<PAGE> 1
As filed with the Securities and Exchange Commission on August 12, 1996
REGISTRATION NO. 333-09535
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
FRONTIERVISION OPERATING PARTNERS, L.P.
FRONTIERVISION CAPITAL CORPORATION
(Exact name of Registrants as specified in their charters)
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DELAWARE 4841 84-1316775
DELAWARE 4841 APPLIED FOR
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Numbers)
</TABLE>
1777 SOUTH HARRISON STREET, SUITE P-200, DENVER, COLORADO 80210 (303) 757-1588
(Address, including Zip Code, and telephone number, including area code, of
Registrants' principal executive offices)
---------------------------
JAMES C. VAUGHN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FrontierVision Inc.
1777 South Harrison Street, Suite P-200
Denver, Colorado 80210
(303) 757-1588
(Name, address, including Zip Code, and telephone number, including area code,
of Registrants' agent for service)
---------------------------
Please address a copy of all communications to:
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LEONARD J. BAXT, ESQ. GERALD S. TANENBAUM, ESQ.
Dow, Lohnes & Albertson Cahill Gordon & Reindel
1200 New Hampshire Avenue, N.W. 80 Pine Street
Washington, D.C. 20036 New York, New York 10005
(202) 776-2000 (212) 701-3000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement covers the registration of $200,000,000 aggregate
principal amount of % Senior Subordinated Notes due 2006 (the "Notes")
which are being issued by FrontierVision Operating Partners, L.P. and
FrontierVision Capital Corporation (collectively, the "Issuers"). The complete
Prospectus contained herein relates to the primary offering of the Notes by the
Issuers. Immediately following the complete Prospectus are certain alternate
pages of the Prospectus relating to the sale of the Notes by J.P. Morgan
Securities Inc. and First Union Capital Markets Corp. in market making
transactions, including an alternate front cover page and a section entitled
"Plan of Distribution."
<PAGE> 3
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 ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION
[LOGO] DATED AUGUST 12, 1996
FRONTIERVISION OPERATING PARTNERS, L.P.
FRONTIERVISION CAPITAL CORPORATION
$200,000,000
% Senior Subordinated Notes due 2006
Interest payable and
ISSUE PRICE: %
The % Senior Subordinated Notes due 2006 (the "Notes") are being offered
(the "Offering") by FrontierVision Operating Partners, L.P., a Delaware limited
partnership ("FVOP" or the "Company"), and FrontierVision Capital Corporation, a
Delaware corporation ("Capital") which is a wholly owned subsidiary of FVOP. The
Notes are the joint and several obligations of FVOP and Capital (collectively,
the "Issuers"). The Company will receive all of the net proceeds of the
Offering. Capital has nominal assets and does not conduct any operations.
The Notes mature on , 2006, unless previously redeemed. Interest
on the Notes is payable semiannually on each and , commencing
, 1997. The Notes are not redeemable prior to ,
2001, except as set forth below. The Notes will be redeemable at the option of
the Issuers, in whole or in part, at any time on or after , 2001,
at the redemption prices set forth herein, together with accrued and unpaid
interest to the redemption date. In addition, prior to , 1999,
the Issuers may redeem up to 35% of the principal amount of the Notes with the
net cash proceeds received from one or more Public Equity Offerings or Strategic
Equity Investments (as such terms are defined) at a redemption price of %
of the principal amount thereof, together with accrued and unpaid interest to
the redemption date; provided, however, that at least 65% in aggregate principal
amount of the Notes originally issued remains outstanding immediately after any
such redemption.
Upon a Change of Control (as defined), the Issuers will be required to make an
offer to purchase all outstanding Notes at 101% of the principal amount thereof,
together with accrued and unpaid interest to the purchase date.
The Notes will be general unsecured obligations of the Issuers and will rank
subordinate in right of payment to all existing and future Senior Indebtedness
(as defined) of the Issuers. The Notes will rank pari passu in right of payment
with any other senior subordinated indebtedness of the Issuers. At March 31,
1996, as adjusted to give effect to the transactions described herein under "Use
of Proceeds" and the Other Transactions (as defined herein), the Company would
have had approximately $201.3 million of Senior Indebtedness outstanding.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (1)(3)
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Per Note % % %
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Total $ $ $
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(1) Plus accrued interest, if any, from the date of issuance.
(2) The Issuers have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $1,000,000.
The Notes are being offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by Cahill Gordon & Reindel, counsel for the Underwriters,
and certain other conditions. The Underwriters withhold the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the Notes will be made against payment therefor, in
immediately available funds, on or about , 1996 at the offices of
J.P. Morgan Securities Inc., 60 Wall Street, New York, New York.
J.P. MORGAN & CO.
CHASE SECURITIES INC.
CIBC WOOD GUNDY SECURITIES CORP.
, 1996 FIRST UNION CAPITAL MARKETS CORP.
<PAGE> 4
[INSIDE FRONT COVER PAGE]
[MAP OF FRONTIERVISION SYSTEMS, INCLUDING EXISTING SYSTEMS, ACQUISITION
SYSTEMS (ACE, TRIAX, GRASSROOTS AND PENN/OHIO), AND DISPOSITION SYSTEMS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
No person has been authorized to give any information or to make any
representation not 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 or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Notes in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to any person to whom it
is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof or that there has been no change in the affairs of
the Issuers since the date hereof.
TABLE OF CONTENTS
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PAGE
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Available Information.................. 4
Prospectus Summary..................... 5
Risk Factors........................... 14
Use of Proceeds........................ 19
Capitalization......................... 20
Selected Financial Data................ 21
Pro Forma Financial Data............... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 33
Business............................... 37
Legislation and Regulation............. 51
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PAGE
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Management............................. 59
Certain Relationships and Related
Transactions......................... 63
Principal Security Holders............. 64
The Partnership Agreements............. 66
Credit Arrangements of the Company..... 75
Description of the Notes............... 76
Underwriting........................... 103
Legal Matters.......................... 104
Experts................................ 104
Glossary............................... 105
Index to Financial Statements.......... F-1
</TABLE>
---------------------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3
<PAGE> 6
AVAILABLE INFORMATION
The Issuers have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part and
which term shall encompass any amendments thereto) on Form S-1, pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Notes offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information about the Issuers and the Notes, reference is hereby made to the
Registration Statement and to such exhibits and schedules. Statements contained
herein concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement is qualified in its entirety by such
reference.
In addition, as a result of the Offering, the Issuers will be 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. In addition, under the Indenture governing the
Notes, the Issuers will be required to furnish to the Trustee and to registered
holders of the Notes audited annual consolidated financial statements, unaudited
quarterly consolidated financial reports and certain other reports. The
Registration Statement, the exhibits and schedules forming a part thereof and
the reports and other information filed by the Issuers with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
without charge and copied upon payment of certain fees at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, Seven World Trade Center, 13th Floor,
New York, New York 10048, and Chicago Regional Office, Northwestern Atrium, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission also
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports and other information regarding registrants that file
electronically with the Commission.
------------------------
FVOP was organized as a Delaware limited partnership in 1995. Capital is a newly
created Delaware corporation formed solely for the purpose of serving as an
Issuer of the Notes and is wholly owned by FVOP. The principal office of each of
the Issuers is located at 1777 South Harrison Street, Suite P-200, Denver,
Colorado 80210, and their telephone number is (303) 757-1588.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. The information set forth in this Prospectus gives effect to
the organization of Capital, a newly created corporation, as a wholly owned
subsidiary of FVOP. The financial and operating data set forth in this
Prospectus give effect (unless otherwise noted) to the April 9, 1996 acquisition
by the Company of certain cable television systems from affiliates of Cox
Communications, Inc. as if such transaction had occurred as of March 31, 1996.
See "Risk Factors" for a discussion of certain risks associated with an
investment in the Notes. See "Glossary" for the definitions of certain terms
used herein.
THE COMPANY
The Company owns, operates and develops cable television systems in small and
medium-sized suburban and exurban communities, primarily concentrated in two
operating regions -- New England and Ohio/Kentucky -- with a third, smaller
group of cable television systems in the Southeast. To date, the Company has
acquired strategically located cable television systems at historically
attractive values, thus establishing its core geographic base and building
subscriber mass. Since closing its initial acquisition in November 1995, the
Company has become one of the 35 largest multiple system cable operators
("MSOs") in the U.S. The Company's currently owned cable television systems (the
"Existing Systems") passed approximately 304,700 homes in six states and served
approximately 215,100 basic subscribers as of March 31, 1996.
The Company has entered into agreements to acquire, for an aggregate purchase
price of approximately $244.4 million, additional systems (the "Acquisition
Systems") which passed approximately 202,400 homes and served approximately
147,500 basic subscribers as of March 31, 1996. The Acquisition Systems
primarily consist of certain significant cable television systems to be acquired
from American Cable Entertainment of Kentucky-Indiana, Inc. ("ACE") and from an
affiliate of Triax Communications Corp. ("Triax"). The ACE systems, serving
approximately 83,300 subscribers in Kentucky and Indiana, and the Triax systems,
serving approximately 53,800 subscribers in Ohio/Kentucky and the Southeast, are
contiguous or in close proximity to the Existing Systems, consistent with the
Company's strategy of clustering its cable television systems to achieve
economies of scale and operating efficiencies. The Company intends to continue
to pursue, on an opportunistic basis, additional strategic acquisitions and
smaller "fill-in" acquisitions within its existing operating regions to further
enhance their operational and financial performance. In addition, the Company
has sold or entered into agreements to sell three systems in the Southeast (the
"Disposition Systems") for an aggregate sales price of approximately $17.1
million, representing a per subscriber sales price that is over 30% more than
the average per subscriber acquisition cost of the Existing Systems in the
Southeast.
As of March 31, 1996, after giving pro forma effect to the purchase of the
Existing Systems and the Acquisition Systems and the sale of the Disposition
Systems, the Company's cable television systems passed approximately 493,900
homes and served approximately 351,900 basic subscribers, representing a basic
penetration level of 71.2%. On such a pro forma basis, as of March 31, 1996, the
Company would be one of the 25 largest MSOs in the U.S. and a dominant cable
operator in its two primary operating regions. On the same pro forma basis, for
the three months ended March 31, 1996 annualized and for the year ended December
31, 1995, the Company had revenues of approximately $120.6 million and $117.0
million, respectively, and EBITDA (as defined) of approximately $58.9 million
and $54.6 million, respectively.
In order to execute the Company's business strategy, James C. Vaughn and John S.
Koo, the Company's co-founders, have assembled a senior management group of
seven individuals with over 100 years of collective experience in the cable
industry. The equity investors in the Company include affiliates of J.P. Morgan
& Co. Incorporated, Brown Brothers Harriman & Co., Olympus Partners and First
Union Capital Partners, Inc. After giving pro forma effect to a $70.0 million
rights offering (the "Rights Offering"), which is expected to be consummated
concurrently with or prior to the Offering, the Company will have obtained
aggregate equity capital commitments of approximately $193.5 million, of which
approximately $190.0 million is available for investment in the Company.
The Existing Systems and the Acquisition Systems represent the substantial
completion of the first phase of the Company's business plan. Through its core
acquisitions in New England and Ohio/Kentucky, the Company has
5
<PAGE> 8
established significant subscriber mass and positioned itself as a dominant
cable operator in each of its primary operating regions. The Company is
currently the second largest MSO in Maine, and, after giving pro forma effect to
the purchase of the Existing Systems and the Acquisition Systems, as of March
31, 1996, the Company would be the second largest MSO in Kentucky and one of the
largest operators of small and medium-sized cable systems in southern Ohio. In
the Southeast, the Company has accumulated attractive systems which it expects
either to consolidate with subsequent system acquisitions, trade for systems
within the Company's primary operating regions or divest at favorable prices.
The next phase of the Company's business plan will focus on increasing
subscriber density within its primary operating regions through selective
acquisitions, integrating and streamlining business operations, making
significant investment and improvements in technical plant and developing
existing and new cable and broadband telecommunications services.
BUSINESS STRATEGY
The Company's objective is to increase its operating cash flow and the value of
its systems by utilizing its expertise in acquiring and managing cable systems.
Through strategic acquisitions and internal growth, the Company seeks to own and
operate cable television systems serving at least 500,000 subscribers in
geographically concentrated clusters serving 100,000 or more subscribers. To
achieve its objective, the Company pursues the following business strategies:
TARGET CLUSTERS IN SMALL AND MEDIUM-SIZED MARKETS. The Company has acquired
clusters of cable television systems serving small and medium-sized suburban and
exurban markets which are generally within 50 to 100 miles of larger urban and
suburban communities. The Company believes that such markets have many of the
beneficial attributes of larger urban and suburban markets -- moderate to high
household growth, economic stability, attractive subscriber demographics and
favorable potential for additional clustering. Moreover, in such markets, the
Company believes that (i) it will face less direct competition given the lower
population densities and higher costs per subscriber of installing cable plant,
(ii) it will maintain higher subscriber penetration levels and lower customer
turnover based on fewer competing entertainment alternatives, and (iii) its
overhead and certain operating costs will generally be lower than those in
larger markets.
GROW THROUGH STRATEGIC AND OPPORTUNISTIC ACQUISITIONS. Beginning with its
initial acquisition in November 1995 of systems in Maine and Ohio, the Company
has systematically implemented a focused acquisition and consolidation strategy
within its two primary operating regions of New England and Ohio/Kentucky and
its systems group in the Southeast. Going forward, the Company will seek to
acquire systems that can be readily integrated into its primary operating
regions in order to maximize operating efficiencies. As a consolidator of
systems within its primary operating regions, the Company will pursue both
"fill-in" acquisitions of smaller systems as well as strategic acquisitions. The
Company believes that such acquisition targets will have diminished strategic
value to other prospective buyers given its geographic prominence in these
regions. Consequently, the Company believes these systems can be purchased at
favorable prices. The Company also opportunistically pursues acquisitions
outside of its primary operating regions that can either be resold at higher
prices or exchanged for systems that are contiguous to its primary operating
regions. The Company has begun to execute this strategy with its Southeast
systems.
IMPLEMENT OPERATING EFFICIENCIES. Upon acquiring a system, the Company
implements extensive management, operational and technical changes designed to
improve operating efficiencies, enhance operating cash flow and operating
margins and reduce overhead through economies of scale. Within each of its
operating regions, the Company has begun to streamline field operations by
establishing centralized customer service facilities, installing
state-of-the-art telephone systems, management information systems ("MIS") and
billing systems and eliminating duplicative functions. These changes have
resulted in lower administrative costs, better trained employees and a higher
level of customer service. Lastly, the Company seeks to reduce technical
operating costs and capital expenditures associated with the implementation of
new channels and services by consolidating headends. By serving more subscribers
from a single distribution point, the Company has begun to decrease ongoing
technical maintenance expenses, improve system reliability and enhance cost
efficiencies in adding new channels and services.
6
<PAGE> 9
PROMOTE AND EXPAND SERVICE OFFERINGS. The Company aggressively promotes and
expands services to add and retain customers and increase revenue per customer.
The Company employs a coordinated array of marketing techniques, including
door-to-door sales, telemarketing, direct mail, print and broadcast advertising,
flyers and billing inserts and cross-channel promotion. Many of the Company's
customers received limited service offerings prior to acquisition and,
accordingly, the Company has begun to expand and repackage the basic and premium
services it offers. The Company believes that significant opportunity exists to
increase service revenue by expanding the programming and pricing options
available to its customers. Towards this end, the Company has created new basic
and premium packages and launched several lower priced premium channels such as
The Disney Channel, Starz! and Encore. As systems are consolidated and
technically enhanced, the Company will also expand addressability, currently
accessed by only 27.6% of the subscribers in the Existing Systems and the
Acquisition Systems. Addressability will enable the Company to increase revenues
derived from pay-per-view movies and events and new pay services such as
interactive video games, including The Sega Channel. In addition, with the
expanded advertising market delivery afforded by larger, contiguous system
clusters, the Company plans to intensify local spot advertising sales efforts.
STRATEGICALLY UPGRADE SYSTEMS. The Company will selectively upgrade its cable
systems to increase channel capacity, enhance signal quality and improve
technical reliability. The Company believes such technical upgrades will not
only enhance the potential for increasing revenues, but also will improve
customer and community relations and further solidify the Company's position as
the preeminent local provider of video services in its operating regions. In
addition, by implementing a hybrid fiber optic-backbone/coaxial cable design
across the portions of its cable plant that serve its highest subscriber
densities, the Company will effectively position itself for the introduction of
new broadband and interactive services. In its primary operating regions of New
England and Ohio/Kentucky, the Company intends to invest up to $49.0 million
over the next five years to establish a technical platform of at least 400 MHz
to 450 MHz (54 to 62 channels) in a majority of its systems and 550 MHz to 750
MHz (78 to 100 channels) in certain of its larger markets. Over the same period,
the Company plans to invest up to an additional $10.6 million for addressable
converters in its two primary operating regions.
FOCUS ON THE CUSTOMER. The Company continually seeks to provide superior
customer service and improve programming and service choices for its
subscribers. By centralizing customer service at the regional level, all
functions that directly impact subscribers -- sales and marketing, customer
service and administration and technical support -- are implemented more quickly
and effectively. In addition, as a result of its consolidation efforts, the
Company has been able to enhance its customer service by increasing hours of
operations for its customer service functions, better coordinating service
calls, increasing responsiveness to customer inquiries and standardizing
maintenance procedures. While centralizing and improving customer service, the
Company has retained local payment and technical offices to maintain its
presence and visibility within its communities.
7
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THE EXISTING SYSTEMS AND THE ACQUISITION SYSTEMS
The following table illustrates certain subscriber and operating statistics for
the Company as of March 31, 1996 on a pro forma basis giving effect to the
purchase of the Acquisition Systems and the sale of the Disposition Systems (see
"--Summary Financial and Operating Data of the Company" for a description of
certain terms used in the following table):
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AVG. MONTHLY
REVENUE PER
HOMES BASIC BASIC PREMIUM BASIC
CABLE SYSTEMS PASSED SUBSCRIBERS PENETRATION PENETRATION SUBSCRIBER EBITDA(1)
-------- ----------- ----------- ----------- ------------ ---------
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Existing Systems(2):
New England................... 82,985 58,930 71.0% 35.6% $27.83 $ 8,878
Ohio/Kentucky................. 159,662 115,787 72.5% 37.7% 28.43 20,417
Southeast..................... 62,082 40,413 65.1% 44.6% 23.98 4,997
-------- ----------- ----------- ----------- ------------ ---------
Total Existing Systems...... 304,729 215,130 70.6% 38.4% 27.43 34,292
Acquisition Systems:
ACE........................... 106,617 83,347 78.2% 35.8% 30.42 13,864
Triax......................... 79,237 53,825 67.9% 56.2% 29.24 10,152
Other......................... 16,512 10,292 62.3% 47.8% 30.02 2,012
-------- ----------- ----------- ----------- ------------ ---------
Total Acquisition Systems... 202,366 147,464 72.9% 44.1% 29.96 26,028
Disposition Systems:............ (13,233) (10,742) 81.2% 41.8% 25.20 (1,432)
-------- ----------- ----------- ----------- ------------ ---------
Total Systems............... 493,862 351,852 71.2% 40.7% $28.56 $58,888
======== =========== =========== =========== ============ =========
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(1) Annualized for the most recent quarter ended March 31, 1996 (in thousands)
on a pro forma basis after giving effect to the adjustments described under
"--Summary Financial and Operating Data of the Company."
(2) The Existing Systems include cable television systems acquired from (i)
United Video Cablevision, Inc. ("UVC"), (ii) Longfellow Cable Company, Inc.
("Longfellow"), (iii) C4 Media Cable Southeast, Limited Partnership and County
Cable Company, L.P. ("C4"), (iv) Americable International Maine, Inc.
("Americable") and (v) affiliates of Cox Communications, Inc. ("Cox").
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THE ACQUISITION SYSTEMS
ACE Systems. The Company has entered into an agreement with ACE to acquire
systems (the "ACE Systems") serving approximately 83,300 subscribers as of March
31, 1996 in Kentucky and Indiana for $146.0 million. The Company intends to
operate all of the ACE Systems as part of its Ohio/Kentucky cluster. It is
anticipated that this acquisition will be completed in the third quarter of
1996. The Company's agreement for the acquisition of the ACE Systems is subject
to the approval of ACE's existing creditors and a bankruptcy court. Although
there can be no assurances that this transaction will be consummated, the
Company has no reason to believe that ACE's existing creditors or the bankruptcy
court will not approve the transaction or that the bankruptcy proceedings will
have any material adverse effect on the operations of the ACE Systems.
Triax Systems. The Company has also entered into an agreement with Triax to
acquire systems (the "Triax Systems") serving approximately 53,800 subscribers
as of March 31, 1996 in Ohio, Kentucky, Virginia, West Virginia, Pennsylvania,
Maryland and North Carolina for $85.0 million. The Company intends to operate
the systems in Kentucky, Ohio and West Virginia, serving approximately 28,900
basic subscribers, as part of its Ohio/ Kentucky cluster. The Company intends to
operate the systems in North Carolina, Virginia, Pennsylvania and Maryland,
serving approximately 24,900 basic subscribers, as part of its Southeast region.
It is anticipated that this acquisition will be completed in the third quarter
of 1996, although there can be no assurances that this transaction will be
consummated.
Upon acquisition and the subsequent integration of the ACE Systems and the Triax
Systems with the Existing Systems, the Company will serve over 200,000
subscribers in communities south of Columbus, Ohio to the southern perimeter of
Lexington, Kentucky. Within this region are ten county service areas along the
Interstate 75 "growth corridor," which is among the fastest growing areas in the
region. By 1997, it is anticipated that 30% of the Company's subscribers within
this region will be served by fiber-to-the-feeder 550 MHz or 750 MHz technical
plant.
Other Acquisitions. In addition to the acquisition of the ACE Systems and the
Triax Systems, the Company has entered into agreements to acquire systems
serving an aggregate of approximately 10,300 basic subscribers as of March 31,
1996 for approximately $13.4 million. In July 1996, the Company entered into an
agreement with Phoenix Grassroots Cable Systems, L.L.C. ("Grassroots") to
acquire systems serving approximately 7,000 basic subscribers as of March 31,
1996 in Maine and New Hampshire for $9.6 million. The Company expects to enter
into an agreement in August 1996 with SRW, Inc.'s Penn/Ohio Cablevision, L.P.
("Penn/Ohio") to acquire systems serving approximately 3,300 subscribers as of
March 31, 1996 in Ohio and Pennsylvania for $3.8 million. It is anticipated that
both acquisitions will be completed in the third quarter of 1996, although there
can be no assurances that either of these transactions will be consummated.
The Company believes that other acquisition opportunities exist, and the Company
is continuously engaged in discussions with other cable television system owners
and operators to explore such potential opportunities. Some of these potential
opportunities may involve systems serving substantial numbers of subscribers.
Although the Company does not currently have definitive agreements to acquire
systems other than those described herein, the Company intends to continue to
pursue, on an opportunistic basis, additional strategic acquisitions and smaller
"fill-in" acquisitions within its existing operating regions to enhance further
their operational and financial performance.
THE DISPOSITION SYSTEMS
On July 24, 1996, the Company sold its Chatsworth, Georgia system, representing
approximately 5,700 basic subscribers as of March 31, 1996, to an affiliate of
Helicon Partners for approximately $8.6 million. The Company also has entered
into an agreement to sell its Woodstock and New Market, Virginia systems,
representing approximately 5,000 subscribers, to Shenandoah Cable Television
Company, an affiliate of Shenandoah Telephone Company, for approximately $8.5
million. It is anticipated that this sale will be completed in the fourth
quarter of 1996, although there can be no assurances that this transaction will
be consummated. The aggregate sales price of approximately $17.1 million for the
Disposition Systems represents a per subscriber sales price that is over 30%
more than the average per subscriber acquisition cost of the Existing Systems in
the Southeast.
9
<PAGE> 12
THE TRANSACTIONS
Concurrently with or prior to the completion of the Offering, it is anticipated
that FrontierVision Partners, L.P. ("FVP"), the sole general partner and the
owner, directly and indirectly, of substantially all of the partnership
interests of the Company, will consummate a $70.0 million Rights Offering, the
net proceeds of which will be contributed as equity to the Company over time to
fund future acquisitions. The Company will use (i) $32.0 million of the proceeds
from the Rights Offering, (ii) $193.0 million of net proceeds from the Offering,
(iii) $16.9 million of proceeds (net of transaction costs) from the sale of the
Disposition Systems, (iv) $4.5 million of net working capital adjustment related
to the Acquisition Systems and (v) $1.5 million of available cash on hand to (i)
pay the purchase prices for the Acquisition Systems and (ii) pay estimated
transaction costs associated with the purchase of the Acquisition Systems. The
Rights Offering, the Offering, the sale of the Disposition Systems and the
purchase of the Acquisition Systems are collectively referred to as the
"Acquisition Transactions." To the extent that there is any delay in
consummating the purchase of any of the Acquisition Systems, a portion of the
net proceeds of the Offering corresponding to the purchase price of such system
may be applied to reduce temporarily revolving indebtedness for borrowings under
the Senior Credit Facility. See "Use of Proceeds," "The Partnership Agreements"
and "Credit Arrangements of the Company."
The following table sets forth the sources and uses of the proceeds to be
received by the Company in connection with the Acquisition Transactions
(determined as of March 31, 1996):
<TABLE>
<CAPTION>
--------
In thousands AMOUNT
--------
<S> <C>
SOURCES OF FUNDS:
Rights Offering(1)................................................................ $ 32,000
% Senior Subordinated Notes due 2006(2)......................................... 193,000
Sale of Disposition Systems(3).................................................... 16,860
Net working capital adjustment.................................................... 4,484
Available cash on hand............................................................ 1,526
--------
Total sources of funds....................................................... $247,870
========
USES OF FUNDS:
Purchase Acquisition Systems:
ACE............................................................................. $146,000
Triax........................................................................... 85,000
Grassroots and Penn/Ohio........................................................ 13,400
--------
Total........................................................................ 244,400
Estimated transaction costs for Acquisition Systems............................... 3,470
--------
Total uses of funds.......................................................... $247,870
========
</TABLE>
- ---------------
(1) The approximately $37.8 million of net proceeds remaining from the Rights
Offering will be used to fund additional strategic acquisitions to be identified
and approved by the Advisory Committee of FVP. See "Management" and "The
Partnership Agreements." The size of the equity commitments to be made available
to FVOP through the Rights Offering may be reduced if no such additional
strategic acquisition is so identified or approved on or before June 30, 1997.
(2) Aggregate proceeds of $200.0 million reduced by underwriting discounts of
$6.0 million and estimated Offering expenses of $1.0 million.
(3) Aggregate proceeds of $17.1 million reduced by approximately $0.2 million of
transaction costs.
Effective as of April 9, 1996, and in conjunction with the acquisition of
systems from affiliates of Cox Communications, Inc., the Company amended and
restated its credit facility to effect an increase in the amount available to be
borrowed thereunder from $130.0 million to $265.0 million (the "Credit Agreement
Restatement"). In July 1996, the Company called an additional $10.6 million (the
"Equity Call") from equity commitments in place prior to the Rights Offering,
which additional $10.6 million is expected to be received by August 1996.
Concurrently with or prior to the consummation of the Offering, it is
anticipated that a subordinated note (the "UVC Note") in the aggregate principal
amount of $7.2 million issued by the Company in connection with the acquisition
of the systems from UVC, which UVC Note has accreted to $7.5 million as of March
31, 1996, will be converted into $5.0 million of Class A limited partnership
interests in the Company (the "Class A Partnership Interests"), with the balance
of the aggregate accreted principal amount of the UVC Note to be repaid in cash
(the "UVC Note Conversion"). See "Business--Development of the Systems--The
Existing Systems--UVC Systems" and "The Partnership Agreements--The Company
Partnership Agreement--Class A Partnership Interests." It is also anticipated
that the outstanding indebtedness under the Senior Credit Facility will be
reduced by $8.8 million from the aggregate of approximately $210.0 million
outstanding immediately after giving effect to the acquisition of the systems
from Cox, with such application to reduce revolving indebtedness thereunder (the
"Credit Agreement Repayment"). The Credit Agreement Restatement, the Equity
Call, the UVC Note Conversion and the Credit Agreement Repayment are
collectively referred to herein as the "Other Transactions", and the Acquisition
Transactions and the Other Transactions are collectively referred to herein as
the "Transactions."
10
<PAGE> 13
THE OFFERING
SECURITIES OFFERED.................. $200.0 million aggregate principal
amount of % Senior Subordinated
Notes due 2006.
MATURITY DATE....................... , 2006.
INTEREST PAYMENT DATES.............. and , commencing
, 1997.
ISSUERS............................. The Notes are the joint and several
obligations of FVOP and Capital.
OPTIONAL REDEMPTION BY THE
ISSUERS............................. The Notes are not redeemable prior to
, 2001, except as set forth
below. The Notes will be redeemable at
the option of the Issuers, in whole or
in part, at any time on or after
, 2001, at the redemption prices
set forth herein, together with accrued
and unpaid interest to the redemption
date. In addition, prior to ,
1999, the Issuers may redeem up to 35%
of the principal amount of the Notes
with the net cash proceeds from one or
more Public Equity Offerings or
Strategic Equity Investments (as
defined in the Indenture for the Notes)
at a redemption price of % of
the principal amount thereof, together
with accrued and unpaid interest to the
redemption date; provided, however,
that at least 65% in aggregate
principal amount of the Notes
originally issued remains outstanding
immediately after any such redemption.
MANDATORY REDEMPTION BY THE
ISSUERS............................. None.
CHANGE OF CONTROL OFFER............. Upon a Change of Control, the Issuers
will be required to make an offer to
purchase all outstanding Notes at 101%
of the principal amount thereof,
together with accrued and unpaid
interest to the purchase date.
RANKING............................. The Notes are general unsecured
obligations of the Issuers and will
rank subordinate in right of payment to
all existing and future Senior
Indebtedness (as defined in the
Indenture governing the Notes (the
"Indenture")) of the Issuers, including
indebtedness under the Senior Credit
Facility. The Notes will rank pari
passu in right of payment with any
other senior subordinated indebtedness
of the Issuers.
CERTAIN COVENANTS................... The Indenture will contain certain
covenants that, among other things,
limit the ability of each Issuer and
certain of its Subsidiaries to incur
additional Indebtedness, create certain
Liens, make certain Restricted
Payments, enter into certain
transactions with Affiliates, permit
dividend or other payment restrictions
to apply to certain Subsidiaries or
consummate certain merger,
consolidation or similar transactions.
In addition, in certain circumstances,
the Issuers will be required to offer
to purchase Notes at 100% of the
principal amount thereof with the net
proceeds of certain asset sales. These
covenants are subject to a number of
significant exceptions and
qualifications. See "Description of the
Notes."
11
<PAGE> 14
RISK FACTORS
Prior to purchasing any of the Notes offered hereby, prospective investors
should consider carefully the risks set forth under "Risk Factors," in addition
to the other information contained in this Prospectus.
SUMMARY FINANCIAL AND OPERATING DATA OF THE COMPANY
The following tables present summary operating data and summary financial data
derived from the Company's financial statements as of and for the period from
inception (April 17, 1995) through December 31, 1995 which have been audited by
Arthur Andersen LLP, independent public accountants. The following tables also
present summary operating data and unaudited summary financial data as of and
for the three months ended March 31, 1996 derived from the unaudited financial
statements of the Company. In the opinion of management, the unaudited interim
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, which consist only of normal
recurring adjustments, necessary to present fairly the financial position and
the results of operations for the interim period. Operating and financial
results for the three months ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the full year.
In addition, the following tables present unaudited pro forma summary financial
and operating data for the Company as of and for the three months ended March
31, 1996 and the year ended December 31, 1995, as adjusted to give pro forma
effect to (i) in the case of statement of operations data, (a) the Offering and
the purchase of the Existing Systems as if such transactions had been
consummated on January 1, 1995 and (b) the purchase of the Existing Systems and
the Transactions as if such transactions had been consummated on January 1, 1995
and (ii) in the case of balance sheet data, (a) the Offering and the purchase of
the systems from Cox as if such transactions had been consummated on March 31,
1996 and (b) the purchase of the systems from Cox and the Transactions as if
such transactions had been consummated on March 31, 1996. See "Pro Forma
Financial Data." The unaudited pro forma financial and operating data presented
below are based upon the historical financial statements of the Company and
certain of the Existing Systems and the Acquisition Systems. The unaudited pro
forma data give effect to the acquisition under the purchase method of
accounting and certain other operating assumptions. See "Pro Forma Financial
Data."
The unaudited summary pro forma financial and operating data do not purport to
represent what the Company's results of operations or financial condition would
have actually been if the transactions that give rise to the pro forma
adjustments had occurred on the dates assumed or operations of the Company in
any future period. The following information is qualified by reference to and
should be read in conjunction with "Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements and related notes thereto included elsewhere in
this Prospectus.
12
<PAGE> 15
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
ANNUALIZED
THREE MONTHS ENDED MARCH 31 THREE MONTHS
--------------------------------------------- ENDED MARCH 31 YEAR ENDED DECEMBER 31
PRO FORMA FOR PRO FORMA FOR -------------- ----------------------------- APRIL 17 TO
In thousands, except TRANSACTIONS THE OFFERING PRO FORMA FOR PRO FORMA FOR PRO FORMA FOR DECEMBER 31
ratios and AND EXISTING AND EXISTING TRANSACTIONS TRANSACTIONS THE OFFERING -----------
operating SYSTEMS SYSTEMS ACTUAL AND EXISTING AND EXISTING AND EXISTING ACTUAL
statistical data 1996 1996 1996(1) SYSTEMS 1996 SYSTEMS 1995 SYSTEMS 1995 1995(1)
------------- ------------- ------------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............ $ 30,148 $ 17,704 $ 9,780 $ 120,592 $ 116,962 $ 70,827 $ 4,369
Operating
expenses.......... 14,367 8,362 4,688 57,468 58,441 34,748 2,311
Corporate
administrative
expenses.......... 1,059 769 570 4,236 3,029 1,788 127
Depreciation and
amortization...... 14,409 7,990 3,476 57,636 59,794 35,041 2,308
Pre-acquisition
expenses.......... -- -- -- -- 940 940 940
------------- ------------- ----------- -------------- ------------- ------------- -----------
Operating income
(loss)............ 313 583 1,046 1,252 (5,242) (1,690) (1,317)
Interest expense,
net(2)............ 10,456 6,772 2,473 41,824 41,826 27,090 1,386
------------- ------------- ----------- -------------- ------------- ------------- -----------
Net income (loss)... $ (10,143) $ (6,189) $ (1,427) $ (40,572) $ (47,068) $ (28,780) $ (2,703)
============= ============= =========== ============== ============= ============= ===========
BALANCE SHEET DATA
(END OF PERIOD):
Total assets........ $ 562,451 $ 332,005 $ 188,258 $ 143,512
Total debt.......... 401,265 224,272 124,072 93,579
Partners' capital... 148,309 100,509 60,009 46,407
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(3)........... $ 14,722 $ 8,573 $ 4,522 $ 58,888 $ 54,552 $ 33,351 $ 991
EBITDA margin....... 48.8% 48.4% 46.2% 48.8% 46.6% 47.1% 22.7%
Total debt to
EBITDA(4)......... 6.81 6.54 6.86 6.81
EBITDA to interest
expense........... 1.40 1.25 1.77 1.40 1.31 1.23 0.69
Earnings to fixed
charges(5)........ -- -- -- -- -- -- --
OPERATING
STATISTICAL DATA
(END OF PERIOD
EXCEPT AVERAGE):
Homes passed........ 493,862 291,496 180,626 490,610 288,428 177,553
Basic subscribers... 351,852 204,519 126,264 350,936 203,525 125,498
Basic penetration... 71.2% 70.2% 69.9% 71.5% 70.6% 70.7%
Premium units....... 143,218 78,219 49,759 146,216 77,557 50,305
Premium
penetration....... 40.7% 38.2% 39.4% 41.7% 38.1% 40.1%
Average monthly
revenue per basic
subscriber........ $ 28.56 $ 28.85 $ 27.15 $ 27.77 $ 29.00 $ 27.70
</TABLE>
- ---------------
(1) All financial data exclude the systems acquired from Cox.
(2) Pro forma interest expense is calculated assuming that all indebtedness
incurred to effect the purchase of the Existing Systems and all other debt
outstanding at March 31, 1996, to the extent deemed to be outstanding for
purposes of the pro forma presentation, accrued interest at the rates in effect
at March 31, 1996 and that the interest rate on the Notes was 11.5%. If the
actual interest rate were to increase or decrease by 25 basis points, pro forma
interest expense on the Notes would increase or decrease by $500,000 per annum.
Interest expense of $10,456, $6,772, $2,473, $41,824, $41,826, $27,090 and
$1,386 was net of interest income of $84, $84, $84, $334, $60, $60 and $60,
respectively (dollars in thousands).
(3) EBITDA is defined as net income before interest, taxes, depreciation and
amortization. The Company believes that EBITDA is a meaningful measure of
performance because it is commonly used in the cable television industry to
analyze and compare cable television companies on the basis of operating
performance, leverage and liquidity. In addition, the Indenture for the Notes
and the Senior Credit Facility contain certain covenants measured by
computations substantially similar to those used in determining EBITDA. See
"Credit Arrangements of the Company" and "Description of the Notes." However,
EBITDA is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as an indicator of
operating performance or to cash flows as a measure of liquidity, as determined
in accordance with generally accepted accounting principles.
(4) Based on annualized EBITDA for the quarter ended March 31, 1996.
(5) Earnings before fixed charges were inadequate to cover fixed charges by
$1,427 and $2,703 for the three months ended March 31, 1996 and for the period
from inception (April 17, 1995) to December 31, 1995, respectively (dollars in
thousands). Pro forma for the Transactions and the acquisitions of the Existing
Systems, as if each occurred on January 1, 1995, earnings before fixed charges
were inadequate to cover fixed charges by $10,143 for the three months ended
March 31, 1996 and inadequate to cover fixed charges for the year ended December
31, 1995 by $47,068 (dollars in thousands). Pro forma for the Offering and the
purchase of the Existing Systems as if each occurred on January 1, 1995,
earnings before fixed charges were inadequate to cover fixed charges for the
three months ended March 31, 1996 and for the year ended December 31, 1995 by
$6,189 and $28,780, respectively (dollars in thousands). For purposes of this
computation, earnings are defined as income (loss) before fixed charges. Fixed
charges are defined as the sum of (i) interest costs and (ii) amortization of
deferred financing costs.
13
<PAGE> 16
RISK FACTORS
Prior to purchasing any of the Notes offered hereby, prospective investors
should consider carefully the following factors in addition to the other
information contained in this Prospectus. This Prospectus contains
forward-looking statements, within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, 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 following risk factors.
SUBSTANTIAL LEVERAGE; INSUFFICIENCY OF EARNINGS TO COVER FIXED CHARGES
The Company is, and will continue to be, highly leveraged as a result of the
substantial indebtedness it has incurred, and intends to incur, to finance
acquisitions and expand its operations. As of March 31, 1996 (without giving
effect to the purchase of the systems from Cox), the Company's total
indebtedness outstanding was approximately $124.1 million. As of March 31, 1996,
after giving pro forma effect to the Offering and the purchase of the systems
from Cox, the Company would have had approximately $224.3 million of total
indebtedness outstanding and after giving pro forma effect to the Transactions
and the purchase of the systems from Cox, the Company would have had
approximately $401.3 million of total indebtedness outstanding. In addition,
subject to the restrictions in the Senior Credit Facility and the Indenture, the
Company may incur additional indebtedness, including indebtedness constituting
Senior Indebtedness, from time to time, to finance acquisitions in the future,
for capital expenditures or for general business purposes. The Company
anticipates that, in light of the amount of its existing indebtedness, it will
continue to have substantial leverage for the foreseeable future. The degree to
which the Company is leveraged could adversely affect the Company's ability to
(i) service the Notes, (ii) finance its operations and fund its capital
expenditure requirements, (iii) compete effectively, (iv) expand its business,
(v) comply with its obligations under its franchise agreements or (vi) operate
under adverse economic conditions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
After giving pro forma effect to the Transactions and the acquisition of the
Existing Systems as if such transactions had occurred at January 1, 1995, the
Company's earnings before fixed charges would have been insufficient to cover
its fixed charges by $47.1 million for the year ended December 31, 1995 and
$10.1 million for the three months ended March 31, 1996. Pro forma for the
Offering and the purchase of the Existing Systems as if each occurred on January
1, 1995, earnings before fixed charges were inadequate to cover fixed charges
for the three months ended March 31, 1996 and for the year ended December 31,
1995 by $6.2 million and $28.8 million, respectively. However, for both periods,
earnings are reduced by substantial non-cash charges, principally consisting of
depreciation and amortization.
Since its founding in 1995, the Company has received from FVP aggregate capital
commitments of approximately $123.5 million and, as of March 31, 1996, the
Company had an aggregate of $116.8 million in bank indebtedness outstanding. The
Company's cash from these sources has been sufficient to finance its
acquisitions and, together with cash generated from operating activities, also
has been sufficient to meet the Company's debt service, working capital and
capital expenditure requirements. The ability of the Company to meet its debt
service and other obligations will depend upon the future performance of the
Company which, in turn, is subject to general economic conditions and to
financial, political, competitive, regulatory and other factors, many of which
are beyond the Company's control. The Company's ability to meet its debt service
and other obligations also may be affected by changes in prevailing interest
rates, as borrowings under the Senior Credit Facility will bear interest at
floating rates, subject to certain interest rate protection agreements. The
Company believes that it will continue to generate cash and obtain financing
sufficient to meet such requirements in the future; however, there can be no
assurances that the Company will be able to meet its debt service and other
obligations. If the Company were unable to do so, it would have to refinance its
indebtedness or obtain new financing. Although in the past the Company has been
able to obtain financing through equity investments and bank borrowings, there
can be no assurances that the Company will be able to do so in the future or
that, if the Company were able to do so, the terms available will be favorable
to the Company. See "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Credit Arrangements
of the Company" and "Description of the Notes."
14
<PAGE> 17
SUBORDINATION OF THE NOTES
The Notes will be general unsecured obligations of the Issuers and will rank
subordinate in right of payment to all existing and future Senior Indebtedness
of the Issuers, including the Company's obligations under the Senior Credit
Facility. The Notes will rank pari passu in right of payment with any other
senior subordinated indebtedness of the Issuers, other than indebtedness, if
any, that by its terms is expressly subordinated in right and priority of
payment to the Notes. At March 31, 1996, on a pro forma basis after giving
effect to the Transactions and the purchase of the systems from Cox, the Company
would have had approximately $201.3 million of Senior Indebtedness (including
$72,000 outstanding under capital leases and excluding unused commitments of
approximately $63.8 million under the Senior Credit Facility) and Capital would
have had no Senior Indebtedness. Additional Senior Indebtedness may be incurred
by the Issuers from time to time subject to restrictions in the Senior Credit
Facility and the Indenture. The lenders under the Senior Credit Facility have a
security interest in substantially all the assets of, and partnership interests
in, the Company and thereby have available to them all of the remedies available
to a secured creditor under applicable law. See "--Substantial Leverage;
Insufficiency of Earnings to Cover Fixed Charges" and "Credit Arrangements of
the Company." In the event of a bankruptcy, insolvency or liquidation of the
Company, there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes then outstanding. See "Description of the
Notes--Subordination."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture and the Senior 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 Senior 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 assurances that the Company will achieve
operating results that would permit compliance with such provisions. The breach
of any of the provisions of the Senior Credit Facility would, under certain
circumstances, result in defaults thereunder, permitting the lenders under the
Senior Credit Facility to accelerate the indebtedness under the Senior Credit
Facility. If the Company were unable to pay the amounts due in respect of the
Senior Credit Facility, the lenders thereunder could foreclose upon the assets
pledged to secure such payment. In such event, the holders of the 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 Senior Credit Facility was discharged or paid in full. Any of such events
would adversely affect the Issuers' ability to service the Notes.
KEY PERSONNEL
The Company's business is substantially dependent upon the performance of
certain key individuals, including Mr. Vaughn and Mr. Koo. Although the Company
maintains a strong management team, the loss of the services of Mr. Vaughn or
Mr. Koo could have a material adverse effect on the Company.
LIMITED OPERATING HISTORY
The Company was formed in July 1995 and has grown principally through
acquisitions. Prospective investors, therefore, have limited historical
financial information about the Company, and about the results that can be
achieved by the Company in managing the cable systems not previously managed by
the Company, upon which to base an evaluation of its performance and an
investment in the Notes. In addition, as a result of the Company's rapid growth
through acquisitions, past operating history is not necessarily indicative of
future results.
SIGNIFICANT CAPITAL EXPENDITURES
Consistent with its business strategy, the Company expects to upgrade a
significant portion of its cable television distribution systems over the next
several years to, among other things, increase bandwidth and channel capacity.
The Company's inability to upgrade its cable television systems could have a
material adverse effect on its operations and competitive position. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business."
15
<PAGE> 18
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY
Cable television systems face competition from alternative methods of receiving
and distributing television signals and from other sources of news, information
and entertainment, such as off-air television broadcast programming, newspapers,
movie theaters, live sporting events, online computer services and home video
products, including video tape cassette recorders. Because the Company's
franchises are generally non-exclusive, there is the potential for competition
with the Company's systems from other operators of cable television systems,
including systems operated by local governmental authorities, and from other
distribution systems capable of delivering programming to homes or businesses,
including direct broadcast satellite ("DBS") systems and multichannel,
multipoint distribution service ("MMDS") systems. In recent years, there has
been significant national growth in the number of subscribers to DBS services.
Subscribership to MMDS also is increasing and can be expected to grow as a
result of recent significant investments in and acquisitions of MMDS companies
by local telephone companies. Additionally, recent changes in federal law and
recent administrative and judicial decisions have removed certain of the
restrictions that have limited entry into the cable television business by
potential competitors such as telephone companies, registered utility holding
companies and their subsidiaries. Such developments will enable local telephone
companies to provide a wide variety of video services in the telephone company's
own service area which will be directly competitive with services provided by
cable television systems.
Many of the Company's potential competitors have substantially greater resources
than the Company, and the Company cannot predict the extent to which competition
will materialize in its franchise areas from other cable television operators,
other distribution systems for delivering video programming and other broadband
telecommunications services to the home, or from other potential competitors,
or, if such competition materializes, the extent of its effect on the Company.
See "Business--Competition" and "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. See
"--Significant Capital Expenditures." The Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") prohibits franchising
authorities from granting exclusive cable television franchises and from
unreasonably refusing to award additional competitive franchises; it also
permits municipal authorities to operate cable television systems in their
communities without franchises. The Cable Communications Policy Act of 1984 (the
"1984 Cable Act" and collectively with the 1992 Cable Act, the "Cable Acts")
provides, among other things, for an orderly franchise renewal process in which
franchise renewal will not be unreasonably withheld or, if renewal is withheld,
the franchising authority must pay the operator the "fair market value" for the
system covered by such franchise. Although the Company believes that it
generally has good relationships with its franchise authorities, no assurances
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 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."
REGULATION IN THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation by federal,
local and, in some instances, state governmental agencies. The Cable Acts, both
of which amended the Communications Act of 1934 (as amended, the "Communications
Act"), established a national policy to guide the development and regulation of
cable television systems. The Communications Act was recently substantially
amended by the Telecommunications Act of 1996 (the "1996 Telecom Act").
Principal responsibility for implementing the policies of the Cable Acts has
been allocated between the Federal Communications Commission (the "FCC") and
state or local franchising authorities.
16
<PAGE> 19
Federal Law and Regulation. The 1992 Cable Act and the FCC's rules implementing
that Act generally have increased the administrative and operational expenses of
cable television systems and have resulted in additional regulatory oversight by
the FCC and local or state franchise authorities. The Cable Acts and the
corresponding FCC regulations have established, among other things, (i) rate
regulations, (ii) mandatory carriage and retransmission consent requirements
that require a cable system under certain circumstances to carry a local
broadcast station or to obtain consent to carry a local or distant broadcast
station, (iii) rules for franchise renewals and transfers, and (iv) other
requirements covering a variety of operational areas such as equal employment
opportunity and technical standards and customer service requirements.
The 1996 Telecom Act deregulates rates for certain cable programming services
tiers ("CPSTs") in 1999 for most MSOs (including the Company) and, for certain
small cable operators, immediately eliminates rate regulation of CPSTs, and, in
certain circumstances, basic services and equipment. The FCC is currently
developing permanent regulations to implement the rate deregulation provisions
of the 1996 Telecom Act. The Company is currently unable to predict the ultimate
effect of the 1992 Cable Act or the 1996 Telecom Act, the ultimate outcome of
the various FCC rulemaking proceedings, or the litigation challenging various
aspects of this federal legislation and the FCC's regulations implementing the
legislation.
State and Local Regulation. Cable television systems generally operate pursuant
to non-exclusive franchises, permits or licenses granted by a municipality or
other state or local governmental entity. The terms and conditions of franchises
vary materially from jurisdiction to jurisdiction. A number of states subject
cable systems to the jurisdiction of centralized state governmental agencies. To
date, no state in which the Company operates has enacted state level regulation.
The Company cannot predict whether any of the states in which it currently
operates will engage in such regulation in the future. See "Legislation and
Regulation."
RISKS RELATING TO ACQUISITION STRATEGY
A significant element of the Company's acquisition strategy is to expand in
certain regions of the United States by acquiring cable television systems
located in reasonable proximity to existing systems or of a sufficient size to
enable the acquired system to serve as the basis for a new local cluster.
Furthermore, any acquisition may have an adverse effect upon the Company's
operating results or cash flow, particularly for acquisitions of new systems
which must be integrated with the Company's existing operations. There can be no
assurances that the Company will be able to integrate successfully any acquired
business with its existing operations or realize any efficiencies therefrom.
There can also be no assurances that any such acquisition, if consummated, will
be profitable or that the Company will be able to obtain any required financing
to acquire additional systems in the future. In addition, the Company's purchase
of the Acquisition Systems is 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 and, in
the case of the Acquisition Systems to be purchased from ACE, the satisfactory
conclusion of certain voluntary bankruptcy proceedings involving ACE. There can
be no assurance that such closing conditions will be satisfied or that the
consummation of the purchase of any of the Acquisition Systems will not
otherwise be unduly delayed. See "Business--Business Strategy."
ABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL
In order to purchase the Notes upon the occurrence of a Change of Control (as
defined in the Indenture governing the Notes), the Issuers may be required to
seek additional financings or engage in asset sales or similar transactions.
There can be no assurance that the Issuers will have sufficient funds to
purchase the Notes upon a Change of Control. In addition, the Senior Credit
Facility includes "change of control" provisions that permit the bank lenders
thereunder to accelerate the repayment of indebtedness under the Senior Credit
Facility (which is senior in right of payment to the Notes), as well as other
provisions that restrict the ability of the Issuers to consummate an offer to
purchase outstanding Notes in connection with a Change of Control. See "Credit
Arrangements of the Company" and "Description of the Notes."
17
<PAGE> 20
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes are a new issue of securities for which there is currently no
established market. If the Notes are traded after their initial issuance, they
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities and other factors.
The Underwriters have informed the Issuers that, subject to applicable laws and
regulations, they currently intend to make a market in the Notes. However, the
Underwriters are not obligated to do so, and any such market making may be
discontinued at any time without notice. Therefore, no assurances can be given
as to whether an active trading market will develop for the Notes. The Issuers
do not intend to apply for listing of the Notes on any securities exchange. See
"Underwriting."
18
<PAGE> 21
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering are estimated
to be approximately $193.0 million. The Company will use such net proceeds,
together with (i) $32.0 million of the proceeds from the Rights Offering, (ii)
$16.9 million of proceeds (net of transaction costs) from the sale of the
Disposition Systems, (iii) $4.5 million of net working capital adjustment
related to the Acquisition Systems and (iv) $1.5 million of available cash on
hand to (i) pay the purchase prices for the Acquisition Systems and (ii) pay
estimated transaction costs associated with the purchase of the Acquisition
Systems. To the extent that there is any delay in consummating the purchase of
any of the Acquisition Systems, a portion of the net proceeds of the Offering
corresponding to the purchase price of such system may be applied to reduce
temporarily revolving indebtedness for borrowings under the Senior Credit
Facility. See "Prospectus Summary--The Transactions," "The Partnership
Agreements" and "Credit Arrangements of the Company."
The following table sets forth the sources and uses of the proceeds to be
received by the Company in connection with the Acquisition Transactions
(determined as of March 31, 1996):
<TABLE>
<CAPTION>
--------
In thousands AMOUNT
--------
<S> <C>
SOURCES OF FUNDS:
Rights Offering(1)................................................................ $ 32,000
% Senior Subordinated Notes due 2006(2)......................................... 193,000
Sale of Disposition Systems(3).................................................... 16,860
Net working capital adjustment.................................................... 4,484
Available cash on hand............................................................ 1,526
--------
Total sources of funds....................................................... $247,870
========
USES OF FUNDS:
Purchase Acquisition Systems:
ACE............................................................................. $146,000
Triax........................................................................... 85,000
Grassroots and Penn/Ohio........................................................ 13,400
--------
Total........................................................................ 244,400
Estimated transaction costs for Acquisition Systems............................... 3,470
--------
Total uses of funds.......................................................... $247,870
========
</TABLE>
- ---------------
(1) The approximately $37.8 million of net proceeds remaining from the Rights
Offering will be used to fund additional strategic acquisitions to be identified
and approved by the Advisory Committee of FVP. See "Management" and "The
Partnership Agreements." The size of the equity commitments to be made available
to FVOP through the Rights Offering may be reduced if no such additional
strategic acquisition is so identified or approved on or before June 30, 1997.
(2) Aggregate proceeds of $200.0 million reduced by underwriting discounts of
$6.0 million and estimated Offering expenses of $1.0 million.
(3) Aggregate proceeds of $17.1 million reduced by approximately $0.2 million of
transaction costs associated with the sale of the Disposition Systems.
19
<PAGE> 22
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company at
March 31, 1996, (ii) the Company's capitalization at March 31, 1996 as adjusted
to give effect to the Offering and the purchase of certain systems from Cox as
if each such transaction had been consummated as of March 31, 1996, and (iii)
the Company's capitalization on a pro forma basis to give effect to the
Offering, the purchase of certain systems from Cox and the other Transactions as
if each such transaction had been consummated as of March 31, 1996. See "Use of
Proceeds."
<TABLE>
<CAPTION>
====================================
AS OF MARCH 31, 1996
====================================
ACTUAL
In thousands ACTUAL AS ADJUSTED PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
LONG-TERM INDEBTEDNESS:
Senior Credit Facility(1).................................. $116,800 $ 17,000 $201,193
% Senior Subordinated Notes due 2006..................... -- 200,000 200,000
Capital leases............................................. 72 72 72
UVC Note(2)................................................ 7,200 7,200 --
-------- --------- --------
Total long-term indebtedness............................ 124,072 224,272 401,265
PARTNERS' CAPITAL:
Class A Partnership Interests(2)........................... -- -- 5,000
Other partnership interests................................ 60,009 100,509 143,309
-------- --------- --------
Total partners' capital................................. 60,009 100,509 148,309
-------- --------- --------
Total capitalization.................................... $184,081 $ 324,781 $549,574
======== ========= ========
</TABLE>
- ---------------
(1) On a pro forma basis, after giving effect to the Transactions, $63.8 million
aggregate principal amount will be unused and available for borrowing.
(2) Concurrently with or prior to the consummation of the Offering, it is
anticipated that UVC will convert $5.0 million aggregate principal amount of the
UVC Note into Class A Partnership Interests and the balance of accrued interest
and principal under the UVC Note will be repaid. See "The Partnership
Agreements--The Company Partnership Agreement--Class A Partnership Interests."
20
<PAGE> 23
SELECTED FINANCIAL DATA
The following tables present selected operating data and selected financial data
derived from the Company's financial statements as of and for the period from
inception (April 17, 1995) through December 31, 1995 which have been audited by
Arthur Andersen LLP, independent public accountants. The following tables also
present selected operating data and selected financial data as of and for the
three months ended March 31, 1996 derived from the unaudited financial
statements of the Company. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, which consist only of normal recurring
adjustments, necessary to present fairly the financial position and the results
of operations for the interim period. Operating and financial results for the
three months ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the full year.
In addition, the following tables present unaudited pro forma selected financial
and operating data for the Company as of and for the three months ended March
31, 1996 and the year ended December 31, 1995, as adjusted to give pro forma
effect to (i) in the case of statement of operations data, (a) the Offering and
the purchase of the Existing Systems as if such transactions had been
consummated on January 1, 1995 and (b) the purchase of the Existing Systems and
the Transactions as if such transactions had been consummated on January 1, 1995
and (ii) in the case of balance sheet data, (a) the Offering and the purchase of
the systems from Cox as if such transactions had been consummated on March 31,
1996 and (b) the purchase of the systems from Cox and the Transactions as if
such transactions had been consummated on March 31, 1996. See "Pro Forma
Financial Data." The unaudited pro forma data give pro forma effect to the
acquisitions under the purchase method of accounting and certain other operating
assumptions. See "Pro Forma Financial Data."
The unaudited pro forma financial and operating data do not purport to represent
what the Company's results of operations or financial condition would have
actually been if the transactions that give rise to the pro forma adjustments
had occurred on the dates assumed or operations of the Company in any future
period. The following information is qualified by reference to and should be
read in conjunction with "Pro Forma Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the audited
financial statements and related notes thereto of the Company and certain of the
Existing Systems and Acquisition Systems included elsewhere in this Prospectus.
21
<PAGE> 24
<TABLE>
<CAPTION>
=================================================================================================================================
ANNUALIZED
THREE MONTHS ENDED MARCH 31 THREE MONTHS
--------------------------------------------- ENDED MARCH 31 YEAR ENDED DECEMBER 31
PRO FORMA FOR PRO FORMA FOR -------------- ----------------------------- APRIL 17 TO
In thousands, TRANSACTIONS THE OFFERING PRO FORMA FOR PRO FORMA FOR PRO FORMA FOR DECEMBER 31
except ratios and AND EXISTING AND EXISTING TRANSACTIONS TRANSACTIONS THE OFFERING -----------
operating SYSTEMS SYSTEMS ACTUAL AND EXISTING AND EXISTING AND EXISTING ACTUAL
statistical data 1996 1996 1996(1) SYSTEMS 1996 SYSTEMS 1995 SYSTEMS 1995 1995(1)
------------- ------------- ------------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............ $ 30,148 $ 17,704 $ 9,780 $ 120,592 $ 116,962 $ 70,827 $ 4,369
Operating
expenses.......... 14,367 8,362 4,688 57,468 58,441 34,748 2,311
Corporate
administrative
expenses.......... 1,059 769 570 4,236 3,029 1,788 127
Depreciation and
amortization...... 14,409 7,990 3,476 57,636 59,794 35,041 2,308
Pre-acquisition
expenses.......... -- -- -- -- 940 940 940
------------- ------------- ------------- -------------- ------------- ------------- -----------
Operating income
(loss)............ 313 583 1,046 1,252 (5,242) (1,690) (1,317)
Interest expense,
net(2)............ 10,456 6,772 2,473 41,824 41,826 27,090 1,386
------------- ------------- ------------- -------------- ------------- ------------- -----------
Net income (loss)... $ (10,143) $ (6,189) $ (1,427) $ (40,572) $ (47,068) $ (28,780) $ (2,703)
============ ============ ============= ============== ============ ============ ===========
BALANCE SHEET DATA
(END OF PERIOD):
Total assets........ $ 562,451 $ 332,005 $ 188,258 $ 143,512
Total debt.......... 401,265 224,272 124,072 93,579
Partners' capital... 148,309 100,509 60,009 46,407
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA(3)........... $ 14,722 $ 8,573 $ 4,522 $ 58,888 $ 54,552 $ 33,351 $ 991
EBITDA margin....... 48.8% 48.4% 46.2% 48.8% 46.6% 47.1% 22.7%
Total debt to
EBITDA(4)......... 6.81 6.54 6.86 6.81
EBITDA to interest
expense........... 1.40 1.25 1.77 1.40 1.31 1.23 0.69
Earnings to fixed
charges(5)........ -- -- -- -- -- -- --
OPERATING
STATISTICAL DATA
(END OF PERIOD
EXCEPT AVERAGE):
Homes passed........ 493,862 291,496 180,626 490,610 288,428 177,553
Basic subscribers... 351,852 204,519 126,264 350,936 203,525 125,498
Basic penetration... 71.2% 70.2% 69.9% 71.5% 70.6% 70.7%
Premium units....... 143,218 78,219 49,759 146,216 77,557 50,305
Premium
penetration....... 40.7% 38.2% 39.4% 41.7% 38.1% 40.1%
Average monthly
revenue per basic
subscriber........ $ 28.56 $ 28.85 $ 27.15 $ 27.77 $ 29.00 $ 27.70
</TABLE>
- ---------------
(1) All financial data exclude the systems acquired from Cox.
(2) Pro forma interest expense is calculated assuming that all indebtedness
incurred to effect the purchase of the Existing Systems and all other debt
outstanding at March 31, 1996, to the extent deemed to be outstanding for
purposes of the pro forma presentation, accrued interest at the rates in effect
at March 31, 1996 and that the interest rate on the Notes was 11.5%. If the
actual interest rate were to increase or decrease by 25 basis points, pro forma
interest expense on the Notes would increase or decrease by $500,000 per annum.
