approximately $900 million, or $1.2 billion pro forma for the Pending
Acquisitions, to upgrade our existing Systems in order to offer advanced cable
services, increase program offerings and permit two-way communication. We also
plan to spend an additional $900 million, or $1.3 billion pro forma for the
Pending Acquisitions, to maintain and expand our existing systems. We believe
that we should complete these upgrades in order to improve our competitive
position. As we make additional acquisitions, we expect that our need to make
additional capital expenditures will increase. We may not, however, be able to
fund these planned increases in capital expenditures. Moreover, we cannot assure
you that completing these upgrades will allow us to compete effectively with
competitors which either do not rely on cable into the home to deliver services
or have access to significantly greater amounts of capital and an existing
communications network. If we cannot obtain the funds we need in order to
complete the upgrades discussed above, our financial condition, the results of
our operations, and our competitive position could all suffer materially.
SUBORDINATION/HOLDING COMPANY STRUCTURE -- THE NOTES ARE THE OBLIGATIONS OF A
HOLDING COMPANY WHICH HAS NO OPERATIONS AND DEPENDS ON SUBSIDIARIES FOR CASH.
SUCH SUBSIDIARIES MAY BE LIMITED IN THEIR ABILITY TO MAKE FUNDS AVAILABLE.
As a holding company, Charter Holdings does not hold substantial assets
other than its direct or indirect investments in and advances to our operating
subsidiaries. Consequently, our subsidiaries conduct all of our consolidated
operations and own substantially all of our consolidated assets. As a result,
our cash flow and our ability to meet our debt service obligations on the Notes
will depend upon the cash flow of our subsidiaries and the payment of funds by
the subsidiaries to us in the form of loans, equity distributions or otherwise.
Our subsidiaries are not obligated to make funds available to us for payment on
the Notes or otherwise. In addition, our subsidiaries' ability to make any such
loans or distributions to us will depend on their earnings, the terms of their
indebtedness, business and tax considerations and legal restrictions.
Because of our holding company structure described above, the Notes will be
subordinate to all liabilities of our subsidiaries. Our lenders under the Credit
Facilities will consequently have the right to be paid before you from any cash
received or held by our subsidiaries. In the event of bankruptcy, liquidation or
dissolution of a subsidiary, following payment by the subsidiary of its
liabilities, such subsidiary may not have sufficient assets remaining to make
payments to us as a shareholder or otherwise. As of December 31, 1998, as
adjusted to give effect to the Refinancing, the Marcus Combination and the
Pending Acquisitions, as if such transactions had occurred on that date, all of
our outstanding indebtedness, other than the Notes, were incurred by our
subsidiaries and totaled approximately $3.4 billion, all of which, including
other liabilities and trade payables of our subsidiaries, would have been
structurally senior to the Notes. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS OF GROWTH STRATEGY -- IF WE ARE UNSUCCESSFUL IN IMPLEMENTING OUR GROWTH
STRATEGY, WE MAY BE UNABLE TO FULFILL OUR OBLIGATIONS UNDER THE NOTES.
We expect that a substantial portion of any of our future growth will be
achieved through revenues from additional services and the acquisition of
additional cable systems. We cannot assure you that we will be able to offer new
services successfully to our customers or that those new services will generate
revenues. In addition, the acquisition of additional cable systems may not have
a positive net impact on our operating results. If we