<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-35183
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
JAMES CABLE PARTNERS, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4841 38-2778219
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
710 NORTH WOODWARD AVENUE, SUITE 180, BLOOMFIELD HILLS, MICHIGAN 48304, (248)
647-1080
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
JAMES CABLE FINANCE CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MICHIGAN 4841 38-3182724
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
710 NORTH WOODWARD AVENUE, SUITE 180, BLOOMFIELD HILLS, MICHIGAN 48304, (248)
647-1080
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
As to both Registrants:
WILLIAM R. JAMES
710 NORTH WOODWARD AVENUE, SUITE 180
BLOOMFIELD HILLS, MICHIGAN 48304
(248) 647-1080
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
KENT E. SHAFER, ESQ.
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
150 WEST JEFFERSON AVENUE
DETROIT, MICHIGAN 48226
(313) 963-6420
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Exchange Offer referred to herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______________________
If this form is a post-effective amendment pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________________
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997
OFFER TO EXCHANGE
ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2004
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 3/4% SERIES B SENIOR NOTES DUE 2004
($100,000,000 PRINCIPAL AMOUNT)
OF
JAMES CABLE PARTNERS, L.P.
JAMES CABLE FINANCE CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1997, UNLESS EXTENDED.
------------------------
James Cable Partners, L.P., a Delaware limited partnership (the "Company"),
and James Cable Finance Corp., a Michigan corporation and a wholly-owned
subsidiary of the Company ("Finance Corp." and, together with the Company, the
"Issuers"), hereby offer (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange up to an aggregate
principal amount of $100,000,000 of their 10 3/4% Series B Senior Notes due 2004
(the "Exchange Notes") for an equal principal amount of their outstanding
10 3/4% Senior Notes due 2004 (the "Notes"), in integral multiples of $1,000.
The Exchange Notes will be substantially identical (including principal amount,
interest rate, maturity and redemption rights) to the Notes for which they may
be exchanged pursuant to the Exchange Offer, except that (i) the offer and sale
of the Exchange Notes will have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and (ii) holders of Exchange Notes will
not be entitled to certain rights of holders of the Notes under the Registration
Rights Agreement of the Issuers dated as of August 15, 1997 (the "Registration
Rights Agreement"). The Notes have been, and the Exchange Notes will be, issued
under an indenture (the "Indenture") dated as of August 15, 1997 among the
Issuers and United States Trust Company of New York, as trustee (the "Trustee").
See "Description of the Exchange Notes." There will be no proceeds to the
Issuers from this offering; however, pursuant to the Registration Rights
Agreement, the Issuers will bear certain offering expenses. The Exchange Notes
are the joint and several obligations of the Issuers. Finance Corp. has nominal
assets and does not conduct any operations.
The Exchange Notes will be general senior unsecured obligations of the
Issuers ranking equally in right of payment with all other existing and future
unsubordinated Indebtedness (as defined under "Description of the Exchange Notes
- -- Certain Definitions") of the Issuers and senior in right of payment to any
Subordinated Obligations (as defined under "Description of the Exchange Notes --
Certain Definitions") of the Issuers. The Exchange Notes will be effectively
subordinated in right of payment to all secured Indebtedness of the Issuers.
Concurrently with the issuance of the Notes, the Company used proceeds of the
Notes to repay certain of its existing indebtedness (the "Refinancing") and
entered into the New Bank Credit Facility (as defined under "Description of the
Exchange Notes -- Certain Definitions"). As of June 30, 1997, after giving
effect to the Refinancing, the Issuers would have had no Indebtedness
outstanding (other than the Notes), and subject to the terms of the New Bank
Credit Facility and the Company's Amended and Restated Agreement of Limited
Partnership dated as of June 30, 1995 (the "Partnership Agreement"), the ability
to incur up to $20 million of secured Indebtedness (with an option to increase
the amount to $30 million) under the New Bank Credit Facility. The Notes and the
Exchange Notes will rank equally with one another.
(Cover text continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES IN THE EXCHANGE
OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 , 1997.
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JAMES CABLE PARTNERS, L.P.
[JAMES CABLE MAP]
<PAGE> 4
The Issuers will accept for exchange any and all validly tendered Notes on
or prior to 5:00 p.m., New York City time, on , 1997 (the
"Expiration Date"), unless the Exchange Offer is extended. Tenders of Notes may
be withdrawn at any time prior to 5:00 p.m. on the Expiration Date; otherwise,
such tenders are irrevocable. United States Trust Company of New York will act
as exchange agent (in such capacity, the "Exchange Agent") in connection with
the Exchange Offer. The Exchange Offer is not conditioned on any minimum
principal amount of Notes being tendered for exchange but is subject to certain
other customary conditions.
The Notes were sold by the Issuers on August 15, 1997 (the "Offering") in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act. The Notes were
subsequently resold to qualified institutional buyers in reliance upon Rule 144A
under the Securities Act and to a limited number of institutional accredited
investors in a manner exempt from registration under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred in
the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered in order to satisfy certain
obligations of the Issuers under the Registration Rights Agreement. See "The
Exchange Offer."
The Exchange Notes will bear interest from August 15, 1997 (the date of
issuance of the Notes for which the Exchange Offer is being made), or from the
most recent interest payment date to which interest on the Notes has been paid,
at a rate equal to 10 3/4% per annum. Interest on the Exchange Notes will be
payable in cash semi-annually on each February 15 and August 15, commencing
February 15, 1998.
The Exchange Notes will be redeemable at the option of the Issuers, in
whole or in part, on or after August 15, 2001, at the redemption prices set
forth herein, plus accrued and unpaid interest thereon to the date of
redemption. In addition, the Issuers may redeem an amount of Notes and Exchange
Notes equal to up to 35% of the aggregate principal amount of the Notes
originally issued in the Offering on or prior to August 15, 2000 at a redemption
price equal to 110.750% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon to the redemption date, with the Net Cash Proceeds
(as defined under "Description of the Exchange Notes -- Certain Definitions") of
one or more Public Equity Offerings (as defined under "Description of the
Exchange Notes -- Certain Definitions"), provided that at least $65.0 million
aggregate principal amount of the Notes and Exchange Notes remains outstanding
and that any such redemption occurs within 60 days following the closing of any
such Public Equity Offering.
Upon a Change of Control (as defined under "Description of the Exchange
Notes -- Certain Definitions"), each holder of the Exchange Notes will be
entitled to require the Issuers to purchase such holder's Exchange Notes at 101%
of the principal amount thereof, plus accrued and unpaid interest thereon to the
date of purchase. See "Description of the Exchange Notes" and "Risk Factors --
Change of Control."
The Exchange Offer is being made in reliance on certain no-action positions
that have been published by the staff of the Securities and Exchange Commission
(the "Commission") which require each tendering noteholder to represent that it
is acquiring the Exchange Notes in the ordinary course of its business and that
such holder does not intend to participate and has no arrangement or
understanding with any person to participate in a distribution of the Exchange
Notes. In some cases, certain broker-dealers may be required to deliver a
prospectus in connection with the resale of Exchange Notes that they receive in
the Exchange Offer. See "The Exchange Offer" and "Plan of Distribution."
There has not previously been any public market for the Exchange Notes. The
Issuers do not intend to list the Exchange Notes on any securities exchange or
to seek approval for quotation through any automated quotation system. There can
be no assurance that an active market for the Exchange Notes will develop. To
the extent that an active market for the Exchange Notes does develop, the market
value of the Exchange Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition and other factors. Such conditions might cause the Exchange Notes, to
the extent that they are actively traded, to trade at a significant discount
from face value. See "Risk Factors -- Lack of Public Market for Exchange Notes."
i
<PAGE> 5
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING RESTRICTIONS ON TRANSFER THEREOF. HOLDERS WHO DO
NOT TENDER THEIR NOTES GENERALLY WILL NOT HAVE ANY FURTHER REGISTRATION RIGHTS
UNDER THE REGISTRATION RIGHTS AGREEMENT OR OTHERWISE. SEE "THE EXCHANGE OFFER --
CONSEQUENCES OF FAILURE TO EXCHANGE."
The Exchange Notes generally will be issued in registered, global form
without interest coupons (the "Global Exchange Notes"), which will be deposited
with, or on behalf of, The Depository Trust Company ("DTC") and registered in
its name or in the name of Cede & Co., its nominee. Beneficial interests in the
Global Exchange Notes representing the Exchange Notes will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. Notwithstanding the foregoing, Notes held in certificated form
will be exchanged solely for Exchange Notes in certificated form. After the
initial issuance of the Global Exchange Notes, Exchange Notes in certificated
form will be issued in exchange for the Global Exchange Notes only on the terms
set forth in the Indenture. See "Description of the Exchange Notes --
Book-Entry, Delivery and Form."
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
EXCHANGE NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE EXCHANGE NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 199 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
ii
<PAGE> 6
AVAILABLE INFORMATION
As a result of the Exchange Offer, the Issuers will become subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, will file
reports and other information with the Commission. The Issuers have filed
with the Commission a Registration Statement on Form S-4 under the
Securities Act for the registration of the Exchange Notes offered hereby
(the "Registration Statement"). This Prospectus, which constitutes a part
of the Registration Statement, does not contain all the information set
forth in the Registration Statement, certain items of which are contained
in exhibits and schedules to the Registration Statement as permitted by the
rules and regulations of the Commission. For further information about the
Issuers and the Exchange Notes offered hereby, reference is made to the
Registration Statement, including the exhibits and financial statement
schedules thereto, which may be inspected without charge at the public
reference facility maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates. Statements made in this Prospectus
concerning the contents of any documents referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved, and
each such statement is qualified in its entirety by such reference.
Such documents and other information filed by the Issuers can be
inspected and copied at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and the regional offices
of the Commission located at 7 World Trade Center, New York, New York 10048
and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at its public reference facilities in New York, New York and Chicago,
Illinois at prescribed rates. The Issuers make their filings with the
Commission electronically. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically, which information can be
accessed at http://www.sec.gov.
Finance Corp.'s obligations under the informational reporting
requirements of the Exchange Act will be fulfilled by including information
regarding Finance Corp. in the Company's periodic reports.
So long as the Issuers are subject to the periodic reporting
requirements of the Exchange Act, they are required to furnish the
information required to be filed with the Commission to the Trustee and the
holders of the Notes and the Exchange Notes. The Company has agreed that,
even if it is not required under the Exchange Act to furnish such
information to the Commission, it will nonetheless continue to furnish
information that would be required to be furnished by the Company under
Section 13 or 15(d) of the Exchange Act to the Commission, the Trustee and
the holders of the Notes or Exchange Notes as if it were subject to such
periodic reporting requirements. The annual reports so furnished to holders
of Notes or Exchange Notes will contain financial information that has been
examined and reported upon, with an opinion expressed, by independent
auditors.
In addition, the Issuers have agreed that, until two years from the
later of (i) the date any Note or Exchange Note (or any predecessor note)
was acquired from the Issuers (that is, August 15, 1997) or (ii) the date
any Note or Exchange Note (or any predecessor note) was last acquired from
an "affiliate" of the Issuers within the meaning of Rule 144 under the
Securities Act, they will, upon request, provide to any holder of such Note
or Exchange Note or any prospective transferee of any such holder any
information concerning the Issuers (including financial statements)
necessary in order to permit such holder to sell or transfer such Note or
Exchange Note in compliance with Rule 144A under the Securities Act.
iii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the related notes, appearing elsewhere in this Prospectus.
THE COMPANY
The Company owns, operates and develops cable television systems serving
rural communities in seven geographically and economically diverse clusters. The
Company's cable television systems (the "Systems") are operated under the name
"CommuniComm Services" and are located in Oklahoma, Texas, Georgia, Louisiana,
Colorado, Wyoming, Tennessee, Alabama and Florida. As of June 30, 1997, the
Systems passed an estimated 129,291 homes and served 78,337 basic subscribers,
representing a basic penetration of 60.6%. The Company's goal is to maintain its
position as the preferred provider of video services and become the single hard
wire broadband provider of enhanced digital video services, advanced
telecommunications services and telephony in the markets that it serves.
During the five-year period ended December 31, 1996, the Company's revenues
and EBITDA consistently increased, with revenues and EBITDA growing at compound
annual growth rates of 5.9% and 6.9%, respectively. System operating cash flow
and EBITDA margins for the six months ended June 30, 1997, were 52.3% and 45.3%,
respectively. The Company also achieved average monthly total revenues per
subscriber of $37.85 for the six months ended June 30, 1997, and annualized
system operating cash flow per subscriber of $238, both of which the Company
believes compare favorably with cable industry averages. Primarily as a result
of increased marketing spending, EBITDA was slightly lower during the first half
of 1997 as compared to the first half of 1996.
The Company believes that there are competitive and economic advantages to
owning and operating cable television systems in rural markets. Due to lower
population densities and higher per household plant installation costs, rural
markets are more likely than larger urban and suburban markets to have a single
hard wire broadband video and telecommunications service provider. In addition,
cable television systems in rural markets are typically characterized by lower
churn rates and greater penetration than larger urban and suburban markets. In
rural markets, cable service often is required for adequate reception of a full
range of over-the-air television stations. Moreover, fewer entertainment
alternatives are available, and cable television provides a major source of
entertainment.
The Company focuses on maintaining and improving system operating results.
The Company has implemented extensive management, operational and technical
changes designed to improve operating efficiencies, enhance operating cash flow
and reduce overhead through economies of scale. To this end, the Company has
"clustered" its Systems in concentrated geographic areas, which allows fixed
costs to be spread over an expanded subscriber base. In an effort to further
enhance its operational and financial performance, the Company from time to time
considers opportunities to acquire or exchange its assets for cable television
systems located near its existing markets.
The Company's senior management team has 64 years of collective experience
in the cable industry. William R. James, the founder and, through his position
with the general partner of the Company, James Communications Partners, a
Michigan co-partnership (the "General Partner"), the Chief Executive Officer of
the Company, has been a cable industry executive since 1979. Prior to founding
the Company, he organized and developed two other cable television operations,
including the cable television division of Capital Cities Communications (which
became Capital Cities/ABC). Mr. James built the Capital Cities cable television
operations from a start-up company to the 16th largest multiple system operator
("MSO") in the United States in 1986, with 380,000 subscribers served by 55
systems located in 16 states. The other three key individuals responsible for
the management of the Company, C. Timothy Trenary, Daniel K. Shoemaker and Scott
A. Madison, each of whom through their positions with the General Partner also
are Executive Officers of the Company, have been involved in the construction,
acquisition, ownership, management and operation of rural cable television
systems for at least a decade.
1
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The Company was initially capitalized with equity contributions of $79
million from management and certain initial equity investors. For information
concerning significant current equity owners, see "Partnership Interests of
Certain Beneficial Owners and Management."
BUSINESS STRATEGY
Management intends to solidify the Company's position as the preferred
provider of video services and become the single hard wire broadband provider of
advanced telecommunications services and telephony in the communities that it
serves. The Company's business strategy is to (i) selectively upgrade the
Company's Systems, (ii) provide enhanced digital video, (iii) deliver advanced
telecommunications services, including Internet access, and (iv) pursue
strategic acquisitions.
- SELECTIVELY UPGRADE SYSTEMS. The Company is upgrading certain of its
cable television systems to further strengthen the Company's position as
the preferred provider of video services in the communities it serves.
These upgrades, which employ fiber optic technology, increase the
bandwidth of the Company's cable plant generally to 750 megahertz
("MHz"), or 750 million cycles per second. Upgrading to 750 MHz increases
channel capacity, enhances signal quality and improves technical
reliability. The Company believes the upgrades will enable it to offer
comparable or superior video service and quality at attractive pricing
levels relative to its competitors, such as direct broadcast satellite
("DBS"). The Company also believes that the upgrades will provide the
technical platform necessary for the development and delivery of advanced
telecommunications services and telephony.
The Company recently completed the upgrade of its Durant, Oklahoma System
(the "Durant System") to 750 MHz. The upgrade improved picture quality and
reliability and enabled the Company to increase the number of channels
offered by the Durant System from 40 to 55, with the potential for future
expansion to 100 channels (or more using digital technology). Prior to
this upgrade, the Durant System had experienced modest subscriber loss in
connection with the elimination of a low-priced broadcast-station-only
level of service and the increasing penetration of DBS. Following this
upgrade, the Company began marketing a three month service trial targeted
at homes that did not subscribe to cable. While this effort is still in
progress and the Company cannot predict the final outcome, as of September
30, 1997, year-over-year basic subscribers have increased over 7%.
By the end of 1997, the Company will have expended nearly $9 million to
upgrade its cable plant serving approximately 18,000 subscribers. The
Company expects to expend approximately $10 million in each of 1998 and
1999 to upgrade its cable plant serving an additional 32,000 subscribers.
- PROVIDE ENHANCED DIGITAL VIDEO. The Company intends to provide enhanced
digital video in the upgraded and certain other Systems using Headend In
The Sky(R) ("HITS"), a digital compression service developed by National
Digital Television Center, Inc., a subsidiary of Telecommunications, Inc.
HITS will enable the Company to deliver video services such as
pay-per-view programming and a tier or multiple tiers of niche satellite
programming. The Company believes that these enhanced digital video
services will allow it to provide a service comparable to DBS at a lower
cost. The Company intends to introduce HITS services in its Durant System
during the fourth quarter of 1997 and to schedule introduction in other
Systems after evaluating their success in Durant.
- DELIVER ADVANCED TELECOMMUNICATIONS SERVICES, INCLUDING INTERNET
ACCESS. The Company believes that advanced telecommunications services
will provide additional revenue opportunities with relatively small
incremental capital investment. The Company further believes that
upgraded cable infrastructure will provide the fastest, most
cost-effective delivery mechanism for Internet access, inter- and intra-
network data services and telephony. These advanced services enable
subscribers to receive the Internet at a peak data transmission speed up
to 300 times faster than typical dial-up connections. As part of its
efforts in this area, the Company has recently entered into a strategic
alliance with a local Internet service provider ("ISP") in Durant,
Oklahoma. Under this arrangement, the Company provides broadband service
capability for the delivery of high speed Internet service and the ISP
provides technical and customer support services.
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<PAGE> 9
In anticipation of providing telephony, the Company is seeking switching
capabilities. The Company has entered into discussions with two
independent local exchange carriers (each, an "ILEC") located near its
Systems to gain access to their switching capability. In Durant, the
Company is in the process of installing the required switch interface
equipment and plans to install customer premises equipment at selected
sites and begin testing during the fourth quarter of 1997.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to consider
opportunities to acquire cable television systems. Because it is more
cost effective to provide advanced telecommunications services over an
expanded subscriber base within a concentrated geographic area, the
Company will generally seek to acquire cable television systems, or
groups of systems, in close proximity to its existing Systems and
markets. The Company may also consider acquisitions in other geographic
areas where consistent with its business strategy. Furthermore, the
Company intends to divest itself, through asset exchanges or outright
sales, of cable television systems that do not readily lend themselves to
the Company's business strategy. Factors likely to be considered by the
Company in evaluating the desirability of a potential acquisition or
asset exchange opportunity include price and terms, subscriber densities,
growth potential (in terms of both market and cash flow) and whether the
target system can be readily integrated into the Company's operations.
The Company's principal executive office and that of the General Partner are
located at 710 North Woodward Avenue, Suite 180, Bloomfield Hills, Michigan
48304. The telephone number for each is (248) 647-1080. The Partnership
Agreement currently provides that the Company will be dissolved on December 31,
2005 but may be dissolved earlier in certain circumstances. See "The Partnership
Agreement -- Organization and Duration." The scheduled dissolution date may be
extended by agreement of the partners. See "The Partnership Agreement --
Amendment of the Partnership Agreement."
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<PAGE> 10
THE NOTES OFFERING
The Notes.................. The Notes were sold by the Issuers in the Offering
on August 15, 1997 and were subsequently resold to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and to a limited
number of institutional accredited investors in a
manner exempt from registration under the
Securities Act.
Registration Rights
Agreement.................. In connection with the Offering, the Issuers
entered into the Registration Rights Agreement,
which grants Holders (as defined under "Description
of the Exchange Notes -- Certain Definitions") of
the Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange and registration rights, which generally
terminate upon the consummation of the Exchange
Offer.
THE EXCHANGE OFFER
Securities Offered......... Up to $100,000,000 aggregate principal amount of
10 3/4% Series B Senior Notes due 2004.
The Exchange Offer......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Notes.
As of the date hereof, $100,000,000 aggregate
principal amount of Notes are outstanding. The
Issuers will issue the Exchange Notes to Holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Issuers believe that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Notes may be offered for resale,
resold and otherwise transferred by any owner
thereof (other than any such owner which is an
"affiliate" of the Issuers within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such owner's business and that
such owner does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of such Exchange 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 Exchange Notes received in exchange for Notes
where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. The Issuers
have agreed that for a period of 180 days after the
Expiration Date they will make this Prospectus
available to any broker-dealer for use in
connection with any such resale.
Any owner of Notes who tenders in the Exchange
Offer with the intention to participate, or for the
purpose of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of
4
<PAGE> 11
the Commission enunciated in Exxon Capital
Corporation (April 13, 1988) and Morgan Stanley &
Co., Incorporated (June 5, 1991), or similar
no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the resale
of the Exchange Notes. Failure to comply with such
requirements in such instance may result in such
owner incurring liability under the Securities Act
for which the owner is not indemnified by the
Issuers.
In any state where the Exchange Offer does not fall
under a statutory exemption to such state's blue
sky laws, the Issuers by the date the Exchange
Offer commences will have filed the appropriate
registrations and notices and will have made the
appropriate requests to permit the Exchange Offer
to be made in such state.
Expiration Date............ 5:00 p.m., New York City time, on ,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended.
Interest on the
Exchange Notes............. The Exchange Notes will bear interest from August
15, 1997, the date of issuance of the Notes that
are tendered in exchange for the Exchange Notes (or
the most recent interest payment date to which
interest on such Notes has been paid). Accordingly,
Holders of Notes that are accepted for exchange
will not receive interest on the Notes that is
accrued but unpaid at the time of tender, but such
interest will be payable on the first interest
payment date after the Expiration Date.
Conditions to the
Exchange Offer............. The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuers. See
"The Exchange Offer -- Conditions." No federal or
state regulatory requirements (other than
securities laws) must be complied with and no
approvals must be obtained in connection with the
Exchange Offer.
Procedures for
Tendering Notes............ Each Holder of Notes (or, in the case of interests
in the Global Notes held by DTC, each DTC
participant listed in an official DTC proxy)
wishing to accept the Exchange Offer must complete,
sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein,
and mail or otherwise deliver the Letter of
Transmittal, or such facsimile, together with the
Notes and any other required documentation, to the
Exchange Agent at the address set forth in the
Letter of Transmittal. By executing the Letter of
Transmittal, each Holder or DTC participant will
represent to the Issuers that, among other things,
the Holder or DTC participant or the person
receiving the Exchange Notes, whether or not such
person is the Holder or DTC participant, is
acquiring the Exchange Notes in the ordinary course
of business and neither the Holder or DTC
participant nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. In lieu of physical delivery of the
certificates representing Notes, tendering DTC
participants may transfer Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Book-Entry Transfer;
ATOP."
5
<PAGE> 12
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Notes are held through a
broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should
contact such nominee and instruct such nominee to
tender on such beneficial owner's behalf. Such
instructions should be given in sufficient time to
ensure that the nominee will be able to take the
necessary steps to tender such Notes before the
Expiration Date.
Guaranteed
Delivery Procedures........ Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawals of Tenders."
Acceptance of Notes and
Delivery of Exchange
Notes...................... The Issuers will accept for exchange any and all
Notes that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. However, the Issuers reserve
the right to make any determination, in their sole
discretion, as to whether or not Notes have been
properly tendered. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
Federal Income Tax
Consequences............... The issuance of the Exchange Notes to Holders of
the Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no gain
or loss would be recognized by Holders of the Notes
upon receipt of the Exchange Notes. See "Certain
Federal Income Tax Consequences of the Exchange
Offer."
Effect on Holders of
Notes...................... As a result of the making of the Exchange Offer,
the Issuers will have fulfilled certain of their
obligations under the Registration Rights
Agreement, and Holders of Notes who do not tender
their Notes will generally not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such Holders will continue
to hold the untendered Notes and will be entitled
to all the rights and subject to all the
limitations applicable thereto under the Indenture,
except to the extent such rights or limitations by
their terms terminate or cease to have further
effectiveness as a result of the Exchange Offer.
All untendered Notes will continue to be subject to
certain restrictions on transfer. Accordingly, if
any Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered Notes
could be adversely affected.
Exchange Agent............. United States Trust Company of New York
6
<PAGE> 13
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes (which they replace) except that (i) the Exchange Notes have been
registered under the Securities Act and therefore will not bear legends
restricting the transfer thereof, and (ii) the Holders of Exchange Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the Notes and will be entitled to the benefits of the Indenture. See
"Description of the Exchange Notes."
Issuers.................... The Exchange Notes will be joint and several
obligations of the Company and Finance Corp.
Securities Offered......... Up to $100,000,000 principal amount of 10 3/4%
Series B Senior Notes due 2004 (the "Exchange
Notes").
Maturity Date.............. August 15, 2004.
Interest Rate.............. The Exchange Notes will bear interest at a rate of
10 3/4% per annum.
Interest Payment Dates..... Interest will accrue on the Exchange Notes from
August 15, 1997, the date of issuance of the Notes
(the "Issue Date"), and will be payable
semi-annually on each February 15 and August 15,
commencing February 15, 1998.
Ranking.................... The Exchange Notes will be general senior unsecured
obligations of the Issuers ranking equally with all
existing and future unsubordinated Indebtedness of
the Issuers and senior in right of payment to all
Subordinated Obligations of the Issuers. The
Exchange Notes will be effectively subordinated in
right of payment to all secured Indebtedness of the
Issuers. At June 30, 1997, after giving effect to
the Refinancing, the Issuers would have had no
Indebtedness outstanding (other than the Notes),
and subject to the terms of the New Bank Credit
Facility and the Company's Partnership Agreement,
the ability to borrow up to $20 million (with an
option to increase the amount to $30 million) under
the New Bank Credit Facility. The New Bank Credit
Facility is secured by substantially all of the
Issuers' assets. The Notes and the Exchange Notes
will rank equally with one another.
Guarantees by Future
Subsidiaries............... The Exchange Notes will be unconditionally
guaranteed, on a senior unsecured basis, as to the
payment of principal, premium, if any, and
interest, jointly and severally (the "Guarantees"),
by all future direct and indirect Subsidiaries (as
defined under "Description of the Exchange Notes --
Certain Definitions") of the Issuers having either
assets or net worth in excess of $5,000 (the
"Guarantors"). No Guarantees will be effective on
the date of the issuance of the Exchange Notes. See
"Description of the Exchange Notes -- Certain
Covenants -- Limitation on Creation of
Subsidiaries."
Optional Redemption........ The Exchange Notes will be redeemable at the option
of the Issuers, in whole or in part, at any time on
or after August 15, 2001 at the redemption prices
set forth herein, together with accrued and unpaid
interest thereon to the date of redemption. In
addition, the Issuers, at their option, may redeem
an amount of Notes and Exchange Notes equal to up
to 35% of the aggregate principal amount of the
Notes originally
7
<PAGE> 14
issued in the Offering, at any time prior to August
15, 2000, at a redemption price equal to 110.750%
of the principal amount thereof plus accrued and
unpaid interest thereon to the redemption date with
the Net Cash Proceeds of one or more Public Equity
Offerings; provided, however, that at least $65
million aggregate principal amount of the Notes and
Exchange Notes remains outstanding and that such
redemption occurs within 60 days following the
closing of any such Public Equity Offering. See
"Description of the Exchange Notes -- Optional
Redemption."
Change of Control.......... In the event of a Change of Control, the Issuers
will be required to make an offer to purchase all
of the then outstanding Exchange Notes at a price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of
purchase. See "Description of the Exchange Notes --
Change of Control Offer."
Certain Covenants.......... The Indenture contains covenants for the benefit of
the holders of the Exchange Notes that, among other
things, restrict the ability of the Issuers and
their Subsidiaries to: (i) incur additional
Indebtedness; (ii) pay dividends and make
distributions; (iii) issue preferred stock of
subsidiaries; (iv) make certain investments; (v)
repurchase stock; (vi) create liens; (vii) enter
into transactions with affiliates; (viii) merge or
consolidate the Issuers or any Guarantors; and (ix)
transfer or sell assets. These covenants are
subject to a number of important exceptions. See
"Description of the Exchange Notes -- Certain
Covenants."
Exchange Offer;
Registration Rights........ If, prior to consummation of the Exchange Offer,
the Issuers or the Holders of a majority in
aggregate principal amount of the Notes reasonably
determine in good faith that (i) the Exchange Notes
would not be freely transferable by holders which
are not affiliates (within the meaning of the
Securities Act) of the Issuers without restriction
under the Securities Act or (ii) the interests of
the Holders under the Registration Rights Agreement
would be adversely affected by the consummation of
the Exchange Offer, or if the Exchange Offer is not
consummated within 180 days of the Issue Date, the
Registration Rights Agreement provides that the
Issuers will use their best efforts to cause to
become effective a shelf registration statement
with respect to the resale of the Notes and to keep
such shelf registration statement effective until
24 months after the Issue Date or such shorter
period ending when all the Notes have been sold
thereunder. The interest rate on the Notes is
subject to increase under certain circumstances if
the Issuers are not in compliance with their
obligations under the Registration Rights
Agreement. See "Exchange Offer and Registration
Rights."
8
<PAGE> 15
RISK FACTORS
Holders of the Notes should carefully consider the information set forth
under the caption "Risk Factors," and all other information set forth in this
Prospectus, in evaluating an investment in the Exchange Notes.
9
<PAGE> 16
SUMMARY FINANCIAL DATA
The following table sets forth certain historical financial data for the
Company for each of the years in the five-year period ended December 31, 1996
and for the six-month periods ended June 30, 1996 and 1997. It also sets forth
certain adjusted financial data for the year ended December 31, 1996 and the
six-month period ended June 30, 1997 that reflect the effects of the
Refinancing. The financial data for the years ended December 31, 1992 to 1996
were derived from the financial statements of the Company which (other than as
of and for the six-month periods ended June 30, 1996 and 1997) have been audited
by Deloitte & Touche LLP, independent auditors. The financial statements of the
Company at December 31, 1995 and 1996 and for each of the years in the
three-year period ended December 31, 1996, together with the report of Deloitte
& Touche LLP thereon, appear elsewhere in this Prospectus. In the opinion of the
Company, the unaudited data presented for the six-month periods ended June 30,
1996 and 1997 reflect all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of such data. Results for the
six-month periods ended June 30, 1996 and 1997 are not necessarily indicative of
the results to be expected for any other interim period or the year as a whole.
This information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and the notes thereto
appearing elsewhere in this Prospectus.
10
<PAGE> 17
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 28,029 $ 30,025 $30,864 $33,305 $35,213 $ 17,561 $ 17,806
System operating expenses(1).... 13,486 14,129 14,408 15,073 16,249 7,939 8,494
Non-system operating
expenses(2)................... 1,901 2,251 2,136 2,280 2,480 1,267 1,240
Restructuring costs(3).......... 1,494 -- -- -- -- -- --
Depreciation and amortization... 18,686 16,915 14,102 12,214 9,272 4,636 3,594
-------- -------- ------- ------- ------- -------- --------
Operating (loss) income......... (7,538) (3,270) 218 3,738 7,212 3,719 4,478
Interest expense, net........... 11,870 8,174 8,416 9,659 8,852 4,584 4,265
Other expenses, net............. 8 58 607 141 254 160 186
-------- -------- ------- ------- ------- -------- --------
(Loss) income before
extraordinary item............ (19,416) (11,502) (8,805) (6,062) (1,894) (1,025) 27
Extraordinary loss due to debt
refinancing................... -- -- -- 548 -- -- --
-------- -------- ------- ------- ------- -------- --------
Net (loss) income............... $(19,416) $(11,502) $(8,805) $(6,610) $(1,894) $ (1,025) $ 27
======== ======== ======= ======= ======= ======== ========
OTHER DATA:
EBITDA(4)....................... $ 12,642 $ 13,645 $14,320 $15,952 $16,484 $ 8,355 $ 8,072
System operating cash flow(5)... 14,543 15,896 16,456 18,232 18,964 9,622 9,312
Capital expenditures............ 1,007 1,041 1,391 2,405 3,942 1,307 3,643
EBITDA margin(6)................ 45.1% 45.4% 46.4% 47.9% 46.8% 47.6% 45.3%
Ratio of earnings to fixed
charges(7).................... -- -- -- -- -- -- 1.0x
CASH FLOW DATA:
Cash provided by operating
activities.................... $ 2,553 $ 6,476 $ 7,812 $ 6,901 $ 9,066 $ 5,154 $ 3,363
Cash used in investing
activities.................... (1,006) (1,050) (1,105) (2,405) (3,942) (1,307) (3,715)
Cash (used in) provided by
financing activities.......... (3,217) (5,706) (7,611) (3,844) (6,079) (4,163) 500
-------- -------- ------- ------- ------- -------- --------
Net (decrease) increase in
cash........................ $ (1,670) $ (280) $ (904) $ 652 $ (955) $ (316) $ 148
======== ======== ======= ======= ======= ======== ========
SUMMARY SUBSCRIBER DATA:
Homes passed(8)................. 127,215 127,863 127,943 128,908 129,291 129,162 129,291
Basic subscribers(9)............ 79,208 79,414 80,529 80,190 78,449 79,429 78,337
Basic penetration(10)........... 62.3% 62.1% 62.9% 62.2% 60.7% 61.5% 60.6%
Premium subscriptions(11)....... 29,213 28,064 28,765 28,900 25,652 27,589 25,365
Premium penetration(12)......... 36.9% 35.3% 35.7% 36.0% 32.7% 34.7% 32.4%
Average monthly total revenues
per subscriber(13)............ $ 29.69 $ 31.49 $ 32.17 $ 34.56 $ 36.89 $ 36.51 $ 37.85
System operating cash flow per
subscriber(14)................ $ 185 $ 200 $ 206 $ 227 $ 238 $ 240 $ 238
EBITDA per subscriber(15)....... $ 161 $ 172 $ 179 $ 199 $ 207 $ 208 $ 206
ADJUSTED DATA:
Adjusted cash interest expense(16)............................................ $10,750 $ 5,375
Ratio of adjusted total debt to annualized EBITDA............................. 6.1x 6.2x
Ratio of EBITDA to adjusted cash interest expense............................. 1.5x 1.5x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 1997
----------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 HISTORICAL AS ADJUSTED
---- ---- ---- ---- ---- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 1,589 $ 1,309 $ 404 $ 1,056 $ 101 $ 249 $ 7,469
Total assets.................... 78,891 61,845 46,746 39,727 32,844 32,581 41,822
Total debt...................... 100,500 95,000 88,284 88,573 82,494 82,994 100,044
Partners' deficit............... (26,111) (37,613) (47,022) (54,452) (56,346) (56,320) (64,007)
</TABLE>
(see footnotes on the following page)
11
<PAGE> 18
NOTES TO SUMMARY FINANCIAL DATA
(1) System operating expenses exclude depreciation and amortization.
(2) Non-system operating expenses consist primarily of management fees payable
to the General Partner of the Company. See "Management Discussion and
Analysis of Financial Condition and Results of Operations" and "Management
-- Executive Compensation."
(3) Restructuring costs include expenses related to the 1991 Chapter 11
Proceeding. See "Risk Factors -- 1991 Chapter 11 Proceedings."
(4) EBITDA represents operating (loss) income before restructuring costs,
depreciation and amortization. The Company has included EBITDA data (which
are not a measure of financial performance under generally accepted
accounting principles ("GAAP")) because it understands such data are used
by certain investors to determine a company's historical ability to service
its indebtedness. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's performance or as an alternative to
cash flow as a measure of liquidity as determined in accordance with GAAP.
(5) System operating cash flow represents revenues less system operating
expenses. System operating cash flow should not be considered as an
alternative to net income as an indicator of the Company's performance or
as an alternative to cash flow as a measure of liquidity as determined in
accordance with GAAP.
(6) EBITDA margin represents EBITDA divided by revenues.
(7) For purposes of calculating the ratio of earnings to fixed charges,
earnings include (loss) income before extraordinary items plus interest
expense (which includes amortization of debt issuance costs). Fixed charges
consist of interest expense incurred (including amortization of debt
issuance costs) and the estimated interest component of rent expense.
Earnings were inadequate to cover fixed charges by $19.4 million, $11.5
million, $8.8 million, $6.1 million and $1.9 million for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996, respectively, and by $1.0
million in the six months ended June 30, 1996.
(8) Homes passed refers to estimates by the Company of the number of dwelling
units in a particular community that can be connected to the distribution
system without any further extension of principal transmission lines. Such
estimates are based upon a variety of sources, including billing records,
house counts, city directories and other local sources.
(9) For purposes of all information presented in this Prospectus, unless
otherwise indicated, the number of basic subscribers for the Systems has
been computed by adding the actual number of subscribers for all non-bulk
accounts and the equivalent subscribers for all bulk accounts. The number
of such equivalent subscribers has been calculated by dividing aggregate
basic service revenues for bulk accounts by the full basic service rate for
the community in which the account is located.
(10) Basic subscribers as a percentage of homes passed.
(11) A customer may purchase more than one premium service, each of which is
counted as a separate premium subscription.
(12) Premium subscriptions as a percentage of basic subscribers.
(13) The average of the monthly total revenues divided by the number of basic
subscribers at the end of such month during the twelve-month periods ended
December 31 for each year presented and the six-month periods ended June
30, 1996 and 1997.
(14) System operating cash flow divided by the average number of basic
subscribers for the period. The amount was annualized for the periods ended
June 30, 1996 and 1997.
(15) EBITDA divided by the average number of basic subscribers for the period.
The amount was annualized for the periods ended June 30, 1996 and 1997.
(16) Reflects the interest rate on the Notes of 10.75%.
12
<PAGE> 19
RISK FACTORS
Prior to tendering their Notes in the Exchange Offer, prospective investors
in the Exchange Notes should consider carefully the following factors in
addition to the other information contained in this Prospectus. This Prospectus
contains forward-looking statements which are inherently uncertain. Actual
results and events may differ significantly from those discussed in such
forward-looking statements. In addition to the other information set forth in
this Prospectus, factors that might cause or contribute to such differences
include, but are not limited to, the risk factors that follow:
SIGNIFICANT LEVERAGE AND DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
At June 30, 1997, after giving effect to the Refinancing, the Company's
indebtedness would have been $100.0 million, its total assets would have been
$41.8 million, and its partners' deficit would have been $64.0 million. The
Company's high degree of leverage could have important consequences to the
holders of the Exchange Notes, including (but not limited to) the following: (i)
a substantial portion of the Company's cash flow from operations will be
committed to the payment of the Company's interest expense and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or other purposes may be limited; and (iii) the Company is more highly leveraged
than many cable television companies and certain DBS and telephone companies,
which may limit the Company's flexibility in reacting to changes in its
business. Subject to the terms of the New Bank Credit Facility and the Company's
Partnership Agreement, the Company will have the ability to borrow up to $20
million (with an option to increase the amount to $30 million) under the New
Bank Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
After giving effect to the Refinancing as if it had occurred at the
beginning of the applicable periods, the Company's earnings would have been
insufficient to cover its fixed charges by $4.4 million and $1.4 million for the
year ended December 31, 1996 and for the six months ended June 30, 1997,
respectively. However, such amounts include noncash charges for depreciation and
amortization totaling $9.3 million and $3.6 million, respectively, and the
Company believes that it will continue to generate cash or obtain financing
sufficient to meet its requirements for debt service, working capital and
capital expenditures contemplated in the near term. If the Company were unable
to meet its debt service obligations, the Company would have to consider
refinancing its indebtedness or obtaining new financing subject to the
limitations contained in the Indenture. There can be no assurance that the
Company would be able to do so 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, the Company
would have to consider various options to meet its required debt service such as
the sale of certain assets (subject to the limitations contained in the
Indenture), negotiation with its lenders to restructure applicable indebtedness
or other options available to it under applicable law. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION AND LOSS OF SUBSCRIBERS
Beginning in 1995, the Company has experienced a loss of subscribers to its
Systems, due primarily to increased competition from new technologies such as
wireless cable services and DBS services. Total subscribers decreased by
approximately 2.6% between December 31, 1994 and December 31, 1996. While the
Company believes its strategy of upgrading certain Systems (so as to provide
enhanced video programming, Internet access and telephony and other advanced
telecommunications services) will be successful in reversing this trend, there
can be no assurance that this will be the case. Many of the providers of DBS
services and other new technologies are supported by corporate parents with
significant financial resources.
In addition to competition from wireless cable services providers and DBS
systems, the Company faces potential competition from telephone companies, which
generally have significantly greater financial resources than the Company. The
Telecommunications Act of 1996 (the "1996 Telecom Act") eliminated earlier
statutory barriers that had prohibited most telephone companies from providing
video services, including cable
13
<PAGE> 20
service, within their telephone service areas. Therefore, in addition to
upgrading their own facilities to provide services similar to those offered by
the Company, telephone companies are now able to purchase existing video
distribution systems, including in some limited instances cable systems, and
enter into business relationships with existing video programming distributors.
