<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 2000
REGISTRATION NO. 333-34850
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CLASSIC CABLE, INC.
(Exact name of registrant as specified in its charter)
For a list of Co-Registrants, refer to the page immediately following this page.
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 4841 74-2750981
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
515 CONGRESS AVENUE
SUITE 2626
AUSTIN, TEXAS 78701
512/476-9095
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
J. MERRITT BELISLE
CHIEF EXECUTIVE OFFICER
CLASSIC CABLE, INC.
515 CONGRESS AVENUE
SUITE 2626
AUSTIN, TEXAS 78701
512/476-9095
(Name, address including zip code, and telephone number, including area code, of
agent for service)
---------------------
Copies of all communications to:
PETER C. KRUPP, ESQ.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 W. WACKER DRIVE
SUITE 2100
CHICAGO, ILLINOIS 60606
312/407-0700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
TABLE OF CO-REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
INDUSTRIAL IRS EMPLOYER
STATE OF CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION CODE NUMBER NUMBER
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<S> <C> <C> <C>
Classic Cable Holding, Inc........................ Delaware 4841 74-2807609
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 Oklahoma, 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
Friendship Cable of Texas, Inc.................... Texas 4841 75-2237583
Correctional Cable TV, Inc........................ Texas 4841 75-2443515
CallCom 24, Inc................................... Texas 4841 75-2774129
Friendship Cable of Arkansas, Inc................. Texas 4841 71-0634055
Classic Network Transmission, L.L.C............... Delaware 4841 74-2924093
</TABLE>
<PAGE> 3
PROSPECTUS
EXCHANGE OFFER FOR
$225,000,000
10 1/2% SENIOR SUBORDINATED NOTES DUE 2010 [CLASSIC CABLE, INC. LOGO]
Terms of Exchange Offer
- Expires 5:00 p.m., New York City time, June 7, 2000 unless extended
- Not subject to any condition other than that the exchange offer not
violate applicable law or any applicable interpretation of the Staff of
the Securities and Exchange Commission
- All old notes that are validly tendered and not validly withdrawn will be
exchanged
- Tenders of old notes may be withdrawn any time prior to the expiration of
the exchange offer
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes
- We will not receive any proceeds from the exchange offer
- The terms of the exchange notes are substantially identical to the old
notes, except for certain transfer restrictions and registration rights
relating to the old notes
- As of December 31, 1999, on a pro forma basis we had approximately $165.5
million of senior indebtedness
See "Risk Factors" beginning on page 15 to read about certain factors you
should consider before exchanging your notes.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE EXCHANGE NOTES TO BE DISTRIBUTED IN THE EXCHANGE
OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MAY 8, 2000
<PAGE> 4
AVAILABLE INFORMATION
We are currently subject to the informational requirements of the
Securities Exchange Act of 1934. We are required to file annual, quarterly and
special reports and other information with the Securities and Exchange
Commission. You may read and copy any of these reports, statements and other
information that we file at the SEC's public reference rooms in Washington,
D.C., New York, New York, and Chicago, Illinois. Please call 1-800-SEC-0330 for
further information on the public reference rooms. Our filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at http://www.sec.gov.
We, together with the subsidiary guarantors, have filed a registration
statement on Form S-4 to register with the SEC the exchange notes to be issued
in exchange for the old notes. This prospectus is part of that registration
statement. As allowed by the SEC's rules, this prospectus does not contain all
of the information you can find in the registration statement or the exhibits to
the registration statement.
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<PAGE> 5
SUMMARY
The following summary is intended to highlight certain information
contained elsewhere in this prospectus. This summary is not intended to be a
complete statement of all material facts of the offering and is qualified in its
entirety by the more detailed information and historical and pro forma financial
information, including the notes relating to that information, appearing
elsewhere in this prospectus. Except as otherwise required by the context, the
information presented in this prospectus concerning Classic and its business
gives effect to (1) the completed acquisition of Buford Group, Inc. by Classic
and the related financing; (2) other acquisitions completed by either Classic or
Buford prior to the date of this prospectus; (3) the completed acquisition of
substantially all of the assets of Star Cable Associates by a subsidiary of
Classic and the related financing; (4) the various redemptions of our 2008
subordinated notes and the related financing; (5) the capital contribution from
Classic Communications, Inc. of a portion of the proceeds from their initial
public offering; (6) the repayment of a portion of our credit facility; and (7)
the offering of the old notes. Reference should be made to "Selected Historical
Consolidated Financial Data -- Classic Cable, Inc." and "Selected Historical
Consolidated Financial Data -- Buford Group, Inc." and "Unaudited Pro Forma
Consolidated Financial Information" for the definition of certain financial
terms appearing throughout this prospectus. As used in this prospectus, the
terms "Classic," "we," "us" and "our" refer to Classic Cable, Inc. and the term
"Classic Communications" refers to our parent, Classic Communications, Inc.
THE EXCHANGE OFFER
Exchange Notes............. The forms and terms of the exchange notes are
identical in all material respects to the terms of
the old notes, except for certain transfer
restrictions, registration rights and liquidated
damages provisions relating to the old notes. These
are described elsewhere in this prospectus under
"Description of Notes" and "The Exchange Offer."
The Exchange Offer......... We are offering to exchange up to $225,000,000 of
the exchange notes for up to $225,000,000 of the
old notes. Old notes may be exchanged only in
$1,000 increments.
Expiration Date; Withdrawal
of Tender.................. Unless we extend the exchange offer, it will expire
at 5:00 p.m., New York City time, on June 7, 2000.
We will not extend this time period to a date later
than June 22, 2000. You may withdraw any old notes
you tender pursuant to the exchange offer at any
time prior to June 7, 2000. We will return, as
promptly as practicable after the expiration or
termination of the exchange offer, any old notes
not accepted for exchange for any reason without
expense to you.
Certain Conditions to the
Exchange Offer........... The exchange offer is subject to the following
conditions, which we may waive.
These conditions permit us to refuse acceptance of
the old notes or to terminate the exchange offer
if:
- a lawsuit is instituted or threatened in a court
or before a government agency which may impair
our ability to proceed with the exchange offer;
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<PAGE> 6
- a law, statute, rule or regulation is proposed or
enacted or interpreted by the SEC which may
impair our ability to proceed with the exchange
offer; or
- any governmental approval is not received which
we think is necessary to consummate the exchange
offer.
Procedures for Tendering
Old Notes................ If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal
in accordance with the instructions, and deliver
the letter of transmittal, along with the old notes
and any other required documentation, to the
exchange agent. By executing the letter of
transmittal, you will represent to us that, among
other things:
- any exchange notes you receive will be acquired
in the ordinary course of your business;
- you have no arrangement with any person to
participate in the distribution of the exchange
notes; and
- you are not an affiliate of Classic or, if you
are an affiliate, you will comply with the
registration and prospectus delivery requirements
of the Securities Act of 1933 to the extent
applicable.
If you hold your old notes through The Depository
Trust Corporation and wish to participate in the
exchange offer, you may do so through The
Depository Trust Corporation's Automated Tender
Offer Program. By participating in the exchange
offer, you will agree to be bound by the letter of
transmittal as though you had executed such letter
of transmittal.
Interest on the Exchange
Notes.................... Interest on the exchange notes accrues from the
date of issuance at the rate of 10 1/2% per annum.
Payment of Interest........ Interest is payable semi-annually in arrears on
each March 1 and September 1, commencing on
September 1, 2000.
After September 1, 2000, interest on the old notes
accepted for exchange will stop accruing upon the
issuance of the exchange notes.
Special Procedures for
Beneficial Owners........ If you are a beneficial owner whose old notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
wish to tender such old notes in the exchange
offer, please contact the registered holder as soon
as possible and instruct them to tender on your
behalf and comply with our instructions set forth
elsewhere in this prospectus.
Guaranteed Delivery
Procedure................ If you wish to tender your old notes, you may, in
certain instances, do so according to the
guaranteed delivery procedures set forth elsewhere
in this prospectus under "The Exchange Offer --
Guaranteed Delivery Procedures."
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<PAGE> 7
Registration Rights
Agreement................ We sold the old notes and the related guarantees to
the initial purchasers in a transaction exempt from
the registration requirements of the Securities Act
on February 16, 2000. At that time, Classic and the
initial purchasers entered into an exchange and
registration rights agreement which grants the
holders of the old notes certain exchange and
registration rights. This exchange offer satisfies
those rights, which terminate upon consummation of
the exchange offer. You will not be entitled to any
exchange or registration rights with respect to the
exchange notes.
Certain Federal Tax
Considerations........... With respect to the exchange of the old notes for
the exchange notes:
- the exchange should not constitute a taxable
exchange for U.S. federal income tax purposes;
- you should not recognize gain or loss upon
receipt of the exchange notes;
- you must include interest in gross income to the
same extent as the old notes; and
- you should be able to tack the holding period of
the exchange notes to the holding period of the
old notes.
Use of Proceeds............ We will not receive any proceeds from the exchange
of notes pursuant to the exchange offer.
Exchange Agent............. We have appointed Chase Bank of Texas, National
Association as the exchange agent for the exchange
offer.
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<PAGE> 8
TERMS OF THE NOTES
The form and terms of the exchange notes are substantially the same as the
form and terms of the old notes, except that the exchange notes are registered
under the Securities Act. As a result, the exchange notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damages provisions contained in the old notes.
Issuer........................ Classic Cable, Inc.
515 Congress Avenue, Suite 2626
Austin, Texas 78701
Guarantors.................... The notes are guaranteed by each of our current
and future domestic restricted subsidiaries.
Each guarantor is our wholly owned or majority
owned subsidiary. If we cannot make payments on
the notes when they are due, the guarantors
must make them instead.
Maturity...................... March 1, 2010.
Interest...................... Annual rate -- 10 1/2%.
Payment frequency -- every six months on March
1 and
September 1.
First payment -- September 1, 2000.
Ranking....................... These notes and the subsidiary guarantees are
senior subordinated debts.
They rank behind all of our and our guarantors'
current and future indebtedness, other than
trade payables, except indebtedness that
expressly provides that it is not senior to
these notes and the subsidiary guarantees.
Optional Redemption........... On or after March 1, 2005, we may redeem some
or all of the notes at any time at the
redemption prices listed in the "Description of
Notes" section under the heading "Optional
Redemption."
Before March 1, 2003, we may redeem up to 35%
of the notes ever issued under the indenture
with the proceeds of one or more Public Equity
Offerings by, or Strategic Equity Investments
in, Classic or Classic Communications at the
price listed in the "Description of Notes"
section under the heading "Optional
Redemption."
Mandatory Offer to
Repurchase.................... If we sell assets under some circumstances, or
experience specific kinds of changes of
control, we must offer to repurchase the notes
at the prices listed in the "Description of
Notes" section under the heading "Repurchase at
the Option of Holders."
Basic Covenants of
Indenture..................... We will issue the exchange notes under an
indenture with Chase Bank of Texas, National
Association. The indenture, among other things,
restricts our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
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<PAGE> 9
- distribute proceeds from asset sales;
- use assets as security in other transactions;
- sell certain assets or merge with or into
other companies;
- engage in certain transactions with
affiliates; and
- incur liens.
These covenants are subject to important
exceptions. For more details, see the
"Description of Notes" section under the
heading "Certain Covenants."
Absence of a Public Market for
the Exchange Notes............ In general, you may freely transfer the
exchange notes. However, there are exceptions
to this general statement. Holders may not
freely transfer the exchange notes if:
- they acquire the exchange notes outside of
their ordinary course of business;
- they have an arrangement with any person to
participate in the distribution of the
exchange notes; or
- they are an affiliate of Classic.
Further, the exchange notes will be new
securities for which there will not initially be
a market. As a result, the development or
liquidity of any market for the exchange notes
may not occur. The initial purchasers have
advised us that they currently intend to make a
market in the exchange notes. However, you
should be aware that the initial purchasers are
not obligated to do so. In the event such a
market may develop, the initial purchasers may
discontinue it at any time without notice. We do
not intend to apply for a listing of the
exchange notes on any securities exchange or on
any automated dealer quotation system.
5
<PAGE> 10
OUR BUSINESS
We are a growth oriented cable operator focused on non-metropolitan markets
in the United States. We have experienced growth in subscribers, revenues and
cash flows, primarily through the successful execution and integration of over
20 acquisitions of cable systems primarily clustered in nine contiguous states.
Pro forma for the completed acquisition of Star and assuming completion of other
recently publicly announced transactions by other companies in the cable
television industry, we believe we are the 14th largest cable operator in the
United States. Our systems pass approximately 707,000 homes and serve
approximately 414,000 basic subscribers.
Through the acquisition of clustered non-metropolitan cable systems, and by
upgrading these cable systems, we are building a regional platform for the
delivery of digital cable and high-speed Internet access to the homes and
businesses of our customers. We believe that our strategy combines the
attractive characteristics of the non-metropolitan cable market segment with the
growth opportunity of broadband services and the Internet. The combination of
attractive market characteristics and the successful execution of our
acquisition strategy has enabled us to achieve high growth rates and attractive
EBITDA margins.
OUR STRATEGY
Our business strategy is to:
- FOCUS ON ATTRACTIVE NON-METROPOLITAN MARKETS: We plan to continue to
focus on growing communities in or around county seats, which generally
tend to have more robust household growth, higher income per household
and a stronger business foundation than do other non-metropolitan
markets.
- EXPAND AND IMPROVE CLUSTERS THROUGH SELECTIVE ACQUISITIONS: We plan to
continue to leverage our experience in acquiring and integrating cable
systems by continuing our acquisition growth strategy when attractive
cable systems are available for acquisition at reasonable valuations.
- FOCUS ON COMMUNITY RELATIONS AND CUSTOMER SATISFACTION: We plan to
maintain and enhance our relationships with the local communities in
which we operate and utilize our state-of-the-art call centers to
complement our existing service to our customers.
- INCREASE THE REVENUE-GENERATING BANDWIDTH OF OUR CABLE PLANT: We plan to
continue to upgrade our cable plant aggressively and systematically,
utilizing the most cost-effective and appropriate technology.
- IMPLEMENT OUR BROADBAND SERVICES: We plan to continue to offer enhanced
video services and to selectively expand our high-speed Internet access
offerings, a move which we believe will improve our competitiveness and
increase our revenues and cash flows.
RAPIDLY CONSOLIDATING INDUSTRY
Consolidation in the cable industry over the past three years has been
driven by the benefits derived from scale, including operating efficiencies,
increased advertising sales and the ability to deploy new broadband applications
efficiently. This consolidation has accelerated recently with the emergence of
the Internet as a mass medium for disseminating information, entertainment and
commerce. We believe that cable companies are the leaders in the race to become
the high-speed data service providers of choice to the consumer. Recent
investments and acquisitions by AT&T, Microsoft, and Charter Communications have
validated cable's position as a preferred broadband solution.
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<PAGE> 11
While this consolidation has taken place primarily among large-scale
metropolitan operators, attention has expanded recently to non-metropolitan
markets. Smaller independent operators understand the value created through
consolidation and are beginning to make themselves available to be merged or
acquired. Additionally, metropolitan focused consolidators are beginning to sell
their non-metropolitan area systems. We believe that these circumstances create
an opportunity for us to continue and accelerate our focused strategy to
consolidate attractive non-metropolitan cable assets.
PROVEN MANAGEMENT TEAM
J. Merritt Belisle, our Chief Executive Officer, and Steven E. Seach, our
President and Chief Financial Officer, founded Classic in 1992 and have
assembled a management team with significant experience operating cable
television systems and providing quality customer service to cable subscribers.
Messrs. Belisle and Seach have over 20 years of collective experience in
acquiring, operating, integrating and developing cable television systems and
have worked together for over ten years.
As a result of the Buford acquisition, our management team has been further
enhanced by the addition of several key members of Buford's management team,
including Ron Martin, who became our Executive Vice President of Operations, and
Kay Monigold, who became our Executive Vice President of Administration. Mr.
Martin and Ms. Monigold have been in the cable industry for over 25 years and 18
years, respectively.
On April 7, 2000, Classic Communications announced that Dale Bennett became
our Chief Operating Officer. Mr. Bennett, a cable industry veteran, assumes the
COO role after spending the last three years as vice president of AT&T Broadband
and Internet Service's Texas Metro Region.
THE BUFORD ACQUISITION
On July 28, 1999, we acquired Buford Group, Inc., which operates cable
television systems in Arkansas, Louisiana, Missouri and Texas, for approximately
$300 million in cash. The Buford cable systems served approximately 170,000
basic subscribers and, we believe, represented an excellent geographic and
strategic fit with our other cable systems. In addition, we believe that the
Buford acquisition provided other benefits, including an opportunity to reduce
programming costs, consolidate headends and enhance customer service. The Buford
acquisition was financed through a $350.0 million credit facility and the
issuance of $150.0 million of our senior subordinated notes due 2009. See
"Description of Other Indebtedness." In addition, Classic Communications
contributed approximately $95.7 million in cash to us pursuant to the Brera
Classic equity investment. See "--The Brera Classic Equity Investment."
THE BRERA CLASSIC EQUITY INVESTMENT
In connection with the Buford acquisition, Classic Communications received
$100.0 million from Brera Classic, LLC, $95.7 million of which Classic
Communications contributed in cash to us, $3.3 million of which was paid to
Brera Classic pursuant to management and advisory fee agreements, and $750,000
of which was paid to Brera Classic to reimburse Brera Classic for certain of its
fees and expenses incurred in connection with the Brera Classic equity
investment. This equity investment was financed through the sale of common stock
of Classic Communications to Brera Classic. Brera Classic is an indirect
subsidiary of Brera Capital Partners Limited Partnership. Brera Capital Partners
is a $650 million private equity investment fund based in New York that invests
in a very limited number of companies in a few selected industries, including
telecommunications and media. Brera Classic owns approximately 36.6% of the
outstanding capital stock of Classic Communications, representing an approximate
77.5% voting interest. Certain investors hold an approximate 20% nonvoting
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<PAGE> 12
equity interest in Brera Classic, including a 9.0% nonvoting equity interest
held by affiliates of Goldman Sachs, one of the initial purchasers. See "Certain
Relationships and Related Transactions" and "Principal Stockholders."
THE STAR ACQUISITION
On February 16, 2000, one of our subsidiaries acquired substantially all
the assets of Star Cable Associates, which operates cable television systems in
Texas, Louisiana and Ohio, for an aggregate purchase price of approximately $110
million in cash and 555,555 shares of the Class A common stock of Classic
Communications. The Star cable systems serve approximately 57,000 subscribers
and represent a continuation of our clustering strategy. In addition, we believe
that the Star acquisition provides further benefits in the form of headend
consolidation opportunities. We financed the Star acquisition with available
cash and a portion of the proceeds from the offering of the old notes.
RECENT FINANCING
In December 1999, Classic Communications completed an initial public
offering of 7,250,000 shares of its Class A common stock. Stockholders of
Classic Communications sold an additional 2,237,500 shares. Classic
Communications raised approximately $168.9 million of proceeds in the offering,
net of the underwriting discount. Classic Communications used the proceeds from
the offering to pay offering expenses and to redeem all of its outstanding
13 1/4% senior discount notes due 2009. The remainder of the proceeds were
contributed by Classic Communications to us. We will use those proceeds for
general business purposes, a portion of which was already used to finance part
of the Star acquisition. The Classic Communications initial public offering
provides us with additional flexibility by making the common stock of Classic
Communications a form of currency to make acquisitions and improves our capital
structure by providing an expanded equity base.
In connection with the offering of the old notes, we entered into an
amendment to our senior credit facility, which (1) allowed for the offering of
the old notes, (2) modified some of the covenants in the credit facility to
provide us more flexibility (i.e., maximum total debt ratio, total interest
coverage ratio, maximum capital expenditures, limitations on investments,
permitted acquisitions, and lines of business), (3) restructured the term loan A
facility so that following a prepayment in full of the term loan A facility, and
subject to certain additional conditions, we have the ability to reborrow in one
or more advances under the term loan A facility until February 10, 2001, and (4)
increased the term loan A facility so that an additional $25.0 million may be
made available under that facility.
RISK FACTORS
You should carefully consider all of the information in this prospectus. In
particular, you should evaluate the specific risk factors under "Risk Factors"
beginning on page 15 before deciding whether to participate in the exchange
offer.
---------------
Our principal executive offices are located at 515 Congress Avenue, Suite
2626, Austin, Texas 78701. Our telephone number is (512) 476-9095, and our
Internet website is www.classic-cable.com. The information on our web site is
not a part of this prospectus.
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SUMMARY PRO FORMA FINANCIAL AND OPERATING DATA
The following table presents summary pro forma financial and operating data
about us. The unaudited pro forma data give effect to (1) the completed
acquisition of Buford Group, Inc. and the related financing, (2) other
acquisitions completed by either Classic or Buford prior to the date of this
prospectus, (3) the acquisition of substantially all of the assets of Star by a
subsidiary of Classic and the related financing, (4) the partial redemption of
our 2008 senior subordinated notes and the related financing, (5) the repurchase
of approximately $36 million aggregate principal amount of our 2008 subordinated
notes and related costs, (6) the capital contribution from Classic
Communications resulting from their initial public offering, (7) the repayment
of a portion of our credit facility and (8) the offering of the old notes as if
all of these transactions had been consummated on January 1, 1999, in the case
of the statement of operations and other financial data, and on December 31,
1999, with respect to the balance sheet data. The pro forma data have been
derived from the Unaudited Pro Forma Consolidated Financial Information of
Classic, which is included elsewhere in this prospectus. The unaudited pro forma
data do not purport to be indicative of the results that would have been
obtained had such transactions been completed as of the assumed dates and for
the periods presented nor are they necessarily indicative of results that may be
obtained in the future. You should read this information together with "Selected
Historical Consolidated Financial Data -- Classic Cable, Inc.," "Selected
Historical Consolidated Financial Data -- Buford Group, Inc.," "Unaudited Pro
Forma Consolidated Financial Information," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Classic's, Buford's and
Star's consolidated financial statements and the notes relating to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(IN THOUSANDS,
EXCEPT
SUBSCRIBER DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $181,292
Costs and expenses.......................................... 114,503
Depreciation and amortization............................... 85,928
--------
Operating loss.............................................. (19,139)
Interest expense............................................ (54,781)
Other income (expense)...................................... 337
--------
Loss before income tax benefit.............................. (73,583)
Income tax benefit.......................................... 25,018
--------
Net loss.................................................... $(48,565)
========
BALANCE SHEET DATA:
Total cash and cash equivalents............................. $ 56,693
Total assets................................................ 763,858
Total debt.................................................. 543,478
Total liabilities........................................... 611,440
Total stockholder's equity.................................. 152,418
OTHER FINANCIAL DATA:
Cash flows from operating activities........................ 25,219
Cash flows from investing activities........................ (460,860)
Cash flows from financing activities........................ 33,829
Adjusted EBITDA(1).......................................... 70,551
Adjusted EBITDA margin(2)................................... 38.9%
Capital expenditures........................................ 45,615
Deficiency of earnings to fixed charges(3).................. (73,583)
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(IN THOUSANDS,
EXCEPT
SUBSCRIBER DATA)
<S> <C>
OPERATING DATA:
Homes passed(4)............................................. 706,724
Basic subscribers(5)........................................ 413,603
Basic penetration(6)........................................ 58.5%
Digital subscribers......................................... 3,992
Premium subscribers(7)...................................... 222,767
Premium penetration(8)...................................... 53.9%
Average monthly basic revenue per basic subscriber(9)....... $ 30.15
Average monthly total revenue per basic subscriber(10)...... $ 36.70
</TABLE>
- ---------------
(1) Adjusted EBITDA is defined as operating income (loss) plus depreciation and
amortization plus non-cash operating charges. Non-cash operating charges
consist of Classic's compensation on Classic Communications restricted
stock of $1,920,000 as well as Buford's compensation relating to stock
appreciation rights and equity participation agreements of $1,842,000 for
the year ended December 31, 1999. Adjusted EBITDA is presented because
management believes it is a widely accepted financial indicator of a
company's ability to incur and service debt. We believe that Adjusted
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. Adjusted EBITDA measures presented may not be comparable to
similarly titled measures presented by other companies. Adjusted EBITDA for
the year ended December 31, 1999 was reduced by $5,462,000 of fees paid to
certain members of the management team in connection with completed
acquisitions and financing transactions, $1,179,000 of non-recurring costs
of Buford and Star incurred in connection with the acquisitions' working
capital adjustments and $425,000 of costs associated with Star's Deferred
Equity Bonus Plan payable upon the sale of cable systems. Without these
costs, Adjusted EBITDA for the year ended December 31, 1999 would have been
$77,617,000 and the Adjusted EBITDA margin would have been 42.8%.
(2) Adjusted EBITDA margin represents Adjusted 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. We do not believe that
Adjusted EBITDA margin is 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.
Adjusted EBITDA measures presented may not be comparable to similarly
titled measures presented by other companies.
(3) Deficiency of earnings consists of loss before income tax benefit and
extraordinary loss. Fixed charges consist of interest expense and the
interest portion of rental expense.
(4) Homes passed refers to estimates by us of the approximate number of
dwelling units in a particular community that can be connected to our cable
television distribution system without any further extension of principal
transmission lines.
(5) 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 basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
(6) Penetration is calculated as the number of basic subscribers as a
percentage of homes passed.
(7) Each premium channel received is counted as a separate premium subscriber.
Multiplexing of premium channels is counted as one subscriber for each
premium channel received.
(8) Premium penetration is calculated as the number of premium subscribers as a
percentage of basic subscribers.
(9) Average monthly basic revenue per basic subscriber equals revenues from
basic subscriptions of cable systems during the respective period divided
by the months in the period and divided by the weighted average number of
our basic subscribers for the respective period.
(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 our basic subscribers
for such respective period.
10
<PAGE> 15
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA --
CLASSIC CABLE, INC.
The following table presents summary historical financial and operating
data about Classic. You should read this information together with "Selected
Historical Consolidated Financial Data -- Classic Cable, Inc.," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Classic's consolidated financial statements and the notes relating to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS, EXCEPT SUBSCRIBER
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 60,995 $ 69,802 $111,410
Costs and expenses.......................................... 36,555 42,070 71,426
Depreciation and amortization............................... 27,832 30,531 51,484
-------- -------- --------
Operating loss.............................................. (3,392) (2,799) (11,500)
Interest expense............................................ (20,759) (20,688) (31,201)
Gain on sale of cable systems............................... 3,644 -- --
Write-off of abandoned telephone operations................. (500) (220) --
Other income (expense)...................................... 71 192 605
-------- -------- --------
Loss before income tax benefit and extraordinary loss....... (20,936) (23,515) (42,096)
Income tax benefit.......................................... 7,149 2,339 10,128
Extraordinary loss.......................................... -- (5,524) (4,093)
-------- -------- --------
Net loss.................................................... $(13,787) $(26,700) $(36,061)
======== ======== ========
BALANCE SHEET DATA:
Total cash and cash equivalents............................. $ 616 $ 2,779 $ 85,855
Total assets................................................ 220,218 252,496 677,688
Total debt.................................................. 187,967 220,804 454,332
Total liabilities........................................... 202,887 239,354 519,508
Total redeemable preferred stock............................ 1,292 -- --
Total stockholder's equity.................................. 16,038 13,142 158,180
OTHER FINANCIAL DATA:
Cash flows from operating activities........................ $ 7,892 $ 13,996 $ 17,370
Cash flows from investing activities........................ (1,341) (57,245) (325,461)
Cash flows from financing activities........................ (6,588) 45,412 391,167
Adjusted EBITDA(1).......................................... 25,498(2) 28,840(3) 41,905(4)
Adjusted EBITDA margin(5)................................... 41.8% 41.3% 37.6%
Capital expenditures........................................ 10,135 13,759 32,435
Deficiency of earnings to fixed charges(6).................. (20,936) (23,515) (42,096)
OPERATING DATA (END OF PERIOD, EXCEPT AVERAGE):
Homes passed(7)............................................. 254,649 296,995 609,107
Basic subscribers(8)(9)..................................... 165,737 188,871 356,804
Basic penetration(9)(10).................................... 65.1% 63.6% 58.7%
Digital subscribers......................................... -- 200 3,599
Premium subscribers(11)..................................... 63,819 78,096 201,471
Premium penetration(12)..................................... 38.5% 41.3% 56.5%
Average monthly basic revenue per basic subscriber(13)...... $ 25.22 $ 27.87 $ 29.82
Average monthly total revenue per basic subscriber(14)...... $ 30.14 $ 33.24 $ 35.93
</TABLE>
11
<PAGE> 16
- ---------------
(1) Adjusted EBITDA is defined as operating loss plus depreciation and
amortization plus non-cash operating charges. Non-cash operating charges
for the years ended December 31, 1997, 1998, 1999 related to compensation
on Classic Communications restricted stock and were $1,058,000, $1,108,000,
and $1,921,000, respectively. Adjusted EBITDA is presented because we
believe it is a widely accepted financial indicator of a company's ability
to incur and service debt. We believe that Adjusted 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.
Adjusted EBITDA measures presented may not be comparable to similarly
titled measures presented by other companies.
(2) Adjusted EBITDA for 1997 was reduced by legal, consultant and other
one-time non-recurring fees totaling $1,411,000 incurred in connection with
the settlement of certain claims that arose in conjunction with divorce
proceedings of one of our officers as well as $400,000 in fees paid to
certain members of our management team in connection with completed
acquisition and divestiture transactions. Without these fees, Adjusted
EBITDA would have been $27,309,000.
(3) Adjusted EBITDA for 1998 was reduced by $775,000 of fees paid to certain
members of our executive management team in connection with completed
acquisition and financing transactions. Without these fees, Adjusted EBITDA
would have been $29,615,000.
(4) Adjusted EBITDA for 1999 was reduced by $5,462,000 in fees paid to certain
members of our management team in connection with the July 1999 Buford
acquisition and related financing. Without these fees, Adjusted EBITDA
would have been $47,367,000.
(5) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of
revenues. This measurement is used by us, and is commonly used in the cable
television industry, to analyze and compare cable television companies on
the basis of operating performance. We believe that Adjusted 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. Adjusted EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
(6) Deficiency of earnings consists of loss before income tax benefit and
extraordinary loss. Fixed charges consist of interest expense and the
interest portion of rental expense.
(7) Homes passed refers to estimates by us of the approximate number of
dwelling units in a particular community that can be connected to our cable
television distribution system without any further extension of principal
transmission lines.
(8) 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 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 1997.
(9) End of period subscribers reflect asset sales that were consummated during
the second quarter of 1997.
(10) Penetration is calculated as the number of basic subscribers as a
percentage of homes passed.
(11) Each premium channel received is counted as a separate premium subscriber.
Multiplexing of premium channels is counted as one subscriber.
(12) Premium penetration is calculated as the number of premium subscribers as a
percentage of basic subscribers.
(13) Average monthly basic revenue per basic subscriber equals revenues from
basic subscriptions of cable systems during the respective period divided
by the months in the period and divided by the weighted average number of
our basic subscribers for the respective period.
(14) 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 our basic subscribers
for the respective period.
12
<PAGE> 17
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA -- BUFORD GROUP, INC.
The following table presents summary historical financial and operating
data about Buford. You should read this information together with "Selected
Historical Consolidated Financial Data -- Buford Group, Inc.," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Buford's consolidated financial statements and the notes relating to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
---- ---- ----
(IN THOUSANDS, EXCEPT
SUBSCRIBER DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................... $ 49,561 $ 58,136 $ 70,475
Costs and expenses.......................................... 32,932 40,858 51,168
Depreciation and amortization............................... 17,175 17,753 21,399
-------- -------- --------
Operating income (loss)..................................... (546) (475) (2,092)
Interest expense............................................ (5,345) (5,787) (7,919)
Gain on sale of cable systems............................... 5,418 -- --
Other income (expense)...................................... 344 859 (221)
-------- -------- --------
Loss before income taxes and cumulative effect of change in
accounting principle...................................... (129) (5,403) (10,232)
Income tax benefit (expense)................................ (94) 315 226
Cumulative effect of change in accounting principle, net of
taxes..................................................... -- -- --
-------- -------- --------
Net loss.................................................... $ (223) $ (5,088) $(10,006)
======== ======== ========
BALANCE SHEET DATA:
Total assets................................................ $117,676 $143,932 $175,953
Total debt.................................................. 60,053 85,000 118,000
Total liabilities........................................... 69,182 97,008 131,147
Total stockholders' equity.................................. 48,493 46,924 44,806
OTHER FINANCIAL DATA:
Cash flows from operating activities........................ $ 13,628 $ 16,872 $ 20,334
Cash flows from investing activities........................ (20,289) (39,683) (53,151)
Cash flows from financing activities........................ (10,927) 24,947 32,830
Adjusted EBITDA(1).......................................... 18,087 20,797 27,195
Adjusted EBITDA margin(2)................................... 36.5% 35.8% 38.6%
Capital expenditures........................................ $ 15,593 $ 22,042 $ 20,469
Deficiency of earnings to cover fixed charges(3)............ (129) (5,403) (10,232)
OPERATING DATA (END OF PERIOD, EXCEPT AVERAGE):
Homes passed(4)............................................. 234,994 270,430 315,629
Basic subscribers(5)........................................ 131,148 143,829 172,557
Basic penetration(6)........................................ 55.8% 53.2% 54.7%
Digital subscribers......................................... -- 65 1,254
Premium subscribers(7)...................................... 92,247 99,644 122,404
Premium penetration(8)...................................... 70.3% 69.3% 70.9%
Average monthly basic revenue per basic subscriber(9)....... $ 24.80 $ 26.31 $ 28.17
Average monthly total revenue per basic subscriber(10)...... $ 32.05 $ 33.68 $ 35.64
</TABLE>
13
<PAGE> 18
- ---------------
(1) Adjusted EBITDA is defined as operating income (loss) plus depreciation and
amortization plus non-cash operating charges. Non-cash operating charges
for the years ended December 31, 1996, 1997 and 1998 related to employee
stock compensation were $1,458,000, $3,519,000 and $7,888,000,
respectively. Adjusted EBITDA is presented because we believe it is a
widely accepted financial indicator of a company's ability to incur and
service debt. We believe that Adjusted 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 cash provided by operations 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. Adjusted EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
(2) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of
revenues. This measurement is used by us, and is commonly used in the cable
television industry, to analyze and compare cable television companies on
the basis of operating performance. We believe that Adjusted 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. Adjusted EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
(3) Deficiency of earnings consists of loss before income tax benefit (expense)
and cumulative effect of change in accounting principle. Fixed charges
consist of interest expense and the interest portion of rental expense.
(4) Homes passed refers to estimates by us of the approximate number of
dwelling units in a particular community that can be connected to our cable
television distribution system without any further extension of principal
transmission lines.
(5) 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 basis in which the total monthly bill for the account
is divided by the basic monthly charge for a single outlet in the area.
(6) Penetration is calculated as the number of basic subscribers as a
percentage of homes passed.
(7) Each premium channel received is counted as a separate premium subscriber.
(8) Premium penetration is calculated as the number of premium subscribers as a
percentage of basic subscribers.
(9) Average monthly basic revenue per basic subscriber equals revenues from
basic subscriptions of cable systems during the respective period divided
by the months in the period and divided by the weighted average number of
Buford's basic subscribers for the respective period.
(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 Buford's basic
subscribers for the respective period.
14
<PAGE> 19
RISK FACTORS
Before you participate in the exchange offer, you should be aware that
there are various risks, including those described below. You should carefully
consider these risk factors, together with all of the other information included
in this prospectus.
WE HAVE SIGNIFICANT DEBT WHICH MAY LIMIT FUNDS AVAILABLE TO OPERATE AND COMPETE
EFFECTIVELY.
We have a significant amount of debt outstanding. As of December 31, 1999,
pro forma for the Star acquisition and the offering of the old notes, we would
have owed approximately $543.5 million under our various debt agreements. We are
currently able to borrow $175 million under our credit facility, subject to
certain limitations. Under our credit facility, we are required to make minimum
principal payments totaling approximately $0.4 million beginning in 2001,
increasing to $1.9 million by 2007, with all unpaid amounts due by 2008. You
should be aware that this significant amount of debt could have important
consequences to you, including the following:
- We may be unable to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate purposes;
- A significant portion of our cash flow from operations must be dedicated
to the repayment of indebtedness, which will reduce the amount of cash we
have available for other purposes;
- We may be disadvantaged as compared to our competitors as a result of the
significant amount of debt we now owe; and
- Our ability to adjust to changing market conditions and our ability to
withstand competition may be hampered by the amount of debt we now owe.
It may also make us more vulnerable in a market downturn.
Our earnings on a pro forma basis were not sufficient to cover our fixed
charges by $73.6 million for the year ended December 31, 1999. However, you
should know that these amounts reflect non-cash charges for depreciation,
amortization and compensation totaling approximately $87.8 million for the year
ended December 31, 1999.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR SUBSIDIARIES WILL BE ABLE TO
INCUR SUBSTANTIALLY MORE DEBT. THIS COULD FURTHER EXACERBATE THE RISKS
ASSOCIATED WITH OUR SUBSTANTIAL LEVERAGE.
We and our subsidiaries will be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. Our credit facility permits additional
borrowing of up to $175 million, subject to certain limitations, and all of
those borrowings would be senior to the notes and the subsidiary guarantees. If
new debt is added to our and our subsidiaries' current debt levels, the related
risks that we and they now face could intensify. See "Description of Other
Indebtedness" and "Description of Notes."
WE MAY NOT HAVE ENOUGH CASH TO SERVICE OUR INDEBTEDNESS AND TO FUND OUR CAPITAL
EXPENDITURES AND ACQUISITIONS.
We intend to upgrade a significant portion of our cable systems over the
coming years and make other capital investments. Over the next four years, we
plan to spend approximately $200 million to maintain, expand and upgrade the
systems we own, including the systems recently acquired from Star. We have never
managed a capital expenditure program of this size and the cost of our plans
could increase if we fail to effectively execute our plan. Our ability to make
payments on and to refinance our indebtedness, including these notes, and to
fund planned capital expenditures and acquisitions will depend on our ability to
generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control.
15
<PAGE> 20
We cannot assure you that our business will generate sufficient cash flow
from operations and that currently anticipated cost savings and operating
improvements will be realized on schedule in an amount sufficient to enable us
to pay our indebtedness, including indebtedness under these notes, or to fund
our other liquidity needs. We may need to refinance all or a portion of our
indebtedness, including these notes, on or before maturity. We cannot assure you
that we will be able to refinance any of our indebtedness, including our credit
facility, on commercially reasonable terms or at all.
WE MAY NOT BE ABLE TO CONTINUE OUR ACQUISITION STRATEGY.
A significant element of our growth strategy is to expand by acquiring
cable television systems 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. We cannot assure you that we will be able to identify and
acquire additional cable systems or that we will be able to finance significant
acquisitions in the future. See "Business -- Our Strategy."
IF THE OPERATIONS OF THE COMPANIES THAT WE ACQUIRE ARE NOT SUCCESSFULLY
INTEGRATED WITH OUR OPERATIONS, OUR FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED.
The benefits we anticipate in our combination with Buford and Star may not
be realized if combining our business, Buford's business and Star's business
cannot be accomplished in an efficient and effective manner. This combination
will require, among other things, the integration of management philosophies and
personnel, arrangements with third party vendors, standardization of training
programs, realization of operating efficiencies and effective coordination of
sales and marketing and financial reporting efforts. Acquisitions in general
pose a number of special risks for us, including adverse short-term effects on
our reported operating results, diversion of management's attention, and
unanticipated problems or legal liabilities. Future acquisitions and the
integration of other companies' operations into ours may not be successful or
accomplished efficiently. If we fail to integrate Buford's and Star's operations
successfully, our operations and our financial results could be affected, both
materially and adversely.
IF WE CANNOT ADEQUATELY MANAGE OUR INCREASED SIZE RESULTING FROM OUR ACQUISITION
OF BUFORD AND STAR, OUR FUTURE OPERATIONS MAY BE ADVERSELY AFFECTED.
Our operations approximately doubled with the purchase of Buford. The Star
acquisition resulted in the addition of 37 systems to our operations. Our future
operations depend largely upon our ability to manage this sizeable and growing
business successfully. In addition, our management team now manages a larger
number of cable operations than it has previously operated. If we fail to manage
the size and the growth of our business or our expansion plans, a material
adverse effect could result.
WE EXPECT TO CONTINUE TO INCUR NET LOSSES.
We had a pro forma consolidated net loss of $48.6 million for the year
ended December 31, 1999. We expect to continue to incur net losses for the
foreseeable future. These losses reflect significant depreciation and
amortization charges and interest expense on debt we incurred. We cannot assure
you that we will become profitable in the foreseeable future, if ever. You
should also be aware that there are restrictions and limitations on our ability
to utilize our net operating losses for federal income tax purposes in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- Classic Cable."
16
<PAGE> 21
OUR DEBT AGREEMENTS MAY SIGNIFICANTLY LIMIT OR PROHIBIT US FROM ENGAGING IN
CERTAIN TRANSACTIONS.
The indenture governing the notes, our other indentures and our credit
facility impose significant operating and financial restrictions on us and our
subsidiaries.
The loan documents we signed to borrow money to acquire Buford impose
significant restrictive covenants on us and require us to maintain specified
financial ratios and satisfy certain financial tests. Our ability to meet these
financial ratios and tests may be affected by events beyond our control and, as
a result, we cannot assure you that we will be able to meet such tests. In
addition, the restrictions contained in our credit facility could limit our
ability to obtain future financing, make needed capital expenditures, withstand
a future downturn in our business or in the economy or otherwise conduct
necessary corporate activities. Our failure to comply with the restrictions in
our indentures and our credit facility could lead to a default under the terms
of those documents. In the event of such a default, the lenders could declare
all amounts borrowed and all amounts due under other instruments that contain
certain provisions for cross-acceleration or cross-default due and payable. In
addition, the lenders could terminate their commitments to lend to us in the
future. If that occurs, we cannot assure you that we would be able to meet debt
service and other obligations or that we would be able to find additional
alternative financing. Even if we could obtain additional alternative financing,
we cannot assure you that it would be on terms that are favorable or acceptable
to us.
You should also be aware that the existing indebtedness under our credit
facility is secured by substantially all of our and our subsidiaries' assets.
Should a default or acceleration of this indebtedness occur, the holders of this
indebtedness could sell the assets to satisfy all or a part of what is owed. See
"Description of Notes -- Certain Covenants" and "Description of Other
Indebtedness."
YOUR RIGHTS TO PAYMENT ON THE NOTES ARE SUBORDINATE TO OUR SENIOR DEBT.
The notes will be unsecured and subordinated in right of payment to all of
our existing and future senior indebtedness, including obligations under our
credit facility. As a result, in the event of a default in payment of or
acceleration of our other indebtedness, or upon our liquidation, reorganization,
insolvency, bankruptcy, or dissolution, holders of senior indebtedness will be
entitled to receive payment in full prior to any payment being made on the
notes. As of December 31, 1999, pro forma for the Star acquisition, we would
have had approximately $165.5 million of senior indebtedness. If any default
exists with respect to certain senior indebtedness under our credit facility and
certain other conditions are satisfied, we may not make any payments on the
notes for a designated period of time. As a result of the 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
notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
Notes -- Subordination."
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE TO PURCHASE THESE NOTES.
If we or Classic Communications has a change of control, we will be
required to make an offer to purchase all of the notes under the indenture then
outstanding. We would be required to purchase the notes at 101% of their
principal amount, plus accrued interest and special interest, if any, to the
date of repurchase. If a change of control occurs, we cannot be sure that we
would have enough funds to pay for all of the notes. If we are required to
purchase the notes, we would need to secure third-party financing if we do not
have available funds to meet our purchase obligations. However, we cannot assure
you that we would be able to secure such financing on favorable terms, if at
all.
17
<PAGE> 22
Also, our financing arrangements will restrict our ability to repurchase
the notes, including pursuant to a change of control. Furthermore, a change of
control will result in an event of default under our credit facility and may
lead to an acceleration of any other senior indebtedness we may have at that
time. In such event, the subordination provisions of the notes would require us
to pay our credit facility and any other senior indebtedness in full before
repurchasing notes. In addition, a change of control could require us to
repurchase our existing notes. See "Description of Notes -- Repurchase at the
Option of Holders -- Change of Control." The inability to repay senior
indebtedness, if accelerated, and to purchase all of the tendered notes, would
constitute an event of default under the indenture.
BRERA CLASSIC IS THE CONTROLLING STOCKHOLDER OF CLASSIC COMMUNICATIONS.
Classic Communications has two classes of voting common stock -- Class A
common stock, which carries one vote per share, and Class B common stock which
carries ten votes per share. Holders of Class B common stock control
approximately 87.8% of the voting power of Classic Communications. Brera Classic
owns approximately 88.2% of the Class B common stock, representing an
approximate 77.5% voting interest. Since we are wholly-owned by Classic
Communications, Brera Classic controls us and has the ability to select the
majority of our directors. The board, in turn, may appoint new senior
management. The interests of Brera Classic and its respective affiliates may
conflict with the interests of the holders of the notes.
OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF KEY PERSONNEL. THE LOSS OF ANY ONE
OF THESE PERSONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our continued success is highly dependent upon the personal efforts and
abilities of our senior management, including J. Merritt Belisle, our Chief
Executive Officer, and Steven E. Seach, our President and Chief Financial
Officer. Although we have employment contracts with these officers, we cannot
assure you that their services will continue to be available to us and the loss
of either one of them could impact us in a negative way.
WE CANNOT ASSURE YOU THAT OUR FRANCHISES WILL BE RENEWED OR THAT A FRANCHISING
AUTHORITY WILL NOT GRANT A FRANCHISE IN OUR MARKETS TO A COMPETITOR.
Our business is dependent upon the retention and renewal of our 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. Historically, franchises have been renewed for cable
operators that have provided satisfactory services and have complied with the
terms of their franchises. We may not be able to retain or renew such
franchises, or renew these franchises on terms as favorable to us as our
existing franchises. Furthermore, it is possible that a franchising authority
might grant a franchise to another cable company or other telecommunications
provider seeking to provide cable services. The non-renewal or termination of
franchises relating to a significant portion of our subscribers could have a
material adverse effect on our results of operations. See
"Business -- Franchises."
OUR BUSINESS IS SUBJECT TO COMPREHENSIVE LEGISLATION AND GOVERNMENT REGULATION.
The cable television industry is subject to extensive regulation at the
federal and local levels, and in some cases, at the state level. The 1984 Cable
Act, the 1992 Cable Act and the 1996 Telecom 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 Telecom
Act has been allocated between the FCC and state or local regulatory
authorities. We cannot predict the effect that ongoing or future developments
may have on the cable communications industry or on our operations and we cannot
assure you that our revenues and
18
<PAGE> 23
results of operations will not be adversely affected in the future by regulation
of cable system rates.
