SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9676
CENTURY COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
New Jersey 06-1158179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Locust Avenue
New Canaan, Connecticut 06840
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 972-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
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 o.
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
As of August 16, 1996, there were 29,014,414 shares of Class A Common
Stock outstanding and 45,101,115 shares of Class B Common Stock
outstanding. The aggregate market value of the Class A Common Stock
held by non-affiliates of the Company, based upon the last reported
sale price of the Class A Common Stock on The Nasdaq Stock Market on
August 16, 1996 of $8.50 per share, was $239,274,626.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's Proxy Statement to be filed
with the Commission pursuant to Rule 14a-6 under the Securities
Exchange Act of 1934 in connection with the Company's 1996 Annual
Meeting of Shareholders are incorporated by reference in Part III,
Items 10-13 of this Annual Report on Form 10-K.
PART 1
ITEM 1. BUSINESS.
GENERAL
The Company was incorporated in New Jersey on December 5, 1985 as
the holding company for a corporation of the same name incorporated in
Texas on June 12, 1973 ("Century-Texas"). As used in this Annual
Report on Form 10-K, the term "Company" includes Century
Communications Corp., a New Jersey corporation, and its subsidiaries.
The Company is engaged in the ownership and operation of cable
television systems, wireless telephone systems and radio stations and
the operation of a cable television news programming service.
The Company owns and operates 70 cable television systems in 25
states and Puerto Rico. At May 31, 1996, the Company's cable systems
passed approximately 2,060,000 homes and served a total of
approximately 1,250,000 primary basic subscribers.
The Company is engaged in the wireless telephone business through
its subsidiary, Centennial Cellular Corp. ("Centennial Cellular" or
"Centennial"), in which the Company has a 31.8% common equity interest
(28.9% on a diluted basis). Centennial is engaged in the ownership
and operation of wireless telephone systems, primarily in four
geographic areas in the United States and Puerto Rico. Centennial's
current wireless interests represent markets which cover a population
of approximately 10.0 million. Approximately 6.4 million of this
population is represented by Centennial's current domestic cellular
telephone interests. The balance of approximately 3.6 million in
population represents Centennial's interest in a recently acquired
personal communications services ("PCS") license covering the
Commonwealth of Puerto Rico and the U.S. Virgin Islands. See
"Business - Wireless Communications."
The Company has acquired interests in complementary businesses in
the developing pay television industry in Australia. The interests
include investments in entities which have the following: (i)
ownership of one of three satellite subscription broadcast licenses
granted by the government of Australia which permits distribution of
programming via direct-to-home satellite television broadcasting
throughout Australia; (ii) ownership of wireless cable distribution
licenses for the retail distribution, primarily through multichannel
multipoint distribution systems (MDS), of pay television services in
areas covering approximately 755,000 households, in most of Coastal
New South Wales and in Tasmania; (iii) a participation in and the
contractual right to maintain, at the Company's option, up to a 25%
interest in the net cash flow of another Australian pay television
operator, covering more than 3.5 million households; and (iv)
ownership of a 25% interest in a joint venture to develop and own
programming which will be distributed through a variety of
technologies, including owned and third party distribution facilities.
See "Business - Australian Pay Television."
For certain industry segment information regarding the Company's
cable television, Australian pay television and wireless telephone
businesses, see Note 16 of Notes to Consolidated Financial Statements.
CABLE TELEVISION
Cable television is a service that delivers a variety of channels
of television programming, primarily video entertainment and news, as
well as information, original programming and FM radio signals, to
subscribers who pay a monthly fee for the service.
The primary level of cable television service is commonly
referred to as "basic service" and must be taken by all subscribers.
The content of basic service varies widely from franchise to franchise
but, pursuant to the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"), must now include
local television signals and public, governmental and educational
access channels, and may also include certain satellite delivered
cable programming channels. One or more expanded tiers of service may
also be offered to subscribers. These expanded tiers of service
usually include additional satellite delivered cable programming
channels and are available for additional monthly fees. Basic service
and expanded cable programming tiers are subject to the rate
regulation provisions of the 1992 Cable Act. However, cable
programming tiers consisting of channels new to a system are not rate
regulated. Further, the Telecommunications Act of 1996 eliminates the
cable programming service tier rate regulations as of March 31, 1999.
See "Business - Regulation and Legislation - Cable Television -
Federal Regulation - Rate Regulation."
Most cable television systems also offer premium services, such
as Home Box Office, Showtime, The Movie Channel, Cinemax and The
Disney Channel, on a per channel basis for an extra monthly fee and
may also offer sporting events, concerts and other entertainment
programming as a premium service on a per program basis. Satellite
delivered cable programming channels may also be offered as a premium
service on a per channel basis or as part of a package of premium
services. Per channel and per program services are not subject to the
rate regulation provisions of the 1992 Cable Act. See "Business -
Regulation and Legislation -Cable Television - Federal Regulation -
Rate Regulation."
Development of Cable Television Systems
The following table indicates the growth of the Company's cable
television systems since May 31, 1992:
<TABLE>
May 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Homes passed by cable 2,060,000 1,790,000 1,675,000 1,650,900 1,650,000
Primary basic
subscribers 1,250,000 1,100,000 945,000 934,000 907,000
Primary basic subscribers
as a percentage of
homes passed 60.7% 61.4% 56.4% 56.6% 55.0%
</TABLE>
The growth in the number of subscribers that the Company
experienced during the fiscal year ended May 31, 1996 is primarily
attributable to the acquisition of cable television systems. In
addition, the expansion of existing cable television systems and
increased subscriber acquisition through marketing and sales efforts
by the Company contributed to the increase. The decline in percentage
penetration is primarily due to the acquisition of cable television
systems during fiscal 1996 which, on average, had lower penetration
(approximately 59.5%) than the Company's then existing cable systems.
Management's estimate of homes passed in franchise areas is based
on local sources believed to be reliable, such as city directories,
chambers of commerce, public utilities, estimates of public officials
and, where available, actual house counts.
The Cable Television Systems
On May 31, 1996, the Company acquired from ML Media Partners,
L.P. ("MLMP") cable television systems serving Anaheim, Hermosa
Beach/Manhattan Beach, Fairfield and Rohnert Park/Yountville,
California (collectively, the "Systems") for an aggregate purchase
price of approximately $287 million (subject to post-closing
adjustment) in cash. The purchase price was determined by arm's-
length negotiations between the parties and was funded by available
bank lines of credit. At May 31, 1996, such systems served an
aggregate of approximately 135,000 primary basic subscribers. The
Company and MLMP, through their respective subsidiaries, jointly own
(50% each) a joint venture that operates cable television systems in
Puerto Rico.
At May 31, 1996, all of the Company's cable television systems
were wholly-owned by the Company except for the systems serving
Brunswick, Georgia, Owensboro, Kentucky, Wauwatosa, Wisconsin,
Glendora, Chino and Chino Hills, California and greater San Juan,
Puerto Rico, all of which are owned 50% by the Company. At May 31,
1996, the systems serving Brunswick, Georgia, Owensboro, Kentucky and
Wauwatosa, Wisconsin served an aggregate of approximately 100,000
primary basic subscribers and the systems serving Glendora, Chino and
Chino Hills, California served an aggregate of approximately 49,000
primary basic subscribers, while the system serving greater San Juan,
Puerto Rico served approximately 119,000 primary basic subscribers.
On August 16, 1996, the Company entered into agreements to
purchase (i) the assets related to the cable televisions systems
serving Oxnard and Walnut Valley, California for an aggregate purchase
price of approximately $104 million (subject to adjustment), payable
in cash, and (ii) the assets related to the cable television system
serving Yorba Linda, California for a purchase price of approximately
$36 million (subject to adjustment), payable in cash. At May 31,
1996, the Oxnard and Walnut Valley cable television systems served
40,764 and 18,763 equivalent basic subscribers, respectively, and at
July 31, 1996, the Yorba Linda cable television system served 16,885
equivalent basic subscribers. The Company's obligation to consummate
these transactions under the agreements is subject to the satisfaction
of various closing conditions, including approval from the Federal
Communications Commission ("FCC") and other regulatory approvals.
There can be no assurance that the closing conditions will be
satisfied. The Company anticipates completing these acquisitions
during the fourth quarter of the fiscal year ended May 31, 1997.
On December 1, 1995, the Company and Citizens Utilities Company
("Citizens Utilities" or "Citizens") acquired the cable television
systems serving the cities of Chino and Chino Hills, California and
certain unincorporated areas of Orange, Riverside and San Bernardino
counties in California for approximately $40,500,000, subject to
adjustment. The Company and Citizens Utilities each hold a 50%
interest in these cable television systems. At May 31, 1996, such
cable systems served approximately 21,000 primary basic subscribers.
Together with a previously acquired system serving Glendora,
California, this joint venture owns cable systems which served at May
31, 1996 approximately 49,000 primary basic subscribers.
On March 1, 1995, the Company acquired cable television systems
located in California, Colorado, Idaho, Montana and Washington for an
aggregate purchase price of $99,805,000, subject to adjustment,
payable by $55,930,000 in cash and the balance in approximately
3,581,632 registered shares of Class A Common Stock of the Company
(valued at $12.25 per share, subject to post-closing adjustment based
on the price performance of the Class A Common Stock). At May 31,
1996, such cable television systems served an aggregate of
approximately 48,000 primary basic subscribers.
Subscriber Services and Rates
Like other cable television operators, the Company offers to its
subscribers multiple channels of television programming, primarily
video entertainment and news, as well as information, Company-produced
programming and FM radio programming. Services vary from system to
system because of differences in channel capacity, regulatory
requirements and viewer interest.
The Company's cable television revenues are derived principally
from monthly subscription fees for cable television service. Rates to
subscribers vary from market to market and in accordance with the type
of service selected. Effective September 1, 1993, the Company revised
its rate structure and the packaging of programming services it offers
to subscribers. In virtually all of the Company's cable television
systems, basic service was expanded to include many satellite
delivered cable programming channels previously offered on expanded
tiers of service, while certain selected satellite delivered cable
programming channels are offered on a per channel basis and as part of
a package of services. Further adjustments to the Company's rates
were made pursuant to the FCC's November 10, 1994 revision to its rate
formula. A number of franchising authorities have become certified to
regulate the basic service rates charged by Company systems. Some of
these franchising authorities have issued decisions ordering the
Company to reduce its rates and to refund past overcharges to
subscribers. The Company has appealed several of these decisions to
the FCC.
On August 23, 1996, the FCC released an order seeking comments on
a proposed resolution of pending basic and cable programming service
tier rate complaints in several Los Angeles, California cable systems
served by the Company. The proposed resolution also calls for the FCC
to reconsider the Letter of Inquiry Ruling adopted by the FCC with
respect to the Company's Los Angeles and Beverly Hills systems in
December of 1994. If finally adopted by the FCC, the proposed
resolution would require the Company to adjust its rates for its basic
and cable programming service tiers in the subject systems and,
additionally, make a refund of approximately $1,900,000 to
subscribers. Under the terms of the proposed resolution, local
franchising authorities could "opt out" of specified refunds and
decide basic service tier refunds and rates based on the terms of the
Letter of Inquiry Ruling as reconsidered. For recent developments in
cable programming service tier rate regulations, see "Business -
Regulation and Legislation - Cable Television - Federal Regulation -
Rate Reduction."
As noted above, on September 1, 1993, the Company, as part of its
rate adjustments, implemented a plan whereby subscribers are given the
choice of buying certain satellite delivered programming services
individually on a per channel basis or as part of a package of premium
services at a discounted price. The FCC, in its reconsideration of
the original rate regulations, stated that it was going to review the
validity of such a la carte service offerings, and it empowered
franchising authorities to do the same. A la carte packages which are
determined to be evasions of rate regulation rather than true
enhancements of subscriber choice will be treated as regulated tiers,
and cable operators engaging in such practices may be subject to
further rate adjustments and refund orders. As part of the November
10, 1994 revisions to its rate regulations, the FCC decided that
discounted packages of non-premium a la carte services will be subject
to rate regulation in the future. However, in applying this new
policy to a la carte packages such as those already offered by the
Company and numerous other cable operators, the FCC decided that where
only a few services were moved from regulated tiers to the a la carte
package, the package will be treated as if it were a tier of new
program services and thus not subject to rate regulation.
Approximately 84% of the Company's primary basic subscribers have a la
carte offerings which conform to this structure, and thus are not
subject to rate regulation. Approximately 16% of the Company's
primary basic subscribers have expanded a la carte service offerings,
which are subject to the rate settlement described above.
In addition to monthly subscription fees, other potential sources
of revenue for cable operators are the sale of advertising time on
locally originated and satellite delivered programming and revenues
from services which offer merchandise for sale to subscribers. Such
services compensate cable television systems based upon a percentage
of their sales revenue. None of such potential sources of revenue are
subject to rate regulation.
Most of the Company's systems have a capacity of at least 35
channels and all are fully built, except for upgrading, rebuilding and
extension of certain systems and continuing construction of cable
plant in certain systems to accommodate growth within the Company's
franchise areas. As of May 31, 1996, all or certain portions of 40 of
the Company's systems, serving an aggregate of approximately 1,000,000
primary basic subscribers, were equipped with addressable decoding
converters, which permit the Company to adjust service received by a
subscriber without making a service call and serve as a computerized
method of controlling the signals decoded and received by subscribers.
Such converters also enable the Company to sell optional pay-per-view
programming.
Franchises
The Company's cable television systems operate pursuant to
non-exclusive franchises issued by governmental authorities. In many
cases, a system passes homes in more than one governmental subdivision
and, occasionally, more than one state. Under the terms of most of
the Company's franchises, a franchise fee (ranging up to 5% of
revenues of the cable system) is payable to the governmental
authority. See "Business_Regulation and Legislation_Cable
Television_Federal Regulation." As of May 31, 1996, the Company held
365 franchises with unexpired terms ranging from under one year to
over fifteen years. These franchises typically contain many
conditions, such as standards of service, including number of channels
and provision of free service to schools and certain other public
institutions, time requirements on commencement and completion of
construction, and the maintenance of insurance and indemnity bonds.
State and local franchises are in certain respects subject to the
requirements of federal regulation under the Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the 1992 Cable Act and the
Telecommunications Act of 1996. See "Business - Regulation and
Legislation - Cable Television - Federal Regulation."
Most of the Company's franchises can be terminated prior to their
stated expiration by the franchising authority, after due process, for
breach of material provisions of the franchise. All franchises are
subject to renewal. To date, the Company's franchises have generally
been renewed or extended at or effective upon their stated
expirations, generally on modified but not unduly burdensome terms,
although as a condition to the renewal of a franchise, some
franchising authorities have required improved facilities, increased
channel capacity or enhanced services.
The franchise for the City of Santa Monica, California, serving
approximately 22,500 primary basic subscribers as of May 31, 1996, was
terminated by the City of Santa Monica effective December 13, 1987,
due to alleged violations of the local ordinance with respect to the
transfer of the franchise to the Company prior to approval from the
local authority. The relevant local authority has not yet enforced
this termination and the Company continues to operate this system.
The Company and the relevant local authority have agreed that neither
party has waived its legal rights as a result of the local authority's
failure to enforce the termination of the franchise. The parties are
currently negotiating the terms of a new franchise agreement and the
Company anticipates concluding an acceptable franchise agreement with
the local authority. If, however, such an agreement is not concluded
and the local authority seeks to enforce the termination, the Company
intends to oppose vigorously such action and termination in an
appropriate forum based upon its rights under applicable law.
Programming Suppliers
The Company provides cable network programming to its subscribers
pursuant to contracts with program suppliers. The Company generally
pays program suppliers a monthly fee per subscriber. The costs to the
Company to provide cable programming have increased in recent years
and are expected to continue to increase as a result of additional
programming being provided to subscribers, increased consumer
identification with certain program suppliers permitting such
suppliers to charge increased fees, inflationary increases and other
factors. Pursuant to certain provisions of the 1992 Cable Act,
commencing in October 1993, the Company can be required to pay fees or
other consideration to broadcast stations for permission to retransmit
over the air broadcast signals for which the Company had previously
not been charged a fee. See "Business - Regulation and Legislation -
Cable Television - Federal Regulation - Carriage of Broadcast
Television Signals."
Competition
Cable television systems generally compete for viewer attention
with the direct reception of broadcast television signals by the
viewer's own antenna. The extent of such competition is dependent
upon the number and quality of signals available and the alternative
services offered by the cable system. A cable system also competes to
varying degrees with other communications and entertainment media,
including movies, theater and VCRs, and other leisure time activities.
Other technologies supply services that compete with certain
services provided by cable television. These technologies include
direct broadcast satellite to home transmission (DBS) (whereby signals
are transmitted by satellite to receiving facilities located on the
premises of subscribers); "wireless cable" including multichannel
multipoint distribution systems (MDS) and similar technologies (which
use low-power microwave frequencies to transmit programming over the
air to subscribers); satellite master antenna systems (SMATV) (which
use a satellite earth station to receive signals and then transmit
such signals by cable to residences within a given building or
complex); television translator stations (which rebroadcast television
broadcast signals at different frequencies at lower power to improve
reception); and "low-power" television stations (LPTV), which have
begun operations in certain communities, and may increase the number
of free and subscription broadcast television signals in many areas.
Homeowners and apartment building owners also have the option to
purchase earth stations, which allow for the direct reception of
satellite pay television and some expanded basic signals without
interconnecting with a cable system.
All of the foregoing services and technologies have the capacity
to deliver multiple channels of video programming and other
information to subscribing homes and thus to compete directly with the
cable services provided by the Company. The 1992 Cable Act and FCC
regulations prohibit cable operators from owning and operating certain
competing technologies, such as SMATV and MDS, within their franchise
service areas. As these technologies and services continue to
develop, and because of recent measures by the federal government
encouraging such development, as well as the 1992 Cable Act, there is
expected to be increased competition adversely affecting the business
of the Company. In addition, certain provisions of the
Telecommunications Act, such as the change in the definition of a
"cable system" so that competitive providers of video services will
only be regulated as a cable system if they use public rights-of-way,
could materially affect the growth and operation of the cable
television industry and the cable services provided by the Company.
See "Business - Regulation and Legislation - Cable Television -
Federal Regulation."
Because the Company's systems are operated under non-exclusive
franchises, other applicants may obtain franchises in areas where the
Company currently has franchises. Franchising authorities may be more
likely to grant a second franchise for an area if they anticipate that
increased competition will have the effect of reducing rates charged
or moderating increases in rates and improving services offered by the
franchise holders. In addition, franchising authorities themselves
may seek to operate cable systems in competition with private cable
operators.
Applications for competing franchises may be made at any time.
It is possible that well-financed businesses, including businesses
from outside the cable industry (such as the public utilities which
own the facilities to which the cable is attached), may become
competitors for franchises or providers of competing services.
Congress has repealed the prohibition against the national television
networks owning cable systems and telephone companies may now enter
the cable industry, as more fully discussed below.
Pursuant to the 1996 Telecommunications Act, local telephone
companies, which were previously barred from the ownership and
operation of cable systems in their service areas, are now permitted
to enter the cable television business. The FCC had recently begun
permitting local telephone companies to offer "video dialtone" service
for video programmers, including channel capacity for the carriage of
video programming. Neither the telephone company nor the video
programmer is required to obtain a franchise from the local
government. The 1996 Telecommunications Act replaces the video
dialtone scheme with a concept called open video systems ("OVS")
whereby local telephone companies will be able to become FCC-certified
to offer channel capacity to third parties and to directly offer video
programming on up to one-third of the system's capacity. An OVS
operator will not have to obtain a local franchise, nor will it be
subject to rate regulation, but it will have to abide by a number of
the rules which govern cable operators. In the alternative, local
telephone companies can choose to become franchised cable operators in
their own right.
AUSTRALIAN PAY TELEVISION
During fiscal 1994, 1995 and 1996 the Company invested, through a
wholly-owned subsidiary, approximately $140,000,000 in the developing
pay television industry in Australia including approximately
$120,000,000 in East Coast Pay Television Pty Limited ("ECT" includes
such corporation and its wholly-owned subsidiaries), a corporation
organized under the laws of New South Wales, Australia and through a
wholly-owned subsidiary the Company also entered into a joint venture
with United International Holdings, Inc. ("UIH"), a leading
international provider of pay television services. The Company
currently has a net 25% interest in the joint venture corporation, XYZ
Entertainment Pty Limited ("XYZ"), a corporation organized under the
laws of New South Wales, Australia.
ECT, through a wholly-owned subsidiary, owns Satellite
Subscription Broadcast License A, described below ("Satellite
License A" or "License A"), one of three such licenses that may be
granted by Australian authorities prior to July 1997. The license
allows for direct-to-home ("DTH") satellite television broadcasting
and allows ECT to offer four channels of programming via DTH.
Australis Media Limited ("Australis"), another pay television company
in Australia, owns Satellite Subscription Broadcast License B
("License B"), the second of the three licenses currently available
for DTH services, allowing for the DTH broadcast of four channels of
programming. ECT and Australis have entered into agreements pursuant
to which ECT will offer its four License A channels for distribution
individually or as part of a combined package with License B
programming in a package of services known as the Galaxy Package.
License A and License B programming are to be distributed via DTH,
Microwave Multipoint Distribution Systems ("MDS") and cable. The
Galaxy Package will be distributed by Australis through DTH and MDS in
the six largest capital cities in Australia (as well as Western
Australia) and in distinct regional areas outside the capital cities
by its franchisees. In addition to holding License A, ECT is a
franchisee of Australis in regions covering approximately 755,000
households.
ECT, Australis and Australis' other franchisee have acquired
control of substantially all of the currently issued licenses which
can be used for transmission of pay television programming via MDS in
Australia. ECT owns or controls all of the currently issued licenses
which entitle it to transmit pay television programming via MDS in its
franchise area, which covers most of Coastal New South Wales and all
of Tasmania (including Wollongong, Hobart and Newcastle, Australia and
surrounding areas) (the "ECT Franchise Areas") and has entered into a
franchise agreement with Australis (the "Franchise Agreement")
pursuant to which it has the exclusive right (and is obligated) for at
least a fifteen year period (with an option to renew for an additional
ten years) to deliver in each of the ECT Franchise Areas any
subscription broadcast service supplied by Australis, including the
Galaxy Package. The ECT Franchise Areas contain approximately 755,000
households or approximately 12% of all Australian households.
Programming for the License A Package (as defined below) is
provided by XYZ. The Company's 25% interest in XYZ is derived through
the Company's joint venture with UIH. The above noted structure is
pursuant to a series of agreements entered into by the Company, UIH
and FOXTEL, a joint venture between Telestra Corporation Limited, the
government-owned Australian national telecommunications carrier, and
The News Corporation Limited, a major international media and
entertainment company. Programming provided by XYZ comprises the four
License A channels, namely: the Discovery channel, a documentary
channel; Red, a music video channel; Nickelodeon, a children's and
family channel; and Arena, a general entertainment channel (together,
the "License A Package"). In addition, XYZ is developing two
additional channels (channels 5 and 6) which it will seek to have
included in the Galaxy Package.
ECT has entered into a long-term agreement with FOXTEL (a
competitive cable television provider) pursuant to which FOXTEL has
agreed to distribute the License A Package, as well as channels 5 and
6 throughout Australia over FOXTEL's cable television network. ECT
receives a monthly per subscriber fee from FOXTEL for the License A
Package. FOXTEL owns the remaining 50% of XYZ. Pursuant to
arrangements between ECT and FOXTEL, ECT is prohibited from granting
any third party the right to distribute the License A Package and
Channels 5 and 6 by cable television in Australia without the prior
consent of FOXTEL. However, ECT has retained the non-exclusive right
to distribute the License A Package by cable television in the ECT
Franchise areas. In addition, if FOXTEL supplies any FOXTEL channels
for distribution by Galaxy, FOXTEL must authorize Galaxy to provide
the same Channels to the Franchisees for distribution by MDS
transmission and DTH satellite in the franchise areas. These
arrangements with FOXTEL provides for fixed per subscriber prices as
well as minimum subscribers until January 1, 2001. FOXTEL is
presently meeting the minimum guarantee.
Satellite Distribution Rights
Australian authorities have awarded three satellite broadcast
licenses (A, B and C) for a total of 10 satellite-delivered
programming channels on an exclusive basis until July 1997. Two of
these licenses were issued on a price-based allocation while the third
was granted to a government entity. ECT owns Satellite License A,
which it successfully bid for in February 1994 for approximately
$57,000,000. Ownership of Satellite License A allows ECT to broadcast
four channels of programming via DTH satellite (the "License A
Package"). Australis, through a subsidiary, successfully bid for
Satellite License B in December 1993. Ownership of Satellite
License B allows Australis to broadcast four channels of programming
(the "License B Package"). The Australian Broadcasting Corporation
(the "ABC"), a government-owned national broadcaster, was issued the
third license, which allows it to broadcast the two remaining
programming channels. Although the Broadcasting Services Act 1992, as
amended ("BSA") does not provide for the issuance of more satellite
licenses prior to July 1997, beginning in July 1997, the Australian
Broadcasting Authority (the "ABA") may issue additional DTH satellite
licenses.
DTH Satellite and MDS Transmission
The principal source of revenue to ECT stems from its
arrangements with Australis pursuant to which the License A Package is
included as part of Australis' multi-channel programming package known
as the Galaxy Package. This arrangement permits the License A Package
to be distributed via DTH and MDS to substantially all of the
population of Australia. By including the License A and B Packages,
the Galaxy Package currently comprises thirteen channels including
eight Broadcast (nine if on MDS) and five Narrowcast channels.
Australis' ability to deliver the Galaxy Package throughout most
of Australia is in part a result of its franchise arrangements with
other entities, one of which is ECT.
Australis has acquired from ECT the right to distribute the
License A Package via MDS transmission throughout Australia, including
the franchise areas, for a term of fifteen years, with a five-year
extension option in ECT's favor. If the Franchise Agreement with
respect to the ECT Franchise Areas is terminated, however, ECT will
have the right to distribute its programming through affiliates for
delivery via MDS transmission. Australis pays ECT a per subscriber
fee for the use of the License A Package and such fee is adjusted each
year by a specified formula. Pricing discounts exist with respect to
such fee for any month in which certain minimum aggregate subscriber
levels are reached. In addition, ECT is reimbursed by XYZ for any
costs incurred by ECT in connection with this arrangement. ECT pays
an equivalent fee to that received from XYZ for the provision by XYZ
of the programming that comprises the License A Package. Following
November 1997, ECT may retain $1.00 per each subscriber to the Galaxy
Package per month.
Australis began commercial distribution of the License A and B
Packages as part of the Galaxy Package in April 1995 via MDS
transmission and in November 1995 via DTH Satellite. ECT and the
other franchisees began distribution of the Galaxy Package in June
1995 and August 1995, respectively, via MDS distribution. Currently,
there are approximately 150,000 MDS and DTH subscribers to the Galaxy
Package.
Cable
The License A and License B Packages are also being distributed
by FOXTEL over its national cable television network. FOXTEL has
agreed to transmit the License A Package, the License B Package and
the new Channels 5 and 6 that will be provided by XYZ as part of its
basic service throughout Australia for 25 years. FOXTEL pays a fee
per cable customer to ECT in connection with this arrangement subject
to minimum subscriber guarantees which increase from 75,000
subscribers at January 1, 1996 to 550,000 subscribers by January 1,
2001. FOXTEL is presently meeting its minimum subscriber level. If
FOXTEL is unable to reach the target number of subscribers, FOXTEL is
required to pay ECT an amount equal to the product of the minimum
target number of subscribers and the fee for each subscriber. FOXTEL
is currently meeting its minimum requirement with 81,300 subscribers.
FOXTEL is permitted to offer other channels in addition to the
License A and License B Package as part of its cable television
programming.
ECT is prohibited from granting any third party the right to
distribute the License A Package and Channels 5 and 6 by cable
television in Australia without the prior consent of FOXTEL. However,
ECT has retained the non-exclusive right to distribute the License A
Package by cable television in the East Coast Franchise Areas. In
addition, if FOXTEL supplies any FOXTEL channels for distribution by
Galaxy, FOXTEL must authorize Galaxy to provide the same Channels to
the Franchisees for distribution by MDS transmission and DTH satellite
in the franchise areas.
Other Programming
FOXTEL has agreed to make all channels of programming to be
distributed by FOXTEL on its cable television network also available
to Australis for distribution via MDS and DTH at a price to be
negotiated, pursuant to an agreement with Australis. The Company
believes that such channels of programming must be nominated as
Franchisor Services which Australis provides to ECT under the
Franchise Agreement, and that accordingly, Australis must make such
channels of programming available for distribution by ECT. Australis
has asserted that it does not have such an obligation. See "-
Disputes with Australis; Dependence on Australis; Weak Financial
Position of Australis."
Pay Television Distribution
Scope
The ECT Franchise Areas encompass approximately 755,000
households, or 12% of all Australian households. ECT owns all of the
currently issued MDS licenses in the ECT Franchise Areas. ECT has
completed the installation of 3 large and 2 small of a total of 47
possible MDS head-ends and transmitters in the principal markets in
its franchise areas and is currently capable of reaching approximately
178,400 households via MDS. In June 1995, ECT began to market its
service to 33,000 households. Currently, ECT has over 8,000
subscribers in these areas. ECT plans to roll-out its services in its
entire franchise area. ECT's MDS reach at the completion of its roll-
out will be approximately 411,900 households, with the remainder of
its franchise homes being covered predominately by DTH. ECT plans to
deliver services principally via MDS and secondarily via DTH satellite
to the majority of its customers.
Franchise Agreement
Pursuant to the Franchise Agreement, dated as of July 8, 1994 (as
amended, the "Franchise Agreement"), between ECT and Australis, ECT
has the right for 15 years after the commencement dates to deliver in
the ECT Franchise Areas any Subscription Broadcast, Narrowcast or
subscription audio service supplied by Australis ("Franchisor
Services"). Currently the Franchise Agreement permits ECT to
broadcast Australis' Galaxy Package in the ECT Franchise Areas. ECT
has been granted an option to extend the term of the Franchise
Agreement for an additional 10 years (provided ECT is not in breach of
the Franchise Agreement and all fees owed to Australis thereunder have
been paid).
Pursuant to the Franchise Agreement, ECT is required, among other
things, to use its best efforts to provide to its subscribers all of
the services made available to it by Australis under the Franchise
Agreement using all transmission technologies owned by, licensed to,
or used by ECT, and to deliver Australis' pay television services to
its subscribers at substantially the same rate as such services are
provided by Australis.
Under the Franchise Agreement, Australis is required, among other
things, to provide ECT with access to and use of its transmission
facilities and its subscriber management system. ECT is responsible
for funding the purchase price for and installation of subscriber
equipment, advertising, marketing and promotion of Australis' services
within the East Coast Franchise Areas. However, Australis is required
to provide advertising, marketing and promotional materials for ECT if
ECT elects to contribute an annual levy therefor. Generally, ECT is
initially required to pay Australis a service fee of (i) 35% of net
revenue (adjusted for leasing and rental costs for subscriber
equipment, depreciation and taxes) from the pay television services
provided by Australis in the East Coast Franchise Areas and (ii) any
program costs of Australis in excess of a base amount (but not
exceeding an additional 15% of the net revenues from the pay
television services provided by Australis in the East Coast Franchise
Areas. Currently, ECT's franchise fee is 50% of net revenues, which
is the maximum amount. In addition, a proportionate share of
Australis' cost of operating its subscriber management system for
subscribers within the East Coast Franchise Areas is subject to a cap.
In addition, ECT is entitled to insert four minutes per hour of
advertising into the Galaxy Package (two minutes for the Nickelodeon
and Discovery channels after July 1997). When permitted by the
government, ECT believes that, in accordance with customary industry
practice, the movie studios which supply product for Showtime and
Encore will not permit insertion of advertising on those services.
For a discussion of certain disputes that ECT has with Australis
regarding the Franchise Agreement, see "- Dependence on Australis;
Weak Financial Position of Australis; Disputes with Australis."
National Distribution Interests
Pursuant to the Infrastructure Utilization Agreement between ECT
and Australis (the "Infrastructure Utilization Agreement" or "IUA"),
ECT has a contractual right to maintain, at ECT's option, up to a 25%
interest in the accumulated revenues net of certain associated
expenses of Australis with respect to all of its services, referred to
in the IUA as the adjusted infrastructure net cash flow ("AINCF").
The IUA provides ECT with the opportunity to participate in the cash
flow from the national pay television network and programming
businesses which are being developed by Australis and its franchisees.
Included in this network are the six capital cities of Australia which
contain nearly 62% of Australia's population.
The extent of ECT's participation in the AINCF is conditioned
upon its contribution to certain of Australis' costs in connection
with its operations, such as transmission, broadcasting, receiving and
certain relevant support facilities, including subscriber management
and customer service (the "IUA Costs"). ECT's initial participation
level is 25%, a figure established by taking into account the
relationship between the aggregate capital originally invested or
committed by each of Australis and ECT (principally for licenses) of
approximately Australian $300 million and Australian $100 million,
respectively, to their own pay television businesses in Australia.
Such percentage (hereinafter referred to as its "Specified
Percentage") may be adjusted proportionately downward depending upon
the extent to which ECT elects to fund the IUA Costs. The IUA
provides that, notwithstanding any subsequent event, ECT shall be
entitled to receive its Specified Percentage of AINCF in accordance
with the IUA. However, there can be no assurance that Australis will
produce AINCF at any time in the future.
Certain conditions precedent must be met prior to any adjustment
in ECT's Specified Percentage including, but not limited, to the
provision by Australis to ECT of annual budgets and any material
information requested by ECT relevant to any recalculation of ECT's
Specified Percentage. ECT is entitled to participate in and approve
all aspects of implementation and operation in Australia of any
subscription television and related businesses, including staffing,
technical development, programming, engineering, financing,
administration, subscription management and marketing. In addition,
an agreement between ECT and Australis must be reached as to the
determination of all amounts giving rise to any adjustment in the
Specified Percentage. ECT asserts that it has not yet elected to make
a contribution toward such expenditures and disputes whether the
conditions precedent required to be met by Australis as a condition to
such election have, in fact, been adequately met. ECT believes that
certain prerequisite steps have not been taken by Australis, and as a
result the time period for ECT to elect to contribute its share of
these expenditures has not yet begun to run. Australis has asserted
that as of January 1996, ECT's Specified Percentage has decreased from
25% to 13.4% and possibly to 10% at May 31, 1996 due to ECT's failure
to contribute funds (approximately Australian $136,000,000). There
can be no assurance that this dispute will be resolved nor that, after
reviewing the relevant information, ECT will elect to contribute its
share of the funding under the IUA.
See "-Dependence on Australis; Weak Financial Position of Australis -
Disputes with Australis."
Pursuant to the IUA, ECT has appointed Australis, and Australis
has agreed for a term of 99 years, to perform the following services:
to provide facilities for distribution of the four channels comprising
the License A Package via DTH and MDS transmission and any other
transmission or delivery technology controlled by Australis; to
establish, operate and maintain transmission facilities for
distribution of such programming and channels; to provide certain
consulting services and technical expertise with respect to marketing
and advertising; and to establish and maintain a subscriber management
system. However, ECT will at all times remain in control of its
programming and operations, as required under the BSA. The IUA
provides for designation of a committee of three members (one designee
of each of Australis and ECT with a third member appointed by both
parties and additional members to be appointed if necessary) to
provide advice and assistance with respect to the matters which are
the subject of such agreement.
Programming
General
ECT has arrangements with major programming businesses in
Australia which are designed to procure high quality product for its
subscribers. Programming for the License A Package is provided by
XYZ. XYZ provides ECT with available programs, including The
Discovery Channel, a documentary channel; Red, a music video channel;
Nickelodeon, a children's channel; and Arena, a general entertainment
channel. In addition, XYZ is developing two additional channels
(Channels 5 and 6) for which ECT has been appointed the exclusive
distributor and which it will seek to have included in the Galaxy
Package.
The Galaxy Package
ECT and Australis have combined the License A and License B
Packages to create the Galaxy Package, a multi-channel base
programming package with individual channels airing 24 hours per day,
designed to appeal to distinct demographic groups and household
members in all markets.
License A Package
XYZ has agreed to produce four channels of programming for the
License A Package and two additional channels to be distributed by
ECT. The channels will be available 24 hours each day. ECT has been
granted exclusive distribution rights in Australia for 25 years to
broadcast or license others to broadcast this programming to
subscribers via satellite, MDS and cable. ECT also has the right to
market the four channels as ECT's subscription TV Broadcasting
Services or those of any of its licensees. XYZ has discretion in
making decisions with respect to the programming subject to ECT's
right to edit, interrupt, or withdraw any part of a channel in
specified circumstances and to ECT's channel specifications.
XYZ is obliged to provide ECT with detailed monthly program
schedules for the channels. Although copyrights and other intellectual
property rights in the program schedules are owned by XYZ, ECT is
permitted to reproduce the program schedules in newspapers and
magazines in order to promote the programs on the channels. XYZ owns
the intellectual property rights relating to trademarks, logos,
service marks, characters and titles developed by XYZ. XYZ may not
exploit or otherwise authorize others to exploit any of the channels
in Australia in any medium including TV. However, XYZ may transmit
the channels outside Australia provided such transmission cannot be
received in Australia. XYZ is further prohibited from distributing
within Australia any similar program services in terms of content,
genre, target audience and other commercial objectives.
The four channels of programming which make up the License A
Package are supplied by XYZ. XYZ launched its channels in April 1995
and, as of March 31, 1996, provided its channels to approximately
229,000 MDS, DTH and cable subscribers (including 6,800 households who
receive only foreign language programming) in Australia.
Music Video
XYZ provides Red, Australia's first 24-hour music channel.
Documentary
XYZ provides The Discovery Channel, based on the documentary
programming that is popular in the United States and other English-
speaking countries, pursuant to arrangements with the developer of the
Discovery programming.
General Entertainment
Arena channel is a general entertainment channel with dramas,
mini-series, comedies, variety shows, talk shows, game shows, sports
and music.
Children's
Nickelodeon provides children's programming to Australia from
6 am to 8 pm (or 10 pm on Saturday) and classic family programming
from 8 pm (or 10 pm on Saturday) to 6 am.
License B Package
The four channels of programming which make up the License B
Package are supplied by Australis. Australis launched some of its
channels in January 1995 and additional channels in March 1995 and has
reported that, as of March 31, 1996, it provided its channels to
approximately 229,000 MDS, DTH and cable subscribers in Australia.
These channels include movie channels, a sports channel, a news
channel, a general entertainment channel, and certain special interest
or Narrowcast Services.
Dependence on Australis; Weak Financial Position of Australis;
Disputes with Australis
Under the Franchise Agreement and IUA, ECT is dependent on the
efforts of Australis in the development of the pay television industry
in Australia. The Company has become aware that Australis' financial
position has significantly deteriorated to the point where its ability
to survive as a going concern is in doubt. ECT's financial position
(and, as a result, Company's investment in ECT) may be materially and
adversely affected if Australis were to become insolvent. ECT's pay
television subscriber business is dependent on acceptance of the
Galaxy Package as a well-known national product as well as the
infrastructure established by Australis, including the national
marketing and subscriber management service.
If Australis were to become insolvent and, as a result, were not
able to provide infrastructure services, subscriber management systems
and other related services for ECT, ECT would need to develop such
services on its own, which could be on economic terms to ECT less
favorable than those now available from Australis.
In addition, ECT understands that under this circumstance, ECT
may be required to seek replacement programming currently provided by
Australis which may be on less favorable terms than those provided by
Australis. Additionally, ECT could be required to continue to provide
the License A Package to Australis, while the obligation of Australis
to provide the License A Package, either by itself or as part of the
Galaxy Package, to ECT as a franchisee could be avoided, and certain
agreements, including the IUA and the Franchise Agreement, could be
modified or voided by a bankruptcy liquidator if determined to be
"unprofitable." Existing obligations of Australis under these
agreements could be subject to reorganization claims and preferences.
Moreover, if Australis were unable to expand its subscriber base, the
distribution of the License A Package throughout Australia may be
inhibited. Further in the event of any such insolvency ECT may be
required to pay Australis' portion of accrued and unpaid satellite
lease payments for the transmission of the GALAXY Package since ECT is
jointly and severally liable for those payments. The incremental cost
to ECT for the Australis portion of this obligation would be
approximately $6,250,000 per annum.
Australis has recently announced a recapitalization plan which
includes the introduction of additional equity and the transfer of
certain assets to joint venture with OptusVision (a competitive cable
provider). The plan is subject to lender, shareholder, and regulatory
approvals as well as an additional debt offering to be completed by
October 31, 1996. ECT is currently reviewing the plan to determine
the impact, if any, on its business and the extent to which certain
consents requested by Australis will be accommodated. ECT has been
given no assurance that the plan, as proposed, will receive the
necessary approvals or that the contemplated debt offering will be
successful.
The Company is currently unable to predict the ultimate
resolution of these matters. At May 31, 1996 the remaining net book
value of its investments in the various aspects of Australian pay
television aggregated $84,518,000. The Company will continue to
assess the potential impact of the above noted matters on its
investments in its Australian pay television businesses.
Competition
As the pay television market in Australia develops, ECT expects
to face competition from a number of existing and future sources. ECT
expects to compete with providers of pay television services in
connection with all three currently available delivery systems and any
new delivery systems which may be introduced. Such competition will
intensify if additional MDS and broadcasting licenses are issued (to
the extent not acquired by ECT) and, after July 1997, if additional
DTH satellite licenses are issued. A number of satellites already
have, and in the future additional satellites could have, the capacity
and positioning necessary to deliver additional DTH satellite
transmissions to the Australian market (although ECT believes such DTH
Services would require large dish sizes). ECT also expects to compete
with existing Off-Air television networks, movie theaters, video
rental stores and other entertainment and leisure activities
generally.
Pay Television Providers
Australis and its Franchisees, including ECT, initially will be
the major providers of pay television via MDS in Australia having
acquired during the regional MDS license allocation process all or
substantially all available MDS licenses in the regions being offered.
ECT believes it is unlikely that any group will be able, in the near
term to establish a competitive service offering pay television
services via MDS transmission that will impact the roll-out of ECT's
or Australis' pay television services. However, if Australis does not
submit transmitter proposals in regional Western Australia, there may
be other MDS competitors.
ECT expects to compete with FOXTEL, which is developing a
broadband cable network, in the six capital cities and other parts of
Australia. FOXTEL has announced that its cable television network had
81,300 subscribers as of June 30, 1996 and that it will spend
$3.0 billion to accelerate the roll-out of such network, which it
expects to pass four million households by 1999. This subscriber
level meets the minimum subscriber level of 75,000 required as of
January 1, 1996 as per arrangements between ECT and FOXTEL. While
FOXTEL may compete with ECT in the ECT Franchise Areas, ECT
participates in the FOXTEL subscriber base through arrangements with
FOXTEL.
ECT may also compete with OptusVision (investors in which include
Optus, Continental Cablevision, The Seven Network and PBL (the owner
of the Nine Network, one of three commercial broadcasting networks in
Australia)), which has publicly announced plans to deliver telephony,
pay television and interactive services over a broadband cable
television network intended to pass three million households by 1999
at a cost of $2.3 billion. OptusVision has announced that its cable
television network had 10,000 subscribers as of March 25, 1996.
OptusVision has also announced that it has completed arrangements with
several Hollywood studios (including Warner Brothers, Disney and MGM)
for the distribution of movies over two movie channels and that its
planned programming package of over 20 channels will include two
sports channels (which will include programming from ESPN
International and exclusive broadcasting of Australian rules
football). OptusVision began providing service in September 1995.
As of June 28, 1996, 1,456 Subscription Television Broadcast
Licenses (non-DTH satellite) had been issued to 35 potential
competitors of ECT, allowing them to deliver pay television services
via non-satellite means prior to July 1997, including via cable
television. If such license holders construct viable cable television
networks in major Australian metropolitan areas or are granted access
to distribute programming over the proposed cable television networks
of FOXTEL or OptusVision, such license holders may represent
additional competition for ECT. In addition, pay television licenses
are freely transferable and may no longer be held by the persons to
whom they were originally issued.
Upon the issuance of additional DTH satellite licenses, which ECT
believes may occur after July 1997, competition from additional DTH
satellite licensees is expected to increase. However, given its lead
time (during which ECT's objective will be to rapidly establish a
significant customer base and infrastructure), ECT believes that it
will have an advantage over new entrants into the market.
The key area in which ECT expects that it may compete with
Satellite Licensee B is in the provision of programming. However, the
services which each has announced intentions to provide are largely
complementary applications that correspond to Australis' strategic
objectives of offering the Galaxy Package. Accordingly, ECT believes
that the License A Package can be successfully marketed as one broader
package including both the License A Package and the services of
Satellite Licensee B. In accordance with the foregoing, ECT has
entered into arrangements with Australis which provides for exclusive
distribution via MDS transmission by Australis. In addition, ECT has
negotiated agreements with Australis with respect to DTH satellite
transmission.
Off-Air Television Broadcasters
The Australian television industry was established in 1956.
Broadcasting services are provided to viewers in most regions by five
Off-Air television networks that deliver programming to viewers
without payment of a subscription fee: the Seven Network, the Nine
Network, the Ten Network, the ABC and SBS. Two of the five networks,
the ABC and SBS, are government-owned and funded and are limited in
their ability to carry paid advertising. Community television is also
licensed in many areas. ECT believes that Off-Air television networks
have altered and are likely to continue to alter their programming
offerings in an effort to compete with pay television providers for
television viewers. In addition, as part of its review under the BSA,
the Australian Government may review the possibility of issuing a
fourth commercial television license by July 1997. This review is
also considering the introduction of digital terrestrial television
broadcasting. This would allow Off-Air networks to offer
multi-channel services.
ECT Securities and Governance
ECT is primarily controlled by the Company through the Company's
right to appoint five out of seven directors of ECT. The Company also
has a 76.2% economic interest in ECT through its ownership of 95,966
of a total of 119,025 convertible debentures issued by ECT ("ECT
Convertible Debentures") (80.63% of the outstanding debentures) and
100 ordinary shares of ECT ("ECT Ordinary Shares") (1.42% of the
outstanding Ordinary Shares). A total of Australian $139,096,434 face
amount of ECT Convertible Debentures and a total of 7,041 ECT Ordinary
Shares are outstanding. 6,307 (or 89.58% of the outstanding) ECT
Ordinary Shares are held by others. See "Regulation and Legislation -
Australian Pay Television - Broadcasting Services Act - Foreign
Ownership" and "Regulation and Legislation - Australian Pay Television
- - Foreign Acquisitions and Takeovers Act."
The ECT Convertible Debentures are convertible into ECT Ordinary
Shares on a one-to-one basis, subject to anti-dilution adjustment. An
initial holder of an ECT Convertible Debenture cannot convert the
Debenture. A subsequent holder who is a non-Australian may convert
ECT Convertible Debentures, provided that upon conversion, the
holder's company interests do not exceed 20% or, in the aggregate with
other non-Australians, do not exceed 35%. Australian laws presently
prohibit ownership levels above these limits. The ECT Convertible
Debentures may be transferred to any person for which such transfer
will not breach the BSA, the Foreign Acquisition and Takeover Act 1975
(the "FATA") or any other statute. See "Regulation and Legislation -
Australian Pay Television - Broadcasting Services Act - Foreign
Ownership" and "Regulation and Legislation - Australian Pay Television
- - Foreign Acquisitions and Takeovers Act."
The ECT Convertible Debentures confer rights upon the holders
thereof as creditors of ECT but do not confer voting rights. The ECT
Convertible Debentures are subordinated to all other indebtedness of
ECT, and are redeemed only upon the winding-up of ECT. Interest is
payable on the ECT Convertible Debentures at the same time and in the
same amount and manner as dividends payable on ECT Ordinary Shares.
