SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1997
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ______________ to _____________
Commission File Number: 333-19327
OLYMPUS COMMUNICATIONS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 25-1622615
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
OLYMPUS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2868925
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Main at Water Street
Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip code)
814-274-9830
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has 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 registrant was
required to file such reports), and (2) has 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 registrant's 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
<PAGE>
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P.
OLYMPUS CAPITAL CORPORATION
TABLE OF CONTENTS
PART I
<S> <C>
ITEM 1. BUSINESS..................................................................3
ITEM 2. PROPERTIES...............................................................20
ITEM 3. LEGAL PROCEEDINGS........................................................21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.............................................22
ITEM 6. SELECTED FINANCIAL DATA..................................................22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................24
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................52
ITEM 11. EXECUTIVE COMPENSATION...................................................53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................................53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.........................................................57
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
(Dollars in thousands)
Introduction
Olympus Communications, L.P. ("Olympus" and, collectively with its
subsidiaries, the "Company") is a joint venture limited partnership between ACP
Holdings, Inc., a wholly-owned subsidiary of Adelphia Communications Corporation
(together with its subsidiaries, "Adelphia") and subsidiaries of FPL Group, Inc.
(together with its subsidiaries, "FPL Group") with 50% of the outstanding voting
interest held by Adelphia and 50% held by FPL Group. Adelphia is the seventh
largest cable television operator in the United States serving 1,968,986 basic
subscribers and passing 2,759,546 homes through its owned and managed cable
systems (including Olympus) as of December 31, 1997. FPL Group is one of the
largest public utility holding companies in the United States supplying, through
its principal subsidiaries, electrical service throughout most of the east and
lower west coasts of Florida.
The Company operates the largest contiguous cable system in Florida and is
located in some of the fastest growing markets in Florida. As of December 31,
1997, the Company's cable system (the "System") served approximately 498,000
basic subscribers and passed approximately 750,000 homes. In addition to cable
television, the Company offers a wide range of communication services including
analog and digital cable television, high speed data and Internet access,
paging, electronic security monitoring and telephony.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report on Form 10-K, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, is forward-looking, such as
information relating to the effects of future regulation, future capital
commitments and the effects of competition. Such forward-looking information
involves important risks and uncertainties that could significantly affect
expected results in the future from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These "forward looking
statements" can be identified by the use of forward-looking terminology such as
"believes", "expects", "may", "will," "should," "intends" or "anticipates" or
the negative thereof or other variations thereon or comparable terminology or by
discussions of strategy that involve risks and uncertainties. These risks and
uncertainties include, but are not limited to, uncertainties relating to
economic conditions, acquisitions and divestitures, government and regulatory
policies, the pricing and availability of equipment, materials, inventories and
programming, technological developments and changes in the competitive
environment in which the Company operates. Persons reading this Annual Report on
Form 10-K are cautioned that forward-looking statements herein are only
predictions, that no assurance can be given that the future results will be
achieved, and that actual events or results may differ materially as a result of
the risks and uncertainties facing the Company.
Business
Video Services
Cable television systems receive a variety of television, radio and data
signals transmitted to receiving sites ("headends") by way of off-air antennas,
microwave relay systems and satellite earth stations. Signals are then
modulated, amplified and distributed primarily through coaxial and fiber optic
cable to subscribers, who pay fees for the service. Cable television systems are
generally constructed and operated pursuant to non-exclusive franchises awarded
by state or local government authorities for specified periods of time.
Cable television systems typically offer subscribers a package of basic
video services consisting of local and distant television broadcast signals,
satellite-delivered non-broadcast channels (which offer programming such as
news, sports, family entertainment, music, weather, shopping, etc.) and public,
governmental and educational access channels.
<PAGE>
In addition, premium service channels, which provide movies, live and
taped concerts, sports events and other programming, are offered for an extra
monthly charge. At December 31, 1997, over 98% of subscribers of the System were
also offered pay-per-view programming, which allows the subscriber to order
special events or movies and to pay on a per event basis. Local, regional and
national advertising time is sold in the majority of the System, with commercial
advertisements inserted on certain satellite-delivered non-broadcast channels.
Digital video services are now available to Olympus subscribers who lease
or purchase a digital converter. Digital TV is a computerized method of
defining, transmitting and storing information that makes up a television
signal. Since digital signals can be "compressed," Olympus can transmit up to 12
channels in the space currently used to transmit just one analog channel.
Digital TV converters are available to approximately 90% of Olympus' customers.
Olympus' digital TV subscribers may also receive "multichannel" premium
services, such as HBO 1, 2, 3 and 4 from East and West Coast satellite feeds,
enhanced Pay-Per-View options with eighteen movie channels, up to 40 channels of
CD-quality music from Music Choice and an interactive on-screen program guide to
help them navigate the new digital choices.
High Speed Data and Internet Access
Power Link, the Company's high-speed data service, which includes
residential, institutional and business applications, constitutes an alternative
to the traditional slower speed data offerings available through Internet
Service Providers ("ISPs"). Power Link offers customers speeds greater than
those available through a T1 line, at costs that compare to a typical ISP plus a
second telephone line.
The Company's deep fiber design allows the use of the expanded bandwidth
potential of digital compression technology for cable data and video services.
High speed cable data services are now available at speeds far in excess of that
which is currently available via a 28.8 kilobit per second telephone modem. In
addition, using a high speed cable modem and special ethernet card allows the
user to bypass telephone lines, does not require the user to log on, and allows
for multiple sessions or connections to multiple services simultaneously.
The Company currently offers high speed Internet access through the use of
one way cable modems, which provides the high speeds of broadband on the data
downstream and utilizes a telephone line return path. One way cable modems
enable the Company to offer the high speed data service to 100% of its
customers, while completing the system buildout of two way broadband plant.
The Company also offers traditional dial up Internet access for those
customers who initially prefer this method of Internet access to the higher
speeds of our broadband network. This establishes the Company as a full service
Internet provider and creates a customer base which can be upgraded to the high
speed service in the future.
Paging
The Company began marketing one-way paging services to its subscribers in
mid-1995 through an affiliate, Page Time, Inc. ("Page Time"), a wholly-owned
subsidiary of Adelphia which makes paging services available to the Company for
a fee based on paging subscribers. There currently are approximately 4,000
paging subscribers who pay an average of $10.95 per month. Page Time provides
service to its customers via resale arrangements with existing paging network
operators. To assure high quality and competitive service for subscribers, Page
Time seeks the paging operator with the most comprehensive local coverage in the
cable service area. Page Time's marketing efforts are focused on the consumer
market which accounts for nearly 65% of the industry's growth. The Company
believes it is well positioned to take advantage of that growth by using the
Company's existing marketing channels, including local advertising air time and
monthly bill inserts, providing the customer with one bill for their cable and
paging services and having the ability to provide both local and centralized
customer service. The Company also plans to offer two-way messaging services to
its customers.
Electronic Security Monitoring
The Company provided electronic security monitoring services and equipment
to approximately 29,000 accounts in Florida as of December 31, 1997. The Company
markets its services to both residential and commercial customers. The
residential customers represent approximately 85% of its customers and the
commercial market represents the remainder. The Company offers these customers
video-telemetry systems, intercom and sound systems and other low voltage
products.
The Company's strategy for marketing electronic security monitoring
services and equipment is to leverage all of the distribution channels available
through the Company's existing market presence including customer service and
billing resources, cable channel advertising, marketing literature, and
relationships with developers, builders and homeowners' associations.
Telephony
Long Distance. In December 1997, the Company launched long distance
telephone service on a resale basis. Services offered include state-to-state and
in-state long distance, as well as 800 service, international calling, calling
card services and debit card services. The Company's sales effort is focused on
the consumer market and emphasizes the simplicity and savings of one low monthly
rate available 24 hours a day, 7 days a week. The Company is using its existing
marketing channels, including local advertising availability in the System,
monthly billing insert and outbound telemarketing to market long distance
service.
Residential. As each portion of the Company's network is upgraded with the
deep fiber design, the Company plans to offer digital telephony services to
subscribers by purchasing incremental equipment at the headend and the customer
premises. Adelphia has completed successful technical trials of cable telephone
service in its Toms River, New Jersey and Buffalo, New York networks using the
same deep fiber design the Company will deploy in its System.
Mobile. The Company intends to develop mobile phone services by using the
Company's existing marketing channels, including local advertising air time and
monthly bill inserts, providing the customer with one bill for their cable and
mobile phone services and having the ability to provide both local and
centralized customer service. The Company expects to begin a limited area trial,
following which it will gradually roll out service on a broader basis.
Initially, mobile phone service will be provided via resale arrangements with
existing mobile phone network operators, initially consisting of cellular
operators and later possibly including broadband personal communications service
("PCS") operators.
Operating Strategy
The Company's strategy is to construct and operate a broadband network
capable of offering a broad range of telecommunications services and providing
superior customer service while maximizing operating efficiencies. The Company
intends to continue as a cable television service provider as well as to become
the largest single provider of bundled communications services combining cable
television service with high speed data and Internet access, paging, electronic
security monitoring and telephony in South Florida. The Company expects to
achieve these goals through maintaining strong internal growth and continuing
investment in its networks.
The Company's system is located in some of the fastest growing counties in
the United States. The Company's coverage areas also encompass certain regions
with attractive demographics, including above average income levels and strong
population growth trends. Approximately 25% of the homes in the Company's market
areas are located in planned communities which typically provide better
cross-marketing opportunities. The Company had internal basic subscriber growth
of 3.9% during the 12 months ended December 31, 1997, and expects that the
markets it operates in will continue to provide opportunities for growth.
The Company considers technological innovation to be an important
component of its service offerings and customer satisfaction. The Company
intends to continue the upgrade of its network infrastructure to add channel
capacity increase digital transmission capabilities and further improve system
<PAGE>
reliability. As a result, the Company believes it will have one of the most
advanced cable network infrastructures in the United States.
Management believes the technical level of its system, concentration of
its customer base and its affiliation with its partners contribute favorably to
the Company's cash flow margin.
Recent Development of the System
The Company has focused on acquiring and developing systems in markets
which have favorable historical growth trends. The Company believes that the
strong household growth trends in its System's market areas are a key factor in
positioning itself for future growth in basic subscribers.
Effective April 1, 1997, Olympus acquired certain cable systems of
Tele-Media Company of Southeast Florida, Inc. for an aggregate price of $8,500.
These systems served approximately 5,000 subscribers at the date of acquisition
located in and around Osceola County, Florida.
On June 20, 1997, Olympus acquired the Peninsula Cable systems from Booth
American Company for an aggregate price of $10,500. These systems served
approximately 6,000 subscribers at the date of acquisition located in and around
Madeira Beach, Florida.
Olympus completed the acquisition of all of the partnership interests of
National Cable Acquisition Associates, L.P. ("National") from Hilton Head
Communications, L.P., ("Hilton Head") an entity controlled by the family of John
Rigas (principal shareholder of Adelphia), for a purchase price of approximately
$118,000. National provides cable service to approximately 57,000 subscribers in
Palm Beach County, Florida and also owns limited partnership interests in
Tele-Media Investment Partnership, L.P. ("TMIP"). National's operations were
consolidated with Olympus for financial reporting purposes effective as of
October 1, 1997.
On March 2, 1998, Olympus and TMIP entered into a series of agreements to
restructure the ownership of TMIP. The restructuring will result in Olympus
exchanging its nonconsolidated preferred limited partnership investment in TMIP
for 100% ownership of approximately 27,750 subscribers in Palm Beach County,
Florida subject to $38,287 in debt and a 75% consolidated general partner
interest in TMIP subject to $37,856 in debt. The restructured TMIP will own
approximately 40,850 subscribers located principally in Broward County, Florida.
Consummation of this transaction is subject to certain closing conditions and
regulatory approval.
<PAGE>
The following table indicates the growth of the Company's System by
summarizing the number of homes passed by cable and the number of basic
subscribers for each of the five years in the period ended December 31, 1997.
The table also indicates the numerical growth in subscribers attributable to
acquisitions and the numerical and percentage growth attributable to internal
growth. For the period January 1, 1993 through December 31, 1997, 56% of
aggregate internal basic subscriber growth for the Company's System was derived
from internal growth in homes passed, while the remaining 44% of such aggregate
growth was derived from penetration increases.
<TABLE>
Year Ended December 31,
-------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
Homes passed (a)
<S> <C> <C> <C> <C> <C>
Beginning of period (b) 388,965 404,890 415,896 562,330 646,770
Internal growth (c) 15,925 11,006 6,046 23,940 16,459
% Internal growth 4.1% 2.7% 1.5% 4.3% 2.5%
Acquired homes passed -- -- 140,388 60,500 86,655
End of period 404,890 415,896 562,330 646,770 749,884
Basic subscribers (d)
Beginning of period (b) 195,729 233,411 251,933 343,332 412,260
Internal growth (c) 37,682 18,522 6,352 13,733 16,187
% Internal growth 19.3% 7.9% 2.5% 4.0% 3.9%
Acquired subscribers -- -- 85,047 55,195 69,525
End of period 233,411 251,933 343,332 412,260 497,972
Basic penetration (e) 57.6% 60.6% 61.1% 63.7% 66.4%
- ----------------------------------
<FN>
(a) A home is deemed to be "passed" by cable if it can be connected to the
distribution system without any further extension of the cable distribution
plant.
(b) Data included for the South Dade System for all periods presented reflects
actual homes passed and basic subscribers. At July 31, 1992, prior to
Hurricane Andrew, the South Dade system had 157,992 homes passed by cable
and 71,193 basic subscribers, respectively. At December 31, 1993, 1994,
1995, 1996 and 1997, the South Dade system served 60,678, 73,196, 77,407,
85,014 and 89,338 basic subscribers, respectively. On June 30, 1994, the
Company sold to Adelphia 85% of the common stock of Northeast Cable Inc.
("Northeast"). Data for Northeast is excluded for all periods presented.
(c) The number of additional homes passed or additional basic subscribers not
attributable to acquisitions of new cable systems.
(d) A home with one or more television sets connected to a cable system is
counted as one basic subscriber.
(e) Basic subscribers as a percentage of homes passed by cable.
</FN>
</TABLE>
Financial Information
The financial data regarding the Company's revenues, results of operations
and identifiable assets for each of the Company's last three fiscal years is set
forth in, and incorporated herein by reference to, Item 8, Financial Statements
and Supplementary Data of this Form 10-K.
Technological Developments
The Company has made a substantial commitment to the technological
development of the System and has actively sought to upgrade the technical
capabilities of its cable plant in a cost efficient manner. System development
will allow the Company to increase the plant capacity, provide two-way
communication and other digital services and at the same time further increase
the reliability of the plant.
<PAGE>
The design of the current System upgrade, when completed, will deploy on
average one fiber optic node for every two System plant miles or approximately
one fiber node for every 180 homes passed compared to the industry norm of 500
to 1000 homes passed per fiber optic node. The entire System will be upgraded to
750 Mhz comprised of 550 Mhz analog (80 channels) and 200 Mhz digital (400
channels, assuming 12 to 1 compression). The upgraded system will be completely
addressable and provide two-way communication capability. The additional
bandwidth will enable the Company to offer additional video programming
services. The 200 Mhz of digital capacity can be allocated to the new service
offerings such as two-way data, telephony and video-on-demand. The Company
believes the combination of the 200 Mhz of digital capacity and the relatively
low homes passed per fiber node will provide adequate capacity and flexibility
to offer any and all of the existing and anticipated services into the
foreseeable future with minimal additional capital expenditures.
The upgraded System, on average, will include only two active pieces of
equipment between the headend and the home. Limiting the number of active pieces
of equipment combined with the small number of homes per fiber node reduces the
potential for mechanical failure and the number of customers affected by such a
failure, all of which provides increased reliability to the customers.
Subscriber Services and Rates
The Company's revenues are derived principally from monthly subscription
fees for various services. Rates to subscribers vary in accordance with the type
of service selected. Although service offerings vary across franchise areas
because of differences in plant capabilities, each of the areas typically offer
services at monthly prices ranging as follows:
Service Rate Range
------------------------------------- ------------------
Basic Cable Television $9.00 - $14.00
Premium Cable Television $7.00 - $13.00
Digital Television $9.95
High Speed Internet Access $34.95 - $44.95
Dial-up Internet Access $19.95
Paging $8.95 - $29.95
Electronic Security Monitoring $21.00 - $30.00
In addition, the Company derives revenue from telephony, with rates
determined on a usage basis.
An installation fee, which the Company may wholly or partially waive
during a promotional period, is usually charged to new subscribers. Subscribers
are free to terminate services at any time without charge, but often are charged
a fee for reconnection or change of service.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act," as
amended by the 1992 Cable Act), deregulated basic service rates for systems in
communities meeting the FCC's definition of effective competition. Pursuant to
the FCC's definition of effective competition adopted following enactment of the
1984 Cable Act, substantially all of the Company's franchises were rate
deregulated. However, in June 1991, the FCC amended its effective competition
standard, which increased the number of cable systems which could be subject to
local rate regulation. The 1992 Cable Act contains a new definition of effective
competition under which nearly all cable systems in the United States are
subject to regulation of basic service rates. Additionally, the legislation (i)
eliminates the 5% annual basic rate increase allowed by the 1984 Cable Act
without local approval; (ii) allows the FCC to adjudicate the reasonableness of
rates for non-basic service tiers, other than premium services, for cable
systems not subject to effective competition in response to complaints filed by
franchising authorities and/or cable subscribers; (iii) prohibits cable systems
from requiring subscribers to purchase service tiers above basic service in
order to purchase premium services if the system is technically capable of doing
so; (iv) allows the FCC to impose restrictions on the retiering and
<PAGE>
rearrangement of cable services under certain circumstances; and (v) permits the
FCC and franchising authorities more latitude in controlling rates and rejecting
rate increase requests. The Telecommunications Act of 1996 (the "1996 Act") ends
FCC regulation on nonbasic tier rates on March 31, 1999.
For a discussion of FCC rate regulation and related developments, see
"Legislation and Regulation" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Regulatory and Competitive
Matters."
Franchises
The 1984 Cable Act provides that cable operators may not offer cable
service to a particular community without a franchise unless such operator was
lawfully providing service to the community on July 1, 1984 and the franchising
authority does not require a franchise. The System operates pursuant to
franchises or other authorizations issued by governmental authorities,
substantially all of which are nonexclusive. Such franchises or authorizations
awarded by a governmental authority generally are not transferable without the
consent of the authority. As of December 31, 1997, the Company held 144
franchises. Most of these franchises can be terminated prior to their stated
expiration by the relevant governmental authority, after due process, for breach
of material provisions of the franchise.
Under the terms of most of the Company's franchises, a franchise fee
(generally ranging up to 5% of the gross revenues of the cable system) is
payable to the governmental authority. For the past three years, franchise fee
expense incurred by the Company has averaged approximately 4.1% of gross system
revenues.
The franchises issued by the governmental authorities are subject to
periodic renewal. In renewal hearings, the authorities generally consider, among
other things, whether the franchise holder has provided adequate service and
complied with the franchise terms. In connection with a renewal, the authority
may impose different and more stringent terms, the impact of which cannot be
predicted. To date, all of the Company's material franchises have been renewed
or extended, at or effective upon their stated expiration, generally on modified
terms. Such modified terms have not been materially adverse to the Company.
The Company believes that all of its material franchises are in good
standing. From time to time, the Company notifies the franchising authorities of
the Company's intent to seek renewal of the franchise in accordance with the
procedures set forth in the 1984 Cable Act. The 1984 Cable Act process requires
that the governmental authority consider the franchise holder's renewal proposal
on its own merits in light of the franchise holder's past performance and the
community's needs and interests, without regard to the presence of competing
applications. See "Legislation and Regulation." The 1992 Cable Act alters the
administrative process by which operators utilize their 1984 Cable Act franchise
renewal rights. Such changes could make it easier in some instances for a
franchising authority to deny renewal of a franchise.
Competition
Although the Company and the cable television industry have historically
faced modest competition, the competitive landscape is changing and competition
will increase. The Company believes that the increase in competition within its
communities will occur gradually over a period of time.
At the present time, cable television systems compete with other
communications and entertainment media, including off-air television broadcast
signals which a viewer is able to receive directly using the viewer's own
television set and antenna. The extent to which a cable system competes with
over-the-air broadcasting depends upon the quality and quantity of the broadcast
signals available by direct antenna reception compared to the quality and
quantity of such signals and alternative services offered by a cable system. In
many areas, television signals which constitute a substantial part of basic
service can be received by viewers who use their own antennas. Local television
reception for residents of apartment buildings or other multi-unit dwelling
complexes may be aided by use of private master antenna services. Cable systems
also face competition from alternative methods of distributing and receiving
television signals and from other sources of entertainment such as live sporting
events, movie theaters and home video products, including videotape recorders
<PAGE>
and cassette players. In recent years, the FCC has adopted policies providing
for authorization of new technologies and more favorable operating environment
for certain existing technologies that provide, or may provide, substantial
additional competition for cable television systems. The extent to which cable
television service is competitive depends in significant part upon the cable
television system's ability to provide an even greater variety of programming
than that available off-air or through competitive alternative delivery sources.
In addition, certain provisions of the 1992 Cable Act and the 1996 Act are
expected to increase competition significantly in the cable industry. See
"Legislation and Regulation."
The 1992 Cable Act prohibits the award of exclusive franchises, prohibits
franchising authorities from unreasonably refusing to award additional
franchises and permits them to operate cable systems themselves without
franchises.
Individuals presently have the option to purchase earth stations, which
allow the direct reception of satellite-delivered program services formerly
available only to cable television subscribers. Most satellite-distributed
program signals are being electronically scrambled to permit reception only with
authorized decoding equipment, generally at a cost to the viewer. From time to
time, legislation has been introduced in Congress which, if enacted into law,
would prohibit the scrambling of certain satellite-distributed programs or would
make satellite services available to private earth stations on terms comparable
to those offered to cable systems. Broadcast television signals are being made
available to owners of earth stations under the Satellite Home View Copyright
Act of 1988, which became effective January 1, 1989 for a six-year period. This
Act establishes a statutory compulsory license for certain transmissions made by
satellite owners to home satellite dishes for which carriers are required to pay
a royalty fee to the Copyright Office. This Act has been extended by Congress
until December 31, 1999. The 1992 Cable Act enhances the right of cable
competitors to purchase nonbroadcast satellite-delivered programming. See
"Legislation and Regulation - Federal Regulation."
Video programming is now being delivered to individuals by high-powered
direct broadcast satellites ("DBS") utilizing video compression technology. This
technology has the capability of providing more than 100 channel so programming
over a single high-powered DBS satellite with significantly higher capacity
available if multiple satellites are placed in the same orbital position. Video
compression technology may also be used by cable operators in the future to
similarly increase their channel capacity. DBS service can be received virtually
anywhere in the United States through the installation of a small rooftop or
side-mounted antenna, and it is more accessible than cable television service
where a cable plant has not been constructed or where it is not cost effective
to construct cable television facilities. DBS service is being heavily marketed
on a nationwide basis by several service providers. One DBS service provider is
proposing to deliver at least some local television stations via satellite, thus
lessening the distinction between cable television and DBS service.
Cable communications systems also compete with wireless program
distribution services such as multichannel, multipoint distribution service
("MMDS"), commonly called wireless cable systems, which use low-power microwave
frequencies to transmit video programming over-the-air to subscribers. There are
MMDS operators who are authorized to provide or are providing broadcast and
satellite programming to subscribers in areas served by the Company's System.
MMDS systems are less capital intensive, are not required to obtain local
franchises or to pay franchise fees and are subject to fewer regulatory
requirements than cable television systems. MMDS systems' ability to compete
with cable television systems has previously been limited by channel capacity,
the inability to obtain programming and regulatory delays. Recently, however,
MMDS systems have developed digital compression technology which provides for
more channel capacity and better signal delivery. Although relatively few MMDS
systems in the United States are currently in operation or under construction,
virtually all markets have been licensed or tentatively licensed. A series of
actions taken by the FCC, including reallocating certain frequencies to wireless
services, are intended to facilitate the development of wireless cable
television spectrum that will be used by wireless operators to provide
additional channels of programming over longer distances. Several Regional Bell
Operating Companies acquired interests in major MMDS companies. The Company is
unable to predict whether wireless video services will have a material impact on
its operations.
<PAGE>
Additional competition may come from private cable television systems
servicing condominiums, apartment complexes and certain other multiple unit
residential developments. The operators of these private systems, known as
satellite master antenna television ("SMATV") systems, often enter into
exclusive agreements with apartment building owners or homeowners' associations
which preclude franchised cable television operators from serving residents of
such private complexes. However, the 1984 Cable Act gives franchised cable
operators the right to use existing compatible easements within their franchise
areas upon nondiscriminatory terms and conditions. Accordingly, where there are
preexisting compatible easements, cable operators may not be unfairly denied
access or discriminated against with respect to the terms and conditions of
access to those easements. There have been conflicting judicial decisions
interpreting the scope of the access right granted by the 1984 Cable Act,
particularly with respect to easements located entirely on private property.
Further, while a franchised cable television system typically is obligated to
extend service to all areas of a community regardless of population density or
economic risk, a SMATV system may confine its operation to small areas that are
easy to serve and more likely to be profitable. Under the 1996 Act, SMATV
systems can interconnect non-commonly owned buildings without having to comply
with local, state and federal regulatory requirements that are imposed upon
cable systems providing similar services, as long as they do not use public
rights-of-way. The U.S. Copyright Office has concluded that SMATV systems are
"cable systems" for purposes of qualifying for the compulsory copyright license
established for cable systems by federal law.
The FCC has authorized a new interactive television service which will
permit non-video transmission of information between an individual's home and
entertainment and information service providers. This service will provide an
alternative means for DBS systems and other video programming distributors,
including television stations, to initiate the new interactive television
services. This service may also be used by the cable television industry.
The FCC also has initiated a new rulemaking proceeding looking toward the
allocation of frequencies in the 28 Ghz range for a new multi-channel wireless
video service which could make 98 video channels available in a single market.
The Company cannot predict at this time whether competitors will emerge
utilizing such frequencies or whether such competition would have a material
impact on the operations of cable television systems.
The FCC has recently allocated a sizable amount of spectrum in the 31 Ghz
band for use by a new wireless service, Local Multipoint Distribution Service
("LMDS"), which among other uses, can deliver over 100 channels of digital
programming directly to consumers' homes. The FCC proposes to auction this
spectrum to the public this fall, with cable operators and local telephone
companies restricted in their participation in this auction. The extent to which
the winning licenses in this service will use this spectrum in particular
regions of the country to deliver multichannel video programming to subscribers,
and therefore provide competition for franchised cable systems, is at this time
uncertain.
The 1996 Act eliminates the restriction against ownership and operation of
cable systems by local telephone companies within their local exchange service
areas. Telephone companies are now free to enter the retail video distribution
business through any means, such as DBS, MMDS, SMATV or as traditional
franchised cable system operators. Alternatively, the 1996 Act authorizes local
telephone companies to operate "open video systems" without obtaining a local
cable franchise, although telephone companies operating such systems can be
required to make payments to local governmental bodies in lieu of cable
franchise fees. Up to two-thirds of the channel capacity of an "open video
system" must be available to programmers unaffiliated with the local telephone
company. The open video system concept replaces the FCC's video dialtone rules.
The 1996 Act also includes numerous provisions designed to make it easier for
cable operators and others to compete directly with local exchange telephone
carriers. With certain limited exceptions, neither a local exchange carrier nor
a cable operator can acquire more than 10% of the other entity operating within
its own service area.
Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable industry. The ability of cable systems to
compete with present, emerging and future distribution media will depend to a
great extent on obtaining attractive programming. The availability and exclusive
<PAGE>
use of a sufficient amount of quality programming may in turn be affected by
developments in regulation or copyright law. See "Legislation and Regulation."
