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TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
INDUSTRIAL IRS EMPLOYER
STATE OF CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION CODE NUMBER NUMBER
---- ------------ ---------------- --------------
<S> <C> <C> <C>
Classic Cable Holding, Inc.................................. Delaware 4841 74-2807609
Ponca Holdings, Inc......................................... Delaware 4841 76-0337883
Classic Telephone, Inc...................................... Delaware 4841 75-2590205
Universal Cable Holdings, Inc............................... Delaware 4841 75-2077867
Universal Cable Communications, Inc. ....................... Delaware 4841 84-0913858
Universal Cable of Beaver, Inc. ............................ Delaware 4841 75-2243788
Universal Cable Midwest, Inc. .............................. Delaware 4841 75-2205815
WT Acquisition Corporation.................................. Delaware 4841 74-2644608
W.K. Communications, Inc.................................... Kansas 4841 48-1037491
Television Enterprises, Inc................................. Texas 4841 74-1532349
Black Creek Communications, L.P............................. Delaware 4841 74-2881867
Black Creek Management, L.L.C............................... Delaware 4841 74-2881870
</TABLE>
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY JURISDICTION IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 1999
PROSPECTUS
OFFER FOR ALL OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
9 7/8% SENIOR SUBORDINATED NOTES DUE 2008 OF
CLASSIC CABLE, INC. [CLASSIC CABLE, INC.
LOGO]
---------------------
Classic Cable, Inc. (the "Company"), a Delaware corporation, is hereby
offering, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange $125,000,000 aggregate principal amount of
its registered 9 7/8% Senior Subordinated Notes due 2008 (the "New Notes") for
$125,000,000 aggregate principal amount of unregistered 9 7/8% Senior
Subordinated Notes due 2008 (the "Old Notes"), all of which remain outstanding.
The form and terms of the New Notes are identical to the form and terms of the
Old Notes, except that the New Notes have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and will not bear any legends
restricting their transfer. The New Notes will evidence the same debt as the Old
Notes and will be issued pursuant to, and entitled to the benefits of, the
Indenture (as defined). The Exchange Offer is being made in order to satisfy
certain contractual obligations of the Company. See "The Exchange Offer" and
"Description of New Notes." The New Notes and the Old Notes are sometimes
collectively referred to herein as the "Notes."
Interest on the New Notes will be payable semiannually in arrears on
February 1 and August 1 of each year, commencing February 1, 1999. The New Notes
will mature on August 1, 2008. The New Notes will be redeemable, at the option
of the Company, in whole or in part, on or after August 1, 2003, at the
redemption prices set forth herein plus accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time on or prior to August 1, 2001,
the Company will have the option to redeem up to 35% of the aggregate principal
amount of the New Notes at a redemption price equal to 109.875% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the
applicable date of redemption with the net proceeds of one or more Equity
Offerings (as defined) or Strategic Equity Investments (as defined), provided
that at least 65% of the aggregate principal amount of the New Notes originally
issued in the Exchange Offering remain outstanding immediately after the
occurrence of such redemption.
The New Notes will be unsecured senior subordinated obligations of the
Company and will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company, and will rank pari passu in
right of payment with all existing and future unsecured senior subordinated
Indebtedness (as defined) of the Company. Pursuant to the terms of the Indenture
(as defined), the New Notes will be guaranteed, jointly and severally, fully and
unconditionally, by all of the Company's direct and indirect subsidiaries (the
"Subsidiary Guarantors"). The Subsidiary Guarantees (as defined) will be
unsecured senior subordinated obligations of the Subsidiary Guarantors and will
be subordinated in right of payment to all existing and future Senior
Indebtedness of the Subsidiary Guarantors. As of September 30, 1998, the
Company, and each of the Subsidiary Guarantors had approximately (i) $220.8
million in total Indebtedness, (ii) $96.4 million of indebtedness ranking senior
to the Notes and the Subsidiary Guarantees, and (iii) no other debt ranking on
an equal basis with the Notes and the Subsidiary Guarantees.
Upon the occurrence of a Change of Control (as defined) (i) the Company
will have the option to redeem the New Notes in cash, in whole or in part, at a
redemption price equal to the principal amount thereof plus accrued and unpaid
interest to the date of redemption, plus the Applicable Premium (as defined) and
(ii) each holder of Notes may require the Company to repurchase all or a portion
of the New Notes held by such holder at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase.
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NEW NOTES.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on , 1999,
unless extended (as so extended, the "Expiration Date"). Tenders of Old Notes
may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is
subject to certain customary conditions. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The letter of transmittal
accompanying this Prospectus (the "Letter of Transmittal") states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed, for a period of 90 days after the Expiration Date, to make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
No public market existed for the Old Notes before the Exchange Offer. The
Company currently does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system, and no active public market for the New Notes is currently anticipated.
The Company will pay all the expenses incident to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1999.
<PAGE> 3
[INSERT MOST RECENT COMBINED COLOR MAP HERE.]
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<PAGE> 4
AVAILABLE INFORMATION
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports and other
information with the Securities and Exchange Commission (the "Commission"). The
Company has filed with the Commission a Registration Statement on Form S-4 under
the Securities Act for the registration of the New Notes offered hereby (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information about the Company and the
New Notes offered hereby, reference is made to the Registration Statement,
including the exhibits and financial statement schedules thereto, which may be
inspected without charge at the public reference facility maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
which may be obtained from the Commission at prescribed rates. With respect to
each document referred to herein which is filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement is
qualified in its entirety by such reference.
Such documents and other information filed by the Company can be inspected
and copied at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10048 and 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at its public reference
facilities in New York, New York and Chicago, Illinois at prescribed rates. The
Company makes its filings with the Commission electronically. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically, which
information can be accessed at http://www.sec.gov.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, they are required to furnish the information required to be
filed with the Commission to the Trustee and the holders of the Notes. The
Company has agreed that, even if it is not required under the Exchange Act to
furnish such information to the Commission, it will nonetheless continue to
furnish information that would be required to be furnished by the Company under
Section 13 or 15(d) of the Exchange Act to the Trustee and the holders of the
Notes as if it were subject to such periodic reporting requirements. The annual
reports so furnished to holders of the Notes will contain financial information
that has been examined and reported upon, with an opinion expressed, by
independent auditors.
In addition, the Company has agreed that, for a period of up to 120 days
after consummation of the Exchange Offer a prospectus meeting the requirements
of the Securities Act will, upon request, provide to any holder of such Note or
any prospective transferee of any such holder in order to permit such holder to
sell or transfer such Note in compliance with Rule 144A under the Securities
Act.
FORWARD-LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED IN THIS OFFERING MEMORANDUM, INCLUDING
DOCUMENTS INCORPORATED BY REFERENCE, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS
FOR PURPOSES OF THE SECURITIES ACT AND THE EXCHANGE ACT. SUCH FORWARD-LOOKING
STATEMENTS MAY INVOLVE UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL
RESULTS AND PERFORMANCE OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE
RESULTS OR PERFORMANCE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. CAUTIONARY
STATEMENTS REGARDING THE RISKS ASSOCIATED WITH SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, WITHOUT LIMITATION, THOSE STATEMENTS INCLUDED UNDER "RISK FACTORS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." CERTAIN OF SUCH RISKS AND UNCERTAINTIES RELATE TO THE
ii
<PAGE> 5
HIGHLY LEVERAGED NATURE OF THE COMPANY, THE RESTRICTIONS IMPOSED ON THE COMPANY
BY CERTAIN INDEBTEDNESS, THE SENSITIVITY OF THE COMPANY TO ADVERSE TRENDS IN THE
GENERAL ECONOMY, THE HIGH DEGREE OF COMPETITION IN THE COMPANY'S INDUSTRY, THE
IMPACT OF NEW TECHNOLOGIES AND CHANGES IN FEDERAL COMMUNICATIONS COMMISSION
("FCC") REGULATIONS, THE VARIABILITY OF THE COMPANY'S QUARTERLY RESULTS AND THE
COMPANY'S SEASONALITY, AMONG OTHERS.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY
ARE EXPRESSLY QUALIFIED BY THE FOREGOING CAUTIONARY STATEMENTS.
iii
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and historical and pro forma
financial information, including the notes thereto, appearing elsewhere in this
Prospectus. As used herein, the "Company" means Classic Cable, Inc., including
the cable television systems acquired from Cable One, Inc. ("Cable One"), unless
the context requires otherwise. The Company is a Delaware corporation and a
wholly owned subsidiary of Classic Communications Inc., ("CCI"), a Delaware
corporation. CCI is a holding company and has no other material assets or
operations. Reference should be made to "Selected Historical and Pro Forma
Consolidated Financial and Operating Data" for the definition of certain
financial terms appearing throughout this Prospectus.
THE COMPANY
The Company, currently the 35th largest cable television operator in the
United States, owns, operates and develops cable television systems in selected
non-metropolitan markets across eight contiguous states primarily located in the
central United States. Founded in 1992, the Company has completed and integrated
17 acquisitions, including the recent acquisition of approximately 28,009
subscribers from Cable One (the "Cable One Acquisition"). The Company's cable
television systems (the "Systems") pass approximately 295,277 homes and serve
approximately 191,252 basic subscribers. In pursuing its business strategy, the
Company has focused its acquisition efforts on cable television systems in
growing non-metropolitan markets and has sought to build geographic clusters of
such systems. See "Business -- Business Strategy."
J. Merritt Belisle, Chairman and Chief Executive Officer, and Steven E.
Seach, President and Chief Financial Officer, founded the Company in 1992 and
have assembled a management team with significant business experience operating
cable television systems and providing quality customer service to cable
subscribers. Messrs. Seach and Belisle, together with certain other members of
the Company's management team, collectively own or have options with respect to
approximately 14% of CCI's Common Stock, on a fully diluted basis. See
"Management."
FINANCING PLAN
On July 29, 1998, the Company completed its private offering of the Old
Notes and, at the same time, CCI completed its private offering of $114 million
aggregate principal amount of its 13 1/4 Senior Discount Notes due 2009 (the
"Senior Discount Notes"). Concurrently, with the offering, the Company entered
into a senior credit agreement (the "Senior Credit Agreement") with a group of
banks and other financial institutions led by Union Bank of California, N.A. and
Goldman Sachs Credit Partners, L.P., as co-agents. See "Credit Arrangements of
the Company." The proceeds of the private offerings of the Company and CCI and
the Senior Credit Agreement were used in order to (a) prepay the Company's prior
Senior Credit Agreement (the "Prior Credit Agreement"), (b) fund the Cable One
Acquisition, (c) redeem outstanding preferred stock of CCI, (d) repay prior
subordinated debt of CCI, and (e) pay fees and expenses of these transactions.
These transactions are collectively referred to herein as the "Financing Plan."
CABLE ONE ACQUISITION
On July 29, 1998, Black Creek Communications, L.P., a wholly owned
subsidiary of the Company, purchased 14 cable television systems in Kansas,
Missouri, Oklahoma and Texas from Cable One (formerly Post-Newsweek Cable) for
$41.7 million. The systems are in close geographic proximity to those currently
owned and operated by the Company, further enhancing its clusters. As of the
acquisition date, in the aggregate, the systems passed 40,628 homes and had
28,166 basic and 16,212 premium subscribers.
1
<PAGE> 7
RISK FACTORS
In connection with an investment in the New Notes, prospective investors
should consider, among other things, that: (i) the Company is, and will continue
to be, highly leveraged; (ii) the consolidated historical earnings of the
Company have been insufficient to cover its fixed charges; (iii) the Company is
a holding company which has no significant assets other than its investments in
and advances to its Subsidiaries; (iv) there are restrictions imposed by the
terms of the Company's indebtedness; (v) the Company's business is substantially
dependent upon the performance of certain key individuals; (vi) the Company has
a limited operating history; and (vii) the Company may be unable to make
expected capital expenditures to upgrade a significant portion of its cable
television distribution systems. See "Risk Factors."
-------------------------
The Company's principal executive offices are located at 515 Congress
Avenue, Suite 2626, Austin, Texas 78701, the telephone number is (512) 476-9095,
and its Internet website is www.classic-cable.com.
2
<PAGE> 8
THE EXCHANGE OFFER
The Exchange Offer......... $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, Old Notes representing $125
million aggregate principal amount are outstanding.
The terms of the New Notes and the Old Notes are
substantially identical in all material respects,
except that the New Notes will be freely
transferable by the holders thereof except as
otherwise provided herein. See "Description of New
Notes."
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to the Company, the Company
believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be
offered for resale, sold and otherwise transferred
by any person receiving the New Notes, whether or
not that person is the registered holder (other
than any such holder or such other person that is
an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that (i) the New Notes are acquired in the ordinary
course of business of that holder or such other
person, (ii) neither the holder nor such other
person is engaging in or intends to engage in a
distribution of the New Notes, and (iii) neither
the holder nor such other person has an arrangement
or understanding with any person to participate in
the distribution of the New Notes. See "The
Exchange Offer -- Purpose and Effect." Each
broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where those Old
Notes were acquired by the broker-dealer as a
result of its market-making activities or other
trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale
of these New Notes. See "Plan of Distribution."
Registration Rights
Agreement.................. The Old Notes were sold by the Company on July 29,
1998 in the Offering. In connection with the
Offering, the Company entered into a Registration
Rights Agreement with the initial purchasers of the
Old Notes (the "Registration Rights Agreement")
requiring the Company to make the Exchange Offer.
See "The Exchange Offer -- Purpose and Effect."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, , 1998, or such
later date and time to which it is extended by the
Company (the "Expiration Date").
Withdrawal................. The tender of the Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration
Date. Any Old Notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
Interest on the New Notes
and Old Notes.............. Interest on each New Note will accrue from the date
of issuance of the Old Note for which the New Note
is exchange or from the date of the last periodic
payment of interest on such Old Note, whichever is
later. No additional interest will be paid on Old
Notes tendered and accepted for exchange.
3
<PAGE> 9
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company. See "The Exchange Offer -- Conditions to
the Exchange Offer."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together with
the Old Notes and any other required documentation,
to the Exchange Agent (as defined) at the address
set forth herein. Persons holding the Old Notes
through the Depository Trust Company ("DTC") and
wishing to accept the Exchange Offer must do so
pursuant to the DTC's Automated Tender Offer
Program, by which each tendering participant will
agree to be bound by the Letter of Transmittal. By
executing or agreeing to be bound by the Letter of
Transmittal, each holder will represent to the
Company that, among other things, (i) the New Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such New Notes, whether or not
such person is the registered holder of the Old
Notes, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a
distribution of such New Notes, (iii) neither the
holder nor any such other person has an arrangement
or understanding with any person to participate in
the distribution of such New Notes, and (iv)
neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated
under the Securities Act, of the Company. Pursuant
to the Registration Rights Agreement, the Company
is required to file a "shelf" registration
statement for a continuous offering pursuant to
Rule 415 under the Securities Act in respect of the
Old Notes if (i) because of any change in law or
applicable interpretations of the staff of the
Commission, the Company is not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not
consummated within 150 days of the Offering, or the
Registration Statement related to this Exchange
Offer is not declared effective within 120 days of
the Offering, (iii) any of the Initial Purchasers
requests, (iv) any applicable law or
interpretations do not permit any holder of Old
Notes to participate in the Exchange Offer, (v) any
holder of Old Notes participates in the Exchange
Offer and does not receive freely transferrable New
Notes in exchange for Old Notes or (vi) the Company
so elects.
Acceptance of Old Notes and
Delivery of New Notes.... The Company will accept for exchange any and all
Old Notes that are properly tendered (and not
withdrawn) in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer
will be delivered promptly following the Expiration
Date. See "The Exchange Offer -- Terms of the
Exchange Offer."
Exchange Agent............. Chase Bank of Texas, National Association is
serving as Exchange Agent (the "Exchange Agent") in
connection with the Exchange Offer.
4
<PAGE> 10
Federal Income Tax
Considerations........... The exchange pursuant to the Exchange Offer will
not be a taxable event for federal income tax
purposes. See "United States Federal Income Tax
Considerations."
Effect of Not Tendering.... Old Notes that are not tendered or that are
improperly tendered and not accepted will,
following the completion of the Exchange Offer,
continue to be subject to the existing restrictions
upon transfer thereof. The Company will have no
further obligation to provide for the registration
under the Securities Act of such Old Notes.
THE NEW NOTES
Issuer..................... Classic Cable, Inc.
Securities Offered......... $125,000,000 aggregate principal amount of 9 7/8%
Senior Subordinated Notes due 2008.
Maturity Date.............. August 1, 2008.
Interest Payment Dates..... February 1 and August 1 of each year, commencing
February 1, 1999.
Optional Redemption........ The New Notes will be redeemable at the option of
Company, in whole or in part, at any time on or
after August 1, 2003, at a premium to the aggregate
principal amount, with the premium declining
ratably to 100% of the aggregate principal amount
on August 1, 2006, at the redemption prices set
forth herein, plus accrued and unpaid interest, if
any, to the applicable date of redemption.
In addition, at any time on or prior to August 1,
2001, the Company will have the option to redeem up
to 35% of the aggregate principal amount of the New
Notes originally issued in the Exchange Offering at
a redemption price equal to 109.875% of the
aggregate principal amount thereof, plus accrued
and unpaid interest, if any, to the applicable date
of redemption, with the Net Cash Proceeds of one or
more Equity Offerings or a Strategic Equity
Investment; provided that at least 65% of the
aggregate principal amount of the New Notes
originally issued in the Exchange Offering remains
outstanding immediately after each such redemption.
Guarantees................. The New Notes will be guaranteed, jointly and
severally, on a senior subordinated basis by the
Subsidiary Guarantors (the "Subsidiary
Guarantees"). The obligations of any Subsidiary
Guarantor with respect to its Subsidiary Guarantee
will be subordinated in right of payment, to the
same extent as the obligations of the Company in
respect of the New Notes, to all existing and
future Senior Indebtedness of such Subsidiary
Guarantor, which will include any guarantee by such
Subsidiary Guarantor of the Company's indebtedness
under the Senior Credit Agreement.
Ranking.................... The New Notes will be unsecured senior subordinated
obligations of the Company. The New Notes will be
subordinated in right of payment to all existing
and future Senior Indebtedness of Company and will
rank pari passu in right of payment with all
existing and future unsecured senior subordinated
Indebtedness (as defined) of the Company. As of
September 30, 1998, the Company, and each of the
Subsidiary Guarantors had approximately (i) $220.8
million in total Indebtedness, (ii) $96.4 million
of indebtedness ranking senior to the Notes and the
Subsidiary Guaran-
5
<PAGE> 11
tees and (iii) no other debt ranking on an equal
basis with the Notes and the Subsidiary Guarantees.
See "Risk Factors -- Subordination" and
"Description of the New Notes -- Ranking."
Change of Control.......... Upon the occurrence of a Change of Control, (i) the
Company will have the option to redeem the New
Notes prior to August 1, 2003, at a redemption
price equal to the aggregate principal amount
thereof, plus accrued and unpaid interest to the
date of redemption, plus the Applicable Premium (as
defined), and (ii) each holder of New Notes will
have the right to require the Company to repurchase
all or a portion of the New Notes held by such
holder at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest, if any, to the date of
repurchase. See "Description of the New Notes --
Change of Control."
Certain Covenants.......... The Indenture will contain certain covenants that,
among other things, will limit the ability of the
Company to: (i) incur Indebtedness; (ii) make
Restricted Payments (as defined); (iii) incur other
senior subordinated Indebtedness, (iv) create
certain liens; (v) enter into transactions with
affiliates; (vi) create certain dividend and other
payment restrictions affecting subsidiaries; (vii)
make certain Asset Sales (as defined); and (viii)
engage in any merger, consolidation or sale of
substantially all assets. See "Description of the
New Notes -- Certain Covenants."
USE OF PROCEEDS
There will be no cash proceeds to the Company from the exchange pursuant to
the Exchange Offer. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement. See "Use of
Proceeds."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
There is currently no market for the Old Notes. The New Notes will be new
securities for which there currently is no market. Although Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Goldman, Sachs & Co.
(together with Merrill Lynch, the "Initial Purchasers") have informed the
Company that they currently intend to make a market in the New Notes, they are
not obligated to do so and any such market making may be discontinued at any
time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes. The Company does not
intend to apply for listing of the New Notes, on any securities exchange;
however, the Notes are designated for trading by qualified institutional buyers
in the NASD's Private Offerings, Resales and Trading Through Automatic Linkages
("PORTAL") market. See "Plan of Distribution."
RISK FACTORS
Purchasers of the New Notes should carefully consider the risk factors set
forth under the caption "Risk Factors" and the other information included in
this Prospectus prior to making an investment decision. See "Risk Factors."
6
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth certain summary historical and pro forma
financial and operating data of the Company and the systems acquired from Cable
One. The historical data for each of the three years ended December 31, 1995,
1996 and 1997 has been derived from the audited consolidated financial
statements of the Company and, with respect to the Cable One systems, from
unaudited financial information of Cable One and TCI for the year ended December
31, 1997. The historical financial data for the nine months ended September 30,
1997 and 1998 has been derived from unaudited financial statements of the
Company and Cable One. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which the Company's
management considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the nine
months ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1998.
The unaudited pro forma data gives effect to the Financing Plan as if all
such transactions had been consummated on January 1, 1997. The pro forma data
has been derived from the Unaudited Pro Forma Consolidated Financial Information
of the Company which is included elsewhere herein. The unaudited pro forma data
does not purport to be indicative of the results that would have been obtained
had such transactions been completed as of the assumed date and for the periods
presented nor is it necessarily indicative of results that may be obtained in
the future.
The data presented below should be read in conjunction with the historical
consolidated financial statements of the Company and the notes related thereto,
the Unaudited Pro Forma Consolidated Financial Information and the notes related
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which appear elsewhere in this Prospectus.
Acquisitions of cable television systems during the periods for which the
summary financial and operating data are presented below materially affect the
comparability of such data from one period to another.
7
<PAGE> 13
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------- ----------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------------------------ --------- --------------------- ---------
1995 1996 1997 1997 1997 1998 1998
-------- -------- -------- --------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues.................. $ 36,677 $ 59,821 $ 60,995 $ 72,177 $ 45,547 $ 50,404 $ 57,020
Costs and expenses........ 18,911 32,495 35,121 41,952 25,822 28,770 32,611
Depreciation and
amortization............ 16,427 27,510 27,832 33,104 20,888 21,682 24,757
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)... 1,339 (184) (1,958) (2,879) (1,163) (48) (348)
Interest expense.......... (14,132) (20,164) (20,759) (22,371) (14,796) (15,424) (16,206)
Gain on sale of cable
system.................. -- 4,901 3,644 3,644 3,644 -- --
Write-offs of abandoned
telephone operations.... -- (2,994) (500) (500) -- -- --
Other income (expense).... -- -- 71 190 49 121 (472)
-------- -------- -------- -------- -------- -------- --------
Loss before income tax
benefit and
extraordinary loss...... (12,793) (18,441) (19,502) (21,916) (12,266) (15,351) (17,026)
Income tax benefit........ 4,510 6,633 7,149 7,970 4,502 2,105 2,471
Extraordinary loss........ (4,054) -- -- -- -- (5,524) --
-------- -------- -------- -------- -------- -------- --------
Net loss.................. $(12,337) $(11,808) $(12,353) $(13,946) $ (7,764) $(18,770) $(14,555)
======== ======== ======== ======== ======== ======== ========
COMPANY BALANCE SHEET DATA
(end of period):
Total assets.............. $271,496 $245,987 $220,468 $ -- $ -- $255,600 $ --
Total debt................ 204,646 193,998 187,967 -- -- 220,804 --
Total liabilities......... 229,426 215,827 202,761 -- -- 235,260 --
Total redeemable preferred
stock................... 1,292 1,292 1,293 -- -- -- --
Total stockholders
equity.................. 40,777 28,868 16,414 -- -- 20,340 --
OTHER FINANCIAL DATA:
Cash Flows from Operating
Activities.............. 5,520 7,848 7,892 10,939 6,193 (7,744) 9,273
Cash Flows from Investing
Activities.............. (176,672) 3,387 (1,341) (43,088) 1,266 (49,405) (7,658)
Cash Flows from Financing
Activities.............. 170,090 (12,071) (6,589) 40,130 (7,304) 45,899 (52)
EBITDA(1)................. 17,766 29,233 29,089(12) 33,559(12) 23,418 21,755(13) 23,937(13)
EBITDA margin(11)......... 48.4% 48.9% 47.7% 46.5% 51.4% 43.2% 42.0%
Capital expenditures...... 3,931 8,212 10,135 10,135 7,542 7,658 7,658
Deficiency of earnings to
fixed charges(2)........ (12,793) (18,441) (19,502) (21,916) (12,266) (15,351) (17,026)
OPERATING DATA (end of
period, except avg.):
Homes passed(3)........... 269,336 259,181 254,649 298,652 249,475 293,478 293,478
Basic subscribers(4)(5)... 182,696 171,657 165,737 193,708 165,376 189,825 189,825
Basic penetration(5)(6)... 67.8% 66.2% 65.1% 64.9% 66.3% 64.7% 64.7%
Premium subscribers(7).... 65,400 62,458 63,819 81,531 65,432 77,423 77,423
Premium penetration(8).... 35.8% 36.4% 38.5% 42.1% 39.6% 40.8% 40.8%
Average monthly basic
revenue per basic
subscriber(9)........... $21.40 $22.77 $25.22 $25.34 $25.06 $27.79 $27.55
Average monthly total
revenue per basic
subscriber(10).......... 26.00 27.68 30.14 30.59 29.95 32.97 33.03
</TABLE>
(Footnotes on following page)
8
<PAGE> 14
(1) EBITDA is defined as net loss plus (i) extraordinary items, (ii) income tax
benefit, (iii) interest expense and (iv) depreciation and amortization.
EBITDA is presented because management believes it is a widely accepted
financial indicator of a company's ability to incur and service debt.
Management believes that EBITDA is not intended to be a performance measure
that should be regarded as an alternative to, or more meaningful than,
either operating income or net income as an indicator of operating
performance or to the statement of cash flows as a measure of liquidity, is
not intended to represent funds available for dividends, reinvestment or
other discretionary uses, and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. EBITDA measures presented may not
be comparable to similarly titled measures presented by other companies.
(2) Deficiency of earnings to fixed charges consists of loss before income tax
benefit and extraordinary loss. Fixed charges consist of interest expense
and the interest portion of rental expense.
(3) Homes passed refers to estimates by the Company of the approximate number
of dwelling units in a particular community that can be connected to the
Company's cable television distribution system without any further
extension of principal transmission lines.
(4) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on an
equivalent basic unit ("EBU") basis in which the total monthly bill for the
account is divided by the basic monthly charge for a single outlet in the
area. End of period basic and premium subscribers are net of system sales
that occurred during 1996 and 1997.
(5) End of period subscribers reflect asset sales that were consummated during
the third quarter of 1996 and the second quarter of 1997.
(6) Penetration is described as basic subscribers as a percentage of homes
passed.
(7) Premium service units include only single channel services offered for a
monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee. A subscriber may purchase more than one
premium service, each of which is counted as a separate premium service
unit.
(8) Premium service units as a percentage of basic subscribers.
(9) Average monthly basic revenue per basic subscriber equals basic revenues of
cable systems during the respective period divided by the months in the
period and divided by the weighted average number of basic subscribers of
the Company for such respective periods.
(10) Average monthly total revenue per basic subscriber equals total revenues of
cable systems during the respective period divided by the months in the
period and divided by the weighted average number of basic subscribers of
the Company for such respective periods.
(11) EBITDA margin represents EBITDA as a percentage of revenues. This
measurement is used by management, and is commonly used in the cable
television industry, to analyze and compare cable television companies on
the basis of operating performance. Management believes that EBITDA margin
is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as prepared in
accordance with generally accepted accounting principles. EBITDA measures
presented may not be comparable to similarly titled measures presented by
other companies.
(12) Included in EBITDA for 1997 are legal, consultant and other fees totaling
$1,035,000 incurred in connection with the settlement of certain claims
that arose in conjunction with divorce proceedings of an officer of the
Company. In addition, the Company paid $450,00 in fees to certain of its
executive management team in connection with completed acquisition and
divestiture transactions.
(13) Included in EBITDA for 1998 are fees totaling $750,000 paid to certain of
the executive management team in connection with completed acquisition and
financing transactions.
9
<PAGE> 15
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective investors should carefully review the following risk factors before
deciding to purchase the New Notes. References to the Company in this section do
not include the Cable One Acquisition, unless the context requires otherwise.
SUBSTANTIAL LEVERAGE
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness it has incurred, and intends to incur, to finance
acquisitions and expand its operations. At September 30, 1998, the Company's
aggregate consolidated indebtedness was approximately $220.8 million. The
Company will have significant cash interest expense relating to the Notes and
its indebtedness under the Senior Credit Agreement, and a substantial portion of
the Company's cash flow will be required for debt service. The average interest
rate accrued on the Company's long-term indebtedness during the year ended
December 31, 1997 was 9.7%. The Company may incur other indebtedness to make
additional acquisitions in the future.
For the year ended December 31, 1997 and the nine months ended September
30, 1998, the Company's earnings were insufficient to cover its fixed charges by
$19.5 million, and $15.4 million, respectively. However, such amounts reflect
non-cash charges totaling approximately $27.8 million and $21.7 million,
respectively, consisting of depreciation and amortization. After giving pro
forma effect to the Financing Plan as if such transactions had been consummated
on January 1, 1997, the Company's consolidated earnings on a pro forma basis
would have been insufficient to cover its total fixed charges by approximately
$21.9 million and $14.6 million for the year ended December 31, 1997, and the
nine months ended September 30, 1998. However, such amounts reflect non-cash
depreciation and amortization charges totaling approximately $33.1 million and
$24.8 million, respectively.
The degree to which the Company is leveraged could have important
consequences to holders of the New Notes including, but not limited to, the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of, and interest on, its debt; (iii) the Senior Credit Agreement
contains certain restrictive financial and operating covenants which could limit
the Company's ability to compete as well as its ability to expand; and (iv) the
Company's substantial leverage may make it more vulnerable to economic
downturns, limit its ability to withstand competitive pressures and reduce its
flexibility in responding to changing business and economic conditions. The
ability of the Company to pay interest and principal on the New Notes and to
meet its debt obligations and to make distributions to CCI to pay interest and
principal on its debts, will depend on the future operating performance of the
Company, which could be affected by changes in economic conditions and other
factors, including factors beyond the control of the Company. Failure to comply
with the covenants and other provisions of debt instruments by the Company could
result in events of default under such instruments, which could permit
acceleration of the debt under such instruments and, in some cases, acceleration
of debt under other instruments that contain cross-default or cross-
acceleration provisions.
If the Company is unable to generate sufficient cash flow to meet its debt
obligations, it may be required to renegotiate the terms of its long-term debt
instruments or to refinance all or a portion of its long-term debt. The Company
has approximately $96.4 million of Senior Indebtedness outstanding, $95.8
million of which is long term debt under the Senior Credit Agreement. There can
be no assurance that the Company would be able to renegotiate the terms of or
refinance the Senior Indebtedness, or, if it was able to do so, that the terms
available to them would be favorable. If the Company were unable to refinance
its indebtedness or obtain new financing under such circumstances, it would have
to consider options such as the sale of certain assets to meet its debt service,
reduction of planned capital expenditures, negotiation with its lenders to
restructure applicable indebtedness or other options available to it under law.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
10
<PAGE> 16
NET LOSSES
The Company reported, on a consolidated basis, a net loss of approximately
$12.3 million for the year ended December 31, 1995, a net loss of $11.8 million
for the year ended December 31, 1996, a net loss of $12.4 million for the year
ended December 31, 1997, and a net loss of $18.8 for the nine months ended
September 30, 1998. On a pro forma basis for the year ended December 31, 1997,
and the nine months ended September 30, 1998, after giving effect to the
Financing Plan, the Company would have reported, on a consolidated basis, net
losses of approximately $13.9 million and $14.6 million, respectively. These
losses reflect significant depreciation and amortization charges and interest
expense on debt incurred by the Company. There can be no assurance that the
Company will become profitable in the foreseeable future. Utilization of the
Company's net operating losses for federal income tax purposes in the future is
subject to certain limitations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."
SUBORDINATION
The New Notes and the Subsidiary Guarantees will be unsecured and
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company and the Subsidiary Guarantors, including obligations under the
Senior Credit Agreement. As a result, in the event of a default in payment of or
acceleration of the Company's or any Subsidiary Guarantor's Senior Indebtedness,
or upon the liquidation, reorganization, insolvency, bankruptcy, or dissolution
of the Company or any Subsidiary Guarantor, holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness prior to any
payment being made on the New Notes or such Subsidiary Guarantor's Subsidiary
Guarantee. The Company currently has approximately $96.5 million of Senior
Indebtedness. In addition, if any default exists with respect to certain Senior
Indebtedness under the Senior Credit Agreement and certain other conditions are
satisfied, the Company may not make any payments on the New Notes for a
designated period of time. See "Description of the New Notes -- Ranking." By
reason of such subordination provisions, upon the occurrence of any such event,
there may be insufficient assets remaining after payment of Senior Indebtedness
to pay amounts due on the New Notes and the Subsidiary Guarantees. In addition,
the obligations outstanding under the Senior Credit Agreement will be secured by
substantially all of the assets of the Company and its subsidiaries and the
lenders thereunder will have a claim on such assets prior to the claims of
holders of the New Notes. As of September 30, 1998, the aggregate principal
amount of the Company's outstanding Senior Indebtedness was approximately $96.4
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
the New Notes -- Ranking and Subordination."
DEPENDENCE ON KEY PERSONNEL
The loss of the services of J. Merritt Belisle, CCI's Chairman and Chief
Executive Officer or Steven E. Seach, CCI's President and Chief Financial
Officer, could have an adverse impact on the Company. Although the Company has
employment agreements with J. Merritt Belisle and Steven E. Seach, there can be
no assurance that the services of such personnel will continue to be made
available to the Company. The Company does carry key man life insurance on Mr.
Belisle.
Each of J. Merritt Belisle and Steven E. Seach is permitted, pursuant to
the terms of their employment agreements to engage in and pursue the acquisition
of other business opportunities, including other cable television businesses, so
long as the Company has been given a right of first refusal to take advantage of
any such opportunity and so long as the employee continues to devote
substantially all of his time to the management of the Company. If the Company
does not exercise its right of first refusal, Messrs. Seach and Belisle might be
in the position of engaging in other businesses, including businesses that might
be in the same industry as the Company. See "Management -- Employment Agreements
and Termination of Employment Agreements."
11
<PAGE> 17
RISKS RELATING TO ACQUISITION STRATEGY
A significant element of the Company's growth strategy is to expand by
acquiring cable television systems and/or Internet service providers located in
reasonable proximity to existing systems or of a sufficient size to enable the
acquired system to serve as the basis for a regional cluster. There can be no
assurance that the Company will be able to identify and acquire additional cable
and Internet systems or that it will be able to finance significant acquisitions
in the future. The Company anticipates that it will likely incur substantial
additional indebtedness to finance acquisitions in the future. The Company's
ability to pay interest and principal on the New Notes and to satisfy its debt
obligations will be dependent on the future operating performance of the
Company. See "Business -- Business Strategy."
NON-EXCLUSIVE FRANCHISES; NON-RENEWAL OR TERMINATION OF FRANCHISES
Cable television companies operate under non-exclusive franchises, permits
or licenses granted by a municipality or other state or local governmental
entity which are subject to renewal and renegotiation from time to time. The
terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. A franchise is generally granted for a fixed term ranging from
five to fifteen years, but in many cases is terminable if the franchisee fails
to comply with its material provisions. The Company's business is dependent upon
the retention and renewal of its local franchises. Franchises typically impose
conditions relating to the operation of cable television systems, including
requirements relating to the payment of fees, system bandwidth capacity,
customer service requirements, franchise renewal and termination. The Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") prohibits franchising authorities from granting exclusive cable television
franchises and from unreasonably refusing to award additional competitive
franchises; it also permits municipal authorities to operate cable television
systems in their communities without franchises. The Cable Communications Policy
Act of 1984 (the "1984 Cable Act"), the 1992 Cable Act and the Telecommunication
Act of 1996 (the "1996 Act") (collectively, the "Cable Acts") provide, among
other things, for an orderly franchise renewal process which requires that an
incumbent franchise renewal application be assessed on its own merits and not as
part of a comparative process with competing applications. A franchise renewal
will not be unreasonably withheld or, if renewal is denied and the franchising
authority acquires ownership of the system or effects a transfer of the system
to another person, the operator generally is entitled to the "fair market value"
for the system covered by such franchise. Historically, franchises have been
renewed for cable operators that have provided satisfactory services and have
complied with the terms of their franchises. Although the Company believes that
it generally has good relationships with its franchise authorities, no assurance
can be given that the Company will be able to retain or renew such franchises or
that the terms of any such renewals will be on terms as favorable to the Company
as the Company's existing franchises. To date, the Company has never had a
franchise revoked and no request for a franchise renewal or extension has been
denied, although the renewal or extended franchises have frequently resulted in
franchise modification on terms satisfactory to the Company. Furthermore, it is
possible that a franchise authority might grant a franchise to another cable
company. The non-renewal or termination of franchises relating to a significant
portion of the Company's subscribers could have a material adverse effect on the
Company's results of operations. See "Business -- Franchises."
LEGISLATION AND REGULATION
The cable television industry is subject to extensive regulation at the
federal, state and local levels. The Cable Acts, which amended the
Communications Act of 1934 (the "Communications Act"), establish a national
policy to guide the development and regulation of cable television systems.
Principal responsibility for implementing the policies of the Cable Acts and
1996 Act has been allocated between the FCC and state or local regulatory
authorities. It is not possible to predict the effect that ongoing or future
developments may have on the cable communications industry or on the operations
of the Company.
Under the Cable Acts, franchising authorities may elect to regulate basic
cable rates and rates for tiers of service above the basic rate may be regulated
by the FCC. Under the rate-making rules adopted by the FCC, local authorities
that elected to regulate basic cable rates can require rates to be set at
"benchmark" levels or, at the cable operator's option, based on the operator's
cost of service. The FCC has adopted rules liberalizing
12
<PAGE> 18
cost of service calculations for small cable systems operated by small cable
companies. Few of the jurisdictions in which the Company operates have elected
to certify to regulate rates and the Company believes that the FCC's small
systems rate regulations will afford it additional flexibility to adjust its
rates. However there can be no assurance that the Company's revenues and results
of operations will not be adversely affected in the future by regulation of
cable system rates. The 1996 Act deregulates rates for cable programming
services tiers ("CPSTs") commencing in March 1999, and, for certain small cable
operators, immediately eliminates rate regulation of CPSTs, and, in certain
limited circumstances, basic services and equipment. The FCC is currently
developing permanent regulations to implement the rate deregulation provisions
of the 1996 Act. The Company is currently unable to predict the ultimate effect
of the Cable Acts including future Congressional action, the FCC's implementing
regulations, or the litigation challenging various aspects of this federal
legislation and the FCC's regulations. The FCC and Congress continue to be
concerned that rates for regulated programming services are rising at a rate
exceeding inflation. It is therefore possible that the FCC will further restrict
the ability of cable television operators to implement rate increases and/or
Congress will enact legislation which would, for example, delay or suspend the
scheduled March 1999 termination of CPST rate regulation. Cable television
systems generally operate pursuant to non-exclusive franchises, permits or
licenses granted by a municipality or other state or local governmental entity.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. A number of states subject cable television systems to the
jurisdiction of centralized state governmental agencies. To date, no state in
which the Company currently operates has enacted state level regulation. The
Company cannot predict whether any of the states in which it currently operates
will engage in such regulation in the future. See "Business -- Legislation and
Regulation -- Cable Regulation -- Rate Regulation."
The FCC also regulates numerous other aspects of the cable television
business including terms of franchise agreements, mandatory carriage of certain
local broadcasters that elect must-carry status, ownership of cable television
systems together with telephone systems or programming providers and other
matters. See "Business -- Legislation and Regulation."
The above-described regulations may affect the Company's ability to obtain
a sufficient return on its investments. Furthermore, the regulations are
changing rapidly to allow significantly increased competition among various
service providers. The Company cannot predict the eventual effect of these
regulations. See "Business -- Legislation and Regulation."
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment, such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive computer programs
and home video products, including videotape cassette recorders. Because the
Company's franchises are non-exclusive, there is the potential for competition
with the Company's systems from other operators of cable systems, including
systems operated by local governments and from other distribution systems
capable of delivering programming to homes or businesses, including direct
broadcast satellite ("DBS") systems and multichannel multipoint distribution
service ("wireless cable") systems which use low-power microwave frequencies to
transmit video programming over the air to customers. Within the home video
programming market, the Company competes with other cable franchise holders and
with satellite and wireless cable providers. In recent years, the FCC has
adopted policies providing for a more favorable operating environment for new
and existing technologies that provide, or have the potential to provide,
substantial competition to cable systems. Programming comparable to that of
cable systems is currently available to the owners of home satellite dish earth
stations ("HSDs") through conventional-, medium- and high-powered satellites.
Several companies offer DBS service. In recent years there has been significant
national growth in the number of subscribers to DBS services, and such growth
would be assisted if one or more DBS providers is successful in delivering local
broadcast signals. Legislation has been introduced in Congress to amend the
Copyright Act to authorize carriage of local broadcast signals by DBS providers.
In addition, recent FCC and judicial decisions and federal legislation will
enable local telephone companies to provide a wide variety of video services
competitive with services provided by cable systems and
13
<PAGE> 19
to provide cable services directly to customers. The Company cannot predict the
extent to which competition will materialize from other cable television
operators, other distribution systems for delivering video programming to the
home or other potential competitors, or, if such competition materializes, the
extent of its effect on the Company. Various LECs (as defined) currently are
providing video programming services within and outside their telephone service
areas through a variety of distribution methods, including both the deployment
of broadband wire facilities and the use of wireless transmission facilities.
Advances in communications technology as well as changes in the marketplace and
the regulatory and legislative environment are constantly occurring. Thus, it is
not possible to predict the effect that ongoing or future developments might
have on the cable industry. See "Business -- Competition" and
"Business -- Legislation and Regulation."
HOLDING COMPANY STRUCTURE; FRAUDULENT CONVEYANCE; POSSIBLE STRUCTURAL
SUBORDINATION
The Company is a holding company that is dependent on the cash flow
generated by its direct and indirect operating subsidiaries. The Company must
rely on dividends or other intercompany transfers from such operating
subsidiaries to generate the funds necessary to meet debt service and other
obligations, including the payment of principal and interest on the New Notes.
The ability of such subsidiaries to pay such dividends or make other payments
will be subject to applicable state laws. In addition, claims of creditors of
the subsidiaries, including trade creditors, will generally have priority as to
the assets of such subsidiaries over the claims and equity interests of the
Company and, thereby indirectly, the holders of indebtedness of the Company. The
Indenture, among other things, limits the incurrence or issuance of additional
Indebtedness and Preferred Stock (as defined) by the Company's subsidiaries.
However, these limitations are subject to certain qualifications set forth in
the Indenture. See "Credit Arrangements of the Company" and "Description of the
New Notes."
