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Filed pursuant to Rule 424(b)3
SEC File Number 333-45061
OFFER TO EXCHANGE
8 3/8% SERIES B SENIOR NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING 8 3/8% SENIOR NOTES DUE 2008
OF
ADELPHIA COMMUNICATIONS CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MARCH 10, 1998, UNLESS EXTENDED
Adelphia Communications Corporation ("Adelphia", the "Company", the
"Registrant" or the "Issuer") hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange
$1,000 principal amount of 8 3/8% Series B Senior Notes due 2008 of the
Registrant (the "New Notes") for each $1,000 principal amount of the issued
and outstanding 8 3/8% Senior Notes due 2008 (the "Old Notes," and
collectively with the New Notes, the "Notes"). Interest on the Senior Notes is
payable semi-annually commencing August 1, 1998 with a final maturity date of
February 1, 2008. As of the date of this Prospectus, $150,000,000 aggregate
principal amount of the Old Notes is outstanding. The terms of the New Notes
and the Old Notes are substantially identical in all material respects, except
for certain transfer restrictions and registration rights; and except that
holders of Old Notes are entitled to receive Liquidated Damages (as defined)
if (a) the Registrant fails to file any of the registration statements
required by the Registration Rights Agreement (as defined) on or before the
date specified for such filing, (b) any of such registration statements is not
declared effective by the Securities and Exchange Commission (the
"Commission") on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Registrant fails to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date with
respect to the Exchange Offer registration statement, or (d) a shelf
registration statement or the registration statement of which this Prospectus
forms a part (the "Exchange Offer Registration Statement") is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities (as defined) during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above is a "Registration Default"). In the event of a
Registration Default, the Registrant is required to pay Liquidated Damages to
each holder of Transfer Restricted Securities for the period that the
Registration Default continues, with respect to the first 90-day period
immediately following the occurrence of such Registration Default, at a rate
of 0.25% per annum on the principal amount of Transfer Restricted Securities
held by such holder. Such interest rate will increase by an additional 0.25%
per annum at the beginning of each subsequent 90-day period up to a maximum
aggregate increase of 2.0% per annum until such Registration Defaults have
been cured, at which time the interest rate borne by the Old Notes will be
reduced to the original interest rate. See "Description of the Notes-
Registration Rights; Liquidated Damages."
(Continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 5, 1998
<PAGE>
The Exchange Offer is being made to satisfy certain obligations of the
Registrant under the Registration Rights Agreement, dated as of January 21,
1998, between the Registrant and the Initial Purchaser (the "Registration
Rights Agreement"). Upon consummation of the Exchange Offer, holders of Old
Notes that were not prohibited from participating in the Exchange Offer and
did not tender their Old Notes will not have any registration rights under the
Registration Rights Agreement with respect to such nontendered Old Notes and,
accordingly, such Old Notes will continue to be subject to the restrictions on
transfer contained in the legend thereon.
Based on interpretations by the staff of the Commission with respect to
similar transactions, including no action letters, the Registrant believes
that the New Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by any
holder of such New Notes (other than any such holder which is an "affiliate"
of the Registrant within the meaning of Rule 405 under the Securities Act of
1933, as amended (the "Securities Act")) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of its New Notes. A broker-
dealer who acquired Old Notes directly from the Registrant can not exchange
such Old Notes in the Exchange Offer. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of the
New Notes received in exchange for the Old Notes acquired by the broker-dealer
as a result of market-making activities or other trading activities. The
Registrant has agreed that it will make this Prospectus available to any
broker-dealer for use in connection with any such resale for a period of 365
days after the Exchange Date (as defined) or, if earlier, until all
participating broker-dealers have so resold. See "Plan of Distribution."
The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture (as defined). For a more complete
description of the terms of the New Notes, see "Description of the Notes."
There will be no cash proceeds to the Registrant from the Exchange Offer. The
New Notes will be senior unsecured indebtedness of Adelphia, will rank pari
passu in right of payment with other unsubordinated indebtedness of Adelphia
and senior in right of payment to all future subordinated indebtedness of
Adelphia. The operations of Adelphia are conducted through its subsidiaries
and, therefore, Adelphia is dependent on the earnings and cash flow of and
distributions from its subsidiaries to meet its debt obligations, including
its obligations with respect to the New Notes. Because the assets of its
subsidiaries constitute substantially all of the assets of Adelphia, and
because the subsidiaries will not guarantee the payment of principal of and
interest on the New Notes, the claims of holders of the New Notes effectively
will be subordinated to the claims of creditors of such entities. As of
September 30, 1997, on a pro forma basis, after giving effect to the Offering,
the October Borrowing (as defined) and the Hyperion Offering (as defined) and
the application of net proceeds therefrom, the New Notes would have been
effectively subordinated to $1.4 billion of indebtedness and redeemable
preferred stock of Adelphia's subsidiaries. As of September 30, 1997, the
total indebtedness of Adelphia's subsidiaries to banks and institutions, on a
consolidated basis, aggregated $1.1 billion.
The Old Notes were originally issued and sold on January 21, 1998 in an
offering of $150,000,000 aggregate principal amount (the "Offering," as
defined). The Offering was exempt from registration under the Securities Act
in reliance upon the exemptions provided by Rule 144A and Section 4(2) of the
Securities Act. Accordingly, the Old Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an exemption from the registration requirements of the
Securities Act and applicable state securities laws is available.
The Registrant has not entered into any arrangement or understanding with
any person to distribute the New Notes to be received in the Exchange Offer,
and to the best of the Registrant's information and belief, each
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person participating in the Exchange Offer is acquiring the New Notes in its
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the New Notes to be received in
the Exchange Offer. Any person participating in the Exchange Offer who does
not acquire the Exchange Notes in the ordinary course of business: (i) cannot
rely on the above referenced no action letters; (ii) cannot tender its Old
Notes in the Exchange Offer; and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. However, the Exchange Offer
is subject to certain customary conditions which may be waived by the Company.
The Exchange Offer will expire at 5:00 p.m., New York City time, on March 10,
1998, unless extended (as it may be so extended, the "Expiration Date"),
provided that the Exchange Offer shall not be extended beyond 30 business days
from the date of this Prospectus. The date of acceptance for exchange of the
Old Notes for the New Notes (the "Exchange Date") will be the first business
day following the Expiration Date or as soon as practicable thereafter. Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date; otherwise such tenders are irrevocable.
Prior to this Exchange Offer, there has been no public market for the Notes.
The Old Notes have traded on the PORTAL Market. If a market for the New Notes
should develop, the New Notes could trade at a discount from their initial
offering price. The Company does not intend to apply for listing of the New
Notes on any securities exchange or in any automated quotation system. There
can be no assurance that an active trading market for the New Notes will
develop.
----------------
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-4 under the Securities Act with respect to the Exchange
Offer. This Prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Exchange Offer, reference is made to such Registration
Statement and the exhibits and schedules filed as part thereof. The
Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected without charge at the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and will also be available for inspection and copying
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048, and the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission upon payment of certain prescribed fees.
Electronic registration statements made through the Electronic Data Gathering,
Analysis, and Retrieval system are publicly available through the Commission's
Web site (http://www.sec.gov), which is maintained by the Commission and which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE REGISTRANT ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES LAWS OF SUCH JURISDICTION.
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INCORPORATION BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act") are
incorporated herein by reference: (a) Annual Report on Form 10-K for the
fiscal year ended March 31, 1997 which incorporates, in Items 7 and 8 to such
Form 10-K, portions of Amendment No. 2 to Registration Statement No. 333-19327
of Olympus Communications, L.P. and Olympus Capital Corporation on Form S-4
(the "Form 10-K"); (b) Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, the Quarterly Report on Form 10-Q for the period ended
September 30, 1997 (the "Form 10-Q"); (c) Adelphia's amendment to Form 10-K
filed July 29, 1997 (the "Form 10-K/A"); (d) Adelphia's definitive proxy
statement dated September 8, 1997, with respect to the Annual Meeting of
Stockholders held September 29, 1997; (e) Adelphia's Current Reports on Form
8-K for the events dated May 1, 1997, June 12, 1997, June 23, 1997, July 7,
1997, July 24, 1997, August 27, 1997, September 19, 1997, September 25, 1997
and January 21, 1998; and (f) the descriptions of the Company's Common Stock
contained in the registration statements filed under Section 12(g) of the
Exchange Act, including any amendments or reports for the purpose of updating
such descriptions.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this
offering shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the respective date of filing of each such
document. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is, or is deemed
to be, incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
MICHAEL C. MULCAHEY, DIRECTOR OF ACCOUNTING AND ASSISTANT TREASURER, ADELPHIA
COMMUNICATIONS CORPORATION, MAIN AT WATER STREET, COUDERSPORT, PA 16915,
TELEPHONE NUMBER 814-274-9830. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE NO LATER THAN 5 BUSINESS DAYS PRIOR TO
THE EXPIRATION OF THE EXCHANGE OFFER.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements appearing in this Prospectus or
incorporated by reference herein. The Private Securities Litigation Reform Act
of 1995 provides a "safe harbor" for forward-looking statements. Certain
information included or incorporated by reference in this Prospectus, including
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Form 10-K, is forward-looking, such as information
relating to the effects of future regulation, future capital commitments and
the effects of competition. Such forward-looking information involves important
risks and uncertainties that could significantly affect expected results in the
future from those expressed in any forward-looking statements made by, or on
behalf of, the Company. These risks and uncertainties include, but are not
limited to, uncertainties relating to economic conditions, acquisitions and
divestitures, government and regulatory policies, the pricing and availability
of equipment, materials, inventories and programming, technological
developments and changes in the competitive environment in which the Company
operates. Persons reading this Prospectus are cautioned that such statements
are only predictions and that actual events or results may differ materially.
In evaluating such statements, readers should specifically consider the various
factors which could cause actual events or results to differ materially from
those indicated by such forward-looking statements. Prospective investors
should carefully consider the factors set forth herein under the caption "Risk
Factors."
THE COMPANY
Adelphia Communications Corporation is the seventh-largest cable television
operator in the United States. As of September 30, 1997, cable television
systems owned or managed by the Company (the "Systems") in the aggregate passed
2,721,778 homes and served 1,918,587 basic subscribers. John J. Rigas, the
Chairman, President, Chief Executive Officer and founder of Adelphia, has owned
and operated cable television systems since 1952.
The Company's owned cable systems (the "Company Systems") are located in ten
states and are organized into seven regional clusters: Western New York,
Virginia, Western Pennsylvania, New England, Eastern Pennsylvania, Ohio and
Coastal New Jersey. The Company Systems are located primarily in suburban areas
of large and medium-sized cities within the 50 largest television markets. As
of September 30, 1997, the Company Systems passed 1,616,554 homes and served
1,177,543 basic subscribers.
The Company also provides, for a fee, management and consulting services to
certain partnerships and certain corporations engaged in the ownership and
operation of cable television systems (the "Managed Partnerships"). John J.
Rigas and certain members of his immediate family, including entities they own
or control (collectively the "Rigas Family") have substantial ownership
interests in the Managed Partnerships. As of September 30, 1997, cable systems
(the "Managed Systems") owned by the Managed Partnerships passed 428,314 homes
and served 306,314 basic subscribers.
In addition to its wholly owned cable operations, Adelphia has other
significant investments, including:
OLYMPUS COMMUNICATIONS, L.P.
The Company owns a 50% voting interest and nonvoting Preferred Limited
Partnership interests entitling the Company to a 16.5% preferred return in
Olympus Communications, L.P. ("Olympus"). Olympus is a joint venture limited
partnership between the Company and subsidiaries of FPL Group, Inc. (together
with its subsidiaries, "FPL Group"). FPL Group is one of the largest public
utility holding companies in the United States supplying, through its principal
subsidiary, electric service throughout most of the east and lower west coasts
of Florida. Olympus operates the largest contiguous cable system in Florida and
is located in some of the fastest-growing markets in Florida. As of September
30, 1997, the Olympus systems passed 676,910 homes and
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served 434,730 basic subscribers. Olympus is not a subsidiary of Adelphia or
FPL Group. The Company's investment in Olympus is accounted for under the
equity method of accounting. On November 12, 1996, Olympus realized proceeds of
$195,500,000 upon the issuance of $200,000,000 in aggregate principal amount of
10 5/8% Senior Notes due November 15, 2006. The net proceeds from such offering
were used to reduce outstanding bank borrowings of Olympus' subsidiaries.
HYPERION TELECOMMUNICATIONS, INC.
The Company owns an 88% interest in Hyperion Telecommunications, Inc.
("Hyperion"), a leading competitive local exchange carrier ("CLEC") that
designs, constructs, operates and manages state-of-the-art, fiber optic
networks and facilities. Hyperion operates one of the largest CLECs in the
United States based upon route miles and buildings connected. Hyperion
currently manages and operates 18 networks (excluding two under construction),
serving 35 cities. As of September 30, 1997, these networks had approximately
3,561 route miles, connecting approximately 1,645 buildings. Hyperion currently
offers switched services, including local dial tone, in most of its markets.
Hyperion is consolidated in Adelphia's financial results and is currently an
unrestricted subsidiary of Adelphia for purposes of Adelphia's indentures. On
April 15, 1996, Hyperion realized net proceeds of approximately $168,600,000
upon the issuance of $329,000,000 in aggregate principal amount of 13% Senior
Discount Notes (the "Hyperion Senior Notes") due April 15, 2003 and 329,000
warrants to purchase an aggregate of 613,427 shares of common stock of Hyperion
expiring April 1, 2001. Net proceeds from such offering were used to repay a
portion of outstanding indebtedness owed to Adelphia, fund capital
expenditures, working capital requirements, operating losses, pro rata
investments in operating companies and pro rata equity investments. On August
27, 1997, Hyperion completed an offering of $250,000,000 in aggregate principal
amount of 12 1/4% Senior Secured Notes due 2004 and on October 9, 1997,
Hyperion completed an offering of $200,000,000 aggregate liquidation preference
of 12 7/8% Senior Exchangeable Redeemable Preferred Stock due 2007. See "--
Recent Developments."
EMPIRE SPORTS NETWORK AND BUFFALO SABRES NHL FRANCHISE AND MARINE MIDLAND ARENA
Empire Sports Network ("Empire") is a majority-owned subsidiary of Adelphia
operating a regional sports television network serving western and central New
York. Empire's most popular programming is the Buffalo Sabres (the "Sabres")
NHL team games and related coverage. As of September 30, 1997, Adelphia had
made $31,000,000 of preferred equity investments and loans to Niagara Frontier
Hockey, L.P. ("Niagara L.P.") which holds the NHL Sabres franchise. The
Company's investment in Niagara L.P. is accounted for under the cost method.
Niagara L.P. also holds a two-thirds interest in the Marine Midland Arena
complex, a recently opened $130,000,000 sports and entertainment facility
capable of seating 18,500 people with 60 luxury suites. The complex holds a
right of first refusal for hosting all arena events in Buffalo.
RECENT DEVELOPMENTS
Adelphia Offering of Senior Notes Due 2008. On January 21, 1998, Adelphia
announced the sale of $150,000,000 aggregate principal amount of 8 3/8% Senior
Notes due 2008 (the "Notes") in a private placement exempt from registration
(the "Offering"). The Notes are the subject of the within described Exchange
Offer. The net proceeds of approximately $147,000,000 from the Offering will be
contributed to Adelphia subsidiaries and used to repay revolving credit
facilities of such subsidiaries, all of which may be reborrowed and used for
the general corporate purposes of such subsidiaries.
TCI Partnership. On January 9, 1998, Adelphia announced it had signed a
definitive agreement to establish a partnership into which Tele-Communications,
Inc. ("TCI") will contribute its cable systems in Buffalo, New York; Erie,
Pennsylvania; and Ashtabula and Lake County, Ohio, totaling 166,000
subscribers, and Adelphia will contribute its Western New York and Lorain, Ohio
systems, totaling 298,000 subscribers. Upon closing of the transaction, TCI
will hold a minority interest in the partnership. Adelphia will manage the
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partnership and will consolidate the partnership's results for financial
reporting purposes. The venture will serve approximately 464,000 customers. The
Company expects that the transaction will close by the end of the first quarter
of fiscal 1999.