The cable television industry competes with radio, television and print
media for advertising revenues. As the cable television industry continues to
develop programming designed specifically for distribution by cable, advertising
revenues may increase. Premium programming provided by cable systems is subject
to the same competitive factors which exist for other programming discussed
above. The continued profitability of premium services may depend largely upon
the continued availability of attractive programming at competitive prices.
Telecommunications services which the Company intends to offer in Florida
will compete with services offered by Bell South Corporation and by other
current and potential market entrants, including other Competitive Local
Exchange Carriers ("CLECs"), AT&T, MCI, Sprint and other interexchange or Long
Distance Carriers ("IXCs"), cable television companies, microwave carriers,
wireless telecommunications providers and private networks built by large end
users. A number of potential markets are already served by one or more CLECs. In
addition, the major IXCs are expected to offer local telecommunications services
in various markets. MCI has announced that it will invest more than $2.0 billion
in fiber optic rings and local switching equipment in major metropolitan markets
throughout the United States, and AT&T has filed applications with state
regulatory authorities for authority to provide local telecommunications
services in all 50 states.
Employees
At February 14, 1998, there were 769 full-time employees of the Company,
none of which were covered by collective bargaining agreements. The Company
considers its relations with its employees to be good.
Legislation and Regulation
The cable television industry is regulated by the FCC, some state
governments and most local governments. In addition, various legislative and
regulatory proposals under consideration from time to time by Congress and
various federal agencies may materially affect the cable television industry.
The following is a summary of federal laws and regulations affecting the growth
and operation of the cable television industry and a description of certain
state and local laws.
Cable Television/Federal Laws and Regulations
Cable Communications Policy Act of 1984 (the "1984 Cable Act")
The 1984 Cable Act became effective on December 29, 1984. This federal
statute, which amended the Communications Act of 1934 (the "Communications
Act"), created uniform national standards and guidelines for the regulation of
cable television systems. Violations by a cable television system operator of
provisions of the Communications Act, as well as of FCC regulations, can subject
the operator to substantial monetary penalties and other sanctions. Among other
things, the 1984 Cable Act affirmed the right of franchising authorities (state
or local, depending on the practice in individual states) to award one or more
franchises within their jurisdictions. It also prohibited non-grandfathered
cable television systems from operating without a franchise in such
jurisdictions. In connection with new franchises, the 1984 Cable Act provides
that in granting or renewing franchises, franchising authorities may establish
requirements for cable-related facilities and equipment, but may not establish
or enforce requirements for video programming or information services other than
in broad categories.
Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act")
On October 5, 1992, Congress enacted the 1992 Cable Act. This legislation
effected significant changes to the legislative and regulatory environment in
which the cable industry operates. It amended the 1984 Cable Act in many
respects. The 1992 Cable Act became effective on December 4, 1992, although
certain provisions, most notably those dealing with rate regulation and
retransmission consent, became effective at later dates. The legislation also
required the FCC to initiate a number of rulemaking proceedings to implement
various provisions of the statute. The 1992 Cable Act allows for a greater
<PAGE>
degree of regulation on the cable industry with respect to, among other things:
(i) cable system rates for both basic and certain nonbasic services; (ii)
programming access and exclusivity arrangements; (iii) access to cable channels
by unaffiliated programming services; (iv) leased access terms and conditions;
(v) horizontal and vertical ownership of cable systems; (vi) customer service
requirements; (vii) franchise renewals; (viii) television broadcast signal
carriage and retransmission consent; (ix) technical standards; (x) subscriber
privacy; (xi) consumer protection issues; (xii) cable equipment compatibility;
(xiii) obscene or indecent programming; and (xiv) requiring subscribers to
subscribe to tiers of service other than basic service as a condition of
purchasing premium services. Additionally, the legislation encourages
competition with existing cable systems by: allowing municipalities to own and
operate their own cable systems without having to obtain a franchise; preventing
franchising authorities from granting exclusive franchises or unreasonably
refusing to award additional franchises covering an existing cable system's
service area; and prohibiting the common ownership of cable systems and
co-located MMDS or SMATV systems. The 1992 Cable Act also precludes video
programmers affiliated with cable television companies from favoring cable
operators over competitors and requires such programmers to sell their
programming to other multichannel video distributors. This provision may limit
the ability of cable program suppliers to offer exclusive programming
arrangements to cable television companies. A number of provisions in the 1992
Cable Act relating to, among other things, rate regulation, have had a negative
impact on the cable industry and the Company's business.
Telecommunications Acts of 1996 (the "1996 Act")
The 1996 Act significantly revised the federal regulatory structure. As it
pertains to cable television, the 1996 Act, among other things, (i) eliminates
the regulation of certain nonbasic programming services in 1999; (ii) expands
the definition of effective competition, the existence of which displaces rate
regulation; (iii) eliminates the restriction against the ownership and operation
of cable systems by telephone companies within their local exchange service
areas; and (iv) liberalizes certain of the FCC's cross-ownership restrictions.
The FCC has been conducting a number of rulemaking proceedings in order to
implement many of the provisions of the 1996 Act.
FCC Regulation
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations covering such areas as the
registration of cable systems, cross-ownership between cable systems and other
communications businesses, carriage of television broadcast programming,
consumer education and lockbox enforcement, origination cablecasting and
sponsorship identification, children's programming, the regulation of basic
cable service rates in areas where cable systems are not subject to effective
competition, signal leakage and frequency use, technical performance,
maintenance of various records, equal employment opportunity, and antenna
structure notification, marking and lighting. The FCC has the authority to
enforce these 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. Furthermore, the 1992 Cable Act required the FCC to adopt
implementing regulations covering, among other things, cable rates, signal
carriage, consumer protection and customer service, leased access, indecent
programming, programmer access to cable television systems, programming
agreements, technical standards, consumer electronics equipment compatibility,
ownership of home wiring, program exclusivity, equal employment opportunity, and
various aspects of direct broadcast satellite system ownership and operation.
The 1996 Act requires certain changes to various provisions of these
regulations. A brief summary of the most material federal regulations as adopted
to date follows.
Rate Regulation
The 1984 Cable Act codified existing FCC preemption of rate regulation
for premium channels and optional nonbasic program tiers. The 1984 Cable Act
also deregulated basic cable rates for cable television systems determined by
the FCC to be subject to effective competition. The 1992 Cable Act substantially
changed the statutory and FCC rate regulation standards. The 1992 Cable Act
replaced the FCC's old standard for determining effective competition, under
which most cable systems were not subject to local rate regulation, with a
<PAGE>
statutory provision that has resulted in nearly all cable television systems
becoming subject to local rate regulation of basic service. The 1996 Act expands
the definition of effective competition to cover situations where a local
telephone company or its affiliate, or any multichannel video provider using
telephone company facilities, offers comparable video service by any means
except DBS. Satisfaction of this test deregulates both basic and nonbasic tiers.
The 1996 Act ends FCC regulation of nonbasic tier rates on March 31, 1999.
The FCC's regulations set standards for the regulation of basic and
nonbasic cable service rates (other than per-channel or per-program services).
The FCC's original rules became effective on September 1, 1993. The rules have
been amended several times. The rate regulations adopt a benchmark price cap
system for measuring the reasonableness of existing basic and nonbasic service
rates, and a formula for evaluating future rate increases. Alternatively, cable
operators have the opportunity to make cost-of-service showings which, in some
cases, may justify rates above the applicable benchmarks. The rules also require
that charges for cable-related equipment (e.g., converter boxes and remote
control devices) and installation services be unbundled from the provision of
cable service and based upon actual costs plus a reasonable profit. Local
franchising authorities and/or the FCC are empowered to order a reduction of
existing rates which exceed the benchmark level for either basic and/or nonbasic
cable services and associated equipment, and refunds could be required. The
retroactive refund period for basic cable service rates is limited to one year.
In general, the reductions for basic and nonbasic cable service rates require an
aggregate reduction of up to 17 percent, adjusted forward for inflation and
certain other factors, from the rates in force as of September 30, 1992. The
regulations also provide that future rate increases may not exceed an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs. Cost-based adjustments to these capped rates can also be made in the
event a cable operator adds or deletes programming channels or completes a
significant system rebuild or upgrade. A significant number of franchising
authorities have become certified by the FCC to regulate the rates charged by
the Company for basic cable service and for associated equipment. Complaints
have also been filed with the FCC seeking review of the rates charged for
nonbasic cable service. The Company's ability to implement rate increases
consistent with its past practices will likely be limited by the regulations
that the FCC has adopted.
Carriage of Broadcast Television Signals
The 1992 Cable Act contains new mandatory carriage requirements. These
new rules allow commercial television broadcast stations which are "local" to a
cable system (i.e., the system is located in the station's Area of Dominant
Influence), to elect every three years whether to require the cable system to
carry the station, subject to certain exceptions, or whether the cable system
will have to negotiate for "retransmission consent" to carry the station. Local,
noncommercial television stations are also given mandatory carriage rights,
subject to certain exceptions, within the larger of (i) a 50 mile radius from
the station's city of license or (ii) the station's Grade B contour (a measure
of signal strength). Unlike commercial stations, noncommercial stations are not
given the option to negotiate retransmission consent for the carriage of their
signal. In addition, cable systems will have to obtain retransmission consent
for the carriage of all "distant" commercial broadcast stations, except for
certain "superstations" (i.e., commercial satellite-delivered independent
stations such as WTBS). The statutory must-carry provisions for noncommercial
stations became effective on December 4, 1992. Must-carry rules for both
commercial and noncommercial stations and retransmission consent rules for
commercial stations were adopted by the FCC on March 11, 1993. The most recent
election between must-carry and retransmission consent for local commercial
television broadcast stations was on October 1, 1996. The next election between
must-carry and retransmission consent for local commercial television broadcast
stations will be October 1, 1999.
Channel Set-Asides
The 1984 Cable Act permits local franchising authorities to require cable
operators to set aside certain channels for public, educational and governmental
access programming. The Company believes that none of the System's franchises
contain unusually onerous access requirements. The 1984 Cable Act further
requires cable systems with thirty-six or more activated channels to designate a
portion of their channel capacity for commercial leased access by unaffiliated
third parties. The 1992 Cable Act requires leased access rates to be set
<PAGE>
according to a formula determined by the FCC. The FCC revised the existing rate
formula in a way which would significantly lower the rates cable operators could
charge. It is possible that such leased access will result in competition to
services offered by the Company on the other channels of its cable systems.
Competing Franchises
Because of inconsistent court rulings, it is not possible at the present
time to predict the constitutionally permissible bounds of cable franchising and
particular franchise requirements. However, the 1992 Cable Act, among other
things, prohibits franchising authorities from unreasonably refusing to grant
franchises to competing cable systems and permits franchising authorities to
operate their own cable systems without franchises.
Cross-Ownership
The 1996 Act repealed the restrictions on local exchange telephone
companies ("LECs") from providing video programming directly to customers within
their local exchange telephone service areas, except in rural areas or by
specific waiver of FCC rules. The 1996 Act also authorized LECs to operate "open
video systems" without obtaining a local cable franchise, although LECs
operating such systems can be required to make payments to local governmental
bodies in lieu of cable franchise fees. Where demand exceeds channel capacity,
up to two-thirds of the channels on an "open video system" must be available to
programmers unaffiliated with the LEC.
The 1996 Act eliminated the FCC rule prohibiting common ownership between
a cable system and a national broadcast television network. The 1996 Act also
eliminated the statutory ban covering certain common ownership interests,
operation or control between a television station and cable system within the
station's Grade B signal coverage area. However, the parallel FCC rules against
cable/television station cross-ownership remains in place, subject to review by
the FCC within two years. Finally, the 1992 Cable Act prohibits common
ownership, control or interest in cable television systems and MMDS facilities
or SMATV systems having overlapping service areas, except in limited
circumstances. The 1996 Act exempts cable systems facing "effective competition"
from the MMDS and SMATV cross-ownership restrictions.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number
of cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more than
30% of all homes nationwide. Attributable interests for these purposes include
voting interests of 5% or more (unless there is another single holder of more
than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the U.S. District Court decision holding
the multiple ownership limit provision of the 1992 Cable Act unconstitutional.
The FCC has also adopted rules which limit the number of channels on a
cable system which can be occupied by programming in which the cable system's
owner has an attributable interest. The limit is 40% of all activated channels.
Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
Technical Requirements
Historically, the FCC has imposed technical standards applicable to the
cable channels on which broadcast stations are carried, and has prohibited
franchising authorities from adopting standards which were in conflict with or
more restrictive than those established by the FCC. The FCC has recently revised
such standards and made them applicable to all classes of channels which carry
downstream NTSC video programming. Local franchising authorities are permitted
to enforce the FCC's new technical standards. The FCC also has adopted
additional standards applicable to cable television systems using frequencies in
<PAGE>
the 108-137 Mhz and 225-400 Mhz bands in order to prevent harmful interference
with aeronautical navigation and safety radio services, and has also established
limits on cable system signal leakage. Periodic testing by cable operators for
compliance with these technical standards and signal leakage limits is required.
The Company believes that the System is in compliance with these standards in
all material respects. The 1992 Cable Act requires the FCC to update
periodically its technical standards to take into account changes in technology.
The FCC has adopted regulations to implement the requirements of the 1992 Cable
Act designed to improve the compatibility of cable systems and consumer
electronics equipment.
Pole Attachments
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles, unless under the Federal Pole
Attachments Act state public service commissions are able to demonstrate that
they regulate rates, terms and conditions of the cable television pole
attachments. A number of states (including Massachusetts, Michigan, New Jersey,
New York, Ohio and Vermont) and the District of Columbia have certified to the
FCC that they regulate the rates, terms and conditions for pole attachments. In
the absence of state regulation, the FCC administers such pole attachment rates
through use of a formula which it has devised and from time to time revises. The
1996 Act directs the FCC to adopt a new rate formula for any attaching party,
including cable systems, which offers telecommunications services. This new
formula will result in significantly higher attachment rates for cable systems
which choose to offer such services.
Other Matters
FCC regulation also includes matters regarding a cable system's carriage
of local sports programming; restrictions on origination and cablecasting by
cable system operators; application of the fairness doctrine and rules governing
political broadcasts; customer service; home wiring; and limitations on
advertising contained in nonbroadcast children's programming.
Copyright
Cable television systems are subject to federal copyright licensing
covering carriage of broadcast signals. In exchange for making semi-annual
payments to a federal copyright royalty pool and meeting certain other
obligations, cable operators obtain a statutory license to retransmit broadcast
signals. The amount of this royalty payment varies, depending on the amount of
system revenues from certain sources, the number of distant signals carried, and
the location of the cable system with respect to over-the-air television
stations.
Various bills have been introduced into Congress over the past several
years that would eliminate or modify the cable television compulsory license.
The FCC has recommended to Congress that it repeal the cable industry's
compulsory copyright license. The FCC determined that the statutory compulsory
copyright license for local and distant broadcast signals no longer serves the
public interest and that private negotiations between the applicable parties
would better serve the public. Without the compulsory license, cable operators
might need to negotiate rights from the copyright owners for each program
carried on each broadcast station in the channel lineup. Such negotiated
agreements could increase the cost to cable operators of carrying broadcast
signals. The 1992 Cable Act's retransmission consent provisions expressly
provide that retransmission consent agreements between television broadcast
stations and cable operators do not obviate the need for cable operators to
obtain a copyright license for the programming carried on each broadcaster's
signal.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) has generally been licensed by the networks through private
agreements with the American Society of Composers and Publishers ("ASCAP") and
BMI, Inc. ("BMI"), the two major performing rights organizations in the United
States. As a result of extensive litigation, ASCAP and BMI are both now required
to offer "through to the viewer" licenses to the cable networks which would
cover the retransmission of the cable networks' programming by cable systems to
their subscribers.
<PAGE>
Copyrighted music performed by cable systems themselves on local
origination channels, PEG channels, and in locally inserted advertising and
cross promotional announcements must also be licensed. A blanket license is
available from BMI. Cable industry negotiations with ASCAP are still in
progress.
Cable Television/State and Local Regulation
Because a cable television system uses local streets and rights-of-way,
cable television systems are subject to state and local regulation, typically
imposed through the franchising process. State and/or local officials are
usually involved in franchise selection, system design and construction, safety,
service rates, consumer relations, billing practices and community related
programming and services.
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and in
many cases are terminable if the franchise operator fails to comply with
material provisions. The 1984 Cable Act established renewal procedures and
criteria designed to protect incumbent franchises against arbitrary denials of
renewal. While these formal procedures are not mandatory unless timely invoked
by either the cable operator or the franchising authority, they can provide
substantial protection to incumbent franchisees. Even after the formal renewal
procedures are invoked, franchising authorities and cable operators remain free
to negotiate a renewal outside the formal process. Nevertheless, renewal is by
no means assured, as the franchisee must meet certain statutory standards. Even
if a franchise is renewed, a franchising authority may impose new and more
onerous requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements. The
1992 Cable Act makes several changes to the process under which a cable operator
seeks to enforce its renewal rights which could make it easier in some cases for
a franchising authority to deny renewal.
Franchises usually call for the payment of fees, often based on a
percentage of the system's gross subscriber revenues, to the granting authority.
Although franchising authorities may impose franchise fees under the 1984 Cable
Act, such payments cannot exceed 5% of a cable system's annual gross revenues.
In those communities in which franchise fees are required, the Company currently
pays franchise fees ranging up to 5% of gross revenues. Franchising authorities
are also empowered in awarding new franchises or renewing existing franchises to
require cable operators to provide cable-related facilities and equipment and to
enforce compliance with voluntary commitments. In the case of franchises in
effect prior to the effective date of the 1984 Cable Act, franchising
authorities may enforce requirements contained in the franchise relating to
facilities, equipment and services, whether or not cable-related. The 1984 Cable
Act, under certain limited circumstances, permits a cable operator to obtain
modifications or franchise obligations.
Upon receipt of a franchise, the cable system owner usually is subject to
a broad range of obligations to the issuing authority directly affecting the
business of the system. The terms and conditions of franchises vary materially
from jurisdiction to jurisdiction, and even from city to city within the same
state, historically ranging from reasonable to highly restrictive or burdensome.
The 1984 Cable Act places certain limitations on a franchising authority's
ability to control the operation of a cable system operator and the courts have
from time to time reviewed the constitutionality of several general franchise
requirements, including franchise fees and access channel requirements, often
with inconsistent results. On the other hand, the 1992 Cable Act prohibits
exclusive franchises, and allows franchising authorities to exercise greater
control over the operation of franchised cable systems, especially in the area
of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multichannel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of cable
systems. Moreover, franchising authorities are immunized from monetary damage
awards arising from regulation of cable systems or decisions made on franchise
grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws and
regulations under which it was granted directly affect the profitability of the
cable television system. Cable franchises generally contain provisions governing
charges for basic cable television services, fees to be paid to the franchising
authority, length of the franchise term, renewal, sale or transfer of the
franchise, territory of the franchise, design and technical performance of the
system, use and occupancy of public streets and number and types of cable
<PAGE>
services provided. The 1996 Act prohibits a franchising authority from either
requiring or limiting a cable operator's provision of telecommunications
services.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the jurisdiction
of 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 television systems are continuing and can be expected to
increase. Such proposals and legislation may be preempted by federal statute
and/or FCC regulation. To date, Florida has not enacted such state level
regulation. However, the Company cannot predict whether Florida will engage in
such regulation in the future.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements currently are
the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television systems operate. Neither the outcome of
these proceedings nor their impact upon the cable television industry or the
System can be predicted at this time.
Telephony and Telecommunications/Federal Laws and Regulations
The 1996 Act also alters federal, state and local laws and regulations
regarding telecommunications providers and services, including the Company, and
creates a favorable environment in which the Company may provide telephone and
other telecommunications services and facilities. The following is a summary of
the key provisions of the 1996 Act that could materially affect the
telecommunications business of the Company.
The 1996 Act was intended to promote the provision of competitive
telephone services and facilities by cable television companies and others. The
1996 Act declares that no state or local laws or regulations may prohibit or
have the effect of prohibiting the ability of any entity to provide any
interstate or intrastate telecommunications service. States are authorized to
impose "competitively neutral" requirements regarding universal service, public
safety and welfare, service quality, and consumer protection. The 1996 Act
further provides that cable operators and affiliates providing
telecommunications services are not required to obtain a separate franchise from
local franchising authorities ("LFAs") for such services. An LFA may not order a
cable operator or affiliate to discontinue providing telecommunications services
or discontinue operating its cable system on the basis that it has failed to
obtain a separate franchise or renewal for the provision of telecommunications
services. The 1996 Act prohibits LFAs from requiring cable operators to provide
telecommunications service or facilities as a condition of the grant of a
franchise, franchise renewal, or franchise transfer, except that LFAs may seek
"institutional networks" as part of such franchise negotiations.
The 1996 Act provides that, when cable operators provide
telecommunications services, LFAs may require reasonable, competitively neutral
compensation for management of the public rights-of-way. The LFA must publicly
disclose such compensation requirements.
The Company believes that it qualifies as a connecting carrier under
federal law and therefore does not need FCC certification to provide intrastate
service. In the event that it is determined that the Company must seek FCC
certification, the Company believes that such certification will be granted by
the FCC in a timely manner. The Company may be required to file certain tariffs
and reports with the FCC.
Interconnection and Other Telecommunications Carrier Obligations
To facilitate the entry of new telecommunications providers (including
cable operators), the 1996 Act imposes interconnection obligations on all
telecommunications carriers. All carriers must interconnect their networks with
other carriers and must not deploy network features and functions that interfere
with interoperability. LECs also have a set of separate identified obligations
beyond those that apply to new entrants: (i) good faith negotiation with those
seeking interconnection, (ii) unbundling, equal access and non-discrimination
requirements, (iii) resale of services, including "resale at wholesale rates,"
(iv) notice of changes in the network that would affect interconnection and
interoperability and (v) physical collocation unless shown that practical
technical reasons, or space limitations, make physical collocation impractical.
<PAGE>
Under the 1996 Act, individual interconnection rates must be just and
reasonable, based on cost, and may include a reasonable profit. Traffic
termination charges shall be "mutual and reciprocal." The 1996 Act permits
carriers to agree on a "bill and keep" system, but does not require such a
system.
The 1996 Act contemplates that interconnection agreements will be
negotiated by the parties and submitted to a state public service commission
("SPSC") for approval. A SPSC may become involved, at the request of either
party, if negotiations fail. If the state regulator refuses to act, the FCC may
determine the matter. If the SPSC acts, an aggrieved party's remedy is to file a
case in federal district court. The 1996 Act provides for a rural exemption to
interconnection requests, but also provides that the exception does not apply
where a cable operator makes an interconnection request of a rural LEC within
the operator's franchise area.
The 1996 Act requires that all telecommunications providers (including
cable operators that provide telecommunications services) must contribute
equitably to a Universal Service Fund ("USF"), and the FCC may exempt an
interstate carrier or class of carriers if their contribution would be minimal
under the USF formula. The 1996 Act allows states to determine which intrastate
telecommunications providers contribute to the USF. The 1996 Act prohibits
geographic end user rate de-averaging to protect rural subscribers' rates.
FCC Interconnection Order
The FCC recently released its First Report and Order to effectuate the
interconnection provisions of the 1996 Act. In general, the FCC's First Report
and Order appears favorable to the promotion of competition at the local level.
To summarize, the FCC first has asserted broad federal jurisdiction over
interconnection issues and the power to bind both state and local governments.
The FCC also has established procedures for the negotiation, arbitration and
resolution of interconnection agreements. It also has stated that new entrants
essentially always benefit from the terms of subsequent interconnection
agreements entered into by a given LEC with third parties and cannot waive their
"most favored nation" rights in this respect. The FCC also has specified the
manner in which actual physical interconnection must be made available to new
entrants and, in this connection, has specified the manner in which rates
charged to new entrants for physical interconnection must be calculated. The FCC
also has set forth the manner in which LECs must make essential network elements
available to new entrants for resale, again including the manner in which actual
rates are to be calculated.
The FCC Report and Order is subject to Petitions for Reconsideration filed
at the FCC and Petitions for Review consolidated before the United States Court
of Appeals for the Eighth Circuit. Additionally, the Eighth Circuit has granted
a stay of the pricing and "most favored nation" provisions of the First Report
and Order. The pricing provisions establish price ceilings and default prices
for interconnection elements, and the "most favored nation" provision allows
carriers to request the LEC to make available to them on the same terms and
conditions, any interconnection, service or network element contained in an
approved agreement to which the LEC is a party. The stay is limited to certain
FCC rules. None of the provisions of the 1996 Act has been stayed. Various
parties filed petitions to modify the stay with the Eighth Circuit. On November
1, 1996, the Eighth Circuit modified the stay to exclude certain non-pricing
portions of the rules that primarily relate to wireless telecommunications
providers. The outcome of these proceedings could affect and impair the
Company's ability to provide competitive local exchange services.
Internet Services/Federal Laws and Regulations
Transmitting indecent material via the Internet was made criminal by the
1996 Act. However, on-line access providers are exempted from criminal liability
for simply providing interconnection service; they are also granted an
affirmative defense from criminal or other action where in "good faith" they
restrict access to indecent materials. These provisions have been challenged in
federal court. The 1996 Act further exempts on-line access providers from civil
liability for actions taken in good faith to restrict access to obscene,
excessively violent or otherwise objectionable material.
Telephony and Telecommunications/State Law and Regulation
In 1995, the Florida Legislature amended Chapter 362 of Florida Statutes
by enacting "An Act Relating to Local Exchange Telecommunications Companies"
("Florida Act") (Chapter 362, Fl. Stat. (1995)). This new law substantially
<PAGE>
altered Florida law regarding telecommunications providers and services, such as
Olympus. The following is a summary of the key provisions of the Florida Act and
associated Florida Public Service Commission ("PSC") actions that could
materially affect Olympus' telecommunications business.
The Florida Act
The Florida Act vests in the PSC virtually exclusive jurisdiction over
intrastate telecommunications matters. The Florida Act limits municipalities to
taxation of certain telecommunications services or management of long distance
carriers' occupation of local rights-of-way. The Florida Act further directs the
PSC to employ flexible regulatory treatment to ensure the widest possible range
of telecommunications services, and provides that new entrants such as the
Company are subject to a lesser level of regulatory oversight than LECs.
PSC Actions
Pursuant to the Florida Act (and the 1996 Act and the FCC's First Report
and Order), the PSC is conducting several proceedings to address competitive
issues. To summarize, pursuant to the Florida Act, the PSC has adopted rules
requiring certification of CLEC Interexchange Telecommunications Service
Providers; Operator Service Providers; Alternative Access Vendor Services; and
Shared Tenant Services Providers. The Florida Act provides that the PSC shall
grant certification to applicants upon a showing of sufficient technical,
financial, and managerial capability to provide service in the geographic area
proposed to be served. The Company believes that Olympus meets the statutory
requirements for PSC certification for any type of intrastate telecommunications
service provider, and that any such application process should be completed
expeditiously. In addition, like the 1996 Act, the Florida Act requires LECs to
interconnect with certified CLECs. Approximately fourteen interconnection
agreements have been reached between LECs and CLECs to date, while approximately
five CLECs have requested PSC arbitration of stalled agreements. The PSC is
obligated under the Florida Act to arbitrate any disputes in no more than 120
days from date of request. As well, the PSC has ordered BellSouth, the state's
largest LEC, to unbundle eight network elements for resale by CLECs, and the PSC
has ordered favorable interim rates for these elements. The PSC has not yet
adopted an order resolving wholesale discounts associated with local service
resale.
Based on the foregoing, the Company believes that the Florida Act and
actions of the PSC to date reflect a generally favorable legal and regulatory
environment for new entrants, such as Olympus, to intrastate telecommunications
in Florida.