All of the Company's operating income is generated by the subsidiaries of
the Company. As a result, the Company has generally relied, and will continue to
rely, on distributions or advances from its subsidiaries in paying the principal
and interest on the Notes. Should the Company fail to satisfy any payment
obligation under the Notes, the holders would have a direct claim against the
Subsidiary Guarantors pursuant to the Subsidiary Guarantees. In the event of the
bankruptcy or insolvency of any of the Subsidiary Guarantors, however, the
incurrence by each Subsidiary Guarantor of the Subsidiary Guarantee would be
subject to review under relevant federal and state fraudulent conveyance and
similar statutes in a bankruptcy or reorganization case or a lawsuit by or on
behalf of creditors of such Subsidiary Guarantor. Under those statutes, if a
court were to find that the Subsidiary Guarantee of such Subsidiary Guarantor
was incurred with the intent of hindering, delaying or defrauding creditors or
that such Subsidiary Guarantor received less than a reasonably equivalent value
or fair consideration therefor and, at the time of its incurrence, such
Subsidiary Guarantor either (i) was insolvent or rendered insolvent by reason
thereof, (ii) was engaged in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital, or (iii) intended to
or believed that it would incur debts beyond its ability to pay as they matured
or became due, the court could void those obligations.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company is considered insolvent at a particular time if the sum of
its debts is greater than the then fair value of its assets, or if the fair
salable value of its assets is less than the amount that would be required to
pay its probable liability on its existing debts as they become absolute and
mature. As of September 30, 1998, the Company had total Indebtedness of
approximately $220.8 million and believes that the total fair value of its
assets is not less than that amount. The Company believes that each of the
Subsidiary Guarantors are (i) neither insolvent nor rendered insolvent by the
incurrence of its Subsidiary Guarantee, (ii) in possession of sufficient capital
to run its business effectively, and (iii) incurring debts within its ability to
pay as the same mature or become due. No assurance can be given, however, that
the assumptions and methodologies used by the Company in reaching its
conclusions about the solvency of the Subsidiary Guarantors would be adopted by
a court or that a court would concur with those conclusions.
14
<PAGE> 20
In the event that the Subsidiary Guarantee of a Subsidiary Guarantor were
voided as a fraudulent conveyance, holders of the Notes would effectively be
subordinated to all indebtedness and other liabilities and commitments of such
Subsidiary Guarantor.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "The Exchange Offer -- Purpose and Effect"), holders of
Old Notes not tendered will not have any further registration rights and those
Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for a holder's Old Notes could be
adversely affected upon completion of the Exchange Offer if the holder does not
participate in the Exchange Offer.
LACK OF ESTABLISHED MARKET FOR THE NOTES
There is no existing trading market for the Old Notes, and, although the
Company has been advised by the Initial Purchasers that they intend to make a
market in the New Notes, the Initial Purchasers are not obligated to do so and
any market making may be discontinued at any time without notice. In addition,
such market making activity may be limited during the Exchange Offer. Although
the New Notes are eligible for trading in the PORTAL market, there can be no
assurance as to the development of any market or the liquidity of any market
that may develop for the New Notes.
ABILITY TO PURCHASE NEW NOTES UPON A CHANGE OF CONTROL
If a Change of Control occurs, there can be no assurance that the Company
will have sufficient funds to repurchase the New Notes pursuant to the terms of
the Indenture. In the event that a Change of Control occurs at a time when the
Company does not have sufficient funds available to repurchase the New Notes or
at a time when the Company is prohibited from repurchasing the New Notes under
the terms of other indebtedness of the Company (and the Company is unable either
to obtain the consent of holders of such other indebtedness or to repay such
other indebtedness), an Event of Default would occur under the Indenture.
Furthermore, both the Senior Credit Agreement and the Indenture for the New
Notes include "change of control" provisions that permit, in the case of the
Senior Credit Agreement, the lenders thereunder to accelerate the repayment of
indebtedness thereunder and that require, in the case of the Indenture for the
Notes, the Company to offer to purchase all of the outstanding New Notes. Any
acceleration of the obligations of the Company under the Senior Credit Agreement
could materially and adversely affect the ability of the Company to effect a
purchase of the New Notes upon a Change of Control. In addition, the existence
of a holder's right to require the Company to repurchase its New Notes upon the
occurrence of a Change of Control may deter a third party from acquiring the
Company in a transaction which would constitute a Change of Control. See
"Description of the New Notes."
15
<PAGE> 21
USE OF PROCEEDS
There will be no cash proceeds to the Company from the exchange pursuant to
the Exchange Offer. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement.
The net proceeds to CCI and the Company from the offering of the Old Notes
of CCI and the Company along with the proceeds from the New Senior Credit
Agreement were approximately $280.2 million and were used to (a) fund the
acquisition of certain assets of Cable One, Inc. ($41.7 million), (b) redeem
existing preferred stock and accrued dividends ($31.0 million), (c) retire the
outstanding subordinated debt and accrued interest ($4.5 million), (d) repay the
Senior Credit Agreement and other outstanding debt ($190.3 million) and interest
($2.6 million) and (e) pay fees and expenses of these transactions ($10.1
million). The preferred stock accrued dividends at rates ranging from 8% to 15%
and had mandatory redemption requirements in 2001 and 2005. The subordinated
debt accrued interest at rates ranging from 7.5% to 15% and matured in 2002 and
2007. The Senior Credit Agreement accrued interest at the LIBOR rate plus an
applicable margin. Principle payments were to begin in 1999 with the balance due
in 2005.
16
<PAGE> 22
CAPITALIZATION
As the New Notes have substantially the same terms as the Old Notes and are
being exchanged for the same amount of principal as is outstanding under the Old
Notes, the capitalization of the Company will be unchanged as a result of the
Exchange Offer.
17
<PAGE> 23
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED
FINANCIAL AND OPERATING DATA
The following table sets forth certain summary historical and pro forma
financial and operating data of the Company and the systems acquired from Cable
One. The historical data as of and for the years ended December 31, 1995, 1996
and 1997 has been derived from the audited consolidated financial statements of
the Company, as of and for the years ended December 31, 1993 and 1994 from the
unaudited consolidated financial statements of the Company and, with respect to
the Cable One Systems, from unaudited financial information of Cable One and TCI
for the year ended December 31, 1997. The historical financial data for the
nine-months ended September 30, 1997 and 1998, has been derived from unaudited
financial statements of the Company and Cable One. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which management considers necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1998.
The unaudited pro forma data gives effect to the Financing Plan as if all
such transactions had been consummated on January 1, 1997. The pro forma data
has been derived from the Unaudited Pro Forma Consolidated Financial Information
of the Company which is included elsewhere herein. The unaudited pro forma data
does not purport to be indicative of the results that would have been obtained
had such transactions been completed as of the assumed date and for the periods
presented nor is it necessarily indicative of results that may be obtained in
the future.
The data presented below should be read in conjunction with the historical
consolidated financial statements of the Company and the notes related thereto,
the Unaudited Pro Forma Consolidated Financial Information and the notes related
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," all of which appear elsewhere in this Prospectus.
Acquisitions of cable television systems during the periods for which the
summary financial and operating data are presented below materially affect the
comparability of such data from one period to another.
18
<PAGE> 24
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------------- -------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
--------------------------------------------------- --------- ------------------- ---------
1993 1994 1995 1996 1997 1997 1997 1998 1998
------- ------- --------- -------- -------- --------- -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA:
Revenues...................... $10,855 $16,019 $36,677 $59,821 $60,995 $72,177 $45,547 $50,404 $57,020
Costs and expenses............ 5,898 8,372 18,911 32,495 35,121 41,952 25,822 28,770 32,611
Depreciation and
amortization................ 4,240 6,383 16,427 27,510 27,832 33,104 20,888 21,682 24,757
------- ------- --------- -------- -------- -------- -------- -------- --------
Operating income (loss)....... 717 1,264 1,339 (184) (1,958) (2,879) (1,163) (48) (348)
Interest expense.............. (3,141) (4,975) (14,132) (20,164) (20,759) (22,371) (14,796) (15,424) (16,206)
Gain on sale of cable
system...................... -- 115 -- 4,901 3,644 3,644 3,644 -- --
Write-offs of abandoned
telephone operations........ -- -- -- (2,994) (500) (500) -- -- --
Other income (expense)........ -- -- -- -- 71 190 49 121 (472)
------- ------- --------- -------- -------- -------- -------- -------- --------
Loss before income tax
benefit, minority
interest and extraordinary
loss........................ (2,424) (3,596) (12,793) (18,441) (19,502) (21,916) (12,266) (15,351) (17,026)
Income tax benefit............ 725 1,121 4,510 6,633 7,149 7,970 4,502 2,105 2,471
Extraordinary loss............ -- -- (4,054) -- -- -- -- (5,524) --
Minority interest in net loss
of sub...................... 5 46 -- -- -- -- -- -- --
------- ------- --------- -------- -------- -------- -------- -------- --------
Net loss...................... $(1,694) $(2,429) $(12,337) $(11,808) $(12,353) $(13,946) $(7,764) $(18,770) $(14,555)
======= ======= ========= ======== ======== ======== ======== ======== ========
COMPANY BALANCE SHEET DATA
(end of period):
Total assets.................. $52,421 $96,136 $271,496 $245,987 $220,468 $-- $-- $255,600 $--
Total debt.................... 33,582 58,161 204,646 193,998 187,967 -- -- 220,804 --
Total liabilities............. 44,942 78,251 229,426 215,827 202,761 -- -- 235,260 --
Total redeemable preferred
stock....................... -- 12,332 1,292 1,292 1,293 -- -- -- --
Total stockholders equity..... 7,479 5,553 40,777 28,868 16,414 -- -- 20,340
OTHER FINANCIAL DATA:
Cash Flows from Operating
Activities.................. 2,520 4,724 5,520 7,848 7,892 10,939 6,193 (7,744) 9,273
Cash Flows from Investing
Activities.................. (11,301) (38,028) (176,672) 3,387 (1,341) (43,088) 1,266 (49,405) (7,658)
Cash Flows from Financing
Activities.................. 8,832 34,883 170,090 (12,071) (6,589) 40,130 (7,304) 45,899 (52)
EBITDA(1)..................... 4,962 7,808 17,766 29,233 29,089(12) 33,559(12) 23,418 21,755(13) 23,937(13)
EBITDA margin(11)............. 45.7% 48.7% 48.4% 48.9% 47.7% 46.5% 51.4% 43.2% 42.0%
Capital expenditures.......... 1,738 1,879 3,931 8,212 10,135 10,135 7,542 7,658 7,658
Deficiency of earnings to
fixed
charges(2).................. (2,424) (3,596) (12,793) (18,441) (19,502) (21,916) (12,266) (15,351) (14,555)
OPERATING DATA (end of period,
except avg.):
Homes passed(3)............... 52,244 95,055 269,336 259,181 254,649 298,652 249,475 293,478 293,478
Basic subscribers(4)(5)....... 40,186 72,865 182,696 171,657 165,737 193,708 165,376 189,825 189,825
Basic penetration(5)(6)....... 76.9% 76.7% 67.8% 66.2% 65.1% 64.9% 66.3% 64.7% 64.7%
Premium subscribers(7)........ 16,874 27,212 65,400 62,458 63,819 81,531 65,432 77,423 77,423
Premium penetration(8)........ 42.0% 37.3% 35.8% 36.4% 38.5% 42.1% 39.6% 40.8% 40.8%
Average monthly basic revenue
per basic subscriber(9)..... $-- $-- $21.40 $22.77 $25.22 $25.34 $25.06 $27.79 $27.55
Average monthly total revenues
per basic subscriber(10).... -- -- 26.00 27.68 30.14 30.59 29.95 32.97 33.03
</TABLE>
(Footnotes on following page)
19
<PAGE> 25
(1) EBITDA is defined as net loss plus (i) extraordinary items, (ii) income tax
benefit, (iii) interest expense and (iv) depreciation and amortization.
EBITDA is presented because management believes it is a widely accepted
financial indicator of a company's ability to incur and service debt.
Management believes that EBITDA is not intended to be a performance measure
that should be regarded as an alternative to, or more meaningful than,
either operating income or net income as an indicator of operating
performance or to the statement of cash flows as a measure of liquidity, is
not intended to represent funds available for dividends, reinvestment or
other discretionary uses, and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. EBITDA measures presented may not
be comparable to similarly titled measures presented by other companies.
(2) Deficiency of earnings to fixed charges consists of loss before income tax
benefit and extraordinary loss. Fixed charges consist of interest expense
and the interest portion of rental expense.
(3) Homes passed refers to estimates by the Company of the approximate number
of dwelling units in a particular community that can be connected to the
Company's cable television distribution system without any further
extension of principal transmission lines.
(4) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts are included on an
equivalent basic unit ("EBU") basis in which the total monthly bill for the
account is divided by the basic monthly charge for a single outlet in the
area. End of period basic and premium subscribers are net of system sales
that occurred during 1996 and 1997.
(5) End of period subscribers reflect asset sales that were consummated during
the third quarter of 1996 and the second quarter of 1997.
(6) Penetration is described as basic subscribers as a percentage of homes
passed.
(7) Premium service units include only single channel services offered for a
monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee. A subscriber may purchase more than one
premium service, each of which is counted as a separate premium service
unit.
(8) Premium service units as a percentage of basic subscribers.
(9) Average monthly basic revenue per basic subscriber equals basic revenues of
cable systems during the respective period divided by the months in the
period and divided by the weighted average number of basic subscribers of
the Company for such respective periods.
(10) Average monthly total revenue per basic subscriber equals total revenues of
cable systems during the respective period divided by the months in the
period and divided by the weighted average number of basic subscribers of
the Company for such respective periods.
(11) EBITDA margin represents EBITDA as a percentage of revenues. This
measurement is used by management, and is commonly used in the cable
television industry, to analyze and compare cable television companies on
the basis of operating performance. Management believes that EBITDA margin
is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as prepared in
accordance with generally accepted accounting principles. EBITDA measures
presented may not be comparable to similarly titled measures presented by
other companies.
(12) Included in EBITDA for 1997 are legal, consultant and other fees totaling
$1,035,000 incurred in connection with the settlement of certain claims
that arose in conjunction with divorce proceedings of an officer of the
Company. In addition, the Company paid $450,00 in fees to certain of its
executive management team in connection with completed acquisition and
divestiture transactions.
(13) Included in EBITDA for 1998 are fees totaling $750,000 paid to certain of
the executive management team in connection with completed acquisition and
financing transactions.
20
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides additional information regarding the
financial condition and results of operations of the Company for the nine month
period ended September 30, 1997 and 1998 and for each of the years ended
December 31, 1995, 1996 and 1997. This discussion should be read in conjunction
with "Selected Historical and Pro Forma Consolidated Financial and Operating
Data" and the Company's financial statements and the notes thereto appearing
elsewhere in this Prospectus. Since its inception in March 1992, the Company has
completed 17 acquisitions and five divestitures of cable systems. As a result,
management believes that period-to-period comparisons of the Company's financial
results to date are not necessarily meaningful and should not be relied upon as
an indication of future performance due to the number and timing of acquisitions
and divestitures in each period.
OVERVIEW
The Company, currently the 35th largest cable television operator in the
United States, owns, operates and develops cable television systems in selected
non-metropolitan markets across eight contiguous states primarily located in the
central United States. Founded in 1992, the Company has completed and integrated
17 acquisitions, including the Cable One Acquisition which added 28,009
subscribers. As of September 30, 1998, the Systems passed approximately 293,478
homes and served approximately 189,825 basic subscribers.
Revenues. The Company's revenues are primarily attributable to monthly
subscription fees charged to basic subscribers for the Company's basic and
premium cable television programming services. Basic revenues consist of monthly
subscription fees for all services (other than premium programming) as well as
monthly charges for customer equipment rental. Premium revenues consist of
monthly subscription fees for programming provided on a per channel basis. In
addition, other revenues are derived from installation and reconnection fees
charged to basic subscribers to commence or reinstate service, pay-per-view
charges, late payment fees, advertising revenues and commissions related to the
sale of merchandise by home shopping services. At September 30, 1998, the
Company served approximately 189,825 basic subscribers and 77,423 premium units,
representing a basic penetration rate of 64.7% and a premium penetration rate of
40.8%. The table below sets forth for the periods indicated the percentage of
the Company's total revenues attributable to the various sources:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Basic...................................... 82.1% 82.3% 83.7% 83.8% 84.3%
Premium.................................... 12.1 10.9 10.4 10.3 9.7
Other...................................... 5.8 6.8 5.9 5.9 6.0
----- ----- ----- ----- -----
Total revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Operating Expenses. The Company's operating expenses consist of programming
fees, plant and operating costs, general and administrative expenses, and
marketing costs directly attributable to the systems. Programming fees have
historically increased at rates in excess of inflation due to system
acquisitions, and internal growth, as well as increases in the number, quality
and cost of programming services offered by the Company. The Company benefits
from its membership in an industry cooperative with over 10.0 million basic
subscribers which provides its members with volume discounts from programming
networks and cable equipment vendors. Plant and operating costs include expenses
related to wages and employee benefits of technical personnel, electricity,
systems supplies, vehicles and other operating costs. General and administrative
expenses directly attributable to the systems include wages and employee
benefits for customer service, accounting and administrative personnel,
franchise fees and expenses related to billing, payment processing, and office
administration.
Corporate overhead consists primarily of expenses incurred by executive
management of the Company and which are not directly attributable to any one
system.
21
<PAGE> 27
Operating Losses. The high level of depreciation and amortization
associated with the acquisitions and capital expenditures related to continued
construction and upgrading of the current systems, together with interest costs
related to the Company's financing activities, have contributed to the Company's
net losses. The Company believes that such net losses are common for the cable
television industry.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
----------------------- -----------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------- ------------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $45,547 100.0% $50,404 100.0%
Operating expenses:
Programming................................... 11,148 24.4% 12,877 25.5%
Plant and operating........................... 5,605 12.3% 6,063 12.0%
General and administrative.................... 6,995 15.4% 7,293 14.5%
Marketing and advertising..................... 343 0.8% 555 1.1%
Corporate overhead.............................. 1,731 3.8% 1,982 3.9%
Depreciation and amortization................... 20,888 45.9% 21,682 43%
------- ----- ------- -----
Earnings/(loss) from operations................. (1,163) (2.6)% (48) (0.1)%
</TABLE>
Revenues. Revenues in the first nine months of 1998 were $50.4 million, an
improvement of $4.9 million over revenues in the first nine months of 1997.
Basic revenues improved by $4.3 million or 11.4% while average monthly basic
revenues per subscriber increased from $25.06 to $27.79, or 10.9% over the same
period in 1997. The improvement was due primarily to basic rate increases in
February 1998 affecting 234 systems and serving approximately 114,000
subscribers or 69% of total subscribers as well as the systems acquired from
Cable One on July 29, 1998. The Company has historically increased rates in the
majority of its systems during the first quarter in order to offset increases in
its operating costs such as programming which occur in January of each year. The
change in basic subscribers for the period ended September 30, 1998 is primarily
due to the sale of certain Kansas and Oklahoma systems serving approximately
4,000 basic subscribers during the second quarter of 1997 as well as bulk
account EBU conversion calculations following the basic rate increases, the
increased availability and affordability of competitive video services, non-pay
disconnects, and other terminations of service. Other revenues increased 11.1%,
from $2.7 million in 1997 to $3.0 million in 1998, due in large part to
continued promotion of pay-per-view events.
Operating Expenses. Operating expenses in the first nine months of 1998
were $26.8 million, an increase of $2.7 million or 11.2% over the first nine
months of 1997. The continued escalation in rates charged by certain programming
vendors as well as increases in copyright fees and premium units were largely
responsible for the $1.7 million increase in programming costs over the same
period in 1997. Plant and operating expenses increased from $5.6 million for the
nine months ended September 30, 1997 to $6.1 million for the nine months ended
September 30, 1998, reflecting increases in technical wages and benefits, plant
power, and amounts paid to outside contractors to update the Company's
subscriber database. General and administrative expenses increased from $7.0
million for the nine months ended September 30, 1997 to $7.3 for the nine months
ended September 30, 1998 due to increases in administrative wages and benefits,
telephone, property taxes and bad debt expense. General and administrative
expense as a percentage of revenue declined during this period, from 15.4% to
14.5%. Marketing expenses for the nine months ended September 30, 1998 were
$555,000, an increase of 61.8% over the same period in 1997. The majority of
this increase relates to increased spending associated with the Company's
marketing initiatives. As a percentage of revenues, operating expenses increased
slightly from 52.9% in 1997 to 53.1% in 1998.
Corporate Overhead. Corporate overhead increased $251,000, or 14.5% from
$1.7 million in the first nine months of 1997 to $2.0 million in the first nine
months of 1998 due primarily to the payment of incentive bonuses to executive
management during the second quarter of 1997.
22
<PAGE> 28
Depreciation and amortization. Depreciation and amortization expense for
the nine months ended September 30, 1998 was $21.7 million, an increase of
$794,000 over the same period in 1997. The increase is largely reflective of the
inclusion of fixed assets placed into service during 1997 and 1998.
Income Tax Benefit. The income tax benefit decreased from $4.5 million in
the nine months ended September 30, 1997 to $2.1 million in the nine months
ended September 30, 1998. The pre-tax loss increased in 1998; however, the
effective tax rate decreased. The effective tax rate decreased from 36.7% to
13.7%. This decrease is primarily due to an increase in the valuation allowance
against deferred tax assets.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------- -----------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------- ------------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $59,821 100.0% $60,995 100.0%
Operating expenses:
Programming................................. 15,106 25.3 14,916 24.5
Plant and operating......................... 7,308 12.2 7,622 12.5
General and administrative.................. 8,688 14.5 9,257 15.2
Marketing and advertising................... 238 0.4 438 0.7
Corporate overhead............................ 1,155 1.9 2,888 4.7
Depreciation and amortization................. 27,510 46.0 27,832 45.6
------- ----- ------- -----
Earnings (loss) from operations............... $ (184) (0.3)% $(1,958) (3.2)%
======= ===== ======= =====
</TABLE>
Revenues. Revenues for the year ended December 31, 1997 were $61.0 million,
an improvement of $1.2 million or 2.0% over revenues of $59.8 million for the
year ended December 31, 1996. In 1997, basic revenues increased by $1.8 million
or 3.7% due to basic rate increases implemented primarily during the first
quarter of the year. Average monthly basic revenues per subscriber increased
from $22.77 to $25.22 or 10.8% over the same period in 1996. The decrease in
basic subscribers for the period ended December 31, 1997, is largely reflective
of the sale of Kansas and Oklahoma systems serving approximately 4,000 basic
subscribers during the second quarter of 1997 as well as bulk account EBU
conversion calculations following the basic rate increases, the increased
availability and affordability of competitive video services, non-pay
disconnects, and other terminations of service. In 1997, the Company launched a
coordinated array of marketing techniques to attract and retain customers and to
increase premium service penetration, including door-to-door and direct mail
solicitation, telemarketing, media advertising, local promotional events and
cross-channel promotions of new services and pay-per-view events. Net of the
system sales, premium subscribers increased by 2,975 units or 4.9% during 1997
with a corresponding 2.2% increase in penetration, from 36.4% in 1996 to 38.5%
at December 31, 1997. The corresponding premium revenue decreased, however, 3.2%
from $6.5 million in 1996 to $6.3 million in 1997 due in large part to the
system divestitures and discounted pricing offered in connection with the
various marketing campaigns. Other revenues also decreased 11.0%, from $4.1
million in 1996 to $3.6 million in 1997, largely as a function of the system
divestitures and free or heavily-discounted installation marketing promotions.
The decrease was partially offset by $196,698 or 181%, increase in pay-per-view
event revenue.
Operating Expenses. Operating expenses increased $892,000 or 2.8% from
$31.3 million in 1996 to $32.2 million in 1997. Programming costs for the year
ended December 31, 1997 decreased $190,000 or 1.3% over the year ended December
31, 1996 to $14.9 million. Increases in copyright fees, premium units and rates
charged by certain programming vendors were offset by the renegotiation of
certain programming contracts wherein rate concessions, launch fees and other
marketing support totaling $564,000 were obtained. Plant and operating expenses
increased $314,000 or 4.3% to $7.6 million during 1997 due to the hiring of
additional technical personnel as well as increases in technical wages and
benefits and vehicle operating expenses. General and administrative expenses for
1997 were $9.3 million, an increase of $568,000 or 6.5% over 1996. The increase
was due primarily to the addition of certain key management and administrative
personnel, an increase in bad debt expense and the write-off of certain costs
related to the termination of the purchase
23
<PAGE> 29
agreement and operations associated with the proposed acquisition of telephone
exchanges in Kansas. Marketing and advertising expenses for the year ended
December 31, 1997, were $438,000, an increase of $200,000 or 84.0% over the year
ended December 31, 1996, relating directly to increased spending associated with
the Company's aforementioned new marketing initiatives. As a percentage of
revenues, operating expenses increased slightly, from 52.4% in 1996 to 52.9% in
1997.
Corporate Overhead. Corporate overhead for the year ended December 31,
1997, was $2.9 million, an increase of $1.7 million over the year ended December
31, 1996. The increase was largely reflective of costs incurred in conjunction
with divorce proceedings of an officer of the Company and CCI. CCI agreed to
purchase certain stock of the CCI in which the officer's wife held a community
property interest and provide monetary consideration for the release of certain
claims. Legal, consultant and other fees of approximately $1.1 million were
charged to Corporate overhead for 1997 in connection with this matter. The
remainder of the increase was due primarily to the hiring of the Vice
President -- Operations in February 1997 as well as other increases in executive
compensation, travel and entertainment.
Depreciation and Amortization. Depreciation and amortization expense for
the year ended December 31, 1997, was $27.8 million, an increase of $322,000
over 1996. The increase is due primarily to the inclusion of fixed assets placed
into service during the year. The increase was partially offset by the sales of
certain systems during 1996 and 1997.
Income Tax Benefit. The benefit for income taxes increased from $6.6
million in 1996 to $7.1 million in 1997, primarily due to the increase in the
pre-tax loss from operations in 1997 and an increase in the effective tax rate
from 36.0% to 36.7% in 1996 and 1997, respectively.
Total deferred tax liabilities and total deferred tax assets decreased by
$12.9 million and $6.3 million, respectively, from 1996 to 1997. Approximately
$8.1 million of the decrease in deferred tax liabilities relates to taxable
temporary differences, primarily recurring book depreciation and amortization in
excess of tax. The remaining $4.8 million decrease in deferred tax liabilities
relates to the increase in tax basis of assets held by a subsidiary of the
Company as a result of a deferred intercompany gain recognized during 1997.
Approximately $5.1 million of the decrease in total deferred tax assets relates
primarily to the utilization of net operating losses to offset taxable income
generated by the taxable temporary differences noted above. Total deferred tax
assets also decreased by $1.5 million due to the expiration of certain net
operating losses in 1997. The remaining $0.1 increase in deferred tax assets is
primarily due to recurring temporary differences.
The expiration of net operating losses in 1997 had no impact on the
provision for income taxes since a valuation allowance had previously been
provided for these loss carryforwards. The deferred tax asset for the expired
net operating loss carryforwards and the related valuation allowance were
reduced accordingly.
The net effect of the above item resulted in a current federal tax expense
of $0.3 million for alternative minimum tax and a deferred tax benefit of $7.4
million for the reduction in net deferred tax liabilities.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------- -----------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------- ------------- ------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $36,677 100.0% $59,821 100.0%
Operating expenses:
Programming................................. 8,221 22.4 15,106 25.3
Plant and operating......................... 4,715 12.9 7,308 12.2
General and administrative.................. 4,782 13.0 8,688 14.5
Marketing and advertising................... 72 0.2 238 0.4
Corporate overhead............................ 1,121 3.1 1,155 1.9
Depreciation and amortization................. 16,427 44.8 27,510 46.0
------- ----- ------- -----
Earnings (loss) from operations............... $ 1,339 3.7% $ (184) (0.3)%
======= ===== ======= =====
</TABLE>
24
<PAGE> 30
Revenues. Revenues for the year ended December 31, 1996, were $59.8
million, an improvement of $23.1 million or 63.1% over revenues of $36.7 million
in 1995. In 1996, basic revenues increased by $19.0 million or 63.0% due to the
inclusion of a full year of revenues for the systems representing approximately
111,000 subscribers acquired throughout 1995. Average monthly basic revenues per
subscriber increased from $21.40 to $22.77, or 6.4% over the same period in
1995. The change in basic subscribers for the period ended December 31, 1996 is
largely reflective of the sale of certain Arkansas systems serving approximately
8,219 basic subscribers in 1996 as well as subscriber losses due to the
increased availability and affordability of competitive video services, bulk
account EBU conversion calculations following basic rate increases, non-pay
disconnects, and other terminations of service. Net of the system sales, premium
penetration increased from 35.8% in 1995 to 36.4% in 1996. Premium revenues
increased $2.1 million or 47.4%, from $4.4 million in 1995 to $6.5 million in
1996.
Operating Expenses. Operating expenses increased $13.5 million from $17.8
million in 1995 to $31.3 million in 1996. Programming costs for the year ended
December 31, 1996, increased $6.9 million or 83.7%, over the year ended December
31, 1995, to $15.1 million. As a percentage of revenues, programming expense
increased from 22.4% in 1995 to 25.3% in 1996. The increase was due primarily to
an increase in the number and quality of programming services offered by the
Company, specifically, the addition of The Disney Channel to the basic channel
lineup in a majority of the systems acquired in 1995. Plant and operating
expenses increased $2.6 million or 55.0% to $7.3 million during 1996, reflecting
the addition of the cable systems and subscribers acquired in 1995. Plant and
operating expenses as a percent of revenues decreased from 12.9% in 1995 to
12.2% in 1996, reflecting the continued benefits derived from the Company's
clustered operating strategy. General and administrative expenses for 1996 were
$8.7 million, an increase of $3.9 million, or 81.7% over 1995. The increase was
due primarily to the addition of the cable systems and subscribers acquired
throughout 1995. As a percentage of revenues, general and administrative
expenses increased from 13.0% in 1995 to 14.5% in 1996, due primarily to
increases in salaries and benefits, property taxes, and general insurance.
Marketing and advertising expenses for the year ended December 31, 1996, were
$238,000, an increase of $166,000 over the year ended December 31, 1995,
relating directly to increased spending associated with the Company's 1995
acquisitions. As a percentage of revenues, operating expenses increased from
48.5% in 1995 to 52.4% in 1996.
Corporate Overhead. Corporate overhead for the year ended December 31,
1996, was $1.2 million, an increase of $34,000 over the year ended December 31,
1995. The increase was due primarily to the addition of key accounting and
finance personnel during the year.
Depreciation and Amortization. Depreciation and amortization expense for
the year ended December 31, 1996, was $27.5 million, an increase of $11.1
million over 1995. The increase is due primarily to the inclusion of the
tangible and intangible assets acquired during 1995. The increase was partially
offset by the sales of certain Arkansas systems in 1996.
Income Tax Benefit. The benefit for income taxes increased from $4.5
million in 1995 to $6.6 million in 1996, primarily due to the increase in the
pre-tax loss from operations in 1996 and an increase in the effective tax rate
from 35.3% to 36.0% in 1995 and 1996, respectively.
CAPITAL EXPENDITURES
The cable television industry is a capital intensive business that
generally requires financing for the upgrade, expansion and maintenance of the
technical infrastructure. In addition, the Company has pursued, and continues to
pursue, a business strategy that includes selective acquisitions. The Company
has funded its working capital requirements, capital expenditures and
acquisitions through a combination of internally generated funds, long and short
term borrowings, and equity contributions. The Company intends to continue to
finance such expenditures from similar sources.
For the two years ended December 31, 1997, the Company's capital
expenditures, other than those related to acquisitions, were approximately $18.3
million, and for the nine months ended September 30, 1998, the Company's capital
expenditures were approximately $7.7 million. For the year ended December 31,
1998, the Company has budgeted approximately $14.1 million in capital
expenditure projects. Capital expenditures include expansion and improvements of
existing cable properties, plant and equipment upgrades, as well as cable line
drops, line plant extensions and installations of service to new subscribers.
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Over the next five years, the Company intends to spend approximately: (i)
$42.9 million to establish a technical standard of 550 MHz bandwidth capacity
(78 analog channels) in cable television systems serving over 70.4% of its basic
subscribers; (ii) $28.0 million for ongoing maintenance and replacement, for
installations and extensions to improve the cable plant related to customer
growth and headend consolidation; and (iii) $7.7 million for the purchase of
additional addressable converters and headend equipment to support the
deployment of HITS. See "Business."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, CCI has been supported by equity funding from
institutional equity investors. Capital stock of CCI is owned by institutional
investors, including Austin Ventures, L.P., NationsBank Capital Investors, The
Texas Growth Fund, BT Capital Partners, Inc., certain members of its bank group
led by Chase Manhattan and Union Bank Ventures. After consummation of the
Offerings, these institutional investors comprise approximately $34.1 million of
total equity financing in CCI. At September 30, 1998, CCI had aggregate
consolidated indebtedness of approximately $280.8 million. This debt and equity
financing was utilized primarily in the acquisition of cable television systems.
The Company's net cash provided by operations was $7.9 million in 1997
compared to $7.8 million in 1996 and $5.5 million in 1995. The Company's net
cash provided by operations was $7.7 million and $6.2 million for the nine
months ended September 30, 1998 and 1997, respectively. The Company's net cash
(provided by) used in investing activities was $(1.3) million, $3.4 million and
$(176.7) million in 1997, 1996 and 1995, respectively. The Company's net cash
(provided by) used in investing activities was $(49.4) million and $1.3 million
for the nine months ended September 30, 1998 and 1997, respectively. The
Company's net cash (provided by) used in financing amounted to $(6.6) million,
$(12.1) million and $170.1 million, in 1997, 1996 and 1995, respectively. The
Company's net cash (provided by) used in financing activities was $(45.9)
million and $(7.3) million for the nine months ended September 30, 1998 and
1997, respectively. The Company's EBITDA changed to $29.1 million in 1997 from
$29.2 million in 1996 and $17.8 million in 1995. EBITDA as a percentage of
revenue changed to 47.7% in 1997 from 48.9% in 1996, and 48.4% in 1995. Included
in EBITDA for the year ended December 31, 1997 were charges, including $250,000
for the write-off of abandoned telephone operations, divorce litigation costs of
$1,035,000 and special bonuses paid to executive officers of $400,000. The
Company's EBITDA was $21.8 million and $23.4 million for the nine months ended
September 30, 1998 and 1997, respectively. As a percentage of revenue, EBITDA
was 43.2% and 51.4% for the nine months ended September 30, 1998 and 1997,
respectively. Included in EBITDA for the nine months ended September 30, 1997
were charges, including divorce litigation costs of $318,000 and special bonuses
paid to executive officers of $400,000. Included in EBITDA for the nine months
ended September 30, 1998 were special bonuses paid to executive officers of
$750,000.
The Offerings provide CCI and the Company with greater flexibility by
extending the maturities of their long-term debt and reduce annual amortization
requirements. Concurrently with the closing of the Offering, CCI repaid all of
its outstanding subordinated indebtedness and redeemable preferred stock and the
Company repaid all of its existing indebtedness under the Prior Credit Agreement
and entered into a Senior Credit Agreement with maximum borrowings of $125.0
million. The Senior Credit Agreement is secured by a first priority lien on and
security interest in substantially all of the assets of the Company, and
contains certain covenants and provides for certain events of default
customarily contained in facilities of a similar type. See "Business -- Business
Strategy," "Use of Proceeds" and "Credit Arrangements of the Company."
The Company has debt service requirements of approximately $20 million a
year over the next five years. During this time the Company also anticipates
capital expenditures averaging approximately $16 million a year. Debt covenants
dictate that the Company maintain certain ratios related to debt balances and
operating results in addition to limiting the amount that can be used for
capital expenditures. Funds to support the operations of the Company and pay the
anticipated debt service and capital expenditure requirements are anticipated to
be primarily generated from the Company's operating activities. If operating
revenues are insufficient to meet the needs of its anticipated spending, the
Company will first evaluate the need to borrow additional funds and then reduce
its capital spending. The Company had $29.2 million available under the line of
credit subject to some limitations. Although the Company has not generated
earnings sufficient to cover fixed charges, the Company has generated cash and
obtained financing sufficient to meet its debt service,
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working capital and capital expenditure requirements. Although there can be no
assurances, the Company expects that it will continue to generate funds and
obtain financing sufficient to meet its financial obligations and capital
expenditure requirements in the foreseeable future. See "Risk Factors."
INFLATION
Certain of the Company's expenses, such as programming, wages and benefits,
equipment repair and maintenance, billing and marketing are subject to
inflation. However, because changes in costs are generally passed through to
subscribers, such changes historically have not had a material adverse effect on
the Company's results of operations.
YEAR 2000 COMPLIANCE
Over the next eighteen months, most large companies will face a potentially
serious business problem because many software applications and computer
equipment developed in the past may not properly recognize calendar dates
beginning in the year 2000. This problem could cause computers to either
shutdown or provide incorrect data. The Company has begun taking measures to
address this problem. However, the Company has not yet completed its assessment
of the impact of Year 2000 on key business applications, operational systems, or
relationships with key business partners. The Company has initiated an extensive
assessment of its Year 2000 readiness relative to its information system and
communications technology. The Company has engaged an outside consultant in
performing this evaluation and expects it to be completed by the end of the
first quarter of 1999. The Company, at this time, cannot estimate what the total
cost will be to implement remediation efforts for its critical operational
systems but it is possible that such costs will be material.
The Company has started an ongoing program to review the status of key
supplier Year 2000 compliance efforts. While the Company believes it is taking
all appropriate steps to insure Year 2000 compliance, there can be no assurance
that these key partners, which may include third-party vendors and service
providers, will complete their own Year 2000 compliance projects in a timely
manner and that failure to do so will not have an adverse impact on the
Company's business. Further, until the Company has completed its Year 2000
assessment, it cannot determine whether a contingency plan is required nor the
timetable for establishment of such a plan. The lack of contingency plans could
prevent the Company from resolving Year 2000 issues in a timely and efficient
manner, and could heighten the risk that the Year 2000 problem may have a
material adverse effect on the Company's financial condition and results of
operations.
The Year 2000 problem is pervasive and complete as virtually every computer
operation will be affected in some way. Consequently, no assurance can be given
that Year 2000 compliance can be achieved without costs that might affect future
financial results or cause reported financial information not to be necessarily
indicative of future operating results or future financial condition.
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BUSINESS
COMPANY OVERVIEW
The Company, currently the 35th largest cable television operator in the
United States, owns, operates and develops cable television systems in selected
non-metropolitan markets across eight contiguous states primarily located in the
central United States. Founded in 1992, the Company has completed and integrated
17 acquisitions, including the recent acquisition of approximately 28,419
subscribers, the Cable One Acquisition. As of September 30, 1998, the Systems
pass approximately 293,478 homes and serve approximately 189,814 basic
subscribers.
The Company believes that there are significant operating, regulatory,
competitive and economic advantages in acquiring and owning systems in
non-metropolitan markets. In pursuing its business strategy, the Company has
focused its acquisition efforts on cable television systems in growing
non-metropolitan markets and has sought to build geographic clusters of such
systems. Cable television service in these markets is generally required to
receive a full complement of off-air broadcast stations (i.e., ABC, NBC, CBS,
FOX and PBS). These off-air broadcast stations represent approximately 40% of
overall television viewing. In addition, there are typically fewer competitive
entertainment alternatives in these markets. Consequently, non-metropolitan
systems are typically characterized by higher basic penetration rates, lower
subscriber turnover and lower operating costs. The Company, generally the
dominant multi-channel video provider in its markets, has capitalized on these
market characteristics by generating more predictable revenue streams and higher
system cash flow margins than typical cable television systems serving urban
markets.
Approximately 66.9% of the Company's cable subscribers reside in a county
seat. These markets typically have larger populations, more favorable
demographics, higher growth characteristics, and stronger economic activity than
do other non-metropolitan markets. The Company has created clusters of cable
television systems around such markets and believes that clustering cable
systems provides significant operating and cost advantages. The Company owns and
manages 287 Systems in four regions across eight contiguous states. This level
of clustering allows the Company to efficiently deploy its technical staff,
vehicle fleet, and shared resources, such as system supplies and equipment,
resulting in lower operating and capital costs and greater customer response
time. Clustering also allows management to (i) more effectively manage the
workforce and allocate personnel, (ii) address the specific customer service and
programming needs of its customers, (iii) cost effectively introduce digital
services such as HITS and other new services, (iv) maximize the number of
households reached with existing marketing budgets, (v) maximize the benefits of
local and regional community relations efforts, and (vi) manage political
relationships at the local and state level.
The Company believes that providing superior customer service and
developing strong community relations are key elements to its long-term success,
and enable the Company to continue to increase subscription rates and therefore
maximize cash flow. The Company seeks to achieve a high level of customer
satisfaction by employing a well-trained staff of customer service
representatives and experienced field technicians. The Company's centralized
calling center offers 24-hour, 7-day per week coverage to all of its customers
on a toll-free basis.
J. Merritt Belisle, Chairman and Chief Executive Officer, and Steven E.
Seach, President and Chief Financial Officer, founded the Company in 1992 and
have assembled a management team with significant business experience operating
cable television systems and providing quality customer service to cable
subscribers. Messrs. Belisle and Seach have 20 years of collective experience in
acquiring, operating, integrating and developing cable television systems and
have worked together for over ten years. The Company's Vice
President -- Operations and three Regional Managers have an average of 28 years
of cable television industry experience. Messrs. Seach and Belisle, together
with certain other members of the Company's management team, collectively own or
have options with respect to approximately 14% of CCI's Common Stock on a
fully-diluted basis. See "Management."
Since its inception in March 1992, the Company has been supported by equity
funding from institutional equity investors. Approximately 64% of CCI's
fully-diluted capital stock is owned by institutional investors, including
Austin Ventures, L.P., NationsBank Capital Investors, The Texas Growth Fund, BT
Capital
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Partners, Inc., and Union Bank Ventures. To date, these institutional investors
have provided approximately $34.1 million of common equity financing to support
the growth of the Company's business. See "Principal Stockholders."
BUSINESS STRATEGY
The Company's business strategy is to (i) focus on attractive
non-metropolitan markets, (ii) increase the revenue-generating bandwidth of its
cable plant utilizing the most cost-effective and appropriate technology for the
markets served, (iii) maximize revenues and cash flow margins, (iv) expand and
improve clusters through selective acquisitions, (v) focus on customer
satisfaction and community relations, (vi) provide enhanced digital video
services, and (vii) deliver advanced telecommunications, high-speed data and
Internet services.
Focus on Attractive Non-Metropolitan Markets. The Company has followed a
systematic approach to acquiring, consolidating, operating and developing cable
television systems based on the primary goal of increasing operating cash flow
while maintaining the quality of its services. The Company's business strategy
has focused on serving growing non-metropolitan communities in the central
United States. For example, over two-thirds of the Company's cable subscribers
reside in a county seat. These markets generally tend to have more serviceable
households per mile, more robust household growth, higher income per household,
more disposable income per household and a stronger business foundation than do
other non-metropolitan markets. According to Equifax National Decisions Systems,
total households are projected to grow by approximately 6.8%, versus the
national average of 5.7%, from 1997 to 2002 in the top 76 systems owned by the
Company. Those 76 systems currently serve approximately 70.4% of the Company's
total subscribers. The Company believes that the Systems generally involve less
risk of increased competition than systems serving large urban cities. It is the
goal of the Company to continue to focus on growing non-metropolitan areas.