Hyperion Offering of Senior Exchangeable Redeemable Preferred Stock. On
October 9, 1997, Hyperion issued $200,000,000 aggregate liquidation preference
of 12 7/8% Senior Exchangeable Redeemable Preferred Stock due 2007 (the
"Hyperion Preferred Stock") primarily to qualified institutional investors in a
private placement (the "Hyperion Offering"). The net proceeds of approximately
$195,000,000 from this issuance will be used to fund the acquisition of
increased ownership interests in certain of Hyperion's networks, for capital
expenditures, including the construction and expansions of new and existing
networks, and for general corporate and working capital purposes of Hyperion.
Pending such uses, the net proceeds will be invested in cash, short-term liquid
investments and other cash equivalents. Through October 15, 2002, dividends on
the Hyperion Preferred Stock may be paid, at Hyperion's option, in cash or
additional shares of Hyperion Preferred Stock.
Adelphia was incorporated in Delaware on July 1, 1986 for the purpose of
reorganizing five cable television companies, then principally owned by the
Rigas Family, into a holding company structure in connection with the initial
public offering of Adelphia's Class A Common Stock. The Company's executive
offices are located at Main at Water Street, Coudersport, Pennsylvania 16915,
and its telephone number is (814) 274-9830.
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THE EXCHANGE OFFER
Securities Offered.......... Up to $150,000,000 aggregate principal amount
of 8 3/8% Series B Senior Notes due 2008 of
the Company (the "New Notes," and
collectively with the Old Notes, the
"Notes"). The terms of the New Notes and the
Old Notes are substantially identical in all
material respects, except for certain
transfer restrictions, registration rights
and liquidated damages ("Liquidated Damages")
for Registration Defaults relating to the Old
Notes which will not apply to the New Notes.
See "Description of the Notes."
The Exchange Offer.......... The Registrant is offering to exchange $1,000
principal amount of New Notes for each $1,000
principal amount of Old Notes. See "The
Exchange Offer" for a description of the
procedures for tendering Old Notes. The
Exchange Offer satisfies the registration
obligations of the Registrant under the
Registration Rights Agreement. Upon
consummation of the Exchange Offer, holders
of Old Notes that were not prohibited from
participating in the Exchange Offer and did
not tender their Old Notes will not have any
registration rights under the Registration
Rights Agreement with respect to such
nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the
restrictions on transfer contained in the
legend thereon.
Tenders, Expiration Date;
Withdrawal; Exchange Date..
The Exchange Offer will expire at 5:00 p.m.,
New York City time, on March 10, 1998, or
such later date and time to which it is
extended (as it may be so extended, the
"Expiration Date"), provided that the
Exchange Offer shall not be extended beyond
30 business days from the date of this
Prospectus. Tender of Old Notes pursuant to
the Exchange Offer may be withdrawn and
retendered at any time prior to the
Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned
without expense to the tendering holder as
promptly as practicable after the expiration
or termination of the Exchange Offer. The
date of acceptance for exchange of all Old
Notes properly tendered and not withdrawn for
New Notes (the "Exchange Date") will be the
first business day following the Expiration
Date or as soon as practicable thereafter.
Accrued Interest on the New Each New Note will bear interest from the
Notes....................... most recent date to which interest has been
paid on the Old Note or, if no such payment
has been made, from January 21, 1998.
Federal Income Tax The Exchange Offer will not result in any
Considerations.............. income, gain or loss to the holders of Notes
or the Company for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
Use of Proceeds............. There will be no proceeds to the Company from
the exchange of New Notes for the Old Notes
pursuant to the Exchange Offer.
Exchange Agent.............. Bank of Montreal Trust Company, the Trustee
under the Indenture, is serving as exchange
agent (the "Exchange Agent") in connection
with the Exchange Offer.
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CONSEQUENCES OF EXCHANGING OR FAILURE TO EXCHANGE OLD NOTES PURSUANT TO THE
EXCHANGE OFFER
Generally, holders of Old Notes (other than any holder who is an "affiliate"
of the Registrant within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
their New Notes for resale, resell their New Notes, and otherwise transfer
their New Notes without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided such New Notes are acquired
in the ordinary course of the holder's business, such holders have no
arrangement with any person to participate in a distribution of such New Notes
and neither the holder nor any other person is engaging in or intends to engage
in a distribution of the New Notes. A broker-dealer who acquired Old Notes
directly from the Registrant can not exchange such Old Notes in the Exchange
Offer. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it will deliver a prospectus in
connection with any resale of its New Notes. See "Plan of Distribution." To
comply with the securities laws of certain jurisdictions, it may be necessary
to qualify for sale or register the New Notes prior to offering or selling such
New Notes. The Company is required, under the Registration Rights Agreement, to
register the New Notes in any jurisdiction requested by the holders, subject to
certain limitations. Upon consummation of the Exchange Offer, holders that were
not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Registration
Rights Agreement with respect to such nontendered Old Notes, and accordingly,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, Old Notes may not be offered or
sold, unless registered under the Securities Act and applicable state
securities laws. See "The Exchange Offer--Consequences of Failure to Exchange."
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SUMMARY DESCRIPTION OF THE NOTES
Issuer................................ Adelphia Communications Corporation
Securities Offered.................... $150,000,000 principal amount of 8
3/8% Series B Senior Notes due 2008
(the "New Notes," and collectively
with the Old Notes, the "Notes").
The terms of the New Notes and the
Old Notes are substantially
identical in all material respects,
except for certain transfer
restrictions, registration rights
and Liquidated Damages for
Registration Defaults relating to
the Old Notes which will not apply
to the New Notes. See "Description
of the Notes."
Maturity Date......................... The Notes will mature on February
1, 2008.
Interest Payment Dates................ February 1 and August 1 each year
commencing August 1, 1998.
Redemption............................ The Notes will not be redeemable
prior to maturity and will not be
subject to any mandatory redemption
or sinking fund payments.
Ranking............................... The Notes are unsecured
indebtedness of Adelphia ranking
pari passu with other
unsubordinated indebtedness of
Adelphia and senior in right of
payment to any future subordinated
indebtedness of Adelphia. The
operations of Adelphia are
conducted through Adelphia's
subsidiaries, and therefore,
Adelphia is dependent on the
earnings and cash flow of and
distributions from its subsidiaries
to meet its debt obligations,
including its obligations with
respect to the Notes. Because the
assets of its subsidiaries and
other investments constitute
substantially all of the assets of
Adelphia, and because those
subsidiaries and other investments
will not guarantee the payment of
principal of and interest on the
Notes, the claims of holders of the
Notes effectively will be
subordinated to the claims of
creditors of such entities. As of
September 30, 1997, on a pro forma
basis, after giving effect to the
Offering, the October Borrowing and
the Hyperion Offering and the
application of the net proceeds
therefrom, the Notes would have
been effectively subordinated to
$1.4 billion of indebtedness and
redeemable preferred stock of
Adelphia's subsidiaries. As of
September 30, 1997, the total
indebtedness of Adelphia's
subsidiaries to banks and
institutions, on a consolidated
basis, aggregated $1.1 billion and
total trade payables as of such
date were $56.4 million. The
Company's ability to access the
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cash flow of its subsidiaries is
subject to significant contractual
restrictions. In addition, Olympus
has substantial leverage. See "Risk
Factors--Holding Company Structure;
Restrictive Covenants" and
"Description of the Notes."
Certain Covenants..................... The Indenture pursuant to which the
Notes were or will be issued (the
"Indenture") contains certain
restrictions on, among other
things, the incurrence of
indebtedness, mergers and sales of
assets, a change of control, the
payment of dividends on, or the
repurchase of, capital stock of
Adelphia and certain other
restricted payments by Adelphia and
its restricted subsidiaries and
certain transactions with and
investments in affiliates. The
Indenture will permit Adelphia's
subsidiaries to incur substantial
additional indebtedness.
Registration Rights................... Adelphia has entered into a
registration rights agreement with
the Initial Purchaser (the
"Registration Rights Agreement")
pursuant to which Adelphia agreed
to file a registration statement
(the "Exchange Offer Registration
Statement") with respect to an
offer to exchange the Old Notes for
a new issue of debt securities of
Adelphia (the "Exchange Notes")
registered under the Securities
Act, with terms substantially
identical to those of the Old
Notes. See "Description of the
Notes--Registration Rights;
Liquidated Damages."
Change of Control..................... In the event of a Change of Control
(as defined herein), the Holders of
the Notes will have the right to
require the Company to purchase
their Notes at a price equal to
100% of the aggregate principal
amount thereof, plus accrued and
unpaid interest and Liquidated
Damages thereon, if any, to the
date of purchase. There can be no
assurance that the Company will
have adequate financial resources
to effect a required repurchase of
the Notes upon a Change in Control.
The Company's failure to make a
required repurchase of the Notes
upon a Change in Control would be
an Event of Default under the
Indenture.
RISK FACTORS
Prospective participants in the Exchange Offer should consider all of the
information contained in this Prospectus in connection with the Exchange Offer.
In particular, prospective participants should consider the factors set forth
herein under "Risk Factors."
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the
Company and its business in connection with the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act and applicable state
securities laws, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
Based on interpretations by the staff of the Commission with respect to
similar transactions, the Company believes that the New Notes issued pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by any holder of such New Notes (other than any such holder which
is an "affiliate" of the Registrant 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 New Notes are
acquired in the ordinary course of such holder's business, such holder has no
arrangement or understanding with any person to participate in the
distribution of such New Notes and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the New Notes. A broker-
dealer who acquired Old Notes directly from the Registrant can not exchange
such Old Notes in the Exchange Offer. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes must acknowledge that it
will deliver a prospectus in connection with any resale of its New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of the New Notes received in exchange for
the Old Notes acquired by the broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale for a period of 365 days after the Exchange Date or, if
earlier, until all participating broker-dealers have so resold. See "Plan of
Distribution." The New Notes may not be offered or sold unless they have been
registered or qualified for sale under applicable state securities laws or an
exemption from registration or qualification is available and is complied
with. The Registrant is required, under the Registration Rights Agreement, to
register the New Notes in any jurisdiction requested by the holders, subject
to certain limitations.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and has incurred substantial indebtedness to
finance acquisitions and expansion of its operations and, to a lesser extent,
for investments in and advances to affiliates. At September 30, 1997, the
Company's total indebtedness aggregated approximately $2,766,783,000, which
included approximately $677,089,000 of subsidiary bank and institutional debt,
$455,923,000 of Hyperion debt and approximately $1,633,771,000 of indebtedness
of the parent company. The Company's total debt has varying maturities to
2007, including an aggregate of approximately $402,099,000 maturing on or
prior to March 31, 2002. The Company has maintained its public long-term debt
at the holding company level and unrestricted subsidiaries while borrowing in
the private debt markets (e.g., bank and insurance company debt) through the
Company's wholly-owned subsidiaries. The Company's subsidiary financings are
effected through separate borrowing groups, and substantially all of the
indebtedness in these borrowing groups is non-recourse to Adelphia. The
subsidiary credit arrangements have varied revolving credit and term loan
periods and contain separately-negotiated covenants relating to, among other
things, cross-defaults and the incurrence of additional debt for each
borrowing group. In addition, Olympus has substantial leverage. The high level
of the Company's indebtedness will have important consequences to holders of
the Notes, including: (i) a substantial portion of the
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Company's cash flow from operations must be dedicated to debt service and will
not be available for general corporate purposes or for capital improvements;
(ii) the Company's ability to obtain additional debt financing in the future
for working capital, capital expenditures, acquisitions or for capital
improvements may be limited; and (iii) the Company's level of indebtedness
could limit its flexibility in reacting to changes in the industry and
economic conditions generally. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Form 10-K and the Form
10-Q.
NET LOSSES AND STOCKHOLDERS' DEFICIENCY
The total stockholders' deficiency at March 31, 1997 and September 30, 1997
was $1,253,881,000 and $1,214,261,000, respectively. The stockholders'
deficiency generally has resulted from the Company's reported net losses which
have been caused primarily by high levels of depreciation and amortization and
interest expense. The Company reported net losses of approximately
$106,284,000, $119,894,000 and $130,642,000, for the years ended March 31,
1995, 1996 and 1997, respectively and $57,318,000 and $77,882,000, for the six
months ended September 30, 1996 and 1997, respectively. The Company expects to
continue to incur significant net losses for the next several years. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Form 10-K and the Form 10-Q.
For the years ended March 31, 1996 and March 31, 1997 and for the six months
ended September 30, 1996 and 1997, respectively, the Company's earnings were
insufficient to cover its combined fixed charges and preferred stock dividends
by $78,189,000 and $61,848,000, respectively and $28,182,000 and $44,677,000,
respectively. However, such amounts reflect non-cash charges totalling
$127,319,000 and $165,426,000, respectively and $78,335,000 and $89,948,000,
respectively, consisting of depreciation, amortization, and non-cash interest
expense on certain indebtedness of the Company. On a pro forma basis after
giving effect to the Offering, the October Borrowing and the Hyperion Offering
and the application of the net proceeds therefrom, the Company's earnings were
insufficient to cover its combined fixed charges and preferred stock dividends
by $128,361,000 and $66,094,000 for the year ended March 31, 1997 and for the
six months ended September 30, 1997, respectively. Historically, the Company's
cash generated from operating activities and borrowings has been sufficient to
meet its requirements for debt service, working capital, capital expenditures,
and investments in and advances to affiliates and the Company has depended on
the availability of additional borrowings to meet its liquidity requirements.
The Company believes that it will continue to generate cash and obtain
financing sufficient to meet such requirements. However, the Company's ability
to incur additional indebtedness is limited by covenants in its indentures and
its subsidiary credit agreements. Adelphia expects that it will be required to
refinance the Notes prior to their maturity. Although in the past the Company
has been able both to refinance its indebtedness and to obtain new financing,
there can be no assurance that the Company would be able to do so in the
future or that, if the Company were able to do so, the terms available would
be favorable to the Company. In the event that the Company were unable to
refinance its indebtedness or obtain new financing under these circumstances,
the Company would likely have to consider various options such as the sale of
certain assets to meet its required debt service, negotiation with its lenders
to restructure applicable indebtedness or other options available to it under
applicable law. There can be no assurance that any such options would yield
net proceeds sufficient to repay the Notes in full. See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Form 10-K and the Form 10-Q.
HOLDING COMPANY STRUCTURE; RESTRICTIVE COVENANTS
As a holding company, Adelphia holds no significant assets other than its
investments in and advances to its subsidiaries and other investments.
Adelphia's ability to make interest and principal payments when due to holders
of debt of Adelphia is dependent upon the receipt of sufficient funds from its
subsidiaries or other investments. Under the terms of various debt agreements
between the Adelphia subsidiaries and other investments and their respective
lending institutions, upon the occurrence of an event of default (including
certain cross-defaults resulting from defaults under Adelphia's debt
agreements) or unless certain financial performance
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<PAGE>
tests are met, the Adelphia subsidiaries and other investments are restricted
from distributing funds to Adelphia. The Indenture governing the Notes will
not restrict the Company's subsidiaries or other investments from
contractually restricting their ability to pay dividends to the Company in the
future. In addition, because Adelphia's subsidiaries and other investments do
not guarantee the payment of principal of and interest on debt of Adelphia,
the claims of holders of such debt effectively will be subordinated to the
claim of creditors of such entities. At September 30, 1997, the total amount
of long-term debt of such subsidiaries was $1,133,012,000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Form 10-K and the Form 10-Q and "Description of the Notes."
The agreements governing the bank debt of the Company's subsidiaries (the
"Subsidiary Bank Agreements") contain, among other covenants, requirements
that Adelphia's subsidiaries maintain specified financial ratios, including
maximum leverage and minimum interest coverage. The ability of a subsidiary to
comply with such provisions may be affected by events that are beyond
Adelphia's control. The breach of any of these covenants could result in a
default by a subsidiary under its Subsidiary Bank Agreement. In the event of
any such default, lenders party to that Subsidiary Bank Agreement could elect
to declare all amounts borrowed under that Subsidiary Bank Agreement, together
with accrued interest and other fees, to be due and payable. If the
indebtedness under a Subsidiary Bank Agreement were to be accelerated, all
indebtedness outstanding under such Subsidiary Bank Agreement would be
required to be paid in full before such subsidiary would be permitted to
distribute any assets or cash to Adelphia. There can be no assurance that the
assets of Adelphia and its subsidiaries would be sufficient to repay all
borrowings under the Subsidiary Bank Agreements and indebtedness owed to the
other creditors of such subsidiaries in full. In addition, as a result of
these covenants, the ability of Adelphia's subsidiaries to respond to changing
business and economic conditions and to secure additional financing, if
needed, may be significantly restricted, and Adelphia may be prevented from
engaging in transactions that might otherwise be considered beneficial to
Adelphia.