See "Business -- Competition" and "Legislation and Regulation."
NEW LINES OF BUSINESS
Providing Internet access and telephony will be new lines of business for
the Company. The Company recently launched commercial Internet service in its
Durant System and is scheduled to launch a test of telephony services by year
end. Cable delivered Internet and telephony were first introduced commercially
by some cable operators only in the past 18 months, and neither the Company nor
any other cable operator has extensive experience with either line of business.
Some of the uncertainties associated with offering Internet access through
cable are: (1) customer acceptance of cable as an alternative to traditional
dial-up Internet access; (2) the competitive response of traditional ISPs,
online services (such as Microsoft Network, CompuServe and America Online) and
long distance inter-exchange carriers (such as AT&T Corp., MCI Communications
Corporation and Sprint Corporation), all of which currently offer Internet
access on a large scale; and (3) the possibility that new technologies may be
developed which offer improved performance or other desirable features.
Entering the telephone business will require, among other things, access to
switching capability (which the Company hopes to accomplish through arrangements
with telephone companies in neighboring communities), appropriate governmental
certifications and successful marketing of its services to existing telephone
company customers.
While the Company is optimistic about the prospects for these new lines of
business, there can be no assurance that it will be able to enter them
successfully or generate additional cash flow. See "Business -- Business
Strategy" and "Business -- Competition."
SUBSTANTIAL REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive governmental
regulation on the federal, state and local levels (but principally by the
Federal Communications Commission (the "FCC") and by local franchising
authorities). Many aspects of such regulation have recently been extensively
revised and are currently the subject of judicial proceedings and administrative
rulemakings, which are potentially significant to the Company. In this regard,
the Company believes that the regulation of cable television systems, including
the rates charged for cable services, remains a matter of interest to Congress,
the FCC and local regulatory officials. Accordingly, no assurance can be given
as to what future actions such parties or the courts may take or the effect
thereof on the Company. See "Legislation and Regulation."
The principal federal statute governing cable television is the
Communications Act of 1934, as amended (the "Communications Act"). Amendments to
the Communications Act in 1984 and 1992 and amendments in 1996 (codified as the
1996 Telecom Act) have had particular impact on the way in which cable systems
are regulated. The 1984 and 1992 amendments added materially to the regulatory
burdens of cable operators, particularly in the areas of (i) cable system rates
for both basic and certain nonbasic services; (ii) programming access and
exclusivity arrangements; (iii) access to cable channels by unaffiliated
programming services; (iv) leased access terms and conditions; (v) horizontal
and vertical ownership of cable systems; (vi) customer service requirements;
(vii) franchise renewals; (viii) television broadcast signal carriage and
retransmission consent; (ix) technical standards; (x) customer privacy; (xi)
consumer protection issues; (xii) cable equipment compatibility; (xiii) obscene
or indecent programming; and (xiv) requiring subscribers to subscribe to tiers
of service other than basic service as a condition of purchasing premium
services. The 1996 Telecom Act substantially amended the Communications Act by,
among other things, removing barriers to competition in the cable television and
telephone markets and reducing the regulation of cable television rates.
Under the FCC's rate regulations, most cable systems were required to
reduce their basic service and cable programming service tier ("CPST") rates in
1993 and 1994, and have since had their rate increases
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governed by a complicated price cap scheme. Operators also have the opportunity
of bypassing this "benchmark" regulatory scheme in favor of traditional "cost of
service" in cases where the latter methodology appears favorable. The FCC also
established a vastly simplified cost of service methodology for small cable
companies.
The Company, which qualifies as a small cable company under FCC rules, has
elected to rely on the cost-of-service rules as and when the Systems are
required to justify their rates for regulated services and, therefore, has not
implemented the rate reductions that would otherwise have been required if it
were subject to the FCC's benchmarks. Under the cost-of-service rules applicable
to small cable companies, eligible systems can establish permitted rates under a
simple formula that considers total operating expenses (including amortization
expenses), net rate base, rate of return, channel count and subscribers. If the
per channel rate resulting from these inputs for a cable system is no more than
$1.24, the cable system's rates will be presumed reasonable. If the
formula-generated rate exceeds the $1.24, the burden is on the cable operator to
establish the reasonableness of its calculations.
Substantially all of the Company's rates are currently under the $1.24 per
channel level, and the Company believes that all of its rates in excess of the
$1.24 per channel level are reasonable using the formula described above.
However, FCC rules permit local franchise authorities to review basic service
rates, and under certain circumstances, challenge CPST rates at the FCC. An
adverse ruling in any such proceeding could require the Company to reduce its
rates and pay refunds. A reduction in the rates it charges for regulated
services or the requirement that it pay refunds could have a material adverse
effect on the Company. Once the maximum permitted rate allowed by FCC rules is
being charged by the Company in regulated communities, future rate increases may
not exceed an inflation-indexed amount, plus increases in certain costs beyond
the cable operator's control, such as taxes, franchise fees and increased
programming costs. It is to be noted, however, that under the 1996 Telecom Act,
FCC regulation of the CPST expires for all cable systems on March 31, 1999.
In addition, other provisions of the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") could in the future have a
material adverse effect on the Company's business. In particular, the 1992 Cable
Act conveyed to broadcasters the right generally to elect either to require (i)
the local cable operator to carry their signal or (ii) that such operator obtain
the broadcaster's consent before doing so. To date, compliance with these
provisions has not had a material effect on the Company, although this result
may change in the future depending on such factors as market conditions, channel
capacity and similar matters when such arrangements are renegotiated. See
"Legislation and Regulation."
NON-EXCLUSIVE FRANCHISES; NON-RENEWAL OR TERMINATION OF FRANCHISES
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
The Company's business is dependent upon the retention and renewal of its local
franchises. A franchise is generally granted for a fixed term ranging from five
to 15 years but in many cases is terminable if the franchisee fails to comply
with the material provisions thereof. The Company's franchises typically impose
conditions relating to the use and operation of the cable television system,
including requirements relating to the payment of fees, system bandwidth
capacity, customer service requirements, franchise renewal and termination. As
of June 30, 1997, the Company had 14 franchises (representing 11.3% of the
Company's basic subscribers) expiring prior to 2000 and 46 franchises
(representing 39.3% of its basic subscribers) expiring between 2000 and 2004.
The 1992 Cable Act prohibits franchising authorities from granting
exclusive cable television franchises and from unreasonably refusing to award
additional competitive franchises; it also permits municipal authorities to
operate cable television systems in their communities without franchises. The
Cable Communications Policy Act of 1984 (the "1984 Cable Act"), provides, among
other things, for an orderly franchise renewal process in which franchise
renewal will not be unreasonably withheld or, if renewal is denied and the
franchising authority acquires ownership of the system or effects a transfer of
the system to another person, the operator generally is entitled to the "fair
market value" for the system covered by such franchise. Although the Company
believes that it generally has good relationships with its franchising
authorities, no assurance can be given that the Company will be able to retain
or renew such franchises or that the terms of any such renewals will be on terms
as favorable to the Company as the Company's existing franchises. The
non-renewal or
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termination of franchises relating to a significant portion of the Company's
subscribers could have a material adverse effect on the Company's results of
operations. See "Business -- Franchises" and "Legislation and Regulation."
NO ASSURANCE OF SUCCESSFUL ACQUISITIONS
An element of the Company's business strategy is to achieve operational
efficiencies by providing advanced telecommunications services and video
services over an expanded subscriber base within a concentrated geographic area.
Consequently, the Company intends to consider potential opportunities to acquire
or trade cable television systems. Any acquisition or trade could have an
adverse effect upon the Company's results of operations or cash flow,
particularly acquisitions of new systems which must be integrated with the
Company's existing operations. There can be no assurance that the Company will
be able to integrate successfully any acquired systems with its existing
operations or realize any efficiencies from any acquisition or trade. There can
also be no assurance that any acquisition or trade, if consummated, will improve
operating results or that the Company will be able to obtain any financing that
may be necessary to fund any acquisition or trade in the future. In addition,
any acquisition or trade will be subject to, among other things, the
satisfaction of customary closing conditions and the receipt of certain
third-party or governmental approvals, including the consent of franchising
authorities. See "Business -- Business Strategy."
REDUCTION IN INSURANCE
On the advice of its insurance agent, to avoid the expense of being "over
insured," in 1994, the Company reduced its casualty insurance coverage (which
covers losses due to damage to its facilities and related business interruption)
from $15 million per occurrence to $10 million per occurrence for each of its
Systems (other than those in Florida and Louisiana). Because of the
industry-wide casualty insurance reductions that resulted from insurers' loss
experience with several hurricanes in the southeastern portion of the United
States, the Company's casualty insurance in Florida and Louisiana was ultimately
reduced to $1 million per occurrence. All of the Company's casualty insurance
coverage is subject to deductibles ranging between $10,000 and $100,000 per
occurrence. The Company believes that its Systems in Florida and Louisiana are
located in areas that are not subject to a high degree of risk from hurricanes,
or from ice storms (which do pose a significant risk for its Systems in other
areas), and that losses in excess of its existing coverage would be unlikely. If
the Company is unable to maintain adequate casualty insurance it will be subject
to a potential reduction in cash flow in the event of a loss in excess of its
policy limits, and if a significant loss were to occur, it could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Insurance."
1991 CHAPTER 11 PROCEEDINGS
In June 1991, the Company voluntarily filed for protection under Chapter 11
of the United States Bankruptcy Code. The bankruptcy filing was due to
acceleration of its then existing bank debt following disagreements among
members of the bank group that resulted in one member's failure to execute an
amendment to the Company's credit agreement which the Company believed had been
approved and would be executed. The Company's plan of reorganization was
confirmed by the bankruptcy court in August 1992 and was consummated in
September 1992. Other than the restructuring of the bank group debt, no changes
to the Company's financial statements, operations or management occurred as a
result of the bankruptcy. "Fresh start" accounting (as defined in American
Institute of Certified Public Accountants Statement of Position 90-7) was not
required since there was only a 10% change in the equity ownership of the
Company. Pursuant to the plan, the Company repaid all of its bank lenders and
unsecured creditors in full.
EFFECTIVE SUBORDINATION TO SECURED DEBT
The payment of the principal of, premium, if any, and interest on and any
other amounts owing in respect of the Exchange Notes will be effectively
subordinated in right of payment to all existing and future secured indebtedness
of the Company. Upon any distribution of assets pursuant to any liquidation,
insolvency, dissolution, reorganization or similar proceeding, the holders of
secured indebtedness will be entitled to receive payment in full from the
proceeds of their collateral (which will include substantially all of the
Company's assets) before the holders of the Exchange Notes will be entitled to
receive any payment with respect thereto.
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As a result, holders of the Exchange Notes may recover ratably less than holders
of secured indebtedness of the Company. In addition, if any default exists with
respect to secured indebtedness and certain other conditions are satisfied, the
Company may not make any payments on the Exchange Notes for a designated period
of time. At June 30, 1997, after giving effect to the Refinancing, the Company
would have had no Indebtedness outstanding (other than the Notes), and subject
to the terms of the New Bank Credit Facility and the Company's Partnership
Agreement, the ability to borrow up to $20 million (with an option to increase
the amount to $30 million) under the New Bank Credit Facility. The New Bank
Credit Facility is secured by substantially all of the Issuers' assets. See
"Description of the Exchange Notes."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture and the New Bank Credit Facility impose restrictions that,
among other things, limit the amount of additional indebtedness that may be
incurred by the Company and impose limitations on, among other things,
investments, loans and other payments, certain transactions with affiliates and
certain mergers and acquisitions. The New Bank Credit Facility also requires the
Company to maintain specified financial ratios and meet certain financial tests.
The ability of the Company to comply with such covenants and restrictions can be
affected by events beyond its control, and there can be no assurance that the
Company will achieve operating results that would permit compliance with such
provisions. The breach of any of the provisions of the New Bank Credit Facility
would, under certain circumstances, result in defaults thereunder, permitting
the lenders under the New Bank Credit Facility to accelerate the indebtedness
under the New Bank Credit Facility. If the Company were unable to pay the
amounts due in respect of the New Bank Credit Facility, the lenders thereunder
could foreclose upon the assets pledged to secure such payment. In such event,
the holders of the Exchange Notes might not be able to receive any payments, if
ever, until the payment default was cured or waived, any such acceleration was
rescinded or the indebtedness under the New Bank Credit Facility was discharged
or paid in full. Any of such events would adversely affect the Company's ability
to service the Exchange Notes.
CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all of the outstanding Notes and Exchange Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. The Company's ability to pay cash to holders of the Notes and
Exchange Notes upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that, in the event of a Change of
Control, the Company will have, or will have access to, sufficient funds or will
be contractually permitted under the terms of other outstanding indebtedness and
obligations, including the New Bank Credit Facility, to pay the required
purchase price for all of the Notes and Exchange Notes tendered by holders
thereof upon the occurrence of a Change of Control. The exercise by the holders
of the Notes and Exchange Notes of their right to require the Issuers to
repurchase the Notes and Exchange Notes upon the occurrence of a Change of
Control could also cause a default under other indebtedness of the Company, even
if the Change of Control itself does not, because of the financial effect of
such repurchase on the Company. In connection with a Change of Control, the
General Partner may be entitled to be paid an incentive compensation fee of up
to 2% of the equity value of the Company's Systems. Any incentive fee earned by
the General Partner in connection with a Change of Control would be permitted to
be paid to the General Partner following the payment by the Company of all Notes
and Exchange Notes properly tendered for payment under a Change of Control
Offer.
FRAUDULENT TRANSFER STATUTES
The incurrence by the Company of indebtedness such as the Notes and
Exchange Notes may be subject to review under relevant state and federal
fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on
behalf of unpaid creditors of the Company. Under these laws, if a court were to
find that, after giving effect to the sale of the Notes and Exchange Notes and
the application of the net proceeds from the Notes, either (a) the Company
incurred such indebtedness with the intent of hindering, delaying or defrauding
creditors or (b) the Company received less than reasonably equivalent value or
consideration for incurring such indebtedness and (i) was insolvent or was
rendered insolvent by reason of such transactions, (ii) was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital, or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court may subordinate such indebtedness to presently existing and future
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<PAGE> 24
indebtedness of the Company, as the case may be, avoid the issuance of such
indebtedness and direct the repayment of any amounts paid thereunder to the
Company's creditors or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
The Company believes that it received equivalent value at the time the
indebtedness under the Notes was incurred. In addition, the Company does not
believe that it, after giving effect to the Refinancing, (i) was insolvent or
rendered insolvent, (ii) was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital, or (iii) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they mature. These beliefs are based on the Company's operating history
and analysis of internal cash flow projections and estimated values of assets
and liabilities of the Company at the time of the Offering of the Notes. There
can be no assurance, however, that a court passing on these issues would make
the same determination.
RELIANCE ON MANAGEMENT
The Company relies significantly on the services of the General Partner and
the personnel employed by or on behalf of the General Partner. The Company
maintains $5 million of key-man life insurance on Mr. William R. James, who
effectively controls the General Partner. The Company could be adversely
affected, however, if Mr. James or any of Messrs. Trenary, Shoemaker and Madison
were unwilling or unable to continue to make their services available to the
Company. See "Management."
LACK OF PUBLIC MARKET FOR EXCHANGE NOTES
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act or any state
securities laws and, unless so registered and to the extent not exchanged for
the Exchange Notes, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws.
The Exchange Notes will constitute a new class of securities with no
established trading market. Although the Exchange Notes will generally be
permitted to be resold or otherwise transferred by nonaffiliates of the Issuers
without compliance with the registration requirements of the Securities Act, the
Issuers do not intend to list the Exchange Notes on any national securities
exchange or to seek admission thereof to trading in the Nasdaq National Market.
CIBC Wood Gundy Securities Corp. and First Chicago Capital Markets, Inc., who
were the initial purchasers of the Notes (the "Initial Purchasers"), have
advised the Issuers that they currently intend to make a market in the Exchange
Notes. The Initial Purchasers are not obligated to do so, however, and any
market-making with respect to the Exchange Notes may be discontinued at any time
without notice. In addition, such market-making may be limited during the
Exchange Offer and the pendency of any shelf registration statement. Therefore,
there can be no assurance as to the liquidity of any trading market for the
Exchange Notes or that an active public market for the Exchange Notes will
develop. If such a market were to develop, the Exchange Notes could trade at
prices that may be lower than the initial offering price depending on many
factors, including prevailing interest rates, the Company's operating results
and the market for similar securities.
NO PERSONAL LIABILITY OF CERTAIN PERSONS
No director, officer, employee, partner, interestholder or shareholder, as
such, of either Issuer or of the General Partner or of any corporate partner of
the General Partner will have any liability for any obligations of the Issuers
under the Exchange Notes. Each holder of the Exchange Notes by purchasing an
Exchange Note
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waives and releases all such liability. Absent such waiver and release, under
the Delaware Revised Uniform Limited Partnership Act, the holders of the
Exchange Notes would be able to proceed against the General Partner (and against
the limited partners in very limited circumstances) in the event of nonpayment
of the Exchange Notes. See "Description of the Exchange Notes -- No Personal
Liability of Certain Persons."
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
such Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, owners of the Notes desiring to tender such
Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Issuers are under no duty to give notification of defects
or irregularities with respect to the tenders of Notes for exchange. Notes that
are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions on transfer thereof, and on consummation of the Exchange Offer, the
registration rights under the Registration Rights Agreement generally will
terminate. In addition, any owner of Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Notes, where such 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 meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. To the extent that Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Notes could be adversely affected. See "The Exchange Offer."
RESTRICTIONS ON TRANSFER
The Notes were offered and sold by the Issuers in a private offering exempt
from registration under to the Securities Act and have been resold pursuant to
Rule 144A under the Securities Act and to a limited number of other
institutional "accredited investors" (as defined in Rule 501(a) (1), (2), (3) or
(7) under the Securities Act). As a result, the Notes may not be reoffered or
resold by purchasers except pursuant to an effective registration statement
under the Securities Act or pursuant to an applicable exemption from the
requirement for such registration, and the Notes bear legends reflecting those
restrictions. Each owner of Notes (other than any owner who is an affiliate of
the Issuers) who duly exchanges Notes for Exchange Notes in the Exchange Offer
will receive Exchange Notes that are freely transferable under the Securities
Act. Owners of Notes who participate in the Exchange Offer should be aware,
however, that if they accept the Exchange Offer for the purpose of engaging in a
distribution, the Exchange Notes may not be publicly reoffered or resold without
complying with the registration and prospectus delivery requirements of the
Securities Act. As a result, each owner of Notes accepting the Exchange Offer
will be deemed to have represented, by its acceptance of the Exchange Offer,
that it acquired the Exchange Notes in the ordinary course of business and that
it is not engaged in, and does not intend to engage in, a distribution of the
Exchange Notes.
The Notes currently may be sold pursuant to the restrictions set forth in
Rule 144A under the Securities Act or pursuant to another available exemption
under the Securities Act without registration under the Securities Act. To the
extent that Notes are tendered and accepted in the Exchange Offer, the trading
market for the untendered and tendered but unaccepted Notes could be adversely
affected.
POTENTIAL CONFLICTS OF INTEREST
The General Partner, which is controlled by William R. James, is the sole
general partner of the Company. With certain limitations, the General Partner
has exclusive authority for the management and control of the Company's business
and operations. It performs management services for the Company, for which it is
paid an annual fee.
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The Company is subject to possible conflicts of interest arising out of its
relationship with the General Partner and Mr. James. Because the Company was
organized and is operated by the General Partner, these conflicts will not
necessarily be resolved through arm's-length negotiations but rather may be
resolved through the exercise of the General Partner's judgment consistent with
its fiduciary responsibilities to the Company and its limited partners. The
Company's Partnership Agreement provides for a Partnership Advisory Board, one
of the functions of which is to review any potential conflicts of interest
involving the General Partner, and provides that the General Partner may be
removed by the limited partners but (so long as the General Partner is
controlled by Mr. James) only if the General Partner has been found by an
independent party to have been engaged in malfeasance, criminal conduct, wanton,
willful neglect or a material breach of the Partnership Agreement. There are no
other procedures for resolving conflicts between the Company and the General
Partner. The Indenture contains certain restrictions on transactions between the
Issuers and their subsidiaries and affiliates. See "Description of the Exchange
Notes -- Certain Covenants -- Limitation on Transactions with Affiliates," "The
Partnership Agreement" and "Management -- Executive Compensation."
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
to be the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part and are incorporated
herein by reference.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Issuers on the Issue Date and were subsequently
resold to qualified institutional buyers pursuant to Rule 144A under the
Securities Act and to institutional investors that are accredited investors in a
manner exempt from registration under the Securities Act. In connection with the
Offering, the Issuers entered into the Registration Rights Agreement, which
requires, among other things, that promptly following the Issue Date the Issuers
(i) file with the Commission a registration statement under the Securities Act
with respect to an issue of new notes of the Issuers identical in all material
respects (other than transfer restrictions) to the Notes (which obligation has
been satisfied by the filing of the Registration Statement), (ii) use their best
efforts to cause such registration statement to become effective under the
Securities Act and (iii) upon the effectiveness of that registration statement,
offer to the Holders of the Notes the opportunity to exchange their Notes for a
like principal amount of Exchange Notes, which would be issued without a
restrictive legend and may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act (other than any such holder
that is an "affiliate" of the Issuers within the meaning of Rule 405 under the
Securities Act). A copy of the Registration Rights Agreement has been filed as
an exhibit to the Registration Statement. The term "Holder" with respect to the
Exchange Offer means any person in whose name the Notes are registered on the
books of the Issuers or any other person who has obtained a properly completed
bond power from the registered holder.
Any Notes tendered and exchanged in the Exchange Offer will reduce the
principal amount of Notes outstanding. Following the consummation of the
Exchange Offer, Holders of the Notes who did not tender their Notes generally
will not have any further registration rights under the Registration Rights
Agreement, and such Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Notes could be
adversely affected. The Notes are currently eligible for sale pursuant to Rule
144A through the PORTAL System of the National Association of Securities
Dealers, Inc. Because the Issuers anticipate that most Holders of Notes will
elect to exchange such Notes for Exchange Notes due to the absence of
restrictions on the resale of Exchange Notes under the Securities Act, the
Issuers anticipate that the liquidity of the market for any Notes remaining
outstanding after the consummation of the Exchange Offer may be substantially
limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time on the
Expiration Date. The Issuers will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that (i) the Exchange Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the Exchange Notes generally will not be entitled to
certain rights under the Registration Rights Agreement, which rights generally
will terminate upon consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Notes and will be entitled to the benefits of the
Indenture.
Holders of Notes do not have any appraisal or dissenters' rights under the
Delaware Revised Uniform Limited Partnership Act, the Michigan Business
Corporation Act or the Indenture in connection with the
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Exchange Offer. The Issuers intend to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, including Rule 14e-1 thereunder.
The Issuers will be deemed to have accepted validly tendered Notes when, as
and if the Issuers have given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the Exchange Notes from the Issuers.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender 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 Notes pursuant to
the Exchange Offer. The Issuers will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on the
expiration date for the Exchange Offer set forth on the cover page of this
Prospectus unless the Issuers, in their sole discretion, extend the Exchange
Offer, in which case the term "Expiration Date" will mean the latest date and
time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Issuers will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Issuers reserve the right, in their reasonable judgment, (i) to delay
accepting any 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 in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Issuers
to constitute a material change, the Issuers will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered Holders, and depending upon the significance of the amendment and the
manner of disclosure to the registered Holders, the Issuers will extend the
Exchange Offer for a period of five to ten business days if the Exchange Offer
would otherwise expire during such five to ten business-day period.
If the Issuers do not consummate the Exchange Offer or, in lieu thereof,
the Issuers do not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein, additional
interest will accrue and be payable on the Notes either temporarily or
permanently. See "Exchange Offer and Registration Rights."
Without limiting the manner in which the Issuers may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Issuers shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON EXCHANGE NOTES
The Exchange Notes will bear interest from the Issue Date (or the most
recent interest payment date to which interest on the Notes has been paid).
Accordingly, holders of Notes that are accepted for exchange will not receive
interest that is accrued but unpaid on the Notes at the time of tender, but such
interest will be
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payable on the first interest payment date after the Expiration Date. Interest
on the Exchange Notes will be payable semiannually on each February 15 and
August 15, commencing on February 15, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Notes (or, in the case of interests in the Notes issued in
registered, global form (the "Global Notes") held by DTC, a DTC participant
listed in an official DTC proxy) may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder or DTC participant must 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 of Transmittal or such facsimile, together with
the Notes and any other required documents, to the Exchange Agent so as to be
received by the Exchange Agent at the address set forth below prior to 5:00
p.m., New York City time, on the Expiration Date. Delivery of the Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder or DTC participant will
make to the Issuers the representation set forth below in the second paragraph
under the heading "-- Resale of Exchange Notes."
The tender by a Holder or DTC participant and the acceptance thereof by the
Issuers will constitute an agreement between such Holder or DTC participant and
the Issuers in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER OR DTC PARTICIPANT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
HOLDERS AND DTC PARTICIPANTS 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 NOTES SHOULD BE
SENT TO THE ISSUERS. BENEFICIAL OWNERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH BENEFICIAL OWNERS.
Any beneficial owner whose Notes are held through a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
contact such nominee Holder and instruct such nominee to tender on such
beneficial owner's behalf. Such instructions should be given in sufficient time
to ensure that the nominee will be able to take the necessary steps to tender
such Notes before the Expiration Date.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined later in
this paragraph) unless the Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
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 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 Issuers, evidence satisfactory
to the Issuers of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Issuers in their sole discretion, which determination will be
final and binding. The Issuers reserve the absolute right to reject any and all
Notes not
23
<PAGE> 30
properly tendered or any Notes the Issuers' acceptance of which would, in the
opinion of counsel for the Issuers, be unlawful. The Issuers also reserve the
right to waive any defects, irregularities or conditions of tender as to
particular Notes. The Issuers' 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 Notes must be cured within such time as the
Issuers determine. Although the Issuers intend to notify Holders of defects or
irregularities with respect to tenders of Notes, none of the Issuers, the
Exchange Agent or any other person will incur any liability for failure to give
such notification. Tenders of Notes will not be deemed to have been made until
such defects or irregularities have been cured or waived. Any 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.
BOOK-ENTRY TRANSFER; ATOP
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish an account with respect to the
Notes at DTC for the purpose of facilitating the Exchange Offer, and subject to
the establishment thereof, any financial institution that is a participant in
DTC may make book-entry delivery of the Notes by causing DTC to transfer such
Notes into the Exchange Agent's account with respect to the Notes in accordance
with DTC's procedures for such transfer. Although delivery of the Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC, a
Letter of Transmittal properly completed and duly executed with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or 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. Delivery of documents to DTC does not constitute
delivery to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the Book-Entry Facility Automated Tender Offer Program ("ATOP").
Accordingly, DTC participants listed on an official DTC proxy may electronically
transmit their acceptance of the Exchange Offer by causing DTC to transfer Notes
to the Exchange Agent in accordance with DTC's ATOP procedures for transfer. DTC
will then send an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the confirmation of a book-entry
transfer, which states that DTC has received an express acknowledgement from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Issuers may enforce such
agreement against the participant. In the case of an Agent's Message relating to
guaranteed delivery, the term means a message transmitted by DTC and received by
the Exchange Agent which states that DTC has received an express acknowledgement
from the participant in DTC tendering Notes that such participant has received
and agrees to be bound by the Notice of Guaranteed Delivery.
Each DTC participant transmitting an acceptance of the Exchange Offer
through the ATOP procedures will be deemed to have agreed to be bound by the
terms of the Letter of Transmittal. Nevertheless, in order for such acceptance
to constitute a valid tender of the DTC participant's Notes, such participant
must complete and sign a Letter of Transmittal and deliver it to the Exchange
Agent before the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent
24
<PAGE> 31
or (iii) who cannot complete the procedures for book-entry transfer, prior to
the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) 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 Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at DTC) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with 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
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at DTC) and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of 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 Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at the
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 deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number(s) and
principal amount of such Notes or, in the case of Notes transferred by
book-entry transfer, the name and number of the account at DTC to be credited),
(iii) be signed by the Holder or DTC participant in the same manner as the
original signature on the Letter of Transmittal by which such Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Notes are to be registered, if different from that of
the Depositor. All questions as to the validity, form and eligibility (including
time or receipt) of such notices will be determined by the Issuers, whose
determination will be final and binding on all parties. Any Notes so withdrawn
will be deemed not to have been validly tendered for purposes of the Exchange
Offer, and no Exchange Notes will be issued with respect thereto unless the
Notes so withdrawn are validly retendered. Any Notes which have been tendered
but which are not accepted for exchange will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers will not
be required to accept for exchange, or to exchange Exchange Notes for, any
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted which, in the reasonable
judgment of the Issuers, might materially impair the ability
25
<PAGE> 32
of the Issuers to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Issuers; or
(b) any governmental approval has not been obtained, which approval
the Issuers, in their reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Issuers determine in their reasonable judgment that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes (see
"-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Issuers will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and depending
upon the significance of the waiver and the manner of disclosure to the
registered Holders, the Issuers will extend the Exchange Offer for a period of
five to ten business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
United States Trust Company of New York will act as Exchange Agent for the
Exchange Offer with respect to the Notes.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
By registered or certified mail, overnight mail or courier service or in
person by hand:
<TABLE>
<CAPTION>
By Overnight Courier: By Hand: By Registered or Certified Mail
<S> <C> <C>
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Attn: Corporate Trust Services
Attn: Corporate Trust Services Attn: Corporate Trust Services Cooper Station
New York, New York 10006 New York, New York 10276-0844
</TABLE>
By facsimile:
(212) 420-6152
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telephone, facsimile or in person by employees of the Company and
its affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Issuers, 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 pay
other registration expenses, including fees and expenses of the Trustee, filing
fees, blue sky fees and printing and distribution expenses.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the 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 than the registered Holder of the Notes tendered, or if
tendered 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
26
<PAGE> 33
other than the exchange of the Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered Holder or
any other person) will be payable by the tendering Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Notes, which is the aggregate principal amount of the Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Issuers believe that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any owner of such Exchange Notes
(other than any such owner which is an "affiliate" of the Issuers within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such owner's
business and such owner does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of such
Exchange Notes. Any owner of Notes who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of the Exchange Notes may not rely on the position of the staff of the SEC
enunciated in Exxon Capital Holdings Corporation (April 13, 1988) and Morgan
Stanley & Co., Incorporated (June 5, 1991) or similar no-action letters but
rather must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. In addition, any
such resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Notes, where such Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes.
By tendering in the Exchange Offer, each Holder (or DTC participant, in the
case of tenders of interests in the Global Notes held by DTC) will represent to
the Issuers that, among other things, (i) the Exchange Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of business of
the person receiving such Exchange Notes, whether or not such person is the
registered Holder or DTC participant, (ii) neither the Holder or DTC participant
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and (iii) the Holder or
DTC participant and such other person acknowledge that if they participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (a) they
must, in the absence of an exemption therefrom, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the Exchange Notes and cannot rely on the no-action letters referenced
above and (b) failure to comply with such requirements in such instance could
result in such Holder or DTC participant or such other person incurring
liability under the Securities Act for which such Holder or DTC participant or
such other person is not indemnified by the Issuers. Further, by tendering in
the Exchange Offer, each Holder or DTC participant and such other person that
may be deemed an "affiliate" (as defined under Rule 405 of the Securities Act)
of the Issuers will represent to the Issuers that such Holder or DTC participant
and such other person understand and acknowledge that the Exchange Notes may not
be offered for resale, resold or otherwise transferred by that Holder or DTC
participant or such other person without registration under the Securities Act
or an exemption therefrom.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Issuers will have
fulfilled one of their obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly,
27
<PAGE> 34
any Holder of Notes that does not exchange that Holder's Notes for Exchange
Notes will continue to hold the untendered Notes and will be entitled to all the
rights and limitations applicable thereto under the Indenture, except to the
extent that such rights or limitations, by their terms, terminate or cease to
have further effectiveness as a result of the Exchange Offer.
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Issuers (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the Notes are eligible for resale pursuant to Rule 144A under the
Securities Act, to a qualified institutional buyer within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A, (iv) outside the
United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available) or (vi) to an institutional
accredited investor in a transaction exempt from the registration requirements
of the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States or other jurisdiction. See "Risk Factors
- --Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary, and holders should
carefully consider whether to accept. Holders and beneficial owners of the Notes
are urged to consult their financial and tax advisors in making their own
decision on what action to take.
The Company may in the future seek to acquire untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to permit
resales of any untendered Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Issuers by the date the Exchange Offer
commences will have filed the appropriate registrations and notices and will
have made the appropriate requests to permit the Exchange Offer to be made in
such state.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. Each Holder of a
Note should consult its own tax advisor as to the particular tax consequences of
exchanging such Holder's Notes for Exchange Notes, including the applicability
and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for United
States federal income tax purposes. Consequently, no gain or loss would be
recognized by Holders of the Notes upon receipt of the Exchange Notes, and
ownership of the Exchange Notes will be considered a continuation of ownership
of the Notes. For purposes of determining gain or loss on the subsequent sale or
exchange of the Exchange Notes, a Holder's basis in the Exchange Notes should be
the same as such Holder's basis in the Notes exchanged therefor. A Holder's
holding period for the Exchange Notes should include the Holder's holding period
for the Notes exchanged therefor. The issue price, original issue discount
inclusion and other tax characteristics of the Exchange Notes should be
identical to the issue price, original issue discount inclusion and other tax
characteristics of the Notes exchanged therefor.
28
<PAGE> 35
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997 and as adjusted to give effect to the Refinancing as if it had occurred
on June 30, 1997. This table should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements and the notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
----------------------
AS
ACTUAL ADJUSTED
------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt:
Prior bank credit facility................................ $ 66,393 $ --
New Bank Credit Facility(1)............................... -- --
Notes..................................................... -- 100,000
Subordinated debt......................................... 16,557 --
Other debt................................................ 44 44
-------- --------
Total debt............................................. 82,994 100,044
Partners' deficit(2)........................................ (56,320) (64,007)
-------- --------
Total capitalization................................... $ 26,674 $ 36,037
======== ========
</TABLE>
- -------------------------
(1) The Company did not borrow under the New Bank Credit Facility in connection
with the Refinancing. The New Bank Credit Facility is secured by
substantially all of the Issuers' assets. See "Description of Other
Indebtedness."
(2) Adjusted for the write-off of $2.0 million of unamortized deferred financing
costs, the payment of $1.3 million of additional interest paid to the
holders of the subordinated debt and the repurchase of related warrants at a
price of $4.4 million.
29
<PAGE> 36
SELECTED FINANCIAL DATA
The following table sets forth certain historical financial data for the
Company for each of the years in the five-year period ended December 31, 1996
and for the six-month periods ended June 30, 1996 and 1997. It also sets forth
certain adjusted financial data for the year ended December 31, 1996 and the
six-month period ended June 30, 1997 that reflect the effects of the
Refinancing. The financial data for the years ended December 31, 1992 to 1996
were derived from the financial statements of the Company which (other than as
of and for the six-month periods ended June 30, 1996 and 1997) have been audited
by Deloitte & Touche LLP, independent auditors. The financial statements of the
Company at December 31, 1995 and 1996 and for each of the years in the
three-year period ended December 31, 1996, together with the report of Deloitte
& Touche LLP thereon, appear elsewhere in this Prospectus. In the opinion of the
Company, the unaudited data presented for the six-month periods ended June 30,
1996 and 1997 reflect all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of such data. Results for the
six-month periods ended June 30, 1996 and 1997 are not necessarily indicative of
the results to be expected for any other interim period or the year as a whole.
This information should be read in conjunction with "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and the notes thereto
appearing elsewhere in this Prospectus.
30
<PAGE> 37
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 28,029 $ 30,025 $30,864 $33,305 $35,213 $ 17,561 $ 17,806
System operating expenses(1)..... 13,486 14,129 14,408 15,073 16,249 7,939 8,494
Non-system operating
expenses(2).................... 1,901 2,251 2,136 2,280 2,480 1,267 1,240
Restructuring costs(3)........... 1,494 -- -- -- -- -- --
Depreciation and amortization.... 18,686 16,915 14,102 12,214 9,272 4,636 3,594
-------- -------- ------- ------- ------- -------- --------
Operating (loss) income.......... (7,538) (3,270) 218 3,738 7,212 3,719 4,478
Interest expense, net............ 11,870 8,174 8,416 9,659 8,852 4,584 4,265
Other expenses, net.............. 8 58 607 141 254 160 186
-------- -------- ------- ------- ------- -------- --------
(Loss) income before
extraordinary item............. (19,416) (11,502) (8,805) (6,062) (1,894) (1,025) 27
Extraordinary loss due to debt
refinancing.................... -- -- -- 548 -- -- --
-------- -------- ------- ------- ------- -------- --------
Net (loss) income................ $(19,416) $(11,502) $(8,805) $(6,610) $(1,894) $ (1,025) $ 27
======== ======== ======= ======= ======= ======== ========
OTHER DATA:
EBITDA(4)........................ $ 12,642 $ 13,645 $14,320 $15,952 $16,484 $ 8,355 $ 8,072
System operating cash flow(5).... 14,543 15,896 16,456 18,232 18,964 9,622 9,312
Capital expenditures............. 1,007 1,041 1,391 2,405 3,942 1,307 3,643
EBITDA margin(6)................. 45.1% 45.4% 46.4% 47.9% 46.8% 47.6% 45.3%
Ratio of earnings to fixed
charges(7)..................... -- -- -- -- -- -- 1.0x
CASH FLOW DATA:
Cash provided by operating
activities..................... $ 2,553 $ 6,476 $ 7,812 $ 6,901 $ 9,066 $ 5,154 $ 3,363
Cash used in investing
activities..................... (1,006) (1,050) (1,105) (2,405) (3,942) (1,307) (3,715)
Cash (used in) provided by
financing activities........... (3,217) (5,706) (7,611) (3,844) (6,079) (4,163) 500
-------- -------- ------- ------- ------- -------- --------
Net (decrease) increase in
cash......................... $ (1,670) $ (280) $ (904) $ 652 $ (955) $ (316) $ 148
======== ======== ======= ======= ======= ======== ========
SUMMARY SUBSCRIBER DATA:
Homes passed(8).................. 127,215 127,863 127,943 128,908 129,291 129,162 129,291
Basic subscribers(9)............. 79,208 79,414 80,529 80,190 78,449 79,429 78,337
Basic penetration(10)............ 62.3% 62.1% 62.9% 62.2% 60.7% 61.5% 60.6%
Premium subscriptions(11)........ 29,213 28,064 28,765 28,900 25,652 27,589 25,365
Premium penetration(12).......... 36.9% 35.3% 35.7% 36.0% 32.7% 34.7% 32.4%
Average monthly total revenues
per subscriber(13)............. $ 29.69 $ 31.49 $ 32.17 $ 34.56 $ 36.89 $ 36.51 $ 37.85
System operating cash flow per
subscriber(14)................. $ 185 $ 200 $ 206 $ 227 $ 238 $ 240 $ 238
EBITDA per subscriber(15)........ $ 161 $ 172 $ 179 $ 199 $ 207 $ 208 $ 206
ADJUSTED DATA:
Adjusted cash interest expense(16)............................................ $10,750 $ 5,375
Ratio of adjusted total debt to annualized EBITDA............................. 6.1x 6.2x
Ratio of EBITDA to adjusted cash interest expense............................. 1.5x 1.5x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30, 1997
---------------------------------------------------- ------------------------
1992 1993 1994 1995 1996 HISTORICAL AS ADJUSTED
---- ---- ---- ---- ---- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........ $ 1,589 $ 1,309 $ 404 $ 1,056 $ 101 $ 249 $ 7,469
Total assets..................... 78,891 61,845 46,746 39,727 32,844 32,581 41,822
Total debt....................... 100,500 95,000 88,284 88,573 82,494 82,994 100,044
Partners' deficit................ (26,111) (37,613) (47,022) (54,452) (56,346) (56,320) (64,007)
</TABLE>
(see footnotes on the following page)
31
<PAGE> 38
NOTES TO SELECTED FINANCIAL DATA
(1) System operating expenses exclude depreciation and amortization.
(2) Non-system operating expenses consist primarily of management fees payable
to the General Partner of the Company. See "Management Discussion and
Analysis of Financial Condition and Results of Operations" and "Management
-- Executive Compensation."
(3) Restructuring costs include expenses related to the 1991 Chapter 11
Proceeding. See "Risk Factors -- 1991 Chapter 11 Proceedings."
(4) EBITDA represents operating (loss) income before restructuring costs,
depreciation and amortization. The Company has included EBITDA data (which
are not a measure of financial performance under GAAP) because it
understands such data are used by certain investors to determine a
company's historical ability to service its indebtedness. EBITDA should not
be considered as an alternative to net income as an indicator of the
Company's performance or as an alternative to cash flow as a measure of
liquidity as determined in accordance with GAAP.
(5) System operating cash flow represents revenues less system operating
expenses. System operating cash flow should not be considered as an
alternative to net income as an indicator of the Company's performance or
as an alternative to cash flow as a measure of liquidity as determined in
accordance with GAAP.