Increase the Revenue-Generating Bandwidth of the Systems. Through the
System Improvement Program, the Company plans to aggressively and systematically
upgrade its cable plant utilizing the most cost-effective and appropriate
technology for the market served. These upgrades include traditional rebuild to
a 550 MHz bandwidth capacity, the deployment of fiber optic cable, the
consolidation of headends, the deployment of digital compression services such
as Headend in The Sky(R) ("HITS"), a digital compression service developed by
National Digital Television Center, Inc., a subsidiary of Tele-Communications,
Inc., the deployment of addressable technology, and the activation of the return
path for two-way data transmission. The Company believes that such technical
upgrades create additional revenue opportunities, enhance operating
efficiencies, increase customer satisfaction, improve franchise relationships
and solidify the Company's position as the dominant provider of multi-channel
video services in its markets. The Company seeks to benefit from the System
Improvement Program by generating additional revenue from expanded tiers of
basic programming, multiplexed premium services, pay-per-view movies, digital
music, on-screen navigators, home shopping services, high-speed data services,
Internet access, near-video-on-demand and other interactive services.
Over the next five years, the Company intends to spend approximately: (i)
$42.9 million to establish a technical standard of 550 MHz bandwidth capacity
(78 analog channels) in cable television systems serving over 70.4% of its basic
subscribers; (ii) $28.0 million for ongoing maintenance and replacement, for
installations and extensions to improve the cable plant related to customer
growth and headend consolidation; and (iii) $7.7 million for the purchase of
additional addressable converters and headend equipment to support the
deployment of HITS. Approximately $53.1 million or 67.6% of the $78.5 million in
total capital expenditures will be spent in the first three years after the
consummation of the Financing Plan. A select number of the Company's larger
systems will be rebuilt to 750 MHz bandwidth capacity (112 analog channels). In
addition to its future upgrade plans, the Company has been actively rebuilding
and improving the technical standard of its cable plant over the past 18 months.
The most ambitious rebuild project the Company has initiated is the 750
MHz-spaced rebuild (with 550 MHz equipment) of its 4,400-subscriber
Breckenridge, Colorado system. A fiber backbone and a fiber ring were completed
in the Breckenridge city limits in December 1997 that brought the city limits to
550 MHz. The outlying 40 miles of the Breckenridge system will be upgraded in
the latter part of 1998, with projected completion in 1999. The 130-mile system
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will be fully addressable upon completion. The Company has also completed other
fiber backbone 550 MHz rebuilds within the last 18 months including its
3,100-subscriber Paola, Kansas system and its 1,900-subscriber Kermit, Texas
system. In 1997, the Company also completed 550 MHz rebuilds of its
1,000-subscriber Spiro, Oklahoma system, its 800-subscriber Mason, Texas system,
and its 500-subscriber Dighton, Kansas system. The Dighton system was rebuilt to
pre-empt the overbuild efforts of the incumbent local exchange carrier. As a
result of its active rebuild efforts to date, approximately 33.1% of the
Company's subscribers are served by systems with over 50 channels of analog
capacity. That figure is expected to increase to approximately 74.4% of the
Company's subscribers by the end of the System Improvement Program. See
"Business -- Technical Overview."
Maximize Revenues and Cash Flow Margins. The Company seeks to maximize
revenues by increasing subscriptions to basic, expanded basic, and other tiers
of satellite services and premium programming services through a combination of
innovative marketing programs, an emphasis on customer service and strong
community relations. As a result of the Company's success in facilitating
revenue growth, combined with operating efficiencies generated by the Company's
clustering strategy, economies of scale, volume discounts for cable programming,
cost control culture, and decentralized management structure, the Company
believes its operating cash flow margins compare favorably to the cable
television industry as a whole.
Expand and Improve Clusters through Selective Acquisitions. To date, the
Company has sought to acquire cable television systems in communities that are
in close geographic proximity to other cable television systems owned or managed
by the Company in order to maximize the economies of scale and operating
efficiencies associated with clusters of systems. Management plans to continue
its clustering strategy by pursuing opportunities to purchase cable television
systems in the Company's existing markets as well as by entering contiguous or
surrounding markets, if and when attractive acquisition opportunities become
available. In addition to system acquisition opportunities, management expects
to pursue opportunities to exchange certain of the Systems for other cable
television properties to further promote the Company's clustering strategy.
Factors likely to be considered by the Company in evaluating the desirability of
a potential acquisition or asset exchange opportunity include valuation,
subscriber densities, growth potential (in terms of both market and cash flow)
and whether the target system can be readily integrated into the Company's
operations.
In order to offer Internet access on a full-scale residential and
commercial basis in the communities it serves, the Company is actively seeking
to acquire incumbent Internet Service Providers ("ISPs") in and around its
markets. The Company believes that acquiring the expertise from an incumbent ISP
would allow the Company to offer services in the most effective and timely
manner enabling it to capitalize on the immediate, viable Internet opportunities
in its markets. The Company is also interested in acquiring or aligning with
other companies that provide other telecommunications services including local
and long distance telephone, utility, and direct-to-home, in addition to other
Internet technology and software firms.
Focus on Customer Satisfaction and Community Relations. The Company
believes that providing superior customer service and enhancing the quality of
life in the communities it serves are the key elements to its ultimate long-term
success, and specifically enables the Company to continue to increase
subscription rates and therefore maximize present and future cash flow. The
Company seeks to achieve a high level of customer satisfaction by employing a
well-trained staff of customer service representatives and experienced field
technicians. The Company's centralized calling center in Plainville, Kansas
offers 24-hour, 7-day per week coverage to all of its Company's customers on a
toll-free basis. The customer service center is supported by three T-1 lines and
can handle up to 60 incoming calls at any given time through a Company-owned
telephone switch. The switch is complemented by a software package that can
track call statistics ranging from average answer time to the number of calls by
type, as well as individual and group performance statistics. This sophisticated
software facilitates the movement of customer service and field service agents
in order to minimize answer times. Data is recorded daily and reports can be
generated to track trends in call volume. For the quarter ending September 30,
1998, the Company's calling center received 173,486 calls and had an average
answer time of 14 seconds compared to the 30 second FCC requirement.
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The Company believes customer service is further enhanced by the Company's
43 local offices' ability to effectively coordinate technical service and
installation appointments and to quickly respond to customer inquiries. The
Company also believes that local offices increase the effectiveness of its
customer retention efforts, community relations endeavors, and marketing
campaigns. The Company's customer service and technical staff attend ongoing
workshops led by both a full-time, in-house Training Specialist and outside
customer service and technical training firms that emphasize first time quality,
point-of-sale subscriber acquisition, upgrade and retention, technical support,
and other pertinent customer service issues. The Company also employs seven
bilingual customer service representatives to effectively serve its Spanish-
speaking subscriber base.
The Company maintains a site on the World Wide Web
(http://www.classic-cable.com) to help communicate and interact with its online
customers. The Company's website was also designed to help the Company's
customers make intelligent television viewing choices and to acquaint its
customers with the Company and its unique corporate mission. In December 1997,
the Company's website was selected as one of three winners in the Best System
Operator Website Competition by a panel of judges at the California Cable
Television Association, the sponsors of the technology-focused Western Cable
Show, and Ziff-Davis, the world's leading integrated media company focused on
technology. From December 1997 to May 1998, the Company's website received over
200,000 hits.
The Company is dedicated to fostering strong community relations in the
communities it serves. The cornerstone of the Company's community relations
strategy is its Classic Cable Scholarship Fund which has provided meaningful
financial assistance to over 225 graduating high school seniors within its
service areas over the past two years. In 1997, the Company received the Best of
Texas Award and the Bronze Community Project Award from the Texas Cable and
Telecommunications Association for its community relations efforts. In 1998, the
Company received the Cable Excellence Award from the Arkansas Cable Television
Association for its community outreach projects. The Company also installs and
provides free cable television service and Internet access to public schools,
government buildings, and public libraries in its franchise areas. The Company
believes that its relations with the communities it serves are good.
Provide Enhanced Digital Video Services. The Company intends to provide
enhanced digital video in the upgraded and certain other systems using HITS, a
digital compression service developed by National Digital Television Center,
Inc., a subsidiary of Tele-Communications, Inc. HITS will enable the Company to
deliver video services such as pay-per-view programming, on-screen programming
navigators, multiplexed premium channels such as HBO2, HBO3, etc., digital
music, and multiple tiers of niche satellite basic programming. The Company
believes that these enhanced digital video services (which it recently
introduced in its 4,200-subscriber Woodward, Oklahoma system) will allow it to
provide digital services comparable to DBS at a lower cost. In addition to its
Woodward, Oklahoma system, the Company plans to launch the HITS service by
year-end 1998 in its Nixa/Ozark and Maryville, Missouri systems that
collectively serve approximately 11,000 subscribers.
Deliver Advanced Telecommunications, High-Speed Data and Internet
Services. The Company believes that additional revenue opportunities exist in
non-metropolitan markets by providing advanced telecommunication services, such
as Internet access and the delivery of high-speed data services, including
local- and wide-area network applications, for residential and commercial
customers. The Company believes that these markets have limited appeal to the
larger telecommunications companies and that its technical platform will provide
such services at higher speeds and lower cost, giving the Company a competitive
advantage over other telecommunication providers in the markets in which it
operates. For example, a 10 megabit ("MB") cable modem provides Internet access
at download speeds 350 times faster than typical 28.8 kilobit dial-up telephone
modem connections. The Company plans to introduce Internet access via the cable
modem in its larger systems and will seek to complement this service with the
telephone modem connection through acquisitions of local ISPs.
As part of its effort to deliver advanced data services in the communities
it serves, the Company has successfully deployed two cable modem beta sites in
its Phillipsburg, Kansas and Oberlin, Kansas systems. The Phillipsburg project
connects four local area networks ("LAN") in three school buildings and the
district
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office to a broadband community area network using LanCity cable modems that
transfer up to 10 MB of data per second. The Oberlin project connects three LANs
in two schools buildings and the district office to a broadband wide area
network utilizing Zenith cable modems that can transfer up to 4 MB of data per
second. Both projects have been successful public relations and technological
undertakings for the Company. As such, the Company plans to deploy more cable
modems for school systems and commercial subscribers in several other
communities in which it provides service.
INDUSTRY OVERVIEW
A cable television system receives television, radio and data signals at
the system's "headend" site by means of off-air antennas, microwave relay
systems and satellite earth stations. These signals are then modulated,
amplified and distributed through coaxial and fiber optic distribution systems
to deliver a wide variety of channels of television programming to the homes of
subscribers who pay fees on a monthly basis for this service. A cable television
system may also originate its own television programming and other information
services for distribution through its system. Cable television systems generally
are constructed and operated pursuant to non-exclusive franchises or similar
licenses granted by local governmental authorities for a specified period of
time.
The cable television industry developed in the United States in the late
1940s and early 1950s in response to the needs of residents in predominantly
rural and mountainous areas of the country where the quality of off-air
television reception was inadequate due to factors such as unfavorable
topography and remoteness from television broadcast towers. In the 1960s, cable
systems also developed in non-metropolitan markets that had limited availability
of off-air television station signals. All of these markets are regarded within
the cable industry as "classic cable" television system markets.
Cable television systems offer customers programming consisting of
broadcast television signals of local network affiliates, independent and
educational television stations, a limited number of television signals from
so-called "super stations" originating from distant cites (such as WGN), various
channels (such as Cable News Network ("CNN"), Music Television ("MTV"), the USA
Network ("USA"), Turner Network Television ("TNT"), and Entertainment and Sports
Programming Network ("ESPN")), programming originated locally by the cable
television system (such as public, governmental and education access programs)
and informational displays featuring news, weather and public service
announcements. For an additional monthly charge, cable television systems also
offer "premium" television services to customers on a per-channel basis. These
services (such as Home Box Office ("HBO"), Cinemax, Showtime, The Movie Channel
and selected regional sports networks) are channels that consist principally of
feature films, live sporting events, concerts and other special entertainment
features, usually presented without commercial interruption.
A customer generally pays an initial installation charge and fixed monthly
fees for basic and premium television services and for other services (such as
the rental of converters and remote control devices). Such monthly service fees
constitute the primary source of revenues for cable television systems. In
addition to customer revenues from these services, cable television systems
generate revenues from additional fees paid by customers for pay-per-view
programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. Cable television systems
also frequently offer their customers home shopping services for a share of the
revenues from products sold in their service areas. The cable television
industry is changing rapidly due to new technology and new alliances between
cable television and other telecommunications companies. Providing traditional
cable television programming is only one aspect of the industry as potential
opportunities to expand into Internet, broadband data, telephone, and other
telecommunications services continue to develop and become more commercially
viable.
OPERATING REGIONS
In order to most effectively manage and operate the systems, the Company
has established four operating regions organized primarily along state lines.
The Northern region serves 62,175 subscribers in Colorado, Kansas, Nebraska and
Missouri, the Central region serves 46,199 subscribers in Oklahoma and Arkansas,
the
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<PAGE> 38
Southern region serves 53,680 subscribers in Texas and New Mexico, and the Cable
One region will serve 27,771 subscribers in Kansas, Missouri, Oklahoma and
Texas. Each region is headed by a regional manager responsible for managing
local and state political and franchise relationships, maximizing the
profitability of his or her system clusters, allocating regional resources, and
supervising technical and local office customer service personnel. The following
table is a summary of selected subscriber and operating data for the regions as
of September 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF HOMES BASIC BASIC PREMIUM PREMIUM
SYSTEMS PASSED SUBSCRIBERS PENETRATION SUBSCRIBERS PENETRATION
--------- ------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Northern region............ 83 88,794 62,175 70.0% 24,066 38.7%
Central region............. 93 70,300 46,199 61.7 17,908 38.8
Southern region............ 97 90,381 53,680 59.4 19,674 36.7
Cable One region(1)........ 14 44,003 27,771 63.1 15,775 56.8
--- ------- ------- ---- ------ ----
Total............ 287 293,478 189,825 64.7% 77,423 40.8%
=== ======= ======= ==== ====== ====
</TABLE>
Cable One Acquisition. On July 29, 1998, Black Creek Communications, L.P.,
a wholly owned subsidiary of the Company, purchased 14 cable television systems
in Kansas, Missouri, Oklahoma, and Texas from Cable One, for $41.7 million. The
systems are in close geographic proximity to those currently owned and operated
by the Company, further enhancing its clusters. Cable One has operated certain
of the systems for a number of years, while others were acquired from
Tele-Communications, Inc., in the second quarter of 1997. Seven systems
representing approximately 48.7% of the subscribers have a bandwidth of 450 MHz
(61 channel capacity), while the other systems have a bandwidth of at least 300
MHz (36 channel capacity). Eleven of the 14 systems, representing approximately
71.2% of the subscribers, utilize addressable technology. Each of the systems
has a local office where customer service representatives can assist customers
in person or by a local telephone call. The communities served by the Cable One
systems are economically stable, non-metropolitan communities. Approximately
85.2% of the subscribers being acquired reside in a county seat.
MARKETING, PROGRAMMING AND RATES
The Company's marketing programs and campaigns are based upon a variety of
cable services creatively packaged and tailored to appeal to the Company's
different markets and segments within each market. The Company routinely surveys
its customer base to ensure that it is meeting the demands of its customers and
stays abreast of its competition in order to effectively counter competitors'
promotional campaigns. The Company uses a coordinated array of marketing
techniques to attract and retain customers and to increase premium service
penetration, including door-to-door and direct mail solicitation, telemarketing,
media advertising, local promotional events typically sponsored by programming
services and cross-channel promotion of new services and pay-per-view.
The Company has various contracts to obtain basic, satellite and premium
programming for the Systems from program suppliers, including, in limited
circumstances, some broadcast stations, with compensation generally based on a
fixed fee per customer or a percentage of the gross receipts for the particular
service. Some program suppliers provide volume discount pricing structures
and/or offer marketing support. In addition, the Company is a member of a
programming consortium consisting of small to medium sized MSOs and individual
cable systems serving, in the aggregate, over eight million cable subscribers.
The consortium helps create efficiencies in the areas of securing and
administering programming contracts, as well as to establish more favorable
programming rates and contract terms for small and medium sized cable operators.
The Company does not have long-term programming contracts for the supply of a
substantial amount of its programming. In cases where the Company does have such
contracts, they are generally for fixed periods of time ranging from one to five
years and are subject to negotiated renewal. While management believes that the
Company's relations with its programming suppliers are generally good, the loss
of contracts with certain of its programming suppliers would have a material
adverse effect on the Company's results of operations.
Cable programming costs are expected to continue to increase due to
additional programming being provided to customers, increased costs to purchase
cable programming, inflationary increases and other
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<PAGE> 39
factors. In 1996, 1997 and the first nine months of 1998, programming costs as a
percentage of revenues were 25.3%, 24.5% and 25.6%, respectively. No assurance
can be given that the Company's programming costs will not increase
substantially in the near future or that other materially adverse terms will not
be added to its programming contracts.
The Systems offer their customers programming that includes the local
network, independent and educational television stations, a limited number of
television signals from distant cities, numerous satellite-delivered,
non-broadcast channels (such as CNN, MTV, USA, ESPN and TNT) and in some systems
local information and public access channels. The programming offered by the
Company varies among the Systems depending upon each System's channel capacity
and viewer interests. Primarily for competitive reasons, the Company generally
endeavors to offer a single level of basic service containing all broadcast and
satellite-delivered programming. In a few systems, however, the Company does
offer multiple tiers of cable television programming. The Company also offers
premium programming services, both on a per-channel basis and in many systems as
part of premium service packages designed to enhance the customer's perception
of value.
Monthly customer rates for services vary from market to market, primarily
according to the amount of programming provided and competitive factors. At
September 30, 1998, the Company's monthly full basic service rates for
residential customers ranged from $18.00 to $29.95 and per-channel premium
service rates (not including special promotions) ranged from $5.95 to $12.00 per
service. At September 30, 1998, the weighted average price for the Company's
monthly full basic service was approximately $27.79.
A one-time installation fee, which the Company may wholly or partially
waive during a promotional period, is usually charged to new customers. The
Company charges monthly fees for converters and remote control tuning devices.
The Company also charges administrative fees for delinquent payments for
service. Customers are free to discontinue service at any time without
additional charge but may be charged a reconnection fee to resume service.
Commercial customers, such as hotels, motels and hospitals, are charged a
negotiated, non-recurring fee for installation of service and monthly fees.
Multiple dwelling unit accounts may be offered a bulk rate in exchange for
single-point billing and basic service to all units.
In addition to customer fees, the Company derives modest revenues from the
sale of local spot advertising time on locally originated and
satellite-delivered programming. The Company also derives modest revenues from
affiliations with home shopping services, which offer merchandise for sale to
customers and compensate system operators with a percentage of their sales
receipts.
The Company also derives revenue from the sale of programming featuring
movies and special events to customers on a pay-per-view basis. In 1997, the
Company's pay-per-view revenue increased by 181% and the Company believes that
it will be able to further increase its pay-per-view penetration rates and
revenue as it continues to deploy addressable technology in upgraded systems and
in systems where it launches a digital compression service such as HITS.
While the Company plans to offer advanced telecommunications services in
certain of the Systems, it anticipates that monthly customer fees derived from
multi-channel video services will continue to constitute the large majority of
its total revenues for the foreseeable future.
TECHNICAL OVERVIEW
As part of its commitment to customer service, the Company endeavors to
maintain high technical performance standards in all of its Systems. To
accomplish this, the Company has embarked on its System Improvement Plan to
selectively upgrade the Systems. This program, which involves the use of fiber
optic technology, will expand channel capacities, enhance signal quality,
improve technical reliability, augment addressability and provide a platform to
develop high-speed data services and Internet access. The Company believes that
such technical upgrades create additional revenue opportunities, enhance
operating efficiencies, increase customer satisfaction, improve franchising
relations and solidify the Company's position as the dominant provider of video
services in the markets in which it operates. Before committing the capital to
upgrade or rebuild a system, the Company carefully assesses: (i) the existing
technical reliability and picture quality of the system; (ii) basic subscribers'
demand for more channels; (iii) requirements in connection with
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<PAGE> 40
franchise renewals; (iv) programming alternatives offered by competitors; (v)
customers' demand for other cable television and broadband telecommunications
services; and (vi) the return on investment of any such capital outlay.
Currently, the Company's subscribers, on average, are served by systems
with an analog capacity of 46 channels with 40 channels in use. The table below
summarizes the Company's existing technical profile, on a pro forma basis, as of
September 30, 1998, and after giving effect to the completion of certain upgrade
projects in the Systems in the second quarter of 1998.
<TABLE>
<CAPTION>
UP TO 29 30 TO 39 40 TO 49 50 TO 59 OVER 60
CHANNELS CHANNELS CHANNELS CHANNELS CHANNELS TOTAL
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of systems.................... 18 124 91 6 48 287
Miles of plant....................... 202.2 1,489.7 3,072.2 244.2 1,368.2 6,376.4
Basic subscribers.................... 3,838 40,040 82,783 9,422 53,742 189,825
% of total basic subscribers......... 2.0% 21.1% 43.6% 5.0% 28.3% 100.0%
Basic subscribers per plant mile..... 19.0 26.9 26.9 38.6 39.3 29.8
Premium subscribers.................. 1,291 18,290 32,667 4,126 21,049 77,423
Premium penetration.................. 33.6% 45.7% 39.5% 43.8% 39.2% 40.8%
</TABLE>
Over the next five years, the Company intends to spend approximately: (i)
$42.9 million to establish a technical standard of 550 MHz bandwidth capacity
(78 analog channels) in cable television systems serving over 70.4% of its basic
subscribers; (ii) $28.0 million for ongoing maintenance and replacement, for
installations and extensions to the cable plant related to customer growth and
headend consolidation; and (iii) $7.7 million for the purchase of additional
addressable converters and headend equipment to support the deployment of HITS.
The table below summarizes the Company's expected technical profile upon
completion of the System Improvement Program.
<TABLE>
<CAPTION>
UP TO 29 30 TO 39 40 TO 49 50 TO 59 OVER 60
CHANNELS CHANNELS CHANNELS CHANNELS CHANNELS TOTAL
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of systems................... -- 105 83 1 98 287
Miles of plant...................... -- 1,244.3 852.9 14.5 4,284.7 6,376.4
Basic subscribers................... -- 57,842 58,345 182 73,456 189,825
% of total basic subscribers........ -- 30.5% 30.7% 0.1% 38.7% 100.0%
Basic subscribers per plant mile.... -- 47.2 68.4 12.6 17.1 29.8
Premium subscribers................. -- 22,774 22,740 38 31,871 77,423
Premium penetration................. -- 39.4% 39.0% 20.9% 43.4% 40.8%
</TABLE>
With the exception of 11 of the 14 systems acquired from Cable One, the
Company's remaining Systems do not currently use addressable technology. The
Company utilizes a "trap" scheme whereby a technician installs filters, or
traps, at each cabled home enabling the technician to configure the programming
received by each subscriber. The System Improvement Program contemplates the use
of addressable set-top boxes in selected analog upgraded systems, in addition to
digital addressable technology to take advantage of the HITS service. This
service transmits digitally compressed signals of niche satellite programming,
multiplexed premium services, pay-per-view movies and digital music for
reception by cable systems, which in turn deliver them to their subscribers.
The Company's active use of fiber optic technology as an alternative to
coaxial cable is playing a major role in expanding channel capacity and
improving the performance of its cable television systems. Fiber optic strands
are capable of carrying hundreds of video, data and voice channels over extended
distances without the extensive signal amplification typically required for
coaxial cable. The Company expects to selectively use fiber backbone
architecture to eliminate headend facilities and to reduce amplifier cascades,
thereby improving picture quality, system reliability and headend and
maintenance expenditures. Upon completion of the System Improvement Program, the
Company expects that fiber optic technology will be utilized in systems serving
approximately 49.9% of its basic subscribers.
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<PAGE> 41
Recently, high-speed cable modems and set-top boxes using digital
compression technology have become commercially viable. These developments allow
for the introduction of high-speed data services and Internet access and will
increase programming services available to customers. Digital compression
technology has the potential to significantly expand channel capacity given that
up to 16 digital channels can be carried in the bandwidth of one analog channel
(6 MHz).
The Company also owns 285 towers and leases two towers that are used to
receive off-air broadcast signals from the nearest urban transmit site or via
intermittent microwave relay stations. The Company's towers range from 20 feet
to 600 feet in height and 125 of the Company's 287 towers are at least 200 feet
in height. The Company also leases tower space to cellular telephone, personal
communications services ("PCS"), paging and other transmission companies for a
fixed monthly charge typically dictated by long-term contract. For the nine
months ended September 30, 1998, the Company derived approximately 0.7% of its
total revenues from tower space leases.
FRANCHISES
Cable television systems are typically constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as (i) time limitations on
commencement and completion of construction, (ii) conditions of service,
including number of channels, types of programming and the provision of free
service to schools and certain other public institutions, and (iii) the
maintenance of insurance and indemnity bonds. Certain provisions of local
franchises are subject to federal regulation under both the 1984 Cable Act and
the 1992 Cable Act. See "Legislation and Regulation -- Cable Regulation."
At September 30, 1998, the Company held 364 franchises. These franchises,
all of which are non-exclusive, generally provide for the payment of fees to the
issuing authority. Annual franchise fees imposed on the Systems range from 0% to
5% of the gross revenues generated by the Systems. With limited exceptions,
franchise fees are passed directly through to the customers on their monthly
bills. The 1984 Cable Act prohibits franchising authorities from imposing
franchise fees in excess of 5% of gross revenues, and permits a cable operator
to seek renegotiation and modification of franchise requirements if warranted by
changed circumstances. The Company's franchises can be terminated by the
franchising authority prior to the stated expiration date for uncured breaches
by the Company of material provisions.
The following table sets forth the number of franchises by year of
franchise expiration and the approximate number and percentage of basic
subscribers at September 30, 1998:
<TABLE>
<CAPTION>
NUMBER % OF % OF
OF TOTAL NUMBER OF TOTAL
YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS SUBSCRIBERS
- ---------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Prior to 1999................................... 17 5.5% 10,747 4.9%
1999 to 2002.................................... 114 31.3 69,125 38.9
After 2002...................................... 233 63.2 109,953 57.9
--- ----- ------- -----
Total........................................... 364 100.0% 189,825 100.0%
=== ===== ======= =====
</TABLE>
The Cable Acts provide, among other things, comprehensive renewal
procedures which require that an incumbent franchisee's renewal application be
assessed on its own merits and not as part of a comparative process with
competing applications. See "Legislation and Regulation." The Company believes
that it has good relationships with its franchising communities. To date, the
Company has never had a franchise revoked or terminated. Additionally, no
request made by the Company for franchise renewals or extensions has been denied
although the renewal or extended franchises have frequently resulted in
franchise modifications on satisfactory terms. The Cable Acts also establish the
conditions for sale of a cable system in the event that the franchise is not
renewed or is revoked "for cause" by the franchising authority.
The 1992 Cable Act provides that a franchising authority "may not grant an
exclusive franchise," "may not unreasonably refuse to award an additional
competitive franchise" and may operate cable systems itself
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<PAGE> 42
without franchises. Under the 1992 Cable Act, franchising authorities are
immunized from monetary damages awards arising from regulation of cable
television systems or decisions made on franchise grants, renewals, transfers
and amendments. See "Legislation and Regulation -- Cable Regulation."
COMPETITION
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast programming,
DBS services, wireless cable services, newspapers, movie theaters, live sporting
events, on-line computer services and home video products. Cable communications
system's competitive position depends, in part, upon reasonable prices to
customers, greater variety of programming and other communications services, and
superior technical performance and customer service. Accordingly, cable
operators in rural areas, where off-air reception is more limited, generally
achieve higher penetration rates than cable operators in major metropolitan
areas, where numerous, high quality off-air signals are available.
Cable television systems generally operate pursuant to franchises granted
on a nonexclusive basis, so that more than one cable television system may be
built in the same area (known as an "overbuild"), with potential loss of revenue
to the operator of the original system. It is possible that a franchising
authority might grant a second franchise to another company containing terms and
conditions more favorable than those afforded the Company. The 1992 Cable Act
prohibits franchising authorities from unreasonably denying requests for
additional franchises and permits franchising authorities to operate cable
television systems without a franchise. Although a private competitor ordinarily
would seek a franchise from a local jurisdiction, municipalities have built and
operated their own systems. Overbuilds historically have been relatively rare,
as constructing and developing a cable television system is capital-intensive,
and it is difficult for the new operator to gain a marketing advantage over the
incumbent operator. The Company currently faces direct competition from
traditional overbuilds in two systems passing approximately 4,500 homes.
In recent years, the FCC and the Congress have adopted policies providing a
more favorable operating environment for new and existing technologies that
provide, or have the potential to provide, substantial competition to cable
television systems. These technologies include, among others, DBS service,
whereby signals are transmitted by satellite to receiving facilities located on
customer premises. Programming is currently available to the owners of DBS
dishes through conventional, medium and high-powered satellites. DBS systems
provide movies, broadcast stations, and other program services comparable to
those of cable television systems. DBS Service can be received anywhere in the
United States through installation of a small rooftop or side-mounted antenna.
This technology has the capability of providing more than 100 channels of
programming over a single high-powered satellite with significantly higher
capacity if multiple satellites are placed in the same orbital position. DBS is
currently being heavily marketed on a nationwide basis by three DBS providers,
and a fourth company is also proposing to provide DBS services over multiple
satellites. DBS providers provide significant competition to cable service
providers, including the Company.
The 1992 Cable Act contains provisions, which the FCC has implemented with
regulations, to enhance the ability of cable competitors to purchase and make
available to home satellite dish owners certain satellite delivered cable
programming at competitive costs. The FCC also adopted regulations that preempt
certain local restrictions on satellite and over-the-air antenna reception of
video programming services, including zoning, land-use or building regulations,
or any private covenant, homeowners' association rule or similar restriction on
property within the exclusive use or control of the antenna user. Digital
satellite service ("DSS") offered by DBS systems has certain advantages over
cable systems with respect to programming and digital quality, as well as
disadvantages that include high up-front costs and a lack of local programming,
service and equipment distribution. The Company's strategy of providing
pay-per-view and perhaps satellite niche programming via the HITS application in
certain of its Systems is designed to combat DSS competition. "Bundling" of the
Company's video service with advanced telecommunications services in certain of
the Systems may also be an effective tool for combating DSS competition. DBS
does suffer certain significant operating disadvantages compared to cable
television, however, including the subscriber's present inability to view
different programming on different television sets, line-of-sight reception
requirements, up-front costs associated with the dish antenna, and the lack of
local programming. DBS currently faces technical
37
<PAGE> 43
and legal obstacles to providing local broadcast signals, although at least one
DBS provider is now attempting to do so in certain major markets, and
legislation is now pending that may remove the existing legal obstacle.
Cable television systems also compete with wireless program distribution
services such as multichannel multipoint distribution service ("MMDS") which
uses low power microwave to transmit video programming over the air to
customers. Additionally, the FCC recently adopted new regulations allocating
frequencies in the 28 GHz band for a new multichannel wireless video service
similar to MMDS, known as Local Multipoint Distribution Service ("LMDS"). LMDS
is also suited for providing wireless data services, including the possibility
of Internet access. Wireless distribution services generally provide many of the
programming services provided by cable systems, and digital compression
technology may increase significantly the channel capacity of the Systems.
Because MMDS service requires unobstructed "line of sight" transmission paths,
the ability of MMDS systems to compete may be hampered in some areas by physical
terrain and foliage. The Company has experienced competition from MMDS
operators, namely Heartland Wireless, in 13 systems passing approximately 20,700
homes in Oklahoma, Texas and Kansas.
Federal cross-ownership restrictions historically limited entry by local
telephone companies into the cable television business. The 1996 Act eliminated
this cross-ownership restriction, making it possible for companies with
considerable resources to overbuild existing cable systems. Congress has also
repealed the prohibition against national television networks owning cable
systems. Various LECs currently are seeking to provide video programming
services within their telephone service areas through a variety of distribution
methods, primarily through the deployment of broadband wire facilities, but also
through the use of wireless (MMDS) transmission. Several telephone companies
have begun seeking cable television franchises from local governmental
authorities and constructing cable television systems. The Company has
experienced cable overbuilds by local telephone companies in seven systems
passing approximately 4,900 homes. Cable television systems could be placed at a
competitive disadvantage if the delivery of video programming services by LECs
becomes widespread, since LECs may not be required, under certain circumstances,
to obtain local franchises to deliver such video services or to comply with the
variety of obligations imposed upon cable television systems under such
franchises. The entry of telephone companies as direct competitors is likely to
continue and could adversely affect the profitability and valuation of the
Systems. Issues of cross-subsidization by LECs of video and telephony services
also pose strategic disadvantages for cable operators seeking to compete with
LECs that provide video services. The Company believes, however, that the
non-metropolitan markets in which it provides or expects to provide cable
services are unlikely to support competition in the provision of video and
telecommunications broadband services given the lower population densities and
higher costs per subscriber of installing plant.
The 1996 Telecom Act's provisions promoting facilities-based broadband
competition are primarily targeted at larger markets, and its prohibition of
buyouts and joint ventures between incumbent cable operators and LECs exempts
small operators and carriers meeting certain criteria. See "Legislation and
Regulation." The Company believes that significant growth opportunities exist
for the Company by establishing cooperative rather than competitive
relationships with LECs within service areas, to the extent permitted by law.
The entry of electric utility companies into the cable television business,
as now authorized by the 1996 Act, could also have an adverse effect on the
Company's business. Well-capitalized businesses from outside the cable industry
may become competitors for franchises or providers of competing services.
Other new technologies may become competitive with non-entertainment
services offered by cable television systems. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and businesses. The FCC also permits commercial and noncommercial FM
stations to use their sub-carrier frequencies to provide non-broadcast services
including data transmissions. The FCC has established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. The expansion of fiber optic systems and the introduction of new xDSL
services by LECs and other common carriers is providing facilities for the
transmission and distribution to homes and businesses of video services,
including interactive computer-based services like the Internet, data and other
non-video services. The FCC
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<PAGE> 44
has held spectrum auctions for licenses to provide PCS. PCS will enable license
holders, including cable operators, to provide voice and data services.
Advances in communications technology as well as changes in the marketplace
and the regulatory and legislative environments are constantly occurring. Thus,
it is not possible to predict the effect that ongoing or future developments
might have on the cable industry or on the operations of the Company.
EMPLOYEES
At September 30, 1998, the Company had approximately 352 full-time
employees and 39 part-time employees. None of the Company's employees is
represented by a labor union. The Company considers its relations with its
employees to be good.
PROPERTIES
A cable television system consists of four principal operating components.
The first component, known as the headend, receives television, radio and
information signals by means of special antennas and satellite earth stations.
The second component, the distribution network, which originates at the headend
and extends throughout the system's service area, consists of microwave relays,
coaxial or fiber optic cables placed on utility poles or buried underground and
associated electronic equipment. The third component of the system is a "drop
cable," which extends from the distribution network into each customer's home
and connects the distribution system to the customer's television set. The
fourth component, a converter, is the home terminal device that expands channel
capacity to permit reception of more than 12 channels of programming.
The Company's principal physical assets consist of cable television
systems, including signal-receiving, encoding and decoding apparatus, headends,
distribution systems and subscriber house drop equipment for each of the
Systems. The signal receiving apparatus typically includes a tower, antenna,
ancillary electronic equipment and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving devices. The Company's distribution systems consist primarily of
coaxial cable and related electronic equipment. As the upgrades are completed,
the Systems will incorporate fiber optic cable. Subscriber equipment consists of
taps, house drops and converters. The Company owns its distribution systems,
various office fixtures, test equipment and certain service vehicles. The
physical components of the Systems require maintenance and periodic upgrading to
keep pace with technological advances.
The Company's cables generally are attached to utility poles under pole
rental agreements with local public utilities, although in some areas the
distribution cable is buried in underground ducts or trenches. The FCC regulates
most pole attachment rates under the federal Pole Attachment Act.
The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave complexes and business offices
(including its principal executive offices). The Company believes that its
properties, both owned and leased, are in good condition and are suitable and
adequate for the Company's business operations as presently conducted.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company, CCI
or any of its affiliates are a party or to which any of their respective
properties are subject.
LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected, and
may in the future materially affect, the Company and the cable television
industry. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television industry and a description of
certain state
39
<PAGE> 45
and local laws. The Company believes that the regulation of its industry remains
a matter of interest to Congress, the FCC and other regulatory authorities.
There can be no assurance as to what, if any, future actions such legislative
and regulatory authorities may take or the effect thereof on the Company.
FEDERAL REGULATION
The primary federal statute dealing with the regulation of the cable
television industry is the Communications Act. The three principal amendments to
the Communications Act that shaped the existing regulatory framework for the
cable television industry were the 1984 Cable Act, the 1992 Cable Act and the
1996 Telecom Act. The 1996 Telecom Act, which became effective in February 1996,
was the most comprehensive reform of the nation's telecommunications laws since
the Communications Act. Although the long term goal of the 1996 Telecom Act is
to promote competition and decrease regulation of various communications
industries, in the short term, the law delegates to the FCC (and in some cases
to the states) broad new rulemaking authority. The FCC and state regulatory
agencies are required to conduct numerous rulemaking and regulatory proceedings
to implement the 1996 Telecom Act and such proceedings may materially affect the
cable television industry.
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations to implement the provisions
contained in the Communications Act. The FCC has the authority to enforce these
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain transmission
facilities often used in connection with cable operations. A brief summary of
certain of these federal regulations as adopted to date follows.
Cable Rate Regulation
The 1992 Cable Act imposed an extensive rate regulation regime on the cable
television industry. Under that regime, all cable systems are subject to rate
regulation, unless they face "effective competition" in their local franchise
area. Federal law now defines "effective competition" on a community-specific
basis as requiring either low penetration (less than 30%) by the incumbent cable
operator, appreciable penetration (more than 15%) by competing multichannel
video providers ("MVPs"), or the presence of a competing MVP affiliated with a
local telephone company.
Although the FCC rules control, local government units (commonly referred
to as local franchising authorities or "LFAs") are primarily responsible for
administering the regulation of the lowest level of cable -- the basic service
tier ("BST"), which typically contains local broadcast stations and public,
educational, and government ("PEG") access channels. Before an LFA begins BST
rate regulation, it must certify to the FCC that it will follow applicable
federal rules, and many LFAs have voluntarily declined to exercise this
authority. LFAs also have primary responsibility for regulating cable equipment
rates. Under federal law, charges for various types of cable equipment must be
unbundled from each other and from monthly charges for programming services. The
1996 Telecom Act allows operators to aggregate costs for broad categories of
equipment across geographic and functional lines. This change should facilitate
the introduction of new technology. Few of the LFAs in the communities in which
the Company operates have elected to certify to regulate rates, and the Company
believes that the FCC's existing "Small Systems Order" will afford it additional
flexibility to adjust its rates. However there can be no assurance that the
Company's revenues and results of operations will not be adversely affected in
the future by regulation of cable system rates.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that
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allows for the recovery of inflation and certain increased costs, as well as
providing some incentive for expanding channel carriage. The FCC has modified
its rate adjustment regulations to allow for annual rate increases and to
minimize previous problems associated with regulatory lag. Operators also have
the opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears advantageous. Premium cable services offered on a per-channel or
per-program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product.
The FCC and Congress have provided various forms of rate relief for smaller
cable systems owned by smaller operators. If requisite eligibility criteria are
satisfied, a cable operator may be allowed to rely on a vastly simplified
cost-of-service rate justification and/or may be allowed to avoid regulation of
CPST rates entirely.
In the former case, cable systems serving 15,000 or fewer subscribers, that
are owned by or affiliated with a cable company serving, in the aggregate, no
more than 400,000 subscribers, can submit a simplified cost-of-service filing
under which the regulated rate (including equipment charges) will be presumed
reasonable if it equates to no more than $1.24 per channel. Eligibility for this
relief remains if the small cable system is subsequently acquired by a larger
cable operator. In the latter case, the 1996 Telecom Act immediately deregulated
the CPST rates of cable systems serving communities with fewer than 50,000
subscribers, that are owned by or affiliated with entities serving, in the
aggregate, no more than one percent of the nation's cable customers
(approximately 617,000) and having no more than $250 million in annual revenues.
For qualifying cable systems that offered only a single level of regulated
service as of December 31, 1994, that entire level of service is rate
deregulated. Essentially all of the Company's existing systems qualify under
this provision, and the majority of the Cable One systems also qualify under
this provision. The 1996 Telecom Act also relaxes existing uniform rate
requirements by specifying that uniform rate requirements do not apply where the
operator faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory pricing still may
be made to the FCC.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems
(regardless of size) on March 31, 1999. However, certain cable critics have
called for the delay in that regulatory sunset and even urged more rigorous rate
regulation in the interim, including a limit on operators passing through to
their customers increased programming costs. Several bills have been introduced
in Congress which address cable rates. These bills would, alternatively, repeal
the sunset of the regulation of CPST rates now scheduled for March 1999, sunset
CPST rates except where a franchising authority certifies to the FCC that an
operator is not providing subscribers an acceptable range of programming choices
to the extent technically feasible and economically reasonable, and freeze cable
rates pending the receipt of a report to Congress by the FCC regarding the
causes of cable television rate increases. The Company cannot predict the
outcome of these bills or whether additional cable rate legislation will be
introduced in Congress.
Federal law requires that the BST be offered to all cable subscribers. FCC
regulations adopted pursuant to the 1992 Cable Act require cable systems to
permit customers to purchase video programming on a per channel or a per program
basis without the necessity of subscribing to any tier of service, other than
the basic service tier, unless the cable system is technically incapable of
doing so. Generally, this exemption from compliance with the statute for cable
systems that do not have such technical capability is available until a cable
system obtains the capability, but not later than December 2002.
Franchise Fees
Franchising authorities may impose franchise fees, but such payments cannot
exceed 5% of a cable system's annual gross revenues derived from the operation
of the Cable system in providing cable service. Under the 1996 Telecom Act,
franchising authorities may not exact franchise fees from revenues derived from
telecommunications services.
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Renewal of Franchises
The 1984 Cable Act established renewal procedures and criteria designed to
protect incumbent franchisees against arbitrary denials of renewal. While these
formal procedures are not mandatory unless timely invoked by either the cable
operator or the franchising authority, they can provide substantial protection
to incumbent franchisees. Even after the formal renewal procedures are invoked,
franchising authorities and cable operators remain free to negotiate a renewal
outside the formal process. Nevertheless, renewal is by no means assured, as the
franchisee must meet certain statutory standards. Even if a franchise is
renewed, a franchising authority may impose new and more onerous requirements
such as upgrading facilities and equipment, although the municipality must take
into account the cost of meeting such requirements. The 1992 Cable Act makes
several changes to the process under which a franchise is renewed, some of which
could make it easier in some cases for a franchising authority to deny renewal.
Competing Franchises
The 1992 Cable Act prohibits franchising authorities from unreasonably
refusing to grant franchises to competing cable television systems and permits
franchising authorities to operate their own cable television systems without
franchises.
Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request submitted after December 4, 1992, within 120 days after receipt
of all information required by FCC regulations and by the franchising authority.
Approval is deemed to be granted if the franchising authority fails to act
within such period.