In June 1999, a federal district court in Oregon held that, as a condition
of approving AT&T's acquisition of TCI's cable franchises, the City of Portland
had the authority to require AT&T to provide competing Internet and other
on-line services providers with open access to AT&T's cable platforms. This case
has been appealed. Open access requirements have also been adopted in
approximately a dozen communities nationwide and are being considered by a
number of other franchising authorities. Some of these decisions are on appeal.
Similar conditions could be imposed upon us, either pursuant to a local
franchising authority's approval of a merger or other transaction between us and
another company or through future regulatory or legislative developments at the
federal, state or local level. On the other hand, future regulatory or
legislative developments at the federal or state level could limit the authority
of local franchising authorities to impose such conditions. Restrictions along
these lines, if upheld or enacted, could prohibit us from entering into
exclusive agreements with affiliated, and possibly unaffiliated, providers of
Internet access services. As a result of such open-access pressure, AT&T, Time
Warner, Comcast and Cox have recently announced that they would open their cable
platforms to unaffiliated Internet service providers in 2002. These actions may
lead other cable operators to provide contractually for open access, especially
if regulatory or legislative pressure to provide open access increases. In
addition, we may face increased competition in the provision of Internet access
services and other services from other Internet access service providers and
other providers of video services via the Internet and we cannot assure you that
our revenues and results of operations will not be adversely affected in the
future by open-access regulations or legislation. See "Legislation and
Regulation -- Federal Regulation -- Cable Entry into Telecommunications and
Broadband Services."
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies. Although no state in which we currently
operate has enacted state level regulation, we cannot assure you that the states
in which we do operate will not enact such regulation, or that we will not
acquire any other cable systems in a state that does regulate our business. See
"Legislation and Regulation -- State and Local Regulation." Government
regulations at any level may affect our ability to obtain a sufficient return on
our investments. Furthermore, the regulations are changing rapidly to allow
significantly increased competition among various service providers. See
"Legislation and Regulation."
THE CABLE TELEVISION INDUSTRY IS EXTREMELY COMPETITIVE AND WE CANNOT PREDICT
WHETHER WE WILL BE SUCCESSFUL IN REMAINING COMPETITIVE.
We compete with other operators of cable systems, including systems
operated by local governments, and with other distribution systems capable of
delivering programming to homes or businesses, including direct broadcast
satellite systems, known as DBS, and multichannel multipoint distribution
service systems, known as wireless cable, which use low-power microwave
frequencies to transmit video programming over the air to customers. Within the
home video programming market, we compete with other cable franchise holders and
with DBS 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 through high-powered satellites. Two companies offer DBS service in the
United States. In recent years there has been significant national growth in the
number of subscribers to DBS services, and such growth will be assisted by the
recent passage of legislation authorizing the carriage of local broadcast
signals by DBS providers.
In addition, recent FCC and judicial decisions and federal legislation have
enabled local telephone companies to provide a wide variety of video and data
services competitive with
19
<PAGE> 24
services provided by cable systems and to provide cable services directly to
customers. We 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 us. Various local exchange
carriers 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 cable facilities and the use of
wireless transmission facilities. In addition, a substantial transaction
involving a cable system operator and an Internet services provider has recently
been announced, and other transactions in the cable system, content and Internet
services industries have been or soon may be announced. Our services and the
competition we face may be affected by such industry consolidation. As a result,
we cannot predict the eventual effect of these regulations. Advances in
communications technology, as well as changes in the marketplace and the
regulatory and legislative environment, are constantly occurring. As a result,
we cannot predict the effect that ongoing or future developments might have on
the cable industry. See "Business -- Competition" and "Legislation and
Regulation."
WE COULD BE ADVERSELY AFFECTED IF OUR OR OUR VENDORS' COMPUTER SYSTEMS ARE NOT
YEAR 2000 COMPLIANT.
Year 2000 issues exist when dates are recorded in computers using two
digits, rather than four, and are then used for arithmetic operations,
comparisons or sorting. A two-digit recording may recognize a date using "00" as
1900 rather than 2000, which could cause our computer systems to perform
inaccurate computations. During 1999, we planned, inventoried and evaluated
systems, remediated, replaced where and when necessary and tested such
remediation and replacements. We used internal information systems technology,
personnel and other personnel. As a result, we experienced no year 2000 related
issues on January 1, 2000. We recognize that there may be residual effects
related to year 2000 issues. Our assessment of our year 2000 readiness will be
ongoing as we continue to develop our operating systems and rely on our vendors'
or their vendors' systems. We do not have any way to assess the costs related to
remediation of any residual year 2000 effect. We intend to use internal
resources for such remediation where possible. We may in the future identify a
significant internal or external year 2000 related residual issue which, if not
remedied in a timely manner could have a material adverse effect on our
business, financial condition and results of operations.
WE ARE A HOLDING COMPANY AND ARE DEPENDENT ON THE OPERATIONS OF OUR
SUBSIDIARIES.
We are a holding company and are dependent on the cash flow generated by
our direct and indirect operating subsidiaries. We must rely on dividends or
other intercompany transfers from our operating subsidiaries to generate the
funds necessary to meet debt service and other obligations, including the
payment of principal and interest on the notes. The ability of our subsidiaries
to pay dividends or make other payments will be subject to applicable state
laws.
THE INCURRENCE OF THIS INDEBTEDNESS MAY BE VOIDED BY A COURT IF THE COURT
DETERMINES THAT THE INCURRENCE OF THIS INDEBTEDNESS RESULTED IN A FRAUDULENT
TRANSFER.
In the event of the bankruptcy or insolvency of any of the subsidiary
guarantors, the incurrence by each subsidiary guarantor of its guarantee of
these notes 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 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, the subsidiary
guarantor either (a) was insolvent or rendered insolvent by reason thereof, (b)
was engaged in a business or transaction for which its remaining
20
<PAGE> 25
unencumbered assets constituted unreasonably small capital, or (c) 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 December 31, 1999, pro forma for the Star acquisition and the
offering of the old notes, we would have had total indebtedness of approximately
$543.5 million and we believe that the total fair value of our assets is not
less than that amount. We believe that each of our subsidiary guarantors is (a)
neither insolvent nor rendered insolvent by the incurrence of its subsidiary
guarantee, (b) in possession of sufficient capital to run its business
effectively, and (c) incurring debts within its ability to pay as the same
mature or become due. We cannot assure you, however, that the assumptions and
methodologies used by us in reaching our conclusions about the solvency of the
subsidiary guarantors would be adopted by a court or that a court would concur
with those conclusions.
In the event that the subsidiary guarantee of a subsidiary guarantor was
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.
YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES.
Currently, there is no public market for the notes. We do not intend to
apply for listing of the notes on any securities exchange or on any automated
dealer quotation system. Although the initial purchasers have informed us that
they intend to make a market in the notes, they are not obligated to do so and
may discontinue any such market at any time without notice. In addition, such
market making activity may be limited during the exchange offer or during an
offering under a shelf registration statement should we decide to file one. As a
result, we can make no assurances to you as to the development or liquidity of
any market for the notes, your ability to sell the notes, or the price at which
you may be able to sell the notes. Future trading prices of the notes will
depend on many factors, including, among other things, prevailing interest
rates, our operating results and the market for similar securities.
Historically, the market for securities similar to the notes, including
non-investment grade debt, have been subject to disruptions that have caused
substantial volatility in the prices of such securities. We cannot assure you
that, if a market develops, it will not be subject to similar disruptions.
21
<PAGE> 26
FORWARD-LOOKING STATEMENTS
The statements, other than statements of historical fact, included in this
prospectus are forward-looking statements. These statements include, but are not
limited to:
- statements regarding our plans for future acquisitions;
- statements regarding integration of our cable systems and future acquired
systems;
- statements regarding our planned capital expenditures and system
upgrades; and
- statements regarding the offering of video and Internet access on our
systems.
Forward-looking statements generally can also be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "plan," "seek," or "believe." We believe that the
expectations reflected in such forward-looking statements are accurate. However,
we cannot assure you that such expectations will occur. Our actual future
performance could differ materially from such statements. Factors that could
cause such or contribute to such differences include, but are not limited to:
- the uncertainties and/or potential delays associated with integrating
Buford and Star and future acquisitions;
- our ability to acquire additional cable systems on terms favorable to us;
- the passage of legislation or court decisions adversely affecting the
cable industry;
- our ability to repay or refinance our outstanding indebtedness;
- the timing, actual cost and allocation of our capital expenditures and
system upgrades;
- our potential need for additional capital;
- competition in the cable industry;
- the advent of new technology; and
- seasonality.
You should not unduly rely on these forward-looking statements, which speak
only as of the date of this prospectus. Except as required by law, we are not
obligated to publicly release any revisions to these forward-looking statements
to reflect events or circumstances occurring after the date of this prospectus
or to reflect the occurrence of unanticipated events. Important factors that
could cause our actual results to differ materially from our expectations are
discussed under "Risk Factors" and elsewhere in this prospectus. All subsequent
written and oral forward-looking statements attributable to Classic, or persons
acting on its behalf, are expressly qualified in their entirety by the
statements in those sections.
22
<PAGE> 27
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
exchange and registration rights agreement dated as of February 16, 2000 by and
between Classic and Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Chase Securities Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation, as initial purchasers. We will not receive any cash proceeds from
the issuance of the exchange notes. We will only receive old notes with a total
principal amount equal to the total principal amount of the exchange notes
issued in the exchange offer.
The net proceeds from the offering of the old notes were approximately
$216.7. We used the net proceeds from the offering to repay $100 million of the
outstanding indebtedness under our credit facility, repurchase approximately $36
million aggregate principal amount of our 9 7/8% senior subordinated notes due
2008 and finance a portion of the Star acquisition. The sources and uses of
funds from the offering of the old notes were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
Net proceeds from offering of old notes................... $216,687
Available cash............................................ 30,038
--------
$246,725
========
USES OF FUNDS:
Purchase Star............................................. $110,000
Repayment of a portion of the 1999 credit facility........ 100,000
Repayment of a portion of the 2008 subordinated notes and
related costs.......................................... 36,725
--------
$246,725
========
</TABLE>
- ---------------
* Purchase price excludes equity contributed by Classic Communications as well
as the effect of any working capital adjustment.
In order to finance a portion of the Buford acquisition purchase price in
July of 1999, Classic entered into the 1999 credit facility, agented by Goldman
Sachs Credit Partners, L.P., Union Bank of California, N.A. and The Chase
Manhattan Bank. We used a portion of the net proceeds from the sale of the old
notes to repay $100 million of the borrowings under the 1999 credit facility,
which totaled $265 million at December 31, 1999. The weighted average interest
rate for borrowings under the credit facility repaid amounted to 8.0% for the
period ended December 31, 1999, excluding the amortization of financing costs.
The revolving credit facility and the term loan A facility mature on July 31,
2007. The term loan B facility and term loan C facility mature on January 31,
2008.
23
<PAGE> 28
CAPITALIZATION
The following table sets forth as of December 31, 1999 on a consolidated
basis:
- the actual capitalization of Classic;
- the pro forma capitalization of Classic to reflect:
(1) the issuance and sale by Classic of the old notes for net proceeds
of $216.7 million, after deducting underwriting discounts and estimated
offering expenses totaling $8.3 million and related credit facility
repayment as described in "Use of Proceeds";
(2) the repurchase of approximately $36 million aggregate principal
amount of our 2008 subordinated notes and related costs; and
(3) the acquisition of substantially all the assets of Star by a
subsidiary of Classic and the related financing.
This table should be read in conjunction with the "Unaudited Pro Forma
Financial Statements" and the accompanying notes included elsewhere in this
prospectus. See also "Use of Proceeds."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets
Cash and cash equivalents................................. $ 85,855 $ 56,693
========= =========
Long-term debt:
10 1/2% senior subordinated notes......................... -- 225,000
9 7/8% senior subordinated notes.......................... 39,005 3,000
Discount on 9 7/8% senior subordinated notes.............. (151) --
9 3/8% senior subordinated notes.......................... 150,000 150,000
The 1999 credit facility.................................. 265,000 165,000
Other..................................................... 478 478
--------- ---------
Total long-term debt.............................. 454,332 543,478
Stockholder's equity
Common stock.............................................. -- --
Additional paid-in capital................................ 267,241 280,713
Accumulated deficit....................................... (109,061) (128,295)
--------- ---------
Total stockholder's equity........................ 158,180 152,418
--------- ---------
Total capitalization.............................. $ 612,512 $ 695,896
========= =========
</TABLE>
24
<PAGE> 29
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Information is
based on the audited and unaudited financial statements of Classic, Buford, and
Star included elsewhere in this prospectus. The unaudited pro forma adjustments
are based upon available information and certain assumptions that we believe are
reasonable. The Unaudited Pro Forma Consolidated Financial Information and
accompanying notes should be read in conjunction with the historical financial
statements of Classic, Buford, and Star and the respective notes to those
statements, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus.
The Unaudited Pro Forma Consolidated Balance Sheet has been prepared to
give effect to (1) the acquisition of substantially all of the assets of Star by
a subsidiary of Classic, (2) the offering of the old notes, (3) the repurchase
of approximately $36 million aggregate principal amount of our 2008 subordinated
notes and related costs and (4) the repayment of a portion of the 1999 credit
facility as if all such transactions had occurred on December 31, 1999. The
Unaudited Pro Forma Consolidated Statements of Operations have been prepared to
give effect to (1) the transactions set forth in the previous sentence, (2) the
completed acquisition of Buford and the related financing and (3) the partial
redemption of our 2008 subordinated notes and the related financing, as if all
such transactions had occurred on January 1, 1999. All acquisitions are
accounted for under the purchase method of accounting. The Unaudited Pro Forma
Consolidated Financial Information reflects our allocation of our purchase price
for the Star acquisition based upon our current estimates of the fair values of
the assets acquired and liabilities assumed. The allocation of the final
purchase price may vary as additional information is obtained and, accordingly,
the ultimate allocation may differ from those used in the Unaudited Pro Forma
Consolidated Financial Information.
The Unaudited Pro Forma Consolidated Financial Information does not purport
to be indicative of the results that would have been obtained had the
transactions been completed as of the assumed date and for the periods presented
or that may be obtained in the future. The Unaudited Pro Forma Consolidated
Financial Information is included in this prospectus for informational purposes,
and while we believe that it may be helpful in understanding our combined
operations for the periods indicated, you should not unduly rely on the
information.
25
<PAGE> 30
CLASSIC CABLE, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASSIC STAR ADJUSTMENTS PRO FORMA
------- ---- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 85,855 $ 4,873 $(34,035)(10,22) $ 56,693
Accounts receivable, net.................................... 9,803 956 -- 10,759
Prepaid expenses............................................ 1,131 537 -- 1,668
Property, plant and equipment............................... 274,864 72,814 (21,933)(2,14) 325,745
Accumulated depreciation.................................... (60,939) (19,878) 19,878(3) (60,939)
--------- -------- -------- ---------
213,925 52,936 (2,055) 264,806
Deferred financing costs, net............................... 20,136 390 (10,440)(4,19,26) 10,086
Advances to parent.......................................... 908 -- -- 908
Intangible assets:
Subscriber relationships................................... 156,567 538 33,342(5,15) 190,447
Franchise rights........................................... 158,105 16,128 19,508(6,16) 193,741
Noncompete agreements...................................... 25,425 1,416 1,472(7,17) 28,313
Goodwill................................................... 102,261 9,076 (8,472)(8,18) 102,865
--------- -------- -------- ---------
442,358 27,158 45,850 515,366
Less accumulated amortization............................... (96,428) (9,042) 9,042(9) (96,428)
--------- -------- -------- ---------
345,930 18,116 54,892 418,938
--------- -------- -------- ---------
Total assets......................................... $ 677,688 $ 77,808 $ 8,362 $ 763,858
========= ======== ======== =========
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Liabilities:
Accounts payable........................................... $ 3,254 $ 1,350 $ -- $ 4,604
Subscriber deposits and unearned income.................... 6,675 1,306 -- 7,981
Accrued expenses........................................... 15,606 643 (513)(11) 15,736
Accrued interest........................................... 10,676 420 (420)(12) 10,676
Long-term debt............................................. 454,332 90,234 (1,088)(13,19,21,23,24) 543,478
Deferred taxes, net........................................ 28,965 -- -- 28,965
--------- -------- -------- ---------
Total liabilities.................................... 519,508 93,953 (2,021) 611,440
Stockholder's (deficit) equity:
Common stock............................................... -- -- -- --
Additional paid-in capital................................. 267,241 -- 13,472(20) 280,713
Accumulated deficit........................................ (109,061) (16,145) (3,089)(1,19,25) (128,295)
--------- -------- -------- ---------
Total stockholder's (deficit) equity................. 158,180 (16,145) 10,383 152,418
--------- -------- -------- ---------
Total liabilities and stockholder's equity........... $ 677,688 $ 77,808 $ 8,362 $ 763,858
========= ======== ======== =========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet.
26
<PAGE> 31
CLASSIC CABLE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
Set forth below are the notes to the Unaudited Pro Forma Consolidated
Balance Sheet. The letters set forth next to the line items below correspond to
the letters set forth on the Unaudited Pro Forma Consolidated Balance Sheet. The
following pro forma adjustments to the unaudited consolidated balance sheet
assume: (1) the acquisition of substantially all of the assets of Star by a
subsidiary of Classic; (2) the offering of the old notes; (3) the repurchase of
approximately $36 million aggregate principal amount of our 2008 subordinated
notes; and (4) the repayment of a portion of the 1999 credit facility as if all
such transactions had occurred on December 31, 1999.
The Star acquisition was accounted for using the purchase method. The cost
of the acquisition will be allocated based on the fair value of the assets
acquired and liabilities assumed, based upon a valuation that is not yet
complete.
The preliminary allocation of the final purchase price of Star is as
follows:
<TABLE>
<CAPTION>
STAR
--------
<C> <S> <C>
Purchase price.............................................. $122,596
========
(1) Eliminate partner's deficiency.............................. (16,145)
Eliminate historical property, plant and equipment:
(2) Costs....................................................... (72,814)
(3) Accumulated deprecation..................................... 19,878
Eliminate historical intangible assets:
(4) Deferred financing costs.................................... (390)
(5) Subscriber relationships.................................... (538)
(6) Franchise rights............................................ (16,128)
(7) Noncompete agreements....................................... (1,416)
(8) Goodwill and other intangible assets........................ (9,076)
(9) Accumulated amortization.................................... 9,042
(10) Eliminate cash not purchased................................ (4,873)
(11) Eliminate accrued expenses not assumed...................... 513
(12) Eliminate accrued interest not assumed...................... 420
(13) Eliminate long-term debt not assumed........................ 90,234
Adjustments to record assets at fair value:
(14) Property, plant and equipment............................... 50,881
(15) Subscriber relationships.................................... 33,880
(16) Franchise rights............................................ 35,636
(17) Noncompete agreements....................................... 2,888
(18) Goodwill.................................................... 604
--------
Total....................................................... $122,596
========
</TABLE>
27
<PAGE> 32
<TABLE>
<CAPTION>
(19) Concurrent with the offering of the old notes, we wrote off unamortized deferred
financing costs and discount of $18,363 and $151, respectively. The charge for these write
offs will be reflected as an extraordinary charge in the income statement for the period
during which the transactions occurred. No such charge is included in the pro forma
income statement information presented in this prospectus.
<C> <S> <C>
Sources and uses of funds for the Star acquisition and the offering of the old
notes are as follows:
</TABLE>
<TABLE>
<S> <C> <C>
SOURCES OF FUNDS:
(20) Capital contribution from Classic Communications*........... $ 13,472
(21) Proceeds from the offering of the old notes................. 225,000
(22) Cash........................................................ 29,162
--------
$267,634
========
USES OF FUNDS:
Purchase Star............................................... $122,596
(23) Repayment of a portion of the 1999 credit facility.......... 100,000
(24) Repayment of a portion of the 2008 subordinated notes....... 36,005
(25) Payment of premium on the 2008 subordinated notes........... 720
(26) Fees and expenses........................................... 8,313
--------
$267,634
========
</TABLE>
- ---------------
* Represents the portion of the purchase price paid with 555,555 shares of the
Class A common stock of Classic Communications.
28
<PAGE> 33
CLASSIC CABLE, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASSIC BUFORD(1) STAR ADJUSTMENTS PRO FORMA
------- --------- ---- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................... $111,410 $44,901 $24,981 $ -- $181,292
Operating expenses:
Programming............................ 29,906 12,468 7,407 -- 49,781
Plant and operating.................... 12,744 4,325 3,707 -- 20,776
General and administrative............. 17,126 12,305 2,444 -- 31,875
Marketing and advertising.............. 1,929 972 251 -- 3,152
Corporate overhead..................... 9,721 260 876 (1,938)(a) 8,919
Depreciation and amortization.......... 51,484 14,052 7,415 12,977(b) 85,928
-------- ------- ------- -------- --------
Total operating expenses.......... 122,910 44,382 22,100 11,039 200,431
-------- ------- ------- -------- --------
Income (loss) from operations............... (11,500) 519 2,881 (11,039) (19,139)
Interest expense............................ (31,201) (4,642) (7,183) (11,755)(c) (54,781)
Other income (expense)...................... 605 (377) 109 -- 337
-------- ------- ------- -------- --------
Loss before income taxes.................... (42,096) (4,500) 4,193 (22,794) (73,583)
Income tax benefit.......................... 10,128 210 -- 14,680(d) 25,018
-------- ------- ------- -------- --------
Net loss.................................... $(31,968) $(4,290) $(4,193) $ (8,114) $(48,565)
======== ======= ======= ======== ========
</TABLE>
- ---------------
(1) Represents seven months activity from January 1, 1999 through its
acquisition by Classic.
See the Notes to Unaudited Pro Forma Consolidated Statement of Operations.
29
<PAGE> 34
CLASSIC CABLE, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
The accompanying Unaudited Pro Forma Consolidated Statements of Operations
for the year ended December 31, 1999 reflect the pro forma adjustments described
below as if (1) the completed acquisition of Buford by Classic and the related
financing, (2) the acquisition of substantially all of the assets of Star by a
subsidiary of Classic and the related financing, (3) the partial redemption of
our 2008 subordinated notes and the related financing, (4) the repurchase of
approximately $36 million aggregate principal amount of our 2008 subordinated
notes and related costs, (5) the repayment of a portion of the 1999 credit
facility and (6) the offering of the old notes as if all such transactions had
occurred on January 1, 1999. The Unaudited Pro Forma Consolidated Statements of
Operations combine the historical results of operations of Classic with those of
Buford and Star. These statements reflect the following adjustments:
(a) Classic formulated a restructuring plan whereby certain identified
employees of Buford's corporate management were terminated. The functions
of these employees were duplicative with those of Classic and there is no
expectation that the revenues generated by the Buford systems will be
adversely affected by the restructuring plan. The costs associated with
these employees were $1,062 for the year ended December 31, 1999.
Star pays a management fee to its general partner based upon a certain
percentage of revenues. This arrangement terminated upon the closing of the
Star acquisition. There is no expectation that the revenues generated by
the Star systems will be adversely affected by the termination of this
agreement. The costs associated with this agreement were $876 for the year
ended December 31, 1999.
(b) Represents pro forma adjustments to depreciation and amortization
in connection with the Buford acquisition and the Star 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>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Depreciation and amortization expense on the purchased basis
of property, plant and equipment and intangible assets
acquired.................................................. $34,444
Elimination of historical depreciation and amortization
expense................................................... 21,467
-------
Total adjustment to depreciation and
amortization..................................... $12,977
=======
</TABLE>
30
<PAGE> 35
The property, plant, and equipment and intangible assets acquired in
connection with the Star acquisition are estimated below:
<TABLE>
<CAPTION>
DEPRECIATION/
AMORTIZATION
PERIOD
STAR (YEARS)
-------- -------------
<S> <C> <C>
Land...................................................... $ 367 --
Buildings................................................. 1,614 30
Leasehold improvements.................................... 338 7
Vehicles.................................................. 1,559 5
Cable television distribution systems..................... 18,142 12
UHF system................................................ 3,832 7
Mobile radio equipment.................................... 150 7
Headend electronics....................................... 10,905 7
Headend tower and antennae................................ 4,574 7
Microwave equipment....................................... 1,923 7
Shop and test equipment................................... 2,279 7
Drops..................................................... 3,974 7
Furniture and fixtures.................................... 664 7
Office equipment.......................................... 407 7
Computer hardware and equipment........................... 133 4
Computer software......................................... 20 3
Subscriber relationships.................................. 33,880 12
Franchise rights.......................................... 35,636 8
Noncompete agreements..................................... 2,888 3
Goodwill.................................................. 604 20
--------
$123,889
========
</TABLE>
(c) Represents:
- interest expense on the credit facility using a current interest
rate of 8.81% and 8.81% for the Term B and Term C loans,
respectively, per annum,
- interest expense on the 2010 senior subordinated notes using a
rate of 10.50% per annum,
- interest expense on the 2009 senior subordinated notes using a
rate of 9.375% per annum,
- amortization expense of deferred financing fees related to the
2010 senior subordinated notes, the 2009 senior subordinated
notes and the credit facility,
- elimination of historical interest expense related to Buford's
and Star's debt not assumed, and
31
<PAGE> 36
- elimination of historical interest expense from the 1998 credit
facility, the redeemed portion of the 2008 subordinated notes and
the paid down portion of the 1999 credit facility as well as the
elimination of the related amortization of deferred financing
costs, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Interest expense on the credit facility..................... $ 5,748
Interest expense on the 2010 senior subordinated notes...... 23,625
Interest expense on the 2009 senior subordinated notes...... 8,086
Interest expense on the 2008 senior subordinated notes...... 296
Amortization expense of deferred financing fees............. 1,576
Elimination of historical interest expense on the 1998
credit facility, redeemed portion of the 2008 subordinated
notes, paid down portion of the 1999 credit facility,
subordinated debt and acquisition debt not assumed as well
as related amortization of deferred financing costs....... (27,576)
--------
Total increase to interest expense................ $ 11,755
========
</TABLE>
- ---------------
* The total effect of a 1/8% variance in the interest rate would be $206.
(d) Represents the:
- tax effect of pro forma adjustments, and
- recognition of tax benefit for the acquired systems which were
historically not allocated tax benefit by their former parent.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Pro forma loss before income taxes.......................... $(73,583)
Tax rate.................................................... 34%
--------
Pro forma income tax benefit................................ 25,018
Historical income tax benefit............................... (10,338)
--------
Total pro forma adjustment to income tax benefit............ $ 14,680
========
</TABLE>
32
<PAGE> 37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA --
CLASSIC CABLE, INC.
The following table presents selected historical financial data about
Classic. You should read this information together with "Summary Historical
Financial and Operating Data -- Classic Cable, Inc.," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and Classic's
consolidated financial statements and the notes relating to those statements
included elsewhere in this prospectus.
Classic's selected historical financial data as of and for each of the five
years in the period ended December 31, 1999 have been derived from Classic's
consolidated financial statements, which have been audited and reported upon by
Ernst & Young LLP for the years ended December 31, 1995 and 1996 and
PricewaterhouseCoopers LLP for the years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................. $ 36,677 $ 59,821 $ 60,995 $ 69,802 $111,410
Costs and expenses........................................ 18,911 33,553 36,555 42,070 71,426
Depreciation and amortization............................. 16,427 27,510 27,832 30,531 51,484
-------- -------- -------- -------- --------
Operating income (loss)................................... 1,339 (1,242) (3,392) (2,799) (11,500)
Interest expense.......................................... (14,132) (20,164) (20,759) (20,688) (31,201)
Gain on sale of cable systems............................. -- 4,901 3,644 -- --
Write-off of abandoned telephone operations............... -- (2,994) (500) (220) --
Other income (expense).................................... -- -- 71 192 605
-------- -------- -------- -------- --------
Loss before income tax benefit, minority interest and
extraordinary loss...................................... (12,793) (19,499) (20,936) (23,515) (42,096)
Income tax benefit........................................ 4,510 6,633 7,149 2,339 10,128
Extraordinary loss........................................ (4,054) -- -- (5,524) (4,093)
-------- -------- -------- -------- --------
Net loss.................................................. $(12,337) $(12,866) $(13,787) $(26,700) $(36,061)
======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Total assets.............................................. $271,496 $245,987 $220,218 $252,496 $677,688
Total debt................................................ 204,646 193,998 187,967 220,804 454,332
Total liabilities......................................... 229,426 215,826 202,887 239,354 519,508
Total redeemable preferred stock.......................... 1,293 1,293 1,293 -- --
Total stockholder's equity................................ 40,777 28,868 16,038 13,142 $158,180
</TABLE>
33
<PAGE> 38
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- BUFORD GROUP, INC.
The following table presents selected historical financial data about
Buford. You should read this information together with "Summary Historical
Financial and Operating Data -- Buford Group, Inc.," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and Buford's
consolidated financial statements and the notes relating to those statements
included elsewhere in this prospectus.
The selected data presented below under the headings "Income Statement
Data" and "Balance Sheet Data," for and as of the end of each of the years in
the five-year period ended December 31, 1998 are derived from Buford's
consolidated financial statements, which financial statements have been audited
by KPMG LLP, independent certified public accountants. The consolidated
financial statements as of December 31, 1998 and 1997, and for each of the years
in the three-year period ended December 31, 1998, and the auditors' report
thereon, are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................... $ 37,032 $ 49,558 $ 49,561 $ 58,136 $ 70,475
Costs and expenses.......................................... 26,755 32,965 32,932 40,858 51,168
Depreciation and amortization............................... 13,670 17,379 17,175 17,753 21,399
-------- -------- -------- -------- --------
Operating income (loss)..................................... (3,393) (786) (546) (475) (2,092)
Interest expense............................................ (2,823) (6,332) (5,345) (5,787) (7,919)
Gain on sale of cable systems............................... -- 8,506 5,418 -- --
Other income (expense)...................................... 191 1,443 344 859 (221)
-------- -------- -------- -------- --------
Loss before income tax benefit (expense) and cumulative
effect of change in accounting principle.................. (6,025) 2,831 (129) (5,403) (10,232)
Income tax benefit (expense)................................ 3,027 7,235 (94) 315 226
Cumulative effect of change in accounting principle......... -- -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)........................................... $ (2,998) $ 10,066 $ (223) $ (5,088) $(10,006)
======== ======== ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Total assets................................................ $127,702 $127,379 $117,676 $143,932 $175,953
Total debt.................................................. 72,110 70,643 60,053 85,000 118,000
Total liabilities........................................... 91,773 80,122 69,182 97,008 131,147
Total stockholders' equity.................................. 35,969 47,257 48,493 46,924 44,806
</TABLE>
34
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides additional information regarding our pro
forma financial condition for the year ended December 31, 1999. It also includes
historical information regarding our financial condition and results of
operations for each of the years ended December 31, 1997, 1998 and 1999. This
discussion should be read in conjunction with "Selected Historical Consolidated
Financial Data -- Classic Cable, Inc.," "Selected Historical Consolidated
Financial Data -- Buford Group, Inc.," "Unaudited Pro Forma Consolidated
Financial Information" and Classic's, Buford's and Star's consolidated financial
statements and the notes relating to those statements appearing elsewhere in
this prospectus. During their existence, both Classic and Buford have completed
multiple acquisitions and divestitures of cable systems. As a result, we believe
that period-to-period comparisons of their financial results to date are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
OVERVIEW
As a result of the Buford acquisition and the Star acquisition and assuming
completion of other recently publicly announced transactions by other companies
in the cable television industry, we believe we are the 14th largest cable
television operator in the United States. We own, operate and develop cable
television systems in selected non-metropolitan markets clustered primarily in
nine contiguous states primarily located in the central United States. Since
1992, we have completed and integrated over 20 acquisitions. As of December 31,
1999, our collective systems passed approximately 707,000 homes and served
approximately 414,000 basic subscribers, which includes approximately 98,000
homes and 57,000 subscribers for Star.
REVENUES. Revenues are primarily attributable to monthly subscription fees
charged to subscribers for our 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.
35
<PAGE> 40
At December 31, 1999, our collective systems served approximately 414,000
basic subscribers and approximately 223,000 premium units, representing a basic
penetration rate of approximately 59% and a premium penetration rate of
approximately 54%. For Classic and Star premium subscribers are the number of
subscribers who pay a monthly fee for premium channels. Multiplexing premium
channels is counted as one subscriber. For Buford, each premium channel received
is counted as a separate premium subscriber. Premium penetration is calculated
as the number of premium subscribers as a percentage of basic subscribers. The
table below sets forth the percentage of our total revenues attributable to the
various sources:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Basic....................................................... 83.3%
Premium..................................................... 10.3
Other....................................................... 6.4
-----
Total revenues.................................... 100.0%
=====
</TABLE>
OPERATING EXPENSES. Our operating expenses consist of (a) programming fees,
(b) plant and operating costs, (c) general and administrative expenses and (d)
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 us. We benefit from our membership
in an industry cooperative with over 10 million basic subscribers that 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. Corporate overhead consists primarily of expenses
incurred by our executive management, which are not directly attributable to any
one system.
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 our financing activities, have contributed to our net losses. We
believe that such net losses are common for the cable television industry.
36
<PAGE> 41
RESULTS OF OPERATIONS -- CLASSIC CABLE
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------------ ------------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------ ------------- ------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $69,802 100.0% $111,410 100.0%
Operating expenses:
Programming....................... 17,840 25.6 29,906 26.8
Plant and operating............... 8,437 12.1 12,744 11.4
General and administrative........ 11,295 16.2 17,126 15.4
Marketing and advertising......... 850 1.2 1,929 1.8
Corporate overhead................ 3,648 5.2 9,721 8.7
Depreciation and amortization..... 30,531 43.7 51,484 46.2
------- ----- -------- -----
Total operating expenses..... 72,601 104.0 122,910 110.3
------- ----- -------- -----
Loss from operations......... $(2,799) (4.0)% $(11,500) (10.3)%
======= ===== ======== =====
</TABLE>
REVENUES. Revenues increased $41.6 million, or 60%, in 1999. Revenues
increased due to increased subscribers from acquisitions of approximately 28,000
subscribers in July 1998 and 170,000 subscribers in July 1999 and basic rate
increases. The increase in subscribers was due to the acquisition of systems
from Cable One in July 1998 and the acquisition of Buford in July 1999. In
addition, there was a rate increase of approximately 7% affecting approximately
two-thirds of our customers in February 1999, resulting in an increase in basic
revenues per subscriber of 7% from $27.87 to $29.82 period to period. We have
historically increased rates in February in order to offset increases in
operating costs such as programming which occur primarily in January of each
year.
OPERATING EXPENSES. Operating expenses increased $50.3 million, or 69%, in
1999. Programming expenses increased $12.1 million due to the continued
escalation in rates charged by programming vendors as well as an increase in the
subscriber base over the same period in 1998. Plant and operating and general
and administrative expenses increased $10.1 million, or 51%, as a result of the
additional costs associated with the systems acquired in 1998 and 1999.
Corporate overhead increased $6.1 million primarily due to $6.6 million of
acquisition related compensation expenses incurred in connection with the Buford
acquisition. Depreciation and amortization expense in 1999 was $51.5 million, an
increase of $21.0 million over the same period in 1998. The increase represents
the effect of acquisitions and capital expenditures.
OTHER INCOME AND EXPENSES. Interest expense increased $10.5 million, or
51%, in 1999. This increase is primarily the result of the debt issued in
conjunction with the July 1999 and 1998 acquisitions and subsequent refinancing
of debt.
INCOME TAX BENEFIT. The income tax benefit increased $10.3 million in 1999.
The pre-tax loss increased in 1999 and the effective tax rate increased from
9.9% to 24.1% for 1999. The effective tax rates for 1999 and 1998 differ from
the statutory rates primarily due to an increase in the valuation allowance on
deferred tax assets.
NET LOSS. As a result of the above described fluctuations in our results of
operations and extraordinary losses recognized in connection with the July 1998
and 1999 refinancing of debt, the net loss of $36.1 million in 1999 increased by
$9.4 million, as compared to the net loss of $26.7 million in 1998.
37
<PAGE> 42
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------------ ------------------------
AMOUNT % OF REVENUES AMOUNT % OF REVENUES
------ ------------- ------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $60,995 100.0% $69,802 100.0%
Operating expenses:
Programming........................ 14,916 24.5 17,840 25.6
Plant and operating................ 7,622 12.5 8,437 12.1
General and administrative......... 9,257 15.2 11,295 16.2
Marketing and advertising.......... 438 0.7 850 1.2
Corporate overhead.................... 4,322 7.1 3,648 5.2
Depreciation and amortization......... 27,832 45.6 30,531 43.7
------- ----- ------- -----
Total operating expenses...... 64,387 105.6 72,601 104.0
------- ----- ------- -----
Loss from operations.......... $(3,392) (5.6)% $(2,799) (4.0)%
======= ===== ======= =====
</TABLE>
REVENUES. Revenues for the year ended December 31, 1998 were $69.8 million,
an improvement of $8.8 million over revenues for the year ended December 31,
1997. Basic revenues improved by $7.4 million, or 15%, while average monthly
basic revenues per subscriber increased from $25.22 to $27.87, or 11%. 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 revenue generated from the systems acquired from Cable
One on July 29, 1998. The majority of the remaining systems also had rate
increases during 1998. The change in basic subscribers for the year ended
December 31, 1998 is primarily due to the acquisition of systems from Cable One
in 1998 and 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 equivalent basic unit conversion calculations following the
basic rate increases, the increased availability and affordability of
competitive video services, non-pay disconnects, and other terminations of
service. The remaining revenues increased 13.7%, from $10.2 million for the year
ended December 31, 1997 to $11.6 million for the year ended December 31, 1998,
due in large part to continued promotion of pay-per-view events.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1998
were $72.6 million, an increase of $8.2 million, or 13%, over operating expenses
for the year ended December 31, 1997. An escalation in rates charged by certain
programming vendors as well as increases in copyright fees and premium units
were largely responsible for the $2.9 million increase in programming costs over
programming costs for the year ended December 31, 1997. Plant and operating
expenses increased from $7.6 million for the year ended December 31, 1997 to
$8.4 million for the year ended December 31, 1998, reflecting increases in
technical wages and benefits, plant power, and amounts paid to outside
contractors to update our subscriber database. General and administrative
expenses increased from $9.3 million for the year ended December 31, 1997 to
$11.3 million for the year ended December 31, 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 increased
during this period from 15% to 16%. Marketing expenses for the year ended
December 31, 1998 were $0.9 million, an increase of 94% over marketing expenses
for the year ended December 31, 1997. The majority of this increase relates to
increased spending associated with our marketing initiatives. As a percentage of
revenues, operating expenses decreased slightly from 106% for the year ended
December 31, 1997 to 104% for the year ended December 31, 1998.
38
<PAGE> 43
CORPORATE OVERHEAD. Corporate overhead decreased $0.7 million, or 16%, from
$4.3 million for the year ended December 31, 1997 to $3.6 million for the year
ended December 31, 1998 due primarily to a reduction in litigation costs
compared to the year ended December 31, 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the year ended December 31, 1998 was $30.5 million, an increase of $2.7 million
over depreciation and amortization expense for the year ended December 31, 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 $7.1 million for
year ended December 31, 1997 to $2.3 million for the year ended December 31,
1998. The pre-tax loss increased in 1998. However, the effective tax rate
decreased. The effective tax rate decreased from 34.1% for the year ended
December 31, 1997 to 9.9% for the year ended December 31, 1998. This decrease is
primarily due to an increase in the valuation allowance against deferred tax
assets.
RESULTS OF OPERATIONS -- BUFORD GROUP, INC.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues in 1998 were $70.5 million, an improvement of $12.4
million, or 21%, over revenues in 1997. The improvement was due primarily to
basic rate increases during the first half of 1998 as well as revenue generated
from the systems acquired in late April 1998. Buford has historically increased
rates in the majority of its systems during the first half of the year in order
to offset increases in its operating costs such as programming which occur in
January of each year. Average monthly basic revenue per basic subscriber
increased 7%, from $26.31 for the year ended December 31, 1997 to $28.17 for the
year ended December 31, 1998.
OPERATING EXPENSES. Operating expenses in 1998 were $41.8 million, an
increase of $5.8 million, or 16%, over operating expenses for the year ended
December 31, 1997. The continued escalation in rates charged by programming
vendors as well as increases in copyright fees and premium units were largely
responsible for the $4.0 million increase in programming costs over 1997. Plant
and operating expenses increased from $6.6 million for the year ended December
31, 1997 to $6.9 million for the year ended December 31, 1998, reflecting
increases in technical wages and benefits and amounts paid to outside
contractors. General and administrative expenses increased from $14.9 million
for the year ended December 31, 1997 to $16.2 million for the year ended
December 31, 1998 due to increases in administrative wages and benefits and
utility expense. Marketing and advertising expenses for the year ended December
31, 1998 were $0.3 million, an increase of 50% over marketing and advertising
expenses for the year ended December 31, 1997. The majority of this increase
relates to increased spending associated with Buford's marketing initiatives.
CORPORATE OVERHEAD. Corporate overhead increased $4.5 million, or 92%,
from $4.9 million for the year ended December 31, 1997 to $9.4 million for the
year ended December 31, 1998 due primarily to an increase in compensation
expense related to employee stock appreciation rights from $3.5 million for the
year ended December 31, 1997 to $7.9 million for the year ended December 31,
1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense for
the year ended December 31, 1998 was $21.4 million, an increase of $3.6 million
over depreciation and amortization expense for the year ended December 31, 1997.
The increase is largely reflective of the inclusion of fixed assets acquired and
those placed into service during 1997 and 1998.
INCOME TAX BENEFIT. Income tax benefit of $0.2 million was recorded for
the year ended December 31, 1998 versus $0.3 million for the year ended December
31, 1997. This decrease is primarily due to an increase in the valuation
allowance against deferred tax assets.
39
<PAGE> 44
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations increased 24% or $3.4 million to $17.4 million,
driven by the acquisition of cable systems in 1998 and 1999. Cash used in
investing activities increased 469% or $268.2 million to $325.5 million, driven
primarily by the acquisition of Buford in July 1999, as well as by increased
levels of capital spending. Cash provided by financing activities increased 761%
or $345.8 million to $391.2 million due to the investment by Brera Classic,
Classic Communications' initial public equity offering, and additional debt
incurred in conjunction with the Buford acquisition. EBITDA increased 44% or
$12.3 million to $40.0 million due primarily to the acquisition of cable systems
in 1998 and 1999. EBITDA has been reduced by non-cash operating charges
consisting of compensation on stock awards of $1.9 million and $1.1 million as
well as by non-recurring fees paid to certain members of the management team in
connection with completed acquisitions and financing transactions of $5.5
million and $0.8 million for 1999 and 1998, respectively. Without the non-cash
operating charges and other fees, EBITDA would have been $47.4 million and $29.6
million for 1999 and 1998, respectively. EBITDA is presented because management
believes it is a widely accepted financial indicator of a company's ability to
incur and service debt. We believe 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 as presented may not be
comparable to similarly titled measures presented by other companies.
In July 1999, we issued $150 million of 9.375% senior subordinated notes
concurrently with our entry into the 1999 credit facility totaling $450 million,
as amended. These transactions, along with $100 million in proceeds from a sale
of Classic Communications stock to Brera Classic, were utilized to purchase
Buford, repay our previous credit agreement and pay the fees and expenses of
these transactions.
In December 1999, Classic Communications completed an initial public
offering of 7,250,000 shares of its Class A Common Stock, raising approximately
$168.9 million. It used the proceeds from the offering to pay offering expenses
and to redeem all of its outstanding 13.25% senior discount notes due 2009.
Classic Communications contributed the remainder of the proceeds, approximately
$83.5 million, to us, which we used for general business purposes, including
financing part of the Star acquisition.
In February 2000, one of our subsidiaries purchased substantially all of
the assets of Star Cable Associates, which operates cable television systems in
Texas, Louisiana and Ohio, for an aggregate purchase price of approximately $110
million in cash and 555,555 shares of Classic Communications Class A Common
Stock.
In February 2000, we completed a private offering of $225 million of Senior
Subordinated Notes due 2010. The securities sold in the private offering will
not be and have not been registered under the Securities Act of 1933 and may not
be offered or sold in the United States without registration or an applicable
exemption from registration requirements. We used the proceeds of the offering
to fund a portion of the acquisition of Star, repay a portion of indebtedness
under our senior credit facility and repurchase approximately $33 million of our
9.875% Senior Subordinated Notes due 2008.
In connection with the offering, we entered into a second amendment to our
senior credit facility, which (1) allowed for the offering of our 10.5% senior
subordinated notes, (2) modified some of the covenants in the credit facility to
provide us more flexibility (i.e., maximum total debt ratio, total interest
coverage ratio, maximum capital expenditures, limitations on investments,
permitted acquisitions, and lines of business), (3) restructured the term loan A
facility so that
40
<PAGE> 45
following a prepayment in full of the term loan A facility, and subject to
certain additional conditions, we have the ability to reborrow in one or more
advances under the term loan A facility until February 10, 2001 and (4)
increased the term loan A facility so that an additional $25 million may be made
available under that facility.
We have debt service requirements increasing from approximately $41 million
in 2000 to $53 million in 2001 and remaining consistent at that level through
2007. Our debt has significant maturities during the years 2008 to 2010.
Additionally, the Company has standby letters of credit totaling $3 million
maturing through August 2000.
Our capital improvement plan contemplates the investment of approximately
$200.0 million over the next four fiscal years as follows:
- $126.0 million to establish a technical standard of 550-750 MHz bandwidth
capacity in cable television systems serving approximately 72% of our
basic subscribers and for the consolidation of headends;
- $52.0 million for ongoing maintenance and replacement, installations and
extensions to the cable plant related to customer growth; and
- $22.0 million for the purchase of additional addressable converters and
headend equipment to support the deployment of digital services.
We have in place a credit facility which, as amended, currently allows for
$175 million of additional borrowing subject to certain limitations.
All of our debt is fully and unconditionally guaranteed by our wholly owned
direct and indirect subsidiaries on a joint and several basis. There are
presently no restrictions on the ability of these subsidiaries to make
distributions to us.
INTEREST RATE RISK MANAGEMENT
We are exposed to market risk including changes in interest rates. To
manage the volatility relating to these exposures, we enter into various
derivative transactions pursuant to our policies in areas such as counterparty
exposure and hedging practices. Positions are monitored using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. The credit risks associated with our derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any, to be significant.
INTEREST RATE RISK
The use of interest rate risk management instruments, such as interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"), is required under the terms of
certain of our outstanding debt agreements. Our policy is to manage interest
costs using a mix of fixed and variable rate debt. Using Swaps, we agree to
exchange, at specified intervals, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principal
amount. Caps are used to lock in a maximum interest rate should variable rates
rise, but enable us to otherwise pay lower market rates. Collars limit our
exposure to and benefits from interest rate fluctuations on variable rate debt
to within a certain range of rates.
During the year ended December 31, 1999, we entered into Collars with an
aggregate notional amount of $75.0 million. No other instruments were
outstanding during the year.