(6) EBITDA margin represents EBITDA divided by revenues.
(7) For purposes of calculating the ratio of earnings to fixed charges,
earnings include (loss) income before extraordinary items plus interest
expense (which includes amortization of debt issuance costs). Fixed charges
consist of interest expense incurred (including amortization of debt
issuance costs) and the estimated interest component of rent expense.
Earnings were inadequate to cover fixed charges by $19.4 million, $11.5
million, $8.8 million, $6.1 million and $1.9 million for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996, respectively, and by $1.0
million in the six months ended June 30, 1996.
(8) Homes passed refers to estimates by the Company of the number of dwelling
units in a particular community that can be connected to the distribution
system without any further extension of principal transmission lines. Such
estimates are based upon a variety of sources, including billing records,
house counts, city directories and other local sources.
(9) For purposes of all information presented in this Prospectus, unless
otherwise indicated, the number of basic subscribers for the Systems has
been computed by adding the actual number of subscribers for all non-bulk
accounts and the equivalent subscribers for all bulk accounts. The number
of such equivalent subscribers has been calculated by dividing aggregate
basic service revenues for bulk accounts by the full basic service rate for
the community in which the account is located.
(10) Basic subscribers as a percentage of homes passed.
(11) A customer may purchase more than one premium service, each of which is
counted as a separate premium subscription.
(12) Premium subscriptions as a percentage of basic subscribers.
(13) The average of the monthly total revenues divided by the number of basic
subscribers at the end of such month during the twelve-month periods ended
December 31 for each year presented and the six-month periods ended June
30, 1996 and 1997.
(14) System operating cash flow divided by the average number of basic
subscribers for the period. The amount was annualized for the periods ended
June 30, 1996 and 1997.
(15) EBITDA divided by the average number of basic subscribers for the period.
The amount was annualized for the periods ended June 30, 1996 and 1997.
(16) Reflects the interest rate on the Notes of 10.75%.
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<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides additional information regarding the
financial condition and results of operations of the Company for the six month
periods ended June 30, 1996 and 1997 and for each of the years ended December
31, 1994, 1995 and 1996. This discussion should be read in conjunction with
"Selected Financial Data" and the Company's financial statements and the notes
thereto appearing elsewhere in this Prospectus.
OVERVIEW
Revenues. The Company's revenues are primarily attributable to subscription
fees charged to subscribers to the Company's basic and premium cable television
programming services. Basic revenues consist of monthly subscription fees for
all services (other than premium programming) as well as monthly charges for
customer equipment rental. Premium revenues consist of monthly subscription fees
for programming provided on a per-channel basis. In addition, other revenues are
derived from installation and reconnection fees charged to subscribers to
commence or discontinue service, late payment fees, franchise fees, advertising
revenues and commissions related to the sale of goods by home shopping services.
At June 30, 1997, the Company had 78,337 basic subscribers and 25,365 premium
subscriptions, representing basic penetration of 60.6% and premium penetration
of 32.4%. The table below sets forth for the periods indicated the percentage of
the Company's total revenues attributable to the various sources:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Basic................................. 81.3% 80.8% 82.6% 82.4% 83.8%
Premium............................... 11.5 11.2 10.0 10.2 9.2
Other................................. 7.2 8.0 7.4 7.4 7.0
----- ----- ----- ----- -----
Total revenues................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
System Operating Expenses. System operating expenses are comprised of
variable operating expenses and fixed selling, service and administrative
expenses directly attributable to the Systems. Variable operating expenses
consist of costs directly attributable to providing cable services to customers
and therefore generally vary directly with revenues. Variable operating expenses
include programming fees paid to suppliers of programming the Company includes
in its basic and premium cable television services, as well as expenses related
to copyright fees, franchise operating fees and bad debt expenses. Satellite
programming fees have historically increased at rates in excess of inflation due
in part to improvements in the quality of programming. Selling, service and
administrative expenses directly attributable to the Systems include the
salaries and wages of the field and office personnel, plant operating expenses,
office and administrative expenses and sales costs.
Non-System Operating Expenses. Non-system operating expenses consist
primarily of general overhead expenses which are not directly attributable to
any one System. These expenses include all legal, audit and tax fees, an
incentive bonus pool accrual for the General Managers of the Systems and amounts
paid to the General Partner for management expenses.
Significant Leverage. At June 30, 1997, after giving effect to the
Refinancing, the Company's indebtedness would have been $100.0 million, its
total assets would have been $41.8 million, and its partners' deficit would have
been $64.0 million. Due to the Company's high degree of leverage: (a) a
substantial portion of its cash flow from operations will be committed to the
payment of its interest expense and will not be available for other purposes;
(b) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions or other purposes may be
limited; and (c) the Company is more highly leveraged than many cable television
companies and certain DBS and telephone companies, which may limit the Company's
flexibility in reacting to changes in its business.
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<PAGE> 40
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship that the various
items bear to revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
System operating expenses............. 46.7 45.3 46.1 45.2 47.7
Non-system operating expenses......... 6.9 6.8 7.0 7.2 7.0
Depreciation and amortization......... 45.7 36.7 26.3 26.4 20.2
----- ----- ----- ----- -----
Operating income...................... 0.7 11.2 20.6 21.2 25.1
Interest expense, net................. 27.3 29.0 25.1 26.1 24.0
Other expenses........................ 2.0 0.4 0.7 0.9 1.0
----- ----- ----- ----- -----
(Loss) income before extraordinary
item................................ (28.6) (18.2) (5.2) (5.8) 0.1
Extraordinary loss due to debt
refinancing......................... -- 1.6 -- -- --
----- ----- ----- ----- -----
Net (loss) income..................... (28.6%) (19.8%) (5.2%) (5.8%) 0.1%
===== ===== ===== ===== =====
EBITDA margin......................... 46.4% 47.9% 46.8% 47.6% 45.3%
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Revenues. Revenues in the first six months of 1997 were $17.8 million, an
improvement of $245,000 over revenues in the first six months of 1996. Basic
revenues during the first half of 1997 improved by $454,000, or 3.1%, and
average basic revenues per subscriber per month increased from $30.08 to $31.71,
or 5.4%, over the same period in 1996. This improvement was due to increases in
subscription rates in certain Systems beginning in the fourth quarter of 1996.
The Company has historically increased subscription rates in the majority of the
Systems during the fourth quarter in order to offset increases in its operating
costs. Revenue growth was diminished by a reduction in the number of basic
subscribers (1,092 subscribers or 1.4%) for the period ending June 30, 1997,
compared to the same time last year. The Company believes this reduction in
subscribers is due to the increased availability and affordability of
competitive video services and generally reflects the cable industry's
experience as a whole with respect to increased competition from DBS and
wireless cable services. The Company has responded with certain strategic
capital improvement projects, along with an increased and more concentrated
marketing emphasis in each of its Systems. See "Business -- Business Strategy."
System Operating Expenses. System operating expenses in the first six
months of 1997 were $8.5 million, an increase of $555,000, or 7.0%, over the
first six months of 1996. As a percentage of revenues, system operating expenses
increased 2.5 percentage points from 45.2% in 1996 to 47.7% in 1997. The
majority of this increase relates directly to increased spending associated with
the Company's new marketing initiative. The remaining variance is primarily due
to variable cost increases associated with higher programming rates and new
programming launched primarily in conjunction with rate increases in the fall of
1996.
Non-System Operating Expenses. Non-system operating expenses, which consist
primarily of amounts paid to the General Partner for management expenses,
decreased $27,000, or 2.2%, from $1.3 million in the first six months of 1996 to
$1.2 million in the first six months of 1997. Non-system operating expenses were
higher in 1996 due to certain non-recurring costs aggregating nearly $40,000.
EBITDA. As a result of the foregoing, EBITDA in the first six months of
1997 was $8.1 million, a decrease of 3.4% from EBITDA in the first six months of
1996 of $8.4 million.
Depreciation and Amortization. Depreciation and amortization decreased
22.5% from $4.6 million in the six months ended June 30, 1996 to $3.6 million in
the six months ended June 30, 1997 primarily due to certain assets becoming
fully depreciated.
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<PAGE> 41
Interest Expense, Net. Interest expense, net, including the effects of
interest rate hedging instruments, decreased 7.0% from $4.6 million in the first
six months of 1996 to $4.3 million in the first six months of 1997. This was a
result of a decrease in the Company's average outstanding borrowings subsequent
to the first six months of 1996 as well as a decrease in average interest rates
on such borrowings.
Net (Loss)/Income. As a result of the foregoing factors, the Company had
net income of $27,000 for the period ended June 30, 1997 as compared to a net
loss of $1.0 million for the period ended June 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues in 1996 were $35.2 million, an improvement of $1.9
million, or 5.7%, over revenues of $33.3 million in 1995. In 1996, basic
revenues increased by $2.2 million or 8.1%, primarily due to increases in
subscription rates. This increase in revenues was partially offset by a decline
of 1,741 subscribers, or 2.2%, compared to 1995. Average basic revenues per
subscriber per month increased from $27.93 to $30.47, or 9.1%, between 1996 and
1995. The Company believes this reduction in subscriptions is due to the
increased availability and affordability of competitive video services and
generally reflects the cable industry's experience as a whole with respect to
increased competition from satellite dishes and wireless cable services. The
Company has responded with an increased and more concentrated marketing emphasis
in each of its Systems, along with certain strategic capital improvement
projects. See "Business -- Business Strategy."
System Operating Expenses. System operating expenses increased 7.8% from
$15.1 million in 1995 to $16.2 million in 1996. This increase was primarily due
to $218,000 of variable cost increases associated with higher programming fees
from $5.7 million in 1995 to $6.0 million in 1996. In addition, selling, service
and administrative expenses of the Systems increased 7.3% from $8.2 million in
1995 to $8.8 million in 1996 due to increased fixed costs (including
approximately $140,000 of additional marketing costs related to the
implementation of the Company's new marketing initiative).
Non-System Operating Expenses. Non-system operating expenses, which consist
primarily of amounts paid to the General Partner for management expenses,
increased 8.8%, to $2.5 million in 1996 from $2.3 million in 1995, primarily due
to increased management expense and legal expenses relating to the modification
of the Company's current loan agreement and certain potential acquisitions.
EBITDA. As a result of the foregoing, EBITDA in 1996 was $16.5 million, an
increase of 3.3% over EBITDA in 1995 of $16.0 million.
Depreciation and Amortization. Depreciation and amortization decreased
24.1% from $12.2 million in 1995 to $9.3 million in 1996 primarily due to
certain assets becoming fully depreciated.
Interest Expense, Net. Interest expense, net, including the effects of
interest rate hedging instruments, decreased to $8.9 million in 1996 from $9.7
million in 1995. This was a result of a decrease in the Company's average
outstanding borrowings during 1996 versus 1995.
Net Loss. As a result of the foregoing factors, the Company's net loss
decreased by $4.7 million, or 71.3%, from $6.6 million in 1995 to $1.9 million
in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues in 1995 were $33.3 million, an improvement of $2.4
million, or 7.9%, over revenues of $30.9 million in 1994. This increase was
primarily due to increases in subscription rates. In 1995, basic revenues
increased by $1.8 million or 7.2%, over basic revenues of $25.1 million in 1994.
Average basic revenues per subscriber per month increased from $26.16 to $27.93,
or 6.8%, between 1994 and 1995. The number of subscribers remained relatively
constant from 1994 to 1995.
System Operating Expenses. System operating expenses increased 4.6% from
$14.4 million in 1994 to $15.1 million in 1995. Nearly half of this increase was
associated with higher programming rates and new programming launched in
conjunction with rate increases taken during the year.
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<PAGE> 42
Non-System Operating Expenses. Non-system operating expenses, which consist
primarily of amounts paid to the General Partner for management expenses,
increased 6.8% to $2.3 million in 1995 from $2.1 million in 1994 primarily due
to increased management expenses.
EBITDA. As a result of the foregoing, EBITDA in 1995 was $16.0 million, an
increase of 11.4% over EBITDA in 1994 of $14.3 million.
Depreciation and Amortization. Depreciation and amortization decreased
13.4% from $14.1 million in 1994 to $12.2 million in 1995 primarily due to
certain assets becoming fully depreciated.
Interest Expense, Net. Interest expense, net, including the effects of
interest rate hedging instruments, increased to $9.7 million in 1995 from $8.4
million in 1994. This was a result of an increase in the Company's average
outstanding borrowings during 1995 versus 1994.
Net Loss. Notwithstanding an extraordinary loss in 1995 of $548,000
associated with the write-off of previously deferred financing costs incurred in
connection with the establishment of the Existing Bank Credit Facility, the
Company's net loss decreased 24.9%, or $2.2 million, from $8.8 million in 1994
to $6.6 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operating activities was $3.3 million for the six months
ended June 30, 1997 as compared to $5.2 million for the six months ended June
30, 1996. Net cash flow from operating activities was $9.1 million for 1996,
$6.9 million for 1995 and $7.8 million for 1994.
Net cash from financing activities was $0.5 million for the six months
ended June 30, 1997 as compared to $4.2 million used for the six months ended
June 30, 1996. This change was primarily attributable to a larger net repayment
of bank debt during the first half of 1996. Net cash used in financing
activities (primarily for the repayment of secured debt) was $6.1 million for
1996, $3.8 million for 1995 and $7.6 million for 1994.
Net cash used in investing activities was $3.7 million for the six months
ended June 30, 1997 as compared to $1.3 million for the six months ended June
30, 1996. This increase was primarily due to capital expenditures associated
with the upgrading of several Systems in 1997. Net cash used in investing
activities (consisting primarily of capital expenditures) was $3.9 million for
1996, $2.4 million for 1995 and $1.1 million for 1994. Capital expenditures
included expansion and improvements of existing cable properties, plant and
equipment, as well as cable line drops, line plant extensions and installations
to service new subscribers.
Total assets were $39.7 million at December 31, 1995 and declined to $32.8
million at December 31, 1996, primarily as a result of amortization expense
taken on intangible assets. The balance at June 30, 1997 of $32.6 million
represents only a slight decrease as the amortization expense was largely offset
by the capital spending done as part of the selective upgrading discussed below.
Total debt was $88.6 million at December 31, 1995 and was reduced to $82.5
million by December 31, 1996 through mandatory and optional principal payments.
The total debt balance at June 30, 1997 had increased slightly to $83.0 million
due to additional borrowings used to fund a portion of the selective upgrades
discussed below.
The Company is selectively upgrading certain of its Systems to 750 MHz. The
Company spent $6.2 million during 1996 and the first nine months of 1997 in
these upgrades and plans to expend an additional $2.5 million by the end of 1997
to upgrade its cable plant serving approximately 18,000 subscribers. The Company
expects to expend approximately $10 million in each of 1998 and 1999 to upgrade
its cable plant serving an additional 32,000 subscribers. The Company intends to
finance these capital expenditures through operating cash flow, the net proceeds
of the Offering and borrowings under the New Bank Credit Facility.
The Company does not have any significant commitments relating to its
planned upgrading program. It orders required materials, pays for them on
ordinary credit terms and places them in inventory until used, at which time
they are capitalized. Installation work is performed under short-term contracts
which the Company may cancel at any time without significant penalty or cost.
36
<PAGE> 43
Concurrently with the closing of the Offering, the Company repaid all of
its existing indebtedness under its prior bank credit facility and its then
outstanding subordinated debt, repurchased warrants related to the subordinated
debt and entered into the New Bank Credit Facility. The Refinancing is expected
to provide the Company with greater flexibility by extending the maturities of
its long-term debt and imposing less restrictive covenants. As no borrowings
under the New Bank Credit Facility were necessary to complete the Refinancing,
upon completion of the Refinancing (and subject to the terms of the New Bank
Credit Facility and the Company's Partnership Agreement) the Company had the
ability to borrow up to $20 million (with an option to increase the amount to
$30 million) under the New Bank Credit Facility. The New Bank Credit Facility
requires the Company to maintain the ratio of its total debt to annualized
six-month EBITDA at no more than 7.0 to 1. As of June 30, 1997, after giving
effect to the Refinancing, this covenant would have limited the Company's
maximum borrowings thereunder to approximately $13 million.
The New Bank Credit Facility is secured by a first priority lien on and
security interest in substantially all of the assets of the Issuers. The New
Bank Credit Facility contains certain covenants and provides for certain events
of default customarily contained in facilities of a similar type. The financial
covenants which the Company considers most significant require it to: (a)
maintain an interest coverage ratio (that is, the ratio of annualized six-month
EBITDA to interest expense) of at least 1.1 to 1; (b) maintain a senior debt
ratio (that is, the ratio of debt under the New Bank Credit Facility to
annualized six-month EBITDA) of no more than 2.5 to 1; and (c) maintain the
total debt ratio described above. The Company is in compliance with each of
these covenants. See "Business -- Business Strategy" and "Description of Other
Indebtedness."
The Company believes that it will continue to generate cash or obtain
financing sufficient to meet its requirements for debt service, working capital
and capital expenditures contemplated in the near term and through the maturity
date of the Notes and Exchange Notes. However, the ability of the Company to
satisfy its obligations will be primarily dependent on its future financial and
operating performance and upon its ability to renew or refinance borrowings or
to raise additional equity capital if necessary. See "Risk Factors."
INFLATION AND CHANGING PRICES
The Company's costs and expenses are subject to inflation and price
fluctuations. However, because changes in costs are generally passed through to
subscribers, such changes historically have not had, and in the future are not
expected to have, a material effect on the Company's results of operations.
37
<PAGE> 44
BUSINESS
OVERVIEW
The Company owns, operates and develops cable television systems serving
rural communities in seven geographically and economically diverse clusters. The
Company's Systems are operated under the name "CommuniComm Services" and are
located in Oklahoma, Texas, Georgia, Louisiana, Colorado, Wyoming, Tennessee,
Alabama and Florida. As of June 30, 1997, the Systems passed an estimated
129,291 homes and served 78,337 basic subscribers, representing a basic
penetration of 60.6%. The Company's goal is to maintain its position as the
preferred provider of video services and become the single hard wire broadband
provider of enhanced video services, advanced telecommunication services and
telephony in the markets that it serves.
During the five-year period ended December 31, 1996, the Company's revenues
and EBITDA consistently increased, with revenues and EBITDA growing at compound
annual growth rates of 5.9% and 6.9%, respectively. System operating cash flow
and EBITDA margins for the six months ended June 30, 1997, were 52.3% and 45.3%,
respectively. The Company also achieved average monthly total revenues per
subscriber of $37.85 for the six months ended June 30, 1997, and annualized
system operating cash flow per subscriber of $238, both of which the Company
believes compare favorably with cable industry averages. Primarily as a result
of increased marketing spending, EBITDA was slightly lower during the first half
of 1997 as compared to the first half of 1996.
The Company believes that there are competitive and economic advantages to
owning and operating cable television systems in rural markets. Due to lower
population densities and higher per household plant installation costs, rural
markets are more likely than larger urban and suburban markets to have a single
hard wire broadband video and telecommunications service provider. In addition,
cable television systems in rural markets are typically characterized by lower
churn rates and greater penetration than larger urban and suburban markets. In
rural markets, cable service often is required for adequate reception of a full
range of over-the-air television stations. Moreover, fewer entertainment
alternatives are available, and cable television provides a major source of
entertainment.
The Company focuses on maintaining and improving system operating results.
The Company has implemented extensive management, operational and technical
changes designed to improve operating efficiencies, enhance operating cash flow
and reduce overhead through economies of scale. To this end, the Company has
"clustered" its Systems in concentrated geographic areas, which allows fixed
costs to be spread over an expanded subscriber base. In an effort to further
enhance its operational and financial performance, the Company from time to time
considers opportunities to acquire or exchange its assets for cable television
systems located near its existing markets.
The Company's senior management team has 64 years of collective experience
in the cable industry. William R. James, the founder and, through his position
with the General Partner, the Chief Executive Officer of the Company, has been a
cable industry executive since 1979. Prior to founding the Company, he organized
and developed two other cable television operations, including the cable
television division of Capital Cities Communications (which became Capital
Cities/ABC). Mr. James built the Capital Cities cable television operations from
a start-up company to the 16th largest MSO in the United States in 1986, with
380,000 subscribers served by 55 systems located in 16 states. The other three
key individuals responsible for the management of the Company, C. Timothy
Trenary, Daniel K. Shoemaker and Scott A. Madison, each of whom through their
positions with the General Partner also are Executive Officers of the Company,
have been involved in the construction, acquisition, ownership, management and
operation of rural cable television systems for at least a decade.
The Company was initially capitalized with equity contributions of $79
million from management and certain initial equity investors. For information
concerning significant current equity owners, see "Partnership Interests of
Certain Beneficial Owners and Management."
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<PAGE> 45
BUSINESS STRATEGY
Management intends to solidify the Company's position as the preferred
provider of video services and to become the single hard wire broadband provider
of advanced telecommunications services and telephony in the communities that it
serves. The Company's business strategy is to (i) selectively upgrade the
Company's Systems, (ii) provide enhanced digital video, (iii) deliver advanced
telecommunications services, including Internet access, and (iv) pursue
strategic acquisitions.
- SELECTIVELY UPGRADE SYSTEMS. The Company is upgrading certain of its
cable television systems to further strengthen the Company's position as
the preferred provider of video services in the communities it serves.
These upgrades, which employ fiber optic technology, increase the
bandwidth of the Company's cable plant generally to 750 MHz, thereby
increasing channel capacity, enhancing signal quality and improving
technical reliability. The Company believes the upgrades will enable it
to offer comparable or superior video service and quality at attractive
pricing levels relative to its competitors, such as DBS. The Company also
believes that the upgrade will provide the technical platform necessary
for the development and delivery of advanced telecommunications services
and telephony.
The Company recently completed the upgrade of its Durant System to 750
MHz. The upgrade improved picture quantity and reliability and enabled the
Company to increase the number of channels offered by the Durant System
from 40 to 55, with the potential for future expansion to 100 channels (or
more using digital technology). Prior to this upgrade, the Durant System
had experienced modest subscriber loss in connection with the elimination
of a low-priced broadcast-station-only level of service and the increasing
penetration of DBS. Following this upgrade, the Company began marketing a
three month service trial targeted at homes that did not subscribe to
cable. While this effort is still in progress and the Company cannot
predict the final outcome, as of September 30, 1997, year-over-year basic
subscribers have increased over 7%.
In addition, the Company has near-term plans to upgrade the cable plant in
a number of its other Systems. The Company is nearing the completion of
the 750 MHz upgrade of its cable plant serving approximately 2,500
subscribers in Hawkinsville and Cochran, Georgia, and has begun the 750
MHz upgrade of its cable plant serving approximately 5,800 subscribers in
Douglas, Torrington, Wheatland and Lingle, Wyoming. Mapping and
preliminary engineering are underway to upgrade cable plants serving an
additional 4,000 subscribers in Georgia and 2,100 subscribers in Alabama.
By the end of 1997, the Company will have expended nearly $9 million to
upgrade its cable plant serving approximately 18,000 subscribers. The
Company expects to expend approximately $10 million in each of 1998 and
1999 to upgrade its cable plant serving an additional 32,000 subscribers.
- PROVIDE ENHANCED DIGITAL VIDEO. The Company intends to provide enhanced
digital video in the upgraded and certain other Systems using Headend In
The Sky(R), a digital compression service developed by National Digital
Television Center, Inc., a subsidiary of Telecommunications, Inc. HITS
will enable the Company to deliver video services such as pay-per-view
programming and a tier or multiple tiers of niche satellite programming.
The Company believes that these enhanced digital video services will
allow it to provide a system comparable to DBS at a lower cost. The
Company intends to introduce HITS services in its Durant System during
the fourth quarter of 1997 and to schedule introduction in other Systems
after evaluating their success in Durant.
- DELIVER ADVANCED TELECOMMUNICATIONS SERVICES, INCLUDING INTERNET
ACCESS. The Company believes that upgraded advanced telecommunications
services will provide additional revenue opportunities with relatively
small incremental capital investment. The Company further believes that
cable infrastructure will provide the fastest, most cost-effective
delivery mechanism for Internet access, inter- and intra-network data
services and telephony. These advanced services enable subscribers to
receive the Internet at a peak data transmission speed up to 300 times
faster than typical dial-up connections.
As part of its efforts in this area, the Company has entered into a
strategic alliance with a local ISP in Durant, Oklahoma. Under this
arrangement, the Company provides broadband service capability for the
delivery of high speed Internet service and the ISP provides technical
and customer support
39
<PAGE> 46
services. The Company has successfully completed field testing and
recently began marketing this service on a commercial basis. For this
greatly improved service, the Company charges a price which it believes
is approximately the same as the combined cost of Internet access through
a typical dial-up account and a second telephone line. The same
facilities which enable the Company to provide Internet access also
permit it to offer intranetwork data services, though it has not yet
contracted with any customer to provide those services. Since the
Company's share of the variable operating costs of providing Internet
access and intranetwork data services are expected to be modest, the
Company anticipates enhanced revenues with minimal related operating
expense and may seek similar strategic alliances with ISPs in other
communities as its upgrading program progresses (or, alternatively, it
may elect to provide the technical support services itself).
In anticipation of providing telephony, the Company is seeking switching
capabilities. The Company has entered into discussions with two ILECs
located near its Systems to gain access to their switching capability. In
Durant, the Company is in the process of installing the required switch
interface equipment and plans to install customer premises equipment at
selected sites in the Durant System and begin testing during the fourth
quarter of 1997. Although the Company does not currently have the
certification necessary to provide telephone service in Oklahoma and must
be certified by the Oklahoma Corporation Commission prior to doing so,
the Company believes that it can obtain the necessary certification.
However, there can be no assurance as to if or when such certification
will be obtained.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to consider
opportunities to acquire cable television systems. Because it is more
cost effective to provide advanced telecommunications services over an
expanded subscriber base within a concentrated geographic area, the
Company will generally seek to acquire cable television systems, or
groups of systems, in close proximity to its existing Systems and
markets. The Company may also consider acquisitions in other geographic
areas where consistent with its business strategy. Furthermore, the
Company intends to divest itself, through asset exchanges or outright
sales, of cable television systems that do not readily lend themselves to
the Company's business strategy. Factors likely to be considered by the
Company in evaluating the desirability of a potential acquisition or
asset exchange opportunity include price and terms, subscriber densities,
growth potential (in terms of both market and cash flow) and whether the
target system can be readily integrated into the Company's operations.
INDUSTRY OVERVIEW
A cable television system receives television, radio and data signals at
the system's "headend" site by means of off-air antennas, microwave relay
systems and satellite earth stations. These signals are then modulated,
amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to deliver a wide variety of channels of television
programming, primarily entertainment and informational video programming, to the
homes of subscribers who pay fees for this service, generally on a monthly
basis. A cable television system may also originate its own television
programming and other information services for distribution through the system.
Cable television systems generally are constructed and operated pursuant to
non-exclusive franchises or similar licenses granted by local governmental
authorities for a specified period of time.
The cable television industry developed in the United States in the late
1940s and early 1950s in response to the needs of residents in predominantly
rural and mountainous areas of the country where the quality of off-air
television reception was inadequate due to factors such as topography and
remoteness from television broadcast towers. In the 1960's, cable systems also
developed in small and medium-sized cities and suburban areas that had a limited
availability of clear off-air television station signals. All of these markets
are regarded within the cable industry as "classic" cable television system
markets. In more recent years, cable television systems have been constructed in
large urban cities and nearby suburban areas, where good off-air reception from
multiple television stations usually is already available, in order to offer
customers the numerous satellite-delivered channels typically carried by cable
systems that are not otherwise available through broadcast television reception.
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<PAGE> 47
Cable television systems offer customers various levels (or "tiers") of
cable services consisting of broadcast television signals of local network
affiliates, independent and educational television stations, a limited number of
television signals from so-called "super stations" originating from distant
cities (such as WTBS and WGN), various satellite-delivered, non-broadcast
channels (such as Cable News Network ("CNN"), MTV: Music Television ("MTV"), the
USA Network ("USA"), ESPN and Turner Network Television ("TNT")), programming
originated locally by the cable television system (such as public, governmental
and educational access programs) and informational displays featuring news,
weather and public service announcements. For an extra monthly charge, cable
television systems also offer "premium" television services to customers on a
per-channel basis. These services (such as Home Box Office ("HBO"), Showtime,
The Disney Channel and selected regional sports networks) are satellite channels
that consist principally of feature films, live sporting events, concerts and
other special entertainment features, usually presented without commercial
interruption.
A customer generally pays an initial installation charge and fixed monthly
fees for basic and premium television services and for other services (such as
the rental of converters and remote control devices). Such monthly service fees
constitute the primary source of revenues for cable television systems. In
addition to customer revenues, cable television systems also frequently offer to
their customers home shopping services, which pay such systems a share of
revenues from products sold in the systems' service areas. Some cable television
systems also receive revenue from the sale of available spots on
advertiser-supported programming.
THE SYSTEMS
The following table sets forth certain operating statistics for the Systems
for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Homes passed(1).................. 127,215 127,863 127,943 128,908 129,291 129,162 129,291
Basic subscribers(2)............. 79,208 79,414 80,529 80,190 78,449 79,429 78,337
Basic penetration(3)............. 62.3% 62.1% 62.9% 62.2% 60.7% 61.5% 60.6%
Basic revenues(4)................ $23,102 $24,693 $25,096 $26,914 $29,087 $14,466 $14,920
Average monthly basic revenues
per subscriber(5).............. $ 24.47 $ 25.90 $ 26.16 $ 27.93 $ 30.47 $ 30.08 $ 31.71
Premium subscriptions(6)......... 29,213 28,064 28,765 28,900 25,652 27,589 25,365
Premium penetration(7)........... 36.9% 35.3% 35.7% 36.0% 32.7% 34.7% 32.4%
Average monthly total revenues
per subscriber(5).............. $ 29.69 $ 31.49 $ 32.17 $ 34.56 $ 36.89 $ 36.51 $ 37.85
Average annual system operating
cash flow per subscriber(8).... $ 185 $ 200 $ 206 $ 227 $ 238 $ 240 $ 238
Average annual EBITDA per
subscriber(9).................. $ 161 $ 172 $ 179 $ 199 $ 207 $ 208 $ 206
Miles of plant................... 3,430 3,430 3,430 3,483 3,483 3,483 3,483
</TABLE>
- -------------------------
(1) Homes passed refers to estimates by the Company of the number of dwelling
units in a particular community that can be connected to the distribution
system without any further extension of principal transmission lines. Such
estimates are based upon a variety of sources, including billing records,
house counts, city directories and other local sources.
(2) For purposes of all information presented in this Prospectus, unless
otherwise indicated, the number of basic subscribers for the Systems has
been computed by adding the actual number of subscribers for all non-bulk
accounts and the equivalent subscribers for all bulk accounts. The number of
such equivalent subscribers has been calculated by dividing aggregate basic
service revenues for bulk accounts by the full basic service rate for the
community in which the account is located.
(3) Basic subscribers as a percentage of homes passed.
(4) Basic revenues consist of monthly subscription fees for all services other
than premium programming, as well as monthly charges for customer equipment
rental.
(5) The average of the monthly total revenues divided by the number of basic
subscribers at the end of such month during the twelve-month periods ended
December 31 for each year presented and the six-month periods ended June 30,
1996 and 1997.
(6) A customer may purchase more than one premium service, each of which is
counted as a separate premium subscription.
41
<PAGE> 48
(7) Premium subscriptions as a percentage of basic subscribers.
(8) System operating cash flow divided by the average number of basic
subscribers for the period. The amount was annualized for the periods ended
June 30, 1996 and 1997.
(9) EBITDA divided by the average number of basic subscribers for the period.
The amount was annualized for the periods ended June 30, 1996 and 1997.
The Company's Systems are divided into seven geographic groups
("Clusters"). The following table summarizes certain operating data at and for
the six months ended June 30, 1997 for the individual Clusters.
<TABLE>
<CAPTION>
PERCENT OF AVERAGE
ALL MONTHLY
SYSTEMS TOTAL
HOMES BASIC BASIC BASIC PREMIUM PREMIUM REVENUE PER
CLUSTER PASSED SUBSCRIBERS SUBSCRIBERS PENETRATION SUBSCRIPTIONS PENETRATION SUBSCRIBER
------- ------ ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Oklahoma/Texas.......... 33,413 17,126 21.8% 51.3% 3,862 22.6% $36.92
Georgia................. 19,586 14,150 18.0 72.2 5,328 37.7 38.24
Louisiana............... 22,451 12,510 16.0 55.7 4,346 34.7 38.71
Colorado/Wyoming........ 15,000 10,152 13.0 67.7 3,722 36.7 36.79
Tennessee............... 14,470 9,607 12.3 66.4 2,846 29.6 37.75
Alabama................. 13,955 8,452 10.8 60.6 2,442 28.9 36.36
Florida................. 10,416 6,340 8.1 60.9 2,819 44.5 41.58
------- ------ ----- ------
Totals.............. 129,291 78,337 100.0% 60.6% 25,365 32.4% $37.85
======= ====== ===== ======
<CAPTION>
ANNUALIZED
SYSTEM
OPERATING SYSTEM
CASH FLOW OPERATING
PER CASH FLOW
CLUSTER SUBSCRIBER MARGIN
------- ---------- ---------
<S> <C> <C>
Oklahoma/Texas.......... $213 48.0%
Georgia................. 251 54.8
Louisiana............... 241 52.0
Colorado/Wyoming........ 223 50.5
Tennessee............... 265 58.4
Alabama................. 240 54.9
Florida................. 245 49.0
Totals.............. $238 52.3%
</TABLE>
The Oklahoma/Texas Cluster. The Oklahoma/Texas Cluster is comprised of
Systems, acquired in 1988 and 1989, serving rural communities in southeastern
Oklahoma north of Dallas, Texas and in northern Texas northwest of Fort Worth.
Since 1988, the Company has made $10.0 million in capital expenditures improving
the plant and operations, including upgrading many of the Systems to 450 MHz
60-channel capacity plant, installing three microwave complexes, eliminating the
need for eight separate headends and most recently upgrading the Durant System
to a 750 MHz hybrid fiber optic-backbone/coaxial ("HFC") cable system.
The Company recently completed the upgrade of its Durant System within this
Cluster to 750 MHz. The upgrade improved picture quality and reliability and
enabled the Company to increase the number of channels offered by the Durant
System from 40 to 55, with the potential for future expansion to 100 channels
(or more using digital technology). Prior to this upgrade, the Durant System had
experienced modest subscriber loss in connection with the elimination of a
low-priced broadcast-station-only level of service and the increasing
penetration of DBS. Following this upgrade, the Company began marketing a three
month service trial targeted at homes that did not subscribe to cable. While
this effort is still in progress and the Company cannot predict the final
outcome, as of September 30, 1997, year-over-year subscribers have increased
over 7%.
The Company has consolidated the administrative and customer service
operations for these Systems into one main office located in Durant, Oklahoma.
This office centralizes all customer support, billing, marketing and technical
operations for the Oklahoma/Texas Cluster.
The primary employer in the Oklahoma/Texas Cluster's area is the oil and
gas industry. Small manufacturing companies also provide employment, as does
farming and ranching. At June 30, 1997, the number of homes passed in the
Oklahoma/Texas Cluster was estimated to be 33,413 and the number of basic
subscribers and premium subscriptions were 17,126 and 3,862, respectively.
The Georgia Cluster. The Company acquired the Systems comprising the
Georgia Cluster, which serve rural communities in central Georgia located east
of Atlanta and south of Macon, in three transactions during 1988. Since 1988,
the Company has made $5.3 million in capital improvements to the Georgia
Cluster. Currently, the Company is in the process of upgrading the cable plant
serving Hawkinsville and Cochran, Georgia to a 750 MHz system. Plans to upgrade
other communities in Georgia are currently being developed. See "Business --
Business Strategy."
The Georgia Cluster, as of June 30, 1997, passed an estimated 19,586 homes
and had 14,150 basic subscribers and 5,328 premium subscriptions. The Systems in
this Cluster operate primarily out of one office
42
<PAGE> 49
located in Eatonton, Georgia, where all customer service, billing, marketing and
technical operations are centralized. These Systems have seen subscriber growth
of roughly 20% since acquisition.
The economy in the Georgia Cluster's area is not dependent upon any one
industry. There are several large employers in the area including the corporate
headquarters of Applebee's International, Inc., a regional restaurant chain, and
Warner Robbins Air Force Base.
The Louisiana Cluster. The Louisiana Cluster, which serves rural
communities in Louisiana and Texas located near Lake Charles, Louisiana, was
acquired in three transactions during 1988. Since its acquisition of the Systems
in this Cluster, the Company has made $7.3 million in capital expenditures for
this Cluster, upgrading virtually all of these Systems to 450 MHz 60-channel
plants and installing three microwave complexes eliminating the need for eight
headends. At June 30, 1997, the estimated number of homes passed for this
Cluster was 22,451 and the number of basic subscribers and premium subscriptions
was 12,510 and 4,346 respectively.
Since acquiring the Louisiana Cluster, the Company has consolidated all
administrative, customer service, technical and marketing operations into one
central office located in Westlake, Louisiana.
The economy in southwestern Louisiana ranges from the farming and cattle
industry to the petro-chemical industry and gaming. Some of the major employers
in the area include CITGO Petroleum Corporation, PPG Industries, Inc. and
Conoco, Inc. among others in the petro-chemical trade. The recent introduction
of riverboat casinos on Lake Charles has become very popular due to the
proximity to Houston, and companies like Casino America, Inc. and Players
International, Inc. have become major employers in the area.
The Colorado/Wyoming Cluster. The Company acquired the Systems comprising
the Colorado/Wyoming Cluster, which serve rural communities located east of
Denver, Colorado and north and west of Cheyenne, Wyoming, in 1988. This
geographically diverse group of Systems is operated from an administrative
office in Fort Collins, Colorado and the technical operations from a central
location in Wheatland, Wyoming. Since these Systems were acquired, the Company
has made $2.7 million in capital expenditures to improve plant reliability,
reception and service. The Company is currently in the process of upgrading
certain of the Systems in Wyoming to 750 MHz systems. See "Business -- Business
Strategy."
The economy in the Colorado/Wyoming Cluster's area is largely dependent on
ranching and farming as well as the oil and gas industry and mining. At June 30,
1997, the estimated number of homes passed in this Cluster was 15,000 and the
number of basic subscribers and premium subscriptions was 10,152 and 3,722
respectively.
The Tennessee Cluster. The Tennessee Cluster, which serves rural
communities north and west of Knoxville, Tennessee, was acquired by the Company
in July 1988. Since its acquisition of the Systems in this Cluster, the Company
has made $5.0 million in capital expenditures for this Cluster, improving plant
reliability, reception and service as well as providing for the availability of
additional channels. Approximately half of these Systems have been upgraded to
450 MHz 60-channel capacity plants. In addition, the Company has installed a
microwave complex serving over 95% of the subscribers, thereby eliminating the
need for three of the original headends. All customer service, technical,
administrative and marketing services are centralized in one office in Wartburg,
Tennessee.
The economy in the Tennessee Cluster is largely supported by a number of
small manufacturing plants. The Tennessee Valley Authority and the Departments
of Energy and Defense also provide employment in the Tennessee Cluster's
communities. At June 30, 1997, the estimated number of homes passed in this
Cluster was 14,470; the number of basic subscribers and premium subscriptions
was 9,607 and 2,846, respectively.
The Alabama Cluster. The Company acquired the Systems comprising the
Alabama Cluster primarily in four transactions in 1988 and 1989. These Systems
are divided into two groups, one that serves rural communities located on the
western edge of the state west of Birmingham, Alabama, and the other located
south and east of Birmingham, between Birmingham and Atlanta, Georgia. Since its
acquisition of the Systems in this Cluster, the Company has made $3.3 million in
capital expenditures, improving channel
43
<PAGE> 50
capacity in many of these Systems as well as improving reliability and channel
offerings. In the Systems serving eastern Alabama, six separate headends have
been consolidated into one microwave complex. Additionally, preliminary
engineering is underway to upgrade the cable plant serving Roanoke, Alabama to a
750 MHz system. See "Business -- Business Strategy."
The operations of the Alabama Cluster are managed from one main office
located in Roanoke, Alabama. All customer service, administrative, technical and
marketing functions have been centralized into the main office. The Alabama
Cluster, as of June 30, 1997, passed an estimated 13,955 homes and had 8,452
basic subscribers and 2,442 premium subscriptions.
The communities served by the Alabama Cluster benefit from a number of
small and large manufacturing companies in the area, including 3M and Wrangler.
In addition, Mercedes-Benz has recently completed a large manufacturing plant in
Tuscaloosa, Alabama, just south of the Company's Systems serving western
Alabama.
The Florida Cluster. The Florida Cluster, which serves several rural
communities located near Gainesville, Florida, was acquired in 1988. Since May
1988, the Company has made $5.2 million in capital expenditures in this Cluster.
The Company has installed a microwave complex, which eliminated the need for
three headends, and has upgraded the majority of its cable television plant in
this Cluster to 450 MHz with 60 channels of capacity. The majority of the
Systems in this Cluster have been consolidated on one microwave complex, which
reduced maintenance and equipment costs.