Interest expense of $10,456, $6,772, $2,473, $41,824, $41,826, $27,090 and
$1,386 was net of interest income of $84, $84, $84, $334, $60, $60 and $60,
respectively (dollars in thousands).
(3) EBITDA is defined as net income before interest, taxes, depreciation and
amortization. The Company believes that EBITDA is a meaningful measure of
performance because it is commonly used in the cable television industry to
analyze and compare cable television companies on the basis of operating
performance, leverage and liquidity. In addition, the Indenture for the Notes
and the Senior Credit Facility contain certain covenants measured by
computations substantially similar to those used in determining EBITDA. See
"Credit Arrangements of the Company" and "Description of the Notes." However,
EBITDA is not intended to be a performance measure that should be regarded as an
alternative either to operating income or net income as an indicator of
operating performance or to cash flows as a measure of liquidity, as determined
in accordance with generally accepted accounting principles.
(4) Based on annualized EBITDA for the quarter ended March 31, 1996.
(5) Earnings before fixed charges were inadequate to cover fixed charges by
$1,427 and $2,703 for the three months ended March 31, 1996 and for the period
from inception (April 17, 1995) to December 31, 1995, respectively (dollars in
thousands). Pro forma for the Transactions and the acquisitions of the Existing
Systems, as if each occurred on January 1, 1995, earnings before fixed charges
were inadequate to cover fixed charges by $10,143 for the three months ended
March 31, 1996 and inadequate to cover charges for the year ended December 31,
1995 by $47,068 (dollars in thousands). Pro forma for the Offering and the
purchase of the Existing Systems as if each occurred on January 1, 1995,
earnings before fixed charges were inadequate to cover fixed charges for the
three months ended March 31, 1996 and for the year ended December 31, 1995 by
$6,189 and $28,780, respectively (dollars in thousands). For purposes of this
computation, earnings are defined as income (loss) before fixed charges. Fixed
charges are defined as the sum of (i) interest costs and (ii) amortization of
deferred financing costs.
22
<PAGE> 25
SUMMARY COMBINED SELECTED HISTORICAL FINANCIAL DATA OF
CERTAIN EXISTING SYSTEMS AND ACQUISITION SYSTEMS
The summary combined selected historical financial data presented below
represent the combined historical financial data of certain of the Existing
Systems and the Acquisition Systems. Combined financial data do not include
results of operations of the systems purchased from UVC and Longfellow during
the period in 1995 when such systems were owned by the Company. The presentation
is made on two bases for both the Existing Systems and the Acquisition Systems.
First, information for the Existing Systems is provided on a combined basis as
of and for the year ended December 31, 1995. Second, combined historical
financial data is presented as of and for the years ended December 31, 1995,
1994 and 1993 for certain of the Existing Systems, which represented
approximately 96% of the Existing Systems in terms of number of basic
subscribers, on a pro forma basis as of March 31, 1996 and include only the
systems purchased from UVC, C4 and Cox (collectively the "Acquired Predecessor
Systems"). Similarly, information for the Acquisition Systems is provided on a
combined basis as of and for the year ended December 31, 1995. In addition,
combined historical financial data is presented as of and for the years ended
December 31, 1995, 1994 and 1993 for the ACE and Triax systems (collectively the
"Probable Predecessor Acquisition Systems"), which represented approximately 93%
of the Acquisition Systems in terms of the number of basic subscribers, on a pro
forma basis as of March 31, 1996.
The summary unaudited combined selected historical financial data presented
below are derived from the audited and unaudited historical financial statements
of the Existing Systems and the Acquisition Systems and should be read in
conjunction with the audited financial statements and related notes thereto of
the Acquired Predecessor Systems and the Probable Predecessor Acquisition
Systems and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The combined
selected financial data set forth below represent the combined results of
operations for the systems for periods during which the systems were not owned
by the Company and, accordingly, do not reflect any purchase accounting
adjustments or any changes in the operation or management of the systems that
the Company has made since the date of acquisition or that it intends to make in
the future. Accordingly, the Company does not believe that such operating
results are indicative of future operating results of the Company.
<TABLE>
<CAPTION>
==========================================================
EXISTING SYSTEMS
----------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------
EXISTING SYSTEMS ACQUIRED PREDECESSOR SYSTEMS
---------------- --------------------------------------
In thousands 1995(1)(2) 1995(3)(4) 1994(5)(6) 1993(5)(6)
---------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ 66,370 $ 63,897 $ 64,431 $ 63,383
Operating expenses............................ 37,747 35,819 35,443 34,647
Depreciation and amortization................. 24,080 23,726 22,038 20,324
------------ -------- -------- --------
Operating income.............................. 4,543 4,352 6,950 8,412
Interest expense.............................. (12,254) (12,216) (11,905) (11,763)
Other expenses................................ (3,899) (3,899) (3,836) (3,450)
------------ -------- -------- --------
Net loss...................................... $(11,610) $(11,763) $ (8,791) $ (6,801)
============ ======== ======== ========
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................. $204,657 $195,341 $132,016 $ 70,399
Total debt.................................... 68,545 60,166 60,166 60,166
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
----------------------------------------------------------------
ACQUISITION SYSTEMS
----------------------------------------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
ACQUISITION SYSTEMS PROBABLE PREDECESSOR ACQUISITION SYSTEMS
------------------- -----------------------------------------
In thousands 1995(7)(8) 1995(9)(10) 1994(9)(10) 1993(9)(10)
------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 49,698 $ 45,868 $ 40,937 $ 32,788
Operating expenses....................... 29,452 26,836 23,200 18,055
Depreciation and amortization............ 19,939 18,628 24,307 21,539
------------------- -------- --------- ----------
Operating income......................... 307 404 (6,570) (6,806)
Interest expense......................... (26,397) (25,682) (22,601) (19,467)
Other expense............................ -- 48 1,266 --
------------------- -------- --------- ----------
Net loss................................. $ (26,090) $(25,230) $ (27,905) $(26,273)
=================== ======== ========= ==========
BALANCE SHEET DATA (END OF PERIOD):
Total assets............................. $ 97,121 $ 92,912 $ 96,804 $111,500
Total debt............................... 220,296 210,252 206,131 195,153
</TABLE>
- ---------------
(1) Includes the combined results of operations of systems purchased from UVC,
Longfellow, C4, Americable and Cox for the period ended December 31, 1995
(except for UVC and Longfellow, which is for the period ended November 8, 1995
and November 20, 1995, respectively). As the results of operations of systems
purchased from UVC and Longfellow are included in the Company's historical
results of operations subsequent to the date of the Company's acquisition
(November 9, 1995 and November 21, 1995, respectively), the amounts do not
include $4.4 million in revenues, $2.4 million in operating expenses and $2.3
million in depreciation and amortization (computed after the application of
purchase accounting adjustments attributable to such systems).
(2) Includes combined balance sheet data for systems purchased from UVC and
Longfellow as of November 9, 1995 and November 21, 1995, the dates of the
Company's acquisition thereof, and combined balance sheet data for systems
purchased from C4, Americable and Cox as of December 31, 1995, because such
acquisitions occurred after December 31, 1995.
(3) Includes the combined results of operations of systems purchased from UVC,
C4 and Cox for the year ended December 31, 1995 (except for UVC, which is for
the period ended November 8, 1995). As the results of operations of systems
purchased from UVC are included in the Company's historical results of
operations subsequent to the date of the Company's acquisition thereof (November
9, 1995), the amounts do not include $4.2 million in revenues, $2.4 million in
operating expenses and $2.2 million in depreciation and amortization (computed
after the application of purchase accounting adjustments attributable to such
systems).
(4) Includes combined balance sheet data for systems purchased from UVC as of
November 9, 1995, the date of the Company's acquisition thereof, and combined
balance sheet data for systems purchased from C4 and Cox as of December 31,
1995, because such acquisitions occurred after that date.
(5) Includes the combined results of operations of systems purchased from UVC,
C4 and Cox for the year ended December 31, 1994 and 1993.
(6) Includes combined balance sheet data for systems purchased from UVC, C4 and
Cox as of December 31, 1994 and 1993.
(7) Includes the combined results of operations of systems expected to be
purchased from ACE, Triax, Grassroots and Penn/Ohio for the year ended December
31, 1995.
(8) Includes combined balance sheet data for systems expected to be purchased
from ACE, Triax, Grassroots and Penn/Ohio.
(9) Includes the combined results of operations of systems expected to be
purchased from ACE and Triax for the years ended December 31, 1995, 1994 and
1993.
(10) Includes combined balance sheet data for systems purchased from ACE and
Triax as of December 31, 1995, 1994 and 1993.
24
<PAGE> 27
PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data presented below are derived from the
historical financial statements of the Company and certain of the Existing
Systems and the Acquisition Systems. The unaudited pro forma consolidated
statement of operations data for the three months ended March 31, 1996 and for
the period from inception (April 17, 1995) to December 31, 1995 give pro forma
effect to (a) the Offering and the purchase of the Existing Systems as if such
transactions had been consummated on January 1, 1995 and (b) the Transactions
and the purchase of the Existing Systems as if such transactions had been
consummated on January 1, 1995. The unaudited pro forma balance sheet data as of
March 31, 1996 give pro forma effect to (a) the Offering and the purchase of the
systems from Cox as if such transactions had been consummated on March 31, 1996
and (b) the purchase of the systems from Cox and the Transactions as if such
transactions had been consummated on March 31, 1996. The Transactions consist of
the Rights Offering, the Offering, the sale of the Disposition Systems, the
purchase of the Acquisition Systems, the Credit Agreement Restatement, the
Equity Call, the UVC Note Conversion and the Credit Agreement Repayment. The
Rights Offering and the UVC Note Conversion are expected to be consummated
concurrently with or prior to the closing of the Offering.
The unaudited pro forma financial data give effect to the acquisitions described
above under the purchase method of accounting and are based upon the assumptions
and adjustments described in the accompanying notes to the unaudited pro forma
financial statements presented on the following pages. The allocations of the
total purchase price for certain of the Existing Systems as well as each of the
Acquisition Systems are based on preliminary estimates and are subject to final
allocation adjustments.
The unaudited pro forma financial statements may not be indicative of the
results that actually would have occurred if the acquisitions and other
transactions described above had been completed and in effect for the periods
indicated or the results that may be obtained in the future. The unaudited pro
forma financial data presented below should be read in conjunction with the
audited and unaudited historical financial statements and related notes thereto
of the Company and various Existing Systems and the Acquisition Systems and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
25
<PAGE> 28
FRONTIERVISION OPERATING PARTNERS, L.P.
UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
(FOR THE THREE MONTHS ENDED AND AS OF MARCH 31, 1996)
(In $ thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
EXISTING SYSTEMS
------------------------------------------------------------------------
AMERICABLE PRO FORMA
C4 SYSTEMS SYSTEMS COX SYSTEMS
ACTUAL ACQUISITION(a) ACQUISITION(b) ACQUISITION
-------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues................ 9,780 945 284 6,695
Expenses................
System operations..... 4,688 579 181 3,250
Corporate
administrative
expense.............. 570 67 41 321
Depreciation and
amortization......... 3,476 463 148 1,044
Pre-acquisition
expenses.............
-------- ----------- ----------- ----------
Operating income
(loss)................ 1,046 (164) (86) 2,080
Interest expense, net... (2,473) (682) (12) (5)
Other income
(expense).............
Minority interest in
loss of subsidiary.... 10
-------- ----------- ----------- ----------
Net income (loss) before
income taxes.......... (1,427) (836) (98) 2,075
Provision for income
taxes.................
-------- ----------- ----------- ----------
Net income (loss)....... (1,427) (836) (98) 2,075
======== =========== =========== ==========
BALANCE SHEET (AT END
OF PERIOD):
Cash and cash
equivalents........... 407
Accounts receivable,
net................... 471 1,784
Prepaid expenses........ 599
Property and equipment,
net................... 64,169 25,621
Franchise costs, net.... 80,612
Covenant not to compete,
net................... 0
Subscriber lists, net... 27,939
Goodwill, net........... 4,125 110,796
Deferred financing costs
and other, net........ 2,936
Earnest money
deposits.............. 7,000
-------- ----------
Total assets............ 188,258 138,201
======== ==========
Accounts payable........ 340 580
Accrued liabilities..... 2,572 1,112
Subscriber prepayments
and deposits.......... 424 1,355
Accrued interest
payable............... 841
Debt.................... 124,072
Partners' capital....... 60,009 135,154
-------- ----------
Total liabilities and
partners' capital..... 188,258 138,201
======== ==========
<CAPTION>
------------------------------------------------------------------------
EXISTING SYSTEMS
------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS FOR PRO FORMA SUBTOTAL
EXISTING SYSTEMS ADJUSTMENTS PRO FORMA
AND SENIOR FOR THE OFFERING AND
CREDIT FACILITY OFFERING(k) EXISTING SYSTEMS
----------------- ----------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues................ 17,704
Expenses................ 0
System operations..... (336)(c) 8,362
Corporate
administrative
expense.............. (230)(d) 769
Depreciation and
amortization......... 2,859(e) 7,990
Pre-acquisition
expenses............. 0
-------------- ---------- --------------
Operating income
(loss)................ (2,293) 0 583
Interest expense, net... (1,736)(f) (1,864)(l) (6,772)
Other income
(expense)............. 0
Minority interest in
loss of subsidiary.... (10)(g) 0
-------------- ---------- --------------
Net income (loss) before
income taxes.......... (4,039) (1,864) (6,189)
Provision for income
taxes................. 0
-------------- ---------- --------------
Net income (loss)....... (4,039) (1,864) (6,189)
============== ========== ==============
BALANCE SHEET (AT END OF
OF PERIOD):
Cash and cash
equivalents........... 2,263(h) 2,670
Accounts receivable,
net................... 2,255
Prepaid expenses........ 599
Property and equipment,
net................... 21,979(h) 111,769
Franchise costs, net.... 40,800(h) 121,412
Covenant not to compete,
net................... 13,600(h) 13,600
Subscriber lists, net... 27,200(h) 55,139
Goodwill, net........... (103,996)(h) 10,925
Deferred financing costs
and other, net........ 3,700(h) 7,000(m) 13,636
Earnest money
deposits.............. (7,000)(h) 0
-------------- ---------- --------------
Total assets............ (1,454) 7,000 332,005
============== ========== ==============
Accounts payable........ 920
Accrued liabilities..... 3,684
Subscriber prepayments
and deposits.......... 1,779
Accrued interest
payable............... 841
Debt.................... 93,200(i) (193,000)(m) 224,272
200,000(m)
Partners' capital....... 40,500(j) 100,509
(135,154)(j)
-------------- -------- --------------
Total liabilities and
partners' capital..... (1,454) 7,000 332,005
============== ========== ==============
<CAPTION>
-----------------------------------------------------------------------------------------
ACQUISITION SYSTEMS
-----------------------------------------------------------------------------------------
GRASSROOTS PRO FORMA
AND ADJUSTMENTS
ACE TRIAX PENN/OHIO FOR ACTIVITY
SYSTEMS SYSTEMS SYSTEMS OF ACQUISITION
ACQUISITION ACQUISITION ACQUISITIONS SYSTEMS
----------- ----------- ------------ -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues................ 7,607 4,722 927
Expenses................
System operations..... 4,046 2,202 468 (298)(n)
Corporate
administrative
expense.............. 228 349 16 (262)(o)
Depreciation and
amortization......... 2,517 1,803 328 1,931(p)
Pre-acquisition
expenses.............
--------- --------- ---------- ------------
Operating income
(loss)................ 816 368 115 (1,371)
Interest expense, net... (6,698) (796) (295) 3,574(q)
Other income
(expense).............
Minority interest in
loss of subsidiary....
--------- --------- ---------- ------------
Net income (loss) before
income taxes.......... (5,882) (428) (180) 2,203
Provision for income
taxes.................
--------- --------- ---------- ------------
Net income (loss)....... (5,882) (428) (180) 2,203
========= ========= ========== ============
BALANCE SHEET (AT END OF
OF PERIOD):
Cash and cash
equivalents........... 1,940 3,097 266 (5,037)(p)
Accounts receivable,
net................... 348 614 147
Prepaid expenses........ 165 182 42
Property and equipment,
net................... 25,864 37,837 3,158 34,945(p)
Franchise costs, net.... 2,089 9,123 312 75,980(p)
Covenant not to compete,
net................... 61 11 8,195(p)
Subscriber lists, net... 1,157 37,691(p)
Goodwill, net........... 3,553 4,424(p)
Deferred financing costs
and other, net........ 306 1,227 3,471(p)
(1,533)(p)
Earnest money
deposits..............
--------- --------- ---------- ------------
Total assets............ 35,483 52,080 3,936 158,136
========= ========= ========== ============
Accounts payable........ 3,005 1,665 311
Accrued liabilities..... 161 640
Subscriber prepayments
and deposits.......... 134 66
Accrued interest
payable............... 5,226 255 (5,481)(r)
Debt.................... 184,977 41,614 201,053(p)
(226,591)(r)
Partners' capital....... (158,020) 8,480 2,985 42,600(s)
146,555(r)
--------- --------- ---------- ------------
Total liabilities and
partners' capital..... 35,483 52,080 3,936 158,136
========= ========= ========== ============
<CAPTION>
-----------------------------------------------------------
PRO FORMA
EFFECT OF THE
PROPOSED
PRO FORMA SALE OF THE
EFFECT OF THE DISPOSITION PRO FORMA
UVC NOTE SYSTEMS(v) COMBINED
------------ ------------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues................ (812) 30,148
Expenses................
System operations..... (413) 14,367
Corporate
administrative
expense.............. (41) 1,059
Depreciation and
amortization......... (160) 14,409
Pre-acquisition
expenses............. 0
--------- ------- ---------
Operating income
(loss)................ 0 (198) 313
Interest expense, net... 207(t) 324(w) (10,456)
Other income
(expense)............. 0
Minority interest in
loss of subsidiary.... 0
--------- --------- ---------
Net income (loss) before
income taxes.......... 207 126 (10,143)
Provision for income
taxes................. 0
--------- --------- ---------
Net income (loss)....... 207 126 (10,143)
========= ========= =========
BALANCE SHEET (AT END OF
OF PERIOD):
Cash and cash
equivalents........... (2,529)(u) 407
Accounts receivable,
net................... 3,364
Prepaid expenses........ 988
Property and equipment,
net................... (5,264) 208,309
Franchise costs, net.... (9,711) 199,205
Covenant not to compete,
net................... (1,108) 20,759
Subscriber lists, net... 93,987
Goodwill, net........... (577) 18,325
Deferred financing costs
and other, net........ 17,107
Earnest money
deposits.............. 0
--------- --------- ---------
Total assets............ (2,529) (16,660) 562,451
========= ========= =========
Accounts payable........ 5,901
Accrued liabilities..... 4,485
Subscriber prepayments
and deposits.......... 1,979
Accrued interest
payable............... (329)(u) 512
Debt.................... (7,200)(u) (16,860) 401,265
Partners' capital....... 5,000(v) 200 148,309
--------- --------- ---------
Total liabilities and
partners' capital..... (2,529) (16,660) 562,451
========= ========= =========
</TABLE>
26
<PAGE> 29
FOOTNOTES TO THE PRO FORMA FINANCIAL INFORMATION AS OF MARCH 31, 1996
(In thousands)
(a) The C4 systems were acquired on February 1, 1996, and, therefore, the
balance sheet data for such systems are included in the Company's March 31, 1996
historical balance sheet.
(b) The Americable systems were acquired on March 29, 1996, and, therefore, the
balance sheet data for such systems are included in the Company's March 31, 1996
historical balance sheet.
(c) Represents the estimated cost savings of the Company's master programming
contracts of $272 and estimated cost savings of $64 due to the elimination of
duplicative functions and personnel attributable to the C4, Americable and Cox
systems.
(d) Represents the elimination of management fees and allocated overhead costs
of $429 and the inclusion of the Company's estimated incremental overhead costs
of $199 attributable to the C4, Americable and Cox systems.
(e) Represents additional depreciation and amortization attributable to the C4,
Americable and Cox systems as if such systems had been acquired on January 1,
1995.
(f) Adjustments to interest expense are calculated as if all indebtedness
incurred to effect the acquisition of the Existing Systems and all other
indebtedness outstanding as of March 31, 1996 had been outstanding for the
entire period. Interest expense is calculated assuming indebtedness accrues
interest as follows:
<TABLE>
<CAPTION>
----------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
---------- ------------- ---------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..................... $ 20,072.0 8.19% $ 411.0
Outstanding Senior Credit Facility--tranche A.............................. 100,000.0 8.19% 2,047.5
Outstanding Senior Credit Facility--tranche B.............................. 90,000.0 8.69% 1,955.3
Outstanding UVC Note....................................................... 7,200.0 11.50% 207.0
----------
Total indebtedness--Existing Systems....................................... 217,272.0
Amortization of deferred financing fees.................................... 6,116.0 7 year avg 218.4
Unused Senior Credit Facility fees......................................... 54,928.0 0.50% 68.7
---------
Total pro forma interest expense--Existing Systems......................... 4,907.8
Total actual interest expense--Existing Systems............................ (3,172.0)
---------
Pro forma interest expense adjustment...................................... $ 1,735.8
==========
</TABLE>
(g) Represents the elimination of the minority interest in loss of the C4
systems prior to acquisition.
(h) Represents the purchase price adjustments necessary to effect the purchase
of the Cox systems on April 9, 1996 as follows, as well as the accounting for
deferred financing fees and transaction costs related to such.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
ANNUALIZED
PURCHASE DEPRECIATION
HISTORICAL PRICE PRELIMINARY AND
COX SYSTEMS BALANCE ADJUSTMENTS ALLOCATION ASSET LIFE AMORTIZATION
- ------------------------------------------------- ---------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Property and equipment........................... $ 25,621 $ 21,979 $ 47,600 8 $5,950
Franchise costs.................................. 0 40,800 40,800 15 2,720
Covenant not to compete.......................... 0 13,600 13,600 5 2,720
Subscriber lists................................. 0 27,200 27,200 7 3,886
Goodwill......................................... 110,796 (103,496) 7,300 15 487
Deferred financing costs and other............... 0 0 0
-----------
Total Cox systems.............................. $136,500
</TABLE>
(i) Represents incremental indebtedness incurred under the Senior Credit
Facility to effect the acquisition of the systems from Cox.
(j) Represents the incremental partners' capital contribution to effect the
acquisition of the systems from Cox.
(k) Represents the effects of the Offering, assuming that proceeds thereof are
utilized to repay existing indebtedness under the Senior Credit Facility.
(l) Adjustments to interest expense are calculated as if $200,000 of Offering
proceeds had been outstanding during the entire period and $193,000 of Offering
proceeds had been applied to repay indebtedness under the Senior Credit
Facility. Interest expense is calculated assuming indebtedness accrues interest
as follows:
<TABLE>
<CAPTION>
----------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
---------- ------------- ---------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..................... $ 17,072.0 8.19% $ 349.3
Outstanding Senior Subordinated Notes...................................... 200,000.0 11.50% 5,750.0
Outstanding UVC Note....................................................... 7,200.0 11.50% 207.0
----------
Total indebtedness--Existing Systems....................................... 224,272.0
Amortization of deferred financing fees.................................... 6,116.0 7 year avg 218.4
Amortization of deferred financing fees--Offering.......................... 7,000.0 10 year life 175.0
Unused Senior Credit Facility fees......................................... 57,928.0 0.50% 72.4
---------
Total pro forma interest expense--Existing Systems......................... 6,772.2
Total actual interest expense--Existing Systems pro forma.................. (4,907.8)
---------
Pro forma interest expense adjustment...................................... $1,864.4
==========
</TABLE>
(m) Pro forma effect of the Offering and use of the proceeds thereof to repay
existing indebtedness under the Senior Credit Facility and to pay Offering
expenses.
(n) Represents the estimated cost savings of the Company's master programming
contracts of $67 and estimated cost savings of $231 due to the elimination of
duplicative functions and personnel attributable to the ACE, Triax, Grassroots
and Penn/Ohio systems.
(o) Represents the elimination of management fees and allocated overhead costs
of $593 and the inclusion of the Company's estimated incremental overhead costs
of $331 attributable to the ACE, Triax, Grassroots and Penn/Ohio systems.
27
<PAGE> 30
(p) Represents the balance sheet effect of the purchase of the Acquisition
Systems, including the accounting for an estimated $3.5 million of transaction
costs, incremental indebtedness of approximately $201.1 million and additional
depreciation and amortization as if such systems had been acquired on January 1,
1995. Pro forma depreciation and amortization is calculated based on preliminary
asset appraisals as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------
ANNUALIZED
PURCHASE DEPRECIATION
HISTORICAL PRICE PRELIMINARY AND
ACE SYSTEMS BALANCE ADJUSTMENTS ALLOCATION ASSET LIFE AMORTIZATION
- ------------------------------------------------- ---------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Property and equipment........................... $25,864 $32,536 $ 58,400 8 $7,300
Franchise costs.................................. 2,089 49,011 51,100 15 3,407
Covenant not to compete.......................... 61 7,239 7,300 5 1,460
Subscriber lists................................. 1,157 20,743 21,900 7 3,129
Goodwill......................................... 3,553 3,747 7,300 15 487
Deferred financing costs and other............... 306 (306) 0
-----------
Total ACE systems.............................. $146,000
</TABLE>
<TABLE>
<CAPTION>
TRIAX SYSTEMS
- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
Property and equipment........................... $37,837 $ 924 $38,761 8 $4,845
Franchise costs.................................. 9,123 22,291 31,414 15 2,094
Covenant not to compete.......................... 0 100 100 5 20
Subscriber lists................................. 0 14,725 14,725 7 2,104
Goodwill......................................... 0 0 0 15 0
Deferred financing costs and other............... 1,227 (1,227) 0
-----------
Total Triax systems............................ $85,000
<CAPTION>
GRASSROOTS AND PENN/OHIO SYSTEMS
- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
Property and equipment........................... $3,158 $1,485 $ 4,643 8 $580
Franchise costs.................................. 312 4,678 4,990 15 333
Covenant not to compete.......................... 11 856 867 5 173
Subscriber lists................................. 0 2,223 2,223 7 317
Goodwill......................................... 0 677 677 15 45
Deferred financing costs and other............... 0 0 0
-----------
Total Grassroots and Penn/Ohio systems......... $13,400
<CAPTION>
TOTAL ACQUISITION SYSTEMS
- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
Property and equipment........................... $66,859 $34,945 $101,804 $12,726
Franchise costs.................................. 11,524 75,980 87,504 5,834
Covenant not to compete.......................... 72 8,195 8,267 1,653
Subscriber lists................................. 1,157 37,691 38,848 5,550
Goodwill......................................... 3,553 4,424 7,977 532
Deferred financing costs and other............... 1,533 (1,533) 0
-----------
Total Acquisition Systems...................... $244,400
</TABLE>
(q) Represents reconciliation of the interest expense on the net incremental
indebtedness needed to purchase the Acquisition Systems, including the effect of
the receipt of $32.0 million under the Rights Offering, the receipt of equity
contributions of $10.6 million pursuant to the Equity Call and the elimination
of indebtedness of the Acquisition Systems.
<TABLE>
<CAPTION>
------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
---------- ------------- ---------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..................... $ 28,125.0 8.19% $ 575.9
Outstanding Senior Credit Facility--tranche A.............................. 100,000.0 8.19% 2,047.5
Outstanding Senior Credit Facility--tranche B.............................. 90,000.0 8.69% 1,955.3
Outstanding Senior Subordinated Notes...................................... 200,000.0 11.50% 5,750.0
Outstanding UVC Note....................................................... 7,200.0 11.5% 207.0
----------
Total indebtedness--Existing Systems....................................... 425,325.0
Amortization of deferred financing fees.................................... 6,116.0 7 year avg 218.4
Amortization of deferred financing fees--Offering.......................... 7,000.0 10 year life 175.0
Unused Senior Credit Facility fees......................................... 46,875.0 0.50% 58.6
---------
Total pro forma interest expense--all systems.............................. 10,987.7
Total actual interest expense--Existing Systems............................ (6,772.4)
Historical interest expense--Acquisition Systems........................... (7,789.0)
---------
Pro forma interest expense adjustment...................................... $(3,573.7)
==========
</TABLE>
(r) Represents the reversal of the combined equity accounts, the historical debt
balance and applicable accrued interest related to the Acquisition Systems.
(s) Represents the receipt of approximately $10.6 million of equity
contributions pursuant to the Equity Call used primarily to fund earnest money
deposits with respect to certain of the Acquisition Systems and the receipt of
$32.0 million under the Rights Offering.
28
<PAGE> 31
(t) Represents pro forma reduction in interest expense due to the effect of the
conversion and repayment of the UVC Note and accrued interest thereon.
<TABLE>
<CAPTION>
----------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
---------- ------------- ---------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..................... $28,125.0 8.19% $575.8
Outstanding Senior Credit Facility--tranche A.............................. 100,000.0 8.19% 2,047.5
Outstanding Senior Credit Facility--tranche B.............................. 90,000.0 8.69% 1,955.3
Outstanding Senior Subordinated Notes...................................... 200,000.0 11.50 5,750.0
----------
Total indebtedness--Existing Systems....................................... 418,125.0
Amortization of deferred financing fees.................................... 6,116.0 7 year avg 218.4
Amortization of deferred financing fees--Offering.......................... 7,000.0 10 year life 175.0
Unused Senior Credit Facility fees......................................... 46,875.0 0.50% 58.6
---------
Total pro forma interest expense--all systems.............................. 10,780.6
Total actual interest expense--Existing Systems............................ (6,772.4)
Historical interest expense--Acquisition Systems pro forma................. (4,215.3)
---------
Pro forma interest expense adjustment...................................... $(207.1)
==========
</TABLE>
(u) Represents the effect of the conversion of the UVC Note into $5.0 million of
Class A Partnership Interests and the use of approximately $2.5 million of cash
to repay remaining principal and accrued interest thereon.
(v) Represents the operations of the Chatsworth, Georgia system and the
Woodstock and New Market, Virginia systems.
(w) Represents pro forma reduction in interest expense due to the effect of the
sale of the Disposition Systems and the use of net proceeds of approximately
$16.9 million to repay existing indebtedness under the Senior Credit Facility.
<TABLE>
<CAPTION>
----------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
---------- ------------- ---------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..................... $11,265.0 8.19% $230.6
Outstanding Senior Credit Facility--tranche A.............................. 100,000.0 8.19% 2,047.5
Outstanding Senior Credit Facility--tranche B.............................. 90,000.0 8.69% 1,955.3
Outstanding Senior Subordinated Notes...................................... 200,000.0 11.50 5,750.0
----------
Total indebtedness Existing Systems........................................ 401,265.0
Amortization of deferred financing fees.................................... 6,116.0 7 year avg 218.4
Amortization of deferred financing fees--Offering.......................... 7,000.0 10 year life 175.0
Unused Senior Credit Facility fees......................................... 63,735.0 0.50% 79.7
---------
Total pro forma interest expense--all systems.............................. 10,456.5
Total actual interest expense--Existing Systems............................ (6,772.4)
Historical interest expense--Acquisition Systems pro forma................. (4,215.3)
Pro forma effect of the UVC Note........................................... 207.1
---------
Pro forma interest expense adjustment...................................... $(324.1)
==========
</TABLE>
29
<PAGE> 32
FRONTIERVISION OPERATING PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(FOR THE YEAR ENDED DECEMBER 31, 1995)
(In $ THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
EXISTING SYSTEMS
----------------------------------------------------------------------------------------------
ACTUAL FOR THE LONGFELLOW PRO FORMA
PERIOD FROM SYSTEMS AND ADJUSTMENTS FOR
INCEPTION AMERICABLE EXISTING SYSTEMS
(APRIL 17) TO UVC SYSTEMS C4 SYSTEMS SYSTEMS COX SYSTEMS AND SENIOR
DECEMBER 31(a) ACQUISITION(b) ACQUISITION ACQUISITIONS(c) ACQUISITION CREDIT FACILITY
----------------- -------------- ------------ --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues....................... 4,369 25,417 11,756 2,561 26,724
Expenses
System operations............ 2,311 13,098 6,735 1,662 12,662 (1,720)(d)
Corporate administrative
expense..................... 127 1,270 546 347 1,513 (2,015)(e)
Depreciation and
amortization................ 2,308 9,625 5,552 354 8,549 8,653(f)
Pre-acquisition expenses..... 940
----------------- -------------- ------------ --------------- ----------- ----------------
Operating income (loss)........ (1,317) 1,424 (1,077) 198 4,000 (4,918)
Interest expense, net.......... (1,386) (4,087) (8,208) (35) 79 (5,994)(g)
Other income (expense).........
Minority interest in loss of
subsidiary................... 103 (103)(h)
----------------- -------------- ------------ --------------- ----------- ----------------
Net income (loss) before income
taxes........................ (2,703) (2,663) (9,182) 163 4,079 (11,015)
Provision for income taxes..... (3,997) 3,997(i)
----------------- -------------- ------------ --------------- ----------- ----------------
Net income (loss).............. (2,703) (2,663) (9,182) 163 82 (7,018)
================= ============== ============ =============== =========== ================
<CAPTION>
---------------------------------------------------------------------------------------
EXISTING SYSTEMS ACQUISITION SYSTEMS
---------------------------- ---------------------------------------------------------
SUBTOTAL GRASSROOTS PRO FORMA
PRO FORMA PRO FORMA AND ADJUSTMENTS
ADJUSTMENTS OFFERING AND ACE TRIAX PENN/OHIO FOR ACTIVITY
FOR THE EXISTING SYSTEMS SYSTEMS SYSTEMS OF ACQUISITION
OFFERING(j) SYSTEMS ACQUISITION ACQUISITION ACQUISITIONS SYSTEMS
----------- ------------ ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues....................... 70,827 28,088 17,780 3,828
Expenses 0
System operations............ 34,748 15,829 8,438 2,415 (1,166)(l)
Corporate administrative
expense..................... 1,788 843 1,168 247 (1,017)(m)
Depreciation and
amortization................ 35,041 11,284 7,344 1,311 6,369(n)
Pre-acquisition expenses..... 940
----------- ------------ ----------- ------------ ------------ ---------------
Operating income (loss)........ 0 (1,690) 132 830 (145) (4,186)
Interest expense, net.......... (7,459)(k) (27,090) (22,366) (3,316) (715) 9,536(o)
Other income (expense)......... 0 (558) 558(p)
Minority interest in loss of
subsidiary................... 0 48 48(q)
----------- ------------ ----------- ------------ ------------ ---------------
Net income (loss) before income
taxes........................ (7,459) (28,780) (22,744) (2,486) (860) 5,860
Provision for income taxes..... 0
----------- ------------ ----------- ------------ ------------ ---------------
Net income (loss).............. (7,459) (28,780) (22,744) (2,486) (860) 5,860
=========== ============ =========== ============ ============ ===============
<CAPTION>
--------------------------------------
PRO FORMA
EFFECT OF
PROPOSED
PRO FORMA SALE OF THE
EFFECT OF THE DISPOSITION PRO FORMA
UVC NOTE(r) SYSTEMS(t) COMBINED
------------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenues....................... (3,561) 116,962
Expenses
System operations............ (1,823) 58,441
Corporate administrative
expense..................... 0 3,029
Depreciation and
amortization................ (1,555) 59,794
Pre-acquisition expenses..... 940
------------- --------- ---------
Operating income (loss)........ (183) (5,242)
Interest expense, net.......... 828(s) 1,297(u) (41,826)
Other income (expense)......... 0
Minority interest in loss of
subsidiary................... 0
------------- --------- ---------
Net income (loss) before income
taxes........................ 828 1,114 (47,068)
Provision for income taxes..... 0
------------- --------- ---------
Net income (loss).............. 828 1,114 (47,068)
============= ========= =========
</TABLE>
30
<PAGE> 33
FOOTNOTES TO PRO FORMA FINANCIAL INFORMATION AS OF DECEMBER 31, 1995
(In thousands)
(a) Includes the results of operations of the systems purchased from UVC
subsequent to November 9, 1995 and the results of operations of the systems
purchased from Longfellow subsequent to November, 21, 1995.
(b) Historical results for the period prior to acquisition (January 1, 1995 to
November 8, 1995).
(c) Historical results for the systems purchased from Longfellow for the period
from January 1, 1995 to November 20, 1995 and of the systems purchased from
Americable for the year ended December 31, 1995.
(d) Represents the estimated cost savings of the Company's master programming
contracts of $762 and estimated cost savings of $958 due to the elimination of
duplicative functions and personnel attributable to the C4, Americable and Cox
systems.
(e) Represents the elimination of management fees and allocated overhead costs
of $3,676 and the inclusion of the Company's estimated incremental overhead
costs of $1,661 attributable to the C4, Americable and Cox systems.
(f) Represents additional depreciation and amortization of $8,653 resulting from
the application of purchase accounting to the purchase of the Existing Systems.
(g) Adjustments to interest expense are calculated as if all indebtedness
incurred to effect the purchase of the Existing Systems and all other
indebtedness outstanding as of March 31, 1996 had been outstanding since January
1, 1995. Interest expense is calculated assuming indebtedness accrues interest
as follows:
<TABLE>
<CAPTION>
-----------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
---------- ------------- ----------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..... $ 20,072.0 8.19% $ 1,643.9
Outstanding Senior Credit Facility--tranche A.............. 100,000.0 8.19% 8,190.0
Outstanding Senior Credit Facility--tranche B.............. 90,000.0 8.69% 7,821.0
Outstanding UVC Note....................................... 7,200.0 11.50% 828.0
----------
Total indebtedness--Existing Systems....................... 217,272.0
Amortization of deferred financing fees.................... 6,116.0 7 year avg 873.7
Unused Senior Credit Facility fees......................... 54,928.0 0.50% 274.7
----------
Total pro forma interest expense--Existing Systems 19,631.3
Total actual interest expense--Existing Systems (13,637.0)
----------
Pro forma interest expense adjustment $ 5,994.3
==========
</TABLE>
(h) Represents the elimination of the minority interest in earnings of C4 prior
to acquisition.
(i) Represents the elimination of the provision for income taxes of Cox prior
to acquisition.
(j) Represents the effect of the Offering, assuming that proceeds thereof are
utilized to repay existing indebtedness under the Senior Credit Facility.
(k) Adjustments to interest expense are calculated as if the Offering proceeds
had been consummated on January 1, 1995 and $193,000 of Offering net proceeds
had been applied to repay indebtedness under the Senior Credit Facility.
Interest expense is calculated assuming indebtedness accrues interest as
follows:
<TABLE>
<CAPTION>
------------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
---------- ------------- -----------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..... $ 17,072.0 8.19% $ 1,398.5
Outstanding Senior Subordinated Notes...................... 200,000.0 11.50% 23,000.0
Outstanding UVC Note....................................... 7,200.0 11.50% 828.0
----------
Total indebtedness--Existing Systems....................... 224,272.0
Amortization of deferred financing fees.................... 6,116.0 7 year avg 873.7
Amortization of deferred financing fees--Offering.......... 7,000.0 10 year life 700.0
Unused Senior Credit Facility fees......................... 57,928.0 0.50% 289.6
-----------
Total pro forma interest expense--Existing Systems 27,089.8
Total actual interest expense--Existing Systems pro forma (19,631.3)
-----------
Pro forma interest expense adjustment $ 7,458.5
===========
</TABLE>
(l) Represents the estimated incremental cost of the Company's master
programming contracts of $1 and estimated cost savings of $1,167 due to the
elimination of duplicative functions and personnel attributable to the ACE,
Triax, Grassroots and Penn/Ohio systems.
(m) Represents the elimination of management fees and allocated overhead costs
$2,258 and the inclusion of the Company's estimated incremental overhead costs
of $1,241 attributable to the ACE, Triax, Grassroots and Penn/Ohio systems.
(n) Represents additional depreciation and amortization of $6,369 resulting from
the application of purchase accounting from the purchase of the Acquisition
Systems.
31
<PAGE> 34
(o) Represents reconciliation of the interest expense on the net incremental
indebtedness used to purchase the Acquisition Systems, including the effect of
the receipt of approximately $10.6 million of equity commitments pursuant to the
Equity Call, the elimination of indebtedness of the Acquisition Systems and the
receipt of approximately $32.0 million of equity contributions under the Rights
Offering.
<TABLE>
<CAPTION>
------------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
----------- ------------- -----------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..... $ 28,125.0 8.19% $ 2,303.5
Outstanding Senior Credit Facility--tranche A.............. 100,000.0 8.19% 8,190.0
Outstanding Senior Credit Facility--tranche B.............. 90,000.0 8.69% 7,821.0
Outstanding Senior Subordinated Notes...................... 200,000.0 11.50% 23,000.0
Outstanding UVC Note....................................... 7,200.0 11.50% 828.0
-----------
Total indebtedness--pro forma all systems.................. 425,325.0
Amortization of deferred financing fees.................... 6,116.0 7 year avg 873.7
Amortization of deferred financing fees--Offering.......... 7,000.0 10 year life 700.0
Unused Senior Credit Facility fees......................... 46,875.0 0.50% 234.4
-----------
Total pro forma interest expense--all systems 43,950.6
Total actual interest expense--Existing Systems (27,089.8)
-----------
Historical interest expense--Acquisition Systems (26,397.0)
-----------
Pro forma interest expense adjustment $ (9,536.2)
===========
</TABLE>
(p) Represents the elimination of forbearance costs of ACE prior to acquisition.
(q) Represents the elimination of the minority interest in earnings of ACE prior
to acquisition.
(r) Represents the effect of the conversion of the UVC Note into $5.0 million of
Class A Partnership Interests and the repayment of the approximately $2.5
million remaining accrued interest and principal thereon.
(s) Represents pro forma reduction of interest expense due to the effect of the
conversion and repayment of the UVC Note and accrued interest thereon.
<TABLE>
<CAPTION>
------------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
----------- ------------- -----------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..... $ 28,125.0 8.19% $ 2,303.5
Outstanding Senior Credit Facility--tranche A.............. 100,000.0 8.19% 8,190.0
Outstanding Senior Credit Facility--tranche B.............. 90,000.0 8.69% 7,821.0
Outstanding Senior Subordinated Notes...................... 200,000.0 11.50% 23,000.0
-----------
Total indebtedness--Existing Systems....................... 418,125.0
Amortization of deferred financing fees.................... 6,116.0 7 year avg 873.7
Amortization of deferred financing fees--Offering.......... 7,000.0 10 year life 700.0
Unused Senior Credit Facility fees......................... 46,875.0 0.50% 234.4
-----------
Total pro forma interest expense--all systems 43,122.6
Total actual interest expense--Existing Systems (27,089.8)
Historical interest expense--Acquisition Systems pro forma (16,861.0)
-----------
Pro forma interest expense adjustment $ (828.2)
===========
</TABLE>
(t) Represents the operations of the Chatsworth, Georgia system and the
Woodstock and New Market, Virginia systems.
(u) Represents pro forma reduction of interest expense due to the effect of the
sale of the Disposition Systems and the use of net proceeds of approximately
$16.9 million to repay existing indebtedness under the Senior Credit Facility.
<TABLE>
<CAPTION>
------------------------------------------
PRO FORMA
PRINCIPAL INTEREST RATE EXPENSE
----------- ------------- -----------
<S> <C> <C> <C>
Outstanding Senior Credit Facility--revolving facility..... $ 11,265.0 8.19% $ 922.7
Outstanding Senior Credit Facility--tranche A.............. 100,000.0 8.19% 8,190.0
Outstanding Senior Credit Facility--tranche B.............. 90,000.0 8.69% 7,821.0
Outstanding Senior Subordinated Notes...................... 200,000.0 11.50% 23,000.0
-----------
Total Indebtedness Existing Systems........................ 401,265.0
Amortization of deferred financing fees.................... 6,116.0 7 year avg 873.7
Amortization of deferred financing fees--Offering.......... 7,000.0 10 year life 700.0
Unused Senior Credit Facility fees......................... 63,735.0 0.50% 318.7
-----------
Total pro forma interest expense--all systems 41,826.1
Total actual interest expense--Existing Systems (27,089.8)
Historical interest expense--Acquisition Systems pro forma (16,861.0)
Pro forma effect of the UVC Note 828.2
-----------
Pro forma interest expense adjustment $ (1,296.5)
===========
</TABLE>
32
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company commenced operations in November 1995. The Company acquired certain
cable television systems from UVC on November 9, 1995 (the "UVC Systems") and
certain other cable systems from Longfellow on November 21, 1995 (the
"Longfellow Systems"), from C4 on February 1, 1996 (the "C4 Systems"), from
Americable on March 29, 1996 (the "Americable Systems") and from Cox on April 9,
1996 (the "Cox Systems"), for aggregate consideration of $315.7 million. See
"Business--Development of the Systems--The Existing Systems" for a description
of the Existing Systems. The Company has operated the Existing Systems for a
limited period of time and had no operations prior to November 9, 1995. All
acquisitions have been accounted for under the purchase method of accounting
and, therefore, the Company's historical results of operations include the
results of operations for each acquired system subsequent to its respective
acquisition date.
The Company has entered into definitive agreements to acquire cable system
assets of ACE, Triax, Grassroots, and expects to enter into a definitive
agreement to acquire cable system asset of Penn/Ohio, for aggregate
consideration of approximately $244.4 million. See "Business--Development of the
Systems--The Acquisition Systems" for a description of the Acquisition Systems.
If consummated, the purchase of the Acquisition Systems will result in a
substantial increase in the number of subscribers and the revenues and expenses
of the Company. As a result of the Company's limited operating history and the
expected effect of the purchase of the Acquisition Systems, the Company believes
that its results of operations for the period ended December 31, 1995 and for
the three months ended March 31, 1996 are not indicative of the Company's
results of operations in the future.
RESULTS OF OPERATIONS
Actual
The following table sets forth, for the periods indicated, certain statements of
operations and other data of the Company expressed in dollar amounts (in
thousands) and as a percentage of revenue.
<TABLE>
<CAPTION>
----------------------------------------
APRIL 17 TO
THREE MONTHS ENDED DECEMBER 31,
MARCH 31, 1996 1995(1)
-------------------- --------------------
% OF % OF
In thousands AMOUNT REVENUE AMOUNT REVENUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................................. $ 9,780 100.0% $ 4,369 100.0%
Expenses
Operating expenses..................................... 4,688 47.9 2,311 52.9
Corporate expenses..................................... 570 5.8 127 2.9
Depreciation and amortization.......................... 3,476 35.5 2,308 52.8
Pre-acquisition expenses............................... -- -- 940 21.5
--------- -------- --------- --------
Total expenses........................................... 8,734 89.3 5,686 130.1%
--------- -------- --------- --------
Operating income (loss).................................. 1,046 10.7 (1,317) (30.1)
Interest expense, net.................................... (2,473) 25.3 (1,386) 31.7
--------- -------- --------- --------
Net loss................................................. $(1,427) (14.6) $(2,703) (61.9)
======= ====== ======= ======
Other Data:
EBITDA(2)................................................ $ 4,522 46.2% $ 991 22.7%
</TABLE>
- ---------------
(1) Reflects the historical financial statements for the period from inception
(April 17, 1995) through December 31, 1995.
(2) EBITDA represents operating income (loss) before depreciation and
amortization.
33
<PAGE> 36
Actual
First quarter of 1996 compared with the year ended December 31, 1995
Revenues increased 123.8% to $9.8 million in the first quarter of 1996 from $4.4
million in 1995. These increases were attributable to the commencement of
operations in November 1995 with the acquisition of the UVC Systems on November
9, 1995 and of the Longfellow Systems on November 21, 1995. Revenues for the
first quarter of 1996 reflect full period operations of the UVC and Longfellow
systems, as well as the acquisition of the C4 Systems on February 1, 1996 and of
the Americable Systems on March 29, 1996.
Operating expenses were reduced to 53.7% of sales in the first quarter of 1996
from 55.8% of sales in 1995 due to initial cost-cutting measures implemented by
the Company. These efforts included the establishment of centralized regional
service centers in Rockland, Maine and Greeneville, Tennessee and the
elimination of ten customer service offices. Employee staffing was reduced by
9.0% from pre-acquisition levels. Other cost reductions have been realized
through the elimination of duplicative expenses, such as customer billing,
accounting, accounts payable and payroll administration.
As a result of such cost efficiencies, EBITDA increased to 46.2% of revenues in
the first quarter of 1996 from 22.7% of revenues in 1995.
Combined Historical Existing Systems
The discussion of the results of operations for the years ended December 31,
1993, 1994 and 1995 is based on the combined historical results of the Acquired
Predecessor Systems (UVC, Cox and C4), which do not reflect changes in the
operation or management of the Existing Systems that the Company has made or
intends to make and are not necessarily indicative of the results that would
have been achieved had such systems been owned and operated by the Company
during the periods presented.
Year ended December 31, 1995 compared to the year ended December 31, 1994
Revenues increased to $68.1 million in the year ended December 31, 1995 from
$64.4 million in the year ended December 31, 1994 due to increases in service
rates and internal subscriber growth. During this period, basic subscribers
increased by approximately 2.9%, primarily in the Cox Systems and the C4
Systems, which grew by 1,800 and 1,200 subscribers respectively. Basic
penetration improved to 71.1% at year-end 1995 from 69.7% at year-end 1994.
Premium penetration over the period declined to 42.1% at year-end 1995 from
45.9% at year-end 1994. Operating expenses grew at rates generally approximating
revenue growth, increasing to $38.3 million in the year ended December 31, 1995
from $35.4 million in the year ended December 31, 1994. EBITDA increased to
$29.8 million in 1995 from $29.0 million in 1994.
Year ended December 31, 1994 compared to the year ended December 31, 1993
Revenues increased to $64.4 million in the year ended December 31, 1994 from
$63.4 million in the year ended December 31, 1993, primarily due to growth in
the number of basic subscribers and premium units, which increased over the
period by approximately 2.9% and 20.9% respectively. Basic service penetration
improved to 70.1% at year end 1994 from 69.0% at year end 1993, while premium
penetration increased to 45.9% from 42.1% over the same period. In spite of
these increases, revenue growth was inhibited by regulations of basic service
rates which were instituted by the 1992 Cable Act. See "Legislation and
Regulation" for a further discussion of recent cable television regulation.
Operating expenses increased to $35.4 million in the year ended December 31,
1994 from $34.6 million in the year ended December 31, 1993. Increases in
expenses were partially attributable to higher administrative costs of complying
with regulatory reporting requirements under the 1992 Cable Act, as well as the
addition of new services and shifting of service tiers in response to
regulation. As a result, EBITDA increased modestly to $29.0 million in 1994 from
$28.7 million in 1993.
Combined Historical Acquisition Systems
The discussion of the results of operations for the years ended December 31,
1993, 1994 and 1995 is based on the combined historical results of the Probable
Predecessor Acquisition Systems (ACE and Triax), which do not reflect
34
<PAGE> 37
changes in the operation or management of the Acquisition Systems that the
Company has made or intends to make and are not necessarily indicative of the
results that would have been achieved had such systems been owned and operated
by the Company during the periods presented.
Year ended December 31, 1995 compared to the year ended December 31, 1994
Revenues increased to $45.9 million in the year ended December 31, 1995 from
$40.9 million in the year ended December 31, 1994, primarily due to increases in
service rates, internal subscriber growth and the acquisition of approximately
9,000 subscribers in the Triax Systems during the first quarter of 1995. Over
this period, the number of basic subscribers and premium units increased by
approximately 7.1% and 13.1%, respectively. Basic penetration improved to
approximately 73.2% at year end 1995 from approximately 71.9% at year end 1994.
Premium penetration increased to 44.9% at year end 1995 from 42.5% at year end
1994. Operating expenses increased 15.7% to $26.8 million in 1995 from $23.2
million in 1994. EBITDA increased to $19.0 million in 1995 from $17.7 million in
1994.
Year ended December 31, 1994 compared to the year ended December 31, 1993
Revenues increased to $40.9 million in the year ended December 31, 1994 from
$32.8 million in the year ended December 31, 1993, primarily due to internal
subscriber growth and the integration of system acquisitions. In 1993, the Triax
Systems completed three acquisitions, totaling over 23,000 subscribers, 90% of
which were acquired in December of 1993. The increase in revenues from 1993 to
1994 was largely attributable to the full period of operations of the acquired
properties and a 5.0% increase in subscribers at ACE. Basic subscribers and
premium units in the Acquisition Systems increased over the period by
approximately 4.1% and 17.2%, respectively. Basic penetration improved to 71.9%
at year end 1994 from 69.3% at year end 1993, while premium penetration
increased to 42.5% from 36.4% over the same period. Operating expenses grew
28.5% to $23.2 million in 1994, an increase of 28.5% from $18.1 million in 1993,
due in part to regulatory related expenses. EBITDA increased to $17.7 million in
1994 from $14.7 million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The cable television business generally requires substantial capital for the
construction, expansion and maintenance of the delivery system. In addition, the
Company has pursued, and intends to pursue in the future, a business strategy
which includes selective acquisitions. The Company has financed these
expenditures through a combination of cash from operations, indebtedness from
outside sources and equity capital from its partners. On a pro forma basis for
the Existing Systems, for the three months ended March 31, 1996, the Company's
EBITDA totaled $8.6 million and was sufficient to meet the Company's debt
service obligations, working capital and capital expenditure requirements with
the exception of the acquisition of the C4 Systems and the Cox Systems, which
were funded by borrowings under the Senior Credit Facility. As of March 31,
1996, and giving effect to the acquisition of all of the Existing Systems, the
Company had outstanding indebtedness under the Senior Credit Facility of $210.0
million. This debt was used principally for the acquisition of the Existing
Systems. In addition to this debt, the Company had additional availability of
$55.0 million under the Senior Credit Facility. Pro forma for the Transactions
and the purchase of the systems from Cox, the Company would have had $201.2
million outstanding and availability of $63.8 million under the Senior Credit
Facility. See "Credit Arrangements of the Company" for a further discussion of
the Company's credit facilities. From November 1995 to March 31, 1996, in
connection with the acquisitions of the Existing Systems, the Company received
aggregate equity contributions of approximately $112.5 million of the initial
$123.5 million commitments for equity contributions from existing partners of
FVP. Concurrently with or prior to the closing of the Offering, the Company will
complete the Rights Offering pursuant to which $69.8 million in further equity
will be available. It is anticipated that following consummation of the
Transactions, approximately $37.8 million of proceeds from the Rights Offering
will be available to fund additional acquisitions. On an actual basis,
representing solely the Company's results for the three months ended March 31,
1996, annualized EBITDA was $18.1 million with outstanding indebtedness of
$124.1 million.
Historically, the combined cash flow of substantially all of the Existing
Systems totaled approximately $28.7 million, $29.0 million and $29.9 million for
the years ended December 31, 1993, 1994 and 1995, respectively. For the
35
<PAGE> 38
same periods, the combined cash flow of substantially all of the Acquisition
Systems was $14.7 million, $17.7 million and $19.0 million, respectively.
CAPITAL EXPENDITURES
From November 9, 1995 to March 31, 1996, the Company had capital expenditures
(exclusive of system acquisitions) of approximately $1.7 million which were
financed through cash flows from operations. Capital expenditures included
expansion and improvements of existing cable properties, plant and equipment,
maintenance of existing equipment and the addition of new subscribers
necessitating cable line drops and extension of cable plant facilities and
installations.
During the first three months of 1996, the Company's capital expenditures were
approximately $1.1 million. These expenditures were primarily to establish and
equip regional service centers, to upgrade existing plant and facilities and to
build out facilities to previously unserved areas. On a pro forma basis for that
period, the Existing Systems and the Acquisition Systems expended approximately
$2.3 million in capital expenditures, primarily for extensions of cable plant
facilities and for system rebuilds. Pro forma for the purchase of the
Acquisition Systems, the Company expects capital expenditures to total
approximately $116.8 million over the period ending December 31, 2001. Of that
amount, approximately $59.1 million will be used to upgrade the technical
platform of substantially all of the Company's systems to at least 400 MHz to
450 MHz, approximately $12.8 million will be invested in addressable converters,
primarily for its two primary operating regions, approximately $18.7 million
will be used to build out the system to new homes and the balance of
approximately $26.2 million will be used for repair and maintenance. In general,
the Company expects to expend approximately $120 per subscriber over the two
years ending December 31, 1998. The Company intends to finance such capital
expenditures through operating cash flow. See "Business--Business Strategy" for
a discussion of the Company's capital improvement strategy.
36
<PAGE> 39
BUSINESS
GENERAL
The Company owns, operates and develops cable television systems in small and
medium-sized suburban and exurban communities, primarily concentrated in two
operating regions--New England and Ohio/Kentucky--with a third, smaller group of
cable television systems in the Southeast. To date, the Company has acquired
strategically located cable television systems at historically attractive
values, thus establishing its core geographic base and building subscriber mass.
Since closing its initial acquisition in November 1995, the Company has become
one of the 35 largest MSOs in the U.S. The Existing Systems passed approximately
304,700 homes in six states and served approximately 215,100 basic subscribers
as of March 31, 1996.
The Company has entered into agreements to acquire, for an aggregate purchase
price of approximately $244.4 million, the Acquisition Systems which passed
approximately 202,400 homes and served approximately 147,500 basic subscribers
as of March 31, 1996. The Acquisition Systems primarily consist of certain
significant cable television systems to be acquired from ACE and from Triax. The
ACE systems, serving approximately 83,300 subscribers in Kentucky and Indiana,
and the Triax systems, serving approximately 53,800 subscribers in Ohio/Kentucky
and the Southeast, are contiguous or in close proximity to the Existing Systems,
consistent with the Company's strategy of clustering its cable television
systems to achieve economies of scale and operating efficiencies. In addition,
the Company has sold or entered into agreements to sell the Disposition Systems
in the Southeast for an aggregate sales price of approximately $17.1 million,
representing a per subscriber sales price that is over 30% more than the average
per subscriber acquisition cost of the Existing Systems in the Southeast.
As of March 31, 1996, after giving pro forma effect to the purchase of the
Existing Systems and the Acquisition Systems and the sale of the Disposition
Systems, the Company's cable television systems passed approximately 493,900
homes and served approximately 351,900 basic subscribers, representing basic
penetration of 71.2%. On such a pro forma basis, as of March 31, 1996, the
Company would be one of the 25 largest MSOs in the U.S. and a dominant cable
operator in its two primary operating regions. On the same pro forma basis, for
the three months ended March 31, 1996 annualized and for the year ended December
31, 1995, the Company had revenues of approximately $120.6 million and $117.0
million, respectively, and EBITDA of approximately $58.9 million and $54.6
million, respectively.
The Company focuses on cable television systems in small and medium-sized
suburban and exurban markets in order to exploit unique acquisition
opportunities in the cable television marketplace created by the confluence of
several economic, regulatory, competitive and technical forces. The cable
television industry has experienced rapid and continuing consolidation over the
last several years. Operators also have been faced with the need for increased
levels of capital expenditures to expand channel capacity and to provide new
broadband services. In addition, in recent years cable operators have begun to
face the threat of competition from new market entrants, including telephone
company video programming services and DBS services. Many smaller MSOs,
particularly those that were acquisitive during the late 1980's and purchased
systems at significantly higher prices, are either seeking liquidity for their
investors or are constrained from accessing additional capital to upgrade or
rebuild aging plant to remain competitive with other video programming
providers. At the same time that "financial players" and smaller operators are
seeking to exit the cable television business, larger MSOs are directing their
finite human and financial resources to the major urban and suburban markets,
which industry analysts expect to be the first battlefield between cable
television and telephone companies for "information superhighway" related
services. Large MSOs are divesting less strategic systems or are trading for
other assets in an effort to conserve capital, to rationalize their own
geographic clusters and to increase subscriber density in their larger urban and
suburban systems.
The convergence of these market forces has resulted in a large inventory of
cable systems for sale in small to medium-sized markets, combined with a
relatively small pool of capable buyers. As a result of this supply and demand
anomaly, the Company has been able to acquire selectively cable properties at
historically attractive prices. The aggregate purchase price paid by the Company
for the Existing Systems was approximately $315.7 million, representing an
average of 8.7 times the pro forma acquisition cash flow (as defined) of the
Existing Systems. The aggregate purchase price to be paid by the Company for the
Acquisition Systems is approximately $244.4 million.
37
<PAGE> 40
The Company believes that other acquisition opportunities exist, and the Company
is continuously engaged in discussions with other cable television system owners
and operators to explore such potential opportunities. Some of these potential
opportunities may involve systems serving substantial numbers of subscribers.
Although the Company does not currently have definitive agreements to acquire
systems other than those described herein, the Company intends to continue to
pursue, on an opportunistic basis, additional strategic acquisitions and smaller
"fill-in" acquisitions within its existing operating regions to further enhance
their operational and financial performance.