Cable Entry Into Telecommunications
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral compensation for
management of the public rights-of-way when cable operators provide
telecommunications service. The favorable pole attachment rates afforded cable
operators under federal law can be gradually increased by utility companies
owning the poles (beginning in 2001) pursuant to an FCC prescribed formula if
the operator provides telecommunications service, as well as cable service, over
its plant. The FCC recently clarified that a cable operator's favorable pole
rates are not endangered by the provision of Internet access.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. The FCC adopted
regulations implementing the 1996 Telecom Act requirement that LECs open their
telephone networks to competition by providing competitors interconnection,
access to unbundled network elements and retail services at wholesale rates.
Numerous parties appealed these regulations. The U.S. Court of Appeals for the
Eighth Circuit, where the appeals were consolidated, recently vacated key
portions of the FCC's regulations, including the FCC's pricing and
nondiscrimination rules, and in January 1998, the United States Supreme Court
agreed to review the lower court's decision. SBC Communications, Inc. also filed
suit in Texas seeking to overturn the long distance entry provisions of the 1996
Telecom Act on constitutional grounds and obtained a favorable decision from the
U.S. District Court in Wichita Falls, Texas, which was recently reversed by the
United States Court of Appeals for the 5th Circuit. SBC is considering an appeal
to the U.S. Supreme Court. The ultimate outcome of the litigation and the FCC's
rulemakings, and the ultimate impact of the 1996 Telecom Act or any final
regulations adopted pursuant to the new law on the Company or its business
cannot be determined at this time.
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Telephone Company Entry Into Cable Television
The 1996 Telecom Act makes far reaching changes in the regulation of
telephone companies that provide video programming services. The new law
eliminates federal legal barriers to competition in the local telephone and
cable communications businesses, preempts state and local laws and regulations
which create competitive barriers and sets basic standards for relationships
between telecommunications providers. The 1996 Telecom Act also eliminates the
requirements that LECs obtain FCC approval under Section 214 of the
Communications Act before providing video services in their telephone service
areas and removes the statutory telephone company/cable television
cross-ownership prohibition, thereby allowing LECs to offer video services in
their telephone service areas. LECs may provide service as traditional cable
operators with local franchises, or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. LECs
could be formidable competitors to traditional cable operators, and certain LECs
have begun offering cable services, both within and outside of their service
areas. The Company has experienced telephone overbuilds in seven systems passing
approximately 4,900 homes.
The 1996 Telecom Act generally limits acquisitions and prohibits certain
joint ventures between LECs and cable operators in the same market. There are
some statutory exceptions to the buy-out and joint venture prohibitions,
including exceptions for certain small cable systems (as defined by Federal law)
and for cable systems or telephone facilities serving certain rural areas, and
the FCC is authorized to grant waivers of the prohibitions under certain
circumstances.
Electric Utility Entry Into Telecommunications/Cable Television
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television). Electric utilities must establish separate subsidiaries, known as
"exempt telecommunications companies" and must apply to the FCC for operating
authority. Because of their resources, electric utilities could also be
formidable competitors to traditional cable systems.
Additional Ownership Restrictions
The 1996 Telecom Act repealed the 1984 Cable Act's prohibition against LECs
providing video programming directly to customers within their local telephone
exchange service areas. However, with certain limited exceptions, a LEC may not
acquire more than a 10% equity interest in an existing cable system operating
within the LEC's service area. The 1996 Telecom Act also authorized LECs and
others to operate "open video systems" without obtaining a local cable
franchise. See "Business -- Competition."
The 1984 Cable Act and the FCC's rules prohibit the common ownership,
operation, control or interest in a cable system and a local television
broadcast station whose predicted grade B contour (a measure of a television
station's signal strength as defined by the FCC's rules) covers any portion of
the community served by the cable system. The 1996 Telecom Act eliminates the
statutory ban and directs the FCC to review its cross-ownership rule within two
years. Pursuant to the 1996 Telecom Act, the FCC eliminated its restrictions on
the cross-ownership of cable systems and national broadcasting networks, and has
commenced a proceeding to review its broadcast cable cross-ownership
restrictions. In order to encourage competition in the provision of video
programming, the FCC adopted a rule prohibiting the common ownership,
affiliation, control or interest in cable television systems and wireless cable
facilities having overlapping service areas, except in very limited
circumstances. The 1992 Cable Act codified this restriction and extended it to
co-located SMATV systems. Permitted arrangements in effect as of October 5,
1992, are grandfathered. In January 1995, the FCC adopted regulations which
permit cable operators to own and operate SMATV systems within their franchise
areas, provided that such operation is consistent with local cable franchise
requirements. The 1996 Telecom Act exempts cable systems subject to effective
competition from the wireless cable and SMATV restrictions. In addition, a cable
operator can purchase an SMATV system located within its franchise areas and
technically integrate it into its cable system. The 1992 Cable Act permits
states or local franchising authorities to adopt certain additional restrictions
on the ownership of cable television systems.
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Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to the
carriage of affiliated national program services and has imposed limits on the
number of cable systems which a single cable operator can own. In general, no
cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder of
more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of its 30%
horizontal ownership rule pending the outcome of the appeal from a U.S. District
Court decision holding the multiple ownership limit provision of the 1992 Cable
Act unconstitutional, but has recently implemented certain reporting
requirements for MSO's passing more than 20% of homes nationwide and initiated a
proceeding to examine its current horizontal ownership limitations rule and
whether it should be modified. The FCC also has initiated a rulemaking
proceeding to review its attribution rules which define what constitutes a
"cognizable interest" triggering application of various FCC rules relating to
the provision of cable services such as cross-ownership, programing access and
channel occupancy rules, and horizontal ownership limitations. In addition, the
FCC recently commenced a rulemaking proceeding to examine, among other issues,
whether any limitations on cable-DBS cross-ownership are warranted in order to
prevent anticompetitive conduct in the video services market.
There are no federal restrictions on non-U.S. entities having an ownership
interest in cable television systems or the FCC licenses commonly employed by
such systems. Section 310(b)(4) of the Communications Act does, however,
prohibit foreign ownership of FCC broadcast and telephone licenses, unless the
FCC concludes that such foreign ownership is consistent with the public
interest.
Technical Requirements
The FCC has imposed technical standards applicable to the cable channels on
which broadcast stations are carried, and has prohibited franchising authorities
from adopting standards which are in conflict with or more restrictive than
those established by the FCC. Those standards are applicable to all classes of
channels which carry downstream National Television System Committee (the
"NTSC") video programming. The FCC also has adopted additional standards
applicable to cable television systems using frequencies in the 108-137 MHz and
225-400 MHz bands in order to prevent harmful interference with aeronautical
navigation and safety radio services and has also established limits on cable
system signal leakage. Periodic testing by cable operators for compliance with
the technical standards and signal leakage limits is required and an annual
filing of the results of these measurements is required. The 1992 Cable Act
requires the FCC to periodically update its technical standards to take into
account changes in technology. Under the 1996 Telecom Act, local franchising
authorities may not prohibit, condition or restrict a cable system's use of any
type of subscriber equipment or transmission technology.
The FCC has adopted regulations to implement the requirements of the 1992
Cable Act designed to improve the compatibility of cable systems and consumer
electronics equipment. Among other things, these regulations generally prohibit
cable operators from scrambling their basic service tier. The 1996 Telecom Act
directs the FCC to rely on the marketplace and set only minimal standards to
assure compatibility between television sets, VCRs and cable systems.
Pursuant to the requirements of the 1996 Telecom Act, the FCC recently
adopted an Order implementing regulations intended to promote the commercial
availability of navigation devices (set-top converters). The new rules will
apply generally to all multichannel video programming distributors ("MVPDs"),
including MMDS, SMATV, etc., and to all equipment used to receive multichannel
video programming, including VCRs and even computers if used for that purpose.
The FCC has exempted from its rules navigation devices that operate throughout
the continental United States and are commercially available from unaffiliated
sources, which include DBS. The Order requires that the security (descrambling)
functions presently integrated in set-top converters be separated from their
other functions and that separate security modules be available from cable
operators by July 2000. Cable operators will be allowed to provide integrated
set-top converters to their customers until January 1, 2005. After that time,
the sale of or lease by operators of new set-top converters with embedded
security functions will be prohibited, subject to the FCC's reassessment in
2000. Several parties have requested the FCC to reconsider various aspects of
its Order.
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Pole Attachments
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles unless state public service commissions
are able to demonstrate that they regulate the rates, terms and conditions of
cable television pole attachments. In addition, cooperatively and municipally
owned utilities are not subject to the FCC's pole attachment regulations and in
most cases are not subject to the pole attachment regulations of the state PSC.
The Company may operate systems that utilize poles owned by cooperatively and
municipally owned utilities. None of the states where the Company operates cable
systems have certified to the FCC that they regulate the rates, terms and
conditions for pole attachments. In the absence of state regulation, and except
for cooperatively or municipally owned poles, the FCC administers such pole
attachment rates through use of a formula which it has devised. As directed by
the 1996 Telecom Act, the FCC has adopted a new rate formula for any attaching
party, including cable systems, which offer telecommunications services. This
new formula will result in significantly higher attachment rates for cable
systems which choose to offer such services, but does not begin to take effect
until 2001 and will be phased in by equal increments over the ensuing five
years. Various parties have requested the FCC to reconsider these new
regulations. The FCC has also initiated a rulemaking to consider whether it
should adjust certain elements of its existing rate formula. If adopted, these
adjustments may increase the fees paid by cable operators to utilities for pole
attachments and conduit space. The ultimate outcome of these rulemakings and the
ultimate impact of any revised FCC rate formula or of any new pole attachment
rate regulations on the Company or its business cannot be determined at this
time.
Must Carry/Retransmission Consent
The 1992 Cable Act contains broadcast signals carriage requirements that,
among other things, allow local commercial television broadcast stations to
elect once every three years between requiring a cable system to carry the
station ("must carry") or negotiating for payments for granting permission to
the cable operator to carry the station ("retransmission consent"). A cable
system generally is required to devote up to one-third of its activated channel
capacity for the carriage of local commercial television stations whether
pursuant to the mandatory carriage or retransmission consent requirements of the
1992 Cable Act. Local non-commercial television stations are also given
mandatory carriage rights, subject to certain exceptions, within the larger of:
(i) a 50-mile radius from the station's city of license; or (ii) the station's
Grade B contour (a measure of signal strength). Unlike commercial stations,
noncommercial stations are not given the option to negotiate retransmission
consent for the carriage of their signal. In addition, cable systems must obtain
retransmission consent for the carriage of all "distant" commercial broadcast
stations, except for certain "superstations," i.e., commercial
satellite-delivered independent stations, such as WGN. Must carry requests can
dilute the appeal of a cable systems' programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Company's business. The burden
associated with "must carry" may increase substantially as broadcasters proceed
with planned conversion to digital transmission and if the FCC determines that
cable systems must carry all analog and digital broadcasts in their entirety.
The FCC has initiated a rulemaking proceeding concerning whether and under what
circumstances cable operators must carry digital broadcast signals.
Access Channels
LFAs can include franchise provisions requiring cable operators set aside
certain channels for public, educational and governmental access programming.
The 1984 Cable Act further requires cable television systems with 36 or more
activated channels to designate a portion of their channel capacity for
commercial leased access by unaffiliated third parties. While the 1984 Cable Act
allowed cable operators substantial latitude in setting leased access rates, the
1992 Cable Act requires leased access rates to be set according to a formula
determined by the FCC. The FCC has adopted rules regulating the terms,
conditions and maximum rates a cable operator may charge for use of the
designated channel capacity, but use of commercial leased access channels has
been relatively limited. The FCC released revised rules in February 1997
mandating a modest rate reduction. The reduction sparked some increase in
part-time use, but did not make commercial leased access substantially more
attractive to third party programmers.
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Access to Programming
To spur the development of independent cable programmers and competition to
incumbent cable operators, the 1992 Cable Act imposed restrictions on the
dealings between cable operators and cable programmers. Of special significance
from a competitive business posture, the 1992 Cable Act precludes video
programmers affiliated with cable companies from favoring cable operators over
competitors and requires such programmers to sell their programming to other
multichannel video distributors. This provision limits the ability of vertically
integrated cable programmers to offer exclusive programming arrangements to
cable companies. Recently, there has been increased interest in further
restricting the marketing practices of cable programmers, including subjecting
programmers who are not affiliated with cable operators to all of the existing
program access requirements. In an effort to increase competition in the video
marketplace, the FCC has recently adopted an Order which revised its program
access complaint procedures. Among other revisions, the Order increased
sanctions for violation of the program access rules, but the Commission declined
to widen the scope of the rules to include terrestrially delivered programming.
Inside Wiring
The FCC recently adopted new procedural guidelines governing the
disposition of home run wiring (a line running to an individual subscriber's
unit from a common feeder or riser cable) in multi-dwelling units ("MDUs"). MDU
owners can use these new rules to attempt to force cable television operators
without contracts to either sell, abandon or remove home run wiring and
terminate service to MDU subscribers unless operators retain rights under common
or state law to maintain ownership rights in the home run wiring. In addition,
the FCC is reviewing the enforceability of contracts to provide exclusive video
service within an MDU complex. The FCC has sought comment on abrogating all such
contracts held by incumbent cable operators, but allowing such contracts when
held by new entrants. These changes will make it easier for an MDU complex owner
to terminate service from an incumbent cable operator in favor of a new entrant
and leave the already competitive MDU sector even more challenging for incumbent
cable operators unless operators retain rights under common or state law to
maintain ownership rights in the home run wiring.
Other FCC Regulations
In addition to the FCC regulations noted above, there are other FCC
regulations covering such areas as equal employment opportunity, subscriber
privacy, programming practices (including, among other things, syndicated
program exclusivity, network program nonduplication, local sports blackouts,
indecent programming, lottery programming, political programming, sponsorship
identification, and children's programming advertisements), registration of
cable systems and facilities licensing, maintenance of various records and
public inspection files, microwave and aeronautical frequency usage, lockbox
availability, antenna structure notification, tower marking and lighting,
consumer protection and customer service standards, technical standards, and
consumer electronics equipment capability. Federal requirements governing
Emergency Alert Systems and Closed Captioning adopted in 1997 will impose
additional costs on the operation of cable systems. The FCC has the authority to
enforce its regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities used in connection with cable
operations.
COPYRIGHT
Cable systems are subject to federal copyright licensing covering carriage
of television and radio broadcast signals. In exchange for filing certain
reports and contributing a percentage of their revenue to a federal copyright
royalty pool, cable operators can obtain blanket permission to retransmit
copyrighted material on broadcast signals. The nature and amount of future
payments for broadcast signal carriage cannot be predicted at this time. In a
recent report to Congress, the Copyright Office recommended that Congress make
major revisions of both the cable television and satellite compulsory licenses
to make them as simple as possible to administer, to provide copyright owners
with full compensation for the use of their work, and to treat every
multichannel video delivery system the same, except to the extent that
technological differences or
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differences in the regulatory burdens placed upon the delivery system justify
different copyright treatment. The possible simplification, modification or
elimination of the compulsory copyright license is the subject of continuing
legislative review. The elimination or substantial modification of the cable
compulsory license could adversely affect the Company's ability to obtain
suitable programming and could substantially increase the cost of programming
that remained available for distribution to the Company's customers. The Company
cannot predict the outcome of this legislative activity.
Cable operators distribute programming and advertising that use music
controlled by the two major music performing rights organizations, ASCAP and
BMI. In October 1989, the special rate court of the U.S. District Court of the
Southern District of New York imposed interim rates on the cable industry's use
of ASCAP-controlled music. The same federal district court recently established
a special rate court for BMI. BMI and certain cable industry representatives
recently concluded negotiations for a standard licensing agreement covering the
usage of BMI music contained in advertising and other information inserted by
operators into cable programming and on certain local access and origination
channels carried on cable systems. ASCAP and cable industry representatives have
met to discuss the development of a standard licensing agreement covering ASCAP
music in local origination and access channels and pay-per-view programming.
Although the Company cannot predict the ultimate outcome of these industry
negotiations or the amount of any license fees it may be required to pay for
past and future use of ASCAP-controlled music, it does not believe such license
fees will be material to the Company's operations.
STATE AND LOCAL REGULATION
Cable television systems generally are operated pursuant to nonexclusive
franchises granted by a municipality or other state or local government entity
in order to cross public rights-of-way. Federal law now prohibits franchise
authorities from granting exclusive franchises or from unreasonably refusing to
award additional franchises. Cable franchises generally are granted for fixed
terms and in many cases include monetary penalties for non-compliance and may be
terminable if the franchisee failed to comply with material provisions.
The terms and conditions of franchises vary materially from jurisdiction.
Each franchise generally contains provisions governing cable operations, service
rates, franchise fees, system construction and maintenance obligations, system
channel capacity, design and technical performance, customer service standards,
and indemnification protections. A number of states (such as Connecticut)
subject cable television systems to the jurisdiction of centralized state
governmental agencies, some of which impose regulation of a character similar to
that of a public utility. Although LFAs have considerable discretion in
establishing franchise terms, there are certain federal limitations. For
example, LFAs cannot insist on franchise fees exceeding 5% of the system's gross
revenues, cannot dictate the particular technology used by the system, and
cannot specify video programming other than identifying broad categories of
programming.
The 1984 Cable Act places certain limitations on a franchising authority's
ability to control the operation of a cable system operator, and the courts have
from time to time reviewed the constitutionality of several general franchise
requirements, including franchise fees and access channel requirements, often
with inconsistent results. On the other hand, the 1992 Cable Act prohibits
exclusive franchises, and allows franchising authorities to exercise greater
control over the operation of franchised cable television systems, especially in
the area of customer service and rate regulation. Moreover, franchising
authorities are immunized from monetary damage awards arising from regulation of
cable television systems or decisions made on franchise grants, renewals,
transfers and amendments.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and service or increased
franchise fees as a condition of renewal. Similarly, if a franchise authority's
consent is required for the purchase or sale of a cable system or franchise,
such authority may attempt to impose more burdensome or onerous franchise
requirements in connection with a request for consent. Historically, franchises
have been renewed for cable operators
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that have provided satisfactory services and have complied with the terms of
their franchise. The Company has generally had good experience with its cable
franchise renewals.
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral compensation for
management of the public right-of-way when cable operators provide
telecommunications service.
OTHER MATTERS
The FCC continues to have rulemaking proceedings pending that will
implement various provisions of the 1996 Telecom Act; it also has adopted
regulations implementing various provisions of the 1992 Cable Act and the 1996
Telecom Act that are the subject of petitions requesting reconsideration of
various aspects of its rulemaking proceedings. In addition to the FCC
regulations noted above, there are other FCC regulations covering such areas as
equal employment opportunity, syndicated program exclusivity, network program
non-duplication, closed captioning of video programming, registration of cable
systems, maintenance of various records and public inspection files, microwave
frequency usage, lockbox availability, origination cablecasting and sponsorship
identification, antenna structure notification, marking and lighting, carriage
of local sports broadcast programming, application of rules governing political
broadcasts, limitations on advertising contained in non-broadcast children's
programming, programmer access to cable systems, programming agreements,
technical standards, emergency alert system requirements, consumer electronics
equipment compatibility and DBS implementation.
The 1992 Cable Act, the 1996 Telecom Act and the FCC's rules implementing
these statutory provisions generally have increased the administrative and
operational expenses of cable systems and have resulted in additional regulatory
oversight by the FCC and local franchise authorities. The Company will continue
to develop strategies to minimize the adverse impact that the FCC's regulations
and the other provisions of the 1992 Cable Act and the 1996 Telecom Act have on
the Company's business. However, no assurances can be given that the Company
will be able to develop and successfully implement such strategies to minimize
the adverse impact of the FCC's rate regulations, the 1992 Cable Act or the 1996
Telecom Act on the Company's business.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television systems operate. Neither the outcome of
these proceedings nor their impact upon the cable television industry can be
predicted at this time.
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MANAGEMENT
All of the outstanding Capital Stock of the Company is owned by CCI. The
executive officers of CCI are also the executive officers of the Company and
hold the same offices. The directors of the Company and all the subsidiaries of
the Company are J. Merritt Belisle, Steven E. Seach, and Jeffery C. Garvey.
Executive officers, key operations managers and outside directors of CCI are
listed as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS OF CCI AGE POSITION
- --------------------------------------- --- --------
<S> <C> <C>
J. Merritt Belisle.................... 42 Chairman of the Board and Chief Executive
Officer
Steven E. Seach....................... 41 Director, President and Chief Financial
Officer
Gilbert W. Nichols.................... 50 Vice President -- Operations
Jeffery C. Garvey..................... 49 Director
James J. Kozlowski.................... 43 Director
Robert H. Sheridan III................ 35 Director
Robert Marakovits..................... 40 Director
</TABLE>
J. Merritt Belisle, the Company's Chairman of the Board and Chief Executive
Officer, founded the Company in March 1992 to acquire, operate, and develop
cable television systems in selected non-metropolitan markets of the United
States. From January 1988 through August 1991, he was a Vice President at Texas
Commerce Investment Banking, a division of Texas Commerce Bank, N.A., Houston,
Texas. From April 1985 to January 1988, Mr. Belisle was Chief Executive Officer
of Community Cable Incorporated ("Community Cable"), a small multi-system cable
television operator based in Austin, Texas. Community Cable was sold to a cable
television subsidiary of Time Warner, Inc. Prior to founding Community Cable,
Mr. Belisle was a corporate and securities attorney with the Houston office of
Baker & Botts. Mr. Belisle received a BBA in 1977, a MPA in 1980, and a JD in
1981 from The University of Texas at Austin.
Steven E. Seach, the Company's President and Chief Financial Officer,
helped Mr. Belisle with the founding of the Company in March 1992. Mr. Seach
became President of the Company in October 1996 and presently oversees
substantially all operational and financial aspects of the Company. Mr. Seach
became a member of the Board of CCI in 1998. From March 1992 to June 1994, Mr.
Seach served as an advisor to the Company and its Board of Directors for
strategic, operational and financial matters. Mr. Seach became the Company's
Chief Financial Officer in July 1994. Prior to his association with the Company,
Mr. Seach spent 12 years in the banking and investment banking industries,
primarily with Texas Commerce Bank, N.A., Houston, Texas. Mr. Seach received a
BBA in finance from the University of Houston in 1980.
Gilbert W. Nichols, the Company's Vice President -- Operations, joined the
Company in February 1997. As Vice President -- Operations, he is responsible for
the day-to-day operations of the Company's cable systems. Mr. Nichols is a cable
veteran who has spent nearly 30 years in the cable television business.
Throughout his career he has held numerous technical and managerial positions in
both metropolitan and non-metropolitan environments. Mr. Nichols has a degree in
Business Administration from Southwestern Ohio University as well as formal
training in electronics.
Jeffery C. Garvey, a General Partner of Austin Ventures, L.P., has been a
Director of CCI since July 1992. Mr. Garvey has been General Partner of Austin
Ventures, L.P. since 1984. Mr. Garvey is currently a Director of General
Communications, Inc. and Careline, Inc. From 1979 through 1986, Mr. Garvey was
the Executive Vice President and President of Rust Capital, Ltd, a small
business investment company. Prior to that, Mr. Garvey was an officer with PNC
Bank in Philadelphia. Mr. Garvey received his BA with honors from St. Lawrence
University in 1971.
James J. Kozlowski, the Executive Director of The Texas Growth Fund, has
been a Director of CCI since June 1993. Mr. Kozlowski has been the President of
TGF Management Corp. and Executive Director of The Texas Growth Fund since 1992.
Mr. Kozlowski is currently a Director of the following companies: American
Rockwool, Inc., Coastal Towing, Inc., The Lofland Company, Rehab Designs of
America Corp., Sterling Foods, Inc., Technology Works, Inc. and Veridian. Mr.
Kozlowski was a Managing Director of Fortis Private Capital in New Jersey from
1990 to 1992, and Vice President of Merrill Lynch Venture Capital in New York
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<PAGE> 55
from 1986 to 1990. Mr. Kozlowski received his BA degree in economics, cum laude,
from Harvard College in 1978 and his MBA from Harvard University Graduate School
of Business Administration in 1982.
Robert H. Sheridan III, has served as a Director of CCI since April 1997.
Mr. Sheridan is a Managing Director of NationsBank Capital Investors, the
principal investment group within NationsBank Corporation, and a Senior Vice
President of NationsBanc Capital Corp., NationsBanc Investment Corporation and
NationsBank, N.A. NationsBanc Capital Corp. is a stockholder of CCI. Prior to
joining NationsBank Capital Investors in January 1994, Mr. Sheridan worked in
investment banking and capital markets positions at Paine Webber, Inc., from
1986 to 1988. Mr. Sheridan currently serves as a director of Cumulus Media,
Inc., a radio broadcasting company, and Netcom Systems, Inc., a network
equipment testing systems company. Mr. Sheridan holds an MBA from Columbia
University and a BA from Vanderbilt University.
Robert Marakovits, a Managing Director of BT Capital Partners, has been a
Director of CCI since 1995. Mr. Marakovits joined BT Capital Partners in 1987.
Mr. Marakovits is a Director of Alliance Entertainment, Inc. Prior to graduate
school, he worked for three years as a financial associate at General Foods
Corporation. Mr. Marakovits holds a BBA from Pace University and an MBA from
Indiana University.
OTHER CORPORATE PERSONNEL
Bryan D. Noteboom, the Company's Vice President -- Finance &
Administration, has been with the Company since its inception and coordinates
the Company's accounting, finance, human resources and risk management
functions. Mr. Noteboom has an extensive background in cable television,
accounting, and finance through prior work experience in the cable industry and
as a senior auditor with Coopers & Lybrand. Mr. Noteboom earned a BBA in
Accounting/Finance from the University of Texas at Austin in December 1985 and
is licensed to practice as a Certified Public Accountant.
Ashley M. Kimery, the Company's Vice President & Corporate Treasurer
currently oversees the Company's cash management and tax functions. Prior to
joining the Company, Ms. Kimery worked for seven years in both the audit and tax
departments at Ernst & Young LLP. Ms. Kimery received her BBA in Accounting from
Texas A&M University in 1987, her Certificate of Public Accounting in 1990, and
her Masters in Public Accounting from The University of Texas at Austin in 1991.
Tracy M. Anderson, the Company's Vice President -- Marketing, has been with
the Company since September 1995. Ms. Anderson manages the Company's marketing
and community relations efforts. Prior to joining the Company, Ms. Anderson
worked as a senior auditor for the Austin office of Ernst & Young LLP. Ms.
Anderson earned a BBA in Accounting/Finance from Texas A&M in 1992 and her
Certificate of Public Accountancy in 1994.
KEY OPERATIONS PERSONNEL
Nita M. Basgall, the Company's Regional Manager -- Northern, has been with
the Company since its inception and oversees all operational, technical and
local marketing aspects of the Company's systems in Kansas, Nebraska and
Northwest Missouri. Ms. Basgall has over 24 years of experience in the cable
television industry. Ms. Basgall serves on the Board of Directors of the Kansas
Cable Telecommunications Association.
David D. Walker, the Company's Regional Manager -- Central, has over 28
years of experience in the cable television industry and oversees all
operational, technical and local marketing aspects of the Company's systems in
Oklahoma and Arkansas. Mr. Walker serves on the Board of Directors of the
Arkansas Cable Telecommunications Association.
Kenneth L. Butler, the Company's Corporate Engineering Manager, has been
with the Company since its inception and is responsible for the Company's
overall technical specifications, FCC, FAA and OSHA compliance and filings and
the Company-wide engineering practices. Mr. Butler has over 16 years of
experience in the cable television industry.
Connie A. Ganoung, the Company's Customer Service Manager, has been with
the Company since its inception and is directly responsible for the supervision
and performance of the Company's Customer Service
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<PAGE> 56
Center located in Plainville, Kansas. Ms. Ganoung received her BBA from Fort
Hays State University in 1981. Ms. Ganoung has over 9 years of experience in the
cable television industry.
Ronald G. Jansonius, the Company's Advanced Technology Manager, has been
with the Company since 1996 and is responsible for directing the Company's
advanced technology initiatives. Mr. Jansonius has over 6 years of computer,
network, and broadband technology expertise. He received a BS from Fort Hays
State University in 1982.
Marsha K. Newell, the Company's Human Resources Manager, has been with the
Company since January 1997 and plans, organizes and directs all aspects of the
Human Resources function within the Company. Ms. Newell has over 26 years of
human resources experience. Ms. Newell holds a BBA in Human Resource Management
from Friends University and an MBA from Fort Hays State University.
Rowdy O. Whittington, the Company's Plant Integrity Manager, oversees the
Company's system technical compliance standards. Mr. Whittington also manages
the operations of a select number of systems located in Missouri and Colorado.
Mr. Whittington has over 12 years of experience in the cable television
industry.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The executive officers of the Company are the executive officers of CCI and
hold the same offices. Other than the executive officers of the Company and CCI
who are also directors, no other directors of the Company or CCI receive any
compensation for serving as a director. The following table summarizes the
compensation for services rendered which CCI paid to the Chief Executive Officer
and President as to whom the total annual compensation exceeded $100,000 in
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
--------------------------- -------- -------- ---------------
<S> <C> <C> <C>
J. Merritt Belisle
Chairman of the Board and Chief Executive Officer
1997............................................ $200,000 $-- $4,750
Steven E. Seach(3)
President and Chief Financial Officer
1997............................................ 175,000 175,000 4,750
</TABLE>
- ---------------
(1) The executive officers of CCI received restricted stock, options, stock
appreciation rights or other compensation during 1996 under the 1996 Stock
Restricted Plan. See "-- 1996 Restricted Stock Plan." On July 29, 1998,
Messrs. Belisle and Seach held 30,312 shares and 6,678 shares of restricted
stock, respectively, and concurrently with consummation of the Offerings,
Messrs. Belisle and Seach exchanged their existing shares of restricted
stock for new shares of restricted stock with revised vesting terms and
other restrictions. See "-- 1998 Restricted Stock Plan."
(2) Amounts reported as All Other Compensation represent the Company's
contribution under its 401(k) plan.
(3) In 1998, annual base salary for Mr. Seach was increased to $350,000.
1996 RESTRICTED STOCK PLAN
Certain members of management own restricted stock subject to the terms of
CCI's 1996 Restricted Stock Plan (the "1996 Plan"). Pursuant to the 1996 Plan,
CCI may, from time to time, grant restricted stock to officers and other key
employees of CCI or its subsidiaries upon the terms, conditions and provisions
of the 1996 Plan. Concurrently with the adoption of the 1996 Plan, CCI granted a
total of 51,376 shares of CCI Common Stock as of such date, of which only 14,385
shares are currently outstanding (see "1998 Restricted
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<PAGE> 57
Stock Plan"). Pursuant to the granting agreement, such shares of restricted
stock were to vest 25.0% per year over four years. One-half of such shares of
restricted stock are subject to a distribution threshold equal to $100 per
share, i.e., the first $100 of distributions with respect to such shares were to
be withheld and distributed instead to the other holders of CCI Common Stock,
and one-fourth of the shares were subject to a distribution threshold of $192
per share and one-fourth to a threshold of $300 per share. Together with shares
of Restricted Stock issued to other members of management, all executive
officers as a group own 49,621 shares.
Each member of management of CCI holding shares of CCI Common Stock
(collectively, the "Management Stockholders") executed a stockholders agreement
with CCI and its other shareholders dated as of October 15, 1995, as amended
(the "Stockholders Agreement"). The Stockholders Agreement generally provides
CCI with a right of first refusal in the event of proposed sales of CCI Common
Stock owned by the Management Stockholders, and upon any termination of a
Management Stockholder's employment, to repurchase any CCI Common Stock owned by
such Management Stockholder. The Stockholders Agreement contains certain rights
of the Management Stockholders to participate in sales of CCI Common Stock and
certain obligations of the Management Stockholders to sell their CCI Common
Stock in the case of a sale for cash of all outstanding CCI Common Stock.
Finally, the Management Stockholders are required to vote their CCI Common Stock
to elect to the CCI Board of Directors the directors nominated by the other CCI
stockholders under the Stockholders Agreement. The Stockholders Agreement, and
all rights and obligations of the Management Stockholders thereunder described
above, will terminate following an initial public offering of CCI Common Stock
meeting certain criteria.
1998 RESTRICTED STOCK PLAN
CCI has adopted a new Restricted Stock Plan (the "1998 Plan"). The terms of
the 1998 Plan are similar in all material respects to the 1996 Plan. In July
1998, each of Messrs. Seach and Belisle exchanged all of their existing shares
under the 1996 Plan for 242,209 shares of restricted CCI Common Stock pursuant
to the 1998 Plan, each representing approximately 6.8% of CCI Common Stock on a
fully diluted basis. Pursuant to the granting agreement, such shares of
restricted CCI Common Stock are to vest 33.3% per year over three years. All of
such shares of restricted CCI Common Stock are subject to a distribution
threshold equal to $3.77 per share. Together with shares of restricted CCI
Common Stock issued to other members of management, all executive officers as a
group own 499,940 shares of CCI Common Stock or approximately 14%, on a fully
diluted basis.
Each Management Stockholder continues to be subject to the terms of the
Stockholders Agreement.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
J. Merritt Belisle and Steven E. Seach have employment agreements with CCI,
each of which provides for their continued employment with CCI for a continuing
two year period at all times. Belisle and Seach are paid annual salaries of
$200,000 and $350,000 per year, respectively. Each employment agreement provides
that upon termination by CCI without cause, the employee will be entitled to the
pre-payment of all remaining future compensation under the agreement, i.e., two
years base compensation. Each employment agreement also prohibits the employees
from competing with CCI during their term of employment and for a period of two
years thereafter. Pursuant to the employment agreements, each employee is
permitted to engage in other businesses and to acquire and own other business
properties in the telecommunications industry so long as CCI is first provided
the opportunity to acquire or own such businesses and has declined to do so, and
so long as such businesses do not compete with CCI or its subsidiaries. Messrs.
Belisle and Seach also have an agreement with CCI to provide consulting services
for which they will receive an aggregate transaction fee of 1% of the value of
all acquisitions made by the Company and 1% of the increase of total
capitalization of the Company from additional financings (provided that
duplicate fees will not be paid for financings used to consummate acquisitions).
Messrs. Belisle and Seach received transaction fees of $300,000 and $250,000,
respectively, upon consummation of the Financing Plan.
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<PAGE> 58
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of CCI as a whole determines the compensation of
CCI's executive officers. J. Merritt Belisle, CCI's Chief Executive Officer, and
Steven E. Seach, CCI's President, as Board members, participate in deliberations
of the Board of Directors with respect to compensation of all executive
officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the consummation of the Financing Plan, CCI and the Company had
outstanding subordinated indebtedness (including accrued interest) in the amount
of approximately $4.4 million to Austin Ventures, L.P., The Texas Growth Fund,
and BT Capital Partners, Inc. and Preferred Stock (including accrued and unpaid
dividends) in the amount of approximately $29.4 million to NationsBanc Capital
Corp. and BT Capital Partners, Inc., each a stockholder of CCI. Approximately
$3.9 million of such indebtedness bore interest at the rate of 15.0% per annum
and the remainder bore interest at the rate of 7.5% per annum. All of such
subordinated indebtedness and Preferred Stock had been incurred or issued to
fund the acquisition of various cable properties of the Company. CCI repaid such
indebtedness and redeemed the Preferred Stock from the holders thereof out of
the proceeds of the Notes. See "Use of Proceeds."
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
All of the outstanding capital stock of the Company is owned by CCI. The
following table sets for the certain information as of September 30, 1998,
regarding the beneficial ownership of CCI's Common Stock by (i) each executive
officer and director of CCI, (ii) each stockholder known by CCI to beneficially
own 5.0% or more of such CCI Common Stock and (iii) all directors and officers
as a group.
<TABLE>
<CAPTION>
FULLY-DILUTED PERCENT OF FULLY-
VOTING COMMON NON-VOTING COMMON COMMON DILUTED COMMON
BENEFICIAL OWNER(1) WARRANTS(2) SHARES(3) SHARES(3) SHARES STOCK OWNERSHIP(4)
------------------- ----------- ------------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Austin Ventures, L.P.(5)... -- 735,986 -- 735,986 20.5%
BT Capital Partners,
Inc. .................... 30,225 1,326 735,986 767,537 21.4
The Texas Growth Fund...... -- -- 170,563 170,563 4.8
NationsBanc Capital
Corp. ................... 152,418 6,631 542,995 702,044 19.6
J. Merritt Belisle......... -- 244,862 -- 244,862 6.8
Steven E. Seach............ -- 244,862 -- 244,862 6.8
Jeffery C. Garvey(6)....... -- 735,986 -- 735,986 20.5
James J. Kozlowski(7)...... -- -- 170,563 170,563 4.8
Robert Marakovits(8)....... 30,225 1,326 735,986 767,537 21.4
Robert H. Sheridan
III(9)................... 152,418 6,631 542,995 702,044 19.6
All directors and officers
as a group............... 182,643 1,233,667 1,449,544 2,865,854 79.9
</TABLE>
- ---------------
(1) The address for Austin Ventures, L.P. and Jeffery C. Garvey is 1300 Norwood
Tower, 114 West 7th Street, Austin, Texas 78701. The address for BT Capital
Partners, Inc. and Robert Marakovits is 130 Liberty Street, 25th Floor, New
York, New York 10006. The address for The Texas Growth Fund and James J.
Kozlowski is 100 Congress Ave., Suite 980, Austin, Texas 78701. The address
for NationsBanc Capital Corp. and Robert H. Sheridan III is 100 North Tryon
Street, Charlotte, North Carolina 28255. The address for J. Merritt Belisle
and Steven E. Seach is 515 Congress Ave., Suite 2626, Austin, Texas 78701.
(2) Warrants are for shares of CCI Common Stock which may be acquired at $.01
per share pursuant to a warrant which is exercisable at any time.
(3) All shares of CCI Non-Voting Common Stock are convertible into shares of
Voting Common Stock without cost and without advance notice by the holders
thereof. As a result, CCI believes that such shares should be taken into
account in considering voting interests in CCI.
(4) Assumes exercise of all outstanding warrants.
(5) Austin Ventures, L.P. owns 323,832 shares, Austin Ventures III-A, L.P. owns
223,422 shares and Austin Ventures III-B, L.P. owns 188,733 shares. AV
Partners, L.P. is the general partner of each of these partnerships.
(6) Jeffery C. Garvey is a director of CCI and a general partner of AV Partners,
L.P. Mr. Garvey is not the registered holder of any shares and disclaims the
beneficial ownership of the shares listed above except to the extent of his
indirect interest in the assets of the nominal shareholder, if any.
(7) James J. Kozlowski is a director of CCI and President of TGF Management
Corp., which is the executive director of the Board of Trustees of The Texas
Growth Fund -- 1991 Trust, which is the Trustee of the Texas Growth Fund.
Mr. Kozlowski is not the registered holder of any shares and disclaims the
beneficial ownership of the shares listed above except to the extent of his
indirect interest in the assets of the nominal shareholder, if any.
(8) Robert Marakovits is a managing director of BT Capital Partners, Inc. Mr.
Marakovits is not the registered holder of any shares and disclaims the
beneficial ownership of the shares listed above except to the extent of his
indirect interest in the assets of the nominal shareholder, if any.
(9) Robert H. Sheridan III is a director of CCI and managing director of
NationsBank Capital Investors. Mr. Sheridan is not the registered holder of
any shares and disclaims the beneficial ownership of the
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<PAGE> 60
shares listed above except to the extent of his indirect interest in the
assets of the nominal shareholder, if any.
CREDIT ARRANGEMENTS OF THE COMPANY
The Company is a party to a Senior Credit Agreement effective July 29, 1998
with a group of banks and other financial institutions led by Union Bank and
Goldman Sachs Credit Partners, L.P., as Co-Agents. The following is a summary of
the material provisions of the Senior Credit Agreement. For a complete
description of the terms and provisions of the Senior Credit Agreement,
reference is made to the Senior Credit Agreement.
The Senior Credit Agreement provides for revolving credit loans of $50
million and term loans of $75 million, or an aggregate of $125 million. The
revolving portion of the Senior Credit Agreement has a term of 8.5 years with
reductions in the commitment commencing 2.5 years after closing. The term
portion has a maturity of 9.25 years with reductions in commitment commencing
1.5 years after closing. In addition, the Company is required to prepay the
Senior Credit Agreement in part upon the occurrence happening of certain events,
such as a sale of assets, the incurrence of certain additional indebtedness, the
receipt of insurance proceeds and the generation of excess cash flow.
The Company's obligations under the Senior Credit Agreement are guaranteed
by each direct and indirect subsidiary of the Company and secured by (i)
substantially all the tangible and intangible assets of the Company and all of
its direct and indirect subsidiaries, and (ii) a pledge of all of the capital
stock of the Company and of all of the direct and indirect subsidiaries of the
Company.
The Senior Credit Agreement contains a number of covenants that, among
other things, may restrict the ability of the Company and its respective
subsidiaries to dispose of assets, incur additional indebtedness, incur guaranty
obligations, pay dividends or make capital distributions, create liens on
assets, make investments, make acquisitions, engage in mergers or
consolidations, engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. In addition, the Senior Credit
Agreement requires compliance with certain financial covenants. Management does
not expect that such covenants will materially impact the ability of the Company
and its subsidiaries to operate their respective businesses.
The Senior Credit Agreement contains events of default, including the
failure to pay principal when due or any interest or other amount that becomes
due within a period of time after the due date thereof, any representation or
warranty being made by the Company that is incorrect in any material respect on
or as of the date made, a default in the performance of any negative covenants
or a default in the performance of certain other covenants or agreements for a
specified period, default in certain other indebtedness, certain insolvency
events, certain change of control events and a default under the Indenture.
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<PAGE> 61
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on July 29, 1998, in a transaction
exempt from registration under the Securities Act pursuant to Rule 144A under
the Securities Act. In connection with that placement, the Company entered into
the Registration Rights Agreement, which requires that the Company file the
Registration Statement under the Securities Act with respect to the New Notes
and, upon the effectiveness of that Registration Statement, offer to the holders
of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, which will be issued without a restrictive legend
and which generally may be reoffered and resold by the holder without
registration under the Securities Act. The Registration Rights Agreement further
provides that the Company must use its best efforts to (i) cause the
Registration Statement with respect to the Exchange Offer to be declared
effective on or before November 26, 1998 and (ii) consummate the Exchange Offer
on or before December 28, 1998. Except as provided below, upon the completion of
the Exchange Offer, the Company's obligations with respect to the registration
of the Old Notes and the New Notes will terminate. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part and the summary herein contains the material
provisions of the agreement; however, for a complete description of the terms
and provisions of the agreement, reference is made to the Registration Rights
Agreement. As a result of the filing and the effectiveness of the Registration
Statement and completion of the Exchange Offer, certain interest rate increases
on the Notes provided for in the Registration Rights Agreement will not become
payable by the Company. Following the completion of the Exchange Offer (except
as set forth in the paragraph immediately below), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market of the Old Notes could be adversely affected upon
completion of the Exchange Offer.
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving the New Notes, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a distribution of the New Notes,
(iii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the New
Notes and (iv) neither the holder nor any such other person is an "affiliate,"
as defined under Rule 405 promulgated under the Securities Act, of the Company.