The Company's Florida Cluster operates from a centralized office in High
Springs, Florida. All administrative, customer service, technical and marketing
functions are coordinated from this location. The Florida Cluster, as of June
30, 1997, passed an estimated 10,416 homes and had 6,340 basic subscribers and
2,819 premium subscriptions.
The University of Florida, located in Gainesville, has contributed to the
economic stability of the Florida Cluster's areas. Other industries providing
employment in the area include agriculture, ranching and tourism.
PROGRAMMING AND SUBSCRIBER RATES
The Company has various contracts to obtain basic, satellite and premium
programming for the Systems from program suppliers, including, in limited
circumstances, some broadcast stations, with compensation generally based on a
fixed fee per customer or a percentage of the gross receipts for the particular
service. Some program suppliers provide volume discount pricing structures
and/or offer marketing support. In addition, the Company is a member of a
programming consortium consisting of small to medium sized multiple system
operators and individual cable systems serving, in the aggregate, over eight
million cable subscribers. The consortium helps create efficiencies in the areas
of securing and administering programming contracts, as well as to establish
more favorable programming rates and contract terms for small and medium sized
cable operators. The Company does not have long-term programming contracts for
the supply of a substantial amount of its programming, due in part to ongoing
negotiations with a number of its programming suppliers, but also due to the
Company's belief that it is in its best interests to enter into long-term
programming contracts only if additional benefits are derived from the
contractual arrangements. In cases where the Company does have such contracts,
they are generally for fixed periods of time ranging from one to five years and
are subject to negotiated renewal. While the loss of contracts with certain of
the Company's programming suppliers could have an adverse effect on its results
of operations, management does not believe the risk of such a loss is
particularly great due to the substantial motivation of programming suppliers to
obtain the widest possible audience for their products.
Cable programming costs are expected to continue to increase primarily due
to additional programming being provided to customers, increased costs to
purchase cable programming and inflationary increases. In 1995, 1996 and the
first six months of 1997, programming costs as a percentage of revenues were
17.2%, 16.9% and 18.2%, respectively. No assurance can be given that the
Company's programming costs will not increase substantially in the near future
or that other materially adverse terms will not be added to its programming
contracts.
44
<PAGE> 51
The Systems offer their customers programming that includes the local
network, independent and educational television stations, a limited number of
television signals from distant cities, numerous satellite-delivered,
non-broadcast channels (such as CNN, MTV, USA, ESPN and TNT) and in some systems
local information and public access channels. The programming offered by the
Company varies among the Systems depending upon each System's channel capacity
and viewer interests. Primarily for competitive reasons, the Company generally
endeavors to offer a single level of basic service containing all broadcast and
satellite-delivered programming. In a few Systems, however, the Company does
offer up to three tiers of basic cable television programming: a broadcast basic
programming tier (consisting generally of network and public television signals
available over-the-air), a satellite programming tier (consisting generally of
satellite-delivered programming such as CNN, USA, ESPN and TNT) and a super
station tier consisting of the so-called "super stations" (for example, WTBS and
WGN). The Company also offers premium programming services, both on a
per-channel basis and in many Systems as part of premium service packages
designed to enhance customer perceived value.
Monthly customer rates for services vary from market to market, primarily
according to the amount of programming provided. At June 30, 1997, the Company's
monthly full basic service rates for residential customers ranged from $13.95 to
$35.00 and per-channel premium service rates (not including special promotions)
ranged from $5.95 to $12.95 per service. At June 30, 1997, the weighted average
price for the Company's monthly full basic service was approximately $31.61.
A one-time installation fee, which the Company may wholly or partially
waive during a promotional period, is usually charged to new customers. The
Company charges monthly fees for converters and remote control tuning devices.
The Company also charges administrative fees for delinquent payments for
service. Customers are free to discontinue service at any time without
additional charge but may be charged a reconnection fee to resume service.
Commercial customers, such as hotels, motels and hospitals, are charged a
negotiated, non-recurring fee for installation of service and monthly fees.
Multiple dwelling unit accounts may be offered a bulk rate in exchange for
single-point billing and basic service to all units.
In addition to customer fees, the Company derives a small amount of revenue
from the sale of local spot advertising time on locally originated and
satellite-delivered programming. The Company also derives modest amounts of
revenues from affiliations with home shopping services (which offer merchandise
for sale to customers and compensate system operators with a percentage of their
sales receipts).
Other potential sources of revenue for cable television systems include the
lease of tower space to cellular telephone, personal communications services
("PCS"), and paging companies and other transmission businesses and the sale of
programming featuring movies and special events to customers on a pay-per-view
basis, which requires the use of addressable technology not presently employed
by the Company. Although the Company does not currently offer pay-per-view
programming, it intends to do so in the future in those Systems where it plans
to launch the HITS service. See "Business -- Business Strategy."
While the Company plans to offer advanced telecommunications services and
telephony in certain of its Systems, it anticipates that monthly customer fees
will continue to constitute the large majority of its total revenues for the
foreseeable future.
CUSTOMER SERVICE AND MARKETING
The Company emphasizes customer service, which it believes is increasingly
important to the successful operation of its business. To meet its objective of
providing high levels of customer service, the Company offers its customers a
full line-up of programming, timely and reliable service (with virtually all
service inquiries responded to within 24 hours) and good picture quality. The
Company's employees receive ongoing training in customer service, sales and
subscriber retention and technical support. Customer service representatives and
technicians are also trained to market upgrades at the point of sale or service.
In addition, the Company has attempted to establish and to maintain a local
presence and visibility within the communities it serves.
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<PAGE> 52
As part of its efforts to maximize cash flow, the Company has sought to add
and retain subscribers and increase cash flow per subscriber by aggressively
marketing its basic and premium service offerings. The Company utilizes a number
of coordinated marketing techniques, including (i) direct door to door sales,
(ii) local newspaper and radio advertising and cable system promotional
advertising insertion in certain satellite programs, (iii) direct mail, (iv)
telemarketing, primarily for premium service subscriptions, and (v) monthly
billing statement inserts.
TECHNICAL OVERVIEW
The following table sets forth certain information regarding the analog
channel capacities and miles of plant of the Systems:
<TABLE>
<CAPTION>
300 MHZ 330 MHZ 400 MHZ 450 MHZ 750 MHZ
UP TO 36 UP TO 42 UP TO 54 UP TO 62 UP TO 100
CHANNELS CHANNELS CHANNELS CHANNELS CHANNELS TOTAL
-------- -------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Number of headends .... 13 22 2 13 2 52
Number of subscribers
as of June 30,
1997 ................ 14,927 21,947 2,101 32,589 6,773 78,337
% of subscribers ...... 19.1% 28.0% 2.7% 41.6% 8.6% 100.0%
Miles of plant ........ 739 988 46 1,504 206 3,483
% miles of plant ...... 21.2% 28.4% 1.3% 43.2% 5.9% 100.0%
</TABLE>
The Company recently completed the upgrade of its Durant System to 750 MHz.
The upgrade improved picture quality and reliability and enabled the Company to
increase the number of channels offered by the Durant System from 40 to 55, with
the potential for future expansion to 100 channels (or more using digital
technology). In addition, the Company has near-term plans to upgrade the cable
plant in a number of its other Systems. The Company is nearing completion of the
750 MHz upgrade of its cable plant serving approximately 2,500 subscribers in
Hawkinsville and Cochran, Georgia, and has begun the 750 MHz upgrade of its
cable plant serving approximately 5,800 subscribers in Douglas, Torrington,
Wheatland and Lingle, Wyoming. Mapping and preliminary engineering are underway
to upgrade cable plants serving an additional 4,000 subscribers in Georgia and
2,100 subscribers in Alabama. By the end of 1997, the Company will have expended
nearly $9 million to upgrade its cable plant serving approximately 18,000
subscribers. The Company expects to expend approximately $10 million in each of
1998 and 1999 to upgrade its cable plant serving an additional 32,000
subscribers.
The Company's Systems have an average capacity of 54 channels. The Company
currently does not use any addressable technology. The Company utilizes a "trap"
scheme whereby a technician installs filters, or traps, at each cabled home
enabling the technician to configure the programming received by each
subscriber. Upon completion of a System upgrade, the Company will convert
certain of its subscribers to digital addressable technology to take advantage
of the HITS service. That service transmits digitally compressed signals of
niche satellite programming, multiplexed premium services, pay-per-view movies
and music for reception by cable systems, which in turn deliver them to their
subscribers.
The majority of the Company's Systems are wired exclusively with coaxial
cable; the remaining Systems utilize fiber optic cable in conjunction with
coaxial cable. Fiber optic strands are capable of carrying hundreds of video,
data and voice channels over extended distances without the extensive signal
amplification typically required for coaxial cable. The Company plans to use an
HFC design across those portions of its cable plant that serve its highest
subscriber densities to most efficiently upgrade the Systems to 750 MHz.
Additionally, the Company plans to use fiber optic technology to interconnect
headends and install fiber backbones to reduce amplifier cascades, thereby
gaining operational efficiencies and improved picture quality and system
reliability.
FRANCHISES
Cable television systems are generally constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as, among others,
46
<PAGE> 53
(i) time limitations on commencement and completion of construction, (ii)
conditions of service, including number of channels, types of programming and
the provision of free service to schools and certain other public institutions
and (iii) the maintenance of insurance and indemnity bonds. Certain provisions
of local franchises are subject to federal regulation under the 1984 Cable Act,
the 1992 Cable Act and the 1996 Telecom Act.
At June 30, 1997, the Company held 132 franchises. These franchises,
substantially all of which are non-exclusive, generally provide for the payment
of fees to the issuing authority. Annual franchise fees range up to 5% of the
gross revenues generated by a System. For the past three years, franchise fee
payments made by the Company have averaged approximately 2.5% of total gross
System revenues. Franchise fees are generally passed directly through to the
customers on their monthly bills. General business or utility taxes may also be
imposed in various jurisdictions. The 1984 Cable Act prohibits franchising
authorities from imposing franchise fees in excess of 5% of gross revenues and
also permits the cable operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances. Most of the
Company's franchises can be terminated prior to their stated expirations for
uncured breaches of material provisions.
The following table sets forth the number of franchises by year of
franchise expiration and the number and percentage of basic subscribers at June
30, 1997:
<TABLE>
<CAPTION>
NUMBER PERCENTAGE NUMBER PERCENTAGE
OF OF TOTAL OF BASIC OF BASIC
YEAR OF FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS SUBSCRIBERS
---------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Prior to 2000............................. 14 9.6% 8,852 11.3%
2000-2004................................. 46 31.7 30,774 39.3
2005-2008................................. 27 18.6 16,785 21.4
2009 and after............................ 41 28.3 16,085 20.5
No expiration............................. 4 2.8 1,394 1.8
--- ----- ------ -----
Subtotal................................ 132 91.0 73,890 94.3
No franchise required..................... 13 9.0 4,447 5.7
--- ----- ------ -----
Total................................... 145 100.0% 78,337 100.0%
=== ===== ====== =====
</TABLE>
The Company believes that it has good relationships with its franchising
authorities. To date, the Company has never had a franchise revoked for any of
its Systems, and no request of the Company for franchise renewals or extensions
has been denied, although such renewed or extended franchises have frequently
resulted in franchise modifications on satisfactory terms.
The 1984 Cable Act provides for, among other things, an orderly franchise
renewal process in which renewal of franchise licenses issued by governmental
authorities will not be unreasonably withheld, or, if renewal is withheld and
the franchise authority chooses to acquire the system or transfer ownership to
another person, such franchise authority or other person must pay the operator
either (i) the "fair market value" (without value assigned to the franchise) for
the system covered by such franchise if the franchise did not exist before the
effective date of the 1984 Cable Act (December 1984) or the franchise was
pre-existing but the franchise agreement did not provide for a buyout or (ii) in
the case of pre-existing franchises with buyout provisions, the price set forth
in such franchise agreements. In addition, the 1984 Cable Act established
comprehensive renewal procedures which require that an incumbent franchisee's
renewal application be assessed on its own merits and not as part of a
comparative process with competing applications. See "Legislation and
Regulation."
The 1984 Cable Act also established buyout rates for franchises which
post-date the existence of the 1984 Cable Act or pre-date the 1984 Cable Act but
the franchise agreement does not contain buyout provisions; in the event the
franchise is terminated "for cause" and the franchise authority desires to
acquire the system, the franchise authority must pay the operator an "equitable"
price. To date, none of the Company's franchises has been terminated.
The Company's franchises for Hawkinsville and Cochran, Georgia, which were
scheduled to expire in September, 1997, were recently renewed to 2007. The
Company is nearing the completion of its 750 MHz upgrade of its cable plant
serving the approximately 2,500 subscribers in these cities at a cost of
approximately $1.9 million. Generally, the Company undertakes to renew an
expiring franchise before committing to
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significant capital expenditures. However, because the plant serving these two
communities had a bandwidth of only 300 MHz and the local independent telephone
company serving Hawkinsville, Georgia, which also operates a nearby cable
television system, had approached the cities regarding a franchise to provide
cable television service, the Company decided that it would be prudent to make
the upgrades and capital improvements. This should allow the Company to compete
more effectively for its subscribers if a second franchise is awarded to provide
cable television service.
The 1992 Cable Act prohibits the award of exclusive franchises, prohibits
franchising authorities from unreasonably refusing to award additional
franchises and permits them to operate cable systems themselves without
franchises. The 1996 Telecom Act provides that no state or local laws or
regulations may prohibit or have the effect of prohibiting any entity from
providing any interstate or intrastate telecommunications service. State and
local authorities retain authority to manage the public rights of way and
"competitively neutral" requirements concerning right of way fees, universal
service, public safety and welfare, service quality, and consumer protection are
permitted with respect to telecommunications services. See "Legislation and
Regulation."
COMPETITION
Cable television systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast programming,
DBS services, wireless cable services, newspapers, movie theaters, live sporting
events, online computer services and home video products, including videotape
cassette recorders. The extent to which a cable communications system is
competitive depends, in part, upon the cable system's ability to provide, at a
reasonable price to customers, a greater variety of programming and other
communications services than those which are available off-air or through other
alternative delivery sources and upon superior technical performance and
customer service.
Cable television systems generally operate pursuant to franchises granted
on a nonexclusive basis. The 1992 Cable Act prohibits franchising authorities
from unreasonably denying requests for additional franchises and permits
franchising authorities to operate cable television systems without a franchise.
It is possible that a franchising authority might grant a second franchise to
another company containing terms and conditions more favorable than those
afforded the Company.
Well-financed businesses from outside the cable industry (such as the
public utilities that own the poles to which cable is attached) may become
competitors for franchises or providers of competing services. Congress has
repealed the prohibition against national television networks owning cable
systems, and telephone companies may now enter the cable industry as described
below. In one of the Company's franchise areas, the Company faces direct
competition from another franchised cable television system.
In recent years, the FCC and the Congress have adopted policies providing a
more favorable operating environment for new and existing technologies that
provide, or have the potential to provide, substantial competition to cable
television systems. These technologies include, among others, DBS service,
whereby signals are transmitted by satellite to receiving facilities located on
customer premises. Programming is currently available to the owners of DBS
dishes through conventional, medium and high-powered satellites. DBS systems are
expected to increase channel capacity to 100 or more channels, enabling them to
provide movies, broadcast stations, and other program service comparable to
those of cable television systems. The 1992 Cable Act contains provisions, which
the FCC has implemented with regulations, to enhance the ability of cable
competitors to purchase and make available to home satellite dish owners certain
satellite delivered cable programming at competitive costs. Digital satellite
service ("DSS") offered by DBS systems has certain advantages over cable systems
with respect to programming and digital quality, as well as disadvantages that
include high upfront costs and a lack of local programming, service and
equipment distribution. The Company's strategy of providing pay-per-view and
perhaps satellite niche programming via the HITS application in certain of its
Systems is designed to combat DSS competition. "Bundling" of the Company's video
service with advanced telecommunications services in certain of the Company's
Systems may also be an
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effective tool for combating DSS competition. The principal DBS systems with
which the Company's Systems compete are DirectTV and Primestar.
Cable television systems also compete with wireless program distribution
services such as multichannel multipoint distribution service ("MMDS") which
uses low power microwave to transmit video programming over the air to
customers. Additionally, the FCC recently adopted new regulations allocating
frequencies in the 28 GHz band for a new multichannel wireless video service
similar to MMDS, known as Local Multipoint Distribution Service ("LMDS"). LMDS
is also suited for providing wireless data services, including the possibility
of Internet access. Wireless distribution services generally provide many of the
programming services provided by cable systems, and digital compression
technology may increase significantly the channel capacity of the systems.
Because MMDS service requires unobstructed "line of sight" transmission paths,
the ability of MMDS systems to compete may be hampered in some areas by physical
terrain and foliage. Although in the majority of the Company's franchise service
areas prohibitive topography and limited "line of sight" access has limited
competition from MMDS systems, the Company has experienced competition from MMDS
systems in portions of its Systems in Oklahoma, Texas, Louisiana and Florida.
The 1996 Telecom Act eliminated the previous prohibition on the provision
of video programming by local exchange telephone companies ("LECs") in their
telephone service areas. Various LECs currently are seeking to provide video
programming services within their telephone service areas through a variety of
distribution methods, primarily through the deployment of broadband wire
facilities, but also through the use of wireless (MMDS) transmission. Cable
television systems could be placed at a competitive disadvantage if the delivery
of video programming services by LECs becomes widespread, since LECs may not be
required, under certain circumstances, to obtain local franchises to deliver
such video services or to comply with the variety of obligations imposed upon
cable television systems under such franchises. Issues of cross-subsidization by
LECs of video and telephony services also pose strategic disadvantages for cable
operators seeking to compete with LECs that provide video services. The Company
believes, however, that the small markets in which it provides or expects to
provide cable services are unlikely to support competition in the provision of
video and telecommunications broadband services given the lower population
densities and higher costs per subscriber of installing plant.
The 1996 Telecom Act's provisions promoting facilities-based broadband
competition are primarily targeted at larger markets, and its prohibition on buy
outs and joint ventures between incumbent cable operators and LECs exempts small
operators and carriers meeting certain criteria. See "Legislation and
Regulation." The Company believes that significant growth opportunities exist
for the Company by establishing cooperative rather than competitive
relationships with LECs within service areas, to the extent permitted by law.
Other new technologies may become competitive with non-entertainment
services that cable television systems can offer. The FCC has authorized
television broadcast stations to transmit textual and graphic information useful
both to consumers and businesses. The FCC also permits commercial and
noncommercial FM stations to use their subcarrier frequencies to provide
nonbroadcast services including data transmissions. The FCC has established an
over-the-air Interactive Video and Data Service that will permit two-way
interaction with commercial and educational programming along with informational
and data services. The expansion of fiber optic systems by LECs and other common
carriers is providing facilities for the transmission and distribution to homes
and businesses of video services, including interactive computer-based services
like the Internet, data and other nonvideo services. The FCC has held spectrum
auctions for licenses to provide PCS. PCS will enable license holders, including
cable operators, to provide voice and data services.
Advances in communications technology as well as changes in the marketplace
and the regulatory and legislative environments are constantly occurring. Thus,
it is not possible to predict the effect that ongoing or future developments
might have on the cable industry or on the operations of the Company.
EMPLOYEES
At June 30, 1997, the Company had approximately 131 full-time employees and
14 part-time employees. None of the Company's employees is represented by a
labor union. The Company considers its relations with its employees to be good.
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PROPERTIES
A cable television system consists of four principal operating components.
The first component, known as the headend, receives television, radio and
information signals by means of special antennas and satellite earth stations.
The second component, the distribution network, which originates at the headend
and extends throughout the system's service area, consists of microwave relays,
coaxial or fiber optic cables placed on utility poles or buried underground and
associated electronic equipment. The third component of the system is a "drop
cable," which extends from the distribution network into each customer's home
and connects the distribution system to the customer's television set. The
fourth component, a converter, is the home terminal device that expands channel
capacity to permit reception of more than twelve channels of programming.
The Company's principal physical assets consist of cable television
systems, including signal-receiving, encoding and decoding apparatus, headends,
distribution systems and subscriber house drop equipment for each of its
Systems. The signal receiving apparatus typically includes a tower, antenna,
ancillary electronic equipment and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving devices. The Company's distribution systems consist primarily of
coaxial cable and related electronic equipment. As the upgrades are completed,
the Systems will incorporate fiber optic cable. Subscriber equipment consists of
taps, house drops and converters. The Company owns its distribution systems,
various office fixtures, test equipment and certain service vehicles. The
physical components of the Systems require maintenance and periodic upgrading to
keep pace with technological advances.
The Company's cables generally are attached to utility poles under pole
rental agreements with local public utilities, although in some areas the
distribution cable is buried in underground ducts or trenches. The FCC regulates
most pole attachment rates under the federal Pole Attachment Act.
The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave complexes and business offices
(including its principal executive offices). The Company believes that its
properties, both owned and leased, are in good condition and are suitable and
adequate for the Company's business operations as presently conducted.
INSURANCE
The Company has insurance covering risks incurred in the ordinary course of
business, including general liability, property coverage and business
interruption insurance. As is typical in the cable television industry, the
Company does not maintain insurance covering its underground plant. Furthermore,
on the advice of its insurance agent, to avoid the expense of being "over
insured," in 1994 the Company reduced its casualty insurance coverage (which
covers losses due to damage to its facilities and related business interruption)
from $15 million per occurrence to $10 million per occurrence for each of its
Systems (other than those in Florida and Louisiana). Because of the
industry-wide casualty insurance reductions that resulted from insurers' loss
experience with several hurricanes in the southeastern portion of the United
States, the Company's casualty insurance in Florida and Louisiana was ultimately
reduced to $1 million per occurrence. All of the Company's casualty insurance
coverage is subject to deductibles ranging between $10,000 and $100,000 per
occurrence. The Company believes that its Systems in Florida and Louisiana are
located in areas that are not subject to a high degree of risk from hurricanes,
or from ice storms (which do pose a significant risk for its Systems in other
areas), and that losses in excess of its existing coverage would be unlikely. If
the Company is unable to maintain adequate casualty insurance it will be subject
to a potential reduction in cash flow in the event of a loss in excess of its
policy limits, and if a significant loss were to occur, it could have a material
adverse effect on the Company's financial condition and results of operations.
Notwithstanding the foregoing, the Company believes that the amounts and types
of its insurance coverage are commercially reasonable given the nature and types
of the Company's business and properties.
LITIGATION
In January 1992, in an action initiated by the Company, the Chancery Court
for Fentress County, Tennessee ordered the City of Jamestown, Tennessee to cease
the operation of its municipally-owned cable
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television system (which overbuilt approximately 700 of the Company's
subscribers) for the remaining term of the Company's exclusive franchise (which
runs through 2002), and the City ceased operation of its system. Subsequently,
on the City's motion, the Chancery Court dissolved its order on the ground that
the 1992 Cable Act preempted the exclusivity provision of the Company's
exclusive franchise, and the City resumed operation of its system. On April 7,
1993, in an action commenced by the Company, the United States District Court
for the Middle District of Tennessee entered an order enjoining the City from
competing with the Company. The City appealed to the United States Court of
Appeals for the Sixth Circuit, which affirmed the order. The Sixth Circuit Court
of Appeals subsequently ruled that the City is required to correct violations of
the National Electric Safety Code with respect to its cable plant, and remanded
the case to the District Court for further proceedings consistent with the Court
of Appeals' decision.
In addition, the Company is a party to ordinary and routine litigation
proceedings that are incidental to the Company's business. Management believes
that the outcome of all pending legal proceedings will not, in the aggregate,
have a material adverse effect on the financial condition or results of
operations of the Company.
JAMES CABLE FINANCE CORP.
James Cable Finance Corp. is a wholly-owned subsidiary of the Company that
was incorporated under the laws of the State of Michigan on June 19, 1997 for
the purpose of serving as a co-issuer of the Notes and the Exchange Notes in
order to facilitate the Offering. Finance Corp. will not have substantial
operations or assets and will not have any revenues. Its only assets consist of
$1,000 cash. As a result, Holders should not expect Finance Corp. to participate
in servicing the interest or principal obligations of the Notes or the Exchange
Notes. The Indenture imposes substantial restrictions on the activities of
Finance Corp. Its principal executive office is located at 710 North Woodward
Avenue, Suite 180, Bloomfield Hills, Michigan 48304, and its telephone number is
(248) 647-1080.
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LEGISLATION AND REGULATION
INTRODUCTION
The operation of cable television systems is extensively regulated by the
FCC, some state governments and most local governments. The Telecommunications
Act of 1996 alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
also reduces the scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to undertake a host of implementing
rulemakings, the final outcome of which cannot yet be determined. Moreover,
Congress and the FCC have frequently revisited the subject of cable regulation.
Future legislative and regulatory changes could adversely affect the Company's
operations. This section briefly summarizes key laws and regulations affecting
the operation of the Company's Systems and does not purport to describe all
present, proposed, or possible laws and regulations affecting the Company or its
Systems.
CABLE RATE REGULATION
The 1992 Cable Act imposed an extensive rate regulation regime on the cable
television industry. Under that regime, all cable systems are subject to rate
regulation, unless they face "effective competition" in their local franchise
area. Federal law now defines "effective competition" on a community-specific
basis as requiring either low penetration (less than 30%) by the incumbent cable
operator, appreciable penetration (more than 15%) by competing multichannel
video providers ("MVPs"), or the presence of a competing MVP affiliated with a
local telephone company.
Although the FCC rules control, local government units (commonly referred
to as local franchising authorities or "LFAs") are primarily responsible for
administering the regulation of the lowest level of cable -- the basic service
tier ("BST"), which typically contains local broadcast stations and public,
educational, and government ("PEG") access channels. Before an LFA begins BST
rate regulation, it must certify to the FCC that it will follow applicable
federal rules, and many LFAs have voluntarily declined to exercise this
authority. LFAs also have primary responsibility for regulating cable equipment
rates. Under federal law, charges for various types of cable equipment must be
unbundled from each other and from monthly charges for programming services. The
1996 Telecom Act allows operators to aggregate costs for broad categories of
equipment across geographic and functional lines. This change should facilitate
the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers, which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service", regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or
per-program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
In an effort to ease the regulatory burden on small cable systems, the FCC
has created special rate rules applicable for systems with fewer than 15,000
subscribers owned by an operator with fewer than 400,000 subscribers. The
special rate rules allow for a vastly simplified cost-of-service showing. The
Company is
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eligible for these simplified cost-of-service rules, and has calculated its
rates generally in accordance with those rules. See "Risk Factors -- Substantial
Regulation In The Cable Television Industry." The 1996 Telecom Act provides
additional relief for small cable operators. For franchising units with less
than 50,000 subscribers and owned by an operator with less than one percent of
the nation's cable subscribers (i.e., approximately 600,000 subscribers) that is
not affiliated with any entities with aggregate annual gross revenues exceeding
$250 million, CPST rate regulation is automatically eliminated. The Company does
not now qualify for this additional relief because certain investors in the
Company exceed the annual gross revenue standard and are deemed to be
"affiliates" under current FCC rules. This definition of "affiliate" is under
review by the FCC, and may be modified in the future to qualify the Company as a
small cable operator.
As part of the 1996 Telecom Act, FCC regulation of CPST rates for all
systems (regardless of size) expires on March 31, 1999. It also relaxes existing
uniform rate requirements by specifying that uniform rate requirements do not
apply where the operator faces "effective competition," and by exempting bulk
discounts to multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC.
CABLE ENTRY INTO TELECOMMUNICATIONS
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way and may require reasonable, competitively neutral compensation for
management of the public rights-of-way when cable operators provide
telecommunications service. The favorable pole attachment rates afforded cable
operators under federal law can be gradually increased by utility companies
owning the poles (beginning in 2001) if the operator provides telecommunications
service, as well as cable service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Certain aspects of the
FCC's initial interconnection order were stayed by the Eighth Circuit Court of
Appeals in October 1996, on the ground that the states, not the FCC, have
statutory authority to set the prices that incumbent local exchange carriers may
charge for interconnection. On July 18, 1997, the court made that initial ruling
permanent.
TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION
The 1996 Telecom Act allows telephone companies to compete directly with
cable operators by repealing the historic telephone company/cable
cross-ownership ban. Local exchange carriers, including the Bell Operating
Companies, can now compete with cable operators both inside and outside their
telephone service areas. Because of their resources, LECs could be formidable
competitors to traditional cable operators, and certain LECs have begun offering
cable service.
Under the 1996 Telecom Act, a LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition remains on LEC buyouts
(that is, any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a
carefully circumscribed "rural exemption." The 1996 Telecom Act also provides
the FCC with the limited authority to grant waivers of the buyout prohibition
(subject to LFA approval).
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ELECTRIC UTILITY ENTRY INTO TELECOMMUNICATIONS/CABLE TELEVISION
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
ADDITIONAL OWNERSHIP RESTRICTIONS
The 1996 Telecom Act eliminates statutory restrictions on broadcast/cable
cross-ownership (including broadcast network/cable restrictions), but leaves in
place existing FCC regulations prohibiting local cross-ownership between
co-located television stations and cable systems. The 1996 Telecom Act also
eliminates the three year holding period required under the 1992 Cable Act's
"anti-trafficking" provision. The 1996 Telecom Act leaves in place existing
restrictions on cable cross-ownership with satellite master antenna television
("SMATV") and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. FCC regulations permit cable
operators to own and operate SMATV systems within their franchise area, provided
that such operation is consistent with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to the
carriage of affiliated national program services. A companion rule establishing
a nationwide ownership cap on any cable operator equal to 30% of all domestic
cable subscribers has been stayed pending further judicial review.
There are no federal restrictions on non-U.S. entities having an ownership
interest in cable television systems or the FCC licenses commonly employed by
such systems.
MUST CARRY/RETRANSMISSION CONSENT
The 1992 Cable Act conveyed to a commercial broadcaster the right generally
to elect every three years either to require (i) the local cable operator to
carry its signals ("must carry") or (ii) that such operator obtain the
broadcaster's retransmission consent before doing so. The Company has been able
to reach agreements with all of the broadcasters who elected retransmission
consent and has not been required by broadcasters to remove any broadcast
stations from the cable television channel line-ups. The Company has, however,
agreed in limited circumstances to the direct payment of nominal fees for
carriage and, again in limited circumstances, to carry satellite-delivered cable
programming which is affiliated with the network carried by such stations. To
date, compliance with the "retransmission consent" and "must carry" provisions
of the 1992 Cable Act has not had a material effect on the Company, although
this result may change in the future depending on such factors as market
conditions, channel capacity and similar matters when such arrangements are
renegotiated.
ACCESS CHANNELS
LFAs can include franchise provisions requiring cable operators to set
aside certain channels for public, educational and governmental access
programming. Federal law also requires cable systems to designate a portion of
their channel capacity (up to 15% in some cases) for commercial leased access by
unaffiliated third parties. The FCC has adopted rules regulating the terms,
conditions and maximum rates a cable operator may charge for use of this
designated channel capacity, but use of commercial leased access channels has
been relatively limited. The leased access rules, which were recently modified
by the FCC, are being appealed to establish lower rates for access. If this
appeal is successful, the Company's control over its channel line-up would be
reduced and the quality of that line-up might decline.
ACCESS TO PROGRAMMING
To spur the development of independent cable programmers and competition to
incumbent cable operators, the 1992 Cable Act imposed restrictions on the
dealings between cable operators and cable
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programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies.
OTHER FCC REGULATIONS
In addition to the FCC regulations noted above, there are other FCC
regulations covering such areas as equal employment opportunity, subscriber
privacy, programming practices (including, among other things, syndicated
program exclusivity, network program nonduplication, local sports blackouts,
indecent programming, lottery programming, political programming, sponsorship
identification, and children's programming advertisements), registration of
cable systems and facilities licensing, maintenance of various records and
public inspection files, frequency usage, lockbox availability, antenna
structure notification, tower marking and lighting, consumer protection and
customer service standards, technical standards, Emergency Alert Systems and
consumer electronics equipment compatibility. The FCC has the authority to
enforce its regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities used in connection with cable
operations.
Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational devices. The former rulemaking is considering
ownership of cable wiring located inside multiple dwelling unit complexes. The
FCC has proposed rules that would make it easier for complex owners to terminate
service from the incumbent cable operator in favor of a new entrant. The latter
rulemaking is considering whether cable customers must be allowed to purchase
cable converters from third party vendors. If the FCC concludes that such
distribution is required, and does not make appropriate allowances for signal
piracy concerns, it may become more difficult for cable operators to combat
theft of service.
COPYRIGHT
Cable television systems are subject to federal copyright licensing
covering carriage of television and radio broadcast signals. In exchange for
filing certain reports and contributing a percentage of their revenues to a
federal copyright royalty pool (which varies depending on the size of the system
and the number of distant broadcast television signals carried), cable operators
can obtain blanket permission to retransmit copyrighted material on broadcast
signals. The possible modification or elimination of this compulsory copyright
license is the subject of continuing legislative review and could adversely
affect the Company's ability to obtain desired broadcast programming. In
addition, the cable industry pays music licensing fees to BMI and is negotiating
a similar arrangement with ASCAP. Copyright clearances for nonbroadcast
programming services are arranged through private negotiations.
STATE AND LOCAL REGULATION
Cable television systems generally are operated pursuant to nonexclusive
franchises granted by a municipality or other state or local government entity
in order to cross public rights-of-way. Federal law now prohibits franchise
authorities from granting exclusive franchises or from unreasonably refusing to
award additional franchises. Cable franchises generally are granted for fixed
terms and in many cases include monetary penalties for non-compliance and may be
terminable if the franchisee fails to comply with material provisions.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Each franchise generally contains provisions governing cable
operations, service rates, franchise fees, system construction and maintenance
obligations, system channel capacity, design and technical performance, customer
service standards, and indemnification protections. Although LFAs have
considerable discretion in establishing franchise terms, there are certain
federal limitations. For example, LFAs cannot insist on franchise fees
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exceeding 5% of the system's gross revenues, cannot dictate the particular
technology used by the system, and cannot specify video programming other than
identifying broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises. However, there
can be no assurance that renewal will be granted or that renewals will be made
on similar terms and conditions.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the jurisdiction
of state governmental agencies. Tennessee and Florida, states where the Company
operates Systems, have enacted legislation with respect to the regulation of
cable television systems. In addition, a number of communities that the Company
serves have adopted local rate regulation and customer service ordinances.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Since its inception in 1988, the Company's business and affairs have been
managed and controlled by the General Partner. The General Partner is managed
and controlled by its three partners, Jamesco Inc., a Michigan corporation (of
which William R. James is the sole shareholder, sole executive officer and sole
director), Trenary Corp., Ltd., a Michigan corporation (of which C. Timothy
Trenary is the sole shareholder, sole executive officer and sole director), and
DKS Holdings, Inc., a Michigan corporation (of which Daniel K. Shoemaker is the
sole shareholder, sole executive officer and sole director). By virtue of these
arrangements, Messrs. James, Trenary and Shoemaker (each a "Director") perform
functions for the Company which are similar to those generally performed for a
corporation by its board of directors. The Directors also constitute all of the
directors of Finance Corp. Through the General Partner, the persons named below
(collectively, the "Executive Officers") perform for the Company functions
similar to those generally performed for a corporation by executive officers
having the titles set forth below:
<TABLE>
<CAPTION>
NAME AGE FUNCTIONS PERFORMED
---- --- -------------------
<S> <C> <C>
William R. James............................. 64 President and Chief Executive
Officer
C. Timothy Trenary........................... 41 Chief Operating Officer
Daniel K. Shoemaker.......................... 34 Chief Financial Officer
Scott A. Madison............................. 40 Director of Engineering
</TABLE>
Messrs. James, Trenary and Shoemaker also constitute all of the executive
officers of Finance Corp.
William R. James has been the sole shareholder and sole director of
Jamesco, and Jamesco has been a partner in the General Partner, since the
Company was formed in 1988. He has performed the functions of President and
Chief Executive Officer for the Company throughout the same period. He has been
the President of Finance Corp. since its formation in 1997.
In January 1986, Mr. James founded James Communications, Inc. ("JCI"), a
cable television company. He served as President and Chief Executive Officer of
JCI from its inception until it was sold in December, 1987. From 1979 to 1986,
Mr. James was employed by Capital Cities Communications (which became Capital
Cities/ABC Inc.), during which time he oversaw the development of its cable
division ("Capital Cities Cable"). At the time he left Capital Cities
Communications to found JCI, Mr. James was an Executive Vice President of
Capital Cities Communications and the President of Capital Cities Cable. Prior
to joining Capital Cities Communications, Mr. James was a partner at Touche Ross
& Co. in charge of national manufacturing consulting.
Mr. James is a graduate of Princeton University and graduated from the
Harvard University Business School with distinction.
C. Timothy Trenary was a partner in the General Partner from the formation
of the Company until July 1, 1997, when he contributed his partnership interest
to his wholly-owned corporation, Trenary Corp., Ltd. From 1988 to 1989, Mr.
Trenary performed the functions of Chief Financial Officer for the Company, and,
since 1989, he has performed the functions of its Chief Operating Officer. He
has also been a Vice President of Finance Corp. since its formation in 1997. Mr.
Trenary was Vice President of Finance of JCI during 1987. From 1983 to 1986, he
was Operations Manager of the Northern Region of Capital Cities Cable, and from
1981 to 1983, he was Manager of Financial Controls for Capital Cities Cable.
Prior to joining Capital Cities Cable, Mr. Trenary was an auditor with Arthur
Young & Co.
Daniel K. Shoemaker was a partner in the General Partner from 1989 until
July 1, 1997, when he contributed his partnership interest to his wholly-owned
corporation, DKS Holdings, Inc. He has performed the functions of Chief
Financial Officer for the Company since 1993, and from 1988 to 1993, he served
as its Director of Management Information Systems. He has also been the
Treasurer and Secretary of Finance Corp. since its formation in 1997. From 1985
to 1988, Mr. Shoemaker was a systems engineer in a management consulting group
of Electronic Data Systems Corporation.
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<PAGE> 64
Scott A. Madison has served as the Company's Director of Engineering since
1991. From 1988 to 1991 he was Director of Engineering for C4 Media Companies
(cable television operators), and from 1986 to 1988 he was a Regional Engineer
for C4 Media Cable South, L.P.I.
The Directors and Executive Officers served as the Company's officers and
directors throughout the Company's Chapter 11 proceeding. See "Risk Factors --
1991 Chapter 11 Proceedings."
EXECUTIVE COMPENSATION
The Issuers do not pay any compensation to the Directors or Executive
Officers. The Partnership Agreement provides compensation to the General Partner
for management services. Under the terms of the Partnership Agreement, the
General Partner is entitled to an annual management fee equal to 4% of the
Company's annual revenues, plus $5 multiplied by the average aggregate number of
subscribers to the systems owned by the Company during such year. The amount of
the management fee was $1,555,000, $1,734,000 and $1,806,000 in 1994, 1995 and
1996, respectively. See "The Partnership Agreement -- General Partner
Compensation." No other amounts were paid to the General Partner by the Company
in those years.
The General Partner is entitled to be compensated pursuant to the terms of
an Incentive Compensation Agreement adopted by the Company as of December 31,
1994 (the "1994 Incentive Compensation Agreement"). The 1994 Incentive
Compensation Agreement provides that, in the event that all of the Company's
cable television systems are sold, the General Partner will be entitled to a
cash incentive compensation award of up to 2% of the value of the equity as of
the date of sale (the "Incentive Fee"). See "The Partnership Agreement --
General Partner Compensation."
CERTAIN TRANSACTIONS
Certain affiliates of Sandler Media Group, Inc. were, collectively, the
holders of two-thirds in outstanding principal amount of certain subordinated
debt of the Company, together with related warrant interests in the Company,
which subordinated debt was prepaid and warrant interests were redeemed with
approximately $14.9 million out of the net proceeds of the Offering. Michael J.
Marocco, a member of the Company's Partnership Advisory Board, is an officer of
Sandler Media Group, Inc. Affiliates of Sandler Media Group, Inc. continued to
hold their limited partnership interests in the Company after the Refinancing.
Also see "Management -- Executive Compensation."
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<PAGE> 65
PARTNERSHIP INTERESTS OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, at June 30, 1997, the partnership interests
in the Company beneficially owned by: (a) each person known to the Company to
beneficially own 5% or more of the Company's total partnership interests; and
(b) each Director, each Executive Officer, and all Directors and Executive
Officers as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER TYPE OF INTEREST(1) % OF CLASS
------------------- ------------------- ----------
<S> <C> <C>
William R. James(2)......................................... General partnership *
710 North Woodward Avenue, Suite 180 Limited partnership 1.1%
Bloomfield Hills, Michigan 48304
C. Timothy Trenary(3)....................................... General partnership *
710 North Woodward Avenue, Suite 180 Limited partnership *
Bloomfield Hills, Michigan 48304
Daniel K. Shoemaker(4)...................................... General partnership *
710 North Woodward Avenue, Suite 180 Limited partnership *
Bloomfield Hills, Michigan 48304
Scott A. Madison............................................ None
710 North Woodward Avenue, Suite 180
Bloomfield Hills, Michigan 48304
The Prudential Insurance Company of America................. Limited partnership 24.4%
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
State Farm Mutual Automobile Insurance Company.............. Limited partnership 24.4%
One State Farm Plaza
Bloomington, Illinois 61710
Teachers Insurance and Annuity Association of America....... Limited partnership 12.2%
730 Third Avenue
New York, New York 10017
Bessemer Securities Corporation............................. Limited partnership 12.2%
630 Fifth Avenue
New York, New York 10111
The Dysson-Kissner-Moran Corporation........................ Limited partnership 6.1%
230 Park Avenue
New York, New York 10169
Citicorp.................................................... Limited partnership 5.6%
599 Lexington Avenue
New York, New York 10043
All Directors and Executive Officers as a group............. General partnership *
Limited partnership
1.2%
</TABLE>
- -------------------------
* Less than 1.00%.