ITEM 2. PROPERTIES
The Company's principal physical assets consist of cable television
operating plant and equipment, including signal receiving, encoding and decoding
devices, headends and distribution systems and subscriber house drop equipment
for each of its cable television systems. The signal receiving apparatus
typically includes a tower, antenna, ancillary electronic equipment and earth
stations for reception of satellite signals. Headends, consisting of associated
electronic equipment necessary for the reception, amplification and modulation
of signals, are located near the receiving devices. The Company's distribution
system consists primarily of coaxial and fiber optic cables and related
electronic equipment. Subscriber devices consist of decoding converters. The
physical components of cable television systems require maintenance and periodic
upgrading to keep pace with technological advances.
The Company's cables and related equipment are generally 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.
See "Legislation and Regulation-Federal Regulation."
The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices
in each of its market areas, and owns most of its service vehicles.
Substantially all of the assets of Olympus' subsidiaries are subject to
encumbrances as collateral in connection with the Company's credit arrangements,
either directly with a security interest or indirectly through a pledge of the
<PAGE>
stock or partnership interests in the respective subsidiaries. See Note 3 to the
Olympus Communications, L.P. consolidated financial statements. The Company
believes that its properties, both owned and leased, are in good operating
condition and are suitable and adequate for the Company's business operations.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the business, of which the Company or any of its
subsidiaries is a part or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands)
The selected consolidated financial data as of and for each of the five
years in the period ended December 31, 1997 have been derived from the audited
consolidated financial statements of the Company. These data should be read in
conjunction with the consolidated financial statements and related notes
thereto, for each of the three years in the period ended December 31, 1997 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K. The Statement
of Operations Data with respect to the years ended December 31, 1993 and 1994,
and the balance sheet data at December 31, 1993, 1994, and 1995 have been
derived from audited consolidated financial statements of the Company not
included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
--------- -------- --------- --------- ---------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues $98,646 $94,458 $120,968 $159,870 $176,363
Direct operating and programming expenses 22,078 22,369 37,494 48,598 56,905
Selling, general and administrative expenses 16,692 18,708 23,912 28,974 32,163
Depreciation and amortization 37,240 36,703 31,953 40,446 43,337
Management fees 4,681 6,302 6,334 8,839 9,566
--------- --------- --------- --------- ---------
Operating income 17,955 10,376 21,275 33,013 34,392
Interest expense (24,515) (22,889) (29,217) (40,748) (50,150)
Interest expense affiliates (4,955) (9,373) (7,501) (6,600) (6,600)
Gain on sale of assets -- -- -- -- 1,522
Other income (expense) 271 585 (15) 401 1,085
--------- --------- --------- --------- ---------
Loss before income taxes, extraordinary loss and
cumulative effect of change in accounting
principle (a) (11,244) (21,301) (15,458) (13,934) (19,751)
Income tax benefit (expense) -- 276 (2,824) 2,984 (51)
Extraordinary loss (a) -- -- (1,109) -- --
Cumulative effect of change in accounting for
income taxes (a) (59,500) -- -- -- --
--------- --------- --------- --------- ---------
Net loss $(70,744) $(21,025) $(19,391) $(10,950) $(19,802)
========= ========= ========= ========= =========
Loss per general and limited partners' unit before
extraordinary loss and cumulative effect of change
in accounting principle $(1,124) $(2,103) $(1,828) $(1,095) $(1,980)
Net loss per general and limited partners' unit after
priority return and accretion requirements $(12,346) $(8,383) $(8,275) $(7,659) $(9,570)
Cash distributions declared per general and limited
partners' units $ -- $ -- $ -- $ 5,467 $ --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- --------- --------- ---------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Total assets $458,663 $375,985 $533,909 $640,221 $728,952
Total debt (b) 368,263 314,069 419,809 572,713 673,804
Redeemable Preferred Limited
Partner Interests 276,101 276,101 -- -- --
Partners' equity (deficiency) (452,115) (494,105) (18,544) (84,199) (112,217)
Year Ended December 31,
-----------------------------------------------------------
Other Data and Financial Ratios: 1993 1994 1995 1996 1997
--------- --------- -------- -------- -------
EBITDA (c) $60,147 $53,966 $59,547 $82,699 $88,380
EBITDA Margin (d) 56.8%(e) 56.7%(e) 49.2% 51.7% 50.1%
Interest expense 29,470 32,262 36,718 47,348 56,750
Cash provided by operating activities 16,652 20,285 8,161 33,411 21,305
Cash (used for) provided by investing activities (32,959) 19,402 (107,351) (70,444) (51,821)
Cash provided by (used for) financing activities 20,628 (50,633) 131,442 30,822 7,604
EBITDA to interest expense (f) 2.04 1.67 1.62 1.75 1.56
Capital Expenditures $23,164 $23,916 $21,498 $28,117 $37,867
<FN>
(a) "Extraordinary loss" relates to loss on the early retirement of debt.
"Cumulative effect of change in accounting for income taxes" refers to a
change in accounting principle. Effective January 1, 1993, the Company
adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes," which requires an asset
and liability approach for financial accounting and reporting for income
taxes. SFAS No. 109 resulted in the cumulative recognition of an additional
liability by the Company of $59,500.
(b) Excludes affiliate debt.
(c) Earnings before interest expense, income taxes, depreciation and
amortization, management fees, other noncash charges, extraordinary loss
and cumulative effect of change in accounting principle ("EBITDA"). EBITDA
and similar measurements of cash flow are commonly used in the cable
television industry to analyze and compare cable television companies on
the basis of operating performance, leverage and liquidity. While EBITDA is
not an alternative to operating income as an indicator of operating
performance or an alternative to cash flows from operating activities as a
measure of liquidity, as defined by generally accepted accounting
principles and, while EBITDA may not be comparable to other similarly
titled measures of other companies, the Company's management believes
EBITDA is a meaningful measure of performance as substantially all of the
Company's financing agreements contain financial covenants based on EBITDA.
(d) Percentage representing EBITDA divided by revenues.
(e) Excludes business interruption revenue allocated from insurance proceeds
related to Hurricane Andrew of $9,547 and $1,037 for the years ended
December 31, 1993 and 1994, respectively.
(f) Based on EBITDA for the period presented divided by interest expense
recorded for the applicable period.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands)
Results of Operations
General
Olympus is a joint venture limited partnership formed under the laws of
Delaware with 50% of the outstanding voting interests held by ACP Holdings,
Inc., a wholly-owned subsidiary of Adelphia and managing general partner of
Olympus. The remaining 50% of the voting interest is held by various
wholly-owned subsidiaries of FPL Group. Adelphia and FPL Group also held, as of
December 31, 1997, $312,261 and $156,130, respectively, aggregate principal
amount of non-voting Preferred Limited Partnership ("PLP") interests in the
Company, which provide for a 16.5% per annum priority return.
Olympus Capital Corporation, a wholly-owned subsidiary of the Company, was
formed solely for the purpose of serving as a co-issuer with Olympus
Communications, L.P. of the 10 5/8% Senior Notes due 2006. Olympus Capital
Corporation has no substantial assets or liabilities and no operations of any
kind and the Indenture, pursuant to which such Senior Notes were issued, limits
Olympus Capital Corporation's ability to acquire or hold any significant assets
or other properties or engage in any business activities other than in
connection with the issuance of the Senior Notes.
Olympus earned substantially all of its revenues in each of the last three
fiscal years from monthly subscriber fees for basic, satellite, premium and
ancillary services (such as installations and equipment rentals), local and
national advertising sales, pay-per-view programming, home shopping networks and
electronic security monitoring services.
Comparison of the Years Ended December 31, 1995, 1996 and 1997
The changes in the Company's results of operations for the year ended
December 31, 1996 compared with the year ended December 31, 1995, were primarily
the result of acquisitions, expanding existing cable television operations and
the impact of increased advertising sales and other service offerings as well as
an increase in cable rates implemented during October 1995 and June 1996. The
changes for the year ended December 31, 1997, compared with the prior year, were
primarily the result of acquisitions, expanding existing cable television
operations, the impact of subscriber rate increases which became effective June
1, 1996 and 1997 and vendor price increases for the Company's programming. Refer
to Liquidity and Capital Resources - Acquisitions for a discussion of
acquisitions. The high level of depreciation and amortization associated with
acquisitions and the upgrading and expansion of the cable systems, and interest
and placement costs associated with financing activities will continue to have a
negative impact on the reported results of operations. The Company expects to
report net losses for the foreseeable future. The following table is derived
from the Company's consolidated financial statements that are included in this
Annual Report on Form 10-K and sets forth the historical percentage relationship
to revenues of the components of operating income contained in such financial
statements for the periods indicated.
Percentage of Revenues
Year Ended December 31,
1995 1996 1997
--------- --------- ----------
Revenues 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and programming 31.0 30.4 32.3
Selling, general and administrative 19.8 18.1 18.2
Depreciation and amortization 26.4 25.4 24.6
Management fees to managing general partner 5.2 5.5 5.4
------- ------- -------
Operating income 17.6% 20.6% 19.5%
======= ======= =======
<PAGE>
Revenues
The primary revenue sources, reflected as a percentage of total revenues, were
as follows:
Year Ended December 31,
1995 1996 1997
--------- --------- ---------
Regulated service and equipment fees 74% 73% 74%
Premium programming fees 15% 13% 12%
Advertising sales and other services 11% 14% 14%
Total revenues for the year ended December 31, 1996 increased 32.2% from
the prior year, primarily due to the impact of cable systems contributed by FPL
Group, the cable systems acquired from WB Cable during 1995 and Leadership
during 1996, and the positive impact of rate increases implemented during
October 1995 and June 1996. Subscriber growth and advertising revenues also
contributed to such increase. Revenues increased approximately 10.3% for the
year ended December 31, 1997 compared with the prior year, primarily due to
acquisitions, basic subscriber growth and the positive impact of rate increases
on June 1, 1996 and June 1, 1997. These increases were partially offset by price
reductions on certain services and a decrease in premium programming services
and advertising revenues.
The increases (decreases) were attributable to the following:
Percentage of
Increase (Decrease)
for the Year Ended
December 31,
-------------------
1996 1997
------ ------
Acquisitions 66% 48%
Basic subscriber growth 12% 38%
Rate increases 20% 24%
Premium programming fees (1%) (11%)
Advertising sales and other 3% 1%
Direct Operating and Programming Expenses. Direct operating and
programming expenses, which are mainly basic and premium programming costs and
technical expenses, increased 29.6% and 17.1% for the years ended December 31,
1996 and 1997, respectively, compared with the respective prior years. Such
increases were primarily due to increased programming costs and incremental
costs associated with increased subscribers as well as increased operating
expenses from acquired systems. Acquired systems accounted for approximately 41%
and 25% of the increase for the years ended December 31, 1996 and 1997,
respectively.
Selling, General and Administrative Expenses. These expenses, which are
mainly comprised of costs related to system offices, customer service
representatives, and sales and administrative employees, increased 21.1% and
11.0% for the years ended December 31, 1996 and 1997, respectively, compared
with the respective prior years. The increases were primarily due to incremental
costs associated with acquisitions and costs associated with subscriber growth.
Acquired systems accounted for approximately 41% and 35% of the increase for the
years ended December 31, 1996 and 1997, respectively. Selling, general and
administrative expenses declined as a percentage of revenues for the year ended
December 31, 1996 and remained constant through December 31, 1997 when compared
with the respective prior year which reflects the impact of rate increases and
the successful integration of acquired systems with existing operations.
EBITDA. EBITDA (earnings before interest expense, income taxes,
depreciation and amortization, management fees, other non-cash charges,
extraordinary loss and cumulative effect of change in accounting principle) for
the year ended December 31, 1996, increased 38.9% as compared with the prior
year. The increase was primarily due to the positive effects of the October 1995
and June 1996 rate increases, increased advertising and other service revenues,
<PAGE>
and the increased operating income provided by cable systems contributed by the
FPL Group, and acquired from WB Cable and Leadership, partially offset by
increased programming costs and incremental costs associated with increased
subscribers. For the year ended December 31, 1997, EBITDA increased 6.9% as
compared with the prior year. The increase was primarily due to the positive
impact of acquisitions and rate increases on June 1, 1996 and 1997. While EBITDA
is not an alternative to operating income as an indicator of operating
performance or an alternative to cash flows from operating activities as a
measure of liquidity, as defined by generally accepted accounting principles
and, while EBITDA may not be comparable to other similarly titled measures of
other companies, the Company's management believes EBITDA is a meaningful
measure of performance as substantially all of the Company's financing
agreements contain financial covenants based on EBITDA.
Depreciation and Amortization. Depreciation and amortization was higher
for the year ended December 31, 1996 compared with the prior year, primarily due
to the effect of acquisitions. For the year ended December 31, 1997,
depreciation and amortization increased compared with the prior year primarily
due to increased amortization related to acquisitions and to the costs
associated with the Company's financing activities.
Management Fees to Managing Affiliate. Pursuant to the terms of the
Company's Partnership Agreement, the Company pays to Adelphia, on a quarterly
basis, an amount representing an allocation of the corporate overhead of
Adelphia with respect to the Company for such period, which allocation is based
upon the ratio of the Company's cable subscribers to the total cable subscribers
owned or managed by Adelphia. Such fees were relatively flat as a percentage of
revenues for the years ended December 31, 1996 and 1997 as compared to the
respective prior year.
Interest Expense. For the years ended December 31, 1996 and 1997, interest
expense increased 39.5% and 23.1% compared to the respective prior year. The
increase during 1996 was primarily due to increased levels of debt incurred as a
result of acquisitions. The increase in interest expense during 1997 was
primarily attributable to an increase in the average interest rate on
outstanding debt due to the issuance of $200,000 of 10 5/8% Senior Notes on
November 12, 1996 and an increase in the average amount of debt outstanding
during 1997 as compared with the prior year.
Interest Expense-Affiliates. The Company is charged interest on advances
due to Adelphia and other affiliates. Such advances were used by the Company for
capital expenditures, for repayment of debt and for working capital. For the
year ended December 31, 1996, interest expense-affiliates declined 12.0%
primarily due to the lower level of advances outstanding during 1996 compared
with the year ended December 31, 1995. Interest expense-affiliates was flat for
the year ended December 31, 1997 as compared with the prior year.
Net Loss. The Company reported net losses of $19,391, $10,950 and $19,802
for the years ended December 31, 1995, 1996 and 1997, respectively. The decline
in net loss in 1996 compared to 1995 is primarily due to the impact of rate
increases and increased operating income of acquired systems, partially offset
by increased programming costs, interest expense and other incremental costs
associated with increased subscribers. The increase in net loss for the year
ended December 31, 1997 as compared to the prior year was due primarily to
increased interest expense.
Liquidity and Capital Resources
The cable television business is capital intensive and typically requires
continual financing for the construction, modernization, maintenance, expansion
and acquisition of cable systems. During the three years in the period ended
December 31, 1997, the Company committed substantial capital resources for these
purposes. These expenditures were funded through long-term borrowings and, to a
lesser extent, advances from affiliates and internally generated funds. The
Company's aggregate outstanding borrowings as of December 31, 1997 were
$673,804. The Company's ability to generate cash to meet its future needs will
depend generally on its results of operations and the continued availability of
external financing.
<PAGE>
Capital Expenditures
The Company's network architecture is designed to increase channel
capacity and minimize future capital expenditures, while positioning the Company
to take advantage of future opportunities. Capital expenditures for the years
ended December 31, 1995, 1996 and 1997 were $21,498, $28,117 and $37,867
respectively. The increases in capital expenditures for the years ended December
31, 1996 and 1997 compared to the respective prior years were primarily due to
the impact of acquired systems and increased investment related to the
rebuilding of the Company's cable plant. The Company expects capital
expenditures for 1998 to range from $40,000 to $60,000.
Financing Activities
The Company's ability to generate cash adequate to meet its future needs
will depend generally on its results of operations and the continued
availability of financing from both its owners and external sources. During the
three year period ended December 31, 1997, the Company funded its working
capital requirements, capital expenditures, and acquisitions through long-term
borrowings primarily from banks and affiliates, issuance of debt securities by
Olympus, advances from affiliates and internally generated funds. The Company
generally has funded the principal and interest obligations on its long-term
borrowings by refinancing the principal with new loans, and by paying the
interest out of internally generated funds.
Most of Olympus' directly-owned subsidiaries have their own senior credit
agreements. Typically, borrowings under these agreements are collateralized by
the assets of the borrowing subsidiary and its subsidiaries and, in some cases,
are guaranteed by such subsidiary's subsidiaries. At December 31, 1996 and 1997,
an aggregate of $309,000 and $427,000, respectively, in borrowings were
outstanding under these agreements. These agreements limit, among other things,
additional borrowings, investments, transactions with affiliates and other
subsidiaries, and the payment of dividends and fees by the subsidiaries. The
agreements also require maintenance of certain financial ratios by the
subsidiaries. Management believes that the borrowers were in compliance with the
agreements' covenants at December 31, 1997. At December 31, 1997, approximately
$151,451 of the net assets of subsidiaries would be permitted to be transferred
to Olympus in the form of distributions, dividends and loans without the prior
approval of the lenders based upon the results of operations of such
subsidiaries for the quarter ended December 31, 1997. The subsidiaries are
permitted to pay management fees to Olympus or other subsidiaries. Such fees are
limited to a percentage of the subsidiaries' revenues.
A subsidiary of Olympus is a co-borrower with an affiliate under a
$200,000 credit agreement. The subsidiary is permitted to borrow up to $39,500
of the available credit, none of which was included in subsidiary debt as of
December 31, 1996 and 1997. In conjunction with the acquisition of the
partnership interests of National, another subsidiary of Olympus assumed the
obligation for $118,000 of a $350,000 credit agreement of Hilton Head
Communications, L.P. ("Hilton Head"). Each of these subsidiaries is liable for
all borrowings under the respective credit agreements, although the lenders have
no recourse against Olympus other than against Olympus' interest in and the
assets of the respective subsidiaries.
The amount of borrowings available to Olympus under revolving credit
agreements is generally based upon the subsidiaries achieving certain levels of
operating performance. Olympus had commitments from banks for additional
borrowings of up to $147,750, which included $10,250 also available to
affiliates at December 31, 1997, which expire through 2003. Olympus pays
commitment fees of .375% of unused principal.
Subsidiary debt is due at various dates through 2003. Interest rates are
based upon one or more of the following rates at the option of the borrowers:
prime rate plus 0% to 1%; certificate of deposit rate plus .875% to 2.25%; or
LIBOR rate plus .625% to 2%. At December 31, 1996 and 1997, the weighted average
interest rate on subsidiary debt was 7.43% and 7.18%, respectively. Interest is
payable quarterly. The rates on 26.9% of Olympus' subsidiary debt were fixed for
at least one year through interest rate swap agreements.
On November 12, 1996, Olympus issued $200,000 of 10 5/8% Senior Notes (the
"Senior Notes"). Net proceeds, after payment of transaction costs, of
approximately $195,000 were used to reduce amounts outstanding on Olympus'
subsidiary debt. Interest is payable semi-annually. The Senior Notes are
<PAGE>
unsecured and are due November 15, 2006. Olympus may redeem up to $70,000 of the
Senior Notes at 110.625% of principal through November 6, 1999. Commencing
November 15, 2001, Olympus may redeem the Senior Notes in whole or in part at
105.3125% of principal declining annually to par on November 15, 2004. Holders
of the Senior Notes have the right to require Olympus to redeem their Senior
Notes at 101% of principal upon a Change of Control (as defined in the
Indenture). The Indenture stipulates, among other things, limitations on
additional borrowings, payment of dividends or distributions, repurchase of
equity interests, transactions with affiliates and the sale of assets.
Olympus has entered into interest rate swap agreements and interest rate
cap agreements with banks and an affiliate to reduce the impact of changes in
interest rates on its bank debt and its Senior Notes. Olympus enters into
pay-fixed agreements to effectively convert a portion of its variable-rate debt
to fixed-rate debt. Olympus enters into receive-fixed agreements to effectively
convert a portion of its fixed-rate Senior Notes to variable-rate debt which is
indexed to LIBOR. Interest rate cap agreements are used to reduce the impact of
increases in interest rates on variable rate debt. Olympus is exposed to credit
loss in the event of nonperformance by the banks and the affiliate. Olympus does
not expect any such nonperformance. At December 31, 1996 and 1997, Olympus would
have received approximately $2,571 and $615, respectively, to settle its
interest rate swap and cap agreements, representing the excess of fair value
over carrying cost of these agreements.
Acquisitions
On February 28, 1995, Olympus entered into a Liquidation Agreement with
the Gans Family ("Gans"), a former Olympus limited partner. Under this
Liquidation Agreement, Gans agreed to exchange their redeemable limited partner
interests in Olympus for Olympus' investment in Northeast Cable, Inc.
Concurrently with the closing of the Liquidation Agreement, ACP Holdings,
Olympus, Telesat and certain shareholders of Adelphia entered into an investment
agreement (the "Telesat Investment Agreement") whereby Telesat contributed to
Olympus substantially all of the assets associated with certain cable television
systems, serving approximately 50,000 subscribers in southern Florida, in
exchange for general and limited partner interests of $5, Senior Limited partner
("SLP") interests of $20,000 and $112,500 of newly issued 16.5% preferred
limited partner ("PLP") interests.
Prior to the Telesat Investment Agreement, Olympus had obligations to
Adelphia for intercompany advances, redeemable PLP interests, and accrued
priority return on redeemable PLP interests. In conjunction with the Telesat
Investment Agreement, Adelphia contributed $49,974 of the intercompany advances,
$51,101 of the existing redeemable PLP interests and all of the then existing
accrued priority return on the redeemable PLP interests to general partners'
equity (deficiency). Adelphia then exchanged its remaining redeemable PLP
interests for $225,000 of new PLP interests. Also, Senior Debt (as defined in
the Telesat Investment Agreement) owed by Olympus to Adelphia of $40,000
remained outstanding after consummation of the Telesat Investment Agreement.
On March 28, 1996, ACP Holdings, Telesat, Olympus, Adelphia and certain
shareholders of Adelphia entered into an agreement which amended certain aspects
of the Telesat Investment Agreement and the Olympus Partnership Agreement. The
amendment provided for the repayment of certain amounts owed to Telesat totaling
$20,000, the release of certain obligations of Telesat to Olympus and the
reduction of Telesat's PLP and accrued priority return balances by $20,000. The
amendment further provided for a $40,000 distribution to Adelphia as a reduction
of its PLP interest and accrued priority return balances. These repayments and
distributions were made on March 29, 1996 and were funded through internally
generated funds and borrowings by a subsidiary of Olympus.
On April 3, 1995, Olympus purchased all of the cable and security systems
of WB Cable Associates, Ltd., ("WB Cable") serving approximately 44,000 cable
and security monitoring subscribers for a purchase price of $82,000. WB Cable
provides cable service from one headend and security monitoring services from
one location in West Boca Raton, Florida. Of the purchase price, $77,000 was
paid in cash and $5,000 was paid in Adelphia Class A Common Stock. The
acquisition, which was accounted for under the purchase method of accounting,
was financed principally through additional borrowings under an Olympus
subsidiaries' credit agreement.
<PAGE>
On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.,
("Leadership Cable") which at the acquisition date served approximately 50,000
cable and security subscribers for a purchase price of $95,800. Leadership Cable
provides cable service and security services in and around West Palm Beach,
Florida. The purchase price consisted of $40,000 in cash and a $70,000
non-interest bearing discount seller note. This note was recorded at $55,800 at
acquisition and accreted to the $70,000 face amount. The acquisition was
accounted for under the purchase method of accounting.
Effective April 1, 1997, Olympus acquired certain cable systems of
Tele-Media Company of Southeast Florida, Inc. for an aggregate price of $8,500.
These systems served approximately 5,000 subscribers at the date of acquisition
located in and around Osceola County, Florida. The acquisition was accounted for
under the purchase method of accounting.
On June 20, 1997, Olympus acquired the Peninsula Cable systems from Booth
American Company for an aggregate price of $10,500. These systems served
approximately 6,000 subscribers at the date of acquisition located in and around
Madeira Beach, Florida. The acquisition was accounted for under the purchase
method of accounting.
Olympus completed the acquisition of all of the partnership interests of
National from Hilton Head, an entity controlled by the family of John Rigas
(principal shareholder of Adelphia), for a purchase price of approximately
$118,000. National provides cable service to approximately 57,000 subscribers in
Palm Beach County, Florida and also owns limited partnership interests in
Tele-Media Investment Partnership, L.P. ("TMIP"). The acquisition was accounted
for under the purchase method of accounting and National's operations were
consolidated with Olympus for financial reporting purposes effective as of
October 1, 1997.
On March 2, 1998, Olympus and TMIP entered into a series of agreements to
restructure the ownership of TMIP. The restructuring will result in Olympus
exchanging its nonconsolidated preferred limited partnership investment in TMIP
for 100% ownership of approximately 27,750 subscribers in Palm Beach County,
Florida subject to $38,287 in debt and a 75% consolidated general partner
interest in TMIP subject to $37,856 in debt. The restructured TMIP will own
approximately 40,850 subscribers located principally in Broward County, Florida.
Consummation of this transaction is subject to certain closing conditions and
regulatory approval.
Resources
The Company plans to continue to explore and consider new commitments,
arrangements or transactions to refinance existing debt, increase the Company's
liquidity or decrease the Company's leverage. These could include, among other
things, the future issuance by the Company, or its subsidiaries or debt and the
negotiation of new or amended credit facilities. These could also include
entering into acquisitions, joint ventures or other investment or financing
activities, although no assurance can be given that any such transactions will
be consummated. The Company's ability to borrow under current credit facilities
and to enter into refinancings and new financings is limited by covenants
contained in its subsidiaries' credit agreements, including covenants under
which the ability to incur indebtedness is in part a function of applicable
ratios of total debt to cash flow.
The Company believes that cash and cash equivalents, internally generated
funds, borrowings under existing credit facilities, and future financing sources
will be sufficient to meet its short-term and long-term liquidity and capital
requirements. Although in the past the Company has been able to refinance its
indebtedness or obtain new financing, there can be no assurance that the Company
will be able to do so in the future or that the terms of such financings would
be favorable.
Management believes that the telecommunications industry, including the
cable television and telephone industries, continues to be in a period of
consolidation characterized by mergers, joint ventures, acquisitions, sales of
all or part of cable companies or their assets, and other partnering and
investment transactions of various structures and sizes involving cable or other
telecommunications companies. The Company continues to evaluate new
opportunities that allow for the expansion of its business through the
acquisition of additional cable television systems in geographic proximity to
its existing regional markets or in locations that can serve as a basis for new
<PAGE>
market areas. The Company, like other cable television companies, has
participated from time to time and is participating in preliminary discussions
with third parties regarding a variety of potential transactions, and the
Company has considered and expects to continue to consider and explore potential
transactions of various types with other cable and telecommunications companies.
However, no assurances can be given as to whether any such transaction may be
consummated or, if so, when.
Recent Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information," have been
issued and are effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 defines comprehensive income and outlines certain reporting and
disclosure requirements related to comprehensive income. SFAS No. 131 requires
certain disclosures about business segments of an enterprise, if applicable. The
adoption of SFAS No. 130 and SFAS No. 131 is not expected to have a significant
effect on Olympus' financial statements or disclosures.
Inflation
In the three years in the period ended December 31, 1997, the Company
believes that inflation did not have a significant effect on its results of
operations. Periods of high inflation could have an adverse effect to the extent
that increased borrowing costs for floating-rate debt may not be offset by
increases in subscriber rates. At December 31, 1997, after giving effect to
interest rate hedging agreements, approximately $312,000 of the Company's total
debt was subject to floating interest rates.
