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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to_________
Commission file numbers: 333-9535 and 333-9535-01
FrontierVision Operating Partners, L.P.
FrontierVision Capital Corporation*
(Exact names of Registrants as specified in their charters)
Delaware 84-1316775
Delaware 84-1353734
(States or other jurisdiction (IRS Employer Identification Numbers)
of incorporation or organization)
1777 South Harrison Street,
Suite P-200, Denver, Colorado 80210
(Address of principal executive offices) (Zip Code)
(303) 757-1588
(Registrants' telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: None.
Securities registered pursuant to section 12(g) of the Act: None.
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Number of shares of common stock of FrontierVision Capital Corporation
outstanding as of March 27, 1998: 100.
* FrontierVision Capital Corporation meets the conditions set forth in
General Instruction I(1)(a) and (b) to the Form 10-K and is therefore
filing with the reduced disclosure format.
Documents Incorporated by Reference: None.
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TABLE OF CONTENTS
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PART I
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Item 1. BUSINESS.
The Company.................................................................... 4
Business Strategy.............................................................. 4
Development of the Systems .................................................... 6
System Descriptions............................................................ 8
Technological Developments..................................................... 10
The Cable Television Industry.................................................. 11
Programming, Service and Rates................................................. 12
Marketing, Customer Service and Community Relations ........................... 13
Franchises .................................................................... 13
Competition ................................................................... 14
Employees ..................................................................... 17
Legislation and Regulation .................................................... 17
Item 2. PROPERTIES. ................................................................... 23
Item 3. LEGAL PROCEDINGS............................................................... 24
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 24
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................................ 25
Item 6. SELECTED FINANCIAL DATA........................................................ 25
Item 7. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Introduction................................................................... 27
Results of Operations ......................................................... 28
Liquidity and Capital Resources ............................................... 31
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................................... 34
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. .................................. 34
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. .......................................... 34
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PART III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors and Executive Officers of FrontierVision Inc......................... 35
Advisory Committee ............................................................ 37
Item 11. EXECUTIVE COMPENSATION.
Deferred Compensation Plan..................................................... 37
Compensation Committee Interlocks and Insider Participation ................... 38
Employment Agreement........................................................... 38
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................................... 39
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................. 40
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
Financial Statements .......................................................... 41
Reports on Form 8-K ........................................................... 44
Exhibits ...................................................................... 44
Financial Statement Schedules ................................................. 44
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY REGISTRANT'S
WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF
THE EXCHANGE ACT ................................................................................ 45
GLOSSARY ........................................................................................ 46
FINANCIAL STATEMENTS ............................................................................ F-1
FINANCIAL STATEMENT SCHEDULES ................................................................... S-1
EXHIBITS
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PART I
Item 1. BUSINESS
FrontierVision Operating Partners, L.P. and its subsidiaries ("FVOP" or the
"Company") own, operate and develop cable television systems in small and
medium-sized suburban and exurban communities in the United States. As of
December 31, 1997, the Company was one of the twenty largest operators of cable
television systems in the United States, owning systems which passed
approximately 817,000 homes and served approximately 559,800 basic subscribers
(the "Existing Systems").
The Company was organized in 1995 under the laws of the State of Delaware and
its headquarters are located at 1777 South Harrison Street, Suite P-200, Denver,
Colorado, 80210. Its telephone number is (303) 757-1588 and it may be reached by
e-mail at [email protected].
THE COMPANY
The Company seeks to maximize enterprise value by acquiring cable television
systems at attractive prices in geographically rational clusters to achieve
economies of scale and by improving system management to enhance operating
profit.
To date, the Company has been highly successful in its acquisition activities.
Since closing its first acquisition in November 1995, the Company has completed
20 acquisitions and has established significant critical mass and subscriber
density within its targeted geography. The following table illustrates the
Company's growth, and operating characteristics of its systems, through December
31, 1997.
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Basic Premium Total Revenue
Homes Passed Subscribers Units (In Thousands)
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December 31, 1995 125,300 92,700 35,700 4,369
December 31, 1996 498,900 356,400 152,100 76,464
Decebmer 31, 1997 817,000 559,800 275,400 145,126
The Company has established three primary operating clusters--New England, Ohio
and Kentucky--with a fourth, smaller group of cable television systems in the
Southeast. As of December 31, 1997, over 85% of the Company's subscribers were
within its three primary operating clusters. The Company is currently the second
largest MSO in Kentucky, the largest MSO in Maine and the third largest MSO in
Ohio. In the Southeast, the Company has accumulated attractive systems which it
expects to either consolidate with subsequent system acquisitions, trade for
systems within the Company's primary operating regions or divest at favorable
prices.
BUSINESS STRATEGY
The next phase of the Company's business plan will focus on increasing
subscriber density within its operating clusters through selective acquisitions,
reducing expenses through consolidating business operations, making significant
investment and improvements in technical plant and selectively introducing new
video and data services. The Company believes it can further enhance the
operational and financial performance of its cable systems as well as
effectively position the properties for a more widespread rollout of existing
and new cable and broadband telecommunications services. To achieve its business
objective, the Company pursues the following business strategies:
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TARGET CLUSTERS IN SMALL AND MEDIUM-SIZED MARKETS. The Company has acquired
contiguous 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,
including 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 service; (ii) it will maintain higher subscriber
penetration levels and lower customer turnover based on fewer competing
entertainment alternatives; and (iii) its overhead and operating costs will
generally be lower than similar costs incurred in larger markets.
GROW THROUGH STRATEGIC AND OPPORTUNISTIC ACQUISITIONS. In seeking to become the
consolidator of cable television systems within its targeted geographic areas,
the Company has systematically implemented a focused acquisition and
consolidation strategy within its three primary operating clusters of New
England, Ohio and Kentucky and its systems group in the Southeast. During the
fourth quarter of 1997, the Company significantly increased the size and scale
of its operating clusters by completing the aquisition of larger cable systems
deemed "non-core" by larger MSOs. The Company will continue to pursue both large
acquisitions and "fill-in" acquisitions in its operating clusters. The Company
believes that such acquisition targets will have diminished strategic value to
other prospective buyers given the Company's geographic prominence in these
regions. Consequently, the Company believes these acquisition targets can be
purchased at favorable prices.
IMPLEMENT OPERATING EFFICIENCIES AND INCREASE OPERATING CASH FLOW THROUGH
REGIONAL CONSOLIDATION. Upon acquiring a system, the Company implements
extensive management, operational and technical changes designed to improve
operating efficiencies and increase operating cash flow. By centralizing and
upgrading customer support functions, the Company has begun to reduce
administrative costs and better manage and train employees, while providing a
higher level of customer service than was previously provided by smaller,
dispersed offices. Within the Existing Systems, the Company plans to consolidate
up to 57 customer service and sales offices into five regional service centers
and 17 local payment offices. The Company also seeks to reduce technical
operating costs and capital expenditures by consolidating headend facilities. In
the Existing Systems, the Company plans to eliminate a significant number of the
246 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. Because many of the Company's customers
received limited service offerings prior to acquisition, the Company believes
that a significant opportunity exists to increase service revenue by increasing
the programming and pricing options available to its customers. The Company's
marketing programs include a mix of basic and premium service packages with an
emphasis on appealing to different customer segments in specific local markets
in order to maximize customer value, positive perception and overall
profitability. Towards this end, the Company has revised basic and tier
programming line-ups, launched several lower priced premium channels such as
Starz! and Encore, and created premium service package offerings. In April 1997,
the Company established a centralized, in-house telemarketing center to
telemarket premium service packages to its customers. During 1997,
tele-marketers working out of the Company's telemarketing center contacted over
175,000 of the Company's customers, generating over 12,000 sales of premium
units. As systems are consolidated and technically enhanced, the Company will
also continue to expand addressability, which is currently available to less
than 44% of its subscribers, and seek to increase revenues derived from
pay-per-view movies and events, as well as new pay services such as interactive
video games. With the expanded advertising market delivery afforded by larger,
contiguous system clusters, the Company plans to intensify local spot
advertising sales efforts. Additionally, the Company successfully introduced
digital cable television in two of its systems during the fourth quarter of
1997. Based on favorable early results in these test markets, the Company
anticipates a more widespread roll-out of digital programming services during
1998.
STRATEGICALLY UPGRADE SYSTEMS. The Company will selectively upgrade its cable
systems to increase channel capacities, enhance signal quality and improve
technical reliability. The Company believes that such technical
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upgrades will not only enhance the potential for increasing revenues, but also
will improve customer and community relations and further solidify the Company's
incumbent position as the preeminent local provider of video services. Over the
next five years, the Company intends to establish a technical platform of 750
MHz (110 analog channels) in its larger markets and 400 MHz to 550 MHz (54 to 78
analog channels) in most of its systems. Subsequent to this upgrade plan, over
one-half of the Company's subscribers will be served by systems with 550 MHz to
750 MHz plant. Over the same period, the Company plans to invest substantial
amounts in new technologies. The Company continually monitors and evaluates new
technological developments to anticipate the introduction of new services and
program delivery capabilities, such as digital cable television and cable
Internet access. As a result, the Company may determine to reallocate the
investment of its capital in order to more widely deploy such technology and to
make optimal use of its assets.
POSITION THE SYSTEMS FOR BROADBAND SERVICES. By implementing a hybrid fiber
optic/coaxial cable design ("HFC") across the majority of its cable plant, the
Company will effectively position itself for the introduction of new broadband
video, voice and data services. Given its fiber-rich local infrastructure and
the expanded bandwidth provided by coaxial cable, the Company believes it will
enjoy distinct advantages over competitive service providers. Such advantages
include higher speed, increased capacity, greater selectivity and better
technical reliability. The Company's full service broadband HFC networks will
enable it to offer a wide range of new services that include video applications
such as digital programming, regional advertising insertion and interactive
video games, as well as telecommunications and data services such as cable
Internet access, virtual LAN applications, high speed point-to-point data
transmission and competitive telephone access.
FOCUS ON THE CUSTOMER. The Company continually seeks to provide superior
customer service to its customers. Fundamental to this effort is development of
technically advanced customer call centers, the establishment of a common
billing and customer information platform and the continous improvement of
programming and pricing options. To date, the Company has established four
state-of-the-art customer call centers which, as of December 31, 1997, handled
customer call volume for approximately 85% of the Company's customers. By
centralizing customer service at the regional level, all functions that directly
impact subscribers, including sales and marketing, customer service and
administration, and technical support, are implemented as close to the customer
as possible. In addition, as a result of its consolidation efforts, the Company
has been able to enhance its customer service by increasing hours of operation
for its customer service functions, better coordinating technical service and
installation calls, speeding responsiveness to customer inquiries and
standardizing maintenance procedures. While centralizing and improving customer
service, the Company has opened local payment and technical offices to maintain
its local presence and visibility within its communities. Additionally, the
Company expects to have converted all of the subscribers within the Existing
Systems to a single billing and customer information platform by the end of
1998. As part of the Company's plans to upgrade its acquired cable systems the
Company regularly evaluates the programming packages, pricing options and add-on
services available to its customers. During 1997, the Company added over 440 new
channels of programming and expects to add over 240 new channels during 1998.
DEVELOPMENT OF THE SYSTEMS
The Company was organized in 1995 to exploit 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 for
various reasons. Operators have been faced with the need for increased levels of
capital expenditures to expand channel capacity and have recently begun to face
the threat of competition from new market entrants, including DBS services and
telephone company video programming services. Many smaller MSOs, particularly
those that were acquisitive during the late 1980's and purchased systems at
prices significantly higher than those paid by the Company, sought liquidity for
their investors or were constrained from accessing additional capital to upgrade
or rebuild aging plant to remain competitive with other video programming
providers. More recently, larger MSOs have embarked on their own program of
divesting or trading less strategic systems to redirect their resources to major
urban and suburban markets.
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As a result of this supply and demand anomaly, the Company has been able to
selectively acquire cable television properties from both small and large MSO's,
thereby establishing core geographic clusters and subscriber mass. The aggregate
purchase price paid by the Company for the Existing Systems was approximately
$952.6 million, representing an average of 8.82 times the Acquisition Cash Flow
and $1,657 per subscriber. The following table summarizes the acquisitions of
the Existing Systems:
<TABLE>
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Purchase Basic Purchase
Price(1) Subscribers Price Per
Predecessor Owner Date Acquired (in millions) Acquired(2) Subscriber
- ----------------- ------------------------------------------------------------
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United Video Cablevision, Inc. (the "UVC Systems ")....... November 9, 1995 $ 120.8 87,400 $1,382
Longfellow Cable Company, Inc. (the "Longfellow Systems ") November 21, 1995 6.1 5,100 1,196
C4 Media Cable Southeast, Limited Partnership (the "C4
Systems")................................................. February 1, 1996 47.6 40,400 1,178
Americable International Maine, Inc. (the "Americable March 29, 1996 4.8 3,350 1,433
Systems ").................................................
Cox Communications (the "Cox Systems ")................... April 9, 1996 136.0 77,200 1,762
Phoenix Grassroots Cable Systems, LLC (the "Grassroots
Systems")................................................. August 29, 1996 9.3 7,400 1,257
Triax Southeast Associates, L.P. (the "Triax Systems ")... October 7, 1996 84.7 53,200 1,592
American Cable Entertainment of Kentucky-Indiana, Inc. (the
"ACE Systems").......................................... October 9, 1996 146.0 83,250 1,754
SRW, Inc.'s Penn/Ohio Cablevision, L.P. (the "Penn/Ohio
Systems ")................................................. October 31, 1996 3.8 3,225 1,178
SRW, Inc.'s Deep Creek Cable TV, L.P. (the "Deep Creek
System").................................................. December 23, 1996 3.0 2,175 1,379
Bluegrass Cable Partners, L.P. (the "Bluegrass Systems "). March 20, 1997 9.9 7,225 1,370
Clear Cable T.V., Inc. and B&G Cable T.V. Systems,
Inc. (the "Clear/B&G Systems ")........................ March 31, 1997 1.7 1,450 1,172
Milestone Communications of New York, L.P. (the "Milestone
Systems").............................................. March 31, 1997 2.8 2,125 1,318
Triax Associates I, L.P. (the "Triax I Systems ")......... May 30, 1997 34.5 20,700 1,667
Phoenix Front Row Cablevision (the "Front Row Systems ").. May 30, 1997 6.8 5,250 1,295
PCI Incorporated (the "Bedford System").................... August 29, 1997 13.5 7,750 1,742
SRW, Inc.'s Blue Ridge Cable Systems, L.P. (the "Blue Ridge
Systems").................................................. September 3, 1997 4.1 4,550 901
Harold's Home Furnishings, Inc. (the "Harold's System").... October 31, 1997 1.5 1,480 1,014
A-R Cable Services - ME, Inc. (the "Cablevision Systems").. October 31, 1997 78.2 54,300 1,440
TCI Cablevision of Vermont, Inc. and Westmarc Development
Joint Venture (the "TCI-VT/NH Systems")................ December 2, 1997 34.5 22,100 1,561
Cox Communications, Inc. (the "Cox-Central Ohio Systems").. December 19, 1997 203.0 85,400 2,377
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Total...................................................... $ 952.6 575,030 $1,657
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(1) Represents the contract purchase price excluding working capital purchase
adjustments and transaction costs.
(2) Includes 10,600 subscribers to systems that were sold by the Company in
1996.
The Company will continue to make acquisitions of cable systems to expand and
improve its existing operating clusters and will continue to dispose of or trade
non core cable systems. The Company believes that acquisition oportunities
continue to exist among the small and large MSO segments. During 1997, the
Company completed an $800 million senior secured credit facility and received
approximately $179.9 million in equity contributions from its general and
limited partners. Based on its well-defined geography focus, strong market
presence and financial capacity, the Company believes that it is well positioned
to continue to acquire cable systems at attractive values and meet its growth
objective of acquiring 750,000 subscribers.
As of January 16, 1998, the Company had entered into four purchase agreements to
acquire, for aggregate consideration of approximately $105.8 million, contiguous
cable systems or cable systems in close proximity to the Existing Systems. In
the aggregate, these systems served approximately 59,300 basic subscribers as of
December 31, 1997. Of the total subscribers, approximately 33,900 would be added
to the Company's Ohio cluster and approximately 25,400 to the Company's New
England cluster. These systems possess technical profiles generally superior to
the profiles for the Existing Systems and are generally larger in size. At
closing, the Company expects the nine acquired systems to offer an average of 62
analog channels and 450 MHz of capacity. On March 6, 1998, the Company
consummated the acquisition of systems in Michigan from TVC-Sumpter Limited
Partnership and North Oakland Cablevision Partners Limited Partnership for an
aggregate purchase price of $14.2 million. These systems will be integrated into
the Company's Ohio cluster. In addition, on December 12, 1997 the Company
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entered into an asset exchange agreement to obtain two Tennessee systems serving
approximately 5,000 subscribers in exchange for three of its Southeast region
systems serving approximately 4,300 subscribers in the Southeast region. The
Company completed this exchange on March 12, 1998. There can be no assurance
that the remaining potential acquisitions will be consummated or that the
Company can successfully integrate any acquired business with its existing
operations.
SYSTEM DESCRIPTIONS
The Company's cable television systems consist of three primary clusters--New
England, Ohio and Kentucky--with a fourth, smaller group of systems in the
Southeast. The following chart provides certain operating and technical profile
statistics as of December 31, 1997 for the Company.
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New England Ohio Kentucky Southeast Existing
Cluster Cluster Cluster Region Systems
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Homes passed......................................... 214,900 328,600 170,100 103,400 817,000
Basic subscribers.................................... 142,600 231,500 123,900 61,800 559,800
Basic penetration.................................... 66.4% 70.5% 72.8% 59.8% 68.5%
Premium units........................................ 83,900 118,400 47,600 25,500 275,400
Premium penetration.................................. 58.8% 51.1% 38.4% 41.3% 49.2%
Average monthly revenue per basic subscriber (1)..... 30.05 33.25 32.59 26.39 31.53
Number of headends................................... 77 80 39 50 246
Percentage of subscribers with at least 54-channel
capacity.......................................... 44.4% 77.1% 57.0% 26.1% 58.7%
</TABLE>
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(1) Average monthly revenue per basic subscriber equals revenue for the month
ended December 31, 1997 divided by the number of basic subscribers as of the end
of such period.
NEW ENGLAND CLUSTER. The systems in the New England cluster passed approximately
214,900 homes and served approximately 142,600 basic subscribers and 83,900
premium units as of December 31, 1997. The New England cluster is comprised
primarily of systems located in communities in southern, middle and coastal
Maine, central New Hampshire and northern Vermont. Of the Maine systems'
approximately 116,000 total subscribers, approximately 90,000 subscribers are
located in Bangor and Lewiston and contiguous communities or in nearby coastal
communities. In addition, the Company serves resort communities in Maine's
Carrabassett Valley that include Sugarloaf/USA and Sunday River. Most of the
approximately 19,500 subscribers in New Hampshire are located in Lebanon and
surrounding communities, and most of the 7,100 Vermont subscribers are located
within 20 miles of Burlington, the state's largest city. The 1996 median
household income and projected household growth rates (from 1996 to 2001) in the
areas served by the New England Systems exceed U.S. averages for counties with
less than 100,000 households ("Comparable Counties"), according to Equifax
National Decision Systems, 1996.
Approximately 44.4% of the Company's subscribers in the New England cluster are
offered at least 54 channels. The Company plans to utilize excess channel
capacity by introducing new basic and premium services, increasing penetration
of addressable converters, available to only 46.3% of the New England cluster
subscribers as of December 31, 1997, and aggressively pursuing spot advertising
revenue, which accounted for $0.62 per subscriber per month during the fourth
quarter of 1997. The New England cluster's basic penetration rate is 16.9% below
the Maine state average penetration rate of 79.8% according to Warren
Publishing, Inc.'s Television and Cable Factbook, 1997.
OHIO CLUSTER. Systems in the Ohio cluster passed approximately 328,600 homes and
served approximately 231,500 basic subscribers and 118,400 premium units as of
December 31, 1997. The majority of the subscribers in the Ohio cluster are
located in northwest Ohio, extending from the northern suburbs of Toledo south
along the Indiana state border, and central Ohio, south and east of suburban
Columbus to the Ohio River. The 1996 median household income in the Ohio cluster
exceeds U.S. averages for Comparable Counties, according to Equifax National
Decision
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Systems, 1996, although household growth rates in the areas served by the Ohio
systems are projected to lag that of Comparable Counties over the next five
years.
Approximately 77.1% of the Company's subscribers in the Ohio cluster are offered
at least 54 channels, including a fiber-to-the-feeder 550 MHz design in Ashland,
Kentucky and Newark, Ohio. Although the Ohio cluster's basic penetration rate at
December 31, 1997 was above the 1996 Ohio state average of 65.6%, its pay
penetration rate was approximately 18.8% below the Ohio state average pay
penetration rate of 63.0% according to Warren Publishing, Inc.'s Television and
Cable Factbook, 1997.
As part of its technical improvement program, the Company plans to increase the
deployment of addressable converters, which were available to only 37.3% of the
Ohio cluster subscribers as of December 31, 1997, and to more aggressively
market pay-per-view and other interactive services such as video games. In
addition, the Company plans to leverage its existing centralized advertising
facilities and personnel to increase advertising revenue in all of the Ohio
cluster, which accounted for $0.86 per subscriber per month during the fourth
quarter of 1997.
KENTUCKY CLUSTER. The systems in the Kentucky cluster passed approximately
170,100 homes and served approximately 123,900 basic subscribers and 47,600
premium units as of December 31, 1997. A single regional customer service center
in Richmond, Kentucky serves all Kentucky subscribers, the majority of which
reside in outlying communities of Lexington, Kentucky and Cincinnati, Ohio. The
1996 median household income and the projected growth rates (from 1996 to 2001)
in the areas served by the Kentucky systems exceed U.S. averages for Comparable
Counties, according to Equifax National Decision Systems, 1996.
Approximately 57.0% of the Company's subscribers in the Kentucky cluster are
offered at least 54 channels, including fiber-to-the-feeder 550 MHz design
systems in Nicholasville, Kentucky and Delhi, Ohio and 750 MHz design systems in
Madison, Indiana and Winchester, Kentucky. The Company continues to expend
capital to complete a fiber ring surrounding Lexington, Kentucky. When complete,
this fiber loop will serve approximately 60,000 subscribers from a single
headend facility, interconnecting approximately fifteen existing headend
facilities and passing nine colleges and universities. The Kentucky cluster will
then be effectively positioned to offer broadband telecommunications and data
services such as high speed Internet access, distance learning and
point-to-point telephony. The Company plans to utilize excess channel capacity
to introduce new basic and premium services to the Kentucky cluster. While the
Kentucky cluster's basic penetration rate at December, 1997 was less than the
Kentucky state average of 76.9%, its pay penetration rate was approximately
21.0% below the Kentucky state average pay penetration rate of 48.6% according
to Warren Publishing, Inc.'s Television and Cable Factbook, 1997.
As part of its technical improvement program, the Company also plans to increase
the deployment of addressable converters, which were available to only 65.9% of
the Kentucky cluster subscribers as of December 31, 1997, and to more
aggressively market pay-per-view and other interactive services. Additionally,
the Company plans to leverage its existing centralized advertising facilities
and advertising sales personnel to increase advertising revenue in all of the
Kentucky cluster, which accounted for $1.26 per subscriber per month during the
fourth quarter of 1997.
SOUTHEAST SYSTEMS. The Company plans to either consolidate further the systems
in its Southeast region through acquisitions, trade certain of the systems for
properties within its New England, Ohio and Kentucky clusters or sell the
systems outright. As such, the Company's operating and capital expenditure plans
for the Southeast systems 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 passed approximately 103,400 homes and
served approximately 61,800 basic subscribers and 25,500 premium units as of
December 31, 1997. The Southeast systems at December 31, 1997 were comprised of
groups of systems located in the following states: (i) Tennessee, serving
approximately 19,600 basic subscribers; (ii) North Carolina, serving
approximately 14,300 basic subscribers; (iii) Virginia, serving approximately
19,500 basic subscribers; and (iv) Maryland/Pennsylvania, serving approximately
8,400 basic subscribers. The Tennessee systems are located primarily in
Greeneville, Tennessee and surrounding communities; the North Carolina systems
are located near Rocky Mount, North Carolina; and the Virginia systems are
located in
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north central Virginia between Charlottesville and Winchester and in Eastern
Virginia, near Richmond. The Maryland/Pennsylvania systems are located along the
Maryland and Pennsylvania border, approximately 120 miles west of Washington,
D.C. The 1996 median household income and actual and projected growth rate in
the number of households (from 1996 to 2001) in the areas served by the
Southeast systems exceed U.S. averages for Comparable Counties, according to
Equifax National Decision Systems, 1996.
Approximately 26.1% of the current plant design in the Southeast region is at
least 54 channels. The Company will continue to evaluate capital expenditures to
rebuild and upgrade plant based on the sales or trading status of the Southeast
systems.
TECHNOLOGICAL DEVELOPMENTS
As part of its commitment to customer service, the Company maintains high
technical performance standards in all of its cable systems, and systems are
selectively upgraded and maintained to maximize channel capacity and to improve
picture quality and reliability of the delivery of additional programming and
new services. Before committing the capital to upgrade or rebuild a system,
management carefully assesses (i) subscribers' demand for more channels, (ii)
requirements in connection with franchise renewals, (iii) competing technologies
that are currently available, (iv) 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 capital outlay.
The following tables set forth certain information regarding the channel
capacities and miles of plant and the average number of subscribers per headend
for the Existing Systems as of December 31, 1997.
<TABLE>
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<220 MHz: 221-399 MHz: 400-549 MHz: 550-750 MHz:
Up to 32 33 to 53 54 to 77 78 to 110
Channels Channels Channels Channels Total
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Miles of plant 264 10,596 7,699 2,294 20,853
% miles of plant 1.3% 50.8% 36.9% 11.0% 100.0%
% of basic subscribers 1.5% 39.8% 40.7% 18.0% 100.0%
</TABLE>
<TABLE>
------------------------------------------------------------------------------------------
Number of Subscribers Per Headend
-------------------------------------------------------------------------------------------
1,001- 5,001- 10,001-
<1,000 5,000 10,000 25,000 >25,001 Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
# of subscribers 60,430 164,810 109,130 143,080 82,350 559,800
% of subscribers 10.8% 29.4% 19.5% 25.6% 14.7% 100.0%
</TABLE>
The Company's Existing Systems have an average capacity of approximately 56
channels and delivered an average of 46 channels of programming to its
subscribers as of December 31, 1997. Approximately 60% of the Company's
subscribers are served by systems with more than 5,000 subscribers and over 40%
are served by systems serving more than 10,000 subscribers. The Company believes
that its current excess channel capacity and significant number of larger
systems will allow it to cost effectively introduce new service offerings.
Approximately 43.9% of the Company's subscribers currently have access to
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 optic strands are capable
of carrying hundreds of video, data and voice channels over extended
10
<PAGE>
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, system reliability and
operational efficiencies.
Recently, digital cable television has become commercially viable with
technological cost reductions. The Company believes that this development will
allow it to increase services to its subscribers. The Company has successfully
launched digital cable television service in two of its systems and, based on
favorable early results in these test markets, is in the process of installing
necessary headend equipment for launches in additional systems. The Company will
continue to monitor customer demand and profitability of such digital cable
television services to assess the viability of a more wide-spread roll-out
during 1998.
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 late 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 station
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 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 "superstations" originating from distant cities (such as
WGN), (iii) various satellite-delivered, non-broadcast channels (such as Cable
News Network ("CNN"), MTV: Music Television ("MTV"), 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 (R) ("HBO"), Showtime (R) 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 revenue for cable television operators. In
addition to customer revenue from these services, cable television operators
generate revenue 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 networks, such as ESPN,
MTV and USA. Cable television operators frequently also offer to their customers
home shopping services, which pay the systems a share of revenue from sales of
products in the systems' service areas. See "--Programming, Services and Rates."
11
<PAGE>
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 eight 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. The Company intends to negotiate
programming contract renewals both directly and through the consortium to obtain
the best available 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. The Company renewed or
renegotiated a substantial portion of agreements through December 1999 under
substantially the same terms. See "Legislation and Regulation--Must
Carry/Retransmission Consent."
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 offer, for a monthly fee, an expanded basic tier of
"superstations" originating from distant cities (such as WGN), 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 (R), Cinemax (R),
Showtime (R), The Movie Channel (TM) and Starz!. 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 December 31, 1997, the average monthly rate for the
Existing Systems was $24.51 for the basic and expanded basic service tiers.
These rates reflect reductions effected in response to the federal re-regulation
of cable television industry rates in 1992, and in particular, the FCC's rate
regulations implementing the 1992 federal law, which became effective in 1993. A
one-time installation fee, which may be waived in whole or 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."
12
<PAGE>
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 subscriber
revenue. The Company actively markets its basic and premium program packages
through a number of coordinated marketing techniques, which include (i) direct
consumer sales and subscriber audit programs, (ii) direct mail for basic and
upgrade acquisition campaigns, (iii) monthly subscriber statement inserts, (iv)
local newspaper and broadcast/radio advertising where population densities are
sufficient to provide a reasonable cost per sale and (vi) cross-channel
promotion of new services and pay-per-view. Towards this end, the Company has
established a single centralized telemarketing center to provide the outbound
telemarketing support for all operating regions. Using a predictive dialing
system platform, the operation will focus on (i) basic and pay unit acquisition,
(ii) delinquent account collection activities, (iii) customer satisfaction
surveys and (iv) targeted marketing campaigns.
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, a customer service
representative will follow up by telephone contact with the subscriber to assess
the quality of installation and 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 of 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, the Company aggressively maintains and
improves the working relationships with all governmental entities within the
franchise areas. Regional management meets 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 management is
also responsible for franchise renewal negotiations as well as the maintenance
of Company visibility through involvement in various community and civic
organizations and charities. In addition, the Company has hired experienced
community relations personnel in its New England, Ohio and Kentucky clusters to
enhance local visibility and long-term relationships.
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
regulation under state and federal law, including the Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable," and together with the
1984 Cable Act, the "Cable Acts") and the Telecommunications Act of 1996 (the
"1996 Telecom Act"), as well as the rules, regulations and policies of the
Federal Communications Commission (the "FCC") and applicable state agencies. See
"Legislation and Regulation."
As of December 31, 1997, the Company held 665 franchises. These franchises, most
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
13
<PAGE>
passed through directly to the customers. The Cable Acts prohibit franchising
authorities from imposing franchise fees in excess of 5% of gross revenue and
also permit the cable system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances. See "Legislation
and Regulation."
Approximately 98.0% of the Existing System'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 December 31,
1997.
<TABLE>
-----------------------------------------------------
Percentage of Percentage of
Number of Total Number of Franchised
Year of Franchise Expiration Franchises Franchises Subscribers Subscribers
-----------------------------------------------------
<S> <C> <C> <C> <C>
1997 through 2001 234 35% 196,100 35%
2002 and thereafter 431 65% 353,000 65%
------- ------- ------- -------
Total 665 100% 549,100 100%
</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 denied and the franchising authority acquires ownership of the system
or effects a transfer of the system to another person, the operator generally is
entitled to the "fair market value" for the system covered by such franchise. In
addition, the 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, interactive 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. See "Legislation and
Regulation." It is possible that a franchising authority might grant additional
franchises to other companies 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. See "Legislation and Regulation." Competition from other video service
providers exists in areas served by the Company. In a limited number of the
Company's franchise areas, the Company faces direct competition from another
franchised cable television system.
The availability of reasonably-priced home satellite dish earth stations
("HSDs") enables individual households to receive many of the
satellite-delivered program services formerly available only to cable
subscribers. The 1992 Cable Act contains provisions, which the FCC implemented
with regulations, to enhance the ability of cable competitors to purchase and
make available to HSD owners certain satellite-delivered cable programming at
14
<PAGE>
competitive costs. The 1996 Telecom Act and FCC regulations implementing that
law preempt certain local restrictions on the use of HSDs and roof-top antennae
to receive satellite programming and over-the-air broadcasting services. See
"Legislation and Regulation."
Cable operators also face competition from private satellite master antenna
television ("SMATV") systems that serve condominiums, apartment and office
complexes and private residential developments. The 1996 Telecom Act broadens
the definition of SMATV systems not subject to regulation as a franchised cable
television system. 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. In addition, some companies are developing and/or offering to
these private residential and commercial developments packages of telephony,
data and video services. The ability of the Company to compete for customers in
residential and commercial developments served by SMATV operators is uncertain.
Congress has enacted legislation and the FCC has adopted regulatory 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
individual households, condominiums, apartment and office complexes through
conventional, medium and high-powered satellites. DBS providers can offer more
than 100 channels of video programming to their subscribers and are providing
movies, broadcast stations, and other program services comparable to those of
cable television systems. The FCC and Congress are presently considering
proposals to enhance the ability of DBS providers to gain access to additional
programming and to authorize DBS carriers to transmit local signals to local
markets. Currently, Primestar Partners (a consortium comprised of cable
operators and a satellite company), DirecTV, and EchoStar Communications Corp.
("EchoStar") are providing nation-wide DBS services. There are other companies
that are currently providing or are planning to provide domestic DBS services.
American Sky Broadcasting ("ASkyB"), a joint venture between MCI Communications
Corp. ("MCI") and The News Corporation Limited ("News Corp."), is currently
developing high-power DBS services. Primestar, News Corp., MCI and ASkyB
recently announced several agreements in which News Corp., MCI and ASkyB will
sell to Primestar two satellites under construction and MCI will assign to
Primestar (subject to various governmental approvals) an FCC DBS license. The
satellites to be sold to Primestar, when operational, are expected to be capable
of providing approximately 200 channels of DBS service in the United States. The
Primestar partners recently announced an agreement to consolidate their DBS
assets into a new publicly traded company. DBS providers provide significant
competition to cable service providers, including the Company.
Digital satellite service ("DSS") offered by DBS systems currently has certain
advantages over cable systems with respect to programming and digital quality,
as well as disadvantages that include high up-front customer equipment and
installation costs and a lack of local programming, service and equipment
distribution. While DSS presents a 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 lost less than 2,400 subscribers
to DBS during the year ended December 31, 1997. On an annualized basis, this
represents less than 0.7% of the subscribers of the Existing Systems as of
December 31, 1997. 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 adopted new
regulations allocating frequencies in the 28 GHz band for a new multichannel
wireless video service
15
<PAGE>
called Local Multipoint Distribution Service ("LMDS") that is similar to MMDS.
The FCC initiated spectrum auctions for LMDS licenses in February 1998. 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 and
LMDS service requires unobstructed "line of sight" transmission paths, the
ability of MMDS and LMDS 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 have
limited, and are 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 makes it easier for local exchange telephone companies
("LECs") and others to provide a wide variety of video services competitive with
services provided by cable systems and to provide cable services directly to
subscribers. See "Legislation and Regulation." Various LECs currently are
providing video programming services within and outside their telephone service
areas through a variety of distribution methods, including both the deployment
of broadband wire facilities and the use of wireless transmission facilities.
LECs and other companies also provide facilities for the transmission and
distribution to homes and businesses of interactive computer-based services,
including the Internet, as well as data and other non-video services. Cable
television systems could be placed at a competitive disadvantage if the delivery
of video, interactive online computer services and other non-video services by
LECs becomes widespread, since LECs are not required, under certain
circumstances, to obtain local franchises to deliver such 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, data and telephony
services also pose strategic disadvantages for cable operators seeking to
compete with LECs that provide such services. The Company cannot predict the
likelihood of success of such video and broadband service ventures by LECs or
the impact on the Company of such competitive ventures. 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 high costs per subscriber of installing plant. The 1996 Telecom
Act's provision promoting facilities-based broadband competition is 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.
Competition in the online services area is significant. Recently, a number of
large corporations in the telecommunications and technology industries,
including the Regional Bell Operating Companies ("RBOCs"), GTE Corporation,
Microsoft, Compaq Computer Corporation and Intel Corporation, announced the
formation of a working group to accelerate the deployment of Asymmetric Digital
Subscriber Line ("ADSL") technology. It is anticipated that ADSL technology will
allow Internet access at peak data transmission speeds equal to or greater than
that of modems over conventional telephone lines. Bell Atlantic Corporation
("Bell Atlantic") and several other RBOCs recently requested the FCC in separate
petitions to fully deregulate packet-switched networks to allow it to provide
high-speed broadband services, including online services, without regarding to
present LATA boundaries and other regulatory restrictions. Competitors in the
online services area include existing Internet service providers, LECs, long
distance carriers and others, many of whom have more substantial resources than
the Company. The Company cannot predict the likelihood of success of the online
services offered by the Company's competitors or the impact on the Company of
such competitive ventures.
Other new technologies may become competitive with services that cable
television systems can offer. The 1996 Telecom Act directed the FCC to
establish, and the FCC has adopted, regulations and policies for the issuance of
licenses for digital television ("DTV") to incumbent television broadcast
licensees. DTV is expected to deliver high definition television pictures,
multiple digital-quality program streams, as well as CD-quality audio
programming and advanced digital services, such as data transfer or subscription
video. The FCC also has authorized television broadcast stations to transmit
textual and graphic information useful both to consumers and businesses. The FCC
16
<PAGE>
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 FCC has conducted spectrum auctions
for licenses to provide PCS. PCS will enable license holders, including cable
operators, to provide voice and data services.
Advances in communications technology as well as changes in the marketplace and
the regulatory and legislative environments are constantly occurring. Thus, it
is not possible to predict the effect that ongoing or future developments might
have on the cable industry or on the operations of the Company.
EMPLOYEES
At December 31, 1997, the Company had approximately 937 equivalent full-time
employees, nine of whom belonged to a collective bargaining unit. The Company
considers its relations with its employees to be good.
LEGISLATION AND REGULATION
The Cable Acts and the 1996 Telecom Act amended the Communications Act of 1934
(as amended, the "Communications Act") and established a national policy to
guide the development and regulation of cable systems. The 1996 Telecom Act is
the most comprehensive reform of the nation's telecommunications laws since the
Communications Act. Although the long-term goal of the 1996 Telecom Act is to
promote competition and decrease regulation of various communications
industries, in the short-term the law delegates to the FCC (and in some cases to
the states) broad new rulemaking authority. 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 communications industry. The following is a
summary of federal laws and regulations materially affecting the growth and
operation of the cable communications industry and a description of certain
state and local laws.
RATE REGULATION. The 1992 Cable Act authorized rate regulation for cable
communications services and equipment in communities that are not subject to
"effective competition," as defined by federal law. Most cable communications
systems are now subject to rate regulation for basic cable service and equipment
by local officials under the oversight of the FCC which has prescribed detailed
criteria for such rate regulation. The 1992 Cable Act also requires the FCC to
resolve complaints about rates for cable programming service tiers ("CPSTs")
(other than programming offered on a per channel or per program basis, which
programming is not subject to rate regulation) and to reduce any such rates
found to be unreasonable. The 1996 Telecom Act eliminates the right of
individuals to file CPST rate complaints with the FCC and requires the FCC to
issue a final order within 90 days after receipt of CPST rate complaints filed
by any franchising authority. The 1992 Cable Act limits the ability of cable
television systems to raise rates for basic and certain cable programming
services (collectively, the "Regulated Services").
FCC regulations govern rates that may be charged to subscribers for Regulated
Services. The FCC uses a benchmark methodology as the principal method of
regulating rates for Regulated Services. Cable operators are also permitted to
justify rates using a cost-of-service methodology, which contains a rebuttable
presumption of an industry-wide 11.25% after tax rate of return on an operator's
allowable rate base. Franchising authorities are empowered to regulate the rates
charged for monthly basic service, for additional outlets and for the
installation, lease and sale of equipment used by subscribers to receive the
basic cable 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. Cable operators
required to reduce rates may also be required to refund overcharges with
interest. The FCC has also adopted comprehensive and restrictive regulations
allowing
17
<PAGE>
operators to modify their regulated rates on a quarterly or annual basis using
various methodologies that account for changes in the number of regulated
channels, inflation and increases in certain external costs, such as franchise
and other governmental fees, copyright and retransmission consent fees, taxes,
programming fees and franchise-related obligations. The Company cannot predict
whether the FCC will modify these "going forward" regulations in the future.
The 1996 Telecom Act provides for rate deregulation of CPSTs by March 1999,
although legislation has been proposed to extend the regulatory period.
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 non-predatory bulk discount rates offered
to subscribers in commercial and residential developments 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 deregulates rates for CPSTs for certain small cable
operators immediately and, in certain circumstances deregulates 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 revenue 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.
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
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 has determined that the 1996
Telecom Act does not require modification of its Small System Regulations. The
Company believes that many of the Existing 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. Because the Company now serves in the aggregate more than
400,000 subscribers, most of the systems acquired from larger MSOs, such as TCI,
Cox and Cablevision, generally will not be eligible for rate regulatory
treatment as "small cable systems"; however, certain systems acquired from
qualified "small cable operators" will be "grandfathered" under the FCC's Small
System Regulations and will continue to be eligible to justify regulated rates
using the FCC's simplified cost-of-service formula until they serve more than
15,000 subscribers.
The Company's basic service rates are currently regulated in 82 communities
covering approximately 27% of its subscribers. Additionally, to the Company's
knowledge, there are pending at the FCC five CPST rate complaints that generally
were filed against the Company's predecessors and that cover approximately 4% of
its subscribers. While the Company cannot predict the outcome of the FCC CPST
rate proceedings or of any pending local regulation of its basic service rates,
the Company believes that the ultimate resolution of local and FCC rate
proceedings will not have a material adverse impact on the Company's financial
position or its results of operations.
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<PAGE>
"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 do 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.
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 pursuant to the mandatory carriage 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 WGN), commercial radio
stations and certain low power television stations carried by such systems. In
March 1997, the U.S. Supreme Court affirmed a three-judge district court
decision upholding the constitutional validity of the 1992 Cable Act's mandatory
signal carriage requirements. The FCC will conduct a rulemaking in the future to
consider the requirements, if any, for mandatory carriage of digital television
signals. The Company cannot predict the ultimate outcome of such a rulemaking or
the impact of new carriage requirements of the Company or its business.
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 Communications Act permits franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. Federal law 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 U.S. 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.
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. The FCC had 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
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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 Cable Acts also provide 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. The Cable Acts limit franchise fees to 5% of cable system
revenue derived from the provision of cable services and permit 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 of up to 5% of
"revenue" (as defined by each franchise agreement), which fees may be passed on
to subscribers. Recently, a federal appellate court held that a cable operator's
gross revenue includes all revenue received from subscribers, without deduction,
and overturned an FCC order which had held that a cable operator's gross revenue
does not include money collected from subscribers that is allocated to pay local
franchise fees. The 1996 Telecom Act generally prohibits franchising authorities
from (i) imposing requirements in the cable franchising process that require,
prohibit or restrict the provision of telecommunications services by an
operator, (ii) imposing franchise fees on revenue derived by the operator from
providing telecommunications services over its cable system, or (iii)
restricting an operator's use of any type of subscriber equipment or
transmission technology.
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 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 inconsistent and, until
the U.S. 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 and has been
consolidated with an appeal of the FCC's regulations which implemented the
national customer and channel limitation provisions of the 1992 Cable Act. 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. Pursuant to the mandate of the 1996 Telecom
Act, the FCC eliminated its regulatory restriction on cross-ownership of cable
systems and national broadcasting networks and has initiated a formal inquiry to
review its broadcast-cable ownership restriction.
TELEPHONE COMPANY OWNERSHIP OF CABLE SYSTEMS. The 1996 Telecom Act makes
far-reaching changes in the regulation of telephone companies that provide video
programming services. The 1996 Telecom Act eliminated
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federal legal barriers to competition in the local telephone and cable
communications businesses, preempted legal barriers to competition that
previously existed in state and local laws and regulations and set basic
standards for relationships between telecommunications providers. The 1996
Telecom Act eliminated the statutory telephone company/cable television
cross-ownership prohibition, thereby allowing LECs to offer video services in
their telephone service areas. LECs may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over 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 non-discriminatory basis. The
1996 Telecom Act generally limits acquisitions and prohibits certain joint
ventures between LECs and cable operators in the same market. There are some
statutory exceptions to the buy-out and joint venture prohibitions, including
exceptions for certain small cable systems (as defined by federal law) and for
cable systems or telephone facilities serving certain rural areas, and the FCC
is authorized to grant waivers of the prohibitions under certain circumstances.
The FCC adopted regulations implementing the 1996 Telecom Act requirement that
LECs open their telephone networks to competition by providing competitors
interconnection, access to unbundled network elements and retail services at
wholesale rates. Numerous parties appealed these regulations. The U.S. Court of
Appeals for the Eighth Circuit, where the appeals were consolidated, recently
vacated key portions of the FCC's regulations, including the FCC's pricing and
nondiscrimination rules. In January 1998, the U.S. Supreme Court agreed to
review the Eighth Circuit's decision. The Company cannot predict the outcome of
this litigation or the FCC rulemakings, and the ultimate impact of any final FCC
regulations on the Company or its businesses 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, as is the case in certain states
in which the Company operates. 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. The FCC's existing
pole attachment rate formula, which may be modified by a pending rulemaking,
governs charges by utilities for attachments by cable operators providing only
cable services. The 1996 Telecom Act and the FCC's implementing regulations
modify 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. The FCC recently
adopted new regulations to govern the charges for pole attachments used by
companies providing telecommunications services, including cable operators.
These new pole attachment rate regulations will become effective in February
2001 and any resulting 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 in February 2001. The ultimate impact of any revised FCC rate
formula or of any new pole attachment rate regulations on the Company or its
business cannot be determined at this time.
OTHER STATUTORY PROVISIONS. The 1992 Cable Act, the 1996 Telecom Act and FCC
regulations preclude a satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly to
customers, from favoring an affiliated company over competitors and require such
a programmer to sell its programming to other multichannel video distributors.
These provisions limit the ability of cable program suppliers affiliated with
cable companies or with common carriers providing satellite-delivered video
programming directly to customers to offer exclusive programming arrangements to
their affiliates. In December 1997, the FCC initiated a rulemaking to address a
number of possible changes to its program access rules. The 1992 Cable Act
requires operators to block fully both the video and audio portion of sexually
explicit or indecent programming on channels that are primarily dedicated to
sexually oriented programming or, alternatively, to carry such programming only
at "safe harbor" time periods currently defined by the FCC as the hours between
10 p.m. to 6 a.m. Several adult-oriented cable programmers have challenged the
constitutionality of this statutory provision, but the U.S. Supreme
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Court recently refused to overturn a lower court's denial of a preliminary
injunction motion seeking to enjoin the enforcement of this law. The FCC's
regulations implementing this statutory provision became effective in May 1997.
The Communications Act also includes provisions, among others, concerning
horizontal and vertical ownership of cable systems, customer service, customer
privacy, marketing practices, equal employment opportunity, obscene or indecent
programming, technical standards, and consumer equipment compatibility.
OTHER FCC REGULATIONS. The FCC recently revised its cable inside wiring rules to
provide a more specific procedure for the disposition of internal cable wiring
that belongs to an incumbent cable operator that is forced to terminate its
cable services in a multiple dwelling unit ("MDU") building by the building
owner. The FCC is also considering additional rules relating to MDU inside
wiring that, if adopted, may disadvantage incumbent cable operators. The FCC has
various rulemaking proceedings pending that will implement 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, closed captioning of video programming, 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 broadcast programming, application of rules
governing political broadcasts, limitations on advertising contained in
nonbroadcast children's programming, consumer protection and customer service,
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, the 1996 Telecom Act and the FCC's rules implementing these
statutory provisions generally have increased the administrative and operational
expenses of cable systems and have resulted in additional regulatory oversight
by the FCC and local franchise authorities. The Company will continue to develop
strategies to minimize the adverse impact that the FCC's regulations and the
other provisions of the 1992 Cable Act and the 1996 Telecom Act have on 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, 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 revenue to a federal copyright royalty
pool, cable operators can obtain blanket permission to retransmit copyrighted
material on broadcast signals. The nature and amount of future payments for
broadcast signal carriage cannot be predicted at this time. In a recent report
to Congress, the Copyright Office recommended that Congress make major revisions
of both the cable television and satellite compulsory licenses to make them as
simple as possible to administer, to provide copyright owners with full
compensation for the use of their works, and to treat every multichannel video
delivery system the same, except to the extent that technological differences or
differences in the regulatory burdens placed upon the delivery system justify
different copyright treatment. The possible simplification, modification or
elimination of the compulsory copyright license is the subject of continuing
legislative review. The elimination or substantial modification of the cable
compulsory license could adversely affect 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 distribute programming and advertising that use music controlled
by the two major music performing rights organizations, the Association of
Songwriters, Composers, Artists and Producers ("ASCAP") and Broadcast Music,
Inc. ("BMI"). In October 1989, the special rate court of the U.S. District Court
for the Southern
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District of New York imposed interim rates on the cable industry's use of
ASCAP-controlled music. The same federal district court established a special
rate court for BMI. BMI and certain cable industry representatives recently
concluded negotiations for a standard licensing agreement covering the usage of
BMI music contained in advertising and other information inserted by operators
into cable programming and on certain local access and origination channels
carried on cable systems. ASCAP and cable industry representatives have met to
discuss the development of a standard licensing agreement covering ASCAP music
in local origination and access channels and pay-per-view programming. 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 process, 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, the only state in which the Company
currently operates that has enacted such state level regulation is Vermont;
however, upon completion of a pending acquisition, the Company will acquire
control of several cable systems in the State of Massachusetts and will then be
subject to regulation by the Massachusetts Department of Telecommunications and
Energy. The Company cannot predict whether any of the other 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. Other
bills and administrative proposals pertaining to cable television have
previously been introduced in Congress or considered by other governmental
bodies over the past several years. It is probable that further attempts will be
made by Congress and other governmental bodies relating to the regulation of
communications services.
Item 2. 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
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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 "Business--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.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party
or to which any of its properties are subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the Company's classes of
common equity.
Item 6. SELECTED FINANCIAL DATA
The following tables present selected financial data derived from the Company's
financial statements as of December 31, 1997, 1996 and 1995 and for the years
ended December 31, 1997 and 1996 and the period from inception (April 17, 1995)
through December 31, 1995 which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, and selected unaudited operating data
for such periods.
The following table also presents combined historical financial data as of and
for the years ended December 31, 1996, 1995, 1994 and 1993 for the UVC Systems,
the C4 Systems, the Cox Systems, the ACE Systems and the Triax Systems (the
"Predecessor Systems"). The summary unaudited combined selected historical
financial data are derived from the audited and unaudited historical financial
statements of the Existing Systems and should be read in conjunction with the
audited financial statements and related notes thereto of the Predecessor
Systems and included elsewhere in this Form 10-K. The combined selected
financial data set forth below represent the combined results of operations for
the systems for the 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 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.
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<TABLE>
-----------------------------------------------------------------------------------------
FVOP Predecessor Systems
----------------------------------------- -------------------------------------------
For the Year For the Year From April 17, For the Year For the Year For the Year
Ended Ended 1995(inception) Ended Ended Ended
December 31, December 31, to December 31, December 31, December 31, December 31,
1997 1996 1995 1995 (1)(2) 1994 (3)(4) 1993 (3)(4)
--------- --------- --------- --------- --------- ---------
In thousands, except ratios and
operating statistical data
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenue ........................... $ 145,126 $ 76,464 $ 4,369 $ 109,765 $ 105,368 $ 96,171
Operating expenses ................ 74,314 39,181 2,311 62,098 58,643 52,702
Corporate administrative expenses . 4,418 2,930 127 -- -- --
Depreciation and amortization ..... 64,398 35,336 2,308 42,354 46,345 41,863
Preacquisition expenses ........... -- -- 940 -- -- --
--------- --------- --------- --------- --------- ---------
Operating income (loss) ........... 1,996 (983) (1,317) 5,313 380 1,606
Interest expense, net(5) .......... (42,652) (22,422) (1,386) (37,898) (34,506) (31,230)
Other income (expense) ............ (1,161) (396) -- (4,409) (2,570) (3,450)
Extraordinary item - Loss on early
retirement of debt ............. (5,046) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) ................. $ (46,863) $ (23,801) $ (2,703) $ (36,994) $ (36,696) $ (33,074)
========= ========= ========= ========= ========= =========
BALANCE SHEET DATA
(END OF PERIOD):
Total assets ...................... $ 919,708 $ 549,168 $ 143,512 $ 288,253 $ 228,820 $ 255,108
Total debt ........................ 632,000 398,194 93,159 285,144 263,660 255,319
Partners' capital ................. 263,043 130,003 46,407
Financial Ratios and Other Data:
EBITDA(6) ......................... $ 66,394 $ 34,353 $ 991 $ 47,667 $ 46,725 $ 43,469
EBITDA margin(6) .................. 45.7% 44.9% 22.7% 43.4% 44.3% 45.2%
Total debt to EBITDA(7) ........... 6.19
EBITDA to interest expense(8) ..... 1.72
Net cash flows from operating
activities ........................ $ 26,336 $ 18,911 $ 1,907
Net cash flows from investing
activities ........................ (428,064) (418,215) (131,345)
Net cash flows from financing
activities ........................ 401,502 400,293 132,088
Deficiency of earnings to fixed
charges(9) ........................ $ 46,863 $ 23,801 $ 2,703
OPERATING STATISTICAL DATA (END
OF PERIOD EXCEPT AVERAGE):
Homes passed ...................... 817,000 498,900 125,300
Basic subscribers ................. 559,800 356,400 92,700
Basic penetration ................. 68.5% 71.4% 74.0%
Premium units ..................... 275,400 152,100 35,700
Premium penetration ............... 49.2% 42.7% 38.5%
Average monthly revenue per
basic subscriber(10) .............. $ 31.53 $ 29.73 $ 27.76
- -------------
</TABLE>
(1) Includes the combined results of operations of the UVC Systems, the C4
Systems, the Cox Systems, the ACE Systems and the Triax Systems for the year
ended December 31, 1995 (except for the UVC Systems, which is for the period
ended November 8, 1995). As the results of operations of the UVC Systems 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 revenue, $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.