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<PAGE> 46
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 1999 (dollars in millions):
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
----------------------------------------------- VALUE AT
2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/1999
---- ----- ---- ---- ----- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt:
Fixed Rate.............. $0.5 $ -- $-- $-- $ -- $188.8 $189.3 $185.2
Average Interest Rate... 9.0% 0.0% 0.0% 0.0% 0.0% 9.5% 9.5%
Variable Rate........... $-- $ 2.4 $7.5 $9.4 $13.2 $232.5 $265.0 $265.0
Average Interest Rate... 0.0% 8.8% 8.8% 8.8% 8.8% 8.9% 8.9%
Interest Rate Instruments:
Collar.................. $75.0 $ 75.0 $ --
Average Cap Rate........ 8.3% 8.3%
Average Floor Rate...... 5.5% 5.5%
</TABLE>
The notional amounts of interest rate instruments, as presented in the
table above are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. Interest
rates on variable debt are estimated by us using the average implied forward
London Interbank Offer Rate ("LIBOR") rates for the year of maturity based on
the yield curve in effect at December 31, 1999, plus the borrowing margin in
effect for each credit facility at December 31, 1999. While Swaps, Caps and
Collars represent an integral part of our interest rate risk management program;
their incremental effect on interest expense for the years ended December 31,
1999 and 1998 was not significant.
INTANGIBLES
We have recorded net intangible assets of $345.9 million, 51.0% of total
assets. These assets arose during the acquisition of cable systems throughout
our history. These intangible assets are amortized over their estimated useful
lives. We review the valuation and amortization periods of these intangibles on
a periodic basis, taking into consideration any events or circumstances that
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 of the intangible assets.
YEAR 2000 COMPLIANCE
During 1999, we planned, inventoried and evaluated systems, remediated,
replaced where and when necessary and tested such remediation and replacements.
As a result, we experienced no adverse year 2000 related issues on January 1,
2000. We recognize that there may be residual effects related to year 2000
issues. Our assessment of our year 2000 readiness will be ongoing as we continue
to develop our operating systems and rely on our vendors' or their vendors'
systems. We do not have any way to assess the costs related to remediation of
any residual year 2000 effect. We intend to use internal resources for such
remediation where possible. We may in the future identify a significant internal
or external year 2000 related residual issue which, if not remedied in a timely
manner, could have a material adverse effect on our business, financial
condition and results of operations.
INFLATION
Certain of our 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, these
changes historically have not had a material adverse effect on our results of
operations.
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<PAGE> 47
BUSINESS
COMPANY OVERVIEW
We are a growth oriented cable operator focused on non-metropolitan markets
in the United States. We have experienced growth in subscribers, revenues and
cash flows, primarily through the successful execution and integration of over
20 acquisitions of cable systems primarily clustered in nine contiguous states.
As of December 31, 1999, our systems pass approximately 707,000 homes and serve
approximately 414,000 basic subscribers, which includes approximately 98,000
homes and 57,000 subscribers for Star.
We believe that there are significant operating, competitive and economic
advantages in acquiring and owning systems in non-metropolitan markets. In
pursuing our business strategy, we have focused our acquisition efforts on cable
television systems in growing non-metropolitan markets and have sought to build
geographic clusters of these systems. Because of poor reception of broadcast
television signals, customers often require cable television service in these
markets to receive a full complement of off-air broadcast stations, such as ABC,
NBC, CBS, and FOX. These off-air broadcast stations represent approximately 30%
of overall television viewing. In addition, there are typically fewer
competitive entertainment alternatives in these markets. As the leading
multi-channel video provider in our markets, we have capitalized on these market
characteristics by generating predictable revenue streams and EBITDA.
Approximately 71% of our cable subscribers reside in a county seat or are
located within a 30-mile radius of a county seat. These markets typically have
(a) larger populations, (b) more favorable demographics, (c) higher growth
characteristics, and (d) stronger economic activity than do other
non-metropolitan markets. We have created clusters of cable television systems
around these markets and believe that clustering cable systems provides
significant operating and cost advantages. We own and manage 576 cable systems
primarily clustered in nine contiguous states. Approximately 72% of our
customers are located on approximately 27% of our headends. This level of
clustering allows us to deploy our technical staff, vehicle fleet, and shared
resources more efficiently, resulting in lower operating and capital costs and
improved customer response time. Clustering also allows us to:
- manage the workforce and allocate personnel more effectively;
- address the specific customer service and programming needs of our
customers;
- introduce digital cable services and other new services in a cost
effective manner;
- increase the number of households reached with existing marketing
budgets;
- increase the benefits of local and regional community relations efforts;
and
- manage political relationships at the local and state level.
We believe that providing superior customer service and developing strong
community relations are key elements to our long-term success and enable us to
maintain our subscribers, support our rates, and foster good working
relationships with local administrators. We seek to achieve a high level of
customer satisfaction by employing a well-trained staff of customer service
representatives and experienced field technicians. We operate two call centers
located in Tyler, Texas, and Plainville, Kansas, which offer 24-hour, 7-day per
week coverage to all of our customers on a toll-free basis. We believe that the
combination of these call centers provides us with redundancy safeguards and a
platform for further growth.
J. Merritt Belisle, our Chief Executive Officer, and Steven E. Seach, our
President and Chief Financial Officer, founded Classic 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 over 20 years of collective
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<PAGE> 48
experience in acquiring, operating, integrating and developing cable television
systems and have worked together for over ten years.
As a result of the Buford acquisition, our management team has been further
enhanced by the addition of several key members of Buford's management team,
including Ron Martin, who became our Executive Vice President of Operations and
Kay Monigold, who became our Executive Vice President of Administration. Mr.
Martin and Ms. Monigold have been in the cable industry for over 25 years and 18
years, respectively.
On April 7, 2000, Classic Communications announced that Dale Bennett will
become our Chief Operating Officer. Mr. Bennett, a cable industry veteran,
assumes the COO role after spending the last three years as vice president of
AT&T Broadband and Internet Service's Texas Metro Region.
OUR STRATEGY
FOCUS ON ATTRACTIVE NON-METROPOLITAN MARKETS
We have followed a systematic approach to acquiring, consolidating,
operating and developing cable television systems based on the primary goal of
increasing our operating cash flow while maintaining the quality of our
services. Our business strategy is to focus on serving growing non-metropolitan
communities in the United States. For example, approximately 71% of our cable
subscribers reside in a county seat or within a 30-mile radius of 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 and Claritus, Inc.,
total households in the top 110 systems owned by us are projected to grow by
approximately 6.2%, versus the national average of 5.7%, from 1997 to 2002.
Those 110 systems currently serve approximately 62.6% of our total subscribers.
We believe that our cable systems generally are subject to less competition than
systems serving large urban cities, especially for services such as high speed
Internet access. It is our goal to continue to focus on growing non-metropolitan
areas.
EXPAND AND IMPROVE CLUSTERS THROUGH SELECTIVE ACQUISITIONS
To date, we have sought to acquire cable television systems in communities
that are in close geographic proximity to other cable television systems owned
or managed by us in order to maximize the economies of scale and operating
efficiencies associated with "clusters" of systems. We have created clusters of
cable television systems around these markets and believe that clustering cable
systems provides significant operating and cost advantages.
We plan to continue our clustering strategy by pursuing opportunities to
purchase cable television systems in our 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,
we expect to pursue opportunities to exchange certain of our cable systems for
other cable television properties to promote our clustering strategy further.
Factors likely to be considered by us 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 our operations.
In order to offer Internet access on a full-scale residential and
commercial basis in the communities we serve, we are actively seeking to acquire
incumbent Internet service providers in and around our markets. We believe that
acquiring the expertise from an incumbent Internet service provider would allow
us to offer services in the most effective and timely manner enabling us to
capitalize on the immediate, viable Internet opportunities in our markets. We
are also interested in acquiring or aligning with other companies that provide
other telecommunications
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<PAGE> 49
services including local and long distance telephone, utility, and
direct-to-home, in addition to other Internet technology and software firms.
FOCUS ON COMMUNITY RELATIONS AND CUSTOMER SATISFACTION
We believe that providing superior customer service and enhancing the
quality of life in the communities we serve are the key elements to our ultimate
long-term success. Our high level of service enables us to maintain subscribers
and support our rates. It is our goal to achieve a high level of customer
satisfaction by employing a well-trained staff of customer service
representatives and experienced field technicians.
Our Tyler, Texas call center offers 24-hour, 7-day per week coverage to
customers on a toll-free basis. The call center utilizes four T-1 lines and can
handle up to 80 incoming calls at any given time. We believe that, as currently
configured, the call center can accommodate 250,000 subscribers. The call center
complex, including hardware and software, was designed to be rapidly and
cost-effectively increased in scale to manage up to approximately 2.0 million
subscribers.
Our Tyler, Texas call center administers all phases of on-site service at a
customer's home, including dispatching the order, confirming that service has
been completed and updating the billing system and the customer's records to
reflect completion of the service. We utilize a satellite-based system to track
and dispatch our service vehicles throughout the service territory. The Qualcomm
OmniTRACS system provides real-time, constant two-way communications between the
call center and service vehicles. The system utilizes a base unit at the call
center that sends and receives messages via satellite from receiver/transmitters
installed atop each service vehicle.
Our Plainville, Kansas call center also offers 24-hour, 7-day per week
coverage 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
telephone switch we own. 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.
We believe customer service is further enhanced by our 51 offices and their
ability to coordinate technical service and installation appointments more
effectively and to respond quickly to customer inquiries. We also believe that
local offices increase the effectiveness of our customer retention efforts,
community relations endeavors, and marketing campaigns. Our 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.
In addition, we employ bilingual customer service representatives to serve our
Spanish-speaking subscriber base.
We are dedicated to fostering strong community relations in the communities
we serve. The cornerstone of our community relations strategy is our Classic
Scholarship Fund, which has provided meaningful financial assistance to hundreds
of graduating high school seniors within our service areas over the past four
years. We install and provide free cable television service and Internet access
to public schools, government buildings, and public libraries in our franchise
areas. We believe that our relations with the communities we serve are good.
We maintain a site on the World Wide Web (http://www.classic-cable.com) to
help communicate and interact with our online customers. Our website was
designed to help our
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<PAGE> 50
customers make intelligent television viewing choices and to acquaint our
customers with us and our corporate mission.
INCREASE THE REVENUE-GENERATING BANDWIDTH OF OUR CABLE PLANT
Through our capital improvement program, we plan to upgrade our cable plant
aggressively and systematically utilizing cost-effective and appropriate
technology for the market served. These upgrades include:
- Traditional rebuild to a 550-750 MHz bandwidth capacity in selected
systems;
- The deployment of digital compression services such as Headend in The
Sky(R), known as HITS, a digital compression service developed by
National Digital Television Center, Inc.;
- The deployment of fiber optic cable; and
- The consolidation of headends.
We believe that these technical upgrades create additional revenue
opportunities, enhance operating efficiencies, increase customer satisfaction,
improve franchise relationships and solidify our position as the dominant
provider of multi-channel video services in our markets. We seek to benefit from
the capital improvement program by generating additional revenue from:
- Expanded tiers of basic programming;
- Multiplexed premium services;
- Pay-per-view movies and events;
- Digital music;
- On-screen navigators;
- Home shopping services;
- High-speed data services;
- Internet access; and
- Advertising.
IMPLEMENT OUR BROADBAND SERVICES
DIGITAL SERVICES. Depending on the size of the system, we intend to offer
digital video services through either a digital headend or through a
direct-to-home solution. In larger systems, we provide enhanced digital video in
our upgraded and certain other systems using HITS. HITS enables us to deliver
video services such as:
- pay-per-view programming;
- on-screen programming navigators;
- multiplexed premium channels such as HBO-Family and HBO-Signature;
- digital music; and
- multiple tiers of niche satellite basic programming.
For systems with fewer than 2,000 subscribers, or other systems whose
headends are uneconomical to upgrade, we intend to use a digital satellite
alternative to provide a more robust cable product offering. Whether through the
resale of digital programming from a DBS provider or HITS-2-Home, we can offer
customers over 140 additional channels. For example, HITS has recently developed
a seamlessly delivered digital satellite programming overlay product direct to
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<PAGE> 51
the home. This product, HITS-2-Home, is expected to offer customers a
programming selection comparable to that currently offered by HITS to the
headend.
We believe that these enhanced digital video services will allow us to
provide digital services comparable to DBS at a lower cost. We have introduced
digital cable services to approximately 117,000 homes, representing
approximately 75,000 cable subscribers. As of December 31, 1999, we had
approximately 4,000 digital customers. We plan to continue the roll out of
digital cable services throughout the company over the next several months.
INTERNET SERVICES. We believe 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. We believe that these markets have limited appeal to the larger
telecommunications companies and that our technical platform will provide these
services at higher speeds and lower cost, giving us a competitive advantage over
other telecommunication providers in the markets in which we operate. For
example, a 10 megabit cable modem can provide Internet access at download speeds
350 times faster than typical 28.8 kilobit dial-up telephone modem connections.
We have introduced Internet access via one-way cable modem in selected systems
and will seek to complement this service with the telephone modem connection
through acquisitions of local Internet service providers.
As part of our strategy to deliver Classic-branded advanced data services
in communities we serve, we have entered into a non-exclusive agreement with
High Speed Access Corporation, known as HSA. HSA provides a comprehensive
turnkey solution for high speed Internet access via cable modems to residential
and commercial end users. HSA will provide speed to market, call center/help
desk support, national and local marketing assistance, engineering and network
design, cable modems and supporting headend equipment. The General Instruments
modem that HSA currently uses is system flexible, capable of being deployed in a
one-way, or telco return, or two-way scenario. In return for these services, we
will receive a 50% split of gross customer revenue. We plan to pursue strategic
relationships with other high speed internet companies in the near future.
Currently, we have 17 active sites passing approximately 88,000 homes.
STAR ACQUISITION
In February 2000, a wholly owned subsidiary purchased substantially all of
the assets of Star Cable Associates, which operates cable television systems in
Texas, Louisiana and Ohio, for an aggregate purchase price of approximately $110
million in cash and 555,555 shares of Classic Communications Class A common
stock. The asset purchase agreement contained customary representations,
warranties, covenants, indemnities and closing conditions. Star serves
approximately 57,000 customers.
RECENT FINANCING
In December 1999, Classic Communications completed an initial public
offering of 7,250,000 shares of its Class A common stock. Stockholders of
Classic Communications sold an additional 2,237,500 shares. Classic
Communications raised approximately $168.9 million of proceeds in the offering.
Classic Communications used the proceeds from the offering to pay offering
expenses and to redeem all of its outstanding 13 1/4% senior discount notes due
2009. Classic Communications contributed the remainder of the proceeds,
approximately $83.5 million, to us, which we used for general business purposes,
including financing part of the Star acquisition.
In connection with the offering of the old notes, we entered into an
amendment to our senior credit facility, which (1) allowed for the offering of
the old notes, (2) modified some of the covenants in the credit facility to
provide us more flexibility (i.e., maximum total debt ratio, total interest
coverage ratio, maximum capital expenditures, limitations on investments,
permitted
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<PAGE> 52
acquisitions, and lines of business), (3) restructured the term loan A facility,
so that following a prepayment in full of the term loan A facility, and subject
to certain additional conditions, we have the ability to reborrow in one or more
advances under the term loan A facility until February 10, 2001 and (4)
increased the term loan A facility so that an additional $25 million may be made
available under that facility.
SYSTEM LOCATION
We operate cable television systems in non-metropolitan markets primarily
clustered in nine contiguous states in the central United States. The following
table illustrates our relative rank in each of the states we operate based on
total number of subscribers giving effect to recently announced transactions:
<TABLE>
<CAPTION>
EQUIVALENT
HOMES BASIC BASIC
STATE PASSED UNITS PENETRATION RANK
- ----- ------ ---------- ----------- ----
<S> <C> <C> <C> <C>
Texas.................................... 318,187 162,515 51% 5
Arkansas................................. 96,728 56,576 59 4
Oklahoma................................. 81,270 49,887 61 3
Louisiana................................ 63,900 44,516 70 4
Missouri................................. 67,072 39,164 58 4
Kansas................................... 50,965 35,599 70 3
Ohio..................................... 17,452 11,987 69 --
Colorado................................. 5,157 5,313 103(1) 5
Nebraska................................. 3,389 2,097 62 --
New Mexico............................... 2,604 1,659 64 --
------- ------- -----
Subtotal............................ 706,724 409,313 58
CCTV................................ 4,290
------- ------- -----
Total.......................... 706,724 413,603 59%
======= ======= =====
</TABLE>
- ---------------
(1) Our system in Colorado includes a number of multi-dwelling units, allowing
for basic penetration over 100%.
As part of the Buford acquisition, we acquired Correctional Cable
Television, Inc., known as CCT. CCT is the largest provider of programming
services to the prison market, serving 90 correctional facilities in 18 states,
reaching more than 70,000 inmates. CCT provides programming services through
company-owned and installed modified headends under three to five year
contracts. CCT's EBITDA has grown at a compounded annual rate of approximately
40% during the last three years. CCT's continued growth will be driven by
increased penetration of the prison market, which consists of approximately
2,000 federal, state and juvenile facilities.
MARKETING, PROGRAMMING AND RATES
Our marketing programs and campaigns are based upon a variety of cable
services creatively packaged and tailored to appeal to our different markets and
segments within each market. We routinely survey our customer base to ensure
that we are meeting the demands of our customers and staying abreast of our
competition in order to counter competitors' promotional campaigns effectively.
We use 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.
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<PAGE> 53
We have various contracts to obtain basic, satellite and premium
programming for our cable 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, we are a member of a programming
consortium consisting of small to medium sized multiple cable systems operators
and individual cable systems serving, in the aggregate, over ten million cable
subscribers. The consortium helps create efficiencies in the areas of securing
and administering programming contracts, as well as establishing more favorable
programming rates and contract terms for small and medium sized cable operators.
We do not have long-term programming contracts for the supply of a substantial
amount of our programming. In cases where we do have such contracts, they are
generally for fixed periods of time ranging from one to five years and are
subject to negotiated renewal. While we believe that our relations with our
programming suppliers are generally good, the loss of contracts with certain of
our programming suppliers would have a material adverse effect on our 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 factors. For the year ended
December 31, 1999, programming costs as a percentage of revenues were 27%. We
cannot assure you that our programming costs will not increase substantially in
the near future or that other materially adverse terms will not be added to our
programming contracts.
Our cable systems offer our 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 us
varies among the cable systems depending upon each system's channel capacity and
viewer interests. Primarily for competitive reasons, we generally attempt to
offer a single level of basic service containing all broadcast and
satellite-delivered programming. In a few systems, however, we do offer multiple
tiers of cable television programming. We also offer premium programming
services, both on a per-channel basis and in many systems as part of premium
service packages designed to enhance our 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
December 31, 1999, our monthly full basic service rates for residential
customers ranged from $18.00 to $35.45 and per-channel premium service rates,
not including special promotions, ranged from $5.95 to $12.00 per service. At
December 31, 1999, the weighted average price for our monthly full basic service
was approximately $30.44.
A one-time installation fee, which we may wholly or partially waive during
a promotional period, is usually charged to new customers. We charge monthly
fees for converters and remote control tuning devices. In addition, we also
charge 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, we derive modest revenues from the sale of
local spot advertising time on locally originated and satellite-delivered
programming. We also derive 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.
We also derive revenue from the sale of programming featuring movies and
special events to customers on a pay-per-view basis. We believe that we will be
able to further increase our pay-
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<PAGE> 54
per-view penetration rates and revenue as we continue to deploy addressable
technology in upgraded systems and in systems where we launch a digital
compression service.
While we plan to offer advanced telecommunications services in certain of
our cable systems, we anticipate that monthly customer fees derived from
multi-channel video services will continue to constitute the large majority of
our total revenues for the foreseeable future.
TECHNICAL OVERVIEW
We endeavor to maintain high technical performance standards in all of our
cable systems. To accomplish this, we have embarked on our capital improvement
plan to upgrade our cable systems selectively. This program, which involves the
use of fiber optic technology, will (a) expand channel capacities, (b) enhance
signal quality, (c) improve technical reliability, (d) augment addressibility,
and (e) provide a platform to develop high-speed data services and Internet
access. We believe that such technical upgrades create additional revenue
opportunities, enhance operating efficiencies, increase customer satisfaction,
improve franchising relations and solidify our position as the dominant provider
of video services in the markets in which we operate. Before committing the
capital to upgrade or rebuild a system, we carefully assess:
- the existing technical reliability and picture quality of the system;
- basic subscribers' demand for more channels;
- requirements in connection with franchise renewals;
- programming alternatives offered by our competitors;
- customers' demand for other cable television and broadband
telecommunications services; and
- the return on investment of any such capital outlay.
Currently, our subscribers, on average, are served by systems with an
analog capacity of 51 channels with 41 channels in use. The table below
summarizes our existing technical profile, as of December 31, 1999:
<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......... 18 249 131 68 110 576
Miles of Plant............ 169 5,147 5,341 3,497 5,647 19,801
Homes Passed.............. 7,001 162,774 193,317 108,586 235,046 706,724
Basic Subscribers......... 3,356 81,557 115,193 60,652 148,555 409,313(1)
% of Total Basic
Subscribers............. 0.8% 19.9% 28.1% 14.8% 36.4% 100.0%
Basic Subs per Mile....... 19.9 15.8 21.6 17.3 26.3 20.7
Premium Subs.............. 1,097 38,369 54,786 40,047 88,467 222,767
Premium Penetration....... 32.7% 47.0% 47.6% 66.0% 59.6% 54.4%
</TABLE>
-------------------------
(1) Does not include approximately 4,300 equivalent basic units
related to CCT.
Our capital improvement plan contemplates the investment of approximately
$200.0 million over the next four fiscal years as follows:
- $126.0 million to establish a technical standard of 550-750 MHz bandwidth
capacity in cable television systems serving approximately 72% of our
basic subscribers and for the consolidation of headends;
- $52.0 million for ongoing maintenance and replacement, installations and
extensions to the cable plant related to customer growth; and
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<PAGE> 55
- $22.0 million for the purchase of additional addressable converters and
headend equipment to support the deployment of digital services.
The table below summarizes our expected pro forma technical profile
assuming completion of the capital improvement program as of December 31, 1999:
<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(1)...... -- 212 117 42 205 576
Miles of Plant............ -- 3,379 1,783 1,101 13,538 19,801
Homes Passed.............. -- 101,034 65,700 31,665 508,325 706,724
Basic Subscribers......... -- 47,735 32,126 15,222 314,229 409,313(2)
% of Total Basic
Subscribers............. NA 11.6% 7.8% 3.7% 76.9% 100.0%
Basic Subs per Mile....... NA 14.1 18.0 13.8 23.2 20.7
Premium Subs.............. -- 22,035 13,671 8,936 178,124 222,767
Premium Penetration....... NA 46.2% 42.6% 58.7% 56.7% 54.4%
</TABLE>
-------------------------
(1) The analysis above does not reflect the impact of anticipated
headend consolidations achieved through the selective deployment
of fiber optic technology.
(2) Does not include approximately 4,300 equivalent basic units
related to CCT.
With the exception of 11 systems, we do not currently use addressable
technology. We utilize 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 cable system improvement program contemplates
the use of addressable set-top boxes in selected analog upgraded systems, in
addition to digital addressable technology. 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.
Our 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 our 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.
We expect to use fiber backbone architecture selectively to eliminate headend
facilities and to reduce amplifier cascades, thereby improving picture quality,
system reliability and headend and maintenance expenditures.
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 expand channel capacity significantly given that
up to 12 digital channels can be carried in the bandwidth of one analog channel
(6 MHz).
We own or lease 670 towers that are used to receive off-air broadcast
signals from the nearest urban transmit site or via intermittent microwave relay
stations. Our towers range from 15 feet to 600 feet in height and 146 of our
towers are at least 200 feet in height. We lease tower space to cellular
telephone, personal communications services paging and other transmission
companies for a fixed monthly charge typically dictated by long-term contract.
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FRANCHISES
Cable television systems are typically constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain conditions, such as:
- time limitations on commencement and completion of construction;
- conditions of service, including number of channels, types of programming
and the provision of free service to schools and certain other public
institutions; and
- 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 -- Federal Regulation -- Cable Rate Regulation."
At December 31, 1999, pro forma for the Star acquisition, we held 787
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 cable systems range from 0% to 5% of the gross revenues generated by the
cable 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. Our franchises can
be terminated by the franchising authority prior to the stated expiration date
for uncured breaches by us 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 December 31, 1999:
<TABLE>
<CAPTION>
% OF NUMBER % OF
NUMBER OF TOTAL OF TOTAL
YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS SUBSCRIBERS
- ---------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Prior to 2000.................. 29 3.7% 26,345 6.4%
2000 to 2003................... 187 23.8 94,917 23.2
After 2003..................... 571 72.6 288,051 70.4
--- ----- ------- -----
Total................ 787 100.0% 409,313 100.0%
=== ===== ======= =====
</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." We believe that we
have good relationships with our franchising communities. To date, we have never
had a franchise revoked or terminated. Additionally, no request made by us for
franchise renewals or extensions has been denied, although the renewed 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 without franchises.
Under the 1992 Cable Act, 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. See "Legislation
and Regulation -- Federal Regulation -- Cable Rate Regulation."
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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 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
1940's and early 1950's 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 1960's, 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 from
Chicago, various channels, such as Cable News Network, Music Television, the USA
Network, Turner Network Television, and Entertainment and Sports Programming
Network, programming originated locally by the cable television system, such as
public, government 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, 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. These 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.
COMPETITION
Cable television systems face competition from (a) alternative methods of
receiving and distributing television signals, such as off-air television
broadcast programming, direct broadcast satellite services, known as "DBS," and
wireless cable services, and (b) other sources of news, information and
entertainment, such as newspapers, movie theaters, live sporting events, on-line
computer services and home video products. Our competitive position depends, in
part, upon reasonable prices to customers, greater variety of programming and
other communications
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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 to us. 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. We currently have competing franchises in ten systems
passing approximately 23,100 homes.
In recent years, the FCC and 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 satellite dishes as small as 18
inches 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 systems can also provide
high speed Internet access. In March, 2000 both DirecTV and EchoStar announced
they would be capable of providing two-way high speed Internet access by the end
of 2000. Further, America Online Inc., the nations' leading provider of Internet
services has announced a plan to invest $1.5 billion in Hughes Electronics
Corp., DirecTV's parent company, and these companies intend to jointly market
America Online's prospective Internet television service to DirecTV's DBS
customers. These developments will provide significant new competition to our
offering of high speed Internet access. DBS service can be received anywhere in
the continental 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 two DBS providers. DBS providers are significant competition to cable service
providers, including us.
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, known as 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 service and
equipment distribution. Our strategy of providing pay-per-view and perhaps
satellite niche programming via digital services in certain of our cable systems
is designed to combat digital satellite service competition. "Bundling" of our
video service with advanced telecommunications services in certain of the cable
systems may also be an effective tool for competing with DSS. DBS suffers
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-
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sight reception requirements, up-front costs associated with the dish antenna.
Legislation removing the existing legal obstacles to retransmitting local
broadcast programming to DBS subscribers was signed into law by President
Clinton on November 29, 1999. DBS providers are now making local broadcast
programming available in certain larger markets. If subsequent rural loan
legislation is enacted, local broadcast programming may become available to DBS
subscribers in smaller markets. Both the House and Senate have passed bills
providing for such rural area loans. In rural markets it may not be cost
effective for DBS providers to provide local programming unless subsidized by
the federal government.
Cable television systems also compete with wireless program distribution
services such as multichannel multipoint distribution service, or MMDS, which
use low power microwave signals to transmit video programming and high speed
data services, including Internet access, over the air to customers.
Additionally, the FCC licensed new frequencies in the 28 MHz band for a new
multichannel wireless video service similar to MMDS, known as Local Multipoint
Distribution Service, or LMDS. LMDS is also suited for providing wireless data
services, including the possibility of high speed Internet access. Wireless
distribution services generally provide many of the programming services
provided by cable systems, and digital compression technology may significantly
increase the channel capacity of these wireless distribution services. 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.
Federal cross-ownership restrictions historically limited entry by local
telephone companies into the cable television business. The 1996 Telecom 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 local exchange carriers, commonly referred to as 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 or MMDS transmission. Several telephone companies have begun seeking
cable television franchises from local governmental authorities and constructing
cable television systems. 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 our cable
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. We believe, however, that the non-metropolitan
markets in which we provide or expect 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 a 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." We believe that significant growth opportunities exist for us by
establishing cooperative rather than competitive relationships with LECs within
our 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 Telecom Act, could also have an adverse effect on
our business. Well-capitalized businesses from outside the cable industry may
also 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
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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 provide
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. Wireless Internet access is now offered in
some markets by cellular, PCS and other mobile service providers, such as
Nextel.
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 our operations.
EMPLOYEES
At December 31, 1999, we had approximately 700 employees. None of our
employees is represented by a labor union. We consider our relations with our
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.
Our 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 cable
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. Our distribution systems consist primarily of coaxial cable
and related electronic equipment. As the upgrades are completed, the cable
systems will incorporate fiber optic cable. Subscriber equipment consists of
taps, house drops and converters. We own our distribution systems, various
office fixtures, test equipment and certain service vehicles. The physical
components of the cable systems require maintenance and periodic upgrading to
keep pace with technological advances.
Our 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.
We own or lease parcels of real property for signal reception sites, such
as antenna towers and headends, microwave complexes and business offices,
including our principal executive offices. We believe that our properties, both
owned and leased, are in good condition and are suitable and adequate for our
business operations as presently conducted.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which we are a party or
to which any of our respective properties are subject.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected, and
may in the future materially affect, us 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
and local laws. We believe that the regulation of our 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 our operations.
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 have been required to conduct numerous rulemaking and regulatory
proceedings to implement the 1996 Telecom Act and such proceedings have
materially affected, and may continue to 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. Below, you will find
a brief summary of certain of these federal regulations as adopted to date.
CABLE RATE REGULATION
The 1992 Cable Act imposed an extensive rate regulation regime on the cable
television industry. Under that regime, local franchise authorities had primary
responsibility for administering the basic service tier. The FCC directly
administered rate regulation of cable programming service tiers, which included
all video programming distributed over a system that is not part of the basic
service tier. Although the 1996 Telecom Act preserves local franchise authority
to regulate the basic service tier, it eliminated FCC authority to regulate
cable programming service tier rates as of March 31, 1999. Accordingly, the FCC
is no longer able to act on cable programming service tier rate increases that
occur after that date.
Federal law nonetheless continues to govern certain aspects of local rate
regulation. For example, federal law requires that the basic service tier be
offered to all cable subscribers. Recent FCC regulations adopted pursuant to the
1996 Telecom Act define "effective competition" and "small cable operator" for
purposes of exempting certain cable systems' basic tier from rate regulation.
Additional federal regulations require cable systems to permit customers to
purchase video programming on a per channel or per program basis without
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
is available until a cable system obtains the technical capability, but not
later than December 2002.
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Although the 1996 Telecom Act eliminated FCC rate regulation of the higher
tiers, local franchising authorities, known in the industry as LFAs, continue to
have authority over the regulation of the lowest level of cable -- the basic
service tier, commonly known as BST. For regulatory purposes, the BST contains
local broadcast stations and public, educational, and government, or PEG, access
channels and other services the system operator chooses to include in the same
package with these 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. Few of the LFAs in the communities in which we operate have
elected to certify to regulate rates. However there can be no assurance that our
revenues and results of operations will not be adversely affected in the future
by regulation of cable system rates.
FRANCHISE FEES
Federal law allows franchising authorities to 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 cable franchise fees
from revenues derived from telecommunications services; however, many local
governments seek analogous fees under separate telecommunications service
franchises and ordinances. Some courts have held that the 1996 Telecom Act
allows local telecommunications fees only when directly related to the
provider's use of the public right-of-way.
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 made
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. We currently have competing franchises in ten systems passing
approximately 23,100 homes.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request 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.
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CABLE ENTRY INTO TELECOMMUNICATIONS AND BROADBAND SERVICES
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 has clarified that a cable operator's favorable pole rates are
not endangered by the provision of non-cable services such as Internet access.
However, a ruling by a panel of the 11th Circuit in April 2000, if upheld, would
eliminate the favorable treatment for Internet services. See "Legislative and
Regulation -- Pole Attachments."
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. The
U.S. Supreme Court in January 1999 upheld the FCC's authority to adopt pricing
rules for unbundled network elements and resale by competitive LECs. The FCC has
redetermined which unbundled network elements LECs must make available to new
telecommunications providers at wholesale prices. The FCC's pricing rules may be
subject to further judicial review. 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 us or our business cannot
be determined at this time.
Cable entry into markets for broadband services such as Internet access may
be affected by the regulatory landscape now being fashioned by Congress, the
FCC, state and local regulators and the courts. In a report to Congress adopted
in January 1999, the FCC declined to regulate cable system delivery of Internet
services and specifically refused to require cable operators to provide
competitors with nondiscriminatory access to such services. More recently, in
October 1999, the FCC's Cable Services Bureau issued a staff report on the
status of the broadband market. The report recommended the continuation of the
FCC's policy of regulatory restraint for cable delivered Internet services. The
report noted, however, that the FCC should be prepared to act swiftly if
competitive harm actually arises, such as if the cable industry were to develop
a closed, proprietary network design that could create a technological barrier
to access by competitors to cable plant.
In recent months, some local franchise authorities have imposed open access
conditions on their approval of transfers of control, including those involving
such major transactions as AT&T's acquisition of TCI's and Media One's cable
franchises. For example, the City of Portland, Oregon required AT&T to provide
competing Internet and other on-line service providers with open access to its
newly acquired cable platforms. This decision was upheld on appeal before a
federal district court, although that decision is on appeal. Approximately a
dozen other LFAs have imposed similar open access requirements, some of which
are on appeal. In this regard, the federal district court in Richmond, Virginia
has recently ruled that LFAs do not have authority to impose open access
requirements. Numerous other franchise authorities are considering imposing
similar requirements, either during transfer or renewal processes or by
promulgating regulations pursuant to their general franchise authority.
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In addition to the developments above, several bills are also pending in
Congress that, if adopted, would require open access. As a result of open access
pressure, AT&T Time Warner, Comcast and Cox recently announced that each would
open their cable platforms to an unaffiliated Internet service providers in
2002.
On October 26, 1999, GTE filed an antitrust lawsuit in federal district
court in Pittsburgh against TCI, Comcast and At Home Corporation alleging that
the relationships between these companies, which preclude open access,
constitute illegal tying, exclusive dealing and concerted refusal to deal. If
GTE prevails in this litigation, it could negatively impact our cable modem
service plans.
Open access conditions, similar to those described above, could be imposed
upon us, pursuant to a local franchising authority's approval of a merger or
other transaction between us and another company, through the franchise renewal
process, through future regulatory, judicial or legislative developments at the
federal, state or local levels, or through pressure for action by cable
operators. Such developments could negatively impact our cable modem service
plans, decrease our revenues and increase the competition we face. On the other
hand, future developments at these levels could limit or preempt the authority
of franchise authorities to impose mandated access conditions.
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 "open video systems," subject to certain conditions, including, but not
limited to, setting aside a portion of their channel capacity, up to two-thirds,
for use by unaffiliated program distributors on a non-discriminatory basis.
While the Fifth Circuit Court of Appeals reversed certain of the FCC's open
video system rules, including its preemption of local franchising, on October
14, 1999, the Fifth Circuit ruled that a Southwestern Bell ("SWB") affiliate
could provide video services over SWB facilities without obtaining a cable
franchise. Both determinations may be subject to further appeal. It is unclear
what effect these rulings will have on the entities pursuing open video system
operation. 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. We currently have telephone overbuilds in three systems
passing approximately 3,300 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
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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 or its
affiliate 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 under the 1984 Cable Act. However, in a January 1999
decision, the U.S. Court of Appeals for the Fifth Circuit held that the 1996
Telecom Act did not preempt state franchise laws that might be applicable to
these systems. 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 eliminated the
statutory ban and directed 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 satellite master antenna television systems, or SMATV systems.
Permitted arrangements in effect as of October 5, 1992, were 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.
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 subscribers that a single cable operator can serve. In general,
pursuant to rules adopted October 8, 1999, no cable operator can have an
attributable interest in cable systems which serve more than 30% of all
nationwide subscribers to multichannel video programming distributors, including
cable and DBS subscribers. These new horizontal ownership rules raised the
percentage of all cable subscribers that can be served by a single cable
operator to 36.7% of cable subscribers as of October 1999. Attributable
interests for these purposes include voting stock interests of 5% or more,
certain officerships and directorships, and general and uninsulated limited
partnership interests. The FCC raised the attribution threshold for voting stock
held by passive institutional investors from 10% to 20%, and created a new
equity/debt rule that treats any investor that holds over 33% of the total
equity plus debt as an attributable interest holder. The FCC has stayed the
effectiveness of its horizontal ownership rule. The FCC's October 8th decision
also defined what constitutes a "cognizable interest" triggering application of
various FCC rules relating to the provision of cable services such as
cross-ownership, leased access, open video systems, programming access and
channel occupancy. In addition, 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 remains
pending before the FCC.
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There are no federal restrictions on non-U.S. entities having an ownership
interest in cable television systems. Section 310(b)(4) of the Communications
Act does, however, limit direct and indirect foreign ownership of interests in
FCC broadcast and common carrier radio licenses, although the FCC may conclude
that this indirect 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, known as
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 update its technical standards periodically 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
reaffirmed an order implementing regulations intended to promote the commercial
availability of navigation devices, including set-top converters. The rules
apply generally to all multichannel video programming distributors, or MVPDs,
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 all analog equipment and navigation devices that operate throughout the
continental United States and are commercially available from unaffiliated
sources, such as equipment used by DBS services. The order requires that the
security 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.
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. We
may operate systems that utilize poles owned by cooperatively and government
owned utilities. Louisiana and Ohio are the only states in which we currently
operate cable systems that 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 government owned poles, the FCC
administers such pole attachment rates through use of a formula which it has
devised and recently reconfirmed. As directed by the 1996 Telecom Act, the FCC
has adopted a new rate
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formula for any attaching party, including cable systems, which offers
telecommunications services. This new formula will result in significantly
higher attachment rates for cable systems which choose to offer such services,
or permit their transmission on their cable systems, but does not begin to take
effect until 2001 and will be phased in by equal increments over the ensuing
five years. Several parties have sought review of these rules in the 11th
Circuit U.S. Court of Appeals. If adopted, these adjustments may increase the
fees paid by cable operators to utilities for pole attachments and conduit
space. In April 2000, a panel of the 11th Circuit held that the FCC lacks
authority to set pole rental rates with respect to facilities carrying Internet
traffic. If upheld on appeal, portions of cable television plant would not
receive the protections of the FCC's pole attachment regulations. 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 us or our 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, known as must carry, or negotiating for payments for granting
permission to the cable operator to carry the station, known as 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: (a) a 50-mile radius from the station's city of license; or (b) the
station's Grade B contour. 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 limit a cable systems' programming offerings,
and retransmission consent demands may require substantial payments or other
concessions. Either option has a potentially adverse effect on our business. The
burden associated with "must carry" may increase substantially 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 to 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,
up to 15% in some cases, 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 satellite
distributed 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 revised its program access
complaint procedures. Among other revisions, the order increased sanctions for
violation of the program access rules. The FCC has, in subsequent decisions,
declined to broaden the scope of the rules to include terrestrially delivered
programming.
INSIDE WIRING
In October 1997, the FCC 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, or MDUs. The
rules allow MDU owners 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, if ultimately adopted, 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.
On January 10, 2000, the FCC established minimum telephone inside wiring
standards to promote consumer access to advanced telecommunications services.
These new quality standards will support high-powered broadband technologies.
The new standards, when implemented by telephone companies, may increase
competitive pressures faced by cable operators and cable entry into other
broadband services.
OTHER FCC REGULATIONS
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, many of which have been the subject of petitions requesting
reconsideration and appeals 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;
- subscriber privacy;
- syndicated program exclusivity;
- network program non-duplication;
- closed captioning of video programming;
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- registration of cable systems;
- maintenance of various records and public inspection files;
- aeronautical frequency usage;
- lockbox availability;
- origination cablecasting and sponsorship identification;
- antenna structure notification;
- tower marking and lighting;
- blackouts 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;
- consumer protection and customer service standards;
- emergency alert system requirements;
- consumer electronics equipment compatibility; and
- implementation of rules governing DBS systems.
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. We will continue to
develop strategies to attempt 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 our business. However, no assurances can be given that we 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 our business.
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. 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
our ability to obtain suitable programming and could substantially increase the
cost of programming that remained available for distribution to our customers.
We cannot predict the outcome of this legislative activity.
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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.
Recently, the U.S. District Court of the Southern District of New York ruled
that, on an interim basis, cable operators must pay ASCAP the same fees paid to
BMI for locally originated programming, PEG, leased access and local
advertising. Although we cannot predict the ultimate outcome of these industry
negotiations and litigation or the amount of any license fees we may be required
to pay for past and future use of ASCAP-controlled music, we do not believe
these license fees will be material to our 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 fails to comply with material provisions. The terms
and conditions of franchises vary materially from jurisdiction to 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 impose 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 that have provided
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satisfactory services and have complied with the terms of their franchise. We
have generally had good experiences with our 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.
In June 1999, the U.S. District Court for the District of Oregon held that
the City of Portland, Oregon had the authority to require AT&T Corp. to provide
cable modem services to competitors on a non-discriminatory basis. AT&T has
sought expedited review of this decision in the Ninth Circuit Court of Appeals.
A three-judge panel of the Ninth Circuit Court of Appeals heard oral argument on
the matter on November 1, 1999, and a decision is expected in the near future. A
number of other franchising authorities have imposed, or are considering
imposing, similar open access requirements. In this regard, on May 3, 2000, the
federal district court in Richmond, Virginia struck down the open access
requirement imposed by Hensico County, Virginia on AT&T.
OTHER MATTERS
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
requirements 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 our outstanding capital stock is owned by our parent, Classic
Communications. The executive officers of Classic Communications are also our
executive officers and hold the same positions with us. J. Merritt Belisle and
Steven E. Seach are our only directors. The Executive officers, key operations
managers and directors of Classic Communications are as follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND
DIRECTORS OF CLASSIC COMMUNICATIONS AGE POSITION
- ----------------------------------- --- --------
<S> <C> <C>
Alberto Cribiore............................. 54 Director and Chairman of the Board
J. Merritt Belisle........................... 44 Director and Chief Executive Officer
Steven E. Seach.............................. 43 Director, President and Chief Financial
Officer
Dale R. Bennett.............................. 53 Chief Operating Officer
Ronald W. Martin............................. 47 Executive Vice President of Operations
Elizabeth Kay Monigold....................... 46 Executive Vice President of
Administration
Lisa A. Hook................................. 42 Director
David Webb................................... 46 Director
Jeffery C. Garvey............................ 51 Director
James A. Kofalt.............................. 57 Director
Martin D. Payson............................. 64 Director
</TABLE>
ALBERTO CRIBIORE, founder and Managing Principal of Brera Capital Partners,
was appointed Chairman of the Board of Classic Communications upon the closing
of the Brera Classic equity investment. Prior to forming Brera in 1997, Mr.
Cribiore was Co-President and Partner at Clayton, Dubilier & Rice, Inc. which he
joined in 1985 as one of three principal shareholders. He had previously been a
Senior Vice President at Warner Communications, where he was responsible for
mergers, acquisitions and divestitures. Mr. Cribiore is a cum laude graduate of
Bocconi University in Milan, Italy and holds degrees in Business Administration
and Economics. He is currently a Director of Riverwood International Corporation
and Hansberger Group, Inc. Mr. Cribiore also serves as the Chairman of the board
of directors of Global Decisions Group, LLC, the parent company of Cambridge
Energy Research Associates, MCM Group, Inc. and Brera GAB Robbins, LLC. He is
also currently Co-Chairman of the board of directors of B-G Western, Inc., the
parent of Western Industries, Inc., and a member of the board of directors of
Western Industries, Inc. Mr. Cribiore serves as one of Brera Classic's designees
to the board of Classic Communications. See "Certain Relationships and Related
Transactions -- 1999 Stockholders' Agreement."
J. MERRITT BELISLE, our Chief Executive Officer and director, founded
Classic in March 1992. 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, 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, an MPA in 1980, and
a JD in 1981 from The University of Texas at Austin. Mr. Belisle serves as one
of the directors of Classic Communications pursuant to his position as our Chief
Executive Officer. See "Certain Relationships and Related Transactions -- 1999
Stockholders' Agreement."
STEVEN E. SEACH, our President and Chief Financial Officer and director,
assisted Mr. Belisle in the founding of Classic in March 1992. Mr. Seach became
a member of the board of Classic in 1998. Mr. Seach became our President in
October 1996 and, through August 1998, was
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substantially responsible for our operations. From March 1992 to June 1994, Mr.
Seach served as an advisor to Classic and its board of directors for strategic,
operational and financial matters. Mr. Seach became our Chief Financial Officer
in July 1994. Prior to his association with us, Mr. Seach spent 12 years in the
corporate 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. He is currently a director of The Keller
Group and serves as one of the directors of Classic Communications pursuant to
the 1999 Stockholders' Agreement. See "Certain Relationships and Related
Transactions -- 1999 Stockholders' Agreement."
DALE R. BENNETT, who became our Chief Operating Officer in April 2000, was
Vice President of AT&T Broadband and Internet Services, Texas Metro Region since
January of 1997. Mr. Bennett joined the predecessor company TCI in 1990 as Texas
State Manager and held the positions of Vice President, Southwest Division,
based in Walnut Creek, CA, and Vice President, National Division, based in
Denver, CO. Prior to joining TCI, Mr. Bennett was Executive Vice President,
Chief Operating Officer Columbia Communications Corporation in Houston, TX.
Columbia Communications owned and managed cable television systems, television
stations and radio stations. Before joining Columbia Communications in 1977, Mr.
Bennett was Financial Vice President of Investors Development Corporation, a
real estate development and construction company based in Oklahoma City.
RONALD W. MARTIN, who became our Executive Vice President of Operations
upon the closing of the Buford acquisition, is responsible for all of our system
operating and marketing functions. Since 1993, he served as Buford's Executive
Vice President and Chief Operating Officer. A graduate of Dakota Wesleyan, he
joined Buford in 1973 as Business Manager for KXON-TV in Mitchell, South Dakota,
later serving in the same position at KFSM-TV in Fort Smith, Arkansas. He joined
Buford's corporate staff in 1976, serving as Internal Auditor and Personnel
Administrator. In 1981, Mr. Martin was named Vice President of Human Resources
and Administration for Buford. Mr. Martin is a board member and past Chairman of
the National Cable Television Cooperative and serves on the CTAM Digital
Committee.
ELIZABETH KAY MONIGOLD, who became our Executive Vice President of
Administration upon the closing of the Buford acquisition, is responsible for
all of our human resources, legal, information systems and risk management
functions, as well as operating responsibility for Correctional Cable
Television. Since 1993, she served as Buford's Executive Vice President and
Chief Administrative Officer. Ms. Monigold joined Buford in 1981 and served in
numerous capacities including the evaluation of new business opportunities such
as data, telephony, digital and other new technologies. Ms. Monigold earned a
BBA in Business Management from The University of Texas at Tyler.