Regulatory and Competitive Matters
The cable television operations of the Company may be adversely affected
by changes and developments in governmental regulation, competitive forces and
technology. The cable television industry and the Company are subject to
extensive regulation at the federal, state and local levels. The 1992 Cable Act
significantly expanded the scope of regulation of certain subscriber rates and a
number of other matters in the cable industry, such as mandatory carriage of
local broadcast stations and retransmission consent, and increased the
administrative costs of complying with such regulations. The FCC has adopted
rate regulations that establish, on a system-by-system basis, maximum allowable
rates for (i) basic and cable programming services (other than programming
offered on a per-channel or per-program basis), based upon a benchmark
methodology, and (ii) associated equipment and installation services based upon
cost plus a reasonable profit. Under the FCC rules, franchising authorities are
authorized to regulate rates for basic services and associated equipment and
installation services, and the FCC will regulate rates for regulated cable
programming services in response to complaints filed with the agency. The
Telecommunications Act of 1996 (the "1996 Act") ends FCC regulation of cable
programming service tier rates on March 31, 1999.
Rates for basic and cable programming services are set pursuant to a
benchmark formula. Alternatively, a cable operator may elect to use a
cost-of-service methodology to show that rates for basic and cable programming
services are reasonable. Refunds with interest will be required to be paid by
cable operators who are required to reduce regulated rates. The FCC has reserved
the right to reduce or increase the benchmarks it has established. The rate
regulations also limit increases in regulated rates to an inflation indexed
amount plus increases in certain costs such as taxes, franchise fees, costs
associated with specific franchise requirements and increased programming costs.
Cost-based adjustments to these capped rates can also be made in the event a
cable operator adds or deletes channels or completes a significant system
rebuild or upgrade. Because of the limitation on rate increases for regulated
services, future revenue growth from cable services will rely to a much greater
extent than has been true in the past on increased revenues from unregulated
services and new subscribers than from increases in previously unregulated
rates.
The FCC has adopted regulations implementing all of the requirements of
the 1992 Cable Act. The FCC is also likely to continue to modify, clarify or
refine the rate regulations. Olympus cannot predict the effect of the 1996 Act
or future rulemaking proceedings or changes to the rate regulations.
<PAGE>
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
Because such franchises are generally non-exclusive, there is a potential for
competition with the systems from other operators of cable television systems,
including public systems operated by municipal franchising authorities
themselves, and from other distribution systems capable of delivering television
programming to homes. The 1992 Cable Act and the 1996 Act contain provisions
which encourage competition from such other sources. The Company cannot predict
the extent to which competition will materialize from other cable television
operators, local telephone companies, other distribution systems for delivering
television programming to the home, or other potential competitors, or, if such
competition materializes, the extent of its effect on the Company.
The 1996 Act repealed the prohibition on local telephone exchange carriers
("LECs") from providing video programming directly to customers within their
local exchange areas other than in rural areas or by specific waiver of FCC
rules. The 1996 Act also authorized LECs to operate "open video systems" ("OVS")
without obtaining a local cable franchise, although LECs operating such a system
can be required to make payments to local governmental bodies in lieu of cable
franchise fees. Where demand exceeds capacity, up to two-thirds of the channels
on an OVS must be available to programmers unaffiliated with the LEC. The
statute states that the OVS scheme supplants the FCC's "video dialtone" rules.
The FCC has promulgated rules to implement the OVS concept, and New Jersey Bell
Telephone Company has been granted permission to convert its video dialtone
authorization in Dover Township, New Jersey to an OVS authorization.
The Company believes that the provision of video programming by telephone
companies in competition with the Company's existing operations could have an
adverse effect on the Company's financial condition and results of operations.
At this time, the impact of any such effect is not known or estimable.
The Company also competes with DBS service providers. DBS has been
available to consumers since 1994. A single DBS satellite can provide more than
100 channels of programming. DBS service can be received virtually anywhere in
the United States through the installation of a small outdoor antenna. DBS
service is being heavily marketed on a nationwide basis by several service
providers. At this time, any impact of DBS competition on the Company's future
results is not known or estimable.
Year 2000 Issues
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has recently completed the planning stage of a project that
addresses the Year 2000 data processing issues relating to modifications of its
mainframe computer applications. Internal and external resources are being used
to make the required modifications and perform the necessary tests, all of which
is expected to be completed by June 1999. The financial impact of these
modifications is not expected to be significant to Olympus' financial
statements.
In addition, the Company has begun communicating with others with whom it
does significant business to determine their Year 2000 Compliance readiness and
the extent to which the Company is vulnerable to any third party Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and related notes thereto and
independent auditors report follow.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report..................................................................34
Consolidated Balance Sheets, December 31, 1996 and 1997.......................................35
Consolidated Statements of Operations, Years Ended December 31, 1995, 1996 and 1997...........36
Consolidated Statements of Partners' Equity (Deficiency), Years Ended December 31, 1995,
1996 and 1997............................................................................37
Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1996 and 1997...........38
Notes to Consolidated Financial Statements....................................................39
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Olympus Communications, L.P.:
We have audited the accompanying consolidated balance sheets of Olympus
Communications, L.P. and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, partners' equity (deficiency),
and cash flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedules listed in the
Index at Item 14. These financial statements and financial statement schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Olympus Communications, L.P. and
subsidiaries at December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 6, 1998
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
-----------------------
1996 1997
--------- ----------
ASSETS:
Cable systems, at cost, net of accumulated
depreciation and amortization:
Property, plant and equipment $225,775 $265,783
Intangible assets 350,411 417,559
--------- ---------
Total 576,186 683,342
Cash and cash equivalents 26,466 3,554
Subscriber receivables - net 10,491 12,577
Prepaid expenses and other assets - net 27,078 29,479
--------- ---------
Total $640,221 $728,952
========= =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY):
Subsidiary debt $309,000 $427,000
Parent debt 200,000 200,000
Other debt 63,713 46,804
Accounts payable 15,122 15,947
Subscriber advance payments and deposits 5,426 7,907
Accrued interest and other liabilities 30,429 25,265
Accrued priority return on preferred limited
partner interests 20,476 22,241
Due to affiliates - net 39,667 55,169
Deferred income taxes 40,587 40,836
--------- ---------
Total liabilities 724,420 841,169
Commitments and contingencies (Note 5)
Partners' equity (deficiency):
Limited partners' interests 407,669 488,398
General partners' equity (deficiency) (491,868) (600,615)
--------- ---------
Total partners' equity (deficiency) (84,199) (112,217)
--------- ---------
Total $640,221 $728,952
========= =========
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Year Ended December 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $120,968 $159,870 $176,363
---------- ---------- ----------
Operating expenses:
Direct operating and programming 37,494 48,598 56,905
Selling, general and administrative 23,912 28,974 32,163
Depreciation and amortization 31,953 40,446 43,337
Management fees to managing affiliate 6,334 8,839 9,566
---------- ---------- ----------
Total 99,693 126,857 141,971
---------- ---------- ----------
Operating income 21,275 33,013 34,392
---------- ---------- ----------
Other income (expense):
Interest expense (29,217) (40,748) (50,150)
Interest expense - affiliates (7,501) (6,600) (6,600)
Gain on sale of assets -- -- 1,522
Other (expense) income (15) 401 1,085
---------- ---------- ----------
Total (36,733) (46,947) (54,143)
---------- ---------- ----------
Loss before income taxes and extraordinary loss (15,458) (13,934) (19,751)
Income tax (expense) benefit (2,824) 2,984 (51)
---------- ---------- ----------
Loss before extraordinary loss (18,282) (10,950) (19,802)
Extraordinary loss on early retirement of debt (net
of income tax benefit of $486) (1,109) -- --
---------- ---------- ----------
Net loss (19,391) (10,950) (19,802)
Priority return on preferred and senior limited
partner interests (63,358) (65,644) (75,893)
---------- ---------- ----------
Net loss of general and limited partners after
priority return $(82,749) $(76,594) $(95,695)
========== ========== ==========
Loss per general and limited partners' unit before
extraordinary loss and after priority return $(8,164) $(7,659) $(9,570)
Extraordinary loss per general and limited partners'
unit on early retirement of debt (111) -- --
---------- ---------- ----------
Net loss per general and limited partners' unit after
priority return $(8,275) $(7,659) $(9,570)
========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
(Dollars in thousands)
Total
Partners'
Limited General Equity
Partners Partners (Deficiency)
-------------- ------------ ----------
<S> <C> <C> <C>
Balance, December 31, 1994 $ -- $(494,105) $(494,105)
Intercompany advances converted to general partners'
equity (deficiency) -- 49,974 49,974
Redeemable preferred limited partner interests converted
to general partners' equity (deficiency) -- 51,101 51,101
Accrued priority return converted to general partners'
equity (deficiency) -- 142,300 142,300
Excess of obligation for redeemable limited partner
interest over carrying value of investment exchanged
to satisfy such obligation -- 4,754 4,754
Excess of ascribed value over historical cost of assets
contributed by Telesat -- (86,349) (86,349)
Issuance of preferred limited partner interests 376,625 -- 376,625
Issuance of limited and senior limited partner interests 20,005 -- 20,005
Net loss of general and limited partners after priority
return -- (82,749) (82,749)
Capital distribution -- (100) (100)
------------ ------------ ------------
Balance, December 31, 1995 396,630 (415,174) (18,544)
Net loss of general and limited partners after priority
return -- (76,594) (76,594)
Issuance of preferred limited partner interests 65,711 -- 65,711
Capital distributions (54,672) (100) (54,772)
------------ ------------ ------------
Balance, December 31, 1996 407,669 (491,868) (84,199)
Net loss of general and limited partners after priority
return -- (95,695) (95,695)
Excess of ascribed value over historical cost of assets
purchased from affiliate -- (22,752) (22,752)
Issuance of preferred limited partner interests 80,729 -- 80,729
Capital contributions -- 9,800 9,800
Capital distributions -- (100) (100)
------------ ------------ ------------
Balance, December 31, 1997 $ 488,398 $ (600,615) $ (112,217)
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
------------------------------------------
1995 1996 1997
------------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (19,391) $ (10,950) $ (19,802)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 22,593 25,507 25,535
Amortization 9,360 14,939 17,802
Extraordinary loss on debt retirement (net of
income tax benefit) 1,109 -- --
Gain on sale of assets -- -- (1,522)
Accretion of non-interest bearing note -- 6,207 7,993
Deferred taxes, net of effects of acquisitions 2,824 (2,965) 82
Changes in operating assets and liabilities, net of effects
of acquisitions:
Subscriber receivables (1,026) (2,653) (1,174)
Prepaid expenses and other assets (2,505) (16,318) (3,596)
Accounts payable 2,729 861 (53)
Subscriber advance payments and deposits 581 1,469 1,733
Accrued interest and other liabilities (8,113) 17,314 (5,693)
------------ ------------ ------------
Net cash provided by operating activities 8,161 33,411 21,305
------------ ------------ ------------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (85,853) (42,327) (15,909)
Expenditures for property, plant and equipment (21,498) (28,117) (37,867)
Proceeds from sale of assets -- -- 1,955
------------ ------------ ------------
Net cash used for investing activities (107,351) (70,444) (51,821)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from debt 438,000 324,500 15,000
Repayments of debt (336,094) (235,018) (40,541)
Costs associated with debt financing (4,872) (6,215) --
Payments of priority returns (37,341) (64,438) (74,129)
Amounts advanced from affiliates 32,724 1,054 16,845
Issuance of preferred limited partner interests 39,125 65,711 80,729
Capital contributions -- -- 9,800
Capital distributions (100) (54,772) (100)
------------ ------------ ------------
Net cash provided by financing activities 131,442 30,822 7,604
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 32,252 (6,211) (22,912)
Cash and cash equivalents, beginning of year 425 32,677 26,466
------------ ------------ ------------
Cash and cash equivalents, end of year $ 32,677 $ 26,466 $ 3,554
============ ============ ============
Supplemental disclosure of cash flow activity-
cash payments for interest $ 38,057 $ 38,283 $ 49,707
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. The Partnership and Basis of Presentation:
Olympus Communications, L.P. and subsidiaries ("Olympus") is a joint
venture limited partnership formed under the laws of Delaware with 50% of the
outstanding voting interests held by ACP Holdings, Inc., ("ACP Holdings"), a
wholly-owned subsidiary of Adelphia Communications Corporation ("Adelphia") and
managing general partner of Olympus. The remaining 50% of the voting interests
are held by various Telesat entities ("Telesat") which are wholly-owned
subsidiaries of FPL Group, Inc. ("FPL"). Olympus' operations consist primarily
of selling video programming which is distributed to subscribers in Florida for
a monthly fee through a network of fiber optic and coaxial cables.
The consolidated financial statements include the accounts of Olympus and
its substantially wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
On February 28, 1995, Olympus entered into a Liquidation Agreement with
the Gans Family ("Gans"), an Olympus limited partner. Under this Liquidation
Agreement, Gans agreed to exchange their redeemable limited partner interests in
Olympus for Olympus' investment in Northeast Cable, Inc. Concurrently with the
closing of the Liquidation Agreement, ACP Holdings, Olympus, Telesat and certain
shareholders of Adelphia entered into an investment agreement (the "Telesat
Investment Agreement") whereby Telesat contributed to Olympus substantially all
of the assets associated with certain cable television systems, serving
approximately 50,000 subscribers in southern Florida, in exchange for general
and limited partner interests of $5, Senior Limited partner ("SLP") interests of
$20,000 and $112,500 of newly issued 16.5% preferred limited partner ("PLP")
interests.
Prior to the Telesat Investment Agreement, Olympus had obligations to
Adelphia for intercompany advances, redeemable PLP interests, and accrued
priority return on redeemable PLP interests. In conjunction with the Telesat
Investment Agreement, Adelphia contributed $49,974 of the intercompany advances,
$51,101 of the existing redeemable PLP interests and all of the then existing
accrued priority return on the redeemable PLP interests to general partners'
equity (deficiency). Adelphia then exchanged its remaining redeemable PLP
interests for $225,000 of new PLP interests. Also, Senior Debt (as defined in
the Telesat Investment Agreement) owed by Olympus to Adelphia of $40,000
remained outstanding after consummation of the Telesat Investment Agreement.
On March 28, 1996, ACP Holdings, Telesat, Olympus, Adelphia and certain
shareholders of Adelphia entered into an agreement which amended certain aspects
of the Telesat Investment Agreement and the Olympus Partnership Agreement. The
amendment provided for the repayment of certain amounts owed to Telesat totaling
$20,000, the release of certain obligations of Telesat to Olympus and the
reduction of Telesat's PLP and accrued priority return balances by $20,000. The
amendment further provided for a $40,000 distribution to Adelphia as a reduction
of its PLP interest and accrued priority return balances. These repayments and
distributions were made on March 29, 1996 and were funded through internally
generated funds and borrowings by a subsidiary of Olympus.
On April 3, 1995, Olympus purchased all of the cable and security systems
of WB Cable Associates, Ltd. ("WB Cable"), serving approximately 44,000 cable
and security monitoring subscribers, for a purchase price of $82,000. WB Cable
provides cable service from one headend and security monitoring services from
one location in West Boca Raton, Florida. Of the purchase price, $77,000 was
paid in cash and $5,000 was paid in Adelphia Class A Common Stock. The
acquisition, which was accounted for under the purchase method of accounting,
was financed principally through additional borrowings under an Olympus
subsidiary credit agreement (see Note 3).
On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.
("Leadership Cable"), which at the acquisition date served approximately 50,000
cable and security subscribers, for a purchase price of $95,800. Leadership
Cable provides cable service and security services in and around West Palm
Beach, Florida. The purchase price consisted of $40,000 in cash and a $70,000
non-interest bearing discount seller note. This note was recorded at $55,800 at
<PAGE>
acquisition and accreted to the $70,000 face amount (see Note 3). The
acquisition was accounted for under the purchase method of accounting.
Effective April 1, 1997, Olympus acquired certain cable systems of
Tele-Media Company of Southeast Florida, Inc. for an aggregate price of $8,500.
These systems served approximately 5,000 subscribers at the date of acquisition
located in and around Osceola County, Florida. The acquisition was accounted for
under the purchase method of accounting.
On June 20, 1997, Olympus acquired the Peninsula Cable systems from Booth
American Company for an aggregate price of $10,500. These systems served
approximately 6,000 subscribers at the date of acquisition located in and around
Madeira Beach, Florida. The acquisition was accounted for under the purchase
method of accounting.
Olympus completed the acquisition of all of the partnership interests of
National Cable Acquisition Associates, L.P. ("National") from Hilton Head
Communications, L.P. ("Hilton Head"), an entity controlled by the family of John
Rigas (principal shareholder of Adelphia), for a purchase price of approximately
$118,000. National provides cable service to approximately 57,000 subscribers in
Palm Beach County, Florida and also owns limited partnership interests in
Tele-Media Investment Partnership, L.P. ("TMIP"). The acquisition was accounted
for under the purchase method of accounting and National's operations were
consolidated with Olympus for financial reporting purposes effective as of
October 1, 1997. The purchase price was paid through the assumption of
liabilities.
The following unaudited financial information assumes that all of the
aforementioned contribution/acquisition transactions had occurred on January 1,
1995.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1996 1997
---------- ----------- ----------
<S> <C> <C> <C>
Revenues $165,558 $180,899 $191,290
Loss before extraordinary loss and priority return
on preferred and senior limited partner interests (34,601) (17,153) (24,688)
Net loss of general and limited partners after
priority return (99,946) (82,798) (100,582)
Net loss per general and limited partners' unit
after priority return (9,995) (8,280) (10,058)
</TABLE>
2. Summary of Significant Accounting Policies:
Subscriber Revenues
Subscriber revenues are recorded in the month the service is provided.
Subscriber Receivables
An allowance for doubtful accounts of $612 and $622 is recorded as a
reduction of subscriber receivables at December 31, 1996 and 1997, respectively.
Programming Expense
Adelphia allocates charges from programmers to affiliates (including
Olympus) based on the number of subscribers to each programming service.
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
December 31,
-------------------------------
1996 1997
-------------- -------------
Operating plant and equipment $315,610 $366,104
Real estate and improvements 4,592 5,786
Support equipment 6,104 7,874
Construction in progress 16,057 28,816
------------- -------------
342,363 408,580
Accumulated depreciation (116,588) (142,797)
------------- -------------
$225,775 $265,783
============= =============
Depreciation is computed on the straight-line method using estimated
useful lives of 5 to 12 years for operating plant and equipment and 3 to 20
years for support equipment and buildings. Additions to property, plant and
equipment are recorded at cost, which includes amounts for material, applicable
labor, and interest. Olympus capitalized interest amounting to $346 for each of
the years ended December 31, 1996 and 1997, respectively.
Intangible Assets
Intangible assets, net of accumulated amortization, are comprised of the
following:
December 31,
-------------------------------
1996 1997
-------------- -------------
Purchased franchises $306,770 $360,188
Purchased subscriber lists 25,950 36,032
Goodwill 17,691 21,339
------------- -------------
$350,411 $417,559
============= =============
A portion of the aggregate purchase price of cable television systems
acquired has been allocated to purchased franchises, purchased subscriber lists
and goodwill. Purchased franchises and goodwill are amortized on the
straight-line method over periods which range from 34 to 40 years. Purchased
subscriber lists are amortized on the straight-line method over the average
periods that the listed subscribers are expected to receive service from the
date of acquisition, which range from 7 to 10 years. Accumulated amortization of
intangible assets amounted to $91,165 and $125,178 at December 31, 1996 and
1997, respectively.
<PAGE>
Other Assets
The unamortized amount of deferred debt financing costs included in
prepaid expenses and other assets was $10,403 and $9,450 at December 31, 1996
and 1997, respectively. Such costs are amortized over the term of the related
debt.
At December 31, 1997, prepaid expenses and other assets also includes the
Company's limited partnership investment in TMIP of $14,310. Income of $906 from
this investment is included in revenues for the year ended December 31, 1997.
Asset Impairments
Olympus periodically reviews the carrying value of its long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of assets may not be recoverable. Measurement of any impairment
would include a comparison of estimated future operating cash flows anticipated
to be generated during the remaining life of the assets with their net carrying
value. An impairment loss would be recognized as the amount by which the
carrying value of the assets exceeds their fair value.
Noncash Financing and Investing Activities
Capital leases entered into during 1995, 1996 and 1997 totaled $341,
$1,147 and $415, respectively. Business acquisitions include the acquisition of
National which was paid for through the assumption of liabilities (see Note 1).
Reference is made to Notes 1 and 4 for descriptions of additional noncash
financing activities.
Net Loss Per General and Limited Partners' Unit After Priority Return
Net loss per general and limited partners' unit after priority return is
based upon the weighted average number of general and limited partner units
outstanding of 10.0 for all periods presented.
Cash and Cash Equivalents
Olympus considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Derivative Financial Instruments
Net settlement amounts under interest rate swap agreements are recorded as
adjustments to interest expense during the period incurred.
Franchise Expense
The typical term of the Company's franchise agreements upon renewal is
10 years. Franchise fees range from 3% to 5% of subscriber revenue and are
expensed currently.
Use of Estimates in the Preparation of Financial Statements
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.
<PAGE>
Recent Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information," have been
issued and are effective for fiscal years beginning after December 15, 1997.
SFAS No. 130 defines comprehensive income and outlines certain reporting and
disclosure requirements related to comprehensive income. SFAS No. 131 requires
certain disclosures about business segments of an enterprise, if applicable. The
adoption of SFAS No. 130 and SFAS No. 131 is not expected to have a significant
effect on Olympus' financial statements or disclosures.
3. Debt:
Subsidiary Debt
Subsidiary debt is comprised of amounts due under credit agreements with
banks.
The amount of borrowings available to Olympus under revolving credit
agreements is generally based upon the subsidiaries achieving certain levels of
operating performance. Olympus had commitments from banks for additional
borrowings of up to $147,750, which included $10,250 also available to
affiliates at December 31, 1997, which expire through 2003. Olympus pays
commitment fees of .375% of unused principal.
Borrowings under these credit arrangements of subsidiaries are
collateralized by substantially all of the assets of the respective
subsidiaries. These agreements limit, among other things, additional borrowings,
investments, transactions with affiliates and other subsidiaries, and the
payment of dividends and fees by the subsidiaries. The agreements also require
maintenance of certain financial ratios by the subsidiaries. Management believes
that the borrowers were in compliance with the agreements' covenants at December
31, 1997. At December 31, 1997, approximately $151,451 of the net assets of
subsidiaries would be permitted to be transferred to Olympus in the form of
distributions, dividends and loans without the prior approval of the lenders
based upon the results of operations of such subsidiaries for the quarter ended
December 31, 1997. The subsidiaries are permitted to pay management fees to
Olympus or other subsidiaries. Such fees are limited to a percentage of the
subsidiaries' revenues.
A subsidiary of Olympus is a co-borrower with an affiliate under a
$200,000 credit agreement. The subsidiary is permitted to borrow up to $39,500
of the available credit, none of which was included in subsidiary debt as of
December 31, 1996 and 1997. In conjunction with the acquisition of the
partnership interests of National, another subsidiary of Olympus assumed the
obligation for $118,000 of a $350,000 credit agreement of Hilton Head. Each of
these subsidiaries is liable for all borrowings under the respective credit
agreements, although the lenders have no recourse against Olympus other than
against Olympus' interest in the respective subsidiaries.
Subsidiary debt is due at various dates through 2003. Interest rates are
based upon one or more of the following rates at the option of the borrowers:
prime rate plus 0% to 1%; certificate of deposit rate plus .875% to 2.25%; or
LIBOR rate plus .625% to 2%. At December 31, 1996 and 1997, the weighted average
interest rate on subsidiary debt was 7.43% and 7.18%, respectively. Interest is
payable quarterly. The rates on 26.9% of Olympus' subsidiary debt were fixed for
at least one year through interest rate swap agreements.
Initial borrowings under one of the revolving credit facilities were used
to repay then existing notes payable to banks and accrued interest on May 12,
1995. An extraordinary loss on early retirement of debt of $1,109, net of income
tax benefit of $486, was recognized for the year ended December 31, 1995, which
represents the unamortized deferred financing costs related to such notes at the
date of refinancing.
<PAGE>
Parent Debt
On November 12, 1996, Olympus issued $200,000 of 10 5/8% Senior Notes (the
"Senior Notes"). Net proceeds, after payment of transaction costs, of
approximately $195,000 were used to reduce amounts outstanding on Olympus'
subsidiary debt. Interest is payable semi-annually. The Senior Notes are
unsecured and are due November 15, 2006. Olympus may redeem up to $70,000 of the
Senior Notes at 110.625% of principal through November 6, 1999. Commencing
November 15, 2001, Olympus may redeem the Senior Notes in whole or in part at
105.3125% of principal declining annually to par on November 15, 2004. Holders
of the Senior Notes have the right to require Olympus to redeem their Senior
Notes at 101% of principal upon a Change of Control (as defined in the
Indenture). The Indenture stipulates, among other things, limitations on
additional borrowings, payment of dividends or distributions, repurchase of
equity interests, transactions with affiliates and the sale of assets.
Other Debt
As of December 31, 1996 and 1997, other debt consists, in part, of
purchase money indebtedness and capital leases incurred in connection with the
acquisition of, and are collateralized by, certain equipment. The interest rate
on such debt is based on the Federal Funds rate plus 1.4% and is adjusted
monthly based on changes in the Federal Funds rate. As of December 31, 1996 and
1997, other debt also includes $62,007 and $45,000 regarding the seller note
discussed in Note 1. On January 2, 1998, $43,000 was paid and the remaining
$2,000 balance is due on December 30, 1998.
The following table sets forth the mandatory reductions in principal under
all agreements for indebtedness at December 31 of each of the next five years
based on amounts outstanding at December 31, 1997:
December 31, 1998 $ 56,002
December 31, 1999 19,764
December 31, 2000 60,740
December 31, 2001 105,285
December 31, 2002 121,579
Olympus intends to fund its debt maturities through borrowings under new
credit agreements and internally generated funds. Changing conditions in the
financial markets may have an impact on how Olympus will refinance its debt in
the future.
Interest Rate Swaps and Caps
Olympus has entered into interest rate swap agreements and interest rate
cap agreements with banks and an affiliate (see Note 9) to reduce the impact of
changes in interest rates on its bank debt and its Senior Notes. Olympus enters
into pay-fixed agreements to effectively convert a portion of its variable-rate
debt to fixed-rate debt. Olympus enters into receive-fixed agreements to
effectively convert a portion of its fixed-rate Senior Notes to variable-rate
debt which is indexed to LIBOR. Interest rate cap agreements are used to reduce
the impact of increases in interest rates on variable rate debt. Olympus is
exposed to credit loss in the event of nonperformance by the banks and the
affiliate. Olympus does not expect any such nonperformance.
<PAGE>
The following table summarizes the notional amounts outstanding and
weighted average interest rate data for all swaps and caps which expire 1998
through 2000.
December 31,
1996 1997
Pay Fixed Swaps:
Notional amount $115,000 $115,000
Average receive rate 5.64% 5.85%
Average pay rate 6.54% 6.54%
Receive Fixed Swaps:
Notional amount $140,000 $140,000
Average receive rate 7.58% 7.58%
Average pay rate 5.55% 5.83%
Interest Rate Caps:
Notional amount $75,000 $75,000
Average cap rate 7.50% 7.50%
4. Limited Partners' Interests and General Partners' Equity (Deficiency):
16.5% Redeemable PLP Interests
The redeemable PLP interests issued to Adelphia, totaling $276,101 at
December 31, 1994, were nonvoting, senior to claims represented by other partner
interests and provided for a priority return of 16.5% per annum (payable
quarterly). In the event that any priority return was not paid when due, such
unpaid amounts accrued additional return at a rate of 18.5% per annum. As a
result of the February 28, 1995 Telesat Investment Agreement (see Note 1),
$225,000 of the redeemable PLP interests were converted to new PLP interests as
described below, and $51,101 of the redeemable PLP interests and $142,300 of the
unpaid priority return were converted to general partners' equity (deficiency).
Redeemable Limited Partner Interests
As a result of the Liquidation Agreement entered into on February 28, 1995
between Gans and Olympus, Gans exchanged their redeemable limited partnership
interest in Olympus for Olympus' investment in Northeast Cable, Inc. (see Note
1).