(2) Includes combined balance sheet data for the UVC Systems as of November 9,
1995, the date of the Company's acquisition thereof, and combined balance sheet
data for the C4 Systems, the Cox Systems, the ACE Systems and the Triax Systems
as of December 31, 1995, because such acquisitions occurred subsequent to that
date.
(3)Includes the combined results of operations of the UVC Systems, the C4
Systems, the Cox Systems, the ACE Systems and the Triax Systems for the years
ended December 31, 1994 and 1993.
(4) Includes combined balance sheet data for the UVC Systems, the C4 Systems,
the Cox Systems, the ACE Systems and the Triax Systems as of December 31, 1994
and 1993.
(5) Interest expense for December 31, 1997, 1996 and 1995 was net of interest
income of $994, $471 and $60 respectively (dollars in thousands).
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(6) 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 Company's senior bank
indebtedness (the "Amended Credit Facility") and the Subordinated Notes
Indenture ("FVOP Notes Indenture") contain certain covenants, compliance with
which is measured by computations substantially similar to those used in
determining EBITDA. 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. EBITDA margin represents the percentage of EBITDA to revenue.
(7) For purposes of this computation, EBITDA for the most recent quarter ended
is multiplied by four. This presentation is consistent with the incurrence of
indebtedness tests in the FVOP Notes Indenture. In addition, this ratio is
commonly used in the cable television industry as a measure of leverage.
(8) For purposes of this computation, EBITDA and interest expense for the most
recent quarter ended is multiplied by four, including certain pro forma
adjustments made to include the effect of debt incurred to purchase those
systems acquired by the Company during the quarter. This ratio is commonly used
in the cable television industry as a measure of coverage.
(9) For purposes of this computation, earnings are defined as income (loss)
before income taxes and fixed charges. Fixed charges are defined as the sum of
(i) interest costs (including an estimated interest component of rental expense)
and (ii) amortization of deferred financing costs.
(10) Average monthly revenue per basic subscriber equals revenue for the last
month of the period divided by the number of basic subscribers as of the end of
such period.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion of the financial condition and results of operations of
the Company, the description of the Company's business as well as other sections
of this Form 10-K contain certain forward-looking statements. The Company's
actual results could differ materially from those discussed herein and its
current business plans could be altered in response to market conditions and
other factors beyond the Company's control.
The Company commenced operations on November 9, 1995 with the acquisition of its
first cable television systems. See "Business--Development of the 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's objective is to increase its subscriber base and operating cash
flow through selective acquisitions of cable television systems that can be
integrated with the Existing Systems and to enhance enterprise value through
operating improvements and revenue growth. The Company continues the process of
acquiring cable systems, and integrating new systems with its current systems.
The Company also continues to invest significant capital for technical
enhancement, including the headend equipment needed to launch additional
channels contemporaneously with service rate increases which the Company expects
to implement over the course of 1998. To date, the Company has eliminated 20
customer service and sales offices and has established four regional customer
call centers which, as of year-end, handled customer call volume for
approximately 85% of the Company's subscribers. In addition, the Company is
offering digital cable television service in two of its systems and will
continue to launch such services in 1998.
During the fourth quarter of 1997, the Company completed three significant
acquisitions, in the process adding approximately 85,400 subscribers to its Ohio
cluster and approximately 76,400 subscribers to its New England cluster. The
Company currently serves approximately 142,600 subscribers in its New England
Cluster, 231,500 subscribers in its Ohio Cluster and 123,900 subscribers in its
Kentucky Cluster. In addition, the Company entered into a $800 million Amended
Credit Facility which the Company believes gives it sufficient available capital
to meet its growth objective of acquiring at least 750,000 subscribers.
27
<PAGE>
On March 6, 1998, the Company consummated the acquisition of systems in Michigan
from TVC-Sumpter Limited Partnership and North Oakland Cablevision Partners
Limited Partnership for an aggregate purchase price of $14.2 million. On March
12, 1998 the Company completed an exchange of cable television systems in the
Southeast region with Comcast Cablevision of the South. As of March 25, 1998,
the Company had entered into three additional purchase agreements to acquire
certain cable television systems, located in Ohio and New England, for aggregate
consideration of approximately $91.6 million. The transactions are expected to
close during the second and third quarters of 1998. These transactions are
subject to customary closing conditions and certain regulatory approvals that
are not completely within the Company's control. See Note 4 for more detailed
descriptions of the transactions.
During mid January of 1998, certain of the communities served by the Company in
Maine experienced devastating ice storms. The Company expects to recognize a
loss due to service outages and increased labor costs of approximately $925,000
due to the ice storms. Additionally, the Company will expend capital to replace
and repair subscriber drops. The Company expects the loss to be isolated to the
first quarter of 1998, although the long-term financial effect of the ice storms
cannot be determined.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THETHREE MONTHS ENDED
SEPTEMBER 30, 1997
The following table sets forth, for the three-month periods ended December 31,
1997 and September 30, 1997, certain statements of operations and other data of
the Company. As a result of the Company's limited operating history, the Company
believes that its results of operations for the periods presented in this table
are not indicative of the Company's future results.
------------------------------------------
Three Months Ended Three Months Ended
December 31, 1997 September 30, 1997
------------------- -------------------
% of % of
Amount Revenue Amount Revenue
------- ---- ------- ----
In thousands (unaudited)
Revenue ............... $42,740 100.0% $36,750 100.0%
Expenses
Operating expenses 21,520 50.4 18,332 49.9
Corporate expenses 1,298 3.0 1,071 2.9
------- ---- ------- ----
EBITDA(1) ............. $19,922 46.6% $17,347 47.2%
======= ==== ======= ====
Basic subscribers...... 559,800 401,300
Premium units.......... 275,400 172,900
- --------------
(1) EBITDA represents operating income (loss) before 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 Amended Credit Facility
and the FVOP Notes Indenture contain certain covenants, compliance with which is
measured by computations substantially similar to those used in determining
EBITDA. 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.
The three-month period ended December 31, 1997 is the only period in which the
Company operated all of the Existing Systems, although certain systems (the
Cablevision Systems, the Harold's System, the TCI-VT/NH Systems and the
Cox-Central Ohio Systems) were purchased during the period and are reflected
only for that portion of the period that such systems were owned by the Company.
The three-month period ended September 30, 1997 represents the integration of
all of the Existing Systems (except for the Cablevision Systems, the Harold's
System, the TCI-VT/NH Systems and the Cox-Central Ohio Systems), although
certain systems (the Blue Ridge
28
<PAGE>
Systems and the Bedford Systems) were purchased during the period and are
reflected only for that portion of the period that such systems were owned by
the Company.
The Company consummated the acquisitions of the Cablevision Systems, the
TCI-VT/NH Systems and the Cox-Central Ohio Systems during the fourth quarter of
1997, acquiring cable systems serving approximately 85,400 basic subscribers in
Ohio and 76,400 subscribers in Maine, New Hampshire and Vermont.
Revenue increased 16.3%, or approximately $5.9 million, to approximately $42.7
million for the three months ended December 31, 1997 from approximately $36.8
million for the three months ended September 30, 1997. Operating and corporate
expenses increased approximately 17.4% and 21.2%, respectively, for the three
months ended December 31, 1997 from the three months ended September 30, 1997.
The number of basic subscribers increased approximately 39.5% from 401,300 at
September 30, 1997 to 559,800 as of December 31, 1997, and the number of premium
units increased approximately 59.3% from 172,900 to 275,400 over the three-month
period.
Significant growth over the third quarter of 1997 in revenue, operating and
corporate expenses, basic subscribers and premium units is primarily
attributable to the Company's acquisitions of cable systems during October and
December of 1997. As its operations base has developed, the Company has
increased its focus on integration of business operations to achieve
efficiencies, significant investment in technical plant and promotion of new and
existing services to enhance revenues. The impact of certain of these efforts
resulted in an increase in EBITDA margin over the course of the year. Overall,
the EBITDA margin decreased slightly in the fourth quarter as a result of the
integration of the significant acquisitions of the Cablevision Systems, the
TCI-VT/NH Systems and the Cox-Central Ohio Systems, however, on a same system
basis, the EBITDA margin remained flat at approximately 47%.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 AND YEAR
ENDED DECEMBER 31, 1996 COMPARED WITH PERIOD FROM APRIL 17, 1995 (INCEPTION)
THROUGH DECEMBER 31, 1995
The following table set forth, for the years ended December 31, 1997 and 1996
and for the period from April 15, 1995 through December 31, 1995, certain
statements of operations and other data of the Company. As a result of the
Company's limited operating history, the Company believes that its results of
operations for the periods presented in this table are not indicative of the
Company's future results.
<TABLE>
-----------------------------------------------------------------------------------
Year Ended Year Ended Period From April 17, 1995
December 31, 1997 December 31, 1996 to December 31,1995
----------------------- ---------------------- ---------------------
% of % of % of
Amount Revenue Amount Revenue Amount Revenue
--------- ----- --------- ----- --------- -----
In thousands
<S> <C> <C> <C> <C> <C> <C>
Revenue ........................... $ 145,126 100.0 % $ 76,464 100.0 % $ 4,369 100.0 %
Expenses
Operating expenses ............ 74,314 51.2 39,181 51.2 2,311 52.9
Corporate expenses ............ 4,418 3.0 2,930 3.9 127 2.9
Depreciation and amortization . 64,398 44.4 35,336 46.2 2,308 52.8
Pre-acquisition expenses ...... -- -- -- -- 940 21.5
--------- ----- --------- ----- --------- -----
Total expenses ......... 143,130 98.6 77,447 101.3 5,686 103.1
--------- ----- --------- ----- --------- -----
Operating income/(loss) ........... 1,996 1.4 (983) (1.3) (1,317) (30.1)
Interest expense, net ............. (42,652) (29.4) (22,422) (29.3) (1,386) (31.7)
Other expense ..................... (1,161) (0.8) (396) (0.5) -- --
Extraordinary item - Loss on early
retirement of debt ............ (5,046) (3.5) -- -- -- --
--------- ----- --------- ----- --------- -----
Net loss .......................... $ (46,863) (32.3)% $ (23,801) (31.1)% $ (2,703) (61.9)%
========= ===== ========= ===== ========= =====
EBITDA ............................ $ 66,394 45.8 % $ 34,353 44.9 % $ 991 22.7 %
========= ===== ========= ===== ========= =====
Basic subscribers ................. 559,800 356,400 92,700
Premium units ..................... 275,400 152,100 35,700
</TABLE>
29
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Revenue increased to $145.1 million in the year ended December 31, 1997 from
$76.5 million in the period ended December 31, 1996. This increase was
attributable in part to having a full year of operations from the the
acquisition of the following sytems: C4 Systems on February 1, 1996; the
Americable Systems on March 29, 1996; the Cox Systems on April 9, 1996; the
Grassroots Systems on August 29, 1996; the Triax Systems on October 7, 1996; the
ACE Systems on October 9, 1996; the Penn/Ohio Systems on October 31, 1996; and
the Deep Creek System on December 23, 1996. Revenue for the year ended December
31, 1997 also reflects operations for the following systems from the date of
their respective acquisitions in 1997: the Bluegrass Sytems on March 20, 1997;
the Clear/B&G Systems on March 31, 1997; the Milestone Systems on March 31,
1997; the Triax I Systems on May 30, 1997; the Front Row Systems on May 30,
1997; the Bedford System on August 29, 1997; the Blue Ridge Systems on September
3, 1997; the Cablevision Systems on October 31, 1997; the Harold's System on
October 31, 1997; the TCI-VT/NH Systems on December 2, 1997 and the Cox-Central
Ohio Systems on December 19, 1997.
Operating and corporate expenses were reduced to 54.3% of revenue in the year
ended December 31, 1997 from 55.1% of revenues in the year ended December 31,
1996 due primarily to the achievement of efficiencies in the corporate office
through the elimination of duplicative expenses, such as customer billing,
accounting, accounts payable and payroll administration.
Depreciation and amortization increased 82.2% as a result of acquisition
activity that occurred in 1996 and 1997. Net interest expense increased to $42.7
million from $22.4 million as a result of the higher weighted average drawings
on the Company's senior bank indebtedness (the "Senior Credit Facility" prior to
December 19, 1997) as well as a result of the inclusion of a full year of
interest expense on the Notes. The extraordinary item for the year ended
December 31, 1997 represents the write-off of $5.0 million of deferred financing
costs related to the early retirement of the Senior Credit Facility. Other
expenses for the year ended December 31, 1997 include the retirement of $1.1
million of plant assets in connection with completed upgrade and rebuild
projects.
In an effort to maximize revenue from existing subscribers, the Company also has
established and commenced operations at a centralized, in-house telemarketing
center equipped with state-of-the art predictive dialing and communications
equipment. The Company's efforts are focused on telemarketing premium services
to its subscribers in its New England, Kentucky and Ohio operating clusters.
Beginning in April 1997, telemarketers have contacted the Company's subscribers,
marketing the Company's "Ultimate TV" package, a premium service package
consisting of at least three premium channels. This has resulted in an increase
in the number of pay units purchased by those subscribers of approximately 24.5%
over the period from inception through December 31, 1997. The Company intends to
continue to aggressively market selected premium service packages through its
internal telemarketing resources.
Other marketing initiatives for the year-ended December 31, 1997 include sales
audit remarketing and channel additions and service rate increases in selected
cable systems. The Company has also continued its sales audit and door-to-door
marketing program, inspecting selected systems to clean up its billing data
base, verify homes passed data, market services to potential customers and
identify unauthorized subscribers, which the Company attempts to convert to
paying subscribers.
As a result of such cost efficiencies and the aforementioned acquisitions,
EBITDA increased to 45.8% of revenues in the year ended December 31, 1997 from
44.9% of revenues in the year ended December 31, 1996.
During the twelve months ended December 31, 1997, (i) the Company's annualized
subscriber churn rate (which represents the annualized number of subscriber
terminations divided by the weighted average number of subscribers during the
period) was approximately 32.0%, and (ii) the average subscriber life implied by
such subscriber churn rate was approximately 3.1 years. Churn rates are computed
without adjustment for the effects of seasonal subscriber activity and
acquisitions and are within the Company's expectations. The Company does not
expect churn rates to improve during its acquisition phase.
30
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE PERIOD FROM APRIL 17, 1995
(INCEPTION) DECEMBER 31, 1995
Revenue increased to $76.5 million in the twelve months ended December 31, 1996
from $4.4 million in the period ended December 31, 1995. This increase was
attributable in part to having a full year of operations from the UVC Systems
and the Longfellow Systems (both acquired in November 1995). Revenue for the
twelve months ended December 31, 1996 also reflect operations for the following
systems from the date of their respective acquisitions: the C4 Systems on
February 1, 1996; the Americable Systems on March 29, 1996; the Cox Systems on
April 9, 1996; the Grassroots Systems on August 29, 1996; the Triax Systems on
October 7, 1996; the ACE Systems on October 9, 1996; the Penn/Ohio Systems on
October 31, 1996; and the Deep Creek System on December 23, 1996.
Operating and corporate expenses were reduced to 55.1% of revenue in the twelve
months ended December 31, 1996 from 55.8% of revenues in the period ended
December 31, 1995 due primarily to cost-cutting measures implemented by the
Company. These efforts included the establishment of centralized regional
service centers in Rockland, Maine, Greeneville, Tennessee, Richmond, Kentucky
and Chillicothe, Ohio and the elimination of certain customer service offices.
Other cost reductions have been realized through the elimination of duplicative
expenses, such as customer billing, accounting, accounts payable and payroll
administration.
The increase in depreciation and amortization expense of $33.0 million from the
period ended December 31, 1995 to the year ended December 31, 1996 was a result
of the inclusion of a full year of expense for acquisitions completed in 1995
and new acquisitions completed in 1996. Net interest expense increased by $21.0
million due to the higher weighted average debt balance outstanding over the
year ended December 31, 1996.
As a result of such cost efficiencies and the aforementioned acquisitions,
EBITDA increased to 44.9% of revenues in the twelve months ended December 31,
1996 from 22.7% of revenues in the period ended December 31, 1995.
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. Since its founding in 1995, the Company's
cash from equity investments, bank borrowings and other debt issued by FVOP has
been sufficient to finance the Company's 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 Company intends to continue to finance such debt service, working capital
and capital expenditure requirements in the future through a combination of cash
from operations, indebtedness and equity capital sources, and the Company
believes that it will continue to generate cash and be able to obtain financing
sufficient to meet such 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.
On December 19, 1997 the Company amended its existing senior bank indebtedness
and entered into an $800.0 million Amended Credit Facility with The Chase
Manhattan Bank, as Administrative Agent, J.P. Morgan Securities Inc., as
Syndication Agent, CIBC Inc., as Documentation Agent, and the other lenders
signatory thereto. The Amended Credit Facility includes a $300.0 million,
7.75-year reducing revolving credit facility (the "Revolving Credit Facility"),
a $250.0 million, 7.75-year term loan (the "Facility A Term Loan") and a $250.0
million, 8.25-year term loan (the "Facility B Term Loan"). At December 31, 1997,
the Company had no amounts outstanding under the Revolving Credit Facility,
$182.0 million outstanding under the Facility A Term Loan and $250.0 million
outstanding under the Facility B Term Loan. The weighted average interest rates
at December 31, 1997 on the outstanding borrowings under the Facility A Term
Loan and the Facility B Term Loan were approximately 8.25% and 8.38%,
respectively. The Company has entered into interest rate swap agreements to
hedge the underlying LIBOR rate exposure for $170.0 million of borrowings
through November 1999 and October 2000. For the year
31
<PAGE>
ended December 31, 1997, the Company had recognized an increase to interest
expense of approximately $312,200 as a result of these interest rate swap
agreements.
In general, the Amended Credit Facility requires the Company to use the proceeds
from any equity or subordinated debt issuance or any cable system disposition to
reduce indebtedness for borrowings under the Amended Credit Facility and to
reduce permanently commitments thereunder, subject to certain exceptions
permitting the Company to use such proceeds to fund certain permitted
acquisitions, provided that the Company is otherwise in compliance with the
terms of the Amended Credit Facility.
The Amended 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 Amended Credit Facility, the
Administrative Agent is entitled to replace the general partner of the Company
with its designee.
FrontierVision Holdings, L.P. ("Holdings"), as the general partner of FVOP,
guarantees the indebtedness under the Amended Credit Facility on a limited
recourse basis. The Amended Credit Facility is also secured by a pledge of all
limited and general partnership interests in FVOP and a first priority lien on
all the assets of FVOP and its subsidiaries.
On October 7, 1996, FVOP issued $200.0 million aggregate principal amount of 11%
Senior Subordinated Notes due 2006 (the "FVOP Notes"). The FVOP Notes mature on
October 15, 2006 and bear interest at 11%, with interest payments due
semiannually commencing on April 15, 1997. The Company paid its first interest
payment of $11.5 million on April 15, 1997. The FVOP Notes are general unsecured
obligations of the Company and rank subordinate in right of payment to all
existing and any future senior indebtedness. In anticipation of the issuance of
the FVOP Notes, the Company entered into deferred interest rate setting
agreements to reduce the interest rate exposure related to the FVOP Notes. The
financial statement effect of these agreements will be to increase the effective
interest rate which the Company incurs over the life of the FVOP Notes.
Holdings and FrontierVision Holdings Capital Corporation ("Holdings Capital")
were formed for the purpose of acting as co-issuers of $237.7 million aggregate
principal amount at maturity of 11 7/8% Senior Disount Notes due 2007 (the
"Discount Notes"). FrontierVision Partners, L.P. ("FVP"), FVOP's sole general
partner, contributed to Holdings, both directly and indirectly, all of the
outstanding partnership interests of FVOP prior to the issuance of the Discount
Notes on September 19, 1997 (the "Formation Transaction") and therefore, at that
time, FVOP and Capital became wholly-owned consolidated subsidiaries of
Holdings. Holdings contributed the proceeds of the Discount Notes to FVOP as a
capital contribution.
During the year ended December 31, 1997, FVOP received approximately $179.9
million of equity contributions from its partners (from FVP prior to September
19, 1997, and Holdings subsequent to September 19, 1997). Such equity
contributions and senior debt, along with cash flow generated from operations,
have been sufficient to finance capital improvement projects as well as
acquisitions. The Company has adequately serviced its debt in accordance with
the provisions of the Amended Credit Facility from EBITDA of approximately $66.4
million generated by the Company for the year ended December 31, 1997.
In connection with the acquisition of the UVC Systems, the Company issued a
subordinated note to UVC in the aggregate principal amount of $7.2 million.
Under the terms of the UVC Note, the Company repaid the UVC Note in connection
with the closing of the Amended Credit Facility.
The Company is in the process of performing a preliminary assessment of the
applicability of Year 2000 issues to its business and operations. The Company
uses specialized third-party service providers for all subscriber management
purposes, including billing, revenue collection and related reporting. These
third-party service providers have represented to the Company that Year 2000
issues are being addressed by such providers. The software utilized by
32
<PAGE>
the Company's primary third-party billing service will be Year 2000-compatible
by the fourth quarter of 1998. As such, the Company does not expect the cost of
addressing the Year 2000 issues relative to its billing and revenue-related
functions to be a material event. Furthermore, with respect to the managment
information system and technical equipment, the Company is uncertain as to the
ultimate cost of bringing such items into compliance with Year 2000 issues.
However, the Company believes that there will be timely resolution of these
issues relevant to its business and operations.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operating activities for the year ended December 31, 1997 were
$26.3 million compared to $18.9 million for the year ended December 31, 1996.
The increase was primarily a result of cable television system operations
acquired during 1996 and 1997.
Cash flows from operating activities for the year ended December 31, 1996 were
$18.9 million compared to $1.9 million for the period from inception (April 17,
1995) through December 31, 1995. The increase was the result of cable television
system operations acquired during 1996 as the UVC Systems and the Longfellow
Systems were acquired during the fourth quarter of 1995.
CASH FLOWS FROM INVESTING ACTIVITIES
Investing cash flows were primarily used to fund capital expenditures and
acquire cable television systems. Capital expenditures for the year ended
December 31, 1997 were approximately $32.7 million compared to approximately
$9.3 million for the year ended December 31, 1996. Capital expenditures
primarily consisted of expenditures for the construction and expansion of the
delivery system, and additional costs were incurred related to the expansion of
customer service facilities. The Company invested approximately $392.6 million
in acquisitions during the year ended December 31, 1997 compared with
approximately $421.5 million for the same period in 1996.
The Company had capital expenditures of $9.3 million during the year ended
December 31, 1996 compared to $0.6 million for the period from inception (April
17, 1995) through December 31, 1995. The 1996 expenditures primarily consisted
of expenditures for the construction and expansion of the delivery system and
additional costs were incurred related to the expansion of customer service
facilities. In addition, for the year ended December 31, 1996, the Company
capitalized approximately $2.0 million attributable to the cost of obtaining
certain franchise, leasehold and other long-term agreements. The Company
invested approximately $421.5 million in acquisitions during the year ended
December 31, 1996 compared with approximately $121.3 million for the period from
inception (April 17, 1995) through December 31, 1995. The Company also disposed
of cable television systems for net proceeds of $15.1 million in the year ended
December 31, 1996.
The Company expects to spend a total of approximately $73.0 million over the
next two years for capital expenditures with respect to the Existing Systems.
These expenditures will primarily be used for (i) installation of fiber optic
cable and microwave links which will allow for the consolidation of headends,
(ii) analog and digital converter boxes which will allow the Company to more
effectively market premium and pay-per-view services, (iii) the continued
deployment of coaxial cable to build-out the Existing Systems, (iv) headend
equipment for the HITS digital television system and (v) the upgrade of a
portion of the Company's cable television distribution systems to, among other
things, increase bandwidth and channel capacity. See "Business--Technological
Developments."
CASH FLOWS FROM FINANCING ACTIVITIES
Acquisitions during 1997 were financed with equity contributions from the
Company's partners and net borrowings under the Company's senior bank
indebtedness. Acquisitions during the year ended December 31, 1996 were financed
with equity contributions from the Company's partners, borrowings under the
Senior Credit Facility, and issuance of $200.0 million aggregate principal
amount of FVOP Notes; acquisitions for the period from inception
33
<PAGE>
(April 17, 1995) were financed with equity contributions from the Company's
partners and borrowings under the Senior Credit Facility.
During the year ended December 31, 1997, the Company had received approximately
$179.9 million of equity contributions from its partners as compared with $107.4
million for the year ended December 31, 1996, and $49.1 million for the period
from inception (April 17, 1995) through December 31, 1995. The contributions for
the year ended December 31, 1997 include net proceeds of approximately $142.3
million received from the issuance of the Discount Notes.
From inception through December 31, 1997, FVP had received a total of $199.4
million of equity commitments from its partners and all such equity commitments
had been invested in FVP and FVP had contributed substantially all such equity
investments to the Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company appear on page F-1 of this Form 10-K.
The financial statement schedules required under Regulation S-X are filed
pursuant to Item 14 of this Form 10-K, and appear on page S-1 of this Form 10-K.
All other schedules are omitted as the required information is not applicable or
the information is presented in the financial statements, related notes or other
schedules.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During 1996, the Company dismissed its independent public accountants, Arthur
Andersen LLP ("AA") and subsequently engaged KPMG Peat Marwick LLP as the
Company's principal independent public accountants. The Company had no
disagreements with AA since formation and through the date of dismissal, nor did
any of AA's reports on the financial statements of the Company contain an
adverse opinion or disclaimer of opinion, nor was any report modified as to
uncertainty, audit scope, or accounting principle. The change in accountants is
fully disclosed in the Company's Form 8-K filed with the SEC on October 29,
1996.
34
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
FVOP's sole general partner is Holdings. Holdings' sole general partner is FVP.
FVP's 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. and FrontierVision Capital
Corporation, respectively, is set forth below:
<TABLE>
FRONTIERVISION INC.
<S> <C> <C>
Name Age Position
- ---- --- --------
James C. Vaughn 52 President, Chief Executive Officer and Director
John S. Koo 36 Senior Vice President, Chief Financial Officer, Secretary and Director
David M. Heyrend 47 Vice President of Engineering
Albert D. Fosbenner 43 Vice President - Treasurer
William P. Brovsky 41 Vice President of Marketing and Sales
James W. McHose 34 Vice President - Finance
Richard G. Halle 34 Vice President of Business Development
Todd E. Padgett 32 Vice President of Operations
FRONTIERVISION CAPITAL CORPORATION
Name Age Position
- ---- --- --------
James C. Vaughn 52 President, Chief Executive Officer and Director
John S. Koo 36 Senior Vice President, Chief Financial Officer, Secretary and Director
Albert D. Fosbenner 43 Vice President - Treasurer
</TABLE>
JAMES C. VAUGHN, President, Chief Executive Officer and a Director of
FrontierVision Inc. and Holdings Capital 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 a 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 Holdings Capital and a founder of the
Company, has over eleven 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.
35
<PAGE>
DAVID M. HEYREND, Vice President of Engineering of FrontierVision Inc., has 23
years of cable television engineering management and operations experience.
Prior to joining the Company in 1996, Mr. Heyrend served from 1988 to 1995 as
Director of Engineering for UVC, where he developed technical standards,
employee development programs and oversaw plant construction projects. From 1985
to 1988, as Director of Programs for Tele-Engineering Corporation, he developed
and managed broadband LAN projects for clients such as Allen Bradley, Ford Motor
Company and TRW. Mr. Heyrend also worked for several years with Daniels &
Associates in system technical operations and engineering management.
ALBERT D. FOSBENNER, Vice President - Treasurer of FrontierVision Inc. and
Capital, has fourteen years of domestic, international and new business cable
television experience and is responsible for the Company's accounting,
reporting, treasury and information technology activities. Prior to joining the
Company in early 1998 Mr. Fosbenner served as the CFO of a Denver-based
interactive television network startup company from 1994 to 1997, where he was
responsible for all finance, treasury, accounting and administrative functions
of the company. From 1991 to 1994 Mr. Fosbenner served (in Norway) as the CFO of
Norkabel A/S, a Norwegian cable television MSO (owned by United International
Holdings, Inc.) serving 142,000 subscribers. While at Norkabel Mr. Fosbenner was
responsible for finance, accounting, treasury, investor relations and MIS. From
1985 to 1991 Mr. Fosbenner worked for both United Cable Television and United
Artists Entertainment in a number of financial and operations management
positions, including Director of Finance & Administration and Division Business
Manager. Mr. Fosbenner is a Certified Public Accountant and a Certified
Management Accountant.
WILLIAM P. BROVSKY, Vice President of Marketing and Sales of FrontierVision
Inc., has fourteen years of cable television experience and is responsible for
programming and contract negotiations in addition to overseeing the sales and
marketing activities of the Company's operating divisions. Before joining the
Company in 1996, Mr. Brovsky managed day-to-day sales and marketing operations
from 1989 to 1996 for Time Warner Cable of Cincinnati, serving almost 200,000
subscribers. He also served as Project Manager, supervising all aspects of
system upgrades to fiber optics. From 1982 to 1989, Mr. Brovsky served as
General Sales Manager for American Television and Communications, where he was
responsible for sales, marketing and telemarketing operations for Denver and its
suburban markets.
JAMES W. MCHOSE, Vice President - Finance of FrontierVision Inc., has over ten
years of accounting and tax experience, including six years providing tax,
accounting and consulting services to companies engaged in the cable television
industry. Through early 1998, Mr. McHose served the Company as the Vice
President - Treasurer. Prior to joining the Company in 1996, 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.
RICHARD G. HALLE, Vice President of Business Development of FrontierVision Inc.
since February 1997, is responsible for the evaluation and development of new
businesses including cable modems and Internet access, digital programming
delivery, distance learning and alternative telephone access. Prior to joining
the Company, from 1995 to 1996 Mr. Halle served as the Vice President of
Operations and then as the Vice President of Development at Fanch
Communications, a top 20 MSO, where he was initially responsible for the
management of an operating region of 100,000 subscribers and subsequently
responsible for the planning and deployment of all advanced services including
digital television, dial-up Internet access and high speed cable modems. Prior
to that, he spent nine years in the banking industry, specializing in media and
telecommunications finance.
TODD E. PADGETT, Vice President of Operations of FrontierVision Inc., has over
six years of project management and corporate finance experience. Through early
1998, Mr. Padgett served the Company as the Vice President - Finance. 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, where he specialized in developing, evaluating,
negotiating and financing natural gas pipeline and international power projects.
Mr. Padgett is a Certified Public Accountant and has an MBA from the University
of Chicago.
36
<PAGE>
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 the four Attributable Class A Limited
Partners of FVP listed in "Principal Security Holders" is entitled to designate
(directly or indirectly) one of the four Attributable Class A Limited Partner
representatives on the Advisory Committee. The designees of J.P. Morgan
Investment Corporation, 1818 II Cable Corp. (whose designee is selected by two
affiliated individuals specified in the FVP Partnership Agreement), Olympus
Cable Corp. and First Union Capital Partners Inc. are John W. Watkins, Richard
H. Witmer, Jr., James A. Conroy and L. Watts Hamrick, III, respectively. FVP
GP's designee is Mr. Vaughn.
Item 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to FrontierVision Inc.'s
Chief Executive Officer and to each of the four remaining most highly
compensated officers receiving compensation in excess of $100,000 for services
rendered during the fiscal years ended December 31, 1997, 1996 and 1995.
<TABLE>
SUMMARY COMPENSATION TABLE
----------------------------------------------------
Annual Compensation All Other
Name and Principal Position Year Salary Bonus Compensation (1)
- --------------------------- ---- --------- -------- ----------------
<S> <C> <C> <C> <C>
James C. Vaughn 1997 $305,030 $ 90,000 $ 11,465
President and Chief Executive Officer 1996 283,986 120,000 7,882
1995 169,695 110,000
John S. Koo 1997 179,745 150,000 5,241
Senior Vice President, Chief Financial Officer and Secretary 1996 170,192 111,618 4,760
1995 93,416 90,000
William J. Mahon, Jr. 1997 121,175 25,000 3,761
Vice President of Business Development 1996 13,900 53,350 --
1995 -- -- --
William P. Brovsky 1997 89,339 49,525 2,730
Vice President of Marketing and Sales 1996 38,750 -- 842
1995 -- -- --
James W. McHose 1997 91,614 41,000 2,834
Vice President - Finance 1996 39,015 22,800 889
1995 -- -- --
________
</TABLE>
(1) Consists of FVP's contributions to the 401(k) Plan and to a key man life
insurance plan.
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
37
<PAGE>
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 participants 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. 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 11 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 representative of J.P. Morgan Investment Corporation and
1818 II Cable Corp., respectively, sets the compensation of the executive
officers of the Company. See "Certain Relationships and Related Transactions."
EMPLOYMENT AGREEMENT
In connection with the formation of the Company, James. C. Vaughn entered into
an employment agreement with FVP, dated as of April 17, 1995 (the "Employment
Agreement"). The Employment Agreement expired by its terms as of April 17, 1997.
The Employment Agreement provided that Mr. Vaughn would be employed as President
and Chief Executive Officer of FVP. The Employment Agreement established a base
salary to be paid to Mr. Vaughn each year, 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). In addition, Mr.
Vaughn was entitled to annual bonuses of up to $75,000, subject to the
attainment of certain performance objectives set forth in the Employment
Agreement. Mr. Vaughn 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.
38
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1997, (i) the percentage of
the total partnership interests of FVP 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 FVP's partnership
interests and (ii) the percentage of the equity securities of FrontierVision
Inc., FVP GP, FVP and Holdings owned by each director or executive officer of
FrontierVision Inc. named in the Summary Compensation Table and by all executive
officers of FrontierVision Inc. as a group. Holdings was formed as a Delaware
limited partnership in August 1997. FVP has contributed its 99.9% general
partner interest in FVOP to Holdings in connection with the Formation
Transaction. FVP has contributed its 100% interest in FVOP Inc. to Holdings,
with the result that FVOP is wholly owned, directly or indirectly, by Holdings.
Capital was incorporated in July, 1996 and is a wholly-owned subsidiary of FVOP.
It has nominal assets and does not conduct any operations. For a more detailed
discussion of the ownership of the Company, see "Certain Relationships and
Related Transactions".
<TABLE>
<S> <C> <C>
Name and Address of Beneficial Owners Type of Interest % of Class
- ------------------------------------- ---------------- -----------
FrontierVision Partners, L.P. ( "FVP ")(1) General Partner Interest in Holdings (2) 99.90%
1777 South Harrison Street, Suite P-200
Denver, Colorado 80210
FVP GP, L.P. (3) 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 22.83%
101 California Street, Suite 3800 (Attributable Class A Limited Partner)
San Francisco, CA 94111 Limited Partnership Interest in FVP GP 7.18%
1818 II Cable Corp. Limited Partnership Interest in FVP 23.63%
c/o Brown Brothers Harriman & Co. (Attributable Class A Limited Partner)
59 Wall Street Limited Partnership Interest in FVP GP 7.18%
New York, NY 10005
Olympus Cable Corp. Limited Partnership Interest in FVP 14.77%
Metro Center--One Station Place (Attributable Class A Limited Partner)
Stamford, CT 06920 Limited Partnership Interest in FVP GP 7.18%
First Union Capital Partners, Inc. Limited Partnership Interest in FVP 15.05%
One First Union Center, 5th Floor (Attributable Class A Limited Partner)
Charlotte, NC 28288 Limited Partnership Interest in FVP GP 4.31%
James C. Vaughn Stockholder of FrontierVision Inc. 66.67%
1777 South Harrison Street, Suite P-200 Limited Partnership Interest in FVP GP 48.78%
Denver, Colorado 80210
John S. Koo Stockholder of FrontierVision Inc. 33.33%
1777 South Harrison Street, Suite P-200 Limited Partnership Interest in FVP GP 24.39%
Denver, Colorado 80210
All other executive officers and directors as a group 0.00%
</TABLE>
- ----------------
(1) FVP's limited partners (owning 99% of the partnership interests therein) are
various institutional investors and accredited investors.
(2) Holdings' sole limited partner (owning 0.1% of the partnership interests
therein) is FrontierVision Holdings, LLC.
(3) 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 various institutional investors, James C. Vaughn and John S. Koo.
39
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's sole general partner (owning 99.9% of the partnership interests
therein) is Holdings. Holdings' sole general partner (owning 99.9% of the
partnership interests therein) is FVP. Holdings' sole limited partner (owning
0.1% of the partnership interests therein) is FrontierVision Holdings, LLC,
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. See "Principal Security Holders."
As of December 31, 1997, J.P. Morgan Investment Corporation and First Union
Capital Partners, Inc. had committed approximately $44.9 million and $30.0
million, respectively, to FVP, all of which has been contributed to FVP. As of
December 31, 1997, FrontierVision Inc. had committed and contributed
approximately $19,935 to FVP, representing contributions of approximately
$13,290 and $6,645 by James C. Vaughn and John S. Koo, respectively, who are
directors of FrontierVision Inc. Such capital commitments were contributed as
equity to FVOP in connection with the closing of acquisitions by FVOP, for
escrow deposits for acquisitions by FVOP under contract and for FVOP working
capital requirements.
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. 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.
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 Amended Credit Facility and have
received customary fees for acting in such capacities. In addition, J.P. Morgan
Securities Inc., Chase Securities Inc., CIBC Wood Gundy Securities Corp. and
First Union Capital Markets Corp. (collectively, the "Underwriters") received
compensation in the aggregate of approximately $6.0 million in connection with
the issuance of the FVOP Notes and received aggregate compensation in the
aggregate of approximately $5.3 million in connection with the issuance of the
Discount Notes. There are no other arrangements between the FVOP 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.
40
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K
(A)(1) Financial Statements. The following financial statements are included
in Item 8 of Part II:
<TABLE>
Page
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
<S> <C>
Independent Auditors' Report F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4
Consolidated Statements of Operations for the years ended December 31, 1996
and 1997 and the period from inception (April 17, 1995) through December 31, 1995 F-5
Consolidated Statements of Partners' Capital for the years ended December 31, 1997
and 1996 and the period from inception (April 17, 1995) through December 31, 1995 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and
1996 and the period from inception (April 17, 1995) through December 31, 1995 F-7
Notes to Consolidated Financial Statements F-8
FRONTIERVISION CAPITAL CORPORATION
Independent Auditors' Report F-18
Balance Sheets as of December 31, 1997 and 1996 F-19
Statement of Operations for the year ended December 31, 1996 and for the period from
July 26, 1996 (inception) through December 31, 1996 F-20
Statement of Owner's Equity for the year ended December 31, 1997 and for the period
from July 26, 1996 (inception) through December 31, 1996 F-21
Statement of Cash Flows for the year ended December 31, 1997 and for the period from
July 26, 1996 (inception) through December 31, 1996 F-22
Note to Financial Statements F-23
UNITED VIDEO CABLEVISION, INC. (SELECTED ASSETS ACQUIRED BY FVOP)
Independent Auditors' Report F-24
Divisional Balance Sheets as of November 8, 1995 and December 31, 1994 F-25
Statements of Divisional Operations for the period from January 1, 1995 through
November 8, 1995 and for the years ended December 31, 1994 and 1993 F-26
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-27
Statements of Divisional Cash Flows for the period from January 1, 1995 through
November 8, 1995 and for the years ended December 31, 1994 and 1993 F-28
Notes to Divisional Financial Statements F-29
ASHLAND AND DEFIANCE CLUSTERS (SELECTED ASSETS ACQUIRED FROM COX
COMMUNICATIONS, INC. BY FVOP)
Independent Auditors' Report F-32
Combined Statements of Net Assets as of December 31, 1995 and 1994 F-33
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-34
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-35
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
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
December 31, 1994 and 1993 F-36
Notes to Combined Financial Statements F-37
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
Independent Auditors' Report F-45
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-46
Consolidated Statements of Loss for the years ended December 31, 1995 and 1994 F-47
Consolidated Statements of Partners' Deficit for the years ended December 31, 1995 and
1994 F-48
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and
1994 F-49
Notes to Consolidated Financial Statements F-50
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
Independent Auditors' Report F-55
Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-56
Statements of Operations for the nine-month period ended September 30, 1996
(unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-57
Statements of Shareholders' Deficiency for the nine-month period ended September 30,
1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-58
Statements of Cash Flows for the nine-month period ended September 30, 1996
(unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-59
Notes to Financial Statements F-60
TRIAX SOUTHEAST ASSOCIATES, L.P.
Report of Independent Public Accountants F-68
Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-69
Statements of Operations for the nine-month period ended September 30, 1996
(unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-70
Statements of Partners' Capital for the nine-month period ended September 30,
1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-71
Statements of Cash Flows for the nine-month period ended September 30, 1996
(unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-72
Notes to Financial Statements F-73
CENTRAL OHIO CLUSTER (SELECTED ASSETS ACQUIRED FROM COX COMMUNICATIONS, INC. BY FVOP)
Independent Auditor's Report F-80
Combined Statements of Net Assets as of September 30, 1997 (unaudited) and
December 31, 1996 F-81
Combined Statements of Income for the nine-month periods ended September 30, 1997
(unaudited) and September 30, 1996 (unaudited) and for the year ended December
31, 1996 F-82
Combined Statements of Changes in Net Assets for the nine-month period ended
September 30, 1997 (unaudited) and for the year ended December 31, 1996 F-83
Combined Statements of Cash Flows for the nine-month periods ended September 30,
1997 (unaudited) and September 30, 1996 (unaudited) and for the year ended
December 31, 1996 F-84
Notes to Combined Financial Statements F-85
(2) Financial Statement Schedules. The following Financial Statement
Schedules are submitted herewith:
Independent Auditors' Report S-2
Schedule II: Valuation and Qualifying Accounts S-3
</TABLE>
42
<PAGE>
(3) List of Exhibits.
3.1 Amended and Restated Agreement of Limited Partnership of FVOP.
(4)
3.2 Certificate of Limited Partnership of FVOP. (1)
3.9 Certificate of Incorporation of FrontierVision Capital
Corporation. (1)
3.10 Bylaws of FrontierVision Capital Corporation. (1)
4.1 Indenture dated as of October 7, 1996, among FrontierVision
Operating Partners, L.P., FrontierVision Capital Corporation
and Colorado National Bank, as Trustee. (3)
10.1 Senior Credit Facility. (1)
10.2 Employment Agreement of James C. Vaughn. (1)
10.3 Asset Purchase Agreement dated July 20, 1995 between United
Video Cablevision, Inc. and FrontierVision Operating Partners,
L.P. (1)
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. (1)
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. (1)
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. (1)
10.7 Asset Purchase Agreement dated February 27, 1996 between
Americable International Maine, Inc. and FrontierVision
Operating Partners, L.P. (1)
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. (1)
10.9 Asset Purchase and Sale Agreement dated June 21, 1996 between
HPI Acquisition Co. LLC (assignee of Helicon Partners I, LP)
and FrontierVision Operating Partners, L.P. (1)
10.10 Asset Purchase Agreement dated July 15, 1996 between American
Cable Entertainment of Kentucky-Indiana, Inc. and
FrontierVision Operating Partners, L.P. (1)
10.11 Asset Purchase Agreement dated as of July 30, 1996 between
Shenandoah Cable Television Company and FrontierVision
Operating Partners, L.P. (1)
10.12 Purchase Agreement dated as of August 6, 1996 between Penn/Ohio
Cablevision, L.P. and FrontierVision Operating Partners, L.P.
(1)
10.13 Asset Purchase Agreement dated July 19, 1996 between Phoenix
Grassroots Cable Systems, L.L.C. and FrontierVision Operating
Partners, L.P. (1)
10.14 Amendment No. 1 to Senior Credit Facility. (1)
10.15 Consent and Amendment No. 2 to Senior Credit Facility. (3)
10.16 Asset Purchase Agreement dated May 8, 1997 between A-R Cable
Services--ME, Inc. and FrontierVision Operating Partners, L.P.
(4)
10.17 Asset Purchase Agreement dated May 12, 1997 between TCI
Cablevision of Vermont, Inc., Westmarc Development Joint
Venture and FrontierVision Operating Partners, L.P. (4)
10.18 Amended Credit Facility.
10.19 Asset Purchase Agreement dated as of October 15, 1997 between
Coxcom, Inc. and FrontierVision Operating Partners, L.P. (4)
12.1 Statement of Computation of Ratios.
16.1 Report of change in accountants. (2)
27.1 Financial Data Schedule as of and for the period ended December
31, 1997.
Footnote References
(1) Incorporated by reference to the exhibits to the Registrant's
Registration Statement on Form S-1, Registration No. 333-9535.
(2) Incorporated by reference to the exhibits to the Registrant's
Current Report on Form 8-K, File No. 333-9535 dated October 22,
1996.
43
<PAGE>
(3) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 333-9535 for the
quarter ended September 30, 1996.
(4) Incorporated by reference to the exhibits to Holdings and
Holdings Capital's Registration Statement on Form S-4,
Registration No. 333-36519.
(B) Reports on Form 8-K.
1. Item 2, Item 5 and Item 7, Form 8-K dated December 12, 1997.
Required financial information and pro forma financial
information to be provided in amended filing within 60 days of
date of initial filing.
2. Item 7, Form 8-K/A dated December 19, 1997 to provide the
required financial information and pro forma financial
information.
(C) Exhibits. The exhibits required by this Item are listed under Item 14
(A)(3).
(D) Financial Statement Schedules. The financial statement schedules
required by this Item are listed under Item 14(A)(2).
44
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED
WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF
THE EXCHANGE ACT BY REGISTRANT'S WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF
THE EXCHANGE ACT
Other than a copy of this Form 10-K, no annual report or proxy material
has been or will be sent to security holders of FrontierVision Operating
Partners, L.P. or FrontierVision Capital Corporation.
45
<PAGE>
GLOSSARY
The following is a description of certain terms used in this Form 10-K.
ACQUISITION CASH FLOW--Forecasted net income of an acquired system, for a period
believed to be appropriate based on the facts and circumstances of a specific
acquisition, calculated as of the date of acquisition of such system, before
interest, taxes, depreciation, amortization and corporate administrative
expenses. The Company believes that Acquisition Cash Flow is a measure commonly
used in the cable television industry to analyze and compare the purchase price
of cable television systems. However, Acquisition Cash Flow is not intended to
be an indicator of actual operating performance and is not determined in
accordance with generally accepted accounting principles.
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 cable 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.
CABLE PLANT--A network of coaxial and/or fiber optic cables that transmit
multiple channels carrying video-programming, 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.
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.
COMPETITIVE ACCESS PROVIDER (CAP)--A company that provides its customers with an
alternative to the local telephone company for local transport of private line,
special access services and switched access services. CAPs are also referred to
in the industry as alternative access vendors, alternative local
telecommunications service providers (ALTS) and metropolitan area network
providers (MANs).
46
<PAGE>
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
digital signal, and the compression of that signal so as to facilitate multiple
channel transmission through a single channel's bandwidth.
DIGITAL PROGRAMMING SYSTEM--A programming distribution system under which
multiple channels of programming are digitally transmitted via satellite to a
cable television system's headend and then retransmitted, using the cable
system's existing distribution platform, to subscribers equipped with special
digital converters. One such example is the Headend-in-the-Sky digital
programming system ("HITS"). The use of the HITS system enables a cable operator
to transmit from 6 to 14 digital channels using the same bandwidth as used by a
single analog channel and, thus, has the potential to dramatically expand a
system's channel capacity.
DIRECT BROADCAST SATELLITE (DBS)--A service by which packages of
satellite-delivered television programming are transmitted directly into
individual homes, each serviced by a single satellite dish.
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.
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 (an individual point of origination and
termination or intersection on the network, usually where electronics are
housed) 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.
HFC--Hybrid fiber optic/coaxial cable design, used in a cable television
system's distribution plant.
47
<PAGE>
Internet--The large, worldwide network of thousands of smaller, interconnected
computer networks. Originally developed for use by the military and for academic
research purposes, the Internet is now accessible by millions of consumers
through online services.
LAN--Local Area Network--A communications network that serves users within a
confined geographical area, consisting of servers, workstations, a network
operating system and a communications link.
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.
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 unit. This ratio
may be greater than 100% if the average customer subscribes to 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
cable television service.
Premium Units--The number of subscriptions to premium services which are paid
for on an individual basis.
Rebuild--The replacement or upgrade of an existing cable system, usually
undertaken to improve either its technological performance or to expand the
system's channel or bandwidth capacity in order to provide more services.
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.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
Page
<S> <C>
FrontierVision Operating Partners, L.P. and Subsidiaries
Independent Auditors' Report F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4
Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 and for the
period from inception (April 17, 1995) through December 31, 1995 F-5
Consolidated Statements of Partners' Capital for the years ended December 31, 1997 and 1996 and for
the period from inception (April 17, 1995) through December 31, 1995 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 and for the
period from inception (April 17, 1995) through December 31, 1995 F-7
Notes to Consolidated Financial Statements F-8
FrontierVision Capital Corporation
Independent Auditors' Report F-18
Balance Sheets as of December 31, 1997 and 1996 F-19
Statement of Operations for the year ended December 31, 1997 and for the period from July 26, 1996
(inception) through December 31, 1996 F-20
Statement of Owner's Equity for the year ended December 31, 1997 and for the period from July 26,
1996 (inception) through December 31, 1996 F-21
Statement of Cash Flows for the year ended December 31, 1997 and for the period from July 26, 1996
(inception) through December 31, 1996 F-22
Note to the Financial Statements F-23
United Video Cablevision, Inc. (Selected Assets Acquired by FVOP)
Independent Auditors' Report F-24
Divisional Balance Sheets as of November 8, 1995 and December 31, 1994 F-25
Statements of Divisional Operations for the period from January 1, 1995 through November 8, 1995
and for the years ended December 31, 1994 and 1993 F-26
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-27
Statements of Divisional Cash Flows for the period from January 1, 1995 through November 8, 1995
and for the years ended December 31, 1994 and 1993 F-28
Notes to Divisional Financial Statements F-29
Ashland and Defiance Clusters (Selected Assets Acquired From Cox Communications, Inc. by FVOP)
Independent Auditors' Report F-32
Combined Statements of Net Assets as of December 31, 1995 and 1994 F-33
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-34
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-35
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-36
Notes to Combined Financial Statements F-37
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Page
C4 Media Cable Southeast, Limited Partnership
Independent Auditors' Report F-45
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-46
Consolidated Statements of Loss for the years ended December 31, 1995 and 1994 F-47
Consolidated Statements of Partners' Deficit for the years ended December 31, 1995 and 1994 F-48
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994 F-49
Notes to Consolidated Financial Statements F-50
American Cable Entertainment of Kentucky-Indiana, Inc.
Independent Auditors' Report F-55
Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-56
Statements of Operations for the nine-month period ended September 30, 1996 (unaudited) and for
the years ended December 31, 1995, 1994 and 1993 F-57
Statements of Shareholders' Deficiency for the nine-month period ended September 30, 1996
(unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-58
Statements of Cash Flows for the nine-month period ended September 30, 1996 (unaudited) and for
the years ended December 31, 1995, 1994 and 1993 F-59
Notes to Financial Statements F-60
Triax Southeast Associates, L.P.
