<PAGE>
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, 1998
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: 333-36519 and 333-36519-01
FrontierVision Holdings, L.P.
FrontierVision Holdings Capital Corporation*
(Exact names of Registrants as specified in their charters)
Delaware 84-1432334
Delaware 84-1432976
(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 Holdings Capital
Corporation outstanding as of March 26, 1999: 100.
* FrontierVision Holdings 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
PART I
<S> <C>
Item 1. BUSINESS. <C>
FrontierVision................................................................. 4
Development of the Systems .................................................... 4
System Descriptions............................................................ 5
Technological Developments..................................................... 7
The Cable Television Industry.................................................. 7
Programming, Service and Rates................................................. 8
Marketing, Customer Service and Community Relations ........................... 9
Franchises .................................................................... 10
Competition ................................................................... 11
Employees ..................................................................... 14
Legislation and Regulation .................................................... 14
Item 2. PROPERTIES. ................................................................... 22
Item 3. LEGAL PROCEEDINGS.............................................................. 23
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 23
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................................ 24
Item 6. SELECTED FINANCIAL DATA........................................................ 24
Item 7. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Introduction................................................................... 26
Results of Operations ......................................................... 27
Liquidity and Capital Resources ............................................... 28
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................................... 33
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. .................................. 34
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. .......................................... 34
2
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PART III
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..................................................... 38
Compensation Committee Interlocks and Insider Participation ................... 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
Financial Statement Schedules ................................................. 43
Exhibits ...................................................................... 43
Reports on Form 8-K ........................................................... 43
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 ................................................................................ 44
GLOSSARY ........................................................................................ 45
FINANCIAL STATEMENTS ............................................................................ F-1
FINANCIAL STATEMENT SCHEDULES ................................................................... S-1
EXHIBITS
</TABLE>
3
<PAGE>
PART I
Item 1. Business
We own, operate and develop cable television systems in small and medium-sized
suburban and exurban communities in the United States. As of December 31, 1998,
we were one of the twenty largest operators of cable television systems (a
multiple system operator) in the United States, owning systems which passed
approximately 1,007,100 homes and served approximately 702,200 basic
subscribers.
On February 22, 1999, the owners of our general partner, FrontierVision
Partners, L.P. (which we refer to as "FVP"), entered into a definitive agreement
to sell their ownership interests in our company to Adelphia Communications
Corporation. This change in our ownership is likely to have a significant effect
on our continued operations. We expect to continue the execution of our business
plan through the closing of this transaction, which is currently expected to
occur during the third-quarter of 1999.
We were organized in 1995 under the laws of the State of Delaware and our
headquarters are located at 1777 South Harrison Street, Suite P-200, Denver,
Colorado, 80210. Our telephone number is (303) 757-1588 and we may be reached by
e-mail at [email protected].
FrontierVision
Since closing our first acquisition in November 1995, we have completed over 30
acquisitions and have established significant critical mass and subscriber
density within our targeted geographic markets. The following table illustrates
our growth and operating characteristics of our systems through December 31,
1998.
<TABLE>
--------------------------------------------------------------------------------------
Basic Premium Total Revenue
Homes Passed Subscribers Units (In Thousands)
---------------- --------------- -------------- ------------------
<S> <C> <C> <C> <C>
December 31, 1995 125,300 92,700 35,700 4,369
December 31, 1996 498,900 356,400 152,100 76,464
December 31, 1997 817,000 559,800 275,400 145,126
December 31, 1998 1,007,100 702,200 285,300 245,134
</TABLE>
We have established three primary operating clusters in New England, Ohio and
Kentucky, with a fourth, smaller group of cable television systems in the
Southeast. As of December 31, 1998, over 90% of our subscribers were within our
three primary operating clusters. We are currently the second largest multiple
system operator in Kentucky, the largest multiple system operator in Maine and
the third largest multiple system operator in Ohio.
Development of the Systems
We were 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 multiple system
operators, particularly those that were acquisitive during the late 1980's and
purchased systems at prices significantly higher than those paid by us, 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 multiple system operators 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, we have been able to selectively
acquire cable television properties from both small and large multiple system
operators, thereby establishing core geographic clusters and subscriber mass.
The following table summarizes our acquisitions through December 31, 1998:
<TABLE>
-----------------------------------------------
Purchase Basic
Price(1) Subscribers
Predecessor Owner Date Acquired (in millions) Acquired(2)
- ----------------- ----------------- ------------ -----------
<S> <C> <C> <C>
United Video Cablevision, Inc. ............................ November 9, 1995 $ 120.8 87,400
Longfellow Cable Company, Inc. ............................ November 21, 1995 6.1 5,100
C4 Media Cable Southeast, Limited Partnership.............. February 1, 1996 47.6 40,400
Americable International Maine, Inc........................ March 29, 1996 4.8 3,350
Cox Communications......................................... April 9, 1996 136.0 77,200
Phoenix Grassroots Cable Systems, LLC...................... August 29, 1996 9.3 7,400
Triax Southeast Associates, L.P............................ October 7, 1996 84.7 53,200
American Cable Entertainment of Kentucky-Indiana, Inc...... October 9, 1996 146.0 83,250
SRW, Inc.'s Penn/Ohio Cablevision, L.P..................... October 31, 1996 3.8 3,225
SRW, Inc.'s Deep Creek Cable TV, L.P. ..................... December 23, 1996 3.0 2,175
Bluegrass Cable Partners, L.P.............................. March 20, 1997 9.9 7,225
Clear Cable T.V., Inc. and B&G Cable T.V. Systems,
Inc..................................................... March 31, 1997 1.7 1,450
Milestone Communications of New York, L.P. ................ March 31, 1997 2.8 2,125
Triax Associates I, L.P.................................... May 30, 1997 34.5 20,700
Phoenix Front Row Cablevision ............................. May 30, 1997 6.8 5,250
PCI Incorporated........................................... August 29, 1997 13.5 7,750
SRW, Inc.'s Blue Ridge Cable Systems, L.P.................. September 3, 1997 4.1 4,550
Harold's Home Furnishings, Inc............................. October 31, 1997 1.5 1,480
A-R Cable Services - ME, Inc............................... October 31, 1997 78.2 54,300
TCI Cablevision of Vermont, Inc. and Westmarc Development
Joint Venture.......................................... December 2, 1997 34.5 22,100
Cox Communications, Inc.................................... December 19, 1997 203.0 85,400
TVC-Sumpter Linked Partnership and North Oakland
Cablevision March 6, 1998 14.2 8,100
Partners Limited Partnership ........................
TCI Cablevision of Ohio, Inc............................... April 1, 1998 10.0 6,000
New England Cablevision of Massachusetts, Inc. ............ April 3, 1998 44.7 26,500
Ohio Cablevision Network, Inc.............................. July 31, 1998 38.0 19,700
Appalachian Cablevision of Ohio............................ September 1, 1998 0.3 280
Unity Cable Television, Inc................................ September 30, 1998 0.8 590
State Cable TV Corporation ................................ October 23, 1998 188.2 75,000
Paint Valley Cable Company, Inc............................ October 30, 1998 1.7 1,300
Casco Cable Television, Inc................................ November 30, 1998 3.2 2,185
____________
</TABLE>
(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 FrontierVision in
1996.
On January 7, 1999, we sold nine cable systems located in eastern Tennessee and
western North Carolina to Helicon Partners I, LP. The systems served a total of
approximately 4,400 basic subscribers in smaller, rural communities in western
Tennessee and eastern North Carolina. The systems were part of our Southeast
operating region. In addition, on February 17, 1999 we entered into an asset
exchange agreement to obtain one Kentucky system serving approximately 6,200
subscribers outside of Lexington, Kentucky in exchange for one of our existing
Kentucky systems serving approximately 4,800 subscribers south of Cincinnati,
Ohio and approximately $3.1 million of cash. There can be no assurance that the
system trade will be consummated or that we can successfully integrate any
acquired business with our existing operations.
System Descriptions
Our 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, 1998 for our cable systems.
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<TABLE>
-----------------------------------------------------------------
New England Ohio Kentucky Southeast Total
Cluster Cluster Cluster Region Systems
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Homes passed................................... 351,300 383,200 172,600 100,000 1,007,100
Basic subscribers.............................. 248,000 268,800 123,700 61,700 702,200
Basic penetration.............................. 70.6% 70.1% 71.7% 61.7% 69.7%
Premium units.................................. 107,400 119,700 37,800 20,400 285,300
Premium penetration............................ 43.3% 44.5% 30.6% 33.1% 40.6%
Digital cable television subscribers........... 744 2,929 None 1,358 5,031
Average monthly revenue per basic subscriber $33.20 $35.85 $34.20 $26.95 $33.84
(1)............................................
Number of headends............................. 87 87 38 46 258
Percentage of subscribers with at least
54-channel 63.7% 76.8% 57.6% 32.1% 65.6%
capacity....................................
</TABLE>
___________
(1) Average monthly revenue per basic subscriber equals revenue for the month
ended December 31, 1998 divided by the number of basic subscribers as of
the end of such period.
New England Cluster. The systems in our New England cluster passed approximately
351,300 homes and served approximately 248,000 basic subscribers and 107,400
premium units as of December 31, 1998. The New England cluster is comprised
primarily of systems located in communities in southern, middle and coastal
Maine, central New Hampshire, northeastern Massachusetts and northern Vermont.
Of the Maine systems' approximately 168,400 total subscribers, approximately
155,000 subscribers are located in Augusta, Bangor and Lewiston and contiguous
communities or in nearby coastal communities. Most of the approximately 45,300
subscribers in New Hampshire are located in Lebanon and surrounding communities,
the 27,100 Massachusetts subscribers are located within 30 miles of suburban
Boston and most of the 7,200 Vermont subscribers are located within 20 miles of
Burlington, the state's largest city. Approximately 63.7% of our subscribers in
the New England cluster are offered at least 54 channels, including 750 MHz
design systems in Amesbury and Glouchester, Massachusetts and Augusta, Maine and
550 MHz design systems in Waterville and Rockland, Maine.
Ohio Cluster. Systems in the Ohio cluster passed approximately 383,200 homes and
served approximately 268,800 basic subscribers and 119,700 premium units as of
December 31, 1998. 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. Approximately 76.8% of the our subscribers in the
Ohio cluster are offered at least 54 channels, including 550 MHz design systems
in Ashland, Kentucky and Newark and New Philadelphia, Ohio.
Kentucky Cluster. The systems in the Kentucky cluster passed approximately
172,600 homes and served approximately 123,700 basic subscribers and 37,800
premium units as of December 31, 1998. 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.
Approximately 57.6% of our subscribers in the Kentucky cluster are offered at
least 54 channels, including 550 MHz design systems in Nicholasville, Kentucky
and Delhi, Ohio and 750 MHz design systems in Madison, Indiana and Winchester,
Kentucky.
Southeast Systems. The Southeast systems passed approximately 100,000 homes and
served approximately 61,700 basic subscribers and 20,400 premium units as of
December 31, 1998. The Southeast systems at December 31, 1998 were comprised of
groups of systems located in the following states:
o Tennessee, serving approximately 23,000 basic subscribers
o North Carolina, serving approximately 13,400 basic subscribers
o Virginia, serving approximately 17,300 basic subscribers, and
o Maryland/Pennsylvania, serving approximately 8,000 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 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
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miles west of Washington, D.C. Approximately 32.1% of the current plant design
in the Southeast region is at least 54 channels.
Technological Developments
The following tables set forth certain information regarding the channel
capacities and miles of plant and the average number of subscribers per headend
for our cable systems as of December 31, 1998.
<TABLE>
----------------------------------------------------------------
<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....................... 362 11,033 10,819 3,594 25,808
% miles of plant..................... 1.4% 42.8% 41.9% 13.9% 100.0%
% of basic subscribers............... 1.3% 33.1% 44.1% 21.5% 100.0%
----------------------------------------------------------------------
Number of Subscribers Per Headend
----------------------------------------------------------------------
1,001- 5,001- 10,001-
<1,000 5,000 10,000 20,000 >20,001 Total
--------------------------------------------------------------------------------------------------------
# of subscribers.............. 58,300 191,620 126,010 130,930 195,340 702,200
% of subscribers.............. 8.3% 27.3% 18.0% 18.6% 27.8% 100.0%
</TABLE>
Our cable systems have an average capacity of approximately 59 analog channels
and delivered an average of 50 analog channels of programming to our subscribers
as of December 31, 1998. Approximately 64% of our subscribers are served by
systems with more than 5,000 subscribers and approximately 46% are served by
systems serving more than 10,000 subscribers. We believe that our current excess
channel capacity and significant number of larger systems will allow us to cost
effectively introduce new service offerings.
Recently, digital cable television has become commercially viable with
technological cost reductions. We believe that this development will allow us to
increase services to our subscribers. As of December 31, 1998, we had
successfully launched digital cable television services in 12 of our systems and
were in the process of installing necessary headend equipment for launches in
additional systems. As of March 15, 1999, we had introduced digital cable
television to approximately one-third of our basic cable subscribers.
The Cable Television Industry
Our cable television systems receive television, radio and data signals that are
transmitted to the system's headend site by means of off-air antennas, microwave
relay systems and/or 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. In some cases,
we may also originate our own television programming and other information
services for distribution through the system. Our 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.
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Our cable television systems offer customers various levels, commonly known as
"tiers," of cable services consisting of:
o off-air television signals of local network, independent and
educational stations;
o a limited number of television signals from so-called "superstations"
originating from distant cities (such as WGN-TV);
o various satellite-delivered, non-broadcast channels (such as Cable
News Network, MTV: Music Television, the USA Network, Entertainment
and Sports Programming Network and Turner Network Television);
o certain programming originated locally by the cable television system
(such as public, governmental and educational access programs); and
o informational displays featuring news, weather, stock market and
financial reports and public service announcements.
For an extra monthly charge, our cable television systems also offer premium
television services to their customers. These services (such as Home Box Office
(R), 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.
Customers generally pay 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 our primary source of revenue. In addition to customer revenue from
these services, we also 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 MTV: Music Television, the USA Network, and Entertainment and Sports
Programming Network. We also offer to our customers home shopping services,
which pay our systems a share of revenue from sales of products in the systems'
service areas.
Programming, Services and Rates
We have various contracts to obtain basic and premium programming for our
systems from program suppliers whose compensation is typically based on a fixed
fee per customer. Our 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 us. In
particular, we have negotiated programming agreements with premium service
suppliers that offer cost incentives to us under which premium service unit
prices decline as certain premium service growth thresholds are met. Our
successful marketing of multiple premium service packages emphasizing customer
value has enabled us to take advantage of such cost incentives.
We are a member of a programming consortium consisting of small to medium-sized
cable companies 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. We
also have 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, we have
entered into agreements with certain stations to carry satellite-delivered cable
programming which is affiliated with the network carried by such stations.
Although services vary from system to system due to differences in channel
capacity, viewer interests and community demographics, the majority of our
systems offer a "basic service tier," consisting of local television channels
(network and independent stations) available over-the-air and local public,
governmental, home-
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shopping and leased access channels. The majority of our systems offer, for a
monthly fee, an expanded basic tier of "superstations" originating from distant
cities (such as WGN-TV), various satellite-delivered, non-broadcast channels
(such as Cable News Network, MTV: Music Television, the USA Network,
Entertainment and Sports Programming Network) 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, our 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 Home Box Office (R), Showtime (R), Cinemax (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 our systems both
on an a la carte basis and as part of premium service packages designed to
enhance customer value and to enable us systems to take advantage of programming
agreements offering cost incentives based on premium unit growth. Subscribers
may subscribe for one or more premium units.
Subscriber rates vary from market to market and in accordance with the type of
service selected. As of December 31, 1998, the combined average monthly service
rate in our cable systems was $26.15 for the basic and expanded basic service
tiers. Our subscriber service rates reflect reductions required in response to
federal rate regulation. 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. For additional
information on rate regulation of our services, see "Legislation and Regulation
- -- Rate Regulation."
Marketing, Customer Service and Community Relations
We market and promote cable television services with the objective of adding and
retaining customers and increasing subscriber revenue. We actively market basic
and premium program packages through a number of coordinated marketing
techniques, which include:
o direct consumer sales and subscriber audit programs;
o direct mail for basic and upgrade acquisition campaigns;
o monthly subscriber statement inserts;
o local newspaper and broadcast/radio advertising where population
densities are sufficient to provide a reasonable cost per sale; and
o cross-channel promotion of new services and pay-per-view.
We have a single centralized telemarketing center to provide the outbound
telemarketing support for all operating regions. Using a predictive dialing
system platform, the operation is focused on:
o basic and pay unit acquisition;
o delinquent account collection activities;
o customer satisfaction surveys; and
o targeted marketing campaigns.
We are dedicated to providing superior customer service. To meet this objective,
we provide our customers with a full line-up of programming, a wide variety of
programming options and packages, timely and reliable service and improved
technical quality. Our 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
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service. As part of our consolidation efforts, we have 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, we have retained local payment
and technical offices to maintain a local presence and visibility within the
communities we serve.
Recognizing that strong governmental, franchise and public relations are crucial
to our overall success, we maintain and improve 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 our
activities within the communities, to receive information and feedback on our
standing with officials and customers alike and to ensure that we can maximize
our 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, we have hired experienced
community relations personnel in its New England, Ohio and Kentucky clusters to
enhance local visibility and long-term relationships.
Franchises
Our cable television systems are generally constructed and operated under
non-exclusive franchises granted by local governmental authorities. Our
franchises typically contain many conditions, such as:
o time limitations on commencement and completion of construction; and
o conditions of service, including number of channels, types of
programming and the provision of free service to schools and certain
other public institutions.
The provisions of local franchises are subject to regulation under state and
federal law, including the Communications Act of 1934, as amended, the Cable
Communications Policy Act of 1984, the Cable Television Consumer Protection and
Competition Act of 1992, and the Telecommunications Act of 1996, as well as the
rules, regulations and policies of the FCC and applicable state agencies. For
additional information on the federal and state regulation of our cable services
and operations, see " Legislation and Regulation."
As of December 31, 1998, we held 744 franchises. These franchises, most of which
are non-exclusive, provide for the payment of fees to the issuing authority.
Generally, such franchise fees are passed through directly to the customers.
Federal law prohibits franchising authorities from imposing franchise fees in
excess of 5% of gross revenue and also permits us to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
Approximately 94% of our basic subscribers are in service areas that require a
franchise. The table below groups the our franchises by date of expiration and
presents the approximate number and percentage of basic subscribers for each
group of franchises as of December 31, 1998.
<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................... 348 47% 288,400 44%
2002 and thereafter................. 396 53% 368,500 56%
-------- -------- --------- ----------
Total.............................. 744 100% 656,900 100%
</TABLE>
Federal law provides, among other things, for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld. If a
franchise renewal is denied and the franchising authority acquires ownership of
our system or effects a transfer of our system to another person, we generally
are entitled to the "fair market value" for the system covered by such
franchise. In addition, federal law established
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comprehensive renewal procedures which requires that our renewal application be
assessed on its own merits and not as part of a comparative process with
competing applications.
We believe that we generally have very good relationships with our franchising
communities. We have never had a franchise revoked or failed to have a franchise
renewed. In addition, all of our franchises eligible for renewal have been
renewed or extended at or prior to their stated expirations.
Competition
Our cable systems compete with a number of different sources of news,
information and entertainment, including:
o local television broadcast stations that provide free off-air
programming which can be received in many communities by using a
roof-top antenna and television set;
o program distributors that transmit satellite signals containing video
programming, data and other information to receiving dishes of varying
sizes located on the subscriber's premises;
o satellite master antenna television systems, commonly known as SMATV
systems, which generally serve condominiums, apartment and office
complexes and private residential developments, but do not use or
cross public rights-of-way;
o multichannel, multipoint distribution service operators, commonly
known as MMDS or wireless cable operators, which use low-power
microwave frequencies to transmit video programming and other
information over-the-air to subscribers;
o other cable operators who build and operate cable systems in the same
communities that we serve, commonly known as overbuilders;
o interactive online computer services;
o newspapers, magazines and book stores;
o movie theaters;
o live concerts and sporting events; and
o home video products, including videotape cassette recorders.
Our cable systems will be competitive with other businesses providing similar
communications services if we provide, at a reasonable price to our subscribers,
superior technical performance, superior customer service and a greater variety
of video programming and other communications services than are available
off-air or through other alternative delivery sources.
Modifications to federal law in 1996 changed the regulatory environment in which
our cable systems operate. Federal law now allows local exchange carriers,
commonly known as LECs or local telephone companies, and other businesses to
provide directly to subscribers a wide variety of video services that are
competitive with our communications services. Some local telephone companies:
o provide video services within and outside their telephone service
areas through a variety of distribution methods, including broadband
cable networks and wireless transmission facilities; and
o have announced plans to construct and operate cable communications
systems in various states.
Local telephone companies and other businesses with significant financial
resources construct and operate communications facilities that provide access to
the Internet; such facilities also transmit and distribute to homes and
businesses interactive computer-based services, data and other non-video
services. Our cable systems may be at a competitive disadvantage if the delivery
of video and interactive online computer services by local telephone companies
becomes widespread because local telephone companies are not required in certain
circumstances to obtain local franchises to deliver these communications
services or to comply with the variety of obligations that are imposed upon our
cable systems under our franchises. We cannot predict the likelihood of success
of competing video or broadband service ventures by local telephone companies or
other
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well-financed businesses. Nor can we predict the impact of these competitive
ventures on our cable systems and other businesses. For more information about
the federal and state laws and regulations governing our businesses, see
"Legislation and Regulation".
We operate our cable systems in the communities we serve generally pursuant to
non-exclusive franchises that are negotiated with and issued by a community's
governing body such as a city council, a county board of supervisors or a state
regulatory agency. Federal law prohibits local franchising authorities from
unreasonably denying requests for additional franchises, and it permits local
franchising authorities to operate cable systems. Companies that traditionally
have not provided cable services and that have substantial financial resources
(such as public utilities that own certain of the poles to which our cables are
attached) may also obtain cable franchises and may provide competing
communications services.
In the past few years Congress has enacted legislation and the FCC has adopted
regulatory policies intended to provide a more favorable operating environment
for existing and new technologies that provide, or have the potential to
provide, substantial competition to cable systems. These technologies include,
among others, direct broadcast satellite service, commonly known as DBS service,
whereby signals are transmitted by satellite directly to small receiving dishes
located on the customer's property. According to recent government and industry
reports, conventional, medium and high-power satellites currently provide video
programming to over 7.2 million individual households, condominiums, apartment
and office complexes in the United States. DBS providers typically offer to
their subscribers more than 150 channels of programming including:
o news channels;
o movies;
o broadcast stations;
o live concerts and sporting events; and
o other program services similar to those program services provided by
cable systems.
DBS systems use video compression technology to increase significantly the
channel capacity of their systems, and digital technology to improve
significantly the technical quality of the signals transmitted to subscribers.
DBS service currently has certain competitive advantages and disadvantages
compared to cable service. The advantages of DBS service include more
programming, greater channel capacity, and the digital quality of the signals
delivered to subscribers. The disadvantages of DBS service compared to cable
service include high up-front customer equipment and installation costs and a
lack of local programming and local service. The FCC and Congress are presently
considering proposals that will enhance the ability of DBS providers and other
video program distributors to gain access to additional programming and to
transmit local broadcast signals to local markets. These proposals, if adopted,
will likely increase competition to our cable systems.
Two major companies, DirecTV and EchoStar Communications Corporation, are
currently offering nationwide high-power DBS services. Additionally, Primestar,
Inc. currently offers video programming to subscribers from a medium-power DBS
satellite system. DirecTV and Primestar recently reported that DirecTV and its
parent company are acquiring Primestar's medium-power DBS business and the
high-power DBS business of Tempo, a subsidiary of Primestar. EchoStar recently
announced that it is acquiring a high-power DBS license from MCI
Telecommunications Corporation and two satellites currently under construction
from News Corp. Various agencies of the federal government must still approve
these transactions; however, if they are completed, DirecTV and EchoStar will
significantly enhance the number of channels on which they can provide
programming to subscribers and may improve significantly their competitive
positions against cable operators. We are unable predict the impact these
transactions may have on our business and operations.
Our cable systems also compete for subscribers with satellite master antenna
systems, commonly known as SMATV or satellite TV systems. Satellite TV systems
serve condominiums, apartment and office complexes and private residential
developments and, because they do not use public rights-of-way, they typically
are not subject to regulation like local franchised cable operators. Satellite
TV systems offer subscribers both improved reception of local television
stations and many of the same satellite-delivered programming services offered
by franchised cable systems. In addition, some satellite TV operators are
developing and/or offering packages of telephony, data and video services to
private residential and commercial developments. Satellite
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TV operators often enter into exclusive service agreements with building owners
or homeowners' associations, although some states have enacted laws to provide
franchised cable systems access to these private complexes. Courts have reviewed
challenges to these laws and have reached varying results. Our ability to
compete for subscribers in residential and commercial developments served by
satellite TV operators is uncertain. However, we are developing competitive
packages of services (video and data) to offer to these residential and
commercial developments.
Cable systems also compete with wireless program distribution services such as
multichannel, multipoint distribution services, commonly known as MMDS or
wireless cable systems, which use low-power microwave frequencies to transmit
video programming and other information over-the-air to subscribers. The FCC,
which licenses wireless cable systems, has authorized wireless cable systems to
operate in areas served by our cable systems. Individual households also receive
many of the satellite-delivered program services formerly available only to
cable subscribers through the use of reasonably priced home satellite dishes.
Federal law enhances the ability of cable competitors to purchase certain
satellite-delivered cable programming at competitive costs. Federal law also
significantly limits certain local restrictions on the use of roof-top,
satellite and microwave antennae to receive satellite programming and
over-the-air broadcasting services. We are unable to predict whether wireless
video services, satellite TV operations or home satellite dish use will have a
material impact on our business and operations.
Some of our cable systems are currently offering or plan to offer interactive
online computer services to subscribers. These cable systems will compete with a
number of other companies, many of whom have substantial resources, such as:
o existing Internet service providers, commonly known as ISPs;
o local telephone companies; and
o long distance telephone companies.
Recently a number of companies, including local telephone companies and ISPs,
have requested local authorities and the FCC to require cable operators to
provide open access to cable operators' broadband infrastructure so that these
companies may deliver Internet and other communications services directly to
customers over the operators' broadband facilities. In a recent report to
Congress, the FCC declined to institute an administrative proceeding to examine
this issue because, in part, it believes that multiple methods of increasing
bandwidth are or soon will be made available to a broad range ISPs and the
public. At the present time, several local jurisdictions are attempting to
impose open access obligations on other cable operators as a condition for
obtaining municipal consent for franchise transfers; however, such conditions
are currently being challenged in court. Although the FCC currently is
refraining from imposing conditions on the availability of cable operators'
broadband facilities to other competing companies, the FCC, Congress, and state
and local regulatory authorities will continue to monitor and consider further
actions in this area.
The deployment by certain local telephone companies of Asymmetric Digital
Subscriber Line technology, known as ADSL, will allow Internet access to
subscribers at data transmission speeds equal to or greater than that of modems
over conventional telephone lines. A number of large companies in the
telecommunications and technology industries, including the Regional Bell
Operating Companies, GTE Corporation, Microsoft, Compaq Computer Corporation and
Intel Corporation, have formed a working group to accelerate the deployment of
ADSL service. Several telephone companies have initiated ADSL service and have
requested the FCC to fully deregulate packet-switched networks to allow them to
provide high-speed broadband services, including interactive online services,
without regard to present service boundaries and other regulatory restrictions.
We are unable to predict the likelihood of success of the online services
offered by our competitors or the impact on our business and operations of these
competitive ventures.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, to occur in the
future. For a detailed discussion of the legislative and regulatory factors
effecting our business and operations, see "Legislation and Regulation". Other
new technologies and services may develop in the future and may compete with
services that our cable systems offer. Consequently,
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we are unable to predict the effect that ongoing or future developments might
have on the cable industry or on our business and operations.
Employees
At December 31, 1998, we had approximately 1,206 equivalent full-time employees,
fourteen of whom belonged to a collective bargaining unit. We consider our
relations with our employees to be good.
Legislation and Regulation
A federal law known as the Communications Act of 1934, as amended, establishes a
national policy to guide the regulation, development and operation of cable
communications systems. In 1996, a comprehensive amendment to the Communications
Act became effective and is expected to promote competition and decrease
governmental regulation of various communications industries, including the
cable television industry. However, until the desired competition develops,
various federal, state and local governmental units will have broad regulatory
authority and responsibilities over telecommunications and cable television
matters. The courts, especially the federal courts, will continue to play an
important oversight role as the statutory and regulatory provisions are
interpreted and enforced by the various federal, state and local governmental
units.
The Communications Act allocates principal responsibility for enforcing the
federal policies between the FCC, state and local governmental authorities. The
FCC and state regulatory agencies regularly conduct administrative proceedings
to adopt or amend regulations implementing the statutory mandate of the
Communications Act. At various times interested parties to these administrative
proceedings challenge the new or amended regulations and policies in the courts
with varying levels of success. We expect that further court actions and
regulatory proceedings will occur and will refine the rights and obligations of
various parties, including the government, under the Communications Act. The
results of these judicial and administrative proceedings may materially affect
the cable industry and our business and operations. In the following paragraphs,
we summarize the federal laws and regulations materially affecting the growth
and operation of the cable industry. We also provide a brief description of
certain state and local laws.
THE COMMUNICATIONS ACT AND FCC REGULATIONS
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates;
o the content of the programming we offer to subscribers, as well as the
way we sell our program packages to subscribers;
o the use of our cable systems by the local franchising authorities, the
public and other unrelated companies;
o our franchise agreements with local governmental authorities;
o cable system ownership limitations and prohibitions; and
o our use of utility poles and conduit.
Rate Regulation
The Communications Act and the FCC's regulations and policies limit the ability
of cable systems to raise rates for basic services and equipment, as well as for
certain non-basic cable programming services. Federal law prohibits rate
regulation of cable services and customer equipment only in communities that are
subject to "effective competition," as defined by federal law. Federal law also
prohibits the regulation of cable operators'
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rates 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.
Where there is no effective competition to the cable operator's services,
federal law gives local franchising authorities the responsibility to regulate
the rates charged by the operator for:
o the lowest level of programming service offered by the cable operator,
typically called basic service, which includes the local broadcast
channels and any public access or governmental channels that are
required by the operator's franchise; and
o the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control
units.
Local franchising authorities who wish to regulate basic service rates and
related equipment rates must first obtain FCC certification to regulate by
following a simplified FCC certification process and agreeing to follow
established FCC rules and policies when regulating the operator's rates.
Several years ago, the FCC adopted detailed rate regulations, guidelines and
rate forms that we and the local franchising authority must use in connection
with the regulation of our basic service and equipment rates. The FCC adopted a
benchmark methodology as the principal method of regulating rates. However, if
this methodology produces unacceptable rates, we may also justify our rates
using a detailed and complicated cost-of-service methodology. The FCC's rules
also require franchising authorities to regulate equipment rates on the basis of
our actual cost plus a reasonable profit, as defined by the FCC.
If the local franchising authority concludes that our rates are too high under
the FCC's rate rules, the local franchising authority may require us to reduce
our rates and to refund overcharges to subscribers with interest. We may appeal
adverse local rate decisions to the FCC. Approximately 125 of the communities
served by our cable systems, representing approximately 12% of the communities
we serve, currently regulate our basic service and equipment rates. The
Communications Act and the FCC's regulations also permit franchising authorities
to file complaints with the FCC concerning rates we charge for certain non-basic
cable programming services tiers. Only one of the communities we serve,
representing approximately 1% of our subscribers, has a complaint pending with
the FCC challenging the rates we charge for the non-basic cable programming
service tier.
The FCC also adopted several years ago comprehensive and restrictive regulations
that allow us to modify our regulated rates on a quarterly or annual basis using
various methodologies that account for changes in:
o the number of regulated channels;
o inflation; and
o certain external costs, such as franchise and other governmental fees,
copyright and retransmission consent fees, taxes, programming fees and
franchise-related obligations.
The Communications Act prohibits regulation of certain non-basic rates, and in
some cases basic rates, of qualified small cable operators, as defined by
federal law. For certain other small cable operators who continue to be subject
to rate regulation, the FCC has adopted regulations designed to reduce the
substantive and procedural burdens of rate regulation on qualified small cable
systems, as defined by federal law. The regulatory benefits accruing to
qualified small cable systems under certain circumstances remain effective even
if such systems are subsequently acquired by a larger cable operator. Many of
our cable systems currently satisfy the FCC's small system eligibility criteria
and are eligible to use the FCC's simplified rate methodology and procedures to
justify cable service and equipment rates.
The Communications Act and the FCC's regulations also:
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o prohibit the regulation of the rates charged by cable operators for
programming offered on a per channel or per program basis, and for
certain multi-channel groups of new non-basic programming;
o eliminate the regulation of non-basic cable programming service tiers
after March 31, 1999, although Congress may consider legislation to
extend the period during which non-basic rates remain subject to
regulation;
o require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition; o prohibit
regulation of non-predatory bulk discount rates offered by operators
to subscribers in commercial and residential developments; and
o permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast stations:
o to elect once every three years to require a cable system to carry the
station, subject to certain exceptions, or
o to negotiate with us on the terms by which we carry the station on our
cable system, commonly called "retransmission consent."
The Communications Act requires a cable operator to devote up to one-third of
its activated channel capacity for the mandatory carriage of local commercial
television stations. The Communications Act also gives local non-commercial
television stations 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 must obtain retransmission
consent for:
o all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WGN);
o commercial radio stations; and
o certain low-power television stations.
The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for mandatory carriage of digital television signals
offered by local television broadcasters. We are unable to predict the ultimate
outcome of this proceeding or the impact of new carriage requirements on the
operation of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming we offer on a per channel or a per program basis
without the necessity of subscribing to any tier of service, other than the
basic cable service tier. However, we are not required to comply with this
requirement until December 2002 for any of our cable systems that do not have
addressable converter boxes or that have other substantial technological
limitations. Many of our cable systems do not have the technological capability
to offer programming in the manner required by the statute and thus currently
are exempt from complying with the requirement. We anticipate having significant
capital expenditures over the next two to three years in order for us to meet
this requirement. We are unable to predict whether the full implementation of
this statutory provision in December 2002 will have a material impact on the
operation of our cable systems.
To increase competition between cable operators and other video program
distributors, the Communications Act and the FCC's regulations:
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o preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors;
o require such programmers to sell their programming to other video
program distributors; and
o limit the ability of such programmers to offer exclusive programming
arrangements to their affiliates.
The Communications Act and FCC regulations contain restrictions on the
transmission by cable operators of obscene or indecent programming. It requires
cable 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. A three-judge federal district recently determined that this
provision was unconstitutional; however, the federal government announced that
it will appeal the lower court's ruling.
The FCC actively regulates other aspects of our programming, involving such
areas as:
o our use of syndicated and network programs and local sports broadcast
programming;
o advertising in children's programming;
o political advertising;
o origination cablecasting;
o sponsorship identification; and
o closed captioning of video programming.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows local franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity for their own use.
For example, it:
o permits franchising authorities to require cable operators to set
aside certain channels for public, educational and governmental access
programming; and
o requires a cable system with 36 or more activated channels to
designate a significant 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 regulates various aspects of third party commercial use of channel
capacity on our cable systems, including:
o the maximum reasonable rate a cable operator may charge for third
party commercial use of the designated channel capacity;
o the terms and conditions for commercial use of such channels; and
o the procedures for the expedited resolution of disputes concerning
rates or commercial use of the designated channel capacity.
The FCC is also considering proposals by various companies, including Internet
service providers, to gain access to our cable systems on a common carrier
basis. We cannot predict if these or other similar proposals will be adopted,
or, if adopted, whether they will have an adverse impact on our business and
operations.
Franchise Matters
We have franchises that authorize us to construct, operate and maintain our
cable systems in approximately 744 communities. Although franchising matters are
normally regulated at the local level through a franchise agreement and/or a
local ordinance, the Communications Act provides oversight and guidelines to
govern our relationship with local franchising authorities. For example, the
Communications Act:
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o 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;
o generally prohibits us from operating in communities without a
franchise;
o encourages competition with existing cable systems by:
o allowing municipalitie to operate their own cable
systems without franchises; and
o preventing franchising authorities from granting
exclusive franchises or from unreasonably refusing to
award additional franchises covering an existing
cable system's service area.
o permits local authorities, when granting or renewing our franchises,
to establish requirements for cable-related facilities and equipment,
but prohibits franchising authorities from establishing requirements
for specific video programming or information services other than in
broad categories;
o permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by changed
circumstances;
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable
franchising process or during franchise renewal that
require, prohibit or restrict us from providing
telecommunications services,
o imposing franchise fees on revenues we derived from
providing telecommunications services over our cable
systems, or
o restricting our use of any type of subscriber
equipment or transmission technology.
o limits our payment of franchise fees to the local franchising
authority to 5% of our gross revenues derived from providing cable
services over our cable system.
Franchise fees may be passed on to subscribers and separately itemized on
subscribers' bills. In 1997, a federal appellate court overturned an FCC order
that had concluded a cable operator's gross revenue did not include money
collected from subscribers that is allocated by the operator to pay local
franchise fees. Instead, the court concluded that a cable operator's gross
revenue includes all revenue received from subscribers, without deduction. The
FCC subsequently determined that cable operators may "pass through" on
subscribers' monthly bills any additional payments of franchise fees that
franchising authorities require cable operators to make for past periods when
they had relied upon the FCC's earlier decision. Various municipal groups have
requested the FCC to reconsider its decision. We are unable to predict the
ultimate resolution of this matter, but we do not expect that any additional
franchise fees we may be required to pay to our franchising authorities will be
material to our business and operations.
The Communications Act contains renewal procedures designed to protect us
against arbitrary denials of renewal of our franchises, although under certain
circumstances the franchising authority could deny us a franchise renewal.
Moreover, even if our franchise is renewed, the franchising authority may seek
to impose upon us 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 our cable system or franchise, the franchising authority may
attempt to impose more burdensome or onerous franchise requirements on us in
connection with a request for such consent. Historically, cable operators
providing satisfactory services to their subscribers and complying with the
terms of their franchises have typically obtained franchise renewals. We believe
that we have generally met the terms of our franchises and have provided quality
levels of service. We anticipates that our future franchise renewal prospects
generally will be favorable.
Various courts have considered whether franchising authorities have the legal
right to limit the number of franchises awarded within a community and to impose
certain substantive franchise requirements (e.g. access
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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
The Communications Act generally prohibits us from owning or operating a
satellite TV or wireless cable system in any area where we provide franchised
cable service and do not have effective competition, as defined by federal law.
We may, however, acquire and operate satellite TV systems in our existing
franchise service areas if the programming and other services provided to the
satellite TV subscribers are offered according to the terms and conditions of
our local franchise agreement.
The Communications Act also authorizes the FCC to adopt nationwide limits on the
number of subscribers under the control of a cable operator. A federal district
court has concluded that this subscriber limitation is unconstitutional and has
delayed its enforcement; an appeal of this decision is pending in a federal
appellate court. Pending further action by the federal courts, the FCC recently
reconsidered it cable ownership regulations and:
o reaffirmed its 30% nationwide subscriber ownership limit, but
maintained its voluntary stay on enforcement of that limitation
pending further action;
o reaffirmed its subscriber ownership information reporting rules that
require any person holding an attributable interest (as defined by FCC
rules) in cable systems reaching 20% or more of homes passed by cable
plant nationwide to notify the FCC of any incremental change in that
person's cable ownership interests; and
o opened an administrative proceeding to reevaluate its cable television
ownership attribution rules.
The Communications Act and FCC regulations also impose limits on the number of
channels that can be occupied on a cable system by a video programmer in which a
cable operator has an attributable interest. This statutory provision has also
been declared unconstitutional by a federal district court. An appeal of the
district court's decision has been consolidated with appeals challenging the
FCC's regulatory cable ownership restrictions. Both appeals are pending.
In 1996 amendments to the Communications Act eliminated the statutory
prohibition on the common ownership, operation or control of a cable system and
a television broadcast station in the same service area. Although the FCC has
eliminated its regulatory restriction on cross-ownership of cable systems and
national broadcasting networks, it has not yet completed its review of other
regulations that prohibit common ownership of other broadcast interests and
cable systems in the same geographical area.
The 1996 amendments to the Communications Act also made far-reaching changes in
the relationship between local telephone companies and cable service providers.
These amendments:
o eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas;
o preempted legal barriers to telecommunications competition that
previously existed in state and local laws and regulations;
o set basic standards for relationships between telecommunications
providers; and
o generally limited acquisitions and prohibited certain joint ventures
between local telephone companies and cable operators in the same
market.
Local telephone companies 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,
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including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. A
federal appellate court recently overturned various parts of the FCC's open
video rules, including the FCC's preemption of local franchising requirements
for open video operators. We expect the FCC to modify its open video rules to
comply with the federal court's decision, but we are unable to predict the
impact any rule modifications may have on our business and operations.
Pole Attachment Regulation
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 have demonstrate to the FCC that they
adequately regulate pole attachment rates, as is the case in certain states in
which we operate. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. The FCC's current rate formula, which is
being reevaluated by the FCC, governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by cable operators providing
only cable services and, until 2001, by certain companies providing
telecommunications services. The FCC also adopted a second rate formula that
will be effective in 2001 and will govern the maximum rate certain utilities may
charge for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators.
Any resulting increase in attachment rates due to the FCC's new rate formula
will be phased in over a five-year period in equal annual increments, beginning
in February 2001. Several parties have requested the FCC to reconsider its new
regulations and several parties have challenged the new rules in court. A
federal district court recently upheld the constitutionality of the new
statutory provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility; the utilities involved in that
litigation have appealed the lower court's decision. We are unable to predict
the outcome of this litigation or the ultimate impact of any revised FCC rate
formula or of any new pole attachment rate regulations on our business and
operations.
Other Regulatory Requirements of the Communications Act and The FCC
The Communications Act also includes provisions, among others, regulating:
o customer service;
o subscriber privacy;
o marketing practices;
o equal employment opportunity; and
o regulation of technical standards and equipment compatibility.
The FCC has adopted cable inside wiring rules to provide a more specific
procedure for the disposition of residential home wiring and internal building
wiring that belongs to an incumbent cable operator that is forced by the
building owner to terminate its cable services in a building with multiple
dwelling units. The FCC is also considering additional rules relating to inside
wiring that, if adopted, may disadvantage incumbent cable operators.
The FCC actively regulates other parts of our cable operations, involving such
areas as:
o hiring and promotion of employees and use of outside vendors;
o consumer protection and customer service;
o technical standards and testing of cable facilities;
o consumer electronics equipment compatibility;
o registration of cable systems;
o maintenance of various records and public inspection files;
o microwave frequency usage; and
o antenna structure notification, marking and lighting.
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The FCC may 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 FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable communications 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
cable communications services.
COPYRIGHT
Our cable systems typically include in their channel line-ups local and distant
television and radio broadcast signals which are protected by the copyright
laws. We generally do not obtain a license to use this programming directly from
the owners of the programming, but instead comply with an alternative federal
compulsory copyright licensing process. In exchange for filing certain reports
and contributing a percentage of our revenues to a federal copyright royalty
pool, we obtain blanket permission to retransmit the copyrighted material
carried on these broadcast signals. The nature and amount of future copyright
payments for broadcast signal carriage cannot be predicted at this time.
In a report to Congress, the U.S. Copyright Office recommended that Congress
make major revisions to both the cable television and satellite compulsory
licenses. 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 our ability to obtain suitable programming and could
substantially increase the cost of programming that remains available for
distribution to our subscribers. We cannot predict the outcome of this
legislative activity.
Our cable systems also utilize music in certain programming and advertising that
we provide to subscribers. The rights to use this music are controlled by
various music performing rights organizations which negotiate on behalf of their
copyright owners for license fees covering each performance. The cable industry
and one of the major music performing rights organizations have negotiated a
standard licensing agreement covering the performance of 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.
Negotiations on a similar standard licensing agreement are occurring between the
cable industry and another major music performing rights organization covering
the use of music in local origination and access channels and pay-per-view
programming. Rate courts established by a New York federal court exist to
determine appropriate copyright coverage and royalty fees in the event the
parties fail to reach a settlement or to negotiate renewals of licensing
agreements. Although we cannot predict the ultimate outcome of these industry
negotiations or the amount of any license fees we may be required to pay for
past and future use of music, we do not believe such license fees will be
significant to our financial position, results of operations or liquidity.
STATE AND LOCAL REGULATION
Our cable systems use local streets and rights-of-way. Consequently, we must
comply with state and local regulation which is typically imposed through the
franchising process. Our cable systems generally are operated pursuant to
non-exclusive franchises, permits or licenses granted by a municipality or other
state or local government entity. Our franchises generally are granted for fixed
terms and in many cases are terminable if we fail to comply with material
provisions. The terms and conditions of our franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing:
o cable service rates;
21
<PAGE>
o franchise fees;
o franchise term;
o system construction and maintenance obligations;
o system channel capacity;
o design and technical performance;
o customer service standards;
o franchise renewal;
o sale or transfer of the franchise;
o territory of the franchisee;
o indemnification of the franchising authority;
o use and occupancy of public streets; and
o 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, those states in
which we operate that have enacted such state level regulation are Vermont and
Massachusetts. State and local franchising jurisdiction is not unlimited,
however; it must be exercised consistently with federal law. The Communications
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 summary of certain federal and state regulatory requirements in the
preceding pages does not 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 proposals which could change, in varying
degrees, the manner in which cable systems operate. Neither the outcome of these
proceedings nor their impact upon the cable industry or our cable operations can
be predicted at this time.
Item 2. Properties
Our principal physical assets consist of cable television operating plant and
equipment, including signal receiving, encoding and decoding devices, headends
and distribution systems and customer house drop equipment for each of its cable
television systems. The signal receiving apparatus typically includes a tower,
antenna, ancillary electronic equipment and earth stations for reception of
satellite signals. Headends, consisting of associated electronic equipment
necessary for the reception, amplification and modulation of signals, are
located near the receiving devices. Our 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 our systems
utilize converters that can be addressed by sending coded signals from the
headend over the cable network. See "Business--Technological Developments."
We own or lease parcels of real property for signal reception sites (antenna
towers and headends), microwave facilities and business offices. We own most of
our service vehicles. We believe that our properties, both owned and leased, are
in good condition and are suitable and adequate for our business operations.
Our 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 our
systems require maintenance and periodic upgrading to keep pace with
technological advances.
22
<PAGE>
Item 3. Legal Proceedings
There are no material pending legal proceedings to which we are a party or to
which any of our properties are subject.
Item 4. Submission Of Matters To A Vote Of Security Holders
Not applicable.
23
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder
Matters
There is no established public trading market for our common equity.
Item 6. Selected Financial Data
The following tables present selected financial data derived from our financial
statements as of December 31, 1998, 1997, 1996 and 1995 and for the years ended
December 31, 1998, 1997, 1996 and the period from inception (April 17, 1995)
through December 31, 1995 which have been audited by KPMG 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, 1995 and 1994 for the United Video Cablevision
systems, the C4 Media systems, the Cox Communications systems, the American
Cable Entertainment of Kentucky-Indiana systems and the Triax Southeast systems.
The summary unaudited combined selected historical financial data are derived
from the audited and unaudited historical financial statements of these systems
and should be read in conjunction with the audited financial statements and
related notes thereto of the systems. We previously filed these audited
statements with our Form 10-K for the year ended December 31, 1997. 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 us and, accordingly, do not reflect any purchase accounting
adjustments, including acquisition debt service, or any changes in the operation
or management of the systems that we have made since the date of acquisition or
intends to make in the future. Accordingly, we do not believe that such
operating results are indicative of our future operating results.
24
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------
FrontierVision Holdings, L.P. Predecessor Systems
--------------------------------------------------------------- -----------------------------
For the Year For the Year For the Year From April 17, For the Year For the Year
Ended Ended Ended 1995 (inception) Ended Ended
December 31, December 31, December 31, to December 31, December 31, December 31,
1998 1997 1996 1995 1995 (1)(2) 1994 (3)(4)
------------ ------------ ------------ ---------------- ------------ -------------
In thousands, except ratios
operating statistical data
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. $ 245,134 $ 145,126 $ 76,464 $ 4,369 $ 109,765 $ 105,368
Operating expenses.................. 123,818 74,314 39,181 2,311 62,098 58,643
Corporate administrative expenses... 6,965 4,418 2,930 127 - -
Depreciation and amortization....... 114,155 65,502 35,724 2,308 42,354 46,345
Preacquisition expenses............. - - - 940 - -
------------ ------------ ------------ ---------------- ------------ ------------
Operating income (loss)............. 196 892 (1,371) (1,317) 5,313 380
Interest expense, net(5)............ (88,875) (48,005) (22,422) (1,386) (37,898) (34,506)
Other income (expense).............. (526) (57) (8) - (4,409) (2,570)
Income tax benefit.................. 2,927 - - - - -
Extraordinary item - Loss on early
retirement of debt............... - (5,046) - - - -
------------ ------------ ------------ ---------------- ------------ ------------
Net income (loss)................... $ (86,278) $ (52,216) $ (23,801) $ (2,703) $ (36,994) $ (36,696)
============ ============ ============ ================ ============ ============
Balance Sheet Data
(End of Period):
Total assets........................ $ 1,210,421 $ 927,275 $ 549,168 $ 143,512 $ 288,253 $ 228,820
Total debt.......................... 1,121,142 787,047 398,194 93,159 285,144 263,660
Partners' capital................... 29,162 115,440 130,003 46,407
Financial Ratios and Other Data:
EBITDA(6)........................... $ 114,351 $ 66,394 $ 34,353 $ 991 $ 47,667 $ 46,725
EBITDA margin(6).................... 46.7% 45.8% 44.9% 22.7% 43.4% 44.3%
Total debt to EBITDA(7)............. 8.08 7.71 6.75
Net cash flows from operating
activities.......................... $ 61,955 $ 26,343 $ 18,911 $ 1,907
Net cash flows from investing
activities.......................... (373,399) (427,921) (418,215) (131,345)
Net cash flows from financing
activities.......................... 311,807 402,667 400,293 132,088
Deficiency of earnings to fixed
charges(8).......................... $ 86,205 $ 52,216 $ 23,801 $ 2,703
Operating Statistical Data (End of
Period Except Average):
Homes passed........................ 1,007,100 817,000 498,900 125,300
Basic subscribers................... 702,200 559,800 356,400 92,700
Basic penetration................... 69.7% 68.5% 71.4% 74.0%
Premium units....................... 285,300 275,400 152,100 35,700
Premium penetration................. 40.6% 49.2% 42.7% 38.5%
Average monthly revenue per
basic subscriber(9)................. $ 33.84 $ 31.53 $ 29.73 $ 27.76
- -------------
</TABLE>
<TABLE>
(1) Includes the combined results of operations of the systems we acquired from
United Video Cablevision, C4 Media Cable Southeast, Cox Communications, American
Cable Entertainment and Triax Associates for the year ended December 31, 1995
(except for the United Video systems, which is for the period ended November 8,
1995). As the results of operations of the United Video systems are included in
the our historical results of operations subsequent to the date of our
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 United Video systems as of
November 9, 1995, the date of our acquisition, and combined balance sheet data
for the C4 systems, the Cox systems, the American Cable Entertainment 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 United Video systems, the
C4 systems, the Cox systems, the American Cable Entertainment systems and the
Triax systems for the years ended December 31, 1994.
