and 1992
amendments added significantly to the regulatory burdens of cable operators,
particularly in the areas of (i) cable system rates for both basic and certain
nonbasic 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)
requiring subscribers to subscribe to tiers of service other than basic service
as a condition of purchasing premium services.
The 1996 Act, enacted into law in February 1996, substantially amended
the Communications Act by, among other things, removing barriers to competition
in the cable television and telephone markets and reducing the regulation of
cable television rates.
Federal Regulation. The FCC, the principal federal regulatory agency
with jurisdiction over cable television, has promulgated extensive regulations
covering such areas as the regulation of cable service rates in areas where
cable television systems are not subject to effective competition,
cross-ownership between cable television systems and certain other
communications businesses, carriage of television broadcast programming,
ownership of inside wiring, programming agreements, programmer access to cable
channels, signal leakage and frequency use, technical standards and performance,
consumer protection and customer service, indecent programs, parental control
devices, origination cablecasting, consumer electronics equipment compatibility,
sponsorship identification, equal employment opportunity, children's
programming, maintenance of various records, 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.
Rates. Under federal law, nearly all cable television systems are
subject to local rate regulation of basic service. Franchising authorities are
empowered under the law to apply FCC rules to ensure that basic cable rates are
reasonable under such rules and that rates for installation of cable service,
converter boxes and additional outlets are based on actual costs. Local
franchising authorities are empowered to limit future rate increases and to
order a reduction of existing rates which exceed the maximum permitted level, as
defined in the FCC rules, for basic cable services and associated equipment, and
refunds can be required.
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Prior to March 31, 1999, the FCC was required to review and regulate
rates for non-basic service tiers (other than per channel or per program rates)
under certain circumstances. However, the 1996 Act eliminates regulation of
rates for such non-basic service tiers for all cable operators as of March 31,
1999.
Although rates for video programming offered on a per channel or a per
program basis are not regulated, cable operators must permit customers to
purchase such programming 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 lack such technical capability is only
available until a cable system obtains the capability, but not later than
December 2002.
Carriage of Broadcast Television Signals. Commercial television
broadcast stations which are "local" to a cable system, i.e., the system is
located in the station's Designated Market Area, must elect every three years
whether to require the cable system to carry the station, subject to certain
exceptions, or whether the cable system must negotiate for "retransmission
consent" to carry the station. Local noncommercial television stations also are
given similar mandatory carriage rights, but are not given the option to
negotiate retransmission consent for the carriage of their signal. In addition,
cable systems must obtain retransmission consent for the carriage of all
commercial broadcast stations, except for certain "superstations."
Franchise Fees. Although franchising authorities may impose franchise
fees, such payments cannot exceed five percent of a cable system's annual gross
revenues from cable services. 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.
Renewal of Franchises. Renewal procedures and criteria designed to
protect incumbent franchisees against arbitrary denials of renewal have been
established by federal law governing the cable television industry. These
procedures can provide substantial protection to incumbent franchisees, although
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.
Channel Set-Asides. Under federal law, local franchising authorities
may require cable operators to set aside certain channels for public,
educational and governmental access programming. Further, cable television
systems with 36 or more activated channels must designate a portion of their
channel capacity for commercial leased access by unaffiliated third parties.
Leased access rates must be set according to a formula determined by the FCC.
Competing Franchises. Franchising authorities are prohibited from
unreasonably refusing to grant franchises to competing cable television systems.
Franchising authorities are permitted to operate their own cable television
systems without franchises.
Ownership Restrictions and Market Entry. The 1996 Act allows telephone
companies to compete directly with cable operators by repealing the historic
telephone company/cable cross-ownership ban. This allows LECs, including the
Regional Bell Operating Companies, to compete with cable operators both inside
and outside their telephone service areas. Because of their resources, LECs
could be formidable competitors to traditional cable operators, and certain LECs
have begun offering cable service.
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The 1996 Act also provides that registered utility holding companies
and subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utility Holding Company Act of 1935, as
amended. Because of their resources, utilities could be formidable competitors
to traditional cable systems.
The 1996 Act eliminates statutory restrictions on broadcast/cable
cross-ownership (including broadcast network/cable restrictions), but leaves in
place existing FCC regulations prohibiting local cross-ownership between
television stations and cable systems. The 1996 Act also eliminates the three
year holding period previously required under a statutory provision regarding
"anti-trafficking." The present federal regulatory scheme leaves in place
existing restrictions on cable cross-ownership with SMATV and MMDS facilities,
but lifts those restrictions where the cable operator is subject to effective
competition. However, the FCC has adopted regulations which permit cable
operators to own and operate SMATV systems within their franchise area, provided
that such operation is consistent with local cable franchise requirements.
FCC rules preclude a cable system from devoting more than 40% of its
activated channel capacity to the carriage of affiliated national program
services. A companion rule establishing a nationwide ownership cap on any cable
operator equal to 30% of all domestic cable subscribers has been stayed pending
further judicial review.
Cable Entry Into Telecommunications. The 1996 Act provides that no
state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way.
Although the 1996 Act clarifies that traditional cable franchise fees may be
based only on revenues related to the provision of cable television services, it
also provides that local franchising authorities ("LFAs") may require
reasonable, competitively neutral compensation for management of the public
rights-of-way when cable operators provide telecommunications service. However,
many of the specific terms and conditions for such interconnection will remain
uncertain until they are resolved by the courts, the FCC and state regulatory
commissions.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Act to facilitate the entry of new telecommunications
providers (including cable operators) is the interconnection obligation imposed
on all telecommunications carriers.
Technical Requirements. The FCC has adopted technical standards for
cable television, and local franchising authorities are prohibited from adopting
standards which are in conflict with or more restrictive than those established
by the FCC. Cable systems must also limit signal leakage to prevent harmful
interference with aeronautical navigation and safety radio services.
Pole Attachments. The FCC currently regulates the rates, terms and
conditions imposed by certain public utilities for use of their poles unless
state public service commissions are able to demonstrate that they regulate such
rates, terms and conditions. Under the 1996 Act, investor-owned utilities must
make poles and conduits available to cable systems under delineated terms.
Electric utilities are given the right to deny access to particular poles on a
nondiscriminatory basis for lack of capacity, safety, reliability, and generally
accepted engineering reasons. The current method for determining attachment
rates charged by telephone and utility companies will continue for five years
from the date of the enactment of the statute. Pursuant to the 1996 Act,
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the FCC has established a new formula for the rental rate for poles used by
cable operators who provide "telecommunications services" which will result in
higher pole rental rates for such cable operators. Any increases pursuant to
this formula may not begin for five years from the date of the enactment of the
statute and will be phased-in in equal increments over the next five years. This
new FCC formula does not apply in states which certify they regulate pole rents,
nor will it apply to cable operators who provide only traditional cable
services.
Copyright. 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.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) is 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. Copyrighted
music performed by cable systems themselves on local origination channels, in
advertisements inserted locally on cable networks, et cetera, also must be
licensed.
State and Local Regulation. Because a cable television system uses
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 federal law provides for certain procedural
protections, 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. Under the existing federal
regulatory scheme, there are certain limitations on a franchising authority's
ability to control the operation of a cable system operator. However, exclusive
franchises are prohibited and franchising authorities are permitted to exercise
greater control over the operation of franchised cable television systems,
especially in the area of customer service and rate regulation. Federal law also
allows franchising authorities to operate their own multichannel 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.
In addition to the foregoing, 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 that could
change, in varying degrees, the
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manner in which cable television systems operate. Neither the outcome of these
proceedings nor their impact upon the cable television industry can be predicted
at this time. Moreover, changes in the regulatory and legislative environment
are constantly occurring. The Company cannot predict the effect that ongoing or
future developments may have on the cable television industry generally or the
Company specifically.
Employees
At May 31, 1999, the Company had approximately 2,900 employees. Certain
of the employees of 14 of its cable systems, including three of its largest
systems, are represented by unions. The Company considers its relations with its
employees to be good.
ITEM 2. Properties.
The principal physical assets associated with the Company's cable
television systems consist of operating plant and equipment, including signal
receiving apparatus, headends and distribution systems and subscriber house drop
equipment. The signal receiving apparatus typically includes a tower, antennas,
ancillary electronic equipment and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving devices. The Company's distribution system consists principally of
fiber and coaxial cables and related electronic equipment. Subscriber devices
consist principally of decoding converters. The physical components of cable
television systems may require maintenance and periodic upgrading and rebuilding
to keep pace with technological advances. The Company owns or leases property
for receiving sites (antenna towers and headends), microwave facilities and
business offices and owns most of its service vehicles.
As of May 31, 1999, the Company leases approximately 35,000 square
feet of office space at 50 Locust Avenue, New Canaan, Connecticut, where it has
its corporate headquarters, pursuant to a lease which expires December 31, 2004
and provides for two five-year renewal terms. The monthly rental payments
pursuant to the lease are approximately $68,000.
With respect to the property owned by the Company, the Company is of
the opinion that it has generally satisfactory title to such properties used in
its business, subject to the liens for current taxes and liens incident to minor
encumbrances. In addition, the Company considers the properties owned and leased
by it to be suitable and adequate for the conduct of its business operations in
the future.
ITEM 3. Legal Proceedings.
On or about March 10, 1999, Robert Lowinger, on behalf of himself and
all others similarly situated (the "Plaintiff") commenced an action by filing a
Class Action Complaint (the "Complaint") in the Superior Court of Connecticut,
Judicial District of Stamford/Norwalk against the Company, all of its directors,
and Adelphia . The Plaintiff, claiming that he owns shares of Class A Common
Stock of the Company alleges that in connection with the proposed merger of the
Company with Adelphia, holders of Class B Common Stock of the Company (which has
superior voting rights to the Class A Common Stock of the Company) will receive
consideration for their shares that exceeds by $4.00 per share the consideration
to be paid to the Company's Class A shareholders resulting in the Company's
Class B shareholders receiving approximately $170,000,000 more than if they held
the equivalent number of the Company's Class A shares. The Plaintiff claims that
the individual defendants breached their fiduciary duties of loyalty, good
faith, and due care to
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the Company's Class A shareholders by approving the higher payment to the
Company's Class B shareholders and that the Company and Adelphia aided and
abetted these alleged breaches of fiduciary duty. The Plaintiff seeks
certification of a class of the Company's Class A shareholders and seeks
recovery on behalf of himself and the class of unspecified damages, profits, and
special benefits alleged to have been wrongfully obtained by the defendants, as
well as all costs, expenses and attorney's fees. On July 21, 1999, the court
granted the Company's and the other defendants' motion for extension of time to
answer or otherwise respond to the complaint to the earlier of November 15, 1999
or twenty days after the effective date of the Merger.
The Company is also subject to various legal proceedings and claims
that arise in the ordinary course of business. Management currently believes
that resolving these matters will not have a material adverse impact on the
Company's financial position or its results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the Company's
shareholders during the fiscal quarter ended May 31, 1999.
* * *
Executive Officers of the Company
The names, ages and positions of all the executive officers of the
Company as of May 31, 1999 are listed below along with their business experience
during the past five years. Officers serve at the discretion of the Board of
Directors. There are no arrangements or understandings between any officer and
any other person pursuant to which the officer was selected and, except as
otherwise indicated below, there are no family relationships between any
executive officers or any directors of the Company.
The Company has employment agreements with the following executive
officers: Dr. Leonard Tow (Chairman and Chief Executive Officer), Bernard P.
Gallagher (President and Chief Operating Officer), Scott N. Schneider (Chief
Financial Officer, Senior Vice President and Treasurer) and Michael G. Harris
(Senior Vice President, Engineering). The terms of these employment agreements
expire on June 30, 2003, except that Dr. Tow's agreement continues for an
additional five-year advisory period. Each of these employment agreements is
terminable by the executive officer upon a "change of control" or a "threatened
change of control" of the Company. One of the events that is considered to be a
threatened change of control under each employment agreement is the acquisition
by any person of securities of the Company such that the person files or is
required to make a filing pursuant to Regulation 13D under the Securities
Exchange Act of 1934, as amended. Such an event has occurred and, therefore, for
purposes of these employment agreements, a "threatened change of control" has
occurred. Subsequent to May 31, 1999, each of these executive officers has
exercised his right to terminate his employment agreement but has agreed to
continue working for the Company through the closing of the Merger.
Leonard Tow, 71, has been Chairman of the Board of the Company since
October 1989, a director of the Company since 1973 and has been the Chief
Executive Officer of the Company since its incorporation and of Century-Texas
since its organization in 1973 through December 1985. He was Chief Financial
Officer of the Company until December 1996. He also served as President and
Chief Operating Officer of the Company from
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the date of its incorporation to October 1989, and in both of said capacities
for Century Texas from its organization in 1973 through December 1985. Dr. Tow
has been active in the cable television industry for more than 30 years. He has
also served as Chairman of the Board, Chief Executive Officer and Chief
Financial Officer of Citizens Utilities, 1.98% of the stock of which is owned by
the Company since June 1990, as Chief Executive Officer of Citizens Utilities
since July 1, 1990, and as a director of Citizens Utilities since April 1989.
Dr. Tow holds a Ph.D. from Columbia University and is the husband of Claire L.
Tow.
Bernard P. Gallagher, 52, has been a director of the Company since
October 1990 and has been President and Chief Operating Officer of the Company
since October 1989. Mr. Gallagher was Chairman of the Board and Chief Executive
Officer of Centennial from August 1991 to January 6, 1999 and was a director of
Centennial from March 1991 to January 6, 1999. From February 1990 to August
1991, Mr. Gallagher was President and Chief Operating Officer of Centennial.
From 1979 to October 1989, Mr. Gallagher served in various financial and
executive capacities at Comcast Corporation, a cable television and cellular
telephone company, and its subsidiaries, including Vice President and Treasurer
from November 1984 to October 1989.
Michael G. Harris, 53, has been a director of the Company since October
1997 and has been Senior Vice President Engineering; and Chief Engineering
Officer of the Company since June 1991. Mr. Harris was also Senior Vice
President, Engineering; and Chief Engineering Officer of Centennial Cellular
from August 1991 to January 6, 1999.
Scott N. Schneider, 41, has been a director of the Company since
October 1994. Mr. Schneider has been Chief Financial Officer of the Company
since December 1996, Senior Vice President and Treasurer of the Company since
June 1991, and has been an Assistant Secretary of the Company since October
1986. He was a Vice President of the Company from October 1986 to June 25, 1991
and was Controller of the Company from December 1985 to June 25, 1991. He was
Controller of Century-Texas from December 1982 to December 1985. Mr. Schneider
was also a director and Senior Vice President, Chief Financial Officer and
Treasurer of Centennial from August 1991 to January 6, 1999. He was a Vice
President and Controller of Centennial from the date of its incorporation in
1988 to August 1991.
Claire L. Tow, 68, has been a director of the Company since 1988, a
Senior Vice President of the Company since August 1992 and was Vice President of
the Company from February 1988 to August 1992. She has been involved in the
operations of the Company since its incorporation in December 1985 and with
Century-Texas since its incorporation. Mrs. Tow has served as a director of
Citizens since June 1993. Mrs. Tow is the wife of Leonard Tow.
David Z. Rosensweig, 73, has been a director and the Secretary of the
Company since its incorporation in December 1985 and of Century-Texas from 1982
to December 1985. Mr. Rosensweig was also a director and Secretary of Centennial
from its incorporation in 1988 through January 6, 1999. He has been a member of
the New York law firm of Leavy, Rosensweig & Hyman since May 1987, which acts as
general counsel to the Company.
Robert J. Larson, 40, has been Vice President - Controller of the
Company since October 1994, was Controller of the Company from June 26, 1991 to
1994 and was Assistant Controller from 1989 to June 25, 1991. Mr. Larson has
been Vice President - Accounting and Administration of Centennial from March
1995 to January 6, 1999 and was Vice President - Controller of Centennial from
October 1994 to March 1995, Controller of Centennial from 1990 to October 1994,
and was Assistant Controller of Centennial from 1989 to 1990. Prior
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to joining the Company and Centennial, Mr. Larson was a manager with Touche Ross
& Co., a predecessor firm of Deloitte & Touche LLP.
Clifford A. Bail, 44, has been Vice President-Legal Affairs and
Corporate Counsel of the Company since January 1997. Mr. Bail was also Vice
President - Legal Affairs and Corporate Counsel of Centennial from January 1997
through January 6, 1999. From 1992 to 1996, Mr. Bail was a member of the law
firm of Leavy Rosensweig & Hyman, which acts as general counsel to the Company
and Centennial.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
The Class A Common Stock commenced trading on The Nasdaq Stock Market
("Nasdaq") under the symbol CTYA on January 5, 1995. Prior to such date, the
Class A Common Stock was traded on the American Stock Exchange. There is no
established public market for the Class B Common Stock. The table set forth
below lists the high and low sale prices for the Class A Common Stock reported
on Nasdaq for the calendar quarters indicated.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
1997
-----
First Quarter....................... $ 6 1/4 $ 3 7/8
Second Quarter...................... 7 1/8 3 5/8
Third Quarter ...................... 7 11/16 5 1/8
Fourth Quarter...................... 9 7/8 7
1998
----
First Quarter....................... 13 8 15/16
Second Quarter...................... 20 12 3/8
Third Quarter ..................... 28 1/8 17 7/8
Fourth Quarter...................... 31 3/4 15 1/2
1999
----
First Quarter....................... 47 28 7/8
Second Quarter...................... 60 1/8 39 1/8
Third Quarter (through July 26, 1999) 49 1/4 42 1/4
</TABLE>
On July 26, 1999, the last sale price of the Class A Common Stock, as
reported on Nasdaq, was $43 1/16 per share. At July 26, 1999, there were
approximately 980 holders of record of shares of Class A Common Stock and 3
holders of record of shares of Class B Common Stock.
Dividend Policy
The Company has never paid a cash dividend on its common stock. The
Company is currently restricted from paying cash dividends by certain of its
debt instruments. Its ability to do so is further limited by provisions
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of credit agreements entered into by certain of its subsidiaries that limit the
amount of cash that may be upstreamed to the Company.
If all cumulative dividends shall have been paid as declared or set
apart for payment upon shares of Preferred Stock then outstanding, if any,
holders of shares of Class A Common Stock and Class B Common Stock are entitled
to receive such dividends as may be declared by the Company's Board of Directors
out of funds legally available for such purpose. No dividend may be declared or
paid in cash or property on any share of Class B Common Stock, however, unless
simultaneously the same dividend is paid on each share of Class A Common Stock.
Dividends can be declared and paid on shares of Class A Common Stock without
being declared and paid on the shares of Class B Common Stock. In the case of
any stock dividend, holders of Class A Common Stock are entitled to receive the
same percentage dividend (payable in shares of Class A Common Stock) as the
holders of Class B Common Stock receive (payable in shares of Class B Common
Stock).
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ITEM 6. Selected Financial Data.
The selected consolidated financial data set forth below for the five
years ended May 31, 1999 have been derived from the Company's audited
consolidated financial statements. Amounts have been reclassified where
applicable, to reflect the discontinued operations of Centennial Cellular Corp.
and the Company's Australian operations. This data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto included
elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year ended May 31,
------------------
1999 1998 1997 1996 1995
------------ ------------- ------------- ------------- -------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues $519,584 $ 484,736 $ 459,646 $ 368,669 $ 331,439
------------ ------------- ------------- ------------- -------------
Cost of services 111,603 103,932 100,789 82,274 81,521
Selling, general and
administrative 115,790 122,307 111,467 85,591 84,326
Regulatory restructuring charge -- -- -- -- 4,000
Depreciation and amortization 158,153 154,029 159,547 124,436 106,289
Merger costs 7,922 -- -- -- --
------------ ------------- ------------- ------------- -------------
393,468 380,268 371,803 292,301 276,136
------------ ------------- ------------- ------------- -------------
Operating income 126,116 104,468 87,843 76,368 55,303
Interest expense 191,803 172,608 157,730 143,030 115,644
Gain on sale of assets 5,646 -- -- -- --
Other income (expense) 79 1,533 (171) (550) (2,400)
------------ ------------- ------------- ------------- -------------
Loss from continuing operations
before income tax benefit
minority interest and
extraordinary item (59,962) (66,607) (70,058) (67,212) (62,741)
Income tax (benefit) provision (13,453) (624) (23,363) (22,730) 6,395
------------ ------------- ------------- ------------- -------------
Loss from continuing operations
before minority interest
and extraordinary item (46,509) (65,983) (46,695) (44,482) (69,136)
Minority interest in income of
subsidiaries (11,597) (11,899) (7,170) (2,701) (1,486)
------------ ------------- ------------- ------------- -------------
Loss from continuing operations (58,106) (77,882) (53,865) (47,183) (70,622)
------------ ------------- ------------- ------------- -------------
Discontinued operations:
Loss from discontinued operations -- (43,089) (80,428) (54,934) (12,003)
Gain on sale of discontinued
operations 314,290 -- -- -- --
------------ ------------- ------------- ------------- -------------
314,290 (43,089) (80,428) (54,934) (12,003)
------------ ------------- ------------- ------------- -------------
Loss before extraordinary item 256,184 (120,971) (134,293) (102,117) (82,625)
Extraordinary item-loss on
early retirement of debt, net -- -- (7,582) -- --
------------ ------------- ------------- ------------- -------------
Net income (loss) $256,184 $(120,971) $(141,875) $(102,117) $ (82,625)
============ ============= ============= ============= =============
Dividend on discontinued
subsidiary convertible redeemable
preferred stock -- $ 5,225 $ 4,850 $ 4,256 $ 4,419
============ ============= ============= ============= =============
Net income (loss) applicable to
common shares $256,184 $(126,196) $(146,725) $(106,373) $ (87,044)
============ ============= ============= ============= =============
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Year ended May 31,
------------------
1999 1998 1997 1996 1995
------------ ------------- ------------- ------------- -------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Loss per common share (basic &
diluted):
Loss from continuing operations $ (.77) $ (1.11) $ (.78) $(.70) $(.87)
Loss from discontinued operations -- (.58) (1.08) (.74) (.14)
Gain on sale of discontinued -- -- -- --
operations 4.18
Extraordinary item-loss on early
retirement of debt -- -- (0.10) -- --
------------ ------------- ------------- ------------- -------------
Net income (loss) $ 3.41 $(1.69) $ (1.96) $(1.44) $(1.01)
============ ============= ============= ============= =============
Weighted average number of
common shares outstanding
during the period- basic & diluted 75,088,000 74,770,000 74,675,000 73,748,000 86,277,000
============ ============= ============= ============= =============
Balance Sheet Data
Total assets $1,800,299 $ 1,515,182 $2,154,231 $2,234,909 $2,004,417
Long-term debt 2,022,640 2,009,052 2,186,981 2,081,611 1,741,143
Common stockholders'
deficiency (465,319) (725,252) (598,643) (448,013) (351,645)
</TABLE>
Included in Total assets at May 31,1998 were Net assets of discontinued
operations of $37,323, which included total assets of $869,415, Long-term debt
of $510,000 and Common stockholders' deficiency of $112,441.
See Notes 3 and 5 of the consolidated financial statements regarding
recent acquisitions and dispositions and the effect of such acquisitions and
dispositions on the comparability of the historical financial statements of the
Company.
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (dollar amounts in thousands except share data)
The Company is primarily engaged in the ownership and operation of cable
television systems, with significant concentrations of basic subscribers in
California, Colorado and Puerto Rico. The Company earns its revenues primarily
from subscriber fees. At May 31, 1999, the Company owned and operated 72 cable
television systems in 25 states and Puerto Rico. At that date, the Company's
cable systems passed approximately 2,369,000 homes and served a total of
approximately 1,340,000 primary basic subscribers. Certain of the Company's
cable systems referred to above are owned 50% by the Company and 50% by
unaffiliated entities. At May 31, 1999, these systems passed approximately
632,000 homes and served approximately 335,000 primary basic subscribers.
On March 5, 1999, the Company and Adelphia Communications Corporation
("Adelphia") jointly announced the signing of a definitive agreement (the
"Merger Agreement") for the merger (the "Merger") of the Company with and into a
newly formed direct, wholly-owned subsidiary of Adelphia (the "Merger Sub"). The
Merger Sub will continue as the surviving company in the Merger. The Merger is
expected to close in the third calendar quarter of 1999. The consolidated
financial statements have been prepared on a historical basis and do not include
any adjustments that might result from the completion of the Merger.
Pursuant to the Merger Agreement, the Company's Class A Common stockholders will
have the right to elect, on a share-by-share basis, to receive either 0.77269147
of a share of Adelphia Class A common stock or $44.14 in cash for each share of
the Company's Class A Common Stock that they own, and the Company's Class B
Common stockholders will have the right to elect, on a share-by-share basis, to
receive either 0.84271335 of a share of Adelphia Class A common stock or $48.14
in cash for each share of the Company's Class B Common Stock that they own.
Notwithstanding an election made by one of the Company's stockholders, at the
effective time of the Merger (i) the aggregate number of shares of the Company's
Class A Common Stock that may be converted into the right to receive cash in the
Merger is equal to 20.76% of the number of shares of the Company's Class A
Common Stock outstanding immediately prior to the effective time of the Merger
(excluding shares held by dissenting stockholders), (ii) the aggregate number of
shares of the Company's Class A Common Stock which may be converted into the
right to receive shares of Adelphia Class A Common Stock in the Merger is equal
to 79.24% of the number of such shares of the Company's Class A Common Stock
outstanding immediately prior to the effective time of the Merger (excluding
shares held by dissenting stockholders), (iii) the aggregate number of shares of
the Company's Class B Common Stock that may be converted into the right to
receive cash in the Merger is equal to 24.54% of the number of shares of the
Company's Class B Common Stock outstanding immediately prior to the effective
time of the Merger (excluding shares held by dissenting stockholders) and (iv)
the aggregate number of shares of the Company's Class B Common Stock which may
be converted into the right to receive shares of Adelphia Class A Common Stock
in the Merger is equal to 75.46% of the number of shares of the Company's Class
B Common Stock outstanding immediately prior to the effective time of the Merger
(excluding shares held by dissenting stockholders).
23
<PAGE>
If the aggregate number of shares of the Company's Class A Common Stock or the
Company's Class B Common Stock with respect to which elections have been made
exceeds the aggregate number of shares of the Company's common stock of that
class that may be converted into the right to receive a particular form of
consideration in the Merger, then each share of the Company's common stock
electing to receive the undersubscribed consideration will receive that
consideration; and each share of the Company's common stock electing to receive
the oversubscribed consideration will receive a portion of the Merger
consideration in cash and a portion of the Merger consideration in Adelphia
Class A Common Stock.
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement will be paid by the party incurring such
expenses. However, in the event the Company enters into or consummates a merger,
consolidation or other business combination with a third party within
twenty-four months after the date of termination of the Merger Agreement, the
Company will be required to reimburse Adelphia's costs and expenses in
connection with the Merger Agreement (subject to a maximum of $10,000) and pay
Adelphia a termination fee of $100,000.
On or about March 10, 1999, a lawsuit was commenced by the filing of a class
action complaint (the "Complaint") by one of the Company's Class A Common
stockholders on behalf of himself and all others similarly situated naming the
Company's Class B Common stockholders and all of the Company's Directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. The Company and Adelphia were also named as defendants
for allegedly aiding and abetting in the foregoing breaches of fiduciary duty.
The Complaint seeks damages in an unspecified amount and such other relief as
may be appropriate. On July 21, 1999, the court granted the Company's and the
other defendants' motion for extension of time to answer or otherwise respond to
the complaint to the earlier of November 15, 1999 or twenty days after the
effective date of the Merger. See Item 3. Legal Proceedings.
The closing of the Merger is subject to certain customary conditions, including
the approval of the Merger by the shareholders of the Company and Adelphia, each
party obtaining the required consents and all appropriate regulatory and other
approvals, including from the Federal Communications Commission and local
franchising authorities and under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). On April 20, 1999, the waiting period
under the HSR Act for the Merger terminated. In connection with the Merger, the
Company has completed filing the material applications seeking transfer of the
Company's applicable franchise licenses with the FCC and local franchising
authorities. There is no assurance that the Company will obtain such approvals
or that the Merger will be consummated.
At the effective time of the Merger, Adelphia will purchase Citizens Utilities
Company's ("Citizens") 50% interest in the Century/Citizens Joint Venture, one
of the Company's 50% owned joint ventures, for a purchase price of approximately
$157,500, comprised of approximately $27,700 in cash, approximately 1.85 million
shares of Adelphia Class A common stock and the assumption of indebtedness. This
joint venture serves approximately 91,800 basic subscribers in California and is
jointly owned by the Company and Citizens Cable Company, a subsidiary of
Citizens.
In addition, the Company, Adelphia and Dr. Leonard Tow, Chairman and Chief
Executive Officer of the Company, have agreed that the Company will sell its
shares of Class A Common Stock of Citizens Utilities Company to Dr. Tow at the
effective time of the Merger at fair market value, based on the closing market
24
<PAGE>
price of such shares on the date the Merger Agreement was signed. Based on that
closing price, the aggregate purchase price will be approximately $39,800. As of
July 26, 1999, these shares constituted approximately 2% of the outstanding
stock of Citizens.
On January 7, 1999, Centennial Cellular Corp. ("Centennial"), a former
subsidiary of the Company, completed the previously announced merger of CCW
Acquisition Corp., a company organized at the direction of Welsh, Carson,
Anderson & Stowe, with and into Centennial (the "Centennial Merger"). As of the
completion of the Centennial Merger, the Services Agreement between the Company
and Centennial was terminated. As a holder of 8,561,819 shares of Class B Common
Stock and 3,978 shares of Second Series Convertible Preferred Stock of
Centennial, the Company received for its interest in Centennial approximately
$360,100 in cash. The Company has utilized and will continue to utilize these
proceeds for general corporate purposes, including, but not limited to, the
financing of capital expenditures, investments, purchases and acquisitions.The
Company recorded a pre-tax gain in relation to the sale of Centennial of
approximately $322,000 during the year ended May 31, 1999.
The Company has had interests in businesses in the pay television industry in
Australia. The interests included investments in entities, which include East
Coast Pay Television Pty. Limited ("ECT") and XYZ Entertainment Pty. Limited
("XYZ"). The Company sold to UIH Asia/Pacific Communications Inc. ("UAP"), a
unit of United International Holdings, Inc. ("UIH"), the Company's 25% ownership
interest in XYZ for approximately $24,600. Approximately 95% of the sales price
was paid in the form of UIH Series B Convertible Preferred Stock ("UIH
Convertible Stock") which is convertible at any time into approximately ten
shares of UIH Class A Common Stock for each share of UIH Convertible Stock, at a
conversion price of $21.25 per share. The Company may not sell, assign, pledge,
transfer or otherwise convey any UIH securities prior to September 11, 1999.
In fiscal 1999, ECT sold substantially all of its operating assets to Austar
Entertainment Pty. Ltd. ("Austar"), a wholly owned subsidiary of UAP, for
approximately $6,100 in the form of UIH Convertible Stock. ECT has finalized the
shutdown of its operations, including the liquidation of its current
liabilities. On December 16, 1998, the creditors of ECT (including the Company)
entered into an Intercreditor Agreement pursuant to which substantially all of
the remaining assets of ECT have been distributed among them and the Company has
received 5,652 units of UIH Convertible Stock, of which 1,156 units are to be
transferred to the ECT minority interest shareholders. The Company may not sell,
assign, pledge, transfer or otherwise convey any of the remaining 4,496 units of
UIH Convertible Stock prior to July 9, 1999. The Company will receive 92.4% of
any additional remaining assets of ECT. Such amounts are not expected to be
material.
At July 26, 1999, the closing price of the UIH Class A Common Stock on The
Nasdaq National Market was $ 77 1/8.
The Company recorded a pre-tax gain of approximately $18,000 as a result of the
sale of its Australian business segment during the year ended May 31, 1999.
The Company reduced its valuation allowance applied against its deferred tax
assets by approximately $104,000 as a result of the sale of Centennial and the
Australian Operations.
The consolidated statements of operations reflect the sale of Centennial and the
Australian Operations during the year ended May 31, 1999 and reflect the
operating results of these segments as discontinued
25
<PAGE>
operations for the years ended May 31, 1998 and 1997 and the consolidated
balance sheet at May 31, 1998 segregates the net assets of these discontinued
operations. The following discussion of results of operations and financial
condition is presented for continuing operations only.
Certain of the Company's cable television systems are subject to rate regulation
which has negatively affected the Company's business. The Company has
implemented new rate and service offerings which give subscribers the choice of
buying certain programming services individually on a per channel basis or as
part of a package of premium services at a discounted price.
Pursuant to the FCC's second revision to its rate formula, the Company
experienced a further decrease in the regulated portion of its services
beginning in fiscal 1995. Under the regulatory price cap mechanism established
by the FCC, a portion of the decline has been offset, in part, by allowable rate
increases. Such increases relate to adjustments for the annual change in the
Gross National Producers Price Index as well as certain increases in programming
fees, the addition of new channel services and so called "external costs" as
delineated in the rules. The bulk of such price adjustments became effective
during the first quarter of fiscal years 1997, 1998 and 1999.
On February 8, 1996, "The Telecommunications Act of 1996" (the "1996 Act") was
enacted into law. The law alters federal, state and local laws and regulations
regarding telecommunications providers and services, including the cable
television industry. The 1996 Act deregulated (except for basic service) cable
service rates on March 31, 1999.
FISCAL YEARS ENDED MAY 31, 1999 AND MAY 31, 1998
Revenue increased by $34,848 to $519,584 or 7.2%, over the corresponding year
ended May 31, 1998 of $484,736. The increase in revenue was a result of
subscription price increases and increases in the number of cable television
subscriptions as well as acquisitions and investment income. Average primary
basic cable television subscribers ("Basic Subscribers") for the twelve months
ended May 31, 1999 were approximately 1,329,000, as compared to approximately
1,296,000 for the twelve-month period ended May 31, 1998, an increase of 2.5%.
Acquisitions accounted for approximately 61% of the increase in average basic
subscribers. Average monthly revenue per Basic Subscriber, including
programmers' share of such revenue, was approximately $40.83 during the twelve
months ended May 31, 1999, as compared to approximately $38.98 during the
comparable prior twelve month period, an increase of 4.7%.
Cost of services of the cable television operations increased by $7,671, or
7.4%, while selling, general and administrative expenses decreased by $6,517, or
5.3%. The principal reason for the increase in cost of services was the increase
in the variable component of the Company's cost structure which increases in
relation to increased revenue. The decrease in selling, general and
administrative expenses was primarily the result of an increased subsidy of
marketing and sales expenses by third parties, principally programmers who
provide content to the Company's service offerings. These subsidies offset, in
part, marketing and selling expenses which would otherwise have been incurred
directly by the Company. There is no assurance that such subsidies will continue
to be available to the Company. The Company anticipates continued increases in
the cost of services and selling, general and administrative expenses as the
growth of its business continues.
26
<PAGE>
Depreciation and amortization of the Company's cable television operations
increased by $4,124, or 2.7% above the year ended May 31, 1998. This increase is
due to the increased level of capital expenditures during fiscal 1999 and 1998.
The Company also incurred incremental legal, consulting and compensation costs
in connection with its proposed Merger. Through May 31, 1999 such costs
incurred totaled $7,922.
As a result of the factors noted above, operating income was $126,116, an
increase of $21,648, or 20.7% above the year ended May 31, 1998. Excluding the
Merger costs incurred during fiscal 1999, operating income was $134,038, an
increase of $29,570 or 28.3% above the year ended May 31, 1998.
Interest expense of the Company's cable television operations for the year ended
May 31, 1999 increased by $19,195, or 11.1% as compared with the year ended May
31, 1998, principally as a result of increased average borrowings and higher
interest rates. For the year ended May 31, 1999, the average debt outstanding
was approximately $2,034,000 or $163,000 above the average outstanding debt
balance of $1,871,000 during the year ended May 31, 1998. The Company's weighted
average interest rate was approximately 9.5% and 9.2% in the years ended May 31,
1999 and 1998, respectively.
After income attributable to minority interests in subsidiaries for the year
ended May 31, 1999, a consolidated pretax loss from continuing operations of
$71,559 was incurred, as compared to a pretax loss from continuing operations of
$78,506 for the year ended May 31, 1998. As a result of the Company's sale of
Centennial and the Company's Australian Operations during the year ended May 31,
1999, the Company recorded a pre-tax gain of approximately $340,000 and
consequently was able to recognize a net tax benefit of $13,453 during the year
ended May 31, 1999 for the losses from continuing operations for the year ended
May 31, 1999. These tax benefits are non-cash in nature.
The loss from continuing operations for the year ended May 31, 1999 of $58,106
represents a decrease of $19,776 from the loss of $77,882 for the year ended May
31, 1998. This decreased loss from continuing operations is due primarily to the
increase in tax benefits recognized of $12,829 and the increase in interest
income earned from fiscal 1998 to fiscal 1999. The Company expects losses from
continuing operations to continue until such time as the cable television
systems and investments in plant associated with rebuilds and extensions of its
cable television systems generate sufficient earnings to offset the associated
costs of acquisitions and operations.
FISCAL YEARS ENDED MAY 31, 1998 AND MAY 31, 1997
Revenue from cable television operations increased by $25,090 or 5.5%, over the
corresponding year ended May 31, 1997, principally as a result of acquisitions,
subscription price increases and increases in the number of cable television
subscriptions. Average primary basic cable television subscribers ("Basic
Subscribers") for the twelve months ended May 31, 1998 were approximately
1,296,000, as compared to approximately 1,255,000 for the twelve-month period
ended May 31, 1997, an increase of 3.3%. Acquisitions accounted for
approximately 35.6% of the increase in average basic subscribers. Average
monthly revenue per Basic Subscriber, including programmers' share of such
revenue, was approximately $38.98 during the twelve months ended May 31, 1998,
as compared to approximately $38.31 during the comparable prior twelve month
period, an increase of 1.7%.
Cost of services of the cable television operations increased by $3,143, or
3.1%, while selling, general and administrative expenses increased by $10,840,
or 9.7%. The principal reason for the increase in these costs
27
<PAGE>
was the increase in the variable component of the Company's cost structure which
increases in relation to increased revenue. In addition, the Company undertook
the transfer of customer service operations to a national call center effecting
approximately 400,000 subscribers in the current fiscal year. The costs of
training, establishing the call center workforce and other transition related
costs were expensed during the current fiscal year.
Depreciation and amortization of the Company's cable television operations
decreased by $5,518, or 3.5% below the year ended May 31, 1997. This decrease is
primarily due to property, plant and equipment write-offs during fiscal 1997.
As a result of the factors noted above, operating income was $104,468, an
increase of $16,625, or 18.9% above the year ended May 31, 1997.
Interest expense of the Company's cable television operations for the year ended
May 31, 1998 increased by $14,878, or 9.4% as compared with the year ended May
31, 1997, principally as a result of increased borrowings. For the year ended
May 31, 1998, the average debt outstanding of the cable segment was
approximately $1,871,000 or $144,000 above the average outstanding debt balance
of $1,727,000 during the year ended May 31, 1997. The Company's weighted average
interest rate was approximately 9.2% in both of the years ended May 31, 1998 and
1997.
After income attributable to minority interests in subsidiaries for the year
ended May 31, 1998, a pretax loss of $78,506 was incurred, as compared to a
pretax loss, before extraordinary item of $77,228 for the year ended May 31,
1997. The income tax benefit of $624 for the year ended May 31, 1998 represents
a reduction of the deferred tax liability by the tax effect of the current
period losses of the Company, offset by current state and local taxes for the
period. These tax benefits are non-cash in nature. During fiscal 1998, the
Company began recording limited tax benefits resulting from operating losses.
The loss from continuing operations for the year ended May 31, 1998 of $77,882
represents an increase of $24,017 from the loss of $53,865 for the year ended
May 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES (dollar amounts in thousands except share data)
The Company has grown through acquisitions as well as upgrading, extending and
rebuilding its existing cable television systems. In addition to an aggregate of
$1,873,640 in public debt instruments of the Company, certain subsidiaries of
the Company have entered into credit agreements with various bank groups and
private lending institutions providing for an aggregate of approximately
$1,235,000 of potential borrowing capacity for cable operations. At May 31,
1999, approximately $169,000 of that aggregate availability has been drawn.
Approximately $875,000 of this borrowing capacity terminates under two credit
facilities on August 31, 1999. The Company is currently in negotiations with its
lenders to provide financing for its pending joint venture with TCI in the
amount of $900,000. In addition to funding the operating and capital expenditure
needs of the joint venture, the facility would provide additional liquidity to
the Company of approximately $500,000. There is no assurance that the Company
and its lenders will come to final terms on the facility.
The Company's internally-generated cash, along with third party financing,
primarily the issuance of debt securities to the public, have enabled it to fund
its working capital requirements, capital expenditures for
28
<PAGE>
property, plant and equipment, acquisitions, investments and debt service. The
Company has funded the principal obligations on its long-term borrowings by
refinancing the principal with the issuance of debt securities in the public
market and through private institutions as well as internally generated cash
flow and the sale of certain business segments. The debt instruments to which
the Company and its subsidiaries are a party impose restrictions on the
incurrence of additional indebtedness.
During the year ended May 31, 1999, the Company made capital expenditures of
$121,523. The Company's future commitments for property, plant and equipment in
its cable television business consist of usual upgrades, extensions, betterments
and replacements of cable plant and equipment. As the Company completes capital
projects started in prior fiscal years, it anticipates an annualized rate of
approximately $120,000 for cable television capital expenditures in fiscal 2000.
Various construction projects have been undertaken to expand the operations of
certain cable television systems into adjacent and previously unbuilt areas and
to rebuild and upgrade its existing cable system plant. The Company is currently
considering the further upgrade of its cable television distribution systems in
certain of its cable television markets to expand its capability for the
delivery of video, voice and data transmission. Should the Company undertake
such an upgrade plan, it would result in an acceleration of capital expenditures
which would otherwise be incurred in future years. The Company has not yet
determined the feasibility, timing or cost of such projects. Funds for cable
television capital projects and related equipment are currently available from
internally generated cash and other financing resources.
For the year ended May 31, 1999, earnings were less than fixed charges by
$59,962. However, such amount reflects non-cash charges totaling $158,153,
consisting of depreciation and amortization. Historically, cash generated from
operating activities has exceeded fixed charges. Based upon current market
conditions, the Company expects that cash flows from operations, the proceeds
received from the sale of Centennial and funds from currently available credit
facilities will be sufficient to enable the Company to meet required cash
commitments through the next twelve month period.
Cash on hand was sufficient to fund the Company's expenditures for property,
plant and equipment and financing and investing activities. The Company will
continue to rely on internally generated cash, cash on hand, as well as various
financing activities to fund these requirements.
FINANCING AND CAPITAL FORMATION
At May 31, 1999, the Company's public debt securities of approximately
$1,873,640 in the aggregate, have interest rates ranging from 8 3/8% to 9 3/4%,
with remaining maturities ranging from 1 1/4 to 18 1/2 years. These public debt
securities were all issued pursuant to shelf registrations of the Company's debt
securities which were filed with the SEC. The Company's public debt securities
rank pari passu with all existing and future Senior Indebtedness (as that term
is defined in the respective Indentures under which the public debt securities
were issued) of the Company, are senior in right of payment to all existing and
future subordinated indebtedness of the Company, and may not be redeemed prior
to maturity.