Interest is calculated taking into account the number of ECT Ordinary
Shares into which the ECT Convertible Debentures may convert, the
number of ECT Ordinary Shares actually issued and outstanding at the
time of the interest payment, the amount of any distribution made to
holders of ECT Ordinary Shares, the face value of the ECT Convertible
Debenture and the total face value of all ECT Convertible Debentures
on issue at the time of the interest payment. Holders of ECT
Convertible Debentures are entitled to participate in any options,
rights, or bonus issues or placements by ECT so that the interest of
the debentureholders is not diluted as compared with the holders of
ECT Ordinary Shares.
Under the ECT Articles of Association, the Company has the right
to appoint five of the seven directors of ECT. Only the Company may
remove any director appointed by it. At meetings of directors, the
number of directors whose presence is necessary to constitute a quorum
is such number as is determined by the directors and, unless so
determined, the presence of four directors, two of whom were appointed
by the Company and two of whom were not appointed by the Company, is
necessary to constitute a quorum. As a result, action by the Board of
Directors can be taken only by participation by all such directors.
Additionally, under the Articles of Association, all holders of
ECT Ordinary Shares must approve certain actions with respect to the
governance of ECT including the passing of a special resolution under
the Corporations Law to alter the Memorandum or Articles of
Association. In addition, any change in the corporation's name,
reduction of ECT's share capital, winding up of the affairs of ECT or
provision by ECT of financial assistance in connection with an
acquisition or proposed acquisition of shares in ECT cannot be
effected unless the Century directors are present. Under ECT's
Articles of Association, changes to the Articles of Association of any
subsidiaries of ECT require the passing of a special resolution by the
holders of the shares of ECT. Under the ECT Articles of Association,
any special resolution altering or adding to either the Memorandum or
the Articles of Association of ECT does not have any effect unless it
is approved at a meeting of members of ECT at which all members
entitled to vote are present in person or by proxy and all members of
ECT being entitled to vote, in person or by proxy, do so. At least 21
days' written notice must be given of the intention to propose a
resolution as a special resolution, with fewer than 21 days' notice
permitted only under certain circumstances.
WIRELESS COMMUNICATIONS
The Company is engaged in the wireless telephone business through
Centennial Cellular. Centennial is engaged in the ownership and
operation of wireless telephone systems, primarily in four geographic
areas in the United States and Puerto Rico. Centennial's current
wireless interests represent markets which cover a population of
approximately 10 million. Approximately 6.4 million of this
population is represented by Centennial's current domestic cellular
telephone interests. The balance of approximately 3.6 million in
population represents Centennial's interest in a recently acquired
personal communications services ("PCS") license covering the
Commonwealth of Puerto Rico and the U.S. Virgin Islands. See
"Business - Wireless Communications."
Centennial Cellular was organized in 1988 as a wholly-owned
subsidiary of the Company. On August 30, 1991, Citizens Cellular
Company, a Delaware corporation ("Citizens Cellular"), was merged with
and into Centennial Cellular in exchange for common and preferred
stock of Centennial Cellular (the "Merger"). Citizens Cellular was a
wholly-owned subsidiary of Citizens Utilities Company, a Delaware
corporation ("Citizens Utilities"). Citizens Utilities is a
diversified utility company providing telephone, electric, gas, water
and waste water services, in which the Company owns 4,516,488 shares
of Series A Common Stock, representing 1.94% of the issued and
outstanding Common Stock (both Series A and Series B) of Citizens
Utilities as of August 16, 1996. Leonard Tow is Chairman of the
Board, Chief Executive Officer and Chief Financial Officer of both
Citizens Utilities and the Company. Two other directors of the
Company, Robert D. Siff and Claire L. Tow, are also directors of
Citizens Utilities. Citizens Cellular's assets consisted of the
Investment Interests (as defined below), which had been acquired by
Citizens Cellular as a result of agreements among various companies
providing local exchange telephone service in markets in which
Citizens Utilities also provides service. See "Business - Wireless
Communications - The Cellular Systems." As a result of its ownership
of securities of Centennial Cellular and in accordance with an
agreement with Citizens Utilities, the Company has the ability to
nominate at least a majority and elect all of the directors of
Centennial Cellular; the Company has agreed to vote for one director
to be nominated by Citizens Utilities.
Cellular mobile telephone service offers high quality, high
capacity communications to and from vehicle-mounted and hand-held
radio telephones ("cellular telephones") which provide substantially
the same types and levels of service as traditional landline systems.
The cellular system operator has a traffic interchange agreement with,
and pays a fee to, the local landline telephone company so calls may
be placed from a mobile unit to a conventional telephone. The amounts
paid under these agreements are subject to negotiation and vary from
system to system. The rates, terms and conditions of these agreements
may be subject to state and FCC regulation. See "Business -
Regulation and Legislation - Cellular Telephone - Regulation - Federal
Regulation." PCS includes a family of digital, wireless mobile or
portable and ancillary fixed radio communications services for
individuals and business that can be integrated with a variety of
competing networks. PCS is not a specific technology, but a variety
of potential technologies. Equipment proposed for broadband PCS
includes small lightweight and wireless telephone handsets; computers
that can communicate over the airwaves wherever they are located; and
portable facsimile machines, and other graphic devices.
The Cellular Systems
Centennial Cellular's current cellular telephone interests
represent approximately 6.4 million Net Pops (as defined below).
Approximately 5.3 million of these Net Pops are represented by
interests in cellular telephone systems Centennial Cellular owns and
operates, which systems serve three geographic areas (the "Controlled
Systems"). The balance of approximately 1.1 million Net Pops
represents minority interests in limited partnerships, controlled by
other parties, that own cellular telephone systems which primarily
serve the Sacramento Valley and the San Francisco Bay area in
California (the "Investment Interests"). "Pops", as used in this
Annual Report on Form 10-K, means the population of a market based
upon the final 1990 Census Report of the Bureau of the Census, United
States Department of Commerce, and "Net Pops" means a market's Pops
multiplied by the percentage interest that Centennial Cellular owns in
an entity licensed by the FCC to construct or operate a cellular
telephone system (or to provide personal communications services) in
that market. Centennial Cellular also owns and operates paging
systems and two-way mobile radio systems in two markets in which it
also owns and operates the non-wireline cellular telephone system and
in which the Company owns and operates a cable television system.
The chart below sets forth certain information about the
Controlled Systems and the Investment Interests as of August 16, 1996.
Those Controlled Systems and the Investment Interests which are in
Metropolitan Statistical Areas ("MSAs") are asterisked; the remainder
are in Rural Service Areas ("RSAs").
Markets Ownership Pops Net Pops
Controlled Systems
MICHIANA CLUSTER(1)
Battle Creek, MI* 100.0% 186,000 186,000
Jackson, MI(2)* 92.0% 149,800 137,800
Kalamazoo, MI* 100.0% 293,500 293,500
Cass, MI(3) 85.7% 288,000 246,900
Roscommon, MI 100.0% 130,400 130,400
Newaygo, MI 100.0% 220,200 220,200
System Subtotal 1,267,900 1,214,800
Elkhart-Goshen, IN* 91.4% 156,200 142,800
Richmond, IN 100.0% 217,900 217,900
South Bend, IN* 100.0% 289,200 289,200
Newton, IN 100.0% 204,200 204,200
Williams, OH 100.0% 125,900 125,900
System Subtotal 993,400 980,000
Fort Wayne, IN* 100.0% 420,900 420,900
Huntington, IN 100.0% 145,200 145,200
Kosciusko, IN 100.0% 160,000 160,000
Miami, IN 100.0% 179,000 179,000
System Subtotal 905,100 905,100
Cluster Subtotal 3,166,400 3,099,900
Markets Ownership Pops Net Pops
EAST TEXAS/LOUISIANA CLUSTER
Beaumont - Port Arthur, TX* 100.0% 361,200 361,200
Alexandria, LA* 92.8% 149,000 138,300
Beauregard, LA 100.0% 372,500 372,500
Iberville, LA 100.0% 131,000 131,000
Bastrop, LA 100.0% 92,200 92,200
DeSoto, LA 100.0% 121,300 121,300
Caldwell, LA 100.0% 71,600 71,600
West Feliciana, LA 100.0% 170,900 170,900
Claiborne, MS 100.0% 153,900 153,900
Copiah, MS 100.0% 118,000 118,000
LaFayette, LA* 94.3% 209,000 197,100
Cluster Subtotal 1,950,600 1,928,000
SOUTHWESTERN CLUSTER
El Centro, CA 100.00% 109,300 109,300
Yuma, AZ 100.00% 120,700 120,700
Cluster Subtotal 230,000 230,000
Total Controlled Systems 5,347,000 5,257,900
Investment Interests
SACRAMENTO VALLEY CLUSTER 23.5%
Sacramento, CA* 1,355,100 318,100
Stockton, CA* 480,600 112,800
Modesto, CA* 370,600 87,000
Reno, NV* 254,700 59,800
Chico, CA* 182,100 42,800
Redding, CA* 147,000 34,500
Yuba City, CA* 122,600 28,800
Tehama, CA 90,700 21,300
Storey, NV 90,600 21,300
Sierra, CA 81,800 19,200
Cluster Subtotal 3,175,800 745,600
Markets Ownership Pops Net Pops
SAN FRANCISCO BAY AREA CLUSTER 2.9%
San Francisco, CA* 3,686,600 105,800
San Jose, CA* 1,497,600 43,000
Vallejo, CA* 451,200 13,000
Santa Rosa-Petaluma, CA* 388,200 11,100
Salinas, CA* 355,700 10,200
Santa Cruz, CA* 229,700 6,600
Cluster Subtotal 6,609,000 189,700
Lawrence, PA 14.3% 363,400 51,900
Coconino, AZ 21.3% 204,300 43,500
Del Norte, CA 6.9% 199,200 13,700
Modoc, CA 25.0% 57,000 14,200
Lake Charles, LA* 25.1% 168,100 42,200
Total Investment Interests 10,776,800 1,100,800
Total Controlled Systems
and Investment Interests 6,358,700
(1) Centennial classifies certain of its markets in the Michiana
cluster as single systems for operational and managerial purposes.
(2) In connection with Centennial's acquisition of its interest in
the Jackson, Michigan system, Century Federal, Inc., an affiliate
of the Company ("Century Federal"), acquired the remaining 8%
ownership interest for $1.0 million. Centennial has the right, but
not the obligation, to acquire such 8% interest from Century
Federal for $1.0 million, which it plans to do.
(3) In connection with Centennial's acquisition of its interest in
the Cass, Michigan system, Century Federal acquired the remaining
14.3% ownership interest for $2.0 million. Centennial has the
right, but not the obligation, to acquire such 14.3% interest from
Century Federal for $2.0 million, which it plans to do.
All of the Controlled Systems are currently operational. A
system is deemed operational when it has met the FCC's requirements
for an operating license and has received an FCC license to commence
operations.
The chart below sets forth the subscribers of the Controlled
Systems as of the dates indicated.
May 31,
1996 1995 1994 1993 1992
Michiana cluster 78,100 55,960 35,170 25,530 19,850
* Central Virgina/
North Carolina cluster -- 20,870 15,540 9,080 5,680
Southwestern cluster 8,300 5,970 4,520 3,180 2,090
** East Texas/Louisiana
cluster and other
Controlled Systems 48,600 29,730 9,350 7,690 4,740
Total 135,000 112,530 64,580 45,480 32,360
_________________________
* On June 30, 1995, Centennial transferred to a third party
all of the Controlled Systems constituting the Central Virginia/North
Carolina cluster. See "Business - Wireless Communications -
Centennial Acquisitions."
** On October 31, 1995, Centennial transferred to a third party
the Controlled System serving the Jonesboro, Arkansas RSA while on
June 30, 1995 Centennial transferred to a third party the Controlled
System serving Iowa RSA #5. See "Business - Wireless Communications -
Centennial Acquisitions."
At May 31, 1996, Centennial's pro rata share of subscribers
relating to the Investment Interests was approximately 83,000.
With respect to the Controlled Systems in Elkhart, Fort Wayne and
South Bend, Indiana, and Battle Creek and Kalamazoo, Michigan, the
Company has the right to receive an amount equal to five percent of an
incremental value over a base value received by Centennial in the
event Centennial sells or otherwise disposes of any of such systems (a
"carried interest"). At any time following December 31, 1996, the
Company has the right to force Centennial to purchase the carried
interest in any of such systems using an appraisal procedure to
determine the price, if necessary. The Company also has a carried
interest in the Controlled System in Roanoke, Virginia. Concurrently
with the transaction consummated on June 30, 1995, pursuant to which
the Roanoke system was transferred by Centennial, Centennial assumed
the obligation to compensate the Company for its carried interest in
the Roanoke system.
Centennial owns and operates paging and SMR and conventional
mobile telephone businesses in Yuma, Arizona and El Centro,
California. As of May 31, 1996, the paging system served
approximately 2,500 subscribers and the SMR business served
approximately 2,900 subscribers.
Personal Communications Services; Telecommunications Services
Centennial was the successful bidder for one of two MTA licenses
to provide broadband PCS services in the Commonwealth of Puerto Rico
and the U.S. Virgin Islands. The amount of the final bid submitted
and paid by Centennial was $54,672,000. The FCC granted the 30 MHz
Block B broadband PCS license for the Puerto Rico-Virgin Islands MTA
to Centennial on June 23, 1995. The licensed area represents
approximately 3.6 million Net Pops.
Centennial has commenced the design and construction of its
broadband PCS system. Centennial has executed an agreement with AT&T
World Services, Inc., pursuant to which Centennial has agreed, subject
to certain conditions, to purchase equipment and installation services
necessary for its initial PCS system. Centennial currently estimates
that the cost to build out the infrastructure of the PCS system will
be approximately $60,000,000 in the aggregate to be expended through
fiscal 1998. Centennial has incurred costs of approximately
$15,500,000 related to such equipment and installation in fiscal year
1996. Centennial anticipates installation of the initial system by
1997. Centennial is exploring various sources of external financing
including but not limited to bank financing, joint ventures,
partnerships and placements of debt and equity securities of
Centennial. There can be no assurance that such financing will be
available to Centennial from any of such sources.
Centennial also plans to participate in the intra-island and
interstate telecommunications market in Puerto Rico as a service
provider pursuant to FCC requirements for interstate service and
pursuant to an authorization issued to Centennial in December 1994, as
amended in July 1996, by the Public Service Commission of the
Commonwealth of Puerto Rico for intra-island service. The issuance of
the authorization may be challenged by the local telephone service
provider based on a claim that the Public Service Commission lacks
jurisdiction to issue the authorization as amended in July, 1996.
Centennial will actively defend the authorization against any
challenge.
Centennial Acquisitions
On October 31, 1995, Centennial acquired (i) a 94.3% interest in
the non-wireline cellular telephone system serving the Lafayette,
Louisiana MSA, representing approximately 205,700 Net Pops, in
exchange for Centennial's non-wireline cellular telephone system
serving the Jonesboro, Arkansas RSA (comprising approximately 205,000
Net Pops), the license rights and assets located in and covering the
Desoto and Red River Parishes of Louisiana 3 RSA (comprising
approximately 34,700 Net Pops), the license rights and assets located
in and covering a section of Morehouse Parish of Louisiana 2 RSA
(comprising approximately 24,100 Net Pops) and a cash payment by
Centennial of approximately $5,580,000, subject to adjustment, and
(ii) an additional 14.3% minority interest in the Elkhart, Indiana
MSA, a Controlled System in which Centennial now has a 91.4% interest
and an additional 12.7% equity investment interest in the Lake
Charles, Louisiana MSA, a market in which Centennial now has a 25.1%
interest for a cash payment of approximately $2,951,000.
On June 30, 1995, Centennial acquired the non-wireline cellular
telephone systems serving (a) Newton, LaPorte, Starke, Pulaski, Jasper
and White, Indiana, (b) Kosciusko, Noble, Steuben and Lagrange,
Indiana, (c) Williams, Defiance, Henry and Paulding, Ohio and (d)
Copiah, Simpson, Lawrence, Jefferson Davis, Walthall and Marion,
Mississippi, representing an aggregate of approximately 608,100 Net
Pops. The above-described systems were acquired by Centennial in
exchange for Centennial's Controlled Systems serving the Roanoke,
Virginia MSA, the Lynchburg, Virginia MSA, North Carolina RSA #3 and
Iowa RSA #5, representing an aggregate of approximately 644,000 Net
Pops. Simultaneously with the consummation of the transaction
described above, Centennial sold its 72.2% interest in the Controlled
System serving the Charlottesville, Virginia MSA, representing an
aggregate of approximately 94,700 Net Pops, for a cash purchase price
of approximately $9,914,000, subject to adjustment.
Concurrently with the transaction consummated on June 30, 1995,
pursuant to which Centennial's Roanoke, Virginia cellular system was
transferred by Centennial, Centennial assumed the obligation to
compensate the Company for its carried interest in the Roanoke system.
Centennial was the successful bidder for one of two Metropolitan
Trading Area licenses to provide broadband personal communications
services in the Commonwealth of Puerto Rico and the U.S. Virgin
Islands. The licensed area represents approximately 3,623,000 Net
Pops. The amount of the final bid submitted and paid by Centennial
was $54,672,000. The FCC granted the licenses to Centennial on June
23, 1995. Centennial currently estimates that the cost to build out
the infrastructure of the systems will be approximately $60,000,000,
in the aggregate, through fiscal 1997 and 1998. Centennial is
exploring various sources of external financing including but not
limited to bank financing, joint ventures, partnerships and placement
of equity securities of Centennial.
Pending Centennial Acquisitions
Centennial plans to exercise its right to acquire the minority
interests held by the Company in the Cass and Jackson, Michigan
systems from Century Federal for the prices paid by the Company for
such minority interests in the acquisitions of such systems
($2,000,000 and $1,000,000, respectively). See Notes (2) and (3) to
the chart above. Upon completion of these transactions, Centennial
will own 100% of these systems.
Centennial has entered into an agreement to acquire approximately
51.6% of the partnership interests in the partnership owning the non-
wireline cellular telephone system serving the Benton Harbor, Michigan
MSA and is concurrently making offers to purchase the remaining
interests in the partnership. The Benton Harbor, Michigan MSA
represents approximately 161,400 Net Pops. Centennial has agreed to
pay a purchase price of $34,000,000 in cash (reduced pro rata if less
than 100% of the partnership interests are acquired), subject to
adjustment for 100% ownership of the system and certain outstanding
liabilities at closing. The obligation of Centennial to consummate
this transaction is subject to certain closing conditions, including
regulatory approvals. Centennial anticipates completing this
acquisition in September 1996.
On July 31, 1996, Centennial filed applications to participate in
an upcoming FCC auction for broadband personal communications services
frequency blocks D and E. Centennial listed Basic Trading Areas
("BTAs"), the marked designation for PCS license areas, that related
to its cellular operations. Centennial submitted a required
refundable deposit of $11,000,000 in order to maintain its bidding
eligibility for the PCS licenses in which it is interested. There is
no assurance that Centennial will bid in the auction process, and the
extent to which any such participation will be successful.
Competition
Operating Competition
The FCC grants licenses to operate cellular telephone systems in
defined market areas. The FCC presently authorizes two licensees to
operate cellular service in each market. One of the two licenses in
each market was initially awarded to a company or group that was
affiliated with one or more local landline telephone carriers in the
market (the "Wireline" license) and the other license in each market
was initially awarded to a company, individual or group not affiliated
with any landline telephone carrier (the "Non-Wireline" license). The
Controlled Systems are all Non-Wireline systems. The Investment
Interests are all in Wireline systems. It is possible that the FCC
may in the future assign additional frequencies to cellular telephone
service to provide for more than two cellular telephone systems per
market. See "Business -Regulation and Legislation - Cellular
Telephone - Pending Legislation; FCC and State Proceedings."
The Controlled Systems and the systems in which Centennial has
the Investment Interests compete directly with the other cellular
licensee in each market in attracting and retaining cellular telephone
customers and dealers, principally on the basis of quality, price,
services offered and responsiveness of customer service. The
Controlled Systems and the systems in which Centennial has the
Investment Interests also compete with the other licensee in each
market on the basis of coverage area. To the extent that the
Controlled Systems or the systems in which Centennial has the
Investment Interests do not provide cellular telephone service to an
area within or adjacent to their markets, Centennial may be placed at
a competitive disadvantage with the other licensee in such market,
particularly if the other licensee provides cellular telephone service
to any such areas.
The competitors of the Controlled Systems and certain of the
systems in which Centennial has an Investment Interest are larger and
may have access to more substantial financial resources than
Centennial. These competitors include Regional Bell Operating
Companies, large independent telephone companies and AT&T Wireless,
among others.
Other Competition
The FCC is now licensing commercial broadband PCS providers.
Among other possible uses, broadband PCS will be capable of providing
a two-way mobile voice and data telephone service that is similar to
cellular service. Broadband PCS is a digital, wireless communications
system that will utilize technology that could allow it to compete
effectively with cellular systems, particularly in densely populated
areas. Licenses are awarded by competitive bidding. Auctions for the
first three spectrum blocks (Blocks A, B and C) have been completed.
Licenses have been issued to the winners of the Block A and B auctions
and are being issued to the winners of the Block C auction. Some
broadband PCS systems have commenced operation.
The FCC grants up to six licenses to operate broadband PCS
systems in defined market areas as follows: (i) two channel blocks
(Blocks A and B) have been allocated 30 MHz of spectrum each, and have
been licensed on the basis of 51 MTAs, (ii) one channel block (Block
C) has been allocated 30 MHz of spectrum and is being licensed on the
basis of 493 Basic Trading Areas ("BTAs"), and (iii) three channel
blocks (Blocks D, E and F) have been allocated 10 MHz of spectrum each
and will be licensed on the basis of BTAs. The FCC has limited the
eligibility for the Block C and F spectrum allocations to entities
meeting the FCC's definition of "entrepreneur". The FCC originally
granted licensing preferences on the Block C and F spectrum
allocations for small businesses, rural telephone companies and
minority/woman-owned businesses. The gender and minority based
preferences were later withdrawn by the FCC after a rulemaking
proceeding conducted in light of a recent decision by the U.S. Supreme
Court relating to minority set-asides. The FCC's decision to withdraw
such preferences has been appealed. The FCC has scheduled auctions
for the Block D, E and F spectrum commencing August 26, 1996. The
FCC's decision to modify the rules for bidding in the forthcoming
Blocks D, E and F auctions and to amend its rules to abolish its
cellular/PCS cross-ownership rule and its PCS spectrum cap and to rely
on the 45 MHz cap on Commercial Mobile Radio Services spectrum has
been appealed to a federal court of appeals.
It is uncertain what will be the effect on Centennial of these
new personal communications services. The FCC revised its cellular
rules to explicitly state that cellular licensees may provide any PCS-
type services (including wireless PBX, data transmission and telepoint
services) on their 800 MHz band cellular channels without prior
notification to the FCC. Management of Centennial believes that
technological advances in present cellular telephone technology in
conjunction with buildout of the present cellular systems throughout
the nation with cell splitting and microcell technology would provide
essentially the same services as the services that PCS providers are
expected to provide, but there is no assurance that this will happen.
Centennial expects that its 30 MHz Block B broadband PCS
operation in the Puerto Rico-Virgin Islands MTA will face primary
competition from the entrenched cellular telephone licensees which
include the Puerto Rico Telephone Company, an entity owned by the
Commonwealth of Puerto Rico, and Cellular Communications of Puerto
Rico, Inc., a publicly held company. In addition, the FCC has issued
the 30 MHz Block A broadband PCS license for the Puerto Rico-U.S.
Virgin Islands MTA to AT&T Wireless. The FCC has conducted the 30 MHz
Block C broadband PCS license auctions for the San Juan, Puerto Rico
BTA, the Mayaguez-Aguadilla-Ponce, Puerto Rico BTA and the U.S. Virgin
Islands BTA, which are the component parts of the Puerto Rico-U.S.
Virgin Islands MTA, and is expected to issue licenses to the winning
bidders in those respective auctions in the near future. Centennial
anticipates that the FCC will license additional broadband PCS
providers in Puerto Rico and the U.S. Virgin Islands in the future.
This could result in one or more additional competitors in each of
Centennial's markets.
Competing Technologies
In addition to existing competition from the other cellular
licensee in each market and future competition from broadband PCS
licensees, Centennial's cellular operations also face competition from
other current technologies. Such technologies include conventional
landline telephone service, and mobile telephone and SMR systems, both
of which are more limited than cellular but which provide a two-way
voice service and are able to connect with the landline telephone
network. In addition, one-way paging service may be a competitive
alternative adequate for those who do not need a two-way service or
may be a service that reduces cellular telephone usage among
subscribers to both cellular and paging services.
The FCC has given permission to SMR operators in the 800 MHz
spectrum band in several major metropolitan areas, via waivers of its
rules, to operate wide area SMR systems using digital technology.
These systems typically have a large number of channels which can be
configured into a cellular-type system, thereby potentially
eliminating much of the current technological distinction between SMR
and cellular. A few such systems are now operational. The FCC has a
rule making proceeding outstanding in which it proposes to establish
wide area SMR service in the 800 MHz spectrum band as a regular
service. The FCC has also conducted auctions to license digital wide
area SMR systems in the 900 MHz spectrum band on an MTA basis. The
FCC has licensed up to 20 ten-channel licensees for this service in
each MTA. Aggregation of these channels increases the competitive
potential of this service.
The FCC has also allocated spectrum for narrowband PCS in the 900
MHz band. The possible new services using this 900 MHz band spectrum
include advanced voice paging, two-way acknowledgment paging, data
messaging, electronic mail and facsimile transmissions. These
services most likely will be provided using a variety of devices, such
as laptop and palmtop computers and computerized "personal organizers"
that allow receipt of office messages, calendar planning, and document
editing from remote locations in some circumstances. Auctions for
nationwide narrowband PCS spectrum have been completed and licenses
have been issued to the winners. Narrowband PCS is expected to
present limited competition for both cellular telephone systems and
broadband PCS systems.
The FCC has allocated radio frequencies for mobile satellite-
based systems that are designed to provide voice, data and other types
of mobile communications services which compete with Centennial's
services. The full range of these services is currently being
provided by a Geostationary ("GSO") Mobile Satellite Service ("MSS")
consortium and is soon to be provided by FCC licensed low-earth orbit
("LEO") MSS systems ("Big LEOs"). In addition, low-data rate mobile
data communications services are currently being provided by licensees
using fixed service satellites ("FSS") as well as by other satellite
licensees pursuant to FCC-granted waivers.
Frequencies have been allocated by the FCC below 1 GHz for low-
earth orbit MSS systems ("Little LEOs") for the provision of various
types of mobile data communications services and the licensing of such
systems is underway. At least one such system has been licensed and
numerous applications are pending. Finally, the Commission recently
allocated spectrum for various types of FSS services which, in the
future, will likely be used to provide competing services through the
use of fixed satellite technology.
Technological advances in the communications field continue to
occur which make it difficult to predict the extent of additional
future competition for cellular systems but it is certain that in the
future there will be more potential substitutes for cellular service.
There can be no assurance that Centennial will not face significant
future competition or that cellular technology will not eventually
become obsolete.
Potential Conflicts of Interest and Competition
Substantially all of the Company's and all of Citizens' current
cellular operations and investments are conducted or held by
Centennial. Although exceptions are permitted by the
Conflicts/Non-Compete Agreement described below (the
"Conflicts/Non-Compete Agreement"), the Company has indicated to
Centennial that it intends to conduct all of its wireless telephone
operations through Centennial, subject to FCC restrictions. Citizens
has agreed with the Company and Centennial that Citizens will conduct
all of its wireless telephone operations through Centennial, except in
areas where Citizens operates or acquires landline telephone systems
and areas contiguous thereto. There can be no assurance that
Centennial will not lose any material expansion opportunities as a
result of such exception or any conflicts that may exist between the
interests of Citizens and Centennial.
The Company, Centennial and Citizens have entered into a
Conflicts/Non-Compete Agreement. Pursuant to such agreement, except
as described below, neither the Company nor Citizens may compete with
Centennial in the acquisition of cellular telephone businesses or
ownership interests therein, and Centennial will have the first
opportunity to purchase any cellular telephone business or ownership
interests therein that may be presented to Citizens or the Company.
Citizens has no obligation to present any such business opportunity to
Centennial if the business under consideration is located in or is
contiguous to an area in which Citizens (or a subsidiary or affiliate
at least 50%-owned by Citizens) owns or operates a landline telephone
operation. Citizens is the managing general partner of a partnership
which is the holder of the wireline cellular telephone license for the
Mohave, Arizona market, a market in which Citizens also owns and
operates a landline telephone operation.
Because the rules of the FCC prohibit the direct or indirect
alienation of any interests in pending applications for cellular
telephone systems and due to the concern that, under FCC rules,
Centennial might not meet the eligibility requirements as either a
wireline or non-wireline applicant for a grant of an initial
authorization, applications of the Company for cellular telephone
licenses pending as of the effective date of the Merger were retained
by the Company. As of August 16, 1996, the Company had applications
pending before the FCC to be designated the non-wireline cellular
telephone permittee or licensee for several separate markets. Since
the Company could not be obligated to transfer to Centennial the
interests described without adversely affecting the validity of such
pending applications, it has agreed with Centennial that if any of its
pending applications results in it owning an interest in a permit or
in an entity which owns such a permit, it will explore fully the
possibility of transferring such interests to Centennial, unless the
market covered by such permit is located in or is contiguous to an
area in which the Company, or any entity in which the Company has a
direct or indirect 50% or greater interest, owns, operates or manages,
or is then negotiating to acquire, a cable television system (which is
the case in one of such markets, which Centennial does not believe
represents the loss of a material expansion opportunity).
REGULATION AND LEGISLATION
Cable Television
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition,
various legislative and regulatory proposals under consideration from
time to time by the Congress and various federal agencies have in the
past, and may in the future materially affect the Company and 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.
Federal Statutory Laws
The principal federal statute governing cable television is the
Communications Act of 1934, as amended (the "Communications Act").
Amendments in 1984, 1992 and 1996 have had particular impact on the
way in which cable systems are regulated. The 1984 and 1992
amendments added significantly to the regulatory burdens of cable
operators, particularly in the areas of (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) customer 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.
On February 8, 1996, the President signed the Telecommunications
Act of 1996 (the "1996 Act") into law. This statute substantially
amended the Communications Act by, among other things, removing
barriers to competition in the cable television and telephone markets
and reducing the regulation of cable television rates.
Federal Regulation
The FCC, the principal federal regulatory agency with
jurisdiction over cable television, has promulgated regulations
covering such areas as the registration of cable television systems,
cross-ownership between cable television 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
television 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. The 1992 Cable Act required the FCC
to adopt additional 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 of these regulations.
A brief summary of certain of these 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 previous
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 statutory provision that 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.
Additionally, the 1992 Cable Act required the FCC to adopt a formula,
for franchising authorities to enforce, to assure that basic cable
rates are reasonable; allowed the FCC to review rates for nonbasic
service tiers (other than per-channel or per-program services) in
response to complaints filed by franchising authorities and/or cable
customers; prohibited cable television 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; required the FCC to adopt regulations to establish, on the
basis of actual costs, the price for installation of cable service,
remote controls, converter boxes and additional outlets; and allows
the FCC to impose restrictions on the retiering and rearrangement of
cable services under certain limited circumstances. The 1996 Act
sunsets FCC regulation of nonbasic tier rates on March 31, 1999.
The FCC adopted rules designed to implement the 1992 Cable Act's
rate regulation provisions. The FCC's regulations contain standards
for the regulation of basic and nonbasic cable service rates (other
than per-channel or per-program services). The rate regulations
contain a benchmark price cap system for measuring the reasonableness
of existing basic and nonbasic service rates, and a formula for
calculating 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.
The 1996 Act eliminates regulation of rates for nonbasic service
tiers for all cable operators as of March 31, 1999. In the interim,
regulation of rates for nonbasic service tiers can only be triggered
if a franchising authority complaint based on more than one subscriber
complaint is made with the FCC within 90 days after a rate increase.
These 1996 Act provisions should materially alter the applicability of
FCC rate regulations adopted under the 1992 Cable Act.
The 1996 Act relaxes the uniform rate requirements of the 1992
Cable Act, which required an operator of cable television systems to
have a uniform rate structure for the provision of cable services
throughout the geographic area in which the operator provides cable
service. Specifically, the new legislation clarifies that the uniform
rate provision does not apply where an operator of a cable television
system faces "effective competition." In addition, bulk discounts to
multiple dwelling units are exempted from the uniform rate
requirements. However, complaints may be made to the FCC against
operators of cable television systems not subject to effective
competition for "predatory" pricing (including with respect to bulk
discounts to multiple dwelling units). The 1996 Act also permits
operators of cable television systems to aggregate, on a franchise,
system, regional or company level, its equipment rates across
jurisdictional boundaries. However, these cost-aggregation rules do
not apply to the limited equipment used by subscribers who only
receive basic service.
Local franchising authorities and/or the FCC are empowered to
order a reduction of existing rates which exceed the maximum permitted
level for either basic and/or nonbasic cable services and associated
equipment, and refunds can be required, measured from the date of a
complaint to the FCC challenging an existing nonbasic cable service
rate or from a date as much as one year prior to a decision by a local
franchising authority on basic cable service. 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 programming costs. Cost-
based adjustments to these capped rates can also be made in the event
a cable operator adds or deletes channels. Alternatively, cable
operators can increase rates by as much as $1.50 through December 31,
1996, to reflect the addition of up to six new channels of service on
nonbasic service tiers. In addition, new product tiers consisting of
services new to the cable system can be created free of rate
regulation as long as certain conditions are met such as not moving
services from existing tiers to the new tier. There is also a
streamlined cost-of-service methodology available to justify a rate
increase on basic and regulated nonbasic tiers for "significant"
system rebuilds or upgrades.
In complying with the benchmark regulatory scheme (without
considering the effect of any cost-of-service showing) for the period
September 1, 1993 to May 15, 1994, the Company, on a franchise by
franchise basis, was required to reduce regulated service rates such
that the "average monthly subscriber bill" for all cable service
subject to rate regulation (including, but not limited to basic
service, cable programming service not offered on a per-channel basis,
secondary outlets, converters and remote control units, installation
and service charges) was reduced by an amount of up to 10% of such
charges as of September 1992. Under the current FCC benchmarks,
additional reductions were required after May 15, 1994. These new FCC
benchmarks were intended generally to reduce rates to a level 17%
below September 1992 rates, subject to various adjustments. Where
rates are found to exceed the permitted levels, the Company is subject
to refunds.
The FCC has also adopted regulations pursuant to the 1992 Act
which require cable operators to permit customers to purchase video
programming on a per channel or a per program basis without the
necessity of subscribing to any tier of service, other than the basic
service tier, unless the cable system is technically incapable of
doing so. Generally, this exemption from compliance with the statute
for cable systems that lack such technical capability is only
available until a cable system obtains the capability, but not later
than December 2002.
Carriage of Broadcast Television Signals
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 ("ADI"), must elect every three years whether to
require the cable system to carry the station, subject to certain
exceptions, or whether the cable system must negotiate for
"retransmission consent" to carry the station. The next such election
will be made on October 1, 1996. 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. The validity
of the mandatory carriage provision is still undergoing judicial
review.
In addition, cable systems must obtain retransmission consent for
the carriage of all "non-ADI" commercial broadcast stations, except
for certain "superstations," i.e., commercial satellite-delivered
independent stations such as WTBS.
Nonduplication of Network Programming
Cable television systems with 1,000 or more customers must, upon
the appropriate request of a local television station, delete the
simultaneous or nonsimultaneous network programming of a distant
station when such programming has also been contracted for by the
local station on an exclusive basis.
Deletion of Syndicated Programming
FCC regulations enable television broadcast stations that have
obtained exclusive distribution rights for syndicated programming in
their market to require a cable system to delete or "black out" such
programming from other television stations which are carried by the
cable system. The extent of such deletions will vary from market to
market and cannot be predicted with certainty. However, it is
possible that such deletions could be substantial and could lead the
cable operator to drop a distant signal in its entirety. The FCC also
has commenced a proceeding to determine whether to relax or abolish
the geographic limitations on program exclusivity contained in its
rules, which would allow parties to set the geographic scope of
exclusive distribution rights entirely by contract, and to determine
whether such exclusivity rights should be extended to noncommercial
educational stations. It is possible that the outcome of these
proceedings will increase the amount of programming that cable
operators are requested to black out. Finally, the FCC has declined
to impose equivalent syndicated exclusivity rules on satellite
carriers who provide services to the owners of home satellite dishes
similar to those provided by cable systems.
Franchise Fees
Although franchising authorities may impose franchise fees under
the 1984 Cable Act, such payments cannot exceed five percent of a
cable system's annual gross revenues. Under the 1996 Act, franchising
authorities may not exact franchise fees from revenues derived from
telecommunications services. 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.
Renewal of Franchises
The 1984 Cable Act established renewal procedures and criteria
designed to protect incumbent franchisees 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. While a cable operator must still submit its request to
commence renewal proceedings within thirty to thirty-six months prior
to franchise expiration to invoke the formal renewal process, the
request must be in writing and the franchising authority must commence
renewal proceedings not later than six months after receipt of such
notice. The four-month period for the franchising authority to grant
or deny the renewal now runs from the submission of the renewal
proposal, not the completion of the public proceeding. Franchising
authorities may consider the "level" of programming service provided
by a cable operator in deciding whether to renew. For alleged
franchise violations occurring after December 29, 1984, franchising
authorities are no longer precluded from denying renewal based on
failure to substantially comply with the material terms of the
franchise where the franchising authority has "effectively acquiesced"
to such past violations. Rather, the franchising authority is
estopped if, after giving the cable operator notice and opportunity to
cure, it fails to respond to a written notice from the cable operator
of its failure or inability to cure. Courts may not reverse a denial
of renewal based on procedural violations found to be "harmless
error."
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 1984 Cable Act
further requires cable television systems with 36 or more activated
channels to designate a portion of their channel capacity for
commercial leased access by unaffiliated third parties. While the
1984 Cable Act allowed cable operators substantial latitude in setting
leased access rates, the 1992 Cable Act requires leased access rates
to be set according to a formula determined by the FCC.
Competing Franchises
The 1992 Cable Act prohibits franchising authorities from
unreasonably refusing to grant franchises to competing cable
television systems and permits franchising authorities to operate
their own cable television systems without franchises.
Ownership
The 1996 Act repealed the statutory ban against 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.
Consequently, the 1996 Act permits telephone companies to compete
directly with operators of cable television systems. This can be done
by obtaining a cable franchise, offering a common carrier service, or
as follows. Under the 1996 Act and FCC rules recently adopted to
implement the 1996 Act, LECs may provide video service through open
video systems ("OVS"), a regulatory regime that may give them more
flexibility than traditional cable systems. OVS replaces the FCC's
"video dialtone" scheme. OVS operators (including LECs) may operate
OVS without obtaining a local cable franchise, although they can be
required to make payments to local governmental bodies in lieu of
cable franchise fees. In general, OVS operators must make their
systems available to programming providers on rates, terms and
conditions that are reasonable and nondiscriminatory. Where carriage
demand by programming providers exceeds the channel capacity of an
OVS, two-thirds of the channels must be made available to programmers
unaffiliated with the OVS operator.
The 1996 Act generally prohibits buyouts of cable television
systems (including any ownership interest of such systems exceeding 10
percent) by LECs within an LEC's telephone service area, buyouts by
operators of cable television systems of LEC systems within a cable
operator's franchise area, and joint ventures between operators of
cable television systems and LECs in the same markets. There are some
statutory exceptions, principally dealing with rural systems and
situations where there is more than one cable system in a market.
Also, the FCC may grant waivers of the buyout provisions in cases
where (i) the operator of a cable television system or the LEC would
be subject to undue economic distress if such provisions were
enforced, (ii) the system or facilities would not be economically
viable in the absence of a buyout or joint venture or (iii) the
anticompetitive effects of the proposed transaction are clearly
outweighed by the transaction's effect in light of community needs.
The respective local franchising authority must approve any such
waiver.
The 1996 Act also authorizes registered utility holding companies
and their subsidiaries to provide video programming services,
notwithstanding the Public Utility Holding Company Act. In order to
take advantage of the new legislation, public utilities must establish
separate subsidiaries through which to operate any cable operations.
Such utility companies must also apply to the FCC for operating
authority.
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 rule 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 MDS facilities or
satellite master antenna television ("SMATV") systems having
overlapping service areas, except in limited circumstances. The 1996
Act exempts cable systems facing "effective competition" from the MDS
and SMATV cross-ownership restrictions.
Pursuant to the 1992 Cable Act, the FCC has adopted rules which,
with certain exceptions, preclude a cable television system from
devoting more than 40 percent of its first 75 activated channels to
national video programming services in which the cable system owner
has an attributable interest. The FCC has also set a limit of 30
percent of total nationwide cable homes that can be served by any
multiple cable system operator. The FCC has stayed the effectiveness
of this ruling pending the outcome of its appeal from the U.S.
District Court decision holding the multiple ownership limit provision
of the 1992 Cable Act unconstitutional.
EEO
The 1984 Cable Act includes provisions to ensure that minorities
and women are provided equal employment opportunities within the cable
television industry. The statute requires the FCC to adopt reporting
and certification rules that apply to all cable system operators with
more than five full-time employees. Pursuant to the requirements of
the 1992 Cable Act, the FCC has imposed more detailed annual EEO
reporting requirements on cable operators and has expanded those
requirements to all multichannel video service distributors. Failure
to comply with the EEO requirements can result in the imposition of
fines and/or other administrative sanctions, or may, in certain
circumstances, be cited by a franchising authority as a reason for
denying a franchisee's renewal request.
Privacy
The 1984 Cable Act imposes a number of restrictions on the manner
in which cable system operators can collect and disclose data about
individual system customers. The statute also requires that the
system operator periodically provide all customers with written
information about its policies regarding the collection and handling
of data about customers, their privacy rights under federal law and
their enforcement rights. In the event that a cable operator is found
to have violated the customer privacy provisions of the 1984 Cable
Act, it could be required to pay damages, attorneys' fees and other
costs. Under the 1992 Cable Act, the privacy requirements are
strengthened to require that cable operators take such actions as are
necessary to prevent unauthorized access to personally identifiable
information.
Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request 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.
Registration Procedure and Reporting Requirements
Prior to commencing operation in a particular community, all
cable television systems must file a registration statement with the
FCC listing the broadcast signals they will carry and certain other
information. Additionally, cable operators periodically are required
to file various informational reports with the FCC. Cable operators
who operate in certain frequency bands are required on an annual basis
to file the results of their periodic cumulative leakage testing
measurements. Operators who fail to make this filing or who exceed
the FCC's allowable cumulative leakage index risk being prohibited
from operating in those frequency bands in addition to other
sanctions.
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 revised such standards and made them applicable to
all classes of channels which carry downstream National Television
System Committee (NTSC) video programming. The FCC also has adopted
additional standards applicable to cable television systems using
frequencies in 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 the
technical standards and signal leakage limits is required. The 1992
Cable Act requires the FCC to periodically update its technical
standards to take into account changes in technology. Under the 1996
Act, local franchising authorities may not prohibit, condition or
restrict a cable system's use of any type of subscriber equipment or
transmission 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. These regulations, inter
alia, generally prohibit cable operators from scrambling their basic
service tier and from changing the infrared codes used in their
existing customer premises equipment. This latter requirement could
make it more difficult or costly for cable operators to upgrade their
customer premises equipment and the FCC has been asked to reconsider
its regulations. The 1996 Act directs the FCC to set only minimal
standards to assure compatibility between television sets, VCRs and
cable systems, and to rely on the marketplace. The FCC must adopt
rules to assure the competitive availability to consumers of customer
premises equipment, such as converters, used to access the services
offered by cable systems and other multichannel video programming
distributors.
Pole Attachments
The FCC currently regulates the rates and conditions imposed by
certain public utilities for use of their poles unless state public
service commissions are able to demonstrate that they regulate the
rates, terms and conditions of cable television pole attachments. A
number of states 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.
Under the 1996 Act, investor-owned utilities must make poles and
conduits available to cable systems under delineated terms. Electric
utilities are given the right to deny access to particular poles on a
nondiscriminatory basis for lack of capacity, safety, reliability, and
generally accepted engineering reasons. The current method for
determining attachment rates charged by telephone and utility
companies will continue for five years. However, the 1996 Act directs
the FCC to establish a new formula for the rental rate for poles used
by cable operators who provide "telecommunications services" which
will result in higher pole rental rates for such cable operators. Any
increases pursuant to this formula may not begin for five years and
will be phased in equal increments over years five through ten. This
new FCC formula does not apply in states which certify they regulate
pole rents, nor will it apply to cable operators who provide only
traditional cable services. Pole owners must impute pole rentals to
themselves if they offer telecommunications or cable services. Cable
operators need not pay future "make ready" poles currently contacted
if the make ready is required to accommodate the attachments of
another user, including the pole user.
Cable Entry Into Telecommunications
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 for such services. The
1996 Act prohibits local franchising authorities from requiring cable
operators to provide, or prohibiting them from providing,
telecommunications service or facilities as a condition of a grant of
a franchise, franchise renewal, or franchise transfer, except that
local franchising authorities can seek "institutional networks" as
part of such franchise negotiations.
The 1996 Act states that cable franchise fees may only be based
on revenues related to the provision of traditional cable television
services. However, when cable operators provide telecommunications
services, local franchising authorities may require reasonable,
competitively neutral compensation for management of the public rights-
of-way.
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 may not deploy
network features and functions that interfere with interoperability.
Existing local exchange carriers also have the following obligations:
(1) good faith negotiation with those seeking interconnection;
(2) unbundling, equal access and non-discrimination requirements;
(3) resale of services, including "resale at wholesale rates" (with an
exception for certain low-priced residence services to business
customers); (4) notice of changes in the network that would affect
interconnection and interoperability; and (5) physical collocation
unless shown that practical technical reasons, or space limitations,
make physical collocation impractical. The FCC has adopted rules to
effectuate this provision.
Under the 1996 Act, individual interconnection rates must be just
and reasonable, based on cost, and may include a reasonable profit.
Cost of interconnection will not be determined in a rate of return
proceeding. Traffic termination charges shall be "mutual and
reciprocal." The 1996 Act contemplates that interconnection
agreements will be negotiated by the parties and submitted to a state
public service commission ("PSC") for approval. A PSC 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 PSC acts, an aggrieved party's remedy is to file a case in
federal district court.
The 1996 Act requires that all telecommunications providers
(including cable operators that provide telecommunications services)
must contribute equitably to a Universal Service Fund ("USF"),
although 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.
Other Matters
FCC regulation pursuant to the Communications Act 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; obscenity and
indecency; 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.
Cable operators are liable for interest on underpaid and unpaid
royalty fees, but are not entitled to collect interest on refunds
received for overpayment of copyright fees.
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) is 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, both ASCAP and BMI now offer "through to the viewer"
licenses to the cable networks which cover the retransmission of the
cable networks' programming by cable systems to their customers.
Copyrighted music performed by cable systems themselves on local
origination channels, in advertisements inserted locally on cable
networks, et cetera, must also be licensed. A blanket license is
available from BMI. Cable industry negotiations with ASCAP are still
in progress.
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. Although
the 1984 Cable Act provides for certain procedural protections, there
can be no assurance that renewals will be granted or that renewals
will be made on similar terms and conditions. Franchises usually call
for the payment of fees, often based on a percentage of the system's
gross customer revenues, to the granting authority. 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. 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 television 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 television systems. Moreover, franchising
authorities are immunized from monetary damage awards arising from
regulation of cable television systems or decisions made on franchise
grants, renewals, transfers and amendments.
The foregoing does not purport to describe all present and
proposed federal, state and local regulations and legislation 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 can be predicted at this time. Moreover, changes in the
regulatory and legislative environment are constantly occurring. The
Company cannot predict the effect that ongoing or future developments
may have on the cable television industry generally or the Company
specifically.