(1) The general partnership interest represents 0.97% of the Company's total
partnership interest.
(2) Reflects ownership of all of the capital stock of Jamesco Inc., which holds
a 91.5% interest in the General Partner. Mr. James performs the functions of
a Director of the Company. He also performs the functions of Chief Executive
Officer of the Company.
(3) Reflects ownership of all of the capital stock of Trenary Corp., Ltd., which
holds a 7.5% interest in the General Partner. Mr. Trenary performs the
functions of a Director of the Company. He also performs the functions of
Chief Operating Officer of the Company.
(4) Reflects ownership of all of the capital stock of DKS Holdings, Inc., which
holds a 1.0% interest in the General Partner. Mr. Shoemaker performs the
functions of a Director of the Company. He also performs the functions of
Chief Financial Officer of the Company.
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<PAGE> 66
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued pursuant to the same Indenture under
which the Notes were issued. The terms of the Exchange Notes include those
stated in the Indenture and those made part of the Indenture pursuant to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in
effect on the date of the Indenture. The Exchange Notes are subject to all such
terms, and Holders of the Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Exchange Notes does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part of the Indenture by reference to the Trust Indenture Act as in
effect on the date of the Indenture. A copy of the Indenture has been filed as
an exhibit to the Registration Statement. The definitions of certain capitalized
terms used in the following summary are set forth below under "-- Certain
Definitions." Capitalized terms that are used but not otherwise defined herein
have the meanings assigned to them in the Indenture and such definitions are
incorporated herein by reference.
GENERAL
The Exchange Notes will be general senior unsecured, joint and several
obligations of the Issuers and will be limited in aggregate principal amount to
$100,000,000. The Exchange Notes will be unconditionally guaranteed, on a senior
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by each Subsidiary which guarantees payment of the Exchange Notes
pursuant to the covenant described under "-- Certain Covenants -- Limitation on
Creation of Subsidiaries".
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will mature on August 15, 2004. Interest on the Exchange
Notes will accrue at the rate of 10 3/4% per annum and will be payable
semi-annually in cash in arrears on February 15 and August 15, commencing on
February 15, 1998 to Holders of record on the immediately preceding February 1
and August 1. Interest on the Exchange Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months. The Exchange Notes will be payable both
as to principal and interest at the office or agency of the Issuers maintained
for such purpose within the City and State of New York or, at the option of the
Issuers, payment of interest may be made by check mailed to the Holders at their
respective addresses set forth in the register of Holders. Until otherwise
designated by the Issuers, the Issuers' office or agency in New York will be the
office of the Trustee maintained for such purpose. The Exchange Notes will be
issued in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
OPTIONAL REDEMPTION
The Exchange Notes will not be redeemable at the Issuers' option prior to
August 15, 2001. Thereafter, the Exchange Notes will be subject to redemption at
the option of the Issuers in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable date of redemption, if redeemed during the twelve-month period
beginning on August 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001................................................. 105.375%
2002................................................. 102.687%
2003 and thereafter.................................. 100.000%
</TABLE>
Notwithstanding the foregoing, until August 15, 2000, the Issuers may
redeem, at their option, up to 35% of the aggregate principal amount of the
Notes and the Exchange Notes, provided that at least $65,000,000 aggregate
principal amount of the Notes and the Exchange Notes remains outstanding
immediately after the occurrence of such redemption, at a price equal to
110.750% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of redemption, with the net proceeds from a Public Equity
Offering by the Company; provided that such redemption must occur within 60 days
of the date of the closing of such Public Equity Offering.
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MANDATORY REDEMPTION
Except as set forth below under "Change of Control Offer" and "Certain
Asset Sales", the Issuers are not required to make mandatory redemption or
sinking fund payments with respect to the Exchange Notes.
SELECTION AND NOTICE
If less than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee on a pro
rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate, provided that no Exchange Notes of $1,000 or less shall be redeemed
in part. Notices of redemption shall be mailed by first class mail at least 30
but not more than 60 days before the redemption date to each Holder of the
Exchange Notes to be redeemed at its registered address. If any Exchange Note is
to be redeemed in part only, the notice of redemption that relates to such
Exchange Note shall state the portion of the principal amount thereof to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Exchange Note. On and after the redemption date,
interest ceases to accrue on the Exchange Notes or portions thereof called for
redemption.
CHANGE OF CONTROL OFFER
Within 30 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Exchange Notes at a
purchase price equal to 101% of the principal amount thereof plus any accrued
and unpaid interest thereon to the Change of Control Payment Date (as defined in
the next paragraph) (such applicable purchase price being hereinafter referred
to as the "Change of Control Purchase Price") in accordance with the procedures
set forth in this covenant.
Within 30 days of the occurrence of a Change of Control, the Company also
shall (i) 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 (ii) send by first-class mail, postage prepaid, to the Trustee and to
each Holder of the Exchange Notes, at the address appearing in the register
maintained by the Registrar of the Exchange Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Exchange Notes tendered will be accepted for payment,
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 20 business days from the date such
notice is mailed (the "Change of Control Payment Date"));
(3) that any Exchange Note not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Exchange 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 Exchange Notes
purchased pursuant to a Change of Control Offer will be required to
surrender the Exchange 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 Exchange Notes delivered for purchase,
and a statement that such Holder is withdrawing his election to have such
Exchange Notes purchased;
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<PAGE> 68
(7) that Holders whose Exchange Notes are being purchased only in part
will be issued new Exchange Notes equal in principal amount to the
unpurchased portion of the Exchange Notes surrendered, provided that each
Exchange Note purchased and each such new Exchange Note issued shall be in
an original principal amount in denominations of $1,000 and integral
multiples thereof;
(8) any other procedures that a Holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance;
(9) the name and address of the Paying Agent; and
(10) in the event the Incentive Fee has been earned and is payable to
the General Partner of the Company under the terms of the 1994 Incentive
Compensation Agreement, that the Incentive Fee will be paid to the General
Partner on the Change of Control Payment Date after payment of all Exchange
Notes tendered pursuant to the Change of Control Offer, and the pro forma
effects of such payment on the Company's financial statements, with
differing percentages of Exchange Notes being tendered and offered for
payment.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment Exchange Notes or portions thereof tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Exchange Notes
or portions thereof so tendered, and (iii) deliver or cause to be delivered to
the Trustee the Exchange Notes so accepted together with an Officers'
Certificate stating the Exchange Notes or portions thereof tendered to the
Company. The Paying Agent will promptly mail to each Holder of Exchange Notes so
accepted the Change of Control Payment for such Exchange Notes, and the Trustee
will promptly authenticate and mail to each Holder a new Exchange Note equal in
principal amount to any unpurchased portion of the Exchange Notes surrendered,
if any; provided that each such new Exchange Note will be in a principal amount
of $1,000 or an integral multiple thereof. In addition, in the event of any
Change of Control, the Issuers will not, and the Company will not permit any of
its Subsidiaries to, purchase or otherwise redeem any Indebtedness ranking
junior to the Exchange Notes pursuant to any analogous provisions, or pay any
Incentive Fee payable to the General Partner of the Company under the terms of
the 1994 Incentive Compensation Agreement, on or prior to the date that all
Exchange Notes tendered pursuant to a Change of Control Offer have been accepted
for payment and the necessary Change of Control Payment has been irrevocably
deposited with the Paying Agent.
The Indenture provides that, (A) if the Company or any Subsidiary thereof
has issued any outstanding (i) indebtedness that is subordinated in right of
payment to the Exchange Notes or (ii) Preferred Stock, and the Company or such
Subsidiary is required to make a Change of Control Offer or to make a
distribution with respect to such subordinated indebtedness or Preferred Stock
in the event of a Change of Control, the Company shall not consummate any such
offer or distribution with respect to such subordinated indebtedness or
Preferred Stock until such time as the Company shall have paid the Change of
Control Purchase Price in full to the holders of Exchange Notes that have
accepted the Company's Change of Control Offer and otherwise have consummated
the Change of Control Offer made to holders of the Exchange Notes and (B) the
Company will not issue Indebtedness that is subordinated in right of payment to
the Exchange Notes or Preferred Stock with change of control provisions
requiring the payment of such Indebtedness or Preferred Stock prior to the
payment of the Exchange Notes in the event of a Change in Control under the
Indenture.
There can be no assurance that the Issuers will have sufficient financial
resources to repurchase Exchange Notes pursuant to a Change of Control Offer. In
the event the Issuers are required to purchase outstanding Exchange Notes
pursuant to a Change of Control Offer, the Issuers expect that they would be
required to seek third-party financing to the extent funds are not available to
meet their purchase obligations. However, there can be no assurance that the
Issuers would be able to obtain such financing or will be contractually
permitted under the terms of other outstanding indebtedness and obligations,
including the New Bank Credit Facility, to pay the required purchase price for
all of the Notes and Exchange Notes tendered by holders thereof. The exercise by
the holders of the Notes and Exchange Notes of their right to require the
Issuers to repurchase the Notes and Exchange Notes upon the occurrence of a
Change of Control could also cause a default under other indebtedness of the
Company, even if the Change of Control itself does not, because of the financial
effect of such repurchase on the Company.
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<PAGE> 69
In the event that a Change of Control occurs and the Holders of the
Exchange Notes exercise their right to require the Issuers to purchase Exchange
Notes, if such purchase constitutes a "tender offer" for purposes of Rule 14e-1
under the Exchange Act at that time, the Issuers will comply with the
requirements of Rule 14e-1 as then in effect with respect to such purchase.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of Exchange Notes
to require that the Company repurchase or redeem the Exchange Notes in the event
of a takeover, recapitalization or similar restructuring.
CERTAIN ASSET SALES
The Indenture provides that each Issuer shall not, and the Company shall
not permit any of its Subsidiaries to, consummate any Asset Sale unless (i) such
Issuer (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the assets
sold or otherwise disposed of and (ii) at least 75% of the consideration
therefore received by such Issuer or Subsidiary consists of (a) cash or
Temporary Cash Investments or (b) properties and capital assets (including
franchises and licenses required to own and operate such properties) to be used
in the same lines of business being conducted by such Issuer or Subsidiary at
such time, or Equity Interests in one or more Persons which thereby become
Wholly Owned Subsidiaries of the Company whose assets consist primarily of such
properties and capital assets; provided, however, that the amount of (x) any
liabilities (as shown on such Issuer's or such Subsidiary's most recent balance
sheet or in the notes thereto), of such Issuer or any Subsidiary of the Company
(other than liabilities that are by their terms subordinated to the Exchange
Notes or any guarantee thereof) that are assumed by the transferee of any such
assets and (y) any notes or other obligations received by such Issuer or any
such Subsidiary of the Company from such transferee that are immediately
converted by such Issuer or such Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for the purposes of this provision.
Within 365 days after any Asset Sale, such Issuer or the Subsidiary of the
Company, as the case may be, may either (a) apply such Net Cash Proceeds to
permanently reduce outstanding borrowings and related commitments under the New
Bank Credit Facility or (b) commit to apply the Net Cash Proceeds from such
Asset Sale to a Related Business Investment; provided that any Net Cash Proceeds
that are committed to be used pursuant to this clause (b) are so used within 365
days after any Asset Sale. Pending the final application of any such Net Cash
Proceeds, the Issuers may temporarily reduce Indebtedness under the New Bank
Credit Facility or otherwise invest such Net Cash Proceeds in any manner that is
not prohibited by the Indenture. Any Net Cash Proceeds from an Asset Sale that
are not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $3 million, the Issuers shall commence an offer to all
Holders of Notes and Exchange Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes and Exchange Notes that may be purchased out
of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase, in accordance with the procedures set forth in the Indenture.
Each Asset Sale Offer will be mailed to Holders not more than 30 days after
the date on which the aggregate amount of Excess Proceeds exceeds $3 million,
with a copy to the Trustee, and shall specify the purchase date, which shall be
no earlier than 30 days nor later than 40 days from the date such notice is
mailed, and shall otherwise comply with the procedures set forth in the
Indenture. Upon receiving notice of the Asset Sale Offer, Holders may elect to
tender their Notes and Exchange Notes in whole or in part in integral multiples
of $1,000 principal amount in exchange for cash. If the aggregate principal
amount of the Notes and Exchange Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Issuers shall select the Notes and Exchange
Notes to be purchased on a pro rata basis. The Issuers will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of Notes and Exchange Notes
pursuant to an Asset Sale Offer. To the extent that the aggregate amount of
Notes and Exchange Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may
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<PAGE> 70
use any remaining Excess Proceeds for general corporate purposes. Upon
completion of any Asset Sale Offer, the amount of Excess Proceeds shall be reset
at zero.
Notwithstanding the foregoing, however, the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Issuers will
be governed by the provisions of the Indenture described above under the caption
"Change of Control" and/or the provisions described below under the caption
"Limitation on Merger, Consolidation or Sale of Assets" and not by the
provisions described above.
RANKING
The indebtedness evidenced by the Exchange Notes will be senior obligations
of the Issuers, will rank equally in right of payment with all other existing
and future unsubordinated indebtedness of the Issuers and will be senior in
right of payment to all existing and future Subordinated Obligations of the
Issuers. At June 30, 1997, after giving effect to the Refinancing, the Issuers
would have had no indebtedness outstanding (other than the Notes) and, subject
to the terms of the New Bank Credit Facility and the Company's Partnership
Agreement, the ability to borrow up to $20 million (with an option to increase
the amount to $30 million) under the New Bank Credit Facility. The New Bank
Credit Facility is secured by substantially all of the Issuers' assets. The
Notes and the Exchange Notes will rank equally with one another.
Although the Indenture limits the incurrence of Indebtedness of the
Issuers, such limitation is subject to a number of significant qualifications.
Moreover, the Indenture does not impose any limitation on the incurrence of
liabilities that are not considered Indebtedness under the Indenture. See "--
Certain Covenants -- Limitation on Incurrence of Indebtedness."
CERTAIN COVENANTS
Limitation on Restricted Payments. The Indenture provides that neither of
the Issuers shall, nor shall the Company permit any of its Subsidiaries to,
directly or indirectly, make any Restricted Payment unless, at the time of any
such Restricted Payment and after giving effect thereto on a pro forma basis:
a) no Default or Event of Default shall have occurred and be
continuing;
b) the Company would have been permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the
covenant set forth under "-- Limitation on Incurrence of Indebtedness"; and
c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries (the value of
any such payment, if other than cash, being determined by the Board of
Directors of the Company and evidenced by a resolution set forth in an
Officers' Certificate delivered to the Trustee) since the Issue Date is
less than the sum of (a) the difference between (x) 100% of cumulative
Consolidated Cash Flow for the period (taken as one accounting period) from
the end of the first fiscal quarter during which the Issue Date occurs to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available and (y) 140% of cumulative
Consolidated Interest Expense for the period (taken as one accounting
period) from the end of the first fiscal quarter during which the Issue
Date occurs to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available, plus (b) 100% of the
aggregate Net Equity Proceeds received by the Company from any Person
(other than a Subsidiary of the Company) subsequent to the Issue Date and
on or prior to the time of such Restricted Payment, from the issuance and
sale of Qualified Capital Stock (other than (1) Qualified Capital Stock
paid as a dividend on any Capital Stock or as interest on any Indebtedness
or (2) any such Net Equity Proceeds from issuances and sales financed
directly or indirectly using funds borrowed from the Company or any
Subsidiary, until and to the extent such borrowing is repaid).
The provisions of this covenant shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other
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<PAGE> 71
than to a Subsidiary of the Company) of Qualified Capital Stock of the Company,
(iii) the defeasance, redemption or repurchase of Indebtedness of the Company
which is subordinate to the Exchange Notes, with an incurrence of Permitted
Refinancing Indebtedness, (iv) the payment of any dividend or distribution on
Equity Interests of the Company or any Subsidiary of the Company to the extent
necessary to permit the direct or indirect beneficial owners of such Equity
Interests to pay federal and state income tax liabilities arising from income of
the Company or such Subsidiary and attributable to them solely as a result of
the Company or such Subsidiary (and any intermediate entity through which such
holder owns such Equity Interests) being a partnership or similar pass-through
entity for federal income tax purposes, and (v) the payment of annual fees for
management services to the General Partner pursuant to the terms of the
Partnership Agreement as currently in effect on the Issue Date (including any
extensions of such agreement on terms substantially the same as those in
existence on the Issue Date) and in any event not to exceed in any fiscal year
4% of the Company's annual revenues plus $5.00 multiplied by the average
aggregate number of subscribers to the Systems owned by the Company during such
year; in the case of an event under clause (ii) or (iii) above (but not in the
case of an event under clause (i), (iv) or (v) above), provided that no Default
or Event of Default shall have occurred and be continuing. In determining the
amount of Restricted Payments permissible under this covenant, amounts expended
pursuant to clause (i) above shall be included as Restricted Payments.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements.
Limitation on Incurrence of Indebtedness. The Indenture provides that each
of the Issuers shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, incur any Indebtedness (including
Acquired Debt) or issue any Disqualified Stock, except for Permitted
Indebtedness; provided, however, that if no Default or Event of Default with
respect to the Exchange Notes shall have occurred and be continuing, or shall
occur as a consequence of the incurrence of such Indebtedness, the Company may
incur Indebtedness and the Company and its Subsidiaries may issue Disqualified
Stock if, at the time of such incurrence or issuance and after giving effect to
the incurrence of such Indebtedness (and any other Indebtedness incurred since
the end of the last full fiscal quarter or fiscal year for which internal
financial statements are available and the application of the proceeds thereof),
the ratio (the "Debt Ratio") of (a) the aggregate principal amount of
consolidated Indebtedness of the Company and its Subsidiaries outstanding as of
the end of the last full fiscal quarter or fiscal year for which internal
financial statements are available to (b) four times the Pro Forma Consolidated
Cash Flow of the Company and its Subsidiaries for the last full fiscal quarter
immediately preceding the date of the incurrence, determined on a pro forma
basis as if any such Indebtedness had been incurred and the proceeds thereof had
been applied at the beginning of such preceding fiscal quarter ("Pro Forma
Annual Cash Flow"), would be less than or equal to 6.50 to 1.0; provided that
this covenant shall not apply to the incurrence of Indebtedness by the Company
so long as all of the proceeds of such Indebtedness are applied to the
repurchase of outstanding Notes and Exchange Notes by the Company pursuant to an
offer to purchase Notes and Exchange Notes pursuant to (x) the provisions of the
Indenture described under the first paragraph of "-- Optional Redemption" or (y)
a tender offer made to all Holders of the Notes and Exchange Notes effected in
accordance with all federal and state securities laws, including, without
limitation, Rule 14e-1 under the Exchange Act and any other applicable federal
or state regulations.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"): (a) Indebtedness under the
New Bank Credit Facility in an aggregate principal amount not to exceed $30
million in principal amount at any one time outstanding, less the amount of all
permanent reductions in the outstanding borrowings and related commitments under
the New Bank Credit Facility resulting from any application of Net Cash Proceeds
from any Asset Sale after the Issue Date (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the Company
thereunder); (b) the incurrence by the Issuers of Existing Indebtedness; (c) the
incurrence by the Issuers of the Indebtedness represented by the Notes or
Exchange Notes; (d) the incurrence of Permitted Refinancing Indebtedness; (e)
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk
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with respect to any floating rate Indebtedness that is permitted by the terms of
the Indenture to be outstanding; (f) the incurrence by the Company of
Indebtedness represented by Capital Lease Obligations, mortgage financings, or
Purchase Money Obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property used in the business of the Company in an aggregate principal amount
not to exceed $2,500,000 at any one time outstanding; (g) guarantees by any
Subsidiary of Indebtedness of the Company; and (h) other Indebtedness of the
Company, including any Indebtedness under the New Bank Credit Facility that
utilizes this clause, having an aggregate principal amount not to exceed
$2,500,000 at any time outstanding.
Limitation on Liens. The Indenture provides that each Issuer shall not, and
the Company shall not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien of any kind (other than Permitted Liens) upon any of their property or
assets, now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, unless (i) if such Lien
secures Indebtedness which ranks equally with the Exchange Notes, then the
Exchange Notes are secured on an equal and ratable basis with the obligation so
secured until such time as such obligation is no longer secured by a Lien or
(ii) if such Lien secures Indebtedness which is subordinated to the Exchange
Notes, any such Lien shall be subordinated to the Lien granted to the holders of
the Exchange Notes to the same extent as such Indebtedness is subordinated to
the Exchange Notes.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that each Issuer shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any Payment Restriction,
except for such Payment Restrictions existing under or by reason of (i) the New
Bank Credit Facility, (ii) the Indenture, the Notes or the Exchange Notes, (iii)
applicable law, (iv) any instrument governing Indebtedness of a Person acquired
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired;
provided that the Consolidated Cash Flow of such Person, to the extent that it
is subject to an effective Payment Restriction and has not been paid or made
available to the Company, is not taken into account in determining whether such
acquisition was permitted by the terms of the Indenture, (v) by reason of
customary nonassignment provisions in leases or franchise agreements entered
into in the ordinary course of business and consistent with past practices, (vi)
Purchase Money Obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (i)(c) of
the definition of "Payment Restriction" on the property so acquired, or (vii)
Permitted Refinancing Indebtedness with respect to the Indebtedness referred to
in clauses (i), (ii) or (iv) above; provided that the Payment Restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Limitation on Transactions with Affiliates. The Indenture provides that
neither of the Issuers shall, and the Company shall not permit any of its
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person; (b) such Affiliate Transaction relates to and is in
furtherance of the lines of business the Company was engaged in on the Issue
Date or as the Company's business has thereafter evolved in the fields of cable
television systems, enhanced video services, advanced telecommunications
services, such as broadband high speed Internet access and inter- and intra-
network data services, and telephony; (c) in the case of any such Affiliate
Transaction involving aggregate payments in excess of $3 million, the Company
delivers to the Trustee a resolution of the Partnership Advisory Board set forth
in an Officers' Certificate certifying that (i) such Affiliate Transaction
complies with clauses (a) and (b) above, (ii) such Affiliate Transaction is in
the best interests of the Company or the relevant Subsidiary
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and (iii) such Affiliate Transaction is approved by a majority of the
disinterested members of the Partnership Advisory Board; and (d) with respect to
any Affiliate Transaction involving aggregate payments in excess of $5 million,
an opinion as to the fairness to the Company or the applicable Subsidiary from a
financial point of view which is issued by an investment banking firm of
national standing.
The provisions described in the foregoing paragraph shall not apply to (i)
annual fees for management services to the General Partner pursuant to the terms
of the Partnership Agreement as currently in effect on the Issue Date (including
any extensions of such agreement on terms substantially the same as those in
existence on the Issue Date) and in any event not to exceed in any fiscal year
4% of the Company's annual revenues plus $5.00 multiplied by the average
aggregate number of subscribers to the Systems owned by the Company during such
year, (ii) transactions between or among the Company and/or its Wholly-Owned
Subsidiaries and (iii) transactions permitted by the provisions of the Indenture
described above under the covenant "Limitation on Restricted Payments." In
addition, the provisions of this covenant shall not apply to the 1994 Incentive
Compensation Agreement between the Company and the General Partner; provided
that (i) the payment of any amounts pursuant to such 1994 Incentive Compensation
Agreement shall not be payable prior to the earliest to occur of: (a) the date
all principal, premium, if any, or interest on the Notes and Exchange Notes has
been indefeasibly paid in full, or (b) in the event of the occurrence of a
Change of Control, the Change of Control Payment Date, provided that all Notes
and Exchange Notes properly tendered for payment on said date have been
purchased, or (c) any other date on which the Incentive Fee has been earned and
is payable to the General Partner under the 1994 Incentive Compensation
Agreement, so long as such payment is permitted by the provisions of the
Indenture described above under the covenant "Limitation on Restricted
Payments"; and (ii) any claim to such amounts is subordinated until the date
permitted to be paid under clause (i)(a), (i)(b) or (i)(c) above to the prior
repayment in full of all principal, premium, if any, or interest on the Notes
and Exchange Notes.
Limitation on Conduct of Business of Finance Corp. Finance Corp. shall not
hold any operating assets or other properties or conduct any business other than
to serve as an Issuer and co-obligor with respect to the Notes and Exchange
Notes and will not own any Capital Stock of any other Person.
Limitation on Creation of Subsidiaries. Neither Issuer shall create or
acquire, or permit any of its Subsidiaries to create or acquire, any Subsidiary
other than (i) Finance Corp. and (ii) any Subsidiary of the Company that shall,
at the time it has either assets or net worth in excess of $5,000, execute a
Guarantee, in the form attached to the Indenture and reasonably satisfactory in
form and substance to the Trustee (and with such documentation relating thereto
as the Trustee shall require, including, without limitation a supplement or
amendment to the Indenture and Opinions of Counsel as to the enforceability of
such guarantee). See "Future Guarantees."
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any Subsidiary to issue any Preferred Stock (except Preferred Stock to the
Company or a Subsidiary) or permit any Person (other than the Company or a
Subsidiary) to hold any such Preferred Stock unless the Company or such
Subsidiary would be entitled to incur or assume Indebtedness (other than
Permitted Indebtedness) under the first paragraph of the covenant described
under "Limitation on Incurrence of Indebtedness" in the aggregate principal
amount equal to the aggregate liquidation value of the Preferred Stock to be
issued.
Limitation on Sale and Leaseback Transactions. The Issuers shall not, and
the Company shall not permit any of its Subsidiaries to, enter into any Sale and
Leaseback Transaction unless (i) the consideration received in such Sale and
Leaseback Transaction is at least equal to the fair market value of the property
sold, as determined in good faith by the Board of Directors of the Company and
(ii) the Company could incur the Attributable Indebtedness in respect of such
Sale and Leaseback Transaction in compliance with the covenant "Limitation on
Incurrence of Indebtedness."
Payments for Consents. Neither the Issuers nor any of the Guarantors shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Exchange Notes for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Exchange Notes unless such consideration is
offered to be paid or agreed to
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be paid to all Holders of the Notes and Exchange Notes which so consent, waive
or agree to amend in the time frame set forth in solicitation documents relating
to such consent, waiver or agreement.
Reports. So long as the Company 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 Exchange Notes. The
Indenture provides that even if the Company is entitled under the Exchange Act
not to furnish such information to the Commission or to the Holders of the
Exchange Notes, they will nonetheless continue to furnish such information to
the Commission and Holders of the Exchange Notes.
LIMITATION ON MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that neither Issuer nor any Guarantor may
consolidate or merge with or into, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another corporation, Person or entity unless
(in the case of the Company or any Guarantor) (i) the Company or such Guarantor,
as the case may be, is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company or such Guarantor, as the case may be) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation (or, in the case of the Company, a corporation, a limited
partnership, a limited liability company or limited liability partnership),
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; provided that at any time the Company or its successor
is a limited partnership, limited liability company or limited liability
partnership there shall be a co-issuer of the Notes that is a corporation; (ii)
the entity or Person formed by or surviving any such consolidation or merger (if
other than the Company or such Guarantor) or the entity or Person to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all the obligations of the Company or such Guarantor, as the
case may be, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Notes, the Exchange Notes and the
Indenture; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) the Company or any entity or Person formed by or
surviving any such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made will, at
the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable period, be
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of the covenant entitled
"Limitation on Incurrence of Indebtedness"; provided, however, that such Person
shall not be required to meet the ratio in such covenant if such Person has, at
the time of such transaction and after giving pro forma effect thereto, a
long-term indebtedness credit rating at least equal to the greater of (i) BB by
Standard & Poor's Corporation or Ba(2) by Moody's Investor Service, Inc. or (ii)
one full credit rating above the Company's credit rating, provided the Company
received such credit rating within the 12 months preceding any such
determination.
FUTURE GUARANTEES
The Exchange Notes will be guaranteed on a senior basis by the Guarantors.
The obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Indebtedness
incurred under the New Bank Credit Facility) and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, result in the
obligations of such Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee will be entitled to a
contribution from each other Guarantor in a pro rata amount based on the
Adjusted Net Assets of each Guarantor.
A Guarantor will be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under "Limitation on Merger, Consolidation or Sale of
Assets," or the Guarantor merges with or
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into or consolidates with, or transfers all or substantially all of its assets
to, the Company or another Guarantor in a transaction in compliance with the
covenant entitled "Limitation on Merger, Consolidation or Sale of Assets," and
such Guarantor has delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent herein provided
for relating to such transaction have been complied with.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute "Events of Default" under the Indenture:
(i) default in the payment when due of interest on the Notes or Exchange Notes
and the continuance of such default for a period of 30 days; (ii) default in the
payment when due of the principal of or premium, if any, on the Notes or
Exchange Notes, whether at maturity, upon acceleration, redemption or otherwise
(including the failure to repurchase Notes or Exchange Notes tendered pursuant
to the requirements of the covenants set forth in the Indenture and summarized
herein under the headings "Change of Control Offer" and "Certain Asset Sales");
(iii) failure by the Issuers to comply with the provisions described under the
covenants "Change of Control Offer," "Certain Asset Sales", "Certain Covenants
- -- Limitation on Restricted Payments," "-- Limitation on Incurrence of
Indebtedness," "-- Limitation on Preferred Stock of Subsidiaries" or "--
Limitation on Merger, Consolidation or Sale of Assets;" (iv) failure by the
Issuers for 60 days after written notice from the Trustee or Holders of at least
25% of the aggregate principal amount of the Notes and Exchange Notes then
outstanding to comply with any of its other agreements in the Indenture, the
Notes or Exchange Notes; (v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity without such declaration having been
rescinded or annulled within a period of 10 days, and in each case, the
principal amount of any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5 million or more at any
one time; (vi) failure by the Issuers or any of the Company's Subsidiaries to
pay final judgments aggregating in excess of $5 million (net of amounts covered
by reputable and creditworthy insurance companies), which judgments are not
paid, discharged or stayed for a period of 60 days; or (vii) certain events of
bankruptcy, insolvency or reorganization in respect of the Issuers, the General
Partner or any Significant Subsidiary.
If any Event of Default (other than an Event of Default specified in clause
(vii) above) occurs and is continuing, the Trustee by written notice to the
Issuers, or the Holders of at least 25% in aggregate principal amount of then
outstanding Notes and Exchange Notes by written notice to the Issuers and the
Trustee, may declare all the Notes and Exchange Notes to be due and payable
immediately. If an Event of Default specified in clause (vii) above occurs, all
outstanding Notes and Exchange Notes automatically will become immediately due
and payable without any declaration, notice or other act on the part of the
Trustee or any of the Holders of the Notes or Exchange Notes. Holders of the
Exchange Notes may not enforce the Indenture or the Exchange Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in aggregate principal amount of the then outstanding Notes and Exchange Notes
may direct the Trustee in its exercise of any trust or power.
The Holders of not less than a majority in aggregate principal amount of
Notes and Exchange Notes then outstanding by notice to the Trustee may on behalf
of the Holders of all of the Notes and Exchange Notes waive any existing Default
or Event of Default and its consequences under the Indenture except a continuing
Default or Event of Default in the payment of the principal of, premium, if any,
or interest on the Notes or Exchange Notes.
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The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF CERTAIN PERSONS
No director, officer, employee, partner, interest holder or shareholder, as
such, of either Issuer or of the General Partner, will have any liability for
any obligations of either of the Issuers under the Notes, the Exchange Notes or
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of the Notes or Exchange Notes by
accepting a Note or Exchange Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes and
Exchange Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy. Absent such waiver and release, under the Delaware
Revised Uniform Limited Partnership Act, the Holders of the Notes or Exchange
Notes would have been able to proceed against the General Partner in the event
of nonpayment thereof, and such Holders would have been able to proceed against
the limited partners of the Company only if the limited partners received
distributions from the Company and, at the time of such distributions, they knew
that the Company's total liabilities exceeded the fair value of the Company's
assets.
DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of
their obligations discharged with respect to the outstanding Exchange Notes
("Defeasance") except for (i) the rights of Holders of outstanding Exchange
Notes to receive payments in respect of the principal of, premium, if any, and
interest on such Exchange Notes when such payments are due, (ii) the Issuers'
obligations with respect to the Exchange Notes concerning issuing temporary
Exchange Notes, registration of Exchange Notes, mutilated, destroyed, lost or
stolen Exchange Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Issuers' obligations in connection
therewith and (iv) the Defeasance provisions of the Indenture.
In order to exercise Defeasance, (i) the Issuers must irrevocably deposit
with the Trustee, in trust, for the benefit of the Holders of the Exchange
Notes, cash in U.S. dollars, U.S. Government Obligations, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the outstanding Exchange Notes on the stated
maturity or on the applicable redemption date, as the case may be, of such
principal or installment of principal of, premium, if any, or interest on the
outstanding Exchange Notes; (ii) the Issuers shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Issuers have received from, or there has been published
by, the IRS a ruling or (B) since the date of the Indenture, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of outstanding Exchange Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such 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 had not occurred; (iii) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (iv) such Defeasance shall not result in a breach or violation
of, or constitute a default under any material agreement or instrument (other
than the Indenture) to which the Issuers or any of the Company's Subsidiaries is
a party or by which the Issuers or any of the Company's Subsidiaries is bound;
(v) the Issuers shall have delivered to the Trustee an Opinion of Counsel to the
effect that after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vi) the
Issuers shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by the Issuers with the intent of preferring the
Holders of the Exchange Notes over the other creditors of the Issuers with the
intent of defeating, hindering, delaying or defrauding creditors of the Issuers
or others; and (vii) the Issuers shall have
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delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the
Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs, the Indenture or the
Exchange Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Notes and Exchange Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes and Exchange Notes), and any existing default or
compliance with any provision of the Indenture or the Exchange Notes may be
waived with the consent of the Holders of a majority in principal amount of then
outstanding Notes and Exchange Notes (including consents obtained in connection
with a tender offer or exchange offer for Notes and Exchange Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any of the Exchange Notes held by a non-consenting Holder of
the Exchange Notes): (i) reduce the principal amount of the Exchange Notes whose
Holders must consent to an amendment, supplement or waiver of any provision of
the Indenture or the Exchange Notes, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Exchange Notes pursuant to the provisions of the Indenture
(other than provisions relating to the covenants described above under the
headings "Change of Control Offer" and "Certain Asset Sales") or reduce the
purchase price payable in connection with repurchases of the Exchange Notes
pursuant to the covenants described under the headings "Change of Control Offer"
and "Certain Asset Sales," (iii) reduce the rate of or change the time for
payment of interest on any Exchange Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Exchange Notes (except a rescission of acceleration of the Exchange Notes by the
Holders of at least a majority in aggregate principal amount of the Notes and
Exchange Notes and a waiver of the payment default that resulted from such
acceleration), (v) make the principal of, or the interest on, any Exchange Note
payable in money other than that stated in the Exchange Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of the Exchange Notes to receive payments of principal
of or premium, if any, or interest on the Exchange Notes, (vii) waive a
redemption payment with respect to any Exchange Note (other than a payment
required by one of the covenants described above under the headings "Change of
Control Offer" and "Certain Asset Sales"), (viii) make a change that adversely
affects the ranking of the Exchange Notes or the Guarantees, or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of the
Exchange Notes, the Issuers and the Trustee may amend or supplement the
Indenture or the Exchange Notes to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Exchange Notes in addition to or in place of
certificated Exchange Notes, to provide for the assumption of the Issuers'
obligations to Holders of the Exchange Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Exchange Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Issuers are not required to
transfer or exchange any Exchange Notes for a period of 15 days before a
selection of the Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of
it for all purposes.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of either of the Issuers, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days or resign.
The Holders of a majority in principal amount of the then outstanding Notes
and Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent Person in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of the Exchange Notes, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and (ii) Indebtedness encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect control with
such specified Person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling," "controlled by" and "under
common control with)), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Sale" means the sale, lease, exchange, transfer or other disposition
(other than to the Company or any of its Subsidiaries) in any single transaction
or series of related transactions of (a) any Capital Stock of or other equity
interest in any Subsidiary of the Company, (b) all or substantially all of the
assets of the Company or of any Subsidiary thereof, (c) real property or (d) all
or substantially all of the assets owned by the Company or any Subsidiary
thereof, or a division, line of business or comparable business segment of the
Company or any Subsidiary thereof; provided, however, that Asset Sales shall not
include (i) any transaction consummated in compliance with "-- Limitation on
Merger, Consolidation or Sale of Assets" and "--Limitation on Restricted
Payments" above and the creation of any Lien not prohibited by the provisions
described under "-- Limitation on Liens" above, (ii) a transaction or series of
related transactions for which the Company or its Subsidiaries receive aggregate
consideration of less than $500,000, (iii) sales of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Subsidiary, as the case may
be, and (iv) sales, leases, conveyances, transfers or other dispositions to the
Company or to a Subsidiary or to any other Person if after giving effect to such
sale, lease, conveyance, transfer or other disposition such other Person becomes
a Subsidiary.
"Attributable Indebtedness" means, as at the time of determination, the
present value (discounted at a rate of 10%, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Leaseback Transaction (including any period for
which such lease has been extended).
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"Bankruptcy" means commencement of a voluntary case under the Bankruptcy
Code of 1978, as amended, or commencement of an involuntary case under the
Bankruptcy Code of 1978, as amended.
"Bankruptcy Law" means Title 11, United States Code or any similar federal,
state or foreign law for the relief of debtors.
"Board of Directors" means (i) in the case of the Company or the General
Partner, the partner or partners holding a majority of the Equity Interests in
the General Partner, (ii) in the case of a Person that is a partnership, other
than the Company and the General Partner, the board of directors of such
Person's corporate general partner (or if such general partner is itself a
partnership, the board of directors of such general partner's corporate general
partner), (iii) in the case of a Person that is a corporation, the board of
directors of such Person and (iv) in the case of any other Person, the board of
directors, management committee or similar governing body or any authorized
committee thereof responsible for the management of the business and affairs of
such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including, without
limitation, Partnership Interests and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership, limited liability company or
partnership or any other entity.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than the Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of 50% or more of the total voting power of the outstanding Voting
Stock of the Company, the General Partner or Jamesco, as the case may be; (b)
the Company, the General Partner or Jamesco, as the case may be, consolidates
with, or merges with or into, another Person or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any Person, or any Person consolidates with, or merges with or into,
the Company, the General Partner or Jamesco, as the case may be, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company, the General Partner or Jamesco, as the case may be, is converted into
or exchanged for cash, securities or other property, other than any such
transaction where the outstanding Voting Stock of the Company, the General
Partner or Jamesco, as the case may be, is converted into or exchanged for
Voting Stock (other than Disqualified Equity Interests) of the surviving or
transferee Person and, immediately after such transaction, the Permitted Holders
or the holders of the Voting Stock of the Company, the General Partner or
Jamesco, as the case may be, immediately prior thereto own, directly or
indirectly, more than 50% of the total voting power of the outstanding Voting
Stock of the surviving or transferee Person; (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors of the Company, the General Partner or Jamesco, as the case may be
(together with (i) one or more Permitted Holders, and (ii) any new directors
whose election to such Board of Directors was approved by the Permitted Holders
or by a vote of at least a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved), cease for any reason (other
than by action of the Permitted Holders) to constitute a majority of the Board
of Directors of the Company, the General Partner or Jamesco, as the case may be,
then in office; (d) the admission of any Person as a general partner of the
Company or the General Partner, as the case may be, after which the General
Partner or Jamesco, Trenary Corp., Ltd. and DKS Holdings, Inc., as the case may
be, together with one or more Permitted Holders, do not have the sole power,
directly or indirectly, to take all of the actions they are entitled or required
to take under the Partnership Agreement of the Company or the General Partner,
as the case may be, as in effect on the Issue Date; provided, however, that a
Change of Control will be deemed not to have occurred with respect to the events
in this clause (d) if such events have been approved by the Permitted
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Holders holding a majority in interest of the total outstanding Equity Interests
of the General Partner held by the Permitted Holders; (e) except as permitted by
clause (b) above, the adoption by either Issuer of a plan relating to the
dissolution or liquidation of either Issuer or the appointment of a liquidating
trustee or the commencement of any other proceedings to effect such result; or
(f) 180 days following the occurrence of any of certain events provided for in
the Partnership Agreement, as in effect on the Issue Date, which would require
that the Company be dissolved, wound up and terminated (unless prior to the
expiration of said 180-day period, the term of the Company is subsequently
extended by a vote of the partners), including, but not limited to, (i)
expiration of the term of the Partnership or (ii) the removal of the General
Partner, whether or not such event creates a dissolution, winding up or
termination of the Partnership.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, in each case to
the extent deducted in computing Consolidated Net Income, (a) an amount equal to
any extraordinary loss; plus (b) an amount equal to any net loss realized in
connection with an Asset Sale, plus (c) provision for taxes based on income or
profits of such Person for such period, plus (d) Consolidated Interest Expense
of such Person for such period, whether paid or accrued, plus (e) depreciation
and amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person for such period, plus (f) other consolidated non-cash
charges, minus (g) non-cash items increasing consolidated revenues for such
period, in each case, on a consolidated basis and determined in accordance with
GAAP.