29
<PAGE>
Certain subsidiaries of the Company have four credit facilities with $1,155,000
of total potential credit availability at May 31, 1999, of which $89,000 was
outstanding. The interest rates payable on borrowings under the respective
credit facilities are as follows:
At the election of CCC-I, (a) the Base Rate of interest announced by
Citibank, N.A. plus 0% to 0.625% per annum based upon certain conditions,
or (b) the London Interbank Offering Rate plus 0.75% to 1.625% per annum
based upon certain conditions.
At the election of CCC-II, (a) the Base Rate of interest announced by
Citibank, N.A. plus 0% to 0.5% per annum based upon certain conditions, or
(b) the London Interbank Offering Rate plus 0.75% to 1.375% per annum based
upon certain conditions.
At the election of Citizens Century Cable Television Venture ("CCCTV"),
either the Base Rate, or the Eurodollar Rate, plus the applicable margin
(as defined in the agreement).
At the election of Century Venture Corp. ("CVC"), (a) the "C/D Base Rate"
plus an applicable margin, as defined or (b) the "Eurodollar Base Rate"
plus an applicable margin, as defined or (c ) the ABR Rate, as defined.
Approximately $875,000 of borrowing capacity terminates under the CCC-I and
CCC-II credit facilities on August 31, 1999.
The Company is currently in negotiations with its lenders to provide financing
for its pending joint venture with TCI in the amount of $900,000. In addition to
funding the operating and capital expenditure needs of the joint venture, the
facility would provide additional liquidity to the Company of approximately
$500,000. There is no assurance that the Company and its lenders will come to
final terms on the facility.
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-defined
interest rate risks. The Company entered into a five-year interest rate hedge
agreement during October 1997 in relation to certain of its fixed rate debt. The
hedge agreement is structured such that the Company pays a variable rate of
interest based on the higher of the U.S. dollar six month LIBOR or the U.S.
dollar six month LIBOR set in arrears and receives a fixed rate of interest of
6.695% based on a notional amount of $35,000. Subject to the terms of the hedge
agreement, if the six month LIBOR is set at or below 4.75% at the beginning of
any period, the hedge agreement would terminate for that period alone and the
Company would receive a 50 basis points subsidy for that period alone.
The subsidiaries' credit facilities and the Company's public debt instruments,
among other things, require the maintenance of certain financial and operating
covenants, restrict the use of proceeds from such borrowing, limit the
incurrence of additional indebtedness, restrict the purchase or redemption of
its capital stock and limit the ability to pay dividends and management fees and
make capital expenditures. So long as applicable financial and other covenants,
including certain interest expense ratio tests, are met in connection with the
Merger, the Merger may be accomplished without creating a default under the
indentures applicable to the Company's public debt securities. If any issue of
the Company's public debt securities is downgraded to designated levels at the
time of the Merger, the holders of such issue could require the Company to
repurchase such debt securities at a price equal to 101% of the principal amount
thereof.
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At May 31, 1999, the Company and its subsidiaries were in compliance with all
covenants of their respective debt agreements.
ACQUISITION
On August 16, 1996, the Company entered into agreements to acquire two cable
television systems which serve an aggregate of approximately 35,000 primary
basic subscribers, which agreements were subsequently assigned to the
Century/Citizens Joint Venture. These systems are primarily located in Yorba
Linda/Orange County and Diamond Bar, California (the "CCCTV Acquisitions").
Pursuant to the agreements, the aggregate purchase price for these systems was
approximately $69,650. On October 15, 1997, the Century/Citizens Joint Venture
completed the acquisition of the Diamond Bar system for a purchase price of
approximately $34,160. The Diamond Bar system serves approximately 20,000
primary basic subscribers. On April 30, 1998, the Century/Citizens Joint Venture
completed the acquisition of the Yorba Linda/Orange County systems for a
purchase price of approximately $35,490. The Yorba Linda/Orange County systems
serve approximately 17,500 primary basic subscribers. The Company funded its
share of the purchase price for the Yorba Linda/Orange County systems and the
Diamond Bar system using available credit facilities.
DISPOSITIONS - CONTINUING OPERATIONS
In June 1998, Century-ML Cable Venture, a 50% owned joint venture partnership
between the Company and ML Media Partners, L.P., sold substantially all of the
assets of its two radio stations for approximately $11,500. The Company recorded
a pre-tax gain of $5,527 in relation to the sale of these two radio stations
during the year ended May 31, 1999.
PENDING ACQUISITION
In August 1998, the Company entered into an agreement to acquire a cable
television system which serves approximately 19,000 primary basic subscribers in
Moreno Valley and certain portions of Riverside County, California. The purchase
price for this system is approximately $33,000. The Company currently expects to
fund the acquisition using cash on hand or available credit facilities. The
purchase of this system by the Company is subject to regulatory approvals. There
is no assurance that the Company will obtain such approvals or that such
acquisition will be consummated.
STRATEGIC PARTNERSHIP
On November 18, 1998, the Company and TCI Communications, Inc. ("TCI") entered
into a definitive agreement to establish a strategic partnership (the
"Partnership"). TCI will contribute to the Partnership all the assets related to
the businesses of certain cable television systems owned and operated by TCI
serving approximately 243,400 primary basic subscribers in the area of Southern
California. The Company will contribute to the Partnership all the assets
related to the businesses of certain cable television systems owned and operated
by the Company serving approximately 528,700 primary basic subscribers in the
area of southern California, including approximately 94,400 primary basic
subscribers to be acquired in an exchange of cable systems described below as
well as approximately 19,000 primary basic subscribers related to the Company's
pending acquisition of the cable television system serving Moreno Valley and
certain portions of Riverside County, California. The Company will manage the
newly combined cable
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systems and own approximately 69.5 percent of the Partnership. The cable systems
contributed by each party will be valued based upon annualized cash flow of such
contributed systems as of the closing date of the transaction, subject to
certain fees and expenses. These values will be used in the process of
determining the ownership percentages of the respective parties at the closing
date of the transaction.
The Company is expected to manage the Partnership in return for a management fee
payable by the Partnership calculated based on a percentage of the annual total
gross revenues of the Partnership, in addition to payment of certain fees and
expenses. However, under the Agreement of Limited Partnership, the Partnership
may not, among other things, without the approval of the TCI partner or the
unanimous vote of all the members of the Partnership committee, enter into
certain transactions with affiliates, issue any Partnership or other equity
interest, permit any subsidiary to issue any equity interest, effectuate certain
mergers or other business combinations or incur in excess of certain levels of
indebtedness.
As part of the Partnership Transaction, the Company and TCI have agreed to
exchange cable systems owned by the Company in certain communities in northern
California for certain cable systems owned by TCI in southern California,
allowing each of them to unify operations in existing services areas. TCI will
exchange its East San Fernando Valley cable system serving approximately 94,400
primary basic subscribers for the Company's northern California cable systems
(San Pablo, Benicia, Fairfield, and Rohnert Park, California), serving
approximately 95,900 primary basic subscribers.
It is anticipated that the Partnership will be funded by approximately $900,000
of indebtedness. There is no assurance that such financing will be available to
the Partnership or that the Partnership will be able to obtain such financing on
terms favorable to the Partnership.
The closing of the foregoing transactions is subject to, among other things,
each party obtaining the required consents and all appropriate regulatory and
other approvals, including from the Federal Communications Commission and local
franchising authorities. On February 18, 1999, the waiting period under the HSR
Act for the Partnership Transaction terminated. In connection with the
Partnership Transaction, the Company has completed filing the material
applications seeking transfer of the Company's applicable franchise licenses
with the FCC and local franchising authorities. There is no assurance that the
Company will obtain such approvals or that such transactions will be
consummated.
YEAR 2000
The Company has undertaken a comprehensive program to address the issue of
computer software and embedded microchips which are unable to distinguish
between the year 1900 and the year 2000 within the Company and in the products
and services purchased from its material suppliers (the "Year 2000 Project").
The Company has established a Year 2000 team.
The Company is using a multi-step approach in conducting its Year 2000 Project.
These steps are: inventory, assessment, remediation and testing, and contingency
planning. The first step, an inventory of all systems and devices with potential
Year 2000 problems, was completed in December 1998. The next step, completed in
December 1998, was to conduct an initial assessment of the inventory to
determine the state of its Year 2000 readiness. As part of the assessment phase,
remediation strategies were identified and remediation cost estimates were
developed. The Company will utilize primarily internal resources to remediate
and test for Year 2000 readiness. The Company is in the process of replacing and
testing its
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most critical business systems; signal delivery, accounting, and telephone
answering systems. The Company has initiated formal communications with the
suppliers with which it has active contracts ("Trading Partners") to determine
the extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 issue. The Company cannot predict the outcome of
other companies' remediation efforts. The Company is reliant on outside
suppliers for signal delivery, customer billing, payroll and utility service.
The Company is also consulting with other cable television multiple system
operators which utilize similar technology to assess the nature of any risks and
possible remediation.
Since August 1998, periodic reports have been submitted to and discussed with
senior executives of the Company, including the Chief Operating Officer and
Chief Financial Officer. In October 1998, a progress report was discussed with
the Company's Board of Directors' Audit Committee. The Company has been and
plans to continue such periodic reporting to its senior officers and its Board
of Directors.
Year 2000 Costs
The Company currently plans to complete the Year 2000 Project by October 1999.
Through May 31, 1999, the Company has spent approximately $1,500 in connection
with the Year 2000 Project. The total remaining cost of the Year 2000 Project is
estimated at $1,500 which is for new software and hardware purchases. The
majority of these remaining costs will be capitalized. The costs of the project
and the date on which the Company plans to complete the Year 2000 modifications
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third parties' Year 2000 readiness and other factors.
Risks
The failure to address a material Year 2000 issue could result in an
interruption in, or a failure of, certain normal business activities or
operations. Due to the decentralized nature of the Company's operations, there
are few systems the failure of which would have a material adverse effect on the
Company as a whole. Nonetheless, the Company relies upon an external billing
service, utility companies, satellite program service providers, satellite
delivery systems, an external payroll service, the United States postal service,
the financial service industry and other suppliers outside of its control and
there can be no assurance that such suppliers or other third parties will not
suffer a Year 2000 business disruption. The most reasonably likely worst case
scenario would involve a failure of the nation's satellite delivery systems
and/or widespread prolonged utility outages. If such a scenario occurred and it
affected a large portion of the United States for a period exceeding 30 days,
the Company's operating results would be negatively impacted. Failures in other
systems would not be expected to have an adverse effect on the Company's
consolidated financial position. In addition, the Company is in the process of
upgrading or replacing certain of its software to comply with Year 2000
readiness. Although the implementation of software may be accompanied with risks
of incompatibilities, the Company believes that the risks associated with these
incompatibilities will not have a material effect on the Company's operations.
Due to the general uncertainty inherent in the Year 2000 issue, resulting in
part from the uncertainty of the Year 2000 readiness of its Trading Partners and
its Trading Partners' customers, the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact on
the Company's consolidated financial condition or results of operations. The
Year 2000 Project is expected to
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significantly reduce the Company's level of uncertainty about the Year 2000
issue and, in particular, about the Year 2000 compliance and readiness of its
material Trading Partners. The Company believes that, with the implementation of
new business systems and completion of the Year 2000 Project as scheduled, the
possibility of significant interruptions of normal operations should be greatly
reduced.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, AND SHARE DATA)
This report contains or incorporates by reference forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Where any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that
assumed facts or bases almost always vary from the actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward-looking statement, the
Company or its management expresses an expectation or belief as to future
results, there can be no assurance that the statement of expectation or belief
will result or be achieved or accomplished. The words "believe", "expect",
"estimate", "anticipate", "project" and similar expressions may identify
forward-looking statements.
Taking into account the foregoing, the following are identified as important
factors that could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, the
Company:
COMPLETION OF THE MERGER
The failure to satisfy conditions to the completion of the Merger between the
Company and Adelphia could jeopardize the Merger. The Merger between the Company
and Adelphia may not close unless several conditions are met. These include: (a)
approvals from each class of the Company's stockholders and from Adelphia's
stockholders; (b) receipt of all required consents of governmental authorities,
except where the failure to obtain any such required consent would not have a
material adverse effect; (c) neither the Company nor Adelphia having breached
any of its representations, warranties or covenants made in the Merger
Agreement, and (d) there is no law or court order prohibiting the Merger. There
can be no assurance if and when any of the foregoing conditions will be met.
The failure to complete the Merger could be costly to the Company and its
stockholders. If the Merger Agreement were terminated, other than by mutual
agreement of the parties and other than by the Company because of a breach by
Adelphia under certain circumstances, then the Company would be required to
reimburse Adelphia for its actual costs and expenses up to $10,000. In addition,
the Company would be required to pay Adelphia a termination fee of $100,000 if
the Company were to be acquired by a third party within twenty-four months after
the termination of the Merger Agreement. The price of the Company's common stock
also might decline, assuming that current market prices reflect a market
assumption that the Merger will be completed; and the Company would still have
to pay its costs related to the Merger, such as legal, accounting and financial
advisory fees.
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COMPLETION OF THE PARTNERSHIP TRANSACTION
The closing of the Partnership Transaction between the Company and TCI is
subject to, among other things, each party obtaining the required consents and
all appropriate regulatory and other approvals, including from the Federal
Communications Commission (the "FCC") and local franchising authorities and
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). On February 18, 1999, the waiting period under the HSR Act for the
Company's acquisition terminated. The Company has completed filing the material
applications seeking transfer of the Company's applicable licenses with the FCC
and local franchising authorities. There can be no assurance if or when the
Company will obtain the required approvals or if and when the transaction will
be completed.
NET LOSSES; STOCKHOLDERS' DEFICIENCY
The Company has reported net losses from continuing operations of $58,106,
$77,882 and $53,865 for the fiscal years ended May 31, 1999, 1998, and 1997,
respectively. The Company expects net losses from continuing operations to
continue for the foreseeable future, at least until such time as the operations
of its cable television systems can generate sufficient earnings to offset the
charges, including depreciation and amortization and interest expense, incurred
in connection with such operations and its investments in plant associated with
rebuilds and extensions of its cable television systems.
Reflecting net losses in prior periods, the common stockholders' deficiency as
stated on the Company's consolidated balance sheet at May 31, 1999 was $465,319.
The Company's assets, including its cable television franchises, are recorded on
its balance sheet at historical cost. The Company believes that the current fair
value of such assets is significantly in excess of their historical cost.
LEVERAGE; CAPITAL REQUIREMENTS
The Company has met and believes, based on current market conditions, that it
will continue to meet its cash obligations with internally generated cash from
operations, along with third party financing, primarily bank borrowings and the
issuance of debt securities to the public, and anticipates that its cable
television operations will continue to meet the debt service obligations under
debt instruments applicable to the cable television operations. Principal
payments are due under the Company's cable operations (excluding its 50% owned
subsidiaries) beginning in the fiscal year ended May 31, 2001. The Company will
need to refinance certain such obligations on or before such time and believes,
based on current market conditions, that it will be able to do so. However,
there can be no assurance that the Company will be successful in any such
refinancing or that the terms of any such financing will be favorable to the
Company. The Indentures for the Company's outstanding issues of publicly-held
debt (the "Indentures") impose certain restrictions on the incurrence of
additional indebtedness. See " --Restrictive Covenants; Consequences of
Default."
For the year ended May 31, 1999, earnings were less than fixed charges by
$59,962. Such amount reflects non-cash charges totaling $158,153, consisting of
depreciation and amortization.
HIGHLY COMPETITIVE INDUSTRY
The telecommunications services provided by the Company are subject to strong
competition and potential competition from various sources. The Company's cable
television systems compete with other means of
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distributing video to home television such as Direct Broadcast Satellite
Systems, commonly known as DBS systems, and Multichannel Multipoint Distribution
systems, commonly known as wireless cable. Some of the regional Bell telephone
operating companies and other local telephone companies are in the process of
entering the video-to-home business and several have expressed their intention
to enter the video-to-home business.
In addition, because the Company's cable systems are operated under
non-exclusive franchises, other applicants may obtain franchises in the
Company's franchise areas. For example, some regional Bell operating companies
and local telephone companies have facilities which are capable of delivering
cable television service and could seek competitive franchises.
The equipment which telephone companies use in providing local exchange service
may give them competitive advantages over the Company in distributing video to
home televisions.
The regional Bell operating companies and other potential competitors have much
greater resources than the Company and would constitute formidable competition
for its cable television business. The Company cannot predict either the extent
to which competition will continue to materialize or, if such competition
materializes, the extent of its effect on the Company's cable television
business.
The Company's cable television service also faces competition from other
communications and entertainment media, including conventional off-air
television broadcasting services, newspapers, movie theaters, live sporting
events and home video products. The Company cannot predict the extent to which
competition may affect it.
The Company's cable modem and dial up Internet access business is subject to
strong competition and potential competition from a number of sources. With
respect to high speed cable modem service, telephone companies are beginning to
implement various digital subscriber line services (xDSL) that allow high speed
internet access services to be offered over telephone lines. DBS companies offer
high speed Internet access over their satellite facilities and other terrestrial
based wireless operators (e.g. MMDS) are beginning to introduce high speed
access as well. In addition, there are now a number of legislative initiatives
and efforts at the FCC seeking to require cable television operators to provide
open access to their facilities to competitors that want to offer cable modem
services. With respect to dial up Internet access services, there are numerous
competitive ISPs in virtually every franchise area. The local telephone exchange
company typically offers ISP services, as do a number of other nationally
marketed ISPs such as America Online, Compuserve and AT&T Worldnet. The Company
cannot predict the extent to which competition will continue to materialize or,
if such competition materializes, the extent of its effect on the Company's
Internet access business.
HIGHLY REGULATED INDUSTRY
The cable television industry is subject to extensive regulation at the federal,
state and local levels, and many aspects of such regulation are currently the
subject of judicial proceedings and administrative or legislative proposals.
In particular, the FCC adopted regulations that limit the Company's ability to
set and increase rates for its basic service packages and for the provision of
cable television-related equipment. The law permits certified
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local franchising authorities to order refunds of rates paid in the previous 12
month period determined to be in excess of the permitted reasonable rates. It is
possible that rate reductions or refunds of previously collected fees may be
required in the future. In addition, the FCC has commenced a proceeding to
determine whether cable operators will be required to carry the digital signals
of broadcast television stations. Such a requirement could require the removal
of popular programming services with materially adverse results for cable
operators.
The Company must comply with the rules of local franchising authorities to
retain and renew its cable franchises, among other matters. There can be no
assurance that the franchising authorities will not impose new and more
restrictive requirements as a condition to franchise renewal. The federal
Telecommunications Act of 1996 substantially changed federal, state and local
laws and regulations governing the Company's cable television business. This law
could materially affect the growth and operation of the cable television
industry and the cable services the Company provides. Although this legislation
may lessen regulatory burdens, the cable television industry may be subject to
new competition as a result. There are numerous rulemakings that have been and
continue to be undertaken by the FCC which will interpret and implement the
provisions of this law. Furthermore, portions of this law have been, and likely
other portions will be, challenged in the courts. The Company cannot predict the
outcome of such rulemakings or lawsuits or the short- and long-term effect,
financial or otherwise, of this law and FCC rulemakings on the Company.
Proposals are currently before Congress and the FCC to require cable operators
to provide equal access over their cable systems to other ISPs. To date, the FCC
has declined to impose such requirements. This same "open access" issue is being
considered by some local franchising authorities as well. Recently, a federal
district court in Portland, Oregon, upheld the authority of the local
franchising authority to impose an open access requirement in connection with a
cable television franchise transfer and that decision has been appealed to the
U.S. Court of Appeals for the Ninth Circuit. If the Company is required to
provide such open access, it could adversely impact the Company's anticipated
revenues from high-speed cable modem services and could complicate marketing and
technical issues associated with the introduction of such services.
Other existing federal regulations, copyright licensing laws 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 that could change, in varying degrees, the manner in
which cable television systems operate. The Company cannot predict at this time
either the outcome of these proceedings or their impact upon the cable
television industry. Moreover, changes in the regulatory and legislative
environment are constantly occurring. The Company cannot predict the effect that
ongoing or future developments may have on the cable television industry
generally or the Company specifically.
RESTRICTIVE COVENANTS; CONSEQUENCES OF DEFAULT
The Credit Agreements limit the ability of certain subsidiaries of the Company
to, among other things, incur additional indebtedness, including intercompany
indebtedness, or liens, to pay dividends to the Company. The Credit Agreements
also require that certain subsidiaries of the Company meet certain operating and
financial tests, including the maintenance of the ratio of earnings before
interest, depreciation and taxes (as defined in the Credit Agreements, "EBIDT")
to debt service for the Total Debt (as defined therein) of such subsidiaries,
the ratio of Total Debt to EBIDT and the ratio of EBIDT to interest expense for
the Total Debt of such subsidiaries at certain prescribed levels. A Note
Agreement imposes similar restrictions and
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requirements. The Indentures also contain various covenants including: (i)
restrictions on mergers, sales and consolidations; (ii) restrictions on
dividends, redemptions or repurchase of the Company's capital stock or the
capital stock of any of its affiliates; (iii) limitations on transactions with,
or investments in, affiliates; (iv) restrictions on the ability to make loans
to, or act as guarantor for, certain of its subsidiaries and affiliates; (v) the
maintenance of various financial ratios and (vi) restrictions on the incurrence
of additional indebtedness. The Company's ability to comply with these covenants
may be affected by events beyond its control.
In the event of a default under the agreements governing the Company's public
debt, the holders of such debt or the trustee acting on their behalf could elect
to declare all of such debt due and payable. There can be no assurance that the
assets of the Company would be sufficient to repay all such outstanding debt.
Management believes that the Company is not presently at risk of noncompliance
with any of the covenants described above. However, there can be no assurance
that this will continue to be the case.
EXECUTIVE OFFICERS HAVE TERMINATED EMPLOYMENT AGREEMENTS
The Company has employment agreements with four executive officers including Dr.
Leonard Tow Chairman and Chief Executive Officer of the Company. The terms of
these employment agreements expire on June 30, 2003, except that Dr. Tow's
agreement continues for an additional five-year advisory period. Each of these
employment agreements is terminable by the executive officer upon a "change of
control" or a "threatened change of control" of the Company. One of the events
that is considered to be a threatened change of control under each employment
agreement is the acquisition by any person of securities of the Company such
that the person files or is required to make a filing pursuant to Regulation 13D
under the Securities Exchange Act of 1934, as amended. Such an event has
occurred and, therefore, for purposes of these employment agreements, a
"threatened change of control" has occurred. Subsequent to May 31, 1999, each of
these executive officers has exercised his right to terminate his employment
agreement but has agreed to continue working for the Company through the closing
of the Merger.
Pursuant to each employment agreement, upon such termination, each executive
officer is entitled to receive his base salary through the end of the term of
his employment agreement, an annual cash bonus for the remainder of the term
equal to his most recently awarded cash bonus, continuation of medical, dental,
life and disability insurance for the remainder of the term on the same basis as
provided while the agreement was in effect and the use of office space for one
year. In addition, upon termination, all of his Company stock options vest and
become exercisable and the restrictions on all of his shares of restricted stock
of the Company lapse. The decision by any of the executive officers not to
continue working for the Company may have an adverse effect on the Company.
HOLDING COMPANY STRUCTURE
The Company's parent company directly owns no significant assets, other than
stock in one subsidiary. This creates risks regarding its ability to obtain cash
from its subsidiaries to repay the interest and principal which it owes or to
pay cash dividends to stockholders in the future. The Company's indentures
relating to public debt, and the credit agreements of the Company's subsidiaries
and other companies in which the Company has invested restrict their ability and
the ability of the companies they own to make payments to the Company's parent
company.
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NON-PAYMENT OF DIVIDENDS
The Company has never declared or paid cash dividends on any of its common stock
and has no intention of doing so in the foreseeable future. In addition, the
Company's credit agreements and the indentures relating to its public notes
restrict the payment of cash dividends on the Company's common stock. As a
result, it is unlikely that shareholders will receive a return on their shares
of the Company's common stock through the payment of cash dividends.
CONTROL BY CERTAIN STOCKHOLDERS
The ownership interest in the Company of Leonard Tow and certain trusts for the
benefit of members of his family (the "Tow Trusts"), constituting approximately
93% of the combined voting power of both the Class A Common Stock and the Class
B Common Stock of the Company as of July 26, 1999, presently gives them the
power to elect all but one member of the Board of Directors of the Company and
to control the vote on all other matters submitted to a vote of the Company's
stockholders.
Under certain of the Credit Agreements, an event of default occurs if Leonard
Tow and/or members of his immediate family or the Tow Trusts cease to own, in
the aggregate, stock of the Company having at least a majority of the combined
voting power of both classes of Common Stock of the Company.
OPERATING HAZARDS AND UNINSURED RISKS
While the Company maintains insurance against certain of the risks associated
with its cable television business, the occurrence of a significant event that
is not fully insured against could have a material adverse affect on the
Company.
REFINANCING AND INTEREST RATE EXPOSURE RISKS
The business and operating results of the Company can be adversely affected by
factors such as the availability or cost of capital, changes in interest rates,
changes in tax rates due to new tax laws, market perceptions of the cable
television business of the Company, or security ratings.
POTENTIAL FOR CHANGES IN ACCOUNTING STANDARDS
Authoritative generally accepted accounting principle or policy changes from
such standard setting bodies as the Financial Accounting Standards Board, and
the SEC may affect the Company's results of operations or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's primary exposure to market risks relates to the decline in market
values of the Company's $74.9 million of available-for-sale investments.
Additionally, the Company has minimal exposure to market risks in regard to
interest rate fluctuations on $89 million of variable rate debt and in relation
to the Company's five-year, $35 million interest rate hedge agreement related to
certain of the Company's fixed rate debt. The Company has only limited
involvement with derivative financial instruments and does not use them for
trading purposes. They are used to manage well-defined interest rate risks. The
fair values of all
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financial instruments other than investments and the variable rate debt
approximate their carrying values (see Note 1 to the consolidated financial
statements).
At May 31, 1999, approximately 96% of the Company's debt was fixed rate. Holding
all other factors constant, a 10% increase in interest rates would have an
immaterial effect on net income (loss). The sensitivity analysis is limited in
that it is based on balances outstanding at May 31, 1999 and does not provide
for changes in borrowing that may occur. The carrying value of the Company's
available-for-sale investments at May 31, 1999 represents approximately 4% of
the Company's total assets. A 10% decline in the market value of all
available-for-sale investments owned at May 31, 1999 would have an insignificant
impact on the Company's assets and no impact on net income (loss) as the
unrealized gain is deferred until the investments are sold.
Readers are cautioned that forward-looking statements contained herein
concerning market risks should be read in conjunction with the Company's
disclosures beginning on page 32 under the heading "Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation
Reform Act of 1995".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial information that are
required to be included pursuant to this Item 8 are listed in Item 14 under the
caption "1. Index of Financial Statements" in this Annual Report on Form 10-K,
together with the respective pages in this Annual Report on Form 10-K where such
information is located. The financial statements and supplementary financial
information specifically referenced in such list are incorporated in this Item 8
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
During the fiscal year ended May 31, 1999, the Company was not involved in any
disagreement with its independent certified public accountants on accounting
principles or practices or on financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information with respect to the directors of the Company required to be
included pursuant to this Item 10 will be included under the caption "Election
of Directors" in the Company's Proxy Statement relating to the 1999 Annual
Meeting of Shareholders (the "Proxy Statement"), to be filed with the Securities
and Exchange Commission (the "Commission") pursuant to Rule 14a-6 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
incorporated in this Item 10 by reference. The information with respect to the
executive officers of the Company required to be included pursuant to this Item
10 is included under the caption "Executive Officers of the Company" in Part I
of this Annual Report on Form 10-K.
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ITEM 11. EXECUTIVE COMPENSATION.
The information with respect to executive compensation required to be included
pursuant to this Item 11 will be included under the caption "Executive
Compensation and Other Information" in the Proxy Statement and is incorporated
in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information with respect to the security ownership of (1) beneficial owners
of more than 5% of the Class A Common Stock, (2) the directors or nominees for
director of the Company, (3) each of the top five executive officers and (4) all
directors and officers of the Company as a group that is required to be included
pursuant to this Item 12 will be included under the captions "Principal
Shareholders," "Election of Directors" and "Executive Compensation and Other
Information - Beneficial Ownership by Management" in the Proxy Statement and is
incorporated in this Item 12 by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information with respect to any reportable transaction, business
relationship or indebtedness between the Company and the beneficial owners of
more than 5% of the Class A Common Stock, the directors or nominees for director
of the Company, the executive officers of the Company or the members of the
immediate families of such individuals that is required to be included pursuant
to this Item 13 will be included under the caption "Executive Compensation and
Other Information - Certain Relationships and Related Transactions" in the Proxy
Statement and is incorporated in this Item 13 by reference.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. INDEX OF FINANCIAL STATEMENTS
The following financial statements are included at the indicated page in this
Annual Report on Form 10-K and incorporated in this Item 14(a)1 by reference:
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report................................................F-1
Consolidated Balance Sheets.................................................F-2
Consolidated Statements of Operations.......................................F-4
Consolidated Statements of Cash Flows.......................................F-5
Notes to Consolidated Financial Statements..................................F-7
</TABLE>
2. FINANCIAL STATEMENT SCHEDULE
None.
3. REPORTS ON FORM 8-K
Form 8-K dated March 5, 1999 relating to the Company's announcement of its
pending acquisition by Adelphia Communications Corporation ("Adelphia") pursuant
to an Agreement and Plan of Merger dated as of March 5, 1999, by and among
Adelphia, Adelphia Acquisition Subsidiary, Inc. and the Registrant in a press
release issued on March 5, 1999.
4. EXHIBITS
The following documents are filed as part of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<S> <C>
2.1 Press Release dated March 5, 1999 (filed as Exhibit 99.01 to the
Company's Current Report on Form 8-K, dated March 5, 1999 and
incorporated herein by reference).
'D'2.2 Agreement and Plan of Merger, dated as of March 5, 1999, by and
among the Company, Adelphia Communications Corporation and
Adelphia Acquisition Subsidiary, Inc. as amended by the First
Amendment to the Agreement and Plan of Merger, dated as of July
12, 1999 and the Second Amendment to the Agreement and Plan of
Merger, dated as of July 29, 1999.
42
<PAGE>
</TABLE>
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 6(a)(i) to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1990 and incorporated herein
by reference and Amendment to Restated Certificate of
Incorporation of the Company, filed as Exhibit 6(a)(i) to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1990 and incorporated herein by reference).
3.2 By-laws of the Company, as amended (filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995, and incorporated herein by reference.
4.1 Equity Subscription Agreement, dated as of November 21, 1990,
among Centennial Cellular, Century Communications Corp, a Texas
corporation, and Century Cellular Holding Corp., a New York
corporation (filed as Exhibit 4(o) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1992 and
incorporated herein by reference).
4.2 Indenture, dated as of November 15, 1988, by and between the
Company and the Bank of Montreal Trust Company, as Trustee
(filed as Exhibit 4(l) to Amendment No. 7 to the Company's
Registration Statement on Form S-1 (File No 33-21394) under the
Securities Act of 1933, as amended (the "1988 Form S-1"); said
1988 Form S-1 having been filed with the Commission on April 22,
1988 and incorporated herein by reference, and said Amendment
No. 7 to the 1988 Form S-1 having been filed with the Commission
on November 10, 1988 and incorporated herein by reference).
4.3 Indenture, dated as of October 15, 1991, by and between the
Company and the Bank of Montreal Trust Company, as Trustee
(filed as Exhibit 4.2 to Amendment No. 2 to the Company's
Registration Statement on Form S-3 (File No. 33-33787) under the
Securities Act of 1933, as amended (the "1991 Form S-3"); said
1991 Form S-3 having been filed with the Commission on August
31, 1990 and incorporated herein by reference, and said
Amendment No. 2 to the 1991 Form S-3 having been filed with the
Commission on March 1, 1991 and incorporated herein by
reference).
4.4 First Supplemental Indenture, dated as of October 15, 1991, by
and between the Company and the Bank of Montreal Trust Company,
as Trustee (filed as Exhibit 7(2) to the Company's current
report on Form 8-K, dated October 17, 1991 and incorporated
herein by reference).
4.5 Indenture, dated as of February 15, 1992, by and between the
Company and the Bank of America National Trust and Savings
Association, as Trustee (filed as Exhibit 4.3 to Amendment No. 2
to the Company's Registration Statement on Form S-3 (File No.
33-33787) under the Securities Act of 1933, as amended (the
"1991 Form S-3"); said 1991 Form S-3 having been filed with the
Commission on March 9, 1990 and incorporated herein by
reference, and said Amendment No. 2 to the 1991 Form S-3 having
been filed with the Commission on March 1, 1991 and incorporated
herein by reference).
4.6 First Supplemental Indenture, dated as of February 15, 1992, by
and between the Company and the Bank of America National Trust
and Savings Association, as Trustee (filed as Exhibit 4(t) to
the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1992 and incorporated herein by reference).
4.7 Second Supplemental Indenture, dated as of August 15, 1992, by
and between the Company and Bank of America National Trust and
Savings Association, as Trustee (filed as Exhibit 4(u) to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1992 and incorporated herein by reference).
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
4.8 Third Supplemental Indenture, dated as of April 1, 1993, by and
between the Company and Bank of America National Trust and
Savings Association, as Trustee (filed as Exhibit 4(v) to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1993 and incorporated herein by reference).
4.9 Fourth Supplemental Indenture, dated as of March 6, 1995, by and
between the Company and Bank of America National Trust and
Savings Association, as Trustee (filed as Exhibit 4(w) to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995, and incorporated herein by reference).
4.10 Fifth Supplemental Indenture, dated as of January 23, 1997, by
and between the Company and First Trust of California, National
Association, successor trustee to Bank of America National Trust
and Savings Association, as Trustee (filed as Exhibit 4.10 to
the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1997, and incorporated herein by reference).
4.11 Sixth Supplemental Indenture, dated as of September 29, 1997,
between the Company and First Trust of California, National
Association, successor trustee to Bank of America National Trust
and Savings Association, as Trustee (filed as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended August 31, 1997, and incorporated herein by
reference).
4.12 Seventh Supplemental Indenture dated as of November 13, 1997
between the Company and First Trust of California, National
Association, successor trustee to Bank of America National Trust
and Savings Association, as Trustee (filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended November 30, 1997, and incorporated herein by
reference).
'D'4.13 Eighth Supplemental Indenture dated as of December 10, 1997
between the Company and First Trust of California, National
Association, as Trustee.
4.14 Indenture, dated as of January 15, 1998 between the Company and
First Trust of California, National Association, as Trustee
(filed as Exhibit 4 to the Company's Registration Statement on
Form S-4 (File No. 333-47161) under the Securities Act of 1933,
as amended (the "1998 Form S-4"); said 1998 Form S-4 having been
filed with the Commission on March 2, 1998 and incorporated
herein by reference).
</TABLE>
The Company hereby agrees to furnish to the Securities and
Exchange Commission, upon its request, a copy of each instrument omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K.
<TABLE>
<S> <C>
*10.1 Amended Employment Agreement, dated as of July 1, 1991, between
the Company and Leonard Tow (filed as Exhibit 10(a)(1) to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1992 and incorporated herein by reference).
*10.2 Agreement, dated July 30, 1992, between the Company and the
Leonard and Claire Tow Life Insurance Trust (filed as Exhibit
10(a)(2) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1992 and incorporated herein by
reference).
*10.3 Employment Agreement, dated as of January 1, 1995, between the
Company and Daniel E. Gold (filed as Exhibit 10(a)(7) to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1996 and incorporated herein by reference).
*10.4 Employment Agreement, dated as of January 1, 1997, between the
Company and Scott N. Schneider (filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1997, and incorporated herein by reference).
</TABLE>
44
<PAGE>
<TABLE>
<S> <C>
*10.5 Employment Agreement, dated as of January 1, 1997, between the
Company and Michael G. Harris (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1997, and incorporated herein by reference).
*10.6 Employment Agreement, dated as of January 1, 1997, between the
Company and Frank Tow (filed as Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
1997, and incorporated herein by reference).
*10.7 Employment Agreement, dated as of January 1, 1997, between the
Company and Clifford A. Bail (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1997, and incorporated herein by reference).
10.8 Principal Stockholders' Agreement, dated as of December 7, 1985,
between Sentry Insurance a Mutual Company ("Sentry"), the
Company, Leonard Tow individually and as Trustee, and Claire Tow
as Trustee (filed as Exhibit 10(a) to the Company's Registration
Statement on Form S-1 (No. 33-2025) under the Securities Act of
1933, as amended, filed with the Commission on December 9, 1985
(the "1986 Form S-1") and incorporated herein by reference).
10.9 Amendment to Principal Stockholders' Agreement, dated August 31,
1987 (filed as an Exhibit to the Company's Current Report on
Form 8-K dated September 11, 1987 and incorporated herein by
reference).
10.10 Lease, dated July 15, 1987, between Locust Avenue Associates and
Century-Texas (filed as Exhibit 10(h) to the 1988 Form S-1 and
incorporated herein by reference).
10.11 Agreement for lease dated as of January 1, 1997 by and between
Locust Avenue Associates Limited Partnership and Century Texas
(filed as Exhibit 10.11 to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, and incorporated
herein by reference).
10.12 Third Agreement of Amendment to the Amended and Restated Joint
Venture Agreement, dated June 18, 1987, among American
Television and Communications Corporation, Daniels & Associates,
Inc., Tele-communications, Inc., Comcast Corporation and Century
Southwest Cable Television, Inc. (filed as Exhibit 10(m) to the
1988 Form S-1 and incorporated herein by reference).
10.13 Colorado Springs Joint Sharing and Buy-Sell Agreement, dated
November 1, 1974, among Century Venture Corporation, Century
Colorado Corp., American Television and Communications
Corporation, Century Texas and Vumore-Video Corporation of
Colorado, Inc. (filed as Exhibit 10(h) to the 1986 Form S-1 and
incorporated herein by reference).
*10.14 1985 Stock Option Plan of the Company (filed as Annex A to the
Company's Registration Statement on Form S-8 (File No. 33-34387)
under the Securities Act of 1933, as amended, filed with the
Commission on April 19, 1990 and incorporated herein by
reference).
*10.15 Incentive Award Plan of the Company (filed as Annex A to the
Company's Registration Statement on Form S-8 (File No. 33-23718)
under the Securities Act of 1933, as amended, filed with the
Commission on August 11, 1988 and incorporated herein by
reference).
*10.16 1985 Employee Stock Purchase Plan of the Company, as amended
(filed as Exhibit 10(r) to the Company's Annual Report on Form
10-K for the year ended May 31, 1995, and incorporated herein by
reference).
*10.17 Non-Employee Director Stock Option Plan of the Company (filed as
Annex A to the Company's Registration Statement on Form S-8
(File No 33-34388) under the Securities Act of 1933, as amended,
filed with the Commission on April 19, 1990 and incorporated
herein by reference).
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
*10.18 1985 Stock Equivalent Plan (filed as Exhibit 10(m) to the 1986
Form S-1 and incorporated herein by reference).
*10.19 Century Retirement Investment Plan (filed as Exhibit 10(x) to
the Company's Annual Report on Form 10-K for year ended May 31,
1992 and incorporated herein by reference).
*10.20 Century 1992 Management Equity Incentive Plan (filed as Exhibit
10(x)(1) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1992 and incorporated herein by reference).
*10.21 1993 Non-Employee Directors' Stock Option Plan of the Company
(filed as Exhibit 10(v)(2) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1995, and
incorporated herein by reference).
*10.22 1994 Stock Option Plan of the Company (filed as Exhibit 10(v)(3)
to the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995, and incorporated herein by reference).
10.23 Interest Rate Swap Agreement, dated as of July 18, 1986, between
Citibank, N.A. and Century-Texas (filed as Exhibit 10(v) to
Amendment No. 5 to the 1988 Form S-1 and incorporated herein by
reference).
10.24 Amendment No. 1 to Management Agreement and Joint Venture
Agreement (Century ML Venture), dated September 21, 1987,
between Century Texas and ML Media Partners, L.P., a Delaware
limited partnership (filed as Exhibit 10(w) to the Company's
Annual Report on Form 10-X for the fiscal year ended May 31,
1989 and incorporated herein by reference).
10.25 Management Agreement and Joint Venture Agreement (Century-ML
Radio Venture), dated as of February 15, 1989, between Century
Texas and ML Media Partners, L.P., a Delaware limited
partnership (filed as Exhibit 10(x) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1989 and
incorporated herein by reference).
10.26 Plan and Agreement of Merger, dated August 2, 1991, by and among
Century Cellular Holding Corp., Century Cellular Corp., Citizens
Utilities Company and Citizens Cellular Corp., together with
exhibits, including Management Agreement, Conflicts/Non-Compete
Agreement, Stock Transfer Agreement and Registration Rights
Agreement (filed as Exhibit 10(cc) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1991 and
incorporated herein by reference).
10.27 Credit Agreement, dated as of August 4, 1995, by and among
CCC-I, Inc., Pullman TV Cable Co., Inc., Kootenai Cable, Inc.,
Citibank N.A., as agent, and each of the banks parties thereto
(filed as Exhibit 10(ff) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996 and incorporated
herein by reference).
10.28 Credit Agreement, dated as of June 30, 1994, by and among
CCC-II, Inc., Citibank N.A. as managing agent, and each of the
banks parties thereto (filed as Exhibit 10 to the Company's
report on Form 8-K dated July 25, 1994 and incorporated herein
by reference. The Company hereby agrees to furnish to the
Securities and Exchange Commission, upon its request, a copy of
each instrument omitted pursuant to Item 601(b)(4)(iii) of
Regulation S-K).
</TABLE>
46
<PAGE>
<TABLE>
<S> <C>
10.29 Eighth Restated Credit Agreement, dated as of July 10, 1990,
between Century Texas, Century Investors and Citibank, N.A., on
behalf of itself and as agent, and The Chase Manhattan Bank
(National Association), The Bank of Nova Scotia, The First
National Bank of Chicago, Bank of Montreal, The Royal Bank of
Canada, Continental Bank N.A., Bankers Trust Company, Nippon
Credit Bank, Provident National Bank, and Security Pacific
National Bank ("the Eighth Restated Banks") (filed as an Exhibit
to the Company's Current Report on Form 8-K, filed July 13,
1990, and incorporated herein by reference).
10.30 Third Amendment, dated as of November 21, 1990 (the "Third
Amendment"), among Centennial Cellular Corp., a Delaware
corporation ("Centennial Cellular Corp."), the Lender parties on
the signature page thereto, Citibank, N.A., as agent, Century
Cellular Holding Corp., and the Guarantor of parties on the
signature page thereto, to the Credit Agreement, dated as of
October 11, 1989, among Centennial Cellular Corp., and Citibank,
N.A., on behalf of itself and as agent, and
Kansallis-Osake-Pankki, Provident National Bank, DnC America
Banking Corporation, Meridian Bank, Lincoln Savings Bank,
Toronto Dominion Bank, and The Bank of Nova Scotia (the
"Cellular Banks") (filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1991, and incorporated herein by reference).
10.31 Credit Agreement, dated as of October 11, 1989, among Centennial
Cellular Corp., and Citibank, N.A., on behalf of itself and as
agent, and the Cellular Banks, as Amended and Restated pursuant
to the Third Amendment (filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1991, and incorporated herein by reference).