(4) Includes combined balance sheet data for the UVC systems, the C4 systems,
the Cox systems, the American Cable Entertainment systems and the Triax systems
as of December 31, 1994.
(5) Interest expense for December 31, 1998, 1997, 1996 and 1995 was net of
interest income of $902, $1,023, $471 and $60, respectively.
(6) EBITDA is net income before interest, taxes, depreciation and amortization.
We believe 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, our senior bank indebtedness and our Subordinated 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
25
<PAGE>
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 indenture governing FrontierVision Operating Partners,
L.P.'s subordinated notes. In addition, this ratio is commonly used in the cable
television industry as a measure of leverage.
(8) 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.
(9) 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
The following discussion of our financial condition and results of operations as
well as other sections of this Form 10-K contain certain forward-looking
statements. Our actual results could differ materially from those discussed
herein and our current business plans may be altered in response to market
conditions and other factors beyond our control. Additionally, our investors'
decision to sell their ownership interest in our company to Adelphia
Communications Corporation may ultimately cause our business plan and results of
operations to differ materially from our current business plan and expected
future operating results. Our operations commenced on November 9, 1995 with the
acquisition of our first cable television systems. See "Business--Development of
the Systems" for a description of our cable television systems. We have operated
these systems for a limited period of time and had no operations prior to
November 9, 1995. We have accounted for all acquisitions under the purchase
method of accounting and, therefore, our historical results of operations
include the results of operations for each acquired system subsequent to its
respective acquisition date.
Introduction
In this section, we explain the general financial condition and the results of
operations for FrontierVision and its subsidiaries including what factors affect
our business, what our revenues and expenses were for 1998, 1997 and 1996, why
those revenues and expenses were different from the year before and how all of
this effects our overall financial position.
We commenced operations in November, 1995 with the acquisition of certain cable
television systems. Since that first acquisition, we have completed over 30
separate acquisitions and have grown to become one of the twenty largest
multiple system operators in the United States, serving over 702,200 subscribers
as of December 31, 1998. Our systems are located in three primary operating
clusters - New Engalnd, Ohio and Kentucky - with a fourth, smaller group of
systems in the Southeast. See "Business - Development of the Systems" for a
summary of our past acquisitions and operating clusters.
During 1998, we completed nine acquisition transactions, acquiring a total of
approximately 140,000 basic subscribers. These acquisitions increased the size
and scale of each of our three primary operating clusters and significantly
increased the size and scale of our New England operating cluster. Our October
1998 acquisition of eight cable systems from State Cable TV Corporation added
approximately 75,000 basic subscribers to our New England cluster in attractive
communities directly contiguous to systems which we already owned in southern
Maine and central New Hampshire. With the State Cable systems, we have grown to
serve over 248,000 subscribers in our New England cluster and over 168,000
subscribers and four of the five largest cities in the state of Maine. See Note
5 to the financial statements for more detailed descriptions of these
transactions.
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<PAGE>
Results of Operations
In this section, we discuss our 1998, 1997 and 1996 earnings and the factors
affecting them.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 AND YEAR
ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
The following table summarizes certain of our operating and financial data for
the years ended December 31, 1998, 1997 and 1996. As a result of our limited
operating history, and the fact that acquired systems are only included from the
date of acquisition, we believe that the results of operations for the periods
presented in this table are not indicative of our future results.
--------------------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
------------------------ ----------------------- ------------------------
% of % of % of
Amount Revenue Amount Revenue Amount Revenue
------ ------- ------ ------- ------ -------
In thousands
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $ 245,134 100.0 % $ 145,126 100.0 % $ 76,464 100.0 %
Expenses
Operating expenses............. 123,296 50.3 74,314 51.2 39,181 51.2
Corporate expenses............. 6,965 2.8 4,418 3.0 2,930 3.9
Depreciation and amortization.. 114,155 46.6 65,502 45.2 35,724 46.7
Storm related costs............ 522 0.2 - - - -
----------- ------ ----------- ------ ---------- -------
Total expenses.......... 244,938 99.9 144,234 99.4 77,835 101.8
----------- ------ ----------- ------ ---------- -------
Operating income/(loss)............ 196 0.1 892 0.6 (1,371) (1.8)
Interest expense, net.............. (88,875) (36.3) (48,005) (33.1) (22,422) (29.3)
Other expense...................... (526) (0.2) (57) 0.0 (8) -
Income tax benefit................. 2,927 1.2 - - - -
Extraordinary item - Loss on early
retirement of debt............. - - (5,046) (3.5) - -
----------- ------ ----------- ----- ---------- -------
Net loss........................... $ (86,278) (35.2)% $ (52,216) (36.0)% $ (23,801) (31.1)%
=========== ====== =========== ====== ========== =======
EBITDA $ 114,351 46.7% $ 66,394 45.8 % $ 34,353 44.9 %
=========== ====== =========== ====== ========== =======
Basic subscribers.................. 702,200 559,800 356,400
Premium units...................... 285,300 275,400 152,100
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Significant increases in the amounts of revenue, operating expense and EBITDA
are primarily attributable to acquisition activity during 1998 and 1997, which
increased our size from 559,800 basic subscribers at December 31, 1997 to over
702,000 at December 31, 1998. Revenue increased 68.9%, or approximately $100.0
million, to approximately $245.1 million for the year ended December 31, 1998
from approximately $145.1 million for the year ended December 31, 1997.
Operating expenses, including storm related costs attributable to ice storms in
Maine described below, and corporate expenses increased approximately 66.6% and
57.7%, respectively, for the year ended December 31, 1998 from the year ended
December 31, 1997. The decrease in the percentage of operating expenses to
revenue was primarily attributable to cost efficiencies achieved through the
integration of cable systems and increased revenue per subscriber per month. The
EBITDA margin, when adjusted to exclude the storm related costs, improved from
45.8% for the twelve months ended December 31, 1997 to 46.9% in 1998.
During mid-January 1998, certain of the communities we service in Maine
experienced devastating ice storms. For the twelve months ended December 31,
1998 we recognized a loss due to service outages and increased labor costs of
approximately $522,000 due these storms, net of $183,000 related to a claim on
our business interruption insurance for the storm damage. Additionally, we spent
approximately $540,000 of capital expenditures to replace subscriber drops
damaged in the storms.
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<PAGE>
Depreciation and amortization expense increased 74.3% as a result of acquisition
activity that occurred in 1997 and 1998. Net interest expense increased to $88.9
million from $48.0 million primarily as a result of the higher weighted average
drawings on our senior bank indebtedness.
During the year ended December 31, 1998, (i) our 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 31.5%, and (ii) the average subscriber life implied by such
subscriber churn rate was approximately 3.2 years. Churn rates are computed
without adjustment for the effects of seasonal subscriber activity and
acquisitions and are within our expectations.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
Significant increases in the amounts of revenue, operating expense and EBITDA
are primarily attributable to acquisition activity during 1997 and 1996, which
increased our size from 356,400 basic subscribers at December 31, 1996 to
559,800 at December 31, 1997. Revenue increased to $145.1 million in the twelve
months ended December 31, 1997 from $76.5 million in the year ended December 31,
1996. Operating and corporate expenses were reduced to 54.2% of revenue in the
twelve months 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. As a
result of cost efficiencies and the aforementioned acquisitions, EBITDA
increased to 45.8% of revenues in the twelve months ended December 31, 1997 from
44.9% of revenues in the year ended December 31, 1996.
The increase in depreciation and amortization expense of $29.8 million from the
year ended December 31, 1996 to the year ended December 31, 1997 was a result of
the inclusion of a full year of expense for acquisitions completed in 1996 and
new acquisitions completed in 1997. Net interest expense increased by $25.6
million due to the higher weighted average debt balance outstanding over the
year ended December 31, 1997.
Liquidity and Capital Resources
The cable television business generally requires substantial capital for the
construction, maintenance and expansion of cable plant and distribution
equipment. In addition, we have pursued selective acquisitions. Since its
founding in 1995, our cash received from equity investments, bank borrowings and
other debt issued by FrontierVision Operating Partners, L.P. (which we refer to
as "FVOP") and FrontierVision Holdings, L.P. has been sufficient to finance our
acquisitions and, together with cash generated from operating activities, also
has been sufficient to service our debt, provide sufficient working capital and
fund required capital expenditures. We intend to continue to finance such debt
service, working capital and capital expenditure requirements through a
combination of cash from operations, indebtedness and equity capital sources. We
believe that we will continue to generate cash and be able to obtain financing
sufficient to meet such requirements. Our ability to meet our debt service and
other obligations will depend upon our future performance which, in turn, is
subject to general economic conditions and to financial, political, competitive,
regulatory and other factors, many of which are beyond our control.
Amended Bank Credit Facility
Drawings on our amended bank credit facility, along with cash flow generated
from operations and high yield debt financing, have been sufficient to finance
capital improvement projects as well as acquisitions. We have adequately
serviced our debt in accordance with the provisions of the amended bank credit
facility from EBITDA of approximately $114.4 million generated by FrontierVision
Operating Partners, L.P. for the year ended December 31, 1998.
On December 19, 1997, we amended our existing senior bank indebtedness and
entered into an $800.0 million amended bank credit facility with The Chase
Manhattan Bank, as Administrative Agent, J.P. Morgan Securities
28
<PAGE>
Inc., as Syndication Agent, CIBC Inc., as Documentation Agent, and the other
lenders signatory thereto. The amended bank credit facility includes a $300.0
million, 7.75-year reducing revolving credit facility, a $250.0 million,
7.75-year term loan and a $250.0 million, 8.25-year term loan.
At December 31, 1998, we had $172.0 million outstanding under the revolving
credit facility, $248.1 million outstanding under the 7.75 year term loan and
$250.0 million outstanding under the 8.25 year term loan. The weighted average
interest rates at December 31, 1998 on the outstanding borrowings under the
revolving credit facility were approximately 7.25%, and under the 7.75 year term
loan and the 8.25 year term loan were approximately 7.29% and 7.63%,
respectively. We have entered into interest rate protection agreements to hedge
the underlying LIBOR rate exposure for $437.5 million of borrowings through
November 1999 and October 2001. For the year ended December 31, 1998, we
recognized an increase to interest expense of approximately $0.6 million as a
result of these interest rate swap agreements.
In general, the amended bank credit facility requires us to use the proceeds
from any equity or subordinated debt issuance or any cable system disposition to
reduce indebtedness for borrowings under the amended bank credit facility and to
reduce permanently commitments thereunder, subject to certain exceptions
permitting us to use such proceeds to fund certain permitted acquisitions,
provided that we are otherwise in compliance with the terms of the amended bank
credit facility.
The amended bank credit facility is secured by a pledge of all limited and
general partnership interests in FrontierVision Operating Partners, L.P. and in
any of our restricted subsidiaries and a first priority lien on all the tangible
and intangible assets of FrontierVision Operating Partners, L.P. and each of its
restricted subsidiaries. In addition, in the event of the occurrence and
continuance of an event of default under the amended bank credit facility, the
Administrative Agent is entitled to replace our general partner with its
designee.
FrontierVision Holdings, L.P. (which we refer to as "Holdings"), as the general
partner of FrontierVision Operating Partners, L.P., guarantees the indebtedness
under the amended bank credit facility on a limited recourse basis. The amended
bank credit facility is also secured by a pledge of all limited and general
partnership interests in FrontierVision Operating Partners, L.P. and a first
priority lien on all the assets of FrontierVision Operating Partners, L.P and
its subsidiaries.
Senior Subordinated Notes
On October 7, 1996, FrontierVision Operating Partners, L.P. issued $200.0
million aggregate principal amount of 11% senior subordinated notes due 2006.
The notes mature on October 15, 2006 and bear interest at 11%, with interest
payments due semiannually commencing on April 15, 1997. The notes are general
unsecured obligations of FrontierVision and rank subordinate in right of payment
to all existing and any future senior indebtedness. In anticipation of the
issuance of the notes, FrontierVision entered into deferred interest rate
setting agreements to reduce the interest rate exposure related to the notes.
The financial statement effect of these agreements will be to increase the
effective interest rate which FrontierVision incurs over the life of the notes.
Senior Discount Notes, Series A
Holdings and FrontierVision Holdings Capital Corporation were formed for the
purpose of acting as co-issuers of $237.7 million aggregate principal amount at
maturity of 11 7/8% senior discount notes due 2007. FVP contributed to Holdings,
both directly and indirectly, all of the outstanding partnership interests of
FrontierVision Operating Partners, L.P. prior to the issuance of the discount
notes on September 19, 1997 and as a result, FrontierVision Operating Partners,
L.P. and FrontierVision Capital Corporation are wholly-owned consolidated
subsidiaries of Holdings. Holdings contributed the majority of the net proceeds
of the discount notes totaling approximately $142.3 million to FrontierVision
Operating Partners, L.P. as a capital contribution.
29
<PAGE>
Senior Discount Notes, Series B
Holdings and FrontierVision Holdings Capital II Corporation acted as co-issuers
of $91.3 million aggregate principal amount at maturity of 11 7/8% senior
discount notes due 2007. Holdings II Capital was formed for the purpose of
acting as co-issuer on these discount notes. The discount notes were issued on
December 2, 1998. Holdings contributed the majority of the net proceeds of
approximately $72.8 million from the issuance of the discount notes to
FrontierVision Operating Partners, L.P. as a capital contribution.
Cash Flows From Operating Activities
Cash flows from operating activities for the year ended December 31, 1998 were
$62.0 million compared to $26.3 million for the year ended December 31, 1997 and
$18.9 million for the year ended December 31, 1996. The increase was primarily a
result of cable television system operations acquired during 1996, 1997 and
1998.
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, 1998 were approximately $65.6 million compared to approximately
$32.7 million for the year ended December 31, 1997 and $9.3 million for the year
ended December 31, 1996. Capital expenditures primarily consisted of
expenditures for the construction and expansion of cable plant and distribution
equipment, and additional costs were incurred related to the expansion of
customer service facilities. We invested approximately $307.6 million in
acquisitions during the year ended December 31, 1998 compared with approximately
$392.6 million for the year ended December 31, 1997 and $421.5 million for the
year ended December 31, 1996.
Cash Flows From Financing Activities
We financed acquisitions during the year ended December 31, 1998 with borrowings
under our senior bank indebtedness. We financed acquisitions during the year
ended December 31, 1997 with equity contributions from our partners and
borrowings under our senior bank indebtedness. During the year ended December
31, 1996, we financed acquisitions with equity contributions from our partners,
borrowings under our senior bank indebtedness and the issuance of $200.0 million
aggregate principal amount of senior subordinated notes.
During the year ended December 31, 1998, we received no equity contributions
from our partners as compared with $37.7 million for the year ended December 31,
1997 and $107.4 million for the year ended December 31, 1996.
As of December 31, 1998 and 1997, we received approximately $75.0 million and
$150.0 million, respectively, in net proceeds as a result of the issuance of the
Discount Notes. Furthermore, from inception through December 31, 1998, FVP
received a total of $199.4 million of debt and equity contributions from its
partners, all of which has been invested in Holdings and down streamed to FVOP.
Such amount represents the contractual maximum amount committed by FVP's
partners.
Year 2000
Many existing hardware and software elements of computer systems and other
technologies represent the year as a two-digit number. Such representation may
cause software and hardware malfunctions to occur as a system date or
application date crosses the Year 2000 boundary. This might happen when the
actual century turns, the date of some input data exceeds January 1, 2000 and/or
the system or application must internally refer to a date that occurs on,
before, or after January 1, 2000.
During 1998, we continued a review of the Year 2000 Issue with the objective of
formulating a plan to identify and correct any system malfunctions which might
occur due to Year 2000 Issues. An informal task force, comprised solely of
FrontierVision employees, was established in the fourth quarter of 1997 to
determine which of our mission critical business processes could be impacted by
Year 2000 issues. Those mission critical
30
<PAGE>
business processes that were identified as subject to Year 2000 Issues are as
follows: Signal Delivery, Franchise Services, Service Delivery and Revenue
Collection.
The following table illustrates the primary components of each of the Year 2000
effected mission critical business processes:
<TABLE>
------------------------------------------------------------------------------------------------
Mission Critical
Business Process Description Significant Components
------------------------------------------------------------------------------------------------
<S> <C> <C>
Signal Delivery Process of receiving a video signal from Headend equipment
satellite or broadcast sources and Plant infrastructure
transmitting that signal via fiber-optic Programming suppliers
and co-axial cable to a customer's
residence or place of business.
Franchise Services The performance of tasks specifically Local origination
required by local or national Emergency broadcast
regulatory agencies.
Service Delivery The ongoing process of responding timely Customer call center infrastructure
to customer service requests. Dispatch equipment
Revenue Collection The process of collecting customer Subscriber management systems
billings and utilizing those cash Cash management
receipts for necessary corporate
purposes.
</TABLE>
Since the task force was established, FrontierVision management has committed
additional internal and external resources to address Year 2000 Issues. During
the third quarter of 1998, we engaged an external third-party Year 2000
consultant to review our informal task force's Year 2000 efforts to date and to
produce a formal, written Year 2000 project plan. This plan provides a work
schedule for us to address our Year 2000 Issues by December 31, 1999. Since that
date, we have formally adopted a Year 2000 Compliance Plan, discussed in more
detail below. Additionally, we have joined an industry initiative whereby along
with other similar companies, we will achieve efficiencies in their individual
Year 2000 plans through the sharing of information and joint testing. We have
also entered into cooperative agreements with other multiple system operators to
share pertinent assessment information.
We have established a Year 2000 team which consists of a full-time Project
Manager, one full-time Project Administrator and two full-time equivalent
consultants. The Year 2000 team also involves certain individuals in
FrontierVision who are subject matter experts, for example, engineering and
information technology. The Project Manager is accountable directly to our
senior management team, who in turn is accountable to FrontierVision's general
partner.
The Year 2000 Compliance Plan, consists of an awareness program, a prevention
program and a find and fix program. The awareness program is designed to educate
employees and customers on the implications of Year 2000 Issues. Employees have
been trained on our Year 2000 Compliance Plan and their role in the success of
the Plan has been communicated. The prevention program is designed to prevent
new problems from arising while we resolve existing problems. For example, since
October 30, 1998, we have required a Year 2000 compliance warranty on all
purchase orders to ensure that vendors ship to FrontierVision only equipment
that they have warranted is Year 2000 compliant. The find and fix program
includes three phases: inventory, assessment and remediation, and is initially
focused on mission critical business processes.
The inventory phase consists of a physical inventory of all susceptible business
components within each mission critical business process. A physical inventory
of the components used in certain of our mission critical business processes was
initiated during 1998. We substantially completed the inventory phase of the
mission critical items on January 31, 1999. We plan to initiate random inventory
verification audits during the second quarter of 1999. The inventory consisted
of specifically identifying each component/system (both internal and external
systems) of a mission critical business process. Internal systems include
computer systems and related software (information technology systems) as well
as systems and devices that manage the distribution of cable television service
to customers (non information technology systems). External systems include our
third party billing service provider and subscriber management system, banking
partners (including cash management, lockbox providers and lenders) and
programming providers.
31
<PAGE>
An end product of the inventory phase is a comprehensive database which allows
us to review any of our business components by, among other attributes,
manufacturer/supplier, geographic location, compliance status or asset class.
This database allows us to electronically track the assessments for each item.
Once an assessment is made on a given item, the assessment is automatically
linked to the individual inventory piece. Furthermore, the database allows for
the tracking of remediation efforts at the inventory level, including the date
the item was ordered, the expected and actual cost, who the repair is made by,
when it is made and who tests the repair. This method of item management ensures
normalization of the descriptions of like items, enhancing the overall
efficiency of the project.
We are also in the process of communicating with our significant suppliers and
service providers to determine their position with regard to Year 2000 Issues
and evaluating the potential impact on FrontierVision if those third parties
fail to remediate their own Year 2000 Issues. We have received responses from
approximately 50% of such significant suppliers and service providers; the
majority of which are currently in their own assessment and remediation phases.
Material relationships with third parties include utility companies (providing
power to the cable plant), telephone companies (providing communication lines
for use in customer contact, employee communications and in data transfer
related to subscriber and billing management information systems) and
programming and equipment vendors (providing the product distributed by
FrontierVision as well as maintenance and construction materials).
Since the inventory phase was completed, the Year 2000 team has focused on
assessing each business component's vulnerability to Year 2000 Issues. The
assessment phase requires management to attain a high degree of confidence that
FrontierVision prevents Year 2000 problems with respect to components of mission
critical business processes and minimize such problems in other non-critical
areas, while controlling replacement costs. To ensure that the most at-risk
components/systems are assessed first, the initial task in the Assessment stage
was the prioritization of each equipment/system in the project database. Items
of inventory have been reviewed for Year 2000 compatibility first by
cross-referencing the project database to materials received from vendors,
industry groups and other multiple systems operations, second by contacting
vendors as necessary and finally, by making an "in-house" determination of
compatibility where no other information is available. The end product of the
assessment phase for each item is the determination of whether a given
component/system is to be replaced or upgraded or whether specific contingency
plans are needed.
Approximately 95% of the total inventory components in our headends, plant
infrastructure and customer service infrastructure have proven to have no date
sensitive components. Of the remaining 5% subject to future investigation, we
have completed assessments on approximately 70% of the components and have
determined that less than 1% of these to be non-compliant with respect to Year
2000 Issues.
After the assessment phase is completed for a given component and the component
is found to have a Year 2000 Issue, the remediation phase begins. The
remediation phase includes the following activities:
o A decision is made as to the optimal remedy of the Year 2000 Issue.
o A purchase order is placed for the new component or upgrade.
o Based upon the expected delivery date, the appropriate resources are
scheduled to complete the implementation.
o After the new component is implemented, dependent testing occurs to
verify that remediations do not introduce new Year 2000 problems.
If remediation is determined to be impossible with respect to a business
component, the Year 2000 team will create an appropriate contingency plan.
32
<PAGE>
As of March 20, 1999, our overall progress in the find and fix program for our
mission critical systems as follows:
<TABLE>
----------------------------- ------------------------ ----------------------------
Percentage Complete Completion Date or
Phase of Phase Expected Completion Date
----------------------------- ------------------------ ----------------------------
<S> <C> <C>
Inventory 99% January 31, 1999
Assessment 70% April 30, 1999
Remediation 30% November 30, 1999
</TABLE>
The expected completion dates set forth above are based on our current
expectations. The assessment phase is expected to be completed by April 30, 1999
which is two months behind our original estimate for completion. We are also
dependent on our suppliers for timely fulfillment of purchase orders that will
be made to replace non-compliant equipment and assistance in installations. In
addition, the current remediation timetable does not allow for a significant
amount of time for testing. Further delays in the assessment phase and/or delays
in the purchasing and receipt of replacement equipment further reduces the time
available for testing and places additional risk on the successful completion of
the remediation phase. As a result, no assurances can be given as to whether
each of the phases will be completed on schedule due to uncertainties which are
inherent in the remediation of Year 2000 Issues.
As we have not yet completed the assessment of each of our mission critical
systems (either internal or external), the total costs to address the Year 2000
Issue are uncertain. To date, we have expended approximately $2,200,000 to fix
components with Year 2000 Issues. Based on the assessment results to date, we
plan to spend an additional $600,000 in replacing equipment with known Year 2000
Issues. Furthermore, as of March 20, 1999, we have expended approximately
$270,000 in third-party consulting fees and expect to spend an additional
$200,000 in external fees in conjunction with the Year 2000 project team through
December 31, 1999.
We have budgeted in excess of $1,000,000 in incremental capital expenditures for
fiscal year 1999 to complete the Year 2000 Compliance Plan. It is not known, at
this point in time, if these budgeted amounts will be sufficient to identify and
correct our Year 2000 Issues.
While management believes that the Year 2000 Compliance Plan will significantly
reduce the risks associated with the transition to the year 2000 through a
process of inventory, assessment and remediation, we have yet to develop or
implement any significant contingency plans. There can be no assurance that we
will identify all Year 2000 Issues or that we will be able to remedy each Year
2000 Issue. A failure to sufficiently correct a material Year 2000 problem could
cause us to suffer an interruption or a failure of certain important business
operations. Additionally, the failure of a material external (third-party)
system may cause us to experience an interruption or a failure of certain
important business operations. The interruption or failure by FrontierVision in
an important business operation may cause a material, adverse impact on our
financial position. It is not management's intention that certain information
technology and technical enhancement projects planned will be deferred as a
result of the cost to address Year 2000 Issues. Additionally, although
management believes that a combination of cash from operations and indebtedness
will fund the costs associated with correcting Year 2000 Issues, no assurances
can be given that costs ultimately required to be paid to ensure the our Year
2000 readiness will not have an adverse effect on our financial position and
results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
In order to convert certain of the interest payable at variable rates under our
Amended bank credit facility to interest at fixed rates, we have entered into
interest rate exchange agreements pursuant to which we pay or receive the
difference between an average fixed rate and a floating rate. During the years
ended December 31, 1998, 1997 and 1996, our net payments pursuant to such
agreements were approximately $585,000, $312,000 and $195,000. At December 31,
1998, we would be required to pay an estimated $8.8 million to terminate such
agreements.
33
<PAGE>
We are exposed to credit losses for the periodic settlements of amounts due
under interest rate exchange agreements in the event of nonperformance by the
other parties to the agreements. However, the Company does not anticipate that
it will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, as of December 31, 1998, we do
not anticipate material near-term losses in future earnings, fair values or cash
flows resulting from derivative financial instruments. See note 6 to the
accompanying financial statements for additional information regarding these
interest rate exchange agreements.
At December 31, 1998, after considering the net effect of the aforementioned
interest rate exchange agreements, we had $637.5 million (or 73%) of fixed rate
debt and $234.1 million (or 27%) of variable rate debt. Our interest rate
exposure is primarily due to changes in LIBOR rates. The aggregate hypothetical
loss in earnings and cash flows on an annual basis on our variable rate debt as
of December 31, 1998 that would have resulted from a hypothetical adverse change
of 10% in the related LIBOR rates, sustained for one year, is estimated to be
$23 million.
Item 8. Financial Statements And Supplementary Data
FrontierVision's financial statements appear on page F-1 of this Form 10-K. The
financial statement schedules required under Regulation S-X and of this Form
10-K, 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, FVOP dismissed its independent public accountants, Arthur Andersen
LLP and subsequently engaged KPMG LLP as FVOP's principal independent public
accountants. FVOP had no disagreements with Arthur Andersen since formation and
through the date of dismissal, nor did any of Arthur Andersen's reports on the
financial statements of FVOP 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 FVOP'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
Holdings' sole general partner is FrontierVision Partners (which we refer to as
"FVP"). FVP's sole general partner is FVP GP, L.P. FVP GP's sole general partner
is FrontierVision Inc. Information with respect to the directors and executive
officers of FrontierVision Inc. and FrontierVision Holdings Capital Corporation,
respectively, is set forth below:
FrontierVision Inc.
Name Age Position
- ---- --- --------
James C. Vaughn 53 President, Chief Executive Officer and Director
John S. Koo 37 Executive Vice President, Chief Financial
Officer, Secretary and Director
William J. Mahon Jr. 58 Senior Vice President - Operations
David M. Heyrend 48 Vice President of Engineering
Albert D. Fosbenner 44 Vice President - Treasurer
William P. Brovsky 42 Vice President of Marketing and Sales
James W. McHose 35 Vice President - Finance
Richard G. Halle 35 Vice President of New Business Development
FrontierVision Holdings Capital Corporation
Name Age Position
- ---- --- --------
James C. Vaughn 53 President, Chief Executive Officer and Director
John S. Koo 37 Executive Vice President, Chief Financial
Officer, Secretary and Director
Albert D. Fosbenner 44 Vice President - Treasurer
James C. Vaughn, President, Chief Executive Officer and a Director of
FrontierVision Inc. and Holdings Capital and a founder of FrontierVision, 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 multiple system
operator, 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, Executive Vice President, Chief Financial Officer, Secretary and a
Director of FrontierVision Inc. and Holdings Capital and a founder of
FrontierVision, 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, where he co-founded its
Mezzanine Finance Group, targeted at emerging media and telecommunications
businesses. From 1986 to 1990, Mr. Koo was a Vice President at Bank of New
England specializing in media finance. From 1984 to 1986, he was a management
consultant to the financial services industry.
William J. Mahon, Jr., Senior Vice President - Operations of FrontierVision Inc.
since December 1995, has over fifteen years of cable television operations
management experience. Prior to joining the Company, Mr. Mahon served as Vice
President of Operations for United Video Cablevision, a top 50 MSO, from 1990 to
1995, where he was responsible for the day-to-day operations of approximately
130 cable systems located in twelve states. From 1983 to 1989, Mr.
36
<PAGE>
Mahon served as President and General Manager of Heritage Cable Vision, a 90,000
subscriber MSO. Mr. Mahon is a member of the Society of Cable Engineers and
serves on the Board of Directors of the New England Cable Television
Association.
David M. Heyrend, Vice President of Engineering of FrontierVision Inc., has 24
years of cable television engineering management and operations experience.
Prior to joining FrontierVision in 1996, Mr. Heyrend served from 1988 to 1995 as
Director of Engineering for United Video Cablevision, 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 local area
network 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
Holdings Capital, has fourteen years of domestic, international and new business
cable television experience and is responsible for FrontierVision's accounting,
reporting, treasury and information technology activities. Prior to joining
FrontierVision in early 1998 Mr. Fosbenner served as the Chief Financial Officer
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. From 1991 to 1994 Mr. Fosbenner served (in Norway) as
the CFO of Norkabel A/S, a Norwegian cable television multiple system operator
(owned by United International Holdings, Inc.) serving 142,000 subscribers.
While at Norkabel Mr. Fosbenner was responsible for finance, accounting,
treasury, investor relations and management information systems. 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 fifteen years of cable television experience and is responsible for
programming and contract negotiations in addition to overseeing the sales and
marketing activities of FrontierVision's operating divisions. Before joining
FrontierVision 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 FrontierVision as the Vice
President - Treasurer. Prior to joining FrontierVision 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 multiple system
operators 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 New 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
FrontierVision, 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 multiple system operator, 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.
36
<PAGE>
Advisory Committee
The partnership agreement of FVP provides for the establishment of an Advisory
Committee to consult with and advise FVP GP, 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 FrontierVision 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
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, 1998, 1997 and 1996.
Summary Compensation Table
<TABLE>
----------------------------------------------------
Annual Compensation All Other
-------------------
Name and Principal Position Year Salary Bonus Compensation (1)
- --------------------------- -------- --------- -------- ----------------
<S> <C> <C> <C> <C>
James C. Vaughn 1998 $ 361,158 $ - $ 12,877
President and Chief Executive Officer 1997 305,030 90,000 11,465
1996 283,986 120,000 7,882
John S. Koo 1998 196,250 - 6,349
Executive Vice President, Chief Financial Officer and Secretary 1997 179,745 150,000 5,241
1996 170,192 111,618 4,760
William J. Mahon, Jr. 1998 123,600 - 2,451
Senior Vice President - Operations 1997 121,175 25,000 3,761
1996 13,900 53,350 -
David M. Heyrend 1998 114,586 - 2,245
Vice President of Engineering 1997 110,000 22,000 3,597
1996 45,034 5,000 1,351
Richard G. Halle' 1998 112,665 - 3,447
Vice President of New Business Development 1997 91,109 40,000 2,733
1996 - - -
</TABLE>
________________
(1) Consists of contributions to the 401(k) Plan and to a key man life insurance
plan.
37
<PAGE>
Deferred Compensation Plan
FVP established the FrontierVision Partners, L.P. Executive 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 FrontierVision's business. The deferred
compensation plan is administered by FVP's Advisory Committee. Participation in
the deferred compensation plan is limited to James C. Vaughn, John S. Koo and
other key executives of FVP or its affiliates approved by the compensation
committee of the Advisory Committee.
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 (1) 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 (2) 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 20
employees currently participating in the Deferred Compensation Plan, including
Messrs. Vaughn and Koo.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Advisory Committee, 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 FrontierVision. See "Certain Relationships and Related
Transactions."
38
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of December 31, 1998:
(1) 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 FrontierVision to own beneficially more
than 5.0% of any class of FVP's partnership interests; and
(1) 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 FrontierVision Operating
Partners, L.P. to Holdings. FVP has contributed its 100% interest in FVOP Inc.
to Holdings, with the result that FrontierVision Operating Partners, L.P. is
wholly owned, directly or indirectly, by Holdings. Holdings Capital II was
incorporated in December, 1998 and is a wholly-owned subsidiary of Holdings. It
has nominal assets and does not conduct any operations. For a more detailed
discussion of the ownership of FrontierVision, see "Certain Relationships and
Related Transactions."
<TABLE>
Name and Address of Beneficial Owners Type of Interest % of Class
- ------------------------------------- ---------------- ----------
<S> <C> <C>
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 6.57%
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 6.57%
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 6.57%
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 3.94%
James C. Vaughn Stockholder of FrontierVision Inc. 66.67%
1777 South Harrison Street, Suite P-200 Limited Partnership Interest in FVP GP 50.24%
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 25.12%
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 sole general partner (owning 99.9% of the partnership interests therein) of
FrontierVision Operating Partners, L.P. 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., 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, 1998, 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, 1998, 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 Security
Corporation, are agents and lenders under the amended bank credit facility and
have received customary fees for acting in such capacities. In addition, J.P.
Morgan Securities Inc. and Chase Securities Inc. received:
(1) compensation in the aggregate of approximately $6.0 million in
connection with the issuance of the Senior Subordinated Notes;
(2) received compensation in the aggregate of approximately $5.3 million in
connection with the issuance of the Senior Discount Notes, Series A;
(3) received compensation in the aggregate of approximately $1.5 million in
connection with the issuance of the Senior Discount Notes, Series B.
There are no other arrangements between FVOP, J.P. Morgan Securities Inc. and
Chase Securities Inc. and their affiliates and Holdings or any of its affiliates
in which J.P. Morgan Securities Inc. and Chase Securities Inc. or their
affiliates will receive any additional compensation from Holdings or any of its
affiliates.
40
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K
<TABLE>
(A)(1) Financial Statements. The following financial statements are included in Item 8 of Part II:
FrontierVision Holdings, L.P. and Subsidiaries
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
FrontierVision Holdings Capital Corporation
Independent Auditors' Report F-19
Balance Sheet as of December 31, 1997 and 1998 F-20
Note to the Financial Statements F-21
Central Ohio Cluster (Selected Assets Acquired From Cox Communications, Inc. by FVOP)
Independent Auditor's Report F-22
Combined Statements of Net Assets as of September 30, 1997 (unaudited) and December 31, 1996 F-23
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-24
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-25
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-26
Notes to Combined Financial Statements F-27
State Cable TV Corporation and Subsidiary
Independent Auditor's Report F-34
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December 31, 1997 F-35
Consolidated Statements of Operations and Deficit for the nine months ended September 30, 1997 and
1998 (unaudited) and the year ended December 31, 1997 F-36
Consolidated Statements of Cash Flow for the nine months ended September 30, 1997 and 1998
(unaudited) and the year ended December 31, 1997 F-37
Notes to Consolidated Financial Statements F-38
New England Cablevision of Massachusetts, Inc.
Independent Auditors' Report F-46
Balance Sheets as of March 31, 1998(unaudited), December 31, 1997 and 1996 F-47
Statements of Earnings for the three months ended March 31, 1998 and 1997 (unaudited) and the years
ended December 31, 1997 and 1996 F-49
Statements of Changes in Stockholders' Equity for the three months ended March 31, 1998 (unaudited)
and the years ended December 31, 1997 and 1996 F-50
Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited) and the
years ended December 31, 1997 and 1996 F-52
Notes to Financial Statements F-54
(2) Financial Statement Schedules. The following Financial Statement Schedules are submitted herewith:
Independent Auditors' Report S-2
Schedule I: Condensed Information as to the Financial Position of the Registrant S-3
Schedule II: Valuation and Qualifying Accounts S-7
</TABLE>
41
<PAGE>
(3) List of Exhibits.
2 Purchase Agreement dated as of February 22, 1999 among
FrontierVision Partners, L.P., FVP GP, L.P., the General Partner
and Certain Direct and Indirect Limited Partners of
FrontierVision Partners, L.P. and Adelphia Communications
Corporation.
3.1 Amended and Restated Agreement of Limited Partnership of FVOP.
(1)
3.2 Certificate of Limited Partnership of FVOP. (2)
3.3 First Amended and Restated Agreement of Limited Partnership of
FVP. (2)
3.4 Amendment No. 1 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.5 Amendment No. 2 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.6 Amendment No. 3 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.7 Amendment No. 4 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.8 Amendment No. 5 to the First Amended and Restated Agreement of
Limited Partnership of FVP. (1)
3.9 Certificate of Limited Partnership of FVP. (2)
3.10 First Amended and Restated Agreement of Limited Partnership of
FVP GP. (2)
3.11 Amendment No. 1 to the First Amended and Restated Agreement of
Limited Partnership of FVP GP. (1)
3.12 Amendment No. 2 to the First Amended and Restated Agreement of
Limited Partnership of FVP GP. (1)
3.13 Certificate of Limited Partnership of FVP GP. (2)
3.14 Certificate of Incorporation of FrontierVision Inc. (2)
3.15 Bylaws of FrontierVision, Inc. (2)
3.16 Agreement of Limited Partnership of Holdings. (1)
3.17 Certificate of Limited Partnership of Holdings. (1)
3.18 Certificate of Incorporation of FrontierVision Holdings Capital
Corporation. (1)
3.19 Bylaws of FrontierVision Holdings 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)
4.2 Indenture dated as of September 19, 1997, among FrontierVision
Holdings, L.P., FrontierVision Holdings Capital Corporation and
U.S. Bank National Association d/b/a Colorado National Bank, as
Trustee. (1)
4.3 Purchase Agreement, dated as of September 19, 1997, by and among
FrontierVision Holdings, L.P., FrontierVision Holdings Capital
Corporation, and J.P. Morgan Securities, Inc., Chase Securities
Inc., CIBC Wood Gundy Corp. and First Union Capital Markets
Corp., as Initial Purchasers. (1)
4.4 Registration Rights Agreement, dated as of September 19, 1997,
by and among FrontierVision Holdings, L.P., FrontierVision
Holdings Capital Corporation, and J.P. Morgan Securities, Inc.,
Chase Securities Inc., CIBC Wood Gundy Corp. and First Union
Capital Markets Corp., as Initial Purchasers. (1)
10.1 Senior Credit Facility. (2)
10.2 Employment Agreement of James C. Vaughn. (2)
10.3 Asset Purchase Agreement dated July 20, 1995 between United
Video Cablevision, Inc. and FrontierVision Operating Partners,
L.P. (2)
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. (2)
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. (2)
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. (2)
10.7 Asset Purchase Agreement dated February 27, 1996 between
Americable International Maine, Inc. and FrontierVision
Operating Partners, L.P. (2)
42
<PAGE>
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. (2)
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. (2)
10.10 Asset Purchase Agreement dated July 15, 1996 between American
Cable Entertainment of Kentucky-Indiana, Inc. and FrontierVision
Operating Partners, L.P. (2)
10.11 Asset Purchase Agreement dated as of July 30, 1996 between
Shenandoah Cable Television Company and FrontierVision Operating
Partners, L.P. (2)
10.12 Purchase Agreement dated as of August 6, 1996 between Penn/Ohio
Cablevision, L.P. and FrontierVision Operating Partners, L.P.
(2)
10.13 Asset Purchase Agreement dated July 19, 1996 between Phoenix
Grassroots Cable Systems, L.L.C. and FrontierVision Operating
Partners, L.P. (2)
10.14 Amendment No. 1 to Senior Credit Facility. (2)
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.
(1)
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. (1)
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. (1)
10.20 Asset Purchase Agreement dated as of June 24, 1998 between State
Cable TV Corporation, Better Cable TV Company and FrontierVision
Operating Partners, L.P.(4)
12.1 Statement of Computation of Ratios.
16.1 Report of change in accountants. (3)
27.1 Financial Data Schedule as of and for the period ended December
31, 1998.
Footnote References
(1) Incorporated by reference to the exhibits to the Registrant's
Registration Statement on Form S-4, Registration No. 333-36519.
(2) Incorporated by reference to the exhibits to FVOP's and FVOP
Capital's Registration Statement on Form S-1, Registration No.
333-9535.
(3) Incorporated by reference to the exhibits to FVOP's and FVOP
Capital's Quarterly Report on Form 10-Q, File No. 333-9535 for
the quarter ended September 30, 1996.
(4) Incorporated by reference to the exhibit to FrontierVision
Holdings, L.P.'s Current Report on Form 8-K, File No. 333-36519.
(B) Reports on Form 8-K.
1. Item 5, Form 8-K dated February 22, 1999. Filed to report
announcement of Adelphia Communications agreement to acquire
FVP.
2. Item 7, Form 8-K/A dated October 23, 1998 to provide the
financial information and pro forma financial information for
acquisition of the State Systems.
(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).
43
<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 Holdings, L.P. or
FrontierVision Holdings Capital Corporation.
44
<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.
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).
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.
45
<PAGE>
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.
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.
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.
New Product Tiers--A general term used to describe unregulated cable television
services.
46
<PAGE>
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.
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.
Tiers--Varying levels of cable services consisting of differing combinations of
several over-the-air broadcast and satellite-delivered cable television
programming services.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
Page
FrontierVision Holdings, L.P. and Subsidiaries
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
FrontierVision Holdings Capital Corporation
Independent Auditors' Report F-19
Balance Sheet as of December 31, 1997 and 1998 F-20
Note to the Financial Statements F-21
Central Ohio Cluster (Selected Assets Acquired From Cox Communications, Inc. by FVOP)
Independent Auditor's Report F-22
Combined Statements of Net Assets as of September 30, 1997 (unaudited) and December 31, 1996 F-23
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-24
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-25
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-26
Notes to Combined Financial Statements F-27
State Cable TV Corporation and Subsidiary
Independent Auditor's Report F-34
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and December 31, 1997 F-35
Consolidated Statements of Operations and Deficit for the nine months ended September 30, 1997 and
1998 (unaudited) and the year ended December 31, 1997 F-36
Consolidated Statements of Cash Flow for the nine months ended September 30, 1997 and 1998
(unaudited) and the year ended December 31, 1997 F-37
Notes to Consolidated Financial Statements F-38
New England Cablevision of Massachusetts, Inc.
Independent Auditors' Report F-46
Balance Sheets as of March 31, 1998(unaudited), December 31, 1997 and 1996 F-47
Statements of Earnings for the three months ended March 31, 1998 and 1997 (unaudited) and the years
ended December 31, 1997 and 1996 F-49
Statements of Changes in Stockholders' Equity for the three months ended March 31, 1998 (unaudited)
and the years ended December 31, 1997 and 1996 F-50
Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited) and the
years ended December 31, 1997 and 1996 F-52
Notes to Financial Statements F-54
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
FrontierVision Holdings, L.P.:
We have audited the accompanying consolidated balance sheets of FrontierVision
Holdings, L.P. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, partners' capital and cash flows
for each of the years in the three year period ended December 31, 1998. 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
Holdings, L. P. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
KPMG LLP
Denver, Colorado
March 19, 1999
F-2
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Thousands
<TABLE>
-------------------------------------
December 31, December 31,
1998 1997
---------------- --------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5,091 $ 4,728
Accounts receivable, net of allowance for doubtful accounts
of $666 and $767 13,602 8,071
Other receivables 174 -
Prepaid expenses and other 4,046 2,785
Investment in cable television systems, net:
Property and equipment 342,754 247,724
Franchise cost and other intangible assets 820,524 637,725
------------ ------------
Total investment in cable television systems, net 1,163,278 885,449
------------ ------------
Deferred financing costs, net 24,080 24,242
Earnest money deposits 150 2,000
------------ ------------
Total assets $ 1,210,421 $ 927,275
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 18,233 $ 2,770
Accrued liabilities 17,169 15,126
Subscriber prepayments and deposits 3,312 1,828
Accrued interest payable 9,547 5,064
Deferred income taxes 11,856 -
Debt 1,121,142 787,047
------------ ------------
Total liabilities 1,181,259 811,835
------------ ------------
Partners' capital:
FrontierVision Partners, L.P. 29,133 115,325
FrontierVision Holdings, LLC 29 115
------------ ------------
Total partners' capital 29,162 115,440
Commitments
------------ ------------
Total liabilities and partners' capital $ 1,210,421 $ 927,275
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
In Thousands
<TABLE>
-------------------------------------------------------------------
For the Year Ended For the Year Ended For the Year Ended
December 31, December 31, December 31,
1998 1997 1996
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Revenue $ 245,134 $ 145,126 $ 76,464
Expenses:
Operating expenses 123,296 74,314 39,181
Corporate administrative expenses 6,965 4,418 2,930
Depreciation and amortization 114,155 65,502 35,724
Storm costs 522 -- --
--------- --------- ---------
Total expenses 244,938 144,234 77,835
--------- --------- ---------
Operating income/(loss) 196 892 (1,371)
Interest expense, net (88,875) (48,005) (22,422)
Other expense (526) (57) (8)
--------- --------- ---------
Loss before income tax benefit and
extraordinary item (89,205) (47,170) (23,801)
Income tax benefit 2,927 - -
--------- --------- ---------
Loss before extraordinary item (86,278) (47,170) (23,801)
Extraordinary item - Loss on early
retirement of debt - (5,046) -
--------- --------- ---------
Net loss $ (86,278) $ (52,216) $ (23,801)
========= ========= =========
Net loss allocated to:
FrontierVision Partners, L.P.
(General Partner) $ (86,192) $ (52,164) $ (23,776)
FrontierVision Holdings, LLC
(Limited Partner) (86) (52) (25)
--------- --------- ---------
$ (86,278) $ (52,216) $ (23,801)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
In Thousands
<TABLE>
------------------------------------------------------------
FrontierVision FrontierVision
Partners, L.P. Holdings, LLC
(General Partner) (Limited Partner) Total
----------------- ----------------- -----
<S> <C> <C> <C>
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 37,615 38 37,653
Net loss (52,164) (52) (52,216)
--------- --------- ---------
Balance, December 31, 1997 115,325 115 115,440
Net loss (86,192) (86) (86,278)
--------- --------- ---------
Balance, December 31, 1998 $ 29,133 $ 29 $ 29,162
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands
<TABLE>
----------------------------------------------------
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1998 1997 1996
----------------- ----------------- --------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (86,278) $ (52,216) $ (23,801)
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 114,155 65,502 35,724
Gain on swap of assets (2,362) - -
Deferred tax benefit (2,927) - -
Amortization of deferred debt issuance costs 2,965 1,825 999
Accretion of interest on indebtedness 19,485 5,768 924
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable (3,480) (582) (1,946)
Receivable from seller - 846 1,377
Prepaid expenses and other (870) (249) (1,266)
Accounts payable and accrued liabilities 15,698 3,152 3,423
Subscriber prepayments and deposits 1,086 (1,523) (2,393)
Accrued interest payable 4,483 (1,226) 5,870
--------- --------- ---------
Total adjustments 148,233 78,559 42,712
--------- --------- ---------
Net cash flows from operating activities 61,955 26,343 18,911
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures (65,570) (32,738) (9,304)
Pending acquisition costs (22) (146) -
Cash paid for franchise costs (12) (406) (2,009)
Earnest money deposits (200) (2,000) (500)
Proceeds from disposition of cable television systems - - 15,065
Cash paid in acquisitions of cable television systems (307,595) (392,631) (421,467)
--------- --------- ---------
Net cash flows from investing activities (373,399) (427,921) (418,215)
--------- --------- ---------
Cash Flows From Financing Activities:
Debt borrowings 316,485 523,000 137,700
Payments on debt borrowings (76,875) (289,845) (33,600)
Proceeds of issuance of Senior Subordinated Notes - - 200,000
Proceeds of issuance of Senior Discount Notes 75,000 150,000 -
Principal payments on capital lease obligations - (70) (16)
Increase in deferred financing fees (395) (11,357) (3,771)
Offering costs related to Senior Subordinated Notes - (129) (7,417)
Offering costs related to Senior Discount Notes (2,408) (6,585) -
Partner capital contributions - 37,653 107,397
--------- --------- ---------
Net cash flows from financing activities 311,807 402,667 400,293
--------- --------- ---------
Net Increase in Cash and Cash Equivalents 363 1,089 989
Cash and Cash Equivalents, at beginning of period 4,728 3,639 2,650
--------- --------- ---------
Cash and Cash Equivalents, end of period $ 5,091 $ 4,728 $ 3,639
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 62,789 $ 42,226 $ 15,195
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(1) THE COMPANY
Organization and Capitalization
FrontierVision Holdings, L.P. ("Holdings" or the "Company"), wholly-owned by
FrontierVision Partners, L.P., a Delaware limited partnership ("FVP"), is a
Delaware limited partnership formed on September 3, 1997 for the purpose of
acting as co-issuer with its wholly-owned subsidiary, FrontierVision Holdings
Capital Corporation ("Holdings Capital"), of $237,650 aggregate principal amount
at maturity of 11 7/8% Senior Discount Notes due 2007 (the "Discount Notes").
FVP contributed to Holdings, both directly and indirectly, all of the
outstanding partnership interests of FrontierVision Operating Partners, L.P.
("FVOP") prior to the issuance of the Discount Notes on September 19, 1997 (the
"Formation Transaction") and, as a result FVOP and its wholly-owned subsidiary,
FrontierVision Capital Corporation ("Capital"), are wholly-owned, consolidated
subsidiaries of Holdings. The Formation Transaction was accounted for at
predecessor cost. As used herein, the "Company" collectively refers to Holdings,
Holdings Capital, FrontierVision Operating Partners, Inc. ("FVOP Inc."), FVOP
and Capital.
On December 2, 1998, Holding along with FrontierVision Holdings Capital II
Corporation ("Holdings Capital II"), co-issued $91,298 aggregate principal
amount at maturity of Discount Notes, Series B. Net proceeds from the issuance
were contributed to FVOP as a capital contribution.
The Company owns and operates 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.