Report of Independent Public Accountants F-68
Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-69
Statements of Operations for the nine-month period ended September 30, 1996 (unaudited) and for
the years ended December 31, 1995, 1994 and 1993 F-70
Statements of Partners' Capital for the nine-month period ended September 30, 1996 (unaudited)
and for the years ended December 31, 1995, 1994 and 1993 F-71
Statements of Cash Flows for the nine-month period ended September 30, 1996 (unaudited) and for
the years ended December 31, 1995, 1994 and 1993 F-72
Notes to Financial Statements F-73
Central Ohio Cluster (Selected Assets Acquired From Cox Communications, Inc. by FVOP)
Independent Auditor's Report F-80
Combined Statements of Net Assets as of September 30, 1997 (unaudited) and December 31, 1996 F-81
Combined Statements of Income for the nine-month periods ended September 30, 1997 (unaudited) and
September 30, 1996 (unaudited) and for the year ended December 31, 1996 F-82
Combined Statements of Changes in Net Assets for the nine-month period ended September 30, 1997
(unaudited) and for the year ended December 31, 1996 F-83
Combined Statements of Cash Flows for the nine-month periods ended September 30, 1997 (unaudited)
and September 30, 1996 (unaudited) and for the year ended December 31, 1996 F-84
Notes to Combined Financial Statements F-85
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
FrontierVision Operating Partners, L.P.:
We have audited the accompanying consolidated balance sheets of FrontierVision
Operating Partners, L.P. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, partners'capital and cash
flows for the years ended December 31, 1997 and 1996 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FrontierVision
Operating Partners, L. P. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years ended
December 31, 1997 and 1996 and the period from inception (April 17, 1995 - see
Note 1) through December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 16, 1998
F-3
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Thousands
<TABLE>
------------------------------
December 31, December 31,
1997 1996
--------- ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,413 $ 3,639
Accounts receivable, net of allowance for doubtful accounts
of $640 and $767 8,071 4,544
Other receivables -- 846
Prepaid expenses and other 2,642 2,231
Investment in cable television systems, net:
Property and equipment 247,724 199,461
Franchise cost and other intangible assets 637,725 324,905
-------- --------
Total investment in cable television systems, net 885,449 524,366
-------- --------
Deferred financing costs, net 17,990 13,042
Earnest money deposits 2,143 500
-------- --------
Total assets $919,708 $549,168
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 2,647 $ 1,994
Accrued liabilities 15,126 10,825
Subscriber prepayments and deposits 1,828 1,862
Accrued interest payable 5,064 6,290
Debt 632,000 398,194
-------- --------
Total liabilities 656,665 419,165
-------- --------
Partners' capital:
FrontierVision Holdings, L.P. 262,780 129,874
FrontierVision Operating Partners, Inc. 263 129
-------- --------
Total partners' capital 263,043 130,003
Commitments
-------- --------
Total liabilities and partners' capital $919,708 $549,168
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
In Thousands
<TABLE>
--------------------------------------------------------
For the Period
From Inception
For the Year Ended For the Year Ended (April 17, 1995 --
December 31, December 31, see Note 1) through
1997 1996 December 31, 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenue $ 145,126 $ 76,464 $ 4,369
Expenses:
Operating expenses 74,314 39,181 2,311
Corporate administrative expenses 4,418 2,930 127
Depreciation and amortization 64,398 35,336 2,308
Pre-acquisition expenses -- -- 940
--------- --------- ---------
Total expenses 143,130 77,447 5,686
--------- --------- ---------
Operating income/(loss) 1,996 (983) (1,317)
Interest expense, net (42,652) (22,422) (1,386)
Other expense (1,161) (396) --
--------- --------- ---------
Loss before extraordinary item (41,817) (23,801) (2,703)
Extraordinary item - Loss on early
retirement of debt (5,046) -- --
--------- --------- ---------
Net loss $ (46,863) $ (23,801) $ (2,703)
========= ========= =========
Net loss allocated to:
FrontierVision Holdings, L.P.
(General Partner) $ (46,816) $ (23,776) $ (2,700)
FrontierVision Operating Partners, Inc.
(Limited Partner) (47) (25) (3)
--------- --------- ---------
$ (46,863) $ (23,801) $ (2,703)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
In Thousands
<TABLE>
---------------------------------------------------------
FrontierVision
FrontierVision Operating
Holdings, L.P. Partners, Inc.
(General Partner) (Limited Partner) Total
--------- --------- ---------
<S> <C> <C> <C>
Balance, at inception (April 17, 1995) $ -- $ -- $ --
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 107,289 108 107,397
Net loss (23,776) (25) (23,801)
--------- --------- ---------
Balance, December 31, 1996 129,874 129 130,003
Capital contributions 179,722 181 179,903
Net loss (46,816) (47) (46,863)
--------- --------- ---------
Balance, December 31, 1997 $ 262,780 $ 263 $ 263,043
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
In Thousands
<TABLE>
----------------------------------------------------------
For the Period
From Inception
For the Year For the Year (April 17, 1995 --
Ended Ended see Note 1) through
December 31, December 31, December 31,
1997 1996 1995
------- ------- -------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (46,863) $ (23,801) $ (2,703)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Extraordinary item - Loss on early retirement of debt 5,046 -- --
Depreciation and amortization 64,398 35,336 2,308
Net loss on disposal of assets 1,104 388 --
Amortization of deferred debt issuance costs 1,492 999 69
Interest expense deferred and included in
long-term debt 721 924 --
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable (582) (1,946) (261)
Receivable from seller 846 1,377 --
Prepaid expenses and other (106) (1,266) 75
Accounts payable and accrued liabilities 3,029 3,423 1,637
Subscriber prepayments and deposits (1,523) (2,393) 362
Accrued interest payable (1,226) 5,870 420
------- ------- -------
Total adjustments 73,199 42,712 4,610
------- ------- -------
Net cash flows from operating activities 26,336 18,911 1,907
------- ------- -------
Cash Flows From Investing Activities:
Capital expenditures (32,738) (9,304) (573)
Pending acquisition costs (146) -- --
Cash paid for franchise costs (406) (2,009) --
Earnest money deposits (2,143) (500) (9,502)
Proceeds from disposition of cable television systems -- 15,065 --
Cash paid in acquisitions of cable television systems (392,631) (421,467) (121,270)
------- ------- -------
Net cash flows from investing activities (428,064) (418,215) (131,345)
------- ------- -------
Cash Flows From Financing Activities:
Debt borrowings 523,000 137,700 85,900
Payments on debt borrowings (289,845) (33,600) --
Proceeds of issuance of Senior Subordinated Notes -- 200,000 --
Principal payments on capital lease obligations (70) (16) --
Increase in deferred financing fees (11,357) (3,771) (2,922)
Offering costs related to Senior Subordinated Notes (129) (7,417 --
Partner capital contributions 179,903 107,397 49,110
------- ------- -------
Net cash flows from financing activities 401,502 400,293 132,088
------- ------- -------
Net Increase in Cash and Cash Equivalents (226) 989 2,650
Cash and Cash Equivalents, at beginning of period 3,639 2,650 --
------- ------- -------
Cash and Cash Equivalents, end of period $ 3,413 $ 3,639 $ 2,650
======= ======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 42,226 $ 15,195 $ 957
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(1) THE COMPANY
Organization and Capitalization
FrontierVision Operating Partners, L.P. (the "Company" or "FVOP") is a Delaware
limited partnership formed on July 14, 1995 for the purpose of acquiring and
operating cable television systems. As of December 31, 1997, the Company owned
and operated cable television systems in three primary operating clusters - New
England, Ohio and Kentucky - with a fourth, smaller group of cable television
systems in the Southeast. The Company 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, at the time, sole general partner, FrontierVision Partners, L.P.
("FVP"), a Delaware limited partnership.
On September 19, 1997, FrontierVision Holdings, L.P. ("Holdings"), a Delaware
limited partnership, and FrontierVision Holdings Capital Corporation ("Holdings
Capital") co-issued $237,650 aggregate principal amount at maturity of 11 7/8%
Senior Discount Notes due 2007 (the "Discount Notes"). Holdings, a
newly-organized holding company, was formed to be the co-issuer of the Discount
Notes and to be the new general partner of FVOP. FVP contributed to Holdings,
both directly and indirectly, all of the outstanding partnership interests in
FVOP immediately prior to the issuance of the Discount Notes (the "Formation
Transaction"), and therefore, FVOP and FrontierVision Capital Corporation
("Capital") became wholly owned-consolidated subsidiaries of Holdings. In
addition, FVOP Inc., previously a wholly-owned subsidiary of FVP, is now a
wholly-owned subsidiary of Holdings.
During the year ended December 31, 1997, the Company received additional capital
contributions of approximately $179,903 from its partners. This amount includes
net proceeds of $142,250 received from the issuance of the Discount Notes, which
were contributed by Holdings to FVOP as a capital contribution. The capital
contribution from Holdings was used by FVOP to repay certain bank indebtedness
of $65,500 with the remainder placed in escrow to finance pending acquisitions.
All of the escrow proceeds had been utilized as of December 31, 1997. Prior to
the Formation Transaction, FVP allocated certain administrative expenses to
FVOP, which are included as capital contributions from its partners. Such
expense allocations were approximately $231 and $735 for the years ended
December 31, 1997 and 1996, respectively.
Capital, a Delaware corporation, is a wholly-owned subsidiary of the Company,
and was organized on July 26, 1996 for the sole purpose of acting as co-issuer
with the Company of $200 million aggregate principal amount of 11% Senior
Subordinated Notes due 2006 (the "Notes"). Capital has nominal assets and does
not have any material operations.
Allocation of Profits, Losses and Distributions
Generally, the Company's 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.
F-8
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(1) THE COMPANY (continued)
Pre-Acquisition Expenses
The Company had no substantive operations of its own until the date of the
acquisitions described in Note 4. However, FVP, which was formed on April 17,
1995, incurred certain general and administrative costs deemed attributable to
FVOP prior to the Company's legal formation. Such expenditures have been
reflected in the accompanying financial statements as pre-acquisition expenses
as if the Company had incurred those costs directly. In addition, the
accompanying balance sheet as of December 31, 1996 reflects earnest money
deposits paid by FVP on behalf of the Company related to planned acquisitions.
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.
Principles of Consolidation
The accompanying consolidated financial statement include the accounts of FVOP
and those of its wholly- owned subsidiaries, Capital, FrontierVision New England
Cable, Inc. ("New England") and FrontierVision Access Partners, LLC ("Access").
As of December 31, 1997, New England and Access had no operations. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
For purposes of the financial statements, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost and include the following:
distribution facilities, support equipment and leasehold improvements.
Replacements, renewals and improvements are capitalized and costs for repairs
and maintenance are charged to expense when incurred. The Company capitalized
direct labor and overhead related to installation activities of approximately
$3,844 and $1,577 for the periods ended December 31, 1997 and 1996. Depreciation
is computed on a straight-line basis using an average estimated useful life of 8
years. At the time of ordinary retirements, sales or other dispositions of
property, a gain or loss is recognized.
Franchise Costs, Covenants not to Compete, Subscriber Lists and Goodwill
Franchise costs, covenants not to compete, subscriber lists and goodwill result
from the application of the purchase method of accounting to business
combinations. Such amounts are amortized on a straight-line basis over the
following periods: 15 years for franchise costs (which reflects the Company's
ability to renew existing franchise agreements), 5 years for covenants not to
compete, 7 years for subscriber lists and 15 years for goodwill.
F-9
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company periodically reviews the carrying amount of its property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates.
Deferred Financing Costs
Deferred financing costs are being amortized using the straight line method over
the life of the loans. Accumulated amortization at December 31, 1997 and 1996 is
$912 and $1,068, respectively.
Revenue Recognition
Revenue is recognized in the period in which the related services are provided
to the subscribers.
Derivative Financial Instruments
The Company manages risk arising from fluctuations in interest rates by using
interest rate swap agreements, as required by its credit agreements. These
agreements are treated as off-balance sheet financial instruments. The interest
rate swap agreements are being accounted for as a hedge of the debt obligation,
and accordingly, the net settlement amount is recorded as an adjustment to
interest expense in the period incurred.
Income Taxes
No provision has been made for federal, state or local income taxes related to
the Company 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.
Reclassification
Certain amounts have been reclassified for comparability.
F-10
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(3) INVESTMENT IN CABLE TELEVISION SYSTEMS
The Company's investment in cable television systems is comprised of the
following:
<TABLE>
------------------------------------
December 31, December 31,
1997 1996
--------- ---------
<S> <C> <C>
Property and equipment $ 297,229 $ 217,148
Less--accumulated depreciation (49,505) (17,687)
--------- ---------
Property and equipment, net 247,724 199,461
--------- ---------
Franchise costs 523,096 258,453
Covenants not to compete 14,983 14,934
Subscriber lists 106,270 41,777
Goodwill 44,702 28,845
--------- ---------
689,051 344,009
Less--accumulated amortization (51,326) (19,104)
--------- ---------
Franchise costs and other intangible assets, net 637,725 324,905
--------- ---------
Total investment in cable television systems, net $ 885,449 $ 524,366
========= =========
</TABLE>
(4) ACQUISITIONS AND DISPOSITIONS
Acquisitions
The Company has completed several acquisitions since its inception through
December 31, 1997. All of the acquisitions have been accounted for using the
purchase method of accounting, and, accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based upon the
estimated fair values at the respective dates of acquisition. Such allocations
are subject to adjustments as final appraisal information is received by the
Company. Amounts allocated to property, plant and equipment and to intangible
assets will be respectively depreciated and amortized, prospectively from the
date of acquisition based upon the Company's useful lives and amortization
periods. The following table lists the acquisitions and the purchase price for
each.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Predecessor Owner Primary Location of Systems Date Acquired Acquisition Cost(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United Video Cablevision, Inc. Maine and Ohio November 9, 1995 $121,800
Longfellow Cable Company, Inc. Maine November 21, 1995 $6,100
C4 Media Cable Southeast, Limited Partnership ("C4") Virginia and Tennessee February 1, 1996 $47,600
Americable International Maine, Inc. Maine March 29, 1996 $4,800
Cox Communications, Inc. ("Cox") Ohio April 9, 1996 $135,900
Phoenix Grassroots Cable Systems, LLC Maine and New Hampshire August 29, 1996 $9,700
Triax Southeast Associates, L.P. ("Triax") Kentucky and Ohio October 7, 1996 $85,800
American Cable Entertainment of Kentucky-Indiana, Inc. ("ACE") Kentucky and Indiana October 9, 1996 $147,300
SRW, Inc.'s Penn/Ohio Cablevision, L.P. Pennsylvania and Ohio October 31, 1996 $3,800
SRW, Inc.'s Deep Creek Cable TV, L.P. Maryland December 23, 1996 $3,000
Bluegrass Cable Partners, L.P. Kentucky March 20, 1997 $10,400
Clear Cable T.V., Inc. and B&G Cable T.V. Systems, Inc. Kentucky March 31, 1997 $1,800
Milestone Communications of New York, L.P. Ohio March 31, 1997 $3,000
Triax Associates I, L.P. ("Triax I") Ohio May 30, 1997 $34,800
Phoenix Front Row Cablevision Ohio May 30, 1997 $6,900
PCI Incorporated Michigan August 29, 1997 $13,600
SRW, Inc.'s Blue Ridge Cable Systems, L.P. Tennessee and North Carolina September 3, 1997 $4,100
A-R Cable Services - ME, Inc. ("Cablevision") Maine October 31, 1997 $78,600
Harold's Home Furnishings, Inc. Pennsylvania and Maryland October 31, 1997 $1,600
TCI Cablevision of Vermont, Inc. and Westmarc Development
Joint Venture ("TCI-VT/NH") Vermont and New Hampshire December 2, 1997 $34,700
Cox Communications, Inc. ("Cox-Central Ohio") Ohio December 19, 1997 $203,700*
- ---------------
</TABLE>
F-11
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(4) ACQUISITIONS AND DISPOSITIONS (continued)
(a) Acquisition cost represents the purchase price allocation between tangible
and intangible assets including certain purchase accounting adjustments as of
December 31, 1997.
* Subject to adjustment.
The combined purchase price of certain of these acquisitions has been allocated
to the acquired assets and liabilities as follows:
<TABLE>
-----------------------------------------------------
1997 1996 1995
Acquisitions(a) Acquisitions(a) Acquisitions
--------- --------- ---------
<S> <C> <C> <C>
Property, plant and equipment $ 48,805 $ 169,240 $ 43,333
Franchise costs and other intangible assets 344,490 268,836 84,595
--------- --------- ---------
Subtotal 393,295 438,076 127,928
--------- --------- ---------
Net working capital (deficit) (164) (7,107) 542
Less - Earnest money deposits applied (500) (9,502) -
Less - Subordinated promissory note to seller - - (7,200)
--------- --------- ---------
Total cash paid for acquisitions $ 392,631 $ 421,467 $ 121,270
========= ========= =========
</TABLE>
(a) The combined purchase price includes certain purchase price adjustments for
acquisitions consummated prior to the respective periods.
The Company has reported the operating results of its acquired cable systems
from the dates of their respective acquisition. Unaudited pro forma summarized
operating results of the Company, assuming the C4, Cox, Triax, ACE, Triax I,
Cablevision, TCI-VT/NH and Cox-Central Ohio acquisitions (the "Acquisitions")
had been consummated on January 1, 1996, are as follows:
<TABLE>
---------------------------------------
Year Ended December 31, 1997
---------------------------------------
Historical Pro Forma
Results Acquisitions Results
--------- --------- ---------
<S> <C> <C> <C>
Revenue $ 145,126 $ 60,011 $ 205,137
Operating, selling, general and administrative expenses (78,732) (30,486) (109,218)
Depreciation and amortization (64,398) (23,960) (88,358)
--------- --------- ---------
Operating income 1,996 5,565 7,561
Interest and other expenses (48,859) (19,174) (68,033)
--------- --------- ---------
Net loss $ (46,863) $ (13,609) $ (60,472)
========= ========= =========
---------------------------------------
Year Ended December 31, 1996
---------------------------------------
Historical Pro Forma
Results Acquisitions Results
--------- --------- ---------
Revenue $ 76,464 $ 110,309 $ 186,773
Operating, selling, general and administrative expenses (42,111) (60,990) (103,101)
Depreciation and amortization (35,336) (51,660) (86,996)
--------- --------- ---------
Operating loss (2,341) (3,324) (983)
Interest and other expenses (22,818) (38,330) (61,148)
--------- --------- ---------
Net loss $ (23,801) $ (40,671) $ (64,472)
========= ========= =========
</TABLE>
The pro forma financial information presented above has been prepared for
comparative purposes only and does not purport to be indicative of the operating
results which actually would have resulted had the Acquisitions been consummated
on the dates indicated. Furthermore, the above pro forma financial information
does not include the effect of certain acquisitions and dispositions of cable
systems because these transactions were not material on an individual or
aggregate basis.
F-12
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(4) ACQUISITIONS AND DISPOSITIONS (continued)
As of December 31, 1997, the Company had advanced $30 and $113 to Bluegrass and
Front Row, respectively, in the form of letters of credit in connection with the
transfer of certain franchises in favor of the Company.
On December 12, 1997, the Company entered into an agreement with the
shareholders of New England Cable Television of Massachusetts, Inc. ("NECMA") to
acquire all of the outstanding stock of NECMA for a price of approximately
$43,600. NECMA is a Massachusetts S-Corporation which owns cable television
assets in Massachusetts. As of December 31, 1997, the Company had advanced
$2,000 as an earnest money deposit related to this transaction.
On December 19, 1997, the Company entered into an asset purchase agreement with
TCI Cablevision of Ohio, Inc. to acquire certain cable television assets in Ohio
for a cash purchase price of $10,000.
On January 15, 1998, the Company entered into an asset purchase agreement with
TVC-Sumpter Limited Partnership and North Oakland Cablevision Partners Limited
Partnership to acquire certain cable television assets in Michigan for a cash
purchase price of $14,200. This acquisition was consummated on March 6, 1998.
On January 16, 1998, the Company entered into an asset purchase agreement with
Ohio Cablevision Network, Inc. to acquire certain cable television assets in
Ohio for a cash purchase price of $38,000.
Asset Exchange
On December 12, 1997, the Company entered into an asset exchange agreement with
Comcast Cablevision of the South to exchange certain cable television assets in
the Southeast region. This asset exchange was consummated on March 12, 1998.
Dispositions
The Company has completed two dispositions from its inception through December
1996.
On July 24, 1996, the Company sold certain cable television system assets
located primarily in Chatsworth, Georgia to an affiliate of Helicon Partners for
an aggregate sales price of approximately $7,900.
On September 30, 1996, the Company sold certain cable television system assets
located in Virginia to Shenandoah Cable Television Company, an affiliate of
Shenandoah Telephone Company, for an aggregate sales price of approximately
$7,100.
F-13
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(5) DEBT
The Company's debt was comprised of the following:
<TABLE>
----------------------
December 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
Bank Credit Facility (a) --
Term loans, interest based on various floating libor rate options (8.33%
and 8.60% weighted average at December 31, 1997 and 1996,
respectively), payable monthly $432,000 $190,000
11% Senior Subordinated Notes due 2006 (b) 200,000 200,000
Subordinated promissory note to UVC at 11.5% interest, repaid in December 1997 -- 8,124
Other -- 70
-------- --------
Total debt $632,000 $398,194
======== ========
</TABLE>
(a) Bank Credit Facility.
As of December 31, 1996, the Company had entered into an amended credit
agreement (the "Senior Credit Facility") with a maximum availability of
$265.0 million of which $190.0 million was available in term loans and
$75.0 million was available as a revolving line of credit. The Company
had drawn $190.0 million in term loans as of December 31, 1996.
On December 19, 1997, the Company entered into a Second Amended and
Restated Credit Agreement (the "Amended Credit Facility") increasing the
available senior debt by $535.0 million, for a total availability of
$800.0 million. The amount available under the Amended Credit Facility
includes two term loans of $250.0 million each ("Facility A Term Loan"
and "Facility B Term Loan") and a $300.0 million revolving credit
facility ("Revolving Credit Facility"). The Facility A Term Loan and the
Revolving Credit Facility both mature on September 30, 2005. The entire
outstanding principal amount of the Revolving Credit Facility is due on
September 30, 2005, with escalating principal payments due quarterly
beginning December 31, 1998 under the Facility A Term Loan. The Facility
B Term Loan matures March 31, 2006 with 95% of the principal being repaid
in the last two quarters of the term of the facility.
Under the terms of the Amended Credit Facility, with certain exceptions,
the Company has a mandatory prepayment obligation upon a change of
control of the Company and the sale of any of its operating systems.
Further, beginning with the year ending December 31, 2001, the Company is
required to make prepayments equal to 50% of its excess cash flow, as
defined in the Amended Credit Facility. The Company also pays commitment
fees ranging from 1/2% - 3/8% per annum on the average unborrowed portion
of the total amount available under the Amended Credit Facility.
The Amended Credit Facility also requires the Company to maintain
compliance with various financial covenants including, but not limited
to, covenants relating to total indebtedness, debt ratios, interest
coverage ratio and fixed charges ratio. In addition, the Amended Credit
Facility has restrictions on certain partnership distributions by the
Company. As of December 31, 1997, the Company was in compliance with the
financial covenants of the Amended Credit Facility.
All partnership interests in the Company and all assets of the Company
and its subsidiaries are pledged as collateral for the Amended Credit
Facility.
F-14
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(5) DEBT (continued)
In order to convert certain of the interest payable at variable rates
under the Amended Credit Facility to interest at fixed rates, the Company
has entered into interest rate swap agreements for notional amounts
totaling $170,000, and maturing between November 15, 1999 and October 7,
2000. According to these agreements, the Company pays or receives the
difference between (1) an average fixed rate of 5.932% and (2) various
available floating rate options applied to the same $170,000 notional
amount every three months during the term of the interest rate swap
agreement. For the years ended December 31, 1997 and 1996, the Company
had recognized an increase in interest expense of approximately $312 and
$195, respectively, as a result of these interest rate swap agreements.
On October 3, 1997, in order to convert certain of the future interest
payable at various rates under future indebtedness, the Company entered
into a forward interest rate swap agreement, commencing October 15, 1998,
for a notional amount totaling $150,000, maturing on October 15, 2001.
According to this agreement, the Company will pay or receive the
difference between (1) a fixed rate of 6.115% and (2) a floating rate
based on three month libor applied to the same $150,000 notional amount
every three months during the term of the interest rate swap agreement.
(b) Senior Subordinated Notes
On October 7, 1996, the Company issued, pursuant to a public offering
(the "Offering"), $200,000 aggregate principal amount of the Notes. Net
proceeds from the Offering of $192,500, after costs of approximately
$7,500, were available to the Company on October 7, 1996.
In connection with the anticipated issuance of the Notes in connection
with the Offering, the Company entered into deferred interest rate
setting agreements to reduce the Company's interest rate exposure in
anticipation of issuing the Notes. The cost of such agreements, amounting
to $1,390, are recognized as a component of interest expense over the
term of the Notes.
The Notes are unsecured subordinated obligations of the Company
(co-issued by Capital) that mature on October 15, 2006. Interest accrues
at 11% per annum beginning from the date of issuance, and is payable each
April 15 and October 15, commencing April 15, 1997.
The Subordinated Notes Indenture (the "Indenture") has certain
restrictions on incurrence of indebtedness, distributions, mergers, asset
sales and changes in control of the Company.
J.P. Morgan Investment Corporation and First Union Capital Partners, Inc.
("Equity Holders") are affiliates of the Company, owning in the aggregate, a
37.6% limited partnership interest in FVP. Affiliates of the Equity Holders
received underwriting fees of approximately $3.6 million in connection with the
issuance of the Notes.
F-15
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(5) DEBT (continued)
The debt of the Company matures as follows:
Year Ended December 31 --
1998 $ 1,365
1999 8,254
2000 18,455
2001 25,735
2002 33,015
Thereafter 545,176
--------
$632,000
========
(6) DEFERRED FINANCING COSTS
The Company refinanced its Senior Credit Facility in December, 1997.
Accordingly, the deferred financing costs related to the initial debt were
written off. The effect of this write-off was a $5,046 charge to expense and was
recorded as an extraordinary item. Additional costs related to the Amended
Credit Facility were recorded as deferred financing costs during 1997.
(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 those reported in the accompanying statements of
operations due primarily to differences in depreciation and amortization methods
and estimated useful lives under regulations prescribed by the Internal Revenue
Service.
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>
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net loss for financial reporting purposes $(46,863) $(23,801) $ (2,703)
Excess depreciation and amortization recorded for income tax
purposes (11,678) (15,647) (192)
Other temporary differences (643) 326 186
-------- -------- --------
Net loss for federal income tax purposes $(59,184) $(39,122) $ (2,709)
======== ======== ========
</TABLE>
(8) FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate their fair value
due to the nature and length of maturity of the investments.
The estimated fair value of the Company's Amended Credit Facility is based on
floating market rates at December 31, 1997; therefore, there is no material
difference in the fair market value and the carrying value of such debt
instruments. The Notes have an aggregate principal amount of $200,000 with a 11%
coupon rate. The current fair value for the Notes at December 31, 1997 is 111%
of the face value.
F-16
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(9) COMMITMENTS AND CONTINGENCIES
The Company has annual commitments under lease agreements for office space,
equipment, pole rental and land upon which certain of its towers and antennae
are constructed. Rent expense for the years ended December 31, 1997, 1996 and
1995 was $4,065, $2,365 and $194, respectively.
Estimated future noncancelable lease payments under such lease obligations
subsequent to December 31, 1997 are as follows:
Year Ended December 31 --
1998 $ 873
1999 663
2000 412
2001 218
2002 159
Thereafter 279
------
$2,604
======
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. 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 at the FCC level in response
to complaints on rates for cable programming services. The FCC also adopted
comprehensive and restrictive regulations allowing operators to modify their
regulated rates on a quarterly or annual basis using various methodologies that
account for the changes in the number of regulated channels, inflation, and
increases in certain external costs, such as franchise and other governmental
fees, copyright and retransmission consent fees, taxes, programming fees and
franchise related obligations. The FCC has also adopted regulations that permit
qualifying small cable operators to justify their regulated service and
equipment rates using a simplified cost-of-service formula.
As a result of such actions, the Company's basic and tier service rates and its
equipment and installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. The Company believes
that it has complied in all material respects with the rate regulation
provisions of the federal law. However, the Company's rates for Regulated
Services are subject to review by the FCC, if a complaint has been filed, or by
the appropriate franchise authority if it is certified by the FCC to regulate
basic rates. If, as a result of the review process, a system cannot substantiate
its rates, it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received. Any
refunds of the excess portion of tier service rates would be retroactive to the
date of complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the implementation of
the rate reductions.
The Company's agreements with franchise authorities require the payment of
annual fees which approximate 3% of system franchise revenue. Such franchises
are generally nonexclusive and are granted by local governmental authorities for
a specified term of years, generally for extended periods of up to fifteen
years.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholder of
FrontierVision Capital Corporation:
We have audited the accompanying balance sheets of FrontierVision Capital
Corporation as of December 31, 1997 and 1996 and the related statements of
operations, owner's equity and cash flows for the year ended December 31, 1997
and for the period from July 26, 1996 (inception) through December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 FrontierVision Capital
Corporation as of December 31, 1997 and 1996 and the results of its operations
and its cash flows for the year ended December 31, 1997 and for the period from
July 26 (inception) through December 31, 1996 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 16, 1998
F-18
<PAGE>
FRONTIERVISION CAPITAL CORPORATION
BALANCE SHEETS
<TABLE>
---------------------------
December 31, December 31,
1997 1996
----- -----
ASSETS
<S> <C> <C>
Cash $ 143 $ 188
----- -----
Total assets $ 143 $ 188
===== =====
LIABILITIES AND OWNER'S EQUITY
Payable to FVOP $ 100 $ 100
Owner's equity:
Common stock, par value $.01; 1,000 shares authorized;
100 shares issued and outstanding 1 1
Additional paid-in capital 99 99
Retained deficit (57) (12)
----- -----
Total owner's equity 43 88
----- -----
Total liabilities and owner's equity $ 143 $ 188
===== =====
</TABLE>
See accompanying note to the financial statements.
F-19
<PAGE>
FRONTIERVISION CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
---------------------------------------
For the Period
For the Year from July 26, 1996
Ended (Inception) through
December 31, December 31,
1997 1996
---------- -------------
<S> <C> <C>
Revenue $ - $ -
General and administrative expenses 45 12
---------- -------------
Net loss $ (45) $ (12)
========== =============
</TABLE>
See accompanying note to financial statements.
F-20
<PAGE>
FRONTIERVISION CAPITAL CORPORATION
STATEMENTS OF OWNER'S EQUITY
<TABLE>
-----------------------------------------------------------
Common Additional Retained Total owner's
stock paid-in capital deficit equity
----- ----- ----- -----
<S> <C> <C> <C> <C>
Balance, at July 26, 1996 (inception) $ -- $ -- $ -- $ --
Issuance of Common Stock 1 99 -- 100
Net loss -- -- (12) (12)
----- ----- ----- -----
Balance, December 31, 1996 1 99 (12) 88
Net loss -- -- (45) (45)
----- ----- ----- -----
Balance, December 31, 1997 $ 1 $ 99 $ (57) $ 43
===== ===== ===== =====
</TABLE>
See accompanying note to financial statements.
F-21
<PAGE>
FRONTIERVISION CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
--------------------------
For the Period
For the Year from July 26,
Ended 1996 through
December 31, December 31,
1997 1996
----- -----
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (45) $ (12)
Decrease in receivable from affiliate -- 100
----- -----
Net cash flows used in operating activities (45) 88
----- -----
Cash flows from investing activities -- --
----- -----
Cash flows from financing activities:
Advance from FVOP -- 100
----- -----
Net cash flows from financing activities -- 100
----- -----
Net increase in cash and cash equivalents (45) 188
Cash and cash equivalents, beginning of period 188 --
----- -----
Cash and cash equivalents, end of period $ 143 $ 188
===== =====
</TABLE>
See accompanying note to financial statements.
F-22
<PAGE>
FRONTIERVISION CAPITAL CORPORATION
NOTE TO THE FINANCIAL STATEMENTS
FrontierVision Capital Corporation, a Delaware corporation, is a wholly owned
subsidiary of FrontierVision Operating Partners, L.P. ("FVOP"), and was
organized on July 26, 1996 for the sole purpose of acting as co-issuer with FVOP
of $200 million aggregate principal amount of the 11% Senior Subordinated Notes.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
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, 1995, 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-24
<PAGE>
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
DIVISIONAL BALANCE SHEETS
------------ ------------
November 8, December 31,
1995 1994
------------ ------------
ASSETS
Current Assets
Cash and Cash Equivalents $ 75,100 $ 35,461
Accounts Receivable (1)
Accounts Receivable, Trade 143,673 206,576
Accounts Receivable, Other 25,980 31,034
Less: Allowance for Doubtful Accounts (53,994) (34,928)
------------ ------------
Net Accounts Receivable 115,659 202,682
------------ ------------
Prepaid Expenses 165,080 108,045
------------ ------------
Total Current Assets 355,839 346,188
------------ ------------
Property, Plant and Equipment-- At Cost
Land 61,556 61,223
Buildings and Improvements 1,586,150 1,570,888
Vehicles 2,608,730 2,628,936
Cable Television Distribution Systems 85,010,454 83,296,885
Office Furniture, Tools and Equipment 1,386,288 1,363,828
Less: Accumulated Depreciation (1) (68,243,467) (59,163,656)
------------ ------------
Net Property, Plant and Equipment 22,409,711 29,758,104
------------ ------------
Intangible Assets
Franchise Rights 1,994,336 1,984,349
Non Compete Agreements 71,753 71,753
Other Intangible Assets 1,943,836 1,943,836
Less: Accumulated Amortization (1) (2,930,019) (2,550,708)
------------ ------------
Net Intangible Assets 1,079,906 1,449,230
------------ ------------
Total Assets $ 23,845,456 $ 31,553,522
============ ============
LIABILITIES AND DIVISIONAL EQUITY
Liabilities
Accounts Payable $ -- $ 684,264
Subscriber Deposits and Unearned Income 341,263 401,606
Accrued Franchise Fees 424,312 469,578
Accrued Programming Fees 686,599 513,151
Other Accrued Expenses 1,596,134 1,154,024
------------ ------------
Total Current Liabilities 3,048,308 3,222,623
------------ ------------
Divisional Equity 20,797,148 28,330,899
------------ ------------
TOTAL LIABILITIES AND DIVISIONAL EQUITY $ 23,845,456 $ 31,553,522
============ ============
See the accompanying notes to divisional financial statements.
F-25
<PAGE>
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
STATEMENTS OF DIVISIONAL OPERATIONS
------------ ------------ ------------
Period from
January 1,
1995 For the For the
through Year Ended Year Ended
November 8, December 31, December 31,
1995 1994 1993
------------ ------------ ------------
Revenues (1) $ 25,417,064 $ 27,964,550 $ 27,917,090
Operating Expenses
Programming 5,350,664 5,717,160 5,361,127
Plant and Operation 3,741,207 4,185,894 3,902,847
General and Administrative 3,754,474 4,415,919 4,628,442
Marketing and Advertising 276,712 248,572 409,890
Corporate Overhead (3) 1,270,072 1,327,127 1,470,702
Depreciation and Amortization (1) 9,625,116 11,225,978 9,960,536
------------ ------------ ------------
Total Expenses 24,018,245 27,120,650 25,733,544
------------ ------------ ------------
Operating Income 1,398,819 843,900 2,183,546
------------ ------------ ------------
Other (Income) Expense
Interest Expense (1) 4,086,738 4,892,250 4,960,032
Gain on Sale of Fixed Assets (25,034) (33,835) (33,810)
------------ ------------ ------------
Total Other (Income) Expense 4,061,704 4,858,415 4,926,222
------------ ------------ ------------
Net Loss $ (2,662,885) $ (4,014,515) $ (2,742,676)
============ ============ ============
See the accompanying notes to divisional financial statements.
F-26
<PAGE>
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
STATEMENTS OF DIVISIONAL EQUITY
------------ ------------ ------------
1995 1994 1993
------------ ------------ ------------
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
============ ============
See the accompanying notes to divisional financial statements.
F-27
<PAGE>
UNITED VIDEO CABLEVISION, INC.
MAINE AND OHIO DIVISIONS
STATEMENTS OF DIVISIONAL CASH FLOWS
<TABLE>
<CAPTION>
Period from
January 1,
1995 For the For the
through Year Ended Year Ended
November 8, December 31, December 31,
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities
Net Loss $(2,662,885) $(4,014,515) $(2,742,676)
---------- ----------- ----------
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation 9,245,805 10,771,263 9,497,062
Amortization of Intangibles 379,311 454,715 463,474
Allowance for Doubtful Accounts 19,066 6,124 (3,077)
Gain on Sale of Assets (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 67,957 (132,182) 122,248
Prepaid Expenses (57,035) 13,897 (158,603)
Accounts Payable and Accrued Expenses (113,972) (846,244) (52,046)
Subscriber Deposits and Unearned Income (60,343) (45,895) (72,253)
---------- ----------- ----------
Total Adjustments 9,455,755 10,187,843 9,762,995
---------- ----------- ----------
Net Cash Provided by Operating Activities 6,792,870 6,173,328 7,020,319
---------- ----------- ----------
Investing Activities
Purchase of Property, Plant and Equipment (2,037,144) (5,712,592) (5,024,998)
Acquisition of Intangible Assets (9,987) (216,154) (1,928)
Proceeds from Sale of Assets 164,766 41,789 37,660
---------- ----------- ----------
Net Cash Used in Investing Activities (1,882,365) (5,886,957) (4,989,266)
---------- ----------- ----------
Payments to Corporate Division, Net (4,870,866) (354,675) (2,084,179)
---------- ----------- ----------
Net Increase (Decrease) in Cash Equivalents 39,639 (68,304) (53,126)
Cash and Cash Equivalents at Beginning of
Period 35,461 103,765 156,891
---------- ----------- ----------
Cash and Cash Equivalents at End of Period $ 75,100 $ 35,461 $ 103,765
========== =========== ==========
Supplemental Disclosures of Cash Flow
Information:
Interest Paid $ 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-28
<PAGE>
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. The Corporate division allocates debt to the operating
divisions based upon the respective acquisition and construction costs relative
to the debt incurred. Accordingly, interest has been allocated to the operating
divisions by the Corporate division in the same manner. For the purpose of the
divisional financial statements, debt has been reflected as division equity in
the accompanying financial statements under the terms of the agreement with
FrontierVision Operating Partners, L.P., as 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
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-29
<PAGE>
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:
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
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 $37,000 at December
31, 1994 and approximately $46,000 at December 31, 1993.
F-30
<PAGE>
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-31
<PAGE>
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, Georgia
April 10, 1996
F-32
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
COMBINED STATEMENTS OF NET ASSETS
In Thousands
<TABLE>
<CAPTION>
--------------------
Successor Predecessor
December 31, December 31,
1995 1994
-------- --------
ASSETS
<S> <C> <C>
Cash $ 188
Accounts Receivable-- Less allowance for doubtful accounts
of $43 and $37 $ 1,784 1,563
Amounts Due From Affiliate 5,848
Intercompany Income Taxes Receivable 1,182
Net Plant and Equipment 25,621 18,096
Intangible Assets 110,796 51,210
Other Assets 1,149 580
-------- --------
$146,380 $ 71,637
======== ========
LIABILITIES AND NET ASSETS
Accounts Payable $ 580 $ 692
Accrued Expenses 966 915
Intercompany Income Taxes Payable 2,160
Deferred Income 1,355 1,142
Deferred Income Taxes 7,644 3,147
Other Liabilities 146 99
Amounts Due to Affiliate 52,317
-------- --------
Total liabilities 10,691 60,472
NET ASSETS 135,689 11,165
-------- --------
$146,380 $ 71,637
======== ========
</TABLE>
See notes to combined financial statements.
F-33
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
COMBINED STATEMENTS OF OPERATIONS
In Thousands
<TABLE>
<CAPTION>
-----------------------------------------------
Successor Predecessor
-------- ----------------------------------
Eleven Months One Month
Ended Ended Year Ended
December 31, January 31, December 31,
---------------------
1995 1995 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $ 24,628 $ 2,096 $ 25,235 $ 24,679
Costs and Expenses
Operating 8,035 689 7,188 6,773
Selling, general, and administrative 4,919 503 5,507 5,398
Depreciation 5,480 214 3,293 3,413
Amortization 2,727 128 1,830 2,129
-------- -------- -------- --------
Total costs and expenses 21,161 1,534 17,818 17,713
-------- -------- -------- --------
Operating Income 3,467 562 7,417 6,966
Interest Income-- Net 79 434 133
Other-- Net (29) (3) (4)
-------- -------- -------- --------
Income Before Income Taxes 3,438 641 7,848 7,095
Income Taxes 3,749 248 3,982 3,559
-------- -------- -------- --------
NET INCOME (LOSS) $ (311) $ 393 $ 3,866 $ 3,536
======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
F-34
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
In Thousands
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
=========
See notes to combined financial statements.
F-35
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
COMBINED STATEMENTS OF CASH FLOWS
In Thousands
<TABLE>
<CAPTION>
-----------------------------------------------------------
Successor Predecessor
-------- ------------------------------------------
Eleven Months One Month Year Ended
Ended Ended December 31,
December 31, January 31, -------------------------
1995 1995 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (311) $ 393 $ 3,866 $ 3,536
Adjustments to reconcile net income (loss)to net cash
provided by operating activities:
Depreciation and amortization 8,207 342 5,123 5,542
Deferred income taxes (142) (70) 298 293
(Increase) decrease in accounts receivable (287) 66 114 (45)
Increase (decrease) in accounts payable and
accrued expenses 467 (360) (214) (92)
Income taxes payable (1,182) 31 1,914 (906)
Other, net 274 45 162 (61)
-------- -------- -------- --------
Net cash provided by operating activities 7,026 447 11,263 8,267
INVESTING ACTIVITIES:
Capital expenditures (1,362) (65) (3,795) (6,075)
Advances to Affiliate (5,848)
-------- -------- -------- --------
Net cash used in investing activities (7,210) (65) (3,795) (6,075)
FINANCING ACTIVITIES:
Net change in amounts due to Affiliate (386) (1,466) (580)
Dividends paid (5,970) (1,570)
-------- -------- -------- --------
Net cash used in financing activities (386) (7,436) (2,150)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH (184) (4) 32 42
CASH AT BEGINNING OF PERIOD 184 188 156 114
-------- -------- -------- --------
CASH AT END OF PERIOD -- $ 184 188 $ 156
-------- -------- -------- --------
CASH PAID DURING THE PERIOD FOR:
interest $ -- $ 79 $ 434 $ 133
-------- -------- -------- --------
</TABLE>
See notes to combined financial statements.
F-36
<PAGE>
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):
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
=========
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.
F-37
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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.
F-38
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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):
-----------------------
Successor Predecessor
December 31, December 31,
1995 1994
-----------------------
Land $ 5 $ 10
Buildings and building improvements 207 646
Transmission and distribution plant 30,235 34,543
Miscellaneous equipment 343 472
Construction in progress 3 59
-------- --------
Plant and equipment, at cost 30,793 35,730
Less accumulated depreciation (5,172) (17,634)
-------- --------
Net plant and equipment $ 25,621 $ 18,096
======== ========
F-39
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(5) INTANGIBLE ASSETS
Intangible assets are summarized as follows (Thousands of Dollars):
----------------------------
Successor Predecessor
December 31, December 31,
1995 1994
--------- ---------
Goodwill $ 113,523 $ 60,907
Other 134
--------- ---------
Total 113,523 61,041
Less accumulated amortization (2,727) (9,831)
--------- ---------
Net intangible assets $ 110,796 $ 51,210
========= =========
(6) INCOME TAXES
Income tax expense (benefit) is summarized as follows (Thousands of Dollars):
------------------------------------------
Successor Predecessor
------- ------------------------------
Eleven Months One Month Year Ended
Ended Ended December 31,
December 31, January 31, ------------------
1995 1995 1994 1993
------- ------- ------- -------
Current:
Federal $ 3,054 $ 248 $ 2,866 $ 2,614
State 837 70 818 652
------- ------- ------- -------
Total current 3,891 318 3,684 3,266
------- ------- ------- -------
Deferred:
Federal (113) (68) 183 250
State) (29 (2) 115 43
------- ------- ------- -------
Total deferred (142) (70) 298 293
------- ------- ------- -------
Total income taxes $ 3,749 $ 248 $ 3,982 $ 3,559
======= ======= ======= =======
The tax effects of significant temporary differences which comprise the net
deferred tax liabilities are as follows (Thousands of Dollars):
-----------------------
December 31,
-----------------------
1995 1994
------- -------
Plant and equipment $ 7,942 $ 3,408
Other (298) (261)
------- -------
Net deferred tax liability $ 7,644 $ 3,147
======= =======
F-40
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(6) INCOME TAXES (continued)
Income tax expense computed using the United States federal statutory rates is
reconciled to the reported income tax provisions as follows:
<TABLE>
<CAPTION>
----------------------------------------------
Successor Predecessor
------- ---------------------------------
Eleven Months One Month Year Ended
Ended Ended December 31,
December 31, January 31, -------------------
1995 1995 1994 1993
------- ------- ------- -------
<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 $ 1,203 $ 224 $ 2,747 $ 2,483
State income taxes (net of federal tax benefit) 534 33 560 424
Acquisition adjustments 2,033 44 543 541
1% increase in enacted tax rate 76
Other, net (21) (53) 132 35
------- ------- ------- -------
Income tax provision $ 3,749 $ 248 $ 3,982 $ 3,559
======= ======= ======= =======
</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
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:
---------------------
December 31,
---------------------
1995 1994 1993
---- ---- ----
Discount rate 7.25% 8.25% 7.50%
Rate of increase in compensation levels 5.00 6.00 6.25
Expected long-term rate of return on assets 9.00 9.50 9.75
---- ---- ----
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.
F-41
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(7) RETIREMENT PLANS (continued)
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.
Such expenses are estimated by management and are generally allocated based on
the number of customers served. 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
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 from/to
Times Mirror bore interest at Times Mirror's estimated ten-year financing rate
and ranged between 6% and 8% between 1993 and 1994. Interest income for 1993 and
1994 was $133,000 and $434,000, 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),
F-42
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(9) COMMITMENTS AND CONTINGENCIES (continued)
1996 $126
1997 103
1998 59
1999 50
2000 42
Thereafter 4
----
Total $384
====
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 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.
F-43
<PAGE>
ASHLAND AND DEFIANCE CLUSTERS
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(10) RATE REGULATION AND OTHER DEVELOPMENTS (continued)
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-44
<PAGE>
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.
Plainview, Texas
March 11, 1996
F-45
<PAGE>
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
---------------------------
1995 1994
---------------------------
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 Current 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
============ ============
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE>
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF LOSS
December 31, 1995 AND 1994
-----------------------------
1995 1994
------------ ------------
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)
============ ============
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE>
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-48
<PAGE>
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-49
<PAGE>
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.
REVENUE RECOGNITION:
The Partnership recognizes cable service revenue on the accrual basis in the
month the cable service is provided. Payments received in advance are included
in deferred revenue until the month the service is provided at which time they
are recognized as income.
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.
F-50
<PAGE>
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued)
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.
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:
--------------------------
1995 1994
--------- ---------
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
========= =========
F-51
<PAGE>
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 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, 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 not extended the due date of the notes and 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 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:
F-52
<PAGE>
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) RELATED PARTY TRANSACTIONS (continued)
--------
1994
--------
CCTV $ 23,965
MCT 35,968
C4 Media Cable, Inc. 134,940
--------
$194,873
========
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.
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.
F-53
<PAGE>
C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) SUBSEQUENT EVENT AND CONSIDERATION OF ABILITY TO CONTINUE AS A GOING CONCERN
(continued)
------------
Pro Forma
Unaudited
1995
------------
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
============
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-54
<PAGE>
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 substantially 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's assets 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.
The accompanying balance sheet as of September 30, 1996, and the statements of
operations, cash flows and shareholders' deficiency for the nine-month period
ended September 30, 1996 were not audited by us and, accordingly, we do not
express an opinion on them. As described in Note 10, these unaudited financial
statements have not been prepared in accordance with Statement of Position 90-7
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code,"
which is required under generally accepted accounting principles for entities
that have filed petitions with the Bankruptcy Court and expect to reorganize as
going concerns under Chapter 11. Pre-petition liabilities subject to compromise
by the Bankruptcy Court as of the bankruptcy filing date have not been
segregated on the September 30, 1996 balance sheet or reported based on the
expected amount of the allowed claims. Expenses directly related to the
reorganization of the Company since the filing of the prepackaged bankruptcy
have not been separately disclosed and interest on the Company's Step Coupon
Senior Subordinated Notes and Junior Subordinated Debentures continued to be
accrued during the bankruptcy period although such interest was not probable of
being paid in the future.
DELOITTE & TOUCHE LLP
Stamford, CT
March 15, 1996 (Except for Note 1, as to
which the date is August 1, 1996.)
F-55
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
------------- ------------- -------------
September 30, December 31, December 31,
1996 1995 1994
------------- ------------- -------------
Unaudited
ASSETS
<S> <C> <C> <C>
INVESTMENT IN CABLE TELEVISION SYSTEMS:
Land and land improvements $ 247,561 $ 247,561 $ 247,561
Vehicles 1,811,308 1,702,997 1,507,850
Buildings and improvements 1,007,624 998,414 967,794
Office furniture and equipment 812,985 802,377 733,465
CATV distribution systems and related
equipment 55,094,378 51,757,161 49,161,506
------------- ------------- -------------
Total Fixed Assets 58,973,856 55,508,510 52,618,176
Less accumulated depreciation 32,840,157 28,897,790 23,683,730
------------- ------------- -------------
Total Fixed Assets-- net 26,133,699 26,610,720 28,934,446
Franchise costs-- net 278,753 2,785,425 5,964,805
Subscriber lists-- net 154,331 1,543,307 3,531,021
Covenant not to compete-- net 8,068 80,682 242,045
------------- ------------- -------------
Investment in cable television systems-- net 26,574,851 31,020,134 38,672,317
GOODWILL-- net 3,499,898 3,579,784 3,686,299
DEFERRED CHARGES-- net 134,767 371,691 963,949
CASH AND CASH EQUIVALENTS 907,718 3,704,823 3,427,849
ACCOUNTS RECEIVABLE-- less allowance for
doubtful accounts of $313,661 in 1996, $240,212
in 1995 and $195,736 in 1994 859,836 304,734 276,709
PREPAID AND OTHER 387,763 197,802 194,514
------------- ------------- -------------
TOTAL ASSETS $ 32,364,833 $ 39,178,968 $ 47,221,637
============= ============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
LIABILITIES:
Notes and loans payable $ 187,404,112 $ 182,430,902 $ 167,707,411
Accrued interest-- Senior debt 0 1,314,032 329,004
Accrued interest -- Senior/Junior Subordinated
Debentures 10,537,714 3,068,862 4,345,047
Accounts payable and accrued expenses 5,019,665 4,244,348 3,973,224
Unearned income 146,702 124,109 124,344
Converter deposits 126,852 134,366 136,588
------------- ------------- -------------
Total Liabilities 203,235,045 191,316,619 176,615,618
------------- ------------- -------------
COMMITMENTS (See Note 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 (172,370,212) (153,637,651) (130,893,981)
------------- ------------- -------------
Total shareholders' deficiency (170,870,212) (152,137,651) (129,393,981)
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' $ 32,364,833 $ 39,178,968 $ 47,221,637
============= ============= =============
DEFICIENCY
</TABLE>
See notes to financial statements
F-56
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------------ ------------ ------------ ------------
For the
Nine Months For the Year For the Year For the Year
Ended Ended Ended Ended
September 30, December 31, December 31, December 31,
1996 1995 1994 1993
------------ ------------ ------------ ------------
Unaudited
<S> <C> <C> <C> <C>
Revenue $ 22,911,386 $ 28,088,127 $ 25,879,525 $ 24,976,818
------------ ------------ ------------ ------------
Costs and expenses:
Operating expenses 8,681,583 10,880,854 9,388,813 8,699,878
Selling, general and administrative
expenses 3,884,865 4,948,493 4,912,150 4,743,783
Management fees 696,942 842,644 819,095 749,305
Depreciation and amortization 8,265,739 11,284,315 18,054,371 18,231,734
Expenses incurred in connection with
override and forbearance agreements 912,865 557,664 0 0
------------ ------------ ------------ ------------
Total costs and expenses 22,441,994 28,513,970 33,174,429 32,424,700
------------ ------------ ------------ ------------
Operating income (loss) 469,392 (425,843) (7,294,904) (7,447,882)
Interest expense-- net 19,201,953 22,366,189 20,241,202 18,410,503
Net gain on sale of cable television
system and marketable securities 0 48,362 1,266,020 0
------------ ------------ ------------ ------------
NET LOSS $(18,732,561) $(22,743,670) $(26,270,086) $(25,858,385)
============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-57
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FOR THE NINE MONTHS ENDED September, 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 (18,732,561) (18,732,561)
---- ------- --- ------- ----------- ------------- -------------
Balance at September 30, 1996
Unaudited 1 99,999 $ 0 $10,000 $ 1,490,000 $(172,370,212) $(170,870,212)
==== ======= === ======= =========== ============= =============
</TABLE>
See notes to financial statements
F-58
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
------------ ------------ ------------ ------------
For the
Nine Months For the Year For the Year For the Year
Ended Ended Ended Ended
September 30, December 31, December 31, December 31,
1996 1995 1994 1993
------------ ------------ ------------ ------------
Unaudited
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(18,732,561) $(22,743,670) $(26,270,086) $(25,858,385)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation 3,980,667 5,257,085 6,397,956 5,452,940
Amortization 4,285,072 6,027,230 11,656,415 12,778,794
Accretion of discount on step coupon
senior subordinated notes 8,583,143 10,171,124 9,519,095 8,189,478
Accretion of discount on junior
subordinated debentures 4,429,619 5,416,469 4,820,269 4,231,918
Net gain on sale of cable television
system, marketable securities, and other
assets 0 (48,362) (1,266,020)
Change in assets and liabilities:
Decrease (increase) in accounts
receivable (555,102) (28,025) (94,868) 23,917
Decrease (increase) in prepaid and other
assets (189,961) (3,288) 51,799 (59,414)
(Decrease) increase in accounts payable
and accrued expenses 775,317 271,124 (414,333) 169,808
(Decrease) increase in accrued
interest-senior debt (1,314,032) 985,028 129,505
Increase (decrease) in converter
deposits (7,514) (2,222) (237) (9,384)
Increase (decrease) in unearned income 22,593 (235) (91,827) 9,518
------------ ------------ ------------ ------------
Net cash provided by operating
activities 1,277,241 5,302,258 4,437,668 4,929,190
------------ ------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to reception and distribution
facilities and equipment (3,471,098) (2,933,359) (3,605,498) (5,083,401)
Net proceeds from sale of assets 0 48,362 1,523,137
------------ ------------ ------------ ------------
Net cash used in investing activities (3,471,098) (2,884,997) (2,082,361) (5,083,401)
------------ ------------ ------------ ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments on senior bank loan (229,016) (1,262,542) (309,165)
Payments on senior revolving credit
facility (55,862) (131,616) (3,668)
Payments on senior secured notes (315,121) (742,447) (20,712)
Increase in deferred charges 0 (186,563) (598)
(Decrease) increase in obligations under
capital lease (3,249) (3,682) 7,281
------------ ------------ ------------ ------------
Net cash used in financing activities (603,248) (2,140,287) (512,827) (598)
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents (2,797,105) 276,974 1,842,480 (154,809)
Cash and cash equivalents at beginning of
period 3,704,823 3,427,849 1,585,369 1,740,178
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 907,718 $ 3,704,823 $ 3,427,849 $ 1,585,369
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 6,002,809 $ 6,900,613 $ 5,952,791 $ 6,038,557
============ ============ ============ ============
Cash paid for restructuring costs 912,865 0 0 0
============ ============ ============ ============
</TABLE>
See notes to financial statements
F-59
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited as to September 30, 1996
(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
substantially all 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.