Pursuant to the Registration Rights Agreement, the Company is required to file a
"shelf" registration statement for a continuous offering pursuant to Rule 415
under the Securities Act in respect of the Old Notes if (i) because of any
change in law or applicable interpretations of the staff of the Commission, the
Company is not permitted to effect the Exchange Offer, (ii) the Exchange Offer
is not consummated within 150 days of the Offering or the Registration Statement
related to this Exchange Offer is not declared effective within 120 days of the
Offering, (iii) any of the Initial Purchasers requests, (iv) any applicable law
or interpretations do not permit any holder of Old Notes to participate in the
Exchange Offer, (v) any holder of Old Notes participates in the Exchange Offer
and does not receive freely transferrable New Notes in exchange for Old Notes or
(vi) the Company so elects. In the event that the Company is obligated to file a
"shelf" registration statement, it will be required to keep such "shelf"
registration statement effective for at least three years. Other than as set
forth in this paragraph, no holder will have the right to participate in the
"shelf" registration statement nor otherwise to require that the Company
register such holder's shares of Old Notes under the Securities Act. See
"-- Procedures for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third-parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving such New Notes, whether or not
such person is the registered holder (other than any such holder or such other
person that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the New
Notes are acquired in the ordinary course of business
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<PAGE> 62
of the holder or such other person and neither the holder nor such other person
has an arrangement or understanding with any person to participate in the
distribution of such New Notes. Any holder who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes cannot rely on
this interpretation by the Commission's staff and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Each broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where the Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "Exchange Offer -- Purpose and Effect"), holders of Old
Notes not tendered will not have any further registration rights and those Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for a holder's Old Notes could be
adversely affected upon completion of the Exchange Offer if the holder does not
participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes have been registered under
the Securities Act and will not bear legends restricting their transfer. The New
Notes will evidence the same debt as the Old Notes and will be issued pursuant
to, and entitled to the benefits of, the Indenture pursuant to which the Old
Notes were issued.
As of July 31, 1998, the Old Notes representing $125,000,000 aggregate
principal amount were outstanding and there was one registered holder, a nominee
of DTC. This Prospectus, together with the Letter of Transmittal, is being sent
to such registered Holder and to others believed to have beneficial interests in
the Old Notes. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company. If any tendered Old
Notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"The Exchange Offer -- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Company shall keep the Exchange Offer open for at least 20 business
days (or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to holders of the Old Notes. The term "Expiration Date"
shall mean 5:00 p.m., New York City time, on , 1999, unless the
Company, in its reasonable discretion, extends the Exchange Offer, in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended. In order to extend the Exchange Offer, the
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<PAGE> 63
Company will issue a notice of any extension by press release or other public
announcement prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. The Company reserves the right,
in its reasonable discretion, (i) to delay accepting any Old Notes, to extend
the Exchange Offer or, if any of the conditions set forth under "The Exchange
Offer -- Conditions to the Exchange Offer" shall not have been satisfied, to
terminate the Exchange Offer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "The Exchange Offer -- Book Entry Transfer," to tender
in the Exchange Offer a holder must complete, sign, and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, prior to the Expiration
Date or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if that procedure is available, into the
Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration Instruction"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
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<PAGE> 64
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
the Company in its reasonable discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities, or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent, nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its reasonable discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer -- Conditions to the
Exchange Offer," to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions, or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the registered holder, (ii) neither the
holder nor any such other person is engaging in or intends to engage in a
distribution of such New Notes, (iii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes, and (iv) neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Company.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering Holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where the Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading
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<PAGE> 65
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date;
otherwise, such tenders are irrevocable.
For a withdrawal of a tender of Old Notes to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth on the back cover page
of this Prospectus prior to 5:00 p.m., New York City time, on the Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) be signed by the holder in the same
manner as the
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<PAGE> 66
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form, and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes that have been
tendered for exchange but that are not exchanged for any reason will be returned
to the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender, or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures under
"The Exchange Offer -- Procedures for Tendering" at any time on or prior to the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided above at any time
before the Expiration Date, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see "-- Withdrawal of Rights") or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn. The Company shall keep the Exchange Offer open
for at least 20 business days (or longer if required by applicable law,
including in connection with any material modification or waiver of the terms or
conditions of the Exchange Offer that requires such extension under applicable
law) after the date notice of the Exchange Offer is mailed to holders of Old
Notes.
In addition, the Company will not accept for exchange any Old Notes tendered,
and no New Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "TIA"). In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
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<PAGE> 67
EXCHANGE AGENT
All executed letters of Transmittal should be directed to the Exchange
Agent. Chase Bank of Texas, National Association has been appointed as Exchange
Agent for the Exchange Offer. Questions, requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
Deliver to:
Chase Bank of Texas, National Association, EXCHANGE AGENT
<TABLE>
<S> <C> <C>
By Registered or Certified By Overnight Courier: By Hand Delivery:
Mail:
600 Travis, Suite 1150 600 Travis, Suite 1150 600 Travis, Suite 1150
Houston, Texas 77002 Houston, Texas 77002 Houston, Texas 77002
Attention: Mauri J. Cowen Attention: Mauri J. Cowen Attention: Mauri J. Cowen
</TABLE>
Facsimile Transmission Number:
713/216-5476
---------------------
Confirm Receipt of Facsimile by Telephone:
713/216-6686
---------------------
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$210,000, which includes fees and expenses of the Exchange Agent, accounting,
legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
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<PAGE> 68
DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued under the Indenture (the "Indenture") dated as
of July 29, 1998, among the Company, the Subsidiary Guarantors and Chase Bank of
Texas, National Association, as Trustee (the "Trustee"). The following
statements are subject to the detailed provisions of the Indenture and are
qualified in their entirety by reference to the Indenture, including the terms
made a part thereof by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Capitalized terms used herein which are not otherwise defined
shall have the meaning assigned to them in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be issued in an aggregate principal amount of $125
million and will mature on August 1, 2008. Interest on the New Notes will accrue
at the rate per annum shown on the front cover of this Prospectus from July 29,
1998, or from the most recent date on which interest has been paid or provided
for, payable semi-annually to holders of record at the close of business on the
January 15 or July 15 (whether or not such day is a business day) immediately
preceding the interest payment date on February 1 and August 1 of each year
commencing February 1, 1999. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company maintained for such purpose in the Borough of Manhattan, The City of New
York (which initially shall be the corporate trust office of the Trustee at
Chase Manhattan Bank, 55 Water Street, Room 234, New York, New York 10041),
except that, at the option of the Company, payment of interest, if any, may be
made by check mailed to the registered holders of the Notes at their registered
addresses.
The New Notes will be issued only in fully registered form without coupons,
in denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer, exchange or redemption of Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.
GUARANTEES
Payment of the Notes is guaranteed by the Subsidiary Guarantors jointly and
severally, fully and unconditionally, on a senior subordinated basis. The
Subsidiary Guarantors are comprised of all of the direct and indirect
Subsidiaries of the Company. In addition, if any Restricted Subsidiary of the
Company becomes a guarantor or obligor in respect of any other Indebtedness of
the Company or any of the Restricted Subsidiaries, the Company shall cause such
Restricted Subsidiary to enter into a supplemental indenture pursuant to which
such Restricted Subsidiary shall agree to guarantee the Company's obligations
under the Notes. If the Company defaults in payment of the principal of,
premium, if any, or interest on the Notes, each of the Subsidiary Guarantors
will be unconditionally, jointly and severally obligated to duly and punctually
pay the same.
The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee
are limited to the maximum amount which, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor, and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee or pursuant to its contribution
obligations under the Indenture, will result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under Federal or state law. Each
Subsidiary Guarantor that makes a payment or distribution under its Subsidiary
Guarantee shall be entitled to a contribution from any other Subsidiary
Guarantor in a pro rata amount based on the net assets of each Subsidiary
Guarantor determined in accordance with GAAP.
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<PAGE> 69
Notwithstanding the foregoing, in certain circumstances a Subsidiary
Guarantee of a Subsidiary Guarantor may be released. The Company also may, at
any time, cause a Restricted Subsidiary to become a Subsidiary Guarantor by
executing and delivering a supplemental indenture providing for the guarantee of
payment of the Notes by such Restricted Subsidiary on the basis provided in the
Indenture.
RANKING
The New Notes will be unsecured, senior subordinated obligations of the
Company. The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness and will rank pari passu in right of payment with all
existing and future unsecured senior subordinated Indebtedness of the Company.
Upon the occurrence and during the continuance of any default in the
payment of principal of, premium, if any, or interest on any Senior
Indebtedness, beyond any applicable grace period with respect thereto (a
"Payment Default"), no payment or distribution of any assets of the Company of
any kind or character may be made on account of the Securities unless and until
such Payment Default has been cured, waived or has ceased to exist or such
Senior Indebtedness shall have been discharged or paid in full in cash, or the
benefits of this sentence shall have been waived in writing by or on behalf of
the holders of such Senior Indebtedness.
Upon the occurrence and during the continuance of any default (other than a
payment default) with respect to any Designated Senior Indebtedness pursuant to
which the maturity thereof may be accelerated (a "Non-payment Default") and
after the receipt by the Trustee and the Company from a Senior Representative of
written notice of such Non-Payment Default, no payment (other than payments
previously made pursuant to the provisions described under "-- Defeasance or
Covenant Defeasance of Indenture") or distribution of any assets of the Company
of any kind or character (other than common stock or securities convertible into
common stock and other than Indebtedness which is subordinated to the Designated
Senior Indebtedness at least to the same extent the Notes are subordinated to
such Designated Senior Indebtedness) may be made by the Company on account of
the principal of, premium, if any, or interest on, the Notes or on account of
the purchase, redemption, defeasance or other acquisition of, or in respect of,
the Notes for the period specified below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of
the Non-payment Default by the Trustee and the Company from a Senior
Representative and shall end on the earliest of (i) the 179th day after such
commencement, (ii) the date on which such Non-payment Default (and all other
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) is cured, waived or ceases to exist or on which such
Designated Senior Indebtedness is discharged or paid in full in cash or (iii)
the date on which such Payment Blockage Period (and all Non-payment Defaults as
to which notice is given after such Payment Blockage Period is initiated) shall
have been terminated by written notice to the Company or the Trustee from the
Senior Representative initiating such Payment Blockage Period, after which, in
the case of clauses (i), (ii) and (iii), the Company will promptly resume making
any and all required payments in respect of the Notes, including any missed
payments. In no event will a Payment Blockage Period extend beyond 179 days from
the date of the receipt by the Company or the Trustee of the notice initiating
such Payment Blockage Period (such 179-day period referred to as the "Initial
Period"). Any number of notices of Non-payment Defaults may be given during the
Initial Period; provided that during any period of 365 consecutive days only one
Payment Blockage Period, during which payment of principal of, or interest on,
the Notes may not be made, may commence and the duration of such period may not
exceed 179 days. No Non-payment Default with respect to Designated Senior
Indebtedness that existed or was continuing on the date of the commencement of
any Payment Blockage Period will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, whether or not within a period
of 365 consecutive days, unless such default has been cured or waived for a
period of not less than 90 consecutive days.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default."
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The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Company or
its assets, or any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary, or whether or not involving insolvency or
bankruptcy, or any assignment for the benefit of creditors or other marshaling
of assets or liabilities of the Company, all Senior Indebtedness must be paid in
full before any payment or distribution (excluding distributions of certain
permitted equity interests or subordinated securities) is made on account of the
principal of, premium, if any, or interest on the Notes or on account of the
purchase, redemption, defeasance or other acquisition of or in respect of the
Notes (other than payments previously made pursuant to the provisions described
under "-- Defeasance or Covenant Defeasance").
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full and
the Company may be unable to meet its obligations fully with respect to the
Notes.
Each Subsidiary Guarantee of a Subsidiary Guarantor will be an unsecured
senior subordinated obligation of such Subsidiary Guarantor, ranking pari passu
with, or senior in right of payment to, all other existing and future
Indebtedness of such Subsidiary Guarantor that is expressly subordinated to
Senior Guarantor Indebtedness. The Indebtedness evidenced by the Subsidiary
Guarantees will be subordinated to Senior Guarantor Indebtedness to
substantially the same extent as the Notes are subordinated to Senior
Indebtedness and during any period when payment on the Notes is blocked by
Designated Senior Indebtedness, payment on the Subsidiary Guarantees is
similarly blocked.
The Indenture limits, but does not prohibit, the incurrence by the Company
and its Subsidiaries of additional Indebtedness, and the Indenture prohibits the
incurrence by the Company of Indebtedness that is subordinated in right of
payment to any Senior Indebtedness of the Company and senior in right of payment
to the Notes.
At September 30, 1998, on a pro forma basis after giving effect to the
Financing Plan, the Company would have had $235.3 million of Indebtedness
outstanding, $95.8 million of which represented Senior Indebtedness. Although
the Indenture contains limitations on the amount of additional Indebtedness
which the Company may Incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness. See "-- Certain Covenants -- Limitation on Indebtedness."
OPTIONAL REDEMPTION
The Notes will be redeemable, in whole or in part, at any time on or after
August 1, 2003, at the option of the Company, on not less than 30 and not more
than 60 days' notice prior to the redemption date by first class mail to each
holder of Notes at the following redemption prices (expressed as percentages of
the principal amount), if redeemed during the twelve-month period beginning with
August 1 of the year indicated below, in each case together with accrued and
unpaid interest, if any, thereon to the date of redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003...................................................... 104.94%
2004...................................................... 103.29
2005...................................................... 101.65
2006 and thereafter....................................... 100.00
</TABLE>
In addition, at any time and from time to time, on or prior to August 1,
2001, the Company may redeem up to 35% of the original principal amount of the
Notes with the Net Cash Proceeds of one or more Equity Offerings of CCI or the
Company or of a Strategic Equity Investment, at a redemption price in cash equal
to 109.875% of the principal to be redeemed plus accrued and unpaid interest, if
any, to the date of redemption;
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<PAGE> 71
provided that at least 65% of the original principal amount of Notes remains
outstanding immediately after each such redemption. Any such redemption will be
required to occur within 45 days following the closing of any such Equity
Offering or Strategic Equity Investment.
Upon the occurrence of a Change of Control, the Company may redeem the
Notes in cash, in whole but not in part, at a redemption price equal to the
principal amount thereof plus accrued and unpaid interest to the date of
redemption plus the Applicable Premium. Notice of redemption of the Notes
pursuant to this paragraph shall be mailed to holders of the Notes not more than
30 days following the occurrence of a Change of Control. The Company may not
redeem Notes pursuant to this paragraph if it has made a Change of Control Offer
with respect to such Change of Control.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed, if the Notes are listed on a national securities exchange,
in accordance with the rules of such exchange or, if the Notes are not so
listed, on a pro rata basis or by lot or by such other method that the Trustee
deems to be fair and equitable to holders. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed and a new Note or Notes in
principal amount equal to the unredeemed principal portion thereof will be
issued; provided, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
shall have deposited with the Paying Agent for the Notes funds in satisfaction
of the applicable redemption price pursuant to the Indenture.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
The Indenture provides that upon the occurrence of a Change of Control,
each holder of Notes shall have the right to require the Company to repurchase
all or any part of such holder's Notes pursuant to an offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, thereon to the date of
repurchase (the "Change of Control Payment").
A "Change of Control" means the occurrence of any of the following events:
(i) any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise), directly or indirectly, of more than 35% of the total
voting power of the then outstanding Voting Equity Interest of CCI; (ii) CCI or
the Company consolidates with, or merges with or into, another Person (other
than a Wholly Owned Restricted Subsidiary) or the Company or any its
Subsidiaries sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of the assets of the Company and its Subsidiaries
(determined on a consolidated basis) to any Person (other than the Company or
any Wholly Owned Restricted Subsidiary); (iii) CCI or the Company is liquidated
or dissolved or adopts a plan of liquidation or dissolution (whether or not
otherwise in compliance with the provisions of the Indenture); (iv) a majority
of the members of the Board of Directors of CCI or the Company shall consist of
Persons who are not Continuing Members; or (v) CCI ceases to own 100% of the
issued and outstanding Equity Interest in the Company.
Within 30 days of the occurrence of a Change of Control, the Company shall
send by first-class mail, postage prepaid, to the Trustee and to each holder of
the Notes, at the address appearing in the register of Notes maintained by the
Registrar, a notice stating: (i) that the Change of Control Offer is being made
pursuant to this covenant and that all Notes tendered will be accepted for
payment; (2) the purchase price and the purchase date, which shall be a business
day no earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"); (3) that any Note not tendered
will continue to accrue interest; (4) that, unless the Company defaults in the
payment of the Change of Control Payment,
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any Notes accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date; (5) that
holders accepting the offer to have their Notes purchased pursuant to a Change
of Control Offer will be required to surrender the Notes to the Paying Agent at
the address specified in the notice prior to the close of business on the
business day preceding the Change of Control Payment Date; (6) that holders will
be entitled to withdraw their acceptance if the Paying Agent receives, not later
than the close of business on the third Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Notes
delivered for purchase, and a statement that such holder is withdrawing its
election to have such Notes purchased; (7) that holders whose Notes are being
purchased only in part will be issued Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, provided that each Note purchased
and each such New Note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof; (8) any other procedures
that a holder must follow to accept a Change of Control Offer or effect
withdrawal of such acceptance; and (9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful (i) accept for payment Notes or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof. The Company will send to the Trustee and the holders of Notes
on or as soon as practicable after the Change of Control Payment Date a notice
setting forth the results of the Change of Control Offer.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the time and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes or portions thereof validly tendered and not withdrawn under such Change
of Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant.
The definition of Change of Control includes a phrase relating to the sale,
assignment, conveyance, transfer, lease or other disposition of "all or
substantially all" of the assets of the Company and its Subsidiaries. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is not a precise or established definition of the phrase under
applicable law. Accordingly, the ability of a holder of the Notes to require the
Company to repurchase such Notes as a result of a sale, assignment, conveyance,
transfer, lease or other disposition of less than all of the assets of the
Company and its Subsidiaries to another Person or group may be uncertain.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Payment for all of the Notes that might be delivered by holders of the Notes
seeking to accept the Change of Control Offer. The failure of the Company to
make or consummate the Change of Control Offer or pay the Change of Control
Payment when due will give the Trustee and the holders of the Notes the rights
described under "Events of Default."
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The provisions of the Indenture will not afford holders of the Notes the
right to require the Company to repurchase the Notes in the event of a highly
leveraged transaction or certain transactions with the Company's
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management or its Affiliates, including a reorganization, restructuring, merger
or similar transaction (including, in certain circumstances, an acquisition of
the Company by management or its affiliates) involving the Company that may
adversely affect holders of the Notes, if such transaction is not a transaction
defined as a Change of Control. A transaction involving the Company's management
or its Affiliates, or a transaction involving a recapitalization of the Company,
will result in a Change of Control if it is the type of transaction specified by
such definition.
Asset Sales
The Indenture provides that the Company shall not, and shall not permit any
Restricted Subsidiary to, consummate an Asset Sale unless (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at the
time of such sale or other disposition at least equal to the fair market value
thereof, as determined in good faith by the Board of Directors of the Company
and evidenced in a board resolution; and (ii) not less than 75% of the
consideration received by the Company or such Restricted Subsidiary, as the case
may be, is in the form of cash or Cash Equivalents.
Within 365 days after the receipt of any Net Available Cash from an Asset
Sale, the Company or the applicable Restricted Subsidiary may apply such Net
Available Cash to: (A) prepay, repay, redeem or purchase Senior Indebtedness or
Indebtedness of a Subsidiary Guarantor (in each case other than Indebtedness
owed to the Company or an Affiliate of the Company); (B) acquire all or
substantially all of the assets of a Related Business; (C) acquire Voting Stock
of a Related Business from a Person that is not a Subsidiary of the Company;
provided, that, (x) after giving effect thereto, the Company or its Restricted
Subsidiary owns a majority of such Voting Stock and (y) such acquisition is
otherwise made in accordance with the Indenture, including, without limitation,
the "Limitation on Restricted Payments" covenant; or (D) make a capital
expenditure or acquire other long-term assets that are used or useful in a
Related Business. To the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B), (C) or (D) ("Excess Proceeds"),
the Company shall make an Offer to Holders of the Notes to purchase Notes and an
offer to holders of Pari Passu Indebtedness to repurchase such Indebtedness
pursuant to and subject to the conditions set forth below.
Notwithstanding the foregoing provisions, the Company and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Sales which are not applied in accordance with this covenant exceeds $10
million. Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption by the transferee of Indebtedness of the Company (other than
Indebtedness that is subordinated to the Notes and other than any Disqualified
Equity Interest of the Company) or Indebtedness of any Restricted Subsidiary
(other than Indebtedness that is subordinated to the Subsidiary Guarantee of
such Restricted Subsidiary and any other Disqualified Equity Interest of such
Restricted Subsidiary) and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Sale; (y) securities received by the Company or any Restricted Subsidiary from
the transferee that are converted by the Company or such Restricted Subsidiary
into cash within 20 days of the applicable Asset Sale (to the extent of the cash
received); and (z) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any Subsidiary Guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or any such Restricted Subsidiary from
further liability.
When the aggregate amount of Excess Proceeds exceeds $10 million or more,
the Company will apply the Excess Proceeds to the repayment of the Notes and any
other Pari Passu Indebtedness outstanding with similar provisions requiring the
Company to make an offer to purchase such Indebtedness with the proceeds from
any Asset Sale as follows: (A) the Company will make an offer to purchase (an
"Offer") from all holders of the Notes in accordance with the procedures set
forth in the Indenture in the maximum principal
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amount (expressed as a multiple of $1,000) of Notes that may be purchased out of
an amount (the "Note Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Notes, and the denominator of which is the sum of the outstanding
principal amount of the Notes and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price (as
defined herein) of all Notes tendered) and (B) to the extent required by such
Pari Passu Indebtedness to permanently reduce the principal amount of such Pari
Passu Indebtedness, the Company will make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount
(the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over
the Note Amount; provided that in no event will the Company be required to make
a Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of
such Pari Passu Indebtedness. The offer price for the Notes will be payable in
cash in an amount equal to 100% of the principal amount of the Notes plus
accrued and unpaid interest, if any, to the date (the "Offer Date") such Offer
is consummated (the "Offered Price"), in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate Offered Price of the
Notes tendered pursuant to the Offer is less than the Note Amount relating
thereto or the aggregate amount of Pari Passu Indebtedness that is purchased in
a Pari Passu Offer is less than the Pari Passu Debt Amount, the Company may use
any remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes and Pari Passu Indebtedness surrendered by holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes to be purchased on a pro rata basis. Upon the completion of the purchase
of all the Notes tendered pursuant to an Offer and the completion of a Pari
Passu Offer, the amount of Net Available Cash, if any shall be reset at zero.
If the Company is required to make an Offer, the Company shall mail, within
30 days following the Reinvestment Date, a notice to the holders of Notes
stating, among other things: (1) that such holders have the right to require the
Company to apply the Excess Proceeds to repurchase such Notes at a purchase
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase; (2) the purchase date, which
shall be no earlier than 30 days and not later than 60 days from the date such
notice is mailed; (3) the instructions, determined by the Company, that each
holder must follow in order to have such Notes repurchased; and (4) the
calculations used in determining the amount of Excess Proceeds to be applied to
the repurchase of such Notes.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a default
in the payment of principal (or premium, if any, on) of any Note when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by the Company to comply with its
obligations under "Certain Covenants -- Merger or Sale of Assets," (iv) the
failure by the Company to comply for 30 days after notice with any of its
obligations under the covenants described under "Repurchase at the Option of the
Holders -- Change of Control" or "-- Certain Covenants" (in each case, other
than a failure to purchase Notes), (v) the failure by the Company to comply for
60 days after notice with its other agreements contained in the Indenture, (vi)
the failure by the Company or any Restricted Subsidiary of the Company to pay
any Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated exceeds
$5 million or its foreign currency equivalent (the "cross acceleration
provision"), (vii) failure of any Subsidiary Guarantor to maintain in full force
and effect its Subsidiary Guarantee, (viii) certain events of bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary of the
Company (the "bankruptcy provisions") or (ix) any judgment or decree for the
payment of money in excess of $5 million is rendered against the Company or any
Restricted Subsidiary of the Company and either (A) an enforcement proceeding
has been commenced by any creditor upon such judgment or decree or (B) such
judgment or decree remains
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outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days after notice (the "judgment default
provision").
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, the Trustee or the
holders of not less than 25% in principal amount of the Notes then outstanding
may declare the principal of all the Notes to be due and payable immediately. In
case an Event of Default resulting from certain events of bankruptcy, insolvency
or reorganization shall occur, such amount with respect to all of the Notes
shall be due and payable immediately without any declaration or other act on the
part of the Trustee or the holders of the Notes.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes
then outstanding, (iii) the principal of and premium, if any, on any Notes then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes and (iv) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate borne by the Notes; (b) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction; and (c) all Events of
Default, other than the non-declaration of acceleration, have been cured or
waived as provided in the Indenture. No such rescission shall affect any
subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the Notes outstanding may on behalf of the holders of all outstanding Notes
waive any past default under the Indenture and its consequences, except a
default (i) in the payment of the principal of, premium, if any, or interest on
any Note (which may only be waived with the consent of each holder of Notes
effected) or (ii) in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each Note affected by such modification or amendment.
No holder of any of the Notes has any right to institute any proceedings
with respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not, however,
apply to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
The Company is required to notify the Trustee within five business days of
the occurrence of any Default. The Company is required to deliver to the
Trustee, on or before a date not more than 60 days after the end of each fiscal
quarter and not more than 120 days after the end of each fiscal year, a written
statement as to compliance with the Indenture, including whether or not any
Default has occurred.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee subject to certain
limitations specified in the Indenture. Subject to the provisions of the
Indenture relating to the duties of the Trustee, in case an Event of Default
shall occur and be continuing, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the holders of the Notes, unless such holders have offered
to the Trustee reasonable indemnity.
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CERTAIN COVENANTS
Limitation on Restricted Payments
The Indenture provides that, so long as any of the Notes remain
outstanding, the Company shall not, and shall not permit any Restricted
Subsidiary to, make any Restricted Payment if (i) immediately before or
immediately after giving effect to such Restricted Payment, a Default or Event
of Default shall have occurred and be continuing or shall occur as a consequence
of such Restricted Payment; (ii) immediately after giving effect to such
Restricted Payment, the Company would not be able to incur $1.00 of additional
Indebtedness under the Debt to Operating Cash Flow Ratio of the first paragraph
of "Limitation on Indebtedness" below; or (iii) immediately after giving effect
to any such Restricted Payment, the aggregate of all Restricted Payments which
shall have been made on or after the date of the Indenture (the amount of any
Restricted Payment, if other than cash, to be based upon the fair market value
thereof on the date of such Restricted Payment) would exceed an amount equal to
the difference between (a) the Cumulative Credit and (b) 1.4 times Cumulative
Interest Expense.
"Restricted Payment" means (i) any dividend (whether made in cash, property
or securities) on or with respect to any Equity Interests of the Company or of
any Restricted Subsidiary (other than any dividend made to the Company or
another Wholly Owned Restricted Subsidiary or any dividend payable in Equity
Interests of the Company or any Restricted Subsidiaries); or (ii) any
distribution (whether made in cash, property or securities) on or with respect
to any Equity Interests of the Company or of any Restricted Subsidiary (other
than any distribution made to the Company or another Wholly Owned Subsidiary or
any distribution payable in Equity Interests of the Company or any Restricted
Subsidiary); or (iii) any redemption, repurchase, retirement or other direct or
indirect acquisition of any Equity Interests of the Company, or any warrants,
rights or options to purchase or acquire any such Equity Interests or any
securities exchangeable for or convertible into any such Equity Interests; or
(iv) any redemption, repurchase, retirement or other direct or indirect
acquisition for value or other payment of principal, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, of any
Subordinated Obligations; or (v) any Investment (other than a Permitted
Investment).
The provisions of the first paragraph of this covenant shall not prevent
(i) the retirement of any of the Company's Equity Interests in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company or an employee stock ownership plan or to a trust
established by the Company or any Subsidiary of the Company for the benefit of
its employees) of Equity Interests of the Company (other than any Disqualified
Equity Interest), provided that the Net Cash Proceeds from the issuance are
excluded from clause (i) of the definition of Cumulative Credit; (ii) the
payment of any dividend or distribution on, or redemption of Equity Interests
within 60 days after the date of declaration of such dividend or distribution or
the giving of formal notice of such redemption, if at the date of such
declaration or giving of such formal notice such payment or redemption would
comply with the first paragraph of this covenant and the other provisions of the
Indenture; (iii) investments constituting Restricted Payments made as a result
of the receipt of non-cash consideration from any Asset Sale made pursuant to
and in compliance with the provisions described under "Repurchase at the Option
of Holders -- Asset Sales" above; (iv) the redemption, repurchase, retirement,
defeasance or other acquisition of any Subordinated Obligations in exchange for,
or out of Net Cash Proceeds of the substantially concurrent sale (other than to
a Subsidiary of the Company or any employee stock ownership plan or to a trust
established by the Company or any Subsidiary of the Company (for the benefit of
its employees)) of Equity Interests of the Company (other than any Disqualified
Equity Interest); and (v) the making and consummation of (A) an Offer in
accordance with the provisions of the Indenture with any Excess Proceeds or (B)
a Change of Control Offer with respect to the Notes in accordance with the
provisions of the Indenture; provided, however, that in the case of clause (ii),
no Default or Event of Default shall have occurred and be continuing at the time
of such Restricted Payment or as a result thereof. In determining the aggregate
amount of Restricted Payments made on or after the date of the Indenture,
Restricted Payments made pursuant to clause (ii) shall be included in such
calculation.
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Limitation on Indebtedness
The Indenture provides that the Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) except for Permitted Indebtedness; provided,
however, that the Company or any Restricted Subsidiary which is a Subsidiary
Guarantor may incur Indebtedness if, at the time of and immediately after giving
pro forma effect to such incurrence of Indebtedness and the application of the
proceeds therefrom, the Debt to Operating Cash Flow Ratio would be less than or
equal to 7.0 to 1.0 until June 30, 2000, and 6.0 to 1.0 thereafter.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be given
independent effect:
(a) Indebtedness under the Notes and the Indenture;
(b) Indebtedness of the Company and the Restricted Subsidiaries
outstanding on the Issuance Date and listed on a schedule to the Indenture,
other than Indebtedness described in clause (a), (c), (d) or (e) of this
paragraph;
(c) Indebtedness of (x) any Wholly Owned Restricted Subsidiary owed to
or issued to and held by the Company or any Restricted Subsidiary and (y)
the Company owed to and held by any Wholly Owned Restricted Subsidiary
which is unsecured and subordinated in right of payment to the payment and
performance of the Company's obligations under the Indenture and the Notes;
provided, however, that an incurrence of Indebtedness that is not permitted
by this clause (c) shall be deemed to have occurred upon (i) any sale or
other disposition of any Indebtedness of the Company or a Restricted
Subsidiary referred to in this clause (c) to any Person (other than the
Company or a Wholly Owned Restricted Subsidiary) such that such Restricted
Subsidiary ceases to be a Restricted Subsidiary or (ii) any designation of
a Restricted Subsidiary which holds Indebtedness of the Company as an
Unrestricted Subsidiary;
(d) Guarantees by any Restricted Subsidiary of Indebtedness of the
Company permitted in accordance with the provisions of the Indenture;
(e) Indebtedness of the Company and any Subsidiary Guarantor under the
Senior Credit Agreement in the aggregate principal amount at any one time
outstanding not to exceed $125 million;
(f) Indebtedness of the Company or any Subsidiary Guarantor to the
extent representing a replacement, renewal, refinancing or extension
(collectively, a "refinancing") of outstanding Indebtedness of the Company
or any Subsidiary Guarantor, as the case may be, incurred in compliance
with clause (a), (b), (e) or (g) of this paragraph of this covenant;
provided, however, that (i) Indebtedness of the Company may not be
refinanced under this clause (f) with Indebtedness of any Restricted
Subsidiary, (ii) any such refinancing shall not exceed the sum of the
principal amount or liquidation preference or redemption payment value (or,
if such Indebtedness provides for a lesser amount to be due and payable
upon a declaration of acceleration thereof at the time of such refinancing,
an amount no greater than such lesser amount) of the Indebtedness being
refinanced plus the amount of accrued interest or dividends thereon and
such reasonable fees and expenses incurred in connection therewith, (iii)
Indebtedness representing a refinancing of Indebtedness of the Company
shall not mature prior to the stated maturity of the Indebtedness
refinanced and shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced, (iv) Subordinated Obligations of the Company may only be
refinanced with Subordinated Obligations of the Company, and (v) Other Pari
Passu Debt which is unsecured may only be refinanced with unsecured
Indebtedness, which is either Other Pari Passu Debt or Subordinated
Obligations;
(g) Indebtedness of the Company or a Subsidiary Guarantor represented
by Capitalized Lease Obligations, mortgage financings, performance bonds,
purchase money obligations or letters of credit, in each case incurred for
the purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Subsidiary Guarantor in an aggregate
principal amount not to exceed $10 million at any time outstanding;
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(h) Indebtedness incurred and outstanding on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other than
Indebtedness incurred in connection with, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company); provided,
however, that on the date of such acquisition and after giving effect
thereto, the Debt to Operating Cash Flow Ratio would have been less than or
equal to the Debt to Operating Cash Flow Ratio immediately prior thereto;
(i) Indebtedness of the Company and any Restricted Subsidiary under a
Hedging Agreement related to floating interest on Indebtedness under the
Senior Credit Agreement provided that such Hedging Agreement is designed
solely to protect against fluctuations in interest rates and does not
increase the Indebtedness of the obligor outstanding at any time other than
as a result of fluctuations in interest rates; and
(j) In addition to any Indebtedness described in clauses (a) through
(i) above, Indebtedness of the Company or any of the Subsidiary Guarantors
so long as the aggregate principal amount of all such indebtedness incurred
pursuant to this clause (j) does not exceed $5 million at any one time
outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (a) through (i) above
or is entitled to be incurred pursuant to the first paragraph of this covenant,
the Company shall classify such item of Indebtedness in any manner that complies
with this covenant and such item of Indebtedness shall be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
hereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction or series of transactions (including the purchase,
sale, lease or exchange of any property, employee compensation arrangements or
the rendering of any service) with any Affiliate, officers or directors of the
Company (an "Affiliate Transaction") unless (i) the terms of such transaction
are no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $1.0
million, the terms of such transaction are set forth in writing and shall have
been approved by a majority of the members of the Board of Directors having no
personal stake in such Affiliate Transaction (and such majority determines that
such Affiliate Transaction satisfies the criteria in clause (i) above) and (iii)
in the event such Affiliate Transaction involves an aggregate amount in excess
of $10 million, the Company has received a written opinion from a nationally
recognized independent investment banking firm, or nationally recognized
accounting or appraisal firm, that such Affiliate Transaction is fair to the
Company and its Restricted Subsidiaries from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be made pursuant to the covenant "Limitation
on Restricted Payments," (ii) any issuance of securities, or other payments,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment arrangements, stock options and stock ownership plans approved by
the Board of Directors and otherwise permitted under the Indenture, (iii) the
grant of stock options or similar rights to employees and directors of the
Company pursuant to plans approved by the Board of Directors, and otherwise
permitted under the Indenture (iv) loans or advances to employees in the
ordinary course of business in accordance with the past practices of the Company
or its Restricted Subsidiaries, but in any event not to exceed $1.0 million in
the aggregate outstanding at any one time, (v) the payment of reasonable fees to
directors of the Company and its Restricted Subsidiaries who are not employees
of the Company or its Restricted Subsidiaries, (vi) any transaction between the
Company and a Wholly Owed Subsidiary or between Wholly Owned Subsidiaries, and
(vii) the payment of Investment Banking Fees.
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Limitation on Sale or Issuance of Capital Stock of Restricted Subsidiaries.
The Company (a) will not, and will not permit any Restricted Subsidiary of
the Company to, directly or indirectly, transfer, convey, sell, lease or
otherwise dispose of any Equity Interest of any Restricted Subsidiary to any
Person (other than to the Company or a Wholly Owned Restricted Subsidiary),
unless (i) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interest of such Restricted Subsidiary and (ii) the Net Cash Proceeds
from such transfer conveyance, sale, lease or other disposition are applied in
accordance with the provision described above under "Repurchase at the Option of
the Holders -- Asset Sales" and (b) will not permit any Restricted Subsidiary to
issue any of its Equity Interest (other than, if required under applicable law,
shares of its Equity Interest constituting directors' qualifying shares) to any
Person other than to the Company or Wholly Owned Restricted Subsidiary.
Limitation on Sale/Leaseback Transactions.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale/Leaseback Transaction with respect to any property unless
(i) the Company or such Restricted Subsidiary would be entitled to (A) incur
Indebtedness in an amount equal to the Attributable Indebtedness with respect to
such Sale/Leaseback Transaction pursuant to the covenant described under
"-- Limitation on Indebtedness" and (B) create a Lien on such property securing
such Attributable Indebtedness without equally and ratably securing the New
Notes pursuant to the covenant described under "-- Limitations on Liens," (ii)
the net cash proceeds received by the Company or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
value (as determined in good faith by the Board of Directors of the Company and
certified in an Officers' Certificate to the Trustee) of such property and (iii)
the transfer of such property is permitted by, and the Company or such
Restricted Subsidiary applies the proceeds of such transaction in compliance
with, the covenant described under "Repurchase at the Option of the Holders --
Asset Sales."
Limitation on Liens
The Indenture provides that the Company shall not, and will not permit any
Restricted Subsidiary to directly or indirectly incur any Indebtedness secured
by a Lien against or on any of its property or assets now owned or hereafter
acquired by the Company or any Restricted Subsidiary unless contemporaneously
therewith effective provision is made to secure the Notes equally and ratably
with such secured Indebtedness. This restriction does not, however, apply to
Indebtedness secured by (i) Liens securing the Indebtedness under the Senior
Credit Agreement, (ii) Liens, if any, in effect on the date of the Indenture;
(iii) Liens in favor of governmental bodies to secure progress or advance
payments; (iv) Liens on Equity Interests or Indebtedness existing at the time of
the acquisition thereof (including acquisition through merger or consolidation),
provided that such Liens were not incurred in anticipation of such acquisition;
(v) Liens securing the Notes; (vi) other Liens securing Indebtedness of the
Company in an amount not to exceed $5 million at any time outstanding; (vii)
Other Permitted Liens; and (viii) any extension, renewal or replacement of any
Lien referred to in the foregoing clauses (i) through (vii), inclusive but only
to the extent such Liens do not extend to any other property or assets (other
than improvements).
Limitation on Guarantees of Certain Indebtedness
The Indenture provides that the Company shall not, (a) permit any
Restricted Subsidiary to guarantee any Indebtedness of the Company other than
the Notes (the "Other Indebtedness"), or (b) pledge any intercompany
Indebtedness representing obligations of any of its Restricted Subsidiaries to
secure the payment of Other Indebtedness, in each case unless such Restricted
Subsidiary, the Company and the Trustee execute and deliver a supplemental
indenture causing such Restricted Subsidiary to guarantee the Company's
obligations under the Indenture and the Notes to the same extent that such
Restricted Subsidiary guaranteed the Company's obligations under the Other
Indebtedness (including waiver of subrogation, if any except that (A) such
guarantee need not be secured unless required pursuant to "-- Limitation on
Liens" and (B) if such Indebtedness is by its terms expressly subordinated to
the Notes, any such assumption, guarantee or other liability of such Restricted
Subsidiary with respect to such Indebtedness shall be subordinated to such
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Restricted Subsidiary's guarantee of the Notes at least to the same extent as
such Indebtedness is subordinated to the Notes). Thereafter, such Restricted
Subsidiary shall be a Subsidiary Guarantor for all purposes of the Indenture.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary of the New Notes shall provide by its terms that it (and all Liens
securing the same) shall be automatically and unconditionally released and
discharged upon any sale, exchange or transfer, to any Person not an Affiliate
of the Company, of all of the Company's Equity Interest in, or all or
substantially all the assets of, such Restricted Subsidiary, which transaction
is in compliance with the terms of the Indenture and such Restricted Subsidiary
is released from all guarantees, if any, by it of other Indebtedness of the
Company or any Restricted Subsidiaries and (with respect to any Subsidiary
Guarantees created after the date of the Indenture) the release by the holders
of the Indebtedness of the Company described in clause (a) above of their
security interest or their guarantee by such Restricted Subsidiary (including
any deemed release upon payment in full of all obligations under such
Indebtedness), at such time as (A) no other Indebtedness of the Company has been
secured or guaranteed by such Restricted Subsidiary, as the case may be, or (B)
the holders of all such other Indebtedness which is secured or guaranteed by
such Restricted Subsidiary also release their security interest in or guarantee
by such Restricted Subsidiary (including any deemed release upon payment in full
of all obligations under such Indebtedness).
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to (a) pay dividends in
cash or otherwise or make any other distributions to the Company or any
Restricted Subsidiary on its Equity Interests; (b) pay any Indebtedness owed to
the Company or any Restricted Subsidiary; (c) make loans or advances or
guarantee any such loans or advances, to the Company or any Restricted
Subsidiary; (d) transfer any of its properties or assets to the Company or any
Restricted Subsidiary; (e) grant Liens on the assets of the Company or any
Restricted Subsidiary in favor of the holders of the Notes; or (f) guarantee the
Notes or any renewals or refinancings thereof (any of the actions described in
clauses (a) through (f) above is referred to herein as a "Specified Action"),
except for (i) such encumbrances or restrictions arising by reason of Acquired
Indebtedness of any Restricted Subsidiary existing at the time such Person
became a Restricted Subsidiary, provided that such encumbrances or restrictions
were not created in anticipation of such Person becoming a Restricted Subsidiary
and are not applicable to the Company or any other Restricted Subsidiary, (ii)
such encumbrances or restrictions arising under refinancing indebtedness
permitted by clause (f) of the second paragraph under "-- Limitation on
Indebtedness" above; provided that the terms and conditions of any such
restrictions are not less favorable to the holders of Notes than those under the
Indebtedness being refinanced, (iii) customary provisions restricting the
assignment of any contract of the Company or any Restricted Subsidiary, (iv)
with respect to clause (d) above, restrictions in security agreements or
mortgages securing Indebtedness of a Restricted Subsidiary to the extent the
restriction restricts the transfer of property subject to such security
agreement or mortgage; (v) restrictions pursuant to the Senior Credit Agreement;
and (vi) restrictions pursuant to the Notes and the related Indenture.
Limitation on Senior Subordinated Indebtedness. The Indenture provides that
(i) the Company shall not, directly or indirectly, incur any Indebtedness that
by its terms would expressly rank senior in right of payment to the Notes and
expressly rank subordinate in right of payment to any Senior Indebtedness; and
(ii) the Company shall not permit any Subsidiary Guarantor to and no Subsidiary
Guarantor will, directly or indirectly, incur any Indebtedness that by its terms
would expressly rank senior in right of payment to the Subsidiary Guarantee of
such Subsidiary Guarantor and expressly rank subordinate in right of payment to
any Senior Guarantor Indebtedness of such Subsidiary Guarantor.