Cellular Telephone
Federal Regulation
The cellular, PCS, paging and conventional mobile telephone
systems and SMR systems operated by Centennial Cellular are licensed
by the FCC in the Commercial Mobile Radio Service ("CMRS"). The FCC
limits licensees to a total of 45 MHz of CMRS spectrum in any given
market area. For example, since cellular systems are allocated 25 MHz
of spectrum, entities can aggregate a cellular system license and two
10 MHz broadband PCS licenses (e.g. Blocks D and E) in the same market
area.
The construction, operation and sale of controlling interests in
cellular telephone systems in the United States is regulated by the
FCC pursuant to the Communications Act of 1934, as amended (the
"Communications Act"). The FCC has promulgated regulations for the
construction and operation of cellular systems, the licensing and
administrative appeals processes and the technical standards for the
provision of cellular telephone service.
Under FCC regulations, two cellular authorizations initially are
available for any given area within each of the 734 FCC-designated
markets in the United States. Apart from the different frequency
blocks, there is no technical difference between Wireline and
Non-Wireline systems, and the operational requirements imposed on
Wireline and Non-Wireline licensees are the same. The regulatory
distinction between Wireline and Non-Wireline frequency blocks affects
an applicant's eligibility to apply for an initial authorization and
disappears after initial licensing. After initial authorization, a
Non-Wireline company may purchase interests in a Wireline system,
subject to restrictions on common ownership of Wireline and
Non-Wireline systems in the same market and to any necessary prior
approval of the FCC. Likewise, a company affiliated with a landline
telephone service provider may purchase an interest in a Non-Wireline
license subject to the same restrictions on common ownership and prior
FCC consent where necessary. Prior to the time a cellular system is
placed in operation, FCC consent to a sale is subject to a showing
that the seller is not trafficking in cellular telephone licenses.
Once a system has been constructed and placed in operation, FCC
consent to such sales may be obtained without such a showing.
Non-controlling interests in a licensee or construction permit holder
generally may be sold without prior FCC consent. Whenever FCC
approval is required, any interested party may file a petition to
dismiss or deny the application for consent to the proposed transfer
of control or assignment of licenses.
Under FCC rules, the authorized service area for a cellular
licensee in a market is referred to as the cellular geographic service
area ("CGSA"). The CGSA may be coincident with or smaller than the
related FCC-designated market. In all FCC-designated markets not yet
operational, at least one cell must be placed into commercial service
within eighteen months after the award of the construction permit.
The official CGSA boundaries are the areas actually served by the
cellular licensees (as computed by a mathematical formula based on the
height and power of the various cells). Cellular licensees need not
obtain FCC authority prior to increasing the CGSA within the five-year
period after the construction permit is initially granted for the
market. However, FCC notification may still be required under certain
circumstances. After the five-year build-out period has expired, any
entity may apply to serve the unserved areas of the FCC-designated
market which are outside of the licensee's CGSA (an "unserved area
application"). FCC rules require that any unserved area application
filed by an entity other than a licensed cellular carrier operating a
system adjacent to the unserved area must propose a single contiguous
service area of no less than 50 square miles.
Modifications to a cellular system that are considered to be
major by the FCC must be approved in advance by the FCC.
Modifications not considered to be major, such as modifications in
cell site locations that do not result in any enlargement of the CGSA,
may be undertaken without notification to the FCC. When a cellular
system has been constructed and is ready to be placed in operation,
the licensee is required to notify the FCC that construction has been
completed in accordance with the authorization it received.
Immediately upon this notification, the FCC rules authorize the
licensee to offer commercial service to the public. The licensee is
then said to have operating authority.
The FCC requires a PCS MTA licensee to build its system to
achieve coverage of one-third of the population of the MTA within five
years of the initial license grant and two-thirds within 10 years.
Generally speaking, for a period of up to five years after the grant
of a PCS license, a PCS licensee will be required to share spectrum
with existing licensees that operate certain fixed microwave systems
on frequencies within the subject PCS spectrum block, which exist
within the PCS market. Using procedures established by the FCC which
involve defined periods of voluntary negotiation, mandatory
negotiation and, finally, mandatory relocation, Centennial may need to
relocate existing microwave users currently licensed on frequencies
within PCS Block B in the Puerto Rico-U.S. Virgin Islands MTA. The
FCC's rules provide for such relocations to be accomplished at the PCS
licensee's expense.
Cellular and PCS licenses are granted for a term of up to ten
years, after which they must be renewed. Licenses may be revoked and
license renewal applications denied for cause. It is possible that
there may be competition for a license upon the expiration of its
initial license term. While there can be no assurance that any
license will be renewed, the FCC's rules provide for a significant
renewal preference to a cellular and PCS licensee that has used its
spectrum for its intended purpose, complied with FCC regulations and
the federal communications statutes. If a cellular and PCS licensee
is awarded a renewal expectancy, its renewal will be granted without
further consideration of any competing applications.
The FCC's rules also prohibit cellular telephone licensees from
imposing restrictions on the resale of cellular service by parties who
purchase blocks of mobile telephone numbers from an operational system
and then resell them to the public.
Pursuant to the requirements set forth in the Telecommunications
Act of 1996 and the FCC's implementing regulations, incumbent local
exchange carriers ("LECs"), such as the landline telephone companies
in each market, have the following interconnection-related duties:
(i) the duty to negotiate, in good faith, the terms and conditions of
agreements to fulfill the duties described above; (ii) the duty to
provide interconnection for the transmission and routing of telephone
exchange service and exchange access at any technically feasible point
within the carrier's network; (iii) the duty to provide
nondiscriminatory access to network elements on an unbundled basis at
any technically feasible point; (iv) the duty to offer for resale on a
reasonable and nondiscriminatory basis, at wholesale rates, any
telecommunications service that the carrier provides at retail to
subscribers who are not telecommunications carriers; and (v) the duty
to provide for actual collocation (or virtual collocation in limited
circumstances) of equipment necessary for interconnection or access to
unbundled network elements at the premise of the LEC.
The FCC also regulates other aspects of the operation and
ownership of CMRS systems including restrictions on the level of
foreign ownership of CMRS licenses.
In addition to regulation by the FCC, CMRS systems are subject to
certain Federal Aviation Administration tower height regulations
respecting the siting, construction, marking and lighting of CMRS
transmitter towers and antennas.
There can be no assurance that any FCC requirements currently
applicable to Centennial's CMRS systems will not be changed in the
future.
State and Local Regulation
Following the grant of an FCC construction permit to an
applicant, and prior to the commencement of commercial service (and
prior to construction in certain states), the holder of the permit may
have to obtain certain approvals from the appropriate regulatory
bodies in the states in which it will offer CMRS service. In 1981 the
FCC preempted the states from exercising jurisdiction in the areas of
licensing, technical standards and market structure. Under the
Omnibus Budget Reconsolidation Act of 1993, Title VI, which addressed
certain regulatory issues affecting the mobile radio
telecommunications industry, and implementing FCC regulations, states
which regulate rates were required to petition the FCC by August 1994
if they wish to continue to so regulate. Of the states in which
Centennial's CMRS operations are located, only Arizona, California,
and Louisiana filed petitions. Those petitions were denied by the
FCC. At present, none of the states in which the Company's CMRS
operations are located may regulate the entry of CMRS providers or the
rates charged for CMRS service. However, they could regulate other
terms and conditions of service.
The FCC has recently adopted a requirement that CMRS operators
provide subscribers the same access as wireline callers to 911
emergency services. The imposition of such a requirement may result
in significant costs to Centennial.
The siting and construction of the CMRS facilities, including
transmitter towers, antennas and equipment shelters may be subject to
state or local zoning, land use and other local regulations. Before a
system can be put into commercial operation, the holder of a
construction permit must obtain all necessary zoning and building
permit approvals ("zoning approvals") for the transmitter sites and
MTSO locations. The time needed to obtain zoning approvals and the
requisite state permits varies from market to market and state to
state.
Recent Legislation
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996, which contained significant provisions
aimed, in part, at opening local telecommunications markets to
competition. Specifically, with respect to telecommunications
services, the legislation includes, among others, provisions governing
(1) the removal of barriers to entry for intrastate service, (2) the
development of competitive markets through such requirements as
interconnection, resale, number portability, dialing parity, access to
right-of-ways, good faith negotiations, unbundled access to networks,
collocation and numbering administration, (3) procedures for
negotiation, arbitration and approval of interconnection agreements,
including voluntary negotiations and mediation, compulsory
arbitration, pricing standards, approval by state commissions and
Regional Bell Operating Company statements of generally available
terms and conditions, (4) universal service and (5) restrictions on
Bell Operating Companies. A number of rulemakings have been
instituted by the FCC to implement the legislation.
Pending Legislation; FCC and State Proceedings
Comprehensive telecommunications reform legislation in Puerto
Rico has been passed by the Puerto Rico legislature and is currently
before the Governor for signature or veto. Centennial believes that
the regulatory approach as well as certain provisions of the
legislation are inconsistent with the procompetition language and/or
objectives of the Telecommunications Act of 1996. If the legislation
is enacted in its current form, Centennial intends to bring these
inconsistencies to the attention of the FCC or the courts, as
appropriate. Whether or not the legislation is enacted, Centennial
intends to take whatever legal action is reasonable and appropriate to
assure that there is a regulatory forum to address its intra-island
telecommunications issues.
The FCC recently adopted a requirement that CMRS operators
provide subscribers the same access as wireline callers to 911
emergency services. The imposition of such a requirement may result
in significant costs to Centennial.
Radiofrequency Emission Concerns
Media reports have suggested that certain radiofrequency ("RF")
emissions from portable cellular telephones might be linked to cancer.
Centennial is not aware of any credible evidence linking the usage of
portable cellular telephones with cancer. The FCC recently completed
a rulemaking proceeding which updated the guidelines and methods it
uses for evaluating RF emissions in radio equipment, including
cellular telephones. It is anticipated that all cellular telephones
currently marketed and in use will comply with those standards.
Digital Cellular Technology
Over the next decade, it is expected that cellular telephones
will gradually convert from analog to digital technology. This
conversion is due in part to capacity constraints in many of the
largest cellular markets, such as Los Angeles, New York and Chicago.
As carriers reach limited capacity levels, certain calls may be unable
to be completed, especially during peak hours. Digital technology
increases system capacity and offers other advantages over analog
technology, including improved overall average signal quality,
improved call security, potentially lower incremental costs for
additional subscribers and the ability to provide data transmission
services. The conversion from analog to digital technology is
expected to be an industry-wide process that will take a number of
years. The exact timing and overall costs of such conversion are not
yet known.
Centennial is in the process of upgrading its cellular telephone
systems from analog to digital technology and provides digital
cellular telephone service in most of its cellular telephone markets
to roamers. The implementation of digital technology will be
fundamentally directed by subscriber demand for secure and
confidential communications, the introduction of new cellular
telephone services such as message waiting and calling line
identification, and the delivery of data communications. Where cell
sites are not yet at their maximum capacity of radio channels,
Centennial is adding digital channels to the network incrementally
based on the relative demand for digital and analog channels. Where
cell sites are at full capacity, analog channels are being removed and
redeployed to expand capacity elsewhere within the network and
replaced in such cell sites by digital channels. The implementation
of digital cellular technology over a period of several years will
involve modest incremental expenditures for switch software and
possible significant cost reductions as a result of reduced purchases
of radio channels and a reduced requirement to split existing cells.
However, as indicated above, the extent of any implementation of
digital radio channels and the amount of any cost savings ultimately
to be derived therefrom will depend primarily on subscriber demand.
In the ordinary course of business, equipment upgrades at the cell
sites have involved purchasing dual mode radios capable of using both
analog and digital technology.
The benefits of digital radio channels can only be achieved if
subscribers purchase cellular telephones that are capable of
transmitting and receiving digital signals. Currently, such
telephones are more costly than analog telephones. The widespread use
of digital cellular telephones is likely to occur only over a
substantial period of time and there can be no assurance that this
technology will replace analog cellular telephones. In addition,
since most of Centennial's existing subscribers currently have
cellular telephones that exclusively utilize analog technology, it
will be necessary to continue to support, and if necessary increase,
the number of analog radio channels within the network for many years.
Australian Pay Television
Australia
Australia is a Federal jurisdiction. The Federal Government of
Australia has jurisdiction to make laws with respect to certain
matters enumerated in Australia's constitution while the States and
Territories of Australia have residual power over most other matters.
A valid Federal law will prevail over an inconsistent state law. The
provision of subscription television services is regulated by the
Federal Government under various Commonwealth statutes. In addition,
State and Territory laws, including environmental and consumer
contract legislation, may impact on the construction and maintenance
of a transmission system for subscription television services, and the
content of those services, as well as on various aspects of the
subscription television business itself.
The Australian regulatory framework distinguishes between the
regulation of the content of subscription television services
themselves and the regulation of the facilities used to transmit those
services. The BSA regulates the program content for all Broadcasting
Services used by certain broadcasters and Narrowcasters, including the
Off-Air broadcasters. The BSA distinguishes between Narrowcast and
Subscription Broadcast television services: (i) Narrowcast services,
which provide niche or specialized programs that target particular
audiences and are provided pursuant to class licenses and
(ii) Subscription Broadcast services, which provide programs that
appeal to the general public (as opposed to those which target
particular audiences) and require an individual license for each
service. The BSA further distinguishes between pay television
services which are made available only upon payment of subscription
fees and a number of other categories. ECT currently provides the
License B Package, CNBC Asia, World Movies and BBC World News (on MDS)
as well as the four channels of Subscription Broadcast services under
the License A Package.
The transmission facilities used to provide the above services
are principally regulated by the Radiocommunications Act 1992 ("RCA")
and the Telecommunications Act 1991 ("TCA"). The RCA, which commenced
on July 1, 1993, regulates the use of the radio frequency spectrum,
including the use of MDS transmission and the spectrum used by
satellite operations. The TCA, which commenced on July 1, 1991,
regulates the provision of telecommunications services including
certain aspects of carrier operated satellites.
Broadcasting Services Act
Broadcasting Service Categories
The BSA regulates the content, ownership and operation of
Broadcasting Services in Australia and generally seeks to do so in a
"technology neutral" manner. It applies to television (with the
exception of video dial tone services such as Asymmetric Digital
Subscriber Loop) and radio services delivered by any means, including
radio frequencies, cable television (fiber-optic or coaxial),
satellite or a combination of those means of transmission. ECT
presently supplies services under categories of Subscription Broadcast
television and Subscription Narrowcast television.
Subscription Narrowcast services are services that are available
only upon the payment of subscription fees and on a limited basis, for
example, to special interest groups or to specific locations, during
limited periods, for special events, or for other programs of limited
appeal. In contrast, Subscription Broadcast services are services
that are made available to the general public upon the payment of
subscription fees and which provide programs that, when considered in
the context of the service being provided, appear to be intended to
appeal to the general public.
Narrowcast Services
The operation of Narrowcast services is authorized by a general
"class" license, each of which covers the operation of a category of
service, and does not require the licensing of individual operators.
Therefore, ECT will not be required to apply to the ABA for specific
licenses to operate Narrowcast services.
Subscription Television Broadcast Services
License Conditions. Each Subscription Television Broadcast
License is issued subject to certain conditions which include, but are
not limited to, the following: advertising is prohibited before July
1, 1997; cigarette or other tobacco product advertising is prohibited;
subscription fees must be the predominant source of revenue for the
service, even after July 1, 1997 (when advertising is permitted); the
licensee must remain a "suitable" licensee under the BSA; and the
licensee must comply with provisions of the BSA relating to
anti-siphoning and the broadcast of R-rated materials. See
"Regulation and Legislation - Australian Pay Television - Broadcast of
R-Rated Materials" and "Regulation and Legislation - Australian Pay
Television - Anti-Siphoning." The ABA may, by notice in writing given
to a Subscription Broadcast licensee, vary or revoke conditions or may
specify additional conditions, following a process of consultation
with the licensee.
Each Broadcast License is subject to the condition that, if the
licensee provides a service devoted predominantly to drama programs,
the licensee will ensure that at least 10% of its annual programming
expenditures is in relation to new Australian drama programs. The BSA
requires a review by July 1997 as to whether such requirement shall be
increased to 20%.
Conditions that must be imposed on a Subscription Television
Broadcast License include that customers must have the option to rent
domestic reception equipment, and each non-satellite Broadcast License
is subject to the additional condition that, if the licensee does rent
domestic reception equipment to a customer, the customer must be able
to terminate the rental agreement on one month's written notice to the
licensee.
Each DTH satellite license may be subject to certain additional
conditions, including that: (i) the licensee must use the Digital
Transmission Standard (as part of that standard, satellite reception
equipment must be capable of Australian manufacture); (ii) domestic
reception equipment used by the licensee must be accessible by other
satellite Broadcasting Services; (iii) the licensee's subscriber
management system must provide access to that system to other pay
television broadcasting licensees at a fair price; and (iv) if the ABA
is directed by the Minister to include such a condition, Australian
industry must be adequately involved in the provision of services
under the license.
Foreign Ownership
There are no provisions in the BSA restricting foreign persons
from owning shares or an interest in the operators of Narrowcast
services. However, with respect to Subscription Television Broadcast
licensees, ownership of company interests by foreign persons is
limited to 20% for each foreign person and an aggregate of 35% for all
foreign persons. "Foreign person" and "company interest" are defined
in Section 6 of the BSA. "Company interests" include holding a
beneficial entitlement to or interest in shares of the company, being
in a position to exercise control of votes cast on a poll at a
shareholders meeting, having a beneficial entitlement to a dividend or
having an entitlement to share in the property of the company which
could be distributed to its shareholders as a result of a winding up
or otherwise. "Foreign person" means: (i) a natural person who is not
an Australian citizen; or (ii) a company, wherever incorporated, where
natural persons who are not Australian citizens hold company interests
in the company exceeding 50%; or (iii) a company, wherever
incorporated, where: (a) a company referred to above in (ii); or (b)
natural persons who are not Australian citizens and a company referred
to above in (ii), hold company interests in the company exceeding 50%.
Company interests can be traced through a series of companies in order
to determine levels of foreign ownership in accordance with a formula
specified in the BSA. These foreign ownership restrictions will
continue to have effect after July 1, 1997. See also "Regulation and
Legislation - Australian Pay Television - Foreign Acquisition and
Takeovers Act."
Cross-Media Ownership
Subject to the following, there are no provisions in the BSA
limiting the interest that an existing media owner may have in the
operator of a Narrowcast service, a subscription radio broadcast
service or a non-satellite Subscription Television Broadcast Service.
However, in relation to the last category of service, the ABA is
obliged, in consultation with the ACCC, to monitor the cross-media
ownership of licenses for those services in the context of the goals
of the BSA and, if, as a result of that monitoring, the ABA is
concerned that the goals of the BSA are being undermined, the ABA must
report that concern to the Minister, who must then table a copy of the
report in Parliament.
The BSA restricts the level of cross-media ownership and control
of Satellite Licensee A but not Satellite License B. Under applicable
rules, a defined media owner may not hold more than 2% of the company
interests of, or be in a position to exercise control of, Satellite
Licensee A prior to July 1, 1997. Defined media owners include
persons who control large circulation newspapers (average daily
circulation of 100,000 for the days on which the paper was published
during the preceding financial year), telecommunications carriers and
commercial television (i.e., "Off-Air") licensees. Further, Satellite
Licensee A and Satellite Licensee B cannot have company interests
exceeding 2% in each other, or be in a position to control each other,
prior to July 1, 1997.
Broadcast of R-Rated Materials
A subscription television broadcasting licensee must ensure that
access to R-rated material ("restricted to persons over eighteen years
of age" as determined by the Office of Film Literature Classification)
is restricted by disabling devices acceptable to the ABA but will not
broadcast such "R" classified programming until the ABA has completed
an extensive survey on community standards on taste and decency in
relation to classifications for subscription television and on what
levels of violence and depiction of sex should be allowed, and has
recommended, and the Federal Parliament has approved, the broadcast of
programs in the category.
While the ABA has completed its survey and has recommended that R-
rated programming should be available to subscription broadcasting
television subscribers, subject to certain controls, Parliament has
not approved the recommendation. A Senate (upper house) committee
issued a unanimous report in February 1995 recommending an extension
of the existing moratorium banning R-rated movies from subscription
television. The Senate committee also recommended that the Australian
Government revise the R-rating system (which is somewhat different
than the R-rating system in the United States), creating one version
for movies and another, censored version for video and subscription
television. The Minister has yet to submit a proposal regarding the
transmission of R-rated programming to Parliament.
ECT is unable to predict the Minister's recommendations or their
likely effect on XYZ. A change from the current prohibition on R-
rated material may enable subscription television service providers,
such as ECT, or programmers, such as XYZ, to provide or produce a
broader range of services than is currently permitted.
Anti-Siphoning
The BSA also contains a provision relating to "anti-siphoning."
Anti-siphoning is intended to prevent Subscription Broadcast licensees
from obtaining exclusive rights to events of national importance or
cultural significance that have traditionally been shown on Off-Air
television, under the assumption that such events should be as widely
distributed and as accessible as possible.
The BSA imposes a condition on each Broadcast License that
prohibits a licensee from acquiring the right to televise on its
services any event which is listed on the anti-siphoning list unless a
national broadcaster has the right to televise the event on its
broadcast service or an Off-Air television broadcaster (whose
television Broadcasting Services cover more than 50% of the Australian
population) has the right to televise that event. The Minister may
remove an event from the list, and all events are deemed to be removed
from the list, 168 hours after the end of the event.
The Minister has the power to specify such events as in his
opinion should be available for free to the general public. The
Minister officially proclaimed the anti-siphoning list (which
contained only sporting events) on July 6, 1994 and became effective
on that date. The anti-siphoning list covers sports of interest to
Australians such as certain Rugby League, Rugby Union, Australian
Rules football and cricket matches, the English FA cup final and World
Cup soccer matches, the Australian National Basketball League finals,
the U.S. Open, Australian Open, British Open, PGA and Masters golfing
events, certain auto races and the U.S. Open, Australian Open, French
Open and Wimbledon tennis matches, all for a period of ten years.
Furthermore, the Minister has also issued a "watch list" of events
(containing mostly Olympic events) which could be added to the
anti-siphoning list under certain circumstances. The Minister has the
power to remove an event from the list. This is expected to prevent
an Off-Air television broadcaster from buying rights to an event but
not televising the event or televising only an unreasonably small
portion of the event.
Radiocommunications Act
The RCA regulates the use of the radio spectrum in Australia,
including the issuance and use of both MDS apparatus and spectrum
licenses. As of the date hereof, no MDS spectrum licenses have been
issued.
The SMA is the government agency established under the RCA to
manage, among other things, the radio frequency spectrum. Under the
RCA, apparatus licenses authorize the licensee (and certain persons
authorized by the licensee by written instrument) to operate specified
radiocommunications devices or radiocommunications devices of a
specified kind. General conditions apply to each MDS license,
including requirements that apparatus licensees and any person
authorized by the licensee to operate a radiocommunications device
under the license comply with the RCA and its conditions and meet all
obligations thereunder. Transmitter licensees are further restricted
with conditions including, among other things, (i) operating on
specified frequencies, (ii) transmitter licensees must not operate or
permit operation of the transmitter for a purpose inconsistent with a
purpose of a kind specified in the appropriate frequency band plan, if
any, and (iii) transmitter licensees must not operate or permit
operation of the transmitter except in accordance with conditions
specified in the license that relate to containment of interference or
likelihood of interference with radiocommunications. The SMA may at
any time impose new conditions or revoke or vary them with respect to
individual licenses.
Each licensee may, at any time during the period of six months
before a license is due to expire, apply in writing to the SMA for
renewal. The renewal of a license is subject to consideration of
relevant factors such as the effect on radiocommunications of the
proposed operation of the radiocommunications devices that would be
authorized under the renewed license. In addition, the SMA may
consider as relevant whether the applicant has had a license canceled
within the previous two years. The SMA must notify an applicant of
any intention not to renew a license or any changes to any conditions
placed on a license, but there is no legal right to renewal.
The majority of the major city MDS licenses held by ECT expire in
1999 while the majority of MDS licenses held by ECT for regional areas
expire in 2000. The SMA may issue an apparatus license that is
inconsistent with the spectrum plan or any relevant frequency band
plan. However, that apparatus license that is inconsistent with the
spectrum plan or relevant frequency plan can only be issued if it is
granted for purposes which relate to an event of international,
national or regional significance or otherwise is in the public
interest. In addition, that apparatus license must not be issued for
more than 30 days and is not renewable. If renewed, an MDS license
will remain in force, unless canceled or suspended on an earlier date,
for the period specified in the MDS license, which may be a period of
up to five years.
The RCA provides that the SMA may cancel or suspend an apparatus
license if the SMA is satisfied that the licensee or a person
authorized by the licensee to operate a radiocommunications device
under the license has contravened a condition of the apparatus license
or has in any other way contravened the RCA or operated a radio
communication device in contravention of any other law.
The RCA provides for the preparation of plans for the conversion
of existing apparatus licenses to spectrum licenses. On receiving a
notice from the Minister designating a specified part of the spectrum
to be allocated by issuing spectrum licenses, the SMA must prepare a
conversion plan. However, no such plans have yet been prepared and,
although the SMA has issued a discussion paper on this issue, it has
made no commitments regarding the spectrum licensing process. The SMA
has, however, raised a number of issues which are explained below.
Upon conversion, spectrum access charges will be payable to the
Commonwealth. In preparing a marketing plan for issuing spectrum
licenses under the conversion, consideration may be given to the basis
on which any particular license was issued - for example, whether it
was issued pursuant to a price-based process or by administrative
allocation - but the SMA has made no commitment regarding spectrum
access charges for licenses converted from apparatus licenses to
spectrum licenses.
The principal differences between apparatus and spectrum licenses
are transferability, subject matter, term and renewal/allocation.
Spectrum licenses are assignable subject to rules that may be
determined by the SMA; at present, a licensee of an apparatus license
may apply in writing to the SMA for the license to be transferred to
another person. The SMA may determine that particular types of
apparatus licenses are, or in specified circumstances an apparatus
license is not, transferable. Apparatus licenses authorize the
licensee to operate specified radio communications devices or radio-
communications devices of a specified kind. Spectrum licenses are
expected to emphasize (i) the ability of a licensee to operate a radio-
communications device in a particular part or parts of the spectrum,
(ii) the maximum permitted level of radio emission in parts of the
spectrum outside the licensed parts of the spectrum, (iii) the area
within which the radiocommunications devise is authorized, and (iv)
the maximum permitted level of radio emission outside that area that
the radiocommunications device is authorized. MDS spectrum licenses
may have a term of up to ten years, but will not necessarily be
reissued to the same licensees. Instead, spectrum licenses may be
reallocated under a price-based tender process upon expiration unless
the SMA is satisfied that special circumstances exist as a result of
which it is in the public interest for the same licensees to continue
to hold the spectrum licenses or the Minister determines that it is in
the public interest that the spectrum licenses be reissued to the same
licensees.
Telecommunications Act
The TCA regulates the use of telecommunications facilities to
supply telecommunications services. Telstra and Optus have the right
to install and maintain facilities and, consequently, are expected to
be the primary providers of cable television and satellite-based
facilities and carriage services on these facilities. Noncarriers,
such as ECT may use carriage services provided by such carriers to
provide telecommunications services to others. However, non-carriers
must comply with the Service Providers Class License issued by Austel
under the TCA. The conditions attaching to the Service Providers
Class License include regulation of technical and operational
standards, provision of eligible services, prevention of the supply of
eligible services for illegal purposes and the use of
telecommunications networks for unlawful purposes. The delivery of
Broadcasting Services using cable television or satellite transmission
would be subject to compliance with the Eligible Service Providers
Class License.
The FOXTEL and Optus Vision cable television networks are owned
by associates of the general carriers, Telstra and Optus. Under a
direction issued to Austel by the Minister, the Telstra and Optus
associates would be obligated to comply with interconnection and
non-discriminatory access principles similar to those applicable to
common carriers in Australia. However, such direction provides for a
limited exemption from this access regime in relation to connection of
Subscription Broadcast services to their respective networks until at
least July 1, 1997, and potentially through July 1, 1999, to be
determined by the government in its discretion. On June 26, 1996,
Austel issued a draft license for comment requesting such comments by
July 19, 1996. Austel has advised ECT that it expects that the class
license will be issued by the end of August 1996.
The Australian government has publicly stated its intention to
increase deregulation and competition in the telecommunications
industry and prior to July 1997 will be conducting an inquiry into
this. ECT believes that the TCA may be amended so that additional
carrier licenses can be issued shortly after July 1997. ECT further
believes that it will be well placed to obtain (whether individually
or as part of a consortium) or obtain favorable access to systems
established under such additional carrier licenses given the
infrastructure ECT expects to have established by that time. The
current draft of the telecommunications legislation suggests that it
is the intention of the government that infrastructure owners such as
ECT will become carriers after July 1997. However, ECT can make no
assurances in this regard.
Trade Practices Act ("TPA")
The TPA governs restrictive trade practices and consumer
protection. The restrictive trade practices provisions prohibit,
among other things, agreements which substantially lessen competition,
price fixing agreements, exclusive dealing, price discrimination,
resale price maintenance, third line forcing, and abuse of market
power by corporations having a substantial degree of power in a
market. The restrictive trade practices provisions also prohibit
acquisitions of the shares or assets of a corporation which would
substantially lessen competition in a market. Substantial pecuniary
penalties may be imposed for contraventions of the TPA. The Minister,
the Australian Competition and Consumer Commission ("ACCC") or any
other person may bring an action to restrain contraventions of the TPA
by injunction against any person who has contravened or is proposing
to contravene the TPA. A person who has suffered loss as a result of
another person contravening the TPA may bring an action to recover
damages against any person involved in the contravention. The ACCC
may authorize otherwise prohibited conduct, other than price fixing
agreements (except in special circumstances), price discrimination,
and misuse of market power if it results in, or is likely to result
in, a net benefit to the public.
Foreign Acquisitions and Takeovers Act
The Australian Foreign Acquisitions and Takeovers Act 1975
("FATA"), as amended, requires (i) any natural person not ordinarily
resident in Australia, or (ii) any corporation or trustee of a trust
estate in which a natural person not ordinarily resident in Australia
or a foreign corporation (being a corporation organized outside
Australia) holds a substantial interest (defined below) or in which
two or more such persons or foreign corporations hold an aggregate
substantial interest (defined below), who proposes entering into an
agreement by virtue of which the person, corporation or trustee will
acquire or increase a substantial interest in an Australian
corporation to notify the Australian Treasurer of its intention to do
so. The person, corporation or trustee may then only enter the
proposed transaction if (a) the Treasurer advises that the
Commonwealth Government has no objection to the transaction; or (b)
the Treasurer has made no order prohibiting the transaction and the
person, corporation or trustee has received no advice referred to
above after 40 days have elapsed following the giving of the notice to
the Treasurer.
The Treasurer may make an order prohibiting the transaction if he
is satisfied it would result in foreign persons or different foreign
persons controlling the corporation and that result would be contrary
to the national interests. Alternatively, the Treasurer may advise
that the Commonwealth Government has no objection to the transaction,
provided that the person, corporation or trustee complies with
specified conditions. If the Treasurer specified conditions in
connection with the non objection, the person, corporation or trustee
entering into the transaction, must comply with the conditions.
A person is taken to hold a "substantial interest": (a) in a
corporation, if the person, alone or together with any associates (as
defined in the FATA), is in a position to control not less than 15% of
the voting power in the corporation or holds interest in not less than
15% of the issued shares in the corporation; or (b) in a trust estate,
if the person alone or together with any associates (as defined),
holds a beneficial interest in not less than 15% of the corpus or
income of the trust estate. Two or more persons are taken to hold an
"aggregate substantial interest": (c) in a corporation, if they,
together with any associates (as defined), are in a position to
control not less than 40% of the voting power in the corporation or
hold not less than 40% of the issued shares in the corporation; or (d)
in a trust estate, if they together with any associates hold in the
aggregate beneficial interests in not less than 40% of the corpus or
income of the trust estate. Where a trustee has power or discretion
under the terms of a trust as to the distribution of income or corpus
of the trust estate to beneficiaries, each beneficiary is taken for
the purpose of paragraphs (b) and (d) above to hold a beneficial
interest in the maximum percentage of income or corpus of the trust
estate that the trustee is empowered to distribute to that
beneficiary.
The circumstances in which a person is taken to hold an interest
in a share are widely described in the FATA and, without limitation,
include having a legal or equitable interest in the share, having
entered into a contract to purchase the share or an option over the
share, or an interest in the share, or having the right to vote the
share. Such Act also provides that, for the purposes of such Act, a
holder of a substantial interest or holders of an aggregate
substantial interest (including any such interest held by other
applications of the relevant provision) in the corporation or a trust
estate which is in a position to control any voting power in another
corporation or holds interests in shares in another corporation or in
another trust estate shall be taken to be in the position to control
such voting power in the other corporation or to hold such interests
in the other corporation or in the other trust estate, as the case may
be.
In addition to the specific transaction described above, the
Australian Treasurer has the power to prohibit any proposed
transactions which would have the result that an Australian
corporation or business becomes foreign controlled or undergoes a
change in foreign control (whether as a result of changes in share
ownership, sales or leases of assets, or agreements relating to
directorates or the constitution of a corporation) and the Treasurer
is satisfied that such a result is contrary to the national interest.
Furthermore, the Treasurer may compel divestiture of shares or assets
or the discharge of agreements where he is satisfied that they have
had the result that an Australian corporation or business has become
foreign controlled or has undergone a change in foreign control, and
that result is contrary to the national interest, unless the Treasurer
was notified prior to the transaction being entered and failed to make
an order prohibiting the transaction within 30 days.
Notwithstanding that the FATA does not require compulsory
notification of transactions other than the specific transactions
described above, the Australian Treasury Department (which administers
the FATA) has stated that any transaction which falls within the scope
of the Treasurer's order-making powers under the FATA should be the
subject of voluntary notification under that Act. Furthermore, the
Australian Treasury Department has stated that all transactions
involving the acquisition by foreigners of media interests should be
voluntarily notified.
Local Regulation
When ECT constructs facilities, it must also comply with local
government regulations such as planning and zoning requirements, as
well as federal environmental laws. ECT works with the local
government primarily on issues concerning construction standards. ECT
has established construction standards that it believes meet or exceed
the local regulations.
RADIO STATIONS
The Company owns and operates two radio stations serving the
Owensboro, Kentucky area and the Evansville, Indiana area. On March
12, 1996, the Company sold its license and certain assets used in the
operation of radio station WEHR-FM in Sheperdsville, Kentucky, for a
cash purchase price of $300,000. The radio stations share facilities
and certain management personnel with the Company's cable system at
that location. Century-ML (a joint venture, 50% owned by the Company
and 50% owned by ML Media Partners), owns two radio stations located
in and serving areas of Puerto Rico.
CABLE PROGRAMMING
On May 7, 1996, the Company acquired the assets of a 24 hour per
day independently produced local news and information cable television
programming service focusing primarily on events in Orange County,
California. The programming service is marketed under the name
"Orange County News Channel."
EMPLOYEES
At May 31, 1996, the Company (excluding ECT) had approximately
3,370 employees. Certain of the employees of 12 of its cable systems,
including three of its largest systems, are represented by unions.
The Company considers its relations with its employees to be good.
As of May 31, 1996, ECT had approximately 75 full-time employees.
ECT considers its relations with its employees to be good.
Substantially all of ECT's employees are parties to an "award"
governing the minimum conditions of their employment, including
probationary periods of employment, rights upon termination, vacation,
overtime and all dispute resolution.
ITEM 2. PROPERTIES.
The principal physical assets associated with the Company's cable
television systems consist of operating plant and equipment, including
signal receiving apparatus, headends and distribution systems and
subscriber house drop equipment. The signal receiving apparatus
typically includes a tower, antennas, 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
principally of fiber and coaxial cables and related electronic
equipment. Subscriber devices consist principally of decoding
converters. The physical components of cable television systems may
require maintenance and periodic upgrading and rebuilding to keep pace
with technological advances. The Company owns or leases property for
receiving sites (antenna towers and headends), microwave facilities
and business offices and owns most of its service vehicles.
With respect to Centennial Cellular's cellular systems,
Centennial Cellular owns or leases sales or administrative offices and
sites for the MTSO's and cell sites. Centennial Cellular also leases
office space at 1305 Campus Parkway, Neptune, New Jersey where it has
its principal corporate office. Cell sites typically include a tower
and transmitting, receiving and signalling equipment and are connected
by landline, microwave or other means to the cellular systems'
computers in the MTSO.
As of May 31, 1996, the Company leases approximately 32,000
square feet of office space at 50 Locust Avenue, New Canaan,
Connecticut, where it has its corporate headquarters, pursuant to a
lease which expires August 31, 1997 and provides for monthly rental
payments of approximately $75,000.
Centennial Cellular leases space for the MTSO serving Centennial
Cellular's Southwestern cluster and space in an antenna tower in the
Southwestern cluster to the Company for an aggregate current annual
rental of approximately $1,200. Centennial Cellular also leases
certain space for equipment in Puerto Rico from Century-ML Cable Corp.
("Century-ML"), which is 50% owned by the Company and 50% by an
unaffiliated entity. The current annual rent is approximately $2,400.
Further, Centennial Cellular leases certain office space in Puerto
Rico to Century-ML for a current annual rent of $68,850. Further,
Centennial Cellular is engaged in negotiation with Century-ML
regarding the use of certain of Century-ML's plant and equipment for
use in connection with Centennial Cellular's intra-island
telecommunications service in Puerto Rico. The Company believes that
the above transactions and contemplated transactions between it and
Centennial Cellular and/or Century-ML are or will be, as the case may
be, on terms no less favorable to the Company than would be obtainable
at that time in comparable transactions with unaffiliated parties.
ECT's headquarters in Sydney comprises 1,046 square meters of
office space in Woollahra, New South Wales, occupied under a lease
that expires in 2000. ECT has established branch offices in Hobart,
Wollongong and Newcastle to provide local support and service to
subscribers. ECT has executed leases for such offices with terms
expiring at the earliest in August 1998 and the latest in 2000. The
aggregate annual rental under all office leases is $330,000.
The Company is party to agreements with respect to MDS
transmission and repeater sites in Hobart, Wollongong and Newcastle.
The Company is also party to a contract with Optus for transponder use
on the Optus Satellite.
The Company considers the properties owned and leased by it to be
suitable and adequate for its business operations.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the Company's
shareholders during the fiscal quarter ended May 31, 1996.
* * *
EXECUTIVE OFFICERS OF THE COMPANY.
The names, ages and positions of all of the executive officers of
the Company as of May 31, 1996 are listed below along with their
business experience during the past five years. Officers serve at the
discretion of the Board of Directors. Except as otherwise indicated
below, the Company's officers were elected to their respective
positions on December 5, 1985 following the incorporation of the
Company as a holding company for Century-Texas, and have held such
positions at all times since December 5, 1985. There are no
arrangements or understandings between any officer and any other
person pursuant to which the officer was selected, and except as
otherwise indicated below, there are no family relationships between
any executive officers or any directors of the Company.
Leonard Tow, 68, has been Chairman of the Board of the Company
since October 1989. He has also been a director and the Chief
Executive Officer and Chief Financial Officer of the Company since its
incorporation in December 1985, and of Century-Texas from the date of
its organization in 1973 through December 1985. He also served as
President and Chief Operating Officer of the Company from December
1985 to October 1989, and as President of Century-Texas from 1973
through December 1985. Mr. Tow has been active in the cable
television industry for approximately 30 years. He has also served as
Chairman of the Board of Citizens Utilities since June 1990, as Chief
Executive Officer of Citizens Utilities since July 1, 1990, and as a
director of Citizens Utilities since April 1989. Mr. Tow holds a
Ph.D. from Columbia University and is the husband of Claire L. Tow and
the father of Andrew Tow.
Bernard P. Gallagher, 49, has been a director of the Company
since October 1990 and has been President and Chief Operating Officer
of the Company since October 1989. Mr. Gallagher has also been
Chairman of the Board and Chief Executive Officer of Centennial
Cellular since August 1991 and has been a director of Centennial
Cellular since March 1991. From February 1990 to August 1991, Mr.
Gallagher was President and Chief Operating Officer of Centennial
Cellular. From 1979 to October 1989, Mr. Gallagher served in various
financial and executive capacities at Comcast Corporation, a cable and
cellular company, and its subsidiaries, including Vice President and
Treasurer from November 1984 to October 1989.
Andrew Tow, 37, has been a director of the Company since October
1992. Since February 1995, Mr. Tow has been Executive Vice President
of the Company and Chairman of the Century Cable Television Division
of the Company. During the 1996 fiscal year, Mr. Tow lived and worked
in Australia overseeing the Company's investment in the pay television
business in that country. From 1991 to 1995, Mr. Tow was Senior Vice
President of the Company and President of the Century Cable Television
Division of the Company. He was a Vice President of the Company from
August 1989 to June 25, 1991. He has been involved in the operations
of the Company since its incorporation in December 1985 and with
Century-Texas since October 1984. Andrew Tow is the son of Leonard
and Claire Tow.
Michael G. Harris, 50, has been Senior Vice President-
Engineering of the Company since June 1991, and was Vice President,
Engineering of the Company from 1982 to June 1991. He was Director of
Engineering of Century-Texas from 1973 to 1982 and Vice President,
Engineering of Century-Texas from 1982 to December 1985. Mr. Harris
has also been Senior Vice President, Engineering of Centennial
Cellular since August 1991, and was Vice President, Engineering of
Centennial Cellular from the date of its incorporation in 1988 to
August 1991.
Scott N. Schneider, 38, has been a director of the Company since
October 1994 and Senior Vice President and Treasurer of the Company
since June 1991, and has been an Assistant Secretary of the Company
since October 1986. He was a Vice President of the Company from
October 1986 to June 1991 and was Controller of the Company from
December 1985 to June 1991. He was Controller of Century-Texas from
December 1982 to December 1985. Mr. Schneider has also been a
director and Senior Vice President, Chief Financial Officer and
Treasurer of Centennial Cellular since August 1991. He was a Vice
President and Controller of Centennial Cellular from the date of its
incorporation in 1988 to August 1991.
Daniel E. Gold, 60, has been a Senior Vice President of the
Company and President of the Century Cable Television Division of the
Company since February 1995. From July 1994 to January 1995, he was
Chief Executive Officer of the American Society of Composers, Authors
and Publishers. Mr. Gold was Senior Vice President, Operations, of
the Century Cable Television Division of the Company from 1991 to June
1994. Mr. Gold was President and Chief Executive Officer of the eight
television station group of Knight Ridder Broadcasting Company from
1985 to 1990, and was President and Chief Operating Officer of Comcast
Corporation from 1980 to 1985. Between 1960 and 1980, Mr. Gold held a
variety of positions in the areas of government, law and broadcasting.
Claire L. Tow, 65, has been Senior Vice President and a director
of the Company since February 1988. She has been involved in the
operations of the Company since its incorporation and with
Century-Texas since its incorporation. Mrs. Tow is the wife of
Leonard Tow and the mother of Andrew Tow.
David Z. Rosensweig, 70, has been a director and the Secretary of
the Company since its incorporation in December 1985 and of
Century-Texas from 1982 to December 1985. Mr. Rosensweig has also
been a director and Secretary of Centennial Cellular since its
incorporation in 1988. He is a member of the New York law firm of
Leavy Rosensweig & Hyman, which acts as general counsel to the Company
and Centennial Cellular.
Robert J. Larson, 37, has been Vice President - Controller of the
Company since October 1994, was Controller of the Company from June
26, 1991 to 1994 and was Assistant Controller from 1989 to June 25,
1991. Mr. Larson has been Vice President - Accounting and
Administration of Centennial Cellular since March 1995 and was Vice
President - Controller of Centennial Cellular from October 1994 to
March 1995, Controller of Centennial Cellular from 1990 to October
1994, and was Assistant Controller of Centennial Cellular from 1989 to
1990. Prior to joining the Company and Centennial Cellular, Mr.
Larson was a manager with Deloitte & Touche LLP.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information
The Class A Common Stock commenced trading on The Nasdaq Stock
Market ("Nasdaq") under the symbol CTYA on January 5, 1995. Prior to
such date, the Class A Common Stock was traded on the American Stock
Exchange ("AMEX"). There is no established public market for the
Class B Common Stock. The table set forth below lists the high and
low sale prices for the Class A Common Stock reported on the AMEX for
the period from July 1, 1994 through January 4, 1995, and on Nasdaq
for the period from January 5, 1995 through June 30, 1996. The
following table sets forth, for the indicated calendar quarters, the
closing price range of the Class A Common Stock as furnished by AMEX
and/or Nasdaq.
1994 High Low
Third Quarter $ 9.75 $7.00
Fourth Quarter 9.25 6.25
1995
First Quarter 10.13 7.25
Second Quarter 10.13 7.63
Third Quarter 10.50 8.63
Fourth Quarter 10.38 7.75
1996
First Quarter 10.13 7.50
Second Quarter 10.13 8.25
On August 16, 1996, the last sale price of the Class A Common
Stock, as reported on Nasdaq, was $8.50 per share. At August 16,
1996, there were approximately 1,052 holders of record of shares of
Class A Common Stock and 4 holders of record of shares of Class B
Common Stock.
Stock Distributions and Dividend Policy
In recent years, in recognition of improvements in earnings
before depreciation, amortization, interest and taxes ("operating cash
flow"), the Company has from time to time made pro rata distributions
of common stock to its stockholders. The effect of such distributions
is to increase the number of shares outstanding and reduce the
proportionate investment in the Company represented by each share.
For accounting purposes, since the Company continues to report net
losses and has an accumulated deficit, an amount equal to the
aggregate par value ($.01 per share) of the shares distributed is
transferred from additional paid in capital to the common stock
account. If the Company had retained earnings, the accounting
treatment would be to transfer an amount equal to the market value of
the shares issued from retained earnings to additional paid-in
capital. Since the Company has neither retained earnings nor current
earnings, the stock distributions represent a reallocation of the
shareholder's investment over an increased number of shares and do not
represent distributions of corporate earnings and profits.
The Company has never paid a cash dividend on its common stock.
The Company is currently restricted from paying cash dividends by
certain of its debt instruments. Its ability to do so is further
limited by provisions of credit agreements entered into by certain of
its subsidiaries that limit the amount of cash that may be upstreamed
to the Company.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below for the
five years ended May 31, 1996 have been derived from the Company's
audited consolidated financial statements. This data should be read
in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial
statements and notes thereto included elsewhere in this Annual Report
on Form 10-K.