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
BASIS 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.
The accompanying balance sheet as of September 30, 1996, the statements of
operations, and cash flows for the nine months ended September 30, 1996 and the
statement of shareholders' deficiency for the nine months ended September 30,
1996 are unaudited but, in the opinion of management, include all
F-60
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited as to September 30, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
adjustments (consisting only of normal recurring adjustments) which are
necessary to present fairly the results for these interim periods in accordance
with Generally Accepted Accounting Principles, except as disclosed in Note 10.
The interim financial information as of and for the years ended September 30,
1996 included within the notes to the financial statements is also unaudited.
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 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 September 30, 1996, December 31,
1995 and 1994 aggregated $21,976,905, $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 September 30, 1996,
December 31, 1995 and 1994 aggregated $798,749, $726,315 and $564,772,
respectively.
Subscriber lists are amortized over seven years. Accumulated amortization of
subscriber lists at September 30, 1996, December 31, 1995 and 1994 aggregated
$13,759,669, $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 September 30, 1996. 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 September 30, 1996,
December 31, 1995 and 1994 was $4,363,871, $4,126,947 and $3,534,689,
respectively.
F-61
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited as to September 30, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill is amortized over forty years. Accumulated amortization of
goodwill at September 30, 1996, December 31, 1995 and 1994 aggregated $760,711,
$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.
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:
F-62
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited as to September 30, 1996
(3) DISPOSITIONS (continued)
Reception and distribution facilities and equipment $69,527
Franchise cost 55,714
Goodwill and other intangible assets 50,300
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 September 30, 1996, December 31, 1995 and 1994 are
comprised of the following:
<TABLE>
<CAPTION>
------------ ------------ ------------
September 30, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Senior Debt
Bank Credit Agreement (a) $ 23,199,277 $ 23,428,293 $ 24,690,835
Revolving Credit Facility (b) 5,658,854 5,714,716 5,846,332
Senior Secured Notes (c) 31,921,720 32,236,841 32,979,288
Step Coupon Senior Subordinated Notes (d) 83,593,122 78,016,664 66,137,000
Junior Subordinated Debentures (e) 43,030,789 43,030,789 38,046,675
Capitalized lease obligation 350 3,599 7,281
------------ ------------ ------------
$187,404,112 $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.
(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.
F-63
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited as to September 30, 1996
(4) NOTES AND LOANS PAYABLE (continued)
(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
$1,300,000 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 $17,456,122,
$11,879,664 and $1,708,540 at September 30, 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
$29,729,270, $25,299,651 and $19,883,183 at September 30, 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 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.
F-64
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited as to September 30, 1996
(4) NOTES AND LOANS PAYABLE (continued)
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:
Number of Shares
-------------------------
Issued and
Authorized Outstanding
---------- -----------
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
Capital stock of the Company after the recapitalization consists of the
following at September 30, 1996 and December 31, 1995:
Number of Shares
-------------------------
Issued and
Authorized Outstanding
---------- -----------
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
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
September 30, 1996, December 31, 1995 and 1994.
F-65
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited as to September 30, 1996
(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 nine months ended September 30,
1996 and the years ended December 31, 1995, 1994 and 1993 was $696,942,
$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:
1996 $132,081
1997 104,417
1998 59,412
1999 56,006
2000 45,182
Thereafter 53,675
--------
Total $450,773
========
Rent expense for the nine months ended September 30, 1996 and the years ended
December 31, 1995, 1994 and 1993 was $165,497, $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 nine
months ended September 30, 1996 and the years ended December 31, 1995, 1994 and
1993 was $5,049, $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-66
<PAGE>
AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited as to September 30, 1996
(10) Sale of the Company's Cable Television Systems and Emergence from
Bankruptcy (Unaudited)
As described in Note 1, the Company filed a prepackaged bankruptcy under Chapter
11 of the Federal Bankruptcy Code on August 1, 1996. The prepackaged bankruptcy,
which was agreed to by the Company, the Company's Step Coupon Senior
Subordinated Noteholders and the Company's Junior Subordinated Noteholders,
called for, among other things: the sale of the Company's cable television
systems to FrontierVision; the payment in full of the Senior Debtholders from
the proceeds of the sale; the payment in full of trade creditors in the ordinary
course of business; and the allocation of the remaining sale proceeds among the
Step Coupon Senior Subordinated Noteholders, the Junior Subordinated Noteholders
and KYMC.
On October 9, 1996 the Company consummated the sale of its cable television
systems to FrontierVision for $146 million, subject to certain purchase price
adjustments and effectively emerged from the prepackaged bankruptcy. Senior
Debtholders and trade creditors were paid in full as a result of the prepackaged
bankruptcy. Step Coupon Senior Subordinated Noteholders, Junior Subordinated
Noteholders and KYMC, with aggregate debt of $137,161,625, at September 30, 1996
were paid $78,343,097, as a result of the prepackaged bankruptcy. During the
nine months ended September 30, 1996 the Company incurred expenses totaling
$912,865 in connection with the Forbearance Agreement, the Override Agreement
and in connection with the reorganization of the Company under Chapter 11.
Under Generally Accepted Accounting Principles, entities in reorganization under
the bankruptcy code are required to comply with the provisions of Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), which requires, among other things: a segregation
of liabilities subject to compromise by the Bankruptcy Court as of the
bankruptcy filing date; the reporting of prepetition liabilities on the basis of
the expected amount of the allowed claims; and separate disclosure of expenses
directly related to the reorganization of the Company. Given the sale of the
Company's cable television systems and the Company's emergence from bankruptcy
on October 9, 1996, the Company's unaudited financial statements as of and for
the nine months ended September 30, 1996 have not been prepared in accordance
with SOP 90-7. These unaudited interim financial statements have been prepared
in accordance with the basis of presentation indicated in Note 2.
F-67
<PAGE>
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-68
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------------------------------------------
December 31,
September 30, ------------------------------------
1996 1995 1994
------------ ------------ ------------
Unaudited
ASSETS
<S> <C> <C> <C>
Cash $ 852,907 $ 3,380,723 $ 699,077
Receivables, net of allowance of $7,747, $29,985 and
$52,302 at September 30, 1996 and December 31, 1995 and
1994, respectively 703,356 600,866 542,832
Prepaid Expenses 100,628 167,908 174,821
Inventory -- 346,274 444,624
Property, Plant and Equipment, net 35,966,591 38,761,227 36,496,820
Purchased Intangibles, net 8,292,119 9,542,002 10,105,115
Other Assets, net 959,186 933,591 1,118,718
------------ ------------ ------------
TOTAL ASSETS $ 46,874,787 $ 53,732,591 $ 49,582,007
============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accrued Interest Expense $ 24,924 $ 258,223 $ 168,559
Accounts Payable and Other Accrued Expenses 1,611,149 1,710,636 1,962,757
Subscriber Prepayments and Deposits 58,724 71,105 42,470
Payable to Affiliates 274,686 239,021 227,355
Debt 37,242,965 42,546,539 35,787,218
------------ ------------ ------------
Total Liabilities 39,212,448 44,825,524 38,188,359
Partners' Capital:
General Partner (63,376) (50,929) (26,063)
Limited Partners 7,725,715 8,957,996 11,419,711
------------ ------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 46,874,787 $ 53,732,591 $ 49,582,007
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these balance sheets.
F-69
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Nine Months
Ended December 31,
September 30, -----------------------------------------------------------
1996 1995 1994 1993
------------- ------------- ------------- -----------
Unaudited
<S> <C> <C> <C> <C>
REVENUES $ 14,520,733 $ 17,780,041 $ 15,057,652 $ 7,810,891
------------ ------------ ------------ -----------
EXPENSES:
Programming 2,892,862 3,400,604 2,661,058 1,128,730
Operating, selling, general
and administrative 3,953,135 5,104,803 4,489,003 2,268,325
Overhead expenses paid to
affiliate 221,847 211,993 176,705 74,393
Management fees paid to
affiliate 726,036 888,996 752,882 390,545
Depreciation and amortization 5,505,387 7,344,035 6,252,573 3,307,310
------------ ------------ ------------ -----------
13,299,267 16,950,431 14,332,221 7,169,303
Operating Income 1,221,466 829,610 725,431 641,588
Loss on sale of assets 244,180 -- -- --
Interest Expense, net 2,222,014 3,316,191 2,359,980 1,056,256
------------ ------------ ------------ -----------
NET LOSS $ (1,244,728) $ (2,486,581) $ (1,634,549) $ (414,668)
============ ============ ============ ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-70
<PAGE>
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 (12,447) (1,232,281) (1,244,728)
-------- ------------ ------------
Balances, September 30, 1996 unaudited $(63,376) $ 7,725,715 $ 7,662,339
======== ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-71
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------
Nine Months
Ended Years Ended December 31,
September 30, --------------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $(1,244,728) $(2,486,581) $(1,634,549) $ (414,668)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 5,505,387 7,344,035 6,252,573 3,307,310
Write-off of assets 9,111
(Increase) decrease in receivables, net (102,490) (58,034) 6,042 (345,197)
(Increase) decrease in prepaid expenses 67,280 6,913 (128,309) (20,657)
(Decrease) increase in accrued interest
expense (233,299) 89,664 26,923 (45,894)
(Decrease) increase in accounts payable
and other accrued expenses (99,487) (252,121) 803,714 274,125
(Decrease) increase in subscriber
prepayments and deposits (12,381) 28,635 (3,886) 17,495
(Decrease) increase in payable to
affiliates 35,665 11,666 72,286 30,849
----------- ----------- ----------- ------------
Net cash flows from operating activities 3,925,058 4,684,177 5,394,794 2,803,363
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties, including
purchased intangibles (184,000) (6,065,116) (74,203) (25,342,487)
Purchase of property, plant and equipment (1,420,160) (2,369,183) (3,643,894) (1,269,346)
Proceeds from sale of property, plant and 108,043
equipment -- -- -- --
(Increase) decrease in inventory 346,274 98,350 263,815 (610,502)
Increase in franchise costs and other assets (183,457) (10,387) (121,663) --
----------- ----------- ----------- ------------
Net cash flows from investing activities (1,333,300) (8,346,336) (3,575,945) (27,222,335)
----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings -- 9,400,000 1,000,000 19,400,000
Repayment of borrowings (5,020,000) (2,880,000) (2,500,000) (1,400,000)
Partners' contributions -- -- -- 7,000,000
Cash paid for loan costs -- (66,520) (117,107) (340,789)
Repayment of capital lease obligations (99,574) (109,675) (60,007) (24,725)
----------- ----------- ----------- ------------
Net cash flows from financing activities (5,119,574) 6,343,805 (1,677,114) 24,634,486
----------- ----------- ----------- ------------
NET INCREASE IN CASH (2,527,816) 2,681,646 141,735 215,514
CASH, beginning of period 3,380,723 699,077 557,342 341,828
----------- ----------- ----------- ------------
CASH, end of period $ 852,907 $ 3,380,723 $ 699,077 $ 557,342
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 2,549,048 $ 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-72
<PAGE>
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.
F-73
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
(1) THE PARTNERSHIP (continued)
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 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 and related footnote disclosures as of September 30,
1996 and for the nine months ended September 30, 1996 are unaudited. In
management's opinion, the unaudited financial statements as of September 30,
1996 and for the nine months ended September 30, 1996 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.
F-74
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INVENTORY
Inventory is carried at historical cost, which approximates market value, and
consists primarily of installation materials and addressable trap changers.
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 $299,692 for the nine months ended September 30, 1996
and $283,000 and $422,000 for the years ended 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,
September 30, -----------------------------
1996 1995 1994 Life
------------ ------------ ------------ ------------
Unaudited
<S> <C> <C> <C> <C>
Property, plant and equipment $ 52,400,285 $ 51,188,466 $ 43,704,363 5-10 years
Less: Accumulated depreciation (16,433,694) (12,427,239) (7,207,543)
------------ ------------ ------------
$ 35,966,591 $ 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,
September 30, -----------------------------
1996 1995 1994 Life
------------ ------------ ------------ --------
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 (5,584,729) (4,334,718) (3,427,692)
------------ ------------ ------------
$ 8,292,119 $ 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-75
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
(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:
-------------------------------------------------------
December 31,
September 30, ---------------------------
1996 1995 1994 Life
----------- ------------ ------------ --------
Unaudited
Loan costs $ 1,111,608 $ 1,111,608 $ 1,084,999 5 years
Organization costs 441,435 441,435 441,435 5 years
Other 187,204 3,875 -- 10 years
----------- ----------- ----------
1,740,247 1,556,918 1,526,434
Less: Accumulated
amortization (781,061) (623,327) (407,716)
----------- ----------- ----------
$ 959,186 $ 933,591 $1,118,718
=========== =========== ==========
(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:
Property, plant and equipment $4,580,000
Franchise costs 1,019,400
Non-compete 100,600
----------
Total cash paid $5,700,000
==========
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.
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 totaled 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:
Property, plant and equipment $20,144,000
Franchise costs 2,756,000
Non-compete 600,000
-----------
Total cash paid $23,500,000
===========
F-76
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
(4) DEBT
Debt consisted of the following at September 30, 1996, and December 31, 1995 and
1994, respectively.
<TABLE>
<CAPTION>
----------------------------------------------
December 31,
September 30, -----------------------------
1996 1995 1994
------------ ------------ -----------
Unaudited
<S> <C> <C> <C>
Revolving Credit and Term Loan, interest
payable quarterly based on varying interest
rate options $37,000,000 $42,020,000 $35,500,000
Note Payable to seller -- 184,000 --
Vehicle leases 242,965 342,539 287,218
----------- ----------- -----------
$37,242,965 $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 $40 million
at 7.21% for the period from June 4, 1996 to August 5, 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:
Year Amount
---------------------
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
===========
(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
$726,036 for the nine months ended September 30, 1996, and $888,996, $752,882
and $390,545 in 1995, 1994 and 1993, respectively.
F-77
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
(5) RELATED PARTY TRANSACTIONS (continued)
TCC also allocates certain overhead expenses to the Partnership, based on
proportionate subscriber revenues, which primarily relate to employment costs,
which expenses are limited to 1.25% of gross revenues. These overhead expenses
amounted to $168,609 for the nine months ended September 30, 1996, 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.
F-78
<PAGE>
TRIAX SOUTHEAST ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
(7) REGULATORY MATTERS (continued)
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-79
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Cox Communications, Inc.
We have audited the accompanying combined statement of net assets of Cox
Communications, Inc.'s ("CCI") Central Ohio Cluster as of December 31, 1996, and
the related combined statements of income, changes in net assets, and cash flows
for the year then ended. These financial statements are the responsibility of
CCI'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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Cox
Communications, Inc.'s Central Ohio Cluster at December 31, 1996, and the
combined results of its operations and its cash flows for the year then ended,
in conformity with generally accepted accounting principles.
As discussed in Note 1, CCI sold the assets and certain liabilities of the
Central Ohio Cluster.
DELOITTE & TOUCHE LLP
August 29, 1997
(December 19, 1997 as to the second paragraph in Note 1)
Atlanta, Georgia
F-80
<PAGE>
CENTRAL OHIO CLUSTER
COMBINED STATEMENTS OF NET ASSETS
<TABLE>
-------------------------------------
September 30, December 31,
1997 1996
--------------------------------
(Unaudited)
(Thousands of Dollars)
ASSETS
<S> <C> <C>
Cash $ 28 $ 239
Accounts receivable, less allowance for doubtful
accounts of $87 and $66 2,511 2,310
Net plant and equipment 24,278 24,512
Intangible assets 148,284 151,263
Other assets 853 1,448
-------- --------
Total assets $175,954 $179,772
======== ========
LIABILITIES AND NET ASSETS
Accounts payable and accrued expenses $ 667 $ 1,245
Deferred income 1,416 1,430
Deferred income taxes 62,294 63,442
Other liabilities 399 191
Amounts due to Affiliates 29,571 35,107
-------- --------
Total liabilities 94,347 101,415
Net assets 81,607 78,357
-------- --------
Total liabilities and net assets $175,954 $179,772
======== ========
</TABLE>
See notes to combined financial statements.
F-81
<PAGE>
CENTRAL OHIO CLUSTER
COMBINED STATEMENTS OF INCOME
<TABLE>
----------------------------------------------------------
Nine Months Ended Nine Months Ended Year Ended
September 30, September 30, December 31,
1997 1996 1996
---------- -------------- -------------
(Unaudited) (Unaudited)
(Thousands of Dollars)
<S> <C> <C> <C>
Revenues $ 25,486 $ 23,389 $ 31,749
Costs and expenses:
Operating 8,387 7,371 10,132
Selling, general and administrative 3,408 3,772 5,143
Depreciation 3,735 3,579 4,846
Amortization 2,979 2,979 3,972
----- ----- -----
Operating income 6,977 5,688 7,656
Interest expense with affiliates (1,443) (1,851) (2,346)
Other, net (25) 6 5
----- ----- -----
Income before income taxes 5,509 3,843 5,315
Income taxes (2,259) (1,576) (2,176)
----- ----- -----
Net income $ 3,250 $ 2,267 $ 3,139
===== ===== =====
</TABLE>
See notes to combined financial statements.
F-82
<PAGE>
CENTRAL OHIO CLUSTER
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
---------------------
(Thousands of Dollars)
---------------------
Balance at December 31, 1995 $ 75,218
Net income 3,139
------
Balance at December 31, 1996 78,357
Net income (Unaudited) 3,250
------
Balance at September 30, 1997 (Unaudited) $ 81,607
======
See notes to combined financial statements.
F-83
<PAGE>
CENTRAL OHIO CLUSTER
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
----------------------------------------------------
Nine Months Nine Months
Ended Ended Year Ended
September 30, September 30, December 31,
1997 1996 1996
--------------- -------------- -----------
(Unaudited) (Unaudited)
(Thousands of Dollars)
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 3,250 $ 2,267 $ 3,139
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation 3,735 3,579 4,846
Amortization 2,979 2,979 3,972
Deferred income taxes (1,148) (1,245) (1,849)
(Increase) decrease in accounts receivable (201) 155 (120)
Decrease in other assets 595 348 206
Increase (decrease) in accounts payable and accrued expenses (592) 289 803
Other, net 208 (20) (42)
-------- -------- --------
Net cash provided by operating activities 8,826 8,352 10,955
-------- -------- --------
Cash flows from investing activities
Capital expenditures (3,501) (2,549) (2,939)
-------- -------- --------
Net cash used in investing activities (3,501) (2,549) (2,939)
-------- -------- --------
Cash flows from financing activities
Decrease in amounts due to Affiliates (5,536) (4,933) (7,777)
-------- -------- --------
Net cash provided by financing activities (5,536) (4,933) (7,777)
-------- -------- --------
Net increase (decrease) in cash (211) 870 239
Cash at beginning of period 239 -- --
-------- -------- --------
Cash at end of period $ 28 $ 870 $ 239
======== ======== ========
Cash paid during the period for:
Interest $ 17 $ 11 $ 14
Income taxes 788 852 905
</TABLE>
See notes to combined financial statements.
F-84
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements represent the combined operations of Cox
Communications, Inc.'s ("CCI") cable television systems serving eight
communities in Central Ohio (collectively referred to as the "Central Ohio
Cluster"). These cable television systems were acquired by CCI, an indirect
75.3% 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 historical combined
financial statements do not necessarily reflect the results of operations or
financial position that would have existed had the Central Ohio Cluster been an
independent company. All significant intercompany accounts and transactions have
been eliminated in the combined financial statements of the Central Ohio
Cluster.
On December 19, 1997, CCI sold the assets and certain liabilities of the Central
Ohio Cluster to FrontierVision Operating Partners, L.P. for approximately $204.0
million.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Central Ohio Cluster bills its 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 75 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 services are provided.
Plant and Equipment
Depreciation is computed using principally the straight-line method at rates
based upon estimated useful lives of five to 20 years for building and building
improvements, five to 12 years for cable television systems and three 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 Central Ohio Cluster's labor and at actual cost for
materials and outside labor. Expenditures for maintenance and repairs are
charged to operating expense as incurred. At the time of retirement, sale or
other disposition of property, the original cost and related accumulated
depreciation are written off.
Intangible Assets
Intangible assets consist of goodwill and cable television franchise rights
recorded in connection with the acquisition of the Central Ohio Cluster from
TMCT and are amortized on a straight-line basis over 40 years. The Central Ohio
Cluster assesses on an on-going basis the recoverability of intangible assets
based on estimates of future undiscounted cash flows for the applicable business
acquired compared to net book value. The Central Ohio Cluster also evaluates the
amortization period of intangible assets to determine whether events or
circumstances warrant revised estimated of useful lives.
F-85
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets
Effective January 1, 1996, the Central Ohio Cluster adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." 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 amounts
or fair value less cost to sell.
Income Taxes
The accounts of the Central Ohio Cluster are included in the consolidated
federal income tax return and certain state income tax returns of CEI. Current
federal and state income tax expenses and benefits have been allocated on a
separate return basis to the Central Ohio Cluster based on the current year tax
effects of the inclusion of its income, expenses and credits in the consolidated
income tax returns of CEI or based on separate state income tax returns.
Deferred income tax assets and liabilities arise from temporary differences in
the financial reporting and income tax basis of assets and liabilities. These
differences primarily result from property and intangible assets.
Fees and Taxes
The Central Ohio Cluster incurs various fees and taxes in connection with the
operations of its 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 State of Ohio. A portion
of these fees and taxes are passed through to the Central Ohio Cluster's
subscribers. Amounts collected from subscribers are recorded as a reduction of
operating expenses.
Pension, Postretirement and Postemployment Benefits
CCI generally provides defined pension benefits to substantially all employees
based on years of service and compensation during those years. CCI also provides
certain health care and life insurance benefits to substantially all retirees
and employees through certain CEI plans. Expense related to the CCI and CEI
plans is allocated to the Central Ohio Cluster through the intercompany account.
The amount of the allocations is generally based on actuarial determinations of
the effects of the Central Ohio Cluster employees' participation in the plans.
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-86
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The unaudited combined financial statements as of and for the nine months ended
September 30, 1997 and 1996, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for this
period. Operating results for nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
(3) CASH MANAGEMENT SYSTEM
The Central Ohio Cluster participates 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.
(4) PLANT AND EQUIPMENT
----------------- -----------------
September 30, December 31,
1997 1996
-------- ---------
(In Thousands)
Land $ 313 $ 311
Buildings and building improvements 990 1,033
Transmission and distribution plant 43,531 41,329
Miscellaneous equipment 2,343 1,478
Construction in progress 531 825
-------- --------
Plant and equipment, at cost 47,708 44,976
Less accumulated depreciation (23,430) (20,464)
-------- --------
Net plant and equipment $ 24,278 $ 24,512
======== ========
(5) INTANGIBLE ASSETS
----------------------------------
September 30, December 31,
1997 1996
---------- ---------
(In Thousands)
Goodwill $ 158,876 $ 158,876
Less accumulated amortization (10,592) (7,613)
--------- ---------
Net intangible assets $ 148,284 $ 151,263
========= =========
F-87
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(6) INCOME TAXES
Current and deferred income tax expenses (benefits) are as follows:
------------------------------------------
Nine months ended Year ended
September 30, 1997 December 31, 1996
------- -------
(In Thousands)
Current:
Federal $ 2,906 $ 3,289
State 520 736
------- -------
Total current 3,426 4,025
------- -------
Deferred:
Federal (1,119) (1,385)
State (48) (464)
------- -------
Total deferred (1,167) (1,849)
------- -------
Net income tax expense $ 2,259 $ 2,176
======= =======
Income tax expense differs from the amount computed by applying the U.S.
statutory federal income tax rate (35%) to income (loss) before income taxes as
a result of the following items:
<TABLE>
-------------------------------------------
Nine months ended Year ended
September 30, 1997 December 31, 1996
------ ------
(In Thousands)
Computed tax expense at federal statutory
<S> <C> <C>
rates on income before income taxes $1,928 $1,860
State income taxes, net of federal tax benefit 307 177
Other, net 24 139
------ ------
Net income tax expense $2,259 $2,176
====== ======
</TABLE>
Significant components of the net deferred tax liability consist of the
following:
---------------------------------------
Nine months ended Year ended
September 30, 1997 December 31, 1996
-------- --------
(Thousands of Dollars)
Plant and equipment $ (5,618) $ (5,787)
Franchise rights (57,569) (58,638)
Other 893 983
-------- --------
Net deferred tax liability $(62,294) $(63,442)
======== ========
(7) RETIREMENT PLANS
Qualified Pension Plan
Effective January 1, 1996, CCI established the Cox Communications, Inc. Pension
Plan (the "CCI Plan"), a qualified noncontributory defined benefit pension plan
for substantially all of CCI's employees including the Central Ohio Cluster's
employees. Plan assets consist primarily of common stock, investment-
F-88
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(7) RETIREMENT PLANS (CONTINUED)
grade corporate bonds, cash and cash equivalents and U.S. government
obligations. The CCI Plan calls for benefits to be paid to eligible employees at
retirement based primarily upon years of service with CCI and compensation rates
near retirement. The funded status of the portion of the CCI Plan covering the
employees of the Central Ohio Cluster is not determinable. The fair value of the
CCI Plan assets was greater than the projected benefit obligation as of December
31, 1996.
Total pension expense attributable to the Central Ohio Cluster employees'
participation in the CCI Plan was $33,000 for the nine month period ended
September 30, 1997 and $158,000 for the year ended December 31, 1996.
The assumptions used in the actuarial computations at December 31, 1996 were:
Discount rate 7.75%
Rate of increase in compensation levels 5.50%
Expected long-term rate of return on plan assets 9.00%
Other Retirement Plans
CEI provides certain health care and life insurance benefits to substantially
all retirees of CEI and its subsidiaries. Postretirement expense allocated to
the Central Ohio Cluster by CEI was $13,000 for the nine month period ended
September 30, 1997 and $15,000 for the year ended December 31, 1996. CEI has
been contributing additional amounts to the Cox Pension Plan Trust to fund
health care benefits pursuant to Section 401(h) of the Internal Revenue Code.
CEI is funding benefits to the extent contributions are tax deductible. In
general, retiree health benefits are paid as covered expenses are incurred. The
funded status of the postretirement plan covering the employees of the Central
Ohio Cluster is not determinable. The accumulated postretirement benefit
obligation for the postretirement plan of CEI substantially exceeded the fair
value of assets held in the Cox Pension Plan Trust at December 31, 1996.
In addition, substantially all of Central Ohio Cluster's employees are eligible
to participate in the savings and investment plan of CEI. Under the terms of the
plan, the Central Ohio Cluster matches 50% of employee contributions up to a
maximum of 6% of the employee's base salary. The Central Ohio Cluster's expense
under the plan was $57,000 for the nine-month period ended September 30, 1997
and $83,000 for the year ended December 31, 1996.
(8) TRANSACTIONS WITH AFFILIATED COMPANIES
The Central Ohio Cluster borrows funds for working capital and other needs from
CCI. Certain management services are provided to the Central Ohio Cluster by CCI
and CEI. Such services include legal, corporate secretarial, tax, treasury,
internal audit, risk management, benefits administration and other support
services. The Central Ohio Cluster was allocated expenses for the nine months
ended September 30, 1997 and for the year ended December 31, 1996 of
approximately of $604,000 and $1,320,000, respectively, related to these
services. Allocated expenses are based on management's estimate of expenses
related to the services provided to the Central Ohio Cluster in relation to
those provided to other divisions of CCI and CEI. 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 Central Ohio Cluster contracted directly with third parties. Management
has not made a
F-89
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(8) TRANSACTIONS WITH AFFILIATED COMPANIES (CONTINUED)
study or any attempt to obtain quotes from third parties to determine what the
cost of obtaining such services from third parties would have been. The fees and
expenses to be paid by the Central Ohio Cluster various transactions, including
those described above. At December 31, 1996 and September 30, 1997, outstanding
amounts due to affiliates bear interest at fifty basis points above CCI's
commercial paper borrowings. This rate as of September 30, 1997 and December 31,
1996 was 6.32% and 6.6%, respectively.
In accordance with the requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," the Central Ohio Cluster has estimated the fair
value of its intercompany advances and notes payable. Given the short-term
nature of these advances, the carrying amounts reported in the statements of net
assets approximate fair value.
(9) COMMITMENTS AND CONTINGENCIES
The Central Ohio Cluster leases office facilities and various items of equipment
under noncancelable operating leases. Rental expense under operating leases
amounted to $259,000 for the nine month period ended September 30, 1997 and
$331,000 for the year ended December 31, 1996. Future minimum lease payments as
of September 30, 1997 for all noncancelable operating leases are as follows:
1997 $ 18
1998 40
1999 31
2000 31
2001 31
2002 7
------
Total $ 158
======
The FCC has adopted rate regulations required by the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). Beginning in
September 1995, the FCC authorized a method of implementing rate adjustments
which allows cable operators to increase rates for programming annually on the
basis of proposed increases in external costs rather than on the basis of cost
increases incurred in the preceding quarter. Local franchising authorities have
the ability to obtain certification from the FCC to regulate rates charged by
the Central Ohio Cluster for basic cable services and associated basic cable
services equipment. In addition, the rates charged by the Central Ohio Cluster
for cable programming services ("CPS") can be regulated by the FCC should any
franchising authority of the Central Ohio Cluster file rate complaints with the
FCC. To date, the local franchising authorities for the Central Ohio Cluster
have not become certified by the FCC to regulate rates for basic cable service
and associated basic cable services equipment and no complaints have been filed
by customers with the FCC regarding rates charged for CPS. Though rates for
basic and CPS are presently not regulated, management of the Central Ohio
Cluster believes the rates charged for basic and CPS comply in all material
respects with the 1992 Cable Act and that should such rates become regulated in
the future the impact on the financial position and results of operation of the
Central Ohio Cluster would not be material.
F-90
<PAGE>
CENTRAL OHIO CLUSTER
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information as of and for the Nine Months
Ended September 30, 1997 is unaudited)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
On February 1, 1996, Congress passed the Telecommunications Act of 1996 (the
"1996 Act"), which was signed into law by the President on February 8, 1996.
Among other provisions, the 1996 Act deregulates the 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.
F-91
<PAGE>
FINANCIAL STATEMENT SCHEDULES
FRONTIERVISION OPERATING PARTNERS, L.P. PAGE
Independent Auditors' Report S-2
Schedule II: Valuation and Qualifying Accounts S-3
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Under date of March 16, 1998, we reported on the consolidated balance sheets of
FrontierVision Operating Partners, L.P. and subsidiaries (the "Company") as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, cash flows and partners' capital for the years ended December 31,
1997 and 1996 and the period from inception (April 17, 1995 see Note 1) through
December 31, 1995, as contained in this annual report on Form 10-K for the year
1997. In connection with our audits of the aforementioned financial statements,
we also audited the related financial statement schedule on Page S-3. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 16, 1998
S-2
<PAGE>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Amounts in Thousands
<TABLE>
--------------------------------------------------------
Charge to
Beginning Costs and Deductions/ Balance at
of Period Expenses Writeoffs End of Period
--------------------------------------------------------
Allowance for uncollectible trade receivables:
<S> <C> <C> <C> <C>
Period from inception (April 17, 1995) through
December 31, 1995 $ -- 58 (18) 40
Year ended December 31, 1996 $ 40 1,072 (345) 767
Year ended December 31, 1997 $ 767 1,761 (1,888) 640
</TABLE>
See accompanying independent auditors' report.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), the Registrants have duly caused this report
to be signed on their behalf by the undersigned, thereunto duly authorized, on
March 27, 1998.
FRONTIERVISION OPERATING PARTNERS, L.P.
By: FrontierVision Holdings, L.P., its general partner,
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 Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrants and
in the capacities and on the dates indicated.
FRONTIERVISION OPERATING PARTNERS, L.P.
Signature Title Date
/s/ JAMES C. VAUGHN President and Chief March 27, 1998
- ------------------------ Executive Officer (Principal
James C. Vaughn Executive Officer)
/s/ JOHN S. KOO Senior Vice President and Chief March 27, 1998
- ------------------------ Financial Officer (Principal
John S. Koo Financial Officer)
/s/ ALBERT D. FOSBENNER Vice President and Treasurer March 27, 1998
- ------------------------- (Principal Accounting Officer)
Albert D. Fosbenner
FRONTIERVISION CAPITAL CORP.
/s/ JAMES C. VAUGHN President and Chief March 27, 1998
- ------------------------- Executive Officer, Director
James C. Vaughn (Principal Executive Officer)
/s/ JOHN S. KOO Senior Vice President and Chief March 27, 1998
- ---------------- Financial Officer, Director
John S. Koo (Principal Financial Officer)
/s/ ALBERT D. FOSBENNER Vice President and Treasurer March 27, 1998
- ------------------------- (Principal Accounting Officer)
Albert D. Fosbenner
************************************************************
FRONTIERVISION OPERATING PARTNERS, L.P.
-----------------------------
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 19, 1997
$800,000,000
------------------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent,
and
J.P. MORGAN SECURITIES INC.,
as Syndication Agent
and
CIBC Inc.,
as Documentation Agent
************************************************************
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
<TABLE>
Page
<S> <C>
Section 1. Definitions and Accounting Matters.................................................................. 1
1.01 Certain Defined Terms............................................................................ 1
1.02 Accounting Terms and Determinations.............................................................. 33
1.03 Types of Loans................................................................................... 34
1.04 Subsidiaries; Designation of Unrestricted Subsidiaries........................................... 34
Section 2. Commitments, Loans and Prepayments.................................................................. 35
2.01 Loans 35
2.02 Borrowings....................................................................................... 38
2.03 Changes of Commitments........................................................................... 38
2.04 Commitment Fee................................................................................... 39
2.05 Lending Offices.................................................................................. 39
2.06 Several Obligations; Remedies Independent........................................................ 39
2.07 Loan Accounts; Promissory Notes.................................................................. 40
2.08 Optional Prepayments and Conversions or Continuations of Loans................................... 40
2.09 Mandatory Prepayments and Reductions of Commitments.............................................. 41
Section 3. Payments of Principal and Interest.................................................................. 45
3.01 Repayment of Loans............................................................................... 45
3.02 Interest 48
Section 4. Payments; Pro Rata Treatment; Computations; Etc..................................................... 49
4.01 Payments 49
4.02 Pro Rata Treatment............................................................................... 50
4.03 Computations..................................................................................... 51
4.04 Minimum Amounts.................................................................................. 51
4.05 Certain Notices.................................................................................. 51
4.06 Non-Receipt of Funds by the Administrative Agent................................................. 52
4.07 Sharing of Payments, Etc......................................................................... 53
Section 5. Yield Protection, Etc............................................................................... 55
5.01 Additional Costs................................................................................. 55
5.02 Limitation on Types of Loans..................................................................... 56
5.03 Illegality....................................................................................... 57
5.04 Treatment of Affected Loans...................................................................... 57
5.05 Compensation..................................................................................... 58
5.06 U.S. Taxes....................................................................................... 59
</TABLE>
(i)
<PAGE>
<TABLE>
Page
<S> <C>
Section 6. Conditions Precedent................................................................................ 61
6.01 Effectiveness.................................................................................... 61
6.02 Scheduled Acquisition Loans...................................................................... 64
6.03 Initial and Subsequent Loans..................................................................... 65
6.04 Determinations by Lenders........................................................................ 66
Section 7. Representations and Warranties...................................................................... 66
7.01 Corporate Existence.............................................................................. 66
7.02 Financial Condition.............................................................................. 66
7.03 Litigation....................................................................................... 67
7.04 No Breach........................................................................................ 67
7.05 Action........................................................................................... 68
7.06 Approvals........................................................................................ 68
7.07 Use of Credit.................................................................................... 68
7.08 ERISA............................................................................................ 68
7.09 Taxes............................................................................................ 69
7.10 Investment Company Act........................................................................... 69
7.11 Public Utility Holding Company Act............................................................... 69
7.12 Material Agreements and Liens.................................................................... 69
7.13 Environmental Matters............................................................................ 70
7.14 Capitalization................................................................................... 70
7.15 Subsidiaries, Etc................................................................................ 70
7.16 True and Complete Disclosure..................................................................... 71
7.17 Franchises....................................................................................... 71
7.18 The CATV Systems................................................................................. 72
7.19 Rate Regulation.................................................................................. 75
7.20 Scheduled Acquisition Agreement.................................................................. 76
Section 8. Covenants of the Company............................................................................ 76
8.01 Financial Statements Etc......................................................................... 76
8.02 Litigation....................................................................................... 79
8.03 Existence, Etc................................................................................... 80
8.04 Insurance........................................................................................ 80
8.05 Prohibition of Fundamental Changes............................................................... 81
8.06 Limitation on Liens.............................................................................. 85
8.07 Indebtedness..................................................................................... 86
8.08 Investments...................................................................................... 87
8.09 Restricted Payments.............................................................................. 89
8.10 Certain Financial Covenants...................................................................... 90
8.11 [INTENTIONALLY OMITTED].......................................................................... 92
8.12 Interest Rate Protection Agreements.............................................................. 92
8.13 Subordinated Indebtedness; Other Equity Interests................................................ 93
</TABLE>
(ii)
<PAGE>
<TABLE>
Page
<S> <C>
8.14 Lines of Business................................................................................ 94
8.15 Transactions with Affiliates..................................................................... 94
8.16 Use of Proceeds.................................................................................. 95
8.17 Certain Obligations Respecting Restricted Subsidiaries........................................... 95
8.18 Modifications of Certain Documents............................................................... 96
8.19 Certain Obligations Respecting the Collateral.................................................... 97
Section 9. Events of Default................................................................................... 98
Section 10. The Agents.........................................................................................103
10.01 Appointment, Powers and Immunities..............................................................103
10.02 Reliance by Administrative Agent................................................................104
10.03 Defaults........................................................................................104
10.04 Rights as a Lender..............................................................................104
10.05 Indemnification.................................................................................105
10.06 Non-Reliance on Administrative Agent and Other Lenders..........................................105
10.07 Failure to Act..................................................................................106
10.08 Resignation or Removal of Administrative Agent..................................................106
10.09 Consents under Other Loan Documents.............................................................106
10.10 The Syndication Agent and Documentation Agent...................................................107
10.11 Control Affiliates of Lenders...................................................................107
Section 11. Miscellaneous......................................................................................107
11.01 Waiver 107
11.02 Notices107
11.03 Expenses, Etc...................................................................................108
11.04 Amendments, Etc.................................................................................109
11.05 Successors and Assigns..........................................................................110
11.06 Assignments and Participations..................................................................110
11.07 Survival........................................................................................113
11.08 Captions........................................................................................113
11.09 Counterparts....................................................................................113
11.10 Governing Law; Submission to Jurisdiction.......................................................113
11.11 Waiver of Jury Trial............................................................................114
11.12 Treatment of Certain Information; Confidentiality...............................................114
11.13 Limitation of Liability.........................................................................115
</TABLE>
(iii)
<PAGE>
Schedules and Exhibits
SCHEDULE I - Schedule of Commitments
SCHEDULE II - Material Agreements and Liens
SCHEDULE III - Subsidiaries and Investments
SCHEDULE IV - Franchises
SCHEDULE V - Litigation
SCHEDULE VI - Certain Matters Related to CATV Systems
SCHEDULE VII - Certain Matters Related to Financial Statements
SCHEDULE VIII - Certain Environmental Matters
SCHEDULE IX - Certain Equity Rights
SCHEDULE X - Certain Adjustments to EBITDA
SCHEDULE XI - Financial Statements with Respect to CATV Systems
Acquired Pursuant to Scheduled Acquisitions
EXHIBIT A - Form of Assignment and Acceptance
EXHIBIT B - Form of Quarterly Officer's Report
EXHIBIT C-1 - Copy of Security Agreement
EXHIBIT C-2 - Copy of Amendment No. 1 to Security Agreement
EXHIBIT C-3 - Form of Amendment No. 2 to Security Agreement
EXHIBIT D-1 - Copy of Partner Pledge Agreement
EXHIBIT D-2 - Copy of Amendment No. 1 to Partner Pledge
Agreement
EXHIBIT D-3 - Copy of Amendment No. 2 to Partner Pledge
Agreement
EXHIBIT D-4 - Form of Amendment No. 3 to Partner Pledge
Agreement
EXHIBIT E-1 - Copy of Stock Pledge Agreement
EXHIBIT E-2 - Copy of Amendment No. 1 to Stock Pledge
Agreement
EXHIBIT E-3 - Copy of Amendment No. 2 to Stock Pledge
Agreement
EXHIBIT E-4 - Copy of Amendment No. 3 to Stock Pledge
Agreement
EXHIBIT F - Form of Subsidiary Guarantee Agreement
EXHIBIT G - Form of Opinion of Counsel to
the Obligors
EXHIBIT H - Form of Opinion of Special New York
Counsel to Chase
EXHIBIT I - Form of Confidentiality Agreement
(iv)
<PAGE>
Credit Agreement
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 19,
1997, between: FRONTIERVISION OPERATING PARTNERS, L.P., a limited partnership
duly organized and validly existing under the laws of the State of Delaware (the
"Company"); each of the lenders that is a signatory hereto identified under the
caption "Lenders" on the signature pages hereto and each lender that becomes a
"Lender" after the date hereof pursuant to Section 11.06(b) hereof
(individually, a "Lender" and, collectively, the "Lenders"); THE CHASE MANHATTAN
BANK, as administrative agent for the Lenders (in such capacity, together with
its successors in such capacity, the "Administrative Agent"); J.P. MORGAN
SECURITIES INC., as syndication agent (in such capacity, the "Syndication
Agent") and CIBC INC., as documentation agent (in such capacity, the
"Documentation Agent" and, together with the Syndication Agent and the
Administrative Agent, the "Agents").
The Company, certain of the Lenders (the "Existing Lenders"), the
Administrative Agent, the Syndication Agent and CIBC Inc., as Co-Agent, are
parties to an Amended and Restated Credit Agreement dated as of April 9, 1996
(as heretofore modified and supplemented and in effect on the date of this
Agreement, the "Existing Credit Agreement") providing, subject to the terms and
conditions thereof, for the making of revolving credit and term loans to the
Company. The parties hereto now wish to amend the Existing Credit Agreement by,
among other things, increasing the amount of credit available thereunder to
$800,000,000 (to finance, inter alia, the Scheduled Acquisitions and the
Subsequent Acquisitions (as hereinafter defined) of various cable television
systems and the payment of fees, commissions, and expenses payable in connection
therewith and for the ongoing working capital requirements of the Company and
its Subsidiaries), by adding the additional Lenders as parties thereto and by
amending certain of the other provisions thereof and, in that connection, wish
to amend and restate the Existing Credit Agreement in its entirety.
Accordingly, the parties hereto hereby agree that the Existing Credit
Agreement shall, as of the date hereof (but subject to the satisfaction of the
conditions precedent specified in Section 6 hereof), be amended and restated in
its entirety as follows:
Section 1. Definitions and Accounting Matters
1.01 Certain Defined Terms. As used herein, the following terms shall
have the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
1
<PAGE>
"Acquired System" shall have the meaning assigned to such term in
Section 8.05(b) hereof.
"Acquisition Agreements" shall mean, collectively, the Scheduled
Acquisition Agreements and each Subsequent Acquisition Agreement.
"Acquisitions" shall mean, collectively, the Scheduled Acquisitions
and the Subsequent Acquisitions.
"Acquisition Environmental Surveys" shall mean, with respect to any
Acquisition, environmental surveys and assessments prepared by a firm of
licensed engineers (familiar with the identification of toxic and hazardous
substances), based upon physical on-site inspections by such firm of each of the
sites and facilities to be owned by the Company and its Subsidiaries (after
giving effect to such Acquisition), as well as an historical review of the uses
of such sites and facilities.
"Administrative Questionnaire" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.
"Affiliate" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Company and,
if such Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any
Person that owns directly or indirectly securities having 5% or more of the
voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual shall be an Affiliate solely by reason of his or
her being a director, officer or employee of the Company or any of its
Restricted Subsidiaries and (b) none of the Wholly Owned Restricted Subsidiaries
of the Company shall be Affiliates.
"Applicable Lending Office" shall mean, for each Lender and for each
Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such
Lender) designated for such Type of Loan on the signature pages hereof or such
other office of such Lender (or of an affiliate of such Lender) as such Lender
may from time to time specify to the
2
<PAGE>
Administrative Agent and the Company as the office by which its Loans of such
Type are to be made and maintained.
"Applicable Margin" shall mean, with respect to the Loans of any
Class, or with respect to commitment fee, the respective rates indicated below
for Loans of such Type, or for commitment fee, opposite the applicable Debt
Ratio indicated below for such Payment Period:
<TABLE>
Incremental Facility
and
Tranche A Tranche B
Debt Revolving Loans Term Loan Term Loan
Ratio: Base Rate Eurodollar Base Rate Eurodollar Base Rate Eurodollar Commitment Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6.50x .................... 1.000% 2.250% 1.000% 2.250% 1.125% 2.375% .375%
<6.50x ..................... .750% 2.000% .750% 2.000% 1.125% 2.375% .375%
and
$6.00x
<6.00x ..................... .500% 1.750% .500% 1.750% 1.125% 2.375% .375%
and
$5.50x
<5.50x ..................... .250% 1.500% .250% 1.500% .875% 2.125% .250%
and
$5.00x
<5.00x ..................... .125% 1.375% .125% 1.375% .875% 2.125% .250%
and
$4.50x
<4.50x ..................... .000% 1.250% .000% 1.250% .875% 2.125% .250%
and
$4.00x
<4.00x ..................... .000% 1.125% .000% 1.125% .875% 2.125% .250%
</TABLE>
For purposes hereof, a "Payment Period" shall mean (i) initially, the
period commencing on the Effective Date to but not including the first Quarterly
Date thereafter for which financial statements for the first fiscal quarter of
the Company ending on or after the date three months after the Effective Date
are available, provided that in no event shall the initial Payment Period end
prior to June 30, 1998 and (ii) thereafter, the period commencing on a Quarterly
Date to but not including the immediately following Quarterly Date.
The Debt Ratio for the initial Payment Period shall be deemed to be
greater than 6.50x. The Debt Ratio for any Payment Period after the initial
Payment Period shall be determined on the basis of a certificate of a Senior
Officer setting forth a calculation of the Debt Ratio as at the last day of the
fiscal quarter immediately preceding such Payment Period (i.e. the Debt Ratio
for the Payment Period commencing June 30, 1998 shall be determined
3
<PAGE>
on the basis of the Debt Ratio as at March 31, 1998, the Debt Ratio for the
Payment Period commencing September 30, 1998 shall be determined on the basis of
the Debt Ratio as at June 30, 1998 and so forth), each of which certificates
shall be delivered together with the financial statements for the fiscal quarter
on which such calculation is based.
Anything in this Agreement to the contrary notwithstanding, the
Applicable Margin shall be the highest rates provided for above for the
respective Class and Type of Loan, (i) during any period when a Specified
Default shall have occurred and be continuing, or (ii) if the certificate of a
Senior Officer shall not be delivered as provided above prior to the beginning
of any Payment Period (but only, in the case of this clause (ii), with respect
to the portion of such Payment Period prior to the delivery of such
certificate).
"A-R Acquisition" shall mean the acquisition by the Company of CATV
Systems in Maine from A-R Cable Services-ME, Inc. ("A-R"), pursuant to the Asset
Purchase Agreement dated as of May 8, 1997 between A-R and the Company, which
acquisition was consummated on October 31, 1997.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 11.06 hereof), and accepted by the Administrative Agent, in
the form of Exhibit A or any other form approved by the Administrative Agent.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
Prime Rate for such day. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates based
upon the Base Rate.
"Basic Documents" shall mean, collectively, the Loan Documents and the
Scheduled Acquisition Agreements.
"Basle Accord" shall mean the proposals for risk-based capital
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
4
<PAGE>
"Business Day" shall mean any day (a) on which commercial banks are
not authorized or required to close in New York City and (b) if such day relates
to a borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice
by the Company with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, that is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"Capital Expenditures" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Company or any of its
Restricted Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements, but excluding
repairs and excluding also any Acquisition) during such period computed in
accordance with GAAP.
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Casualty Event" shall mean, with respect to any Property of any
Person, any loss of or damage to, or any condemnation or other taking of, such
Property for which such Person or any of its Restricted Subsidiaries receives
insurance proceeds, or proceeds of a condemnation award or other compensation in
an aggregate amount exceeding $1,000,000.
"CATV System" shall mean any cable distribution system that receives
broadcast signals by antennae, microwave transmission, satellite transmission or
any other form of transmission and that amplifies such signals and distributes
them to Persons who pay to receive such signals.
"Change of Control" shall mean that the Company or FrontierVision
Capital shall be required pursuant to the provisions of the Senior Subordinated
Debt Documents (or any other agreement or instrument relating to or providing
for any other Subordinated Indebtedness), or FrontierVision Holdings or
FrontierVision Holdings Capital Corporation under the Senior Discount Debt
Documents, shall be required, to redeem or repurchase, or make an offer to
redeem or repurchase, all or any portion of the Subordinated Indebtedness, or
the Senior Discount Debt, as a result of a change of control (as defined in the
Senior Subordinated Debt Documents or any other agreement or instrument relating
to or providing for any other Subordinated Indebtedness or the Senior Discount
Debt Documents).
5
<PAGE>
"Chase" shall mean The Chase Manhattan Bank and its successors.
"Class" shall have the meaning assigned to such term in Section 1.03
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall have the meaning assigned to such term in the
Security Agreement.
"Collateral Account" shall have the meaning assigned to such term in
Section 4.01 of the Security Agreement.
"Commitments" shall mean, collectively, the Revolving Credit
Commitments, the Facility A Term Loan Commitments, the Facility B Term Loan
Commitments and the Incremental Facility Term Loan Commitments.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.08 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Control Affiliate" shall mean, with respect to any Person (the
"Relevant Person"), (a) any Subsidiary of the Relevant Person, (b) any other
Person of which the Relevant Person is a Subsidiary and (c) any other Person
that is a Subsidiary of the Person referred to in the immediately preceding
clause (b).
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.08 hereof of one Type of Loans into another Type of Loans,
which may be accompanied by the transfer by a Lender (at its sole discretion) of
a Loan from one Applicable Lending Office to another.
"CoxCom" shall mean CoxCom, Inc.
"CoxCom Acquisition" shall mean the proposed acquisition by the
Company of CATV Systems in Ohio from CoxCom pursuant to the CoxCom Acquisition
Agreement.