Preferred, Senior, Limited and General Partnership Interests
On February 28, 1995, as a result of the Telesat Investment Agreement (as
described in Note 1), $337,500 of new Preferred Limited Partner interests,
$20,000 of Senior Limited Partner interests and $5 of Limited Partner interests
were issued to Adelphia and Telesat as summarized in the table below.
<TABLE>
<CAPTION>
Adelphia Telesat Total
------------- ------------- -------------
<S> <C> <C> <C>
16.5% Preferred Limited Partner Interests $225,000 $112,500 $337,500
16.5% Senior Limited Partner Interests -- 20,000 20,000
General and Limited Partner Interests -- 5 5
------------ ------------ ------------
Total $225,000 $132,505 $357,505
============ ============ ============
</TABLE>
In addition, on various dates during the years ended December 31, 1995,
1996 and 1997, additional Preferred Limited Partner interests were issued for
cash of $39,125, $65,711 and $80,729, respectively.
<PAGE>
The Preferred Limited Partner interests are nonvoting, do not participate
in the profits and losses of Olympus and provide for a priority return of 16.5%
per annum (payable quarterly). In the event that any priority return is not paid
when due, such unpaid amounts accrue additional return at a rate of 16.5% per
annum.
The Senior Limited Partner interests held by Telesat are nonvoting, senior
to claims represented by all other partner interests and provide for a priority
return of 16.5% per annum (payable quarterly). In the event that any priority
return is not paid when due, such unpaid amounts accrue additional return at a
rate of 16.5% per annum.
Allocation of Profits, Losses and Distributions
On and after February 28, 1995, profits and losses of Olympus for income
tax purposes are allocated 99% to the limited partner of Olympus and 1% to the
managing general partner of Olympus until the aggregate profits allocated to the
limited partner equals the aggregate losses allocated to the limited partner, at
which time the managing general partner receives two-thirds, and the limited
partner of Olympus receives one-third of the net income and losses of Olympus.
As specified in the partnership agreement, allocations will be made in the
following order to the holders of the: (i) Senior Limited Partner Interests;
(ii) Special Limited Partner Interests, if any; and (iii) Preferred Limited
Partner Interests. Such allocations will equal a return of their capital plus
16.5% per annum priority return less any priority return previously paid. After
such allocations, distributions by Olympus will be made in the following order:
(i) 99% of any remaining amount will be distributed two-thirds to the managing
general partner and any partner holding voting units acquired directly or
indirectly from the managing partner, pro rata, and one-third to partners
holding the remaining voting units; and (ii) thereafter pro rata to all partners
holding voting units. At December 31, 1997, 10 voting units were outstanding of
which five were held by ACP Holdings, the managing general partner, and five
were held by Telesat, the general and limited partners.
5. Commitments and Contingencies:
Olympus rents office space, tower sites, and space on utility poles under
leases with terms which are generally less than one year or under agreements
that are generally cancelable on short notice. Total rental expense under all
operating leases aggregated $1,379, $1,495 and $1,614 for 1995, 1996 and 1997,
respectively.
In connection with certain obligations under existing franchise
agreements, Olympus obtains surety bonds guaranteeing performance to
municipalities and public utilities. Payment is required only in the event of
nonperformance. Olympus has fulfilled all of its obligations such that no
payments under surety bonds have been required.
Through July 26, 1996, Olympus had a program to self insure for casualty
and business interruption insurance. This program was part of an aggregate
agreement between Olympus and its subsidiaries in which Olympus provided
insurance for casualty and business interruption claims of up to $10,000 and
$20,000 per claim, respectively, for each subsidiary. Effective July 26, 1996,
Olympus is insured by an outside party for casualty and business interruption.
The cable television industry and Olympus are subject to extensive
regulation at the federal, state and local levels. Pursuant to the 1992 Cable
Act, which significantly expanded the scope of regulation of certain subscriber
rates and a number of other matters in the cable industry, the FCC has adopted
rate regulations that establish, on a system-by-system basis, maximum allowable
rates for (i) basic and cable programming services (other than programming
offered on a per-channel or per-program basis), based upon a benchmark
methodology, and (ii) associated equipment and installation services based upon
cost plus a reasonable profit. Under the FCC rules, franchising authorities are
authorized to regulate rates for basic services and associated equipment and
installation services, and the FCC will regulate rates for regulated cable
<PAGE>
programming services in response to complaints filed with the agency. The
original rate regulations became effective on September 1, 1993. Several
amendments to the rate regulations have subsequently been added.
The FCC has adopted regulations implementing virtually all of the
requirements of the 1992 Cable Act. The FCC is also likely to continue to
modify, clarify or refine the rate regulations. The Telecommunications Act of
1996 (the "1996 Act") deregulates the rates for cable programming services on
March 31, 1999. Olympus cannot predict the effect of the 1996 Act on future
rulemaking proceedings or changes to the rate regulations.
6. Employee Benefit Plans:
Olympus participates in an Adelphia savings plan (401(k)) which provides
that eligible full-time employees may contribute from 2% to 20% of their pre-tax
compensation subject to certain limitations. Olympus matches contributions not
exceeding 1.5% of each participant's pre-tax compensation. During the years
ended 1995, 1996 and 1997 no significant matching contributions were made by
Olympus.
7. Taxes on Income:
Certain wholly-owned subsidiaries of Olympus are corporations that file
separate federal and state income tax returns. At December 31, 1997, these
subsidiaries had net operating loss carryforwards for federal income tax
purposes of approximately $185,500 expiring through 2012. The partnership
investments of Olympus are tax entities in which the filing of returns and
related tax liabilities are the responsibility of the individual owners.
Deferred income taxes reflect the net tax effects of: (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards.
The tax effects of significant items comprising Olympus' net deferred tax
liability as of December 31, 1996 and 1997 are as follows:
December 31,
---------------------------
1996 1997
------------ ------------
Deferred tax liabilities:
Differences between book and tax basis of
property, plant and equipment and intangible
assets $91,703 $90,777
----------- -----------
Deferred tax assets:
Operating loss carryforwards 71,145 71,391
Other 47 123
Valuation allowance (20,076) (21,573)
----------- -----------
Subtotal 51,116 49,941
----------- -----------
Net deferred tax liability $40,587 $40,836
=========== ===========
The net change in the valuation allowance for the year ended December 31,
1997 was an increase of $1,497.
<PAGE>
The income tax (expense) benefit for the years ended December 31, 1995,
1996 and 1997 is as follows:
Year Ended December 31,
-------------------------------------------
1995 1996 1997
-------------- ------------ -------------
Federal:
Current $ -- $ 19 $ --
Deferred (2,184) 2,386 (46)
State:
Current -- -- 31
Deferred (640) 579 (36)
------------ ------------ ------------
$ (2,824) $ $2,984 $ (51)
============ ============ ============
Reconciliations between the statutory federal income tax rate and Olympus'
effective income tax rate as a percentage of loss before income taxes and
extraordinary loss are as follows:
Year Ended
December 31,
--------------------------------
1995 1996 1997
---------- --------- ---------
Statutory federal income tax rate (35%) (35%) (35%)
Change in valuation allowance (5%) 26% 8%
Operating losses passed through
to partners 54% (9%) 27%
State taxes, net of federal benefit 4% (3%) - %
-------- -------- --------
Effective income tax rate 18% (21%) - %
======== ======== ========
8. Disclosures about Fair Value of Financial Instruments:
Included in Olympus' financial instrument portfolio are cash, notes
payable to banks, Senior Notes and interest rate swaps and caps. The carrying
values of the notes payable to banks approximate their fair values at December
31, 1997. The fair value of the Senior Notes exceeded their carrying cost by $0
and $22,000 at December 31, 1996 and 1997, respectively. At December 31, 1996
and 1997 Olympus would have received approximately $2,571 and $615,
respectively, to settle its interest rate swap and cap agreements, representing
the excess of fair value over carrying cost of these agreements. The fair values
of the debt and interest rate swaps and caps were based upon quoted market
prices of similar instruments or on rates available to Olympus for instruments
of the same remaining maturities.
9. Transactions with Related Parties:
Olympus has an agreement with a subsidiary of Adelphia which provides for
the payment of management fees by Olympus. The amount and payment of these fees
is subject to restrictions contained in the partnership agreements. During the
year ended December 31, 1995, Olympus paid Adelphia a fee totaling $646 in
connection with the acquisition of Leadership Cable.
<PAGE>
Olympus has periodically received funds from and advanced funds to
Adelphia and other affiliates. Olympus was charged $7,501, $6,600 and $6,600 of
interest on such net payables for 1995, 1996 and 1997, respectively.
At December 31, 1997, Olympus had interest rate swaps with an affiliate
for a notional amount of $140,000 for Receive Fixed Swaps. These swaps expire at
various dates in 1998. The net effect of these interest rate swaps was to
decrease interest expense by $244, $2,554 and $2,308 in 1995, 1996 and 1997,
respectively.
Effective October 1, 1997, Olympus completed the acquisition of all of the
partnership interests of National from Hilton Head Communications, L.P., an
entity controlled by the family of John Rigas (principal shareholder of
Adelphia), for a purchase price of approximately $118,000 (see Note 1).
<PAGE>
10. Quarterly Financial Data (unaudited):
The following tables summarize the financial results of Olympus for
each of the quarters in the years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ----------- -------------
Year ended December 31, 1996:
<S> <C> <C> <C> <C>
Revenues $39,088 $39,336 $40,180 $41,266
---------- ---------- ---------- ------------
Operating expenses:
Direct operating and programming 12,402 11,582 11,943 12,671
Selling, general and administrative 7,145 6,753 7,032 8,044
Depreciation and amortization 9,573 10,028 10,409 10,436
Management fees to managing affiliate 2,009 2,100 2,263 2,467
---------- ---------- ---------- ------------
Total 31,129 30,463 31,647 33,618
---------- ---------- ---------- ------------
Operating income 7,959 8,873 8,533 7,648
---------- ---------- ---------- ------------
Other income (expense):
Interest expense (9,460) (10,929) (9,612) (10,747)
Interest expense - affiliates (1,650) (1,650) (1,650) (1,650)
Other income (expense) 122 (5) 46 238
---------- ---------- ---------- ------------
Total (10,988) (12,584) (11,216) (12,159)
---------- ---------- ---------- ------------
Loss before income taxes (3,029) (3,711) (2,683) (4,511)
Income tax benefit 610 598 412 1,364
---------- ---------- ---------- ------------
Net loss (2,419) (3,113) (2,271) (3,147)
Priority return on preferred and senior limited
partner interests (17,222) (15,550) (16,235) (16,637)
---------- ---------- ---------- ------------
Net loss of general and limited partners after
priority return $(19,641) $(18,663) $(18,506) $(19,784)
========== ========== ========== ============
Net loss per general and limited partners' unit
after priority return $(1,964) $(1,866) $(1,851) $(1,978)
========== ========== ========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ----------- -------------
Year ended December 31, 1997:
<S> <C> <C> <C> <C>
Revenues $41,411 $42,173 $43,235 $49,544
---------- ---------- ---------- ------------
Operating expenses:
Direct operating and programming 13,869 13,912 13,604 15,520
Selling, general and administrative 7,511 7,545 7,976 9,131
Depreciation and amortization 9,939 9,982 10,579 12,837
Management fees to managing affiliate 2,357 2,390 2,261 2,558
---------- ---------- ---------- ------------
Total 33,676 33,829 34,420 40,046
---------- ---------- ---------- ------------
Operating income 7,735 8,344 8,815 9,498
---------- ---------- ---------- ------------
Other income (expense):
Interest expense (11,434) (11,538) (12,506) (14,672)
Interest expense - affiliates (1,650) (1,650) (1,650) (1,650)
Gain on sale of assets -- -- -- 1,522
Other (expense) income (44) 181 252 696
---------- ---------- ---------- ------------
Total (13,128) (13,007) (13,904) (14,104)
---------- ---------- ---------- ------------
Loss before income taxes (5,393) (4,663) (5,089) (4,606)
Income tax benefit (expense) 75 50 -- (176)
---------- ---------- ---------- ------------
Net loss (5,318) (4,613) (5,089) (4,782)
Priority return on preferred and senior limited
partner interests (18,006) (18,473) (19,284) (20,130)
---------- ---------- ---------- ------------
Net loss of general and limited partners after
priority return $(23,324) $(23,086) $(24,373) $(24,912)
========== ========== ========== ============
Net loss per general and limited partners' unit
after priority return $(2,332) $(2,309) $(2,437) $(2,492)
========== ========== ========== ============
</TABLE>
11. Subsequent Events:
On March 2, 1998, Olympus and TMIP entered into a series of agreements to
restructure the ownership of TMIP. The restructuring will result in Olympus
exchanging its nonconsolidated preferred limited partnership investment in TMIP
for 100% ownership of approximately 27,750 subscribers in Palm Beach County,
Florida subject to $38,287 in debt and a 75% consolidated general partner
interest in TMIP subject to $37,856 in debt. The restructured TMIP will own
approximately 40,850 subscribers located principally in Broward County, Florida.
Consummation of this transaction is subject to certain closing conditions and
regulatory approval.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers of the Registrant
The directors and executive officers of the Adelphia subsidiary which is
the managing general partner of the Company, ACP Holdings, Inc. ("ACP
Holdings"), and members of the Operating Committee of the Company ("OC") are:
Name Age Position
John J. Rigas......................... 73 Chairman and Director of
ACP Holdings
Michael J. Rigas...................... 44 Executive Vice President
and Director of ACP
Holdings
Timothy J. Rigas...................... 41 Executive Vice President,
Treasurer and Director of
ACP Holdings and member
of OC
James P. Rigas........................ 40 Executive Vice President
and Director of ACP
Holdings
Daniel R. Milliard.................... 50 Senior Vice President,
Secretary and Director of
ACP Holdings
James R. Brown........................ 35 Vice President of ACP
Holdings
Leslie J. Gelber...................... 41 Member of OC
John J. Rigas is Chairman of ACP Holdings and is the founder, Chairman,
Chief Executive Officer and President of Adelphia. Mr. Rigas has owned and
operated cable television systems since 1952. Among his business and community
service activities, Mr. Rigas is Chairman of the Board of Directors of Citizens
Bank Corp., Inc., Coudersport, Pennsylvania and a member of the Board of
Directors of the Charles Cole Memorial Hospital. He is a director of the
National Cable Television Association and a member of its Pioneer Association
and a past President of the Pennsylvania Cable Television Association. He is
also a member of the board of directors of C-SPAN and the Cable Advertising
Bureau, and is a Trustee of St. Bonaventure University. He graduated from
Rensselaer Polytechnic Institute with a B.S. in Management Engineering in 1950.
John J. Rigas is the father of Michael J. Rigas, Timothy J. Rigas and
James P. Rigas, each of whom currently serves as a director and executive
officer of ACP Holdings.
Michael J. Rigas is an Executive Vice President of ACP Holdings,
Executive Vice President, Operations of Adelphia and a Vice President of
Adelphia's other subsidiaries. He has been with Adelphia since 1981, and with
ACP Holdings since its inception in 1989. From 1979 to 1981, he worked for
Webster, Chamberlain & Bean, a Washington, D.C. law firm. Mr. Rigas graduated
from Harvard University (magna cum laude) in 1976 and received his J.D. degree
from Harvard Law School in 1979.
Timothy J. Rigas is an Executive Vice President and Treasurer of ACP
Holdings, Executive Vice President, Chief Financial Officer and Treasurer of
Adelphia, and a Vice President of Adelphia's other subsidiaries. He has been
with Adelphia since 1979, and with ACP Holdings since its inception in 1989. Mr.
Rigas graduated from the University of Pennsylvania, Wharton School, with a B.S.
degree in Economics (cum laude) in 1978.
James P. Rigas is an Executive Vice President of ACP Holdings, Executive
Vice President, Strategic Planning of Adelphia and a Vice President of
Adelphia's other subsidiaries. He has been with Adelphia since 1986, and with
ACP Holdings since its inception in 1989. Mr. Rigas graduated from Harvard
<PAGE>
University (magna cum laude) in 1980 and received a J.D. degree and an M.A.
degree in Economics from Stanford University in 1984. From June 1984 to February
1986, he was a consultant with Bain & Co., a management consulting firm.
Daniel R. Milliard is Senior Vice President and Secretary of ACP Holdings,
President and Secretary of Hyperion, a majority owned subsidiary of Adelphia,
and Senior Vice President and Secretary of Adelphia and its subsidiaries. He has
been with Adelphia since 1982. He served as outside general counsel to
Adelphia's predecessors from 1979 to 1982, and with ACP Holdings since its
inception in 1989. Mr. Milliard graduated from American University in 1970 with
a B.S. degree in Business Administration. He received an M.A. degree in Business
from Central Missouri State University in 1971, where he was an Instructor in
the Department of Finance, School of Business and Economics, from 1971-1973, and
received a Juris Doctor degree from the University of Tulsa School of Law in
1976. He is a director of Citizens Bank Corp., Inc. in Coudersport, Pennsylvania
and is President of the Board of Directors of the Charles Cole Memorial
Hospital.
James R. Brown is Vice President of ACP Holdings and Vice President of
Finance of Adelphia and its other subsidiaries. He has been with Adelphia since
1984. Mr. Brown graduated with a B.S. degree in Industrial and Management
Engineering from Rensselaer Polytechnic Institute in 1984.
Leslie J. Gelber is a member of the Company's Operating Committee.
Additionally, he is Senior Vice President of FPL Energy, Inc., a wholly-owned
subsidiary of FPL Group Inc. He served as Chairman of Telesat Cablevision, Inc.
from 1991 until its contribution to the Company in 1995. He has been with FPL
Group since 1978. Mr. Gelber graduated from Alfred University in New York in
1977 with a B.S. degree in Economics. He received an M.B.A. degree in Business
Administration from the University of Miami in 1978.
The Partnership Agreement of the Company establishes an Operating
Committee which is comprised equally of members designated by ACP Holdings, and
FPL Group. The Operating Committee meets quarterly to review the business and
operations of the Company. In addition, the Operating Committee reviews and
evaluates the historic operating performance of the Company against its budget
and the historic operating performance of the System under its management
agreements.
ITEM 11. EXECUTIVE COMPENSATION
Neither the Company nor ACP Holdings has any employment contracts in
effect with the executive officers of ACP Holdings, including any compensatory
plans or arrangements resulting from the resignation, retirement or other
termination of such executive officers of ACP Holdings. Each of the executive
officers of ACP Holdings is an executive officer of Adelphia. As executive
officers of Adelphia, such individuals are parties to employment contracts with
Adelphia and are compensated by Adelphia in accordance with the decisions of the
Compensation Committee of the Board of Directors of Adelphia. Pursuant to the
Partnership Agreement, the Company pays Adelphia a management fee representing
an allocation of the corporate overhead of Adelphia which includes a portion for
executive salaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ACP Holdings serves as the managing general partner of the Company and
holds voting general partnership interests representing 50% of the voting
interests of the Company. FPL Group through subsidiaries holds general and
limited partnership interests representing the remaining 50% of the voting
interests. Adelphia and FPL Group also held through their subsidiaries, as of
December 31, 1997, $312.3 million Preferred Limited Partner ("PLP") interests
and $156.1 million PLP interests, respectively, which provide for a 16.5% per
annum priority return, and $55.2 million and $20.0 million in indebtedness and
Senior Limited Partnership ("SLP") interests in the Company, respectively. The
address of Adelphia and the Company is Main at Water Street, Coudersport,
Pennsylvania 16915. The telephone number for both is 814-274-9830. The address
of FPL Group, Cable GP, Inc. and Cable LP III, Inc. is 11760 Highway 1, Suite
600, North Palm Beach, Florida, 33408.
<PAGE>
The Partnership Agreement
The Company is a limited partnership formed under the laws of the state of
Delaware. The following summary of certain of the terms of the Second Amended
and Restated Limited Partnership Agreement dated as of February 28, 1995, as
amended by amendments dated as of September 1, 1995, March 29, 1996 and June 27,
1996 (the "Partnership Agreement") is qualified in its entirety by the
Partnership Agreement, copies of which are available upon request therefor from
the Company. Terms used in this summary and not otherwise defined shall have the
meaning ascribed thereto in the Partnership Agreement.
The Company was formed for the general purpose of engaging in the media,
telecommunications and communications business including, without limitation,
the acquisition of cable television systems and interests engaged therein, the
competitive access/alternate access business, electronic security monitoring and
any other activity necessary, appropriate, desirable or incidental thereto,
subject to obtaining Partner consents, if any, required under the terms of the
Partnership Agreement. An objective and the intent of the Company and its
Partners, through themselves and through the Company and their respective parent
entities and affiliates is to seek, explore, identify and promote areas of
potential further joint venturing, cooperation, investment, strategic alliance
and enterprise among the Partners with respect to the media, telecommunications
and communications business, including without limitation potential areas such
as personal communication services, alternate access and other telephone
services, and fiber optics applications generally, subject to obtaining Partner
consents, if any, required under the terms of the Partnership Agreement.
ACP Holdings is the Managing General Partner and a Preferred Limited
Partner of the Company. The Partnership Agreement provides that the Managing
General Partner shall own at least fifty percent of the aggregate general and
limited partnership voting interests ("Units") of the Company. ACP Holdings is
also a Preferred Limited Partner of the Company holding non-voting PLP. In the
aggregate, ACP Holdings owns 50% of the Units. Cable GP, Inc., which is
beneficially owned by FPL Group, is a General Partner of the Company and Cable
LP III, Inc., which is also beneficially owned by FPL Group, is a Limited
Partner, a non-voting Senior Limited Partner and a Preferred Limited Partner of
the Company holding non-voting PLP. In the aggregate, these FPL Group companies
own 50% of the Units.
The Managing General Partner has the sole right to manage and control the
affairs of the Company and its direct affiliates and is authorized and empowered
to carry out and implement any and all of the purposes of the Company pursuant
to the terms of the Partnership Agreement. The Company pays to Adelphia, on a
quarterly basis, an amount representing an allocation of the corporate overhead
of Adelphia and its subsidiaries with respect to the Company for such period,
which allocation is based generally upon the ratio of the Company's cable
subscribers to the total cable subscribers owned or managed by Adelphia. The
Company is entitled to receive the benefits (on an average cost basis) of any
programming or purchasing agreements available to Adelphia or one of its
affiliates if such benefits are permitted to be passed through to the Company.
The Company has also agreed not to contract with or enter into any contract with
an electric utility without first making such opportunity available to FPL Group
and its affiliates. Although the Partnership Agreement does not prohibit the
Partners from engaging in or possessing an interest in other business ventures
or activities of any nature and description, there are certain limitations on
the activities of the Partners, including (i) prior to any Partner or its
affiliates acquiring a direct or indirect beneficial ownership interest in a
cable system (other than as a passive investor in a cable system of less than
one percent of the outstanding equity interests in any publicly traded person)
in the state of Florida or in any cable system outside of the state of Florida
within 100 miles of any head-end site of the Company, such cable system shall be
offered to the Company, (ii) any transaction between the Company and the
Managing General Partner or its affiliates must be on terms at least as
favorable to the Company as those available to unrelated parties, (iii) certain
transactions (as described below) must be approved by a Majority-in-Interest of
the Partners and (iv) certain transactions (as described below) must be approved
by a Super Majority-in-Interest of the Partners. The following transactions
require the approval of a Majority-in-Interest of the Partners (more than 75% of
the Units) (i) any amendment to the Partnership Agreement, (ii) election of an
additional or substitute Managing General Partner, (iii) dissolution or
liquidation, (iv) incorporation, (v) borrowings or refinancings of borrowings in
excess of $5,000,000, (vi) the issuance of any PLP or SLP interests, (vii)
<PAGE>
adoption or amendment of the annual operating budget or capital budget of the
Company, subject to certain exceptions, (viii) transactions with Partners or
their affiliates not otherwise specifically permitted by the Partnership
Agreement, (ix) change or reorganization of the Company into any other legal
form of organization, (x) loaning of funds of the Company or acting as a
Guarantor except as permitted by the Partnership Agreement, (xi) admission of
new partners, (xii) the selection of a new independent certified public
accountant and (viii) the acquisition of less than 95 percent of any other
company or partnership. The approval of a Super Majority-in-Interest of the
Partners (more than 85% of the Units) of the Company is required to approve (i)
the filing on behalf of the Company of a petition in bankruptcy or insolvency,
(ii) the sale, trade, exchange or other disposition of assets of the Company
other than in the ordinary course of business and other than transactions
involving less than 5,000 cable subscribers per fiscal year, (iii) the purchase
or other acquisition from a third-party owner of any CATV systems or subscribers
other than line or plant extensions or other transactions involving less than
5,000 cable subscribers, (iv) any call for additional Capital Contributions
beyond that expressly permitted by the Partnership Agreement and (iv) the
issuance of any partnership Units in the Company or General Partner, Limited
Partner or Managing General Partner Interests.
The term of the Company is until December 31, 2019, although, on or after
February 28, 2001, FPL Group partners may force a buy-out or sale of their
partnership interests to ACP Holdings by delivering a written offer to buy or
sell their Units. In addition, under certain circumstances prior to the end of
such term, if a disagreement occurs over a Fundamental Issue, at the election of
the Managing General Partner, the Partners have certain buy-sell rights
regarding their partnership interests in the event that the dispute cannot be
resolved. A "Fundamental Issue" under the Partnership Agreement includes any of
the following matters for which the Managing General partner has sought required
approval from the other Partners of Olympus but such approval has not been
granted: material amendments to the Partnership Agreement; annual operating or
capital budgets that have been proposed but not approved for at least one year;
the election of a substitute or additional Managing General Partner; certain
financings; a change to the Partnership's legal form of organization; the
admission of a new partner to the Partnership; and significant sales or
dispositions of assets.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Partnership Agreement, the Company pays to Adelphia, on a
quarterly basis, an amount representing an allocation of the corporate overhead
of Adelphia and its subsidiaries with respect to the Company for such period,
which allocation is based generally upon the ratio of the Company's cable
subscribers to the total cable subscribers owned or managed by Adelphia. Amounts
of such fees paid for 1997 were $9.6 million.
The Company has periodically received funds from and advanced funds to
Adelphia and Syracuse Hilton Head Holdings, L.P. and Highland Holdings,
partnerships controlled by the Rigas family. The Company was charged $6.6
million of interest on such net payables for 1997.
Amounts outstanding to Adelphia and its affiliates were $55.2 million as of
December 31, 1997.
At December 31, 1997, the Company has interest rate swaps with Adelphia
for a notional amount of $140.0 million for receive fixed swaps. These swaps
expire at various dates in 1998. The net effect of these interest rate swaps was
to decrease interest expense by $2.3 million in 1997.
On March 29, 1996 Telesat Acquisition Limited Partnership ("Telesat"), a
subsidiary of Olympus, and Global Acquisition Partners, L.P., a subsidiary of
Adelphia, were added as co-borrowers to a $200 million credit facility of
Highland Video Associates, L.P. ("Highland Video"), a partnership controlled by
the Rigas family. Telesat is permitted to borrow up to $39.5 million of the
available credit, none of which was included in subsidiary debt at December 31,
1997. The Company pledged its partnership interests in Telesat in favor of the
banks at the time Telesat was added as a co-borrower.
Olympus completed the acquisition of all of the partnership interests of
National Cable Acquisition Associates, L.P. ("National") from Hilton Head
Communications, L.P., an entity controlled by the family of John Rigas, for a
purchase price of approximately $118.0 million. National provides cable service
to approximately 57,000 subscribers in Palm Beach County, Florida and also owns
limited partnership interests in Tele-Media Investment Partnership, L.P. The
acquisition was accounted for under the purchase method of accounting and
National's operations were consolidated with Olympus for financial reporting
purposes effective as of October 1, 1997. The purchase price was paid through
the assumption of liabilities.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements, schedules and exhibits not listed have been omitted
where the required information is included in the consolidated financial
statements or notes thereto, or is not applicable or required.