"Consolidated Interest Expense" means, for any given period and Person, the
aggregate of the interest expense in respect of all Indebtedness of such Person
and its Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP (including amortization of original issue discount on any
such Indebtedness, all non-cash interest payments, the interest portion of any
deferred payment obligation and the interest component of capital lease
obligations).
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
that, (i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the referent
Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary that is subject to any Payment Restriction shall be excluded to the
extent such Payment Restriction would limit the amount that otherwise could be
paid to, or received by, such Person or a Subsidiary of such Person not subject
to any Payment Restriction, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (iv) the cumulative effect of a change in
accounting principles shall be excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means 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 mandatory
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the
Maturity Date.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Issuers in existence on
the Issue Date, until such Indebtedness is repaid.
"Fair Market Value" means, with respect to any asset, property or Capital
Stock, the price which could be negotiated in an arm's length free market
transaction between a willing seller and a willing buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. "Fair Market
Value" shall be determined by the Board of Directors of the Company and by the
Board of Directors of the applicable Subsidiary, if applicable, acting
reasonably and in good faith and shall be evidenced by a duly and properly
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adopted resolution of the Board of Directors of the Company and of such
Subsidiary's Board of Directors, if applicable, set forth in an Officers'
Certificate delivered to the Trustee; except that any determination of Fair
Market Value made with respect to any real property or personal property having
a value in excess of $2 million shall be made by an independent qualified
appraiser.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"General Partner" means James Communications Partners, a Michigan general
partnership and the General Partner of the Company.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements the value of which is tied directly to fluctuations in interest
rates.
"Holder" or "Noteholder" means a Person in whose name a Note or Exchange
Note is registered.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurable" and "incurring" shall have meanings
correlative to the foregoing), provided that the accrual of interest (whether
such interest is payable in cash or in kind) and the accretion of original issue
discount shall not be deemed an incurrence of Indebtedness, provided, further
that (a) any Indebtedness or Disqualified Stock of a Person existing at the time
such Person becomes (after the Issue Date) a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) of the Company shall be deemed to be
incurred by such Subsidiary at the time it becomes a Subsidiary of the Company
and (b) any amendment, modification or waiver of any document pursuant to which
Indebtedness was previously incurred shall be deemed to be an incurrence of
Indebtedness unless such amendment, modification or waiver does not (i) increase
the principal or premium thereof or interest rate thereon (including by way of
original issue discount), (ii) change to an earlier date the stated maturity
thereof or the date of any scheduled or required principal payment thereon or
the time or circumstances under which such Indebtedness may or shall be
redeemed, (iii) if such Indebtedness is subordinated to the Exchange Notes,
modify or affect, in any manner adverse to the Holders, such subordination, (iv)
if the Company is the obligor thereon, provide that a Subsidiary of the Company
not already an obligor thereon shall be an obligor thereon or (v) violate, or
cause the Indebtedness to violate, the provisions described under "Certain
Covenants -- Limitations on Liens" and "-- Limitations on Dividend and Other
Payment Restrictions Affecting Subsidiaries."
"Indebtedness" means with respect to any Person, without duplication, (i)
all liabilities, contingent or otherwise, of such Person (a) 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), (b) evidenced by bonds (not including
performance bonds, performance guarantees, surety bonds and appeal bonds,
letters of credit or similar obligations incurred in the ordinary course of
business, including in connection with the requirements of cable television
franchising authorities, and otherwise consistent with industry practice),
notes, debentures, drafts accepted or similar instruments or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business of such Person in connection with
obtaining goods, materials or services, which account is not overdue by more
than 90 days, according to the original terms of sale, unless such account
payable is being contested or has been
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renegotiated in good faith) or (c) for the payment of money relating to Capital
Lease Obligations in excess of $100,000 in the aggregate at any one time
outstanding; (ii) reimbursement obligations of such Person with respect to
letters of credit; (iii) obligations of such Person in excess of $100,000 in the
aggregate at any one time outstanding with respect to Hedging Obligations; (iv)
all liabilities of others of the kind described in the preceding clause (i),
(ii) or (iii) that such Person has guaranteed, that have been incurred by a
partnership in which it is a general partner (to the extent such Person is
liable, contingently or otherwise, therefor) or that is otherwise its legal
liability (other than endorsements for collection in the ordinary course of
business); and (v) all obligations of others secured by a Lien to which any of
the properties or assets (including, without limitation, leasehold interests and
any other tangible or intangible property rights) of such Person are subject,
whether or not the obligations secured thereby shall have been assumed by such
Person or shall otherwise be such Person's legal liability.
"Insolvency" means the definition of such term as provided for in the
Bankruptcy Code of 1978, as amended.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issue Date" means August 15, 1997, the date of first issuance of the Notes
under the Indenture.
"Jamesco" means Jamesco, Inc., a Michigan corporation, whose sole
shareholder is William R. James.
"Lien" means, with respect to any asset any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Maturity Date" means August 15, 2004.
"Net Cash Proceeds" means, with respect to any Asset Sale, the cash
proceeds of such Asset Sale, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash (except to the extent such
obligations are financed or sold with recourse to the Company or any Subsidiary
of the Company) and proceeds from the conversion of other property received when
converted to cash, net of (a) reasonable third-party brokerage commissions and
other reasonable third-party fees and expenses (including fees and expenses of
counsel and investment bankers), related to such Asset Sale, (b) provisions for
all taxes, other than income or similar taxes (whether payable by the Company,
any subsidiary or any partner of the Company), as a result of such Asset Sale,
as computed on a consolidated basis, and (c) payments made to repay Indebtedness
or any other obligation outstanding at the time of such Asset Sale that was
incurred in accordance with the Indenture and that either (i) is secured by a
Lien incurred in accordance with the Indenture on the property or assets sold or
(ii) is, by its original terms, required to be paid as a result of such sale, in
each case to the extent actually repaid in cash.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net cash proceeds received
by the Company, after payment of expenses, commissions and the like incurred in
connection therewith, and (b) in the case of any exchange, exercise, conversion
or surrender of any outstanding Indebtedness of the Company for or into shares
of Qualified Capital Stock of the Company, the amount of such Indebtedness (or,
if such Indebtedness was issued at an amount less than the stated principal
amount thereof, the accrued amount thereof as determined in
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accordance with GAAP) as reflected in the consolidated financial statements of
the Company prepared in accordance with GAAP as of the most recent date next
preceding the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the Holder of such Indebtedness to the
Company upon such exchange, exercise, conversion or surrender and less any and
all payments made to the Holders of such Indebtedness, and all other expenses
incurred by the Company in connection therewith).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to Sale and Leaseback Transactions), or (b)
the disposition of any securities or the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries, and (ii) any extraordinary gain (but not
loss), together with any related provision for taxes on such extraordinary gain
(but not loss).
"New Bank Credit Facility" means that certain secured credit facility
entered into on the Issue Date, by and among the Company, the lenders listed
therein, NBD Bank, as Documentation Agent, and Canadian Imperial Bank of
Commerce, as Administration Agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as amended, extended, renewed, restated, supplemented or otherwise
modified from time to time, and any agreement governing Indebtedness incurred to
refund or refinance all or a portion of the borrowings and commitments then
outstanding or permitted to be outstanding under the New Bank Credit Facility as
provided pursuant to the provisions of the Indenture described under "Certain
Covenants -- Limitation on Incurrence of Indebtedness."
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Partnership Advisory Board" means the Partnership Advisory Board of the
Company, as provided for in the Partnership Agreement.
"Partnership Agreement" means that certain amended partnership agreement of
the Company as in effect on the Issue Date and as it may be amended from time to
time.
"Partnership Interest" means any general or limited partnership interest
and any interest as a member of a limited liability company or a limited
liability partnership.
"Payment Restriction" means, with respect to a Subsidiary of any Person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such Subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (b) make loans or advances to such Person or
any other Subsidiary of such Person, or (c) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person, or (ii) such
Person or any other Subsidiary of such Person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances, or (c) transfer of
properties or assets.
"Permitted Holders" means (i) the General Partner, (ii) Jamesco, (iii)
Trenary Corp., Ltd., a Michigan corporation, (iv) DKS Holdings, Inc., a Michigan
corporation, and (v) William R. James, C. Timothy Trenary and Daniel K.
Shoemaker, each of their spouses and their children or other lineal descendants
(whether adoptive or biological), probate estate of any such individual, and any
trust, so long as one or more of the foregoing individuals is the beneficiary
thereunder, and any other corporation, partnership or other entity all of the
shareholders, partners, members or owners of which are any one or more of the
foregoing.
"Permitted Investments" means (i) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company in anticipation of a sale of the stock of
such Wholly Owned Subsidiary in connection with the disposition of assets of the
Company provided that the Net Cash Proceeds therefrom are applied as provided
under "Change of Control Offer" and "Certain Asset Sales," (ii) Investments by
the Company or any Subsidiary of the Company in a Person, if as a result of such
Investment such Person is merged, consolidated
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or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company and that is engaged in the same or
a similar line of business as the Company was engaged in on the Issue Date or as
the Company's business has thereafter evolved in the fields of cable television
systems, enhanced video services, advanced telecommunications services, such as
broadband high speed Internet access and inter- and intra- network data
services, and telephony, and (iii) Related Business Investments of the Company
or any Subsidiary in an amount not exceeding $2 million.
"Permitted Liens" means (a) Liens securing Indebtedness incurred under the
New Bank Credit Facility; (b) Liens in favor of the Issuers; (c) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company, provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (d) Liens on property existing at
the time of acquisition thereof by the Company or any Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
acquisition: (e) Liens imposed by law such as carriers', warehousemans' or
mechanics' Liens, and other Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; (f) Purchase Money
Liens and Liens to secure Capital Lease Obligations and mortgage financing
permitted by clause (f) of the second paragraph of the covenant entitled
"Limitation on Incurrence of Indebtedness" covering only the assets acquired
with such Indebtedness; (g) Liens existing on the Issue Date; (h) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (i) Liens securing Permitted Refinancing Indebtedness;
provided that any such Lien does not extend to or cover any property or assets
other than the property or assets securing Indebtedness so refunded, refinanced
or extended; (j) any extensions, substitutions, replacements or renewals of the
foregoing; and (k) easements, rights-of-way and other similar encumbrances
incurred in the ordinary course of business and encumbrances consisting of
zoning restrictions, licenses, restrictions on the use of property or minor
imperfections in title thereto which, in the aggregate, are not material in
amount, and which do not in any case materially detract from the Issuers'
properties subject thereto.
"Permitted Refinancing Indebtedness" means Indebtedness that refunds,
refinances or extends any Indebtedness of the Company outstanding on the Issue
Date or other Indebtedness (including, without limitation, Indebtedness under
the New Bank Credit Facility) permitted to be incurred by the Company or its
Subsidiaries pursuant to the terms of the Indenture, but only to the extent that
(i) the Refinancing Indebtedness is subordinated to the Exchange Notes to at
least the same extent as the Indebtedness being refunded, refinanced or
extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature
either (a) no earlier than the Indebtedness being refunded, refinanced or
extended, or (b) after the maturity date of the Exchange Notes, (iii) the
portion, if any, of the Refinancing Indebtedness that is scheduled to mature on
or prior to the maturity date of the Exchange Notes has a weighted average life
to maturity at the time such Refinancing Indebtedness is incurred that is at
least equal to or greater than the weighted average life to maturity of the
portion of the Indebtedness being refunded, refinanced or extended that is
scheduled to mature on or prior to the maturity date of the Exchange Notes, (iv)
such Refinancing Indebtedness is in an aggregate principal amount that is equal
to or less than the sum of (a) the aggregate principal amount then outstanding
under the Indebtedness being refunded, refinanced or extended, (b) the amount of
accrued and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness, and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended.
"Person" or "person" means any individual, corporation, partnership,
limited liability company, limited liability partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether outstanding on the
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date hereof or issued after the date of the Indenture, and including, without
limitation, all classes and series of preferred or preference stock of such
Person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
"Pro Forma Consolidated Cash Flow" of any Person means for any period the
Consolidated Cash Flow of such Person for such period calculated on a pro forma
basis to give effect to any Asset Sale or acquisition of assets not in the
ordinary course of business (including acquisitions of other Persons by merger,
consolidation or purchase of Capital Stock) during such period as if such Asset
Sale or acquisition of assets had taken place on the first day of such period.
For purposes of making the computations referred to pursuant to the provisions
of the Indenture described under "Certain Covenants -- Limitation on Incurrence
of Indebtedness," any Asset Sale or acquisition of assets not in the ordinary
course of business made by the Company, including all mergers and acquisitions
subsequent to the last full fiscal quarter, shall be calculated on a pro forma
basis as if such Asset Sale or acquisition of assets had taken place on the
first day of such fiscal quarter.
"Public Equity Offering" means a public offering of Capital Stock pursuant
to a registration statement under the Securities Act.
"Purchase Money Liens" means Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture.
"Purchase Money Obligations" means Indebtedness representing, or incurred
to finance, the cost of acquiring any assets (including Purchase Money
Obligations of any other Person at the time such other Person is merged with or
into or is otherwise acquired by the Company), provided that (i) the principal
amount of such Indebtedness does not exceed 100% of such cost, including
construction charges, (ii) any Lien securing such Indebtedness does not extend
to or cover any other asset or property other than the asset or property being
so acquired and (iii) such Indebtedness is incurred, and any Liens with respect
thereto are granted within 180 days of the acquisition of such property or
asset.
"Qualified Capital Stock" means, with respect to any Person, any Equity
Interest of such Person that is not Disqualified Stock.
"Related Business Investment" means (i) any capital expenditure or
Investment, in each case reasonably related to the business of the Company as
conducted on the Issue Date and as such business may thereafter evolve in the
fields of cable television systems, enhanced video services and advanced
telecommunications services, such as broadband high speed Internet access and
inter- and intra- network data services, and telephony; and (ii) any Investment
in any other Person primarily engaged in the same businesses as provided in the
foregoing subparagraph (i).
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, prior to the
scheduled maturity or prior to any scheduled repayment of principal or sinking
fund payment, as the case may be, in respect of Indebtedness that is pari passu
or subordinate in right of payment to the Notes.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means any (i) Stock Payment, (ii) Restricted
Investment or (iii) Restricted Debt Prepayment.
"Sale and Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Subsidiary of the Company of any
real or tangible personal property, which property has been or is to be sold or
transferred by the Company or such Subsidiary to such Person in contemplation of
such leasing.
"Securities Act" means the Securities Act of 1933, as amended.
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"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act as such Regulation is in effect on the Issue
Date.
"Stock Payment" means, with respect to any Person, (i) the declaration or
payment by such Person, directly or indirectly, either in cash or in property,
of any dividend on, or the making of any distribution in respect of, such
Person's Equity Interests (except in the case of the Company, dividends payable
solely in Qualified Capital Stock of the Company), or (ii) the redemption,
repurchase, retirement or other acquisition for value by such Person, directly
or indirectly, of such Person's Equity Interests, or the Equity Interests of
such Person's Subsidiaries or other Affiliates; provided, however, that in the
case of a Subsidiary of the Company, the term Stock Payment shall not include
any such payment with respect to its Equity Interests if such payment is made
solely to the Company.
"Subordinated Obligations" means any Indebtedness of the Issuers (whether
outstanding on the Issue Date or thereafter incurred) which, by its terms
pursuant to a written agreement, is subordinate or junior in right of payment to
the Exchange Notes.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person, by one or more subsidiaries of such Person or by such
Person and one or more subsidiaries of such Person, (ii) a partnership in which
such Person or a subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if such Person or its
subsidiary is entitled to receive more than 50% of the assets of such
partnership upon its dissolution, or (iii) any limited liability company or any
other Person (other than a corporation or a partnership) in which such Person, a
subsidiary of such Person or such Person and one or more subsidiaries of such
Person, directly or indirectly, at the date of determination, has (a) at least a
majority ownership interest or (b) the power to elect or direct the election of
a majority of the directors or other governing body of such Person.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totalling more than $500,000,000 and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" means, with respect to (a) the Company, the Partnership
Interests of the General Partner, and (b) any Person other than the Company, (i)
one or more classes of the Capital Stock of such Person having general voting
power to elect at least a majority of the Board of Directors of such Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency) and (ii) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the Holder thereof into
Capital Stock of such Person described in clause (i) above.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment by (b) the then outstanding principal
amount of such Indebtedness.
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"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which (and
all options, warrants or other rights to acquire any shares of such Capital
Stock or other ownership interests) shall at the time be owned by such Person or
by one or more Wholly Owned Subsidiaries of such Person or by such Person and
one or more Wholly Owned Subsidiaries of such Person.
BOOK-ENTRY, DELIVERY AND FORM
The Notes were sold by the Issuers to the Initial Purchasers and were
resold by them to qualified institutional buyers in reliance on Rule 144A ("Rule
144A Notes") and to a limited number of institutional accredited investors in
transactions exempt from registration under the Securities Act not made in
reliance on Rule 144A or Regulation S ("Other Notes").
Exchange Notes exchanged for Rule 144A Notes and any Notes sold pursuant to
Regulation S (of which there are none as of the date of this Prospectus)
initially will be represented by one or more Global Exchange Notes. The Global
Exchange Notes will be deposited upon issuance with the Trustee as custodian for
The Depository Trust Company ("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 as described below. Exchange Notes exchanged for
the Other Notes will be represented by certificated Exchange Notes.
Except as set forth below, the Global Exchange Notes 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 Exchange Notes may not be
exchanged for Exchange Notes in certificated form except in the limited
circumstances described below. See "-- Exchanges Between Book-Entry Exchange
Notes and Certificated Exchange Notes."
Transfer of beneficial interests in the Global Exchange Notes will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
The Exchange Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
Depository Procedures
DTC has advised the Issuers 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, 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 interest
and transfer of ownership interest 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 the Issuers that pursuant to procedures established by
it, (i) upon deposit of the Global Exchange Notes, DTC will credit the accounts
of Participants designated by the Issuers with portions of the principal amount
of the Global Exchange Notes and (ii) ownership of such interests in the Global
Exchange 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 Exchange Notes).
Investors in the Global Exchange Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear System ("Euroclear") and Cedel Bank,
S.A. ("CEDEL")), which are Participants in such system. All interests in a
Global Exchange Note, including those held through Euroclear or CEDEL, may by
subject to the procedures
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and requirements of DTC. Those interests held through Euroclear or CEDEL may
also be subject to the procedures and requirements of such system.
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 beneficial interests in a Global Exchange Note to such persons may 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 Exchange 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 Exchange Notes, see "--
Exchanges Between Book-Entry Exchange Notes and Certificated Exchange Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL EXCHANGE NOTES
WILL NOT HAVE THE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE
PHYSICAL DELIVERY OF THE EXCHANGE 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, if any) and interest
on a Global Exchange Note registered in the name of DTC or its nominee will be
payable to DTC or its nominee in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Issuers and the Trustee will
treat the persons in whose names the Exchange Notes, including the Global
Exchange Notes, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, neither the Issuers, the Trustee nor any agent of the Issuers or
the Trustee has or will have any responsibility or liability for (i) any aspect
or accuracy 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 Exchange 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 Exchange
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 the Issuers that its current practice, upon receipt of any
payment in respect of securities such as the Exchange 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 principal amount of beneficial interests in the relevant security
such as the Global Exchange Notes as shown on the records of DTC. Payments by
the Participants and the Indirect Participants to the beneficial owners of the
Exchange Notes will be governed by standing instructions and customary practices
and will not be the responsibility of DTC, the Trustee or the Issuers. Neither
the Issuers nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the Exchange Notes, and the
Issuers and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
Exchange Notes for all purposes.
Except for trades involving only Euroclear and CEDEL participants,
interests in the Global Exchange Notes will 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.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
accountholders in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the accountholders in DTC, on the one hand,
and directly or indirectly through Euroclear or CEDEL accountholders, on the
other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if
the transaction
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meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Exchange Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day fund
settlement applicable to DTC. Euroclear accountholders and CEDEL accountholders
may not deliver instructions directly to the depositories for Euroclear or
CEDEL.
Because of time zone differences, the securities account of a Euroclear or
CEDEL accountholders purchasing an interest in a Global Exchange Note from
accountholders in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear or CEDEL) immediately
following the settlement date of DTC. Cash received in Euroclear or CEDEL as a
result of sales of interests in a Global Exchange Note by or through an
Euroclear or CEDEL accountholder to a Participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or CEDEL cash account only as of the business day for Euroclear or
CEDEL following DTC's settlement date.
DTC has advised the Issuers that it will take any action permitted to be
taken by a holder of the Exchange Notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Exchange Notes
are credited and only in respect of such portion of the aggregate principal
amount of the Exchange Notes as to which such Participant or Participants has or
have given such direction. However, if any of the events described under "--
Exchanges Between Book-Entry Exchange Notes and Certificated Exchange Notes"
occur, DTC reserves the right to exchange the Global Exchange Notes for Exchange
Notes in certificated form, and to distribute such Exchange Notes to its
Participants.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Issuers believe
to be reliable, but the Issuers take no responsibility for the accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Exchange Note among
accountholders in DTC, and accountholders of Euroclear and CEDEL, they are under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Issuers or the Trustee
nor any agent of the Issuers or Trustee will have any responsibility for the
performance by DTC, Euroclear or CEDEL or their respective accountholders,
indirect participants or accountholders of their respective obligations under
the rules and procedures governing their operations.
Exchanges Between Book-Entry Exchange Notes and Certificated Exchange Notes
A Global Exchange Note is exchangeable for definitive Exchange Notes in
registered certificated form if (i) DTC (x) notifies the Issuers that it is
unwilling or unable to continue as depositary for the Global Exchange Note and
the Issuers thereupon fail to appoint a successor depositary or (y) has ceased
to be a clearing agency registered under the Exchange Act, (ii) the Issuers, at
their option, notify the Trustee in writing that they elect to cause the
issuance of the Exchange Notes in certificated form, or (iii) there shall have
occurred and be continuing a Default or an Event of Default with respect to the
Exchange Notes. In all cases, certificated Exchange Notes delivered in exchange
for any Global Exchange 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).
DESCRIPTION OF THE NOTES
The Notes evidence the same indebtedness as that which will be evidenced by
the Exchange Notes and are entitled to the benefits of the Indenture. The form
and terms of the Notes are the same as the form and terms of the Exchange Notes
except that none of the Notes was registered under the Securities Act.
Therefore, the Notes may not be offered or sold within the United States or to,
or for the account or benefit of, U.S. persons except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act. Accordingly, the Notes bear legends restricting the transfer
thereof. In
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addition, with certain exceptions, the Notes may not be sold or transferred to,
or acquired on behalf of, any pension or welfare plan (as described in Section 3
of the Employee Retirement Income Security Act of 1974). For a description of
the terms of the Exchange Notes, see "Description of the Exchange Notes."
EXCHANGE OFFER AND REGISTRATION RIGHTS
The Issuers entered into the Registration Rights Agreement pursuant to
which they agreed, for the benefit of the holders of the Notes, that they would,
at their cost, (i) within 30 days after the Issue Date, file the Registration
Statement with the Commission with respect to a registered offer to exchange the
Notes for the Exchange Notes, which have terms substantially identical in all
material respects to the Notes (except that the Exchange Notes would not contain
terms with respect to transfer restrictions), (ii) within 120 days after the
Issue Date, use their best efforts to cause the Registration Statement to be
declared effective under the Securities Act, (iii) upon the Registration
Statement being declared effective, offer the Exchange Notes in exchange for
surrender of the Notes, and (iv) keep the Exchange Offer open for not less than
30 days (or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Notes. The Exchange Offer is
being made to fulfill those promises in the Registration Rights Agreement.
Under existing Commission interpretations, the Exchange Notes will in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided, that in the case of
broker-dealers, a prospectus meeting the requirements of the Securities Act be
delivered as required. The Issuers have agreed for a period of 180 days after
consummation of the Exchange Offer to make available this Prospectus and any
amendments or supplements to this Prospectus to any broker-dealer for use in
connection with any resale of any such Exchange Notes acquired as described
below. A broker-dealer which delivers such a prospectus to purchasers in
connection with such resales may be deemed to be an "underwriter" within the
meaning of the Securities Act, will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each holder of the Notes that wishes to exchange such Notes for Exchange
Notes in the Exchange Offer will be required to make certain representations
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business, (ii) it has no arrangement
with any person to participate in the distribution of the Exchange Notes, (iii)
it is not an "affiliate," as defined in Rule 405 of the Securities Act, of the
Issuers, or if it is an affiliate, it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable,
and (iv) it is not acting on behalf of any person who could not truthfully make
the foregoing representations.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for the Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
If, prior to consummation of the Exchange Offer, the Issuers or the Holders
of a majority in aggregate principal amount of the Notes reasonably determine in
good faith that (i) the Exchange Notes would not be freely transferable by
holders which are not affiliates (within the meaning of the Securities Act) of
the Issuers without restriction under the Securities Act or (ii) the interests
of the Holders under the Registration Rights Agreement would be adversely
affected by the consummation of the Exchange Offer, or if for any reason the
Exchange Offer is not consummated within 180 days of the Issue Date, the Issuers
will, at their own expense, (a) as promptly as practicable, file a shelf
registration statement covering resales of the Notes (the "Shelf Registration
Statement"), (b) use their best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act, and (c) use their
best efforts to keep effective the Shelf Registration Statement until two years
after its effective date. The Issuers will, in the event of the Shelf
Registration Statement, provide to each holder of the Notes copies of the
prospectus which is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement for the Notes has become effective
and take certain other actions as are required to permit unrestricted resales of
the Notes. A
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holder of the Notes that sells such Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification rights and obligations).
If the Issuers fail to comply with the above provisions, then the
Registration Rights Agreement provides that, as liquidated damages, additional
interest shall become payable in respect of the Notes as follows:
If (i) the Registration Statement or Shelf Registration Statement is
not filed within 30 days after the Issue Date (which requirement has been
satisfied by filing the Registration Statement);
(ii) the Registration Statement or a Shelf Registration Statement is
not declared effective within 120 days after the Issue Date; and
(iii) either (A) the Issuers have not exchanged the Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 180 days after the Issue Date or (B) the Registration
Statement ceases to be effective at any time prior to the time that the
Exchange Offer is consummated or (C) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf Registration Statement
ceases to be effective at any time prior to the second anniversary of its
effective date;
(each of such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Notes will
be the immediate assessment of additional interest ("Additional Interest") as
follows: the per annum interest rate on the Notes will increase by 50 basis
points; and the per annum interest rate will increase by an additional 25 basis
points for each subsequent 90-day period during which the Registration Default
remains uncured, up to a maximum additional interest rate of 200 basis points
per annum in excess of the interest rate on the cover of this Prospectus. All
Additional Interest will be payable to holders of the Notes in cash on each
February 15 and August 15, commencing with the first such date occurring after
any such Additional Interest commences to accrue, until such Registration
Default is cured. After the date on which such Registration Default is cured,
the interest rate on the Notes will revert to the interest rate originally borne
by the Notes (as shown on the cover of this Prospectus).
If the Exchange Offer is made and the Initial Purchasers continue to hold
Notes, the Initial Purchasers may exchange Notes for other notes identical to
the Exchange Notes except for transfer restrictions ("Private Exchange Notes").
If they receive Private Exchange Notes, the Initial Purchasers thereafter will
have the right for a period after consummation of the Exchange Offer to request
the Issuers to file a shelf registration statement covering the Private Exchange
Notes. If such requested shelf registration is not filed or does not become
effective by the times provided in the Exchange Offer Registration Rights
Agreement, the interest rate on the Private Exchange Notes will increase as
provided above until such time as it does become effective.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement.
DESCRIPTION OF OTHER INDEBTEDNESS
THE NEW BANK CREDIT FACILITY
Simultaneously with the closing of the Offering, the Company entered into
the New Bank Credit Facility, with Canadian Imperial Bank of Commerce, an
affiliate of CIBC Wood Gundy Securities Corp., and NBD Bank, an affiliate of
First Chicago Capital Markets, Inc., acting as the lenders. The New Bank Credit
Facility is a $20 million revolving credit facility (with an option to increase
the amount of credit available thereunder to $30 million). The New Bank Credit
Facility matures on August 15, 2002. Proceeds under the New Bank Credit Facility
will be available (i) to provide for working capital and general corporate
purposes, (ii) to fund
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certain permitted acquisitions of cable television systems, (iii) to provide for
certain permitted repurchases of up to $5 million in the aggregate of limited
partnership interests in the Company, and (iv) to pay transaction fees and
expenses. As no borrowings under the New Bank Credit Facility were necessary to
complete the Refinancing, upon completion of the Refinancing (and subject to the
terms of the New Bank Credit Facility and the Company's Partnership Agreement)
the Company had the ability to borrow up to $20 million (with an option to
increase the amount up to $30 million) under the New Bank Credit Facility . The
New Bank Credit Facility requires payments of accrued interest on a monthly
basis throughout the term, with principal payment due at maturity. The New Bank
Credit Facility is senior Indebtedness of the Company and is secured by a first
priority lien on and secured interest in substantially all the assets of the
Issuers and contains certain financial and other covenants, as well as providing
for certain events of default customarily contained in facilities of similar
type.
THE PARTNERSHIP AGREEMENT
The following is a summary of certain material terms of the Company's
Partnership Agreement. This summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all of the
provisions, of the Partnership Agreement, a copy of which has been filed as an
exhibit to the Registration Statement. Defined terms used in this summary and
not otherwise defined herein have the meanings ascribed to them in the
Partnership Agreement.
ORGANIZATION AND DURATION
The Company was formed as a limited partnership pursuant to the provisions
of the Delaware Revised Uniform Limited Partnership Act and a certificate of
limited partnership of the Company was filed with the Secretary of State of
Delaware on January 12, 1988. The purpose of the Company's formation, as set
forth in the Partnership Agreement, is to realize capital appreciation through
the ownership, control and operation of assets comprising cable television
systems. The Company's purpose does not include building new franchises except
in those circumstances where a new franchise is reasonably proximate to an
already-owned cable television system.
The Company will be dissolved upon the earliest to occur of (i) December
31, 2005 (the "Term"), (ii) a determination by the General Partner that the
Company should be dissolved, with the approval of 60% of the Limited Partner
interests, (iii) the sale or disposition by the Company of substantially all of
its assets, (iv) the consent of holders of 66 2/3% of the Limited Partner
interests, (v) the removal of the General Partner pursuant to the terms of the
Partnership Agreement, or (vi) the bankruptcy, insolvency, dissolution or
withdrawal of the General Partner. The Term can be extended upon the affirmative
vote of 66 2/3% of the Limited Partner interests and the consent of the General
Partner. In certain of the foregoing cases, the Limited Partners may elect under
the Partnership Agreement to reconstitute the business of the Company in a new
limited partnership with a new General Partner elected by the Limited Partners.
CONTROL OF OPERATIONS
The Partnership Agreement provides that the General Partner has exclusive
authority for the management and control of the business and operations of the
Company subject to the terms and provisions of the Partnership Agreement. Among
the limitations on its power, the General Partner does not have the right (i) to
admit a Partner except as provided in the Partnership Agreement, (ii) to cause
any cable television system owned by the Company to engage in any transaction
with the General Partner or any of its affiliates without the express
authorization of the Partnership Agreement or approval in advance by the
Partnership Advisory Board, or (iii) to cause the Company to incur indebtedness
in excess of $120 million in the aggregate. Without the consent of 66 2/3% of
the Limited Partner interests, the General Partner does not have the authority
to dismiss from employment or replace the certified public accountants of the
Company or to sell all or substantially all cable television systems owned by
the Company.
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CAPITAL CONTRIBUTIONS
Under the Partnership Agreement, the Partners have made certain
contributions to the Company. The General Partner is not required to lend or
advance any funds to the Company or to make any additional capital contributions
to the Company. No limited partner is required to lend any funds to the Company
or to make any capital contribution to the Company. The Partnership Agreement
provides that no partner of the Company shall have the right to withdraw or
demand the return of its capital contribution during the term of the Company's
existence. The General Partner is not personally liable for the return of the
capital contributions made by the Limited Partners.
VOTING RIGHTS
Except as to matters for which consent or approval is expressly required
under the Partnership Agreement, the Limited Partners have no right to vote on
any partnership matters. Where a vote or consent is required, each Partner is
entitled to vote based on its percentage interest in the Company.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
In general, the Partnership Agreement may be modified or amended by the
vote or consent of the General Partner and 51% of the Limited Partner interests
or 66 2/3% of the Limited Partner interests without the consent of the General
Partner. The Partnership Agreement may be amended from time to time by the
General Partner without the consent of any of the Limited Partners (i) to add to
the duties or obligations of the General Partner or surrender rights or powers
granted to the General Partner, (ii) to cure any ambiguity or make certain
corrections, (iii) to make such amendments as are necessary to admit or provide
information to a substitute Limited Partner or (iv) to reflect any change in the
amount of capital accounts of a Partner as required by the Partnership
Agreement.
Notwithstanding the foregoing, all Partners must agree to any amendment
that would (i) modify the purposes of the Company, (ii) require any partner to
make any loan or contribution to the Company, (iii) modify the allocation of
income gain or loss among the Partners, (iv) provide additional restrictions on
the transferability of Limited Partners' interests, or (v) change the
dissolution provisions of the Partnership Agreement. In addition, 66 2/3% of the
Limited Partner interests must approve any amendment to the Partnership
Agreement which changes the rights and duties of the General Partner, the
General Partner's compensation or the transferability of the General Partner's
interest or extends the Term.
INDEMNIFICATION OF GENERAL PARTNER
Under the Partnership Agreement, the Company will indemnify the General
Partner and its affiliates against losses, damages and expenses (including
attorneys' fees), judgments and settlement amounts incurred by such party with
respect to activities performed in good faith on behalf of the Company so long
as such activities were reasonably believed to be within the scope of the
person's authority and are not the result of gross negligence, willful
misconduct or any other like breach of fiduciary duty.
WITHDRAWAL OR REMOVAL OF GENERAL PARTNER
The General Partner may not voluntarily retire or withdraw as the General
Partner of the Company nor may it transfer its interest. The Limited Partners
may, subject to certain procedures, remove the General Partner only in the event
that the General Partner has been found by an independent party to have been
engaged in or engaging in malfeasance, criminal conduct, wanton, willful neglect
or a material breach of the Partnership Agreement. The Partnership Agreement
requires that William R. James at all times control the General Partner. In the
event of the death or total and permanent disability of William R. James, the
General Partner may be removed upon the consent of 51% of the Limited Partner
interests.
87
<PAGE> 94
LIABILITY OF LIMITED PARTNER
Limited Partners of the Company are not personally responsible for the
debts or liabilities of the Company except to the extent a Limited Partner
assumes or guarantees that debt or liability. The Notes were not and the
Exchange Notes will not be so assumed or guaranteed by the Limited Partners.
ASSIGNMENT OF PARTNERSHIP INTERESTS
Under the Partnership Agreement, the General Partner may not transfer its
interest in the Partnership. A Limited Partner may not transfer its interest in
the Partnership unless the General Partner gives its consent except for
transfers to parties related to the Limited Partner. In addition, any Limited
Partner subject to insurance laws governing disposition of assets may make a
transfer of its interest in the Company to a financial institution of equivalent
quality and standing. The transferee of a Limited Partner's interest cannot
become a Limited Partner except with the express consent of the General Partner.
PARTNERSHIP ADVISORY BOARD
The Partnership Agreement provides for the establishment of a Partnership
Advisory Board consisting of not more than six members. Currently there are five
members of the Partnership Advisory Board -- two selected by the General
Partner, one selected by each of the two Limited Partners having the greatest
partnership interests and one designated by the Limited Partners holding at
least 51% of the partnership interests. The Partnership Advisory Board's
functions are (i) to review and approve or disapprove valuation questions when a
determination of fair market value is required by the terms of the Partnership
Agreement, (ii) to review the annual financial statements of the Company, and
(iii) to review any potential conflicts of interest involving the General
Partner. In addition, the Partnership Advisory Board may advise the General
Partner on such matters as to which the General Partner may, from time to time,
in its sole discretion, seek the consultation of the Partnership Advisory Board.
The Company pays $1,000 for each meeting attended by the members not
otherwise affiliated with the General Partner or any of the Limited Partners.
The other members do not receive any compensation for their service as members
of the Partnership Advisory Board.
GENERAL PARTNER COMPENSATION
The Partnership Agreement provides compensation to the General Partner for
management services. Under the terms of the Partnership Agreement, the General
Partner is entitled to an annual fee equal to 4% of the Company's annual
revenues, plus $5.00 multiplied by the average aggregate number of subscribers
to the Systems owned by the Company during such year. See "Certain
Transactions."
In addition, the General Partner is entitled to be compensated pursuant to
the terms of the 1994 Incentive Compensation Agreement, which provides that, in
the event that all of the Company's cable television systems are sold, the
General Partner will be entitled to a cash Incentive Fee of up to 2% of the
value of the equity as of the date of sale.
88
<PAGE> 95
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by any broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period of 180 days after the
Expiration Date, they will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998 (90 days after commencement of the Exchange
Offer), all dealers effecting transactions in the Exchange Notes may be required
to deliver a Prospectus.
Neither Issuer will receive any proceeds from any sales of the Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers or dealers who
may receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Issuers will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay certain expenses
incident to the Exchange Offer, other than commission or concessions of any
brokers or dealers, and will indemnify the holders of the Exchange Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from either Issuer of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Issuers agree to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Issuers have amended or supplemented the Prospectus to
correct such misstatement or omission and have furnished copies of the amended
or supplemental Prospectus to such broker-dealer.
LEGAL MATTERS
The validity of the issuance of the Exchange Notes offered hereby will be
passed on for the Issuers by Miller, Canfield, Paddock and Stone, P.L.C.,
Bloomfield Hills, Michigan. Certain matters will also be passed upon for the
Issuers by Cole, Raywid & Braverman, Washington, D.C., the Company's regulatory
counsel.
EXPERTS
The financial statements of James Cable Partners, L.P., at December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 and the balance sheet of James Cable Finance Corp. at June 30, 1997
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as indicated in their reports appearing herein and
elsewhere in the Registration Statement. Such financial statements have been
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
89
<PAGE> 96
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
James Cable Partners, L.P.
Independent Auditors' Report.............................. F-2
Balance Sheets as of December 31, 1995, December 31, 1996
and June 30, 1997 (unaudited).......................... F-3
Statements of Operations for the three years ended
December 31, 1996 and for the six months ended June 30,
1996 and 1997 (unaudited).............................. F-4
Statements of Cash Flows for the three years ended
December 31, 1996 and for the six months ended June 30,
1996 and 1997 (unaudited).............................. F-5
Statements of Partner's Deficit for the three years ended
December 31, 1996 and for the six months ended June 30,
1997 (unaudited)....................................... F-6
Note to Financial Statements.............................. F-7
James Cable Finance Corp.
Independent Auditors' Report.............................. F-13
Balance Sheet as of June 30, 1997......................... F-14
Notes to Balance Sheet.................................... F-15
</TABLE>
F-1
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
To the Partners of
James Cable Partners, L.P.