10.32 Second Restated Consolidated Guaranty and Pledge Agreement,
dated as of July 10, 1990, made by the subsidiaries of the
Company set forth on the signature pages thereto to Citibank,
N.A., as agent for the Eighth Restated Banks (filed as Exhibit
4(g) to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1990 and incorporated herein by reference).
10.33 Third Restated Pledge Agreement and Guaranty, dated as of July
10, 1990, made by the Company to Citibank, N.A., as agent for
the Eighth Restated Banks (filed as Exhibit 4(h) to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1990 and incorporated herein by reference).
10.34 Seventh Restated Pledge and Security Agreement, dated as of July
10, 1990, made by Century Texas to Citibank, N.A., as agent for
the Eighth Restated Banks (filed as Exhibit (i)A to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1990 and incorporated herein by reference).
10.35 Third Collateral Agreement Amendment, dated as of July 10, 1990
made by Century Texas, the Company and Citibank, N.A. as agent
for the Eighth Restated Banks (filed as Exhibit 4(i)B to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1990 and incorporated herein by reference).
10.36 Pledge Agreement, dated as of October 11, 1989, made by Century
Cellular Holding Corp., a New York corporation, to Citibank,
N.A., as agent for the Cellular Banks (filed as an Exhibit to
the Company's Quarterly Report on Form 10-Q for the period
quarterly ended November 30, 1990 and incorporated herein by
reference).
10.37 Pledge and Security Agreement, dated as of October 11, 1989,
made by Centennial Cellular Corp to Citibank, N.A., as agent for
the Cellular Banks, as Amended and Restated pursuant to the
Third Amendment (filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended November 30,
1990 and incorporated herein by reference).
</TABLE>
47
<PAGE>
<TABLE>
<S> <C>
10.38 Consolidated Guaranty and Pledge Agreement, dated as of October
11, 1989, made by the subsidiaries of Centennial Cellular Corp.
set forth on the signature pages thereto to Citibank, N.A., as
agent for the Cellular Banks, as Amended and Restated pursuant
to the Third Amendment (filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
November 30, 1990 and incorporated herein by reference).
10.39 Amendment No. 1 dated as of August 9, 1996 among CCC-I, Inc.,
Pullman TV Cable Co., Inc. and Kootenai Cable, Inc., Citibank,
N.A., as agent, and each of the bank parties thereto (filed as
Exhibit 10.39 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1997, and incorporated herein by
reference).
10.40 Amendment No. 1 dated as of August 9, 1996 among CCC-II, Inc.,
Citibank, N.A., as managing agent, and each of the bank parties
thereto (filed as Exhibit 10.40 to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1997, and
incorporated herein by reference).
10.41 Credit Agreement dated as of April 15, 1997 among Citizens
Century Cable Television Venture, Bank of America, National
Trust and Savings Association, as Syndication Agent, and Societe
General, as Agent, Corestates Bank, N.A., The First National
Bank of Boston, LTCB Trust Company, and PNC Bank, National
Association, as Co-Agents, and each of the bank parties thereto
(filed as Exhibit 10.41 to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, and incorporated
herein by reference).
*10.42 Extension Agreement to Employment Agreement dated September 10,
1997 between the Company and Daniel E. Gold (filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended November 30, 1997, and incorporated
herein by reference).
*10.43 Employment Agreement, dated as of January 1, 1997, between the
Company and Bernard P. Gallagher (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended August 31, 1997, and incorporated herein by reference).
*10.44 Modification Agreement, dated as of June 1, 1998, between the
Company and Scott N. Schneider (filed as Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1998 and incorporated by reference).
*10.45 Modification Agreement, dated as of June 1, 1998, between the
Company and Bernard P. Gallagher (filed as Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1998 and incorporated by reference).
*10.46 Modification Agreement, dated as of June 1, 1998, between the
Company and Michael G. Harris (filed as Exhibit 10.46 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1998 and incorporated by reference).
*10.47 Modification Agreement, dated as of June 1, 1998, between the
Company and Frank Tow (filed as Exhibit 10.47 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
1998 and incorporated by reference).
*10.48 Employment Agreement, dated as of July 1, 1997, between the
Company and Leonard Tow (filed as Exhibit 10.48 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
1998 and incorporated by reference).
10.49 Agreement and Plan of Merger, dated as of July 2, 1998, between
Centennial Cellular Corp. and CCW Acquisition Corp (filed as
Exhibit 10.49 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998 and incorporated by
reference).
</TABLE>
48
<PAGE>
<TABLE>
<S> <C>
10.50 Stockholder Agreement, dated as of July 2, 1998, between CCW
Acquisition Corp. and Century Communications Corp (filed as
Exhibit 10.50 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1998 and incorporated by
reference).
'D'11 Computation of income (loss) per common share.
'D'12 Computation of ratios.
'D'21 List of subsidiaries of the Company.
'D'23.1 Consent of Deloitte & Touche LLP.
'D'27 Financial Data Schedule.
99 Press Release of Centennial Cellular Corp., dated April 14, 1998
(filed as Exhibit 99 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended February 28, 1998, and
incorporated herein by reference).
</TABLE>
- ----------------------------
* Constitutes a management contract or compensatory plan or arrangement.
'D' Filed herewith.
49
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Century Communications Corp.
New Canaan, Connecticut
We have audited the accompanying consolidated balance sheets of
Century Communications Corp. and subsidiaries as of May 31, 1999 and 1998, and
the related consolidated statements of operations and cash flows for each of the
three years in the period ended May 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Century Communications Corp.
and subsidiaries as of May 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
July 29, 1999
F-1
<PAGE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
May 31,
---------------------------------------------
1999 1998
-------------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 626,155 $ 285,498
Accounts receivable less allowance for doubtful
accounts of $3,311 and $1,695 respectively 16,775 16,109
Prepaid expenses and other current assets 3,705 3,465
Investment in marketable equity securities-current 49,143 --
Net assets of discontinued operations -- 37,323
---------- ----------
Total current assets 695,778 342,395
Property, plant and equipment - net 585,693 565,965
Investment in marketable equity securities 25,756 52,451
Debt issuance costs, less accumulated amortization of
$22,464 and $16,013, respectively 27,057 33,829
Cable television franchises, less accumulated amortization of
$361,498 and $324,835, respectively 296,280 344,612
Excess of purchase price over value of net assets acquired, less
accumulated amortization of $43,001 and $40,612, respectively 158,869 166,570
Other assets 10,866 9,360
---------- ----------
$1,800,299 $1,515,182
========== ==========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
AMOUNTS IN THOUSANDS (EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
May 31,
----------------------------
1999 1998
---------- ------------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 20,050 $ 20,050
Accounts payable 35,053 35,983
Accrued expenses and other current liabilities 102,260 97,499
---------- ----------
Total current liabilities 157,363 153,532
Long-term debt 2,022,640 2,009,052
Deferred income taxes 5,290 5,170
Minority interest in subsidiaries 74,915 67,030
Other deferred income 5,410 5,650
Commitments and contingencies (See Notes)
Common stockholders' deficiency:
Common stock, par value $.01 per share:
Class A, authorized 400,000,000 shares,
issued, 67,232,335 and 65,684,888 shares, respectively,
and outstanding 33,423,167 and 31,954,085 shares, respectively 672 657
Class B, authorized 300,000,000 shares, issued and outstanding 42,322,059
and 42,726,115 shares, respectively 423 427
Additional paid-in capital 191,234 178,893
Other, including 33,809,168 and 33,730,803 treasury shares, respectively (143,818) (135,215)
Accumulated deficit (513,830) (770,014)
----------- -----------
Total common stockholders' deficiency (465,319) (725,252)
----------- -----------
$1,800,299 $1,515,182
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AMOUNTS IN THOUSANDS (EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Year ended May 31,
----------------------------------------------------
1999 1998 1997
-------------- ------------- ------------
<S> <C> <C> <C>
Revenue $ 519,584 $ 484,736 $ 459,646
-------------- ------------- -------------
Costs and expenses:
Cost of services 111,603 103,932 100,789
Selling, general and administrative 115,790 122,307 111,467
Depreciation and amortization 158,153 154,029 159,547
Merger costs 7,922 - -
-------------- ------------- -------------
393,468 380,268 371,803
-------------- ------------- -------------
Operating income 126,116 104,468 87,843
Interest expense 191,803 172,608 157,730
Gain on sale of assets 5,646 - -
Other income (expense) 79 1,533 (171)
-------------- ------------- -------------
Loss from continuing operations before income tax benefit,
minority interest and extraordinary item (59,962) (66,607) (70,058)
Income tax benefit (13,453) (624) (23,363)
-------------- ------------- -------------
Loss from continuing operations before minority interest and extraordinary item (46,509) (65,983) (46,695)
Minority interest in income of subsidiaries (11,597) (11,899) (7,170)
-------------- ------------- -------------
Loss from continuing operations (58,106) (77,882) (53,865)
-------------- ------------- -------------
Discontinued operations:
Loss from discontinued operations, net of income tax benefit of
$13,597 and $7,295 and minority interest in losses of $21,193 and
$22,584 for the years ended May 31, 1998 and 1997, respectively - (43,089) (80,428)
Gain on sale of discontinued operations (less applicable income taxes
of $25,739) in 1999. 314,290
-------------- ------------- -------------
314,290 (43,089) (80,428)
-------------- ------------- -------------
Income (loss) before extraordinary item 256,184 (120,971) (134,293)
Extraordinary item - loss on early retirement of debt,
net of income tax benefit of $5,379 - - (7,582)
-------------- ------------- -------------
Net income (loss) $ 256,184 $ (120,971) $ (141,875)
============== ============= =============
Dividend on discontinued subsidiary convertible
redeemable preferred stock $ - $ 5,225 $ 4,850
============= ============= =============
Net income (loss) applicable to common shares $ 256,184 $ (126,196) $ (146,725)
============== ============= =============
Net income (loss) per common share - basic and diluted:
Loss from continuing operations $ (.77) $ (1.11) $ (.78)
Loss from discontinued operations - (.58) (1.08)
Gain on sale of discontinued operations 4.18 - -
Extraordinary item - loss on early retirement of debt - - (0.10)
-------------- ------------- -------------
Net income (loss) per common share - basic and diluted $ 3.41 $ (1.69) $ (1.96)
============== ============= =============
Weighted average number of common shares
outstanding during the period - basic and diluted 75,088,000 74,770,000 74,675,000
============== ============= =============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Year ended May 31,
----------------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 635,438 $ 616,043 $ 557,224
Cash paid to suppliers, employees and
governmental agencies (376,415) (327,271) (330,862)
Interest paid (135,290) (129,148) (119,419)
-------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 123,733 159,624 106,943
-------------- ------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (121,523) (113,222) (79,563)
Cable television franchise expenditures (1,307) (1,764) (2,105)
Acquisition of other assets (2,668) (1,524) (885)
Acquisition of cable television systems (4,003) (70,994) (13,928)
Sale of discontinued operations 360,115 - -
Sale of radio stations 11,538 - -
-------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 242,152 (187,504) (96,481)
-------------- ------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings - 813,659 1,043,000
Principal payments on long-term debt (37,050) (575,550) (1,039,050)
Debt issuance costs - (18,307) (9,017)
Purchase of treasury stock (1,505) (12,576) (2,358)
Issuance of common stock 8,562 2,951 3,822
-------------- ------------- -------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (29,993) 210,177 (3,603)
-------------- ------------- -------------
NET INCREASE IN CASH AND SHORT-TERM
INVESTMENTS - CONTINUING OPERATIONS 335,892 182,297 6,859
CASH FLOWS OF DISCONTINUED OPERATIONS - NET 4,765 (48,746) (19,504)
CASH AND SHORT-TERM INVESTMENTS - BEGINNING
OF YEAR 285,498 151,947 164,592
-------------- ------------- -------------
CASH AND SHORT-TERM INVESTMENTS - END OF YEAR $ 626,155 $ 285,498 $ 151,947
============== ============= =============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION> Year ended May 31,
----------------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
NET INCOME (LOSS) $ 256,184 $ (120,971) $ (141,875)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization 158,153 154,029 159,547
Minority interest in income of subsidiaries - continuing operations 11,597 11,899 7,170
Deferred income taxes 121 (4,812) (32,905)
Non cash interest charges 57,393 39,138 30,006
Gain on sale of discontinued operations (340,029) - -
Gain on sale of assets and other (7,237) - -
Loss from discontinued operations - net - 43,089 80,428
Change in assets and liabilities net of effects of acquired
cable television systems:
Accounts receivable - (increase)/decrease (866) 5,189 (10,799)
Prepaid expenses and other current assets - (increase)/decrease (268) 5,437 323
Accounts payable and accrued expenses - (decrease)/increase (11,315) 26,626 15,048
-------------- ------------- -------------
Total adjustments (132,451) 280,595 248,818
-------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 123,733 $ 159,624 $ 106,943
============== ============= =============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 1999, 1998 and 1997
(Amounts in thousands except subscriber, and share data)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Century
Communications Corp., all of its subsidiaries and certain partnership interests
(the "Company") from their respective dates of acquisition (see Note 5).
Included in subsidiaries are the 50% indirectly-owned: Century Venture Corp. and
Subsidiary, Century-ML Cable Venture and Subsidiary, and Citizens Century Cable
Television Venture (see Note 12). All material intercompany transactions and
balances have been eliminated. As discussed more thoroughly in Note 3,
Centennial Cellular Corp. (the "Wireless Telephone Segment") and the Company's
Australian operations, including ECT, were sold during the quarter ended
February 28, 1999. Accordingly, the consolidated financial statements reflect
the sale of these segments during the year ended May 31, 1999 and reflect the
operating results and cash flows of these segments as discontinued operations
for the years ended May 31, 1998 and 1997. The consolidated balance sheet at May
31, 1998 segregates the net assets of these discontinued operations.
Revenue recognition
Revenues includes earned subscriber service revenues and charges for
installation and connections, net of programmers' share of pay television
revenues. Such programmers' share netted against revenues amounted to $152,236,
$131,792 and $114,591 in 1999, 1998 and 1997, respectively. Also included within
revenues was investment income of $20,678, $8,187 and $3,880 in 1999, 1998 and
1997, respectively.
Charges for installations and connections, which are non-refundable, are
recognized into revenue upon completion of the installation or reconnection.
Subscriber services paid in advance are recognized as income when earned.
Investment in marketable equity securities
The Company classifies its investments in debt and equity securities as
available for sale in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and
Equity Securities".
Unrealized holding gains and losses, net of the related income tax effect on
these securities are excluded from earnings and are reported as a component of
stockholders' deficiency (included within other comprehensive income) until
realized. Equity securities at May 31, 1999 and 1998 are stated at their fair
market values. The adjusted cost basis of these equity securities was $58,011
and $32,255 at May 31, 1999 and 1998, respectively. The May 31, 1999 adjusted
cost basis includes approximately $25,756 of equity securities received during
fiscal 1999 in relation to the sale of the Company's Australian Operations. The
Company recorded a decrease in the unrealized gain of $3,308 during the year
ended
F-7
<PAGE>
May 31, 1999, an increase in the unrealized gain of $7,333 during the year
ended May 31, 1998 and a decrease in the unrealized gain of $7,950 during the
year ended May 31, 1997.
Debt issuance costs
Costs associated with the issuance of the Company's debt securities and credit
facilities (Note 8) have been capitalized and are being amortized on a
straight-line basis over the expected lives of the issues.
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is computed
principally using the straight-line method over the following estimated useful
lives of the assets:
<TABLE>
<S> <C>
Buildings 15 - 25 years
Cable television transmission and distribution systems
and related equipment 8 - 15 years
Miscellaneous equipment and furniture and
fixtures 3 - 15 years
</TABLE>
The cost of connections for new cable television subscribers are capitalized at
standard per subscriber rates for labor, materials and overhead. Expenditures
for maintenance and repairs are charged to operating expense as incurred, and
betterments, replacement equipment and additions are capitalized.
Cable television franchises
Cable television franchises principally consist of amounts allocated under
purchase accounting (see Note 5). Such amounts are amortized using the
straight-line method over the lives of the franchises (generally ranging from 10
to 15 years).
Excess of purchase price over value of net assets acquired
The excess of purchase price over value of net assets acquired ("goodwill") is
being amortized using the straight-line method over a period of 40 years.
Income taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" which provides that
the deferred tax provision is determined by the liability method. Deferred tax
assets and liabilities are recognized based on the differences between the book
and tax basis of assets and liabilities using presently enacted tax rates.
Comprehensive income (loss)
The Company applies the provisions of the Financial Accounting Standards Board's
Statement of Accounting Standards No. 130, "Reporting Comprehensive
Income"("SFAS 130"). SFAS 130 requires the reporting and display of
comprehensive income, which is composed of net income (loss) and other
comprehensive income or loss items, in a full set of general purpose financial
statements. Other comprehensive income (loss) items for the Company include
unrealized appreciation of marketable securities and foreign currency
translation adjustments (1998 and 1997 only). Under generally accepted
F-8
<PAGE>
accounting principles, these other comprehensive income (loss) items are
excluded from net income and reflected as a component of equity.
Segment Reporting
The Company applies the provisions of the Financial Accounting Standards Board's
Statement of Accounting Standards No.131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No.131 establishes standards for
reporting information on operating segments in the financial statements. In
accordance with this standard, the Company has determined that it currently
operates in one business segment, the ownership and operation of cable
television systems in the United States.
Loss per common share
The Company applies the provisions of Statement of Financial Accounting
Standards No.128, "Earnings Per Share"("SFAS 128"). Under SFAS 128 Basic
Earnings Per Share is calculated by dividing income (loss) applicable to common
shares by weighted average common shares outstanding. Diluted Earnings Per Share
reflects the potential dilution that could occur if potential common stock
instruments of the Company were exercised, converted or issued.
The loss per common share reflects a charge for the dividends on subsidiary
convertible redeemable preferred stock of $5,225 and $4,850 for the years ended
May 31, 1998 and 1997, respectively. These dividends are related to the
Company's previously owned wireless telephone segment.
Statement of cash flows
Short-term investments classified as cash equivalents in the consolidated
financial statements consist principally of overnight deposits, government
securities and commercial paper with acquired maturities of three months or
less.
Management estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates.
Valuation of long lived assets
The Company, on a quarterly basis, undertakes a review and valuation of the net
carrying value, recoverability and write-off period of all categories of its
long lived assets. The Company in its valuation considers current market values
of its properties, competition, prevailing economic conditions, government
policy including taxation, and the Company's and the industry's historical and
current growth patterns. The Company also considers its financial structure,
including the underlying cost of securities which support the Company's internal
growth and acquisitions, as well as the recoverability of the cost of its long
lived assets based on a comparison of estimated undiscounted operating cash
flows for the systems which generated long lived assets with the carrying value
of the long lived assets. The Company's long lived assets are stated at the
lower of cost or market and are amortized over their
F-9
<PAGE>
respective expected lives.
Disclosure of fair value of financial instruments
The carrying amount reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximates fair value because of the immediate short-term maturity of these
financial instruments.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year presentation.
New accounting pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" in 1998, which will be effective for the Company in fiscal 2002.
Additionally, during 1998 the AICPA's Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-5 "Reporting on the Cost of Start-up
Activities", which will be effective for the Company in fiscal 2000. The Company
believes these Statements will not have a material impact on the Consolidated
Financial Statements of the Company when adopted.
NOTE 2. AGREEMENT AND PLAN OF MERGER
On March 5, 1999, the Company and Adelphia Communications Corporation
("Adelphia") jointly announced the signing of a definitive agreement (the
"Merger Agreement") for the merger (the "Merger") of the Company with and into a
newly formed direct, wholly-owned subsidiary of Adelphia (the "Merger Sub"). The
Merger Sub will continue as the surviving company in the Merger. The Merger is
expected to close in the third calendar quarter of 1999. The consolidated
financial statements have been prepared on a historical basis and do not include
any adjustments that might result from the completion of the Merger.
Pursuant to the Merger Agreement, the Company's Class A Common stockholders will
have the right to elect, on a share-by-share basis to receive either 0.77269147
of a share of Adelphia Class A common stock or $44.14 in cash for each share of
the Company's Class A Common Stock that they own, and the Company's Class B
Common stockholders will have the right to elect, on a share-by-share basis to
receive either 0.84271335 of a share of Adelphia Class A common stock or $48.14
in cash for each share of the Company's Class B Common Stock that they own.
Notwithstanding an election made by one of the Company's stockholders, at the
effective time of the Merger (i) the aggregate number of shares of the Company's
Class A Common Stock that may be converted into the right to receive cash in the
Merger is equal to 20.76% of the number of shares of the Company's Class A
Common Stock outstanding immediately prior to the effective time of the Merger
(excluding shares held by dissenting stockholders), (ii) the aggregate number of
shares of the Company's Class A Common Stock which may be converted into the
right to receive shares of Adelphia Class A Common Stock in the Merger is equal
to 79.24% of the number of such shares of the Company's Class A Common Stock
outstanding immediately prior to the effective time of the Merger (excluding
shares held by dissenting stockholders), (iii) the aggregate number of shares of
the
F-10
<PAGE>
Company's Class B Common Stock that may be converted into the right to
receive cash in the Merger is equal to 24.54% of the number of shares of the
Company's Class B Common Stock outstanding immediately prior to the effective
time of the Merger (excluding shares held by dissenting stockholders) and (iv)
the aggregate number of shares of the Company's Class B Common Stock which may
be converted into the right to receive shares of Adelphia Class A Common Stock
in the Merger is equal to 75.46% of the number of shares of the Company's Class
B Common Stock outstanding immediately prior to the effective time of the Merger
(excluding shares held by dissenting stockholders).
If the aggregate number of shares of the Company's Class A Common Stock or the
Company's Class B Common Stock with respect to which elections have been made
exceeds the aggregate number of shares of the Company's common stock of that
class that may be converted into the right to receive a particular form of
consideration in the Merger, then each share of the Company's common stock
electing to receive the undersubscribed consideration will receive that
consideration; and each share of the Company's common stock electing to receive
the oversubscribed consideration will receive a portion of the Merger
consideration in cash and a portion of the Merger consideration in Adelphia
Class A Common Stock.
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement will be paid by the party incurring such
expenses. However, in the event the Company enters into or consummates a merger,
consolidation or other business combination with a third party within
twenty-four months after the date of termination of the Merger Agreement, the
Company shall reimburse Adelphia's costs and expenses in connection with the
Merger Agreement (subject to a maximum of $10,000) and pay Adelphia a
termination fee of $100,000.
On or about March 10, 1999, a lawsuit was commenced by the filing of a class
action complaint (the "Complaint") by one of the Company's Class A Common
stockholders on behalf of himself and all others similarly situated naming the
Company's Class B Common stockholders and all of the Company's Directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. The Company and Adelphia were also named as defendants
for allegedly aiding and abetting in the foregoing breaches of fiduciary duty.
The Complaint seeks damages in an unspecified amount and such other relief as
may be appropriate. On July 21, 1999, the court granted the Company's and the
other defendants' motion for extension of time to answer or otherwise respond to
the complaint to the earlier of November 15, 1999 or twenty days after the
effective date of the Merger.
The closing of the Merger is subject to certain customary conditions, including
the approval of the Merger by the shareholders of the Company and Adelphia, each
party obtaining the required consents and all appropriate regulatory and other
approvals, including from the Federal Communications Commission and local
franchising authorities and under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). On April 20, 1999, the waiting period
under the HSR Act for the Merger terminated. In connection with the Merger, the
Company has completed filing the material applications seeking transfer of the
Company's applicable franchise licenses with the FCC and local franchising
authorities. There is no assurance that the Company will obtain such approvals
or that the Merger will be consummated.
At the effective time of the Merger, Adelphia will purchase Citizens Utilities
Company's ("Citizens") 50% interest in the Century/Citizens Joint Venture, one
of the Company's 50% owned joint ventures, for a purchase price of approximately
$157,500, comprised of approximately $27,700 in cash,
F-11
<PAGE>
approximately 1.85 million shares of Adelphia Class A common stock and the
assumption of indebtedness. This joint venture serves approximately 91,800 basic
subscribers in California and is jointly owned by the Company and Citizens Cable
Company, a subsidiary of Citizens.
In addition, the Company, Adelphia and Dr. Leonard Tow, Chairman and Chief
Executive Officer of the Company, have agreed that the Company will sell its
shares of Class A Common Stock of Citizens to Dr. Tow at the effective time of
the Merger at fair market value, based on the closing market price of such
shares on the date the Merger Agreement was signed. Based on that closing price,
the aggregate purchase price will be approximately $39,800. As of May 31, 1999,
these shares constituted approximately 2% of the outstanding stock of Citizens.
NOTE 3. MERGER/SALE OF BUSINESS SEGMENTS
Centennial Cellular Corp.
On January 7, 1999, Centennial Cellular Corp. ("Centennial"), a former
subsidiary of the Company, completed the previously announced merger of CCW
Acquisition Corp., a company organized at the direction of Welsh, Carson,
Anderson & Stowe, with and into Centennial (the "Centennial Merger"). As of the
completion of the Centennial Merger, the Services Agreement between the Company
and Centennial was terminated. As a holder of 8,561,819 shares of Class B Common
Stock and 3,978 shares of Second Series Convertible Preferred Stock of
Centennial, the Company received for its interest in Centennial approximately
$360,100 in cash. The Company recorded a pre-tax gain upon the sale of
Centennial of approximately $322,000 during the year ended May 31, 1999.
Australian Operations
The Company sold to UIH Asia/Pacific Communications Inc. ("UAP"), a unit of
United International Holdings, Inc. ("UIH"), the Company's 25% ownership
interest in XYZ Entertainment Pty. Limited ("XYZ") for approximately $24,600.
Approximately 95% of the sales price was paid in the form of UIH Series B
Convertible Preferred Stock ("UIH Convertible Stock") which is convertible at
any time into approximately ten shares of UIH Class A Common Stock for each
share of UIH Convertible Stock, at a conversion price of $21.25 per share. The
Company may not sell, assign, pledge, transfer or otherwise convey any of these
UIH securities prior to September 11, 1999.
In fiscal 1999, East Coast Pay Television Pty. Limited ("ECT") sold
substantially all of its operating assets to Austar Entertainment Pty Ltd.
("Austar"), a wholly owned subsidiary of UAP, for approximately $6,100 in the
form of UIH Convertible Stock. ECT has finalized the shutdown of its operations,
including the liquidation of its current liabilities. On December 16, 1998, the
creditors of ECT (including the Company) entered into an Intercreditor Agreement
pursuant to which substantially all of the remaining assets of ECT have been
distributed among them and the Company has received 5,652 units of UIH
Convertible Stock, of which 1,156 units are to be transferred to the ECT
minority interest shareholders. The Company may not sell, assign, pledge,
transfer or otherwise convey any of the remaining 4,496 units of UIH Convertible
Stock prior to July 9, 1999. The Company will receive 92.4% of any additional
remaining assets of ECT. Such amounts are not expected to be material.
At July 26, 1999, the closing price of the UIH Class A Common Stock on the
Nasdaq National Market was $77 1/8.
F-12
<PAGE>
The Company recorded a pre-tax gain of approximately $18,000 as a result of
the sale of its Australian business segment during the year ended May 31, 1999.
The Company reduced its valuation allowance applied against its deferred tax
assets by approximately $104,000 as a result of the sale of Centennial and the
Australian Operations.
The net assets of Centennial and the Australian Operations have been classified
in the accompanying May 31, 1998 consolidated balance sheet under the caption
"Net Assets of Discontinued Operations".
Operating results of Centennial and the Australian Operations for the years
ended May 31, 1998 and 1997 are shown separately within the accompanying
consolidated statements of operations under the caption "Loss from Discontinued
Operations". The operating results of Centennial and the Australian Operations
for the years ended May 31, 1998 and 1997 consist of the following:
Centennial Cellular Corp.:
<TABLE>
<CAPTION>
Years Ended May 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue $ 237,501 $ 151,023
Costs and expenses (250,802) (177,080)
--------- ---------
Operating Loss (13,301) (26,057)
Income from equity investments 13,069 15,180
Interest expense (45,155) (33,379)
Gain on sale of assets 5 3,819
Income tax benefit 13,597 7,295
Minority interest in income of subsidiaries (162) (153)
--------- ---------
Net Loss (a) $ (31,947) $ (33,295)
========= ==========
</TABLE>
Australian Operations:
<TABLE>
<CAPTION>
Years Ended May 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue $ 35,257 $ 33,248
Costs and expenses (54,672) (89,073)
--------- ---------
Operating Loss (19,415) (55,825)
Interest expense (10,547) (9,634)
Other loss (2,373) (4,258)
--------- ---------
Net Loss (a) $ (32,335) $ (69,717)
========= ==========
</TABLE>
(a) Prior to minority interest share of losses.
F-13
<PAGE>
NOTE 4. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The table below summarizes non-cash reclassifications that occurred during the
years ended May 31, 1999, 1998 and 1997. The reclassifications result primarily
from the Company's acquisitions.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Marketable securities $(3,308) $ 7,333 $ (7,951)
Cable television franchises -- 5,000 (14,828)
Goodwill -- -- 14,828
------- ------- --------
$(3,308) $12,333 (7,951)
======= ======= ========
Current liabilities $ -- $ 8,067 $ 3,005
Minority interest -- (3,067) (3,005)
Other stockholders' deficiency (3,308) 7,333 (7,951)
------- ------- --------
$(3,308) $12,333 $ (7,951)
======= ======= ========
</TABLE>
NOTE 5. ACQUISITIONS
During the three years ended May 31, 1999, the Company acquired the net assets
of cable television systems as follows:
<TABLE>
<CAPTION>
Amounts allocated to
------------------------
Number of Total Cable Property
Systems purchase television plant and
Acquired price franchises equipment
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended May 31, 1998 2 $69,650 $23,383 $24,647
</TABLE>
During the year ended May 31, 1999, the Company acquired approximately 2,280
subscribers for $3,985. This purchase price was substantially allocated to cable
television franchises ($2,331) and property, plant and equipment ($1,654).
These transactions have been accounted for as purchases and the results of
operations of the acquired systems have been included in the accompanying
consolidated financial statements from the dates of acquisition. The Company has
recorded the purchase price of the cable television systems at the fair market
value of acquired assets on the dates of acquisition with the excess purchase
price being recorded to cable television franchises.
Cable Television Acquisitions
On August 16, 1996, the Company entered into agreements to acquire two cable
television systems which served an aggregate of approximately 35,000 primary
basic subscribers, which agreements were subsequently assigned to a joint
venture in which each of the Company and Citizen Utilities Company have a 50%
interest (the "Century/Citizens Joint Venture"). These systems are primarily
located in Yorba Linda/Orange County and Diamond Bar, California. The aggregate
purchase price for these systems was approximately $69,650. On October 15, 1997,
the Century/Citizens Joint Venture completed the acquisition of the Diamond Bar
system for a purchase price of approximately $34,160. The Diamond Bar system
serves approximately 20,000 primary basic subscribers. On April 30, 1998,
F-14
<PAGE>
the Century/Citizens Joint Venture completed the acquisition of the Yorba
Linda/Orange County systems for a purchase price of approximately $35,490. The
Yorba Linda/Orange County systems serve approximately 17,500 primary basic
subscribers. The Company funded its share of the purchase price for the Yorba
Linda/Orange County systems and the Diamond Bar system using available credit
facilities.
The pro forma effect of completed cable television acquisitions was not
material.
Pending Acquisition
In August 1998, the Company entered into an agreement to acquire a cable
television system which serves approximately 19,000 primary basic subscribers in
Moreno Valley and certain portions of Riverside County, California. The purchase
price for this system is approximately $33,000. The Company currently expects to
fund the acquisition using either cash on hand or available credit facilities.
The purchase of this system by the Company is subject to regulatory approvals.
There is no assurance that the Company will obtain such approvals or that such
acquisition will be consummated.
NOTE 6. TRANSACTIONS WITH RELATED PARTIES
The Company purchased workers compensation and general liability insurance from
Sentry Insurance (a holder of approximately 1% of Class B Common stock until
June 1998) and its affiliated companies. The Company paid a total of $4,112,
$4,665 and $7,083 for such insurance for the fiscal years ended May 31, 1999,
1998 and 1997, respectively.
Leavy Rosensweig & Hyman of which David Z. Rosensweig is a member, serves as
General Counsel to the Company. Mr. Rosensweig is also a director and secretary
of the Company. The Company paid approximately $1,743, $1,165 and $1,352 to
Leavy Rosensweig & Hyman for the fiscal years ended May 31, 1999, 1998 and 1997,
respectively.
The Company believes that all transactions between it, Sentry Insurance and
Leavy, Rosensweig & Hyman have been on terms no less favorable to the Company
than would have been available from nonaffiliated parties.
NOTE 7. ACCOUNT ANALYSIS
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
May 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Land $ 6,017 $ 6,794
Buildings 33,381 33,175
Cable television and wireless telephone
transmission and distribution systems
and related equipment 997,422 908,513
Miscellaneous equipment and furniture
and fixtures 59,769 54,470
----------- ----------
1,096,589 1,002,952
Less accumulated depreciation (510,896) (436,987)
----------- ----------
$ 585,693 $ 565,965
=========== ===========
</TABLE>
F-15
<PAGE>
Depreciation expense was approximately $101,370, $93,926 and $98,429 for the
fiscal years ended May 31, 1999, 1998, and 1997, respectively. During fiscal
1999, 1998 and 1997 the Company wrote-off approximately $25,212, $42,476 and
$117,855, respectively, of fully depreciated property, plant and equipment.
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
May 31,
-------------------
1999 1998
------ -------
<S> <C> <C>
Accrued interest $ 32,369 $ 33,249
Accrued other 57,231 42,459
Customer deposits & prepaids 12,660 21,791
-------- --------
$102,260 $ 97,499
======== ========
</TABLE>
NOTE 8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
May 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Credit facility (a) $ -- $ --
Credit facility (b) -- --
9 1/2% Senior notes due 2000 (c) 150,000 150,000
9 3/4% Senior notes due 2002 (d) 200,000 200,000
Zero Coupon Senior discount notes due 2003 (e) 316,618 289,870
9 1/2% Senior notes due 2005 (f) 250,000 250,000
8 7/8% Senior Notes due 2007 (g) 250,000 250,000
8 3/4% Senior Notes due 2007 (h) 225,000 225,000
8 3/8% Senior Notes due 2017 (i) 100,000 100,000
8 3/8% Senior Notes due 2007 (j) 100,000 100,000
Senior Discount Notes due 2008, Series B(k) 282,022 258,132
Subsidiary 9.47% Senior secured notes due 2002(1) 80,000 100,000
Subsidiary revolving credit and term loan (m) 47,000 54,000
Subsidiary credit facility (n) 42,000 52,000
Other 50 100
---------- ----------
Total debt 2,042,690 2,029,102
Current maturities 20,050 20,050
---------- ----------
$2,022,640 $2,009,052
========== ==========
</TABLE>
(a) On August 4, 1995, as amended August 12, 1996, CCC-I, Inc. ("CCC-I"), a
subsidiary of the Company, entered into a three-year, $525,000 unsecured
revolving credit facility which converts to a five year term loan. The interest
rates payable on borrowings under the amended credit facility are based on, at
the election of CCC-I, (a) the base rate of interest announced by Citibank, N.A.
plus 0% to 0.625% per annum based upon certain conditions, or (b) the London
Interbank Offering Rate plus 0.75% to 1.625% per annum based upon certain
conditions. On August 31, 1999, the $525,000 of borrowing capacity terminates
under the CCC-I credit facility. At May 31, 1999, no amounts were outstanding
under the CCC-I credit facility.
F-16
<PAGE>
The agreement expires on August 31, 2004 and provides for mandatory principal
repayments, among other possible reductions, in the following percentages:
<TABLE>
<CAPTION>
Last day Last day Last day Last day
Year of February of May of August of November
- ---- ----------- ------ --------- -----------
<S> <C> <C> <C> <C>
1999 -- -- -- 4.00%
2000 4.00% 4.00% 4.00% 4.50%
2001 4.50% 4.50% 4.50% 5.25%
2002 5.25% 5.25% 5.25% 5.75%
2003 5.75% 5.75% 5.75% 5.50%
2004 5.50% 5.50% 5.50% --
</TABLE>
(b) On June 30, 1994, as amended August 12, 1996, CCC-II, Inc. ("CCC-II"), a
subsidiary of the Company entered into a three-year $350,000 unsecured revolving
credit facility which converts to a five- year term loan with a syndicate of
banks led by Citibank, N.A. as agent for the syndicate. The interest rates
payable on borrowings under the amended credit facility are based on, at the
election of CCC-II, (a) the base rate of interest announced by Citibank, N.A.
plus 0% to 0.5% per annum based upon certain conditions, or (b) the London
Interbank Offering Rate plus 0.75% to 1.375% per annum based upon certain
conditions. On August 31, 1999, the $350,000 of borrowing capacity terminates
under the CCC-II credit facility. At May 31, 1999, no amounts were outstanding
under the CCC-II credit facility.
The agreement expires on August 31, 2004 and provides for mandatory principal
repayments, among other possible reductions, in the following percentages:
<TABLE>
<CAPTION>
Last day Last day Last day Last day
Year of February of May of August of November
- ---- ----------- ------- --------- -----------
<S> <C> <C> <C> <C>
1999 -- -- -- 2.50%
2000 2.50% 2.50% 2.50% 5.00%
2001 5.00% 5.00% 5.00% 5.00%
2002 5.00% 5.00% 5.00% 6.25%
2003 6.25% 6.25% 6.25% 6.25%
2004 6.25% 6.25% 6.25% --
</TABLE>
(c) On August 21, 1992, the Company issued Senior Notes Due 2000 ("9 1/2%
Notes") in the principal amount of $150,000 which mature on August 15, 2000. The
9 1/2% Notes bear interest at 9 1/2% payable semiannually on February 15 and
August 15 of each year commencing February 15, 1993. At May 31, 1999 and 1998
the 9 1/2% Notes were trading at 105.14% and 105% of par or $157,710 and
$157,500, respectively.
(d) On February 13, 1992, the Company issued Senior Notes Due 2002 ("the 9 3/4%
Notes") in the principal amount of $200,000 which mature on February 15, 2002.
The notes bear interest at 9 3/4% payable semiannually on February 15 and August
15 of each year commencing August 15, 1992. At May 31, 1999 and 1998, the 9 3/4%
Notes were trading at 107.56% and 107% of par or $215,120 and $214,000,
respectively.
F-17
<PAGE>
(e) On April 1, 1993, the Company issued Zero Coupon Senior Discount Notes Due
2003 ("the Discount Notes") in the discounted amount of $183,678 yielding 8.875%
annually to maturity. The Discount Notes mature on March 15, 2003 at $444,000.
There will be no periodic payments of interest on the Discount Notes, and they
may not be redeemed prior to maturity. During the years ended May 31, 1999 and
1998, approximately $26,748 and $24,489 of interest, respectively was amortized
in the consolidated financial statements. At May 31, 1999 and 1998, the Notes
were trading at 71.47% and 67% of par or $317,327 and $297,480 respectively. The
accreted value of the Discount Notes at May 31, 1999 was $316,618.
(f) On March 6, 1995, the Company issued unsecured Senior Notes due 2005 ("the 9
1/2% Notes") in the principal amount of $250,000 which mature March 1, 2005. The
Notes bear interest at 9 1/2% payable semi-annually on March 1 and September 1
of each year commencing September 1, 1995. At May 31, 1999 and 1998, the Notes
were trading at 106.66% and 106.75% of par or $266,650 and $266,875,
respectively.
(g) On January 17, 1997, the Company issued Senior Notes Due 2007 ("8 7/8%
Notes") in the principal amount of $250,000 which mature on January 15, 2007.
The 8 7/8% Notes bear interest at 8 7/8% payable semiannually on January 15 and
July 15. At May 31, 1999 and 1998 the Notes were trading at 101.14% and 104.25%
of par or $252,850 and $260,625, respectively.
The net proceeds received by the Company from the sale of the 8 7/8% Notes, of
approximately $244,607, were used to temporarily repay a portion of the
long-term debt outstanding under two credit agreements executed by subsidiaries
of the Company. The net proceeds were used to retire $204,000 aggregate
principal amount of 11 7/8% Senior Subordinated Debentures due 2003 issued by
the Company in October 1991 (the "11 7/8% Debentures). The 11 7/8% Debentures
were called by the Company on April 15, 1997 at a redemption price of 105% of
the principal amount thereof. Accordingly, the amount required to retire the 11
7/8% Debentures at such time was $214,200 plus accrued interest of $12,113. The
effect of the redemption resulted in an extraordinary loss on early retirement
of debt in fiscal 1997 of approximately $7,582, net of income taxes of $5,379,
reflecting the call premium and write-off of deferred financing costs. The
balance of the net proceeds was used by the Company for general corporate
purposes, including but not limited to the financing of capital expenditures,
investments, purchases of the Company's securities and acquisitions.
On April 4, 1997, the Company filed a registration statement with the SEC
relating to the shelf registration of $500,000 of the Company's debt securities,
augmenting the remaining $2,000 available under the July 1994 registration
statement. The registration became effective July 15, 1997.
(h) On September 29, 1997, the Company issued 8 3/4% Senior Notes due 2007 (the
"8 3/4% Notes") in the principal amount of $225,000, which mature on October 1,
2007. The 8 3/4% Notes bear interest at 8 3/4% payable semiannually on April 1
and October 1 of each year commencing April 1, 1998. At May 31, 1999 and 1998
the 8 3/4% Notes were trading at 101.125% and 103.75% of par or $227,531 and
$233,438.
(i) On November 13, 1997, the Company issued 8 3/8% Senior Notes due 2017 (the
"8 3/8% Notes") in the principal amount of $100,000, which mature on November
15, 2017. The 8 3/8% Notes bear interest at 8 3/8% payable semiannually on May
15 and November 15 of each year commencing May 15, 1998. At May 31, 1999 and
1998, the 8 3/8% Notes were trading at 99.50% and 99.44% of par or $99,500 and
$99,440.
F-18
<PAGE>
(j) On December 10, 1997, the Company issued 8 3/8% Senior Notes due 2007 (the
"Senior Notes due 2007") in the principal amount of $100,000, which mature on
December 15, 2007. The Senior Notes due 2007 bear interest at 8 3/8% payable
semiannually on June 15 and December 15 of each year commencing June 15, 1998.
At May 31, 1999 and 1998, the Senior Notes due 2007 were trading at 101.125% and
101.5% of par or $101,125 and $101,500.
The net proceeds received by the Company from the issuance of the 8 3/4% Notes,
the 8 3/8% Notes and the Senior Notes due 2007 of $410,449 were used by the
Company to temporarily repay portions of the long-term debt outstanding under
the Company's CCC-I and CCC-II credit agreements.
(k) On January 15, 1998, the Company issued $605,000 principal amount at
maturity of Senior Discount Notes due 2008, Series A ("Senior Discount Notes")
to a qualified institutional buyer under a private placement offering pursuant
to Rule 144A and Regulation S of the Securities Act of 1933, as amended (the
"Private Placement Offering"). The Senior Discount Notes were sold at a discount
of 41.266% from the principal amount due at maturity (the "Original Issue
Discount"). The Original Issue Discount began accruing on the Senior Discount
Notes on January 15, 1998 and will continue accruing during the period in which
the Senior Discount Notes remain outstanding. The Original Issue Discount
represents an annual yield to maturity of 9.05% based on the issue price of the
Senior Discount Notes. There will be no periodic payments of interest on the
Senior Discount Notes. The Senior Discount Notes are senior unsecured
obligations of the Company, may not be redeemed prior to maturity and will not
be entitled to the benefit of any sinking fund.