LISA A. HOOK was appointed a director of Classic Communications upon the
closing of the Brera Classic equity investment. Since April 2000, Ms. Hook has
been President of the Wireless Business Unit of America Online, Inc. She was a
principal of Brera Capital Partners from May 1998 to April 2000. Prior to
joining Brera Capital Partners in 1998, Ms. Hook was a Managing Director of
Alpine Capital Group, a telecommunications and media venture capital firm. From
1989 to 1996, Ms. Hook served in a number of senior executive level positions at
Time Warner Inc., including Executive Vice President/Chief Operating Officer of
Time Warner Telecom and Special Advisor to the Vice Chairman. From 1987 to 1989,
Ms. Hook served as the Legal Advisor to the Chairman of the Federal
Communications Commission. From 1985 to 1987, Ms. Hook served as a senior
attorney at Viacom International, responsible for Viacom Cable. Prior to joining
Viacom, Ms. Hook was an attorney with the law firm of Hogan & Hartson. Ms. Hook
received her BA from Duke University and her JD from the Dickinson School of
Law. Ms. Hook serves as one of Brera Classic's designees to the board of Classic
Communications. She is currently a director of Time Warner Telecom, Inc. and
Roberts Radio LLC. See "Certain Relationships and Related Transactions -- 1999
Stockholders' Agreement."
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DAVID WEBB was appointed a director of Classic Communications upon the
closing of the Brera Classic equity investment. Since February 2000, Mr. Webb
has been the head of Merrill Lynch's Financial Sponsor Group. He was a principal
of Brera Capital Partners from March 1999 to February 2000. Prior to joining
Brera Classic in 1999, Mr. Webb was a Managing Director in the investment
banking division of Merrill Lynch, which he joined in 1981. Mr. Webb was the
head of the firm's Global Financial Sponsors Group, and a member of the
investment banking division's U.S. Operating Committee. Mr. Webb received a BA
with honors from the University of North Carolina, where he was a Morehead
Scholar, and an MBA from the Darden School of the University of Virginia. He is
a director of Homes for the Homeless Inc. and Brera GAB Robbins, LLC. Mr. Webb
serves as one of Brera Classic's designees to the board of Classic
Communications. See "Certain Relationships and Related Transactions -- 1999
Stockholders' Agreement."
MARTIN D. PAYSON was the Chairman of Latin Communications Group, Inc., a
privately-held Spanish language media company until April 2000, and was
appointed a director of Classic Communications upon the closing of the Brera
Classic equity investment. Previously, Mr. Payson was Vice Chairman of Time
Warner Inc. and a member of its board of directors. Before the merger of Warner
Communications Inc. and Time, Inc., Mr. Payson held the position of Office of
the President and General Counsel of Warner Communications. Mr. Payson is a
director of Delta Financial Corp. and Panavision Inc., as well as several
privately-held companies and philanthropic organizations. Mr. Payson received
his AB from Cornell University and his LLB cum laude from New York University
School of Law. Mr. Payson serves as one of Brera Classic's designees to the
board of Classic Communications. See "Certain Relationships and Related
Transactions -- 1999 Stockholders' Agreement."
JEFFERY C. GARVEY, a general partner of Austin Ventures, L.P., was
appointed a director of Classic Communications in November 1999 and was a
director of Classic Communications from July 1992 to July 28, 1999. Mr. Garvey
has been general partner of Austin Ventures, L.P. since 1984. Mr. Garvey is
currently a director of CelPage and Kirtland Capital Partners. 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 A. KOFALT was appointed a director of Classic Communications in
November 1999. Mr. Kofalt has held various management positions at Cablevision
Systems Corporation, including Chief Operating Officer from 1990 to 1992 and
President and Chief Operating Officer from 1992 to 1994. He is a former Chairman
of the Boards of Directors of Campuslink Communications Systems, Inc., from 1995
to 1999, and Optel, Inc., from 1995 to 1996. Mr. Kofalt is currently a director
of PaeTec Corp. and Correctnet Global Information Solutions, Inc. and a member
of the Board of Visitors of the Lineberger Comprehensive Cancer Research Center
at the University of North Carolina. Mr. Kofalt received his B.S. from the
United States Military Academy at West Point.
ELECTION OF DIRECTORS AND APPOINTMENT OF EXECUTIVE OFFICERS
The board of directors of Classic Communications is divided into three
classes, and each director serves for a staggered three-year term. The board
consists of: two Class I directors, Messrs. Seach and Webb; three Class II
directors, Messrs. Belisle and Kofalt and Ms. Hook; and three Class III
directors, Messrs. Cribiore, Garvey and Payson. At each annual meeting of
stockholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the Class I directors, Class II directors and Class III directors will expire
upon the election and qualification of successor directors at the annual meeting
of stockholders held during the calendar years 2000, 2001 and 2002,
respectively.
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Each officer serves at the discretion of the board of directors. There are
no family relationships among any of the directors and executive officers.
BOARD COMMITTEES
Classic Communications has appointed an audit committee and a compensation
committee of the board of directors. The audit committee will review the
internal accounting procedures and will consider and report to the board of
directors with respect to other auditing and accounting matters, including the
selection of independent auditors, the scope of annual audits, fees to be paid
to independent auditors and the performance of independent auditors. The audit
committee consists of Mr. Webb, Mr. Kofalt and Mr. Payson. The compensation
committee will review and recommend to the board of directors the salaries,
benefits and stock option grants of all employees, consultants, directors and
other individuals compensated by us. The compensation committee also administers
the stock option and other employee benefits plans of Classic and Classic
Communications. The compensation committee consists of Ms. Hook, Mr. Garvey and
Mr. Payson.
DIRECTOR COMPENSATION
The directors of Classic Communications who are not executive officers of
Classic Communications will each be paid $15,000 as compensation for their
service as members of Classic Communications' board of directors for the year
2000. Both of our directors are executive officers and are compensated in their
capacity as executive officers. In August 1999, Mr. Martin Payson, who is
currently a member of Classic Communications' board of directors, was granted an
option to purchase 7,000 shares of the Class A common stock of Classic
Communications at an exercise price of $20 per share. Mr. James A. Kofalt, who
was appointed to the Classic Communications board in November 1999, was granted
an option on December 7, 1999 to purchase 8,000 shares of the Class A common
stock of Classic Communications at an exercise price of $25 per share, which was
the initial offering price to the public per share of Class A common stock in
Classic Communications' initial public offering. In February 2000, each of Mr.
Jeffery C. Garvey, who is currently a member of our Board of Directors, Mr.
Kofalt and Mr. Payson were granted options to purchase 3,000 shares of the Class
A voting common stock at an exercise price of $20.875 per share, which was the
closing price per share of our Class A voting common stock on March 3, 2000.
These options have a 10-year term and vest in 25% increments on each anniversary
date of the grant over four years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, all compensation decisions relating to our executive officers
have been made by the board of directors of Classic Communications as a whole.
J. Merritt Belisle, our Chief Executive Officer, and Steven E. Seach, our
President and Chief Financial Officer, as board members, historically
participated in deliberations of the board of directors with respect to
compensation of all executive officers. In the future, the compensation
committee of Classic Communications will make all compensation decisions
regarding our executive officers. No interlocking relationship exists between
the compensation committee and the board of directors or compensation committee
of any other company, and no such relationship existed in the past.
1999 STOCKHOLDERS' AGREEMENT
Effective July 28, 1999, Classic Communications, Brera Classic, BT Capital
Partners, Inc., Austin Ventures, L.P., BA Capital Company, L.P., as the
successor in interest to NationsBanc Capital Corp., J. Merritt Belisle, Steven
E. Seach and certain other stockholders of Classic Communications entered into a
stockholders' agreement. The agreement was amended as of December 13, 1999 to
provide that the parties will be obligated to vote their shares of Class B
common stock in favor of the election to the board of Classic Communications of
(1) up to six
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nominees chosen by Brera Classic, (2) the chief executive officer of Classic
Communications, (3) Steven Seach for as long as he is employed by Classic
Communications and (4) two nominees who are independent directors (as defined by
the rules of the Nasdaq National Market) chosen by a majority vote of the board
of directors of Classic Communications. These voting arrangements will terminate
when these stockholders hold less than 30% of all of the common stock of Classic
Communications on a fully diluted basis. See "Certain Relationships and Related
Transactions -- 1999 Stockholders' Agreement."
The amendment to the stockholders' agreement also provides, among other
things, that a party to the agreement will not be able to participate in the
nominating of directors under the agreement if such party holds less than 2% of
the outstanding common stock on a fully diluted basis, although such party will
be obligated to vote for the nominees under the agreement as long as it holds at
least 1% of the outstanding common stock of Classic Communications on a fully
diluted basis. The parties to the agreement other than Brera are not entitled to
nominate directors under the agreement if such parties, in the aggregate, hold
less than 4% of the outstanding common stock of Classic Communications on a
fully diluted basis. As a result of the sales made by the parties to the
stockholders' agreement in Classic Communications' initial public offering in
December, 1999, the parties to the agreement other than Brera, hold less than 4%
of the outstanding common stock of Classic Communications on a fully-diluted
basis and no longer have the right to nominate directors of Classic
Communications under the agreement.
OTHER CORPORATE PERSONNEL
BRYAN D. NOTEBOOM, our Vice President of Finance, has been with us since
our inception and coordinates our finance, investor relations and mergers and
acquisitions 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 a licensed Certified Public Accountant.
RONALD G. JANSONIUS, our Vice President of Advanced Technology, has been
with us since 1996 and is responsible for directing our 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.
RON ENAS, our Vice President of Engineering, joined us in September 1999
and is responsible for all technical functions, including the oversight of our
capital expenditure program. Mr. Enas has 25 years of experience in the
industry, having previously held positions of increasing responsibility with
Time Warner, Inc., Post Newsweek Cable and Harron Communications Corp. Mr. Enas
is a graduate of Tyler Junior College.
MICHELE JENKINS, our Vice President of Marketing, joined us in October 1999
and is responsible for all aspects of marketing, sales and programming. Prior to
joining us, Ms. Jenkins served as Corporate Director of Programming and PPV for
Marcus Cable. Prior to Marcus Cable, Ms. Jenkins served as Corporate Director of
Marketing at Sammons Communications, Inc. Ms. Jenkins is a graduate of Texas
Tech University.
JOHN ELLIS, our Vice President of Management Information Systems, has over
25 years experience in information technology and is responsible for the
development, implementation and operation of all software and hardware network
interfaces for us. Mr. Ellis joined Buford in 1981 and was instrumental in the
network design of the Tyler, Texas call center. Mr. Ellis is currently serving
on the CableLabs Year 2000 Committee.
MARK ROWE, our Corporate Controller, joined us in 1998 and coordinates our
accounting function, including SEC reporting and budgeting. Prior to joining us,
Mr. Rowe worked as an audit manager at Ernst & Young LLP, serving a number of
telecommunication industry clients.
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Mr. Rowe earned a BBA in Accounting from The University of Texas at Austin in
1990 and is a licensed Certified Public Accountant.
ASHLEY M. KIMERY, our Corporate Treasurer, joined us in 1995 and currently
oversees our cash management and tax functions. Prior to joining us, Ms. Kimery
worked for seven years in both the audit and tax departments at Ernst & Young
LLP. Ms. Kimery earned a BBA in Accounting from Texas A&M University in 1987, an
MPA in Tax from The University of Texas at Austin in 1991 and is a licensed
Certified Public Accountant.
KEY OPERATIONS PERSONNEL
ARL COPE, our Vice President and Regional Manager, joined Buford in 1987
and is responsible for the oversight of all operational, technical and local
marketing aspects of certain of our systems in Oklahoma, Texas, Arkansas, and
northern Louisiana. A 30-year veteran of the cable television industry, Mr. Cope
currently serves as Secretary/Treasurer of the Arkansas Cable Telecommunications
Association and has been a board member since 1989.
WILLIAM E. FLOWERS, JR., our Vice President and Regional Manager, has over
18 years of experience in the cable television industry and oversees all
operational, technical and local marketing aspects of our systems in the western
and panhandle regions of Texas and in New Mexico. Mr. Flowers joined us in
August 1998.
STEVE LOWE, our Vice President and Regional Manager, has over 25 years
experience in the cable television industry and oversees all operational,
technical and local marketing aspects of our systems in central and east Texas
and central Louisiana. Prior to joining Buford in 1988, Mr. Lowe constructed,
owned and operated cable systems in western Oklahoma. Mr. Lowe currently serves
on the board of directors of the Texas Cable Television Association.
RON SCHAEFFER, our General Manager of Correctional Cable Television, is
responsible for the operation of existing business and the development of new
business within Correctional Cable Television. Mr. Schaeffer joined Buford in
1992 and has been instrumental in the development of the Satellite Education
Network, which is designed to provide interactive educational services to
prisons. Mr. Schaeffer is a graduate of New York University.
DAVID D. WALKER, our Vice President and Regional Manager, has over 28 years
of experience in the cable television industry and oversees all operational,
technical and local marketing aspects of certain of our systems in Kansas,
Missouri, Arkansas, Nebraska and Colorado.
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers are the executive officers of Classic Communications
and hold the same offices with us. The following table summarizes the
compensation for services rendered which Classic Communications paid to the
Chief Executive Officer, President and other most highly compensated executive
officers whose total annual compensation exceeded $100,000 in our fiscal years
ended December 31, 1999 and 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------- -------------------------------------------------
RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION AWARDS($)(1)(2) OPTIONS(#) COMPENSATION($)(3)
------------------ ---- --------- -------- ------------ --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Merritt Belisle....... 1999 $298,077 $ 2,305,782(4) (5) $ 0 559,748 $4,317
Chief Executive 1998 $200,000 $ 361,539(6) (5) $ 49,609 0 $4,286
Officer
Steven E. Seach.......... 1999 $350,000 $ 2,200,000(7) (5) $ 0 559,748 $5,000
President and Chief 1998 $277,084 $ 258,302(8) (5) $659,471 0 $5,000
Financial Officer
Kevin McCabe(9).......... 1999 $142,500 $ 0 (5) $ 0 0 $2,825
Executive Vice 1998 $ 0 $ 0 (5) $ 0 0 $ 0
President and Chief
Accounting Officer
</TABLE>
- ---------------
(1) The executive officers of Classic Communications received restricted stock
during 1996 under the 1996 Stock Restricted Plan. See "-- 1996 Restricted
Stock Plan." On July 29, 1998, Messrs. Belisle and Seach held 229,050 shares
and 67,283 shares of restricted stock, respectively, and each of Messrs.
Belisle and Seach exchanged their existing shares of restricted stock for
242,209 new shares of restricted stock under the 1998 Restricted Stock Plan
with revised vesting terms and other restrictions. See "-- 1998 Restricted
Stock Plan." Long-term compensation amounts are calculated by multiplying
the number of 1998 restricted shares issued by the per share value of
Classic Communications' unrestricted stock as of the date of issuance, less
an amount equal to the number of 1996 restricted shares exchanged therefor
multiplied by the per share value of Classic Communications' unrestricted
stock on the date of issuance.
(2) As of December 31, 1999, Messrs. Belisle and Seach each owned 242,209
restricted shares of Classic Communications' common stock. The total value
of all restricted stock owned by Messrs. Belisle and Seach was approximately
$8.9 million each, computed without taking into consideration any of the
restrictions. These shares vested upon the consummation of the Brera Classic
equity investment. Messrs. Belisle and Seach are entitled to dividends in
respect of these shares in the same manner as the holders of common stock,
but only to the extent that such dividends exceed the distribution
thresholds applicable thereto. See "-- 1998 Restricted Stock Plan."
(3) Represents our contribution under our 401(k) plan.
(4) Includes (a) $780,000 paid to Mr. Belisle under his former employment
agreement in connection with the consummation of the Brera Classic equity
investment, (b) $1.5 million paid to Mr. Belisle under such agreement in
connection with the consummation of the Buford acquisition and (c) $25,782
paid to Mr. Belisle under such agreement in connection with a smaller
acquisition.
(5) Such Named Executive Officer did not receive personal benefits during the
listed years in excess of the lesser of $50,000 or 10% of his annual salary
and bonus.
(6) Includes a transaction fee of $300,000 paid pursuant to a pre-existing
employment agreement in connection with the acquisition of certain
properties from Cable One in July 1998, and the related financings.
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(7) Includes (a) $700,000 paid to Mr. Seach under his former employment
agreement in connection with the consummation of the Brera Classic equity
investment and (b) $1.5 million paid to Mr. Seach under such agreement in
connection with the consummation of the Buford acquisition.
(8) Includes a transaction fee of $250,000 paid pursuant to a pre-existing
employment agreement in connection with the acquisition of certain
properties from Cable One in July 1998, and the related financings.
(9) Mr. McCabe joined the company on February 1, 1999 and resigned effective
October 15, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, as to each of the officers named in the Summary
Compensation Table, information concerning stock options granted during the
fiscal year ended December 31, 1999:
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
-------------------------------------------------- -------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE($) DATE 5% 10%
- ---- ---------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. Merritt Belisle... 279,874(1) 16.3% $14.57 7/28/09 $ 2,564,484 $ 6,498,906
279,874(2) 16.3% $25.00 7/28/09 $ 4,400,281 $11,151,177
Steven E. Seach...... 279,874(1) 16.3% $14.57 7/28/09 $ 2,564,484 $ 6,498,906
279,874(2) 16.3% $25.00 7/28/09 $ 4,400,281 $11,151,177
Kevin McCabe......... -- -- $ -- -- $ -- $ --
</TABLE>
- ---------------
(1) Option is for Class B common stock. Options vest monthly over a three-year
period which began July 28, 1999. In addition, all of the shares will vest
in full immediately upon the closing of (a) the sale of all of Classic
Communications' common stock for cash, by merger, tender offer, stock
purchase or otherwise or (b) the sale of all or substantially all of Classic
Communications' assets for cash. Upon the closing of Classic Communications'
initial public offering, 139,937 of these shares vested and the remaining
shares continue to vest as described in the previous two sentences. Options
granted are incentive stock options or nonqualified stock options and have
exercise prices equal to the fair market value of Classic Communications'
Common Stock on the date of grant, as determined by the Board of Directors
on the date of grant.
(2) Option is for Class B common stock. Options vest monthly over a three-year
period which began December 8, 1999. In addition, all of the shares will
vest in full immediately upon the closing of (a) the sale of all of Classic
Communications' common stock for cash, by merger, tender offer, stock
purchase or otherwise or (b) the sale of all or substantially all of Classic
Communications' assets for cash. Options granted are incentive stock options
or nonqualified stock options and have exercise prices equal to the fair
market value of Classic Communications' Common Stock on the date of grant,
as determined by the Board of Directors on the date of grant.
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(3) The 5% and 10% rates of appreciation are specified by the rules of the
Securities and Exchange Commission and do not represent our estimates or
projections of Classic Communications' future stock prices.
YEAR-END OPTION VALUES
The following table sets forth, for each of the officers in the Summary
Compensation Table, certain information concerning the number of shares subject
to both exercisable and unexercisable stock options as of December 31, 1999.
Also reported are values for "in-the-money" options, which represent the
positive spread between the respective exercise prices of outstanding stock
options and the fair market value of Classic Communications' stock as of
December 31, 1999. No options were exercised during the year ended December 31,
1999.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED OPTIONS MONEY OPTIONS AT
AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Merritt Belisle................ 174,435 105,439 $3,836,349 $2,318,920
0 279,874 $ 0 $3,236,183
Steven E. Seach................... 174,435 105,439 $3,836,349 $2,318,920
0 279,874 $ 0 $3,236,183
Kevin McCabe...................... 0 0 $ 0 $ 0
</TABLE>
- ---------------
(1) Market value of underlying securities based on the closing price of Classic
Communications' Common Stock on December 31, 1999 (the last trading day of
fiscal 1999) on the Nasdaq National Market of $36.563 minus the exercise
price.
1996 RESTRICTED STOCK PLAN
Certain current and former members of management own Classic
Communications' restricted stock subject to the terms of Classic Communications'
1996 Restricted Stock Plan. Pursuant to the 1996 Plan, Classic Communications
may, from time to time, grant restricted stock to officers and other key
employees of Classic Communications or its subsidiaries upon the terms,
conditions and provisions of the 1996 Plan. Concurrent with the adoption of the
1996 Plan, Classic Communications granted a total of 517,626 shares of common
stock as of such date, of which only 144,940 shares were outstanding as of
December 31, 1999. These shares vested upon the consummation of the Brera
Classic equity investment. One-half of such shares of common stock is subject to
a distribution threshold equal to $9.93 per share, i.e., the first $9.93 of
distributions with respect to such shares is to be withheld. One-fourth of the
shares is subject to a distribution threshold of $19.06 per share and one-fourth
to a distribution threshold of $29.78 per share.
1998 RESTRICTED STOCK PLAN
Classic Communications has adopted the 1998 Restricted Stock 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 his existing
shares under the 1996 Plan for 242,209 shares of Classic Communications common
stock pursuant to the 1998 Plan. These shares vested upon the consummation of
the Brera Classic equity investment. All of such shares of common stock are
subject to a distribution threshold equal to $3.77 per share, i.e., the first
$3.77 of distributions with respect to such shares is to be withheld.
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1999 OMNIBUS STOCK INCENTIVE PLAN
The following description of Classic Communications' 1999 Omnibus Stock
Incentive Plan is a summary and is qualified in its entirety by reference to the
text of the 1999 Omnibus Stock Incentive Plan, which is filed as an exhibit to
the annual report on Form 10-K of Classic Communications for their fiscal year
ended December 31, 1999.
Classic Communications' 1999 Omnibus Stock Incentive Plan was adopted by
its board of directors in October 1999 for the benefit of the officers,
directors, key employees, advisors and consultants of Classic Communications and
its subsidiaries. An aggregate of 2,000,000 shares of Classic Communications'
Class A common stock is reserved for issuance under the plan. The plan provides
for the issuance of stock-based incentive awards, including stock options, stock
appreciation rights, restricted stock, deferred stock and performance shares. An
award may consist of one or any combination of benefits. Under this plan, awards
covering no more than 80% of the shares reserved for issuance under the plan may
be granted to any participant in any one year.
The plan is administered by the compensation committee of the board of
directors of Classic Communications, although it may be administered by either
the board of directors of Classic Communications or by any committee of the
board of directors. The board or a committee of the board, acting as the plan
administrator, may interpret this plan, may prescribe, amend and rescind rules
governing the plan, and may otherwise supervise the administration of this plan.
This plan permits the plan administrator to select the officers, directors, key
employees, advisors and consultants, including directors who are also employees,
who will receive awards and generally to determine the terms and conditions of
those awards. Notwithstanding the foregoing, the grant of any award intended to
qualify as performance-based compensation under Section 162(m) of the Internal
Revenue Code, and any administrative determinations made in connection
therewith, must be carried out by a committee of the board or a board committee,
consisting of at least two "outside directors," as defined under Section 162(m),
in a manner consistent with the rules governing performance-based compensation
under Section 162(m).
We may issue two types of stock options under this plan: incentive stock
options or ISO's, which are intended to qualify for favorable tax treatment
under the Code, and non-qualified stock options. The option price of each ISO
granted under this plan must be at least equal to the fair market value of a
share of Classic Communications' Class A common stock on the date the ISO is
granted.
Stock appreciation rights, or SARs, may be granted under this plan either
alone or in conjunction with all or part of any stock option granted under this
plan. A SAR granted under this plan entitles its holder to receive, at the time
of exercise, an amount per share equal to the excess of the fair market value,
at the date of exercise, of a share of Classic Communications' Class A common
stock over a specified price fixed by the plan administrator.
Restricted stock, deferred stock and performance shares may be granted
under this plan. The plan administrator will determine the purchase price,
performance period and performance goals, if any, for any grant of restricted
stock, deferred stock and performance shares. Participants with restricted stock
and performance shares generally have all of the rights of a stockholder. For
deferred stock, during the deferral period and subject to the terms and
conditions that the plan administrator imposes, the deferred stock units may be
credited with dividend equivalent rights. The plan administrator may, in its
discretion, provide for the lapse of these restrictions in installments and may
accelerate or waive these restrictions, in whole or in part, based on such facts
as the attainment of performance goals or the participant's termination of
employment or service, death or disability.
In the event of a merger, consolidation, reorganization, recapitalization,
stock dividend or other change in corporate structure affecting the number of
issued shares of Classic
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Communications' Class A voting common stock, the plan administrator may make an
equitable substitution or proportionate adjustment in the number and type of
shares authorized by this plan, and the number and exercise price of shares
subject to outstanding awards. In addition, the plan administrator, in its
discretion, may terminate all awards providing for payment of cash or in-kind
consideration.
In the event of a change of control of Classic Communications, unless
otherwise determined by the administrator of the plan or the board of directors
of Classic Communications before the change of control,
(1) any stock appreciation rights outstanding for at least six months
and any stock options awarded under the plan not previously vested will
vest in full;
(2) the restrictions applicable to any restricted stock, deferred
stock or performance share awards under the plan shall lapse and such
shares and awards will vest in full; and
(3) any loans by us to a participant of the plan to purchase or
exercise awards under the plan will be forgiven and the collateral pledged
in connection with any such loan shall be released.
For purposes of the plan, a change of control will be deemed to have occurred
if:
(1) any person (other than Classic Communications or any of its
subsidiaries, or certain other related parties as specified in the plan) is
or becomes after the effective date of the plan the beneficial owner of
securities (not including securities acquired directly from Classic
Communications or its affiliates) representing 50% or more of the voting
power of Classic Communications;
(2) upon completion of a merger or consolidation of Classic
Communications with any other corporation or entity (other than (a) a
merger or consolidation whereby the holders of at least 50% of the voting
power of Classic Communications prior to the merger or consolidation
continue to own at least 50% of the voting power of Classic Communications
or the surviving entity after the merger or consolidation or (b) a merger
or consolidation that implements a recapitalization of Classic
Communications and no person (other than existing stockholders) acquires
more than 50% of the voting power of Classic Communications); or
(3) upon completion of a plan of complete liquidation of Classic
Communications or an agreement for the sale or disposition by Classic
Communications of all or substantially all of its assets.
The terms of this plan provide that Classic Communications' board of
directors may amend, suspend or terminate this plan at any time, provided that
some amendments require approval of Classic Communications' stockholders under
the Internal Revenue Code of 1986, as amended. Furthermore, no action may be
taken that adversely affects any rights under outstanding awards without the
holder's consent.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND 1999
NON-QUALIFIED STOCK OPTION GRANTS
At the closing of the Brera Classic equity investment, J. Merritt Belisle
and Steven E. Seach each entered into an employment agreement with Classic
Communications on substantially similar terms with their former employment
agreements. In connection with the consummation of the Brera Classic equity
investment, Mr. Belisle was paid $780,000 and Mr. Seach was paid $700,000 under
their former employment agreements. Each of the new employment agreements
provides for their employment with Classic Communications for a continuing two
year period. Messrs. Belisle and Seach are each to be paid an annual salary of
$350,000 per year. Each new employment agreement provides that upon termination
by Classic Communications without "good
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cause" (as defined in each agreement) or termination by the employee for certain
reasons, the employee will be entitled to two years' worth of base compensation
and benefits. In addition, Messrs. Belisle and Seach's employment agreements
contain provisions under which Classic Communications may be required to
purchase and they may be required to sell to us their shares if their employment
is terminated. Each employment agreement also prohibits the employee from
competing with Classic Communications during his term of employment and for a
period of two years thereafter.
The employment agreements of Messrs. Belisle and Seach in effect prior to
the consummation of the Brera Classic equity investment provided for a
transaction fee of 1% to be paid on the value of all mergers, acquisitions, or
dispositions of assets or subsidiaries by Classic Communications that were
consummated during their term of employment. Messrs. Belisle and Seach each
received a transaction fee of $1.5 million related to the consummation of the
Buford acquisition. The new employment agreements do not contain a provision for
transaction fees to be paid to Messrs. Belisle and Seach.
Under their option agreements entered into in connection with their
employment agreements, Messrs. Belisle and Seach were each granted a stock
option with a 10-year exercise period to purchase 279,874 shares of Classic
Communications' Class B common stock at an exercise price of $14.57 per share,
which will vest monthly over a three-year period which began July 28, 1999. In
addition, all of the shares will vest in full immediately upon the closing of
(1) the sale of all of Classic Communications' common stock for cash, by merger,
tender offer, stock purchase or otherwise or (2) the sale of all or
substantially all of Classic Communications' assets for cash. Upon the closing
of Classic Communications' initial public offering, 139,937 of these shares
vested and the remaining shares continue to vest as described in the previous
two sentences.
In addition, upon the closing of Classic Communications' initial public
offering, Messrs. Belisle and Seach each also received a second stock option
with a 10-year exercise period to purchase 279,874 shares of Class B common
stock. This option is vesting monthly over a three-year period commencing on the
date of the closing of the initial public offering. In addition, all of the
shares will vest in full immediately upon the closing of (1) the sale of all of
Classic Communications' common stock for cash, by merger, tender offer, stock
purchase or otherwise or (2) the sale of all or substantially all of Classic
Communications' assets. The exercise price of the second option is $25 per
share, which is the initial offering price to the public per share of Class A
common stock in Classic Communications' initial public offering.
We have entered into employment agreements with Ronald W. Martin and
Elizabeth Kay Monigold. These employment agreements relate to their employment
by us as the Executive Vice President of Operations and the Executive Vice
President of Administration, respectively, and each are for a continuing
one-year period. Ronald W. Martin is to be paid an annual salary of $175,000 and
Elizabeth Kay Monigold is to be paid an annual salary of $120,000. Each
employment agreement provides that upon termination by us without "good cause,"
as defined in each agreement, the employee will be entitled to one year's worth
of base compensation and benefits. Each employment agreement also prohibits the
employee from competing with us during the term of employment and for a period
of two years thereafter.
In addition, Classic Communications granted stock options to purchase
589,500 shares of its Class A common stock at an exercise price of $20 per
share. The options were granted in August 1999 to Martin Payson, a director, and
to Ronald W. Martin, Elizabeth Kay Monigold and several of other officers and
key employees. These options, which have 10-year terms, vest in 25% increments
over each of the first four anniversaries of the grants.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO AFFILIATES
During 1998, Classic Communications and Classic had outstanding
subordinated indebtedness, including accrued interest, in the amount of
approximately $4.5 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 BA Capital Company,
L.P. and BT Capital Partners, Inc., each a stockholder. 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 acquired by us. Classic
Communications repaid such indebtedness and redeemed the preferred stock from
the holders thereof out of the proceeds received from a previous issuance of
senior subordinated notes.
In 1997, we advanced approximately $200,000 to Mr. Belisle, which has been
forgiven.
1999 STOCKHOLDERS' AGREEMENT
Effective July 28, 1999, Classic, Brera Classic, BT Capital Partners, Inc.,
Austin Ventures, L.P., BA Capital Company, L.P., as the successor in interest to
NationsBanc Capital Corp., J. Merritt Belisle, Steven E. Seach and certain other
stockholders of Classic entered into a stockholders' agreement. The agreement
was amended as of December 13, 1999 to provide that the parties will be
obligated to vote their shares of Class B common stock in favor of the election
to the board of Classic Communications of (1) up to six nominees chosen by Brera
Classic, (2) the chief executive officer of Classic Communications, (3) Steven
Seach for as long as he is employed by Classic Communications and (4) two
nominees who are independent directors (as defined by the rules of the Nasdaq
National Market) chosen by a majority vote of the board of directors of Classic
Communications. These voting arrangements will terminate when these stockholders
hold less than 30% of all of the common stock of Classic Communications on a
fully diluted basis.
The amendment to the stockholders' agreement also provides, among other
things, that a party to the agreement will not be able to participate in the
nominating of directors under the agreement if such party holds less than 2% of
the outstanding common stock on a fully diluted basis, although such party will
be obligated to vote for the nominees under the agreement as long as it holds at
least 1% of the outstanding common stock of Classic Communications on a fully
diluted basis. The parties to the agreement other than Brera are not entitled to
nominate directors under the agreement if such parties, in the aggregate, hold
less than 4% of the outstanding common stock of Classic Communications on a
fully diluted basis. As a result of the sales made by the parties to the
stockholders' agreement in Classic Communications' initial public offering in
December, 1999, the parties to the agreement other than Brera, hold less than 4%
of the outstanding common stock of Classic Communications on a fully-diluted
basis and no longer have the right to nominate directors of Classic
Communications under the agreement.
MANAGEMENT AND ADVISORY FEE AGREEMENT
As part of the Brera Classic equity investment, Classic Communications and
Brera Classic entered into an agreement pursuant to which Brera Classic was paid
a transaction fee of $3 million upon closing of the Brera Classic equity
investment in consideration for arranging the equity investment. The agreement
further provided that Classic Communications would pay Brera Classic an annual
fee of $250,000 in consideration for transactional assistance and advice
provided to Classic Communications until Classic Communications completed an
initial public offering, payment of which was made at the closing of the Buford
acquisition. Brera Classic was
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<PAGE> 85
paid a transaction fee of $1.3 million upon the closing of the Star acquisition
in consideration for transactional advisory services.
BRERA CLASSIC INVESTMENT AGREEMENT
Classic Communications and Brera Classic entered into an Investment
Agreement whereby Classic Communications agreed to issue and sell 6,490,734
shares of Classic Communications voting common stock for an aggregate purchase
price of $100 million. Pursuant to the Investment Agreement, Classic
Communications agreed to pay all fees and expenses of Brera Classic's legal
counsel, financial advisors, accountants and third party consultants in an
amount up to $750,000. In addition to the $750,000 paid to Brera Classic at the
closing of the Buford acquisition for its fees and expenses of counsel,
accountants, advisors and consultants, Classic Communications reimbursed Brera
for $252,000 of closing costs incurred by Brera on Classic Communications'
behalf.
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PRINCIPAL STOCKHOLDERS
All of our outstanding capital stock is owned by Classic Communications.
The following table sets forth certain information regarding the beneficial
ownership of Classic Communications' common stock by (1) each named executive
officer and each director of Classic Communications, (2) each stockholder known
by us to beneficially own 5.0% or more of the common stock of Classic
Communications and (3) all directors and officers of Classic Communications as a
group, as of April 10, 2000.
<TABLE>
<CAPTION>
PERCENT OF VOTE
CLASS A CLASS B AS A SINGLE
BENEFICIAL OWNER(1) COMMON STOCK COMMON STOCK CLASS(2)
------------------- --------------- ------------ ---------------
<S> <C> <C> <C>
Brera Classic(3)....................................... -- 6,490,734 77.5%
Janus Capital Corporation(4)........................... 600,200 -- *
Capital Group International, Inc. and Capital Guardian
Trust Company(5)..................................... 1,087,500 -- *
T. Rowe Price Associates, Inc.(6)...................... 789,200 -- *
J. Merritt Belisle(7).................................. -- 475,175 5.4
Steven E. Seach(8)..................................... -- 475,175 5.4
Dale Bennett........................................... -- -- *
Ronald W. Martin....................................... 1,000 -- *
Elizabeth Kay Monigold................................. 3,000 -- *
Lisa A. Hook........................................... -- -- *
Alberto Cribiore(9).................................... -- 6,490,734 77.5
David Webb............................................. -- -- *
Jeffery C. Garvey(10).................................. -- 46,888 *
James Kofalt........................................... -- -- *
Martin Payson.......................................... 5,000 -- *
All directors and executive officers as a group (11
persons)............................................. 9,000 7,487,972 84.7%
</TABLE>
- ---------------
* Less than 1%
(1) The address for Brera Classic and Alberto Cribiore is 712 Fifth Avenue,
34th Floor, New York, New York 10019. The address for J. Merritt Belisle,
Steven E. Seach, Ronald W. Martin, Elizabeth Kay Monigold, Jeffery C.
Garvey, James Kofalt, Lisa A. Hook, David Webb and Martin Payson is c/o
Classic Cable, Inc., 515 Congress Ave., Suite 2626, Austin, Texas 78701.
Unless otherwise indicated below, the persons and entities named in the
table above have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws, where
applicable.
(2) Each share of Class A common stock entitles its holder to one vote and each
share of Class B common stock entitles its holder to ten votes. Holders of
both classes of voting common stock will vote together as a single class on
all matters to be presented for a vote of stockholders, unless otherwise
required by law. Excludes nonvoting common stock.
(3) Brera Classic has sold nonvoting equity interests in Brera Classic equal to
19.85% of its investment in Classic Communications to certain institutions
and individuals, including affiliates of Goldman, Sachs & Co., who
purchased 9.0% of such investment, and The Chase Manhattan Bank.
(4) As reported by Janus Capital Corporation in its Schedule 13G filed with the
SEC on February 16, 2000. The address for Janus Capital Corporation is 100
Fillmore Street, Denver, Colorado 80206.
(5) As reported by Capital Group International, Inc. and Capital Guardian Trust
Company, collectively referred to as Capital, in their Schedule 13G/A filed
with the SEC on March 10, 2000. The address for Capital is 11100 Santa
Monica Blvd., Los Angeles, CA 90025.
(6) As reported by T. Rowe Price Associates, Inc. in its Schedule 13G filed
with the SEC on February 4, 2000. The address for T. Rowe Price Associates,
Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.
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(7) Mr. Belisle's totals include 230,313 shares of Class B common stock
purchasable within 60 days of April 10, 2000 pursuant to the exercise of
options.
(8) Mr. Seach's totals include an option to purchase 230,313 shares of Class B
common stock purchasable within 60 days of April 10, 2000 pursuant to the
exercise of options.
(9) Alberto Cribiore is a director of Classic and a manager of Brera Classic.
Mr. Cribiore 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 stockholder, if any.
(10) Jeffery C. Garvey is a general partner of Austin Ventures, L.P., a
stockholder of Classic Communications holding 46,888 shares of Class B
common stock and a party to the 1999 Stockholders' Agreement. 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 stockholder, if any.
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DESCRIPTION OF OTHER INDEBTEDNESS
CREDIT FACILITY
In order to finance a portion of the Buford acquisition purchase price, we
entered into a credit facility amended as of November 5, 1999, agented by
Goldman Sachs Credit Partners L.P., Union Bank of California, N.A. and The Chase
Manhattan Bank pursuant to which we may borrow up to $450.0 million. The credit
facility consists of the following:
<TABLE>
<CAPTION>
MAXIMUM
MAXIMUM ALTERNATE
LIBOR BASE RATE
CREDIT FACILITY AMOUNT TENOR SPREAD(1) SPREAD(1)
- --------------- ------ ----- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revolving credit facility.......... $ 75.0 July 31, 2007 250 bps 150 bps
Term loan A facility............... 75.0 July 31, 2007 250 bps 150 bps
Term loan B facility............... 100.0 January 31, 2008 275 bps 175 bps
Term loan C facility............... 200.0 January 31, 2008 275 bps 175 bps
------
Total facility........... $450.0
======
</TABLE>
- ---------------
(1) Pricing subject to a leverage-based pricing grid.
The $75.0 million eight year revolving credit facility is available to
Classic for working capital, capital expenditures, refinancing debt and general
corporate purposes, including acquisitions. The $75.0 million eight year term
loan A facility and the $100.0 million eight and one-half year term loan B
facility were drawn at the closing of the Buford acquisition to fund our
purchase of Buford and to refinance debt and pay certain other costs associated
with the Buford acquisition. The $200.0 million eight and one-half year term
loan C facility, of which $110 million is uncommitted, may be used for working
capital, capital expenditures, general corporate purposes, including
acquisitions, and to redeem our 2008 notes put by the noteholders as a result of
a change of control. On September 8, 1999, the Company borrowed $90.0 million
under the term loan C facility to redeem our 2008 notes put by the noteholders
as a result of a change of control.
In connection with the offering of the old notes, we entered into an
amendment to our credit facility, which (1) allowed for the offering of the old
notes, (2) modified some of the covenants in the credit facility to provide us
more flexibility (i.e., maximum total debt ratio, total interest coverage ratio,
maximum capital expenditures, limitations on investments, permitted
acquisitions, and lines of business), (3) restructured the term loan A facility
so that following a prepayment in full of the term loan A facility, and subject
to certain additional conditions, we have the ability to reborrow in one or more
advances under the term loan A facility until February 10, 2001, and (4)
increased the term loan A facility so that up to an additional $25.0 million may
be made available under that facility. In addition, the term loan A facility
provides for the payment of an unused commitment fee based upon the average
daily amount of the unused term loan A commitments. This fee is payable
quarterly in arrears on the last day of each March, June, September and
December, commencing on the first such date after the date the term loan A
facility is prepaid in full, calculated on the same basis as the unused
commitment fee for the revolving credit facility, as set forth below. On
February 16, 2000, we prepaid the term loan A facility in full and increased the
term loan A facility by $10.0 million.
The credit facility is secured by a perfected first priority security
interest in substantially all of our personal property, including, without
limitation, the capital stock of our direct and indirect subsidiaries. The
credit facility is unconditionally guaranteed by each of our direct and indirect
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domestic subsidiaries. In addition, the credit facility contains several
customary negative covenants as well as financial covenants, including
- a maximum total debt ratio,
- a maximum senior debt ratio,
- a minimum interest coverage ratio,
- a pro forma debt service coverage ratio, and
- a maximum capital expenditures amount.
The amendment to the credit facility modified these amounts and ratios.
In addition, the revolving credit facility provides for the payment of an
unused commitment fee based on the average daily amount of the unused revolving
credit commitment. This fee is payable quarterly in arrears on the last day of
each March, June, September and December, commencing on September 30, 1999. From
February 16, 2000 until the earlier of the date the new term loan A facility is
fully drawn (without regard to any increases) or February 10, 2001 the amount of
the unused commitment fee is equal to .750% per annum, and thereafter is based
on the maximum total debt ratio. If this ratio is less than 5.50:1, the fee is
equal to 0.375% per annum. If the ratio is more than 5.50:1, the fee is equal to
0.500% per annum.
2009 SENIOR SUBORDINATED NOTES
A portion of the Buford acquisition price was financed by our issuance of
$150.0 million in principal amount of 9 3/8% senior subordinated notes due 2009.
These notes, which were issued pursuant to an exemption from registration under
the Securities Act, were exchanged for an identical principal amount of 2009
subordinated notes registered under the Securities Act. The 2009 subordinated
notes have the following basic terms:
Maturity...................... August 1, 2009.
Interest...................... Annual rate -- 9 3/8%.
Payment frequency -- every six months on
February 1 and August 1.
First payment -- February 1, 2000.
Guarantors.................... The 2009 subordinated notes are guaranteed by
each of our current and future domestic
restricted subsidiaries. Each guarantor is a
wholly owned subsidiary of us. If we cannot
make payments on the notes when they are due,
the guarantors must make them instead.
Ranking....................... The 2009 subordinated notes and the subsidiary
guarantees are senior subordinated debts and
rank equally with our 2008 subordinated notes.
The 2009 subordinated notes rank behind all of
our and the subsidiary guarantors' current and
future indebtedness, except:
- trade payables; and
- indebtedness that expressly provides that it
is not senior to the 2009 subordinated notes
and the related subsidiary guarantees.
Optional Redemption........... On or after August 1, 2004, we may redeem some
or all of the 2009 subordinated notes at any
time at the respective redemption
price(expressed as a percentage of principal
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<PAGE> 90
amount as follows), together with accrued and
unpaid interest and special interest, if any,
to the date of redemption: if redeemed during
the 12-month period beginning August 1,
2004 -- 104.688%; August 1, 2005 -- 103.125%;
August 1, 2006 -- 101.562%; and August 1, 2007
and thereafter -- 100.000%. In addition, at any
time prior to August 1, 2002, we may redeem up
to 35% of the 2009 subordinated notes ever
issued under the indenture with the cash
proceeds of one or more public equity offerings
by, or strategic equity investments in, us or
Classic Communications at the redemption price
of 109.375% of the principal amount of the
notes to be redeemed together with accrued and
unpaid interest and special interest, if any,
to the date of redemption. We would still be
required to keep at least 65% of the original
aggregate principal amount of the 2009
subordinated notes outstanding after such a
redemption.
Change of Control............. Upon the occurrence of a change of control, the
holders of the 2009 subordinated notes have the
right to require us to repurchase the notes at
a price equal to 101% of the aggregate
principal amount, together with accrued and
unpaid interest and special interest, if any,
to the date of repurchase. In addition, upon
the occurrence of a change in control, we will
have the option to redeem any amount of the
2009 subordinated notes prior to August 1,
2004, at a redemption price equal to 100% of
the principal amount thereof, together with
accrued and unpaid interest and special
interest, if any, to the date of repurchase,
plus the applicable premium.
Restrictive Covenants......... The indenture restricts, among other things,
our ability and the ability of our subsidiaries
to:
- borrow money;
- make certain investments;
- pay dividends on and redeem capital stock and
subordinated obligations;
- distribute proceeds from asset sales;
- engage in certain transactions with
affiliates;
- incur liens;
- engage in sale/leaseback transactions; and
- sell certain assets or merge with or into
other companies.
All of these limitations and prohibitions are
subject to a number of important qualifications
and exceptions.
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2008 SUBORDINATED NOTES
In connection with the Cable One acquisition and the recapitalization of
Classic Communications, we issued $125.0 million in principal amount of 9 7/8%
senior subordinated notes due 2008, of which approximately $3.0 million is
currently outstanding. These notes, which were issued pursuant to an exemption
from registration under the Securities Act, were exchanged for an identical
principal amount of 2008 subordinated notes registered under the Securities Act.
The 2008 subordinated notes have the following basic terms:
Maturity................... August 1, 2008.
Interest................... Annual rate -- 9 7/8%.
Payment frequency -- every six months on February 1
and August 1.
First payment -- February 1, 1999.
Guarantors................. The 2008 subordinated notes are guaranteed by each
of our current and future domestic restricted
subsidiaries. Each guarantor is a wholly owned
subsidiary of us. If we cannot make payments on the
2008 subordinated notes when they are due, the
guarantors must make them instead.
Optional Redemption........ We may not redeem the notes prior to August 1,
2003. After August 1, 2003, we may redeem any
amount of the 2008 subordinated notes at any time
at the respective redemption price (expressed as a
percentage of principal amount as follows),
together with accrued and unpaid interest, if any,
to the date of redemption: if redeemed during the
12-month period beginning August 1,
2003 -- 104.938%; August 1, 2004 -- 103.292%;
August 1, 2005 -- 101.646%; and August 1, 2006 and
thereafter -- 100.000%. In addition, at any time
prior to August 1, 2001, we may redeem up to 35% of
the original aggregate principal amount of the 2008
subordinated notes with the cash proceeds of one or
more public equity offerings by, or a strategic
equity investment in, us or Classic Communications.
Should we do so, we would be required to pay a
redemption price equal to 109.875% of the principal
amount of the 2008 subordinated notes to be
redeemed, together with accrued and unpaid
interest, if any, to the date of redemption.