Bloomfield Hills, Michigan
We have audited the accompanying balance sheets of James Cable Partners, L.P. (a
Delaware Limited Partnership) (the "Company") at December 31, 1995 and 1996, and
the related statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of James Cable Partners, L.P. at December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
July 3, 1997
Detroit, Michigan
F-2
<PAGE> 98
JAMES CABLE PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------- JUNE 30,
1995 1996 1997
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 3)
- ---------------------------------------------------
Cash and Cash Equivalents.......................... $ 1,055,916 $ 100,813 $ 248,804
Accounts Receivable -- Subscribers (Net of
allowance for doubtful accounts of $25,417 in
1995 and $14,668 in 1996)........................ 3,245,093 3,307,074 3,267,838
Prepaid Expenses and Other Assets (Note 5)......... 143,320 215,944 61,898
Property and Equipment:
Cable television distribution systems and
equipment..................................... 68,255,963 71,802,231 75,445,317
Land and land improvements....................... 229,704 229,704 229,704
Buildings and improvements....................... 918,734 932,760 932,760
Office furniture and fixtures.................... 1,012,925 1,147,281 1,147,281
Vehicles......................................... 2,798,424 3,046,103 3,046,103
------------ ------------ ------------
Total......................................... 73,215,750 77,158,079 80,801,165
Less accumulated depreciation.................... (66,103,701) (69,153,781) (70,249,377)
------------ ------------ ------------
Total......................................... 7,112,049 8,004,298 10,551,788
Deferred Financing Costs (Net of accumulated
amortization of $4,537,380 in 1995 and $5,210,047
in 1996)......................................... 2,987,536 2,314,896 1,978,535
Intangible Assets, Net (Note 2).................... 25,103,031 18,881,070 16,454,585
Deposits........................................... 80,032 20,037 18,037
------------ ------------ ------------
Total Assets....................................... $ 39,726,977 $ 32,844,132 $ 32,581,485
============ ============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------------------------
Liabilities:
Debt (Note 3).................................... $ 88,573,119 $ 82,494,236 $ 82,994,002
Accounts payable................................. 78,649 362,636 465,175
Accrued expenses (Note 5)........................ 2,674,342 3,428,776 2,519,057
Unearned revenue................................. 2,821,776 2,877,029 2,896,521
Subscriber deposits.............................. 31,065 27,673 26,442
------------ ------------ ------------
Total......................................... 94,178,951 89,190,350 88,901,197
Commitments and Contingencies (Note 4)
Partners' deficit:
Limited partners ("L.P.")........................ (48,784,371) (50,587,123) (50,561,897)
General partner ("G.P.")......................... (5,667,603) (5,759,095) (5,757,815)
------------ ------------ ------------
Total......................................... (54,451,974) (56,346,218) (56,319,712)
------------ ------------ ------------
Total Liabilities and Partners' Deficit............ $ 39,726,977 $ 32,844,132 $ 32,581,485
============ ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 99
JAMES CABLE PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................... $30,863,972 $33,304,839 $35,212,735 $17,561,084 $17,805,775
System Operating Expenses
(Excluding Depreciation and
Amortization).................. 14,408,313 15,072,941 16,248,981 7,938,904 8,494,228
Nonsystem Operating Expenses:
Management fee (Note 5)........ 1,555,000 1,733,693 1,806,226 903,815 906,695
Other.......................... 580,635 546,509 673,994 363,333 332,738
----------- ----------- ----------- ----------- -----------
Total nonsystem operating
expenses.................. 2,135,635 2,280,202 2,480,220 1,267,148 1,239,433
Depreciation and Amortization.... 14,101,561 12,213,985 9,272,014 4,636,007 3,594,296
----------- ----------- ----------- ----------- -----------
Operating Income................. 218,463 3,737,711 7,211,520 3,719,025 4,477,818
Interest and Other:
Interest expense............... (8,492,134) (9,717,511) (8,878,285) (4,604,798) (4,268,461)
Interest income................ 76,456 58,822 26,852 20,394 3,675
Other (Note 3)................. (608,066) (140,780) (254,331) (160,036) (186,526)
----------- ----------- ----------- ----------- -----------
Total interest and other.... (9,023,744) (9,799,469) (9,105,764) (4,744,440) (4,451,312)
----------- ----------- ----------- ----------- -----------
(Loss) Income Before
Extraordinary Item............. (8,805,281) (6,061,758) (1,894,244) (1,025,415) 26,506
Extraordinary Loss due to Debt
Refinancing (Note 3)........... (548,564)
----------- ----------- ----------- ----------- -----------
Net (Loss) Income................ $(8,805,281) $(6,610,322) $(1,894,244) $(1,025,415) $ 26,506
=========== =========== =========== =========== ===========
L.P. Share of Net (Loss)
Income......................... $(8,409,043) $(6,298,356) $(1,802,752) $ (975,887) $ 25,226
G.P. Share of Net (Loss)
Income......................... (396,238) (311,966) (91,492) (49,528) 1,280
----------- ----------- ----------- ----------- -----------
Total Net (Loss) Income.......... $(8,805,281) $(6,610,322) $(1,894,244) $(1,025,415) $ 26,506
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 100
JAMES CABLE PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income.................. $(8,805,281) $ (6,610,322) $(1,894,244) $(1,025,415) $ 26,506
Adjustments to reconcile net (loss)
income to net cash from operating
activities:
Depreciation..................... 6,167,622 4,797,498 3,050,080 1,525,040 1,095,596
Amortization..................... 7,933,939 7,416,487 6,221,934 3,110,966 2,498,700
Noncash interest expense......... 1,251,627 1,423,594 672,667 336,334 336,334
(Increase) decrease in assets:
Accounts receivable.............. (275,301) (302,855) (61,980) 22,128 39,235
Prepaid expenses................. 496,372 100,049 (72,624) 138,880 154,046
Deposits......................... 16,899 (45,339) 59,995 61,495 2,000
Increase (decrease) in liabilities:
Accounts payable................. 745,486 (785,614) 283,987 38,273 102,539
Accrued expenses................. 121,784 692,697 754,434 956,967 (909,719)
Unearned revenue................. 163,546 220,322 55,253 (9,203) 19,492
Subscriber deposits.............. (4,855) (5,170) (3,392) (1,737) (1,231)
----------- ------------ ----------- ----------- -----------
Total adjustments........... 16,617,119 13,511,669 10,960,354 6,179,143 3,336,992
----------- ------------ ----------- ----------- -----------
Cash flows from operating
activities................ 7,811,838 6,901,347 9,066,110 5,153,728 3,363,498
Cash Flows from Investing Activities:
Additions to property and
equipment........................ (1,099,733) (2,405,183) (3,942,330) (1,306,958) (3,643,085)
Increase in intangible assets...... (5,000) (72,188)
----------- ------------ ----------- ----------- -----------
Cash flows used in investing
activities................ (1,104,733) (2,405,183) (3,942,330) (1,306,958) (3,715,273)
Cash Flows from Financing Activities:
Principal payments on debt......... (7,000,000) (89,000,000) (6,745,563) (4,111,187)
Proceeds from debt borrowings...... 89,000,000 542,178
Deferred interest increase......... 375,000 778,359
Payments on capital lease
obligation....................... (8,114) (85,513) (111,679) (51,317) (42,412)
Purchase of interest rate
protection....................... (148,000)
Deferred financing costs........... (3,166,002)
Repurchase of partnership
interests........................ (603,260) (820,040)
----------- ------------ ----------- ----------- -----------
Cash flows (used in) from
financing activities...... (7,611,374) (3,844,555) (6,078,883) (4,162,504) 499,766
----------- ------------ ----------- ----------- -----------
Net (Decrease) Increase in Cash and
Cash Equivalents................... (904,269) 651,609 (955,103) (315,734) 147,991
Cash and Cash Equivalents, Beginning
of Period.......................... 1,308,576 404,307 1,055,916 1,055,916 100,813
----------- ------------ ----------- ----------- -----------
Cash and Cash Equivalents, End of
Period............................. $ 404,307 $ 1,055,916 $ 100,813 $ 740,182 $ 248,804
=========== ============ =========== =========== ===========
Supplemental Disclosure of Cash Flow
Information -- Cash paid for
interest during the
period............................. $ 7,240,507 $ 7,878,875 $ 6,928,827 $ 3,113,255 $ 4,493,578
=========== ============ =========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION -- During 1994, the Company
incurred capital lease obligations of $291,746 related to various vehicles (Note
3).
See notes to financial statements.
F-5
<PAGE> 101
JAMES CABLE PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
L.P. SHARE G.P. SHARE TOTAL
---------- ---------- -----
<S> <C> <C> <C>
Balance, December 31, 1993.......................... $(32,718,869) $(4,894,202) $(37,613,071)
Net loss.......................................... (8,409,043) (396,238) (8,805,281)
Repurchase of partnership interests............... (576,113) (27,147) (603,260)
------------ ----------- ------------
Balance, December 31, 1994.......................... (41,704,025) (5,317,587) (47,021,612)
Net loss.......................................... (6,298,356) (311,966) (6,610,322)
Repurchase of partnership interests............... (781,990) (38,050) (820,040)
------------ ----------- ------------
Balance, December 31, 1995.......................... (48,784,371) (5,667,603) (54,451,974)
Net loss.......................................... (1,802,752) (91,492) (1,894,244)
------------ ----------- ------------
Balance, December 31, 1996.......................... (50,587,123) (5,759,095) (56,346,218)
Net income (unaudited)............................ 25,226 1,280 26,506
------------ ----------- ------------
Balance, June 30, 1997 (unaudited).................. $(50,561,897) $(5,757,815) $(56,319,712)
============ =========== ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 102
JAMES CABLE PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- James Cable Partners, L.P. (a Delaware Limited
Partnership) (the "Company") was formed on January 12, 1988. The Company has
system locations in Alabama, Colorado, Wyoming, Oklahoma, Texas, Florida,
Tennessee, Louisiana and Georgia. The Company's principal investment objective
is to realize capital appreciation through the acquisition, ownership, control,
and operations of cable television systems.
Partnership Agreement -- The following represents certain provisions of the
James Cable Partners, L.P. Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement"):
Term of Agreement -- The Company will be dissolved upon the earliest
to occur of (i) December 31, 2005 (the "Term"), (ii) a determination by the
General Partner that the Company should be dissolved, with the approval of
60% of the Limited Partner interests, (iii) the sale or disposition by the
Company of substantially all of its assets, (iv) the consent of holders of
66 2/3% of the Limited Partner interests, (v) the removal of the General
Partner pursuant to the terms of the Partnership Agreement, or (vi) the
bankruptcy, insolvency, dissolution or withdrawal of the General Partner.
The Term can be extended upon the affirmative vote of 66 2/3% of the
Limited Partner interests and the consent of the General Partner. In
certain of the foregoing cases, the Limited Partners may elect under the
Partnership Agreement to reconstitute the business of the Company in a new
limited partnership with a new General Partner elected by the Limited
Partners.
Voting Rights -- Except as to matters for which consent or approval is
expressly required under the Partnership Agreement, the Limited Partners
have no right to vote on any partnership matters. Where a vote or consent
is required, each Partner is entitled to vote based on its percentage
interest in the Company.
Contributions -- Under the Partnership Agreement, the Partners have
made certain contributions to the Company. The General Partner is not
required to lend or advance any funds to the Company or to make any
additional capital contributions to the Company. No limited partner is
required to lend any funds to the Company or to make any capital
contribution to the Company. The Partnership Agreement provides that no
partner of the Company shall have the right to withdraw or demand the
return of its capital contribution during the term of the Company's
existence. The General Partner is not personally liable for the return of
the capital contributions made by the Limited Partners.
Distributions -- The Company has not made distributions to any of the
partners, cash or property, from the date of inception to the current date.
While the Company does not have plans to make any distributions in the near
future, any distributions made would be subject to the provisions of the
Partnership Agreement.
Property, Plant and Equipment are recorded at cost. Depreciation is
computed using accelerated methods and includes amounts charged to expense under
capital lease obligations. Estimated useful lives for major categories are as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 31.5 and 39
Cable television distribution systems....................... 7
Office furniture and fixtures............................... 5 - 7
Vehicles.................................................... 5
</TABLE>
Intangible Assets consist of subscriber lists, franchise operating rights
and covenants not to compete acquired in connection with acquisitions. Also
included is goodwill, which is the amount by which the cost of
F-7
<PAGE> 103
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
acquisitions exceeded the fair values assigned to assets acquired. Intangible
assets are amortized using the straight-line method over periods up to 33 years.
Deferred Financing Costs in connection with the refinancing effective June
30, 1995 (Note 3) are being amortized on the straight-line method over a 5 year
life.
Interest Rate Hedging Agreements -- Premiums paid for interest rate cap
agreements are amortized to interest expense over the terms of the cap
agreement. Amounts received under the cap agreement are accounted for on an
accrual basis and recognized as a reduction in interest expense. The
differential to be paid or received on interest rate swap agreements is
accounted for on an accrual basis and recognized as an adjustment to interest
expense.
Revenues are recognized in the period in which the related services are
provided to the subscribers.
Profits and Losses are generally allocated in accordance with the Company's
Partnership agreement. Currently, profits are allocated approximately 99% to the
limited partners and 1% to the general partner, and losses are allocated
approximately 95% to the limited partners and 5% to the general partner.
Statement of Cash Flows -- For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with maturities
of ninety days or less at date of purchase to be cash equivalents.
Estimates -- The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Income Taxes -- The financial statements include only those assets,
liabilities and results of operations of the Company which relate to the
business of the Company. No recognition has been made of income taxes since
these taxes are the personal responsibility of the partners.
Impact of Recently Adopted Accounting Principles -- Effective January 1,
1996, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, which establishes accounting standards for the impairment of
long-lived-assets, certain identifiable intangibles and goodwill related to
these assets to be held and used. The Statement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
periodically evaluates the carrying value for impairment based principally on
the undiscounted cash flows of the operations to which the long-lived assets and
intangibles relate. The Company's adoption of this Statement in 1996 had no
impact on the accompanying financial statements.
Fair Values of Financial Instruments -- The carrying amounts of cash and
cash equivalents approximate their fair value due to the nature and length of
maturity of the investments.
The estimated fair value of the Company's debt instruments and interest
rate hedging agreements is based on borrowing rates that approximate existing
rates at December 31, 1996 and 1995 and, in the opinion of management, there is
no material difference between the fair market value and the carrying value of
such debt instruments and interest rate hedging agreements.
Unaudited Interim Statements -- The unaudited interim financial statements
have been prepared in accordance with the accounting policies described above.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
statements for these interim periods have been made. The results of these
interim periods are not necessarily indicative of the results for a full fiscal
year.
F-8
<PAGE> 104
(2) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Franchise operating rights........................ $ 60,292,548 $ 60,292,548
Subscriber lists.................................. 13,631,000 13,631,000
Covenants not to compete.......................... 13,622,318 13,622,318
Goodwill.......................................... 10,635,327 10,635,327
Organization costs................................ 1,248,020 1,248,020
------------ ------------
Total........................................ 99,429,213 99,429,213
Less accumulated amortization..................... (74,326,182) (80,548,143)
------------ ------------
Total............................................. $ 25,103,031 $ 18,881,070
============ ============
</TABLE>
(3) DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Facilities......................................... $73,000,000 $66,254,437
Subordinated notes................................. 15,375,000 16,153,359
Capital lease obligation........................... 198,119 86,440
----------- -----------
Total.............................................. $88,573,119 $82,494,236
=========== ===========
</TABLE>
Facilities -- Effective June 30, 1995, the Company refinanced its Series
"A" and Series "B" notes with an $80 million senior secured credit facility
(consisting of a $70 million senior secured term loan and a $10 million
revolving credit facility) ("Facilities"), and $15 million senior subordinated
notes ("Subordinated Notes"). The Facilities are collateralized by substantially
all assets of the Company, and generally bear interest at one to six month LIBOR
rates plus a certain percentage based on provisions related to debt to earnings
ratios and events of default, as defined (effective rates of 8.3125% and 9.4375%
at December 31, 1996 and 1995, respectively. The Company is required to make
certain mandatory prepayments, at varying dates through June 30, 2000 at which
time the unpaid principal balance of the Facilities is due. All prepayment
requirements have been met on the Facilities as of December 31, 1996.
Subordinated Notes -- The Subordinated Notes bear interest (payable
semi-annually) at 14% per annum with the Company's option to pay 5% per annum
through the issuance of additional notes. The Subordinated Notes are due in full
on December 30, 2000 and may not be redeemed prior to June 1998, except under
certain conditions. Additional agreements entered into by the Company in
connection with the Subordinated Notes are as follows:
Warrant Agreement -- Warrants ("Warrants") representing the right to
purchase an aggregate 8.57% of the Company's equity (on a fully diluted
basis) have been issued to holders of the Subordinated Notes. The Warrants
may be exercised in whole or in part upon surrender of the Warrants and
payment of the exercise price (total exercise price of approximately $1.7
million). The Warrants may be redeemed at the option of the Company after
June 2001 for an amount based upon a specified formula, or at any time in
connection with the redemption of the notes. Beginning December 2000,
holders of the Warrants can require the Company to repurchase the Warrants
at an amount based upon a specified formula.
Special Additional Interest -- If the Warrants have not been exercised
by the Warrant holders or repurchased by the Company on or prior to the
redemption date, the Company shall pay (at the option of the Warrant
holder) Special Additional Interest ("Special Additional Interest") based
upon a specified formula. Special Additional Interest is only required to
be paid if the net equity value of the Company (as specifically defined) is
below $25 million. Upon payment of the Special Additional Interest, holders
of the Warrants shall surrender such Warrants and all of the Company's
obligations will terminate.
F-9
<PAGE> 105
(3) DEBT -- (CONTINUED)
Contingent Payment Agreement -- The Company has agreed to pay to
holders of the Subordinated Notes, a Contingent Payment ("Contingent
Payment") if the repayment of the Subordinated Notes (and related interest)
and the exercise, redemption or sale of the Warrants yields an annualized
internal rate of return to the Subordinated Notes holders of less than 25%.
The Contingent Payment will be calculated as the lesser of (i) an
annualized internal rate of return to the Subordinated Notes holders of at
least 25% or (ii) 2.14% of the net equity value of the Company, as
specifically defined.
The Facilities and the Subordinated Notes contain certain restrictive
financial and reporting covenants, the most significant of which prohibit the
Company from incurring additional debt, place limitations on acquisitions and
disposals of assets, restrict capital expenditures and require maintenance of
certain debt to earnings as well as interest coverage ratios. As of December 31,
1996, the Company is in compliance with these covenants.
The June 30, 1995 debt refinancing resulted in the write-off of previously
deferred financing costs of $548,564. Such write-off has been recorded as an
extraordinary loss in the accompanying financial statements.
Future minimum principal payments on debt (excluding capital lease
obligation) for the periods subsequent to December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 5,500,000
1998........................................................ 6,500,000
1999........................................................ 8,000,000
2000........................................................ 62,407,796
-----------
Total....................................................... $82,407,796
===========
</TABLE>
The Company entered into an interest rate cap agreement in 1995 to reduce
its exposure to changes in the cost of its floating rate debt. As of December
31, 1995 and 1996, the following interest rate cap agreement was outstanding:
<TABLE>
<CAPTION>
NOTIONAL LIBOR FREQUENCY
AMOUNT CAP RATE OF RATE RESETS TERM
-------- -------- -------------- ----
<S> <C> <C> <C>
$32,000,000.................... 8.5% Quarterly October 1995 to July 1998
</TABLE>
The Company also entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its floating rate Facilities. In 1995,
the Company entered into an interest rate swap agreement on $8,000,000 of the
Facilities to effectively change the character of its floating rate Facilities
due June, 2000 to a fixed rate obligation using a LIBOR rate of 6.06%. In 1996,
the Company paid $81,000 to terminate the swap agreement on $4,000,000 of the
Facilities. The interest rate swap agreement expires June 30, 1999.
In 1996, the Company entered into an interest rate swap agreement on
$4,000,000 of the Facilities to effectively change the character of its floating
rate Facilities due June, 2000 to a fixed rate obligation using a LIBOR rate of
6.585%. This interest rate swap agreement expires June 30, 2000.
These interest rate swap agreements resulted in additional interest expense
of $2,450 and $34,547 for the years ended 1995 and 1996.
The Company is exposed to credit risk in the event of nonperformance by the
counterparties to its interest rate cap and swap agreements. However, the
Company does not anticipate nonperformance by the counterparties.
In addition, the Company has paid administrative and other fees to the
debtholders for maintenance and services related to the debt. Amounts paid in
the years ended December 31, 1994, 1995 and 1996 were $0, $157,933 and $278,031,
respectively.
In 1994, the Company incurred capital lease obligations of $291,746 related
to various vehicles. The agreements have been capitalized in accordance with the
provisions of Statement of Financial Accounting
F-10
<PAGE> 106
(3) DEBT -- (CONTINUED)
Standards No. 13, "Accounting for Leases." Total depreciation expense in the
years ended December 31, 1994, 1995 and 1996 related to this capital lease
obligation was $58,349, $93,359 and $56,013, respectively.
Minimum annual rental commitments under this lease as of December 31, 1996,
are as follows:
<TABLE>
<S> <C>
1997........................................................ $90,928
Less amount representing interest........................... 4,488
-------
Total present value of future minimum lease payments........ $86,440
=======
</TABLE>
(4) COMMITMENTS
The Company leases office space under operating leases which expire at
varying dates through 2000.
Minimum annual rental commitments under these leases as of December 31,
1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 49,188
1998........................................................ 32,016
1999........................................................ 16,800
2000........................................................ 14,000
--------
Total....................................................... $112,004
========
</TABLE>
Total rental expense, including month-to-month rentals, was approximately
$140,000, $67,750 and $78,519 for the years ended December 31, 1994, 1995 and
1996, respectively.
The Company is committed to monthly pole rentals of $47,093 as of June 30,
1997, to various utilities. These agreements are subject to termination rights
by both parties.
(5) RELATED PARTY TRANSACTIONS
The Company has an agreement with the general partner to operate and manage
its cable systems. The fee for management services, in accordance with the
Company's agreement of Limited Partnership (the "L.P. Agreement"), is equal to
4% of annual revenues plus $5.00 per average annual subscriber. Management fees
paid by the Company to the general partner amounted to $1,555,000, $1,733,693
and $1,806,226 in the years ended December 31, 1994, 1995 and 1996,
respectively.
Included in prepaid expenses and other assets are amounts receivable from
related parties which total $189 and $16,056 at December 31, 1995 and 1996,
respectively.
Included in accrued expenses are amounts payable to related parties which
total $148,560 and $155,049 at December 31, 1995 and 1996, respectively.
(6) REGULATORY MATTERS
In October, 1992, Congress enacted the Cable Television Consumer and
Competition Act of 1992 (the "1992 Cable Act") which greatly expanded federal
and local regulation of the cable television industry. In April 1993, the
Federal Communications Commission ("FCC") adopted comprehensive regulations,
effective September 1, 1993, governing rates charged to subscribers for basic
cable and cable programming services which allowed cable operators to justify
regulated rates in excess of the FCC benchmarks through cost of service showings
at both the franchising authority level for basic service and to the FCC in
response to complaints on rates for cable programming services.
On February 22, 1994, the FCC issued further regulations which modified the
FCC's previous benchmark approach, adopted interim rules to govern cost of
service proceedings initiated by cable operators and lifted the stay of rate
regulations for small cable systems.
F-11
<PAGE> 107
(6) REGULATORY MATTERS -- (CONTINUED)
On November 10, 1994, the FCC adopted "going forward" rules that provided
cable operators with the ability to offer new product tiers priced as operators
elect, provided certain limited conditions are met, permit cable operators to
add new channels at reasonable prices to existing cable programming service
tiers and created an additional option pursuant to which small cable operators
may add channels to cable programming service tiers.
In May 1995, the FCC adopted small company rules that provided small
systems regulatory relief by implementing an abbreviated cost of service rate
calculation method. Using this methodology, for small systems seeking to
establish rates no higher than $1.24 per channel, the rates are deemed to be
reasonable.
In February 1996, the Telecommunications Act of 1996 was enacted which,
among other things, deregulated cable rates for small systems on their
programming tiers.
(7) SUBSEQUENT EVENT (UNAUDITED)
On August 12, 1997, the Company issued $100 million senior unsecured notes
due 2004. The Company used $66.7 million of the net proceeds to repay the
Facilities (Note 3), including interest. In addition, approximately $22.5
million was used to repay the Subordinated Notes (Note 3), including the
repurchase of Warrants (Note 3) associated with the Subordinated Notes. The
Company also terminated the interest rate cap and swap agreements described in
Note 1 and Note 3.
In addition, the Company entered into a new bank credit facility which
provides for borrowings of up to $20 million (with an option to increase the
amount to $30 million).
F-12
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
James Cable Finance Corp.
Bloomfield Hills, Michigan
We have audited the accompanying balance sheet of James Cable Finance Corp. (a
wholly owned subsidiary of James Cable Partners, L.P., a Delaware Limited
Partnership) ("Finance Corp.") at June 30, 1997. This balance sheet is the
responsibility of the management of Finance Corp. Our responsibility is to
express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of James Cable Finance Corp. at June 30, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
July 3, 1997
Detroit, Michigan
F-13
<PAGE> 109
JAMES CABLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF JAMES CABLE PARTNERS, L.P., A DELAWARE LIMITED
PARTNERSHIP)
BALANCE SHEET JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
---------
Stock subscription receivable (note 2)...................... $1,000
======
SHAREHOLDER'S EQUITY
--------------------------------
Shareholder's equity -- Common stock (1,000 shares issued
and outstanding).......................................... $1,000
======
</TABLE>
See notes to the balance sheet.
F-14
<PAGE> 110
JAMES CABLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF JAMES CABLE PARTNERS, L.P., A DELAWARE LIMITED
PARTNERSHIP)
NOTES TO BALANCE SHEET JUNE 30, 1997
(1) ORGANIZATION
James Cable Finance Corp. ("Finance Corp."), (a wholly owned subsidiary of
James Cable Partners, L.P., a Delaware Limited Partnership (the "Company")) was
formed on June 19, 1997. Finance Corp.'s principal purpose is to serve as a
co-issuer of certain debt securities with the Company pursuant to an anticipated
debt offering. Finance Corp. intends to conduct no other operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock Subscription Receivable consists of amount receivable from the
Company in consideration for shares of Finance Corp. issued on June 19, 1997.
The amount was received by Finance Corp. on July 2, 1997.
F-15
<PAGE> 111
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
EXCHANGE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information........................ iii
Prospectus Summary........................... 1
Risk Factors................................. 13
The Exchange Offer........................... 21
Certain Federal Income Tax Consequences of
the Exchange Offer......................... 28
Capitalization............................... 29
Selected Financial Data...................... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 33
Business..................................... 38
Legislation and Regulation................... 52
Management................................... 57
Certain Transactions......................... 58
Partnership Interests of Certain Beneficial
Owners and Management...................... 59
Description of the Exchange Notes............ 60
Description of the Notes..................... 83
Exchange Offer and Registration Rights....... 84
Description of Other Indebtedness............ 85
The Partnership Agreement.................... 86
Plan of Distribution......................... 89
Legal Matters................................ 89
Experts...................................... 89
Index to Financial Statements................ F-1
</TABLE>
================================================================================
================================================================================
JAMES CABLE PARTNERS, L.P.
JAMES CABLE FINANCE CORP.
OFFER TO EXCHANGE
ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2004
($100,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 3/4% SERIES B SENIOR NOTES DUE 2004
($100,000,000 PRINCIPAL AMOUNT)
----------------------------------
PROSPECTUS
----------------------------------
, 1997
================================================================================
<PAGE> 112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Company's Partnership Agreement, the Company is required to
indemnify the General Partner and its affiliates (which include all of the
individuals that currently perform the functions of directors and/or executive
officers of the Company) against losses, damages and expenses (including
attorneys' fees), judgments and settlement amounts incurred by such party with
respect to activities performed in good faith on behalf of the Company so long
as such activities were reasonably believed to be within the scope of the
person's authority and are not the result of gross negligence, willful
misconduct or any other like breach of fiduciary duty.
The Michigan Business Corporation Act ("MBCA") provides that a Michigan
business corporation, such as Finance Corp., may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (a "Proceeding"), other than an action by
or in the right of the corporation, by reason of the fact that he or she is or
was a director, officer, employee or agent of the corporation or, at the
corporation's request, a director, officer, partner, trustee, employee or agent
of another entity or enterprise (an "Indemnitee") against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnitee in connection with the
Proceeding, if the Indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders and, with respect to a criminal Proceeding, if
the Indemnitee had no reasonable cause to believe his or her conduct was
unlawful, and the MBCA permits such a corporation to indemnify an Indemnitee
against expenses and amounts paid in settlement actually and reasonably incurred
by the Indemnitee in connection with an action or suit by or in the right of the
corporation, if the Indemnitee acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, except that indemnification for a claim, issue
or matter in which the Indemnitee has been found liable to the corporation may
be made only if and to the extent ordered by a court. The MBCA also requires
such a corporation to indemnify an Indemnitee who is successful on the merits or
otherwise in defense of any claim by a third party or in a derivative action
against his or her actual and reasonable expenses incurred in such defense and
permits advancement by the corporation of an Indemnitee's reasonable expenses
under certain circumstances. Article VI of the Bylaws of Finance Corp. generally
requires indemnification of its directors and officers and advancement of their
expenses to the fullest extent permitted by the MBCA.
Neither the Company nor Finance Corp. maintains any insurance insuring any
individual performing the functions of a director or officer of the Company or
serving as a director or officer of Finance Corp. against any liability such
individual may incur in any such capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
*3.1 -- Amended and Restated Agreement of Limited Partnership of the
Company dated as of June 30, 1995
*3.2 -- Certificate of Limited Partnership of the Company
*3.3 -- Articles of Incorporation of Finance Corp.
*3.4 -- Bylaws of Finance Corp.
*4.1 -- Indenture dated as of August 15, 1997 among the Company,
Finance Corp., and United States Trust Company of New York,
as Trustee (including form of Notes)
4.2 -- Form of Exchange Notes
</TABLE>
II-1
<PAGE> 113
<TABLE>
<C> <C> <S>
*4.3 -- Credit Agreement dated as of August 15, 1997 among the Company, the lenders party thereto, NBD
Bank as documentation agent and Canadian Imperial Bank of Commerce as co-agent
*4.4 -- Company Security Agreement dated as of August 15, 1997 between the Company and NBD Bank as
documentation agent
*4.5 -- Guaranty Agreement dated as of August 15, 1997 by Finance Corp. in favor of the Lenders and
Agents named therein
*4.6 -- Guarantor Security Agreement dated as of August 15, 1997 between Finance Corp. and NBD Bank as
documentation agent
5.1 -- Opinion and consent of Miller, Canfield, Paddock and Stone, P.L.C.
*10.1 -- Securities Purchase Agreement dated as of August 12, 1997 among the Company, Finance Corp. and
the Initial Purchasers
*10.2 -- Registration Rights Agreement dated as of August 15, 1997 among the Company, Finance Corp. and
the Initial Purchasers
*10.3 -- 1994 General Partner Incentive Compensation Agreement dated as of December 31, 1994 between the
Company and the General Partner
*12.1 -- Statement re computation of ratios
21.1 -- List of subsidiaries of the Company: James Cable Finance Corp. (Finance Corp. has no
subsidiaries.)
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Miller, Canfield, Paddock and Stone, P.L.C. (contained in Exhibit 5.1)
24.1 -- Powers of Attorney (contained in signature pages of original Registration Statement)
*25.1 -- Statement of Eligibility and Qualification of Trustee on Form T-1 of United States Trust Company
of New York under the Trust Indenture Act of 1939
27.1 -- Financial Data Schedule
99.1 -- Form of Letter of Transmittal with respect to the Exchange Offer
*99.2 -- Form of Notice of Guaranteed Delivery with respect to the Exchange Offer
99.3 -- Form of Exchange Agent Agreement
</TABLE>
- -------------------------
* Filed with original Registration Statement
(b) Financial Statement Schedules.
None.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of such Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE> 114
Each undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the date of this Registration Statement (or most recent post-effective
amendment thereof) which, individual or in the aggregate, represent a
fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in
volume of the securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of
responding to the request.
(c) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement
when it became effective.
II-3
<PAGE> 115
JAMES CABLE PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Bloomfield Hills, State of Michigan,
on October 23, 1997.
JAMES CABLE PARTNERS, L.P.
By: James Communications Partners
General Partner
By: Jamesco, Inc.
Partner
By: /s/ WILLIAM R. JAMES
------------------------------------
William R. James
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ WILLIAM R. JAMES Person performing functions similar
------------------------------------------ to a principal executive officer
William R. James October 23, 1997
/s/ C. TIMOTHY TRENARY Person performing functions similar
------------------------------------------ to a director
C. Timothy Trenary October 23, 1997
/s/ DANIEL K. SHOEMAKER Person performing functions similar
------------------------------------------ to a director; principal financial
Daniel K. Shoemaker officer; principal accounting October 23, 1997
officer
</TABLE>
S-1
<PAGE> 116
JAMES CABLE FINANCE CORP.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Bloomfield Hills, State of Michigan,
on October 23, 1997.
JAMES CABLE FINANCE CORP.
By: /s/ WILLIAM R. JAMES
------------------------------------
William R. James
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <S>
/s/ WILLIAM R. JAMES Director; President (principal October 23, 1997
- --------------------------------------------- executive officer)
William R. James
/s/ C. TIMOTHY TRENARY Director October 23, 1997
- ---------------------------------------------
C. Timothy Trenary
/s/ DANIEL K. SHOEMAKER Director; Treasurer (principal October 23, 1997
- --------------------------------------------- financial officer and principal
Daniel K. Shoemaker accounting officer)
</TABLE>
S-2
<PAGE> 117
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S> <C>
*3.1 -- Amended and Restated Agreement of Limited Partnership of the
Company dated as of June 30, 1995...........................
*3.2 -- Certificate of Limited Partnership of the Company...........
*3.3 -- Articles of Incorporation of Finance Corp...................
*3.4 -- Bylaws of Finance Corp......................................
*4.1 -- Indenture dated as of August 15, 1997 among the Company,
Finance Corp., and United States Trust Company of New York,
as Trustee (including form of Notes)........................
4.2 -- Form of Exchange Notes......................................
*4.3 -- Credit Agreement dated as of August 15, 1997 among the
Company, the lenders party thereto, NBD Bank as
documentation agent and Canadian Imperial Bank of Commerce
as co-agent.................................................
*4.4 -- Company Security Agreement dated as of August 15, 1997
between the Company and NBD Bank as documentation agent.....
*4.5 -- Guaranty Agreement dated as of August 15, 1997 by Finance
Corp. in favor of the Lenders and Agents named therein......
*4.6 -- Guarantor Security Agreement dated as of August 15, 1997
between Finance Corp. and NBD Bank as documentation agent...
5.1 -- Opinion and consent of Miller, Canfield, Paddock and Stone,
P.L.C.......................................................
*10.1 -- Securities Purchase Agreement dated as of August 12, 1997
among the Company, Finance Corp. and the Initial
Purchasers..................................................
*10.2 -- Registration Rights Agreement dated as of August 15, 1997
among the Company, Finance Corp. and the Initial
Purchasers..................................................
*10.3 -- 1994 General Partner Incentive Compensation Agreement dated
as of December 31, 1994 between the Company and the General
Partner.....................................................
*12.1 -- Statement re computation of ratios..........................
21.1 -- List of subsidiaries of the Company: James Cable Finance
Corp. (Finance Corp. has no subsidiaries.)..................
23.1 -- Consent of Deloitte & Touche LLP............................
23.2 -- Consent of Miller, Canfield, Paddock and Stone, P.L.C.
(contained in Exhibit 5.1)..................................
24.1 -- Powers of Attorney (contained in signature pages of this
Registration Statement).....................................
*25.1 -- Statement of Eligibility and Qualification of Trustee on
Form T-1 of United States Trust Company of New York under
the Trust Indenture Act of 1939.............................
27.1 -- Financial Data Schedule.....................................
99.1 -- Form of Letter of Transmittal with respect to the Exchange
Offer.......................................................
*99.2 -- Form of Notice of Guaranteed Delivery with respect to the
Exchange Offer..............................................
99.3 -- Form of Exchange Agent Agreement............................
</TABLE>
- -------------------------
* Filed with original Registration Statement
<PAGE> 1
EXHIBIT 4.2
[FORM OF FACE OF EXCHANGE NOTE]
CUSIP 470290 AC 1
JAMES CABLE PARTNERS, L.P.
JAMES CABLE FINANCE CORP.
No. B- $
10 3/4% SERIES B SENIOR NOTE DUE 2004
JAMES CABLE PARTNERS, L.P., a Delaware limited partnership
(the "Company"), and JAMES CABLE FINANCE CORP., a Michigan corporation
("Finance Corp." and, together with the Company, the "Issuers"), for value
received, promise to pay to or registered assigns the
principal sum of $ dollars on August 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
<PAGE> 2
IN WITNESS WHEREOF, the Issuers have caused this Note to be
signed manually or by facsimile by their duly authorized officers.
JAMES CABLE PARTNERS, L.P.
By: James Communications
Partners, a Michigan
co-partnership, its
General Partner
By: Jamesco, Inc., a Michigan
corporation, its
Partner
By:
------------------------------
Name: William R. James
Title: President
By: DKS Holdings, Inc.,
a Michigan corporation
its partner
By:
------------------------------
Name: Daniel K. Shoemaker
Title: President
JAMES CABLE FINANCE CORP.
By:
------------------------------
Name: William R. James
Title: President
By:
------------------------------
Name: Daniel K. Shoemaker
Title: Treasurer
Dated:
-2-
<PAGE> 3
Certificate of Authentication
This is one of the Notes referred to in the within-mentioned
Indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
-------------------------------
Authorized Signatory
-3-
<PAGE> 4
[FORM OF REVERSE OF EXCHANGE NOTE]
JAMES CABLE PARTNERS, L.P.
JAMES CABLE FINANCE CORP.
10 3/4% SERIES B SENIOR NOTE DUE 2004
1. Interest. James Cable Partners, L.P., a Delaware
limited partnership (the "Company"), and James Cable Finance Corp., a Michigan
corporation ("Finance Corp." and, together with the Company, the "Issuers"),
promise to pay, until the principal hereof is paid or made available for
payment, interest on the principal amount set forth on the face hereof at a
rate of 10 3/4% per annum. Interest hereon will accrue from and including the
most recent date to which interest has been paid or, if no interest has been
paid, from and including August 15, 1997 to but excluding the date on which
interest is paid. Interest shall be payable in arrears on each February 15 and
August 15, commencing February 15, 1998. Interest will be computed on the
basis of a 360-day year of twelve 30-day months. The Issuers shall pay
interest on overdue principal and on overdue interest (to the full extent
permitted by law) at a rate of 10 3/4% per annum.
2. Method of Payment. The Issuers will pay interest
hereon (except defaulted interest) to the Persons who are registered Holders at
the close of business on February 1 or August 1 next preceding the interest
payment date (whether or not a Business Day). Holders must surrender Notes to
a Paying Agent to collect principal payments. The Issuers will pay principal
and interest in money of the United States of America that at the time of
payment is legal tender for payment of public and private debts. Interest may
be paid by check mailed to the Holder entitled thereto at the address indicated
on the register maintained by the Registrar for the Notes.
3. Paying Agent and Registrar. Initially, United States
Trust Company of New York (the "Trustee") will act as a Paying Agent and
Registrar. The Issuers may change any Paying Agent or Registrar without
notice. Neither the Issuers nor any of their Affiliates may act as Paying
Agent or Registrar.
4. Indenture. The Issuers issued the Notes under an
Indenture dated as of August 15, 1997 (the "Indenture") among the Issuers and
the Trustee. This is one of an issue of Notes of the Issuers issued, or to be
issued, under the Indenture. 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 (15 U.S. Code Section Section 77aaa-77bbbb), as amended
from time to time. The Notes are subject to all
-4-
<PAGE> 5
such terms, and Holders are referred to the Indenture and such Act for a
statement of them. Capitalized and certain other terms used herein and not
otherwise defined have the meanings set forth in the Indenture. The Notes are
obligations of the Issuers limited in aggregate principal amount to $100.0
million.
5. Optional Redemption. The Issuers, at their option,
may redeem the Notes, in whole or in part, at any time on or after August 15,
2001 upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount), set forth below,
together, in each case, with accrued and unpaid interest to the Redemption
Date, if redeemed during the twelve month period beginning on August 15 of each
year listed below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2001 . . . . . . . . . . . . . . . . . . . . 105.375%
2002 . . . . . . . . . . . . . . . . . . . . 102.687%
2003 and thereafter . . . . . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, the Issuers may redeem in the
aggregate up to 35% of the original principal amount of Notes at any time and
from time to time on or prior to August 15, 2000 at a redemption price equal to
110.750% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon to the Redemption Date with the net proceeds of one or more
Public Equity Offerings; provided, that at least $65.0 million of the principal
amount of Notes originally issued remains outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within 60
days following the closing of any such Public Equity Offering.
6. Notice of Redemption. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the Redemption Date to
each Holder of Notes to be redeemed at his registered address. On and after
the Redemption Date, unless the Issuers default in making the redemption
payment, interest ceases to accrue on Notes or portions thereof called for
redemption.
7. Offers to Purchase. The Indenture provides that upon
the occurrence of a Change of Control or an Asset Sale and subject to further
limitations contained therein, the Issuers shall make an offer to purchase
outstanding Notes in accordance with the procedures set forth in the Indenture.
-5-
<PAGE> 6
8. Denominations, Transfer, Exchange. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. A Holder may transfer or exchange Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay to it any
taxes and fees required by law or permitted by the Indenture. The Registrar
need not register the transfer of or exchange any Notes or portion of a Note
selected for redemption, or register the transfer of or exchange any Notes for
a period of 15 days before selection of Notes to be redeemed.
9. Persons Deemed Owners. The registered Holder of this
Note may be treated as the owner of this Note for all purposes.
10. Unclaimed Money. If money for the payment of
principal, premium, if any, or interest remains unclaimed for two years, the
Trustee will pay the money back to the Issuers at their written request. After
that, Holders entitled to the money must look to the Issuers or Guarantors for
payment as general creditors unless an "abandoned property" law designates
another Person.
11. Amendment, Supplement, Waiver, Etc. The Issuers, the
Guarantors, and the Trustee may, without the consent of the Holders of any
outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, maintaining the qualification of the Indenture
under the Trust Indenture Act of 1939, as amended, and making any change that
does not adversely affect the rights of any Holder. Other amendments and
modifications of the Indenture or the Notes may be made by the Issuers, the
Guarantors and the Trustee with the consent of the Holders of not less than a
majority of the aggregate principal amount of the outstanding Notes, subject to
certain exceptions requiring the consent of the Holders of the Notes to be
affected.