The net proceeds received by the Company from the sale of the Senior Discount
Notes were approximately $246,106. The Company used $96,000 of the net proceeds
from the sale of the Senior Discount Notes to temporarily repay portions of the
long-term debt outstanding under both the CCC-I and CCC-II credit agreements.
The remainder of the net proceeds have been and continue to be used for capital
expenditures, operations, acquisitions and other investments. Further borrowings
may be made under the CCC-I and CCC-II Credit Agreements until August 31, 1999
for general corporate purposes, including, but not limited to, the financing of
capital expenditures, investments, purchases of the Company's securities and
acquisitions.
On March 2, 1998, the Company filed a registration statement with the SEC
relating to the exchange of all outstanding Senior Discount Notes due 2008,
Series A for Senior Discount Notes, Series B (the "Senior Discount Notes, Series
B"). The terms of the Senior Discount Notes, Series B are identical in all
material respects to the Senior Discount Notes, except that the Senior Discount
Notes, Series B were registered under the Securities Act of 1933, as amended,
and therefore the transfer of the Senior Discount Notes, Series B are not
restricted. This registration statement became effective on March 17, 1998.
During the years ended May 31, 1999 and 1998, approximately $23,890 and $8,473,
respectively of interest was amortized in the consolidated financial statements
related to the Senior Discount Notes, Series B. At May 31, 1999 and 1998, the
Senior Discount Notes, Series B were trading at 45.19% and 44% of par or
$273,400 and $266,200.
On January 7, 1998, the Company filed a shelf registration statement with the
SEC for $500,000 of the Company's debt securities, augmenting the remaining
$77,000 under the shelf registration statement filed on April 4, 1997. The
registration statement became effective on January 28, 1998. The debt
F-19
<PAGE>
securities may be issued from time to time, in series, on terms to be specified
in one or more prospective supplements at the time of the offering. If so
specified with respect to any particular series, the debt securities may be
convertible into shares of the Company's Class A Common Stock. As of May 31,
1999, there was $577,000 available for issuance under this shelf registration.
The Company's public debt securities rank pari passu with all existing and
future Senior Indebtedness (as that term is defined in the respective Indentures
under which the public debt securities were issued) of the Company, are senior
in right of payment to all existing and future subordinated indebtedness of the
Company, and may not be redeemed prior to maturity.
(l) On December 31, 1992, Century-ML Cable Corporation ("CML") and Century/ML
Cable Venture ("CCV"), subsidiaries of the Company through which the Company
owns a 50% interest in cable television systems in Puerto Rico, entered into
separate note agreements (the "Note Agreements") with a group of institutional
lenders providing for the issuance by CML of $100,000 aggregate principal amount
of its 10-year 9.47% Senior Secured Notes Due 2002. Interest on the Notes is
payable semiannually and principal will be payable in installments of 20% of the
original principal amount beginning on September 30, 1998, with final maturity
at September 30, 2002. The Notes are subject to various other prepayment
provisions, including prepayment with premium at the option of CML at any time
prior to their expressed maturity and prepayment with premium at the option of
the holders thereof upon the occurrence of certain events involving changes in
control of CML and CCV. The Notes are entitled to the benefits of certain
security agreements and guarantees, including a guaranty by CCV of the payment
of all principal of, premium, if any, and interest on the notes. The notes are
secured by substantially all of the assets of CCV. The estimated fair value of
the notes at May 31, 1999 was approximately $84,905.
(m) On July 31, 1995, a subsidiary of the Company, Century Venture Corp. ("CVC")
entered into a three year, $80,000 revolving credit facility which converts to a
five year term loan. The proceeds of the facility were used by CVC to repay
existing indebtedness of CVC and will be used for working capital and general
corporate purposes. The repayment by CVC of its existing indebtedness discharged
all of CVC's obligations under its then-existing credit agreement and, as a
result, such agreement was terminated. The interest rates payable on borrowings
under the new credit facility are based on, at the election of CVC, (a) "C/D
Base Rate" plus an applicable margin, as defined or (b)"Eurodollar Base Rate"
plus an applicable margin as defined or (c) "ABR" rate as defined. At May 31,
1999, $47,000 was outstanding under the CVC credit facility. The estimated fair
value of the CVC credit facility approximates its carrying value at May 31,
1999.
The agreement expires on February 28, 2004 and provides for a reduction in the
aggregate commitment, among other possible reductions, in the following amounts:
<TABLE>
<CAPTION>
Last day Last day Last day Last day
Year of February of May of August of November
- ---- ----------- ------ --------- -----------
<S> <C> <C> <C> <C>
1998 $ -- $ -- $1,875 $1,875
1999 1,875 1,875 2,500 2,500
2000 2,500 2,500 3,125 3,125
2001 3,125 3,125 3,750 3,750
2002 3,750 3,750 3,750 3,750
2003 3,750 3,750 6,667 6,667
2004 6,666 -- -- --
</TABLE>
F-20
<PAGE>
(n) On April 15, 1997, Citizens Century Cable Television Venture ("CCCTV")
entered into an agreement for the provision of a three-year, $200,000 revolving
credit facility with Bank of America and Societe General, which converts into a
five-year term loan. The facility is secured by the assets of CCCTV. The loan is
non-recourse to both Citizens and the Company. Borrowings under the facility are
to be repaid in semi-annual installments commencing June 30, 2000 and expiring
on March 31, 2005. The agreement provides for mandatory principal repayments,
among other possible reductions, in the following percentages:
<TABLE>
<CAPTION>
Last Day of Last day of Last day of Last day of
Year March June September December
---- ----- ------ --------- --------
<S> <C> <C> <C> <C>
2000 -- 2.33% 2.33% 2.33%
2001 4.00% 4.00% 4.00% 4.00%
2002 5.00% 5.00% 5.00% 5.00%
2003 5.25% 5.25% 5.25% 5.25%
2004 7.13% 7.13% 7.13% 7.13%
2005 7.50% -- -- --
</TABLE>
The facility requires mandatory prepayments of principal refinancing under
certain circumstances (as specified in the agreement). Borrowings under the
facility bear interest, at the option of CCCTV, at either the base rate or the
Eurodollar rate, plus the applicable margin (as defined in the agreement). The
principal use of proceeds will be to fund acquisitions as well as general
corporate purposes. As of May 31, 1999 $42,000 was outstanding under the
facility. The estimated fair value of the CCCTV credit facility approximates its
carrying value at May 31, 1999.
The subsidiaries' credit facilities and the Company's public debt securities,
among other things, require the maintenance of certain financial and operating
covenants, restrict the use of proceeds from such borrowing, limit the
incurrence of additional indebtedness, restrict the purchase or redemption of
its capital stock and limit the ability to pay dividends and management fees and
make capital expenditures. So long as applicable financial and other covenants,
including certain interest expense ratio tests, are met in connection with the
Merger, the Merger may be accomplished without creating a default under the
indentures applicable to the Company's public debt securities. If any issue of
the Company's public debt securities is downgraded to designated levels at the
time of the Merger, the holders of such issue could require the Company to
repurchase such debt securities at a price equal to 101% of the principal amount
thereof.
The Company entered into a five-year interest rate hedge agreement during
October 1997 in relation to certain of its fixed rate debt. The hedge agreement
is structured such that the Company pays a variable rate of interest based on
the higher of the U.S.D. six (6) month LIBOR or the U.S.D. six (6) month LIBOR
set in arrears and receives a fixed rate of interest of 6.695% based on a
notional amount of $35,000. Subject to the terms of the hedge agreement, if the
six month LIBOR is set at or below 4.75% at the beginning of any period, the
hedge agreement would terminate for that period alone and the Company would
receive a 50 basis points subsidy for that period alone. The net gain or loss,
which has not been material, is included in interest expense in the accompanying
1999 and 1998 consolidated statement of operations and interest paid in the 1999
and 1998 consolidated statement of cash flows. At May 31, 1999, the estimated
fair value of the hedge agreement represents an asset of approximately $40.
F-21
<PAGE>
The aggregate annual principal payments related to continuing operations for the
next five years and thereafter are summarized as follows (amounts in thousands):
<TABLE>
<S> <C>
2000 $ 20,050
2001 174,620
2002 239,140
2003 487,505
2004 29,607
2005 1,542,128
-----------
2,493,050
Less: unamortized discount (450,360)
-----------
$ 2,042,690
===========
</TABLE>
At May 31, 1999, the Company and its subsidiaries were in compliance with all
covenants of the above noted agreements.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Leases
At May 31, 1999, the Company's approximate annual lease obligations and expenses
(under operating leases) were as follows:
<TABLE>
<S> <C>
Pole rentals $3,377
Vehicles and equipment 649
Antenna site and property access 507
Warehouse, studio and office 4,260 ------
------
$8,793
======
</TABLE>
The above leases are substantially all short-term or cancelable by either party
upon notice.
Letters of Credit
The Company is a party to several available letters of credit totaling $8,148.
No payments have been made under these agreements.
Cable Modem Services
The Company is presently in the initial deployment stage of high-speed cable
modem services. On May 1, 1998, the Company entered into an agreement with @Home
Network ("@Home"), a provider of high-speed internet services via cable
infrastructure, to deliver high-speed internet services in certain of the
Company's markets covering approximately 1,315,000 homes passed. The agreement
has a term of six years and contains mutual exclusivity provisions relating to
the provision of high-speed internet services in certain of the Company's
systems covering the same approximately 1,315,000 homes passed. In connection
with the agreement, the Company has received a warrant to purchase 5,260,000
shares of @Home's Series A Common Stock at an exercise price equal to $5.25 per
share, subject to adjustment. The warrant becomes exercisable on a schedule
based upon and subject to the commercial deployment (as defined) of the @Home
services by the Company, which must be certified by the Company and @Home on or
after March 31 of each year during the term of the warrant for the 12 month
period ending March 31. As of both March 31, 1999 and May 31, 1999 no portion of
the warrant had become
F-22
<PAGE>
exercisable, therefore no asset has been recorded. From March 31, 1999 through
May 31, 1999, the Company has passed approximately 110,000 homes or 8.4% of the
commercial deployment specified in the Agreement. As of May 31, 1999, the
closing price of the @Home Series A Common Stock on the Nasdaq National Market
(adjusted for stock splits) was $63 3/8 per share.
Litigation
The Company and its subsidiaries are involved in litigation and regulatory
matters which involve certain claims which arise in the normal course of
business, none of which individually, or in the aggregate, in the opinion of
management, is expected to have a materially adverse effect on the Company's
consolidated financial position or results of operations.
Merger Related Costs
The Company has employment agreements with four executive officers including Dr.
Leonard Tow, Chairman and Chief Executive Officer of the Company. The terms of
these employment agreements expire on June 30, 2003, except that Dr. Tow's
agreement continues for an additional five-year advisory period. Each of these
employment agreements is terminable by the executive officer upon a "change of
control" or a "threatened change of control" of the Company. One of the events
that is considered to be a threatened change of control under each employment
agreement is the acquisition by any person of securities of the Company such
that the person files or is required to make a filing pursuant to Regulation 13D
under the Securities Exchange Act of 1934, as amended. Such an event has
occurred and, therefore, for purposes of these employment agreements, a
"threatened change of control" has occurred. Subsequent to May 31, 1999, each of
these executive officers has exercised his right to terminate his employment
agreement but has agreed to continue working for the Company through the closing
of the Merger.
Pursuant to the employment agreement, upon such termination, each executive
officer is entitled to receive his base salary through the end of the term of
his employment agreement, an annual cash bonus for the remainder of the term
equal to his most recently awarded cash bonus, continuation of medical, dental,
life and disability insurance for the remainder of the term on the same basis as
provided while the agreement was in effect and the use of office space for one
year. In addition, upon termination, all of his Company stock options vest and
become exercisable and the restrictions on all of his shares of restricted stock
of the Company lapse. The total cost to the Company of the termination of the
executive employment agreements (excluding the impact of stock options and tax
reimbursements related thereto, which will vary depending upon the price of the
stock, timing of the exercise of the options, and certain elections available to
each officer with respect to the receipt of Merger consideration) is currently
estimated to be approximately $150,000. Substantially all of these costs will be
recorded by the Company during the first quarter of fiscal 2000.
Additionally, the Company will incur certain employee severance related costs
related to the Merger and the continuance of the employment of key personnel
through the completion of the Merger. The total cost to the Company of these
employee severance related costs will be approximately $11,000. These costs will
be recorded by the Company upon completion of the Merger.
The Company also incurred incremental legal, consulting and compensation costs
of $7,922 through May 31, 1999 in connection with its proposed Merger.
F-23
<PAGE>
NOTE 10. COMMON STOCKHOLDERS' DEFICIENCY
Common Stock
The voting rights with respect to the two classes of Common Stock are as
follows: Class A shares entitle the holder to one vote per share, Class B shares
entitle the holder to ten votes per share. Shares of Class B Common Stock are
convertible into shares of Class A Common Stock on a one-for-one basis upon
transfer from the current Class B stockholders. The Company is restricted from
paying cash dividends on its common stock by its credit agreements (Note 8).
Treasury Stock
During fiscal 1998 and 1997, the Company purchased 1,959,000 and 171,500 shares,
respectively, of the Company's Class A Common Stock in the open market. These
shares were accounted for as treasury shares in the respective fiscal years.
During the year ended May 31, 1999, the Company did not purchase any shares in
the open market pursuant to these authorizations.
F-24
<PAGE>
<PAGE>
The following table presents changes in the Company's stockholders' deficiency
for the years ended May 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Class A Class B Additional Total Comprehensive
----------------- -------------------- Paid-in Accumulated Stockholders' Income
Shares Dollar Shares Dollars Capital Deficit Other Deficiency (Loss)
---------- ------ -------- ------- ------ ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1996 59,946,280 $599 45,406,115 $454 $178,427 $(507,168) $(120,325) $(448,013)
Shares issued in connection
with employee incentive
plans 711,490 7 25,000 4,294 (346) 3,955
Class A shares purchased
by the Company (2,359) (2,359)
Class B shares converted to
Class A shares 305,000 3 (305,000) (3) --
Class A shares issued in
connection with
acquisitions 1,732,357 18 (18) --
Subsidiary preferred stock
dividends (4,850) (4,850)
Foreign currency translation
adjustment 462 462 $ 462
Change in unrealized
appreciation of marketable
securities (7,950) (7,950) (7,950)
Income tax benefit-subsidiary
stock options exercised 1,987 1,987
Net loss (141,875) (141,875) (141,875)
---------- ---- ---------- ---- -------- --------- --------- --------- ---------
Balance at May 31, 1997 62,695,127 $627 45,126,115 $451 $179,840 $(649,043) $(130,518) $(598,643) $(149,363)
=========
Share issued in connection
with employee incentive
plans 589,761 6 4,278 255 4,539
Class A Shares purchased by
the Company (12,576) (12,576)
Class B shares converted to
Class A shares 2,400,000 24 (2,400,000) (24) --
Subsidiary preferred stock
dividends (5,225) (5,225)
Change in unrealized
appreciation of marketable
securities 7,333 7,333 $ 7,333
Foreign currency translation
transferred to discontinued
operations 291 291 291
Net loss (120,971) (120,971) (120,971)
---------- ---- ---------- ----- -------- --------- --------- --------- ---------
Balance at May 31, 1998 65,684,888 $657 42,726,115 $427 $178,893 $(770,014) $(135,215) $(725,252) $(113,347)
=========
Share issued in connection
with employee incentive
plans 1,118,391 11 25,000 12,341 (3,790) 8,562
Class A Shares purchased by
the Company from employees (1,505) (1,505)
Class B shares converted to
Class A shares 429,056 4 (429,056) (4) --
Change in unrealized
appreciation of marketable
securities (3,308) (3,308) $ (3,308)
Net income 256,184 256,184 256,184
---------- ---- ---------- ----- -------- --------- --------- --------- --------
Balance at May 31, 1999 67,232,335 $672 42,322,059 $423 $191,234 $(513,830) $(143,818) $(465,319) $ 252,876
========== ==== ========== ==== ======== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
May 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Other stockholders' deficiency items:
Treasury stock $(154,202) $(152,697) $(140,121)
Unrealized appreciation of marketable
securities 16,888 20,196 12,863
Foreign currency translation adjustment -- -- (291)
Unearned compensation on restricted stock (6,504) (2,714) (2,969)
--------- --------- ---------
$(143,818) $(135,215) $(130,518)
========== ========= =========
Accumulated other comprehensive income:
Accumulated other comprehensive income - beginning of year $ 20,196 $ 12,572 $20,060
Foreign currency translation adjustment -- 291 462
Change in unrealized appreciation of
marketable securities (3,308) 7,333 (7,950)
--------- --------- ---------
Accumulated other comprehensive income - end of year $ 16,888 $ 20,196 $12,572
========= ========= =========
</TABLE>
F-25
<PAGE>
NOTE 11. INCOME TAXES
The Company and its consolidated subsidiaries, except for Century Venture
Corporation and Subsidiaries, Century-ML Cable Venture and Subsidiary and
Citizens Century Cable Television Venture (collectively the "Unconsolidated Tax
Group"), file a consolidated federal income tax return. The Company sold
Centennial and the Company's Australian Operations during the fiscal year ended
May 31, 1999 and as a result, Centennial and ECT are no longer part of the
Unconsolidated Tax Group. The sale of these discontinued segments resulted in a
pre-tax gain of approximately $340,000. Consequently the Company was able to
recognize a tax benefit of $13,453 during the year ended May 31, 1999 for the
losses incurred from continuing operations during fiscal 1999.
The provisions (benefits) from continuing and discontinued operations for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current $ 12,165 $ 7,984 $ 7,486
Deferred 121 (22,205) (38,144)
-------- -------- --------
$ 12,286 $(14,221) $(30,658)
======== ======== ========
</TABLE>
Income tax expense (benefit) is included in the Company's consolidated financial
statements as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Continuing operations $(13,453) $ (624) $(23,363)
Discontinued operations 25,739 (13,597) (7,295)
-------- -------- --------
$ 12,286 $(14,221) $(30,658)
======== ======== ========
</TABLE>
Deferred income taxes result primarily from nondeductible depreciation and
amortization resulting from book and tax basis differences of certain acquired
subsidiaries.
F-26
<PAGE>
The effective income tax rate of the Company's continuing operations differs
from the statutory rate as a result of the effect of the following items:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed tax benefit at federal statutory rate
on loss from continuing
operations before income taxes and
minority interest $(20,347) $(23,383) $(24,586)
Computed tax benefit of
Unconsolidated Tax Group (8,761) (7,006) (3,600)
Recognized tax benefit of
Unconsolidated Tax Group 9,197 2,014 2,155
Nondeductible amortization
resulting from acquired
subsidiaries 1,192 1,192 1,131
Non-deductible compensation
and Merger costs 4,658 -- --
State and local income taxes,
net of federal income tax
effect (1,434) (4,622) (3,782)
Tax benefits related to net operating,
capital loss and tax credit carryforwards
not recognized and changes in
valuation allowance 1,971 30,998 5,284
Other 71 183 35
-------- -------- --------
$(13,453) $ (624) $(23,363)
======== ======== ========
</TABLE>
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
Deferred Tax Assets:
Tax loss and credit carryforward $ 184,099 $ 224,083
Basis difference in investments -- 64,447
Valuation allowance (89,584) (193,626)
--------- ---------
$ 94,515 $ 94,904
========= =========
Deferred Tax Liabilities:
Amortization of intangible assets $ 30,210 $ 32,099
Depreciation of fixed assets 69,596 67,975
--------- ---------
$ 99,806 $ 100,074
========= =========
Net deferred tax liabilities $ 5,291 $ 5,170
========= =========
</TABLE>
F-27
<PAGE>
The Company and its subsidiaries, except for the Unconsolidated Tax Group, have
an investment tax credit carryover (after the 35% reduction mandated by TRA 86)
for federal income tax purposes of approximately $9,353 and net operating loss
carryforwards for federal income tax purposes of approximately $439,041 expiring
through 2002 and 2013, respectively.
Century Venture Corporation and Subsidiaries have an investment tax credit
carryover of approximately $873 and net operating loss carryforwards of
approximately $5,500 which will expire through 2002 and 2008, respectively.
The operations of Century ML Cable Venture and Subsidiary are subject to Puerto
Rico income taxes.
NOTE 12. JOINT VENTURES
The combined operations and certain other information related to the 50%
indirectly owned Century Venture Corp. and Subsidiaries, Century-ML Cable
Venture and Subsidiary and Citizens Century Cable Television Venture included in
the consolidated financial statements of the Company are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Combined Statement of Operations Data
Revenues $ 132,365 $ 122,543
Costs and expenses:
Costs of services 40,051 34,781
Selling, general and administrative 21,327 21,272
Depreciation and amortization 35,874 30,638
--------- ---------
97,252 86,691
--------- ---------
Operating Income 35,113 35,852
--------- ---------
Gain on sale of assets (5,497) --
Interest expense 15,579 15,833
--------- ---------
Income before taxes 25,031 20,019
Income tax provision 9,257 2,356
--------- ---------
Net Income $ 15,774 $ 17,663
========= =========
Combined Balance Sheet Data
Property, plant and equipment - net $ 142,221 $ 136,866
Total assets 371,003 389,495
Long-term debt 169,000 206,000
Total liabilities 221,675 255,940
</TABLE>
The Company's joint venture partner, ML Media Partners, L.P. ("Media Partners")
has the right to cause a sale of Century-ML Cable Venture and Subsidiary. If
Media Partners proposes such a sale, the Company will have the right to purchase
Media Partners' interest for the appraised fair market value of Media Partners'
50% interest in Century-ML Cable Venture and Subsidiary.
F-28
<PAGE>
NOTE 13. EMPLOYEE BENEFIT PLANS
Stock Option Plans
The Company's 1985 Stock Option Plan (the "1985 Option Plan"), adopted by the
Board of Directors and approved by the stockholders on December 5, 1985, expired
by its terms on May 31, 1995. Accordingly, the Board of Directors adopted and
the stockholders ratified the Company's 1994 Stock Option Plan (the "1994 Option
Plan") on October 26, 1994. Upon ratification of the 1994 Option Plan, no more
grants are to be made under the 1985 Option Plan. The 1985 Stock Option Plan and
the 1994 Stock Option Plan, collectively the "Option Plans", permit the issuance
of "incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended, as well as non-qualified options. The 1985 Option Plan
and the 1994 Option Plan provide for the grant of options to purchase up to
6,897,079 and 5,000,000 shares, respectively, of Class A Common Stock to
directors, officers and other key employees of the Company and its subsidiaries.
The Option Plans are administered by a committee of the Board of Directors (the
"Stock Option Committee") that determines the recipients and provisions of
options granted under the Option Plans, including the option price, term and
number of shares subject to option. The Board of Directors may amend the Option
Plans, except that the approval of the stockholders is necessary to increase the
total number of shares which may be issued or shares subject to options, to
change the minimum purchase price for shares subject to options, to change the
maximum period during which options may be exercised, to extend the period
during which options may be granted under the Option Plans, or to materially
increase benefits to option recipients. Generally, the option price of incentive
and non-qualified stock options granted may be as determined by the Stock Option
Committee, but must be at least equal to 100% of the fair market value of the
shares on the date of the grant. The maximum term of each option is ten years.
For any participant who owns shares possessing more than 10% of the voting
rights of the Company's outstanding common stock, the exercise price of any
incentive stock option must be at least equal to 110% of the fair market value
of the shares subject to such option on the date of grant and the term of the
option may be no longer than five years. Options become exercisable at such time
or times as the Stock Option Committee may determine when it grants options. All
options granted on or before December 31, 1985 must be exercised in the sequence
in which they were granted. The Option Plans permit the exercise of options by
the payment of cash or mature shares of Class A Common Stock equal in value to
the option price. Under the terms of the Option Plan with respect to options
granted on or before December 31, 1986, the aggregate fair market value of the
Class A Common Stock (determined at the date of the option grant) for which any
employee may be granted incentive stock options in any calendar year may not
exceed $100, plus certain carry-over allowances from the previous three years.
Options granted under the Option Plans are not transferable by the holder other
than by will or the laws of descent and distribution.
As of May 31, 1999, approximately 174 employees were participating in the Option
Plans.
Director Option Plan
The Company's 1993 Non-Employee Directors' Stock Option Plan (the "Directors'
Option Plan") was adopted on October 26, 1994. The Directors' Option Plan
replaced the Non-Employee Director Option Plan adopted in 1989 (the "1989
Director Option Plan") which was terminated by the Board of
F-29
<PAGE>
Directors. Under the Directors' 1993 Option Plan a total of 323,123 shares of
Class A Common Stock were reserved for issuance. Options for 1,000 shares of
Class A Common Stock will be automatically granted under the Directors' 1993
Option Plan to each person who is elected or re-elected a non-employee Director
on the date of the annual meeting of shareholders of the Company in each of the
years 1994 through 2003.
The Company's Board of Directors may amend the Directors' Option Plan and amend
the terms and conditions of any option granted under the Directors' Option Plan,
except that the approval of the stockholders is necessary to increase the total
number of shares which may be issued or transferred under the Directors' Option
Plan and to change the minimum purchase price for shares subject to options.
Options granted under the Directors' Option Plan are nonqualified options not
qualifying as incentive stock options under Section 422 of the Code. The option
price that shares of the Company's Class A Common Stock may be purchased upon
exercise of any option granted under the Directors' Option Plan, will be the
fair market value of such shares on the last trading day prior to the date of
the grant of such option. The Directors' Option Plan permits the exercise of
options in cash, mature shares of Class A Common Stock valued at the fair market
value on the date of purchase or a combination thereof. The maximum term of each
option is five years and six months immediately succeeding the date of grant.
Options granted under the Directors' Option Plan are not transferable by the
holder other than by will or the laws of descent and distribution. Under the
1993 Directors' Option Plan, options to purchase 3,000 shares of Class A Common
Stock were granted during each of the fiscal years ended May 31, 1999, 1998 and
1997 at an exercise price of $20.9375, $7.75 and $7.00 per share, respectively.
As of May 31, 1999, 9,000 options were outstanding under the Directors' Option
Plan, of which 2,400 were exercisable.
A summary of the status of the Company's stock options as of May 31, 1997,
1998 and 1999 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number Price
------ ---------
<S> <C> <C> <C>
1997 Outstanding at June 1, 1996 2,646,514 $7.73
Granted 2,915,909 6.70
Exercised (401,440) 5.46
Canceled (1,703,933) 8.69
---------
Outstanding at May 31, 1997 3,457,050 6.66
1998 Granted 10,000 6.44
Exercised (340,836) 6.34
Canceled (242,415) 6.66
---------
Outstanding at May 31, 1998 2,883,799 6.70
1999 Granted 118,000 18.85
Exercised (816,098) 6.39
Canceled (59,003) 9.75
---------
Outstanding at May 31, 1999 2,126,698 7.41
=========
</TABLE>
F-30
<PAGE>
At the effective time of the Merger, there will be an acceleration of vesting
under the Company's option plans. All unvested options under the option plans
will become fully vested and exercisable upon the completion of the Merger.
These options will then, like all other outstanding options, either be exercised
or assumed by Adelphia, at the option of the holder. At May 31, 1999, there were
843,320 and 6,600 unvested options outstanding under the 1994 Option Plan and
the Directors' Option Plan, respectively.
The number of the Company's options which were exercisable at May 31, 1999, 1998
and 1997 were 1,276,878, 1,598,650, and 1,566,966 respectively. The weighted
average exercise prices of such options were $6.83, $6.62, and $6.55 at May 31,
1999, 1998 and 1997, respectively.
Of the Company's options granted during fiscal 1999, 1998 and 1997, 0, 0 and
1,175,072 options, respectively, had exercise prices that were at least equal to
110% of the fair market value of the Company's Class A Common Stock at the date
of grant.
The following table summarizes information about the Company's options
outstanding at May 31, 1999:
<TABLE>
<CAPTION>
Range of Number Weighted Average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices at 5/31/99 Contractual Life Exercise Price at 5/31/99 Exercise Price
- -------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.00-$5.375 21,220 7.91 Years $ 5.14 2,660 $ 4.99
$ 6.25-$8.6875 2,012,478 4.27 Years $ 6.84 1,266,218 $ 6.79
$14.38 40,000 8.92 Years $14.38 8,000 $14.38
$20.94-$24.875 53,000 8.96 Years $24.65 - -
- --------------- --------- ---------- ------ --------- ------
$ 4.00-$24.875 2,126,698 4.51 Years $ 7.41 1,276,878 $ 6.83
=============== ========= ========== ====== ========== ======
</TABLE>
The estimated fair value of the Company's options granted during fiscal 1998 was
immaterial.The fair value of options granted during fiscal 1999 and 1997 were
$6.96 per share and $2.29 per share, respectively.
Employee Stock Purchase Plan
On December 5, 1985, the Company adopted the 1985 Employee Stock Purchase Plan.
On October 26, 1994, the Board of Directors and shareholders approved an
amendment to the Company's 1985 Employee Stock Purchase Plan (the "Amended
Purchase Plan"). Under the Amended Purchase Plan, eligible employees (which
generally includes all full-time employees of the Company) may subscribe for
shares of Class A Common Stock at a purchase price of 85% of the average market
price (as defined) of the Class A Common Stock on the first day or last day of
the purchase period, whichever is lower. Payment of the purchase price of the
shares will be made in installments through payroll deductions, with no right of
prepayment. The Company has reserved 1,125,767 shares of Class A Common Stock
for issuance under the Amended Purchase Plan. The Amended Purchase Plan is
administered by the Compensation Committee. As of May 31, 1999, 36,819 shares of
Class A Common Stock were subscribed for under the Amended Purchase Plan.
F-31
<PAGE>
Equity Incentive Plan
The Company's 1992 Equity Incentive Plan (the "Equity Plan") was adopted by the
Board of Directors and approved by the stockholders on October 28, 1992 and
amended on October 31, 1997. The plan permits the issuance of up to 1,613,945
shares of the Company's Class A Common Stock for high levels of performance and
productivity by officers and other management employees of the Company. The
Equity Plan is administered by the Company's Board of Directors. The plan
authorizes the Board of Directors to grant stock based awards that include but
are not limited to, restricted stock, performance shares and deferred stock. The
Board of Directors determines the recipients and provisions of the grants under
the Equity Plan, including the grant price, term and number of shares subject to
grant. These stock based awards vest over the options' respective vesting
periods. Recipients are not required to provide consideration to the Company
other than rendering service. Under SFAS 123, compensation cost is recognized
over the vesting period of the shares granted based upon the market value of the
restricted stock at the date of grant. The restricted stock awards are recorded
at the market value of the Company's stock on the date of grant. Initially, the
total market value of the restricted shares is treated as unearned compensation
and is charged to expense over the options'respective vesting periods.
Generally, an employee will realize compensation taxable as ordinary income, and
the Company will be entitled to a corresponding tax deduction in an amount equal
to the sum of any cash received by the employee plus the fair market value of
any shares of Class A Common Stock received by the employee.
During the years ended May 31, 1999, 1998 and 1997 the Company granted 270,000,
170,000 and 230,897 shares of restricted stock with weighted average fair values
at the date of grant of $19.21, $6.87 and $8.07 per share, respectively. Through
May 31, 1999, the Company had granted 1,238,027 shares of restricted stock to 20
officers and employees of the Company. As of May 31, 1999, 581,200 shares of
restricted stock were outstanding and 375,918 shares were available for awards
under the Equity Plan. Pursuant to the Merger Agreement, all restricted shares
will become fully vested and will cease to be restricted upon the completion of
the Merger. Restricted stock compensation charged to expense during the years
ended May 31, 1999, 1998 and 1997 was $2,644, $896 and $1,168, respectively.
The Company also granted 25,000 shares of the Company's Class B Common Stock
during the year ended May 31, 1998 with a fair value of $5.50 at the date of
grant (based upon the fair value of the Company's Class A Common Stock on that
date) to one executive of the Company. These shares are subject to substantially
the same restrictions as set forth in the Equity Plan.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized with
respect to their stock option, and stock purchase plans. Had compensation cost
for the Company's stock option and stock purchase plans been determined based on
the fair value of the awards on the grant dates in accordance with the
accounting provisions of Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's
Consolidated net income (loss) and Consolidated net income (loss) per common
share for the years ended May 31, 1999, 1998 and 1997 would have been increased
to the pro forma amounts indicated below:
F-32
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Consolidated net income (loss) applicable
to common shares:
As reported:
Loss from continuing operations $(58,106) $ (83,107) $ (58,715)
Loss from discontinued operations -- (43,089) (80,428)
Gain on sale of discontinued operations 314,290 -- --
-------- --------- ---------
Income (loss) before extraordinary item 256,184 (126,196) (139,143)
Extraordinary item -- -- (7,582)
-------- --------- ---------
Net income (loss) $256,184 $(126,196) $(146,725)
======== ========= =========
Pro forma:
Loss from continuing operations $(59,764) $ (84,540) $ (59,424)
Loss from discontinued operations -- (43,089) (80,428)
Gain on sale of discontinued operations 314,290 -- --
-------- --------- ---------
Income (loss) before extraordinary item 254,526 (127,629) (139,852)
Extraordinary item -- -- (7,582)
-------- --------- ---------
Net income (loss) $254,526 $(127,629) $(147,434)
======== ========= =========
Consolidated net income (loss) per common share
-basic & diluted:
As reported:
Loss from continuing operations $ (.77) $ (1.11) $ (.78)
Loss from discontinued operations -- (.58) (1.08)
Gain on sale of discontinued operations 4.18 -- --
-------- --------- ---------
Income (loss) before extraordinary item 3.41 (1.69) (1.86)
Extraordinary item -- -- (.10)
-------- --------- ---------
Net income (loss) per common share $ 3.41 $ (1.69) $ (1.96)
======== ========= =========
Pro forma:
Loss from continuing operations $ (.79) $ (1.13) $ (.79)
Loss from discontinued operations -- (.58) (1.08)
Gain on sale of discontinued operations 4.18 -- --
-------- --------- ---------
Income (loss) before extraordinary item 3.39 (1.71) (1.87)
Extraordinary item -- -- (0.10)
-------- --------- ---------
Net income (loss) per common share $ 3.39 $ (1.71) $ (1.97)
======== ========= =========
</TABLE>
The fair values of options granted during fiscal 1999 and 1997 were estimated on
the dates of grant using the Black-Scholes options-pricing model with the
following weighted average assumptions used:
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1999 1997
------ ------
<S> <C> <C>
Expected volatility 46.12% 40.82%
Risk free interest rate 5.75% 6%
Expected lives of option grants 3 Years 3 Years
</TABLE>
F-33
<PAGE>
Proforma compensation cost related to shares purchased under the Company's
Employee Stock Purchase Plan is measured based on the discount from market
value.
Incentive Award Plan
An Incentive Award Plan (the "Incentive Plan") was adopted by the Board of
Directors and approved by the stockholders of the Company on December 5, 1985.
The Incentive Plan permits the grant of awards to key employees of the Company
and its subsidiaries, which may include directors and officers, payable in cash
or shares of Class A Common Stock. The Company has reserved 559,529 shares of
Class A Common Stock for issuance under the Incentive Plan. The awards are
payable in five to ten equal annual installments on January 1 of the succeeding
years after the grant of the award, provided that the recipient is an employee
on the installment payment date. The Incentive Plan is administered by the
Compensation Committee, which selects the recipients of awards as well as the
amount of such awards. The Board of Directors may amend the Incentive Plan.
Awards granted under the Incentive Plan may not be transferred by the recipients
and may be forfeited in the event of the recipient's termination of employment.
At May 31, 1999, no grants were outstanding.
Stock Equivalent Plan
The Company's 1985 Stock Equivalent Plan (the "Equivalent Plan") was adopted by
the Board of Directors and approved by the stockholders on December 5, 1985. The
Equivalent Plan permits the grants of units of Class A Common Stock Equivalents
("units") to key employees of the Company and its subsidiaries, including
officers and directors. The Equivalent Plan is administered by the Compensation
Committee which selects the employees to be granted units, determines the number
of units covered by each grant, determines the time or times when units will be
granted and the conditions subject to which any amount may become payable with
respect to the units, and prescribes the form of instruments evidencing units
granted under the Plan. Payments for units may be made by the Company in cash or
in mature shares of Class A Common Stock at the fair market value of the units
on the date of payment. The Company has reserved 566,155 shares of Class A
Common Stock for issuance under the Equivalent Plan. Under the terms of the
Equivalent Plan, the total number of units included in all grants to any
participant may not exceed 10% of the total number of units for which grants may
be made under the Equivalent Plan. Units granted under the Equivalent Plan are
not transferable by the holder other than by will or the laws of descent and
distribution. As of May 31, 1999, no units have been granted under the
Equivalent Plan.
Retirement Plans
Effective April 1, 1992, the Company adopted a 401(k) defined contribution
retirement plan covering employees of its wholly-owned cable subsidiaries who
are not covered by collective bargaining arrangements. Effective July 1, 1992,
the Company adopted a similar 401(k) plan covering employees of its wholly-owned
cable subsidiaries who are covered by collective bargaining agreements. If a
participant decides to contribute, a portion of the contribution is matched by
the Company. Total expense under the plans was approximately $1,473, $1,367 and
$1,168, for the years ended May 31, 1999, 1998 and 1997, respectively.
F-34
<PAGE>
NOTE 14. REGULATORY MATTERS
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 ("the 1992 Cable Act"). The 1992 Act substantially
reregulated the cable television industry and imposed numerous requirements,
including provisions regarding rates which may be regulated by the applicable
local franchising authority and those to be regulated by the FCC, exclusive
programming arrangements, the carriage of broadcast signals, customer service
standards, leased access channels, VCR compatibility and various other matters.
On February 8, 1996, "The Telecommunications Act of 1996" ("the 1996 Act"), was
signed into law. The new law alters federal, state and local laws and
regulations regarding telecommunications providers and services, including the
cable television industry. The 1996 Act deregulated (except for basic service)
cable service rates on March 31, 1999.
NOTE 15. STRATEGIC PARTNERSHIP
On November 18, 1998, the Company and TCI Communications, Inc. ("TCI") entered
into a definitive agreement to establish a strategic partnership (the
"Partnership"). TCI will contribute to the Partnership all the assets related to
the businesses of certain cable television systems owned and operated by TCI
serving approximately 243,400 primary basic subscribers in the area of southern
California. The Company will contribute to the Partnership all the assets
related to the businesses of certain cable television systems owned and operated
by the Company serving approximately 528,700 primary basic subscribers in the
area of southern California, including approximately 94,400 primary basic
subscribers to be acquired in an exchange of cable systems described below as
well as approximately 19,000 primary basic subscribers related to the Company's
pending acquisition of the cable television system serving Moreno Valley and
Riverside, California (See Note 5). The Company will manage the newly combined
cable systems and own approximately 69.5 percent of the Partnership. The cable
systems contributed by each party will be valued based upon annualized cash flow
of such contributed systems as of the closing date of the transaction, subject
to certain fees and expenses. These values will be used in the process of
determining the ownership percentages of the respective parties at the closing
date of the transaction.
The Company is expected to manage the Partnership in return for a management fee
payable by the Partnership calculated based on a percentage of the annual total
gross revenues of the Partnership, in addition to payment of certain fees and
expenses. However, under the Agreement of Limited Partnership, the Partnership
may not, among other things, without the approval of the TCI partner or the
unanimous vote of all the members of the Partnership committee, enter into
certain transactions with affiliates, issue any Partnership or other equity
interest, permit any subsidiary to issue any equity interest, effectuate certain
mergers or other business combinations or incur in excess of certain levels of
indebtedness.
As part of the Partnership Transaction, the Company and TCI have agreed to
exchange cable systems owned by the Company in certain communities in northern
California for certain cable systems owned by TCI in southern California,
allowing each of them to unify operations in existing service areas. TCI will
exchange its East San Fernando Valley cable system serving approximately 94,400
primary basic subscribers for the Company's northern California cable systems
(San Pablo, Benecia, Fairfield and Rohnert Park, California), serving
approximately 95,900 primary basic subscribers.
F-35
<PAGE>
It is anticipated that the Partnership will be funded by approximately $900,000
of indebtedness. There is no assurance that such financing will be available to
the Partnership or that the Partnership will be able to obtain such financing on
terms favorable to the Partnership.
The closing of the foregoing transactions is subject to, among other things,
each party obtaining the required consents and all appropriate regulatory and
other approvals, including from the Federal Communications Commission and local
franchising authorities and under the HSR Act. On February 18, 1999, the waiting
period under the HSR Act for the Partnership Transaction terminated. In
connection with the Partnership Transaction, the Company has completed filing
the material applications seeking transfer of the Company's applicable franchise
licenses with the FCC and local franchising authorities. There is no assurance
that the Company will obtain such approvals or that such transactions will be
consummated.
F-36
<PAGE>
NOTE 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------------
August 31, November 30, February 28, May 31,
1996 1996 1997 1997
------------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Revenues $ 112,728 $ 115,172 $ 113,542 $ 118,204
Operating income (loss) 24,648 22,668 24,332 16,195
Loss from continuing operations (10,004) (8,698) (13,963) (21,200)
Loss from discontinued operations (51,208) (8,559) (9,405) (11,256)
Loss from extraordinary item - - - (7,582)
Net loss (61,212) (17,257) (23,368) (40,038)
Loss from continuing operations
per common share - basic (.15) (.13) (.20) (.30)
Loss from discontinued operations
per common share - basic (.69) (.12) (.13) (.14)
Loss from extraordinary item
per common share - basic - - - (.10)
Net loss per common share - basic(1) (.84) (.25) (.33) (.54)
Three months ended
----------------------------------------------------------------
August 31, November 30, February 28, May 31,
1997 1997 1998 1998
------------- ------------ ------------ --------
Revenues $ 119,564 $ 121,322 $ 120,725 $ 123,125
Operating income 24,589 24,193 24,941 30,745
Loss from continuing operations (15,376) (19,784) (22,266) (20,456)
Loss from discontinued operations (9,193) (23,828) (6,852) (3,216)
Net loss (24,569) (43,612) (29,118) (23,672)
Loss from continuing operations
per common share - basic (.22) (.28) (.32) (.29)
Loss from discontinued operations
per common share - basic (.12) (.32) (.09) (.05)
Net loss per common share - basic(1) (.34) (.60) (.41) (.34)
Three months ended
----------------------------------------------------------------
August 31, November 30, February 28, May 31,
1998 1998 1999 1999
------------- ------------ ------------ --------
Revenues $ 126,716 $ 129,732 $ 131,278 $ 131,858
Operating income 30,826 28,981 29,075 37,234
Income (loss) from continuing operations (20,838) (25,125) 5,971 (18,114)
Gain on sale of discontinued operations - - 312,142 2,148
Net income (loss) (20,838) (25,125) 318,113 (15,966)
Income (loss) from continuing operations
per common share - basic (.28) (.33) .08 (.24)
- diluted (.28) (.33) .08 (.24)
Gain on sale of discontinued operations
per common share - basic - - 4.15 .03
- diluted - - 4.08 .03
Net income (loss) per common share - basic(1) (.28) (.33) 4.23 (.21)
- diluted(1) (.28) (.33) 4.16 (.21)
</TABLE>
(1) See Note 1 Loss per common share.
F-37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this Annual Report
on Form 10-K for the fiscal year ended May 31, 1999 to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 6th day of August, 1999.
CENTURY COMMUNICATIONS CORP.