The Existing Systems and the Acquisition Systems represent the substantial
completion of the first phase of the Company's business plan. Through its core
acquisitions in New England and Ohio/Kentucky, the Company has established
significant subscriber mass and positioned itself as a dominant cable operator
in each of its primary operating regions. The Company is currently the second
largest MSO in Maine, and, after giving pro forma effect to the purchase of the
Existing Systems and the Acquisition Systems, as of March 31, 1996, the Company
would be the second largest MSO in Kentucky and one of the largest operators of
small and medium-sized cable systems in southern Ohio. In the Southeast, the
Company has accumulated attractive systems, which it expects either to
consolidate with subsequent system acquisitions, trade for systems within the
Company's primary operating regions or divest at favorable prices. The next
phase of the Company's business plan will focus on increasing subscriber density
within its primary operating regions through selective acquisitions, integrating
and streamlining business operations, making significant investment and
improvements in technical plant and developing existing and new cable and
broadband telecommunications services.
BUSINESS STRATEGY
The Company's objective is to increase its operating cash flow and the value of
its systems by utilizing its expertise in acquiring and managing cable systems.
Through strategic acquisitions and internal growth, the Company seeks to own and
operate cable television systems serving at least 500,000 subscribers in
geographically concentrated clusters serving 100,000 or more subscribers. To
achieve its objective, the Company pursues the following business strategies:
TARGET CLUSTERS IN SMALL AND MEDIUM-SIZED MARKETS. The Company has acquired
clusters of cable television systems serving small and medium-sized suburban and
exurban markets which are generally within 50 to 100 miles of larger urban and
suburban communities. The Company believes that such markets have many of the
beneficial attributes of larger urban and suburban markets--moderate to high
household growth, economic stability, attractive subscriber demographics and
favorable potential for additional clustering. Moreover, in such markets, the
Company believes that (i) it will face less direct competition given the lower
population densities and higher costs per subscriber of installing cable plant,
(ii) it will maintain higher subscriber penetration levels and lower customer
turnover based on fewer competing entertainment alternatives, and (iii) its
overhead and certain operating costs will generally be lower than those in
larger markets.
GROW THROUGH STRATEGIC AND OPPORTUNISTIC ACQUISITIONS. Beginning with its
initial acquisition in November 1995 of systems in Maine and Ohio, the Company
has systematically implemented a focused acquisition and consolidation strategy
within its two primary operating regions of New England and Ohio/Kentucky and
its systems group in the Southeast. Going forward, the Company will seek to
acquire systems that can be readily integrated into its primary operating
regions, in order to maximize operating efficiencies. As a consolidator of
systems within its operating regions, the Company will pursue both "fill-in"
acquisitions of smaller systems as well as strategic acquisitions. The Company
believes that such acquisition targets will have diminished strategic value to
other prospective buyers given its geographic prominence in these regions.
Consequently, the Company believes these systems can be purchased at favorable
prices. The Company also opportunistically pursues acquisitions outside of its
primary operating regions that can either be resold at higher prices or
exchanged for systems that are contiguous to its primary operating regions. The
Company has begun to execute this strategy with its Southeast systems.
IMPLEMENT OPERATING EFFICIENCIES. Upon acquiring a system, the Company
implements extensive management, operational and technical changes designed to
improve operating efficiencies, enhance operating cash flow and operating
margins and reduce overhead through economies of scale. Within each of its
operating regions,
38
<PAGE> 41
the Company has begun to streamline field operations by establishing centralized
customer service facilities, installing state-of-the-art telephone systems, MIS
and billing systems and eliminating duplicative functions. These changes have
resulted in lower administrative costs, better trained employees and a higher
level of customer service. Within the Existing Systems and Acquisition Systems,
the Company plans to consolidate up to 31 customer service and sales offices
into four regional service centers and seven local payment offices. Lastly, the
Company seeks to reduce technical operating costs and capital expenditures by
consolidating headend facilities. In the Existing Systems and the Acquisition
Systems, the Company plans to eliminate up to 59 of 202 headends. By serving
more subscribers from a single distribution point, the Company has begun to
decrease ongoing technical maintenance expenses, improve system reliability and
enhance cost efficiencies in adding new channels and services.
PROMOTE AND EXPAND SERVICE OFFERINGS. The Company aggressively promotes and
expands services to add and retain customers and increase revenue per customer.
The Company employs a coordinated array of marketing techniques, including
door-to-door sales, telemarketing, direct mail, print and broadcast advertising,
flyers and billing inserts and cross-channel promotion. Many of the Company's
customers received limited service offerings prior to acquisition and,
accordingly, the Company has begun to expand and repackage the basic and premium
services it offers. The Company believes that significant opportunity exists to
increase service revenue by expanding the programming and pricing options
available to its customers. Towards this end, the Company has created new basic
and premium packages and launched several lower priced premium channels such as
The Disney Channel, Starz! and Encore. As systems are consolidated and
technically enhanced, the Company will also seek to expand addressable
penetration. Only approximately 27.6% of the subscribers in the Existing Systems
and the Acquisition Systems access addressable technology. Addressability will
enable the Company to increase revenues derived from pay-per-view movies and
events and new pay services such as interactive video games, including The Sega
Channel. In addition, with the expanded advertising market delivery afforded by
larger, contiguous system clusters, the Company plans to intensify local spot
advertising sales efforts.
STRATEGICALLY UPGRADE SYSTEMS. The Company will selectively upgrade its cable
systems to increase channel capacity, enhance signal quality and improve
technical reliability. The Company believes such technical upgrades will not
only enhance the potential for increasing revenues, but also will improve
customer and community relations and further solidify the Company's position as
the preeminent local provider of video services in its operating regions. In
addition, by implementing a hybrid fiber optic-backbone/coaxial cable design
across the portions of its cable plant that serve its highest subscriber
densities, the Company will effectively position itself for the introduction of
new broadband and interactive services. In its primary operating regions in New
England and Ohio/Kentucky, the Company intends to invest up to $49.0 million
over the next five years to establish a technical platform of at least 400 MHz
to 450 MHz (54 to 62 channels) in a majority of its systems and 550 MHz to 750
MHz (78 to 100 channels) in certain of its larger markets. Over the same period,
the Company plans to invest up to an additional $10.6 million for addressable
converters in its two primary operating regions.
Additional potential for increased revenues will result as the Company develops
broadband service capability for the transmission of video, voice and data
services. Creating full service broadband terrestrial and satellite networks
interconnecting contiguous cable systems will enable the Company's regional
systems to offer a wide range of new services. These service offerings will
include multi-channel pay-per-view, interactive video games, advertising
insertion and the delivery of videotext or other information services. The
Company's regional systems could then be interconnected, creating potential
opportunities to utilize the network for services such as Internet access,
regional advertising, distance learning and telemedicine. Over the longer term,
potential applications for fiber interconnected networks include competitive
telephone access, long distance telephone backhaul, PCS and ESMR interconnection
and energy management and monitoring.
FOCUS ON THE CUSTOMER. The Company continually seeks to provide superior
customer service and improve programming and service choices for its
subscribers. By centralizing customer service at the regional level, all
functions that directly impact subscribers--sales and marketing, customer
service and administration and technical support--are implemented more quickly
and effectively. In addition, as a result of its consolidation efforts, the
Company has been able to enhance its customer service by increasing hours of
operations for its customer service functions, better coordinating service
calls, increasing responsiveness to customer inquiries and standardizing
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maintenance procedures. While centralizing and improving customer service, the
Company has retained local payment and technical offices to maintain its
presence and visibility within its communities.
THE CABLE TELEVISION INDUSTRY
A cable television system receives television, radio and data signals that are
transmitted to 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 in some instances,
fiber optic cable, to customers who pay a fee for this service. Cable television
systems may also originate their 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 term of years, generally for extended periods of up to 15 years.
The cable television industry developed in the United States in the late 1940's
and early 1950's in response to the needs of residents in predominantly rural
and mountainous areas of the country where the quality of off-air television
reception was inadequate due to factors such as topography and remoteness from
television broadcast towers. In the 1960's, cable television 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 receive
the numerous, satellite-delivered channels carried by cable television systems
which are not otherwise available via broadcast television reception.
Cable television systems offer customers various levels (or "tiers") of basic
cable services consisting of (i) off-air television signals of local network,
independent and educational stations, (ii) a limited number of television
signals from so-called super stations originating from distant cities (such as
WTBS, WGN and WWOR), (iii) various satellite-delivered, non-broadcast channels
(such as Cable News Network ("CNN"), MTV: Music Television, the USA Network
("USA"), Entertainment and Sports Programming Network ("ESPN") and Turner
Network Television ("TNT")), (iv) certain programming originated locally by the
cable television system (such as public, governmental and educational access
programs) and (v) informational displays featuring news, weather, stock market
and financial reports and public service announcements. For an extra monthly
charge, cable television systems also offer premium television services to their
customers. These services (such as Home Box Office ("HBO"), Showtime and
regional sports networks) are satellite-delivered channels consisting
principally of feature films, live sports events, concerts and other special
entertainment features, usually presented without commercial interruption.
A customer generally pays an initial installation charge and fixed monthly fees
for basic and premium television services and for other services (such as the
rental of converters and remote control devices). Such monthly service fees
constitute the primary source of revenues for cable television systems. In
addition to customer revenues from these services, cable television systems
generate revenues from additional fees paid by customers for pay-per-view
programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. Cable television systems
frequently also offer to their customers home shopping services, which pay the
systems a share of revenues from sales of products in the systems' service
areas. See "--Programming, Services and Rates."
DEVELOPMENT OF THE SYSTEMS
The Existing Systems. The Company's Existing Systems include cable television
systems acquired in five separate asset purchase transactions since the
Company's inception. The aggregate purchase price paid by the Company for the
Existing Systems was approximately $315.7 million, representing an average of
8.7 times the pro forma acquisition cash flow of such systems. As of March 31,
1996, the Company's Existing Systems passed approximately 304,700 homes and
served approximately 215,100 basic subscribers and 82,700 premium units,
representing basic penetration of 70.6% and premium penetration of 38.4%. The
information set forth below briefly describes the five acquisitions that
comprise the Existing Systems, which are organized into two primary operating
regions--New England and Ohio/Kentucky--and a third, smaller group of systems in
the Southeast.
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UVC Systems. On November 9, 1995, the Company completed its first acquisition
by acquiring certain cable systems in Maine and Ohio owned by United Video
Cablevision, Inc. (the "UVC Systems") for an aggregate purchase price of $120.7
million, an 8.3 times multiple of pro forma acquisition cash flow. At the date
of acquisition, the UVC Systems passed approximately 116,600 homes and served
approximately 87,700 basic subscribers. Approximately 50,600 subscribers in
Maine formed the initial systems in the Company's New England cluster and
approximately 37,100 subscribers in Ohio formed the initial systems in the
Company's Ohio/Kentucky cluster.
Longfellow Systems. On November 21, 1995, the Company completed a "fill-in"
acquisition by purchasing all of the cable systems in central Maine owned by
Longfellow Cable Company, Inc. and two of its affiliates (the "Longfellow
Systems") for an aggregate purchase price of $6.1 million, a 7.4 times multiple
of pro forma acquisition cash flow. At the date of acquisition, the Longfellow
Systems passed approximately 8,700 homes and served approximately 5,100 basic
subscribers, all of which were integrated into the Company's New England
cluster.
C4 Systems. On February 1, 1996, the Company completed the acquisition of all
of the cable systems owned by C4 Media Cable Southeast, Limited Partnership and
County Cable Company, L.P. (the "C4 Systems") for an aggregate purchase price of
$47.6 million, an 8.2 times multiple of pro forma acquisition cash flow. At the
date of acquisition, the C4 Systems passed approximately 60,300 homes and served
approximately 40,700 basic subscribers. The C4 Systems, which are located in
Virginia, Tennessee and Georgia, formed the initial systems in the Company's
Southeast region.
Americable Systems. On March 29, 1996, the Company completed a second "fill-in"
acquisition by purchasing additional cable systems located in Maine from
Americable International Maine, Inc. (the "Americable Systems") for $4.7
million, a 6.5 times multiple of pro forma acquisition cash flow. At the date of
acquisition, the Americable Systems passed approximately 5,200 homes and served
approximately 3,400 basic subscribers. The Americable Systems have also been
integrated into the Company's New England cluster.
Cox Systems. On April 9, 1996, the Company completed the acquisition of certain
cable systems in Ohio and Kentucky owned by affiliates of Cox Communications,
Inc. (the "Cox Systems") for an aggregate purchase price of $136.5 million, a
9.5 times multiple of pro forma acquisition cash flow. At the date of
acquisition, the Cox Systems passed approximately 110,900 homes and served
approximately 78,300 basic subscribers. The Cox Systems have been integrated
into the Ohio/Kentucky cluster.
The Acquisition Systems. The Company has entered into four agreements to
purchase the Acquisition Systems for an aggregate purchase price of
approximately $244.4 million. As of March 31, 1996, the Acquisition Systems
passed approximately 202,400 homes and served approximately 147,500 basic
subscribers and 65,000 premium units, representing basic penetration of 72.9%
and premium penetration of 44.1%. As described below, many of the Acquisitions
Systems are in close proximity to the Existing Systems, consistent with the
Company's strategy of clustering its cable television systems to achieve
operating efficiencies. It is anticipated that these acquisitions will be
completed in the third quarter of 1996, but there can be no assurance that any
of these transactions will be consummated.
ACE Systems. On July 15, 1996, the Company entered into an agreement with ACE
to purchase substantially all of the assets comprising the 19 ACE Systems
located in the central and northern Bluegrass region of Kentucky and adjacent
southern Indiana for a purchase price of $146.0 million. The purchase price is
subject to reduction in the event the number of basic subscribers or operating
revenues do not meet a specified target at closing. As of March 31, 1996, the
ACE Systems passed approximately 106,600 homes and served approximately 83,300
basic subscribers (76,400 in Kentucky and 6,900 in Indiana) who purchased
approximately 29,800 premium service units, representing basic penetration of
78.2% and premium penetration of 35.8%. At March 31, 1996, the average monthly
revenue per subscriber was $30.42. The Company intends to operate all of the ACE
Systems as part of its Ohio/Kentucky cluster. The Company's agreement for the
acquisition of the ACE Systems will be subject to approval of ACE's existing
creditors and a bankruptcy court. Although there can be no assurances, the
Company has no reason to believe that such creditors or the bankruptcy court
will not approve the transaction or that the bankruptcy proceedings will have
any material adverse effect on the operations of the ACE Systems.
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Triax Systems. On May 16, 1996, the Company entered into an agreement with
Triax to purchase substantially all of the assets comprising the 59 Triax
Systems serving approximately 53,800 basic subscribers in Ohio, Kentucky,
Virginia, West Virginia, Pennsylvania, Maryland and North Carolina for a
purchase price of $85.0 million. The purchase price is subject to reduction in
the event the operating revenues of the Triax Systems do not meet a specified
target for the two calendar month period prior to closing. As of March 31, 1996,
the Triax Systems operated at a 67.9% basic penetration and 56.2% premium
penetration and generated average monthly revenue per basic subscriber of
$29.06. The Company intends to operate the Kentucky, Ohio and West Virginia
systems, serving approximately 28,900 basic subscribers, as part of its
Ohio/Kentucky cluster. The Company intends to operate the North Carolina,
Virginia, Pennsylvania and Maryland systems, serving approximately 24,900 basic
subscribers, as part of its Southeast region.
Upon acquisition and the subsequent integration of the ACE Systems and the Triax
Systems with the Existing Systems, the Company will serve over 200,000
subscribers in communities south of Columbus, Ohio to the southern perimeter of
Lexington, Kentucky. Within this region are ten county service areas along the
Interstate 75 "growth corridor," which runs from Cincinnati through Lexington to
Atlanta, Georgia and is among the fastest growing areas in the region. After
completion of several capital projects by 1997, 30% of the Company's subscribers
within this region will be served by fiber-to-the-feeder 500 MHz or 750 MHz
technical plant.
Grassroots Systems. On July 19, 1996, the Company entered into an agreement
with Grassroots to purchase substantially all of the assets comprising 21 cable
television systems in New Hampshire and Maine (the "Grassroots Systems") for a
purchase price of $9.6 million. The purchase price is subject to reduction in
the event that minimum revenue thresholds are not met at closing. As of March
31, 1996, the Grassroots Systems passed approximately 12,400 homes and served
approximately 7,000 basic subscribers (4,800 in New Hampshire and 2,200 in
Maine), representing basic penetration of 56.4%. The Company intends to operate
the Grassroots Systems as part of its New England cluster. The acquisition is
expected to close in August 1996.
Penn/Ohio Systems. The Company expects to enter into an agreement in August
1996 with SRW Penn/Ohio to purchase substantially all the assets comprising two
cable television systems in Ohio and Pennsylvania (the "Penn/Ohio Systems") for
a purchase price of $3.8 million. The purchase price is subject to reduction in
the event that minimum subscriber thresholds are not met at closing. As of March
31, 1996, the Penn/Ohio Systems passed approximately 4,100 homes and served
approximately 3,300 basic subscribers (1,700 in Ohio and 1,600 in Pennsylvania),
representing basic penetration of 80.4%. The Company intends to operate the Ohio
system as part of its Ohio/Kentucky cluster. The Pennsylvania system will be
interconnected with the Triax Systems' Rockwood, Pennsylvania system and
operated as part of the Southeast region.
The Disposition Systems. On July 24, 1996, the Company sold its Chatsworth,
Georgia system, representing approximately 5,700 basic subscribers, to an
affiliate of Helicon Partners for $8.6 million. The Company also has entered
into an agreement to sell its Woodstock and New Market, Virginia systems,
representing approximately 5,000 subscribers, to Shenandoah Cable Television
Company, an affiliate of Shenandoah Telephone Company, for $8.5 million. It is
anticipated that this sale will be completed in the fourth quarter of 1996. The
aggregate $17.1 million sales price for the Disposition Systems represents a per
subscriber sales price that is over 30% more than the average per subscriber
acquisition cost of the Existing Systems in the Southeast.
SYSTEM DESCRIPTIONS
After giving effect to the purchase of the Acquisition Systems and the sale of
the Disposition Systems, the Company's cable television systems will consist of
two primary operating regions--New England and Ohio/Kentucky--with a third,
smaller group of systems in the Southeast. The following chart provides certain
pro forma operating statistics as of and for the three-month period ended March
31, 1996:
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COMBINED EXISTING SYSTEMS AND ACQUISITION SYSTEMS
<TABLE>
<CAPTION>
======================================================
NEW ENGLAND OHIO/KENTUCKY SOUTHEAST COMBINED
CLUSTER CLUSTER REGION SYSTEMS
----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Homes passed.................................. 95,414 306,193 92,255 493,862
Basic subscribers............................. 65,940 229,819 56,093 351,852
Basic penetration............................. 69.1% 75.1% 60.8% 71.2%
Premium units................................. 24,608 88,316 30,294 143,218
Premium penetration........................... 37.3% 38.4% 54.0% 40.7%
Avg. monthly revenue per basic subscriber..... $28.39 $29.32 $25.66 $28.56
----------- ------------- --------- ---------
</TABLE>
New England Cluster. As of March 31, 1996, after giving pro forma effect to the
purchase of the Acquisition Systems, the Company passed approximately 95,400
homes and served approximately 65,900 basic subscribers and 24,600 premium units
in the New England cluster, which is comprised of communities primarily in
southern and coastal Maine and central New Hampshire. The majority of the Maine
systems are located within a 30-60 minute driving radius of the cities of
Portland and Bangor in predominantly blue-collar, middle income bedroom
communities. In addition, the Company serves resort communities in Maine's
Carrabassett Valley that include Sugarloaf/USA and Sunday River. Most of the
approximately 4,800 subscribers in New Hampshire are within commuting distance
of Laconia, Plymouth and Littleton. The 1996 median household income and
projected household growth rates (from 1996 to 2001) in the New England cluster
meet or exceed U.S. averages for counties with less than 100,000 households
("Comparable Counties"), according to Equifax National Decision Systems, 1996.
After giving pro forma effect to the purchase of the Acquisition Systems,
eighty-seven percent of the counties in which the Company has systems have fewer
than 100,000 households.
The New England systems are currently served by 70 headends, of which up to 19
are scheduled to be eliminated over the next three years by the Company as part
of its consolidation efforts. Prior to acquisition, the New England cluster was
served by seven customer service locations, which the Company will consolidate
over the next six months into a single regional service center in Rockland,
Maine and a local payment office in Madawaska, Maine. More than 66.0% of the
current plant design for the New England Systems is at 54 channels (400 MHz) or
higher. Upon completion of the plant rebuild projects to fiber-to-the-feeder
design by year-end 1996 in Rockland and Thomaston, Maine, 10.0% of the plant in
the New England cluster will have channel capacities of 78 channels (550 MHz) or
higher. Over the next five years, the Company expects to invest up to $11.1
million to selectively rebuild or upgrade the majority of the New England
systems to at least a 54 channel technical platform to position the systems for
business opportunities in advertising insertion, impulse pay-per-view, high
speed data networking and Internet access. In addition, the Company plans to
complete several line extension projects, which is expected to add approximately
1,000 homes passed to the New England systems by year-end 1996.
To date, the Company has added between three and seven tiered programming or
premium channels to over 70.0% of its systems. In conjunction with the channel
line-up improvements, direct mail promotions and follow-up telemarketing
campaigns have enabled the Company to raise its average combined basic and tier
service rates in those systems from $23.21 per month to $25.44 per month in May
1996. The Company believes that basic and premium penetration can be increased
through such programming additions, repackaging and aggressive marketing.
Moreover, the Company has begun to introduce addressability in the New England
systems to improve revenues derived from pay-per-view and other interactive
services such as video games, including The Sega Channel. As of March 31, 1996,
none of the New England systems were addressable. As systems are interconnected
and consolidated, the Company will more aggressively pursue spot advertising
revenues, which accounted for only $0.20 per subscriber per month in March 1996.
Ohio/Kentucky Cluster. As of March 31, 1996, after giving effect to the
purchase of the Acquisition Systems, the Company passed approximately 306,200
homes and served approximately 229,800 subscribers and 88,300 premium units in
the Ohio/Kentucky cluster in communities primarily in southern Ohio and northern
and central Kentucky. The majority of the Ohio systems are located within a 60
minute driving distance of Cincinnati, Columbus or Toledo. The majority of the
Company's Kentucky subscribers reside in the outlying communities surrounding
Lexington and Ashland, Kentucky. The Company's Madison, Indiana system, which
served
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approximately 6,900 subscribers as of March 31, 1996, is near Cincinnati. The
Company's approximately 240 West Virginia subscribers reside along the Ohio
River and are served from the Ohio/Kentucky systems. The 1996 median household
income in the Ohio/Kentucky cluster exceeds U.S. averages for Comparable
Counties, according to Equifax National Decision Systems, 1996. However, growth
in the number of households in the Ohio/Kentucky cluster is projected to lag
that of Comparable Counties over the next five years.
Over the next three years, the Company plans to eliminate up to 32 of the 90
headends that currently serve the Ohio/Kentucky systems, which will increase the
cluster's average system size to over 4,000 subscribers per headend. The
Ohio/Kentucky cluster's fifteen customer service offices will be consolidated by
the Company by early 1997 into two regional service centers, in Chillicothe,
Ohio and Richmond, Kentucky, and five local payment offices. Over 40.0% of the
current plant design for the Ohio/Kentucky systems is at 54 channels or higher,
including fiber-to-the-feeder 550 MHz and 750 MHz systems in Delhi and Ironton,
Ohio, Nicholasville and Cynthiana, Kentucky and Madison, Indiana. Upon
completion of its current rebuild of the Chillicothe and Jackson, Ohio and
Winchester, Kentucky systems by 1997, the Company will serve 26.0% of its
subscribers with at least 78 channel plant. Similar to the New England cluster,
the Company plans to invest significant capital to selectively rebuild or
upgrade the majority of the Ohio/Kentucky systems to at least a 54 channel
technical platform to position the systems for additional cable and broadband
telecommunications service revenues. Over the next five years, the Company
expects to invest $37.9 million in connection with its plant improvement program
for these systems.
To date, the Company has added between three and six tiered programming or
premium channels to 34.0% of its systems. Average combined basic and tier
service rates in those systems were also increased from $22.80 to $24.43 at May
31, 1996, in conjunction with direct mail and telemarketing campaigns, as in the
New England cluster. Similar new channel launches, rate increases and marketing
programs are planned to be instituted by the Company in the majority of the
remaining Ohio systems in the fourth quarter of 1996. As part of its technical
improvement program, the Company plans to increase the deployment of addressable
converters, which served only 42.0% of the Ohio/Kentucky subscribers as of March
31, 1996, and more aggressively market pay-per-view and other interactive
services such as video games. In addition, the systems acquired from Cox and
those to be acquired from ACE generated significant spot advertising revenues,
averaging $0.76 and $1.32 per subscriber per month, respectively, in 1995. The
Company plans to leverage these advertising sales efforts in the remaining
Ohio/Kentucky systems, which averaged only $0.07 per month per subscriber in
March 1996.
Southeast Region. As of March 31, 1996, after giving effect to the purchase of
the Acquisition Systems and the sale of the Disposition Systems, the Company
passed approximately 92,300 homes and served approximately 56,100 subscribers
and 30,300 premium units in the Southeast region. The Southeast region is
comprised of four groups of systems located in the following states: (i)
Tennessee, which served approximately 16,500 basic subscribers as of March 31,
1996; (ii) North Carolina, which served approximately 14,500 basic subscribers;
(iii) Virginia/West Virginia, which served approximately 20,300 basic
subscribers; and (iv) Maryland/Pennsylvania, which served approximately 4,800
basic subscribers. The Tennessee systems are located primarily in Greeneville,
Tennessee and surrounding communities in Eastern Tennessee. The North Carolina
systems are located between Raleigh and Rocky Mount, North Carolina. The
majority of the Virginia systems are located in north central Virginia between
Charlottesville and Winchester and in Eastern Virginia near Richmond and the
Chesapeake Bay. The Maryland/Pennsylvania systems are located at the Maryland
and Pennsylvania border. The 1996 median household income and actual and
projected growth rate in the number of households (from 1990 to 2001) in the
Southeast region exceed U.S. averages for Comparable Counties, according to
Equifax National Decision Systems, 1996.
As noted above, the Company plans either to consolidate further the Southeast
region systems through acquisitions, trade the systems for properties within its
primary operating regions in New England and Ohio/Kentucky, or sell the systems
outright. To date, the Company has received expressions of interest to trade or
sell all four system groups in this region. As such, the Company's operating and
capital expenditure plans for the Southeast region will be limited to
maintenance and discretionary projects that will increase the value of the
systems to a potential buyer or trading partner. The Southeast systems are
currently served by 41 headends. The Company has identified at least seven
headends that could be eliminated by interconnected plant. Prior to the
acquisitions, the Southeast region consisted of nine customer service locations.
The Company has consolidated five offices from the Existing Systems into a
regional service center in Greeneville, Tennessee and a local payment office in
Matthews, Virginia. The Company believes that the remaining four offices of the
Acquisition Systems can also be integrated into the
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Greeneville facility. Approximately 24% of the current plant design for the
Southeast systems is at 54 channels (400 MHz) or higher. The Company will
continue to evaluate capital expenditures to rebuild and upgrade plant based on
the sales or trading status of the Southeast systems.
PROGRAMMING, SERVICES AND RATES
The Company has various contracts to obtain basic and premium programming for
its systems from program suppliers whose compensation is typically based on a
fixed fee per customer. The Company's programming contracts are generally for a
fixed period of time and are subject to negotiated renewal. Some program
suppliers provide volume discount pricing structures or offer marketing support
to the Company. In particular, the Company has negotiated programming agreements
with premium service suppliers that offer cost incentives to the Company under
which premium service unit prices decline as certain premium service growth
thresholds are met. The Company's successful marketing of multiple premium
service packages emphasizing customer value has enabled the Company to take
advantage of such cost incentives. In addition, the Company is a member of a
programming consortium consisting of small to medium-sized MSOs serving, in the
aggregate, over three million cable subscribers. The consortium was formed to
help 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 to medium-sized operators. Going forward, the Company intends to
negotiate programming contract renewals both directly and through the consortium
to obtain the best possible contract terms. The Company also has various
retransmission consent arrangements with commercial broadcast stations. Some of
these consents require direct payment of nominal fees for carriage. In some
other instances no payment is required; however, the Company has entered into
agreements with certain stations to carry satellite-delivered cable programming
which is affiliated with the network carried by such stations. A substantial
portion of these retransmission consent agreements are required to be renewed
before October 1996. There can be no assurance that such agreements can or will
be renewed under similar terms. See "Legislation and Regulation."
Although services vary from system to system due to differences in channel
capacity, viewer interests and community demographics, the majority of the
Company's systems offer a "basic service tier," consisting of local television
channels (network and independent stations) available over-the-air and local
public, governmental, home-shopping and leased access channels. The majority of
the Company's systems offers, for a monthly fee, an expanded basic tier of
"superstations" originating from distant cities (such as WTBS, WGN and WWOR),
various satellite-delivered, non-broadcast channels (such as CNN, MTV, USA, ESPN
and TNT) and certain programming originated locally by the cable system (such as
public, governmental and educational access programs) providing information with
respect to news, time, weather and the stock market. In addition to these
services, the Company's systems typically provide one or more premium services
purchased from independent suppliers and combined in different formats to appeal
to the various segments of the viewing audience, such as HBO, Cinemax, Showtime,
The Movie Channel, Starz! and The Disney Channel. These services are
satellite-delivered channels consisting principally of feature films, original
programming, live sports events, concerts and other special entertainment
features, usually presented without commercial interruption. Such premium
programming services are offered by the Company's systems both on an a la carte
basis and as part of premium service packages designed to enhance customer value
and to enable the Company's systems to take advantage of programming agreements
offering cost incentives based on premium unit growth. Subscribers may subscribe
for one or more premium units. Additionally, the Company plans to upgrade
certain of its systems with fiber optic cable, which will allow the Company to
expand its ability to use "tiered" packaging strategies for marketing premium
services and promoting niche programming services. The Company believes that
this ability will increase basic and premium penetration as well as revenue per
subscriber.
Rates to subscribers vary from market to market and in accordance with the type
of service selected. As of March 31, 1996, the average monthly basic fees for
the Existing Systems was $9.09 for the basic service tier and $22.52 for the
expanded basic service tier. These rates reflect reductions effected in response
to the 1992 Cable Act's re-regulation of cable television industry rates, and in
particular, the FCC's rate regulations implementing the 1992 Cable Act, which
became effective in 1993. A one-time installation fee, which may be waived in
part during certain promotional periods, is charged to new subscribers.
Management believes that the Company's rate practices are generally consistent
with the current practices in the industry. See "Legislation and Regulation."
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MARKETING, CUSTOMER SERVICE AND COMMUNITY RELATIONS
The Company aggressively markets and promotes its cable television services with
the objective of adding and retaining customers and increasing revenue per
customer. The Company actively markets its basic and premium program packages
through a number of coordinated marketing techniques, which include (i) direct
door-to-door sales in targeted areas where subscriber concentration and
efficiencies provide a reasonable cost of sale, (ii) telemarketing primarily for
pay unit acquisition and customer satisfaction, quality control and retention,
(iii) direct mail for promotional and target service offers, (iv) monthly
billing statement inserts and flyers for major basic subscriber campaigns, (v)
local newspaper and broadcast television and radio advertising where population
densities are sufficient to provide a reasonable cost of sale, and (vi)
cross-channel promotion of new services such as pay-per-view.
The Company is dedicated to providing superior customer service. To meet this
objective, the Company provides its customers with a full line-up of
programming, a wide variety of programming options and packages, timely and
reliable service and improved technical quality. The Company's employees receive
ongoing training in customer service, sales and subscriber retention and
technical support. In general, following a new installation, customer service
representatives will follow up by telephone contact with the subscriber to
assess the quality of installation, the service the subscriber is receiving and
to ensure overall subscriber satisfaction. Customer service representatives and
technicians are also trained to market upgrades or cross-sell services at the
point of sale or service. As part of its consolidation efforts, the Company has
established centralized customer service facilities, increased hours of
operation, and installed state-of-the-art telephone, information and billing
systems to improve responsiveness to customer needs. In addition, the Company
has retained local payment and technical offices to maintain its local presence
and visibility within its communities.
Recognizing that strong governmental, franchise and public relations are crucial
to the overall success of the Company, an aggressive initiative has been
undertaken to maintain and improve the working relationships with all
governmental entities within the franchise areas. Regional managers are required
to meet regularly with local officials for the purposes of keeping them advised
on the Company's activities within the communities, to receive information and
feedback on the Company's standing with officials and customers alike and to
ensure that the Company can maximize its growth potential in areas where new
housing development is occurring or where significant technical plant
improvement is underway. The regional managers are also responsible for all
franchise renewal negotiations as well as the maintenance of Company visibility
through involvement in various community and civic organizations and charities.
TECHNOLOGICAL DEVELOPMENTS
As part of its commitment to customer service, the Company maintains high
technical performance standards in all of its cable systems. Acquired and
existing systems are selectively upgraded to increase channel capacity and
improve picture quality and reliability for the delivery of additional
programming and new services. Before committing the capital to upgrade a system,
Company management carefully assesses (i) subscribers' demand for more channels,
(ii) upgrade requirements in connection with franchise renewals, (iii) which
competing technologies are currently available, (iv) the likely subscriber
demand for other cable and broadband telecommunications services, (v) the extent
to which system improvements will increase the attractiveness of the property to
a future buyer and (vi) the cost effectiveness of any such upgrades.
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<PAGE> 49
The following table sets forth certain information regarding the channel
capacities and miles of plant for the Existing Systems and the Acquisition
Systems as of March 31, 1996.
<TABLE>
<CAPTION>
================================================================================
UP TO 36 37 TO 42 43 TO 54 55 TO 62 63 TO 78 79 TO 100
CHANNELS CHANNELS CHANNELS CHANNELS CHANNELS CHANNELS TOTAL
-------- -------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EXISTING SYSTEMS:
Number of systems.............. 14.4 38.5 23.7 22.7 1.8 0.0 101.0
Miles of plant................. 538 3,541 1,739 1,863 880 0 8,561
% miles of plant............... 6.3% 41.4% 20.3% 21.8% 10.3% 0.0% 100.0%
ACQUISITION SYSTEMS:
Number of systems.............. 10.5 59.0 0.5 26.0 2.0 2.0 100.0
Miles of plant................. 1,030 3,228 179 1,169 152 261 6,019
% miles of plant............... 17.1% 53.6% 3.0% 19.4% 2.5% 4.3% 100.0%
TOTAL:
Number of systems.............. 24.9 97.5 24.2 48.7 3.8 2.0 201.0
Miles of plant................. 1,568 6,769 1,918 3,032 1,032 261 14,580
% miles of plant............... 10.8% 46.4% 13.2% 20.8% 7.1% 1.8% 100.0%
</TABLE>
The Company's systems have an average capacity of approximately 49 channels and
approximately 27.6% of the Company's subscribers currently access addressable
technology. Addressable technology enables the Company, from the office or
headend, to change the premium channels being delivered to each subscriber or to
activate pay-per-view services. These service level changes can be effectuated
without the delay or expense associated with dispatching a technician to the
subscriber's home. Addressable technology also reduces premium service theft and
allows the Company automatically to disconnect delinquent accounts
electronically from the customer service center.
The use of fiber optic technology in concert with coaxial cable has
significantly enhanced cable system performance. Fiber optics 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. To date, the Company has used fiber to interconnect headends, to
eliminate headends by installing fiber backbones and to reduce amplifier
cascades, thereby improving both picture quality and system reliability and
gaining operational efficiencies.
Digital compression and high capacity data modems may become commercially viable
within the next few years. These developments may enable an increase in system
channel capacity and may allow the introduction of alternative communications
delivery systems for data and voice. The Company does not currently plan to
deploy digital technology, as it believes such technologies will not become
cost-effective for its systems in the near term. However, the Company will
continue to monitor the development of such technology and its utilization by
other cable operators to assess the cost-effectiveness of widespread deployment
of such technology.
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 time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and the provision of free service to
schools and certain other public institutions; and the maintenance of insurance
and indemnity bonds. The provisions of local franchises are subject to federal
regulation under the Cable Acts. See "Legislation and Regulation."
As of March 31, 1996, the Company held 257 franchises. These franchises, the
majority of which are non-exclusive, provide for the payment of fees to the
issuing authority. In all of the Existing Systems, such franchise fees are
passed through directly to the customers. The Cable Acts prohibit franchising
authorities from imposing franchise fees in excess of 5% of gross revenues and
also permit the cable system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances. See "Legislation
and Regulation."
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<PAGE> 50
More than 95.0% of the Company's basic subscribers are in service areas that
require a franchise. The table below groups the franchises of the Existing
Systems by date of expiration and presents the approximate number and percentage
of basic subscribers for each group of franchises as of March 31, 1996.
<TABLE>
<CAPTION>
==================================================================
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
YEAR OF FRANCHISE EXPIRATION FRANCHISES TOTAL FRANCHISES SUBSCRIBERS TOTAL SUBSCRIBERS
- ---------------------------------------- --------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C>
1996-2000............................... 93 36.2% 80,394 39.3%
2001 and after.......................... 164 63.8% 123,994 60.7%
--------- ---------------- ----------- -----------------
Total.............................. 257 100.0% 204,388 100.0%
</TABLE>
The Cable Acts provide, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld or, if
renewal is withheld, the franchising authority must pay the operator the "fair
market value" for the system covered by such franchise. In addition, the 1984
Cable Acts 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 Company believes that it generally has very good relationships with its
franchising communities. The Company has never had a franchise revoked or failed
to have a franchise renewed. In addition, all of the franchises of the Company
eligible for renewal have been renewed or extended at or prior to their stated
expirations, and no franchise community has refused to consent to a franchise
transfer to the Company.
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, 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. In a limited
number of the Company's franchise areas, the Company faces direct competition
from another franchised cable television system.
Cable operators also face competition from private satellite master antenna
television ("SMATV") systems that serve condominiums, apartment and office
complexes and private residential developments. SMATV systems offer both
improved reception of local television stations and many of the same
satellite-delivered program services offered by franchised cable television
systems. SMATV operators often enter into exclusive agreements with building
owners or homeowners' associations, although some states have enacted laws that
authorize franchised cable operators access to such private complexes. These
laws have been challenged in the courts with varying results. The ability of the
Company to compete for customers in residential and commercial developments
served by SMATV operators is uncertain.
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
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<PAGE> 51
channel capacity and thus to provide movies, broadcast stations, and other
program services comparable to those of cable television systems. 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.
While DSS presents a potential competitive threat, the Company currently has
excess channel capacity available in most of its systems, as well as strong
local customer service and technical support, which will enhance its ability to
compete. By selectively increasing channel capacities of systems to between 54
and 100 channels and introducing new premium channels, pay-per-view and other
services, the Company will seek to maintain programming parity with DSS and
magnify competitive service price points. Based on internal tracking of
subscriber disconnects, the Company believes it has lost less than one percent
of its customers to date to DSS providers. The Company will continue to monitor
closely the activity level and the product and service needs of its customer
base to counter potential erosion of its market position or unit growth to DSS.
Cable television systems also compete with wireless program distribution
services such as MMDS, which uses low power microwave frequencies 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. Wireless distribution
services generally provide many of the programming services provided by cable
systems, and digital compression technology is likely to increase significantly
the channel capacity of their 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 large buildings.
In the majority of the Company's franchise service areas, prohibitive topography
and limited "line of sight" access has limited, and is likely to continue to
limit, competition from MMDS systems. The Company is not aware of any
significant MMDS operation currently within its cable franchise service areas.
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, including both the deployment of broadband wire facilities
and 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 circumstance, 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 to medium-sized 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 its service
areas, to the extent permitted by law. The Company has initiated discussions
with such carriers regarding possible joint ventures.
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 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.
49
<PAGE> 52
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.
PROPERTIES
The Company's principal physical assets consist of cable television operating
plant and equipment, including signal receiving, encoding and decoding devices,
headends and distribution systems and customer house drop equipment for each of
its cable television 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 system
consists primarily of coaxial and fiber optic cables and related electronic
equipment. Customer devices consist of decoding converters, which expand channel
capacity to permit reception of more than twelve channels of programming. Some
of the Existing Systems utilize converters that can be addressed by sending
coded signals from the headend over the cable network. See "--Technological
Developments."
The Company owns or leases parcels of real property for signal reception sites
(antenna towers and headends), microwave facilities and business offices, and
owns most of its service vehicles. 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.
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 physical components of the
Company's systems require maintenance and periodic upgrading to keep pace with
technological advances.
LITIGATION
There are no material pending legal proceedings to which the Company is a party
or to which any of its properties are subject.
EMPLOYEES
At March 31, 1996, the Company had approximately 265 equivalent full-time
employees, nine of whom belonged to a collective bargaining unit. The Company
considers its relations with its employees to be good.
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<PAGE> 53
LEGISLATION AND REGULATION
The cable television industry currently is regulated by the FCC and certain
state and local governments. In addition, legislative and regulatory proposals
under consideration by the Congress and federal agencies may materially affect
the cable television industry.
The Cable Acts and the 1996 Telecom Act amend the Communications Act and
establish a national policy to guide the development and regulation of cable
television systems. Principal responsibility for implementing the policies of
the Cable Acts and the 1996 Telecom Act is allocated between the FCC and state
or local franchising authorities. The FCC and state regulatory agencies are
required to conduct numerous rulemaking and regulatory proceedings to implement
the 1996 Telecom Act and such proceedings may materially affect the cable
television industry. The following is a summary of federal laws and regulations
materially affecting the growth and operation of the cable television industry
and a description of certain state and local laws.
THE TELECOMMUNICATIONS ACT OF 1996
The 1996 Telecom Act, which became effective on February 8, 1996, is the most
comprehensive reform of the nation's telecommunications laws since the
Communications Act. The 1996 Telecom Act is expected to cause significant
changes in the marketplace for cable, telephone and other telecommunications
services. Although the long term goal of the 1996 Telecom Act is to promote
competition and decrease regulation of various communications industries, in the
short term, the law delegates to the FCC (and in some cases to the states) broad
new rulemaking authority. The new law requires many of these rulemakings to be
completed in a very limited period of time. The following is a brief summary of
the important features of the 1996 Telecom Act that will affect the cable and
telephone industries.
Cable Communications. The 1996 Telecom Act deregulates cable operators' CPST
rates after March 31, 1999, except that such rates are immediately deregulated
for certain small operators. Deregulation will occur sooner for systems in
markets where comparable video programming services, other than DBS, are offered
by local telephone companies, or their affiliates, or by third parties using the
local telephone company's facilities, or where "effective competition" is
established under the 1992 Cable Act. The 1996 Telecom Act also modifies the
uniform rate provisions of the 1992 Cable Act by prohibiting regulation of bulk
discount rates offered to multiple dwelling units (except that a cable operator
may not charge predatory prices to a multiple dwelling unit) and permits
regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level. The
1996 Telecom Act eliminates the right of individual customers to file rate
complaints with the FCC concerning certain CPSTs and requires the FCC to issue a
final order within 90 days after receipt of CPST rate complaints filed by any
franchising authority after the date of enactment of the 1996 Telecom Act. The
1996 Telecom Act also modifies the existing statutory provisions governing cable
system technical standards, equipment compatibility, customer notice
requirements and program access, permits certain operators to include losses
incurred prior to September 1992 in setting regulated rates and repeals the
three-year anti-trafficking prohibition adopted in the 1992 Cable Act.
The 1996 Telecom Act eliminates the requirement that LECs obtain FCC approval
under Section 214 of the Communications Act before providing video services in
their telephone service areas and removes the telephone company/cable television
cross-ownership prohibition that had been codified by the 1984 Cable Act,
thereby allowing LECs to offer video services in their telephone service areas.
LECs may provide service as traditional cable operators with local franchises or
they may opt to provide their programming over unfranchised "open video
systems," subject to certain conditions, including, but not limited to, setting
aside a portion of their channel capacity for use by unaffiliated program
distributors on a nondiscriminatory basis. Under certain circumstances, cable
operators also will be able to offer services through open video systems. The
1996 Telecom Act also prohibits a local telephone company from acquiring a cable
operator in its telephone service area except in limited circumstances, such as
where a nonurbanized franchise area has a population of less than 35,000 or
pursuant to an FCC waiver.
Telephone. The 1996 Telecom Act removes barriers to entry in the local
telephone exchange market that is now monopolized by the seven RBOCs and other
LECs by preempting state and local laws that restrict competition and
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<PAGE> 54
by requiring LECs to provide nondiscriminatory access and interconnection to
potential competitors, such as cable operators and long distance companies. At
the same time, the new law eliminates the prospective effects of the AT&T, GTE
and McCaw consent decrees and permits the RBOCs to enter the market for long
distance services (through a separate subsidiary) after they satisfy certain
competitive requirements intended to open the local telephone markets to
competition. The 1996 Telecom Act also permits interstate utility companies to
enter the telecommunications market for the first time.
While the 1996 Telecom Act imposes new requirements with regard to
interconnection, it also directs the FCC to substantially relax much of its
regulation of telecommunications providers. The FCC may, for example, forbear
from applying any regulation if it finds, inter alia, that forbearance would be
consistent with the public interest and would promote competition. The new law
also eliminates or streamlines many of the requirements applicable to local
exchange carriers, such as the requirement to obtain prior approval of the
extension or construction of telephone plant. In addition, the 1996 Telecom Act
requires the FCC and states to review universal service programs and to
encourage access to advanced telecommunications services by schools, libraries
and other public institutions.
Other Communications Services. In addition to these provisions governing
regulation of specific segments of the market, the 1996 Telecom Act also
contains provisions regulating the content of video programming and computer
services. Specifically, the new law prohibits the use of computer services to
transmit "indecent" material to minors. Several special three-judge federal
district courts have issued preliminary injunctions enjoining the enforcement of
these provisions as unconstitutional to the extent they regulated the
transmission of indecent material. The 1996 Telecom Act also requires the FCC to
prescribe guidelines for a ratings system for violent and indecent video
programming (unless video programming distributors adopt voluntary guidelines)
and requires all new television sets to contain a so-called "V-chip" capable of
blocking all programs with a given rating. The new law also substantially
relaxes current broadcast ownership rules by eliminating, among other things,
the statutory broadcast/cable television cross-ownership restriction that had
been codified by the 1984 Cable Act and by directing the FCC to eliminate its
network/cable cross-ownership regulation and review the need for its rule
prohibiting broadcast/cable cross-ownership.
Rate Regulation. Prior to April 1, 1993, virtually all cable systems were free
to adjust cable service rates without obtaining local governmental approval. The
1992 Cable Act authorized rate regulation for certain cable communications
services and equipment in communities that are not subject to "effective
competition" as defined by federal law. Under the 1992 Cable Act virtually all
cable television systems were subject to rate regulation for basic cable service
and equipment by local officials under the oversight of the FCC, which
prescribed detailed guidelines for such rate regulation. The 1992 Cable Act also
required the FCC to resolve complaints about rates for nonbasic cable
programming services (other than programming offered on a per channel or per
program basis) and to reduce any such rates found to be unreasonable. The 1992
Cable Act limited the ability of cable television systems to raise rates for
basic and certain cable programming services (collectively the "Regulated
Services") and eliminated the 5% annual basic service rate increase permitted by
the 1984 Cable Act without local approval. Cable services offered on a per
channel (a la carte) or per program (pay-per-view) basis are not subject to rate
regulation by either local franchising authorities or the FCC.
The 1996 Telecom Act deregulates rates for CPSTs after March 31, 1999 for most
MSOs (including the Company) and, for certain small cable operators, immediately
eliminates rate regulation of CPSTs and, in certain circumstances, basic
services and equipment. The deregulation of a smaller cable operator's rates
only applies in franchise areas in which the small cable operator serves 50,000
or fewer subscribers. To qualify for the "small cable operator" rate
deregulation under the 1996 Telecom Act, the operator (and its affiliates) must
serve in the aggregate less than one percent (currently estimated by the FCC to
be approximately 617,000 subscribers) of all U.S. cable television subscribers
and may not be affiliated with an entity or group of entities that in the
aggregate has annual gross revenues exceeding $250 million. The FCC has adopted
interim rules in which it has defined "affiliate" as any entity that has a 20%
or greater equity interest in the small cable operator (active or passive) or
that holds de jure or de facto control over the small cable operator. The FCC is
currently conducting a rulemaking to implement the 1996 Telecom Act's "small
cable operator" rate deregulation, including adoption of permanent affiliation
standards.
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<PAGE> 55
On April 1, 1993, the FCC adopted regulations pursuant to the 1992 Cable Act
governing the rates charged to customers for Regulated Services and ordered an
interim freeze on these rates effective April 5, 1993. The FCC's rate
regulations became effective on September 1, 1993 and the FCC's rate freeze was
extended until the earlier of May 15, 1994 or the date on which a cable system's
basic service rate was regulated by a franchising authority.
In implementing the 1992 Cable Act, the FCC adopted a benchmark method of
regulating rates for Regulated Services. Cable operators with rates above the
allowable level under the FCC's benchmark methodology may justify such rates
using a cost-of-service methodology. As of September 1, 1993, cable operators
subject to rate regulation whose then current rates were above FCC benchmark
levels were required, absent a successful cost-of-service showing, to reduce
those rates to the benchmark level or by up to 10% of the rates in effect on
September 30, 1992, whichever reduction was less, adjusted for equipment costs
and inflation and programming modifications occurring subsequent to September
30, 1992. Effective May 15, 1994, the FCC modified its benchmark methodology to
require reductions of up to 17% of the rates for Regulated Services in effect on
September 30, 1992, adjusted for inflation, channel modifications, equipment
costs and increases in certain operating costs. The FCC's modified benchmark
regulations were designed to cause an additional 7% reduction in the rates for
Regulated Services on top of any rate reductions implemented under the FCC's
initial benchmark regulations.
The FCC's initial "going-forward" regulations limited rate increases for
Regulated Services after the establishment of an initial regulated rate to an
inflation-indexed amount plus increases for channel additions and certain
external costs beyond the cable operator's control, such as franchise fees,
taxes and increased programming costs. Under these regulations, cable operators
are entitled to take a 7.5% markup on certain programming cost increases. In
November 1994, the FCC modified these regulations and instituted an alternative
three-year flat fee markup plan for charges relating to new channels added to
the CPST. As of January 1, 1995, cable operators may charge customers for
channels added to the CPST after May 14, 1994 at a monthly rate of up to $0.20
per added channel, up to a total of $1.20 plus an additional $0.30 for
programming license fees per customer over the first two years of the three-year
period. Cable operators may charge an additional $0.20 plus the cost of the
programming in the third year (1997) for one additional channel added in that
year. Alternatively, operators may increase rates by the amount of any
programming license fees in connection with such added channels, provided that
the total monthly rate increase per customer for the added channels, including
license fees, does not exceed $1.50 over the first two years, and $1.70, plus
any increase in the license fees for the added channels, in the third year.
Operators must make a one-time election to use either the $0.20 per channel
adjustment or the 7.5% markup on programming cost increases for all channels
added after December 31, 1994. The FCC is currently considering whether to
modify or eliminate the regulation allowing operators to receive the 7.5% markup
on increases in existing programming license fees.
In November 1994, the FCC adopted regulations permitting cable operators to
create new product tiers ("NPTs") that will not be subject to rate regulation if
certain conditions are met. The FCC also revised its previously adopted policy
and concluded that packages of a la carte services are subject to rate
regulation by the FCC as CPSTs. Because of the uncertainty created by the FCC's
prior a la carte package guidelines, the FCC allows cable operators, under
certain circumstances, to treat previously offered a la carte packages as NPTs.
In September 1995, the FCC authorized a new, alternative method of implementing
rate adjustments which allows cable operators to increase rates for Regulated
Services annually on the basis of projected increases in external costs
(inflation, costs of programming, franchise-related obligations and changes in
the number of regulated channels) rather than on the basis of cost increases
incurred in the preceding calendar quarter. Operators electing not to recover
all of their accrued external costs and inflation pass-throughs each year may
recover them (with interest) in subsequent years.
In addition to rate deregulation for certain small cable operators under the
1996 Telecom Act, the FCC adopted regulations in June 1995 ("Small System
Regulations") pursuant to the 1992 Cable Act that were designed to reduce the
substantive and procedural burdens of rate regulation on "small cable systems."
For purposes of these FCC regulations, a "small cable system" is a system
serving 15,000 or fewer subscribers that is owned by or affiliated with a cable
company which serves, in the aggregate, 400,000 or fewer subscribers. Under the
FCC's Small System Regulations, qualifying systems may justify their regulated
service and equipment rates using a simplified cost-of-service formula. The
regulatory benefits accruing to qualified small cable systems under certain
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<PAGE> 56
circumstances remain effective even if such systems are later acquired by a
larger cable operator that serves in excess of 400,000 subscribers. Various
franchising authorities and municipal groups have requested the FCC to
reconsider its Small System Regulations. The FCC recently determined that the
1996 Telecom Act does not require modification of its Small System Regulations.
The Company believes that many of the Company Systems and the Acquisition
Systems currently satisfy the eligibility criteria under the FCC's Small System
Regulations and would therefore be eligible to use the FCC's simplified
cost-of-service methodology to justify basic service, CPST and equipment rates
if regulated by a franchising authority or the FCC.
Franchising authorities are empowered to regulate the rates charged for
additional outlets and for the installation, lease and sale of equipment used by
customers to receive the basic service tier, such as converter boxes and remote
control units. The FCC's rules require franchising authorities to regulate these
rates on the basis of actual cost plus a reasonable profit as defined by the
FCC. The 1996 Telecom Act requires the FCC to revise its regulations to permit
operators to compute regulated equipment rates by aggregating costs of broad
categories of equipment at the
franchise, system, regional or company level. In November 1995, the FCC
initiated a general rulemaking proposal that permits cable operators to price
services uniformly across multiple franchise areas, as well as regional areas.
If the FCC adopts the proposals, cable operators that provide service to
clusters of systems would be permitted to charge uniform rates across large
geographic areas. Because the proposal is designed to be revenue neutral, it
would not affect the overall revenue that operators receive, but administrative
and marketing costs could be reduced.
Cable operators required to reduce rates may also be required to refund
overcharges with interest. Rate reductions will not be required where a cable
operator can demonstrate that rates for Regulated Services are justified and
reasonable using cost-of-service guidelines. In November 1993, the FCC ruled
that operators choosing to justify above-benchmark rates through a
cost-of-service submission must do so for all Regulated Services. In February
1994, the FCC adopted interim cost-of-service regulations establishing, among
other things, an industry-wide 11.25% after-tax rate of return on an operator's
allowable rate base and a rebuttable presumption that acquisition costs above
original historic book value of tangible assets should be excluded from the
allowable base. In December 1995, the FCC adopted final cost-of-service rate
regulations requiring, among other things, cable operators to exclude 34% of
system acquisition costs related to intangible and tangible assets used to
provide Regulated Services. The FCC also reaffirmed the industry-wide 11.25%
after-tax rate of return on an operator's allowable rate base, but initiated a
further rulemaking in which it proposes to use an operator's actual debt cost
and capital structure to determine an operator's cost of capital or rate of
return.
"Anti-Buy Through" Provisions. The 1992 Cable Act also requires cable systems
to permit customers to purchase video programming offered by the operator on a
per channel or a per program basis without the necessity of subscribing to any
tier of service, other than the basic service tier, unless the system's lack of
addressable converter boxes or other technological limitations does not permit
it to do so. The statutory exemption for cable systems that do not have the
technological capacity to offer programming in the manner required by the
statute is available until a system obtains such capability, but not later than
December 2002. The FCC may waive such time periods, if deemed necessary. Most of
the Company's cable systems do not have the technological capability to offer
programming in the manner required by the statute and currently are exempt from
complying with the requirement. The Company cannot predict the extent to which
this provision of the 1992 Cable Act and the corresponding FCC rules may cause
customers to discontinue optional nonbasic service tiers in favor of the less
expensive basic cable service.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal
carriage requirements that allow local commercial television broadcast stations
to elect once every three years to require a cable system to carry the station,
subject to certain exceptions, or to negotiate for "retransmission consent" to
carry the station. A cable system generally is required to devote up to
one-third of its activated channel capacity for the carriage of local commercial
television stations whether pursuant to the mandatory carriage or retransmission
consent requirements of the 1992 Cable Act. Local noncommercial television
stations are also given mandatory carriage rights; however, such stations are
not given the option to negotiate retransmission consent for the carriage of
their signals by cable systems. Additionally, cable systems are required to
obtain retransmission consent for all "distant" commercial television stations
(except for commercial satellite-delivered independent "superstations" such as
WTBS), commercial radio stations and certain low power television stations
carried by such systems after October 6,
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1993. In April 1993, a special three-judge federal district court issued a
decision upholding the constitutional validity of the mandatory signal carriage
requirements. In June 1994, the United States Supreme Court vacated this
decision and remanded it to the district court to determine, among other
matters, whether the statutory carriage requirements are necessary to preserve
the economic viability of the broadcast industry. In December 1995, the district
court upheld the mandatory carriage requirements of the 1992 Cable Act. In
February 1996, the United States Supreme Court agreed to review this decision.
The Company cannot predict the ultimate outcome of this litigation. Pending
final action by the Supreme Court, the mandatory broadcast signal carriage
requirements remain in effect.
As a result of the mandatory carriage rules, some of the Company's systems have
been required to carry television broadcast stations that otherwise would not
have been carried and have caused displacement of possibly more attractive
programming. The retransmission consent rules have resulted in the deletion of
certain local and distant televisions broadcast stations which various Company
systems were carrying. To the extent retransmission consent fees must be paid
for the continued carriage of certain television stations, the Company's cost of
doing business will increase with no assurance that such fees can be recovered
through rate increases.
Designated Channels. The 1984 Cable Act permits franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act also requires a cable
system with 36 or more channels to designate a portion of its channel capacity
for commercial leased access by third parties to provide programming that may
compete with services offered by the cable operator. The FCC has adopted rules
regulating: (i) the maximum reasonable rate a cable operator may charge for
commercial use of the designated channel capacity; (ii) the terms and conditions
for commercial use of such channels; and (iii) the procedures for the expedited
resolution of disputes concerning rates or commercial use of the designated
channel capacity. The FCC is currently conducting a further rulemaking to
consider adoption of a cost-based methodology to compute the maximum reasonable
rate a cable operator may charge for commercial use of the designated channel
capacity.
Franchise Procedures. The 1984 Cable Act affirms the right of franchising
authorities (state or local, depending on the practice in individual states) to
award one or more franchises within their jurisdictions and prohibits non-
grandfathered cable systems from operating without a franchise in such
jurisdictions. The 1992 Cable Act encourages competition with existing cable
systems by (i) allowing municipalities to operate their own cable systems
without franchises, (ii) preventing franchising authorities from granting
exclusive franchises or unreasonably refusing to award additional franchises
covering an existing cable system's service area, and (iii) prohibiting (with
limited exceptions) the common ownership of cable systems and co-located MMDS or
SMATV systems. In January 1995, the FCC relaxed its restrictions on ownership of
SMATV systems to permit a cable operator to acquire SMATV systems in the
operator's existing franchise area so long as the programming services provided
through the SMATV system are offered according to the terms and conditions of
the cable operator's local franchise agreement. The 1996 Telecom Act provides
that the cable/SMATV and cable/MMDS cross-ownership rules do not apply in any
franchise area where the cable operator faces "effective competition" as defined
by federal law. The 1996 Telecom Act also permits local telephone companies to
provide video programming services as traditional cable operators with local
franchises.
The 1984 Cable Act also provides that in granting or renewing franchises, local
authorities may establish requirements for cable-related facilities and
equipment, but not for video programming or information services other than in
broad categories. Among the more significant provisions, the Cable Act limits
franchise fees to 5% of cable system revenues and permits cable operators to
obtain modification of franchise requirements by the franchising authority or
judicial action if warranted by changed circumstances. The Company's franchises
typically provide for payment of fees to franchising authorities in the range of
3% to 5% of "revenues" (as defined by each franchise agreement).
The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act makes
several changes to the renewal process which could make it easier for a
franchising authority to deny renewal. Moreover, even if the franchise is
renewed, the franchising 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 franchising
authority's consent is required for the
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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 such consent. Historically, franchises have been renewed for cable
operators that have provided satisfactory services and have complied with the
terms of their franchises. The Company believes that it has generally met the
terms of its franchises and has provided quality levels of service, and it
anticipates that its future franchise renewal prospects generally will be
favorable.
Various courts have considered whether franchising authorities have the legal
right to limit franchise awards to a single cable operator and to impose certain
substantive franchise requirements (i.e., access channels, universal service and
other technical requirements). These decisions have been somewhat inconsistent
and, until the United States Supreme Court rules definitively on the scope of
cable operators' First Amendment protections, the legality of the franchising
process generally and of various specific franchise requirements is likely to be
in a state of flux.
Ownership Limitations. Pursuant to the 1992 Cable Act, the FCC adopted rules
prescribing national customer limits and limits on the number of channels that
can be occupied on a cable system by a video programmer in which the cable
operator has an attributable interest. The FCC's horizontal ownership limits
have been stayed because a federal district court found the statutory limitation
to be unconstitutional. An appeal of that decision is pending. The 1996 Telecom
Act eliminates the statutory prohibition on the common ownership, operation or
control of a cable system and a television broadcast station in the same service
area and directs the FCC to eliminate its regulatory restrictions on
cross-ownership of cable systems and national broadcasting networks and to
review its broadcast-cable ownership restrictions to determine if they are
necessary in the public interest.