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Limitation on Unrestricted Subsidiaries. The Company may designate after
the Issuance Date any Subsidiary (other than a Subsidiary Guarantor) as an
"Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the greater of (1) the net book value of the Company's
interest in such Subsidiary calculated in accordance with GAAP or (2) the
Fair Market Value of the Company's interest in such Subsidiary as
determined in good faith by the Company's board of directors;
(c) the Company would be permitted under the Indenture to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "-- Limitation on Indebtedness" at the time of
such Designation (assuming the effectiveness of such Designation);
(d) such Unrestricted Subsidiary does not own any Equity Interest in
any Restricted Subsidiary of the Company which is not simultaneously being
designated an Unrestricted Subsidiary;
(e) such Unrestricted Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness, provided that an Unrestricted Subsidiary may
provide a Subsidiary Guarantee for the Notes; and
(f) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with the Company or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company or, in the event such
condition is not satisfied, the value of such agreement, contract,
arrangement or understanding to such Unrestricted Subsidiary shall be
deemed a Restricted Payment.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"-- Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
The Indenture also provides that the Company shall not and shall not cause
or permit any Restricted Subsidiary to at any time (x) provide credit support
for, or subject any of its property or assets (other than the Equity Interest of
any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any
Unrestricted Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness) (other than permitted Investments in Unrestricted
Subsidiaries) or (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary. For purposes of the foregoing, the Designation of a
Subsidiary of the Company as an Unrestricted Subsidiary shall be deemed to be
the designation of all of the Subsidiaries of such Subsidiary as Unrestricted
Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture; and
(c) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding (other than Indebtedness that would be Permitted
Indebtedness), immediately after giving effect to such proposed Revocation,
and after giving pro forma effect to the incurrence of any such
Indebtedness of such
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redesignated Subsidiary as if such Indebtedness was incurred on the date of
the Revocation, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under "-- Limitation on Indebtedness."
All Designations and Revocations must be evidenced by a resolution of the
board of directors of the Company delivered to the Trustee certifying compliance
with the foregoing provisions.
Reports
The Indenture provides that, whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act or any successor provision thereto,
the Company and each Subsidiary Guarantor shall file with the SEC (if permitted
by SEC practice and applicable law and regulations) so long as the Notes are
outstanding the annual reports, quarterly reports and other periodic reports
which the Company and each Subsidiary Guarantor would have been required to file
with the SEC pursuant to Section 13(a) or 15(d) or any successor provision
thereto if the Company and each Subsidiary Guarantor was so subject on or prior
to the respective dates (the "Required Filing Dates") by which the Company and
each Subsidiary Guarantor would have been required to file such documents if the
Company and each Subsidiary Guarantor was so subject. The Company and each
Subsidiary Guarantor shall also in any event (a) within 15 days of each Required
Filing Date (whether or not permitted or required to be filed with the SEC) (i)
transmit or cause to be transmitted by mail to all holders of Notes, at such
holder's address appearing in the register maintained by the Registrar, without
cost to such holders, and (ii) file with the Trustee, copies of the annual
reports, quarterly reports and other documents which the Company and each
Subsidiary Guarantor are required to file with the SEC pursuant to the preceding
sentence, or if such filing is not so permitted, information and data of a
similar nature, and (b) if, notwithstanding the preceding sentence, filing such
documents by the Company and each Subsidiary Guarantor with the SEC is not
permitted by SEC practice or applicable law or regulations, promptly upon
written request supply copies of such documents to any holder of Notes. The
Company shall not be obligated to file any such reports with the SEC if the SEC
does not permit such filings for all companies similarly situated other than due
to any action or inaction by the Company. The Company will also comply with
Section 314(a) of the TIA. In addition, for so long as any Notes remain
outstanding and prior to the later of the consummation of the Exchange Offer and
the effectiveness of the Shelf Registration Statement, if required, the Company
and each Subsidiary Guarantor shall furnish to holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Merger or Sales of Assets
The Indenture provides that the Company shall not, in a single transaction
or through a series of related transactions, consolidate or merge with or into,
or sell, assign, convey, lease, transfer or otherwise dispose of all or
substantially all of its assets to, another Person or a group of Persons, or
permit any Restricted Subsidiary to do so if such transaction would result in
the transfer of all of the assets of the Company on a consolidated basis unless
(i) either (A) the Company shall be the continuing Person, or (B) the Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which any such transfer shall have been made, is a corporation,
limited liability company or limited partnership organized and existing under
the laws of the United States, any State thereof or the District of Columbia;
(ii) the surviving Person (if other than the Company) expressly assumes by
supplemental indenture all the obligations of the Company under the Notes and
the Indenture; (iii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iv)
immediately after giving effect to such transaction, the surviving Person would
be able to incur $1.00 of additional Indebtedness under the Debt to Operating
Cash Flow Ratio of the first paragraph of "-- Limitation of Indebtedness" above;
and (v) the Company shall have delivered to the Trustee prior to the proposed
transaction an Officers' Certificate and an Opinion of Counsel, each stating
that the proposed consolidation, merger or transfer and such supplemental
indenture will comply with the Indenture.
In addition, the Indenture will provide that each Subsidiary Guarantor will
not, and the Company will not permit a Subsidiary Guarantor to, in a single
transaction or through a series of related transactions, consolidate
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with or merge with or into any other Person (other than the Company or any
Subsidiary Guarantor) or sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets to any Person
or group of Persons (other than the Company or any Subsidiary Guarantor), unless
conditions similar to those described above are satisfied.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the two immediately preceding paragraphs
in which the Company or any Subsidiary Guarantor, as the case may be, is not the
continuing corporation, the successor Person formed or remaining or to which
such transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Subsidiary Guarantor, as the case
may be, and the Company or any Subsidiary Guarantor, as the case may be, would
be discharged from obligations and covenants under the Indenture and the Notes
or its Subordinated Subsidiary Guarantee, as the case may be, and the
Registration Rights Agreement.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition from such Person and not incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition.
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company; (ii) any spouse, immediate family member or other
relative who has the same principal residence as any Person described in clause
(i) above; (iii) any trust in which any such Persons described in clauses (i)
and (ii) above has a beneficial interest; and (iv) any corporation or other
organization of which any such Persons described above collectively owns 5% or
more of the equity of such entity. For purposes of this definition, "control"
(including, with correlative meaning, the terms "controlling," "controlled by"
and "under common control with") when used with respect to any specified Person
includes the direct or indirect beneficial ownership of more than 5% of the
voting securities of such Person or the power to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise.
"Applicable Premium" means, with respect to a Note, the greater of (i) 1.0%
of the then outstanding principal amount of such Note and (ii) the excess of (a)
the present value of the required interest and principal payments due on such
Note to the first optional redemption date (assuming all outstanding Notes were
called for redemption on such date) or to the final maturity date of the Notes
at the option of the Company, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (b) the then outstanding principal
amount of such Note.
"Asset Acquisition" means (i) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be consolidated or merged with or into
the Company or any Restricted Subsidiary, or (ii) any acquisition by the Company
or any Restricted Subsidiary of the assets of any Person which constitute
substantially all of an operating unit, a division or line of business of such
Person or which is otherwise outside of the ordinary course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale leaseback transaction) to any
Person other than the Company or any Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary, (ii) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary, (iii) any assets of
the Company or any Restricted Subsidiary which constitute substantially all of
an operating unit, a division or a line of business of the Company or any
Restricted Subsidiary or (iv) any other property or asset of the Company or any
Restricted Subsidiary outside of the ordinary course of business. For the
purposes of this
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definition, the term "Asset Sale" shall not include (i) any transaction
consummated in compliance with "Repurchase at the Option of Holders -- Change of
Control" above and "Certain Covenants -- Merger or Sales of Assets" above, and
the creation of any Lien not prohibited under "Certain Covenants -- Limitations
on Liens" above, (ii) the sale of property or equipment that has become worn
out, obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be, (iii)
any transaction consummated in compliance with "Certain Covenants -- Limitation
on Restricted Payments" above, and (iv) sales, transfers or other disposition of
assets with a fair market value not in excess of $1 million in any transaction
or series of transactions.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/ Leaseback Transaction (including any period for which such lease has been
extended).
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with generally accepted accounting
principles consistently applied.
"Cash Equivalents" means (i) United States dollars; (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition; (iii) certificates of deposit and
Eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank that is
a member of the Federal Reserve System having capital and surplus in excess of
$500.0 million; (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above; (v) commercial paper having a rating of at
least P-1 from Moody's or a rating of at least A-1 from S&P; and (vi) money
market mutual or similar funds having assets in excess of $100.0 million, at
least 95% of the assets of which are comprised of assets specified in clauses
(i) through (v) above.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied.
"Consolidated Interest Expense" means, with respect to the Company and the
Restricted Subsidiaries for any period, without duplication, the sum of (i) the
interest expense of the Company and the Restricted Subsidiaries for such period
as determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied, including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation and after taking into account the
effect of elections made under any Hedging Agreements, however denominated, with
respect to such Indebtedness; and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the
Company and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied. For purposes of this definition, interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with generally accepted accounting
principles consistently applied.
"Consolidated Net Income" means, with respect to any period, the net income
(loss) of the Company and the Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with generally accepted accounting
principles consistently applied, adjusted, to the extent included in calculating
such net income (loss), by excluding, without duplication, (i) all
extraordinary, unusual or nonrecurring items of income or expense and of gains
or losses and all gains and losses from the sale or other disposition of assets
out
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of the ordinary course of business (net of taxes, fees and expenses relating to
the transaction giving rise thereto) for such period; (ii) that portion of such
net income (loss) derived from or in respect of investments in Persons other
than any Restricted Subsidiary, except to the extent actually received in cash
by the Company or any Restricted Subsidiary; (iii) the portion of such net
income (loss) allocable to minority interests in unconsolidated Persons for such
period, except to the extent actually received in cash by the Company or any
Restricted Subsidiary; (iv) net income (loss) of any other Person combined with
the Company or any Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination; (v) net income
(loss) of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
that net income (loss) is not at the date of determination permitted without any
prior governmental approval (which has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule of governmental regulation
applicable to that Restricted Subsidiary or the holders of its Equity Interests;
(vi) the cumulative effect of a change in accounting principles after the date
of the Indenture; and (vii) net income (loss) attributable to discontinued
operations determined on a consolidated basis in accordance with generally
accepted accounting principles consistently applied.
"Consolidated Total Indebtedness" means, as at any date of determination,
an amount equal to the aggregate amount of all outstanding Indebtedness of the
Company and the Restricted Subsidiaries outstanding as of such date of
determination (including the liquidation value of all Disqualified Equity
Interests), less the obligations of the Company or any Restricted Subsidiary
under any Hedging Agreement as of such date of determination that would appear
as a liability on the balance sheet of such Person, in each case determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Continuing Members" means, as of the date of determination, any Person who
(i) was a member of the Board of Directors of the Company (or CCI, as the case
may be) on the date of the Indenture, (ii) was nominated for election or elected
to the Board of Directors of the Company (or CCI, as the case may be) with the
affirmative vote of a majority of the Continuing Members who were members of the
Board of Directors of the Company (or CCI, as the case may be) at the time of
such nomination or election or (iii) is a representative of, or was approved by,
a Permitted Holder.
"Cumulative Credit" means the sum of (i) the aggregate Net Cash Proceeds
received by the Company or a Restricted Subsidiary from the issue or sale (other
than to a Restricted Subsidiary) of Equity Interests (other than Disqualified
Equity Interests) of the Company or a Restricted Subsidiary on or after the
Issuance Date, plus (ii) the principal amount (or accreted amount (determined in
accordance with generally accepted accounting principles), if less) of any
Indebtedness, of the Company or any Restricted Subsidiary which has been
converted into or exchanged for Equity Interests of the Company or a Restricted
Subsidiary on or after the Issuance Date plus (iii) cumulative Operating Cash
Flow on or after the Issuance Date, to the end of the fiscal quarter immediately
preceding the date of the proposed Restricted Payment, or, if cumulative
Operating Cash Flow for such period is negative, minus the amount by which
cumulative Operating Cash Flow is less than zero, plus (iv) to the extent not
already included in Operating Cash Flow, if any Investment constituting a
Restricted Payment that was made after the date of the Indenture is sold or
otherwise liquidated or repaid the initial dividend amount of such Restricted
Payment (less the cost of disposition, if any) on the date of such sale,
liquidation or repayment, as determined in good faith by the Board of Directors.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid or accrued of the Company and the Restricted Subsidiaries
on or after the Issuance Date, to the end of the fiscal quarter immediately
preceding the proposed Restricted Payment.
"Debt to Operating Cash Flow Ratio" means the ratio of (i) the Consolidated
Total Indebtedness as of the date of calculation (the "Determination Date") to
(ii) four times the Operating Cash Flow for the latest three months for which
financial information is available immediately preceding such Determination Date
(the "Measurement Period"). For purposes of calculating Operating Cash Flow for
the Measurement Period immediately prior to the relevant Determination Date, (I)
any Person that is a Restricted Subsidiary on the Determination Date (or would
become a Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Operating Cash Flow) will be
deemed to have
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been a Restricted Subsidiary at all times during the Measurement Period; (II)
any Person that is not a Restricted Subsidiary on such Determination Date (or
would cease to be a Restricted Subsidiary on such Determination Date in
connection with the transaction that requires the determination of such
Operating Cash Flow) will be deemed not to have been a Restricted Subsidiary at
any time during such Measurement Period; and (III) if the Company or any
Restricted Subsidiary shall have in any manner (x) acquired (including through
an Asset Acquisition or the commencement of activities constituting such
operating business) or (y) disposed of (including by way of an Asset Sale or the
termination or discontinuance of activities constituting such operating
business) any operating business during such Measurement Period or after the end
of such period and on or prior to such Determination Date, such calculation will
be made on a pro forma basis in accordance with generally accepted accounting
principles consistently applied, as if, in the case of an Asset Acquisition or
the commencement of activities constituting such operating business, all such
transactions had been consummated on the first day of such Measurement Period,
and, in the case of an Asset Sale or termination or discontinuance of activities
constituting such operating business, all such transactions had been consummated
prior to the first day of such Measurement Period.
"Designated Senior Indebtedness" means (i) any Senior Indebtedness under
the New Senior Credit Agreement and (ii) any other Senior Indebtedness which at
the time of determination has an aggregate principal amount outstanding of at
least $50 million and which is specifically designated in the instrument
evidencing such Senior Indebtedness or the agreement under which such Senior
Indebtedness arises as "Designated Senior Indebtedness" by the Company.
"Disqualified Equity Interest" means, with respect to any Person, any
Equity Interest which, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, or is exchangeable
into Indebtedness or Disqualified Equity Interest, on or prior to the earlier of
the maturity date of the Notes or the date on which no Notes remain outstanding.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, and
membership interests in such Person, including any Preferred Stock.
"Equity Offering" means an underwritten public offering by the Company for
cash (in an amount not less than $25 million) of its common stock pursuant to
the Securities Act registration statement (not including Forms S-4 or S-8).
"Hedging Agreement" means any interest rate swap agreement, interest rate
cap agreement, interest rate collar agreement or other similar agreement
providing for the transfer or mitigation of interest rate risks either generally
or under specific contingencies.
"Hedging Obligation" of any Person means the obligations of such Person
pursuant to any Hedging Agreement.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capitalized Lease Obligations of such Person and all
Attributable Debt in respect of Sale/ Leaseback Transactions entered into
by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
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(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Equity
Interest or, with respect to any Subsidiary of such Person, the liquidation
preference with respect to, any Preferred Stock (but excluding, in each
case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Investment" in any Person means, directly or indirectly, any advance, loan
or other extension of credit (including by means of a guarantee) or capital
contribution to (by means of transfers of property to others, payments for
property or services for the account or use of others or otherwise) such Person,
the acquisition, by purchase or otherwise, of any stock, bonds, notes,
debentures, partnership, membership or joint venture interests or other
securities or other evidence of beneficial interest of any Person, and shall
include the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary. If the Company or any Restricted Subsidiary sells or otherwise
disposes of any Voting Equity Interest of any direct or indirect Restricted
Subsidiary such that, after giving effect to such sale or disposition, the
Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Voting Equity Interests of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Voting Equity Interests of
such former Restricted Subsidiary not sold or disposed of.
"Investment Banking Fee" means pursuant to an agreement between J. Merritt
Belisle and Steven E. Seach, on one hand, and CCI, on the other hand, a fee to
be paid by CCI to such individuals (i) upon the consummation of the Financing
Plan in the aggregate amount of $550,000 and (ii) thereafter from time to time
in connection with the consummation of acquisitions or financings by CCI in an
amount equal to 1.0% of the purchase price paid for such acquisition.
"Lien" means any mortgage, pledge, lien, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof or any agreement to give a security interest).
"Moody's" means Moody's Investors Service, Inc., or any successor rating
agency.
"Net Available Cash" from an Asset Sale means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to such properties or assets or received in any other non cash form)
therefrom, in each case net of (i) all legal, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
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liability under GAAP, as a consequence of such Asset Sale, (ii) all payments
made on any indebtedness which is secured by any assets subject to such Asset
Sale, in accordance with the terms of any Lien upon or other security
arrangement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Sale, or by applicable
law, be repaid out of the proceeds from such Asset Sale, (iii) all distributions
and other payments required to be made to minority interest holders in
Restricted Subsidiaries or joint ventures as a result of such Asset Sale and
(iv) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale.
"Net Cash Proceeds" means, with respect to any issuance or sale of Equity
Interests, the proceeds in the form of cash or Cash Equivalents received by the
Company or any Restricted Subsidiary of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Recourse Indebtedness" means Indebtedness of a Person (i) as to which
neither the Company nor any of the Restricted Subsidiaries (other than such
Person or any Subsidiaries of such Person) (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise); and (ii) the incurrence of
which will not result in any recourse against any of the assets of either of the
Company or the Restricted Subsidiaries (other than to such Person or to any
Subsidiaries of such Person and other than to the Equity Interests in such
Restricted Subsidiary or an Unrestricted Subsidiary).
"Operating Cash Flow" means, with respect to the Company and the Restricted
Subsidiaries on a consolidated basis, for any period, an amount equal to
Consolidated Net Income for such period increased (without duplication) by the
sum of (i) Consolidated Income Tax Expense accrued for such period to the extent
deducted in determining Consolidated Net Income for such period; (ii)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; and (iii) depreciation,
amortization and any other non-cash items for such period to the extent deducted
in determining Consolidated Net Income for such period (other than any non-cash
item which requires the accrual of, or a reserve for, cash charges for any
future period) of the Company and the Restricted Subsidiaries, including,
without limitation, amortization of capitalized debt issuance costs for such
period, all of the foregoing determined on a consolidated basis in accordance
with generally accepted accounting principles consistently applied, and
decreased by non-cash items to the extent they increased Consolidated Net Income
(including the partial or entire reversal of reserves taken in prior periods)
for such period. For purposes of this definition, the following items shall, to
the extent expensed in calculating Consolidated Net Income, be added to
Consolidated Net Income: (A) any amounts paid to employees of the Company in
respect of investment banking, advisory or transaction fees in connection with
acquisitions or financings of assets of, or advisory services to, the Company in
an amount not to exceed 1.5 percent of the fair market value of such principal
acquisition or the amount of such financing, and (B) cancellation of debt to any
employee of the Company in an aggregate amount not to exceed $200,000.
"Other Pari Passu Debt" means Indebtedness of the Company or any Restricted
Subsidiary that does not constitute Subordinated Obligations and is not senior
in right of payment to the Notes.
"Other Permitted Liens" means (i) Liens imposed by law, such as carriers',
warehousemen's and mechanics' liens and other similar liens arising in the
ordinary course of business which secure payment of obligations that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and for which an appropriate
reserve or provision shall have been made in accordance with generally accepted
accounting principles consistently applied; (ii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which an appropriate reserve or provision shall
have been made in accordance with generally accepted accounting principles
consistently applied; (iii) easements, rights of way, and other restrictions on
use of property or minor
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imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the property subject thereto or
interfere with the ordinary conduct of the business of the Company or its
Subsidiaries; (iv) Liens related to Capitalized Lease Obligations, mortgage
financings or purchase money obligations (including refinancings thereof), in
each case incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or equipment
used in the business of the Company or any Restricted Subsidiary or a Related
Business, provided that any such Lien encumbers only the asset or assets so
financed, purchased, constructed or improved; (v) Liens resulting from the
pledge by the Company of Equity Interests in any Restricted Subsidiary in
connection with the Senior Credit Agreement; (vi) Liens resulting from the
pledge by the Company or Equity Interests in an Unrestricted Subsidiary in any
circumstance where recourse to the Company is limited to the value of the Equity
Interests so pledged; (vii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (viii) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds,
deposits to secure the performance of bids, trade contracts, government
contracts, leases or licenses or other obligations of a like nature incurred in
the ordinary course of business (including without limitation, landlord Liens on
leased properties); (ix) leases or subleases granted to third Persons not
interfering with the ordinary course of business of the Company; (x) deposits
made in the ordinary course of business to secure liability to insurance
carriers; (xi) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (xii) Liens on the assets of
the Company to secure hedging agreements with respect to Indebtedness permitted
by the Indenture to be incurred; (xiii) attachment or judgment Liens not giving
rise to a Default or an Event of Default; and (xiv) any interest or title of a
lessor under any capital lease or operating lease.
"Permitted Holders" means Austin Ventures, L.P., BT Capital Partners, Inc.,
NationsBank Capital Investors, J. Merritt Belisle and Steven E. Seach.
"Permitted Investments" means (i) Cash Equivalents; (ii) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (iii) the
extension of credit to vendors, suppliers and customers in the ordinary course
of business; (iv) Investments existing as of the date of the Indenture, and any
amendment, modification, extension or renewal thereof to the extent such
amendment, modification, extension or renewal does not require the Company or
any Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; (v) Hedging Agreements;
(vi) any Investment for which the sole consideration provided is Equity
Interests of the Company; (vii) any Investment consisting of a guarantee
permitted under clause (e) of the second paragraph of "Certain
Covenants -- Limitation on Indebtedness" above; (viii) Investments in the
Company, in any Wholly Owned Restricted Subsidiary or any Person that, as a
result of or in connection with such Investment, becomes a Wholly Owned
Restricted Subsidiary or is merged with or into or consolidated with the Company
or a Wholly Owned Restricted Subsidiary, provided, however, that such Person's
primary business is a Related Business; (ix) loans and advances to officers,
directors and employees of the Company and the Restricted Subsidiaries for
business-related travel expenses, moving expenses and other similar expenses in
each case incurred in the ordinary course of business not to exceed $1 million
outstanding at any time; (x) any acquisition of assets solely in exchange for
the issuance of Equity Interests of the Company; and (xi) other Investments
made, after the date of the Indenture, in addition to any Permitted Investments
described in clauses (i) through (x) above, in an aggregate amount at any one
time outstanding not to exceed $1 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"Preferred Stock" means, in any Person, an Equity Interest of any class or
classes, however designated, which is preferred as to the payment of dividends
or distributions, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over Equity Interests of
any other class in such Person.
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"Reinvestment Date" means the date which is 365 days after the receipt of
any Net Available Cash from an Asset Sale.
"Related Business" means a cable television, media and communications,
telecommunications, internet service provider or data transmission business, and
businesses ancillary, complementary or reasonably related thereto.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"Senior Guarantor Indebtedness" means the principal of, premium, if any,
and interest (including interest, whether or not allowable, accruing after the
filing of a petition initiating any proceeding under any state, federal or
foreign bankruptcy law) on any Indebtedness of any Subsidiary Guarantor (other
than as otherwise provided in this definition), whether outstanding on the date
of the Indenture or thereafter created, incurred or assumed, and whether at any
time owing, actually or contingent, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to any Subsidiary Guarantee. Without limiting
the generality of the foregoing, "Senior Guarantor Indebtedness" will also
include the principal of, premium, if any, and interest (including interest,
whether or not allowable, accruing after the filing of a petition initiating any
proceeding under any state, federal or foreign bankruptcy law) on, and all other
amounts owing in respect of, all obligations of every nature of the Issuer from
time to time owed to the lenders under the Senior Credit Agreement.
Notwithstanding the foregoing, "Senior Guarantor Indebtedness" shall not include
(i) Indebtedness evidenced by the Subsidiary Guarantees, (ii) Indebtedness that
is subordinated or junior in right of payment to any Indebtedness of any
Subsidiary Guarantor, (iii) Indebtedness which when incurred and without respect
to any election under Section 1111(b) of Title 11 United States Code, is without
recourse to any Subsidiary Guarantor, (iv) Indebtedness which is represented by
Redeemable Capital Stock, (v) any liability for foreign, federal, state, local
or other taxes owed or owing by any Subsidiary Guarantor to the extent such
liability constitutes Indebtedness, (vi) Indebtedness of any Subsidiary
Guarantor to a Subsidiary or any other Affiliate of the Company or any of such
Affiliate's Subsidiaries, (vii) to the extent it might constitute Indebtedness,
amounts owing for goods, materials or services purchased in the ordinary course
of business or consisting of trade accounts payable owed or owing by such
Subsidiary Guarantor, and amounts owed by such Subsidiary Guarantor for
compensation to employees or services rendered to such Subsidiary Guarantor,
(viii) that portion of any Indebtedness which at the time of issuance is issued
in violation of the Indenture and (ix) Indebtedness evidenced by any guarantee
of any Subordinated Indebtedness or Pari Passu Indebtedness.
"Senior Indebtedness" means the principal of, premium, if any, and interest
(including interest, whether or not allowable, accruing after the filing of a
petition initiating any proceeding under any state, federal or foreign
bankruptcy law) on any Indebtedness of the Company (other than as otherwise
provided in this definition), whether outstanding on the date of the Indenture
or thereafter created, incurred or assumed, and whether at any time owing,
actually or contingent, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Notes. Without limiting the generality of the foregoing,
"Senior Indebtedness" will also include the principal of, premium, if any, and
interest (including interest, whether or not allowable, accruing after the
filing of a petition initiating any proceeding under any state, federal or
foreign bankruptcy law) on, and all other amounts owing in respect of, all
obligations of every nature of the Issuer from time to time owned to the lenders
under the Senior Credit Agreement. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Notes, (ii)
Indebtedness that is subordinate or junior in right of payment to any
Indebtedness of the Company, (iii) Indebtedness which when incurred and without
respect to any election under Section 1111(b) of Title 11 United States Code, is
without recourse to the Company, (iv) Indebtedness which is represented by
Redeemable Capital Stock, (v) any liability for foreign, federal, state, local
or other
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taxes owed or owing by the Company to the extent such liability constitutes
Indebtedness, (vi) Indebtedness of the Company to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, (vii) to the
extent it might constitute Indebtedness, amounts owing for goods, materials or
services purchased in the ordinary course of business or consisting of trade
accounts payable owed or owing by the Company, and amounts owed by the Company
for compensation to employees or services rendered to the Company, (viii) that
portion of any Indebtedness which at the time of issuance is issued in violation
of the Indenture and (ix) Indebtedness evidenced by any guarantee of any
Subordinated Indebtedness or Pari Passu Indebtedness.
"S&P" means Standard & Poor's Ratings Group, a division of the McGraw Hill
Company, Inc., or any successor rating agency.
"Strategic Equity Investment" means an investment in CCI by a company which
is primarily engaged in the media and communications industry or the
telecommunications industry and which has a market capitalization (if a public
company) on the date of such investment in CCI of more than $1 billion or, if
not a public company, had total revenues of more than $5 billion during its
previous fiscal year.
"Subordinated Obligations" means, with respect to the Company, any
Indebtedness of the Company which is expressly subordinated in right of payment
to the Notes.
"Subsidiary" means a Person the majority of whose voting stock, membership
interests or other Voting Equity Interests is or are owned by the Company or a
Subsidiary. Voting stock in a corporation includes Equity Interests having
voting power under ordinary circumstances to elect directors.
"Subsidiary Guarantees" means the guarantees of the Company's obligations
under the Indenture and the Notes.
"Subsidiary Guarantors" means the (i) each Subsidiary of the Company on the
Issuance Date and (ii) any Subsidiary of the Company that guarantees the
Company's obligations under the Indenture and the Notes issued after the date of
the Indenture pursuant to "Covenants -- Limitation on Guarantees of Certain
Indebtedness" above.
"Subsidiary Operating Cash Flow" means, with respect to any Subsidiary for
any period, the "Operating Cash Flow" of such Subsidiary and its Subsidiaries
for such period determined by utilizing all of the elements of the definition of
"Operating Cash Flow" in the Indenture, including the defined terms used in such
definition, consistently applied only to such Subsidiary and its Subsidiaries on
a consolidated basis for such period.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for redemption of the Notes following a Change of Control (or, if such
Statistical Release is no longer published, any publicly available source of
similar market data)) most nearly equal to the then remaining Weighted Average
Life to Maturity of the Notes; provided, however, that if the Weighted Average
Life to Maturity of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation (calculated to the nearest
one-twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the Weighted Average
Life to Maturity of the Notes is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary of the Company (other than a
Subsidiary Guarantor) designated as such pursuant to and in compliance with the
covenant described under "Certain Covenants -- Limitation on Unrestricted
Subsidiaries." Any such designation may be revoked by resolution of the Board of
Directors of the Company delivered to the Trustee subject to the provisions of
"Certain Covenants -- Limitation on Unrestricted Subsidiaries."
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither the Company
nor any Restricted Subsidiary is directly or
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indirectly liable (by virtue of the Company or any such Restricted Subsidiary
being the primary obligor on, guarantor of, or otherwise liable in any respect
to, such Indebtedness), except guaranteed debt of the Company or any Restricted
Subsidiary to any Affiliate, in which case (unless the incurrence of such
guaranteed debt resulted in a Restricted Payment at the time of incurrence) the
Company shall be deemed to have made a Restricted Payment equal to the principal
amount of any such Indebtedness to the extent guaranteed at the time such
Affiliate is designated an Unrestricted Subsidiary and (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any Subsidiary to declare, a
default on such Indebtedness of the Company or any Subsidiary or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity;
provided that notwithstanding the foregoing any Unrestricted Subsidiary may
guarantee the Notes.
"Voting Equity Interests" means Equity Interests in any Person with voting
power under ordinary circumstances entitling the holders thereof to elect the
board of directors, board of managers or other governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding aggregate
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary of which
all of the outstanding Equity Interests (other than Equity Interests
constituting directors' qualifying shares to the extent mandated by applicable
law) are owned by the Company or by one or more Wholly Owned Restricted
Subsidiaries or by the Company and one or more Wholly Owned Restricted
Subsidiaries. Notwithstanding the foregoing, so long as Universal Cable Holding,
Inc. holds at least 75% of the issued and outstanding shares of stock of
Universal Cable Communications, Inc., Universal Cable of Beaver, Oklahoma, Inc.
and Universal Cable Midwest, Inc., each of such entities shall be deemed to be a
Wholly Owned Subsidiary.
NO LIABILITY OF MANAGERS, OFFICERS, EMPLOYEES, OR SHAREHOLDERS
No manager, director, officer, employee, member, shareholder, partner or
incorporator of the Company or any Subsidiary, as such, will have any liability
for any obligations of the Company under the Notes, or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and the SEC is of the view that such a waiver is against
public policy.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to the Notes (except for
the obligations to replace temporary or mutilated, destroyed, lost or stolen
Notes, to maintain an office or agency in respect of the Notes and to hold
moneys for payment in trust ) ("defeasance") or (b) to be released from its
obligations with respect to the Notes under certain covenants (and related
Events of Default) contained in the Indenture, including but not limited to
those described above under "Certain Covenants" ("covenant defeasance"), upon
the deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or U.S. Government Obligations which through the payment
of principal and interest in accordance with their terms will provide money, in
an amount sufficient to pay the principal of, premium, if any, and interest, if
any, on the Notes, on the scheduled due dates therefor. Such a trust may only be
established if, among other things, (x) no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to Events
of Default resulting from certain events of bankruptcy, insolvency or
reorganization, would occur at any time in the period ending on the 91st day
after the date of deposit) and (y) the Company has delivered to the Trustee an
opinion of counsel (as specified in the Indenture) to the effect that (i)
defeasance or covenant defeasance, as
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the case may be, will not require registration of the Company, the Trustee or
the trust fund under the Investment Company Act of 1940, as amended, or the
Investment Advisors Act of 1940, as amended, and (ii) the holders of the Notes
will recognize income, gain or loss for Federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred. Such opinion, in the case of
defeasance under clause (a) above, must refer to and be based upon a private
ruling concerning the Notes of the Internal Revenue Service or a ruling of
general effect published by the Internal Revenue Service.
MODIFICATION OF INDENTURE
From time to time, the Company and the Trustee may, without consent of
holders of the Notes, enter into one or more supplemental indentures for certain
specified purposes, including providing for a successor or successors to the
Company, adding guarantees, releasing Guarantors when permitted by the
Indenture, providing for security for the Notes, adding to the covenants of the
Company, surrendering any right or power conferred upon the Company, providing
for uncertificated Notes in addition to or in place of certificated Notes,
making any change that does not adversely affect the rights of any Noteholder,
complying with any requirement of the Trust Indenture Act or curing certain
ambiguities, defects or inconsistencies. The Indenture contains provisions
permitting the Company and the Trustee, with the consent of holders of at least
a majority in aggregate principal amount of the Notes at the time outstanding,
to modify the Indenture or any supplemental indenture or the rights of the
holders of the Notes, except that no such modifications shall, without the
consent of each holder affected thereby (i) change or extend the fixed maturity
of the Notes, reduce the rate or extend the time of payment of interest thereon,
reduce the principal amount thereof or premium, if any, thereon or change the
currency in which the Notes are payable; (ii) reduce the premium payable upon
any redemption of Notes in accordance with the optional redemption provisions of
the Notes or change the time before which no such redemption may be made; (iii)
waive a default in the payment of principal or interest on the Notes (except
that holders of a majority in aggregate principal amount of the Notes at the
time outstanding may (a) rescind an acceleration of the Notes that resulted from
a non-payment default and (b) waive the payment default that resulted from such
acceleration) or alter the rights of Noteholders to waive defaults; or (iv)
reduce the aforesaid percentage of Notes, the consent of the holders of which is
required for any such modification. Any existing Event of Default, other than a
default in the payment of principal or interest on the Notes, or compliance with
any provision of the Notes or the Indenture, other than any provision related to
the payment of principal or interest on the Notes, may be waived with the
consent of holders of at least a majority in aggregate principal amount of the
Notes at the time outstanding.
COMPLIANCE CERTIFICATE
The Indenture provides that the Company will deliver to the Trustee within
120 days after the end of each fiscal year of the Company an Officers'
Certificate stating whether or not the signers know of any Event of Default that
has occurred. If they do, the certificate will describe the Event of Default and
its status.
BOOK-ENTRY; DELIVERY AND FORM
The New Notes will be represented by one or more permanent global New Notes
in definitive, fully registered form without interest coupons (each a "Global
Note") and will be deposited with the Trustee as custodian for, and registered
in the name of a nominee of, DTC.
Each Global Note will be subject to certain restrictions on transfer set
forth therein as described under "Notices to Investors."
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified Institutional Buyers may hold their
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interests in a Restricted Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by such Global Note for all
purposes under the Indenture and the New Notes. No beneficial owner of an
interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in additional to those provided for
under the Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note are credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants and which may
be legended as set forth under the heading "Notices to Investors."
The Company understands that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization'
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to other such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interest in a Global Note among participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC, Euroclear or
Cedel Bank or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes, which may bear the
legend referred to under "Notices to Investors," in exchange for the Global
Notes. Holders of an interest in a Global Note may receive Certificated Notes,
which may bear the legend referred to under "Notices to Investors," in
accordance with the DTC's rules and procedures in addition to those provided for
under the Indenture.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of U.S. federal income tax considerations
relevant to Holders of the Notes. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations, administrative pronouncements and judicial decisions now in effect,
all of which are subject to change (possibly with retroactive effect) or
different interpretations, which may affect the tax consequences described
herein. This discussion does not purport to deal with all aspects of federal
income taxation that may be relevant to a particular investor and it is not
intended to be wholly applicable to all categories of investors, some of which,
such as dealers in securities, financial institutions, insurance companies,
tax-exempt organizations, or investors who have hedged the risk of owning Notes,
may be subject to special rules. In addition, this discussion is limited to
persons that will hold the Notes as "capital assets" within the meaning of
section 1221 of the Code.
THIS SUMMARY IS FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS THE TAX
CONSEQUENCES TO TAXPAYERS WHO ARE SUBJECT TO SPECIAL RULES (SUCH AS FINANCIAL
INSTITUTIONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE COMPANIES, S CORPORATIONS,
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, BROKER-DEALERS,
TAXPAYERS SUBJECT TO THE ALTERNATIVE MINIMUM TAX AND PERSONS THAT WILL HOLD THE
NOTES AS PART OF A POSITION IN A "STRADDLE" OR AS PART OF A "CONSTRUCTIVE SALE,"
"HEDGING" OR "CONVERSION" TRANSACTION) OR ADDRESS ASPECTS OF FEDERAL TAXATION
THAT MIGHT BE RELEVANT TO A PROSPECTIVE INVESTOR BASED UPON SUCH INVESTOR'S
PARTICULAR TAX SITUATION. THIS SUMMARY DOES NOT ADDRESS ANY TAX CONSEQUENCES
ARISING UNDER ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING
JURISDICTION. INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL TAX CONSEQUENCES OF OWNING AND DISPOSING OF THE NOTES
(INCLUDING THE INVESTOR'S STATUS AS A UNITED STATES HOLDER OR A NON-UNITED
STATES HOLDER), AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF
ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
Winstead Sechrest & Minick P.C., counsel to the Company ("Counsel"), has
advised the Company that in its opinion, the exchange of the Old Notes for New
Notes pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the New Notes will not be considered to
differ materially in kind or extent from the Old Notes. Rather, in the opinion
of counsel to the Company, the New Notes received by a holder will be treated as
a continuation of the Old Notes in the hands of such holder and consequently, in
the opinion of Counsel, there will be no federal income tax consequences to
holders exchanging Old Notes for New Notes pursuant to the Exchange Offer.
Counsel's opinion does not consider the effect of any applicable foreign, state,
local or other tax laws or estate or gift tax considerations.
The Company recommends that each holder of Old Notes consult such holder's
own tax adviser as to the particular tax consequences of exchanging such
holder's Old Notes for New Notes, including the applicability and effect of any
state, local or foreign tax laws.
UNITED STATES HOLDERS
General
The following discussion constitutes Counsel's opinion regarding material,
but not all, United States federal income tax consequences of the ownership and
sale or other disposition of the Notes by a beneficial owner that, for United
States federal income tax purposes, is a "United States person" (a "United
States Holder"). Prospective Holders of the Notes are urged to consult their tax
advisors concerning their individual tax circumstances and any prospective
investment in the Notes. As used herein, a "United States person" means a
citizen or individual resident (as defined in Section 7701(b) of the Code) of
the United States; a corporation or partnership (including any entity treated as
a corporation or partnership for United States federal income tax purposes)
created or organized under the laws of the United States, any state thereof or
the
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District of Columbia unless, in the case of a partnership, otherwise provided by
regulation; an estate the income of which is subject to United States federal
income tax without regard to its source; or a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence,
certain trusts in existence on August 20, 1996, and treated as United States
persons prior to such date that elect to continue to be so treated shall also be
considered to be United States persons.
Interest Income
Interest on the Notes will be includable in the income of a U.S. Holder as
ordinary income at the time such interest is received or accrued in accordance
with such Holder's regular method of accounting. Failure of the Company to
consummate the Exchange Offer or to file or cause to be declared effective the
Shelf Registration Statement as described under "The Exchange Offer; Purpose and
Effect" will cause additional interest to accrue on the Notes in the manner
described therein. According to United States Treasury regulations, the
possibility of a change in the interest rate will not affect the amount of
interest income recognized by a U.S. Holder (or the timing of such recognition)
if the likelihood of the change, as of the date the Notes are issued, is remote.
CCI believes that the likelihood of a change in the interest rate on the Notes
is remote and does not intend to treat the possibility of a change in the
interest rate as affecting the yield to maturity of any Note. In the unlikely
event that the interest rate on the Notes is increased, such increased interest
may be treated as original issue discount, includable by a U.S. Holder in income
as such interest accrues, in advance of receipt of any cash payment thereof. If,
as anticipated, the issue price of the Notes will equal their stated principal
amount with a de minimis discount, and because the likelihood of a change in
interest rate is remote, the notes will not be issued with original issue
discount ("OID"). OID will be considered de minimis and, thus, will be treated
as zero if the original issue discount is less than one-fourth ( 1/4) of one
percent of the stated principal amount of a Note, multiplied by the number of
complete years from issue date of the Notes to maturity.
Market Discount
If a United States Holder purchases, subsequent to its original issuance, a
Note for an amount that is less than its stated redemption price at maturity,
the amount of the difference generally will be treated as "market discount,"
unless such difference is less than a specified de minimis amount. The United
States Holder will be required to treat any gain recognized on the sale,
exchange, redemption, retirement or other disposition of the Note as ordinary
income to the extent of the accrued market discount that has not previously been
included in income. In addition, the United States Holder may be required to
defer, until the maturity date of the Note or its earlier disposition in a
taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue market discount on a constant interest method. A
United States Holder of a Note may elect to include market discount in income
currently as it accrues (under either the ratable or constant interest method).
This election to include currently, once made, applies to all market discount
obligations acquired in or after the first taxable year to which the election
applies and may not be revoked without the consent of the Service. If the United
States Holder of a Note makes such an election, the foregoing rules with respect
to the recognition of ordinary income on sales and other dispositions of such
instruments, and with respect to the deferral of interest deductions on debt
incurred or maintained to purchase or carry such debt instruments, would not
apply.
Amortizable Bond Premium
A United States Holder that purchases a Note for an amount in excess of its
principal amount will be considered to have purchased the Note at a premium and
may elect to amortize such premium, using a constant yield method, over the
remaining term of the Note (or, if a smaller amortization allowance would
result, by computing such allowance with reference to the amount payable on an
earlier call date and amortizing such allowance over the shorter period to such
call date). The amount amortized in any year will
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be treated as a reduction of the United States Holder's interest income from the
Note. Bond premium on a Note held by a United States Holder that does not make
such an election will decrease the gain or increase the loss otherwise
recognized on disposition of the Note. The election to amortize bond premium on
a constant yield method, once made, applies to all debt obligations held or
subsequently acquired by the electing United States Holder on or after the first
day of the first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service (the "Service").
Sale, Exchange or Redemption of the Notes
Each U.S. Holder of a Note generally will recognize gain or loss on the
sale, exchange, redemption, retirement or other disposition of the Note measured
by the difference (if any) between (i) the amount of cash and the fair market
value of any property received (except to the extent that such cash or other
property is attributable to the payment of accrued interest not previously
included in income, which amount will be taxable as ordinary income) and (ii)
the U.S. Holder's adjusted tax basis in the Note (generally, the cost of the
Note plus any market discount previously included in income by the U.S. Holder,
less amortized bond premium and any principal payments received by the U.S.
Holder). Any such gain or loss recognized on the sale, exchange, redemption,
retirement or other disposition of a Note should be capital gain or loss (except
as discussed under "Market Discount" above). Capital gain or loss will be
long-term gain or loss if the Note is held by the United States Holder for more
than one year, otherwise such gain or loss will be short-term.
United States Holders that are corporations will generally be taxed on net
capital gains at a maximum rate of 35%. In contrast, United States Holders that
are individuals will generally be taxed on net capital gains at a maximum rate
of (i) 28% for property held for 18 months or less, and (ii) 20% for property
held more than 18 months. Recent legislative proposals would reduce the holding
period for property to qualify for the maximum 20% rate to 12 months or more.