POTENTIAL CONFLICTS OF INTEREST
The Rigas Family holds substantially all of Adelphia's Class B Common Stock
and 89.3% of the combined voting power of both classes of Adelphia's Common
Stock and has the power to elect seven of eight members of Adelphia's Board of
Directors. John J. Rigas and the other executive officers of Adelphia
(including other members of the Rigas Family) hold direct and indirect
ownership interests in the Managed Partnerships, which are managed by the
Company for a fee. Subject to the restrictions contained in the Business
Opportunity Agreement regarding future acquisitions, Rigas Family members and
the executive officers are free to continue to own these interests and acquire
additional interests in cable television systems. Such activities could
present a conflict of interest with the Company in the allocation of
management time and resources of the executive officers. In addition, there
have been and will continue to be transactions between the Company and the
executive officers or other entities in which the executive officers have
ownership interests or with which they are affiliated. The Indenture under
which the Notes will be issued and indentures under which the 9 1/4% Notes,
the 9 7/8% Debentures, 11 7/8% Debentures, 9 1/2% Notes, 12 1/2% Notes, 10
1/4% Notes, 9 7/8% Notes and 10 1/2% Notes of Adelphia were issued contain
covenants that place certain restrictions on transactions between the Company
and its affiliates. See "Certain Relationships and Related Transactions" in
the Form 10-K and "Description of the Notes--Covenants--Limitation on
Transactions with Affiliates."
COMPETITION
The cable television systems owned by the Company compete with other
communications and entertainment media as well as other means of video
distribution including Direct Broadcast Satellite Systems ("DBS") and
Multichannel Multipoint Distribution Systems ("MMDS"). Several companies
recently have launched or have announced their intention to launch, DBS
services that compete with the Company for multichannel video entertainment
customers. In addition, some of the Regional Bell Operating Companies (the
"RBOCs") and other local telephone companies are in the process of entering
the video-to-home business and several have expressed their intention to enter
the video-to-home business. In addition, some RBOCs and local telephone
companies have in place facilities which are capable of delivering cable
television service.
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<PAGE>
In addition, the Telecommunications Act of 1996 (the "1996 Act") has
repealed the cable/telephone cross-ownership plan, and telephone companies
will now be permitted to provide cable television service within their service
areas. Certain of such potential service providers have greater financial
resources than the Company, and in the case of local exchange carriers seeking
to provide cable service within their service areas, have an installed plant
and switching capabilities, any of which could give them competitive
advantages with respect to cable television operators such as the Company. The
Company cannot predict either the extent to which competition will materialize
or, if such competition materializes, the extent of its effect on the Company.
See "Business--Competition" in the Form 10-K and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Form 10-K
and the Form 10-Q.
The Company also faces competition from other communications and
entertainment media, including conventional off-air television broadcasting
services, newspapers, movie theaters, live sporting events and home video
products. The Company cannot predict the extent to which competition may
affect the Company. See "Business--Competition" and "--Legislation and
Regulation" in the Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Regulatory and Competitive
Matters" in the Form 10-K and the Form 10-Q.
NEED FOR ADDITIONAL FINANCING
The Company's business requires substantial investment on a continuing basis
to finance capital expenditures and related expenses for, among other things,
upgrade of the Company's cable plant (including the need to make cable system
upgrades mandated by franchise authorities), the offering of new services and
the servicing, repayment or refinancing of its indebtedness. The Company will
require significant additional financing, through debt and/or equity
issuances, to meet its capital expenditure plans and to pay its debt
obligations. There can be no assurance that Adelphia will be able to issue
additional debt or obtain additional equity capital on satisfactory terms, or
at all, to meet its future financing needs. See "Business--Technological
Developments" in the Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Form 10-K and the Form
10-Q.
REGULATION IN THE TELECOMMUNICATIONS INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, state and local levels, and many aspects of such regulation are
currently the subject of judicial proceedings and administrative or
legislative proposals. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") significantly expanded the
scope of cable television regulation. In particular, pursuant to the 1992
Cable Act, the Federal Communications Commission (the "FCC") adopted
regulations that limit the Company's ability to set and increase rates for the
Company's basic and cable programming service ("CPS") packages and for the
provision of cable television-related equipment. The 1992 Cable Act permits
certified local franchising authorities to order refunds of rates paid in the
previous twelve-month period determined to be in excess of the permitted
reasonable rates. It is possible that rate reductions or refunds of previously
collected fees may be required in the future.
The 1996 Act, which became law on February 8, 1996, materially alters
federal, state and local laws and regulations pertaining to cable television,
telecommunications and other related services and, in particular,
substantially amends the Communications Act of 1934 (the "Communications
Act"). Certain provisions of the 1996 Act could materially affect the growth
and operation of the cable television industry and the cable services provided
by the Company. Although the new legislation may substantially lessen certain
regulatory burdens, the cable television industry may be subject to additional
competition as a result. See "Business--Competition" in the Form 10-K. There
are numerous rulemakings that have been and continue to be undertaken by the
FCC which will interpret and implement the provisions of the 1996 Act. In
addition, certain provisions of the new legislation (such as the deregulation
of rates for CPS packages) will not immediately be effective. Furthermore,
certain provisions of the 1996 Act have been, and likely will be, subject to
judicial challenge. The Company is unable at
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<PAGE>
this time to predict the outcome of such rulemakings or litigation or the
short and long-term effect (financial or otherwise) of the 1996 Act and FCC
rulemakings on the Company.
The cable television industry is subject to state and local regulations and
the Company must comply with rules of the local franchising authorities to
retain and renew its cable franchises, among other matters. There can be no
assurances that the franchising authorities will not impose new and more
restrictive requirements as a condition to franchise renewal.
Although the 1996 Act eliminates many legal barriers to entry (i.e.,
telephone companies entering the cable industry and cable companies entering
the telephone industry), the Company cannot assure that rules adopted by the
FCC or state regulators or other legislative or judicial initiatives relating
to the telecommunications industry will not have a material adverse effect on
the Company. In addition, the 1996 Act removes entry barriers for all
companies and could increase substantially the number of competitors offering
comparable services in the Company's potential markets. See "Legislation and
Regulation" in Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Regulatory and Competitive
Matters" in the Form 10-K and the Form 10-Q.
LIMITATION ON ABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
The Indenture governing the Notes and certain of Adelphia's other indentures
contain provisions requiring Adelphia upon a Change of Control, to commence an
offer to redeem the Notes to holders of the Notes and certain of Adelphia's
other debt. If a Change of Control occurs, there is no assurance that (i)
Adelphia will have the ability to make a Change of Control Offer to the
holders of the Notes, (ii) Adelphia will have sufficient funds to repurchase
all securities (including the Notes) entitled to be repurchased or (iii)
Adelphia could obtain any additional debt or equity financing in an amount
sufficient to repurchase such securities. See "Description of the Notes--
Covenants--Change of Control Offer."
ABSENCE OF A PUBLIC MARKET; POSSIBLE VOLATILITY OF PRICE
The Notes are securities for which there is currently no market. The Company
does not intend to apply for listing of the Notes on any securities exchange
or for inclusion of the Notes in any automated quotation system, but the
Initial Purchaser has applied to the National Association of Securities
Dealers, Inc. to have the Notes designated as PORTAL securities. Although the
Company has been advised by the Initial Purchaser that it intends to make a
market in the Notes, it is not obligated to do so, and any such market-making
activities may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market for the
Notes. If a market for the Notes were to develop, the Notes could trade at
prices that may be higher or lower than their initial offering price,
depending upon many factors, including prevailing interest rates, the
Company's operating results and the markets for similar securities.
Historically, the market for non-investment-grade debt has been subject to
disruptions that have caused substantial volatility in the prices of
securities similar to the Notes. There can be no assurance that, if a market
for the Notes were to develop, such a market would not be subject to similar
disruptions.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On January 21, 1998, the Registrant issued $150,000,000 aggregate principal
amount of Old Notes to Salomon Brothers Inc, the Initial Purchaser. The
issuance was not registered under the Securities Act in reliance upon the
exemption under Rule 144A and Section 4(2) of the Securities Act. In
connection with the issuance and sale of the Old Notes, the Registrant entered
into a Registration Rights Agreement with the Initial Purchaser dated as of
January 21, 1998 (the "Registration Rights Agreement"), which requires the
Registrant to cause the Old Notes to be registered under the Securities Act or
to file with the Commission a registration statement under the Securities Act
with respect to an issue of new notes of the Registrant identical in all
material respects to the Old Notes, and use its best efforts to cause such
registration statement to become effective under the Securities Act and, upon
the effectiveness of that registration statement, to offer to the holders of
the Old Notes the opportunity to exchange their Old Notes for a like principal
amount of New Notes, which will be issued without a restrictive legend and may
be reoffered and resold by the holder without restrictions or limitations
under the Securities Act. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Registrant's obligations thereunder.
Based on no-action letters issued by the staff of the Commission to third
parties, the Registrant believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any holder of such New Notes (other than any such
holder which is an "affiliate" of the Registrant 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 New
Notes are acquired in the ordinary course of such holder's business, such
holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes and neither the holder nor any other person
is engaging in or intends to engage in a distribution of the New Notes. A
broker-dealer who acquired Old Notes directly from the Registrant can not
exchange such Old Notes in the Exchange Offer. Any holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes cannot rely on such interpretation by the staff of the Commission and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New 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 New 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 accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Registrants will accept any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined herein). The Registrant will issue a principal
amount of New Notes in exchange for an equal principal amount of outstanding
Old Notes tendered and accepted in the Exchange Offer. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer. The date of
acceptance for exchange of the Old Notes for the New Notes (the "Exchange
Date") will be the first business day following the Expiration Date or as soon
as practicable thereafter.
The terms of the New Notes and the Old Notes are substantially identical in
all material respects, except for certain transfer restrictions, registration
rights and Liquidated Damages for Registration Defaults relating to the Old
Notes which will not apply to the New Notes. See "Description of the Notes."
The New Notes will evidence the same debt as the Old Notes. The New Notes will
be issued under and entitled to the benefits of the Indenture pursuant to
which the Old Notes were issued.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders.
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Holders of Old Notes do not have any appraisal or dissenters' rights under
state law or the Indenture in connection with the Exchange Offer. The
Registrant intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered and were not
prohibited from being tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and to be subject to transfer
restrictions, but will not be entitled to any rights or benefits under the
Registration Rights Agreement.
Upon satisfaction or waiver of all the conditions to the Exchange Offer, on
the Exchange Date the Registrant will accept all Old Notes properly tendered
and not withdrawn and will issue New Notes in exchange therefor. For purposes
of the Exchange Offer, the Registrant shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Registrant had
given oral or written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering holders for the purposes of receiving the
New Notes from the Registrant.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents; provided,
however, that the Registrant reserves the absolute right to waive any defects
or irregularities in the tender or conditions of the Exchange Offer. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Notes or substitute Old Notes evidencing the unaccepted
portion, as appropriate, will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination
of 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. The Registrant 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 term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March 10, 1998, unless the Registrant, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended; provided that the
Exchange Offer shall not be extended beyond 30 business days after the date of
this Prospectus.
In order to extend the Expiration Date, the Registrant will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, prior to 9:00 a.m., New York City
time, on the next business day after the then Expiration Date.
The Registrant reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by the
Registrant to constitute a material change, the Registrant will promptly
disclose such amendment in a manner reasonably calculated to inform the
holders of Old Notes of such amendment.
Without limiting the manner in which the Registrant may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Registrant shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
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INTEREST ON THE NEW NOTES
New Notes will bear interest at the rate of 8 3/8% per annum, payable semi-
annually, in cash, on February 1 and August 1 of each year, from the most
recent date to which interest has been paid on the Old Notes or, if no such
payment has been made, from January 21, 1998.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Registrant will
not be required to exchange any New Notes for any Old Notes, and may terminate
or amend the Exchange Offer before the acceptance of any Old Notes for
exchange, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer
which seeks to restrain or prohibit the Exchange Offer or, in the
Registrant's judgment, would materially impair the ability of the
Registrant to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statute, rule, order or regulation is interpreted,
by any government or governmental authority which, in the Registrant's
judgment, would materially impair the ability of the Registrant to
proceed with the Exchange Offer; or
(c) the Exchange Offer or the consummation thereof would otherwise violate
or be prohibited by applicable law.
If the Registrant determines in its sole discretion that any of these
conditions is not satisfied, the Registrant may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders who tendered
such Old Notes to withdraw their tendered Old Notes, or (iii) 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, the Registrant will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Registrant will extend the
Exchange Offer for a period of five to ten business days, depending upon 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
business day period.
The foregoing conditions are for the sole benefit of the Registrant and may
be asserted by the Registrant regardless of the circumstances giving rise to
any such condition or may be waived by the Registrant in whole or in part at
any time and from time to time in their sole discretion. The failure by the
Registrant 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. Any
determination by the Registrant concerning the events described above shall be
final and binding on all parties.
PROCEDURES FOR TENDERING
The tender of Old Notes by a holder as set forth below (including the tender
of Old Notes by book-entry delivery pursuant to the procedures of the
Depository Trust Company ("DTC")) and the acceptance thereof by the Registrant
will constitute an agreement between such holder and the Registrant in
accordance with the terms and subject to the conditions set forth in this
Prospectus and in 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 (i) complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter
19
<PAGE>
of Transmittal or such facsimile, together with the Old Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer
described below) and any other required documents, to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date, or (ii) comply with
the guaranteed delivery procedures described below. Delivery of all documents
must be made to the Exchange Agent at its address set forth herein.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE REGISTRANTS.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR 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 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 of
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. The transfer of registered ownership
may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any Eligible Institution (as defined) unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be by 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 (an "Eligible
Institution").
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 the Registrant, evidence
satisfactory to the Registrant of their authority to so act must be submitted
with the Letter of Transmittal.
Any financial institution that is a participant in the book-entry transfer
facility for the Old Notes, DTC, may make book-entry delivery of Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with DTC's procedures for such
transfer, including if applicable the procedures under the Automated Tender
Offer Program ("ATOP"). Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an appropriate
Letter of Transmittal with any required signature guarantee and all other
required documents must in each case be, or be deemed to be, transmitted to
and received and confirmed by the Exchange Agent at its address set forth
below on or prior to the Expiration Date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures.
20
<PAGE>
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 the Registrant in its sole discretion, which
determination will be final and binding. The Registrant reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Registrant's acceptance of which would, in the opinion of counsel for the
Registrant, be unlawful. The Registrant also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Old Notes.
The Registrant's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Registrant shall determine. Although the Registrant intends to notify holders
of defects or irregularities with respect to tenders of Old Notes, neither the
Registrant, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Registrant reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date or, as set forth below under "Conditions," to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase
Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder will also represent to the Registrant (i) that the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the holder, (ii) that neither the holder nor any such
person has an arrangement or understanding with any person to participate in
the distribution of such New Notes and (iii) that neither the holder nor any
such other person is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Registrant, or that if it is an "affiliate," it will
comply with the registration and prospective delivery requirements of the
Securities Act to the extent applicable.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or (iii) who cannot complete the procedures for book-entry
transfer of Old Notes to the Exchange Agent's account with DTC prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or 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
certificate number(s) of such Old Notes (if possible) and the principal
amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within five business trading days after
the Expiration Date, (i) the Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the Old Notes
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, or (ii)
that book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC will be effected and confirmation of such book-entry
transfer will be delivered to the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer and all other documents
required by the Letter of Transmittal, or confirmation of book-entry
transfer of the Old Notes into the Exchange Agent's account at DTC, are
received by the Exchange Agent within five business trading days after
the Expiration Date.