Telephone Company Ownership of Cable Systems. The 1984 Cable Act, FCC
regulations and the 1982 federal court consent decree that settled the AT&T
antitrust suit regulated the provision of video programming and other
information services by telephone companies. The statutory provision and
corresponding FCC regulations are of particular competitive importance because
telephone companies already own much of the plant necessary for cable
communications operations, such as poles, underground conduit and associated
rights-of-way. The 1996 Telecom Act makes far-reaching changes in the regulation
of telephone companies that provide video programming services. The new law
eliminates current legal barriers to competition in the local telephone and
cable communications businesses, preempts legal barriers to competition that
previously existed in state and local laws and regulation and sets basic
standards for relationships between telecommunications providers. The 1996
Telecom Act generally limits acquisitions and prohibits certain joint ventures
between LECs and cable operators in the same market. LECs or their affiliates
generally are prohibited from holding greater than a 10% financial interest or
any management interest in a cable operator providing cable service within the
LEC's telephone service area. Similarly, cable operators and their affiliates
generally are prohibited from holding greater than a 10% financial interest or
any management interest in an LEC which provides telephone service in the cable
operator's franchise area. An LEC and cable operator who are operating in the
same market may not enter into any joint venture or partnership to provide video
programming directly to subscribers or to provide telecommunications services to
households within that market. There are some statutory exceptions to the buy
out and joint venture prohibitions, including exceptions for certain small cable
systems (as defined by federal law) and for cable systems or telephone
facilities serving certain rural areas, and the FCC is authorized to grant
waivers of the prohibitions under certain circumstances. The FCC and, in some
cases, states are required to conduct numerous rulemaking proceedings to
implement the 1996 Telecom Act. The ultimate outcome of these rulemakings, and
the ultimate impact of the 1996 Telecom Act or any final regulations adopted
pursuant to the new law on the Company or its business, cannot be determined at
this time.
Pole Attachment. The Communications Act requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable systems' use of
utility pole and conduit space unless state authorities can demonstrate that
they adequately regulate pole attachment rates. In the absence of state
regulation, the FCC administers pole attachment rates through the use of a
formula that it has devised. In some cases, utility companies have increased
pole attachment fees for cable systems that have installed fiber optic cables
and that are using such cables for the distribution of nonvideo services. The
FCC concluded that, in the absence of state regulation, it has jurisdiction to
determine whether utility companies have justified their demand for additional
rental fees and that the Communications Act does not permit disparate rates
based on the type of service provided over the equipment attached to the
utility's pole.
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The 1996 Telecom Act modifies the current pole attachment provisions of the
Communications Act by immediately permitting certain providers of
telecommunications services to rely upon the protections of the current law and
by requiring that utilities provide cable systems and telecommunications
carriers with nondiscriminatory access to any pole, conduit or right-of-way
controlled by the utility. Additionally, within two years of enactment of the
1996 Telecom Act, the FCC is required to adopt new regulations to govern the
charges for pole attachments used by companies providing telecommunications
services, including cable operators. These new pole attachment regulations will
become effective five years after enactment of the 1996 Telecom Act, and any
increase in attachment rates resulting from the FCC's new regulations will be
phased in equal annual increments over a period of five years beginning on the
effective date of the new FCC regulations.
Other Statutory Provisions. The 1992 Cable Act and the 1996 Telecom Act
preclude video programmers affiliated with cable companies or common carriers
providing video programming directly to customers from favoring the affiliated
company over competitors and require such programmers to sell their programming
to other multichannel video distributors. These provisions limit the ability of
cable program suppliers affiliated with cable companies or common carriers
providing video programming to offer exclusive programming arrangements to their
affiliates. The Communications Act also includes provisions, among others,
concerning horizontal and vertical ownership of cable systems, customer service,
customer privacy, commercial leased access channels, marketing practices, equal
employment opportunity, franchise renewal and transfer, award of franchises,
technical standards, consumer equipment compatibility and obscene or indecent
programming. The United States Supreme Court recently held parts of the 1992
Cable Act regulating "indecent" programming on local access channels to be
unconstitutional, but upheld the statutory right of cable operators to prohibit
or limit the provision of "indecent" programming on commercial leased access
channels.
Other FCC Regulations. The FCC has numerous rulemaking proceedings pending that
will implement various provisions of the 1996 Telecom Act; it also has adopted
regulations implementing various provisions of the 1992 Cable Act and the 1996
Telecom Act that are the subject of petitions requesting reconsideration of
various aspects of its rulemaking proceedings. In addition to the FCC
regulations noted above, there are other FCC regulations covering such areas as
equal employment opportunity, syndicated program exclusivity, network program
nonduplication, registration of cable systems, maintenance of various records
and public inspection files, microwave frequency usage, lockbox availability,
origination cablecasting and sponsorship identification, antenna structure
notification, marking and lighting, carriage of local sports programming,
application of the fairness doctrine and rules governing political broadcasts,
limitations on advertising contained in nonbroadcast children's programming,
consumer protection and customer service, leased commercial access, ownership of
home wiring, indecent programming, programmer access to cable systems,
programming agreements, technical standards, consumer electronics equipment
compatibility and DBS implementation. 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 often used in connection with cable operations.
The 1992 Cable Act and the FCC's rules implementing it generally have increased
the administrative and operational expenses of cable systems and have resulted
in additional regulatory oversight by the FCC and local franchise authorities.
The Company will continue to develop strategies to minimize the adverse impact
the FCC's regulations and the other provisions of the 1992 Cable Act and the
1996 Telecom Act have on the Company's business. However, no assurances can be
given that the Company will be able to develop and successfully implement such
strategies to minimize the adverse impact of the FCC's rate regulations, or the
1992 Cable Act or the 1996 Telecom Act on the Company's business.
COPYRIGHT
Cable systems are subject to federal copyright licensing covering carriage of
television and radio broadcast signals. In exchange for filing certain reports
and contributing a percentage of their revenues to a federal copyright royalty
pool, cable operators can obtain blanket permission to retransmit copyrighted
material on broadcast signals. The nature and amount of future payments for
broadcast signal carriage cannot be predicted at this time. The possible
simplification, modification or elimination of the compulsory copyright license
is the subject of continuing legislative review. The elimination or substantial
modification of the cable compulsory license could adversely
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affect the Company's ability to obtain suitable programming and could
substantially increase the cost of programming that remained available for
distribution to the Company's customers. The Company cannot predict the outcome
of this legislative activity.
Cable operators may produce programming and advertising that use music
controlled by the two major music performing rights organizations, ASCAP and
BMI. In October 1989, the special rate court of the United States District Court
for the Southern District of New York imposed interim rates on the cable
industry's use of ASCAP-controlled music. The same federal district court
recently established a special rate court for BMI. BMI and certain cable
industry representatives recently concluded negotiations for a standard
licensing agreement covering the usage of BMI music contained in advertising and
other information inserted by operators into cable programming and on certain
local access and origination channels carried on cable systems. ASCAP and cable
industry representatives have met to discuss the development of a standard
licensing agreement covering ASCAP music in local origination and an access
licensing agreement covering ASCAP music in local origination and access
channels and pay-per-view programming. Although the Company cannot predict the
ultimate outcome of these industry negotiations or the amount of any license
fees it may be required to pay for past and future use of ASCAP-controlled
music, it does not believe such license fees will be material to the Company's
operations.
STATE AND LOCAL REGULATION
Cable systems are subject to state and local regulation, typically imposed
through the franchising processing because they use local streets and
rights-of-way. Regulatory responsibility for essentially local aspects of the
cable business such as franchisee selection, billing practices, system design
and construction, and safety and consumer protection remains with either state
or local officials and, in some jurisdictions, with both.
Cable systems generally are operated pursuant to nonexclusive franchises,
permits or licenses granted by a municipality or other state or local government
entity. Franchises generally are granted for fixed terms and in many cases are
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 payment of franchise
fees, franchise term, system construction and maintenance obligations, system
channel capacity, design and technical performance, customer service standards,
franchise renewal, sale or transfer of the franchise, territory of the
franchisee, indemnification of the franchising authority, use and occupancy of
public streets and types of cable services provided. A number of states subject
cable systems to the jurisdiction of centralized state governmental agencies,
some of which impose regulation of a character similar to that of a public
utility. Attempts in other states to regulate cable systems are continuing and
can be expected to increase. To date, no state in which the Company operates has
enacted such state level regulation. The Company cannot predict whether any of
the states in which it currently operates will engage in such regulation in the
future. State and local franchising jurisdiction is not unlimited, however, and
must be exercised consistently with federal law. The 1992 Cable Act immunizes
franchising authorities from monetary damage awards arising from regulation of
cable systems or decisions made on franchise grants, renewals, transfers and
amendments.
The foregoing does not purport to describe all present and proposed federal,
state, and local regulations and legislation affecting the cable industry. Other
existing federal regulations, copyright licensing, and, in many jurisdictions,
state and local franchise requirements, are currently the subject of judicial
proceedings, legislative hearings and administrative and legislative proposals
which could change, in varying degrees, the manner in which cable systems
operate. Neither the outcome of these proceedings nor the impact on the cable
communications industry or the Company can be predicted at this time.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF FRONTIERVISION INC.
FVOP's sole general partner is FVP, whose sole general partner is FVP GP, L.P.
("FVP GP"). FVP GP's sole general partner is FrontierVision Inc. Information
with respect to the directors and executive officers of FrontierVision Inc. is
set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
James C. Vaughn 50 President, Chief Executive Officer and
Director
John S. Koo 35 Senior Vice President, Chief Financial
Officer, Secretary and Director
William Mahon 55 Vice President of Operations
Gary T. Crosby 44 Vice President of Development
James W. McHose 32 Vice President and Treasurer
Robert G. Sullivan 35 Corporate Controller
Todd E. Padgett 30 Director of Finance
</TABLE>
JAMES C. VAUGHN, President, Chief Executive Officer and a Director of
FrontierVision Inc. and a founder of the Company, is a cable television system
operator and manager with over 30 years of experience in the cable television
industry. From 1987 to 1995, he served as Senior Vice President of Operations
for Triax Communications Corp., a top 40 MSO, where he was responsible for
managing all aspects of small and medium-sized cable television systems. These
systems grew from serving 57,000 subscribers to over 376,000 subscribers during
Mr. Vaughn's tenure. Prior to joining Triax Communications, Mr. Vaughn served as
Director of Operations for Tele-Communications, Inc. from 1986 to 1987, with
responsibility for managing the development of Chicago-area cable television
systems. From 1985 to 1986, Mr. Vaughn was Division Manager for Harte-Hanks
Communications. From 1983 to 1985, Mr. Vaughn served as Vice President of
Operations for Bycom, Inc. From 1979 to 1983, Mr. Vaughn served as Director of
Engineering for the Development Division of Cox Cable Communications Corp. From
1970 to 1979, Mr. Vaughn served as Senior Staff Engineer for Viacom, Inc.'s
cable division, and as Director of Engineering for Showtime, a division of
Viacom International, Inc.
JOHN S. KOO, Senior Vice President, Chief Financial Officer, Secretary and a
Director of FrontierVision Inc. and a founder of the Company, has over 11 years
of banking experience in the telecommunications industry. From 1990 to 1995, Mr.
Koo served as a Vice President at Canadian Imperial Bank of Commerce ("CIBC"),
where he co-founded CIBC's Mezzanine Finance Group, targeted at emerging media
and telecommunications businesses. From 1986 to 1990, Mr. Koo was a Vice
President at Bank of New England specializing in media finance. From 1984 to
1986, he was a management consultant to the financial services industry.
WILLIAM MAHON, Vice President of Operations of FrontierVision Inc. since
December 1995, has over 15 years of cable television operations management
experience. Prior to joining FrontierVision Inc., Mr. Mahon served as Vice
President of Operations for UVC, a top 50 MSO, from 1990 to 1995, where he was
responsible for the day-to-day operations of approximately 130 cable systems
located in twelve states. From 1983 to 1989, Mr. Mahon served as President and
General Manager of Heritage Cable Vision, a 90,000 subscriber MSO.
Mr. Mahon is a member of the Society of Cable Engineers and serves on the Board
of Directors of the New England Cable Television Association.
GARY T. CROSBY, Vice President of Development of FrontierVision Inc. since
October 1995, has over 22 years of experience in the cable television industry.
Mr. Crosby served as Regional Manager for Triax Communications Corp., a top 40
MSO, from 1988 to 1995, where he managed 130 cable systems representing 233
franchising authorities. From 1982 to 1988, Mr. Crosby served as Regional
Manager for Dowden Communications, Inc., an Atlanta-based MSO. From 1978 to
1982, he served as Vice President for Crosby Cable Company, where he was
responsible for day-to-day operations. Mr. Crosby has been actively involved in
the Illinois Cable Television Association (ICTA), where he served as Chairman.
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JAMES W. MCHOSE, Vice President and Treasurer of FrontierVision Inc. since July
1996, has over 10 years of accounting and tax experience, including during the
past six years providing tax, accounting and consulting services to companies
engaged in the cable television industry. Prior to joining the Company, Mr.
McHose was a Senior Manager in the Information, Communications, and
Entertainment practice of KPMG Peat Marwick, LLP, where he specialized in
taxation of companies in the cable television industry. In this capacity, Mr.
McHose served MSOs with over 14 million subscribers in the aggregate. Mr. McHose
is a member of the Cable Television Tax Professional's Institute and is a
Certified Public Accountant.
ROBERT G. SULLIVAN, Corporate Controller of FrontierVision Inc. since February
1996, has over 14 years of accounting experience, including the past eight in
the cable television field. Prior to joining the Company, Mr. Sullivan served as
the Corporate Controller and Chief Financial Officer for UVC, a top 50 MSO, from
1991 to 1995. From 1988 until 1991, Mr. Sullivan was Regional Controller with
Simmons Communications, a top 40 MSO with over 400,000 subscribers and revenues
in excess of $100 million. Prior to that, Mr. Sullivan was a Senior Accountant
with the international public accounting firm of Pannell Kerr Forster in New
York City, and an Internal Auditor for Avon Products, Inc. Mr. Sullivan is a
Certified Public Accountant.
TODD E. PADGETT, Director of Finance of FrontierVision Inc. since July 1995, has
over five years of project management and corporate finance experience in the
natural gas transmission and marketing industry, where he specialized in
developing, evaluating, negotiating and financing natural gas pipeline and
international power projects. From 1990 to 1995, Mr. Padgett served as Project
Manager for Natural Gas Pipeline Company of America, a subsidiary of MidCon
Corp., which is a division of Occidental Petroleum Corporation. Mr. Padgett is a
Certified Public Accountant and has an MBA from the University of Chicago.
ADVISORY COMMITTEE
The partnership agreement of FVP provides for the establishment of an Advisory
Committee to consult with and advise FVP GP, the general partner of FVP, with
respect to FVP's business and overall strategy. The Advisory Committee has broad
authority to review and approve or disapprove matters relating to all material
aspects of FVP's business. The approval of seventy-five percent (75%) of the
members of the Advisory Committee that are entitled to vote on the matter is
required in order for the Company to effect any cable television system
acquisition. The Advisory Committee consists of four representatives of the
Attributable Class A Limited Partners of FVP and one representative of FVP GP.
Subject to certain conditions, each of J.P. Morgan Investment Corporation, Brown
Brothers Harriman & Co., Olympus Growth Fund II, L.P. and First Union Capital
Partners, Inc., through their respective affiliates listed in "Principal
Security Holders," is entitled to designate one member of the Advisory
Committee. See "The Partnership Agreements" and "Principal Security Holders."
Their respective designees are John W. Watkins, Richard H. Witmer, Jr., James A.
Conroy and L. Watts Hamrick, III. FVP GP's designee is Mr. Vaughn.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to FrontierVision Inc.'s
Chief Executive Officer and to each of its other most highly compensated
officers receiving compensation in excess of $100,000 for services rendered
during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
----------------------------
ANNUAL COMPENSATION
NAME AND ----------------------------
PRINCIPAL POSITION YEAR SALARY BONUS(1)
- ----------------------------------------------------------------- ---- -------- --------
<S> <C> <C> <C>
James C. Vaughn 1995 $169,635 $110,000
President and Chief Executive Officer
John S. Koo 1995 93,416 90,000
Senior Vice President, Chief Financial Officer and Secretary
</TABLE>
- ---------------
(1) Bonus paid for the employment contract year ending April 16, 1996. Mr.
Vaughn and Mr. Koo deferred $35,000 and $50,000, respectively, of the bonus to
the Deferred Compensation Plan described below.
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401(K) PLAN
The Company established the FrontierVision Operating Partners 401(k) Plan (the
"401(k) Plan") effective January 1, 1996. In general, all employees of the
Company, except certain employees covered by a collective bargaining agreement,
may participate in the 401(k) Plan immediately upon employment with the Company.
Employees who participate in the 401(k) Plan may elect to defer and have
contributed to the 401(k) Plan an amount up to 15% of such employees' eligible
compensation, on a pre-tax basis. The Company makes a matching contribution to a
participating employee's account under the 401(k) Plan in an amount equal to
100% of the amount of eligible compensation deferred and contributed to the
employee's account, up to a maximum of 3% of such employee's eligible
compensation. The Company in its discretion may also make an additional company
contribution for any year. The Company's matching contribution and any
additional contribution to the 401(k) Plan are subject to a five-year vesting
schedule, based upon each participating employee's years of employment with the
Company. Such contributions vest at the rate of 20% per year of service, so that
an employee's account will be fully (100%) vested after five years of service.
DEFERRED COMPENSATION PLAN
FVP established the FrontierVision Partners, L.P. Executive Deferred
Compensation Plan (the "Deferred Compensation Plan") effective January 1, 1996
to allow key employees the opportunity to defer the payment of compensation to a
later date and to participate in any appreciation of FVP's business. The
Deferred Compensation Plan is administered by FVP's Advisory Committee.
Participation in the Deferred Compensation Plan is limited to James C. Vaughn,
John S. Koo and other key executives of FVP or its affiliates approved by the
Compensation Committee of the Advisory Committee (the "Compensation Committee").
Under the Deferred Compensation Plan, eligible employees may elect to defer the
payment of a portion of their compensation each year up to an amount determined
by the Compensation Committee. Any amount deferred is credited to a bookkeeping
account, which is credited with interest at the rate of 12% per annum. Each
participant's account also has a phantom equity component through which the
account will be credited with earnings in excess of 12% per annum to the extent
the Net Equity Value of FVP appreciates in excess of 12% per annum during the
term of the deferral. Net Equity Value of FVP is determined by multiplying each
cable television system's EBITDA for the most recent fiscal quarter by the
weighted average multiple of EBITDA paid by FVP to acquire each cable television
system; provided that if substantially all of the assets or partnership
interests of FVP are sold, Net Equity Value shall be based upon such actual sale
price adjusted to reflect any prior distributions to the partners and any
payments during the term of the deferral to the holders of certain subordinated
notes issued to the limited partners of FVP. See "Prospectus Summary--The
Transactions." Accounts shall be paid following (i) the sale of all of FVP's
partnership interests or upon liquidation of FVP, other than sales or
liquidations which are part of a reorganization, or (ii) the death or disability
of the participant prior to termination of employment with FVP. The Compensation
Committee may agree to pay the account in the event the participant incurs a
severe financial hardship or if the participant agrees to an earlier payment.
There are four employees currently participating in the Deferred Compensation
Plan, including Messrs. Vaughn and Koo.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
A Compensation Committee of the Advisory Committee of FVP, consisting of Messrs.
Watkins and Witmer, as representatives of J.P. Morgan & Co. Incorporated and
Brown Brothers Harriman & Co., respectively, sets the compensation of the
executive officers of the Company. See "Certain Relationships and Related
Transactions."
EMPLOYMENT AGREEMENT
James C. Vaughn has entered into an employment agreement with FVP, dated as of
April 17, 1995 (the "Employment Agreement"). The agreement provides that Mr.
Vaughn will be employed as President and Chief Executive Officer of FVP. The
agreement establishes a base salary to be paid to Mr. Vaughn each year which is
subject to annual adjustment to reflect increases in the Consumer Price Index
for All Urban Consumers, as published by the Bureau of Labor Statistics of the
United States Department of Labor (or, in the event of the discontinuance
thereof, another appropriate index selected by FVP, with the approval of the
Advisory Committee).
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Mr. Vaughn's base salary may from time to time be increased if FVP shall deem it
advisable to do so. For 1995, Mr. Vaughn's base salary was $275,000. In
addition, he is entitled to annual bonuses up to $75,000, subject to the
attainment of certain performance objectives set forth in the Employment
Agreement. Pursuant to the Employment Agreement, for 1995, Mr. Vaughn received a
$75,000 bonus. If FVP terminates Mr. Vaughn's employment without "cause" (as
defined in the Employment Agreement), then Mr. Vaughn is entitled to receive a
severance payment equal to 25% of his then base salary. Mr. Vaughn has agreed
not to compete with FVP for the term of his employment with FVP and for an
additional period of two years thereafter and to keep certain information in
connection with FVP confidential.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's sole general partner (owning 99.9% of the partnership interests
therein) is FVP. The Company's sole limited partner (owning 0.1% of the
partnership interests therein) is FrontierVision Operating Partners, Inc., which
is a wholly owned subsidiary of FVP. FVP's sole general partner (owning 1% of
the partnership interests therein) is FVP GP. FVP's limited partners (owning 99%
of the partnership interests therein) consist of J.P. Morgan Investment
Corporation, an affiliate of J.P. Morgan Securities Inc., First Union Capital
Partners, Inc., an affiliate of First Union Capital Markets Corp., and various
institutional investors and accredited investors. FVP GP's sole general partner
(owning 1% of the partnership interests therein) is FrontierVision Inc., which
is owned by James C. Vaughn and John S. Koo. FVP GP's limited partners (owning
99% of the partnership interests therein) consist of J.P. Morgan Investment
Corporation, First Union Capital Partners, Inc., various institutional
investors, James C. Vaughn and John S. Koo. See "Principal Security Holders."
J.P. Morgan Investment Corporation and First Union Capital Partners, Inc. have
committed approximately $25,339,224 and $15,203,534, respectively, to FVP.
FrontierVision Inc. has committed approximately $12,335 to FVP, representing
commitments of approximately $8,224 and $4,112 by James C. Vaughn and John S.
Koo, respectively, who are directors of FrontierVision Inc. Such capital
commitments are contributed as equity to FVOP in connection with the closing of
acquisitions by FVOP. As of June 30, 1996, J.P. Morgan Investment Corporation
and First Union Capital Partners, Inc. have paid $22,966,588 and $13,779,953 of
such commitments, respectively, to fund the closing of acquisitions by FVOP, for
escrow deposits for acquisitions by FVOP under contract and for FVOP working
capital requirements. In addition, concurrently with or prior to the completion
of the Offering, FVP will consummate the Rights Offering, pursuant to which it
is anticipated that J.P. Morgan Investment Corporation and First Union Capital
Partners, Inc. will acquire additional partnership interests in FVP.
J.P. Morgan Investment Corporation and First Union Capital Partners, Inc. are
"Special Class A" limited partners of FVP. Upon the termination of FVP and in
connection with distributions to its partners in respect of their partnership
interests, J.P. Morgan Investment Corporation, First Union Capital Partners,
Inc. and FVP GP will be entitled to receive "carried interest" distributions or
will be allocated a portion of 15% of any remaining capital to be distributed by
FVP after certain other distributions are made. See "The Partnership
Agreements." J.P. Morgan Securities Inc. acted as placement agent for the
initial offering of limited partnership interests of FVP (other than with
respect to the investment made by J.P. Morgan Investment Corporation) and the
placement of debt securities of FVP and in connection with those activities
received customary fees and reimbursement of expenses.
Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Securities Inc., The Chase Manhattan Bank, an affiliate of Chase Securities
Inc., and CIBC Inc., an affiliate of CIBC Wood Gundy Securities Corp., are
agents and lenders under the Senior Credit Facility and have received customary
fees for acting in such capacities.
In addition, the Underwriters will receive the compensation described under the
caption "Underwriting" in connection with the Offering. There are no other
arrangements between the Underwriters and their affiliates and the Company or
any of its affiliates pursuant to which the Underwriters or their affiliates
will receive any additional compensation from the Company or any of its
affiliates.
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<PAGE> 66
PRINCIPAL SECURITY HOLDERS
The following table sets forth, as of March 31, 1996, (i) the units of general
partnership interest and limited partnership interest of the Company
beneficially owned by the directors and executive officers of FrontierVision
Inc. and each person who is known to the Company to own beneficially more than
5.0% of any class of the Company's partnership interests and (ii) the units of
the equity securities of FrontierVision Inc., FVP GP, FVP and the Company owned
by each director or executive officer of FrontierVision Inc. named in the
Summary Compensation Table and by all executive officers of the Company as a
group. For a more detailed discussion of the ownership of the Company, see
"Certain Relationships and Related Transactions."
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL
OWNERS TYPE OF INTEREST % OF CLASS
- ----------------------------------- ----------------------------------------- ----------
<S> <C> <C>
FrontierVision Partners, L.P.(1) General Partner Interest in the Company 99.90%
1777 South Harrison Street, Suite
P-200
Denver, Colorado 80210
FVP GP, L.P.(1) General Partner Interest in FVP 1.00%
1777 South Harrison Street, Suite
P-200
Denver, Colorado 80210
J.P. Morgan Investment Corporation Limited Partnership Interest in FVP 20.47%
101 California Street, Suite 3800 Limited Partnership Interest in FVP GP 13.62%
San Francisco, CA 94111
1818 II Cable Corp. Limited Partnership Interest in FVP 20.18%
c/o Brown Brothers Harriman & Co. Limited Partnership Interest in FVP GP 13.62%
59 Wall Street
New York, NY 10005
Olympus Cable Corp. Limited Partnership Interest in FVP 20.18%
Metro Center--One Station Place Limited Partnership Interest in FVP GP 13.62%
Stamford, CT 06920
First Union Capital Partners, Inc. Limited Partnership Interest in FVP 12.28%
One First Union Center, 18th Floor Limited Partnership Interest in FVP GP 8.17%
Charlotte, NC 28288
James C. Vaughn Stockholder of FrontierVision Inc. 66.67%
1777 South Harrison Street, Suite Limited Partnership Interest in FVP GP 39.20%
P-200
Denver, Colorado 80210
John S. Koo Stockholder of FrontierVision Inc. 33.33%
1777 South Harrison Street, Suite Limited Partnership Interest in FVP GP 11.76%
P-200
Denver, Colorado 80210
All other executive officers and
directors as a group 0.00%
</TABLE>
- ---------------
(1) FVOP's sole general partner (owning 99.9% of the partnership interests
therein) is FVP, a Delaware limited partnership, and FVOP's sole limited partner
(owning 0.1% of the partnership interests therein) is FrontierVision Operating
Partners, Inc., a Delaware corporation which is a wholly owned subsidiary of
FVP. FVP's sole general partner (owning 1% of the partnership interests therein)
is FVP GP, a Delaware limited partnership, and FVP's limited partners (owning
99% of the partnership interests therein) are various institutional investors
and accredited investors. FVP GP's sole general partner (owning 1% of the
partnership interests therein) is FrontierVision Inc., which is owned by James
C. Vaughn and John S. Koo, and FVP GP's limited partners (owning 99% of the
partnership interests therein) consist of various institutional investors, James
C. Vaughn and John S. Koo. See "The Partnership Agreements--FVP Partnership
Agreement."
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<PAGE> 67
OWNERSHIP STRUCTURE
The following chart illustrates the ownership structure of the Company.
<TABLE>
<S> <C>
---------------------------------------------------
| James C. Vaughn |
| John S. Koo |
---------------------------------------------------
| (100% interest)
V
- --------------------------------------------------- ---------------------------------------------------
| Institutional Investors | | |
| James C. Vaughn | | FrontierVision Inc. |
| John S. Koo | | |
- --------------------------------------------------- ---------------------------------------------------
| Limited Partners | General Partner
| (99.0% interest) | (1.0% interest)
| V
| ---------------------------------------------------
-------------------------------------------------}| FVP GP, L.P. |
| ("FVP GP") |
- --------------------------------------------------- ----------------------------------------------------
| Institutional Investors | | General Partner
| Other Limited Partners | | (1.0% interest)
- --------------------------------------------------- |
| Limited Partners V
| (99.0% interest) ----------------------------------------------------
-------------------------------------------------}| FrontierVision Partners, L.P. |
| ("FVP") |
|------------------------------------------------}| |
| (100% interest) ----------------------------------------------------
| | General Partner
| V (99.9% interest)
V ----------------------------------------------------
- --------------------------------------------------- | FrontierVision Operating Parners, L.P. |
| FrontierVision Operating Partners, Inc. |---------------}| ("FVOP" or the "Company") |
- --------------------------------------------------- ----------------------------------------------------
Limited | (100% interest)
Partner V
(0.1% interest) ----------------------------------------------------
| FrontierVision Capital Corporation |
| ("Capital") |
----------------------------------------------------
</TABLE>
65
<PAGE> 68
THE PARTNERSHIP AGREEMENTS
The following is a summary of certain material terms of the Agreement of Limited
Partnership of FVOP, as amended (the "Company Partnership Agreement"), the First
Amended and Restated Agreement of Limited Partnership of FVP, as amended (the
"FVP Partnership Agreement") and the First Amended and Restated Agreement of
Limited Partnership of FVP GP, as amended (the "FVP GP Partnership Agreement"
and together with the Company Partnership Agreement and FVP Partnership
Agreement, the "Partnership Agreements"). This summary reflects certain
amendments to certain of the Partnership Agreements which will be made at or
prior to the closing of the offering of the Notes. Complete copies of the form
of Partnership Agreements have been filed as exhibits to the Registration
Statement of which this Prospectus is a part and are available in the manner
described in "Additional Information." All capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the respective
Partnership Agreement.
THE COMPANY 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, as amended (the "Act"), and a certificate of limited partnership of the
Company was filed with the Secretary of State of Delaware on July 14, 1995. The
purpose of the Company, as set forth in the Company Partnership Agreement, is to
conduct and promote the business of acquiring, investing in, disposing of,
operating, managing and financing cable systems and to engage in all activities
necessary, desirable or incidental for such purpose.
The Company will be dissolved and its affairs shall be wound up upon the
earliest to occur of (i) June 30, 2007, (ii) all of the partners of the Company
approve such action in writing, (iii) the Company sells or otherwise disposes of
its interest in all or substantially all of its property, (iv) an event of
withdrawal of the General Partner has occurred under the Act or (v) an entry of
a decree of judicial dissolution has occurred under the Act.
Control of Operations. The Company Partnership Agreement provides that the
powers of the General Partner include all powers, statutory and otherwise,
possessed by general partners under the laws of Delaware, including the right
and power to manage and control the business and affairs of the Company and to
delegate to one or more other persons such right and power. Upon the occurrence
and continuance of any Event of Default under and as defined in the Senior
Credit Facility, Chase Manhattan Bank, N.A. (the "Administrative Agent") shall
be entitled to be admitted (or to have a designee of its choice admitted) as a
new general partner of the Company (the "New General Partner"). On and after the
admission of the New General Partner to the Company, the New General Partner
shall have all powers, statutory and otherwise, possessed by general partners
under the laws of Delaware and shall have the authority to manage the business
and affairs of the Company and the General Partner shall have no further powers
or privileges with respect to the management of the Company.
Capital Contributions. Under the Company Partnership Agreement, the partners
have made certain capital contributions to the Company. Each partner of the
Company may, but is not required to, make additional capital contributions to
the Company. The Company Partnership Agreement provides that upon the admission
of any additional Limited Partners or Substituted Limited Partners to the
Company, the Company's Limited Partner shall withdraw from the Company and shall
be entitled to receive the return of its capital contribution, without interest
or deduction. In the event of the admission of the New General Partner to the
Company, no capital contribution by the New General Partner shall be required.
Following the admission of the New General Partner to the Company, if requested
by the Administrative Agent, the partnership interest held by the General
Partner shall be converted into a limited partnership interest and in that
connection, the New General Partner may make such additional capital
contributions and alter the allocation of the Company profits and losses among
the partners in such manner as it determines to be appropriate to preserve the
status of the Company as a partnership for federal income tax purposes.
Withdrawal or Removal of Partners. In general, no right is given to any partner
of the Company to withdraw from the Company. The General Partner may admit (i)
additional Limited Partners, (ii) an assignee of the Limited Partner's
partnership interest in the Company as a Substituted Limited Partner of the
Company and (iii) one or more additional general partners to the Company. In
addition, upon the occurrence and continuance of any Event of
66
<PAGE> 69
Default under and as defined in the Senior Credit Facility, the Administrative
Agent shall be entitled to be admitted (or to have a designee of its choice
admitted) as a New General Partner.
Assignment of Partnership Interests. Under the Company's Partnership Agreement,
the Limited Partner may assign all or any part of its partnership interest in
the Company only with the consent of the General Partner. The Limited Partner
has no right to grant an assignee of its partnership interest in the Company the
right to become a Substituted Limited Partner of the Company. Following the
admission of the New General Partner to the Company, neither the General Partner
nor the Limited Partner may transfer its partnership interest in the Company
without the prior written consent of the New General Partner.
Class A Partnership Interests. Concurrently with or prior to the consummation
of the Offering, it is anticipated that UVC will convert $5.0 million aggregate
principal amount of the UVC Note into limited partnership interests of the
Company represented by the Class A Partnership Interests and the balance of the
UVC Note will be repaid. Such conversion and repayment of the UVC Note are both
included as part of the Transactions. The Class A Partnership Interests will be
redeemable in whole or in part, at the option of the Company at any time, at a
redemption price equal to 100% of the aggregate capital contribution represented
thereby plus a return on the undistributed portion thereof at a rate of 17% per
annum, compounded annually (the "Liquidation Value"). The Class A Partnership
Interests also will be redeemable in full at their Liquidation Value upon
consummation of the sale of all or substantially all of the Company's assets
following repayment of all of the Company's indebtedness. In addition, the Class
A Partnership Interests will be redeemable in full at their Liquidation Value,
at the option of the holders thereof (within six months of notice to the
Company) following the earlier to occur of (i) the twelfth anniversary of the
issue date of such Interests or (ii) the fifth anniversary of the issue date if,
as of such date, the Company has no unmatured indebtedness for borrowed money
outstanding (which indebtedness was part of a major senior or subordinated debt
financing).
FVP PARTNERSHIP AGREEMENT
Organization and Duration. FVP was formed as a limited partnership pursuant to
the provisions of the Act, and a certificate of limited partnership of FVP was
filed with the Secretary of State of Delaware on April 17, 1995. The principal
purpose of FVP, as set forth in the FVP Partnership Agreement, is to (i)
acquire, invest in, own, finance, operate, improve, develop, maintain, promote,
sell, dispose of and otherwise exploit cable television systems and properties
and interests therein, (ii) conduct related business activities, including
telephony and other communications businesses and activities that are related to
FVP's cable television businesses and activities, directly or indirectly through
other entities, alone or with others, and (iii) do any and all acts necessary,
desirable or incidental to the accomplishment of such purpose.
FVP will be dissolved and its affairs wound up upon the earliest to occur of (i)
June 30, 2007, (ii) the Incapacity, withdrawal, removal or other event of
withdrawal (as defined in the Act) of a General Partner, (iii) on or after the
time when all of the Capital Commitments and Loan Amounts have been paid, upon
the sale or other disposition by FVP of all or substantially all of the
Investments it then owns and (iv) the entry of a decree of judicial dissolution
under the Act. Thereafter, the term of FVP can be extended by (i) the General
Partner of FVP for up to two additional one-year periods from such date if the
General Partner determines, in each instance, that such extension is in the best
interests of FVP and the Advisory Committee approves such extension or (ii) the
General Partner for up to two additional one-year periods from such date if the
Advisory Committee requests such extension. In each case, such extension shall
not be later than 30 days prior to the last day of the term, as then extended,
or until dissolution prior thereto. In the case of dissolution described in
clause (ii), if at such time there is at least one remaining General Partner,
the remaining General Partner(s) may unanimously elect to carry on the business
of FVP. In addition, within 90 days thereafter, Class A Limited Partners
representing at least a majority in Interest of the remaining partners (based on
their profits interests and capital interests), or such greater percentage in
Interest as may be required under the Act, may agree to continue the business of
FVP and to the appointment of one or more additional general partners to be
effective as of the date of such event.
Control of Operations. The FVP Partnership Agreement provides that the General
Partner has the full, exclusive and complete right, power and discretion to
operate, manage and control the affairs and business of FVP and to make all
decisions affecting FVP's affairs and business, subject to the terms and
provisions of the FVP
67
<PAGE> 70
Partnership Agreement. Among, but not limited to, the limitations on its power,
the General Partner does not have the right: (i) to possess any FVP property or
assign rights to such property for other than a partnership purpose; (ii) to
perform any act or employ any assets of FVP in contravention of the FVP
Partnership Agreement; (iii) to take any action which requires approval of the
Advisory Committee, unless such action shall first have been so approved; (iv)
to permit FVP to take any action or operate in any manner as would cause FVP to
be classified as an "investment company" for purposes of the Investment Company
Act of 1940, as amended, or as would cause all or any portion of the assets of
FVP to constitute "plan assets" for federal income tax purposes; (v) to admit a
person as a Partner except as otherwise provided in the FVP Partnership
Agreement; (vi) to transfer its Interest as General Partner, or (vii) to amend
the FVP Partnership Agreement, except as provided by the FVP Partnership
Agreement.
Advisory Committee. The FVP Partnership Agreement provides for the
establishment of an Advisory Committee to consult with and advise the General
Partner with respect to FVP's business and overall strategy. Under the FVP
Partnership Agreement, the Advisory Committee has broad authority to review and
approve or disapprove matters relating to all material aspects of FVP's
business, including, but not limited to, determinations with respect to (i) the
acquisition by FVP of any Investment (including any cable television system
acquisition), (ii) the sale, exchange or other disposition by FVP of
Investments, (iii) financing or refinancing of FVP, (iv) borrowings, loans or
guarantees by FVP relating to indebtedness for borrowed money, (v) capital calls
under the FVP Partnership Agreement, (vi) the admission of additional partners
to FVP or additional partners to the General Partner and their obligations and
liabilities thereto, (vii) the issuance of additional Interests in the General
Partner and the amendment of the allocation provisions of the General
Partnership Agreement, (viii) the issuance of additional shares or transfer of
capital stock of FrontierVision, Inc. or the merger or consolidation of
FrontierVision, Inc., (ix) the creation and issuance of additional classes or
series of Limited Partnership Interests and (x) the termination of the Vaughn
Employment Agreement and/or the Koo Employment Agreement. Upon termination of
the Vaughn Employment Agreement, the General Partner may be removed from FVP. In
addition, the failure of the General Partner to follow any such direction of the
Advisory Committee in connection with such determinations shall constitute a
material breach of the FVP Partnership Agreement whereby the General Partner may
be removed from FVP. As provided in the FVP Partnership Agreement, the approval
of seventy-five percent (75%) of the members of the Advisory Committee that are
entitled to vote on the matter is required in order for the Company to effect
any cable television system acquisition. The Advisory Committee is to consist of
four representatives of the Attributable Class A Limited Partners and one
representative of the General Partner. Subject to certain conditions, each of
J.P. Morgan Investment Corporation, Brown Brothers Harriman & Co., Olympus
Growth Fund II, L.P. and First Union Capital Partners, Inc. shall be entitled to
designate one member of the Advisory Committee.
Voting Rights. Except as to matters for which consent or approval is expressly
required under the FVP Partnership Agreement, the Limited Partners of FVP have
no right to vote on any partnership matters. Where consent of a majority or
specified percentage in Interest of the Limited Partners of FVP or of a class or
classes of Limited Partners is required, such consent will be determined by
reference to the aggregate Capital Commitments of the Limited Partners entitled
to approve the act or thing for which approval is sought in accordance with the
terms of the FVP Partnership Agreement.
Amendments and Modifications. In general, the FVP Partnership Agreement is
subject to modification or amendment only with the written consent of the
General Partner and a majority in Interest of the Class A and Class B Limited
Partners of FVP; provided, however, the FVP Partnership Agreement may be amended
from time to time by the General Partner without the consent of any of the
Limited Partners to (i) add to the representations, duties or obligations of the
General Partner or surrender any right or power granted to the General Partner
by the FVP Partnership Agreement, (ii) admit one or more additional Limited
Partners or Substituted Limited Partners, or withdraw one or more Limited
Partners in accordance with the FVP Partnership Agreement, (iii) provide any
necessary information regarding any Partner, (iv) adjust certain allocations of
net profit and loss with the approval of the Advisory Committee and (v) reflect
any change in the amount of the Capital Commitments of any Partner in accordance
with the terms of the FVP Partnership Agreement; provided, however, such
amendment shall not be adopted if, in the opinion of counsel for FVP, such
amendment alters, or results in the alteration of, the limited liability of the
Limited Partners or the status of FVP as a partnership for federal income tax
purposes.
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<PAGE> 71
Notwithstanding the foregoing, no amendment to the FVP Partnership Agreement may
add to, detract from or otherwise modify the purposes of FVP. In addition,
amendments with respect to certain liabilities or responsibilities of certain
Limited Partners require the consent of certain Limited Partners.
Capitalization and Certain Distributions. In connection with its initial
formation, FVP issued to its Limited Partners units consisting of limited
partnership interests in FVP, 12% Senior Subordinated Notes due 2004 and 14%
Junior Subordinated Notes due 2004. Pursuant to such transaction, and under the
FVP Partnership Agreement, each General Partner and Limited Partner of FVP has
made certain capital contributions to FVP. The General Partner is required under
the FVP Partnership Agreement to make such Capital Commitments to FVP as are
necessary to maintain at all times a Capital Commitment equal to not less than
one percent (1%) of the total Capital Commitments of all Partners. The Limited
Partners are not required to make additional capital contributions to FVP in
excess of their respective Capital Commitments. Except for provisions allowing
for the return of capital to Partners upon dissolution of FVP, the FVP
Partnership Agreement provides that no Partner of FVP shall have the right to
withdraw or demand return of its capital contribution.
In consideration of significant Capital Commitments to FVP during its initial
formation, the FVP Partnership Agreement provides that certain "Special" Limited
Partners and the General Partner are entitled to receive a portion of 15% of any
remaining capital to be distributed by FVP after certain distributions are made
to the Class A and Class B Limited Partners and the General Partner in
accordance with the FVP Partnership Agreement. The Special Class A and the
Special Class B Limited Partners will be allocated 8% (in the aggregate) of such
remaining capital, in proportion to the amount of their respective Capital
Commitments. The General Partner will be allocated 7% (in the aggregate) of such
remaining capital; provided, however, that such percentage shall be subject to
adjustment by the General Partner, with the approval of the Advisory Committee,
under certain circumstances pursuant to the terms of the FVP Partnership
Agreement.
Admission of Additional Partners. The General Partner is authorized, subject to
certain conditions and the approval of the Advisory Committee, to cause FVP to
(i) admit additional Limited Partners to the partnership, (ii) permit any
existing Limited Partner to increase its Capital Commitment or (iii) create and
issue such additional classes or series of Limited Partnership Interests having
such designations, preferences and relative, participating or other special
rights, powers and duties as the General Partner, with the approval of the
Advisory Committee, shall determine.
Preemptive Rights. The FVP Partnership Agreement provides that, except under
certain circumstances, the General Partner, without the consent of a majority in
Interest of the Class A Limited Partners, shall not be able to (i) issue, sell
or grant (x) Limited Partnership Interests in FVP, (y) warrants, options, or
other rights to purchase Limited Partnership Interests in FVP or (z) securities
convertible or exchangeable for Limited Partnership Interests in FVP or (ii)
permit any Limited Partner to increase its Capital Commitment to FVP until the
Capital Commitments of all of the Class A and Class B Limited Partners have been
fully drawn upon or expired. Except under certain circumstances, after the
Capital Commitments of all of the Class A and Class B Limited Partners have been
fully drawn upon or have expired, if FVP proposes to admit additional Limited
Partners to the partnership or permit any Limited Partner to increase its
Capital Commitment to the partnership pursuant to the FVP Partnership Agreement,
the General Partner must give notice to each Limited Partner of such proposed
action. Thereafter, each Limited Partner will have the right to acquire its pro
rata share of any such additional Limited Partnership Interests or increase its
Capital Commitment subject to the provisions of the FVP Partnership Agreement.
Rights of First Refusal; Tag-Along Rights. The FVP Partnership Agreement
provides that in the event of a proposed transfer of a Limited Partnership
Interest or Note by a Limited Partner (to the extent permitted under the FVP
Partnership Agreement), such Limited Partner must provide 45 days' written
notice to the General Partner and to all of the Class A and Class B Limited
Partners of such proposed transfer and the proposed cash purchase price. During
the first 30 days of such period, the General Partner and each of the Class A
and Class B Limited Partners (other than any Defaulting Partner) will have the
right to propose to acquire such Interest or Note, or some portion thereof, for
the proposed cash purchase price. If the Partners as a group propose to acquire
more than the Interest or Note, then each such Partner shall have the right to
propose to acquire its pro rata portion of the Interest or Note; provided,
however, that the Limited Partner that proposes such transfer shall not be
obligated to sell any portion of
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<PAGE> 72
the Interest or Note to any Partner unless the Partners have collectively
proposed to purchase all of the Interest or Note.
In the case of a proposed transfer in a single transaction or a series of
related transactions of fifty percent (50%) or more of the outstanding Limited
Partnership Interests, if the Partners do not exercise their rights of first
refusal, then, as a further condition to the transfer by a Limited Partner, such
Limited Partner shall obtain for each other Class A and Class B Limited Partner
the right to sell the same proportion of its Limited Partnership Interests as
that being sold by the selling Limited Partner at the same purchase price,
subject to certain adjustments.
Liability of General Partner. In general, under the FVP Partnership Agreement,
FVP will indemnify and hold harmless, out of its assets, the General Partner,
its partners and their respective officers, directors, employees, agents or
stockholders (including when any of the foregoing is serving at the request of
the General Partner on behalf of FVP as a partner, officer, director, employee
or agent of any other Person) against losses, damages, expenses (including
reasonable attorneys' fees), judgments and settlement amounts incurred by such
party by reason of actions or omissions in connection with activities performed
on behalf of FVP and not constituting fraud, breach of fiduciary duty, willful
misconduct or gross negligence. In the event that the General Partner of FVP
ceases to be a General Partner, it shall remain liable for obligations and
liabilities incurred on account of its activities as General Partner prior to
the time it ceased to be a General Partner, but shall be free of any obligation
or liability as a General Partner incurred on account of the activities of FVP
from and after the time it ceased to be a General Partner.
Withdrawal or Removal of Partners. The General Partner may not voluntarily
dissolve, retire or withdraw as a General Partner of FVP. In addition, the
General Partner may not directly or indirectly assign, sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of all or any fraction of its Interest
as a General Partner of FVP. Subject to certain procedures, the General Partner
may be removed at any time after the occurrence of a Vaughn Expiration Date (as
defined below) or for "cause," in each case with the consent of a majority in
Interest of the Attributable Class A Limited Partners with the approval of the
Advisory Committee. In addition, in the event that FVP shall or would suffer an
FCC Regulatory Issue due to a GP Principal or any of its Affiliates, at the
request of the Advisory Committee, the General Partner shall cause the GP
Principal to divest all direct and indirect Interests in FVP.
Under the FVP Partnership Agreement, "cause" is defined as one or more of the
following: (i) any action by the General Partner or GP Principal which
constitutes dishonesty, a violation of law or a fraud against FVP; (ii) the
indictment of the General Partner or GP Principal for a felony; (iii) willful
misconduct, drunkenness or abuse of any controlled substance by the General
Partner or any GP Principal; (iv) any material violation by the General Partner
or any GP Principal of its fiduciary obligations to FVP or the Partners; (v) any
material breach by the General Partner or any GP Principal of the FVP
Partnership Agreement or any material breach by FrontierVision, Inc. or any GP
Principal of the General Partner Partnership Agreement or (vi) in the event that
FVP shall or would suffer an FCC Regulatory Issue due to the General Partner,
any GP Principal or any of their Affiliates, unless such FCC Regulatory Issue is
cured within 15 days after the General Partner becomes aware thereof. Under the
FVP Partnership Agreement, "Vaughn Expiration Date" means the earliest of the
following dates: (i) the date on which Mr. Vaughn is neither a General Partner
nor a GP Principal; (ii) the date on which the Vaughn Employment Agreement is
terminated pursuant to its terms, and (iii) the date on which Mr. Vaughn ceases
to own beneficially for his own account, directly or indirectly, at least one of
the following: (x) at least two-thirds of the General Partner's share of
distributions under the FVP Partnership Agreement or (y) at least two-thirds of
the Interests of the General Partner that correlate to the General Partner's
share of distributions pursuant to the FVP Partnership Agreement.
Upon the removal of the General Partner, at the election of a majority in
Interest of the Attributable Class A Limited Partners with the approval of the
Advisory Committee, FVP shall redeem the Interest of the removed General Partner
for a price equal to the fair market value thereof as determined pursuant to the
FVP Partnership Agreement. In the absence of such election and approval, the
General Partner's Interest in FVP shall be converted to a nonvoting,
nonconvertible Limited Partnership Interest. Upon the removal of the General
Partner, a majority in Interest of the Attributable Class A Limited Partners
with the approval of the Advisory Committee shall have the power to appoint a
new General Partner.
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<PAGE> 73
Put and Call Rights. In the event of the Incapacity of a Limited Partner, to
the fullest extent permitted by law, the General Partner may require the
transfer of the Interest in and/or certain debt securities of FVP held by such
Limited Partner. The General Partner shall provide at least 60 days' notice of
such transfer. "Incapacity" is defined by the FVP Partnership Agreement to mean,
as to any person, (i) the adjudication of incompetence or insanity of such
person, or the Bankruptcy of such person, or (ii) the death, dissolution or
termination (other than by merger or consolidation), as the case may be, of such
person. In addition, the General Partner, with the approval of the Advisory
Committee, shall also have the right to cause any Defaulting Partner to transfer
its Limited Partnership Interest in accordance with the FVP Partnership
Agreement.
Under certain circumstances where FVP would suffer an FCC Regulatory Issue due
to a Limited Partner or an Attributable Person through such Limited Partner,
such Limited Partner may be required to use all commercially reasonable efforts
to sell such portion of its Limited Partnership Interests as may be necessary to
cure such FCC Regulatory Issue. If such Limited Partner is unable to sell its
Limited Partnership Interest within 180 days of the date that the General
Partner requests that such Interest be sold (or within the time established by
the FCC), then for a specified period, the General Partner, with the approval of
the Advisory Committee, may elect on behalf of FVP to make Buyout Payments to
such Limited Partner in accordance with the FVP Partnership Agreement. The
economic interest of such Limited Partner shall be deemed to have been converted
into debt and such Limited Partner shall immediately cease to be a Partner.
Liability of Limited Partners. Limited Partners of FVP do not have any personal
liability for the repayment or discharge of the debts and obligations of FVP;
provided, however, that each Limited Partner shall be liable to FVP for its
Unused Capital Commitment and Loan Amount in accordance with the terms of the
FVP Partnership Agreement.
Assignment of Partnership Interests. Under the FVP Partnership Agreement, the
General Partner may not directly or indirectly assign, sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of all or any fraction of its Interest
as a General Partner of FVP.
A Limited Partner may transfer all or any fraction of such Limited Partner's
Limited Partnership Interest (subject in certain cases to the rights of first
refusal discussed above and more fully set forth in the FVP Partnership
Agreement) to another person only if such transfer meets the conditions set
forth in the FVP Partnership Agreement.
FVP GP PARTNERSHIP AGREEMENT
Organization and Duration. FVP GP was formed as a limited partnership pursuant
to the provisions of the Delaware Revised Uniform Limited Partnership Act, as
amended, and a certificate of limited partnership of FVP GP was filed with the
Secretary of State of Delaware on April 17, 1995. The purpose of FVP GP, as set
forth in the FVP GP Partnership Agreement, is to (i) serve as general partner of
FVP and (ii) do all other lawful things necessary, desirable or incidental to
the accomplishment of such purposes.
FVP GP will be dissolved and its affairs wound up upon the earliest to occur of
(i) June 30, 2007, (ii) the Incapacity, withdrawal, removal or other event of
withdrawal (as defined in the Act) of the General Partner or (iii) the entry of
a decree of judicial dissolution under the Act. In the case of dissolution
described in clause (ii), if at such time there is at least one remaining
General Partner, the remaining General Partner(s) may unanimously elect to carry
on the business of FVP GP. In addition, within 90 days thereafter, Class X
Limited Partners and Class Y Limited Partners representing at least a majority
in Interest of the remaining Partners (based on their profits interests and
capital interests), or such greater percentage in Interest as may be required
under the Act, may agree to continue the business of FVP GP and to the
appointment of one or more additional general partners to be effective as of the
date of such event.
Control of Operations. The FVP GP Partnership Agreement provides that the
General Partner has the full, exclusive and complete right, power and discretion
to operate, manage and control the affairs and business of FVP GP and to make
all decisions affecting FVP GP's affairs and business, subject to certain
customary exceptions specified in the FVP GP Partnership Agreement.
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Voting Rights. Except as to matters for which consent or approval is expressly
required under the FVP GP Partnership Agreement, the Limited Partners of FVP GP
have no right to vote on any partnership matters. Where consent of a majority or
specified percentage in Interest of the Limited Partners of FVP GP or of a class
or classes of Limited Partners is required, such consent will be determined by
reference to the aggregate capital commitments of the Limited Partners entitled
to approve the act or thing for which approval is sought in accordance with the
terms of the FVP GP Partnership Agreement.
Amendments and Modifications. In general, the FVP GP Partnership Agreement is
subject to modification or amendment only with the written consent of the
General Partner and a majority in Interest of the Class X and Class Z Limited
Partners of FVP GP and a majority in Interest of the Class Y Limited Partners;
provided, however, the FVP GP Partnership Agreement may be amended from time to
time by the General Partner without the consent of any of the Limited Partners
to (i) add to the representations, duties or obligations of the General Partner
or surrender any right or power granted to the General Partner by the FVP GP
Partnership Agreement, (ii) admit one or more additional Limited Partners or
Substituted Limited Partners, or withdraw one or more Limited Partners in
accordance with the FVP GP Partnership Agreement, (iii) provide any necessary
information regarding any Partner, (iv) adjust certain allocations of net profit
and loss with the consent of a majority in Interest of the Class X Limited
Partners and (v) reflect any change in the amount of the Capital Commitments of
any Partner in accordance with the terms of the FVP GP Partnership Agreement;
provided, however, such amendment shall not be adopted if, in the opinion of
counsel for FVP GP, such amendment alters, or results in the alteration of, the
limited liability of the Limited Partners or the status of FVP GP as a
partnership for federal income tax purposes.
Notwithstanding the foregoing, no amendment to the FVP GP Partnership Agreement
may add to, detract from or otherwise modify the purposes of FVP GP. In
addition, amendments with respect to certain liabilities or responsibilities of
certain Limited Partners require the consent of certain Limited Partners.
Capital Contributions. Under the FVP GP Partnership Agreement, the Partners
have made certain capital contributions to FVP GP. The General Partner is
required under the FVP GP Partnership Agreement to make such Capital Commitments
to FVP GP as are necessary to maintain at all times a Capital Commitment equal
to not less than one percent (1%) of the total Capital Commitments of all
Partners. The Limited Partners are not required to make additional capital
contributions to FVP GP. Except for provisions allowing for the return of
capital to Partners upon dissolution of FVP GP, the FVP GP Partnership Agreement
provides that no Partner of FVP GP shall have the right to withdraw or demand
return of its capital contribution.
Rights of First Refusal. The FVP GP Partnership Agreement provides that in the
event of a proposed transfer of a Limited Partnership Interest by a Limited
Partner (to the extent permitted by the FVP GP Partnership Agreement), such
Limited Partner must provide 45 days' written notice to the General Partner and
to all of the Limited Partners of such proposed transfer and the proposed cash
purchase price. During the first 30 days of such period, the General Partner and
each of the Limited Partners (other than any Defaulting Partner) will have the
right to propose to acquire such Interest or some portion thereof for the
proposed cash purchase price. If the Partners as a group propose to acquire more
than the Interest, then each such Partner shall have the right to propose to
acquire its pro rata portion of the Interest; provided, however, that the
Limited Partner that proposes such transfer shall not be obligated to sell any
portion of the Interest to any Partner unless the Partners have collectively
proposed to purchase all of the Interest.
Liability of General Partner. In general, under the FVP GP Partnership
Agreement, FVP GP will indemnify and hold harmless, out of its assets, the
General Partner, its partners and their respective officers, directors,
employees, agents or stockholders (including when any of the foregoing is
serving at the request of the General Partner on behalf of FVP GP or FVP as a
partner, officer, director, employee or agent of any other Person) against
losses, damages, expenses (including reasonable attorneys' fees), judgments and
settlement amounts incurred by such party by reason of actions or omissions in
connection with activities performed on behalf of FVP GP and not constituting
fraud, breach of fiduciary duty, willful misconduct or gross negligence. In the
event that the General Partner of FVP GP ceases to be a General Partner, it
shall remain liable for obligations and liabilities incurred on account of its
activities as General Partner prior to the time it ceased to be a General
Partner, but shall be free of any obligation or liability as a General Partner
incurred on account of the activities of FVP GP from and after the time it
ceased to be a General Partner.
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Withdrawal or Removal of Partners. The General Partner may not voluntarily
dissolve, retire or withdraw as a General Partner of FVP GP. In addition, the
General Partner may not directly or indirectly assign, sell, exchange, transfer,
pledge, hypothecate or otherwise dispose of all or any fraction of its Interest
as a General Partner of FVP GP. Subject to certain procedures, the General
Partner may be removed at any time after the occurrence of a Vaughn Expiration
Date or for "cause," in each case by the consent of a majority in Interest of
the Attributable Class X and Class Y Limited Partners. In addition, in the event
that FVP GP shall or would suffer an FCC Regulatory Issue due to a GP Principal
or any of its Affiliates, the General Partner shall cause the GP Principal to
divest all direct or indirect Interests in FVP GP.
Under the FVP GP Partnership Agreement, "cause" is defined as under the FVP
Partnership Agreement. Under the FVP GP Partnership Agreement, "Vaughn
Expiration Date" means the earliest of the following dates: (i) the date on
which Mr. Vaughn is neither a General Partner nor a GP Principal, (ii) the date
on which the Vaughn Employment Agreement is terminated pursuant to its terms and
(iii) the date on which Mr. Vaughn ceases to own beneficially for his own
account, directly or indirectly, at least one of the following: (x) at least
two-thirds of the Special Distribution (as defined in the FVP GP Partnership
Agreement) or (y) at least two-thirds of the Interests in FVP GP that correlate
to the Special Distribution.
Upon the removal of the General Partner, at the election of a majority in
Interest of the Attributable Class X Limited Partners, FVP GP shall redeem the
Interest of the removed General Partner for a price equal to the fair market
value thereof as determined pursuant to the FVP GP Partnership Agreement. In the
absence of such election and approval, the General Partner's Interest in FVP
shall be converted to that of a nonvoting, nonconvertible Limited Partnership
Interest. Upon the removal of the General Partner, a majority in Interest of the
Attributable Class X Limited Partners shall have the power to appoint a new
General Partner.
Put and Call Rights. In the event of the Incapacity of a Limited Partner, to
the fullest extent permitted by law, the General Partner may require the
transfer of the Interest of such Limited Partner. The General Partner shall
provide at least 60 days' notice of such transfer. "Incapacity" is defined by
the FVP GP Partnership Agreement to mean, as to any person, (i) the adjudication
of incompetence or insanity of such person, or the Bankruptcy of such person or
(ii) the death, dissolution or termination (other than by merger or
consolidation), as the case may be, of such person. In addition, the General
Partner shall also have the right to cause any Defaulting Partner (in the case
of a default by a Class X or Class Z Limited Partner) to transfer its Limited
Partnership Interest in accordance with the FVP GP Partnership Agreement. A
majority in Interest of the Class X Limited Partners shall have the right to
cause any Defaulting Partner (in the case of a default by a Class Y Limited
Partner) to transfer its Limited Partnership Interest in accordance with the FVP
GP Partnership Agreement.
Under certain circumstances where FVP GP would suffer an FCC Regulatory Issue
due to a Limited Partner or an Attributable Person through such Limited Partner,
such Limited Partner may be required to use all commercially reasonable efforts
to sell such portion of its Limited Partnership Interests as may be necessary to
cure such FCC Regulatory Issue. If such Limited Partner is unable to sell its
Limited Partnership Interest within 180 days of the date that the General
Partner requests that such Interest be sold (or within the time established by
the FCC), then for a specified period, the General Partner (with the consent of
a majority in Interest of the Class X Limited Partners if the Limited Partner is
a Class Y Limited Partner) may elect on behalf of FVP GP to make Buyout Payments
to such Limited Partner in accordance with the FVP GP Partnership Agreement. The
economic interest of such Limited Partner shall be deemed to have been converted
into debt and such Limited Partner shall immediately cease to be a partner.
Liability of Limited Partners. Limited Partners of FVP GP do not have any
personal liability for the repayment or discharge of the debts and obligations
of FVP GP; provided, however, that Limited Partners shall be liable to FVP GP
for their Unused Capital Commitments in accordance with the terms of the FVP GP
Partnership Agreement.