(a)(1) A listing of the consolidated financial statements, notes and
independent auditors' report required by Item 8 are listed on page 33
of this Annual Report on Form 10-K.
(2) Financial Statement Schedules:
The following are included in this Report:
Schedule I -- Condensed Financial Information of
the Registrant
Schedule II -- Valuation and Qualifying Accounts
(3)Exhibits
Exhibit No. Description
- -----------
3.1 Certificate of Limited Partnership of Olympus Communications,
L.P., together with all amendments thereto. (Incorporated
herein by reference is Exhibit 99.03 to Adelphia
Communications Corporation's Current Report on Form 8-K dated
December 16, 1996.) (File Number 0-16014)
3.2 Certificate of Incorporation of Olympus Capital Corporation
(Incorporated herein by reference is Exhibit 99.01 to
Adelphia Communications Corporation's Current Report on Form
8-K dated December 16, 1996). (File Number 0-16014)
3.3 Bylaws of Olympus Capital Corporation (Incorporated
herein by reference is Exhibit 99.02 to Adelphia
Communications Corporation's Current Report on Form 8-K dated
December 16, 1996). (File Number 0-16014)
3.4 Olympus Communications, L.P. Second Amended and Restated
Limited Partnership Agreement, dated as of February 28, 1995.
(Incorporated herein by reference is Exhibit 10.32 of the
Adelphia Communications Corporation's Annual Report on Form
8-K for the fiscal year ended March 31, 1995.) (File Number
0-16014)
3.5 First Amendment to the Olympus Communications, L.P. Second
Amended and Restated Limited Partnership Agreement, dated
September 1, 1995 (Incorporated herein by reference is
Exhibit 10.33 to Adelphia Communications Corporation's Annual
Report on Form 10-K/A for the fiscal year ended March 31,
1996.) (File Number 0-16014)
3.6 First Amendment to the Olympus Communications, L.P. Second
Amended and Restated Limited Partnership Agreement, dated
March 29, 1996 (Incorporated herein by reference is Exhibit
10.34 to Adelphia Communications Corporation's Annual Report
on Form 10-K/A for the fiscal year ended March 31, 1996.)
(File Number 0-16014)
<PAGE>
Exhibit No. Description
- --------------
3.7 Second Amendment to the Olympus Communications, L.P. Second
Amended and Restated Limited Partnership Agreement, dated
June 27, 1996 (Incorporated herein by reference is Exhibit
10.35 to Adelphia Communications Corporation's Annual Report
on Form 10-K/A for the fiscal year ended March 31, 1996.)
(File Number 0-16014)
4.1 Indenture, dated as of November 12, 1996, between the
Registrants and Bank of Montreal Trust Company (Incorporated
herein by reference is Exhibit 10.02 to Adelphia
Communications Corporation's Current Report on Form 8-K dated
December 16, 1996). (File Number 0-16014)
4.2 Form of Note (contained in Indenture filed as Exhibit 4.1).
10.1 Purchase Agreement Dated as of November 6, 1996 between
the Registrants and Goldman, Sachs & Co. (the "Purchasers")
(Incorporated herein by reference is Exhibit 10.01 to
Adelphia Communications Corporation's Current Report on Form
8-K dated December 16, 1996). (File Number 0-16014)
10.2 Revolving Credit Facility among Adelphia Cable Partners,
L.P., Southeast Florida Cable, Inc., West Boca Acquisition
Limited Partnership and Toronto-Dominion (Texas), Inc., as
Administrative Agent, dated May 12, 1995. (Incorporated
herein by reference is exhibit 10.03 to Adelphia
Communications Corporation's Current Report on Form 8-K dated
June 30, 1995). (File Number 0-16014)
10.3 Amended Credit Agreement, dated as of March 29, 1996, among
Highland Video Associates L.P., Telesat Acquisition Limited
Partnership, Global Acquisition Partners, L.P., the various
financial institutions as parties thereto, Bank of Montreal
as syndication agent, Chemical Bank as documentation agent,
and the Bank of Nova Scotia as administrative agent.
(Incorporated herein by reference is Exhibit 10.37 to
Adelphia Communications Corporation's Current Report on Form
8-K dated June 19, 1996). (File Number 0-16014)
10.4 Term Note for $70,000,000 dated January 4, 1996 from
Leadership Acquisition Limited Partnership payable to
Fairbanks Communications, Inc. due on December 30, 1997
(Incorporated herein by reference is Exhibit 10.05 to
Adelphia Communications Corporation's Current Report on Form
8-K dated December 16, 1996). (File Number 0-16014)
10.5 Agreement of Guaranty and Suretyship, dated January 4, 1996,
by Olympus Communications, L.P. regarding the Term Note
contained in Exhibit 10.06 herein (Incorporated herein by
reference is Exhibit 10.6 to Adelphia Communications
Corporation's Current Report on Form 8-K dated December 16,
1996). (File Number 0-16014)
<PAGE>
Exhibit No. Description
- -------------
10.6 Form of Management Fee Subordination Agreement (contained as
Annex A in Indenture filed as Exhibit 4.1 herein).
10.7 Asset Purchase Agreement dated as of June 8, 1995 between
Olympus Communications, L.P., a Delaware limited partnership,
Fairbanks Communications, Inc., an Indiana corporation, and
Leadership Security Services, Inc., a Florida corporation.
(Incorporated herein by reference is Exhibit 10.01 to
Adelphia Communications Corporation's Current Report on Form
8-K dated January 3, 1997) (File Number 0-16014)
10.8* Purchase and Sale Agreement dated December 23, 1997 by
and among NCAA Holdings, Inc. and Hilton Head Communications,
L.P. and Olympus Communications, L.P. and Olympus
Communications Holdings, LLC (Filed herewith)
10.9 Registration Rights Agreement dated as of November 12,
1996, between the Registrants and the Purchasers
(Incorporated herein by reference is Exhibit 10.04 to
Adelphia Communications Corporation's Current Report on Form
8-K dated December 16, 1996). (File Number 0-16014)
21.1* Subsidiaries of the Registrant.
27.1* Financial Data Schedule.
*Filed herewith.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I (Page 1 of 4)
OLYMPUS COMMUNICATIONS, L.P.
Condensed Information as to the Financial Position of the Registrant
(Dollars in thousands)
December 31,
-----------------------------
1996 1997
-------------- -------------
ASSETS:
<S> <C> <C>
Investment in cable television subsidiaries $260,628 $266,933
Other assets - net 5,782 5,505
------------ ------------
Total $266,410 $272,438
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY):
10 5/8% Senior Notes due 2006 $200,000 $200,000
Other debt 62,007 45,000
Unsecured notes and payables to cable television
subsidiaries and affiliates, net 51,926 103,626
Accrued priority return on PLP interests 20,476 22,241
Accrued interest and other liabilities 16,200 13,788
------------ ------------
Total liabilities 350,609 384,655
Total partners' equity (deficiency) - [see consolidated financial
statements included herein for details] (84,199) (112,217)
------------ ------------
Total $266,410 $272,438
============ ============
See notes to condensed financial information of the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I (Page 2 of 4)
OLYMPUS COMMUNICATIONS, L.P.
Condensed Information as to the Operations of the Registrant
(Dollars in thousands)
Year Ended December 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
INCOME:
<S> <C> <C> <C>
Income from subsidiaries and affiliates $3,512 $7,613 $5,451
----------- ----------- -----------
EXPENSES:
Operating expenses and fees to subsidiaries 69 166 225
Amortization 123 91 660
Interest expense -- 2,892 25,414
Interest expense to subsidiaries and affiliates 12,287 11,660 13,522
Management fees to Managing Affiliate 6,334 8,839 9,566
----------- ----------- -----------
Total 18,813 23,648 49,387
----------- ----------- -----------
Loss before equity in net loss of subsidiaries and
extraordinary loss (15,301) (16,035) (43,936)
Equity in net (loss) income of subsidiaries (2,981) 5,085 24,134
----------- ----------- -----------
Loss before extraordinary loss (18,282) (10,950) (19,802)
Extraordinary loss on early retirement of debt (1,109) -- --
----------- ----------- -----------
Net loss $(19,391) $(10,950) $(19,802)
=========== =========== ===========
See notes to condensed financial information of the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I (Page 3 of
4)
OLYMPUS COMMUNICATIONS, L.P.
Condensed Information as to the Cash flows of the Registrant
(Dollars in thousands)
Year Ended December 31,
---------------------------------------
1995 1996 1997
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $(19,391) $(10,950) $(19,802)
Adjustments to reconcile net loss to net cash used
for operating activities:
Equity in net loss (income) of subsidiaries 2,981 (5,085) (24,134)
Extraordinary loss on debt retirement 1,109 -- --
Amortization 123 91 660
Accretion of non-interest bearing note -- -- 7,993
Change in operating assets and liabilities, net of
effects of acquisitions:
Other assets (996) 624 (385)
Accrued interest and other liabilities 994 15,153 (2,412)
----------- ----------- -----------
Net cash used for operating activities (15,180) (167) (38,080)
----------- ----------- -----------
Cash flows from investing activities:
Investment in subsidiary (20,997) (160,000) (5,020)
Advances from subsidiaries and related parties 36,218 17,091 51,700
----------- ----------- -----------
Net cash provided by (used for) investing activities 15,221 (142,909) 46,680
----------- ----------- -----------
Cash flows from financing activities:
Capital distribution -- (54,672) --
Payments of priority returns (37,341) (64,438) (74,129)
Proceeds from debt -- 200,000 --
Repayments of debt -- -- (25,000)
Costs associated with debt financing -- (5,350) --
Issuance of preferred limited partner interests 39,125 65,711 80,729
Capital contributions -- -- 9,800
----------- ----------- -----------
Net cash provided by (used for) financing activities 1,784 141,251 (8,600)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 1,825 (1,825) --
Cash and cash equivalents, beginning of year -- 1,825 --
----------- ----------- -----------
Cash and cash equivalents, end of year $1,825 $ -- $ --
=========== =========== ===========
Supplemental disclosure of cash flow activity -
Cash payments for interest $12,287 $11,660 $31,080
=========== =========== ===========
See notes to condensed financial information of the Registrant.
</TABLE>
<PAGE>
SCHEDULE I (Page 4 of
4)
OLYMPUS COMMUNICATIONS, L.P.
Notes to Condensed Financial Information of the Registrant
(Dollars in thousands)
1. Notes Payable to Subsidiaries and Affiliates:
Olympus Communications, L.P. ("Olympus") has periodically received funds
from and advanced funds to subsidiaries and affiliates. These affiliate
balances, some of which eliminate upon preparation of consolidated financial
statement, totaled $51,926 and $103,626 at December 31, 1996 and 1997,
respectively. Olympus paid $12,287, $11,660 and $13,522 of interest expense on
certain of these net payables to subsidiaries and affiliates during 1995, 1996
and 1997, respectively. Interest was charged at rates ranging from 5.7% to
16.5%.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
OLYMPUS COMMUNICATIONS, L.P.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance Charged
at to Costs Balance
Beginning and Deductions- at End
of Period Expenses Write-Offs of Period
----------- ----------- ----------- -----------
Year Ended December 31, 1995
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts $1,660 $2,930 $4,179 $411
========== ========== ========== ==========
Year Ended December 31, 1996
Allowance for Doubtful Accounts $411 $3,775 $3,574 $612
========== ========== ========== ==========
Year Ended December 31, 1997
Allowance for Doubtful Accounts $612 $3,836 $3,826 $622
========== ========== ========== ==========
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
OLYMPUS COMMUNICATIONS, L.P.
By: ACP HOLDINGS, INC
Managing General Partner
March 31, 1998 By: /s/ Timothy J. Rigas
Timothy J. Rigas,
Executive Vice President,
Treasurer, Principal
Accounting Officer and
Principal Financial
Officer of ACP Holdings,
Inc.
OLYMPUS CAPITAL CORPORATION
March 31, 1998 By: /s/ Timothy J. Rigas
Timothy J. Rigas,
Executive Vice President,
Treasurer, Principal
Accounting Officer and
Principal Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrants and
in the capacities and on the dates indicated.
March 31, 1998 /s/ John J. Rigas
John J. Rigas,
Chairman and Director of
ACP Holdings, Inc. and
President and Director of
Olympus Capital
Corporation
March 31, 1998 /s/ Timothy J. Rigas
Timothy J. Rigas,
Executive Vice President,
Treasurer, Principal
Financial Officer,
Director and Principal
Accounting Officer of ACP
Holdings, Inc.and Olympus
Capital Corporation
March 31, 1998 /s/ Michael J. Rigas
Michael J. Rigas,
Executive Vice President
and Director of ACP
Holdings, Inc.and Olympus
Capital Corporation
March 31, 1998 /s/ James P. Rigas
James P. Rigas, Executive
Vice President, and
Director of ACP Holdings,
Inc. and Olympus Capital
Corporation
March 31, 1998 /s/ Daniel R. Milliard
Daniel R. Milliard,
Senior Vice President and
Director of ACP Holdings,
Inc. and Senior Vice
President and Secretary
of Olympus Capital
Corporation
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of Olympus Communications L.P.1
OLYMPUS COMMUNICATIONS, L.P. (a Delaware limited partnership)
ADELPHIA CABLE PARTNERS, L.P. (99.98% general partnership interest) (a
Delaware limited partnership)
Key Biscayne Cablevision (50% general partnership interest) (a
Pennsylvania general partnership)
Southeast Florida Cable, Inc. (a Florida corporation)
Palm Beach Group Cable Inc. (a Florida corporation)
Palm Beach Group Cable Joint Venture (50% general
partnership interest)(a Florida general
partnership)
South Florida Cable Advertising (14.28571% general partnership
interest) (a Florida general partnership)
Timotheos Communications, L.P. (a Delaware limited partnership)2
OLYMPUS CAPITAL CORPORATION (a Delaware corporation)
LEADERSHIP ACQUISITION LIMITED PARTNERSHIP (100% general and limited
partnership interests held by Olympus and its wholly-owned
subsidiaries) (a Delaware limited partnership)
NATIONAL CABLE ACQUISITION ASSOCIATES, L.P. (100% general and limited
partnership interests held by Olympus and its wholly-owned
subsidiaries) (a Delaware limited partnership)
TELESAT ACQUISITION LIMITED PARTNERSHIP (100% general and limited
partnership interests held by Olympus and its wholly-owned
subsidiaries) (a Delaware limited partnership)
WEST BOCA ACQUISITION LIMITED PARTNERSHIP (100% general and limited
partnership interests held by Olympus and its wholly-owned
subsidiaries) (a Delaware limited partnership)
Starpoint, Limited Partnership (50.36% limited partnership
interest) (a Pennsylvania limited partnership)
Cable Sentry Corporation (a Florida corporation)
Automatic Alarms Company, Inc. (a Florida corporation)
West Boca Security, Inc. (a Delaware corporation)
- --------
1 Ownership of subsidiaries is indicated by indentations. Ownership of each
subsidiary is 100% unless otherwise indicated parenthetically or by footnote.
2 Adelphia Cable Partners, L.P. and Olympus Communications, L.P. own 99.9% and
.1%, respectively, of the partnership interests of Timotheos Communications,
L.P. (a Delaware limited partnership).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Olympus Communications L.P. for the twelve
months ended December 31, 1997. Information is only included for Olympus
Communications (a registrant) and does not include information for Olympus
Capital Corp., which has no operations.
</LEGEND>
<CIK> 0000861255
<NAME> OLYMPUS COMMUNICATIONS LP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,554
<SECURITIES> 0
<RECEIVABLES> 12,577<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 265,783<F2>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 728,952
<CURRENT-LIABILITIES> 0
<BONDS> 673,804
0
0
<COMMON> 0
<OTHER-SE> (112,217)
<TOTAL-LIABILITY-AND-EQUITY> 728,952
<SALES> 0
<TOTAL-REVENUES> 176,363
<CGS> 0
<TOTAL-COSTS> 141,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,150
<INCOME-PRETAX> (19,751)
<INCOME-TAX> (51)
<INCOME-CONTINUING> (19,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,802)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables net of Allowance
<F2>PP&E net of Depreciation
</FN>
</TABLE>
Exhibit 10.8
PURCHASE AND SALE AGREEMENT
by and among
NCAA HOLDINGS, INC.
and
HILTON HEAD COMMUNICATIONS, L.P.
and
OLYMPUS COMMUNICATIONS, L.P.
and
OLYMPUS COMMUNICATIONS HOLDINGS, L.L.C.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I PURCHASE AND SALE OF PARTNERSHIP INTERESTS.............................................................2
1.1 Transfer and Sale of National General Partnership Interest.......................................2
1.2 Transfer and Sale of National Limited Partnership Interest.......................................2
1.3 Transfer of TMIP Limited Partnership Interest....................................................2
ARTICLE II PURCHASE PRICE; CLOSING DATE..........................................................................3
2.1 Purchase Price...................................................................................3
2.2 Allocation of Purchase Price; Section 754 Election; Other Tax Matters............................3
2.3 Adjustment to Purchase Price.....................................................................3
2.4 Expenses.........................................................................................4
2.5 Closing; Date and Location.......................................................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................................................5
3.1 Organization.....................................................................................5
3.2 Authorization of Agreement.......................................................................5
3.3 Title to National General Partnership Interest...................................................5
3.4 Litigation.......................................................................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HHC.................................................................6
4.1 Organization.....................................................................................6
4.2 Authorization of Agreement.......................................................................6
4.3 Title to National Limited Partnership Interest...................................................7
4.4 Litigation.......................................................................................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS..............................................................7
5.1 Financial Statements.............................................................................7
5.2 Franchises.......................................................................................8
5.3 Compliance with Laws.............................................................................9
5.4 Subscribers......................................................................................9
5.5 Taxes............................................................................................9
5.6 No Adverse Change...............................................................................10
5.7 Compliance with FCC and Other Requirements......................................................10
5.8 Non-Infringement................................................................................12
5.9 Accounts Receivable.............................................................................12
5.10 Litigation.....................................................................................12
5.11 Insurance......................................................................................12
5.12 Partnership Assets.............................................................................13
5.13 Employee Benefits..............................................................................13
5.14 Accuracy of Information........................................................................15
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF OLYMPUS............................................................15
6.1 Organization....................................................................................15
6.2 Authorization of Agreement......................................................................16
6.3 Litigation......................................................................................16
<PAGE>
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF OLYMPUS HOLDINGS..................................................16
7.1 Organization....................................................................................16
7.2 Authorization of Agreement......................................................................17
7.3 Litigation......................................................................................17
ARTICLE VIII CONDUCT OF BUSINESS PENDING CLOSING; HSR ACT FILING................................................17
8.1 Maintenance of Business.........................................................................17
8.2 Consummation of Agreement.......................................................................17
8.3 HSR Act Filing..................................................................................18
ARTICLE IX CONDITIONS TO CLOSING - BUYERS.......................................................................18
9.1 Conditions to Obligations of Buyers.............................................................18
ARTICLE X CONDITIONS TO CLOSING - SELLERS.......................................................................19
10.1 Conditions to Obligations of Sellers...........................................................19
ARTICLE XI CLOSING 20
11.1 Actions to be taken by Sellers at Closing......................................................20
11.2 Actions to be taken by Buyers at Closing.......................................................20
ARTICLE XII INDEMNIFICATION.....................................................................................20
12.1 Survival of Representations and Warranties.....................................................20
12.2 Indemnification................................................................................20
12.3 Indemnification with Respect to Third-Party Claims.............................................21
ARTICLE XIII TERMINATION........................................................................................24
13.1 Termination by Mutual Agreement................................................................24
13.2 Buyers' Default................................................................................25
13.3 Sellers' Default...............................................................................25
13.4 Termination by Buyer or Seller.................................................................25
ARTICLE XIV NOTICE 25
14.1 Addresses for Notice...........................................................................25
14.2 Effectiveness of Notice........................................................................27
ARTICLE XV LAWS GOVERNING;VENUE.................................................................................27
ARTICLE XVI MISCELLANEOUS........................................................................................27
16.1 Counterparts...................................................................................27
16.2 Assignment.....................................................................................28
16.3 Entire Agreement...............................................................................28
16.4 Captions.......................................................................................28
16.5 Expenses.......................................................................................28
16.6 Confidentiality................................................................................28
16.7 Further Assurances.............................................................................28
16.8 No Waiver......................................................................................29
16.9 Severability...................................................................................29
16.10 Binding Effect................................................................................29
16.11 WAIVER OF JURY TRIAL..........................................................................29
</TABLE>
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made this 23rd day of December, 1997, by and
among NCAA Holdings, Inc., a Delaware corporation ("NCAA"), Hilton Head
Communications, L.P., a Delaware limited partnership ("HHC") (NCAA and HHC are
sometimes hereinafter referred to as the "Sellers"), Olympus Communications,
L.P., a Delaware limited partnership ("Olympus"), and Olympus Communications
Holdings, L.L.C., a Delaware limited liability company ("Olympus Holdings")
(Olympus and Olympus Holdings are sometimes hereinafter referred to as the
"Buyers").
WITNESSETH:
WHEREAS, NCAA owns a one percent (1%) general partnership
interest (the "National General Partnership Interest") in National Cable
Acquisition Associates, L.P., a Delaware limited partnership (the "Partnership);
and
WHEREAS, HHC owns a ninety-nine percent (99%) limited
partnership interest (the "National Limited Partnership Interest") in the
Partnership (the National General Partnership Interest and the National Limited
Partnership Interest sometimes are referred to herein collectively as the
"Partnership Interests"); and
WHEREAS, subject to the terms and conditions of this
Agreement, NCAA desires to sell, and Olympus desires to purchase, the National
General Partnership Interest; and
WHEREAS, subject to the terms and conditions of this
Agreement, HHC desires to sell the National Limited Partnership Interest, and
Olympus and Olympus Holdings each desire to purchase that portion of the
National Limited Partnership Interest such that immediately following the
Closing (as defined below) Olympus will have a ninety-eight and nine tenths
percent (98.9%) limited partnership interest in the Partnership (a "98.9%
National Limited Partnership Interest") and Olympus Holdings will have a one
tenth percent (.1%) limited partnership interest in the Partnership (a ".1%
National Limited Partnership Interest"); and
WHEREAS, HHC owns a limited partnership interest (the "TMIP
Limited Partnership Interest") in Tele-Media Investment Partnership, L.P., a
Delaware limited partnership ("TMIP"); and
WHEREAS, on or prior to the Closing Date (as defined in
Section 2.5), HHC will assign and transfer to the Partnership the TMIP Limited
Partnership Interest.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, and intending to be legally
bound hereby, the parties hereto agree as follows:
<PAGE>
ARTICLE I
PURCHASE AND SALE OF PARTNERSHIP INTERESTS
1.1 Transfer and Sale of National General Partnership Interest.
On the Closing Date, NCAA shall sell, assign and transfer to
Olympus, and Olympus shall purchase and acquire from NCAA, all of the National
General Partnership Interest, (including, without limitation, all of its rights,
title and interests as a general partner in the Partnership and all of its
rights, title and interests in and to the net profits and net losses of the
Partnership, its capital account in the Partnership, all rights to fees and
reimbursement of expenses and all distributions of cash or other property that
may be made by the Partnership, all with respect thereto) free and clear of any
and all liens, encumbrances, pledges, options, charges or restrictions of any
nature except for Permitted Liens (as defined in Section 3.3).
1.2 Transfer and Sale of National Limited Partnership Interest.
On the Closing Date, HHC shall sell, assign and transfer to:
(a) Olympus, and Olympus shall purchase and acquire, free and
clear of any and all liens, encumbrances, pledges, options, charges or
restrictions of any nature except for Permitted Liens, that portion of the
National Limited Partnership Interest (including, without limitation, all of its
rights, title and interests as a limited partner in the Partnership and all of
its rights, title and interests in and to the net profits and net losses of the
Partnership, its capital account in the Partnership, all rights to fees and
reimbursement of expenses and all distributions of cash or other property that
may be made by the Partnership, all with respect thereto) necessary so that
immediately following the Closing Olympus will have a 98.9% National Limited
Partnership Interest; and
(b) Olympus Holdings, and Olympus Holdings shall purchase and
acquire, free and clear of any and all liens, encumbrances, pledges, options,
charges or restrictions of any nature except for Permitted Liens, that portion
of the National Limited Partnership Interest (including, without limitation, all
of its rights, title and interests as a limited partner in the Partnership and
all of its rights, title and interests in and to the net profits and net losses
of the Partnership, its capital account in the Partnership, all rights to fees
and reimbursement of expenses and all distributions of cash or other property
that may be made by the Partnership, all with respect thereto) necessary so that
immediately following the Closing Olympus Holdings will have a .1% National
Limited Partnership Interest.
1.3 Transfer of TMIP Limited Partnership Interest.
On or before the Closing Date, HHC shall assign and transfer
to the Partnership the TMIP Limited Partnership Interest (including, without
limitation, all of its rights, title and interests as a limited partner in TMIP
and all of its rights, title and interests in and to the net profits and net
losses of TMIP, its capital account in TMIP, all rights to fees and
reimbursement of expenses and all distributions of cash or other property that
<PAGE>
may be made by TMIP, all with respect thereto), free and clear of any and all
liens, encumbrances, pledges, options, charges or restrictions of any nature
except for Permitted Liens.
ARTICLE II
PURCHASE PRICE; CLOSING DATE
2.1 Purchase Price.
At the Closing, in consideration of the sale of the
Partnership Interests,Buyers shall pay to Sellers One Hundred Eighteen Million
Dollars ($118,000,000.00) (the "Purchase Price"), subject to adjustment as
provided in Section 2.3 below. The amount of the Purchase Price to be paid at
the Closing by each of Olympus and Olympus Holdings shall be determined by the
mutual agreement of Olympus and Olympus Holdings.
2.2 Allocation of Purchase Price; Section 754 Election; Other Tax
Matters.
(a) The Purchase Price shall be allocated among the
Partnership's assets in the manner mutually agreed to by all of the parties on
the Closing Date and shall be set forth on Schedule 2.2. The allocation of the
Purchase Price among the Partnership's assets agreed to by the parties shall be
used for all purposes by the parties. The Sellers shall cause the Partnership to
file on a timely basis elections under Section 754 of the Internal Revenue Code
of 1986, as amended (the "Code"), on the federal income tax returns of the
Partnership for the taxable year of the Partnership ending on the Closing Date
and, to the extent necessary, comparable elections on the state income tax
returns of the Partnership, copies of all such returns and any extensions of
time to file such returns shall be provided to the Buyers upon the filing of
such returns and extensions. The provisions of this Section shall survive the
consummation of the transactions contemplated by this Agreement.
(b) For all taxable periods of the Partnership that end on or
before the Closing Date, the Sellers shall cause to be prepared and filed with
all applicable authorities all Tax returns, reports and forms required to be
filed.