<TABLE>
Year ended May 31,
1996 1995 1994 1993 1992
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues $495,274 $416,687 $374,599 $345,131 $312,317
Cost of services 108,403 103,673 83,132 80,715 77,375
Selling, general and
administrative 119,779 110,381 82,368 71,027 67,448
Regulatory restructuring
charge -- 4,000 -- -- --
Depreciation and
amortization 195,425 171,931 151,296 138,547 129,810
Australian operations 45,419 -- -- -- --
469,026 389,985 316,796 290,289 274,633
Operating income 26,248 26,702 57,803 54,842 37,684
Interest expense 172,215 139,001 121,698 112,294 116,516
Other (income) expense (1,107) (2,270) (3,645) 5,218 (626)
Loss before income tax benefit,
minority interest and
extraordinary item (144,860) (110,029) (60,250) (62,670) (78,206)
Income tax benefit (34,326) 8,061 (5,633) (12,401) (8,291)
Loss before minority interest
and extraordinary item (110,534) (101,968) (54,617) (50,269) (69,915)
Minority interest in
loss of subsidiaries 8,417 19,343 12,690 12,478 13,769
Loss before
extraordinary item (102,117) (82,625) (41,927) (37,791) (56,146)
Extraordinary item-loss
on early retirement
of debt -- -- -- -- 9,888
Net loss $(102,117) $(82,625) $(41,927) $(37,791) $(66,034)
Dividend requirements on
subsidiary convertible
redeemable preferred
stock $ 4,256 $ 4,419 $ 5,838 $ 5,883 $ 4,809
Loss applicable to common
shares $(106,373) $(87,044) $(47,765) $(43,674) $(70,843)
Loss per common share:
Loss before
extraordinary item $(1.44) $(1.01) $(0.53) $(0.49) $(0.69)
Extraordinary item -- -- -- -- (0.11)
Net loss $(1.44) $(1.01) $(0.53) $(0.49) $(0.80)
Weighted average number of
common shares outstanding
during the period 73,748,000 86,277,000 89,381,000 88,652,000 88,032,000
</TABLE>
<TABLE>
Year ended May 31,
1996 1995 1994 1993 1992
<S> (Dollars in thousands)
Balance Sheet Data <C> <C> <C> <C> <C>
Total assets $2,234,909 $2,004,417 $1,350,426 $1,303,484 $1,357,975
Long-term debt 2,081,611 1,741,143 1,270,989 1,167,423 1,174,871
Common stockholders'
deficiency (448,013) (351,645) (243,628) (215,238) (178,342)
</TABLE>
See Note 3 of the consolidated financial statements regarding
recent acquisitions and the effect of such acquisitions on the
comparability of the historical financial statements of the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (Dollar Amounts in Thousands except subscriber
and share data)
Historically, the Company has earned its revenues primarily from
subscriber fees for services provided by its cable television systems
and from the operations of four radio stations. In addition, the
Company's 31.8% owned subsidiary, Centennial Cellular Corp.
("Centennial"), provides cellular telephone service to subscribers in
three geographic areas. Centennial also has minority investments in
six cellular telephone systems accounted for by Centennial under the
equity method of accounting. In accordance with Financial Accounting
Standards Board Statement No. 94, the accounts of Centennial are
consolidated with those of the Company for financial reporting
purposes for all periods presented. During the year ended May 31,
1996, the Company for accounting and reporting purposes, consolidated
the operations of East Coast Pay Television Pty. Limited, an
Australian Company ("ECT"). ECT was previously accounted for by the
equity method of accounting. There was no significant impact on the
consolidated statement of operations as a result of the change. ECT
is pursuing opportunities to own, operate and invest in pay television
services in Australia. (See Investments - Australian Pay Television).
Due to actions by the Federal Communications Commission (the "FCC"),
relating to the reinstitution of rate regulation, as hereinafter
described, the rate structure of the cable television industry,
including the Company's business, has been negatively affected. In
view of the continuing changes and recently published revisions to the
FCC rate regulations, the Company is currently unable to assess the
full impact of the 1992 Cable Act upon its future financial results.
The Company implemented new rate and service offerings whereby
subscribers are given the choice of buying certain programming
services individually on a per channel basis or as part of a package
of premium services at a discounted price ("A La Carte Service
Offerings"). Several of the Company's systems, along with numerous
other cable operators, received specific inquiries from the FCC
regarding their implementation of this method of offering cable
services. In its decisions on the inquiry letters, the FCC admitted
that previous guidelines which cable operators, including the Company,
relied upon may have been confusing. During December 1994, the FCC
responded to certain of the letters of inquiry related to A La Carte
Service Offerings. The FCC has, through such responses, effectively
determined that A La Carte Service Offerings limited to six channels
or less will be considered New Product Tiers under the FCC rules (see
Regulation). A La Carte Service Offerings in systems serving
approximately 84% of the Company's subscribers qualify as New Product
Tiers. A La Carte Service Offerings in excess of six channels have
not been given New Product Tier status and it is the intent of the FCC
to treat such offerings as regulated tiers of cable programming
service, retroactively to the date of initial regulation. Such
treatment, affecting approximately 16% of the Company's primary basic
subscribers, would result in further reductions in the Company's rates
for such services as well as refunds for previously provided services.
The Company has appealed this determination to the FCC. On August
23,1996, the FCC released an Order seeking comment on a proposed
resolution of pending basic and cable programming service tier rate
complaints in several Los Angeles area cable systems served by
Century. The proposed resolution also calls for the FCC to reconsider
the Letter of Inquiry ruling adopted by the FCC with respect to
Century's Los Angeles and Beverly Hills, California systems in
December 1994. If finally adopted by the Commission, the proposed
resolution would require Century to adjust its rates for its basic and
cable programming services tiers and make approximately $1,900 in
subscriber refunds. Under the terms of the proposed resolution, local
franchising authorities could "opt out" of the specified refunds and
decide basic service tier refunds and rates based on the terms of the
Letter of Inquiry, as reconsidered.
During July and August 1994, further adjustments to the Company's
rates were made in certain of the Company's cable television systems
pursuant to the FCC's second revision to its rate formula. As a
result, the Company experienced a further decrease in the regulated
portion of its services for the fiscal year ended May 31, 1995. Under
the regulatory price cap mechanism established by the FCC, a portion
of the decline was offset in part, by allowable rate increases during
fiscal 1995. Such increases relate to adjustments for the annual
change in the Gross National Producers Price Index as well as certain
increases in programming fees, the addition of new channel service and
so called "external costs" as delineated in the rules. The bulk of
such price adjustments became effective during the first quarter of
the current fiscal year.
On February 1, 1996, Congress passed S.652, "The Telecommunications
Act of 1996" ("Act"), which was signed into law by the President. The
new law will alter federal, state and local laws and regulations
regarding telecommunications providers and services, including the
cable television industry. The Act substantially deregulates (except
for basic service) cable service rates over a three year period.
Implementing regulations of the Act are currently being written. The
effect that the Act will have on the Company cannot be determined at
this time. See "Recent Legislative Development".
Fiscal Years Ended May 31, 1996 and May 31, 1995
Revenue for the year ended May 31, 1996 increased by $78,587 or 18.9%,
over the year ended May 31, 1995. Revenue from cable television
operations increased by $37,238 or 11.2%, over the corresponding year
ended May 31, 1995 as a result of increases in the number of cable
television subscriptions and acquisitions. Acquisitions of cable
television systems accounted for $17,868 of the increase or 48.0%. The
increase was partially offset by a decline in revenues related to the
implementation of rate regulations established by the FCC pursuant to
the 1992 Cable Act. Average primary basic cable television
subscribers ("Basic Subscribers") for the twelve months ended May 31,
1996, were approximately 1,088,000 as compared to approximately
995,000 during the twelve-month period ended May 31, 1995, an increase
of 9.3%. The impact of acquisitions of cable television systems
accounted for 41.5% of the increase. Average monthly revenue per
Basic Subscriber, including programmer's share of such revenue, was
approximately $34.84 during the twelve months ended May 31, 1996, as
compared to approximately $33.11 during the comparable prior twelve
month period, an increase of 5.2%. The Australian operations accounted
for $14,571, or 18.5% of the total increase in revenue.
Revenue from cellular telephone operations for the year ended May 31,
1996 increased by $26,778 or 31.4%, over the year ended May 31, 1995.
The increase in revenue was the result of growth in subscriptions to
and the resulting increased usage of cellular telephone service.
Acquisitions accounted for increased revenue of $21,279 for fiscal
1996, which increase more than offset a decline in revenue from
cellular systems which were sold or exchanged of $12,756.
Costs and expenses excluding depreciation and amortization for the
year ended May 31, 1996 increased by $14,128 or 6.6% over the year
ended May 31, 1995. Cost of services for the year ended May 31, 1996
increased by $4,730 or 4.6% over the corresponding period in the prior
year, while selling, general and administrative expense increased by
$9,398 or 8.5%.
Cost of services of the Company's cable television operations
increased by $753 or 0.9%, while selling, general and administrative
expenses of the Company's cable television operations for the year
ended May 31, 1996 increased to $85,591, an increase of $1,265 or 1.5%
over the $84,326 in the year ended May 31, 1995. However, the
Company's recent cable television acquisitions accounted for $3,734 or
495% of the $753 increase in cost of services and $2,794 or 220% of
the $1,265 increase in selling, general and administrative expense.
As a result, before giving effect to increased costs associated with
acquisitions, costs of services and selling, general and
administrative expenses declined by $2,981 and $1,529, respectively
during the year ended May 31, 1996. The principal reason for the
decline in these costs was the Company's implementation of a planned
restructuring of its operations (see discussion of fiscal years ended
May 31, 1995 and 1994).
Cost of services related to the cellular telephone operations during
the year ended May 31, 1996 was $26,129, an increase of $3,977 or
18.0% as compared to the year ended May 31, 1995. The reason for the
increase was a larger number of telephone units sold, the variable
costs associated with a larger revenue and subscription base as well
as increased cellular coverage areas resulting from the continued
expansion of Centennial's network. Included in cost of services
during fiscal year ended 1996 were $195 of pre-operating costs
associated with the start-up of Centennial's Puerto Rico
telecommunications business.
Selling, general and administrative expenses related to the cellular
telephone operations rose to $34,188, an increase of $8,133 or 31%
above the $26,055 recorded during the year ended May 31, 1995. The
increase resulted primarily from the variable costs associated with a
larger subscription and revenue base and anticipated growth of its
cellular telephone business. Included in selling, general and
administrative expenses during fiscal year ended 1996 were $218 of pre-
operating costs associated with the start-up of Centennial's Puerto
Rico telecommunications business.
The Company anticipates continued increases in the cost of services
and selling, general and administrative expenses as the growth of its
cellular telephone business continues. In addition, the Company
expects that the start-up and development of its recently acquired
wireless telephone markets will contribute to an increase in these
costs and expenses.
Depreciation and amortization for the year ended May 31, 1996
increased by $23,494 or 13.7% over the year ended May 31, 1995. The
cellular telephone operations and acquisitions accounted for $5,347 of
this increase, the cable television operations accounted for $18,147.
The Australian operations incurred expenses of $45,419, including
$21,031 of depreciation and amortization.
Operating income for the year ended May 31, 1996 decreased by $454 or
1.7% below the year ended May 31, 1995. The cellular operating loss
for the year ended May 31, 1996 of $19,109 decreased by $9,321 or 33%
from the loss of $28,430 for the year ended May 31, 1995. The
Australian operating loss for the year ended May 31, 1996 was $30,848.
The Company's operating income before the inclusion of its cellular
and Australian operations was $76,205 an increase of $21,073 or 38.2%
over the year ended May 31, 1995.
Other income represents the Company's proportionate share of the net
income or loss of minority investment interests accounted for by the
Company using the equity method of accounting. The Company has
recorded $7,126 and $2,400 of expense for fiscal years ended May 31,
1996 and 1995 for its minority investments in Australia, offset by
$10,473, $4,670 and $3,645 of income for fiscal years ended May 31,
1996, 1995 and 1994 related to minority investments of the Company's
cellular telephone operations. Included in other income for the
fiscal year ended May 31, 1996, was a write-down of $10,000 of the
Company's equity securities held in Australis (see Australian Pay
Television) and the recognition of approximately $8,310 of gain on the
sale of assets held by Centennial.
Interest expense for the year ended May 31, 1996 increased by $33,214
or 23.9% as compared with the year ended May 31, 1995 reflecting
higher average debt levels and secondarily, higher interest rates in
effect during the year ended May 31, 1996. In addition, the Company
incurred a non cash charge of $2,647 reflecting the write off of debt
issuance costs associated with a bank credit agreement refinanced
during the year ended May 31, 1996. For the year ended May 31, 1996,
the average debt outstanding was approximately $1,754,000 or $310,000
above the average outstanding debt balance of $1,444,000 during the
year ended May 31, 1995. The cellular operations accounted for
$94,247 or 30.4% of the increase. The Company's weighted average
interest rate excluding borrowings of Centennial and the Company's 50%
owned joint ventures was approximately 10.2% in the year ended May 31,
1996 as compared to approximately 9.8% in the year ended May 31, 1995.
The increase in such rates is primarily the result of a one time non
cash charge of $2,647 of deferred debt issuance costs as a result of
the Company's refinancing of a bank credit facility (see Financing and
Capital Formation - The Company). Short-term interest rates of the
Company's variable rate bank credit agreements declined from 6.8% at
May 31, 1995 to 6.7% at May 31, 1996. Additionally, as described
below interest expense related to the Company's interest rate hedge
agreements declined during the year ended May 31, 1996. During the
year ended May 31, 1996, the Company incurred interest expense of $741
in respect of the interest rate hedge transactions compared to
interest expense of $2,794 in respect of the interest rate hedge
transactions in the year ended May 31, 1995. All of the Company's
obligations under interest rate hedge agreements expired during the
year ended May 31, 1996. See "Liquidity and Capital Resources".
Centennial's weighted average interest rate increased to 9.5% for the
year ended May 31, 1996 from 9.2% for the year ended May 31,
1995. Centennial capitalized $5,200 of interest related to its
ownership of a PCS license (see Centennial Acquisitions). Interest
expense of the Company's Australian operations was $1,299 during the
fiscal year ended May 31, 1996.
After losses attributable to minority interests in subsidiaries for
the year ended May 31, 1996, a pretax loss of $136,443 was incurred,
as compared to a pretax loss of $90,686 for the year ended May 31,
1995. The income tax benefit of $34,326 for the year ended May 31,
1996 represents an adjustment to the deferred tax liability of the
Company, offset by current state and local taxes for the period.
These tax benefits are non-cash in nature and are attributable to the
Company's acquisitions and results of operations, calculated in
accordance with the Financial Accounting Standards Board Statement No.
109 for the years ended May 31, 1996 and May 31, 1995.
The net loss for the year ended May 31, 1996 of $102,117 represents an
increase of $19,492 or 23.6% over the loss for the year ended May 31,
1995. The Company expects net losses to continue until such time as
the operations of the wireless telephone systems, Australian
operations, cable television systems and investments in plant
associated with rebuilds and extensions of its cable television
systems and expansion of the wireless telephone system infrastructure
generate sufficient earnings to offset the associated costs of
acquisitions and operations described above.
Fiscal Years Ended May 31, 1995 and May 31, 1994
Revenue for the year ended May 31, 1995 increased by $42,088, or
11.2%, over the year ended May 31, 1994. Revenue from cable
television operations increased by $13,042, or 4.1%, over the year
ended May 31, 1994 as a result of increases in the number of cable
television subscriptions. Acquisitions of cable television systems
accounted for 60.2% of the increase, or $7,846. The increase was
partially offset by a decline in revenues related to the
implementation of rate regulations established by the FCC pursuant to
the 1992 Cable Act. Average primary basic cable television
subscribers ("Basic Subscribers") for the year ended May 31, 1995 were
approximately 995,000 as compared to approximately 941,200 during the
year ended May 31, 1994, an increase of 5.7%. Average monthly revenue
per Basic Subscriber, including programmer's share of such revenue,
was approximately $33.11 during the year ended May 31, 1995, as
compared to approximately $33.49 during the prior year, a decrease of
1.1%.
Revenue from cellular telephone operations for the year ended May 31,
1995 increased by $29,046 or 51.5%, over the year ended May 31, 1994,
primarily as a result of growth in subscriptions to cellular telephone
service. In addition, acquisitions of twelve cellular telephone
markets accounted for approximately $13,617 or 46.9% of the increase
in cellular telephone revenue.
Costs and expenses excluding depreciation and amortization for the
year ended May 31, 1995 increased by $52,554 or 31.8% over the year
ended May 31, 1994. Cost of services for the year ended May 31, 1995
increased by $20,541 or 24.7% over the corresponding period in the
prior year, while selling, general and administrative expenses
increased by $28,013 or 34.0%. Cost of services of the Company's
cable television operations increased by $11,813 an increase of 16.9%,
while selling, general and administrative expenses of the Company's
cable television operations for the year ended May 31, 1995 increased
to $84,326, an increase of $19,745 or 30.6% over the $64,581 in the
year ended May 31, 1994. The principal reason for these increases was
expenditures associated with the implementation of the 1992 Cable Act.
In addition, the Company expanded its managerial, customer service and
marketing efforts to accommodate the increased customer service and
technical standards imposed by the 1992 Cable Act. The Company
expects that during fiscal 1996 it will continue to incur incremental
costs associated with implementation of, and compliance with, the 1992
Cable Act.
Cost of services related to the cellular telephone operations during
the year ended May 31, 1995 was $22,152, an increase of $8,728 or
65.0% as compared to the year ended May 31, 1994. The reason for the
increase was the larger number of retail sales of telephones and the
variable costs associated with a larger revenue and subscription base
as well as increased cellular coverage areas resulting from the
continued expansion of Centennial's network and acquisitions completed
during the fiscal years ended May 31, 1994 and 1995.
Selling, general and administrative expenses related to the cellular
telephone operations rose to $26,055, an increase of $8,268 or 46.5%
above the $17,787 recorded during the year ended May 31, 1994.
Primarily, the variable costs associated with a larger revenue base
and acquisitions made during fiscal 1994 and the year ended May 31,
1995 contributed to the increase. Secondarily, the increase was the
result of Centennial increasing its managerial, customer service and
sales staff to accommodate the current and anticipated growth of its
wireless telephone business.
The Company anticipates continued increases in the cost of services
and selling, general and administrative expenses as the growth of its
cellular telephone business continues. In addition, the Company
expects that the start-up and development of its recently acquired
wireless telephone markets will contribute to an increase in these
costs and expenses.
The Company recorded a one time charge of $4,000 in the fourth quarter
of 1995 in accordance with a plan adopted to restructure the Company's
cable television operations in response to recent FCC mandated rules.
The charge includes related employee severance costs, coincident with
the restructuring. The restructuring charge was substantially cash in
nature and did not result in the write-off of the Company's assets.
Depreciation and amortization for the year ended May 31, 1995
increased by $20,635 or 13.6% over the year ended May 31, 1994. The
cellular telephone operations and acquisitions accounted for $17,990
of this increase; the cable television operations accounted for
$2,645.
Operating income for the year ended May 31, 1995 decreased by $31,101
or 53.8% below the year ended May 31, 1994. The cellular operating
loss for the year ended May 31, 1995 of $28,430 increased by $5,940 or
26.4% over the year ended May 31, 1994.
Interest expense for the year ended May 31, 1995 increased by $17,303
or 14.2% as compared with the year ended May 31, 1994 reflecting
higher average debt levels offset to some extent by lower interest
rates in effect during the year ended May 31, 1995. For the year
ended May 31, 1995, the average debt outstanding was approximately
$1,444,000 or $220,000 above the average outstanding debt balance of
$1,224,000 during the year ended May 31, 1994. The cellular
operations accounted for $34,947 or 15.9% of the increase. The
Company's weighted average interest rate excluding borrowings of
Centennial and the Company's 50% owned joint ventures was
approximately 9.8% in the year ended May 31, 1995 as compared to
approximately 10.5% in the year ended May 31, 1994. The decrease in
such rates is the result of a higher proportion of the Company's debt
associated with bank credit agreements. Interest on bank financings
are based upon short-term floating rates which during the period were
below those of the Company's fixed rate financings. At May 31, 1995,
the Company's effective weighted average variable interest rate on its
bank credit agreements was approximately 6.8%. Additionally, as
described below interest expense related to the Company's interest
rate hedge agreements declined during the year ended May 31, 1995.
During the year ended May 31, 1995, the Company incurred interest
expense of $2,794 in respect of the interest rate hedge transactions
compared to interest expense of $6,009 in respect of the interest rate
hedge transactions in the year ended May 31, 1994. See "Liquidity and
Capital Resources". Centennial's weighted average interest rate
declined to 9.2% for the year ended May 31, 1995 from 9.5% for the
year ended May 31, 1994.
After losses attributable to minority interests in subsidiaries for
the year ended May 31, 1995, a pretax loss of $90,686 was incurred, as
compared to a pretax loss of $47,560 for the year ended May 31, 1994.
The income tax benefit of $8,061 for the year ended May 31, 1995
represents an adjustment to the deferred tax liability of the Company
offset by current state and local taxes for the period. These tax
benefits are non-cash in nature and are attributable to the Company's
acquisitions and results of operations, calculated in accordance with
the Financial Accounting Standards Board Statement No. 109 for the
years ended May 31, 1995 and 1994.
The net loss for the year ended May 31, 1995 of $82,625 represents an
increase of $40,698 or 97.1% over the loss for the year ended May 31,
1994. The Company expects net losses to continue until such time as
the operations of the cellular telephone systems, cable television
systems and investments in plant associated with rebuilds and
extensions of its cable television systems and expansion of the
cellular telephone system infrastructure generate sufficient earnings
to offset the associated costs of acquisitions and operations
described above.
Liquidity and Capital Resources (Dollar Amounts in Thousands except
Share Data)
The Company has grown through acquisitions as well as upgrading,
extending and rebuilding its existing cable television systems. In
addition, Centennial, since August of 1988, has acquired twenty eight
cellular telephone markets which it owns and manages, all of which are
considered to be in the early development phase of operations.
Centennial also owns minority equity investment interests in certain
other cellular telephone systems. Centennial successfully bid on
March 13, 1995, for one of two Metropolitan Trading Area ("MTA")
licenses to provide broadband personal communications services ("PCS")
in the Commonwealth of Puerto Rico and the U.S. Virgin Islands. Since
both the cable television and wireless telephone activities are
capital intensive, the Company and Centennial continue to seek various
sources of financing to meet their needs, including growth in
internally generated cash, bank financing, joint ventures and
partnerships and public and private placements of debt and equity
securities. Subsidiaries of the Company have entered into credit
agreements with various bank groups and private lending institutions
providing for an aggregate of approximately $955,000 of potential
borrowing capacity as of August 4, 1996.
The Company's internally-generated cash along with third party
financing, primarily bank borrowings and the issuance of debt
securities to the public, has enabled it to fund its working capital
requirements, capital expenditures for property, plant and equipment,
acquisitions, investments and debt service. The Company has funded the
principal obligations on its long-term borrowings by refinancing the
principal with expanded bank lines of credit, through the issuance of
debt securities in the public market and through private institutions
as well as internally generated cash flow. Although to date the
Company has been able to obtain financing on satisfactory terms, there
can be no assurance that this will continue to be the case in the
future. Certain of the debt instruments to which the Company and its
subsidiaries are a party impose restrictions on the incurrence of
indebtedness.
The Company's future commitments for property, plant and equipment
consist of usual upgrades, extensions, betterments and replacements of
cable plant and equipment and start-up expenditures for the wireless
telephone systems. During the fiscal year ended May 31, 1996 the
Company made capital expenditures of $100,287 as compared to $109,737
for the prior fiscal year. During the fiscal year ended May 31, 1996,
Centennial made capital expenditures of $38,082 or 38% of the
Company's total capital expenditures. As the Company completes
capital projects started in prior fiscal years, it is anticipated that
the level of capital expenditures for its cable television systems
exclusive of those related to acquisitions described herein will
decline to an annualized rate of approximately $70,000. Various
construction projects have been undertaken to expand the operations of
certain cable television systems into adjacent and previously unbuilt
areas and to rebuild and upgrade its existing cable system plant. The
Company is currently considering the further upgrade of its cable
television distribution systems in certain of its cable television
markets to expand its capability for the delivery of video, voice and
data transmission. Should the Company undertake such an upgrade plan,
it would result in an acceleration of capital expenditures which would
otherwise be incurred in future years. The Company has not yet
determined the feasibility, timing or cost of such projects. Cellular
telephone capital projects include the addition of cell sites for
greater coverage areas as well as enhancements to the existing
infrastructure of the cellular system. Centennial expects capital
expenditures for its cellular telephone markets of $25,000 over the
next fiscal year. Centennial during fiscal 1996 began construction of
its PCS network in Puerto Rico spending approximately $15,500.
Centennial currently estimates that the cost to complete the build out
of the infrastructure of its PCS network will be approximately
$60,000, to be expended through fiscal 1998. Funds for cable
television capital projects and related equipment are available from
internally generated cash and other financing resources. Funds for
Centennial's capital expenditure requirements may be provided by other
bank borrowings, debt or equity issuances or other financing
resources.
For the fiscal year ended May 31, 1996, earnings were less than fixed
charges by $149,116. However, such amount reflects non-cash charges
totaling $199,681, consisting of depreciation and amortization of
$195,425 and non-cash subsidiary preferred stock dividends of $4,256.
Historically, cash generated from operating activities has exceeded
fixed charges. The Company believes that its cable television
operations will continue to generate sufficient cash to meet the debt
service obligations under the debt instruments applicable to its cable
television businesses. It is anticipated that in the next fiscal year,
cash generated from cellular telephone operations will not fully cover
required capital expenditures and the debt service under its credit
agreements and preferred capital stock dividends. It is currently
anticipated that any shortfall will be made up either through equity
issuances or additional borrowing. Both classes of Centennial's
preferred stock are subject to mandatory redemption in fiscal 2007.
Any unpaid dividends continue to accumulate without additional cost to
Centennial.
The following table sets forth, for the periods indicated, the
Company's net cash provided by operating activities before interest
payments ("net cash provided") and the Company's principal uses of
such cash.
<TABLE>
Fiscal Year Ended May 31,
1996 1995 1994
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by
operating activities $95,750 37.5% $ 82,060 40.0% $101,184 47.7%
Interest paid
(including debt
issuance costs) 159,244 62.5 123,005 60.0 110,730 52.3
Net cash provided $254,994 100.0% $205,065 100.0% $211,914 100.0%
Principal uses of
net cash provided:
Interest paid
(including debt
issuance costs) $159,244 62.5 % $123,005 60.0% $110,730 52.3%
Property, plant and
equipment(excluding
acquisitions) 100,287 39.3 109,737 53.3 55,024 25.9
Total $259,531 101.8% $232,742 113.3% $165,754 78.2%
Cash (required)
provided $ (4,537) (1.8)% $(27,677) (13.3)% $ 46,160 21.8%
</TABLE>
Net cash provided by operating activities of $254,994 for the year
ended May 31, 1996 and cash on hand were sufficient to fund the
Company's expenditures for property, plant and equipment and debt
service. The Company will continue to rely on internally generated
cash as well as various financing activities to fund these
requirements.
The following table sets forth the primary sources and uses of funds
from financing and investing activities for the periods indicated:
<TABLE>
Fiscal Year Ended May 31,
1996 1995 1994
<S> <C> <C> <C>
Proceeds from long-term borrowings $ 728,500 $761,984 $ 346,584
Principal payments on long-term debt (415,956) (306,038) (277,429)
Purchase of treasury stock (158) (110,092) --
Issuance of common stock 2,975 50,617 2,672
Joint venture contributions -- 25,871 --
Cash provided by financing activities 315,361 422,342 71,827
Net capital returned from (invested in)
equity investments 5,407 (887) 896
Australian investing activities (24,434) -- --
Acquisition of and investments in cable
television, wireless telephone systems,
marketable securities and other assets (355,969) (232,793) (117,447)
Cash available (required from)
operating activities $(59,635) $ 188,662 $ (44,724)
</TABLE>
Financing and Capital Formation; The Company
CCC-II, Inc. ("CCC-II"), a subsidiary of the Company, entered into a
credit agreement as amended August 12, 1996, that provides CCC-II a
three year $350,000 unsecured revolving credit facility which converts
to a five year term loan with a syndicate of banks led by Citibank,
N.A. as agent for the syndicate. The interest rates payable on
borrowings under the credit facility are based on, at the election of
CCC-II, (a) the base rate of interest announced by Citibank, N.A. plus
0% to 0.5% per annum based upon certain conditions, or (b) the London
Interbank Offering Rate plus 0.75 to 1.375% per annum based upon
certain conditions. The credit facility restricts the incurrence of
certain additional debt by CCC-II, limits the ability of CCC-II to pay
dividends to the Company and requires that certain operating tests be
met. The Company is in compliance with the terms of the credit
facility.
CCC-I, Inc. ("CCC-I"), a subsidiary of the Company, entered into a
credit agreement as amended August 12, 1996, that provides CCC-I a
three year $525,000 unsecured revolving credit facility which converts
to a five year term loan with a syndicate of banks led by Citibank,
N.A. as agent for the syndicate. The proceeds of the facility were
used by the Company to repay existing indebtedness and will be used
for working capital and general corporate purposes. The repayment by
the Company on August 7, 1995, of its existing indebtedness discharged
all of the Company's obligations under its then-existing $300,000
credit agreement and, as a result, such agreement was terminated. The
interest rates payable on borrowings under the credit facility are
based on, at the election of CCC-I, (a) the base rate of interest
announced by Citibank, N.A. plus 0% to 0.625% per annum based upon
certain conditions, or (b) the London Interbank Offering Rate plus
0.75% to 1.625% per annum based upon certain conditions. The credit
facility restricts the incurrence of certain additional debt of CCC-I,
limits the ability of CCC-I to pay dividends to the Company and
requires that certain operating tests be met. The Company is in
compliance with the terms of the credit facility.
In connection with the terms and covenants of certain of the Company's
bank credit facilities, certain of the Company's subsidiaries were
required to enter into various interest rate hedge agreements (the
"Hedge Agreements"). During the current fiscal year, all of the
Company's obligations with respect to Hedge Agreements expired. At
May 31, 1995, the aggregate notional amount of the Hedge Agreements
was $115,000 with a weighted average interest rate of 8.12%. Based
upon current market conditions and the current mix of fixed and
floating rate debt securities of the Company and the elimination of
any future hedge requirements in its current bank credit facilities,
the Company currently has no plans to renew, extend or replace the
Hedge Agreements.
On October 26, 1993, the Company filed a registration statement with
the Securities and Exchange Commission relating to the shelf
registration of $500,000 of the Company's debt securities, augmenting
the remaining $2,000 under a prior shelf registration. The
registration statement became effective July 14, 1994. The debt
securities may be issued from time to time in series on terms to be
specified in one or more prospectus supplements at the time of the
offering. If so specified with respect to any particular series, the
debt securities may be convertible into shares of the Company's Class
A Common Stock. As of August 20, 1996, there was $252,000 available
for issuance under this registration.
On July 31, 1995, a subsidiary of the Company, Century Venture Corp.
("CVC") entered into a three year , $80,000 revolving credit facility
which converts to a five year term loan. The proceeds of the facility
were used by CVC to repay existing indebtedness of CVC and will be
used for working capital and general corporate purposes. The
repayment by CVC of its existing indebtedness discharged all of CVC's
obligations under its then-existing credit agreement and, as a result,
such agreement was terminated. The interest rates payable on
borrowings under the new credit facility are based on, at the election
of CVC, (a) "C/D Base Rate" plus an applicable margin, as defined or
(b) "Eurodollar Base Rate" plus an applicable margin as defined or (c)
"ABR" rate as defined.
The agreement expires on February 28, 2004. The credit facility
restricts the incurrence of certain additional debt of CVC, limits the
ability of CVC to pay dividends to the Company and requires that
certain operating tests be met. The Company is in compliance with the
terms of the credit facility.
Financing and Capital Formation; Centennial
On August 30, 1991, Citizens Cellular Company merged with and into
Centennial, and in connection with the merger, Centennial issued to
Citizens Utilities Company ("Citizens"), Convertible Redeemable
Preferred Stock valued at $128,450 and Class B Common Stock
representing 18.8% of the then common equity of Centennial. In
connection with an amendment to the Services Agreement with the
Company, Centennial issued its Second Series Convertible Redeemable
Preferred Stock valued at $5,000 to the Company. Although the
Convertible Redeemable Preferred Stock and the Second Series
Convertible Redeemable Preferred Stock carry no cash dividend
requirement during the first five years, the shares accrete
liquidation preference and redemption value at the rate of 7.5% per
annum, compounded quarterly, in each of years one through five.
Assuming no change in the number of shares of such classes
outstanding, the fully accreted liquidation preference and redemption
value of the Convertible Redeemable Preferred Stock and the Second
Series Convertible Redeemable Preferred Stock, in years six through
fifteen, will be $186,287 and $7,252, respectively. Beginning in year
six through year fifteen, the holders of the Convertible Redeemable
Preferred Stock and the Second Series Convertible Redeemable Preferred
Stock will be entitled to receive cash dividends at the rate of 8.5%
per annum. Assuming no change in the number of shares of such classes
outstanding, the annual dividend payments, commencing in 1997, to be
made in respect of the Convertible Redeemable Preferred Stock and the
Second Series Convertible Redeemable Preferred Stock will be $15,834
and $616, respectively. The Convertible Redeemable Preferred Stock
and the Second Series Convertible Redeemable Preferred Stock have
mandatory redemption provisions at the end of fifteen years. Any
unpaid dividends continue to accumulate without additional cost to
Centennial.
It is anticipated that cash generated from Centennial's cellular
telephone operations will not be sufficient in the next several years
to cover interest, the preferred stock dividend requirements that
commence in fiscal 1997 and required capital expenditures and that any
shortfall will be made up either through debt and equity issuances or
additional financing arrangements that may be entered into by
Centennial. Centennial continues to seek various sources of external
financing to meet its current and future needs, including bank
financing, joint ventures and partnerships, and public and private
placements of debt and equity securities of Centennial. Although to
date, Centennial has been able to obtain financing on satisfactory
terms, there is no assurance that this will be the case in the future.
During fiscal 1994, Centennial filed a shelf registration statement
with the SEC for up to 8,000,000 shares of Centennial's Class A Common
Stock that may be offered from time to time in connection with
acquisitions. At August 20, 1996, there were 4,465,896 shares
available for issuance under this registration statement.
Centennial, on April 6, 1995, filed a shelf registration statement
with the SEC for the issuance of $500,000 of Centennial's debt
securities. The debt securities may be issued from time to time in
series on terms to be specified in one or more prospectus supplements
at the time of the offering. If so specified with respect to any
particular series, the debt securities may be convertible into shares
of Centennial's Class A Common Stock. As of August 20, 1996, $400,000
remained available for issuance.
On May 11, 1995, Centennial issued $100,000 of ten year unsecured
Senior Notes at an interest rate of 10 1/8% (the "10 1/8% Notes").
Centennial's debt instruments contain similar limitations on certain
"restricted payments" included, but not limited to, dividends and
investments in unrestricted subsidiaries and other persons. Further,
the debt securities contain restrictions on the incurrence of certain
additional debt and limitations on Centennial's ability to incur liens
with respect to additional indebtedness.
In order to meet its obligations with respect to its debt and
preferred stock obligations, it is important that Centennial continue
to improve operating cash flow. In order to do so, Centennial's
revenues must increase at a faster rate than operating expenses.
Increases in revenues will be dependent upon continuing growth in the
number of subscribers and maximizing revenue per subscriber.
Centennial has substantially completed the development of its
managerial, administrative and marketing functions, and is continuing
the construction of cellular systems in its existing and recently
acquired markets in order to achieve these objectives. There is no
assurance that growth in subscribers or revenue will occur. In
addition, Centennial's participation in the PCS business is expected
to be capital intensive, requiring network buildout costs of
approximately $60,000 over fiscal 1997 and 1998. Further, due to the
start-up nature of the PCS business, Centennial expects the PCS
business to require additional cash investment to fund its operations
over the next several years. The PCS business is expected to be
highly competitive with the two existing cellular telephone providers
as well as the other MTA PCS license holder. There is no assurance
that the PCS business will generate cash flow or reach profitability.
Even if operating cash flow does increase, it is anticipated that cash
generated from Centennial's cellular telephone operations and PCS
business will not be sufficient in the next several years to cover
interest, the preferred stock dividend requirements that commence in
fiscal 1997 and required capital expenditures. Centennial anticipates
that shortfalls may be made up either through debt and equity
issuances or additional financing agreements that may be entered into
by Centennial.
Acquisitions - Cable Television
On March 2, 1993, the Company and Citizens ("the Century/Citizens
Joint Venture") entered into an agreement to acquire the assets of two
cable television systems which serve in the aggregate approximately
45,000 primary basic subscribers. The aggregate purchase price for
the cable television systems is $92,900 subject to adjustment.
Citizens and the Company have agreed that they will own and operate
the cable television systems in a joint venture structure in which
each company will have a 50% ownership interest. The obligations of
the Century/Citizens Venture and the seller under the agreement are
subject to the satisfaction of various closing conditions. On
September 30, 1994, the Century/Citizens Joint Venture completed the
acquisition of one of these cable television systems serving
approximately 24,000 primary basic subscribers. On December 1, 1995,
the second acquisition serving approximately 21,000 primary basic
subscribers was completed. The purchase price of approximately
$51,900 at September 30, 1994 and $41,000 at December 1, 1995 was
funded by the Company and Citizens equally.
On May 8, 1996, the Company acquired for approximately $2,500 the
Orange County News Channel ("OCN"). OCN provides local 24 hour news
to all cable customers in Orange County, California, over half a
million viewers.
On May 31, 1996, the Company acquired the cable television systems
serving Anaheim, Hermosa Beach/Manhattan Beach, Fairfield and Rohnert
Park/Yountville, California for an aggregate purchase price of
$287,600, subject to adjustment. Funds for this acquisition were
provided by an existing bank credit facility. At May 31, 1996, such
cable television systems served an aggregate of approximately 135,000
primary basic subscribers.
On August 16, 1996, the Company entered into agreements to acquire
three cable television systems which serve an aggregate of
approximately 76,000 primary basic subscribers. These systems are
primarily located in Yorba Linda, Orange County, Diamond Bar, Oxnard
and Ventura County, California. The aggregate purchase price for
these systems is approximately $140,000. The Company currently
expects to fund the acquisitions using available credit facilities.
Acquisitions, Exchanges, Dispositions - Centennial
On June 30, 1995, Centennial acquired the non-wireline cellular
telephone systems serving (a) Newtown, LaPorte, Starke, Pulaski,
Jasper and White, Indiana, (b) Kosciusko, Noble, Steuben and Lagrange,
Indiana, (c) Williams, Defiance, Henry and Paulding, Ohio and (d)
Copiah, Simpson, Lawrence, Jefferson Davis, Walthall and Marion,
Mississippi, representing an aggregate of approximately 608,100 Net
Pops. The above-described systems were acquired by Centennial in
exchange for Centennial's non-wireline cellular telephone systems
serving the Roanoke, Virginia MSA, the Lynchburg, Virginia MSA, North
Carolina RSA #3 and Iowa RSA #5, representing an aggregate of
approximately 644,000 Net Pops. Simultaneously with the consummation
of the transaction described above, Centennial sold its 72.2% interest
in the non-wireline cellular telephone system serving the
Charlottesville, Virginia MSA, representing an aggregate of
approximately 94,700 Net Pops, for a cash purchase price of
approximately $9,914 subject to adjustment. The Company recognized a
gain of approximately $4,176 as a result of the sale.
On October 31, 1995, Centennial acquired (i) a 94.3% interest in the
non-wireline cellular telephone system serving the Lafayette,
Louisiana MSA, representing approximately 205,700 Net Pops, in
exchange for Centennial's non-wireline cellular telephone system
serving the Jonesboro, Arkansas RSA (comprising approximately 205,000
Net Pops), the license rights and assets located in and covering
Desoto and Red River Parishes of Louisiana 3 RSA (comprising
approximately 34,700 Net Pops), the license rights and assets located
in and covering a section of Morehouse Parish of Louisiana 2 RSA
(comprising approximately 24,100 Net Pops) and a cash payment by
Centennial of approximately $5,580, subject to adjustment, and (ii) an
additional 14.3% minority interest in the Elkhart, Indiana RSA, a
market in which the Company now has a 91.4% interest, and an
additional 12.7% equity investment interest in the Lake Charles,
Louisiana MSA, a market in which the Company now has a 25.1% interest,
for a cash payment of approximately $2,951.
In summary, during fiscal 1996, Centennial acquired 813,800 net pops,
additional minority interests in existing Centennial markets and
$1,383, in cash, in exchange for 1,002,500 net pops previously owned
by Centennial.
Centennial has entered into an agreement to acquire approximately 51%
of the ownership interests in the partnership owning the non-wireline
cellular telephone system serving the Benton Harbor, Michigan MSA and
is making offers to purchase the remaining interests in the
partnership. The Benton Harbor, Michigan MSA represents approximately
161,400 Net Pops. Centennial has agreed to a purchase price of
$34,000 in cash, subject to adjustment for 100% ownership of the
system and certain outstanding liabilities at closing. The obligation
of Centennial to consummate this transaction is subject to certain
closing conditions, including the approval of the relevant franchise
authorities and other regulatory approvals. Centennial anticipates
completing this acquisition in September 1996.
Centennial Personal Communications Services ("PCS")
Centennial was the successful bidder for one of two MTA licenses to
provide broadband personal communications services in the Commonwealth
of Puerto Rico and the U.S. Virgin Islands. The licensed area
represents approximately 3,623,000 Net Pops. The amount of the final
bid submitted by Centennial was $54,672. A non-refundable deposit of
$10,934, representing approximately 20% of the purchase price, was
made in connection with the bid, and the balance of $43,738, was paid
on June 29, 1995. Approximately, $15,500 of capital expenditures was
incurred during fiscal 1996. Centennial's participation in the PCS
business is expected to be capital intensive, requiring network
buildout costs of approximately $60,000 over fiscal years 1997 and
1998. In addition, due to the start-up nature of the PCS business,
the Company expects the PCS business to require additional cash
investment to fund its operations over the next several years. The
PCS business is expected to be highly competitive with the two
existing cellular telephone providers as well as the other MTA PCS
license holder. There is no assurance that the PCS business will
generate cash flow or reach profitability. Centennial is exploring
various sources of external financing including but not limited to
bank financing, joint ventures, partnerships and placement of equity
securities of Centennial. Centennial used a portion of the net
proceeds from the sale of the 10 1/8% Notes to pay the balance of the
purchase price for the license.
Centennial also plans to participate in the alternative access
business in Puerto Rico pursuant to FCC requirements for interstate
service and pursuant to an authorization issued to Centennial in
December 1994 by the Public Service Commission of the Commonwealth of
Puerto Rico for intrastate service.
On July 31, 1996, Centennial filed applications to participate in an
upcoming FCC auction for broadband personal communications services
frequency D and E. Centennial listed Basic Trading Areas ("BTAs"),
the market designation for PCS license areas, that related to its
cellular operations. Centennial submitted a required refundable
deposit of $11,000 in order to maintain its bidding eligibility for
the PCS licenses in which its is interested. There is no assurance
that Centennial will bid in the auction process, and the extent to
which any such participation will be successful.
Investments
Australian Pay Television
During fiscal 1994, 1995 and fiscal 1996 the Company has invested,
through a wholly-owned subsidiary, approximately $140,000 in its
Australian Pay TV investments, including approximately $120,000 in
East Coast Pay Television Pty Limited, an Australian Company ("ECT").
ECT is pursuing opportunities to own operate and invest in, pay
television services in Australia. Australia is considered to be an
emerging pay television market. The investment was effected through
the acquisition by the Company of convertible debentures and ordinary
shares of ECT representing a 76.2% economic interest in ECT. The
Company has the right to designate five of the seven directors of ECT
and to approve certain corporate transactions. The Company has also
entered into long-term management agreements with ECT.
ECT, through a wholly-owned subsidiary, owns Satellite Subscription
Broadcast License A ("Satellite License A"), one of three such
licenses that may be granted by Australian authorities prior to July
1997. The license allows for Direct-To-Home ("DTH") satellite
television broadcasting and allows ECT to offer four channels of
programming via DTH. Australis Media Limited ("Australis"), another
pay television company in Australia, owns Satellite Subscription
Broadcast License B ("License B"), the second of the three licenses
currently available for DTH services, allowing for the DTH broadcast
of four channels of programming. ECT and Australis have entered into
agreements pursuant to which ECT will offer its four License A
channels for distribution individually or as part of a combined
package with License B programming in a package of services known as
the Galaxy Package. License A and License B programming are to be
distributed via DTH, Microwave Multipoint Distribution Systems ("MDS")
and via cable. The Galaxy package will be distributed by Australis
through DTH and MDS in the six largest so-called capital cities in
Australia (as well as Western Australia) and in distinct regional
areas outside the capital cities by its franchisees. ECT is a
franchisee of Australis in regions covering approximately 755,000
households.
The License A and License B programming are distributed over common
infrastructure subject to a long term agreement between ECT and
Australis ("The Infrastructure Utilization Agreement" or the "IUA").
Among other terms, the IUA provides ECT with a participation in, and
the right to maintain a 25% interest in the net cash flow (as defined
therein) of Australis. The initial interest of 25% ("the Interest")
was determined based upon the proportional relationship of each
Company's investment in Australian pay TV at that time (A$300 million,
Australis and A$100 million ECT). The Interest may be adjusted
proportionately downward depending upon the extent to which ECT (at
its sole option) elects to fund a specified portion (i.e. up to its
then Interest) of those funds expended by Australis in the pay
television business in Australia. Before ECT is required to make such
an election (and any resulting contribution or recalculation of the
interest) certain conditions precedent must be met.
It is ECT's position that it is not yet required to make an election
to make a contribution toward such expenditures since certain
conditions precedent have not been met by Australis. Australis has
asserted that as of January 1996, ECT's interest has decreased from
25% to approximately 10% due to ECT's failure to contribute funds
(approximately $136,000). There can be no assurance that this dispute
will be resolved in ECT's favor, nor that, after reviewing the
relevant information, ECT will elect to contribute its share of the
funding.
To the extent ECT elects to contribute its share of the funding under
the IUA, funds from various sources of external financing would be
required. There is no assurance that if ECT would otherwise elect to
make such a contribution, that such external financing would be
available, and if so available, would be on terms favorable to ECT.
ECT, Australis and Australis' other Franchisee have acquired control
of substantially all of the currently issued licenses which can be
used for transmission of pay television programming via MDS in
Australia. ECT owns or controls all of the currently issued licenses
which entitle it to transmit pay television programming via MDS in
most of Coastal New south Wales and all of Tasmania (including
Wollongong, Hobart and Newcastle, Australia and surrounding areas)
(the "ECT Franchise Areas") and has entered into a franchise agreement
with Australis (The "Franchise Agreement") pursuant to which it has
the exclusive right (and is obligated) for at least a fifteen year
period (with an option to renew for an additional ten years) to
deliver in each of the ECT Franchise Areas any subscription broadcast
service supplied by Australis, including the Galaxy package. The ECT
Franchise Areas contain approximately 755,000 households or
approximately 12% of all Australian households.
Programming for the License A Package is provided by XYZ, a joint
venture in which the Company holds a 25% interest. The Company's 25%
interest in XYZ is derived through the Company's joint venture with
United International Holdings, Inc. ("UIH"), a leading international
provider of pay television services which holds interests in the two
other Franchisees of Australis. The above noted structure is pursuant
to a series of agreements entered into by the Company, UIH and Foxtel,
a joint venture between Telstra Corporation Limited, the government-
owned Australian national telecommunications carrier, and The News
Corporation Limited, a major international media and entertainment
company. Programming provided by XYZ includes the Discovery channel,
a documentary channel; Red, a music video channel; Nickelodeon, a
children's and family channel; and Arena, a general entertainment
channel. In addition, XYZ is developing two additional channels
(channels 5 and 6) which it will seek to have included in the Galaxy
package.
ECT has entered into a long-term agreement with Foxtel (a competitive
cable television provider) pursuant to which Foxtel has agreed to
distribute the License A Package, as well as channels 5 and 6
throughout Australia over Foxtel's cable television network. ECT
receives a monthly per subscriber fee from Foxtel for the License A
Package. Foxtel, owns the remaining 50% of XYZ. Pursuant to
arrangements between ECT and Foxtel, ECT is prohibited from granting
any third party the right to distribute the License A Package and
Channels 5 and 6 by cable television in Australia without the prior
consent of Foxtel. However, ECT has retained the non-exclusive right
to distribution of the License A Package by cable television in the
East Coast Franchise areas. In addition, if Foxtel supplies any
Foxtel channels for distribution by Galaxy, Foxtel must authorize
Galaxy to provide the same Channels to the Franchisees for
distribution by MDS transmission and DTH satellite in the franchise
areas. These arrangements with Foxtel provide for fixed per
subscriber prices as well as minimum subscribers by January 1, 2001.