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Assignment of Partnership Interests. Under the FVP GP Partnership Agreement,
the General Partner may not directly or indirectly assign, sell, exchange,
transfer, pledge, hypothecate or otherwise dispose of all or any fraction of its
Interest as a General Partner of FVP GP.
A Limited Partner may transfer all or any fraction of such Limited Partner's
Limited Partnership Interest (subject in certain cases to the rights of first
refusal discussed above and more fully set forth in the FVP GP Partnership
Agreement) to another person only if such transfer meets the conditions set
forth in the FVP GP Partnership Agreement.
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CREDIT ARRANGEMENTS OF THE COMPANY
THE SENIOR CREDIT FACILITY
On April 9, 1996, the Company entered into the $265.0 million Amended and
Restated Credit Agreement with The Chase Manhattan Bank, as Administrative
Agent, J.P. Morgan Securities Inc., as Syndication Agent, CIBC Inc., as Managing
Agent, and the other lenders signatory thereto. The Company used these proceeds
to refinance an existing $130.0 million senior credit facility, to finance the
purchase of the Cox Systems and for general business purposes. As of March 31,
1996, borrowings under the Senior Credit Facility totaled approximately $116.8
million and are expected to be approximately $201.2 million after giving pro
forma effect to the Offering and the other Transactions and the purchase of the
systems from Cox.
The Senior Credit Facility includes a $75.0 million, 8.25-year reducing
revolving credit facility ("Revolving Credit Facility"), a $100.0 million,
8.25-year term loan ("Senior Term Loan") and a $90.0 million, 9.25-year term
loan ("Tranche B Loan"). The Company had outstanding borrowings of $20.0 million
as of March 31, 1996 under the Revolving Credit Facility bearing interest at
varying rates, based upon different borrowing options and financial ratios, and
maturing on June 30, 2004. The weighted average interest rate at March 31, 1996
on the outstanding borrowings under the Revolving Credit Facility was
approximately 8.19%. The Company has outstanding borrowings of $100.0 million
under the Senior Term Loan bearing interest at varying rates, based upon
different borrowing options and financial ratios, and maturing on June 30, 2004.
The weighted average interest rate at March 31, 1996 on the outstanding
borrowings under the Senior Term Loan was approximately 8.19%. The Company has
outstanding borrowings of $90.0 million under the Tranche B Loan bearing
interest at varying rates, based upon different borrowing options and financial
ratios, and maturing on June 30, 2005. The weighted average interest rate at
March 31, 1996 on the outstanding borrowings under the Tranche B Loan was
approximately 8.59%. The Company has entered into interest rate protection
agreements to hedge its underlying Treasury rate exposure for $110.0 million of
borrowings through November 1999.
The Senior Credit Facility is secured by a pledge of all limited and general
partnership interests in the Company and in any subsidiaries of the Company and
a first priority lien on all the tangible and intangible assets of the Company
and each of its subsidiaries. In addition, in the event of the occurrence and
continuance of an event of default under the Senior Credit Facility, the
Administrative Agent is entitled to replace the general partner of the Company
with its designee. See "The Partnership Agreements--The Company Partnership
Agreement."
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DESCRIPTION OF THE NOTES
As used below in this "Description of the Notes" section, the "Company" means
FrontierVision Operating Partners, L.P., but not any of its subsidiaries, unless
otherwise specified. The Notes are to be issued under an Indenture, to be dated
as of , 1996 (the "Indenture"), among the Issuers and , as
Trustee (the "Trustee"). The Indenture is subject to and governed by the Trust
Indenture Act of 1939, as amended. The statements under this caption relating to
the Notes and the Indenture are summaries and do not purport to be complete, and
where reference is made to particular provisions of the Indenture, such
provisions, including the definitions of certain terms, are incorporated by
reference as a part of such summaries or terms, which are qualified in their
entirety by such reference. A copy of the proposed form of Indenture has been
filed with the Commission as an exhibit to the Registration Statement of which
this Prospectus is a part.
GENERAL
The Notes are joint and several obligations of the Company and Capital. The
Notes will be general unsecured senior subordinated obligations of the Issuers,
will be limited to $200 million aggregate principal amount and will rank
subordinate in right of payment to all existing and future Senior Indebtedness.
The Notes will rank pari passu in right of payment with all other senior
subordinated indebtedness of the Company. At March 31, 1996, as adjusted to give
effect to the Rights Offering, the initial borrowings under the New Credit
Agreement and the transactions described herein under "Use of Proceeds" and the
other Transactions, the Company would have had approximately $201.3 million of
Senior Indebtedness outstanding (including $72,000 outstanding under capital
leases and excluding unused commitments of approximately $63.8 million under the
Senior Credit Facility). Secured creditors of the Company will have a claim on
the assets which secure such obligations prior to claims of the holders of the
Notes against those assets. Capital has nominal assets and does not conduct any
operations.
The Notes will mature on , 2006 and will bear interest at the rate per
annum shown on the front cover of this Prospectus from the date of issuance or
from the most recent interest payment date to which interest has been paid or
provided for. Interest will be payable semiannually on and of each
year, commencing , 1997, to the Person in whose name a Note is
registered at the close of business on the preceding or (each, a
"Record Date"), as the case may be. Interest on the Notes will be computed on
the basis of a 360-day year of twelve 30-day months. Holders must surrender the
Notes to the paying agent for the Notes to collect principal payments. The
Issuers will pay principal and interest by check and may mail interest checks to
a holder's registered address.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Issuers may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Initially, the Trustee will
act as paying agent and registrar for the Notes. The Notes may be presented for
registration of transfer and exchange at the offices of the registrar for the
Notes.
OPTIONAL REDEMPTION
The Notes are not redeemable prior to , 2001, except as set forth
below. The Notes will be subject to redemption, at the option of the Issuers, in
whole or in part, at any time on or after , 2001 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
holder of Notes to be redeemed at his address appearing in the register for the
Notes, in amounts of $1,000 or an integral multiple of $1,000, at the following
redemption prices (expressed as percentages of principal amount) plus accrued
interest to but excluding the date fixed for redemption (subject to the right of
holders of record on the relevant Record Date to receive
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interest due on an interest payment date that is on or prior to the date fixed
for redemption), if redeemed during the 12-month period beginning of
the years indicated:
<TABLE>
<CAPTION>
----------
YEAR PERCENTAGE
----------------------------------------------------------------- ----------
<S> <C>
2001............................................................. %
2002............................................................. %
2003............................................................. %
2004 and thereafter.............................................. 100.00%
</TABLE>
In addition, prior to , 1999, the Issuers may redeem up to 35% of the
principal amount of the Notes with the net cash proceeds received by the Company
from one or more Public Equity Offerings or Strategic Equity Investments, at a
redemption price (expressed as a percentage of the principal amount) of %
of the principal amount thereof, plus accrued and unpaid interest to the date
fixed for redemption; provided, however, that at least 65% in aggregate
principal amount of the Notes originally issued remains outstanding immediately
after any such redemption (excluding any Notes owned by the Issuers or any of
their Affiliates). Notice of redemption pursuant to this paragraph must be
mailed to holders of Notes not later than 60 days following the consummation of
such Public Equity Offering or Strategic Equity Investment.
Selection of Notes for any partial redemption shall be made by the Trustee, in
accordance with the rules of any national securities exchange on which the Notes
may be listed or, if the Notes are not so listed, pro rata or by lot or in such
other manner as the Trustee shall deem appropriate and fair. Notes in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000. Notice of redemption will be mailed before the date fixed
for redemption to each holder of Notes to be redeemed at his registered address.
On and after the date fixed for redemption, interest will cease to accrue on
Notes or portions thereof called for redemption.
The Notes will not have the benefit of any sinking fund.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the Notes is
subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of either of the
Issuers of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities), upon any
dissolution or winding-up or total liquidation or reorganization of either of
the Issuers, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Senior Indebtedness shall first be paid
in full in cash, or payment provided for, before the holders of the Notes or the
Trustee on behalf of such holders shall be entitled to receive any payment by
the Issuers of the principal of, premium, if any, or interest on the Notes, or
any payment to acquire any of the Notes for cash, property or securities, or any
distribution with respect to the Notes of any cash, property or securities.
Before any payment may be made by, or on behalf of, the Issuers of the principal
of, premium, if any, or interest on the Notes upon any such dissolution or
winding-up or liquidation or reorganization, any payment or distribution of
assets or securities of either of the Issuers of any kind or character, whether
in cash, property or securities (excluding any payment or distribution of
Permitted Junior Securities), to which the holders of the Notes or the Trustee
on their behalf would be entitled, but for the subordination provisions of the
Indenture, shall be made by the Issuers or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, directly to the holders of the Senior Indebtedness (pro rata to
such holders on the basis of the respective amounts of Senior Indebtedness held
by such holders) or their representatives or to the trustee or trustees under
any indenture pursuant to which any of such Senior Indebtedness may have been
issued, as their respective interests may appear, to the extent necessary to pay
all such Senior Indebtedness in full in cash after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.
No direct or indirect payment (including any payment made to the holders of the
Notes under the terms of Indebtedness subordinated to the Notes, but excluding
any payment or distribution of Permitted Junior Securities)
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by or on behalf of the Issuers of principal of, premium, if any, or interest on
the Notes, whether pursuant to the terms of the Notes, upon acceleration or
otherwise, will be made if, at the time of such payment, there exists a default
in the payment of all or any portion of the obligations on any Designated Senior
Indebtedness, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise, and such default shall not have been
cured or waived or the benefits of this sentence waived by or on behalf of the
holders of such Designated Senior Indebtedness. In addition, during the
continuance of any non-payment default or non-payment event of default with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be immediately accelerated, and upon receipt by the Trustee of
written notice (a "Payment Blockage Notice") from the holder or holders of such
Designated Senior Indebtedness or the trustee or agent acting on behalf of such
Designated Senior Indebtedness, then, unless and until such default or event of
default has been cured or waived or has ceased to exist or such Designated
Senior Indebtedness has been discharged or repaid in full, no direct or indirect
payment (including any payment made to the holders of the Notes under the terms
of Indebtedness subordinated to the Notes, but excluding any payment or
distribution of Permitted Junior Securities) will be made by or on behalf of the
Issuers of principal of, premium, if any, or interest on the Notes, except from
those funds held in trust for the benefit of the holders of any Notes, pursuant
to the procedures set forth under "--Satisfaction and Discharge of Indenture;
Defeasance" below, to such holders, during a period (a "Payment Blockage
Period") commencing on the date of receipt of such notice by the Trustee and
ending 179 days thereafter. Notwithstanding anything in the subordination
provisions of the Indenture or the Notes to the contrary, in no event will a
Payment Blockage Period extend beyond 179 days from the date the Payment
Blockage Notice in respect thereof was given. Not more than one Payment Blockage
Period may be commenced with respect to the Notes during any period of 360
consecutive days. No default or event of default that existed or was continuing
on the date of commencement of any Payment Blockage Period with respect to the
Designated Senior Indebtedness initiating such Payment Blockage Period (to the
extent the holder of Designated Senior Indebtedness, or trustee or agent, giving
notice commencing such Payment Blockage Period had, or should have had,
knowledge of such existing or continuing default or event of default) may be, or
be made, the basis for the commencement of any other Payment Blockage Period by
the holder or holders of such Designated Senior Indebtedness or the trustee or
agent acting on behalf of such Designated Senior Indebtedness, whether or not
within a period of 360 consecutive days, unless such default or event of default
has been cured or waived for a period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the Notes
by reason of the provisions of the Indenture described under this
"Subordination" heading will not be construed as preventing the occurrence of an
Event of Default described in clause (a), (b) or (c) of the first paragraph
under "--Events of Default."
By reason of the subordination provisions described above, in the event of
insolvency of either of the Issuers, funds which would otherwise be payable to
holders of the Notes will be paid to the holders of Senior Indebtedness to the
extent necessary to pay the Senior Indebtedness in full, and the Issuers may be
unable to fully meet their obligations with respect to the Notes. Subject to the
restrictions set forth in the Indenture, in the future the Issuers may issue
additional Senior Indebtedness.
COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Indenture will provide that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, Incur any Indebtedness (including Acquired Indebtedness) or
issue any Disqualified Equity Interests except for Permitted Indebtedness;
provided, however, that the Company or any Restricted Subsidiary may Incur
Indebtedness and the Company or any Restricted Subsidiary may issue
Disqualified Equity Interests if, at the time of and immediately after
giving pro forma effect to such Incurrence of Indebtedness or issuance of
Disqualified Equity Interests and the application of the proceeds
therefrom, the Debt to Operating Cash Flow Ratio would be less than or
equal to (i) 7.0 to 1.0 if the date of such Incurrence is on or before
December 31, 1997 and (ii) 6.75 to 1.0 thereafter.
The foregoing limitations will not apply to the Incurrence of any of the
following (collectively, "Permitted Indebtedness"), each of which shall be
given independent effect:
(a) Indebtedness under the Notes and the Indenture;
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(b) Indebtedness and Disqualified Equity Interests of the Company and
the Restricted Subsidiaries outstanding on the Issue Date;
(c) Indebtedness under the Senior Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed the sum
of (A) $ million, which amount shall be reduced by (x) any
permanent reduction of commitments thereunder and (y) any other
repayment accompanied by a permanent reduction of commitments
thereunder (other than in connection with any refinancing thereof)
plus (B) any amounts outstanding under the Senior Credit Facility
that utilizes clause (i) below;
(d) (x) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or any Wholly Owned Restricted Subsidiary and (y)
Indebtedness of the Company owed to and held by any Wholly Owned
Restricted Subsidiary which is unsecured and subordinated in right
of payment to the payment and performance of the Issuers'
obligations under any Senior Indebtedness, the Indenture and the
Notes; provided, however, that an Incurrence of Indebtedness that is
not permitted by this clause (d) shall be deemed to have occurred
upon (i) any sale or other disposition of any Indebtedness of the
Company or a Wholly Owned Restricted Subsidiary referred to in this
clause (d) to a Person (other than the Company or a Wholly Owned
Restricted Subsidiary), (ii) any sale or other disposition of Equity
Interests of a Wholly Owned Restricted Subsidiary which holds
Indebtedness of the Company or another Wholly Owned Restricted
Subsidiary such that such Wholly Owned Restricted Subsidiary ceases
to be a Wholly Owned Restricted Subsidiary or (iii) designation of a
Wholly Owned Restricted Subsidiary which holds Indebtedness of the
Company as an Unrestricted Subsidiary;
(e) guarantees by any Restricted Subsidiary of Indebtedness of the
Company;
(f) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary relating to Indebtedness of the Company or
such Restricted Subsidiary, as the case may be (which Indebtedness
(i) bears interest at fluctuating interest rates and (ii) is
otherwise permitted to be Incurred under this covenant); provided,
however, that the notional principal amount of such Interest Rate
Protection Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Rate Protection Obligations
relate;
(g) Purchase Money Indebtedness and Capitalized Lease Obligations of the
Company or any Restricted Subsidiary which do not exceed
$ million in the aggregate at any one time outstanding;
(h) Indebtedness or Disqualified Equity Interests of the Company or any
Restricted Subsidiary to the extent representing a replacement,
renewal, refinancing or extension (collectively, a "refinancing") of
outstanding Indebtedness or Disqualified Equity Interests of the
Company or any Restricted Subsidiary Incurred in compliance with the
Debt to Operating Cash Flow Ratio of the first paragraph of this
covenant or clause (a) or (b) of this paragraph of this covenant;
provided, however, that (i) Indebtedness or Disqualified Equity
Interests of the Company may not be refinanced under this clause (h)
with Indebtedness or Disqualified Equity Interests of any Restricted
Subsidiary, (ii) any such refinancing shall not exceed the sum of
the principal amount (or, if such Indebtedness or Disqualified
Equity Interests provide for a lesser amount to be due and payable
upon a declaration of acceleration thereof at the time of such
refinancing, an amount no greater than such lesser amount) of the
Indebtedness or Disqualified Equity Interests being refinanced plus
the amount of accrued interest or dividends thereon and the amount
of any reasonably determined prepayment premium necessary to
accomplish such refinancing and such reasonable fees and expenses
incurred in connection therewith, (iii) Indebtedness representing a
refinancing of Indebtedness other than Senior Indebtedness shall
have a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the Indebtedness being
refinanced, and (iv) Indebtedness that is pari passu with the Notes
may only be refinanced with Indebtedness that is made pari passu
with or subordinate in right of payment to the Notes and
Subordinated Indebtedness or Disqualified Equity Interests may only
be refinanced with Subordinated Indebtedness or Disqualified Equity
Interests; and
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(i) in addition to the items referred to in clauses (a) through (h)
above, Indebtedness of the Company (including any Indebtedness
under the Senior Credit Facility that utilizes this clause (i))
having an aggregate principal amount not to exceed $ million at
any time outstanding.
Limitation on Senior Subordinated Indebtedness. The Indenture will provide that
(i) the Issuers will not, directly or indirectly, Incur any Indebtedness that by
its terms would expressly rank senior in right of payment to the Notes and
expressly rank subordinate in right of payment to any Senior Indebtedness and
(ii) the Company will not permit any Subsidiary Guarantor to and no Subsidiary
Guarantor will, directly or indirectly, Incur any Indebtedness that by its terms
would expressly rank senior in right of payment to the Subsidiary Guarantee of
such Subsidiary Guarantor and expressly rank subordinate in right of payment to
any Guarantor Senior Indebtedness of such Subsidiary Guarantor.
Limitation on Restricted Payments. The Indenture will provide that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly,
(i) declare or pay any dividend or any other distribution on any Equity
Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any
Restricted Subsidiary (other than payments or distributions made to
the Company or a Wholly Owned Restricted Subsidiary and dividends or
distributions payable solely in Qualified Equity Interests of the
Company or in options, warrants or other rights to purchase Qualified
Equity Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any Restricted Subsidiary (other than any
such Equity Interests owned by the Company or a Wholly Owned
Restricted Subsidiary);
(iii) purchase, redeem, defease or retire for value more than one year
prior to the stated maturity thereof any Subordinated Indebtedness
(other than any Subordinated Indebtedness held by a Wholly Owned
Restricted Subsidiary); or
(iv) make any Investment (other than Permitted Investments) in any Person
(other than in the Company, a Wholly Owned Restricted Subsidiary or a
Person that becomes a Wholly Owned Restricted Subsidiary, or is merged
with or into or consolidated with the Company or a Wholly Owned
Restricted Subsidiary (provided the Company or a Wholly Owned
Subsidiary is the survivor), as a result of such Investment)
(such payments or any other actions (other than Permitted Investments) described
in (i), (ii), (iii) and (iv) collectively, "Restricted Payments"), unless
(a) no Default or Event of Default shall have occurred and be continuing at
the time or after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the Company
would be able to incur $1.00 of Indebtedness (other than Permitted
Indebtedness) under the Debt to Operating Cash Flow Ratio of the first
paragraph of "--Limitation on Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or
after the Issue Date does not exceed an amount equal to the sum of (1)
the difference between (x) the Cumulative Available Cash Flow
determined at the time of such Restricted Payment and (y) 140% of
cumulative Consolidated Interest Expense of the Company determined for
the period commencing on the Issue Date and ending on the last day of
the latest fiscal quarter for which consolidated financial statements
of the Company are available preceding the date of such Restricted
Payment, plus (2) the aggregate net proceeds (with the value of any
non-cash proceeds to be the Fair Market Value thereof as determined by
an Independent Financial Advisor) received by the Company either (x) as
capital contributions to the Company after the Issue Date or (y) from
the issue and sale (other than to a Restricted Subsidiary) of its
Qualified Equity Interests after the Issue Date (excluding the net
proceeds from any issuance and sale of Qualified Equity Interests
financed, directly or indirectly, using funds borrowed from the Company
or any Restricted Subsidiary until and to the extent such borrowing is
repaid), plus (3) the principal amount (or accrued amount, if less) of
any Indebtedness of the Company or
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any Restricted Subsidiary Incurred after the Issue Date which has been
converted into or exchanged for Qualified Equity Interests of the
Company, plus (4) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue Date,
an amount (to the extent not included in the computation of Cumulative
Available Cash Flow) equal to the lesser of: (i) the return of capital
with respect to such Investment and (ii) the amount of such Investment
which was treated as a Restricted Payment, in either case, less the
cost of the disposition of such Investment, plus (5) the Company's
proportionate interest in the lesser of the Fair Market Value or the
net worth of any Unrestricted Subsidiary that has been redesignated as
a Restricted Subsidiary after the Issue Date in accordance with
"--Designation of Unrestricted Subsidiaries" below not to exceed in any
case the Designation Amount with respect to such Restricted Subsidiary
upon its Designation, minus (6) the Designation Amount with respect to
any Subsidiary of the Company which has been designated as an
Unrestricted Subsidiary after the Issue Date in accordance with
"--Designation of Unrestricted Subsidiaries" below.
The foregoing provisions will not prevent (i) the payment of any dividend or
distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of
formal notice such payment or redemption would comply with the provisions of the
Indenture, (ii) so long as no Default or Event of Default shall have occurred
and be continuing, the retirement of any Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially concurrent
issue and sale (other than to a Restricted Subsidiary) of, Qualified Equity
Interests of the Company; provided, however, that any such net cash proceeds and
the value of any Equity Interests issued in exchange for such retired Equity
Interests are excluded from clause (c)(2) of the preceding paragraph (and were
not included therein at any time), (iii) so long as no Default or Event of
Default shall have occurred and be continuing, the purchase, redemption,
retirement or other acquisition of Subordinated Indebtedness made in exchange
for, or out of the net cash proceeds of, a substantially concurrent issue and
sale (other than to a Restricted Subsidiary) of (x) Qualified Equity Interests
of the Company; provided, however, that any such net cash proceeds and the value
of any Equity Interests issued in exchange for Subordinated Indebtedness are
excluded from clauses (c)(2) and (c)(3) of the preceding paragraph (and were not
included therein at any time) or (y) other Subordinated Indebtedness having no
stated maturity for the payment of principal thereof prior to the final stated
maturity of the Notes, (iv) the payment of any dividend or distribution on
Equity Interests of the Company or any Restricted Subsidiary 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 Restricted Subsidiary and attributable to them solely as a
result of the Company or such Restricted 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, (v) so long as no
Default or Event of Default has occurred and is continuing, any Investment made
out of the net cash proceeds of the substantially concurrent issue and sale
(other than to a Restricted Subsidiary) of Qualified Equity Interests of the
Company; provided, however, that any such net cash proceeds are excluded from
clause (c)(2) of the preceding paragraph (and were not included therein at any
time) or (vi) the purchase, redemption or other acquisition, cancellation or
retirement for value of Equity Interests, or options, warrants, equity
appreciation rights or other rights to purchase or acquire Equity Interests, of
the Company or any Restricted Subsidiary, or similar securities, held by
officers or employees or former officers or employees of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their estates),
upon death, disability, retirement or termination of employment not to exceed
$ in any calendar year.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i) and (vi) of the immediately
preceding paragraph shall be included as Restricted Payments and amounts
expended pursuant to clauses (ii) through (v) shall be excluded. The amount of
any non-cash Restricted Payment shall be deemed to be equal to the Fair Market
Value thereof at the date of the making of such Restricted Payment.
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries. The
Indenture will provide that in the event that any Restricted Subsidiary (other
than a Subsidiary Guarantor), directly or indirectly, guarantees any
Indebtedness of the Company other than the Notes (the "Other Indebtedness") the
Company shall cause such Restricted Subsidiary to concurrently guarantee (a
"Subsidiary Guarantee") the Company's Obligations under the Indenture and the
Notes to the same extent that such Restricted Subsidiary guaranteed the
Company's Obligations under the Other Indebtedness (including waiver of
subrogation, if any); provided, however, that if such Other
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Indebtedness is (i) Senior Indebtedness, the Subsidiary Guarantee shall be
subordinated in right of payment to all Guarantor Senior Indebtedness (which
shall include such guarantee of such Other Indebtedness) pursuant to the
subordination provisions of the Indenture (which subordination shall be
substantially identical to the subordination provisions of the Indenture
applicable to the Notes), (ii) Senior Subordinated Indebtedness, the Subsidiary
Guarantee shall be pari passu in right of payment with the guarantee of the
Other Indebtedness, or (iii) Subordinated Indebtedness, the Subsidiary Guarantee
shall be senior in right of payment to the guarantee of the Other Indebtedness
(which guarantee of such Subordinated Indebtedness shall provide that such
guarantee is subordinated to the Subsidiary Guarantees to the same extent and in
the same manner as the Notes are subordinated to Senior Indebtedness); provided,
further, however, that each Subsidiary issuing a Subsidiary Guarantee will be
automatically and unconditionally released and discharged from its obligations
under such Subsidiary Guarantee upon the release or discharge of the guarantee
of the Other Indebtedness that resulted in the creation of such Subsidiary
Guarantee, except a discharge or release by, or as a result of, any payment
under the guarantee of such Other Indebtedness by such Subsidiary Guarantor. The
Company shall cause each Restricted Subsidiary issuing a Subsidiary Guarantee to
(i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the Notes and the Indenture on the terms set forth in the Indenture and
(ii) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such Restricted
Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Restricted Subsidiary (which opinion may be subject to customary
assumptions and qualifications). Thereafter, such Restricted Subsidiary shall
(unless released in accordance with the terms of the Indenture) be a Subsidiary
Guarantor for all purposes of the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) pay dividends or
make any other distributions to the Company or any other Restricted Subsidiary
on its Equity Interests or with respect to any other interest or participation
in, or measured by, its profits, or pay any Indebtedness owed to the Company or
any other Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, the Company or any other Restricted
Subsidiary or (c) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of (i) the Senior Credit Facility or other
agreements of the Company or the Restricted Subsidiaries outstanding on the
Issue Date, in each case as in effect on the Issue Date, and any amendments,
restatements, renewals, replacements or refinancings (collectively, a
"refinancing") thereof; provided, however, that such refinancings are no more
restrictive in the aggregate with respect to such encumbrances or restrictions
than those contained in the Senior Credit Facility on the Issue Date or in the
Indenture, (ii) applicable law, (iii) any instrument governing Indebtedness or
Equity Interests of an Acquired Person acquired by the Company or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the extent
such Indebtedness was Incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); provided, however, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary, other than the Acquired Person, (iv) customary
non-assignment provisions in leases or cable television franchises entered into
in the ordinary course of business and consistent with past practices, (v)
Purchase Money Indebtedness for property acquired in the ordinary course of
business that only imposes encumbrances and restrictions on the property so
acquired, (vi) any agreement for the sale or disposition of the Equity Interests
or assets of any Restricted Subsidiary; provided, however, that such
encumbrances and restrictions described in this clause (vi) are only applicable
to such Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with "--Disposition of Proceeds of Asset
Sales" below to the extent applicable thereto, (vii) refinancing Indebtedness
permitted under clause (h) of "--Limitation on Indebtedness" above; provided,
however, that the encumbrances and restrictions contained in the agreements
governing such Indebtedness are no more restrictive in the aggregate than those
contained in the agreements governing the Indebtedness being refinanced
immediately prior to such refinancing, (viii) the Indenture or (ix) any such
encumbrance or restriction existing under any other agreement, instrument or
document hereafter in effect;
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provided, however, that the terms and conditions of any such encumbrance or
restriction are not more restrictive than those contained in the Senior Credit
Facility as in effect on the Issue Date.
Limitation on Liens. The Indenture will provide that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, Incur any
Liens of any kind against or upon any of their respective properties or assets
now owned or hereafter acquired, or any proceeds therefrom or any income or
profits therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
Indebtedness with a Lien on the same properties and assets securing such
Indebtedness for so long as such Indebtedness is secured by such Lien, except
for (i) Liens securing Senior Indebtedness or any guarantee of Senior
Indebtedness by any Restricted Subsidiary and (ii) Permitted Liens. Disposition
of Proceeds of Asset Sales. The Indenture will provide that the Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of and
(b) either (i) at least 75% of such consideration consists of cash or Cash
Equivalents or (ii) at least 75% of such consideration consists of (x)
properties and capital assets (including franchises and licenses required to own
or operate such properties) to be used in the same lines of business being
conducted by the Company or any Restricted Subsidiary at such time or (y) Equity
Interests in one or more Persons which thereby become Wholly Owned Restricted
Subsidiaries whose assets consist primarily of such properties and capital
assets. The amount of any (i) liabilities of the Company or any Restricted
Subsidiary that are actually assumed by the transferee in such Asset Sale and
for which the Company and the Restricted Subsidiaries are fully released shall
be deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or the Restricted Subsidiaries and (ii)
notes or other similar obligations received by the Company or the Restricted
Subsidiaries from such transferee that are immediately converted (or are
converted within thirty days of the related Asset Sale) by the Company or the
Restricted Subsidiaries into cash shall be deemed to be cash, in an amount equal
to the net cash proceeds realized upon such conversion, for purposes of
determining the percentage of cash consideration received by the Company or the
Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i) apply the
Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof to repay
Senior Indebtedness and permanently reduce any related commitment; provided,
however, that if Indebtedness under the revolving credit portion of the Senior
Credit Facility is repaid, the Company need not reduce the commitments for such
revolving credit portion, or (ii) commit in writing to acquire, construct or
improve properties and capital assets (including franchises and licenses
required to own or operate any such assets or properties) to be used in the same
line of business being conducted by the Company or any Restricted Subsidiary at
such time and so apply such Net Cash Proceeds within 365 days of the receipt
thereof.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not so
applied within 365 days of such Asset Sale (such Net Cash Proceeds, the
"Unutilized Net Cash Proceeds"), the Company shall, within 30 days of such 365th
day, make an Offer to Purchase from all holders of Notes up to a maximum
principal amount (expressed as a multiple of $1,000) of Notes equal to such
Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of purchase; provided, however, that the Offer to Purchase may be
deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in
excess of $5.0 million, at which time the entire amount of such Unutilized Net
Cash Proceeds, and not just the amount in excess of $5.0 million, shall be
applied as required pursuant to this paragraph. In the event that any other
Indebtedness of the Company which ranks pari passu with the Notes requires the
repayment or prepayment thereof, or an offer to purchase to be made to
repurchase such Indebtedness, upon the consummation of any Asset Sale, the
Company may apply the Unutilized Net Cash Proceeds otherwise required to be
applied to an Offer to Purchase to repay, prepay or offer to purchase such other
Indebtedness and to an Offer to Purchase pro rata based upon the aggregate
principal amount of the Notes then outstanding and the aggregate principal
amount (or accreted amount, if less) of such other Indebtedness then
outstanding. The Offer to Purchase shall remain open for a period of 20 business
days or such longer period as may be required by law. To the extent an Offer to
Purchase is oversubscribed, Notes shall be purchased among holders on a
proportionate basis (based on the relative aggregate principal amounts validly
tendered for purchase by holders thereof). To the extent the Offer to Purchase
is not fully subscribed to by the holders of the Notes, the Company may retain
and utilize any portion of
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the Unutilized Net Cash Proceeds not applied to repurchase the Notes for any
purpose consistent with the other terms of the Indenture.
In the event that the Company makes an Offer to Purchase the Notes, the Company
shall comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange
Act and any violation of the provisions of the Indenture relating to such Offer
to Purchase occurring as a result of such compliance shall not be deemed an
Event of Default or an event that with the passing of time or giving of notice,
or both, would constitute an Event of Default.
Limitation on Transactions with Affiliates and Related Persons. The Indenture
will provide that the Company will not, and will not permit, cause or suffer any
Restricted Subsidiary to, directly or indirectly, conduct any business or enter
into any transaction (or series of related transactions) with or for the benefit
of any of their respective Affiliates or any beneficial holder of 10% or more of
the Equity Interests of the Company or any officer, director or employee of the
Company or any Restricted Subsidiary (each an "Affiliate Transaction"), unless
(a) such Affiliate Transaction is on terms which are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction with an unaffiliated third party, (b) if
such Affiliate Transaction (or series of related Affiliate Transactions)
involves aggregate payments or other consideration having a Fair Market Value in
excess of $5.0 million, a majority of the disinterested members of the Board of
Directors of FV Inc. shall have approved such transaction and determined that
such transaction complies with the foregoing provisions and (c) if such
Affiliate Transaction (or series of related Affiliate Transactions) involves
aggregate payments or other consideration having a Fair Market Value of $25.0
million or more, the Company has obtained a written opinion from an Independent
Financial Advisor stating that the terms of such Affiliate Transaction to the
Company or the Restricted Subsidiary, as the case may be, are fair from a
financial point of view.
Notwithstanding the foregoing, the restrictions set forth in this covenant shall
not apply to (i) transactions with or among the Company and the Wholly Owned
Restricted Subsidiaries, (ii) customary directors' fees, indemnification and
similar arrangements, consulting fees, employee salaries, bonuses, or employment
agreements, compensation or employee benefit arrangements, and incentive
arrangements with any officer, director or employee of the Company entered into
in the ordinary course of business (including customary benefits thereunder) and
payments under any indemnification arrangements permitted by applicable law,
(iii) the Agreement of Limited Partnership of the Company as in effect on the
Issue Date, including any amendment or extension thereof that does not otherwise
violate any other covenant set forth in the Indenture, and any transactions
undertaken pursuant to any other contractual obligations in existence on the
Issue Date, (iv) the issue and sale by the Company to its partners or
stockholders of Qualified Equity Interests, (v) any Restricted Payments made in
compliance with "--Limitation on Restricted Payments" above (including without
limitation the making of any payments or distributions permitted to be made in
accordance with clauses (i) through (vi) of the penultimate paragraph of
"--Limitation on Restricted Payments"), (vi) loans and advances to officers,
directors and employees of the Company and the Restricted Subsidiaries for
travel, entertainment, moving and other relocation expenses, in each case made
in the ordinary course of business and consistent with past business practices,
(vii) customary commercial banking, investment banking, underwriting, placement
agent or financial advisory fees paid in connection with services rendered to
the Company and its Subsidiaries in the ordinary course, (viii) the Incurrence
of intercompany Indebtedness permitted pursuant to clause (d) under the
definition of "Permitted Indebtedness" set forth under "--Limitation on
Indebtedness," (ix) the pledge of Equity Interests of Unrestricted Subsidiaries
to support the Indebtedness thereof and (x) the Senior Credit Facility.
Designation of Unrestricted Subsidiaries. The Indenture will provide that the
Company may designate any Subsidiary of the Company as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such Designation;
(b) at the time of and after giving effect to such Designation, the Company
could incur $1.00 of additional Indebtedness under the Debt to
Operating Cash Flow Ratio of the first paragraph of "--Limitation on
Indebtedness" above; and
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(c) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"--Limitation on Restricted Payments" above in an amount (the
"Designation Amount") equal to the Company's proportionate interest in
the Fair Market Value of such Subsidiary on such date.
Neither the Company nor any Restricted Subsidiary shall at any time (x) provide
credit support for, subject any of its property or assets (other than the Equity
Interests of any Unrestricted Subsidiary) to the satisfaction of, or guarantee,
any Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary, except, in the case of clause (x)
or (y), to the extent otherwise permitted under the terms of the Indenture,
including, without limitation, pursuant to "--Limitation on Restricted Payments"
and "--Limitation on Indebtedness" above.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default or Event of Default shall have occurred and be continuing at
the time of and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time,
have been permitted to be Incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by resolutions of the Company
delivered to the Trustee certifying compliance with the foregoing provisions.
Limitation on Conduct of Business of Capital. The Indenture will provide that
Capital will not own any operating assets or other properties or conduct any
business other than to serve as an Issuer and an obligor on the Notes.
CHANGE OF CONTROL
The Indenture will provide that within 30 days following the date of
consummation of a transaction resulting in a Change of Control, the Company will
commence an Offer to Purchase all outstanding Notes at a purchase price in cash
equal to 101% of their principal amount plus accrued interest to the Purchase
Date. Such Offer to Purchase will be consummated not earlier than 30 days and
not later than 60 days after the commencement thereof. Each holder shall be
entitled to tender all or any portion of the Notes owned by such holder pursuant
to the Offer to Purchase, subject to the requirement that any portion of a Note
tendered must bear an integral multiple of $1,000 principal amount.
In the event that the Company makes an Offer to Purchase the Notes, the Company
shall comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange
Act and any violation of the provisions of the Indenture relating to such Offer
to Purchase occurring as a result of such compliance shall not be deemed an
Event of Default or an event that with the passing of time or giving of notice,
or both, would constitute an Event of Default.
With respect to the sale of assets referred to in the definition of "Change of
Control," the phrase "all or substantially all" of the assets of the Company or
the General Partner will likely be interpreted under applicable state law and
will be dependent upon particular facts and circumstances. As a result, there
may be a degree of uncertainty in ascertaining whether a sale or transfer of
"all or substantially all" of the assets of the Company or the General Partner
has occurred. In addition, no assurances can be given that the Company will be
able to acquire Notes tendered upon the occurrence of a Change of Control. The
ability of the Company to pay cash to the holders of Notes upon a Change of
Control may be limited by its then existing financial resources. The Senior
Credit Facility contains certain covenants prohibiting, or requiring waiver or
consent of the lenders thereunder prior to, the repurchase of the Notes upon a
Change of Control, and future debt agreements of the Company may provide the
same. If the Company does not obtain such waiver or consent or repay such
Indebtedness, the Company will
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remain prohibited from repurchasing the Notes. In such event, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would in turn constitute a default under the Senior Credit
Facility and possibly other Senior Indebtedness. In such circumstances, the
subordination provisions of the Indenture would likely restrict payments to the
holders of the Notes. None of the provisions relating to a repurchase upon a
Change of Control are waivable by the Board of Directors of FV Inc. or the
Trustee.
The foregoing provisions will not prevent the Issuers from entering into a
transaction of the types described under the definition of "Change of Control"
with management or their affiliates. In addition, such provisions may not
necessarily afford the holders of the Notes protection in the event of a highly
leveraged transaction, including a reorganization, restructuring, merger or
similar transaction involving the Issuers that may adversely affect the holders
of the Notes because such transactions may not involve a shift in voting power
or beneficial ownership, or, even if they do, may not involve a shift of the
magnitude required under the definition of Change of Control to trigger the
provisions.
PROVISION OF FINANCIAL INFORMATION
The Indenture will provide that whether or not the Issuers are subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
the Issuers shall file with the Commission the annual reports, quarterly reports
and other documents which the Issuers would have been required to file with the
Commission pursuant to such Section 13(a) or 15(d) or any successor provision
thereto if the Issuers were so required, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Issuers would have been required so to file such documents if the
Issuers were so required. The Issuers shall also in any event (a) within 15 days
of each Required Filing Date (i) transmit by mail to all holders of Notes, as
their names and addresses appear in the note register, without cost to such
holders, and (ii) file with the Trustee, copies of the annual reports, quarterly
reports and other documents which the Issuers are required to file with the
Commission pursuant to the preceding sentence, and (b) if, notwithstanding the
preceding sentence, filing such documents by the Issuers with the Commission is
not permitted under the Exchange Act, promptly upon written request supply
copies of such documents to any prospective holder of Notes. The Company shall
not be obligated to file any such reports with the Commission if the Commission
does not permit such filings for all companies similarly situated other than due
to any action or inaction by the Company.
MERGER, SALE OF ASSETS, ETC.
The Indenture will provide that the Issuers will not consolidate with or merge
with or into (whether or not such Issuer is the Surviving Person) any other
entity and the Issuers will not and will not permit any of their respective
Restricted Subsidiaries to sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of such Issuer's properties and assets
(determined, in the case of the Company, on a consolidated basis for the Company
and the Restricted Subsidiaries) to any entity in a single transaction or series
of related transactions, unless: (a) either (i) such Issuer shall be the
Surviving Person or (ii) the Surviving Person (if other than such Issuer) shall
be, in the case of Capital, a corporation or, in any other case, a corporation,
partnership, limited liability company, limited liability limited partnership or
trust organized and validly existing under the laws of the United States of
America or any State thereof or the District of Columbia, and shall, in any such
case, expressly assume by a supplemental indenture the due and punctual payment
of the principal of, premium, if any, and interest on all the Notes and the
performance and observance of every covenant of the Indenture to be performed or
observed on the part of the Issuers; (b) immediately thereafter, no Default or
Event of Default shall have occurred and be continuing; (c) immediately after
giving effect to any such transaction involving the Incurrence by the Company or
any Restricted Subsidiary, directly or indirectly, of additional Indebtedness
(and treating any Indebtedness not previously an obligation of the Company or
any Restricted Subsidiary in connection with or as a result of such transaction
as having been Incurred at the time of such transaction), the Surviving Person
could Incur, on a pro forma basis after giving effect to such transaction as if
it had occurred at the beginning of the latest fiscal quarter for which
consolidated financial statements of the Company are available, at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the Debt to
Operating Cash Flow Ratio of the first paragraph of "-- Limitation on
Indebtedness" above; and (d) immediately thereafter the Surviving Person shall
have a Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of such Issuer immediately prior to such transaction.
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Subject to the requirements of the immediately preceding paragraph, the
Indenture will provide that in the event of a sale of all or substantially all
of the assets of any Subsidiary Guarantor or all of the Equity Interests of any
Subsidiary Guarantor, by way of merger, consolidation or otherwise, then the
Surviving Person of any such merger or consolidation, or such Subsidiary
Guarantor, if all of its Equity Interests are sold, shall be released and
relieved of any and all obligations under the Subsidiary Guarantee of such
Subsidiary Guarantor if (i) the Person or entity surviving such merger or
consolidation or acquiring the Equity Interests of such Subsidiary Guarantor is
not a Restricted Subsidiary, and (ii) the Net Cash Proceeds from such sale are
used after such sale in a manner that complies with the provisions of
"--Covenants--Disposition of Proceeds of Asset Sales" above. Except as provided
in the preceding sentence, the Indenture will provide that no Subsidiary
Guarantor shall consolidate with or merge with or into another Person, whether
or not such Person is affiliated with such Subsidiary Guarantor and whether or
not such Subsidiary Guarantor is the Surviving Person, unless (i) the Surviving
Person is a corporation, partnership, limited liability company, limited
liability limited partnership or trust organized or existing under the laws of
the United States, any State thereof or the District of Columbia, (ii) the
Surviving Person (if other than such Subsidiary Guarantor) assumes all the
Obligations of such Subsidiary Guarantor under the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee, (iii) at the time of and immediately after such Disposition, no Default
or Event of Default shall have occurred and be continuing, and (iv) the
Surviving Person will have Consolidated Net Worth (immediately after giving pro
forma effect to the Disposition) equal to or greater than the Consolidated Net
Worth of such Subsidiary Guarantor immediately preceding the transaction;
provided, however, that clause (iv) of this paragraph shall not be a condition
to a merger or consolidation of a Subsidiary Guarantor if such merger or
consolidation only involves the Company and/or one or more Wholly Owned
Restricted Subsidiaries.
In the event of any transaction (other than a lease) described in and complying
with the conditions listed in the immediately preceding paragraphs in which an
Issuer or any Subsidiary Guarantor is not the Surviving Person and the Surviving
Person is to assume all the Obligations of such Issuer or any such Subsidiary
Guarantor under the Notes and the Indenture pursuant to a supplemental
indenture, such Surviving Person shall succeed to, and be substituted for, and
may exercise every right and power of, such Issuer or such Subsidiary Guarantor,
as the case may be, and such Issuer or such Subsidiary Guarantor, as the case
may be, shall be discharged from its Obligations under the Indenture, the Notes
or its Subsidiary Guarantee, as the case may be.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture:
(a) failure to pay principal of (or premium, if any, on) any Note when due
(whether or not prohibited by the provisions of the Indenture described
under "--Subordination" above);
(b) failure to pay any interest on any Note when due, continued for 30 days
(whether or not prohibited by the provisions of the Indenture described
under "--Subordination" above);
(c) default in the payment of principal of and interest on Notes required
to be purchased pursuant to an Offer to Purchase as described under
"--Covenants--Disposition of Proceeds of Asset Sales" and "--Change of
Control" above when due and payable (whether or not prohibited by the
provisions of the Indenture described under "--Subordination" above);
(d) failure to perform or comply with any of the provisions described under
"--Merger, Sale of Assets, etc.," "--Change of Control" and
"--Covenants--Disposition of Proceeds of Asset Sales" above;
(e) failure to perform any other covenant or agreement of the Issuers or
any Subsidiary Guarantor under the Indenture or the Notes continued for
30 days after written notice to the Issuers by the Trustee or holders
of at least 25% in aggregate principal amount of outstanding Notes;
(f) default under the terms of one or more instruments evidencing or
securing Indebtedness of the Company or any Restricted Subsidiary
having an outstanding principal amount of $10 million or more
individually or in the aggregate that has resulted in the acceleration
of the payment of such Indebtedness or failure to pay principal when
due at the stated maturity of any such Indebtedness;
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(g) the rendering of a final judgment or judgments (not subject to appeal)
against the Company or any Restricted Subsidiary in an amount of $10
million or more (net of any amounts covered by reputable and
creditworthy insurance companies) which remains undischarged or
unstayed for a period of 60 days after the date on which the right to
appeal has expired;
(h) any holder or holders of at least $10 million in aggregate principal
amount of Indebtedness of the Company or any Restricted Subsidiary,
after a default under such Indebtedness, shall notify the Trustee of
the intended sale or disposition of any assets of the Company or any
Restricted Subsidiary with an aggregate Fair Market Value (as
determined in good faith by the Board of Directors of FV Inc.) of at
least $2 million that have been pledged to or for the benefit of such
holder or holders to secure such Indebtedness or shall commence
proceedings, or take any action (including by way of setoff), to retain
in satisfaction of such Indebtedness or to collect on, seize, dispose
of or apply in satisfaction of such Indebtedness, such assets of the
Company or any Restricted Subsidiary (including funds on deposit or
held pursuant to lock-box and other similar arrangements) which
continues for five business days after notice has been given to the
Company and the representative of such Indebtedness and Indebtedness
under the Senior Credit Facility;
(i) certain events of bankruptcy, insolvency or reorganization affecting
either of the Issuers or any Significant Restricted Subsidiary; and
(j) any Subsidiary Guarantee ceases to be in full force and effect (other
than in accordance with the terms of such Subsidiary Guarantee and the
Indenture) or is declared null and void and unenforceable or found to
be invalid or any Subsidiary Guarantor denies its liability under its
Subsidiary Guarantee (other than by reason of a release of such
Subsidiary Guarantor from its Subsidiary Guarantee in accordance with
the terms of the Indenture and such Subsidiary Guarantee).
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default (as defined) shall occur and be continuing,
the Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the holders, unless
such holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.
If an Event of Default (other than an Event of Default with respect to either of
the Issuers described in clause (i) above) shall occur and be continuing, the
Trustee or the holders of at least 25% in aggregate principal amount of the
outstanding Notes by notice in writing to the Company (and to the Trustee if
given by the holders) may declare the unpaid principal of and accrued interest
to the date of acceleration on all the outstanding Notes to be due and payable
immediately and, upon any such declaration, such principal amount and accrued
interest shall become immediately due and payable; provided, however, that so
long as the Senior Credit Facility shall be in full force and effect, if an
Event of Default shall have occurred and be continuing (other than as specified
in clause (i) above), the Notes shall not become due and payable until the
earlier to occur of (x) five business days following delivery of a written
notice of such acceleration of the Notes to the agent under the Senior Credit
Facility and (y) the acceleration of any Indebtedness under the Senior Credit
Facility. If an Event of Default specified in clause (i) above with respect to
either of the Issuers occurs, the outstanding Notes will ipso facto become
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder.
After such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of outstanding Notes
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal, have
been cured or waived as provided in the Indenture. For information as to waiver
of defaults, see "--Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes, give
the holders thereof notice of all uncured Defaults or Events of Default known to
it; provided, however, that, except in the case of an Event of Default or a
Default in payment with respect to the Notes or a Default or Event of Default in
complying with "--Covenants--Merger, Sale of Assets, Etc." above, the
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Trustee shall be protected in withholding such notice if and so long as the
Board of Directors or responsible officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the holders
of the Notes.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee, and the
Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of a
Note for enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
The Issuers will be required to furnish to the Trustee annually a statement as
to the performance by them of certain of their obligations under the Indenture
and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND PARTNERS
The Indenture will provide that no director, officer, employee, incorporator, or
limited or general partner of the Issuers or any of their Subsidiaries shall
have any liability for any obligation of the Issuers or any of their
Subsidiaries under the Indenture or the Notes or for any claim based on, in
respect of, or by reason of, any such obligation or the creation of any such
obligation. Each holder by accepting a Note waives and releases such Persons
from all such liability and such waiver and release is part of the consideration
for the issuance of the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Issuers may terminate their substantive obligations in respect of the Notes
by delivering all outstanding Notes to the Trustee for cancellation and paying
all sums payable by them on account of principal of, premium, if any, and
interest on all Notes or otherwise. In addition to the foregoing, the Issuers
may, provided that no Default or Event of Default has occurred and is continuing
or would arise therefrom (or, with respect to a Default or Event of Default
specified in clause (i) of "--Events of Default" above, any time on or prior to
the 91st calendar day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until after such 91st day)) and
provided that no default under any Senior Indebtedness would result therefrom,
terminate their substantive obligations in respect of the Notes (except for
their obligations to pay the principal of (and premium, if any, on) and the
interest on the Notes) by (i) depositing with the Trustee, under the terms of an
irrevocable trust agreement, money or United States Government Obligations
sufficient (without reinvestment) to pay all remaining Indebtedness on the
Notes, (ii) delivering to the Trustee either an Opinion of Counsel or a ruling
directed to the Trustee from the Internal Revenue Service to the effect that the
holders of the Notes will not recognize income, gain or loss for federal income
tax purposes solely as a result of such deposit and termination of obligations,
(iii) delivering to the Trustee an Opinion of Counsel to the effect that the
Issuers' exercise of their option under this paragraph will not result in any of
the Issuers, the Trustee or the trust created by the Issuers' deposit of funds
pursuant to this provision becoming or being deemed to be an "investment
company" under the Investment Company Act of 1940, as amended, and (iv)
complying with certain other requirements set forth in the Indenture. In
addition, the Issuers may, provided that no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (i) of "--Events of Default"
above, any time on or prior to the 91st calendar day after the date of such
deposit (it being understood that this condition shall not be deemed satisfied
until after such 91st day)) and provided that no default under any Senior
Indebtedness would result therefrom, terminate all of their substantive
obligations in respect of the Notes (including their obligations to pay the
principal of (and premium, if any, on) and interest on the Notes) by (i)
depositing with the Trustee, under the terms of an irrevocable trust agreement,
money or United States Government Obligations sufficient (without reinvestment)
to pay all remaining Indebtedness on the Notes, (ii) delivering to the Trustee
either a ruling directed to the Trustee from the Internal Revenue Service to the
effect that the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes solely as a result of such deposit and termination
of obligations or an Opinion of Counsel based upon such a ruling addressed to
the Trustee or a change in the applicable Federal
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tax law since the date of the Indenture to such effect, (iii) delivering to the
Trustee an Opinion of Counsel to the effect that the Issuers' exercise of their
option under this paragraph will not result in any of the Issuers, the Trustee
or the trust created by the Issuers' deposit of funds pursuant to this provision
becoming or being deemed to be an "investment company" under the Investment
Company Act of 1940, as amended, and (iv) complying with certain other
requirements set forth in the Indenture.
The Issuers may make an irrevocable deposit pursuant to this provision only if
at such time they are not prohibited from doing so under the subordination
provisions of the Indenture or certain covenants in the Senior Indebtedness and
the Issuers have delivered to the Trustee and any Paying Agent an Officers'
Certificate to that effect.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
The Issuers and the Subsidiary Guarantors, when authorized by a resolution of
their respective Boards of Directors, and the Trustee may amend or supplement
the Indenture or the Notes without notice to or consent of any holder: (i) to
cure any ambiguity, defect or inconsistency; provided, however, that such
amendment or supplement does not adversely affect the rights of any holder; (ii)
to effect the assumption by a successor Person of all obligations of the Issuers
under the Notes and the Indenture in connection with any transaction complying
with "--Merger, Sale of Assets, Etc." above; (iii) to provide for uncertificated
Notes in addition to or in place of certificated Notes; (iv) to comply with any
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act; (v) to make any change that
would provide any additional benefit or rights to the holders; (vi) to make any
other change that does not adversely affect the rights of any holder under the
Indenture; (vii) to evidence the succession of another Person to any Subsidiary
Guarantor and the assumption by any such successor of the covenants of such
Subsidiary Guarantor in the Subsidiary Guarantee; (viii) to add to the covenants
of the Issuers or the Subsidiary Guarantors for the benefit of the holders, or
to surrender any right or power conferred upon the Issuers or any Subsidiary
Guarantor under the Indenture; (ix) to secure the Notes pursuant to the
requirements of "--Covenants--Limitation on Liens" above or otherwise; or (x) to
reflect the release of a Subsidiary Guarantor from its obligations with respect
to its Subsidiary Guarantee in accordance with the provisions of the Indenture
and to add a Subsidiary Guarantor pursuant to the requirements of the Indenture;
provided, however, that the Issuers have delivered to the Trustee an opinion of
counsel stating that such amendment or supplement complies with the provisions
of the Indenture.
Modifications and amendments of the Indenture may be made by the Issuers and the
Trustee with the consent of the holders of a majority in aggregate principal
amount of the outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the holder of each Note affected thereby,
(a) change the Stated Maturity of the principal of or any installment of
interest on any Note or alter the optional redemption or repurchase provisions
of any Note or the Indenture in a manner adverse to the holders of the Notes,
(b) reduce the principal amount (or the premium) of any Note, (c) reduce the
rate of or extend the time for payment of interest on any Note, (d) change the
place or currency of payment of principal of (or premium) or interest on any
Note, (e) modify any provisions of the Indenture relating to the waiver of past
defaults (other than to add sections of the Indenture subject thereto) or the
right of the holders to institute suit for the enforcement of any payment on or
with respect to any Note or the modification and amendment of the Indenture and
the Notes (other than to add sections of the Indenture or the Notes which may
not be amended, supplemented or waived without the consent of each holder
affected), (f) reduce the percentage of the principal amount of outstanding
Notes necessary for amendment to or waiver of compliance with any provision of
the Indenture or the Notes or for waiver of any Default, (g) waive a default in
the payment of principal of, interest on, or redemption payment with respect to,
any Note (except a recision of acceleration of the Notes by the holders as
provided in the Indenture and a waiver of the payment default that resulted from
such acceleration), (h) modify the ranking or priority of the Notes or the
Subsidiary Guarantee of any Subsidiary Guarantor or modify the definition of
Senior Indebtedness or Guarantor Senior Indebtedness or amend or modify the
subordination provisions of the Indenture in any manner adverse to the holders,
(i) release any Subsidiary Guarantor from any of its obligations under its
Subsidiary Guarantee or the Indenture otherwise than in
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accordance with the Indenture, or (j) modify the provisions relating to any
Offer to Purchase required under the covenants described under
"--Covenants--Disposition of Proceeds of Asset Sales" or "--Change of Control"
above in a manner materially adverse to the holders.
The holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all holders of Notes, may waive compliance by the Issuers
with certain restrictive provisions of the Indenture. Subject to certain rights
of the Trustee, as provided in the Indenture, the holders of a majority in
aggregate principal amount of the outstanding Notes, on behalf of all holders of
Notes, may waive any past default under the Indenture, except a default in the
payment of principal, premium or interest or a default arising from failure to
purchase any Note tendered pursuant to an Offer to Purchase, or a default in
respect of a provision that under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Note affected.
THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will perform only such duties as are specifically set forth in the
Indenture. During the existence of a Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in their exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. The Indenture and
provisions of the Trust Indenture Act incorporated by reference therein contain
limitations on the rights of the Trustee, should it become a creditor of either
of the Issuers, any Subsidiary Guarantor or any other obligor upon the Notes, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claim as security or otherwise. The
Trustee is permitted to engage in other transactions with the Issuers or an
Affiliate of either of the Issuers; provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in connection
with an Asset Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other Person
which merges with or into or becomes a Subsidiary of such specified Person.
"Advisory Committee" means the Advisory Committee of the General Partner
established pursuant to the provisions of Article VI of the First Amended and
Restated Agreement of Limited Partnership of the General Partner, as amended to
the date of issuance of the Notes.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary in any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated, merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
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"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary, (ii) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary, (iii) any assets of
the Company or any Restricted Subsidiary which constitute substantially all of
an operating unit or line of business of the Company or any Restricted
Subsidiary or (iv) any other property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" shall not include (i) any transaction
consummated in compliance with "--Merger, Sale of Assets, etc." above and the
creation of any Lien not prohibited by the provisions described under
"--Covenants--Limitation on Liens" above, (ii) sales of property or equipment
that have become worn out, obsolete or damaged or otherwise unsuitable for use
in connection with the business of the Company or any Restricted Subsidiary, as
the case may be, and (iii) any transaction consummated in compliance with
"--Covenants--Limitation on Restricted Payments" above. In addition, solely for
purposes of "--Covenants--Disposition of Proceeds of Asset Sales" above, any
sale, conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions involving assets
with a Fair Market Value not in excess of $ individually or $ in any
fiscal year shall be deemed not to be an Asset Sale.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board of Directors" means 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 the Company, the General Partner, FVP
GP or FV Inc., as the case may be.
"Capitalized Lease Obligation" means, with respect to any Person for any period,
an obligation of such Person to pay rent or other amounts under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of such obligation shall be the capitalized amount shown on
the balance sheet of such Person as determined in accordance with GAAP.
"Cash Equivalents" means (A) any security, maturing not more than six months
after the date of acquisition, issued by the United States of America or an
instrumentality or agency thereof and guaranteed fully as to principal, premium,
if any, and interest by the United States of America, (B) any certificate of
deposit, time deposit, money market account or bankers' acceptance, maturing not
more than six months after the date of acquisition, issued by any commercial
banking institution that is a member of the Federal Reserve System and that has
combined capital and surplus and undivided profits of not less than $500.0
million, whose debt has a rating, at the time as of which any investment therein
is made, of "P-1" (or higher) according to Moody's Investors Service, Inc. or
any successor rating agency, or "A-1" (or higher) according to Standard & Poor's
Rating Services, a division of the McGraw-Hill Companies, Inc. or any successor
rating agency and (C) commercial paper, maturing not more than three months
after the date of acquisition, issued by any corporation (other than an
Affiliate of the Company) organized and existing under the laws of the United
States of America with a rating, at the time as of which any investment therein
is made, of "P-1" (or higher) according to Moody's Investors Service, Inc. or
any successor rating agency, or "A-1" (or higher) according to Standard & Poor's
Rating Services, a division of the McGraw-Hill Companies, Inc., or any successor
rating agency.
"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 Equity Interests of
the Company, the General Partner, FVP GP or FV Inc., as the case may be; (b) the
Company, the General Partner, FVP GP or FV Inc., 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, FVP GP or FV Inc., as the case may be,
in any such event pursuant to a transaction in which the outstanding Voting
Equity Interests of the Company, the General Partner, FVP GP or FV Inc., as the
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case may be, are converted into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting Equity
Interests of the Company, the General Partner, FVP GP or FV Inc., as the case
may be, are converted into or exchanged for Voting Equity Interests (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 Equity Interests of the Company, the General Partner, FVP GP or FV Inc.,
as the case may be, immediately prior thereto own, directly or indirectly, more
than 50% of the total voting power of the outstanding Voting Equity Interests 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, FVP GP or FV Inc., as the case may be (together with
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, FVP GP or FV Inc., as the
case may be, then in office in any such case in connection with any actual or
threatened solicitation to which Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act applies or other actual or threatened solicitation of proxies
or consents; (d) the admission of any Person as a member of the Advisory
Committee without the prior written consent of 75% of the members of the
Advisory Committee immediately prior to the time of such proposed admission; or
(e) the admission of any Person as a general partner of the Company, the General
Partner or FVP GP, as the case may be, after which the General Partner, FVP GP
or FV Inc., as the case may be, does not have the sole power to take all of the
actions it is entitled or required to take under the limited partnership
agreement of the Company, the General Partner or FVP GP, as the case may be, as
in effect on the Issue Date.
"Consolidated Income Tax Expense" means, with respect to the Company for any
period, the provision for federal, state, local and foreign income taxes payable
by the Company and the Restricted Subsidiaries for such period as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all capitalized interest and all accrued interest, (ii) the
interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by the Company and the Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with GAAP
and (iii) dividends and distributions in respect of Disqualified Equity
Interests actually paid in cash by the Company during such period as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net income of
the Company and the Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, adjusted, to the extent included in
calculating such net income, by excluding, without duplication, (i) all
extraordinary gains or losses and all gains and losses from the sales or other
dispositions of assets out of the ordinary course of business (net of taxes,
fees and expenses relating to the transaction giving rise thereto) for such
period, (ii) that portion of such net income derived from or in respect of
investments in Persons other than Restricted Subsidiaries, except to the extent
actually received in cash by the Company or any Restricted Subsidiary (subject,
in the case of any Restricted Subsidiary, to the provisions of clause (v) of
this definition), (iii) the portion of such net income (or loss) allocable to
minority interests in unconsolidated Persons for such period, except to the
extent actually received in cash by the Company or any Restricted Subsidiary
(subject, in the case of any Restricted Subsidiary, to the provisions of clause
(v) of this definition), (iv) net income (or loss) of any other Person combined
with the Company or any Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination and (v) the net
income of any Restricted Subsidiary to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is not at the time (regardless of any waiver) permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Restricted Subsidiary or its Equity Interest holders.