"CoxCom Acquisition Agreement" shall mean the Asset Purchase Agreement
dated as of October 15, 1997 by and among the Company, as "Buyer" and CoxCom, as
"Seller", as amended as of December 19, 1997, and as the same shall, subject to
Section 8.18 hereof, be further modified and supplemented and in effect from
time to time.
6
<PAGE>
"Debt Ratio" shall mean, as at any date (but subject in any event to
the provisions of Section 8.10(e) hereof), the ratio of:
(a) the sum of the aggregate amount of all Indebtedness of the
Company and its Restricted Subsidiaries and all letters of credit
contemplated by Section 8.07(e) hereof, but excluding all performance
bonds contemplated by said Section) as at such date to
(b) the product of EBITDA for the fiscal quarter ending on, or
most recently ended prior to such date times four.
"Debt Service" shall mean, for any period, the sum, for the Company
and its Restricted Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) in the case of Loans
under this Agreement, the aggregate amount of payments of principal of such
Loans that, giving effect to Commitment reductions or terminations scheduled to
be made during such period pursuant to Section 2.03 hereof, were required to be
made pursuant to Section 3.01 hereof during such period plus (b) in the case of
all other Indebtedness, all regularly scheduled payments or prepayments of
principal of such Indebtedness (including, without limitation, the principal
component of any payments in respect of Capital Lease Obligations) made or
payable during such period plus (c) all Interest Expense for such period
(excluding, however, non-cash amortization of loan facility fees and other
deferred debt costs, in each case to the extent included in determining Interest
Expense for such period).
"Default" shall mean an Event of Default or an event that with notice
or lapse of time or both would become an Event of Default.
"Disposition" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by the
Company or any of its Restricted Subsidiaries to any other Person, excluding (1)
any sale, assignment, transfer or other disposition of Property described in
clause (i) of Section 8.05(c) hereof to the extent the aggregate fair market
value of all such Property so disposed of by the Company and its Restricted
Subsidiaries during the term of this Agreement does not exceed $20,000,000, and
(2) any sale, assignment, transfer or other disposition of Property described in
clause (ii) or (iii) of Section 8.05(c) hereof.
"Disposition Investments" shall have the meaning assigned to such term
in Section 8.08(i)hereof.
"Dollars" and "$" shall mean lawful money of the United States of
America.
7
<PAGE>
"Eastern Cable" shall mean Eastern Cable Corporation, Inc.
"Eastern-Kentucky Acquisition" shall mean the proposed acquisition by
the Company of CATV Systems in Kentucky from Eastern Cable pursuant to the
Eastern Cable Acquisition Agreement.
"Eastern Cable Acquisition Agreement" shall mean the Asset Purchase
Agreement to be entered into by and among the Company, as "Buyer" and Eastern
Cable, as "Seller", for a purchase price not to exceed $2,800,000, as the same
shall, subject to Section 8.18 hereof, be modified and supplemented and in
effect from time to time.
"EBITDA" shall mean, for any period, the sum, for the Company and its
Restricted Subsidiaries (determined on a consolidated basis without duplication
in accordance with GAAP), of the following:
(a) gross operating revenue for such period derived in the
ordinary course of business in respect of the CATV Systems of the
Company and its Restricted Subsidiaries (including revenues arising
from second outlets and remotes and advertising revenues, and including
pay-per-view revenues and installation fees, but excluding interest
income and unusual items) minus
(b) all operating expenses for such period, including, without
limitation, technical, programming, selling and general administration
expenses incurred by the Company and its Restricted Subsidiaries during
such period, but excluding (to the extent included in operating
expenses) depreciation, amortization, Interest Expense, any non-cash
charges (including, without limitation, non-cash pension expenses and
any Tax Payment Amount for the relevant period) plus
(c) transaction costs (including, without limitation, legal
expenses, brokerage commissions, investment banking fees and the like)
incurred in connection with (w) the Previous Acquisitions and the
Scheduled Acquisitions and this Agreement and the other transactions
that are contemplated hereby to occur on or before the Effective Date,
(x) any Subsequent Acquisition, (y) the incurrence of the Subordinated
Indebtedness or (z) the incurrence of the Senior Discount Debt, in the
case of each of the foregoing clauses (w), (x), (y) and (z), to the
extent the same are (A) paid within twelve months of the date the
respective event giving rise to such transaction costs shall occur, and
(B) expensed and not capitalized.
For purposes hereof, "gross operating revenue" and "operating expenses" shall
both be determined exclusive of extraordinary and non-recurring gains or losses,
and any gains or losses from the sale of assets. For purposes of determining
EBITDA:
8
<PAGE>
(A) for periods prior to the date of the A-R Acquisition,
EBITDA for each day during such period attributable to the CATV Systems
acquired pursuant to the A-R Acquisition shall be deemed to be equal to
$22,710.00 (determined by the Company as provided in Schedule X
hereto);
(B) for periods prior to the date of the TCI-NE Acquisition,
EBITDA for each day during such period attributable to the CATV Systems
acquired pursuant to the TCI-NE Acquisition shall be deemed to be equal
to $11,024.00 (determined by the Company as provided in Schedule X
hereto);
(C) for periods prior to the date of the Harolds Acquisition,
EBITDA for each day during such period attributable to the CATV Systems
acquired pursuant to the Harolds Acquisition shall be deemed to be
equal to $617.00 (determined by the Company as provided in Schedule X
hereto);
(D) for periods prior to the date of the CoxCom Acquisition,
EBITDA for each day during such period attributable to the CATV Systems
acquired pursuant to the CoxCom Acquisition shall be deemed to be equal
to $52,319.00 (determined by the Company as provided in Schedule X
hereto);
(E) for periods prior to the date of the TCI-Ohio Acquisition,
EBITDA for each day during such period attributable to the CATV Systems
acquired pursuant to the TCI-Ohio Acquisition shall be deemed to be
equal to $13,903.00 (determined by the Company as provided in Schedule
X hereto);
(F) for periods prior to the date of the Eastern-Kentucky
Acquisition, EBITDA for each day during such period attributable to the
CATV Systems acquired pursuant to the Eastern-Kentucky Acquisition
shall be deemed to be equal to $1,316.00 (determined by the Company as
provided in Schedule X hereto); and
(G) for periods prior to the date of the NECMA-NE Acquisition,
EBITDA for each day during such period attributable to the CATV Systems
acquired pursuant to the NECMA-NE Acquisition shall be deemed to be
equal to $13,683.00 (determined by the Company as provided in Schedule
X hereto).
For all purposes of this Agreement (other than for purposes of EBITDA as used in
the definition of Excess Cash Flow), if during any period for which EBITDA is
being determined the Company or any of its Restricted Subsidiaries shall have
made any acquisition or disposition of any CATV System (but excluding the CATV
Systems acquired pursuant to the Acquisitions referred to in clauses (A) through
(G) above), then EBITDA shall be
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determined on the basis of the actual results of operations of the Company and
its Restricted Subsidiaries for such period, adjusted by:
(I) in the case of a Subsequent Acquisition the aggregate
Purchase Price of which is less than or equal to $50,000,000, such
amount as the Company shall determine, reasonably and in good faith, to
be appropriate to reflect the effect of the relevant acquisitions and
dispositions during such period (and the Company shall, promptly
following the consummation of such Acquisition, notify the
Administrative Agent (which shall notify the Lenders thereof promptly)
of such amount); and
(II) in the case of a Subsequent Acquisition the aggregate
Purchase Price of which exceeds $50,000,000, such amounts as the
Company and the Majority Lenders shall agree to be appropriate to
reflect the effect of the relevant acquisitions and dispositions during
such period (provided that, in the absence of such an agreement between
the Company and the Majority Lenders, EBITDA shall be determined on a
pro forma basis for such period as if the relevant acquisition or
disposition had been made or consummated on the first day of such
period, whether or not such first day shall occur prior to the
Effective Date).
"Effective Date" shall mean the date on which the conditions to
effectiveness set forth in Section 6.01 hereof shall have been satisfied or
waived.
"Environmental Claim" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"claim") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, or Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants,
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contaminants,chemicals or toxic or hazardous substances or wastes into the
indoor or outdoor environment, including, without limitation, ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or toxic
or hazardous substances or wastes.
"Equity Rights" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"Equivalent Basic Subscribers" shall mean, as at any date, the sum of
(a) the number of Subscribers who subscribe to a CATV System at the regular
basic monthly subscription rate for such CATV System to a single household
Subscriber (exclusive of "secondary outlets", as such term is commonly
understood in the cable television industry), plus (b) the number of Subscribers
determined by dividing the aggregate dollar monthly amount billed to bulk
Subscribers (hotels, motels, apartment buildings, hospitals and the like that
pay for cable television service provided to their guests and/or tenants), by
the regular basic monthly subscription rate for basic service charged by the
CATV System in which such bulk Subscriber is located.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Company is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the Company
is a member.
"Eurodollar Base Rate" shall mean, with respect to any Eurodollar Loan
for any Interest Period, the rate appearing on Page 3750 of the Dow Jones
Markets Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time
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for any reason, then the Eurodollar Base Rate with respect to such Eurodollar
Loan for such Interest Period shall be the rate at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal London office of Chase in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period.
"Eurodollar Loans" shall mean Loans that bear interest at rates based
on rates referred to in the definition of "Eurodollar Base Rate" in this Section
1.01.
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any
Interest Period therefor, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to
the Eurodollar Base Rate for such Loan for such Interest Period divided by 1
minus the Reserve Requirement (if any) for such Loan for such Interest Period.
"Event of Default" shall have the meaning assigned to such
term in Section 9 hereof.
"Excess Cash Flow" shall mean, for any period, the sum for the
Company and its Restricted Subsidiaries (determined without duplication) of (a)
EBITDA for such period minus (b) Fixed Charges for such period plus (c) cash
receipts during such period in respect of any extraordinary or non-recurring
gains to the extent not constituting Net Available Proceeds minus (d) cash
payments during such period in respect of any extraordinary or non-recurring
losses minus (e) for any period during which the Company would be permitted to
make a Restricted Payment pursuant to clause (b) of Section 8.09 hereof, the
amount of interest accrued during such period by FrontierVision Holdings and
FrontierVision Holdings Capital Corporation in respect of the Senior Discount
Debt.
"Excluded Franchise" shall mean any Franchise for any CATV
System owned by the Company or any of its Restricted Subsidiaries that either
(a) has a remaining term of three years or less (determined as at the date of
acquisition thereof) or (b) is not material to the operations of the Company and
its Restricted Subsidiaries taken as a whole (as determined by the Majority
Lenders in their sole discretion).
"Excluded Real Property" shall mean any real property
(including any leasehold interest in real property) held by the Company or any
of its Restricted Subsidiaries unless (a) such real property (or such leasehold
interest) is material to the operations of the Company and its Restricted
Subsidiaries taken as a whole and (b) such real property (if consisting of a
leasehold interest) has a remaining term of more than three years (determined as
at the date of acquisition thereof).
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"Existing Credit Agreement" shall have the meaning assigned to
such term in the recitals to this Agreement.
"Existing Lenders" shall have the meaning assigned to such
term in the recitals to this Agreement.
"Facility A Term Loan Commitment" shall mean, as to each
Facility A Term Loan Lender, the obligation of such Lender to make Facility A
Term Loans in an aggregate principal amount up to but not exceeding the amount
set opposite the name of such Lender on Schedule I hereto under the caption
"Facility A Term Loan Commitment" or, in the case of a Person that becomes a
Facility A Term Loan Lender pursuant to an assignment permitted under Section
11.06(b) hereof, as specified in the respective instrument of assignment
pursuant to which such assignment is effected (as the same may be reduced from
time to time pursuant to Section 2.03 hereof or increased or reduced from time
to time pursuant to assignments permitted under Section 11.06(b) hereof). The
original aggregate principal amount of the Facility A Term Loan Commitments is
$250,000,000.
"Facility A Term Loan Commitment Termination Date" shall mean
June 30, 1998.
"Facility A Term Loan Lenders" shall mean, (a) on the date
hereof, the Lenders having Facility A Term Loan Commitments on Schedule I hereto
and (b) thereafter, the Lenders from time to time holding Facility A Term Loans
and Facility A Term Loan Commitments after giving effect to any assignments
thereof permitted by Section 11.06(b) hereof.
"Facility A Term Loans" shall mean the loans provided for by
Section 2.01(b) hereof.
"Facility B Term Loan Commitment" shall mean, as to each
Facility B Term Loan Lender, the obligation of such Lender to make Facility B
Term Loans in an aggregate principal amount up to but not exceeding the amount
set opposite the name of such Lender on Schedule I hereto under the caption
"Facility B Term Loan Commitment" or, in the case of a Person that becomes a
Facility B Term Loan Lender pursuant to an assignment permitted under Section
11.06(b) hereof, as specified in the respective instrument of assignment
pursuant to which such assignment is effected (as the same may be reduced from
time to time pursuant to Section 2.03 hereof or increased or reduced from time
to time pursuant to assignments permitted under Section 11.06(b) hereof). The
original aggregate principal amount of the Facility B Term Loan Commitments is
$250,000,000.
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"Facility B Term Loan Commitment Termination Date" shall mean
January 30, 1998.
"Facility B Term Loan Lenders" shall mean, (a) on the date
hereof, the Lenders having Facility B Term Loan Commitments on Schedule I hereto
and (b) thereafter, the Lenders from time to time holding Facility B Term Loans
and Facility B Term Loan Commitments after giving effect to any assignments
thereof permitted by Section 11.06(b) hereof.
"Facility B Term Loans" shall mean the loans provided for by
Section 2.01(c) hereof.
"FCC" shall mean the Federal Communications Commission or any
governmental authority substituted therefor.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.
"Fixed Charges" shall mean, for any period, the sum, for the
Company and its Restricted Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following: (a) the
aggregate amount of Debt Service for such period plus (b) the aggregate amount
of taxes paid or payable in respect of the income or profit of the Company and
its Subsidiaries for such period plus (c) Capital Expenditures made by the
Company and its Restricted Subsidiaries during such period (other than Capital
Expenditures made with the proceeds of Indebtedness permitted under Section
8.07(f) hereof) plus (d) the Tax Payment Amount for such period plus (e) the
amount of Restricted Payments made to FrontierVision Holdings to pay cash
interest expense in respect of the Senior Discount Debt.
"Fixed Charges Ratio" shall mean, as at any date (but subject
in any event to the provisions of Section 8.10(e) hereof), the ratio of (a)
product of (x) the sum of EBITDA for the fiscal quarter ending on or most
recently ended prior to such date and (but without duplication of the provisions
of Section 8.10(e)) all interest income of the Company and its
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Restricted Subsidiaries for such fiscal quarter times (y) four to (b) Fixed
Charges for the period of four fiscal quarters ending on or most recently ended
prior to such date.
"Franchise" shall mean a franchise, license, authorization or
right by contract or otherwise to construct, own, operate, promote, extend
and/or otherwise exploit any CATV System operated or to be operated by the
Company or any of its Restricted Subsidiaries granted by any state, county,
city, town, village or other local or state government authority or by the FCC.
The term "Franchise" shall include each of the Franchises set forth on Schedule
IV hereto.
"FrontierVision" shall mean FrontierVision Operating Partners,
Inc., a Delaware corporation.
"FrontierVision Capital" shall mean FrontierVision Capital
Corporation, a Delaware corporation and a Wholly Owned Subsidiary of the
Company.
"FrontierVision Holdings" shall mean FrontierVision Holdings,
L.P., a Delaware limited partnership.
"FrontierVision Inc." shall mean FrontierVision Inc., a
Delaware corporation.
"FrontierVision LP" shall mean FrontierVision Partners, L.P.,
a Delaware limited partnership or any corporation formed for the purpose of
succeeding to the assets and liabilities of FrontierVision LP in connection with
a public offering or offerings by FrontierVision LP of equity interests under
one or more effective registration statements under the Securities Act of 1933,
as amended.
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in accordance with the last
sentence of Section 1.02(a) hereof, are to be used in making the calculations
for purposes of determining compliance with this Agreement.
"General Partner" shall mean FrontierVision Holdings and such
other Person or Persons as may be a general partner of the Company from time to
time.
"Guarantee" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services
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primarily for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, and including,
without limitation, causing a bank or other financial institution to issue a
letter of credit or other similar instrument for the benefit of another Person,
but excluding endorsements for collection or deposit in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a
correlative meaning.
"Harolds Acquisition" shall mean the acquisition by the
Company of CATV Systems in Pennsylvania and Maryland from Harolds Cable
Television, Inc. ("Harolds") pursuant to the Asset Purchase Agreement dated as
of October 15, 1997 between Harolds and the Company, which acquisition was
consummated on October 31, 1997.
"Hazardous Material" shall mean, collectively, (a) any
petroleum or petroleum products, flammable materials, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, and transformers or
other equipment that contain polychlorinated biphenyls ("PCB's"), (b) any
chemicals or other materials or substances that are now or hereafter become
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", "contaminants",
"pollutants" or words of similar import under any Environmental Law and (c) any
other chemical or other material or substance, exposure to which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
"Incremental Facility Availability Period" shall mean the
period from and including the Effective Date to but excluding the Quarterly Date
falling on or nearest to December 31, 1999.
"Incremental Facility Commitment" shall mean, with respect to
each Incremental Facility Lender and for any Series thereof, the commitment, if
any, of such Lender to make Incremental Facility Loans of such Series (as the
same may be reduced from time to time pursuant to Section 2.03 hereof or
increased or reduced from time to time pursuant to assignments permitted under
Section 11.06(b) hereof). The amount of each Lender's Incremental Facility
Commitment of any Series shall be determined in accordance with the provisions
of Section 2.01(d) hereof. The aggregate amount of the Incremental Facility
Commitments of all Series shall not exceed $200,000,000.
"Incremental Facility Lenders" shall mean, in respect of any
Series of Incremental Facility Loans, the Lenders from time to time holding
Incremental Facility Loans and Incremental Facility Commitments of such Series
after giving effect to any assignments thereof permitted by Section 11.06(b)
hereof.
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"Incremental Facility Loans" means the Loans provided for by
Section 2.01(d) hereof.
"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money or capitalized
leases) arising, and accrued expenses incurred, in the ordinary course of
business so long as such trade accounts payable are payable within 90 days of
the date the respective goods are delivered or the respective services are
rendered; (c) Indebtedness of others secured by a Lien on the Property of such
Person, whether or not the respective indebtedness so secured has been assumed
by such Person; (d) obligations of such Person in respect of letters of credit
or similar instruments issued or accepted by banks and other financial
institutions for account of such Person; (e) Capital Lease Obligations of such
Person; and (f) Indebtedness of others Guaranteed by such Person.
"Information Memorandum" shall mean the confidential Senior
Financing Memorandum dated November 1997 prepared by the Company in connection
with the syndication of the Loans and Commitments hereunder.
"Initial Equityholders" shall mean, collectively, (i) J.P.
Morgan Investment Corp., (ii) 1818 II Cable Corp., (iii) Olympus Cable Corp.,
(iv) First Union Capital Partners, Inc., (v) any Control Affiliate of any of the
foregoing entities and (vi) any limited partnership of which any Control
Affiliate of any of the foregoing entities is the sole general partner (so long
as the aggregate equity interests of FrontierVision LP that shall have been
transferred to all such limited partnerships by any such entity shall not exceed
25% of the aggregate equity interests held by such entity in FrontierVision LP).
"Interest Coverage Ratio" shall mean, as at any date (but
subject in any event to the provisions of Section 8.10(e) hereof), the ratio of:
(a) the product of (x) the sum of EBITDA for the fiscal
quarter ending on, or most recently ended prior to such date and all
interest income for the Company and its Restricted Subsidiaries for
such fiscal quarter (including, without limitation, all interest
payable to the Company in respect of the cash and investments, if any,
held in the Collateral Account during such fiscal quarter) times (y)
four to
(b) Interest Expense for the period of four fiscal quarters
ending on or most recently ended prior to such date (excluding,
however, non-cash amortization of loan
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facility fees and other deferred debt costs, in each case to the extent
included in determining Interest Expense for such period).
"Interest Expense" shall mean, for any period, the sum, for
the Company and its Restricted Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following: (a) all interest
in respect of Indebtedness (including, without limitation, the interest
component of any payments in respect of Capital Lease Obligations) accrued or
capitalized during such period (whether or not actually paid during such period)
plus (b) the net amount payable (or minus the net amount receivable) under
Interest Rate Protection Agreements during such period (whether or not actually
paid or received during such period).
Notwithstanding the foregoing, if during any period for which
Interest Expense is being determined the Company shall have made or consummated
any Acquisition (including, without limitation, the Scheduled Acquisitions and
the Previous Acquisitions), then "Interest Expense" shall be determined on a pro
forma basis as if such Acquisition (and any Indebtedness incurred by the Company
or any of its Restricted Subsidiaries in connection with such Acquisition) had
been made or consummated on the first day of such period (whether or not such
first day shall occur prior to the Effective Date).
"Interest Period" shall mean, with respect to any Eurodollar
Loan, each period commencing on the date such Eurodollar Loan is made or
Converted from a Base Rate Loan or (in the event of a Continuation) the last day
of the next preceding Interest Period for such Loan and ending on the
numerically corresponding day in the first, second, third or sixth calendar
month thereafter (or, to the extent determined to be available by each Lender in
its sole discretion, nine or twelve months thereafter), as the Company may
select as provided in Section 4.05 hereof, except that each Interest Period that
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing:
(i) if any Interest Period for any Revolving Credit Loan would
otherwise end after the Revolving Credit Commitment Termination Date,
such Interest Period shall end on the Revolving Credit Commitment
Termination Date;
(ii) no Interest Period for any Facility A Term Loan may
commence before and end after any Principal Payment Date, unless, after
giving effect thereto, the aggregate principal amount of the Facility A
Term Loans having Interest Periods that end after such Principal
Payment Date shall be equal to or less than the aggregate principal
amount of the Facility A Term Loans scheduled to be outstanding after
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giving effect to the payments of principal required to be made on such
Principal Payment Date;
(iii) no Interest Period for any Facility B Term Loan may
commence before and end after any Principal Payment Date, unless, after
giving effect thereto, the aggregate principal amount of the Facility B
Term Loans having Interest Periods that end after such Principal
Payment Date shall be equal to or less than the aggregate principal
amount of the Facility B Term Loans scheduled to be outstanding after
giving effect to the payments of principal required to be made on such
Principal Payment Date;
(iv) no Interest Period for any Incremental Facility Loan of
any Series may commence before and end after any Principal Payment
Date, unless, after giving effect thereto, the aggregate principal
amount of the Incremental Facility Loans of such Series having Interest
Periods that end after such Principal Payment Date shall be equal to or
less than the aggregate principal amount of the Incremental Facility
Loans of such Series scheduled to be outstanding after giving effect to
the payments of principal required to be made on such Principal Payment
Date;
(v) each Interest Period that would otherwise end on a day
that is not a Business Day shall end on the next succeeding Business
Day (or, if such next succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); and
(vi) notwithstanding clauses (i), (ii), (iii) and (iv) above,
no Interest Period shall have a duration of less than one month and, if
the Interest Period for any Eurodollar Loan would otherwise be a
shorter period, such Loan shall not be available hereunder for such
period.
"Interest Rate Protection Agreement" shall mean, for any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another
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Person subject to an understanding or agreement, contingent or otherwise, to
resell such Property to such Person), but excluding any such advance, loan or
extension of credit having a term not exceeding 90 days arising in connection
with the sale of programming or advertising time by such Person in the ordinary
course of business; (c) the entering into of any Guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person; or (d) the entering into of any Interest Rate
Protection Agreement.
"Lien" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Agreement and the other Loan Documents, a
Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
"Limited Partner" shall mean FrontierVision and such other
Person or Persons as may be a limited partner of the Company from time to time.
"Loan Documents" shall mean, collectively, this Agreement and
the Security Documents.
"Loans" shall mean, collectively, the Revolving Credit Loans,
the Facility A Term Loans, the Facility B Term Loans and the Incremental
Facility Loans.
"Majority Facility A Term Loan Lenders" shall mean Lenders
having more than 50% of the aggregate outstanding principal amount of the
Facility A Term Loans, at such time (or, if the Facility A Term Loans shall not
have been made, the aggregate outstanding principal amount of the Facility A
Term Loan Commitments at such time).
"Majority Facility B Term Loan Lenders" shall mean Lenders
having more than 50% of the aggregate outstanding principal amount of the
Facility B Term Loans, at such time (or, if the Facility B Term Loans shall not
have been made, the aggregate outstanding principal amount of the Facility B
Term Loan Commitments at such time).
"Majority Incremental Facility Lenders" shall mean, with
respect to any Series of Incremental Facility Loans, Lenders having more than
50% of the aggregate outstanding principal amount of the Incremental Loans of
such Series, at such time (or, if the Incremental Facility Loans of such Series
shall not have been made, the aggregate outstanding principal amount of the
Incremental Facility Commitments of such Series at such time).
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"Majority Lenders" shall mean Lenders having more than 50% of
the sum of (i) the aggregate amount of the Revolving Credit Commitments at such
time (or, if the Revolving Credit Commitments shall have terminated, the
aggregate amount of the Revolving Credit Loans at such time) plus (ii) the
aggregate outstanding principal amount of the Facility A Term Loans, at such
time (or, if the Facility A Term Loans shall not have been made, the aggregate
outstanding principal amount of the Facility A Term Loan Commitments at such
time) plus (iii) the aggregate outstanding principal amount of the Facility B
Term Loans, at such time (or, if the Facility B Term Loans shall not have been
made, the aggregate outstanding principal amount of the Facility B Term Loan
Commitments at such time) plus (iv) the aggregate outstanding principal amount
of the Incremental Facility Loans, at such time (or, if the Incremental Facility
Loans shall not have been made, the aggregate outstanding principal amount of
the Incremental Facility Commitments at such time).
"Majority Revolving Credit Lenders" shall mean Lenders having
more than 50% of the aggregate amount of the Revolving Credit Commitments at
such time (or, if the Revolving Credit Commitments shall have terminated, the
aggregate amount of the Revolving Credit Loans at such time).
"Margin Stock" shall mean "margin stock" within the meaning of
Regulations G, T, U and X.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of the Company and its Restricted Subsidiaries
taken as a whole, (b) the ability of the Company to perform its obligations
under any of the Loan Documents to which it is a party, (c) the validity or
enforceability of any of the Loan Documents, (d) the rights and remedies of the
Lenders and the Administrative Agent under any of the Loan Documents or (e) the
timely payment of the principal of or interest on the Loans or other amounts
payable in connection therewith.
"Mortgages" shall mean, collectively, one or more mortgages,
deeds of trust or collateral assignments of leasehold interest, in form and
substance satisfactory to the Administrative Agent, to effect a Lien on real
property or leasehold interests in the State where the respective Property to be
covered by such instrument is located, executed by the respective Obligor that
is the owner or lessee of such Property in favor of the Administrative Agent
(or, in the case of a deed of trust, in favor of a trustee for the benefit of
the Administrative Agent and the Lenders) pursuant to the Existing Credit
Agreement, or Section 8.19 hereof, as the case may be, covering the respective
fee or leasehold interests owned by such Obligor, as said mortgages, deeds of
trust and collateral assignments of leasehold interests shall be modified and
supplemented and in effect from time to time.
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"Multiemployer Plan" shall mean a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions have been made by the
Company or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NAIC" shall mean the National Association of Insurance
Commissioners.
"NECMA-NE" shall mean New England Cablevision of
Massachusetts, Inc.
"NECMA-NE Acquisition" shall mean the proposed acquisition by
the Company of CATV Systems in Massachusetts and New Hampshire from NECMA-NE
pursuant to the NECMA-NE Acquisition Agreement.
"NECMA-NE Acquisition Agreement" shall mean the Stock Purchase
Agreement dated as of December 12, 1997 by and among FrontierVision Cable New
England, Inc., as "Buyer" and the shareholders of NECMA-NE, as "Seller", as the
same shall, subject to Section 8.18 hereof, be modified and supplemented and in
effect from time to time.
"Net Available Proceeds" shall mean:
(i) in the case of any Disposition, the amount of Net Cash
Payments received in connection with such Disposition; and
(ii) in the case of any Casualty Event, the aggregate amount
of proceeds of insurance, condemnation awards and other compensation
received by the Company and its Restricted Subsidiaries in respect of
such Casualty Event net of (A) reasonable expenses incurred by the
Company and its Restricted Subsidiaries in connection therewith and (B)
contractually required repayments of Indebtedness to the extent secured
by a Lien on such Property and any income and transfer taxes payable by
the Company or any of its Restricted Subsidiaries in respect of such
Casualty Event.
"Net Cash Payments" shall mean, with respect to any
Disposition, the aggregate amount of all cash payments received by the Company
and its Restricted Subsidiaries directly or indirectly in connection with such
Disposition, whether at the time of such Disposition or after such Disposition
under deferred payment arrangements or Investments entered into or received in
connection with such Disposition (but excluding, in the event such Disposition
consisted in whole or in part of an exchange of CATV Systems, any cash and cash
equivalents derived from the operation of the CATV Systems acquired as part of
such exchange); provided that:
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(a) Net Cash Payments shall be net of (i) the amount of any
legal, accounting, regulatory, title and recording tax expenses,
commissions and other fees and expenses paid by the Company and its
Restricted Subsidiaries in connection with such Disposition and (ii)
any Tax Payment Amount estimated by the Company to be payable as a
result of such Disposition, and
(b) Net Cash Payments shall be net of any repayments by the
Company or any of its Restricted Subsidiaries of Indebtedness to the
extent that (i) such Indebtedness is secured by a Lien on the Property
that is the subject of such Disposition and (ii) such Indebtedness is
repaid in connection with such Disposition.
"Notes" shall mean the promissory notes that may be executed
and delivered upon request by any Lender pursuant to Section 2.07(d) hereof and
all promissory notes delivered in substitution or exchange therefor, in each
case as the same may be modified and supplemented and in effect from time to
time.
"Obligors" shall mean, collectively, the Company, each Partner
Pledgor under and as defined in the Partner Pledge Agreement, each Stock Pledgor
under and as defined in the Stock Pledge Agreement and, effective upon the
execution and delivery of any Subsidiary Guarantee Agreement, each Restricted
Subsidiary of the Company so executing and delivering such Subsidiary Guarantee
Agreement.
"Other Equity Interests" shall mean limited partnership
interests issued by the Company in accordance with Section 8.13 hereof.
"Other Pledge Agreement" shall mean a pledge agreement
executed and delivered by a holder of Other Equity Interests in favor of the
Administrative Agent in accordance with Section 8.13(a)(iii) hereof.
"Pari Passu Obligations" shall mean, collectively, (a) the
obligations of the Company in respect of Interest Rate Protection Agreements
between the Company and a Lender (or a Control Affiliate of a Lender) permitted
under Section 8.08(g) hereof and (b) any Indebtedness of the Company or any of
its Restricted Subsidiaries to any Lender permitted under Section 8.07(e)
hereof.
"Partner Pledge Agreement" shall mean the Partner Pledge
Agreement dated as of November 9, 1995 between the Partner Pledgors referred to
therein and the Administrative Agent (a copy of which is attached as Exhibit D-1
hereto), as amended by a Amendment No. 1 thereto (a copy of which is attached as
Exhibit D-2 hereto), as further amended by Amendment No. 2 thereto (a copy of
which is attached as Exhibit D-3 hereto), as the same shall be amended by
Amendment No. 3 thereto in substantially the form attached
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as Exhibit D-4 hereto and as the same shall be further modified and supplemented
and in effect from time to time.
"Partners" shall mean, collectively, the General Partners and
the Limited Partners of the Company from time to time.
"Partnership Agreement" shall mean the Amended and Restated
Agreement of Limited Partnership of FrontierVision Operating Partners, L.P.
dated as of September 19, 1997 by and between the Partners as the same shall,
subject to Section 8.18 hereof, be further modified and supplemented and in
effect from time to time.
"Pay TV Units" shall mean the aggregate number of premium or
pay television services to which Subscribers subscribe.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Permitted Acquisition Amount" shall mean, with respect to any
Acquisition to be consummated on any date, the sum of (a) $150,000,000 plus (b)
the aggregate amount of cash and investments held by the Administrative Agent on
such date in the Collateral Account plus (c) the Reserved Commitment Amount on
such date.
"Permitted Investments" shall mean: (a) direct obligations of
the United States of America, or of any agency thereof, or obligations
guaranteed as to principal and interest by the United States of America, or of
any agency thereof, in either case maturing not more than 90 days from the date
of acquisition thereof; (b) certificates of deposit issued by any bank or trust
company organized under the laws of the United States of America or any state
thereof and having capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Ratings Services, a Division of McGraw Hill, Inc., or Moody's Investors Service,
Inc., respectively, maturing not more than 90 days from the date of acquisition
thereof; and (d) Investments in money market funds whose assets consist
primarily of Investments of the types described in the foregoing clauses (a),
(b) and (c) rated as investment grade or better; in each case so long as the
same (x) provide for the payment of principal and interest (and not principal
alone or interest alone) and (y) are not subject to any contingency regarding
the payment of principal or interest.
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, limited liability company, joint venture,
trust, unincorporated organization or government (or any agency, instrumentality
or political subdivision thereof).
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"Plan" shall mean an employee benefit or other plan
established or maintained by the Company or any ERISA Affiliate and that is
covered by Title IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean a rate per annum equal to 2%
plus the Base Rate as in effect from time to time plus the Applicable Margin for
Base Rate Loans, provided that, with respect to principal of a Eurodollar Loan
that shall become due (whether at stated maturity, by acceleration, by optional
or mandatory prepayment or otherwise) on a day other than the last day of the
Interest Period therefor, the "Post-Default Rate" shall be, for the period from
and including such due date to but excluding the last day of such Interest
Period, 2% plus the interest rate for such Loan as provided in Section 3.02(b)
hereof and, thereafter, the rate provided for above in this definition.
"Previous Acquisitions" shall mean, collectively, the A-R
Acquisition, the TCI-NE Acquisition and the Harolds Acquisition.
"Prime Rate" shall mean the rate of interest from time to time
announced by Chase at the Principal Office as its prime commercial lending rate.
"Principal Office" shall mean the principal office of Chase,
located on the date hereof at 1 Chase Manhattan Plaza, New York, New York 10081.
"Principal Payment Date" shall mean each Quarterly Date
commencing with December 31, 1998 through and including March 31, 2006.
"Property" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Price" shall mean with respect to any Subsequent
Acquisition, an amount equal to the sum of (i) the aggregate consideration,
whether cash, Property or securities (including, without limitation, any
Indebtedness incurred pursuant to Section 8.07(f) hereof and the fair market
value of any CATV Systems being transferred by the Company or any of its
Restricted Subsidiaries in exchange for the CATV Systems being acquired in such
Subsequent Acquisition), paid or delivered by the Company and its Restricted
Subsidiaries in connection with such Subsequent Acquisition plus (ii) the
aggregate amount of liabilities of the acquired business (net of current assets
of the acquired business) that would be reflected on a balance sheet (if such
were to be prepared) of the Company and its Restricted Subsidiaries after giving
effect to such Subsequent Acquisition.
"Qualified Public Offering" shall mean an offer or offerings
of equity interests of FrontierVision LP under one or more effective
registration statements under the Securities
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Act of 1933, as amended, such that, after giving effect thereto, (i) at least
20% of the aggregate equity interests in FrontierVision LP on a fully diluted
basis (i.e., giving effect to the exercise of any warrants, options and
conversion and other rights) has been sold pursuant to such offerings, and (ii)
such offerings result in aggregate cash proceeds being received by
FrontierVision LP of at least $50,000,000 exclusive of underwriter's discounts
and other expenses.
"Quarterly Dates" shall mean the last Business Day of March,
June, September and December in each year, the first of which shall be the first
such day after the date hereof.
"Quarterly Officer's Report" shall mean a quarterly report of
a Senior Officer with respect to Equivalent Basic Subscribers, homes passed,
revenues per Subscriber and Pay TV Units, substantially in the form of Exhibit B
hereto.
"Register" shall have the meaning assigned to such term in
Section 11.05 hereof.
"Regulations A, D, G, T, U and X" shall mean, respectively,
Regulations A, D, G, T, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change" shall mean, with respect to any Lender,
any change after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
lenders including such Lender of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority (including the NAIC) charged with the interpretation or administration
thereof.
"Release" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
the movement of Hazardous Materials through ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata.
"Reorganization" shall mean the formation of a corporation for
the purpose of succeeding to the assets and liabilities of FrontierVision LP in
connection with a public offering or offerings by FrontierVision LP of equity
interests under one or more effective registration statements under the
Securities Act of 1933, as amended.
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"Reserve Requirement" shall mean, for any Interest Period for
any Eurodollar Loan, the average maximum rate at which reserves (including,
without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation D by
member banks of the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency liabilities" (as such term
is used in Regulation D). Without limiting the effect of the foregoing, the
Reserve Requirement shall include any other reserves required to be maintained
by such member banks by reason of any Regulatory Change with respect to (i) any
category of liabilities that includes deposits by reference to which the
Eurodollar Base Rate is to be determined as provided in the definition of
"Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions
of credit or other assets that includes Eurodollar Loans.
"Reserved Commitment Amount" shall have the meaning assigned
to such term in Section 2.01(a)hereof.
"Restricted Payment" shall mean with respect to (i) any
portion of any partnership interest (whether general or limited) in the Company,
(ii) any warrants, options or other rights to acquire any such partnership
interest or (iii) any payments to any Person (such as "phantom stock" payments)
where the amount thereof is calculated with reference to fair market or equity
value of the Company or any Restricted Subsidiary, all partnership distributions
of the Company (in cash, Property or obligations) thereon, or other payments or
distributions on account thereof, or the setting apart of money for a sinking or
other analogous fund therefor, or the purchase, redemption, retirement or other
acquisition thereof. The term "Restricted Payment" shall include, without
limitation, any distributions or payments made by the Company to the Partners
for the purpose of enabling the Partners (or their direct or indirect owners) to
pay federal, state or local income taxes in respect of taxable income of the
Company attributable to the Partners (or such owners).
"Restricted Subsidiary" shall mean any Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Revolving Credit Commitment" shall mean, as to each Revolving
Credit Lender, the obligation of such Lender to make Loans in an aggregate
principal amount at any one time outstanding up to but not exceeding the amount
set opposite the name of such Lender on Schedule I hereto under the caption
"Revolving Credit Commitment" or, in the case of a Person that becomes a
Revolving Credit Lender pursuant to an assignment permitted under Section
11.06(b) hereof, as specified in the respective instrument of assignment
pursuant to which such assignment is effected (as the same may be reduced at any
time or from time to time pursuant to Section 2.03 hereof or increased or
reduced from time to time pursuant to assignments permitted under Section
11.06(b) hereof). The aggregate original principal amount of the Revolving
Credit Commitments is $300,000,000.
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"Revolving Credit Commitment Termination Date" shall mean the
Quarterly Date falling on or nearest to October 31, 2005.
"Revolving Credit Lenders" shall mean (a) on the date hereof,
the Lenders having Revolving Credit Commitments on Schedule I hereto and (b)
thereafter, the Lenders from time to time holding Revolving Credit Loans and
Revolving Credit Commitments after giving effect to any assignments thereof
permitted by Section 11.06(b).
"Revolving Credit Loans" shall mean the loans provided for in
Section 2.01(a) hereof.
"Scheduled Acquisitions" shall mean, collectively, the
TCI-Ohio Acquisition, the CoxCom Acquisition, the Eastern-Kentucky Acquisition
and the NECMA-NE Acquisition.
"Scheduled Acquisition Agreements" shall mean, collectively,
the (i) TCI-Ohio Acquisition Agreement, (ii) the CoxCom Acquisition Agreement,
(iii) the Eastern-Kentucky Acquisition Agreement and (iv) the NECMA-NE
Acquisition Agreement.
"Security Agreement" shall mean the Security Agreement dated
as of November 9, 1995 between the Company, the other Securing Parties from time
to time party thereto and the Administrative Agent (a copy of which is attached
as Exhibit C-1 hereto), as amended by a Amendment No. 1 thereto (a copy of which
is attached as Exhibit C-2 hereto), as the same shall be amended by Amendment
No. 2 thereto in substantially the form attached as Exhibit C-3 hereto and as
the same shall be further modified and supplemented and in effect from time to
time.
"Security Documents" shall mean, collectively, the Security
Agreement, the Partner Pledge Agreement, the Stock Pledge Agreement, the
Subsidiary Guarantee Agreements, the Mortgages and the Other Pledge Agreements,
and all Uniform Commercial Code financing statements required by the Security
Agreement, the Partner Pledge Agreement, the Stock Pledge Agreement, the
Subsidiary Guarantee Agreements, the Mortgages and the Other Pledge Agreements
to be filed with respect to the security interests in personal Property and
fixtures created pursuant to the Security Agreement, the Partner Pledge
Agreement, the Stock Pledge Agreement, the Subsidiary Guarantee Agreements, the
Mortgages and the Other Pledge Agreements.
"Sellers" shall mean, collectively, (a) with respect to the
TCI-Ohio Acquisition, TCI-Ohio, (b) with respect to the CoxCom Acquisition,
CoxCom, (c) with respect to the Eastern-Kentucky Acquisition, Eastern-Kentucky,
(d) with respect to the NECMA-NE Acquisition, shareholders of NECMA-NE and (e)
with respect to any
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Subsequent Acquisition, the owner of, the stock (or other ownership interests)
of the entity that owns, or the assets of, the CATV System to be acquired by the
Company or any of its Restricted Subsidiaries pursuant to such Subsequent
Acquisition, as the case may be.
"Senior Debt Ratio" shall mean, as at any date (but subject in
any event to the provisions of Section 8.10(e) hereof), the ratio of:
(a) the sum of the aggregate amount of all Indebtedness of the
Company and its Restricted Subsidiaries (excluding all Subordinated
Indebtedness and performance bonds contemplated by Section 8.07(f)
hereof but including all letters of credit contemplated by said
Section) as at such date to
(b) the product of EBITDA for the fiscal quarter ending on, or
most recently ended prior to such date times four.
"Senior Discount Debt" shall mean the Indebtedness of
FrontierVision Holdings and FrontierVision Holdings Capital Corporation in
respect of the notes issued pursuant to Senior Discount Debt Indenture.
"Senior Discount Debt Documents" shall mean the Senior
Discount Debt Indenture, the securities or other instruments evidencing the
Senior Discount Debt and all other documents, instruments and agreements
executed and delivered in connection with the original issuance of the Senior
Discount Debt, in each case, as the same shall, subject to Section 8.18 hereof,
be modified and supplemented and in effect from time to time.
"Senior Discount Debt Indenture" shall mean the Indenture
dated as of September 19, 1997 entered into by FrontierVision Holdings, L.P. and
FrontierVision Holdings Capital Corporation, as Issuers, and Colorado National
Bank, as trustee, as the same shall, subject to Section 8.18 hereof, be modified
and supplemented and in effect from time to time.
"Senior Officer" shall mean (i) the president, chief financial
officer or other executive officer of FrontierVision Inc., acting for and on
behalf of the Company (directly or indirectly through one or more general
partnerships) or (ii) following the Reorganization, the president, chief
financial officer or other executive officer of FrontierVision LP.
"Senior Subordinated Debt Documents" shall mean the Senior
Subordinated Debt Indenture, the securities or other instruments evidencing the
Subordinated Indebtedness and all other documents, instruments and agreements
executed and delivered in connection with the original issuance of the
Subordinated Indebtedness, in each case, as the same shall,
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subject to Section 8.18 hereof, be modified and supplemented and in effect from
time to time.
"Senior Subordinated Debt Indenture" shall mean the Indenture
dated as of October 7, 1996 among the Company and FrontierVision Capital, as
Issuers, and Colorado National Bank, as Trustee, as the same shall, subject to
Section 8.18 hereof, be modified and supplemented and in effect from time to
time.
"Series" shall have the meaning assigned to such term in
Section 2.01(d) hereof.
"Specified Default" shall mean, collectively, any Event of
Default under Section 9(a), 9(b), 9(c), 9(e)(i), 9(f), 9(g), 9(h), 9(i), 9(m),
9(n) or 9(o) hereof.
"Stock Pledge Agreement" shall mean the Stock Pledge Agreement
dated as of November 9, 1995 between the Stock Pledgors referred to therein and
the Administrative Agent, (a copy of which is attached as Exhibit E-1 hereto),
as amended by a Amendment No. 1 thereto (a copy of which is attached as Exhibit
E-2 hereto), as further amended by a Amendment No. 2 thereto (a copy of which is
attached as Exhibit E-3 hereto), as the same shall be amended by Amendment No. 3
thereto in substantially the form attached as Exhibit E-4 hereto and as the same
shall be further modified and supplemented and in effect from time to time.
"Subordinated Indebtedness" shall mean the Indebtedness of the
Company and FrontierVision Capital in respect of the senior subordinated notes
of the Company and FrontierVision Capital due 2006 issued pursuant to Senior
Subordinated Debt Indenture.
"Subscriber" shall mean a Person who subscribes to one or more
of the cable television services of the Company and its Restricted Subsidiaries
and includes both Equivalent Basic Subscribers and Persons who subscribe to Pay
TV Units, but excluding each such Person whose account is more than 90 days past
due.
"Subsequent Acquisition" shall mean any acquisition permitted
under Section 8.05(b)(iv) hereof (including, without limitation, the Scheduled
Acquisitions).
"Subsequent Acquisition Agreement" shall mean each asset
purchase agreement, stock purchase agreement or other acquisition agreement
pursuant to which a Subsequent Acquisition shall be consummated, as the same
shall, subject to Section 8.18 hereof, be modified and supplemented and in
effect from time to time.
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"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Subsidiary Guarantee Agreement" shall mean a Subsidiary
Guarantee Agreement substantially in the form of Exhibit F hereto by a
Restricted Subsidiary of the Company in favor of the Administrative Agent, as
the same shall be modified and supplemented and in effect from time to time.
"Subsidiary Guarantor" shall mean any Restricted Subsidiary of
the Company that executes and delivers the Subsidiary Guarantee Agreement.
"Tax Payment Amount" shall mean, for any period, an amount
equal to the aggregate amount of Federal, state and local income taxes the
Company and its Subsidiaries would have paid in respect of such period in the
event they were corporations (other than an "S corporation" within the meaning
of Section 1361 of the Code) for such period and all prior periods filing
consolidated income tax returns with the Company as the "common parent" (within
the meaning of Section 1504 of the Code).
"TCI-NE Acquisition" shall mean the acquisition by the Company
of CATV Systems in New Hampshire and Vermont from TCI Cablevision of Vermont,
Inc. and Westmarc Development Joint Venture (collectively, "TCI-NE") pursuant to
the Asset Purchase Agreement dated as of May 12, 1997 between TCI-NE and the
Company, which acquisition was consummated on December 2, 1997.
"TCI-Ohio" shall mean, collectively, TCI Cablevision of Ohio,
Inc. and Ohio Cablevision Network, Inc.
"TCI-Ohio Acquisition" shall mean the proposed acquisition by
the Company of CATV Systems in Ohio from TCI-Ohio pursuant to the TCI-Ohio
Acquisition Agreement.
"TCI-Ohio Acquisition Agreement" shall mean the Asset Purchase
Agreement dated on or about December 19, 1997, in substantially the form of the
draft thereof dated December 18, 1997, between TCI-Ohio and the Company, as the
same shall, subject to Section 8.18 hereof, be modified and supplemented and in
effect from time to time.
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"Term Loan Commitments" shall mean, collectively, the Facility
A Term Loan Commitments and the Facility B Term Loan Commitments.
"Term Loans" shall mean, collectively, the Facility A Term
Loans and the Facility B Term Loans.
"Type" shall have the meaning assigned to such term in Section
1.03 hereof.
"Unrestricted Subsidiary" shall mean any Subsidiary of the
Company that (a) shall have been designated as an "Unrestricted Subsidiary" in
accordance with the provisions of Section 1.04 and (b) any Subsidiary of an
Unrestricted Subsidiary.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
"U.S. Person" shall mean a citizen or resident of the United
States of America, a corporation, partnership or other entity created or
organized in or under any laws of the United States of America or any State
thereof, or any estate or trust that is subject to Federal income taxation
regardless of the source of its income.
"U.S. Taxes" shall mean any present or future tax, assessment
or other charge or levy imposed by or on behalf of the United States of America
or any taxing authority thereof.
"UVC" shall mean United Video Cablevision, Inc.
"UVC Notes" shall mean, collectively, (a) the promissory note
of the Company in favor of UVC executed and delivered by the Company in an
aggregate principal amount of $7,200,000 and (b) any PIK Notes (under and as
defined in such promissory note) executed and delivered thereunder as provided
therein, as the same shall be modified and supplemented and in effect from time
to time.
"Wholly Owned Subsidiary" shall mean, with respect to any
Person, any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
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1.02 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered to
the Administrative Agent and the Lenders hereunder shall (unless otherwise
disclosed to the Lenders in writing at the time of delivery thereof in the
manner described in subsection (b) below) be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of the latest financial statements furnished to
the Administrative Agent and the Lenders hereunder (which, prior to the delivery
of the first financial statements under Section 8.01 hereof, shall mean the
financial statements referred to in Section 7.02(i) hereof). All calculations
made for the purposes of determining compliance with this Agreement shall
(except as otherwise expressly provided herein) be made by application of
generally accepted accounting principles applied on a basis consistent with
those used in the preparation of the latest annual or quarterly financial
statements furnished to the Lenders pursuant to Section 8.01 hereof (or, prior
to the delivery of the first financial statements under Section 8.01 hereof,
used in the preparation of the financial statements referred to in Section
7.02(i) hereof) unless:
(i) the Company shall have objected to determining such
compliance on such basis at the time of delivery of such financial
statements or
(ii) the Majority Lenders shall so object in writing within 30
days after delivery of such financial statements,
in either of which events such calculations shall be made on a basis consistent
with those used in the preparation of the latest financial statements as to
which such objection shall not have been made (which, if objection is made in
respect of the first financial statements delivered under Section 8.01 hereof,
shall mean the financial statements referred to in Section 7.02(i) hereof).
(b) The Company shall deliver to the Administrative Agent and
the Agents at the same time as the delivery of any annual or quarterly financial
statement under Section 8.01 hereof (i) a description in reasonable detail of
any material variation between the application of accounting principles employed
in the preparation of such statement and the application of accounting
principles employed in the preparation of the next preceding annual or quarterly
financial statements as to which no objection has been made in accordance with
the last sentence of subsection (a) above and (ii) reasonable estimates of the
difference between such statements arising as a consequence thereof.
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(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 8 hereof, the Company will
not change the last day of its fiscal year from December 31 of each year, or the
last days of the first three fiscal quarters in each of its fiscal years from
March 31, June 30 and September 30 of each year, respectively.
(d) Whenever making determinations under this Agreement of the
amount of income taxes payable during any period by the Company and its
Subsidiaries, the amount of such taxes shall be deemed to include the Tax
Payment Amount for such period.
1.03 Types of Loans. Loans hereunder are distinguished by
"Class" and by "Type". The "Class" of a Loan refers to whether such Loan is a
Revolving Credit Loan, a Facility A Term Loan, a Facility B Term Loan or an
Incremental Facility Loan of a particular Series, each of which constitutes a
Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a
Eurodollar Loan, each of which constitutes a Type. Loans may be identified by
both Class and Type. Incremental Facility Loans and Incremental Facility
Commitments shall be classified by Series, each of which shall be considered a
separate Class.
1.04 Subsidiaries; Designation of Unrestricted Subsidiaries.
(a) The Company may at any time designate any of its
Subsidiaries (including any newly acquired or newly formed Subsidiary) be an
Unrestricted Subsidiary for purposes of this Agreement, by delivering to the
Administrative Agent a certificate of a Senior Officer (and the Administrative
Agent shall promptly forward a copy of such certificate to each Lender)
attaching a copy of a resolution of the Company setting forth such designation
and stating that the conditions set forth in this Section 1.04 have been
satisfied with respect to such designation, provided that no such designation
shall be effective unless (i) at the time of such designation and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing, (ii) at the time of such designation the Company would be permitted
to make an Investment (assuming the effectiveness of such designation) pursuant
to Section 8.08(k) hereof, (iii) at the time of such designation and after
giving effect thereto, no Subsidiary of an Unrestricted Subsidiary is a
Restricted Subsidiary, (iv) at the time of such designation and after giving
effect thereto, any Subsidiary that is a Restricted Subsidiary under the Senior
Subordinated Debt Indenture shall also be a Restricted Subsidiary under this
Agreement and (v) no Event of Default would have existed with respect to Section
8.10 hereof as at the previous Quarterly Date had such Subsidiary been an
Unrestricted Subsidiary at such time.
Neither the Company nor any Restricted Subsidiary shall at any
time (1) 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
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of any Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness), (2) be directly or indirectly liable
for any Indebtedness of any Unrestricted Subsidiary or (3) 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 (1) or (2), to the
extent otherwise permitted under the terms of this Agreement.