Foxtel is presently meeting the minimum guarantee.
The Company has also acquired an approximate 2% economic interest in
Australis for approximately $10,000. During the fourth quarter of
fiscal 1996, the investment was written off by the Company based upon
its then assessment of the financial position of Australis (see
below).
ECT requires substantial capital to operate, construct, expand and to
invest in the Australian Pay TV Business as well as funding operating
losses and debt service. All of ECT's Australian Pay TV Business
activities are considered to be in the start-up or early development
phase of operations. ECT must continue to seek various sources of
external financing to meet its current and future financial needs,
which may include bank financing, joint ventures and partnerships,
investments by third parties and public and private placements of debt
and equity securities.
Since commencement of its operations in the Australian Pay TV
Business, ECT has been funded by capital contributions and short-term
debt facilities from its principal security holders (including the
Company), and third party bank financings.
ECT's principal uses of capital have been to invest in and develop its
pay TV infrastructure and to fund operating losses. Specifically, ECT
has (i) invested approximately $104,721 to acquire its interest in
Satellite License A, (ii) invested approximately $11,279 to acquire
certain MDS licenses covering the geographic areas located in the ECT
Franchise Areas, and (iii) invested approximately $20,979 to build out
the network infrastructure and establish offices in its principal
areas of operation. In addition, since fiscal 1994, ECT has required
approximately $9,863 for operating activities.
ECT has generated negative cash flow from operating activities as a
result of startup costs associated with constructing and marketing
multichannel television and telecommunications service as well as
establishing the organizational infrastructure required for the
operation of the Australian Pay TV Business.
In order to generate operating cash flow, ECT's revenue must exceed
operating expenses. Increases in revenue will be dependent upon
continued growth in the number of subscriptions and maximizing revenue
per subscriber. ECT is in the process of developing its core
managerial, administrative and marketing functions and is continuing
the construction of its pay TV network in its existing markets. The
Australian Pay TV Business is expected to be highly competitive with
two potential cable television providers having announced plans for
distribution of video services throughout continental Australia.
There can be no assurance that ECT will generate sufficient cash flow
to meet its needs and, accordingly, there can be no assurance that
profitability will be achieved in the foreseeable future.
The Company expects that the Australian Pay TV Business will continue
to be capital intensive. At May 31, 1996, ECT had $18,780 of
property, plant and equipment placed in service. ECT expects to spend
approximately $125,000 over the next five years to expand its MDS and
satellite networks, and market and distribute services in the ECT
Franchise Areas. In order to fund these commitments, ECT must raise
additional capital either from public or private placements of its
equity or debt securities, investments by third parties, joint
ventures and partnerships or bank borrowing. Although ECT has been
able to obtain financing for its operations to date, there is no
assurance such financings will be available to it in the future, or if
available, on terms favorable to ECT.
In this regard the Company and the other security holders of ECT are
currently negotiating an agreement to put in place those
organizational and structural changes in ECT necessary to raise
additional capital for investment in the Australian Pay TV
marketplace. It is anticipated that on completion, ECT will seek to
raise additional capital. There is no assurance that such agreement
will be concluded, or if concluded, that ECT will raise sufficient
funding for all of its business needs.
Under the Franchise Agreement and IUA, ECT is dependent on the efforts
of Australis in the development of the pay television industry in
Australia. The Company has become aware that Australis' financial
position has significantly deteriorated to the point where its ability
to survive as a going concern is in doubt. ECT's financial position
(and a result, the Company's investment in ECT) may be materially and
adversely affected if Australis were to become insolvent. The
Company's pay television subscriber business is dependent on
acceptance of the Galaxy package as a well-known national product as
well as the infrastructure established by Australis, including the
national marketing and subscriber management service.
If Australis were to become insolvent, and as a result, were not able
to provide infrastructure services, subscriber management systems and
other related services for ECT, ECT would need to develop such
services on its own, which could be on economic terms to ECT less
favorable than those now available from Australis.
In addition, ECT understands that under this circumstance, ECT may be
required to seek replacement programming currently provided by
Australis which may be on less favorable terms than those provided by
Australis. Additionally, ECT could be required to continue to provide
the License A Package to Australis, while the obligation of Australis
to provide the License B Package, either by itself or as part of the
Galaxy package, to ECT as a Franchisee could be avoided, and certain
agreements, including the IUA and the Franchise Agreement, could be
modified or voided by a bankruptcy liquidator if determined to be
"unprofitable". Existing obligations of Australis under these
agreements could be subject to reorganization claims and preferences.
Moreover, if Australis were unable to expand its subscriber base, the
distribution of ECT's License Package A throughout Australia may be
inhibited. Further in the event of any such insolvency ECT may be
required to pay Australis' portion of the satellite lease payments for
the transmission of the License A and B Packages since ECT is jointly
and severally liable for those payments. The incremental cost to ECT
for the Australis portion of their obligation would be approximately
$6,250 per annum.
Australis has recently announced a recapitalization plan which
includes the introduction of additional equity and the transfer of
certain assets to a joint venture with Optusvision (a competitive
cable provider). The plan is subject to lender, shareholder, and
regulatory approvals as well as an additional debt offering to be
completed by October 31, 1996. ECT is currently reviewing the plan to
determine the impact, if any, on its business and the extent to which
certain consents requested by Australis will be accommodated. ECT has
been given no assurance that the plan, as proposed, will receive the
necessary approvals or that the contemplated debt offering will be
successful.
The Company is currently unable to predict the ultimate resolution of
these matters. At May 31, 1996 the remaining net book value of its
investments in the various aspects of Australian Pay TV aggregated
$84,518. The Company will continue to assess the impact, if any, of
the above noted matters on the carrying value of its investments in
the Australian Pay TV businesses.
Foreign Currency Exchange Rate Risks; Hedging
The Company's monetary assets and liabilities are subject to foreign
currency exchange risk as certain equipment purchases and payments for
certain operating expenses, such as programming expenses, are
denominated in currencies other than their own functional currency.
In addition, certain of the Company's subsidiaries have notes payable
and notes receivable which are denominated in a currency other than
their own functional currency or intercompany loans payable linked to
the U. S. dollar.
In general, the Company does not execute hedge transactions to reduce
its exposure to foreign currency exchange rate risks. Accordingly,
the Company may experience economic loss and a negative impact on
earnings with respect to its holdings solely as a result of foreign
currency exchange rate fluctuations, which include foreign currency
devaluations against the dollar. The Company may also experience
economic loss and a negative impact on earnings related to these
monetary assets and liabilities. In general, exchange rate risk to
the Company's commitments for equipment purchases and operating
expanses is generally limited due to the insignificance of the related
monetary asset and liability balances; however, exchange rate risk to
the Company of these notes payable and notes receivable and debt
linked to the U. S. dollar have and will continue to impact its
reported earnings.
Australia generally does not restrict the removal or conversion of
local or foreign currency; however, there is no assurance this
position will continue.
Stock Repurchase
On March 10, 1995, the Company purchased 20,000,000 shares of its
Class B Common Stock from Sentry Insurance a Mutual Company, of
Stevens Point, Wisconsin ("Sentry Insurance"), at an aggregate price
of $110,000 utilizing existing credit lines. Upon acquisition, the
Class B shares were converted automatically to Class A shares. For
the present, the acquired shares will be held in the Company's
treasury. Prior to this acquisition, 65,406,115 shares of the
Company's Class B Common Stock were outstanding of which 23,134,056
were held by Sentry Insurance.
On December 21, 1994, Centennial announced that its Board of Directors
authorized the repurchase, from time to time, of up to 1,000,000
shares of Centennial's Class A Common Stock, depending on prevailing
market conditions. Centennial has made no such purchases to date.
RECENT LEGISLATIVE DEVELOPMENT
The Telecommunications Act of 1996
The Telecommunications Act of 1996 ("Act"), was enacted into law
on February 8, 1996. This new law will alter federal, state and local
laws and regulations regarding telecommunications providers and
services, including the Company and the cable television and other
telecommunications services provided by the Company. The following is
a summary of certain provisions of the Act which could materially
affect the growth and operation of the cable television industry and
the cable and telecommunications services provided by the Company. As
noted below, there are numerous rulemakings to be undertaken by the
Federal Communications Commission ("FCC") which will interpret and
implement the provisions discussed below. It is not possible at this
time to predict the outcome of such rulemakings.
Cable Rate Regulation
Rate regulation of the Company's cable television services is
divided between the FCC and local units of government such as states,
counties or municipalities. The FCC's jurisdiction extends to the
cable programming service tier ("CPST"), which consists largely of
satellite-delivered programming (excluding basic tier programming and
programming offered on a per channel or per program basis). Local
units of governments (commonly referred to as local franchising
authorities or "LFAs") are primarily responsible for regulating rates
for the basic tier of cable service ("BST"), which will typically
contain at least all television broadcast stations (except
superstations) and Public Access, Educational and Government ("PEG")
channels. Equipment rates are also regulated by LFAs. The FCC
retains appeal jurisdiction from LFA decisions. Cable services
offered on a per channel or per program only basis remain unregulated.
The Act eliminates CPST rate regulation as of March 31, 1999. In
the interim, CPST rate regulation can be triggered only by an LFA
complaint to the FCC. An LFA complaint must be based upon more than
one subscriber complaint. Prior to the Act, an FCC review of CPST
rates could be occasioned by a single subscriber complaint to the FCC.
The Act does not disturb existing or pending CPST rate settlements
between the Company and the FCC. The Company's BST rates remain
subject to LFA regulation under the Act.
Existing law precludes rate regulation entirely wherever a cable
operator faces "effective competition." The Act expands the
definition of effective competition to include any franchise area
where a local exchange carrier (or affiliate) provides video
programming services to subscribers by any means other than through
direct broadcast satellite (DBS), or any multichannel video provider
using the facilities of a local exchange carrier or other multichannel
video provider provides such service. There is no penetration minimum
for the local exchange carrier to qualify as an effective competitor,
but it must provide "comparable" programming services (at least 12
channels including some television broadcast signals) in the
franchise area.
Under the Act, the Company will be allowed to aggregate, on a
franchise, system, regional or company level, its equipment costs into
broad categories, such as converter boxes, regardless of the varying
levels of functionality of the equipment within each such broad
category. The Act will allow the Company to average together costs of
different types of converters (including non-addressable, addressable,
and digital). The statutory changes will also facilitate the
rationalizing of equipment rates across jurisdictional boundaries.
These favorable cost-aggregation rules do not apply to the limited
equipment used by "BST-only" subscribers.
Cable Uniform Rate Requirements. The Act immediately relaxes the
"uniform rate" requirements by specifying such requirements do not
apply where the operator faces "effective competition," and by
exempting bulk discounts to multiple dwelling units, although
complaints about "predatory" pricing may be made to the FCC. Upon a
prima facie showing that there are reasonable grounds to believe that
the discounted price is predatory, the cable system operator will have
the burden of proving otherwise.
System Sales. The Act eliminates the existing three-year holding
requirement with respect to the sale of cable television systems.
Cable System Definition. The Act changes the definition of a
"cable system" so that competitive providers of video services will
only be regulated and franchised as a cable system if they use public
rights-of-way.
Cable Pole Attachments
Under the Act, investor-owned utilities must make poles and
conduits available to cable systems under delineated terms. Electric
utilities are given the right to deny access to particular poles on a
nondiscriminatory basis for lack of capacity, safety, reliability, and
generally accepted engineering purposes. The current method for
determining rates charged by telephone and utility companies for cable
delivery of cable and non-cable services will continue for five years.
However, the Act directs the FCC to establish a new formula for the
rental rate for poles used by cable operators who provide
telecommunications services which will result in higher pole rental
rates for such cable operators. Any increases pursuant to this
formula may not begin for 5 years and will be phased in equal
increments over years 5 through 10. This new FCC formula does not
apply in states which certify they regulate pole rents. Pole owners
must impute pole rentals to themselves if they offer
telecommunications or cable services. Cable operators need not pay
future "make-ready" on poles currently contacted if the make-ready is
required to accommodate the attachments of another user, including the
pole owner.
Cable Entry Into Telecommunications
The 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 Act further provides that cable
operators and affiliates providing telecommunications services are not
required to obtain a separate franchise from LFAs for such services.
The Act prohibits LFAs from requiring cable operators to provide, or
prohibiting them from providing, telecommunications service or
facilities as a condition of a grant of a franchise, franchise
renewal, or franchise transfer, except that LFAs can seek
"institutional networks" as part of such franchise negotiations.
The Act states that traditional cable franchise fees may only be
based on revenues related to the provision of cable television
services.
Interconnection and Other Telecommunications Carrier Obligations.
To facilitate the entry of new telecommunications providers (including
cable operators), the Act imposes interconnection obligations on all
telecommunications carriers. All carriers must interconnect their
networks with other carriers and may not deploy network features and
functions that interfere with interoperability. Existing local
exchange carriers ("LECs") also have the following obligations: (1)
good faith negotiation with those seeking interconnection; (2)
unbundling, equal access and non-discrimination requirements; (3)
resale of services, including "resale at wholesale rates" (with an
exception for certain low-priced residence services to business
customers); (4) notice of changes in the network that would affect
interconnection and interoperability; and (5) physical collocation
unless shown that practical technical reasons, or space limitations,
make physical collocation impractical. The FCC had six months from
the date of enactment to "complete all actions necessary to establish
regulations" needed to effectuate this section. The Act also directs
the FCC, within one year of enactment, to adopt regulations for
existing LECs to share infrastructure with "qualifying" carriers.
Under the Act, individual interconnection rates must be just and
reasonable, based on cost, and may include a reasonable profit. Cost
of interconnection will not be determined in a rate of return
proceeding. Traffic termination charges shall be "mutual and
reciprocal." The Act contemplates that interconnection agreements
will be negotiated by the parties and submitted to a state public
service commission ("PSC") for approval. A PSC 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
PSC acts, an aggrieved party's remedy is to file a case in federal
district court.
The Act requires that all telecommunications providers (including
cable operators that provide telecommunications services) must
contribute equitably to a Universal Service Fund ("USF"), although the
FCC may exempt an interstate carrier or class of carriers if their
contribution would be minimal under the USF formula. The Act allows
states to determine which intrastate telecommunications providers
contribute to the USF.
Telephone Company Entry Into Cable Television
The Act allows telephone companies to compete directly with cable
operators by repealing the telephone company-cable cross-ownership ban
and the FCC's video dialtone regulations. This will allow LECs,
including the Bell Operating Companies, to compete with cable both
inside and outside their telephone service areas. If a LEC provides
video via radio waves, it is subject to Title III broadcast
jurisdiction. If a LEC provides common carrier channel service it is
subject to Title II common carrier jurisdiction. A LEC providing
video programming to subscribers is otherwise regulated as a cable
operator (including franchising, leased access, and customer services
requirements), unless the LEC elects to provide its programming via an
"open video system." LEC owned programming services will also be
fully subject to program access requirements.
The Act replaces the FCC's video dialtone rules with an "open
video system" ("OVS") plan by which LECs can provide cable service in
their telephone service area. LECs complying with FCC OVS regulations
will receive relaxed oversight. The Act requires the FCC to act on
any such OVS certification within ten days of its filing. Only the
program access, negative option billing prohibition, subscriber
privacy, EEO, PEG, must-carry and retransmission consent provisions of
the Communications Act of 1934 will apply to LEC provided OVS.
Franchising, rate regulation, consumer service provisions, leased
access and equipment compatibility will not apply. Cable copyright
provisions will apply to programmers using OVS. LFAs may require OVS
operators to pay "franchise fees" only to the extent that the OVS
provider or its affiliates provide cable services over the OVS. OVS
operators will be subject to LFA general right-of-way management
regulators. Such fees may not exceed the franchise fees charged to
cable operators in the area, and the OVS provider may pass through the
fees as a separate subscriber bill item.
The Act requires the FCC to adopt, and the FCC has adopted,
regulations prohibiting an OVS operator from discriminating among
programmers, and ensuring that OVS rates, terms, and conditions for
service are reasonable and nondiscriminatory. Further, the FCC is to
adopt regulations prohibit a LEC-OVS operator, or its affiliates, from
occupying more than one-third of the system's activated channels when
demand for channels exceeds supply, although there are no numeric
limits. The Act also mandates OVS regulations governing channel
sharing; extending the FCC's sports exclusivity, network
nonduplication, and syndex regulations: and controlling the
positioning of programmers on menus and program guides. The Act does
not require LECs to use separate subsidiaries to provide incidental
interLATA video or audio programming services to subscribers or for
their own programming ventures.
Buyouts. While there remains a general prohibition on LEC
buyouts of cable systems (any ownership interest exceeding 10
percent), cable operator buyouts of LEC systems, and joint ventures
between cable operators and LECs in the same market, the Act provides
certain exceptions to this prohibition. A rural exemption permits
buyouts where the purchased system serves an area with fewer than
35,000 inhabitants outside an urban area. Where a LEC purchases a
cable system, that system plus any other system in which the LEC has
an interest may not serve 10% or more of the LEC's telephone service
area. Additional exceptions are also provided for such buyouts. The
Act also provides the FCC with the power to grant waivers of the
buyout provisions in cases where (I) the cable operator or LEC would
be subject to undue economic distress; (2) the system or facilities
would not be economically viable; or (3) the anticompetitive effects
of the proposed transaction are clearly outweighed by the effect of
the transaction in meeting community needs. The LFA must approve any
such waiver.
Electric Utility Entry into Telecommunications
The Act provides that registered utility holding companies and
subsidiaries may provide telecommunications (including cable)
notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating
authority. It is anticipated that large utility holding companies
will become significant competitors to both cable television and
other telecommunications providers.
Miscellaneous Reforms
Cross-Ownership; Must Carry. The Act eliminates broadcast/cable
cross-ownership restrictions, but leaves in place FCC regulations
prohibiting local cross-ownership between television stations and
cable systems and directs the FCC to reexamine the need for these
rules. The Act repeals the network/cable cross-ownership rules, but
empowers the FCC to adopt rules to ensure carriage, channel
positioning and non-discriminatory treatment of non-affiliated
broadcast stations by cable systems affiliated with a broadcast
network. The satellite master antenna television and multichannel
multipoint distribution system cable cross-ownership restrictions have
been eliminated for cable operators subject to effective competition.
The Act preserves must carry rights for local television
broadcasters, and establishes new audience standards based on
commercial publications which delineate television markets based on
viewing patterns. The FCC is directed to grant or deny must carry
requests within 120 days of a complaint being filed with the FCC.
Cable Equipment Compatibility; Scrambling Requirements. The Act
directs an FCC equipment compatibility rulemaking emphasizing that (1)
narrow technical standards, mandating a minimum degree of common
design among televisions, VCRs, and cable systems, and relying heavily
on the open marketplace, should be pursued; (2) competition for all
converter features unrelated to security descrambling should be
maximized; and (3) adopted standards should not affect unrelated
telephone and computer features. The Act directs the FCC to adopt
regulations which assure the competitive availability of converters
("navigation devices") from vendors other than cable operators. The
Act provides that the FCC's rules may not impinge upon signal security
concerns or theft of service protections. Waivers will be possible
where the cable operator shows the waiver is necessary for the
introduction of new services. Once the equipment market becomes
competitive, FCC regulations in this area will be terminated.
Cable Provision of Internet Services. Transmitting indecent
material via the Internet is made criminal by the Act. This provision
is under judicial review. 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. The 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial information
that are required to be included pursuant to this Item 8 are listed in
Item 14 under the caption "1. Index of Financial Statements" in this
Annual Report on Form 10-K, together with the respective pages in this
Annual Report on Form 10-K where such information is located. The
financial statements and supplementary financial information
specifically referenced in such list are incorporated in this Item 8
by reference.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
During the fiscal year ended May 31, 1996, the Company was not
involved in any disagreement with its independent certified public
accountants on accounting principles or practices or on financial
disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information with respect to the directors of the Company
required to be included pursuant to this Item 10 will be included
under the caption "Election of Directors" in the Company's Proxy
Statement relating to the 1996 Annual Meeting of Shareholders (the
"Proxy Statement"), to be filed with the Securities and Exchange
Commission (the "Commission") pursuant to Rule 14a-6 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
is incorporated in this Item 10 by reference. The information with
respect to the executive officers of the Company required to be
included pursuant to this Item 10 is included under the caption
"Executive Officers of the Company" in Part I of this Annual Report on
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information with respect to executive compensation required
to be included pursuant to this Item 11 will be included under the
caption "Executive Compensation and Other Information" in the Proxy
Statement and is incorporated in this Item 11 by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information with respect to the security ownership of (1)
beneficial owners of more than 5% of the Class A Common Stock, (2) the
directors or nominees for director of the Company, (3) each of the top
five executive officers and (4) all directors and officers of the
Company as a group that is required to be included pursuant to this
Item 12 will be included under the captions "Principal Shareholders,"
"Election of Directors" and "Executive Compensation and Other
Information - Beneficial Ownership by Management" in the Proxy
Statement and is incorporated in this Item 12 by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information with respect to any reportable transaction,
business relationship or indebtedness between the Company and the
beneficial owners of more than 5% of the Class A Common Stock, the
directors or nominees for director of the Company, the executive
officers of the Company or the members of the immediate families of
such individuals that is required to be included pursuant to this Item
13 will be included under the caption "Executive Compensation and
Other Information - Certain Relationships and Related Transactions" in
the Proxy Statement and is incorporated in this Item 13 by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) The following documents are filed as part of this Annual
Report on Form 10-K:
1. Index of Financial Statements
The following financial statements are included at the indicated
page in this Annual Report on Form 10-K and incorporated in this Item
14(a)1 by reference:
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
2. Financial Statement Schedule
The following financial statement schedule is included at the
indicated page in this Annual Report on Form 10-K and incorporated in
this Item 14(a)2 by reference:
Page
Schedule VIII - Valuation and qualifying accounts S-1
3. Reports on Form 8-K
None.
4. Exhibits
The following documents are filed as part of this Annual Report
on Form 10-K:
3(a) - Restated Certificate of Incorporation of the Company,
filed as Exhibit 6(a)(i) to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 28, 1990 and
incorporated herein by reference and Amendment to Restated
Certificate of Incorporation of the Company, filed as
Exhibit 6(a)(i) to the Company's Quarterly Report on Form
10-Q for the quarter ended November 30, 1990 and
incorporated herein by reference.
3(b) - By-laws of the Company, as amended, filed as Exhibit 3(b)
to the Company's Annual Report on Form 10-K for the year
ended May 31, 1995, and incorporated herein by reference.
3(c) - Articles of Association and Memorandum of Association of
ECT.
4(a) - Eighth Restated Credit Agreement, dated as of July 10,
1990, between Century Texas, Century Investors and Citibank,
N.A., on behalf of itself and as agent, and The Chase
Manhattan Bank (National Association), The Bank of Nova
Scotia, The First National Bank of Chicago, Bank of
Montreal, The Royal Bank of Canada, Continental Bank N.A.,
Bankers Trust Company, Nippon Credit Bank, Provident
National Bank, and Security Pacific National Bank (the
"Eighth Restated Banks"), filed as an Exhibit to the
Company's Current Report on Form 8-K, filed July 13, 1990,
and incorporated herein by reference.
4(b) - Third Amendment, dated as of November 21, 1990 (the
"Third Amendment"), among Centennial Cellular Corp., a
Delaware corporation ("Centennial Cellular Corp."), the
Lender parties on the signature page thereto, Citibank,
N.A., as agent, Century Cellular Holding Corp., and the
Guarantor of parties on the signature page thereto, to the
Credit Agreement, dated as of October 11, 1989, among
Centennial Cellular Corp., and Citibank, N.A., on behalf of
itself and as agent, and Kansallis-Osake-Pankki, Provident
National Bank, DnC America Banking Corporation, Meridian
Bank, Lincoln Savings Bank, Toronto Dominion Bank, and The
Bank of Nova Scotia (the "Cellular Banks"), filed as an
Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended November 30, 1991, and incorporated herein
by reference.
4(c) - Credit Agreement, dated as of October 11, 1989, among
Centennial Cellular Corp., and Citibank, N.A., on behalf of
itself and as agent, and the Cellular Banks, filed as
Exhibit 4(c) to the Company's Annual Report on Form 10-K for
the year ended May 31, 1990, and incorporated herein by
reference.
4(d) - Credit Agreement, dated as of October 11, 1989, among
Centennial Cellular Corp., and Citibank, N.A., on behalf of
itself and as agent, and the Cellular Banks, as Amended and
Restated pursuant to the Third Amendment, filed as an
Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended November 30, 1991, and incorporated herein
by reference.
The Company hereby agrees to furnish to the Securities and
Exchange Commission, upon its request, a copy of each instrument
omitted pursuant to item 601(b)(4)(iii) of Regulation S-K.
4(e) - Second Restated Consolidated Guaranty and Pledge
Agreement, dated as of July 10, 1990, made by the
subsidiaries of the Company set forth on the signature pages
thereto to Citibank, N.A., as agent for the Eighth Restated
Banks, filed as Exhibit 4(g) to the Company's Annual Report
on Form 10-K for the year ended May 31, 1990 and
incorporated herein by reference.
4(f) - Third Restated Pledge Agreement and Guaranty, dated as of
July 10, 1990, made by the Company to Citibank, N.A., as
agent for the Eighth Restated Banks, filed as Exhibit 4(h)
to the Company's Annual Report on Form 10-K for the year
ended May 31, 1990 and incorporated herein by reference.
4(g) - Seventh Restated Pledge and Security Agreement, dated as
of July 10, 1990, made by Century Texas to Citibank, N.A.,
as agent for the Eighth Restated Banks, filed as Exhibit
(i)A to the Company's Annual Report on Form 10-K for the
year ended May 31, 1990 and incorporated herein by
reference.
4(h) - Third Collateral Agreement Amendment, dated as of July
10, 1990 made by Century Texas, the Company and Citibank,
N.A. as agent for the Eighth Restated Banks, filed as
Exhibit 4(i)B to the Company's Annual Report on Form 10-K
for the year ended May 31, 1990 and incorporated herein by
reference.
4(i) - Pledge Agreement, dated as of October 11, 1989, made by
Century Cellular Holding Corp., a New York corporation, to
Citibank, N.A., as agent for the Cellular Banks, filed as
Exhibit 4(j) to the Company's Annual Report on Form 10-K for
the year ended May 31, 1990 and incorporated herein by
reference.
4(j) - Pledge Agreement, dated as of October 11, 1989, made by
Century Cellular Holding Corp., a New York corporation, to
Citibank, N.A., as agent for the Cellular Banks, filed as an
Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended November 30, 1990 and incorporated herein
by reference.
4(k) - Pledge and Security Agreement, dated as of October 11,
1989, made by Centennial Cellular Corp. to Citibank, N.A.,
as agent for the Cellular Banks, filed as Exhibit 4(k) to
the Company's Annual Report on Form 10-K for the year ended
May 31, 1990 and incorporated herein by reference.
4(l) - Pledge and Security Agreement, dated as of October 11,
1989, made by Centennial Cellular Corp. to Citibank, N.A.,
as agent for the Cellular Banks, as Amended and Restated
pursuant to the Third Amendment, filed as an Exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended
November 30, 1990 and incorporated herein by reference.
4(m) - Consolidated Guaranty and Pledge Agreement, dated as of
October 11, 1989, made by the subsidiaries of Centennial
Cellular Corp. set forth on the signature pages thereto to
Citibank, N.A., as agent for the Cellular Banks, filed as
Exhibit 4(l) to the Company's Annual Report on Form 10-K for
the year ended May 31, 1990 and incorporated herein by
reference.
4(n) - Consolidated Guaranty and Pledge Agreement, dated as of
October 11, 1989, made by the subsidiaries of Centennial
Cellular Corp. set forth on the signature pages thereto to
Citibank, N.A., as agent for the Cellular Banks, as Amended
and Restated pursuant to the Third Amendment, filed as an
Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended November 30, 1990 and incorporated herein
by reference.
4(o) - Equity Subscription Agreement, dated as of November 21,
1990, among Centennial Cellular, Century Communications
Corp., a Texas corporation, and Century Cellular Holding
Corp., a New York corporation, filed as Exhibit 4(o) to the
Company's Annual Report on Form 10-K for the year ended May
31, 1992 and incorporated herein by reference.
4(p) - Indenture, dated as of November 15, 1988, by and between
the Company and the Bank of Montreal Trust Company, as
Trustee, filed as Exhibit 4(l) to Amendment No. 7 to the
Company's Registration Statement on Form S-1 (File No.
33-21394) under the Securities Act of 1933, as amended, (the
"1988 Form S-1"); said 1988 Form S-1 having been filed with
the Commission on April 22, 1988 and incorporated herein by
reference, and said Amendment No. 7 to the 1988 Form S-1
having been filed with the Commission on November 10, 1988
and incorporated herein by reference.
4(q) - Indenture, dated as of October 15, 1991, be and between
the Company and the Bank of Montreal Trust Company, as
Trustee, filed as Exhibit 4.2 to Amendment No. 2 to the
Company's Registration Statement on Form S-3 (File No.
33-33787) under the Securities Act of 1933, as amended (the
"1991 Form S-3); said 1991 Form S-3 having been filed with
the Commission on August 31, 1990 and incorporated herein by
reference, and said Amendment No. 2 to the 1991 Form S-3
having been filed with the Commission on March 1, 1991 and
incorporated herein by reference.
4(r) - First Supplemental Indenture, dated as of October 15,
1991, by and between the Company and the Bank of Montreal
Trust Company, as Trustee, filed as Exhibit 7(2) to the
Company's current report on Form 8-K, dated October 17, 1991
and incorporated herein by reference.
4(s) - Indenture, dated as of February 15, 1992, by and between
the Company and the Bank of America National Trust and
Savings Association, as Trustee, filed as Exhibit 4.3 to
Amendment No. 2 to the Company's Registration Statement on
Form S-3 (File No. 33-33787) under the Securities Act of
1933, as amended (the "1991 Form S-3"); said 1991 Form S-3
having been filed with the Commission on March 9, 1990 and
incorporated herein by reference, and said Amendment No. 2
to the 1991 Form S-3 having been filed with the Commission
on March 1, 1991 and incorporated herein by reference.
4(t) - First Supplemental Indenture, dated as of February 15,
1992, by and between the Company and the Bank of America
National Trust and Savings Association, as Trustee, filed as
Exhibit 4(t) to the Company's Annual Report on Form 10-K for
the year ended May 31, 1992 and incorporated herein by
reference.
4(u) - Second Supplemental Indenture dated as of August 15, 1992
by and between the Company and Bank of America National
Trust and Savings Association, as Trustee, filed as Exhibit
4(u) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1992 and incorporated herein by
reference.
4(v) - Third Supplemental Indenture dated as of April 1, 1993 by
and between the Company and Bank of America National Trust
and Savings Association, as Trustee, and incorporated herein
by reference.
4(w) - Fourth Supplemental Indenture dated as of March 6, 1995
by and between the Company and Bank of America National
Trust and Savings Association, as Trustee, filed as Exhibit
4(w) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1995, and incorporated herein by
reference.
4(x) - Debenture Certificate of ECT and Debenture Deed between
Century and ECT, dated as of July 12, 1994.
10(a) - Employment Agreement, dated February 11, 1986, between
the Company and Leonard Tow, filed as Exhibit 10(a) to the
1988 Form S-1 and incorporated herein by reference.
10(a)(1) - Amended Employment Agreement, dated as of July 1, 1991,
between the Company and Leonard Tow, filed as Exhibit
10(a)(1) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1992 and incorporated herein by
reference.
10(a)(2) - Agreement, dated July 30, 1992, between the Company and
the Leonard and Claire Tow Life Insurance Trust, filed as
Exhibit 10(a)(2) to the Company's Annual Report on Form 10-K
for the year ended May 31, 1992 and incorporated herein by
reference.
10(a)(3) - Employment Agreement, dated as of December 28, 1993,
between the Company and Scott N. Schneider, filed as Exhibit
10(a) to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1994 and incorporated herein by
reference.
10(a)(4) - Employment Agreement, dated as of December 28, 1993,
between the Company and Andrew Tow, filed as Exhibit 10(b)
to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1994 and incorporated herein by
reference.
10(a)(5) - Employment Agreement, dated as of December 28, 1993,
between the Company and Michael G. Harris, filed as Exhibit
10(c) to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1994 and incorporated herein by
reference.
10(a)(6) - Employment Agreement, dated December 28, 1993, between
the Company and Bernard P. Gallagher, filed as Exhibit
10(a)(6) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1995, and incorporated herein by
reference.
10(a)(7) - Employment Agreement, dated as of January 1, 1995,
between the Company and Daniel E. Gold.
10(b) - Principal Stockholders' Agreement, dated as of December
7, 1985, between Sentry Insurance a Mutual Company
("Sentry"), the Company, Leonard Tow individually and as
Trustee, and Claire Tow as Trustee, filed as Exhibit 10(a)
to the Company's Registration Statement on Form S-1 (No.
33-2025) under the Securities Act of 1933, as amended, filed
with the Commission on December 9, 1985 (the "1986 Form
S-1") and incorporated herein by reference.
10(c) - Amendment to Principal Stockholders' Agreement, dated
August 31, 1987, filed as an Exhibit to the Company's
Current Report on Form 8-K dated September 11, 1987 and
incorporated herein by reference.
10(d) - Lease, dated July 15, 1987, between Locust Avenue
Associates and Century-Texas, filed as Exhibit 10(h) to the
1988 Form S-1 and incorporated herein by reference.
10(e) - Addendum to Lease, effective December 1, 1988, between
Locust Avenue Associates and Century-Texas, filed as Exhibit
10(i) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1989 and incorporated herein by
reference.
10(f) - Addendum to Lease, effective April 1, 1990, between
Locust Avenue Associates and Century-Texas, filed as Exhibit
10(j) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1990 and incorporated herein by
reference.
10(g) - Addendum to Lease, effective December 1, 1990, between
Locust Avenue Associates and Century-Texas, filed as Exhibit
10(k) to the Company: Annual Report on Form 10-K for the
year ended May 31, 1991 and incorporated herein by
reference.
10(h) - Addendum to Lease, effective May 1, 1991, between Locust
Avenue Associates and Century-Texas, filed as Exhibit 10(1)
to the Company's Annual Report on Form 10-K for the year
ended May 31, 1991 and incorporated herein by reference.
10(i) - Addendum to Lease, effective December 1, 1992, between
Locust Avenue Associates and Century-Texas filed as Exhibit
10(i) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1993 and incorporated herein by
reference.
10(j) - Floating Rate Subordinated Note, dated November 5, 1981,
of Century Texas payable to The Sentry Corporation, filed as
Exhibit 10(e) to the 1986 Form S-1 and incorporated herein
by reference.
10(k) - Floating Rate Subordinated Note, dated March 1, 1982, of
Century Texas payable to The Sentry Corporation, filed as
Exhibit 10(f) to the 1986 Form S-1 and incorporated herein
by reference.
10(l) - Floating Rate Subordinated Note, dated November 13, 1987,
of Century-Texas to Sentry, filed as Exhibit 10(k) to the
1988 Form S-1 and incorporated herein by reference.
10(m) - Joint Venture Agreement, dated as July 26, 1974, among
American Television and Communications Corporation, Century
Texas and Century Venture Corporation, filed as Exhibit
10(g) to the 1986 Form S-1 and incorporated herein by
reference.
10(n) - Third Agreement of Amendment to the Amended and Restated
Joint Venture Agreement, dated June 18, 1987, among American
Television and Communications Corporation, Daniels &
Associates, Inc., Tele-Communications, Inc., Comcast
Corporation and Century Southwest Cable Television, Inc.,
filed as Exhibit 10(m) to the 1988 Form S-1 and incorporated
herein by reference.
10(o) - Colorado Springs Joint Sharing and Buy-Sell Agreement,
dated November 1, 1974, among Century Venture Corporation,
Century Colorado Corp., American Television and
Communications Corporation, Century Texas and Vumore-Video
Corporation of Colorado, Inc., filed as Exhibit 10(h) to the
1986 Form S-1 and incorporated herein by reference.
10(p) - 1985 Stock Option Plan of the Company, filed as Annex A
to the Company's Registration Statement on Form S-8 (File
No. 33-34387) under the Securities Act of 1933, as amended,
filed with the Commission on April 19, 1990 and incorporated
herein by reference.
10(q) - Incentive Award Plan of the Company, filed as Annex A to
the Company's Registration Statement on Form S-8 (File No.
33-23717) under the Securities Act of 1933, as amended,
filed with the Commission on August 11, 1988 and
incorporated herein by reference.
10(r) - 1985 Employee Stock Purchase Plan of the Company, as
amended, filed as Exhibit 10(r) to the Company's Annual
Report on Form 10-K for the year ended May 31, 1995, and
incorporated herein by reference.
10(s) - Non-Employee Director Stock Option Plan of the Company,
filed as Annex A to the Company's Registration Statement on
Form S-8 (File No. 33-34388) under the Securities Act of
1933, as amended, filed with the Commission on April 19,
1990 and incorporated herein by reference.
10(t) - 1985 Stock Equivalent Plan, filed as Exhibit 10(m) to the
1986 Form S-1 and incorporated herein by reference.
10(u) - Century Retirement Investment Plan, filed as Exhibit
10(x) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1992 and incorporated herein by
reference.
10(v)(1) - Century 1992 Management Equity Incentive Plan, filed as
Exhibit 10(x)(1) to the Company's Annual Report on Form 10-K
for the year ended May 31, 1992 and incorporated herein by
reference.
10(v)(2) - 1993 Non-Employee Directors' Stock Option Plan of the
Company, filed as Exhibit 10(v)(2) to the Company's Annual
Report on Form 10-K for the year ended May 31, 1995, and
incorporated herein by reference.
10(v)(3) - 1994 Stock Option Plan of the Company, filed as Exhibit
10(v)(3) to the Company's Annual Report on Form 10-K for the
year ended May 31, 1995, and incorporated herein by
reference.
10(w) - Interest Rate Swap Agreement, dated as of July 18, 1986,
between Citibank, N.A. and Century-Texas, filed as Exhibit
10(v) to Amendment No. 5 to the 1988 Form S-1 and
incorporated herein by reference.
10(x) - Interest Rate Swap Agreement, dated as of May 20, 1987,
between The First National Bank of Chicago and
Century-Texas, filed as Exhibit 10(g) to Amendment No. 5 to
the 1988 Form S-1 and incorporated herein by reference.
10(y) - Interest Rate and Currency Exchange Agreement, dated as
of February 14, 1990, between Centennial Cellular Corp. and
Citibank, N.A., filed as Exhibit 10(x) to the Company's
Annual Report on Form 10-K for the year ended May 31, 1990
and incorporated herein by reference.
10(z) - Interest Rate and Currency Exchange Agreement dated
January 17, 1991 between Century Communications Corp. and
Bankers Trust Company, filed as Exhibit 10(aaa) to the
Company's Annual Report on Form 10-K for the year ended May
31, 1991 and incorporated herein by reference.
10(aa) - Interest Rate and Currency Exchange Agreement dated
between Century Communications Corp. and Security Pacific
National Bank, filed as Exhibit 10(aaaa) to the Company's
Annual Report on Form 10-K for the year ended May 31, 1991
and incorporated herein by reference.
10(bb) - Management Agreement and Joint Venture Agreement
(Century-ML Venture), dated December 16, 1986, between
Century Texas, and ML Media Partners, L.P., a Delaware
limited partnership, filed as Exhibit 10(v) to the Company's
Annual Report on Form 10-K for the year ended May 31, 1989
and incorporated herein by reference.
10(cc) - Amendment No. 1 to Management Agreement and Joint Venture
Agreement (Century ML Venture), dated September 21, 1987,
between Century Texas and ML Media Partners, L.P., a
Delaware limited partnership, filed as Exhibit 10(w) to the
Company's Annual Report on Form 10-K for the year ended May
31, 1989 and incorporated herein by reference.
10(dd) - Management Agreement and Joint Venture Agreement
(Century-ML Radio Venture), dated as of February 15, 1989,
between Century Texas and ML Media Partners, L.P., a
Delaware limited partnership, filed as Exhibit 10(x) to the
Company's Annual Report on Form 10-K for the year ended May
31, 1989 and incorporated herein by reference.
10(ee) - Plan and Agreement of Merger, dated August 2, 1991, by
and among Century Cellular Holding Corp., Century Cellular
Corp., Citizens Utilities Company and Citizens Cellular
Corp., together with exhibits, including Management
Agreement, Conflicts/Non-Compete Agreement, Stock Transfer
Agreement and Registration Rights Agreement, filed as
Exhibit 10(cc) to the Company's Annual Report on Form 10-K
for the year ended May 31, 1991 and incorporated herein by
reference.
10(ff) - Credit Agreement, dated as of August 4, 1995, by and
among CCC-I, Inc., Pullman TV Cable Co., Inc., Kootenai
Cable, Inc., Citibank N.A., as agent, and each of the banks
parties thereto. The Company hereby agrees to furnish to
the Securities and Exchange Commission, upon its request, a
copy of each instrument omitted pursuant to Item
601(b)(4)(iii) of Regulation S-K.
10(gg) - Credit Agreement, dated as of June 30, 1994, by and among
CCC-II, Inc., Citibank N.A. as managing agent, and each of
the banks parties thereto, filed as Exhibit 10 to the
Company's report on Form 8-K dated July 25, 1994 and
incorporated herein by reference. The Company hereby agrees
to furnish to the Securities and Exchange Commission, upon
its request, a copy of each instrument omitted pursuant to
Item 601(b)(4)(iii) of Regulation S-K.
10(hh) - Terms Agreement, dated February 27, 1995, between Century
Communications Corp. and Merrill, Lynch, Pierce, Fenner &
Smith Incorporated, filed as Exhibit 10(hh) to the Company's
Annual Report on Form 10-K for the year ended May 31, 1995,
and incorporated herein by reference.
10(ii) - Franchise Agreement, dated as of July 8, 1994, between
Australis and ECT, together with amending letters.
10(jj) - Optus Customer Service Agreement, dated as of October 14,
1994, between Optus, Australis and Continental Century Pay
TV Pty Limited, a New South Wales corporation ("CCPTV").
10(kk) - Subscription Television Distribution Agreement between
CCPTV and Australis, together with the amending letter from
Australis to CCPTV, to be filed by amendment.
10(ll) - Infrastructure Utilization Agreement, dated as of June
13, 1995, between Australis, New World Telecommunications
Pty Limited, a New South Wales corporation, ECT and CCPTV,
to be filed by amendment.
10(mm) - Advisory and Oversight Agreement, between Century
Australia Pty Limited, an Australian corporation and Century
Nevada.
10(nn) - Advisory and Technical Services Agreement, between ECT
and Century Nevada.
11 - Computation of loss per common share.
21 - List of subsidiaries of the Company.
23.1 - Consent of Deloitte & Touche LLP.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Century Communications Corp.
New Canaan, Connecticut
We have audited the accompanying consolidated balance sheets of
Century Communications Corp. and Subsidiaries as of May 31, 1996 and
1995, and the related consolidated statements of operations and cash
flows for each of the three years in the period ended May 31, 1996.
Our audits also included the financial statement schedule listed in
the index at Item 14(a)2. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule
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 Century
Communications Corp. and Subsidiaries as of May 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the
three years in the period ended May 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
August 23, 1996
<TABLE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in Thousands
<CAPTION>
May 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 164,592 $ 228,764
Accounts receivable less allowance for doubtful
accounts of $3,008 and $2,144, respectively 41,002 24,516
Prepaid expenses and other current assets 6,632 4,919
Total current assets 212,226 258,199
Property, plant and equipment - net 651,607 508,043
Investment in marketable equity securities 53,069 46,671
Equity investments in cable television and cellular telephone
systems - net 108,256 220,563
Debt issuance costs, less accumulated amortization of
$11,652 and $7,695, respectively 28,352 31,020
Cable television franchises, less accumulated amortization of
$285,991 and $236,409, respectively 525,194 246,455
Wireless telephone licenses, less accumulated amortization of
$164,786 and $146,305, respectively 360,213 394,184
Excess of purchase price over value of net assets acquired, less
accumulated amortization of $51,529 and $46,629, respective 279,202 277,616
Other assets 16,790 21,666
$ 2,234,909 $ 2,004,417
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
Amounts in Thousands (Except Share Data)
<CAPTION>
May 31,
1996 1995
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIENCY
Current liabilities:
Current maturities of long-term debt $ 15,084 $ 7,450
Accounts payable 26,102 68,937
Accrued interest payable 22,921 29,068
Other accrued expenses 72,757 42,668
Customers' deposits and prepayments 19,370 13,203
Total current liabilities 156,234 161,326
Long-term debt 2,081,611 1,741,143
Deferred income taxes 99,474 126,235
Minority interest in subsidiaries 162,790 157,625
Commitments and contingencies (Note 7)
Preferred stock, par value $.01 per share authorized
100,000,000 shares, none issued - -
Subsidiary convertible redeemable preferred stock
(at aggregate liquidation value whichapproximates
the fair market value) par value $.01 per share,
authorized, issued and outstanding 102,187 shares
(redemption value of $1,823 per share) 182,813 169,733
Common stockholders' deficiency:
Common stock, par value $.01 per share:
Class A, authorized 400,000,000 shares,
issued and outstanding 59,946,280 and
59,484,685 shares, respectively 599 595
Class B, authorized 300,000,000 shares,
issued and outstanding 45,406,115 shares 454 454
Additional paid-in capital 175,804 175,545
Other (117,702) (123,188)
Accumulated deficit (507,168) (405,051)
Total common stockholders' deficiency (448,013) (351,645)
$ 2,234,909 $ 2,004,417
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Amounts in Thousands (Except Share Data)
<CAPTION>
Year ended May 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Cable service income $ 368,506 $ 331,268 $ 318,226
Cellular service income 112,197 85,419 56,373
Australian operations 14,571 - -
495,274 416,687 374,599
Costs and expenses:
Cost of services - Cable 82,274 81,521 69,708
Cost of services - Cellular 26,129 22,152 13,424
Selling, general and administrative 119,779 110,381 82,368
Regulatory restructuring charge - 4,000 -
Depreciation and amortization 195,425 171,931 151,296
Australian operations 45,419 - -
469,026 389,985 316,796
Operating income 26,248 26,702 57,803
Interest 172,215 139,001 121,698
Other income (Notes 1 and 3) 1,107 2,270 3,645
Loss before income tax benefit and
minority interest (144,860) (110,029) (60,250)
Income tax benefit (34,326) (8,061) (5,633)
Loss before minority interest (110,534) (101,968) (54,617)
Minority interest in loss of subsidiaries 8,417 19,343 12,690
Net loss $ (102,117) $ (82,625) $ (41,927)
Dividend requirement on subsidiary convertible
redeemable preferred stock $ 4,256 $ 4,419 $ 5,838
Loss applicable to common shares $ (106,373) $ (87,044) $ (47,765)
Loss per common share $ (1.44) $ (1.01) $ (0.53)
Weighted average number of common shares
outstanding during the period 73,748,000 86,277,000 89,381,000
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in Thousands
<CAPTION>
Year ended May 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 590,137 $ 494,671 $ 440,543
Cash paid to suppliers, employees and
governmental agencies (333,930) (289,606) (228,629)
Australian operations (1,213) - -
Interest paid (154,219) (108,933) (105,733)
Debt issuance costs (5,025) (14,072) (4,997)
NET CASH PROVIDED BY OPERATING ACTIVITIES 95,750 82,060 101,184
INVESTING ACTIVITIES:
Capital expenditures (100,287) (109,737) (55,024)
Cable television franchise expenditures (2,723) (1,012) (1,384)
Acquisition of other assets 1,969 (7,116) (1,702)
Acquisition and exchanges of cable
television and wireless telephone
systems (355,215) (219,315) (114,361)
Australian activities (24,434) - -
Purchase of marketable securities - (5,350) -
Capital returned from equity investments 6,870 2,896 2,853
Capital contributed to equity investments (1,463) (3,783) (1,957)
NET CASH USED IN INVESTING ACTIVITIES (475,283) (343,417) (171,575)
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 728,500 761,984 346,584
Principal payments on long-term debt (415,956) (306,038) (277,429)
Purchase of treasury stock (158) (110,092) -
Cash contributed by joint venture partners - 25,871 -
Issuance of common stock 2,975 1,191 2,672
Issuance of subsidiary preferred and common
stock, net of related costs - 49,426 -
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 315,361 422,342 71,827
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM
INVESTMENTS (64,172) 160,985 1,436
CASH AND SHORT-TERM INVESTMENTS - BEGINNING
OF YEAR 228,764 67,779 66,343
CASH AND SHORT-TERM INVESTMENTS - END OF YEAR $ 164,592 $ 228,764 $ 67,779
See notes to consolidated financial statements
</TABLE>
<TABLE>
CENTURY COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Amounts in Thousands
<CAPTION>
Year ended May 31,
1996 1995 1994
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
NET LOSS $ (102,117) $ (82,625) $ (41,927)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 195,425 171,931 151,296
Gain on sale of assets (4,176) - -
Minority interest in loss of subsidiaries (8,417) (19,343) (12,690)
Deferred income taxes (37,170) (11,518) (6,675)
Non cash interest charges 28,044 18,792 17,204
Debt issuance costs (5,025) (14,072) (4,997)
Non cash Australian operations 39,906 - -
Other (16,016) (2,897) (3,359)
Change in assets and liabilities net of
effects of acquired cable television
and wireless telephone systems:
Accounts receivable - (increase)/decrease (4,014) (3,738) 286
Prepaid expenses and other current assets
(increase) (249) (179) (1,139)
Accounts payable and accrued expenses
- increase (5,179) 23,335 1,302
Customers' deposits and prepayments
- increase 6,584 2,374 1,883
Net working capital change
- Australian operations 8,154 - -
Total adjustments 197,867 164,685 143,111
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 95,750 $ 82,060 $ 101,184
See notes to consolidated financial statements
</TABLE>
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 1996, 1995 and 1994
(Amounts in thousands except subscriber, pop and share data)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Century
Communications Corp., all of its subsidiaries and certain partnership
interests (the "Company") from their respective dates of acquisition
(see Note 3). Included in subsidiaries are the 50% indirectly-owned:
Century Venture Corp. and Subsidiary, Century-ML Cable Venture and
Subsidiary, and Citizens Century Cable Television Venture (see Note
10). In addition, the consolidated financial statements include the
accounts of Centennial Cellular Corp., ("Centennial") a 31.8% owned
company (at May 31, 1996) in which the Company controls 73.6% of the
voting power of the common shares. During the fiscal year ended May
31, 1996, the Company for accounting and reporting purposes,
consolidated the operations of East Coast Pay Television Pty. Limited,
("ECT") an Australian Company. ECT was previously accounted for by
the equity method of accounting. There was no significant impact on
the consolidated statement of operations as a result of this change.