FVOP was initially capitalized in November 1995 with approximately $38 from its
sole limited partner, FVOP Inc., a Delaware corporation, and approximately
$38,300 from at the time its sole general partner, FVP. During the year ended
December 31, 1997, the Company received additional capital contributions of
approximately $37,653 from its partners. These capital contributions and a
portion of the proceeds from the Discount Notes was used by FVOP to repay
certain bank indebtedness with the remainder placed in escrow to finance pending
acquisitions.
Allocation of Profits, Losses and Distributions
Generally, Holdings' 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.
(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 consolidated financial statements include the accounts of Holdings and those
of its wholly-owned subsidiaries, Holdings Capital, FVOP Inc., FVOP, Capital,
FrontierVision New England Cable, Inc. ("New England"), New England Cable
Television of Massachusetts, Inc. ("NECMA") and FrontierVision Access Partners,
LLC ("Access"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
F-7
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 and construction activities.
Depreciation is computed on a straight-line basis using an average estimated
useful life of 8 years.
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.
Impairment of Long-lived Assets
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 and Deferred Bond Issue Costs
Deferred financing costs and deferred bond issue costs are being amortized using
the straight line method over the life of the loans and the bonds. Accumulated
amortization at December 31, 1998 and 1997 is $4,236 and $1,246, respectively.
Revenue Recognition
Revenue is recognized in the period in which the related services are provided
to the subscribers. Installation revenue is recognized in the period that
installation services are provided to the extent of direct selling costs. Any
remaining amount is deferred and recognized over the estimated average period
that customers are expected to remain connected to the cable television system.
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.
F-8
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Company and its direct and indirect subsidiaries, except for New England,
NECMA, Main Security Surveillance, Inc., FVOP Inc., Capital, Holdings Capital
and Holdings Capital II, are limited partnerships or limited liability companies
and pay no income taxes as entities. All of the income, gains, losses,
deductions and credits of the Company are passed through to its partners.
Nominal taxes are assessed by certain state and local jurisdictions. The basis
in the Company's assets and liabilities differs for financial and tax reporting
purposes. At December 31, 1998, the book basis of the Company's net assets
exceeded its tax basis by $43.7 million.
New England, NECMA, Main Security Surveillance, FVOP, Inc., Capital, Holdings
Capital and Holdings Capital II, are corporations and are subject to federal and
state income taxes which have not been significant. Deferred taxes relate
principally to the difference between book and tax basis of the cable television
assets owned by NECMA, partially offset by the tax effect of related net
operating loss carryforwards.
New Accounting Standard
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," ("SFAS 133"), which is effective for all fiscal years beginning
after June 15, 1999. SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities by requiring that all derivative
instruments be reported as assets or liabilities and measured at their fair
values. Under SFAS 133, changes in the fair values of derivative instruments are
recognized immediately in earnings unless those instruments qualify as hedges of
the (1) fair values of existing assets, liabilities, or firm commitments, (2)
variability of cash flows of forecasted transactions, or (3) foreign currency
exposures of net investments in foreign operations. Although management of the
Company has not completed its assessment of the impact of SFAS 133 on its
consolidated results of operations and financial position, management estimates
that the impact of SFAS 133 will not be material.
Reclassification
Certain amounts have been reclassified for comparability.
(3) STORM RELATED COSTS
During mid-January of 1998, certain of the communities served by the Company in
Maine experienced devastating ice storms. For the year ended December 31, 1998,
the Company has recognized a loss due to service outages and increased labor
costs of approximately $522 due to the ice storms. Additionally, the Company has
incurred approximately $540 of capital expenditures to replace damaged
subscriber drops. The Company received $183 subsequent to December 31, 1998
related to a claim on its business interruption insurance for the storm damage.
F-9
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(4) INVESTMENT IN CABLE TELEVISION SYSTEMS
The Company's investment in cable television systems is comprised of the
following:
<TABLE>
--------------------------------------
December 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Property and equipment $ 435,531 $ 297,229
Less--accumulated depreciation (92,777) (49,505)
----------- -----------
Property and equipment, net 342,754 247,724
----------- -----------
Franchise costs 717,614 523,096
Covenants not to compete 16,856 14,983
Subscriber lists 146,411 106,270
Goodwill 53,937 44,702
----------- -----------
934,818 689,051
Less--accumulated amortization (114,294) (51,326)
----------- -----------
Franchise costs and other intangible assets, net 820,524 637,725
----------- -----------
Total investment in cable television systems, net $ 1,163,278 $ 885,449
=========== ===========
</TABLE>
(5) ACQUISITIONS AND DISPOSITIONS
Acquisitions
The Company has completed several acquisitions since its inception through
December 31, 1998. 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 and equipment and to intangible assets
will be respectively depreciated and amortized, prospectively from the date of
acquisition based upon remaining useful lives and amortization periods. The
following table lists the acquisitions and the purchase price for transactions
occurring in the most recent two years.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
Predecessor Owner Primary Location of Systems Date Acquired Acquisition Cost (a)
----------------- --------------------------- ------------- --------------------
<S> <C> <C> <C>
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 $34,800
Cox Communications, Inc.("Cox-Central Ohio") Ohio December 19, 1997 $204,100
TVC-Sumpter Limited Partnership and North Oakland Cablevision
Partners Limited Partnership Michigan March 6, 1998 $14,400
TCI Cablevision of Ohio, Inc. Ohio April 1, 1998 $10,000
New England Cablevision of Massachusetts, Inc. ("NECMA") Massachusetts April 3, 1998 $44,900
Ohio Cablevision Network, Inc. ("TCI-Bryan") Ohio July 31, 1998 $37,400
Unity Cable Television, Inc. Maine September 30, 1998 $800*
Appalachian Cablevision of Ohio Ohio September 1, 1998 $300
State Cable TV Corporation ("State") Maine, New Hampshire October 23, 1998 $190,200*
Paint Valley Cable Ohio October 30, 1998 $1,900*
CASCO Maine November 30, 1998 $3,200*
- ---------------
</TABLE>
F-10
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(5) 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, 1998.
* Subject to adjustment.
The combined purchase price of certain of these acquisitions has been allocated
to the acquired assets and liabilities as follows:
<TABLE>
---------------------------------------------------
1998 1997 1996
Acquisitions(a) Acquisitions(a) Acquisitions(a)
--------------- --------------- ---------------
<S> <C> <C> <C>
Property and equipment $ 79,526 $ 48,805 $ 169,240
Franchise costs and other intangible assets 244,492 344,490 268,836
--------- --------- ---------
Subtotal 324,018 393,295 438,076
--------- --------- ---------
Net working capital (deficit) 410 (164) (7,107)
Deferred income taxes (14,783) - -
Less - Earnest money deposits applied (2,050) (500) (9,502)
--------- --------- ---------
Total cash paid for acquisitions $ 307,595 $ 392,631 $ 421,467
========= ========= =========
</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 Triax I, Cablevision, TCI-VT/NH,
Cox-Central Ohio, NECMA, TCI-Bryan and State Cable acquisitions (the
"Acquisitions") had been consummated on January 1, 1997, are as follows:
<TABLE>
-------------------------------------------------
Year Ended December 31, 1998
-------------------------------------------------
Historical Pro Forma
Results Acquisitions Results
------------ ---------------- ---------------
<S> <C> <C> <C>
Revenue $ 245,134 $ 31,842 $ 276,976
Operating, selling, general and administrative expenses (130,783) (20,245) (151,028)
Depreciation and amortization (114,155) (15,546) (129,701)
--------- --------- ---------
Operating income (loss) 196 (3,949) (3,753)
Interest and other expenses (86,474) (20,624) (107,098)
--------- --------- ---------
Net loss $ (86,278) $ (24,573) $(110,851)
========= ========= =========
-------------------------------------------------
Year Ended December 31, 1997
-------------------------------------------------
Historical Pro Forma
Results Acquisitions Results
------------ ---------------- ---------------
<S> <C> <C> <C>
Revenue $ 145,126 $ 105,533 $ 250,659
Operating, selling, general and administrative expenses (78,732) (56,312) (135,044)
Depreciation and amortization (65,502) (47,543) (113,045)
--------- --------- ---------
Operating income 892 1,678 2,570
Interest and other expenses (53,108) (47,237) (100,345)
--------- --------- ---------
Net loss $ (52,216) $ (45,559) $ (97,775)
========= ========= =========
</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-11
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(5) ACQUISITIONS AND DISPOSITIONS (continued)
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.
On January 7, 1999, the Company sold certain cable television system assets
located in the Southeast region to Helicon Partners I, LP, for an aggregate
sales price of approximately $5,220.
(6) DEBT
The Company's debt was comprised of the following:
<TABLE>
-------------------------------
December 31, December 31,
1998 1997
---- ----
Bank Credit Facility (a) --
Revolving Credit Facility, interest based on various floating rate options
<S> <C> <C>
(7.25% average at December 31, 1998), payable monthly $ 172,000 $ -
Term loans, interest based on various floating libor rate options
(7.46% and 8.33% weighted average at December 31, 1998 and 1997,
respectively), payable monthly 498,125 432,000
11% Senior Subordinated Notes due 2006 (b) 200,000 200,000
11 7/8% Senior Discount Notes due 2007 (c) 249,532 155,047
Capital leases 1,485 -
------------ ------------
Total debt $ 1,121,142 $ 787,047
============ ===========
</TABLE>
(a) Bank Credit Facility.
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. This
obligation may be waived with the consent of the majority of the lenders.
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
F-12
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(6) DEBT (continued)
Company also payscommitment 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.
All partnership interests in the Company and all assets of the Company
and its subsidiaries are pledged as collateral for the Amended Credit
Facility.
(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.
(c) Senior Discount Notes
On September 19, 1997, Holdings issued, pursuant to a private offering,
the Discount Notes. The Discount Notes were sold at approximately 63.1%
of the stated principal amount at maturity and provided net proceeds of
$144,750, after underwriting fees of approximately $5,250.
On December 2, 1998, Holdings issued, pursuant to a private offering,
the Discount Notes, Series B. The Discount Notes were sold at at
approximately 82.149% of the stated principal amount at maturity and
provided net proceeds of $72,750, after underwriting fees of
approximately $2,250.
The Discount Notes are unsecured obligations of Holdings and Holdings
Capital (collectively, the "Issuers"), ranking pari passu in right of
payment to all existing and future unsecured indebtedness of the
Issuers and will mature on September 15, 2007. The discount on the
Discount Notes is being accreted using the interest method until
September 15, 2001, the date at which cash interest begins to accrue.
Cash interest will accrue at a rate of 11 7/8% per annum and will be
payable each March 15 and September 15, commencing March 15, 2002.
F-13
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(6) DEBT (continued)
The Discount Notes are redeemable at the option of the Issuers, in
whole or in part, at any time on or after September 15, 2001, at
redemption prices set forth in the Indenture for the Discount Notes
(the "Discount Notes Indenture"), plus any unpaid interest, if any, at
the date of the redemption. The Issuers may redeem, prior to September
15, 2001, up to 35% of the principal amount at maturity of the Discount
Notes with the net cash proceeds received from one or more public
equity offerings or strategic equity investments at a redemption prices
set forth in the Discount Notes Indenture, plus any unpaid interest, if
any, at the date of the redemption.
The Discount Notes Indenture has certain restrictions on incurrence of
indebtedness, distributions, mergers, asset sales and changes in
control of Holdings.
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 and received compensation in the aggregate of
approximately $3.1 million in connection with the issuance of the Discount
Notes.
(d) Interest Rate Protection Agreements
In order to convert effectively 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 $187,500, and maturing between November 15,
1999 and October 7, 2001. According to these agreements, the Company
pays or receives the difference between (1) an average fixed rate of
5.84% and (2) a floating rate of the three month libor applied to the
same $187,500 notional amount every three months during the term of the
interest rate swap agreement. On April 7, 1998, the Company terminated
one of its interest rate swap agreements for a notional amount of
$82,500 and entered into a new interest rate swap agreement for
$100,000.There was no termination fee associated with this transaction.
On April 8, 1998, the Company entered into a collar interest rate swap
agreement ("Collar Agreement") for a notional amount of $100,000,
maturing on January 8, 2001. The Collar Agreement provides for
different exchanges between the Company and the counterparty depending
on the level of the floating three month LIBOR rate (5.32% at December
31, 1998). Such exchanges occur every three months during the term of
the Collar Agreement. The different exchanges are as follows:
(1) When LIBOR is below 5.05%, the Company pays to the counterparty the
difference between the fixed rate of 5.65% and the LIBOR rate,
applied to the $100,000 notional amount;
(2) When LIBOR is between 5.65% and 6.65%, the Company receives from
the counterparty the difference between the fixed rate of 5.65% and
LIBOR rate, applied to the $100,000 notional amount;
(3) When LIBOR is in excess of 6.65% or between 5.65% and 5.05%, the
Collar Agreement has no financial effect.
On October 3, 1997, in order to convert certain of the interest payable
at variable rates under indebtedness, the Company entered into a
forward interest rate swap agreement. This commenced on 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.
F-14
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(6) DEBT (continued)
For the years ended December 31, 1998 and 1997, the Company had
recognized an increase in interest expense of approximately $585 and
$312, respectively, as a result of the interest rate swap agreements.
Information concerning the Company's interest rate agreements at
December 31, 1998 is as follows:
<TABLE>
Amount to be
Interest rate Notional paid upon
Expiration date to be received amount termination (i)
--------------- -------------- ------ ---------------
<S> <C> <C> <C>
November 15, 1999 5.912% $ 65,000 $ 472.5
November 15, 1999 5.188% 22,500 12.1
January 8, 2001 5.650% 100,000 1,215.3
October 7, 2001 5.940% 100,000 2,731.9
October 15, 2001 6.115% 150,000 4,340.7
------------ -------------
$ 437,500 $ 8,772.5
============ =============
</TABLE>
(i) The estimated amount that the Company would pay to terminate
the agreements on December 31, 1998. This amount takes into
consideration current interest rates, the current
creditworthiness of the counterparties and represents the fair
value of the interest rate agreements.
The debt of the Company, excluding future accretion, matures as follows:
Year Ended December 31 --
-------------------------
1999 $ 11,144
2000 24,575
2001 34,575
2002 44,575
2003 55,825
Thereafter 950,448
--------------
$ 1,121,142
==============
(7) GUARANTOR SUBSIDIARIES
The Indenture for the Discount Notes has been amended to add New England and
NECMA as guarantors ("Guarantor Subsidiaries") of the Discount Notes. The
guaranty is full and unconditional. Separate financial statements of the
Guarantor Subsidiaries are not presented because management believes that they
are not material to investors.
Following is condensed consolidating financial information for the Company:
F-15
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(7) GUARANTOR SUBSIDIARIES (continued)
Balance Sheet as of December 31, 1998
<TABLE>
--------------------------------------------------------------------------------------------
Non-Guarantor
Guarantor Subsidiaries Consolidating Consolidated
Holdings FVOP Subsidiaries Entries Holdings
---------------- --------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash $ 200 $ 4,249 $ 559 $ 83 $ - $ 5,091
Receivables - 18,330 287 288 (5,129) 13,776
Prepaid expenses - 3,929 115 2 - 4,046
Investment in cable
Television systems - 1,137,025 56,574 4,679 (35,000) 1,163,278
Other assets 277,570 24,460 - 269 (278,069) 24,230
---------- ---------- ---------- ---------- ---------- ----------
Total assets $ 277,770 $1,187,993 $ 57,535 $ 5,321 $ (318,198) $1,210,421
========== ========== ========== ========== ========== ==========
Accounts payable and
Accrued liabilities $ (924) $ 34,021 $ 6,705 $ 729 $ (5,129) $ 35,402
Subscriber prepayments and deposits - 3,320 (8) - - 3,312
Accrued interest payable - 9,547 - - - 9,547
Deferred income taxes - - 11,859 (3) - 11,856
Debt 249,532 871,610 35,000 - (35,000) 1,121,142
Partners' capital/
Subsidiary equity 29,162 269,495 3,979 4,595 (278,069) 29,162
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
partners' capital $ 277,770 $1,187,993 $ 57,535 $ 5,321 $ (318,198) $1,210,421
========== ========== ========== ========== ========== ==========
</TABLE>
Statement of Operations for the Year Ended December 31, 1998
<TABLE>
--------------------------------------------------------------------------------------------
Non-Guarantor
Guarantor Subsidiaries Consolidating Consolidated
Holdings FVOP Subsidiaries Entries Holdings
---------------- --------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ - $ 236,728 $ 8,219 $ 187 $ - $ 245,134
Operating expenses 39 119,532 4,112 135 - 123,818
Corporate administrative
expenses - 6,513 452 - - 6,965
Depreciation and
amortization - 106,609 7,494 52 - 114,155
------------- ------------ -------- ---------- ------------ ----------
Operating income (39) 4,074 (3,839) - - 196
Interest expense, net (20,043) (64,025) (4,807) - - (88,875)
Equity in losses of affiliate (66,196) (6,020) - (66) 72,282 -
Other expense - (225) (301) - - (526)
Income tax benefit - - 2,927 - - 2,927
------------- ------------ -------- ---------- ------------ ----------
Net loss $ (86,278) $ (66,196) $ (6,020) $ (66) $ 72,282 $ (86,278)
============= ============ ======== ========== ============ ==========
</TABLE>
F-16
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(8) 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.
(9) 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, 1998; 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 fair value for the Notes at December 31, 1998 is $222,000. The
Discount Notes have an aggregate principal amount at maturity of $328,948 with a
11 7/8% coupon. At December 31, 1998, the approximate fair value of the
Company's Discount Notes was $273,030. The fair value of the Notes and Discount
Notes is estimated based on Portal Market quotations of the issue.
(10) 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, 1998, 1997 and
1996 was $5,806, $4,065 and $2,365, respectively.
Estimated future noncancelable lease payments under such lease obligations
subsequent to December 31, 1998 are as follows:
Year Ended December 31 --
-------------------------
1999 $ 1,404
2000 1,104
2001 781
2002 646
2003 390
Thereafter 737
------------
$ 5,062
============
F-17
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts In Thousands
(10) COMMITMENTS AND CONTINGENCIES (continued)
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.
(11) YEAR 2000 COMPLIANCE
The Company has under way a project to review and modify, as necessary, its
computer applications, hardware and other equipment to make them Year 2000
compliant. The Company has also initiated formal communications with third
parties having a substantial relationship to its business, including significant
suppliers and financial institutions, to determine the extent to which the
Company may be vulnerable to such third parties' failures to achieve Year 2000
compliance.
Failure to achieve Year 2000 compliance by the Company, its principal suppliers
and certain financial institutions with which it has relationship could
negatively affect the Company's ability to conduct business for an extended
period. There can be no assurances that all Company information technology
systems and components will be fully Year 2000 compliant; in addition, other
companies on which the Company's systems and operations rely may not be fully
compliant on a timely basis, and any such failure could have a material adverse
effect on the Company's financial position, results of operations or liquidity.
(12) SUBSEQUENT EVENT
On February 22, 1999, FVP entered into a definitive agreement with Adelphia
Communications Corporation to sell all outstanding partnership interests of FVP
in exchange for cash, the assumption of certain liabilities and 7,000,000 shares
of Adelphia Class A common stock.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholder of
FrontierVision Holdings Capital Corporation:
We have audited the accompanying balance sheet of FrontierVision Holdings
Capital Corporation as of December 31, 1998 and 1997. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of FrontierVision Holdings Capital
Corporation as of December 31, 1998 and 1997 in conformity with generally
accepted accounting principles.
KPMG LLP
Denver, Colorado
March 19, 1999
F-19
<PAGE>
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
BALANCE SHEET
<TABLE>
---------------------------------
December 31, December 31,
1998 1997
---------------- ---------------
ASSETS
<S> <C> <C>
Cash $ 100 $ 100
---------- ----------
Total assets $ 100 $ 100
========== ==========
LIABILITIES AND OWNER'S EQUITY
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
--------- ---------
Total owner's equity 100 100
--------- ---------
Total liabilities and owner's equity $ 100 $ 100
========= =========
</TABLE>
See accompanying note to the balance sheet.
F-20
<PAGE>
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
NOTE TO THE BALANCE SHEET
FrontierVision Holdings Capital Corporation, a Delaware corporation ("Holdings
Capital"), is a wholly owned subsidiary of FrontierVision Holdings, L.P.
("Holdings"), and was organized on August 22, 1997 for the sole purpose of
acting as co-issuer with Holdings of $237.7 million aggregate principal amount
at maturity of the 11 7/8% Senior Discount Notes. Holdings Capital had no
operations from September 18, 1997 through December 31, 1998.
F-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To State Cable TV Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheets of State Cable TV
Corporation and Subsidiary as of December 31, 1997, and the related consolidated
statement of operations and deficit and cash flows for the year then ended.
These consolidated financial statements referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of State
Cable TV Corporation and Subsidiary as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Boston, Massachusetts
March 13, 1998
F-34
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
Assets
December 31, September 30,
1997 1998
(Unaudited)
Current Assets:
<S> <C> <C>
Cash $ 605,832 $ 915,676
Subscriber receivables, net of allowance for doubtful accounts of $706,140 at 1,688,694 1,505,602
December, 31 1997 and $1,150,567 at September 30, 1998 (unaudited)
Other current assets 440,594 474,408
--------------- ---------------
Total current assets 2,735,120 2,895,686
--------------- ---------------
Property, Plant and Equipment, at cost:
Land and building held for sale 383,219 383,219
Land 235,674 235,674
Building and building improvements 2,317,728 2,386,357
Cable TV equipment 56,274,822 60,072,379
Office equipment 1,558,486 1,666,208
Vehicles 2,017,865 2,212,835
--------------- ---------------
62,787,794 66,956,672
Less-Accumulated depreciation (40,957,381) (44,491,861)
--------------- ---------------
21,830,413 22,464,811
Construction in process 805,422 -
--------------- ---------------
22,635,835 22,464,811
Notes Receivable from Affiliate (Note 8) 10,115,617 11,070,626
Deferred Income on Installment Sale (Note 8) (7,291,147) (7,684,897)
--------------- ---------------
Total notes receivable 2,824,470 3,385,729
--------------- ---------------
Intangible Assets, net
Franchises 2,420,280 2,221,019
Goodwill 285,409 276,877
Loan costs 1,200,807 1,011,805
--------------- ---------------
3,906,496 3,509,701
--------------- ---------------
Other Assets (Note 3) 93,543 -
--------------- ---------------
Total assets $ 32,195,464 $ 32,255,927
=============== ===============
Liabilities and Shareholders' Deficit
Current Liabilities:
Current maturities of long-term debt $ 5,254,068 $ 7,011,576
Accounts payable 2,845,415 2,438,018
Accrued expenses 1,856,008 1,719,585
Subscriptions received in advance 351,032 346,694
--------------- ---------------
Total current liabilities 10,306,523 11,515,873
--------------- ---------------
Long-Term Debt, net of current maturities 55,704,532 54,804,435
Deferred State Tax Payable 18,355 -
Other Long-Term Liabilities 102,579 311,829
--------------- ---------------
Total liabilities 66,131,989 66,632,137
--------------- ---------------
Commitments and Contingencies (Note 5)
Minority Interest 2,082,054 2,665,322
Shareholders' Deficit:
Common stock, par value $1.00 per share, authorized, issued and outstanding, 1,822 1,822 1,822
shares
Accumulated deficit (36,020,401) (37,043,354)
--------------- ---------------
Total shareholders' deficit (36,018,579) (37,041,532)
--------------- ---------------
Total liabilities and shareholders' deficit $ 32,195,464 $ 32,255,927
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-35
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations and Deficit
<TABLE>
Year Ended Nine Months Ended Three Months Ended
December 31, September 30, September 30,
1997 1997 1998 1997 1998
(Unaudited) (Unaudited)
Gross Service Revenue:
<S> <C> <C> <C> <C> <C>
Subscriber revenue $ 22,327,282 $ 16,508,075 $ 18,500,996 $ 5,736,622 $ 6,380,173
Premium services and pay per view revenue 3,274,880 2,260,703 2,488,962 826,772 958,136
Advertising revenue 1,441,866 946,370 981,967 276,455 376,642
Installation revenue 594,663 469,068 371,564 136,114 123,544
Other revenue 702,014 608,805 655,733 215,741 350,609
------------- ------------- ------------ ------------- ------------
28,340,705 20,793,021 23,126,355 7,191,704 8,089,104
Programming Costs 5,434,797 3,905,225 4,689,751 1,391,621 1,648,373
------------- ------------- ------------ ------------- ------------
Net revenue (after programming costs) 22,905,908 16,887,796 18,436,604 5,800,083 6,440,731
------------- ------------- ------------ ------------- ------------
Operating Expenses:
General and adminstrative 6,009,795 4,652,460 5,248,940 1,569,971 1,824,686
Production and advertising 3,848,847 2,869,849 2,930,704 912,574 984,781
Depreciation 4,259,092 3,653,200 3,534,480 1,238,400 1,178,160
Ice storm damage - - 1,595,567 - 71,465
------------- ------------- ------------ ------------- ------------
14,117,734 11,175,509 13,309,691 3,720,945 4,059,092
------------- ------------- ------------ ------------- ------------
Income from Operations Before Other Expenses 8,788,174 5,712,287 5,126,913 2,079,138 2,381,639
(Income)
Other Expenses (Income):
Interest expense 4,875,201 3,556,976 3,954,002 1,249,541 1,464,951
Management fees to affiliated company 687,177 506,039 566,316 174,000 188,772
Amortization of intangible assets 626,813 368,014 396,917 126,792 132,306
Gain on sale of equipment (31,051) (6,737) - - -
Interest income (71,117) (24,517) (31,693) (7,453) (12,114)
Minority interest in income of Better Cable 768,594 588,255 583,268 207,994 245,251
------------- ------------- ------------ ------------- ------------
TV Company
6,855,617 4,988,030 5,126,913 1,750,874 2,019,166
------------- ------------- ------------ ------------- ------------
Income (Loss) Before State Income Taxes 1,932,557 724,257 (341,897) 328,264 362,473
Provision for State Income Taxes 18,000 - - - -
------------- ------------- ------------ ------------- ------------
Net income (Loss) 1,914,557 640,714 (341,897) 328,264 362,473
------------- ------------- ------------ ------------- ------------
Accumulated Deficit, beginning of period (36,780,806) (36,780,806) (36,020,401) (36,384,813) (36,724,771)
Distribution to Shareholders (Note 2(g)) (1,154,152) (1,536,000) (681,056) (1,536,000) (681,056)
------------- ------------- ------------ ------------- ------------
Accumulated Deficit, end of period $ (36,020,401) $ (37,592,549) $ (37,043,354)$(37,592,549)$(37,043,354)
============= ============= ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-36
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
Year Ended Nine Months Ended
December 31, September 30,
1997 1997 1998
(Unaudited)
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income (loss) $ 1,914,557 $ 640,714 $ (341,897)
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 4,885,905 3,866,493 3,931,397
Provision for bad debts 284,565 855,381 444,427
Gain on sale of equipment (31,051) (6,737) -
Minority interest 386,746 588,255 583,268
Deferred taxes (1,645) (20,000) (18,355)
Changes in operating assets and liabilities, net of effects
from purchase of Pegasus-
Increase in subscriber receivables (305,301) (618,571) (261,335)
Increase in other current assets (536,180) (446,422) (33,814)
Increase in notes receivable (2,024,992) (340,836) (561,259)
Decrease in other assets 377,242 440,785 93,543
Increase (decrease) in accounts payable 551,984 828,584 (407,397)
Increase (decrease) in accrued expenses 223,702 215,148 (136,423)
Increase in subscriptions received in advance 36,526 118,021 204,912
--------------- --------------- ---------------
Net cash provided by operating activities 5,762,058 6,120,815 3,497,067
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (7,463,502) (11,481,424) (3,363,456)
Payment for purchase of Pegasus, net of cash acquired (6,838,183) - -
Acquisition of intangible assets, exclusive of effects from (261,374) (2,354,232) (122)
--------------- --------------- ---------------
purchase of Pegasus
Net cash used in investing activities (14,563,059) (13,835,656) (3,363,578)
--------------- --------------- ---------------
Cash Flows from Financing Activities:
Repayment of long-term debt (3,132,621) (2,224,971) (3,942,589)
Proceeds from long-term debt 13,200,000 11,500,000 4,800,000
Distributions to shareholders (1,154,152) (1,536,000) (681,056)
--------------- --------------- ---------------
Net cash provided by financing activities 8,913,227 7,739,029 176,355
--------------- --------------- ---------------
Net Increase in Cash 112,226 24,188 309,844
Cash, beginning of year 493,606 493,606 605,832
--------------- --------------- ---------------
Cash, end of year $ 605,832 $ 517,794 $ 915,676
=============== =============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for-
Interest $ 4,681,103 $ 3,423,872 $ 3,904,574
=============== =============== ===============
Income taxes 23,634 - -
=============== =============== ===============
Supplemental Disclosures of Noncash Investing Activities:
Increase in promissory note receivable and deferred income on 525,000 393,750 393,750
=============== =============== ===============
installment sale due to accrued interest
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-37
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(1) Organization
State Cable TV Corporation and Subsidiary (the Company) is engaged
primarily in providing cable television and related services to the Maine
and New Hampshire areas.
On January 31, 1997, the Company purchased substantially all of the
assets and assumed current liabilities of Pegasus, a cable television
company that provides service to areas in the State of New Hampshire. The
total purchase price was $7,135,000, of which $300,000 was paid in 1996
and is included in deposits and other assets at December 31, 1996. The
balance due was paid utilizing the Company's credit facility in 1997. The
transaction was treated as a purchase. The fair market value of the
assets approximated the purchase price. The value of the acquired
franchises was approximately $2,000,000 which is being amortized over 10
years, which represents the lives of the franchise agreements.
(2) Summary of Significant Accounting Policies
The accompanying financial statements reflect the application of
accounting policies described in this note and elsewhere in the
accompanying notes to consolidated financial statements.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and Better Cable TV Company, its 60%-owned subsidiary (see
Note 9). Material intercompany transactions and accounts have been
eliminated in consolidation. The shareholders of the Company are
the partners of a partnership (the Affiliate) that owns the
minority interest of $2,082,054 as of December 31, 1997,
representing a 40% interest in the subsidiary. Changes in minority
interest reflect Better Cable TV Company's capital adjusted by its
portion of the net gain or loss.
(b) 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 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.
(c) Property, Plant and Equipment
Property, plant and equipment is carried at cost and is being
depreciated under the straight-line method over the estimated
useful lives of the assets which range from 5 to 33 years as
described below. Repair and maintenance costs are charged to
expense as incurred.
Building and building improvements....................20-33 years
Cable TV equipment......................................5-7 years
Office equipment..........................................5 years
Vehicles..................................................5 years
F-38
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
Property and equipment include the following amounts held under
capital leases:
December 31, September 30,
1997 1998
Land $ 169,000 $ 169,000
Building and building improvements 1,606,422 1,644,230
Less--Accumulated depreciation (160,403) (240,544)
---------- ----------
$1,615,019 $1,572,686
========== ==========
(d) Intangible Assets
Intangible assets are carried at cost and are being amortized
under the straight-line method over the periods indicated in Note
3.
(e) Investment in an Affiliate
Investment in a 33-1/3%-owned affiliate, Pinetree Microwave
Corporation, is carried under the equity method and classified in
other assets in the accompanying balance sheet. The assets,
liabilities and results of operations of Pinetree are not
significant to the Company. During 1998, the Company reevaluated
the value of the asset and wrote it down to zero.
(f) Revenue Recognition
Operating revenues for cable services are recognized as services
are rendered. Revenues from services contracts are recognized in
earnings over the terms of the contract.
(g) Income Taxes
The Company has elected subchapter S Corporation status for
federal and the State of Maine income tax purposes. Provisions for
federal and Maine income taxes have not been made as the Company's
operations are included pro rata in the individual income tax
returns of its shareholders. A provision for New Hampshire income
taxes has been made in the accompanying consolidated financial
statements due to the fact New Hampshire does not recognize the
Company's S corporation status. During 1997, the Company made
distributions to shareholders of $1,154,152 to pay their estimated
tax payments.
The Company provides for New Hampshire income taxes under the
liability method in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the
difference between the financial statement and tax bases of assets
and liabilities, as measured by the enacted tax rates expected to
be in effect when these differences reverse. Temporary differences
relate mainly to depreciation and deferred interest.
F-39
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
The components of the provision for income taxes for December 31,
1997 is as follows:
December 31,
1997
Current-
State $ 20,500
Deferred-
State (2,500)
-----------
Total provision (benefit) $ 18,000
===========
(h) Cash
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
(i) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk, requires disclosure of any
significant off-balance-sheet and credit risk concentrations. The
Company has no significant off-balance-sheet concentration of
credit risks such as foreign exchange contracts, options contracts
or other foreign hedging arrangements. Financial instruments that
subject the Company to credit risk consist primarily of cash and
accounts receivable.
(j) Long-Lived Assets
The Company has assessed the realizability of its long-lived
assets in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be
Disposed Of. As of December 31, 1997 and September 30, 1998,
management believes there has been no impairment of long-lived
assets.
(k) Interim Financial Statements (Unaudited)
The accompan ying consolidated balance sheet as of September 30,
1998, is unaudited, but in the opinion of management, includes all
adjustments consisting of normal recurring adjustments necessary
for fair presentation of results for the interim period. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted with respect to
the nine months ended, September, 30, 1998, although the Company
believes that the disclosures included are adequate to make the
information presented not misleading. Results for the nine months
ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1998.
F-40
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
(3) Intangible Assets
Intangible assets consist of the following:
<TABLE>
December 31, September 30, Amortization
1997 1998 Period
in Years
<S> <C> <C> <C>
Customer lists $ 2,858,218 $ 2,858,218 7
Franchises 4,348,947 4,349,069 10-15
Restrictive covenants 317,921 317,921 2-10
Goodwill 454,013 454,013 40
Loan costs 1,770,629 1,770,629 5-8
Other 253,476 253,476 5-10
-------------- --------------
10,003,204 10,003,326
Less--Accumulated amortization 6,096,708 6,493,625
-------------- --------------
$ 3,906,496 $ 3,509,701
============== ==============
</TABLE>
(4) Long-Term Debt
Long-term debt consists of the following:
December 31, September 30,
1997 1998
Term loan $ 42,276,500 $ 38,363,675
Revolving line of credit 17,200,000 22,000,000
Capital lease 1,482,100 1,452,336
---------------- ----------------
60,958,600 61,816,011
Less--Current maturities 5,254,068 7,011,576
---------------- ----------------
$ 55,704,532 $ 54,804,435
================ ================
The Company has a $67,000,000 credit facility (the Facility) with The
First National Bank of Chicago (First Chicago) as agent for the lending
institutions (the Lenders) under a credit agreement (Credit Agreement).
The Facility consists of a $47,000,000 amortizing term loan maturing on
December 31, 2002 and a $20,000,000 revolving credit facility terminating
on March 31, 2004. The revolving line of credit is for capital
expenditures, system acquisitions and other general corporate purposes
subject to limitations as defined in the agreement. The Facility is
collateralized by all of the Company's assets. In addition, the
shareholders pledge the stock of the Company and the partnership interest
in Better Cable TV Company as collateral. The 40% minority interest in
Better Cable TV Company has also been pledged as collateral. The Credit
Agreement requires the Company to meet various financial covenants and as
of December 31, 1997 the Company was in compliance with these covenants.
The Credit Agreement limits the payments for capital expenditures,
management fees and dividends. The Credit Agreement requires that the
term loan be repaid by quarterly installments. The repayments are based
upon a percentage of the amount outstanding as of June 30, 1997 and these
percentages increase annually until 2002 when it decreases. Advances
under the revolving credit facility are payable quarterly beginning March
31, 2003. In addition, mandatory prepayments of an amount equal to 50% of
the excess cash flows, if positive, for the most recently ended fiscal
year are required under the revolving credit facility.
F-41
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
The Credit Agreement requires the Company to pay a commitment fee of .30%
and .40% for Facilities B and C, respectively, per annum on the average
daily unborrowed portion of the revolving credit facility. Fees paid
under this arrangement amounted to $20,466 in 1997. In addition, the
Company paid management fees associated with the agreement of $30,000 in
1997.
The Credit Agreement requires interest based on the type of advance
requested by the Company, either floating rate or Eurodollar, plus the
applicable margin, as defined in the Credit Agreement. The interest rates
at December 31, 1997 for the Facility ranged from 7.99% to 8.23% with a
weighted average rate of 8.05%.
Maturities of long-term debt are as follows:
Year Ending December 31, Amount
1998 $ 5,254,068
1999 7,602,643
2000 9,320,371
2001 10,410,565
2002 9,972,788
Thereafter 18,398,165
--------------
$ 60,958,600
==============
(5) Commitments and Contingencies
(a) Leases
The Company leases telephone and utility poles at a current annual
rental of approximately $914,000. The leases are one year
self-renewing agreements.
The Company is also obligated under leases with an affiliate and
others for microwave relay services and tower sites, the latest
expiring in 2079. The Company entered into a capital lease for its
current office location expiring in 2011, with aggregate monthly
payments of approximately $14,000. The minimum annual payments
under the leases are approximately as follows:
F-42
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
Operating Capital Lease
Leases
1998 $ 103,678 $ 168,861
1999 26,638 174,642
2000 27,143 178,954
2001 27,672 184,323
2002 28,228 189,852
Thereafter 288,658 1,697,798
---------- -----------
$ 502,017
==========
Total minimum future payments 2,594,430
Less--Amounts representing interest 1,112,330
-----------
Present value of net minimum lease 1,482,100
payments
Less--Current maturity 37,147
-----------
$ 1,444,953
===========
Rent expense, including pole attachments, charged to operations
amounted to $974,521 for the year ended, December 31, 1997 and
$763,427 for the nine months ended, September 30, 1998.
(b) Litigation
In the ordinary course of business, the Company is party to
various types of litigation. The Company believes it has
meritorious defenses to all claims, and, in its opinion, all
litigation currently pending or threatened will not have a
material adverse effect on the Company's financial position or
results of operations.
(6) Due to Affiliate and Other Related Party Transactions
(a) Affiliate
Fees for management services provided by its Affiliate amounted to
$687,177 in 1997.
Included in accounts payable and accrued expenses at December 31,
1997 was approximately $753,000 due to the Company's Affiliates.
(b) Aurora
The Company's shareholders are majority shareholders in Aurora
Telecommunications, LLC (Aurora). The Company leases fiber lines
to Aurora under seven-year operating leases. Lease income amounted
to $471 in 1997.
F-43
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
The Company issued a revolving credit line to Aurora with maximum
borrowings of $3,000,000 at an applicable federal mid-term rate
(6.02% at December 31, 1997). The credit line expires and is due
September 1, 2003. At December 31, 1997, the outstanding principle
balance due from Aurora was $1,991,002 with accrued interest of
$28,903.
Under a separate note to obtain a 5% owned investment, Aurora
issued a $5,000 note payable at an annual compounded interest rate
of 7% to the Company. The note is due and payable April 30, 1998.
Accrued interest on this note was $87 at December 31, 1997.
(7) Pension
The Company adopted a defined contribution plan, which covers
substantially all employees. Participants are fully vested after five
years. Annual contributions are based upon 5% of the participants'
compensation earned during the plan year.
The Company also has a 401(k) plan, which substantially all employees are
eligible to participate in. Participants are fully vested as to all
contributions made to the plan. The Company matches 50% of employee
contributions up to the first 4%. Expenses related to the plans charged
to operations amounted to $202,951 in 1997.
(8) Sale of Partnership Interest
On November 15, 1996, the Company sold 20% of their partnership interest
in Better Cable TV to an affiliate for a $7,500,000 promissory note
maturing on March 31, 2004 bearing interest at 7% per annum. This sale is
being treated as an installment sale for both financial reporting and
income tax purposes resulting in a deferred gain of $6,700,522. No gain
was recognized during 1997. For financial reporting purposes, accrued
interest of $590,625 for the year ended, December 31, 1997 and $984,375
for the nine months ended, September 30, 1998, is being deferred.
(9) Disclosure of Fair Market Value of Financial Instruments
The carrying amounts of cash approximate fair value because of the short
maturity of these investments. The carrying amounts of the revolving
notes receivable and long-term debt approximates fair value due to the
variable rates of these instruments. The fair value of the 7% note
receivable is estimated based on currently quoted market prices for
similar types of borrowing arrangements.
The estimated fair value of the Company's financial instruments as of
December 31, 1997 are as follows (dollars in thousands):
Carrying Value Fair
Value
Cash $ 605,832 $ 605,832
Revolving note receivable 2,019,905 2,019,905
7% note receivable 8,095,712 9,413,619
Long-term debt 60,958,600 60,958,600
F-44
<PAGE>
State Cable TV Corporation and Subsidiary
Notes to Consolidated Financial Statements
(Including Data Applicable to Unaudited Period)
(Continued)
(10) Other Events
(a) Subsequent Event
In January 1998, an ice storm severely damaged cable lines of the
Company in the Maine systems. The resulting loss of $1,595,567
reflects damages incurred.
(b) Other Developments
On February 6, 1998, the Company signed a nonbinding letter of
intent with Heathrow Land Company, L.P. (HLC) whereby the Company
and HLC agreed in principle to form a limited liability company
(LLC) to own and operate the cable television system currently
operated by Heathrow Cable in and around the private community of
Heathrow, Florida. The terms of the letter of intent provide that
the Company will pay $1,350,000 for its 80% interest in the LLC.
Upon HLC's contribution or sale of the system and the assets to
the LLC, HLC will receive that portion of the purchase price
available after payment for the Bell South assets and any
necessary working capital requirements of the LLC while becoming a
20% owner of the LLC.
(c) Sale to FrontierVision Operating Partners, L.P.
On June 24, 1998, the Company signed an asset purchase agreement
with FrontierVision Operating Partners, L.P. whereby the Company
agreed to sell the majority of its State Cable TV and Better Cable
TV assets to FrontierVision Operating Partners, L.P. for a base
price of $188,750,000. The Company closed on this sale, subject to
certain purchase price adjustments, on October 22, 1998.
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New England Cablevision of Massachusetts, Inc.
We have audited the accompanying balance sheets of New England Cablevision of
Massachusetts, Inc. for the years ended December 31, 1997 and 1996, and the
related statements of earnings, changes in stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New England Cablevision of
Massachusetts, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
February 11, 1998 /s/ Baker Newman & Noyes
Portland, Maine Limited Liability Company
F-46
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
March 31, December 31,
1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
Cash $ 98,861 $ 389,703 $ 345,126
Investments available for sale (note 3) 3,812,685 6,242,464 5,899,258
Investments held to maturity (note 3) 4,100,000 9,600,000 12,838,779
Accounts receivable, less allowance for
doubtful accounts of $60,112 in 1998,
$76,450 in 1997 and $51,400 in 1996 58,087 120,529 154,626
Accrued interest receivable 62,177 100,958 97,870
Prepaid expenses 149,190 79,055 109,665
Property, plant and equipment, net:
Property and equipment 43,069 43,069 43,069
Distribution equipment 18,755,678 15,835,849 14,704,528
Support equipment, including construction
in progress 2,097,744 3,573,833 644,679
-------------- -------------- --------------
20,896,491 19,452,751 15,392,276
Less accumulated depreciation 12,004,363 11,692,462 10,532,180
-------------- -------------- --------------
Property, plant and equipment, net 8,892,128 7,760,289 4,860,096
-------------- -------------- --------------
$ 17,173,128 $ 24,292,998 $ 24,305,420
============== ============== ==============
</TABLE>
F-47
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
March 31, December 31,
1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
Accounts payable $ 357,213 $ 716,957 $ 445,932
Accrued expenses 49,318 355,311 263,363
Unearned revenue 141,855 131,740 147,733
Deferred income taxes (note 5) 859,000 855,000 864,000
-------------- -------------- --------------
Total liabilities 1,407,386 2,059,008 1,721,028
Commitments (notes 4, 5, 7 and 8)
Stockholders' equity:
Common stock, par value $1.00 per share.
Authorized 500,000 shares; issued and
outstanding 464,212 shares 464,212 464,212 464,212
Additional paid-in capital 11,269,195 17,819,736 17,819,736
Retained earnings 4,032,335 3,950,042 4,300,444
-------------- -------------- --------------
Total stockholders' equity 15,765,742 22,233,990 22,584,392
-------------- -------------- --------------
$ 17,173,128 $ 24,292,998 $ 24,305,420
============== ============== ==============
</TABLE>
See accompanying notes.
F-48
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF EARNINGS
<TABLE>
Three Months
Ended Year Ended
-------------------------- ---------------------
March 31, December 31,
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues, net of discounts and allowances $ 2,575,428 $ 2,360,711 $ 9,927,773 $ 9,093,028
Expenses:
Operating expenses 916,960 857,368 3,537,001 3,386,515
Local production 152,958 120,686 433,493 370,913
General and administrative (notes 2, 4 and 6) 827,785 507,425 2,391,882 2,064,929
Depreciation and amortization 311,901 370,054 1,226,449 928,427
------------ ------------ ------------ ------------
2,209,604 1,855,533 7,588,825 6,750,784
------------ ------------ ------------ ------------
Operating earnings 365,824 505,178 2,338,948 2,342,244
Other income (expense):
Interest income 162,957 251,613 1,017,564 1,203,608
Massachusetts franchise tax (10,000) (12,500) (50,000) (50,000)
Loss on disposition of property, plant
and equipment - (140) (6,398) (108,645)
------------ ------------ ------------ ------------
152,957 238,973 961,166 1,044,963
------------ ------------ ------------ ------------
Earnings before income taxes 518,781 744,151 3,300,114 3,387,207
Income tax expense (note 5) 24,000 36,900 149,000 150,000
------------ ------------ ------------ ------------
Net earnings $ 494,781 $ 707,251 $ 3,151,114 $ 3,237,207
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-49
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
Net Unrealized
Gain on
Common stock Additional Investments
---------------------
Number of Paid-in Retained Available
Shares Amount Capital Earnings for Sale Total
------ ------ ------- -------- -------- -----
Balance,
December 31,
<S> <C> <C> <C> <C> <C> <C>
1995 464,212 $ 464,212 $ 17,819,736 $ 5,852,204 $ 2,514 $ 24,138,666
Net earnings - - - 3,237,207 - 3,237,207
Net change in
unrealized gain
on investments
available for sale
- - - - (2,514) (2,514)
Dividends - - - (4,788,967) - (4,788,967)
--------- ---------- -------------- ------------- --------- --------------
Balance,
December 31,
1996 464,212 464,212 17,819,736 4,300,444 - 22,584,392
Net earnings - - - 3,151,114 - 3,151,114
Dividends - - - (3,501,516) - (3,501,516)
--------- ---------- -------------- ------------- --------- --------------
Balance,
December 31,
1997 464,212 $ 464,212 $ 17,819,736 $ 3,950,042 $ - $ 22,233,990
========= ========== ============== ============= ========= ==============
</TABLE>
F-50
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
Net Unrealized
Gain on
Common stock Additional Investments
---------------------
Number of Paid-in Retained Available
Shares Amount Capital Earnings for Sale Total
------ ------ ------- -------- -------- -----
Balance,
December 31,
<S> <C> <C> <C> <C> <C> <C>
1997 464,212 $ 464,212 $ 17,819,736 $ 3,950,042 $ - $ 22,233,990
Net earnings
(unaudited) - - - 494,781 - 494,781
Dividends
(unaudited) - - - (412,488) - (412,488)
Return of capital
(unaudited)
(note 7) - - (6,550,541) - - (6,550,541)
------- ---------- -------------- ------------- ----------- --------------
Balance,
March 31, 1998
(unaudited) 464,212 $ 464,212 $ 11,269,195 $ 4,032,335 $ - $ 15,765,742
======= ========== ============== ============= =========== ==============
</TABLE>
See accompanying notes.
F-51
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
Three Months
Ended Year Ended
March 31, December 31,
-------------------------- ----------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net earnings $ 494,781 $ 707,251 $ 3,151,114 $ 3,237,207
Adjustments to reconcile net earnings to net
cash flows from operating activities:
Depreciation and amortization 311,901 370,054 1,226,449 928,427
Accretion of discounts on investments (38,607) (57,210) (100,828) (267,861)
Deferred income tax expense (benefit) 4,000 - (9,000) 1,000
Loss on disposition of property, plant
and equipment - 140 6,398 108,645
Changes in:
Accounts receivable 62,442 72,740 34,097 (46,361)
Accrued interest receivable 38,781 (57,909) (3,088) (56,270)
Prepaid expenses (70,135) 4,052 30,610 (44,867)
Accounts payable (359,744) (132,773) 271,025 157,267
Accrued expenses (305,993) (53,758) 91,948 41,698
Unearned revenue 10,115 (75,126) (15,993) 91,647
------------- ------------- ------------- -------------
Net cash flows from operating activities 147,541 777,461 4,682,732 4,150,532
Cash flows from investing activities:
Purchases of investments available for sale - (501,250) (5,544,804) (7,699,807)
Proceeds from maturities of investments
available for sale 2,750,000 500,000 6,100,000 6,585,000
Net change in investments available for sale -
money market mutual funds (2,784,793) (44,951) (874,795) 928,862
Purchases of investments held to maturity (8,100,000) (9,900,000) (48,500,000) (14,998,185)
Proceeds from maturities of investments held
to maturity 13,600,000 10,491,000 51,816,000 7,759,000
Collection of note receivable - - - 9,200,000
Additions to property, plant and equipment (1,443,740) (600,681) (4,133,040) (1,306,867)
------------- ------------- ------------- --------------
Net cash flows from investing activities 4,021,467 (55,882) (1,136,639) 468,003
Cash flows from financing activities:
Dividends paid (412,488) (734,169) (3,501,516) (4,788,967)
Return of capital (4,047,362) - - -
------------- ------------- ------------- --------------
Net cash flows from financing activities (4,459,850) (734,169) (3,501,516) (4,788,967)
------------- ------------- ------------- --------------
Net change in cash (290,842) (12,590) 44,577 (170,432)
Cash at beginning of period 389,703 345,126 345,126 515,558
------------- ------------- ------------- --------------
Cash at end of period $ 98,861 $ 332,536 $ 389,703 $ 345,126
============= ============= ============= ==============
</TABLE>
F-52
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
Three Months
Ended Year Ended
March 31, December 31,
-------------------------- ---------------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
Cash paid for:
<S> <C> <C> <C> <C>
Income taxes $ 69,614 $ 45,752 $ 213,674 $ 179,330
============ ========= ========= ==========
Noncash transactions:
Investments available for sale
distributed to stockholders as
a return of capital $ 2,503,179 $ - $ - $ -
Effect of changes in market value of
investments available for sale:
Investments - - - (2,614)
Deferred income taxes - - - (100)
Net unrealized gain on
investments available for sale - - - (2,514)
</TABLE>
See accompanying notes.