By: /s/ Leonard Tow
----------------------------------
LEONARD TOW
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K for the fiscal year ended May 31, 1999
has been signed below by the following persons in the capacities indicated on
the 6th day of August, 1999.
<TABLE>
<S> <C>
/s/ Leonard Tow Chief Executive Officer (principal executive
- ---------------------------------- officer), Chairman and Director
LEONARD TOW
/s/ Scott N. Schneider Senior Vice President, Chief Financial
- ---------------------------------- Officer, Treasurer (principal financial
SCOTT N. SCHNEIDER officer and principal accounting
officer) and Director
/s/ Bernard P. Gallagher President and Chief Operating Officer
- ---------------------------------- and Director
BERNARD P. GALLAGHER
/s/ William Kraus Director
- ----------------------------------
WILLIAM KRAUS
/s/ Claire Tow Director
- ----------------------------------
CLAIRE TOW
/s/ David Z. Rosensweig Director
- ----------------------------------
DAVID Z. ROSENSWEIG
/s/ John P. Cole, Jr. Director
- ----------------------------------
JOHN P. COLE, Jr.
/s/ Michael G. Harris Director
- ----------------------------------
MICHAEL G. HARRIS
/s/ David R. Miller Director
- ----------------------------------
DAVID R. MILLER
</TABLE>
II-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<S> <C>
2.1 Press Release dated March 5, 1999 (filed as Exhibit 99.01 to the
Company's Current Report on Form 8-K, dated March 5, 1999 and
incorporated herein by reference).
'D'2.2 Agreement and Plan of Merger, dated as of March 5, 1999, by and
among the Company, Adelphia Communications Corporation and Adelphia
Acquisition Subsidiary, Inc. as amended by the First Amendment to
the Agreement and Plan of Merger, dated as of July 12, 1999 and the
Second Amendment to the Agreement and Plan of Merger, dated as of
July 29, 1999.
3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 6(a)(i) to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 28, 1990 and incorporated herein by
reference and Amendment to Restated Certificate of Incorporation of
the Company, filed as Exhibit 6(a)(i) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1990
and incorporated herein by reference).
3.2 By-laws of the Company, as amended (filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1995, and incorporated herein by reference.
4.1 Equity Subscription Agreement, dated as of November 21, 1990, among
Centennial Cellular, Century Communications Corp, a Texas
corporation, and Century Cellular Holding Corp., a New York
corporation (filed as Exhibit 4(o) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1992 and incorporated
herein by reference).
4.2 Indenture, dated as of November 15, 1988, by and between the Company
and the Bank of Montreal Trust Company, as Trustee (filed as Exhibit
4(l) to Amendment No. 7 to the Company's Registration Statement on
Form S-1 (File No. 33-21394) under the Securities Act of 1933, as
amended (the "1988 Form S-1"); said 1988 Form S-1 having been filed
with the Commission on April 22, 1988 and incorporated herein by
reference, and said Amendment No. 7 to the 1988 Form S-1 having been
filed with the Commission on November 10, 1988 and incorporated
herein by reference).
4.3 Indenture, dated as of October 15, 1991, by and between the Company
and the Bank of Montreal Trust Company, as Trustee (filed as Exhibit
4.2 to Amendment No. 2 to the Company's Registration Statement on
Form S-3 (File No. 33-33787) under the Securities Act of 1933, as
amended (the "1991 Form S-3"); said 1991 Form S-3 having been filed
with the Commission on August 31, 1990 and incorporated herein by
reference, and said Amendment No. 2 to the 1991 Form S-3 having been
filed with the Commission on March 1, 1991 and incorporated herein
by reference).
4.4 First Supplemental Indenture, dated as of October 15, 1991, by and
between the Company and the Bank of Montreal Trust Company, as
Trustee (filed as Exhibit 7(2) to the Company's current report on
Form 8-K, dated October 17, 1991 and incorporated herein by
reference).
4.5 Indenture, dated as of February 15, 1992, by and between the Company
and the Bank of America National Trust and Savings Association, as
Trustee (filed as Exhibit 4.3 to Amendment No. 2 to the Company's
Registration Statement on Form S-3 (File No. 33-33787) under the
Securities Act of 1933, as amended (the "1991 Form S-3"); said 1991
Form S-3 having been filed with the Commission on March 9, 1990 and
incorporated herein by reference, and said Amendment No. 2 to the
1991 Form S-3 having been filed with the Commission on March 1, 1991
and incorporated herein by reference).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
4.6 First Supplemental Indenture, dated as of February 15, 1992, by and
between the Company and the Bank of America National Trust and
Savings Association, as Trustee (filed as Exhibit 4(t) to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1992 and incorporated herein by reference).
4.7 Second Supplemental Indenture, dated as of August 15, 1992, by and
between the Company and Bank of America National Trust and Savings
Association, as Trustee (filed as Exhibit 4(u) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1992
and incorporated herein by reference).
4.8 Third Supplemental Indenture, dated as of April 1, 1993, by and
between the Company and Bank of America National Trust and Savings
Association, as Trustee (filed as Exhibit 4(v) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1993
and incorporated herein by reference).
4.9 Fourth Supplemental Indenture, dated as of March 6, 1995, by and
between the Company and Bank of America National Trust and Savings
Association, as Trustee (filed as Exhibit 4(w) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1995,
and incorporated herein by reference).
4.10 Fifth Supplemental Indenture, dated as of January 23, 1997, by and
between the Company and First Trust of California, National
Association, successor trustee to Bank of America National Trust and
Savings Association, as Trustee (filed as Exhibit 4.10 to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1997, and incorporated herein by reference).
4.11 Sixth Supplemental Indenture, dated as of September 29, 1997,
between the Company and First Trust of California, National
Association, successor trustee to Bank of America National Trust and
Savings Association, as Trustee (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended August 31, 1997, and incorporated herein by reference).
4.12 Seventh Supplemental Indenture dated as of November 13, 1997 between
the Company and First Trust of California, National Association,
successor trustee to Bank of America National Trust and Savings
Association, as Trustee (filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
November 30, 1997, and incorporated herein by reference).
'D'4.13 Eighth Supplemental Indenture dated as of December 10, 1997 between
the Company and First Trust of California, National Association, as
Trustee.
4.14 Indenture, dated as of January 15, 1998 between the Company and
First Trust of California, National Association, as Trustee (filed
as Exhibit 4 to the Company's Registration Statement on Form S-4
(File No. 333-47161) under the Securities Act of 1933, as amended
(the "1998 Form S-4"); said 1998 Form S-4 having been filed with the
Commission on March 2, 1998 and incorporated herein by reference).
</TABLE>
The Company hereby agrees to furnish to the Securities and Exchange
Commission, upon its request, a copy of each instrument omitted pursuant to Item
601(b)(4)(iii) of Regulation S-K.
<TABLE>
<S> <C>
*10.1 Amended Employment Agreement, dated as of July 1, 1991, between the
Company and Leonard Tow (filed as Exhibit 10(a)(1) to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1992
and incorporated herein by reference).
*10.2 Agreement, dated July 30, 1992, between the Company and the Leonard
and Claire Tow Life Insurance Trust (filed as Exhibit 10(a)(2) to
the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1992 and incorporated herein by reference).
*10.3 Employment Agreement, dated as of January 1, 1995, between the
Company and Daniel E. Gold (filed as Exhibit 10(a)(7) to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1996 and incorporated herein by reference).
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
*10.4 Employment Agreement, dated as of January 1, 1997, between the
Company and Scott N. Schneider (filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1997, and incorporated herein by reference).
*10.5 Employment Agreement, dated as of January 1, 1997, between the
Company and Michael G. Harris (filed as Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1997, and incorporated herein by reference).
*10.6 Employment Agreement, dated as of January 1, 1997, between the
Company and Frank Tow (filed as Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1997, and
incorporated herein by reference).
*10.7 Employment Agreement, dated as of January 1, 1997, between the
Company and Clifford A. Bail (filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1997,
and incorporated herein by reference).
10.8 Principal Stockholders' Agreement, dated as of December 7, 1985,
between Sentry Insurance a Mutual Company ("Sentry"), the Company,
Leonard Tow individually and as Trustee, and Claire Tow as Trustee
(filed as Exhibit 10(a) to the Company's Registration Statement on
Form S-1 (No. 33-2025) under the Securities Act of 1933, as amended,
filed with the Commission on December 9, 1985 (the "1986 Form S-1")
and incorporated herein by reference).
10.9 Amendment to Principal Stockholders' Agreement, dated August 31,
1987 (filed as an Exhibit to the Company's Current Report on Form
8-K dated September 11, 1987 and incorporated herein by reference).
10.10 Lease, dated July 15, 1987, between Locust Avenue Associates and
Century-Texas (filed as Exhibit 10(h) to the 1988 Form S-1 and
incorporated herein by reference).
10.11 Agreement for lease dated as of January 1, 1997 by and between
Locust Avenue Associates Limited Partnership and Century Texas
(filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997, and incorporated herein by
reference).
10.12 Third Agreement of Amendment to the Amended and Restated Joint
Venture Agreement, dated June 18, 1987, among American Television
and Communications Corporation, Daniels & Associates, Inc.,
Tele-communications, Inc., Comcast Corporation and Century Southwest
Cable Television, Inc. (filed as Exhibit 10(m) to the 1988 Form S-1
and incorporated herein by reference).
10.13 Colorado Springs Joint Sharing and Buy-Sell Agreement, dated
November 1, 1974, among Century Venture Corporation, Century
Colorado Corp., American Television and Communications Corporation,
Century Texas and Vumore-Video Corporation of Colorado, Inc. (filed
as Exhibit 10(h) to the 1986 Form S-1 and incorporated herein by
reference).
*10.14 1985 Stock Option Plan of the Company (filed as Annex A to the
Company's Registration Statement on Form S-8 (File No. 33-34387)
under the Securities Act of 1933, as amended, filed with the
Commission on April 19, 1990 and incorporated herein by reference).
*10.15 Incentive Award Plan of the Company (filed as Annex A to the
Company's Registration Statement on Form S-8 (File No. 33-23718)
under the Securities Act of 1933, as amended, filed with the
Commission on August 11, 1988 and incorporated herein by reference).
*10.16 1985 Employee Stock Purchase Plan of the Company, as amended (filed
as Exhibit 10(r) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1995, and incorporated herein by reference).
*10.17 Non-Employee Director Stock Option Plan of the Company (filed as
Annex A to the Company's Registration Statement on Form S-8 (File
No. 33-34388) under the Securities Act of 1933, as amended, filed
with the Commission on April 19, 1990 and incorporated herein by
reference).
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
*10.18 1985 Stock Equivalent Plan (filed as Exhibit 10(m) to the 1986 Form
S-1 and incorporated herein by reference).
*10.19 Century Retirement Investment Plan (filed as Exhibit 10(x) to the
Company's Annual Report on Form 10-K for year ended May 31, 1992 and
incorporated herein by reference).
*10.20 Century 1992 Management Equity Incentive Plan (filed as Exhibit
10(x)(1) to the Company's Annual Report on Form 10-K for the year
ended May 31, 1992 and incorporated herein by reference).
*10.21 1993 Non-Employee Directors' Stock Option Plan of the Company (filed
as Exhibit 10(v)(2) to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995, and incorporated herein by
reference).
*10.22 1994 Stock Option Plan of the Company (filed as Exhibit 10(v)(3) to
the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1995, and incorporated herein by reference).
10.23 Interest Rate Swap Agreement, dated as of July 18, 1986, between
Citibank, N.A. and Century-Texas (filed as Exhibit 10(v) to
Amendment No. 5 to the 1988 Form S-1 and incorporated herein by
reference).
10.24 Amendment No. 1 to Management Agreement and Joint Venture Agreement
(Century ML Venture), dated September 21, 1987, between Century
Texas and ML Media Partners, L.P., a Delaware limited partnership
(filed as Exhibit 10(w) to the Company's Annual Report on Form 10-X
for the fiscal year ended May 31, 1989 and incorporated herein by
reference).
10.25 Management Agreement and Joint Venture Agreement (Century-ML Radio
Venture), dated as of February 15, 1989, between Century Texas and
ML Media Partners, L.P., a Delaware limited partnership (filed as
Exhibit 10(x) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1989 and incorporated herein by
reference).
10.26 Plan and Agreement of Merger, dated August 2, 1991, by and among
Century Cellular Holding Corp., Century Cellular Corp., Citizens
Utilities Company and Citizens Cellular Corp., together with
exhibits, including Management Agreement, Conflicts/Non-Compete
Agreement, Stock Transfer Agreement and Registration Rights
Agreement (filed as Exhibit 10(cc) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1991 and incorporated
herein by reference).
10.27 Credit Agreement, dated as of August 4, 1995, by and among CCC-I,
Inc., Pullman TV Cable Co., Inc., Kootenai Cable, Inc., Citibank
N.A., as agent, and each of the banks parties thereto (filed as
Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996 and incorporated herein by
reference).
10.28 Credit Agreement, dated as of June 30, 1994, by and among CCC-II,
Inc., Citibank N.A. as managing agent, and each of the banks parties
thereto (filed as Exhibit 10 to the Company's report on Form 8-K
dated July 25, 1994 and incorporated herein by reference. The
Company hereby agrees to furnish to the Securities and Exchange
Commission, upon its request, a copy of each instrument omitted
pursuant to Item 601(b)(4)(iii) of Regulation S-K).
10.29 Eighth Restated Credit Agreement, dated as of July 10, 1990, between
Century Texas, Century Investors and Citibank, N.A., on behalf of
itself and as agent, and The Chase Manhattan Bank (National
Association), The Bank of Nova Scotia, The First National Bank of
Chicago, Bank of Montreal, The Royal Bank of Canada, Continental
Bank N.A., Bankers Trust Company, Nippon Credit Bank, Provident
National Bank, and Security Pacific National Bank ("the Eighth
Restated Banks") (filed as an Exhibit to the Company's Current
Report on Form 8-K, filed July 13, 1990, and incorporated herein by
reference).
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
10.30 Third Amendment, dated as of November 21, 1990 (the "Third
Amendment"), among Centennial Cellular Corp., a Delaware corporation
("Centennial Cellular Corp."), the Lender parties on the signature
page thereto, Citibank, N.A., as agent, Century Cellular Holding
Corp., and the Guarantor of parties on the signature page thereto,
to the Credit Agreement, dated as of October 11, 1989, among
Centennial Cellular Corp., and Citibank, N.A., on behalf of itself
and as agent, and Kansallis-Osake-Pankki, Provident National Bank,
DnC America Banking Corporation, Meridian Bank, Lincoln Savings
Bank, Toronto Dominion Bank, and The Bank of Nova Scotia (the
"Cellular Banks") (filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1991,
and incorporated herein by reference).
10.31 Credit Agreement, dated as of October 11, 1989, among Centennial
Cellular Corp., and Citibank, N.A., on behalf of itself and as
agent, and the Cellular Banks, as Amended and Restated pursuant to
the Third Amendment (filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1991,
and incorporated herein by reference).
10.32 Second Restated Consolidated Guaranty and Pledge Agreement, dated as
of July 10, 1990, made by the subsidiaries of the Company set forth
on the signature pages thereto to Citibank, N.A., as agent for the
Eighth Restated Banks (filed as Exhibit 4(g) to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1990 and
incorporated herein by reference).
10.33 Third Restated Pledge Agreement and Guaranty, dated as of July 10,
1990, made by the Company to Citibank, N.A., as agent for the Eighth
Restated Banks (filed as Exhibit 4(h) to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1990 and incorporated
herein by reference).
10.34 Seventh Restated Pledge and Security Agreement, dated as of July 10,
1990, made by Century Texas to Citibank, N.A., as agent for the
Eighth Restated Banks (filed as Exhibit (i)A to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1990 and
incorporated herein by reference).
10.35 Third Collateral Agreement Amendment, dated as of July 10, 1990 made
by Century Texas, the Company and Citibank, N.A. as agent for the
Eighth Restated Banks (filed as Exhibit 4(i)B to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1990
and incorporated herein by reference).
10.36 Pledge Agreement, dated as of October 11, 1989, made by Century
Cellular Holding Corp., a New York corporation, to Citibank, N.A.,
as agent for the Cellular Banks (filed as an Exhibit to the
Company's Quarterly Report on Form 10-Q for the period quarterly
ended November 30, 1990 and incorporated herein by reference).
10.37 Pledge and Security Agreement, dated as of October 11, 1989, made by
Centennial Cellular Corp to Citibank, N.A., as agent for the
Cellular Banks, as Amended and Restated pursuant to the Third
Amendment (filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended November 30, 1990 and
incorporated herein by reference).
10.38 Consolidated Guaranty and Pledge Agreement, dated as of October 11,
1989, made by the subsidiaries of Centennial Cellular Corp. set
forth on the signature pages thereto to Citibank, N.A., as agent for
the Cellular Banks, as Amended and Restated pursuant to the Third
Amendment (filed as an Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended November 30, 1990 and
incorporated herein by reference).
10.39 Amendment No. 1 dated as of August 9, 1996 among CCC-I, Inc.,
Pullman TV Cable Co., Inc. and Kootenai Cable, Inc., Citibank, N.A.,
as agent, and each of the bank parties thereto (filed as Exhibit
10.39 to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1997, and incorporated herein by reference).
10.40 Amendment No. 1 dated as of August 9, 1996 among CCC-II, Inc.,
Citibank, N.A., as managing
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
agent, and each of the bank parties thereto (filed as Exhibit 10.40
to the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1997, and incorporated herein by reference).
10.41 Credit Agreement dated as of April 15, 1997 among Citizens Century
Cable Television Venture, Bank of America, National Trust and
Savings Association, as Syndication Agent, and Societe General, as
Agent, Corestates Bank, N.A., The First National Bank of Boston,
LTCB Trust Company, and PNC Bank, National Association, as
Co-Agents, and each of the bank parties thereto (filed as Exhibit
10.41 to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1997, and incorporated herein by reference).
*10.42 Extension Agreement to Employment Agreement dated September 10, 1997
between the Company and Daniel E. Gold (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended November 30, 1997, and incorporated herein by reference).
*10.43 Employment Agreement, dated as of January 1, 1997, between the
Company and Bernard P. Gallagher (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended August 31, 1997, and incorporated herein by reference).
*10.44 Modification Agreement, dated as of June 1, 1998, between the
Company and Scott N. Schneider (filed as Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1998 and incorporated by reference).
*10.45 Modification Agreement, dated as of June 1, 1998, between the
Company and Bernard P. Gallagher (filed as Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1998 and incorporated by reference).
*10.46 Modification Agreement, dated as of June 1, 1998, between the
Company and Michael G. Harris (filed as Exhibit 10.46 to the
Company's Annual Report on Form 10-K for the fiscal year ended May
31, 1998 and incorporated by reference).
*10.47 Modification Agreement, dated as of June 1, 1998, between the
Company and Frank Tow (filed as Exhibit 10.47 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1998
and incorporated by reference).
*10.48 Employment Agreement, dated as of July 1, 1997, between the Company
and Leonard Tow (filed as Exhibit 10.48 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1998 and
incorporated by reference).
10.49 Agreement and Plan of Merger, dated as of July 2, 1998, between
Centennial Cellular Corp. and CCW Acquisition Corp (filed as Exhibit
10.49 to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1998 and incorporated by reference).
10.50 Stockholder Agreement, dated as of July 2, 1998, between CCW
Acquisition Corp. and Century Communications Corp (filed as Exhibit
10.50 to the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1998 and incorporated by reference).
'D'11 Computation of income (loss) per common share.
'D'12 Computation of ratios.
'D'21 List of subsidiaries of the Company.
'D'23.1 Consent of Deloitte & Touche LLP.
'D'27 Financial Data Schedule.
99 Press Release of Centennial Cellular Corp., dated April 14, 1998
(filed as Exhibit 99 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended February 28, 1998, and incorporated
herein by reference).
</TABLE>
- ----------------------------
II-7
<PAGE>
* Constitutes a management contract or compensatory plan or arrangement.
'D' Filed herewith.
II-8
<PAGE>
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as ...........................'D'
The section symbol shall be expressed as .........................'SS'
II-9
<PAGE>
EXHIBIT 2.2
APPENDIX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ADELPHIA COMMUNICATIONS CORPORATION
ADELPHIA ACQUISITION SUBSIDIARY, INC.
AND
CENTURY COMMUNICATIONS CORP.
----------------------------
DATED AS OF MARCH 5, 1999
----------------------------
AS AMENDED BY THE
FIRST AMENDMENT TO THE
AGREEMENT AND PLAN OF MERGER
----------------------------
DATED AS OF JULY 12, 1999
----------------------------
AND
AS AMENDED BY THE
SECOND AMENDMENT TO THE
AGREEMENT AND PLAN OF MERGER
----------------------------
DATED AS OF JULY 29, 1999
----------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
<S> <C>
THE MERGER............................................................ 4
Section 1.01 The Merger.............................................. 4
Section 1.02 Conversion of Shares.................................... 5
Section 1.03 Merger Consideration.................................... 5
Section 1.04 Cash and Stock Elections; Proration..................... 6
Section 1.05 Letter of Transmittal................................... 9
Section 1.06 Deposit of Merger Consideration......................... 9
Section 1.07 Surrender and Payment................................... 9
Section 1.08 Adjustments............................................. 10
Section 1.09 Fractional Shares....................................... 10
Section 1.10 Withholding of Tax...................................... 10
Section 1.11 Lost Certificates....................................... 10
Section 1.12 Stock Transfer Books.................................... 10
Section 1.13 Shareholder Approval.................................... 10
Section 1.14 Stock Options and Restricted Stock...................... 11
ARTICLE II
THE SURVIVING CORPORATION............................................. 11
Section 2.01 Certificate of Incorporation............................ 11
Section 2.02 Bylaws.................................................. 11
Section 2.03 Directors............................................... 11
Section 2.04 Officers................................................ 11
Section 2.05 Name.................................................... 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 12
Section 3.01 Corporate Existence and Power........................... 12
Section 3.02 Corporate Authorization................................. 12
Section 3.03 Governmental Authorization.............................. 12
Section 3.04 Non-contravention....................................... 13
Section 3.05 Capitalization.......................................... 13
Section 3.06 Significant Subsidiaries................................ 14
Section 3.07 SEC Filings............................................. 14
Section 3.08 Financial Statements.................................... 14
Section 3.09 Disclosure Documents.................................... 14
Section 3.10 Absence of Certain Changes or Events.................... 15
Section 3.11 Litigation.............................................. 15
Section 3.12 Taxes................................................... 15
Section 3.13 Employee Benefit Plans.................................. 15
Section 3.14 Brokers................................................. 17
Section 3.15 Compliance with Applicable Laws......................... 17
Section 3.16 Environmental Matters................................... 17
Section 3.17 Opinion of Financial Advisor............................ 17
Section 3.18 No Other Representations................................ 17
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ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........... 17
Section 4.01 Corporate Existence and Power........................ 17
Section 4.02 Corporate Authorization.............................. 18
Section 4.03 Governmental Authorization........................... 18
Section 4.04 Non-contravention.................................... 18
Section 4.05 Capitalization....................................... 19
Section 4.06 Significant Subsidiaries............................. 19
Section 4.07 SEC Filings.......................................... 20
Section 4.08 Financial Statements................................. 20
Section 4.09 Disclosure Documents................................. 20
Section 4.10 Absence of Certain Changes or Events................. 21
Section 4.11 Litigation........................................... 21
Section 4.12 Brokers.............................................. 21
Section 4.13 Compliance with Applicable Laws...................... 21
Section 4.14 Interested Shareholder............................... 21
Section 4.15 Ownership of Merger Sub; No Prior Activities......... 21
Section 4.16 Opinion of Financial Advisor......................... 21
Section 4.17 No Other Representations............................. 21
ARTICLE V
COVENANTS OF THE COMPANY........................................... 22
Section 5.01 Conduct of the Company............................... 22
Section 5.02 Other Transactions................................... 23
Section 5.03 Affiliates........................................... 24
ARTICLE VI
COVENANTS OF PARENT, MERGER SUB AND THE SURVIVING CORPORATION...... 24
Section 6.01 Indemnification; Directors' and Officers' Insurance.. 24
Section 6.02 Employee Benefit Arrangements........................ 25
Section 6.03 Listing, Registration................................ 25
Section 6.04 Conduct of Parent.................................... 25
Section 6.05 Obligations of Merger Sub............................ 25
ARTICLE VII
COVENANTS OF PARENT, MERGER SUB AND THE COMPANY.................... 25
Section 7.01 Reasonable Best Efforts.............................. 25
Section 7.02 Registration Statement............................... 25
Section 7.03 Company Shareholder Meeting.......................... 26
Section 7.04 Consents............................................. 26
Section 7.05 Public Announcements................................. 26
Section 7.06 Notification of Certain Matters...................... 26
Section 7.07 Antitrust Matters.................................... 27
Section 7.08 Access to Information................................ 27
Section 7.09 Tax-free Reorganization.............................. 27
Section 7.10 Dissenting Shareholders.............................. 27
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Section 7.11 Registration Rights....................................... 28
Section 7.12 Board of Directors........................................ 28
Section 7.13 Citizens Joint Venture.................................... 28
ARTICLE VIII
CONDITIONS TO THE MERGER................................................ 29
Section 8.01 Conditions to the Obligations of Each Party............... 29
Section 8.02 Conditions Precedent to the Obligations of Merger Sub..... 29
Section 8.03 Conditions Precedent to the Obligations of the Company.... 30
ARTICLE IX
TERMINATION............................................................. 30
Section 9.01 Termination............................................... 30
Section 9.02 Effect of Termination..................................... 31
Section 9.03 Fees and Expenses......................................... 31
ARTICLE X
MISCELLANEOUS........................................................... 31
Section 10.01 Notices................................................... 31
Section 10.02 Survival of Representations, Warranties and Agreements.... 32
Section 10.03 Amendment................................................. 32
Section 10.04 Extension; Waiver......................................... 32
Section 10.05 Successors and Assigns.................................... 32
Section 10.06 Governing Law............................................. 32
Section 10.07 Jurisdiction.............................................. 32
Section 10.08 Counterparts; Effectiveness............................... 33
Section 10.09 Entire Agreement; No Third-party Beneficiaries............ 33
Section 10.10 Headings.................................................. 33
Section 10.11 Severability.............................................. 33
Section 10.12 Definitions............................................... 33
</TABLE>
Exhibit A: Class B Voting Agreement
Exhibit B: Rigas Class B Voting Agreement
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of March
5, 1999 and as amended on July 12, 1999 and July 29, 1999 among Adelphia
Communications Corporation, a Delaware corporation ("Parent"), Adelphia
Acquisition Subsidiary, Inc., a Delaware corporation and a direct, wholly-owned
subsidiary of Parent ("Merger Sub") and Century Communications Corp., a New
Jersey corporation (the "Company").
RECITALS
A. The respective Boards of Directors of Parent, Merger Sub and the Company
have approved, and deem it advisable and in the best interests of their
respective shareholders to consummate, the acquisition of the Company by Parent
on the terms and conditions set forth herein.
B. The parties intend that the acquisition contemplated by this Agreement
constitute a "reorganization" within the meaning of Section 368(a) of the Code
(as defined in Section 10.12(a)).
C. As an inducement to Parent to enter into this Agreement and to incur the
obligations set forth herein, all of the holders of Class B Company Common Stock
(as defined in Section 1.02(a)) (the "Class B Shareholders"), concurrently with
the execution and delivery of this Agreement, are entering into a Voting
Agreement with Parent in the form of Exhibit A (the "Class B Voting Agreement")
pursuant to which the Class B Shareholders have agreed to vote the shares of the
Class B Company Common Stock (as defined in Section 1.02(a)) owned by them in
favor of this Agreement and the Merger.
D. As an inducement to the Company to enter into this Agreement and to
incur the obligations set forth herein, certain shareholders of Parent (the
"Parent Shareholders"), concurrently with the execution and delivery of this
Agreement, are entering into a Voting Agreement with the Company in the form of
Exhibit B (the "Rigas Class B Voting Agreement") pursuant to which the Parent
Shareholders have agreed to vote the shares of Parent Common Stock (as defined
in Section 1.03(a)) owned by them in favor of this Agreement and the Merger.
In consideration of the premises and the respective representations,
warranties, covenants, and agreements set forth herein, the parties agree as
follows.
ARTICLE I
THE MERGER
Section 1.01 The Merger.
(a) At the Effective Time (as defined in Section 1.01(c)), the Company
shall be merged (the "Merger") with and into Merger Sub in accordance with the
New Jersey Business Corporation Act (the "NJBCA") and the General Corporation
Law of the State of Delaware, whereupon the separate existence of the Company
will cease, and Merger Sub shall be the surviving corporation (the "Surviving
Corporation").
(b) The closing of the Merger (the "Closing") will take place at 10:00 a.m.
(New York City time) on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second Business Day after satisfaction
of the conditions set forth in Article VIII, at the offices of Gibson, Dunn &
Crutcher LLP, 200 Park Avenue, New York, New York 10166, unless the parties
agree in writing to another time, date or place.
(c) Upon the Closing, the Company and Merger Sub will file a certificate of
merger with the Secretaries of State of the States of New Jersey and Delaware
and make all other filings or recordings required by New Jersey
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and Delaware law in connection with the Merger. The Merger will become effective
at such time as the certificates of merger are filed with the Secretaries of
State of the States of New Jersey and Delaware or at such later time as is
specified in the certificates of merger (the "Effective Time").
(d) From and after the Effective Time, the Surviving Corporation will
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Merger Sub, all as provided under the Delaware General Corporation Law.
Section 1.02 Conversion of Shares. At the Effective Time:
(a)(i) Subject to the limitations set forth in Section 1.02(a)(iii),
each share of Class A capital stock of the Company, par value $0.01 per
share (the "Class A Company Common Stock"), issued and outstanding
immediately prior to the Effective Time (x) will be converted into the
right to receive the Century Class A Per Share Stock Amount (as defined in
Section 1.03) or (y) at the election of the holder thereof, which election
will be available on a share-by-share basis as provided in Section 1.04,
will be converted into the right to receive the Century Class A Per Share
Cash Amount (as defined in Section 1.03).
(ii) Subject to the limitations set forth in Section 1.02(a)(iii),
each share of Class B capital stock of the Company, par value $0.01 per
share (the "Class B Company Common Stock" and together with the Class A
Company Common Stock, the ("Company Common Stock"), issued and outstanding
immediately prior to the Effective Time (x) will be converted into the
right to receive the Century Class B Per Share Stock Amount (as defined in
Section 1.03) or (y) at the election of the holder thereof, which election
will be available on a share-by-share basis as provided in Section 1.04,
will be converted into the right to receive the Century Class B Per Share
Cash Amount (as defined in Section 1.03).
(iii) Notwithstanding any provision contained herein to the contrary
(including the Cash Elections and the Stock Elections), at the Effective
Time (excluding shares held by Dissenting Shareholders), (w) not more than
twenty and 76/100 percent (20.76%) of the shares of Class A Company Common
Stock outstanding immediately prior to the Effective Time (excluding shares
held by Dissenting Shareholders) will be converted into the right to
receive the Century Class A Per Share Cash Amount, (x) not more than
seventy-nine and 24/100 percent (79.24%) shares of Class A Company Common
Stock outstanding immediately prior to the Effective Time (excluding shares
held by Dissenting Shareholders) will be converted into the right to
receive the Century Class A Per Share Stock Amount, (y) not more than
twenty-four and 54/100 percent (24.54%) shares of Class B Company Common
Stock outstanding immediately prior to the Effective Time (excluding shares
held by Dissenting Shareholders) will be converted into the right to
receive the Century Class B Per Share Cash Amount and (z) not more than
seventy-five and 46/100 percent (75.46%) shares of Class B Company Common
Stock outstanding immediately prior to the Effective Time (excluding shares
held by Dissenting Shareholders) will be converted into the right to
receive the Century Class B Per Share Stock Amount.
(b) Each share of Company Common Stock held by the Company as treasury
stock or owned by Parent or any of the Parent Subsidiaries immediately prior to
the Effective Time will be canceled, and no payment will be made with respect
thereto.
(c) Each issued and outstanding share of capital stock of Merger Sub will
remain outstanding and will be unchanged as a result of the Merger.
Section 1.03 Merger Consideration. Subject to Section 1.04(f) hereof, the
term "Merger Consideration" means: (a) for each share of Class A Company Common
Stock with respect to which an election to receive shares of the Class A Common
Stock, par value $.01 per share, of the Parent ("Parent Common Stock") has been
made or deemed made pursuant to Section 1.04 and not revoked (the "Class A Stock
Election"), the right to receive 0.77269147 shares of Parent Common Stock (the
"Century Class A Per Share Stock Amount"), (b) for each share of Class A Company
Common Stock with respect to which an
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election to receive cash has been made pursuant to Section 1.04 and not revoked
(the "Class A Cash Election"), the right to receive $44.14 in cash (the "Century
Class A Per Share Cash Amount"), (c) for each share of Class B Company Common
Stock with respect to which an election to receive shares of Parent Common Stock
has been made or deemed made pursuant to Section 1.04 and not revoked (the
"Class B Stock Election" and together with the Class A Stock Election, the
"Stock Election"), the right to receive 0.84271335 shares of Parent Common Stock
(the "Century Class B Per Share Stock Amount", and (d) for each share of Class
B Company Common Stock with respect to which an election to receive cash has
been made pursuant to Section 1.04 and not revoked (the "Class B Cash Election"
and together with the Class A Cash Election the "Cash Election"), the right to
receive $48.14 in cash (the "Century Class B Per Share Cash Amount").
Section 1.04 Cash and Stock Elections; Proration.
(a) Each Person who, at the Effective Time, is a record holder of Company
Common Stock (other than Dissenting Shareholders and holders of shares to be
canceled as set forth in Section 1.02(b)) will have the right to submit an
Election Form (as defined in Section 1.04(b)) specifying the number of shares of
Company Common Stock that such Person desires to have converted into the right
to receive, subject to Section 1.04(f) hereof, (i) the Century Class A Per Share
Stock Amount pursuant to a Class A Stock Election, (ii) the Century Class A Per
Share Cash Amount pursuant to a Class A Cash Election, (iii) the Century Class B
Per Share Stock Amount pursuant to a Class B Stock Election or (iv) the Century
Class B Per Share Cash Amount pursuant to a Class B Cash Election.
(b) The Parent will prepare a form of election, which form will be subject
to the reasonable approval of the Company (the "Election Form"), to be mailed by
the Company with the Proxy Statement/Prospectus (as defined in Section 7.03(b))
to the record holders of Company Common Stock as of the record date for the
Company Shareholder Meeting (as defined in Section 7.03(a)). The Company will
use its reasonable best efforts to make the Election Form available to all
persons who become record holders of Company Common Stock during the period
between such record date and the Election Deadline (as defined in Section
1.04(c)) and to all holders of outstanding Options (as defined in Section
1.14(a)).
(c) Any Cash Election will have been validly made only if the Exchange
Agent (as defined in Section 1.05) shall have received, by 5:00 p.m. (New York
City time) on the Business Day immediately preceding the Closing Date (the
"Election Deadline"), an Election Form properly completed and executed by such
holder accompanied by the certificates for the shares of Company Common Stock to
which such Election Form relates, or by an appropriate guarantee of delivery of
such certificates from a member of any registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company in the United States as set forth in such Election Form.
Holders of outstanding Options that become exercisable and vested at the
Effective Time may deliver an Election Form to the Exchange Agent relating to
shares of Class A Company Common Stock issuable upon exercise of such Options up
to 5:00 p.m. (New York City time) on the Closing Date. Holders of record of
shares of Company Common Stock who hold such shares as nominees, trustees or in
other representative capacities may submit multiple Election Forms, provided
that such holder certifies that each such Election Form covers all the shares of
Company Common Stock held by each such holder for a particular beneficial owner.
(d) Any holder of Company Common Stock may revoke such holder's election by
written notice to the Exchange Agent received by the close of business on the
day prior to the Election Deadline. All Election Forms automatically will be
revoked if the Exchange Agent is notified in writing by Parent and the Company
that this Agreement has been terminated. The determination of the Exchange Agent
will be binding as to whether or not (i) Election Forms have been properly
completed, signed and submitted or revoked and (ii) immaterial defects in an
Election Form should be disregarded. The Exchange Agent will be under no
obligation to notify any person of any defect in an Election Form submitted to
the Exchange Agent.
(e) As of the Election Deadline, to the extent that a holder of Company
Common Stock (i) shall not have submitted to the Exchange Agent an effective,
properly completed Election Form with respect to all or certain
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of the shares held by such holder (including shares held by Dissenting
Shareholders as of the Election Deadline as to which appraisal rights are
subsequently withdrawn, not perfected or forfeited) or (ii) shall have properly
revoked and not properly submitted to the Exchange Agent a subsequent Election
Form with respect to all or certain of the shares, such holder will be deemed to
have made the Class A Stock Election or Class B Stock Election, as applicable,
with respect to such shares.
(f)(i) If the aggregate number of shares of Class A Company Common Stock
with respect to which Class A Cash Elections have been made exceeds the
aggregate number of shares of Class A Company Common Stock which, pursuant to
Section 1.02(a)(iii) hereof, may be converted into the right to receive cash in
the Merger, then,
(A) each share of Class A Company Common Stock with respect to which a
Class A Stock Election shall have been made shall be converted into the
right to receive the Century Class A Per Share Stock Amount; and
(B) each share of Class A Company Common Stock with respect to which a
Class A Cash Election shall have been made shall be converted into the
right to receive:
(1) the amount in cash, without interest, equal to the product of
(x) the Century Class A Per Share Cash Amount and (y) a fraction (the
"Class A Cash Fraction"), the numerator of which shall be the
aggregate number of shares of Class A Company Common Stock which,
pursuant to Section 1.02(a)(iii) hereof, may be converted into the
right to receive cash in the Merger, and the denominator of which
shall be the aggregate number of shares of Class A Company Common
Stock with respect to which Class A Cash Elections shall have been
made, and
(2) the number of shares of Parent Common Stock equal to the
product of (x) the Century Class A Per Share Stock Amount and (y) a
fraction equal to one minus the Class A Cash Fraction.
(ii) If the aggregate number of shares of Class A Company Common Stock with
respect to which Class A Stock Elections have been made exceeds the aggregate
number of shares of Class A Company Common Stock which, pursuant to Section
1.02(a)(iii) hereof, may be converted into the right to receive Parent Common
Stock in the Merger, then,
(A) each share of Class A Company Common Stock with respect to which a
Class A Cash Election shall have been made shall be converted into the
right to receive the Century Class A Per Share Cash Amount; and
(B) each share of Class A Company Common Stock with respect to which a
Class A Stock Election shall have been made shall be converted into the
right to receive:
(1) the number of shares of Parent Common Stock equal to the
product of (x) the Century Class A Per Share Stock Amount and (y) a
fraction (the "Class A Stock Fraction"), the numerator of which shall
be the aggregate number of shares of Class A Company Common Stock
which, pursuant to Section 1.02(a)(iii) hereof, may be converted into
the right to receive Parent Common Stock in the Merger, and the
denominator of which shall be the aggregate number of shares of Class
A Company Common Stock with respect to which Class A Stock Elections
shall have been made, and
(2) the amount in cash, without interest, equal to the product of
(x) the Century Class A Per Share Cash Amount and (y) a fraction equal
to one minus the Class A Stock Fraction.
(iii) If the aggregate number of shares of Class A Company Common Stock
with respect to which Class A Cash Elections have been made equals the aggregate
number of shares of Class A Company Common Stock which, pursuant to Section
1.02(a)(iii) hereof, may be converted into the right to receive cash and Parent
Common Stock in the Merger, then,
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(A) each share of Class A Company Common Stock with respect to which a
Class A Stock Election shall have been made shall be converted into the
right to receive the Century Class A Per Share Stock Amount; and
(B) each share of Class A Company Common Stock with respect to which a
Class A Cash Election shall have been made shall be converted into the
right to receive the Century Class A Per Share Cash Amount.
(iv) If the aggregate number of shares of Class B Company Common Stock with
respect to which Class B Cash Elections have been made exceeds the aggregate
number of shares of Class B Company Common Stock which, pursuant to Section
1.02(a)(iii) hereof, may be converted into the right to receive cash in the
Merger, then,
(A) each share of Class B Company Common Stock with respect to which a
Class B Stock Election shall have been made shall be converted into the
right to receive the Century Class B Per Share Stock Amount; and
(B) each share of Class B Company Common Stock with respect to which a
Class B Cash Election shall have been made shall be converted into the
right to receive:
(1) the amount in cash, without interest, equal to the product of
(x) the Century Class B Per Share Cash Amount and (y) a fraction (the
"Class B Cash Fraction"), the numerator of which shall be the
aggregate number of shares of Class B Company Common Stock which,
pursuant to Section 1.02(a)(iii) hereof, may be converted into the
right to receive cash in the Merger, and the denominator of which
shall be the aggregate number of shares of Class B Company Common
Stock with respect to which Class B Cash Elections shall have been
made, and
(2) the number of shares of Parent Common Stock equal to the
product of (x) the Century Class B Per Share Stock Amount and (y) a
fraction equal to one minus the Class B Cash Fraction.
(v) If the aggregate number of shares of Class B Company Common Stock with
respect to which Class B Stock Elections have been made exceeds the aggregate
number of shares of Class B Company Common Stock which, pursuant to Section
1.02(a)(iii) hereof, may be converted into the right to receive Parent Common
Stock in the Merger, then,
(A) each share of Class B Company Common Stock with respect to which a
Class B Cash Election shall have been made shall be converted into the
right to receive the Century Class B Per Share Cash Amount; and
(B) each share of Class B Company Common Stock with respect to which a
Class B Stock Election shall have been made shall be converted into the
right to receive:
(1) the number of shares of Parent Common Stock equal to the
product of (x) the Century Class B Per Share Stock Amount and (y) a
fraction (the "Class B Stock Fraction"), the numerator of which shall
be the aggregate number of shares of Class B Company Common Stock
which, pursuant to Section 1.02(a)(iii) hereof, may be converted into
the right to receive Parent Common Stock in the Merger, and the
denominator of which shall be the aggregate number of shares of Class
B Company Common Stock with respect to which Class B Stock Elections
shall have been made, and
(2) the amount in cash, without interest, equal to the product of
(x) the Century Class B Per Share Cash Amount and (y) a fraction equal
to one minus the Class B Stock Fraction.
(vi) If the aggregate number of shares of Class B Company Common Stock with
respect to which Class B Cash Elections have been made equals the aggregate
number of shares of Class B Company Common Stock which, pursuant to Section
1.02(a)(iii) hereof, may be converted into the right to receive cash and Parent
Common Stock in the Merger, then,
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(A) each share of Class B Company Common Stock with respect to which a
Class B Stock Election shall have been made shall be converted into the
right to receive the Century Class B Per Share Stock Amount; and
(B) each share of Class B Company Common Stock with respect to which a
Class B Cash Election shall have been made shall be converted into the
right to receive the Century Class B Per Share Cash Amount.