ECT is pursuing opportunities to own, operate and invest in pay
television services in Australia. (see Note 3 - Australian Pay
Television). All material intercompany transactions and balances
have been eliminated.
Purchase accounting
The Company undertakes a valuation of the net assets acquired in
purchase transactions in accordance with generally accepted accounting
principles. Accordingly, the Company has stated the net assets
acquired from the purchased companies at their estimated fair values
at the date of acquisition.
Revenue recognition
Cable service income includes earned subscriber service revenues and
charges for installation and connections, net of programmers' share of
pay television revenues. Such programmers' share netted against
service income amounted to $92,014, $69,572 and $59,085 in 1996, 1995
and 1994, respectively.
Cellular telephone service income includes service revenues and
charges for installation and connections, net of land line charges of
$20,000, $15,030 and $8,712 in 1996, 1995 and 1994, respectively.
Investment in marketable equity securities
The Company adopted the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" effective June 1,
1994. Under SFAS 115, the Company must classify its debt and
marketable securities in one of three categories: trading, available-
for-sale, or held-to-maturity. The Company has classified equity
securities as "Available for Sale".
Unrealized holding gains and losses, net of the related income tax
effect on the available-for-sale securities are excluded from earnings
and are reported as a separate component of stockholders' deficiency
until realized. Equity securities at May 31, 1996 and 1995 are stated
at their fair market values. The adjusted cost basis of these equity
securities at May 31, 1996 and 1995 was $32,255. The Company recorded
an increase in the unrealized gain of $6,397 and $14,416 during the
year ended May 31, 1996 and 1995, respectively.
Debt issuance costs
Costs associated with the issuance of the Company's debt securities
and credit facilities (Note 6) have been capitalized and are being
amortized on a straight-line basis over the lives of the issues.
Equity investments in cable television and cellular systems
The Company records such investments at purchased cost at the date of
acquisition and adjusts for the Company's share of net income or loss
from the acquisition date. At May 31, 1996, the Company's equity
investments consist of a $108,174 investment in cellular minority
interests (see Note 12). The difference of $120,340 between the cost
of the Company's cellular equity investments and the underlying book
value is amortized over ten years. Accumulated amortization at May
31, 1996, 1995 and 1994 was $57,588, $45,341 and $33,152,
respectively (see Note 12).
The change in the balance of the Company's equity investments in the
Australian Pay Television business from $107,945 at May 31, 1995
reflects the consolidation of ECT effective June 1, 1996 and a write
down of $10,000 related to the Company's residual equity investments
in the Australian Pay Television business (see Note 3, Australian Pay
Television).
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation is
computed principally using the straight-line method over the following
estimated useful lives of the assets:
Buildings 15 - 25 years
Cable television and cellular telephone
transmission and distribution systems
and related equipment 8 - 15 years
Miscellaneous equipment and furniture and
fixtures 3 - 10 years
The cost of connections for new cable television subscribers are
capitalized at standard per subscriber rates for labor, materials and
overhead. Expenditures for maintenance and repairs are charged to
operating expense as incurred, and betterments, replacement equipment
and additions are capitalized.
Cable television franchises
Cable television franchises principally consist of amounts allocated
under purchase accounting (see Note 3). Such amounts are amortized
using the straight-line method over the lives of the franchises.
Wireless telephone licenses
Wireless telephone licenses consist of amounts allocated under
purchase accounting (see Note 3). Such amounts are amortized,
commencing with the date of operations, using the straight-line method
over a period of 10 and 40 years for cellular and personal
communications services ("PCS") licenses, respectively. Centennial,
during the fiscal year ended May 31, 1996, capitalized interest costs
of $5,200 related to the acquisition of the PCS license.
Excess of purchase price over value of net assets acquired
The excess of purchase price over value of net assets acquired is
being amortized using the straight-line method over a period of 40
years.
Income taxes
The income tax provision is calculated based on Internal Revenue
Service ("IRS") regulations pertaining to filing of separate tax
returns by consolidated entities. The Company accounts for income
taxes in accordance with Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which provides that the deferred tax
provision is determined by the liability method. Deferred tax assets
and liabilities are recognized based on the differences between the
book and tax basis of assets and liabilities using presently enacted
tax rates.
Loss per common share
Loss per common share is calculated using the average number of common
shares outstanding during each period and reflects, retroactively for
all periods presented, the stock distributions described in Note 8.
Loss per common share, as shown on the Consolidated Statements of
Operations for the periods presented, does not include stock options
as a common stock equivalent as their effect on loss per share is
antidilutive. The loss per common share reflects a charge for the
dividend requirement on subsidiary convertible redeemable preferred
stock of $4,256, $4,419 and $5,838 for the years ended May 31, 1996,
1995 and 1994, respectively.
Statement of cash flows
Short-term investments classified as cash equivalents in the
consolidated financial statements consist principally of overnight
deposits, government securities and commercial paper with acquired
maturities of three months or less.
Stock distributions
In prior years, in recognition of improvements in the Company's
general business condition as measured by improvements in its
liquidity and operating performance, the Company has from time to time
made pro rata distributions of common stock to its stockholders. The
effect of such distributions is to increase the number of shares
outstanding and reduce the proportionate investment in the Company
represented by each share. For accounting purposes, since the Company
continues to report net losses and has an accumulated deficit, the
amount equal to the aggregate par value ($.01 per share) of the shares
distributed is transferred from additional paid in capital to the
common stock account. If the Company had retained earnings, the
accounting treatment would be to transfer an amount equal to the
market value
of the shares issued from retained earnings to additional paid-in
capital. Since the Company has neither retained earnings nor current
earnings, the stock distributions represent a reallocation of the
shareholder's investment over an increased number of shares and does
not represent distributions of corporate earnings and profits.
Foreign currency translation
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign
currency into U.S. dollars is performed for the balance sheet accounts
using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using a weighted average exchange
rate during the period. The gains and losses, net of applicable
deferred income taxes if any, resulting from such translation are
included in stockholders' equity.
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting periods. Actual results could
differ from those estimates.
Valuation of long lived assets
The Company, on a quarterly basis, undertakes a review and valuation
of the net carrying value, recoverability and write-off period of all
categories of its long lived assets. The Company in its valuation
considers current market values of its properties, competition,
prevailing economic conditions, government policy including taxation,
and the Company's and the industry's historical and current growth
patterns. The Company also considers its financial structure,
including the underlying cost of securities which support the
Company's internal growth and acquisitions, as well as the
recoverability of the cost of its long lived assets based on a
comparison of estimated undiscounted operating cash flows for the
systems which generated long lived assets with the carrying value of
the long lived assets. The Company's long lived assets are stated at
the lower of cost or market and are amortized over their respective
expected lives
Disclosure of fair value of financial instruments
The carrying amount reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable and accrued
expenses approximates fair value because of the immediate short-term
maturity of these financial instruments.
NOTE 2. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The table below summarizes non-cash reclassifications that occurred
during the years ended May 31, 1996, 1995 and 1994. The
reclassifications result primarily from the Company's acquisitions and
exchanges and consolidation of entities previously accounted for by
the equity method of accounting:
1996 1995 1994
Current assets $ 3,835 $ $
Property, plant
and equipment 3,026
Marketable securities 6,398 14,416
Equity investments (86,941)
Cable television franchises 111,067
Wireless telephone licenses 2,635 (33,794)
Goodwill 10,659 72,343 8,390
Other assets (1,338)
$ 49,341 $ 86,759 $(25,404)
Current liabilities $ 27,225 $ $
Deferred taxes 13,529 72,343 (33,794)
Minority interest 650 8,390
Additional paid in capital 1,539
Other stockholders'
deficiency 6,398 14,416
$ 49,341 $ 86,759 $(25,404)
NOTE 3. ACQUISITIONS
During the three year period ended May 31, 1996, the Company acquired
the net assets of cable television and wireless telephone systems as
follows:
Amounts allocated to
Number of Total Cable Wireless Property
Systems purchase television telephone plant and
Acquired price franchises licenses equipment
Year ended May 31, 1996 5 $329,868 $212,693 $9,623 $111,565
Year ended May 31, 1995 20 381,661 109,359 214,088 52,265
Year ended May 31, 1994 5 101,266 93,048 4,065
These transactions have been accounted for as purchases and the
results of operations of the acquired systems have been included in
the accompanying consolidated financial statements from the dates of
acquisition. The Company has recorded the purchase price of the cable
television and wireless telephone systems at the fair market value of
acquired assets on the dates of acquisition with the excess purchase
price being recorded to cable television franchises and cellular
telephone licenses.
Cable Television Division Acquisitions
On March 2, 1993, the Company and Citizens ("the Century/Citizens
Joint Venture") entered into an agreement to acquire the assets of two
cable television systems which serve in the aggregate approximately
45,000 primary basic subscribers. The aggregate purchase price for
the cable television systems is $92,900 subject to adjustment.
Citizens and the Company have agreed that they will own and operate
the cable television systems in a joint venture structure in which
each company will have a 50% ownership interest. On September 30,
1994, the Century/Citizens Joint Venture completed the acquisition of
one of these cable television systems serving approximately 24,000
primary basic subscribers. On December 1, 1995, the second
acquisition serving approximately 21,000 primary basic subscribers was
completed. The purchase price of approximately $51,900 at September
30, 1994 and $41,000 at December 1, 1995 was funded by the Company and
Citizens equally.
On May 8, 1996, the Company acquired the Orange County News Channel
("OCN") for approximately $2,500. OCN provides local 24 hour news to
all cable customers in Orange County, California, over half a million
viewers.
On May 31, 1996, the Company acquired the cable television systems
serving Anaheim, Hermosa Beach/Manhattan Beach, Fairfield and Rohnert
Park/Yountville, California for an aggregate purchase price of
approximately $287,600, subject to adjustment. Funds for this
acquisition were provided by an existing bank credit facility. At May
31, 1996, such cable television systems served an aggregate of
approximately 135,000 primary basic subscribers.
During the year ended May 31, 1995, the Company acquired ten cable
television systems for a total purchase price of $153,129 consisting
of $109,254 in cash (including the assumption of acquired current
liabilities) and 3,681,632 shares of the Company's Class A Common
Stock valued at $43,875.
Cellular Telephone Division Acquisitions, Exchanges and Dispositions
On June 30, 1995, Centennial acquired the non-wireline cellular
telephone systems serving (a) Newtown, LaPorte, Starke, Pulaski,
Jasper and White, Indiana, (b) Kosciusko, Noble, Steuben and Lagrange,
Indiana (c) Williams, Defiance, Henry and Paulding, Ohio and (d)
Copiah, Simpson, Lawrence, Jefferson Davis, Walthall and Marion,
Mississippi, representing an aggregate of approximately 608,100 Net
Pops. The above-described systems were acquired by Centennial in
exchange for Centennial's non-wireline cellular telephone systems
serving the Roanoke, Virginia MSA, the Lynchburg, Virginia MSA, North
Carolina RSA #3 and Iowa RSA #5, representing an aggregate of
approximately 644,000 Net Pops. Simultaneously with the consummation
of the transaction described above, Centennial sold its 72.2% interest
in the non-wireline cellular telephone system serving the
Charlottesville, Virginia MSA, representing an aggregate of
approximately 94,700 Net Pops, for a cash purchase price of
approximately $9,914 subject to adjustment. The Company recognized a
gain of approximately $4,176 as a result of the sale.
On October 31, 1995, Centennial acquired (i) a 94.3% interest in the
non-wireline cellular telephone system serving the Lafayette,
Louisiana MSA, representing approximately 205,700 Net Pops, in
exchange for Centennial's non-wireline cellular telephone system
serving the Jonesboro, Arkansas RSA (comprising approximately 205,000
Net Pops), the license rights and assets located in and covering
Desoto and Red River Parishes of Louisiana 3 RSA (comprising
approximately 34,700 Net Pops), the license rights and
assets located in and covering a section of Morehouse Parish of
Louisiana 2 RSA (comprising approximately 24,100 Net Pops) and a cash
payment by Centennial of approximately $5,580 subject to adjustment,
and (ii) an additional 14.3% minority interest in the Elkhart, Indiana
RSA and additional 12.7% minority interest in the Lake Charles,
Louisiana MSA for a cash payment of approximately $2,951.
During 1995, Centennial was the successful bidder for one of two
Metropolitan Trading Area ("MTA") licenses to provide broadband
personal communications services ("PCS") in the Commonwealth of Puerto
Rico and the U.S. Virgin Islands. The licensed area represents
approximately 3,623,000 Net Pops. The amount of the final bid
submitted and paid by Centennial was $54,672. Centennial currently
estimates that the cost to complete the build out of the
infrastructure of the Puerto Rico telecommunications business will be
approximately $60,000, in the aggregate over fiscal years 1997 and
1998. Centennial is exploring various sources of external financing
including but not limited to bank financing, joint ventures,
partnerships and placements of equity securities of Centennial.
Centennial used a portion of the net proceeds from the sale of the 10
1/8% Notes to pay the balance of the purchase price for the license.
During the year ended May 31, 1995, Centennial completed ten cellular
market acquisitions for a total purchase price of $173,860 consisting
of $51,761 in cash (including the assumption of acquired current
liabilities) and 7,023,383 shares of Centennial's Class A Common Stock
valued at $122,099. An additional 226,665 shares of Centennial's
Class A Common Stock were issued during fiscal 1996 to satisfy a post
closing adjustment to the purchase price of one of the acquisitions
completed during the year ended May 31, 1995.
During the year ended May 31, 1994, Centennial completed five cellular
system acquisitions for a total purchase price of $91,863 consisting
of $63,729 in cash and 1,356,182 shares of Centennial's Class A Common
Stock valued at $28,134.
On September 30, 1993, Centennial exchanged its majority owned
interest in its Lincoln, Nebraska cellular telephone system for $6,556
and a majority interest in the Alexandria, Louisiana system together
with an equity investment in the Lake Charles, Louisiana system.
Australian Pay Television
During fiscal 1994, 1995 and 1996 the Company has invested, through a
wholly-owned subsidiary, approximately $140,000 in its Australian Pay
TV investments, including approximately $120,000 in East Coast Pay
Television Pty Limited, an Australian Company ("ECT"). ECT is
pursuing opportunities to own operate and invest in, pay television
services in Australia. Australia is considered to be an emerging pay
television market. The investment was effected through the
acquisition by the Company of convertible debentures and ordinary
shares of ECT representing a 76.2% economic interest in ECT. The
Company has the right to designate five of the seven directors of ECT
and to approve certain corporate transactions. The Company has also
entered into long term management agreements with ECT.
ECT, through a wholly-owned subsidiary, owns Satellite Subscription
Broadcast License A ("Satellite License A"), one of three such
licenses that may be granted by Australian authorities prior to July
1997. The license allows for Direct-To-Home ("DTH") satellite
television broadcasting and allows ECT to offer four channels of
programming via DTH. Australis Media Limited ("Australis"), another
pay television company in Australia, owns Satellite Subscription
Broadcast License B ("License B"), the second of the
three licenses currently available for DTH services, allowing for the
DTH broadcast of four channels of programming. ECT and Australis have
entered into agreements pursuant to which ECT will offer its four
License A channels for distribution individually or as part of a
combined package with License B programming in a package of services
known as the Galaxy Package. License A and License B programming are
to be distributed via DTH, Microwave Multipoint Distribution Systems
("MDS") and via cable. The Galaxy package will be distributed by
Australis through DTH and MDS in the six largest so-called capital
cities in Australia (as well as Western Australia) and in distinct
regional areas outside the capital cities by its franchisees. ECT is
a franchisee of Australis in regions covering approximately 755,000
households.
The License A and License B programming are distributed over common
infrastructure subject to a long term agreement between ECT and
Australis ("The Infrastructure Utilization Agreement" or the "IUA").
Among other terms, the IUA provides ECT with a participation in, and
the right to maintain a 25% interest in the net cash flow (as defined
therein) of Australis. The initial interest of 25% ("the Interest")
was determined based upon the proportional relationship of each
company's investment in Australian pay TV at that time (A$300 million,
Australis and A$100 million ECT). The Interest may be adjusted
proportionately downward depending upon the extent to which ECT (at
its sole option) elects to fund a specified portion (i.e. up to its
then Interest) of those funds expended by Australis in the pay
television business in Australia. Before ECT is required to make such
an election (and any resulting contribution or recalculation of the
Interest) certain conditions precedent must be met.
It is ECT's position that it is not yet required to make an election
to make a contribution toward such expenditures since certain
conditions precedent have not been met by Australis. Australis has
asserted that as of January 1996, ECT's interest has decreased from
25% to approximately 10% due to ECT's failure to contribute funds
(approximately $136,000). There can be no assurance that this dispute
will be resolved in ECT's favor, nor that, after reviewing the
relevant information, ECT will elect to contribute its share of the
funding.
To the extent ECT elects to contribute its share of the funding under
the IUA, funds from various sources of external financing would be
required. There is no assurance that if ECT would otherwise elect to
make such a contribution, that such external financing would be
available, and if so available, would be on terms favorable to ECT.
ECT, Australis and Australis' other Franchisee have acquired control
of substantially all of the currently issued licenses which can be
used for transmission of pay television programming via MDS in
Australia. ECT owns or controls all of the currently issued licenses
which entitle it to transmit pay television programming via MDS in
most of Coastal New South Wales and all of Tasmania (including
Wollongong, Hobart and Newcastle, Australia and surrounding areas)
(the "ECT Franchise Areas") and has entered into a franchise agreement
with Australis (The "Franchise Agreement") pursuant to which it has
the exclusive right (and is obligated) for at least a fifteen year
period (with an option to renew for additional ten years) to deliver
in each of the ECT Franchise Areas any subscription broadcast service
supplied by Australis, including the Galaxy package. The ECT
Franchise Areas contain approximately 755,000 households or
approximately 12% of all Australian households.
Programming for the License A Package is provided by XYZ, a joint
venture in which the Company holds a 25% interest. The Company's 25%
interest in XYZ is derived through the Company's joint venture with
United International Holdings, Inc. ("UIH"), a leading international
provider of pay television services which holds interests in the two
other Franchisees of Australis. The above noted
structure is pursuant to a series of agreements entered into by the
Company, UIH and Foxtel, a joint venture between Telstra Corporation
Limited, the government-owned Australian national telecommunications
carrier, and The News Corporation Limited, a major international media
and entertainment company. Programming provided by XYZ includes the
Discovery channel, a documentary channel; Red, a music video channel;
Nickelodeon, a children's and family channel; and Arena, a general
entertainment channel. In addition, XYZ is developing two additional
channels (channels 5 and 6) which it will seek to have included in the
Galaxy package.
ECT has entered into a long-term agreement with Foxtel (a competitive
cable television provider) pursuant to which Foxtel has agreed to
distribute the License A Package, as well as channels 5 and 6
throughout Australia over Foxtel's cable television network. ECT
receives a monthly per subscriber fee from Foxtel for the License A
Package. Foxtel, owns the remaining 50% of XYZ. Pursuant to
arrangements between ECT and Foxtel, ECT is prohibited from granting
any third party the right to distribute the License A Package and
Channels 5 and 6 by cable television in Australia without the prior
consent of Foxtel. However, ECT has retained the non-exclusive right
to distribution of the License A Package by cable television in the
East Coast Franchise areas. In addition, if Foxtel supplies any
Foxtel channels for distribution by Galaxy, Foxtel must authorize
Galaxy to provide the same Channels to the Franchisees for
distribution by MDS transmission and DTH satellite in the franchise
areas. These arrangements with Foxtel provide for fixed per
subscriber prices as well as minimum subscribers by January 1, 2001.
Foxtel is presently meeting the minimum guarantee.
The following summarizes the assets, stockholders' deficiency and
results of operations of XYZ which is accounted for by the equity
method during the years ended May 31, 1996 and 1995. All amounts have
been derived from XYZ's financial statements and adjusted for interim
financial activity from the Australian Venture's year end to the
Company's fiscal year end and have been converted to U.S. dollars
using the exchange rates for the applicable periods (amounts in
thousands and unaudited).
1996 1995
Assets $ 14,400 $ 9,388
Stockholders' deficiency (31,128) (2,220)
Net loss (28,908) (2,220)
The Company's equity share of XYZ's net loss amounted to $7,126 and
$800 and is recorded in other expense on the Company's consolidated
statement of operations for the years ended May 31,1996 and 1995,
respectively.
The Company has also acquired an approximate 2% economic interest in
Australis for approximately $10,000. During the fourth fiscal quarter
of 1996, the investment was written off by the Company based upon its
then assessment of the financial position of Australis (see below).
ECT requires substantial capital to operate, construct, expand and to
invest in the Australian Pay TV Business as well as funding operating
losses and debt service. All of ECT's Australian Pay TV Business
activities are considered to be in the start-up or early development
phase of operations. ECT must continue to seek various sources of
external financing to meet its current and future financial needs,
including bank financing, joint ventures and partnerships, investments
by third parties and public and private placements of debt and equity
securities.
Since commencement of its operations in the Australian Pay TV
Business, ECT has been funded by capital contributions and short-term
debt facilities from its principal security holders (including the
Company), and third party bank financings.
ECT has generated negative cash flow from operating activities as a
result of startup costs associated with constructing and marketing
multichannel television and telecommunications service as well as
establishing the organizational infrastructure required for the
operation of the Australian Pay TV Business.
The components of costs and expenses included in Australian operations
in the Company's financial statements at May 31, 1996 were as follows:
Cost of services $10,546
Selling, general and administrative 13,842
Depreciation and amortization 21,031
$45,419
In order to generate operating cash flow, ECT's revenue must exceed
operating expenses. Increases in revenue will be dependent upon
continued growth in the number of subscriptions and maximizing revenue
per subscriber. ECT is in the process of developing its core
managerial, administrative and marketing functions and is continuing
the construction of its pay TV network in its existing markets. The
Australian Pay TV Business is expected to be highly competitive with
two potential cable television providers having announced plans for
distribution of video services throughout continental Australia.
There can be no assurance that ECT will generate sufficient cash flow
to meet its needs and, accordingly, there can be no assurance that
profitability will be achieved in the foreseeable future.
Under the Franchise Agreement and IUA, ECT is dependent on the efforts
of Australis in the development of the pay television industry in
Australia. The Company has become aware that Australis' financial
position has significantly deteriorated to the point where its ability
to survive as a going concern is in doubt. ECT's financial position
(and a result, the Company's investment in ECT) may be materially and
adversely affected if Australis were to become insolvent. The
Company's pay television subscriber business is dependent on
acceptance of the Galaxy package as a well-known national product as
well as the infrastructure established by Australis, including the
national marketing and subscriber management service.
If Australis were to become insolvent, and as a result, were not able
to provide infrastructure services, subscriber management systems and
other related services for ECT, ECT would need to develop such
services on its own, which could be on economic terms to ECT less
favorable than those now available from Australis.
In addition, ECT understands that under this circumstance, ECT may be
required to seek replacement programming currently provided by
Australis which may be on less favorable terms than those provided by
Australis. Additionally, ECT could be required to continue to provide
the License A Package to Australis, while the obligation of Australis
to provide the License B Package, either by itself or as part of the
Galaxy package, to ECT as a Franchisee could be avoided, and certain
agreements, including the IUA and the Franchise Agreement, could be
modified or voided by a bankruptcy liquidator if determined to be
"unprofitable". Existing obligations of Australis under these
agreements could be subject to reorganization claims and preferences.
Moreover, if Australis were unable to expand its subscriber base, the
distribution of ECT's License Package A throughout Australia may be
inhibited. Further in the event of any such insolvency ECT may be
required to pay Australis' portion of the satellite lease payments for
the transmission of the License A and B Packages since ECT is jointly
and severally liable for those payments. The incremental cost to ECT
for the Australis portion of their obligation would be approximately
$6,250 per annum.
Australis has recently announced a recapitalization plan which
includes the introduction of additional equity and the transfer of
certain assets to a joint venture with Optusvision (a competitive
cable provider). The plan is subject to lender, shareholder, and
regulatory approvals as well as an additional debt offering to be
completed by October 31, 1996. ECT is currently reviewing the plan to
determine the impact, if any, on its business and the extent to which
certain consents requested by Australis will be accommodated. ECT has
been given no assurance that the plan, as proposed, will receive the
necessary approvals or that the contemplated debt offering will be
successful.
The Company is currently unable to predict the ultimate resolution of
these matters. At May 31, 1996 the remaining net book value of its
investments in the various aspects of Australian Pay TV aggregated
$84,518. The Company will continue to assess the impact, if any, of
the above noted matters on the carrying value of its investments in
the Australian Pay TV businesses.
Pro Forma Information
The summary pro forma information includes the accounts and operations
of the Company and all acquisitions and pending acquisitions described
in Note 3, in each case as if such acquisitions had been consummated
as of the beginning of each of the respective periods for the combined
statement of operations (unaudited)
Year Ended May 31,
1996 1995 1994
Revenues $ 556,097 $ 494,937 $465,646
Net loss $(150,252) $(152,715) $(93,000)
Loss per common share $ (2.10) $ (1.75) $ (1.06)
Pro forma loss per common share for the years ended May 31, 1996, 1995
and 1994 is calculated on a fully diluted basis using the pro forma
average number of common shares outstanding during the period,
including common stock equivalents.
NOTE 4. TRANSACTIONS WITH RELATED PARTIES
The Company purchases health, life, property, casualty and other
insurance from Sentry Insurance (holder of 6.9% of Class B common
stock at May 31, 1996) and its affiliated companies. The Company paid
a total of $10,155, $8,462 and $9,309 for such insurance for the
fiscal years ended May 31, 1996, 1995 and 1994, respectively.
Leavy, Rosensweig & Hyman of which David Z. Rosensweig is a member,
serves as General Counsel to
the Company. The Company paid approximately $1,772, $1,960 and $1,329
to Leavy, Rosensweig & Hyman for the fiscal years ended May 31, 1996,
1995 and 1994, respectively.
The Company believes that all of the transactions between it, Sentry
Insurance and Leavy, Rosensweig & Hyman have been on terms no less
favorable to the Company than would have been available from
nonaffiliated parties.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
May 31,
1996 1995
Land $ 8,344 $ 7,052
Buildings 35,873 25,174
Cable television and cellular telephone
transmission and distribution systems
and related equipment 969,031 796,027
Miscellaneous equipment and furniture
and fixtures 51,289 44,987
Australian plant 20,979 --
1,085,516 873,240
Less accumulated depreciation (433,909) (365,197)
$ 651,607 $508,043
Depreciation expense was approximately $89,299, $73,571 and $72,026
for the fiscal years ended May 31, 1996, 1995 and 1994, respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
May 31,
1996 1995
Credit agreement (a) $305,000 $148,000
Credit agreement (b) 226,000 68,000
9 1/2% Senior notes due 2000 (c) 150,000 150,000
9 3/4% Senior notes due 2002 (d) 200,000 200,000
11 7/8% Senior subordinated
debentures due 2003 (e) 204,000 204,000
Zero Coupon Senior discount
notes due 2003 (f) 242,962 222,436
9 1/2% Senior notes due 2005 (g) 250,000 250,000
Subsidiary 8 7/8% Senior notes
due 2001 (h) 250,000 250,000
Subsidiary 9.47% Senior secured
notes due 2002 (i) 100,000 100,000
Subsidiary 10 1/8% Senior notes
due 2005 (j) 100,000 100,000
Subsidiary revolving credit
and term loan (k) 53,500 55,906
Other, including Australian
operations 15,233 251
2,096,695 1,748,593
Current maturities 15,084 7,450
$2,081,611 $1,741,143
(a) On August 4, 1995, as amended August 12, 1996, CCC-I, Inc. ("CCC-
I"), a subsidiary of the Company, entered into a three year, $525,000
unsecured revolving credit facility which converts to a five year term
loan. The proceeds of the facility were used by CCC-I to repay
existing indebtedness of CCC-I ($148,000 at May 31, 1995) and will be
used for working capital and general corporate purposes. The
repayment by CCC-I of its existing indebtedness discharged all of CCC-
I's obligations under its then-existing credit agreement and, as a
result, such agreement was terminated. The Company incurred a non
cash charge of $2,647 reflecting the write off of debt issuance costs
associated with the replaced credit agreement. The interest rates
payable on borrowings under the amended credit facility are based on,
at the election of CCC-I, (a) the base rate of interest announced by
Citibank, N.A. plus 0% to 0.625% per annum based upon certain
conditions, or (b) the London Interbank Offering Rate plus 0.75% to
1.625% per annum based upon certain conditions. At May 31, 1996, CCC-
I's weighted average interest rate was 9.2%. This credit facility
restricts the incurrence of certain additional debt by CCC-I, limits
the ability of CCC-I to pay dividends to the Company and requires that
certain operating tests be met. The carrying value of the credit
facility approximates fair value which was based upon the current
rates offered to the Company for debt with similar remaining
maturities.
The agreement expires on August 31, 2004 and provides for mandatory
principal repayments, among other possible reductions, in the
following percentages:
Last day Last day Last day Last day
Year of February of May of August of November
1999 -- -- -- 4.00%
2000 4.00% 4.00% 4.00% 4.50%
2001 4.50% 4.50% 4.50% 5.25%
2002 5.25% 5.25% 5.25% 5.75%
2003 5.75% 5.75% 5.75% 5.50%
2004 5.50% 5.50% 5.50% --
The credit facility restricts the incurrence of certain additional
debt of CCC-I, limits the ability of CCC-1 to pay dividends to the
Company and requires that certain operating tests be met.
(b) On June 30, 1994, as amended August 12, 1996, CCC-II, Inc. ("CCC-
II"), a subsidiary of the Company entered into a three year $350,000
unsecured revolving credit facility which converts to a five year term
loan with a syndicate of banks led by Citibank, N.A. as agent for the
syndicate. The proceeds of the facility may be used for acquisitions,
working capital and general corporate purposes. The interest rates
payable on borrowings under the amended credit facility are based on,
at the election of CCC-II, (a) the base rate of interest announced by
Citibank, N.A. plus 0% to 0.5% per annum based upon certain
conditions, or (b) the London Interbank Offering Rate plus 0.75% to
1.375% per annum based upon certain conditions. At May 31, 1996, CCC-
II's weighted average effective interest rate was 8.0%. This credit
facility restricts the incurrence of certain additional debt by CCC-
II, limits the ability of CCC-II to pay dividends to the Company and
requires that certain operating tests be met. The carrying value of
the credit facility approximates fair value which was based upon the
current rates offered to the Company for debt with similar remaining
maturities.
The agreement expires on August 31, 2004 and provides for mandatory
principal repayments, among other possible reductions, in the
following percentages:
Last day Last day Last day Last day
Year of February of May of August of November
1999 -- -- -- 2.50%
2000 2.50% 2.50% 2.50% 5.00%
2001 5.00% 5.00% 5.00% 5.00%
2002 5.00% 5.00% 5.00% 6.25%
2003 6.25% 6.25% 6.25% 6.25%
2004 6.25% 6.25% 6.25% -
In connection with the terms and covenants of certain of the Company's
bank credit facilities, certain of the Company's subsidiaries were
required to enter into various interest rate hedge agreements (the
"Hedge Agreements"). During the current fiscal year, all of the
Company's obligations with respect to Hedge Agreements expired. Based
upon current market conditions and current mix of fixed and floating
rate debt securities of the Company and the elimination of any future
hedge requirements in its current bank credit facilities, the Company
currently has no plans to renew, extend or replace the Hedge
Agreements.
The following table summarizes each agreement's notional amount, the
due date, fixed interest rate and redemption price which was the cost
to terminate such agreement at May 31, 1995:
Notional Unrealized Loss
Principal Fixed Contract (Redemption
Amount Rate Expiration Date Price)
At May 31, 1996 None
At May 31, 1995
SWAPS: $ 40,000 7.93% 06/03/95 $ 239
25,000 8.22 02/05/96 445
25,000 7.95 06/03/95 154
25,000 8.50 01/21/96 945
$ 115,000 8.12% (weighted average)
(c) On August 21, 1992, the Company issued Senior Notes Due 2000
("9 1/2% Notes") in the principal amount of $150,000 which mature on
August 15, 2000. The 9 1/2% Notes bear interest at 9 1/2% payable
semiannually on February 15 and August 15 of each year commencing
February 15, 1993. The 9 1/2% Notes may not be redeemed prior to maturity.
The 9 1/2% Notes are senior in right of payment to all existing and
future subordinated indebtedness of the Company and rank pari passu
with its 9 3/4% Senior Notes Due 2002. The 9 1/2% Notes limit the
ability of the Company and its subsidiaries (as defined) to incur
indebtedness and liens, restrict the payment or declaration of
dividends on its Capital Stock, and restrict the purchase or
redemption of its Capital Stock.
The 9 1/2% Notes provide that the holders will have the right to
require the Company to purchase the 9 1/2% Notes following a
transaction or transactions which reduce below 300 the number of
record holders of the Company's Class A Common Stock and which
result in certain reductions in the ratings of the 9 1/2% Notes.
At May 31, 1996 and 1995, the 9 1/2% Notes were trading
at 100.4% and 101.2% of par or $150,615 and $151,782, respectively.
(d) On February 13, 1992, the Company issued Senior Notes Due 2002
("the 9 3/4% Notes") in the principal amount of $200,000 which mature
on February 15, 2002. The notes bear interest at 9 3/4% payable
semiannually on February 15 and August 15 of each year commencing
August 15, 1992. The 9 3/4% Notes may be redeemed prior to maturity.
The 9 3/4% Notes limit the ability of the Company and its subsidiaries
(as defined) to incur indebtedness or liens.
The 9 3/4% Notes provide that the holders will have the right to
require the Company to purchase the 9 3/4% Notes following a
transaction or transactions which reduce below 300 the number of
record holders of the Company's Class A Common Stock and which result
in certain reductions in the ratings of the 9 3/4% Notes. At May 31,
1996 and 1995, the 9 3/4% Notes were trading at 100.46% and 101.75%
of par or $200,920 and $203,500, respectively.
(e) On October 17, 1991, the Company redeemed all of its $200,000 12
3/4% Senior Subordinated Reset Debentures Due 2000 and concurrently
sold $204,000 11 7/8% Senior Subordinated Debentures Due 2003 (the
"Debentures"). The Debentures are not callable for five and one-half
years, and provide for a sinking fund of $68,000 on each of October
15, 2001 and 2002, with the balance of $68,000 due on October 15,
2003.
The Debentures bear interest at 11 7/8% payable semiannually on April
15 and October 15 of each year commencing April 15, 1992. The
Debentures are redeemable, in whole or in part, at the option of the
Company on April 15, 1997 and 1998 at a redemption price equal to 105%
and 102.5% of the principal amount, respectively. On April 15, 1999
and thereafter, the Debentures are redeemable at 100% of the principal
amount. The Debentures are subordinate to all future and existing
Senior Indebtedness (as defined). The Debentures limit the ability of
the Company and its subsidiaries (as defined) to incur indebtedness or
liens.
The Debentures provide that the holders will have the right to require
the Company to purchase the Debentures following a transaction or
transactions which reduce below 300 the number of record holders of
the Company's Class A Common Stock and which result in certain
reductions in ratings of the Debentures. At May 31, 1996 and 1995,
the Debentures were trading at 106.94% and 107% of par or $218,158 and
$218,280, respectively.
(f) On April 1, 1993, the Company issued Senior Discount Notes Due
2003 ("the Discount Notes") in the discounted amount of $183,678
yielding 8.875% annually to maturity. The Discount Notes mature on
March 15, 2003 at $444,000. There will be no periodic payments of
interest on the Discount Notes, and they may not be redeemed prior to
maturity. During the years ended May 31, 1996 and 1995, approximately
$20,526 and $18,792 of interest, respectively was amortized in the
consolidated financial statements.
The Discount Notes are general unsecured obligations of the Company
and are senior in right of payment to all existing and future
subordinated indebtedness of the Company. The Discount Notes rank
pari passu with the Company's 9 1/2% Senior Notes Due 2000 and its 9
3/4% Senior Notes Due 2002. The Discount Notes limit the ability of
the Company and its subsidiaries (as defined) to incur indebtedness
and liens, restrict the payment or declaration of dividends on its
Capital Stock, and restrict the purchase or redemption of its Capital
Stock.
The Discount Notes provide that the holders will have the right to
require the Company to purchase the Notes following a transaction or
transactions which reduce below 300 the number of record holders of
the Company's Class A Common Stock and which result in certain
reductions in the ratings of the Discount Notes. At May 31, 1996 and
1995, the Notes were trading at 49.97% and 48.8% of par or $221,867
and $216,672, respectively.
(g) On March 6, 1995, the Company issued unsecured Senior Notes due
2005 ("the 9 1/2% Notes") in the principal amount of $250,000 which
mature March 1, 2005. The Notes bear interest at 9 1/2% payable semi-
annually on March 1 and September 1 of each year commencing September
1, 1995. The 9 1/2% Notes may not be redeemed by the Company.
The 9 1/2% Notes are senior in right of payment to all existing and
future subordinated indebtedness of the Company and rank pari passu
with its 9 3/4% Senior Notes Due 2002 , the 9 1/2% Notes Due 2000 and
the Discount Notes. The 9 1/2% Notes limit the ability of the Company
and its subsidiaries (as defined) to incur indebtedness and liens,
restrict the payment or declaration of dividends on Capital Stock, and
restrict the purchase or redemption of its Capital Stock.
The 9 1/2% Notes provide that the holders will have the right to
require the Company to purchase the 9 1/2% Notes following a
transaction or transactions which reduce below 300 the number of
record holders of the Company's Class A Common Stock and which result
in certain reductions in the ratings of the 9 1/2% Notes. At May 31,
1996 and 1995, the Notes were trading at 98.88% and 99% of par or
$247,200 and $247,500, respectively.
(h) On November 15, 1993, Centennial issued $250,000 of eight year
unsecured Senior Notes (the 8 7/8% Notes). The interest on these
notes is payable semi-annually at an interest rate of 8 7/8%. The
interest is computed on the basis of a 360-day year (twelve 30 day
months). The maturity date of the 8 7/8% Notes is November 1, 2001
unless redeemed earlier at the option of Centennial, however not
prior to May 1, 1999. If early redemption is sought during the
twelve-month period beginning May 1 of each of the following years,
the redemption price is calculated using:
Year Percentage
1999 105.25%
2000 103.50%
2001 101.75%
The proceeds of the 8 7/8% Notes were used to retire all outstanding
bank debt. At November 15, 1993, the amount was $182,700. Costs
associated with the bond offering were capitalized and are being
written off on a straight-line basis over the life of the issue. At
May 31, 1996 and 1995, the 8 7/8% Notes were trading at 93.74% and
95.25% of par or $234,350 and $238,125, respectively.
(i) On December 31, 1992, Century-ML Cable Corporation ("CML") and
Century/ML Cable Venture ("CCV"), subsidiaries of the Company through
which the Company owns a 50% interest in cable television systems in
Puerto Rico, entered into separate note agreements (the "Note
Agreements") with a group of institutional lenders providing for the
issuance by CML of $100,000 aggregate principal amount of its 10-year
9.47% Senior Secured Notes Due 2002. Interest on the notes is payable
semiannually and principal will be payable in installments of 20% of
the original principal amount beginning on September 30, 1998, with
final maturity at September 30, 2002. The notes are subject to
various other prepayment provisions, including prepayment with premium
at the option of CML at any time prior to their expressed maturity and
prepayment with premium at the option of the holders thereof upon the
occurrence of certain events involving changes in control of CML and
CCV. The Note Agreements contain various financial and operating
covenants, including, among other things, maintenance of certain
financial ratios, restrictions on the ability of CML and CCV to incur
indebtedness or liens and to make certain distributions and capital
expenditures and limits on certain other corporate actions. The notes
are entitled to the benefits of certain security agreements and
guarantees, including a guaranty by CCV of the payment of all
principal of, premium, if any, and interest on the notes. The notes
are secured by substantially all of the assets of CCV. The carrying
value of the credit facility approximates fair value which was
estimated based upon the current rates offered to CCV for debt with
similar remaining maturities.
Proceeds from the issuance of the Notes were used to repay all
principal and interest outstanding on CML's credit facility.
Concurrent with issuance of the Notes, CML amended and restated its
existing credit facility effective December 31, 1992 ("the Second
Restated Credit Agreement"). The Second Restated Credit Agreement
provides for a committed credit line of $20,000 which reduced to
$12,650 and $16,200 on May 31, 1996 and 1995, respectively.
Borrowings are to be repaid in accordance with a predetermined
schedule of amortization beginning December 31, 1993 with final
maturity at December 31, 1998. At May 31, 1996 and 1995, no amounts
were outstanding on this facility.
(j) On May 11, 1995, Centennial issued $100,000 of ten year unsecured
Senior Notes ("the 10 1/8% Notes"). The interest on the 10 1/8% Notes
is payable semi-annually on the basis of a 360-day year (twelve 30 day
months). The 10 1/8% Notes rank pari passu with Centennial's 8 7/8%
Notes and may not be redeemed prior to maturity on May 15, 2005.
Costs associated with the May 11, 1995 bond offering were capitalized
and will be written off on a straight-line basis over the life of the
issue. At May 31, 1996 and 1995, the 10 1/8% Notes were trading at
98.72% and 99.92% of par or $98,720 and $99,922, respectively.
The proceeds of the 10 1/8% Notes were used by Centennial for general
corporate purposes including the financing of capital expenditures
related to cellular telephone and personal communications systems
infrastructure, licenses authorizing personal communications services
as well as related telecommunications businesses. Pending any
specific application of the net proceeds, the net proceeds will be
added to working capital and invested in short-term interest-bearing
obligations.
Both the 8 7/8% and 10 1/8% Notes restrict Centennial from directly or
indirectly declaring or paying any dividends on its presently or
subsequently issued common stock, limit the ability of Centennial to
incur additional indebtedness and limit making any distributions of
assets to its stockholders. At May 31, 1996, Centennial was in
compliance with all covenants of the Notes.
(k) On July 31, 1995, a subsidiary of the Company, Century Venture
Corp. ("CVC") entered into a three year, $80,000 revolving credit
facility which converts to a five year term loan. The proceeds of the
facility were used by CVC to repay existing indebtedness of CVC and
will be used for working capital and general corporate purposes. The
repayment by CVC of its existing indebtedness discharged all of CVC's
obligations under its then-existing credit agreement and, as a result,
such agreement was terminated. The interest rates payable on
borrowings under the new credit facility are based on, at the election
of CVC, (a) "C/D Base Rate" plus an applicable margin, as defined or
(b)"Eurodollar Base Rate" plus an applicable margin as defined or (c)
"ABR" rate as defined.
The agreement expires on February 28, 2004 and provides for a
reduction in the aggregate commitment, among other possible
reductions, in the following amounts:
Last day Last day Last day Last day
Year of February of May of August of November
1998 $ -- $ -- $1,875 $1,875
1999 1,875 1,875 2,500 2,500
2000 2,500 2,500 3,125 3,125
2001 3,125 3,125 3,750 3,750
2002 3,750 3,750 3,750 3,750
2003 3,750 3,750 6,667 6,667
2004 6,666
The credit facility restricts the incurrence of certain additional
debt of CVC, limits the ability of CVC to pay dividends to the Company
and requires that certain operating tests be met.
The aggregate annual principal payments for the next five years and
thereafter are summarized as follows (amounts in thousands):
1997 $ 15,084
1998 50
1999 27,550
2000 83,600
2001 275,425
2002 and thereafter 1,694,986
$2,096,695
At May 31, 1996, the Company and its subsidiaries were in compliance
with all covenants of the above noted agreements.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Pending Acquisitions
On August 16, 1996, the Company entered into agreements to acquire
three cable television systems which serve an aggregate of
approximately 76,000 primary basic subscribers. These systems are
primarily located in Yorba Linda, Orange County, Diamond Bar, Oxnard
and Ventura County, California. The aggregate purchase price for
these systems is approximately $140,000. The Company currently
expects to fund the acquisition using available credit facilities.
Centennial has entered into an agreement to acquire at least 51% of
the ownership interests in the partnership owning the non-wireline
cellular telephone system serving the Benton Harbor, Michigan MSA and
is making offers to purchase the remaining interests in the
partnership. The Benton Harbor, Michigan MSA represents approximately
161,400 Net Pops. Centennial has agreed to a purchase price of
$34,000 in cash, subject to adjustment, for 100% ownership of the
system and certain outstanding liabilities at closing. The obligation
of Centennial to consummate this transaction is subject to certain
closing conditions, including the approval of the relevant franchise
authorities and other regulatory approvals. Centennial anticipates
completing this acquisition in September 1996.
On July 31, 1996, Centennial filed applications to participate in an
upcoming FCC auction for broadband personal communications services
frequency blocks D and E. Centennial listed Basic Trading Areas
("BTAs"), the market designation for PCS license areas, that related
to its cellular operations. Centennial submitted a required
refundable deposit of $11,000 in order to maintain its bidding
eligibility for the PCS licenses in which it is interested. There is
no assurance that Centennial will bid in the auction process, and the
extent to which any such participation will be successful.