F-53
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
New England Cablevision of Massachusetts, Inc. (the Company) operates
cable television franchises in Massachusetts and New Hampshire.
On April 3, 1998, the Company's stock was acquired by FrontierVision
Holdings, L.P. (FrontierVision) for approximately $43,600,000.
Interim Financial Information
The accompanying interim financial statements as of March 31, 1998 and for
the three-month periods ended March 31, 1998 and 1997 are unaudited but,
in the opinion of management, reflect all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for any interim period
are not necessarily indicative of results for the full year.
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; however management does not anticipate significant changes in
estimates in the near term.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers cash to
consist of only cash on hand and on deposit.
Investments
Debt securities for which the Company has the ability and positive intent
to hold to maturity are classified as held to maturity and reported at
amortized cost. Debt securities which may be sold prior to maturity are
classified as available for sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of estimated income taxes.
Gains and losses on the sales of investments are based on the specific
identification of the investments sold.
If a decline in the fair value below the adjusted cost basis of an
investment is judged to be other than temporary, the cost basis of the
investment is written down to fair value as the new cost basis and the
amount of the write down is included as a charge in the statement of
earnings.
F-54
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
Property, Plant and Equipment
Property, plant and equipment is carried at cost. Depreciation is provided
over the estimated useful lives of the various assets by using the
straight-line method.
Construction in Progress
The Company capitalizes certain operating costs incurred during the
construction period of cable television systems. These costs are amortized
on a straight-line basis over the estimated useful lives of the systems
once transferred to their appropriate property, plant and equipment
classification.
Unearned Revenue
Advance payments for cable services are credited to unearned revenue and
recorded as sales when earned.
Income Taxes
Effective January 1, 1995, the Company elected to be taxed as a small
business corporation (Subchapter S) under Section 1362 of the Internal
Revenue Code. Accordingly, beginning in 1995, the Company does not provide
for federal income taxes since such taxes are paid directly by the
shareholders on their individual tax returns. The Company provides for
state income taxes in its financial statements because New Hampshire does
not recognize Subchapter S status, and Massachusetts imposes a corporate
income tax on S Corporations with over $6,000,000 of total receipts.
The Company accounts for income taxes under the asset and liability
method. Deferred taxes are recognized for the future tax consequences
attributable to the differences between the financial statement and tax
basis of assets and liabilities, measured at the tax rates expected to
apply to taxable income when the temporary differences are expected to be
recovered or settled. Beginning in 1995, deferred tax expense consists
only of state taxes.
In accordance with the Internal Revenue Code, the Company may be subject
to a corporate level tax on the net built-in gains at the date of
conversion to Subchapter S status that are realized during the ten-year
period after the conversion. Consequently, the Company has retained its
net deferred tax liability existing at the date of conversion. As such,
the deferred tax liability related to the built in gains is not meant to
approximate the deferred tax liability that would be required if the
Company was taxed as a regular corporation. Any corporate level built-in
gains tax realized in excess of the amount recorded as a deferred tax
liability will be charged to earnings when and if realized.
The Company's tax status will change to a C Corporation as a result of its
acquisition by FrontierVision.
F-55
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
2. Management Agreement
The Company has a Management Agreement with Diversified Communications
under which Diversified Communications provides the Company with general
services consisting of consulting, recordkeeping, budgeting, financial
reporting, and other miscellaneous services. Diversified Communications is
also providing the Company with cable management services consisting of
marketing, customer service training and support, engineering, programming
administration, franchise relations, general management, and
refranchising, rebuild and rate regulations. The Company incurred $376,428
in 1997 and $350,352 in 1996 in management fee expenses. The Company is
allowed, under the Management Agreement, to develop the internal capacity
to provide some or all of the above services.
3. Investments
Investments held to maturity at December 31, 1997 consist of high-grade
commercial paper maturing in one year or less. Investments held to
maturity at December 31, 1996 consist of high-grade commercial paper and
U.S. Treasury obligations. At December 31, 1997 and 1996, the market value
of these investments approximates their cost.
Investments available for sale at December 31, 1997 consist of $5,214,572
of U.S. Treasury and Agency obligations (of which $4,714,752 matures in
1998 and $499,820 matures in 1999) and $1,027,892 of money market mutual
funds. At December 31, 1997 the market value of the investments
approximates their cost.
Investments available for sale at December 31, 1996 consist of $5,746,161
of U.S. Treasury and A gencyobligations substantially all maturing in
1997 and $153,097 of money market mutual funds. At December 31, 1996 the
market value of these investments approximates their cost.
4. Rental Expense
The Company leases property under operating leases. Rental expense related
to these leases was approximately $163,000 for 1997 and $132,000 in 1996.
At December 31, 1997, minimum rental payments due for the next five years
under remaining lease terms in excess of one year are approximately as
follows:
1998 $163,000
1999 149,000
2000 109,000
2001 102,000
2002 106,000
F-56
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
5. Income Taxes
Income tax expense (benefit) for the periods ended December 31, 1997 and
1996 consists of the following components:
1997 1996
---- ----
Current $ 158,000 $ 149,000
Deferred (9,000) 1,000
--------- ----------
$ 149,000 $ 150,000
========= ==========
The state corporate tax rate applicable to the Company in 1997 and 1996 is
approximately 4.5%.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1997 and 1996 are presented below:
1997 1996
---- ----
Deferred tax assets:
Allowance for doubtful accounts $ 2,000 $ 1,000
Property, plant and equipment 4,000 -
---------- ----------
6,000 1,000
Deferred tax liabilities:
Property, plant and equipment - 4,000
Built-in gains 861,000 861,000
---------- ----------
Total gross deferred tax liabilities 861,000 865,000
---------- ----------
Net deferred tax liability $ 855,000 $ 864,000
========== ==========
6. 401(k) Plan
The Company has a 401(k) Plan that covers all employees over the age of 21
and who have completed one year of service. Participants may defer up to
14% of their compensation. The Company may make a matching contribution as
well as a discretionary contribution as determined by its Board of
Directors. Participants become fully vested in the employer's
discretionary contributions upon seven years of participation. The expense
incurred for this Plan was approximately $70,000 for 1997 and $71,000 in
1996.
F-57
<PAGE>
NEW ENGLAND CABLEVISION OF MASSACHUSETTS, INC.
NOTES TO FINANCIAL STATEMENTS
7. Sale of the Company
On December 12, 1997, the Company's stockholders entered into a purchase
and sale agreement to sell 100% of the Company's stock to an unrelated
party. The Company was permitted to distribute cash and investments to its
stockholders prior to the consummation of the sale. These distributions
are shown as a return of capital and charged to additional paid-in
capital.
The transaction was consummated on April 3, 1998. Substantially all of the
remaining cash and investments was distributed to stockholders immediately
prior to the sale.
8. Commitments
The Company has committed to rebuild the Cape Ann and Amesbury regional
cable systems to comply with its franchise agreements. At December 31,
1997, the estimated costs to complete the rebuild were approximately $5.6
million.
F-58
<PAGE>
FINANCIAL STATEMENT SCHEDULES
FrontierVision Holdings, L.P. Page
Independent Auditors' Report S-2
Schedule I: Condensed Information of the Registrant S-3
Schedule II: Valuation and Qualifying Accounts S-7
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Under date of March 19, 1999, we reported on the consolidated balance sheets of
FrontierVision Holdings, L.P. and subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of operations,
partners' capital and cash flows for each of the years in the three year period
ended December 31, 1998, as contained in this annual report on Form 10-K for the
year 1998. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedules on Pages
S-3 through S-7. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG LLP
Denver, Colorado
March 19, 1999
S-2
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE FINANCIAL
POSITION OF THE REGISTRANT
In Thousands
<TABLE>
----------------- --- -----------------
December 31, December 31,
1998 1997
----------------- -----------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 200 $ 1,315
Intercompany receivable 924 -
Deferred financing costs, net 8,074 6,252
Investment in consolidated subsidiaries 269,496 263,043
--------- ---------
Total assets $ 278,694 $ 270,610
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ - $ 123
Debt 249,532 155,047
Partners' capital:
FrontierVision Partners, L.P. 29,133 115,325
FrontierVision Holdings, LLC 29 115
--------- ---------
Total partners' capital 29,162 115,440
--------- ---------
Total liabilities and partners' capital $ 278,694 $ 270,610
========= =========
</TABLE>
See accompanying independent auditors' report
and note to the condensed information.
S-3
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE
OPERATIONS OF THE REGISTRANT
In Thousands
<TABLE>
---------------------------------------------------------------
For the Year Ended For the Year Ended For the Year Ended
December 31, December 31, December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating expenses $ (39) $ -- $ --
Equity in losses of subsidiaries (66,196) (46,863) (23,801)
Interest expense, net (20,043) (5,353) --
-------- -------- --------
Net loss $(86,278) $(52,216) $(23,801)
======== ======== ========
</TABLE>
See accompanying independent auditors' report.
S-4
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE CASH
FLOWS OF THE REGISTRANT
In Thousands
<TABLE>
----------------------------------------------------------
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1998 1997 1996
----------------- ----------------- --------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (86,278) $ (52,216) $ (23,801)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Amortization of deferred debt issuance costs 586 333
Accretion of interest on indebtedness 19,485 5,047 --
Share of losses of subsidiary 66,196 46,863 23,801
Changes in operating assets and liabilities:
Intercompany receivable (924) -- --
Accounts payable and accrued liabilities (123) 123 --
--------- --------- ---------
Total adjustments 85,220 52,366 --
--------- --------- ---------
Net cash flows from operating activities (1,058) 150 --
--------- --------- ---------
Cash Flows From Investing Activities:
Investment in subsidiaries (72,649) (179,903) (107,397)
--------- --------- ---------
Net cash flows from investing activities (72,649) (179,903) (107,397)
--------- --------- ---------
Cash Flows From Financing Activities:
Proceeds of issuance of Senior Discount Notes 75,000 150,000 --
Offering costs related to Senior Discount Notes (2,408) (6,585) --
Partner capital contributions -- 37,653 107,397
--------- --------- ---------
Net cash flows from financing activities 72,592 181,068 107,397
--------- --------- ---------
Net Increase in Cash and Cash Equivalents (1,115) 1,315 --
Cash and Cash Equivalents, at beginning of period 1,315 -- --
--------- --------- ---------
Cash and Cash Equivalents, end of period $ 200 $ 1,315 $ --
========= ========= =========
</TABLE>
See accompanying independent auditors' report.
S-5
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTE TO THE CONDENSED INFORMATION OF THE REGISTRANT
In Thousands
(1) DEBT
On September 19, 1997, FrontierVision Holdings, L.P. ("Holdings") issued,
pursuant to a private offering, the Discount Notes. The Discount Notes
were sold at approximately 63.1% of the stated principal amount at
maturity and provided net proceeds of $144,750, after underwriting fees
of approximately $5,250.
On December 2, 1998, Holdings issued, pursuant to a private offering, the
Discount Notes, Series B. The Discount Notes were sold at at
approximately 82.149% of the stated principal amount at maturity and
provided net proceeds of $72,750, after underwriting fees of
approximately $2,250.
The Discount Notes are unsecured obligations of Holdings and Holdings
Capital (collectively, the "Issuers"), ranking pari passu in right of
payment to all existing and future unsecured indebtedness of the Issuers
and will mature on September 15, 2007. The discount on the Discount Notes
is being accreted using the interest method until September 15, 2001, the
date at which cash interest begins to accrue. Cash interest will accrue
at a rate of 11 7/8% per annum and will be payable each March 15 and
September 15, commencing March 15, 2002.
The Discount Notes are redeemable at the option of the Issuers, in whole
or in part, at any time on or after September 15, 2001, at redemption
prices set forth in the Indenture for the Discount Notes (the "Discount
Notes Indenture"), plus any unpaid interest, if any, at the date of the
redemption. The Issuers may redeem, prior to September 15, 2001, up to
35% of the principal amount at maturity of the Discount Notes with the
net cash proceeds received from one or more public equity offerings or
strategic equity investments at a redemption prices set forth in the
Discount Notes Indenture, plus any unpaid interest, if any, at the date
of the redemption.
The Discount Notes Indenture has certain restrictions on incurrence of
indebtedness, distributions, mergers, asset sales and changes in control
of Holdings.
The debt of Holdings, excluding future accretion, matures as follows:
Year Ended December 31 --
1998 $ -
1999 -
2000 -
2001 -
2002 -
Thereafter 249,532
------------
$ 249,532
============
S-6
<PAGE>
FRONTIERVISION HOLDINGS, 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>
Year ended December 31, 1996 $ 40 1,072 (345) 767
Year ended December 31, 1997 $ 767 1,761 (1,888) 640
Year ended December 31, 1998 $ 640 3,076 (3,050) 666
</TABLE>
See accompanying independent auditors'report.
EXHIBIT 12.1
FrontierVision Holdings, L.P.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
For the Year Ended For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
-------- -------- --------
<S> <C> <C> <C>
Net Loss .......................... $(86,278) $(52,216) $(23,801)
Add (Deduct):
Income Tax Provision (Benefit) (2,927) -- --
Less: Minority Interest
-------- -------- --------
Pre Tax Income (Loss) ............. (89,205) $(52,216) $(23,801)
Add: Fixed Charges
Interest ..................... 90,810 48,005 23,210
-------- -------- --------
$ 1,605 $ (4,211) $ (591)
======== ======== ========
Fixed Charges ..................... $ 90,810 $ 48,005 $ 23,210
======== ======== ========
Ratio of Earnings to Fixed
Charges ...................... N/A N/A N/A
Deficiency of Earnings to Fixed
Charges ...................... $ 89,205 $ 52,216 $ 23,801
</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> 0001045710
<NAME> FRONTIERVISION HOLDINGS, LP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,091
<SECURITIES> 0
<RECEIVABLES> 14,442
<ALLOWANCES> (666)
<INVENTORY> 0
<CURRENT-ASSETS> 22,913
<PP&E> 342,754<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,210,421
<CURRENT-LIABILITIES> 48,261
<BONDS> 1,121,142
0
0
<COMMON> 0
<OTHER-SE> 29,162
<TOTAL-LIABILITY-AND-EQUITY> 1,210,421
<SALES> 0
<TOTAL-REVENUES> 245,134
<CGS> 0
<TOTAL-COSTS> 123,818
<OTHER-EXPENSES> 6,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,875
<INCOME-PRETAX> (89,205)
<INCOME-TAX> 2,927
<INCOME-CONTINUING> (86,278)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,278)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
PURCHASE AGREEMENT
DATED AS OF FEBRUARY 22, 1999
AMONG
FRONTIERVISION PARTNERS, L.P.,
AND
FVP GP, L.P., the GENERAL PARTNER, and
CERTAIN DIRECT AND INDIRECT LIMITED PARTNERS
OF FRONTIERVISION PARTNERS, L.P.,
as Sellers,
AND
ADELPHIA COMMUNICATIONS CORPORATION,
as Buyer
<PAGE>
PURCHASE AGREEMENT
DATED AS OF FEBRUARY 22, 1999
----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Terms Defined in this Section...............................1
1.2 Terms Defined Elsewhere in this Agreement..................11
1.3 Rules of Construction......................................13
ARTICLE 2
SALE AND PURCHASE OF PURCHASED INTERESTS; ASSUMPTION OF
LIABILITIES; ADDITIONAL PURCHASE CONSIDERATION
2.1 Agreement to Sell and Buy..................................13
2.2 Assumption of Obligations..................................14
2.3 Additional Purchase Consideration for Purchased Interests..14
2.4 Escrow Deposit; Registration Rights........................15
2.5 Cash Consideration Adjustments.............................16
2.6 Payment at Closing.........................................20
2.7 Post-Closing Payment of Cash Consideration Adjustments.....20
2.8 Seller Specific Liabilities................................23
2.9 Additional Cash Consideration Adjustments..................25
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FVP
3.1 Organization and Authority of FVP..........................28
3.2 Authorization and Binding Obligation.......................28
3.3 Organization and Ownership of FrontierVision Companies.....29
3.4 Absence of Conflicting Agreements; Consents................30
3.5 Financial Statements.......................................30
3.6 Absence of Undisclosed Liabilities.........................31
- i -
<PAGE>
Page
3.7 Absence of Certain Changes.................................31
3.8 Franchises, Licenses, Material Contracts...................32
3.9 Title to and Condition of Real Property and Tangible
Personal Property........................................32
3.10 Intangibles................................................33
3.11 Information Regarding the Systems..........................33
3.12 Taxes......................................................36
3.13 Employee Plans.............................................36
3.14 Environmental Laws.........................................37
3.15 Claims and Litigation......................................38
3.16 Compliance With Laws.......................................38
3.17 Transactions with Affiliates...............................38
3.18 Broker.....................................................39
3.19 Securities Law Matters.....................................39
3.20 Cure.......................................................40
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 Authority of Sellers; Authorization and Binding Obligation.40
4.2 Absence of Conflicting Agreements; Consents................41
4.3 Title to Purchased Interests...............................41
4.4 Broker.....................................................42
4.5 Taxes......................................................43
4.6 Securities Law Matters.....................................43
4.7 Cure.......................................................44
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization; Authorization and Binding Obligation.........44
5.2 Authorization and Binding Obligation.......................45
5.3 Absence of Conflicting Agreements; Consents................45
5.4 Capital Structure; ACC Class A Common Stock................46
5.5 Claims and Litigation......................................46
5.6 SEC Reports................................................46
5.7 Broker.....................................................47
5.8 Investment Purpose; Investment Company.....................47
5.9 Cure.......................................................48
- ii -
<PAGE>
Page
ARTICLE 6
SPECIAL COVENANTS AND AGREEMENTS
6.1 Operation of Business Prior to Closing.....................48
6.2 Confidentiality; Press Release.............................52
6.3 Cooperation; Commercially Reasonable Efforts...............53
6.4 Consents...................................................53
6.5 HSR Act Filing.............................................58
6.6 Buyer's Qualifications and Financing.......................59
6.7 Discharge of Debt Documents................................59
6.8 Retention and Access to the FrontierVision Companies'
Records..................................................60
6.9 Employee Matters...........................................61
6.10 Tax Matters................................................63
6.11 FrontierVision Name........................................64
6.12 Releases...................................................65
6.13 Directors and Officers Insurance...........................65
6.14 Rate Regulatory Matters....................................65
6.15 Distribution by SPCs of Interest in General Partner;
Cancellation of SPC Notes................................66
6.16 Cooperation on Buyer SEC Matters...........................66
6.17 Stock Consideration Registration Rights Agreement..........67
6.18 State Cable Systems........................................67
6.19 Lien Searches..............................................68
6.20 Distant Signals; Copyright Matters.........................68
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS
7.1 Conditions to Obligations of Buyer.........................69
7.2 Conditions to Obligations of Sellers.......................72
ARTICLE 8
CLOSING AND CLOSING DELIVERIES
8.1 Closing....................................................74
8.2 Deliveries by Sellers......................................76
8.3 Deliveries by Buyer........................................77
- iii -
<PAGE>
Page
ARTICLE 9
TERMINATION
9.1 Termination by Agreement...................................78
9.2 Termination by FVP.........................................78
9.3 Termination by Buyer.......................................79
9.4 Effect of Termination......................................80
9.5 Attorneys' Fees............................................81
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION;
CERTAIN REMEDIES
10.1 Survival...................................................81
10.2 Indemnification by Sellers.................................81
10.3 Post-Closing Escrow Agreement..............................82
10.4 Indemnification by Buyer...................................83
10.5 Certain Limitations on Indemnification Obligations.........84
10.6 Procedure for Indemnification..............................87
10.7 Treatment of Indemnification Payments......................88
ARTICLE 11
MISCELLANEOUS
11.1 Fees and Expenses..........................................88
11.2 Notices....................................................89
11.3 Benefit and Binding Effect.................................90
11.4 Further Assurances ........................................90
11.5 GOVERNING LAW..............................................90
11.6 Entire Agreement...........................................91
11.7 Amendments; Waiver of Compliance; Consents.................91
11.8 Consent and Agreements of Sellers..........................91
11.9 Counterparts...............................................92
- iv -
<PAGE>
FRONTIERVISION'S DISCLOSURE SCHEDULE
Section Description
Section 1.1 Excluded Assets; Seasonal Subscribers; Prepayment Penalties
Section 2.5 Capital Expenditures Budget; Carriage Adjustments
Section 3.3 Ownership of FrontierVision Companies
Section 3.4 FrontierVision Conflicts; Consents
Section 3.5 Financial Statements
Section 3.6 FrontierVision Liabilities
Section 3.7 Certain Developments
Section 3.8 Franchises, Licenses, Contracts
Section 3.9 Real Property and Tangible Personal Property; Encumbrances
Section 3.10 Intangibles
Section 3.11 Systems Information
Section 3.12 Tax Matters
Section 3.13 Employee Plans
Section 3.14 Environmental Matters
Section 3.15 Claims and Litigation
Section 3.16 Compliance with Laws
Section 3.17 Transactions with Affiliates
Section 3.18 Broker
Section 4.2 Sellers Conflicts; Consents
Section 4.3 Title to Purchased Interests
Section 6.1 Post-Signing Covenants
Section 6.4 Franchise Rebuild/Upgrade Requirements
- v -
<PAGE>
TABLE OF EXHIBITS
Exhibit Description
Exhibit A Form of Noncompetition Agreement
Exhibit B Form of Post-Closing Escrow Agreement
Exhibit C Form of Opinion of FVP's Counsel
Exhibit D Form of Opinion of Buyer's Counsel
Exhibit E Addresses of Sellers
Exhibit F Closing Net Liabilities Example Calculation
Exhibit G Form of Seller Release
Exhibit H Form of Management Release
Exhibit I Post-Closing Escrow Agreement Release Provisions Example
- vi -
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is entered into as of February
22, 1999, by and among FrontierVision Partners, L.P., a Delaware limited
partnership ("FVP"), FVP GP, L.P., a Delaware limited partnership (the "General
Partner"), each party named as a "Limited Partner Seller" on the signatures
pages hereto, each party named as an "SPC Seller" on the signature pages hereto,
and Adelphia Communications Corporation, a Delaware corporation ("Buyer").
RECITALS
The General Partner owns all of the general partnership interests in FVP
and certain Subordinated Notes issued by FVP. The Limited Partner Sellers are
each limited partners of FVP and own limited partnership interests in FVP and
certain Subordinated Notes issued by FVP. Each SPC Seller owns all of the
capital stock of an SPC, which in turn is a limited partner of FVP and owns a
limited partnership interest in FVP and certain Subordinated Notes issued by
FVP. The SPC Sellers also hold certain Subordinated Notes issued by FVP.
Collectively, the Limited Partner Sellers and the SPCs own all of the limited
partnership interests in FVP, and collectively the General Partner, the Limited
Partner Sellers, the SPC Sellers and the SPCs own all of the Subordinated Notes
issued by FVP. Buyer desires to acquire from the General Partner and the Limited
Partner Sellers all of their partnership interests in FVP and Subordinated Notes
issued by FVP and desires to acquire from the SPC Sellers all of their stock in
the SPCs and Subordinated Notes issued by FVP. The General Partner, Limited
Partner Sellers and SPC Sellers (collectively, the "Sellers" and individually a
"Seller") desire to sell to Buyer all of their partnership interests in FVP or
stock in the SPCs, as described above and all of their Subordinated Notes issued
by FVP as described above, in each case for the consideration and on the terms
and conditions set forth in this Agreement.
AGREEMENTS
In consideration of the above recitals and of the mutual agreements and
covenants contained in this Agreement, the parties to this Agreement, intending
to be bound legally, agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Terms Defined in this Section.
The following terms, as used in this Agreement, have the meanings set forth
in this Section:
- 1 -
<PAGE>
"ACC Class A Common Stock" means the Class A Common Stock, par value
$.01 per share, of Buyer that is authorized and designated as such in Buyer's
Certificate of Incorporation as in effect on the date of this Agreement.
"Accounts Receivable" means all rights of the FrontierVision Companies
to payment for goods or services provided prior to the Adjustment Time,
including rights to payment for cable services to customers of the Systems, the
sale of advertising, the leasing of channels, and other goods and services and
rentals.
"Adjustment Time" means (A) with respect to Adjustment Assets and
Adjustment Liabilities and other items that primarily relate to the
FrontierVision Companies as a whole, 11:59 p.m., local Denver time, on the day
immediately preceding the Closing Date, and (B) with respect to Adjustment
Assets and Adjustment Liabilities and other items that primarily relate to a
particular System, 11:59 p.m. local time for that System, on the day immediately
preceding the Closing Date.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with the specified Person.
"Assets" means all of the tangible and intangible assets that are
owned, leased or held by the FrontierVision Companies and that are used in
connection with the conduct of the business or operations of the Systems other
than the Excluded Assets and less any such Assets that are sold, transferred, or
otherwise conveyed by the FrontierVision Companies to third Persons prior to the
Closing in accordance with the provisions of this Agreement, provided that with
respect to any assets that are leased by the FrontierVision Companies or
otherwise not owned by the FrontierVision Companies, "Assets" includes only the
interest, title and rights in such assets held by the FrontierVision Companies.
"Basic Subscriber" means, with respect to any System as of any date,
each residential customer or resident of a multiple dwelling unit served by such
System who subscribes to at least broadcast basic service (either alone or in
combination with any other service and including subscribers who receive
regularly offered discounts), and who has rendered payment for one month's
service at such System's regular basic monthly subscription rate without
discount (excluding regularly offered discounts) and who does not have more than
$10.00 (excluding late charges and fees and amounts subject to a bona fide
dispute) that is two months or more past due from and including the last day of
the period to which any outstanding bill relates.
"Bulk Subscriber" means, with respect to any System, any commercial
establishment (e.g., any hotel or motel) or multiple dwelling unit establishment
(e.g., any apartment, condominium or cooperative building) served by such System
that subscribes to at least broadcast basic service (either alone or in
combination with any other service), and who has rendered payment for one
month's service
- 2 -
<PAGE>
at such customer's regular basic monthly subscription rate and who does not have
more than $10.00 (excluding late charges and fees and amounts subject to a bona
fide dispute) that is two months or more past due from and including the last
day of the period to which any outstanding bill relates.
"Cable Act" means Title VI of the Communications Act of 1934, as
amended, 47 U.S.C. Section 151 et seq., and all other provisions of the Cable
Communications Policy Act of 1984, the Cable Television Consumer Protection and
Competition Act of 1992, and the provisions of the Telecommunications Act of
1996 amending Title VI of the Communications Act of 1934, in each case as
amended and in effect from time to time.
"Capital Stock" means any and all shares, interests, or other
equivalent interests (however designated) in the equity of any Person, including
capital stock, partnership interests, and membership interests, and including
any rights, options or warrants with respect thereto.
"Charter Documents" means the articles or certificate of incorporation,
bylaws, certificate of limited partnership, partnership agreement, certificate
of formation, limited liability company operating agreement, and all other
organizational documents of any Person other than an individual.
"Closing" means the consummation of the purchase and sale of the
Purchased Interests pursuant to this Agreement in accordance with the provisions
of Article 8.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder, as amended and in effect from time
to time.
"Consents" means the consents, permits, approvals and authorizations of
Governmental Authorities and other Persons necessary to transfer the Purchased
Interests to Buyer or otherwise to consummate the transactions contemplated by
this Agreement.
"Contracts" means all leases, easements, rights-of-way, rights of
entry, programming agreements, pole attachment and conduit agreements, customer
agreements, and other agreements, written or oral (including any amendments and
other modifications thereto) to which any FrontierVision Company is a party or
which are binding upon any FrontierVision Company and that relate to any of the
Assets or the business or operations of any of the Systems or any of the
FrontierVision Companies and (A) which are in effect on the date hereof, or (B)
which are entered into by any FrontierVision Company between the date hereof and
the Closing Date.
"Copyright Act" means the Copyright Act of 1976, as amended and in
effect from time to time.
- 3 -
<PAGE>
"Credit Agreement" means the Second Amended and Restated Credit
Agreement dated as of December 19, 1997 among FrontierVision Operating Partners,
L.P., as Borrower, The Chase Manhattan Bank, as Administrative Agent, J.P.
Morgan Securities Inc., as Syndication Agent, CIBC Inc., as Documentation Agent,
and each of the other Lenders party thereto, as amended and in effect from time
to time.
"Debt Documents" means each of the loan or credit agreements, notes,
bonds, indentures and other agreements and instruments pursuant to which any
indebtedness for borrowed money or any capital lease obligation of any
FrontierVision Company (and any guarantee by a FrontierVision Company of
indebtedness for borrowed money or any capitalized lease obligation of another
Person that is not a FrontierVision Company) in an aggregate principal amount in
excess of $250,000 is outstanding or committed to.
"Deposit Escrow Agreement" means the Escrow Agreement executed
concurrently herewith by FVP, Buyer and the Escrow Agent.
"Deposit Registration Rights Agreement" means the Registration Rights
Agreement between Buyer and FVP, relating to the registration of the Escrow
Registrable Securities constituting the Deposit Escrow Property, which agreement
shall be executed on the date of this Agreement.
"Employee Plan" means any pension, retirement, profit-sharing, deferred
compensation, vacation, severance, bonus, incentive, medical, vision, dental,
disability, life insurance or any other employee benefit plan as defined in
Section 3(3) of ERISA to which any FrontierVision Company or any ERISA Affiliate
of any FrontierVision Company contributes or which any FrontierVision Company or
any such ERISA Affiliate sponsors or maintains, or by which any FrontierVision
Company or any such ERISA Affiliate is otherwise bound.
"Encumbrances" means any pledge, claim, mortgage, lien, charge,
encumbrance, or security interest of any kind or nature whatsoever.
Notwithstanding the foregoing, "Encumbrances" does not include any restriction
on transfer or assignment.
"Environmental Claim" means any written claim or notice or any
proceeding before a Governmental Authority arising under or pertaining to any
Environmental Law or Hazardous Substance.
"Environmental Law" means any Legal Requirement pertaining to land use,
air, soil, surface water, groundwater (including the protection, cleanup,
removal, remediation or damage thereof), or to the protection of public health
and safety, or any other environmental matter, including the following laws as
amended and in effect from time to time: (A) Clean Air Act (42 U.S.C. ss. 7401,
et seq.); (B) Clean Water Act (33 U.S.C. ss. 1251, et seq.); (C) Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.); (D) Comprehensive
Environmental Response, Compensation and Liability Act (42
- 4 -
<PAGE>
U.S.C. ss. 9601, et seq.); (E) Safe Drinking Water Act (42 U.S.C. 300f, et
seq.); and (F) Toxic Substances Control Act (15 U.S.C. ss. 2601, et seq.).
"Equivalent Subscribers" means, with respect to any System as of any
date, the sum of: (A) the number of Basic Subscribers served by such System as
of such date; (B) the number of Basic Subscribers represented by the Bulk
Subscribers served by such System as of such date, which number shall be
calculated for each class of service provided by such System by dividing (1) the
monthly billings attributable to such System's Bulk Subscribers for each such
class of service provided by such System for the calendar month immediately
preceding the date on which such calculation is made, by (2) the full,
non-discounted monthly rate charged by such System for such class of service,
respectively (excluding pass-through charges for sales taxes, line-itemized
franchise fees, fees charged by the FCC and other similar line-itemized
charges); and (C) the number of equivalent Basic Subscribers represented by the
"Seasonal Subscribers" of the FrontierVision Companies as of the date of
determination, which number will be determined as set forth in Section 1.1 of
FrontierVision's Disclosure Schedule. For purposes of the foregoing, monthly
billings shall exclude billings for a la carte or digital service tiers and for
premium services, pass-through charges for sales taxes, line-itemized franchise
fees, fees charged by the FCC and other similar line-itemized charges, and
nonrecurring charges or credits which include those relating to installation,
connection, relocation and disconnection fees and miscellaneous rental charges
for equipment such as remote control devices and converters.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder, as amended and in effect from
time to time.
"ERISA Affiliate" means a trade or business affiliated within the
meaning of Sections 414(b), (c) or (m) of the Code.
"Escrow Agent" means Bank of Montreal Trust Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder, as in effect
from time to time.
"Excluded Assets" means the assets listed as "Excluded Assets" in
Section 1.1 of FrontierVision's Disclosure Schedule.
"FCC" means the Federal Communications Commission.
"FCC Regulations" means the rules, regulations and published policies
of the FCC promulgated by the FCC with respect to the Cable Act, as in effect
from time to time.
- 5 -
<PAGE>
"Franchise Area" means any geographic area in which a FrontierVision
Company is authorized to provide cable television service pursuant to a
Franchise or provides cable television service in which a Franchise is not
required pursuant to applicable Legal Requirements.
"Franchise" means any cable television franchise and related
agreements, ordinances, permits or other authorizations issued or granted to a
FrontierVision Company by any Franchising Authority.
"Franchising Authorities" means all Governmental Authorities that have
issued or granted any Franchises relating to the operation of a System.
"FrontierVision Companies" means FVP and each of the other entities
listed as "FrontierVision Companies" in Section 3.3 of FrontierVision's
Disclosure Schedule, each of which may be referred to herein individually as a
"FrontierVision Company." None of Main Security Surveillance, Inc., The Maine
InternetWorks, Inc., or Landmark NetAccess, Inc. is a "FrontierVision Company"
as used in this Agreement, except that for the limited purposes of determining
"Adjustment Assets" and "Adjustment Liabilities" of the FrontierVision Companies
in accordance with Section 2.5, Main Security Surveillance, Inc. shall be
treated as a FrontierVision Company.
"FrontierVision's Disclosure Schedule" means FrontierVision's
Disclosure Schedule referred to in this Agreement and delivered to Buyer by FVP
and Sellers concurrently with the execution of this Agreement.
"FrontierVision Inc." means FrontierVision Inc., a Delaware
corporation.
"FrontierVision Liabilities" means, with respect to the FrontierVision
Companies on a consolidated basis, without duplication, all liabilities of the
FrontierVision Companies (as defined and determined in accordance with GAAP),
including, without limitation the following: (A) all obligations of the
FrontierVision Companies for borrowed money; (B) all obligations of the
FrontierVision Companies evidenced by bonds, debentures, notes, indentures,
mortgages, or similar instruments; and (C) all capital lease obligations of the
FrontierVision Companies. Notwithstanding the foregoing, "FrontierVision
Liabilities" shall not include: (A) any amounts in respect of performance bonds
issued by any of the FrontierVision Companies in the ordinary course of
business; (B) any amounts in the nature of prepayment penalties or premiums
resulting from the consummation of the transactions contemplated by this
Agreement or satisfaction of the Indentures, which prepayment penalties and
premiums with respect to the Debt Documents are set forth in Section 1.1 of
FrontierVision's Disclosure Schedule; and (C) the Subordinated Notes. No
liability that would otherwise be included within the meaning of "FrontierVision
Liability" as defined above shall be excluded from the definition solely
because: (A) the liability relates to an item or matter that constitutes a
Permitted Encumbrance; or (B) the liability relates to an item or matter that is
disclosed to Buyer in this Agreement or FrontierVision's Disclosure Schedule.
- 6 -
<PAGE>
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"General Partnership Interest" means the general partnership interest
in FVP held by the General Partner.
"Governmental Authority" means any federal, state, or local
governmental authority, including any court or administrative or regulatory
agency.
"Hazardous Substance" means any pollutant, contaminant, hazardous or
toxic substance, material, constituent or waste or any pollutant or any release
thereof that is labeled or regulated as such by any Governmental Authority
pursuant to an Environmental Law, including, without limitation, petroleum or
petroleum compounds, radioactive materials, asbestos or any asbestos-containing
material, or polychlorinated biphenyls.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, and the regulations promulgated by the Federal Trade Commission with
respect thereto, as amended and in effect from time to time.
"Indentures" means: (A) the Indenture dated as of October 7, 1996,
between FrontierVision Operating Partners, L.P. and FrontierVision Capital
Corporation, as Issuers, and U.S. Bank National Association, as Trustee,
relating to the 11% Senior Subordinated Notes due 2006 (the "1996 Indenture");
(B) the Indenture dated as of September 19, 1997 between FrontierVision
Holdings, L.P. and FrontierVision Holdings Capital Corporation, as Issuers, and
U.S. Bank National Association, as Trustee, relating to the 11 7/8% Senior
Discount Notes due 2007 (the "1997 Indenture"); and (C) the Indenture dated as
of December 9, 1998 between FrontierVision Holdings, L.P. and FrontierVision
Holdings Capital II Corporation, as Issuers, and U.S. Bank National Association,
as Trustee, relating to the 11 7/8% Senior Discount Notes due 2007, Series B
(the "1998 Indenture"), in each case as amended and in effect from time to time,
each of which may be referred to herein individually as an "Indenture."
"Intangibles" means all copyrights, trademarks, trade names, service
marks, service names, patents, permits, proprietary information, technical
information and data, machinery and equipment warranties, and other similar
intangible property rights and interests issued to or owned by any of the
FrontierVision Companies.
"Legal Requirements" means applicable common law and any applicable
statute, ordinance, code or other law, rule, regulation, order, technical or
other standard, requirement or procedure enacted, adopted, promulgated or
applied by any Governmental Authority, including any applicable decree or
judgment of a court of competent jurisdiction, all as in effect from time to
time.
- 7 -
<PAGE>
"Licenses" means all domestic satellite, business radio and other FCC
licenses, and all other licenses, authorizations and permits issued by any
Governmental Authority that is held by a FrontierVision Company in the business
and operations of the Systems, excluding the Franchises.
"Limited Partnership Interests" means the limited partnership interests
in FVP held by the Limited Partner Sellers.
"Loss" means any claim, loss, liability, damages, penalties, costs and
expenses (excluding any and all consequential, incidental and special damages).
"Management Release" means the "Agreement of Release" substantially in
the form of Exhibit H to be delivered to Buyer by the Persons designated on
Exhibit H at the Closing.
"Material Contract" means the Debt Documents, the Material Leases, and
any other Contract that requires payments by one of the FrontierVision Companies
(or entitles one of the FrontierVision Companies to payments) in the aggregate
of more than $100,000 during the current term of such Contract, but "Material
Contract" specifically excludes all subscription agreements with customers and
specifically excludes all pole attachment and conduit agreements.
"Material Lease" means all headend, tower and microwave site leases,
fiber leases, and any other lease designated as a "Material Lease" in Section
3.9 of FrontierVision's Disclosure Schedule.
"Noncompetition Agreement" means either of the Noncompetition
Agreements between Buyer and each of the two Persons designated on Exhibit A,
substantially in the form of Exhibit A with respect to such Person, which
agreements shall be executed and delivered on the Closing Date.
"Permitted Encumbrances" means each of the following: (A) liens for
current taxes and other governmental charges that are not yet delinquent; (B)
liens for taxes, assessments, governmental charges or levies, or claims the
non-payment of which is being diligently contested in good faith or liens
arising out of judgments or awards against the FrontierVision Companies with
respect to which at the time there shall be a prosecution for appeal or there
shall be a proceeding to review or the time limit has not yet run for such an
appeal or review with respect to such judgment or award; provided that with
respect to the foregoing liens in this clause (B), adequate reserves shall have
been set aside on the FrontierVision Companies' books, and no foreclosure,
distraint, sale or similar proceedings shall have been commenced with respect
thereto that remain unstayed for a period of 60 days after their commencement;
(C) liens of carriers, warehousemen, mechanics, laborers, and materialmen and
other similar statutory liens incurred in the ordinary course of business for
sums not yet due or being diligently contested in good faith, and for which
adequate reserves have been set aside on the FrontierVision Companies' books;
(D) liens incurred in the ordinary course of business in connection with
worker's compensation and unemployment insurance or similar laws; (E) statutory
landlords' liens; (F) with respect to the Real Property, leases, easements,
rights to access, rights-of-way, mineral rights
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or other similar reservations and restrictions and defects of title which are
either of record or set forth in FrontierVision's Disclosure Schedule or in the
deeds or leases to such Real Property or which (except in the case of owned Real
Property, and which), either individually or in the aggregate, do not materially
and adversely affect or interfere with the ownership or use or marketability of
any such Real Property in the business and operations of the Systems as
presently conducted; and (G) any other claims or encumbrances that are described
in Section 3.9 of FrontierVision's Disclosure Schedule and that relate to
Assumed Liabilities that are not discharged in full at the Closing or that will
be removed prior to or at Closing.
"Person" means an individual, corporation, association, partnership,
joint venture, trust, estate, limited liability company, limited liability
partnership, Governmental Authority, or other entity or organization.
"Post-Closing Escrow Agreement" means the Post-Closing Escrow Agreement
among Buyer, Sellers, and the Escrow Agent, substantially in the form of Exhibit
B but subject to Section 10.3, which agreement shall be executed and delivered
on the Closing Date.
"Purchased Interests" means the General Partnership Interest, the
Limited Partnership Interests, the SPC Stock, the Subordinated Notes held by the
General Partner, the Subordinated Notes held by the Limited Partner Sellers, and
the Subordinated Notes held by the SPC Sellers.
"Rate Regulatory Matter" shall mean, with respect to any cable
television system, any matter or any effect on such system or the business or
operations thereof, arising out of or related to the Cable Act, any FCC
Regulations heretofore adopted thereunder, or any other present or future Legal
Requirement dealing with, limiting or affecting the rates which can be charged
by cable television systems to their customers (whether for programming,
equipment, installation, service or otherwise).
"Real Property" means all of the fee and leasehold estates and, to the
extent of the interest, title, and rights of the FrontierVision Companies in the
following, buildings and other improvements thereon, easements, licenses, rights
to access, rights-of-way, and other real property interests that are owned or
held by any of the FrontierVision Companies and used or held for use in the
business or operations of the Systems, plus such additions thereto and less such
deletions therefrom arising between the date hereof and the Closing Date in
accordance with this Agreement.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder, as in effect from time
to time.
"Seller Release" means the "Agreement of Release" substantially in the
form of Exhibit G to be delivered to Buyer by each Seller at the Closing.
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"SPC" means any corporation that is a limited partner of FVP, the
Capital Stock of which corporation is being sold to Buyer pursuant to this
Agreement.
"SPC Notes" means certain promissory notes issued by certain of the
SPCs to the SPC Seller which owns all of the Capital Stock of such SPC.
"SPC Stock" means the Capital Stock of the SPCs held by the SPC
Sellers.
"Stock Consideration Registration Rights Agreement" means the
Registration Rights Agreement among Buyer and Sellers, relating to the
registration of the Stock Consideration Registrable Securities constituting the
Stock Consideration, which agreement shall be executed on the date of this
Agreement.
"Subordinated Notes" means certain Subordinated Notes issued by FVP to
the General Partner, the Limited Partner Sellers, the SPC Sellers, and the SPCs
in connection with their investments in FVP.
"Subsidiary" means, with respect to any Person, any other Person of
which the outstanding voting Capital Stock sufficient to elect at least a
majority of its board of directors or other governing body (or, if there are no
such voting interests, of which 50% or more of the Capital Stock) is owned
(beneficially or otherwise) directly or indirectly by such first Person or any
Subsidiary thereof.
"Systems" means the cable television systems owned and operated by any
FrontierVision Company or any combination of any of them, each of which may be
referred to herein individually as a "System."
"Tangible Personal Property" means all of the equipment, tools,
vehicles, furniture, leasehold improvements, office equipment, plant,
converters, spare parts, and other tangible personal property which are owned or
leased by any of the FrontierVision Companies and used or held for use in the
conduct of the business or operations of the Systems, plus such additions
thereto and less such deletions therefrom arising between the date hereof and
the Closing Date in accordance with this Agreement.
"Tax" means any federal, state, local, or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, capital, transfer, employment, withholding, or other
tax or governmental assessment, together with any interest, additions, or
penalties with respect thereto and any interest in respect of such additions or
penalties.
"Tax Return" means any tax return, declaration of estimated tax, tax
report or other tax statement, or any other similar filing required to be
submitted to any Governmental Authority with respect to any Tax.
"Transaction Documents" means this Agreement, the Deposit Escrow
Agreement, the Post-Closing Escrow Agreement, the Noncompetition Agreements,
the Deposit Registration Rights
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Agreement, the Stock Consideration Registration Rights Agreement, the Seller
Releases, the Management Releases, and the other documents, agreements,
certificates and other instruments to be executed, delivered and performed by
the parties in connection with the transactions contemplated by this Agreement.
"Upset Date" means the one year anniversary of the date of this
Agreement, as such date may be extended pursuant to the provisions of this
Agreement, including, without limitation, Sections 8.1, 9.2 and 9.3.
"Weighted Average Trading Price" means the price determined by a
fraction, the numerator of which is the sum of the results obtained by
multiplying, for each of the trading days in the period of measurement, (A) the
total number of shares of ACC Class A Common Stock or other security traded on
each of said trading days on the principal U.S. trading market (whether stock
exchange, the NASDAQ National Market System, or otherwise) on which such stock
or other security is traded, by (B) the closing sale price of such stock or
other security (as published in the Northeast Edition of The Wall Street
Journal) for each of said trading days, and the denominator of which is the
total number of shares of such stock or other security traded on the trading
days in the period of measurement.
1.2 Terms Defined Elsewhere in this Agreement.
For purposes of this Agreement, the following terms have the meanings
set forth in the sections indicated:
Term Section
- ---- -------
120-Day Period Section 7.1(d)(1)(A)
Adjustment Assets Section 2.5(b)(1)
Adjustment Liabilities Section 2.5(b)(2)
Agent Section 11.8
Assumed Employees Section 6.9(a)
Assumed Liabilities Section 2.2
Audited Financial Statements Section 3.5(a)
Buyer First Paragraph
Buyer's 10-K Section 5.6(a)
Buyer's 10-Q Section 5.6(a)
Cash Consideration Section 2.3(a)(1)
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Claimant Section 10.6(a)
Closing Cash Payment Section 2.6
Closing Equivalent Subscribers Section 2.5(a)
Closing Net Liabilities Section 2.5(b)
Deposit Escrow Property Section 2.4(a)
Designated Material Consent Franchise Section 6.4(b)
Designated Non-Material Consent Section 6.4(b)
Franchise
Escrow Registrable Securities Section 2.4(b)
Financial Statements Section 3.5(a)
Final Closing Statement Section 2.7(b)
FVP First Paragraph
GECC Section 6.7(c)
GECC Facility Consent Section 6.7(c)
General Partner First Paragraph
Indemnifying Party Section 10.6(a)
Limited Partner Seller First Paragraph
Material Consent Franchise Section 7.1(d)(1)
Material Renewal Franchise Section 6.4(c)
Net Closing Cash Payment Section 2.7(a)
Post-Closing Adjustments Escrow Section 2.7(a)
Post-Closing Adjustment Funds Section 2.7(a)
Post-Closing Indemnity Escrow Section 10.3
Post-Closing Indemnity Property Section 10.3
Preliminary Closing Statement Section 2.6
Purchase Consideration Section 2.3(a)
Renewal Franchises Section 6.1(a)(1)
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Renewal Window Section 6.4(d)
Seller Recitals
SPC Seller First Paragraph
Stock Consideration Section 2.3(a)(2)
Stock Consideration Registrable Section 6.17
Securities
Unaudited Financial Statements Section 3.5(a)
Warn Act Section 9(a)
1.3 Rules of Construction.
Words used in this Agreement, regardless of the gender and number
specifically used, shall be deemed and construed to include any other gender and
any other number as the context requires. As used in this Agreement, the word
"including" is not limiting, and the word "or" is not exclusive. Except as
specifically otherwise provided in this Agreement in a particular instance, a
reference to a Section is a reference to a Section of this Agreement, a
reference to an Exhibit is a reference to an Exhibit to this Agreement, and the
terms "hereof," "herein," and other like terms refer to this Agreement as a
whole, including the Disclosure Schedules and the Exhibits to this Agreement,
and not solely to any particular part of this Agreement. The descriptive
headings in this Agreement are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
ARTICLE 2
SALE AND PURCHASE OF PURCHASED INTERESTS;
ASSUMPTION OF LIABILITIES; ADDITIONAL PURCHASE
CONSIDERATION
2.1 Agreement to Sell and Buy.
Subject to the terms and conditions set forth in this Agreement, each
Seller hereby agrees to sell, transfer, and deliver to Buyer at the Closing, and
Buyer hereby agrees to purchase at the Closing, the Purchased Interests held by
such Seller, free and clear of all Encumbrances.
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2.2 Assumption of Obligations.
In consideration of the sale of the Purchased Interests, concurrently
with the Closing, Buyer shall assume all obligations and liabilities associated
with the Purchased Interests purchased by Buyer, whether such obligations and
liabilities arose prior to the Closing or arise after the Closing, including
(and notwithstanding any provision of applicable partnership law to the
contrary) all obligations and liabilities arising out of the ownership of the
General Partnership Interest (collectively, the "Assumed Liabilities"). After
the Closing Buyer shall cause the FrontierVision Companies to discharge all of
their obligations and liabilities, whether such obligations and liabilities
arose prior to the Closing or arise after the Closing, including all obligations
and liabilities relating to the business and operations of the Systems; provided
that Buyer shall not be deemed to have assumed directly any obligations and
liabilities of the FrontierVision Companies vis-a-vis any Person that is not a
party to this Agreement or entitled to indemnification under this Agreement. In
addition, nothing in this Section 2.2 shall impair Buyer's rights under Sections
2.5, 2.8 and 2.9 or Buyer's indemnification rights under Article 10 after the
Closing (subject in each case to the limitations provided therein).
2.3 Additional Purchase Consideration for Purchased Interests.
(a) In addition to assuming the Assumed Liabilities, Buyer
shall pay and deliver to Sellers as consideration for the sale of the Purchased
Interests (the "Purchase Consideration"):
(1) A cash payment equal to Six Hundred Million
Dollars ($600,000,000),subject to adjustment in accordance with this Article 2
(the "Cash Consideration");
(2) 7,000,000 shares of ACC Class A Common Stock
, together with the kind and amounts of securities, cash and other property that
Sellers would have held or been entitled to receive as of the Closing (whether
resulting from a stock split, subdivision, combination or reclassification of
the outstanding capital stock of Buyer, or in redemption thereof, or as a result
of any merger, consolidation, acquisition or other exchange of assets to which
Buyer may be a party or otherwise) had Sellers held such shares of ACC Class A
Common Stock as of the date of this Agreement and retained such shares, and all
securities, cash and other property distributed or issued with respect to or in
substitution or exchange therefor, during the period from the date of this
Agreement through (and including) the Closing Date (collectively, the "Stock
Consideration"). To the extent Adelphia pays cash to the Sellers pursuant to
Section 8.1(a)(4) in lieu of delivering the ACC Class A Common Stock (or other
securities, cash and property described in the preceding sentence), the term
"Stock Consideration" shall include all such cash as the context requires.