Section 1.05 Letter of Transmittal. On or prior to the Effective Time,
Parent will authorize one or more commercial banks or trust companies acceptable
to the Company, organized under the laws of the United States or any state
thereof, to act as Exchange Agent hereunder (the "Exchange Agent"). Promptly
after the Effective Time, Parent will cause the Exchange Agent to mail to each
record holder of Company Common Stock at the Effective Time (i) a letter of
transmittal (the "Letter of Transmittal") that will specify that delivery will
be effected, and risk of loss and title to the certificates formerly
representing the Company Common Stock will pass, upon delivery of such
certificates to the Exchange Agent and will be in such form and have such other
provisions, including appropriate provisions with respect to back-up
withholding, as Parent reasonably may specify and (ii) instructions for use in
effecting the surrender of the certificates formerly representing shares of
Company Common Stock in exchange for the Merger Consideration.
Section 1.06 Deposit of Merger Consideration. On or prior to the Effective
Time, Parent will deposit with the Exchange Agent, for the benefit of the former
holders of Company Common Stock, cash and certificates sufficient to pay the
Merger Consideration for all the shares of Company Common Stock. The shares of
Parent Common Stock into which shares of Company Common Stock will be converted
pursuant to the Merger will be deemed to have been issued at the Effective Time
for purposes of entitlement to dividends declared, if any, after the Effective
Time.
Section 1.07 Surrender and Payment.
(a) Upon surrender for cancellation to the Exchange Agent of a certificate
formerly representing shares of Company Common Stock, together with the Letter
of Transmittal, duly executed and completed in accordance with the instructions
thereto, the holder thereof will be entitled to receive (i) a certified or bank
cashier's check in the amount equal to the aggregate amount of Merger
Consideration that takes the form of cash which such holder has the right to
receive pursuant to the provisions of this Article I (including any dividends or
distributions related thereto which such former holder of Company Common Stock
is entitled to receive pursuant to the provisions of Section 1.07(c) and any
cash in lieu of fractional shares of Parent Common Stock pursuant to Section
1.09) and/or (ii) certificates representing the aggregate number of shares of
Parent Common Stock with respect to the Merger Consideration that takes the form
of Parent Company Stock which such holder has the right to receive pursuant to
the provisions of this Article I, less the amount of any required withholding
taxes, if any, in accordance with Section 1.10. After the Effective Time and
until so surrendered, each certificate representing shares of Company Common
Stock will represent for all purposes only the right to receive the Merger
Consideration.
(b) If the Merger Consideration (or any portion thereof) is to be delivered
to a Person other than the Person in whose name the surrendered certificate or
certificates are registered, it will be a condition of such delivery that the
surrendered certificate or certificates shall be properly endorsed or otherwise
be in proper form for transfer and that the Person requesting such payment shall
pay any transfer or other Taxes required by reason of the delivery of the Merger
Consideration to a Person other than the registered holder of the surrendered
certificate or certificates or such Person shall establish to the satisfaction
of the Exchange Agent that any such Tax has been paid or is not applicable.
(c) No dividends or other distributions declared or made with respect to
Parent Common Stock on or after the Effective Time will be paid to the holder of
any certificate that theretofore evidenced shares of Company Common Stock until
such certificate is surrendered as provided in this Section 1.07. Upon such
surrender,
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Parent will be pay to the holder of the certificates evidencing
shares of Parent Common Stock issued in exchange therefor, without interest, the
amount of dividends or other distributions with a record date after the
Effective Time payable with respect to shares of Parent Common Stock.
(d) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.06 that remains unclaimed by holders of shares of
Company Common Stock two years after the Effective Time will be returned to
Parent upon demand. Any such holder who has not exchanged shares of Company
Common Stock for the Merger Consideration in accordance with this Article I
prior to that time thereafter will look only to Parent for payment of the Merger
Consideration in respect of such shares of Company Common Stock.
Section 1.08 Adjustments. If at any time during the period between the date
of this Agreement and the Effective Time, any change in the outstanding shares
of capital stock of Parent occurs, including by means of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period, the
Merger Consideration will be adjusted appropriately.
Section 1.09 Fractional Shares. No fractional shares of Parent Common Stock
will be issued in the Merger. All fractional shares of Parent Common Stock that
a holder of shares of Company Common Stock otherwise would be entitled to
receive as a result of the Merger will be aggregated. If a fractional share
results from such aggregation, in lieu thereof such holder will be entitled to
receive from Parent, promptly after the Effective Time, an amount in cash
determined by multiplying the closing price of a share of Parent Common Stock on
the Nasdaq National Market on the trading day immediately preceding the
Effective Time by the fraction of a share of Parent Common Stock to which such
holder would otherwise have been entitled.
Section 1.10 Withholding of Tax. Parent or the Exchange Agent will be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any former holder of Company Common Stock such
amounts as Parent or the Exchange Agent are required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign Tax law. To the extent that amounts are so withheld by Parent
or the Exchange Agent, such withheld amounts will be treated for all purposes of
this Agreement as having been paid to the former holder of Company Common Stock
in respect of whom such deduction and withholding was made by Parent.
Section 1.11 Lost Certificates. If any certificate evidencing Company
Common Stock has been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such certificate to be lost, stolen or
destroyed and, if reasonably required by Parent, the posting by such Person of a
bond in such reasonable amount as Parent may direct as indemnity against claims
that may be made against it with respect to such certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed certificate the Merger
Consideration to which such Person may be entitled pursuant to this Article I
and cash and any dividends or other distributions to which such Person may be
entitled pursuant to Section 1.06(a).
Section 1.12 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company will be closed and there will be no further
registration of transfers of shares of Company Common Stock on the records of
the Company. Certificates formerly representing shares of Company Common Stock
that are presented to the Surviving Corporation after the Effective Time will be
canceled and exchanged for certificates representing shares of Parent Common
Stock.
Section 1.13 Shareholder Approval. This Agreement will be submitted for
adoption and approval to the holders of shares of Class A Company Common Stock
and the holders of shares of Class B Company Common Stock at the Company
Shareholder Meeting (as defined in Section 7.03) in accordance with the
provisions of this Agreement. The affirmative vote of a majority of the votes
cast by the holders of shares entitled to vote thereon of Class A Company Common
Stock and Class B Company Common Stock (voting as separate classes) is required
to approve this Agreement. No other approval of the Company's shareholders is
required in order to consummate the Merger.
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Section 1.14 Stock Options and Restricted Stock. As of the Effective Time:
(a) Each outstanding option (an "Option") to purchase shares of Class A
Company Common Stock granted under the Company's 1985 Stock Option Plan, the
1993 Non-Employee Directors' Stock Option Plan and the 1994 Stock Option Plan,
or any similar plan or arrangement (collectively, the "Option Plans"), whether
or not then exercisable or vested, will become fully exercisable and vested. Any
restricted shares of Class A Company Common Stock issued pursuant to the 1992
Management Equity Incentive Plan will become fully vested and will cease to be
restricted.
(b) Each outstanding Option, at the election of each holder of such Option,
which election will be available on an option-by-option basis, either:
(i) will be exercised, effective as of the Effective Time, and each
share of Class A Company Common Stock issuable with respect thereto will be
converted into the right to receive, at the election of each holder,
subject to Section 1.04(f), either (x) the Century Class A Per Share Cash
Amount or (y) the Century Class A Per Share Stock Amount, as provided in
Sections 1.02 and 1.03; or
(ii) will be assumed by Parent and converted into an option to
purchase, on the same terms and conditions as were applicable under the
Option Plans (except as provided herein), shares of Parent Common Stock
with the exercise price, the number of shares purchasable pursuant to such
Option and the terms and conditions of exercise of such Option to be
determined according to Section 424 of the Code, as more fully described in
a notice accompanying the Proxy Statement/Prospectus.
(c) Parent will take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of Options assumed by it in accordance with this Section 1.14. Promptly after
the Effective Time, Parent will file with the SEC a registration statement on
Form S-3 or S-8, as appropriate, covering the shares of Parent Common Stock
subject to such Options and will use its commercially reasonable efforts to
cause such registration statement to remain effective for so long as such
Options remain outstanding.
ARTICLE II
THE SURVIVING CORPORATION
Section 2.01 Certificate of Incorporation. The certificate of incorporation
of Merger Sub in effect at the Effective Time will be the certificate of
incorporation of the Surviving Corporation until amended in accordance with
applicable law.
Section 2.02 Bylaws. Subject to the provisions of Section 6.01, the by-laws
of Merger Sub in effect at the Effective Time will be the by-laws of the
Surviving Corporation until amended in accordance with applicable law.
Section 2.03 Directors. From and after the Effective Time, until successors
are duly elected or appointed and qualified in accordance with applicable law,
the directors of Merger Sub at the Effective Time will be the directors of the
Surviving Corporation.
Section 2.04 Officers. From and after the Effective Time, until successors
are duly elected or appointed and qualified in accordance with applicable law,
the officers of Merger Sub at the Effective Time will be the officers of the
Surviving Corporation.
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Section 2.05 Name. The name of the Surviving Corporation at the Effective
time will be Arahova Communications, Inc.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent that, except for inaccuracies
in the representations and warranties resulting from compliance by the Company
with any of its obligations under this Agreement or actions taken by the Company
in accordance with this Agreement and except as disclosed in the Company
Disclosure Schedule:
Section 3.01 Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of New Jersey and has all corporate power required to carry on its
business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified or be in good standing would not have a Material
Adverse Effect. The Company has delivered to Parent copies of the Company's
certificate of incorporation and by-laws as currently in effect.
Section 3.02 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby are within the Company's corporate
powers and, except for the approval and adoption by the Company's shareholders
of this Agreement and the Merger, have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due and valid
authorization, execution and delivery of this Agreement by Parent and Merger Sub
and receipt of all required approvals by the Company's shareholders in
connection with the consummation of the Merger, constitutes a valid and binding
agreement of the Company, enforceable in accordance with its terms except as may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally and by
equitable principles of general applicability. The Board of Directors of the
Company (the "Company Board") has approved the Merger, this Agreement, the Class
B Voting Agreement and the transactions contemplated hereby and thereby and such
approval, assuming the accuracy of the representation in Section 4.14, is
sufficient to render the provisions of Article 14A:10A of the NJBCA inapplicable
to the Merger, this Agreement, the Class B Voting Agreement and the transactions
contemplated hereby and thereby. No other corporate proceedings on the part of
the Company are necessary to authorize or approve this Agreement or to
consummate the transactions contemplated hereby (other than the approval and
adoption of the Merger and this Agreement by the shareholders of the Company to
the extent required by the Company's certificate of incorporation and by
applicable law).
Section 3.03 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the Merger and the other transactions contemplated hereby require no consent,
waiver, approval, authorization or permit by or from, or action by or in respect
of, or filing with, any Governmental Entity, other than: (i) the filing of
certificates of merger as contemplated by Section 1.01(c); (ii) compliance with
any applicable requirements of state takeover laws; (iii) compliance with the
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 as amended and the rules and regulations thereunder (the "HSR Act"); (iv)
compliance with any applicable requirements of the Securities Act of 1933, as
amended (together with the rules and regulations promulgated thereunder, the
"Securities Act") and the Securities Exchange Act of 1934, as amended (together
with the rules and regulations promulgated thereunder, the "Exchange Act"); (v)
compliance with any applicable requirements of the Communications Act of 1934,
as amended (together with the rules, regulations and published decisions of the
FCC (as defined below), the "Communications Act"); (vi) filings under state
securities or "blue-sky" laws; (vii) notice to, or consents, approvals or
waivers from, the relevant Franchising
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Authorities or other third parties in connection with a change of control
of the holder of the Franchises of the Company and the Company Subsidiaries and
of the Federal Communications Commission (the "FCC") in connection with a change
of control or a transfer of assets of the holder of the FCC licenses of the
Company and the Company Subsidiaries; and (viii) such consents, waivers,
approvals, authorizations, permits, filings or actions that, if not taken, made
or obtained, would not in the aggregate have a Material Adverse Effect.
Section 3.04 Non-contravention. Assuming compliance with the matters
referred to in Section 3.03, the execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not: (i) assuming receipt of
the approval of shareholders of the Company referred to in Section 3.02,
contravene or conflict with the certificate of incorporation or by-laws of the
Company; (ii) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to the Company or any Company Subsidiary that would be a
significant subsidiary within the meaning of Regulation S-X under the Exchange
Act (a "Significant Subsidiary of the Company"); (iii) result in a breach or
violation of or constitute a default (or an event that with the giving of notice
or the lapse of time or both would constitute a default) under or give rise to a
right of termination, amendment, cancellation or acceleration of any right or
obligation of the Company or any Significant Subsidiary of the Company or to a
loss of any material benefit to which the Company or any Significant Subsidiary
of the Company is entitled or require any consent, approval or authorization
under any provision of any material agreement, contract or other instrument
binding upon the Company or any Significant Subsidiary of the Company or any of
their respective assets (including any material license, franchise, permit or
other similar authorization held by the Company or any Significant Subsidiary of
the Company); or (iv) result in the creation or imposition of any Lien on any
material asset of the Company or any Significant Subsidiary of the Company,
except for such contraventions, conflicts or violations referred to in clause
(ii) and breaches, violations, defaults, rights of termination, amendment,
cancellation or acceleration, losses, Liens or other occurrences referred to in
clauses (iii) and (iv) (each, a "Violation") that in the aggregate would not
have a Material Adverse Effect. Upon consummation of the Company's joint venture
agreement with TCI Communications, Inc., the Company will amend the Company
Disclosure Schedule with respect to this Section 3.04 to give effect to such
transaction.
Section 3.05 Capitalization.
(a) As of February 11, 1999, the authorized capital stock of the Company
consisted of the following: (i) 400,000,000 shares of Class A Company Common
Stock, of which 32,879,755 were issued and outstanding; (ii) 300,000,000 shares
of Class B Company Common Stock, of which 42,322,059 were issued and
outstanding; and (iii) 100,000,000 shares of preferred stock, of which no shares
were issued and outstanding.
(b) As of February 11, 1999, there were outstanding Options to purchase an
aggregate of 2,666,049 shares of Class A Company Common Stock (of which Options
to purchase an aggregate of 1,784,659 shares of Class A Company Common Stock
were exercisable).
(c) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in this Section 3.05 and except for changes since February 11, 1999
resulting from the exercise of Options outstanding on such date, there are
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company (other than the
shares of Class B Company Common Stock, which are convertible into shares of
Class A Company Common Stock) and (iii) no options or other rights to acquire
from the Company, and no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (other than the shares of Class B
Company Common Stock, which are convertible into shares of Class A Company
Common Stock). The securities described in Section 3.05(a) and Section 3.05(b)
are referred to collectively as the "Company Securities"). Except pursuant to
the terms of the Company Securities, there are no outstanding obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any
Company Securities.
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(d) Except with respect to the interests in the Persons listed in the
Company Disclosure Schedule, there are no outstanding contractual obligations of
the Company or any Company Subsidiary to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
other Person other than to wholly-owned Company Subsidiaries or in the ordinary
course of business consistent with past practice.
Section 3.06 Significant Subsidiaries.
(a) Each Significant Subsidiary of the Company is a corporation or other
legal entity duly organized, validly existing and (if applicable) in good
standing under the laws of its jurisdiction of organization, has all corporate,
partnership or similar powers required to carry on its business as now conducted
and is duly qualified to do business as a foreign corporation or other legal
entity and (if applicable) is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be duly
organized, validly existing and in good standing or to have such powers would
not have a Material Adverse Effect. All Significant Subsidiaries of the Company
and their respective jurisdictions of organization are identified in the Company
Disclosure Schedule.
(b) All of the outstanding shares of capital stock of, or other ownership
interests in, each Significant Subsidiary of the Company, are owned by the
Company, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other ownership interests).
There are no outstanding (i) securities of the Company or any Significant
Subsidiary of the Company convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Significant
Subsidiary of the Company or (ii) options or other rights to acquire from the
Company or any Significant Subsidiary of the Company, and no other obligation of
the Company or any Significant Subsidiary of the Company to issue, any capital
stock, voting securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock, voting securities or
ownership interests in, any Significant Subsidiary of the Company. The
securities described in clauses (i) and (ii) above are referred to collectively
as the "Company Subsidiary Securities". There are no outstanding obligations of
the Company or any Significant Subsidiary of the Company to repurchase, redeem
or otherwise acquire any outstanding Company Subsidiary Securities or pay any
dividend or make any other distribution in respect thereof to a Person other
than the Company or a wholly-owned Significant Subsidiary of the Company.
Section 3.07 SEC Filings. The Company has filed with the SEC all forms,
reports, definitive proxy statements, schedules and registration statements
required to be filed with the SEC since May 31, 1998 (the "Company SEC
Reports"). No Company Subsidiary is required to file any report, form or
document with the SEC pursuant to the Exchange Act or the Securities Act. As of
their respective filing dates, no Company SEC Report contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The Company SEC
Reports when filed complied in all material respects with applicable
requirements of the Securities Act and the Exchange Act.
Section 3.08 Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company SEC Reports fairly present, in conformity with
GAAP applied on a consistent basis (except as may be indicated in the notes
thereto or in the case of unaudited interim financial statements as permitted by
Form 10-Q of the SEC), the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and its consolidated
statements of operations, shareholders' equity and cash flows for the periods
then ended (subject to normal year-end adjustments in the case of any unaudited
interim financial statements).
Section 3.09 Disclosure Documents.
(a) The Proxy Statement/Prospectus and any amendment or supplement thereto,
when filed, will comply as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act. At
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the time the Proxy Statement/Prospectus or any amendment or supplement thereto
is first mailed to shareholders of the Company and at the time such shareholders
vote on the approval and adoption of this Agreement, the Proxy
Statement/Prospectus, as supplemented or amended, if applicable, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading. The
representations and warranties in this Section 3.09(a) do not apply to
statements in or omissions from the Proxy Statement/Prospectus or any amendment
or supplement thereto based upon information furnished to the Company by Parent
for use therein.
(b) None of the information furnished to Parent for use in (or
incorporation by reference in) the Registration Statement (as defined in Section
4.09) or any amendment or supplement thereto will contain, at the time the
Registration Statement or any amendment or supplement thereto becomes effective,
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
Section 3.10 Absence of Certain Changes or Events. Since May 31, 1998,
except (x) as contemplated by this Agreement or disclosed in the Company SEC
Reports and (y) for any change resulting from the transactions contemplated by
this Agreement or general economic, financial, competitive or market conditions
or conditions or circumstances generally affecting the cable television or
communications industries, there has not been: (i) any change in the business,
operations or financial condition of the Company or any of the Company
Subsidiaries that has had or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; (ii) any declaration, setting
aside or payment of any dividend or other distribution with respect to any
shares of capital stock of the Company, or any repurchase, redemption or other
acquisition by the Company or any of the Company Subsidiaries of any outstanding
shares of capital stock or other securities of, or other ownership interests in,
the Company or any of the Company Subsidiaries; (iii) any incurrence, assumption
or guarantee by the Company or any of the Company Subsidiaries of any material
indebtedness for borrowed money other than in the ordinary course and in amounts
and on terms consistent with past practices; or (iv) as of the date hereof, any
damage, destruction or other casualty loss (whether or not covered by insurance)
affecting the business or assets of the Company or any of the Company
Subsidiaries that has had or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.
Section 3.11 Litigation. Except as set forth in the Company SEC Reports
filed prior to the date hereof, there is, as of the date hereof, no action, suit
or proceeding pending, or to the knowledge of the Company threatened, against
the Company or any Company Subsidiary before any court, arbitrator or other
Governmental Entity that would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
Section 3.12 Taxes. Except to the extent that failure to do so would not
have a Material Adverse Effect, each of the Company and its Significant
Subsidiaries has filed all Tax returns and reports required to be filed by it
and has paid, or established adequate reserves for, all Taxes required to be
paid by it. No deficiencies for any Taxes have been proposed, asserted or
assessed against the Company that would have a Material Adverse Effect. No
requests for waivers of the time to assess any such Taxes are pending, other
than waivers relating to property taxes and sales and use taxes.
Section 3.13 Employee Benefit Plans.
(a) The Company Disclosure Schedule identifies each material employment,
severance or similar contract or arrangement or any plan, policy, fund, program
or contract or arrangement providing for compensation, bonus, profit-sharing,
stock option or other stock-related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
workers' compensation, supplemental unemployment benefits, severance benefits
and post-employment or retirement benefits (including compensation, pension,
health, medical or life
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insurance or other benefits) that (i) is entered into, maintained, administered
or contributed to, as the case may be, by the Company or any Company Subsidiary
and (ii) covers any employee or former employee of any Company or Company
Subsidiary employed in the United States or Puerto Rico (each, an "Employee
Plan").
(b) The Company has furnished or made available to Parent copies of the
Employee Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof together with the most recent annual
report (Form 5500 including, if applicable, Schedule B thereto) and the most
recent actuarial valuation report prepared in connection with any Employee Plan.
There is no material accumulated funding deficiency, termination or partial
termination, or requirement to provide security with respect to any Employee
Plan. The fair market value of the assets of each material Employee Plan would
exceed the value of all liabilities and the obligations of such Employee Plan if
such plan were to terminate on the Closing Date. The transaction contemplated by
this Agreement will not result in any material liability under ERISA to the
Company or any of the Company's Subsidiaries or Parent, or any of their
respective ERISA Affiliates.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has been determined by the Internal Revenue Service to be
qualified under Section 401(a) of the Code and each trust related thereto has
been determined to be exempt from tax pursuant to Section 501(a) of the Code.
The Company is not aware of any event that has occurred since the date of such
determinations that would adversely affect such qualification or tax exempt
status. The Company has provided Parent with the most recent determination
letter of the Internal Revenue Service relating to each such Employee Plan. Each
Employee Plan has been maintained in compliance in all material respects with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations, including the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and the Code.
(d) No Employee Plan is a Multiemployer plan as defined in Section 3(37) of
ERISA or is a plan subject to Title IV of ERISA. Neither the Company nor any
Company Subsidiary or any of their ERISA Affiliates (or any former ERISA
Affiliate with respect to the period in which such entity was an ERISA
Affiliate) has ever maintained, adopted or established, contributed or been
required to contribute to, or otherwise participated or been required to
participate in, any such plan.
(e) Neither the Company nor any Company Subsidiary has any current or
projected material liability in respect of post-employment or post-retirement
health or medical or life insurance benefits for retired, former or current
employees of the Company, except as required to avoid excise tax under Section
4980B of the Code.
(f) There has been no amendment to, written interpretation of or
announcement by the Company, any Company Subsidiary or their respective
Affiliates relating to, or change in employee participation or coverage under,
any Employee Plan that would increase materially the expense of maintaining such
Employee Plan above the level of the expense incurred in respect thereof for the
most recent fiscal year ended prior to the date hereof, other than ordinary
course of business increases related to health, life and disability insurance
plans.
(g) Other than as disclosed in the Company SEC Reports, no employee or
former employee of the Company or any Company Subsidiary will become entitled to
any bonus, retirement, severance, job security or similar benefit or an
enhancement of such benefit (including acceleration of vesting or exercise of an
incentive award) under any Employee Plan as a result of the transactions
contemplated hereby.
(h) Other than routine claims for benefits and liability for premiums due
to the Pension Benefit Guaranty Corporation, neither the Company nor any Company
Subsidiary or ERISA Affiliate (or any former ERISA Affiliate with respect to the
period in which such entity was an ERISA Affiliate) has incurred any material
liability with respect to any Employee Plan that is currently due and owing and
has not yet been satisfied, including under ERISA, the Code or other applicable
law. No event has occurred and, to the knowledge of the Company, there exists no
condition or set of circumstances (other than the accrual of benefits under the
normal terms of the Employee Plans), that could result in the imposition of any
material liability on the Company or any Company Subsidiary or ERISA Affiliate
(or any former ERISA Affiliate with respect to the period in
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which such entity was an ERISA Affiliate) with respect to any Employee Plan,
including under ERISA, the Code or other applicable law with respect to any
Employee Plan.
Section 3.14 Brokers. Except for the engagement of Donaldson, Lufkin &
Jenrette Securities Corporation, none of the Company or any of the Company
Subsidiaries, or any of their respective officers, directors or employees, has
employed any investment banker, broker, finder or other intermediary or incurred
any liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement.
Section 3.15 Compliance with Applicable Laws. The Company and the Company
Subsidiaries are in substantial compliance with all laws, regulations and orders
of any Governmental Entity applicable to them, except where the failure to
comply would not have a Material Adverse Effect. The Company and each Company
Subsidiary are in material compliance with, and have obtained, all licenses,
permits, franchises or other governmental authorizations necessary to the
ownership of its properties or to the conduct of its business, except where the
failure to obtain such licenses, permits, franchises or other governmental
authorizations would not have a Material Adverse Effect.
Section 3.16 Environmental Matters. Except as would not have a Material
Adverse Effect: (i) to the Company's knowledge, no real property currently or
formerly owned or operated by the Company or any current Company Subsidiary is
contaminated with any Hazardous Substances to an extent or in a manner or
condition now requiring remediation under any Environmental Law; (ii) no
judicial or administrative proceeding is pending or, to the knowledge of the
Company, threatened relating to liability for any off-site disposal or
contamination; and (iii) the Company and the Company Subsidiaries have not
received in writing any claims or notices alleging liability under any
Environmental Law. To the Company's knowledge, neither the Company nor any
Company Subsidiary is in violation of any applicable Environmental Law and no
condition or event has occurred with respect to the Company or any Company
Subsidiary that would constitute a violation of such Environmental Law,
excluding in any event such violations, conditions and events that would not
have a Material Adverse Effect.
Section 3.17 Opinion of Financial Advisor. The Company has received the
written opinion of Donaldson, Lufkin & Jenrette Securities Corporation to the
effect that the Merger Consideration is fair from a financial point of view to
the shareholders of the Company (other than shareholders who are Affiliates of
the Company).
Section 3.18 No Other Representations. Except as specifically set forth in
this Article III, the Company has not made, and Parent and Merger Sub have not
relied upon, any representations or warranties, whether express or implied.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company that, except for
inaccuracies in the representations and warranties resulting from compliance by
Parent and Merger Sub with any of their obligations under this Agreement or
actions taken by Parent or Merger Sub in accordance with this Agreement and
except as disclosed in the Parent Disclosure Schedule:
Section 4.01 Corporate Existence and Power.
(a) Parent is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has all corporate power
required to carry on its business as now conducted. Parent is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the
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character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified or be in good standing would not have a Material
Adverse Effect. Parent has delivered to the Company copies of Parent's
certificate of incorporation and by-laws as currently in effect.
(b) Merger Sub is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and has all corporate
power required to carry on its business as now conducted. Merger Sub is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. Merger Sub has delivered to the
Company copies of Merger Sub's certificate of incorporation and by-laws as
currently in effect.
Section 4.02 Corporate Authorization. The execution, delivery and
performance by each of Parent and Merger Sub of this Agreement and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
are within the corporate powers of each of Parent and Merger Sub and have been
duly authorized by all necessary corporate action on the part of Parent and
Merger Sub. This Agreement has been duly and validly executed and delivered by
each of Parent and Merger Sub and, assuming the due and valid authorization,
execution and delivery of this Agreement by the Company, constitutes a valid and
binding agreement of each of Parent and Merger Sub, enforceable in accordance
with its terms except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and other similar laws affecting
creditors' rights generally and by equitable principles of general
applicability. The Board of Directors of each of Parent and Merger Sub, and
Parent as the sole shareholder of Merger Sub, have approved the Merger, this
Agreement and the transactions contemplated hereby. No other corporate
proceedings or shareholder approvals on the part of Parent or Merger Sub are
necessary to authorize or approve this Agreement or to consummate the
transactions contemplated hereby (other than approval of the shareholders of
Parent).
Section 4.03 Governmental Authorization. The execution, delivery and
performance by each of Parent and Merger Sub of this Agreement and the
consummation by each of Parent and Merger Sub of the Merger and the other
transactions contemplated hereby require no consent, waiver, approval,
authorization or permit by or from, or action by or in respect of, or filing
with, any Governmental Entity, other than: (i) the filing of certificates of
merger as contemplated by Section 1.01(a); (ii) compliance with any applicable
requirements of state takeover laws; (iii) compliance with the applicable
requirements of the HSR Act; (iv) compliance with any applicable requirements of
the Securities Act and the Exchange Act; (v) compliance with any applicable
requirements of the Communications Act; (vi) filings under state securities or
"blue-sky" laws; (vii) notice to, or consents, approvals or waivers from, the
relevant Franchising Authorities or other third parties in connection with a
change of control of the holder of the Franchises of the Company and the Company
Subsidiaries and the FCC in connection with a change of control or a transfer of
assets of the holder of the FCC licenses of the Company and the Company
Subsidiaries, and (viii) such consents, waivers, approvals, authorizations,
permits, filings or actions that, if not taken, made or obtained, would not in
the aggregate have a Material Adverse Effect.
Section 4.04 Non-contravention. Assuming compliance with the matters
referred to in Section 4.03, the execution, delivery and performance by each of
Parent and Merger Sub of this Agreement and the consummation by each of Parent
and Merger Sub of the transactions contemplated hereby do not and will not: (i)
assuming receipt of the approval of the shareholders of the Parent referred to
in Section 4.02, contravene or conflict with the certificate of incorporation or
by-laws of each of Parent and Merger Sub; (ii) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Parent, Merger Sub or
any Subsidiary of Parent that would be a significant subsidiary within the
meaning of Regulation S-X under the Exchange Act (a "Significant Subsidiary of
Parent"); (iii) assuming receipt of the approval of the shareholders of the
Parent referred to in Section 4.02, result in a breach or violation of or
constitute a default (or an event that with the giving of notice or the lapse
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of time or both would constitute a default) under or give rise to a right of
termination, amendment, cancellation or acceleration of any right or obligation
of Parent, Merger Sub or any Significant Subsidiary of Parent or to a loss of
any material benefit to which Parent, Merger Sub or any Significant Subsidiary
of Parent is entitled or require any consent, approval or authorization under
any provision of any material agreement, contract or other instrument binding
upon Parent, Merger Sub or any Significant Subsidiary of Parent or any of their
respective assets (including any material license, franchise, permit or other
similar authorization held by Parent, Merger Sub or any Significant Subsidiary
of Parent); or (iv) result in the creation or imposition of any Lien on any
material asset of Parent, Merger Sub or any Significant Subsidiary of Parent,
except for such Violations that in the aggregate would not have a Material
Adverse Effect.
Section 4.05 Capitalization.
(a) As of February 28, 1999, the authorized capital stock of Parent
consisted of the following: (i) 200,000,000 shares of Class A Common Stock, par
value $.01 per share, of which 42,328,343 were issued and outstanding; (ii)
25,000,000 shares of Class B Common Stock par value $.01 per share, of which
10,834,476 were issued and outstanding; and (iii) 5,000,000 shares of preferred
stock, of which 1,500,000 shares (issued as 13% Redeemable Exchangeable
Preferred Stock) and 80,000 shares (issued as 8 1/8% Series C Convertible
Preferred Stock convertible into 9,433,962 shares of the Parent's Class A Common
Stock) were issued and outstanding.
(b) As of February 28, 1999, there were no outstanding options to purchase
Parent Common Stock.
(c) All outstanding shares of capital stock of Parent have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in this Section 4.05, as of February 28, 1999, there are outstanding
(i) no shares of capital stock or other voting securities of Parent, (ii) no
securities of Parent convertible into or exchangeable for shares of capital
stock or voting securities of Parent and (iii) no options or other rights to
acquire from Parent, and no obligation of Parent to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Parent. The securities described in clauses (a)
and (b) of this Section 4.05 and the securities referred to in the Parent SEC
Reports are referred to collectively as the "Parent Securities". Except pursuant
to the terms of the Parent Securities, there are no outstanding obligations of
Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire any
Parent Securities.
(d) As of March 5, 1998, except as disclosed in the Parent SEC Reports and
except with respect to the interests in the Persons listed in the Parent
Disclosure Schedule, there are no outstanding contractual obligations of Parent
or any Parent Subsidiary to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any other Person other
than to wholly-owned Parent Subsidiaries or in the ordinary course of business
consistent with past practice.
Section 4.06 Significant Subsidiaries.
(a) Each Significant Subsidiary of Parent is a corporation or other legal
entity duly organized, validly existing and (if applicable) in good standing
under the laws of its jurisdiction of organization, has all corporate,
partnership or similar powers required to carry on its business as now conducted
and is duly qualified to do business as a foreign corporation or other legal
entity and (if applicable) is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be duly
organized, validly existing and in good standing or to have such powers would
not have a Material Adverse Effect. As of March 5, 1999, all Significant
Subsidiaries of Parent and their respective jurisdictions of organization are
identified in the Parent Disclosure Schedule.
(b) Except as disclosed in the Parent SEC Reports, all of the outstanding
shares of capital stock of, or other ownership interests in, each Significant
Subsidiary of Parent, are owned by Parent, directly or indirectly, free and
clear of any Lien and free of any other limitation or restriction (including any
restriction on the right
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to vote, sell or otherwise dispose of such capital stock or other ownership
interests). Except as disclosed in the Parent SEC Reports, there are no
outstanding (i) securities of Parent or any Significant Subsidiary of Parent
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests in any Significant Subsidiary of Parent or
(ii) options or other rights to acquire from Parent or any Significant
Subsidiary of Parent, and no other obligation of Parent or any Significant
Subsidiary of Parent to issue, any capital stock, voting securities or other
ownership interests in, or any securities convertible into or exchangeable for
any capital stock, voting securities or ownership interests in, any Significant
Subsidiary of Parent. The securities described in clauses (i) and (ii) above are
referred to collectively as the "Parent Subsidiary Securities"). Except as
disclosed in the Parent SEC Reports, there are no outstanding obligations of
Parent or any Significant Subsidiary of Parent to repurchase, redeem or
otherwise acquire any outstanding Parent Subsidiary Securities or pay any
dividend or make any other distribution in respect thereof to a Person other
than Parent or a wholly-owned Significant Subsidiary of Parent.
Section 4.07 SEC Filings. Parent and Hyperion Telecommunications, Inc. each
have filed with the SEC all forms, reports, definitive proxy statements,
schedules and registration statements required to be filed with the SEC since
March 31, 1998 (collectively, the "Parent SEC Reports"). Except for Hyperion
Telecommunications, Inc., as of March 5, 1999, no Parent Subsidiary is required
to file any report, form or document with the SEC pursuant to the Exchange Act
or the Securities Act. As of their respective filing dates, no Parent SEC Report
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. The Parent SEC Reports when filed complied in all material respects
with applicable requirements of the Securities Act and the Exchange Act.
Section 4.08 Financial Statements.
The audited consolidated financial statements and unaudited consolidated
interim financial statements of Parent included in the Parent SEC Reports fairly
present, in conformity with GAAP applied on a consistent basis (except as may be
indicated in the notes thereto or in the case of unaudited interim financial
statements as permitted by Form 10-Q of the SEC), the consolidated financial
position of Parent and its consolidated Subsidiaries as of the dates thereof and
its consolidated statements of operations, shareholders' equity and cash flows
for the periods then ended (subject to normal year-end adjustments in the case
of any unaudited interim financial statements).
Section 4.09 Disclosure Documents.
(a) The registration statement on Form S-4 of Parent to be filed with the
SEC in connection with the Merger (the "Registration Statement") and any
amendment or supplement thereto, when filed, will comply as to form in all
material respects with the applicable requirements of the Securities Act. At the
time the Registration Statement is declared effective by the SEC, the
Registration Statement will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading. At the time the Proxy
Statement/Prospectus included in the Registration Statement and forming a part
thereof or any amendment or supplement thereto is first mailed to shareholders
of the Company and at the time such shareholders vote on the approval and
adoption of this Agreement, the Proxy Statement/Prospectus, as supplemented or
amended, if applicable, will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they were made,
not misleading. The representations and warranties in this Section 4.09(a) do
not apply to statements in or omissions from the Registration Statement or the
Proxy Statement/Prospectus or any amendment or supplement thereto based upon
information furnished to Parent by the Company for use therein.
(b) None of the information furnished to the Company for use in (or
incorporation by reference in) the Proxy Statement/Prospectus or any amendment
or supplement thereto will contain, at the time the Proxy Statement/Prospectus
included in the Registration Statement and forming a part thereof or any
amendment or
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supplement thereto is first mailed to shareholders of the Company and at the
time such shareholders vote on the approval and adoption of this Agreement, any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
Section 4.10 Absence of Certain Changes or Events. Since the date of the
most recent audited financial statements included in the Parent SEC Reports,
except (x) as contemplated by this Agreement or disclosed in the Parent SEC
Reports and (y) for any change resulting from the transactions contemplated by
this Agreement or general economic, financial, competitive or market conditions
or conditions or circumstances generally affecting the cable television or
communications industries, there has not been: (i) any change in the business,
operations or financial condition of Parent or any of the Parent Subsidiaries
that has had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect; (ii) any incurrence, assumption or
guarantee by Parent or any of the Parent Subsidiaries of any material
indebtedness for borrowed money other than in the ordinary course and in amounts
and on terms consistent with past practices; or (iii) as of the date hereof, any
damage, destruction or other casualty loss (whether or not covered by insurance)
affecting the business or assets of Parent or any of the Parent Subsidiaries
that has had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
Section 4.11 Litigation. Except as set forth in the Parent SEC Reports
filed prior to the date hereof, there is, as of the date hereof, no action, suit
or proceeding pending, or to the knowledge of Parent threatened, against Parent
or any Parent Subsidiary before any court, arbitrator or other Governmental
Entity that would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
Section 4.12 Brokers. None of Parent, Merger Sub or any Parent Subsidiary,
or any of their respective officers, directors or employees, has employed any
investment banker, broker, finder or other intermediary or incurred any
liability for any brokerage fees, commissions or finder's fees in connection
with the transactions contemplated by this Agreement for or with respect to
which the Company or any Company Subsidiary is or might be liable prior to the
Effective Time, except that Parent has retained Daniels & Associates, as its
financial advisor.
Section 4.13 Compliance with Applicable Laws. Parent and the Parent
Subsidiaries are in substantial compliance with all laws, regulations and orders
of any Governmental Entity applicable to them, except where the failure to
comply would not have a Material Adverse Effect. Parent and each Parent
Subsidiary have obtained all licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, except where the failure to obtain such licenses, permits,
franchises or other governmental authorizations would not have a Material
Adverse Effect.
Section 4.14 Interested Shareholder. As of the date of this Agreement, none
of Parent, Merger Sub or any of their Affiliates is an "Interested
Shareholders" as such term is defined in Section 14A:10A-3 of the NJBCA.
Section 4.15 Ownership of Merger Sub; No Prior Activities. Merger Sub was
formed by Parent solely for the purposes of engaging in the transactions
contemplated hereby and has not engaged in any other activities. As of the date
hereof and the Effective Time, all of the capital stock of Merger Sub is and
will be owned directly by Parent.
Section 4.16 Opinion of Financial Advisor. Parent has received the written
opinion of Daniels & Associates to the effect that the Merger Consideration is
fair from a financial point of view to the shareholders of Parent.
Section 4.17 No Other Representations. Except as specifically set forth in
this Article IV, Parent has not made, and the Company has not relied upon, any
representations or warranties, whether express or implied.
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ARTICLE V
COVENANTS OF THE COMPANY
Section 5.01 Conduct of the Company. From the date hereof until the
Effective Time, the Company will not, and will cause the Company Subsidiaries
not to, take or agree to take any action that would (i) interfere with the
consummation of the transactions contemplated hereby or make such consummation
more difficult or materially delay the consummation of such transactions, (ii)
make any representation or warranty of the Company contained in this Agreement
untrue or incorrect as of the date when made or as of the Closing Date or (iii)
result in any of the conditions to Closing in Article VIII not being satisfied.
Except as contemplated by this Agreement or with the prior written consent of
Parent (which consent will not be unreasonably withheld or delayed), the Company
and the Company Subsidiaries will conduct their business in the ordinary course
consistent with past practice and will use reasonable efforts to preserve intact
their business organizations and relationships with third parties and to keep
available the services of their officers and employees. From the date hereof
until the Effective Time, the Company will not, and will not permit any of the
Company Subsidiaries to, do any of the following:
(a) adopt any amendment to its certificate of incorporation or by-laws;
(b) except for issuances of Company Subsidiary Securities to the Company or
a wholly-owned Company Subsidiary, issue, reissue or sell, or authorize the
issuance, reissuance or sale of (i) additional shares of capital stock of any
class, or securities convertible into capital stock of any class, or any rights,
warrants or options to acquire any convertible securities or capital stock,
other than (1) pursuant to the exercise of Options outstanding on the date
hereof or (2) upon the conversion of Class B Company Common Stock outstanding on
the date hereof or (ii) any other securities in respect of, in lieu of or in
substitution for, Company Common Stock outstanding on the date hereof;
(c) declare, set aside or pay any dividend or any other actual,
constructive or deemed distribution (whether in cash, securities or property or
any combination thereof) in respect of any class or series of its capital stock
or otherwise make any payments to shareholders of the Company in their capacity
as such other than between the Company and any wholly-owned Company Subsidiary;
(d) split, combine, subdivide, reclassify or redeem, purchase or otherwise
acquire, or propose to redeem or purchase or otherwise acquire, any shares of
its capital stock, or any of its other securities;
(e) (i) increase the compensation or fringe benefits payable or to become
payable to directors, officers or employees except for (w) cash bonuses to
non-employee directors in an aggregate amount not to exceed $250,000, (x)
increases in salary, wages and benefits of officers or employees of the Company
or the Company Subsidiaries in the ordinary course consistent with past
practice, (y) increases in salary, wages and benefits granted to officers and
employees of the Company or the Company Subsidiaries in conjunction with new
hires, promotions or other changes in job status, which increases are in the
ordinary course consistent with past practice or (z) increases in salary, wages
and benefits to employees of the Company or the Company Subsidiaries pursuant to
collective bargaining agreements entered into in the ordinary course of
business; (ii) pay any benefit not required by any existing plan or arrangement
(including the granting of stock options, stock appreciation rights, shares of
restricted stock or performance units), other than (x) the payment of cash
bonuses in timing and amount consistent with past practice and cash bonuses in
lieu of stock option grants and equity incentive awards in timing and amount
consistent with past practice, (y) the payment to five key executive officers of
the Company of amounts designed to reimburse them for the incremental income
taxes payable (as a result of the inability of any such officer to obtain
capital gain treatment) with respect to the conversion into the right to receive
the Merger Consideration of restricted shares issued under the 1992 Management
Equity Incentive Plan and shares of Class A Company Common Stock issued upon
exercise of Options pursuant to Section 1.14(a) and (z) the payment of
approximately $14,000,000 to a "rabbi trust" to be established for the exclusive
purpose of making premium payments when due on the "split-dollar" life insurance
policies on the
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lives of Leonard and Claire Tow; (iii) grant any severance or termination pay to
(except pursuant to existing agreements, plans or policies), or enter into any
employment or severance agreement with, any director, officer or other employee
of the Company or any of the Company Subsidiaries; or (iv) establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, savings,
welfare, deferred compensation, employment, termination, severance or other
employee benefit plan, agreement, trust, fund, policy or arrangement for the
benefit or welfare of any director, officer or current or former employee (an
"Employee Benefit Arrangement"), except in each case to the extent required by
applicable law or regulation and except as currently is being negotiated with
the Communications Workers of America local in Los Angeles, California;
(f) acquire, sell, lease, transfer, swap or dispose of any assets (other
than in the ordinary course of business consistent with past practice) or
securities or other interests which are material to the Company and its
Subsidiaries, taken as a whole, or enter into any commitment to do any of the
foregoing or enter into any material commitment or transaction outside the
ordinary course of business other than transactions between any wholly-owned
Company Subsidiary and the Company or another wholly-owned Company Subsidiary
other than the sale, effective as of the Effective Time, of the shares of
capital stock of Citizens Utilities Company owned by the Company to Leonard Tow
or his designees at a price equal to the fair market value (based on the closing
price of such stock on the date hereof) of such shares as of the date hereof as
determined by the Company Board;
(g) (i) incur, assume or prepay any long-term debt or incur or assume any
short-term debt, except that the Company and the Company Subsidiaries may incur,
assume or prepay debt in the ordinary course of business in the ordinary course
consistent with past practice or under existing lines of credit; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person or Persons
that individually or in the aggregate are material; or (iii) make any loans,
advances or capital contributions to, or investments in, any other Person or
Persons that individually or in the aggregate are material except for loans,
advances, capital contributions or investments between any wholly-owned
Subsidiary of the Company and the Company or another wholly-owned Subsidiary of
the Company, except in each case as may be necessary or desirable in connection
with the financing of Century-TCI California, L.P.; or
(h) agree to take any of the foregoing actions.