2.3 Adjustment to Purchase Price.
The Purchase Price shall be: (i) decreased by an amount equal
to the Net Liability Adjustment (as hereinafter defined) to the extent such Net
Liability Adjustment is a negative amount as of October 1, 1997 or (ii)
increased by an amount equal to the Net Liability Adjustment to the extent such
Net Liability Adjustment is a positive amount as of October 1, 1997. For
purposes hereof, the Net Liability Adjustment shall be the number obtained by
subtracting (x) the sum of all liabilities of the Partnership (as defined and
determined in accordance with generally accepted accounting principles ("GAAP"))
on October 1, 1997, from (y) the sum of the current assets of the Partnership
<PAGE>
(as defined and determined in accordance with GAAP) on October 1, 1997. The Net
Liability Adjustment shall be determined on the Closing Date by the mutual
agreement of the parties and shall be in accordance with GAAP. In the event the
parties do not mutually agree upon the Net Liability Adjustment on the Closing
Date, on or before 60 days after the Closing Date, Sellers shall deliver to
Buyers a final calculation of the Net Liability Adjustment (the "Final
Calculation"), together with such supporting documentation as Buyers may
reasonably request. Should Buyers dispute Sellers' Final Calculation, Buyers
shall promptly, but in no event later than 45 days after receipt of the Final
Calculation (the "Grace Period"), deliver to Sellers written notice describing
in reasonable detail the dispute, together with Buyers' determination as to the
Final Calculation in reasonable detail. If the dispute is not resolved by the
parties within 20 days from the date of receipt by Sellers of written notice
from Buyers, the parties agree to engage promptly the Pittsburgh, Pennsylvania
office of Price Waterhouse or, if unavailable, another "big five" accounting
firm mutually acceptable to Sellers and Buyers (the "Independent Accountant") to
resolve the dispute within 30 days after such engagement. The Independent
Accountant's determination shall be final and binding on the parties. All fees
and costs of the Independent Accountant shall be borne equally by Buyers and
Sellers. Buyers shall not dispute Sellers' Final Calculation unless Sellers'
computation of the Final Calculation differs from Buyers' computation by more
than $1,000.00. If Buyers fail to notify Seller prior to the expiration of the
Grace Period that it disputes Sellers' Final Calculation, Sellers' Final
Calculation shall be deemed to be accepted by Buyers and shall be final and
binding on the parties.
2.4 Expenses.
Any transfer, documentary, sales, use, registration, and other
such Taxes (as defined below) and related penalties, interest or additions
thereto, and recording or filing fees imposed upon the sale, assignment and
delivery of the Partnership Interests and the other transactions contemplated
hereby shall be paid by the Sellers.
2.5 Closing; Date and Location.
The consummation of the transfer of the Partnership Interests
to Buyers and the receipt of the consideration therefor by Sellers shall
constitute the "Closing." Unless otherwise mutually agreed to by the parties,
the Closing shall take place at 10:00 a.m., local time, at the offices of
Buchanan Ingersoll Professional Corporation, 301 Grant Street, 20th Floor,
Pittsburgh, PA 15219. The parties agree to close the transactions contemplated
by this Agreement within five (5) days after all of the conditions to Closing
have been satisfied or waived, whichever shall later occur, which specified date
and time shall constitute the "Closing Date." The effective date of the sale of
the Partnership Interests shall be October 1, 1997. Notwithstanding the
foregoing, this Agreement may be terminated pursuant to Section 13.4 hereof if
the Closing has not occurred by September 30, 1998.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF NCAA
NCAA REPRESENTS AND WARRANTS TO BUYERS THAT THE FOLLOWING STATEMENTS
AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF
AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS
FOLLOWS:
3.1 Organization.
NCAA is a corporation, duly organized and validly existing
under the laws of the State of Delaware with full power and authority to engage
in its business and operations, to enter into this Agreement and perform the
terms of this Agreement. NCAA is duly qualified to conduct business and is in
good standing in those jurisdictions where the conduct of its business or the
nature of its assets makes such qualification necessary.
3.2 Authorization of Agreement.
The Board of Directors of NCAA has taken all necessary
corporate action to authorize and approve as to NCAA individually and as a
general partner of HHC this Agreement, the consummation of the transactions
contemplated hereby and the performance by NCAA of all of the terms and
conditions hereof on its part to be performed. The execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby and the
fulfillment and compliance with the terms and conditions hereof do not and will
not: (a) violate any provisions of any judicial or administrative order, award,
judgment or decree applicable to NCAA; (b) conflict with, result in a breach of
or constitute a default under the Certificate of Incorporation or By-laws of
NCAA or any other agreement or instrument to which NCAA is a party or by which
NCAA is bound; (c) create or impose any lien, charge, encumbrance, or
restriction upon the National General Partnership Interest in contravention of
any agreement or instrument to which NCAA is a party or by which NCAA is bound;
or (d) create a right in any person to accelerate payment of the principal of
any indebtedness due from NCAA nor increase the amount of any interest over that
theretofore payable in respect thereof. This Agreement has been duly authorized,
executed and delivered by NCAA and constitutes a legal, valid and binding
obligation of NCAA. All of the approvals and consents required for NCAA to
consummate the transactions contemplated hereby have been obtained.
3.3 Title to National General Partnership Interest.
NCAA has good and valid title to the National General
Partnership Interest, and NCAA has full power, authority and right to transfer
the National General Partnership Interest free and clear of any and all liens,
charges, pledges, options, encumbrances or restrictions of any nature except for
<PAGE>
liens, charges, pledges, encumbrances and restrictions under (a) that certain
Credit Agreement dated December 27, 1994, among HHC as borrower, the Lenders
from time to time parties thereto, Canadian Imperial Bank of Commerce, acting
through its New York agency ("CIBC-NYA") and The Toronto-Dominion Bank ("TD") as
Managing Agents, CIBC-NYA, as Documentation Agent, TD, as Syndication Agent,
First Union National Bank of North Carolina and Societe Generale, as Agents,
Credit Lyonnais, as Co-Agent and CIBC-NYA, as Administrative Agent (as the same
may be hereafter supplemented, replaced, modified or amended from time to time)
and (b) the Limited Partnership Agreement of the Partnership (collectively,
"Permitted Liens").
3.4 Litigation.
There is no litigation, at law or in equity, nor any
proceedings before any commission or other governmental authority, pending, or
to the best of NCAA's knowledge, threatened against NCAA which would prevent or
restrict NCAA's right or ability to consummate the transfer of the National
General Partnership Interest as contemplated herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HHC
HHC REPRESENTS AND WARRANTS TO BUYERS THAT THE FOLLOWING STATEMENTS
AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF
AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS
FOLLOWS:
4.1 Organization.
HHC is a limited partnership duly formed and validly existing
under the laws of the State of Delaware with full power and authority to engage
in its business and operations, to enter into this Agreement and perform the
terms of this Agreement. NCAA is the sole general partner of HHC. HHC is duly
qualified to conduct business and is in good standing in those jurisdictions
where the conduct of its business or the nature of its assets makes such
qualification necessary.
4.2 Authorization of Agreement.
HHC has taken all necessary partnership action to authorize
and approve this Agreement, the consummation of the transactions contemplated
hereby and the performance by HHC of all of the terms and conditions hereof on
its part to be performed. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the fulfillment and
compliance with the terms and conditions hereof do not and will not: (a) violate
any provisions of any judicial or administrative order, award, judgment or
decree applicable to HHC; (b) conflict with, result in a breach of or constitute
<PAGE>
a default under the Limited Partnership Agreement of HHC or any other agreement
or instrument to which HHC is a party or by which HHC is bound; (c) create or
impose any lien, charge, encumbrance, or restriction upon the National Limited
Partnership Interest in contravention of any agreement or instrument to which
HHC is a party or by which HHC is bound; or (d) create a right in any person to
accelerate payment of the principal of any indebtedness due from HHC nor
increase the amount of any interest over that theretofore payable in respect
thereto. This Agreement has been duly authorized, executed and delivered by HHC
and constitutes a legal, valid and binding obligation of HHC. All of the
approvals and consents required for HHC to consummate the transactions
contemplated hereby have been obtained.
4.3 Title to National Limited Partnership Interest.
HHC has good and valid title to the National Limited
Partnership Interest, and HHC has full power, authority and right to transfer
the National Limited Partnership Interest free and clear of any and all liens,
charges, pledges, options, encumbrances or restrictions of any nature except for
Permitted Liens.
4.4 Litigation.
There is no litigation, at law or in equity, nor any
proceedings before any commission or other governmental authority, pending, or
to the best of HHC's knowledge, threatened against HHC which would prevent or
restrict HHC's right or ability to consummate the transfer of the National
Limited Partnership Interest as contemplated herein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLERS
SELLERS JOINTLY AND SEVERALLY REPRESENT AND WARRANT TO BUYERS THAT THE
FOLLOWING STATEMENTS AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE
HEREOF AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS FOLLOWS:
5.1 Financial Statements.
True, complete and correct copies of the unaudited balance
sheet of the Partnership as of December 31, 1996, and the related statement of
income for the fiscal year ended December 31, 1996, and the unaudited balance
sheet of the Partnership as at September 30, 1997, and the related statement of
income for the nine month period ended September 30, 1997, certified by the
Partnership's Chief Financial Officer are attached as Schedule 5.1. Such
financial statements accurately reflect the income, expenses, liabilities,
equity and assets of the Partnership at the date thereof. The above-referenced
financial statements, including the notes thereto, if any: (a) are in accordance
with the respective books and records of the Partnership; (b) are true and
correct and, subject to normal year-end adjustments, present fairly the
financial condition of the Partnership as of the date of such financial
statements and its results of operations for the periods then ended; and (c)
<PAGE>
except as indicated in the notes to such financial statements, have been
prepared in accordance with GAAP, consistently applied with prior periods, and
can be reconciled with the financial records maintained, and the accounting
methods applied, by the Partnership for Tax (as defined below) purposes. Except
as provided in such financial statements, or as fully disclosed in Schedule 5.1,
the Partnership has no liabilities or obligations (whether accrued, absolute,
contingent, whether due or to become due or otherwise) which might be or become
a charge against the assets of the Partnership, including any "loss
contingencies" considered "probable" or "reasonably possible" within the meaning
of the Financial Accounting Standard Board's Statement of Financial Accounting
Standards No. 5, except trade payables and similar liabilities and obligations
incurred in the ordinary and regular course of business since the date of such
financial statements.
5.2 Franchises.
(a) Listed and identified on Schedule 5.2 attached hereto are
all of the existing governmental authorizations for construction, maintenance
and operation of the CATV systems of the Partnership (individually, a
"Franchise" and collectively, the "Franchises") presently held by the
Partnership and the political entity or authority which has granted each
Franchise. All governmental authorizations necessary or required for the
construction, maintenance and operation of the CATV systems of the Partnership
have been obtained by the Partnership, and are listed and identified in Schedule
5.2. All such agreements, statutes, ordinances, resolutions, licenses or permits
granting the Franchises are validly existing, legally enforceable obligations of
the Partnership and, to the best knowledge of Sellers, are validly existing,
legally enforceable obligations of the other parties thereto, in accordance with
their terms, granted and renewed in accordance with all applicable federal,
state and local laws, and the Partnership is validly and lawfully operating
under the provisions of the franchises and applicable law. Further, the
Partnership has obtained in accordance with all federal, state and local laws
all Franchises required for the lawful operation of the CATV systems of the
Partnership. Except as set forth on Schedule 5.2, none of the political entities
or authorities which have granted a Franchise have been, or have applied to be,
certified to regulate the CATV rates charged by the Partnership pursuant to the
Cable Television Consumer Protection and Competition Act of 1992 and the Rules
and Regulations of the Federal Communications Commission ("FCC").
Each of the Franchises expires on the dates set forth on
Schedule 5.2 attached hereto. The Partnership has duly complied with all of the
terms and conditions of the Franchises and has not done or performed any act
which would invalidate or impair its rights under, or give to the granting
authority the right to terminate, the Franchises. There is no pending assertion
or claim that operations pursuant to any Franchise have been improperly
conducted or maintained. All construction of distribution plant required by any
of the Franchises has been completed in accordance with the terms of such
Franchise.
(b) True, complete and correct copies of the Franchises, all
amendments, assignments and consents thereto and the latest rate change
approval, if any, to the date hereof have been delivered by Sellers to Buyers.
<PAGE>
(c) All of the approvals and consents required by the
Franchises to consummate the transactions contemplated by this Agreement have
been obtained by the Partnership.
5.3 Compliance with Laws.
The Partnership is in compliance in all material respects with
all applicable foreign, federal, state and local laws, rules, regulations,
orders, writs, injunctions, ordinances or decrees of any governing authority,
federal, state or local court, or of any municipal or governmental departments,
commission, board, bureau, agency or municipality having jurisdiction over it or
its CATV systems.
5.4 Subscribers.
As of October 1, 1997, the Partnership had 57,606 Equivalent
Basic Subscribers and, as of the Closing Date, there shall not be less than
57,447 Equivalent Basic Subscribers. The term "Equivalent Basic Subscribers"
shall mean the number obtained by adding (i) the number of first outlet
residential subscribers for basic CATV service of the Partnership who have made
at least one monthly payment for service at the normal monthly rate for basic
service, to (ii) the result obtained by dividing the aggregate of the gross
monthly billing from bulk subscribers who have made at least one monthly payment
for service at the normal monthly rate by $11.95.
5.5 Taxes.
The Partnership has (i) duly filed all federal, state, local
and foreign tax returns and other reports required to be filed, and has timely
paid and will pay all Taxes (as defined below) with respect to its businesses
that have become or may become due and payable by it except such amounts as are
being contested diligently and in good faith and are not in the aggregate
material and (ii) received no written notice of, nor do the Sellers have any
knowledge of, any notice of deficiency or assessment, or proposed deficiency or
assessment, from any taxing authority with respect to the Partnership's
businesses. There are no property, sales, use or franchise fee or tax audits
pending with respect to the Partnership's businesses.
There are no unpaid Taxes which are or could become a lien on
the Partnership's assets, nor are there any Tax liens filed against the
Partnership's assets. There are no outstanding agreements or waivers extending
the statutory period of limitations applicable to any items of Taxes of the
Partnership, and neither the Partnership nor its partners have requested any
extension of time within which to file any Tax return, which return has not yet
been filed. Neither the Partnership nor the Sellers have been notified that any
taxing authority intends to audit the Partnership. The earliest year for which
the Internal Revenue Service may assess deficiencies against the Partnership is
1994. The charges, accruals and reserves with respect to Taxes on the books of
the Partnership are adequate (as determined in accordance with GAAP). All Taxes
that the Partnership is or was legally required to withhold or collect have been
duly withheld or collected and, to the extent required, have been paid to the
proper governmental authority. All individuals that the Partnership treats as
<PAGE>
independent contractors are not "employees" (within the meaning of Section
3121(d)(2)(1) of the Code or Section 3(6) of ERISA) for purposes of any federal,
state or local Taxes. There is no dispute or claim as to Tax liability of any
other person or entity as to which the Partnership may be liable or have an
indemnification obligation.
"Tax" or "Taxes" means all levies and assessments of any kind
or nature imposed by any governmental authority including, but not limited to,
all income, sales, use, ad valorem, value added, franchise, severance, net or
gross proceeds, withholding, payroll, employment, regulatory assessments, gross
receipts, occupation, excise or property taxes, together with any interest
thereon and any penalties, additions to Tax or additional amounts applicable
thereto.
5.6 No Adverse Change.
There has been no material adverse change in the assets or
financial condition or operations of the Partnership or its businesses since
September 30, 1997 other than changes arising from matters of a general economic
nature or matters caused by or arising from legislation, rulemaking or
regulation affecting the cable television industry generally, and since
September 30, 1997, the assets and financial condition and operations of the
Partnership and its businesses have not been materially and adversely affected
as a result of any fire, explosion, accident, casualty, labor trouble, flood,
drought, riot, storm, condemnation or act of God or public force, or otherwise.
5.7 Compliance with FCC and Other Requirements.
5.7.1 The Partnership is permitted under all applicable
Franchises and FCC rules, regulations and orders to distribute the transmissions
(whether television, satellite, radio or otherwise) of video programming or
other information that the Partnership makes available to subscribers of its
CATV systems and to utilize all carrier frequencies generated by the operation
of its CATV systems, and is licensed to operate all the facilities required by
law to be licensed including, without limitation, any business radio and any
cable television relay service system being operated as part of the
Partnership's CATV systems. No written requests have been received by the
Partnership during the three years preceding the date of this Agreement from the
FCC, the United States Copyright Office or any other person or entity
challenging or questioning the right of the Partnership to operate its CATV
systems or any FCC-licensed or registered facility used in conjunction with the
Partnership's operation of its CATV systems. Except for such noncompliance that
would not, individually or in the aggregate, have a material adverse effect on
the Partnership or operation of its CATV systems, the Partnership's operation of
its CATV systems is in compliance with the FCC's rules and regulations and the
provisions of the Communications Act of 1934, as amended. The Partnership has
not violated any laws or any duty or obligation with regard to protecting the
privacy rights of any past or present subscribers of the Partnership's CATV
systems.
5.7.2 The Partnership has conducted all system and microwave
performance tests and all Cumulative Leakage Index ("CLI") related tests
required with respect to its CATV systems. The Partnership has (i) maintained
<PAGE>
appropriate log books and other recordkeeping which accurately reflect in all
material respects all results required to be shown thereon; (ii) to the extent
required by the rules and regulations of the FCC, corrected any radiation
leakage of its CATV systems required to be corrected in connection with the
Partnership's monitoring obligations under the rules and regulations of the FCC
and (iii) otherwise complied with all applicable CLI rules and regulations in
connection with the operation of its CATV systems, except for such noncompliance
that would not, individually or in the aggregate, have a material adverse effect
on the Partnership or operation of its CATV systems.
5.7.3 The Partnership has deposited with the United States
Copyright Office all statements of account and other documents and instruments,
and paid all royalties, supplemental royalties, fees and other sums to the
United States Copyright Office required under the Copyright Act with respect to
the business and operation of its CATV systems as are required to obtain, hold
and maintain the compulsory copyright license for cable television systems
prescribed by Section 111 of the Copyright Act. The Partnership is in compliance
with the Copyright Act and the rules and regulations of the Copyright Office
with respect to operation of its CATV systems except for such noncompliance that
would not, individually or in the aggregate, have a material adverse effect on
the Partnership or operation of its CATV systems. The Partnership is entitled to
hold and does 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 manner.
5.74 All broadcast television signals carried by the
Partnership's CATV systems are carried either pursuant to the must-carry
requirements or pursuant to executed retransmission consent agreements.
5.7.5 The operation of the Partnership's CATV systems has not
and does not violate the Communications Act of 1984, as amended, the Cable
Communications Policy Act of 1984, as amended, or the Cable Television Consumer
Protection and Competition Act of 1992, as amended (collectively, the "Cable
Act"), except for violation(s) which, individually or in the aggregate,
reasonably could not be expected to have a material adverse effect on the
Partnership or its CATV systems. Upon the written request of Buyers, Sellers
will deliver promptly after the date hereof to Buyers complete and correct
copies of all reports and filings for the past three years made or filed
pursuant to the Cable Act, the Communications Act or FCC rules or regulations
with respect to operation of the Partnership's CATV systems, copies of the
Partnership's correspondence with any governmental authority relating to rate
regulation generally or specific rates charged to subscribers of the
Partnership's CATV systems including, without limitation, copies of all
complaints filed with the FCC and any other documentation supporting an
exemption from the rate regulation provisions of the Cable Act. Upon the written
request of Buyers, Sellers will provide to Buyers true and complete copies of
all requests for franchise renewal relating to the Franchises which have been
filed since 1994 with governmental authorities.
5.8 Non-Infringement.
To Sellers' knowledge, the Partnership's operation of its CATV
systems as currently conducted does not infringe upon, or otherwise violate, the
rights of any person or entity in any copyright, trade name, trademark right,
<PAGE>
service mark, service name, patent, patent right, license, trade secret or
franchise, and there is not pending or, to the Sellers' knowledge, threatened
any action with respect to any such infringement or breach.
5.9 Accounts Receivable.
The Partnership is the true and lawful owner of its accounts
receivable and has good title to each account receivable, free and clear of all
liens, charges, pledges, encumbrances or restrictions of any nature, except for
Permitted Liens, with absolute right to transfer any interest therein. Each
account receivable of the Partnership is (i) a valid obligation of the account
debtor enforceable in accordance with its terms and (ii) in all material
respects, a true and correct statement of the account for merchandise actually
sold and delivered to, or for actual services performed and accepted by, such
account debtor.
5.10 Litigation.
Except for litigation and judgments affecting the cable
television industry generally, there is no litigation, at law or in equity, or
any proceedings before any court, commission or other governmental authority or
mediation or arbitration, pending or, to the best knowledge of Sellers,
threatened against the Partnership which (i) could impair materially the ability
of the parties to consummate the transactions contemplated by this Agreement,
(ii) could materially and adversely affect the Partnership, its assets or its
ability to operate its CATV systems or (iii) could result in the termination,
modification, suspension or limitation on the Partnership's material rights or
obligations with respect to the Franchises, licenses held by the Partnership or
material contracts of the Partnership. There is no suit, action or other
proceeding pending before any court or other governmental agency against the
Partnership to enjoin transfer of the Partnership Interests to the Buyers.
5.11 Insurance.
The Partnership has maintained and is maintaining with
financially responsible insurance companies insurance with respect to the
Partnership's employees and assets insuring the Partnership against such
casualties and contingencies and of such types and amounts as are reasonably
adequate for the size and scope of the Partnership's business and as otherwise
required by the contracts and Franchises to which the Partnership is a party.
All self-insurance arrangements by or affecting the Partnership are described on
Schedule 5.11, including any reserves established thereunder. The Partnership
has received no notification from any insurance carrier denying or disputing any
claim made by the Partnership, denying or disputing any coverage for any claim,
denying or disputing the amount of any claim or regarding the possible
cancellation of any policies. The Partnership has not received (i) any notice of
cancellation of any policy, (ii) any notice that any issuer of such policy has
filed for protection under applicable bankruptcy laws or is otherwise in the
process of liquidating or has been liquidated, (iii) any other indication that
such policies are no longer in full force and effect or that the issuer of any
such policy is no longer willing or able to perform its obligations thereunder,
or (iv) any refusal of coverage or any notice that a defense will be afforded
with reservation of rights. All premiums due on such policies have been paid,
and the aggregate amount of all claims under such policies do not exceed policy
limits. The Partnership has given notice to the insurers of all claims that may
be insured thereunder.
<PAGE>
5.12 Partnership Assets.
The Partnership owns or leases all tangible and intangible
rights, properties and assets used in the operations of its business. The
Partnership does not hold fee title to any real property. No other affiliate of
Partnership or its partners owns any assets used in the operations of the
Partnership's business. The Partnership has valid leasehold interests in all
leased real and personal property, and good title to all other Partnership
assets. All material Partnership assets are free and clear of any and all liens,
charges, pledges, encumbrances or restrictions of any nature except for
Permitted Liens and except as provided otherwise in the immediately following
sentence. The Partnership has good and valid title to it limited partnership
interest (the "TMIP Limited Partnership Interest") in Tele-Media Investment
Partnership, L.P., a Delaware limited partnership ("TMIP"), free and clear of
any and all liens, charges, pledges, options, encumbrances or restrictions of
any nature except for (a) Permitted Liens and (b) liens, charges, pledges,
options, encumbrances and restrictions under that certain Amended and Restated
Agreement of Limited Partnership of TMIP dated as of August 21, 1992, as amended
(the "TMIP Partnership Agreement"). Since October 1, 1997, the Partnership has
not been obligated or required pursuant to the terms and conditions of the TMIP
Partnership Agreement to make any additional capital contribution to the capital
of TMIP. Since October 1, 1997, (a) no distributions have been made to the
Partnership in respect of the TMIP Limited Partnership, (b) neither TMIP nor the
Partnership has made payment of any indebtedness, and (c) there have not been
any transactions between the Partnership and any affiliates thereof other than
those which are on an arm's length basis..
5.13 Employee Benefits.
(a) All employment agreements, bonus, deferred compensation,
stock purchase, stock option, pension, profit sharing, retirement, severance,
medical, dental, disability, life insurance, and other employee benefit plans,
funds, programs or arrangements which have been maintained, established or
contributed to by the ERISA Employer (collectively the "Plans"), have been made
available to the Buyer and are listed in Schedule 5.13. For purposes hereof,
ERISA Employer means Sellers and any entity which is a member of a controlled
group within the meaning of Section 414(b), (c), (m) or (o) of the Code.
Schedule 5.13 also identifies each Plan which constitutes (i) an "employee
pension benefit plan" ("Pension Plan") as such term is defined in Section
3(2)(A) of ERISA, (ii) an "employee welfare benefit plan" ("Welfare Plan") as
such term is defined in Section 3(1) of ERISA, or (iii) a "multiemployer plan"
("Multiemployer Plan"), as such term is defined in Section 4001(a)(3) of ERISA.
The ERISA Employer does not and has not participated in any employee benefit
plan maintained by or subscribed to by any other employer.
(b) Each Plan has been administered, including the filing of
IRS Form 5500 Series, summary plan descriptions and other applicable documents,
in accordance with its terms, ERISA, the Code, and all applicable federal and
state laws.
(c) Full payment has been or will be made of all amounts that
the ERISA Employer is required, under applicable law or under any Plan or any
agreement relating to any Plan as to which the ERISA Employer is a party, to
<PAGE>
contribute to each Plan as of the Closing Date. There have been no contributions
to any Plan in any form other than cash. No accumulated funding deficiency (as
defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code), whether
or not waived, exists with respect to any Plan. There will be no change on or
before the Closing Date in the operation of any Plan or documents under which
any such Plan is maintained that will result in an increase in the liabilities
under such Plan.
(d) No assets of any Plan are invested, directly or
indirectly, in any obligation or security of the ERISA Employer or its
affiliates, or in real or personal property of the ERISA Employer or its
affiliates. With respect to any Plan, no insurance contract, annuity contract or
other agreement or arrangement with any financial or other organization would
impose a penalty, discount or other reduction on account of the withdrawal of
assets from such organization or the change in investment of such assets.
(e) Neither the ERISA Employer nor any of its affiliates has
incurred or expects any liability to the Pension Benefit Guaranty Corporation
("PBGC"), except for required premium payments, which payments incurred or
accrued up to and including the Closing Date have been or will be timely paid by
the ERISA Employer. Neither the ERISA Employer nor any of its affiliates has
ceased operations at any facility or withdrawn from any Pension Plan in a manner
which could subject it to liability under Sections 4062, 4063 or 4064 of ERISA,
and there have been no events which might give rise to any liability of the
ERISA Employer or its affiliates to the PBGC under Title IV of ERISA or which
could be anticipated to result in any claims being made against the Buyers by
the PBGC. No Reportable Event (as such term is defined in Section 4043 of ERISA)
has occurred with respect to any Pension Plan. Neither the ERISA Employer nor
any of its affiliates has incurred any withdrawal liability (including any
contingent or secondary withdrawal liability) within the meaning of Section 4201
and 4204, nor avoided withdrawal liability by virtue of compliance with Section
4204, of ERISA with respect to any Multiemployer Plan.
(f) Neither the ERISA Employer, its affiliates nor any other
person has engaged in any transaction with respect to any Plan which would
subject the Partnership or any of its affiliates to a tax, penalty or liability
for prohibited transactions under ERISA or the Code, and no director, officer or
employee of the Partnership or any of its affiliates, to the extent that he is a
fiduciary with respect to any Plan, has breached any of his responsibilities or
obligations imposed upon fiduciaries under Title I of ERISA or which would
result in any claim being made under, by or on behalf of any Plan.
(g) No action has been taken, nor has there been any failure
to take any action, nor is any action or failure to take action anticipated,
that would subject any person (including but not limited to any Plan, any
fiduciary of a Plan, the Partnership and its affiliates) to any liability for
any income, excise or other tax or penalty with respect to the operation of, or
any transactions with, any Plan.
(h) There is no pending, or to the best knowledge of the
Sellers, threatened litigation concerning any Plan, and there have been no
written or oral communications concerning any Plan with the IRS, Department of
Labor or any other federal, state or local government entity.
<PAGE>
5.14 Accuracy of Information.
No representation, statement or information made or furnished
by the Sellers to the Buyers, including those contained in this Agreement and
the various Schedules attached to this Agreement and the other information and
statements referred to in this Agreement and furnished by the Sellers to the
Buyers pursuant to this Agreement, contains or shall contain any untrue
statement of a material fact or omits or shall omit any material fact necessary
to make the information contained in this Agreement and the schedules not
misleading. There is no fact known to the Sellers that has specific application
to the Partnership and that materially adversely affects the assets, business,
prospects, financial condition or results of operations of the Partnership that
has not been set forth in this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF OLYMPUS
OLYMPUS REPRESENTS AND WARRANTS TO SELLERS THAT THE FOLLOWING STATEMENTS
AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF AND WILL
ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS FOLLOWS:
6.1 Organization.
Olympus is a limited partnership duly formed and validly
existing under the laws of the State of Delaware and is duly qualified and in
good standing in those jurisdictions where the conduct of its business or the
nature of its assets makes such qualification necessary. Olympus has full power
and authority to own and lease its properties and to conduct its business as and
where such properties are now owned or leased and such business is now being
conducted. Olympus has full power and authority to acquire and own the National
General Partnership Interest and the 98.9% National Limited Partnership
Interest.