(b) The Cash Consideration (and any adjustments thereto) and
the Stock Consideration shall be allocated among the Purchased Interests and the
Sellers as determined by the Sellers and delivered to Buyer in writing at least
two days prior to the Closing. Not more than 44% of
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the aggregate Purchase Consideration shall be allocated to the purchase and sale
of the Purchased Interests held by the SPC Sellers.
2.4 Escrow Deposit; Registration Rights.
(a) Deposit of ACC Class A Shares. Simultaneously with the
execution of this Agreement, and as a material inducement to FVP and Sellers to
enter into this Agreement, Buyer shall cause 1,000,000 shares of ACC Class A
Common Stock to be issued in the name of FVP and delivered to the Escrow Agent
to be held in escrow pursuant to the terms of the Deposit Escrow Agreement,
which is to be executed concurrently herewith by Buyer, FVP, and the Escrow
Agent. The "Deposit Escrow Property" means, collectively, the 1,000,000 shares
of ACC Class A Common Stock deposited pursuant to this Section 2.4(a), together
with the kind and amounts of securities, cash and other property that Sellers
would have held or been entitled to receive as of the date the Deposit Escrow
Property is released in accordance with this Agreement (whether resulting from a
stock split, subdivision, combination or reclassification of the outstanding
capital stock of Buyer, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which Buyer may be a
party or otherwise) had Sellers held such shares of ACC Class A Common Stock as
of the date of this Agreement and retained such shares, and all securities, cash
and other property distributed or issued with respect to or in substitution or
exchange therefor, during the period from the date of this Agreement through
(and including) the date the Deposit Escrow Property is released in accordance
with this Agreement, and also includes, to the extent relevant, all cash
deposited with the Escrow Agent pursuant to Section 2.4(b) and all earnings
thereon.
(b) Deposit Registration Rights Agreement. Simultaneously with
the execution of this Agreement, and as a material inducement to FVP and Sellers
to enter into this Agreement, Buyer shall execute and deliver the Deposit
Registration Rights Agreement, pursuant to which Buyer will grant FVP certain
rights as provided therein in respect of the shares of ACC Class A Common Stock
or other securities constituting the Deposit Escrow Property (the "Escrow
Registrable Securities"). As soon as practicable after the execution of this
Agreement, Buyer shall file an appropriate registration statement under the
Securities Act covering the registration of all of such Escrow Registrable
Securities. Buyer shall then use commercially reasonable efforts to cause such
registration statement to be declared effective under the Securities Act as soon
as practicable thereafter and kept effective in accordance with the provisions
of the Deposit Registration Rights Agreement, and Buyer shall otherwise comply
with the provisions of the Deposit Registration Rights Agreement. If a
registration statement covering the registration of all of such Escrow
Registrable Securities has not been declared effective under the Securities Act
(and such registration statement shall not be subject to any stop order or
proceeding seeking a stop order) on the earlier of (1) the date FVP terminates
this Agreement in accordance with Section 9.2 as a result of a willful breach of
this Agreement by Buyer (including a willful breach as described in the first
sentence of Section 9.4(c)), and (2) May 31, 1999, Buyer shall deposit with the
Escrow Agent, on the next business day, cash in an amount equal to the aggregate
fair market value of the shares of ACC Class A Common Stock or other securities
constituting the Deposit Escrow Property
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(computed on the basis of the Weighted Average Trading Price of such shares of
ACC Class A Common Stock or other securities for the ten day trading period
beginning on the thirteenth trading day prior to the date on which Buyer
deposits such cash amount pursuant to this sentence). Upon such payment by Buyer
to the Escrow Agent, all of such shares of ACC Class A Common Stock or other
securities constituting the Deposit Escrow Property shall be released and paid
over to Buyer but all cash funds, if any, included in the Deposit Escrow
Property and previously held by the Escrow Agent shall be retained by the Escrow
Agent as part of the Deposit Escrow Property.
(c) Release of Deposit Escrow Property. At the Closing, all of
the Deposit Escrow Property shall be released from escrow and returned to Buyer.
Upon termination of this Agreement prior to the Closing in accordance with
Article 9, all of the Deposit Escrow Property shall be released from escrow and
returned to Buyer except as provided in the following sentence. If FVP
terminates this Agreement in accordance with Section 9.2 as a result of a
willful breach of this Agreement by Buyer (including a willful breach as
described in the first sentence of Section 9.4(c)), all of the Deposit Escrow
Property shall be released from escrow and paid over to FVP on the next business
day, provided that FVP shall be entitled to receive all cash if the condition
specified in the last sentence of Section 2.4(b) is applicable, and FVP shall be
entitled to enforce this Section 2.4 against Buyer notwithstanding any provision
to the contrary in Section 9.4(c). On the day of the occurrence of any of the
foregoing events, FVP and Buyer will execute and deliver to the Escrow Agent
joint written instructions containing appropriate disbursement instructions
consistent with this Section 2.4(c) and the Deposit Escrow Agreement.
2.5 Cash Consideration Adjustments.
(a) Closing Equivalent Subscribers. The Cash Consideration
shall be decreased by the number, if any, by which the number of Closing
Equivalent Subscribers is less than 700,000, multiplied by $2,928. For purposes
of this Agreement, "Closing Equivalent Subscribers" means the total number of
Equivalent Subscribers for all of the Systems as of the Adjustment Time;
provided, however, that if the systems exchange transactions between the
FrontierVision Companies and InterMedia Partners of Kentucky, L.P. referred to
in Section 6.1 of FrontierVision's Disclosure Schedule are consummated prior to
the Closing hereunder, none of the subscribers served by the InterMedia systems
acquired in such transactions shall be included in Closing Equivalent
Subscribers but the number of Closing Equivalent Subscribers represented by the
subscribers served by the Systems sold to InterMedia (determined as if the
effective time of the consummation of the respective InterMedia transactions
were the Adjustment Time hereunder) shall be included in Closing Equivalent
Subscribers; and provided further, however, that the provisions of Section
6.4(e) shall apply to the extent relevant.
(b) Closing Net Liabilities. The Cash Consideration shall be
decreased by the amount, if any, by which the Closing Net Liabilities exceed
$1,150,000,000 and shall be increased by the amount, if any, by which the
Closing Net Liabilities are less than $1,150,000,000. For purposes of
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this Agreement, "Closing Net Liabilities" means Adjustment Liabilities as of the
Adjustment Time, decreased by Adjustment Assets as of the Adjustment Time.
(1) Subject to the other provisions of this
Section 2.5(b), "Adjustment Assets" means, as of any date, the sum of: (A) cash
and cash equivalents, (B) prepaid expenses, deposits, and other current assets
(other than inventory); (C) Accounts Receivable and other receivables; (D) tax
refunds due to any of the FrontierVision Companies for any tax period ending
prior to the Adjustment Time; (E) the amount of Reimbursable Capital
Expenditures; (F) the amount of the cash consideration paid by the
FrontierVision Companies in connection with the systems exchange transactions,
if consummated prior to the Closing hereunder, with InterMedia Partners of
Kentucky L.P. referred to in Section 6.1 of FrontierVision's Disclosure
Schedule; (G) the aggregate amount of any cash investments made by the
FrontierVision Companies in The Maine Internet Works, Inc. and Landmark Net
Access, Inc. after the date of this Agreement and prior to the Adjustment Time
(provided that any such investments shall not be included unless Buyer consented
to such investments); (H) the amount of the net asset, if applicable, referred
to in Section 6.7(e); and (I) the amount of the insurance premiums paid by the
FrontierVision Companies prior to the Adjustment Time as contemplated by Section
6.13, in each case of clauses (A) through (D) computed for the FrontierVision
Companies on a consolidated basis and without duplication in accordance with
GAAP and in each case of clauses (E) through (I) as agreed above. Exhibit F
referred to below in Section 2.5(c) identifies and describes the "other
receivables" referenced in clause (C) above that would be included in Adjustment
Assets if the Closing Date were the date of this Agreement. The disclosure made
pursuant to the immediately preceding sentence is for informational purposes
only.
(2) Subject to the other provisions of this
Section 2.5(b), "Adjustment Liabilities" means, as of any date, the sum of: (A)
accounts payable; (B) expenses of the FrontierVision Companies relating to the
consummation of the transactions contemplated by this Agreement, including fees
and expenses of attorneys, accountants, financial advisors and broker fees, if
such fees and expenses are paid by the FrontierVision Companies after the
Closing Date, but excluding any expenses that Buyer agrees to pay or is
obligated to pay pursuant to this Agreement; (C) accrued and unpaid expenses;
(D) subscriber's prepayments and deposits; (E) Tax payments due and payable by
any of the FrontierVision Companies to any Governmental Authority for all Tax
periods ending on or prior to the Adjustment Time; (F) all other FrontierVision
Liabilities as of the Adjustment Time; (G) subject to Section 6.18, $5,500,000
(which represents the amount by which the amount of rebuild/upgrade capital
expenditures of the FrontierVision Companies budgeted for the period beginning
October 23, 1998 and ending December 31, 1998 with respect to the Systems
acquired pursuant to the State Cable Acquisition Agreement exceeded the amount
of capital expenditures actually made by the FrontierVision Companies for such
period with respect to such Systems); (H) $2,000,000 (which represents the
amount by which the amount of rebuild/upgrade capital expenditures of the
FrontierVision Companies budgeted for the period beginning July 1, 1998 and
ending December 31, 1998 with respect to the Systems other than the Systems
acquired pursuant to the State Cable Acquisition Agreement exceeded the amount
of capital expenditures actually made by the FrontierVision Companies for such
period with respect to
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such other Systems); (I) the cash amount required to pay off vehicle leases held
by the FrontierVision Companies, if any; (J) the amount as illustrated in
Section 2.5 of FrontierVision's Disclosure Schedule as the "Net Carriage
Adjustment" and as updated for activity through the Closing Date; (K) the amount
of cash and other monetary purchase price consideration (net of reasonable
out-of-pocket transaction costs and expenses) received by the FrontierVision
Companies in connection with the sale of systems to Helicon Partners I, L.P.
consummated on January 7, 1999, plus the amount of cash and other monetary
purchase price consideration (net of reasonable out-of-pocket transaction costs
and expenses) received by the FrontierVision Companies in connection with the
sale of other systems and assets, including without limitation, the sale of the
Rockland, Maine office site real estate parcel referenced in Section 3.8 of
FrontierVision's Disclosure Schedule, if any, consummated after the date of this
Agreement and prior to the Closing Date; (L) the amount of cash and other
monetary purchase price consideration payable by the FrontierVision Companies
under the purchase contract for the Chillicothe, Ohio real estate parcel
referenced in Section 3.8 of FrontierVision's Disclosure Schedule, but only to
the extent to which such amount has not been paid by the FrontierVision
Companies prior to the Closing Date; (M) the FrontierVision Companies' share of
any out-of-pocket costs and expenses incurred in connection with relocating the
Luckey headend site referred to in Section 3.6 (Item A.2) of FrontierVision's
Disclosure Schedule, but only to the extent to which such costs and expenses
have not been paid by the FrontierVision Companies prior to the Closing; (N)
$3,937,500.00; (O) $200,000.00 (representing the amount payable in connection
with the matter disclosed in Section 3.6 (Item A.1) of FrontierVision's
Disclosure Schedule that is not covered by clause (F) above); (P) the aggregate
amount of any cash distributions received by the FrontierVision Companies from
The Maine Internet Works, Inc. and Landmark Net Access, Inc. after December 31,
1998 and prior to the Adjustment Time; (Q) the amount paid by Buyer at the
Closing with respect to FVP's Executive Deferred Compensation Plan as
contemplated by Section 6.9(f); (R) the amount, if any, required to be included
as an Adjustment Liability pursuant to Section 6.4(e); (S) the amount of the net
liability, if applicable, referred to in Section 6.7(e); (T) $10,000,000,
reduced by the aggregate amount of capital expenditures actually made by the
FrontierVision Companies during the period beginning January 1, 1999 and ending
on the Closing Date with respect to the Waterville, Ohio and Bedford, Michigan
Systems upgrade and rebuild projects listed in Section 2.5 of FrontierVision's
Disclosure Schedule; and (U) the aggregate amount of the programming costs
savings to the FrontierVision Companies as a result of the Programming Supply
Agreement with Buyer, in each case of clauses (A) through (F) computed for the
FrontierVision Companies on a consolidated basis and without duplication in
accordance with GAAP and in each case of clauses (G) through (U) as agreed
above. The parties agree that to the extent any liability qualifies as an
Adjustment Liability pursuant to more than one clause of this paragraph, it
shall be included only once and without duplication.
(3) The amount of "Reimbursable Capital
Expenditures" equals the amount by which (A) the aggregate amount of capital
expenditures actually made by the FrontierVision Companies during the period
beginning January 1, 1999 and ending on the Closing Date with respect to any of
the Systems upgrade and rebuild projects listed in Section 2.5 of
FrontierVision's Disclosure Schedule (it being understood that in no event will
any capital expenditures made to complete the New
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Philadelphia retrofit, Bangor, Amesbury, and Ironton/Ashland upgrade and rebuild
projects to the point of completion described in Section 2.5(D) of
FrontierVision's Disclosure Schedule or any capital expenditures made by the
FrontierVision Companies with respect to the Waterville, Ohio and Bedford,
Michigan Systems upgrade and rebuild projects listed in Section 2.5 of
FrontierVision's Disclosure Schedule be included in the amount for this clause
(A)) exceeds (B) the amount, if any, by which (1) the amount of Budgeted Other
Capital Expenditures exceeds (2) the amount of Actual Other Capital
Expenditures; provided that if the amount in clause (B)(2) exceeds the amount in
clause (B)(1), the amount for clause (B) shall be zero. As used in this
subsection (3), the following terms have the following meanings:
(A) "Budgeted Other Capital Expenditures"
means the aggregate cumulative amount of capital expenditures budgeted for all
of the capital expenditures categories included in all categories other than
"Upgrade/Rebuild" on the Capital Expenditures Budget for the period beginning
January 1, 1999 and ending on the Closing Date (the amount budgeted for the
month in which the Closing occurs to be prorated in the event the Closing Date
occurs on a day other than the first or last day of a month).
(B) "Actual Other Capital Expenditures"
means the aggregate amount
of capital expenditures actually made by the FrontierVision Companies during the
period beginning January 1, 1999 and ending on the Closing Date with respect to
all of the capital expenditure categories included in all categories other than
"Upgrade/Rebuild" on the Capital Expenditures Budget, computed on a basis
consistent with the accounting methodologies used to compute the Budgeted Other
Capital Expenditures, which in turn was prepared on a basis consistent with the
accounting procedures used to prepare the Financial Statements.
(C) "Capital Expenditures Budget" means the
monthly capital
expenditures budget for the FrontierVision Companies for calendar year 1999 that
is included in Section 2.5 of FrontierVision's Disclosure Schedule.
(4) To the extent consistent with GAAP, revenues and
expenses shall be
treated as prepaid or accrued so as to reflect the principle that revenues and
expenses attributable to the period prior to the Adjustment Time shall be for
the account of Sellers and revenues and expenses attributable to the period
after the Adjustment Time shall be for the account of Buyer.
(5) Deferred income Taxes of any FrontierVision
Company shall not be treated as Adjustment Assets or Adjustment Liabilities.
(6) To the extent any liability that would be an
Adjustment Liability but for the fact that all or any portion of such liability
is transferred by a FrontierVision Company (including Main Security
Surveillance, Inc. for this purpose) to and assumed by The Maine Internet Works,
Inc.
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or Landmark Net Access, Inc. prior to the Adjustment Time, such liability shall
be treated as an Adjustment Liability (but without duplication) in any event.
(c) Example Calculation. Attached hereto as Exhibit F is an
example calculation of Closing Net Liabilities for illustrative purposes only,
prepared on the basis of good faith estimates of Adjustment Assets and
Adjustment Liabilities made by FVP as if the Closing Date were January 31, 1999.
FVP makes no representation and warranty to any other party with respect to the
accuracy of Exhibit F.
2.6 Payment at Closing.
No later than seven business days prior to the date scheduled for the
Closing, FVP shall prepare and deliver to Buyer a written report (the
"Preliminary Closing Statement") setting forth FVP's estimates of Closing Net
Liabilities and Closing Equivalent Subscribers, determined in accordance with
Section 2.5 and this Section 2.6. The Preliminary Closing Statement shall be
prepared by FVP in good faith and shall be certified by FVP to be its good faith
estimate of the Closing Net Liabilities and Closing Equivalent Subscribers as of
the date thereof. FVP shall make available to Buyer such information as Buyer
shall reasonably request relating to the matters set forth in the Preliminary
Closing Statement. If Buyer does not agree with any estimated amount set forth
in the Preliminary Closing Statement, then on or prior to the third business day
prior to the date scheduled for the Closing, Buyer may deliver to FVP a written
report setting forth in reasonable detail its good faith estimates (supported by
substantial evidence) of any amount set forth in the Preliminary Closing
Statement with which Buyer disagrees. In the case of any such estimated amount
as to which Buyer delivers its own estimate on or before such third business
day, FVP and Buyer will endeavor in good faith to agree prior to the Closing on
the appropriate amount of such estimate to be used for calculating the Closing
Cash Payment (as defined below). At the Closing Buyer shall pay to Sellers the
amount of the Cash Consideration, as adjusted at Closing on the basis of the
Preliminary Closing Statement, with any changes thereto mutually agreed to
between Buyer and FVP (the "Closing Cash Payment") in accordance with the
provisions of Section 8.3(a)(2). In the case of any such estimated amount as to
which Buyer delivers its own estimate on or before such third business day and
as to which FVP and Buyer do not so agree prior to the Closing, at the Closing
the difference (if any) between the amount of the Closing Cash Payment that
would be determined using the estimates set forth in FVP's Preliminary Closing
Statement (with any changes thereto mutually agreed to between Buyer and FVP)
and the amount of the Closing Cash Payment that would be determined using the
estimates of Buyer that remain in dispute will be transferred by Buyer to the
Escrow Agent, to be held in the Post-Closing Adjustments Escrow and disbursed in
accordance with the provisions of Section 2.7.
2.7 Post-Closing Payment of Cash Consideration Adjustments.
(a) Post-Closing Adjustments Escrow. At the Closing,
Buyer, Sellers and the Escrow Agent shall execute the Post-Closing Escrow
Agreement, in accordance with which, on the
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Closing Date, in addition to any deposit to be made pursuant to Section 2.6,
Buyer will deposit $5,000,000 with the Escrow Agent to hold in escrow on behalf
of Sellers solely in order to provide a fund for any payment to which Buyer may
be entitled in accordance with Section 2.7(c) (such escrow, the "Post-Closing
Adjustments Escrow," and such $5,000,000, together with any amounts deposited in
the Post-Closing Adjustments Escrow pursuant to Section 2.6, and any earnings
thereon, the "Post-Closing Adjustment Funds"). None of the Post-Closing
Adjustment Funds will be available for any purpose other than as described above
and as described in Section 2.9 and shall not be available to satisfy any
obligation of Sellers under Article 10. The Post-Closing Adjustments Escrow will
be administered, and the Post-Closing Adjustment Funds will be held and
disbursed, in accordance with the provisions of this Section 2.7 and the
Post-Closing Escrow Agreement. The Closing Cash Payment less the amounts
deposited in the Post-Closing Adjustments Escrow pursuant to Sections 2.6 and
this 2.7(a) shall be referred to as the "Net Closing Cash Payment."
(b) Final Closing Statement. Within one hundred twenty days
after the Closing Date, Buyer shall prepare and deliver to the General Partner a
written report (the "Final Closing Statement") setting forth Buyer's final
estimates of Closing Net Liabilities and Closing Equivalent Subscribers,
determined in accordance with Section 2.5. The Final Closing Statement shall be
prepared by Buyer in good faith and shall be certified by Buyer to be, as of the
date prepared, its good faith estimate of the Closing Net Liabilities and
Closing Equivalent Subscribers. Buyer shall allow the General Partner and its
agents access at all reasonable times after the Closing Date to copies of the
books, records and accounts of the FrontierVision Companies and make available
to the General Partner such information as the General Partner reasonably
requests to allow the General Partner to examine the accuracy of the Final
Closing Statement. Within thirty days after the date that the Final Closing
Statement is delivered by Buyer to the General Partner, the General Partner
shall complete its examination thereof and may deliver to Buyer a written report
setting forth any proposed adjustments to any amounts set forth in the Final
Closing Statement. If the General Partner notifies Buyer of its acceptance of
the amounts set forth in the Final Closing Statement, or if the General Partner
fails to deliver its report of any proposed adjustments within the thirty day
period specified in the preceding sentence, the amounts set forth in the Final
Closing Statement shall be conclusive, final, and binding on the parties as of
the last day of such thirty day period. Buyer and the General Partner shall use
good faith efforts to resolve any dispute involving the amounts set forth in the
Final Closing Statement. If the General Partner and Buyer fail to agree on any
amount set forth in the Final Closing Statement within fifteen days after Buyer
receives the General Partner's report pursuant to this Section 2.7, then the
General Partner shall retain a national independent accounting firm which is
approved by Buyer to make the final determination, under the terms of this
Agreement, of any amounts under dispute. Buyer hereby approves the appointment
of any of the "Big Five" accounting firms selected by the General Partner so
long as such firm does not then serve as the independent auditor of any of the
FrontierVision Companies or the General Partner or Buyer. The selected
accounting firm shall endeavor to resolve the dispute as promptly as practicable
and such firm's resolution of the dispute shall be final and binding on the
parties, and a judgment may be entered thereon in any court of competent
jurisdiction. All of the costs and expenses of the selected accounting firm and
its services rendered pursuant to this Section 2.7 shall be borne by Buyer, on
the
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one hand, and Sellers, on the other hand, as nearly as possible in the
proportion to the amount by which the determination of all matters related to
such costs and expenses varies from the positions of Buyer and the General
Partner on all such matters. Any fees to be borne by Sellers pursuant to the
preceding sentence shall be paid out of the Post-Closing Adjustment Funds in
accordance with the provisions of Section 2.7(c).
(c) Payment of Cash Consideration Adjustments.
(1) Within three business days after the General
Partner delivers to Buyer its proposed adjustments to the Final Closing
Statement, the amounts not in dispute shall be determined and the Escrow Agent
shall release and pay over to Buyer and/or Sellers, as the case may be, the
appropriate amount of the Post-Closing Adjustment Funds not in dispute;
provided, however, that out of any amounts payable to Sellers an amount equal to
the greater of $25,000 or one percent (1%) of the amount in dispute shall
continue to be held in the Post-Closing Adjustments Escrow to cover (A) the
fees, if any, payable by Sellers pursuant to the last sentence of Section 2.7(b)
with respect to the final determination of the Cash Consideration and (B) the
fees payable by Sellers to the Escrow Agent pursuant to the Post-Closing Escrow
Agreement. For example, if (i) the Closing Cash Payment was determined to be
$600,000,000; (ii) the Net Closing Cash Payment was determined to be
$594,000,000; (iii) the Cash Consideration determined on the basis of Buyer's
Final Closing Statement was $595,000,000; and (iv) the Cash Consideration
determined on the basis of Buyer's Final Closing Statement (with any adjustments
proposed by the General Partner pursuant to Section 2.7(b)) was $597,000,000;
then $3,000,000 (i.e., $600,000,000 less $597,000,000) would be paid by the
Escrow Agent to Buyer, and $1,000,000 (i.e, $595,000,000 less $594,000,000) less
the amount of the reserve for Sellers' fees would be paid to Sellers. The
balance in the Post-Closing Adjustments Escrow would be held by the Escrow Agent
until the amount of the Cash Consideration is finally determined pursuant to
Section 2.7(b)) (whether by agreement of the parties or by final resolution of
any accounting firm). Upon and within three business days after such final
determination, the Escrow Agent shall release and pay over to Buyer and/or
Sellers, as the case may be, the appropriate amount of the Post-Closing
Adjustment Funds based upon such final determination; provided, however, that
any payments to be made to Sellers shall be reduced by the fees and expenses to
be paid by Sellers if not already reserved. To the extent there are not
sufficient monies in the Post-Closing Adjustments Escrow to distribute the
amount determined to be payable to Sellers pursuant to this Section 2.7, Buyer
will pay to Sellers in cash the amount of such deficiency within three business
days of the date of such determination. To the extent there are not sufficient
monies in the Post-Closing Adjustments Escrow to distribute the amounts
determined to be payable to Buyer pursuant to this Section 2.7, the amount of
such deficiency will be paid to Buyer from the Post-Closing Indemnity Escrow to
the extent of any Post-Closing Indemnity Property therein within three business
days of the date of such determination.
(2) If Buyer has not delivered the Final Closing
Statement to the General Partner within twenty days after the end of the 120-day
period referred to in Section 2.7(b), the Escrow Agent shall release and pay
over to Sellers all of the Post-Closing Adjustment Funds.
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(3) If the General Partner has not delivered its
report of any proposed adjustments to the Final Closing Statement within the
thirty day period following its receipt of the Final Closing Statement, the
Escrow Agent shall release and pay out the Post-Closing Adjustment Funds based
upon the Final Closing Statement delivered by Buyer.
(4) Notwithstanding the above provisions, if
Buyer has provided notice of a claim to the General Partner pursuant to Section
2.9(b), a portion of the Post-Closing Adjustment Funds sufficient to reimburse
Buyer for any such claim and to pay Sellers' share of any fees and expenses
under Section 2.9(b) shall be retained in the Post-Closing Adjustments Escrow
and shall not be distributed until such claims are finally resolved in
accordance with Section 2.9(b).
(5) All earnings attributable to each portion of
the Post-Closing Adjustment Funds shall be paid to the party entitled to such
portion of the Post-Closing Adjustment Funds in accordance with this Section 2.7
or Section 2.9 to the extent applicable (except all earnings attributable to the
portion of the Post-Closing Adjustment Funds, if any, used to pay the Sellers'
share of any fees and expenses payable out of the Post-Closing Adjustment Funds
pursuant to said Sections shall be paid to Sellers).
(6) Any amount which becomes payable pursuant to
this Section 2.7 will constitute an adjustment to the Cash Consideration for all
purposes.
(7) All payments to be made to Sellers under
this Section 2.7 shall be paid by wire or accounts transfer of immediately
available funds to one or more accounts designated by Sellers by written notice
to the Escrow Agent or Buyer, as applicable.
(8) All payments to be made to Buyer under this
Section 2.7 shall be paid by wire or accounts transfer of immediately available
funds to one or more accounts designated by Buyer by written notice to the
Escrow Agent or Sellers, as applicable.
(9) No later than the close of business on the first
business day after it is
determined in accordance with this Section 2.7 and Section 2.9 that Buyer and/or
Sellers are entitled to all or any portion of the Post-Closing Adjustment Funds,
the General Partner and Buyer will execute and deliver to the Escrow Agent joint
written instructions containing appropriate disbursement instructions consistent
with this Section 2.7 and Section 2.9 and the Post-Closing Escrow Agreement.
2.8 Seller Specific Liabilities.
(a) If it is determined at the Closing (based upon a good
faith showing by Buyer supported by substantial evidence and that is agreed to
by the SPC Seller that owns the Capital Stock of the SPC in question) that any
of the SPCs has any indebtedness or liability (other than any
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indebtedness or liability disclosed in Section 4.3 or in Section 4.3 of
FrontierVision's Disclosure Schedule) that will not otherwise be discharged at
the Closing, then the amount of Cash Consideration payable to such SPC Seller
shall be decreased by the dollar amount of such indebtedness or liability as
agreed to by such SPC Seller and Buyer. If it is determined at the Closing
(based upon a good faith showing by Buyer supported by substantial evidence and
that is agreed to by the Seller in question) that any of the Purchased Interests
held by a Seller is subject to an Encumbrance and that will not otherwise be
discharged and released at the Closing, then the amount of Cash Consideration
payable to such Seller shall be decreased by the dollar amount necessary to
discharge and release such Encumbrance as agreed to by such Seller and Buyer.
Buyer agrees to notify the appropriate Seller promptly upon becoming aware of
any matter that could give rise to a claim under this Section 2.8 that was not
disclosed in this Agreement or in FrontierVision's Disclosure Schedule. If such
Seller and Buyer cannot agree on the appropriate amount of the decrease in Cash
Consideration payable to such Seller by the time scheduled for the Closing, then
Buyer shall deposit a portion of the Closing Cash Payment equal to the amount of
Buyer's claim (together with an amount equal to the greater of $25,000 or one
percent (1%) of the amount of Buyer's claim to cover the fees, if any, payable
by such Seller pursuant to Section 2.8(b) with respect to an accounting firm's
final determination) with the Escrow Agent to hold in a separate escrow on
behalf of such Seller solely in order to provide a fund for any payment to which
Buyer may be entitled in accordance with this Section 2.8 (each such escrow, a
"Post-Closing Section 2.8 Escrow," and such deposit, together with any earnings
thereon, the "Post-Closing Section 2.8 Funds"), and the amount of the Closing
Cash Payment payable to such Seller shall be decreased by the amount so
deposited. None of the Post-Closing Section 2.8 Funds will be available for any
purpose other than as described above and shall not be available to satisfy any
obligation of Sellers under Article 10. The Post-Closing Section 2.8 Escrow will
be administered, and the Post-Closing Section 2.8 Funds will be held and
disbursed, in accordance with the provisions of this Section 2.8 and the
Post-Closing Escrow Agreement.
(b) After the Closing, Buyer and such Seller shall use good
faith efforts to resolve any dispute involving the validity and amount of any
claim made by Buyer pursuant to this Section 2.8. If such Seller and Buyer fail
to agree on the validity and amount of any such claim within fifteen days after
the Closing, then such Seller shall retain a national independent accounting
firm which is approved by Buyer to make the final determination, under the terms
of this Agreement, regarding the validity and amount of any such claim. Buyer
hereby approves the appointment of any of the "Big Five" accounting firms
selected by such Seller so long as such firm does not then serve as the
independent auditor of any of the FrontierVision Companies or the General
Partner or Buyer. The selected accounting firm shall endeavor to resolve the
dispute as promptly as practicable and such firm's resolution of the dispute
shall be final and binding on the parties, and a judgment may be entered thereon
in any court of competent jurisdiction. All of the costs and expenses of the
selected accounting firm and its services rendered pursuant to this Section 2.8
shall be borne by Buyer, on the one hand, and such Seller, on the other hand, as
nearly as possible in the proportion to the amount by which the determination of
all matters related to such costs and expenses varies from the positions of
Buyer and such Seller on all such matters.
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(c) Within three business days after any matter governed by
this Section 2.8 is finally resolved (whether by agreement of the parties or by
final resolution of an accounting firm), the amount of Post-Closing Section 2.8
Funds payable to Buyer and/or such Seller shall be released and paid over to
Buyer and/or such Seller in accordance with such final resolution. To the extent
there are not sufficient monies in the Post-Closing Section 2.8 Escrow to
distribute the amounts determined to be payable to Buyer pursuant to this
Section 2.8, the amount of such deficiency will be paid to Buyer from the
Post-Closing Indemnity Escrow to the extent of any Post-Closing Indemnity
Property therein within three business days of the date of such determination.
All payments to be made to such Seller or Buyer, as the case may be, under this
Section 2.8 shall be paid by wire or accounts transfer of immediately available
funds to one or more accounts designated by such Seller or Buyer, as the case
may be, by written notice to the Escrow Agent. No later than the close of
business on the first business day after it is determined in accordance with
this Section 2.8 that Buyer and/or a Seller is entitled to all or any portion of
the Post-Closing Section 2.8 Funds being held in a Post-Closing Section 2.8
Escrow for the benefit of Buyer and such Seller, such Seller and Buyer will
execute and deliver to the Escrow Agent joint written instructions containing
appropriate disbursement instructions consistent with this Section 2.8 and the
Post-Closing Escrow Agreement.
(d) All earnings attributable to each portion of the
Post-Closing Section 2.8 Funds shall be paid to the party entitled to such
portion of the Post-Closing 2.8 Funds in accordance with this Section 2.8
(except all earnings attributable to the portion of the Post-Closing Section 2.8
Funds, if any, used to pay a Seller's share of any fees and expenses payable out
of the Post-Closing Section 2.8 Funds pursuant to this Section 2.8 shall be paid
to such Seller).
(e) Any amount which becomes payable pursuant to this Section
2.8 will constitute an adjustment to the Cash Consideration for all purposes.
2.9 Additional Cash Consideration Adjustments.
(a) If, at any time prior to the Closing, Buyer becomes aware
of any fact, event, circumstance, or action, the existence or occurrence of
which, if not corrected or remedied prior to the Closing, would, in Buyer's good
faith and reasonable belief, and supported by substantial evidence, require the
Sellers to indemnify Buyer pursuant to Section 10.2(a) as a result of an untrue
representation or a breach of warranty by FVP contained in Sections 3.9 (with
respect to any rearrangements or rehabilitations of cable trunk only as
specified in the penultimate sentence of Section 3.9), 3.11(g) (with respect to
payment of copyright fees only), 3.11(k), 3.11(l) (with respect to payment of
pole attachment fees only), or 3.14 or as a result of the existence of an
Encumbrance on the Assets of the FrontierVision Companies that is not a
Permitted Encumbrance, Buyer shall immediately give notice to FVP of such fact,
event, circumstance or action. If Buyer desires to seek an adjustment to the
Cash Consideration in respect of such matter, Buyer shall so state in its notice
and specify in reasonable detail the factual basis for the claim and the amount
thereof. Buyer shall certify in such notice that the basis and amount
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of the claim were determined in good faith by Buyer and such claim must be
supported by substantial evidence. Buyer agrees to make available to FVP and its
authorized representatives the information relied upon by Buyer to substantiate
the claim. If the matter is cured prior to the Closing, Buyer shall not be
entitled to any adjustment to the Cash Consideration pursuant to this Section
2.9 in respect of such matter. If Buyer and FVP agree at or prior to the Closing
to the validity and amount of such claim, the Cash Consideration shall be
reduced by such amount. If Buyer and FVP do not agree to the validity or the
amount of the claim at or prior to the Closing, then Buyer shall deposit a
portion of the Closing Cash Payment equal to the amount of Buyer's claim with
the Escrow Agent to hold in escrow on behalf of Sellers solely in order to
provide a fund for any payment to which Buyer may be entitled in respect of a
claim made under this Section 2.9(a) (such escrow, the "Post-Closing Section 2.9
Escrow," and such deposit, together with any earnings thereon, the "Post-Closing
Section 2.9 Funds"). None of the Post-Closing Section 2.9 Funds will be
available for any purpose other than as described above and shall not be
available to satisfy any obligation of Sellers under Article 10. The
Post-Closing Section 2.9 Escrow will be administered, and the Post-Closing
Section 2.9 Funds will be held and disbursed, in accordance with the provisions
of this Section 2.9 and the Post-Closing Escrow Agreement.
(b) If, at any time after the Closing and prior to end of the
120-day period following the Closing, Buyer becomes aware of any fact, event,
circumstance, or action that existed or occurred prior to the Closing and,
because it was not corrected or remedied prior to the Closing, requires, in
Buyer's good faith and reasonable belief, and supported by substantial evidence,
the Sellers to indemnify Buyer pursuant to Section 10.2(a) as a result of an
untrue representation or a breach of warranty by FVP contained in Sections 3.9
(with respect to any rearrangements or rehabilitations of cable trunk only as
specified in the penultimate sentence of Section 3.9), 3.11(g) (with respect to
payment of copyright fees only), 3.11(k), 3.11(l) (with respect to payment of
pole attachment fees only), or 3.14 or as a result of the existence of an
Encumbrance on the Assets of the FrontierVision Companies that is not a
Permitted Encumbrance, and Buyer desires to seek an adjustment to the Cash
Consideration in respect of such matter, Buyer shall promptly give notice to the
General Partner of such fact, event, circumstance or action and specify in
reasonable detail the factual basis for the claim and the amount thereof. Buyer
shall certify in such notice that the basis and amount of the claim were
determined in good faith by Buyer and such claim must be supported by
substantial evidence. An amount of Post-Closing Adjustment Funds sufficient to
reimburse Buyer for any claim made in accordance with this Section 2.9(b) and to
pay Sellers' share of any fees and expenses under Section 2.9 shall be retained
in the Post-Closing Adjustments Escrow and shall not be distributed until such
claim is finally resolved in accordance with this Section 2.9. Buyer agrees to
make available to FVP and its authorized representatives the information relied
upon by Buyer to substantiate the claim. If Buyer and FVP agree to the validity
and amount of such claim, the Cash Consideration shall be reduced by such amount
and a portion of the Post-Closing Adjustment Funds equal to such amount shall be
released and paid over to Buyer.
(c) Buyer and the General Partner shall use good faith efforts
to resolve any dispute involving the validity and amount of any claim made by
Buyer pursuant to this Section 2.9. If the
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General Partner and Buyer fail to agree on the validity and amount of any such
claim within fifteen days after the Closing (with respect to a claim made
pursuant to Section 2.9(a)) or the date the claim is made by Buyer (with respect
to a claim made pursuant to Section 2.9(b)), then the General Partner shall
retain a national independent accounting firm which is approved by Buyer to make
the final determination, under the terms of this Agreement, regarding the
validity and amount of any such claim. The selection of an accounting firm, the
resolution of a dispute submitted to an accounting firm, and responsibility for
the resulting costs and expenses with respect to any claims subject to this
Section 2.9 shall be governed by the provisions of Section 2.7(b) that govern
such matters.
(d) If the General Partner or Buyer believes any such claim is
not an appropriate matter to be determined by an accounting firm, the General
Partner or Buyer may submit the matter to binding arbitration under the
Commercial Arbitration Rules of the American Arbitration Association. Such
arbitration shall take place in Washington, D.C. unless the parties select a
different site by mutual agreement. All of the costs and expenses of arbitration
pursuant to this Section 2.9 shall be borne by Buyer, on the one hand, and
Sellers, on the other hand, as nearly as possible in the proportion to the
amount by which the determination of all matters related to such costs and
expenses varies from the positions of Buyer and the General Partner on all such
matters, unless the arbitrator finds that the position asserted by either party
is without merit, in which case such party shall bear the entire expenses of
arbitration, including reasonable attorney's fees of the other party. The
arbitration determination shall be final and binding on the parties, and a
judgment may be entered thereon in any court of competent jurisdiction.
(e) Within three business days after any matter governed by
this Section 2.9 is finally resolved (whether by agreement of the parties, by
final resolution of an accounting firm, or by final resolution by an
arbitrator), the amount of Post-Closing Section 2.9 Funds or Post-Closing
Adjustment Funds, as applicable, payable to Buyer, on the one hand, and/or
Sellers, on the other hand, shall be released and paid over to Buyer and/or
Sellers in accordance with such final resolution. To the extent there are not
sufficient monies in the Post-Closing Section 2.9 Escrow or the Post-Closing
Adjustments Escrow, as applicable, to distribute the amounts determined to be
payable to Buyer pursuant to this Section 2.9, the amount of such deficiency
will be paid to Buyer from the Post-Closing Indemnity Escrow to the extent of
any Post-Closing Indemnity Property therein within three business days of the
date of such determination. All payments to be made to Sellers or Buyer, as the
case may be, under this Section 2.9 shall be paid by wire or accounts transfer
of immediately available funds to one or more accounts designated by Sellers or
Buyer, as the case may be, by written notice to the Escrow Agent. No later than
the close of business on the first business day after it is determined in
accordance with this Section 2.9 that Buyer and/or Sellers are entitled to all
or any portion of the Post-Closing Section 2.9 Funds and/or Post-Closing
Adjustment Funds, the General Partner and Buyer will execute and deliver to the
Escrow Agent joint written instructions containing appropriate disbursement
instructions consistent with this Section 2.9 and the Post-Closing Escrow
Agreement.
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(f) All earnings attributable to each portion of the
Post-Closing Section 2.9 Funds shall be paid to the party entitled to such
portion of the Post-Closing Section 2.9 Funds in accordance with this Section
2.9 (except all earnings attributable to the portion of the Post-Closing Section
2.9 Funds, if any, used to pay the Sellers' share of any fees and expenses
payable out of the Post-Closing Section 2.9 Funds pursuant to this Section 2.9
shall be paid to the Sellers).
(g) Any amount which becomes payable pursuant to this Section
2.9 will constitute an adjustment to the Cash Consideration for all purposes.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FVP
Subject to any provisions of this Agreement limiting, qualifying or
excluding any of the representations or warranties made herein, FVP represents
and warrants to Buyer as set forth in this Article 3.
3.1 Organization and Authority of FVP.
FVP is a limited partnership duly formed, validly existing, and in good
standing under the laws of the State of Delaware. FVP has the requisite
partnership power and authority to own, lease, and operate its properties, to
carry on its business in the places where such properties are now owned, leased,
or operated and such business is now conducted, and to execute, deliver and
perform this Agreement and the other Transaction Documents to which FVP is a
party according to their respective terms.
3.2 Authorization and Binding Obligation.
The execution, delivery, and performance by FVP of this Agreement and
the other Transaction Documents to which FVP is a party have been duly
authorized by all necessary partnership action on the part of FVP. This
Agreement and the other Transaction Documents to which FVP is a party have been
duly executed and delivered by FVP (or, in the case of Transaction Documents to
be executed and delivered at Closing, when executed and delivered will be duly
executed and delivered) and constitute (or, in the case of Transaction Documents
to be executed and delivered at Closing, when executed and delivered will
constitute) the legal, valid, and binding obligation of FVP, enforceable against
FVP in accordance with their terms, except as the enforceability of this
Agreement and such other Transaction Documents may be limited by bankruptcy,
insolvency, or similar laws affecting creditors' rights generally or by judicial
discretion in the enforcement of equitable remedies, and as rights to
indemnification may be limited by federal or state securities laws or the public
policies embodied therein.
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3.3 Organization and Ownership of FrontierVision Companies.
(a) Section 3.3 of FrontierVision's Disclosure Schedule sets
forth the name of each FrontierVision Company, including the jurisdiction of
incorporation or formation of each, as the case may be. Each FrontierVision
Company that is a corporation is a corporation duly incorporated, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each FrontierVision Company that is a limited partnership is a
limited partnership duly formed, validly existing, and in good standing under
the laws of the jurisdiction of its formation. Each FrontierVision Company that
is a limited liability company is a limited liability company duly formed,
validly existing, and in good standing under the laws of the jurisdiction of its
formation. Each FrontierVision Company is duly qualified and in good standing as
a foreign corporation, limited partnership, or limited liability company, as the
case may be, in each jurisdiction listed in Section 3.3 of FrontierVision's
Disclosure Schedule, which are all jurisdictions in which such qualification is
required, except where such failure to be so qualified would not have a material
adverse effect on the conduct of such FrontierVision Company's business. Except
as disclosed in Section 3.3 of FrontierVision's Disclosure Schedule, no
FrontierVision Company, directly or indirectly, owns, of record or beneficially,
any outstanding securities or other interest in any Person (each such Person, an
"Investment Person") or has the right or obligation to acquire, any outstanding
securities or other interest in any Person. The FrontierVision Company that owns
the Capital Stock of each such Investment Person owns such Capital Stock free
and clear of all Encumbrances.
(b) Section 3.3 of FrontierVision's Disclosure Schedule sets
forth the authorized, issued and outstanding Capital Stock of FVP and each other
FrontierVision Company and the record and beneficial owner of the issued and
outstanding Capital Stock of each of them. All of such issued and outstanding
Capital Stock of the FrontierVision Companies has been duly authorized, validly
issued, and has not been issued in violation of any federal or state securities
laws. Except as set forth in Section 3.3 of FrontierVision's Disclosure
Schedule, the owner of the Capital Stock of each FrontierVision Company owns
such Capital Stock free and clear of all Encumbrances (except that no
representation is made in this Article 3 as to any partnership interests in FVP
held by any Seller or any SPC or as to any Capital Stock of any SPC held by any
SPC Seller). Except as disclosed in Section 3.3 of FrontierVision's Disclosure
Schedule, there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which any
FrontierVision Company is a party or by which any of them is bound obligating
such FrontierVision Company to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional Capital Stock of such FrontierVision Company
or obligating such FrontierVision Company to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. FVP has delivered to Buyer complete and correct
copies of the Charter Documents of each FrontierVision Company as in effect on
the date hereof. Section 3.3 of FrontierVision's Disclosure Schedule describes
the Capital Stock or other investment interests held and beneficially owned by
the FrontierVision Companies with respect to the Investment Persons.
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3.4 Absence of Conflicting Agreements; Consents.
Except for the expiration or termination of any applicable waiting
period under the HSR Act, the filing by FVP, any other FrontierVision Company,
and/or the Sellers with the SEC of any reports required to be filed in
connection with the consummation of the transactions contemplated hereby, or as
set forth in Section 3.4 of FrontierVision's Disclosure Schedule, the execution,
delivery and performance by FVP of this Agreement and the other Transaction
Documents to which FVP is a party (with or without the giving of notice, the
lapse of time, or both): (A) do not require the Consent of, notice to, or filing
with any Governmental Authority or any other Person under any Franchise, FCC
License or Material Contract; (B) will not conflict with any provision of the
Charter Documents of FVP or any other FrontierVision Company, each as currently
in effect; (C) assuming receipt of all Consents, will not conflict with, result
in a breach of, or constitute a default under any Legal Requirement to which FVP
or any of the other FrontierVision Companies is bound; (D) assuming receipt of
all Consents, will not conflict with, constitute grounds for termination of,
result in a breach of, constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of any Franchise, FCC
License, or Material Contract; and (E) will not result in the creation of any
Encumbrance upon the Assets. Notwithstanding the foregoing, FVP does not make
any representation or warranty regarding any of the foregoing that may result
from the specific legal or regulatory status of Buyer or as a result of any
other facts that specifically relate to the business or activities in which
Buyer is or proposes to be engaged other than the cable television business.
3.5 Financial Statements.
(a) FVP has furnished Buyer with true and complete copies of
the audited financial statements listed in Section 3.5 of FrontierVision's
Disclosure Schedule (collectively, the "Audited Financial Statements") and of
the unaudited financial statements listed in Section 3.5 of FrontierVision's
Disclosure Schedule (collectively, the "Unaudited Financial Statements," and
collectively with the Audited Financial Statements, the "Financial Statements"),
and such Financial Statements are by this reference incorporated into and deemed
a part of FrontierVision's Disclosure Schedule.
(b) Except as disclosed in Section 3.5 of FrontierVision's
Disclosure Schedule and except, in the case of the Unaudited Financial
Statements, for the omission of footnotes and changes resulting from customary
and recurring year-end adjustments, the Financial Statements: (1) have been
prepared from the books and records of the FrontierVision Companies to which
they relate, with no material difference between such Financial Statements and
the financial records maintained, and the accounting methods applied, by the
FrontierVision Companies for tax purposes; (2) have been prepared in accordance
with GAAP consistently applied and maintained throughout the periods indicated
(except as indicated in the notes thereto); and (3) present fairly in all
material respects the financial condition of the FrontierVision Companies to
which they relate as at their respective dates and the results of operations for
the periods then ended.
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3.6 Absence of Undisclosed Liabilities.
None of the FrontierVision Companies has any indebtedness, liability,
or obligation except for: (a) indebtedness, liabilities and obligations that are
reflected or reserved against in the latest balance sheet of such FrontierVision
Company included in the Financial Statements; (b) indebtedness, liabilities and
obligations under the Debt Documents, Contracts, Franchises, Licenses, or
Employee Plans; (c) indebtedness, liabilities and obligations that were incurred
after the date of the latest balance sheet of such FrontierVision Company
included in the Financial Statements either in the ordinary course of business
or in compliance with the covenants of FVP set forth in Section 6.1 or that (to
the extent not discharged prior to the Closing) will be included as Adjustment
Liabilities in the computation of Closing Net Liabilities (none of which
indebtedness, liabilities or obligations results from a claim or lawsuit
relating to a breach of contract, breach of warranty, tort or infringement that,
if adversely determined, would have a material adverse effect on the business,
financial condition, assets or liabilities of the FrontierVision Companies,
taken as a whole; and (d) contingent asserted and unasserted liabilities and
obligations set forth in Section 3.6 of FrontierVision's Disclosure Schedule.
3.7 Absence of Certain Changes.
(a) Since December 31, 1997, except as disclosed in the
Quarterly Reports on Form 10-Q of FrontierVision Operating Partners, L.P. for
any of the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998,
or as disclosed in the Quarterly Reports on Form 10-Q of FrontierVision
Holdings, L.P. for any of the quarters ended March 31, 1998, June 30, 1998 and
September 30, 1998, or as disclosed in any public document filed by
FrontierVision Operating Partners, L.P. or FrontierVision Holdings, L.P. with
the SEC after September 30, 1998, or as disclosed in Section 3.7 of
FrontierVision's Disclosure Schedule and except for matters occurring after the
date hereof that are permitted by the provisions of this Agreement or consented
to by Buyer, no FrontierVision Company has: (1) made any sale, assignment,
lease, or other transfer of assets other than in the ordinary course of business
with suitable replacements being obtained therefor (unless such assets were
obsolete); or (2) issued any note, bond, or other debt security or created,
incurred, assumed, or guaranteed any indebtedness for borrowed money other than
pursuant to the Debt Documents listed in Section 1.1 of FrontierVision's
Disclosure Schedule.
(b) Since December 31, 1998, except as disclosed in Section
3.7 of FrontierVision's Disclosure Schedule and except for matters occurring
after the date of this Agreement that are permitted by the provisions of this
Agreement or consented to by Buyer, no FrontierVision Company has made or
promised any material increase in compensation payable or to become payable to
any of the employees (including executive officers) of any FrontierVision
Company other than in the ordinary course of business or as contemplated under
any employment arrangement currently in effect.
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3.8 Franchises, Licenses, Material Contracts.
Section 3.8 of FrontierVision's Disclosure Schedule contains a list of
the Franchises (including the Franchising Authority which granted each Franchise
and the stated expiration date of each Franchise), FCC Licenses and Material
Contracts in effect on the date hereof, which list is true, correct and complete
in all material respects. Without material exception and subject to the last
sentence of this Section 3.8, the Franchises and the Licenses constitute all of
the authorizations of Governmental Authorities necessary or required for the
construction, maintenance and operations of the Systems as currently conducted.