Section 5.02 Other Transactions.
(a) From the date hereof until the termination of this Agreement, the
Company will not, and will not authorize or permit any of its Subsidiaries or
any of its or the Company Subsidiaries' directors, officers, employees, agents
or representatives, directly or indirectly, solicit, to initiate or knowingly
encourage any inquiries or the making of any proposal with respect to any
Acquisition Transaction or to provide information to or negotiate, explore or
otherwise engage in discussions with any Person (other than Parent, Merger Sub
or any of their directors, officers, employees, agents and representatives) with
respect to any Acquisition Transaction or to enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger. As of the date of this Agreement, the Company has
discontinued, and has caused the Company Subsidiaries and its and their
respective directors, officers, employees, agents and representatives to
discontinue, discussions or negotiations with all Persons or groups with whom
discussions or negotiations previously have been held concerning any proposal
with respect to an Acquisition Transaction. The Company promptly will notify
Parent if any proposal or offer is received by, or any information is requested
from, or any discussions or negotiations are sought to be initiated or continued
with, the Company in respect of an Acquisition Transaction.
(b) The Company Board will not (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent, the approval or
recommendation of the Company Board of this Agreement and the Merger or (ii)
approve or recommend, or propose to approve or recommend, any Acquisition
Transaction other than the
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Merger. Nothing contained in this Section 5.02(b), however, will prohibit the
Company Board from complying with Rule 14d-9 and Rule 14e-2 promulgated under
the Exchange Act with respect to any proposal relating to an Acquisition
Transaction.
(c) "Acquisition Transaction" means any merger, consolidation or other
business combination, tender or exchange offer, recapitalization transaction or
other similar transaction involving the Company or any Significant Subsidiary of
the Company, acquisition of all or any material portion of the assets or capital
stock of the Company or the acquisition of all or substantially all of the
assets or capital stock of any Significant Subsidiary of the Company.
"Acquisition Transaction" does not include the sale of shares of capital stock
of Citizens Utilities Company.
Section 5.03. Affiliates. The Company, prior to the Effective Time, will
deliver to Parent a letter identifying all known persons who are, at the time of
the Company Shareholder Meeting, in the Company's reasonable judgment,
"affiliates" of the Company under Rule 145 of the Securities Act. The Company
will furnish such information and documents as Parent reasonably may request for
the purpose of reviewing such list. The Company will use its reasonable best
efforts to obtain a written agreement in customary form from each person who may
be so deemed as soon as practicable and, in any event, prior to the Effective
Time.
ARTICLE VI
COVENANTS OF PARENT, MERGER SUB AND THE SURVIVING CORPORATION
Section 6.01 Indemnification; Directors' and Officers' Insurance.
(a) Parent and Merger Sub agree that all rights to indemnification existing
in favor of each Person (the "Indemnified Parties") who is at the Effective Time
or prior thereto has been an employee, agent, director or officer of the Company
and the Company Subsidiaries as provided in their respective charters, by-laws
or resolutions identified in the Company Disclosure Schedule, in an agreement
between an Indemnified Party and the Company or any of the Company Subsidiaries
(which agreement is identified in the Company Disclosure Schedule) will survive
the Merger and will continue in full force and effect for a period of not less
than six years from the Effective Time. In the event any claim is asserted or
made within such six-year period, all rights to indemnification in respect of
any such claim will continue until final disposition thereof.
(b) Parent and the Surviving Corporation jointly and severally agree to
indemnify all Indemnified Parties to the fullest extent permitted by applicable
law with respect to all acts and omissions arising out of such individuals'
services as officers, directors, employees or agents of the Company or any
Company Subsidiary or as trustees or fiduciaries of any plan for the benefit of
employees, or otherwise on behalf of, the Company or any Company Subsidiary,
occurring at or prior to the Effective Time, including the transactions
contemplated by this Agreement. In the event any Indemnified Party is or becomes
involved in any capacity in any action, proceeding or investigation in
connection with any matter occurring at or prior to the Effective Time, Parent
will pay as incurred such Indemnified Party's legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith. Parent will pay all expenses, including attorneys' fees, that may be
incurred by any Indemnified Party in enforcing the indemnity and other
obligations provided for in this Section 6.01.
(c) Parent and the Surviving Corporation will cause to be maintained in
effect for not less than six years from the Effective Time directors' and
officers' liability insurance covering the directors and officers of the Company
similar in scope and coverage to the directors' and officers' liability
insurance maintained by Parent for its directors and officers.
(d) The provisions of this Section 6.01 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her personal representatives and shall be binding on all successors and
assigns of Parent and the Surviving Corporation.
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Section 6.02 Employee Benefit Arrangements.
(a) From and after the Effective Time, Parent will, and will cause the
Surviving Corporation to, honor in accordance with their respective terms all
Employee Benefit Arrangements to which the Company or any of the Company
Subsidiaries is a party.
(b) Parent agrees that, for a period of not less than one year after the
Effective Time, it shall, or shall cause the Surviving Corporation to, provide
Employee Benefit Arrangements for the benefit of the employees and former
employees of the Company and its Subsidiaries, that in the aggregate are not
materially less favorable than the Employee Benefit Arrangements in effect
immediately prior to the Effective Time that are applicable to such employees or
former employees, provided, however, that Parent, at its sole option, may
provide Employee Benefit Arrangements to the employees and former employees of
the Company and the Company Subsidiaries which, in the aggregate, are no less
favorable than those applicable to similarly situated employees of Parent.
Parent will take all actions required so that each employee of the Company or
any Company Subsidiary as of the Effective Time will receive credit for
eligibility and vesting purposes for his or her service with the Company or any
Company Subsidiary prior to the Effective Time under any Employee Benefit
Arrangements established, maintained, continued or made available by Parent in
which any such employee is eligible to participate.
(c) Nothing in this Section 6.02 shall be construed to limit the ability of
Parent to terminate the employment of any employee or to review Employee Benefit
Arrangements from time to time and make such changes as it deems appropriate,
subject to the terms of such Employee Benefit Arrangements.
Section 6.03 Listing; Registration. Prior to the Effective Time, Parent
will use its best efforts to cause the Parent Common Stock to be issued in the
Merger to be approved for listing on the Nasdaq National Market, subject only to
notice of official issuance.
Section 6.04 Conduct of Parent. From the date hereof until the Effective
Time, Parent will not, and will cause the Parent Subsidiaries not to, take or
agree to take any action that would (i) interfere with the consummation of the
transactions contemplated hereby or make such consummation more difficult or
materially delay the consummation of such transactions, (ii) make any
representation or warranty of Parent or Merger Sub contained in this Agreement
untrue or incorrect as of the date when made or as of the Closing Date or (iii)
result in any of the conditions to Closing in Article VIII not being satisfied.
Section 6.05. Obligations of Merger Sub. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
ARTICLE VII
COVENANTS OF PARENT, MERGER SUB AND THE COMPANY
Section 7.01 Reasonable Best Efforts. Subject to the terms and conditions
herein provided, each of the parties will use its reasonable best efforts to
take, or cause to be taken, all action, and to do, or cause to be done and to
assist and cooperate with the other parties in doing, as promptly as
practicable, all things necessary, appropriate or advisable under applicable
laws and regulations or otherwise to ensure that the conditions set forth in
Article VIII are satisfied and to consummate and make effective the transactions
contemplated by this Agreement. If at any time after the Effective Time any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement, including the execution of additional instruments, the proper
officers and directors of each party will take all such action.
Section 7.02. Registration Statement. Parent promptly will prepare and file
the Registration Statement with the SEC under the Securities Act, and will use
its reasonable best efforts to cause the Registration
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Statement to be declared effective by the SEC as promptly as practicable. Parent
promptly will take any action required to be taken under foreign or state
securities or Blue Sky laws in connection with the issuance of Parent Common
Stock in connection with the Merger.
Section 7.03 Company Shareholder Meeting.
(a) Promptly upon the request of Parent but in no event prior to the date
the Registration Statement is declared effective, the Company will take all
action necessary in accordance with the NJBCA and its certificate of
incorporation and by-laws to call, give notice of and hold a meeting (the
"Company Shareholder Meeting") of its shareholders to consider and vote upon the
approval and adoption of this Agreement and the Merger and for such other
purposes as may be necessary or desirable.
(b) Promptly after the date hereof, Parent and the Company will prepare a
proxy statement pertaining to the Merger to be distributed to the holders of the
Company Common Stock, which will constitute the prospectus included in the
Registration Statement (the "Proxy Statement/Prospectus"). The Company Board
will recommend that the shareholders of the Company vote to approve the Merger
and adopt this Agreement and approve any other matters to be submitted to
shareholders in connection therewith, and the Company will include such
recommendation in the Proxy Statement/Prospectus.
(c) Parent and the Company promptly will notify each other of the receipt
of comments from the SEC and of any request by the SEC for amendments or
supplements to the Registration Statement or the Proxy Statement/Prospectus or
for additional information, and promptly will supply each other with copies of
all correspondence between the parties and the SEC with respect thereto. If, at
any time prior to the Company Shareholder Meeting, any event should occur
relating to or affecting the Company, Parent or Merger Sub, or to their
respective Subsidiaries, officers or directors, which event should be described
in an amendment or supplement to the Registration Statement or the Proxy
Statement/Prospectus, the parties promptly will inform each other and cooperate
in preparing, filing and having declared effective or clearing with the SEC and,
if required by applicable state securities laws, distributing to the Company's
shareholders such amendment or supplement.
Section 7.04 Consents. Each of the parties will use its reasonable best
efforts to obtain as promptly as practicable all consents (including from any
Franchising Authority and in connection with the change in control of the holder
of the Franchises of the Company and the Company Subsidiaries), waivers,
approvals, authorizations or permits of any Governmental Entity or any other
Person required in connection with, and waivers of any Violations that may be
caused by, the consummation of the transactions contemplated by this Agreement.
Section 7.05 Public Announcements. Neither Parent nor the Company will
issue any press release or make any other public announcement concerning this
Agreement, the Merger or the transactions contemplated hereby without the prior
consent of the other, except that either party may make such public disclosure
that it believes in good faith to be required by law (in which event such party
will notify the other party prior to making such disclosure).
Section 7.06 Notification of Certain Matters. Parent and the Company
promptly will notify the other of: (i) the occurrence or non-occurrence of any
fact or event that would be reasonably likely to cause any (x) representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (y) material
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied in all material respects; and (ii) any failure of the Company,
Parent or Merger Sub to comply with or satisfy in any material respect any
covenant, condition or agreement contained in this Agreement.
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Section 7.07 Antitrust Matters.
(a) Parent and the Company promptly will complete all documents required to
be filed with the Federal Trade Commission and the Department of Justice in
order to comply with the HSR Act and, together with the Persons who are required
to join in such filings, will file the same with the appropriate Governmental
Entities. Parent and the Company promptly will furnish all materials thereafter
required by any of the Governmental Entities having jurisdiction over such
filings and will take all reasonable actions and file and use all reasonable
efforts to have declared effective or approved all documents and notifications
with any such Governmental Entities, as may be required under the HSR Act for
the consummation of the Merger.
(b) Parent will use its best efforts to resolve such objections, if any, as
may be asserted with respect to the transactions contemplated by this Agreement
under any antitrust, competition or trade regulatory laws, rules or regulations
of any domestic or foreign Governmental Entity ("Antitrust Laws"). If any suit
is threatened or instituted challenging the Merger as violating any Antitrust
Law, Parent will take such action (including opposing by all appropriate legal
means any claim raised in any such suit and, if necessary, agreeing to hold
separate or to divest any of the businesses, product lines or assets of Parent
or any of its Affiliates controlled by it or of any of its Subsidiaries or
Affiliates) as may be required (i) by the applicable Governmental Entity in
order to resolve such objections as such Governmental Entity may have to such
transactions under such Antitrust Law or (ii) by any domestic or foreign court
or similar tribunal, in any suit brought by a private party or governmental
authority challenging the Merger as violating any Antitrust Law, in order to
avoid the entry of, or to effect the dissolution of, any injunction, temporary
restraining order or other order that has the effect of preventing the
consummation of the Merger. The entry by a court, in any suit brought by a
private party or Governmental Entity challenging the Merger as violating any
Antitrust Law, of an order or decree permitting the Merger but requiring that
any of the businesses or assets of Parent or any Parent Subsidiary or Affiliates
be divested or held separate by Parent, or that would otherwise limit Parent's
freedom of action with respect to, or its ability to retain, the Company and the
Company Subsidiaries or any portion thereof or any of Parent's or its
Subsidiaries' or Affiliates' other assets or businesses, will not be deemed a
failure to satisfy the conditions specified in Section 8.01(d).
(c) Each party promptly will inform the other of any material communication
from the Federal Trade Commission, the Department of Justice, the FCC or any
other domestic or foreign Governmental Entity regarding any of the transactions
contemplated by this Agreement. If any party or any Affiliate thereof receives a
request for additional information or documentary material from any such
government or authority with respect to the transactions contemplated by this
Agreement, such party will endeavor in good faith to make, as soon as reasonably
practicable and after consultation with the other party, an appropriate response
to such request. Parent promptly will advise the Company in respect of any
understandings, undertakings or agreements which Parent proposes to make or
enter into with the Federal Trade Commission, the Department of Justice, the FCC
or any other domestic or foreign Governmental Entity in connection with the
transactions contemplated by this Agreement.
Section 7.08 Access to Information. From the date hereof until the
Effective Time, Parent and the Company will, and will cause each of their
Subsidiaries to: (i) give the other party and its counsel, financial advisors,
auditors and other authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of such party and
its Subsidiaries as the other party reasonably may request, and furnish the
other party with such financial and operating data and other information as the
other party reasonably may request; and (ii) instruct such parties' employees,
counsel and financial advisors to cooperate with the other party in their
investigation of the business of such party and its Subsidiaries.
Section 7.09 Tax-free Reorganization. Prior to the Effective Time, each
party will use its best efforts to cause the Merger to qualify as a
reorganization within the meaning of Section 368 of the Code, and will not take
any action reasonably likely to cause the Merger not to qualify as such a
reorganization.
Section 7.10 Dissenting Shareholders. Notwithstanding anything in this
Agreement to the contrary, but only to the extent required by the NJBCA, shares
of the Company Common Stock that are issued and
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outstanding immediately prior to the Effective Time and are held by holders of
shares of Company Common Stock who comply with all the provisions of the NJBCA
concerning the right of holders of shares of Company Common Stock to dissent
from the Merger and require appraisal of their shares ("Dissenting
Shareholders") shall not be converted into the right to receive the Merger
Consideration but shall become the right to receive such consideration as may be
determined to be due such Dissenting Shareholder pursuant to the laws of the
State of New Jersey; provided, however, that (i) if any Dissenting Shareholder
shall subsequently withdraw his or her demand for appraisal or fail to establish
or perfect or otherwise lose his or her appraisal rights as provided by
applicable law, then such Dissenting Shareholder or Shareholders, as the case
may be, shall forfeit the right to appraisal of such shares of Company Common
Stock and such shares of Company Common Stock shall thereupon be deemed to have
been converted into the right to receive, as of the Effective Time, (x) with
respect to each share of Class A Company Common Stock held by Dissenting
Shareholders, $9.16426528 in cash and 0.61222732 shares of Parent Common Stock,
without interest, and (y) with respect to each share of Class B Company Common
Stock held by Dissenting Shareholders, $11.81417001 in cash and 0.63595483
shares of Parent Common Stock, without interest (it being understood that
nothing herein shall be interpreted to give the Class B Shareholders the right
to become Dissenting Shareholders without violating the Class B Voting
Agreement). The Company shall give Parent (A) prompt notice of any written
demands for appraisal of shares of Company Common Stock, withdrawals of demands
for appraisal and any other related instruments received by the Company, and (B)
the opportunity to direct all negotiations and proceedings with respect to any
such demands for appraisal. The Company will not, except with the prior written
consent of Parent, voluntarily make any payment with respect to any demands for
appraisal or settle, offer or otherwise negotiate to settle any demand.
Section 7.11 Registration Rights. From and after the Effective Time, Parent
agrees to grant the Class B Shareholders and their permitted assignees and
transferees registration rights pursuant to a Registration Rights Agreement to
be entered into promptly after the date hereof. Parent agrees that the
registration rights shall include two demand registration rights and unlimited
piggy-back rights subject to any existing registration rights agreements of
Parent at the expense of Parent with standard indemnification provisions. In
addition, the Registration Rights Agreement will provide for the Class B
Shareholders to be entitled to proportionate tag-along rights upon any sale or
other transfer for value of shares of Parent Common Stock by members of the
Rigas family.
Section 7.12 Board of Directors. Parent agrees that from and after the
Effective Time, for so long as the Class B Shareholders and the Century
Permitted Assignees and Transferees (as defined below) own at least 10% of the
outstanding Common Stock of Parent (the "10% Requirement"), the Class B
Shareholders and the Century Permitted Assignees and Transferees shall be
entitled to nominate up to three members of Parent's board of directors (the
"Century Designees"). In the event any Century Designee ceases to serve as a
Director of Parent, whether as a result of his resignation, removal or
otherwise, his or her successor shall be named by the Century Designee who at
such time holds the most shares of Parent Common Stock, subject to approval by
the Parent, which approval will not be unreasonably withheld or delayed, to
serve until the next annual meeting of shareholders of Parent. Prior to the
Effective Time, Parent agrees to take all such action as is necessary so that
from and after the Effective Time, so long as the 10% Requirement is satisfied,
the Parent Board of Directors shall include Leonard Tow, Scott Schneider and
Bernard Gallagher or such other persons designated by Leonard Tow which are
reasonably acceptable to Parent. "Century Permitted Assignees and Transferees"
shall mean a person or entity (i) to whom Parent Common Stock has been
transferred from a Class B Shareholder or another Century Permitted Assignee and
Transferee and (ii) who or which is an affiliate, immediate family member or
descendant, in each case of Leonard Tow, or a trust created for the benefit of
Leonard Tow or an affiliate, immediate family member or descendant, in each case
of Leonard Tow.
Section 7.13 Citizens Joint Venture. At the Effective Time, Parent will
purchase from Citizens Cable Company or its Affiliates the 50% interest owned by
Citizens Cable Company in Citizens-Century Cable Television Venture for a
purchase price to be mutually agreed upon by Parent, the Company and Citizens
Cable Company.
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ARTICLE VIII
CONDITIONS TO THE MERGER
Section 8.01 Conditions to the Obligations of Each Party. The respective
obligations of the parties to consummate the Merger are subject to the
satisfaction, at or prior to the Effective Time, of each of the following
conditions:
(a) The shareholders of the Company shall have approved and adopted this
Agreement and the Merger pursuant to the requirements of the Company's
certificate of incorporation and by-laws and the NJBCA.
(b) The waiting period (and any extension thereof) applicable to the Merger
under the HSR Act shall have expired or been terminated.
(c) The Registration Statement shall have been declared effective in
accordance with the provisions of the Securities Act and no stop order with
respect thereto shall be in effect at the Effective Time.
(d) The consummation of the Merger shall not be restrained, enjoined or
prohibited by any order, judgment, decree, injunction or ruling of a court of
competent jurisdiction or any Governmental Entity entered after the parties have
used their reasonable best efforts to prevent such entry. There shall not have
been any statute, rule or regulation enacted, promulgated or deemed applicable
to the Merger by any Governmental Entity that prevents the consummation of the
Merger.
Section 8.02 Conditions Precedent to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate the Merger are
subject to the satisfaction, at or prior to the Effective Time, of each of the
following further conditions:
(a) Each of the representations and warranties of the Company contained in
this Agreement shall have been true and correct in all respects when made and on
and as of the Closing Date as if made on and as of such date. Parent shall have
received a certificate to such effect of an executive officer of the Company.
(b) The Company shall have performed and complied in all material respects
with all agreements and covenants required to be performed and complied with by
it under this Agreement on or prior to the Closing Date. Parent shall have
received a certificate to such effect of an executive officer of the Company.
(c) All consents, waivers, approvals and authorizations required to be
obtained from any Governmental Authority prior to the consummation of the
transactions contemplated hereby shall have been obtained, except where the
failure to obtain any such consent, waiver, approval or authorization would not
have a Material Adverse Effect. For purposes of this Section 8.02(c), the
failure to obtain required consents, waivers, approvals or authorizations from
Franchising Authorities will not be deemed to cause a Material Adverse Effect
unless the Franchises (excluding Franchises covering the City of Fairfield,
California, Sonoma City, California and City of Rohnert Park, California) with
respect to which such consents, waivers, approvals or authorizations are not
obtained prior to the date referred to in Section 9.01(d) cover more than 50% of
the subscribers of the Company and the Company Subsidiaries, taken as a whole
(excluding Franchises covering the City of Fairfield, California, Sonoma City,
California and City of Rohnert Park, California).
(d) Parent shall have received an opinion of Buchanan Ingersoll
Professional Corporation, dated the Effective Time, to the effect that (i) the
Merger should be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and (ii) each of Parent, Merger
Sub and the Company should be a party to the reorganization within the meaning
of Section 368(b) of the Code. In rendering such opinion, Buchanan Ingersoll
Professional Corporation may receive and rely upon representations contained in
certificates of Parent and Merger Sub, the Company and others, in each case in
form and substance reasonably acceptable to Buchanan Ingersoll Professional
Corporation.
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Section 8.03 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to consummate the Merger is subject to the
satisfaction, at or prior to the Effective Time, of each of the following
further conditions:
(a) Each of the representations and warranties of Parent and Merger Sub
contained in this Agreement shall have been true and correct in all respects
when made and on and as of the Closing Date as if made on and as of such date.
The Company shall have received a certificate to such effect of an executive
officer of Parent.
(b) Each of Parent and Merger Sub shall have performed and complied in all
material respects with all agreements and covenants required to be performed and
complied with by it under this Agreement on or prior to the Closing Date. The
Company shall have received a certificate to such effect of an executive officer
of Parent.
(c) The shares of Parent Common Stock to be issued pursuant to the Merger
shall have been approved for listing on the Nasdaq National Market, subject only
to official notice of issuance.
(d) The Company shall have received an opinion of Gibson, Dunn & Crutcher
LLP, dated the Effective Time, to the effect that (i) the Merger should be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and (ii) each of Parent, Merger Sub and the
Company should be a party to the reorganization within the meaning of Section
368(b) of the Code. In rendering such opinion, Gibson, Dunn & Crutcher LLP may
receive and rely upon representations contained in certificates of Parent and
Merger Sub, the Company and others, in each case in form and substance
reasonably acceptable to Gibson, Dunn & Crutcher LLP.
ARTICLE IX
TERMINATION
Section 9.01 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding
approval thereof by the shareholders of the Company:
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if the Merger has not been
consummated by June 5, 2000; provided that the right to terminate this
Agreement pursuant to this Section 9.01(b) will not be available to any
party whose breach of any provision of this Agreement results in the
failure of the Merger to be consummated by such time;
(c) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining the
parties from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and nonappealable;
(d) by Parent, upon a breach of any representation, warranty, covenant
or agreement of the Company, or if any representation or warranty of the
Company shall become untrue, in either case such that the conditions set
forth in Section 8.02 would be incapable of being satisfied by June 5,
2000; and
(e) by the Company, upon a breach of any representation, warranty,
covenant or agreement of Parent or Merger Sub, or if any representation or
warranty of Parent or Merger Sub shall become untrue, in either case such
that the conditions set forth in Section 8.03 would be incapable of being
satisfied by June 5, 2000.
The party desiring to terminate this Agreement pursuant to this Section
9.01 (other than pursuant to Section 9.01(a)) shall give notice of such
termination to the other party.
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Section 9.02 Effect of Termination. If this Agreement is terminated
pursuant to Section 9.01, this Agreement will become void and of no effect with
no liability on the part of any party hereto or its respective directors,
officers or shareholders, except that the agreements contained in Section 9.03
will survive the termination hereof. Nothing herein shall relieve any party from
liability for any breach of this Agreement.
Section 9.03 Fees and Expenses. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with the Merger, this Agreement
and the transactions contemplated by this Agreement will be paid by the party
incurring such expenses. Notwithstanding anything in this Agreement to the
contrary, in the event that this Agreement is terminated for any reason other
than pursuant to Section 9.01 (a) or (e), then, (i) the Company shall reimburse
Parent, within five (5) business days after such termination, for Parent's
actual costs and expenses in connection with this Agreement and the transactions
contemplated thereby, in an amount not to exceed $10,000,000 and (ii) if (y) the
Company enters into an agreement or (z) there is consummated an Acquisition
Transaction with a third party, in each case within twenty-four (24) months
after the date of such termination, the Company shall pay to Parent, within five
(5) business days after such agreement is entered into or transaction is
consummated, the amount of one hundred million dollars ($100,000,000) as
compensation for the role that Parent played in creating the opportunity for
such Acquisition Transaction by entering into this Agreement. The rights of
Parent and the payments to which Parent is entitled under this Section 9.03 are
not exclusive, and are in addition to any other rights or remedies that Parent
may have at law or in equity.
ARTICLE X
MISCELLANEOUS
Section 10.01 Notices. All notices, requests and other communications to
any party hereunder shall be in writing and shall be deemed to have been duly
given when delivered in person, by overnight courier or by facsimile to the
respective parties as follows:
If to Parent or Merger Sub, to:
Adelphia Communications Corporation
Main at Water Street
Coudersport, PA 16915
Telephone: 814-274-9830
Facsimile: 814-274-6586
Attention: Timothy J. Rigas, Executive Vice President
with a copy to:
Buchanan Ingersoll Professional Corporation
One Oxford Centre, 21st Floor
Pittsburgh, PA 15219
Telephone: 412-562-8839
Facsimile: 412-562-1041
Attention: Bruce I. Booken
If to the Company, to:
Century Communications Corp.
50 Locust Avenue
New Canaan, CT 06840
Telephone: 203-972-2000
Facsimile: 203-972-2013
Attention: Office of the President
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with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
Telephone: (212) 351-4000
Facsimile: (212) 351-4035
Attention: Steven R. Finley
or such other address or facsimile number as such party may specify for the
purpose by written notice to the other parties hereto. Each such notice, request
or other communication will be effective: (i) if delivered in person, when such
delivery is made at the address specified in this Section 10.01; (ii) if
delivered by overnight courier, the next business day after such delivery is
sent to the address specified in this Section 10.01; or (iii) if delivered by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section 10.01 and the appropriate confirmation is received.
Section 10.02 Survival of Representations, Warranties and Agreements. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto will not survive beyond
the Effective Time. This Section 10.02 will not limit any covenant or agreement
of the parties which by its terms contemplates performance after the Effective
Time.
Section 10.03 Amendment. This Agreement may be amended by the Company and
Parent at any time before or after any approval of this Agreement by the
shareholders of the Company. After any such approval, no amendment may be made
that decreases the Merger Consideration or that adversely affects the rights of
the Company's shareholders hereunder without the approval of such shareholders.
This Agreement may not be amended except by an instrument in writing signed on
behalf of all the parties.
Section 10.04 Extension; Waiver. At any time prior to the Effective Time,
the parties may: (i) extend the time for the performance of any of the
obligations or other acts of any other party; (ii) waive any inaccuracies in the
representations and warranties contained herein by any other party or in any
document, certificate or writing delivered pursuant hereto by any other party;
or (iii) waive compliance with any of the agreements of any other party or with
any conditions to its own obligations. Any agreement on the part of any party to
any such extension or waiver will be valid only if set forth in an instrument in
writing signed on behalf of such party.
Section 10.05 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. No party may assign, delegate or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of the other parties.
Section 10.06 Governing Law. This Agreement will be construed in accordance
with and governed by the law of the State of Delaware applicable to agreements
entered into and to be performed wholly within such State.
Section 10.07 Jurisdiction. Each of the parties: (i) consents to submit
itself to the personal jurisdiction of any federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or the Merger; (ii) agrees that it will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave from any such
court; and (iii) agrees that it will not bring any action relating to this
Agreement or the Merger in any court other than a federal or state court sitting
in the State of Delaware.
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Section 10.08 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement will become effective when each party shall have received
counterparts hereof signed by all of the other parties.
Section 10.09 Entire Agreement; No Third-party Beneficiaries. This
Agreement and the other agreements referred to herein or executed
contemporaneously herewith constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter of this Agreement. No representation,
inducement, promise, understanding, condition or warranty not set forth herein
has been made or relied upon by any party. This Agreement, other than as
provided in Sections 6.01 and 6.02, is not intended to confer upon any Person
other than the parties any rights or remedies.
Section 10.10 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 10.11 Severability. In the event that any one or more of the
provisions contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement.
Section 10.12 Definitions.
(a) When used in this Agreement, the following terms have the following
meanings:
"Affiliate" as applied to any Person, means any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banks in the State of New York are authorized or obligated to be
closed.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Disclosure Schedule" means the Disclosure Schedules attached
hereto provided by the Company.
"Company Subsidiary" means any Subsidiary of the Company.
"Environmental Law" means any applicable federal, state or local law,
regulation, order, decree or judicial opinion or other agency requirement having
the force and effect of law and relating to noise, odor, Hazardous Substances or
the protection of public health or safety or any other environmental matter.
"ERISA Affiliate" means a trade or business affiliated within the meaning
of Sections 414(b), (c) or (m) of the Code.
"Exchange Agent" means a bank or trust company organized under the laws of
the United States or any state thereof with capital, surplus and undivided
profits of at least $500,000,000.
"Franchise" means a franchise within the meaning of Section 602(9) of the
Cable Communications Policy Act of 1984 (47 U.S.C. Section 522(9).
"Franchising Authority" has the meaning such term is given by Section
602(10) of the Cable Communications Policy Act of 1984 (47 U.S.C. Section
522(10).
"Hazardous Substance" means any toxic or hazardous substance that is
regulated by or under authority of any Environmental Law.
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"GAAP" means generally accepted accounting principles in effect in the
United States of America as of the date of the applicable determination.
"Governmental Entity" means any government or subdivision thereof, or any
administrative, governmental or regulatory authority, agency, commission,
tribunal or body, domestic, foreign or supranational.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Material Adverse Effect", except as otherwise provided in Section 8.02(c),
means (i) with respect to the Company, a material adverse effect on the
business, assets, operations or financial condition of the Company and its
Subsidiaries, taken as a whole, other than any such effect arising out of or
resulting from the transactions contemplated by this Agreement or general
economic, financial, competitive or market conditions or from changes in or
affecting the cable television or communications industries generally or (ii)
with respect to Parent or Merger Sub, a material adverse effect on the business,
assets, operations or financial condition of Parent, Merger Sub and their
Subsidiaries, taken as a whole, other than any such effect arising out of or
resulting from the transactions contemplated by this Agreement or general
economic, financial, competitive or market conditions or from changes in or
affecting the cable television or communications industries generally.
"Parent Common Stock" means the Class A common stock, par value $.01 per
share, of Parent.
"Parent Disclosure Schedule" means the Disclosure Schedules attached hereto
provided by Parent
"Parent Subsidiary" means any Subsidiary of Parent.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or any agency or instrumentality
thereof.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" of any Person means any other Person of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other Persons performing similar functions are
directly or indirectly owned or controlled by such Person.
"Tax" and "Taxes" means all federal, state, local, foreign or other taxing
authority net income, franchise, sales, use, ad valorem, property, payroll,
withholding, excise, severance, transfer, employment, alternative or add-on
minimum, stamp, occupation, premium, environmental or windfall profits taxes,
and other taxes, charges, fees, levies, imposts, customs, duties, licenses or
other assessments, together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority.
(b) Each of the following additional terms is defined in the Section
identified below:
Acquisition Transaction 5.02(c), 20
Agreement Preamble, 4
Antitrust Laws 7.07(b), 23
Class A Merger Consideration 1.03(a), 5
Class B Merger Consideration 1.03(b), 5
Class B Voting Agreement Recitals, 4
Class A Company Common Stock 1.02(a), 5
Class B Company Common Stock 1.02(a), 5
Class B Shareholders Recitals, 4
Closing 1.01(b), 4
Closing Date 1.01(b), 4
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Communications Act 3.03, 9
Company Preamble, 4
Company Board 3.02, 8
Company Common Stock 1.02(a), 5
Company SEC Reports 3.07, 11
Company Securities 3.05(c), 10
Company Shareholder Meeting 7.03(a), 22
Company Subsidiary Securities 3.06(b), 10
Effective Time 1.01(c), 4
Employee Benefit Arrangement 5.01(e), 19
Employee Plan 3.13(a), 12
ERISA 3.13(c), 13
Exchange Act 3.03, 9
Exchange Agent 1.05, 5
FCC 3.03, 9
HSR Act 3.03, 9
Indemnified Parties 6.01(a), 21
Interested Shareholder 4.14, 18
Letter of Transmittal 1.05, 5
Merger 1.01(a), 4
Merger Consideration 1.03(b), 5
Merger Sub Preamble, 4
NJBCA 1.01(a), 4
Option 1.14(a), 8
Option Plans 1.14(a), 8
Parent Preamble, 4
Parent Common Stock 1.03(a), 5
Parent SEC Reports 4.07, 16
Parent Securities 4.05(c), 15
Parent Shareholders Recitals, 4
Parent Subsidiary Securities 4.06(b), 16
Proxy Statement/Prospectus 7.03(b), 22
Registration Statement 4.09(a), 17
Rigas Class B Voting Agreement Recitals, 4
Securities Act 3.03, 9
Significant Subsidiary of Parent 4.04, 15
Significant Subsidiary of the Company 3.04, 9
Surviving Corporation 1.01(a), 4
Violation 3.04, 9
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed by its respective authorized officer as of the day and year first
above written.
ADELPHIA COMMUNICATIONS CORPORATION
By: /s/ TIMOTHY J. RIGAS
-------------------------------------
Name: Timothy J. Rigas
Title: Executive Vice President
ADELPHIA ACQUISITION SUBSIDIARY, INC.
By: /s/ MICHAEL J. RIGAS
-------------------------------------
Name: Michael J. Rigas
Title: Executive Vice President
CENTURY COMMUNICATIONS CORP.
By: /s/ SCOTT SCHNEIDER
-------------------------------------
Name: Scott Schneider
Title: Chief Financial Officer
36
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EXECUTION COPY
CENTURY COMMUNICATIONS CORP.
and
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION,
successor trustee to
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Trustee
Eighth Supplemental Indenture
Dated as of December 10, 1997
8 3/8% Senior Notes Due 2007
<PAGE>
EIGHTH SUPPLEMENTAL INDENTURE, dated as of December 10, 1997
(the "Eighth Supplemental Indenture"), to the Indenture, dated as of February
15, 1992 (collectively, the "Indenture"), between CENTURY COMMUNICATIONS CORP.,
a corporation duly organized and existing under the laws of the State of New
Jersey (the "Company"), having its principal office at 50 Locust Avenue, New
Canaan, Connecticut 06840, and FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION,
successor trustee to BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
national banking association organized and existing under the laws of the United
States, as Trustee (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the execution and delivery of
the Indenture to provide for the issuance from time to time of one or more
series of its senior debt securities (the "Securities") to be issued in one or
more series as in the Indenture provided;
WHEREAS, the Company desires and has requested the Trustee to join it
in the execution and delivery of this Eighth Supplemental Indenture in order to
establish and provide for the issuance by the Company of a series of Securities
designated as its 8 3/8% Senior Notes Due 2007 in the aggregate principal amount
of $100,000,000, a form of which is attached hereto as Exhibit A (the "8 3/8%
Notes"), on the terms set forth herein;
WHEREAS, Section 10.01 of the Indenture provides that a supplemental
indenture may be entered into by the Company and the Trustee without the consent
of any holder of any Securities for such purpose provided certain conditions are
met;
WHEREAS, the conditions set forth in the Indenture for the execution
and delivery of this Eighth Supplemental Indenture have been complied with; and
WHEREAS, all things necessary to make this Eighth Supplemental
Indenture a valid agreement of the Company and the Trustee, in accordance with
its terms, and a valid amendment of, and supplement to, the Indenture have been
done;
NOW THEREFORE:
In consideration of the premises and the purchase and acceptance of the
8 3/8% Notes by the holders thereof the Company mutually covenants and agrees
with the Trustee, for the equal and proportionate benefit of all holders of the
8 3/8% Notes, that the Indenture is supplemented and amended, to the extent and
for the purposes expressed herein, as follows:
PARAGRAPH A. SCOPE OF THIS EIGHTH
SUPPLEMENTAL INDENTURE
The changes, modifications and supplements to the Indenture effected by
this Eighth Supplemental Indenture in Paragraphs B, C and D hereof shall only be
applicable with respect to, and govern the terms of, the 8 3/8% Notes issued by
the Company, which shall be limited in aggregate principal amount to
$100,000,000, except as provided in Section 3.01(2) of the Indenture, and shall
not apply to any other Securities which may be issued under the Indenture
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unless a supplemental indenture with respect to such other Securities
specifically incorporates such changes, modifications and supplements.
PARAGRAPH B. ADDITIONAL PROVISIONS
B1. ADDITIONAL DEFINITIONS - Each of the following definitions, which
constitute part of this Eighth Supplemental Indenture, shall be inserted in
proper alphabetical order in Article 1:
"Advance" shall mean any direct or indirect advance, loan, guarantee,
transfer (pursuant to contract or otherwise) or other extension of credit or
capital contribution (in cash or other property) by the Company or any
Subsidiary, as the case may be, to, or any purchase or other acquisition by such
Person of any Capital Stock, equity or other ownership interests, bonds, notes,
debentures or other securities of, any Subsidiary or any other Affiliate of the
Company, as the case may be, but not including: (i) any Advance from the Company
or any Subsidiary to any Affiliate for use by such Affiliate in the ordinary
course of its business on terms that are no less favorable to the Company or
such Subsidiary than those that could have been obtained in a comparable
transaction by the Company or such Subsidiary from a Person who is not an
Affiliate, or (ii) any Advance from the Company or any directly or indirectly
90%-owned Subsidiary to any other directly or indirectly 90%-owned Subsidiary or
the Company. For purposes of subclause (i) of this definition, expenditures in
the ordinary course of business shall mean and include expenditures for working
capital, capital improvements and acquisitions in the communications and media
fields whether by purchase of assets, capital stock or partnership or other
equity interests or by the formation of joint ventures, partnerships or other
entities.
"Asset Sale" shall mean the sale, transfer or other disposition (other
than to the Company or any of its Subsidiaries) in any single transaction or
series of related transactions of (a) any Capital Stock of any Subsidiary, (b)
all or substantially all of the assets of the Company or any Subsidiary or (c)
all or substantially all of the assets of a division, line of business, or
comparable business segment of the Company or any Subsidiary.
"Base Date", with respect to any Triggering Event, shall mean the date
which is 60 days prior to the occurrence of such Triggering Event.
"B Minus" shall mean, with respect to ratings by Standard & Poor's
Corporation, a rating of B- and, with respect to ratings by Moody's Investors
Service, Inc., a rating of B3, or the equivalent thereof by any substitute
agency, as provided in Section 12.10.
"B Plus" shall mean, with respect to ratings by Standard & Poor's
Corporation, a rating of B+ and, with respect to ratings by Moody's Investors
Service, Inc., a rating of B1, or the equivalent thereof by any substitute
agency, as provided in Section 12.10.
"Capitalized Lease Obligation" shall mean, as applied to any Person,
any lease of any property (whether real, personal or mixed) by that Person or
lessee which, in conformity with GAAP, is required to be accounted for as a
capital lease on the balance sheet of that Person.
"Cash Flow Available for Interest Expense" shall mean, for any Person,
for any period, (A) the sum of the amount for such period of (i) Net Income,
(ii) Interest Expense, (iii)
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provisions for taxes based on income (excluding taxes related to gains and
losses excluded from the definition of Net Income), (iv) depreciation expense,
(v) amortization expense, and (vi) any other non-cash items reducing the Net
Income of such Person for such period, minus (B) all non-cash items increasing
Net Income of such Person; all as determined in accordance with GAAP; provided
that if, during such period, such Person shall have made any Asset Sale, Cash
Flow Available for Interest Expense of such Person for such period shall be
reduced by an amount equal to the Cash Flow Available for Interest Expense (if
positive) directly attributable to the assets which are the subject of such
Asset Sale for the period subsequent to such sale or increased by an amount
equal to the Cash Flow Available for Interest Expense (if negative) directly
attributable thereto for such period.
"Century/Texas" shall mean Century Communications Corp., a Texas
corporation, a wholly-owned subsidiary of the Company.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$.01 per share, of the Company.
"Consolidated Cash Flow Available for Interest Expense" shall mean, for
any Person, for any period, (A) the sum of the amount for such period of (i)
Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) provisions
for taxes based on income (excluding taxes related to gains and losses excluded
from the definition of Consolidated Net Income or Net Income), (iv) depreciation
expense, (v) amortization expense, and (vi) any other non-cash items reducing
the Consolidated Net Income of such Person for such period, minus (B) all
non-cash items increasing Consolidated Net Income of such Person for such
period; all as determined on a consolidated basis for such Person and its
Subsidiaries in accordance with GAAP; provided that if, during such period, the
Company or any of its Subsidiaries shall have made any Asset Sale, Consolidated
Cash Flow Available for Interest Expense of the Company for such period shall be
reduced by an amount equal to the Consolidated Cash Flow Available for Interest
Expense (if positive) directly attributable to the assets which are the subject
of such Asset Sale for the period subsequent to such sale or increased by an
amount equal to the Consolidated Cash Flow Available for Interest Expense (if
negative) directly attributable thereto for such period.
"Consolidated Interest Expense" of any Person shall mean, with respect
to any period, the aggregate Interest Expense of such Person and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP;
provided, however, that Consolidated Interest Expense of the Company shall only
include the Interest Expense of any Subsidiary of the Company which, at the date
of determination of the Interest Expense Ratio of the Company, has an Interest
Expense Ratio of less than the ratios set forth below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
November 15, 1988 - November 14, 1990 1.25 to 1.0
November 15, 1990 - November 14, 1991 1.35 to 1.0
Thereafter 1.50 to 1.0
</TABLE>
"Consolidated Net Income" with respect to any specified Person shall
mean, for any period, the aggregate of the Net Income of such specified Person
and its Subsidiaries for such
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period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income of any other Person which is not a Subsidiary or is
accounted for by such specified Person by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions paid
to such specified Person or a Subsidiary, and (ii) the Net Income of any other
Person acquired by such specified Person or a Subsidiary of such Person in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (iii) the Net Income (if positive) of any
Subsidiary that is subject to restrictions, direct or indirect, on the payment
of dividends or the making of distributions to such specified Person shall be
excluded to the extent of such restrictions.