(b) The Company may revoke any designation of a Subsidiary as
an Unrestricted Subsidiary by delivering to the Administrative Agent a
certificate of a Senior Officer (and the Administrative Agent shall promptly
forward a copy of such certificate to each Lender) attaching a copy of a
resolution of the Company setting forth such revocation and stating that the
conditions set forth in this Section 1.04 have been satisfied with respect to
such revocation, provided that no such revocation shall be effective unless (i)
at the time of such revocation and after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing and (ii) 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 under this Agreement.
(c) The parties hereto hereby agree that FrontierVision Access
Partners L.L.C., a Delaware limited liability company, is hereby designated an
Unrestricted Subsidiary; the Company hereby represents and warrants to the
Administrative Agent and the Lenders that the requirements of this Section 1.04
with respect to such designation have been satisfied.
Section 2. Commitments, Loans and Prepayments.
2.01 Loans.
(a) Revolving Credit Loans. Each Revolving Credit Lender
severally agrees, on the terms and conditions of this Agreement, to make
revolving credit loans to the Company in Dollars during the period from and
including the Effective Date to but not including the Revolving Credit
Commitment Termination Date in an aggregate principal amount (as to all
Revolving Credit Loans held by such Lender) at any one time outstanding up to
but not exceeding the amount of the Revolving Credit Commitment of such Lender
as in effect from time to time. Subject to the terms and conditions of this
Agreement, during such period the Company may borrow, repay and reborrow the
amount of the Revolving Credit Commitments by means of Base Rate Loans and
Eurodollar Loans and may Convert Loans of one Type into Loans of another Type
(as provided in Section 2.08 hereof) or
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Continue Eurodollar Loans from one Interest Period to the next Interest Period
(as provided in Section 2.08 hereof). Anything herein to the contrary
notwithstanding, no Revolving Credit Loans may be made hereunder on the
Effective Date unless the Company shall be simultaneously borrowing Facility A
and Facility B Term Loans hereunder in an aggregate amount equal to the original
Facility A and Facility B Term Loan Commitments hereunder.
Proceeds of Revolving Credit Loans shall be available for any
use permitted under Section 8.16 hereof, provided that, in the event that as
contemplated by Section 2.09(f) hereof, the Company shall prepay Revolving
Credit Loans from the proceeds of a Disposition hereunder, then an amount of
Revolving Credit Commitments equal to the amount of such prepayment (herein the
"Reserved Commitment Amount") shall be reserved and shall not be available for
borrowings hereunder except and to the extent that the proceeds of such
borrowings are to be applied to make Subsequent Acquisitions permitted under
Section 8.05(b) hereof or to make prepayments of Loans under Section
2.09(d)(y)(B) hereof. The Company agrees, upon the occasion of any borrowing of
Revolving Credit Loans hereunder that is to constitute a utilization of any
Reserved Commitment Amount, to advise the Administrative Agent in writing of
such fact at the time of such borrowing, identifying the amount of such
borrowing that is to constitute such utilization, the Subsequent Acquisition in
respect of which the proceeds of such borrowing are to be applied and the
reduced Reserved Commitment Amount to be in effect after giving effect to such
borrowing.
(b) Facility A Term Loans. Each Facility A Term Loan Lender
severally agrees, on the terms and conditions of this Agreement, to make term
loans to the Company in Dollars during the period from and including the
Effective Date to but not including the Facility A Term Loan Commitment
Termination Date in an aggregate principal amount up to but not exceeding the
then unused amount of the Facility A Term Loan Commitment of such Lender.
Subject to the terms and conditions of this Agreement (including, without
limitation, paragraph (e) below), the Company may Convert Facility A Term Loans
of one Type into Facility A Term Loans of another Type (as provided in Section
2.08 hereof) or Continue Eurodollar Loans from one Interest Period to the next
Interest Period (as provided in Section 2.08 hereof). Anything herein to the
contrary notwithstanding, no Facility A Term Loans shall be made hereunder
unless prior thereto (or concurrently therewith) Facility B Term Loans in an
aggregate amount equal to the full original amount of the Facility B Term Loan
Commitments shall have been made under Section 2.01(c) hereof. Facility A Term
Loans borrowed and repaid prior to the Facility A Term Loan Commitment
Termination Date may not be reborrowed.
Proceeds of Facility A Term Loans hereunder shall be available
for any use permitted under Section 8.16 hereof.
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(c) Facility B Term Loans. Each Facility B Term Loan Lender
severally agrees, on the terms and conditions of this Agreement, to make term
loans to the Company in Dollars during the period from and including the
Effective Date to but not including the Facility B Term Loan Commitment
Termination Date in an aggregate principal amount up to but not exceeding the
then unused amount of the Facility B Term Loan Commitment of such Lender.
Subject to the terms and conditions of this Agreement (including, without
limitation, paragraph (e) below), the Company may Convert Facility B Term Loans
of one Type into Facility B Term Loans of another Type (as provided in Section
2.08 hereof) or Continue Eurodollar Loans from one Interest Period to the next
Interest Period (as provided in Section 2.08 hereof). Facility B Term Loans
borrowed and repaid prior to the Facility B Term Loan Commitment Termination
Date may not be reborrowed.
Proceeds of Facility B Term Loans hereunder shall be available
for any use permitted under Section 8.16 hereof.
(d) Incremental Facility Loans. In addition to borrowings of
Term Loans and Revolving Credit Loans, at any time during the Incremental
Facility Availability Period the Company may from time to time request the
Lenders offer to enter into commitments to make additional term loans to the
Company hereunder, which commitment of any Lender shall not be less than
$5,000,000 and not greater than $200,000,000. In the event that one or more of
the Lenders offer, in their sole discretion, to enter into such commitments, and
such Lenders and the Company agree as to the amount of such commitments that
shall be allocated to the respective Lenders making such offers and the fees (if
any) to be payable by the Company in connection therewith, such Lenders shall
become obligated to make Incremental Facility Loans under this Agreement in an
amount equal to the amount of their respective Incremental Facility Commitments.
The Incremental Facility Loans to be made pursuant to any such agreement between
the Company and one or more Lenders in response to any such request by the
Company shall be deemed to be a separate "Series" of Incremental Facility Loans
for all purposes of this Agreement. Anything herein to the contrary
notwithstanding, (i) the minimum aggregate principal amount of Incremental
Facility Commitments entered into pursuant to any such request (and,
accordingly, the minimum aggregate principal amount of any Series of Incremental
Facility Loans) shall be $50,000,000 and (ii) the aggregate principal amount of
all Incremental Facility Commitments and Incremental Facility Loans shall not
exceed $200,000,000. Incremental Facility Term Loans borrowed and repaid prior
to but not including the Quarterly Date falling on or nearest to December 31,
1999 may not be reborrowed.
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(e) Certain Limitations on Eurodollar Loans. No more than
fifteen separate Interest Periods in respect of Eurodollar Loans of all Classes
may be outstanding at any one time.
(f) Treatment of Loans Outstanding under Existing Credit
Agreement. In the event that any "Revolving Credit Loans", or "Facility A" or
"Facility B Term Loans" under the Existing Credit Agreement shall remain
outstanding on the Effective Date, then such loans shall be continued as
Revolving Credit Loans, or Facility A or Facility B Term Loans hereunder, as
applicable, and the Lenders hereunder shall, on the Effective Date, take such
actions, and make such adjustments among themselves, as shall be necessary so
that such loans are held hereunder ratably in accordance with their respective
Revolving Credit Commitments, and Facility A and Facility B Term Loan
Commitments, as applicable. On the Effective Date, the Company shall cause to be
paid to each Lender party to the Existing Credit Agreement, all amounts that
would be owing to such Lender under Section 5.05 of the Existing Credit
Agreement as if the "Loans" of such Lender under the Existing Credit Agreement
were being repaid on the Effective Date, whether or not any such loans are
actually repaid on the Effective Date.
2.02 Borrowings. The Company shall give the Administrative
Agent notice of each borrowing hereunder as provided in Section 4.05 hereof. Not
later than 1:00 p.m. New York time on the date specified for each borrowing
hereunder, each Lender shall make available the amount of the Loan or Loans to
be made by it on such date to the Administrative Agent, at an account maintained
by the Administrative Agent with Chase at the Principal Office and notified to
the Company, in immediately available funds, for account of the Company (or, at
such other account as the Administrative Agent may designate). The amount so
received by the Administrative Agent shall, subject to the terms and conditions
of this Agreement, be made available to the Company by depositing the same, in
immediately available funds, in an account of the Company designated by the
Company and maintained with Chase at the Principal Office (or, in such other
manner as the Company may reasonably specify to the Administrative Agent).
2.03 Changes of Commitments.
(a) The aggregate amount of the Revolving Credit Commitments
shall be automatically reduced to zero on the Revolving Credit Commitment
Termination Date.
(b) The Company shall have the right at any time or from time
to time (i) so long as no Revolving Credit Loans are outstanding to terminate
the Revolving Credit Commitments, (ii) so long as no Incremental Facility Loans
of a Series are outstanding to terminate the Incremental Facility Commitments of
such Series or (iii) to reduce the aggregate unused amount of the Revolving
Credit Commitments or Incremental Facility
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Commitments of any Series, as applicable; provided that (x) the Company shall
give notice of each such termination or reduction as provided in Section 4.05
hereof and (y) each partial reduction shall be in an aggregate amount at least
equal to $5,000,000 (or a larger multiple of $1,000,000).
(c) Any portion of the Facility A and Facility B Term Loan
Commitments not used on the Facility A and Facility B Term Loan Commitment
Termination Date shall be automatically terminated on the Facility A and
Facility B Term Loan Commitment Termination Date. Any portion of the Incremental
Facility Commitments of any Series not used during the Incremental Facility
Availability Period shall be automatically terminated on the last day of the
Incremental Facility Availability Period.
(d) The Commitments once terminated or reduced may not be
reinstated.
2.04 Commitment Fee. The Company shall pay to the
Administrative Agent for account of each Lender a commitment fee on the daily
average unused amount of the respective Commitments of such Lender (including,
without limitation, the Reserved Commitment Amount), for the period from and
including the date hereof to but not including the date such Commitment is
terminated, at a rate per annum equal to the Applicable Margin. Accrued
commitment fees shall be payable on the Effective Date, on each Quarterly Date
and on the date the relevant Commitments are terminated.
Notwithstanding anything to the contrary contained herein or
in the Existing Credit Agreement, the accrued commitment fee payable under
Section 2.04 of the Existing Credit Agreement shall be payable on the Effective
Date.
2.05 Lending Offices. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable Lending Office
for Loans of such Type.
2.06 Several Obligations; Remedies Independent. The failure of
any Lender to make any Loan to be made by it on the date specified therefor
shall not relieve any other Lender of its obligation to make its Loan on such
date, but neither any Lender nor the Administrative Agent shall be responsible
for the failure of any other Lender to make a Loan to be made by such other
Lender, and (except as otherwise provided in Section 4.06 hereof) no Lender
shall have any obligation to the Administrative Agent or any other Lender for
the failure by such Lender to make any Loan required to be made by such Lender.
The amounts payable by the Company at any time hereunder to each Lender shall be
a separate and independent debt and each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement, and it shall not be necessary
for any other Lender or the Administrative Agent to consent to, or be joined as
an additional party in, any proceedings for such purposes.
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2.07 Loan Accounts; Promissory Notes.
(a) Maintenance of Loan Accounts by Lenders. Each Lender shall
maintain in accordance with its usual practice an account or accounts evidencing
the indebtedness of the Company to such Lender resulting from each Loan made by
such Lender, including the amounts of principal and interest payable and paid to
such Lender from time to time hereunder.
(b) Maintenance of Loan Accounts by Administrative Agent. The
Administrative Agent shall maintain accounts in which it shall record (i) the
amount of each Loan made hereunder, the Class and Type thereof and the Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Company to each Lender hereunder
and (iii) the amount of any sum received by the Administrative Agent hereunder
for the account of the Lenders and each Lender's share thereof.
(c) Effect of Entries. The entries made in the accounts
maintained pursuant to paragraph (a) or (b) of this Section shall be prima facie
evidence of the existence and amounts of the obligations recorded therein;
provided that the failure of any Lender or the Administrative Agent to maintain
such accounts or any error therein shall not in any manner affect the obligation
of the Company to repay the Loans in accordance with the terms of this
Agreement.
(d) Promissory Notes. Any Lender may request that Loans of any
Class made by it be evidenced by a promissory note. In such event, the Company
shall prepare, execute and deliver to such Lender a promissory note payable to
the order of such Lender (or, if requested by such Lender, to such Lender and
its registered assigns) and in a form approved by the Administrative Agent (and
which does not alter the rights or obligations of the parties to this
Agreement). Thereafter, the Loans evidenced by such promissory note and interest
thereon shall at all times (including after assignment pursuant to Section 11.06
hereof) be represented by one or more promissory notes in such form payable to
the order of the payee named therein (or, if such promissory note is a
registered note, to such payee and its registered assigns).
2.08 Optional Prepayments and Conversions or Continuations of
Loans. Subject to Section 4.04 hereof, the Company shall have the right to
prepay Loans, to Convert Loans of one Type into Loans of another Type or to
Continue Eurodollar Loans from one Interest Period to the next Interest Period,
at any time or from time to time, provided that:
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(a) the Company shall give the Administrative Agent notice of
each such prepayment, Conversion or Continuation as provided in Section
4.05 hereof (and, upon the date specified in any such notice of
prepayment, the amount to be prepaid shall become due and payable
hereunder);
(b) except to the extent necessary to comply with the
requirements of clause (c) below, Eurodollar Loans may be prepaid or
Converted only on the last day of an Interest Period for such Loans;
(c) any Conversion or Continuation of Eurodollar Loans shall
be subject to the provisions of Section 2.01(e) hereof;
(d) prepayments of any Term Loan shall be effected in such
manner so that the Term Loans of both Classes (and, to the extent that
Incremental Loans are outstanding, the Incremental Loans of all Series)
are concurrently prepaid ratably in accordance with the respective
outstanding principal amounts thereof and the aggregate principal
amount of all such concurrent prepayments is at least equal to the
amounts specified in Section 4.04 hereof; and
(e) prepayments of Term Loans and of Incremental Facility
Loans shall be applied to the installments of principal thereof ratably
in accordance with the respective amounts of such installments.
Notwithstanding the foregoing, and without limiting the rights
and remedies of the Lenders under Section 9 hereof, in the event that any Event
of Default shall have occurred and be continuing, the Administrative Agent may
(and at the request of the Majority Lenders shall) suspend the right of the
Company to Convert any Loan into a Eurodollar Loan, or to Continue any
Eurodollar Loan, in which event all Loans shall be Converted (on the last day(s)
of the respective Interest Periods therefor) into Base Rate Loans.
2.09 Mandatory Prepayments and Reductions of Commitments.
(a) Casualty Events. Upon the date 365 days following the
receipt by the Company of the proceeds of insurance, condemnation award or other
compensation in respect of any Casualty Event affecting any Property of the
Company or any of its Restricted Subsidiaries (or upon such earlier date as the
Company or such Restricted Subsidiary, as the case may be, shall have determined
not to repair or replace the Property affected by such Casualty Event), the
Company shall prepay the Loans in an aggregate amount, if any, equal to 100% of
the Net Available Proceeds of such Casualty Event not theretofore applied (or
committed to be applied pursuant to executed construction contracts or equipment
orders) to
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the repair or replacement of such Property, such prepayment to be effected in
each case in the manner and to the extent specified in paragraph (f) of this
Section 2.09.
Nothing in this paragraph (a) shall be deemed to limit any
obligation of the Company and its Restricted Subsidiaries pursuant to the
Security Agreement to remit to the Collateral Account the proceeds of insurance,
condemnation award or other compensation received in respect of any Casualty
Event, and the Administrative Agent shall release such proceeds to the Company
in the manner and to the extent provided in Section 4.01(d) of the Security
Agreement.
(b) [INTENTIONALLY OMITTED]
(c) Excess Cash Flow. Not later than the date 90 days after
the end of each fiscal year of the Company, commencing with Excess Cash Flow for
the fiscal year ending December 31, 2001, the Company shall prepay the Loans in
an aggregate amount equal to the excess of (A) 50% of Excess Cash Flow for such
fiscal year over (B) the aggregate amount of voluntary prepayments of Term Loans
and Incremental Facility Loans made during such fiscal year pursuant to Section
2.08 hereof (other than that portion, if any, of such prepayments applied to
installments of the Term Loans and Incremental Facility Loans falling due in
such fiscal year), such prepayment to be effected in each case in the manner and
to the extent specified in paragraph (f) of this Section 2.09. Notwithstanding
the foregoing, no prepayment shall be required under this paragraph (c) if, at
the last day of the last two fiscal quarters of any fiscal year the Debt Ratio
shall have been less than 5.00 to 1.
(d) Sale of Assets. Without limiting the obligation of the
Company to obtain the consent of the Majority Lenders pursuant to Section 8.05
hereof to any Disposition not otherwise permitted hereunder, the Company agrees,
two Business Days prior to the occurrence of any Disposition in which the fair
market value of the Property that is the subject of such Disposition is greater
than or equal to $10,000,000, to deliver to the Administrative Agent and the
other Agents a statement, certified by a Senior Officer, in reasonable detail of
the estimated amount of the Net Available Proceeds of such Disposition, in which
event the Company will prepay the Loans as follows:
(i) on the date of such Disposition, in an aggregate amount
equal to 100% of the actual Net Available Proceeds of such Disposition
received by the Company and its Restricted Subsidiaries on the date of
such Disposition; and
(ii) thereafter, quarterly, on the date of the delivery by the
Company to the Administrative Agent pursuant to Section 8.01 hereof of
the financial statements for each quarterly fiscal period or (if
earlier) the date 45 days after the end of such quarterly fiscal
period, to the extent the Company or any of its Restricted Subsidiaries
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shall receive Net Available Proceeds during such quarterly fiscal
period in cash under deferred payment arrangements or Investments
entered into or received in connection with any Disposition, an amount
equal to (A) 100% of the aggregate amount of such Net Available
Proceeds minus (B) any transaction expenses associated with such
Disposition and not previously deducted in the determination of Net
Available Proceeds plus (or minus, as the case may be) (C) any other
adjustment received or paid by the Company or such Restricted
Subsidiary pursuant to the respective agreements giving rise to such
Disposition and not previously taken into account in the determination
of the Net Available Proceeds of such Disposition, provided that, if
prior to the date upon which the Company would otherwise be required to
make a prepayment under this clause (ii) with respect to any quarterly
fiscal period the aggregate amount of such Net Available Proceeds
received in cash shall aggregate an amount that will require a
prepayment of $10,000,000 or more under this clause (ii) with respect
to such quarterly fiscal period, then the Company shall immediately
make a prepayment under this clause (ii) in an amount equal to such
required prepayment.
Prepayments of Loans shall be effected in each case in the manner and to the
extent specified in paragraph (f) of this Section 2.09.
Notwithstanding the foregoing, the Company shall not be
required to make a prepayment pursuant to this paragraph (d) with respect to the
Net Available Proceeds from any Disposition (including, without limitation, the
Dispositions permitted under Section 8.05(c)(iv) hereof) in the event that the
Company advises the Administrative Agent at the time the Net Available Proceeds
from such Disposition are received that it intends to reinvest such Net
Available Proceeds into replacement assets pursuant to a transaction permitted
under Section 8.05(b) hereof, so long as:
(x) such Net Available Proceeds are either (i) held by the
Administrative Agent in the Collateral Account pending such
reinvestment, in which event the Administrative Agent need not release
such Net Available Proceeds except upon presentation of evidence
satisfactory to it that such Net Available Proceeds are to be so
reinvested in compliance with the provisions of this Agreement or (ii)
applied by the Company to the prepayment of Revolving Credit Loans
hereunder (in which event the Company agrees to advise the
Administrative Agent in writing at the time of such prepayment of
Revolving Credit Loans that such prepayment is being made from the
proceeds of a Disposition and that, as contemplated by Section 2.01(a)
hereof, a portion of the Revolving Credit Commitments hereunder equal
to the amount of such prepayment gives rise to a Reserved Commitment
Amount that shall be available hereunder only for purposes of making
Subsequent Acquisitions under Section 8.05(b) hereof),
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(y) the Net Available Proceeds from any Disposition are in
fact so reinvested within twelve months of such Disposition (it being
understood that, in the event Net Available Proceeds from more than one
Disposition are paid into the Collateral Account or applied to the
prepayment of Revolving Credit Loans as provided in clause (x) above,
such Net Available Proceeds shall be deemed to be released (or, as the
case may be, Revolving Credit Loans utilizing the Reserved Commitment
Amount shall be deemed to be made) in the same order in which such
Dispositions occurred and, accordingly, (A) any such Net Available
Proceeds so held for more than twelve months shall be forthwith applied
to the prepayment of Loans and reductions of Commitments as provided
above and (B) any Reserved Commitment Amount that remains so unutilized
for more than twelve months shall, subject to the satisfaction of the
conditions precedent to such borrowing in Section 6.03 hereof, be
utilized through the borrowing by the Company of Revolving Credit Loans
the proceeds of which shall be applied to the prepayment of Loans and
reductions of Commitments as provided in paragraph (f) of this Section
2.09) and
(z) the aggregate amount of Net Available Proceeds (together
with investment earnings thereon) so held at any time by the
Administrative Agent pending reinvestment as contemplated by this
sentence, together with the aggregate amount of the Reserved Commitment
Amount, shall not at any time exceed $150,000,000 or such greater
amount as the Majority Lenders may otherwise agree.
As contemplated by Section 4.01 of the Security Agreement, nothing in this
paragraph (d) shall be deemed to obligate the Administrative Agent to release
any of such proceeds from the Collateral Account to the Company for purposes of
reinvestment as aforesaid upon the occurrence and during the continuance of any
Event of Default.
(e) Change of Control. If any Change of Control shall occur,
then, concurrently with the occurrence of the event giving rise to such Change
of Control, the Company shall prepay the Loans in full and the Commitments shall
be automatically reduced to zero.
(f) Application. Upon the occurrence of any of the events
described in the above paragraphs of this Section 2.09, the amount of the
required prepayment shall be applied to the prepayment of the Facility A Term
Loans, the Facility B Term Loans and the Incremental Facility Loans of each
Series ratably in accordance with the respective then-outstanding aggregate
amounts of such Commitments and Loans and after the prepayment in full of the
outstanding Facility A Term Loans, Facility B Term Loans and the Incremental
Facility Term Loans, to the reduction of the Revolving Credit Commitments (and
to the simultaneous prepayment of the Revolving Credit Loans in an amount equal
to such required reduction of Revolving Credit Commitments). Each such
prepayment of Term
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Loans shall be applied to the Facility A Term Loans, the Facility B Term Loans
and the Incremental Facility Loans of each Series ratably in accordance with the
respective aggregate outstanding principal amounts thereof, and to the
installments of principal thereof ratably in accordance with the respective
amounts of such installments.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans.
(a) The Company hereby promises to pay to the Administrative
Agent for account of each Revolving Credit Lender the entire outstanding
principal amount of such Lender's Revolving Credit Loans, and each Revolving
Credit Loan shall mature, on the Revolving Credit Commitment Termination Date.
(b) The Company hereby promises to pay to the Administrative
Agent for account of the Facility A Term Loan Lenders the principal of the
Facility A Term Loans in twenty-eight installments payable on the Principal
Payment Dates set forth below as follows, each such installment to be in an
amount equal to the percentage of the aggregate principal amount of the Facility
A Term Loans outstanding on the Facility A Term Loan Commitment Termination Date
set forth opposite such Principal Payment Date:
Percentage of
Aggregate Principal
Principal Payment Date Amount Outstanding
December 31, 1998 0.75%
March 31, 1999 ... 0.75%
June 30, 1999 .... 0.75%
September 30, 1999 0.75%
December 31, 1999 2.00%
March 31, 2000 ... 2.00%
June 30, 2000 .... 2.00%
September 30, 2000 2.00%
December 31, 2000 3.00%
March 31, 2001 ... 3.00%
June 30, 2001 .... 3.00%
September 30, 2001 3.00%
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December 31, 2001 4.00%
March 31, 2002 ... 4.00%
June 30, 2002 .... 4.00%
September 30, 2002 4.00%
December 31, 2002 5.00%
March 31, 2003 ... 5.00%
June 30, 2003 .... 5.00%
September 30, 2003 5.00%
December 31, 2003 6.50%
March 31, 2004 ... 6.50%
June 30, 2004 .... 6.50%
September 30, 2004 6.50%
December 31, 2004 3.75%
March 31, 2005 ... 3.75%
June 30, 2005 .... 3.75%
September 30, 2005 ... 3.75%
(c) The Company hereby promises to pay to the Administrative
Agent for account of the Facility B Term Loan Lenders the principal of the
Facility B Term Loans in twenty-eight installments payable on the Principal
Payment Dates set forth below as follows, each such installment to be in an
amount equal to the percentage of the aggregate principal amount of the Facility
B Term Loans outstanding on the Facility B Term Loan Commitment Termination Date
set forth opposite such Principal Payment Date:
Percentage of
Aggregate Principal
Principal Payment Date Amount Outstanding
December 31, 1999 0.2075%
March 31, 2000 ... 0.2075%
June 30, 2000 .... 0.2075%
September 30, 2000 0.2075%
December 31, 2000 0.2075%
March 31, 2001 ... 0.2075%
June 30, 2001 .... 0.2075%
September 30, 2001 0.2075%
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December 31, 2001 0.2075%
March 31, 2002 ... 0.2075%
June 30, 2002 .... 0.2075%
September 30, 2002 0.2075%
December 31, 2002 0.2075%
March 31, 2003 ... 0.2075%
June 30, 2003 .... 0.2075%
September 30, 2003 0.2075%
December 31, 2003 0.2075%
March 31, 2004 ... 0.2075%
June 30, 2004 .... 0.2075%
September 30, 2004 0.2075%
December 31, 2004 0.2125%
March 31, 2005 ... 0.2125%
June 30, 2005 .... 0.2125%
September 30, 2005 0.2125%
December 31, 2005 45.0000%
March 31, 2006 ... 50.0000%
(d) The Company hereby promises to pay to the Administrative
Agent for account of the Incremental Facility Lenders the principal of the
Incremental Facility Loans in twenty-six installments payable on the Principal
Payment Dates set forth below as follows, each such installment to be in an
amount equal to the percentage of the aggregate principal amount of the
Incremental Facility Term Loans outstanding on the Quarterly Date falling on or
nearest to December 31, 1999 set forth opposite such Principal Payment Date (and
each such payment to be applied ratably to each Series of Incremental Facility
Loans):
Percentage of
Aggregate Principal
Principal Payment Date Amount Outstanding
December 31, 1999 0.2075%
March 31, 2000 0.2075%
June 30, 2000 0.2075%
September 30, 2000 0.2075%
December 31, 2000 0.2075%
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March 31, 2001 0.2075%
June 30, 2001 0.2075%
September 30, 2001 0.2075%
December 31, 2001 0.2075%
March 31, 2002 0.2075%
June 30, 2002 0.2075%
September 30, 2002 0.2075%
December 31, 2002 0.2075%
March 31, 2003 0.2075%
June 30, 2003 0.2075%
September 30, 2003 0.2075%
December 31, 2003 0.2075%
March 31, 2004 0.2075%
June 30, 2004 0.2075%
September 30, 2004 0.2075%
December 31, 2004 0.2125%
March 31, 2005 0.2125%
June 30, 2005 0.2125%
September 30, 2005 0.2125%
December 31, 2005 45.0000%
March 31, 2006 50.0000%
3.02 Interest. The Company hereby promises to pay to the
Administrative Agent for account of each Lender interest on the unpaid principal
amount of each Loan made by such Lender for the period from and including the
date of such Loan to but excluding the date such Loan shall be paid in full, at
the following rates per annum:
(a) during such periods as such Loan is a Base Rate Loan, the
Base Rate (as in effect from time to time) plus the Applicable Margin
and
(b) during such periods as such Loan is a Eurodollar Loan, for
each Interest Period relating thereto, the Eurodollar Rate for such
Loan for such Interest Period plus the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Lender interest at the applicable
Post-Default Rate on any
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principal of any Loan made by such Lender and on any other amount payable by the
Company hereunder to or for account of such Lender, that shall not be paid in
full when due (whether at stated maturity, by acceleration, by mandatory
prepayment or otherwise), for the period from and including the due date thereof
to but excluding the date the same is paid in full. Accrued interest on each
Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the
Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each
Interest Period therefor and, if such Interest Period is longer than three
months, at three-month intervals following the first day of such Interest
Period, and (iii) in the case of any Loan, upon the payment or prepayment
thereof or the Conversion of such Loan to a Loan of another Type (but only on
the principal amount so paid, prepaid or Converted), except that interest
payable at the Post-Default Rate shall be payable from time to time on demand.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Administrative Agent shall give notice thereof to the
Lenders to which such interest is payable and to the Company.
Notwithstanding anything to the contrary contained herein or
in the Existing Credit Agreement, accrued interest payable under Section 3.02 of
the Existing Credit Agreement with respect to any of the "Loans" outstanding
thereunder shall be paid on the Effective Date.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Company
under this Agreement and under any other Loan Document, shall be made in
Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Administrative Agent at an account maintained by the
Administrative Agent with Chase at the Principal Office as notified to the
Company (or, at such other account as the Administrative Agent may designate),
not later than 2:00 p.m. New York time on the date on which such payment shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).
(b) Any Lender for whose account any such payment is to be
made may (but shall not be obligated to) debit the amount of any such payment
that is not made by such time to any ordinary deposit account of the Company
with such Lender (with notice to the Company and the Administrative Agent),
provided that such Lender's failure to give such notice shall not affect the
validity of such debit.
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(c) The Company shall, at the time of making each payment
under this Agreement for account of any Lender, specify to the Administrative
Agent (which shall so notify the intended recipient(s) thereof) the Loans or
other amounts payable by the Company hereunder to which such payment is to be
applied (and in the event that the Company fails to so specify, or if an Event
of Default has occurred and is continuing, the Administrative Agent may
distribute such payment to the Lenders for application in such manner as it or
the Majority Lenders, subject to Section 4.02 hereof, may determine to be
appropriate).
(d) Each payment received by the Administrative Agent under
this Agreement for account of any Lender shall be paid by the Administrative
Agent promptly to such Lender, in immediately available funds, for account of
such Lender's Applicable Lending Office for the Loan or other obligation in
respect of which such payment is made.
(e) If the due date of any payment under this Agreement would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise
provided herein:
(a) each borrowing of Loans of a particular Class (including
of a particular Series of Incremental Facility Term Loans) from the
Lenders under Section 2.01 hereof shall be made from the relevant
Lenders, each payment of commitment fee under Section 2.04 hereof in
respect of Commitments of a particular Class shall be made for account
of the relevant Lenders, and each termination or reduction of the
amount of the Commitments of a particular Class under Section 2.03
hereof shall be applied to the respective Commitments of such Class of
the relevant Lenders, pro rata according to the amounts of their
respective Commitments of such Class;
(b) except as otherwise provided in Section 5.04 hereof,
Eurodollar Loans of any Class (including of a particular Series of
Incremental Facility Term Loans) having the same Interest Period shall
be allocated pro rata among the relevant Lenders according to the
amounts of their respective Revolving Credit, Facility A Term Loan
Commitments, Facility B Term Loan Commitments and Incremental Facility
Commitments of the relevant Series (in the case of the making of Loans)
or their respective Revolving Credit Loans, Facility A Term Loans,
Facility B Term Loans and Incremental Facility Loans of the relevant
Series (in the case of Conversions and Continuations of Loans);
(c) each payment or prepayment of principal of Loans, of any
Class by the Company shall be made for account of the relevant Lenders
pro rata in accordance
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with the respective unpaid principal amounts of the Loans of such Class
held by them; and
(d) each payment of interest on Loans of any Class by the
Company shall be made for account of the relevant Lenders pro rata in
accordance with the amounts of interest on such Loans then due and
payable to the respective Lenders.
4.03 Computations. Interest on Loans and commitment fee shall
be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable.
4.04 Minimum Amounts. Except for mandatory prepayments made
pursuant to Section 2.09 hereof and Conversions or prepayments made pursuant to
Section 5.04 hereof, each borrowing, Conversion and partial prepayment of
principal of Base Rate Loans shall be in an aggregate amount at least equal to
$500,000 or a larger multiple of $100,000 and each borrowing, Conversion and
partial prepayment of Eurodollar Loans shall be in an aggregate amount at least
equal to $2,000,000 or a larger multiple of $1,000,000 (borrowings, Conversions
or prepayments of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder to be deemed
separate borrowings, Conversions and prepayments for purposes of the foregoing,
one for each Type or Interest Period). If any Eurodollar Loans would otherwise
be in a lesser principal amount for any period, such Loans shall be Base Rate
Loans during such period.
4.05 Certain Notices. Notices by the Company to the
Administrative Agent of terminations or reductions of the Commitments and of
borrowings, Conversions, Continuations and optional prepayments of Loans and
Classes of Loans, of Types of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the
Administrative Agent not later than 11:00 a.m. New York time on the number of
Business Days prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first day of such
Interest Period specified below:
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Number of
Business
Notice Days Prior
Termination or reduction
of Commitments 3
Borrowing or prepayment of,
or Conversions into,
Base Rate Loans 1
Borrowing or prepayment of,
Conversions into, Continuations
as, or duration of Interest
Period for, Eurodollar Loans 3
Each such notice of termination or reduction shall specify the amount and the
Class of the Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion, Continuation or optional prepayment shall specify the
Class of Loans (including, if applicable, the particular Series of Incremental
Facility Term Loans) to be borrowed, Converted, Continued or prepaid and the
amount (subject to Section 4.04 hereof) and Type of each Loan to be borrowed,
Converted, Continued or prepaid and the date of borrowing, Conversion,
Continuation or optional prepayment (which shall be a Business Day). Each such
notice of the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate.
The Administrative Agent shall promptly notify the Lenders of
the contents of each such notice. In the event that the Company fails to select
the Type of Loan, or the duration of any Interest Period for any Eurodollar
Loan, within the time period and otherwise as provided in this Section 4.05,
such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted
into a Base Rate Loan on the last day of the then current Interest Period for
such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not
then outstanding) will be made as, a Base Rate Loan.
4.06 Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Lender or the Company
(the "Payor") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by such Lender hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Lenders hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
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Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available by
the Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such day and, if
such recipient(s) shall fail promptly to make such payment, the Administrative
Agent shall be entitled to recover such amount, on demand, from the Payor,
together with interest as aforesaid, provided that if neither the recipient(s)
nor the Payor shall return the Required Payment to the Administrative Agent
within three Business Days of the Advance Date, then, retroactively to the
Advance Date, the Payor and the recipient(s) shall each be obligated to pay
interest on the Required Payment as follows:
(i) if the Required Payment shall represent a payment to be
made by the Company to the Lenders, the Company and the recipient(s)
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment at the Post-Default Rate
(without duplication of the obligation of the Company under Section
3.02 hereof to pay interest on the Required Payment at the Post-Default
Rate), it being understood that the return by the recipient(s) of the
Required Payment to the Administrative Agent shall not limit such
obligation of the Company under said Section 3.02 to pay interest at
the Post-Default Rate in respect of the Required Payment and
(ii) if the Required Payment shall represent proceeds of a
Loan to be made by the Lenders to the Company, the Payor and the
Company shall each be obligated retroactively to the Advance Date to
pay interest in respect of the Required Payment pursuant to whichever
of the rates specified in Section 3.02 hereof is applicable to the Type
of such Loan, it being understood that the return by the Company of the
Required Payment to the Administrative Agent shall not limit any claim
the Company may have against the Payor in respect of such Required
Payment.
4.07 Sharing of Payments, Etc.
(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option (to the fullest
extent permitted by law), to set off and apply any deposit (general or special,
time or demand, provisional or final), or other indebtedness, held by it for the
credit or account of the Company at any of its offices, in Dollars or in any
other
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currency, against any principal of or interest on any of such Lender's Loans or
any other amount payable to such Lender hereunder, that is not paid when due
(regardless of whether such deposit or other indebtedness are then due to the
Company), in which case it shall promptly notify the Company and the
Administrative Agent thereof, provided that such Lender's failure to give such
notice shall not affect the validity thereof.
(b) If any Lender shall obtain from the Company payment of any
principal of or interest on any Loan of any Class owing to it or payment of any
other amount under this Agreement or any other Loan Document through the
exercise of any right of set-off, banker's lien or counterclaim or similar right
or otherwise (other than from the Administrative Agent as provided herein), and,
as a result of such payment, such Lender shall have received a greater
percentage of the principal of or interest on the Loans of such Class or such
other amounts then due hereunder or thereunder by the Company to such Lender
than the percentage received by any other Lender, it shall promptly purchase
from such other Lenders participations in (or, if and to the extent specified by
such Lender, direct interests in) the Loans of such Class or such other amounts,
respectively, owing to such other Lenders (or in interest due thereon, as the
case may be) in such amounts, and make such other adjustments from time to time
as shall be equitable, to the end that all the Lenders shall share the benefit
of such excess payment (net of any expenses that may be incurred by such Lender
in obtaining or preserving such excess payment) pro rata in accordance with the
unpaid principal of and/or interest on the Loans of such Class or such other
amounts, respectively, owing to each of the Lenders. To such end all the Lenders
shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) The Company agrees that any Lender so purchasing such a
participation (or direct interest) may, to the fullest extent permitted by law,
exercise all rights of set-off, banker's lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loans or other amounts (as the case may be) owing to such Lender in
the amount of such participation.
(d) Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Company. If, under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a secured claim in lieu of
a set-off to which this Section 4.07 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
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Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) The Company shall pay directly to each Lender from time to
time such amounts as such Lender may determine to be necessary to compensate
such Lender for any costs that such Lender determines are attributable to its
making or maintaining of any Eurodollar Loans or its obligation to make any
Eurodollar Loans hereunder, or any reduction in any amount receivable by such
Lender hereunder in respect of any of such Loans or such obligation, resulting
from any Regulatory Change that:
(i) shall subject any Lender (or its Applicable Lending Office
for any of such Loans) to any tax, duty or other charge in respect of
such Loans or changes the basis of taxation of any amounts payable to
such Lender under this Agreement in respect of any of such Loans
(excluding changes in the rate of tax on the overall net income of such
Lender or of such Applicable Lending Office by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than the Reserve Requirement utilized in
the determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender (including, without limitation, any of such
Loans or any deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof), or any commitment of such Lender
(including, without limitation, the Commitments of such Lender
hereunder); or
(iii) imposes any other condition affecting this Agreement (or
any of such extensions of credit or liabilities) or its Commitments.
If any Lender requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Lender (with a copy to the Administrative
Agent), suspend the obligation of such Lender thereafter to make or Continue
Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the
Regulatory Change giving rise to such request ceases to be in effect (in which
case the provisions of Section 5.04 hereof shall be applicable), provided that
such suspension shall not affect the right of such Lender to receive the
compensation so requested.
(b) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay directly to
each Lender from time to time on request such amounts as such Lender may
determine to be necessary to compensate such Lender (or, without duplication,
the bank holding company of which such Lender is a
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subsidiary) for any costs that it determines are attributable to the maintenance
by such Lender (or any Applicable Lending Office or such bank holding company),
pursuant to any law or regulation or any interpretation, directive or request
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) of any court or governmental or monetary authority
(including the NAIC) (i) following any Regulatory Change or (ii) implementing
any risk-based capital guideline or other requirement (whether or not having the
force of law and whether or not the failure to comply therewith would be
unlawful) hereafter issued by any government or governmental or supervisory
authority (including the NAIC) implementing at the national level the Basle
Accord, of capital in respect of its Commitments or Loans (such compensation to
include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Lender (or any Applicable Lending Office or
such bank holding company) to a level below that which such Lender (or any
Applicable Lending Office or such bank holding company) could have achieved but
for such law, regulation, interpretation, directive or request).
(c) Each Lender shall notify the Company of any event
occurring after the date hereof entitling such Lender to compensation under
paragraph (a) or (b) of this Section 5.01 as promptly as practicable, but in any
event within 45 days, after such Lender obtains actual knowledge thereof;
provided that (i) if any Lender fails to give such notice within 45 days after
it obtains actual knowledge of such an event, such Lender shall, with respect to
compensation payable pursuant to this Section 5.01 in respect of any costs
resulting from such event, only be entitled to payment under this Section 5.01
for costs incurred from and after the date 45 days prior to the date that such
Lender does give such notice and (ii) each Lender will designate a different
Applicable Lending Office for the Loans of such Lender affected by such event if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, except that such Lender shall have no obligation
to designate an Applicable Lending Office located in the United States of
America. Each Lender will furnish to the Company a certificate setting forth the
basis and amount of each request by such Lender for compensation under paragraph
(a) or (b) of this Section 5.01. Determinations and allocations by any Lender
for purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to paragraph (a) of this Section 5.01, or of the effect of capital
maintained pursuant to paragraph (b) of this Section 5.01, on its costs or rate
of return of maintaining Loans or its obligation to make Loans, or on amounts
receivable by it in respect of Loans, and of the amounts required to compensate
such Lender under this Section 5.01, shall be conclusive, provided that such
determinations and allocations are made on a reasonable basis.
5.02 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Base Rate for any Interest Period:
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(a) the Administrative Agent determines, which determination
shall be conclusive, that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Base Rate" in
Section 1.01 hereof are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of
interest for Eurodollar Loans as provided herein; or
(b) if the related Loans are Revolving Credit Loans, the
Majority Revolving Credit Lenders, if the related Loans are Facility A
Term Loans, the Majority Facility A Term Loan Lenders, if the related
Loans are Facility B Term Loans, the Majority Facility B Term Loan
Lenders, or if the related Loans are Incremental Facility Loans of any
Series, the Majority Incremental Facility Lenders of such Series
determine, which determination shall be conclusive, and notify the
Administrative Agent that the relevant rates of interest referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 hereof upon
the basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not likely adequately to cover
the cost to such Lenders of making or maintaining Eurodollar Loans for
such Interest Period;
then the Administrative Agent shall give the Company and each Lender prompt
notice thereof and, so long as such condition remains in effect, the Lenders
shall be under no obligation to make additional Eurodollar Loans, to Continue
Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and the
Company shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into Base Rate Loans in accordance with Section 2.08 hereof.
5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder (and, in the sole opinion of such Lender, the designation of a
different Applicable Lending Office would either not avoid such unlawfulness or
would be disadvantageous to such Lender), then such Lender shall promptly notify
the Company thereof (with a copy to the Administrative Agent) and such Lender's
obligation to make or Continue, or to Convert Base Rate Loans into, Eurodollar
Loans shall be suspended until such time as such Lender may again make and
maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof
shall be applicable).
5.04 Treatment of Affected Loans. If the obligation of any
Lender to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans
into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03
hereof, such Lender's Eurodollar Loans shall be automatically Converted into
Base Rate Loans on the last day(s) of the then current Interest Period(s) for
Eurodollar Loans (or, in the case of a Conversion resulting from a circumstance
described in Section 5.03 hereof, on such earlier date as such Lender may
specify to the Company with a copy to the Administrative Agent) and, unless and
until such
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Lender gives notice as provided below that the circumstances specified in
Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have
been so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Eurodollar Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by
such Lender as Eurodollar Loans shall be made or Converted into Base
Rate Loans, and all Base Rate Loans of such Lender that would otherwise
be Converted into Eurodollar Loans shall remain as Base Rate Loans.
If such Lender gives notice to the Company with a copy to the Administrative
Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave
rise to the Conversion of such Lender's Eurodollar Loans pursuant to this
Section 5.04 no longer exist (which such Lender agrees to do promptly upon such
circumstances ceasing to exist) at a time when Eurodollar Loans of the same
Class made by other Lenders are outstanding, such Lender's Base Rate Loans of
the same Class shall be automatically Converted, on the first day(s) of the next
succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the
extent necessary so that, after giving effect thereto, all Base Rate and
Eurodollar Loans of such Class are allocated among the Lenders ratably (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments of such Class.
5.05 Compensation. The Company shall pay to the Administrative
Agent for account of each Lender, upon the request of such Lender through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost or
expense that such Lender determines is attributable to:
(a) any payment, mandatory or optional prepayment or
Conversion of a Eurodollar Loan made by such Lender for any reason
(including, without limitation, the acceleration of the Loans pursuant
to Section 9 hereof) on a date other than the last day of the Interest
Period for such Loan; or
(b) any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Section 6 hereof to be satisfied) to borrow a Eurodollar
Loan from such Lender on the date for such borrowing specified in the
relevant notice of borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have
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accrued on the principal amount so paid, prepaid, Converted or not borrowed for
the period from the date of such payment, prepayment, Conversion or failure to
borrow to the last day of the then current Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan that would
have commenced on the date specified for such borrowing) at the applicable rate
of interest for such Loan provided for herein over (ii) the amount of interest
that otherwise would have accrued on such principal amount at a rate per annum
equal to the interest component of the amount such Lender would have bid in the
London interbank market for Dollar deposits of leading banks in amounts
comparable to such principal amount and with maturities comparable to such
period (as reasonably determined by such Lender).
Without limiting the generality of the foregoing, on the
Effective Date, the Company shall pay to the Administrative Agent for account of
the Existing Lenders under the Existing Credit Agreement any amounts that would
be payable under Section 5.05 of the Existing Credit Agreement assuming any
"Eurodollar Loans" outstanding thereunder had been paid in full on the Effective
Date.
5.06 U.S. Taxes.
(a) The Company agrees to pay to each Lender that is not a
U.S. Person such additional amounts as are necessary in order that the net
payment of any amount due to such non-U.S. Person hereunder after deduction for
or withholding in respect of any U.S. Taxes imposed with respect to such payment
(or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will
not be less than the amount stated herein to be then due and payable, provided
that the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Lender hereunder unless such Lender
is, on the date hereof (or on the date it becomes a Lender hereunder as
provided in Section 11.06(b) hereof) and on the date of any change in
the Applicable Lending Office of such Lender, entitled to submit and
does submit pursuant to Section 5.06(c) either (A) a Form 1001
(relating to such Lender and entitling it to a complete exemption from
withholding on all interest to be received by it hereunder in respect
of the Loans) or a Form 4224 (relating to all interest to be received
by such Lender hereunder in respect of the Loans), or (B) in the case
of a Lender not treated as a bank for regulatory, tax or other legal
purposes in any jurisdiction, (1) a certificate under penalties of
perjury that such Lender is not a bank, a holder of equity of the
Company or a controlled foreign corporation related to the Company for
purposes of section 881(c)(3) of the Code or a conduit entity within
the meaning of United States Treasury Regulations section 1.881-3 and
(2) a duly completed Internal Revenue Service Form W-8; or
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(ii) to any U.S. Taxes imposed solely by reason of the failure
by such non-U.S. Person (or, if such non-U.S. Person is not the
beneficial owner of the relevant Loan, such beneficial owner) to comply
with applicable certification, information, documentation or other
reporting requirements concerning the nationality, residence, identity
or connections with the United States of America of such non-U.S.
Person (or beneficial owner, as the case may be) to the extent it is
legally entitled to do so if such compliance is required by statute or
regulation of the United States of America as a precondition to relief
or exemption from such U.S. Taxes.
For the purposes of this Section 5.06(a), (A) "Form 1001" shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (B) "Form 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates) and (C) "Form W-8" shall mean Form W-8 (Certificate
of Foreign Status of the Department of Treasury of the United States of
America). Each of the Forms referred to in the foregoing clauses (A), (B) and
(C) shall include such successor and related forms as may from time to time be
adopted by the relevant taxing authorities of the United States of America to
document a claim to which such Form relates.
(b) Within 30 days after paying any amount to the
Administrative Agent or any Lender from which it is required by law to make any
deduction or withholding, and within 30 days after it is required by law to
remit such deduction or withholding to any relevant taxing or other authority,
the Company shall deliver to the Administrative Agent for delivery to such
non-U.S. Person evidence satisfactory to such Person of such deduction,
withholding or payment (as the case may be).
(c) Each Lender that is not a U.S. Person agrees, to the
extent it is entitled to an exemption from (or reduction of) the amount of
withholding of U.S. Taxes from interest payments hereunder, to furnish to the
Company on or prior to the date hereof (or the date on which it becomes a Lender
as provided in Section 11.06(b) hereof) two copies of Form 1001, Form 4224 or
Form W-8 (as applicable), and any other form reasonably requested by the Company
which such Lender may lawfully deliver that is necessary or required to
establish such exemption (or reduction).
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Section 6. Conditions Precedent.
6.01 Effectiveness. The effectiveness of this Agreement (and
the amendment and restatement of the Existing Credit Agreement to be effected
hereby), and the obligation of any Lender to make its initial Loan hereunder are
subject to (i) the condition precedent that such effectiveness shall occur on or
before December 31, 1997, and (ii) the receipt by the Administrative Agent of
the following documents, each of which shall be satisfactory to the
Administrative Agent (and to the extent specified below, to the Majority
Lenders) in form and substance:
(a) Corporate and Partnership Documents. Certified copies of
the Partnership Agreement and of the charter and by-laws (or equivalent
documents) of each of the Company, the Restricted Subsidiaries, the
General Partner, the Limited Partner, FrontierVision LP, FVP GP, L.P.
and FrontierVision Inc. (hereinafter for purposes of this Section
6.01(a) and 8.17(a)(iii) hereof collectively referred to as the "Credit
Parties") and of all partnership and corporate authority for the Credit
Parties (including, without limitation, board of director resolutions
and evidence of the incumbency, including specimen signatures, of
officers for each Credit Party) with respect to the execution, delivery
and performance of such of the Basic Documents to which such Credit
Party is intended to be a party and each other document to be delivered
by such Credit Party from time to time in connection herewith and the
Loans hereunder (and the Administrative Agent and each Lender may
conclusively rely on such certificate until it receives notice in
writing from such Credit Party, as the case may be, to the contrary).
(b) Officer's Certificate. A certificate of a Senior Officer,
dated the Effective Date, to the effect set forth in the first sentence
of Section 6.03 hereof.
(c) Opinion of Counsel to the Company. An opinion, dated the
Effective Date, of Edwards & Angell, counsel to the Obligors,
substantially in the form of Exhibit G hereto and covering such other
matters as the Administrative Agent or any Lender may reasonably
request (and the Company hereby instructs such counsel to deliver such
opinion to the Lenders and the Administrative Agent).
(d) Opinion of Special New York Counsel to Chase. An opinion,
dated the Effective Date, of Milbank, Tweed, Hadley & McCloy, special
New York counsel to Chase, substantially in the form of Exhibit H
hereto (and Chase hereby instructs such counsel to deliver such opinion
to the Lenders).
(e) Amendment No. 2 to Security Agreement. Amendment No. 2 to
the Security Agreement, in substantially the form of Exhibit C-3
hereto, duly executed
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and delivered by the Company and the Administrative Agent. In
addition, the Company shall have taken such other action as the
Administrative Agent shall have requested in order to perfect the
security interests created pursuant to the Security Agreement (other
than perfection of security interests in fixtures (under and as defined
in the Uniform Commercial Code) and Motor Vehicles (under and as
defined in the Security Agreement)) to the extent such filings have not
already been effected pursuant to the Existing Credit Agreement,
including, without limitation, delivering to the Administrative Agent,
for filing, appropriately completed and duly executed copies of Uniform
Commercial Code financing statements.
(f) Amendment No. 3 to Partner Pledge Agreement. Amendment No.
3 to the Partner Pledge Agreement, in substantially the form of Exhibit
D-4 hereto, duly executed and delivered by FrontierVision and
FrontierVision Holdings and the Administrative Agent. In addition,
FrontierVision and FrontierVision Holdings shall have taken such other
action as the Administrative Agent shall have requested in order to
perfect the security interests created pursuant to the Partner Pledge
Agreement (to the extent such action has not already been taken
pursuant to the Existing Credit Agreement), including, without
limitation, delivering to the Administrative Agent, for filing,
appropriately completed and duly executed copies of Uniform Commercial
Code financing statements.
(g) Amendment No. 3 to Stock Pledge Agreement. Amendment No. 3
to the Stock Pledge Agreement, in substantially the form of Exhibit E-4
hereto, duly executed and delivered by FrontierVision Holdings and the
Administrative Agent. In addition, FrontierVision Holdings shall have
taken such other action as the Administrative Agent shall have
requested in order to perfect the security interests created pursuant
to the Stock Pledge Agreement (to the extent such action has not
already been taken pursuant to the Existing Credit Agreement),
including, without limitation, delivering to the Administrative Agent,
for filing, appropriately completed and duly executed copies of Uniform
Commercial Code financing statements.
(h) Repayment of UVC Notes. Evidence that prior to or
concurrently with the making of the initial Loans hereunder, the
principal of and interest on, and all other amounts owing in respect of
the UVC Notes shall have been paid in full.
(i) Debt Ratio. Evidence that, as of the Effective Date and
after giving effect to the Loans hereunder to be outstanding on the
Effective Date, the Debt Ratio shall not exceed 6.75 to 1, and the
Administrative Agent shall have received a certificate of a Senior
Officer to such effect.