FVP has delivered to Buyer true and complete copies of all Franchises, FCC
Licenses and Material Contracts as in effect on the date hereof. Subject to the
last sentence of this Section 3.8, the Franchises, FCC Licenses and Material
Contracts are in full force and effect (subject to expiration at the end of
their current term) and are valid, binding and enforceable upon the
FrontierVision Company that is a party thereto and, to FVP's knowledge, the
other parties thereto in accordance with their terms, except to the extent such
enforceability may be affected by bankruptcy, insolvency, or similar laws
affecting creditors' rights generally and by judicial discretion in the
enforcement of equitable remedies. Except as disclosed in Section 3.8 of
FrontierVision's Disclosure Schedule, the FrontierVision Companies are in
material compliance with the terms of the Franchises, Licenses and Material
Contracts, and as of the date of this Agreement none of the FrontierVision
Companies has received any written notice (or to FVP's knowledge after due
inquiry of the regional managers of the Systems, oral notice) from a Franchising
Authority to the effect that any of the FrontierVision Companies are not
currently in material compliance with the terms of the Franchise granted by such
Franchising Authority. Except as set forth in Section 3.4 or 3.8 of
FrontierVision's Disclosure Schedule, none of the Franchises grants to any
Franchising Authority or any other Person any right of first refusal or right to
purchase the assets of any System that would be triggered by the consummation of
the purchase and sale of the Purchased Interests. Except as set forth in Section
3.8 of FrontierVision's Disclosure Schedule, a valid request for renewal has
been timely filed under Section 626(a) of the Cable Act with the proper
Franchising Authority with respect to each Franchise in respect of which the
statutory time period for making such filing has expired. Subject to the
provisions of Sections 6.1 and 6.4, FVP shall not have any obligation to renew
or extend any Franchises, Licenses or Material Contracts as a condition to
Buyer's obligations under this Agreement.
3.9 Title to and Condition of Real Property and Tangible Personal
Property.
Section 3.9 of FrontierVision's Disclosure Schedule lists all Real
Property parcels owned in fee by any of the FrontierVision Companies as of the
date of this Agreement (excluding easements, rights-of-way, and similar
authorizations) and describes the current use thereof. Except as disclosed in
Section 3.9 of FrontierVision's Disclosure Schedule, a copy of each deed
pursuant to which any of the FrontierVision Companies acquired a fee estate in a
Real Property parcel that is currently owned by it (including any title
insurance policies issued to such FrontierVision Company that are related to
such parcels) have been delivered to Buyer by FVP. Section 3.9 of
FrontierVision's Disclosure Schedule lists the Real Property leased by any of
the FrontierVision Companies as of the date of this Agreement and
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describes the current use thereof and indicates the stated expiration date of
the current term of such leases. Except as disclosed in Section 3.9 of
FrontierVision's Disclosure Schedule: (a) the FrontierVision Company that owns a
fee estate in a Real Property parcel has good and marketable title thereto; (b)
the FrontierVision Company that owns any material item of Tangible Personal
Property has good and valid title thereto; (c) the FrontierVision Company that
leases Real Property pursuant to any of the Material Leases has a valid
leasehold interest therein (subject to expiration of such Material Lease in
accordance with its terms); and (d) the FrontierVision Company that leases any
material item of Tangible Personal Property has a valid leasehold interest
therein (subject to expiration of such lease in accordance with its terms), in
each case of (a), (b), (c) and (d) above, free and clear of all Encumbrances
other than Permitted Encumbrances. The FrontierVision Companies own, lease or
otherwise have rights to use all real property (excluding easements,
rights-of-way and similar authorizations) and tangible personal property
necessary to operate the Systems as presently conducted by the FrontierVision
Companies in all material respects. Notwithstanding the express language of this
Section 3.9 or as may otherwise be provided in this Agreement, no representation
or warranty is being made as to title to the internal wiring, house drops, and
unrecorded dwelling-unit easements, rights of entry or rights-of-way held or
used by the FrontierVision Companies. Except for such rearrangements or
rehabilitations of a System's cable trunk as may be necessary in the ordinary
course of business for that System taken as a whole, the FrontierVision
Companies have no obligation to rearrange or rehabilitate any of such cable
trunk. Buyer acknowledges that, except as expressly warranted in this Section
3.9 and Sections 3.14, 3.15 and 3.16, all Real Property, all improvements
thereon, and all other Tangible Personal Property are being sold or assigned "as
is-where is" and Buyer shall not be entitled to make any claim against FVP or
Sellers arising out of or relating to the condition thereof.
3.10 Intangibles.
Section 3.10 of FrontierVision's Disclosure Schedule contains a
description of the material Intangibles (exclusive of those required to be
listed in Section 3.8 of FrontierVision's Disclosure Schedule), that are owned
or leased by any of the FrontierVision Companies and that are necessary for the
conduct of the business or operations of the Systems. To FVP's knowledge, except
as to potential copyright liability arising from the performance, exhibition or
carriage of any music on the Systems or as disclosed in Section 3.10 of
FrontierVision's Disclosure Schedule, it is not infringing upon any trademarks,
trade names, copyrights or similar intellectual property rights of others.
3.11 Information Regarding the Systems.
(a) Subscribers. Section 3.11 of FrontierVision's Disclosure
Schedule sets forth the approximate number of Equivalent Subscribers as of the
date indicated therein (including the approximate number of Equivalent
Subscribers served in each Franchise Area and served by each headend, in each
case as of the date indicated therein).
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(b) Operating Revenue. Section 3.11 of FrontierVision's
Disclosure Schedule sets forth the approximate "Operating Revenue" of the
Systems on a consolidated basis as of the date indicated therein, as "Operating
Revenue" is defined therein.
(c) Certain Systems Information. Section 3.11 of
FrontierVision's Disclosure Schedule sets forth the approximate number of plant
miles for each System, the approximate bandwidth capability of each System, the
channel lineup for each System, and the monthly rates charged for each class of
service offered by each System, which information is true and correct in all
material respects, in each case as of the applicable dates specified therein and
subject to any qualifications set forth therein.
(d) Franchise and FCC Matters. All material reports required
to be filed by any of the FrontierVision Companies with any of the Franchising
Authorities or the FCC have been duly filed and were materially correct when
filed. The FrontierVision Companies are permitted under all applicable
Franchises and FCC Regulations to distribute the television broadcast signals
distributed by the Systems (except for any inadvertent failure by the Systems to
comply with the FCC's nonduplication and syndex rules) and to utilize all
carrier frequencies generated by the operations of the Systems, and are licensed
in all material respects to operate all the facilities required by Legal
Requirements to be licensed (except where the failure to be so authorized or
licensed would not materially impair the operation of the Systems as presently
conducted).
(e) Request for Signal Carriage. Except for nonduplication and
blackout notices received in the ordinary course of business, none of the
FrontierVision Companies has received any FCC order requiring any System to
carry a television broadcast signal or to terminate carriage of a television
broadcast signal with which it has not complied, and to FVP's knowledge, except
as disclosed in Section 3.11 of FrontierVision's Disclosure Schedule, the
FrontierVision Companies have complied with all written and bona fide requests
or demands received from television broadcast stations to carry or to terminate
carriage of a television broadcast signal on a System.
(f) Rate Regulatory Matters. Section 3.11 of FrontierVision's
Disclosure Schedule sets forth a list of all Governmental Authorities that are
certified to regulate rates of the Systems pursuant to the Cable Act and FCC
Regulations as of the date of this Agreement and all Franchise Areas in which a
complaint regarding rates has been filed with the FCC as of November 12, 1998
(other than those that have been rejected by the FCC or have been withdrawn). As
of the date of this Agreement, none of the FrontierVision Companies has received
any written notice from any Governmental Authority that it has any obligation or
liability to refund to subscribers of the Systems any portion of the revenue
received by such FrontierVision Company from subscribers of the Systems
(excluding with respect to deposits for converters, encoders, decoders and
related equipment and other prepaid items). Buyer acknowledges that, except as
expressly warranted in this Section 3.11(f), FVP is not making any
representation or warranty regarding any Rate Regulatory Matter and, except as
expressly provided in
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Section 10.2(c), Buyer shall not be entitled to make any claim against FVP or
Sellers arising out of or relating to any Rate Regulatory Matter.
(g) Copyright. To the extent necessary to operate the Systems,
the FrontierVision Companies are entitled to hold and do hold the compulsory
copyright license described in Section 111 of the Copyright Act, which
compulsory copyright license is in full force and effect and has not been
revoked, canceled, encumbered or adversely affected in any material respect
except relating to any immaterial disputes which may arise after the date hereof
with respect to copyright fees payable with respect to the operation by the
FrontierVision Companies of the Systems. The FrontierVision Companies have paid
all material copyright fees that are due and payable with respect to the
operation by the FrontierVision Companies of the Systems (or have accrued a
liability with respect thereto which will be included as an Adjustment Liability
in the computation of Closing Net Liabilities) and have set aside an adequate
reserve on their books for the payment of all copyright fees that are required
to be accrued but are not yet due and payable.
(h) Insurance. The Systems and Assets are insured against
claims, loss or damage in amounts generally customary in the cable television
industry and consistent with the FrontierVision Companies' past practices.
(i) Purchase and Sale Agreements. Section 3.11 of
FrontierVision's Disclosure Schedule lists all definitive purchase and sale
agreements pursuant to which the Systems were acquired. A copy of each such
agreement has been delivered to Buyer. The FrontierVision Companies have not
collected any payment as of the date of this Agreement from any "seller" under
any of such purchase and sale agreements in respect of any indemnification claim
made against any such "seller" by the FrontierVision Companies for a breach of
any representation or warranty by any such "seller" regarding the condition of
any of the Systems acquired from any such "seller." Except as disclosed in
Section 3.11 of FrontierVision's Disclosure Schedule, no FrontierVision Company
is bound by any contractual noncompete or similar restrictive covenant. The
FrontierVision Companies have paid all amounts that are due and payable under
the purchase and sale agreements referred to above (or have accrued a liability
with respect thereto which will be included as an Adjustment Liability in the
computation of Closing Net Liabilities).
(j) Overbuilds. To FVP's knowledge, as of the date of this
Agreement, except as disclosed in Section 3.11 of FrontierVision's Disclosure
Schedule, the Systems are the only cable television systems presently servicing
the Franchise Areas (other than any cable television system owned, operated or
managed by Buyer or any Subsidiary or Affiliate of Buyer).
(k) Franchise Fees. The FrontierVision Companies have paid all
franchise fees that are due and payable with respect to the operation by the
FrontierVision Companies of the Systems (or have accrued a liability with
respect thereto which will be included as an Adjustment Liability in the
computation of Closing Net Liabilities).
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(l) Pole Attachments. The FrontierVision Companies have paid
all pole attachment fees that are due and payable with respect to the operation
by the FrontierVision Companies of the Systems (or have accrued a liability with
respect thereto which will be included as an Adjustment Liability in the
computation of Closing Net Liabilities). As of the date of this Agreement,
except as disclosed in Section 3.11 of FrontierVision's Disclosure Schedule, no
pole attachment audits are pending and the FrontierVision Companies have not
received written notice of any pending pole attachment audit.
3.12 Taxes.
The FrontierVision Companies have filed or caused to be filed all
required federal Tax Returns and all other material required Tax Returns with
the appropriate Governmental Authorities in all jurisdictions in which such Tax
Returns are required to be filed by the FrontierVision Companies (except Tax
Returns for which the filing date has been extended and such extension period
has not expired), and all Taxes shown on such Tax Returns have been properly
accrued or paid to the extent such Taxes have become due and payable. FVP has
delivered to Buyer true, correct and complete copies of the Tax Returns (in the
form filed) listed in Section 3.12 of FrontierVision's Disclosure Schedule. The
Financial Statements reflect an adequate reserve for all material unpaid Taxes
payable by the FrontierVision Companies for all Tax periods and portions thereof
through the date of such Financial Statements. Any unpaid Taxes of the
FrontierVision Companies for all periods ending prior to the Closing Date and
not reflected on such Financial Statements will be included as an Adjustment
Liability in the computation of Closing Net Liabilities. Except as disclosed in
Section 3.12 of FrontierVision's Disclosure Schedule, none of the FrontierVision
Companies has executed any waiver or extensions of any statute of limitations on
the assessment or collection of any Tax or with respect to any liability arising
therefrom. Except as disclosed in Section 3.12 of FrontierVision's Disclosure
Schedule, none of the federal, state or local income Tax Returns filed by the
FrontierVision Companies has been audited by any taxing authority. Except as set
forth in Section 3.12 of FrontierVision's Disclosure Schedule, there are no Tax
audits pending and no outstanding agreements or waiver extending the statutory
period of limitations applicable to any federal, state or local Tax Return of
any of the FrontierVision Companies for any period.
3.13 Employee Plans.
(a) Employee Plans. Section 3.13 of FrontierVision's
Disclosure Schedule contains a list of all Employee Plans (true and correct
copies of which have been delivered to Buyer). None of the FrontierVision
Companies or any of their ERISA Affiliates is or has been required to contribute
to any "multiemployer plan," as defined in ERISA Section 3(37), nor has any
FrontierVision Company or any such ERISA Affiliate (or any former ERISA
Affiliate with respect to the period in which such entity was an ERISA
Affiliate) experienced a complete or partial withdrawal, within the meaning of
ERISA Section 4203 or 4205, from such a "multiemployer plan." Except as required
under Code
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Section 4980B or ERISA Sections 601-609, no Employee Plan provides health or
medical coverage to former employees of the FrontierVision Companies. As of the
Adjustment Time the FrontierVision Companies will have accrued in accordance
with GAAP a liability for all health benefit claims filed as of such time and
all claims incurred but not reported as of such time.
(b) Qualified Plans. Except as disclosed in Section 3.13 of
FrontierVision's Disclosure Schedule, with respect to each Employee Plan, and
after taking into consideration the effect of the payments to be made with
respect to the Employee Plans: (1) each such Employee Plan that is intended to
be tax-qualified is the subject of a favorable determination letter except as
described in Section 3.13 of FrontierVision's Disclosure Schedule; (2) no
material liability to the Pension Benefit Guaranty Corporation is expected by
FVP to be incurred by the FrontierVision Companies or any of their ERISA
Affiliates (or any former ERISA Affiliate with respect to the period in which
such entity was an ERISA Affiliate) with respect to any Employee Plan; (3) no
non-exempt prohibited transaction, within the definition of Section 4975 of the
Code or Title 1, Part 4 of ERISA, has occurred which would subject the
FrontierVision Companies or any of their ERISA Affiliates (or any former ERISA
Affiliate with respect to the period in which such entity was an ERISA
Affiliate) to any material liability; (4) there is no accumulated funding
deficiency, termination or partial termination, or requirement to provide
security with respect to any Employee Plan; (5) the fair market value of the
assets of any Employee Plan would exceed the value of all liabilities and
obligations of such Employee Plan if such plan were to terminate on the Closing
Date; and (6) the transactions contemplated by this Agreement will not result in
liability under ERISA to FVP or the FrontierVision Companies or Buyer, or any of
their respective ERISA Affiliates.
(c) Labor Unions. As of the date of this Agreement, other than
as disclosed in Section 3.13 of FrontierVision's Disclosure Schedule, none of
the FrontierVision Companies is party to or bound by any collective bargaining
agreement. As of the date of this Agreement, other than as disclosed in Section
3.13 of FrontierVision's Disclosure Schedule, to the knowledge of FVP, (1) none
of the employees of the FrontierVision Companies is presently a member of any
collective bargaining unit related to his or her employment and (2) no
collective bargaining unit has filed a petition for representation of any of the
employees of the FrontierVision Companies.
3.14 Environmental Laws.
Except as disclosed in Section 3.14 of FrontierVision's Disclosure
Schedule: (a) the FrontierVision Companies' operations with respect to the
Systems comply in all material respects with all applicable Environmental Laws
as in effect on the date of this Agreement; (b) none of the FrontierVision
Companies has used the Real Property for the manufacture, transportation,
treatment, storage or disposal of Hazardous Substances except for gasoline and
diesel fuel and such use of Hazardous Substances (in cleaning fluids, solvents
and other similar substances) customary in the construction, maintenance and
operation of a cable television system and in amounts or under circumstances
that would not reasonably be expected to give rise to material liability for
remediation;
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and (c) to FVP's knowledge, the Real Property complies and has complied in all
material respects with all applicable Environmental Laws. Except as disclosed in
Section 3.14 of FrontierVision's Disclosure Schedule, as of the date of this
Agreement, no Environmental Claim has been filed or issued against the
FrontierVision Companies.
3.15 Claims and Litigation.
Except as disclosed in Section 3.15 of FrontierVision's Disclosure
Schedule, as of the date of this Agreement, there is no claim, legal action,
arbitration or other legal, administrative or tax proceeding, nor any order,
decree or judgment, in progress or pending, or to FVP's knowledge threatened in
writing, against or relating to the FrontierVision Companies, the Assets or the
business or operations of any of the Systems (other than FCC and other
proceedings generally affecting the cable television industry and not specific
to the FrontierVision Companies and other than rate complaints or certifications
filed by customers or Franchising Authorities) that would have a material
adverse effect on FVP's ability to perform its obligations under this Agreement
or that would have a material adverse effect on the business, financial
condition, assets or liabilities of any of the FrontierVision Companies.
3.16 Compliance With Laws.
Except as disclosed in Section 3.16 of FrontierVision's Disclosure
Schedule and except for any such noncompliance as has been remedied, each of the
FrontierVision Companies has complied in all material respects with, and the
Systems and the Assets are in compliance in all material respects with, all
applicable Legal Requirements (including, without limitation, the Code, ERISA,
the National Labor Relations Act, the Cable Act, FCC Regulations, and the
Copyright Act). Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, and without limiting the provisions of Section 6.14,
FVP does not make any representation or warranty with respect to compliance with
any Legal Requirements dealing with, limiting or affecting the rates which can
be charged by cable television systems to their customers (whether for
programming, equipment, installation, service or otherwise) or any other Rate
Regulatory Matter.
3.17 Transactions with Affiliates.
Except as disclosed in the Financial Statements or Section 3.17 of
FrontierVision's Disclosure Schedule, none of the FrontierVision Companies has
been involved in any business arrangement or business relationship with any
Affiliate of any of the FrontierVision Companies (other than another
FrontierVision Company), and no Affiliate of any of the FrontierVision Companies
(other than another FrontierVision Company) owns any property or right, tangible
or intangible, that is used in the business of the FrontierVision Companies
(other than in its capacity as a direct or indirect equity or debt holder of the
FrontierVision Companies).
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3.18 Broker.
Neither FVP nor any of the other FrontierVision Companies or any Person
acting on their behalf has incurred any liability for any finders' or brokers'
fees or commissions in connection with the transactions contemplated by this
Agreement except as described in Section 11.1 or disclosed in Section 3.18 of
FrontierVision's Disclosure Schedule.
3.19 Securities Law Matters.
(a) FVP represents that it is an "accredited investor" as that
term is defined in Regulation D under the Securities Act and that it has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of acquisition of the Escrow Registrable
Securities and of making an informed investment decision with respect thereto,
and understands all risks of holding the Escrow Registrable Securities for an
indefinite period of time.
(b) FVP acknowledges receipt of copies of Buyer's 10-K and
Buyer's 10-Q.
(c) FVP is aware that the Escrow Registrable Securities are
not currently registered under the Securities Act or under any state securities
laws.
(d) FVP agrees that it will not transfer the Escrow
Registrable Securities without compliance with the registration and other
provisions of all applicable securities laws and acknowledges that each
certificate representing the Escrow Registrable Securities which it receives
will be marked with an appropriate legend to such effect (which legend will be
removed in accordance with the provisions of the Deposit Registration Rights
Agreement).
(e) FVP is purchasing the Escrow Registrable Securities solely
for investment purposes, with no present intention to sell the Escrow
Registrable Securities (other than pursuant to an effective registration
statement).
(f) FVP understands that it must bear the economic risk of the
investment represented by the purchase of the Escrow Registrable Securities for
an indefinite period.
(g) FVP agrees not to offer, sell, or otherwise dispose of the
shares of the Escrow Registrable Securities at any time prior to the second
anniversary of the date FVP acquires the Escrow Registrable Securities, unless
such offer, sale, or other disposition is (1) registered under the Securities
Act, or (2) in compliance with an opinion of counsel of FVP, delivered to Buyer
and reasonably acceptable to it, to the effect that such offer, sale, or other
disposition thereof does not violate the Securities Act.
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(h) FVP acknowledges that the certificate(s) representing the
Escrow Registrable Securities delivered hereunder shall bear the following
legend (which legend will be removed in accordance with the provisions of the
Deposit Registration Rights Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED
FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE SECURITIES BE
TRANSFERRED ON THE BOOKS OF THE CORPORATION, WITHOUT
REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE FEDERAL
OR STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE
EXEMPTION THEREFROM.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A REGISTRATION RIGHTS
AGREEMENT, A COPY OF WHICH MAY BE OBTAINED FROM THE
CORPORATION.
3.20 Cure.
For all purposes under this Agreement, the existence or occurrence of
any events or circumstances which constitute or cause a breach of a
representation or warranty of FVP (including without limitation FrontierVision's
Disclosure Schedule) on the date such representation or warranty is made shall
be deemed not to constitute a breach of such representation or warranty if such
event or circumstance is cured on or prior to the Closing Date or the earlier
termination of this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS
Subject to any provisions of this Agreement limiting, qualifying or
excluding any of the representations or warranties made herein, each Seller
severally represents and warrants to Buyer (with respect to such Seller and not
with respect to any other Seller) as set forth in this Article 4.
4.1 Authority of Sellers; Authorization and Binding Obligation.
Such Seller has the requisite corporate, partnership, limited liability
company or other applicable power, authority and legal capacity to execute,
deliver and perform this Agreement and the other Transaction Documents to which
such Seller is a party according to their respective terms. The execution,
delivery, and performance by such Seller of this Agreement and the other
Transaction Documents to which such Seller is a party have been duly authorized
by all necessary action on the part
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of such Seller. This Agreement and the other Transaction Documents to which such
Seller is a party have been duly executed and delivered by such Seller (or, in
the case of Transaction Documents to be executed and delivered at Closing, when
executed and delivered will be duly executed and delivered) and constitute (or,
in the case of Transaction Documents to be executed and delivered at Closing,
when executed and delivered will constitute) the legal, valid, and binding
obligation of such Seller, enforceable against such Seller in accordance with
their terms, except as the enforceability of this Agreement and such other
Transaction Documents may be limited by bankruptcy, insolvency, or similar laws
affecting creditors' rights generally or by judicial discretion in the
enforcement of equitable remedies, and as rights to indemnification may be
limited by federal or state securities laws or the public policies embodied
therein.
4.2 Absence of Conflicting Agreements; Consents.
Except for the expiration or termination of any applicable waiting
period under the HSR Act, the filing by FVP, any other FrontierVision Company
and/or the Sellers with the SEC of any reports required to be filed in
connection with the consummation of the transactions contemplated hereby, or as
set forth in Section 4.2 of FrontierVision's Disclosure Schedule, the execution,
delivery and performance by such Seller of this Agreement and the other
Transaction Documents to which such Seller is a party (with or without the
giving of notice, the lapse of time, or both): (A) do not require the Consent
of, notice to, or filing with any Governmental Authority or any other Person
that has not been obtained; (B) will not conflict with any provision of the
Charter Documents of such Seller (and, in the case of the SPC Sellers, the
Charter Documents of the SPC owned by such Seller) as currently in effect; (C)
assuming receipt of all Consents, will not conflict with, result in a breach of,
or constitute a default under any Legal Requirement to which such Seller (and,
in the case of the SPC Sellers, to which the SPC owned by such Seller) is bound;
(D) assuming receipt of all Consents, will not conflict with, constitute grounds
for termination of, result in a breach of, constitute a default under, or
accelerate or permit the acceleration of any performance required by the terms
of any material agreement or instrument to which such Seller (and, in the case
of the SPC Sellers, to which the SPC owned by such Seller) is bound; and (E)
will not result in the creation of any Encumbrance upon the Purchased Interests
held by such Seller (and, in the case of the SPC Sellers, upon the limited
partnership interest in FVP held by the SPC owned by such Seller).
Notwithstanding the foregoing, no Seller makes any representation or warranty
regarding any of the foregoing that may result from the specific legal or
regulatory status of Buyer or as a result of any other facts that specifically
relate to the business or activities in which Buyer is or proposes to be engaged
other than the cable television business.
4.3 Title to Purchased Interests.
(a) The General Partner represents that it holds of record and
owns beneficially the General Partnership Interest and the Subordinated Notes
set forth by its name in Section 4.3 of FrontierVision's Disclosure Schedule,
free and clear of all Encumbrances.
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(b) Each Limited Partner Seller represents that it holds of
record and owns beneficially the Limited Partnership Interest and the
Subordinated Notes set forth by its name in Section 4.3 of FrontierVision's
Disclosure Schedule, free and clear of all Encumbrances.
(c) Each SPC Seller represents that it holds of record and
owns beneficially the Subordinated Notes listed next to its name in Section 4.3
of FrontierVision's Disclosure Schedule and that the SPC listed next to its name
in Section 4.3 of FrontierVision's Disclosure Schedule holds of record and owns
beneficially the limited partnership interest in FVP and the Subordinated Notes
set forth by such SPC's name in Section 4.3 of FrontierVision's Disclosure
Schedule, free and clear of all Encumbrances. Each SPC Seller represents that it
holds of record and owns beneficially 100% of the issued and outstanding Capital
Stock of the SPC listed next to such SPC Seller's name in Section 4.3 of
FrontierVision's Disclosure Schedule, free and clear of all Encumbrances. All of
the issued and outstanding Capital Stock of the SPC owned by such SPC Seller has
been duly authorized, validly issued, fully paid and nonassessable, and has not
been issued in violation of any federal or state securities laws. Each SPC
Seller represents that the SPC owned by such SPC Seller has not and does not own
any assets or other properties (other than the respective limited partnership
interests in FVP and the Subordinated Notes held by such SPC, and, in the case
of 1818 II Cable Corp. and Olympus Cable Corp., the respective limited
partnership interests in the General Partner held by such SPC, which interests
in the General Partner shall be distributed, directly or indirectly, to the SPC
Seller which owns such SPC immediately prior to the Closing) or conduct any
business or have any indebtedness, liabilities or obligations other than rights,
obligations, and liabilities arising under this Agreement and the partnership
agreement of FVP, the SPC Notes (which SPC Notes shall be canceled by the SPC
Seller that holds such SPC Note concurrently with the Closing) or as disclosed
in Section 4.3 of FrontierVision's Disclosure Schedule.
(d) Except as disclosed in Section 4.3 of FrontierVision's
Disclosure Schedule and except for this Agreement and rights granted under the
partnership agreement of FVP, such Seller (and, in the case of the SPC Sellers,
the SPC owned by such Seller) (1) is not party to, and has not granted to any
other Person, any options, warrants, subscription rights, rights of first
refusal or any other rights providing for the acquisition or disposition of
partnership interests or other equity interests in the FVP (and, in the case of
the SPC Sellers, in the SPC owned by such Seller), and (2) is not a party to any
voting agreement, voting trust, proxy or other agreement or understanding with
respect to the voting of any of the Purchased Interests or the Capital Stock of
any of the FrontierVision Companies.
4.4 Broker.
Neither such Seller nor any Person acting on its behalf has incurred
any liability for any finders' or brokers' fees or commissions in connection
with the transactions contemplated by this Agreement except as described in
Section 11.1.
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4.5 Taxes.
There are no Tax audits pending and no outstanding agreements or waiver
extending the statutory period of limitations applicable to any federal, state,
or local Tax Return of the SPC the capital stock of which is owned by such SPC
Seller for any period.
4.6 Securities Law Matters.
(a) Each such Seller who is an "Accredited Investor"
represents that the information provided in such Seller's "Accredited Investor
Questionnaire" delivered herewith is true, correct and complete.
(b) Such Seller, either individually or together with his
representatives and advisors, has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
acquisition of the Stock Consideration Registrable Securities and of making an
informed investment decision with respect thereto, and understands all risks of
holding the Stock Consideration Registrable Securities for an indefinite period
of time.
(c) Such Seller acknowledges receipt of copies of Buyer's 10-K
and Buyer's 10-Q.
(d) Such Seller has carefully considered and has, to the
extent such Seller believes such discussion necessary discussed with such
Seller's professional legal, tax, accounting and financial advisors the
suitability of an investment in the Stock Consideration Registrable Securities
for such Seller's particular tax and financial situation and has determined that
the Stock Consideration Registrable Securities is a suitable investment for such
Seller.
(e) Such Seller agrees that it will not transfer the Stock
Consideration Registrable Securities without compliance with the registration
and other provisions of all applicable securities laws.
(f) Such Seller is purchasing the Stock Consideration
Registrable Securities solely for investment purposes, with no present intention
to sell the Stock Consideration Registrable Securities (other than pursuant to
an effective registration statement).
(g) Such Seller understands that it must bear the economic
risk of the investment represented by the purchase of the Stock Consideration
Registrable Securities for an indefinite period.
(h) Such Seller agrees not to offer, sell, or otherwise
dispose of the shares of the Stock Consideration Registrable Securities at any
time prior to the second anniversary of the date such Seller acquires the Stock
Consideration Registrable Securities, unless such offer, sale, or other
disposition is (1) registered under the Securities Act, or (2) in compliance
with an opinion of counsel
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of the Seller, delivered to Buyer and reasonably acceptable to it, to the effect
that such offer, sale, or other disposition thereof does not violate the
Securities Act.
(i) Such Seller acknowledges that the certificate(s)
representing the Stock Consideration Registrable Securities delivered hereunder
shall be issued to such Seller with the following legend (which legend will be
removed in accordance with the provisions of the Stock Consideration
Registration Rights Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED
FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE SECURITIES BE
TRANSFERRED ON THE BOOKS OF THE CORPORATION, WITHOUT
REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE FEDERAL
OR STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE
EXEMPTION THEREFROM.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A REGISTRATION RIGHTS
AGREEMENT, A COPY OF WHICH MAY BE OBTAINED FROM THE
CORPORATION.
4.7 Cure.
For all purposes under this Agreement, the existence or occurrence of
any events or circumstances which constitute or cause a breach of a
representation or warranty of such Seller (including without limitation
FrontierVision's Disclosure Schedule) on the date such representation or
warranty is made shall be deemed not to constitute a breach of such
representation or warranty if such event or circumstance is cured on or prior to
the Closing Date or the earlier termination of this Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to FVP and each Seller as set forth in
this Article 5.
5.1 Organization; Authorization and Binding Obligation.
Buyer is a corporation duly incorporated, validly existing, and in good
standing under the laws of the State of Delaware. Buyer has the requisite
corporate power and authority to own, lease, and
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operate its properties, to carry on its business in the places where such
properties are now owned, leased, or operated and such business is now
conducted, and to execute, deliver and perform this Agreement and the other
Transaction Documents to which Buyer is a party according to their respective
terms. Buyer is duly qualified and in good standing as a foreign corporation in
each jurisdiction in which such qualification is required.
5.2 Authorization and Binding Obligation.
The execution, delivery, and performance by Buyer of this Agreement and
the other Transaction Documents to which Buyer is a party have been duly
authorized by all necessary corporate, shareholder or other action on the part
of Buyer. This Agreement and the other Transaction Documents to which Buyer is a
party have been duly executed and delivered by Buyer (or, in the case of
Transaction Documents to be executed and delivered at Closing, when executed and
delivered will be duly executed and delivered) and constitute (or, in the case
of Transaction Documents to be executed and delivered at Closing, when executed
and delivered will constitute) the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with their terms, except as the
enforceability of this Agreement and such other Transaction Documents may be
limited by bankruptcy, insolvency, or similar laws affecting creditors' rights
generally or by judicial discretion in the enforcement of equitable remedies,
and as rights to indemnification may be limited by federal or state securities
laws or the public policies embodied therein.
5.3 Absence of Conflicting Agreements; Consents.
Except for the expiration or termination of any applicable waiting
period under the HSR Act and the filing by Buyer with the SEC of any reports
required to be filed in connection with the consummation of the transactions
contemplated hereby, the execution, delivery and performance by Buyer of this
Agreement and the other Transaction Documents to which Buyer is a party (with or
without the giving of notice, the lapse of time, or both): (a) do not require
any Consent, declaration to, or filing with any Governmental Authority or any
other Person; (b) will not conflict with any provision of the Charter Documents
of Buyer, as currently in effect; (c) will not conflict with, result in a breach
of, or constitute a default under any Legal Requirement to which Buyer is bound;
and (d) will not conflict with, constitute grounds for termination of, result in
a breach of, constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of any material agreement
or instrument to which Buyer is a party or bound. Notwithstanding the foregoing,
Buyer does not make any representation or warranty regarding any of the
foregoing that may result from the specific legal or regulatory status of any
Seller or any FrontierVision Company or as a result of any other facts that
specifically relate to the business or activities in which any Seller or any
FrontierVision Company is or proposes to be engaged other than the cable
television business.
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5.4 Capital Structure; ACC Class A Common Stock.
(a) All of the shares of ACC Class A Stock deposited into
escrow in accordance with the Deposit Escrow Agreement as contemplated by
Section 2.4(a): (1) have been duly authorized and validly issued, fully paid and
nonassessable, not subject to, or issued in violation of, any preemptive rights
and have not been issued in violation of any federal or state securities laws;
and (2) have the same rights and powers as all other shares of ACC Class A
Common Stock issued and outstanding as of the date of this Agreement. If
released to FVP in accordance with this Agreement, on the date of such release,
all of the securities constituting the Deposit Escrow Property: (1) shall have
been duly authorized and validly issued, fully paid and nonassessable, not
subject to, or issued in violation of, any preemptive rights and not issued in
violation of any federal or state securities laws; and (2) shall have the same
rights and powers as all other shares of ACC Class A Common Stock (or, if any of
the securities constituting the Deposit Escrow Property are not shares of ACC
Class A Stock, as all other securities of the same class and series) issued and
outstanding as of the date of this Agreement.
(b) On the Closing Date, all of the shares of ACC Class A
Common Stock constituting the Stock Consideration (or, if applicable, all of the
securities of any other class or series constituting the Stock Consideration):
(1) shall have been duly authorized and validly issued, fully paid and
nonassessable, not subject to, or issued in violation of, any preemptive rights
and not issued in violation of any federal or state securities laws; and (2)
shall have the same rights and powers as all other shares of ACC Class A Common
Stock (or, if any of the securities constituting the Stock Consideration are not
shares of ACC Class A Stock, as all other securities of the same class and
series) issued and outstanding as of the date of this Agreement.
5.5 Claims and Litigation.
As of the date of this Agreement, there is no claim, legal action,
arbitration, governmental investigation or other legal, administrative or tax
proceeding, nor any order, decree or judgment, in progress or pending, or to
Buyer's knowledge threatened in writing, against or relating to Buyer or the
assets or business of Buyer or its Subsidiaries (other than FCC and other
proceedings generally affecting the cable television industry and not specific
to Buyer or its Subsidiaries and other than rate complaints or certifications
filed by customers or franchising authorities), that would have a material
adverse effect on Buyer's ability to perform its obligations under this
Agreement or that could reasonably be expected to have a material adverse effect
on the business, financial condition, assets or liabilities of Buyer and its
Subsidiaries, taken as a whole.
5.6 SEC Reports.
(a) Buyer's financial statements contained in its Annual
Report on Form 10-K for the fiscal year ended March 31, 1998 ("Buyer's 10-K")
present fairly the consolidated financial operations of Buyer for the fiscal
year then ended, in conformity with GAAP. Buyer's interim financial
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statements contained in its Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 ("Buyer's 10-Q") reflect all adjustments which are, in
Buyer's management's opinion, necessary to a fair statement of the results for
the interim period presented and necessary to present fairly Buyer's
consolidated financial position as of September 30, 1998 and its consolidated
results of operations for the quarter ended September 30, 1998 and cash flows
from consolidated operations for the quarter ended September 30, 1998.
(b) Except as set forth in Buyer's 10-Q or in any public
document filed by Buyer with the SEC after September 30, 1998, Buyer's
capitalization (including for this purpose, all outstanding options, warrants
and other rights to acquire Capital Stock or other securities of Buyer) is as
set forth in Buyer's 10-K to the extent required to be set forth in Buyer's
10-K. The ACC Class A Common Stock is not subject to any preemptive right, claim
or other interest of any Person.
(c) Except as set forth in any public document filed by Buyer
or Hyperion Telecommunications, Inc. or Olympus Communications, L.P. with the
SEC after September 30, 1998: (1) there has not been, since September 30, 1998,
any material adverse change in the financial condition, results of operations of
Buyer, or any damage, destruction or loss which materially and adversely affects
the financial condition, results of operations or future prospects of Buyer; and
(2) as of the date of this Agreement, Buyer has not entered into any commitment
or transaction material to Buyer's business.
(d) No statement made in Buyer's 10-K or Buyer's 10-Q or any
public document filed by Buyer or Hyperion Telecommunications, Inc. or Olympus
Communications, L.P. with the SEC after September 30, 1998, nor any statement,
representation or warranty made by Buyer in this Agreement or the other
Transaction Documents (including schedules and exhibits), contains any untrue
statement of any material fact or omits a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they were made, not misleading.
5.7 Broker.
Neither Buyer nor any Person acting on behalf of Buyer has incurred any
liability for any finders' or brokers' fees or commissions in connection with
the transactions contemplated by this Agreement except as described in Section
11.1.
5.8 Investment Purpose; Investment Company.
Buyer is acquiring the Purchased Interests for investment for its own
account and not with a view to the sale or distribution of any part thereof
within the meaning of the Securities Act. Buyer is not an "investment company"
as defined in the Investment Company Act of 1940, as amended.
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5.9 Cure.
For all purposes under this Agreement, the existence or occurrence of
any events or circumstances which constitute or cause a breach of a
representation or warranty of Buyer on the date such representation or warranty
is made shall be deemed not to constitute a breach of such representation or
warranty if such event or circumstance is cured on or prior to the Closing Date
or the earlier termination of this Agreement.
ARTICLE 6
SPECIAL COVENANTS AND AGREEMENTS
The parties covenant and agree as follows, provided that, except with
respect to express agreements and covenants of a Seller contained in this
Article 6 (including Sections 6.5, 6.12 and 6.15), no Seller shall have any
obligation or liability prior to the Closing with respect to any agreement or
covenant of FVP set forth in this Article 6 (it being understood and agreed by
each Seller that nothing in this sentence shall impair or diminish the
indemnification obligations of Sellers under Article 10 after the Closing,
including with respect to any covenant of FVP set forth in this Article 6).
6.1 Operation of Business Prior to Closing.
Except as required by applicable Legal Requirements or as contemplated
in FrontierVision's Disclosure Schedule or Section 6.1(c), without the consent
of Buyer (which consent shall not be unreasonably withheld), between the date
hereof and the Closing Date, FVP will operate and cause the FrontierVision
Companies to operate the Systems in the ordinary course of business (subject to,
and except as modified by, compliance with the following negative and
affirmative covenants) and abide by the following negative and affirmative
covenants:
(a) Negative Covenants. The FrontierVision Companies
shall not do any of the following:
(1) Franchises. Fail to use commercially
reasonable efforts to renew on substantially the same or on other commercially
reasonable terms any Franchise that has expired or will expire after the date
hereof and prior to the Closing Date in accordance with its terms; provided,
however, the FrontierVision Companies shall not agree to any material changes to
the terms of any Franchise without Buyer's prior written consent and provided
further that FVP shall not be required to take any steps necessary to obtain
renewals of any Franchise earlier than such steps are required to be taken by
applicable FCC Regulations, and obtaining renewals of any Franchise shall not be
a condition precedent to Buyer's obligations hereunder except as provided in the
immediately following sentence). The parties agree that the obligations of the
FrontierVision Companies with respect to the renewal of the Franchises referred
to in Section 3.8(F) of FrontierVision's Disclosure Schedule (Renewal Letters
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Not Timely Filed), exclusive of the Penobscot Indian Nation (ME) and Town of
Friendsville (MD) Franchises (the "Renewal Franchises") are governed solely by
Section 6.4 and 7.1(d) and not this Section 6.1(a)(1).
(2) Contracts. Modify or amend in any material
respect, except in the ordinary course of business, any Contract that shall
survive the Closing; or enter into any new Contracts that will be binding on the
FrontierVision Companies following the Closing except: (A) agreements for the
provision of cable television services to residential customers; (B) the renewal
or extension of any existing Contract on its existing terms, in all material
respects, in the ordinary course of business; (C) contracts or commitments
entered into in the ordinary course of business that are terminable on not more
than sixty days prior notice or that do not involve post-Closing obligations in
excess of Twenty-Five Thousand Dollars ($25,000) in any one case or in excess of
Five Hundred Thousand Dollars ($500,000) in the aggregate; or (D) with respect
to utility pole attachment agreements, Contracts with terms as customarily
required by the utility whose poles are utilized, and except in any event,
subject to their legal obligations and constraints, the FrontierVision Companies
will not enter into a new collective bargaining agreement without providing
Buyer a reasonable opportunity to review and approve the proposed terms of such
agreement, which approval shall not be unreasonably withheld by Buyer.
(3) Disposition of Assets. Sell, assign, lease, swap,
or otherwise transfer or dispose of any of the Assets, except as set forth in
Section 6.1 of FrontierVision's Disclosure Schedule and except for assets
consumed or disposed of in the ordinary course of business or assets (other than
any System as a whole) that are replaced by replacement property of
substantially equivalent kind and use.
(4) Encumbrances. Create, assume or permit to
exist any Encumbrance upon the Assets, except for Permitted Encumbrances or
other Encumbrances disclosed in FrontierVision's Disclosure Schedule.
(5) Indebtedness. Permit the FrontierVision
Companies to incur any additional indebtedness for borrowed money except
pursuant to the Debt Documents listed in Section 3.8 of FrontierVision's
Disclosure Schedule and that (if not repaid at or prior to the Closing) is
included in Adjustment Liabilities in the computation of Closing Net
Liabilities.
(6) Marketing Programs. Implement any new
marketing plans that are materially different from marketing plans previously
implemented by the FrontierVision Companies.
(7) Channel Lineups; Rate Changes. Make channel
additions or channel substitutions or change the channel lineup for any System
or change the customer rates charged by any System or enter into any new
carriage agreements, except as set forth in Section 6.1 of FrontierVision's
Disclosure Schedule.
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(b) Affirmative Covenants. FVP shall, and shall cause the
FrontierVision Companies to, do the following:
(1) Access to Information. Subject to Buyer's
obligations hereunder to maintain the confidentiality of Confidential
Information, allow Buyer and its authorized representatives reasonable access
during normal business hours to the Assets, physical plant, offices, properties
and records for the purpose of inspection, and furnish or cause to be furnished
to Buyer or its authorized representatives all information with respect to the
Assets or the FrontierVision Companies that Buyer may reasonably request. Any
investigation or request for information shall be conducted in such a manner as
not to interfere with the business or operations of the Systems. Buyer hereby
agrees that it shall promptly provide written notice to FVP or such Seller if
based upon information provided to Buyer or through its investigation, Buyer
determines that FVP or a Seller is in breach in any material respect of any of
its representations or warranties set forth in this Agreement.
(2) Insurance. Maintain the existing insurance
policies on the Systems and the Assets (or comparable replacement policies).
(3) Books and Records. Maintain the
FrontierVision Companies' books and records in accordance with past practices.
(4) Financial Information. Furnish to Buyer
within forty-five days after the end of each month between the date hereof and
the Closing Date, an unaudited consolidated balance sheet and statement of
operations and statement of cash flows for the FrontierVision Companies for such
month, which financial information shall be prepared from the FrontierVision
Companies' books and records maintained in the ordinary course of business in
accordance with past practices.
(5) Compliance with Laws. Comply in all material
respects with all Legal Requirements applicable to the FrontierVision Companies
and the operation of the Systems.
(6) Keep Organization Intact. Except with
respect to any voluntary departure of any of the FrontierVision Companies'
employees between the date hereof and Closing, use its commercially reasonable
efforts to preserve intact its business and organization relating to the Systems
and preserve for Buyer the goodwill of the FrontierVision Companies' suppliers,
customers and others having business relations with it.
(7) Specified Rebuild and Upgrade Projects.
Proceed with the rebuild and upgrade projects identified in Section 2.5 of
FrontierVision's Disclosure Schedule in the ordinary course of business.
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(8) Franchise Renewal Letters. File a request
for renewal under Section 626(a) of the Cable Act with the proper Franchising
Authority with respect to each Franchise in respect of which the time period for
making such filing will expire on or before the Closing Date.
(9) Year 2000 Remediation Plan. Proceed with
the Year 2000 Remediation Plan of the FrontierVision Companies in accordance in
all material respects with the provisions of such plan, a copy of which has been
provided to Buyer.
(10) Rate Changes. Implement the rate changes
set forth in Section 6.1 of FrontierVision's Disclosure Schedule in accordance
with the implementation schedule set forth therein with respect to each such
rate change.
(11) Purchase and Sale Agreement Indemnification
Claims. Pursue in the ordinary course of business consistent with the past
practice of the FrontierVision Companies any indemnification claims regarding
the condition of any of the Systems acquired from the "sellers" under the
purchase and sale agreements referred to in Section 3.11(i) that the
FrontierVision Companies may have against such "sellers" pursuant to the
indemnification provisions thereof. The FrontierVision Companies will apply any
payments actually collected after the date of this Agreement in respect of any
such claims to remedying the matter in respect of which the payments were
collected or will include the amount of any such payment that is not so applied
as an Adjustment Liability in the Computation of Closing Net Liabilities (but
shall have no obligation pursuant to this provision to expend more than the
amount collected on remedying such matter).
(c) Certain Permitted Actions. Notwithstanding anything in
this Agreement (including Sections 6.1(a) and (b) above) to the contrary, Buyer
consents and agrees as follows:
(1) Contractual Commitments. FVP, the General
Partner and the other FrontierVision Companies may comply with all of their
contractual commitments under their existing Contracts and under any Contracts
entered into after the date of this Agreement in compliance with Section
6.1(a)(2) or with Buyer's consent (in each case, as such Contracts may be in
effect from time to time in accordance with Section 6.1(a)(2) or with Buyer's
consent). FVP, the General Partner and the other FrontierVision Companies may
take such actions as are contemplated by the other Sections of this Agreement
(excluding Sections 6.1(a) and (b)) and otherwise comply with their obligations
under the other Sections of this Agreement (excluding Sections 6.1(a) and (b)).
(2) Pending Acquisitions/Swaps/Sales. The
FrontierVision Companies may consummate the transactions set forth in Section
6.1 of FrontierVision's Disclosure Schedule.
(3) Holdings Exchange Offer. FrontierVision
Holdings, L.P. and FrontierVision Holdings Capital II Corporation may consummate
the Exchange Offer and comply with its other obligations contemplated in the
Registration Rights Agreement dated as of December 9, 1998
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among FrontierVision Holdings, L.P., FrontierVision Holdings Capital II
Corporation, J.P. Morgan Securities Inc. and Chase Securities Inc.
(4) Excluded Assets. The FrontierVision
Companies may assign each of the Excluded Assets to the General Partner, its
designees or any other Person prior to the Closing; provided that such
assignments, either individually or in the aggregate, do not result in any
adverse Tax consequence to any of the FrontierVision Companies which is not
included in Adjustment Liabilities in the computation of Closing Net
Liabilities.
(5) Other Matters. The FrontierVision Companies
may take the other actions set forth in Section 6.1 of FrontierVision's
Disclosure Schedule.
6.2 Confidentiality; Press Release.
(a) FVP and the Sellers may from time to time in the course of
this transaction disclose to Buyer information and material concerning FVP and
the Sellers, the FrontierVision Companies, the Assets and the Systems, including
proprietary information, contracts, marketing information, technical
information, product or service concepts, subscriber information, rates,
financial information ideas, concepts and research and development (any of the
foregoing and any analysis, compilations, studies or other documents prepared by
or on behalf of Buyer in respect thereof are hereafter collectively referred to
as "Confidential Information"). The term "Confidential Information" does not
include any item of information that (1) is publicly known at the time of its
disclosure, (2) is lawfully received from a third party not bound in a
confidential relationship with a party hereto, (3) is published or otherwise
made known to the public by any source other than a party bound by the
provisions hereof, or (4) was generated by Buyer independently. Buyer agrees
that Confidential Information received from FVP and the Sellers shall be used
solely in connection with the transaction contemplated by this Agreement. Buyer
agrees that it shall treat confidentially and not directly or indirectly,
divulge, reveal, report, publish, transfer or disclose, for any purpose
whatsoever (other than to its investors, financing sources and agents for the
purpose of consummating the transactions contemplated by this Agreement, each of
whom shall maintain the confidentiality of such Confidential Information), all
or any portion of the Confidential Information disclosed to it by FVP or the
Sellers. In the event of a breach of the covenants contained in this Section
6.2, FVP and the Sellers shall be entitled to seek injunctive relief as well as
any and all other remedies at law or equity. If the Closing does not occur, the
Confidential Information, except for that portion which consists of analysis,
compilations, studies or other documents prepared by or on behalf of Buyer, will
be returned to FVP or the Sellers, as appropriate, immediately upon FVP's or a
Seller's request therefor; and that portion of the Confidential Information
which consists of analysis, compilations, studies or other documents prepared by
or on behalf of Buyer will be held by Buyer and kept confidential and subject to
the terms of this Section 6.2, or will be destroyed.
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(b) No party will issue any press release or make any other
public announcements concerning this Agreement or the transaction contemplated
hereby except in consultation with the other parties, except for disclosures
required by law (including any legal obligations imposed on Buyer in connection
with its status as a publicly-held corporation and any legal obligations imposed
on any of the FrontierVision Companies in connection with their status as
reporting companies under the Exchange Act or in connection with the Holdings
Exchange Offer contemplated in Section 6.1(c)(3)). With respect to press
releases or any other public announcements required by law (including the legal
obligations referred to in the parenthetical clause of the immediately preceding
sentence), the party intending to make such release or disclosure shall provide
the other parties with an advance copy and a reasonable opportunity to review.
6.3 Cooperation; Commercially Reasonable Efforts.
The parties shall cooperate with each other and their respective
counsel and accountants in all commercially reasonable respects in connection
with any actions required to be taken as part of their respective obligations
under this Agreement, and otherwise use their commercially reasonable efforts to
consummate the transactions contemplated hereby and to fulfill their obligations
hereunder as expeditiously as practicable. Buyer shall provide to FVP and
Sellers such information relating to Buyer and its Subsidiaries and their
businesses and operations as FVP and Sellers shall reasonably request. FVP shall
provide to Buyer such information relating to the FrontierVision Companies and
their businesses and operations as Buyer shall reasonably request. Following the
execution of this Agreement FVP and Buyer will negotiate in good faith to agree
to a mutually satisfactory Programming Supply Agreement consistent in all
material respects with the discussions to date between the parties with respect
to the subject matter thereof. .