"Currency Agreement" shall mean any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"Debt" of any Person shall mean (without duplication) any indebtedness,
contingent or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or representing the balance deferred and unpaid of the purchase
price of any property (except any such balance that constitutes a trade payable
or an accrued liability arising in the ordinary course of business that is not
overdue by more than 120 days or that is being contested in good faith), if and
to the extent any of the foregoing indebtedness would appear as a liability upon
a balance sheet of the Company in accordance with GAAP.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Designated Downgrading" shall mean (i) in the event that the rating of
the 8 3/8% Notes by both Rating Agencies on any Base Date is equal to or higher
than B Plus, the reduction of such rating by either or both Rating Agencies on
the date of the relevant event or transaction resulting in the Class A Common
Stock of the Company being held of record by less than 300 holders (or, if the
rating on such date does not reflect the effect of such event or transaction,
then on the earliest date on which such rating shall reflect the effect of such
event or transaction) (as applicable, the "Triggering Event Date") to a rating
equal to or lower than B Minus; and (ii) in the event that on any Base Date the
rating of the 8 3/8% Notes by either or both Rating Agencies is lower than B
Plus, the reduction of such rating by either or both Rating Agencies to a lower
rating. In determining whether a rating has been reduced, a reduction of a
gradation (+ and - for S&P and 1, 2 and 3 for Moody's or the equivalent thereof
by any substitute rating agency as provided in Section 12.10) shall be taken
into account.
"Discharged" shall have the meaning assigned to such term in Section
5.02 hereof.
"8 3/8% Notes" shall mean the Company's 8 3/8% Senior Notes Due 2007
originally issued in the aggregate principal amount of $100,000,000 pursuant to
this Indenture.
"Global Note" has the meaning set forth in Section 2.03.
"Incurrence" shall have the meaning assigned to such term in Section
11.13 hereof.
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"Indebtedness" of any Person shall mean the Debt of such Person and
shall also include, to the extent not otherwise included, any Capitalized Lease
Obligation, the maximum fixed repurchase price of any Redeemable Stock,
Indebtedness secured by a Lien to which the property or assets owned or held by
the Company are subject (whether or not the obligations secured thereby shall
have been assumed), guarantees of items that would constitute Indebtedness under
this definition (whether or not such items would appear upon the balance sheet
of such Person), letters of credit and letter of credit reimbursement
obligations (whether or not such items would appear on such balance sheet), and
obligations in respect of Currency Agreements and Interest Swap Obligations, and
any renewal, extension, refunding or amendment of any of the foregoing. For
purposes of the preceding sentence, the maximum fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Stock as if such
Redeemable Stock were repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is based
upon or measured by the fair market value of such Redeemable Stock (or any
equity security for which it may be exchanged or converted), such fair market
value shall be determined in good faith by the Board of Directors. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability of any such contingent obligations at such date.
"Interest Expense" of any Person shall mean, for any period, the
aggregate amount of (i) interest in respect of Indebtedness of such Person
(including amortization of original issue discount on any such Indebtedness and
the interest portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and the net costs associated with Interest Swap
Obligations and Currency Agreements), (ii) all but the principal component of
rentals in respect of Capitalized Lease Obligations, paid, accrued or scheduled
to be paid or accrued by such Person during such period, and (iii) any dividends
or distributions paid on any Redeemable Stock of such Person, all as determined
in accordance with GAAP.
"Interest Expense Ratio" shall mean, for the Company, the ratio of (i)
the aggregate amount of Consolidated Cash Flow Available for Interest Expense of
the Company for the four fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Interest Expense Ratio (the
"Transaction Date") to (ii) the aggregate Consolidated Interest Expense which
the Company will accrue during the fiscal quarter in which the Transaction Date
occurs and the three fiscal quarters immediately subsequent to such fiscal
quarter, assuming the Consolidated Interest Expense accruing on the amount of
the Company's Indebtedness on the Transaction Date and reasonably anticipated by
the Company in good faith to be outstanding from time to time during such period
(assuming the continuation of market interest rate levels prevailing on the
Transaction Date in any calculation of Interest Expense relating to Indebtedness
the interest on which is a function of such market interest rate levels).
"Interest Expense Ratio" shall mean, for any other Person, the ratio of (i) the
aggregate amount of Cash Flow Available for Interest Expense of such other
Person for the four fiscal quarters for which financial information in respect
thereof is available immediately prior to the relevant Transaction Date to (ii)
the aggregate Interest Expense which such other Person will accrue during the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter, assuming the Interest
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Expense accruing on the amount of such other Person's Indebtedness on the
Transaction Date and reasonably anticipated by such other Person in good faith
to be outstanding from time to time during such period (assuming the
continuation of market interest rate levels prevailing on the Transaction Date
in any calculation of Interest Expense relating to Indebtedness the interest on
which is a function of such market interest rate levels).
"Interest Swap Obligations" shall mean the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount.
"Lien" shall mean any lien, security interest, charge or encumbrance of
any kind (including any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any security interest).
"Maturity Date" shall mean the earlier to occur of November 15, 2007
and the date upon which the 8 3/8% Notes shall be declared due and payable
pursuant to the terms of Section 6.01.
"Net Income" of any Person shall mean the net income (loss) of such
Person, determined in accordance with GAAP, excluding, however, any gain (but
not loss) realized upon the sale or other disposition (including, without
limitation, dispositions pursuant to sale and leaseback transactions) of any
real property or equipment of such Person which is not sold or otherwise
disposed of in the ordinary course of business and any gain (but not loss)
realized upon the sale or other disposition of any Capital Stock of such Person
or a Subsidiary of such Person.
"Permitted Investment" shall mean any investment after November 10,
1988 (a) which when aggregated with all other outstanding Permitted Investments
does not exceed the aggregate of $50 million (excluding amounts which may be
used to acquire the remaining interests in the non-wireline cellular telephone
systems in Elkhart, Indiana, Lincoln, Nebraska and Charlottesville and
Lynchburg, Virginia) plus (i) the amount of Proceeds from the issuance or sale
of Capital Stock of the Company after November 15, 1988, (ii) the amount of
Proceeds from the issuance of indebtedness which is converted or exchanged for
Capital Stock of the Company after November 15, 1988, and (iii) amounts from
dividends or distributions made to the Company or any Restricted Subsidiary from
an Unrestricted Subsidiary after November 15, 1988, and (b) which is (i) loaned
or contributed to any Affiliate controlled, directly or indirectly, by the
Company in the ordinary course of business on terms that are no less favorable
to the Company or the Restricted Subsidiary than those that could have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary from a Person who is not an Affiliate, or (ii) (A) loaned or
contributed to any Unrestricted Subsidiary or (B) made by way of a guarantee by
the Company, or a Restricted Subsidiary of Indebtedness of an Unrestricted
Subsidiary. A Permitted Investment in an Unrestricted Subsidiary will be deemed
to be no longer outstanding if such Unrestricted Subsidiary has been classified
a Restricted Subsidiary.
"Physical Note" has the meaning set forth in Section 2.04.
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"Preferred Stock" shall mean the $3.50 Preferred Shares and the Special
Preferred Shares of the Company.
"Proceeds" shall mean, with respect to any issuance or sale of
securities, cash or the fair market value of property other than cash (as
determined by the Board of Directors whose determination shall be evidenced by a
resolution of the Board of Directors filed with the Trustee) received in
connection therewith.
"Pro Forma Operating Cash Flow" shall mean, for any period, (A) the sum
of the amount for such period of (i) Net Income, (ii) Interest Expense, (iii)
provisions for taxes based on income (excluding taxes related to gains and
losses excluded from the definition of Consolidated Net Income or Net Income),
(iv) depreciation expense, (v) amortization expense, and (vi) any other non-cash
items reducing the Net Income of such Person for such period, minus (B) all
non-cash items increasing Net Income of such Person for such period; all as
determined on a consolidated basis for the Company and its Restricted
Subsidiaries in accordance with GAAP after giving effect to the following: (i)
if, during such period, the Company or any of its Restricted Subsidiaries shall
have made any Asset Sale, Pro Forma Operating Cash Flow of the Company for such
period shall be reduced by an amount equal to the Pro Forma Operating Cash Flow
(if positive) directly attributable to the assets which are the subject of such
Asset Sale for the period subsequent to such sale or increased by an amount
equal to the Pro Forma Operating Cash Flow (if negative) directly attributable
thereto for such period and (ii) if, during such period, Indebtedness is
incurred by the Company or any of its Restricted Subsidiaries for or in
connection with the acquisition of any Person or business which immediately
after acquisition is a Subsidiary or whose assets are held directly by the
Company or a Subsidiary, Pro Forma Operating Cash Flow shall be computed so as
to give pro forma effect to the acquisition of such Person or business.
"Rating Agency" shall mean either Standard & Poor's Corporation or its
successor ("S&P") or Moody's Investors Service, Inc. or its successor
("Moody's").
"Redeemable Stock" shall mean any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the
Maturity Date.
"Repurchase Date" shall have the meaning assigned to such term in
Section 12.10 hereof.
"Repurchase Notice" shall have the meaning assigned to such term in
Section 12.10 hereof.
"Restricted Payments" shall have the meaning assigned to such term in
Section 11.11.
"Restricted Subsidiary" shall mean (a) any Subsidiary of the Company,
whether existing on or after the date of the Indenture, unless such Subsidiary
is an Unrestricted Subsidiary or shall have been classified as an Unrestricted
Subsidiary by a resolution adopted by the Board of Directors of the Company and
(b) an Unrestricted Subsidiary which is reclassified as a Restricted Subsidiary
by a resolution adopted by the Board of Directors of the Company, provided that
on
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and after the date of such reclassification such Unrestricted Subsidiary
shall not incur Indebtedness other than that permitted to be incurred by a
Restricted Subsidiary under the provisions of the Indenture. Notwithstanding the
foregoing, Century-ML Cable Venture and its Subsidiaries and Century Venture
Corp. and its Subsidiaries shall be Restricted Subsidiaries unless any of the
foregoing shall be reclassified as an Unrestricted Subsidiary pursuant to clause
(d) of the definition of an Unrestricted Subsidiary.
"Transaction Date" shall have the meaning assigned to such term in the
definition of "Interest Expense Ratio" herein.
"Triggering Event" shall mean the occurrence of any transaction or
event or series of transactions or events which results in (a) the Class A
Common Stock of the Company being held of record by less than three hundred
holders and (b) a Designated Downgrading. For purposes of clause (a) above,
"held of record" shall have the meaning set forth in Rule 12g5-1 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended.
"Triggering Event Date" shall have the meaning assigned to such term in
the definition of "Designated Downgrading" herein.
"Unrestricted Subsidiary" shall mean (a) Century Cellular Holding
Corp.; provided that Century Cellular Holding Corp. may be reclassified as a
Restricted Subsidiary pursuant to clause (b) of the definition of Restricted
Subsidiary, (b) any Subsidiary as of the date of the Indenture which is not a
Restricted Subsidiary, (c) any Subsidiary of an Unrestricted Subsidiary and (d)
any Subsidiary organized or acquired after the date of the Indenture which is
classified as an Unrestricted Subsidiary by a resolution adopted by the Board
of Directors of the Company; provided that a Subsidiary may be so classified
as an Unrestricted Subsidiary only if immediately after the date of such
classification, the Company and its Restricted Subsidiaries would have
investments in such Subsidiary which would be Permitted Investments; and
provided further, that, notwithstanding the foregoing, no Subsidiary which is
a Restricted Subsidiary as of the date of the Indenture shall be reclassified
as an Unrestricted Subsidiary or be a Subsidiary of an Unrestricted Subsidiary.
The Trustee shall be given prompt notice by the Company of each resolution
adopted by the Board of Directors under this provision, together with a copy
of each such resolution adopted.
B2. ADDITIONAL SECTIONS - Each of the following provisions, which
constitutes part of this Eighth Supplemental Indenture, is numbered to conform
with the format of the Indenture:
SECTION 2.03. Securities in Global Form.
The 8 3/8% Notes shall be issued initially in the form of one or more
permanent Global Notes, representing and denominated in an amount equal to the
aggregate principal amount of all of the Securities of such series, each such
Note containing the legend relating to global securities set forth in Section
2.05 hereto (a "Global Note"), deposited with, or on behalf of the Depository or
with the Trustee, as custodian for the Depository.
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Any Holder of the Global Note(s) shall, by acceptance of such Global
Note(s), agree that transfers of beneficial interests in such Global Note(s) may
be effected only through a book-entry system maintained by the Holder of such
Global Note(s) (or its agent), and that ownership of a beneficial interest in
the 8 3/8% Notes shall be required to be reflected in a book entry.
SECTION 2.04. Book-Entry Provisions for Global Note(s).
(a) Each Global Note initially shall (i) be registered in the name of the
Depository for such Global Notes or the nominee of such Depository, (ii) be
deposited with, or on behalf of, the Depository or with the Trustee, as
custodian for such Depository, and (iii) bear the legends set forth in Section
2.05. Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note(s) held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Note(s), and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Note(s) for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving any effect to any written certification, proxy or other
authorization furnished by the Depository or shall impair, as between the
Depository and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any 8 3/8% Notes.
(b) Transfers of each Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depository, its successors or
their respective nominees. Interests of beneficial owners in each Global Note
may be transferred in accordance with the rules and procedures of the
Depository. In addition, permanent certificate Notes in registered form
("Physical Notes") shall be issued to all beneficial owners in exchange for
their beneficial interests in a Global Note if (i) the Company notifies the
Trustee in writing that the Depository is at any time unwilling or unable to
continue as a depository for such Global Note and a successor depository is not
appointed by the Company within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, or (iii) there is continuing an Event of
Default as set forth in the Indenture and a Holder so requests.
(c) In connection with any transfer of a portion of the beneficial
interest in a Global Note pursuant to Section 2.04(b) to beneficial owners who
are required to hold Physical Notes, the Security Registrar shall reflect on its
books and records the date and a decrease in the principal amount of such Global
Note in an amount equal to the principal amount of the beneficial interest in
such Global Note to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Physical Notes of like tenor
and amount.
(d) In connection with the transfer in its entirety of a Global Note to
beneficial owners pursuant to Section 2.04(b), such Global Note shall be
surrendered to the Trustee for cancellation, and the Company shall execute, and
the Trustee shall authenticate and deliver, to each beneficial owner identified
by the Depository in exchange for its beneficial interest in such Global Note an
equal principal amount of Physical Notes of authorized denominations.
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(e) The Holder of the Global Note(s) may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the 8 3/8% Notes.
SECTION 2.05. Legends.
Each Global Note shall bear a legend substantially to the following
effect on the face thereof:
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY GLOBAL NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE HEREINAFTER
REFERRED TO.
SECTION 3.11 Establishment of Terms.
The 8 3/8% Notes shall have such terms as are set forth in the 8 3/8%
Note, a copy of which is attached hereto as Exhibit A.
SECTION 11.10. Restrictions on Mergers, Sales and
Consolidations.
The Company will not consolidate or merge with or into, or sell, lease,
convey or otherwise dispose of all or substantially all of its property to
another corporation, Person or entity except as permitted in Article Nine.
SECTION 11.11. Restrictions on Dividends and Other
Payments.
Except as set forth below the Company shall not, directly or
indirectly:
(1) declare or pay any dividend on, or make any distribution to the
holders (as such) of, any shares of its Capital Stock (other than dividends or
distributions payable in Capital Stock (other than Redeemable Stock) of the
Company);
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(2) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company, any Subsidiary or other Affiliate of the Company
(other than any such Capital Stock owned by the Company or any directly or
indirectly wholly-owned Subsidiary of the Company);
(3) permit any Subsidiary to declare or pay any dividend on, or make
any distribution to the holders (as such) of, any shares of its Capital Stock
except to the Company or a directly or indirectly wholly-owned Subsidiary of the
Company (other than dividends or distributions payable in Capital Stock (other
than Redeemable Stock) of such Subsidiary or the Company);
(4) permit any Subsidiary to purchase, redeem or otherwise acquire or
retire for value any Capital Stock of such Subsidiary, the Company or any
Affiliate of either of them (other than any such Capital Stock owned by the
Company or any directly or indirectly wholly-owned Subsidiary of the Company);
or
(5) make an Advance or permit any Subsidiary to make an Advance (such
dividends, distributions, purchases, redemptions, other acquisitions,
retirements or Advances referred to in (1) through (5) above being collectively
referred to as "Restricted Payments;" provided, however, that Restricted
Payments shall not include any amounts paid for the acquisition from a Person
not an Affiliate of the Company of any Capital Stock of a Subsidiary or other
Affiliate of the Company);
if at the time of such Restricted Payment:
(i) an Event of Default shall have occurred and be continuing, or shall
occur as a consequence thereof, or
(ii) if upon giving effect to such payment the aggregate amount
expended for all such Restricted Payments subsequent to November 21, 1988 shall
exceed the sum of (a) the excess of (x) the aggregate of Consolidated Cash Flow
Available for Interest Expense of the Company accrued during all fiscal quarters
ended subsequent to May 31, 1988 over (y) the product of (1) 1.2 and (2) the
aggregate of Consolidated Interest Expense of the Company accrued during all
fiscal quarters ended subsequent to May 31, 1988, (b) the aggregate net
proceeds, including cash and the fair market value of property other than cash,
received by the Company from the issue or sale, after November 21, 1988, of
Capital Stock of the Company (other than Redeemable Stock), including upon the
exercise of any warrant, other than in connection with the conversion or
exchange of any Indebtedness or Capital Stock, and (c) the aggregate net
proceeds received by the Company, subsequent to November 21, 1988, from the
issue or sale of any debt securities or Redeemable Stock of the Company, if, at
the time the determination is made, such debt securities or Redeemable Stock, as
the case may be, has been converted into or exchanged for Capital Stock of the
Company (other than Redeemable Stock).
For purposes of any calculation pursuant to the preceding sentence
which is required to be made within 60 days after the declaration of a dividend
by the Company or any Subsidiary, such dividend shall be deemed to be paid at
the date of declaration, and the subsequent payment of such dividend during such
60-day period shall not be treated as an additional Restricted Payment. For
purposes of determining under clause (ii) above the amount expended for
Restricted Payments, property other than cash shall be valued at its fair market
value.
-12-
<PAGE>
Notwithstanding the foregoing, the provisions of this Section 11.11
will not prevent (i) the payment of an amount not to exceed $150,000,000 in the
aggregate to repurchase shares of the common stock of the Company, (ii) the
payment of any dividend within 60 days after the date of declaration when the
payment would have complied with the foregoing provisions on the date of
declaration or (iii) the purchase, redemption, acquisition or other retirement
of any shares of the Company's Capital Stock by exchange for, or out of the
proceeds of the substantially concurrent sale of, other shares of its Capital
Stock (other than Redeemable Stock).
SECTION 11.12. Limitation on Transactions with Affiliates.
Neither the Company nor any Subsidiary may engage in any transaction
with an Affiliate of the Company (other than a Restricted Subsidiary), or any
director, officer or employee of the Company or any Subsidiary, on terms less
favorable to the Company or such Subsidiary than would be obtainable at the time
in comparable transactions of the Company or such Subsidiary with Persons which
are not Affiliates; provided, however, that nothing in this Section 11.12 shall
prevent (i) the Company from making any payments permitted pursuant to the terms
of Section 11.11 or (ii) the Company or any Subsidiary from entering into any
transaction permitted pursuant to the terms of Sections 9.01, 11.10 and 11.14.
SECTION 11.13. Limitation on Indebtedness.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create, incur, issue, assume or become liable for,
contingently or otherwise (collectively an "incurrence"), any Indebtedness
(other than the 8 3/8% Notes) unless, after giving effect to such incurrence on
a pro forma basis, Indebtedness of the Company and its Restricted Subsidiaries,
on a consolidated basis, shall not be more than nine times Pro Forma Operating
Cash Flow for the four fiscal quarters immediately preceding such incurrence.
For purposes of this Section 11.13, an incurrence will not be deemed to occur
when any Person becomes a Subsidiary by merger, consolidation, acquisition or
otherwise. Notwithstanding the above, neither the Company nor any Restricted
Subsidiary shall be prohibited from incurring (i) Indebtedness incurred in
connection with Currency Agreements or Interest Swap Obligations, (ii)
Indebtedness which is subordinated in right of payment to the 8 3/8% Notes and
which has an average life to maturity longer than that of the 8 3/8% Notes and
(iii) Indebtedness resulting in the extension, refunding or renewal of any
Indebtedness existing prior to such extension, renewal or refunding which does
not result in an increase in the principal amount of such existing Indebtedness
then outstanding.
SECTION 11.14. Investments in Affiliates and
Subsidiaries.
(a) After December 4, 1997, the Company shall not, nor shall the
Company allow any Restricted Subsidiary to, invest in any Affiliate (other than
the Company or a Restricted Subsidiary) or in any Unrestricted Subsidiary other
than by way of Permitted Investments.
(b) After December 4, 1997, neither the Company nor any Restricted
Subsidiary shall guarantee or secure, pledge, encumber or otherwise become
directly or indirectly liable for investments in or borrowings by Unrestricted
Subsidiaries, except for Permitted Investments and
-13-
<PAGE>
except that the Capital Stock of an Unrestricted Subsidiary may be pledged to
secure borrowings by such Unrestricted Subsidiary or other Unrestricted
Subsidiaries.
SECTION 12.10. Right to Require Repurchase of
8 3/8% Notes.
(a) In the event of the occurrence of a Triggering Event, each holder
of 8 3/8% Notes shall have the right, at such holder's option, to sell to the
Company, and the Company hereby agrees to purchase, all or any part of such
holder's 8 3/8% Notes on the date (the "Repurchase Date") that is 115 days after
a Triggering Event Date, for an amount equal to 101% of their principal amount
plus accrued interest to the Repurchase Date.
(b) The Company shall mail to all holders of record of the 8 3/8%
Notes, within 30 days after a Triggering Event Date, a notice of the occurrence
of such Triggering Event, specifying the date by which a holder of 8 3/8% Notes
must notify the Trustee of such holder's intention to exercise the repurchase
right and describing the procedure which such holder must follow to exercise
such right. The Company shall deliver a copy of such notice to the Trustee on
the same such date and shall cause a copy of such notice to be published in an
Authorized Newspaper. To exercise the repurchase right, the holder of a 8 3/8%
Note must deliver, on or before the ninetieth day after a Triggering Event Date,
written notice (which shall be irrevocable) (such notice, as to any holder of
8 3/8% Notes its "Repurchase Notice") to the Trustee of the holder's exercise of
such right, together with the 8 3/8% Note or 8 3/8% Notes with respect to which
the right is being exercised, duly endorsed for transfer. Not later than the
ninety-fifth day after such Triggering Event Date, the Trustee shall notify the
Company of the aggregate principal amount of 8 3/8% Notes or portions thereof
with respect to which it has received Repurchase Notices and the certificate
numbers and the names of the holders of the 8 3/8% Notes tendered for
repurchase. No later than the date that is 110 days after a Triggering Event
Date, the Company shall deposit with the Trustee money in an amount sufficient
to repurchase on the Repurchase Date all such 8 3/8% Notes or portions thereof.
The Company shall not be required pursuant to Section 3.05 to exchange or
register the transfer of any 8 3/8% Note or portion thereof with respect to
which the holder thereof has delivered a Repurchase Notice.
(c) The Company shall take all reasonable action necessary to enable
each of the Rating Agencies to provide a rating for the 8 3/8% Notes. If,
however, either or both of the Rating Agencies shall not make such a rating
available, a nationally recognized investment banking firm selected by the
Company shall select a nationally recognized securities rating agency or two
nationally recognized securities rating agencies to act as substitute rating
agency or substitute rating agencies, as the case may be.
PARAGRAPH C. CHANGED PROVISIONS.
C1. CHANGED DEFINITIONS. The definitions of "Capital Stock", "GAAP" and
"Subsidiary" set forth in Article 1 of the Indenture shall be amended and
restated in their entirety to read as follows:
"Capital Stock" shall mean, (i) in respect of any Person, any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in
-14-
<PAGE>
(however designated) corporate stock and any and all equity, beneficial or
ownership interests in, or participations or other equivalents in, any
partnership, association, joint venture or other business entity and (ii) when
used to refer to "Capital Stock" into which Securities of a particular series
are convertible, stock of any class of the Company into which Securities of such
series are convertible in accordance with their terms (as contemplated by
Section 3.01).
"GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession as in effect on the date of the Indenture.
"Subsidiary" of any specified Person shall mean (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is at the time, directly or indirectly, owned by such Person
or by such Person and a Subsidiary or Subsidiaries of such Person or by a
Subsidiary or Subsidiaries of such Person or (ii) any other Person (other than a
corporation) in which such Person or such Person and a Subsidiary or
Subsidiaries of such Person or a Subsidiary or Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof has at least
majority ownership interest.
C2. CHANGED SECTIONS.
SECTION 2.02. Certificate of Authentication.
Section 2.02 of the Indenture, which shall apply to the 8 3/8% Notes,
is amended and restated in its entirety to read as follows:
SECTION 2.02. Form of Trustee's Certificate
of Authentication.
The Trustee's certificate of authentication on the 8 3/8% Notes shall
be in substantially the following form:
This is one of the 8 3/8% Senior Notes Due 2007 referred to in the
Indenture dated as of February 15, 1992, as supplemented by the Eighth
Supplemental Indenture, dated as of December 10, 1997, between Century
Communications Corp. and First Trust of California, National Association,
successor trustee to Bank of America National Trust and Savings Association, as
Trustee.
FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, successor
trustee to BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Trustee
By:____________________
Authentication Date: Authorized Officer
-15-
<PAGE>
SECTION 5.02. Defeasance.
Section 5.02 of the Indenture, which shall apply to the 8 3/8% Notes,
is amended and restated in its entirety to read as follows:
SECTION 5.02. Defeasance Upon Deposit of Moneys or U.S.
Government Obligations.
At the Company's option indicated by notice to the Trustee, either (a)
the Company shall be deemed to have been Discharged (as defined below) from its
obligations with respect to the 8 3/8% Notes or (b) the Company shall cease to
be under any obligation to comply with any term, provision or condition set
forth in Sections 11.10 through 11.12 at any time after the applicable
conditions set forth below have been satisfied:
(1) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the holders of the 8 3/8%
Notes (A) money in an amount, or (B) U.S. Government Obligations which through
the payment of interest thereon and principal in respect thereof in accordance
with their terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination of (A) and (B), sufficient, in
the opinion (with respect to (B) and (C)) of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge all of the principal of the
outstanding 8 3/8% Notes on the date such payment of principal is due in
accordance with the terms of the 8 3/8% Notes;
(2) if the 8 3/8% Notes are then listed on the American Stock Exchange
or any other stock exchange, and if the Company has elected to be deemed
Discharged from its obligations with respect to the 8 3/8% Notes pursuant to
option (a) above, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option (a) would not
cause the 8 3/8% Notes to be delisted; and
(3) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that holders of the 8 3/8% Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of the
Company's exercise of its option under this Section 5.02 and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such option had not been exercised or
deliver a ruling to that effect received from or published by the Internal
Revenue Service.
"Discharged" means, for purposes of this Section 5.02, that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by, and obligations under, the 8 3/8% Notes and to have satisfied all the
obligations under this Indenture relating to the 8 3/8% Notes and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
the same.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for payment of which its full faith
and credit is pledged or (ii) obligations of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full
-16-
<PAGE>
faith and credit obligation of the United States of America, which, in either
case under clauses (i) or (ii), are not callable or redeemable at the option of
the issuer thereof, and will also include a depository receipt issued by a bank
or trust company as custodian with respect to any such U.S. Government
Obligation or a specified payment of interest on or principal of any such U.S.
Government Obligation held by such custodian for the account of the holder of a
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of interest on or
principal of the U.S. Government Obligation evidenced by such depository
receipt.
Notwithstanding the satisfaction and discharge of this Indenture under
this Section 5.02, the Company's obligations in Sections 3.05, 3.06, 7.07 and
11.02, however, shall survive until the 8 3/8% Notes are no longer outstanding.
-17-
<PAGE>
SECTION 9.01. Company May Consolidate, etc.
Only On Certain Terms.
Section 9.01 is amended by (i) deleting the word "and" at the end of
subclause 1, (ii) deleting the period at the end of subclause 2 and substituting
in lieu thereof a semicolon and (iii) adding the following two subclauses at the
end thereto, to read in their entirety as follows:
(3) immediately after the transaction, no Event of Default exists; and
(4) immediately after giving effect to such transaction on a pro forma
basis, the Interest Expense Ratio of the surviving or successor entity on a pro
forma basis is at least 1:1; provided that, if the Interest Expense Ratio of the
Company immediately prior to any such transaction is within the range set forth
in Column A below, then the pro forma Interest Expense Ratio of the surviving or
successor entity shall be at least equal to the percentage of the Interest
Expense Ratio of the Company set forth in Column B below:
<TABLE>
<CAPTION>
(A) (B)
--- ---
<S> <C>
1.1111:1 to 1.4999:1 90%
1.5:1 and higher 75%
</TABLE>
and provided further, that, if the pro forma Interest Expense Ratio of the
surviving or successor entity is 2.0:1 or more, the calculation in the preceding
proviso shall be inapplicable and such transaction shall be deemed to have
complied with the requirements of such provision.
ARTICLE TWELVE - REDEMPTION OF SECURITIES
Sections 12.01, 12.06, 12.07 and 12.08 are amended and restated in
their entirety to read as follows:
SECTION 12.01. Applicability of Article.
Securities of any series which are subject to repurchase before their
Stated Maturity shall be repurchased in accordance with their terms and (except
as otherwise specified as contemplated by Section 3.01 for Securities of any
series) in accordance with this Article.
SECTION 12.06. Securities Payable on Repurchase Date.
Notice of repurchase having been given as aforesaid, the Securities so
to be repurchased shall, on the Repurchase Date, become due and payable at the
applicable repurchase price therein specified, and from and after such date
(unless the Company shall default in the payment of the applicable repurchase
price and accrued interest) such Securities shall cease to bear interest. Upon
surrender of any such Security for repurchase in accordance with said notice,
such Security shall be paid by the Company at the applicable repurchase price,
together with accrued interest to the applicable Repurchase Date; provided,
however, that, subject to Section 16.04, installments of interest whose Stated
Maturity is on or prior to the applicable Repurchase Date shall be
-18-
<PAGE>
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 3.07.
If any Security called for repurchase shall not be so paid upon
surrender thereof for repurchase, the principal (and premium, if any) shall,
until paid, bear interest from the applicable Repurchase Date at the rate
prescribed therefor in the Security.
SECTION 12.07. Securities Repurchased in Part.
Any Security which is to be repurchased only in part shall be
surrendered at a Place of Payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities of the same series, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the portion not repurchased of the principal
of the security so surrendered. Securities in denominations larger than $1,000
may be repurchased in part, but only in whole multiples of $1,000.
SECTION 12.08. Securities No Longer Outstanding
After Notice to Trustee and
Deposit of Cash.
If the Company, having given notice to the Trustee as provided in
Section 12.02 or 12.10, shall have deposited with the Trustee or a Paying Agent,
for the benefit of the Holders of any Securities of any series or portions
thereof tendered for repurchase in whole or in part, cash or other form of
payment if permitted by the terms of such Securities (which amount shall be
immediately due and payable to the Holders of such Securities or portions
thereof) in the amount necessary so to repurchase all such Securities or
portions thereof on the applicable Repurchase Date and provision satisfactory to
the Trustee shall have been made for the giving of notice of such repurchase,
such Securities or portions thereof shall thereupon, for all purposes of this
Indenture, be deemed to be no longer Outstanding, and the Holders thereof shall
be entitled to no rights thereunder or hereunder, except the right to receive
payment of the applicable repurchase price, together with interest accrued to
the applicable Repurchase Date, on or after the applicable Repurchase Date of
such Securities or portions thereof.
PARAGRAPH D. REPORTING DATE
For the purposes of the 8 3/8% Notes, the Reporting Date shall be May
15, with the first such Reporting Date being May 15, 1998.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Supplemental Indenture to be duly executed and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
CENTURY COMMUNICATIONS CORP.
By: /s/ Scott N. Schneider
-----------------------------------
Chief Financial Officer,
Senior Vice President and Treasurer
[CORPORATE SEAL]
ATTEST:
FIRST TRUST OF CALIFORNIA, NATIONAL
ASSOCIATION, successor trustee to BANK
OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Trustee
By: /s/ Robert Schneider
-------------------------------
Title: Assistant Vice President
[CORPORATE SEAL]
ATTEST:
-20-
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the __ day of December, 1997, before me personally
came____________________ , to me known, who, being by me duly sworn, did depose
and say that he is ___________________________________ of CENTURY COMMUNICATIONS
CORP., one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation; and that he signed his name thereto
by like authority.
[NOTARIAL SEAL]
--------------------
Notary Public
-21-
<PAGE>
STATE OF CALIFORNIA )
: ss.:
COUNTY OF LOS ANGELES )
On the __ day of December, 1997, before me personally came
_____________________ , to me known, who, being by me duly sworn, did depose and
say that he is ____________________________________ of FIRST TRUST OF
CALIFORNIA, NATIONAL ASSOCIATION, successor trustee to BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, as Trustee, one of the corporations described in
and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation; and that he signed his name thereto by like authority.
[NOTARIAL SEAL]
------------------
Notary Public
-22-
<PAGE>
EXHIBIT A
FORM OF 8 3/8% NOTE
-23-
<PAGE>
EXHIBIT 11
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K ANNUAL REPORT
For the Three Years Ended May 31, 1999
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands, except share and per share data)
<S> <C> <C> <C>
Primary and fully diluted:
Net income (loss) $ 256,184 $(120,971) $(141,875)
Dividend requirement on subsidiary convertible
redeemable preferred stock - 5,225 4,850
---------- ---------- ----------
Income (loss) applicable to common shares $ 256,184 $(126,196) $(146,725)
========== ========== ==========
Average number of common shares and common
share equivalents outstanding:
Average number of common shares
outstanding during the year 75,088,000 74,770,000 74,675,000
Add common share equivalents - Options
to purchase common stock - net 1,164,000 893,000 19,000
---------- ---------- ----------
Average number of common shares and common
share equivalents outstanding 76,252,000(A) 75,663,000(A) 74,694,000(A)
========== ========== ==========
Income (loss) per common share $ 3.36(A) $ (1.67)(A) $ (1.96)(A)
========== ========== ==========
</TABLE>
(A) In accordance with SFAS No. 128, the inclusion of common share equivalents
in the computation of earnings per share need not be considered if the
effect is antidilutive. In addition, an entity that reports a discontinued
operation will use income (loss) from continuing operations in determining
whether potential common shares are antidilutive. Therefore, basic loss per
common share and common share equivalents as shown on the Consolidated
Statements of Operations for the three years ended May 31, 1999 do not
include common share equivalents as their effect is antidilutive.
<PAGE>
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges (amounts in thousands)
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loss from continuing operations before income tax benefit
& minority interest $ (62,741) $ (67,212) $ (70,058) $ (66,607) $ (59,962)
========= ========= ========= ========= =========
Fixed Charges:
Interest, including amortization of debt issuance costs 118,327 143,205 157,901 172,608 191,803
Interest portion of rent expense 1,588 2,327 2,691 2,830 2,900
Preferred stock dividends on subsidiary preferred stock 4,419 4,256 4,850 5,225 --
--------- --------- --------- --------- ---------
Total fixed charges 124,334 149,788 165,442 180,663 194,703
========= ========= ========= ========= =========
Adjustments:
Preferred stock dividends on subsidiary preferred stock (4,419) (4,256) (4,850) (5,225) --
========= ========= ========= ========= =========
Total adjustments (4,419) (4,256) (4,850) (5,225) --
========= ========= ========= ========= =========
Earnings, as defined $ 57,174 $ 78,320 $ 90,534 $ 108,831 $ 134,741
========= ========= ========= ========= =========
Ratio of earnings to fixed charges (1) -- -- -- -- --
========= ========= ========= ========= =========
Amount by which earnings are less then fixed charges $ (67,160) $ (71,468) $ (74,908) $ (71,832) $ (59,962)
========= ========= ========= ========= =========
</TABLE>
(1) The ratio of earnings to fixed charges is less than one-to-one and,
therefore, earnings are inadequate to cover fixed charges.
<PAGE>
EXHIBIT 21
CENTURY COMMUNICATIONS CORP.
SUBSIDIARIES OF CENTURY COMMUNICATIONS CORP.
<TABLE>
<CAPTION>
State of
Name Organization
- ---- ------------
<S> <C>
Badger Holding Corp. Delaware
CCC-I, Inc. Delaware
CCC-II, Inc. Delaware
CCC III, Inc. Delaware
CDA Cable, Inc. Idaho
Century Advertising, Inc. Delaware
Century Advertising Sales Corp. Delaware
Century Alabama Corp. Delaware
Century Alabama Holding Corp. Delaware
Century Australia Communications Corp. Nevada
Century Australia Telecommunications Corp. Delaware
Century Bay Area Cable Corp. Delaware
Century Berkshire Cable Corp. Delaware
Century Cable of Northern California CA
Century Cable of Southern California CA
Century Cable Holding Corp. New York
Century Cable Management Corp. Conn.
Century Carolina Corp. Delaware
Century Cellular Holding Corp. New York
Century Colorado Springs Corp. Delaware
Century Communications Corp. Texas
Century Cullman Corp. Delaware
Century Enterprise Cable Corp. Delaware
Century Federal, Inc. CA
Century Granite Cable Television Corp. Delaware
Century Huntington Company Delaware
Century Indiana Corp. Wyoming
Century International Holding Corp. Nevada
Century Investment Holding Corp. Delaware
Century International Investment Corp. Nevada
Century Investors, Inc. Delaware
Century Island Associates, Inc. Delaware
Century Island Cable Television Corp. Delaware
Century Kansas Cable Television Corp. Delaware
Century Kootenai Cable Television Corp. Delaware
Century Lykens Cable Corp. Delaware
Century Mendocino Cable Television Inc. Delaware
Century Microwave Corp. Delaware
Century Mississippi Corp. Delaware
Century-ML Cable Corporation Delaware
Century Mountain Corp. Delaware
Century New Mexico Cable Television Corp. Delaware
Century Norwich Corp. Conn.
</TABLE>
<PAGE>
CENTURY COMMUNICATIONS CORP.
<TABLE>
<S> <C>
Century OCN Programming, Inc. Delaware
Century Ohio Cable Television Corp. Delaware
Century Oregon Cable Corp. Delaware
Century Pacific Cable TV Inc. Delaware
Century Programming, Inc. Delaware
Century Programming Ventures Holding Corp. Nevada
Century Pullman Cable Television Corp. Washington
Century Radio Corp. Delaware
Century Realty Corp. Delaware
Century Shasta Cable Television Corp. Delaware
Century Shenango Cable Television, Inc. Delaware
Century Southwest Cable Television, Inc. Delaware
Century Southwest Colorado Cable Television Corp. Delaware
Century Telecommunications, Inc. CA
Century Telecommunications Venture Corp. Delaware
Century Trinidad Cable Television Corp. Delaware
Century Valley Cable Corp. Delaware
Century Venture Corporation Delaware
Century Virginia Corp. Delaware
Century Voice and Data Communications, Inc. Nevada
Century Warrick Cable Corp. Delaware
Century Washington Cable Television Inc. Delaware
Century Western Cable Corp. Nevada
Century Wyoming Cable Television Corp. Delaware
COG Creations Holding Corp. Nevada
COG Creations Corp. Nevada
Cowlitz Cablevision Inc. Washington
CT Investment Corp. Delaware
E. & E. Cable Service, Inc. W. Virginia
Enchanted Cable Corporation New Mexico
FAE Cable Management Corp. Delaware
Grafton Cable Company W. Virginia
Huntington CATV, Inc. Indiana
Imperial Valley Cablevision, Inc. Texas
Kootenai Cable, Inc. Delaware
Mickelson Media of Florida, Inc. FL
Mickelson Media, Inc. Minnesota
Owensboro on the Air, Inc. Kentucky
Paragon Cable Television, Inc. Wisconsin
Paragon Cablevision Construction Corp. Wisconsin
Paragon Cablevision Management Corp. Wisconsin
Pullman TV Cable Co., Inc. Washington
Rentavision of Brunswick Inc. Georgia
S/T Cable Corp. Delaware
Sentinel Communications of Muncie, Indiana, Inc. Indiana
Southwest Colorado Cable, Inc. Delaware
Star Cablevision, Inc. Georgia
Star Cable Inc. W. Virginia
Valley Video Inc. New York
</TABLE>
<PAGE>
CENTURY COMMUNICATIONS CORP.
<TABLE>
<S> <C>
Warrick Cablevision Inc. Indiana
Westover T.V. Cable Co., Incorporated W. Virginia
Wilderness Cable Company W. Virginia
Yuma Cablevision, Inc. Texas
Century Colorado Springs Partnership Delaware
Century-ML Cable Venture New York
Citizens Century Cable Television Venture Delaware
Century Partnership Holdings, Inc. Delaware
CCC California Holding Corp. Delaware
Century Exchange LLC Delaware
Century TCI California L.P. Delaware
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders
Century Communications Corp.
We consent to the incorporation by reference in Century Communications Corp.'s
Registration Statement Nos. 333-24617 and 333-43863 on Form S-3, Registration
Statement Nos. 33-50769, 33-50767, 33-56375, 33-56383, 33-10947, 33-23690,
33-34388, 333-51345, 33-34387, 33-23718, 33-23717, and 33-13126 on Form S-8, and
333-47161 on Form S-4, of our report dated July 29, 1999, appearing in this
Annual Report on Form 10-K of Century Communications Corp. for the year ended
May 31, 1999.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
August 6, 1999
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<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> MAY-31-1999 MAY-31-1998 MAY-31-1997
<PERIOD-END> MAY-31-1999 MAY-31-1998 MAY-31-1997
<CASH> 626,155 285,498 151,947
<SECURITIES> 0 0 0
<RECEIVABLES> 16,775 16,109 48,958
<ALLOWANCES> 3,311 1,695 3,592
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<CURRENT-ASSETS> 695,778 315,344 215,554
<PP&E> 585,693 565,965 715,418
<DEPRECIATION> (510,896) (436,987) (429,343)
<TOTAL-ASSETS> 1,800,299 1,515,182 2,154,231
<CURRENT-LIABILITIES> 157,363 153,532 192,129
<BONDS> 2,022,640 2,009,052 2,186,981
<COMMON> 1,095 1,084 1,078
0 0 186,287
0 0 0
<OTHER-SE> (465,319) (726,336) (599,721)
<TOTAL-LIABILITY-AND-EQUITY> 1,800,299 1,515,182 2,154,231
<SALES> 519,584 484,736 459,646
<TOTAL-REVENUES> 519,584 484,736 459,646
<CGS> 111,603 103,932 100,789
<TOTAL-COSTS> 393,468 380,268 371,803
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<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 191,803 172,608 157,730
<INCOME-PRETAX> (59,962) (66,607) (70,058)
<INCOME-TAX> (13,453) (624) (23,363)
<INCOME-CONTINUING> (58,106) (77,882) (53,865)
<DISCONTINUED> 314,290 (43,089) (80,428)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 256,184 (120,971) (141,875)
<EPS-BASIC> 3.41 (1.69) (1.96)
<EPS-DILUTED> 3.41 (1.69) (1.96)
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