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"Consolidated Net Worth" with respect to any Person means the equity of the
holders of Qualified Equity Interests of such Person and its Restricted
Subsidiaries, as reflected in a balance sheet of such Person determined on a
consolidated basis and in accordance with GAAP.
"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication) by the
sum of (i) Consolidated Income Tax Expense accrued according to GAAP for such
period to the extent deducted in determining Consolidated Net Income for such
period, (ii) Consolidated Interest Expense (other than dividends on Preferred
Equity Interests) for such period to the extent deducted in determining
Consolidated Net Income for such period, and (iii) depreciation, amortization
and any other non-cash items for such period to the extent deducted in
determining Consolidated Net Income for such period (other than any non-cash
item which requires the accrual of, or a reserve for, cash charges for any
future period) of the Company and the Restricted Subsidiaries, including,
without limitation, amortization of capitalized debt issuance costs for such
period, all of the foregoing determined on a consolidated basis in accordance
with GAAP minus non-cash items to the extent they increase Consolidated Net
Income (including the partial or entire reversal of reserves taken in prior
periods) for such period.
"Cumulative Available Cash Flow" means, as at any date of determination, the
positive cumulative Consolidated Operating Cash Flow realized during the period
commencing on the Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Debt to Operating Cash Flow Ratio" means the ratio of (i) the Total
Consolidated Indebtedness as of the date of calculation (the "Determination
Date") to (ii) four times the Consolidated Operating Cash Flow for the latest
fiscal quarter for which financial information is available immediately
preceding such Determination Date (the "Measurement Period"). For purposes of
calculating Consolidated Operating Cash Flow for the Measurement Period
immediately prior to the relevant Determination Date, (I) any Person that is a
Restricted Subsidiary on the Determination Date (or would become a Restricted
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of such Consolidated Operating Cash Flow) will be
deemed to have been a Restricted Subsidiary at all times during such Measurement
Period, (II) any Person that is not a Restricted Subsidiary on such
Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted Subsidiary shall have in any manner
(x) acquired (including through an Asset Acquisition or the commencement of
activities constituting such operating business) or (y) disposed of (including
by way of an Asset Sale or the termination or discontinuance of activities
constituting such operating business) any operating business during such
Measurement Period or after the end of such period and on or prior to such
Determination Date, such calculation will be made on a pro forma basis in
accordance with GAAP as if, in the case of an Asset Acquisition or the
commencement of activities constituting such operating business, all such
transactions had been consummated on the first day of such Measurement Period
and, in the case of an Asset Sale or termination or discontinuance of activities
constituting such operating business, all such transactions had been consummated
prior to the first day of such Measurement Period; provided, however, that such
pro forma adjustment shall not give effect to the Operating Cash Flow of any
Acquired Person to the extent that such Person's net income would be excluded
pursuant to clause (v) of the definition of Consolidated Net Income.
"Default" means any event that is or with the passing of time or giving of
notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding under
the Senior Credit Facility and (ii) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $25.0 million.
"Designation" has the meaning set forth under "--Covenants--Designation of
Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth under "--Covenants--Designation
of Unrestricted Subsidiaries" above.
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"Disposition" means, with respect to any Person, any merger, consolidation or
other business combination involving such Person (whether or not such Person is
the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Notes or the date on which no Notes remain
outstanding.
"Equity Interest" in any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock or other equity participations,
including partnership interests, whether general or limited, in such Person,
including any Preferred Equity Interests.
"Equity Market Capitalization" of any Person, means the aggregate market value
of the outstanding Equity Interests (other than Preferred Equity Interests and
excluding any such Equity Interests held in treasury by such Person) of such
Person of a class that is listed or admitted to unlisted trading privileges on a
United States national securities exchange or included for trading on the Nasdaq
National Market System. For purposes of this definition the "market value" of
any such Equity Interest shall be the average of the high and low sale prices,
or if no sales are reported, the average of the closing bid and ask prices, as
reported in the composite transactions of the principal national securities
exchange on which such Equity Interests are listed or admitted to trading or, if
such Equity Interests are not listed or admitted to trading on a national
securities exchange, as reported by Nasdaq, for each trading day in a 20
consecutive trading day period ending not more than 45 days prior to the date
such Person commits to make an investment in the Equity Interests of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission thereunder.
"Fair Market Value" means, with respect to any asset, the price (after taking
into account any liabilities relating to such assets) which could be negotiated
in an arm's-length free market transaction, for cash, between a willing seller
and a willing and able buyer, neither of which is under pressure or compulsion
to complete the transaction; provided, however, that the Fair Market Value of
any such asset or assets shall be determined by the Board of Directors of FV
Inc., acting in good faith and shall be evidenced by resolutions of the Board of
Directors of FV Inc. delivered to the Trustee.
"FVP GP" means FVP GP, L.P., a Delaware limited partnership.
"FV Inc." means FrontierVision Inc., a Delaware corporation.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"General Partner" means FrontierVision Partners, L.P., a Delaware limited
partnership.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit. A guarantee shall include, without
limitation, any agreement to maintain or preserve any other Person's financial
condition or to cause any other Person to achieve certain levels of operating
results.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including 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" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Person or any of its
Subsidiaries
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existing at the time such Person becomes a Restricted Subsidiary (or is merged
into or consolidates with the Company or any Restricted Subsidiary), whether or
not such Indebtedness was incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary (or being merged into or
consolidated with the Company or any Restricted Subsidiary), shall be deemed
Incurred at the time any such Person becomes a Restricted Subsidiary or merges
into or consolidates with the Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable incurred in the ordinary course of
business and payable in accordance with industry practices, or other accrued
liabilities arising in the ordinary course of business which are not overdue or
which are being contested in good faith), (v) every Capitalized Lease Obligation
of such Person, (vi) every net obligation under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements of such
Person, (vii) every obligation of the type referred to in clauses (i) through
(vi) of another Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise, and (viii) any and
all deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (i) through (vii) above. Indebtedness (i) shall never be
calculated taking into account any cash and cash equivalents held by such
Person, (ii) shall not include obligations of any Person (x) arising from the
honoring by a bank or other financial institution of a check, draft or similar
instrument inadvertently drawn against insufficient funds in the ordinary course
of business, provided that such obligations are extinguished within two Business
Days of their incurrence unless covered by an overdraft line, (y) resulting from
the endorsement of negotiable instruments for collection in the ordinary course
of business and consistent with past business practices and (z) under stand-by
letters of credit to the extent collateralized by cash or Cash Equivalents,
(iii) which provides that an amount less than the principal amount thereof shall
be due upon any declaration of acceleration thereof shall be deemed to be
Incurred or outstanding in an amount equal to the accreted value thereof at the
date of determination, (iv) shall include the liquidation preference and any
mandatory redemption payment obligations in respect of any Disqualified Equity
Interests of the Company or any Restricted Subsidiary and (v) shall not include
obligations under 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.
"Independent Financial Advisor" means a nationally recognized investment banking
firm (i) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and (ii) which, in the judgment of the Board of Directors of FV Inc., is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person, any
liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Interest Rate Protection 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 designed to protect such Person against fluctuations
in interest rates.
"Investment" means, with respect to any Person, any advance, loan, account
receivable (other than an account receivable arising in the ordinary course of
business), or other extension of credit (including, without limitation, by means
of any guarantee) or any capital contribution to (by means of transfers of
property to others, payments for property or services for the account or use of
others, or otherwise) or any purchase or ownership of any stocks, bonds, notes,
debentures or other securities of, any other Person.
"Issue Date" means the date of first issuance of the Notes under the Indenture.
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"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrances of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or Cash
Equivalents received by the Company or any Restricted Subsidiary in respect of
any Asset Sale, including all cash or Cash Equivalents received upon any sale,
liquidation or other exchange of proceeds of Asset Sales received in a form
other than cash or Cash Equivalents, net of (i) the direct costs relating to
such Asset Sale (including, without limitation, legal accounting and investment
banking fees, and sales commissions) and any relocation expenses Incurred as a
result thereof, (ii) taxes paid or payable as a result thereof (after taking
into account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale, (iv) amounts, in good faith, deemed appropriate by the Board of
Directors of FV Inc. to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve) and (v) with
respect to Asset Sales by Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company by
first class mail, postage prepaid, to each holder at his address appearing in
the register for the Notes on the date of the Offer offering to purchase up to
the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase, which shall be not less than
30 days nor more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of Notes within five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period as is acceptable to the Trustee) prior to the mailing of
the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The Offer shall contain
all the information required by applicable law to be included therein. The Offer
shall contain all instructions and materials necessary to enable such holders to
tender Notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant
to the Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the Notes registered
in the name of such holder and that any portion of a Note tendered
must be tendered in an integral multiple of $1,000 principal amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased
by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on
and after the Purchase Date;
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(9) that each holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such
Note at the place or places specified in the Offer prior to the close
of business on the Expiration Date (such Note being, if the Company or
the Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the holder thereof or his attorney duly
authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of Notes
tendered if the Company (or its Paying Agent) receives, not later than
the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Note
the holder tendered, the certificate number of the Note the holder
tendered and a statement that such holder is withdrawing all or a
portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or equal
to the Purchase Amount are duly tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase all such Notes and
(b) if Notes in an aggregate principal amount in excess of the
Purchase Amount are tendered and not withdrawn pursuant to the Offer
to Purchase, the Company shall purchase Notes having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis
(with such adjustments as may be deemed appropriate so that only Notes
in denominations of $1,000 or integral multiples thereof shall be
purchased); and
(12) that in the case of any holder whose Note is purchased only in part,
the Company shall execute and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new Note
or Notes, of any authorized denomination as requested by such holder,
in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions above pertaining to any Offer.
"Permitted Holders" means any of (a) the General Partner, FVP GP or FV Inc. for
so long as a majority of the voting power of the Voting Equity Interests of such
Person is beneficially owned by any of the Persons listed in the other clauses
of this definition, (b) James C. Vaughn, the President and Chief Executive
Officer of FV Inc. on the Issue Date, (c) John S. Koo, the Chief Financial
Officer of FV Inc. on the Issue Date, (d) any of J.P. Morgan Investment
Corporation, a Delaware corporation, Olympus Cable Corp., a Delaware
corporation, First Union Capital Partners, Inc., a Virginia corporation, and
1818 II Cable Corp., a Delaware corporation, (e) any Person controlling,
controlled by or under common control with any other Person described in clauses
(a) - (d) of this definition and (f) (i) the spouse or children of any Person
named in clause (b) or (c) of this definition and any trust for the benefit of
any such Persons; provided, however, that with respect to any such trust, such
Persons have the sole right to direct and control such trust and any Voting
Equity Interest owned by such trust, and (ii) any such Person's estate,
executor, administrator and heirs.
"Permitted Investments" means (a) Cash Equivalents, (b) Investments in prepaid
expenses, negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits, (c) loans and
advances to employees made in the ordinary course of business not to exceed $1
million in the aggregate at any one time outstanding, (d) Interest Rate
Protection Obligations, (e) bonds, notes, debentures or other securities
received as a result of Asset Sales permitted under "--Covenants--Disposition of
Proceeds of Asset Sales" above not to exceed 25% of the total consideration for
such Asset Sales, (f) transactions with officers, directors and employees of the
Company or any Restricted Subsidiary entered into in ordinary course of business
(including compensation or employee benefit arrangements with any such director
or employee) and consistent with past business practices, (g) Investments
existing as of the Issue Date and any amendment, extension, renewal or
modification thereof to the extent that any such amendment, extension, renewal
or modification does not require the Company or any Restricted Subsidiary to
make any additional cash or non-cash payments or provide additional services in
connection therewith, (h) any Investment for which the sole consideration
provided is Qualified Equity Interests of the Company and (i) any Investment
consisting of a guarantee by a Restricted Subsidiary of Senior Indebtedness or
any guarantee permitted under clause (e) of "Covenants--Limitation on
Indebtedness" above.
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"Permitted Junior Securities" means any securities of the Company or any other
Person that are (i) equity securities without special covenants or (ii)
subordinated in right of payment to all Senior Indebtedness that may at the time
be outstanding, to substantially the same extent as, or to a greater extent
than, the Notes are subordinated as provided in the Indenture, in any event
pursuant to a court order so providing and as to which (a) the rate of interest
on such securities shall not exceed the effective rate of interest on the Notes
on the date of the Indenture, (b) such securities shall not be entitled to the
benefits of covenants or defaults materially more beneficial to the holders of
such securities than those in effect with respect to the Notes on the date of
the Indenture and (c) such securities shall not provide for amortization
(including sinking fund and mandatory prepayment provisions) commencing prior to
the date six months following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization or readjustment pursuant
to which such securities are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at the time
such Person is merged into or consolidated with the Company or any Restricted
Subsidiary; provided, however, that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not secure any property or
assets of the Company or any Restricted Subsidiary other than the property or
assets subject to the Liens prior to such merger or consolidation, (b) Liens
imposed by law such as carriers', warehousemen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business which secure payment of
obligations not more than sixty (60) days past due or which are being contested
in good faith and by appropriate proceedings, (c) Liens existing on the Issue
Date, (d) Liens securing only the Notes, (e) Liens in favor of the Company or
any Restricted Subsidiary, (f) 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, however, that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor, (g)
easements, reservation of rights-of-way, restrictions and other similar
easements, licenses, restrictions on the use of properties, or minor
imperfections of title that in the aggregate are not material in amount and do
not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company and the
Restricted Subsidiaries, (h) Liens resulting from the deposit of cash or
securities in connection with contracts, tenders or expropriation proceedings,
or to secure workers' compensation, surety or appeal bonds, costs of litigation
when required by law and public and statutory obligations or obligations under
franchise arrangements entered into in the ordinary course of business, (i)
Liens securing Indebtedness consisting of Capitalized Lease Obligations,
Purchase Money Indebtedness, mortgage financings, industrial revenue bonds or
other monetary obligations, in each case Incurred solely for the purpose of
financing all or any part of the purchase price or cost of construction or
installation of assets used in the business of the Company or the Restricted
Subsidiaries, or repairs, additions or improvements to such assets, provided,
however, that (I) such Liens secure Indebtedness in an amount not in excess of
the original purchase price or the original cost of any such assets or repair,
addition or improvement thereto (plus an amount equal to the reasonable fees and
expenses in connection with the incurrence of such Indebtedness), (II) such
Liens do not extend to any other assets of the Company or the Restricted
Subsidiaries (and, in the case of repair, addition or improvements to any such
assets, such Lien extends only to the assets (and improvements thereto or
thereon) repaired, added to or improved), (III) the Incurrence of such
Indebtedness is permitted by "--Covenants--Limitation on Indebtedness" above and
(IV) such Liens attach within 90 days of such purchase, construction,
installation, repair, addition or improvement, (j) Liens to secure any
refinancings, renewals, extensions, modifications or replacements (collectively,
"refinancing") (or successive refinancings), in whole or in part, of any
Indebtedness secured by Liens referred to in the clauses above so long as such
Lien does not extend to any other property (other than improvements thereto),
and (k) Liens securing letters of credit entered into in the ordinary course of
business and consistent with past business practice.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any Person,
all interest accrued or accruing on such Indebtedness after the commencement of
any Insolvency or Liquidation Proceeding against such Person in accordance with
and at the contract rate (including, without limitation, any rate applicable
upon default) specified in the agreement or instrument creating, evidencing or
governing such Indebtedness, whether or not, pursuant to
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<PAGE> 102
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest", in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"Public Equity Offering" means, with respect to any Person, a public offering by
such Person of some or all of its Qualified Equity Interests, the net proceeds
of which (after deducting any underwriting discounts and commissions) exceed
$25.0 million.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed 100.00% of the lesser of the Fair Market Value of such property or such
purchase price or cost.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Restricted Investment" means any Investment other than a Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that has not been
designated by the Board of Directors of FV Inc.'s by a resolution of the Board
of Directors of FV Inc. delivered to the Trustee as an Unrestricted Subsidiary
pursuant to "--Covenants--Designation of Unrestricted Subsidiaries" above. Any
such designation may be revoked by a resolution of the Board of Directors of FV
Inc. delivered to the Trustee, subject to the provisions of such covenant.
"Senior Credit Facility" means the Amended and Restated Credit Agreement, dated
as of April 9, 1996, between the Company, the lenders named therein, The Chase
Manhattan Bank, as Administrative Agent, J.P. Morgan Securities Inc., as
Syndication Agent, and CIBC Inc., as Managing Agent, including any deferrals,
renewals, extensions, replacements, refinancings or refundings thereof, or
amendments, modifications or supplements thereto and any agreement providing
therefor, whether by or with the same or any other lender, creditor, group of
lenders or group of creditors, and including related notes, guarantee and
security agreements and other instruments and agreements executed in connection
therewith.
"Senior Indebtedness" means, at any date, (i) all Obligations of the Company
under the Senior Credit Facility, (ii) all Interest Rate Protection Obligations,
(iii) all obligations of the Company under stand-by letters of credit and (iv)
all other Indebtedness of the Company for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness, unless the instrument under which such Indebtedness of the Company
for money borrowed is Incurred expressly provides that such Indebtedness for
money borrowed is not senior or superior in right of payment to the Notes, and
all renewals, extensions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include (i) to the
extent that it may constitute Indebtedness, any Obligation for federal, state,
local or other taxes, (ii) any Indebtedness among or between the Company and any
Subsidiary, (iii) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business, (iv)
that portion of any Indebtedness that is Incurred in violation of the Indenture;
provided, however, that such Indebtedness shall be deemed not to have been
Incurred in violation of the Indenture for purposes of this clause (iv) if (I)
the holder(s) of such Indebtedness or their representative or the Company shall
have furnished to the Trustee an opinion of recognized independent legal
counsel, unqualified in all material respects, addressed to the Trustee (which
legal counsel may, as to matters of fact, rely upon an officers' certificate of
the Company) to the effect that the Incurrence of such Indebtedness does not
violate the provisions of the Indenture or (II) in the case of any Obligations
under the Senior Credit Facility, the holder(s) of such Obligations or their
agent or representative shall have received a representation from the Company to
the effect that the Incurrence of such Indebtedness does not violate the
provisions of the Indenture, (v) Indebtedness evidenced by the Notes, (vi)
Indebtedness of the Company that is expressly subordinate or junior in right of
payment to any other Indebtedness of the Company, (vii) to the extent that it
may constitute Indebtedness, any obligation owing under
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<PAGE> 103
leases (other than Capitalized Lease Obligations) or management agreements and
(viii) any obligation that by operation of law is subordinate to any general
unsecured obligations of the Company.
"Significant Restricted Subsidiary" means, at any date of determination, (a) any
Restricted Subsidiary that, together with its Subsidiaries that constitute
Restricted Subsidiaries (i) for the most recent fiscal year of the Company
accounted for more than 10.0% of the consolidated revenues of the Company and
the Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned
more than 10.0% of the consolidated assets of the Company and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such year prepared in conformity
with GAAP, and (b) any Restricted Subsidiary which, when aggregated with all
other Restricted Subsidiaries that are not otherwise Significant Restricted
Subsidiaries and as to which any event described in clause (h) of "--Events of
Default" above has occurred, would constitute a Significant Restricted
Subsidiary under clause (a) of this definition.
"Stated Maturity," when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Strategic Equity Investment" means the issuance and sale of Qualified Equity
Interests of the Company for net proceeds to the Company of at least $25.0
million to a Person engaged primarily in the cable television, wireless cable
television, telephone, or interactive television business that has an Equity
Market Capitalization of at least $ million.
"Subordinated Indebtedness" means any Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) any corporation of which the
outstanding Voting Equity Interests having at least a majority of the votes
entitled to be cast in the election of directors shall at the time be owned,
directly or indirectly, by such Person, or (ii) any other Person of which at
least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Subsidiary Guarantee" means any guarantee of the Issuers' obligations under the
Indenture and the Notes issued after the Issue Date pursuant to
"--Covenants--Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries" above.
"Subsidiary Guarantor" means any Subsidiary of the Company that guarantees the
Issuers' obligations under the Indenture and the Notes issued after the Issue
Date pursuant to "--Covenants--Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries" above.
"Surviving Person" means, with respect to any Person involved in or that makes
any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Total Consolidated Indebtedness" means, as at any date of determination, an
amount equal to the aggregate amount of all Indebtedness and Disqualified Equity
Interests of the Company and the Restricted Subsidiaries outstanding as of such
date of determination.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as such
pursuant to the provisions of "--Covenants--Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required scheduled payment of principal,
including payment of
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<PAGE> 104
final maturity, in respect thereof, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment, by (ii) the then outstanding aggregate principal amount of such
Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of the
outstanding Voting Equity Interests (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company.
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<PAGE> 105
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated , 1996 (the "Underwriting Agreement"), J.P. Morgan
Securities Inc., Chase Securities Inc., CIBC Wood Gundy Securities Corp. and
First Union Capital Markets Corp. (collectively, the "Underwriters") have
severally agreed to purchase from the Issuers, and the Issuers have agreed to
sell to them, severally, the principal amount of Notes set forth opposite their
names below. Under the terms and conditions of the Underwriting Agreement, the
Underwriters are obligated to take and pay for the entire principal amount of
the Notes, if any Notes are purchased.
<TABLE>
<CAPTION>
============
PRINCIPAL
AMOUNT
------------
<S> <C>
J.P. Morgan Securities Inc. $
Chase Securities Inc.
CIBC Wood Gundy Securities Corp.
First Union Capital Markets Corp.
------------
Total $200,000,000
============
</TABLE>
The Underwriters propose initially to offer the Notes directly to the public at
the price set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession not in excess of % of the principal
amount of the Notes. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of % of the principal amount of the Notes to
certain other dealers. After the initial public offering of the Notes, the
initial public offering price and such concessions may be changed.
The Issuers have agreed to indemnify jointly and severally the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the Underwriters may be required to make in
respect thereof.
There is currently no trading market for the Notes, and the Issuers do not
intend to apply for listing of the Notes on a national securities exchange. The
Issuers have been advised by the Underwriters that the Underwriters currently
intend to make a market in the Notes; however, the Underwriters are not
obligated to do so and may discontinue any such market making at any time
without notice. No assurance can be given as to the development or liquidity of
any trading market for the Notes.
Certain of the Underwriters or their affiliates have provided investment banking
and other financial services to the Company in the past and may do so in the
future. In addition, affiliates of each of the Underwriters (except for First
Union Capital Markets Corp.) serve as lenders and agents under the Senior Credit
Facility and have received customary fees for acting in such capacities. Each of
such affiliates will receive its proportionate share of any repayment by the
Company of amounts outstanding under the Senior Credit Facility from the
proceeds of the Offering. See "Use of Proceeds" and "Certain Relationships and
Related Transactions."
Because an affiliate of J.P. Morgan Securities Inc. and an affiliate of First
Union Capital Markets Corp. each beneficially owns in excess of 10% of the
partnership interests of the Company, the underwriting arrangements for the
Offering must be made in compliance with certain requirements of Rule 2720 of
the Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD"). In this regard, Chase Securities Inc. will act as "qualified
independent underwriter" within the meaning of the NASD's Conduct Rules and is
assuming the responsibilities of acting as a qualified independent underwriter
in pricing the Offering and conducting due diligence.
Pursuant to the requirements of Rule 2720 of the Conduct Rules of the NASD, the
Underwriters will not confirm sales of the Notes to any accounts over which they
exercise discretionary authority without the prior written approval of the
transaction by the customer.
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<PAGE> 106
LEGAL MATTERS
The validity of the Notes will be passed upon for the Issuers by Dow, Lohnes &
Albertson, a Professional Limited Liability Company, Washington, D.C. Certain
legal matters in connection with the Notes offered hereby will be passed upon
for the Underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
The financial statements of FrontierVision Operating Partners, L.P. included
elsewhere in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto. The financial statements referred to above are included in the
Prospectus in reliance upon the authority of said firm as experts in giving said
reports.
The financial statements for United Video Cablevision, Inc. included elsewhere
in this Prospectus have been audited by Piaker & Lyons, P.C., independent public
accountants, as indicated in their report with respect thereto. The financial
statements referred to above are included in the Prospectus in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements for Ashland and Defiance Clusters included elsewhere in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and elsewhere in the
registration statement and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements for C4 Media Cable Southeast, Limited
Partnership included elsewhere in this Prospectus have been audited by Williams,
Rogers, Lewis & Co., P.C., independent public accountants, as indicated in their
report with respect thereto. The consolidated financial statements referred to
above are included in the Prospectus in reliance upon the authority of said firm
as experts in giving said reports.
The financial statements of Triax Southeast Associates, L.P. included elsewhere
in this Prospectus have been audited by Arthur Andersen LLP, independent
auditors, as stated in their report appearing herein and elsewhere in the
registration statement and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The financial statements of American Cable Entertainment of Kentucky-Indiana,
Inc. included elsewhere in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein and
elsewhere in the registration statement and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
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GLOSSARY
The following is a description of certain terms used in this Prospectus.
A LA CARTE -- The purchase of programming services on a per-channel or
per-program basis.
ADDRESSABILITY -- "Addressable" technology permits the cable operator to
activate remotely the cable television services to be delivered to subscribers
who are equipped with addressable converters. With addressable technology, a
cable operator can add to or reduce services provided to a subscriber from the
headend site without dispatching a service technician to the subscriber's home.
BASIC PENETRATION -- Basic subscribers as a percentage of the total number of
homes passed in the system.
BASIC SERVICE -- A package of over-the-air broadcast stations, local access
channels and certain satellite-delivered cable television services (other than
premium services).
BASIC SUBSCRIBER -- A subscriber to a cable or other television distribution
system who receives the basic level of television service and who is usually
charged a flat monthly rate for a number of channels. A home with one or more
television sets connected to a cable system is counted as one basic subscriber.
Bulk accounts are included on a "basic customer equivalent" basis in which the
total monthly bill for the account is divided by the basic monthly charge for a
single outlet in the area.
CABLE PLANT -- A network of coaxial and/or fiber optic cables that transmit
multiple channels carrying videoprogramming, sound and data between a central
facility and an individual customer's television set. Networks may allow one-way
(from a headend to a residence and/or business) or two-way (from a headend to a
residence and/or business with a data return path to the headend) transmission.
CHANNEL CAPACITY -- The number of video programming channels that can be carried
over a communications system.
CLASSIC CABLE TELEVISION SYSTEMS -- Cable television systems that serve
primarily smaller communities where customers generally require cable television
to receive television signals as a result of an inadequate over-the-air
television signal reception due to topography or remoteness of broadcast towers.
CLUSTERING -- A general term used to describe the strategy of operating cable
television systems in a specific geographic region, thus allowing for the
achievement of economies of scale and operating efficiencies in such areas as
system management, marketing and technical functions.
COAXIAL PLANT -- Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is the standard material used in
traditional cable systems. Signals are transmitted through it at different
frequencies, giving greater channel capacity than is possible with twisted pair
copper wire, but less than is possible with optical fiber.
COST-OF-SERVICE -- A general term used to refer to the regulation of prices
charged to a customer. Existing prices are set and price increases are regulated
by allowing a company to earn a reasonable rate of return, as determined by the
regulatory authority.
DENSITY -- A general term used to describe the number of homes passed per mile
of cable plant.
DIGITAL COMPRESSION -- The conversion of the standard analog video signal into a
digital signal, and the compression of that signal so as to facilitate multiple
channel transmission through a single channel's bandwidth.
DIRECT BROADCAST SATELLITE (DBS) -- A service by which packages of
satellite-delivered television programming are transmitted directly to
individual homes, each serviced by a single satellite dish.
ESMR -- Enhanced specialized mobile radio, a wireless telecommunications service
using digital technology to provide enhanced mobile telecommunications services,
including two-way radio dispatch and paging services. ESMR services may be
interconnected with the public switched telephone network.
EXPANDED BASIC SERVICE -- A package of satellite-delivered cable programming
services available only for additional subscription over and above the basic
level of television service.
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FCC -- Federal Communications Commission.
FIBER OPTICS -- Technology that involves sending laser light pulses across glass
strands to transmit digital information; fiber is virtually immune to electrical
interference and most environmental factors that affect copper wiring and
satellite transmissions. Use of fiber optic technology reduces noise on the
cable system, improves signal quality and increases system channel capacity and
reliability.
FIBER OPTIC BACKBONE CABLE -- The principal fiber optic trunk lines for a cable
system which is using a hybrid fiber-coaxial architecture to deliver signals to
customers.
FIBER OPTIC TRUNK LINES -- Cables made of glass fibers through which signals are
transmitted as pulses of light to the distribution portion of the cable
television system which in turn goes to the customer's home. Capacity for a very
large number of channels can be more easily provided.
FIBER-TO-THE-FEEDER -- Network topology/architecture using a combination of
fiber optic cable and coaxial cable transmission lines to deliver signals to
customers. Initially signals are transmitted from the headend on fiber optic
trunk lines into neighborhood nodes and then from the nodes to the end user on a
combination of coaxial cable distribution/feeder and drop lines. The coaxial
feeder and drop lines typically represent the operator's "last mile" of plant to
the end user.
HEADEND -- A collection of hardware, typically including satellite receivers,
modulators, amplifiers and video cassette playback machines, within which
signals are processed and then combined for distribution within the cable
network.
HOMES PASSED -- Homes that can be connected to a cable distribution system
without further extension of the distribution network.
HSD -- Home Satellite Dish Earth Station. A large dish-shaped antenna that is
connected to an individual home in order to receive a wide variety of television
programming signals from a number of satellites.
LONG DISTANCE BACKHAUL -- Utilization of an alternate access network, provided
by a cable system or other carrier, to link long distance telephone calls with a
long distance carrier's network.
MICROWAVE LINKS -- The transmission of voice, video or data using microwave
radio frequencies, generally above 1 GHz, from one location to another.
MMDS -- Multichannel Multipoint Distribution Service. A one-way radio
transmission of programming over microwave frequencies from a fixed station
transmitting to multiple receiving facilities located at fixed points.
MSO -- A term used to describe cable television companies that are "multiple
system operators."
NEW PRODUCT TIERS -- A general term used to describe unregulated cable
television services.
NODES -- An individual point of origination and termination or intersection on
the network, usually where electronics are housed.
OVERBUILD -- The construction of a second cable television system in a franchise
area in which such a system had previously been constructed.
OVER-THE-AIR BROADCAST STATIONS -- A general term used to describe signals
transmitted by local television broadcast stations, including network affiliates
or independent television stations, that can be received directly through the
air by the use of a standard rooftop receiving antenna.
PAY-PER-VIEW -- Payment made for individual movies, programs or events as
opposed to a monthly subscription for a whole channel or group of channels.
PCS -- Personal Communications Services, or PCS, is the name given to a new
generation of cellular-like telecommunications services which are expected to
provide customers new choices in wireless mobile telecommunications using
digital technology for voice and data service compared to traditional analog
technology.
PREMIUM PENETRATION -- Premium service units as a percentage of the total number
of basic service subscribers. A customer may purchase more than one premium
service, each of which is counted as a separate premium service
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<PAGE> 109
unit. This ratio may be greater than 100% if the average customer subscribes for
more than one premium service unit.
PREMIUM SERVICE -- An individual cable programming service available only for
additional subscription over and above the basic or expanded basic levels of
television service.
PREMIUM UNITS -- The number of subscriptions to premium services which are paid
for on an individual basis.
PRO FORMA ACQUISITION CASH FLOW -- Net income of a system, as of the date of
acquisition of such system, before interest, taxes, depreciation, amortization
and corporate general and administrative expenses.
SMATV -- Satellite Master Antenna Television system. A video programming
delivery system to multiple dwelling units utilizing satellite transmissions.
TELEPHONY -- The provision of telephone service.
TIERS -- Varying levels of cable services consisting of differing combinations
of several over-the-air broadcast and satellite-delivered cable television
programming services.
VIDEO DIALTONE -- A general term used to describe a video programming delivery
system through telephone lines.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FrontierVision Operating Partners, L.P.
Report of Independent Public Accountants......................................... F-3
Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995............ F-4
Statements of Operations for the three months ended March 31, 1996 (unaudited)
and for the period from inception (April 17, 1995) through December 31, 1995.... F-5
Statements of Partner's Capital for the three months ended March 31, 1996
(unaudited) and for the period from inception (April 17, 1995) through December
31, 1995........................................................................ F-6
Statements of Cash Flows for the three months ended March 31, 1996 (unaudited)
and for the period from inception (April 17, 1995) through December 31, 1995.... F-7
Notes to Financial Statements.................................................... F-8
United Video Cablevision, Inc. (Selected Assets Acquired by FVOP)
Independent Auditors' Report..................................................... F-17
Divisional Balance Sheets as of March 31, 1995 (unaudited), November 8, 1995 and
December 31, 1994............................................................... F-18
Statements of Divisional Operations for the three-month period ended March 31,
1995 (unaudited), for the period from January 1, 1995 through November 8, 1995
and for the years ended December 31, 1994 and 1993.............................. F-19
Statements of Divisional Equity for the period from January 1, 1995 through
November 8, 1995 and for the years ended December 31, 1994 and 1993............. F-20
Statements of Divisional Cash Flows for the three-month period ended March 31,
1995 (unaudited), for the period from January 1, 1995 through November 8, 1995
and for the years ended December 31, 1994 and 1993.............................. F-21
Notes to Divisional Financial Statements......................................... F-22
Cox Communications, Inc. (Selected Assets Acquired by FVOP)
Independent Auditors' Report..................................................... F-25
Combined Statements of Net Assets as of December 31, 1995, January 31, 1995 and
December 31, 1994............................................................... F-26
Combined Statements of Operations for the eleven-month period ended December 31,
1995, for the one-month period ended January 31, 1995 and for the years ended
December 31, 1994 and 1993...................................................... F-27
Statements of Changes in Net Assets for the eleven-month period ended December
31, 1995, for the one-month period ended January 31, 1995 and for the years
ended December 31, 1994 and 1993................................................ F-28
Combined Statements of Cash Flows for the eleven-month period ended December 31,
1995, for the one-month period ended January 31, 1995 and for the years ended
December 31, 1994 and 1993...................................................... F-29
Notes to Combined Financial Statements........................................... F-30
C4 Media Cable Southeast, Limited Partnership
Independent Auditors' Report..................................................... F-37
Consolidated Balance Sheets as of December 31, 1995 and 1994..................... F-38
Consolidated Statements of Loss for the years ended December 31, 1995 and 1994... F-39
Consolidated Statements of Partners' Deficit for the years ended December 31,
1995 and 1994................................................................... F-40
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and
1994............................................................................ F-41
Notes to Consolidated Financial Statements....................................... F-42
</TABLE>
F-1
<PAGE> 111
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Inc.Independent Auditors' Report................................................. F-47
Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995 and 1994... F-48
Statements of Operations for the three-month periods ended March 31, 1996 and
1995 (unaudited) and for the years ended December 31, 1995, 1994 and 1993....... F-49
Statements of Shareholders' Deficiency for the three-month period ended March 31,
1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993....... F-50
Statements of Cash Flows for the three-month periods ended March 31, 1996 and
1995 (unaudited) and for the years ended December 31, 1995, 1994 and 1993....... F-51
Notes to Financial Statements.................................................... F-52
Triax Southeast Associates, L.P.
Report of Independent Public Accountants......................................... F-58
Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995 and 1994... F-59
Statements of Operations for the three-month periods ended March 31, 1996 and
1995 (unaudited) and for the years ended December 31, 1995, 1994 and 1993....... F-60
Statements of Partners' Capital for the three-month period ended March 31, 1996
(unaudited) and for the years ended December 31, 1995, 1994 and 1993............ F-61
Statements of Cash Flows for the three-month periods ended March 31, 1996 and
1995 (unaudited) and for the years ended December 31, 1995, 1994 and 1993....... F-62
Notes to Financial Statements.................................................... F-63
</TABLE>
F-2
<PAGE> 112
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FrontierVision Operating Partners, L.P.:
We have audited the accompanying balance sheet of FRONTIERVISION OPERATING
PARTNERS, L.P. (a Delaware partnership) as of December 31, 1995, and the related
statements of operations, partners' capital and cash flows for the period from
inception (April 17, 1995 -- see Note 1) through December 31, 1995. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FrontierVision Operating
Partners, L.P. as of December 31, 1995, and the results of its operations and
its cash flows for the period from inception (April 17, 1995 -- see Note 1)
through December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
April 9, 1996.
F-3
<PAGE> 113
FRONTIERVISION OPERATING PARTNERS, L.P.
BALANCE SHEETS
In Thousands
<TABLE>
<CAPTION>
---------------------------
AS OF AS OF
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 407 $ 2,650
Accounts receivable, net of allowance for doubtful accounts of
$42 and $40 354 358
Receivable from seller 117 1,667
Prepaid expenses and other 599 201
Investment in cable television systems, net:
Property and equipment 64,169 42,917
Franchise costs 80,612 50,184
Subscriber lists 27,939 29,000
Goodwill 4,125 4,094
----------- ------------
Total investment in cable television systems, net 176,845 126,195
----------- ------------
Deferred financing costs, net 2,767 2,853
Earnest money deposits 7,000 9,502
Other, net 169 86
----------- ------------
Total assets $188,258 $143,512
========= ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 340 $ 1,606
Accrued liabilities 2,572 1,558
Subscriber prepayments and deposits 424 362
Accrued interest payable 841 420
Debt 124,072 93,159
----------- ------------
Total liabilities 128,249 97,105
----------- ------------
Commitments
Partners' capital:
FrontierVision Partners, L.P. 59,950 46,361
FrontierVision Operating Partners, Inc. 59 46
----------- ------------
Total partners' capital 60,009 46,407
----------- ------------
Total liabilities and partners' capital $188,258 $143,512
========= ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-4
<PAGE> 114
FRONTIERVISION OPERATING PARTNERS, L.P.
STATEMENTS OF OPERATIONS
In Thousands
<TABLE>
<CAPTION>
----------------------------------
FOR THE PERIOD
FOR THE FROM INCEPTION
THREE (APRIL 17, 1995 --
MONTHS ENDED SEE NOTE 1) THROUGH
MARCH 31, DECEMBER 31,
1996 1995
------------ -------------------
Unaudited
<S> <C> <C>
REVENUES $ 9,780 $4,369
EXPENSES:
Operating expenses 4,688 2,311
Corporate administrative expenses 570 127
Depreciation and amortization 3,476 2,308
Pre-acquisition expenses -- 940
-------- --------
Total expenses 8,733 5,686
-------- --------
OPERATING INCOME (LOSS) 1,046 (1,317)
INTEREST EXPENSE, net (2,473) (1,386)
-------- --------
NET LOSS $(1,427) $(2,703)
-------- --------
-------- --------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 115
FRONTIERVISION OPERATING PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
In Thousands
<TABLE>
<CAPTION>
-----------------------------------------------
FRONTIERVISION
FRONTIERVISION OPERATING
PARTNERS, L.P. PARTNERS, INC.
(GENERAL PARTNER) (LIMITED PARTNER) TOTAL
----------------- ----------------- -------
<S> <C> <C> <C>
BALANCE, AT INCEPTION
(April 17, 1995 -- see Note 1) $ -- $ -- $ --
Capital contributions 49,061 49 49,110
Net loss (2,700) (3) (2,703)
-------- --- -------
BALANCE, DECEMBER 31, 1995 46,361 46 46,407
Capital contributions (Unaudited) 15,015 14 15,029
Net loss (Unaudited) (1,426) (1) (1,427)
-------- --- -------
BALANCE, MARCH 31, 1996 (Unaudited) $59,950 $59 $60,009
-------- --- -------
-------- --- -------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE> 116
FRONTIERVISION OPERATING PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
In Thousands
<TABLE>
<CAPTION>
----------------------------------
FOR THE PERIOD
FOR THE FROM INCEPTION
THREE (APRIL 17, 1995 --
MONTHS ENDED SEE NOTE 1) THROUGH
MARCH 31, DECEMBER 31,
1996 1995
------------ -------------------
Unaudited
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,427) $ (2,703)
Adjustments to reconcile net loss to net cash flows from
operating activities
Depreciation and amortization 3,476 2,377
(Increase) decrease in accounts receivable 1,671 (261)
(Increase) decrease in prepaid expenses and other (514) 75
Increase (decrease) in accounts payable and accrued
liabilities (252) 1,637
Increase in subscriber prepayments and deposits 62 362
Increase in accrued interest payable 421 420
-------- ----------
Total adjustments 4,863 4,610
-------- ----------
Net cash flows from operating activities 3,436 1,907
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for capital expenditures (1,141) (573)
Earnest money deposits -- (9,502)
Acquisition of cable television systems, including
purchased intangibles (50,466) (121,270)
-------- ----------
Net cash flows from investing activities (51,607) (131,345)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt borrowings 30,912 85,900
Increase in deferred financing fees (14) (2,922)
Partner capital contributions 15,029 49,110
-------- ----------
Net cash flows from financing activities 45,927 132,088
-------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,243) 2,650
-------- ----------
CASH AND CASH EQUIVALENTS, at beginning of period 2,650 --
-------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 407 $ 2,650
-------- ----------
-------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,807 $ 957
-------- ----------
-------- ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE> 117
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
Amounts In Thousands
(1) THE PARTNERSHIP
Organization and Capitalization
FrontierVision Operating Partners, L.P. (the "Partnership") is a Delaware
partnership formed on July 14, 1995 for the purpose of acquiring and operating
cable television systems. As of December 31, 1995, the Partnership had acquired
operating cable television systems in Maine and Ohio (see Note 3). The
Partnership was initially capitalized in November 1995 with approximately $38
from its sole limited partner, FrontierVision Operating Partners, Inc. ("FVOP
Inc."), a Delaware corporation, and approximately $38,300 from its sole general
partner, FrontierVision Partners, L.P. ("FVP"), a Delaware partnership. FVOP
Inc. is a wholly owned subsidiary of FVP. During the period from January 1, 1996
to April 9, 1996, the Partnership received additional capital contributions of
approximately $58,500 from its partners.
Allocation of Profits, Losses and Distributions
Generally, the Partnership agreement provides that profits, losses and
distributions will be allocated to the general partner and the limited partner
pro rata based on capital contributions.
Pre-Acquisition Expenses
The Partnership had no substantive operations of its own until the date of the
acquisitions described in Note 3. However, FVP, which was formed on April 17,
1995, incurred certain general and administrative costs deemed attributable to
FVOP prior to the Partnership's legal formation. Such expenditures have been
reflected in the accompanying financial statements as pre-acquisition expenses
as if the Partnership had incurred those costs directly. In addition, the
accompanying balance sheet as of December 31, 1995 reflects earnest money
deposits paid by FVP on behalf of the Partnership related to planned
acquisitions (see Note 8). All such amounts have been reflected as capital
contributions in the accompanying financial statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized in the period in which the related services are provided
to the subscribers.
Property and Equipment
Property and equipment are stated at cost. Replacements, renewals and
improvements are capitalized and costs for repairs and maintenance are charged
to expense when incurred. The Partnership capitalized a portion of salaries and
overhead related to installation activities of approximately $39 for the period
ended December 31, 1995.
F-8
<PAGE> 118
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amounts In Thousands
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and amortization are computed using the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
----------------------------------------
AS OF AS OF
MARCH 31, DECEMBER 31,
1996 1995 LIFE
----------- ------------ ----------
Unaudited
<S> <C> <C> <C>
Property and equipment $66,592 $43,906 5-20 years
Less -- Accumulated depreciation (2,423) (989)
-------- --------
$64,169 $42,917
======== ========
</TABLE>
Franchise Costs, Subscriber Lists and Goodwill
Franchise costs, subscriber lists and goodwill are being amortized using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
-------------------------------------
AS OF
AS OF DECEMBER
MARCH 31, 31,
1996 1995 LIFE
----------- ----------- --------
Unaudited
<S> <C> <C> <C>
Franchise costs $81,973 $50,748 15 years
Less -- Accumulated amortization (1,361) (564)
-------- --------
$80,612 $50,184
======== ========
Subscriber lists $29,707 $29,707 7 years
Less -- Accumulated amortization (1,768) (707)
-------- --------
$27,939 $29,000
======== ========
Goodwill $ 4,252 $ 4,140 15 years
Less -- Accumulated amortization (127) (46)
-------- --------
$ 4,125 $ 4,094
======== ========
</TABLE>
Deferred Financing Costs
Deferred financing costs are being amortized using the effective interest method
over the life of the loans:
<TABLE>
<CAPTION>
---------------------------------------
AS OF AS OF
MARCH 31, DECEMBER 31,
1996 1995 LIFE
----------- ------------ ---------
Unaudited
<S> <C> <C> <C>
Deferred financing costs $2,936 $2,922 1-9 years
Less -- Accumulated amortization (169) (69)
------ ------
$2,767 $2,853
====== ======
</TABLE>
Cash and Cash Equivalents
For purposes of the financial statements, the Partnership considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
F-9
<PAGE> 119
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amounts In Thousands
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
No provision has been made for federal, state or local income taxes related to
the Partnership because they are the responsibility of the individual partners.
The principal difference between results reported for financial reporting
purposes and for income tax purposes results from differences in depreciable
lives and amortization methods utilized for tangible and intangible assets.
Interim Financial Statements
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1996 are unaudited. In management's opinion, the unaudited financial
statements as of March 31, 1996 and for the three months ended March 31, 1996
include all adjustments necessary for a fair presentation. Such adjustments were
of a normal recurring nature.
New Accounting Principles
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), which is
required to be adopted by affected companies for fiscal years beginning after
December 15, 1995. SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by the Company be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Partnership has not
adopted the principles of this statement within the accompanying consolidated
financial statements; however, the Partnership does not believe that the
provisions of SFAS 121 would have had a material effect on the Company's
previously reported results of operations or financial condition for fiscal
1995.
The FASB issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"), which is required to be adopted by
affected companies for fiscal years beginning after December 15, 1995. The
Partnership does not believe that the provisions of SFAS 123 will have a
material effect on the Company's reported results of operations.
(3) ACQUISITIONS
On November 9, 1995, the Partnership purchased certain cable television system
assets, primarily in Maine and Ohio, from United Video Cablevision, Inc. ("UVC")
for approximately $113,485 in cash plus a note payable to the seller of $7,200
and the assumption of certain liabilities of the acquired business. The
acquisition was financed with the partner contributions and loans noted above,
together with a portion of a $130,000 credit facility (see Note 5).
F-10
<PAGE> 120
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amounts In Thousands
(3) ACQUISITIONS (CONTINUED)
The Partnership has recorded a receivable from UVC related to certain estimated
post closing adjustments to be made to the cash paid to UVC. The purchase price
was allocated to the acquired assets and liabilities as follows:
<TABLE>
<S> <C>
Current assets $ 379
Receivable from seller 1,667
Property, plant and equipment 39,828
Franchise costs 49,785
Subscriber lists 28,139
Goodwill 4,026
--------
Subtotal 123,824
Less -- Current liabilities assumed (1,472)
--------
122,352
Less -- Subordinated promissory note to seller (7,200)
--------
Total cash paid $115,152
========
</TABLE>
On November 21, 1995, the Partnership acquired the net assets of Longfellow
Cable Company, Inc. ("Longfellow") in Maine for approximately $6,118 in cash.
The purchase price was allocated to the acquired assets and liabilities as
follows:
<TABLE>
<S> <C>
Current assets $ 22
Property, plant and equipment 3,505
Franchise costs 963
Subscriber lists 1,568
Goodwill 114
------
Subtotal 6,172
Less -- Current liabilities assumed (54)
------
Total cash paid $6,118
======
</TABLE>
F-11
<PAGE> 121
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amounts In Thousands
(3) ACQUISITIONS (CONTINUED)
The Partnership has reported the operating results of its acquired cable systems
from the dates of acquisition. The following table shows the unaudited pro forma
results of operations as if the Partnership had acquired the UVC and Longfellow
properties on January 1, 1995. The fiscal 1995 pre-acquisition results for
Longfellow have not been audited and were provided to the Partnership by the
seller.
<TABLE>
<CAPTION>
----------------------------------------------------
PRO FORMA ADJUSTMENTS
-------------------------------- UNAUDITED
HISTORICAL UVC LONGFELLOW PRO FORMA
RESULTS ACQUISITION(A) ACQUISITION(B) RESULTS
---------- -------------- -------------- ---------
Unaudited
<S> <C> <C> <C> <C>
Revenues $ 4,369 $ 25,417 $ 1,470 $ 31,256
Operating, selling, general and administrative
expenses (2,438) (14,393) (1,047) (17,878)
Depreciation and amortization (2,308) (11,454) (585) (14,347)
Pre-acquisition expenses (940) -- -- (940)
------- -------- ------- --------
Operating income (loss) (1,317) (430) (162) (1,909)
Interest and other expense (1,386) (7,680) (336) (9,402)
------- -------- ------- --------
Net loss $(2,703) $ (8,110) $ (498) $(11,311)
======= ======== ======= ========
</TABLE>
- ---------------
(A) Period from January 1, 1995 through November 8, 1995. Includes additional
depreciation and amortization expense of $2,204, as well as additional interest
expense of $6,594 related to the UVC acquisition.
(B) Period from January 1, 1995 through November 20, 1995. Includes additional
depreciation and amortization expense of $207, as well as additional interest
expense of $336 related to the Longfellow acquisition.
(4) COMMITMENTS
The Partnership is committed to annual pole rentals of approximately $1,077 as
of December 31, 1995, to various utilities. These agreements are subject to
termination rights by both parties.
The Partnership leases the land upon which certain of its towers and antennae
are constructed. The annual rental commitments under these leases amount to
approximately $59 as of December 31, 1995.
The Partnership leases office space pursuant to which its commitments under
these leases are approximately $124 per year.
F-12
<PAGE> 122
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amounts In Thousands
(5) DEBT
The Partnership's debt was comprised of the following:
<TABLE>
<CAPTION>
--------------------------
AS OF AS OF
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
Unaudited
<S> <C> <C>
Bank Credit Facility --
Revolving credit loan, due June 30, 2004, interest based
on various floating rate options (8.69% on $50,000 and
8.50% on $5,900 at December 31, 1995), payable monthly $86,800 $55,900
Term loans, due June 30, 2004, interest based on various
floating rate options (8.69% at December 31, 1995),
payable monthly 30,000 30,000
Subordinated promissory note to seller, due December 31,
2004, with interest as described below 7,200 7,200
Capital lease obligations, monthly payments of $2, including
interest at 9%, due November 1998 72 59
--------- --------
Total debt $124,072 $93,159
========= ========
</TABLE>
The Partnership has entered into a credit agreement with a maximum availability
of $130,000 (see Note 8). The Partnership has drawn $30,000 in the form of term
loans with the remainder of $100,000 available as a revolving line of credit, of
which $55,900 had been drawn as of December 31, 1995. Escalating principal
payments are due, quarterly, beginning March 31, 1998 on these term loans. The
credit facility has a termination date of June 30, 2004. The maximum amount
available under the revolving line of credit reduces over time, beginning March
31, 1998.
Under the terms of the credit agreement, the Partnership has a mandatory
prepayment obligation upon any sale of new partnership interests and the sale of
any of its operating systems. Further, beginning with the year ended December
31, 1998, the Partnership is required to make prepayments equal to 50% of its
excess cash flow, as defined in the credit agreement.
The agreement also requires the Partnership to maintain compliance with various
financial covenants including, but not limited to total indebtedness, debt
ratios, interest coverage ratios and earnings before interest, taxes,
depreciation and amortization.
In connection with the revolving credit loan and the term loan, the Partnership
has entered into an interest rate swap agreement, which expires November 15,
1999. Under the terms of the agreement, the Partnership has agreed to pay the
lender interest at a rate of 5.912% on a notional amount totaling $65,000. In
turn, the lender has agreed to pay the Partnership interest on a three-month
maturity basis based upon various available floating rate options on the same
notional amount. The effect of this swap agreement is to convert a portion of
the Partnership's floating rate exposure to a fixed rate facility. Through
December 31, 1995, the Partnership has recognized a reduction in interest
expense of approximately $18 as a result of this agreement.
The subordinated promissory note to seller bears interest at 9% for the first
three years. At the end of each subsequent year, the annual interest rate
increases 2% per year. Under the terms of the subordinated promissory note, the
Partnership may issue additional subordinated promissory notes rather than
making cash interest payments. Further, in the event the Partnership's leverage
ratio exceeds defined amounts, the interest rate also increases by 2%. Under the
terms of the subordinated promissory note, the Partnership can prepay the
balance at any time.
F-13
<PAGE> 123
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amounts In Thousands
(5) DEBT (CONTINUED)
The debt of the Partnership matures as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 --
-------------------------------------------------------------------
<S> <C>
1996 $ 19
1997 20
1998 5,174
1999 6,872
2000 10,308
Thereafter 70,766
-------
$93,159
=======
</TABLE>
(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, which were defined as all systems serving
1,000 or fewer subscribers.
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) INCOME TAXES
Income taxes have not been recorded in the accompanying financial statements
because they accrue directly to the partners. Taxable losses reported to the
partners are different from that reported in the accompanying statements of
operations due primarily to differences in depreciation methods and estimated
useful lives under regulations prescribed by the Internal Revenue Service.
F-14
<PAGE> 124
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amounts In Thousands
(7) INCOME TAXES (CONTINUED)
A reconciliation between the net loss reported for financial reporting purposes
and the net loss reported for federal income tax purposes is as follows:
<TABLE>
<S> <C>
Net loss for financial reporting purposes $(2,703)
Excess depreciation and amortization recorded for income tax
purposes (192)
Other temporary differences 186
-------
Net loss for federal income tax purposes $(2,709)
======
</TABLE>
(8) SUBSEQUENT EVENTS
On February 1, 1996, the Partnership acquired certain cable television assets,
primarily in Virginia and Tennessee, from C4 Media Cable Southeast L.P. ("C4"),
resulting in a cash purchase price of approximately $48,000 and the assumption
of certain related liabilities. As of December 31, 1995, the Partnership had
advanced $2,502 as an earnest money deposit related to this transaction.
The Partnership has reported the operating results of C4 from the date of
acquisition. The following table shows the unaudited pro forma results of
operations as if the Partnership had acquired C4 as of January 1, 1996:
<TABLE>
<CAPTION>
-------------------------------------------
FOR THE THREE
MONTHS ENDED UNAUDITED
MARCH 31, 1996 C4 PRO FORMA
HISTORICAL ACQUISITION(A) RESULTS
-------------- -------------- ---------
Unaudited Unaudited
<S> <C> <C> <C>
Revenues $ 9,780 $ 945 $10,725
Operating, selling, general and administrative
expenses (5,258) (531) (5,789)
Depreciation and amortization (3,476) (443) (3,919)
------- ----- --------
Operating income (loss) 1,046 )(29 1,017
Interest and other expenses (2,473) (831) (3,304)
------- ----- --------
Net loss $(1,427) $(860) $(2,287)
------- ----- --------
------- ----- --------
</TABLE>
- ---------------
(A) Period from January 1, 1996 through January 31, 1996. Includes decreased
depreciation and amortization expenses of $20, as well as additional interest
expense of $147.
On March 29, 1996, the Partnership acquired certain cable television assets,
primarily in Maine, from Americable International Maine, Inc. for approximately
$4,750 in cash and the assumption of certain related liabilities.
On April 9, 1996, the Partnership increased its bank credit facility by
$135,000, for a total availability of $265,000. A total of $190,000 of the new
bank credit facility is available as a term loan, with the remainder available
as a revolving credit facility. The revolver and $100,000 of the term loan
matures June 30, 2004. The remaining $90,000 of the term loan matures on June
30, 2005.
On April 9, 1996, the Partnership acquired certain cable television system
assets, primarily in Ohio, from Cox Communications resulting in a cash purchase
price of approximately $136,000 and the assumption of certain related
liabilities. As of December 31, 1995, the Partnership had advanced $7,000 as an
earnest money deposit related to this transaction.
F-15
<PAGE> 125
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Amounts In Thousands
(9) EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT Unaudited
During May, 1996, the Partnership agreed to acquire certain cable television
assets, primarily in Kentucky and Ohio, from Triax Southeast Associates, L.P.
("Triax"), for approximately $85,000 in cash and the assumption of certain
related liabilities. The Triax acquisition is expected to close in the third
quarter of 1996.
During July 1996, the Partnership agreed to acquire certain cable television
assets, primarily in Kentucky and Ohio, from American Cable Entertainment
("ACE") for approximately $146,000 and the assumption of certain liabilities.
The ACE acquisition is expected to close in the third quarter of 1996.
In addition, the Partnership intends to file a registration statement with
respect to $200,000 of Senior Subordinated Notes due 2006.
F-16
<PAGE> 126
INDEPENDENT AUDITORS' REPORT
MAY 7, 1996
To the Board of Directors and Stockholders of
United Video Cablevision, Inc.:
We have audited the accompanying divisional balance sheet of UNITED VIDEO
CABLEVISION, INC. -- MAINE AND OHIO DIVISIONS as of November 8, 1995 and
December 31, 1994 and the related statements of divisional operations, cash
flows and equity for the period of January 1, 1995 through November 8, 1995 and
for the years ended December 31, 1994 and 1993. These financial statements are
the responsibility of the Divisions' management. Our responsibility is to
express an opinion on these financial statements 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 financial statements are free from 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 our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the divisional financial position of United Video
Cablevision, Inc. -- Maine and Ohio Divisions as of November 8, 1995 and
December 31, 1994, and the results of its divisional operations and its cash
flows for the period ending November 8, 1895, and the years ending December 31,
1994 and 1993 in conformity with generally accepted accounting principles.
PIAKER & LYONS, P.C.
May 7, 1996
Vestal, NY
F-17
<PAGE> 127
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
DIVISIONAL BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------------------
MARCH 31, NOVEMBER 8, DECEMBER 31,
1995 1995 1994
------------ ------------ ------------
Unaudited
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 168,932 $ 75,100 $ 35,461
------------ ------------ ------------
ACCOUNTS RECEIVABLE (1)
Accounts Receivable, Trade 50,510 143,673 206,676
Accounts Receivable, Other 10,773 25,980 31,034
Less: Allowance for Doubtful Accounts (34,920) (53,994) (34,928)
------------ ------------ ------------
NET ACCOUNTS RECEIVABLE 26,363 115,659 202,682
------------ ------------ ------------
Prepaid Expenses 249,447 165,080 108,045
------------ ------------ ------------
TOTAL CURRENT ASSETS 444,742 355,839 346,188
PROPERTY, PLANT AND EQUIPMENT -- At Cost
Land 61,556 61,556 61,223
Buildings and Improvements 1,583,165 1,586,150 1,570,888
Vehicles 2,606,808 2,608,730 2,282,936
Cable Television Distribution Systems 83,683,992 85,010,454 83,296,885
Office Furniture, Tools and Equipment 1,383,737 1,386,288 1,363,828
Less: Accumulated Depreciation (1) (61,704,897) (68,243,467) (59,163,656)
------------ ------------ ------------
NET PROPERTY, PLANT AND EQUIPMENT 27,569,361 22,409,711 29,758,104
------------ ------------ ------------
INTANGIBLE ASSETS
Franchise Rights 1,984,351 1,994,336 1,984,349
Non Compete Agreements 71,753 71,753 71,753
Other Intangible Assets 1,943,836 1,943,836 1,943,836
Less: Accumulated Amortization (1) (2,661,593) (2,930,019) (2,550,708)
------------ ------------ ------------
NET INTANGIBLE ASSETS 1,338,347 1,079,906 1,449,230
------------ ------------ ------------
TOTAL ASSETS $ 29,352,450 $ 23,845,456 $ 31,553,522
=========== =========== ===========
LIABILITIES AND DIVISIONAL EQUITY
LIABILITIES
Accounts Payable $ -- $ -- $ 684,264
Subscriber Deposits and Unearned Income 383,181 341,263 401,608
Accrued Franchise Fees 143,769 424,312 469,578
Accrued Programming Fees 522,417 686,599 513,151
Other Accrued Expenses 1,302,429 1,596,134 1,154,024
------------ ------------ ------------
TOTAL LIABILITIES 2,351,796 3,048,308 3,222,623
DIVISIONAL EQUITY 27,000,654 20,797,148 28,330,899
------------ ------------ ------------
TOTAL LIABILITIES AND DIVISIONAL EQUITY $ 29,352,450 $ 23,845,456 $ 31,553,522
=========== =========== ===========
</TABLE>
See the accompanying notes to divisional financial statements.