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(j) Insurance. Certificates of insurance evidencing the
existence of all insurance required to be maintained by the Company and
its Restricted Subsidiaries pursuant to Section 8.04 hereof and the
designation of the Administrative Agent as the loss payee or additional
named insured, as the case may be, thereunder to the extent required by
said Section 8.04, such certificates to be in such form and contain
such information as is specified in said Section 8.04. In addition, the
Company shall have delivered to the Administrative Agent a certificate
of a Senior Officer setting forth the insurance obtained by it in
accordance with the requirements of Section 8.04 and stating that such
insurance is in full force and effect and that all premiums then due
and payable thereon have been paid.
(k) Solvency Certificate. A certificate from a Senior Officer,
to the effect that, as of the Effective Date and immediately after
giving effect to the Loans hereunder to be outstanding on the Effective
Date and to the other transactions contemplated hereunder to occur on
or before the Effective Date, (i) the aggregate value of all Properties
of the Company and its Restricted Subsidiaries at their present fair
saleable value (i.e., the amount that may be realized within a
reasonable time, considered to be six months to one year, either
through collection or sale at the regular market value, conceiving the
latter as the amount that could be obtained for the Property in
question within such period by a capable and diligent businessman from
an interested buyer who is willing to purchase under ordinary selling
conditions), exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated
liabilities) of the Company and its Restricted Subsidiaries, (ii) the
Company and its Restricted Subsidiaries will not, on a consolidated
basis, have an unreasonably small capital with which to conduct their
business operations as heretofore conducted and (iii) the Company and
its Restricted Subsidiaries will have, on a consolidated basis,
sufficient cash flow to enable them to pay their debts as they mature.
Such certificate shall also state that the financial projections and
underlying assumptions contained in such analyses were at the time
made, and on the Effective Date are, fair and reasonable and accurately
computed.
(l) Other Documents. Such other documents as the
Administrative Agent or the Majority Lenders or special New York
counsel to Chase may reasonably request.
The effectiveness of this Agreement (and the amendment and restatement of the
Existing Credit Agreement contemplated hereby) and the obligation of any Lender
to make its initial Loan hereunder is also subject to the payment by the Company
of such fees as the Company shall have agreed to pay to any Lender or the
Administrative Agent in connection herewith, including, without limitation, the
reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New
York counsel to Chase, in connection with the negotiation, preparation,
execution and delivery of this Agreement and the other Loan Documents
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and the making of the Loans hereunder (to the extent that statements for such
fees and expenses have been delivered to the Company).
6.02 Scheduled Acquisition Loans. The obligation of any Lender
to make any Loan hereunder the proceeds of which are to be applied to finance in
whole or in part the purchase price of any of the Scheduled Acquisitions are
subject to the receipt by the Administrative Agent of the following documents,
each of which shall be satisfactory to the Administrative Agent (and to the
extent specified below, to the Majority Lenders) in form and substance:
(a) Acquisition Environmental Surveys. To the extent obtained
by the Company in connection with such Scheduled Acquisition, copies of
Acquisition Environmental Surveys in form and substance satisfactory to
the Administrative Agent reflecting that the CATV Systems being
acquired pursuant to such Scheduled Acquisition will not be subject to
any material environmental liabilities.
(b) Pro Forma Balance Sheet. A pro forma balance sheet of the
Company and its Restricted Subsidiaries as at the last day of a fiscal
quarter ending within three months prior to the date of such Scheduled
Acquisition, and the related pro forma statement of income and retained
earnings (deficit) and cash flow for the immediately preceding
three-month period, giving effect to such Scheduled Acquisition and the
Loans hereunder being made in connection with such Scheduled
Acquisition, in form and providing such details as are reasonably
satisfactory to the Administrative Agent, together with (x) a
reconciliation of the information provided in such pro forma financial
statements to the Debt Ratio determined for purposes of Section 6.02(e)
hereof and (y) a certificate of a Senior Officer stating that said
financial statements fairly present the pro forma financial condition
of the Company as at such date and for such period in accordance with
GAAP, after giving effect to such Scheduled Acquisition and such Loans.
(c) Consummation of Acquisitions. Evidence that such Scheduled
Acquisition shall have been (or shall be simultaneously) consummated in
all material respects in accordance with the terms of the respective
Scheduled Acquisition Agreement (except for any modifications,
supplements or waivers thereof, or written consents or determinations
made by the parties thereto, that shall be satisfactory to the Majority
Lenders), and the Administrative Agent shall have received a
certificate of a Senior Officer to such effect. In addition, promptly
following the consummation of such Scheduled Acquisition the Company
shall deliver to the Administrative Agent true and complete copies of
the documents delivered in connection with the closing of such
Scheduled Acquisition pursuant to such Scheduled Acquisition Agreement,
including, to the extent counsel for the respective Seller(s) are
willing to deliver the same (and,
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in that connection, the Company agrees to use its reasonable commercial
efforts to obtain the same), copies of the legal opinions delivered to
the Company pursuant to such Scheduled Acquisition Agreement in
connection with such Scheduled Acquisition, together with a letter from
each Person delivering such opinion (or authorization within such
opinion) authorizing reliance thereon by the Administrative Agent and
the Lenders.
(d) Repayment of Indebtedness. Evidence that the principal of
and interest on, and all other amounts owing in respect of, any
Indebtedness of any entity acquired pursuant to such Scheduled
Acquisition (or that would be secured by Liens on the Property being
acquired in such Scheduled Acquisition) shall have been paid in full
and such Liens shall have been released (in each case to the extent
such Indebtedness would not be permitted hereunder).
(e) Debt Ratio. Evidence that, as of the date of such
Scheduled Acquisition and after giving effect to the Loans hereunder to
be outstanding on the Effective Date, the Debt Ratio shall not exceed
6.75 to 1, and the Administrative Agent shall have received a
certificate of a Senior Officer to such effect.
(f) Security Documents. Such Uniform Commercial Code financing
statements, as the Administrative Agent shall have requested in order
to perfect the security interests created pursuant to the Security
Agreement in the Property being acquired pursuant to such Scheduled
Acquisition (other than perfection of security interests in fixtures
(under and as defined in the Uniform Commercial Code) and Motor
Vehicles (under and as defined in the Security Agreement)).
(g) Other Documents. Such other documents as the
Administrative Agent or the Majority Lenders or special New York
counsel to Chase may reasonably request.
6.03 Initial and Subsequent Loans. The obligation of the
Lenders to make any Loan to the Company upon the occasion of each borrowing
hereunder (including the initial borrowing) is subject to the further conditions
precedent that, both immediately prior to the making of such Loan and also after
giving effect thereto and to the intended use thereof:
(a) no Default shall have occurred and be continuing; and
(b) the representations and warranties made by the Company in
Section 7 hereof, and by each Obligor in each of the other Loan
Documents to which it is a party, shall be true and complete on and as
of the date of the making of such Loan with the same force and effect
as if made on and as of such date (or, if any such
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representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date).
Each notice of borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Company otherwise notifies
the Administrative Agent prior to the date of such borrowing, as of the date of
such borrowing).
6.04 Determinations by Lenders. For purposes of determining
compliance with the conditions specified in Sections 6.01 and 6.02 hereof, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or be acceptable or satisfactory to the Majority Lenders
unless an officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from such Lender
prior to the initial Loan hereunder specifying its objection thereto, and such
Lender shall not have made available to the Administrative Agent such Lender's
ratable portion of such Loan.
Section 7. Representations and Warranties. The Company
represents and warrants to the Administrative Agent and the Lenders that:
7.01 Corporate Existence. Each of the Company and its
Restricted Subsidiaries: (a) is a corporation, partnership or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) have a Material Adverse Effect.
7.02 Financial Condition. The Company has heretofore furnished
to the Administrative Agent and the other Agents the following financial
statements:
(i) audited statements of income, partners capital and cash
flows of the Company for the fiscal year ended December 31, 1996, and
the related balance sheet of the Company as at the end of such fiscal
year;
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(ii) unaudited statements of income, partners capital and cash
flows of the Company for the nine-month period ended September 30,
1997, and the related balance sheet of the Company as at the end of
such fiscal period; and
(iii) financial statements with respect to each of the CATV
Systems being acquired pursuant to the Scheduled Acquisitions as set
forth in Schedule XI hereto.
None of the Company nor any of its Subsidiaries has on the date hereof any
material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said balance
sheets as at said dates and except as disclosed in Schedule VII hereto. Since
December 31, 1996, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects (x) of the Company and
its Restricted Subsidiaries taken as a whole from that set forth in said
financial statements as at said date referred to in clause (i) above, or (y) of
the CATV Systems (taken as a whole) to be purchased by the Company on or before
the Effective Date from that set forth in said financial statements referred to
in clause (iii) above.
7.03 Litigation. Except as disclosed in Schedule V hereto,
there are no legal or arbitral proceedings, or any proceedings by or before any
governmental or regulatory authority or agency, now pending or (to the knowledge
of the Company) threatened against the Company or any of its Subsidiaries or
against any Seller with respect to any Scheduled Acquisition (and in respect of
which the Company would be obligated after giving effect to such Scheduled
Acquisition), that, if adversely determined could (either individually or in the
aggregate) reasonably be expected to have a Material Adverse Effect.
7.04 No Breach. None of the execution and delivery of this
Agreement and the other Basic Documents, the consummation of the transactions
herein and therein contemplated or compliance with the terms and provisions
hereof and thereof will (a) conflict with or result in a breach of, or require
any consent under, (i) the Partnership Agreement, the partnership agreement of
the General Partner or the partnership agreement of its general partner or the
partnership agreement of its general partner or the charter or by-laws of its
general partner, or (ii) any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency (except as
otherwise provided in Section 7.06 hereof), or (iii) any agreement or instrument
to which the General Partner or the Company or any of its Subsidiaries is a
party or by which any of them or any of their Property is bound or to which any
of them is subject (except for any such conflict, breach or unobtained consent
that could not have a Material Adverse Effect and that could not result in any
liability of any Agent or any Lender), or (b) constitute a default under any
such agreement or instrument (except for any such default that could not have a
Material Adverse Effect and that could not result in any liability of any Agent
or any Lender), or (c) except for
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the Liens created pursuant to the Security Documents, result in the creation or
imposition of any Lien upon any Property of the General Partner, the Company or
any of its Subsidiaries pursuant to the terms of any such agreement or
instrument.
7.05 Action. The Company has all necessary partnership power,
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents to which it is a party; the execution, delivery and
performance by the Company of each of the Basic Documents to which it is a party
have been duly authorized by all necessary partnership action on its part; and
this Agreement has been duly and validly executed and delivered by the Company
and constitutes, and each of the other Basic Documents to which it is a party
when executed and delivered will constitute, its legal, valid and binding
obligation, enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability affecting
the enforcement of creditors' rights and (b) the application of general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
7.06 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange, are necessary for the execution, delivery
or performance by the Company of this Agreement or any of the other Basic
Documents to which it is a party or for the legality, validity or enforceability
hereof or thereof, except for (i) filings and recordings in respect of the Liens
created pursuant to the Security Documents, (ii) the authorizations, approvals,
consents, filings and registrations contemplated by the Acquisition Agreements
(each of which shall have been made or obtained on or before the date of the
closing of the respective acquisition thereunder, to the extent required under
the respective Acquisition Agreement to be obtained before such date) and (iii)
the exercise of remedies under the Security Documents (and the creation of a
valid security interest in Franchises and the other Collateral as contemplated
by the Security Agreement and 8.19 hereof) may require the prior approval of the
FCC or the issuing municipalities or States under one or more of the Franchises.
7.07 Use of Credit. None of the Company nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose, whether immediate, incidental
or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of
the Loans hereunder will be used to buy or carry any Margin Stock.
7.08 ERISA. Each Plan, and, to the knowledge of the Company,
each Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as
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to which the Company would be under an obligation to furnish a report to the
Administrative Agent under Section 8.01(e) hereof.
7.09 Taxes. The Company and the General Partner are
partnerships for Federal income tax purposes. The Company and its Subsidiaries
(and the General Partner) have filed all Federal income tax returns and all
other material tax returns and information statements that are required to be
filed by them and have paid all taxes due pursuant to such returns or pursuant
to any assessment received by the Company or any of its Subsidiaries. The
charges, accruals and reserves on the books of the Company and its Subsidiaries
in respect of taxes and other governmental charges are, in the opinion of the
Company, adequate. The Company has not given or been requested to give a waiver
of the statute of limitations relating to the payment of any Federal, state,
local and foreign taxes or other impositions.
7.10 Investment Company Act. Neither the Company nor any of
its Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
7.11 Public Utility Holding Company Act. Neither the Company
nor any of its Subsidiaries is a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
7.12 Material Agreements and Liens.
(a) Part A of Schedule II hereto is a complete and correct
list of each credit agreement, loan agreement, indenture, purchase agreement,
guarantee, letter of credit or other arrangement providing for or otherwise
relating to any Indebtedness or any extension of credit (or commitment for any
extension of credit) to, or guarantee by, the Company or any of its
Subsidiaries, outstanding on the date hereof, or that (after giving effect to
the transactions contemplated hereunder to occur on or before the Effective
Date) will be outstanding on the Effective Date, the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $5,000,000, and the
aggregate principal or face amount outstanding or that may become outstanding
under each such arrangement is correctly described in Part A of said Schedule
II.
(b) Part B of Schedule II hereto is a complete and correct
list of each Lien securing Indebtedness of any Person outstanding on the date
hereof, or that (after giving effect to the transactions contemplated hereunder
to occur on or before the Effective Date) will be outstanding on the Effective
Date, the aggregate principal or face amount of which equals or exceeds (or may
equal or exceed) $5,000,000 and covering any Property of the
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Company or any of its Subsidiaries, and the aggregate Indebtedness secured (or
that may be secured) by each such Lien and the Property covered by each such
Lien is correctly described in Part B of said Schedule II.
7.13 Environmental Matters. Each of the Company and its
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws to carry on its
business as now being or as proposed to be conducted, except to the extent
failure to have any such permit, license or authorization would not (either
individually or in the aggregate) reasonably be expected to have a Material
Adverse Effect. Each of such permits, licenses and authorizations is in full
force and effect and each of the Company and its Subsidiaries is in compliance
with the terms and conditions thereof, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Environmental
Law or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply therewith would not (either individually
or in the aggregate) reasonably be expected to have a Material Adverse Effect.
On the date hereof, except as set forth in Schedule VIII hereto, there are no
underground storage tanks or surface impoundments for Hazardous Materials,
active or abandoned, at any site or facility owned, operated or leased by the
Company.
7.14 Capitalization. The Company has heretofore delivered to
the Administrative Agent and the other Agents a true and complete copy of the
Partnership Agreement; the only General Partner of the Company on the date
hereof is FrontierVision Holdings and the only Limited Partner of the Company on
the date hereof is FrontierVision. As of the date hereof, except as set forth on
Schedule IX hereto, (x) there are no outstanding Equity Rights with respect to
the Company and (y) there are no outstanding obligations of the Company or any
of its Subsidiaries to repurchase, redeem, or otherwise acquire any partnership
or other equity interests in the Company nor are there any outstanding
obligations of the Company or any of its Subsidiaries to make payments to any
Person, such as "phantom stock" payments, where the amount thereof is calculated
with reference to the fair market value or equity value of the Company or any of
its Subsidiaries.
7.15 Subsidiaries, Etc.
(a) Set forth in Part A of Schedule III hereto is a complete
and correct list of all of the Subsidiaries of the Company as of the date hereof
(or as of the most recent date such Schedule shall be supplemented pursuant to
Section 8.05(b)(iv)(J)), or that will be Subsidiaries of the Company on the date
of any Scheduled Acquisition (after giving effect to such Scheduled Acquisition)
together with, for each Subsidiary, (i) the jurisdiction of organization of such
Subsidiary, (ii) each Person holding ownership interests in such
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Subsidiary and (iii) the nature of the ownership interest held by each such
Person and the percentage of ownership of such Subsidiary represented by such
ownership interests. Except as disclosed in Part A of Schedule III hereto, (x)
each of the Company and its Subsidiaries owns, or will own on the date of any
such supplement (or the date of any Scheduled Acquisition), free and clear of
Liens, and has the unencumbered right to vote, all outstanding ownership
interests in each Person shown to be held by it in Part A of Schedule III
hereto, (y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly, issued fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
(b) Set forth in Part B of Schedule III hereto is a complete
and correct list of all Investments (other than Investments of the type referred
to in paragraphs (b), (c) and (e) of Section 8.08 hereof) held by the Company or
any of its Subsidiaries in any Person on the date hereof, or that will be held
on the Effective Date (after giving effect to the transactions contemplated
hereunder to occur on or before the Effective Date) and, for each such
Investment, (x) the identity of the Person or Persons holding such Investment
and (y) the nature of such Investment. Except as disclosed in Part B of Schedule
III hereto, each of the Company and its Subsidiaries owns (or will own, after
giving effect to the transactions contemplated hereunder to occur on or before
the Effective Date), free and clear of all Liens (other than Liens created
pursuant to the Security Documents), all such Investments.
7.16 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Company to the Administrative Agent or any Lender in connection
with the negotiation, preparation or delivery of this Agreement and the other
Loan Documents or included herein or therein or delivered pursuant hereto or
thereto, when taken as a whole (together with the Information Memorandum) do not
contain any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by the Company and its Subsidiaries
to the Administrative Agent and the Lenders in connection with this Agreement
and the other Loan Documents and the transactions contemplated hereby and
thereby will be true, complete and accurate in every material respect, or (in
the case of projections) based on reasonable estimates, on the date as of which
such information is stated or certified. There is no fact known to the Company
that could reasonably be expected to have a Material Adverse Effect that has not
been disclosed herein, in the other Loan Documents or in a report, financial
statement, exhibit, schedule, disclosure letter or other writing furnished to
the Lenders for use in connection with the transactions contemplated hereby or
thereby.
7.17 Franchises. Set forth in Schedule IV hereto is a complete
and correct list of all Franchises (identified by issuing authority, franchisee
and expiration date) owned
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by the Company and its Subsidiaries as of the date hereof (or as of the most
recent date such Schedule shall be supplemented pursuant to Section
8.05(b)(iv)(J) hereof), or that (after giving effect to each Scheduled
Acquisition) will be owned by the Company and its Subsidiaries. Each of the
Company and its Subsidiaries possesses or has the right to use or will possess
or have the right to use on the date hereof (or, as applicable, on the date of
any such supplement or Scheduled Acquisition after giving effect thereto) all
such Franchises, and all copyrights, licenses, trademarks, service marks, trade
names or other rights, including licenses and permits granted by the FCC,
agreements with public utilities and microwave transmission companies, pole or
conduit attachment, use, access or rental agreements and utility easements that
are necessary for the conduct of the CATV Systems of the Company and its
Subsidiaries, except for such of the foregoing the absence of which could not
reasonably be expected to have a Material Adverse Effect on the Company or any
of its Subsidiaries, and each of such Franchises, copyrights, licenses, patents,
trademarks, service marks, trade names and rights is (or on the date of any such
supplement or Scheduled Acquisition, after giving effect thereto) in full force
and effect and no material default has occurred and is continuing thereunder. No
approval, application, filing, registration, consent or other action of any
local, state or federal authority is required to enable the Company or any of
its Subsidiaries to take advantage of the rights and privileges intended to be
conferred by any Franchise, except for approvals, applications, filings,
registrations, consents or other actions that (if not made or obtained) could
not reasonably be expected to have a Material Adverse Effect on the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has
received any notice from the granting body or any other governmental authority
with respect to any breach of any covenant under, or any default with respect
to, any Franchise. Complete and correct copies of all Franchises (other than
those relating to communities covered by the provisions of Section 505.91 of the
Ohio Revised Code) have heretofore been delivered to the Administrative Agent.
7.18 The CATV Systems.
(a) Each of the Company and its Subsidiaries, and the CATV
System owned by it on the date hereof (or that, after giving effect to any
Scheduled Acquisition or Subsequent Acquisition will be owned by it), are (or,
in the case of any CATV System acquired in a Scheduled Acquisition or a
Subsequent Acquisition, will on the date of such Scheduled Acquisition or
Subsequent Acquisition be) in compliance with all applicable federal, state and
local laws, rules and regulations, including without limitation, the
Telecommunications Act of 1996, the Communications Act of 1934, as amended, the
Cable Communications Policy Act of 1984, the Cable Television Consumer
Protection and Competition Act of 1992, the Copyright Act of 1976, as amended,
and the rules and policies of the FCC and the United States Copyright Office,
including, without limitation, rules and laws governing system registration, use
of aeronautical frequencies and signal carriage, equal employment opportunity,
cumulative leakage index testing and reporting, signal leakage, and
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subscriber privacy, except to the extent that the failure to so comply with any
of the foregoing could not (either individually or in the aggregate) reasonably
be expected to have a Material Adverse Effect. Without limiting the generality
of the foregoing (except to the extent that the failure to comply with any of
the following could not (either individually or in the aggregate) reasonably be
expected to have a Material Adverse Effect and except as set forth in Schedule
VI hereto:
(i) the communities included in the areas covered by the
Franchises have been registered with the FCC;
(ii) all of the periodic performance tests on such CATV
Systems required under the rules and policies of the FCC have been
performed and the results of such tests demonstrate satisfactory
compliance with the applicable requirements being tested in all
material respects;
(iii) such CATV Systems currently meet or exceed the technical
standards set forth in the rules and policies of the FCC, including,
without limitation, the leakage limits contained in 47 C.F.R. Section
76.605(a)(11);
(iv) such CATV Systems are being operated in compliance with
the provisions of 47 C.F.R. Sections 76.610 through 76.619 (mid-band
and super-band signal carriage), including 47 C.F.R. Section 76.611
(compliance with the cumulative signal leakage index);
(v) where required, appropriate authorizations from the FCC
have been obtained for the use of all aeronautical frequencies in use
in such CATV Systems and such CATV Systems are presently being operated
in compliance with such authorizations (and all required certificates,
permits and clearances from governmental agencies, including the
Federal Aviation Administration, with respect to all towers, earth
stations, business radios and frequencies utilized and carried by such
CATV Systems have been obtained);
(vi) all notices to subscribers of such CATV Systems and such
CATV Systems required by the rules and policies of the FCC have been
provided;
(vii) such CATV Systems are in compliance with Part V of Title
VI of the Communications Act of 1934, as amended, as well as any and
all rules and policies adopted by the FCC to implement said Part V; and
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(viii) such CATV Systems are in compliance with the provisions
of the Communications Decency Act of 1996 in effect, as well as any and
all FCC rules and policies in effect to implement said Act.
(b) All notices, statements of account, supplements and other
documents required under Section 111 of the Copyright Act of 1976, as amended,
and under the rules of the Copyright Office with respect to the carriage of
off-air signals by the CATV Systems owned by the Company and its Subsidiaries
have been duly filed, and the proper amount of copyright fees have been paid on
a timely basis, and each such CATV System qualifies for the compulsory license
under Section 111 of the Copyright Act of 1976, as amended, except to the extent
that the failure to so file or pay could not (either individually or in the
aggregate) reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth on Schedule VI hereto, the carriage of
all off-air signals by the CATV Systems owned by the Company and its
Subsidiaries on the date hereof (or that, after giving effect to any Scheduled
Acquisition or Subsequent Acquisition will be owned by it), are (or, in the case
of any CATV System acquired in a Scheduled Acquisition or Subsequent
Acquisition, will on the date of such Scheduled Acquisition or Subsequent
Acquisition be) permitted by valid retransmission consent agreements or by
must-carry elections by broadcasters, except to the extent the failure to obtain
any of the foregoing could not (either individually or in the aggregate)
reasonably be expected to have a Material Adverse Effect.
(d) Each of the Company and its Subsidiaries and each Seller
have complied with their respective obligations with regard to protecting the
privacy rights of any past or present customers of the CATV Systems owned by the
Company and its Subsidiaries on the date hereof (or, of the CATV Systems
acquired in any Scheduled Acquisition or Subsequent Acquisition on the date of
such Scheduled Acquisition or Subsequent Acquisition), except to the extent that
the failure to so comply could not (either individually or in the aggregate)
reasonably be expected to have a Material Adverse Effect.
(e) None of the Company nor its Subsidiaries has been denied
EEO certification by the FCC, and no FCC proceedings against any such Person in
respect of EEO violation are pending or, to the Company's knowledge, threatened.
(f) The assets of the CATV Systems owned by the Company and
its Subsidiaries on the date hereof (or, of the CATV Systems acquired in any
Scheduled Acquisition or Subsequent Acquisition on the date of such Scheduled
Acquisition or Subsequent Acquisition), are adequate and sufficient for all of
the current operations of such CATV System.
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7.19 Rate Regulation. Each of the Company and its Subsidiaries
have each reviewed and evaluated in detail the FCC rules currently in effect
(the "Rate Regulation Rules") implementing the rate regulation provisions of the
Cable Television Consumer Protection and Competition Act of 1992 as amended by
the Telecommunications Act of 1996 (as so amended, the "Rate Regulation Act").
Based upon such review and completion by the Company and its Subsidiaries of all
applicable worksheets contemplated by the Rate Regulation Rules for each CATV
System owned by the Company and its Subsidiaries on the date hereof (or, for the
CATV Systems acquired in any Scheduled Acquisition or Subsequent Acquisition on
the date of such Scheduled Acquisition or Subsequent Acquisition):
(i) none of such CATV Systems is (or, after giving effect to
such Acquisition will be) subject to effective competition as of the
date hereof;
(ii) except as set forth in Schedule VI hereto, no franchising
authority has notified the Company or any of its Subsidiaries or any
Seller of its application to be certified to regulate rates as provided
in Section 76.910 of the Rate Regulation Rules;
(iii) except as set forth in Schedule VI hereto, no
franchising authority has notified the Company or any of its
Subsidiaries or any Seller that it has been certified and has adopted
regulations required to commence regulation as provided in Section
76.910(e)(2) of the Rate Regulation Rules;
(iv) except to the extent that a franchising authority or the
FCC regulates rates pursuant to the Rate Regulation Rules, such CATV
Systems may continue to charge their current rates in compliance with
the Rate Regulation Act and the Rate Regulation Rules;
(v) such CATV Systems are otherwise in material compliance
with the Rate Regulation Act and the Rate Regulation Rules applicable
to them;
(vi) no reduction of rates or refunds to subscribers is
required thereunder as of the date hereof; and
(vii) except as set forth on Schedule VI hereto on the date
hereof (or on the date of any such supplement to such Schedule pursuant
to Section 8.05(b)(iv)(J) hereof), such CATV Systems are not subject to
any complaint at the FCC by any franchising authority concerning rates
for cable programming services, and neither the Company nor any of its
Subsidiaries is aware of any threat of or basis for the filing of any
such complaint.
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7.20 Scheduled Acquisition Agreements. The Company has
heretofore delivered to the Administrative Agent and the other Agents a true and
complete copy of each Scheduled Acquisition Agreement (except the Eastern Cable
Acquisition Agreement) (including all modifications or supplements to each
thereof) and each of such Scheduled Acquisition Agreements (except the Eastern
Cable Acquisition Agreement) has been duly executed and delivered by each party
thereto and is in full force and effect.
Section 8. Covenants of the Company. The Company covenants and
agrees with the Lenders and the Administrative Agent that, so long as any
Commitment or Loan is outstanding and until payment in full of all amounts
payable by the Company hereunder:
8.01 Financial Statements Etc. The Company shall deliver to
the Administrative Agent (in sufficient copies for each Lender, to the extent
such items are prepared for public distribution or filing) and the other Agents:
(a) as soon as available and in any event within 45 days after
the end of each quarterly fiscal period of each fiscal year of the
Company, consolidated statements of income, changes in partners'
capital and cash flows of the Company and its Subsidiaries (and,
separately stated, for the Company and its Restricted Subsidiaries) for
such period and for the period from the beginning of the respective
fiscal year to the end of such period, and the related consolidated
balance sheets of the Company and its Subsidiaries (and, separately
stated, for the Company and its Restricted Subsidiaries) as at the end
of such period, setting forth in each case in comparative form the
corresponding consolidated figures for the corresponding periods in the
preceding fiscal year (except that, in the case of balance sheets, such
comparison shall be to the last day of the prior fiscal year),
accompanied by a certificate of a Senior Officer, which certificate
shall state that said consolidated financial statements fairly present
the consolidated financial condition and results of operations of the
Company and its Subsidiaries (or the Company and its Restricted
Subsidiaries, as the case may be), in each case in accordance with
generally accepted accounting principles, consistently applied, as at
the end of, and for, such period (subject to normal year-end audit
adjustments), provided that the requirements of this Section 8.01(a)
with respect to financial statements of the Company and its
Subsidiaries may be satisfied by delivery by the Company (in accordance
with this Section 8.01(a)) of the Company's quarterly report filed on
Form 10-Q with the Securities and Exchange Commission;
(b) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, consolidated statements of
income, changes in partners' capital and cash flows of the Company and
its Subsidiaries (and, separately stated, for the Company and its
Restricted Subsidiaries) for such fiscal year and the related
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consolidated balance sheets of the Company and its Subsidiaries (and,
separately stated, for the Company and its Restricted Subsidiaries) as
at the end of such fiscal year, setting forth in each case in
comparative form the corresponding consolidated figures for the
preceding fiscal year, accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which
opinion shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations
of the Company and its Subsidiaries (or the Company and its Restricted
Subsidiaries, as the case may be) as at the end of, and for, such
fiscal year in accordance with generally accepted accounting
principles, and a statement of such accountants to the effect that, in
making the examination necessary for their opinion, nothing came to
their attention that caused them to believe that the Company was not in
compliance with Sections 8.07, 8.08, 8.09 or 8.10 hereof as at the end
of such fiscal year, insofar as such Sections relate to accounting
matters in accordance with generally accepted accounting principles,
consistently applied, as at the end of, and for, such fiscal year,
provided that the requirements of this Section 8.01(b) with respect to
financial statements of the Company and its Subsidiaries may be
satisfied by delivery by the Company (in accordance with this Section
8.01(b)) of the Company's annual report filed on Form 10-K with the
Securities and Exchange Commission;
(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with the Securities and Exchange Commission
(or any governmental agency substituted therefor) or any national
securities exchange;
(d) promptly upon the mailing thereof to the partners of the
Company or FrontierVision generally, or to holders of Subordinated
Indebtedness generally, copies of all financial statements, reports and
proxy statements so mailed;
(e) as soon as possible, and in any event within ten days
after the Company knows or has reason to believe that any of the events
or conditions specified below with respect to any Plan or Multiemployer
Plan has occurred or exists, a statement signed by a Senior Officer
setting forth details respecting such event or condition and the
action, if any, that the Company or its ERISA Affiliate proposes to
take with respect thereto (and a copy of any report or notice required
to be filed with or given to the PBGC by the Company or an ERISA
Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section
4043(c) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which the PBGC has not by regulation
waived the requirement of Section 4043(a) of
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ERISA that it be notified within 30 days of the occurrence of
such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of
ERISA, including, without limitation, the failure to make on
or before its due date a required installment under Section
412(m) of the Code or Section 302(e) of ERISA, shall be a
reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code); and any request
for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of
a notice of intent to terminate any Plan or any action taken
by the Company or an ERISA Affiliate to terminate any Plan;
(iii) the institution by the PBGC of proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by the Company
or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against the Company or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is
not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, would result in the loss of tax-exempt status of the
trust of which such Plan is a part if the Company or an ERISA
Affiliate fails to timely provide security to the Plan in
accordance with the provisions of said Sections;
(f) within 45 days after the end of each quarterly fiscal
period of the Company, a Quarterly Officer's Report as at the end of
such period;
(g) promptly after the Company knows or has reason to believe
that any Default has occurred, a notice of such Default describing the
same in reasonable
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detail and, together with such notice or as soon thereafter as
possible, a description of the action that the Company has taken or
proposes to take with respect thereto; and
(h) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company
or any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) as any Lender or the Administrative Agent may
reasonably request.
The Company will furnish to the Administrative Agent and the other Agents, at
the time it furnishes each set of financial statements pursuant to paragraph (a)
or (b) above, a certificate of a Senior Officer (i) to the effect that no
Default has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing the action
that the Company has taken or proposes to take with respect thereto) and (ii)
setting forth in reasonable detail the computations necessary to determine
whether the Company is in compliance with Sections 8.07(e), 8.07(f), 8.09 and
8.10 hereof, and a calculation of the Debt Ratio and Senior Debt Ratio, as of
the end of the respective quarterly fiscal period or fiscal year. The
Administrative Agent shall promptly, upon delivery by the Company, deliver to
each Lender the documents provided for in this Section 8.01.
8.02 Litigation. The Company will promptly give to the
Administrative Agent and the other Agents notice of all legal or arbitral
proceedings, and of all proceedings by or before any governmental or regulatory
authority or agency, and any material development in respect of such legal or
other proceedings, affecting the Company or any of its Subsidiaries or any of
their Franchises, except proceedings that, if adversely determined, could not
(either individually or in the aggregate) reasonably be expected to have a
Material Adverse Effect. Without limiting the generality of the foregoing, the
Company will give to the Administrative Agent and the other Agents (i) notice of
the assertion of any Environmental Claim by any Person against, or with respect
to the activities of, the Company or any of its Subsidiaries and notice of any
alleged violation of or non-compliance with any Environmental Laws or any
permits, licenses or authorizations, other than any Environmental Claim or
alleged violation that, if adversely determined, could not (either individually
or in the aggregate) reasonably be expected to have a Material Adverse Effect
and (ii) copies of any notices received by the Company or any of its
Subsidiaries under any Franchise of a material default by the Company or
Subsidiary in the performance of its obligations thereunder.
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8.03 Existence, Etc. The Company will, and will cause each of
its Restricted Subsidiaries (except in the case of clause (c) below which shall
apply to all Subsidiaries) to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (provided that
nothing in this Section 8.03 shall prohibit any transaction expressly
permitted under Section 8.05 hereof);
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities
if failure to comply with such requirements could (either individually
or in the aggregate) have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied; and
(f) permit representatives of any Lender or the Administrative
Agent, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect any of its Properties, and to
discuss its business and affairs with its officers, all to the extent
reasonably requested by such Lender or the Administrative Agent (as the
case may be).
8.04 Insurance. The Company will, and will cause each of its
Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies, and with respect to Property and risks of a character
usually maintained by corporations engaged in the same or similar business
similarly situated, against loss, damage and liability of the kinds and in the
amounts customarily maintained by such corporations, provided that the Company
will in any event maintain (with respect to itself and each of its Restricted
Subsidiaries) casualty insurance and insurance against claims for damages with
respect to defamation, libel, slander, privacy or other similar injury to person
or reputation (including misappropriation of personal likeness), in such amounts
as are then customary for Persons engaged in the same or similar business
similarly situated (such insurance to cover, with
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respect to any business acquired pursuant to any Acquisition, claims arising out
of events occurring prior to the date of such acquisition), and shall designate
the Administrative Agent as loss payee with respect to any such casualty
insurance covering tangible Property.
8.05 Prohibition of Fundamental Changes.
(a) Mergers and Consolidations, Etc. The Company will not, nor
will it permit any of its Restricted Subsidiaries to, enter into any transaction
of merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution); provided that, subject to
Section 8.14 hereof, and so long as after giving effect thereto no Default shall
have occurred and be continuing hereunder, (i) any Subsidiary of the Company may
be merged into or consolidated with the Company or any Subsidiary Guarantor so
long as the Company or a Subsidiary Guarantor is the continuing or surviving
party, (ii) any Subsidiary of the Company may liquidate or dissolve into the
Company or any Subsidiary Guarantor and (iii) the Company and its Restricted
Subsidiaries may enter into the transactions permitted under clause (iv) of
paragraph (b) below.
(b) Acquisitions. The Company will not, nor will it permit any
of its Restricted Subsidiaries to, acquire any business or Property from or
capital stock of, or be a party to any acquisition of, any Person except:
(i) the Scheduled Acquisitions;
(ii) purchases of equipment, programming rights and other
Property to be sold or used in the ordinary course of business;
(iii) Capital Expenditures; and
(iv) the Company and its Wholly Owned Restricted Subsidiaries
may acquire any CATV System, and the related assets (any such CATV
System being hereinafter referred to as an "Acquired System"), whether
by way of an exchange of CATV Systems, the purchase of assets or stock,
by merger or consolidation or otherwise, so long as:
(A) the aggregate Purchase Price of all such
acquisitions (other than CATV Systems acquired pursuant to
Scheduled Acquisitions) shall not exceed the Permitted
Acquisition Amount and the aggregate Purchase Price of any
individual such acquisition (other than a CATV System acquired
pursuant to Scheduled Acquisitions) shall not exceed
$150,000,000;
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(B) such acquisition (if by purchase of stock or
other ownership interests) shall be effected in such manner so
that the acquired entity becomes a Wholly Owned Subsidiary of
the Company;
(C) no later than (1) thirty days prior to the
consummation of such acquisition (or such earlier date as
shall be five Business Days after the execution and delivery
thereof), the Company shall have delivered to the
Administrative Agent executed counterparts of the respective
Acquisition Agreement pursuant to which such acquisition is to
be consummated (and forms, to the extent agreed to, of any
other agreements, including any management, non-compete,
employment, option or other material agreements to be executed
in connection with the closing thereunder), any schedules to
such agreements or instruments and (promptly upon their
becoming available) all other material ancillary documents to
be executed or delivered in connection therewith, (2) promptly
following request therefor, copies of such other information
or documents relating to such acquisition as the
Administrative Agent, or the Majority Lenders (through the
Administrative Agent), shall have requested, and (3) promptly
following the consummation of such acquisition, certified
copies of the agreements, instruments and documents referred
to in the foregoing clause (1) as shall have been executed and
delivered in connection therewith;
(D) the agreements, instruments and other documents
referred to in the foregoing clause (C) shall, except to the
extent otherwise consented to by the Majority Lenders, provide
that:
(1) the entire amount of the consideration
payable by the Company and its Restricted
Subsidiaries in connection with such acquisition
(other than (x) customary post-closing adjustments,
escrow and purchase price holdback and indemnity
obligations, (y) Indebtedness incurred in connection
with such acquisition that is permitted under Section
8.07(f) hereof and (z) Other Equity Interests issued
to the relevant Seller or Sellers in connection with
such acquisition in accordance with Section 8.13
hereof) shall be payable on the date of such
acquisition,
(2) neither the Company nor any of its
Restricted Subsidiaries shall, in connection with
such acquisition, assume or remain liable in respect
of (x) any Indebtedness of the Seller or Sellers of
such Acquired System (or the entity owning such
Acquired System) except for Indebtedness permitted
under Section 8.07(f) hereof or (y) other
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obligations of the Seller or Sellers of such Acquired
System, except for obligations incurred by the
respective Seller in the ordinary course of business
in operating such CATV System and that are necessary
or desirable to the continued operation of such CATV
System (and, in the event such Acquired System (or
the entity owning such Acquired System) is obligated
in respect of any Indebtedness or other obligations
not permitted under the foregoing subclauses (x) or
(y), then concurrently with such acquisition any such
Indebtedness or other obligations shall be released
as to the assets or entity being so acquired) and
(3) all Property to be acquired in
connection with such acquisition (or that is owned by
the Seller of such Acquired System on the date of
such acquisition) shall be free and clear of any and
all Liens, except to the extent permitted by Section
8.06 hereof (and in the event any such Property is
subject to any Lien not permitted by this clause (3)
then concurrently with such acquisition such Lien
shall be released);
(E) to the extent applicable, the Company shall have
complied with the provisions of Sections 8.17 and 8.19 hereof,
including, without limitation, (1) delivery to the
Administrative Agent of the certificates evidencing the
capital stock or other ownership interests of any new
Restricted Subsidiary acquired pursuant to such acquisition,
accompanied by undated stock or other powers executed in blank
and (2) delivery to the Administrative Agent of the
agreements, instruments, opinions of counsel and other
documents required under Section 8.17 hereof;
(F) immediately prior to such acquisition and after
giving effect thereto, no Default shall have occurred or be
continuing;
(G) after giving effect to such acquisition the
Company shall be in compliance with Section 8.10 hereof (the
determination of such compliance to be calculated on a pro
forma basis), as at the end of and for the period of four
fiscal quarters most recently ended prior to the date of such
acquisition for which financial statements of the Company and
its Restricted Subsidiaries are available, under the
assumption that such acquisition shall have occurred, and any
Indebtedness in connection therewith shall have been incurred,
at the beginning of the applicable period, and under the
assumption that interest for such period had been equal to the
actual weighted average interest rate in effect for the Loans
hereunder on the date of such acquisition, and the
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Company shall have delivered to the Administrative Agent a
certificate of a Senior Officer showing such calculations in
reasonable detail to demonstrate such compliance;
(H) in connection with such acquisition, if requested
by the Administrative Agent, or the Majority Lenders (through
the Administrative Agent), the Company shall have delivered to
the Administrative Agent an Acquisition Environmental Survey,
in form and substance reasonably satisfactory to the Majority
Lenders reflecting that the Acquired System will not be
subject to any material environmental liabilities;
(I) to the extent requested by the Administrative
Agent, or the Majority Lenders (through the Administrative
Agent), the Company shall have delivered evidence satisfactory
to the Administrative Agent and the Majority Lenders that the
Company and its Restricted Subsidiaries will not become
liable, contingently or otherwise, in respect of any material
tax or ERISA liability of the Seller of the Acquired System as
a result of such acquisition; and
(J) the Company shall have delivered to the
Administrative Agent (which shall promptly forward copies
thereof to each Lender) a revised Part A of Schedule III
hereto, and revised Schedules IV and VII hereto, such that
after giving effect to such acquisition, the representations
set forth in Sections 7.15(a), 7.17, 7.18, 7.19 and 7.20
hereof (assuming that each reference to the Effective Date
therein referred to the date such acquisition is consummated
(after giving effect thereto)) shall be true and complete as
of such date.
(c) Dispositions. The Company will not, nor will it permit any
of its Restricted Subsidiaries to, convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or a substantial
part of its business or Property, whether now owned or hereafter acquired
(including, without limitation, receivables and leasehold interests), but
excluding:
(i) obsolete or worn-out Property, tools or equipment no
longer used or useful in its business,
(ii) any equipment, programming rights or other Property sold
or disposed of in the ordinary course of business and on ordinary
business terms,
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(iii) any such conveyance, sale, lease, transfer or other
disposition by any Restricted Subsidiary of the Company to the Company
or to any other Restricted Subsidiary of the Company, and
(iv) dispositions of one or more CATV Systems (whether for
cash or for Disposition Investments, and including dispositions in
exchange for other CATV Systems), so long as the aggregate fair market
value of the CATV Systems disposed of in all such dispositions shall
not exceed $150,000,000.
8.06 Limitation on Liens. The Company will not, nor will it
permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon any of its Property, whether now owned or hereafter
acquired, except:
(a) Liens created pursuant to the Security Documents;
(b) Liens in existence on the date hereof and listed in Part B
of Schedule II hereto, and Liens on cash and cash equivalents securing
obligations of the Company in respect of Interest Rate Protection
Agreements, so long as the aggregate fair market value of the cash and
cash equivalents subject to such Liens does not exceed $3,000,000;
(c) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or the affected
Restricted Subsidiaries, as the case may be, in accordance with GAAP;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in an Event of Default under Section 9(j) hereof;
(e) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(f) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory obligations,
surety and appeal bonds, performance bonds (including, without
limitation, performance bonds required pursuant to the
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terms of any Franchise) and other obligations of a like nature incurred
in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that, in the aggregate, are not material in amount, and that do
not interfere with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries with respect to any CATV System
or CATV Systems that in the aggregate provide service to more than 5%
of Subscribers of the Company and its Restricted Subsidiaries
(determined as at any date);
(h) Liens upon real and/or tangible personal Property acquired
after the date hereof (by purchase, construction or otherwise) by the
Company or any of its Restricted Subsidiaries, each of which Liens
either (A) existed on such Property before the time of its acquisition
and was not created in anticipation thereof or (B) was created solely
for the purpose of securing Indebtedness representing, or incurred to
finance, refinance or refund, the cost (including the cost of
construction) of such Property; provided that (i) no such Lien shall
extend to or cover any Property of the Company or such Restricted
Subsidiary other than the Property so acquired and improvements thereon
and (ii) the principal amount of Indebtedness secured by any such Lien
shall at no time exceed the fair market value (as determined in good
faith by a Senior Officer) of such Property at the time it was acquired
(by purchase, construction or otherwise); and
(i) Liens on the Investments permitted under Section 8.08(k).
8.07 Indebtedness. The Company will not, nor will it permit
any of its Restricted Subsidiaries to, create, incur or suffer to exist any
Indebtedness except:
(a) Indebtedness to the Lenders hereunder;
(b) Indebtedness outstanding on the date hereof and listed in
Part A of Schedule II hereto (excluding, however, following the making
of the initial Loans hereunder, Indebtedness to be repaid with the
proceeds of such Loans, as indicated on said Schedule II);
(c) Indebtedness of the Company and FrontierVision Capital in
respect of Subordinated Indebtedness in an aggregate original principal
amount not exceeding $200,000,000, and subordinated Guarantees of such
Subordinated Indebtedness by
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Restricted Subsidiaries of the Company pursuant to the Senior
Subordinated Debt Documents;
(d) Indebtedness of Restricted Subsidiaries of the Company to
the Company or to other Restricted Subsidiaries of the Company;
(e) Indebtedness of the Company and its Restricted
Subsidiaries in respect of letters of credit or performance bonds
required pursuant to the terms of Franchises or other agreements to
which the Company or any of its Restricted Subsidiaries may be parties,
so long as the aggregate amount thereof does not exceed $50,000,000 at
any one time outstanding; and
(f) additional Indebtedness of the Company and its Restricted
Subsidiaries (including, without limitation, Capital Lease Obligations
and other Indebtedness secured by Liens permitted under Sections
8.06(h) hereof) up to but not exceeding $25,000,000 at any one time
outstanding.
Anything in this Agreement to the contrary notwithstanding,
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly Guarantee any Indebtedness of FrontierVision Holdings or
FrontierVision Holdings Capital Corporation if, as a result thereof, the Company
or any of its Restricted Subsidiaries would become obligated under the Senior
Discount Debt Indenture to Guarantee the obligations of FrontierVision Holdings
and FrontierVision Holdings Capital Corporation in respect of the Senior
Discount Debt.
8.08 Investments. The Company will not, nor will it permit any
of its Restricted Subsidiaries to, make or permit to remain outstanding any
Investments except:
(a) Investments outstanding on the date hereof and identified
in Schedule III hereto;
(b) operating deposit accounts with banks;
(c) Permitted Investments;
(d) escrow or deposit accounts established in connection with
the Scheduled Acquisitions or Subsequent Acquisitions, so long as the
funds held in such accounts are held in the form of cash or Permitted
Investments;
(e) Investments by the Company and its Restricted Subsidiaries
in the Company and its Restricted Subsidiaries;
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(f) Investments constituting Subsequent Acquisitions by the
Company and its Restricted Subsidiaries made in accordance with Section
8.05(b)(iv) hereof;
(g) Interest Rate Protection Agreements entered into in the
ordinary course of the Company's financial planning and not for
speculative purposes (including Interest Rate Protection Agreements
entered into in accordance with Section 8.12 hereof);
(h) loans to employees of the Company or any of its Restricted
Subsidiaries or Affiliates in an aggregate amount (as to all such
employees) up to $5,000,000 at any one time outstanding;
(i) Investments (collectively, "Disposition Investments")
received in connection with any Disposition by the Company or any of
its Restricted Subsidiaries permitted hereunder and representing all or
a part of the non-cash portion of the consideration received by the
Company and its Restricted Subsidiaries pursuant to such Disposition,
provided that (i) the aggregate amount of Disposition Investments
received in connection with any single Disposition shall not exceed 25%
of the fair market value of the consideration received in connection
therewith, and the aggregate amount of Disposition Investments received
in connection with all Dispositions shall not exceed $75,000,000 and
(ii) the respective certificates and notes evidencing such Disposition
Investments are delivered in pledge to the Administrative Agent
pursuant to the Security Agreement;
(j) the Guarantees referred to in Section 8.07(c) hereof; and
(k) additional Investments (including, without limitation,
Investments in Unrestricted Subsidiaries) in an aggregate amount up to
but not exceeding $25,000,000 at any one time outstanding or, following
the date upon which the Debt Ratio shall have been less than 5.00 to 1
as at the last day of two or more consecutive fiscal quarters in an
aggregate amount up to but not exceeding $50,000,000, it being
understood that the Company shall not be required to pledge any of such
Investments as collateral security pursuant to the Security Documents.
For purposes of the foregoing clause (k), the aggregate amount
of an Investment at any one time shall be deemed to be equal to (A) the
aggregate amount of cash, together with the aggregate fair market value of
property, loaned, advanced, contributed, transferred or otherwise invested that
gives rise to such Investment minus (B) the aggregate amount of dividends,
distributions or other payments received in cash in respect of such Investment,
provided that the amount of an Investment shall not in any event be reduced by
reason of any write-off of such Investment.
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8.09 Restricted Payments. The Company will not, nor will it
permit any of its Restricted Subsidiaries to, make any Restricted Payment at any
time, except that so long as at the time thereof and after giving effect thereto
no Default shall have occurred and be continuing, the Company may:
(a) make Restricted Payments to its Partners during any fiscal
quarter in an amount equal to the Tax Payment Amount for the
immediately preceding fiscal quarter, so long as (i) at least fifteen
days prior to making any such Restricted Payment, the Company shall
have delivered to the Administrative Agent and the other Agents
notification of the amount of the Restricted Payment to be made during
such fiscal quarter and (ii) on or prior to April 12 of each fiscal
year the Company shall have delivered to the Administrative Agent and
the other Agents a statement from the Company's independent certified
public accountants setting forth a detailed calculation of the
aggregate Tax Payment Amount for the prior fiscal year and showing the
amount of each individual Restricted Payment made during such fiscal
year and all prior Restricted Payments made pursuant to this Section
8.09;
(b) after the earlier of (i) December 31, 2001 or (ii) the
date upon which the Debt Ratio shall have been less than 5.00 to 1 as
at the last day of two or more consecutive fiscal quarters (except for
periods after the Debt Ratio shall be greater than 5.00 to 1, unless
the Debt Ratio shall again be less than 5.00 to 1 as at the last day of
two or more consecutive fiscal quarters), the Company may make
Restricted Payments in an amount necessary to enable FrontierVision
Holdings and FrontierVision Holdings Capital Corporation to make
payments in respect of the Senior Discount Debt;
(c) make Restricted Payments to its Partners in cash to enable
FrontierVision Holdings to pay out-of-pocket accounting fees, legal
fees and the like in an aggregate amount not exceeding $200,000 during
any fiscal year; and
(d) make Restricted Payments to its Partners in cash in an
aggregate amount up to but not exceeding $25,000,000 during the term of
this Agreement, provided that to the extent the aggregate amount of
such Restricted Payments shall exceed $5,000,000, such Restricted
Payment shall not be made unless the Debt Ratio as at the last day of
the two most recent fiscal quarters shall have been less than 5.00 to
1,
it being understood that the amount of Restricted Payments that may be made
pursuant to any of the above clauses (a) through (d) shall be exclusive of the
amount of Restricted Payments that may be made pursuant to any of the other of
the above clauses (a) through (d). Nothing herein shall be deemed to prohibit
the payment of dividends, distributions or other amounts
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by any Restricted Subsidiary of the Company to the Company or to any other
Restricted Subsidiary of the Company.
8.10 Certain Financial Covenants.
(a) Senior Debt Ratio. The Company will not permit the Senior
Debt Ratio (determined in accordance with Section 8.10(e) hereof) to exceed the
following respective ratios at any time during the following respective periods:
Period Ratio
From the Effective Date
through and including
June 29, 1999 5.50 to 1
From June 30, 1999
through and including
December 30, 1999 5.25 to 1
From December 31, 1999
through and including
December 30, 2000 5.00 to 1
From December 31, 2000
through and including
December 30, 2001 4.50 to 1
From December 31, 2001
and at all times
thereafter 4.00 to 1
(b) Debt Ratio. The Company will not permit the Debt Ratio
(determined in accordance with Section 8.10(e) hereof) to exceed the following
respective ratios at any time during the following respective periods:
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Period Ratio
From the Effective Date
through and including
June 29, 1999 6.75 to 1
From June 30, 1999
through and including
December 30, 1999 6.50 to 1
From December 31, 1999
through and including
December 30, 2000 6.25 to 1
From December 31, 2000
through and including
December 30, 2001 5.50 to 1
From December 31, 2001
and at all times
thereafter 5.00 to 1
(c) Interest Coverage Ratio. The Company will not permit the
Interest Coverage Ratio (determined in accordance with Section 8.10(e) hereof)
to be less than the following respective ratios at any time during the following
respective periods:
Period Ratio
From the Effective Date
through and including
June 29, 1999 1.50 to 1
From June 30, 1999
through and including
December 30, 1999 1.75 to 1
From December 31, 1999
and at all times
thereafter 2.00 to 1
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(d) Fixed Charges Ratio. The Company will not permit the Fixed
Charges Ratio (determined in accordance with Section 8.10(e) hereof) to be less
than the following respective ratios at any time during the following respective
periods:
Period Ratio
From the Effective Date
through and including
December 31, 1998 1.00 to 1
From January 1, 1999
and at all times
thereafter 1.05 to 1
(e) Computations of Ratios. Solely for purposes of computing
the Senior Debt Ratio, Debt Ratio, Interest Coverage Ratio and Fixed Charges
Ratio for purposes of this Section 8.10:
(i) Indebtedness shall be deemed to exclude obligations in
respect of undrawn letters of credit, performance bonds and similar
instruments issued or accepted by banks and other financial
institutions in the ordinary course of business of the Company and its
Restricted Subsidiaries; and
(ii) at any time when proceeds of a Disposition are held by
the Administrative Agent in the Collateral Account, the amount of Loans
outstanding hereunder at such time shall be deemed to be net of the
balance of the cash and investments held in the Collateral Account at
such time.