Leases
At May 31, 1996, the Company's approximate annual lease obligations
and expenses (under operating leases) were as follows:
Pole rentals $ 3,181
Vehicles and equipment 357
Antenna site and property access 1,073
Warehouse, studio and office 4,392
$ 9,003
The above leases are substantially all short-term or cancelable by
either party upon notice.
Regulatory Restructuring Charge
The Company recorded a one time charge of $4,000 in the fourth quarter
of 1995 in accordance with a plan adopted to restructure the Company's
cable television operations in response to recent FCC mandated rules.
The charge includes related employee severance costs, coincident with
the restructuring. The restructuring charge was substantially cash in
nature and did not result in the write-off of the Company's assets.
Regulation - See Note 15.
Letters of Credit
The Company is a party to several letters of credit totaling $7,948.
No payments have been made under these agreements.
Litigation
The Company and its subsidiaries are involved in litigation and
regulatory matters which involve certain claims which arise in the
normal course of business, none of which, in the opinion of
management, is expected to have a materially adverse effect on the
Company's consolidated financial position or results of operations.
Employment Agreement
The Chief Executive Officer of the Company has an employment agreement
expiring on June 30, 1998, which provides for an annual base salary of
$1,750 adjusted annually in proportion to increases in the Consumer
Price Index.
NOTE 8. COMMON STOCKHOLDERS' DEFICIENCY
Common Stock
The voting rights with respect to the two classes of common stock are
as follows: Class A shares entitle the holder to one vote per share,
Class B shares entitle the holder to ten votes per share. Shares of
Class B common stock are convertible into shares of Class A common
stock on a one-for-one basis upon transfer from the current Class B
stockholders.
The Company is restricted from paying cash dividends on its common
stock by its credit agreements (Note 6).
Stock Distributions
Since the Company has neither retained earnings nor current earnings,
the stock distributions represent a reallocation of the shareholders'
investment over an increased number of shares and does not represent
distributions of corporate earnings and profits.
On July 2, 1993, the Company declared a 5% stock distribution on its
issued shares of Class A and Class B common stock. Distribution of
shares of the respective class was made on August 6, 1993 to
stockholders of record on July 15, 1993. No fractional shares were
issued. As a result, approximately $47 representing the total par
value of the additional shares distributed was transferred from
additional paid-in-capital to common stock.
On October 28, 1993, the Company declared a 3% stock distribution on
its issued shares of Class A and Class B common stock. Distribution
in shares of the respective class was made on November 18, 1993 to
stockholders of record on November 10, 1993. No fractional shares
were issued. As a result, approximately $29 representing the total
par value of the new shares distributed was transferred from
additional paid-in-capital to common stock.
All references in the consolidated financial statements with regard to
the number of shares of common stock, (except issued and authorized
shares), related prices and per share amounts have been restated to
give retroactive effect to the stock distributions.
Treasury Stock
On March 10, 1995, the Company purchased 20,000,000 shares of its
Class B Common Stock from Sentry Insurance a Mutual Company, of
Stevens Point, Wisconsin ("Sentry Insurance") at an aggregate price of
$110,000 utilizing existing credit lines. For the present, the
acquired shares will be held in the Company's treasury. Upon
acquisition the Class B shares were converted automatically to Class A
shares. Prior to this acquisition, 65,406,115 shares of the Company's
Class B Common Stock were outstanding of which 23,134,056 were held by
Sentry Insurance. At May 31, 1996 and 1995, the Company held
31,354,622 and 31,337,530 Class A common shares, respectively in its
treasury.
<TABLE>
The following table presents changes in the Company's stockholders equity for the years ended May 31, 1996, 1995
and 1994:
Common Stock Additional
Class A Class B Paid-in Accumulated
Shares Dollar Shares Dollars Capital Deficit Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1993 31,533,586 $ 315 61,313,680 $ 613 $ 91,833 $ (280,499) $ (27,500) $ (215,238)
Shares issued in connection
with employee incentive
plans 438,922 5 2,684 (12) 2,677
Effect of 5% and 3% stock
distributions 2,582,230 26 4,995,725 50 (82) (6)
Class B shares converted to
Class A shares 132,275 1 (132,275) (1) -
Accretion in liquidation
value of subsidiary
preferred stock (5,838) (5,838)
Vesting of subsidiary
stock options 413 413
Net paid in capital
contributed by
minority interests 16,291 16,291
Net loss (41,927) (41,927)
Balance at May 31, 1994 445,025 347 66,177,130 662 105,301 (322,426) (27,512) (243,628)
Shares issued in connection
with employee
incentive plans 445,025 4 1,219 1,223
Class A shares purchased by
the Company (110,092) (110,092)
Unrealized appreciation of
marketable securities 14,416 14,416
Class A shares issued
in conjunction
with acquisitions 3,581,632 36 43,839 43,875
Class B shares
converted to
Class A shares 20,771,015 208 (20,771,015) (208) -
Net paid in capital
contributed by
minority interests 29,263 29,263
Accretion in liquidation
value of subsidiary
preferred stock (4,419) (4,419)
Vesting of subsidiary
stock options 342 342
Net loss (82,625) (82,625)
Balance at May 31, 1995 59,484,685 595 45,406,115 454 175,545 (405,051) (123,188) (351,645)
Shares issued and acquired
in connection with
employee incentive plans 461,595 4 2,971 (158) 2,817
Net paid in capital contributed
by minority interests 1,238 1,238
Accretion in liquidation value
of subsidiary preferred stock (4,256) (4,256)
Foreign currency translation
adjustment (753) (753)
Unrealized appreciation of marketable
securities 6,397 6,397
Vesting of subsidiary stock options 306 306
Net loss (102,117) (102,117)
Balance at May 31, 1996 59,946,280 $ 599 45,406,115 $ 454 $ 175,804 $(507,168) $(117,702) $(448,013)
</TABLE>
<TABLE>
<S> May 31,
Other stockholders' deficiency items: 1996 1995 1994
<C> <C> <C>
Treasury stock, at cost $(137,762) $(137,604) $(27,512)
Unrealized appreciation of marketable
securities 20,813 14,416 -
Foreign currency translation adjustment (753) - -
$(117,702) $(123,188) $(27,512)
NOTE 9. INCOME TAXES
The Company and its consolidated subsidiaries, except for Century
Venture Corporation and Subsidiaries, Century-ML Cable Venture and
Subsidiary, Citizens Century Cable Television Venture, East Coast Pay
Television Pty, Ltd., and Centennial Cellular Corp. and Subsidiaries
(collectively the "Unconsolidated Tax Group"), file a consolidated
federal income tax return. The provision (benefit) for income taxes
are summarized as follows:
Year Ended May 31,
1996 1995 1994
Current $ 2,844 $ 3,457 $ 1,042
Deferred (37,170) (11,518) (6,675)
$ (34,326) $ (8,061) $ (5,633)
Deferred income taxes result primarily from nondeductible depreciation
and amortization resulting from book and tax basis differences of
certain acquired subsidiaries.
The effective income tax rate of the Company differs from the
statutory rate as a result of the effect of the following items:
Year Ended May 31,
1996 1995 1994
Computed tax benefit at federal
statutory rate on loss before
income taxes and minority
interest $(50,701) $(40,059) $(22,798)
Computed tax benefit of
Unconsolidated Tax Group 11,842 15,186 13,512
Recognized tax benefit of
Unconsolidated Tax Group (12,386) (15,518) (10,675)
Nondeductible amortization
resulting from acquired
subsidiaries 2,433 2,600 2,122
State and local income taxes,
net of federal income tax
effect (2,760) (1,832) 3,696
Tax benefits related to net operating
and capital loss carryforwards
not recognized and changes in
valuation allowance 17,246 30,722 7,925
Other -- 840 585
$(34,326) $ (8,061) $ (5,633)
Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and (liabilities) are as
follows:
Year Ended May 31,
1996 1995
Deferred Tax Assets:
Tax loss carryforward $167,936 $145,731
Valuation allowance (89,463) (92,006)
$ 78,473 $ 53,725
Deferred Tax Liabilities:
Amortization of intangible assets $105,817 $116,296
Depreciation of fixed assets 72,130 63,664
$177,947 $179,960
Net deferred tax liabilities $ 99,474 $126,235
The valuation allowance recorded at May 31, 1996 and 1995 represents
the portion of recorded tax loss carryforwards for which it is more
likely than not that such carryforwards will not be realized.
The Company and its subsidiaries, except for the Unconsolidated Tax
Group, have an investment tax credit carryover (after the 35%
reduction mandated by TRA 86) for federal income tax purposes of
approximately $11,428 and net operating loss carryforwards for federal
income tax purposes of approximately $424,062 expiring through 2002
and 2011, respectively.
Century Venture Corporation and Subsidiaries have an investment tax
credit carryover of approximately $2,032 and net operating loss
carryforwards of approximately $11,209 which will expire through 2002
and 2011, respectively.
Centennial Cellular Corp. and Subsidiaries has approximately $86,844
of net operating loss carryforwards for federal income tax purposes,
expiring through 2011 some of which are subject to limitation on their
future utilization under Section 382 of the Internal Revenue Code of
1986.
The operations of Century ML Cable Venture and Subsidiary are subject
to Puerto Rico income taxes. The Subsidiary has made a Section 936
election whereby no U.S. tax is due based upon the fact that the
Subsidiary generates all of its taxable income in a U.S. possession.
NOTE 10. JOINT VENTURES
The combined operations and certain other information related to the
50% indirectly owned Century Venture Corp. and Subsidiaries,
Century-ML Cable Venture and Subsidiary and Citizens Century Cable
Television Venture included in the consolidated balances of the
Company are as follows:
Year Ended May 31,
1996 1995
Combined Statement of Earnings
Revenues $ 97,558 $ 86,299
Costs and expenses:
Costs of services 26,917 25,646
Selling, general and administrative 15,831 14,986
Depreciation and amortization 33,738 27,295
76,486 67,927
Operating Income 21,072 18,372
Other expense 550 --
Interest 13,881 14,825
Income before taxes 6,641 3,547
Income tax provision 1,240 574
Net Income $ 5,401 $ 2,973
Combined Balance Sheet Data
Property, plant and equipment - net $ 98,763 $ 113,771
Total assets 291,013 251,669
Long-term debt 153,500 155,906
Total liabilities 183,447 191,307
The Company's joint venture partner, ML Media Partners, L.P. ("Media
Partners") has the right to cause a sale of Century-ML Cable Venture
and Subsidiary. If Media Partners proposes such a sale, the Company
will have the right to purchase Media Partners' interest for the
appraised fair market value of Media Partners' 50% interest in
Century-ML Cable Venture and Subsidiary.
NOTE 11. EMPLOYEE BENEFIT PLANS
Stock Option Plans
The Company's 1985 Stock Option Plan (the "1985 Option Plan"), adopted
by the Board of Directors and approved by the stockholders on December
5, 1985, expired by its terms on May 31, 1995. Accordingly, the Board
of Directors adopted and the stockholders ratified the Company's 1994
Stock Option Plan (the "1994 Option Plan") on October 26, 1994. Upon
ratification of the 1994 Option Plan, no more grants are to be made
under the 1985 Option Plan. The 1985 Stock Option Plan and the 1994
Stock Option Plan, collectively the "Option Plans", permit the
issuance of "incentive stock options," as defined in Section 422 of
the Internal Revenue Code of 1986, as amended, as well as non-
qualified options. The 1985 Option Plan and the 1994 Option Plan
provide for the grant of options to purchase up to 6,897,079 and
5,000,000 shares, respectively, of Class A Common Stock to directors,
officers and other key employees of the Company and its subsidiaries.
The Option Plans are administered by a committee of the Board of
Directors (the "Stock Option Committee") that determines the
recipients and provisions of options granted under the Option Plans,
including the option price, term and number of shares subject to
option. The Board of Directors may amend the Option Plans, except
that the approval of the stockholders is necessary to increase the
total number of shares which may be issued or shares subject to
options, to change the minimum purchase price for shares subject to
options, to change the maximum period during which options may be
exercised, to extend the period during which options may be granted
under the Option Plans, or to materially increase benefits to option
recipients. Generally, the option price of incentive and
non-qualified stock options granted may be as determined by the Stock
Option Committee, but must be at least equal to 100% of the fair
market value of the shares on the date of the grant. The maximum term
of each option is ten years.
For any participant who owns shares possessing more than 10% of the
voting rights of the Company's outstanding common stock, the exercise
price of any incentive stock option must be at least equal to 110% of
the fair market value of the shares subject to such option on the date
of grant and the term of the option may be no longer than five years.
Options become exercisable at such time or times as the Stock Option
Committee may determine when it grants options. All options granted
on or before December 31, 1985 must be exercised in the sequence in
which they were granted. The Option Plans permit the exercise of
options by the payment of cash or shares of Class A Common Stock equal
in value to the option price. Under the terms of the Option Plan with
respect to options granted on or before December 31, 1986, the
aggregate fair market value of the Class A Common Stock (determined at
the date of the option grant) for which any employee may be granted
incentive stock options in any calendar year may not exceed $100, plus
certain carry-over allowances from the previous three years. Options
granted under the Option Plans are not transferable by the holder
other than by will or the laws of descent and distribution.
Under the Option Plans, the Company awarded options to purchase shares
of Class A Common Stock to employees of the Company, including
executive officers and directors. Transactions for 1994, 1995 and
1996 are as follows:
1994
Outstanding June 1, 1993 2,693,489 $ 2.65 - 9.30
Granted November 23, 1993 61,682 10.75 - 10.75
Exercised (438,922) 2.65 - 8.46
Canceled (35,340) 2.65 - 8.46
2,280,909
1995
Granted during fiscal 1995 949,750 6.25 - 9.76
Exercised (215,584) 2.65 - 8.46
Canceled (58,269) 2.65 - 10.75
2,956,806 2.65 - 10.75
1996
Granted during fiscal 1996 183,000 7.88 - 9.63
Exercised (334,082) 2.65 - 8.46
Canceled (165,211) 2.65 - 10.75
Options outstanding as
of May 31, 1996 2,640,513 2.65 - 10.75
As of May 31, 1996, approximately 150 employees were participating in
the Option Plan. 1,568,364 options were exercisable at May 31, 1996.
Director Option Plan
The Company's 1993 Non-Employee Directors' Stock Option Plan (the
"Directors' Option Plan") was adopted on October 26, 1994. The
Directors' Option Plan replaced the Non-Employee Director Option Plan
adopted in 1989 (the "1989 Director Option Plan") which was terminated
by the Board of Directors. Under the Directors' 1993 Option Plan a
total of 323,123 shares of Class A Common Stock were reserved for
issuance. Options for 1,000 shares of Class A Common Stock will be
automatically granted under the Directors' 1993 Option Plan to each
person who is elected or re-elected a non-employee Director on the
date of the annual meeting of shareholders of the Company in each of
the years 1994 through 2003.
The Directors' Option Plan shall be administered by the Board of
Directors or a committee (the "Board Committee"). In administering
the Directors' Option Plan, the Board of Directors or the Board
Committee may adopt rules and regulations for carrying out the
Directors' Option Plan. The Board of Directors may amend the
Directors' Option Plan and amend the terms and conditions of any
option granted under the Directors' Option Plan, except that the
approval of the stockholders is necessary to increase the total number
of shares which may be issued or transferred under the Directors'
Option Plan and to change the minimum purchase price for shares
subject to options.
Options granted under the Directors' Option Plan are nonqualified
options not qualifying as incentive stock options under Section 422 of
the Code. The option price that shares of the Company's Class A
Common Stock may be purchased upon exercise of any option granted
under the Directors' Option Plan, will be the fair market value of
such shares on the last trading day prior to the date of the grant of
such option. The Directors' Option Plan permits the exercise of
options in cash, shares of Class A Common Stock valued at the fair
market value on the date of purchase or a combination thereof. The
maximum term of each option is five years and six months immediately
succeeding the date of grant. Options granted under the Directors'
Option Plan are not transferable by the holder other than by will or
the laws of descent and distribution. During 1991 and 1990, options
to purchase 8,052 and 6,710 shares, respectively, of Class A Common
Stock were granted at an exercise price of $2.79 per share under the
1989 Directors' Option Plan. All of these options were exercised as
of May 31, 1996. Under the 1993 Directors' Option Plan, options to
purchase 5,000 and 3,000 shares of Class A Common Stock were granted
during 1995 and 1996 at an exercise price of $8.50 and $8.63 per
share, respectively. 600 of these options were vested at May 31, 1996.
Incentive Award Plan
An Incentive Award Plan (the "Incentive Plan") was adopted by the
Board of Directors and approved by the stockholders of the Company on
December 5, 1985. The Incentive Plan permits the grant of awards to
key employees of the Company and its subsidiaries, which may include
directors and officers, payable in cash or shares of Class A Common
Stock. The Company has reserved 559,529 shares of Class A Common
Stock for issuance under the Incentive Plan. The awards are payable
in five to ten equal annual installments on January 1 of the
succeeding years after the grant of the award, provided that the
recipient is an employee on the installment payment date. The
Incentive Plan is administered by the Compensation Committee, which
selects the recipients of awards as well as the amount of such awards.
The Board of Directors may amend the Incentive Plan. Awards granted
under the Incentive Plan may not be transferred by the recipients and
may be forfeited in the event of the recipient's termination of
employment. At May 31, 1996, no grants were outstanding.
Employee Stock Purchase Plan
On December 5, 1985, the Company adopted the 1985 Employee Stock
Purchase Plan. On October 26, 1994, the Board of Directors and
shareholders approved an amendment to the Company's 1985 Employee
Stock Purchase Plan (the "Amended Purchase Plan"). Under the Amended
Purchase Plan, eligible employees (which generally includes all full-
time employees of the Company) may subscribe for shares of Class A
Common Stock at a purchase price of 85% of the average market price
(as defined) of the Class A Common Stock on the first day or last day
of the purchase period, whichever is lower. Payment of the purchase
price of the shares will be made in installments through payroll
deductions, with no right of prepayment. The Company has reserved
1,125,767 shares of Class A Common Stock for issuance under the
Amended Purchase Plan. The Amended Purchase Plan is administered by
the Compensation Committee. As of May 31, 1996, approximately 43,000
shares of Class A Common Stock were subscribed for under the Amended
Purchase Plan.
Stock Equivalent Plan
The Company's 1985 Stock Equivalent Plan (the "Equivalent Plan") was
adopted by the Board of Directors and approved by the stockholders on
December 5, 1985. The Equivalent Plan permits the grants of units of
Class A Common Stock Equivalents ("units") to key employees of the
Company and its subsidiaries, including officers and directors. The
Equivalent Plan is administered by the Compensation Committee which
selects the employees to be granted units, determines the number of
units covered by each grant, determines the time or times when units
will be granted and the conditions subject to which any amount may
become payable with respect to the units, and prescribes the form of
instruments evidencing units granted under the Plan. Payments for
units may be made by the Company in cash or in shares of Class A
Common Stock at the fair market value of the units on the date of
payment. The Company has reserved 566,155 shares of Class A Common
Stock for issuance under the Equivalent Plan. Under the terms of the
Equivalent Plan, the total number of units included in all grants to
any participant may not exceed 10% of the total number of units for
which grants may be made under the Equivalent Plan. Units granted
under the Equivalent Plan are not transferable by the holder other
than by will or the laws of descent and distribution. As of May 31,
1996, no units have been granted under the Equivalent Plan.
Equity Incentive Plan
The Company's 1992 Equity Incentive Plan (the "Equity Plan") was
adopted by the Board of Directors and approved by the stockholders on
October 28, 1992. The plan permits the issuance of up to 1,113,945
shares of the Company's Class A Common Stock for high levels of
performance and productivity by officers and other management
employees of the Company. The Equity Plan is administered by the
Compensation Committee of the Company's Board of Directors. The plan
authorizes the Committee to grant stock based awards that include but
are not limited to, restricted stock, performance shares and deferred
stock. The Committee determines the recipients and provisions of the
grants under the Equity Plan, including the grant price, term and
number of shares subject to grant.
Generally, an employee will realize compensation taxable as ordinary
income, and the Company will be entitled to a corresponding tax
deduction in an amount equal to the sum of any cash received by the
employee plus the fair market value of any shares of Class A Common
Stock received by the employee.
As of May 31, 1996, the Company had granted 567,697 shares of
restricted stock to nine officers and employees of the Company. The
restrictions lapse at the rate of 20% per year over a five-year
period. As of May 31, 1996, 546,248 shares were available for awards
under the Equity Plan.
Retirement Plans
Effective April 1, 1992, the Company adopted a 401K defined
contribution retirement plan covering employees of its wholly-owned
cable subsidiaries who are not covered by collective bargaining
arrangements. Effective July 1, 1992, the Company adopted a similar
401K plan covering employees of its wholly-owned cable subsidiaries
who are covered by collective bargaining agreements. If a participant
decides to contribute, a portion of the contribution is matched by the
Company. Total expense under the plans was approximately $989, $755
and $578 for the years ended May 31, 1996, 1995 and 1994,
respectively.
Subsidiary Stock Option Grants
On December 27, 1991, February 11, 1992, and December 9, 1994,
Centennial awarded options to purchase approximately 343,000, 2,000
and 452,000 shares, respectively, of Centennial's Class A Common Stock
to approximately 50 employees of Centennial, including executive
officers and directors. All option shares issued under the Plan were
adjusted subsequent to July 22, 1994 to account for the dilutive
effect of Centennial's stock rights offering. At May 31, 1996,
235,069 options were exercisable.
Stock Options
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which will be effective for
the Company beginning June 1, 1996. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees
and encourages (but does not require) compensation cost to be measured
based on the fair value of the equity instrument awarded. Companies
are permitted, however, to continue to apply APB opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings
per share, if any.
NOTE 12. CELLULAR MERGER
On August 30, 1991, the Company's subsidiary Centennial Cellular Corp.
("Centennial Cellular") completed an agreement with Citizens Cellular
Company (a wholly owned subsidiary of Citizens Utilities Company) to
merge Citizens Cellular Company with and into Centennial Cellular. In
connection with the Merger, Centennial Cellular Corp. issued
Convertible Redeemable Preferred Stock valued at $128,450 and
1,367,099 shares of Centennial Cellular Corp. Class B Common Stock
representing 18.8% of the then common equity of Centennial. The
Convertible Redeemable Preferred Stock is convertible on or after the
third anniversary from the date of issuance into 2,972,335 shares of
Centennial Cellular Corp. Class A or B common stock. Although the
Convertible Redeemable Preferred Stock carries no cash dividend
requirement during the first five years, the shares accrete
liquidation preference and redemption value at the rate of 7.5% per
annum, compounded quarterly, in each of years one through five. The
accretion for the years ended May 31, 1996, 1995 and 1994 totaled
approximately $13,080, $12,160 and $11,240, respectively. Of this
amount $4,256, $4,419 and $5,838 was charged against paid-in-capital
in the years ended May 31, 1996, 1995 and 1994, respectively with the
remainder of $8,824, $7,741 and $5,402 charged to minority interests.
At the end of year five, such preferred stock will accrete to
$186,287. Beginning in year six through fifteen, the holders of the
Convertible Redeemable Preferred Stock are entitled to receive cash
dividends at the rate of 8.5% per annum. The Convertible Redeemable
Preferred Stock carries a mandatory redemption provision at the end of
fifteen years. Any unpaid dividends continue to accumulate without
cost to Centennial.
The following summarizes the assets, partners' capital, and results of
operations of the six Cellular Partnerships contributed in the Merger
that the Company accounts for by the equity method. All amounts have
been derived from the individual Cellular Partnerships' financial
statements through December 31, 1996 and 1995 and adjusted for interim
financial activity from the Cellular Partnerships' calendar year end
to the Company's fiscal year end (unaudited):
May 31,
1996 1995
Assets $507,715 $400,440
Partners' Capital 438,451 359,155
Net Income 124,174 73,045
NOTE 13. SUBSIDIARY COMMON STOCK RIGHTS OFFERING
On July 22, 1994, Centennial successfully completed a rights offering
involving the distribution to holders of record of its Class A Common
Stock outstanding on July 7, 1994 (the "Record Date") transferable
subscription rights (the "Rights") to subscribe for and purchase an
aggregate of 3,098,379 additional shares of Class A Common Stock based
on 6,887,287 shares of Class A Common Stock outstanding on the Record
Date for a subscription price of $14.00 per share. Record date
stockholders received 0.45 right for each share of Class A Common
Stock owned by them and were entitled to purchase one share of Class A
Common Stock for each full right held. Holders of Rights purchased an
aggregate of 2,988,478 of the 3,098,379 shares of Class A Common Stock
available for purchase pursuant to the basic subscription privilege.
The balance of 109,901 shares of Class A Common Stock were sold
pursuant to the oversubscription privilege and were distributed pro
rata among the holders of Rights who requested an aggregate of 235,746
additional shares pursuant to the oversubscription privilege.
Centennial also distributed to Century and Citizens, the holders of
record of all the shares of Class B Common Stock outstanding as of the
Record Date, nontransferable subscription rights (the "Class B
Rights") to subscribe for and purchase an aggregate of approximately
3,272,311 additional shares of Class B Common Stock. Century and
Citizens each exercised all of the Class B Rights distributed to them.
Each share of Class B Common Stock is convertible into one share of
Class A Common Stock at any time at the option of the holder.
The net proceeds of approximately $86,500 from the rights offering
(after deducting soliciting fees and expenses of approximately $2,700)
are available to be used by Centennial for general corporate purposes,
including financing of capital expenditures and acquisitions.
NOTE 14. REGISTRATION STATEMENTS
On October 26, 1993, the Company filed a registration statement with
the Securities and Exchange Commission relating to the shelf
registration of $500,000 of the Company's debt securities, augmenting
the remaining $2,000 under a prior shelf registration. The
registration statement became effective July 14, 1994. The debt
securities may be issued from time to time in series on terms to be
specified in one or more prospectus supplements at the time of the
offering. If so specified with respect to any particular series, the
debt securities may be convertible into shares of the Company's Class
A Common Stock. As of August 20, 1996, there was $252,000 available
for issuance under this registration statement.
During fiscal 1994, Centennial filed a shelf registration statement
with the SEC for up to 8,000,000 shares of Centennial's Class A Common
Stock that may be offered from time to time in connection with
acquisitions. At August 20, 1996, there were 4,465,896 shares
available for issuance under this registration statement.
Centennial on April 5, 1995, filed a shelf registration statement with
the SEC for the issuance of $500,000 of Centennial's debt securities.
The debt securities may be issued from time to time in series on terms
to be specified in one or more prospectus supplements at the time of
the offering. If so specified with respect to any particular series,
the debt securities may be convertible into shares of Centennial's
Class A Common Stock. As of August 20, 1996, $400,000 remained
available for issuance.
NOTE 15. REGULATORY MATTERS
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 ("1992 Cable Act"). The 1992
Act substantially reregulated the cable television industry and
imposed numerous requirements, including provisions regarding rates
which may be regulated by the applicable local franchising authority
and those to be regulated by the FCC, exclusive programming
arrangements, the carriage of broadcast signals, customer service
standards, leased access channels, VCR compatibility and various other
matters.
On February 22, 1994, the FCC adopted revised regulations that include
a modification of its benchmark methodology in a way which will
effectively require further reductions in cable rates. Operators may
still elect to justify rates based on costs. FCC regulations adopted
pursuant to the act contain a number of other regulatory provisions
such as those relating to program carriage requirements, ownership
regulations and customer service/technical standards, all of which
have imposed additional burdens and cost on a cable operator.
On February 1, 1996, the Congress passed S.652, "The
Telecommunications Act of 1996" ("Act"), which was signed into law by
the President. The new law will alter federal, state and local laws
and regulations regarding telecommunications providers and services,
including the Company and the cable television industry. The Act
substantially deregulates (except for basic service) cable service
rates over a three year period. Implementing regulations of the Act
are currently being written. The effect that the Act will have on the
Company cannot be determined at this time.
</TABLE>
<TABLE>
Note 16. BUSINESS SEGMENTS
The Company's consolidated financial statements include three distinct
business segments. Century Communications owns, operates and develops
domestic cable television systems. Centennial Cellular Corp. a 31.8%,
32.7% and 46.4% owned subsidary in 1996, 1995 and 1994 owns, operates and
invests in wireless telephone systems and SMR and paging business. The
Company's Australian operations are currently in the development stage
and not yet fully operational. The Australian operations will operate
and invest in pay television services in Australia, including the
development and distribution of programming.
Information about the Company's operations in its three business segments
for the year ended May 31, 1996, 1995 and 1994 is as follows:
<CAPTION>
Year ended May 31,
1996 1995 1994
<S> <C> <C> <C>
Revenue:
Cable television $ 368,669 $ 331,439 $ 318,456
Cellular telephone 112,197 85,419 56,373
Australian operations 14,571 - -
Eliminations (163) (171) (230)
$ 495,274 $ 416,687 $ 374,599
Operating income (loss):
Cable television $ 76,368 $ 55,303 80,523
Cellular telephone (19,109) (28,430) (22,490)
Australian operations (30,848) - -
Eliminations (163) (171) (230)
$ 26,248 $ 26,702 $ 57,803
Net (loss):
Cable television $ (47,183) $ (70,622) $ (27,207)
Cellular telephone (16,631) (32,730) (27,784)
Australian operations (49,273) - -
Eliminations 10,970 20,727 13,064
$ (102,117) $ (82,625) $ (41,927)
Assets, at end of period:
Cable television $ 1,588,190 $ 1,291,748 $ 941,866
Cellular telephone 785,812 844,384 502,834
Australian operations 127,155 - -
Eliminations (266,248) (131,715) (94,274)
$ 2,234,909 $ 2,004,417 $ 1,350,426
Depreciation and amortization:
Cable television $ 124,436 $ 106,289 $ 103,644
Cellular telephone 70,989 65,642 47,652
Australian operations (1) - - -
$ 195,425 $ 171,931 $ 151,296
Capital expenditures:
Cable television $ 62,205 $ 92,199 $ 46,077
Cellular telephone 38,082 17,538 8,947
Australian operations (2) - - -
$ 100,287 $ 109,737 $ 55,024
Intersegment sales are not significant. No single customer accounted for
more than 10% of revenues.
(1)Depreciation and amortization of $21,031 was included in "Costs and
expenses: Australian operations" in the Company's Consolidated
Statement of Operations at May 31, 1996.
(2)The Australian operations had capital expenditures of $15,317 during
the year ended May 31, 1996. Such amount was reported in the
Investing section of the Consolidated Statement of Cash Flows on
the line "Australian activities".
The financial information which follows is that of Century Communications
before the consolidate of Centennial Cellular Corp. and the Australian
operations; Centennial Cellular Corp., which comprises the Company's
wireless telephone business segment, the Company's Australian operations,
as well as consolidated information.
</TABLE>
<TABLE>
Note 16. Segment Information (continued)
BALANCE SHEET FINANCIAL DATA
May 31, 1996
<CAPTION>
Century
Communications
Corp. before
consolidation of Reclassifications
Centennial Centennial Australian and
and Australia Cellular Corp. Operations Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and short-term investments $ 96,342 $ 67,297 $ 953 $ - $ 164,592
Accounts receivable - net 10,051 20,210 10,741 - 41,002
Prepaid expenses and other
current assets 3,507 2,158 967 - 6,632
Total current assets 109,900 89,665 12,661 - 212,226
Property, plant and equipment - net 541,410 91,417 18,780 - 651,607
Investment in marketable equity securities 53,069 - - - 53,069
Investment in Centennial Cellular
Corp. at cost 139,550 - - (139,550) -
Equity investments in cable television and
cellular telephone systems - net 136,942 100,204 83 (128,973) 108,256
Debt issuance cost - net 20,614 7,738 - - 28,352
Cable television franchise - net 430,884 - 94,310 - 525,194
Wireless telephone licenses - net - 360,213 - - 360,213
Excess of purchase price over value of
net assets acquired - net 145,295 133,907 - - 279,202
Other assets 10,526 2,668 1,321 2,275 16,790
$1,588,190 $ 785,812 $ 127,155 $ (266,248) $ 2,234,909
</TABLE>
<TABLE>
Note 16. Segment Information (continued)
BALANCE SHEET FINANCIAL DATA
May 31, 1996
<CAPTION>
Century
Communications
Corp. before
consolidation of Centennial Reclassifications
Centennial Cellular Australian and
and Australia Corp. Operations Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS'
EQUITY (DEFICIENCY)
Current Liabilities:
Current maturities of long-term
debt $ 50 $ - $ 15,034 $ - $ 15,084
Accounts payable and accrued
expenses 72,050 22,127 27,603 - 121,780
Customers' deposits and
prepayments 14,409 4,961 - - 19,370
Total current liabilities 86,509 27,088 42,637 - 156,234
Long-term debt 1,731,611 350,000 - - 2,081,611
Deferred liability 5,000 2,200 - (7,200) -
Deferred income taxes 42,886 56,588 - - 99,474
Minority interest in subsidiaries 54,035 - - 108,755 162,790
Due to parent - - 136,944 (136,944) -
Convertible redeemable preferred stock - 182,813 - - 182,813
Second series convertible redeemable
preferred stock - 7,117 - (7,117) -
Common stockholders' equity (deficiency):
Common stock, par value $.01 per share:
Class A 599 165 - (165) 599
Class B 454 105 - (105) 454
Additional paid-in capital 84,388 383,533 - (292,117) 175,804
Other (116,949) (4,801) (753) 4,801 (117,702)
Accumulated deficit (300,343) (218,996) (51,673) 63,844 (507,168)
Total common stockholders' equity
(deficiency) (331,851) 160,006 (52,426) (223,742) (448,013)
$ 1,588,190 $ 785,812 $ 127,155 $ (266,248) $ 2,234,909
</TABLE>
<TABLE>
Note 16. Segment Information (continued)
STATEMENT OF OPERATIONS FINANCIAL DATA
Year Ended May 31, 1996
<CAPTION>
Century
Communications
Corp. before
consolidation of Reclassifications
Centennial Centennial Australian and
and Australia Cellular Corp. Operations Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Service income $ 368,669 $ 112,197 $ 14,571 $ (163) $ 495,274
Costs and expenses:
Cost of services 82,274 26,129 - - 108,403
Selling, general and administrative 85,591 34,188 - - 119,779
Depreciation and amortization 124,436 70,989 - 195,425
Australian operations - - 45,419 - 45,419
292,301 131,306 45,419 - 469,026
Operating income (loss) 76,368 (19,109) (30,848) (163) 26,248
Income from equity investments - 10,473 - (10,473) -
Interest 143,030 27,886 1,299 - 172,215
Gain on sale of assets - 8,310 - (8,310) -
Other (income)/loss 550 - 17,126 (18,783) (1,107)
Loss before income tax benefit and
minority interest (67,212) (28,212) (49,273) (163) (144,860)
Income tax (benefit) provision (22,730) (11,596) - - (34,326)
Loss before minority interest (44,482) (16,616) (49,273) (163) (110,534)
Minority interest in loss of subsidiaries (2,701) (15) - 11,133 8,417
Net Loss $ (47,183) $ (16,631) $ (49,273) $ 10,970 $ (102,117)
</TABLE>
<TABLE>
NOTE 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Three months ended
August 31, November 30, February 28, May 31,
1993 1993 1994 1994
<S> <C> <C> <C> <C>
Revenues $ 91,091 $ 94,458 $ 93,080 $ 95,970
Operating income 16,505 15,024 17,588 8,686
Net loss (8,552) (9,521) (7,960) (15,894)
Net loss per common share (1) (.11) (.12) (.11) (.19)
Three months ended
August 31, November 30, February 28, May 31,
1994 1994 1995 1995
<S> <C> <C> <C> <C>
Revenues $ 97,421 $ 104,271 $ 106,129 $ 108,866
Operating income 10,306 9,439 5,395 1,562
Net loss (14,957) (16,617) (20,058) (30,993)
Net loss per common share (1) (.18) (.20) (.23) (.42)
Three months ended
August 31, November 30, February 29, May 31,
1995 1995 1996 1996
<S> <C> <C> <C> <C>
Revenues $ 116,627 $ 121,039 $ 122,054 $ 135,554
Operating income 13,789 9,295 1,747 1,417
Net loss (21,917) (21,148) (23,623) (35,429)
Net loss per common share (1) (.31) (.30) (.33) (.49)
(1) See Note 1 loss per common share.
</TABLE>
<TABLE>
SCHEDULE VIII
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Amounts in Thousands
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to Balance a
beginning costs and other accounts Deductions end
Description of period expenses - describe - describe of period
<S> <C> <C> <C> <C> <C>
Deducted from assets
to which they apply:
Allowance for doubtful
accounts:
Year end May 31, 1994 $ 2,520 $ 4,501 $ 13,505 (B) $ 18,574 (A) $ 1,952
Year end May 31, 1995 $ 1,952 $ 4,952 $ 16,067 (B) $ 20,827 (A) $ 2,144
Year end May 31, 1996 $ 2,144 $ 8,391 $ 16,919 (B) $ 24,446 (A) $ 3,008
(A) Accounts written-off
(B) Charges billed to disconnected subscribers for Company owned equipment held by the sub-
scriber. Experience has shown that such amounts billed are generally not collectible and
accordingly, are reserved for at the time of billing, with no effect on the statement of
operations.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company has duly
caused this Annual Report on Form 10-K for the fiscal year ended May
31, 1996 to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 28th day of August, 1996.
CENTURY COMMUNICATIONS CORP.
By:/s/ Leonard Tow
Leonard Tow
Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Annual Report on Form 10-K for the fiscal year
ended May 31, 1996 has been signed below by the following persons in
the capacities indicated on the 28th day of August, 1996.
/s/ Leonard Tow Chief Executive Officer, Chief Financial
LEONARD TOW Officer (principal executive and financial
officer), Chairman and Director
/s/ Scott N. Schneider Senior Vice President, Treasurer, Chief
SCOTT N. SCHNEIDER Accounting Officer (principal accounting
officer) and Director
/s/ Bernard P. Gallagher Director
Bernard P. Gallagher
/s/ William Kraus Director
William Kraus
/s/ Andrew Tow Director
Andrew Tow
/s/ Claire Tow Director
Claire Tow
/s/ David Z. Rosensweig Director
David Z. Rosensweig
/s/Peter Solomon Director
Peter J. Solomon
Director
Robert D. Siff
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
3(a) Restated Certificate of Incorporation of
the Company, filed as Exhibit 6(a)(i) to
the Company's Quarterly Report on Form
10-Q for the quarter ended February 28,
1990 and incorporated herein by reference
and Amendment to Restated Certificate of
Incorporation of the Company, filed as
Exhibit 6(a)(i) to the Company's Quarterly
Report on Form 10-Q for the quarter ended
November 30, 1990 and incorporated herein
by reference.
3(b) By-laws of the Company, as amended, filed
as Exhibit 3(b) to the Company's Annual
Report on Form 10-K for the year ended May
31, 1995, and incorporated herein by
reference.
3(c) Articles of Association and Memorandum of
Association of ECT
4(a) Eighth Restated Credit Agreement, dated as
of July 10, 1990, between Century Texas,
Century Investors and Citibank, N.A., on
behalf of itself and as agent, and The
Chase Manhattan Bank (National
Association), The Bank of Nova Scotia, The
First National Bank of Chicago, Bank of
Montreal, The Royal Bank of Canada,
Continental Bank N.A., Bankers Trust
Company, Nippon Credit Bank, Provident
National Bank, and Security Pacific
National Bank (the "Eighth Restated
Banks"), filed as an Exhibit to the
Company's Current Report on Form 8-K,
filed July 13, 1990, and incorporated
herein by reference.
4(b) Third Amendment, dated as of November 21,
1990 (the "Third Amendment"), among
Centennial Cellular Corp., a Delaware
corporation ("Centennial Cellular Corp."),
the Lender parties on the signature page
thereto, Citibank, N.A., as agent, Century
Cellular Holding Corp., and the Guarantor
of parties on the signature page thereto,
to the Credit Agreement, dated as of
October 11, 1989, among Centennial
Cellular Corp., and Citibank, N.A., on
behalf of itself and as agent, and
Kansallis-Osake-Pankki, Provident National
Bank, DnC America Banking Corporation,
Meridian Bank, Lincoln Savings Bank,
Toronto Dominion Bank, and The Bank of
Nova Scotia (the "Cellular Banks"), filed
as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended
November 30, 1991, and incorporated herein
by reference.
4(c) Credit Agreement, dated as of October 11,
1989, among Centennial Cellular Corp., and
Citibank, N.A., on behalf of itself and as
agent, and the Cellular Banks, filed as
Exhibit 4(c) to the Company's Annual
Report on Form 10-K for the year ended May
31, 1990, and incorporated herein by
reference.
4(d) Credit Agreement, dated as of October 11,
1989, among Centennial Cellular Corp., and
Citibank, N.A., on behalf of itself and as
agent, and the Cellular Banks, as Amended
and Restated pursuant to the Third
Amendment, filed as an Exhibit to the
Company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1991,
and incorporated herein by reference.
The Company hereby agrees to furnish to
the Securities and Exchange Commission, upon its
request, a copy of each instrument omitted pursuant
to item 601(b)(4)(iii) of Regulation S-K.
4(e) Second Restated Consolidated Guaranty and
Pledge Agreement, dated as of July 10,
1990, made by the subsidiaries of the
Company set forth on the signature pages
thereto to Citibank, N.A., as agent for
the Eighth Restated Banks, filed as
Exhibit 4(g) to the Company's Annual
Report on Form 10-K for the year ended May
31, 1990 and incorporated herein by
reference.
4(f) Third Restated Pledge Agreement and
Guaranty, dated as of July 10, 1990, made
by the Company to Citibank, N.A., as agent
for the Eighth Restated Banks, filed as
Exhibit 4(h) to the Company's Annual
Report on Form 10-K for the year ended
May 31, 1990 and incorporated herein by
reference.
4(g) Seventh Restated Pledge and Security
Agreement, dated as of July 10, 1990, made
by Century Texas to Citibank, N.A., as
agent for the Eighth Restated Banks, filed
as Exhibit (i)A to the Company's Annual
Report on Form 10-K for the year ended May
31, 1990 and incorporated herein by
reference.
4(h) Third Collateral Agreement Amendment,
dated as of July 10, 1990 made by Century
Texas, the Company and Citibank, N.A. as
agent for the Eighth Restated Banks, filed
as Exhibit 4(i)B to the Company's Annual
Report on Form 10-K for the year ended May
31, 1990 and incorporated herein by
reference.
4(i) Pledge Agreement, dated as of October 11,
1989, made by Century Cellular Holding
Corp., a New York corporation, to
Citibank, N.A., as agent for the Cellular
Banks, filed as Exhibit 4(j) to the
Company's Annual Report on Form 10-K for
the year ended May 31, 1990 and
incorporated herein by reference.
4(j) Pledge Agreement, dated as of October 11,
1989, made by Century Cellular Holding
Corp., a New York corporation, to
Citibank, N.A., as agent for the Cellular
Banks, filed as an Exhibit to the
Company's Quarterly Report on Form 10-Q
for the period ended November 30, 1990 and
incorporated herein by reference.
4(k) Pledge and Security Agreement, dated as of
October 11, 1989, made by Centennial
Cellular Corp. to Citibank, N.A., as agent
for the Cellular Banks, filed as
Exhibit 4(k) to the Company's Annual
Report on Form 10-K for the year ended May
31, 1990 and incorporated herein by
reference.
4(l) Pledge and Security Agreement, dated as of
October 11, 1989, made by Centennial
Cellular Corp. to Citibank, N.A., as agent
for the Cellular Banks, as Amended and
Restated pursuant to the Third Amendment,
filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the
period ended November 30, 1990 and
incorporated herein by reference.
4(m) Consolidated Guaranty and Pledge
Agreement, dated as of October 11, 1989,
made by the subsidiaries of Centennial
Cellular Corp. set forth on the signature
pages thereto to Citibank, N.A., as agent
for the Cellular Banks, filed as Exhibit
4(l) to the Company's Annual Report on
Form 10-K for the year ended May 31, 1990
and incorporated herein by reference.
4(n) Consolidated Guaranty and Pledge
Agreement, dated as of October 11, 1989,
made by the subsidiaries of Centennial
Cellular Corp. set forth on the signature
pages thereto to Citibank, N.A., as agent
for the Cellular Banks, as Amended and
Restated pursuant to the Third Amendment,
filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the
period ended November 30, 1990 and
incorporated herein by reference.
4(o) Equity Subscription Agreement, dated as of
November 21, 1990, among Centennial
Cellular, Century Communications Corp., a
Texas corporation, and Century Cellular
Holding Corp., a New York corporation,
filed as Exhibit 4(o) to the Company's
Annual Report on Form 10-K for the year
ended May 31, 1992 and incorporated herein
by reference.
4(p) Indenture, dated as of November 15, 1988,
by and between the Company and the Bank of
Montreal Trust Company, as Trustee, filed
as Exhibit 4(l) to Amendment No. 7 to the
Company's Registration Statement on Form
S-1 (File No. 33-21394) under the
Securities Act of 1933, as amended, (the
"1988 Form S-1"); said 1988 Form S-1
having been filed with the Commission on
April 22, 1988 and incorporated herein by
reference, and said Amendment No. 7 to the
1988 Form S-1 having been filed with the
Commission on November 10, 1988 and
incorporated herein by reference.
4(q) Indenture, dated as of October 15, 1991,
be and between the Company and the Bank of
Montreal Trust Company, as Trustee, filed
as Exhibit 4.2 to Amendment No. 2 to the
Company's Registration Statement on Form
S-3 (File No. 33-33787) under the
Securities Act of 1933, as amended (the
"1991 Form S-3); said 1991 Form S-3 having
been filed with the Commission on August
31, 1990 and incorporated herein by
reference, and said Amendment No. 2 to the
1991 Form S-3 having been filed with the
Commission on March 1, 1991 and
incorporated herein by reference.
4(r) First Supplemental Indenture, dated as of
October 15, 1991, by and between the
Company and the Bank of Montreal Trust
Company, as Trustee, filed as Exhibit 7(2)
to the Company's current report on Form
8-K, dated October 17, 1991 and
incorporated herein by reference.
4(s) Indenture, dated as of February 15, 1992,
by and between the Company and the Bank of
America National Trust and Savings
Association, as Trustee, filed as Exhibit
4.3 to Amendment No. 2 to the Company's
Registration Statement on Form S-3 (File
No. 33-33787) under the Securities Act of
1933, as amended (the "1991 Form S-3");
said 1991 Form S-3 having been filed with
the Commission on March 9, 1990 and
incorporated herein by reference, and said
Amendment No. 2 to the 1991 Form S-3
having been filed with the Commission on
March 1, 1991 and incorporated herein by
reference.
4(t) First Supplemental Indenture, dated as of
February 15, 1992, by and between the
Company and the Bank of America National
Trust and Savings Association, as Trustee,
filed as Exhibit 4(t) to the Company's
Annual Report on Form 10-K for the year
ended May 31, 1992 and incorporated herein
by reference.
4(u) Second Supplemental Indenture dated as of
August 15, 1992 by and between the Company
and Bank of America National Trust and
Savings Association, as Trustee, filed as
Exhibit 4(u) to the Company's Annual
Report on Form 10-K for the year ended May
31, 1992 and incorporated herein by
reference.
4(v) Third Supplemental Indenture dated as of
April 1, 1993 by and between the Company
and Bank of America National Trust and
Savings Association, as Trustee, filed as
Exhibit 4(v) to the Company's Annual
Report on Form 10-K for the year ended May
31, 1993 and incorporated herein by
reference.
4(w) Fourth Supplemental Indenture dated as of March 6,
1995 by and
between the Company and Bank of America
National Trust and Savings Association,
as Trustee, filed as Exhibit 4(w) to the
Company's Annual Report on Form 10-K for
the year ended May 31, 1995, and
incorporated herein by reference.