F-18
<PAGE> 128
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
STATEMENTS OF DIVISIONAL OPERATIONS
<TABLE>
<CAPTION>
-----------------------------------------------------------
PERIOD FROM
FOR THE JANUARY 1,
THREE MONTHS 1995 FOR THE FOR THE
ENDED THROUGH YEAR ENDED YEAR ENDED
MARCH 31, NOVEMBER 8, DECEMBER 31, DECEMBER 31,
1995 1995 1994 1993
------------ ----------- ------------ ------------
Unaudited
<S> <C> <C> <C> <C>
REVENUES (1) $7,205,917 $25,417,064 $27,964,550 $27,917,090
------------ ----------- ------------ ------------
OPERATING EXPENSES
Programming 1,518,717 5,350,664 5,717,160 5,361,127
Plant and Operation 1,038,768 3,741,207 4,185,894 3,902,847
General and Administrative 1,118,097 3,754,474 4,415,919 4,628,442
Marketing and Advertising 115,571 276,712 248,572 409,890
Corporate Overhead (3) 327,274 1,270,072 1,327,127 1,470,702
Depreciation and Amortization (1) 2,704,439 9,625,116 11,225,978 9,960,536
------------ ----------- ------------ ------------
TOTAL EXPENSES 6,822,866 24,018,245 27,120,650 25,733,544
------------ ----------- ------------ ------------
OPERATING INCOME 383,051 1,398,819 843,900 2,183,546
------------ ----------- ------------ ------------
OTHER (INCOME) EXPENSE
Interest Expense (1) 1,250,754 4,086,738 4,892,250 4,960,032
Gain on Sale of Fixed Assets (7,890) (25,034) (33,835) (3,810)
------------ ----------- ------------ ------------
TOTAL OTHER (INCOME) EXPENSE 1,242,864 4,061,704 4,858,415 4,926,222
------------ ----------- ------------ ------------
NET LOSS $ (859,813) $(2,662,885) $(4,014,515) $(2,742,676)
========== ========== =========== ===========
</TABLE>
See the accompanying notes to divisional financial statements.
F-19
<PAGE> 129
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
STATEMENTS OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, JANUARY 1, $28,330,899 $32,700,089 $37,526,944
Net Loss (2,662,885) (4,014,515) (2,742,676)
Payments to Corporate Division, Net (4,870,866) (354,675) (2,084,179)
----------- ----------- -----------
BALANCE, NOVEMBER 8, 1995 $20,797,148
==========
BALANCE, DECEMBER 31, $28,330,899 $32,700,089
========== ==========
</TABLE>
See the accompanying notes to divisional financial statements.
F-20
<PAGE> 130
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
STATEMENTS OF DIVISIONAL CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------------------------
PERIOD FROM
FOR THE JANUARY 1,
THREE MONTHS 1995 FOR THE FOR THE
ENDED THROUGH YEAR ENDED YEAR ENDED
MARCH 31, NOVEMBER 8, DECEMBER 31, DECEMBER 31,
1995 1995 1994 1993
------------ ----------- ------------ ------------
Unaudited
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES
Net Loss $ (859,813) $(2,662,885) $(4,014,515) $(2,742,676)
------------ ----------- ------------ ------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATIONS:
Depreciation 2,593,554 9,245,805 10,771,263 9,497,062
Amortization of Intangibles 110,885 379,311 454,715 463,474
Allowance for Doubtful Accounts (8) 19,066 6,124 (3,007)
Gain on Sale of Assets (7,890) (25,034) (33,835) (33,810)
CHANGES IN OPERATING ASSETS AND LIABILITIES,
NET OF EFFECTS FROM ACQUISITION OF
CORPORATE ENTITIES:
Accounts Receivable and Other Receivables 176,327 67,957 (132,182) 122,248
Prepaid Expenses (141,402) (57,035) 13,897 (158,603)
Accounts Payable and Accrued Expenses (852,402) (113,972) (846,244) (52,046)
Subscriber Deposits and Unearned Income (18,427) (60,343) (45,895) (72,253)
------------ ----------- ------------ ------------
TOTAL ADJUSTMENTS 1,860,637 9,455,755 10,187,843 9,762,995
------------ ----------- ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,000,824 6,792,870 6,173,328 7,002,319
------------ ----------- ------------ ------------
INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment (449,234) (2,037,144) (5,712,592) (5,024,998)
Acquisition of Intangible Assets -- (9,987) (216,154) (1,928)
Proceeds from Sale of Assets 52,313 164,766 41,789 37,600
------------ ----------- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (396,921) (1,882,365) (5,886,957) (4,989,266)
------------ ----------- ------------ ------------
FINANCING ACTIVITIES
Payments to Corporate Division, Net (470,432) (4,870,866) (354,675) (2,084,179)
------------ ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH EQUIVALENTS 133,471 39,639 (68,304) (53,126)
Cash and Cash Equivalents at Beginning of
Period 35,461 35,461 103,765 156,891
------------ ----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 168,932 $ 75,100 $ 35,461 $ 103,765
============= ============ ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest Paid, Net of Amount Capitalized $1,250,754 $4,086,738 $ 4,892,250 $ 4,960,032
Income Taxes Paid -- -- -- --
</TABLE>
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the statement of cash flows, the Divisions consider all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
See the accompanying notes to divisional financial statements.
F-21
<PAGE> 131
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
NOTES TO DIVISIONAL FINANCIAL STATEMENTS
NOVEMBER 8, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING, POLICIES
Business Activity
The accompanying divisional financial statements include the Maine and Ohio
Divisions of United Video Cablevision, Inc. (the "Divisions"). The Divisions are
engaged in providing cable television programming services to subscribers in
their franchised areas. For the purpose of the divisional financial statements,
no debt has been allocated to the Divisions from the corporate division of
United Video Cablevision, Inc. Under the terms of the agreement with
FrontierVision Operating Partners, L.P., no such debt will be assumed.
Concentrations of Credit Risk
The Divisions' trade receivables are comprised of amounts due from subscribers
in varying regions throughout the states. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Divisions' customer base and geographic dispersion.
Revenue Recognition
The Divisions recognize service revenues on the accrual basis in the month in
which the service is to be provided. Payments received in advance are included
in deferred revenue until the month they become due at which time they are
recognized as income.
Capitalization and Depreciation
The Divisions have adopted the policy of capitalizing interest costs as part of
construction costs to properly reflect the total costs of the property in
accordance with Statement No. #34 of the Financial Accounting Standards Board.
The interest capitalization rate during the period is based on the rates
applicable to borrowings outstanding during the period. For the period ended
November 8, 1995, the total interest charges amounted to $4,086,738, of which $-
0- was capitalized. During 1994 and 1993, respectively, the total interest
charges amounted to $4,892,250 and $4,960,032, of which $-0- was capitalized.
In accordance with Statement No. #51 of the Financial Accounting Standards
Board, the Divisions have adopted the policy of capitalizing certain expenses
applicable to the construction and operating of a cable television system during
the period while the cable television system is partially under construction and
partially in service. For the period ended November 8, 1995, the total
capitalized costs amounted to $314,347. During 1994 and 1993, the total
capitalized costs amounted to $244,276 and $300,429, respectively.
The Divisions, for financial reporting purposes, provide depreciation on the
straight-line method, which is considered adequate for the recovery of the cost
of the properties over their estimated useful lives. For income tax purposes,
however, the Divisions utilize both accelerated methods and the accelerated cost
recovery system. For the period ended November 8, 1995, the provision for
depreciation in the accompanying statements of operations amounted to
$9,245,805. For the years ended December 31, 1994 and 1993, the provision
amounted to $10,771,263 and $9,497,062, respectively.
F-22
<PAGE> 132
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
NOTES TO DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING, POLICIES (CONTINUED)
Depreciation lives for financial statement purposes are as follows:
<TABLE>
<S> <C>
Headend Equipment
Tower 12 Years
Antennae 7 Years
Other Headend Equipment 8 Years
Trunk and Distribution Equipment
Traps, Descramblers, Converters, Decoders 5 Years
Other Trunk and Distribution Equipment 8 Years
Test Equipment 5 Years
Local Origination Equipment 8 Years
Vehicles 3 Years
Furniture and Fixtures 10 Years
Leasehold Improvements 8 Years
Computer and EDP Equipment 5 Years
</TABLE>
Amortization
The Divisions are amortizing various intangible assets acquired and incurred on
a straight-line basis, generally from 5 to 40 years. For the period ended
November 8, 1995, the provision for amortization in the accompanying statements
of operations amounted to $379,311. For the years ended December 31, 1994 and
1993, the provision amounted to $454,715 and $463,474, respectively.
Income Taxes
The Divisions are a part of United Video Cablevision, Inc. which has elected to
be taxed as a small business corporation under "Sub-Chapter S" of the Internal
Revenue Code effective January 1, 1987, wherein the stockholders of United Video
Cablevision, Inc. are taxed on any earnings or losses of the Company.
Bad Debts
The Divisions have adopted the reserve method for recognizing bad debts for
financial statement purposes and continue to utilize the direct write-off method
for tax purposes.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
(2) COMMITMENTS
The Divisions were committed to annual pole rentals of approximately $823,000 at
November 8, 1995 and $830,000 and $832,000 at December 31, 1994 and 1993,
respectively, to various utilities. These agreements are subject to termination
rights by both parties.
The Divisions lease in various systems the land upon which their towers and
antennae are constructed. The annual rental payments under these leases amounted
to approximately $37,000 at November 8, 1995, approximately $32,000 at December
31, 1994 and approximately $46,000 at December 31, 1993.
F-23
<PAGE> 133
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
NOTES TO DIVISIONAL FINANCIAL STATEMENTS (CONTINUED)
(3) MANAGEMENT AGREEMENT WITH RELATED PARTY
The Divisions are being provided with certain management and technical services
by a related party by means of a management agreement. For the period ended
November 8, 1995, the allocated billings amounted to $1,270,072, and for the
years ended December 31, 1994 and 1993, billings amounted to $1,327,127 and
$1,470,702, respectively.
(4) SALE OF DIVISIONS
On November 9, 1995, United Video Cablevision, Inc. consummated an agreement by
which it sold substantially all of the net assets and associated current
liabilities in its Maine and Ohio franchise areas (the Divisions) for
approximately $120,500,000. Upon the completion of the transaction, United Video
Cablevision, Inc. realized a gain of approximately $100,000,000.
F-24
<PAGE> 134
INDEPENDENT AUDITORS' REPORT
Cox Communications, Inc.:
We have audited the accompanying combined statements of net assets of the
combined operations of Cox Communications, Inc.'s ("CCI") cable television
systems serving 57 communities in Ashland, Kentucky and Defiance, Ohio
(collectively referred to as the "Ashland and Defiance Clusters" or "Successor")
whose assets and certain liabilities were acquired by FrontierVision Operating
Partners, L.P. on April 9, 1996, as of December 31, 1994 ("Predecessor") and
1995 ("Successor"), and the related combined statements of operations, changes
in net assets, and cash flows for the years ended December 31, 1993 and 1994
(Predecessor), for the one-month period ended January 31, 1995 (Predecessor),
and for the eleven-month period ended December 31, 1995 (Successor). These
financial statements are the responsibility of the Ashland and Defiance
Clusters' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Ashland and
Defiance Clusters at December 31, 1994 (Predecessor) and 1995 (Successor), and
the combined results of its operations and its cash flows for years ended
December 31, 1993 and 1994 (Predecessor), for the one-month period ended January
31, 1995 (Predecessor), and for the eleven-month period ended December 31, 1995
(Successor), in conformity with generally accepted accounting principles.
As discussed in Note 1, effective February 1, 1995, CCI acquired the Ashland and
Defiance Clusters in connection with the acquisition of Times Mirror Cable
Television, Inc.
DELOITTE & TOUCHE LLP
Atlanta, GA
April 10, 1996
F-25
<PAGE> 135
ASHLAND AND DEFIANCE CLUSTERS
COMBINED STATEMENTS OF NET ASSETS
In Thousands
<TABLE>
<CAPTION>
----------------------------
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash $188
Accounts Receivable -- Less allowance for doubtful accounts
of $43 and $37 1,563 $1,784
Amounts Due From Affiliate 5,848
Intercompany Income Taxes Receivable 1,182
Net Plant and Equipment 18,096 25,621
Intangible Assets 51,210 110,796
Other Assets 580 1,149
-------- ---------
$71,637 $146,380
-------- ---------
-------- ---------
LIABILITIES AND NET ASSETS
Accounts Payable $692 $580
Accrued Expenses 915 966
Intercompany Income Taxes Payable 2,160
Deferred Income 1,142 1,355
Deferred Income Taxes 3,147 7,644
Other Liabilities 99 146
Amounts Due to Affiliate 52,317
-------- ---------
Total liabilities 60,472 10,691
NET ASSETS 11,165 135,689
-------- ---------
$71,637 $146,380
-------- ---------
-------- ---------
</TABLE>
See notes to combined financial statements.
F-26
<PAGE> 136
ASHLAND AND DEFIANCE CLUSTERS
COMBINED STATEMENTS OF OPERATIONS
In Thousands
<TABLE>
<CAPTION>
-------------------------------------------------
PREDECESSOR
--------------------------------- SUCCESSOR
--------------
YEAR ENDED ONE MONTH ELEVEN MONTHS
DECEMBER 31, ENDED ENDED
------------------ JANUARY 31, DECEMBER 31,
1993 1994 1995 1995
------- ------- ----------- --------------
<CAPTION>
<S> <C> <C> <C> <C>
REVENUES $24,679 $25,235 $2,096 $24,628
COSTS AND EXPENSES
OPERATING 6,773 7,188 689 8,035
Selling, general, and administrative 5,398 5,507 503 4,919
Depreciation 3,413 3,293 214 5,480
Amortization 2,129 1,830 128 2,727
------- ------- ------ --------
Total costs and expenses 17,713 17,818 1,534 21,161
------- ------- ------ --------
OPERATING INCOME 6,966 7,417 562 3,467
INTEREST EXPENSE 133 434 79
OTHER -- NET (4) (3) (29)
------- ------- ------ --------
INCOME BEFORE INCOME TAXES 7,095 7,849 641 3,438
INCOME TAXES 3,559 3,982 249 3,749
------- ------- ------ --------
NET INCOME (LOSS) $ 3,536 $ 3,866 $ 393 $ (311)
======= ======= ====== ========
</TABLE>
See notes to combined financial statements.
F-27
<PAGE> 137
ASHLAND AND DEFIANCE CLUSTERS
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
In Thousands
<TABLE>
<S> <C>
PREDECESSOR
- ----------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1993 $ 11,303
Net income for the year ended December 31, 1993 3,536
Dividends to Affiliate (1,570)
--------
BALANCE, DECEMBER 31, 1993 13,269
Net income for the year ended December 31, 1994 3,866
Dividends to Affiliate (5,970)
--------
BALANCE, DECEMBER 31, 1994 11,165
Net income for the one month ended January 31, 1995 393
--------
BALANCE, JANUARY 31, 1995 $ 11,558
========
SUCCESSOR
- ----------------------------------------------------------------------------------
FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED FROM
TIMES MIRROR CABLE TELEVISION, INC. ON FEBRUARY 1, 1995 $136,000
Net loss for the eleven months ended December 31, 1995 (311)
--------
BALANCE, DECEMBER 31, 1995 $135,689
========
</TABLE>
See notes to combined financial statements.
F-28
<PAGE> 138
ASHLAND AND DEFIANCE CLUSTERS
COMBINED STATEMENTS OF CASH FLOWS
In Thousands
<TABLE>
<CAPTION>
----------------------------------------------
PREDECESSOR
------------------------------- SUCCESSOR
-------------
YEAR ENDED ONE MONTH ELEVEN MONTHS
DECEMBER 31, ENDED ENDED
---------------- JANUARY 31, DECEMBER 31,
1993 1994 1995 1995
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $3,536 $3,866 $ 393 $ (311)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,542 5,123 342 8,207
Deferred income taxes 293 298 (70) (142)
(Increase) decrease in accounts receivable (45) 114 66 (287)
Increase (decrease) in accounts payable and
accrued expenses (92) (214) (360) 467
Income taxes payable (906) 1,914 31 (1,182)
Other, net (61) 162 45 274
------ ------ ----- -------
Net cash provided by operating activities 8,267 11,263 447 7,026
INVESTING ACTIVITIES:
Capital expenditures (6,075) (3,795) (65) (1,362)
Advances to Affiliate (5,848)
------ ------ ----- -------
Net cash used in investing activities (6,075) (3,795) (65) (7,210)
FINANCING ACTIVITIES:
Net change in amounts due to Affiliate (580) (1,466) (386)
Dividends paid (1,570) (5,970)
------ ------ ----- -------
Net cash used in financing activities (2,150) (7,436) (386)
------ ------ ----- -------
NET INCREASE (DECREASE) IN CASH 42 32 (4) (184)
CASH AT BEGINNING OF PERIOD 114 156 188 184
------ ------ ----- -------
CASH AT END OF PERIOD $ 156 $ 188 $ 184
------ ------ ----- -------
CASH PAID DURING THE PERIOD FOR:
Interest $ 133 $ 434 $ 79 $ --
------ ------ ----- -------
</TABLE>
See notes to combined financial statements.
F-29
<PAGE> 139
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994,
ONE MONTH ENDED JANUARY 31, 1995, AND
ELEVEN MONTHS ENDED DECEMBER 31, 1995
(1) ORGANIZATION AND BASIS OF PRESENTATION
These combined financial statements represent the combined operations of Cox
Communications, Inc.'s ("CCI") cable television systems serving 57 communities
in Ashland, Kentucky and Defiance, Ohio (collectively referred to as the
"Ashland and Defiance Clusters") whose assets and certain liabilities were
acquired by FrontierVision Operating Partners, L.P. on April 9, 1996. These
cable television systems were acquired by CCI, a majority owned subsidiary of
Cox Enterprises, Inc. ("CEI"), from The Times Mirror Company ("Times Mirror") in
connection with CCI's acquisition of Times Mirror Cable Television, Inc.
("TMCT") on February 1, 1995. The operations of the Ashland and Defiance
Clusters prior to February 1, 1995 are referred to as "Predecessor" and as
"Successor" after February 1, 1995.
All significant intercompany accounts and transactions have been eliminated in
combination. The acquisition of the Ashland and Defiance Clusters was accounted
for by the purchase method of accounting, whereby the allocable share of the
TMCT purchase price was pushed down to the assets acquired and liabilities
assumed based on their fair values at the date of acquisition as follows
(thousands of dollars):
<TABLE>
<S> <C>
Net working capital $ (2,836)
Plant and equipment 30,022
Deferred taxes related to plant and equipment write-up (4,709)
Intangible Assets 113,523
---------------------
$136,000
=====================
</TABLE>
The historical combined financial statements do not necessarily reflect the
results of operations or financial position that would have existed had the
Ashland and Defiance Clusters been an independent company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Ashland and Defiance Clusters bill their customers in advance; however,
revenue is recognized as cable television services are provided. Receivables are
generally collected within 30 days. Credit risk is managed by disconnecting
services to customers who are delinquent generally greater than 60 days. Other
revenues are recognized as services are provided. Revenues obtained from the
connection of customers to the cable television systems are less than related
direct selling costs; therefore, such revenues are recognized as received.
Plant and Equipment
Depreciation is computed using principally the straight-line method at rates
based upon estimated useful lives of 5 to 20 years for buildings and building
improvements, 5 to 12 years for cable television systems, and 3 to 10 years for
other plant and equipment.
The costs of initial cable television connections are capitalized as cable plant
at standard rates for the Ashland and Defiance Clusters' labor and at actual
costs for materials and outside labor. Expenditures for maintenance and repairs
are charged to operating expense as incurred. At the time of retirements, sales
or other dispositions of property, the original cost and related accumulated
depreciation are written off.
Intangible Assets
Intangible assets consist primarily of goodwill and franchise costs recorded in
business combinations which is amortized on a straight-line basis over 40 years.
The Ashland and Defiance Clusters assess on an on-going basis the
F-30
<PAGE> 140
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recoverability of intangible assets based on estimates of future undiscounted
cash flows for the applicable business acquired compared to net book value.
Income Taxes
Through January 31, 1995, the accounts of the Ashland and Defiance Clusters were
included in the consolidated federal income tax returns and certain state income
tax returns of Times Mirror. Beginning on February 1, 1995, the accounts of the
Ashland and Defiance Clusters were included in the consolidated federal income
tax returns and certain state income tax returns of CEI. Current federal and
state income tax expenses and benefits are allocated on a separate return basis
to the Ashland and Defiance Clusters based on the current year tax effects of
the inclusion of their income, expenses, and credits in the consolidated income
tax returns of Times Mirror, CEI, or based on separate state income tax returns.
Deferred income taxes arise from temporary differences between income taxes and
financial reporting and principally relate to depreciation and amortization.
Fees and Taxes
The Ashland and Defiance Clusters incur various fees and taxes in connection
with the operation of their cable television systems, including franchise fees
paid to various franchise authorities, copyright fees paid to the U.S. Copyright
Tribunal, and business and franchise taxes paid to the States of Ohio and
Kentucky. A portion of these fees and taxes are passed through to the Ashland
and Defiance Clusters' subscribers. Amounts collected from subscribers are
recorded as a reduction of operating expenses.
Pension and Postretirement Benefits
CCI generally provides defined pension benefits to all employees based on years
of service and compensation during those years. CEI provides certain health care
and life insurance benefits to substantially all retirees and employees. For
employees and retirees of the Ashland and Defiance Clusters, these benefits are
provided through the CCI plans. Expense related to these plans is allocated to
the Ashland and Defiance Clusters through the intercompany account. The amount
of the allocations is generally based on actuarial determinations of the effects
of the Ashland and Defiance Clusters employees' participation in the plans.
Times Mirror Cable generally provides defined pension benefits to all employees
based on years of service and the employee's compensation during the last five
years of employment. Prior to December 31, 1992, these benefits were primarily
provided under the Times Mirror Cable Television, Inc. Pension Plan (the "Times
Mirror Cable Plan") in conjunction with the Times Mirror Employee Stock
Ownership Plan. On December 31, 1992, the Times Mirror Cable Plan was merged
with the Times Mirror Pension Plan.
Net periodic pension expense for 1993 and 1994 was estimated by an actuary under
the assumption that the Times Mirror Cable Plan continued to be a stand-alone
plan. This expense was allocated to the Ashland and Defiance Clusters based on
its salary expense as a percentage of total TMCT salary expense.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-31
<PAGE> 141
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed of," was issued. This Statement requires
that long-lived assets and certain intangibles be reviewed for impairment when
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, with any impairment losses being reported in the period
in which the recognition criteria are first applied based on the fair value of
the asset. Long-lived assets and certain intangibles to be disposed of are
required to be reported at the lower of carrying amount or fair value less cost
to sell. CCI, including the Ashland and Defiance Clusters, adopted SFAS No. 121
in the first quarter of 1996. The effect on the combined financial statements
upon adoption of SFAS No. 121 was not significant.
(3) CASH MANAGEMENT SYSTEM
The Ashland and Defiance Clusters participate in CEI's cash management system,
whereby the bank sends daily notification of checks presented for payment. CEI
transfers funds from other sources to cover the checks presented for payment.
Prior to February 1, 1995, the Ashland and Defiance Clusters participated in a
similar cash management system with Times Mirror.
(4) PLANT AND EQUIPMENT
Plant and equipment is summarized as follows (Thousands of Dollars):
<TABLE>
<CAPTION>
----------------------------
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Land $ 10 $ 5
Buildings and building improvements 646 207
Transmission and distribution plant 34,543 30,235
Miscellaneous equipment 472 343
Construction in progress 59 3
-------- --------
Plant and equipment, at cost 35,730 30,793
Less accumulated depreciation (17,634) (5,172)
-------- --------
Net plant and equipment $ 18,096 $25,621
======== ========
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets are summarized as follows (Thousands of Dollars):
<TABLE>
<CAPTION>
----------------------------
PREDECESSOR SUCCESSOR
------------ ------------
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Goodwill $60,907 $113,523
Other 134
-------- ---------
Total 61,041 113,523
Less accumulated amortization (9,831) (2,727)
-------- ---------
Net intangible assets $51,210 $110,796
======== =========
</TABLE>
F-32
<PAGE> 142
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
Income tax expense (benefit) is summarized as follows (Thousands of Dollars):
<TABLE>
<CAPTION>
----------------------------------------------
PREDECESSOR
------------------------------- SUCCESSOR
-------------
YEAR ENDED ONE MONTH ELEVEN MONTHS
DECEMBER 31, ENDED ENDED
---------------- JANUARY 31, DECEMBER 31,
1993 1994 1995 1996
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
Current:
Federal $2,614 $2,866 $248 $3,054
State 652 818 70 837
------ ------ ----- ------
Total current 3,266 3,684 318 3,891
Deferred:
Federal 250 183 (68) (113)
State 43 115 (2) (29)
------ ------ ----- ------
Total deferred 293 298 (70) (142)
------ ------ ----- ------
Total income taxes $3,559 $3,982 $248 $3,749
====== ====== ===== ======
</TABLE>
The tax effects of significant temporary differences which comprise the net
deferred tax liabilities are as follows (Thousands of Dollars):
<TABLE>
<CAPTION>
----------------
DECEMBER 31,
----------------
1994 1995
------ ------
<S> <C> <C>
Plant and equipment $3,408 $7,942
Other (261) (298)
------ ------
Net deferred tax liability $3,147 $7,644
====== ======
</TABLE>
Income tax expense computed using the United States federal statutory rates is
reconciled to the reported income tax provisions as follows:
<TABLE>
<CAPTION>
----------------------------------------------
PREDECESSOR
------------------------------- SUCCESSOR
-------------
YEAR ENDED ONE MONTH ELEVEN MONTHS
DECEMBER 31, ENDED ENDED
---------------- JANUARY 31, DECEMBER 31,
1993 1994 1995 1995
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
Federal statutory income tax rate 35% 35% %35 %35
Computed tax expense at federal statutory rates on
income before income taxes $2,483 $2,747 $224 $1,203
State income taxes (net of federal tax benefit) 424 560 33 534
Acquisition adjustments 541 543 44 2,033
1% increase in enacted tax rate 76
Other, net 35 132 (53) (21)
------ ------ ----- ------
Income tax provision $3,559 $3,982 $248 $3,749
====== ====== ===== ======
</TABLE>
(7) RETIREMENT PLANS
As a result of the acquisition of TMCT by CCI, effective January 1, 1996, CEI
established the Cox Communications, Inc. Pension Plan (the "CCI Plan"), a
noncontributory defined benefit plan for substantially all of CCI's employees
F-33
<PAGE> 143
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(7) RETIREMENT PLANS (CONTINUED)
including Ashland and Defiance Clusters' employees. The Ashland and Defiance
Clusters employees will become participants in the CCI Plan retroactive to the
Merger date of February 1, 1995. The CCI Plan will be established with a
transfer of plan assets from CEI and Times Mirror. The CCI Plan assets are
expected to have an estimated fair value equal to or greater than the projected
benefit obligation attributable to substantially all of the Ashland and Defiance
Clusters employees. Prior to February 1, 1995, substantially all of the Ashland
and Defiance Clusters' employees participated in a similar defined benefit plan
provided by TMCT. Several of the Ashland and Defiance Clusters' employees were
covered under a separate defined benefit plan funded by the Communication
Workers of America.
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
----------------------
DECEMBER 31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.50% 8.25% 7.25%
Rate of increase in compensation levels 6.25 6.00 5.00
Expected long-term rate of return on assets 9.75 9.50 9.00
</TABLE>
Total pension expense allocated to the Ashland and Defiance Clusters was
$53,000, $44,000, $0, and $64,000 for the years ended December 31, 1993 and
1994, for the one-month period ended January 31, 1995, and the eleven-month
period ended December 31, 1995, respectively.
Beginning February 1, 1995, CEI provides certain health care and life insurance
benefits to substantially all retirees of CEI and its subsidiaries,
Postretirement expense allocated to the Ashland and Defiance Clusters by CEI was
$14,000 for the eleven months ended December 31, 1995.
The funded status of the portion of the postretirement plan covering the
employees of the Ashland and Defiance Clusters is not determinable. The
accumulated postretirement benefit obligation for the postretirement plan of CEI
substantially exceeded the fair value of assets held in the plan at December 31,
1995.
Beginning February 1, 1995, substantially all of the Ashland and Defiance
Clusters employees were eligible to participate in the savings and investment
plan of CEI. Under the terms of the plan, the Ashland and Defiance Clusters
match 50% of employee contributions up to a maximum of 6% of the employee's base
salary. Prior to February 1, 1995, the Ashland and Defiance Clusters employees
were eligible to participate in a similar savings and investment plan with Times
Mirror. The Ashland and Defiance Clusters' expense under the plan was $39,000,
$43,000, $3,000, and $44,000 for the years ended December 31, 1993 and 1994, for
the one-month period ended January 31, 1995, and the eleven-month period ended
December 31, 1996, respectively.
(8) TRANSACTIONS WITH AFFILIATED COMPANIES
The Ashland and Defiance Clusters borrow funds for working capital and other
needs from CEI. Certain management services are provided to the Ashland and
Defiance Clusters by CCI and CEI. Such services include legal, corporate
secretarial, tax, treasury, internal audit, risk management, benefits
administration, and other support services. Prior to February 1, 1995, the
Ashland and Defiance Clusters had similar arrangements with Times Mirror. The
Ashland and Defiance Clusters were allocated expenses for the years ended
December 31, 1993 and 1994, for the one-month period ended January 31, 1995, and
the eleven-month period ended December 31, 1995 of approximately $1,040,000,
$1,298,000, $117,000, and $1,513,000, respectively, related to these services.
Allocated expenses are based on management's estimate of expenses related to the
services provided. Management believes that these allocations were made, on a
reasonable basis. However, the allocations are not necessarily indicative of the
level of expenses that might have been incurred had the Ashland and Defiance
Clusters contracted directly with third parties. Management has not made a study
or any attempt to obtain quotes from third-parties to
F-34
<PAGE> 144
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(8) TRANSACTIONS WITH AFFILIATED COMPANIES (CONTINUED)
determine what the cost of obtaining such services from third parties would have
been. The fees and expenses to be paid by the Ashland and Defiance Clusters are
subject to change.
The amounts due from affiliate represent the net of various transactions,
including those described above. Prior to February 1, 1995, amounts due to Times
Mirror bore interest at Times Mirror's estimated ten-year financing rate and
ranged between 6% and 8% between 1993 and 1994. Such interest charges for 1993
and 1994 were $1,040,000 and $1,298,000, respectively. Effective February 1,
1995, advances to affiliate are noninterest-bearing.
In accordance with the requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," the Ashland and Defiance Clusters have
estimated the fair value of its intercompany advances. Given the short-term
nature of these advances, the carrying amounts reported in the balance sheets
approximate fair value.
(9) COMMITMENTS AND CONTINGENCIES
The Ashland and Defiance Clusters lease office facilities and various items of
equipment under noncancelable operating leases. Rental expense under operating
leases amounted to $119,000 and $122,000 for the years ended December 31, 1993
and 1994 and $163,000 for the eleven-month period ended December 31, 1995.
Future minimum lease payments as of December 31, 1995 for all noncancelable
operating leases are as follows (Thousands of Dollars),
<TABLE>
<S> <C>
1996 $126
1997 103
1998 59
1999 50
2000 42
Thereafter 4
----
Total $383
----
----
</TABLE>
At December 31, 1995, the Ashland and Defiance Clusters had outstanding purchase
commitments totaling approximately $2,000.
The Ashland and Defiance Clusters are a party to various legal proceedings that
are ordinary and incidental to its business. Management does not expect that any
legal proceedings currently pending will have a material adverse impact on the
Ashland and Defiance Clusters' combined financial position or combined results
of operations.
(10) RATE REGULATION AND OTHER DEVELOPMENTS
In 1993 and 1994, the FCC adopted rate regulations required by the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"), which utilized a benchmark price cap system, or alternatively a
cost-of-service regime, for establishing the reasonableness of existing basic
and cable programming service rates. The regulations resulted in, among other
things, an overall reduction of up to 17% in basic rates and other charges in
effect on September 30, 1992, before inflationary and other allowable
adjustments, if those rates exceeded the revised per-channel benchmarks
established by the FCC and could not otherwise be justified under a
cost-of-service showing.
In September 1995, the FCC authorized a new, alternative method of implementing
rate adjustments which will allow cable operators to increase rates for
programming annually on the basis of projected increases in external costs
rather than on the basis of cost increases incurred in the preceding quarter.
Many franchising authorities have become certified by the FCC to regulate rates
charged by the Ashland and Defiance Clusters for basic cable service and
associated basic cable service equipment. Some local franchising authority
decisions have been rendered that were adverse to the Ashland and Defiance
Clusters. In addition, a
F-35
<PAGE> 145
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(10) RATE REGULATION AND OTHER DEVELOPMENTS (CONTINUED)
number of such franchising authorities and customers of the Ashland and Defiance
Clusters filed complaints with the FCC regarding the rates charged for cable
programming services.
In September 1995, CCI and the Cable Services Bureau of the FCC reached a
settlement in the form of a resolution of all outstanding rate complaints
covering the CCI, the Ashland and Defiance Clusters, and the former Times Mirror
cable television systems. In December 1995, the FCC approved the Resolution
which, among other things, provided for refunds ($115,000 to the Ashland and
Defiance Clusters' customers) in January 1996, and the removal of additional
outlet charges for regulated services from all of the Times Mirror cable
television systems, which accounts for a majority of the refund amounts. The
resolution also finds that the Ashland and Defiance Clusters' cable programming
services tier rates as of June 30, 1995 are not unreasonable. At December 31,
1995, refunds under the resolution were fully provided for in the Ashland and
Defiance Clusters' financial statements.
On February 1, 1996, Congress passed the Telecommunications Competition and
Deregulation Act of 1996 ("the 1996 Act") which was signed into law by the
President on February 8, 1996, The 1996 Act is intended to promote substantial
competition in the delivery of video and other services by local telephone
companies (also known as local exchange carriers or "LECs") and other service
providers, and permits cable television operators to provide telephone services.
Among other provisions, the 1996 Act deregulates the Cable Programming Services
("CPS") tier of large cable television operators on March 31, 1999 and upon
enactment, the CPS rates of small cable television operators where a small cable
operator serves 50,000 or fewer subscribers, revises the procedures for filing a
CPS complaint, and adds a new effective competition test.
The 1996 Act establishes local exchange competition as a national policy by
preempting laws that prohibit competition in the telephone local exchange and by
establishing uniform requirements and standards for entry, competitive carrier
interconnection, and unbundling of LEC monopoly services. Both the FCC and state
commissions have substantial new responsibilities to promote the 1996 Act's
competition policy. Depending on the degree and form of regulatory flexibility
afforded the LECs as part of the 1996 Act's implementation, the Ashland and
Defiance Clusters' ability to offer competitive telephony services may be
adversely affected.
The 1996 Act repeals the cable television/telephone cross-ownership ban and
allows LECs and other common carriers, as well as cable systems providing local
exchange service, to provide video programming services as either cable
operators or as open video system ("OVS") operators within their service areas
upon certification from the FCC and pursuant to regulations which the FCC is
required to adopt. The 1996 Act exempts OVS operators from many of the
regulatory obligations that currently apply to cable operators such as rate
regulation and franchise fees, although other requirements are still applicable.
OVS operators, although not subject to franchise fees as defined by the 1992
Cable Act may be subject to fees charged by local franchising authorities or
other governmental entities in lieu of franchise fees.
F-36
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
The Partners
C4 Media Cable Southeast, Limited Partnership
Lockney, Texas 79241
We have audited the consolidated balance sheets of C4 Media Cable Southeast,
Limited Partnership and its subsidiary (the Partnership) as of December 31,
1995, and 1994, and the related consolidated statements of loss, partners'
deficit, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 report.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of C4 Media Cable
Southeast Limited Partnership and its subsidiary as of December 31, 1995 and
1994, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note 7 to
the consolidated financial statements, the Partnership sold substantially all
assets on February 1, 1996. The sales price was not sufficient to satisfy the
liabilities of the Partnership. The remaining unpaid principal and interest on
Senior and Junior loans have been due and payable since September 30, 1990.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. Management's plans regarding those matters also are
described in Note 7. The historical consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Williams, Rogers, Lewis & Co., P.C.
March 11, 1996
F-37
<PAGE> 147
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
---------------------------
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 203,955 204,255
Accounts Receivable, Net 168,823 141,025
Prepaid Expense and Other 211,289 201,952
------------ -----------
Total Current Assets 584,067 547,232
------------ -----------
PROPERTY, PLANT AND EQUIPMENT
Plant and Equipment 41,057,969 39,251,506
Less: Accumulated Depreciation (20,386,652) (16,172,050)
------------ -----------
Net Property, Plant and Equipment 20,671,317 23,079,456
------------ -----------
OTHER ASSETS
Deposits and Other 17,314 17,899
Franchises, Net 2,967,669 4,031,170
Acquisition Costs, Net 874,863 1,148,913
Covenant Not to Compete -0- -0-
------------ -----------
Total Other Assets 3,859,846 5,197,982
------------ -----------
Total Assets $ 25,115,230 28,824,670
============ ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable $ 735,138 691,305
Other Current Liabilities 393,423 568,455
Accrued Interest Payable 30,022,386 24,315,384
Notes Payable 60,165,844 60,165,844
------------ -----------
Total Liabilities 91,316,791 85,740,988
------------ -----------
MINORITY INTEREST (371,926) (268,729)
------------ -----------
PARTNERS' DEFICIT
General Partners (65,829,635) (56,647,589)
------------ -----------
Total Liabilities and Partners' Deficit $ 25,115,230 28,824,670
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE> 148
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF LOSS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
REVENUE
Cable Service $11,755,860 11,231,123
----------- ----------
EXPENSE
Programming Costs 3,003,682 2,602,692
Salaries 1,124,203 1,046,895
Other Operating Expenses 2,607,023 2,642,777
Management Fees 545,641 561,114
Depreciation 4,214,602 4,113,809
Amortization 1,337,551 1,575,551
Interest 8,208,401 7,447,251
----------- ----------
21,041,103 19,990,089
----------- ----------
Loss Before Minority Interest (9,285,243) (8,758,966)
Minority Interest in Loss of Subsidiary 103,197 116,472
----------- ----------
NET LOSS $(9,182,046) (8,642,494)
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 149
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
--------------------------------------------------
CLASS A
GENERAL GENERAL LIMITED
PARTNERS PARTNERS PARTNERS TOTAL
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 (539,910) (47,465,185) -0- (48,005,095)
Loss, 1994 (86,425) (8,556,069) -0- (8,642,494)
--------- ----------- -----------
BALANCE, DECEMBER 31, 1994 (626,335) (56,021,254) -0- (56,647,589)
Loss, 1995 (91,820) (9,090,226) -0- (9,182,046)
--------- ----------- -----------
BALANCE, DECEMBER 31, 1995 $(718,155) (65,111,480) -0- (65,829,635)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 150
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $(9,182,046) $(8,642,494)
Adjustments to reconcile net loss to net cash:
Minority interest in loss of subsidiary (103,197) (116,472)
Depreciation 4,214,602 4,113,809
Amortization 1,337,551 1,575,551
Changes in Assets and Liabilities:
Accounts receivable (27,798) 2,330
Prepaid expenses and other (8,752) (7,701)
Accounts payable 43,833 20,388
Other liabilities (175,032) 51,392
Accrued interest 5,707,002 3,928,106
----------- -----------
Net cash provided by operating activities 1,806,163 924,909
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of plant, equipment and other assets (1,806,463) (854,999)
----------- -----------
Net cash used in investing activities (1,806,463) (854,999)
----------- -----------
Net Increase (Decrease) in Cash (300) 69,910
Cash, Beginning of Year 204,255 134,345
----------- -----------
Cash, End of Year $ 203,955 $ 204,255
=========== ===========
Supplemental Disclosure for Statements of Cash Flows:
Cash Paid for Interest 2,470,936 3,519,145
Non-Cash Investing Activities:
Deposit added to cost of plant and equipment -0- 39,622
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 151
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Entities:
C4 Media Cable Southeast, Limited Partnership and its subsidiary (the
"Partnership") is a Delaware limited partnership organized to own and operate
cable television systems in various communities throughout Virginia, Tennessee,
and Georgia. The Partnership provides basic and pay cable television service to
approximately 40,500 subscribers in these states. General partners are C4 Media
Cable, Inc. and C4 Media Cable Employees Investment Corporation. C4 Media Cable,
Inc. also participates as a limited partner. Under a letter agreement dated May
9, 1992, Philips Credit Corporation ("Philips") has exercised its rights under
certain pledge agreements to exercise voting control over all partnership
interests. Accordingly, effective October 30, 1992, C4 Media Cable, Inc. was
replaced by Southeast Cable, Inc., a corporate affiliate of Philips, as the
managing general partner. The managing general partner utilized Doucette
Management Company ("DMC") as the business manager for the Partnership until
December 30, 1993 at which time the management agreement was assigned to
Cablevision of Texas III, LP ("CAB III"). See note 4.
Principles of Consolidation:
The consolidated financial statements include the accounts of C4 Media Cable
Southeast, Limited Partnership and County Cable Company, Limited Partnership of
which the Partnership is an 80% owner and general partner. All significant
intercompany transactions have been eliminated.
Property, Plant, Equipment and Depreciation:
Property, plant and equipment used in the business are stated at cost and
depreciated over estimated useful lives generally on the straight line method
for financial statement purposes. Expenditures which significantly increase
asset values or extend useful lives are capitalized, limited by projected
recoverability of such current year expenditures in the ordinary course of
business from expected future revenue.
The useful lives of property, plant and equipment for purposes of computing
depreciation range from 3 to 10 years.
Franchises:
The company has been granted rights to operate within the locations wherein it
has cable television systems. Such franchises grant certain operating rights and
impose certain costs and restrictions. The Partnership pays its franchise fees
annually on most of its locations based upon either gross or basic service
revenues. Franchise fee expense for the years ended December 31, 1995 and 1994
was $327,088 and $303,375, respectively.
Such franchises have varying lives and are renewable at the discretion of the
franchise's governing boards. For financial statement purposes, franchise costs
acquired in connection with the purchase of cable systems are being amortized
over the remaining average lives of the related cable television franchises at
the date of acquisition, which approximates 7 to 13 years. Franchise
amortization expense for the years ended December 31, 1995 and 1994 was
$1,063,501 in each year.
Acquisition Costs:
Acquisition costs are those costs incurred related to the acquisition of new
systems. For financial statement purposes, such costs are amortized by using the
straight-line method over 10 years. Amortization expense for acquisition costs
for the years ended December 31, 1995 and 1994 was $274,050, and $274,050,
respectively.
F-42
<PAGE> 152
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Covenants Not to Compete:
The portion of the purchase price of systems allocated to non-competition
agreements with former owners is capitalized and amortized by using the
straight-line method over the life of the agreements. Amortization expense for
non-competition agreements for the year ended December 31, 1994 was $238,000.
Income Taxes:
The partnership does not pay federal income tax, but is a pass through entity so
that partners are taxed on their share of partnership earnings. Partnership net
income or loss is allocated to each partner under a formula established in the
partnership agreement.
Cash Equivalents:
For cash flow purposes, cash equivalents are cash and cash items with a maturity
of less than 90 days.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
(2) ACCOUNTS RECEIVABLE, NET
Following is a summary of accounts receivable at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
---------------------
1995 1994
-------- ---------
<S> <C> <C>
Trade Accounts $175,671 $ 146,239
Other 281 642
Related Parties (4) -0- 194,873
Less: Allowance for Doubtful Accounts (4) (7,129) (200,729)
-------- ---------
$168,823 $ 141,025
======== =========
</TABLE>
F-43
<PAGE> 153
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) NOTES PAYABLE
Following is a summary of notes payable at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Senior loan payable to Philips, originally
due September 30, 1990, interest due at
prime + 2.25%, secured by substantially all
assets of the partnership and the pledge of
partnership interests. In addition, the
loan is collateralized by the pledge of all
stock held in C4 Media Cable, Inc. and C4
Media Cable, Employees Investment
Corporation by the President and Chairman
of C4 Media Cable, Inc. $44,185,831 $44,185,831
Junior Loan payable to Philips, originally
due September 30, 1990 interest due at
20%, secured by substantially all assets of
the partnership and the pledge of
partnership interests. In addition, the
loan is collateralized by the pledge of all
stock held in C4 Media Cable, Inc. and C4
Media Cable Employees Investment
Corporation by the President and Chairman
of C4 Media Cable, Inc. 15,980,013 15,980,013
------------ ------------
Total $60,165,844 $60,165,844
============ ============
</TABLE>
The Philips notes contain performance covenants concerning homes passed,
subscriber levels, miles of plant, etc., some of which the Partnership had
violated as of December 31, 1995 and 1994. Philips has not waived compliance
with these provisions.
All notes payable and accrued interest to Philips were due September 30, 1990.
Philips has the right to demand payment at any time. A significant amount of
accrued interest and principle was paid when substantially all operating assets
of the Partnership were sold February 1, 1996. See note 7.
(4) RELATED PARTY TRANSACTIONS
Effective October 30, 1992, C4 Media Cable, Inc. was replaced by Southeast
Cable, Inc., a corporate affiliate of Philips, as the managing general partner.
Effective May 10, 1992 under the provisions of an agreement with Philips, the
Partnership terminated its management agreement with C4 Media Cable, Inc. and
entered into a management agreement with DMC for a term extending to December
30, 1993. At December 30, 1993 the management agreement was assigned to CAB III.
The agreement provides for fixed fees and the reimbursement of direct expenses
incurred on behalf of the Partnership as defined in the agreement. Management
fees paid under these agreements for the years ended December 31, 1995 and 1994
were $545,641 and $550,214, respectively. Other fees and expense reimbursements
paid under the agreements for the years ended December 31, 1995 and 1994 were
$120,000 and are included in Other Operating Expenses.
Other related parties include Caribbean Cable TV ("CCTV") and MCT Cablevision
("MCT"). Related party lending was done without independent business judgment,
terms, collateral or a method of settlement. Due to the manner in which this
lending was done and questions surrounding the collectability of these accounts,
all the related party
F-44
<PAGE> 154
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) RELATED PARTY TRANSACTIONS (CONTINUED)
receivables were reserved in the allowance for doubtful accounts prior to 1994
and were written off in 1995. See note 2. Related party receivables at December
31, 1994 were as follows:
<TABLE>
<CAPTION>
---------
1994
---------
<S> <C>
CCTV $ 23,965
MCT 35,968
C4 Media Cable, Inc. 134,940
---------
$194,873
=========
</TABLE>
The Partnership purchased leasehold improvements from J-D Partnership, Ltd.
("J-D") for the Lockney, Texas office of $5,366 on April 24, 1995. J-D is a
limited partnership 99% owned by James and Denise Doucette (Doucette). Doucette
is also the managing general partner and owns 62% of CAB III, as well as being
the sole stockholder of DMC, an S-Corporation. The Partnership paid a management
fee to Doucette of $10,900 for the year ended December 31, 1994.
(5) COMMITMENTS
The Company has certain obligations under pole rental agreements, tower site
leases, etc. for assets utilized in the operation of the systems. These are
mostly short term agreements. Expenses charged to operations for the periods
ended December 31, 1995 and 1994 were $536,368 and $518,837, respectively, and
are included in Other Operating Expenses.
(6) CONTINGENCIES
The Company is to a significant degree self-insured for risks consisting
primarily of physical loss to property and plant. The headend equipment is
insured, but the plant itself is not and represents a potential exposure for the
Company. Management is of the opinion that the various systems' distance from
each other make the likelihood of a complete loss to the plant unlikely.
(7) SUBSEQUENT EVENT AND CONSIDERATION OF ABILITY TO CONTINUE AS A GOING CONCERN
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
On February 1, 1996 substantially all assets of the Partnership were sold to
FrontierVision Operating Partners, L.P. The agreement had a stated sales price
of $48,000,000 and a net payment amount of $46,237,708 after escrow holdback of
$1,375,200 and other adjustments. At the date of the auditors' report the
Partnership was still liable for the remaining balance of the note payable to
Philips with no significant assets to satisfy that liability, and the escrow
items remain open.
F-45
<PAGE> 155
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) SUBSEQUENT EVENT AND CONSIDERATION OF ABILITY TO CONTINUE AS A GOING
CONCERN (CONTINUED)
An unaudited pro forma consolidated balance sheet is presented below giving
effect to the sale as if it had occurred December 31, 1995 including escrowed
items. The pro forma information is presented for the purpose of additional
analysis and is not a required part of the basic consolidated financial
statements.
<TABLE>
<CAPTION>
------------
PRO-FORMA
UNAUDITED
1995
------------
<S> <C>
Current Assets $ 685,773
Other Assets 1,392,514
------------
Total Assets $ 2,078,287
============
Current Liabilities $ 45,303,939
Partners' Deficit (43,225,652)
------------
Total Liabilities and Partners' Deficit $ 2,078,287
===========
</TABLE>
The Partnership has been unable to pay all of its principle and interest as
required under its loan agreements since the loans matured September 30, 1990.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The historical consolidated financial statements do
not include any adjustments that might result from this sale of assets or this
uncertainty. Management has not fully evaluated the options for the Partnership
subsequent to the sale.
F-46
<PAGE> 156
INDEPENDENT AUDITORS' REPORT
American Cable Entertainment of Kentucky-Indiana, Inc.
We have audited the accompanying balance sheets of American Cable Entertainment
of Kentucky-Indiana, Inc. (the "Company") as of December 31, 1995 and 1994 and
the related statements of operations, shareholders' deficiency and cash flows
for each of the three years in the period ended December 31, 1995. 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 from
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 American Cable Entertainment of
Kentucky-Indiana, Inc. as of December 31, 1995 and 1994 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that American
Cable Entertainment of Kentucky-Indiana, Inc. will continue as a going concern.
As discussed in Note 1 to the financial statements, the Company is unable to
meet its scheduled debt maturity repayments which raises substantial doubt about
the Company's ability to continue as a going concern. Consequently, the Company
has entered into an agreement to sell all of its assets, has entered into
agreements with its creditors who have consented, under certain circumstances,
to forbear taking any action against the Company pending the sale of the Company
and has filed a prepackaged bankruptcy under Chapter 11 of the Federal
Bankruptcy Code. Management's plans in regard to these matters are described
further in Note 1. The accompanying financial statements do not purport to
reflect or provide for the consequences of the sale of the Company or the filing
of the prepackaged bankruptcy. In particular, such financial statements do not
purport to show the realizable value of assets or liabilities on a liquidation
basis nor do they include any adjustments that might result from the outcome of
these uncertainties.
DELOITTE & TOUCHE LLP
Stamford, CT
March 15, 1996 (Except for Note 1, as to
which the date is August 1, 1996.)
F-47
<PAGE> 157
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------- ------------- -------------
Unaudited
<S> <C> <C> <C>
ASSETS
INVESTMENT IN CABLE TELEVISION SYSTEMS:
Land and land improvements $ 247,561 $ 247,561 $ 247,561
Vehicles 1,757,546 1,702,997 1,507,850
Buildings and improvements 998,414 998,414 967,794
Office furniture and equipment 802,377 802,377 733,465
CATV distribution systems and related
equipment 52,266,722 51,757,161 49,161,506
------------- ------------- -------------
Total Fixed Assets 56,072,620 55,508,510 52,618,176
Less accumulated depreciation 30,208,687 28,887,790 23,683,730
------------- ------------- -------------
Total Fixed Assets -- net 25,863,933 26,610,720 28,934,446
Franchise costs -- net 2,089,128 2,785,425 5,964,805
Subscriber lists -- net 1,157,480 1,543,307 3,531,021
Covenant not to compete -- net 60,511 80,682 242,045
------------- ------------- -------------
Investment in cable television systems -- net 29,171,052 31,020,134 38,672,317
GOODWILL -- net 3,553,155 3,579,784 3,686,299
DEFERRED CHARGES -- net 305,879 371,691 963,949
CASH AND CASH EQUIVALENTS 1,939,451 3,704,823 3,427,849
ACCOUNTS RECEIVABLE -- less allowance for doubtful
accounts of $270,636 in 1996, $240,212 in 1995
and $195,736 in 1994 348,491 304,734 276,709
PREPAID AND OTHER 165,370 197,802 194,514
------------- ------------- -------------
TOTAL ASSETS $ 35,483,398 $ 39,178,968 $ 47,221,637
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes and loans payable $ 184,976,901 $ 182,430,902 $ 167,707,411
Accrued interest -- Senior debt 680,505 1,314,032 329,004
Accrued interest -- Senior/Junior Subordinated
Debentures 4,545,401 3,068,862 4,345,047
Accounts payable and accrued expenses 3,005,326 4,244,348 3,973,224
Unearned income 160,554 124,109 124,344
Converter deposits 134,688 134,366 136,588
------------- ------------- -------------
Total Liabilities 193,503,375 191,316,619 176,615,618
------------- ------------- -------------
COMMITMENTS (7)
SHAREHOLDERS' DEFICIENCY:
Capital stock -- all series 10,000 10,000 26
Additional paid-in capital 1,490,000 1,490,000 1,499,974
Deficit (159,519,977) (153,637,651) (130,893,981)
------------- ------------- -------------
Total shareholders' deficiency (158,019,977) (152,137,651) (129,393,981)
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 35,483,398 $ 39,178,968 $ 47,221,637
============ ============ ============
</TABLE>
See notes to financial statements
F-48
<PAGE> 158
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
FOR THE FOR THE
THREE MONTHS THREE MONTHS FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Unaudited Unaudited
<S> <C> <C> <C> <C> <C>
Revenue $ 7,606,789 $ 6,794,072 $ 28,088,127 $ 25,879,525 $ 24,976,818
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Operating expenses 2,804,965 2,568,180 10,880,854 9,388,813 8,699,878
Selling, general and
administrative expenses 1,240,556 1,201,022 4,948,493 4,912,150 4,743,783
------------ ------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 4,045,521 3,769,202 15,829,347 14,300,963 13,443,661
------------ ------------ ------------ ------------ ------------
Operating Income before
management fees,
depreciation and
amortization, and override
and forbearance expenses 3,561,268 3,024,870 12,258,780 11,578,562 11,533,157
------------ ------------ ------------ ------------ ------------
Management fees 226,204 203,822 842,644 819,095 749,305
Depreciation and amortization 2,516,958 3,061,733 11,284,315 18,054,371 18,231,734
Expenses incurred in
connection with override and
forbearance agreements 510,122 0 557,664 0 0
------------ ------------ ------------ ------------ ------------
Operating Income (Loss) 307,984 (240,685) (425,843) (7,294,904) (7,447,882)
Interest expense -- net 6,190,310 5,275,400 22,366,189 20,241,202 18,410,503
Net gain on sale of cable
television system and
marketable securities 0 0 48,362 1,266,020 0
------------ ------------ ------------ ------------ ------------
NET LOSS $(5,882,326) $(5,516,085) $(22,743,670) $(26,270,086) $(25,858,385)
========== ========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-49
<PAGE> 159
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 Unaudited
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
COMMON STOCK
-----------------------------------------------
NUMBER OF
SHARES ADDITIONAL TOTAL
ISSUED AND PAR PAID-IN SHAREHOLDERS'
OUTSTANDING VALUE CAPITAL DEFICIT DEFICIENCY
-------------- --------------- ---------- ------------- -------------
CLASS CLASS
-------------- ---------------
A D A D
---- ------ ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 255 $ 26 $1,499,974 $ (78,765,510) $ (77,265,510)
Net Loss (25,858,385) (25,858,385)
---- ---- ---------- ------------- -------------
BALANCE AT DECEMBER 31, 1993 255 26 1,499,974 (104,623,895) (103,123,895)
Net Loss (26,270,086) (26,270,086)
---- ---- ---------- ------------- -------------
BALANCE AT DECEMBER 31, 1994 255 26 1,499,974 (130,893,981) (129,393,981)
Net Loss (22,743,670) (22,743,670)
RECAPITALIZATION OF COMMON STOCK (254) 99,999 (26) $10,000 (9,974)
---- ------ ---- ------- ---------- ------------- -------------
BALANCE AT DECEMBER 31, 1995 1 99,999 0 10,000 1,490,000 (153,637,651) (152,137,651)
Net Loss Unaudited (5,882,326) (5,882,326)
---- ------ ---- ------- ---------- ------------- -------------
BALANCE AT MARCH 31, 1996
Unaudited 1 99,999 $ 0 $10,000 $1,490,000 $(159,519,977) $(158,019,977)
==== ====== ==== ======== ========== ============= =============
</TABLE>
See notes to financial statements
F-50
<PAGE> 160
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE FOR THE FOR THE YEAR FOR THE YEAR FOR THE YEAR
THREE MONTHS THREE MONTHS ENDED ENDED ENDED
ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
MARCH 31, 1996 MARCH 31, 1995 1995 1994 1993
-------------- -------------- ------------ ------------ ------------
Unaudited Unaudited
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,882,326) $ (5,516,085) $(22,743,670) $(26,270,086) $(25,858,385)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation 1,322,222 1,498,448 5,257,085 6,397,956 5,452,940
Amortization 1,194,736 1,563,285 6,027,230 11,656,415 12,778,794
Accretion of discount on step coupon
senior subordinated notes 2,747,014 2,604,144 10,171,124 9,519,095 8,189,478
Accretion of discount on junior
subordinated debentures 1,476,540 1,354,645 5,416,469 4,820,269 4,231,918
Net gain on sale of cable television
system, marketable securities, and
other assets (48,362) (1,266,020)
Change in assets and liabilities:
Decrease (increase) in accounts
receivable (43,757) 101,994 (28,025) (94,868) 23,917
Decrease (increase) in prepaid and
other assets 32,432 (48,958) (3,288) 51,799 (59,414)
(Decrease) increase in accounts
payable and accrued
expenses (1,239,022) (782,517) 271,124 (414,333) 169,808
(Decrease) increase in accrued
interest-senior debt (633,527) 41,215 985,028 129,505
Increase (decrease) in converter
deposits 322 1,270 (2,222) (237) (9,384)
Increase (decrease) in unearned
income 36,445 47,715 (235) (91,827) 9,518
-------------- -------------- ------------ ------------ ------------
Net cash (used in) provided by operating
activities (988,921) 865,156 5,302,258 4,437,668 4,929,190
-------------- -------------- ------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to reception and distribution
facilities and equipment (575,435) (656,297) (2,933,359) (3,605,498) (5,083,401)
Net proceeds from sale of assets 48,362 1,523,137
-------------- -------------- ------------ ------------ ------------
Net cash used in investing activities (575,435) (656,297) (2,884,997) (2,082,361) (5,083,401)
-------------- -------------- ------------ ------------ ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments on senior bank loan (76,340) (1,262,542) (309,165)
Payments on senior revolving credit
facility (18,621) (131,616) (3,668)
Payments on senior secured notes (105,040) (742,447) (20,712)
Increase in deferred charges (1,015) (18,188) (186,563) (598)
(Decrease) increase in obligations
under capital lease (1,015) (3,682) 7,281
-------------- -------------- ------------ ------------ ------------
Net cash used in financing activities (201,016) (19,203) (2,140,287) (512,827) (598)
-------------- -------------- ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents (1,765,372) 189,656 276,974 1,842,480 (154,809)
Cash and cash equivalents at beginning of
period 3,704,823 3,427,849 3,427,849 1,585,369 1,740,178
-------------- -------------- ------------ ------------ ------------
Cash and cash equivalents at end of
period $ 1,939,451 $ 3,617,505 $ 3,704,823 $ 3,427,849 $ 1,585,369
============= ============= =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 1,992,611 $ 1,403,473 $ 6,900,613 $ 5,952,791 $ 6,038,557
============= ============= =========== =========== ===========
</TABLE>
See notes to financial statements
F-51
<PAGE> 161
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited AS TO MARCH 31, 1996 AND 1995
(1) DEBT MATURITIES AND THE SALE OF THE COMPANY
During the fourth quarter of 1995 the Company's senior debt obligations matured
without being paid. In addition, the Company failed to make the full payment of
interest on the Step Coupon Senior Subordinated Notes which became due in 1995.
Prompted by these payment defaults, effective December 31, 1995, the Company,
its shareholders, and Kentucky-Indiana Management Company, Inc. ("KYMC"), which
acts as manager for the Company, entered into two agreements: a "Forbearance
Agreement" with its senior lenders; and an "Override Agreement" with the holders
of its Senior Subordinated and Junior Subordinated Notes.
Under the terms of the Forbearance Agreement the senior lenders have agreed to
forebear in the exercise of their rights and remedies with respect to the
payment default described above as well as defaults with respect to certain
specified financial covenants, through September 30, 1996 which allows the
Company time to sell its assets in an orderly manner. It contains certain
financial covenants as well as procedures that the Company and KYMC have agreed
to follow during the sales process. Subsequent to September 30, 1996, certain
financial covenants, which the Company is currently in default upon, revert back
to the terms in the original agreements.
The Override Agreement requires that the Company undertake to sell substantially
all of its assets, and to enter into a contract for sale and to consummate that
sale in accordance with an agreed upon time schedule. It also contains certain
financial covenants and procedures to be followed.
Effective July 15, 1996, the Company entered into an asset purchase agreement
with FrontierVision Operating Partners, L.P. ("FrontierVision") for the sale of
the assets of the Company for $146 million, subject to certain purchase price
adjustments. Due to the expected shortfall of payments to existing creditors
from the sale proceeds, the Company filed a prepackaged bankruptcy under Chapter
11 of the Federal Bankruptcy code with the Federal Bankruptcy court on August 1,
1996. Management anticipates the sale to FrontierVision to be consummated in the
fourth quarter of 1996, subject to the required regulatory approvals and the
approval of the bankruptcy court. There are no assurances that this sale will be
consummated.