There can be no assurance that such proposals will be enacted into law in their
present form, if at all. Special rules (and generally lower maximum rates) apply
for individuals in lower tax brackets. Any capital losses realized by a United
States Holder that is a corporation generally may be used only to offset capital
gains. Any capital losses realized by a United States Holder that is an
individual generally may be used only to offset capital gains plus $3,000 of
other income per year.
Neither an exchange of the Notes for Exchange Notes of the Issuer with
terms identical to those of the Notes nor the filing of a registration statement
with respect to the resale of the Notes should be a taxable event to the United
States Holders. Consequently, United States Holders will not recognize any
taxable gain or loss or any interest income as a result of such an exchange or
such a filing, the holding period of the Exchange Securities will include the
holding period of the Notes, and the basis of the Exchange Notes will equal the
basis of the Notes immediately before the exchange.
FOREIGN HOLDERS
The following discussion constitutes Counsel's opinion regarding material,
but not all, United States federal income and estate and gift tax consequences
of the ownership and sale or other disposition of the Notes by any beneficial
owner of a Note that is not a United States Holder (a "Non-United States
Holder"). Resident alien individuals will be subject to United States federal
income tax with respect to the Notes as if they were United States Holders.
Interest
Under current United States federal income tax law, and subject to the
discussion of backup withholding below, interest paid on the Notes to a
Non-United States Holder will not be subject to the normal 30% United States
federal withholding tax, provided that (i) the interest is "effectively
connected with the conduct of a trade or business in the United States" by the
Non-United States Holder and the Non-United States Holder timely furnishes the
Issuer with two duly executed copies of Service Form 4224 (or any successor
form), or (ii) all of the following conditions of the portfolio interest
exception (the "Portfolio Interest Exception") are met: (A) the Non-United
States Holder does not, actually or constructively, own 10% or more of the total
combined voting power of all classes of stock of a corporate issuer entitled to
vote, (B) the Non-United States
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Holder is not a controlled foreign corporation that is related, directly or
indirectly, to the Issuer through stock ownership, (C) the Non-United States
Holder is not a bank receiving interest pursuant to a loan agreement entered
into in the ordinary course of its trade or business, and (D) either (1) the
Non-United States Holder certifies to the Issuer or its agent, under penalties
of perjury, that it is a Non-United States Holder and provides its name and
address, or (2) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution"), and holds the Notes in such capacity,
certifies to the Issuer or its agent, under penalties of perjury, that such
statement has been received from the beneficial owner of the Notes by it or by a
Financial Institution between it and the beneficial owner and furnishes the
Issuer or its agent with a copy thereof. The foregoing certification may be
provided by the Non-United States Holder on Service Form W-8 (or any successor
form). Such certificate is effective with respect to payments of interest made
after the issuance of the certificate in the calendar year of its issuance and
the two immediately succeeding calendar years.
On October 14, 1997, final regulations were published in the Federal
Register (the "1997 Final Regulations") that affect the United States federal
income taxation of Non-United States Holders. The 1997 Final Regulations are
effective for payments after December 31, 1999, regardless of the issue date of
the instrument with respect to which such payments are made, subject to certain
transition rules discussed below. While the discussion under this heading and
under "Backup Withholding Tax and Information Reporting," below, sets forth the
material provisions of the 1997 Final Regulations affecting prospective
Non-United States Holders, prospective Holders of the Notes are urged to consult
their tax advisors concerning their individual tax circumstances and any
prospective investment in light of the 1997 Final Regulations.
The 1997 Final Regulations provide documentation procedures designed to
simplify compliance by withholding agents. The 1997 Final Regulations generally
do not affect the documentation rules described above, but add other
certification options. Under one such option, a withholding agent will be
allowed to rely on an intermediary withholding certificate furnished by a
"qualified intermediary" (as defined below) on behalf of one or more beneficial
owners (or other intermediaries) without having to obtain the beneficial owner
certificate described above. Qualified intermediaries include: (i) foreign
financial institutions or foreign clearing organizations (other than a United
States branch or United States office of such institution or organization), or
(ii) foreign branches or offices of United States financial institutions or
foreign branches or offices of United States clearing organizations, which, as
to both (i) and (ii), have entered into withholding agreements with the Service.
In addition to certain other requirements, qualified intermediaries must obtain
withholding certificates, such as revised Internal Revenue Service Form W-8
(discussed below), from each beneficial owner. Under another option, an
authorized foreign agent of a United States withholding agent will be permitted
to act on behalf of the United States withholding agent (including the receipt
of withholding certificates, the payment of amounts of income subject to
withholding and the deposit of tax withheld), provided that certain conditions
are met.
For purposes of the certification requirements, the 1997 Final Regulations
generally treat as the beneficial owners of payments on a Note those persons
that, under United States federal income tax principles, are the taxpayers with
respect to such payments, rather than persons such as nominees or agents legally
entitled to such payments. In the case of payments to an entity classified as a
foreign partnership under United States tax principles, the partners, rather
than the partnership, generally must provide the required certifications to
qualify for the withholding tax exemption described above (unless the
partnership has entered into a special agreement with the Service). A payment to
a United States partnership, however, is treated for these purposes as payment
to a United States payee, even if the partnership has one or more foreign
partners. The 1997 Final Regulations provide certain presumptions with respect
to withholding for Holders not furnishing the required certifications to qualify
for the withholding tax exemption described above. In addition, the 1997 Final
Regulations will replace a number of current tax certification forms (including
Service Form W-8) with a single, revised Internal Revenue Service Form W-8
(which, in certain circumstances, requires information in addition to that
previously required). Under the 1997 Final Regulations, this revised Form W-8
will remain valid until the last day of the third calendar year following the
year in which the certificate is signed.
The 1997 Final Regulations provide transition rules concerning existing
certificates, such as Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1999, will generally
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remain valid until the earlier of December 31, 2000 or the date of their
expiration. Existing certificates that expire in 1999 will not be effective
after their expiration. Certificates dated prior to January 1, 1998 will
generally remain valid until the end of 1998, irrespective of the fact that
their validity expires during 1998.
In the event that the interest paid on the Notes is effectively connected
with the conduct of a trade or business within the United States of the
Non-United States Holder, the Non-United States Holder will generally be taxed
on a net income basis (that is, after allowance for applicable deductions) at
the graduated rates that are applicable to United States persons in essentially
the same manner as if the Notes were held by a United States person, as
discussed above. In the case of a Non-United States Holder that is a
corporation, such income may also be subject to the United States federal branch
profits tax (which is generally imposed on a foreign corporation upon the deemed
repatriation from the United States of effectively connected earnings and
profits) at a 30% rate, unless the rate is reduced or eliminated by an
applicable income tax treaty and the Non-United States Holder is a qualified
resident of the treaty country.
If the interest on the Notes is not "effectively connected" and does not
qualify for the Portfolio Interest Exception, then the interest will be subject
to United States federal withholding tax at a flat rate of 30% (or a lower
applicable income tax treaty rate upon delivery of the appropriate certification
of eligibility for treaty benefits).
Gain on Sale or Other Disposition
Subject to special rules applicable to individuals as described below, a
Non-United States Holder will generally not be subject to regular United States
federal income or withholding tax on gain recognized on a sale or other
disposition of the Notes, unless the gain is effectively connected with the
conduct of a trade or business within the United States of the Non-United States
Holder or of a partnership, trust or estate in which such Non-United States
Holder is a partner or beneficiary.
Gains realized by a Non-United States Holder that are effectively connected
with the conduct of a trade or business within the United States of the
Non-United States Holder will generally be taxed on a net income basis (that is,
after allowance for applicable deductions) at the graduated rates that are
applicable to United States persons, as described above, unless exempt by an
applicable income tax treaty. In the case of a Non-United States Holder that is
a corporation, such income may also be subject to the United States federal
branch profits tax (which is generally imposed on a foreign corporation upon the
deemed repatriation from the United States of effectively connected earnings and
profits) at a 30% rate, unless the rate is reduced or eliminated by an
applicable income tax treaty and the Non-United States Holder is a qualified
resident of the treaty country.
In addition to being subject to the rules described above, an individual
Non-United States Holder who holds the Notes as a capital asset will generally
be subject to tax at a 30% rate on any gain recognized on the sale or other
disposition of such Notes if (i) such gain is not effectively connected with the
conduct of a trade or business within the United States of the Non-United States
Holder, and (ii) such individual is present in the United States for 183 days or
more in the taxable year of the sale or other disposition and either (A) has a
"tax home" in the United States (as specially defined for purposes of the United
States federal income tax), or (B) maintains an office or other fixed place of
business in the United States and the gain from the sale or other disposition of
the Notes is attributable to such office or other fixed place of business.
Individual Non-United States Holders may also be subject to tax pursuant to
provisions of United States federal income tax law applicable to certain United
States expatriates (including certain former long-term residents of the United
States).
Under the 1997 Final Regulations, withholding of United States federal
income tax may apply to payments on a taxable sale or other disposition of the
Notes by a Non-United States Holder who does not provide appropriate
certification to the withholding agent with respect to such transaction.
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BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Under current United States federal income tax law, information reporting
requirements apply to interest paid to, and to the proceeds of sales or other
dispositions before maturity by, certain non-corporate persons. In addition, a
31% backup withholding tax applies if a non-corporate person (i) fails to
furnish such person's Taxpayer Identification Number ("TIN") (which, for an
individual, is his or her Social Security Number) to the payor in the manner
required, (ii) furnishes an incorrect TIN and the payor is so notified by the
Service, (iii) is notified by the Service that such person has failed properly
to report payments of interest and dividends, or (iv) in certain circumstances,
fails to certify, under penalties of perjury, that such person has not been
notified by the Service that such person is subject to backup withholding for
failure properly to report interest and dividend payments. Backup withholding
does not apply to payments made to certain exempt recipients, such as
corporations and tax-exempt organizations.
In the case of a Non-United States Holder, under current United States
federal income tax law, backup withholding and information reporting do not
apply to payments of interest with respect to the Note, or to payments on the
sale or other disposition of a Note, if such Holder has provided to the Issuer
or its paying agent the certification described in clause (ii)(D) of "United
States Federal Income Tax Consequences -- Foreign Holders -- Interest" or has
otherwise established an exemption.
Under current United States federal income tax law, (i) interest payments
with respect to a Note collected outside the United States by a foreign office
of a custodian, nominee or broker acting on behalf of a beneficial owner of a
Note, and (ii) payments on the sale or other disposition of a Note to or through
a foreign office of a broker are not generally subject to backup withholding or
information reporting. However, if such custodian, nominee or broker is a United
States person, a controlled foreign corporation for United States tax purposes
or a foreign person 50% or more of whose gross income is effectively connected
with the conduct of a United States trade or business for a specified three-year
period (a "U.S. Related Person"), such custodian, nominee or broker may be
subject to certain information reporting (but not backup withholding)
requirements with respect to such payments, unless such custodian, nominee or
broker has in its records documentary evidence that the beneficial owner is not
a United States person and certain conditions are met or the beneficial owner
otherwise establishes an exemption. Backup withholding may apply to any payment
that such custodian, nominee or broker is required to report if such person has
actual knowledge that the payee is a United States person. Payments to or
through the United States office of a broker will be subject to backup
withholding and information reporting unless the Holder certifies, under
penalties of perjury, that it is not a United States person or otherwise
establishes an exemption.
The 1997 Final Regulations modify certain of the certification requirements
for backup withholding and expand the group of U.S. Related Persons. It is
possible that the Issuer or its paying agent may request new withholding
exemption forms from Holders in order to qualify for continued exemption from
backup withholding when the 1997 Final Regulations become effective.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the Service.
95
<PAGE> 101
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 120 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998, all dealers effecting transactions
in the New Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 120 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any
broker-dealers and will indemnify holders of the Old Notes (including any
broker-dealers) against certain liabilities, including certain liabilities under
the Securities Act.
The Initial Purchasers and certain of their affiliates have provided and
continue to provide investment banking, commercial banking and financial
advisory services in the ordinary course of business to the Company and certain
of its affiliates. In addition, Goldman Sachs Credit Partners, L.P. an affiliate
of Goldman Sachs & Co., is co-agent (and a lender) under the Senior Credit
Agreement.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by
Winstead Sechrest & Minick P.C., Austin, Texas.
EXPERTS
The consolidated financial statements of Classic Cable, Inc. at December
31, 1997 and 1996, and for each of the three years in the period ended December
31, 1997, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
96
<PAGE> 102
CLASSIC CABLE, INC.
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CLASSIC CABLE, INC.
Audited Financial Statements
Report of Independent Auditors......................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997.................................................. F-3
Consolidated Statements of Operations for the years
ended December 31, 1995, 1996, and 1997............... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996, and 1997......... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996, and 1997............... F-6
Notes to Consolidated Financial Statements............. F-7
Unaudited Interim Financial Statements
Unaudited Consolidated Balance Sheet as of September
30, 1998.............................................. F-19
Unaudited Consolidated Statements of Operations for the
nine months ended September 30, 1997 and 1998......... F-20
Unaudited Consolidated Statements of Cash Flows for the
nine months ended September 30, 1997 and 1998......... F-21
Notes to Unaudited Consolidated Financial Statements... F-22
</TABLE>
F-1
<PAGE> 103
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Classic Cable, Inc.
We have audited the accompanying consolidated balance sheets of Classic
Cable, Inc. and its subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Classic Cable,
Inc. and its subsidiaries at December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Austin, Texas
July 6, 1998 except for Note 13,
as to which the date is September 15, 1998.
F-2
<PAGE> 104
CLASSIC CABLE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents................................... $ 653,127 $ 615,942
Accounts receivable, net.................................... 5,446,690 4,768,864
Prepaid expenses............................................ 700,223 606,855
Property, plant and equipment, at cost...................... 88,202,624 96,850,298
Less accumulated depreciation............................... (18,535,449) (28,211,443)
------------ ------------
69,667,175 68,638,855
Deferred financing costs, net............................... 5,786,761 4,494,409
Advances to parent.......................................... 65,046 56,046
Intangible assets:
Subscriber relationships.................................. 83,757,467 82,364,351
Franchise rights.......................................... 60,055,208 59,148,887
Noncompete agreements..................................... 12,059,153 12,104,153
Organization costs........................................ 128,293 228,293
Goodwill.................................................. 43,206,845 39,694,737
------------ ------------
199,206,966 193,540,421
Less accumulated amortization............................. (35,570,928) (52,253,745)
------------ ------------
163,636,038 141,286,676
Other assets................................................ 32,300 --
------------ ------------
Total assets...................................... $245,987,360 $220,467,647
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 656,639 $ 771,957
Subscriber deposits and unearned income................... 3,260,210 3,506,695
Other accrued expenses.................................... 5,736,197 5,795,285
Accrued interest.......................................... 912,043 1,444,310
Bank debt................................................. 193,997,742 187,967,199
Deferred taxes, net....................................... 11,264,000 3,276,000
------------ ------------
Total liabilities................................. 215,826,831 202,761,446
8% Cumulative Redeemable Preferred Stock, Series A of
Television Enterprises, Inc. (a subsidiary): no par value;
redemption price -- $100 per share plus accrued and unpaid
dividends of $25,548 in 1997 and $25,502 in 1996; 12,670
shares authorized, issued and outstanding -- at net issue
price..................................................... 1,292,502 1,292,548
Stockholders' equity:
Common Stock: $.01 par value per share; 1,000 shares
authorized, issued and outstanding..................... 10 10
Additional paid-in capital................................ 60,322,716 60,221,380
Accumulated deficit....................................... (31,454,699) (43,807,737)
------------ ------------
Total stockholders' equity........................ 28,868,027 16,413,653
------------ ------------
Total liabilities, redeemable preferred stock and
stockholders' equity............................ $245,987,360 $220,467,647
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 105
CLASSIC CABLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues......................................... $ 36,677,350 $ 59,821,152 $ 60,994,611
Operating expenses:
Programming.................................... 8,221,481 15,105,601 14,916,135
Plant and operating............................ 4,715,281 7,307,818 7,621,670
General and administrative..................... 4,782,166 8,688,375 9,256,786
Marketing and advertising...................... 71,837 238,352 437,841
Corporate overhead............................. 1,120,729 1,155,116 2,888,209
Depreciation and amortization.................. 16,426,667 27,510,001 27,831,970
------------ ------------ ------------
Earnings (loss) from operations.................. 1,339,189 (184,111) (1,958,000)
Interest expense................................. (14,132,296) (20,163,685) (20,759,318)
Gain on sale of cable systems.................... -- 4,900,670 3,644,365
Write-off of abandoned telephone operations and
accrual of related costs....................... -- (2,993,940) (500,000)
Other income..................................... -- -- 70,915
------------ ------------ ------------
Loss before income taxes and extraordinary
item........................................... (12,793,107) (18,441,066) (19,502,038)
Income tax benefit............................... 4,510,000 6,633,000 7,149,000
------------ ------------ ------------
Loss before extraordinary item................... (8,283,107) (11,808,066) (12,353,038)
Extraordinary loss on extinguishment of debt, net
of income tax benefit of $2,516,000............ (4,054,287) -- --
------------ ------------ ------------
Net loss............................... $(12,337,394) $(11,808,066) $(12,353,038)
============ ============ ============
Loss applicable to common shareholders........... $(12,391,822) $(11,909,450) $(12,454,374)
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 106
CLASSIC CABLE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL TOTAL
SHARES PAID-IN ACCUMULATED STOCKHOLDERS'
ISSUED AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994........ 1,000 $10 $32,078,520 $ (7,309,239) $ 24,769,291
Capital contribution from
parent......................... -- -- 28,400,008 -- 28,400,008
Dividends on preferred stock...... -- -- (54,428) -- (54,428)
Net loss.......................... -- (12,337,394) (12,337,394)
----- --- ----------- ------------ ------------
Balance at December 31, 1995........ 1,000 $10 $60,424,100 $(19,646,633) $ 40,777,477
Dividends on preferred stock...... -- -- (101,384) (101,384)
Net loss.......................... -- -- -- (11,808,066) (11,808,066)
----- --- ----------- ------------ ------------
Balance at December 31, 1996........ 1,000 $10 $60,322,716 $(31,454,699) $ 28,868,027
Dividends on preferred stock...... -- -- (101,336) (101,336)
Net loss.......................... -- -- -- (12,353,038) (12,353,038)
----- --- ----------- ------------ ------------
Balance at December 31, 1997........ 1,000 $10 $60,221,380 $(43,807,737) $ 16,413,653
===== === =========== ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 107
CLASSIC CABLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------
1995 1996 1997
------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................... $ (12,337,394) $$(11,808,066) $(12,353,038)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for bad debt.......................... 252,616 1,491,033 1,248,571
Depreciation.................................... 5,470,318 9,490,872 10,284,730
Amortization of intangibles..................... 10,956,349 18,019,129 17,547,240
Amortization of deferred financing costs........ 1,017,859 1,491,104 1,373,526
Discount accretion on bank debt................. 81,579 489,456 456,839
Gain on sales of cable systems.................. -- (4,900,670) (3,644,365)
Deferred tax benefit............................ (7,049,000) (6,635,000) (7,404,000)
Extraordinary loss.............................. 6,570,287 -- --
Changes in working capital, net of acquisition
amounts:
Change in accounts receivable................... (1,138,064) (3,952,002) (570,745)
Change in prepaid and other assets.............. (885,804) 688,806 134,668
Change in other accruals and payables........... 3,516,374 2,684,715 286,667
Change in accrued interest...................... (935,122) 789,013 532,267
------------- ------------ ------------
Net cash provided by operating activities......... 5,519,998 7,848,390 7,892,360
INVESTING ACTIVITIES
Acquisition of cable television systems:
Property, plant and equipment................... (53,544,453) (137,006) --
Intangible assets............................... (118,593,951) (229,670) --
Working capital, net of cash.................... 93,895 -- --
------------- ------------ ------------
(172,044,509) (366,676) --
Purchases of property, plant and equipment........ (3,931,163) (8,211,614) (10,135,485)
Payments for franchise rights, noncompete
agreements, and other intangibles............... -- (467,571) (322,886)
Net proceeds from sale of cable systems........... -- 12,432,887 6,189,390
Net proceeds from litigation settlement........... -- -- 2,928,108
Costs of pending acquisition...................... (696,675) -- --
------------- ------------ ------------
Net cash provided by (used in) investing
activities...................................... (176,672,347) 3,387,026 (1,340,873)
FINANCING ACTIVITIES
Capital contributed from parent................... 29,328,264 -- --
Proceeds from borrowings, net of related fees:
Bridge loan advances............................ 9,000,000 -- --
Bank debt and related warrants.................. 208,000,000 2,207,547 758,592
Repayments of bank debt........................... (64,335,542) (13,345,283) (7,245,974)
Cash dividends paid on TVE preferred stock........ (28,881) (101,430) (101,290)
Financing costs and other......................... (11,873,684) (231,655) --
Purchase of shares of subsidiary from minority
shareholder..................................... -- (600,000) --
------------- ------------ ------------
Net cash provided by (used in) financing
activities...................................... 170,090,157 (12,070,821) (6,588,672)
------------- ------------ ------------
Decrease in cash and cash equivalents............. (1,062,192) (835,405) (37,185)
Cash and cash equivalents at beginning of year.... 2,550,724 1,488,532 653,127
------------- ------------ ------------
Cash and cash equivalents at end of year.......... $ 1,488,532 $ 653,127 $ 615,942
============= ============ ============
Cash taxes paid................................... $ 423,000 $ 5,000 $ 600
Cash interest paid................................ $ 12,569,000 $ 17,367,000 $ 18,397,000
Noncash investing and financing activities:
Acquisition of deferred tax liability........... $ 9,642,000 $ -- $ --
Preferred stock issued for conversion of debt... $ 1,267,000 $ -- $ --
</TABLE>
See accompanying notes.
F-6
<PAGE> 108
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
Classic Cable, Inc. and its subsidiaries (collectively the "Company")
acquires, develops and operates cable television systems throughout the United
States. Operations consist primarily of selling video programming which is
distributed to subscribers for a monthly fee through a network of coaxial
cables. The Company is a wholly-owned subsidiary of Classic Communications, Inc.
("CCI").
Operations originally began in July 1992 as Ponca/Universal Holdings, Inc.
("Ponca"). In May 1995, the Company was formed as a subsidiary to Ponca and
substantially all of the assets and liabilities of Ponca were contributed to the
Company in exchange for 100% of Classic's outstanding capital stock. The assets
and liabilities transferred were recorded at historical cost.
In October 1995, a restructuring occurred in which CCI was formed to hold
Ponca. Pursuant to an exchange agreement, all holders of the capital stock
(including Preferred Stock) of Ponca exchanged their shares in Ponca for shares
in CCI. Subsequently, Ponca merged into the Company with the Company being the
surviving entity. The assets and liabilities transferred were recorded at
historical cost.
These financial statements represent the consolidated company as a whole.
Certain minority interests, which are not material, are not owned by Classic
Cable, Inc.
2. ACQUISITIONS AND DISPOSITIONS OF CABLE TELEVISION SYSTEMS
ACQUISITIONS
In February 1995, the Company acquired certain assets of American Cable
Entertainment Cable Television Systems serving Eufala and Gould, Oklahoma;
Hugoton, Kansas; and communities in northern Texas ("Scott Cable") and
Rocksprings-Canyon TV Company, Inc. for approximately $12,700,000 and $470,000,
respectively. The purchases were financed with available funds of the Company,
$9,000,000 obtained under a bridge loan (later repaid with bank debt) and
$5,000,000 contributed by CCI.
In May 1995, the Company acquired the stock of W.K. Communications, Inc.
for approximately $46,400,000. The purchase and other transactions were financed
with approximately $13,000,000 contributed by CCI and bank debt. The purchase
price of the systems acquired plus deferred tax liabilities arising from the
acquisition of $9,642,000 were allocated to the tangible and identifiable assets
based on fair market values. The allocation resulted in an excess of cost over
net assets acquired (goodwill) of $11,921,100.
In June 1995, the Company acquired certain assets of Cable-Video
Enterprises, Inc., a corporation operating cable television systems in Texas,
Oklahoma, and Missouri, for approximately $16,400,000 of bank debt.
On October 31, 1995, the Company acquired certain assets of United Video
Cablevision, Inc. ("United Video") serving communities in four states and
Mission Cable Company, L.P. ("Mission Cable") serving communities in three
states for approximately $36,600,000 and $57,500,000, respectively. The
purchases were financed with approximately $10,000,000 contributed by CCI and
bank debt.
On December 1, 1995, the Company acquired certain assets of Douglas
Cablevision IV, L.P. serving a community in Texas for approximately $720,000 of
available funds.
In May 1996, the Company acquired certain assets of Regional Cable TV
(USA), Inc., a corporation operating cable television systems in Texas, for
approximately $400,000 of available funds.
F-7
<PAGE> 109
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For financial statement purposes, the above acquisitions were accounted for
using the purchase method. The purchase prices of the systems acquired were
allocated to the identifiable tangible and intangible assets based upon
independent appraisals of current fair market values.
DISPOSITIONS
On September 19, 1996, the Company sold certain nonstrategic cable
televisions systems in Arkansas for cash consideration of $12,409,000, net of
selling expenses. The net pretax gain from the sale was approximately
$5,200,000. Proceeds from the sale were used to reduce a portion of the
Company's bank debt and for working capital purposes.
In April 1996, the Company sold certain nonstrategic cable television
systems in Texas for cash consideration of $24,000, net of selling expenses. The
net pretax loss from the sale was approximately $300,000.
In April and May 1997, the Company sold certain nonstrategic cable
television systems in Kansas and Oklahoma for $5,731,000, net of selling
expenses. The net pretax gain from the sales was approximately $3,600,000.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The operating results of all acquisitions are included in the Company's
consolidated results of operations from the date of acquisition. All significant
intercompany accounts and transactions have been eliminated in consolidation.
MINORITY INTEREST
Minority interest represents the minority stockholder's proportionate share
of the equity of a subsidiary of the Company, WT Acquisition Corporation ("WT").
At December 31, 1995, the Company owned approximately 97% of WT's capital stock,
representing 49% voting control. For financial reporting purposes, WT's assets
and liabilities are consolidated with those of the Company due to the fact that
subsequent to June 18, 1995, the Company could obtain voting control of WT
through its conversion of nonvoting common stock to voting common stock of WT.
Accordingly, the minority stockholder's interest in WT was included in the
Company's financial statements.
Effective December 31, 1994, the minority interest balance had depleted to
zero due to losses of the subsidiary since inception. Accordingly, the Company
absorbed all losses of the subsidiary during 1995.
On January 1, 1996, the Company purchased all outstanding shares from the
minority owner for $600,000 in cash thereby making WT a wholly owned,
consolidated subsidiary.
REVENUE RECOGNITION
Service income includes subscriber service revenues and charges for
installations and connections and is recognized in the period in which the
services are provided to the customers. Subscriber services paid for in advance
are recorded as income when earned.
Initial installation revenue is recognized as revenue when receivable, to
the extent of direct selling costs, with any balance deferred and taken into
income over the estimated average period that subscribers are expected to remain
connected to the system.
F-8
<PAGE> 110
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives of the
assets:
<TABLE>
<S> <C>
Buildings................................................... 30 Years
Cable television distribution systems....................... 7-12 Years
Office furniture and equipment.............................. 3-7 Years
Vehicles.................................................... 5 Years
</TABLE>
Leasehold improvements are amortized over the shorter of their estimated
life or the period of the related leases.
Initial subscriber connection costs are capitalized as part of cable
television distribution systems. Costs related to disconnects and reconnects of
customers are expensed as incurred. Repairs and maintenance are charged to
expense as incurred, while expenditures for major renewals and betterments are
capitalized.
DEFERRED FINANCING COSTS
Included with deferred financing costs are the costs of interest rate cap
agreements. Deferred financing costs are being amortized to interest expense
using the interest method over the terms of the related debt. The Company enters
into interest rate cap agreements to effectively convert a portion of its
floating-rate borrowings into fixed-rate obligations. The cost of such cap
agreements and any interest rate differential to be received are recognized over
the lives of the agreements as an increase in interest expense.
INTANGIBLE ASSETS
The useful lives of the specific intangible assets are as follows:
<TABLE>
<S> <C>
Subscriber relationships.................................... 12-15 Years
Franchise rights............................................ 7-10 Years
Noncompete agreement........................................ 1-5 Years
Organization costs.......................................... 7 Years
Goodwill.................................................... 40 Years
</TABLE>
Intangible assets are being amortized using the straight-line method over
their estimated useful lives. It is the Company's policy to value intangible
assets at the lower of unamortized cost or fair value. Management reviews the
valuation and amortization periods of intangible assets on a periodic basis,
taking into consideration any events or circumstances which might result in
diminished fair value or revised useful life. No events or circumstances have
occurred to warrant a diminished fair value or reduction in the useful life.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews the carrying amounts of property, plant,
and equipment, identifiable intangible assets and goodwill both purchased in the
normal course of business and acquired through acquisition to determine whether
current events or circumstances, as defined in Financial Accounting Standards
Board Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, warrant adjustments to such carrying
amounts by considering, among other things, the future cash inflows expected to
result from the use of the asset and its eventual disposition less the future
cash outflows expected to be necessary to obtain those inflows. An impairment
loss would be measured by comparing the fair value of the asset with its
carrying amount. Any write-down is treated as a permanent reduction in the
carrying amount of the asset.
F-9
<PAGE> 111
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company's operations are included in consolidated income tax returns
filed by CCI. The consolidated amount of current and deferred income tax expense
is allocated to the Company by applying the principles of Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes, to the Company
as if it were a separate taxpayer.
Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax reporting purposes.
CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash, cash equivalents and accounts
receivable. Excess cash is invested in high quality short-term liquid money
instruments issued by highly-rated financial institutions. Concentrations of
credit risk with respect to the Company's receivables are limited due to the
large number of customers, individually small balances, short payment terms and
required deposits.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value and carrying amounts for financial instruments may differ due to
instruments which provide fixed interest rates or contain fixed interest rate
elements. Inherently, such instruments are subject to fluctuations in fair value
due to subsequent movements in interest rates. The carrying amounts of cash,
cash equivalents and receivables approximate fair value due to their short-term
nature. The carrying amount of the Company's borrowings under its bank debt
approximates fair value.
4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Accounts receivable, trade.................................. $4,459,756 $4,570,438
Accounts receivable, other.................................. 1,499,434 960,540
Less allowance for doubtful accounts........................ (512,500) (762,114)
---------- ----------
Accounts receivables, net of allowance...................... $5,446,690 $4,768,864
========== ==========
</TABLE>
F-10
<PAGE> 112
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The activity in the Company's allowance for doubtful accounts for the
periods ending December 31, 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
FOR THE PERIOD ENDED PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1995....................... 99,127 252,616 (103,014) 248,729
December 31, 1996....................... 248,729 1,491,033 (1,227,262) 512,500
December 31, 1997....................... 512,500 1,248,571 (998,957) 762,114
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Land..................................................... $ 1,021,146 $ 1,020,556
Buildings and improvements............................... 2,020,793 2,107,225
Vehicles................................................. 3,595,075 4,087,781
Cable television distribution systems.................... 78,096,275 83,499,164
Office furniture, tools and equipment.................... 2,214,000 2,499,081
Construction in progress................................. 1,255,335 3,636,491
------------ ------------
88,202,624 96,850,298
Less accumulated depreciation............................ (18,535,449) (28,211,443)
------------ ------------
$ 69,667,175 $ 68,638,855
============ ============
</TABLE>
6. BANK DEBT
Balances of amounts outstanding under the Company's various bank credit
agreements and other notes (collectively "Bank Debt") are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Senior Credit Agreement:
Term A Loan............................................ $ 18,729,412 $ 18,323,658
Term B Loan............................................ 59,472,941 58,184,523
Line of Credit Notes................................... 117,497,647 112,717,183
Other.................................................... 646,451 633,705
Discount relating to Senior Credit Agreement............. (2,348,709) (1,891,870)
------------ ------------
$193,997,742 $187,967,199
============ ============
</TABLE>
In May 1995, the Company obtained funds for acquisition, capital
expenditure and working capital purposes through a Senior Credit Agreement
thereby increasing the total credit available through Bank Debt from $57,000,000
to $150,000,000. A portion of the proceeds was used to repay amounts outstanding
under the previously-outstanding Bank Credit Agreement and Loan Agreement.
The Senior Credit Agreement is segregated into three separate debt
facilities, the Term A Loan, the Term B Loan and Line of Credit Notes. In
connection with the 1995 extinguishment of the Bank Credit Agreement and Loan
Agreement, an extraordinary loss related to the write-off of deferred financing
costs of approximately $2,363,000 was recorded. Approximately $4,300,000 in
deferred financing costs were incurred in connection with the Senior Credit
Agreement.
F-11
<PAGE> 113
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concurrent with the acquisition of Mission Cable and United Video (in
October 1995 -- see Note 2), the Company amended and restated its Senior Credit
Agreement to obtain additional funds for acquisition, capital expenditure and
working capital purposes. The amendment and restatement increased the total
credit available thereunder from $150,000,000 to $215,000,000 by decreasing the
Term A Loan from $65,000,000 to $20,000,000; increasing the Term B Loan from
$35,000,000 to $65,000,000 and increasing the available Line of Credit Notes
from $50,000,000 to $130,000,000.
In connection with the amendment and restatement, an extraordinary loss
related to the write off of deferred financing costs of the original Senior
Credit Agreement of approximately $4,208,000 was recorded. An additional
$7,624,835 in deferred financing costs were capitalized related to the amendment
and restatement.
The Senior Credit Agreement is collateralized by a security interest in
essentially all the assets of the Company. The terms of the Senior Credit
Agreement restrict certain activities of the Company, including the incurrence
of additional indebtedness and the payment of certain dividends.
Warrants to purchase an aggregate of 15,207 shares of CCI common stock at
$.01 per share were issued in connection with the amendment and restatement. The
value of the warrants has been recorded as a discount to the carrying amount of
the amended and restated Senior Credit Agreement. The discount is being
amortized to interest expense using the interest method over the term of the
Agreement. The discount balance at December 31, 1997 is $1,891,870.
The Term A Loan, the Term B Loan and the Line of Credit Notes bear interest
at the LIBOR rate (5.91% at December 31, 1997) plus an applicable margin or, at
the option of the Company, a base rate (the higher of the weighted average of
the rates on overnight Federal funds transactions or the lender's prime rate)
plus an applicable margin. Interest on LIBOR based debt is payable on the last
day of the Interest Period as defined in the Senior Credit Agreement. Interest
on base rate is payable quarterly. The applicable margin differs for each
facility and is reduced upon the Company's attainment of certain financial
ratios. The range of margin for the facilities is as follows as of December 31,
1997:
<TABLE>
<CAPTION>
LIBOR MARGIN BASE RATE MARGIN
------------ ----------------
<S> <C> <C>
Term A Loan........................................... 3.25 to 3.75% 2.25 to 2.75%
Term B Loan........................................... 3.75 to 4.25% 2.75 to 3.25%
Line of Credit Notes.................................. 1.50 to 3.50% 0.50 to 2.50%
</TABLE>
Principal of the Term A Loan is payable as follows:
<TABLE>
<CAPTION>
PRINCIPAL
DATE PAYMENTS
---- ----------
<S> <C>
September 30, 2003..................................... $7,500,000
December 31, 2003...................................... 7,500,000
March 31, 2004......................................... 2,500,000
June 30, 2004.......................................... 2,500,000
</TABLE>
Principal of the Term B Loan is payable as follows:
<TABLE>
<CAPTION>
PRINCIPAL
DATE PAYMENTS
---- -----------
<S> <C>
September 30, 2004.................................... $ 7,475,000
December 31, 2004..................................... 7,475,000
March 31, 2005........................................ 25,025,000
June 30, 2005......................................... 25,025,000
</TABLE>
F-12
<PAGE> 114
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Required principal payments of the Term A and Term B Loans are reduced
ratably if borrowings outstanding are less than the total credit available.
The maximum aggregate borrowings available under the Line of Credit Notes
are $114,019,536 at December 31, 1997. The maximum aggregate borrowings will be
reduced quarterly beginning the quarter ended March 31, 1999, with all available
borrowings terminating at June 30, 2003. There are no required quarterly
reductions to the maximum aggregate borrowings available during 1998.
In connection with the Senior Credit Agreement, the Company is required to
pay a quarterly commitment fee equal to 1/2% per annum on the unused portion of
the Line of Credit Notes based on the maximum aggregate borrowings at such time.
Other fees are due in 1998 and 1999 that are based on the amount of outstanding
borrowings. These fees are calculated on June 30, 1998; September 30, 1998 and
January 1, 1999 using rates ranging from 0.25% to 0.75%.
The Company entered into the following interest rate cap agreements whereby
the Company receives compensation when the three-month LIBOR rate exceeds the
maximum interest rate:
<TABLE>
<CAPTION>
MAXIMUM NON-
NOTIONAL INTEREST REFUNDABLE
AMOUNT EFFECTIVE DATE TERMINATION DATE RATE FEE
-------- ----------------- ----------------- -------- ----------
<C> <S> <C> <C> <C>
$ 20,000,000 July 22, 1992 January 24, 1995 6.50% $110,000
4,000,000 July 30, 1993 February 5, 1996 6.00% 20,800
13,400,000 October 4, 1994 July 31, 1996 6.00% 207,700
15,600,000 December 13, 1994 July 31, 1996 6.75% 265,200
65,000,000 February 29, 1996 December 31, 1997 6.50% 175,500
125,000,000 March 31, 1998 October 31, 1998 6.25% 15,700
</TABLE>
In February 1996, the Company entered into an interest rate swap agreement
with a notional amount of $65,000,000 through December 31, 1997. Under the terms
of the agreement, the Company fixes the three month LIBOR rate at 5.51%. No
material fee was paid in connection with the agreement. The fair value of the
Company's interest rate swap at December 31, 1996 was not significant. The
agreement terminated at December 31, 1997.
During the period from June through September of 1995, CCI and the Company
pursued financing for acquisition and working capital purposes through the sale
of notes and debentures under SEC Rule 144A. Costs totaling $1,848,547 were
incurred in connection with this effort. Management determined that the long-
term interest costs associated with this financing were not advantageous to the
Company; therefore, the Company decided to terminate the financing effort. The
costs of the terminated financing are included as a component of interest
expense in 1995.
In February 1997, the Senior Credit Agreement was amended. This amendment
modified certain required ratios and waived the pro forma debt service coverage
ratio covenant through December 30, 1997. In addition, the amendment increased
the interest rates charged on the outstanding Term Loans and Line of Credit
Notes as well as restricting the use of proceeds resulting from the future sales
of assets.
An amendment fee of approximately $1 million was paid to the bank equal to
0.5% of the outstanding Term Loans and Line of Credit Notes in 1997. This amount
is included as a component of interest expense in 1997.
In December 1997, the Senior Credit Agreement was further amended. This
amendment modified certain required ratios and waived the pro forma debt service
coverage ratio covenant through December 31,
F-13
<PAGE> 115
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998. The amendment also gave consent for the Company to enter into certain
transactions related to certain divorce proceedings (See Note 13).
Maturities of Bank Debt, reflecting the December 1997 amendment, are as
follows:
<TABLE>
<S> <C>
1998.................................................. $ 101,114
1999.................................................. 30,063,387
2000.................................................. 21,259,183
2001.................................................. 23,407,668
2002.................................................. 26,000,000
Thereafter............................................ 89,027,717
------------
$189,859,069
============
</TABLE>
7. PREFERRED STOCK
Certain notes payable were converted into TVE Preferred Stock in June 1995.
The Company may redeem the outstanding shares of TVE Preferred Stock at any
time, in whole or in part, at a redemption price per share of $100 plus any
accrued and unpaid dividends. The TVE Preferred Stock is subject to mandatory
redemption at a redemption price per share of $100 plus any accrued and unpaid
dividends at June 30, 2001.
The holders of TVE Preferred Stock are entitled to a cumulative cash
dividend equal to $8.00 per share per annum, due and payable on June 30 of each
year. At December 31, 1997, accrued dividends on TVE Preferred Stock totaled
$25,548.
Holders of TVE Preferred Stock shall be entitled to receive, prior to any
distribution of any available assets of TVE to the holders of Common Stock of
TVE, an amount equal to $100 per share plus any accrued and unpaid dividends.
8. INCOME TAXES
Significant components of income tax benefit from continuing operations are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal..................................... $ (191,000) $ -- $ 255,000
State....................................... -- 2,000 --
----------- ----------- -----------
Total Current....................... (191,000) 2,000 255,000
Deferred:
Federal..................................... (3,835,000) (5,890,000) (6,573,000)
State....................................... (484,000) (745,000) (831,000)
----------- ----------- -----------
Total Deferred...................... (4,319,000) (6,635,000) (7,404,000)
----------- ----------- -----------
Income tax benefit.................. $(4,510,000) $(6,633,000) $(7,149,000)
=========== =========== ===========
</TABLE>
A deferred benefit of $2,516,000 was recorded related to the extraordinary
item in 1995.
F-14
<PAGE> 116
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's provision for income taxes differs from the expected tax
expense (benefit) amount computed by applying the statutory federal income tax
rate of 34% to income before income taxes and extraordinary items as a result of
the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. statutory rate.................................. 34.0% 34.0% 34.0%
State taxes, net of federal benefit......................... 4.3 4.3 4.3
Permanent items and other................................... (3.0) (2.3) (1.7)
---- ---- ----
35.3% 36.0% 36.7%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Book over tax basis of depreciable assets................ $ 6,856,000 $ 2,091,000
Book over tax basis of assets that are amortizable for
tax................................................... 13,582,000 5,414,000
----------- -----------
Total deferred tax liabilities................... 20,438,000 7,505,000
Deferred tax assets:
Net operating loss carryforwards:
Acquired.............................................. 10,771,000 4,880,000
Other................................................. 7,129,000 6,440,000
Other.................................................... 461,000 570,000
----------- -----------
Total deferred tax assets.................................. 18,361,000 11,890,000
Less valuation allowance................................... (9,187,000) (7,661,000)
----------- -----------
Net deferred tax assets.................................... 9,174,000 4,229,000
----------- -----------
Net deferred tax liabilities............................... $11,264,000 $ 3,276,000
=========== ===========
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards of
$29,515,000 for federal income tax purposes, which begin to expire in 2002 if
not utilized. Utilization of some of the loss carryforwards are subject to
various limitations under the Internal Revenue Code.
A valuation allowance has previously been recorded for certain acquisition
net operating loss carryforwards and other acquisition deferred tax assets due
to restrictions on their utilization under the tax law and other uncertainties
regarding their realization. When, and if, realized, the tax benefit associated
with these deferred tax assets will be applied to reduce goodwill and other
noncurrent intangibles related to the acquisitions. A valuation allowance has
not been recorded for the remaining net operating loss carryforwards and
deferred tax assets because existing deferred tax liabilities will reverse
within the carryforward period.
During 1997, net operating loss carryforwards of approximately $3,986,000,
related to a prior acquisition, expired unutilized. A valuation allowance had
been provided for these loss carryforwards at acquisition, and as a result of
their expiration, the valuation allowance was reduced accordingly.