Classic would still be required to keep at least
65% of the original aggregate principal amount of
the 2008 subordinated notes outstanding after such
a redemption.
Change of Control.......... Upon the occurrence of a change of control, the
holders of the 2008 subordinated notes have the
right to require us to repurchase the notes at a
price equal to 101% of the original aggregate
principal amount, together with accrued and unpaid
interest, if any, to the date of repurchase. In
addition, upon the occurrence of a change of
control, we will have the option to redeem the
notes prior to August 1, 2003, at a redemption
price equal to 100% of the principal amount
thereof, together with accrued and unpaid interest,
if any, to the date of redemption plus the
applicable premium.
On July 28, 1999, a change of control of Classic
Communications occurred. Accordingly, we offered to
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repurchase all outstanding notes at a price equal
to 101% of the original aggregate principal amount
together with accrued and unpaid interest to the
date of repurchase. As a result of this offer,
which closed on September 9, 1999, we purchased
$86.0 million in principal amount of the 2008
subordinated notes.
Ranking.................... The notes are unsecured and are subordinated to all
of our existing and future senior indebtedness. The
notes rank without preference with all of our
existing and future senior subordinated
indebtedness.
Guarantees................. The guarantees are general unsecured obligations of
the subsidiary guarantors and are subordinated in
right of payment to all existing and future
guarantor senior indebtedness. The guarantees are
joint and several.
Restrictive Covenants...... The indenture under which the 2008 subordinated
notes were issued restricts, among other things,
our ability and the ability of our subsidiaries to:
- borrow money;
- make certain investments;
- pay dividends on and redeem capital stock and
subordinated obligations;
- distribute proceeds from asset sales;
- engage in certain transactions with affiliates;
- incur liens;
- engage in sale/leaseback transactions; and
- sell certain assets or merge with or into other
companies.
All of these limitations and prohibitions are
subject to a number of important qualifications and
exceptions.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
At the time we issued the old notes, we agreed to file a registration
statement to register the exchange of the old notes for the exchange notes on or
prior to April 16, 2000 and to use our best efforts to cause the exchange offer
registration statement to become effective under the Securities Act on or before
September 13, 2000. In the event that applicable interpretations of the staff of
the SEC do not permit Classic to effect the exchange offer, or if certain
holders of the old notes notify Classic that they are not eligible to
participate in, or would not receive freely tradeable exchange notes in exchange
for tendered old notes pursuant to, the exchange offer, Classic will use its
best efforts to cause to become effective a shelf registration statement with
respect to the resale of the old notes and to keep the shelf registration
statement effective until two years after the issue date. If the exchange offer
registration statement is not declared effective by September 13, 2000, Classic
will be obligated to pay certain interest rate increases to holders of the old
notes until the exchange offer registration statement is declared effective.
Each holder of the old notes that wishes to exchange old notes for exchange
notes will be required to represent that
- any exchange notes received will be acquired in the ordinary course of
its business,
- it has no arrangement with any person to participate in the distribution
of the exchange notes, and
- it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of Classic or, if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third-parties, Classic believes that, except as described
below, exchange notes issued pursuant to the exchange offer in exchange for old
notes may be offered for resale, resold and otherwise transferred by any holder
thereof, other than a holder which is an "affiliate" of Classic 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 such exchange notes are acquired in the ordinary course of such holder's
business and such holder does not intend to participate and has no arrangement
or understanding with any person to participate in the distribution of such
exchange notes. Any holder who tenders in the exchange offer with the intention
or for the purpose of participating in a distribution of the exchange notes
cannot rely on such interpretation by the staff of the SEC and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing the selling security
holder's information required by Item 507 of Regulation S-K under the Securities
Act. This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes only as specifically set forth herein. Each
broker-dealer that receives exchange notes for its own account 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, must acknowledge that
it will deliver a prospectus in connection with any resale of such exchange
notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, Classic will accept for exchange any and all
old notes properly tendered and not
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<PAGE> 94
withdrawn prior to 5:00 p.m., New York City time, on June 7, 2000. Classic will
issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding old notes surrendered pursuant to the exchange
offer. Old notes may be tendered only in $1,000 increments.
The form and terms of the exchange notes will be the same as the form and
terms of the old notes except that the exchange notes will be registered under
the Securities Act and will not bear legends restricting their transfer. The
exchange notes will evidence the same debt as the old notes. The exchange notes
will be issued under and entitled to the benefits of the indenture, which also
authorized the issuance of the old notes, such that both series will be treated
as a single class of debt securities under the indenture. See "Description of
Notes."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
As of the date of this prospectus, $225.0 million of the old notes are
outstanding. This prospectus, together with the letter of transmittal, is being
sent to all registered holders of old notes. There will be no fixed record date
for determining registered holders of old notes entitled to participate in the
exchange offer.
Classic intends to conduct the exchange offer in accordance with the
provisions of the exchange and registration rights agreement and the applicable
requirements of the Securities Exchange Act of 1934, and the rules and
regulations of the SEC thereunder. Old notes that are not tendered for exchange
in the exchange offer will remain outstanding and continue to accrue interest
and will be entitled to the rights and benefits such holders have under the
indenture and the exchange and registration rights agreement.
Classic will be deemed to have accepted for exchange properly tendered
notes when, as and if Classic shall have given oral or written notice of
acceptance to the exchange agent and complied with the provisions of the
exchange and registration rights agreement. The exchange agent will act as agent
for the tendering holders for the purposes of receiving the exchange notes from
Classic. Classic expressly reserves the right to amend or terminate the exchange
offer, and not to accept for exchange any old notes not accepted for exchange,
upon the occurrence of any of the conditions specified below under "-- Certain
Conditions to the Exchange Offer."
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. Classic will pay all charges and expenses, other
than certain applicable taxes described below, in connection with the exchange
offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., New York City time on June 7, 2000,
unless Classic, in its reasonable discretion, extends the exchange offer, in
which case the expiration date will mean the latest date and time to which the
exchange offer is extended.
In order to extend the exchange offer, Classic will notify the exchange
agent of any extension by oral or written notice and will issue a press release
notifying the registered holders of old notes of such extension, each prior to
9:00 a.m., New York City time, on the next business day after the expiration
date.
Classic reserves the right, in its reasonable discretion,
- to delay accepting any old notes for exchange, to extend the exchange
offer or to terminate the exchange offer if any of the conditions set
forth below under "-- Certain
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Conditions to the Exchange Offer" have not been satisfied, by giving oral
or written notice of such delay, extension or termination to the exchange
agent, or
- to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of old notes. If the exchange offer is amended in a manner
determined by Classic to constitute a material change, Classic will promptly
disclose such amendment by means of a prospectus supplement that will be
distributed to the registered holders, and Classic will extend the exchange
offer, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the exchange offer would otherwise
expire during such period.
Without limiting the manner in which Classic may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, Classic has no obligation to publish, advertise or otherwise communicate
any such public announcement, other than by making a timely release to an
appropriate news agency.
If Classic extends the period of time during which the exchange offer is
open, or if Classic is delayed in accepting for exchange of, or in issuing and
exchanging the exchange notes for, any old notes, or is unable to accept for
exchange of, or issue exchange notes for, any old notes pursuant to the exchange
offer for any reason, then, without prejudice to Classic's rights under the
exchange offer, the exchange agent may, on our behalf, retain all old notes
tendered, and such old notes may not be withdrawn except as otherwise provided
below in "-- Withdrawal of Tenders." The right to delay acceptance for exchange
of, or the issuance and the exchange of the exchange notes for, any old notes is
subject to applicable law, including Rule 14e-1(c) under the Exchange Act, which
requires that Classic either deliver the exchange notes or return the old notes
deposited by or on behalf of the holders thereof promptly after termination or
withdrawal of the exchange offer.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest at a rate of 10 1/2% per annum,
payable semi-annually, on March 1 and September 1 of each year. Holders of
exchange notes will receive interest on September 1, 2000 from the date of
initial issuance of the exchange notes, plus an amount equal to the accrued
interest on the old notes through such date. Interest on the old notes accepted
for exchange will cease to accrue upon issuance of the exchange notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, Classic will not be
required to accept for exchange, or exchange any exchange notes for, any old
notes, and may terminate the exchange offer before the expiration date, if:
- 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 Classic's reasonable judgment, might materially impair the
ability of Classic to proceed with the exchange offer; or
- any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the staff
of the SEC, which, in Classic's reasonable judgment, might materially
impair the ability of Classic to proceed with the exchange offer; or
- any governmental approval has not been obtained, which approval Classic
shall, in its reasonable discretion, deem necessary for the consummation
of the exchange offer as contemplated hereby.
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If Classic determines in its reasonable discretion that any of these
foregoing conditions are not satisfied, Classic may
- refuse to accept any old notes and return all old notes to the tendering
holders;
- 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; or
- waive such unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes which have not been withdrawn.
If such waiver constitutes a material change to the exchange offer, Classic
will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the registered holders of the old notes and Classic will
extend the exchange offer for a period of five to ten business days, depending
on the significance of the waiver and the manner of disclosure to the registered
holders, if the exchange offer would otherwise expire during such five to ten
day business period.
The foregoing conditions are for the sole benefit of Classic and may be
asserted by Classic regardless of the circumstances giving rise to any such
condition or may be waived by Classic in whole or in part at any time and from
time to time in its reasonable discretion. The failure by Classic at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, Classic will not accept for exchange any old notes tendered,
and no exchange 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.
PROCEDURES FOR TENDERING
Subject to the terms and conditions hereof and the letter of transmittal,
only a holder of old notes may tender such old notes in the exchange offer. To
tender in the exchange offer, a holder must complete, sign and date the letter
of transmittal, or facsimile thereof, have the signature thereon guaranteed if
required by the letter of transmittal, and mail or otherwise deliver such letter
of transmittal or such facsimile to the exchange agent prior to 5:00 p.m., New
York City time, on the expiration date or, in the alternative, comply with The
Depository Trust Corporation's Automated Tender Offer Program procedures
described below. In addition, either:
- old notes must be received by the exchange agent along with the letter of
transmittal; or
- a timely confirmation of book-entry transfer, which we call a book-entry
confirmation, of such old notes, if such procedure is available, into the
exchange agent's account at The Depository Trust Corporation, which we
call the book-entry transfer facility, pursuant to the procedure for
book-entry transfer described below or properly transmitted agent's
message, as defined below, must be received by the exchange agent prior
to the expiration date; or
- 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 below
under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date.
The tender by a holder which is not withdrawn prior to the expiration date
will constitute an agreement between such holder and Classic in accordance with
the terms and subject to the conditions set forth herein and in the letter of
transmittal.
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The method of delivery of old notes, 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 Classic. Holders may
request their respective brokers, dealers, commercial banks, trust companies or
other nominees to effect the above 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 such
registered holder of old notes to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the letter of transmittal and delivering
such owner's old notes, either make appropriate arrangements to register
ownership of the old notes in such owner's name or obtain a properly completed
bond power from the registered holder of old notes. The transfer of registered
ownership may take considerable time and may not be able to be completed prior
to the Expiration Date.
Signatures on a letter of transmittal and a notice of withdrawal described
below must be guaranteed by an eligible institution, as defined below, unless
the old notes are tendered (A) by a registered holder who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal, or (B) for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, such guarantor must be an eligible
institution, which means a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act which is a member of one of the recognized signature
guarantee programs identified in the letter of transmittal.
If the letter of transmittal is signed by a person other than the
registered holder of any old notes listed therein, such old notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such old notes
with the signature thereon guaranteed by an eligible institution.
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 unless waived by Classic, provide
evidence satisfactory to Classic of their authority so to act must be submitted
with the letter of transmittal.
The exchange agent and The Depository Trust Corporation have confirmed that
any financial institution that is a participant in The Depository Trust
Corporation's system may utilize The Depository Trust Corporation's Automated
Tender Offer Program to tender. Accordingly, participants in The Depository
Trust Corporation's Automated Tender Offer Program may, in lieu of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, electronically transmit their acceptance of the exchange offer
by causing The Depository Trust Corporation to transfer the old notes to the
exchange agent in accordance with The Depository Trust Corporation's Automated
Tender Offer Program procedures for transfer. The Depository Trust Corporation
will then send an agent's message to the exchange agent. The term "agent's
message" means a message transmitted by The Depository Trust Corporation
received by the exchange agent and forming part of the book-entry confirmation,
which states
- that The Depository Trust Corporation has received an express
acknowledgment from a participant in The Depository Trust Corporation's
Automated Tender Offer Program that is tendering old notes which are the
subject of such book entry confirmation;
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- that such participant has received and agrees to be bound by the terms of
the letter of transmittal, or, in the case of an agent's message relating
to guaranteed delivery, that such participant has received, and agrees to
be bound by the applicable notice of guaranteed delivery; and
- that the agreement may be enforced against such participant.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by Classic in its reasonable discretion, which determination
will be final and binding. Classic reserves the absolute right to reject any and
all old notes not properly tendered or any old notes Classic's acceptance of
which would, in the opinion of counsel for Classic, be unlawful. Classic also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular old notes. Classic'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 Classic shall determine. Although Classic intends to notify holders of
defects or irregularities with respect to tenders of old notes, neither Classic,
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 holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
In all cases, issuance of exchange 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 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 and all
other required documents. If any tendered old notes are not accepted for
exchange 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 non-exchanged 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.
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 system may make book-entry delivery of old notes 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 notes may be effected through book-entry transfer at the book-entry
transfer facility, the letter of transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the exchange agent at the address set
forth below under "-- Exchange Agent" on or prior to the expiration date or, if
the guaranteed delivery procedures described below are to be complied with,
within the time period provided under such procedures. Delivery of documents to
the book-entry transfer facility does not constitute delivery to the exchange
agent.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and (a) whose old notes are not
immediately available, or (b) who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent prior to the
expiration date, may effect a tender if:
- The tender is made through an eligible institution;
- Prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery by facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder, the registered
number(s) of such old notes and the principal amount of old notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three (3) New York Stock Exchange trading days after the
expiration date, the letter of transmittal, or facsimile thereof,
together with the old notes 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
- Such properly completed and executed letter of transmittal, or facsimile
thereof, or properly transmitted agent's message as well as all 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 (3) New York
Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
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.
For a withdrawal to be effective, (a) a written notice of withdrawal must
be received by the exchange agent at one of the addresses set forth below under
"-- Exchange Agent," or (b) holders must comply with the appropriate procedures
of The Depository Trust Company's Automated Tender Offer Program system. Any
such notice of withdrawal must specify the name of the person having tendered
the old notes to be withdrawn, identify the old notes to be withdrawn, including
the principal amount of such old notes, and, where certificates for old notes
have been transmitted, specify the name in which such old notes were registered,
if different from that of the withdrawing holder. If certificates for old notes
have been delivered or otherwise identified to the exchange agent, then, prior
to the release of such certificates, the withdrawing holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an eligible institution
unless such holder is an eligible institution. If old notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn old notes and otherwise
comply with the procedures of such facility. All questions as to the validity,
form and eligibility, including time of receipt, of such notices will be
determined by Classic, 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 which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder, 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 above, such old notes will be credited to an account
maintained with such book-entry transfer facility for the old notes, as soon
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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 described under "-- Procedures for Tendering" above at any
time prior to the expiration date.
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 Facsimile Transmission Number: By Hand or Overnight Delivery:
Mail:
(Eligible Institutions Only)
(214) 672-5746
Chase Bank of Texas, Chase Bank of Texas,
National Association National Association
1201 Main Street Confirm by Telephone 1201 Main Street
18th Floor or For Information Call: 18th Floor
Dallas, Texas 75202 (214) 672-5687 Dallas, Texas 75202
Attn: Frank Ivins, Attn: Frank Ivins,
Personal and Confidential Personal and Confidential
</TABLE>
---------------------
(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
Classic 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 Classic.
The estimated cash expenses to be incurred in connection with the exchange
offer will be paid by Classic and are estimated in the aggregate to be $350,000,
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
Classic to register exchange 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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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, "Classic"
refers only to Classic Cable, Inc. and not to any of its subsidiaries.
Classic will issue the notes under an indenture among itself, the
Guarantors and Chase Bank of Texas, National Association, as trustee. The terms
of the notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of the notes. We have filed a copy of the indenture and
the registration rights agreement as exhibits to the registration statement
which includes this prospectus. Certain defined terms used in this description
but not defined below under "-- Certain Definitions" have the meanings assigned
to them in the indenture.
The registered Holder of a note will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes:
- are general obligations of Classic;
- are subordinated in right of payment to all existing and future Senior
Debt of Classic;
- are pari passu in right of payment with any future senior subordinated
Indebtedness of Classic; and
- are unconditionally guaranteed by the Guarantors.
THE GUARANTEES
The notes are guaranteed by all of our current and future Domestic
Subsidiaries.
Each guarantee of the notes:
- is a general unsecured obligation of the Guarantor;
- is subordinated in right of payment to all existing and future Senior
Debt of the Guarantor; and
- is pari passu in right of payment with any future senior subordinated
Indebtedness of the Guarantor.
As of the date of the indenture, all of our subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "-- Certain Covenants -- Designation of Restricted and
Unrestricted Subsidiaries," we will be permitted to designate certain of our
subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants in the indenture. Our
Unrestricted Subsidiaries will not guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
The indenture provides for the issuance by Classic of notes with a maximum
aggregate principal amount of $300 million, of which $225.0 million was issued
in the offering of the old
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notes. Classic may issue additional notes (the "Additional Notes") from time to
time after this offering. Any offering of Additional Notes is subject to the
covenant described below under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock." The notes and any Additional
Notes subsequently issued under the indenture would be treated as a single class
for all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Classic issues notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on March 1, 2010.
Interest on the notes accrues at the rate of 10 1/2% per annum and will be
payable semi-annually in arrears on March 1 and September 1, commencing on
September 1, 2000. Classic will make each interest payment to the Holders of
record on the immediately preceding February 15 and August 15.
Interest on the notes accrues from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder of more than $5.0 million in principal amount of the notes has
given wire transfer instructions to Classic, Classic will pay all principal,
interest and premium and Special Interest, if any, on that Holder's notes in
accordance with those instructions. All other payments on notes will be made at
the office or agency of the paying agent and registrar for the notes within the
City and State of New York unless Classic elects to make interest payments by
check mailed to the Holders at their addresses set forth in the register of
Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. Classic may
change the paying agent or registrar without prior notice to the Holders, and
Classic or any of its Subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and Classic may require
a Holder to pay any taxes and fees required by law or permitted by the
indenture. Classic is not required to transfer or exchange any note selected for
redemption. Also, Classic is not required to transfer or exchange any note for a
period of 15 days before a selection of notes to be redeemed.
SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee Classic's obligations
under the notes. Each Subsidiary Guarantee will be subordinated to the prior
payment in full of all Senior Debt of that Guarantor. The obligations of each
Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent
that Subsidiary Guarantee from constituting a fraudulent conveyance under
applicable law. See "Risk Factors -- The incurrence of this indebtedness may be
voided by a court if the court determines that the incurrence of this
indebtedness resulted in a fraudulent transfer."
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than Classic or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
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(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such consolidation
or merger assumes all the obligations of that Guarantor under the
indenture, its Subsidiary Guarantee and the registration rights
agreement pursuant to a supplemental indenture satisfactory to the
trustee; or
(b) the Net Proceeds of such sale or other disposition are applied
in accordance with the "Asset Sale" provisions of the indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) a Subsidiary of Classic, if the
Guarantor applies the Net Proceeds of that sale or other disposition in
accordance with the "Asset Sale" provisions of the indenture;
(2) in connection with any sale of all of the Capital Stock of a
Guarantor to a Person that is not (either before or after giving effect to
such transaction) a Subsidiary of Classic, if Classic applies the Net
Proceeds of that sale in accordance with the "Asset Sale" provisions of the
indenture; or
(3) if Classic properly designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary in accordance with the applicable
provisions of the indenture.
See "-- Repurchase at the Option of Holders -- Asset Sales."
SUBORDINATION
The payment of principal, interest and premium and Special Interest, if
any, on the notes will be subordinated to the prior payment in full of all
Senior Debt of Classic, including Senior Debt incurred after the date of the
indenture.
The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) before the Holders of notes will be entitled to receive
any payment with respect to the notes (except that Holders of notes may receive
and retain Permitted Junior Securities and payments made from the trust
described under "-- Legal Defeasance and Covenant Defeasance"), in the event of
any distribution to creditors of Classic:
(1) in a liquidation or dissolution of Classic;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to Classic or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of Classic's assets and liabilities.
Classic also may not make any payment in respect of the notes (except in
Permitted Junior Securities or from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated
Senior Debt to accelerate its maturity and
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the trustee receives a notice of such default (a "Payment Blockage Notice")
from Classic or the holders of any Designated Senior Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest and premium and
Special Interest, if any, on the notes that have come due have been paid in
full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
If the trustee or any Holder of the notes receives a payment in respect of
the notes (except in Permitted Junior Securities or from the trust described
under "-- Legal Defeasance and Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the trustee or the Holder has actual knowledge that the payment is
prohibited;
the trustee or the Holder, as the case may be, shall hold the payment in trust
for the benefit of the holders of Senior Debt. Upon the proper written request
of the holders of Senior Debt, the trustee or the Holder, as the case may be,
shall deliver the amounts in trust to the holders of Senior Debt or their proper
representative.
Classic must promptly notify holders of Senior Debt if payment of the notes
is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of Classic, Holders of notes may
recover less, ratably, than creditors of Classic who are holders of Senior Debt.
See "Risk Factors -- Your rights to payment on the notes are subordinate to our
senior debt."
OPTIONAL REDEMPTION
At any time prior to March 1, 2003 Classic may on any one or more occasions
redeem up to 35% of the aggregate principal amount of notes ever issued under
the indenture at a redemption price of 110.50% of the principal amount of the
notes redeemed, plus accrued and unpaid interest and Special Interest, if any,
to the redemption date, with the net cash proceeds of one or more Public Equity
Offerings by Classic or the net cash proceeds of a Strategic Equity Investment
in Classic or a capital contribution to Classic's common equity made with the
net
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cash proceeds of a concurrent Public Equity Offering by, or Strategic Equity
Investment in, Classic's direct parent; provided that:
(1) at least 65% of the notes ever issued under the indenture remain
outstanding immediately after each such redemption (excluding notes held by
Classic and its Subsidiaries); and
(2) the redemption occurs within 60 days of the date of the closing of
such Public Equity Offering or Strategic Equity Investment.
At any time, Classic may also redeem all or a part of the notes upon the
occurrence of a Change of Control, upon not less than 30 nor more than 60 days'
prior notice (but in no event may any such redemption occur more than 90 days
after the occurrence of such Change of Control) mailed by first-class mail to
each Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest and Special Interest, if any, to the date of redemption.
Except as described above, the notes will not be redeemable at Classic's
option prior to March 1, 2005. After March 1, 2005, Classic may redeem all or a
part of the notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Special Interest, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on March 1, of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2005..................................................... 105.25%
2006..................................................... 103.50%
2007..................................................... 101.75%
2008 and thereafter...................................... 100.00%
</TABLE>
MANDATORY REDEMPTION
Classic is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of notes will have the right to
require Classic to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that Holder's notes pursuant to an offer to purchase the
notes (a "Change of Control Offer") on the terms set forth in the indenture. In
the Change of Control Offer, Classic will offer a Change of Control Payment in
cash equal to 101% of the aggregate principal amount of notes repurchased plus
accrued and unpaid interest and Special Interest, if any, on the notes
repurchased, to the date of purchase. Within 30 days following any Change of
Control, Classic will mail a notice to the trustee and each Holder offering to
repurchase notes on the date specified in the notice (the "Change of Control
Payment Date"), which date shall be no later than 30 business days from the date
such notice is mailed, pursuant to the procedures required by the indenture and
described in such notice. Classic will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent those laws and regulations are applicable in connection
with the repurchase of the notes as a result of a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the Change of Control provisions of the indenture, Classic will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Change of Control provisions of the indenture
by virtue of such conflict.
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On the Change of Control Payment Date, Classic will, to the extent lawful:
(1) accept for payment all notes or portions of notes properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions of notes being purchased by Classic.
The paying agent will promptly mail to each Holder of notes properly
tendered the Change of Control Payment for such notes, and Classic will execute
and issue and the trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new note equal in principal amount
to any unpurchased portion of the notes surrendered, if any; provided that each
such new note will be in a principal amount of $1,000 or an integral multiple of
$1,000.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, Classic
will either repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of notes required by this covenant. Classic will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The provisions described above that require Classic to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the notes to require that Classic
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
Classic will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by Classic and
purchases all notes or portions of notes properly tendered and not withdrawn
under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of Classic and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require Classic to repurchase such notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of Classic and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
ASSET SALES
Classic will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) Classic (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by Classic's board of
directors and evidenced by a resolution of the board of directors set forth
in an Officers' Certificate delivered to the trustee; and
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(3) at least 75% of the consideration received in such Asset Sale by
Classic or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following shall be
deemed to be cash:
(a) any Indebtedness or other liabilities, as shown on Classic's or
such Restricted Subsidiary's most recent balance sheet, of Classic or
any Restricted Subsidiary (other than contingent liabilities and
Indebtedness that is by its terms subordinated to the notes or any
Subsidiary Guarantee) that are assumed by the transferee of any such
assets pursuant to an agreement that releases Classic or such Restricted
Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Classic
or any such Restricted Subsidiary from such transferee that are
converted within 60 days of the applicable Asset Sale by Classic or such
Restricted Subsidiary into cash or Cash Equivalents, to the extent of
the cash received in that conversion.
Notwithstanding the foregoing, Classic and its Restricted Subsidiaries may
consummate Asset Swaps; provided that, immediately after giving effect to such
Asset Swap, Classic would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of the covenant described below under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
including any cash received in an Asset Swap, Classic or any of its Restricted
Subsidiaries may apply those Net Proceeds at its option:
(1) to prepay, repay, redeem or purchase Senior Debt and, if the
Senior Debt repaid is revolving credit Indebtedness, to correspondingly
reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of a Permitted
Business;
(3) to acquire Voting Stock of a Permitted Business from a Person that
is not a Subsidiary of Classic; provided, that (a) after giving effect
thereto, Classic and its Restricted Subsidiaries collectively own a
majority of such Voting Stock and (b) such acquisition is otherwise made in
accordance with the indenture, including, without limitation, the
"Restricted Payments" covenant;
(4) to make a capital expenditure; or
(5) to acquire other long-term assets that are used or useful in a
Permitted Business;
provided that in the event Classic would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt to Cash Flow Ratio test set forth
in the first paragraph of the covenant described below under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock" at the time it consummates a Permitted Tower Sale and Leaseback, then the
365-day period referred to above shall be extended for an additional 365 days as
to the Net Proceeds from the Permitted Tower Sale and Leaseback only.
Pending the final application of any Net Proceeds, Classic may temporarily
reduce revolving credit borrowings or otherwise invest the Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15.0 million, Classic will make an
offer (an "Asset Sale Offer") to all Holders of notes and all holders of other
Indebtedness that is pari passu with the notes containing provisions similar to
those set forth in the indenture relating to the notes with respect to offers to
purchase or redeem with the proceeds of sales of assets to purchase the maximum
principal
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amount of notes and such other pari passu Indebtedness that may be purchased out
of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to
100% of principal amount plus accrued and unpaid interest and Special Interest,
if any, to the date of purchase, and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, Classic may use such
Excess Proceeds for any purpose not otherwise prohibited by the indenture. If
the aggregate principal amount of notes and such other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee will select the notes and such other pari passu Indebtedness to be
purchased on a pro rata basis based on the principal amount of notes and such
other pari passu Indebtedness tendered. Upon completion of each Asset Sale
Offer, the amount of Excess Proceeds will be reset at zero.
Classic will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sales provisions of the
indenture, Classic will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
Asset Sale provisions of the indenture by virtue of such conflict.
The agreements governing Classic's outstanding Senior Debt currently
prohibit Classic from purchasing any notes, and also provides that certain
change of control or asset sale events with respect to Classic would constitute
a default under these agreements. Any future credit agreements or other
agreements relating to Senior Debt to which Classic becomes a party may contain
similar restrictions and provisions. In the event a Change of Control or Asset
Sale occurs at a time when Classic is prohibited from purchasing notes, Classic
could seek the consent of its senior lenders to the purchase of notes or could
attempt to refinance the borrowings that contain such prohibition. If Classic
does not obtain such a consent or repay such borrowings, Classic will remain
prohibited from purchasing notes. In such case, Classic's failure to purchase
tendered notes would constitute an Event of Default under the indenture which
would, in turn, constitute a default under such Senior Debt. In such
circumstances, the subordination provisions in the indenture would likely
restrict payments to the Holders of notes.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange,
on a pro rata basis, by lot or by such method as the trustee shall deem
fair and appropriate.
No notes of $1,000 or less will be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of notes to be redeemed at its registered
address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the Holder thereof
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
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CERTAIN COVENANTS
RESTRICTED PAYMENTS
Classic will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Classic's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving Classic or any of its Restricted
Subsidiaries) or to the direct or indirect holders of Classic's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of Classic or to Classic or a Restricted
Subsidiary of Classic);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Classic) any Equity Interests of Classic or any
direct or indirect parent of Classic;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Subsidiary Guarantees, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof; and
(2) Classic would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable three-month period, have been permitted
to incur at least $1.00 of additional Indebtedness (other than Permitted
Debt) pursuant to the Debt to Cash Flow Ratio test set forth in the first
paragraph of the covenant described below under the caption "-- Incurrence
of Indebtedness and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made after July 28, 1999 (excluding
Restricted Payments permitted by clauses (2), (3) and (4) of the next
succeeding paragraph) shall not exceed, at the date of determination, the
sum, without duplication, of:
(a) an amount equal to Classic's Consolidated Cash Flow from July
28, 1999 to the end of Classic's most recently ended three-month period
for which internal financial statements are available, taken as a single
accounting period, less the product of 1.4 times Classic's Consolidated
Interest Expense from July 28, 1999 to the end of Classic's most
recently ended three-month period for which internal financial
statements are available, taken as a single accounting period; plus
(b) an amount equal to the net cash proceeds received by Classic
from the sale of Equity Interests after July 28, 1999(other than (i)
sales of Disqualified Stock, (ii) Equity Interests sold to any of
Classic's Subsidiaries, (iii) Equity Interests sold in the Private
Equity Sale and (iv) Equity Interests that are applied to make a
Permitted Investment pursuant to clause (10) of the definition of
Permitted Investments) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Classic that have been converted into or exchanged for
such Equity
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Interests (other than Equity Interests (or Disqualified Stock or debt
securities) sold to a Subsidiary of Classic); plus
(c) to the extent that any Restricted Investment that was made
after July 28, 1999 is sold for cash or otherwise liquidated or repaid
for cash, the lesser of: (i) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any); and
(ii) the initial amount of such Restricted Investment.
The preceding provisions will not prohibit:
(1) so long as no Default has occurred and is continuing or would be
caused thereby, the payment of any dividend or distribution within 60 days
after the date of declaration thereof, if at the date of declaration such
payment would have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Classic or any Guarantor or
of any Equity Interests of Classic in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary
of Classic or an employee stock ownership plan or to a trust established by
Classic or any Subsidiary of Classic for the benefit of its employees) of,
Equity Interests of Classic (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition will be
excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Classic or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of Classic
to the holders of its Equity Interests on a pro rata basis; and
(5) so long as no Default has occurred and is continuing or would be
caused thereby, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of CCI, Classic or any
Restricted Subsidiary of Classic held by any member of Classic's (or any of
its Restricted Subsidiaries') management pursuant to any employment
agreement, management equity subscription agreement or stock option
agreement in effect as of the date of the indenture; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $1.5 million in any twelve-month
period.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by Classic or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by Classic's board of directors whose resolution
with respect thereto shall be delivered to the trustee. The board of directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, Classic will deliver to the trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this "Restricted Payments" covenant were
computed, together with a copy of any fairness opinion or appraisal required by
the indenture.
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INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Classic will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and Classic
will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that
Classic may incur Indebtedness (including Acquired Debt) or issue Disqualified
Stock, and the Guarantors may incur Indebtedness or issue preferred stock, if
Classic's Debt to Cash Flow Ratio at the time of incurrence of such Indebtedness
or the issuance of such Disqualified Stock or preferred stock, after giving pro
forma effect to such incurrence or issuance as of such date and to the use of
proceeds therefrom as if the same had occurred at the beginning of the most
recently ended three-month period of Classic for which internal financial
statements are available, would have been no greater than 7.0 to 1.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Classic and any Guarantor of additional
Indebtedness and letters of credit under Credit Facilities in an aggregate
principal amount at any one time outstanding under this clause (1) (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of Classic and its Restricted Subsidiaries
thereunder) not to exceed $350.0 million;
(2) the incurrence by Classic and its Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by Classic and the Guarantors of Indebtedness
represented by the notes and the related Subsidiary Guarantees to be issued
on the date of the indenture and the exchange notes and the related
Subsidiary Guarantees to be issued pursuant to the registration rights
agreement;
(4) the incurrence by Classic or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or 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 Classic or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (4), not to exceed $15.0 million at any time outstanding;
(5) the incurrence by Classic or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses (2), (3),
(4) or (5) of this paragraph;
(6) the incurrence by Classic or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Classic and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Classic or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of Classic, or the Subsidiary Guarantee, in the case
of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
Classic or a Restricted Subsidiary
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thereof and (ii) any sale or other transfer of any such Indebtedness to
a Person that is not either Classic or a Restricted Subsidiary of
Classic, will be deemed, in each case, to constitute an incurrence of
such Indebtedness by Classic or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (6);
(7) the incurrence by Classic or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of the indenture to be outstanding;
(8) the guarantee by Classic or any of the Guarantors of Indebtedness
of Classic or a Subsidiary of Classic that was permitted to be incurred by
another provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness
or an issuance of Disqualified Stock for purposes of this covenant;
(10) the incurrence of Indebtedness of a Restricted Subsidiary that
was outstanding on or prior to the date on which such Restricted Subsidiary
was acquired by Classic (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 Classic); provided, however, that on the date of such
acquisition and after giving effect to that acquisition, the Debt to Cash
Flow Ratio would have been less than or equal to the Debt to Cash Flow
Ratio immediately prior to that acquisition;
(11) the incurrence by Classic or any of the Guarantors of
Indebtedness in addition to any Indebtedness described in clauses (1)
through (10) and (12) of this covenant in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (11), not to exceed $25.0
million; and
(12) the incurrence by Classic's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, that event will be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of Classic that was not permitted by this clause (12).
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (12) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant,
Classic will be permitted to classify such item of Indebtedness on the date of
its incurrence or later reclassify all or a portion of such item of Indebtedness
in any manner that complies with this covenant and the items will be treated as
having been incurred pursuant only to the first paragraph or clause (1) through
(12) of this covenant. Indebtedness under Credit Facilities outstanding on the
date on which notes are first issued and authenticated under the indenture shall
be deemed to have been incurred on such date in reliance on the exception
provided by clause (1) of the definition of Permitted Debt.
NO SENIOR SUBORDINATED DEBT
Classic will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of Classic and
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senior in any respect in right of payment to the notes. No Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinate or junior in right of payment to the Senior Debt of such
Guarantor and senior in any respect in right of payment to such Guarantor's
Subsidiary Guarantee.
LIENS
Classic will not, and will not permit any Restricted Subsidiary to, 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 (1) Liens securing Senior Debt or
Indebtedness of a Restricted Subsidiary of Classic, (2) Liens, if any, in effect
on the date of the indenture; (3) Liens in favor of governmental bodies to
secure progress or advance payments; (4) 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; (5) Liens securing the notes; (6)
other Liens, in addition to those described in clauses (1) through (5), (7) or
(8) of this paragraph, securing Indebtedness of Classic in an amount not to
exceed $10.0 million at any time outstanding; (7) Other Permitted Liens; and (8)
any extension, renewal or replacement of any Lien referred to in the foregoing
clauses (1) through (7), inclusive.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
Classic will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Equity
Interests to Classic or any of its Restricted Subsidiaries, or pay any
indebtedness owed to Classic or any of its Restricted Subsidiaries;
(2) make loans or advances or guarantee any such loans or advances to
Classic or any of its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to Classic or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) encumbrances and restrictions as in effect on the date of the
indenture pursuant to Existing Indebtedness or Credit Facilities, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as
a whole, with respect to such dividend and other payment restrictions than
those contained in such Existing Indebtedness or Credit Facilities, as in
effect on the date of the indenture;
(2) the indenture, the notes and the Subsidiary Guarantees;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Classic or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness or
Capital Stock was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to
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any Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by the
terms of the indenture to be incurred;
(5) customary non-assignment provisions in contracts of Classic or any
of its Restricted Subsidiaries;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Subsidiary pending its sale
or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, assets sale agreements,
stock sale agreements and other similar agreements entered into in the
ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(12) restrictions that are not materially more restrictive than
customary provisions in comparable financings if the management of Classic
determines that such restrictions will not materially impair Classic's
ability to make payments as required under the notes; and
(13) restrictions contained in Indebtedness under Credit Facilities
permitted to be incurred under the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock,"
provided that the restrictions are not more restrictive than the terms
contained in the existing Credit Facilities as of the date of the
indenture.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Classic may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not Classic is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of Classic and its Restricted Subsidiaries taken
as a whole, in one or more related transactions, to another Person; unless:
(1) either: (a) Classic is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than Classic) or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made is a corporation, limited liability
company or limited partnership organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Classic) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of Classic under the notes, the indenture and the
registration rights agreement pursuant to agreements reasonably
satisfactory to the trustee;
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(3) immediately after such transaction no Default or Event of Default
exists; and
(4) Classic or the Person formed by or surviving any such
consolidation or merger (if other than Classic), or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made
will, on the date of such transaction after giving pro forma effect thereto
and any related financing transactions as if the same had occurred at the
beginning of the applicable three-month period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Debt to Cash Flow
Ratio test set forth in the first paragraph of the covenant described above
under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock."
In addition, Classic may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among Classic and any of the Guarantors.
TRANSACTIONS WITH AFFILIATES
Classic will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any payment to, or sell, lease, transfer,
exchange or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction or
series of transactions, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate, officer or director or
Classic (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to Classic or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Classic or such Restricted
Subsidiary with an unrelated Person; and
(2) Classic delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the board of directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with clause (1) of this covenant and that such Affiliate
Transaction has been approved by a majority of the disinterested members
of the board of directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) employment agreements entered into by Classic or any of its
Subsidiaries on or prior to the date of the indenture and any employment
agreement entered into by Classic or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of
Classic or such Restricted Subsidiary;
(2) transactions between or among Classic and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of Classic solely
because Classic owns an Equity Interest in such Person;
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(4) payment of reasonable fees to directors who are not employees of
Classic or any of its Restricted Subsidiaries, and customary
indemnification and insurance arrangements in favor of any director;
(5) sales or issuances of Equity Interests (other than Disqualified
Stock) to Affiliates of Classic;
(6) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "-- Restricted Payments;"
(7) loans or advances, not to exceed $2.0 million in the aggregate at
any time outstanding, to employees in the ordinary course of business in
accordance with past practice; and
(8) management fees, deal fees or transaction fees paid to employees,
directors and their respective affiliates, in accordance with the
provisions of the Management and Advisory Fee Agreement or the
Stockholders' Agreement, as applicable, as the same are in effect on the
date of the indenture.
ADDITIONAL SUBSIDIARY GUARANTEES
If Classic or any of its Subsidiaries acquires or creates another Domestic
Subsidiary after the date of the indenture, then that newly acquired or created
Domestic Subsidiary must become a Guarantor and execute a Subsidiary Guarantee
in the form of a Supplemental Indenture and deliver an Opinion of Counsel to the
trustee within 10 Business Days of the date on which it was acquired or created,
unless such Domestic Subsidiary has properly been designated as an Unrestricted
Subsidiary in accordance with the indenture, for so long as such Domestic
Subsidiary continues to constitute an Unrestricted Subsidiary.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The board of directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by Classic and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will either reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "-- Restricted Payments" or reduce
the amount available for future Investments under one or more clauses of the
definition of Permitted Investments, as Classic shall determine. That
designation will only be permitted if such Investment would be permitted at that
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The board of directors may redesignate any Unrestricted
Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a
Default.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Classic will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and leaseback transaction, unless:
(1) Classic or that Restricted Subsidiary, as applicable, could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Debt to Cash Flow
Ratio test in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" and
(b) created a Lien on such property securing Attributable Debt without
equally and ratably securing the notes pursuant to the covenant described
above under the caption "-- Liens;"
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(2) the net cash proceeds of that sale and leaseback transaction are
at least equal to the fair market value, as determined in good faith by the
board of directors and set forth in an Officers' Certificate delivered to
the trustee, of the property that is the subject of that sale and leaseback
transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and Classic or that Restricted Subsidiary applies the
proceeds of such transaction in compliance with, the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset
Sales."
LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN WHOLLY OWNED
SUBSIDIARIES
Classic will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, transfer, convey, sell, lease or otherwise dispose
of any Equity Interests in any Wholly Owned Restricted Subsidiary of Classic to
any Person (other than Classic or a Wholly Owned Restricted Subsidiary of
Classic), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset
Sales."
In addition, Classic will not permit any Wholly Owned Restricted Subsidiary
of Classic to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to Classic or a Wholly Owned Restricted Subsidiary of Classic.
REPORTS
Whether or not required by the Commission, so long as any notes are
outstanding, Classic will furnish to the Holders of notes, within 15 days of the
time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if Classic were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by Classic's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Classic were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the Commission,
Classic will file a copy of all of the information and reports referred to in
clauses (1) and (2) above with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing, in which case Classic will make such
information available to securities analysts and prospective investors upon
request). In addition, Classic and the Guarantors have agreed that, for so long
as any notes remain outstanding, unless Classic is filing periodic reports
pursuant to the Exchange Act, Classic and the Guarantors will furnish to the
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.
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EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Special Interest with respect to, the notes whether or not prohibited by
the subordination provisions of the indenture;
(2) default in payment when due of the principal of, or premium, if
any, on the notes, whether or not prohibited by the subordination
provisions of the indenture;
(3) failure by Classic or any of its Subsidiaries to comply with the
provisions applicable to them described under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets;"
(4) failure by Classic or any of its Subsidiaries for 30 days after
notice to comply with the provisions applicable to them described under the
captions "-- Repurchase at the Option of Holders -- Change of Control" or
"-- Certain Covenants" (in each case, other than a failure to purchase
notes);
(5) failure by Classic or any of its Subsidiaries for 60 days after
notice to comply with any of the other agreements applicable to them in the
indenture;
(6) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Classic or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Classic or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of such Indebtedness at
final maturity; or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
if the total principal amount of such Indebtedness unpaid or accelerated
exceeds $5.0 million;
(7) any judgment or decree for the payment of money in excess of $5.0
million is rendered against Classic or any Restricted Subsidiary of Classic
and either (a) an enforcement proceeding has been commenced by any creditor
upon such judgment or decree or (b) such judgment or decree remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days of notice;
(8) except as permitted by the indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Guarantor,
or any Person acting on behalf of any Guarantor, shall deny or disaffirm
its obligations under its Subsidiary Guarantee; and
(9) certain events of bankruptcy or insolvency described in the
indenture with respect to Classic or any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Classic, any Subsidiary that is a
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding notes will become due and
payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the trustee or the Holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may
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withhold from Holders of the notes notice of any continuing Default or Event of
Default if it determines that withholding notice is in their interest, except a
Default or Event of Default relating to the payment of principal or interest.
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
Classic and the trustee, may rescind and annul such declaration and its
consequences if (a) Classic has paid or deposited with the trustee a sum
sufficient to pay (1) 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, (2) all overdue interest on all notes
then outstanding, (3) 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 (including Special Interest) at the rate borne
by the notes and (4) 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 a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except (1) a continuing Default or Event of Default in the payment
of interest or Special Interest on, or the principal of, the notes or (2) 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.
Classic is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Classic is required to deliver to the trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, manager, member, partner or
stockholder of Classic or any Guarantor, as such, shall have any liability for
any obligations of Classic or the Guarantors under the notes, the exchange
notes, the indenture, the Subsidiary Guarantees 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. The waiver may
not be effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Classic may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Special Interest,
if any, on such notes when such payments are due from the trust referred to
below;
(2) Classic's obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
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(3) the rights, powers, trusts, duties and immunities of the trustee,
and Classic's and the Guarantor's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Classic may, at its option and at any time, elect to have the
obligations of Classic and the Guarantors released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Classic must irrevocably deposit with the trustee, in trust, for
the benefit of the Holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium and Special Interest,
if any, and interest on the outstanding notes on the stated date for
payment or on the applicable redemption date, as the case may be and
Classic must specify whether the notes are being defeased to maturity or to
a particular redemption date;
(2) in the case of Legal Defeasance, Classic shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that (a) Classic has received from, or there has been published
by, the Internal Revenue Service a ruling or (b) since the date of the
indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Classic shall have delivered
to the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the Holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to
such deposit); or (b) insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Classic or any
of its Subsidiaries is a party or by which Classic or any of its
Subsidiaries is bound;
(6) Classic must have delivered to the trustee an Opinion of Counsel
(which may be subject to customary exceptions) to the effect that, on the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally;
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(7) Classic must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by Classic with the intent of
preferring the Holders of notes over the other creditors of Classic with
the intent of defeating, hindering, delaying or defrauding creditors of
Classic or others; and
(8) Classic must deliver to the trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the indenture
or the notes may be amended or supplemented with the consent of the Holders of
at least a majority in aggregate principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
then outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal
of, or interest or premium, or Special Interest, if any, on the notes
(except a rescission of acceleration of the notes by the Holders of at
least a majority in aggregate principal amount of the notes and a waiver of
the payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of, or interest or premium or Special Interest, if
any, on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the indenture, except in accordance with the terms
of the indenture; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
indenture relating to subordination that adversely affects the rights of the
Holders of the notes will require the consent of the Holders of at least 75% in
aggregate principal amount of the notes then outstanding.
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Notwithstanding the preceding, without the consent of any Holder of notes,
Classic, the Guarantors and the trustee may amend or supplement the indenture or
the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Classic's obligations to Holders
of notes in the case of a merger or consolidation or sale of all or
substantially all of Classic's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of notes or that does not adversely affect the
legal rights under the indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the indenture under the Trust Indenture
Act.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to Classic) have been delivered to the trustee for cancellation;
or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise or will become due and payable within
one year and Classic or any Guarantor has irrevocably deposited or
caused to be deposited with the trustee, as trust funds in trust solely
for the benefit of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient without consideration of any reinvestment of interest, to
pay and discharge the entire indebtedness on the notes not delivered to
the trustee for cancellation for principal, premium and Special
Interest, if any, and accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which Classic or any
Guarantor is a party or by which Classic or any Guarantor is bound;
(3) Classic or any Guarantor has paid or caused to be paid all sums
payable by it under the indenture; and
(4) Classic has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, Classic must deliver an Officers' Certificate and an Opinion of
Counsel to the trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
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CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Classic or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Classic Cable, Inc.,
515 Congress Avenue, Suite 2626, Austin, Texas 78701, Attention: Corporate
Secretary.