8.11 [INTENTIONALLY OMITTED]
8.12 Interest Rate Protection Agreements. The Company will
within 90 days of the Effective Date (to the extent necessary after taking into
account the Interest Rate Protection Agreements entered into pursuant to the
requirements of Section 8.12 of the Existing Credit Agreement) enter into, and
thereafter maintain in full force and effect, one or more Interest Rate
Protection Agreements with one or more of the Lenders (and/or with a bank or
other financial institution having capital, surplus and undivided profits of at
least $500,000,000), as to a notional principal amount that (taken together with
all existing Interest Rate Protection Agreements and the fixed interest rate on
the Subordinated Indebtedness) will equal 50% of the then outstanding aggregate
principal amount of all Indebtedness of the Company and its Subsidiaries; such
Interest Rate Protection Agreements shall cover the three-year period commencing
on the Effective Date, so that the Company effectively limits,
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in a manner satisfactory to the Majority Lenders, the weighted interest rate of
the Loans to an interest rate satisfactory to the Majority Lenders.
8.13 Subordinated Indebtedness; Other Equity Interests.
(a) The Company may, after the date of this Agreement, issue
limited partnership interests:
(1) to one or more Sellers as all or part of the Purchase
Price of CATV Systems acquired in Subsequent Acquisitions;
(2) to officers and employees of the Company and its
Restricted Subsidiaries; and
(3) to other Persons for cash,
in each case provided that (i) the agreements, instruments and other documents
evidencing or representing such limited partnership interests expressly provide
that no payments of any Restricted Payments in respect thereof may be made at
any time prior to the payment in full in cash of the principal of and interest
on, and all other amounts owing in respect of, the Loans and other obligations
hereunder and under the other Loan Documents, (ii) none of the Company's
Restricted Subsidiaries is contingently or otherwise obligated in respect
thereof, (iii) such limited partnership interests shall be pledged to the
Administrative Agent for the benefit of the Lenders to secure the obligations of
the Company hereunder and under the other Basic Documents and to secure the Pari
Passu Obligations and (iv) both immediately prior thereto and after giving
effect to the issuance thereof no Default shall have occurred and be continuing
(and the Administrative Agent shall have received a certificate of a Senior
Officer to such effect), all on terms and conditions, and pursuant to
documentation, in form and substance satisfactory the Majority Lenders.
(b) The Company will not, nor will it permit any of its
Restricted Subsidiaries to, purchase, redeem, retire or otherwise acquire for
value, or set apart any money for a sinking, defeasance or other analogous fund
for the purchase, redemption, retirement or other acquisition of, or make any
voluntary payment or prepayment of the principal of or interest on, or any other
amount owing in respect of, any Subordinated Indebtedness, except for regularly
scheduled payments or prepayments of principal and interest in respect thereof
required pursuant to the instruments evidencing such Subordinated Indebtedness.
The Company will not, nor will it permit any of its Restricted Subsidiaries to,
purchase, redeem, retire or otherwise acquire for value, or set apart any money
for a sinking, defeasance or other analogous fund for the purchase, redemption,
retirement or other acquisition of, or make any Restricted Payment or other
payment in respect of, any Other Equity Interest.
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(c) The Company will not, nor will it permit any of its
Restricted Subsidiaries to, purchase, redeem, retire or otherwise acquire for
value, or set apart any money for a sinking, defeasance or other analogous fund
for the purchase, redemption, retirement or other acquisition of, or make any
voluntary payment or prepayment of the principal of or interest on, or any other
amount owing in respect of, any Senior Discount Debt, except for regularly
scheduled payments or prepayments of principal and interest in respect thereof
required pursuant to the instruments evidencing such Senior Discount Debt to the
extent as permitted under Section 8.09(b) hereof.
8.14 Lines of Business. The Company will not, nor will it
permit any of its Restricted Subsidiaries to, engage to any substantial extent
in any line or lines of business activity other than the business of owning and
operating CATV Systems and related businesses.
8.15 Transactions with Affiliates. Except as expressly
permitted by this Agreement, the Company will not, nor will it permit any of its
Restricted Subsidiaries to, directly or indirectly: (a) make any Investment in
an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or purchase or
acquire Property from an Affiliate; (d) make any contribution towards, or
reimbursement for, any Federal income taxes payable by any Partner (or the
holders of any direct or indirect ownership interest in any Partner) in respect
of income of the Company; or (e) enter into any other transaction directly or
indirectly with or for the benefit of an Affiliate (including, without
limitation, Guarantees and assumptions of obligations of an Affiliate); provided
that, notwithstanding the foregoing:
(x) any Affiliate who is an individual may serve as a
director, officer or employee of the Company or any of its Restricted
Subsidiaries and receive reasonable compensation for his or her
services in such capacity,
(y) the Company and its Restricted Subsidiaries may enter into
transactions (other than extensions of credit by the Company or any of
its Restricted Subsidiaries to an Affiliate) providing for the leasing
of Property, the rendering or receipt of services (other than
investment banking services, unless the advisory committee or board of
directors, as the case may be, of FrontierVision LP shall have approved
such services) or the purchase or sale of equipment, programming
rights, advertising time and other Property in the ordinary course of
business if the monetary or business consideration arising therefrom
would be substantially as advantageous to the Company and its
Restricted Subsidiaries as the monetary or business consideration that
would obtain in a comparable transaction with a Person not an Affiliate
and
(z) any Lender (and any Control Affiliate of a Lender) may
extend credit to the Company and its Restricted Subsidiaries, enter
into Interest Rate Protection Agreements with the Company and its
Restricted Subsidiaries or provide other services (other than
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investment banking services, which shall be governed by clause (y)
above) to the Company and its Restricted Subsidiaries in the ordinary
course of business of such Lender (and such Control Affiliate), in each
case to the extent that the Company and the respective Restricted
Subsidiary are permitted to engage in such transaction hereunder and
the monetary or business consideration arising therefrom would be
substantially as advantageous to the Company and its Restricted
Subsidiaries as the monetary or business consideration that would
obtain in a comparable transaction with a Person not an Affiliate.
8.16 Use of Proceeds. The Company will use the proceeds of the
Loans hereunder (i) to finance the Scheduled Acquisitions and Subsequent
Acquisitions, (ii) to finance payments of fees, commissions and expenses in
connection with the Acquisitions, (iii) to pay the principal of and interest on,
and all other amounts owing in respect of the UVC Notes on the Effective Date
and (iv) for general business purposes (in compliance with all applicable legal
and regulatory requirements, including, without limitation, Regulations G, T, U
and X and the Securities Act of 1933 and the Securities Exchange Act of 1934 and
the regulations thereunder); provided that (i) any borrowing of Revolving Credit
Loans hereunder that would constitute a utilization of any Reserved Commitment
Amount shall be applied solely to make Subsequent Acquisitions permitted under
Section 8.05(b)(iv) hereof, or to make prepayments of Loans under Section
2.09(d)(y)(B) hereof and (ii) neither the Administrative Agent nor any Lender
shall have any responsibility as to the use of any of the proceeds of any Loans
hereunder.
8.17 Certain Obligations Respecting Restricted Subsidiaries.
(a) Subsidiary Guarantors. In the event that the Company or
any of its Restricted Subsidiaries shall form or acquire any Subsidiary after
the Effective Date (after obtaining any necessary consent of the Lenders), then
(unless such new Subsidiary is an Unrestricted Subsidiary) the Company shall
cause, and shall cause its Restricted Subsidiaries to cause, such Subsidiary to:
(i) execute and deliver to the Administrative Agent a
Subsidiary Guarantee Agreement in the form of Exhibit F hereto (and,
thereby, to become a "Subsidiary Guarantor", and an "Obligor" hereunder
and a "Securing Party" under the Security Agreement);
(ii) deliver the shares of its stock accompanied by undated
stock powers executed in blank to the Administrative Agent, and to take
other such action, to the extent required under Section 8.19 hereof
(including, without limitation, executing and delivering such Uniform
Commercial Code financing statements and Mortgages covering the
Property owned or leased by such Restricted Subsidiary), as shall be
necessary to create and perfect valid and enforceable first priority
Liens (other than perfection of
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security interests in fixtures (under and as defined in the Uniform
Commercial Code) and Motor Vehicles (under and as defined in the
Security Agreement) and subject to Liens permitted under Section 8.06
hereof) on substantially all of the Property of such new Subsidiary as
collateral security for the obligations of such new Subsidiary under
the Subsidiary Guarantee Agreement, and
(iii) deliver such proof of corporate action, incumbency of
officers, opinions of counsel and other documents as is consistent with
those delivered by each Credit Party pursuant to Section 6.01 hereof on
the Effective Date or as the Administrative Agent shall have reasonably
requested.
(b) Ownership of Subsidiaries. The Company will, and will
cause each of its Restricted Subsidiaries to, take such action from time to time
as shall be necessary to ensure that each of its Restricted Subsidiaries is a
Wholly Owned Subsidiary. In the event that any additional shares of stock or
other ownership interests shall be issued by any Restricted Subsidiary, the
Company agrees forthwith to deliver to the Administrative Agent pursuant to the
Security Agreement the certificates evidencing such shares of stock or other
ownership interests, accompanied by undated stock or other powers executed in
blank and to take such other action as the Administrative Agent shall request to
perfect the security interest created therein pursuant to the Security
Agreement.
(c) Certain Restrictions. Other than the Senior Subordinated
Debt Documents, the Company will not permit any of its Restricted Subsidiaries
to enter into, after the date hereof, any indenture, agreement, instrument or
other arrangement that, directly or indirectly, prohibits or restrains, or has
the effect of prohibiting or restraining, or imposes materially adverse
conditions upon, the incurrence or payment of Indebtedness, the granting of
Liens, the declaration or payment of dividends, the making of loans, advances or
Investments or the sale, assignment, transfer or other disposition of Property.
(d) FrontierVision Capital. FrontierVision Capital will own no
Property, will have no Indebtedness (other than its Guarantee of Indebtedness
hereunder and Indebtedness in respect of the Subordinated Indebtedness), will
have no operations (other than de minimis operations incidental to its
activities in connection with the foregoing) and, in furtherance of the
foregoing, will not make any expenditures or incur any liabilities other than
those consistent with and reasonably necessary in the conduct of its business as
contemplated by this Section 8.17(d).
8.18 Modifications of Certain Documents. The Company will not
consent to any modification, supplement or waiver of any of the
provisions of
(i) any Senior Subordinated Debt Document or any other
agreement, instrument or other document evidencing or relating to
Subordinated Indebtedness (other
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than a supplement to the Senior Subordinated Debt Indenture executed in
connection with a subordinated Guarantee of Subordinated Indebtedness
by Restricted Subsidiaries of the Company) or any Senior Discount Debt
Document,
(ii) any Scheduled Acquisition Agreement either to increase
the aggregate consideration payable by the Company thereunder or any
other provision of such Agreements (or of any agreement executed in
connection therewith) to the extent the same would materially adversely
affect the Lenders or the Administrative Agent (or the rights of the
Lenders or the Administrative Agent under any of the Loan Documents),
or
(iii) the Partnership Agreement or, following the execution
and delivery thereof, any Acquisition Agreement for any Subsequent
Acquisition (or any agreements executed in connection with any
Subsequent Acquisition) to the extent the same would materially
adversely affect the Lenders or the Administrative Agent (or the rights
of the Lenders or the Administrative Agent under any of the Loan
Documents),
without in each case, the prior consent of the Administrative Agent (with the
approval of the Majority Lenders).
8.19 Certain Obligations Respecting the Collateral.
(a) The Company will from time to time use reasonable efforts
to obtain consents of municipal franchising authorities necessary to create and
perfect a valid and enforceable first priority Lien on the Franchises from time
to time held by the Company and its Restricted Subsidiaries, so that to the
maximum extent practicable the Lien of the Administrative Agent created therein
pursuant to the Security Agreement will be such a valid and enforceable first
priority Lien on all of the Franchises (other than Excluded Franchises) of the
Company and its Restricted Subsidiaries.
(b) In the event that after the Effective Date, the Company or
any of its Restricted Subsidiaries shall acquire any real property interests,
whether owned or leased (other than an Excluded Real Property), the Company
will, and will cause such Restricted Subsidiary to, promptly (and in any event
within 30 days of the acquisition thereof) execute and deliver to the
Administrative Agent a Mortgage (in recordable form and in such number of copies
as the Administrative Agent shall have requested) covering such Property,
together with any necessary consents to such Mortgages by the respective
lessors, to the extent that the respective leasehold property shall be material
and the Administrative Agent or the Majority Lenders shall have requested the
Company to obtain such consents.
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Section 9. Events of Default. If one or more of the following
events (herein called "Events of Default") shall occur and be continuing:
(a) The Company shall default in the payment when due (whether
at stated maturity or upon mandatory or optional prepayment) of any
principal of or interest on any Loan, any fee or any other amount
payable by it hereunder or under any other Loan Document; or
(b) The Company or any of its Restricted Subsidiaries shall
default in the payment when due of any principal of or interest on any
of its other Indebtedness aggregating $5,000,000 or more; or any event
specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or (with the giving of any notice or
the lapse of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity or to have the interest rate thereon reset
to a level so that securities evidencing such Indebtedness trade at a
level specified in relation to the par value thereof; or the Company
shall default in the payment when due of any amount aggregating
$500,000 or more under any Interest Rate Protection Agreement; or any
event specified in any Interest Rate Protection Agreement shall occur
if the effect of such event is to cause, or (with the giving of any
notice or the lapse of time or both) to permit, termination or
liquidation payment or payments aggregating $5,000,000 or more to
become due; or
(c) FrontierVision Holdings or FrontierVision Holdings Capital
Corporation shall default in the payment when due of any principal of
or interest on any note evidencing Senior Discount Debt; or any event
specified in any note, agreement, indenture or other document
evidencing or relating to such Senior Discount Debt shall occur if the
effect of such event is to cause, or (with the giving of any notice or
the lapse of time or both) to permit the holder or holders of the notes
evidencing such Senior Discount Debt (or a trustee or agent on behalf
of such holder or holders) to cause, such notes to become due, or to be
prepaid in full (whether by redemption, purchase, offer to purchase or
otherwise), prior to their stated maturity; or
(d) Any representation, warranty or certification made or
deemed made herein or in any other Loan Document (or in any
modification or supplement hereto or thereto) by any Obligor, or any
certificate furnished to any Lender or the Administrative Agent
pursuant to the provisions hereof or thereof, shall prove to have been
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false or misleading as of the time made or furnished in any material
respect; or any representation or warranty made in any of the Scheduled
Acquisition Agreements shall prove to have been false or misleading as
of the time made or furnished in any material respect that could
reasonably be expected to result in a Material Adverse Effect; or
(e) Any of the following shall occur: (i) the Company shall
default in the performance of any of its obligations under any of
Sections 8.01(g), 8.05, 8.06, 8.07, 8.08, 8.09, 8.10, 8.12, 8.13, 8.15,
8.17 or 8.18 hereof; (ii) any Securing Party shall default in the
performance of any of its obligations under Section 5.02 of the
Security Agreement; (iii) any Partner Pledgor shall default in the
performance of its obligations under Section 5.02 of the Partner Pledge
Agreement; (iv) any Stock Pledgor shall default in the performance of
its obligations under Section 4.02 of the Stock Pledge Agreement; or
(v) the Company shall default in the performance of its obligations
hereunder, or any Obligor shall default in the performance of its
obligations under any other Loan Document to which it is a party, and
such default shall continue unremedied for a period of thirty or more
days after notice thereof to the Company by the Administrative Agent or
any Lender (through the Administrative Agent); or
(f) The Company or any of its Restricted Subsidiaries, or any
of its General Partners, shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due; or
(g) The Company or any of its Restricted Subsidiaries, or any
of its General Partners, shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator of itself or of all or a substantial
part of its Property, (ii) make a general assignment for the benefit of
its creditors, (iii) commence a voluntary case under the Bankruptcy
Code, (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment
of debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (vi) take any corporate
action for the purpose of effecting any of the foregoing; or
(h) A proceeding or case shall be commenced, without the
application or consent of the Company or any of its Restricted
Subsidiaries, or any of its General Partners, in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation, dissolution,
arrangement or winding-up, or the composition or readjustment of its
debts, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of the Company, any such Restricted
Subsidiary or General Partners (as the case may be) or of all or any
substantial part of its Property or (iii) similar relief in respect of
the Company, any such Restricted Subsidiary or General Partner (as the
case may be) under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
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judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 or more
days; or an order for relief against the Company, any such Restricted
Subsidiary or General Partner shall be entered in an involuntary case
under the Bankruptcy Code; or
(i) The Company or any of its General Partners shall be
terminated, dissolved or liquidated (as a matter of law or otherwise)
or proceedings shall be commenced by any Person (including the Company
or any such General Partner) seeking the termination, dissolution or
liquidation of the Company or General Partner; or
(j) A final judgment or judgments for the payment of money of
$5,000,000 or more in the aggregate (exclusive of judgment amounts
fully covered by insurance where the insurer has admitted liability in
respect of such judgment) or of $12,000,000 or more in the aggregate
(regardless of insurance coverage) shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction
against the Company or any of its Subsidiaries, or any of its General
Partners, and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not
be procured, within 30 days from the date of entry thereof and the
Company, the relevant Subsidiary or General Partner (as the case may
be) shall not, within said period of 30 days, or such longer period
during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such
appeal; or
(k) An event or condition specified in Section 8.01(e) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, the Company or any ERISA Affiliate shall
incur or in the opinion of the Majority Lenders shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or the PBGC
(or any combination of the foregoing) that, in the determination of the
Majority Lenders, would (either individually or in the aggregate) have
a Material Adverse Effect; or
(l) A reasonable basis shall exist for the assertion against
the Company or any of its Subsidiaries, or any predecessor in interest
of the Company or any of its Subsidiaries or Affiliates, of (or there
shall have been asserted against the Company or any of its
Subsidiaries) an Environmental Claim that, in the judgment of the
Majority Lenders is reasonably likely to be determined adversely to the
Company or any of its Subsidiaries, and the amount thereof (either
individually or in the aggregate) is reasonably likely to have a
Material Adverse Effect (insofar as such amount is payable by the
Company or any of its Subsidiaries but after deducting any portion
thereof that is reasonably expected to be paid by other creditworthy
Persons jointly and severally liable therefor); or
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(m) Any one or more of the following events shall occur and be
continuing:
(i) FrontierVision Holdings shall cease to
either (x) own partnership interests in the Company
representing at least 99.9% of the aggregate partnership
interests in the Company not constituting Other Equity
Interests or (y) be the sole general partner of the Company;
or at any time FrontierVision and holders of Other Equity
Interests shall cease to be the sole limited partners of the
Company, or FrontierVision LP shall cease to own, directly or
indirectly through one or more Wholly-Owned Subsidiaries, all
of the equity interests in FrontierVision Holdings; or
(ii) either James Vaughn or John S. Koo shall, for
any reason, cease to be actively involved in the day to day
management and operation of the Company and its Subsidiaries
(and Persons with equivalent knowledge and experience in the
cable television industry reasonably acceptable to the
Majority Lenders are not appointed to replace one or both of
the them within 90 days thereof); or
(iii) prior to a Qualified Public Offering, either
(x) the Initial Equityholders shall cease to own,
collectively, on a fully-diluted basis (in other words, giving
effect to the exercise of any warrants, options and conversion
and other rights), equity interests representing at least 51%
of the aggregate fair market value (or, if greater, the
aggregate liquidation value) of the equity interests of all
classes of FrontierVision LP or (y) James Vaughn or John S.
Koo shall sell, transfer, hypothecate or otherwise dispose of
more than 50% of their direct or indirect economic interest in
FrontierVision LP (other than any transfer to the spouse of
either of such individuals, to his immediate family members,
or to trusts for the benefit of such spouse or immediate
family members); or
(iv) after a Qualified Public Offering either (x) any
person or group (within the meaning of Rule 13d-5 under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Section 13(d) and 14(d) of the Exchange Act (other
than the Initial Equityholders) becomes, directly or
indirectly, in a single transaction or in a related series of
transactions by way of merger, consolidation or other business
combination or otherwise, the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of more than 30% of the
equity interest of FrontierVision LP on a fully-diluted basis
(in other words, giving effect to the exercise of any
warrants, options and conversion and other rights) or (y)
James Vaughn or John S. Koo shall sell, transfer, hypothecate
or otherwise dispose of more than 50% of their direct or
indirect economic interest in FrontierVision LP (other than
any transfer to the spouse of either of such individuals, to
his
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immediate family members, or to trusts for the benefit of such
spouse or immediate family members); or
(n) Except for Franchises that cover in the aggregate fewer
than 5% of the Subscribers of the Company and its Restricted
Subsidiaries (determined as at the last day of the most recent fiscal
quarter for which a Quarterly Officers' Report shall have been
delivered), one or more Franchises relating to the CATV Systems of the
Company and its Restricted Subsidiaries shall be terminated or revoked
such that the Company or the respective Restricted Subsidiary is no
longer able to operate such Franchises and retain the revenue received
therefrom; or the Company or the respective Restricted Subsidiary or
the grantors of such Franchises shall fail to renew such Franchises at
the stated expiration thereof such that the Company or the respective
Restricted Subsidiary is no longer able to operate such Franchises and
retain the revenue received therefrom; or
(o) The Liens created by the Security Documents shall at any
time not constitute a valid Lien on substantially all of the collateral
intended to be covered thereby, or shall not constitute a perfected
Lien (or, with respect to any Properties acquired in any Acquisition,
shall not constitute a perfected Lien within five Business Days after
the consummated of such Acquisition) on substantially all of such
collateral, to the extent perfection by filing, registration,
recordation or possession is required herein or therein, on
substantially all of the Property of the Company and its Restricted
Subsidiaries as contemplated herein and in the other Loan Documents, in
favor of the Administrative Agent, free and clear of all other Liens
(other than Liens permitted under Section 8.06 hereof or under the
respective Security Documents) or, except for expiration in accordance
with its terms, any of the Security Documents shall for whatever reason
be terminated or cease to be in full force and effect, or the
enforceability thereof shall be contested by the Company;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
paragraph (g) or (h) of this Section 9 with respect to the Company or
FrontierVision, the Administrative Agent may and, upon request of the Majority
Lenders, will, by notice to the Company, terminate the Commitments and/or
declare the principal amount then outstanding of, and the accrued interest on,
the Loans and all other amounts payable by the Company hereunder (including,
without limitation, any amounts payable under Section 5.05 hereof) to be
forthwith due and payable, whereupon such amounts shall be immediately due and
payable without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Company; and (2) in the case of
the occurrence of an Event of Default referred to in paragraph (g) or (h) of
this Section 9 with respect to the Company or FrontierVision, the Commitments
shall automatically be terminated and the principal amount then outstanding of,
and the accrued interest on, the Loans and all other amounts payable by the
Company hereunder (including, without limitation, any amounts payable under
Section 5.05 hereof) shall
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automatically become immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company.
Section 10. The Agents.
10.01 Appointment, Powers and Immunities. Each Lender hereby
appoints and authorizes the Administrative Agent to act as its agent hereunder
and under the other Loan Documents with such powers as are specifically
delegated to the Administrative Agent by the terms of this Agreement and of the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Administrative Agent (which term as used in this
sentence and in Section 10.05 and the first sentence of Section 10.06 hereof
shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those
expressly set forth in this Agreement and in the other Loan Documents,
and shall not by reason of this Agreement or any other Loan Document be
a trustee for any Lender;
(b) shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement
or in any other Loan Document, or in any certificate or other document
referred to or provided for in, or received by any of them under, this
Agreement or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or any other document referred to
or provided for herein or therein or for any failure by the Company or
any other Person to perform any of its obligations hereunder or
thereunder;
(c) shall not, except to the extent expressly instructed by
the Majority Lenders with respect to collateral security under the
Security Documents, be required to initiate or conduct any litigation
or collection proceedings hereunder or under any other Loan Document;
and
(d) shall not be responsible for any action taken or omitted
to be taken by it hereunder or under any other Loan Document or under
any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith, except for its own
gross negligence or willful misconduct.
The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith.
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10.02 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely upon any certification, notice or other
communication (including, without limitation, any thereof by telephone,
telecopy, telegram or cable) reasonably believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Administrative Agent. As to any matters not
expressly provided for by this Agreement or any other Loan Document, the
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Lenders or, if provided herein, in accordance with the
instructions given by the Majority Revolving Credit Lenders, the Majority
Facility A Term Loan Lenders, the Majority Facility B Term Loan Lenders, the
Majority Incremental Facility Lenders of a Series, or all of the Lenders as is
required in such circumstance, and such instructions of such Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders.
10.03 Defaults. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of a Default unless the
Administrative Agent has received notice from a Lender or the Company specifying
such Default and stating that such notice is a "Notice of Default". In the event
that the Administrative Agent receives such a notice of the occurrence of a
Default, the Administrative Agent shall give prompt notice thereof to the
Lenders. The Administrative Agent shall (subject to Section 10.07 hereof) take
such action with respect to such Default as shall be directed by the Majority
Lenders or, if provided herein, the Majority Revolving Credit Lenders, the
Majority Facility A Term Loan Lenders, the Majority Facility B Term Loan Lenders
or the Majority Incremental Facility Lenders of a Series, provided that, unless
and until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interest of the Lenders except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Majority Lenders, the Majority
Revolving Credit Lenders, the Majority Facility A Term Loan Lenders, the
Majority Facility B Term Loan Lenders, the Majority Incremental Facility Lenders
of a Series, or all of the Lenders.
10.04 Rights as a Lender. With respect to its Commitments and
the Loans made by it, Chase (and any successor acting as Administrative Agent)
in its capacity as a Lender hereunder shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as the Administrative Agent, and the term "Lender" or "Lenders" shall,
unless the context otherwise indicates, include the Administrative Agent in its
individual capacity. Chase (and any successor acting as Administrative Agent)
and its affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in and generally engage in any
kind of banking, trust or other
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business with the Company (and any of its Subsidiaries or Affiliates) as if it
were not acting as the Administrative Agent, and Chase (and any such successor)
and its affiliates may accept fees and other consideration from the Company for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
10.05 Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 11.03 hereof,
but without limiting the obligations of the Company under said Section 11.03)
ratably in accordance with the aggregate principal amount of the Loans held by
the Lenders (or, if no Loans are at the time outstanding, ratably in accordance
with their respective Commitments), for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be imposed on, incurred
by or asserted against the Administrative Agent (including by any Lender)
arising out of or by reason of any investigation in any way relating to or
arising out of this Agreement or any other Loan Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses that the Company is obligated to pay under Section 11.03 hereof, but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents, provided that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Administrative Agent.
10.06 Non-Reliance on Administrative Agent and Other Lenders.
Each Lender agrees that it has, independently and without reliance on the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and its Subsidiaries and decision to enter into this Agreement and that
it will, independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or under any other Loan
Document. The Administrative Agent shall not be required to keep itself informed
as to the performance or observance by the Company of this Agreement or any of
the other Loan Documents or any other document referred to or provided for
herein or therein or to inspect the Properties or books of the Company or any of
its Subsidiaries. Except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by the
Administrative Agent hereunder or under the Security Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition or business of the Company or any of its Subsidiaries (or any of their
affiliates) that may come into the possession of the Administrative Agent or any
of its affiliates.
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10.07 Failure to Act. Except for action expressly required of
the Administrative Agent hereunder and under the other Loan Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 10.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
10.08 Resignation or Removal of Administrative Agent. Subject
to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving notice
thereof to the Lenders and the Company, and the Administrative Agent may be
removed at any time with or without cause by the Majority Lenders. Upon any such
resignation or removal, the Majority Lenders shall have the right (after
consultation with the Company) to appoint a successor Administrative Agent. If
no successor Administrative Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, that shall be a bank that has an office in New York, New
York with a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 10 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent.
10.09 Consents under Other Loan Documents. Except as otherwise
provided in Section 11.04 hereof with respect to this Agreement, the
Administrative Agent may, with the prior consent of the Majority Lenders (but
not otherwise), consent to any modification, supplement or waiver under any of
the Loan Documents, provided that, without the prior consent of each Lender, the
Administrative Agent shall not (except as provided herein or in the Security
Documents) release any collateral or otherwise terminate any Lien under any
Security Document providing for collateral security, agree to additional
obligations being secured by such collateral security (unless the Lien for such
additional obligations shall be junior to the Lien in favor of the other
obligations secured by such Security Document, in which event the Administrative
Agent may consent to such junior Lien provided that it obtains the consent of
the Majority Lenders thereto), alter the relative priorities of the obligations
entitled to the benefits of the Liens created under the Security Documents or
release any guarantor under any Security Document from its guarantee obligations
thereunder, except that no such consent shall be required, and the
Administrative Agent
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is hereby authorized (and, the Administrative Agent hereby agrees with the
Company) to, release any Lien covering Property (and release any such guarantor)
that is the subject of either a disposition of Property permitted hereunder or a
disposition to which the Majority Lenders have consented.
10.10 The Syndication Agent and Documentation Agent. Except as
expressly provided herein, neither the Syndication Agent nor the Documentation
Agent shall have any rights or obligations under this Agreement or any of the
other Loan Documents except (in the case of the Documentation Agent) in its
capacity as a "Lender" hereunder.
10.11 Control Affiliates of Lenders. Each Lender hereby agrees
with the Administrative Agent that, to the extent any of such Lender's Control
Affiliates shall be entitled to the benefits of any of the collateral security
or guaranties provided pursuant to any of the Security Documents, such Lender
will cause such Control Affiliate to perform and be bound by the provisions of
this Section 10 as if such Control Affiliate constituted a Lender hereunder and
had appointed the Administrative Agent as its agent for purposes of the Security
Documents; in taking any action hereunder at the instruction or authorization of
any Lender (including any such action taken at the instruction or authorization
of the Majority Lenders), the Administrative Agent shall be entitled to
conclusively presume that the instruction or authorization of a Lender
constitutes a like instruction or authorization of each Control Affiliate of
such Lender entitled to the benefits of the Security Documents.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Administrative
Agent or any Lender to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
11.02 Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Company, to it at 1777 South Harrison Street,
Suite P-200, Denver, Colorado 80210, attention of John S. Koo, Senior
Vice President and Chief Financial Officer (Telecopy No. 303-757-6105)
with a copy to Edwards & Angell, 101 Federal Street, Boston,
Massachusetts 02110, attention of Stephen O.
Meredith, Esq. (Telecopy No. 617-439-4170);
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(b) if to the Administrative Agent, to The Chase Manhattan
Bank, 1 Chase Manhattan Plaza, 8th Floor, New York, New York 10081,
attention Loan and Agency Services Group (Telecopy No. 212-552-5658),
with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New
York 10017, Attention of Thomas G. Malone and David G. Staples
(Telecopy No. 212-270-1848 or 212-270-4584); and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
11.03 Expenses, Etc. The Company agrees to pay or reimburse
each of the Lenders and the Administrative Agent for: (a) all reasonable
out-of-pocket costs and expenses of the Agents (including, without limitation,
the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New
York counsel to Chase) in connection with (i) the negotiation, preparation,
execution and delivery of this Agreement and the other Loan Documents and the
making of the Loans hereunder and (ii) the negotiation or preparation of any
modification, supplement or waiver of any of the terms of this Agreement or any
of the other Loan Documents (whether or not consummated); (b) all reasonable
out-of-pocket costs and expenses of the Lenders and the Administrative Agent
(including, without limitation, the reasonable fees and expenses of legal
counsel) in connection with (i) any Default and any enforcement or collection
proceedings resulting therefrom, including, without limitation, all manner of
participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y) judicial
or regulatory proceedings and (z) workout, restructuring or other negotiations
or proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (ii) the enforcement of this Section
11.03; (c) all transfer, stamp, documentary or other similar taxes, assessments
or charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Loan Documents or any other document referred to
herein or therein and all costs, expenses, taxes, assessments and other charges
incurred in connection with any filing, registration, recording or perfection of
any security interest contemplated by any Security Document or any other
document referred to therein; and (d) all costs, expenses and other charges in
respect of title insurance procured with respect to the Liens created pursuant
to the Mortgages.
The Company hereby agrees to indemnify the Administrative
Agent, the Syndication Agent and each Lender and their respective directors,
officers, employees, attorneys and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses incurred
by any of them (including, without limitation, any and all losses,
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liabilities, claims, damages or expenses incurred by the Administrative Agent to
any Lender, whether or not the Administrative Agent or any Lender is a party
thereto) arising out of or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings) relating to the Loans hereunder or any actual or proposed use by
the Company or any of its Subsidiaries of the proceeds of any of the Loans
hereunder, including, without limitation, the reasonable fees and disbursements
of counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
the Person to be indemnified). Without limiting the generality of the foregoing,
the Company will indemnify the Administrative Agent and each Lender from, and
hold the Administrative Agent and each Lender harmless against, any losses,
liabilities, claims, damages or expenses described in the preceding sentence
(including any Lien filed against any Property covered by the Mortgages or any
part of the Mortgage Estate thereunder in favor of any governmental entity, but
excluding, as provided in the preceding sentence, any loss, liability, claim,
damage or expense incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified) arising under any Environmental Law
as a result of the past, present or future operations of the Company or any of
its Subsidiaries (or any predecessor in interest to the Company or any of its
Subsidiaries), or the past, present or future condition of any site or facility
owned, operated or leased at any time by the Company or any of its Subsidiaries
(or any such predecessor in interest), or any Release or threatened Release of
any Hazardous Materials at or from any such site or facility, excluding any such
Release or threatened Release that shall occur during any period when the
Administrative Agent or any Lender shall be in possession of any such site or
facility following the exercise by the Administrative Agent or any Lender of any
of its rights and remedies hereunder or under any of the Security Documents, but
including any such Release or threatened Release occurring during such period
that is a continuation of conditions previously in existence, or of practices
employed by the Company and its Subsidiaries, at such site or facility.
11.04 Amendments, Etc. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by the Company and the
Majority Lenders, or by the Company and the Administrative Agent acting with the
consent of the Majority Lenders, and any provision of this Agreement may be
waived by the Majority Lenders or by the Administrative Agent acting with the
consent of the Majority Lenders; provided that: (a) no modification, supplement
or waiver shall, unless by an instrument signed by all of the Lenders or by the
Administrative Agent acting with the consent of all of the Lenders: (i)
increase, or extend the term of any of the Commitments, or extend the time or
waive any requirement for the reduction or termination of any of the
Commitments, (ii) extend the date fixed for the scheduled payment of principal
of or interest on any Loan or any fee hereunder, (iii) reduce the amount of any
such payment of principal, (iv) reduce the rate at which interest is payable
thereon or any fee is payable hereunder, (v) alter the manner in which payments
or prepayments of principal, interest or other
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<PAGE>
amounts hereunder shall be applied as between the Lenders or Classes of Loans,
(vi) alter the terms of this Section 11.04, (vii) modify the definition of the
term "Majority Lenders", "Majority Revolving Credit Lenders", "Majority Facility
A Term Loan Lenders", "Majority Facility B Term Loan Lenders" or "Majority
Incremental Facility Lenders" or modify in any other manner the number or
percentage of the Lenders required to make any determinations or waive any
rights hereunder or to modify any provision hereof, or (viii) waive any of the
conditions precedent set forth in Section 6.01 hereof; and (b) any modification
or supplement of Section 10 hereof, or of any of the rights or duties of the
Administrative Agent hereunder, shall require the consent of the Administrative
Agent.
Anything in the Agreement to the contrary notwithstanding, no
waiver or modification of any provision of this Agreement that has the effect
(either immediately or at some later time) of enabling the Company to satisfy a
condition precedent to the making of a Revolving Credit Loan or Incremental
Facility Loan of any Series shall be effective against the Revolving Credit
Lenders or Incremental Facility Lenders of such Series for purposes of the
Revolving Credit Commitments and Incremental Facility Commitments of such Series
unless the Majority Revolving Credit Lenders and Majority Incremental Facility
Lenders of such Series shall have concurred with such waiver or modification.
11.05 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Assignments and Participations.
(a) The Company may not assign any of its rights or
obligations hereunder without the prior consent of all of the Lenders and the
Administrative Agent.
(b) Each Lender may assign any of its Loans and its
Commitments (but only with the consent of each of the Administrative Agent, the
Syndication Agent and the Company, which consents shall not be unreasonably
withheld or delayed); provided that:
(i) no such consent by such Agents shall be required in the
case of any assignment to another Lender;
(ii) except to the extent such Agents and the Company shall
otherwise consent, any such partial assignment (other than to another
Lender) shall be in an amount at least equal to $5,000,000;
(iii) each such assignment by a Lender of its Revolving Credit
Loans or Revolving Credit Commitment shall be made in such manner so
that the same portion of
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<PAGE>
its Revolving Credit Loans and Revolving Credit Commitment is
assigned to the respective assignee;
(iv) each such assignment by a Lender of its Facility A Term
Loans or Facility A Term Loan Commitment shall be made in such manner
so that the same portion of its Facility A Term Loans and Facility A
Term Loan Commitment is assigned to the respective assignee;
(v) each such assignment by a Lender of its Facility B Term
Loans or Facility B Term Loan Commitment shall be made in such manner
so that the same portion of its Facility B Term Loans and Facility B
Term Loan Commitment is assigned to the respective assignee;
(vi) each such assignment by a Lender of its Incremental
Facility Loans of any Series or Incremental Facility Commitment of any
Series shall be made in such manner so that the same portion of its
Incremental Facility Loans and Incremental Facility Commitment of such
Series is assigned to the respective assignee; and
(vii) upon each such assignment, the assignor and assignee
shall deliver to the Company and each of such Agents an Assignment and
Acceptance in the form of Exhibit A hereto and the assignee, if it
shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire; and
(viii) any consent of the Company otherwise required under
this paragraph (b) shall not be required if an Event of Default has
occurred and is continuing.
Upon execution and delivery by the assignor and the assignee to the Company and
the Administrative Agent of an Assignment and Acceptance, and upon consent
thereto by such Agents to the extent required above, the assignee shall have, to
the extent of such assignment (unless otherwise consented to by the Company and
such Agents), the obligations, rights and benefits of a Lender hereunder holding
the Commitment(s) and Loans (or portions thereof) assigned to it and specified
in such Assignment and Acceptance (in addition to the Commitment(s) and Loans,
if any, theretofore held by such assignee) and the assigning Lender shall, to
the extent of such assignment, be released from the Commitment(s) (or portion(s)
thereof) so assigned. Upon each such assignment the assigning Lender shall pay
the Administrative Agent an assignment fee of $3,500.
(c) A Lender may sell or agree to sell to one or more other
Persons (each a "Participant") a participation in all or any part of any Loans
held by it, or in its Commitments, provided that such Participant shall not have
any rights or obligations under this Agreement or any other Loan Document (the
Participant's rights against such Lender in respect of such
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<PAGE>
participation to be those set forth in the agreements executed by such Lender in
favor of the Participant). All amounts payable by the Company to any Lender
under Section 5 hereof in respect of Loans held by it, and its Commitments,
shall be determined as if such Lender had not sold or agreed to sell any
participations in such Loans and Commitments, and as if such Lender were funding
each of such Loan and Commitments in the same way that it is funding the portion
of such Loan and Commitments in which no participations have been sold. In no
event shall a Lender that sells a participation agree with the Participant to
take or refrain from taking any action hereunder or under any other Loan
Document except that such Lender may agree with the Participant that it will
not, without the consent of the Participant, agree to (i) increase or extend the
term of such Lender's Commitments or extend the amount or date of any scheduled
reduction of such Commitments pursuant to Section 2.03 hereof, (ii) extend the
date fixed for the payment of principal of or interest on the related Loan or
Loans or any portion of any fee hereunder payable to the Participant, (iii)
reduce the rate at which interest is payable thereon, or any fee hereunder
payable to the Participant, to a level below the rate at which the Participant
is entitled to receive such interest or fee or (iv) consent to any modification,
supplement or waiver hereof or of any of the other Loan Documents to the extent
that the same, under Section 10.09 or 11.04 hereof, requires the consent of each
Lender.
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.06, any Lender may
(without notice to the Company, the Agents or any other Lender and without
payment of any fee) assign and pledge all or any portion of its Loans to secure
obligations of such Lender, including any such assignment or pledge to a Federal
Reserve Bank as collateral security pursuant to Regulation A and any Operating
Circular issued by such Federal Reserve Bank and any Lender may assign all or
any portion of its rights under this Agreement and its Loans to an affiliate. No
such assignment or pledge shall release the assigning Lender from its
obligations hereunder.
(e) A Lender may furnish any information concerning the
Company or any of its Subsidiaries in the possession of such Lender from time to
time to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 11.12(b) hereof.
(f) Anything in this Section 11.06 to the contrary
notwithstanding, no Lender may assign or participate any interest in any Loan
held by it hereunder to the Company or any of its Affiliates or Subsidiaries
without the prior consent of each Lender.
(g) The Administrative Agent, acting for this purpose as an
agent of the Company, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitments
of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the
112
<PAGE>
Register shall be conclusive, and the Company, the Administrative Agent and the
Lenders may treat each Person whose name is recorded in the Register pursuant to
the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Company and any Lender, at any reasonable time and from time
to time upon reasonable prior notice.
(h) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
11.07 Survival. The obligations of the Company under Sections
5.01, 5.05, 5.06 and 11.03 hereof, and the obligations of the Lenders under
Section 10.05 hereof, shall survive the repayment of the Loans and the
termination of the Commitments and, in the case of any Lender that may assign
any interest in its Commitments or Loans hereunder, shall survive the making of
such assignment, notwithstanding that such assigning Lender may cease to be a
"Lender" hereunder. In addition, each representation and warranty made, or
deemed to be made by a notice of any Loan, herein or pursuant hereto shall
survive the making of such representation and warranty, and no Lender shall be
deemed to have waived, by reason of making any Loan, any Default that may arise
by reason of such representation or warranty proving to have been false or
misleading, notwithstanding that such Lender or the Administrative Agent may
have had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such Loan was made.
11.08 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.09 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
11.10 Governing Law; Submission to Jurisdiction. This
Agreement shall be governed by, and construed in accordance with, the law of the
State of New York. The Company hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
the Supreme Court of the State of New York sitting in New York County (including
its Appellate Division), and of any other appellate court in the
113
<PAGE>
State of New York, for the purposes of all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby. The Company
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any objection that it may now or hereafter have to the laying of the venue of
any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
11.11 Waiver of Jury Trial. EACH OF THE COMPANY, THE AGENTS
AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
11.12 Treatment of Certain Information; Confidentiality.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Lender or by one or more subsidiaries or
affiliates of such Lender and the Company hereby authorizes each Lender to share
any information delivered to such Lender by the Company and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of such Lender to
enter into this Agreement, to any such subsidiary or affiliate, it being
understood that any such subsidiary or affiliate receiving such information
shall be bound by the provisions of paragraph (b) below as if it were a Lender
hereunder. Such authorization shall survive the repayment of the Loans and the
termination of the Commitments.
(b) Each of the Lenders and the Agents agree (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking or other
lending practices, any non-public information supplied to it by any Obligor
pursuant to this Agreement or any other Loan Document to which it is party that
is identified by such Obligor as being confidential at the time the same is
delivered to the Lenders or the Agents, provided that nothing herein shall limit
the disclosure of any such information (i) after such information shall have
become public (other than through a violation of this Section 11.12), (ii) to
the extent required by statute, rule, regulation or judicial process, (iii) to
counsel for any of the Lenders or the Agents, (iv) to bank examiners (or any
other regulatory authority, including the NAIC, having jurisdiction over any
Lender or the Agents), or to auditors or accountants, (v) to the Agents or any
other Lender (or to Chase Securities, Inc. or J.P. Morgan Securities Inc.), (vi)
in connection with any litigation to which any one or more of the Lenders or the
Agents is a party, or in connection with the enforcement of rights or remedies
hereunder or under any other Loan Document, (vii) to a subsidiary or affiliate
of such Lender as provided in paragraph (a) above
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<PAGE>
(viii) or to any Person who evaluates, approves, structures or administers the
Loans on behalf of a Lender and who is subject to this confidentiality provision
or (ix) to any assignee or participant (or prospective assignee or participant)
so long as such assignee or participant (or prospective assignee or participant)
first executes and delivers to the respective Lender a Confidentiality Agreement
for the benefit of the Company substantially in the form of Exhibit I hereto (or
executes and delivers to such Lender an acknowledgement to the effect that it is
bound by the provisions of this Section 11.12(b), which acknowledgement may be
included as part of the respective assignment or participation agreement
pursuant to which such assignee or participant acquires an interest in the Loans
hereunder); provided, further, that in no event shall any Lender or the
Administrative Agent be obligated or required to return any materials furnished
by the Company. The obligations of each Lender under this Section 11.12 shall
supersede and replace the obligations of such Lender under the confidentiality
letter in respect of this financing signed and delivered by such Lender to the
Company prior to the date hereof; in addition, the obligations of any assignee
that has executed a Confidentiality Agreement in the form of Exhibit I hereto
shall be superseded by this Section 11.12 upon the date upon which such assignee
becomes a Lender hereunder pursuant to Section 11.06(b) hereof.
11.13 Limitation of Liability. Anything herein or in any of
the other Loan Documents to the contrary notwithstanding, the Lenders and the
Agents shall have no recourse to the assets of any of the direct or indirect
general or limited partners of the Company (including, without limitation,
FrontierVision Holdings, except to the extent that FrontierVision Holdings has
pledged its assets pursuant to the Security Documents, to which it is a party,
and FrontierVision LP) with respect to the obligations of the Company under this
Agreement or any of the other Loan Documents.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
FRONTIERVISION OPERATING
PARTNERS, L.P.
By: FrontierVision Holdings, L.P., as general partner
of FrontierVision Operating Partners, L.P.
By: Frontiervision Partners, L.P., as general
partner of FrontierVision Holdings, L.P.
By: FVP GP, L.P., as general partner of
FrontierVision Partners, L.P.
By: FrontierVision Inc., as general
partner of FVP GP, L.P.
By____________________________
Title:
By its signature below each Subsidiary Guarantor (i) consents
to this Agreement and confirms that the obligations of the Company under this
Agreement and under the Notes (if any) and in respect of Pari Passu Obligations
are entitled to the benefits of the Subsidiary Guarantee Agreement executed by
each Subsidiary Guarantor, respectively, (and shall constitute "Guaranteed
Obligations" (as defined in such Subsidiary Guarantee Agreement) under and for
all purposes of such Subsidiary Guarantee Agreement and (ii) together with the
Administrative Agent (acting with the consent of the Majority Lenders under the
Existing Credit Agreement) agrees that references in such Subsidiary Guarantee
Agreement to the "Credit Agreement" shall be deemed to be references to this
Agreement.
FRONTIERVISION CAPITAL FRONTIERVISION CABLE NEW ENGLAND, INC.
CORPORATION
By____________________________ By____________________________
Title: Title:
116
<PAGE>
LENDERS
THE CHASE MANHATTAN BANK MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By_________________________ By_________________________
Title: Title:
CIBC INC.
By_________________________
Title:
BANK OF MONTREAL, CHICAGO BRANCH FIRST NATIONAL BANK OF CHICAGO
By_________________________ By_________________________
Title: Title:
FIRST UNION NATIONAL BANK THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
By_________________________
By_________________________ Title:
Title:
UNION BANK OF CALIFORNIA FLEET NATIONAL BANK
By_________________________ By_______________________
Title: Title:
117
<PAGE>
CO_PERATIEVE CENTRALE ABN AMRO BANK N.V.
RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
By_________________________ By_______________________
Title: Title:
BANKBOSTON, N.A. THE BANK OF NEW YORK
By_________________________ By________________________
Title: Title:
DRESDNER BANK AG CREDIT LYONNAIS
NEW YORK AND GRAND CAYMAN BRANCHES
By_________________________
Title: By_________________________
Title:
By_________________________
Title:
MELLON BANK, N.A. BANQUE PARIBAS
By_________________________ By_________________________
Title: Title:
By_________________________
Title:
118
<PAGE>
PNC BANK, NATIONAL ASSOCIATION ROYAL BANK OF CANADA
By_________________________ By_________________________
Title: Title:
CITIZENS BANK OF RHODE ISLAND BANQUE NATIONALE DE PARIS
By_________________________ By_________________________
Title: Title:
By_________________________
Title:
U.S. BANK NATIONAL ASSOCIATION, CRESTAR BANK
DBA COLORADO NATIONAL BANK
By_________________________ By_________________________
Title: Title:
FIRST HAWAIIAN BANK THE FUJI BANK, LIMITED
By_________________________ By_________________________
Title: Title:
119
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By_________________________ By_________________________
Title: Title:
THE MITSUBISHI TRUST & BANKING THE SUMITOMO BANK, LIMITED
CORPORATION
By_________________________
Title: By_________________________
Title:
SUNTRUST BANK, CENTRAL FLORIDA, N.A. NATEXIS BANQUE BFCE
By_________________________
Title: By_________________________
Title:
By_________________________
Title:
KZH HOLDING CORPORATION III VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By_________________________
By_________________________ Title:
Title:
PILGRIM AMERICA PRIME RATE TRUST MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By_________________________ By_________________________
Title: Title:
120
<PAGE>
OCTAGON CREDIT INVESTORS LOAN THE TRAVELERS INSURANCE COMPANY
PORTFOLIO (A UNIT OF THE CHASE
MANHATTAN BANK)
By_________________________ By_________________________
Title: Title:
CREDIT AGRICOLE INDOSUEZ PFL LIFE INSURANCE COMPANY
By_________________________ By_________________________
Title: Title:
By_________________________
Title:
ROYALTON COMPANY
BY: PACIFIC INVESTMENT MANAGEMENT COMPANY AS ITS
INVESTMENT ADVISOR
By_________________________
Title:
121
<PAGE>
THE CHASE MANHATTAN BANK, J.P. MORGAN SECURITIES INC.,
as Administrative Agent as Syndication Agent
By_________________________ By_________________________
Title: Title:
CIBC INC.,
as Documentation Agent
By_________________________
Title:
EXHIBIT 12.1
FrontierVision Operating Partners, L.P.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
For the Period
From Inception
For the Year Ended For the Year Ended (April 17, 1995) to
December 31, 1997 December 31, 1996 December 31, 1996
-------- -------- -----
<S> <C> <C> <C>
Net Loss .......................... $(46,863) $(23,801) $(2,703)
Add (Deduct):
Income Tax Provision (Benefit) -- -- --
Less: Minority Interest
-------- -------- -----
Pre Tax Income (Loss) ............. (46,863) (23,801) (2,703)
Add: Fixed Charges
Interest ..................... 44,007 23,210 1,451
-------- -------- -----
44,007 23,210 1,451
-------- -------- -----
$ (2,856) $ (591) $(1,252)
======== ======== =====
Fixed Charges ..................... $ 44,007 $ 23,210 $ 1,451
======== ======== =====
Ratio of Earnings to Fixed
Charges ...................... N/A N/A N/A
Deficiency of Earnings to Fixed
Charges ...................... $ 46,863 $ 23,801 $ 2,703
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-K.
</LEGEND>
<CIK> 0001019504
<NAME> FRONTIERVISION OPERATING PARTNERS, LP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,413
<SECURITIES> 0
<RECEIVABLES> 8,711
<ALLOWANCES> (640)
<INVENTORY> 0
<CURRENT-ASSETS> 14,126
<PP&E> 247,724<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 919,708
<CURRENT-LIABILITIES> 24,665
<BONDS> 632,000
0
0
<COMMON> 0
<OTHER-SE> 263,043
<TOTAL-LIABILITY-AND-EQUITY> 919,708
<SALES> 0
<TOTAL-REVENUES> 145,126
<CGS> 0
<TOTAL-COSTS> 74,314
<OTHER-EXPENSES> 4,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,652
<INCOME-PRETAX> (46,863)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,863)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,863)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