During 1997, a subsidiary of the Company filed an amended income tax return
for a period prior to its acquisition. The amended return resulted in an
additional net operating loss carryforward of $1,525,000 available to the
Company. The Company has recorded a deferred tax asset of $584,000 for this item
and a corresponding reduction to goodwill related to the subsidiary's
acquisition.
F-15
<PAGE> 117
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE BENEFIT PLAN
The Company provides a defined contribution pension plan covering
substantially all full-time employees of the Company who have completed six
months of service. The plan is subject to the provision of Internal Revenue
Codes Section 401(k). The Company will match employee contributions for an
amount up to 3% of each employee's base salary. Company contributions to the
plan were $73,073, $88,590 and $113,975, for the years ended December 31, 1995,
1996 and 1997, respectively.
10. ABANDONMENT OF TELEPHONE OPERATIONS
At December 31, 1995 the Company was negotiating an agreement to purchase
four telephone exchanges in Kansas. For various reasons, the Company did not
complete the acquisitions and hence, did not enter the telephone business. Net
assets of the telephone business, when abandoned in 1996, consisted primarily of
property, plant and equipment. In connection therewith, the Company recorded a
$2,993,940 charge in 1996 related to the termination of the purchase agreement
and operations associated with the proposed acquisition. Items included in the
charge were the write-off of certain costs capitalized in connection with the
proposed acquisition, legal and consulting fees, and estimated severance for
personnel reductions. The Company revised their estimate of costs associated
with the abandonment and took an additional charge of $500,000 in 1997.
11. COMMITMENTS AND CONTINGENCIES
OBLIGATIONS OF PARENT
The Company's parent, CCI, has certain obligations that currently would
require resources of the Company if CCI were to satisfy these obligations. These
obligations include Subordinated Promissory Notes totaling $4,023,328 at
December 31, 1997 and accrued interest. These notes begin to mature in 2002. In
addition, CCI has preferred stock outstanding which requires mandatory
redemption beginning no later than 2005. Certain other events can trigger
earlier redemption. The total redemption obligation (including accrued
dividends) was $27,281,128 at December 31, 1997.
LEASE ARRANGEMENTS
The Company, as an integral part of its cable operations, has entered into
short-term lease contracts for microwave service, pole use and office space. At
December 31, 1997, approximate annual minimum aggregate rentals under such
leases were $1,057,000 in 1998; $115,000 in 1999 and $32,000 in 2000. Rent
expense was $659,012, $1,070,585, and $1,159,665, for the years ended December
31, 1995, 1996 and 1997, respectively.
LITIGATION
The Company is involved in various legal proceedings which have arisen in
the normal course of business. While the ultimate results of these matters
cannot be predicted with certainty, management does not expect them to have a
material adverse effect on the consolidated financial position and results of
operations of the Company.
LEGISLATION AND REGULATION
The Company's operations are subject to extensive regulation at the
federal, state and local levels. Many aspects of such regulation are currently
the subject of judicial proceedings and administrative or legislative proposals.
The Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"), among other things, significantly expanded the scope of cable
television regulation and made significant changes to the legislative and
regulatory environment in which the Company operates. On April 1, 1993, the
Federal Communications Commission (the "FCC") adopted rules promulgated by the
1992 Cable Act which allow for a greater degree of regulation of the cable
industry with respect to, among other things: (i) cable
F-16
<PAGE> 118
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
system rates for both basic and certain nonbasic services (the "regulated
services"); (ii) programming access and exclusivity arrangements; (iii) leased
access terms and conditions; (iv) ownership of cable systems; (v) customer
service requirements; (vi) television broadcast signal carriage and
retransmission consent; (vii) technical standards; and (viii) obscene or
indecent programming. On March 30, 1994, the FCC released revisions to its April
30, 1993 rate regulations which further increased regulation in the cable
industry.
In June 1995, the FCC released new regulations providing substantial relief
from rate regulation for small systems owned by small cable companies.
Management believes that all of the systems owned by the Company qualify under
the FCC's definition of a small system, and its rates are within the reasonable
rates prescribed for such small systems.
In accordance with the 1992 Cable Act, the regulated service rates charged
by the Company may be reviewed by local franchise authorities (for basic
service) or the FCC (for cable programming service). Refund liability for cable
programming service rates may be calculated from the date a complaint alleging
an unreasonable rate for cable programming service is filed with the FCC until
the refund is implemented. There have been no complaints filed and accepted by
the FCC.
In February 1996, a telecommunications bill was signed into federal law
which significantly impacts the cable industry. Most notably, the bill allows
cable system operators to provide telephony services, allows telephone companies
to offer video services, and it provides for deregulation of cable programming
service rates by 1999. While the impact of the bill cannot be determined at this
time, management does not expect the bill to have a significant adverse impact
on the financial position or results of operations of the Company.
Management of the Company believes that it has complied in all material
respects with the provisions of the FCC rules and regulations and the provisions
of local franchising authorities. Accordingly, no provision has been made in the
financial statements for any potential refunds. These rules and regulations are,
however, subject to judgmental interpretations, and the impact of potential rate
changes or refunds ordered by local franchising authorities or the FCC could
cause the Company to make refunds and/or lower its rates for regulated services
in the future.
12. SETTLEMENT OF CLAIM
In March 1997, the Company settled certain litigation in which the Company
was seeking damages related to a previous year's acquisition. The Company
received approximately $3.5 million in the settlement. A receivable of $500,000
existed at December 31, 1996 related to this claim. The net proceeds of $3
million were recorded as a reduction of goodwill.
13. SUBSEQUENT EVENTS
CLAIM SETTLEMENT
In February 1998, CCI settled claims that arose in conjunction with divorce
proceedings of an officer of CCI. CCI agreed to purchase certain stock of CCI in
which the officer's wife held a community property interest and provide monetary
consideration for the release of the claims. Total payments related to the
settlement, including $900,000 for the repurchase of CCI stock from the
officer's wife, will approximate $1.1 million. Payments will commence in 1998.
The related expenses, included legal, consultant and other fees of approximately
$1,035,000 are included in corporate overhead expenses of the Company in 1997.
The Company has paid certain legal fees related to these proceedings on behalf
of the officer. These amounts, approximately $200,000, are recorded as a
receivable as of December 31, 1997.
F-17
<PAGE> 119
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACQUISITION
In July 1998, the Company acquired certain assets of Cable One, Inc.
serving communities in four states for approximately $41.7 million (the "Cable
One Acquisition"). The purchase was financed from proceeds of the private debt
offerings of the Company and CCI. (See Debt Offering below).
DEBT OFFERING
In July 1998, CCI issued $60.0 million gross proceeds ($114.0 million in
aggregate principal amount at maturity) of 13.25% Senior Discount Notes due 2009
and the Company issued $125.0 million of 9.875% Senior Subordinated Notes due
2008. Concurrently with the offering, the Company entered into a New Senior
Credit Agreement. The proceeds from these transactions were approximately $280.2
million and were used to (a) fund the acquisition of certain assets of Cable
One, Inc., (b) redeem existing CCI preferred stock, (c) retire the outstanding
CCI subordinated debt, (d) repay the Senior Credit Agreement and other
outstanding debt and (e) pay fees and expenses of these transactions.
The New Senior Credit Agreement consists of a $50.0 million Reducing
Revolving Credit Facility which matures in 2006 and a $75.0 million Term Loan
Facility which matures in 2007. Mandatory payments commence in 2001. Interest is
based upon either a LIBOR rate plus an applicable margin or, at the option of
the Company, a base rate plus an applicable margin.
The Senior Discount Notes were sold in units that consisted of a $1,000
note and three shares of CCI common stock. CCI shares issued in connection with
the offering totaled 342,000.
The Company's Senior Subordinated Notes are guaranteed by all direct and
indirect subsidiaries of the Company. These guarantees are full and
unconditional, joint and several. The Company on a stand alone basis does not
have operations or assets separate from its investment in its subsidiaries.
Management has determined that the separate financial statements of the
guarantors would not be material to its investors.
STOCK REPURCHASE (UNAUDITED)
Effective September 15, 1998, each of Universal Cable Communications, Inc.,
Universal Cable-Midwest, Inc. and Universal Cable of Beaver Oklahoma, Inc.,
repurchased all of their respective shares of common stock not owned by
Universal Cable Holdings, Inc. for an aggregate purchase price of $50,000. As a
result, all subsidiaries of Classic Cable, Inc. are now wholly owned by Classic
Cable, Inc.
F-18
<PAGE> 120
CLASSIC CABLE, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 4,854
Accounts receivable, net.................................... 5,656
Prepaid expenses............................................ 548
Property, plant, and equipment.............................. 122,126
Less accumulated depreciation............................... (36,861)
--------
85,265
Deferred financing cost, net................................ 6,309
Advances to parent.......................................... 355
Intangible assets:
Subscriber relationships.................................. 94,083
Franchise rights.......................................... 71,489
Noncompete agreements..................................... 8,614
Goodwill.................................................. 39,995
Other..................................................... 128
--------
214,309
Less accumulated amortization............................... (61,696)
--------
152,613
--------
Total Assets...................................... $255,600
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 260
Subscriber deposits and unearned income................... 5,234
Accrued expenses.......................................... 5,186
Accrued interest.......................................... 2,596
Deferred taxes, net....................................... 1,180
Long-term debt............................................ 220,804
--------
Total liabilities................................. 235,260
Stockholders' equity:
Common stock.............................................. --
Additional paid-in capital................................ 82,918
Accumulated deficit....................................... (62,578)
--------
Total stockholders' equity........................ 20,340
--------
Total liabilities and stockholders' equity........ $255,600
========
</TABLE>
See notes to unaudited consolidated financial statements.
F-19
<PAGE> 121
CLASSIC CABLE, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Revenues.................................................... $45,547 $ 50,404
Operating expenses:
Programming............................................... 11,148 12,877
Plant and operating....................................... 5,605 6,063
General and administrative................................ 6,995 7,293
Marketing and advertising................................. 343 555
Corporate overhead.......................................... 1,731 1,982
Depreciation and amortization............................... 20,888 21,682
------- --------
Loss from operations........................................ (1,163) (48)
Interest expense............................................ (14,796) (15,424)
Gain on sale of cable system................................ 3,644 --
Other income................................................ 49 121
------- --------
Loss before income taxes and extraordinary item............. (12,266) (15,351)
Income tax benefit.......................................... 4,502 2,105
------- --------
Loss before extraordinary item.............................. (7,764) (13,246)
Extraordinary loss on extinguishment of debt................ -- (5,524)
Net loss.................................................... $(7,764) $(18,770)
======= ========
</TABLE>
See notes to unaudited consolidated financial statements.
F-20
<PAGE> 122
CLASSIC CABLE, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(7,764) $ (18,770)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 7,577 8,650
Amortization of intangibles............................... 12,841 13,032
Amortization of deferred financing costs.................. 1,039 777
Discount accretion on bank debt........................... 344 227
Gain on sales of cable systems............................ (3,644) --
Extraordinary loss........................................ -- 5,524
Change in operating assets and liabilities................
Accounts receivable.................................... 997 (802)
Prepaid expenses....................................... 183 43
Advances to parent..................................... 11 (299)
Accounts payable....................................... 92 (513)
Subscriber deposits and unearned income................ 296 1,727
Other accrued expenses................................. (987) (908)
Accrued interest....................................... 82 1,152
Deferred taxes......................................... (4,512) (2,096)
Other.................................................. (362) --
------- ---------
Net Cash provided by operating activities................... 6,193 (7,744)
INVESTING ACTIVITIES
Acquisition of cable systems................................ -- (41,747)
Purchase of property, plant and equipment................... (7,542) (7,658)
Net proceeds from sale of cable systems..................... 6,189 --
Net proceeds from litigation settlement..................... 2,928 --
Other....................................................... (309) --
------- ---------
Net cash provided by (used in) investing activities......... 1,266 (49,405)
FINANCING ACTIVITIES
Proceeds from long-term debt:............................... -- 221,227
Repayments of long-term debt................................ (7,228) (190,292)
Financing costs............................................. -- (6,441)
Capital contribution from parent............................ -- 22,764
Redemption of preferred stock............................... -- (1,267)
Cash dividends paid on preferred stock...................... (76) (92)
------- ---------
Net cash provided by (used in) financing activities......... (7,304) 45,899
Increase in cash and cash equivalents....................... 155 4,238
Cash and cash equivalents at beginning of period............ 653 616
------- ---------
Cash and cash equivalents at end of period.................. $ 808 $ 4,854
======= =========
</TABLE>
See notes to unaudited consolidated financial statements.
F-21
<PAGE> 123
CLASSIC CABLE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Classic Cable, Inc. (the "Company"), have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
3. ACCOUNTS RECEIVABLE
The activity in the Company's allowance for doubtful accounts for the
periods ending September 30, 1998 and 1997 is as follows (amounts in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
FOR THE NINE MONTHS ENDED PERIOD EXPENSES DEDUCTIONS PERIOD
------------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 1998....................... $762 $ 695 $1,333 $124
September 30, 1997....................... 513 1,166 1,241 438
</TABLE>
4. PROMISSORY NOTES
In February 1998, Classic Communications, Inc. ("CCI"), the Company's
parent, settled claims that arose in conjunction with divorce proceedings of an
officer of CCI. CCI agreed to purchase certain of its stock in which the
officer's wife held a community property interest and provide monetary
compensation for the release of the claims. CCI acquired for $900,000 ($250,000
cash and $650,000 of promissory notes) 101,538 shares of its Common Stock
(76,350 of which were originally awarded under the CCI 1996 Restricted Stock
Award Program). The Company recognized expenses related to this transaction in
1997. The promissory notes were paid in full in July 1998.
5. INCOME TAXES
The Company recorded an income tax benefit for the nine months ended
September 30, 1998 at an effective rate of approximately 13.7% which is based on
the Company's anticipated results for the year. The effective tax rates for the
nine months ended September 30, 1998 and September 30, 1997 differ primarily due
to an increase in the valuation allowance on deferred tax assets. The Company
believes it is more likely than not that such deferred tax assets will not be
utilized in the near term.
The Company's benefit for income taxes differs from the amount computed by
applying the statutory rate to loss before income taxes primarily due to the
impact of permanent differences, an increase in the valuation allowance and
other items as discussed above.
F-22
<PAGE> 124
6. ACQUISITION OF CABLE SYSTEMS
In July 1998, the Company acquired certain assets of Cable One, Inc. (the
"Cable One Acquisition") serving communities in four states for approximately
$41.7 million in cash and the assumption of $0.2 million in net operating
liabilities. The purchase was financed from proceeds of the private debt
offerings of the Company and CCI. See Debt Offering below. The transaction was
accounted for as a purchase and, accordingly, the operating results of systems
acquired have been included in the Company's consolidated financial statements
since the date of acquisition.
The purchase price, including related acquisition costs, was allocated
based on an independent valuation obtained by the Company to the tangible and
intangible assets acquired and liabilities assumed based upon their respective
fair values on the date of acquisition as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets............................................. $17,618
Subscriber relationships.................................... 11,731
Franchise rights............................................ 12,341
Goodwill.................................................... 287
-------
Total assets................................................ 41,977
Net liabilities assumed..................................... 230
-------
Net assets acquired......................................... $41,747
=======
</TABLE>
Franchise rights will be amortized on a straight-line basis over estimated
useful lives ranging from seven to ten years. Goodwill will be amortized on a
straight-line basis over an estimated useful life of twenty years.
The following summarized unaudited pro forma financial information assumes
the Cable One Acquisition had occurred on January 1, 1998 and 1997,
respectively. The following pro forma information is not necessarily indicative
of the results that would have occurred had the transaction been completed at
the beginning of the period indicated, nor is it indicative of future operating
results (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues.................................................... $ 57,020 $ 51,837
Net loss before extraordinary item.......................... (18,554) (11,077)
Net loss.................................................... $(24,078) $(11,077)
</TABLE>
7. DEBT OFFERING
In July 1998, CCI issued $114.0 million of 13.25% Senior Discount Notes due
2009 and the Company issued $125.0 million of 9.875% Senior Subordinated Notes
due 2008. Net of the applicable discounts and the fair value of the CCI common
stock sold along with the Senior Discount Notes, proceeds from these issues were
$60.0 million and $124.4 million, respectively. Interest payments on the Senior
Discount Notes do not commence until 2004. Interest payments on the Senior
Subordinated Notes begin in 1999. Concurrent with the offering, the Company
entered into a New Senior Credit Agreement. The New Senior Credit Agreement
consists of a $50.0 million Reducing Revolving Credit Facility which matures in
2006 and a $75.0 million Term Loan Facility which matures in 2007. Mandatory
payments commence in 2000. Interest is based upon either a LIBOR rate plus an
applicable margin or, at the option of the Company, a base rate plus an
applicable margin. Proceeds from the New Senior Credit Agreement totaled $95.8
million.
Total proceeds from these transactions were approximately $280.2 million
and were used to (a) fund the acquisition of certain assets of Cable One, Inc.
($41.7 million), (b) redeem existing CCI and Company preferred stock ($31.0
million), (c) retire the outstanding CCI subordinated debt ($4.5 million), (d)
repay the Senior Credit Agreement and other outstanding debt ($190.3 million)
and interest ($2.6 million) and (e) pay fees and expenses of these transactions
($10.1 million). Included in the fees and expenses were approximately $750,000
of transaction fees paid to certain members of management which were contingent
F-23
<PAGE> 125
upon the successful completion of the debt offering and the Cable One
Acquisition. The $750,000 in fees paid to members of management have been
expensed and are included in corporate overhead. The net proceeds of the CCI
Notes were transferred to the Company and recorded as a capital contribution.
In connection with the early extinguishment of the Senior Credit Agreement,
an extraordinary loss of $5.5 million was recorded related to the write-off of
unamortized deferred financing costs and discount.
8. STOCK REPURCHASE
Effective September 15, 1998, each of Universal Cable Communications, Inc.,
Universal Cable-Midwest, Inc. and Universal Cable of Beaver Oklahoma, Inc.,
repurchased all of their shares of common stock not owned by Universal Cable
Holdings, Inc. for an aggregate purchase price of $50,000. As a result, all
direct and indirect subsidiaries of the Company are wholly owned.
9. CONTINGENCIES
CCI has no revenue generating or cash generating assets other than its
investment in the Company, its wholly owned subsidiary. CCI does have certain
obligations that currently would require resources of the Company if CCI were to
satisfy these obligations.
F-24
<PAGE> 126
CLASSIC CABLE, INC.
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<S> <C>
CLASSIC CABLE, INC.
Unaudited Pro Forma Consolidated Financial
Information........................................... P-2
Unaudited Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1997....... P-3
Unaudited Pro Forma Consolidated Statement of
Operations for the nine months ended September 30,
1998.................................................. P-4
Notes to Unaudited Pro Forma Consolidated Statements of
Operations............................................ P-5
</TABLE>
P-1
<PAGE> 127
CLASSIC CABLE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Information of the
Company is based on the audited and unaudited financial statements of the
Company, included elsewhere herein, and unaudited financial information of Cable
One and TCI. The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
The Unaudited Pro Forma Consolidated Financial Information and accompanying
notes should be read in conjunction with the historical financial statements of
the Company and the respective notes thereto, and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" appearing elsewhere
in the Offering Memorandum.
The Unaudited Pro Forma Consolidated Statements of Operations have been
prepared to give effect to the Financing Plan as if it had occurred on January
1, 1997. The Unaudited Pro Forma Consolidated Statement of Operations for the
nine months ended September 30, 1998 combines the historical consolidated
statement of operations of the Company for the nine months ended September 30,
1998, and the historical consolidated statement of operations of Cable One for
the seven months prior to its acquisition on July 29, 1998. The Cable One
Acquisition is accounted for under the purchase method of accounting. The
aggregate purchase price for the Cable One Acquisition has been allocated to the
tangible and identifiable intangible assets of the acquired systems based upon
an independent appraisal of their fair value.
The Unaudited Pro Forma Consolidated Financial information does not purport
to be indicative of the results that would have been obtained had such
transactions been completed as of the assumed date and for the periods presented
or that may be obtained in the future. Such Unaudited Pro Forma Consolidated
Financial Information is included herein for informational purposes, and while
management believes that it may be helpful in understanding the combined
operations of the Company for the periods indicated, undue reliance should not
be placed thereon.
P-2
<PAGE> 128
CLASSIC CABLE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASSIC CABLE
CABLE ONE TCI ADJUSTMENTS PRO FORMA
-------- ------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 60,995 $ 9,717 $1,465 $ -- $ 72,177
Operating Expenses:
Programming............................ 14,916 2,296 338 -- 17,550
Plant and operating.................... 7,622 1,130 285 -- 9,037
General and administrative............. 9,257 1,589 179 -- 11,025
Marketing and advertising.............. 438 112 -- -- 550
Corporate overhead..................... 2,888 855 47 -- 3,790
Depreciation and amortization.......... 27,832 953 195 4,124(a) 33,104
-------- ------- ------ -------- --------
Earnings (loss) from operations.......... (1,958) 2,782 421 (4,124) (2,879)
Interest expense......................... (20,760) -- -- (1,611)(b) (22,371)
Gain on sale of cable system............. 3,644 -- -- -- 3,644
Write-off of abandoned telephone
operations and accrual of related
costs.................................. (500) -- -- -- (500)
Other income............................. 72 736 118 (736)(c) 190
-------- ------- ------ -------- --------
Earnings (loss) before income taxes...... (19,502) 3,518 539 (6,471) (21,916)
Income tax benefit....................... 7,149 -- -- 821(d) 7,970
-------- ------- ------ -------- --------
Net income (loss)........................ $(12,353) $ 3,518 $ 539 $ (5,650) $(13,946)
======== ======= ====== ======== ========
</TABLE>
See the notes to the unaudited pro forma consolidated statement of operations.
P-3
<PAGE> 129
CLASSIC CABLE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASSIC CABLE
CABLE ONE ADJUSTMENTS PRO FORMA
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues........................................... $ 50,404 $6,616 $ -- $ 57,020
Operating Expenses:
Programming...................................... 12,877 1,762 -- 14,639
Plant and operating.............................. 6,063 829 -- 6,892
General and administrative....................... 7,293 1,109 -- 8,402
Marketing and advertising........................ 555 141 -- 696
Corporate overhead............................... 1,982 -- -- 1,982
Depreciation and amortization.................... 21,682 759 2,316(a) 24,757
-------- ------ ------- --------
Earnings (loss) from operations.................... (48) 2,016 (2,316) (348)
Interest expense................................... (15,424) -- (782)(b) (16,206)
Other (expense) income............................. 121 (593) -- (472)
-------- ------ ------- --------
Earnings (loss) before income taxes................ (15,351) 1,423 (3,098) (17,026)
Income tax benefit................................. 2,105 -- 366(d) 2,471
-------- ------ ------- --------
Net income (loss).................................. $(13,246) $1,423 $(2,732) $(14,555)
======== ====== ======= ========
</TABLE>
See the notes to the unaudited pro forma consolidated statement of operations.
P-4
<PAGE> 130
CLASSIC CABLE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The accompanying Unaudited Pro Forma Consolidated Statements of Operations
for the year ended December 31, 1997 and the nine months ended September 30,
1998 reflect the pro forma adjustments described below as if the Financing Plan
occurred on January 1, 1997. The Unaudited Pro Forma Consolidated Statements of
Operations combine the historical results of operations of the Company with
those of Cable One. These statements reflect the following adjustments for the
period indicated:
(a) Represents pro forma adjustments to depreciation and amortization
in connection with the Cable One Acquisition. The depreciation and
amortization expense of property, plant and equipment and intangible assets
acquired, net of elimination of depreciation and amortization expense on
historical assets, is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Depreciation and amortization expense on the
purchased basis of property, plant and equipment
and intangible assets acquired.................... $ 5,272 $3,075
Elimination of historical depreciation and
amortization expense.............................. (1,148) (759)
------- ------
Total adjustment to depreciation and
amortization............................ $ 4,124 $2,316
======= ======
</TABLE>
The property, plant, and equipment and intangible assets acquired in
connection with the Cable One acquisition are noted below:
<TABLE>
<CAPTION>
DEPRECIATION/
AMORTIZATION
PERIOD (YEARS)
--------------
<S> <C> <C>
Land.................................................. $ 127
Buildings............................................. 559 30
Leasehold improvements................................ 117 7
Vehicles.............................................. 540 5
Cable television distribution systems................. 6,282 7
UHF System............................................ 1,327 7
Mobile radio equipment................................ 52 7
Headend electronics................................... 3,776 7
Headend tower and antennae............................ 1,584 7
Microwave equipment................................... 666 7
Shop and test equipment............................... 789 7
Drops................................................. 1,376 7
Furniture and fixtures................................ 230 7
Office equipment...................................... 141 7
Computer hardware and equipment....................... 46 4
Computer software..................................... 7 3
Subscriber relationships.............................. 11,732 12
Franchise rights...................................... 12,340 7
Goodwill.............................................. 209 40
-------
$41,900
=======
</TABLE>
P-5
<PAGE> 131
CLASSIC CABLE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(b) Represents (i) interest expense on the New Senior Credit Agreement
using a current interest rate of 7.88% and 8.21% for the revolver and term
loans, respectively per annum, (ii) interest expense on the Notes using a
rate of 9.875% per annum, (iii) discount amortization on the Notes, (iv)
amortization expense of deferred financing fees related to the new debt
under the Financing Plan and (v) elimination of historical interest expense
from the repayment of the Existing Senior Credit Agreement with proceeds
from the Financing Plan and elimination of the related amortization of
deferred financing costs, as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Interest expense on the New Senior Credit
Agreement......................................... $ 7,792* $ 5,844*
Interest expense on the Notes....................... 12,344 9,258
Discount amortization on the Notes.................. 59 44
Amortization expense of deferred financing fees
related to the Financing Plan..................... 683 512
Elimination of historical interest expense on the
Existing Senior Credit Agreement and subordinated
debt and related amortization of deferred
financing costs................................... (19,267) (14,876)
-------- --------
Total increase to interest expense........ $ 1,611 $ 782
======== ========
</TABLE>
- ---------------
* The total effect of a 1/8% variance in the interest rate would be
$120 and $90, respectively.
(c) Represents the elimination of Cable One intercompany interest
income of $736 in 1997.
(d) Represents the (i) tax effect of pro forma adjustments, (ii)
recognition of tax expense for the Cable One systems which were
historically not allocated tax expense by their former parent, and (iii)
the effect of recording a valuation allowance on excess deferred tax assets
arising from pro forma adjustments (The Company records a tax benefit only
to the extent existing deferred tax liabilities reverse within the
appropriate period to offset deferred tax assets. These reversing
liabilities will be fully recognized in 1998, and a valuation allowance
remains on 100% of the remaining deferred tax assets. As a result, the
ratable tax benefit to be realized in the nine months ended September 30,
1998 is limited, resulting in an effective rate of less than 6%.) as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- -------------------
<S> <C> <C> <C> <C>
Total pro forma adjustments........................ $(6,471) $(3,098)
Tax rate........................................... 34% 34%
------- -------
$ 2,200 $ 1,053
Total Cable One Acquisition pre tax income......... 4,057 1,423
Tax rate........................................... 34% 34%
------- -------
(1,379) (484)
Effect of valuation allowance...................... -- (204)
------- -------
Total adjustment to income tax benefit... $ 821 $ 366
======= =======
</TABLE>
P-6
<PAGE> 132
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE NOTES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 10
Use of Proceeds....................... 16
Capitalization........................ 17
Selected Historical and Pro Forma
Consolidated Financial and Operating
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 28
Legislation and Regulation............ 39
Management............................ 49
Certain Relationships and Related
Transactions........................ 53
Principal Stockholders................ 54
Credit Arrangements of the Company.... 55
The Exchange Offer.................... 56
Description of the New Notes.......... 63
United States Federal Income Tax
Considerations...................... 90
Plan of Distribution.................. 96
Legal Matters......................... 96
Experts............................... 96
Index to Historical Financial
Statements.......................... F-1
Index to Pro Forma Consolidated
Financial Information............... P-1
</TABLE>
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
OFFER TO EXCHANGE
ALL OUTSTANDING
9 7/8% SENIOR SUBORDINATED
NOTES DUE 2008
FOR
9 7/8% SENIOR SUBORDINATED
NOTES DUE 2008 OF
[CLASSIC CABLE LOGO]
CLASSIC CABLE, INC.
------------------------
PROSPECTUS
------------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") grants each corporation organized thereunder, such as the Registrant,
the power to indemnify its directors and officers against liabilities for
certain of their acts. Section 102(b)(7) of the DGCL permits a provision in the
certificate of incorporation of each corporation organized thereunder, such as
the Registrant, eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit. Article Eighth of the Registrant's Certificate of
Incorporation has eliminated the personal liability of directors to the fullest
extent permitted by Section 102(b)(7) of the DGCL.
Article 11 of the Registrant's Certificate of Incorporation provides as
follows: The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(whether or not by or in the right of the Corporation) by reason of the fact
that he is or was a director, officer, employee, or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), liability, loss,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding to the fullest extent
permitted by either (i) any applicable law in effect on the date of
incorporation of the Corporation, or (ii) any law which becomes effective during
the existence of the Corporation and which is applicable to it.
Article 8 of the Registrant's By-Laws provides as follows: To the extent
permitted by law, the Corporation shall indemnify any person against any and all
judgments, fines, amounts paid in settling or otherwise disposing of actions or
threatened actions, and expenses in connection therewith, incurred by reason of
the fact that he, his testator or intestate is or was a director or officer of
the Corporation or of any other corporation of any type or kind, domestic or
foreign, which he served in any capacity at the request of the Corporation. To
the extent permitted by law, expenses so incurred by any such person in
defending a civil or criminal action or proceeding shall at his request be paid
by the Corporation in advance of the final disposition of such action or
proceeding.
The foregoing statements are subject to the detailed provisions of Section
102(b)(7) of the DGCL, Article 11 of the Certificate of Incorporation of the
Registrant and Article 8 of the By-Laws of the Registrant, as applicable.
The foregoing discussion is qualified in its entirety by reference to the
DGCL and the Registrant's Certificate of Incorporation and By-Laws.
II-1
<PAGE> 134
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.1 -- Classic Cable, Inc. Certificate of Incorporation dated
April 29, 1995.
3.2 -- Classic Cable, Inc. Bylaws.
3.3 -- Classic Cable Holding, Inc. Certificate of Incorporation
dated December 1, 1996.
3.4 -- Classic Cable Holding, Inc. Bylaws.
3.5 -- Ponca Holdings, Inc. Certificate of Incorporation dated
May 3, 1991, as amended.
3.6 -- Ponca Holdings, Inc. Bylaws.
3.7 -- Classic Telephone, Inc. Certificate of Incorporation
dated November 22, 1994.
3.8 -- Classic Telephone, Inc. Bylaws.
3.9 -- Universal Cable Holdings, Inc. Certificate of
Incorporation dated October 17, 1985, as amended.
3.10 -- Universal Cable Holdings, Inc. Bylaws.
3.11 -- Universal Cable Communications Inc. Certificate of
Incorporation dated June 7, 1983, as amended.
3.12 -- Universal Cable Communications Inc. Bylaws.
3.13 -- Universal Cable of Beaver Oklahoma, Inc. Certificate of
Incorporation dated June 4, 1987, as amended.
3.14 -- Universal Cable of Beaver Oklahoma, Inc. Bylaws.
3.15 -- Universal Cable Midwest, Inc. Certificate of
Incorporation dated February 22, 1989, as amended.
3.16 -- Universal Cable Midwest, Inc. Bylaws.
3.17 -- WT Acquisition Corporation Articles of Incorporation
dated August 14, 1992, as amended.
3.18 -- WT Acquisition Corporation Bylaws.
3.19 -- W.K. Communications, Inc. Certificate of Incorporation
dated June 11, 1987, as amended.
3.20 -- W.K. Communications, Inc. Bylaws.
3.21 -- Television Enterprises, Inc. Certificate of Incorporation
dated August 12, 1965, as amended.
3.22 -- Television Enterprises, Inc. Bylaws.
3.23 -- Black Creek Communications, L.P. Certificate of Limited
Partnership dated May 19, 1998.
3.24 -- Black Creek Communications, L.P. Limited Partnership
Agreement.
3.25 -- Black Creek Management, L.L.C. Articles of Organization
dated May 19, 1998.
3.26 -- Black Creek Management, L.L.C. Regulations.
4.1 -- Indenture for $125,000,000 9 7/8% Senior Subordinated
Notes due 2008, dated as of July 29, 1998 among Classic
Cable, Inc., as Issuer, and the Subsidiary Guarantors
listed on the Appendix thereto, and Chase Bank of Texas,
National Association, as Trustee.
4.2 -- Form of Global Note.
</TABLE>
II-2
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
4.3 -- Registration Rights Agreement dated as of July 29, 1998,
by and among Classic Cable, Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Goldman, Sachs &
Co.
5.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding enforceability and issuance
of the securities, including consent.
5.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding enforceability and issuance of the
securities, including consent.
8.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding federal income tax matters,
including consent.
8.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding federal income tax matters, including
consent.
10.1 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle.
10.2 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach.
10.3 -- Credit Agreement among Classic Cable, Inc. as Borrower,
the Lenders Parties thereto, Union Bank of California,
N.A. and Goldman Sachs Credit Partners L.P. as
Co-Arrangers, Goldman Sachs Credit partners L.P., as
Syndication Agent and Union Bank of California, N.A., as
Administrative and Documentation Agent, dated as of July
29, 1998.
10.4 -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc., as assigned to Black Creek Communications, L.P., as
Purchaser pursuant to that certain Assignment of Asset
Purchase Agreement dated as of June 19, 1998 and as
amended by that certain Amendment No. 1 to Asset Purchase
Agreement dated July 15, 1998.
12.1 -- Statement of Earnings to Fixed Charges.
21.1 -- Subsidiaries of Classic Cable, Inc.
*23.1 -- Consent of Ernst & Young LLP dated January 28, 1999.
23.2 -- Consent of Winstead Sechrest & Minick P.C. (included
within Exhibits 5.1 and 8.1 of this Registration
Statement).
24.1 -- Powers of Attorney (included as part of signature page of
this Registration Statement).
25.1 -- Statement of Eligibility on Form T-1 of Chase Bank of
Texas, National Association, as Trustee, including
consent.
27.1 -- Financial Data Schedule.
99.1 -- Form of Transmittal Letter with respect to the Exchange
Offer (to be filed by amendment).
99.2 -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer (to be filed by amendment).
</TABLE>
- ---------------
* Filed herewith.
All other schedules are omitted because the required information is
included in the Consolidated Financial Statements or the Notes thereto or is
otherwise inapplicable.
II-3
<PAGE> 136
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to this request.
(c) The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement.
(d) The undersigned Registrants hereby undertake as follows: That prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issues
undertake that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(e) The Registrants undertake that every prospectus (i) that is filed
pursuant to paragraph
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Act is used in connection with an offering of securities subject
to Rule 415 (sec. 230.415 of this chapter), will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise,
II-4
<PAGE> 137
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(f) The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time was it declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 138
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
CLASSIC CABLE, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer and
J. Merritt Belisle a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief Financial February 2, 1999
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-6
<PAGE> 139
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
CLASSIC CABLE HOLDING, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer and
J. Merritt Belisle a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief Financial February 2, 1999
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-7
<PAGE> 140
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
PONCA HOLDINGS, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer and
J. Merritt Belisle a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief Financial February 2, 1999
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
*By: /s/ STEVEN E. SEACH
------------------------------------------------
Steven E. Seach
</TABLE>
Steven E. Seach, by signing his
name hereto, does sign this document
on behalf of the persons named
above, pursuant to a power of
attorney duly executed by such
persons and previously filed.
II-8
<PAGE> 141
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
CLASSIC TELEPHONE, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer and
J. Merritt Belisle a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief Financial February 2, 1999
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
-------------------------------
Steven E. Seach
Steven E. Seach, by signing his
name hereto, does sign this document
on behalf of the persons named
above, pursuant to a power of
attorney duly executed by such
persons and previously filed.
II-9
<PAGE> 142
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
UNIVERSAL CABLE HOLDINGS, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer
J. Merritt Belisle and a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief February 2, 1999
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-10
<PAGE> 143
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
UNIVERSAL CABLE COMMUNICATIONS, INC.
By: /s/ J. MERRITT BELISLE
-------------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer and
J. Merritt Belisle a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief Financial February 2, 1999
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-11
<PAGE> 144
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
UNIVERSAL CABLE
OF BEAVER OKLAHOMA, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer
J. Merritt Belisle and a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief February 2, 1999
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-12
<PAGE> 145
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
UNIVERSAL CABLE MIDWEST, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer
J. Merritt Belisle and a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief February 2, 1999
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-13
<PAGE> 146
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
WT ACQUISITION CORPORATION
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer
J. Merritt Belisle and a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief February 2, 1999
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-14
<PAGE> 147
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
W.K. COMMUNICATIONS, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer
J. Merritt Belisle and a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief February 2, 1999
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-15
<PAGE> 148
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
TELEVISION ENTERPRISES, INC.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer
J. Merritt Belisle and a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief February 2, 1999
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-16
<PAGE> 149
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
BLACK CREEK COMMUNICATIONS, L.P.
BY: BLACK CREEK MANAGEMENT, L.L.C.
Its General Partner
By: /s/ J. MERRITT BELISLE
------------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer
J. Merritt Belisle and a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief February 2, 1999
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-17
<PAGE> 150
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN,
STATE OF TEXAS, ON THE 2ND DAY OF FEBRUARY, 1999.
BLACK CREEK MANAGEMENT, L.L.C.
By: /s/ J. MERRITT BELISLE
----------------------------------
J. Merritt Belisle,
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Merritt Belisle and Steven E. Seach, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including without
limitation post-effective amendments and any subsequent registration statement
filed pursuant to Rule 462(b) or 462(d) under the Securities Act of 1933) to
this Amendment No. 3 to Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
interests and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ J. MERRITT BELISLE Chairman of the Board and February 2, 1999
- ----------------------------------------------------- Chief Executive Officer
J. Merritt Belisle and a Director (Principal
Executive Officer)
/s/ STEVEN E. SEACH President and Chief February 2, 1999
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
/s/ * Director February 2, 1999
- -----------------------------------------------------
Jeffery C. Garvey
</TABLE>
*By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
Steven E. Seach, by signing his name hereto, does sign this document on
behalf of the persons named above, pursuant to a power of attorney duly executed
by such persons and previously filed.
II-18
<PAGE> 151
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
3.1 -- Classic Cable, Inc. Certificate of Incorporation dated
April 29, 1995.
3.2 -- Classic Cable, Inc. Bylaws.
3.3 -- Classic Cable Holding, Inc. Certificate of Incorporation
dated December 1, 1996.
3.4 -- Classic Cable Holding, Inc. Bylaws.
3.5 -- Ponca Holdings, Inc. Certificate of Incorporation dated
May 3, 1991, as amended.
3.6 -- Ponca Holdings, Inc. Bylaws.
3.7 -- Classic Telephone, Inc. Certificate of Incorporation
dated November 22, 1994.
3.8 -- Classic Telephone, Inc. Bylaws.
3.9 -- Universal Cable Holdings, Inc. Certificate of
Incorporation dated October 17, 1985, as amended.
3.10 -- Universal Cable Holdings, Inc. Bylaws.
3.11 -- Universal Cable Communications Inc. Certificate of
Incorporation dated June 7, 1983, as amended.
3.12 -- Universal Cable Communications Inc. Bylaws.
3.13 -- Universal Cable of Beaver Oklahoma, Inc. Certificate of
Incorporation dated June 4, 1987, as amended.
3.14 -- Universal Cable of Beaver Oklahoma, Inc. Bylaws.
3.15 -- Universal Cable Midwest, Inc. Certificate of
Incorporation dated February 22, 1989, as amended.
3.16 -- Universal Cable Midwest, Inc. Bylaws.
3.17 -- WT Acquisition Corporation Articles of Incorporation
dated August 14, 1992, as amended.
3.18 -- WT Acquisition Corporation Bylaws.
3.19 -- W.K. Communications, Inc. Certificate of Incorporation
dated June 11, 1987, as amended.
3.20 -- W.K. Communications, Inc. Bylaws.
3.21 -- Television Enterprises, Inc. Certificate of Incorporation
dated August 12, 1965, as amended.
3.22 -- Television Enterprises, Inc. Bylaws.
3.23 -- Black Creek Communications, L.P. Certificate of Limited
Partnership dated May 19, 1998.
3.24 -- Black Creek Communications, L.P. Limited Partnership
Agreement.
3.25 -- Black Creek Management, L.L.C. Articles of Organization
dated May 19, 1998.
3.26 -- Black Creek Management, L.L.C. Regulations.
4.1 -- Indenture for $125,000,000 9 7/8% Senior Subordinated
Notes due 2008, dated as of July 29, 1998 among Classic
Cable, Inc., as Issuer, and the Subsidiary Guarantors
listed on the Appendix thereto, and Chase Bank of Texas,
National Association, as Trustee.
4.2 -- Form of Global Note.
4.3 -- Registration Rights Agreement dated as of July 29, 1998,
by and among Classic Cable, Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Goldman, Sachs &
Co.
5.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding enforceability and issuance
of the securities, including consent.
5.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding enforceability and issuance of the
securities including consent.
8.1(a) -- Opinion of Winstead Sechrest & Minick P.C. dated
September 17, 1998 regarding federal income tax matters,
including consent.
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NO. NAME
------- ----
<C> <S>
8.1(b) -- Opinion of Winstead Sechrest & Minick P.C. dated November
10, 1998 regarding federal income tax matters, including
consent.
10.1 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle.
10.2 -- Employment Agreement dated as of January 31, 1998 by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach.
10.3 -- Credit Agreement among Classic Cable, Inc. as Borrower,
the Lenders Parties thereto, Union Bank of California,
N.A. and Goldman Sachs Credit Partners L.P. as
Co-Arrangers, Goldman Sachs Credit Partners L.P., as
Syndication Agent and Union Bank of California, N.A., as
Administrative and Documentation Agent, dated as of July
29, 1998.
10.4 -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc., as assigned to Black Creek Communications, L.P., as
Purchaser pursuant to that certain Assignment of Asset
Purchase Agreement dated as of June 19, 1998 and as
amended by that certain Amendment No. 1 to Asset Purchase
Agreement dated July 15, 1998.
12.1 -- Statement of Earnings to Fixed Charges.
21.1 -- Subsidiaries of Classic Cable, Inc.
*23.1 -- Consent of Ernst & Young LLP dated January 28, 1999.
23.2 -- Consent of Winstead Sechrest & Minick P.C. (included
within Exhibits 5.1 and 8.1 of this Registration
Statement).
24.1 -- Powers of Attorney (included as part of signature page of
this Registration Statement).
25.1 -- Statement of Eligibility on Form T-1 of Chase Bank of
Texas, National Association, as Trustee, including
consent.
27.1 -- Financial Data Schedule.
99.1 -- Form of Transmittal Letter with respect to the Exchange
Offer (to be filed by amendment).
99.2 -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer (to be filed by amendment).
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 6, 1998 (except Note 13, as to which the date is
September 15, 1998) in Amendment No. 3 to the Registration Statement (Form S-4
No. 333-63643) and the related Prospectus of Classic Cable, Inc.
/s/ ERNST & YOUNG LLP
Austin, Texas
January 28, 1999