21
<PAGE>
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.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer:
The holder tendering Old Notes exchanges, assigns and transfers the Old
Notes to the Registrant and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
assigned, transferred and exchanged. The holder represents and warrants to the
Registrant and the Exchange Agent that (i) it has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire the New
Notes in exchange for the Old Notes, (ii) when the Old Notes are accepted for
exchange, the Registrant will acquire good and unencumbered title to the Old
Notes, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, (iii) it will, upon request, execute and
deliver any additional documents deemed by the Registrant to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Notes and (iv) acceptance of any tendered Old Notes by the Registrant and the
issuance of New Notes in exchange therefor will constitute performance in full
by the Registrant of its obligations under the Registration Rights Agreement
and the Registrant will have no further obligations or liabilities thereunder
to such holders (except with respect to accrued and unpaid Liquidated Damages,
if any). All authority conferred by the holder will survive the death or
incapacity of the holder and every obligation of the holder will be binding
upon the heirs, legal representatives, successors, assigns, executors and
administrators of the holder.
Each holder will also certify that it (i) is not an "affiliate" of the
Registrant within the meaning of Rule 405 under the Securities Act or that, if
it is an "affiliate," it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (ii) is
acquiring the New Notes in the ordinary course of its business and (iii) has
no arrangement with any person or intent to participate in, and is not
participating in, the distribution of the New Notes.
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.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
facsimile transmission or letter indicating notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having tendered the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn Old Notes or otherwise comply with DTC's
procedures. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Registrant, 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 purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for payment will be returned to the holder
thereof without cost to such holder as soon as
22
<PAGE>
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 above under "Procedures for Tendering" at any
time prior to the Expiration Date.
UNTENDERED OLD NOTES
Holders of Old Notes whose Old Notes are not tendered or are tendered but
not accepted in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Registrant will have
no further obligations to such holders, other than the Initial Purchaser, to
provide for the registration under the Securities Act of the Old Notes held by
them. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected.
EXCHANGE AGENT
Bank of Montreal Trust Company, the Trustee under the Indenture, has been
appointed as Exchange Agent of the Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail, By Facsimile:
by hand or by Overnight Courier Bank of Montreal Trust Company
Bank of Montreal Trust Company Attention: Corporate Trust Department
Wall Street Plaza (212) 701-7664
88 Pine Street, 19th Floor Confirm by Telephone:
New York, NY 10005 (212) 701-7652
Attention: Corporate Trust Department
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Registrant. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers, regular
employees or agents of the Registrant and its affiliates.
The Registrant has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Registrant, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith
and will pay the reasonable fees and expenses of holders in delivering their
Old Notes to the Exchange Agent.
The cash expenses of the Registrant to be incurred in connection with the
Registrant's performance and completion of the Exchange Offer will be paid by
the Registrant. Such expenses include fees and expenses of the Exchange Agent
and Trustee, accounting and legal fees and printing costs, among others.
The Registrant will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however,
certificates representing New Notes or Old Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other
23
<PAGE>
than the registered holder of the Old Notes tendered, or if tendered Old Notes
are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act and applicable state
securities laws, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Registrant does not intend to register the Old Notes under the Securities Act.
Based on interpretations by the staff of the Commission with respect to
similar transactions, the Registrant believes that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any holder of such New Notes
(other than any such holder which is an "affiliate" of the Registrant 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 New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the New Notes. If any holder has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, the holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
its New Notes. See "Plan of Distribution." The New Notes may not be offered or
sold unless they have been registered or qualified for sale under applicable
state securities laws or an exemption from registration or qualification is
available and is complied with. The Registrant is required, under the
Registration Rights Agreement, to register the New Notes in any jurisdiction
requested by the holders, subject to certain limitations.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
Upon consummation of the Exchange Offer, holders of the Old Notes that were
not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Registration
Rights Agreement with respect to such nontendered Old Notes and, accordingly,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. However, in the event the Company fails to
consummate the Exchange Offer or a holder of Old Notes notifies the Company in
accordance with the Registration Rights Agreement that it will be unable to
participate in the Exchange Offer due to circumstances delineated in the
Registration Rights Agreement, then the holder of the Old Notes will have
certain rights to have such Old Notes registered under the Securities Act
pursuant to the Registration Rights Agreement and subject to conditions
contained therein.
The Registrant has not entered into any arrangement or understanding with
any person to distribute the New Notes to be received in the Exchange Offer,
and to the best of the Registrant's information and belief, each person
participating in the Exchange Offer is acquiring the New Notes in its ordinary
course of business and has
24
<PAGE>
no arrangement or understanding with any person to participate in the
distribution of the New Notes to be received in the Exchange Offer. In this
regard, the Registrant will make each person participating in the Exchange
Offer aware (through this Prospectus or otherwise) that if the Exchange Offer
is being registered for the purpose of secondary resale, any holder using the
Exchange Offer to participate in a distribution of New Notes to be acquired in
the registered Exchange Offer (i) may not rely on the staff position
enunciated in Morgan Stanley and Co. Inc. (avail. June 5, 1991) and Exxon
Capital Holding Corp. (avail. May 13, 1988) or similar letters and (ii) must
comply with registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Registrant's accounting records on the Exchange Date.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Registrant. The expenses of the Exchange Offer will be expensed over the term
of the New Notes.
USE OF PROCEEDS
The net proceeds of the Offering, after deducting offering expenses, were
approximately $147,000,000 which will be contributed to Adelphia subsidiaries
and used to repay revolving credit facilities of such subsidiaries, all of
which may be reborrowed and used for general corporate purposes of such
subsidiaries. As of September 30, 1997, the average effective interest rate
charged on such subsidiary credit facilities was approximately 6.72%.
Adelphia will not receive any proceeds from the Exchange Offer.
25
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS EXCEPT PAR VALUE AMOUNTS)
The following table sets forth the capitalization of the Company as of
September 30, 1997, on an actual and as adjusted basis to reflect the
Offering, the October Borrowing and the Hyperion Offering, and the application
of the net proceeds therefrom. This table should be read in conjunction with
Adelphia's consolidated financial statements and related notes thereto
included in the Form 10-K and the Form 10-Q.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
ACTUAL AS ADJUSTED (B)
----------- ---------------
<S> <C> <C>
Cash and cash equivalents, excluding U.S.
government securities--pledged................... $ 206,078 $ 401,078
U.S. government securities--pledged............... 83,849 83,849
----------- -----------
Total cash and cash equivalents, including U.S.
government securities--pledged................. $ 289,927 $ 484,927
=========== ===========
Long-term debt including current maturities (a):
Notes of Subsidiaries to banks................... $ 445,100 $ 512,800
Notes of Subsidiaries to institutions............ 221,725 221,725
Other Debt....................................... 10,264 10,264
----------- -----------
Total Subsidiary Bank and Institutional Debt.... 677,089 744,789
----------- -----------
13% Senior Discount Notes of Hyperion due 2003... 200,704 200,704
12 1/4% Senior Secured Notes of Hyperion due
2004............................................ 250,000 250,000
Other Hyperion Debt.............................. 5,219 5,219
----------- -----------
Total Hyperion Debt............................. 455,923 455,923
----------- -----------
Total Subsidiaries' Debt....................... 1,133,012 1,200,712
----------- -----------
9 1/4% Senior Notes due 2002..................... 325,000 325,000
10 1/2% Senior Notes due 2004.................... 150,000 150,000
9 7/8% Senior Notes due 2007..................... 347,358 347,358
12 1/2% Senior Notes due 2002.................... 272,385 69,838
10 1/4% Senior Notes due 2000.................... 99,411 99,411
11 7/8% Senior Debentures due 2004............... 124,558 124,558
9 7/8% Senior Debentures due 2005................ 128,329 128,329
9 1/2% Senior Pay-In-Kind Notes due 2004......... 186,730 186,730
8 3/8% Senior Notes due 2008..................... -- 149,142
----------- -----------
Total Parent Debt................................ 1,633,771 1,580,366
----------- -----------
Total long-term debt including current
maturities.................................... 2,766,783 2,781,078
----------- -----------
Hyperion redeemable exchangeable preferred stock.. -- 195,000
Cumulative redeemable exchangeable preferred
stock............................................ 147,976 147,976
Convertible preferred stock, common stock and
other stockholders' equity (deficiency):
8 1/8% Series C convertible preferred stock
($100,000 liquidation preference)............... 1 1
Class A Common Stock, $.01 par value,
200,000,000 shares authorized and 19,702,308
shares outstanding.............................. 197 197
Class B Common Stock, $.01 par value, 25,000,000
shares authorized and 10,944,476 shares
outstanding..................................... 109 109
Additional paid-in capital....................... 336,873 336,873
Accumulated deficit.............................. (1,551,441) (1,563,594)
----------- -----------
Total stockholders' equity (deficiency)........ (1,214,261) (1,226,414)
----------- -----------
Total capitalization.......................... $ 1,700,498 $ 1,897,640
=========== ===========
</TABLE>
- --------
(a) Reference is made to Note 3 to Adelphia's consolidated financial
statements in the Form 10-K, for a description of Notes of Subsidiaries to
Banks and Institutions. See "The Company--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" in the Form 10-K.
(b) Gives effect to the application of (i) the net proceeds of approximately
$147,000 from the Offering, as described in "Use of Proceeds", (ii)
borrowing from Notes of Subsidiaries to banks of $214,700 which was used
to retire 12 1/2% Senior Notes due 2002 in the principal amount of
$202,547 plus a premium of $12,153 (the "October Borrowing") and (iii) the
net proceeds of $195,000 from the Hyperion Offering to cash and cash
equivalents.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
The selected consolidated financial data as of and for each of the five
years in the period ended March 31, 1997 have been derived from the audited
consolidated financial statements of the Company. These data should be read in
conjunction with the consolidated financial statements and related notes
thereto for each of the three years in the period ended March 31, 1997 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Form 10-K which is incorporated herein by
reference. The statement of operations data with respect to fiscal years ended
March 31, 1993 and 1994, and the balance sheet data at March 31, 1993, 1994
and 1995, have been derived from audited consolidated financial statements of
the Company not included in the Form 10-K. The statements of operations and
balance sheet data as of and for each of the four years ended March 31, 1997
of Hyperion have been derived from audited consolidated financial statements
of Hyperion not included in the Form 10-K. The unaudited information of
Hyperion for the fiscal year ended March 31, 1993 is derived from other
Hyperion information. The selected consolidated financial data as of and for
the six months ended September 30, 1996 and 1997 are unaudited; however, in
the opinion of management, such data reflect all adjustments (consisting of
only normal recurring adjustments) necessary to fairly present the data for
such interim periods. Operating results for the six months ended September 30,
1997 are not necessarily indicative of the results that may be expected for
the year ending March 31, 1998.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $ 305,222 $ 319,045 $ 361,505 $ 403,597 $ 472,778 $ 228,448 $ 251,634
Direct Operating and
Programming Expenses... 82,377 90,547 106,993 124,116 148,982 69,461 78,213
Selling, General and
Administrative
Expenses............... 49,468 52,801 63,487 68,357 81,763 38,813 45,731
Depreciation and
Amortization........... 90,406 89,402 97,602 111,031 124,066 58,739 67,319
Rate Regulation Charge.. -- -- -- 5,300 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating Income ....... 82,971 86,295 93,423 94,793 117,967 61,435 60,371
Interest Income from
Affiliates............. 5,216 9,188 11,112 10,623 8,367 4,212 3,809
Other Income (Expense).. 1,447 (299) 1,453 -- -- -- 610
Priority Investment In-
come from Olympus...... 22,300 22,300 22,300 28,852 42,086 20,090 23,765
Cash Interest Expense... (164,695) (180,456) (180,942) (194,403) (199,332) (101,869) (105,349)
Noncash Interest
Expense................ (164) (1,680) (14,756) (16,288) (41,360) (19,596) (22,629)
Equity in Loss of Joint
Ventures............... (46,841) (30,054) (44,349) (46,257) (59,169) (27,925) (40,464)
Gain on Sale of
Investments............ -- -- -- -- 12,151 8,405 --
--------- --------- --------- --------- --------- --------- ---------
Loss before Income
Taxes, Extraordinary
(Loss)/Gain and
Cumulative Effect of
Change
in Accounting Principle
(a).................... (99,766) (94,706) (111,759) (122,680) (119,290) (55,248) (79,887)
Income Tax (Expense)
Benefit................ (3,143) (2,742) 5,475 2,786 358 9 (295)
--------- --------- --------- --------- --------- --------- ---------
Loss before
Extraordinary
(Loss)/Gain and
Cumulative Effect of
Change in Accounting
Principle (a).......... (102,909) (97,448) (106,284) (119,894) (118,932) (55,239) (80,182)
Extraordinary
(Loss)/Gain on Early
Retirement
of Debt................ (14,386) (752) -- -- (11,710) (2,079) 2,300
Cumulative Effect of
Change in
Accounting for Income
Taxes (a).............. (59,500) (89,660) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Loss................ (176,795) (187,860) (106,284) (119,894) (130,642) (57,318) (77,882)
Dividend Requirements
Applicable to Preferred
Stock.................. -- -- -- -- -- -- (4,550)
--------- --------- --------- --------- --------- --------- ---------
Net Loss Applicable to
Common Stockholders.... $(176,795) $(187,860) $(106,284) $(119,894) $(130,642) $ (57,318) $ (82,432)
========= ========= ========= ========= ========= ========= =========
Loss per weighted
average share of common
stock before
extraordinary
(loss)/gain and
cumulative effect of
change in accounting
principle (a).......... $ (6.80) $ (5.66) $ (4.32) $ (4.56) $ (4.50) $ (2.10) $ (2.92)
Net loss per weighted
average share
of common stock ....... (11.68) (10.91) (4.32) (4.56) (4.94) (2.18) (2.84)
Cash dividends declared
per common share ...... -- -- -- -- -- -- --
Ratio of Earnings
Available to Cover
Combined Fixed Charges
and Preferred
Stock Dividends (f).... -- -- -- -- -- -- --
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30, 1997
------------------------------------------------------------- SEPTEMBER 30, --------------------------
1993 1994 1995 1996 1997 1996 ACTUAL AS ADJUSTED(G)
---------- ----------- ----------- ----------- ---------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Adelphia
Total Assets.......... $ 949,593 $ 1,073,846 $ 1,267,291 $ 1,367,579 $1,643,826 $1,634,832 $2,022,371 $2,219,513
Total Debt............ 1,731,099 1,793,711 2,021,610 2,175,473 2,544,039 2,483,179 2,766,783 2,781,078
Exchangeable Preferred
Stock................ -- -- -- -- -- -- 147,976 342,976
Hyperion
Total Assets.......... 4,316 14,765 23,212 35,269 174,601 177,736 422,753 617,753
Total Debt............ 4,814 19,968 35,541 50,855 215,675 201,699 489,012 489,012
Exchangeable Preferred
Stock................ -- -- -- -- -- -- -- 195,000
Adelphia excluding Hyperion
Total Assets.......... 945,277 1,059,081 1,244,079 1,332,310 1,469,225 1,457,096 1,599,618 1,601,760
Total Debt............ 1,726,285 1,773,743 1,986,069 2,124,618 2,328,364 2,281,480 2,277,771 2,292,066
Exchangeable Preferred
Stock................ -- -- -- -- -- -- 147,976 147,976
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------------------------- ----------------------------------------
ACTUAL
------------------------ AS ADJUSTED
1993 1994 1995 1996 1997 1996 1997 1997 (G)
---------- ----------- ----------- ----------- ---------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA AND
FINANCIAL RATIOS:
Adelphia
Revenues............... $ 305,222 $ 319,045 $ 361,505 $ 403,597 $ 472,778 $ 228,448 $ 251,634 $ 251,634
Affiliate interest and
priority investment
income................ 27,516 31,488 33,412 39,475 50,453 24,302 28,184 28,184
EBITDA (b)............. 202,340 207,936 225,890 247,999 292,486 144,476 155,874 155,874
Interest expense....... (164,859) (182,136) (195,698) (210,691) (240,692) (121,465) (127,978) (123,757)
Preferred stock
dividends............. -- -- -- -- -- -- (4,550) (17,632)
Capital expenditures... 70,975 75,894 92,082 100,089 129,609 54,733 80,615 80,615
Hyperion
Revenues............... $ 89 $ 417 $ 1,729 $ 3,322 $ 5,088 $ 2,277 $ 3,707 $ 3,707
Affiliate interest and
priority investment
income................ -- -- -- -- -- -- -- --
EBITDA (b)............. (851) (1,958) (2,177) (2,452) (5,124) (1,501) (4,158) (4,158)
Interest expense....... -- (2,164) (3,321) (6,088) (28,377) (13,277) (19,164) (19,164)
Preferred stock
dividends............. -- -- -- -- -- -- -- (13,082)
Capital expenditures... 1,950 3,097 2,850 6,084 36,127 10,680 26,231 26,231
Adelphia, excluding Hyperion
Revenues............... $ 305,133 $ 318,628 $ 359,776 $ 400,275 $ 467,690 $ 226,171 $ 247,927 $ 247,927
Affiliate interest and
priority investment
income................ 27,516 31,488 33,412 39,475 50,453 24,302 28,184 28,184
EBITDA (b)............. 203,191 209,894 228,067 250,451 297,610 145,977 160,032 160,032
Interest expense....... (164,859) (179,972) (192,377) (204,603) (212,315) (108,188) (108,814) (104,593)
Preferred stock
dividends............. -- -- -- -- -- -- (4,550) (4,550)
Capital expenditures... 69,025 72,797 89,232 94,005 93,482 44,053 54,384 54,384
Total debt to EBITDA
(c)................... 8.34 8.46 8.51 8.29 7.64 7.65 6.83 6.87
EBITDA to total
interest
expense (d)........... 1.23 1.17 1.19 1.22 1.40 1.35 1.47 1.53
EBITDA to combined
interest expense and
preferred stock
dividends (e)......... 1.23 1.17 1.19 1.22 1.40 1.35 1.41 1.47
</TABLE>
28
<PAGE>
- --------
(a) "Cumulative Effect of Change in Accounting Principle" refers to a change
in accounting principle for Olympus and the Company. Effective January 1,
1993 and April 1, 1993, respectively, Olympus and the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach for financial accounting and reporting for income taxes. The
adoption of SFAS No. 109 resulted in the cumulative recognition of an
additional liability by Olympus and the Company of $59,500 and $89,660,
respectively.