6.4 Consents.
Subject to the other provisions of this Section 6.4 and this Agreement,
the parties agree as follows:
(a) Following the execution hereof, FVP shall use commercially
reasonable efforts, and shall cause the FrontierVision Companies to use
commercially reasonable efforts, to obtain as expeditiously as possible all
Consents (other than the Credit Agreement Consent and the GECC Facility Consent,
which shall be governed solely by Section 6.7(a) or Section 6.7(c) as
appropriate), required to be obtained by the FrontierVision Companies, including
Consents under the Franchises, Licenses and Contracts of the FrontierVision
Companies, and the renewal of the Renewal Franchises. Buyer agrees to cooperate
with FVP and the FrontierVision Companies in all commercially reasonable
respects in obtaining the foregoing Consents and renewals. In furtherance of the
foregoing, FVP and Buyer agree to cooperate in preparing and completing an
application on FCC Form 394 (or other appropriate form) and appropriate letters
of transmittal for each Franchise Consent listed in Section 3.4 of
FrontierVision's Disclosure Schedule and use their best efforts to file
completed applications with
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the appropriate Franchising Authorities within thirty days after the execution
of this Agreement (and in any event within forty-five days after the execution
of this Agreement). Effective upon filing of each Franchise Consent application,
FVP and Buyer shall be deemed to have agreed that such application is "facially
complete." FVP and Buyer also agree to cooperate in preparing and completing an
appropriate application and letters of transmittal for each Consent listed in
Section 3.4 of FrontierVision's Disclosure Schedule relating to Licenses and
Contracts of the FrontierVision Companies and using their best efforts to file
completed applications with the FCC or other appropriate Person within thirty
days after the execution of this Agreement (and in any event within forty-five
days after the execution of this Agreement). FVP shall also use commercially
reasonable efforts to cause all such Consents relating to Franchises and
Contracts to include a provision that permits Buyer to transfer the Purchased
Interests to any Affiliate of Buyer that agrees in writing as a condition to
such transfer to be bound by any and all obligations of Buyer in connection
therewith; provided that FVP shall have no additional obligation with respect to
obtaining such a provision if the inclusion of such a provision would cause such
Consent to be unreasonably withheld, delayed or otherwise conditioned; and
provided further that if the Franchising Authority or other Person from whom
such Consent is requested objects to the inclusion of such a provision such
request will be immediately withdrawn.
(b) In the event that after the execution of this Agreement,
FVP and Buyer mutually agree that an application on FCC Form 394 is required to
be filed in order to request a Franchise Consent that is not listed in Section
3.4 of FrontierVision's Disclosure Schedule, FVP and Buyer agree to cooperate in
preparing and completing an application on FCC Form 394 (or other appropriate
form) and appropriate letters of transmittal and using their best efforts to
file a completed application with the appropriate Franchising Authority within
ten days after FVP and Buyer agree that Consent is required. Effective upon
filing of each Franchise Consent application, FVP and Buyer shall be deemed to
have agreed that such application is "facially complete."
In the event that after the execution of this Agreement, a Franchising
Authority that did not receive a Franchise Consent request on FCC Form 394 (or
other appropriate form) pursuant to Section 6.4(a) asserts that its Consent is
required in order to consummate the transactions contemplated by this Agreement,
FVP and Buyer will notify the other party and cooperate with each other in good
faith to determine whether they agree that Consent is required. If FVP and Buyer
cannot agree within five business days after both parties are notified of such
Franchising Authority's assertion, FVP and Buyer shall mutually retain a law
firm to make the final determination (which law firm shall be experienced in
cable franchising matters and shall not then serve as legal counsel to any of
the FrontierVision Companies or Buyer). The selected law firm shall endeavor to
resolve the dispute as promptly as practicable and such firm's resolution of the
dispute shall be final and binding on the parties. All of the costs and expenses
of the selected law firm and its services rendered pursuant to this paragraph
shall be borne by whichever of FVP or Buyer is the nonprevailing party.
If it is finally determined pursuant to this Section 6.4(b) (by
agreement of FVP and Buyer or by resolution of a law firm) that a Franchise
Consent is required from such Franchising Authority, and the
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Franchise in question relates to a Franchise Area that serves a number of
subscribers equal to or greater than the number of subscribers served by the
Franchise Area that serves the fewest number of subscribers of all of the
Franchise Areas related to the Material Consent Franchises (based on the number
of subscribers specified for each such Franchise Area in Section 3.11(A) of
FrontierVision's Disclosure Schedule) (such a Franchise, a "Designated Material
Consent Franchise"), then FVP and Buyer agree to cooperate in preparing and
completing an application on FCC Form 394 (or other appropriate form) and
appropriate letters of transmittal and using their best efforts to file a
completed application with the appropriate Franchising Authority within ten days
after the date it is determined a Franchise Consent is required. Effective upon
filing of each Franchise Consent application, FVP and Buyer shall be deemed to
have agreed that such application is "facially complete."
If it is finally determined pursuant to this Section 6.4(b) (by
agreement of FVP and Buyer or by resolution of a law firm) that a Franchise
Consent is required from such Franchising Authority but the Franchise in
question is not a Designated Material Consent Franchise (all such Franchises
that are not a Designated Material Consent Franchise, a "Designated Non-Material
Consent Franchise"), and the Franchise Areas relating to all such Designated
Non-Material Consent Franchises serve in the aggregate at least 35,000
subscribers (based on the number of subscribers specified for each such
Franchise Area in Section 3.11(A) of FrontierVision's Disclosure Schedule), then
(except to the extent that Buyer agrees that no Franchise Application will be
filed for a particular Designated Non-Material Consent Franchise), FVP and Buyer
agree to cooperate in preparing and completing an application on FCC Form 394
(or other appropriate form) and appropriate letters of transmittal for each
Designated Non-Material Consent Franchise identified to such date and using
their best efforts to file a completed application with the appropriate
Franchising Authority within ten days after the date it is determined such
filings are required pursuant to this paragraph. Effective upon filing of each
Franchise Consent application, FVP and Buyer shall be deemed to have agreed that
such application is "facially complete."
(c) FVP and Buyer shall promptly furnish to any Governmental
Authority or other Person from whom a Consent or Franchise renewal is requested
such accurate and complete information regarding the FrontierVision Companies
and Buyer, including financial information and other information relating to the
cable and other media operations of the FrontierVision Companies and Buyer, as a
Governmental Authority or other Person may reasonably require in connection with
obtaining any such Consent or renewal. Notwithstanding anything in this
Agreement to the contrary, but subject to the provisos below in this Section
6.4(c), Buyer acknowledges and agrees that FVP will control and manage the
process of obtaining such Consents and Franchise renewals and that neither Buyer
nor any of its employees, agents, representatives or any other Person acting on
behalf of Buyer will contact any Governmental Authority or other Person who is
party to a Franchise, License or Contract of the FrontierVision Companies,
including those from whom a Consent or Franchise renewal is sought, for the
purpose of seeking any amendment, modification or changes to any Franchise,
License or Contract, for the purpose of waiving or extending the time period in
which such Governmental Authority or other Person is required to act on the
request for Consent or renewal, or for any other purpose that would have the
result of unduly hindering or delaying the receipt of any such Consent,
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waiver or renewal; provided that it is understood and agreed that nothing herein
shall prevent Buyer (or its employees, agents, representatives and any other
Person acting on behalf of Buyer) from communicating (by letter, press release,
or otherwise) following consultation with FVP with any such Governmental
Authority (whether or not a Consent is being sought from it) in order to provide
information relating to Buyer and transition issues regarding Buyer and the
Systems following the Closing Date or from responding to requests initiated by
Governmental Authorities or other Persons from whom a Consent is sought so long
as such response does not relate to any of the foregoing prohibited matters and
Buyer shall use commercially reasonable efforts to apprise FVP of all such
requests.
(d) If in connection with the process of obtaining any
Consent, a Governmental Authority or other Person seeks to impose any condition
or any change to a Franchise, License or Contract to which such Consent relates
that would be applicable to Buyer or any FrontierVision Company as a requirement
for granting its Consent, FVP shall promptly notify Buyer of such fact and FVP
shall not agree to such condition or change except as agreed to by Buyer in
writing; provided that if such condition or change relates to a Consent with
respect to a Material Consent Franchise or a Designated Material Consent
Franchise that is then in the Renewal Window, Buyer hereby accepts (and agrees
that FVP may accept on behalf of Buyer and the FrontierVision Companies without
the need for any further agreement by Buyer in writing) any such conditions or
changes that are commercially reasonable taken as a whole (it being agreed by
Buyer for purposes of this Agreement, without limiting whether any other terms
are commercially reasonable, that so long as the proposed renewal term of such
Franchise is at least ten years, that a requirement to complete an
upgrade/rebuild of the System serving such Franchise Area up to 750 MHz by a
date that is no earlier than three years from the Closing Date and/or a
requirement to pay franchise fees up to the amount permitted by the Cable Act is
commercially reasonable). For purposes of this Agreement, the term "Renewal
Window" means that the Franchise in question is due to expire within three years
from the date of determination.
If in connection with the process of obtaining a renewal of any Renewal
Franchise, a Franchising Authority seeks to renew such Franchise on terms that
differ in any materially adverse respect from the terms of the existing
Franchise, FVP shall promptly notify Buyer of such fact and FVP shall not agree
to such condition or change except as agreed to by Buyer in writing; provided
that Buyer hereby accepts (and agrees that FVP may accept on behalf of Buyer and
the FrontierVision Companies without the need for any further agreement by Buyer
in writing) the following: (1) a renewal of the City of Auborn (ME), City of
Lewiston (ME), and Town of Lisbon (ME) Franchises on substantially the same
terms as the respective terms of renewal specified in such existing Franchises;
(2) a renewal of the Town of Tremont (ME), Town of Bar Harbor (ME), City of Old
Town (ME), and Town of Orrington (ME) Franchises on substantially the same terms
as the terms of the existing City of Bangor (ME) Franchise; (3) a renewal of the
Town of Southwest Harbor (ME) Franchise on substantially the same terms as the
terms contained in the draft franchise proposal previously delivered to Buyer;
(4) a renewal of the Village of Holgate (OH) Franchise on substantially the same
terms as the terms contained in the draft franchise proposal previously
delivered to Buyer; (5) a renewal of the City of
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Defiance (OH) Franchise on substantially the same terms as the terms contained
in the draft franchise proposal previously delivered to Buyer; (6) a renewal of
the Village of Albany (OH) and Town of Spring Hope (NC) Franchises on terms that
are commercially reasonable taken as a whole (it being agreed by Buyer for
purposes of this Agreement, without limiting whether any other terms are
commercially reasonable, that so long as the proposed renewal term of the
Renewal Franchise is at least ten years, that a requirement to complete an
upgrade/rebuild of the System serving such Franchise Area up to 750 MHz by a
date that is no earlier than three years from the Closing Date and/or a
requirement to pay franchise fees up to the amount permitted by the Cable Act is
commercially reasonable).
Buyer agrees that all fees, costs and expenses of such conditions or
changes shall be borne by Buyer directly or indirectly as the owner of the
FrontierVision Companies. Buyer also agrees that after the Closing it will cause
the FrontierVision Companies to comply with the provisions of all of the
Franchises and will not withhold its consent to any requirement that the
FrontierVision Companies comply with the rebuild/upgrade requirements contained
in the Franchises as set forth in Section 6.4 of FrontierVision's Disclosure
Schedule (as such requirements may be modified with Buyer's consent) that is
imposed by a Franchising Authority as a condition to its approval of a request
for Consent or request for a Franchise renewal.
(e) If prior to the Closing hereunder any Franchising
Authority purchases the assets of any System (or portion thereof) that serves
the Franchise Area covered by the Franchise granted by such Franchising
Authority pursuant to any right of first refusal in such Franchise that is
triggered by the consummation of the purchase and sale of the Purchased
Interests, an amount equal to the product of (1) the number of Closing
Equivalent Subscribers represented by the subscribers served in such Franchise
Area (determined as if the effective time of the consummation of the respective
sale of such to the Franchising Authority were the Adjustment Time hereunder)
multiplied by (2) $2,928 shall be included as an Adjustment Liability in the
computation of Closing Net Liabilities, and the target number of 700,000 Closing
Equivalent Subscribers referred to in Section 2.5(a) shall be reduced by such
number of Closing Equivalent Subscribers. FVP will not agree and will not permit
the FrontierVision Companies to agree to sell the assets of any System (or
portion thereof) pursuant to a right of first refusal in a Franchise as
described above if the closing thereof would occur after the Closing hereunder
and the purchase consideration would be less than the amount equal to the
product of (1) the number of Closing Equivalent Subscribers represented by the
subscribers served in such Franchise Area (determined as if the effective time
of the consummation of the respective sale of such to the Franchising Authority
were the Adjustment Time hereunder) multiplied by (2) $2,928.
(f) If, notwithstanding their commercially reasonable efforts,
FVP and the other FrontierVision Companies are unable to obtain any required
Consents or Franchise renewal, none of FVP or any of the Sellers shall be liable
to Buyer for any breach of covenant and after the Closing none of FVP or any of
the Sellers shall have any further obligation with respect to obtaining any such
Consents or renewals or any liability for the failure of such Consents or
renewals to be obtained. Except as provided in this Agreement or with respect to
the Credit Agreement Consent, nothing herein
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shall require the expenditure or payment of any funds (other than in respect of
normal and usual attorneys fees, filing fees or other normal costs of doing
business) or the giving of any other consideration by FVP, any Seller or any of
the FrontierVision Companies in order to obtain any Consent or renewal.
6.5 HSR Act Filing.
(a) As soon as practicable after the execution of this
Agreement, but in any event no later than forty-five days after such execution,
FVP, as the "acquired person," and Buyer, as the "acquiring person," will each
complete and file, or cause to be completed and filed, a premerger notification
and report under the HSR Act that is consistent with the rules and regulations
of the Federal Trade Commission (the "FTC") and that requests early termination
of the waiting period imposed by the HSR Act. FVP and Buyer shall use
commercially reasonable efforts to respond as promptly as reasonably practicable
to any inquiries received from the FTC and the Antitrust Division of the
Department of Justice (the "Antitrust Division") for additional information or
documentation and to respond as promptly as reasonably practicable to all
inquiries and requests received from any other Governmental Authority in
connection with antitrust matters. FVP and Buyer shall use commercially
reasonable efforts to overcome any objections which may be raised by the FTC,
the Antitrust Division or any other Governmental Authority having jurisdiction
over antitrust matters. The fees relating to the filings required by the HSR Act
shall be shared equally by Buyer, on the one hand, and Sellers, on the other
hand.
(b) Each of the other parties to this Agreement and their
Affiliates will cooperate with FVP and Buyer in causing such filings to be made
as expeditiously as practicable, will promptly file, after any request by the
FTC or Antitrust Division and after appropriate negotiation with the FTC or the
Antitrust Division of the scope of such request, any information or documents so
requested, and will furnish FVP and Buyer with copies of any correspondence from
or to, and notify FVP and Buyer of any other communications with, the FTC and
Antitrust Division that relates to the transactions contemplated by this
Agreement.
(c) If the parties subsequently determine that any filing by
any of the Sellers or their Affiliates is required in connection with the
consummation of the transactions contemplated by this Agreement, including the
acquisition by any of the Sellers of ACC Class A Common Stock, such Seller and,
as necessary, Buyer, will each complete and file, or cause to be completed and
filed, a premerger notification and report under the HSR Act that is consistent
with FTC rules and regulations and that requests early termination of the
waiting period imposed by the HSR Act. Each of the parties making such filings
shall use commercially reasonable efforts to: (1) respond as promptly as
reasonably practicable to any inquiries received from the FTC and the Antitrust
Division for additional information or documentation; (2) respond as promptly as
reasonably practicable to all inquiries and requests received from any other
Governmental Authority in connection with antitrust matters; and (3) overcome
any objections which may be raised by the FTC, the Antitrust Division or any
other Governmental
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Authority having jurisdiction over antitrust matters. The filing fees related to
any filing required to be made under this subsection (c) shall be shared equally
between the "acquiring person" and the "acquired person" for each such filing,
except that if any filing is required solely as a result of the purchase and
sale of the SPC Stock contemplated hereby (as opposed to direct partnership
interests in FVP), any filing fees related to such filings shall be paid solely
by the SPC Seller(s) who own(s) the SPC Stock in question.
6.6 Buyer's Qualifications and Financing.
(a) Buyer will not take any action that does, or could
reasonably be expected to, disqualify Buyer to be the transferee of control of
the FrontierVision Companies as the holder of the Franchises and the owner and
operator of the Assets and Systems. Should Buyer become aware of any fact or
circumstance that would disqualify Buyer as the transferee of control of the
FrontierVision Companies, Buyer will promptly notify FVP and Sellers in writing
thereof and will remove any such disqualifying fact or circumstance.
(b) Buyer will not take any action that is inconsistent with
its obligations under this Agreement or which does, or would reasonably be
expected to, materially hinder or delay the consummation of the transaction
contemplated by this Agreement. Without limiting the generality of the
foregoing, at all times between the date hereof and the Closing Date, Buyer will
take all necessary or advisable actions to ensure, and Buyer will ensure, that
Buyer is able to deliver the Cash Consideration and the Stock Consideration at
Closing. From the date hereof until Closing, Buyer will promptly notify FVP and
Sellers of any event that occurs or circumstance that arises that could prevent
Buyer from being able to deliver the Cash Consideration or Stock Consideration
at Closing.
6.7 Discharge of Debt Documents.
(a) Promptly following the execution of this Agreement, FVP
will approach the agent banks under the Credit Agreement to seek requisite
lender consent (the "Credit Agreement Consent") to permit the outstanding loans
and commitments under the Credit Agreement to remain outstanding after the
Closing, and FVP will use its best efforts to obtain such Consent. FVP will keep
Buyer reasonably informed as to FVP's inquiries and the agent banks' responses
with respect thereto. Buyer acknowledges and agrees that FVP has no obligation
(other than to use best efforts as provided above) to obtain the Credit
Agreement Consent and that obtaining the Credit Agreement Consent is not a
condition precedent to Buyer's obligations hereunder and that this Section
6.7(a) in no way limits Buyer's obligation under Section 6.7(b) if the
indebtedness under the Credit Agreement becomes due and payable at the Closing.
FVP shall afford Buyer the opportunity to discuss and negotiate the Credit
Agreement Consent with the agent banks and other lenders under the Credit
Agreement. It is understood and agreed that both FVP and Buyer shall have a
reasonable opportunity to review and the right to approve the Credit Agreement
Consent documentation and terms thereof prior to execution thereof.
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(b) If the Credit Agreement Consent is not obtained, Buyer
shall cause all obligations of the FrontierVision Companies under the Credit
Agreement (including all principal, accrued and unpaid interest and all other
amounts) that becomes due and payable concurrently with the consummation of the
Closing to be discharged in full at the Closing.
(c) Promptly following the execution of this Agreement, FVP
will approach General Electric Capital Corporation ("GECC") to seek consent (the
"GECC Facility Consent") to permit the Equipment Leasing Facility to remain
outstanding after the Closing, and FVP will use its commercially reasonable
efforts (which shall in no event require the expenditure or payment of funds or
the giving of any other consideration by FVP, any Seller or any of the
FrontierVision Companies in order to obtain the GECC Facility Consent) to obtain
such Consent. FVP will keep Buyer reasonably informed as to FVP's inquiries and
GECC's responses with respect thereto. Buyer acknowledges and agrees that FVP
has no obligation (other than to use commercially reasonable efforts as provided
above) to obtain the GECC Facility Consent and that obtaining the GECC Facility
Consent is not a condition precedent to Buyer's obligations hereunder. If GECC
withholds its consent, FVP will cause all indebtedness outstanding under such
Equipment Leasing Facility to be repaid at or before the Closing.
(d) Buyer acknowledges and agrees that the Issuers under the
Indentures will be required to make an Offer of Redemption under each of the
Indentures within thirty days of the Closing Date, in the case of the 1996
Indenture, and within thirty-five days of the Closing Date, in the case of the
1997 Indenture and the 1998 Indenture. Buyer will cause the Issuers to discharge
all of their obligations under the Indentures in accordance with their terms.
(e) FVP will cause the FrontierVision Companies to terminate
all of its interest rate protection and similar agreements and discharge all of
their obligations thereunder at or prior to the Closing unless Buyer has
delivered reasonable prior notice to FVP specifying that Buyer desires the
FrontierVision Companies to maintain the effectiveness of one or more of such
agreements as specified in Buyer's notice. If the FrontierVision Companies
maintain the effectiveness of one or more of such agreements at Buyer's request,
the amount of the net asset shall be included as an Adjustment Asset in the
computation of Closing Net Liabilities, if applicable, or the amount of the net
liability shall be included as an Adjustment Liability in the computation of
Closing Net Liabilities, if applicable.
6.8 Retention and Access to the FrontierVision Companies' Records.
Except as provided in Section 6.10(c)(1), the General Partner and
Sellers shall, for a period of five years from the Closing Date, have access to,
and the right to copy, at their expense, during usual business hours upon
reasonable prior notice to Buyer, all of the books and records relating to the
FrontierVision Companies, Assets and Systems that were transferred to Buyer
pursuant to this Agreement. Buyer shall retain and preserve all such books and
records for such five year period. Subsequent to such five year period, Buyer
shall only destroy such books and records if there is no
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ongoing litigation, governmental audit or other proceeding, and subsequent to
thirty days' notice to the General Partner and Sellers of their right to remove
and retain such books and records, or to copy such books and records prior to
their destruction.
6.9 Employee Matters.
(a) Except as otherwise provided in this Section 6.9, nothing
herein shall require Buyer or the FrontierVision Companies to continue the
employment of any employees of the FrontierVision Companies for any period of
time following the Closing. Within thirty days after representatives of Buyer
meet with the FrontierVision Companies' corporate-level employees to discuss
employment opportunities with Buyer following the Closing, FVP shall provide to
Buyer a list of all employees of the FrontierVision Companies and shall
designate those corporate-level employees that are not available for continued
employment with the FrontierVision Companies following the Closing. Within a
reasonable period of time following the receipt of such list and no less than
sixty days prior to the Closing Date, Buyer shall provide FVP with written
notice of which of the available employees of the FrontierVision Companies Buyer
intends to retain following the Closing (the "Assumed Employees"). FVP shall
cause the FrontierVision Companies to terminate the employment of all employees
that are not Assumed Employees on or prior to the Closing. Notwithstanding the
foregoing, Buyer agrees to provide FVP with written notice of which of the
available employees of the FrontierVision Companies Buyer intends to retain
following the Closing at least 100 days prior to the Closing in the event that
Buyer intends to terminate or to cause any FrontierVision Company to terminate
50 or more employees (when considered together with those employees to be
terminated as designated by any FrontierVision Company) during the 90-day period
prior to and including the Closing to permit FVP to make any required notices
under the Worker Adjustment and Retraining Notification Act, as amended ("WARN
Act"). In the event that Buyer fails to provide such notice to FVP, Buyer agrees
that it will retain a sufficient number of employees employed by the
FrontierVision Companies as of the Closing to ensure that 50 or more employees
do not experience "employment loss" as that term is defined in the WARN Act
during the 90-day period prior to and including the Closing. Buyer shall
continue to employ such employees for a period of at least 90 days after the
Closing, except for such employees who voluntarily terminate employment, retire
or are discharged for cause. Buyer shall be solely responsible for and shall
indemnify and hold Sellers harmless from any liability arising under the WARN
Act after the Closing arising out of Buyer's failure to provide adequate
advanced written notice to FVP or arising out of Buyer's failure to continue the
employment of any FrontierVision Company employee as required in this Section
6.9(a). Buyer shall have no obligation to provide severance benefits to any
employee of the FrontierVision Companies who terminate employment on or prior to
Closing.
(b) As of and immediately after the Closing each Assumed
Employee shall be employed in the same position and on the same terms and
conditions prevailing as of the Closing, and each Assumed Employee who continues
his employment after the Closing shall receive credit for past service with any
of the FrontierVision Companies for all purposes of eligibility and vesting
under
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Buyer's Employee Plans and for all other purposes under Buyer's vacation, sick
leave or other benefit programs or arrangements. Buyer shall not otherwise be
required to maintain any particular level of benefits for any of the Assumed
Employees except that Buyer will not discuss any potential changes in employment
terms or benefits with the Assumed Employees prior to the Closing.
Notwithstanding the foregoing, upon Buyer's request, FVP will coordinate with
Buyer to permit Buyer to meet with any of the corporate-level Assumed Employees
to discuss employment opportunities following the Closing, including position,
salary and other employment benefits (and the requirement that such employee
must continue employment in the same position and on the same terms and
conditions shall not apply to any corporate-level Assumed Employees).
(c) Buyer shall assume full responsibility and liability for
offering and providing "continuation coverage" to any "qualified beneficiary"
who is covered by a "group health plan" sponsored or contributed to by any
FrontierVision Company or any of their ERISA Affiliates and who has experienced
a "qualifying event" or is receiving "continuation coverage" on or prior to the
Closing. "Continuation coverage," "Qualified beneficiary," "Qualifying event"
and "group health plan" all shall have the meanings given such terms under
Section 4980B of the Code and Section 601 et seq. of ERISA. Buyer shall hold the
FrontierVision Companies and any entity required to be combined with the
FrontierVision Companies (within the meaning of Sections 414(b), (c), (m) or (o)
of the Code) harmless from and fully indemnify them against any costs, expenses,
losses, damages and liabilities incurred or suffered by them directly or
indirectly, including, but not limited to, reasonable attorneys' fees and
expenses, which relate to continuation coverage and arise as a result of any
action or omission by any FrontierVision Company or any of their ERISA
Affiliates or because Buyer is deemed to be a successor employer to any
FrontierVision Company or any of their ERISA Affiliates.
(d) If the employment of any Assumed Employee who continues
his employment with the FrontierVision Companies after the Closing is terminated
within the one-year period immediately following the Closing, such employee
shall be entitled to receive severance benefits in accordance with the
provisions of the FrontierVision Severance Pay Plan disclosed in Section 3.13 of
FrontierVision's Disclosure Schedule. Notwithstanding the foregoing or anything
in the FrontierVision Severance Pay Plan to the contrary, Buyer shall have no
obligation to provide any severance benefits to any such employee discharged for
cause.
(e) At or prior to the Closing, FVP and the other
FrontierVision Companies shall enter into appropriate release agreements with
James C. Vaughn and John S. Koo, pursuant to which each party irrevocably
waives, releases and forever discharges the other party (including the agents,
servants, employees, directors, officers, affiliates, divisions, partners and
representatives of FVP and the other FrontierVision Companies) of and from any
and all actions, causes of actions, charges, complaints, claims, liabilities,
and expenses (including, without limitation, attorneys' fees and costs) of any
nature whatsoever, known or unknown, in law and equity, arising from the
employment agreements by and between FVP and each of James C. Vaughn and John S.
Koo.
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(f) At the Closing, Buyer shall cause all amounts due under
the FrontierVision Partners, L.P. Executive Deferred Compensation Plan to be
paid as directed by FVP. An amount equal to the aggregate amount of such
payments shall be included as an Adjustment Liability in the computation of
Closing Net Liabilities. The participants under the Plan shall deliver
appropriate releases to Buyer with respect to its rights under the Plan
contingent upon receipt of the Closing payment due to such participant.
6.10 Tax Matters.
The following provisions shall govern the allocation of responsibility
between Buyer and Sellers for certain tax matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. The
General Partner shall prepare or cause to be prepared and file or cause to be
filed all Tax Returns for the FrontierVision Companies for all periods ending on
or prior to the Closing Date which are required to be filed after the Closing
Date. Such Tax Returns shall be prepared in accordance with each FrontierVision
Company's past custom and practice (subject to applicable Legal Requirements and
determined on the basis of the appropriate permanent records of such
FrontierVision Company), and allocations of items of income and gain and loss
and deduction shall be made using the closing of the books method. In the case
of any FrontierVision Company that is a partnership or limited liability
company, such Tax Returns shall be prepared in accordance with the Charter
Documents of such FrontierVision Company as in effect on the Closing Date. In
preparing each FrontierVision Company's Tax Returns, the General Partner shall
consult with Buyer in good faith and shall provide Buyer with drafts of such Tax
Returns (together with the relevant back-up information) for review at least
twenty days prior to filing. After the Closing, Buyer shall not prepare or cause
to be prepared or file or cause to be filed any Tax Return for the
FrontierVision Companies for any period ending on or prior to the Closing Date,
except as any Seller adversely affected thereby may agree in writing.
(b) Tax Periods Beginning Before and Ending After the Closing
Date. Buyer shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the FrontierVision Companies for Tax periods which begin
before the Closing Date and end after the Closing Date. Such Tax Returns shall
be prepared in accordance with each FrontierVision Company's past custom and
practice (subject to applicable Legal Requirements and determined on the basis
of the appropriate permanent records of such FrontierVision Company). In
preparing such Tax Returns, Buyer shall consult with the General Partner in good
faith and shall provide the General Partner with drafts of such Tax Returns
(together with the relevant back-up information) for review at least twenty days
prior to filing.
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(c) Cooperation on Tax Matters.
(1) Buyer and the General Partner shall
cooperate fully, as and to the extent reasonably requested by the other party,
in connection with the filing of Tax Returns pursuant to this Section 6.10 and
any audit, litigation, or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation, or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Buyer and the General Partner agree (A) to
retain all books and records with respect to Tax matters pertinent to the
FrontierVision Companies relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or the General Partner, any extensions thereof) of the
respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other party so requests, Buyer or the General
Partner, as the case may be, shall allow the other party to take possession of
such books and records to the extent they would otherwise be destroyed or
discarded.
(2) Buyer and the General Partner further agree,
upon request, to use commercially reasonable efforts to obtain any certificate
or other document from any Governmental Authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including Taxes with respect to the transactions contemplated hereby).
(d) Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving the FrontierVision Companies
shall be terminated as of the Closing Date and, after the Closing Date, the
FrontierVision Companies shall not be bound thereby or have any liability
thereunder.
(e) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be borne one-half by
Buyer and one-half by Sellers. Buyer and the General Partner will cooperate in
all reasonable respects to prepare and file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees.
6.11 FrontierVision Name.
Buyer agrees that the General Partner shall retain the right to the
name "FrontierVision" after the Closing and agrees to change the name of each of
the FrontierVision Companies within one year after the Closing to a name that
does not include any variant of "FrontierVision" and agrees not to
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otherwise use the "FrontierVision" name or any variant thereof thereafter,
subject to Buyer's indemnification obligations under Section 10.4(c).
6.12 Releases.
After the Closing neither Buyer nor its Affiliates will have any claim
against (except as expressly provided in Article 10), or be entitled to enforce
any provision of the existing partnership agreement of FVP (or either of the
Limited Partnership Interests and Note Purchase Agreements pursuant to which the
Sellers made their investments in FVP) against, any Seller or any Affiliate of
any Seller or any officer or director of any Seller or any Affiliate of any
Seller, and any and all such claims (except claims made pursuant to Article 10)
are hereby waived and released. At the Closing, subject to Section 6.13, each
Seller shall execute and deliver to Buyer a Seller Release. At the Closing,
subject to Section 6.13, each Person designated on Exhibit H shall execute and
deliver to Buyer a Management Release.
6.13 Directors and Officers Insurance.
Prior to the Closing FVP will purchase on behalf of the FrontierVision
Companies a General Partners Liability/Limited Partnership Reimbursement
insurance policy in scope and coverage substantially similar to the policy
quotation received by Buyer from American Dynasty Surplus Line Insurance Company
on February 16, 1999, covering the officers and directors of the FrontierVision
Companies and the members of FVP's Advisory Committee. The amount of any
premiums paid by the FrontierVision Companies prior to the Adjustment Time in
respect of such policy shall be included as an Adjustment Asset in the
computation of Closing Net Liabilities. Buyer agrees to cause the FrontierVision
Companies to keep such policy in effect for at least the three year period
following the Closing Date.
6.14 Rate Regulatory Matters.
The parties acknowledge and agree that notwithstanding anything in this
Agreement or any other Transaction Document to the contrary (including any
representation or warranty made by FVP in Sections 3.11(e), 3.15 or 3.16), any
matter relating to, in connection with or resulting or arising from any Rate
Regulatory Matter, or any actions taken prior to or after the date hereof by any
FrontierVision Company to comply with or in a good faith attempt to comply with
any Rate Regulatory Matter (including any rate reduction, refund, penalty or
similar action having the effect of reducing the rates previously or
subsequently paid by subscribers, whether instituted or implemented by or
imposed on any FrontierVision Company and changes to rate practices instituted
or implemented by or imposed on any FrontierVision Company), shall not: (a)
cause or constitute, directly or indirectly, a breach by any FrontierVision
Company or any Seller of any of its representations, warranties, covenants or
agreements contained in this Agreement or any other Transaction Document (and
such representations, warranties, covenants, and agreements shall hereby be
deemed to be modified appropriately to reflect and permit
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the impact and existence of such Rate Regulatory Matters and to permit any
action by any FrontierVision Company to comply with or attempt in good faith to
comply with such Rate Regulatory Matters; (b) otherwise cause or constitute,
directly or indirectly, a default or breach by any FrontierVision Company or any
Seller under this Agreement or any other Transaction Document; (c) result in the
failure of any condition precedent to the obligations of Buyer under this
Agreement or any other Transaction Document; (d) otherwise excuse Buyer's
performance of its obligations under this Agreement or any other Transaction
Document; or (e) except as expressly provided in Section 10.2(c), give rise to
any claim for indemnification or other compensation by Buyer or any adjustment
to the Stock Consideration or Cash Consideration.
6.15 Distribution by SPCs of Interest in General Partner; Cancellation
of SPC Notes.
(a) Immediately prior to the Closing, each of Brown Brothers
Harriman & Co. and Olympus Growth Fund II, L.P., both of which are SPC Sellers,
will cause the respective SPC owned by it to distribute, directly or indirectly,
to such SPC Seller the limited partnership interest in the General Partner held
by such SPC (together with all of its rights and obligations under the
partnership agreement of the General Partner). Such partnership interests in the
General Partner are not included in the Purchased Interests and shall not be
sold and transferred to Buyer hereunder.
(b) Each SPC Seller that holds any SPC Note shall cause all
such SPC Notes to be canceled concurrently with the Closing. Buyer shall not
assume any liability with respect to any SPC Notes, and no SPC shall have any
continuing liability after the Closing with respect to any SPC Notes.
6.16 Cooperation on Buyer SEC Matters.
(a) FVP shall cooperate with Buyer and its counsel and
accountants in connection with any filing required to be made by Buyer with the
SEC. FVP shall provide to Buyer such information relating to the FrontierVision
Companies and their respective business and operations as Buyer may reasonably
request. All costs, expenses and fees incurred in connection with the inclusion
by Buyer of such information in any such filing shall be borne by Buyer, and
Buyer shall indemnify and hold harmless FVP and the Sellers from any Losses
resulting from the inclusion by Buyer of any such information in any such
filing, except Buyer shall not have any indemnification liability to the
FrontierVision Companies to the extent any Losses arise out of any information
included by Buyer in reliance upon and in conformity with written information
furnished by the FrontierVision Companies expressly for use in connection with
such filings.
(b) FVP hereby consents to the inclusion by Buyer of financial
statements of the FrontierVision Companies, if requested to be so included by
Buyer, in any report required to be filed by Buyer with the SEC, the National
Association of Securities Dealers' Automated Quotations ("NASDAQ") System or any
stock exchange pursuant to applicable Legal Requirements, including the
Securities Act and the Exchange Act. All costs, expenses and fees incurred in
connection with the
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inclusion by Buyer of financial statements of the FrontierVision Companies in
any such report shall be borne by Buyer, and Buyer shall indemnify and hold
harmless FVP and the Sellers from any Losses resulting from the inclusion by
Buyer of financial statements of the FrontierVision Companies in any such
report. FVP agrees to obtain the consent of the independent public accountants
of the FrontierVision Companies to the inclusion of such financial statements in
any report so required to be filed by Buyer with the SEC, NASDAQ System or any
stock exchange.
6.17 Stock Consideration Registration Rights Agreement.
(a) Simultaneously with the execution of this Agreement, and
as a material inducement to Sellers to enter into this Agreement, Buyer shall
execute and deliver the Stock Consideration Registration Rights Agreement,
pursuant to which Buyer will grant Sellers certain rights as provided therein in
respect of the shares of ACC Class A Common Stock and other securities
constituting the Stock Consideration (such shares and other securities, the
"Stock Consideration Registrable Securities"). Buyer shall perform all of its
obligations under the Stock Consideration Registration Rights Agreement in
accordance with their terms.
(b) Prior to the Closing FVP will make a written request to
the "Minor Holders" under the Stock Consideration Registration Rights Agreement
with respect to compliance with certain "Sales Notice" procedures, and establish
a "preferred broker" to facilitate such Sales Notices, all as more fully
described in Paragraph 2(b) of the Stock Consideration Registration Rights
Agreement. No "Minor Holder" will be liable to Buyer or any other party for any
damages sustained by Buyer or any other party as a result of the failure of such
Minor Holder to make a Sales Notice as requested by FVP.
6.18 State Cable Systems.
The FrontierVision Companies acquired certain of the Systems from State
Cable TV Corporation and Better Cable TV Company on October 23, 1998 pursuant to
a purchase and sale agreement referred to in Section 3.11 of FrontierVision's
Disclosure Schedule (the "State Cable Acquisition Agreement"). The
FrontierVision Companies have filed, or intend to file after the execution of
this Agreement, an indemnification claim against the sellers thereunder based on
their breach of certain representations and warranties relating to the bandwidth
capacity of such Systems. In consideration of the inclusion as an Adjustment
Liability of item (G) in Section 2.5(b)(2), FVP and Buyer hereby agree as
follows: (1) Sellers shall be entitled to the first $5,500,000 which is
collected by or on behalf of the FrontierVision Companies, either before or
after the Closing hereunder, in respect of such claim (to the extent it relates
to the plant miles in respect of which item (G) in Section 2.5(b)(2) relates)
and Buyer shall be entitled to any amounts collected in excess of $5,500,000;
and (2) if such claim is not finally resolved prior to the Closing hereunder,
Buyer shall offer to engage the General Partner to proceed with the claim on
behalf of and as the agent of the FrontierVision Companies, will cooperate and
cause the FrontierVision Companies to cooperate with the General Partner in all
reasonable respects in connection therewith, and if any such amounts are
collected by or on behalf of
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the FrontierVision Companies after the Closing hereunder, Buyer shall cause the
first $5,500,000 in the aggregate of such monies (less any such amounts
collected by the FrontierVision Companies prior to the Closing) to be remitted
promptly to the General Partner for the benefit of Sellers; provided, however,
that (A) the General Partner shall not be required to accept such engagement or
proceed with such claim and Buyer may terminate the engagement of the General
Partner at any time provided that Buyer shall still cause the first $5,500,000
in the aggregate of such monies (less any such amounts collected by the
FrontierVision Companies prior to the Closing) to be remitted promptly to the
General Partner for the benefit of Sellers except that out of any monies to be
remitted to the General Partner pursuant to this clause (B) there shall be
deducted Buyer's reasonable out-of-pocket costs and expenses actually incurred,
if any, in connection with prosecuting such claim after the Closing and provided
further that if the amount of the monies collected after the Closing exceeds
$5,500,000, Sellers shall only bear a pro rata portion of Buyer's out-of-pocket
costs and expenses based on a fraction, the numerator of which is equal to
$5,500,000 and the denominator of which is equal to the total amount of the
monies collected; and (B) the General Partner shall not waive or settle such
claim without the prior written consent of Buyer (which consent shall not be
unreasonably withheld) if the settlement relates to any indemnification claim
other than the claim described above in subsection (1) or otherwise impairs the
rights of the FrontierVision Companies with respect to any other indemnification
claims under the State Cable Acquisition Agreement.
6.19 Lien Searches.
FVP shall deliver to Buyer, at least two weeks prior to the Closing
Date, an accurate list of the current address of each Seller's respective
principal place of business, or if such Seller has no principal place of
business, such Seller's respective residence, and upon delivery of such list FVP
shall be deemed to have represented and warranted to Buyer that each such
address is the true and correct address that it purports to be with respect to
each Seller as of such date.
6.20 Distant Signals; Copyright Matters.
Unless otherwise restricted or prohibited by any Governmental
Authority, Legal Requirement or Contract, if requested by Buyer, FVP will cause
the FrontierVision Companies to delete prior to the Closing any distant
broadcast signal the continued carriage of which will in Buyer's reasonable
judgment result in a substantial increase to Buyer's copyright liability;
provided, however, that Buyer shall give FVP reasonable advance notice to permit
the FrontierVision Companies to comply with its notice obligations in connection
with a signal deletion and FVP shall have no obligation to cause the deletion of
such signal unless Buyer agrees to reimburse the Sellers for any out-of-pocket
costs and expenses that may be incurred by the FrontierVision Companies in
connection with deleting any such signals (other than nominal costs and
expenses).
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ARTICLE 7
CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS
7.1 Conditions to Obligations of Buyer.
All obligations of Buyer at the Closing hereunder are subject to the
fulfillment prior to or at the Closing of each of the following conditions:
(a) Representations and Warranties of FVP. As to the
representations and warranties of FVP set forth in Article 3, (1) those
representations and warranties set forth in Article 3 which are expressly stated
to be made solely as of the date of this Agreement or another specified date
shall be true and correct in all respects as of such date, and (2) all other
representations and warranties of FVP set forth in Article 3 shall be true and
correct in all respects at and as of the time of the Closing as though made at
and as of that time, except in each case of clauses (1) and (2) to the extent
that the aggregate effect of the inaccuracies in such representations and
warranties as of the applicable times does not constitute a material adverse
change in the business, financial condition, assets or liabilities of the
FrontierVision Companies, taken as a whole, when compared with the state of
facts that would exist if all such representations and warranties were true in
all respects as of the applicable times, not giving effect to any inaccuracies
resulting from any actions taken in accordance with the provisions of this
Agreement, any event that arose in the ordinary course of business, any changes
in economic conditions that are applicable to the cable industry generally on a
national, state, regional or local basis, any changes in conditions (including
Rate Regulatory Matters, and other federal, state or local governmental actions,
legislation or regulations) that are applicable to the cable industry generally
on a national, state, regional or local basis, or any changes in competitive
activities.
(b) Representations and Warranties of Sellers. As to the
representations and warranties of Sellers set forth in Article 4, (1) those
representations and warranties set forth in Article 4 which are expressly stated
to be made solely as of the date of this Agreement or another specified date
shall be true and correct in all respects as of such date, and (2) all other
representations and warranties of Sellers set forth in Article 4 shall be true
and correct in all respects at and as of the time of the Closing as though made
at and as of that time, except in each case of clauses (1) and (2) to the extent
that the aggregate effect of the inaccuracies in such representations and
warranties as of the applicable times does not materially impair Sellers'
ability to perform their obligations under this Agreement and the other
Transaction Documents to which they are party.
(c) Covenants. FVP and the Sellers shall have performed and
complied with all covenants and agreements required by this Agreement (other
than by Sections 6.4 and 6.7, which are governed by the immediately following
sentence) to be performed or complied with by them prior to or at the Closing,
except to the extent that the aggregate effect of the failure to so perform or
comply
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has not had a material adverse effect on the business, financial condition,
assets or liabilities of the FrontierVision Companies, taken as a whole. FVP
shall have performed and complied with in all material respects all covenants
and agreements required by Sections 6.4, 6.7 and 6.16 to be performed or
complied with by it prior to or at the Closing.
(d) Franchise Consents and Franchise Renewals.
(1) A Consent of the Franchising Authority shall
have been obtained for each Franchise designated in Section 3.4 of
FrontierVision's Disclosure Schedule as a "Material Consent Franchise" and for
each Designated Material Consent Franchise, if any. Notwithstanding the
preceding sentence, and for purposes of satisfaction of the condition in this
subsection (1):
(A) Consent with respect to any Material
Consent Franchise or any Designated Material Consent Franchise shall be deemed
obtained on the date the 120-Day Period expires if such Franchising Authority
fails to approve or deny the request for Consent by such date and the failure to
approve the request for Consent was not principally caused by any of the
following: a non-frivolous dispute by the Franchising Authority as to the
FrontierVision Companies' (or any predecessor's) noncompliance with the
Franchise (provided that FVP has provided Buyer with evidence reasonably
satisfactory to Buyer supporting FVP's contention that such dispute is
frivolous); a non-frivolous dispute by the Franchising Authority as to Buyer's
qualifications to be the transferee of control of the FrontierVision Companies
as the holder of the Franchise in question (provided that FVP has provided Buyer
with evidence reasonably satisfactory to Buyer supporting FVP's contention that
such dispute is frivolous); or the withholding of consent by FVP or Buyer to any
requirements that would be imposed by the Franchising Authority as a condition
to granting such Consent (although nothing herein shall be deemed to limit the
provisions of Section 6.4(d) relating to changes and conditions that Buyer is
required to accept and that FVP may accept on behalf of Buyer and the
FrontierVision Companies). The term "120-Day Period" means, with respect to any
Franchise, the 120 day period commencing on the date on which the Consent
application on FCC Form 394 (or other appropriate form) required to be filed
with respect to such Franchise was filed with the appropriate Franchising
Authority, plus the number of days, if any, that FVP has agreed with a
Franchising Authority to extend the 120-day period provided by Section 617 of
the Cable Act.
(B) Consent with respect to any Material
Consent Franchise or Designated Material Consent Franchise that is not in the
Renewal Window shall be deemed obtained on the sixtieth day (subject to the
proviso below) after the date the 120-Day Period expires, or if the Franchising
Authority has affirmatively denied the request for Franchise Consent, the
sixtieth day after the date of such denial, if such Franchising Authority fails
to approve or fails to reverse its denial of the request for Consent by such
date and the failure to approve or reverse its denial of the request for Consent
was not principally caused by a non-frivolous dispute by the Franchising
Authority as to the FrontierVision Companies' (or a predecessor's) noncompliance
with the Franchise (provided that FVP has provided Buyer with evidence
reasonably satisfactory to Buyer supporting FVP's contention that
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such dispute is frivolous); provided, however, that the sixty day extension
period referred to above shall be reduced by each day that the Franchise Consent
application was filed after the forty-fifth day after the execution of this
Agreement (with respect to applications filed pursuant to Section 6.4(a)) or
filed after the tenth day after the date it was determined that such application
was required to be filed (with respect to applications filed pursuant to Section
6.4(b)) if such delay in filing was principally caused by Buyer.
(2) The Renewal Franchises shall have been renewed in
accordance with the
provisions of Section 6.4. The condition in this subsection (2) shall be deemed
satisfied as to any Renewal Franchise (other than the City of Lewiston (ME),
City of Auborn (ME), and City of Defiance (OH) Franchises) if such Franchise is
extended on its existing terms to a date that permits either the FrontierVision
Companies (prior to the Closing) or Buyer (after the Closing) to file a request
for renewal under Section 626(a) of the Cable Act prior to the expiration of the
statutory time period for making such filing (determined on the basis of the new
expiration date).
(3) A Consent of the Franchising Authority under
the Town of Manchester (ME), the Town of Winthrop (ME), the Town of Peru (ME),
the Town of Fairfield (ME), the Town of Milo (ME), and the City of Brewer (ME)
Franchises shall have been obtained (with an acknowledgment by such Franchising
Authority that the FrontierVision Companies are not in default under the
Franchise) or the date by which the FrontierVision Companies are required to
complete any upgrade/rebuild requirements set forth in such Franchises shall
have been extended at least three years such that the FrontierVision Companies
are not in default under the Franchise.
(e) FCC Consents. Consent of the FCC shall have been obtained
with respect to each CARS License listed in Section 3.8 of FrontierVision's
Disclosure Schedule.
(f) Lease Consents. Consent of the lessor under the office
leases designated as "Material Consent Leases" in Section 3.4 of
FrontierVision's Disclosure Schedule shall have been obtained.
(g) Hart-Scott-Rodino. The requisite waiting period, if any,
under the HSR Act shall have expired or been terminated.
(h) Judgment. There shall not be in effect on the date on
which the Closing is to occur any judgment, decree, or order of a court of
competent jurisdiction or other prohibition having the force of law that would
prevent or make unlawful the Closing, provided that Buyer shall have used
commercially reasonable efforts to prevent the entry of any such judgment,
decree, order or other legal prohibition and to appeal as expeditiously as
possible any such judgment, decree, order or other legal prohibition that may be
entered and shall have otherwise taken commercially reasonable actions to cause
any such judgment, decree, order or other legal prohibition to cease to be in
effect as expeditiously as possible.
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(i) No Material Adverse Change. No event shall have occurred
between December 31, 1998 and the date on which the Closing is to occur that has
had a material adverse effect on the business, financial condition, assets or
liabilities of the FrontierVision Companies, taken as a whole, other than events
or changes disclosed in this Agreement or FrontierVision's Disclosure Schedule,
or an event that arose in the ordinary course of business, any changes in
economic conditions that are applicable to the cable industry generally on a
national, state, regional or local basis, any changes in conditions (including
Rate Regulatory Matters, and other federal, state or local governmental actions,
legislation or regulations) that are applicable to the cable industry generally
on a national, state, regional or local basis, or any changes in competitive
activities.
(j) Lien Searches. FVP shall have delivered to Buyer, at least
two weeks prior to the Closing Date, UCC financing statement, tax lien and
judgment searches dated not more than thirty days prior to the Closing Date
(including copies of documents listed on each search, if any) with respect to
each of the Sellers performed by a search firm reasonably satisfactory to Buyer
in the jurisdiction of each Seller's respective principal place of business, or
if such Seller has no place of business, in the jurisdiction of his or her
respective residence as set forth in the list delivered by FVP pursuant to
Section 6.19 (except that this condition shall not be deemed unsatisfied by the
failure to deliver a search at least two weeks prior to the Closing Date if such
search does not evidence any Encumbrance on the Purchased Interests or the
Assets that is not a Permitted Encumbrance or if any such Encumbrance that is
not a Permitted Encumbrance is removed at or prior to the Closing).
(k) Deliveries. Sellers shall have made or stand willing to
make all the deliveries to Buyer described in Section 8.2.
7.2 Conditions to Obligations of Sellers.
All obligations of each Seller at the Closing hereunder are subject to
the fulfillment prior to or at the Closing of each of the following conditions:
(a) Representations and Warranties. As to the representations
and warranties of Buyer set forth in Article 5, (1) those representations and
warranties set forth in Article 5 which are expressly stated to be made solely
as of the date of this Agreement or another specified date shall be true and
correct in all respects as of such date, and (2) all other representations and
warranties of Buyer set forth in Article 5 shall be true and correct in all
respects at and as of the time of the Closing as though made at and as of that
time, except in each case of clauses (1) and (2) to the extent that the
aggregate effect of the inaccuracies in such representations and warranties as
of the applicable times does not constitute a material adverse change in the
business, financial condition, assets or liabilities of Buyer and its
Subsidiaries, taken as a whole, when compared with the state of facts that would
exist if all such representations and warranties were true in all respects as of
the applicable times, not giving effect to any inaccuracies resulting from any
actions taken in accordance with the provisions of this
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Agreement, any event that arose in the ordinary course of business, any changes
in economic conditions that are applicable to the cable industry generally on a
national, state, regional or local basis, any changes in conditions (including
Rate Regulatory Matters, and other federal, state or local governmental actions,
legislation or regulations) that are applicable to the cable industry generally
on a national, state, regional or local basis, or any changes in competitive
activities.