12. Restrictive Covenants. The Indenture imposes certain
limitations on the ability of the Issuers and their Subsidiaries to, among
other things, incur additional Indebtedness, make payments in respect of their
Capital Stock or certain Indebtedness, make certain Investments, create or
incur Liens, enter into transactions with Affiliates, enter into agreements
restricting the ability of Subsidiaries to pay dividends and make
distributions, issue Preferred Stock of any Subsidiaries of the Issuers, enter
into Sale and Leaseback Transactions and on the ability of the Issuers and
Guarantors to merge or consolidate with any other Person or transfer all or
substantially all of the Issuers' or Guarantors' assets.
-6-
<PAGE> 7
Such limitations are subject to a number of important qualifications and
exceptions. Pursuant to Section 4.04 of the Indenture, the Issuers must
annually report to the Trustee on compliance with such limitations.
13. Successor Corporation. When a successor corporation
assumes all the obligations of its predecessor under the Notes and the
Indenture and the transaction complies with the terms of Article 5 of the
Indenture, the predecessor corporation will, except as provided in Article 5,
be released from those obligations.
14. Defaults and Remedies. Events of Default are set
forth in the Indenture. Subject to certain limitations in the Indenture, if an
Event of Default (other than an Event of Default specified in Section 6.01(7)
or (8) of the Indenture with respect to the Issuers, the General Partner or any
Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of
not less than 25% in aggregate principal amount of the outstanding Notes may,
by written notice to the Trustee and the Issuers, and the Trustee upon the
request of the Holders of not less than 25% in aggregate principal amount of
the outstanding Notes shall, declare all principal of and accrued interest on
all Notes to be immediately due and payable and such amounts shall become
immediately due and payable. If an Event of Default specified in Section
6.01(7) or (8) of the Indenture occurs with respect to the Issuers, the General
Partner or any Significant Subsidiary, the principal amount of and interest on,
all Notes shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder. Holders
may not enforce the Indenture or the Notes except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Notes. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders notice
of any continuing default (except a default in payment of principal, premium,
if any, or interest) if it determines that withholding notice is in their
interests. The Issuers must furnish an annual compliance certificate to the
Trustee.
15. Trustee Dealings with Issuers. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Issuers, the General Partner or their Affiliates, and
may otherwise deal with the Issuers, the General Partner or their Affiliates,
as if it were not Trustee.
-7-
<PAGE> 8
16. No Personal Liability of Certain Persons. No
director, officer, employee, partner, interest holder or shareholder,
as such, of either Issuer or of the General Partner, will have any liability
for any obligations of either of the Issuers under the Notes or the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of the Notes by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy. Absent such waiver and
release, under the Delaware Revised Uniform Limited Partnership Act, as
amended, the Holders of the Notes would have been able to proceed against the
General Partner in the event of nonpayment thereof, and such Holders would have
been able to proceed against the limited partners of the Company only if the
limited partners received distributions from the Company and, at the time of
such distributions, they knew that the Company's total liabilities exceeded the
fair value of the Company's assets.
17. Discharge. The Issuers' obligations pursuant to the
Indenture will be discharged, except for obligations pursuant to certain
sections thereof, subject to the terms of the Indenture, upon the payment of
all the Notes or upon the irrevocable deposit with the Trustee of United States
dollars or U.S. Government Obligations sufficient to pay when due principal of
and interest on the Notes to maturity or redemption, as the case may be.
18. Guarantees by Future Subsidiaries. The Notes will be
entitled to the benefits of certain Guarantees by future subsidiaries made for
the benefit of the Holders. Reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and
obligations thereunder of the Guarantors, the Trustee and the Holders.
19. Authentication. This Note shall not be valid until
the Trustee manually signs the certificate of authentication on the other side
of this Note.
20. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW
YORK SHALL GOVERN THIS NOTE WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
The Trustee, the Issuers and the Holders agree to submit to the jurisdiction of
the courts of the State of New York in any action or proceeding arising out of
or relating to the Indenture or the Notes.
-8-
<PAGE> 9
21. Abbreviations. Customary abbreviations may be used
in the name of a Holder or an assignee, such as: TEN COM (= tenants in
common), TENANT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
The Issuers will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to:
JAMES CABLE PARTNERS, L.P..
710 North Woodward Avenue, Suite 180
Bloomfield Hills, Michigan 48304
Attention: Chief Financial Officer
-9-
<PAGE> 10
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
________________________________________________________________________________
________________________________________________________________________________
Agent to transfer this Note on the books of the Issuers. The Agent may
substitute another to act for him.
-10-
<PAGE> 11
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note
purchased by the Issuers pursuant to Section 4.10 or Section 4.16 of the
Indenture, check the appropriate box:
[ ] Section 4.10 [ ] Section 4.16
If you want to have only part of the Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$____________________
(multiple of $1,000)
Date: ___________________
Your Signature: ___________________________________________________________
(Sign exactly as your name appears on the face of this Note)
_________________________
Signature Guaranteed
-11-
<PAGE> 1
EXHIBIT 5.1
[MILLER, CANFIELD, PADDOCK AND STONE, P.L.C. - LETTERHEAD]
October 24, 1997
James Cable Partners, L.P.
James Cable Finance Corp.
710 North Woodward Avenue, Suite 180
Bloomfield Hills, Michigan 48304
Gentlemen:
This opinion relates to the registration statement on Form S-4, as amended by
amendment no. 1 thereto (as so amended, the "Registration Statement") being
filed today by James Cable Partners, L.P., a Delaware limited partnership, and
James Cable Finance Corp., a Michigan corporation (the "Issuers"), with the
Securities and Exchange Commission (the "Commission") for the purpose of
registering under the Securities Act of 1933, as amended (the "Act"),
$100,000,000 principal amount of the Issuers' 10 3/4% Series B Senior Notes due
2004 (the "Exchange Notes"). The Exchange Notes are to be issued in exchange for
the Issuers' outstanding 10 3/4% Senior Notes due 2004 (the "Notes") pursuant to
the Exchange Offer described in the Registration Statement. As your counsel, we
have examined such certificates, instruments, and documents and reviewed such
questions of law as we have considered necessary or appropriate for the purposes
of this opinion, and, on the basis of such examination and review, we advise you
that, in our opinion:
1. The Exchange Notes have been duly authorized by all necessary partnership
and corporate action on the part of the Issuers.
2. When the Registration Statement has become effective and the Exchange
Notes have been issued in exchange for the Notes pursuant to the Exchange
Offer, the Exchange Notes will be legally issued and will be binding
obligations of the Issuers.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the
<PAGE> 2
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
-2-
prospectus forming a part of the Registration Statement. In giving this consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Commission.
Very truly yours,
Miller, Canfield, Paddock and Stone, P.L.C.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
Nos. 333-35183 and 333-35183-01 of James Cable Partners, L.P. and James Cable
Finance Corp. of our reports dated July 3, 1997, appearing in the Prospectus,
which is part of this Registration Statement, and to the references to us under
the headings "Selected Financial Data" and "Experts" in such Prospectus.
Deloitte & Touche LLP
Deloitte & Touche LLP
Detroit, Michigan
October 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000926283
<NAME> JAMES CABLE FINANCE CORP.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 100,813
<SECURITIES> 0
<RECEIVABLES> 3,321,742
<ALLOWANCES> 14,668
<INVENTORY> 0
<CURRENT-ASSETS> 3,623,831
<PP&E> 77,158,079
<DEPRECIATION> 69,153,781
<TOTAL-ASSETS> 32,844,132
<CURRENT-LIABILITIES> 6,696,114
<BONDS> 82,494,236
0
0
<COMMON> 0
<OTHER-SE> (56,346,218)
<TOTAL-LIABILITY-AND-EQUITY> 32,844,132
<SALES> 0
<TOTAL-REVENUES> 35,212,735
<CGS> 0
<TOTAL-COSTS> 28,001,215
<OTHER-EXPENSES> 227,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,878,285
<INCOME-PRETAX> (1,894,244)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,894,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,894,244)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
JAMES CABLE PARTNERS, L.P.
JAMES CABLE FINANCE CORP.
OFFER TO EXCHANGE
10 3/4% SERIES B SENIOR NOTES DUE 2004
FOR ANY AND ALL OF THE OUTSTANDING
10 3/4% SENIOR NOTES DUE 2004
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON , 1997
UNLESS THE OFFER IS EXTENDED
UNITED STATES TRUST COMPANY OF NEW YORK
(THE "EXCHANGE AGENT")
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or Certified
Mail:
UNITED STATES TRUST COMPANY UNITED STATES TRUST COMPANY UNITED STATES TRUST COMPANY
OF NEW YORK OF NEW YORK OF NEW YORK
770 BROADWAY, 13TH FLOOR 111 BROADWAY P.O. BOX 844
NEW YORK, NEW YORK 10003 LOWER LEVEL ATTN: CORPORATE TRUST
SERVICES
ATTN: CORPORATE TRUST ATTN: CORPORATE TRUST COOPER STATION
SERVICES SERVICES
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10276-0844
By Facsimile Transmission
(FOR ELIGIBLE INSTITUTIONS
ONLY):
(212) 420-6152
</TABLE>
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the ones listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1997 (the "Prospectus") of James Cable Partners, L.P. and James
Cable Finance Corp. (the "Issuers") and this Letter of Transmittal, which
together constitute the Issuers' offer (the "Exchange Offer") to exchange $1,000
principal amount of their 10 3/4% Series B Senior Notes due 2004 (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for each $1,000 principal amount of their outstanding
10 3/4% Senior Notes due 2004 (the "Notes"), respectively. The term "Expiration
Date" shall mean 5:00 p.m., New York City time, on , 1997, unless
the Issuers, in their reasonable judgment, extend the Exchange Offer, in which
case the term shall mean the latest date and time to which the Exchange Offer is
extended. Capitalized terms used but not defined herein have the meaning given
to them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
<PAGE> 2
List below the Notes to which this Letter of Transmittal relates. If the
space indicated is inadequate, the Certificate or Registration Numbers and
Principal Amounts should be listed on a separately signed schedule affixed
hereto.
<TABLE>
<S> <C> <C> <C>
=====================================================================================================================
DESCRIPTION OF NOTES TENDERED HEREBY
- ---------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF CERTIFICATE AGGREGATE PRINCIPAL
REGISTERED OWNER(S) OR REGISTRATION AMOUNT REPRESENTED BY PRINCIPAL AMOUNT
(PLEASE FILL IN) NUMBERS* NOTES TENDERED**
- ---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered the full aggregate principal amount
represented by such Notes. All tenders must be in integral multiples of $1,000.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be used if (i) certificates representing
Notes are to be physically delivered to the Exchange Agent herewith, (ii) tender
of Notes is to be made by book-entry transfer to an account maintained by the
Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in "The Exchange Offer -- Book-Entry Transfer; ATOP" in the
Prospectus or (iii) tender of the Notes is to be made according to the
guaranteed delivery procedures described in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2.
Delivery of documents to a book-entry transfer facility does not constitute
delivery to the Exchange Agent. This Letter of Transmittal must be completed,
signed and delivered even if tender instructions are being transmitted through
the Book-Entry Transfer Facility Automated Tender Offer Program ("ATOP").
As used in this Letter of Transmittal, the term "Holder" with respect to the
Exchange Offer means any person in whose name Notes are registered on the books
of the Issuers or, with respect to interests in the Global Notes held by DTC,
any DTC participant listed in an official DTC proxy. The undersigned has
completed, executed and delivered this Letter of Transmittal to indicate the
action the undersigned desires to take with respect to the Exchange Offer.
Holders who wish to tender their Notes must complete this letter in its
entirety.
Holders of Notes that are tendering by book-entry transfer to the Exchange
Agent's account at DTC can execute the tender through ATOP, for which the
transaction will be eligible. DTC participants that are accepting the Exchange
Offer must transmit their acceptances to DTC, which will verify the acceptance
and execute a book-entry delivery to the Exchange Agent's account at DTC. DTC
will then send an Agent's Message to the Exchange Agent for its acceptance. Each
DTC participant transmitting an acceptance of the Exchange Offer through the
ATOP procedures will be deemed to have agreed to be bound by the terms of this
Letter of Transmittal. Nevertheless, in order for such acceptance to constitute
a valid tender of the DTC participant's Notes, such participant must complete
and sign a Letter of Transmittal and deliver it to the Exchange Agent before the
Expiration Date.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
NAME OF TENDERING INSTITUTION
---------------------------------------------
ACCOUNT NUMBER
------------------------------------------------------------
TRANSACTION CODE NUMBER
---------------------------------------------------
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date must tender their Notes according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
2
<PAGE> 3
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
NAME OF REGISTERED HOLDER(S)
----------------------------------------------
NAME OF ELIGIBLE INSTITUTION THAT GUARANTEED DELIVERY
---------------------
--------------------------------------------------------------------------
IF DELIVERY BY BOOK-ENTRY TRANSFER:
ACCOUNT NUMBER
--------------------------------------------------------
TRANSACTION CODE NUMBER
-----------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
NAME
----------------------------------------------------------------------
ADDRESS
-------------------------------------------------------------------
3
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuers the principal amount of the Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Notes tendered hereby, the undersigned hereby exchanges, assigns and
transfers to, or upon the order, of, the Issuers all right, title and interest
in and to such Notes as are being tendered hereby, including all rights to
accrued and unpaid interest thereon as of the Expiration Date. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of the undersigned (with full knowledge that
said Exchange Agent acts as the agent of the Issuers in connection with the
Exchange Offer) to cause the Notes to be assigned, transferred and exchanged.
The undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that when the same are
accepted for exchange, the Issuers will acquire good and unencumbered title to
the tendered Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim.
The undersigned represents to the Issuers that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. If the undersigned or the person
receiving the Exchange Notes covered hereby is a broker-dealer that is receiving
the Exchange Notes for its own account in exchange for Notes that were acquired
as a result of market-making activities or other trading activities, the
undersigned acknowledges that it or such other person will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The undersigned and any
such other person acknowledge that, if they are participating in the Exchange
Offer for the purpose of distributing the Exchange Notes, (i) they cannot rely
on the position of the staff of the Securities and Exchange Commission
enunciated in Exxon Capital Holdings Corporation (April 13, 1988), Morgan
Stanley & Co., Inc. (June 5, 1991) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
resale transaction and (ii) failure to comply with such requirements in such
instance could result in the undersigned or any such other person incurring
liability under the Securities Act for which such persons are not indemnified by
the Issuers. If the undersigned or the person receiving the Exchange Notes
covered by this letter is an affiliate (as defined under Rule 405 of the
Securities Act) of the Issuers, the undersigned represents to the Issuers that
the undersigned understands and acknowledges that such Exchange Notes may not be
offered for resale, resold or otherwise transferred by the undersigned or such
other person without registration under the Securities Act or an exemption
therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Issuers to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Notes by the Issuer and the issuance of Exchange
Notes in exchange therefor shall constitute performance in full by the Issuers
of their obligations under the Registration Rights Agreement and that the
Issuers shall have no further obligations or liabilities thereunder for the
registration of the Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Issuers), as more particularly set forth in the Prospectus,
the Issuers may not be required to exchange any of the Notes tendered hereby
and, in such event, the Notes not exchanged will be returned to the undersigned
at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal
4
<PAGE> 5
representatives, successors and assigns of the undersigned. Tendered Notes may
be withdrawn at any time prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Notes, and any Notes delivered herewith but not exchanged, will be
registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 2).
5
<PAGE> 6
=======================================
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if the
Exchange Notes are to be issued in
the name of someone other than the
undersigned.
Name:
---------------------------------
Address:
------------------------------
Book-Entry Transfer Facility Account:
--------------------------------------
Employee Identification or Social
Security Number:
--------------------------------------
(Please print or type)
=======================================
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Exchange
Notes are to be sent to someone other than
the undersigned, or to the undersigned at
an address other than that shown under
"Description of Notes Tendered Hereby."
Name:
---------------------------------
Address:
------------------------------
--------------------------------------
(Please print or type)
- --------------------------------------------------------------------------------
REGISTERED HOLDER(S) OF NOTES OR DTC PARTICIPANT(S) SIGN HERE
(In addition, complete Substitute Form W-9 below)
X
----------------------------------------------------------------------------
X
----------------------------------------------------------------------------
(Signature(s) of Registered Holder(s) or DTC Participant(s))
Must be signed by registered holder(s) or DTC participant(s) exactly
as name(s) appear(s) on the Notes or on a security position listing as the
owner of the Notes or by person(s) authorized to become registered
holder(s) by properly completed bond powers transmitted herewith. If
signature is by attorney-in-fact, trustee, executor, administrator,
guardian, officer of a corporation or other person acting in a fiduciary
capacity, please provide the following information. (Please print or
type):
Name and Capacity (full title):
----------------------------------------------
Address (including zip code):
------------------------------------------------
-----------------------------------------------------------------------------
Area Code and Telephone Number:
----------------------------------------------
Taxpayer Identification or Social Security No.:
------------------------------
Dated:
--------------
SIGNATURE GUARANTEE
(If Required -- See Instruction 5)
Authorized Signature:
--------------------------------------------------------
(Signature of Representative of Signature Guarantor)
Name and Title:
--------------------------------------------------------------
Name of Plan:
----------------------------------------------------------------
Area Code and Telephone Number:
----------------------------------------------
(Please print or type)
Dated:
----------------
- --------------------------------------------------------------------------------
6
<PAGE> 7
PAYOR'S NAME: JAMES CABLE PARTNER, L.P.
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION
NUMBER ON THE FOLLOWING SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT
SUBSTITUTE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. -------------------------
FORM W-9 PART 2--Check the box if you are not subject to Social Security Number
DEPARTMENT OF backup withholding under the provisions of Section
THE TREASURY 3406(A)(1)(C) of the Internal Revenue Code because OR
INTERNAL REVENUE SERVICE (1) you are exempt from backup withholding, (2) ------------------------------
you have not been notified that you are subject to Employer Identification Number
backup withholding as a result of failure to
report all interest or dividends or (3) the
Internal Revenue Service has notified you that you
are no longer subject to backup withholding. [ ]
-------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR CERTIFICATION: Under penalties of perjury, I PART 3--
TAXPAYER IDENTIFICATION certify that the information provided on this form Awaiting TIN [ ]
NUMBER (TIN) is true, correct and complete.
Signature:
----------------------------------------
Date:
--------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY CASH PAYMENTS IN EXCESS OF $10.00 MADE TO YOU.
NOTE: YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Officer or (b) I intend to mail
or deliver such an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld until I provide a number.
SIGNATURE DATE
-------------------------------- --------------------
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Notes or confirmation of any book-entry transfer
to the Exchange Agent's account at a book-entry transfer facility of Notes
tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date (as defined in the Prospectus). The method of delivery of this
Letter of Transmittal, the Notes and any other required documents is at the
election and risk of the Holder, and except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
If such delivery is by mail, it is suggested that registered mail with return
receipt requested, properly insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the ones set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Notes, but whose Notes are not immediately
available and thus cannot deliver their Notes, the Letter of Transmittal or any
other required documents to the Exchange Agent (or comply with the procedures
for book-entry transfer) prior to the Expiration Date, may effect a tender if:
(a) the tender is made through 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");
(b) 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 registration
number(s) of such Notes and the principal amount of Notes tendered,
stating that the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), together with
the Notes (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at DTC) and any other documents required
by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at DTC) and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within
three New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above. Any Holder who wishes to tender Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery relating to such
Notes prior to the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the
8
<PAGE> 9
validity or effect a revocation of any Letter of Transmittal form properly
completed and executed by a Holder who attempted to use the guaranteed delivery
procedures.
3. BENEFICIAL OWNER INSTRUCTIONS.
Only a Holder of Notes (i.e., a person in whose name Notes are registered
on the books of the registrar or, with respect to interests in the Global Notes
held by DTC, a DTC participant listed in an official DTC proxy), or the legal
representative or attorney-in-fact of a Holder, may execute and deliver this
Letter of Transmittal. Any beneficial owner of Notes who wishes to accept the
Exchange Offer must arrange promptly for the appropriate Holder to execute and
deliver this Letter of Transmittal on his or her behalf through the execution
and delivery to the appropriate Holder of the Instructions to Registered Holder
and/or DTC Participant from Beneficial Owner form accompanying this Letter of
Transmittal.
4. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Notes evidenced by a submitted
certificate is tendered, the tendering Holder should fill in the principal
amount tendered in the column entitled "Principal Amount Tendered" of the box
entitled "Description of Notes Tendered Hereby." A newly issued Note for the
principal amount of Notes submitted but not tendered will be sent to such Holder
as soon as practicable after the Expiration Date. All Notes delivered to the
Exchange Agent will be deemed to have been tendered in full unless otherwise
indicated.
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date, after which tenders of Notes are irrevocable. To
be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Exchange Agent. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Notes to
be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn
(including the registration number(s) and principal amount of such Notes, or, in
the case of Notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited), (iii) be signed by the Holder in the same manner
as the original signature on this Letter of Transmittal (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Notes register the transfer of such Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Issuers, whose
determination shall be final and binding on all parties. Any Notes so withdrawn
will be deemed not to have been validly tendered for purposes of the Exchange
Offer and no Exchange Notes will be issued with respect thereto unless the Notes
so withdrawn are validly retendered. Any Notes which have been tendered but
which are not accepted for exchange will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal, rejection
of tender or termination of Exchange Offer.
5. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of the
Notes tendered hereby, the signature must correspond with the name(s) as written
on the face of the certificates without alteration or enlargement or any change
whatsoever. If this Letter of Transmittal is signed by a participant in DTC, the
signature must correspond with the name as it appears on the security position
listing as the owner of the Notes.
If any of the Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Notes registered in different names are tendered, it will be
necessary to complete, sign and submit as many separate copies of this Letter of
Transmittal as there are different registrations of Notes.
9
<PAGE> 10
Signatures of this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Notes
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Notes (which term, for the purposes described herein, shall include a
participant in DTC whose name appears on a security listing as the owner of the
Notes) listed and tendered hereby, no endorsements of the tendered Notes or
separate written instruments of transfer or exchange are required. In any other
case, the registered Holder (or acting Holder) must either properly endorse the
Notes or transmit properly completed bond powers with this Letter of Transmittal
(in either case, executed exactly as the name(s) of the registered Holder(s)
appear(s) on the Notes, and, with respect to a participant in DTC whose name
appears on a security position listing as the owner of Notes, exactly as the
name of the participant appears on such security position listing), with the
signature on the Notes or bond power guaranteed by an Eligible Institution
(except where the Notes are tendered for the account of an Eligible
Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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 Issuers, proper evidence
satisfactory to the Issuers of their authority so to act must be submitted.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at DTC) in which the Exchange Notes or substitute Notes for
principal amounts not tendered or not accepted for exchange are to be issued (or
deposited), if different from the names and addresses or accounts of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification number or social security number of the person named
must also be indicated and the tendering Holder should complete the applicable
box.
If no instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Notes or deposited at such Holder's account at DTC.
7. TRANSFER TAXES.
The Issuers shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Notes to them or their order pursuant to the Exchange
Offer. If a transfer tax is imposed for any other reason other than the transfer
and exchange of Notes to the Issuers, or their order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
Holder or any other person) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith, the amount of such transfer taxes will be collected from the
tendering Holder by the Exchange Agent.
Except as provided in this Instruction 7, it will not be necessary for
transfer stamps to be affixed to the Notes listed in this Letter of Transmittal.
8. WAIVER OF CONDITIONS.
The Issuers reserve the right, in their reasonable judgment, to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
9. MUTILATED, LOST, STOLEN OR DESTROYED NOTES.
Any Holder whose Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10
<PAGE> 11
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to James Cable Partners, L.P., 710 North
Woodward Avenue, Suite 180, Bloomfield Hills, Michigan 48304, telephone (248)
647-1080.
11. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Issuers in their sole discretion, which determination will be
final and binding. The Issuers reserve the absolute right to reject any and all
Notes not properly tendered or any Notes the Issuers' acceptance of which would,
in the opinion of counsel for the Issuers, be unlawful. The Issuers also reserve
the right, in their reasonable judgment, to waive any defects, irregularities or
conditions of tender as to particular Notes. The Issuers' interpretation of the
terms and conditions of the Exchange Offer (including the instructions in this
Letter of Transmittal) will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Notes must be cured
within such time as the Issuers shall determine. Although the Issuers intend to
notify Holders of defects or irregularities with respect to tenders of Notes,
neither the Issuers, the Exchange Agent nor any other person shall incur any
liability for failure to give such notification. Tenders of notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering Holder as soon as practicable
following the Expiration Date.
11
<PAGE> 12
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the tendering Holder has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future. If the Exchange
Agent is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Holder may be subject to backup withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9 should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-8, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder, the
Holder is required to notify the Exchange Agent of his or her correct TIN by
completing the form herein certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Holder is awaiting a TIN) and that (i) each Holder
is exempt, (ii) such Holder has not been notified by the Internal Revenue
Service that he or she is subject to backup withholding as a result of failure
to report all interest or dividends or (iii) the Internal Revenue Service has
notified such Holder that he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the Notes.
If Notes are in more than one name or are not in the name of the actual Holder,
consult the instructions on Internal Revenue Service Form W-9, which may be
obtained from the Exchange Agent, for additional guidance on which number to
report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, write "Applied For"
in the space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS)
OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
12
<PAGE> 13
INSTRUCTIONS
TO REGISTERED HOLDER AND/OR
DTC PARTICIPANT FROM BENEFICIAL OWNER
OF
JAMES CABLE PARTNERS, L.P.
JAMES CABLE FINANCE CORP.
10 3/4% SENIOR NOTES DUE 2004
To Registered Holder and/or Participant in DTC.
The undersigned hereby acknowledges receipt of the Prospectus, dated
(the "Prospectus") of James Cable Partners, L.P., a Delaware limited
partnership, and James Cable Finance Corp., a Michigan corporation (the
"Issuers"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Issuers' offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or DTC participant, as to
action to be taken by you relating to the Exchange Offer with respect to the
10 3/4% Senior Notes due 2004 (the "Notes") held by you for the account of the
undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (fill in amount):
$ of the 10 3/4% Senior Notes due 2004
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF ANY):
$
[ ] NOT TO TENDER any Notes held by you for the account of the undersigned.
If the undersigned instructs you to tender the Notes held by you for the
account of the undersigned, it is understood that you are: (a) to make, on
behalf of the undersigned (and the undersigned, by its signature below, hereby
makes to you), the representations and warranties contained in the Latter of
Transmittal that are to be made with respect to the undersigned as a beneficial
owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN THE NAME OF THE
STATE) , (ii) the undersigned is acquiring the Exchange
Notes in the ordinary course of business of the undersigned, (iii) the
undersigned is not participating, does not participate, and has no arrangement
or understanding with any person to participate in the distribution of the
Exchange Notes, (iv) the undersigned acknowledges that any person participating
in the Exchange Offer for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Act"), in connection with a secondary
resale transaction of the Exchange Notes acquired by such person and cannot rely
on the position of the Staff of the Securities and Exchange Commission set forth
in no-action letters that are discussed in the section of the Prospectus
entitled "The Exchange Offer -- Resale of Exchange Notes," and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the Act, of the
Issuers; (b) to agree, on behalf of the undersigned, as set forth in the Letter
of Transmittal; and (c) to take such other actions as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such
Notes.
[ ] Check this box if the beneficial owner of the Notes is a broker-dealer
and such broker-dealer acquired the Notes for its own account as a result of
market-making activities or other trading activities.
13
<PAGE> 14
SIGN HERE
Name of beneficial owner(s):
----------------------------------------------------
Signature(s):
-------------------------------------------------------------------
Name (please print):
------------------------------------------------------------
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Telephone number:
---------------------------------------------------------------
Taxpayer Identification or Social Security Number:
------------------------------
Date:
---------------------------------------------------------------------------
14
<PAGE> 1
EXHIBIT 99.3
EXCHANGE AGENT AGREEMENT
EXCHANGE OFFER
As of ___________, 1997
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Ladies and Gentlemen:
James Cable Partners, L.P., a Delaware limited partnership, and James Cable
Finance Corp., a Michigan corporation (collectively, the "Issuers"), are
offering (the "Exchange Offer") to exchange $1,000 principal amount of their 10
3/4% Series B Senior Notes due 2004 (the "Exchange Notes") for each $1,000
principal amount of their 10 3/4% Senior Notes due 2004 (the "Notes"), upon the
terms and conditions set forth in the Prospectus dated ________________, 1997
(the "Prospectus") and the related Letter of Transmittal (the "Letter of
Transmittal") and Notice of Guaranteed Delivery (the "Notice of Guaranteed
Delivery"), copies of all of which are attached to this Agreement as Exhibit A.
The Exchange Offer is being made by the Issuers to any and all holders of the
Notes who were such on or about __________________, 1997 or who become such
prior to the Expiration Date of the Exchange Offer. The Letter of Transmittal
that will accompany the Prospectus, which is addressed to you and is to be used
by holders of the Notes to accept the Exchange Offer, contains instructions with
respect to the delivery of certificates for, or book-entry delivery of, Notes
tendered in the Exchange Offer.
This will confirm our agreement with you to act as Exchange Agent in connection
with the Exchange Offer. In such capacity, you will act as agent for the holders
of the Notes to receive and exchange Exchange Notes for Notes tendered pursuant
to the Exchange Offer. In carrying out your duties as Exchange Agent, you are to
act in accordance with the following:
1. The Exchange Offer will expire at 5:00 p.m., New York City time, on
_____________________ (the "Initial Expiration Date") or at any subsequent
time to which the Issuers may extend the Exchange Offer. The Issuers
expressly reserve the right to extend the Exchange Offer from time to time
by giving written notice to you before 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. In
this Agreement, "Expiration Date" means the later of the Initial
Expiration Date or the latest time and date to which the Exchange Offer
may be so extended.
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2. Promptly following the commencement of the Exchange Offer, you will
establish a book entry account with The Depository Trust Corporation
("DTC") for purposes of the Exchange Offer. Any financial institution that
is a participant in DTC may make book-entry delivery of Notes by causing
DTC to transfer such Notes into the account maintained by you pursuant to
this paragraph in accordance with procedures for such transfer. However,
although delivery of Notes may be effected through book-entry transfer,
the Letter of Transmittal (or a facsimile thereof) with any required
signature guarantees and any other documents must, in any case, be
received by you in order for such Notes to be properly tendered.
3. You are to examine the Letters of Transmittal, the certificates for Notes
and the other documents delivered or mailed to you in connection with
tenders of Notes to ascertain whether they are filled out and executed in
accordance with the instructions set forth in the Letter of Transmittal.
If any Letter of Transmittal has been improperly completed or executed, or
the certificates for Notes accompanying such Letter of Transmittal are not
in proper form for transfer (as required by the instructions) or are not
received, or no Automated Tender Offer Program ("ATOP") message with
respect to delivery of book-entry Notes has been received, or if some
other irregularity in connection with the acceptance of the Exchange Offer
exists, you will endeavor to take such action as may be necessary to cause
such irregularity to be corrected.
4. If a holder desires to tender Notes pursuant to the Exchange Offer but
such holder's certificates for such Notes are not immediately available,
or time will not permit all required documents to reach you before the
Expiration Date, or the procedure for book-entry tender cannot be
completed on a timely basis, such Notes may nevertheless be tendered if
all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution (as
defined in the Prospectus);
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery is received by you as provided below before the
Expiration Date; and
(iii) the certificates for all tendered Notes, in proper form for
transfer (or a confirmation of a book-entry transfer of such
Notes into your account at DTC), together with a properly
completed and duly executed Letter of Transmittal (or facsimile)
and any other documents required by the Letter of Transmittal,
are received by you within three New York Stock Exchange trading
days after the Expiration Date.
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<PAGE> 3
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to you and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
If necessary or advisable, you may communicate with Eligible Institutions which
have tendered Notes by means of the procedures described above to ascertain
additional information in connection therewith.
Notwithstanding any other provision of this Agreement, exchange for Notes
tendered pursuant to the Exchange Offer will in all cases be made only after
timely receipt by you of certificates for such Notes (or a confirmation of a
book-entry transfer), a properly completed and duly executed Letter of
Transmittal (or a facsimile) and any other documents required by the Letter of
Transmittal.
5. Determination of all questions as to the validity, form, eligibility
(including timeliness of receipt) and acceptance of any Notes tendered or
delivered shall be determined by you on behalf of the Issuers in the first
instance, but final decisions on all matters shall be made by the Issuers.
The Issuers will reserve in the Prospectus the absolute right to reject
any or all tenders of Notes not properly tendered or any Notes the
acceptance of which would, in the opinion of the Issuers's counsel, be
unlawful and to waive any of the conditions of the Exchange Offer or any
defect or irregularity in the tender of any Notes, and the Issuers'
interpretation of the terms and conditions of the Exchange Offer will be
final and binding.
6. Exchange Notes issuable in exchange for Notes duly tendered shall be
delivered as soon as practicable after notice of acceptance of the Notes
by the Issuers is received by you.
Notes tendered pursuant to the Exchange Offer may be withdrawn as set
forth in the section of the Prospectus entitled "The Exchange Offer --
Withdrawals of Tenders." As promptly as possible after notification of
such withdrawal, you shall return the certificates for such Notes to, or
in accordance with the instruction of, such noteholder and such Notes
shall no longer be considered properly tendered. All questions as to the
form and validity of notices of withdrawal, including timeliness of
receipt, shall be determined by the Issuers, whose determination shall be
final and binding.
7. On each business day up to and including the Expiration Date you shall
advise by telephone, not later than 5:00 p.m., New York City time, any of
William R. James, C. Timothy Trenary or Daniel K. Shoemaker, each an
officer of the Issuers, at 248-647-1080, and such other persons as any of
them may direct in writing, of the principal amount of Notes which have
been duly tendered on that day, stating separately the principal amount of
Notes tendered by book-entry
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<PAGE> 4
delivery, the principal amount of Notes tendered by Notice of Guaranteed
Delivery, the principal amount of Notes tendered about which you have
questions concerning validity and the cumulative principal amount of Notes
tendered through the time of such call. Promptly thereafter (by the next
business day), if requested, you shall confirm such advice to one person
in each of the above groups in writing, to be transmitted by telecopier,
pouch or other special form of delivery. You shall also inform the those
persons, and such other persons as may be designated by any of them, upon
request made from time to time, of such other information as any of them
may request, including, without limitation, the names and addresses of
registered holders of tendered Notes.
8. Originals of Letters of Transmittal or facsimile transmissions submitted
in lieu of Letters of Transmittal pursuant to the Prospectus prior to the
Expiration Date shall be preserved by you in accordance with your standard
practices. If any Letters of Transmittal or facsimiles are received by you
on or after the Expiration Date, such documents shall be stamped by you to
show the date and time of receipt. You shall keep a record of whether you
have received executed Letters of Transmittal with respect to Notes
tendered by ATOP.
9. You shall follow and act upon these instructions, and upon any further
instructions given to you in connection with the Exchange Offer, any of
which may be given to you by either Issuer or such other persons as either
of them may authorize.
10. If, pursuant to the provisions of Instruction 3 of the Letter of
Transmittal, fewer than all the Notes evidenced by any certificate
submitted to you are to be tendered, you shall, promptly after the
Expiration Date, return a new certificate for the remainder of such Notes
not being tendered to, or in accordance with the instructions of, each of
such noteholders who has made a partial tender of Notes.
11. The Issuers shall not be required to exchange any Notes tendered if there
shall occur any of the events set forth in the Section of the Prospectus
entitled "The Exchange Offer -- Conditions" or if any of the other
conditions set forth in the Prospectus are not met. Notice of any decision
by the Issuers not to exchange any Notes tendered shall be given in
writing by the Issuers to you.
12. If, pursuant to the Exchange Offer, the Issuers do not accept for exchange
all or part of the Notes tendered, you shall promptly, after receipt of
instructions from the Issuers, return the deposited certificates for such
Notes or, as the case may be, issue an ATOP message with respect to Notes
tendered by book-entry delivery, with any related required documents that
are in your possession, to or in accordance with the instructions of the
persons who deposited the same, together with a notice in form
satisfactory to the Issuers explaining the reasons for their return.
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<PAGE> 5
13. Certificates for unexchanged Notes, or newly issued certificates for
Exchange Notes, shall be forwarded promptly by first-class mail under a
blanket surety bond protecting you and the Issuers from loss or liability
arising out of the non-receipt or non-delivery of such certificates.
14. As Exchange Agent hereunder you:
(a) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or
genuineness of the Notes or any certificates for Notes deposited with
you pursuant to the Exchange Offer and will not be required to and
will make no representation as to the validity, value or genuineness
of the Exchange Offer;
(b) shall not initiate any legal action hereunder without written
approval of the Issuers and then only upon such reasonable indemnity
as you may request;
(c) may rely on and shall be protected in acting in reliance upon any
certificate, instrument, opinion, notice, letter, telegram or other
document or security delivered to you and believed by you to be
genuine and to have been signed by the proper party or parties;
(d) may rely on and shall be protected in acting upon written
instructions from any of the persons set forth in clause (a) of
paragraph 7 hereof with respect to any matter relating to your
actions as Exchange Agent specifically covered by this Agreement, or
supplementing or qualifying any such actions;
(e) may consult counsel satisfactory to you (including counsel for the
Issuers), and the written advice or opinion of such counsel shall be
full and complete authorization and protection in respect of any
action taken, suffered or omitted by you hereunder in good faith and
in accordance with the opinion of such counsel;
(f) shall not at any time solicit any person to tender Notes pursuant to
the Exchange Offer or otherwise advise any person tendering Notes
pursuant to the Exchange Offer as to the wisdom of making such tender
or as to the market value or decline or appreciation in market value
of either the Notes or the Exchange Notes.
15. It is understood and agreed that the securities (the "Property") to be
deposited with or received by you as Exchange Agent from the Issuers and
tendering noteholders constitute a special trust account, held solely for
the benefit of the Issuers and the noteholders tendering Notes, as their
respective interests may appear. Such Property need not be segregated from
the securities, money, assets or properties of you or any other person,
firm or corporation except to the extent
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<PAGE> 6
required by law. You hereby waive any and all rights of lien, attachment
or setoff whatsoever, if any, against the Property so to be deposited,
whether such rights arise by reason of statutory or common law, by
contract or otherwise.
16. For services rendered as Exchange Agent hereunder, you shall be entitled
to payment as specified in Schedule A attached hereto.
17. The Issuers, jointly and severally, covenant and agree to indemnify you
and to hold you harmless against any costs, expenses (including reasonable
fees of your legal counsel), losses or damages which may be paid, incurred
or suffered by you or to which you may become subject, arising from or out
of, directly or indirectly, any claim or liability resulting from your
actions as Exchange Agent pursuant hereto; provided, that such covenant
and agreement does not extend to, and you shall not be indemnified and
held harmless with respect to, such costs, expenses, losses and damages
incurred or suffered by you as a result of, or arising out of, your
negligence, bad faith or willful failure to perform your obligations
hereunder. Promptly after you have received any written assertion of a
claim or have been served with a summons or other first legal process
giving information as to the nature and basis of the claim, you shall
notify the Issuers, by letter or by cable or telex confirmed by letter, of
the written assertion of such claim against you or of any action commenced
against you or of the service of any summons on you, or other first legal
process giving information as to the nature and basis of the claim. The
Issuers will be entitled to participate at their own expense in the
defense. If the Issuers so elect at any time after receipt of such notice
and agree in writing that such claim is a claim for which you are entitled
to be indemnified and held harmless hereunder or if you in such notice
request and the Issuers agree, the Issuers will assume the defense of any
suit brought to enforce any such claim. In the event the Issuers assume
the defense of any such suit, the Issuers may select counsel of their own
choosing for such purpose provided such counsel is reasonably satisfactory
to you, and the Issuers will not be liable for the fees and expenses of
any additional counsel thereafter retained by you, except that if you have
reasonably concluded that there may be legal defenses available to you
which are not available to the Issuers, you shall have the right to select
separate counsel and to assume such legal defense and to otherwise
participate in the defense of such action at the Issuers' expense. The
Issuers shall not be required to pay for any settlement made without their
consent.
18. This Agreement and your appointment as Exchange Agent shall be governed
and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such
state and shall inure to the benefit of, and the obligations created
hereby shall be binding upon, the successors and assigns of the parties
hereto.
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<PAGE> 7
19. This Agreement may be executed in separate counterparts, each of which
when executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
20. This Agreement may not be amended except in a writing executed by the
Issuers and you.
If the foregoing is acceptable to you, please acknowledge receipt of this letter
and confirm the arrangements herein provided by signing and returning the
enclosed copy hereof.
Sincerely,
James Cable Partners, L.P. James Cable Finance Corp.
By: James Communications Partners,
a Michigan co-partnership,
its General Partner By:
William R. James
By: Jamesco, Inc., a Michigan President
corporation, its Partner
By:
William R. James
President
Accepted and agreed to as of the
date first above written:
United States Trust Company of
New York, as Agent
By:
Name:
Title:
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<PAGE> 8
SCHEDULE A
JAMES CABLE PARTNERS, L.P.
SCHEDULE OF FEES
TO ACT AS
EXCHANGE AGENT
$100 MM 144A Debt Issue
As Exchange Agent $4,500.00
(applicable only upon
conversion to public debt)