(b) Earnings before interest expense, income taxes, depreciation and
amortization, equity in net loss of joint ventures, other noncash charges,
extraordinary loss and cumulative effect of change in accounting principle
("EBITDA"). EBITDA includes affiliate interest and priority investment
income on the Company's investment in Olympus, although there can be no
assurance that such priority investment income will be available to the
Company in the future. EBITDA and similar measurements of cash flow are
commonly used in the cable television industry to analyze and compare
cable television companies on the basis of operating performance, leverage
and liquidity. While EBITDA is not an alternative indicator of operating
performance to operating income or an alternative to cash flows from
operating activities as a measure of liquidity as defined by generally
accepted accounting principles, and, while EBITDA may not be comparable to
other similarly titled measures of other companies, the Company's
management believes EBITDA is a meaningful measure of performance as
substantially all of the Company's financing agreements contain financial
covenants based on EBITDA.
(c) Based on total debt outstanding at the end of the period, divided by
annualized EBITDA for the quarter ending the period presented. The Company
believes that this presentation is consistent with covenant tests which
limit the incurrence of indebtedness in certain of the Company's loan
agreements and that this ratio is commonly used for the cable television
industry as a measure of leverage.
(d) Based on EBITDA for the period presented divided by interest expense
recorded for the applicable period.
(e) Based on EBITDA for the period presented divided by combined interest
expense and preferred stock dividends recorded for the applicable period.
(f) For purposes of calculating the ratio of earnings available to cover
combined fixed charges and preferred stock dividends; (i) earnings consist
of loss before income taxes and extraordinary items plus fixed charges,
excluding capitalized interest and (ii) fixed charges consist of interest,
whether expensed or capitalized, plus amortization of debt issuance costs
plus the assumed interest component of rent expense. For the years ended
March 31, 1993, 1994, 1995, 1996 and 1997 and the six-month periods ended
September 30, 1996 and 1997, respectively, the Company's earnings were
insufficient to cover its combined fixed charges and preferred stock
dividends by $53,934, $65,997, $69,146, $78,189, $61,848, $28,182 and
$44,677, respectively. On a pro forma basis, the Company's earnings were
insufficient to cover its combined fixed charges and preferred stock
dividends by $128,361 and $66,094 for the year ended March 31, 1997 and
for the six months ended September 30, 1997, respectively.
(g) As adjusted data for the six-month period ended September 30, 1997, give
effect to (i) the net proceeds of approximately $147,000 from the
Offering, as described in "Use of Proceeds," (ii) the October Borrowing
and (iii) the net proceeds of $195,000 from the Hyperion Offering to cash
and cash equivalents.
29
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The New Notes, like the Old Notes, will be issued pursuant to the Indenture,
dated January 21, 1998 (the "Indenture"), among the Company and Bank of
Montreal Trust Company, as trustee (the "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 of 1939 (the "Trust Indenture Act"). The
terms of the New Notes are substantially identical to the Old Notes in all
material respects (including interest rate and maturity), except that (i) the
New Notes will not be subject to the restrictions on transfer (other than with
respect to holders that are broker-dealers, persons who participated in the
distribution of the Old Notes or affiliates) and (ii) the Registration Rights
Agreement covenants regarding registration and the related Liquidated Damages
(other than those that have accrued and were not paid) with respect to
Registration Defaults will have been deemed satisfied. The Notes are subject
to all such terms, and holders of Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified
by reference to the Indenture, including the definitions therein of certain
terms used below. A copy of the Indenture and Registration Rights Agreement is
available as set forth under "Available Information." The definitions of
certain terms used in the following summary are set forth below under "--
Certain Definitions." As used in this section, the term "Company" refers only
to Adelphia Communications Corporation and not to its subsidiaries.
As of the date of this Prospectus, $150,000,000 principal amount of the Old
Notes was outstanding.
The Indenture authorizes the issuance of up to $300,000,000 in aggregate
principal amount of the Notes. The Notes are general senior unsecured
obligations of Adelphia and are effectively subordinate in right of payment to
the liabilities of Adelphia's subsidiaries. See "Subordination to Subsidiary
Debt" and "Certain Definitions" below.
The Notes will mature on February 1, 2008. Adelphia will pay interest on the
Notes on February 1 and August 1 of each year, commencing August 1, 1998, to
the persons who are registered holders at the close of business on the January
15 and July 15 immediately preceding the interest payment date. The Notes will
not be redeemable prior to the maturity date.
The Notes will be issued only in fully registered form without coupons and
will be issued in denominations of $1,000 and integral multiples thereof.
The Indenture and the existing indentures under which the 9 1/4% Senior
Notes due 2002 (the "9 1/4% Notes"), the 9 7/8% Senior Notes due 2007 (the "9
7/8% Notes"), the 10 1/2% Senior Notes due 2004 (the "10 1/2% Notes"), the 12
1/2% Senior Notes due 2002 (the "12 1/2% Notes"), the 10 1/4% Senior Notes due
2000 (the "10 1/4% Notes"), the 9 1/2% Senior Pay-In-Kind Notes due 2004 (the
"9 1/2% Notes"), the 11 7/8% Senior Debentures due 2004 (the "11 7/8%
Debentures") and the 9 7/8% Senior Debentures due 2005 (the "9 7/8%
Debentures") of Adelphia were issued contain covenants which may afford
holders of the Notes, the 9 1/4% Notes, the 9 7/8% Notes, the 10 1/2% Notes,
the 12 1/2% Notes, the 10 1/4% Notes, the 9 1/2% Notes, the 11 7/8% Debentures
and the 9 7/8% Debentures certain protections regarding leverage and the
incurrence of indebtedness. These include covenants which limit the amount of
additional indebtedness that may be incurred by Adelphia and its subsidiaries,
which restrict mergers and consolidations by Adelphia unless, after giving
effect to the transaction, the consolidated fixed charge ratio of the
surviving entity satisfies certain compliance tests, and which require such
Notes, the 9 1/4% Notes, the 9 7/8% Notes, the 10 1/2% Notes, the 12 1/2%
Notes, the 10 1/4% Notes, the 9 1/2% Notes, 11 7/8% Debentures and 9 7/8%
Debentures to be secured equally and ratably with other indebtedness in
certain circumstances where Adelphia creates or assumes liens on its property
or assets in connection therewith. See "Covenants" below.
On the date of the Indenture, the only Unrestricted Subsidiaries of Adelphia
were Hyperion, Global Cablevision, Inc. and Orchard Park Cablevision, Inc. and
their respective subsidiaries. See the Form 10-K and the Form 10-Q.
30
<PAGE>
The Notes are not redeemable and there is no mandatory redemption or sinking
fund prior to maturity.
RANKING
The New Notes will be senior unsecured indebtedness of Adelphia, will rank
pari passu in right of payment with other unsubordinated indebtedness of
Adelphia and senior in right of payment to all future subordinated
indebtedness of Adelphia. The operations of Adelphia are conducted through its
subsidiaries and, therefore, Adelphia is dependent on the earnings and cash
flow of and distributions from its subsidiaries to meet its debt obligations,
including its obligations with respect to the New Notes. Because the assets of
its subsidiaries constitute substantially all of the assets of Adelphia, and
because the subsidiaries will not guarantee the payment of principal of and
interest on the New Notes, the claims of holders of the New Notes effectively
will be subordinated to the claims of creditors of such entities. As of
September 30, 1997 on a pro forma basis, after giving effect to the Offering,
the October Borrowing, and the Hyperion Offering and to the application of the
net proceeds therefrom, the New Notes would have been effectively subordinated
to $1.4 billion of indebtedness and redeemable preferred stock of Adelphia's
subsidiaries. As of September 30, 1997, the total indebtedness of Adelphia's
subsidiaries to banks and institutions, on a consolidated basis, aggregated
$1.1 billion. See "Risk Factors--Holding Company Structure; Restrictive
Covenants."
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Adelphia and the Initial Purchaser entered into the Registration Rights
Agreement on January 21, 1998 (the "Closing Date"). Pursuant to the
Registration Rights Agreement, Adelphia has agreed to use its reasonable
efforts to file with the Commission on or prior to 90 days after the Closing
Date 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, Adelphia 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 (i) Adelphia is not
required to file the Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy, or (ii) any Holder of Transfer Restricted
Securities notifies Adelphia on or prior to the 20th Business Day following
consummation of the Exchange Offer that it (a) is prohibited by law or
Commission policy from participating in the Exchange Offer or (b) 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 (iii) any holder of Transfer Restricted Securities is a broker-dealer and
holds Notes acquired directly from Adelphia or an affiliate of Adelphia, and
shall so notify Adelphia, Adelphia 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. Adelphia will use its best
efforts to cause the applicable registration statement to be declared
effective by the Commission within the applicable time period. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until (i) 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, (ii) 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, (iii) the date on
which such Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the
date on which such Note is distributed to the public pursuant to Rule 144
under the Securities Act. Notwithstanding the foregoing, at any time after
Consummation (as defined in the Registration Rights Agreement) of the Exchange
Offer, Adelphia may allow the Shelf Registration Statement to cease to be
effective and usable if (i) the Board of Directors of Adelphia determines in
good faith that such action is in the best interests of Adelphia, and Adelphia
notifies the Holders within a certain period of time after the Board of
Directors of Adelphia makes such determination or (ii) the prospectus
contained in the Shelf Registration Statement contains an untrue statement of
a material fact or omits to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided that the period referred to in the Registration
Rights Agreement during which the Shelf Registration Statement is required to
be effective and usable will be extended by the
31
<PAGE>
number of days during which such registration statement was not effective or
usable pursuant to the foregoing provisions.
The Registration Rights Agreement provides that (i) Adelphia will use its
reasonable efforts to file an Exchange Offer Registration Statement with the
Commission on or prior to 90 days after the Closing Date, (ii) Adelphia will
use its best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 180 days after the Closing
Date (which 180-day period shall be extended for a number of days equal to the
number of Business Days, if any, that the Commission is officially closed
during such period), (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, Adelphia will commence the Exchange Offer
and use its best efforts to issue on or prior to 30 days 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 (iv) if obligated to file the Shelf Registration
Statement, Adelphia will use its best efforts to file the Shelf Registration
Statement with the Commission on or prior to 60 days after such filing
obligation arises and to cause the Shelf Registration Statement to be declared
effective by the Commission on or prior to 90 days after such filing
obligation arises. If (a) Adelphia fails to file either of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) either 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"), (c) Adelphia fails to
consummate the Exchange Offer within 30 days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement, or (d) subject to
the last sentence of the preceding paragraph, 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 (a)
through (d) above is a "Registration Default"), then, subject to the last
sentence of the preceding paragraph, Adelphia will pay Liquidated Damages to
each holder of Transfer Restricted Securities, with respect to the first 90-
day period immediately following the occurrence of such Registration Default,
in an amount equal to 0.25% per annum on the principal amount of Notes
constituting Transfer Restricted Securities held by such Holder. The amount of
the Liquidated Damages will increase by an additional 0.25% per annum with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of 2.0% per annum on
the principal amount of Notes constituting Transfer Restricted Securities. All
accrued Liquidated Damages will be paid by Adelphia in cash on each Damages
Payment Date to the Global Note Holder (and any holder of Certificated
Securities who has given wire-transfer instructions to Adelphia at least 10
Business Days prior to the Damages Payment Date) by wire transfer of
immediately available funds and to all other Holders of Certificated
Securities by mailing checks to their registered addresses. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of the Old Notes will be required to make certain representations to
Adelphia (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver 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 Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
by reference to, all the provisions of the Registration Rights Agreement, a
copy of which will be available upon request to Adelphia.
Except as described below under "--Modification of Indenture," the Old Notes
and the New Notes will be considered collectively to be a single class for all
purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and repurchase offers, and for purposes of this
"Description of the Notes" (except under this caption, "--Registration Rights;
Liquidated Damages"), all reference herein to "Notes" shall be deemed to refer
collectively to the Old Notes and any New Notes, unless the context otherwise
requires.
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<PAGE>
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for
the full definition of all such terms as well as any other capitalized terms
used herein for which no definition is provided.
"Affiliate" means a Person (i) which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, Adelphia, (ii) which beneficially owns or holds 10% or more of any class
of the voting Capital Stock of Adelphia, or (iii) of which 10% or more of the
voting Capital Stock is beneficially owned or held by Adelphia, a Restricted
Subsidiary or an Unrestricted Subsidiary of Adelphia. Without limitation, an
Affiliate also includes any director or executive officer of Adelphia. As used
herein, "Affiliate" shall not include a Restricted Subsidiary.
"Aggregate Excess Restricted Investments" means for any fiscal quarter the
aggregate of Excess Restricted Investments with respect to the Restricted
Investments in all of the Unrestricted Subsidiaries and Affiliates of
Adelphia.
"Allowable Securities" means (i) cash equivalents, (ii) common or preferred
Capital Stock in a Person which (x) has Investment Grade Senior Debt or (y)
whose ratio of Indebtedness plus Preferred Stock to Annualized Pro Forma
EBITDA is less than 7.75:1, or (iii) debt securities issued by a Person which
(x) has Investment Grade Senior Debt or (y) whose Leverage Ratio is less than
7.75:1, provided that the securities in (ii)(y) and (iii)(y) above shall only
be deemed to be Allowable Securities if the principal business of the Person
is owning and operating cable television systems.
"Annualized Pro Forma EBITDA" means, with respect to any Person, (i) such
Person's Pro Forma EBITDA for the latest fiscal quarter multiplied by four,
minus (ii) in the case of Adelphia only, Adelphia's Aggregate Excess
Restricted Investments for such fiscal quarter.