BOOK-ENTRY, DELIVERY AND FORM
The notes will be represented by one or more permanent global 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, The Depository Trust Corporation ("DTC").
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
interests in a 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 notes represented by such Global Note for all
purposes under the Indenture and the 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 addition 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 Classic, 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.
Classic 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. Classic also expects that payments by participants to owners
of beneficial interests in such Global Note held through such participants
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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.
Classic 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.
Classic 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. Indirect access to the DTC system is
available to others 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 Classic 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 Classic within
90 days, Classic will issue Certificated Notes in exchange for the Global Notes.
Holders of an interest in a Global Note may receive Certificated Notes in
accordance with the DTC's rules and procedures in addition to those provided for
under the indenture.
SAME DAY SETTLEMENT AND PAYMENT
Classic will make payments in respect of the notes represented by the
Global notes (including principal, premium, if any, interest and Special
Interest, if any) by wire transfer of immediately available funds to the
accounts specified by the Global note Holder. Classic will make all payments of
principal, interest and premium and Special Interest, if any, with respect to
Certificated notes by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is specified,
by mailing a check to each such Holder's registered address. The notes
represented by the Global notes are expected to be eligible to trade in the
PORTAL market and to trade in DTC's Same-day Funds Settlement System, and any
permitted secondary market trading activity in such notes will, therefore, be
required by DTC to be settled in immediately available funds. Classic expects
that secondary trading in any Certificated notes will also be settled in
immediately available funds.
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Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised Classic that cash received in Euroclear
or Cedel as a result of sales of interests in a Global note by or through a
Euroclear or Cedel participant to a Participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
REGISTRATION RIGHTS; SPECIAL INTEREST
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of registration rights agreement
in its entirety because it, and not this description, defines your registration
rights as Holders of these notes. We have filed a copy of the registration
rights agreement as an exhibit to the registration statement which includes this
prospectus. See "-- Additional Information."
Classic, the Guarantors and the initial purchasers entered into the
registration rights agreement on February 16, 2000. Pursuant to the registration
rights agreement, Classic and the Guarantors agreed to file with the Commission
the exchange offer registration statement on the appropriate form under the
Securities Act with respect to the exchange notes. Upon the effectiveness of the
exchange offer registration statement, Classic and the Guarantors will offer to
the Holders of Transfer Restricted Securities pursuant to the exchange offer who
are able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for exchange notes.
If:
(1) Classic and the Guarantors are not
(a) required to file the exchange offer registration statement; or
(b) permitted to consummate the Exchange Offer because the exchange
offer is not permitted by applicable law or Commission policy; or
(2) any Holder of Transfer Restricted Securities notifies Classic
prior to the 20th day following consummation of the exchange offer that:
(a) it is prohibited by law or Commission policy from participating
in the exchange offer; or
(b) that it may not resell the Exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the exchange offer registration statement is not
appropriate or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly
from Classic or an affiliate of Classic,
Classic and the Guarantors will file with the Commission a Shelf Registration
Statement to cover resales of the notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the shelf registration statement.
Classic and the Guarantors will use their best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission.
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For purposes of the preceding, "Transfer Restricted Securities" means each
note until:
(1) the date on which such note has been exchanged by a Person other
than a broker-dealer for an exchange note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of
a note for an exchange note, the date on which such exchange note is sold
to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the exchange offer
registration statement;
(3) the date on which such note has been effectively registered under
the Securities Act and disposed of in accordance with the shelf
registration statement;
(4) the date on which such note is distributed to the public pursuant
to Rule 144 under the Securities Act; or
(5) the date such note shall cease to be outstanding.
The registration rights agreement provides:
(1) Classic and the Guarantors will file an Exchange Offer
Registration Statement with the Commission on or prior to April 16, 2000;
(2) Classic and the Guarantors will use their best efforts to have the
exchange offer registration statement declared effective by the Commission
on or prior to September 13, 2000;
(3) unless the exchange offer would not be permitted by applicable law
or Commission policy, Classic and the Guarantors will
(a) commence the exchange offer; and
(b) use their best efforts to issue on or prior to 45 days, or
longer, if required by the federal securities laws, after the date on
which the exchange offer registration statement was declared effective
by the Commission, exchange notes in exchange for all notes tendered
prior thereto in the exchange offer; and
(4) if obligated to file the shelf registration statement, Classic and
the Guarantors will use their best efforts to file the shelf registration
statement with the Commission on or prior to 45 days after such filing
obligation arises and to cause the shelf registration to be declared
effective by the Commission on or prior to 120 days after such obligation
arises.
If:
(1) Classic and the Guarantors fail to file any of the registration
statements required by the registration rights agreement on or before the
date specified for such filing; or
(2) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness
(the "Effectiveness Target Date"); or
(3) Classic and the Guarantors fail to consummate the exchange offer
within 45 days of the Effectiveness Target Date with respect to the
exchange offer registration statement; or
(4) the shelf registration statement or the exchange offer
registration statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the registration rights
agreement (each such event referred to in clauses (1) through (4) above, a
"Registration Default"),
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then Classic and the Guarantors will pay special interest ("Special Interest")
to each Holder of notes with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
$0.05 per week per $1,000 principal amount of notes held by such Holder.
The amount of the Special Interest will increase by an additional $0.05 per
week per $1,000 principal amount of notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Special Interest for all Registration Defaults of $0.50 per week per $1,000
principal amount of notes.
All accrued Special Interest will be paid by Classic and the Guarantors on
each Special Interest Payment Date to the Global note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified.
Following the cure of all Registration Defaults, the accrual of Special
Interest will cease.
Holders of notes will be required to make certain representations to
Classic (as described in the registration rights agreement) in order to
participate in the exchange offer and will be required to deliver certain
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
set forth in the registration rights agreement in order to have their notes
included in the shelf registration statement and benefit from the provisions
regarding Special Interest set forth above. By acquiring Transfer Restricted
Securities, a Holder will be deemed to have agreed to indemnify Classic and the
Guarantors against certain losses arising out of information furnished by such
Holder in writing for inclusion in any shelf registration statement. Holders of
notes will also be required to suspend their use of the prospectus included in
the shelf registration statement under certain circumstances upon receipt of
written notice to that effect from Classic.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of more than 5% of
the Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
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"Applicable Premium" means, with respect to any note on any redemption
date, the greater of:
(1) 1.0% of the principal amount of the note; or
(2) the excess of:
(a) the present value at such redemption date of (i) the redemption
price of the note at March 1, 2005 (such redemption price being set
forth in the table appearing above under the caption "-- Optional
Redemption") plus (ii) all required interest payments due on the note
through March 1, 2005 (excluding accrued but unpaid interest), computed
using a discount rate equal to the Treasury Rate as of such redemption
date plus 50 basis points; over
(b) the principal amount of the note, if greater.
"Asset Acquisition" means (a) an Investment by Classic 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 Classic or
any Restricted Subsidiary, or (b) any acquisition by Classic or any Restricted
Subsidiary of the assets of any Person that constitute substantially all of an
operating unit, a division or line of business of such Person or that is
otherwise outside of the ordinary course of business.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than in the ordinary course of business consistent with past
practices; provided that the sale, conveyance or other disposition of all
or substantially all of the assets of Classic and its Subsidiaries taken as
a whole will be governed by the provisions of the indenture described above
under the caption "-- Repurchase at the Option of Holders -- Change of
Control" and/or the provisions described above under the caption
"-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and not
by the provisions of the Asset Sale covenant; and
(2) the issuance or sale of Equity Interests in any of Classic's
Restricted Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0 million or
results in net proceeds to Classic and its Restricted Subsidiaries of less
than $1.0 million;
(2) transfers of assets between or among Classic and its Wholly Owned
Restricted Subsidiaries,
(3) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to Classic or to another Wholly Owned Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments;" and
(7) the sale of property or equipment that has become worn out,
damaged or otherwise unsuitable for use in the business of Classic or any
of its Restricted Subsidiaries.
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"Asset Swap" means an exchange of assets by Classic or a Restricted
Subsidiary of Classic for:
(1) one or more Permitted Businesses;
(2) a controlling equity interest in any Person whose assets consist
primarily of one or more Permitted Businesses;
(3) cash; and/or
(4) long-term assets that are used in a Permitted Business.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest, other than any straight debt obligation, or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than six months from the
date of acquisition;
(3) 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 either
(x) a party to the Credit Agreement or (y) a member of the Federal Reserve
Bank having capital and surplus in excess of $500.0 million and a Thompson
Bank Watch Rating of "B" or better;
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(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having a P-1 rating from Moody's Investors
Service, Inc. or an A-1 rating from Standard & Poor's Rating Services and
in each case maturing within six months after the date of acquisition; and
(6) money market funds having assets in excess of $100.0 million, at
least 95% of the assets of which constitute Cash Equivalents of the kinds
described in clauses (1) through (5) of this definition.
"CCI" means Classic Communications, Inc., a Delaware corporation, and the
direct parent of Classic.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of CCI, Classic and its Restricted Subsidiaries, taken
as a whole, to any "person" (as that term is used in Section 13(d)(3) of
the Exchange Act), other than Classic or any of its Restricted
Subsidiaries;
(2) the adoption of a plan relating to the liquidation or dissolution
of Classic;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties or a Permitted Group, becomes the Beneficial Owner, directly or
indirectly, of more than 35% of the Voting Stock of CCI, measured by voting
power rather than number of shares;
(4) the first day on which a majority of the members of the board of
directors of CCI or Classic are not Continuing Directors;
(5) CCI or Classic consolidates with, or merges with or into, any
Person, or any Person consolidates with, or merges with or into, CCI or
Classic, in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of CCI or Classic or such other Person is
converted into or exchanged for cash, securities or other property, other
than any such transaction where the Voting Stock of CCI or Classic
outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving
or transferee Person constituting a majority of the outstanding shares of
such Voting Stock of such surviving or transferee Person (immediately after
giving effect to such issuance); or
(6) the first day on which the CCI ceases to own 100% of the
outstanding Equity Interests of Classic.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Restricted Subsidiaries in connection
with an Asset Sale, to the extent such losses were deducted in computing
such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Net Income; plus
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(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received pursuant
to Hedging Obligations), to the extent that any such expense was deducted
in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income; plus
(5) all transaction fees paid or accrued on or prior to the date of
the indenture, to officers of Classic, in connection with transactions
consummated prior to or on the date of the indenture; plus
(6) all fees paid to officers of Classic after July 28, 1999 in
connection with acquisitions or dispositions, provided that not more than
an aggregate of $1.0 million of such fees may be included pursuant to this
clause (6) in any twelve-month period; minus
(7) non-cash items increasing such Consolidated Net Income (including
the partial or entire reversal of reserves taken in prior periods) for such
period, other than the accrual of revenue in the ordinary course of
business,
in each case, on a consolidated basis and determined in accordance with
GAAP.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the
aggregate liquidation value of all Disqualified Stock of such Person and all
preferred stock of Restricted Subsidiaries of such Person, less (iii) Hedging
Obligations that would be a liability on the balance sheet, in each case,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, all calculated after taking into
account the effect of all Hedging Obligations, and (ii) the consolidated
interest expense of such Person and its Subsidiaries that was capitalized during
such period, and (iii) any interest expense on Indebtedness of another Person
that is guaranteed by such Person or one of its Subsidiaries or secured by a
Lien on assets of such Person or one of its Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all dividend
payments on any series of preferred stock of such Person or any of its
Subsidiaries, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
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"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the specified Person or a Wholly Owned
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that 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 or governmental regulation applicable to that
Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall
be excluded; and
(5) the Net Income (but not loss) of any Unrestricted Subsidiary shall
be excluded, whether or not distributed to the specified Person or one of
its Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of Classic or CCI, as the case may be, who:
(1) was a member of such board of directors on the date of the
indenture; or
(2) was nominated for election or elected to such board of directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election; or
(3) is a representative of or was approved by Brera Classic, L.L.C.,
or one of its Affiliates.
"Credit Agreement" means that certain Credit Agreement, dated as of July
28, 1999, as amended, by and among Classic and Goldman Sachs Credit Partners
L.P., The Chase Manhattan Bank and Union Bank of California providing for $200.0
million in term loan facilities, up to $75.0 million of revolving credit
borrowings, and an additional $200.0 million incremental facility on a term loan
basis including any related notes, guarantees, collateral documents, instruments
and agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Debt to Cash Flow Ratio" means, as of any date of determination (the
"Determination Date"), the ratio of (a) the Consolidated Indebtedness of Classic
as of such Determination Date to (b) four times the Consolidated Cash Flow of
Classic for the latest three months for which financial information is available
preceding such Determination Date (the "Measurement Period"), determined on a
pro forma basis after giving effect to all acquisitions or dispositions of
assets made by Classic and its Subsidiaries from the beginning of such
three-month period through and including such Determination Date (including any
related financing transactions) as if such
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acquisitions and dispositions had occurred at the beginning of such three-month
period. For purposes of calculating Consolidated 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 Consolidated Cash Flow) will
be deemed to have 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 Consolidated Cash Flow) will be deemed not to have been a
Restricted Subsidiary at any time during such Measurement Period; and (iii) if
Classic 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.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) any other Senior Debt permitted under the indenture the principal
amount of which is $50.0 million or more and that has been designated by
Classic as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the earlier of the date on which
the notes mature and the date on which no notes remain outstanding.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
Classic to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale shall not constitute Disqualified Stock if the terms of
such Capital Stock provide that Classic may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments."
"Domestic Subsidiary" means any Restricted Subsidiary that was formed under
the laws of the United States or any state thereof or the District of Columbia
or that guarantees or otherwise provides direct credit support for any
Indebtedness of Classic.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"Existing Indebtedness" means Indebtedness of Classic and its Subsidiaries,
including refinancings thereof, (other than Indebtedness under the Credit
Agreement) in existence on the date of the indenture, until such amounts are
repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness, measured as the lesser of the
aggregate outstanding amount of the Indebtedness so guaranteed and the face
amount of the guarantee.
"Guarantors" means each of:
(1) Classic's Domestic Subsidiaries on the date of the indenture; and
(2) any other subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Holder" means a Person in whose name a note is registered.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations of such Person and all
Attributable Debt in respect of sale and leaseback transactions entered
into by such Person;
(5) in respect of the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
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The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the outstanding principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other extensions of credit), advances or
capital contributions (excluding commission, travel, moving and similar advances
to officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP and include the
designation of a Restricted Subsidiary as an Unrestricted Subsidiary. If Classic
or any Restricted Subsidiary of Classic sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of Classic such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of Classic, Classic 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 Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "-- Certain Covenants -- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, hypothecation, assignment for security or encumbrance
of any kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law, including any conditional sale or
capital lease or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"Management and Advisory Fee Agreement" means the agreement by and between
CCI and Brera Classic, L.L.C., dated as of May 24, 1999.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with: (a) any
Asset Sale; or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by Classic or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of:
(1) 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 liability under GAAP, as a
consequence of such Asset Sale;
(2) 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
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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;
(3) 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
(4) 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 Classic or
any Restricted Subsidiary after such Asset Sale.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Classic nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of Classic or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of Classic or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Other Permitted Liens" means:
(1) 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;
(2) 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;
(3) easements, rights of way, and other restrictions on use of
property or minor 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 Classic or its Subsidiaries;
(4) Liens related to Capital 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 Classic or any Restricted Subsidiary or a Permitted
Business, provided that any such Lien encumbers only the asset or assets so
financed, purchased, constructed or improved;
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(5) Liens resulting from the pledge by Classic of Equity Interests in
a Restricted Subsidiary in connection with a Credit Facility or in an
Unrestricted Subsidiary in any circumstance, where recourse to Classic is
limited to the value of the Equity Interests so pledged;
(6) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(7) 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);
(8) leases or subleases granted to third Persons not interfering with
the ordinary course of business of Classic;
(9) deposits made in the ordinary course of business to secure
liability to insurance carriers;
(10) 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;
(11) Liens on the assets of Classic to secure Hedging Obligations with
respect to Indebtedness permitted by the Indenture to be incurred;
(12) attachment or judgment Liens not giving rise to a Default or an
Event of Default; and
(13) any interest or title of a lessor under any capital lease or
operating lease.
"Permitted Business" means a cable television, media and communications,
telecommunications, internet service provider or data transmission business, and
businesses ancillary, complementary or reasonably related to those businesses.
"Permitted Group" means any group of investors that is deemed to be a
"person" (as that term is used in Section 13(d)(3) of the Exchange Act) by
virtue of the Stockholders' Agreement, as the same may be amended, modified or
supplemented from time to time, provided that no single Person (other than the
Principals and their Related Parties) Beneficially Owns (together with its
Affiliates) more of the Voting Stock of Classic that is Beneficially Owned by
such group of investors than is then collectively Beneficially Owned by the
Principals and their Related Parties in the aggregate.
"Permitted Investments" means:
(1) any Investment in Classic or in a Restricted Subsidiary of Classic
that is a Guarantor;
(2) any Investment in Cash Equivalents;
(3) any Investment by Classic or any Subsidiary of Classic in a
Person, if as a result of or concurrently with such Investment:
(a) such Person becomes a Restricted Subsidiary of Classic and a
Guarantor; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Classic or a Restricted Subsidiary of Classic that is a
Guarantor; provided that such Person's primary business is a Permitted
Business;
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(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales;"
(5) any Investment in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance
and other similar deposits;
(6) the extension of credit to vendors, suppliers and customers in the
ordinary course of business;
(7) any Investment 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 Classic or
any Restricted Subsidiary to make any additional cash or non-cash payments
or provide additional services in connection therewith;
(8) any Investment consisting of a Guarantee permitted under clause
(1) of the second paragraph of the covenant described above under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
(9) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Classic;
(10) any Investment made with the net cash proceeds received by
Classic after July 28, 1999 from the sale of Equity Interests of Classic
(other than (i) sales of Disqualified Stock, (ii) Equity Interests sold to
any of Classic's Subsidiaries and (iii) Equity Interests sold in the
Private Equity Sale); provided that the amount of any such net cash
proceeds that are utilized for such Investment will be excluded from clause
3(b) of the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments;"
(11) Hedging Obligations; and
(12) other Investments, in addition to those in clauses (1) through
(11) of this definition, in any Person, other than CCI or an Affiliate of
CCI that is not also a Subsidiary of Classic, having an aggregate fair
market value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (12) since the date
of the indenture, not to exceed $10.0 million at any one time outstanding.
"Permitted Junior Securities" means:
(1) Equity Interests in Classic or any Guarantor; or
(2) debt securities that are subordinated to all Senior Debt and any
debt securities issued in exchange for Senior Debt to substantially the
same extent as, or to a greater extent than, the notes and the Subsidiary
Guarantees are subordinated to Senior Debt under the indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of Classic or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of Classic or any of its Subsidiaries (other than intercompany Indebtedness);
provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest thereon
and the amount of all expenses and premiums incurred in connection
therewith);
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(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
notes on terms at least as favorable to the Holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Classic or by the
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Permitted Tower Sale and Leaseback" means the sale and leaseback by
Classic or any of its Restricted Subsidiaries, in one or more transactions, for
aggregate consideration of up to $50.0 million, of any communications towers
used to facilitate the transmission of telecommunication, voice, data and video
signals.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principals" means Brera Classic, L.L.C., so long as that entity is an
Affiliate of Brera Capital Partners Limited Partnership, Austin Ventures, L.P.,
BT Capital Partners, Inc., The Texas Growth Fund, BA SBIC Management, L.L.C., J.
Merritt Belisle and Steven E. Seach.
"Private Equity Sale" means the sale for $100.0 million in cash of common
stock of CCI, which was consummated on July 28, 1999, the proceeds of which were
contributed by CCI to Classic.
"Public Equity Offering" means an underwritten public offering by Classic
or its direct parent for cash (in an amount not less than $25.0 million) of its
common stock pursuant to the Securities Act registration statement (not
including Forms S-4 or S-8).
"Related Party" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary, or
immediate family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership or other entity, whose
beneficiaries, stockholders, partners, owners or Persons beneficially
holding an 80% or more controlling interest of such entity consist of any
one or more Principals and/or such other Persons referred to in the
immediately preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness of Classic or any Guarantor outstanding under
Credit Facilities and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of Classic or any Guarantor permitted to be
incurred under the terms of the indenture (which Indebtedness includes
interest, whether or not allowable, accruing after the filing of a petition
initiating any proceeding under any state, federal or
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foreign bankruptcy law), unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the notes or any Subsidiary Guarantee;
and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or
owing by Classic;
(2) any Indebtedness of Classic to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of
the indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the closing of this offering.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholders' Agreement" means the agreement by and between Brera Classic,
L.L.C., CCI, BT Capital Partners, Inc., Austin Ventures, L.P., BA SBIC
Management, L.L.C., as the successor in interest to NationsBanc Capital Corp.,
J. Merritt Belisle, Steven E. Seach and certain other stockholders of CCI, dated
as of the date of the consummation of the Private Equity Sale.
"Strategic Equity Investment" means an investment in CCI or Classic 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 $1.0 billion
or, if not a public company, had total revenues of more than $1.0 billion during
its previous fiscal year.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Treasury Rate" means, as of any redemption date, the yield to maturity as
of such redemption date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to March 1, 2005; provided,
however, that if the period from the redemption date to March 1, 2005 is less
than one year, the weekly average
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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 Classic (or any successor
to any of them) that is designated by the board of directors as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Classic or any Restricted Subsidiary of Classic unless
the terms of any such agreement, contract, arrangement or understanding are
no less favorable to Classic or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of
Classic;
(3) is a Person with respect to which neither Classic nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Classic or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a
director or executive officer of Classic or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director
or executive officer of Classic or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of Classic as an Unrestricted Subsidiary
shall be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of Classic as of such date and,
if such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," Classic shall be in default of
such covenant. The board of directors of Classic may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Classic of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the three-month reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the board of
directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any specified Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person or by such Person and one or more Wholly
Owned Restricted Subsidiaries of such Person.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This is a general discussion of certain United States federal tax
consequences associated with the exchange of the old notes for the exchange
notes pursuant to the exchange offer. This summary applies only to a holder of
an exchange note who acquired an old note at the initial offering from Goldman
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase
Securities Inc. or Donaldson, Lufkin & Jenrette Securities Corporation for the
original offering price thereof and who acquires the exchange notes pursuant to
the exchange offer and we assume in this discussion that you will hold the
exchange notes as a capital asset (generally, property held for investment). We
do not discuss all aspects of U.S. federal taxation that may be important to you
in light of your individual investment circumstances, such as special tax rules
that would apply to you, for example, if you are a dealer in securities,
financial institution, bank, insurance company, tax-exempt organization or
partnership. Our discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, Treasury regulations, judicial opinions,
published positions of the U.S. Internal Revenue Service and other applicable
authorities, all as in effect on the date of this prospectus and all of which
are subject to differing interpretations or change, possibly with retroactive
effect. We have not sought, and will not seek, any ruling from the IRS with
respect to the tax consequences discussed in this prospectus, and there can be
no assurance that the IRS will not take a position contrary to the tax
consequences discussed below or that any position taken by the IRS would not be
sustained. We urge you to consult your tax advisor about the U.S. federal tax
consequences of acquiring, holding, and disposing of our notes, as well as any
tax consequences that may arise under the laws of any foreign, state, local, or
other taxing jurisdiction.
The exchange of old notes for exchange notes pursuant to the exchange offer
should not constitute a taxable exchange for U.S. federal income tax purposes.
Accordingly, a U.S. Holder should not recognize gain or loss upon the receipt of
exchange notes pursuant to the exchange offer, and a U.S. holder should be
required to include interest on the exchange notes in gross income in the manner
and to the extent interest income was includible under the old notes. A U.S.
holder's holding period for the exchange notes should include the holding period
of the old notes exchanged therefor, and such holder's adjusted basis in the
exchange notes should be the same as the basis of the old notes exchanged
therefor immediately before the exchange.
The foregoing discussion is included herein for general information only.
Accordingly, each holder should consult with its own tax advisors concerning the
tax consequences of the exchange offer with respect to its particular situation,
including the application and effect of state, local and foreign income and
other tax laws.
PLAN OF DISTRIBUTION
Broker-dealers receiving exchange notes in the exchange offer will be
subject to a prospectus delivery requirement with respect to resales of such
exchange notes. To date, the SEC has taken the position that these
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as the exchange
pursuant to the exchange offer, other than a resale of an unsold allotment from
the sale of the old notes to the initial purchasers, with the prospectus
contained in the exchange offer registration statement. Pursuant to the exchange
and registration rights agreement, Classic has agreed to permit these
broker-dealers to use this prospectus in connection with the resale of such
exchange notes. Classic has agreed that, for a period of 120 days after the
expiration date, it will make this prospectus, and any amendment or supplement
to this prospectus, available to any broker-dealer that requests such documents
in the letter of transmittal.
Each holder of the old notes who wishes to exchange its old notes for
exchange notes in the exchange offer will be required to make certain
representations to Classic as set forth in "The Exchange Offer -- Purpose and
Effect of the Exchange Offer."
139
<PAGE> 144
Each broker-dealer that receives exchange 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 exchange 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 exchange notes received in
exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. Classic has agreed that,
for a period of 120 days after the consummation of the exchange offer, it will
use its commercially reasonable efforts to make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
Classic will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange 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 exchange 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 at 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 exchange notes. Any broker-dealer
that resells exchange 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 exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission 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 consummation of the exchange offer,
Classic 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. Classic 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 the holders of the Securities, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Skadden,
Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois.
EXPERTS
The financial statements of Classic Cable, Inc. as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999 as
well as the financial statements of Star Cable Associates as of December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999, included in this prospectus, have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Buford Group, Inc. and
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
140
<PAGE> 145
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CLASSIC CABLE, INC.
Audited Annual Financial Statements
Report of Independent Accountants...................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................. F-3
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998, and 1997............... F-4
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1999, 1998, and 1997......... F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998, and 1997............... F-6
Notes to Consolidated Financial Statements............. F-7
BUFORD GROUP, INC.
Audited Annual Financial Statements
Independent Auditors' Report........................... F-18
Consolidated Balance Sheets as of December 31, 1998 and
1997.................................................. F-19
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997, and 1996............... F-20
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997, and 1996......... F-21
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996............... F-22
Notes to Consolidated Financial Statements............. F-23
Unaudited Interim Financial Statements
Unaudited Condensed Consolidated Balance Sheet as of
June 30, 1999......................................... F-31
Unaudited Condensed Consolidated Statements of
Operations for the three and six months ended June 30,
1999 and 1998......................................... F-32
Unaudited Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 1999 and
1998.................................................. F-33
Notes to Unaudited Condensed Consolidated Financial
Statements............................................ F-34
STAR CABLE ASSOCIATES
Audited Annual Financial Statements
Report of Independent Accountants...................... F-36
Balance Sheets as of December 31, 1999 and 1998........ F-37
Statements of Operations and Changes in Partners'
Capital (Deficiency) for the years ended December 31,
1999, 1998, and 1997.................................. F-38
Statements of Cash Flows for the years ended December
31, 1999, 1998, and 1997.............................. F-39
Notes to the Financial Statements...................... F-40
</TABLE>
F-1
<PAGE> 146
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Classic Cable, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholder's equity
and cash flows present fairly, in all material respects, the financial position
of Classic Cable, Inc. and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Austin, Texas
February 23, 2000
F-2
<PAGE> 147
CLASSIC CABLE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 85,855 $ 2,779
Accounts receivable, net.................................... 9,803 5,474
Prepaid expenses............................................ 1,131 424
Property, plant and equipment............................... 274,864 127,169
Less accumulated depreciation............................... (60,939) (39,977)
-------- --------
213,925 87,192
Deferred financing costs, net............................... 20,136 6,454
Advances to parent.......................................... 908 357
Intangible assets:
Customer relationships.................................... 156,567 95,180
Franchise marketing rights................................ 158,105 71,464
Noncompete agreements..................................... 25,425 8,425
Goodwill.................................................. 102,261 40,435
Other..................................................... -- 140
-------- --------
442,358 215,644
Less accumulated amortization............................. (96,428) (65,828)
-------- --------
345,930 149,816
-------- --------
Total assets...................................... $677,688 $252,496
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable.......................................... $ 3,254 $ 647
Subscriber deposits and unearned income................... 6,675 4,846
Other accrued expenses.................................... 15,606 7,174
Accrued interest.......................................... 10,676 5,883
Long-term debt, net....................................... 454,332 220,804
Deferred taxes, net....................................... 28,965 --
-------- --------
Total liabilities................................. 519,508 239,354
Stockholder's equity:
Common stock: $.01 par value per share; 1,000 shares
authorized, issued and outstanding..................... -- --
Additional paid-in capital.................................. 267,241 86,142
Accumulated deficit......................................... (109,061) (73,000)
-------- --------
Total stockholder's equity........................ 158,180 13,142
-------- --------
Total liabilities and stockholder's equity........ $677,688 $252,496
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 148
CLASSIC CABLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................. $111,410 $ 69,802 $ 60,995
Operating expenses:
Programming............................................. 29,906 17,840 14,916
Plant and operating..................................... 12,744 8,437 7,622
General and administrative.............................. 17,126 11,295 9,257
Marketing and advertising............................... 1,929 850 438
Corporate overhead...................................... 9,721 3,648 4,322
Depreciation and amortization........................... 51,484 30,531 27,832
-------- -------- --------
Total operating expenses........................ 122,910 72,601 64,387
-------- -------- --------
Loss from operations...................................... (11,500) (2,799) (3,392)
Interest expense.......................................... (31,201) (20,688) (20,759)
Gain on sale of cable system.............................. -- -- 3,644
Write-off of abandoned telephone operations and accrual of
related costs........................................... -- (220) (500)
Other income.............................................. 605 192 71
-------- -------- --------
Loss before income taxes and extraordinary item........... (42,096) (23,515) (20,936)
Income tax benefit........................................ 10,128 2,339 7,149
-------- -------- --------
Loss before extraordinary item............................ (31,968) (21,176) (13,787)
Extraordinary loss on extinguishment of debt, net of taxes
of $2,539 in 1999 and none in 1998...................... (4,093) (5,524) --
-------- -------- --------
Net loss.................................................. $(36,061) $(26,700) $(13,787)
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 149
CLASSIC CABLE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL TOTAL
SHARES PAID-IN ACCUMULATED STOCKHOLDER'S
ISSUED AMOUNT CAPITAL DEFICIT EQUITY
------ ------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996....... 1,000 $-- $ 61,381 $ (32,513) $ 28,868
Dividends on preferred stock..... -- -- (101) -- (101)
Capital contribution from
parent........................ -- -- 1,058 -- 1,058
Net loss......................... -- -- -- (13,787) (13,787)
----- --- -------- --------- --------
Balance at December 31, 1997....... 1,000 -- 62,338 (46,300) 16,038
Dividends on preferred stock..... -- -- (67) -- (67)
Capital contribution from
parent........................ -- -- 23,871 -- 23,871
Net loss......................... -- -- -- (26,700) (26,700)
----- --- -------- --------- --------
Balance at December 31, 1998....... 1,000 -- 86,142 (73,000) 13,142
Capital contribution from
parent........................ -- -- 181,099 -- 181,099
Net loss......................... -- -- -- (36,061) (36,061)
----- --- -------- --------- --------
Balance at December 31, 1999....... 1,000 $-- $267,241 $(109,061) $158,180
===== === ======== ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 150
CLASSIC CABLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................ $ (36,061) $ (26,700) $(13,787)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Provision for doubtful accounts....................... 1,585 971 1,248
Depreciation.......................................... 20,884 12,041 10,285
Amortization of intangibles........................... 30,600 18,352 17,547
Amortization of deferred financing costs.............. 1,273 1,119 1,373
Discount accretion on bank debt....................... 53 227 457
Gain on sales of cable systems........................ -- -- (3,644)
Non-cash compensation................................. 1,920 1,108 1,058
Deferred tax benefit.................................. (10,128) (2,259) (7,404)
Extraordinary loss, net of taxes...................... 4,093 5,524 --
Changes in working capital, net of acquisition
amounts:
Change in accounts receivable...................... (3,005) (1,841) (321)
Change in prepaid and other assets................. (709) (84) 135
Change in other accruals and payables.............. 2,072 1,099 413
Change in accrued interest......................... 4,793 4,439 532
--------- --------- --------
Net cash provided by (used in) operating activities..... 17,370 13,996 7,892
INVESTING ACTIVITIES
Acquisition of cable television systems, net of cash
acquired.............................................. (292,601) (43,486) --
Purchases of property, plant and equipment.............. (32,435) (13,759) (10,135)
Payments for other intangibles.......................... (425) -- (323)
Net proceeds from sale of cable systems................. -- -- 6,189
Net proceeds from litigation settlement................. -- -- 2,928
--------- --------- --------
Net cash provided by (used in) investing activities..... (325,461) (57,245) (1,341)
FINANCING ACTIVITIES
Proceeds from long-term debt............................ 420,500 221,227 759
Repayments of long-term debt............................ (187,385) (190,292) (7,246)
Financing costs......................................... (20,267) (6,928) --
Redemption of preferred stock........................... -- (1,267) --
Cash dividends paid on preferred stock.................. -- (92) (101)
Payment of premium on redeemed notes.................... (860) -- --
Capital contribution from parent........................ 179,179 22,764 --
--------- --------- --------
Net cash provided by (used in) financing activities..... 391,167 45,412 (6,588)
--------- --------- --------
Increase (decrease) in cash and cash equivalents........ 83,076 2,163 (37)
Cash and cash equivalents at beginning of year.......... 2,779 616 653
--------- --------- --------
Cash and cash equivalents at end of year................ $ 85,855 $ 2,779 $ 616
========= ========= ========
Cash taxes paid......................................... $ 87 $ 166 $ 1
Cash interest paid...................................... $ 25,051 $ 15,039 $ 18,397
</TABLE>
See accompanying notes.
F-6
<PAGE> 151
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION
Classic Cable, Inc., through its subsidiaries (collectively, the
"Company"), acquires, develops and operates cable television systems throughout
the United States. The Company is a holding company with no assets or operations
other than its investments in its subsidiaries. The Company is a wholly owned
subsidiary of Classic Communications, Inc. ("CCI").
2. ACQUISITIONS AND DISPOSITIONS OF CABLE TELEVISION SYSTEMS
Acquisitions
In July 1999, the Company acquired Buford Group, Inc., for approximately
$300 million in cash. Buford Group, Inc. operates cable television systems in
four states. The acquisition was financed from a) a $95.7 million capital
contribution from CCI, b) proceeds of the Company's 1999 credit facility and c)
proceeds of the Company's $150 million private debt offering of 9.375% senior
subordinated notes.
In December 1998, the Company acquired certain assets of TCA Cable Partners
in exchange for a cable television system in Texas (with a fair value of
approximately $0.6 million) and cash consideration of $2.4 million.
In July 1998, the Company acquired certain assets of Cable One, Inc.
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 Company's private debt offering of 9.875% senior
subordinated notes.
The above acquisitions were accounted for using the purchase method and,
accordingly, the operating results of the systems acquired have been included in
the Company's consolidated financial statements since the date of acquisition.
The following summarized unaudited pro forma financial information assumes
the above acquisitions, all related financing and changes to our debt structure
had occurred on January 1, 1999 and 1998, respectively. The following pro forma
information is not necessarily indicative of the results that would have
occurred had the transactions been completed at the beginning of the periods
indicated, nor is it indicative of future operating results (in thousands,
except per share data):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $156,311 $149,897
Loss before extraordinary item.............................. (59,893) (45,499)
Net loss.................................................... (63,986) (51,023)
</TABLE>
Dispositions
During 1998, the Company sold or disposed of some smaller systems that did
not fit into the Company's long-term strategic plans.
In April and May 1997, the Company sold certain cable television systems in
Kansas and Oklahoma for $5.7 million, net of selling expenses. The net pretax
gain from the sales was approximately $3.6 million.
F-7
<PAGE> 152
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority-owned subsidiaries. Minority
interests are inconsequential. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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 the service is
performed, 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.
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.................. 3-12 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.
Deferred Financing Costs
Deferred financing costs are being amortized to interest expense using the
interest method over the terms of the related debt.
Intangible Assets
The useful lives of the specific intangible assets are as follows:
<TABLE>
<S> <C>
Customer relationships................................. 5-15 years
Franchise marketing rights............................. 5-10 years
Noncompete agreements.................................. 5 years
Goodwill............................................... 5-40 years
</TABLE>
Intangible assets are being amortized using the straight-line method over
their estimated useful lives. The Buford acquisition increased intangible assets
$226.3 million.
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
F-8
<PAGE> 153
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquired through acquisition to determine whether current events or
circumstances, as defined in Financial Accounting Standards Board ("FASB")
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 assets. Management reviews the valuation and amortization
periods of goodwill on a periodic basis, taking into consideration any events or
circumstances that 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 of goodwill.
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 FASB Statement No.
109, Accounting for Income Taxes, to the Company as if it were a separate
taxpayer. As such, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the tax rates that are expected to be in
effect when the differences are expected to reverse, based upon current laws and
regulations.
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 that 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
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
other accrued liabilities, approximate fair value because of their short
maturities. All bank debt agreements carry variable interest rates and their
carrying value is considered to approximate fair value. The estimated fair value
of the Company's bonds is based on quoted market prices. The carrying amount of
the
F-9
<PAGE> 154
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's bonds was $189.0 million and the fair value was $185.2 million at
December 31, 1999.
The Company utilizes interest rate cap and interest rate swap agreements to
manage interest rate exposures. The principal objective of such agreements is to
minimize the risks and/or costs associated with financial activities. The
Company does not utilize financial instruments for trading or other speculative
purposes. The counterparties to these contractual arrangements are major
financial institutions with which the Company also has other financial
relationships. These counterparties expose the Company to credit loss in the
event of nonperformance. However, the Company does not anticipate nonperformance
by the other parties, and no material loss would be expected from their
nonperformance. The carrying amount of such instruments approximates fair value
at December 31, 1999.
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by FASB Statement No. 137, which
the Company is required to adopt effective January 1, 2001. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the Statement will have a significant effect on earnings or the
financial position of the Company.
Reclassifications
Certain reclassifications have been made in the 1998 financial statements
to conform to the 1999 presentation.
4. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1999 1998
------ ------
<S> <C> <C>
Accounts receivable, trade.................................. $8,435 $5,211
Accounts receivable, other.................................. 1,783 588
Less allowance for doubtful accounts........................ (415) (325)
------ ------
Accounts receivables, net of allowance...................... $9,803 $5,474
====== ======
</TABLE>
The activity in the Company's allowance for doubtful accounts for the
periods ending December 31, 1999, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
FOR THE PERIOD ENDED OF PERIOD EXPENSES ACQUIRED DEDUCTIONS PERIOD
- -------------------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1999............. $325 $1,585 $412 $(1,907) $415
December 31, 1998............. 262 971 -- (908) 325
December 31, 1997............. 513 1,248 -- (1,499) 262
</TABLE>
F-10
<PAGE> 155
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 2,390 $ 1,152
Buildings and improvements.................................. 7,738 3,262
Vehicles.................................................... 9,138 6,061
Cable television distribution systems....................... 236,612 106,373
Office furniture, tools and equipment....................... 12,930 3,858
Construction in progress.................................... 6,056 6,463
-------- --------
274,864 127,169
Less accumulated depreciation............................... (60,939) (39,977)
-------- --------
$213,925 $ 87,192
======== ========
</TABLE>
6. LONG-TERM DEBT
Balances of amounts outstanding under the Company's various debt agreements
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
1999 credit facility
Term loan A............................................... $ 75,000 $ --
Term loan B............................................... 100,000 --
Term loan C............................................... 90,000 --
9.375% senior subordinated notes............................ 150,000 --
9.875% senior subordinated notes............................ 39,005 125,000
Unamortized discount...................................... (151) (563)
1998 credit facility
Term loans................................................ -- 75,000
Revolving loans........................................... -- 20,800
Other....................................................... 478 567
-------- --------
$454,332 $220,804
======== ========
</TABLE>
In July 1999, the Company issued $150 million of 9.375% senior subordinated
notes due 2009. Interest payments on these Notes begin in 2000. Concurrent with
the offering, the Company entered into the 1999 credit facility. The 1999 credit
facility, as amended in November 1999, consists of a $75 million revolving
credit facility, a $75 million term A loan, a $100 million term B loan, and a
$200 million term C loan. Principal payments on the facility commence in 2001
with final maturity in 2008. The Company may be subject to mandatory prepayments
based upon operating results, sales of assets, equity or debt offerings or other
events. 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. At December
31, 1999, the weighted average interest rate of the credit facility was 8.91%.
Proceeds from the 1999 credit facility totaled $265 million and were, in part,
used to pay off the 1998 credit facility. This resulted in a pre-tax
extraordinary loss from the early extinguishment of debt of $2.3 million.
F-11
<PAGE> 156
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the 1999 credit facility, the Company is required to pay
a quarterly commitment fee that can range from 0.375% to 0.500% per annum on the
unused portion of the revolving loan commitment.
Pursuant to the change of control resulting from the July 1999 Brera
investment in CCI, and in accordance with the indentures of the respective note
agreements, the Company offered to redeem all of its outstanding 9.875%
subordinated notes and CCI all of its 13.25% senior discount notes. The Company
redeemed $86 million of the 9.875% senior subordinated notes at 101% of face
value plus accrued interest. This resulted in a pre-tax extraordinary loss from
the early extinguishment of debt of $4.3 million. The Company borrowed $90
million under its 1999 credit facility to repurchase the tendered 2008
subordinated notes and to pay associated fees and expenses incurred as a result
of the change of control offer. None of the 13.25% senior discount notes were
tendered for redemption.
In July 1998, CCI issued $114 million of 13.25% senior discount notes due
2009 and the Company issued $125 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
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 began in 1999. Concurrent with the offering, the Company
entered into the 1998 credit facility. The 1998 credit facility consisted of a
$50 million revolving credit facility and a $75 million term loan facility.
Proceeds from the 1998 credit facility totaled $95.8 million. The proceeds of
these transactions were, in part, used to pay off the 1995 credit facility. This
resulted in an extraordinary loss from the early extinguishment of debt of $5.5
million.
The 1995 credit facility consisted of a $20 million term A loan, a $65
million term B loan and line of credit notes not to exceed $130 million.
Interest was 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 1995 credit
facility was amended in 1997. A fee of approximately $1 million was paid to the
bank equal to 0.5% of the outstanding term loans and line of credit notes. This
amount is included as a component of interest expense in 1997.
The senior discount notes are unsecured and rank without preference with
all existing and future unsecured indebtedness of CCI, and senior to all future
subordinated indebtedness of CCI. The notes are also subordinate to all existing
and future liabilities of the Company and its subsidiaries. The senior
subordinated notes are unsecured and are subordinated to all existing and future
senior indebtedness of the Company. The notes rank without preference with all
existing and future senior subordinated indebtedness of the Company. Both the
senior discount notes and the senior subordinated notes may be redeemed
contingent on certain events and/or the passage of time at the redemption price,
which may include a premium. Restrictive covenants associated with these notes
limit the Company's ability to enter into certain transactions.
The 1999 credit facility is collateralized by essentially all the assets of
the Company. CCI has no operations of its own. Consequently, it will rely on
dividends and cash flow of the Company to meet its debt service obligations. The
terms of the credit facility restrict certain activities of the Company,
including the incurrence of additional indebtedness and the payment of certain
dividends. Accordingly, substantially all the assets and operations of the
Company are restricted as to transfer to CCI and may not be available for
dividends and/or debt service of CCI.
The Company is a holding company with no assets or operations other than
its investments in its subsidiaries. The Company's debt is fully and
unconditionally guaranteed by substantially all
F-12
<PAGE> 157
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company's wholly owned direct and indirect subsidiaries on a joint and
several basis. Other than inconsequential subsidiaries, all of the Company's
subsidiaries are wholly owned. The Company is not presenting separate financial
statements and other disclosures concerning these subsidiaries as management has
determined that such information is not material to investors.
The Company utilizes interest rate cap and interest rate swap agreements to
limit the impact of increases in interest rates on its floating rate debt. The
agreements require premium payments to counterparties based upon a notional
principal amount. At December 31, 1999, an interest rate collar for a notional
amount of $75 million was outstanding. No such agreements were outstanding at
December 31, 1998. The impact of interest rate risk management activities on
income in 1999, 1998 and 1997, and the amount of deferred gains and losses from
interest rate risk management transactions at December 31, 1999 and 1998 were
not material. Interest rate cap agreements entitle the Company to receive from
the counterparties the amounts, if any, by which the selected market interest
rates exceed the strike rates stated in the agreements. Interest rate swap
agreements are used by the Company to change the interest rate of their debt
from variable rate to fixed rate. The swap is a contractual agreement between
the Company and another party to exchange payments periodically over the life of
the agreement based upon the interest rates of the underlying debt over the
period of the agreement. The differential to be paid or received is accrued and
recognized as an adjustment of interest expense related to the debt (the accrual
accounting method). The premium paid for both types of agreements is amortized
to interest expense using the interest method over the life of the agreement.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
2000.................................................... $ 478
2001.................................................... 2,350
2002.................................................... 7,525
2003.................................................... 9,400
2004.................................................... 13,150
Thereafter.............................................. 421,580
--------
454,483
Less discount........................................... (151)
--------
$454,332
========
</TABLE>
In the first quarter of 2000, the Company redeemed certain debt and
restructured its credit facility. See Note 15 -- Subsequent Events.
7. EQUITY
Stock Option Plan
Our employees participate in the Classic Communications 1999 Omnibus Stock
Incentive Plan whereby employees, officers, directors, consultants or advisors
may be granted stock options, stock appreciation rights, restricted stock,
performance shares or preferred stock. Pro forma information regarding the 1999
net loss is required by Financial Accounting Standards Board Statement No. 123,
and has been determined as if we had accounted for our employee stock options
under the fair value method of that Statement. Our 1999 pro forma net
stock-based compensation expense was $2.4 million and the pro forma net loss was
$38.5 million.
F-13
<PAGE> 158
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock
In July 1998, the Company redeemed the outstanding shares of a subsidiary's
preferred stock at a redemption price per share of $100 plus accrued and unpaid
dividends.