As a result of the matters discussed above, Management does not believe that it
is practical to estimate the fair value of the Company's debt facilities.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basic of Presentation
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Accordingly, the financial statements do not
reflect adjustments or provide for the potential consequences of the sale of the
Company's assets. In particular, the financial statements do not purport to show
the realizable value of assets on a liquidation basis or their availability to
satisfy liabilities.
Formation of Company
On November 7, 1989 cable systems were purchased from Centel Cable Television
Company to form Simmons Cable TV of Kentucky-Indiana, Inc. (the "Company"). The
Company owns and operates cable systems in Kentucky and Indiana. On April 12,
1994 the Company changed its name to American Cable Entertainment of Kentucky-
Indiana, Inc.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
F-52
<PAGE> 162
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
Investment in Cable Television Systems
Reception and distribution facilities and equipment additions are stated at
cost. Depreciation is provided using the straight-line method over the useful
lives of the assets (four to ten years for CATV distribution facilities and
related equipment, vehicles, building improvements and office furniture and
equipment; forty years for buildings). Included in depreciation expense for the
year ended December 31, 1994 were write-offs related to a rebuilt cable system
of $942,850.
Franchise acquisition costs are amortized over the average remaining term of the
franchises as of November 7, 1989 of seven years using the straight-line method,
Accumulated amortization of franchise costs at March 31, 1996, December 31, 1995
and 1994 aggregated $20,166,530, $19,470,233 and $16,290,853, respectively.
Covenants not to compete are amortized over the life of the agreements (five
years). Accumulated amortization of such covenants at March 31, 1996 December
31, 1995, and 1994 aggregated $746,306, $726,315 and $564,772, respectively.
Subscriber lists are amortized over seven years. Accumulated amortization of
subscriber lists at March 31, 1996, December 31, 1995 and 1994 aggregated
$12,756,520, $12,370,693 and $10,382,979, respectively.
Deferred charges consist of $882,408 of organizational costs and $3,616,230 of
loan acquisition costs at December 31, 1995. The loan acquisition costs are
amortized over the average life of the related debt, and organizational costs
are amortized over five years. Accumulated amortization at March 31, 1996,
December 31, 1995 and 1994 was $4,192,759 $4,126,947 and $3,534,689,
respectively.
Goodwill is amortized over forty years. Accumulated amortization of goodwill at
March 31, 1996, December 31, 1995 and 1994 aggregated $707,454, $680,825 and
$574,310, respectively.
Valuation of Intangible Assets
The Company, on an annual basis, undertakes a review and valuation of the net
carrying value, recoverability and write-off of all categories of its intangible
assets. The Company in its valuation considers current market values of its
properties, competition, prevailing economic conditions, government policy
including taxation, and the Company's and the industry's historical and current
growth patterns, as well as the recoverability of the cost of its intangible
assets based on a comparison of estimated undiscounted operating cash flows.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and liquid investments with a maturity
of three months or less from the date of purchase.
Income Taxes
The Company has elected to be taxed as an S Corporation under the Internal
Revenue Code and, accordingly, pays no federal income taxes. The income or loss
of the Company for its tax year is passed through to its shareholder(s) and
reported in the income tax returns of the shareholder(s).
Subscription Revenues
Subscription revenues received in advance of services rendered are deferred and
recorded in income in the period in which the related services are provided.
F-53
<PAGE> 163
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations or
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base.
Disclosure of Fair Value of Financial Instruments
The carrying amount reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximates fair value because of the immediate or short-term maturity of these
financial instruments. Management does not believe it is practicable to estimate
the fair value of the Company's debt facilities. (See Note 4).
(3) DISPOSITIONS
On June 30, 1994 the Company sold its cable television system serving Jackson
County, Kentucky. The carrying value of the assets sold at the date of sale, net
of accumulated depreciation and amortization was as follows:
<TABLE>
<S> <C>
Reception and distribution facilities and equipment $69,527
Franchise cost 55,714
Goodwill and other intangible assets 50,300
</TABLE>
The net loss on this transaction was $157,630, recognized in 1994. Additional
proceeds of $48,362 were received in 1995 and recorded as a gain.
On October 17, 1994 the Company tendered all of its holding in QVC, Inc., which
resulted in a gain of $1,423,650.
These transactions are reflected in the statements of operations for the years
ended December 31, 1995 and 1994.
(4) NOTES AND LOANS PAYABLE
Notes and loans payable at March 31, 1996 and December 31, 1995 and 1994 are
comprised of the following:
<TABLE>
<CAPTION>
--------------------------------------------
MARCH 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Senior Debt
Bank Credit Agreement (a) $ 23,351,954 $ 23,428,293 $ 24,690,835
Revolving Credit Facility (b) 5,696,095 5,714,716 5,846,332
Senior Secured Notes (c) 32,131,801 32,236,841 32,979,288
Step Coupon Senior Subordinated Notes (d) 80,763,678 78,016,664 66,137,000
Junior Subordinated Debentures (e) 43,030,789 43,030,789 38,046,675
Capitalized lease obligation 2,584 3,599 7,281
------------ ------------ ------------
$184,976,901 $182,430,902 $167,707,411
=========== =========== ===========
</TABLE>
(a) The Company has a credit agreement with Crestar Bank providing for total
borrowings of $25,000,000. This agreement provided for interest up to 1.5
percentage points over the bank's prime rate (or from 1.0 to 2.5 percentage
points over LIBOR). Interest only was payable quarterly in arrears on the
last day of March, June, September and December, and at the end of any LIBOR
borrowing period. The total commitment terminated at its maturity date of
October 31, 1995. Upon the payment default at maturity, the default rate of
prime plus 4% was charged. Upon the effective date of the Override
Agreement, interest is payable monthly at the rate of 11.75% per annum.
F-54
<PAGE> 164
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) NOTES AND LOANS PAYABLE (CONTINUED)
(b) The Company has a revolving credit facility with Sanwa Business Credit
Corporation which originally provided for borrowings of up to $15,000,000.
The total commitment was reduced to $7,000,000 in early 1994, and in
December 1994, the balance of the unused commitment was terminated. The
agreement provided for interest of up to 1.5 points over the Sanwa's prime
rate (or from 1.0 to 2.5 percentage points over LIBOR). Interest was payable
quarterly in arrears on the last day of March, June, September and December,
and at the end of any LIBOR borrowing period. The total commitment
terminated at its maturity date of October 31, 1995. Upon the payment
default at maturity, the default rate of prime plus 4% was charged. Upon the
effective date of the Override Agreement, interest is payable monthly at the
rate of 11.75% per annum.
(c) Senior Secured Notes were issued on November 7, 1989 bearing interest at
10.125% and matured November 7, 1995. The interest rate increased to 10.225%
effective January 1, 1991. Interest only was payable quarterly in arrears on
the last day of March, June, September and December. Upon the payment
default at maturity, interest was charged at 12.25%. Upon the effective date
of the Override Agreement, interest is payable monthly at the rate of 11.75%
per annum.
(d) Step Coupon Senior Subordinated Notes due April 30, 1996 were issued on
November 7, 1989 in the principal amount of $66,137,000 with a stated
interest rate of 15.7472%. Interest accreted and compounded semi-annually
through October 31, 1994. Although interest payments of $5,125,618 were
payable semi-annually beginning April 30, 1995 until maturity, only $700,000
of interest has been paid. These notes were issued with warrants to purchase
up to 150 shares of Class C Non-voting Common Stock for an aggregate
exercise price of $330,000. As a result of the recapitalization (See Note
5), the number of shares the warrant holders were entitled to purchase was
increased to 58,531 shares of the Class C stock. There are certain
restrictions as to when the warrants may be exercised, and they expire on
November 7, 2001. Total proceeds from the issuance of these warrants
amounted to $200,000. Accreted interest was $14,626,678, $11,879,664 and
$1,708,540 at March 31, 1996, December 31, 1995 and December 31, 1994,
respectively.
(e) Junior Subordinated Debentures due October 31, 1997, were issued on November
7, 1989 for $20,800,000, bearing interest at 13.1%. Interest is deferred and
compounds annually on September 30 of each year and is payable on the
maturity date. On the maturity date, the Company shall pay as additional
interest on the Notes, an amount equal to the greater of 4% of net operating
income of the Company from November 7, 1989 through and including the
maturity date, or 15% of the fair market value of the Company, but in no
event shall the amount exceed $2,153,000. Accreted and accrued interest was
$26,776,191, $25,299,651 and $19,883,183 at March 31, 1996, December 31,
1995 and December 31, 1994, respectively. These notes were issued with
warrants to purchase up to 595 shares of common stock and up to 1,000 shares
of 6% non-cumulative preferred stock. These warrants are exercisable in
whole or in part through November 7, 1999 for an aggregate exercise price of
$2,000,000. Upon exercise, the warrants can be converted into either Class A
Voting Stock or Class B Non-Voting Stock at the option of the warrant
holder. Shares will be issued in the ratio of .595 shares of common stock to
each share of preferred stock. As a result of the recapitalization (See Note
5), the number of shares the warrant holders were entitled to purchase was
increased to 233,359 shares of common stock, in the ratio of 233.359 shares
of common stock to each share of preferred stock. Total proceeds from the
issuance of these warrants amounted to $1,200,000.
The Senior Subordinated and Junior Subordinated Notes will continue to earn
interest at the rate of 15.5% and 13.1%, respectively, although, unless any of
certain specified defaults occur, net proceeds of a sale will be distributed as
provided for in the Override Agreement. The Company leased equipment under a
lease agreement which is classified as a capital lease. The lease term is 3
years and expires in December, 1996.
In 1989 the Company entered into an interest cap agreement and an interest floor
agreement covering $25,000,000 of borrowings which expired November 1, 1994.
Under the cap agreement, Fleet Bank, (as successor to Bank of New England), made
payments to the Company on a quarterly basis in an amount equal to $25,000,000
multiplied by the excess of the then current three month LIBOR rate over 9%.
Under the floor agreement, the Company made
F-55
<PAGE> 165
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) NOTES AND LOANS PAYABLE (CONTINUED)
payments to Crestar Bank on a quarterly basis in an amount equal to $25,000,000
multiplied by the difference between the then current three month LIBOR rate and
8%, to the extent that the three month LIBOR rate is less than 8%. Approximately
793,000 was charged to interest expense and paid in 1994 relating to the floor
agreement.
The Senior Debt and Senior Subordinated Notes are secured by substantially all
the assets of the Company. The Company's debt agreements contain certain
restrictive covenants requiring the maintenance of minimum subscriber levels and
certain financial ratios. The Company has not been in compliance with certain
covenants in its debt agreements, including the timely payment of principal and
interest. (See Note 1).
Debt Maturities
All of the Company's debt is due upon the consummation of the sale of the
Company in accordance with the Forbearance and Override Agreements. (see Note
1).
(5) CAPITAL STOCK
The Company's Board of Directors adopted a resolution on December 31, 1995
which, among other things, established a new class of common stock (Class D),
and authorized the exchange of the outstanding Class A shares for one share of
Class A and 99,999 shares of Class D. Additional shares of Class B and Class C
stock were authorized as well. The Company's Certificate of Incorporation was
amended on February 29, 1996 to reflect these changes.
Capital stock of the Company at December 31, 1994 and prior to the December 31,
1995 resolution noted above, consisted of the following:
<TABLE>
<CAPTION>
-----------------------
NUMBER OF SHARES
-------------------------
ISSUED AND
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Common Stock
Class A -- $.10 par value 850 255
Class B -- $.10 par value 595
Class C -- $.10 par value 150
6% Non-cumulative Preferred
Stock $1,000 par value 1,000
</TABLE>
Capital stock of the Company after the recapitalization consists of the
following at March 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
-----------------------
NUMBER OF SHARES
-------------------------
ISSUED AND
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Common Stock
Class A -- $.10 par value 233,360 1
Class B -- $.10 par value 231,940
Class C -- $.10 par value 58,531
Class D -- $.10 par value 99,999 99,999
6% Non-cumulative Preferred
Stock $1,000 par value 1,000
</TABLE>
F-56
<PAGE> 166
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) CAPITAL STOCK (CONTINUED)
The Class A common stock is voting. The Class B, Class C and Class D shares are
non-voting. Class B shares are convertible into Class A shares at a rate of one
for one. See Note 4 for disclosure of warrants for unissued capital stock at
December 31, 1995 and 1994.
(6) TRANSACTIONS WITH RELATED PARTIES
KYMC acts as manager for the Company. In accordance with the management
agreement, KYMC is paid a management fee equal to 3% of total revenue (as
defined in the management agreement) plus out-of-pocket expenses not to exceed
1% of total revenue. The management fee for the three months ended March 31,
1996 and 1995 and the years ended December 31, 1995, 1994 and 1993 was $226,204,
$203,822, $842,644, $819,095 and $749,305 respectively.
Included in accounts payable and accrued expenses at December 31, 1994 is a
payable in the amount of $151,190 to Scott Cable Communications, Inc. ("Scott"),
an affiliated Company, for certain administrative costs paid by Scott on behalf
of the Company.
(7) COMMITMENTS
The Company rents pole space, office space and equipment under operating leases.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with terms of one year or more are as follows:
<TABLE>
<S> <C>
1996 $132,081
1997 104,417
1998 59,412
1999 56,006
2000 45,182
Thereafter 53,675
---------
Total $450,773
=========
</TABLE>
Rent expense for the three months ended March 31, 1996 and 1995 and the years
ended December 31, 1995, 1994 and 1993 was $47,318, $49,592, $202,652, $204,164
and $207,901 respectively.
(8) 401K RETIREMENT/SAVINGS PLAN
The Company's employees are covered by a 401(k) retirement/savings plan covering
all employees who meet service requirements. Total plan expenses for the three
months ended March 31, 1996 and 1995 and the years ended December 31, 1995, 1994
and 1993 was $2,903, $3,749, $7,660, $5,769 and $7,099, respectively.
(9) REGULATORY MATTERS
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") which regulates the cable
television industry. Pursuant to the 1992 Cable Act, the Federal Communications
Commission (the "FCC") has issued numerous regulations which include provisions
regarding rates and other matters. As a result of these rules, the Company was
required to reduce many of its basic service rates effective September 1, 1993,
and again on August 1, 1994.
On June 5, 1995, the FCC extended regulatory relief to small cable operators.
All of the Company's cable systems qualified for this regulatory relief, which
allows for greater flexibility in establishing rates (including increases). On
February 8, 1996, Congress enacted the 1996 Telecommunications Act which, among
other things, immediately deregulated all levels of service except broadcast
basic service for small cable operators for which all of the Company's cable
systems qualified.
F-57
<PAGE> 167
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Triax Southeast Associates, L.P.:
We have audited the accompanying balance sheets of TRIAX SOUTHEAST ASSOCIATES,
L.P. (a Delaware limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital and cash flows for the years
ended December 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Triax Southeast Associates,
L.P. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for the years ended December 31, 1995, 1994 and 1993, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 27, 1996.
F-58
<PAGE> 168
TRIAX SOUTHEAST ASSOCIATES, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994
----------- ----------- -----------
Unaudited
<S> <C> <C> <C>
ASSETS
CASH $ 3,097,029 $ 3,380,723 $ 699,077
RECEIVABLES, net of allowance of $899, $29,985 and
$52,302 at March 31, 1996 and December 31, 1995 and
1994, respectively 614,170 600,866 542,832
PREPAID EXPENSES 182,064 167,908 174,821
INVENTORY 345,988 346,274 444,624
PROPERTY, PLANT AND EQUIPMENT, net 37,836,576 38,761,227 36,496,820
PURCHASED INTANGIBLES, net 9,122,683 9,542,002 10,105,115
OTHER ASSETS, net 881,012 933,591 1,118,718
----------- ----------- -----------
TOTAL ASSETS $52,079,522 $53,732,591 $49,582,007
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
ACCRUED INTEREST EXPENSE $ 254,654 $ 258,223 $ 168,559
ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES 1,426,853 1,710,636 1,962,757
SUBSCRIBER PREPAYMENTS AND DEPOSITS 65,564 71,105 42,470
PAYABLE TO AFFILIATES 237,573 239,021 227,355
DEBT 41,614,901 42,546,539 35,787,218
----------- ----------- -----------
TOTAL LIABILITIES 43,599,545 44,825,524 38,188,359
PARTNERS' CAPITAL:
General Partner (55,200) (50,929) (26,063)
Limited Partners 8,535,177 8,957,996 11,419,711
----------- ----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $52,079,522 $53,732,591 $49,582,007
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-59
<PAGE> 169
TRIAX SOUTHEAST ASSOCIATES, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ ----------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ----------- ----------- ----------
Unaudited
<S> <C> <C> <C> <C> <C>
REVENUES $4,722,028 $4,074,693 $17,780,041 $15,057,652 $7,810,891
---------- ---------- ----------- ----------- ----------
EXPENSES:
Programming 952,906 774,240 3,400,604 2,661,058 1,128,730
Operating, selling, general and
administrative 1,304,712 1,176,782 5,104,803 4,489,003 2,268,325
Overhead expenses paid to
affiliate 57,263 48,569 211,993 176,705 74,393
Management fees paid to
affiliate 236,101 203,737 888,996 752,882 390,545
Depreciation and amortization 1,802,557 1,721,795 7,344,035 6,252,573 3,307,310
---------- ---------- ----------- ----------- ----------
4,353,539 3,925,123 16,950,431 14,332,221 7,169,303
Operating Income 368,489 149,570 829,610 725,431 641,588
Interest Expense, net 795,579 786,377 3,316,191 2,359,980 1,056,256
---------- ---------- ----------- ----------- ----------
NET LOSS $ (427,090) $ (636,807) $(2,486,581) $(1,634,549) $ (414,668)
========= ========= ========== ========== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-60
<PAGE> 170
TRIAX SOUTHEAST ASSOCIATES, L.P.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
--------------------------------------
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1992 $ (5,571) $ 6,448,436 $ 6,442,865
Contributions -- 7,000,000 7,000,000
Net loss (4,147) (410,521) (414,668)
-------- ----------- -----------
BALANCES, DECEMBER 31, 1993 (9,718) 13,037,915 13,028,197
Net loss (16,345) (1,618,204) (1,634,549)
-------- ----------- -----------
BALANCES, DECEMBER 31, 1994 (26,063) 11,419,711 11,393,648
Net loss (24,866) (2,461,715) (2,486,581)
-------- ----------- -----------
BALANCES, DECEMBER 31, 1995 (50,929) 8,957,996 8,907,067
Net loss unaudited (4,271) (422,819) (427,090)
-------- ----------- -----------
BALANCES, MARCH 31, 1996 unaudited $(55,200) $ 8,535,177 $ 8,479,977
======= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-61
<PAGE> 171
TRIAX SOUTHEAST ASSOCIATES, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- --------------------------------------------
1996 1995 1995 1994 1993
---------- ----------- ------------ ------------ ------------
Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (427,090) $ (636,807) $ (2,486,581) $ (1,634,549) $ (414,668)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 1,802,557 1,721,795 7,344,035 6,252,573 3,307,310
(Increase) decrease in receivables, net (13,304) (123,877) (58,034) 6,042 (345,197)
(Increase) decrease in prepaid expenses (14,156) (80,613) 6,913 (128,309) (20,657)
(Decrease) increase in accrued interest
expense (3,569) (7,355) 89,664 26,923 (45,894)
(Decrease) increase in accounts payable
and other accrued expenses (283,783) (215,102) (252,121) 803,714 274,125
(Decrease) increase in subscriber
prepayments and deposits (5,541) 86,978 28,635 (3,886) 17,495
(Decrease) increase in payable to
affiliates (1,448) (7,908) 11,666 72,286 30,849
---------- ----------- ------------ ------------ ------------
Net cash flows from operating activities 1,053,666 737,111 4,684,177 5,394,794 2,803,363
---------- ----------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties, including
purchased intangibles (184,000) (6,186,668) (6,065,116) (74,203) (25,342,487)
Purchase of property, plant and equipment (405,880) (807,155) (2,369,183) (3,643,894) (1,269,346)
(Increase) in inventory 286 45,971 98,350 263,815 (610,502)
Increase in franchise costs and other assets (128) (10,631) (10,387) (121,663) --
---------- ----------- ------------ ------------ ------------
Net cash flows from investing activities (589,722) (6,958,483) (8,346,336) (3,575,945) (27,222,335)
---------- ----------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 5,584,000 9,400,000 1,000,000 19,400,000
Repayment of borrowings (715,000) -- (2,880,000) (2,500,000) (1,400,000)
Partners' contributions -- -- -- -- 7,000,000
Cash paid for loan costs -- (88) (66,520) (117,107) (340,789)
Repayment of capital lease obligations (32,638) (22,261) (109,675) (60,007) (24,725)
---------- ----------- ------------ ------------ ------------
Net cash flows from financing activities (747,638) 5,561,651 6,343,805 (1,677,114) 24,634,486
---------- ----------- ------------ ------------ ------------
NET INCREASE IN CASH (283,694) (659,721) 2,681,646 141,735 215,514
CASH, beginning of period 3,380,723 699,077 699,077 557,342 341,828
---------- ----------- ------------ ------------ ------------
CASH, end of period $3,097,029 $ 39,356 $ 3,380,723 $ 699,077 $ 557,342
========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 837,740 $ 793,732 $ 3,268,546 $ 2,333,057 $ 1,102,150
========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisitions with capital leases $ -- $ -- $ 164,996 $ 233,047 $ 66,236
========== =========== =========== =========== ===========
Note issued for acquisition of properties $ -- $ -- $ 184,000 $ -- $ --
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-62
<PAGE> 172
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
(1) THE PARTNERSHIP
Organization and Capitalization
Triax Southeast Associates, L.P. (the "Partnership") is a Delaware limited
partnership formed January 23, 1992 for the purpose of acquiring, constructing,
owning, and operating cable television systems, located primarily in Kentucky,
North Carolina, West Virginia and Ohio. The Partnership was capitalized and
commenced operations on July 28, 1992, with $7,000,000 of limited partner
contributions and a $70,000 demand non-interest bearing note from its general
partner, Triax Southeast General Partner, L.P. ("Southeast, G.P."). Triax
Investors Southeast, L.P. ("Investors"), a limited partnership in which Triax
Southeast Associates, Inc. ("Southeast Inc."), a Delaware corporation, is the
general partner, contributed $1,000,000 to the Partnership.
Southeast Inc. is a wholly owned subsidiary of Triax Communications Corporation
("TCC"), a Delaware corporation. Southeast Inc. contributed capital of
$1,000,000 and a $59,500 demand non-interest bearing note to Investors for a
general partnership interest. In addition, Southeast Inc. contributed a $700
demand non-interest bearing note to Southeast, G.P. for a general partnership
interest. Investors contributed a $59,500 demand non-interest bearing note for a
limited partner interest in Southeast, G.P.
On December 15, 1993, the Partnership Agreement was amended to reflect
additional capital contributions of $7,000,000 by certain limited partners.
Southeast Inc. contributed $1,250,000 to Investors, who in turn contributed an
additional $1,250,000 to the Partnership.
The Partnership Agreement, as amended, provides that at any time after April 30,
1997, upon notice from a majority of the limited partners that they desire to
cause a sale of the Partnership's assets and business (or all of the interests
in the Partnership), TCC may purchase all of the Partnership's assets and
business (or all of the interests in the Partnership), subject to the approval
of the majority of limited partners. In addition, after July 31, 1998, each
limited partner who has made capital contributions in excess of $1,000,000 may
cause the sale of the Partnership's assets and business and liquidation of the
Partnership. The above dates may be extended to 1998 or 1999 to coincide with
the revised termination date of one of the limited partner's partnership
agreement, if and when the limited partner extends the termination date.
Allocation of Profits, Losses and Distributions
Profits
The Partnership Agreement, as amended, provides that profits will be allocated
as follows: (i) 1% to the general partner and 99% to the limited partners until
profits allocated to them equal losses previously allocated; (ii) to the limited
partners until the limited partners have been allocated profits equal to a 12%
per annum cumulative preferred return on their capital contributions plus the
amount of losses previously allocated; then, (iii) 20% to the general partner
and 80% to the limited partners.
Losses
The Partnership Agreement, as amended, provides that losses will be allocated 1%
to the general partner and 99% to the limited partners, except no losses shall
be allocated to any limited partner which would cause the limited partner's
capital account to become negative by an amount greater than the limited
partner's share of the Partnership's "minimum gain" (the excess of the
Partnership's nonrecourse debt over its adjusted basis in the assets encumbered
by nonrecourse debt), as defined, plus any amount of Partnership debt assumed by
the limited partner or any amount the limited partner is obligated to contribute
to the Partnership; then 100% to the general partner.
Distributions
The Partnership Agreement, as amended, provides that Distributable Cash, as
defined, will be distributed as follows: (i) to the partners in proportion to
their Capital Contribution Accounts, as defined, until the balances are
F-63
<PAGE> 173
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) THE PARTNERSHIP (CONTINUED)
Allocation of Profits, Losses and Distributions (continued)
reduced to zero; (ii) to the limited partners until the limited partners have
received a 12% per annum cumulative preferred return on their capital
contributions and then, (iii) 20% to the general partner and 80% to the limited
partners.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Interim Financial Statements
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1996 and 1995 are unaudited. In management's opinion, the unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1996 and 1995 include all adjustments necessary for a fair presentation.
Such adjustments were of a normal recurring nature.
Revenue Recognition
Revenues are recognized in the period the related services are provided to the
subscribers.
Income Taxes
No provision has been made for federal, state or local income taxes because they
are the responsibility of the individual partners. The principal difference
between net income or loss for income tax and financial reporting purposes
results from the use of accelerated depreciation for tax purposes.
Inventory
Inventory is carried at historical cost, which approximates market value, and
consists primarily of installation materials.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Replacements, renewals and
improvements are capitalized and costs for repairs and maintenance are charged
directly to expense when incurred. The Partnership capitalized a portion of
technician and installer salaries to property , plant, and equipment which
amounted to approximately $105,000 for the three months ended March 31, 1996 and
$283,000 and $422,000 for the years ended
F-64
<PAGE> 174
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
December 31, 1995 and 1994, respectively. Depreciation and amortization are
computed using the straightline method over the following estimated useful
lives:
<TABLE>
<CAPTION>
----------------------------------------------------------
DECEMBER 31,
---------------------------
1995 1994 LIFE
MARCH 31, ------------ ----------- -----------
1996
------------
Unaudited
<S> <C> <C> <C> <C>
Property, plant and equipment $ 51,594,347 $ 51,188,466 $43,704,363 5-10 years
Less: Accumulated depreciation (13,757,771) (12,427,239) (7,207,543)
------------ ------------ -----------
$ 37,836,576 $ 38,761,227 $36,496,820
=========== =========== ==========
</TABLE>
Purchased Intangibles
Purchased intangibles are being amortized using the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
-------------------------------------------------------
DECEMBER 31,
--------------------------
1995 1994 LIFE
MARCH 31, ----------- ----------- -----------
1996
-----------
Unaudited
<S> <C> <C> <C> <C>
Franchise costs $13,026,848 $13,026,720 $11,832,807 10 years
Noncompete agreements 850,000 850,000 1,700,000 3 years
----------- ----------- -----------
13,876,848 13,876,720 13,532,807
Less: Accumulated amortization (4,754,165) (4,334,718) (3,427,692)
----------- ----------- -----------
$ 9,122,683 $ 9,542,002 $10,105,115
========== ========== ==========
</TABLE>
During 1995, the Partnership wrote-off approximately $1,000,000 of noncompete
agreements, and the associated accumulated amortization, as the noncompete
agreements had expired.
Impairment of Long-Lived Assets
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of" ("SFAS 121"). SFAS 121 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. SFAS 121 is required to be adopted by the Company in fiscal 1996.
Management believes the adoption of SFAS 121 will not have a material impact on
the financial statements.
F-65
<PAGE> 175
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Assets
Other assets are being amortized using the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
--------------------------------------------------------
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994 LIFE
----------- ----------- ----------- -----------
Unaudited
<S> <C> <C> <C> <C>
Loan costs $ 1,111,608 $ 1,111,608 $ 1,084,999 5 years
Organization costs 441,435 441,435 441,435 5 years
Other 3,875 3,875 -- 10 years
----------- ----------- -----------
1,556,918 1,556,918 1,526,434
Less: Accumulated
amortization (675,906) (623,327) (407,716)
----------- ----------- -----------
$ 881,012 $ 933,591 $ 1,118,718
========= ========= =========
</TABLE>
(3) ACQUISITIONS
On February 28, 1995, the Partnership acquired certain cable television systems
and related assets of Rodgers Cable TV, Inc. ("Rodgers"). The purchase price of
approximately $5,700,000, including closing costs, was accounted for by the
purchase method of accounting and allocated as follows:
<TABLE>
<S> <C>
Property, plant and equipment $4,580,000
Franchise costs 1,019,400
Non-compete 100,600
----------
Total cash paid $5,700,000
=========
</TABLE>
On March 31, 1995, the Partnership acquired cable television systems and related
assets of Green Tree Cable T.V., Inc. The purchase price of approximately
$570,000, including closing costs, was accounted for by the purchase method of
accounting. The Partnership issued a note payable for $184,000 to the Seller, in
partial satisfaction of the total purchase price.
On December 15, 1993, the Partnership acquired cable television systems and
related assets of C4 Media Cable South, L.P. for approximately $17 million, and
on December 21, 1993, acquired additional cable television system assets and
related liabilities of Charter Cable, Inc. for approximately $6.5 million.
Acquisition-related fees totalled approximately $700,000. The acquisitions were
financed by additional limited partners' contributions of $7 million, the
drawdown by the Partnership of $17.6 million under its amended Revolving Credit
and Term Loan and available cash of $750,000. The acquisitions were accounted
for by the purchase method of accounting and allocated as follows:
<TABLE>
<S> <C>
Property, plant and equipment $20,144,000
Franchise costs 2,756,000
Non-compete 600,000
-----------
Total cash paid $23,500,000
-----------
</TABLE>
F-66
<PAGE> 176
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) DEBT
Debt consisted of the following at March 31, 1996, and December 31, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
-----------------------------------------
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994
----------- ----------- -----------
Unaudited
<S> <C> <C> <C>
Revolving Credit and Term Loan, interest
payable quarterly based on varying interest
rate options $41,305,000 $42,020,000 $35,500,000
Note Payable to seller -- 184,000 --
Vehicle leases 309,901 342,539 287,218
----------- ----------- -----------
$41,614,901 $42,546,539 $35,787,218
========== ========== ==========
</TABLE>
The Revolving Credit and Term Loan Agreement, as amended through February 28,
1995 (the "Revolver"), is collateralized by all property, plant and equipment,
inventory and accounts receivable of the Partnership and all rights under
present and future permits, licenses and franchises. On September 30, 1995, the
outstanding principal was converted into a term loan with quarterly payments
from December 31, 1995 through June 30, 2002. Commencing in 1996, within 120
days after the close of the fiscal year, the Partnership must make a mandatory
prepayment in an amount equal to 50% of the excess cash flow, as defined, for
the prior year. A commitment fee of 1/2% per annum is charged on the daily
unused portion of the commitment amount.
The Partnership entered into LIBOR interest rate agreements with the banks
related to the Revolver. The Partnership fixed the interest rate on $21 million
at 7.58% for the period from December 5, 1995 through March 4, 1996, on $16
million at 7.56% for the period from December 18, 1995 through March 18, 1996,
and on $4.5 million at 7.38% for the period from January 4, 1996 through April
3, 1996. The remaining outstanding balance bears interest at prime plus 1%.
On July 1, 1994 the Partnership paid $135,000 for an interest rate cap of 7% on
the LIBOR rate on $18 million effective July 1, 1994 through July 1, 1996, and
on March 27, 1995, paid $62,000 for an interest rate cap of 7.5% on the LIBOR
rate on $10 million effective March 27, 1995 through March 27, 1997.
The loan agreement contains certain covenants, the more significant of which
include leverage and interest coverage ratios and limitations on capital
expenditures.
Debt maturities required as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------- ---------------
<S> <C>
1996 $ 3,174,759
1997 4,731,241
1998 5,578,235
1999 6,842,304
2000 7,920,000
Thereafter 14,300,000
-----------
$ 42,546,539
==========
</TABLE>
(5) RELATED PARTY TRANSACTIONS
TCC provides management services to the Partnership for a fee equal to 5% of
gross revenues, as defined. The Partnership incurred management fees totaling
$236,101 and $203,737 for the three months ended March 31, 1996 and 1995,
respectively, and $888,996, $752,882 and $390,545 in 1995, 1994 and 1993,
respectively.
F-67
<PAGE> 177
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) RELATED PARTY TRANSACTIONS (CONTINUED)
TCC also allocates certain overhead expenses to the Partnership, which primarily
relate to employment costs, which expenses are limited to 1.25% of gross
revenues. These overhead expenses amounted to $57,293 and $48,569 for the three
months ended March 31, 1996 and 1995, respectively, and $211,993, $176,705 and
$74,393 in 1995, 1994 and in 1993, respectively.
TCC was paid acquisition fees of $235,000 in 1993 related to the acquisition of
certain assets. Such fees are included in purchased intangibles in the
accompanying balance sheets. TCC may be paid a disposition fee of 1% of the
sales price of the Partnership after certain approvals of the limited partners,
and after certain other conditions are met.
The Partnership purchases programming from TCC at TCC's cost, which includes
volume discounts TCC might earn.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximates fair value
because of the nature of the investments and the length of maturity of the
investments.
The estimated fair value of the Partnership's debt instruments are based on
borrowing rates that would be equal to existing rates, therefore, there is no
material difference in the fair market value and the current value.
(7) 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 (other than programming offered on a per-channel or
per-program basis). The FCC implemented regulation 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, which were defined as all systems serving
1,000 or fewer subscribers.
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.
To date, the FCC's regulations have not had a material adverse effect on the
Partnership due to the lack of certifications by the local franchising
authorities.
F-68
<PAGE> 178
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 ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION
[LOGO] DATED AUGUST 12, 1996
ALTERNATE
FRONTIERVISION OPERATING PARTNERS, L.P.
FRONTIERVISION CAPITAL CORPORATION
$
% Senior Subordinated Notes due 2006
Interest payable and
ISSUE PRICE: %
This Prospectus relates to offers and sales by J.P. Morgan Securities Inc. of
% Senior Subordinated Notes due 2006 (the "Notes") which have been issued
by FrontierVision Operating Partners, a Delaware limited partnership ("FVOP" or
the "Company"), and FrontierVision Capital Corporation, a Delaware corporation
("Capital") which is a wholly owned subsidiary of FVOP. The Notes are the joint
and several obligations of FVOP and Capital (collectively, the "Issuers"). The
Notes were originally purchased by J.P. Morgan Securities Inc. directly from the
Issuers as part of the original offering of the Notes described herein.
The Notes mature on , 2006, unless previously redeemed. Interest on the
Notes is payable semiannually on each and , commencing
, 1997. The Notes are not redeemable prior to , 2001, except as
set forth below. The Notes will be redeemable at the option of the Issuers, in
whole or in part, at any time on or after , 2001, at the redemption
prices set forth herein, together with accrued and unpaid interest to the
redemption date. In addition, prior to , 1999, the Issuers may
redeem up to 35% of the principal amount of the Notes with the net cash proceeds
received from one or more Public Equity Offerings or Strategic Equity
Investments (as such terms are defined) at a redemption price of % of the
principal amount thereof, together with accrued and unpaid interest to the
redemption date; provided, however, that at least 65% in aggregate principal
amount of the Notes originally issued remains outstanding immediately after any
such redemption.
Upon a Change of Control (as defined), the Issuers will be required to make an
offer to purchase all outstanding Notes at 101% of the principal amount thereof,
together with accrued and unpaid interest to the purchase date.
The Notes will be general unsecured obligations of the Issuers and will rank
subordinate in right of payment to all existing and future Senior Indebtedness
(as defined) of the Issuers. The Notes will rank pari passu in right of payment
with any other senior subordinated indebtedness of the Issuers. At March 31,
1996, as adjusted to give effect to the Rights Offering (as defined) and to the
transactions described herein under "Use of Proceeds" and the Other Transactions
(as defined herein) the Company would have had approximately $201.3 million of
Senior Indebtedness outstanding.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
This Prospectus has been prepared for and is to be used by J.P. Morgan
Securities Inc. in connection with offers and sales of the Notes related to
market-making transactions in the over-the-counter market at negotiated prices
related to prevailing market prices at the time of sale. J.P. Morgan Securities
Inc. may act as principal or agent in such transactions. See "Plan of
Distribution."
J.P. MORGAN & CO.
, 1996
A-1
<PAGE> 179
ALTERNATE
PLAN OF DISTRIBUTION
This Prospectus is to be used by J.P. Morgan Securities Inc. in connection with
offers and sales of the Notes in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale. J.P. Morgan Securities Inc. may act as principal or agent
in such transactions and has no obligation to make a market in the Notes and may
discontinue its market-making activities at any time without notice, at its sole
discretion. The Issuers have agreed to indemnify J.P. Morgan Securities Inc.
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that J.P. Morgan Securities Inc. may be required to
make in respect thereof.
An affiliate of J.P. Morgan Securities Inc. beneficially owns approximately
20.47% of the partnership interests of the Company. See "Certain Relationships
and Related Transactions -- Ownership of Equity Interests in FVP GP, FVP and
FVOP," "Principal Security Holders" and "The Partnership Agreement."
A-2
<PAGE> 180
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 ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION
[LOGO] DATED AUGUST 12, 1996
ALTERNATE
FRONTIERVISION OPERATING PARTNERS, L.P.
FRONTIERVISION CAPITAL CORPORATION
$
% Senior Subordinated Notes due 2006
Interest payable and
ISSUE PRICE: %
This Prospectus relates to offers and sales by First Union Capital Markets Corp.
of % Senior Subordinated Notes due 2006 (the "Notes") which have been
issued by FrontierVision Operating Partners, a Delaware limited partnership
("FVOP" or the "Company"), and FrontierVision Capital Corporation, a Delaware
corporation ("Capital") which is a wholly owned subsidiary of FVOP. The Notes
are the joint and several obligations of FVOP and Capital (collectively, the
"Issuers"). The Notes were originally purchased by First Union Capital Markets
Corp. directly from the Issuers as part of the original offering of the Notes
described herein.
The Notes mature on , 2006, unless previously redeemed. Interest on the
Notes is payable semiannually on each and , commencing
, 1997. The Notes are not redeemable prior to , 2001, except as
set forth below. The Notes will be redeemable at the option of the Issuers, in
whole or in part, at any time on or after , 2001, at the redemption
prices set forth herein, together with accrued and unpaid interest to the
redemption date. In addition, prior to , 1999, the Issuers may
redeem up to 35% of the principal amount of the Notes with the net cash proceeds
received from one or more Public Equity Offerings or Strategic Equity
Investments (as such terms are defined) at a redemption price of % of the
principal amount thereof, together with accrued and unpaid interest to the
redemption date; provided, however, that at least 65% in aggregate principal
amount of the Notes originally issued remains outstanding immediately after any
such redemption.
Upon a Change of Control (as defined), the Issuers will be required to make an
offer to purchase all outstanding Notes at 101% of the principal amount thereof,
together with accrued and unpaid interest to the purchase date.
The Notes will be general unsecured obligations of the Issuers and will rank
subordinate in right of payment to all existing and future Senior Indebtedness
(as defined) of the Issuers. The Notes will rank pari passu in right of payment
with any other senior subordinated indebtedness of the Issuers. At March 31,
1996, as adjusted to give effect to the Rights Offering (as defined) and to the
transactions described herein under "Use of Proceeds" and the Other Transactions
(as defined herein) the Company would have had approximately $201.3 million of
Senior Indebtedness outstanding.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------------
This Prospectus has been prepared for and is to be used by First Union Capital
Markets Corp. in connection with offers and sales of the Notes related to
market-making transactions in the over-the-counter market at negotiated prices
related to prevailing market prices at the time of sale. First Union Capital
Markets Corp. may act as principal or agent in such transactions. See "Plan of
Distribution."
FIRST UNION CAPITAL MARKETS CORP.
, 1996
A-1
<PAGE> 181
ALTERNATE
PLAN OF DISTRIBUTION
This Prospectus is to be used by First Union Capital Markets Corp. in connection
with offers and sales of the Notes in market-making transactions in the
over-the-counter market at negotiated prices related to prevailing market prices
at the time of sale. First Union Capital Markets Corp. may act as principal or
agent in such transactions and has no obligation to make a market in the Notes
and may discontinue its market-making activities at any time without notice, at
its sole discretion. The Issuers have agreed to indemnify First Union Capital
Markets Corp. against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that First Union Capital Markets
Corp. may be required to make in respect thereof.
An affiliate of First Union Capital Markets Corp. beneficially owns
approximately 12.28% of the partnership interests of the Company. See "Certain
Relationships and Related Transactions -- Ownership of Equity Interests in FVP
GP, FVP and FVOP," "Principal Security Holders" and "The Partnership Agreement."
A-2
<PAGE> 182
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the fees and expenses, other than
underwriting discounts and commissions, payable by the Registrants in connection
with the Offering. All amounts are estimated except the filing fees:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................ $68,966
NASD Filing Fee.................................................... $20,500
Printing and Engraving Fees........................................ *
Blue Sky Fees and Expenses......................................... *
Rating Agency Fees................................................. *
Fees of Trustee.................................................... *
Legal Fees and Expenses............................................ *
Accounting Fees and Expenses....................................... *
Miscellaneous...................................................... *
-------
Total......................................................... $ *
=======
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 5.6 of the First Amended and Restated Agreement of Limited
Partnership of FVP, dated as of August 11, 1995 (the "FVP Partnership
Agreement"), provides that in the absence of fraud, breach of fiduciary duty,
willful misconduct or gross negligence, FVP GP, its partners, their respective
officers, directors, employees, agents or stockholders (including when any of
the foregoing is serving at the request of FVP GP on behalf of FVP as a partner,
officer, director, employee or agent of any other Person) (as such term is
defined in the FVP Partnership Agreement) (in each case, the "Indemnitee") shall
not be liable to any other partner of FVP or FVP (i) for any mistake in
judgment, (ii) for any action taken or omitted to be taken in good faith and in
a manner reasonably believed by such Person to be in the best interests of FVP
and to be within the scope of its authority under the FVP Partnership Agreement,
or (iii) for any loss due to the mistake, action, inaction, negligence,
dishonesty, fraud or bad faith of any broker or other agent, provided that such
broker or other agent shall have been selected and supervised by FVP GP or other
Indemnitee with reasonable care. In addition, Indemnitee will be indemnified and
held harmless by FVP against losses, damages and expenses for which such Person
has not otherwise been reimbursed actually and reasonably incurred by such
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 (other than any
action by or in the name of FVP), by reason of any action taken or omitted to be
taken in connection with or arising out of such Person's activities on behalf of
FVP or in furtherance of FVP, if such actions were taken or omitted to be taken
in good faith and in a manner reasonably believed by such Person to be in the
best interests of FVP and within the scope of the FVP Partnership Agreement,
provided, that any Person entitled to indemnification shall obtain the written
consent of FVP GP (which consent will not be given without the approval of the
Advisory Committee) prior to entering into any compromise or settlement which
would result in an obligation of FVP to indemnify such Person.
Section 5.6 of the First Amended and Restated Agreement of Limited
Partnership of FVP GP, dated as of August 11, 1995 (the "FVP GP Partnership
Agreement"), provides that in the absence of fraud, breach of fiduciary duty,
willful misconduct or gross negligence, FrontierVision, Inc., its officers,
directors, employees, agents or stockholders (including when any of the
foregoing is serving at the request of FrontierVision, Inc. on behalf of FVP GP
or FVP as a partner, officer, director, employee or agent of any other Person)
(as such term is defined in the FVP GP Partnership Agreement) (in each case, the
"Indemnitee") shall not be liable to any other partner of FVP GP or FVP GP (i)
for any mistake in judgment, (ii) for any action taken or omitted to be taken in
good faith and in a manner reasonably believed by such Person to be in the best
interests of FVP GP and to be within the scope of its authority under the FVP GP
Partnership Agreement, or (iii) for any loss due to the mistake, action,
inaction
II-1
<PAGE> 183
negligence dishonesty, fraud or bad faith of any broker or other agent, provided
that such broker or other agent shall have been selected and supervised by
FrontierVision, Inc. or other Indemnitee with reasonable care. In addition,
Indemnitees will be indemnified and held harmless by FVP GP against losses,
damages and expenses for which such person has not otherwise been reimbursed
actually and reasonably incurred by such 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 (other than any action by or in the name of FVP GP), by
reason of any action taken or omitted to be taken in connection with or arising
out of such Person's activities on behalf of FVP GP or in furtherance of FVP GP,
if such actions were taken or omitted to be taken in good faith and in a manner
reasonably believed by such person to be in the best interests of FVP GP and
within the scope of the FVP GP Partnership Agreement, provided, that any Person
entitled to indemnification shall obtain the written consent of FrontierVision
Inc. (which consent will not be given without the consent of a majority in
interest of the Class X Limited Partners (as such term is defined in the FVP GP
Partnership Agreement)) prior to entering into any compromise or settlement
which would result in an obligation of FVP GP to indemnify such person.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
(the "DGCL") provides that a corporation (in its original certificate of
incorporation or an amendment thereto) may eliminate or limit the personal
liability of a director (or certain persons who, pursuant to the provisions of
the certificate of incorporation, exercise or perform duties conferred or
imposed upon directors by the DGCL) to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provisions shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions) or (iv) for any transaction from which
the director derived an improper personal benefit. Article Tenth of
FrontierVision, Inc.'s Certificate of Incorporation and Article Eleventh of
Capital's Certificate of Incorporation each limit the liability of directors
thereof to the extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents and shall so indemnify such
persons if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of securities sold by the Registrants during the
past three years without registration under the Act:
1. On July 15, 1995, in connection with the formation of the Company,
the Company issued to FVP a 99.9% general partner interest in the Company
for cash consideration of $99.90. Simultaneously, the Company issued to
FrontierVision Operating Partners, Inc. a 0.1% limited partnership interest
for cash consideration of $.10.
2. On July 26, 1996, in connection with the formation of Capital,
Capital issued to the Company 100 shares of the voting common stock of
Capital, one cent ($.01) par value per share, for cash consideration of
$100.00. In the foregoing instances, the issuance of the general partner
interest in the Company and the limited partnership interest in the Company
and the issuance of the voting common stock of Capital were deemed to be
exempt from the registration requirements of the Act as a transaction not
involving any public offering, pursuant to Section 4(2) of the Act. The
recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof. All
recipients had adequate access, through their relationships with the
Company and Capital, to information about the Company and Capital.
II-2
<PAGE> 184
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <C> <S>
*1 -- Form of Underwriting Agreement.
**3.1 -- The Company's Agreement of Limited Partnership.
**3.2 -- Certificate of Limited Partnership of the Company.
**3.3 -- First Amended and Restated Agreement of Limited Partnership of FVP.
**3.4 -- Certificate of Limited Partnership of FVP.
**3.5 -- First Amended and Restated Agreement of Limited Partnership of FVP GP.
**3.6 -- Certificate of Limited Partnership of FVP GP.
**3.7 -- Certificate of Incorporation of FrontierVision Inc.
**3.8 -- Bylaws of FrontierVision Inc.
**3.9 -- Certificate of Incorporation of FrontierVision Capital Corporation.
**3.10 -- Bylaws of FrontierVision Capital Corporation.
*4.1 -- Form of Indenture by and among the Registrants and , as Trustee,
relating to the Notes.
*4.2 -- Form of Note (included as part of Exhibit 4.1).
*5 -- Opinion of Dow, Lohnes & Albertson.
**10.1 -- Senior Credit Facility.
**10.2 -- Employment Agreement of James C. Vaughn.
**10.3 -- Asset Purchase Agreement dated July 20, 1995 between United Video Cablevision,
Inc. and FrontierVision Operating Partners, L.P.
*10.4 -- Asset Acquisition Agreement (July 27, 1995 Auction Sale) dated as of July 27,
1995 among Stephen S. Gray in his capacity as Receiver of Longfellow Cable
Company, Inc., Carrabassett Electronics and Carrabassett Cable Company, Inc. and
FrontierVision Operating Partners, L.P.
**10.5 -- Asset Purchase Agreement dated October 27, 1995 among C4 Media Cable Southeast,
Limited Partnership, County Cable Company, L.P. and FrontierVision Operating
Partners, L.P.
**10.6 -- Asset Purchase Agreement dated November 17, 1995 among Cox Communications Ohio,
Inc., Times Mirror Cable Television of Defiance, Inc., Chillicothe Cablevision,
Inc., Cox Communications Eastern Kentucky, Inc. and FrontierVision Operating
Partners, L.P.
**10.7 -- Asset Purchase Agreement dated February 27, 1996 between Americable
International Maine, Inc. and FrontierVision Operating Partners, L.P.
**10.8 -- Asset Purchase Agreement dated May 16, 1996 among Triax Southeast Associates,
L.P., Triax Southeast General Partner, L.P. and FrontierVision Operating
Partners, L.P.
**10.9 -- Asset Purchase and Sale Agreement dated June 21, 1996 between Helicon Partners
I, LP and FrontierVision Operating Partners, L.P.
**10.10 -- Asset Purchase Agreement dated July 15, 1995 between American Cable
Entertainment of Kentucky-Indiana, Inc. and FrontierVision Operating Partners,
L.P.
**10.11 -- Asset Purchase Agreement dated as of July 30, 1996 between Shenandoah Cable
Television Company and FrontierVision Operating Partners, L.P.
*10.12 -- Purchase Agreement dated as of August , 1996 between Penn/Ohio Cablevision,
L.P. and FrontierVision Operating Partners, L.P.
**10.13 -- Asset Purchase Agreement dated July 19, 1996 between Phoenix Grassroots Cable
Systems, L.L.C. and FrontierVision Operating Partners, L.P. FrontierVision
Operating Partners, L.P.
12 -- Statement of Computation of Ratios.
23.1 -- Consent of Arthur Andersen LLP (FrontierVision Operating Partners, L.P.).
23.2 -- Consent of Piaker & Lyons, P.C. (United Video Cablevision, Inc.).
23.3 -- Consent of Williams, Rogers, Lewis & Co., I.C. (C4 Media Cable Southeast,
Limited Partnership).
23.4 -- Consent of Arthur Andersen LLP (Triax Southeast Associates, L.P.).
23.5 -- Consent of Deloitte & Touche LLP (American Cable Entertainment of
Kentucky-Indiana, Inc.).
23.6 -- Consent of Deloitte & Touche LLP (Ashland and Defiance, Ohio Clusters).
*23.7 -- Consent of Dow, Lohnes & Albertson (contained in Exhibit 5).
**25 -- Powers of attorney (included on signature page to this Registration Statement).
*26 -- Statement of Eligibility on Form T-1 of , as Trustee.
**27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
II-3
<PAGE> 185
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company, FVP,
FVP GP, FrontierVision Inc. and Capital pursuant to the provisions described
under Item 14 above or otherwise, the Registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrants of expenses incurred or paid by a director,
officer or controlling person of the Registrants in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by them is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Each of the Registrants hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at such time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 186
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended,
FrontierVision Operating Partners, L.P. has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 12th day of August 1996.
FRONTIERVISION OPERATING PARTNERS, L.P.
By: FrontierVision Partners, L.P., its
general partner,
By: FVP GP, L.P., its general partner
By: FrontierVision Inc., its general
partner
By: /s/ JAMES C. VAUGHN
-----------------------------------
JAMES C. VAUGHN
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------- ----------------
<S> <C> <C>
/s/ JAMES C. VAUGHN President, Chief Executive August 12, 1996
- ------------------------------------------ Officer, and Director of
JAMES C. VAUGHN FrontierVision Inc. (Principal
Executive Officer)
* Senior Vice President, Chief August 12, 1996
- ------------------------------------------ Financial Officer, Secretary and
JOHN S. KOO Director of FrontierVision Inc.
(Principal Financial Officer)
* Vice President and Treasurer of August 12, 1996
- ------------------------------------------ FrontierVision Inc. (Principal
JAMES W. MCHOSE Accounting Officer)
</TABLE>
* James C. Vaughn, by signing his name hereto, does sign this document on behalf
of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with
the Securities and Exchange Commission.
By: /s/ JAMES C. VAUGHN
-----------------------------------
JAMES C. VAUGHN
Attorney-In-Fact
II-5
<PAGE> 187
Signatures
Pursuant to the requirements of the securities Act of 1933, as amended,
FrontierVision Capital Corporation has duly caused this Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 12th day of August, 1996.
FRONTIERVISION CAPITAL CORPORATION
By: /s/ JAMES C. VAUGHN
-------------------------------------
JAMES C. VAUGHN
President
Pursuant to the requirements of the securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ --------------------------------- ----------------
<S> <C> <C>
/s/ JAMES C. VAUGHN President and Director of August 12, 1996
- ------------------------------------------ FrontierVision Capital
JAMES C. VAUGHN Corporation (Principal Executive
Officer)
* Senior Vice President, Chief August 12, 1996
- ------------------------------------------ Financial Officer, Secretary and
JOHN S. KOO Director of FrontierVision
Capital Corporation (Principal
Financial Officer)
* Vice President and Treasurer of August 12, 1996
- ------------------------------------------ FrontierVision Capital
JAMES W. MCHOSE Corporation (Principal Accounting
Officer)
</TABLE>
* James C. Vaughn, by signing his name hereto, does sign this document on behalf
of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with
the Securities and Exchange Commission.
By: /s/ JAMES C. VAUGHN
-----------------------------------
JAMES C. VAUGHN
Attorney-In-Fact
II-6
<PAGE> 188
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------ -------------
<C> <S> <C>
*1 Form of Underwriting Agreement. ........................................
**3.1 The Company's Agreement of Limited Partnership. ........................
**3.2 Certificate of Limited Partnership of the Company. .....................
**3.3 First Amended and Restated Agreement of Limited Partnership of FVP. ....
**3.4 Certificate of Limited Partnership of FVP. .............................
**3.5 First Amended and Restated Agreement of Limited Partnership of FVP
GP. ....................................................................
**3.6 Certificate of Limited Partnership of FVP GP. ..........................
**3.7 Certificate of Incorporation of FrontierVision Inc. ....................
**3.8 Bylaws of FrontierVision Inc. ..........................................
**3.9 Certificate of Incorporation of FrontierVision Capital Corporation. ....
**3.10 Bylaws of FrontierVision Capital Corporation. ..........................
*4.1 Form of Indenture by and among the Registrants and , as
Trustee, relating to the Notes. ........................................
*4.2 Form of Note (included as part of Exhibit 4.1). ........................
*5 Opinion of Dow, Lohnes & Albertson. ....................................
**10.1 Senior Credit Facility. ................................................
**10.2 Employment Agreement of James C. Vaughn. ...............................
**10.3 Asset Purchase Agreement dated July 20, 1995 between United Video
Cablevision, Inc. and FrontierVision Operating Partners, L.P. ..........
*10.4 Asset Acquisition Agreement (July 27, 1995 Auction Sale) dated as of
July 27, 1995 among Stephen S. Gray in his capacity as Receiver of
Longfellow Cable Company, Inc., Carrabassett Electronics and
Carrabassett Cable Company, Inc. and FrontierVision Operating Partners,
L.P. ...................................................................
**10.5 Asset Purchase Agreement dated October 27, 1995 among C4 Media Cable
Southeast, Limited Partnership, County Cable Company, L.P. and
FrontierVision Operating Partners, L.P. ................................
**10.6 Asset Purchase Agreement dated November 17, 1995 among Cox
Communications Ohio, Inc., Times Mirror Cable Television of Defiance,
Inc., Chillicothe Cablevision, Inc., Cox Communications Eastern
Kentucky, Inc. and FrontierVision Operating Partners, L.P. .............
**10.7 Asset Purchase Agreement dated February 27, 1996 between Americable
International Maine, Inc. and FrontierVision Operating Partners,
L.P. ...................................................................
**10.8 Asset Purchase Agreement dated May 16, 1996 among Triax Southeast
Associates, L.P., Triax Southeast General Partner, L.P. and
FrontierVision Operating
Partners, L.P. .........................................................
**10.9 Asset Purchase and Sale Agreement dated June 21, 1996 between Helicon
Partners I, LP and FrontierVision Operating Partners, L.P. .............
**10.10 Asset Purchase Agreement dated July 15, 1995 between American Cable
Entertainment of Kentucky-Indiana, Inc. and FrontierVision Operating
Partners, L.P. .........................................................
**10.11 Asset Purchase Agreement dated as of July 30, 1996 between Shenandoah
Cable Television Company and FrontierVision Operating Partners, L.P. ...
*10.12 Purchase Agreement dated as of August , 1996 between Penn/Ohio
Cablevision, L.P. and FrontierVision Operating Partners, L.P. ..........
**10.13 Asset Purchase Agreement dated July 19, 1996 between Phoenix Grassroots
Cable Systems, L.L.C. and FrontierVision Operating Partners, L.P. ......
12 Statement of Computation of Ratios. ....................................
23.1 Consent of Arthur Andersen LLP (FrontierVision Operating Partners,
L.P.). .................................................................
23.2 Consent of Piaker & Lyons, P.C. (United Video Cablevision, Inc.). ......
</TABLE>
<PAGE> 189
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------ -------------
<C> <S> <C>
23.3 Consent of Williams, Rogers, Lewis & Co., P.C., (C4 Media Cable
Southeast, Limited Partnership). .......................................
23.4 Consent of Arthur Andersen LLP (Triax Southeast Associates, L.P.). .....
23.5 Consent of Deloitte & Touche LLP (American Cable Entertainment of
Kentucky-Indiana, Inc.). ...............................................
23.6 Consent of Deloitte & Touche LLP (Ashland and Defiance, Ohio
Clusters). .............................................................
*23.7 Consent of Dow, Lohnes & Albertson (contained in Exhibit 5). ...........
**25 Powers of attorney (included on signature page to this Registration
Statement). ............................................................
*26 Statement of Eligibility on Form T-1 of , as Trustee. ........
**27 Financial Data Schedule. ...............................................
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 12
FrontierVision Operating Partners, L.P.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
PRO FORMA FOR THE
TRANSACTIONS AND PRO FORMA FOR THE
THE EXISTING AND TRANSACTIONS AND
ACQUISITION SYSTEMS FOR THE PERIOD THE EXISTING AND
FOR THE THREE FOR THE THREE FROM INCEPTION ACQUISITION SYSTEMS
MONTHS ENDED MONTHS ENDED (APRIL 17, 1995) TO FOR THE YEAR ENDED
MARCH, 31 1996 MARCH 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1995
-------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (1,427) $ (10,143) $ (2,704) $ (47,068)
Add (Deduct): - - - -
Income Tax Provision (Benefit)
Less: Minority Interest - - - -
----------- ------------ ------------- --------------
Pre Tax Income (Loss) (1,427) (10,143) (2,704) (47,068)
----------- ------------ ------------- --------------
Add: Fixed Charges
Interest 2,372 9,983 2,488 39,934
Amortization of debt offering
expenses 100 473 69 1,892
----------- ------------ ------------- --------------
Total fixed charges 2,472 10,456 2,557 41,826
----------- ------------ ------------- --------------
$ (1,045) $ 313 $ (147) $ (5,242)
=========== ============ ============= ==============
Fixed Charges $ 2,472 $ 10,456 $ 2,557 $ 41,826
=========== ============ ============= ==============
Ratio of Earnings to Fixed
Charges N/A N/A N/A
Deficiency of Earnings to Fixed
Charges $ 1,427 10,143 $ 2,704 $ 47,068
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 29, 1996 on the financial statements of FrontierVision Operating
Partners, L.P., included in or made part of this Form S-1 registration
statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 9, 1996
<PAGE> 1
EXHIBIT 23.2
[PIAKER & LYONS, P.C. LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated May 7, 1996 on the financial statements of United Video
Cablevision, Inc. - Main and Ohio Divisions included in or made part of
FrontierVision Operating Partners, L.P.'s Form S-1 registration statement.
/s/ Piaker & Lyons, P.C.
PIAKER & LYONS, P.C.
Vestal, New York
August 9, 1996
<PAGE> 1
EXHIBIT 23.3
[WILLIAMS, ROGERS, LEWIS LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
use of our report dated March 11, 1996 on the financial
statements of C4 Media Cable Southeast, Limited Partnership
included in or made part of FrontierVision Operating Partners,
LP's Form S-1 registration statement.
/s/ WILLLIAMS, ROGERS, LEWIS & CO.
-----------------------------------
Williams, Rogers, Lewis & Co., P.C.
August 9, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 27, 1996 on the financial statements of Triax Southeast
Associates, L.P. included in or made part of FrontierVision Operating Partners,
L.P.'s Form S-1 registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 9, 1996
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-09535 of FrontierVision Operating Partners, L.P. on Form S-1 of our
report dated March 15, 1996 (Except as to Note 1 which is dated August 1,
1996), relating to the financial statements of American Cable Entertainment of
Kentucky-Indiana, Inc. appearing in the Prospectus which is part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
Deloitte & Touche LLP
Stamford, Connecticut
August 9, 1996
<PAGE> 1
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-09535 of FrontierVision Operating Partners, L.P. and FrontierVision
Capital Corporation on Form S-1 of our report dated April 10, 1996 (relating
to the combined financial statements of the Ashland and Defiance Clusters),
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Atlanta, Georgia
August 9, 1996