"Asset Sale" means the sale, transfer or other disposition (other than to
Adelphia or any of its Restricted Subsidiaries) in any single transaction or
series of related transactions of (a) any Capital Stock of or other equity
interest in any Restricted Subsidiary, (b) all or substantially all of the
assets of Adelphia or of any Restricted Subsidiary, or (c) all or
substantially all of the assets of a Company System or part thereof serving at
least 5,000 basic subscribers, a division, line of business or comparable
business segment of Adelphia or any Restricted Subsidiary.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of corporate stock, partnership
interests or any other participation, right or other interest in the nature of
an equity interest in such Person or any option, warrant or other security
convertible into any of the foregoing.
"Capital Stock Sale Proceeds" means the aggregate net sale proceeds
(including the fair market value of property, other than cash, as determined
by an independent appraisal firm) received by Adelphia from the issue or sale
(other than to a Subsidiary) by Adelphia of any class of its Capital Stock on
or after January 1, 1993 (including Capital Stock of Adelphia issued after
January 1, 1993 upon conversion of or in exchange for other securities of
Adelphia).
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with generally accepted accounting
principles.
"Change of Control" means such time as (i) (a) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than
the Rigas Family and its Affiliates, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 35% of the total
voting power required to elect or designate for election a majority of
Adelphia's Board of Directors and attaching to the then outstanding
33
<PAGE>
voting Capital Stock of Adelphia and (b) the Rigas Family, together with its
Affiliates, is not at such time the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 35% of the total voting power
required to elect or designate for election a majority of Adelphia's Board of
Directors and attaching to the then outstanding voting Capital Stock of
Adelphia, or (ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted Adelphia's Board
of Directors (together with any new directors whose election by Adelphia's
Board of Directors or whose nomination for election by Adelphia's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved or approved by
the Rigas Family and its Affiliates at a time when they had the right or
ability by voting right, contract or otherwise to elect or designate for
election a majority of Adelphia's Board of Directors) cease for any reason to
constitute a majority of the directors then in office.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Consolidated Fixed Charge Ratio" means, for any Person, for any period, the
ratio of (i) Annualized Pro Forma EBITDA to (ii) Consolidated Interest Expense
for such period multiplied by four.
"Consolidated Interest Expense" means, for any Person, for any period, the
amount of interest in respect of Indebtedness (including amortization of
original issue discount, amortization of debt issuance costs, and non-cash
interest payments on any Indebtedness and the interest portion of any deferred
payment obligation and after taking into account the effect of elections made
under any Interest Rate Agreement, however denominated, with respect to such
Indebtedness), the amount of Redeemable Dividends and the interest component
of rentals in respect of any Capitalized Lease Obligation paid, accrued or
scheduled to be paid or accrued by such Person during such period, determined
on a consolidated basis in accordance with generally accepted accounting
principles. For purposes of this definition, interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by such Person to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with generally accepted accounting principles
consistently applied.
"Cumulative Credit" means the sum of (i) Capital Stock Sale Proceeds plus
(ii) cumulative EBITDA of Adelphia from and after January 1, 1993 to the end
of the fiscal quarter immediately preceding the date of a proposed Restricted
Payment, or, if such cumulative EBITDA for such period is negative, minus the
amount by which such cumulative EBITDA is less than zero.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid, accrued or scheduled to be paid or accrued by Adelphia
from January 1, 1993 to the end of the fiscal quarter immediately preceding a
proposed Restricted Payment, determined on a consolidated basis in accordance
with generally accepted accounting principles.
"EBITDA" means, for any Person, for any period, an amount equal to (A) the
sum of (i) consolidated net income for such period (exclusive of any gain or
loss realized in such period upon an Asset Sale), plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing consolidated net income and any provision
for taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period, plus (iv) depreciation for such
period on a consolidated basis, plus (v) amortization of intangibles for such
period on a consolidated basis, plus (vi) any other non-cash items reducing
consolidated net income for such period, minus (B) all non-cash items
increasing consolidated net income for such period, all for such Person and
its Subsidiaries determined in accordance with generally accepted accounting
principles consistently applied, except that with respect to Adelphia each of
the foregoing items shall be determined on a consolidated basis with respect
to Adelphia and its Restricted Subsidiaries only.
"Excess Restricted Investment" means, with respect to any particular
Unrestricted Subsidiary or Affiliate of Adelphia for a fiscal quarter, the
lesser of the amounts described in the following clauses (i) and (ii), or, if
such amounts are equal, such amount:
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(i) the aggregate amount of any Restricted Investments (other than the
Initial Investment) made by Adelphia or any Restricted Subsidiary with
respect to such Unrestricted Subsidiary or Affiliate and during the
twelve-month period ending on the last day of such fiscal quarter;
(ii) cash income received during such quarter by Adelphia with respect to
its Restricted Investments in such Unrestricted Subsidiary or
Affiliate multiplied by four;
and provided that cash income from a particular Restricted Investment shall be
included only (x) if cash income has been received by Adelphia with respect to
such Restricted Investment during each of the previous two fiscal quarters, or
(y) if the cash income derived from such Restricted Investment is attributable
to Allowable Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Indebtedness" is defined to mean (without duplication), with respect to any
Person, any indebtedness, secured or unsecured, contingent or otherwise, which
is for borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), or evidenced
by bonds, notes, debentures or similar instruments or representing the balance
deferred and unpaid of the purchase price of any property (excluding, without
limitation, any balances that constitute subscriber advance payments and
deposits, accounts payable or trade payables, and other accrued liabilities
arising in the ordinary course of business) if and to the extent any of the
foregoing indebtedness would appear as a liability upon a balance sheet of
such Person prepared in accordance with generally accepted accounting
principles, and shall also include, to the extent not otherwise included (i)
any Capitalized Lease Obligations, (ii) obligations secured by a lien to which
the property or assets owned or held by such Person is subject, whether or not
the obligation or obligations secured thereby shall have been assumed, (iii)
guaranties of items of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) in the case of Adelphia, Preferred
Stock of its Restricted Subsidiaries and (v) obligations of any such Person
under any Interest Rate Agreement applicable to any of the foregoing.
Notwithstanding the foregoing, Indebtedness shall not include any interest or
accrued interest until due and payable.
"Initial Investment" means the Restricted Investment in a Person made by
Adelphia or a Restricted Subsidiary that first results in such Person becoming
an Unrestricted Subsidiary or Affiliate of Adelphia, except that in the case
of Olympus, "Initial Investment" shall mean any Restricted Investment made in
Olympus since February 22, 1994, but only to the extent that such Restricted
Investment when aggregated with the other Restricted Investments made in
Olympus since such date does not exceed $25,000,000.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
"Investment Grade Senior Debt" means, with respect to any Person,
Indebtedness of such Person which has been rated with an investment grade
rating by Moody's or Standard & Poor's.
"Leverage Ratio" is defined as the ratio of (i) the outstanding Indebtedness
of a Person and its Subsidiaries (or in the case of Adelphia, its Restricted
Subsidiaries) divided by (ii) the Annualized Pro Forma EBITDA of such Person.
"Lien" means with respect to any property or assets of Adelphia (it being
understood that for purposes of this definition property or assets of Adelphia
do not include property or assets of any Subsidiary of Adelphia) any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind
or nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sale, or
other title retention agreement having substantially the same economic effect
as any of the
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foregoing) except for (i) liens for taxes, assessments or governmental charges
or levies on property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith
and by appropriate proceedings; (ii) 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 not more than
sixty (60) days past due or are being contested in good faith and by
appropriate proceedings; (iii) other liens incidental to the conduct of its
business or the ownership of its property and assets which were not incurred
in connection with the borrowing of money or the obtaining of advances or
credit and which do not in the aggregate materially detract from the value of
its property or assets or materially impair the use thereof in the operation
of its business; (iv) utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature generally
existing with respect to properties of a similar character; or (v) liens
arising upon entry of a confession of judgment in Pennsylvania courts in
connection with borrowings not in excess of $1,000,000 in aggregate.
"Permitted Investments" means, for any Person, Restricted Investments made
on or after February 22, 1994 consisting of (i) advances for less than one
year issued in the ordinary course of business for working capital purposes or
for the purchase of property, plant and equipment in an amount not to exceed
$5,000,000 in the aggregate outstanding, (ii) with respect to a Restricted
Investment in Olympus, $25,000,000 plus the aggregate amount of cash income
received by Adelphia from Olympus, minus the aggregate amount of all
Restricted Investments made since February 22, 1994, with respect to Olympus,
(iii) $20,000,000 plus the cash proceeds from the sale or redemption of, or
income from, any Restricted Investments made on or after January 1, 1993,
minus the aggregate amount of all Restricted Investments (excluding Restricted
Investments made with respect to Olympus) since January 1, 1993, (iv) non-cash
Restricted Investments made with the non-cash proceeds from the sale or
redemption of, or income from, any Restricted Investments, or (v) an amount
which, at the time of such Restricted Investment, does not exceed the amount
of Restricted Payments that could then be made by Adelphia and its Restricted
Subsidiaries under the covenant set forth under "Limitations on Restricted
Payments"; provided further that no Restricted Investments may be made under
(ii), (iii), (iv) or (v) unless pro forma for such Restricted Investment
Adelphia could incur $1 of debt under the first paragraph of the covenant set
forth under "Limitation on Indebtedness."
"Permitted Refinancing Indebtedness" means any renewals, extensions,
substitutions, refinancings or replacements of any Indebtedness, including any
successive extensions, renewals, substitutions, refinancings or replacements
so long as (i) the aggregate amount of Indebtedness represented thereby is not
increased by such renewal, extension, substitution, refinancing or
replacement, (ii) in the case of Indebtedness of Adelphia, the average life
and the date such Indebtedness is scheduled to mature is not shortened and
(iii) in the case of Indebtedness of Adelphia, the new Indebtedness shall not
be senior in right of payment to the Indebtedness that is being extended,
renewed, substituted, refinanced or replaced.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of such
Person as determined on a consolidated basis in accordance with generally
accepted accounting principles consistently applied after giving effect to the
following: (i) if, during or after such period, such Person or any of its
Subsidiaries shall have made any Asset Sale, Pro Forma EBITDA of such Person
and its Subsidiaries for such period shall be reduced by an amount equal to
the Pro Forma EBITDA (if positive) directly attributable to the assets which
are the subject of such Asset Sale for the period or increased by an amount
equal to the Pro Forma EBITDA (if negative) directly attributable thereto for
such period and (ii) if, during or after such period, such Person or any of
its Subsidiaries completes an acquisition of any Person or business which
immediately after such acquisition is a Subsidiary of such Person or whose
assets are held directly by such Person or a Subsidiary of such Person, Pro
Forma EBITDA shall be computed so as to give pro forma effect to the
acquisition of such Person or business; and provided further that, with
respect to Adelphia, all of the foregoing references to "Subsidiary" or
"Subsidiaries" shall be deemed to refer only to a "Restricted Subsidiary" or
"Restricted Subsidiaries" of Adelphia.
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"Rating Date" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention of Adelphia to effect a Change of Control.
"Rating Decline" means the occurrence of the following on, or within 90 days
after, the date of public notice of the occurrence of a Change of Control or
of the intention by Adelphia to effect a Change of Control (which period shall
be extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade by Moody's or Standard & Poor's): (a) in
the event the Notes are rated by either Moody's or Standard & Poor's on the
Rating Date as Investment Grade Senior Debt, the rating of the Notes by both
Moody's and Standard & Poor's Corporation shall be below Investment Grade
Senior Debt; or (b) in the event the Notes are rated below Investment Grade
Senior Debt by both Moody's and Standard & Poor's on the Rating Date, the
rating of the Notes by either Moody's or Standard and Poor's shall be
decreased by one or more gradations (including gradations within rating
categories as well as between rating categories).
"Redeemable Dividend" means, for any dividend with regard to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any Person, any Capital Stock that
by its terms or otherwise is required to be redeemed or is redeemable at the
option of the holder at any time prior to the maturity of the Notes.
"Restricted Investment" means any advance, loan, account receivable (other
than an account receivable arising in the ordinary course of business), or
other extension of credit (excluding, however, accrued and unpaid interest in
respect of any advance, loan or other extension of credit) or any capital
contribution to (by means of transfers of property to others, payments for
property or services for the account or use of others, or otherwise), any
purchase or ownership of any stocks, bonds, notes, debentures or other
securities (including, without limitation, any interests in any partnership or
joint venture) of, or any bank accounts with or guarantee of any Indebtedness
or other obligations of, any Unrestricted Subsidiary or Affiliate of Adelphia.
"Restricted Payment" means (i) any dividend or distribution (whether made in
cash, property or securities), on or with respect to any shares of Capital
Stock of Adelphia or Capital Stock of any Subsidiary which is consolidated
with Adelphia in accordance with generally accepted accounting principles
consistently applied, except for any dividend or distribution which is made
solely to Adelphia or another Subsidiary or dividends or distributions payable
solely in shares of Common Stock of Adelphia, or (ii) any redemption,
repurchase, retirement or other direct or indirect acquisition of (a)
Indebtedness of Adelphia which is subordinate in right of payment to the
Notes, except by exchange for or out of the proceeds of the substantially
concurrent issuance of Permitted Refinancing Indebtedness or from the proceeds
of a sale of Capital Stock by Adelphia or (b) shares of Capital Stock of
Adelphia or any warrants, rights or options to directly or indirectly purchase
or acquire any such Capital Stock of Adelphia or any securities exchangeable
for or convertible into any such shares, other than options issued or shares
purchased or granted under Adelphia's Stock Option Plan of 1986 or Adelphia's
Restricted Stock Bonus Plan, from any employee of Adelphia or any of its
Subsidiaries who, together with any Person that, directly or indirectly,
controls (other than by virtue of being directly or indirectly the employer of
such employee), is controlled by or is under common control with such
employee, owns less than 1% of the outstanding Capital Stock of Adelphia,
except for the purchase, redemption, retirement or other acquisition of any
shares of Adelphia's Capital Stock by exchange for, or out of the proceeds of
the substantially concurrent sale of, other shares of its Capital Stock other
than any capital stock which, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to February 1, 2008.
"Restricted Subsidiary" means (a) any Subsidiary of Adelphia, whether
existing on or after the date of the Indenture, unless such Subsidiary is an
Unrestricted Subsidiary or shall have been classified as an Unrestricted
Subsidiary by a resolution adopted by the Board of Directors of Adelphia and
(b) an Unrestricted Subsidiary
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which is reclassified as a Restricted Subsidiary by a resolution adopted by
the Board of Directors of Adelphia, provided that on and after the date of
such reclassification such Unrestricted Subsidiary shall not incur
Indebtedness other than that permitted to be incurred by a Restricted
Subsidiary under the provisions of the Indenture.
"Rigas Family" means collectively John J. Rigas and members of his immediate
family, any of their respective spouses, estates, lineal descendants, heirs,
executors, personal representatives, administrators, trusts for any of their
benefit and charitable foundations to which shares of Adelphia's Capital Stock
beneficially owned by any of the foregoing have been transferred.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which
more than 50% of the total voting power of the Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the
direction of the management and policies of such entity by contract or
otherwise if in accordance with generally accepted accounting principles such
entity is consolidated with the first-named Person for financial statement
purposes.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary, (b) any Subsidiary of Adelphia which is classified after the date
of the Indenture as an Unrestricted Subsidiary by a resolution adopted by the
Board of Directors of Adelphia and (c) any subsidiary which as of the date of
the Indenture has been declared an Unrestricted Subsidiary by a resolution
adopted by the Board of Directors of Adelphia; provided that a Subsidiary
organized or acquired after the date of the Indenture may be so classified as
an Unrestricted Subsidiary only if immediately after the date of such
classification, any investment by Adelphia and its Restricted Subsidiaries in
such Subsidiary made at the time of the organization or acquisition of such
Subsidiary would be a Restricted Investment permissible under the Indenture.
The Trustee shall be given prompt notice by Adelphia of each resolution
adopted by its Board of Directors under this provision, together with a copy
of each such resolution adopted.
SUBORDINATION TO SUBSIDIARY DEBT
All liabilities of Adelphia's subsidiaries will be effectively senior in
right of payment to the Notes. As of September 30, 1997, the total
indebtedness of such subsidiaries to banks and institutions, on a consolidated
basis, aggregated approximately $1.1 billion. See "Risk Factors--Holding
Company Structure; Restrictive Covenants."