8. INCOME TAXES
Significant components of income tax benefit from continuing operations are
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ (80) $ 255
State............................................ -- -- --
-------- ------- -------
Total current............................ -- (80) 255
Deferred:
Federal.......................................... (8,409) (1,876) (6,573)
State............................................ (1,719) (383) (831)
-------- ------- -------
Total deferred........................... (10,128) (2,259) (7,404)
-------- ------- -------
Income tax benefit....................... $(10,128) $(2,339) $(7,149)
======== ======= =======
</TABLE>
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
-------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Tax at U.S. statutory rate............................... (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit...................... (3.7) (3.9) (3.8)
Increase in valuation allowance.......................... 9.2 25.1 --
Other nondeductible items................................ 4.4 2.9 3.7
----- ----- -----
(24.1)% (9.9)% (34.1)%
===== ===== =====
</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
F-14
<PAGE> 159
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for income tax purposes. Significant components of the Company's deferred tax
liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Book over tax basis of depreciable assets................ $ 15,850 $ 698
Book over tax basis of assets that are amortizable for
tax................................................... 40,047 2,056
-------- --------
Total deferred tax liabilities................... 55,897 2,754
Deferred tax assets:
Net operating loss carryforwards:
Restricted............................................ 28,552 4,880
Other................................................. 10,716 12,839
Alternative minimum tax credit carryforwards............. 5,858 166
Other...................................................... 1,353 543
-------- --------
Total deferred tax assets........................ 46,479 18,428
Less valuation allowance................................... (19,547) (15,674)
-------- --------
Net deferred tax assets.......................... 26,932 2,754
-------- --------
Net deferred tax liabilities..................... $ 28,965 $ --
======== ========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards of
$102.5 million for federal income tax purposes, which begin to expire in 2002 if
not utilized. Approximately $74.6 million of the loss carryforwards is subject
to various limitations under the Internal Revenue Code (including limitations of
Section 382 of the Internal Revenue Code), which could result in expiration of
the loss carryforward before utilization.
During 1999, the Company recorded a net deferred tax liability of $41.6
million and a corresponding increase to goodwill related to the acquisition of
Buford Group, Inc.
Approximately $7.6 million of the total valuation allowance as of December
31, 1999 was previously 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.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution pension plan, a 401(k) plan.
Participation in this plan is available to substantially all employees.
Employees may contribute up to 15% of their pay. The Company may match employee
contributions for an amount up to 6% of each employee's base salary. Costs of
the plan, including the Company's matching contributions, were $269,000,
$149,000 and $114,000 for the years ended December 31, 1999, 1998 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
F-15
<PAGE> 160
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection therewith, the Company recorded a $2,994,000 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.
In November 1998, the Company settled certain litigation related to these
transactions. Terms of the settlement included the sale of certain cable
television systems in Kansas, the granting of a five year right of first refusal
for the sale of certain other cable television systems in Kansas, and a five
year non-competition agreement. In addition, the Company received cash
consideration of $348,000 in 1999 in connection with the settlement. The
settlement resulted in a loss of approximately $220,000.
11. SETTLEMENT OF CLAIMS
In February 1998, CCI settled claims that arose in conjunction with divorce
proceedings of an officer of CCI. CCI purchased certain of its stock in which
the officer's wife held a community property interest and provided monetary
consideration for the release of the claims. The related expenses, including
legal, consultant and other fees of approximately $1,411,000 are included in
corporate overhead expenses in 1997.
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. The net proceeds of $3
million were recorded as a reduction of goodwill.
12. COMMITMENTS AND CONTINGENCIES
Obligations of Parent
The Company's parent, CCI, has certain obligations that would require
resources of the Company if CCI were to satisfy these obligations. At December
31, 1999, these obligations primarily consisted of the $114.0 million of 13.25%
Senior Discount Notes issued in July 1998. These notes were redeemed in January
2000. CCI used proceeds of its initial public offering of common stock to pay
off this debt.
Standby Letters of Credit
The Company had outstanding at December 31, 1999, $3 million in standby
letters of credit maturing through August 2000.
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, 1999, future minimum lease payments were $470,000 in 2000, $370,000
in 2001, $290,000 in 2002, $250,000 in 2003, $190,000 in 2004 and $480,000
thereafter. Rent expense was $2,230,000, $1,285,000 and $1,160,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
F-16
<PAGE> 161
CLASSIC CABLE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
The Company is involved in various legal proceedings that 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, results of
operations or cash flows of the Company.
13. RELATED PARTY TRANSACTIONS
In accordance with various provisions of executive management's employment
agreements, the Company made payments totaling approximately $5 million in
relation to the Buford acquisition and change of control that resulted from the
Brera equity investment. All payments to management were treated as a current
period cost in the third quarter of 1999.
In connection with the Buford acquisition, CCI paid a transaction fee of
$300,000 to The Austin Advisory, a financial consulting firm in which a former
member of executive management is a principal.
In July 1998, CCI paid all outstanding principal and accrued interest
balances on various subordinated debt agreements held by affiliates of CCI. The
debt bore interest at 7.5% and 15% and the amount paid was $397,000 and
$4,061,000, respectively.
14. QUARTERLY FINANCIAL SUMMARY
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
1999
Revenues..................................... $19,576 $19,710 $ 33,105 $39,019
Operating loss............................... (893) (677) (7,021) (2,909)
Net loss before extraordinary item*.......... (6,186) (6,044) (17,511) (2,227)
Net loss*.................................... (6,186) (6,044) (24,143) 312
1998
Revenues..................................... 16,072 16,142 18,190 19,398
Operating loss............................... (547) (446) (720) (1,086)
Net loss before extraordinary item........... (4,725) (5,056) (5,131) (6,264)
Net loss..................................... (4,725) (5,056) (10,655) (6,264)
</TABLE>
- ---------------
* Includes a fourth quarter adjustment of $9.4 million related to the income
tax benefit in the third quarter due to a change in the estimate related to
the purchase accounting of the Buford acquisition.
15. SUBSEQUENT EVENTS
In February 2000, the Company acquired certain assets of Star Cable
Associates ("Star") serving communities in three states for approximately $110
million in cash and 555,555 shares of CCI Class A voting common stock. The
purchase was financed from proceeds of the Company's $225 million private debt
offering of 10.5% senior subordinated notes and available cash. In addition, the
Company utilized proceeds to pay down the 1999 credit facility by $100 million
and to redeem $33 million of its 9.875% senior subordinated notes. The 1999
credit facility was further amended to (a) allow for the Star acquisition, (b)
modify some of the covenants in the credit facility, (c) restructure the term
loan A to allow the Company to reborrow against it through February 2001,
subject to certain conditions, and (d) increase the term loan A facility $25
million. The extraordinary loss from these transactions was $8.5 million.
F-17
<PAGE> 162
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Buford Group, Inc.:
We have audited the accompanying consolidated balance sheets of Buford
Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Buford
Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
March 5, 1999
F-18
<PAGE> 163
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents................................... $ 7,903 $ 7,890
Accounts receivable, net.................................... 2,878 2,514
Prepaid expenses............................................ 166 342
Property, plant and equipment............................... 200,727 166,886
Less accumulated depreciation and amortization.............. (87,483) (71,198)
-------- --------
113,244 95,688
Intangible assets:
Franchise rights.......................................... 54,417 35,767
Noncompetition agreements................................. 7,434 7,434
Excess cost over net assets of acquired companies......... 2,114 2,114
Other..................................................... 2,116 2,031
-------- --------
66,081 47,346
Less accumulated amortization............................. (16,705) (12,001)
-------- --------
49,376 35,345
Other assets................................................ 2,386 2,153
-------- --------
$175,953 $143,932
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 1,033 $ 1,209
Deposits and unearned revenues.............................. 2,234 1,984
Accrued expenses............................................ 8,642 7,052
Long-term obligations....................................... 118,000 85,000
Deferred federal income taxes............................... 1,238 1,763
-------- --------
Total liabilities...................................... 131,147 97,008
-------- --------
Stockholders' equity:
Common stock, $1 par value. Authorized 2,000 shares;
issued and outstanding 1,000 shares.................... 1 1
Additional capital........................................ 14,833 6,945
Retained earnings......................................... 29,972 39,978
-------- --------
Total stockholders' equity............................. 44,806 46,924
Commitments and contingencies...............................
-------- --------
$175,953 $143,932
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 164
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cable television revenues.................................. $ 70,475 $58,136 $49,561
Operating expenses:
Programming.............................................. 18,339 14,349 11,596
Plant and operating...................................... 6,937 6,567 5,705
General and administrative............................... 16,183 14,910 12,557
Marketing and advertising................................ 345 174 176
Corporate overhead....................................... 9,364 4,858 2,898
Depreciation and amortization............................ 21,399 17,753 17,175
-------- ------- -------
72,567 58,611 50,107
-------- ------- -------
Operating loss........................................ (2,092) (475) (546)
-------- ------- -------
Other income (expense):
Interest expense......................................... (7,919) (5,787) (5,345)
Interest income.......................................... 307 324 521
Gain (loss) on sales of assets........................... (165) 829 5,655
Other, net............................................... (363) (294) (414)
-------- ------- -------
(8,140) (4,928) 417
-------- ------- -------
Loss before income taxes.............................. (10,232) (5,403) (129)
Income tax benefit (expense)............................... 226 315 (94)
-------- ------- -------
Net loss.............................................. $(10,006) $(5,088) $ (223)
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 165
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.......... $1 $ 1,968 $45,289 $ 47,258
Employee stock appreciation........... -- 1,458 -- 1,458
Net loss.............................. -- -- (223) (223)
-- ------- -------- --------
Balance at December 31, 1996.......... 1 3,426 45,066 48,493
Employee stock appreciation........... -- 3,519 -- 3,519
Net loss.............................. -- -- (5,088) (5,088)
-- ------- -------- --------
Balance at December 31, 1997.......... 1 6,945 39,978 46,924
Employee stock appreciation........... -- 7,888 -- 7,888
Net loss.............................. -- -- (10,006) (10,006)
-- ------- -------- --------
Balance at December 31, 1998.......... $1 $14,833 $29,972 $ 44,806
== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 166
BUFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(10,006) $ (5,088) $ (223)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization...................... 21,399 17,753 17,175
Non-cash interest expense.......................... 171 168 --
(Gain) loss on sales of assets..................... 165 (829) (5,655)
Employee stock appreciation expense................ 7,888 3,519 1,458
Deferred federal income tax expense (benefit)...... (525) (449) 94
Changes in assets and liabilities, excluding
acquisitions and dispositions:
Accounts receivable........................... (364) (1,031) 484
Prepaid expenses.............................. 176 (30) (47)
Federal income taxes receivable............... -- -- 1,040
Accounts payable and accrued expenses......... 1,414 1,908 (522)
Deposits and unearned revenue................. 250 1,418 79
Other......................................... (234) (467) (255)
-------- -------- --------
Net cash provided by operating activities..... 20,334 16,872 13,628
-------- -------- --------
Cash flows from investing activities:
Acquisitions of cable systems........................... (29,900) (17,771) (18,350)
Additions to property, plant and equipment.............. (20,469) (22,042) (15,593)
Additions to intangible assets.......................... (3,139) (1,098) --
Net proceeds from sale of assets........................ 357 -- --
Net proceeds from disposition of cable systems.......... -- 1,228 13,654
-------- -------- --------
Net cash used in investing activities......... (53,151) (39,683) (20,289)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term obligations..................... 33,000 25,000 4,260
Payments of long-term obligations....................... -- (53) (14,850)
Payment of debt issuance costs.......................... (170) -- (337)
-------- -------- --------
Net cash provided by (used in) financing
activities................................. 32,830 24,947 (10,927)
Net increase (decrease) in cash and cash equivalents...... 13 2,136 (17,588)
Cash and cash equivalents at beginning of year............ 7,890 5,754 23,342
-------- -------- --------
Cash and cash equivalents at end of year.................. $ 7,903 $ 7,890 $ 5,754
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 167
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
Buford Group, Inc. and subsidiaries (the "Company") are engaged in cable
television operations within the United States. The Company owns and operates
cable television systems primarily in Texas, Louisiana, Arkansas, and Missouri.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Buford Group,
Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
During 1998, the Company purchased the remaining 76.8% of Friendship Cable,
Ltd. ("FCL"), a Texas limited partnership in which the Company had held a 1%
general partner interest and limited partner interests aggregating 22.2%. The
accounts of FCL for 1998 and 1997 are consolidated because the Company, as
general partner, is required to fund deficits incurred during the period from
inception to January 1, 2000, and certain shareholders of the Company controlled
the limited partner interests of FCL through the date of the Company's
acquisition of the remaining interests. In prior years, allocated net losses to
the limited partners had reduced their capital accounts to zero.
(c) REVENUE RECOGNITION
Revenues from basic and premium services are recognized when the related
services are provided.
Installation revenues are recognized to the extent of direct selling costs
incurred. The remainder, if any, is deferred and amortized to income over the
estimated average period that customers are expected to remain connected to the
cable television system.
(d) STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
The Company uses the indirect method to present cash flows from operating
activities. Supplemental disclosures of cash flow information follow:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest paid............................................. $7,593,000 $4,588,000
========== ==========
Income taxes paid......................................... $ 250,000 $ 59,000
========== ==========
</TABLE>
(e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost, including all direct
cost and certain indirect costs of construction of cable television transmission
and distribution systems, and the cost of new customer installations.
Maintenance and repairs are charged to expense as incurred and equipment
replacements and betterments are capitalized. The Company charges
F-23
<PAGE> 168
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation to operations on a straight-line basis over the estimated useful
lives of the related property and equipment as follows:
<TABLE>
<S> <C>
Cable distribution equipment......................... 3 - 12 years
Furniture, fixtures, automobiles and other........... 3 - 12 years
Buildings and improvements........................... 5 - 20 years
</TABLE>
(f) INTANGIBLE ASSETS
The excess cost over net identifiable tangible and intangible assets of
acquired companies is being amortized on a straight-line basis over the
estimated economic lives of 40 years. Franchise rights purchased in connection
with cable television operations are being amortized on a straight-line basis
over 5 to 15 years. The costs of noncompetition agreements are being amortized
on a straight-line basis over the terms of the respective agreements.
The Company assesses the recoverability of intangible assets as well as the
related amortization lives by determining whether the carrying value of the
intangible assets can be recovered over the remaining lives through projected
undiscounted future cash flows. To the extent that such projections indicate
that undiscounted future cash flows are not expected to be adequate to recover
the carrying amounts of the related intangible assets, such carrying amounts are
adjusted for impairment to a level commensurate with the estimated fair value of
the underlying assets.
(g) FEDERAL INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount more likely than not to be realized.
Income tax expense is the total of tax payable for the period and the change
during the period in deferred tax assets and liabilities.
(h) DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Any derivative financial
instruments are used to manage well-defined interest rate risks related to the
Company's outstanding debt.
Any costs of interest rate agreements are initially recognized as assets
and amortized to interest expense over the lives of the agreements using the
interest method. Under all interest rate agreements, the differential to be paid
or received is recognized as an adjustment to interest expense. During the years
ended December 31, 1998, 1997 and 1996, the Company recognized net expenses of
$39,000, $38,000 and $59,000, respectively, under its interest rate agreements
(see note 6).
The carrying amounts of cash equivalents, accounts receivable and accounts
payable reported in the accompanying consolidated financial statements
approximate fair value due to their short maturities. The outstanding borrowings
under the Company's credit agreement (note 6) bear interest at current market
rates, and thus, the carrying amount of debt approximates estimated fair value.
The fair value of the interest rate agreements (note 6) was
F-24
<PAGE> 169
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $(449,000) at December 31, 1998, which represents the estimated
amount, based on dealer quotations, that the Company would pay, excluding
accrued interest, to terminate the contracts at December 31, 1998, taking into
account the current unrealized loss on open contracts.
(i) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(j) COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," in the first
quarter of 1998, which required companies to disclose comprehensive income
separately from net income. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-ownership sources. It includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. The
adoption of this statement had no effect on the Company at December 31, 1998,
because the Company has no elements of other comprehensive income. Accordingly,
comprehensive income and net income are the same amount for each period
presented.
(2) ACQUISITIONS AND DISPOSITIONS
In April 1998, the Company acquired cable systems from three unaffiliated
parties for $29.9 million. In April and May 1997, the Company acquired cable
systems from unaffiliated parties for $17.8 million. During 1996, the Company
acquired cable systems from unaffiliated parties for $18.4 million.
The acquisitions were accounted for as purchases and, accordingly, the
purchase prices were allocated to tangible and intangible assets based on
estimated fair values at the dates of the acquisitions. Operating results of the
acquired systems are included in the accompanying financial statements from the
dates of acquisition. Net assets acquired as a result of these acquisitions
included $15.6 million, $7.4 million and $7.0 million in franchise rights and
$14.3 million, $10.4 million and $11.4 million in property, plant and equipment
during 1998, 1997 and 1996, respectively.
On October 1, 1996, the Company sold all of its cable television systems
operating in North Carolina for a cash purchase price of $11.8 million,
resulting in a gain of $4.7 million. Additionally, on October 1, 1996, the
Company sold cable television system assets of a consolidated partnership
(70%-owned) for a total cash price of $2.1 million, resulting in a gain of
$717,000.
In September 1998, the Company acquired the remaining 76.8% of FCL for $2.8
million. The Company accounted for this transaction as a purchase business
combination, and accordingly, allocated the purchase price to FCL's assets
(primarily intangible assets) based on their estimated fair values.
Unaudited pro forma operating results as though the 1998 and 1997
acquisitions discussed above had occurred on January 1, 1997, with adjustments
to give effect to amortization of
F-25
<PAGE> 170
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
franchises, depreciation of property, plant and equipment, interest expense and
certain other adjustments is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 73,531 $67,354
Operating income (loss)..................................... (1,630) 1,801
Net loss.................................................... (10,177) (4,831)
</TABLE>
(3) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
---- ----
<S> <C> <C>
Accounts receivable, trade.................................. $2,665 $2,417
Accounts receivable, other.................................. 627 554
------ ------
3,292 2,971
Less allowance for doubtful accounts........................ (414) (457)
------ ------
$2,878 $2,514
====== ======
</TABLE>
(4) OTHER ASSETS
The Company is the named beneficiary on life insurance policies for key
management members. The cash surrender value of the policies is recorded net of
policy loans of $5,977,000 and $5,553,000 at December 31, 1998 and 1997,
respectively. The net amounts of $2,153,000 and $1,837,000 at December 31, 1998
and 1997, respectively, are included in other assets in the accompanying
consolidated balance sheets.
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment and accumulated depreciation and
amortization follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Cable distribution equipment................................ $188,264 $155,119
Furniture, fixtures, automobiles and other.................. 8,572 7,520
Buildings, land and improvements............................ 3,891 4,247
-------- --------
200,727 166,886
Less accumulated depreciation and amortization.............. (87,483) (71,198)
-------- --------
Property, plant and equipment, net..................... $113,244 $ 95,688
======== ========
</TABLE>
(6) LONG-TERM OBLIGATIONS
The Company had outstanding borrowings of $118,000,000 and $85,000,000 at
December 31, 1998 and 1997, respectively, under a credit agreement with banks
providing for up to $140,000,000 of borrowings. Borrowings bear interest at the
bank's floating rate, the London
F-26
<PAGE> 171
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interbank Offered Rate ("LIBOR"), or a combination thereof as selected by the
Company, plus a margin dependent on the Company's leverage ratio (as defined in
the credit agreement). The weighted average effective interest rate at December
31, 1998 and 1997 was 6.75%. The Company must pay an annual commitment fee
ranging from .25% to .375% of the unfunded portion of the commitment. Borrowings
under the credit agreement are secured by the common stock of the Company and
its subsidiaries. The credit agreement contains certain provisions which limit
the Company as to additional indebtedness, sales of assets, liens, guarantees,
investments and acquisitions. Additionally, the Company must maintain certain
specified financial ratios.
On April 30, 1998, the bank amended the credit agreement to extend the
final maturity date to June 30, 2005. Beginning September 30, 1999, and
quarterly thereafter through June 30, 2005, the commitment amount is to be
reduced by quarterly amounts ranging from $2,655,000 to $12,685,000.
Additionally, on or before April 30 of each year, commencing April 30, 2000, the
Company is required to make mandatory payments equal to 50% of the excess cash
flow for the previous fiscal year, if any, as defined in the credit agreement.
In accordance with the credit agreement, the Company has interest rate
agreements with various banks to reduce the impact of changes in interest rates.
At December 31, 1998, the Company had three interest rate collar agreements
expiring in May 1999, October 1999 and June 2000 with a bank covering notional
principal amounts of $10,000,000, $10,000,000 and $15,000,000, respectively.
These agreements have maximum cap rates of 8.20%, 7.50% and 6.55%, respectively,
and each has a minimum floor rate of 5.65%. The Company also had an interest
rate swap agreement with a bank covering a notional amount of $25,000,000, with
a fixed rate of 5.73%, which expires in January 2000.
The Company is exposed to credit loss in the event of nonperformance of the
other parties to the above agreements; however, the Company does not anticipate
nonperformance by such counterparties.
As of December 31, 1998, principal payments due on indebtedness in future
years was as follows (in thousands):
<TABLE>
<S> <C>
1999..................................................... $ 5,310
2000..................................................... 10,620
2001..................................................... 15,340
2002..................................................... 18,880
Thereafter............................................... 67,850
</TABLE>
(7) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
---- ----
<S> <C> <C>
Accrued programming......................................... $2,970 $1,312
Accrued property taxes...................................... 1,704 1,389
Accrued payroll and benefits................................ 1,279 1,764
Accrued interest............................................ 514 938
Accrued other............................................... 2,175 1,649
------ ------
$8,642 $7,052
====== ======
</TABLE>
F-27
<PAGE> 172
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1998, 1997
and 1996 includes the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current -- State.......................................... $ 250 $ 134 $--
Current -- Federal........................................ 49 -- --
Deferred -- Federal....................................... (525) (449) 94
----- ----- ---
$(226) $(315) $94
===== ===== ===
</TABLE>
Actual income tax expense (benefit) differs from the "expected" income tax
expense (benefit) (computed by applying the U.S. federal corporate tax rate of
35% to the loss before income taxes) as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed expected tax benefit......................... $(3,581) $(1,891) $ (45)
Change in the valuation allowance..................... 394 328 1
Revision of prior year estimate....................... 299 -- (252)
Employee stock appreciation........................... 2,760 1,231 509
Other................................................. (98) 17 (119)
------- ------- -----
$ (226) $ (315) $ 94
======= ======= =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 are presented as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 8,616 $ 5,992
Alternative minimum tax credit carryforwards.............. 5,692 5,692
Investment in partnerships................................ -- 1,593
Deferred compensation..................................... -- 116
Other..................................................... 968 670
------- -------
Total gross deferred tax assets...................... 15,276 14,063
Less valuation allowance.................................. (4,764) (4,370)
------- -------
Net deferred tax assets.............................. 10,512 9,693
------- -------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation........................................... $11,118 $10,898
Other..................................................... 632 558
------- -------
Total gross deferred tax liabilities................. 11,750 11,456
------- -------
Net deferred tax liability........................... $(1,238) $(1,763)
======= =======
</TABLE>
The net changes in the valuation allowance for 1998, 1997 and 1996 were
increases of $394,000, $328,000, and $1,000, respectively. The Company has
recognized deferred tax assets
F-28
<PAGE> 173
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the extent such assets can be realized through future reversals of existing
temporary differences.
At December 31, 1998, the Company had approximately $24,596,000 of tax net
operating loss carryforwards which expire in years 2007 through 2012. In
addition, the Company had approximately $5,700,000 of alternative minimum tax
credit carryforwards available to reduce future regular federal income taxes
over an indefinite period.
(9) LEASE OBLIGATIONS
Total rental expense for operating leases was $1,427,000, $1,433,000 and
$1,264,000 in 1998, 1997 and 1996, respectively. Included in these amounts are
payments for pole rental agreements amounting to $1,313,000, $1,306,000 and
$1,102,000 in 1998, 1997 and 1996, respectively. Pole rental agreements may be
terminated by either party by written notice ranging up to ninety days. The
remaining operating lease agreements are primarily for office space and annual
minimum aggregate rentals under such leases are not considered material.
(10) EMPLOYEE BENEFIT PLANS
In January 1992, the Company established a savings plan to provide elective
employee and employer contributions under Section 401(k) of the Internal Revenue
Code. Under the terms of the plan, the Company may make voluntary contributions
to the plan matching employee contributions in percentages and discretionary
amounts as determined by the Board of Directors. The Company made matching and
discretionary contributions to the plan of $423,000, $459,000 and $397,000 in
1998, 1997 and 1996, respectively.
Under the terms of the Buford Television Partnership Agreement (the
"Agreement") effective January 1, 1994, a new partnership, Buford Television
Partnership ("BTP"), was formed to hold the outstanding shares of the Company.
Under the terms of this Agreement, the stockholders on January 1, 1994
contributed 100% of their shares to the Partnership. Key employees were granted
12% ownership of future appreciation in the market value of the Company's common
stock, as defined in the Agreement, through appreciation percentages. These
appreciation percentages have none of the rights associated with ownership of
the common stock of the Company, such as voting or dividend rights, and will
have no value outside the context of the Agreement. However, the partners of
BTP, which include the key employees, have voting rights in the management of
BTP, the purpose of which is to acquire, manage, vote, pledge, hold and dispose
of the Company's stock and to perform all duties necessary to accomplish the
purposes of BTP. On December 1, 1997, the Agreement was amended whereby 620
shares of the Company's common stock were withdrawn from BTP by the principal
stockholders, leaving BTP with 380 shares of the Company's common stock, or 38%
ownership. However, the aforementioned key employees still retain 12% ownership
of the future appreciation in the market value of 100% of the Company's common
stock. Participants have vested 20% each year in the accumulated value of their
appreciation percentages, and became fully vested as of December 31, 1998. The
Company records expense for the accumulated value of the common stock
appreciation based on vesting criteria over the five year vesting period, and
subsequently, will continue to record expense based on the fully vested status
of the key employees and changes in fair value of the Company's common stock.
For the years ended December 31, 1998, 1997 and 1996, the Company recognized
$7,888,000, $3,519,000 and $1,458,000, respectively, in expense related to the
Agreement. The cumulative amount recorded pursuant to this agreement was
$14,833,000 as of December 31, 1998.
F-29
<PAGE> 174
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has agreements with several employees that provide for amounts
to be paid to such employees in the event of a sale of certain cable systems'
assets. The amounts to be paid are based on several factors, including
historical cash flow. No amounts have been recorded related to these agreements
as the Company has not consummated a sale of any of the cable systems' assets
covered by these agreements.
(11) CONTINGENCIES
In October 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act"). During May 1993, pursuant to
authority granted to it under the 1992 Cable Act, the Federal Communications
Commission ("FCC") issued its rate regulation rules which became effective
September 1, 1993. These rate regulation rules required cable systems in
franchised areas serving at least 1,000 customers, which receive certification
and are not subject to effective competition, as defined, to set rates for basic
and cable programming services, as well as related equipment and installations,
pursuant to general cost-of-service standards or FCC prescribed benchmarks. The
Act also entailed quality service criteria and must carry/retransmission
requirements.
On February 1, 1996, Congress passed The Telecommunications Act of 1996
(the "1996 Act") which was signed into law on February 6, 1996. This new law
altered federal, state and local laws and regulations for telecommunications
providers and services, including the Company. Several aspects of the 1996 Act
impact cable television, including the elimination of regulation of the cable
programming service tier for certain smaller cable providers, including the
Company.
The Company believes that it has complied with all provisions of the 1992
Cable Act and the 1996 Act including the rate setting provisions promulgated by
the FCC.
(12) SUBSEQUENT EVENT (UNAUDITED)
In May 1999, the Company and its stockholders entered into an agreement to
sell all of the common stock of the Company to Classic Cable, Inc. for
approximately $302.3 million.
F-30
<PAGE> 175
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 2,890
Accounts receivable, net of allowance for doubtful accounts
of $398................................................... 2,846
Prepaid expenses............................................ 484
Property, plant and equipment............................... 208,268
Less accumulated depreciation and amortization.............. (96,913)
--------
111,355
Intangible assets:
Franchise rights....................................... 54,417
Noncompetition agreements.............................. 7,434
Excess cost over net assets of acquired companies...... 2,114
Other.................................................. 1,089
--------
65,054
Less accumulated amortization.......................... (18,613)
--------
46,441
Other assets................................................ 2,586
--------
$166,602
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 491
Deposits and unearned revenues.............................. 2,341
Accrued expenses............................................ 7,073
Long-term obligations....................................... 112,000
Deferred federal income taxes............................... 976
--------
Total liabilities................................. 122,881
--------
Stockholders' equity:
Common stock, $1 par value. Authorized 2,000 shares;
issued and outstanding 1,000 shares................... 1
Additional capital..................................... 14,058
Retained earnings...................................... 29,662
--------
Total stockholders' equity........................ 43,721
Commitments and contingencies...............................
--------
$166,602
========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-31
<PAGE> 176
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cable television revenues........................... $19,537 $17,680 $38,398 $32,943
------- ------- ------- -------
Operating expenses:
Programming....................................... 5,213 4,657 10,430 8,762
Plant and operating............................... 1,683 1,688 3,377 3,345
General and administrative........................ 4,301 4,239 8,461 7,936
Marketing and advertising......................... 128 57 237 150
Corporate overhead................................ (430) 2,250 (72) 4,354
Depreciation and amortization..................... 6,378 5,267 12,105 10,137
------- ------- ------- -------
17,273 18,158 34,538 34,684
------- ------- ------- -------
Operating income (loss)........................ 2,264 (478) 3,860 (1,741)
------- ------- ------- -------
Other income (expense):
Interest expense.................................. (2,001) (2,089) (4,095) (3,681)
Interest income................................... 74 90 166 172
Other, net........................................ (175) (77) (244) (99)
------- ------- ------- -------
(2,102) (2,076) (4,173) (3,608)
------- ------- ------- -------
Loss before income taxes and cumulative effect
of change in accounting principle............ 162 (2,554) (313) (5,349)
Income tax benefit (expense)........................ 123 131 210 (25)
------- ------- ------- -------
Loss before cumulative effect of change in
accounting principle......................... 285 (2,423) (103) (5,374)
Cumulative effect of change in accounting principle,
net of income tax benefit of $52.................. -- -- 207 --
------- ------- ------- -------
Net loss....................................... 285 $(2,423) $ (310) $(5,374)
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-32
<PAGE> 177
BUFORD GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (310) $ (5,374)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................ 12,105 10,137
Non-cash interest expense............................ 12 42
Employee stock appreciation expense.................. (775) 3,550
Deferred federal income tax benefit.................. (210) (274)
Cumulative effect of change in accounting
principle........................................... 207 --
Changes in assets and liabilities:
Accounts receivable............................... 32 (718)
Prepaid expenses.................................. (318) (188)
Accounts payable and accrued expenses............. (2,111) 1,272
Deposits and unearned revenues.................... 107 201
Other............................................. (212) (178)
------- --------
Net cash provided by operating activities......... 8,527 8,470
------- --------
Cash flows from investing activities:
Additions to property, plant and equipment................ (7,540) (10,980)
Acquisition of cable systems.............................. -- (29,900)
Other..................................................... -- (89)
------- --------
Net cash used in investing activities............. (7,540) (40,969)
------- --------
Cash flows from financing activities:
Proceeds from long-term obligations....................... -- 30,000
Payments of long-term obligations......................... (6,000) --
------- --------
Net cash provided by (used in) financing
activities...................................... (6,000) 30,000
------- --------
Net decrease in cash and cash equivalents................... (5,013) (2,499)
Cash and cash equivalents at beginning of period............ 7,903 7,890
------- --------
Cash and cash equivalents at end of period.................. $ 2,890 $ 5,391
======= ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-33
<PAGE> 178
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(1) GENERAL AND BASIS OF PRESENTATION
(a) ORGANIZATION
Buford Group, Inc. and subsidiaries are engaged in cable television
operations within the United States. The Company owns and operates cable
television systems primarily in Texas, Louisiana, Arkansas, and Missouri.
(b) PRINCIPLES OF CONSOLIDATION
The unaudited condensed consolidated financial statements include the
accounts of Buford Group, Inc. and its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
(c) INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Company contain all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's financial position as of June 30, 1999, and the results of
operations and cash flows for the three and six months ended June 30, 1999 and
1998. These results are not necessarily indicative of the results to be expected
for the full fiscal year.
(d) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(e) COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," in the first
quarter of 1998, which required companies to disclose comprehensive income
separately from net income. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances from
non-ownership sources. It includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. The
adoption of this statement had no effect on the Company at December 31, 1998,
because the Company has no elements of other comprehensive income. Accordingly,
comprehensive income and net income are the same amount for each period
presented.
(2) RECENT ACCOUNTING PRONOUNCEMENT
The Company adopted the provisions of Statement of Position 98-5 ("SOP
98-5"), "Reporting on the Costs of Start-up Activities," effective as of January
1, 1999. This pronouncement requires that costs of start-up activities,
including organizational costs, should be expensed as incurred. As a result of
adopting SOP 98-5, the Company recorded a charge of $259,000, less tax benefit
of $52,000, as the cumulative effect of recording the change in accounting
principle as of January 1, 1999.
F-34
<PAGE> 179
BUFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
(3) CONTINGENCIES
In October 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act"). During May 1993, pursuant to
authority granted to it under the 1992 Cable Act, the Federal Communications
Commission ("FCC") issued its rate regulation rules which became effective
September 1, 1993. These rate regulation rules required cable systems in
franchised areas serving at least 1,000 customers, which receive certification
and are not subject to effective competition, as defined, to set rates for basic
and cable programming services, as well as related equipment and installations,
pursuant to general cost-of-service standards or FCC prescribed benchmarks. The
Act also entailed quality service criteria and must carry/retransmission
requirements.
On February 1, 1996, Congress passed The Telecommunications Act of 1996
(the "1996 Act") which was signed into law on February 6, 1996. This new law
altered federal, state and local laws and regulations for telecommunications
providers and services, including the Company. Several aspects of the 1996 Act
impact cable television, including the elimination of regulation of the cable
programming service tier for certain smaller cable providers, including the
Company.
The Company believes that it has complied with all provisions of the 1992
Cable Act and the 1996 Act including the rate setting provisions promulgated by
the FCC.
(4) SUBSEQUENT EVENTS
In May 1999, the Company and its shareholders entered into an agreement to
sell the common stock of the Company to Classic Cable, Inc. On July 29, 1999,
the sale was consummated for a total selling price of approximately $297.8
million. In connection with the Buford Television Partnership Agreement (the
"Agreement"), the Buford Television Partnership granted ownership in 12% of
future appreciation in the market value of the Company's common stock, to
certain key employees. At December 31, 1998, the Company had accrued an
estimated liability under this agreement of approximately $14.8 million. The key
employees covered by the Agreement received approximately $14.1 million in
satisfaction of their rights under the agreement at the time of sale.
Accordingly, the Company recorded a credit of approximately $.7 million to
corporate overhead expense during the three months ended June 30, 1999.
Additionally, the Company paid out approximately $2.6 million to certain
employees under separate agreements that provided for payments in the event of
the sale of certain cable systems' assets. The Company has not recognized
expense at June 30, 1999 related to these agreements as such amounts are payable
only upon consummation of a sale of cable system assets and were recognized when
the sale closed.
F-35
<PAGE> 180
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Star Cable Associates
In our opinion, the accompanying balance sheets and the related statements
of operations and changes in partners' capital (deficiency) and of cash flows
present fairly, in all material respects, the financial position of Star Cable
Associates at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 14 to the financial statements, on February 15, 2000,
Classic Communications Inc. completed its purchase of substantially all assets
of the Partnership for approximately $110 million in cash and 555,555 shares of
its Class A common stock.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 29, 2000
F-36
<PAGE> 181
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,873 $ 3,013
Accounts receivable, net (Note 5)......................... 956 871
Construction materials.................................... 349 348
Prepaid expenses and other current assets................. 188 194
-------- --------
Total current assets.............................. 6,366 4,426
Property, plant and equipment, net (Note 6)................. 52,936 50,478
Deferred financing costs, net............................... 390 451
Intangible assets:
Subscriber lists.......................................... 538 538
Franchise rights.......................................... 16,128 8,687
Noncompete agreements..................................... 1,416 1,157
Goodwill.................................................. 9,064 6,585
Other..................................................... 12 41
-------- --------
27,158 17,008
Less accumulated amortization............................. (9,042) (6,818)
-------- --------
18,116 10,190
-------- --------
Total assets...................................... $ 77,808 $ 65,545
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 1,350 $ 1,250
Subscriber deposits and unearned income................... 1,026 1,012
Other accrued liabilities................................. 214 157
Accrued interest payable.................................. 277 228
Deferred compensation..................................... 425 --
Management fees payable (Note 12)......................... 4 120
-------- --------
Total current liabilities......................... 3,296 2,767
Deferred installation revenue............................... 280 235
Accrued interest payable -- subordinated debt............... 143 250
Senior debt (Note 7)........................................ 51,700 39,000
Subordinated debt -- related party (Note 8)................. 38,534 35,245
-------- --------
Total liabilities................................. 93,953 77,497
-------- --------
Commitments and contingencies (Notes 3, 11 and 13)
Partners' capital (deficiency).............................. (16,145) (11,952)
-------- --------
Total liabilities and partners' capital
(deficiency).................................... $ 77,808 $ 65,545
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE> 182
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Revenues.................................................... $ 24,981 $ 18,447 $16,950
-------- -------- -------
Operating expenses:
Programming............................................... 7,407 5,435 5,016
CATV system operating costs............................... 3,707 2,588 2,536
General and administrative................................ 2,444 1,691 1,603
Marketing and advertising................................. 251 230 207
Management fees........................................... 876 644 589
Depreciation and amortization............................. 7,415 5,393 5,122
-------- -------- -------
Total operating expenses.......................... 22,100 15,981 15,073
-------- -------- -------
Income from operations...................................... 2,881 2,466 1,877
-------- -------- -------
Other income (expense):
Interest income........................................... 151 167 192
Interest expense.......................................... (7,183) (5,652) (5,575)
Loss on sale of assets.................................... (42) (1) (5)
-------- -------- -------
(7,074) (5,486) (5,388)
-------- -------- -------
Loss before extraordinary item.............................. (4,193) (3,020) (3,511)
Extraordinary item:
Loss on early extinguishment of debt...................... -- -- (249)
-------- -------- -------
Net loss.......................................... (4,193) (3,020) (3,760)
Partners' capital (deficiency), beginning of year........... (11,952) (8,932) (5,172)
-------- -------- -------
Partners' capital (deficiency), end of year................. $(16,145) $(11,952) $(8,932)
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE> 183
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (4,193) $ (3,020) $ (3,760)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation......................................... 5,191 4,854 4,706
Amortization of intangible assets.................... 2,224 539 416
Amortization of deferred financing costs............. 61 37 49
Accrued interest on subordinated debt -- related
party.............................................. 3,182 3,036 3,552
Extraordinary item -- loss on early extinguishment of
debt............................................... -- -- 249
Loss on sale of assets............................... 42 1 5
Changes in working capital:
Accounts receivable, net............................. (85) (222) 203
Construction materials............................... (1) 52 24
Prepaid expenses and other current assets............ 6 25 36
Accounts payable..................................... 100 136 263
Subscriber deposits and unearned income.............. 14 207 (26)
Other accrued liabilities............................ 57 (120) (47)
Accrued interest payable............................. 49 43 (28)
Management fees payable.............................. (116) 70 4
Deferred installation revenue........................ 45 (43) (111)
Deferred compensation................................ 425 -- --
-------- -------- --------
Net cash provided by operating activities....... 7,001 5,595 5,535
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of CATV systems................................ (14,500) (9,586) --
Capital expenditures.................................... (3,356) (3,612) (2,460)
Proceeds from sale of assets............................ 15 11 10
-------- -------- --------
Net cash used in investing activities........... (17,841) (13,187) (2,450)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility.............. 12,700 39,000 31,200
Repayments of revolving credit facility................. -- (31,200) (24,250)
Repayments of subordinated debt -- Related party........ -- -- (10,650)
Expenditures for deferred financing costs............... -- (239) (257)
-------- -------- --------
Net cash provided by (used in) financing
activities.................................... 12,700 7,561 (3,957)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 1,860 (31) (872)
Cash and cash equivalents, beginning of year.............. 3,013 3,044 3,916
-------- -------- --------
Cash and cash equivalents, end of year.................... $ 4,873 $ 3,013 $ 3,044
======== ======== ========
Supplemental schedule of cash flow information:
Cash interest paid...................................... $ 4,031 $ 2,536 $ 1,928
======== ======== ========
Accrued interest on subordinated debt-related party..... $ 3,182 $ 3,036 $ 3,552
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE> 184
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Star Cable Associates (the Partnership) is a general partnership formed
under the laws of the Commonwealth of Pennsylvania on August 6, 1986 to acquire,
develop and operate community antenna television systems (CATV systems). The
Partnership is governed by the Partnership Agreement and the Pennsylvania
Uniform Partnership Act. The Partnership operates CATV systems in Texas,
Louisiana and Ohio.
Distributions, additional capital contributions and allocations of profits
and losses among the partners are determined in accordance with the provisions
of the Partnership Agreement. The Partnership Agreement also provides the
general partners with the right to acquire each other's respective Partnership
interests under certain conditions.
2. ACQUISITIONS
In November 1998, the Partnership acquired additional CATV systems in
Louisiana from Galaxy Telecom L.P. (the Galaxy acquisition) for approximately
$9,586 in cash, including transaction costs. Based on appraised values,
approximately $2,022 of the purchase price was allocated to tangible assets
(primarily distribution systems) and $7,564 was allocated to intangible assets.
The purchase price was financed from borrowings under the Partnership's senior
revolving credit facility.
In February 1999, the Partnership acquired certain operating assets of a
CATV system from Illini Cablevision of Sabine, Inc., Illini Cablevision of Fort
Polk, Inc. and Cable West of Louisiana, Inc. (the Illini acquisition) for
approximately $15,000 in cash, including transaction costs. Based on appraised
values, approximately $4,952 of the purchase price has been allocated to
tangible assets (primarily distribution systems) and $10,048 has been allocated
to intangible assets. These acquisitions were financed primarily from additional
borrowings of approximately $12,700 under the Partnership's revolving credit
facility.
The above acquisitions were accounted for using the purchase method and,
accordingly, the operating results of the systems acquired have been included in
the Partnership's financial statements since the date of acquisition.
The following summarized unaudited pro forma financial information assumes
the Illini acquisition had occurred on January 1, 1998. 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:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-----------------
1999 1998
------- -------
<S> <C> <C>
Revenues................................................ $25,342 $22,749
Net loss................................................ $(4,086) $(1,815)
</TABLE>
3. CABLE RATE REGULATION
In recent years, the cable television industry has been subject to Federal
Communications Commission (FCC) regulation under the Telecommunications Act of
1996 and, previously, the Cable Television Consumer Protection and Competition
Act of 1992 and related FCC regulations. On April 1, 1999, programming tier
cable television rates were deregulated. Basic rates remain
F-40
<PAGE> 185
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
subject to local rate regulations if the community becomes certified to regulate
through the FCC. The Partnership currently has no communities actively
regulating basic rates.
During the periods the Partnership's cable rates were subject to regulation
under the 1996 Act, the Partnership believes it met the FCC definition for small
system relief from certain of the regulations. During the period its rates were
subject to the 1992 Act, the Partnership generally justified its rates on the
"cost-of-service" basis. In each case, management believes it fairly interpreted
and applied the applicable laws and regulations.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS SEGMENT
The Partnership is primarily engaged in one line of business and has one
industry segment, which is to acquire, develop and operate CATV systems.
REVENUE RECOGNITION
Revenue from cable services includes earned subscriber service revenue and
fees for installations and connections. Subscriber service revenue 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 when the service is performed,
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.
INCOME TAXES
The partners are required to report their respective share of the
Partnership's taxable income or loss in their individual income tax returns and
are personally liable for any related taxes thereon. Accordingly, no provision
for income taxes has been made in the accompanying financial statements of the
Partnership.
The Partnership has not provided unaudited pro forma information as if the
Partnership was a taxable entity, since the Partnership would have no income tax
benefit under the provisions of Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," due to the recognition of a full valuation allowance against the
Partnership's net deferred tax assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and highly liquid
investments with original maturities of 3 months or less.
CONSTRUCTION MATERIALS
Construction materials are carried at cost and represent electronic
components and other materials purchased to maintain or to construct cable
television systems.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost.
F-41
<PAGE> 186
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is computed using the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<S> <C>
Buildings and improvements.............................. 25 years
Cable television distribution systems and plant......... 7-12 years
Equipment............................................... 3-7 years
Transportation vehicles................................. 5 years
Furniture and fixtures.................................. 7 years
</TABLE>
Leasehold improvements are amortized over the shorter of their estimated
life or the period of the related leases.
Initial subscriber costs are capitalized as part of cable television
distribution systems pursuant to industry practice. Costs related to disconnects
and reconnects of customers are expensed as incurred. Maintenance and repair
costs are charged to expense as incurred.
DEFERRED FINANCING COSTS
Deferred financing costs are capitalized and amortized using the interest
method over the term of the related debt.
INTANGIBLE ASSETS
Amounts allocated to specific identifiable intangible assets in connection
with CATV system acquisitions are capitalized and amortized using the
straight-line method over periods ranging as follows:
<TABLE>
<S> <C>
Noncompete agreements................................... 5-15 years
Subscriber lists........................................ 10 years
Franchise rights........................................ 7 years
Goodwill................................................ 20 years
</TABLE>
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 SFAS 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. At this time, future cash inflows exceed future cash
outflows; thus, no impairment loss has been recognized. Management reviews the
valuation and amortization periods of goodwill 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 of goodwill.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Partnership 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.
F-42
<PAGE> 187
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of credit risk with respect to the Partnership receivables are
limited due to the geographic dispersion and large number of customers,
individually small balances, short payment terms and required deposits.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable and other accrued
liabilities approximate fair value because of their short maturities. The fair
value of the Partnership's debt (Notes 7 and 8) approximates the book value due
to the variable interest rates of the debt.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in years
beginning after June 15, 1999. Recently, the FASB delayed the effective date of
this statement for one year through the issuance of SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of SFAS No. 133 and an Amendment of SFAS No. 133." Because of the
Partnership'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 Partnership.
5. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1999 1998
---- ----
<S> <C> <C>
Accounts receivable, subscriber............................. $921 $915
Accounts receivable, related party.......................... 116 10
Less allowance for doubtful accounts........................ (81) (54)
---- ----
Accounts receivable, net.................................... $956 $871
==== ====
</TABLE>
F-43
<PAGE> 188
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Land.................................................. $ 54 $ 54
Buildings and improvements............................ 293 232
Cable television distribution systems................. 57,528 55,269
Towers, head-ends and transmission equipment.......... 11,163 6,648
Transportation vehicles............................... 1,449 1,355
Furniture and fixtures................................ 2,327 1,822
-------- --------
72,814 65,380
Less accumulated depreciation......................... (19,878) (14,902)
-------- --------
$ 52,936 $ 50,478
======== ========
</TABLE>
7. SENIOR DEBT
The Partnership has a revolving credit facility with certain lenders. In
November 1998, in connection with the acquisition of the CATV systems in
Louisiana, the loan agreement was amended to increase the maximum borrowings
under the revolving credit facility from $35 million to $55 million. The
borrowings outstanding under the revolving credit facility totaled $51.7 million
and $39 million at December 31, 1999 and 1998, respectively.