6.2 Authorization of Agreement.
Olympus has taken all necessary partnership action to
authorize and approve this Agreement, the consummation of the transactions
contemplated hereby and the performance by Olympus of all of the terms and
conditions hereof on its part to be performed. The execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby and the
fulfillment and compliance with the terms and conditions hereof do not and will
not: (a) violate any provisions of any judicial or administrative order, award,
judgment or decree applicable to Olympus, or (b) conflict with any of the
provisions of the Limited Partnership Agreement of Olympus, or (c) conflict
with, result in a breach of or constitute a default under any agreement or
instrument to which Olympus is a party or by which it is bound.
This Agreement has been duly authorized, executed and
delivered by Olympus and constitutes a legal, valid and binding obligation of
Olympus.
<PAGE>
6.3 Litigation.
There is no litigation, at law or in equity, or any
proceedings before any commission or other governmental authority, pending or,
to the best knowledge of Olympus, threatened against Olympus which would prevent
or restrict the right or impair the ability of Olympus to consummate the
transactions contemplated by this Agreement. There is no suit or action or other
proceeding pending before any court or other governmental agency against Olympus
to enjoin the consummation of the transaction contemplated hereby.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF OLYMPUS HOLDINGS
OLYMPUS HOLDINGS REPRESENTS AND WARRANTS TO SELLERS THAT THE FOLLOWING
STATEMENTS AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF
AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS FOLLOWS:
7.1 Organization.
Olympus Holdings is a limited liability company duly formed
under the laws of the State of Delaware and is duly qualified and in good
standing in those jurisdictions where the conduct of its business or the nature
of its assets makes such qualification necessary. The sole member of Olympus
Holdings is Olympus. Olympus Holdings has full power and authority to own and
lease its properties and to conduct its business as and where such properties
are now owned or leased and such business is now being conducted. Olympus
Holdings has full power and authority to acquire and own a .1% National Limited
Partnership Interest.
7.2 Authorization of Agreement.
Olympus Holdings has taken all necessary action to authorize
and approve this Agreement, the consummation of the transactions contemplated
hereby and the performance by Olympus Holdings of all of the terms and
conditions hereof on its part to be performed. The execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby and the
fulfillment and compliance with the terms and conditions hereof do not and will
not: (a) violate any provisions of any judicial or administrative order, award,
judgment or decree applicable to Olympus Holdings; or (b) conflict with any of
the provisions of the articles of organization or the operating agreement of
Olympus Holdings; or (c) conflict with, result in a breach of or constitute a
default under any agreement or instrument to which Olympus Holdings is a party
or by which it is bound.
This Agreement has been duly authorized, executed and
delivered by Olympus Holdings and constitutes a legal, valid and binding
obligation of Olympus Holdings.
7.3 Litigation.
<PAGE>
There is no litigation, at law or in equity, or any
proceedings before any commission or other governmental authority, pending or,
to the best knowledge of Olympus Holdings, threatened against Olympus Holdings
which would impair materially the ability of Olympus Holdings to consummate the
transactions contemplated by this Agreement. There is no suit or action or other
proceeding pending before any court or other governmental agency against Olympus
Holdings to enjoin the consummation of the transaction contemplated hereby.
ARTICLE VIII
CONDUCT OF BUSINESS PENDING CLOSING; HSR ACT FILING
8.1 Maintenance of Business.
Sellers covenant and agree with Buyers that from the date
hereof to and including the Closing Date that they shall cause the Partnership
to continue to operate its CATV systems, maintain the assets and properties of
the Partnership and to keep all of its business books, records and files, all in
the ordinary course of business in accordance with past practices consistently
applied. Sellers shall not permit the Partnership to sell, transfer or assign
any assets except in the ordinary course of business and for full and fair
value.
8.2 Consummation of Agreement.
Each of Sellers and Buyers shall use its commercially
reasonable efforts to perform and fulfill all obligations and conditions on its
part to be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be fully carried out.
8.3 HSR Act Filing.
The parties shall cooperate with each other to file a
notification and report form with the Pre-Merger Notification Office of the
Federal Trade Commission and with the Antitrust Division of the Department of
Justice pursuant to the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976,
as amended, and the rules and regulations thereunder (collectively, the "HSR
Act"). The costs of such filing will be paid equally by the Sellers and Buyers.
ARTICLE IX
CONDITIONS TO CLOSING - BUYERS
9.1 Conditions to Obligations of Buyers.
The obligations of Buyers to consummate the purchase of the
Partnership Interests at Closing shall be subject to the satisfaction of the
following conditions precedent, except to the extent waived by Buyers in
writing:
(a) All of the representations and warranties of the Sellers
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date as though such representations and warranties were
<PAGE>
made at and as of such time; each of the Sellers shall have performed and be in
compliance in all material respects with all of the covenants, agreements, terms
and provisions set forth herein on its part to be observed or performed, and no
event which would constitute a breach of the terms of this Agreement on the part
of each such Seller shall have occurred and be continuing at the Closing Date.
(b) Each of Sellers shall have executed and delivered to
Buyers on the Closing Date a Certificate, dated that date, in form and substance
reasonably satisfactory to Buyers to the effect that the conditions set forth in
each of the provisions of Section 9.1(a) of this Agreement have been satisfied
in full.
(c) All documents and other items required to be delivered
hereunder to Buyers at or prior to Closing shall have been delivered or shall be
tendered at the Closing.
(d) On the Closing Date, no suit, action or other proceeding
shall be pending or threatened before any court or other governmental agency
against Sellers or Buyers in which the consummation of the transactions
contemplated by this Agreement are sought to be enjoined.
(e) All notification and report forms required to be filed on
behalf of the parties to this Agreement with the FTC and the DOJ under the HSR
Act and rules thereunder shall have been filed, and the waiting period required
to expire under the HSR Act and rules thereunder, including any extension
thereof, shall have expired or early termination of the waiting period shall
have been granted.
ARTICLE X
CONDITIONS TO CLOSING - SELLERS
10.1 Conditions to Obligations of Sellers.
The obligations of the Sellers to consummate the sale of the
Partnership Interests at Closing shall be subject to the satisfaction of the
following conditions precedent, except to the extent waived by Sellers in
writing:
(a) All of the representations and warranties of Buyers
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date as though such representations and warranties were
made at and as of such time, and each of Buyers shall be in compliance in all
material respects with all of the covenants, agreements, terms and provisions
set forth herein on its part to be observed and performed, and no event which
would constitute a breach of the terms of this Agreement on the part of each
such Buyer shall have occurred and be continuing at the Closing Date.
(b) Each of Buyers shall have executed and delivered to
Sellers on the Closing Date a Certificate, dated that date, in form and
substance reasonably satisfactory to Sellers to the effect that the conditions
set forth in each of the provisions of Section 10.1(a) of this Agreement have
been satisfied in full.
<PAGE>
(c) Buyers shall have delivered the Purchase Price, as
adjusted, to Sellers in accordance with Section 2.1.
(d) On the Closing Date, no suit, action or other proceeding
shall be pending or threatened before any court or other governmental agency
against Sellers or Buyers in which the consummation of the transactions
contemplated by this Agreement are sought to be enjoined.
(e) All notification and report forms required to be filed on
behalf of the parties to this Agreement with the FTC and the DOJ under the HSR
Act and rules thereunder shall have been filed, and the waiting period required
to expire under the HSR Act and rules thereunder, including any extension
thereof, shall have expired or early termination of the waiting period shall
have been granted.
(f) All documents and other items required to be delivered
hereunder to Sellers at or prior to Closing shall have been delivered or shall
be tendered at Closing.
ARTICLE XI
CLOSING
11.1 Actions to be taken by Sellers at Closing.
At Closing, each of the Sellers shall take all actions
required to be taken by it hereunder and Sellers shall deliver to Buyers (a) all
of the approvals and consents required hereunder of all necessary parties and
governmental authorities for the transfer and sale of the Partnership Interests
and the consummation of the transactions contemplated hereunder, and (b) such
other documents and certificates as required to be delivered hereunder
including, but not limited to, an Assignment of Partnership Interest in the form
of Exhibit A.
11.2 Actions to be taken by Buyers at Closing.
At Closing, each of the Buyers shall take all actions required
to be taken by it hereunder and each of Buyers shall deliver, or cause to be
delivered, to Sellers all such documents and certificates as are required to be
delivered hereunder.
ARTICLE XII
SURVIVAL AND INDEMNIFICATION
12.1 Survival of Representations and Warranties.
<PAGE>
All representations, warranties, covenants, indemnities and
agreements contained herein shall survive the consummation of the transactions
provided for in this Agreement; provided that the representations and warranties
contained in this Agreement shall expire and be extinguished one year after the
Closing Date except for representations and warranties relating to (i) title and
ownership, which shall survive forever, (ii) environmental matters, which shall
survive for three years, (iii) financial statement matters which shall survive
for two years and (iv) tax matters, which shall survive until the expiration of
the statute of limitations with respect to liabilities related thereto.
12.2 Indemnification.
(a) Sellers, jointly and severally shall indemnify and hold
Buyers, and each of them, harmless from and against, on a net after Tax basis,
any and all claims, liabilities, damages, losses, deficiencies, suits,
proceedings, mediations, arbitrations, judgments, deficiencies, assessments,
investigations and expenses including, without limitation, reasonable attorneys'
fees and expenses and costs of suit whether suit is instituted or not and, if
instituted, whether at any trial or appellate level, and whether raised by the
parties hereto or a third party, incurred or suffered by the Buyers or any of
them (individually, a "Loss" and collectively, "Losses") arising from, in
connection with or as a result of (i) any inaccurate representations and
warranties made by the Sellers or any of them, (ii) any and all breaches of
covenants and agreements made by or on behalf of the Sellers or any of them in
this Agreement and (iii) regardless of whether it may also constitute a breach
or violation under Section 12.2(a)(i) or (ii), the operation, management or
ownership of the Partnership, arising out of or related to the period on or
prior to the Closing Date except for any obligations and liabilities taken into
account under Section 2.3 hereof and for obligations arising out of the business
activities of the Partnership subsequent to the Closing Date; provided that in
connection with the indemnification provided for in this Section, Sellers shall
not be obligated to indemnify Buyers for Losses subject to indemnification
thereunder once the total amount of Losses for which Sellers have provided
indemnification under this Section equals the Purchase Price ("Sellers' Cap").
Notwithstanding the foregoing of this Section, Buyers shall not be entitled to
be indemnified by Sellers for any Losses under this Section arising out of any
single claim or aggregate claims until the total amount of all such Losses
suffered or paid by Buyers exceeds $500,000 ("Sellers' Basket"). Buyers shall
then be entitled to be indemnified under this Section for all such Losses,
including those Losses in the Sellers' Basket.
(b) Buyers, jointly and severally shall indemnify and hold
Sellers, and each of them, harmless from and against, on a net after Tax basis,
any and all Losses arising from, in connection with or as a result of (i) any
inaccurate representations made by the Buyers or any of them, and (ii) any and
all breaches of covenants and agreements made by or on behalf of the Buyers or
any of them in this Agreement; provided that Buyers shall not be obligated to
indemnify Sellers for Losses subject to indemnification hereunder until the
total amount of Losses for which Buyers are to provide indemnification hereunder
equals $500,000 ("Buyers' Basket") and then Sellers shall be entitled to be
indemnified under this Section for all such Losses, including those Losses in
the Buyers' Basket..
12.3 Indemnification with Respect to Third-Party Claims.
<PAGE>
(a) Definition. As used herein, a "Third-Party Claim" means a
Loss or potential Loss for which indemnification is claimed by any of Buyers or
Sellers (the "Indemnitee") under the provisions of this Article XII and which is
consequent to a claim against the Indemnitee by a person, corporation,
association, partnership or other business organization, or an individual, or a
government, any political subdivision thereof or a governmental agency by
commencement against the Indemnitee of a legal action, proceeding or
investigation, or receipt by the Indemnitee of an assertion of a claim for which
indemnification may be appropriate pursuant to this Article XII by Buyers,
Sellers, or any of them as the case may be (the "Indemnitor").
(b) Notice of Claim. The Indemnitee will give notice of a
Third-Party Claim to the Indemnitor, stating the nature thereof and enclosing
copies of any complaints, summons, written assertion of such Third-Party Claim
or similar document. No claim for indemnification on account of a Third-Party
Claim shall be made and no indemnification therefor shall be available under
this Article XII until the Indemnitee shall have given initial written notice of
its claim to the Indemnitor.
(c) Retention of Counsel by the Indemnitor. Except as
hereinafter provided, the Indemnitor shall engage counsel to defend a
Third-Party Claim, and shall provide notice to the Indemnitee not later than 15
business days following delivery by the Indemnitee to the Indemnitor of a notice
of a Third-Party Claim, such notice to include an acknowledgment by the
Indemnitor that it will be liable in full to the Indemnitee for any Losses in
connection with such Third-Party Claim. The Indemnitee will reasonably cooperate
with such counsel at the sole cost and expense of Indemnitor. The Indemnitor
will cause such counsel to consult with the Indemnitee as appropriate as to the
defense of such claim, and the Indemnitee may, at its own expenses, participate
in such defense, assistance or enforcement, but the Indemnitor shall control
such defense, assistance or enforcement. The Indemnitor will cause such counsel
engaged by the Indemnitor to keep the Indemnitee informed at all times of the
status of such defense, assistance or enforcement.
(d) Employment of Counsel by the Indemnitee.
(i) Notwithstanding the provision of
Section 12.3(c), the Indemnitee shall have the right
at the sole cost and expense of Indemnitor to engage
counsel and to control the defense of a Third-Party
Claim if the Indemnitor shall not have notified the
Indemnitee of its appointment of counsel and control
of the defense of a Third-Party Claim pursuant to
Section 12.3(c) within the time period therein
provided.
(ii) Notwithstanding the engagement of
counsel by the Indemnitor, the Indemnitee shall have
the right, at its own expense, to engage counsel to
participate jointly with the Indemnitor in, and to
control jointly with the Indemnitor, the defenses of
a Third-Party Claim if (A) the Third-Party Claim
involves remedies other than monetary damages and
such remedies, in the Indemnitee's reasonable
judgment, could have an effect on the conduct of the
Indemnitee's business, or (B) the Third-Party Claim
<PAGE>
relates to acts, omissions, conditions, events or
other matters occurring after the Closing Date as
well as to acts, omissions, conditions, events or
other matters occurring prior to the Closing Date, or
(C) the Third Party Claim involves monetary damages
which could exceed Sellers' Cap or (D) if in any such
Third-Party Claim, the named parties to any such
proceeding (including any impleaded parties) include
both the Indemnitee and the Indemnitor or if the
Indemnitor proposes that the same counsel represent
both the Indemnitor and the Indemnitee and
representation of both parties by the same counsel
would be inappropriate due to actual or potential
differing interests between them.
(iii) If the Indemnitee chooses to
exercise its right to appoint counsel under this
Section 12.3(d), the Indemnitee shall deliver notice
thereof to the Indemnitor setting forth in reasonable
detail why it believes that it has such right and the
name of the counsel it proposes to employ. The
Indemnitee may deliver such notice at any time that
the conditions to the exercise of such right appear
to be fulfilled, it being recognized that in the
course of litigation, the scope of litigation and the
amount at stake may change. The Indemnitee shall
thereupon have the right to appoint such counsel.
(iv) The reasonable fees and expenses of
counsel and any accountants, experts or consultants
engaged by the Indemnitee in accordance with Section
12.3(d)(i) in connection with defending a Third-Party
Claim shall be paid by the Indemnitor in accordance
with the provisions of this Article XII. If the
Indemnitee's employment of counsel is for a
Third-Party Claim of the type described in
subdivision (ii)(B) or (ii)(C) of this Section
12.3(d), then subject to the provisions of Section
12.3(e), the amount of fees and expenses so payable
by the Indemnitor shall be that fraction of the
aggregate of such fees and expenses, the numerator of
which is the portion of the amount of any judgment
on, or settlement of, such Third-Party Claim for
which the Indemnitee is indemnified pursuant to this
Article XII and the denominator of which is the total
amount of such judgment or settlement, but provided
further, if such defense of a Third-Party Claim is
successful (in the sense that as a consequence
thereof, there is no Loss (other than such fees and
expenses) for which the Indemnitee is indemnified
pursuant to this Article XII), the Indemnitee and the
Indemnitor will attempt in good faith to reach an
agreement on the amount of such fees and expenses so
payable by the Indemnitor.
(e) Settlement of Third-Party Claims.
(i) The Indemnitor may settle any
Third-Party Claim solely involving monetary damages
only if (A) the amount of such settlement is to be
paid entirely by the Indemnitor pursuant to this
Article XII and (B) Indemnitee is fully released from
the Third-Party Claim.
<PAGE>
(ii) The Indemnitor will not enter into
a settlement of a Third-Party Claim which involved a
non-monetary remedy or which will not be paid
entirely by the Indemnitor pursuant to this Article
XII without the written consent of the Indemnitee
(which consent shall not be unreasonably withheld,
delayed or conditioned).
(iii) As to any Third-Party Claim of the
type described in subsection (ii)(B) or subsection
(ii)(C) of Section 12.3(d), the Indemnitee and the
Indemnitor shall consult as to any proposed
settlement. If the Indemnitee notifies the Indemnitor
that it wishes to accept a proposed settlement and
the Indemnitor is unwilling to do so, if the amount
for which the Third-Party Claim is ultimately
resolved is greater than the amount of which the
Indemnitee desired to settle, then (A) the Indemnitee
shall be liable only for the amount, if any, which it
would have paid had the Third-Party Claim been
settled as proposed by the Indemnitee, and (B) all
reasonable attorneys' fees and expenses and costs of
suit incurred by the Indemnitee subsequent to the
time of the proposed settlement shall be paid or
reimbursed by the Indemnitor.
(iv) In determining whether to accept or
reject any settlement proposal, each party shall act
in good faith and with due regard for the reasonable
commercial and financial interests of the other.
(f) Claims as to Which Indemnification is Partially Payable.
Notwithstanding the foregoing, in the event of any settlement of, or final
judgment with respect to, a Third-Party Claim which relates to acts, omissions,
conditions, events or other matters occurring both before and after the Closing
Date, the Indemnitee and the Indemnitor shall negotiate in good faith as to the
portion of such Third-Party Claim as to which such indemnification is payable.
(g) Cooperation, etc. The Indemnitee and the Indemnitor shall
reasonably cooperate with one another in good faith in connection with the
defense, compromise or settlement of any claim or action. Without limiting the
generality of the foregoing, the party controlling the defense or settlement of
any matter shall take steps reasonably designed to ensure that the other party
and its counsel are informed at all times of the status of such matter. Neither
party shall dispose of, compromise or settle any claim or action in a manner
that is not reasonable under the circumstances and in good faith. The Indemnitor
and Indemnitee shall enter into such confidentiality and other non-disclosure
agreements as the Indemnitee or Indemnitor, as the case may be, shall reasonably
request in order to protect trade secrets and other confidential or proprietary
information of the Indemnitee or Indemnitor, as the case may be.
ARTICLE XIII
TERMINATION
<PAGE>
13.1 Termination by Mutual Agreement.
This Agreement may be terminated prior to Closing by mutual
written agreement of Sellers and Buyers. In such event, this Agreement shall
terminate and neither Buyers nor Sellers shall have any further obligation or
liability to the other hereunder, except that Sections 16.5 and 16.6 of the
Agreement shall survive and continue in full force and effect notwithstanding
such termination.
13.2 Buyers' Default.
In the event that the transactions contemplated by this
Agreement are not consummated on the Closing Date (if and as extended) due to
Buyers' failure or refusal to close, and all of the conditions specified in
Article IX shall have been satisfied, this Agreement shall be automatically
terminated.
13.3 Sellers' Default.
In the event that the transactions contemplated by this
Agreement are not consummated on the Closing Date (if and as extended) due to
Sellers' failure or refusal to close and all of the conditions specified in
Article X shall have been satisfied, Buyers shall be entitled to pursue any and
all of its equitable and legal causes of action against Sellers.
13.4 Termination by Buyer or Seller.
This Agreement may be terminated by Buyer or Seller at any
time after September 30, 1998 (the "Termination Date") in the event that any
condition set forth in Articles IX or X hereof has not been satisfied or
tendered by the party owing performance or waived by the party for whose benefit
the condition is intended, and upon such termination, and unless due to a
default under Section 13.3, neither Buyers nor Sellers shall have any further
obligation or liability to the other hereunder, except that Sections 16.5 and
16.6 of this Agreement shall survive and continue in full force and effect
notwithstanding such termination.
ARTICLE XIV
NOTICES
14.1 Addresses for Notice.
All notices and other communications hereunder shall be in
writing and deemed to have been duly given if: (a) mailed, first class,
registered or certified mail, return receipt requested, postage prepaid; (b)
delivered by courier or overnight courier providing written evidence of receipt
for hand delivery; or (c) transmitted via telecopy:
To Buyers:
<PAGE>
Olympus Communications, L.P.
Main at Water Street
Coudersport, PA 16915
Attention:
Facsimile:
With copies to:
Mr. Leslie J. Gelber
Cable GP, Inc.
11760 U.S. Highway One
Suite 600
North Palm Beach, Florida 33408
Facsimile: 561-691-3615
and
Abigail C. Watts-Fitzgerald, P.A.
Steel Hector & Davis LLP
200 S. Biscayne Boulevard, Suite 4000
Miami, Florida 33131-2398
Facsimile: 305-577-7001
To Sellers:
Hilton Head Communications, L.P.
Main at Water
Coudersport, PA 16915
Attention: President
Facsimile: (814) 274-6586
With copies to:
Colin Higgin, Esquire
Adelphia Communications Corporation
Main at Water
Coudersport, PA 16915
Facsimile: 814-274-6586
and
Bruce I. Booken, Esquire
Buchanan Ingersoll Professional Corporation
301 Grant Street, 20th Floor
Pittsburgh, PA 15219
Facsimile: 412-562-1041
<PAGE>
14.2 Effectiveness of Notice.
Notice shall be deemed received the same day (when delivered
personally), three (3) days after mailing (when sent by registered or certified
mail), and the next business day (when sent by facsimile transmission or when
delivered by overnight courier. Any party to this Agreement may change the
address of the party to which all communications and notices may be sent
hereunder by addressing notices of such change in the manner provided.
ARTICLE XV
LAWS GOVERNING; VENUE
The construction and interpretation of this Agreement and the
rights of the parties shall be governed by the laws of the State of Florida,,
without regard to its conflicts of laws provisions. The parties hereby
irrevocably agree to submit all suits, actions and proceedings arising out of or
relating to this Agreement or any transactions contemplated hereby to the
exclusive jurisdiction of the United States District Court for the Southern
District of Florida or if jurisdiction is not available therein the jurisdiction
of any state court in Palm Beach County, State of Florida, and waive any and all
objections to such jurisdiction or venue that they may have under the laws of
any state or country including, without limitation, any argument that
jurisdiction, situs and/or venue are inconvenient or otherwise improper. Each
party further agrees that process may be served upon such party in any manner
authorized under the laws of the United States or Florida, and waives any
objections that such party may otherwise have to such process.
ARTICLE XVI
MISCELLANEOUS
16.1 Counterparts.
This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one instrument. Delivery of
executed signature pages hereof by facsimile transmission shall constitute
effective and binding execution and delivery thereof.
16.2 Assignment.
This Agreement may not be assigned by any party hereto without
the prior written consent of the other parties.
<PAGE>
16.3 Entire Agreement.
This Agreement is an integrated document, contains the entire
agreement between the parties, wholly cancels, terminates and supersedes any and
all previous and/or contemporaneous oral agreements, negotiations, commitments
and writings between the parties hereto with respect to its subject matter. No
change, modification, extension, termination, notice of termination, discharge,
abandonment or waiver of this Agreement or any of the provisions hereof, nor any
representation, promise or condition relating to this Agreement, shall be
binding upon the parties hereto unless made in writing and signed by the parties
hereto. All references to this Agreement shall include the Schedules and
Exhibits.
16.4 Captions.
The captions of Sections hereof are for convenience only and
shall not control or affect the meaning or construction of any of the provisions
of this Agreement.
16.5 Expenses.
Except as otherwise expressly provided herein, each party
hereto will pay all costs and expenses, including any and all legal and
accounting fees, of its performance and compliance with all agreements and
conditions contained herein on its part to be performed or complied with.
Sellers, on one hand, and Buyers, on the other hand, shall each pay one-half of
all filing fees payable under the HSR Act.
16.6 Confidentiality.
After the Closing, the Sellers hereby agree to hold in strict
confidence all business and other information relating to the Partnership and
its businesses and, except as otherwise required by law or as to information
which becomes publicly available, not to disclose or otherwise reveal any such
confidential information to any other person or entity without in each instance
the prior written consent of the Buyers.
16.7 Further Assurances.
The parties agree to execute, acknowledge, deliver and file,
or cause to be executed, acknowledged, delivered and filed, all further
instruments, agreements or documents as may be necessary to consummate the
transactions provided for in this Agreement and to do all further acts necessary
to carry out the purpose and intent of this Agreement.
16.8 No Waiver.
No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with the waiver or estoppel. No written waiver shall be deemed a continuing
waiver unless specifically stated therein, and each waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
the term or condition for the future or as to any act other than that
<PAGE>
specifically waived. The waiver by any party of any other party's breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach, and the failure of any party to exercise any right or remedy
shall not operate or be construed as a waiver or bar to the exercise of such
right or remedy upon the occurrence of any subsequent breach. No delay on the
part of a party in exercising a right, power or privilege hereunder shall
operate as a waiver thereof. No waiver on the part of a party of a right, power
or privilege, or a single or partial exercise of a right, power or privilege,
shall preclude further exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies of this Agreement are cumulative and
are not exclusive of the rights or remedies that a party may otherwise have at
law or in equity.
16.9 Severability.
If any one or more of the provisions of this Agreement is held
invalid, illegal or unenforceable, the remaining provisions of this Agreement
shall be unimpaired, and the invalid, illegal or unenforceable provision shall
be replaced by a mutually acceptable valid, legal and enforceable provision
which comes closest to the intent of the parties.
16.10 Binding Effect.
This Agreement shall be for the benefit of, and shall be
binding upon, the parties and their respective heirs, personal representatives,
executors, legal representatives, successors and permitted assigns.
16.11 WAIVER OF JURY TRIAL.
IF LITIGATION IS BROUGHT TO ENFORCE THIS AGREEMENT, THE
PARTIES KNOWINGLY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM HAS TO A TRIAL
BY JURY. THE PARTIES AGREE THIS PROVISION IS A MATERIAL INDUCEMENT TO THE
PARTIES' ENTERING INTO THIS AGREEMENT.
[Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the day and year first above written.
NCAA HOLDINGS, INC.
By: /s/ Michael J. Rigas
HILTON HEAD COMMUNICATIONS, L.P.
By: NCAA Holdings, Inc., General Partner
By: /s/ Michael J. Rigas
OLYMPUS COMMUNICATIONS, L.P.
By: ACP Holdings, Inc., Managing General Partner
By: /s/ Michael J. Rigas
OLYMPUS COMMUNICATIONS HOLDINGS, L.L.C.
By: Olympus Communications, L.P., its sole member
By: ACP Holdings, Inc.,Managing General Partner
By: /s/ Michael J. Rigas