COVENANTS
The Indenture contains, among others, the following covenants. Except as
otherwise specified, all of the covenants described below appear in the
Indenture.
Limitation on Indebtedness. The Indenture provides that Adelphia will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, issue, assume or become liable for, contingently or otherwise
(collectively an "incurrence"), any Indebtedness (other than the $150,000,000
of Notes originally issued under the Indenture) unless, after giving effect to
such incurrence on a pro forma basis, Indebtedness of Adelphia and its
Restricted Subsidiaries, on a consolidated basis, shall not be more than the
product of the Annualized Pro Forma EBITDA for the latest fiscal quarter
preceding such incurrence for which financial statements are available,
multiplied by 8.75.
Notwithstanding the above, the Indenture does not limit the incurrence of
Indebtedness which is incurred by Adelphia or its Restricted Subsidiaries for
working capital purposes or capital expenditures with respect to plant,
property and equipment of Adelphia and its Restricted Subsidiaries in an
aggregate amount not to exceed
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$50,000,000. Further, the Indenture will not limit Permitted Refinancing
Indebtedness, subject to the provisions of the covenant set forth under
"Limitation on Restricted Payments."
Limitation on Restricted Payments. The Indenture provides that, so long as
any of the Notes remain outstanding, Adelphia shall not make, and shall not
permit any Restricted Subsidiary to make, any Restricted Payment (as defined
above) if (a) at the time of such proposed Restricted Payment, a Default or
Event of Default shall have occurred and be continuing or shall occur as a
consequence of such Restricted Payment, or (b) immediately after giving effect
to any such Restricted Payment, the aggregate of all Restricted Payments which
shall have been made on or after January 1, 1993 (the amount of any Restricted
Payment, if other than cash, to be based upon fair market value as determined
in good faith by Adelphia's Board of Directors whose determination shall be
conclusive) would exceed an amount equal to the greater of (i) the sum of
$5,000,000 or (ii) the difference between (a) the Cumulative Credit (as
defined above) and (b) the sum of the aggregate amount of all Restricted
Payments, and all Permitted Investments made pursuant to clause (v) of the
definition of "Permitted Investments," made on or after January 1, 1993 plus
1.2 times Cumulative Interest Expense (as defined above).
Mergers and Consolidations. The Indenture provides that Adelphia may not
consolidate with, merge with or into, or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction
or a series of related transactions), to any Person unless: (i) Adelphia shall
be the continuing Person, or the Person (if other than Adelphia) formed by
such consolidation or into which Adelphia is merged or to which the properties
and assets of Adelphia are transferred shall be a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all of the obligations of Adelphia under the Notes and the Indenture, and the
obligations under the Indenture shall remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; and (iii)
immediately after giving effect to such transaction on a pro forma basis for
the most recent quarter, the pro forma Consolidated Fixed Charge Ratio of the
surviving entity shall be at least 1:1; provided that, if the Consolidated
Fixed Charge Ratio of Adelphia for the most recent quarter preceding such
transaction is within the range set forth in Column A below, then the pro
forma Consolidated Fixed Charge Ratio of the surviving entity after giving
effect to such transaction shall be at least equal to the greater of the
percentage of the Consolidated Fixed Charge Ratio of Adelphia for the most
recent quarter preceding such transaction set forth in Column B or the ratio
set forth in Column C below:
<TABLE>
<S> <C> <C>
A B C
----- ----- ------
1.1111:1 to 1.4999:1 90% 1.00:1
1.5 and higher 80% 1.35:1
</TABLE>
and provided, further, that if the pro forma Consolidated Fixed Charge Ratio
of the surviving entity is 2:1 or more, the calculation in the preceding
proviso shall be inapplicable and such transaction shall be deemed to have
complied with the requirements of such proviso.
In connection with any consolidation, merger or transfer contemplated by
this provision, Adelphia shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
Limitations on Investment in Affiliates and Unrestricted Subsidiaries. After
the date of the Indenture, Adelphia may not, nor will Adelphia allow any
Restricted Subsidiary to, make a Restricted Investment other than by way of
Permitted Investments unless pro forma for such Restricted Investment the
Leverage Ratio of Adelphia does not exceed 7.75:1.
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Covenant to Secure Notes Equally. The Indenture provides that except for
Liens created or assumed by Adelphia in connection with the acquisition of
real property or equipment to be used by Adelphia in the operation of its
business which do not secure Indebtedness in excess of the purchase price of
such real property or equipment, Adelphia covenants that, if it shall create
or assume any Lien upon any of its property or assets, whether now owned or
hereafter acquired, it will make or cause to be made effective provisions
whereby the Notes will be secured by such Lien equally and ratably with all
other Indebtedness of Adelphia secured by such Lien, as long as any such other
Indebtedness of Adelphia shall be so secured. The restriction imposed by this
covenant shall not apply with respect to a Lien, including a pledge of Capital
Stock of a Subsidiary or an Affiliate, to secure Indebtedness which is an
obligation of such Subsidiary or Affiliate and not an obligation of Adelphia.
Limitation on Transactions with Affiliates. The Indenture provides that
Adelphia will not, and will not permit any Restricted Subsidiary to, engage in
any transaction with any Affiliate upon terms which would be any less
favorable than those obtainable by Adelphia or a Restricted Subsidiary in a
comparable arm's-length transaction with a person which is not an Affiliate.
The Indenture will provide that Adelphia will not, and will not permit any
Restricted Subsidiary to, engage in any transaction (or series of related
transactions) involving in the aggregate $1,000,000 or more with any Affiliate
except for (i) the making of any Restricted Payment, (ii) any transaction or
series of transactions between Adelphia and one or more of its Restricted
Subsidiaries or between two or more of its Restricted Subsidiaries (provided
that no more than 5% of the equity interest in any of its Restricted
Subsidiaries is owned by an Affiliate), and (iii) the payment of compensation
(including, without limitation, amounts paid pursuant to employee benefit
plans) for the personal services of officers, directors and employees of
Adelphia or any of its Restricted Subsidiaries, so long as the Board of
Directors of Adelphia in good faith shall have approved the terms thereof and
deemed the services theretofore or thereafter to be performed for such
compensation or fees to be fair consideration therefor; and provided further
that for any Asset Sale, or a sale, transfer or other disposition (other than
to Adelphia or any of its Restricted Subsidiaries) of an interest in a
Restricted Investment, involving an amount greater than $25,000,000, such
Asset Sale or transfer of interest in a Restricted Investment is for fair
value as determined by an opinion of a nationally recognized investment
banking firm filed with the Trustee. Notwithstanding the foregoing, the
Indenture provides that such provision will not prohibit any such transaction
which is determined by the independent members of the Board of Directors of
Adelphia, in their reasonable, good faith judgment (as evidenced by a Board
Resolution filed with the Trustee) to be (a) in the best interests of Adelphia
or such Restricted Subsidiary, and (b) upon terms which would be obtainable by
Adelphia or a Restricted Subsidiary in a comparable arm's-length transaction
with a Person which is not an Affiliate.
Limitation on Sale of Assets. The Indenture provides that neither Adelphia
nor a Restricted Subsidiary shall sell an asset (including Capital Stock of
Restricted Subsidiaries) or reclassify a Restricted Subsidiary existing on the
date of the Indenture as an Unrestricted Subsidiary (a "Reclassification")
unless (a) in the case of an asset sale, (i) at least 75% of the net proceeds
received by Adelphia or such Restricted Subsidiary is in cash, cash
equivalents or common or preferred Capital Stock or debt securities issued by
a Person which has Investment Grade Senior Debt, and (ii) cash proceeds from
the asset sale are used to reduce debt and such debt reduction results in
Adelphia's Leverage Ratio being lower pro forma after such asset sale than
prior to such asset sale, or (b) in the case of an asset sale or
Reclassification, pro forma for such asset sale or Reclassification the
Indebtedness of Adelphia and its Restricted Subsidiaries, on a consolidated
basis, shall not be more than 7.75 multiplied by Annualized Pro Forma EBITDA,
provided that in no case under either clause (a) or (b) shall Adelphia
undertake an asset sale or Reclassification, if pro forma for such an asset
sale or Reclassification Adelphia and its Restricted Subsidiaries would be the
owners of fewer than 75% of the cable systems (measured on the basis of basic
subscribers as of February 22, 1994) owned by Adelphia and its Restricted
Subsidiaries as of February 22, 1994, provided however, that Adelphia and its
Restricted Subsidiaries may sell additional assets of up to 10% of assets held
as of February 22, 1994 if the consideration received from such sale is (i)
cash which is used within 12 months to purchase additional systems of
equivalent value or (ii) other cable systems of equivalent value.
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Change of Control Offer. Within 50 days of (i) the proposed occurrence of a
Change of Control or (ii) the occurrence of a Change of Control Triggering
Event, Adelphia shall notify the Trustee in writing of such proposed
occurrence or occurrence, as the case may be, and shall make an offer to
purchase (the "Change of Control Offer") the Notes at a purchase price equal
to 100% of the principal amount thereof plus any accrued and unpaid interest
thereon to the Change of Control Payment Date (as hereinafter defined) (the
"Change of Control Purchase Price") in accordance with the procedures set
forth in this covenant.
Within 50 days of (i) the proposed occurrence of a Change of Control or (ii)
the occurrence of a Change of Control Triggering Event, Adelphia also shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United
States and (b) send by first-class mail, postage prepaid, to the Trustee and
to each holder of the Notes, at his address appearing in the register of the
Notes maintained by the Registrar, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment,
provided that a Change of Control Triggering Event has occurred and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 50 days from the date such
notice is mailed and no later than 15 days after the date of the
corresponding Change of Control Triggering Event) (the "Change of
Control Payment Date");
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless Adelphia defaults in the payment of the Change of Control
Purchase Price, any Notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender
the Notes to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day preceding the
Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the Notes delivered for
purchase, and a statement that such holder is withdrawing his election
to have such Notes purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, provided that each Note purchased and each
such new Note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof; and
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance.
Notwithstanding any other provision of this covenant, in the case of a
notice of a Change of Control Offer that is being furnished by Adelphia with
respect to a proposed Change of Control that has not yet actually occurred,
the Company may specify in such notice that holders of the Notes shall be
required to notify Adelphia, by a date not later than the date (the "Proposed
Change of Control Response Date") which is 30 days from the date of such
notice, as to whether such holders will tender their Notes for payment
pursuant to the Change of Control Offer and to notify Adelphia of the
principal amount of such Notes to be so tendered (with the failure of any
holder to so notify Adelphia within such 30-day period to be deemed an
election of such holder not to accept such Change of Control Offer). In such
event, Adelphia shall have the option, to be exercised by a subsequent
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written notice to be sent, no later than 15 days after the Proposed Change of
Control Response Date, to the same Persons to whom the original notice of the
Change of Control Offer was sent, to cancel or otherwise effect the
termination of the proposed Change of Control and to rescind the related
Change of Control Offer, in which case the then outstanding Change of Control
Offer shall be deemed to be null and void and of no further effect.
On the Change of Control Payment Date, Adelphia shall (a) accept for payment
Notes or portions thereof tendered pursuant to the Change of Control Offer,
(b) deposit with the Paying Agent money sufficient to pay the purchase price
of all Notes or portions thereof so tendered and (c) deliver or cause to be
delivered to the Trustee Notes so accepted together with an Officers'
Certificate stating the Notes or portions thereof tendered to Adelphia. The
Paying Agent shall promptly mail to each holder of Notes so accepted payment
in an amount equal to the purchase price for such Notes, and the Trustee shall
promptly authenticate and mail to such holder a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
such new Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.
There shall be no purchase of any Notes pursuant to this covenant if there
has occurred (prior to, on or after, as the case may be, the tender of such
Notes pursuant to the Change of Control Offer, by the holders of such Notes)
and is continuing an Event of Default. The Paying Agent will promptly return
to the respective holders thereof any Notes (a) the tender of which has been
withdrawn in compliance with the Indenture or (b) held by it during the
continuance of an Event of Default (other than a default in the payment of the
Change of Control Purchase Price with respect to such Notes).
Because a "Change of Control" for purposes of this covenant is defined in
terms of "beneficial ownership" (as defined in Rule 13d-3 under the Exchange
Act) of voting power, there may be circumstances in which the Rigas Family
could beneficially own (for purposes of Rule 13d-3) more than 35% of the
outstanding voting Capital Stock of Adelphia through options, warrants or
other purchase rights while directly holding 35% or less of the total voting
power required to elect or designate for election a majority of Adelphia's
Board of Directors, without a Change of Control Triggering Event occurring.
Further, a change in the composition of the Board of Directors of Adelphia
could occur without the occurrence of a Change of Control Triggering Event if
either the election or the nomination of the new directors was approved by
two-thirds of the continuing directors or by the Rigas Family and its
Affiliates. See "Certain Definitions--Change of Control."
The indentures for the 9 1/4% Notes, the 9 7/8% Notes, the 10 1/2% Notes,
the 12 1/2% Notes, the 10 1/4% Notes, the 9 1/2% Notes, the 11 7/8% Debentures
and the 9 7/8% Debentures, which together represent outstanding indebtedness
in the aggregate principal amount of approximately $1,633,771,000 as of
September 30, 1997, provide that Adelphia must make an offer to purchase such
Notes and Debentures, respectively, at a purchase price equal to 100% of the
principal amount thereof, plus any accrued but unpaid interest thereon, in the
event of circumstances identical to those which trigger a Change of Control
Offer under this covenant. In addition, the credit agreements of Adelphia's
subsidiaries generally contain provisions under which circumstances that would
trigger a Change of Control Offer under this covenant would constitute an
event of default under such credit agreements. In the event that Adelphia is
required to purchase the 9 1/4% Notes, the 9 7/8% Notes, the 10 1/2% Notes,
the 12 1/2% Notes, the 10 1/4% Notes, the 9 1/2% Notes, 11 7/8% Debentures, 9
7/8% Debentures and the Notes in accordance with such provisions, and the
indebtedness under such subsidiary credit agreements were to be accelerated,
the source of funds for such purchases or payments will be Adelphia's
available cash, cash generated from Adelphia's operating activities, and other
sources including borrowings, asset sales or equity sales. There can be no
assurance that sufficient funds would be available to make any required
repurchases under the Indenture and under the indentures for the 9 1/4% Notes,
the 9 7/8% Notes, the 10 1/2% Notes, the 12 1/2% Notes, the 10 1/4% Notes, the
9 1/2% Notes, the 11 7/8% Debentures and the 9 7/8% Debentures or any such
required payments under such credit agreements. Although in the past Adelphia
has been able to both refinance its indebtedness or obtain new financing,
there can be no assurance that Adelphia would be able to do so under such
circumstances or that, if Adelphia were able to do so, the terms would be
favorable to Adelphia. In the event that Adelphia is required to make a Change
of Control Offer, Adelphia will comply with all applicable tender offer rules
including Rule 14e-1 under the Exchange Act, to the extent applicable.
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of the Notes; (ii) default for 30 days
in payment of any interest on the Notes; (iii) default by Adelphia in the
observance or performance of any other covenant in the Notes or the Indenture
for 60 days after written notice from the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding; (iv)
failure to pay when due principal, interest or premium aggregating $10,000,000
or more with respect to any Indebtedness of Adelphia or any Restricted
Subsidiary or the acceleration of any such Indebtedness which default shall
not be cured or waived, or such acceleration shall not be rescinded or
annulled, within ten days after written notice as provided in the Indenture;
(v) any final judgment or judgments for the payment of money in excess of
$10,000,000 shall be rendered against Adelphia or any Restricted Subsidiary
and shall not be discharged for any period of 60 consecutive days during which
a stay of enforcement shall not be in effect; or (vi) certain events involving
bankruptcy, insolvency or reorganization of Adelphia or any Restricted
Subsidiary with liabilities of greater than $10,000,000 under generally
accepted accounting principles as of the date of such bankruptcy, insolvency
or reorganization. The Indenture provides that the Trustee may withhold notice
to the holders of the Notes of any default (except in payment of principal or
interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the principal amount
of all the Notes then outstanding plus accrued but unpaid interest to the date
of acceleration; provided, however, that after such acceleration but before a
judgment or decree based on acceleration is obtained by the Trustee, the
holders of a majority in aggregate principal amount of outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the nonpayment of accelerated principal or interest,
have been cured or waived as provided in the Indenture. In case an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization shall occur, such amount with respect to all of the Notes shall
be due and payable immediately without any declaration or other act on the
part of the Trustee or the holders of Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
subject to certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request and
offered reasonable indemnity to the Trustee to institute such proceeding as a
trustee, and unless the Trustee shall not have received from the holders of a
majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a Note for enforcement of payment of the principal
of or interest on such Note on or after the respective due dates expressed in
such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides Adelphia may elect either (a) to defease and be
discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from its obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "Covenants" ("covenant defeasance"), upon the deposit with the Trustee
(or other qualifying trustee), in trust for such purpose, of money and/or U.S.