Under the Amended and Restated Loan Agreement, interest accrues at the
option of the Partnership at (1) 0.375% to 1.5% over the bank's prime rate or
(2) 1.375% to 2.5% over the LIBOR rate based on the Partnership's leverage
ratio, as defined in the loan agreement. Based on the option selected, interest
is payable on a quarterly basis for option (1) or at the end of the selected
term (which can range between 1 and 6 months) for option (2). The interest rate
in effect under the revolving credit facility was 8.25% at December 31, 1999 and
ranged from 7.50% to 7.66% as of December 31, 1998. Terms of the loan agreement
provides for fees of .25 percent per annum on the average daily unused balance
of the revolving credit facility.
The loan agreement includes various covenants and restrictions relating to
additional indebtedness, disposition of major assets, capital expenditures,
management fees, and certain operating and financial covenants. The loan
agreement limits Partnership distributions and provides reimbursement to the
bank, under certain circumstances, for any potential reduction in the rate of
return on the bank's capital as a consequence of its obligations under the
agreement. The loan is collateralized by substantially all of the Partnership's
assets.
On February 16, 2000, the outstanding borrowings under the revolving credit
facility totaling approximately $51.7 million were paid off from the proceeds
from the sale of the Company (refer to Note 14).
F-44
<PAGE> 189
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBORDINATED DEBT-RELATED PARTY
Subordinated debt-related party consist of:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1999 1998
------- -------
<S> <C> <C>
Subordinated notes -- principal............................. $27,040 $27,040
Subordinated notes -- accrued interest...................... 11,494 8,205
------- -------
Total............................................. $38,534 $35,245
======= =======
</TABLE>
The Partnership entered into a series of loan agreements with Star Cable
Management, Inc. (SCM), the managing general partner of the Partnership. At
December 31, 1999 and 1998, $27,040 of principal remained outstanding under the
loan agreements. The loans mature on December 31, 2003 and accrue interest at
prime plus 1/2% due monthly. The interest rate in effect at December 31, 1999
and 1998 was 9.00% and 8.25%, respectively.
On February 16, 2000, the outstanding principal and interest balances
totaling approximately $39,132 under the subordinate notes were paid off from
the proceeds from the sale of the Company (refer to Note 14).
9. SELF-INSURED MEDICAL PLAN
The Partnership participates in a self-insured medical plan with certain
related entities. Medical claims are paid by the Partnership for all related
entities that share in the proportional risk of the plan. Claims paid by the
Partnership on behalf of these entities are subsequently reimbursed. Claims paid
relating to the Partnership's employees amounted to approximately $246,000,
$227,000 and $129,000 in 1999, 1998 and 1997, respectively. The Partnership is
liable for each employee's medical expenses up to $32 per year with claims in
excess of $32 reinsured with a third party.
10. DEFINED CONTRIBUTION SAVINGS PLAN
The Partnership has a defined contribution 401(k) plan available to
substantially all employees. Under the plan, the Partnership matches 50% of
eligible employees' annual contributions up to $250 per employee. Partnership
matching contributions to the plan were approximately $9 in 1999, 1998 and 1997,
respectively.
11. DEFERRED COMPENSATION
The Partnership has a Deferred Equity Bonus Plan (the Plan) for certain key
employees providing for the earning of bonuses based on the appreciation in the
market value of the Partnership's various CATV systems from the base year as
defined in the Plan document. The bonus earned vests over a ten-year period from
the date an employee becomes operating manager at a CATV system and is payable
at the time such CATV system is sold. For the year ended December 31, 1999, the
Partnership recognized approximately $425 of expense related to the Plan. No
expense related to the Plan was recognized in 1998 or 1997.
F-45
<PAGE> 190
STAR CABLE ASSOCIATES
(A PENNSYLVANIA GENERAL PARTNERSHIP)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED-PARTY TRANSACTIONS
SCM supervises and manages the operations of the Partnership's CATV systems
and performs certain other duties with respect to the Partnership's operations.
Management fees, as prescribed by the management agreement, are not to exceed
3.5% of the quarterly gross revenues of the Partnership, plus additional amounts
as defined under the terms of the management agreement. SCM is also entitled to
be reimbursed for certain direct costs incurred on behalf of the Partnership.
The management agreement expires on the earlier of January 31, 2001, the date
SCM is no longer a general partner, or (as to any individual CATV system) on the
closing date of the sale of the respective system. Management fees earned by SCM
in 1999, 1998 and 1997 approximated $876, $644 and $589, respectively.
The Partnership pays certain employee wages and benefits, lease and general
and administrative costs on behalf of certain related entities. These costs are
included in other receivables and are subsequently reimbursed by the related
entities. At December 31, 1999 and 1998, such related-party receivables were
approximately $116 and $10, respectively.
13. LEASE COMMITMENTS
The Partnership leases office space and land used in the conduct of its
business under long-term noncancelable operating leases expiring at various
times. In May 1997, the Partnership entered into a 3-year operating lease
renewal with a related entity for its office space. The rental obligation
provides for monthly rentals of approximately $3 over the term of the lease.
Total rent expense for all leases, including cancelable pole use leases, for the
years ended December 31, 1999, 1998 and 1997 was approximately $133, $81 and
$84, respectively.
The following is a schedule of minimum lease payments required under
noncancelable operating leases as of December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
2000........................................................ $ 92
2001........................................................ 45
2002........................................................ 25
2003........................................................ 20
Thereafter.................................................. 16
----
$198
====
</TABLE>
14. SUBSEQUENT EVENT
In February 2000, the management of the Partnership approved the payment of
approximately $255 in bonuses to certain employees.
On February 15, 2000, Classic Communications, Inc. completed its purchase
of substantially all assets of the Partnership for an aggregate purchase price
of approximately $110 million in cash and 555,555 shares of its Class A common
stock.
F-46
<PAGE> 191
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CLASSIC. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CLASSIC SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ 1
Risk Factors........................... 15
Forward-Looking Statements............. 22
Use of Proceeds........................ 23
Capitalization......................... 24
Unaudited Pro Forma Consolidated
Financial Information................ 25
Selected Historical Consolidated
Financial Data -- Classic Cable,
Inc.................................. 33
Selected Historical Consolidated
Financial Data -- Buford Group,
Inc.................................. 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 35
Business............................... 43
Legislation and Regulation............. 57
Management............................. 68
Certain Relationships and Related
Transactions......................... 80
Principal Stockholders................. 82
Description of Other Indebtedness...... 84
The Exchange Offer..................... 89
Description of Notes................... 97
Certain United States Federal Income
Tax Considerations................... 139
Plan of Distribution................... 139
Legal Matters.......................... 140
Experts................................ 140
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
OFFER TO EXCHANGE
ALL OUTSTANDING
10 1/2% SENIOR SUBORDINATED
NOTES DUE 2010
FOR
10 1/2% SENIOR SUBORDINATED
NOTES DUE 2010 OF
[CLASSIC CABLE LOGO]
CLASSIC CABLE, INC.
------------------------
PROSPECTUS
------------------------
MAY 8, 2000
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 192
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> 193
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
1.1* -- Purchase Agreement, dated February 11, 2000, by and among
Classic Cable, Inc. and Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
2.1 (1) -- Securities Purchase Agreement among Classic Cable, Inc.
and Buford Group, Inc. dated as of May 11, 1999
2.2 (2) -- Asset Purchase Agreement, dated as of October 14, 1999,
by and between Star Cable Associates and Universal Cable
Holdings, Inc., and Amendment No. 1 thereto, dated
February 16, 2000
3.1 (3) -- Classic Cable, Inc. Certificate of Incorporation dated
April 29, 1995.
3.2 (4) -- Classic Cable, Inc. Bylaws
3.3 (5) -- Classic Cable Holding, Inc. Certificate of Incorporation
dated December 1, 1996
3.4 (6) -- Classic Cable Holding, Inc. Bylaws
3.5 (7) -- Classic Telephone, Inc. Certificate of Incorporation
dated November 22, 1994
3.6 (8) -- Classic Telephone, Inc. Bylaws
3.7 (9) -- Universal Cable Holdings, Inc. Certificate of
Incorporation dated October 17, 1985, as amended
3.8 (10) -- Universal Cable Holdings, Inc. Bylaws
3.9 (11) -- Universal Cable Communications, Inc. Certificate of
Incorporation dated June 7, 1983, as amended
3.10(12) -- Universal Cable Communications, Inc. Bylaws
3.11(13) -- Universal Cable of Beaver Oklahoma, Inc. Certificate of
Incorporation dated June 4, 1987, as amended
3.12(14) -- Universal Cable of Beaver Oklahoma, Inc. Bylaws
3.13(15) -- Universal Cable Midwest, Inc. Certificate of
Incorporation dated February 22, 1989, as amended
3.14(16) -- Universal Cable Midwest, Inc. Bylaws
3.15(17) -- WT Acquisition Corporation Articles of Incorporation
dated August 14, 1992, as amended
3.16(18) -- WT Acquisition Corporation Bylaws
3.17(19) -- W.K. Communications, Inc. Certificate of Incorporation
dated June 11, 1987, as amended
3.18(20) -- W.K. Communications, Inc. Bylaws
3.19(21) -- Television Enterprises, Inc. Certificate of Incorporation
dated August 12, 1965, as amended
3.20(22) -- Television Enterprises, Inc. Bylaws
3.21(23) -- Black Creek Communications, L.P. Certificate of Limited
Partnership dated May 19, 1998
3.22(24) -- Black Creek Communications, L.P. Limited Partnership
Agreement
3.23(25) -- Black Creek Management, L.L.C. Articles of Organization
dated May 19, 1998
3.24(26) -- Black Creek Management, L.L.C. Regulations
</TABLE>
II-2
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.25(27) -- Friendship Cable of Texas, Inc. Articles of Incorporation
dated July 12, 1988, as amended
3.26(28) -- Friendship Cable of Texas, Inc. Bylaws
3.27(29) -- CallCom 24, Inc. Articles of Incorporation dated June 9,
1998, as amended
3.28(30) -- CallCom 24, Inc. Bylaws
3.29(31) -- Correctional Cable TV, Inc. Articles of Incorporation
dated October 9, 1992.
3.30(32) -- Correctional Cable TV, Inc. Bylaws
3.31(33) -- Friendship Cable of Arkansas, Inc. Articles of
Incorporation dated July 11, 1986, as amended
3.32(34) -- Friendship Cable of Arkansas, Inc. Bylaws
3.33* -- Classic Network Transmission, L.L.C. Certificate of
Formation dated July 21, 1999
3.34* -- Classic Network Transmission, L.L.C. Limited Liability
Company Agreement, dated as of July 21, 1999
4.1 (35) -- 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 (36) -- Form of Global 9 7/8% Senior Subordinated Note due 2008
4.3 (37) -- Registration Rights Agreement, dated as of July 29, 1998,
by and among Classic Cable, Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, and Goldman, Sachs & Co.
4.4 (38) -- First Supplemental Indenture, dated as of July 28, 1999,
between Classic Cable, Inc., as Issuer, the Subsidiary
Guarantors named thereon, as Guarantors, and Chase Bank
of Texas, National Association, as Trustee
4.5 (39) -- Exchange and Registration Rights Agreement, dated July
28, 1999, by and between Classic Cable, Inc. and Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette Securities
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4.6 (40) -- Indenture for $150,000,000 9.375% Senior Subordinated
Notes due 2009, dated as of July 28, 1999 between Classic
Cable, Inc., as Issuer, the Guarantors listed on Schedule
1 thereto, and Chase Bank of Texas, National Association,
as Trustee
4.7 (41) -- Form of Global 9.375% Senior Subordinated Note due 2009
4.8 (42) -- Purchase Agreement, dated July 21, 1999, by and among
Classic Cable, Inc. and Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
4.9* -- Indenture for $225,000,000 10 1/2% Senior Subordinated
Notes due 2010, dated as of February 16, 2000, among
Classic Cable, Inc., as Issuer, and the Subsidiary
Guarantors listed on Schedule 1 thereto, and Chase Bank
of Texas, National Association, as Trustee
4.10* -- Form of Global 10 1/2% Senior Subordinated Note due 2010
4.11* -- Exchange and Registration Rights Agreement, dated as of
February 16, 2000, by and among Classic Cable, Inc.,
Goldman Sachs & Co., Merrill Lynch & Co., Chase
Securities Inc. and Donaldson, Lufkin & Jenrette
4.12(43) -- Registration Rights Agreement dated as July 29, 1998, by
and between Classic Communications, Inc., and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
</TABLE>
II-3
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
4.13(44) -- Shareholder and Registration Rights Agreement, dated as
of July 29, 1998, by and among Classic Communications,
Inc., and Certain Stockholders and Merrill Lynch, Pierce,
Fenner & Smith Incorporated
4.14(45) -- Amended and Restated Registration Rights Agreement dated
as of October 31, 1995, modified by Amendment No. 1
(dated as of October 31, 1995) and Amendment No. 2 (dated
as of December 27, 1995)
4.15(46) -- Amended and Restated Shareholders Agreement dated as of
October 31, 1995, modified by Amendment No. 1 (dated as
of October 31, 1995), Amendment No. 2 (dated as of
December 27, 1995) and Amendment No. 3 (dated as of
December 19, 1997)
4.16(47) -- Amended and Restated Stockholders' Agreement, dated as of
December 13, 1999, by and among Classic Communications,
Inc., Brera Classic, LLC and the additional parties named
therein
4.17(48) -- Amended and Restated Registration Rights Agreement, dated
as of December 13, 1999, by and among Classic
Communications, Inc., Brera Classic, LLC and the
additional parties named therein
5.1 -- Form of opinion of Skadden, Arps, Slate, Meagher & Flom
(Illinois) regarding enforceability and issuance of the
securities, including consent
10.1 (49) -- Employment Agreement dated as of July 29, 1999 by and
between Classic Cable, Inc. and Ronald W. Martin
10.2 (50) -- Employment Agreement dated as of July 29, 1999 by and
between Classic Cable, Inc. and Elizabeth Kay Manigold
10.3 (51) -- Employment Agreement, dated as of July 28, 1999, by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle
10.4 (52) -- Employment Agreement, dated as of July 28, 1999, by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach
10.5 (53) -- Amended and Restated Credit Agreement, dated July 28,
1999, among Classic Cable, Inc., as Borrower, the Lenders
Parties thereto, Goldman Sachs Credit Partners L.P., as
Lead Arranger and Syndication Agent, The Chase Manhattan
Bank, as Documentation Agent and Union Bank of
California, N.A., as Administrative Agent
10.6 (54) -- Facilities Commitment Letter, dated June 24, 1999,
between Classic Cable, Inc. and Goldman Sachs Credit
Partners L.P.
10.7 (55) -- Amendment and Waiver No. 1 to the Amended and Restated
Credit Agreement dated November 15, 1999 among Classic
Cable, Inc., as Borrower, the Lenders Parties thereto,
Goldman Sachs Credit Partners, L.P., as Lead Arranger and
Syndication Agent, and The Chase Manhattan Bank, as
Documentation Agent, and Union Bank of California, N.A.,
as Administrative Agent
10.8 (56) -- Amended and Restated Credit Agreement dated January 31,
2000 among Classic Cable, Inc., as Borrower, the Lenders
Parties thereto, Goldman Sachs Credit Partners, L.P., as
Lead Arranger and Syndication Agent, and The Chase
Manhattan Bank, as Documentation Agent, and Union Bank of
California, N.A., Administrative Agent
10.9 (57) -- Management and Advisory Fee Agreement dated May 24, 1999
10.10(58) -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc.
10.10(b)(58) -- Assignment of Asset Purchase Agreement dated June 19,
1998
10.10(c)(58) -- Amendment No. 1. to Asset Purchase Agreement dated July
15, 1998
</TABLE>
II-4
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.11(59) -- Investment Agreement dated as of May 24, 1999 between
Brera Classic, LLC and Classic Communications, Inc.
10.12(60) -- Classic Communications, Inc. 1999 Omnibus Stock Incentive
Plan
10.13(61) -- 1996 Restricted Stock Award Plan of Classic
Communications, Inc.
10.14(62) -- 1998 Restricted Stock Award Plan of Classic
Communications, Inc.
10.15(63) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between J. Merritt Belisle and Classic
Communications, Inc.
10.16(64) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between Steven E. Seach and Classic Communications,
Inc.
10.17(65) -- Form of Stock Option Agreement relating to August 25,
1999 and December 7, 1999 grants
12.1* -- Statement of Earnings to Fixed Charges
21.1* -- Subsidiaries of Classic Cable, Inc.
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of PricewaterhouseCoopers LLP
23.3 -- Consent of KPMG LLP
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
99.1* -- Form of Transmittal Letter with respect to the Exchange
Offer
99.2* -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer
</TABLE>
- ---------------
* Previously filed
(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(2) Incorporated herein by reference to Exhibit 2 to registrant's Form 8-K
filed on February 29, 2000
(3) Incorporated herein by reference to Exhibit 3.1 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(4) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(5) Incorporated herein by reference to Exhibit 3.3 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(6) Incorporated herein by reference to Exhibit 3.4 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(7) Incorporated herein by reference to Exhibit 3.7 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(8) Incorporated herein by reference to Exhibit 3.8 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(9) Incorporated herein by reference to Exhibit 3.9 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(10) Incorporated herein by reference to Exhibit 3.10 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(11) Incorporated herein by reference to Exhibit 3.11 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
II-5
<PAGE> 197
(12) Incorporated herein by reference to Exhibit 3.12 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(13) Incorporated herein by reference to Exhibit 3.13 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(14) Incorporated herein by reference to Exhibit 3.14 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(15) Incorporated herein by reference to Exhibit 3.15 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(16) Incorporated herein by reference to Exhibit 3.16 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(17) Incorporated herein by reference to Exhibit 3.17 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(18) Incorporated herein by reference to Exhibit 3.18 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(19) Incorporated herein by reference to Exhibit 3.19 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(20) Incorporated herein by reference to Exhibit 3.20 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(21) Incorporated herein by reference to Exhibit 3.21 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(22) Incorporated herein by reference to Exhibit 3.22 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(23) Incorporated herein by reference to Exhibit 3.23 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(24) Incorporated herein by reference to Exhibit 3.24 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(25) Incorporated herein by reference to Exhibit 3.25 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(26) Incorporated herein by reference to Exhibit 3.26 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(27) Incorporated herein by reference to Exhibit 3.29 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(28) Incorporated herein by reference to Exhibit 3.30 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(29) Incorporated herein by reference to Exhibit 3.33 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(30) Incorporated herein by reference to Exhibit 3.34 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(31) Incorporated herein by reference to Exhibit 3.35 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(32) Incorporated herein by reference to Exhibit 3.36 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(33) Incorporated herein by reference to Exhibit 3.37 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(34) Incorporated herein by reference to Exhibit 3.38 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
II-6
<PAGE> 198
(35) Incorporated herein by reference to Exhibit 4.1 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(36) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(37) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(38) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(39) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(40) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(41) Incorporated herein by reference to Exhibit 10.17 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(42) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(43) Incorporated herein by reference to Exhibit 4.3A to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(44) Incorporated herein by reference to Exhibit 4.3B to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(45) Incorporated herein by reference to Exhibit 4.3C to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(46) Incorporated herein by reference to Exhibit 4.3D to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(47) Incorporated herein by reference to Exhibit 4.52 to the registrant's Annual
Report on Form 10-K filed on March 30, 2000
(48) Incorporated herein by reference to Exhibit 4.53 to the registrant's Annual
Report on Form 10-K filed on March 30, 2000
(49) Incorporated herein by reference to Exhibit 10.1 to Classic Communications,
Inc.'s Registration Statement on Form S-1 (Registration No. 333-89295)
(50) Incorporated herein by reference to Exhibit 10.2 to Classic Communications,
Inc.'s Registration Statement on Form S-1 (Registration No. 333-89295)
(51) Incorporated herein by reference to Exhibit 10.3 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(52) Incorporated herein by reference to Exhibit 10.4 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(53) Incorporated herein by reference to Exhibit 10.6 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(54) Incorporated herein by reference to Exhibit 10.7 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(55) Incorporated herein by reference to Exhibit 10.5 to the registrant's Annual
Report on Form 10-K filed on March 30, 2000
(56) Incorporated herein by reference to Exhibit 10.6 to the registrant's Annual
Report on Form 10-K filed on March 30, 2000
(57) Incorporated herein by reference to Exhibit 10.10 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
II-7
<PAGE> 199
(58) Incorporated by reference to Exhibit 10.8 to registrant's Registration
Statement on Form S-4 (Registration No. 333-63643)
(59) Incorporated herein by reference to Exhibit 10.9 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(60) Incorporated by reference to Exhibit 10.5 to Classic Communications, Inc.'s
Annual Report on Form 10-K filed on March 30, 2000
(61) Incorporated by reference to Exhibit 10.9 to Classic Communications, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-63641)
(62) Incorporated by reference to Exhibit 10.10 to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(63) Incorporated by reference to Exhibit 10.10(a) to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(64) Incorporated by reference to Exhibit 10.10(b) to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(65) Incorporated by reference to Exhibit 10.13 to Classic Communications,
Inc.'s Annual Report on Form 10-K filed on March 30, 2000
ITEM 22. UNDERTAKINGS
(a) 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.
(b) 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.
(c) 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, 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.
II-8
<PAGE> 200
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
CLASSIC CABLE, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-9
<PAGE> 201
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
CLASSIC CABLE HOLDING, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-10
<PAGE> 202
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
CLASSIC TELEPHONE, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-11
<PAGE> 203
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
UNIVERSAL CABLE HOLDINGS, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-12
<PAGE> 204
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
UNIVERSAL CABLE COMMUNICATIONS, INC.
By: /s/ STEVEN E. SEACH
-------------------------------------
Steven E. Seach
President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-13
<PAGE> 205
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
UNIVERSAL CABLE
OF BEAVER OKLAHOMA, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-14
<PAGE> 206
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
UNIVERSAL CABLE MIDWEST, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-15
<PAGE> 207
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
WT ACQUISITION CORPORATION
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-16
<PAGE> 208
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
W.K. COMMUNICATIONS, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer May 8, 2000
- ----------------------------------------------------- and Director (Principal
J. Merritt Belisle Executive Officer)
/s/ STEVEN E. SEACH President and Chief May 8, 2000
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-17
<PAGE> 209
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
TELEVISION ENTERPRISES, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer May 8, 2000
- ----------------------------------------------------- and Director (Principal
J. Merritt Belisle Executive Officer)
/s/ STEVEN E. SEACH President and Chief May 8, 2000
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-18
<PAGE> 210
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
BLACK CREEK COMMUNICATIONS, L.P.
BY: BLACK CREEK MANAGEMENT, L.L.C.
Its General Partner
By: /s/ STEVEN E. SEACH
------------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer May 8, 2000
- ----------------------------------------------------- and Director (Principal
J. Merritt Belisle Executive Officer)
/s/ STEVEN E. SEACH President and Chief May 8, 2000
- ----------------------------------------------------- Financial Officer
Steven E. Seach (Principal Financial
Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-19
<PAGE> 211
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
BLACK CREEK MANAGEMENT, L.L.C.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Principal
Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-20
<PAGE> 212
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
FRIENDSHIP CABLE OF TEXAS, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Accounting
Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-21
<PAGE> 213
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
CALLCOM 24, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Accounting
Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-22
<PAGE> 214
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
CORRECTIONAL CABLE TV, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Accounting
Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-23
<PAGE> 215
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
FRIENDSHIP CABLE OF ARKANSAS, INC.
By: /s/ STEVEN E. SEACH
----------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-24
<PAGE> 216
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF AUSTIN, STATE OF TEXAS, ON
THE 8TH DAY OF MAY, 2000.
CLASSIC NETWORK TRANSMISSION, L.L.C.
By: /s/ STEVEN E. SEACH
------------------------------------
Steven E. Seach,
President and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chief Executive Officer and May 8, 2000
- ----------------------------------------------------- Director (Principal Executive
J. Merritt Belisle Officer)
/s/ STEVEN E. SEACH President and Chief Financial May 8, 2000
- ----------------------------------------------------- Officer (Principal Financial
Steven E. Seach Officer and Accounting Officer)
* By: /s/ STEVEN E. SEACH
-----------------------------------------------
Steven E. Seach
</TABLE>
II-25
<PAGE> 217
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
1.1* -- Purchase Agreement, dated February 11, 2000, by and among
Classic Cable, Inc. and Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
2.1 (1) -- Securities Purchase Agreement among Classic Cable, Inc.
and Buford Group, Inc. dated as of May 11, 1999
2.2 (2) -- Asset Purchase Agreement, dated as of October 14, 1999,
by and between Star Cable Associates and Universal Cable
Holdings, Inc., and Amendment No. 1 thereto, dated
February 16, 2000
3.1 (3) -- Classic Cable, Inc. Certificate of Incorporation dated
April 29, 1995.
3.2 (4) -- Classic Cable, Inc. Bylaws
3.3 (5) -- Classic Cable Holding, Inc. Certificate of Incorporation
dated December 1, 1996
3.4 (6) -- Classic Cable Holding, Inc. Bylaws
3.5 (7) -- Classic Telephone, Inc. Certificate of Incorporation
dated November 22, 1994
3.6 (8) -- Classic Telephone, Inc. Bylaws
3.7 (9) -- Universal Cable Holdings, Inc. Certificate of
Incorporation dated October 17, 1985, as amended
3.8 (10) -- Universal Cable Holdings, Inc. Bylaws
3.9 (11) -- Universal Cable Communications, Inc. Certificate of
Incorporation dated June 7, 1983, as amended
3.10(12) -- Universal Cable Communications, Inc. Bylaws
3.11(13) -- Universal Cable of Beaver Oklahoma, Inc. Certificate of
Incorporation dated June 4, 1987, as amended
3.12(14) -- Universal Cable of Beaver Oklahoma, Inc. Bylaws
3.13(15) -- Universal Cable Midwest, Inc. Certificate of
Incorporation dated February 22, 1989, as amended
3.14(16) -- Universal Cable Midwest, Inc. Bylaws
3.15(17) -- WT Acquisition Corporation Articles of Incorporation
dated August 14, 1992, as amended
3.16(18) -- WT Acquisition Corporation Bylaws
3.17(19) -- W.K. Communications, Inc. Certificate of Incorporation
dated June 11, 1987, as amended
3.18(20) -- W.K. Communications, Inc. Bylaws
3.19(21) -- Television Enterprises, Inc. Certificate of Incorporation
dated August 12, 1965, as amended
3.20(22) -- Television Enterprises, Inc. Bylaws
3.21(23) -- Black Creek Communications, L.P. Certificate of Limited
Partnership dated May 19, 1998
3.22(24) -- Black Creek Communications, L.P. Limited Partnership
Agreement
3.23(25) -- Black Creek Management, L.L.C. Articles of Organization
dated May 19, 1998
3.24(26) -- Black Creek Management, L.L.C. Regulations
3.25(27) -- Friendship Cable of Texas, Inc. Articles of Incorporation
dated July 12, 1988, as amended
3.26(28) -- Friendship Cable of Texas, Inc. Bylaws
</TABLE>
<PAGE> 218
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
3.27(29) -- CallCom 24, Inc. Articles of Incorporation dated June 9,
1998, as amended
3.28(30) -- CallCom 24, Inc. Bylaws
3.29(31) -- Correctional Cable TV, Inc. Articles of Incorporation
dated October 9, 1992.
3.30(32) -- Correctional Cable TV, Inc. Bylaws
3.31(33) -- Friendship Cable of Arkansas, Inc. Articles of
Incorporation dated July 11, 1986, as amended
3.32(34) -- Friendship Cable of Arkansas, Inc. Bylaws
3.33* -- Classic Network Transmission, L.L.C. Certificate of
Formation dated July 21, 1999
3.34* -- Classic Network Transmission, L.L.C. Limited Liability
Company Agreement, dated as of July 21, 1999
4.1 (35) -- 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 (36) -- Form of Global 9 7/8% Senior Subordinated Note due 2008
4.3 (37) -- Registration Rights Agreement, dated as of July 29, 1998,
by and among Classic Cable, Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, and Goldman, Sachs & Co.
4.4 (38) -- First Supplemental Indenture, dated as of July 28, 1999,
between Classic Cable, Inc., as Issuer, the Subsidiary
Guarantors named thereon, as Guarantors, and Chase Bank
of Texas, National Association, as Trustee
4.5 (39) -- Exchange and Registration Rights Agreement, dated July
28, 1999, by and between Classic Cable, Inc. and Goldman,
Sachs & Co., Donaldson, Lufkin & Jenrette Securities
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated
4.6 (40) -- Indenture for $150,000,000 9.375% Senior Subordinated
Notes due 2009, dated as of July 28, 1999 between Classic
Cable, Inc., as Issuer, the Guarantors listed on Schedule
1 thereto, and Chase Bank of Texas, National Association,
as Trustee
4.7 (41) -- Form of Global 9.375% Senior Subordinated Note due 2009
4.8 (42) -- Purchase Agreement, dated July 21, 1999, by and among
Classic Cable, Inc. and Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
4.9* -- Indenture for $225,000,000 10 1/2% Senior Subordinated
Notes due 2010, dated as of February 16, 2000, among
Classic Cable, Inc., as Issuer, and the Subsidiary
Guarantors listed on Schedule 1 thereto, and Chase Bank
of Texas, National Association, as Trustee
4.10* -- Form of Global 10 1/2% Senior Subordinated Note due 2010
4.11* -- Exchange and Registration Rights Agreement, dated as of
February 16, 2000, by and among Classic Cable, Inc.,
Goldman Sachs & Co., Merrill Lynch & Co., Chase
Securities Inc. and Donaldson, Lufkin & Jenrette
4.12(43) -- Registration Rights Agreement dated as July 29, 1998, by
and between Classic Communications, Inc., and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
4.13(44) -- Shareholder and Registration Rights Agreement, dated as
of July 29, 1998, by and among Classic Communications,
Inc., and Certain Stockholders and Merrill Lynch, Pierce,
Fenner & Smith Incorporated
</TABLE>
<PAGE> 219
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
4.14(45) -- Amended and Restated Registration Rights Agreement dated
as of October 31, 1995, modified by Amendment No. 1
(dated as of October 31, 1995) and Amendment No. 2 (dated
as of December 27, 1995)
4.15(46) -- Amended and Restated Shareholders Agreement dated as of
October 31, 1995, modified by Amendment No. 1 (dated as
of October 31, 1995), Amendment No. 2 (dated as of
December 27, 1995) and Amendment No. 3 (dated as of
December 19, 1997)
4.16(47) -- Amended and Restated Stockholders' Agreement, dated as of
December 13, 1999, by and among Classic Communications,
Inc., Brera Classic, LLC and the additional parties named
therein
4.17(48) -- Amended and Restated Registration Rights Agreement, dated
as of December 13, 1999, by and among Classic
Communications, Inc., Brera Classic, LLC and the
additional parties named therein
5.1 -- Form of opinion of Skadden, Arps, Slate, Meagher & Flom
(Illinois) regarding enforceability and issuance of the
securities, including consent
10.1 (49) -- Employment Agreement dated as of July 29, 1999 by and
between Classic Cable, Inc. and Ronald W. Martin
10.2 (50) -- Employment Agreement dated as of July 29, 1999 by and
between Classic Cable, Inc. and Elizabeth Kay Manigold
10.3 (51) -- Employment Agreement, dated as of July 28, 1999, by and
between Classic Communications, Inc., Classic Cable, Inc.
and J. Merritt Belisle
10.4 (52) -- Employment Agreement, dated as of July 28, 1999, by and
between Classic Communications, Inc., Classic Cable, Inc.
and Steven E. Seach
10.5 (53) -- Amended and Restated Credit Agreement, dated July 28,
1999, among Classic Cable, Inc., as Borrower, the Lenders
Parties thereto, Goldman Sachs Credit Partners L.P., as
Lead Arranger and Syndication Agent, The Chase Manhattan
Bank, as Documentation Agent and Union Bank of
California, N.A., as Administrative Agent
10.6 (54) -- Facilities Commitment Letter, dated June 24, 1999,
between Classic Cable, Inc. and Goldman Sachs Credit
Partners L.P.
10.7 (55) -- Amendment and Waiver No. 1 to the Amended and Restated
Credit Agreement dated November 15, 1999 among Classic
Cable, Inc., as Borrower, the Lenders Parties thereto,
Goldman Sachs Credit Partners, L.P., as Lead Arranger and
Syndication Agent, and The Chase Manhattan Bank, as
Documentation Agent, and Union Bank of California, N.A.,
as Administrative Agent
10.8 (56) -- Amended and Restated Credit Agreement dated January 31,
2000 among Classic Cable, Inc., as Borrower, the Lenders
Parties thereto, Goldman Sachs Credit Partners, L.P., as
Lead Arranger and Syndication Agent, and The Chase
Manhattan Bank, as Documentation Agent, and Union Bank of
California, N.A., Administrative Agent
10.9 (57) -- Management and Advisory Fee Agreement dated May 24, 1999
10.10(58) -- Asset Purchase Agreement dated May 14, 1998 by and
between Cable One, Inc. and Black Creek Communications,
Inc
10.10(b)(58) -- Assignment of Asset Purchase Agreement dated June 19,
1998
10.10(c)(58) -- Amendment No. 1. to Asset Purchase Agreement dated July
15, 1998
10.11(59) -- Investment Agreement dated as of May 24, 1999 between
Brera Classic, LLC and Classic Communications, Inc.
10.12(60) -- Classic Communications, Inc. 1999 Omnibus Stock Incentive
Plan
10.13(61) -- 1996 Restricted Stock Award Plan of Classic
Communications, Inc.
10.14(62) -- 1998 Restricted Stock Award Plan of Classic
Communications, Inc.
</TABLE>
<PAGE> 220
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.15(63) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between J. Merritt Belisle and Classic
Communications, Inc.
10.16(64) -- Restricted Stock Award Agreement dated July 29, 1998 by
and between Steven E. Seach and Classic Communications,
Inc.
10.17(65) -- Form of Stock Option Agreement relating to August 25,
1999 and December 7, 1999 grants
12.1* -- Statement of Earnings to Fixed Charges
21.1* -- Subsidiaries of Classic Cable, Inc.
23.1 -- Consent of PricewaterhouseCoopers LLP
23.2 -- Consent of PricewaterhouseCoopers LLP
23.3 -- Consent of KPMG LLP
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
99.1* -- Form of Transmittal Letter with respect to the Exchange
Offer
99.2* -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer
</TABLE>
- ---------------
* Previously filed
(1) Incorporated herein by reference to Exhibit 2.1 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(2) Incorporated herein by reference to Exhibit 2 to registrant's Form 8-K
filed on February 29, 2000
(3) Incorporated herein by reference to Exhibit 3.1 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(4) Incorporated herein by reference to Exhibit 3.2 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(5) Incorporated herein by reference to Exhibit 3.3 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(6) Incorporated herein by reference to Exhibit 3.4 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(7) Incorporated herein by reference to Exhibit 3.7 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(8) Incorporated herein by reference to Exhibit 3.8 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(9) Incorporated herein by reference to Exhibit 3.9 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(10) Incorporated herein by reference to Exhibit 3.10 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(11) Incorporated herein by reference to Exhibit 3.11 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(12) Incorporated herein by reference to Exhibit 3.12 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(13) Incorporated herein by reference to Exhibit 3.13 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(14) Incorporated herein by reference to Exhibit 3.14 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
<PAGE> 221
(15) Incorporated herein by reference to Exhibit 3.15 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(16) Incorporated herein by reference to Exhibit 3.16 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(17) Incorporated herein by reference to Exhibit 3.17 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(18) Incorporated herein by reference to Exhibit 3.18 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(19) Incorporated herein by reference to Exhibit 3.19 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(20) Incorporated herein by reference to Exhibit 3.20 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(21) Incorporated herein by reference to Exhibit 3.21 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(22) Incorporated herein by reference to Exhibit 3.22 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(23) Incorporated herein by reference to Exhibit 3.23 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(24) Incorporated herein by reference to Exhibit 3.24 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(25) Incorporated herein by reference to Exhibit 3.25 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(26) Incorporated herein by reference to Exhibit 3.26 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(27) Incorporated herein by reference to Exhibit 3.29 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(28) Incorporated herein by reference to Exhibit 3.30 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(29) Incorporated herein by reference to Exhibit 3.33 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(30) Incorporated herein by reference to Exhibit 3.34 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(31) Incorporated herein by reference to Exhibit 3.35 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(32) Incorporated herein by reference to Exhibit 3.36 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(33) Incorporated herein by reference to Exhibit 3.37 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(34) Incorporated herein by reference to Exhibit 3.38 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(35) Incorporated herein by reference to Exhibit 4.1 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(36) Incorporated herein by reference to Exhibit 4.2 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(37) Incorporated herein by reference to Exhibit 4.3 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(38) Incorporated herein by reference to Exhibit 4.4 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
<PAGE> 222
(39) Incorporated herein by reference to Exhibit 10.15 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(40) Incorporated herein by reference to Exhibit 10.16 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(41) Incorporated herein by reference to Exhibit 10.17 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(42) Incorporated herein by reference to Exhibit 10.14 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(43) Incorporated herein by reference to Exhibit 4.3A to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(44) Incorporated herein by reference to Exhibit 4.3B to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(45) Incorporated herein by reference to Exhibit 4.3C to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(46) Incorporated herein by reference to Exhibit 4.3D to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(47) Incorporated herein by reference to Exhibit 4.52 to the registrant's Annual
Report on Form 10-K filed on March 30, 2000
(48) Incorporated herein by reference to Exhibit 4.53 to the registrant's Annual
Report on Form 10-K filed on March 30, 2000
(49) Incorporated herein by reference to Exhibit 10.1 to Classic Communications,
Inc.'s Registration Statement on Form S-1 (Registration No. 333-89295)
(50) Incorporated herein by reference to Exhibit 10.2 to Classic Communications,
Inc.'s Registration Statement on Form S-1 (Registration No. 333-89295)
(51) Incorporated herein by reference to Exhibit 10.3 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(52) Incorporated herein by reference to Exhibit 10.4 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(53) Incorporated herein by reference to Exhibit 10.6 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(54) Incorporated herein by reference to Exhibit 10.7 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(55) Incorporated herein by reference to Exhibit 10.5 to the registrant's Annual
Report on Form 10-K filed on March 30, 2000
(56) Incorporated herein by reference to Exhibit 10.6 to the registrant's Annual
Report on Form 10-K filed on March 30, 2000
(57) Incorporated herein by reference to Exhibit 10.10 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(58) Incorporated by reference to Exhibit 10.8 to registrant's Registration
Statement on Form S-4 (Registration No. 333-63643)
(59) Incorporated herein by reference to Exhibit 10.9 to the registrant's
Registration Statement on Form S-4 (File No. 333-63643)
(60) Incorporated by reference to Exhibit 10.5 to Classic Communications, Inc.'s
Annual Report on Form 10-K filed on March 30, 2000
(61) Incorporated by reference to Exhibit 10.9 to Classic Communications, Inc.'s
Registration Statement on Form S-4 (Registration No. 333-63641)
(62) Incorporated by reference to Exhibit 10.10 to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
<PAGE> 223
(63) Incorporated by reference to Exhibit 10.10(a) to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(64) Incorporated by reference to Exhibit 10.10(b) to Classic Communications,
Inc.'s Registration Statement on Form S-4 (Registration No. 333-63641)
(65) Incorporated by reference to Exhibit 10.13 to Classic Communications,
Inc.'s Annual Report on Form 10-K filed on March 30, 2000
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)]
May 8, 2000
Classic Cable, Inc.
515 Congress Avenue
Suite 2626
Austin, TX 78701
Re: Classic Cable, Inc.:
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel to Classic Cable, Inc., a Delaware
corporation (the "Company"), in connection with the offering of $225,000,000
aggregate principal amount of the Company's 10 1/2% Senior Subordinated Notes
due 2010 (the "Notes") and related guarantees (the "Guarantees") by its direct
and indirect wholly-owned or majority-owned subsidiaries, Friendship Cable of
Texas, Inc., Correctional Cable TV, Inc., Callcom 24, Inc., Friendship Cable of
Arkansas, Inc., and Television Enterprises, Inc. (collectively, the "Texas
Guarantors"), W.K. Communications, Inc. (the "Kansas Guarantor"), and Classic
Cable Holding, Inc., Classic Telephone, Inc., Universal Cable Holdings, Inc.,
Universal Cable Communications, Inc., Universal Cable of Beaver Oklahoma, Inc.,
Universal Cable Midwest, Inc., WT Acquisition Corporation, Black Creek
Management, L.L.C., Classic Network Transmission, L.L.C. and Black Creek
Communications, L.P. (collectively, the "Delaware Guarantors" and, together with
the Texas Guarantors and the Kansas Guarantor, the "Subsidiary Guarantors"). The
Notes are to be issued pursuant to an exchange offer (the "Exchange Offer") in
exchange for a like principal amount of the outstanding 10 1/2% Senior
Subordinated Notes due 2010 of the Company (the "Old Notes") under the Indenture
(as defined below).
<PAGE> 2
Classic Cable, Inc.
515 Congress Avenue
Suite 2626
Austin, TX 78701
May 8, 2000
Page 2
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In rendering the opinions set forth herein, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of the
following:
(a) the Registration Statement on Form S-4 with respect to the Notes as
filed with the Securities and Exchange Commission (the "Commission")
on April 14, 2000 and any amendments thereto (the "Registration
Statement");
(b) an executed copy of the Indenture, dated as of February 16, 2000 (the
"Indenture"), between the Company, the Subsidiary Guarantors and Chase
Bank of Texas, N.A., as Trustee (the "Trustee");
(c) executed copies of resolutions of the board of directors of the
Company, dated as of February 11, 2000;
(d) the form of the Notes and the Guarantees and specimen certificates
thereof;
(e) the Certificate of Incorporation of the Company, as currently in
effect;
(f) the By-Laws of the Company, as currently in effect;
(g) the Form T-1 of the Trustee filed as an exhibit to the Registration
Statement; and
(h) such other documents as we have deemed necessary or appropriate as a
basis for the opinions set forth below.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to
<PAGE> 3
Classic Cable, Inc.
515 Congress Avenue
Suite 2626
Austin, TX 78701
May 8, 2000
Page 3
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. In making our examination of documents, we have
assumed that the parties thereto (except the Company and the Delaware
Guarantors) had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and the execution and delivery by such
parties of such documents and the validity and binding effect of such documents.
We understand that you have received the opinion of Winstead, Sechrest & Minick
with respect to our assumption that the Texas Guarantors had the power,
corporate or other, to enter into and perform all obligations under the
Guarantees and the Indenture and have duly authorized by all requisite action,
corporate or other, executed and delivered the Guarantees and the Indenture and
the Guarantees and the Indenture constitute the valid and legally binding
obligations of the Texas Guarantors. We also understand that you have received
the opinion of Weary, Davis, Henry, Struebing, Troup, Kaus & Ryan, L.C. with
respect to our assumption that the Kansas Guarantor had the power, corporate or
other, to enter into and perform all obligations under the Guarantees and the
Indenture and has duly authorized by all requisite action, corporate or other,
executed and delivered the Guarantees and the Indenture and the Guarantees and
the Indenture constitute the valid and legally binding obligations of the Kansas
Guarantor. As to any facts material to the opinions expressed herein which we
did not independently establish or verify, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Our opinions set forth herein are limited to the Delaware General
Corporation Law and the laws of the State of New York which are normally
applicable to transactions of the type contemplated by the Indenture, the Notes
and the Guarantees and, to the extent that judicial or regulatory orders or
decrees or consents, approvals, licenses, authorizations, validations, filings,
recordings or registrations with governmental authorities are relevant, to those
required under such laws (all of the foregoing being referred to as "Opined on
Law"). We do not express any opinion as to the law of any jurisdiction, other
than the foregoing jurisdictions relating to Opined on Law, or as to the effect
of any such non opined law in the opinions herein stated. We have relied as to
matters of New York law on the opinion of Skadden, Arps, Slate, Meagher & Flom
LLP.
<PAGE> 4
Classic Cable, Inc.
515 Congress Avenue
Suite 2626
Austin, TX 78701
May 8, 2000
Page 4
Based upon and subject to the foregoing and to the limitations,
qualifications, assumptions and exceptions set forth herein, we are of the
opinion that:
1. When the Notes have been duly executed and authenticated in
accordance with the terms of the Indenture and have been delivered upon
consummation of the Exchange Offer against receipt of Old Notes surrendered in
exchange therefor in accordance with the terms of the Exchange Offer, the Notes
will be valid and binding obligations of the Company entitled to the benefits of
the Indenture and enforceable against the Company in accordance with their
terms, except to the extent that enforcement thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, usury
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
2. When the Notes have been duly executed and authenticated in
accordance with the terms of the Indenture and the Guarantees endorsed thereon
have been duly executed by the Subsidiary Guarantors in accordance with the
terms of the Indenture and both the Notes and the Guarantees have been delivered
upon consummation of the Exchange Offer against receipt of Old Notes surrendered
in exchange therefor in accordance with the terms of the Exchange Offer, the
Guarantees will be valid and binding obligations of the Subsidiary Guarantors
entitled to the benefits of the Indenture and enforceable against the Subsidiary
Guarantors in accordance with their terms, except to the extent that enforcement
thereof may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, usury or other similar laws now or hereafter
in effect relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
In rendering the opinions set forth above, we have assumed (a) that the
execution and delivery by the Company of the Notes and the Indenture and the
performance by the Company of its obligations thereunder do not and will not
violate, conflict with or constitute a default under any agreement or instrument
to which the Company or its properties is subject, except for those agreements
and instruments which were identified to us by the Company as being material to
it and which are
<PAGE> 5
Classic Cable, Inc.
515 Congress Avenue
Suite 2626
Austin, TX 78701
May 8, 2000
Page 5
listed as exhibits to the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 and (b) that the execution and delivery by the
Subsidiary Guarantors of the Guarantees and the Indenture and the performance by
the Subsidiary Guarantors of their obligations thereunder do not and will not
violate, conflict with or constitute a default under any agreement or instrument
to which the Subsidiary Guarantors or their respective properties are subject,
except for those agreements and instruments which were identified to us by the
Subsidiary Guarantors as being material to them and which are listed as exhibits
to their Annual Report on Form 10-K for the year ended December 31, 1999.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under "Legal Matters" in the Registration Statement. In giving this
consent, we do not thereby admit that we are included in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher &
Flom (Illinois)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
our reports dated February 23, 2000 relating to the financial statements of
Classic Cable, Inc., which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" and "Selected
Historical Consolidated Financial Data -- Classic Cable, Inc." in such
Registration Statement.
PricewaterhouseCoopers LLP
Austin, Texas
May 5, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form
S-4 of our report dated February 29, 2000 relating to the financial statements
of Star Cable Associates, which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Pittsburgh, PA
May 5, 2000
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Buford Group, Inc.:
We consent to the use of our report included herein and to the references to our
firm under the headings "Experts" and "Selected Historical Consolidated
Financial Data -- Buford Group, Inc." in the prospectus.
/s/ KPMG LLP
Dallas, Texas
May 5, 2000