(b) Covenants. Buyer shall have performed and complied with in
all material respects all covenants and agreements required by this Agreement to
be performed or complied with by it prior to or at the Closing.
(c) Hart-Scott-Rodino. The requisite waiting period, if any,
under the HSR Act shall have expired or been terminated.
(d) Judgment. There shall not be in effect on the date on
which the Closing is to occur any judgment, decree, or order of a court of
competent jurisdiction or other prohibition having the force of law that would
prevent or make unlawful the Closing, provided that FVP shall have used
commercially reasonable efforts to prevent the entry of any such judgment,
decree, order or other legal prohibition and to appeal as expeditiously as
possible any such judgment, decree, order or other legal prohibition that may be
entered and shall have otherwise taken commercially reasonable actions to cause
any such judgment, decree, order or other legal prohibition to cease to be in
effect as expeditiously as possible.
(e) No Material Adverse Change. No event shall have occurred
between the date of this Agreement and the date on which the Closing is to occur
that has had a material adverse effect on the business, financial condition,
assets or liabilities of Buyer and its Subsidiaries, taken as a whole, other
than an event that arose in the ordinary course of business, any changes in
economic conditions that are applicable to the cable industry generally on a
national, state, regional or local basis, any changes in conditions (including
Rate Regulatory Matters, and other federal, state or local governmental actions,
legislation or regulations) that are applicable to the cable industry generally
on a national, state, regional or local basis, or any changes in competitive
activities.
(f) Stock Consideration. The shares of ACC Class A Common
Stock to be paid and issued to Sellers as the Stock Consideration (or, if
applicable, all of the securities of any other class or series constituting the
Stock Consideration): (1) shall have been duly authorized and validly issued,
fully paid and nonassessable, not subject to, or issued in violation of, any
preemptive rights and not issued in violation of any federal or state securities
laws; (2) shall comply with the provisions of the Stock Consideration
Registration Rights Agreement; and (3) shall have the same rights and powers as
all other shares of ACC Class A Common Stock (or, if any of the securities
constituting the Stock Consideration are not shares of ACC Class A Stock, as all
other securities of the same class or series) issued and outstanding as of the
date of this Agreement.
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(g) Stock Consideration Registration Rights Agreement. The
Stock Consideration Registration Rights Agreement shall be in full force and
effect in accordance with its terms and Buyer shall have performed all of its
obligations therein in accordance with their terms. An appropriate registration
statement covering the registration of all of the Stock Consideration
Registrable Securities shall have been declared effective under the Securities
Act in accordance with the provisions of the Stock Consideration Registration
Rights Agreement (and such registration statement shall not be subject to any
stop order or proceeding seeking a stop order). All of the Stock Consideration
Registrable Securities shall be listed on the NASDAQ National Market System, New
York Stock Exchange or American Stock Exchange or other major market system or
exchange reasonably acceptable to Sellers.
(h) Deliveries. Buyer shall have made or stand willing to make
all the deliveries described in Section 8.3.
ARTICLE 8
CLOSING AND CLOSING DELIVERIES
8.1 Closing.
(a) Closing Date.
(1) Subject to satisfaction or, to the extent
permitted by law, waiver, of the closing conditions described in Article 7, and
subject to Sections 8.1(a)(2), 8.1(a)(3) and 8.1(a)(4), the Closing shall take
place on the tenth business day after FVP or Buyer provides written notice to
the other party after satisfaction or waiver of the conditions set forth in
Sections 7.1(d), (e), (f) and (g) and Section 7.2(c) (provided that without
Buyer's consent, the Closing Date shall not be earlier than the earlier of the
date on which all Franchise Consents are obtained and the date that is sixty
days after the date on which the 120-Day Period has expired for each Franchise
in respect of which a Franchise Consent application was filed; provided,
however, that the sixty day extension period referred to above shall be reduced
by each day that the Franchise Consent application was filed after the
forty-fifth day after the execution of this Agreement (with respect to
applications filed pursuant to Section 6.4(a)) or filed after the tenth day
after the date it was determined that such application was required to be filed
(with respect to applications filed pursuant to Section 6.4(b)) if such delay in
filing was principally caused by Buyer)); and provided further that without the
consent of both FVP and Buyer the Closing Date shall not be earlier than the
tenth business day after FVP or Buyer provides written notice to the other party
that the Closing is permitted to take place in accordance with the preceding
provisions of this Section 8.1(a)(1)), or on such earlier or later date as FVP
and Buyer shall mutually agree. If such tenth business day (or any other date
for the Closing agreed to by FVP and Buyer) would extend the date for the
Closing beyond the Upset Date, the Upset Date shall be extended to the day after
such tenth business day or other date agreed to for the Closing, as applicable.
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(2) If on the date on which the Closing would
otherwise be required to take place pursuant to Section 8.1(a)(1), (A) there
shall be in effect any judgment, decree, or order of a court of competent
jurisdiction that would prevent or make unlawful the Closing, or (B) any other
circumstance beyond the reasonable control of FVP or Sellers or Buyer (but which
shall not in any event include any matters relating to financing of the
transactions contemplated hereby) shall exist that would prevent the Closing or
the satisfaction of any of the conditions precedent to any party set forth in
Article 7, then either FVP or Buyer may, at its option, postpone the date on
which the Closing is required to take place until the tenth business day after
either party provides written notice to the other party, as soon as practicable
after such conditions are satisfied, such judgment, decree, or order ceases to
be in effect, or such other circumstance ceases to exist; provided, however,
that a party's postponement of the date on which the Closing is required to take
place shall not restrict the exercise by FVP or Buyer of its rights under
Section 9.2 or 9.3, as applicable.
(3) If on the date on which the Closing would
otherwise be required to take place pursuant to Section 8.1(a)(1), the Credit
Agreement Consent has not been obtained, then Buyer may, at its option, postpone
the date on which the Closing is required to take place until such date, but in
no event later than June 30, 1999, to be set by Buyer on at least ten business
days' written notice to FVP.
(4) If on the date on which the Closing would
otherwise be required to take place pursuant to the foregoing subsections of
this Section 8.1(a), the conditions set forth in Sections 7.2(f) or (g) have not
been satisfied, then either FVP or Buyer may, at its option (but it shall not be
compelled to do so), postpone the date on which the Closing is required to take
place until such date, but in no event later than the Upset Date, to be set by
either party on at least ten business days' written notice to the other party,
as soon as practicable after such conditions are satisfied; provided, however,
that a party's postponement of the date on which the Closing is required to take
place shall not restrict the exercise by FVP or Buyer of its rights under
Section 9.2 or 9.3, as applicable; and provided, further, that if such
conditions set forth in Sections 7.2(f) and (g) have not been satisfied in any
event by the Upset Date, Buyer shall be deemed to have willfully breached this
Agreement with the attendant consequences set forth in Sections 2.4 and 9.4;
provided, further, however, that Buyer may on the Upset Date, but only on the
Upset Date, satisfy the conditions set forth in Sections 7.2(g) and (h) by being
ready, able, and willing to deliver on the Upset Date, in lieu of the Stock
Consideration Registrable Securities, additional cash consideration in an amount
equal to the aggregate fair market value of the Stock Consideration Registrable
Securities (computed on the basis of the Weighted Average Trading Price of the
ACC Class A Common Stock or other security constituting the Stock Consideration
for the ten trading day period beginning on the thirteenth trading day prior to
the Upset Date.
(b) Closing Place. The Closing shall be held at the offices of
Dow, Lohnes & Albertson, PLLC, 1200 New Hampshire Avenue, N.W., Suite 800,
Washington, D.C. 20036, or any other place or time as FVP and Buyer shall
mutually agree.
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8.2 Deliveries by Sellers.
Prior to or at the Closing, Sellers shall deliver or cause to be
delivered to Buyer the following:
(a) Purchased Interests. An assignment agreement providing for
the assignment of the Purchased Interests to Buyer, in a form reasonably
satisfactory to Buyer, together with any notes or certificates representing the
Purchased Interests, duly endorsed for transfer.
(b) Officer's Certificate of FVP. A certificate executed by
FVP, dated as of the Closing Date, certifying that the closing conditions
specified in Sections 7.1(a) and (c) have been satisfied as to FVP, except as
disclosed in said certificate.
(c) Secretary's Certificate. A certificate executed by FVP,
dated as of the Closing Date, (1) certifying that the resolutions, as attached
to said certificate, were duly adopted by the Advisory Committee of FVP,
authorizing and approving the execution by FVP of this Agreement and the other
Transaction Documents to which FVP is a party and the consummation of the
transactions contemplated hereby and thereby and that such resolutions remain in
full force and effect; (2) certifying that the resolutions, as attached to said
certificate, were duly adopted by the Board of Directors of FrontierVision Inc.,
authorizing and approving the execution by FVP and the General Partner of this
Agreement and the other Transaction Documents to which they are a party and the
consummation of the transactions contemplated hereby and thereby and that such
resolutions remain in full force and effect; and (3) providing, as attachments
thereto, Certificates of Good Standing for FVP and each of the other
FrontierVision Companies certified by an appropriate state official of the State
of their organization, all certified by such state officials as of a date not
more than fifteen days before the Closing Date.
(d) Consents. Copies of Consents which have been obtained by
FVP or Sellers prior to the Closing.
(e) Corporate, Financial, and Tax Records. All corporate
records (including minute books and stock books and registers) and financial and
tax records of each of the FrontierVision Companies that are not located at one
of the offices or sites included in the Real Property.
(f) Post-Closing Escrow Agreement. The Post-Closing
Escrow Agreement, duly executed by each Seller and the Escrow Agent.
(g) Noncompetition Agreement. The Noncompetition Agreements,
duly executed by each Person designated on Exhibit A.
(h) Opinion of Counsel. An opinion of Dow, Lohnes & Albertson,
PLLC, counsel to FVP, dated as of the Closing Date, substantially in the form of
Exhibit C hereto.
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(i) Seller Releases. A Seller Release, duly executed by each
Seller.
(j) Management Releases. A Management Release, duly executed
by each Person designated on Exhibit H.
8.3 Deliveries by Buyer.
Prior to or at the Closing, Buyer shall deliver to Sellers the
following:
(a) Purchase Consideration.
(1) An assumption agreement providing for the
assumption by Buyer of the Assumed Liabilities, in a form reasonably
satisfactory to Sellers.
(2) The Closing Cash Payment as follows: (A)
$5,000,000 will be paid to the Escrow Agent for deposit in the Post-Closing
Adjustments Escrow pursuant to Section 2.7; (B) any amount required to be
deposited in the Post-Closing Adjustments Escrow pursuant to Section 2.6 will be
paid to the Escrow Agent; (C) any amount required to be deposited in a
Post-Closing Section 2.8 Escrow pursuant to Section 2.8 will be paid to the
Escrow Agent; (D) any amount required to be deposited in the Post-Closing
Section 2.9 Escrow pursuant to Section 2.9 will be paid to the Escrow Agent; and
(E) the balance of the Closing Cash Payment will be paid by wire or accounts
transfer of immediately available funds to one or more accounts designated by
Sellers by written notice to Buyer not less than two days prior to the Closing.
(3) The Stock Consideration as follows: (A) stock
certificates representing 1,000,000 shares of ACC Class A Common Stock in the
aggregate will be issued and registered in the name of Seller or Sellers'
designees as directed by the Sellers by written notice to Buyer not less than
two days prior to the Closing and transferred to the Escrow Agent for deposit in
the Post-Closing Indemnity Escrow pursuant to Section 10.3, and (B) stock
certificates representing the portion of the Stock Consideration which is not
transferred to the Escrow Agent will be issued and registered in the name of
Seller or Sellers' designees as directed by the Sellers by written notice to
Buyer not less than two days prior to the Closing and delivered to Sellers or
Sellers' designees; or, if Buyer delivers cash pursuant to Section 8.1(a)(4) in
lieu of the Stock Consideration Registrable Securities, (A) an amount equal to
the aggregate fair market value of 1,000,000 shares of ACC Class A Common Stock
(computed on the basis of the Weighted Average Trading Price of the ACC Class A
Common Stock for the ten trading day period beginning on the thirteenth trading
day prior to the Closing Date) will be transferred to the Escrow Agent for
deposit in the Post-Closing Indemnity Escrow pursuant to Section 10.3, and (B)
the portion of the Stock Consideration which is not transferred to the Escrow
Agent will be paid by wire or accounts transfer of immediately available funds
to one or more accounts designated by Sellers by written notice to Buyer not
less than two days prior to the Closing.
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(b) Officer's Certificate. A certificate executed by Buyer,
dated as of the Closing Date, certifying that the closing conditions specified
in Sections 7.2(a) and (b) have been satisfied, except as disclosed in said
certificate.
(c) Secretary's Certificate. A certificate executed by Buyer,
dated as of the Closing Date, (1) certifying that the resolutions, as attached
to said certificate, were duly adopted by the Board of Directors of Buyer,
authorizing and approving the execution by Buyer of this Agreement and the other
Transaction Documents to which Buyer is a party and the consummation of the
transactions contemplated hereby and thereby and that such resolutions remain in
full force and effect; and (2) providing, as attachments thereto, a Certificate
of Good Standing for Buyer certified by an appropriate state official of the
State of Delaware, certified by such state official as of a date not more than
fifteen days before the Closing Date.
(d) Post-Closing Escrow Agreement. The Post-Closing
Escrow Agreement, duly executed by Buyer and the Escrow Agent.
(e) Opinion of Counsel. Opinions of Buchanan Ingersoll
Professional Corporation, counsel to Buyer, dated as of the Closing Date,
substantially in the form of Exhibit D hereto.
ARTICLE 9
TERMINATION
9.1 Termination by Agreement.
This Agreement may be terminated at any time prior to the Closing by
agreement between FVP and Buyer.
9.2 Termination by FVP.
This Agreement may be terminated at any time prior to the Closing by
FVP and the purchase and sale of the Purchased Interests abandoned, upon written
notice to Buyer, upon the occurrence of any of the following:
(a) Conditions. If on any date determined for the Closing in
accordance with Section 8.1 if each condition set forth in Section 7.1 has been
satisfied (or will be satisfied by the delivery of documents at the Closing) or
waived in writing on such date and either a condition set forth in Section 7.2
has not been satisfied (or will not be satisfied by the delivery of documents at
the Closing) or waived in writing on such date or Buyer has nonetheless refused
to consummate the Closing. Notwithstanding the foregoing, FVP may not rely on
the failure of any condition set forth in Section
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7.2 to be satisfied if such failure was principally caused by FVP's or any
Seller's failure to act in good faith or a breach of or failure to perform any
of its representations, warranties, covenants or other obligations in accordance
with the terms of this Agreement.
(b) Upset Date. If the Closing shall not have occurred on or
prior to the Upset Date, unless the failure of the Closing to occur was
principally caused by FVP's or any Seller's failure to act in good faith or a
breach of or failure to perform any of its representations, warranties,
covenants or other obligations in accordance with the terms of this Agreement;
provided that (1) if on the Upset Date the Closing has not occurred solely
because any notice period required by Section 8.1(a) has not lapsed, the Upset
Date shall be extended to a date that is one business day after the lapse of
such period; and (2) if FVP is required to file a Franchise Consent application
pursuant to Section 6.4(b), then FVP may extend the Upset Date from time to time
at its sole option by notice to Buyer to a date that is one business day after
the later of (A) the date that is 210 days after the last Franchise Consent
application was filed pursuant to Section 6.4(b) and (B) 90 days after the last
affirmative denial by a Franchising Authority of a request for such Franchise
Consent.
9.3 Termination by Buyer.
This Agreement may be terminated at any time prior to the Closing by
Buyer and the purchase and sale of the Purchased Interests abandoned, upon
written notice to FVP, upon the occurrence of any of the following:
(a) Conditions. If on any date determined for the Closing in
accordance with Section 8.1 if each condition set forth in Section 7.2 has been
satisfied (or will be satisfied by the delivery of documents at the Closing) or
waived in writing on such date and either a condition set forth in Section 7.1
has not been satisfied (or will not be satisfied by the delivery of documents at
the Closing) or waived in writing on such date or Sellers have nonetheless
refused to consummate the Closing. Notwithstanding the foregoing, Buyer may not
rely on the failure of any condition set forth in Section 7.1 to be satisfied if
such failure was principally caused by Buyer's failure to act in good faith or a
breach of or failure to perform any of its representations, warranties,
covenants or other obligations in accordance with the terms of this Agreement.
(b) Upset Date. If the Closing shall not have occurred on or
prior to the Upset Date, unless the failure of the Closing to occur was
principally caused by Buyer's failure to act in good faith or a breach of or
failure to perform any of its representations, warranties, covenants or other
obligations in accordance with the terms of this Agreement or failure to satisfy
the conditions set forth in Sections 7.2(f) or (g); provided that (1) if on the
Upset Date the Closing has not occurred solely because any notice period
required by Section 8.1(a) has not lapsed, the Upset Date shall be extended to a
date that is one business day after the lapse of such period; and (2) if FVP is
required to file a Franchise Consent application pursuant to Section 6.4(b),
then FVP may extend the Upset Date from time to time at its sole option by
notice to Buyer to a date that is one business day after the later of (A) the
date that is 210 days
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after the last Franchise Consent application was filed pursuant to Section
6.4(b) and (B) 90 days after the last affirmative denial by a Franchising
Authority of a request for such Franchise Consent.
9.4 Effect of Termination.
If this Agreement is terminated as provided in this Article 9, then
this Agreement will forthwith become null and void and there will be no
liability on the part of any party to any other party or any other Person in
respect thereof, provided that:
(a) Surviving Obligations. The obligations of the parties
described in Sections 6.2, 9.4 and 11.1 (and all other provisions of this
Agreement relating to expenses) will survive any such termination. In addition,
if FVP is entitled to receive the Deposit Escrow Property in accordance with
Section 2.4, all of Buyer's obligations with respect to the Deposit Escrow
Property, including its obligations under the Deposit Escrow Agreement and under
the Deposit Registration Rights Agreement will survive any such termination.
(b) Withdrawal of Applications. All filings, applications and
other submissions relating to the transfer of the Purchased Interests shall, to
the extent practicable, be withdrawn from the Governmental Authority or other
Person to whom made.
(c) Willful Breach by Buyer. No such termination will relieve
Buyer from liability for a willful breach of this Agreement (which shall be
deemed to include without limitation any failure by Buyer to satisfy the
conditions set forth in Sections 7.2(f) or (g) by the date on which the Closing
would otherwise be required to take place pursuant to Section 8.1, subject to
the provisions of Section 8.1(a)(4), or in any event by the Upset Date), and in
such event the Deposit Escrow Property shall be released from escrow and
delivered to FVP. Subject to Buyer's continuing obligations described in Section
9.4(a), the delivery of the Deposit Escrow Property to Sellers in compliance
with the provisions of Section 2.4 shall be liquidated damages and constitute
full payment and the exclusive remedy for any damages suffered by FVP and
Sellers by reason of Buyer's breach of this Agreement prior to the Closing. If
the Deposit Escrow Property is not delivered to Sellers in compliance with the
provisions of Section 2.4, FVP and Sellers shall have all rights and remedies
available at law or equity to enforce the provisions of Section 2.4.
(d) Willful Breach by FVP or Sellers. No such termination will
relieve FVP from liability for its willful breach of this Agreement, and in such
event Buyer shall have all rights and remedies available at law or equity,
including the remedy of specific performance against FVP. No such termination
will relieve any Seller from liability for its willful breach of this Agreement,
and in such event Buyer shall have all rights and remedies available at law or
equity, including the remedy of specific performance against such breaching
Seller.
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(e) No Recourse. Anything in this Agreement or applicable law
to the contrary notwithstanding, in the event this Agreement is terminated as
provided in this Article 9, Buyer will have no claim or recourse against any of
FVP's, the General Partner's, or any Seller's respective officers, directors,
shareholders, partners, employees, agents or Affiliates (excluding from
"Affiliates" for this purpose FVP, the General Partner and the other Sellers
themselves) as a result of the breach of any representation, warranty, covenant
or agreement of FVP or any Seller contained herein or otherwise arising out of
or in connection with the transactions contemplated by this Agreement or the
business or operations of the FrontierVision Companies prior to the Closing, it
being understood that FVP shall have no liability for any breach by a Seller and
no Seller will have any liability for any breach by FVP or another Seller.
9.5 Attorneys' Fees.
Notwithstanding any provision in this Agreement that may limit or
qualify a party's remedies, in the event of a default by any party that results
in a lawsuit or other proceeding for any remedy available under this Agreement,
the prevailing party shall be entitled to reimbursement from the defaulting
party of its reasonable legal fees and expenses (whether incurred in
arbitration, at trial, or on appeal).
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; CERTAIN REMEDIES
10.1 Survival.
All representations, warranties and covenants set forth herein will
survive the Closing, provided that all claims made in respect of such
representations, warranties and covenants will be subject to any applicable
limitations set forth in this Article 10.
10.2 Indemnification by Sellers.
After the Closing, but subject to Section 10.5, each Seller hereby
agrees to indemnify and hold Buyer harmless against and with respect to, and
shall reimburse Buyer for:
(a) any and all Losses resulting from any untrue
representation or breach of warranty by FVP or the nonfulfillment of any
covenant to be performed by FVP prior to the Closing contained in this Agreement
or any other Transaction Document to which FVP is a party;
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(b) any and all Losses resulting from any untrue
representation or breach of warranty by such Seller or the nonfulfillment of any
covenant by such Seller contained in this Agreement or any other Transaction
Document to which such Seller is a party; and
(c) any rate refund liability imposed on any of the
FrontierVision Companies for any period ending prior to the Adjustment Time by a
final order or decision issued by a Governmental Authority (but only to the
extent of the out-of-pocket costs payable in respect thereof and it being
understood and agreed that any claim for indemnification in respect of any rate
refund liability may be made only pursuant to this Section 10.2(c) and not under
any other provision of this Section 10.2); provided, however, that Buyer may
make a claim pursuant to this Section 10.2(c) upon the issuance of an initial
adverse order or decision by a Governmental Authority with respect to one of the
FrontierVision Companies for any period ending prior to the Adjustment Time that
could result in an obligation of the Sellers to indemnify Buyer under this
Section 10.2(c) in order to preserve its rights under this Article 10 pending
appeal or other final resolution of such order or decision.
(d) any and all Losses resulting from the matters disclosed in
Sections 3.14 and 3.15 of FrontierVision's Disclosure Schedule (other than
matters relating to Rate Regulatory Matters, including, without limitation, the
matters disclosed in items 1 and 2 of said Section 3.15) and the tax audits
disclosed in Section 3.12 of FrontierVision's Disclosure Schedule.
(e) any and all Losses resulting from any pole attachment fees
payable with respect to the operation by the FrontierVision Companies of the
Systems for any period ending prior to the Adjustment Time.
(f) any and all Losses resulting from the matter disclosed in
Item A.4 of Section 3.6 of FrontierVision's Disclosure Schedule relating to a
dispute between the FrontierVision Companies and CSG.
(g) any and all Losses resulting from amounts that are payable
by the FrontierVision Companies to the other parties under the purchase and sale
agreements referred to in Section 3.11(i).
10.3 Post-Closing Escrow Agreement.
FVP and Buyer have agreed on and delivered to the Escrow Agent a form
of Post-Closing Escrow Agreement in the form of Exhibit B hereto. Following the
execution of this Agreement FVP and Buyer will cooperate in good faith with the
Escrow Agent (or another Person who FVP and Buyer mutually select to serve as
the escrow agent thereunder) to agree with the Escrow Agent (or such other
Person) on the final form of the Post-Closing Escrow Agreement including such
changes to the form attached as Exhibit B as are requested or recommended by the
Escrow Agent and are mutually acceptable to FVP and Buyer (such acceptance not
to be unreasonably withheld by FVP and Buyer). FVP and Buyer agree to take such
additional actions and enter into appropriate amendments to the
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Transaction Documents as may reasonably be necessary to reflect the final form
of Post-Closing Escrow Agreement. Subject to the foregoing, at the Closing,
Buyer, Sellers and the Escrow Agent shall execute the Post-Closing Escrow
Agreement, in accordance with which, on the Closing Date, in addition to the
deposit contemplated by Section 2.7 and in addition to any deposit required by
Sections 2.6, 2.8 or 2.9, Buyer will deposit 1,000,000 shares of ACC Class A
Common Stock with the Escrow Agent on behalf of Sellers in order to provide a
fund for, and the exclusive source for, the payment of any indemnification to
which Buyer is entitled under this Article 10 (such escrow, the "Post-Closing
Indemnity Escrow"). The Post-Closing Indemnity Escrow will be administered, and
the Post-Closing Indemnity Property (as defined below) will be held and
disbursed, in accordance with the provisions of this Article 10 and the
Post-Closing Escrow Agreement. The "Post-Closing Indemnity Property" means,
collectively, the 1,000,000 shares of ACC Class A Common Stock deposited with
the Escrow Agent pursuant to this Section 10.3, together with the kind and
amounts of securities, cash and other property that Sellers would have held or
been entitled to receive as of the date the Post-Closing Indemnity Property is
released in accordance with this Agreement (whether resulting from a stock
split, subdivision, combination or reclassification of the outstanding capital
stock of Buyer, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which Buyer may be a
party or otherwise) had Sellers held such shares of ACC Class A Common Stock as
of the Closing Date and retained such shares, and all securities, cash and other
property distributed or issued with respect to or in substitution or exchange
therefor, during the period from the Closing Date through (and including) the
date the Post-Closing Indemnity Property is released. Subject to the terms and
conditions contained in the Post-Closing Escrow Agreement and the Stock
Consideration Registration Rights Agreement, the Sellers will have the right to
cause the shares of ACC Class A Common Stock or other securities constituting
the Post-Closing Indemnity Property to be sold and converted to cash from time
to time. If Buyer delivers cash pursuant to Section 8.1(a)(4) in lieu of the
Stock Consideration Registrable Securities, Buyer will deposit cash in the
amount determined pursuant to the second part of Section 8.3(a)(3) in the
Post-Closing Indemnity Escrow and the term "Post-Closing Indemnity Property"
shall mean such deposit plus any earnings thereon.
10.4 Indemnification by Buyer.
After the Closing, but subject to Section 10.5, Buyer hereby agrees to
indemnify and hold Sellers harmless against and with respect to, and shall
reimburse Sellers for:
(a) any and all Losses resulting from any untrue
representation, breach of warranty, or nonfulfillment of any covenant by Buyer
contained in this Agreement or any other Transaction Document to which Buyer is
a party;
(b) any and all Losses resulting from any liability or
obligation of the FrontierVision Companies arising from or related to any event
occurring after the Closing Date, and any Assumed Liabilities and any liability
or obligation that was reflected as an Adjustment Liability in computing Closing
Net Liabilities under Article 2;
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(c) any and all Losses arising as a result of the occurrence
of the Closing without the receipt of any Consent (including any Consent under a
Franchise, but excluding any Consent that was not either disclosed in
FrontierVision's Disclosure Schedule or determined to require Consent pursuant
to Section 6.4(b) or requested prior to the Closing), waiver of a Franchising
Authority's right of first refusal under a Franchise, or renewal of any
Franchise; and
(d) any and all Losses resulting from the use of the
"FrontierVision" name or any variant thereof by Buyer and/or its Affiliates
and/or the FrontierVision Companies from and after the Closing.
10.5 Certain Limitations on Indemnification Obligations.
Notwithstanding anything in this Agreement to the contrary:
(a) No Seller will be required to indemnify or otherwise be
liable to Buyer for any matter described in Section 10.2 unless and until the
aggregate amount of all Losses of Buyer arising therefrom for which Sellers
would have indemnification liability to Buyer but for this Section 10.5(a),
exceeds $1,000,000, in which event Sellers will be liable for all such Losses;
provided, however, that this Section 10.5(a) shall not apply to any amount
payable to Buyer pursuant to Section 2.7 or Section 2.9 or Section 10.2(c) (but
only in respect of a claim that Buyer could have made under Section 10.2(c)
immediately after the Closing) or Section 10.2(d) or Section 10.2(e) (but only
in respect of a claim that Buyer could have made under Section 10.2(e)
immediately after the Closing) or Section 10.2(f) or Section 10.2(g), but no
amounts paid to Buyer pursuant to the sections referred to in this proviso (as
limited in this proviso) shall be treated as Losses for purposes of determining
when Buyer's Losses exceed $1,000,000.
(b) No Seller will be required to indemnify or otherwise be
liable to Buyer with respect to any Losses arising under Section 10.2 unless
Buyer gives Sellers written notice of a claim pursuant to Section 10.2 on or
prior to the date that is eighteen months after the Closing Date; provided that,
the Post-Closing Indemnity Property shall be released to Sellers as follows:
(1) On the first business day following the date
that is six months after the Closing Date (the "Initial Release Date"):
(A) if on the Initial Release Date the
Post-Closing Indemnity Property consists solely of shares of ACC Class A Common
Stock or other Stock Consideration Registrable Securities, then the number of
shares of ACC Class A Common Stock or other Stock Consideration Registrable
Securities equal to one-half of the total number of such shares deposited into
the Post-Closing Indemnity Escrow on the Closing Date, less the total number of
shares that were previously paid out to Buyer in respect of claim(s) made by
Buyer pursuant to this Article 10 or Article 2, and less
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the number of shares the fair market value of which equals the aggregate dollar
value of all bona fide claims made by Buyer pursuant to this Article 10 or
Article 2 that remain outstanding on the Initial Release Date, shall be released
from escrow and paid over to Sellers (the number of shares to be appropriately
adjusted to give effect to any stock split, combination or similar event);
(B) if on the Initial Release Date the
Post-Closing Indemnity Property consists solely of cash funds, then an amount in
cash equal to one-half of the total amount of cash funds that would have been in
the Post-Closing Indemnity Escrow on the Initial Release Date if no payments had
been made to Buyer out of the Post-Closing Indemnity Escrow during such period,
less the dollar value of all payments (whether in the form of shares or cash)
that were previously paid out to Buyer in respect of claim(s) made by Buyer
pursuant to this Article 10 or Article 2, and less the aggregate dollar value of
all bona fide claims made by Buyer pursuant to this Article 10 or Article 2 that
remain outstanding on the Initial Release Date, shall be released from escrow
and paid over to Sellers;
(C) if on the Initial Release Date the
Post-Closing Indemnity Property consists partly of shares of ACC Class A Common
Stock or other Stock Consideration Registrable Securities and partly of cash
funds, then the number of shares of ACC Class A Common Stock or other Stock
Consideration Registrable Securities equal to one-half the total number of such
shares that would have been in the Post-Closing Indemnity Escrow on the Initial
Release Date if no payments in the form of such shares had been made to Buyer
out of the Post-Closing Indemnity Escrow during such period, less the total
number of shares that were paid out to Buyer in respect of claim(s) made by
Buyer pursuant to this Article 10 or Article 2, and less the number of shares
the fair market value of which equals the aggregate dollar value of all bona
fide claims made by Buyer pursuant to this Article 10 or Article 2 that remain
outstanding on the Initial Release Date (except to the extent an amount in cash
has been reserved for any portion of such outstanding claims), shall be released
from escrow and paid over to Sellers (the number of shares to be appropriately
adjusted to give effect to any stock split, combination or similar event), and
an amount in cash equal to one-half of the total amount of cash funds that would
have been in the Post-Closing Indemnity Escrow on the Initial Release Date if no
payments in the form of cash had been made to Buyer out of the Post-Closing
Indemnity Escrow during such period, less the dollar value of all payments that
were previously paid out in the form of cash to Buyer in respect of claim(s)
made by Buyer pursuant to this Article 10 or Article 2, and less the aggregate
dollar value of all bona fide claims made by Buyer pursuant to this Article 10
or Article 2 that remain outstanding on the Initial Release Date (except to the
extent a number of shares has been reserved for any portion of such outstanding
claims), shall be released from escrow and paid over to Sellers; and
(2) on the first business day following the date that
is eighteen months after the Closing Date (the "Second Release Date") all
remaining Post-Closing Indemnity Property, less a number of shares of ACC Class
A Common Stock or other Stock Consideration Registrable Securities or an amount
in cash or a combination thereof as directed by the General Partner the
aggregate dollar value of which is equal to the aggregate dollar amount of any
bona fide claims made by Buyer that remain outstanding on the Second Release
Date, shall be released from escrow and paid over to Sellers.
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Attached hereto as Exhibit I for illustrative purposes only is an example of how
the preceding provisions are intended to work. Thereafter, any remaining
Post-Closing Indemnity Property shall be released from escrow and paid over to
Sellers or Buyer in accordance with this Agreement and the Post-Closing Escrow
Agreement. To the extent any payment is made to Buyer out of the Post-Closing
Indemnity Property pursuant to Sections 2.7, 2.8 or 2.9 or this Article 10, and
the Post-Closing Indemnity Property consists of both Stock Consideration
Registrable Securities and cash, the General Partner shall designate which
portion of the payment shall be made in the form of shares (based on its fair
market value on the date of payment as computed as provided in Section 10.5(c))
or cash or combination of both. On the business day that it is determined in
accordance with this Section 10.5(b) and this Article 10 that Buyer and/or
Sellers are entitled to all or any portion of the Post-Closing Indemnity
Property, the General Partner and Buyer will execute and deliver to the Escrow
Agent joint written instructions containing appropriate disbursement
instructions consistent with this Section 10.5(b) and this Article 10 and the
Post-Closing Escrow Agreement.
(c) All payments required to be made by Sellers or any Seller
in respect of their indemnification obligations under this Article 10 shall be
made solely from the Post-Closing Indemnity Property. For purposes of this
Article 10 and the Post-Closing Escrow Agreement, the fair market value of a
share of ACC Class A Common Stock or other Stock Consideration Registrable
Security on any day shall be computed by reference to the Weighted Average
Trading Price of such stock or other security for the ten trading day period
beginning on the thirteenth trading day prior to the date of determination.
(d) Anything in this Agreement or applicable law to the
contrary notwithstanding, other than with respect to the Post-Closing Indemnity
Property as provided for and limited in this Article 10 (and other than with
respect to the Post-Closing Adjustment Funds as provided for and limited in
Section 2.7, the Post-Closing Section 2.8 Funds as provided for and limited in
Section 2.8, and the Post-Closing Section 2.9 Funds as provided for and limited
in Section 2.9) after the Closing no Seller (or any officer, director,
shareholder, partner, employee, agent or Affiliate of such Seller) shall have
any obligation or liability to Buyer under Article 10, and Buyer will have no
claim or recourse against any Seller (or any officer, director, shareholder,
partner, employee, agent or Affiliate of such Seller) as a result of the breach
of any representation, warranty, covenant or agreement of FVP or any Seller
contained herein or otherwise arising out of or in connection with the
transactions contemplated by this Agreement or the business or operations of the
FrontierVision Companies, other than claims relating to the Noncompetition
Agreements or the Deposit Registration Rights Agreement or the Stock
Consideration Registration Rights Agreement (which shall each be governed by its
respective terms); and the Post-Closing Indemnity Property, the Post-Closing
Adjustment Funds, the Post-Closing Section 2.8 Funds and the Post-Closing
Section 2.9 Funds (in each case as provided for and limited by the provisions of
this Agreement) shall be the sole and exclusive remedy for any such claim by
Buyer for any such matters, whether such claims are framed in contract, tort or
otherwise.
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(e) The amount payable to the Claimant by the Indemnifying
Party in respect of a Loss shall be computed net of any insurance coverage with
respect thereto that reduces the amount of such Loss that would otherwise be
sustained, and Buyer and each Seller agree to use commercially reasonable
efforts to collect any and all insurance proceeds to which it may be entitled in
respect of any Loss.
(f) Sellers will not be liable with respect to any Loss to the
extent that the amount of such Loss was included as an Adjustment Liability in
the computation of Closing Net Liabilities in accordance with Article 2.
(g) Notwithstanding anything in this Agreement to the
contrary, no Seller shall have any liability or obligation (for indemnification
or otherwise) arising as a result of the occurrence of the Closing without
certain Consents or Buyer's waiver of any closing condition, nor shall any
adjustment be made to the Cash Consideration in respect of the foregoing.
(h) Buyer will not be required to indemnify or otherwise be
liable to any Seller with respect to any Losses arising under Section 10.4(a)
with respect to an untrue representation or breach of warranty set forth in
Section 5.6 unless Sellers give Buyer written notice of such a claim on or prior
to the date that is thirty days after the expiration of the statute of
limitations with respect to such claim.
(i) Buyer will not be required to indemnify or otherwise by
liable to any Seller with respect to Losses arising under Section 10.4(d) to the
extent such Losses result from the matter disclosed in Section 3.10(B) of
FrontierVision's Disclosure Schedule.
10.6 Procedure for Indemnification.
The procedure for indemnification shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall
promptly give notice to the party from which indemnification is claimed (the
"Indemnifying Party") of any claim, whether between the parties or brought by a
third party, specifying in reasonable detail the factual basis for the claim and
the amount thereof (if known and quantifiable).
(b) With respect to claims solely between the parties,
following receipt of notice from the Claimant of a claim, the Indemnifying Party
shall have thirty days to make such investigation of the claim as the
Indemnifying Party deems necessary or desirable. For the purposes of such
investigation, the Claimant agrees to make available to the Indemnifying Party
and its authorized representatives the information relied upon by the Claimant
to substantiate the claim. If the Claimant and the Indemnifying Party agree at
or prior to the expiration of the thirty-day period (or any mutually agreed upon
extension thereof) to the validity and amount of such claim, the Indemnifying
Party shall immediately pay to the Claimant the full amount of the claim. If the
Claimant and the Indemnifying
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Party do not agree within the thirty-day period (or any mutually agreed upon
extension thereof), the Claimant may seek appropriate remedy at law or equity.
(c) With respect to any claim by a third party as to which the
Claimant is entitled to indemnification under this Agreement, the Indemnifying
Party shall have the right at its own expense, to participate in or assume
control of the defense of such claim, and the Claimant shall cooperate fully
with the Indemnifying Party, subject to reimbursement for actual out-of-pocket
expenses incurred by the Claimant as the result of a request by the Indemnifying
Party. If the Indemnifying Party elects to assume control of the defense of any
third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If the Indemnifying Party does not
elect to participate in or assume control of the defense of any third-party
claim, the Claimant will not enter into any settlement of such claim which could
result in indemnification liability unless the Claimant gives the Indemnifying
Party prior written notice of such settlement. If the Indemnifying Party does
not thereupon elect to assume the defense of such claim within five business
days after such notice is given, then the Claimant may enter into such
settlement and such settlement will be binding upon Buyer and Sellers for
purposes of determining whether any indemnification payment is required pursuant
to this Article 10.
10.7 Treatment of Indemnification Payments.
Buyer and Sellers will treat all payments made pursuant to this Article
10 (including all payments made to Buyer out of the Post-Closing Indemnity
Property but excluding the release of any Post-Closing Indemnity Property to
Sellers) as an adjustment to the Purchase Consideration for all purposes.
ARTICLE 11
MISCELLANEOUS
11.1 Fees and Expenses.
Except as otherwise provided in this Agreement, each party shall pay
its own expenses incurred in connection with the authorization, preparation,
execution, and performance of this Agreement, including all fees and expenses of
counsel, accountants, agents, and representatives. Buyer and Sellers agree that
the brokerage fee payable to Daniels & Associates shall be paid by Buyer in the
event the Closing occurs hereunder. Buyer and Sellers agree that the fees and
expenses incurred in connection with the lien searches described in Section
7.1(j) shall be borne one-half by Buyer and one-half by Sellers.
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11.2 Notices.
All notices, demands, and requests required or permitted to be given
under the provisions of this Agreement shall be in writing, may be sent by
telecopy (with automatic machine confirmation), delivered by personal delivery,
or sent by commercial delivery service or certified mail, return receipt
requested, shall be deemed to have been given on the date of actual receipt,
which may be conclusively evidenced by the date set forth in the records of any
commercial delivery service or on the return receipt, and shall be addressed to
the recipient at the address specified below, or with respect to any party, to
any other address that such party may from time to time designate in a writing
delivered in accordance with this Section 11.2:
If to Buyer:
Adelphia Communications Corporation
Main at Water Street
Coudersport, Pennsylvania 16915
Attention: James M. Kane,
Vice President Corporate Development
Telecopier: (814) 274-7098
with copies (which shall not
constitute notice) to:
Buchanan Ingersoll Professional Corporation
One Oxford Centre, 21st Floor
Pittsburgh, Pennsylvania 15219
Attention: Bruce I. Booken, Esq.
Telecopier: (412) 562-1041
If to FVP (prior to the Closing)
or the General Partner
(after the Closing):
FrontierVision Partners, L.P.
1777 South Harrison Street
Suite P-200
Denver, Colorado 80210-3925
Attention: James C. Vaughn, President
Telecopier: (303) 757-6105
with a copy (which shall not
constitute notice) to:
If to a Seller:
Dow, Lohnes & Albertson, PLLC 1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036
Attention: John T. Byrnes, Esq. and
J. Christopher Redding, Esq.
Telecopier: (202) 776-2222
At the address specified for such Seller
on the attached Exhibit E
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11.3 Benefit and Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns; provided
that (a) neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by FVP or a Seller without the prior written consent
of Buyer (which consent shall not be unreasonably withheld or delayed), and (b)
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned by Buyer without the prior written consent of FVP (prior to the
Closing) or the General Partner (after the Closing) (which consent shall not be
unreasonably withheld or delayed). Notwithstanding the provisions of the
immediately preceding sentence, Buyer may assign all or any portion of its
rights (but not its obligations) under this Agreement to one or more
Subsidiaries or Affiliates of Buyer, without the prior written consent of FVP or
the General Partner; provided that (1) such assignee executes documentation
reasonably satisfactory to Sellers evidencing such assignment, and (2) Buyer
remains liable to perform the obligations in full to be performed by Buyer
hereunder, and (3) no such assignment would be reasonably likely to hinder or
delay the Closing as reasonably determined by Sellers. Consent shall be deemed
to be reasonably withheld if the consenting party reasonably determines that the
assignment would be reasonably likely to hinder or delay the Closing. In the
event of a permitted assignment by Buyer, Buyer, as well as such assignee, shall
remain liable hereunder for all purposes and the representations, warranties and
covenants made by Buyer shall apply equally to the assignee (modified as
appropriate for the organization of the assignee). In no event may Buyer assign
its obligations with respect to the Stock Consideration or Deposit Escrow
Property without FVP's consent (prior to Closing) or the General Partner's
consent (after the Closing), which may be withheld in its sole and absolute
discretion. This Agreement is not intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder, except the provisions of
Section 6.9 are intended for the benefit of, and may be relied upon by, the
Assumed Employees, and the provisions of Section 6.13 are intended for the
benefit of, and may be relied upon by, the officers and directors of the
FrontierVision Companies and the members of FVP's Advisory Committee.
11.4 Further Assurances .
After the Closing the parties shall take any actions and execute any
other documents that may be necessary or desirable to the implementation and
consummation of this Agreement upon the reasonable request of the other party,
at the expense of the requesting party.
11.5 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED, AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO
THE CHOICE OF LAW PROVISIONS THEREOF).
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11.6 Entire Agreement.
This Agreement, the Disclosure Schedules and the Exhibits hereto, and
the other Transaction Documents to be delivered by the parties pursuant to this
Agreement, collectively represent the entire understanding and agreement between
Buyer, FVP, and Sellers with respect to the subject matter of this Agreement and
supersedes all prior agreements, understandings and negotiations between the
parties. Buyer acknowledges that none of FVP or any other FrontierVision Company
or any Seller has made any, or makes any, promises, representations, warranties,
covenants or undertakings, express or implied, other than those expressly set
forth in this Agreement. Notwithstanding the first sentence of this Section
11.6, this Agreement does not impair or otherwise affect the validity of (1) any
consent whenever granted by any Seller with respect to the execution, delivery,
and performance of this Agreement or any other document or instrument relating
to the subject matter of this Agreement or (2) any power of attorney whenever
granted by any Seller authorizing any Person to execute and deliver on behalf of
such Seller this Agreement or any other document or instrument relating to the
subject matter of this Agreement.
11.7 Amendments; Waiver of Compliance; Consents.
This Agreement may be amended and any provision of this Agreement may
be waived; provided that any such amendment or waiver (a) will be binding upon
FVP prior to the Closing only if such amendment or waiver is set forth in a
writing executed by FVP, (b) will be binding upon a Seller prior to the Closing
only if such amendment or waiver is set forth in a writing executed by FVP and
has been approved by 75% of the voting members of FVP's Advisory Committee (with
a certificate delivered by FVP stating that such required approval has been
obtained being conclusive evidence thereof), and (c) will be binding upon a
Seller after the Closing only if such amendment or waiver is set forth in a
writing executed by the General Partner and has been approved by 75% of the
voting members of FVP's Advisory Committee (as constituted immediately prior to
the Closing) (with a certificate delivered by the General Partner stating that
such required approval has been obtained being conclusive evidence thereof), and
(d) will be binding upon Buyer only if such amendment or waiver is set forth in
a writing executed by Buyer. No waiver shall operate as a waiver of, or estoppel
with respect to, any subsequent or other matter not expressly waived.
11.8 Consent and Agreements of Sellers.
(a) Pursuant to a separate agreement each Seller has appointed
FVP and the General Partner, each with power to act separately (for all periods
prior to the Closing) and the General Partner (for all periods from and after
the Closing) as the true and lawful attorney-in-fact and agent of each Seller
(in such capacity, FVP and the General Partner are referred to as the "Agent"),
to act for each Seller in Seller's name, place and stead with respect to this
Agreement and the other Transaction Documents and all of the transactions
contemplated hereby and thereby. Buyer shall be entitled to rely exclusively
upon any communication given by Agent and shall not be liable in any manner
whatsoever
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for any action taken or not taken in reliance upon Agent. Any payments made, at
Agent's request and instruction, by Buyer to Agent pursuant to the terms of this
Agreement and the other Transaction Documents shall fully discharge Buyer for
any liability to any Seller in connection with such payment, as fully and
completely as if such payment had been made directly to such Seller. Buyer
hereby agrees to accept and rely on the actions of Agent as if it were the
action of a Seller or Sellers.
(b) Each Seller consents to the execution, delivery and
performance of this Agreement by FVP, the General Partner and each other Seller
and to the taking by FVP, each FrontierVision Company, the General Partner and
each other Seller of all actions contemplated by this Agreement to be taken by
such Person. Subject to the terms and conditions of this Agreement, each Seller
agrees to consummate the transactions contemplated by this Agreement in
accordance with its terms, as it may be amended pursuant to Section 11.7.
11.9 Counterparts.
This Agreement may be signed in counterparts with the same effect as if
the signature on each counterpart were upon the same instrument.
[REMAINDER OF PAGE INTENTIONALLY BLANK;
SIGNATURES ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, this Agreement has been executed by Buyer, FVP, the
General Partner and the other Sellers as of the date first written above.
BUYER:
ADELPHIA COMMUNICATIONS CORPORATION
By: ____________________________
Name:
Title:
FVP:
FRONTIERVISION PARTNERS, L.P., by FVP GP, L.P., its general partner, by
FrontierVision Inc., its general partner
By: ____________________________
James C. Vaughn, President
GENERAL PARTNER:
FVP GP, L.P., by FrontierVision Inc., its general
partner
By: ____________________________
James C. Vaughn, President
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
S-1
<PAGE>
LIMITED PARTNER SELLERS:
JP Morgan Investment Corporation
60 Wall Street SBIC Fund, L.P.
First Union Capital Partners, Inc.
Tahosa Investors
Kensington Investment Associates
Pegasus Partners
Prosperity Associates
SBF Investments Ltd.
L. Phillips Runyon III
Roth Trading Company
Washington Partners
Duff Ackerman Goodrich - FrontierVision, L.P.
EOS Partners SBIC, L.P.
Richard King Mellon Foundation
Arthur Miltenberger (Mellon Family Investment Co.,
IV)
J. Cashew Corporation
Bertelson Family Trust
John C. Unkovic
Roger S. Ahlbrandt
Dr. Anne McBride Curtis
Bruce D. Evans
Frances C. Hardie
Hardie Brothers
James H. Hardie
John D. Margolis Trust
Grover Sams
Augustus O. Schroeder
Justin J. Stevenson III
John W. Weiser
Mallard Investments Limited Partnership
Olympus Executive Fund, L.P.
Leslie Abbey
Jonathan Abbey
Michael Rothbard
James C. Vaughn
John S. Koo
William P. Brovsky
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
S-2
<PAGE>
William J. Mahon
James W. McHose
Albert D. Fosbenner
Richard G. Halle'
Joyce L. Vermace
Robert J. Valentine
Ian R. Dennett
David M. Heyrend
Todd E. Padgett
Galan F. Fernandes
Daniel P. Callahan
R. Bruce Ellis
David C. Apel
Kristine M. Rogers
Debra L. Graham
Brian L. Seifarth
Keith A. Tyrrell
Jerry R. Wert
Brian P. Hart
Robert D. Gordon
Judith B. Pierce
Stephen R. Trippe
Keith R. Froleiks
Gary Crosby
Kathleen B. Hounsell
James B. Underwood
Jill Farschman
Craig A. Waskou
Lisa L. Powers
Debbie J. Dougherty
Robert A. Dallmer
Bonnie J. Bosekrus
By FrontierVision Partners, L.P., Agent and Attorney-in-Fact for each Limited
Partner Seller, by FVP GP, L.P., its general partner, by FrontierVision Inc.,
its general partner
By: ____________________________
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
S-3
<PAGE>
James C. Vaughn, President
SPC SELLERS:
1818 Fund II, L.P.
Olympus Growth Fund II, L.P.
Carson Group Inc.
Sendal Investment Limited
Monte Coral, S.L.
AZATE S.L.
Salzburg Corporation
Clover Enterprises
Kinnari Limited
Leeward Holdings
Staniard Limited
Solar Group S.A.
Englewood Enterprises
Grove Enterprises
Walvis Bay Limited
Datronics Limited
Brinkley Holdings Limited
Salt Lake Enterprises, Inc.
Cromwell International Corp.
By FrontierVision Partners, L.P., Agent and Attorney-in-Fact for each SPC
Seller, by FVP GP, L.P., its general partner, by FrontierVision Inc., its
general partner
By: ____________________________
James C. Vaughn, President
[THIS IS A SIGNATURE PAGE
TO THE PURCHASE AGREEMENT]
S-4