Government Obligations which through the payment of principal and
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interest in accordance with their terms will provide money, in an amount
sufficient to pay the principal of and interest on the Notes, on the scheduled
due dates therefor in accordance with the terms of the Indenture. Such a trust
may only be established if, among other things, Adelphia has delivered to the
Trustee an Opinion of Counsel (as specified in the Indenture) to the effect
that the holders of the Notes or persons in their positions will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance or 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 defeasance or covenant defeasance had not occurred. Such
opinion, in the case of defeasance under clause (a) above, must refer to and
be based upon a private ruling of the Internal Revenue Service concerning the
Notes or a ruling of general effect published by the Internal Revenue Service.
MODIFICATION OF INDENTURE
From time to time, Adelphia and the Trustee may, without the consent of
holders of the Notes, amend the Indenture or the Notes or supplement the
Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any holder. The Indenture
contains provisions permitting Adelphia and the Trustee, with the consent of
holders of at least one-half in principal amount of the outstanding Notes, to
modify or supplement the Indenture or the Notes, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture or the Notes, (ii) reduce the rate of
or change the time for payment of interest on any Note, (iii) reduce the
principal of or change the stated maturity of any Note, (iv) make any Note
payable in money other than that stated in the Note or change the place of
payment from New York, New York, (v) change the amount or time of any payment
required by the Notes or provide for the redemption of the Notes prior to
maturity, (vi) waive a default on the payment of the principal of, interest
on, or redemption payment with respect to any Note, or (vii) take any other
action otherwise prohibited by the Indenture to be taken without the consent
of each holder affected thereby.
REPORTS TO HOLDERS
So long as Adelphia is subject to the periodic reporting requirements of the
Exchange Act it will continue to furnish the information required thereby to
the Commission and to the holders of the Notes. The Indenture provides that
even if Adelphia is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, it will
nonetheless continue to furnish such information to the Commission (at such
time as it would be required to file such reports under the Exchange Act) and
to the Trustee and the holders of the Notes (within 15 days thereafter as
required by the Indenture) as if it were subject to such periodic reporting
requirements.
COMPLIANCE CERTIFICATE
Adelphia will deliver to the Trustee on or before 105 days after the end of
its fiscal year and on or before 50 days after the end of its second fiscal
quarter in each year an Officer's Certificate stating whether or not the
signers know of any Default or Event of Default that has occurred. If they do,
the certificate will describe the Default or Event of Default and its status.
THE TRUSTEE
Bank of Montreal Trust Company is to be the Trustee under the Indenture and
has been appointed by Adelphia as Registrar and Paying Agent with regard to
the Notes. Bank of Montreal Trust Company also serves as Registrar and Paying
Agent and Trustee under the indentures with respect to the 9 1/4% Notes, the 9
7/8% Notes, the 10 1/2% Notes, the 12 1/2% Senior Notes, the 10 1/4% Notes,
the 9 1/2% Notes, the 11 7/8% Debentures and the 9 7/8% Debentures. The
Indenture provides that, except during the continuance of an Event of Default,
the Trustee
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will perform only such duties as are specifically set forth in the Indenture.
During the existence of an Event of Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
BOOK-ENTRY, DELIVERY AND FORM
The Notes were initially offered and sold to qualified institutional buyers
in reliance on Rule 144A. Except as set forth below, the Notes will be issued
in registered, global form in minimum denominations of $1,000 and integral
multiples thereof.
The New Notes initially will be represented by one or more Notes, in
registered, global form without interest coupons (the "Global Note"). The
Global Note will be deposited with, or on behalf of, DTC in New York, New
York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for
Notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Notes for Certificated Notes."
The Old Notes (including beneficial interests in the Global Note) are
subject to certain restrictions on transfer and will bear a restrictive
legend. In addition, transfer of beneficial interests in the Global Note will
be subject to the applicable rules and procedures of DTC and its direct or
indirect participants, which may change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar for the Notes.
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised Adelphia that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers
and dealers (including the Initial Purchaser), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system
is also available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests and transfer of ownership
interests of each actual purchaser of each security held by or on behalf of
DTC are recorded on the records of the Participants and Indirect Participants.
DTC has also advised Adelphia that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the
principal amount of the Global Notes and (ii) ownership of such interests in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are participants in such system, or indirectly through
organizations which are participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC. The laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
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beneficial interests in a Global Note to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in turn act
on behalf of Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests. For certain other restrictions
on the transferability of the Notes, see "--Exchange of Book-Entry Notes for
Certificated Notes", "--Exchange of Certificated Notes for Book-Entry Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of and premium and Liquidated Damages,
if any, and interest on a Global Note registered in the name of DTC or its
nominee will be payable by the Trustee to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture,
Adelphia and the Trustee will treat the persons in whose names the Notes,
including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither Adelphia, the Trustee nor any agent of
Adelphia or the Trustee has or will have any responsibility or liability for
(i) any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Notes, or for maintaining, supervising or reviewing
any of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global Notes or (ii) any
other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised Adelphia that its
current practice, upon receipt of any payment in respect of securities such as
the Notes (including principal and interest), is to credit the accounts of the
relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of
beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee
or Adelphia. Neither Adelphia nor the Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
Notes, and Adelphia and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Interests in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants. See "--Same-Day
Settlement and Payment."
Subject to the transfer restrictions on the Old Notes, transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised Adelphia that it will take any action permitted to be taken
by a Holder of Notes only at the direction of one or more Participants to
whose account with DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of the 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 reserves the
right to exchange the Global Notes for legended Notes in certificated form,
and to distribute such Notes to its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that Adelphia believes to be reliable, but
Adelphia takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and
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such procedures may be discontinued at any time. Neither Adelphia nor the
Trustee will have any responsibility for the performance by DTC or its
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form if (i) DTC (a) notifies Adelphia that it is unwilling or
unable to continue as depositary for the Global Note and Adelphia thereupon
fails to appoint a successor depositary or (b) has ceased to be a clearing
agency registered under the Exchange Act, (ii) Adelphia, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Notes in certificated form or (iii) there shall have occurred and be
continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default with respect to the Notes. In
addition, beneficial interests in a Global Note may be exchanged for
certificated Notes upon request but only upon at least 20 days prior written
notice given to the Trustee by or on behalf of DTC in accordance with its
customary procedures. In all cases, certificated Notes delivered in exchange
for any Global Note or beneficial interests therein will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the depositary (in accordance with its customary procedures) and will bear any
applicable restrictive legend, unless Adelphia determines otherwise in
compliance with applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR BOOK ENTRY NOTES
Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the
Trustee a written certificate (in the form provided in the Indenture) to the
effect that such transfer will comply with the appropriate transfer
restrictions applicable to such Notes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note custodian. With respect to
Notes issued in definitive form, Adelphia will make all payments of principal,
premium, interest and Liquidated Damages, if any, by mailing a check to each
such Holder's registered address, provided that all payments with respect to
Notes have an aggregate principal amount of $1,000 or more, the Holders of
which have given wire transfer instructions to Adelphia at least ten business
days prior to the applicable payment date, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof. See "General." The Notes represented by the Global Notes are
expected to be eligible 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.
Adelphia expects that secondary trading in the Certificated Notes also will be
settled in immediately available funds.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of the Old Notes for the New Notes,
but does not purport to be a complete analysis of all potential tax effects.
The discussion is based upon the United States Internal Revenue Code of 1986,
as amended, (the "Code"), Treasury Regulations, Internal Revenue Service
("IRS") rulings and pronouncements and judicial decisions now in effect, all
of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a
manner that could adversely affect a holder of the New Notes. The following
discussion assumes that holders hold the Old Notes and the New Notes as
capital assets within the meaning of Section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to the positions of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the exchange of the Old Notes for the New Notes or that any
such position would not be sustained.
The tax treatment of a holder may vary depending on his or its particular
situation or status. This summary does not address the tax consequences to
taxpayers who are subject to special rules such as insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign entities
and individuals, persons holding Old Notes or New Notes as a part of a hedging
or conversion transaction or a straddle and holders whose "functional
currency" is not the U.S. dollar, or aspects of federal income taxation that
may be relevant to a prospective investor based upon such investor's
particular tax situation. In addition, the description does not consider the
effect of any applicable foreign, state, local or other tax laws.
EACH HOLDER SHOULD CONSULT HIS OR ITS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OR IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE
The exchange of the New Notes for Old Notes pursuant to the Exchange Offer
will not constitute a recognition event for federal income tax purposes.
Consequently, no gain or loss will be recognized by holders upon receipt of
the New Notes. For purposes of determining gain or loss upon the subsequent
exchange of New Notes, a holder's basis in the New Notes will be the same as a
holder's basis in the Old Notes exchanged therefor. Holders will be considered
to have held the New Notes from the time of their original acquisition of the
Old Notes. As used herein, the term "Senior Note" refers to both an Old Note
and a New Note received in exchange therefor.
INTEREST ON THE NEW NOTES
A holder of a New Note will be required to report as income for federal
income tax purposes interest earned on a New Note in accordance with the
holder's method of tax accounting. A holder of a New Note using the accrual
method of accounting for tax purposes is, as a general rule, required to
include interest in ordinary income as such interest accrues. A cash basis
holder must include interest in income when cash payments are received by (or
made available to) such holder.
MARKET DISCOUNT
If a holder acquired an Old Note at a market discount (i.e., at a price less
than the stated redemption price at maturity of the Old Note), the Old Note is
subject to the market discount rules of the Code unless the market discount is
de minimis. Market discount is de minimis if it is less than one quarter of
one percent of the principal amount of the Old Note multiplied by the number
of complete years to maturity after the holder acquired the Old Note. If the
holder exchanges an Old Note that has more than de minimis market discount for
a New Note,
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the New Note also will be subject to the market discount rules of the Code.
New Notes purchased by a subsequent purchaser also will be subject to the
market discount rules if the New Notes are purchased with more than a de
minimis amount of market discount. Notes that have more than de minimis market
discount are herein referred to as "Market Discount Notes."
Any gain recognized on the maturity, sale or other disposition of a Market
Discount Note will be treated as ordinary income to the extent that such gain
does not exceed the accrued market discount on the Market Discount Note. The
amount of market discount treated as having accrued will be determined either
(i) on a ratable basis by multiplying the market discount times a fraction,
the numerator of which is the number of days the New Note was held by the
Holder and the denominator of which is the total number of days after the date
such Holder acquired the New Note up to and including the date of its
maturity, or (ii) if the Holder so elects, on a constant interest rate method.
A Holder may elect to include market discount in income currently over the
life of the Market Discount Note. Such an election shall apply to all debt
instruments with market discount acquired by the holder on or after the first
day of the first taxable year to which the election applies and all subsequent
taxable years. This election may not be revoked without the consent of the
IRS. Market discount will accrue on a ratable inclusion basis unless the
holder elects to accrue market discount on a constant yield to maturity basis.
Such an election shall apply only to the Market Discount Note with respect to
which it is made and may not be revoked without the consent of the IRS. If an
election is made to include market discount in income currently, the basis of
the New Note in the hands of the holder will be increased by the market
discount thereon as it is included in income. A holder who does not elect to
include market discount in income currently generally will be required to
defer deductions for interest on borrowings allocable to a Market Discount
Note in an amount not exceeding the accrued market discount on the Market
Discount Note until the maturity or disposition of the Market Discount Note.
AMORTIZABLE BOND PREMIUM
A holder that purchased an Old Note for an amount in excess of its principal
amount may elect to treat such excess as "amortizable bond premium," in which
case the amount required to be included in the holder's income each year with
respect to interest on the Old Note will be reduced by the amount of
amortizable bond premium allocable (based on the yield to maturity of the Old
Note) to such year. If a holder made an election to amortize bond premium with
respect to an Old Note and exchanges the Old Note for a New Note pursuant to
the Exchange Offer, the election will apply to the New Note. A holder who
exchanges an Old Note for which an election has not been made for a New Note,
and a subsequent purchaser of a New Note, may also elect to amortize bond
premium if the holder acquired the Note for an amount in excess of its
principal amount. Any election to amortize bond premium shall apply to all
bonds (other than bonds the interest on which is excludable from gross income)
held by the holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the holder, and is irrevocable
without the consent of the IRS.
DISPOSITION OF THE NOTES
Subject to the market discount rules discussed above, a holder of Senior
Notes will recognize gain or loss upon the sale, redemption, retirement or
other disposition of such securities equal to the difference between (i) the
amount of cash and the fair market value of the property received (except to
the extent attributable to the payment of accrued interest) and (ii) the
holder's adjusted tax basis in the securities. Gain or loss recognized will be
capital gain or loss provided the Notes are held as capital assets by the
holder, and will be long-term capital gain or loss if the holder has held such
securities (or is treated as having held such securities) for more than one
year.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Holders of the Senior Notes may be subject to backup withholding at a rate
of 31% with respect to interest paid on the Senior Notes unless such holder
(a) is a corporation or comes within certain other exempt categories
49
<PAGE>
and, when required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the requirements of the backup
withholding rules.
The Company will report to the holders of the Senior Notes and the IRS the
amount of any "reportable payment" for each calendar year and amount of tax
withheld, if any, with respect to payments on the Senior Notes.
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO IT OF THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE
SENIOR NOTES (INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN,
AND OTHER TAX LAWS).
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes
acquired as a result of market-making activities or other trading activities.
The Company has agreed that it will make this Prospectus available to any
broker-dealer for use in connection with any such resale for a period of 365
days after the Expiration Date or until all participating broker-dealers have
so resold.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concession from any
such broker-dealer and/or the purchasers of any New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant
to the Exchange Offer and any broker-dealer that participates in a
distribution of New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of New Notes and
any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The Company has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer, and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the New Notes in its ordinary course of
business and has no arrangement or understanding with any person to
participate in the distribution of the New Notes to be received in the
Exchange Offer.
LEGAL MATTERS
The validity of the New Notes will be passed upon on behalf of the Company
by Buchanan Ingersoll Professional Corporation, Pittsburgh, Pennsylvania.
50
<PAGE>
EXPERTS
The consolidated financial statements and the related financial statement
schedules of Adelphia and its subsidiaries as of March 31, 1996 and 1997, and
for each of the three years in the period ended March 31, 1997, and the
consolidated financial statements of Olympus Communications, L.P. and its
subsidiaries as of December 31, 1995 and 1996, and for each of the three years
in the period ended December 31, 1996, all incorporated in this Prospectus by
reference from Adelphia's Annual Report on Form 10-K for the year ended March
31, 1997, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
51
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING
LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE REGISTRANT. NEI-
THER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLI-
CATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE REGISTRANT SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANY-
ING LETTER OF TRANSMITTAL CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Incorporation by Reference................................................. 4
Prospectus Summary......................................................... 5
The Exchange Offer......................................................... 8
Summary Description of the Notes .......................................... 10
Risk Factors............................................................... 12
The Exchange Offer......................................................... 17
Use of Proceeds............................................................ 25
Capitalization............................................................. 26
Selected Consolidated Financial Data....................................... 27
Description of the Notes................................................... 30
Certain Federal Income Tax Considerations.................................. 48
Plan of Distribution....................................................... 50
Legal Matters.............................................................. 50
Experts.................................................................... 51
</TABLE>
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ADELPHIA
COMMUNICATIONS
CORPORATION
8 3/8% SERIES B SENIOR NOTES
DUE 2008
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PROSPECTUS
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FEBRUARY 5, 1998
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