4(x) Debenture Certificate of ECT and Debenture
Deed between Century and ECT, dated as of
July 12, 1994.
10(a) Employment Agreement, dated February 11,
1986, between the Company and Leonard
Tow, filed as Exhibit 10(a) to the 1988
Form S-1 and incorporated herein by
reference.
10(a)(1) Amended Employment Agreement, dated as of
July 1, 1991, between the Company and
Leonard Tow, filed as Exhibit 10(a)(1) to
the Company's Annual Report on Form 10-K
for the year ended May 31, 1992 and
incorporated herein by reference.
10(a)(2) Agreement, dated July 30, 1992, between
the Company and the Leonard and Claire
Tow Life Insurance Trust, filed as
Exhibit 10(a)(2) to the Company's Annual
Report on Form 10-K for the year ended
May 31, 1992 and incorporated herein by
reference.
10(a)(3) Employment Agreement, dated as of
December 28, 1993, between the Company
and Scott N. Schneider, filed as Exhibit
10(a) to the Company's Quarterly report
on Form 10-Q for the quarter ended
February 28, 1994 and incorporated herein
by reference.
10(a)(4) Employment Agreement, dated as of
December 28, 1993, between the Company
and Andrew Tow, filed as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-
Q for the quarter ended February 28, 1994
and incorporated herein by reference.
10(a)(5) Employment Agreement, dated as of
December 28, 1993, between the Company
and Michael G. Harris, filed as Exhibit
10(c) to the Company's Quarterly Report
on Form 10-Q for the quarter ended
February 28, 1994 and incorporated herein
by reference.
10(a)(6) Employment Agreement, dated December 28,
1993, between the Company and Bernard P.
Gallagher, filed as Exhibit 10(a)(6) to
the Company's Annual Report on Form 10-K
for the year ended May 31, 1995, and
incorporated herein by reference.
10(a)(7) Employment Agreement, dated as of January 1, 1995,
between the Company and Daniel E. Gold.
10(b) Principal Stockholders' Agreement, dated
as of December 7, 1985, between Sentry
Insurance a Mutual Company ("Sentry"),
the Company, Leonard Tow individually and
as Trustee, and Claire Tow as Trustee,
filed as Exhibit 10(a) to the Company's
Registration Statement on Form S-1 (No.
33-2025) under the Securities Act of
1933, as amended, filed with the
Commission on December 9, 1985 (the "1986
Form S-1") and incorporated herein by
reference.
10(c) Amendment to Principal Stockholders'
Agreement, dated August 31, 1987, filed
as an Exhibit to the Company's Current
Report on Form 8-K dated September 11,
1987 and incorporated herein by
reference.
10(d) Lease, dated July 15, 1987, between
Locust Avenue Associates and
Century-Texas, filed as Exhibit 10(h) to
the 1988 Form S-1 and incorporated herein
by reference.
10(e) Addendum to Lease, effective December 1,
1988, between Locust Avenue Associates
and Century-Texas, filed as Exhibit 10(i)
to the Company's Annual Report on Form
10-K for the year ended May 31, 1989 and
incorporated herein by reference.
10(f) Addendum to Lease, effective April 1,
1990, between Locust Avenue Associates
and Century-Texas, filed as Exhibit 10(j)
to the Company's Annual Report on Form
10-K for the year ended May 31, 1990 and
incorporated herein by reference.
10(g) Addendum to Lease, effective December 1,
1990, between Locust Avenue Associates
and Century-Texas, filed as Exhibit 10(k)
to the Company's Annual Report on Form
10-K for the year ended May 31, 1991 and
incorporated herein by reference.
10(h) Addendum to Lease, effective May 1, 1991,
between Locust Avenue Associates and
Century-Texas, filed as Exhibit 10(1) to
the Company's Annual Report on Form 10-K
for the year ended May 31, 1991 and
incorporated herein by reference.
10(i) Addendum to Lease, effective December 1,
1992, between Locust Avenue Associates
and Century-Texas, filed as Exhibit 10(i)
to the Company's Annual Report on Form 10-
K for the year ended May 31, 1993 and
incorporated herein by reference.
10(j) Floating Rate Subordinated Note, dated
November 5, 1981, of Century Texas
payable to The Sentry Corporation, filed
as Exhibit 10(e) to the 1986 Form S-1 and
incorporated herein by reference.
10(k) Floating Rate Subordinated Note, dated
March 1, 1982, of Century Texas payable
to The Sentry Corporation, filed as
Exhibit 10(f) to the 1986 Form S-1 and
incorporated herein by reference.
10(l) Floating Rate Subordinated Note, dated
November 13, 1987, of Century-Texas to
Sentry, filed as Exhibit 10(k) to the
1988 Form S-1 and incorporated herein by
reference.
10(m) Joint Venture Agreement, dated as July
26, 1974, among American Television and
Communications Corporation, Century Texas
and Century Venture Corporation, filed as
Exhibit 10(g) to the 1986 Form S-1 and
incorporated herein by reference.
10(n) Third Agreement of Amendment to the
Amended and Restated Joint Venture
Agreement, dated June 18, 1987, among
American Television and Communications
Corporation, Daniels & Associates, Inc.,
Tele-Communications, Inc., Comcast
Corporation and Century Southwest Cable
Television, Inc., filed as Exhibit 10(m)
to the 1988 Form S-1 and incorporated
herein by reference.
10(o) Colorado Springs Joint Sharing and
Buy-Sell Agreement, dated November 1,
1974, among Century Venture Corporation,
Century Colorado Corp., American
Television and Communications
Corporation, Century Texas and
Vumore-Video Corporation of Colorado,
Inc., filed as Exhibit 10(h) to the 1986
Form S-1 and incorporated herein by
reference.
10(p) 1985 Stock Option Plan of the Company,
filed as Annex A to the Company's
Registration Statement on Form S-8 (File
No. 33-34387) under the Securities Act of
1933, as amended, filed with the
Commission on April 19, 1990 and
incorporated herein by reference.
10(q) Incentive Award Plan of the Company,
filed as Annex A to the Company's
Registration Statement on Form S-8 (File
No. 33-23717) under the Securities Act of
1933, as amended, filed with the
Commission on August 11, 1988 and
incorporated herein by reference.
10(r) 1985 Employee Stock Purchase Plan of the
Company, as amended, filed as Exhibit
10(r) to the Company's Annual Report on
Form 10-K for the year ended May 31,
1995, and incorporated herein by
reference.
10(s) Non-Employee Director Stock Option Plan
of the Company, filed as Annex A to the
Company's Registration Statement on Form
S-8 (File No. 33-34388) under the
Securities Act of 1933, as amended, filed
with the Commission on April 19, 1990 and
incorporated herein by reference.
10(t) 1985 Stock Equivalent Plan, filed as
Exhibit 10(m) to the 1986 Form S-1 and
incorporated herein by reference.
10(u) Century Retirement Investment Plan, filed
as Exhibit 10(x) to the Company's Annual
Report on Form 10-K for the year ended
May 31, 1992 and incorporated herein by
reference.
10(v)(1) Century 1992 Management Equity Incentive
Plan, filed as Exhibit 10(x)(1) to the
Company's Annual Report on Form 10-K for
the year ended May 31, 1992 and
incorporated herein by reference.
10(v)(2) 1993 Non-Employee Directors' Stock Option
Plan of the Company, filed as Exhibit
10(v)(2) to the Company's Annual Report
on Form 10-K for the year ended May 31,
1995, and incorporated herein by
reference.
10(v)(3) 1994 Stock Option Plan of the Company,
filed as Exhibit 10(v)(3) to the
Company's Annual Report on Form 10-K for
the year ended May 31, 1995, and
incorporated herein by reference.
10(w) Interest Rate Swap Agreement, dated as of
July 18, 1986, between Citibank, N.A. and
Century-Texas, filed as Exhibit 10(v) to
Amendment No. 5 to the 1988 Form S-1 and
incorporated herein by reference.
10(x) Interest Rate Swap Agreement, dated as of
May 20, 1987, between The First National
Bank of Chicago and Century-Texas, filed
as Exhibit 10(g) to Amendment No. 5 to
the 1988 Form S-1 and incorporated herein
by reference.
10(y) Interest Rate and Currency Exchange
Agreement, dated as of February 14, 1990,
between Centennial Cellular Corp. and
Citibank, N.A., filed as Exhibit 10(x) to
the Company's Annual Report on Form 10-K
for the year ended May 31, 1990 and
incorporated herein by reference.
10(z) Interest Rate and Currency Exchange
Agreement dated January 17, 1991 between
Century Communications Corp. and Bankers
Trust Company, filed as Exhibit 10(aaa)
to the Company's Annual Report on Form
10-K for the year ended May 31, 1991 and
incorporated herein by reference.
10(aa) Interest Rate and Currency Exchange
Agreement dated between Century
Communications Corp. and Security Pacific
National Bank, filed as Exhibit 10(aaaa)
to the Company's Annual Report on Form
10-K for the year ended May 31, 1991 and
incorporated herein by reference.
10(bb) Management Agreement and Joint Venture
Agreement (Century-ML Venture), dated
December 16, 1986, between Century Texas,
and ML Media Partners, L.P., a Delaware
limited partnership, filed as Exhibit
10(v) to the Company's Annual Report on
Form 10-K for the year ended May 31, 1989
and incorporated herein by reference.
10(cc) Amendment No. 1 to Management Agreement
and Joint Venture Agreement (Century ML
Venture), dated September 21, 1987,
between Century Texas and ML Media
Partners, L.P., a Delaware limited
partnership, filed as Exhibit 10(w) to
the Company's Annual Report on Form 10-K
for the year ended May 31, 1989 and
incorporated herein by reference.
10(dd) Management Agreement and Joint Venture
Agreement (Century-ML Radio Venture),
dated as of February 15, 1989, between
Century Texas and ML Media Partners,
L.P., a Delaware limited partnership,
filed as Exhibit 10(x) to the Company's
Annual Report on Form 10-K for the year
ended May 31, 1989 and incorporated
herein by reference.
10(ee) Plan and Agreement of Merger, dated
August 2, 1991, by and among Century
Cellular Holding Corp., Century Cellular
Corp., Citizens Utilities Company and
Citizens Cellular Corp., together with
exhibits, including Management Agreement,
Conflicts/Non-Compete Agreement, Stock
Transfer Agreement and Registration
Rights Agreement, filed as Exhibit 10(cc)
to the Company's Annual Report on Form
10-K for the year ended May 31, 1991 and
incorporated herein by reference.
10(ff) Credit Agreement, dated as of August 4,
1995, by and among CCC-I, Inc., Pullman
TV Cable Co., Inc., Kootenai Cable, Inc.,
Citibank N.A., as agent, and each of the
banks parties thereto. The Company
hereby agrees to furnish to the
Securities Exchange Commission, upon its
request, a copy of each instrument
omitted pursuant to Item 601(b)(4)(iii)
of Regulation S-K.
10(gg) Credit Agreement, dated as of June 30,
1994, by and among CCC-II, Inc., Citibank
N.A. as managing agent, and each of the
banks parties thereto, filed as Exhibit
10 to the Company's report on Form 8-K
dated July 25, 1994 and incorporated
herein by reference. The Company hereby
agrees to furnish to the Securities
Exchange Commission, upon its request, a
copy of each instrument omitted pursuant
to Item 601(b)(4)(iii) of Regulation S-K.
10(hh) Terms Agreement, dated February 27, 1995,
between Century Communications Corp. and
Merrill, Lynch, Pierce, Fenner & Smith
Incorporated, filed as Exhibit 10(hh) to
the Company's Annual Report on Form 10-K
for the year ended May 31, 1991 and
incorporated herein by reference.
10(ii) Franchise Agreement, dated as of July 8,
1994, between Australis and ECT, together
with amending letters.
10(jj) Optus Customer Service Agreement, dated
as of October 14, 1994, between Optus,
Australis and Continental Century Pay TV
Pty Limited, a New South Wales
corporation ("CCPTV.
10(kk)- Subscription Television Distribution
Agreement between CCPTV and Australis,
together with the amending letter from
Australis to CCPTV, to be filed by
amendment.
10(ll) Infrastructure Utilization Agreement,
dated as of June 13, 1995, between
Australis, New World Telecommunications
Pty Limited, a New South Wales
corporation, ECT and CCPTV,
to be filed by amendment.
10(mm) Advisory and Oversight Agreement, between
Century Australia Pty Limited, an
Australian corporation and Century
Nevada.
10(nn) Advisory and Technical Services
Agreement, between ECT and Century
Nevada.
11 Computation of loss per common share.
21 List of subsidiaries of the Company.
23.1 Consent of Deloitte & Touche,
LLP.
Exhibit 3(c)
Companies (New South Wales) Code
A Company Limited by Shares
MEMORANDUM OF ASSOCIATION
OF
EAST COAST PAY TELEVISION PTY LIMITED
ACN 003 546 272
The name of the Company is East Coast Pay Television Pty
Limited.
The Company is established (so far as the laws of any
jurisdiction within which it carries on business permit) to
carry on, undertake, take part or engage in any transaction,
business, act, matter or thing of any kind whatsoever and
without any restriction or limitation whatsoever as to the
nature or description thereof and shall have all such powers,
rights and privileges as a natural person.
The liability of the members is limited.
The capital of the Company is One Million Dollars ($1,000,000)
divided into One Million (1,000,000) shares of One Dollar
($1.00) each.
4A. A special resolution altering or adding to either the Memorandum
or the Articles of Association of the Company does not have any
effect unless:
the resolution is approved at a meeting of members at which
all members entitled to vote are present in person or by
proxy; and
the resolution is passed at that meeting by all members of
the Company as, being entitled to do so, vote in person or,
where proxies are allowed, by proxy, at that meeting.
4.B. Changes to the Articles of Association of any subsidiary may
only be made if passed by a special resolution of the Company.
The full names, addresses and occupations of the subscribers
hereto are:
ROBERT RAMSEY GILLESPIE CAROL STAVROU
9 Calca Crescent 19 Banks Street
FORESTVILLE NSW 2087 MAROUBRA NSW 2035
Manager Secretary
The subscribers are desirous of being formed into a company in
pursuance of this Memorandum and respectively agree to take the
number of shares in the capital of the Company set out opposite
their respective signatures hereunder.
DATE SUBSCRIBED: 10th day of June 1988.
Signature of Subscribers Number of Witness
Shares agreed
To be Taken
ROBERT RAMSEY GILLESPIE One(l) DENNISE FOLEY
9 Calca Crescent 4/6 Ellis Street
FORESTVILLE CHATSWOOD
NSW 2087 NSW 2067
Manager Secretary
CAROL STAVROU One (1) DENNISE FOLEY
19 Banks Street 4/6 Ellis Street
MAROUBRA CHATSWOOD
NSW 2035 NSW 2067
Secretary Secretary
CORPORATIONS LAW
A Company limited by Shares incorporated in New South Wales
ARTICLES OF ASSOCIATION
OF
EAST COAST PAY TELEVISION PTY LIMITED
(A.C.N. 003 546 272)
TRESS COCKS & MADDOX
Solicitors
135 King Street
SYDNEY NSW 2000
DX 123 SYDNEY
Tel: 221-2744
MATTER NO.: PAT 93 4030
CORPORATIONS LAW
A Company limited by Shares incorporated in New South Wales
ARTICLES OF ASSOCIATION
OF
EAST COAST PAY TELEVISION PTY LIMITED
(A.C.N. 003 546 272)
Interpretation
In these Articles:
Act - means the Broadcasting Services Act 1992 (Cth), as amended
from time to time;
Century - means Century Communications Corp., a Texas
Corporation, of 50 Locust Avenue, New Canaan, Connecticut,
United States of America;
Century Directors - means those persons appointed by, or at the
nomination of, or otherwise acting in accordance with
instructions from or under the control of Century in accordance
with Article 7(2);
Foreign Person - has the same meaning as that term has under the
Act;
The Law - means the Corporations Law;
Prescribed Information - means information as to whether the
shares are held beneficially by the holder of the shares and, if
not, who has beneficial interests in the shares, whether the
holder of the shares or any person who has a beneficial interest
in the shares is in a position to exercise control of another
licence under the Act (giving particulars of any such position)
and any other information which the directors consider is
necessary or desirable for determining the eligibility of that
person or any other person to hold or continue to hold shares in
the company having regard to the provisions of the Act;
Voting Interest - means the right of a member to exercise a vote
at any meeting of the company under these Articles or any law;
and
Winding Up Interest - means the right under these Articles or
any law for a member to receive a share in the property of the
company that could be distributed among members of the company
if property of the company was distributed among members,
whether as a result of a winding up or otherwise.
A gender includes all genders.
Headings are for convenience only and do not affect
interpretation.
Application of Table A
Except insofar as a contrary intention appears in these
Articles, the regulations contained in Table A of Schedule 1 to
the Law shall apply to the company.
Preference Shares
The directors may, on the application of any person, issue
redeemable preference shares to that person on the following
terms:
subject to Article 3(b), the rights of the redeemable
preference shares with respect to repayment of capital,
participation in surplus assets and profits, entitlements
and dividends and voting rights shall be identical with
those of ordinary shares;
on a winding up of the company, the redeemable preference
shares shall rank in priority to ordinary shares; and
the redeemable preference shares may be redeemed, in
accordance with the Law, at the option of the company by
notice to the relevant holder.
Registration of Transfers
In addition to the circumstances referred to in Regulation 21 of
Table A, the company may decline to register any transfer of
shares where:
the registration of the transfer would result in a
contravention of or failure to observe the provisions of a
law of the Commonwealth or of a state or territory;
the company has a lien on any of the shares transferred;
any of the shares transferred are the subject of a call
which has been made and is unpaid;
more than 3 persons are to be registered as joint holders,
except in the case of executors or trustees of a deceased
shareholder;
the directors are required to do so to ensure compliance
with the Act or the Law; or
the directors are otherwise permitted to do so under
Article 5.
If the company refuses to register any transfer of shares, it
shall give to the transferee written notice within 5 business
days after the transfer was lodged with the company, stating
that the company has so refused and the reasons therefor.
Broadcasting Services Act - Limitation on Ownership
Unless an expression is defined in these Articles or the
contrary intention appears in this Article, an expression has,
in a provision of this Article that deals with a matter dealt
with by a particular provision of the Act, the same meaning as
in that provision in the Act.
The Act imposes a number of conditions and restrictions on
persons holding company interests in a corporation that
holds licenses under the Act. Compliance with those
conditions and restrictions is essential as a failure to
comply may lead to severe penalties including loss of the
license held by a licensee.
In order to protect the company's investments in
subsidiaries and other corporations that hold or may hold
licenses by ensuring compliance with the provisions of the
Act, it is necessary for the company to regulate the
holding of shares in the company in the manner set out in
this Article.
This Article contains provisions consistent with the
requirements of the Act which entitle the directors of the
company in certain circumstances to disenfranchise a
person's rights and powers in relation to shares registered
in a person's name and to order the divestiture of such
shares.
The company and its members acknowledge and recognise that
the exercise of the powers given to the company and its
directors pursuant to this Article may cause individual
members considerable financial disadvantage, but the
members and company acknowledge that such a result is
necessary to preserve the value of the company's
investments in any subsidiary company or other corporation
that holds or may hold a license under the Act.
The powers conferred under this Article are to be
interpreted widely. In exercising the powers under this
Article, the directors are entitled to have sole regard to
the interests of the company and its subsidiaries and to
disregard any loss or disadvantage that may be suffered by
individual members affected by the exercise of those
powers. Members acknowledge that they have no right of
action against the directors or the company for any loss or
disadvantage incurred by them as a result, whether directly
or indirectly, of the directors exercising the powers
pursuant to this Article.
A person shall not be eligible to hold or continue to hold
shares in the company if, because of holding those shares and
any other relevant circumstance, that person or some other
person would contravene any one or more of the provisions of the
Act.
A person seeking to become the holder of shares in the
company whether by allotment, transfer, transmission or in
any other way shall deliver to the company, in addition to
a proper instrument of transfer in the case of a person
seeking to become a member of the company by transfer, or,
in the case of a person seeking to become a member of the
company by transmission, evidence of that person's
entitlement as required by the transmission clause, a
statutory declaration made by that person or in the case of
a corporation, by a director or secretary of that
corporation, in a form approved by the directors setting
out the Prescribed Information.
Where a person fails to provide a statutory declaration
pursuant to the terms of Article 5(4)(a), the directors may
refuse to make the allotment or register the transfer or
transmission of shares as the case may be.
The directors shall not allot any shares or register any
transfer or transmission or acceptance following
renunciation of an offer by the company of shares if, in
their opinion, the allotment or registration thereof would
or might result in a contravention by any person of the
provisions of, or any regulation, condition or stipulation
under, the Act.
A person holding shares in the company shall, if required by the
company from time to time and at any time, furnish to the
company within 28 days of being requested by the company to do
so (or within such other period as the directors notify), a
statutory declaration made by that person, or, in the case of a
corporation by a director or secretary of that corporation, in a
form approved by the directors setting out such information
which, in the opinion of the directors, is necessary or
desirable for the directors to determine the eligibility of that
person or corporation to continue to hold shares in the company
having regard to the provisions of the Act.
The company has the right to procure the disposal of shares
held by a person in the company to the extent considered
necessary by the directors to prevent a contravention or a
continuation of a contravention of any of the provisions of
the Act. The company has the right to procure the disposal
of shares held by a person in the company who refuses or
fails to provide a statutory declaration under any of the
provisions of this Article 5.
If the directors reasonably believe that circumstances
exist which permit the company to procure the disposal of
shares pursuant to Article 5(6)(a), the directors may by
notice in writing ("Sale Notice") to the holder of the
shares specified in the Sale Notice require that those
shares be disposed of within 28 days (or such other period
as specified in the Sale Notice).
If a notice under Article 5(6)(b) is not complied with by
the holder of the shares within the time limit specified,
the directors may appoint a person to execute any documents
and implement any procedures as may be required to procure
the transfer of the shares on behalf of the holder and to
receive and give a good discharge for the purchase price.
The net proceeds of any sale under this Article shall be
paid to the member who held the shares sold under this
Article provided that the member has delivered to the
company such documents or information as may be reasonably
required by the directors. Upon the name of the purchaser
being entered in the register in purported exercise of the
powers under this Article, the validity of the sale shall
not be challenged by any person.
The requirement to provide a statutory declaration pursuant to
the terms of any paragraph contained in this Article is subject
to the discretion of the directors to waive the requirement
where the amount of shares to be allotted or shares subject to
transfer are considered by the directors to constitute a minor
company interest.
Power to Buy Back Shares
Subject to the Law, the company may buy ordinary shares in
itself. This authorization shall be effective for 3 years from
and including the date of adoption of these Articles. If
renewed, it will be effective for 3 years from the time of the
last renewal, unless the resolution effecting the renewal
specifies otherwise. This Article does not affect the company's
power to buy any other securities in or issued by the company.
Number of Directors
The number of directors shall be 7, or such other number as the
directors determine from time to time.
For so long as the number of Directors is 7, Century may appoint
5 directors. Otherwise, Century may from time to time appoint
no less than that number of Directors being the aggregate of one
and that number which is two-thirds of the number of directors
determined from time to time under Article 7(1) (disregarding
fractions). Only Century may remove any director appointed
under this Article.
The Company may from time to time by resolution:
remove any director from office (other than a Century
Director); or
appoint an additional director or additional directors,
provided that the ratio of Century Directors to other
directors required under Article 7(2) is maintained.
The directors may at any time appoint any person to be a
director, either to fill a casual vacancy or as an addition to
the existing directors (but only Century may at any time appoint
any person to be a Century Director, either to fill a casual
vacancy in or as an addition to the existing Century Directors),
but so that the total number of directors does not at any time
exceed the maximum number determined in accordance with these
Articles. Any director so appointed shall hold office only
until the end of the next following general meeting and shall be
eligible for re-election at that meeting.
Any director may appoint another director or any other person as
his alternate during such period as he thinks fit without the
need to obtain the approval of any other director.
A Century Director may only be appointed or removed by Century
delivering written notice to the registered office of the
Company without the need for a resolution of the board.
No Share Qualification
No share qualification is required of a director.
Quorum at Meetings
At a meeting of directors, the number of directors whose
presence is necessary to constitute a quorum is such number as
is determined by the directors and, unless so determined, is
four, of which two must be directors who are not Century
Directors and two must be Century Directors. A director shall,
notwithstanding any interest on his part, be counted in a
quorum.
9A. Chairman
Only a Century Director is eligible to act as chairman at
meetings of directors.
Circular Resolutions
If a document containing a statement to the effect that the
signatories to it are in favour of a resolution in the terms set
out or otherwise identified in the document has been signed by
all the directors (excluding each director, if any, who would
not be entitled to vote on that resolution at a meeting of the
directors), a resolution in those terms shall be taken to have
been passed at a meeting of the directors held on the day on
which and at the time at which the document was last signed by a
director.
For the purposes of Article 10(1):
2 or more separate documents containing statements in
identical terms each of which is signed by 1 or more
directors shall together be taken to constitute 1 document
containing a statement in those terms signed by those
directors on the respective days on which they signed the
separate documents;
a reference to all the directors does not include a
reference to an alternate director whose appointor has
signed the document, but an alternate director may sign the
document in the place of his appointor; and
a telex, telegram or facsimile message which is received by
the company and which is expressed to have been sent for or
on behalf of a director or alternate director shall be
taken to be signed by that director or alternate director
at the time of receipt of the telex, telegram or facsimile
message by the company.
Defects in Appointments
Notwithstanding that it is afterwards discovered that there was
some defect in the appointment of a person to be a director or a
member of a committee or to act as a director or that a person
so appointed was disqualified, all acts done by any meeting of
the directors or of a committee of directors or by any person
acting as a director are as valid as if the person had been duly
appointed and was qualified to be a director or to be a member
of the committee.
Powers to Declare Dividends and Pay Interest
Subject to any preferential, special, deferred or other rights
with which any shares may be issued or may from time to time be
held, the directors may from time to time declare such dividends
to be paid to members as appear to the directors to be justified
by the profits of the company.
No dividend shall bear interest against the company.
Where any shares in the company are issued for the purposes of
raising money to defray the expenses of the construction of any
works or buildings or the provision of any plant that cannot be
made profitable for a long period, the company may, at the
discretion of the directors, but subject to the Law, pay
interest on so much of that share capital as is for the time
being paid up and charge the interest so paid to capital as part
of the construction or provision.
Differential Dividends
Subject to Article 12(1), every dividend shall, except where the
resolution for the payment of the dividend otherwise directs:
be paid in respect of all shares (if the resolution for the
payment of the dividend otherwise directs, it shall be paid
in respect of some shares to the exclusion of others);
be paid according to the amounts paid or credited as paid
on the shares in respect of which it is to be paid (if the
resolution for the payment of the dividend otherwise
directs, it shall be paid at different rates or in
different amounts upon the shares in respect of which it is
to be paid); and
be apportioned and paid proportionately to the amounts paid
or credited as paid on the shares in respect of which the
dividend is to be paid during any part or parts of the
period in respect of which the dividend is paid (unless a
share is issued on terms providing that it will rank for
dividend as from a particular date, in which case the share
shall rank for dividend from that date only).
An amount paid or credited as paid on a share in advance of a
call shall not be taken for the purposes of this Article 13(1)
to be paid or credited as paid on the share.
Subject to Articles 12(1) and 13(1), but otherwise in their
absolute discretion, the directors may from time to time resolve
that dividends (to be paid by the company in accordance with
these Articles) are to be paid out of a particular source or
particular sources (namely, profits, the share premium account
or otherwise, in each case as permitted under the Law). Where
the directors so resolve, they may, in their absolute
discretion:
allow each or any member of the company to elect from which
specified sources (profits, share premium account or
otherwise) that particular member's dividend may be paid by
the company; and
where such elections are permitted and any member fails to
make such an election, the directors may, in their absolute
discretion, identify the particular source from which
dividends will be payable.
Telephone Meetings of Directors
The directors may meet by telephone or other electronic means by
which all directors purporting to be present at the meeting are
able to communicate with all other directors purporting to be
present at the meeting and any such meeting shall be taken to be
as valid and as effective as if the directors were physically
present at the same place and time.
Proprietary Company Restrictions
The company is a proprietary company and accordingly:
it may not have more than 50 members;
it may not issue any invitation to the public to subscribe
for or offer to the public to accept subscriptions for any
of its shares or debentures; and
it may not invite the public to deposit money with or offer
to the public to accept deposits of money with it for fixed
periods or payable at call, whether or not bearing
interest.
Alterations to Table A
The following regulations contained in Table A of Schedule 1 to
the Law are deleted for the purpose of these Articles: 40; 48;
57; 58; 59; 60; 61; 62; 64; 71; 73; 75; 77; 90; 92 and 98.
Articles of Subsidiaries
Changes to the Articles of Association of any subsidiary may
only be made if passed by a special resolution of the Company.
Special Resolutions
A special resolution altering or adding to either the Memorandum
or the Articles of Association of the Company does not have any
effect unless:
the resolution is approved at a meeting of members at which
all members entitled to vote are present in person or by
proxy; and
the resolution is passed at that meeting by all members of
the Company as, being entitled to do so, vote in person or,
where proxies are allowed, by proxy, at that meeting.
General Meetings
A general meeting may be convened by the directors only upon a
decision of a majority of the board.
Quorum at General Meetings
At a general meeting, the number of members whose presence is
necessary to constitute a quorum is two, of whom one must be
Century.
Only a Century Director or a representative of Century is
entitled to preside as chairman at any general meeting.
Indemnity of Officers
To the extent permitted by the Corporations Law, the Company
indemnifies every person who is or has been an officer of the
Company at any time after the adoption of this article against
any liability incurred by that person in his or her capacity as
an officer of the Company:
to any other person (other than the Company or a related
body corporate) unless the liability arises out of conduct
involving a lack of good faith; and
for costs and expenses:
(i) in defending proceedings, whether civil or
criminal in which judgment is given in favour of the
person or in which the person is acquitted; and
(ii) in connection with an application in relation
to those proceedings, in which the Court grants relief
to the person under the Law.
Insurance of Officers
The Company may, where the Board considers it appropriate to do
so, pay, or agree to pay, a premium in respect of a contract
insuring a person who is or has been an officer of the Company
against any of the following liabilities incurred by the person
as such an officer, namely:
any liability which does not arise out of conduct
involving:
(i) a wilful breach of duty in relation to the
Company; or
(ii) without limiting sub-paragraph (a), a
contravention of 232(5) or (6) of the Corporation Law.
any liability for costs and expenses incurred by the person
in defending proceedings, whether civil or criminal,
whatever their outcome, and without the qualifications set
out in Article 22(1)(a).
In the case of a director, any premium paid pursuant to this
Article is paid in addition to remuneration paid to that
director by the Company pursuant to these articles.
Despite anything in these articles, a director is not precluded
from voting in respect of any contract or proposed contract of
indemnity or insurance, merely because the contract indemnifies
or insures or would indemnify or insure the director against a
liability incurred by the director as an officer of the Company
or of a related body corporate.
Meaning of "Officer"
For the purposes of Articles 21 and 22, "officer" means a
director, secretary or executive officer.
Exhibit 4(x)
EAST COAST PAY TELEVISION PTY LIMITED
(A.C.N. 003 546 272)
Incorporated in New South Wales, Australia, with Limited Liability
DEBENTURE CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
CONDITIONS OF ISSUE ENDORSED ON THIS CERTIFICATE.
ASSIGNMENTS OF THESE SECURITIES MUST BE MADE IN ACCORDANCE WITH THE
CONDITIONS OF ISSUE.
THIS IS TO CERTIFY THAT CENTURY COMMUNICATIONS CORP IS REGISTERED AS
THE HOLDER OF 6,066 DEBENTURES OF FACE VALUE A$3,255.85 EACH, SUBJECT
TO THE CONDITIONS OF ISSUE ENDORSED ON THIS CERTIFICATE.
The above debentures ("Debentures") were issued by East Coast Pay
Television Pty Limited ("Issuer").
The Debentures were issued for an aggregate subscription price of
A$19,750,000 and are held by this Debentureholder subject to and with
the benefit of the conditions on this debenture certificate.
For value received, the Issuer acknowledges being indebted to and
accordingly promises to pay to the Debentureholder all amounts payable
in accordance with the conditions endorsed on this debenture
certificate.
EXECUTED by the Issuer.
DATED
ISSUED in New York, United States of America.
SIGNED SEALED AND DELIVERED by )
MICHAEL EDWARD FITZGERALD as )
..........................................
attorney for EAST COAST PAY ) By executing this Deed the attorney
TELEVISION PTY LIMITED under Power ) states that the attorney has received
of Attorney dated in the presence of:) no notice of revocation of the
Power of Attorney
.....................................................
Signature of Witness
.....................................................
Name of Witness (block letters)
.....................................................
Address of Witness
.....................................................
Occupation of Witness
DEBENTURE DEED
BETWEEN: CENTURY COMMUNICATIONS CORP, a Texan Corporation of 50
Locust Avenue, New Canaan, Connecticut, United States of
America
AND: EAST COAST PAY TELEVISION PTY LIMITED (A.C.N. 003 546
272) of Level 7, 80 Clarence Street, Sydney, New South Wales
('East Coast')
WITNESSES:
1. Century Communications Corp. accepts the issue of 6,066
Debentures of A$3,255.85 each in the capital of East Coast,
subject to and with the benefit of the attached conditions, in
consideration of the transfer to East Coast by Century
Communications Corp. of property for an agreed value of
A$19,750,000.
2. For value received, East Coast acknowledges being indebted to and
accordingly promises to pay to Century Communications Corp. all
amounts payable to as a holder of the Debentures in accordance
with the attached conditions.
DATED:
SIGNED SEALED AND DELIVERED by )
)
..................................
as attorney for CENTURY ) By executing this Deed the attorney
COMMUNICATIONS CORP under Power of ) states that the attorney has received
Attorney dated in the presence of:) no notice of revocation of the
) Power of Attorney.
.....................................................
Signature of Witness
.....................................................
Name of Witness (block letters)
.....................................................
Address of Witness
.....................................................
Occupation of Witness
SIGNED SEALED AND DELIVERED by )
MICHAEL EDWARD FITZGERALD as )
..................................
attorney for EAST COAST PAY ) By executing this Deed the attorney
TELEVISION PTY LIMITED under Power ) states that the attorney has received
of Attorney dated in the presence of:) no notice of revocation of the
) Power of Attorney.
.....................................................
Signature of Witness
.....................................................
Name of Witness (block letters)
.....................................................
Address of Witness
.....................................................
Occupation of Witness
EAST COAST PAY TELEVISION PTY LIMITED
(A.C.N. 003 546 272)
DEBENTURE
CONDITIONS OF ISSUE
DEFINITIONS
The following words have the following meanings in these
conditions unless the contrary intention appears.
Associate - means any person who is an associate within the
meaning of either the BSA or FATA.
BSA - means the Broadcasting Services Act 1992 (Cwth).
Business Day - means a day in which trading banks are open for
business in Sydney.
Certificate - means a certificate evidencing a Debenture in a
form determined by the Issuer from time to time.
Company Interests - has the meaning ascribed to it in the BSA.
Conditions - means these terms and conditions.
Conversion Date - means the day on which Conversion of the
relevant Debentures is to occur under Clause 8.
Conversion Factor - means the number as last determined in
accordance with Clause 10.
Conversion Notice - means a notice substantially in the form of
Schedule 1 including the form of statutory declaration attached
thereto duly sworn by an Officer of the Debentureholder.
Debenture - means a debenture issued by the Issuer on conditions
substantially similar to these Conditions and evidenced by a
Certificate.
Debenture Face Value - means A$3,255.85 for each Debenture as
adjusted in accordance with Clause 12 or such other amount at
which Debentures may be issued from time to time under Clause 11.
Debentureholder - means the registered holder of a Debenture.
Distribution - means:
(a) a dividend (which, without limitation, includes an
issue of shares in lieu of a cash dividend and credited as
fully or partly paid out of profits or reserves); or
(b) any other distribution (which, without limitation,
includes a capital distribution, a cash distribution, a
distribution of property or rights or any other benefit
whatsoever),
given or made available to any Shareholder in its capacity as
such by the Issuer or any other person and made, paid or credited
in respect of any Shares, other than a distribution of a type
referred to in Clause 11.
FATA means the Foreign Acquisitions and Takeovers Act 1975
(Cwth).
Foreign Person means a foreign person within the meaning of
the BSA.
Interest means a payment of interest on Debenture to
Debentureholders made in accordance with Clause 6.
Issuer means East Coast Pay Television Pty Limited (A.C.N. 003
546 272).
Listing Rules means the Official Listing Rules of Australian
Stock Exchange Limited.
Officer has the meaning given to it in the Corporations Law.
Permitted Holder means a person whose holding of Debentures
would not be in breach of and would not cause any person to be in
breach of any Statute.
Register means the register kept in accordance with Clause 3.1.
Senior Indebtedness means secured obligations, unsecured and
unsubordinated obligations and unsecured and subordinated
obligations of the Issuer, other than Debentures and Shares.
Share means an ordinary share in the Issuer.
Shareholder means the registered holder of a Share.
Statute means:
(a) the BSA;
(b) the FATA; and
(c) any other applicable law.
Winding Up means:
(a) an order being made that the Issuer should be wound up;
(b) a liquidator, an official manager or an administrator
being appointed in respect of the Issuer;
(c) a provisional liquidator being appointed in respect of
the Issuer and the provisional liquidator being ordered or
required to admit all debts to proof or pay all debts
capable of being admitted to proof proportionately;
(d) the Issuer entering into or resolving to enter into a
scheme of arrangement, deed of company arrangement or
composition or assignment for the benefit of all or any
class of its creditors; or
(e) the Issuer being otherwise wound up or otherwise
dissolved or liquidated,
and a reference to commencement of the Winding Up means the
earlier of the happening of any of those events, the presentation
of a petition for the commencement of Winding Up of the Issuer or
the date of the creditors' or shareholders' meeting at which the
relevant resolution for a winding up or approving any scheme,
arrangement, composition or assignment was passed.
INTERPRETATION
In these Conditions, unless the contrary intention appears:
a reference to any instrument includes any variation or
replacement of that instrument;
a reference to a statute, ordinance, code or other law
includes regulations and other instruments under it and
consolidations, amendments, re-enactments or replacements of
any of them;
the singular includes the plural and vice versa;
the word person includes a firm, a body corporate,
unincorporated association or an authority;
a reference to a person includes a reference to the person's
executors, administrators and permitted assigns, substitutes
(including, without limitation, persons taking by novation)
and permitted assigns; and
a reference to a currency is to Australian currency.
In these Conditions:
where the day on or by which any thing is to be done is not
a Business Day, that thing must be done on or by the
preceding Business Day;
no rule of construction applies to the disadvantage of a
party because that party was responsible for the preparation
of these Conditions or any part of them; and
headings are inserted for convenience and do not affect the
interpretation of these Conditions.
REGISTRATION AND TRANSFER
Register
The Issuer must keep a register in London, England (or other
location notified by the Issuer to the Debentureholder)
which contains:
the names and addresses of Debentureholders;
the particulars of all permitted transfers of the
Debentures; and
the particular of all permitted transfers to
Debentures.
Subject to compliance with the Listing Rules, the Register
must be maintained in accordance with the articles of
association of the Issuer as it references in the articles
to Shares were references to Debentures.
Transfers
A Debentureholder may transfer all or any of its Debentures
if the Debentureholder has lodged with the Issuer a duly
signed, stamped and completed transfer in the form of
Schedule 2 together with:
the accompanying statutory declaration duly sworn by an
Officer of the proposed transferee; and
the Certificate for the relevant Debentures.
Where the Issuer receives an instrument of transfer in
accordance with Clause 3.2(a), the Issuer:
may refuse to register or recognise the transfer if the
transfer could cause any person to be in breach of any
Statute; and
otherwise must register the named transferee as the
holder of the relevant Debentures and re-issue
Certificates for the relevant Debentures in the name of
that transferee.
A transferee who is willing and able may, in addition to
taking a transfer of a Debenture, exercise the right of
conversion in Clause 8.1 on registration of the transfer.
TITLE
The Issuer must deliver Certificates to the holders of
Debentures when such Debentures are issued.
Title to Debentures passes when they are registered in the
name of the transferee in the Register.
Except as ordered by a court of competent jurisdiction or as
required by law, the Issuer:
may treat the registered holder of any Debenture as the
absolute owner (notwithstanding any notice of ownership
or writing on the Debenture or any notice of previous
loss or theft or of any trust or any other interest);
is not required to obtain any proof of ownership and is
not required to verify the identity of the registered
holder; and
is not required to recognize or give effect to any
legal or equitable interest in any Debenture not
entered on the Register notwithstanding that the Issuer
may have actual or constructive notice thereof.
STATUS AS CREDITORS AND SUBORDINATION
Status
The Debentures:
confer rights on the Debentureholders as creditors of
the Issuer;
do not confer on Debentureholders any right to attend
or vote at general meetings of the Issuer; and
confer on Debentureholders a right to be given copies
of all documents sent by the Issuer to Shareholders
(whether in connection with a general meeting of
Shareholders or otherwise).
Each Debentureholder by accepting an issue or transfer of
Debentures:
agrees to be bound by these Conditions;
acknowledges that it is a creditor of the Issuer and
that the Debentures do not confer rights as a member of
the Issuer; and
agrees that all covenants, agreements, undertakings and
other rights that, pursuant to this Clause 5, are
conferred upon or accrue to or are enforceable by the
holders of Senior Indebtedness may be enforced by the
holders of Senior Indebtedness or by their
representatives.
If a payment is received by a Debentureholder when
prohibited by this Clause 5, then that payment will be held
for the benefit of and will be paid to the holders of Senior
Indebtedness on demand.
Subordination
The Debentures constitute unsecured and subordinated obligations
of the Issuer ranking behind all other present and future
obligations of the Issuer (whether secured or unsecured and
whether or not subordinated).
Winding Up
On a Winding Up of the Issuer, the rights of the
Debentureholders against the Issuer in respect of the
Debentures are postponed to the claims of all holders of
Senior Indebtedness of the Issuer and, accordingly, no
amount will be payable to the Debentureholders in respect of
the Debentures until the claims of all holders of Senior
Indebtedness which have been admitted or are capable of
being admitted in a winding up have been satisfied in full.
Until Senior Indebtedness has been paid in full and all
securities therefor have been duly released and discharged,
the Debentureholders must not (except with the prior written
consent of the holders of Senior Indebtedness) prove or
claim in competition with the holders of Senior Indebtedness
so as to diminish any distribution, dividend or payment
which, but for such proof, the holders of Senior
Indebtedness would have been entitled to receive.
A Debenture does not confer upon a Debentureholder any right
to vote at any meeting of creditors of the Issuer or any
class of creditors of the Issuer. Each Debentureholder
acknowledges and agrees that it will not vote at any meeting
of creditors of the Issuer and expressly waives and
disclaims any right to do so.
Senior Indebtedness Rights
No right of any present or future holder of Senior
Indebtedness to enforce subordination under this Clause 5
will at any time or in any way be prejudiced or impaired by
any:
act or failure to act or neglect in acting on the part
of the Issuer;
non-compliance by the Issuer with these Conditions
(whether or not any holder of Senior Indebtedness has
or is charged with knowledge thereof); or
act or failure to act or neglect in acting on the part
of any holder of Senior Indebtedness which otherwise
might have the effect in law or in equity of
discharging the subordination.
Each Debentureholder agrees that:
no holder of Senior Indebtedness has any duty (whether
fiduciary or otherwise) to consider or have regard to
the interests of Debentureholders; and
each holder of Senior Indebtedness is free to act in
relation to Senior Indebtedness as it sees fit.
No Variation or Redemption
Each Debentureholder agrees with the Issuer that:
the Conditions of the Debentures cannot be varied without
the consent of the holders of Senior Indebtedness and
holders of Shares from time to time; and
except under Clause 7.2, the Debentures cannot be redeemed.
Declaration
The Issuer declares that it holds the benefit of Clauses 5.2,
5.3, 5.4 and 5.5 on trust for the holders of Senior Indebtedness
from time to time. The declaration in this Clause 5.6 is a
declaration of trust and is not intended to create a mortgage,
charge or other form of security interest.
Specialty Debt
The debt created by these Conditions is and shall be regarded for
all purposes as a specialty debt.
INTEREST
Amount
The Issuer must pay interest on the Debentures to the
Debentureholders in accordance with Clause 6.1(c), if and
only if a Distribution is made to any of the Shareholders.
The Interest payable on the Debentures must be paid on the
same date as the Distribution is made, paid or credited to
Shareholders and the entitlement to Interest must be
calculated by reference to the same date as that applicable
in respect of determining the entitlement to the
Distribution to Shareholders.
Subject to Clause 6.2, the Interest payable to a
Debentureholder with respect to the Debentures held by that
Debentureholder is equal to the amount calculated as
follows:
A x C x D
B E
where:
A is the number of Shares into which the
Debentures of that Debentureholder and all other
Debentureholders would notionally convert at the time
of the relevant Distribution were the Debentures able
to be converted into Shares (calculated in the first
instance on a one for one basis by reference to the
Conversion Factor under Clause 10.1, but subject to
that Conversion Factor being adjusted under Clause
10.2);
B is the number of Shares actually on issue at
the time of the relevant Distribution;
C is an amount equal to the relevant
Distribution;
D is the face value of the Debentures held by
that Debentureholder at the time of the relevant
Distribution; and
E is the total face value of all of the
Debentures on issue at the time of the relevant
Distribution.
Interest paid under this Clause 6.1 is an unsecured debt
obligation of the Issuer (whether or not paid out of profits
of the Issuer).
Withholdings
Any interest calculated under this Clause 6 and paid in respect
of a Distribution must be paid in the jurisdiction in which the
Register is kept, without deduction or withholding for or on
account of taxes, unless such withholding or deduction is
required by law.
REDEMPTION AND SALE
General
Subject to this Clause 7, the Debentures will not be redeemed.
Winding-Up Redemption
On a Winding-Up, if a Debentureholder requests, the relevant
Debentures must be redeemed by the Issuer. The amount
payable on redemption will be calculated under Clause
7.2(b). The amount paid on redemption (if any) will be in
full and final satisfaction of the obligation to repay on
redemption the paid up amount of the Debenture Face Value
and the accrued but unpaid Interest.
The amount payable under Clause 7.2(a) on redemption of a
Debenture will be calculated in accordance with the
following formula:
A = D x B
(D + S)
where:
A is the amount (expressed in dollars) payable
per Debenture;
D is the total number of Debentures on issue;
S is the total number of Shares on issue; and
B is the amount (expressed in dollars) of the
surplus assets of the Issuer after repayment of all
Senior Indebtedness.
Each Debentureholder agrees that, on a Winding-Up, its
rights in respect of redemption of its Debentures are rights
as a creditor of the Issuer which may be proved in the
Winding-Up subject to the provisions of Clause 5 and Clauses
7.2(a) and 7.2(b).
Issuer Sale
If at any time a person other than a Permitted Holder holds
or acquires (whether directly or indirectly) any legal,
equitable or other right to or equity interest in any
Debentures, the Issuer may require the sale of the relevant
Debentures on giving at least 1 Business Day's notice of the
requirement to sell to the Debentureholder.
If a Debentureholder is required to sell its Debentures
under Clause 7.3(a), then:
the Issuer may procure the sale of the relevant
Debentures to a Permitted Holder or to a person who
could be subject to the right of conversion in Clause
8.2 immediately on the Debentures being transferred to
that person;
the Debentureholder by these Conditions irrevocably
appoints the Issuer to be its attorney to sell the
relevant Debentures (a certificate signed by a director
of the Issuer to the effect that this power of attorney
has become exercisable is to be conclusive evidence of
that fact for all purposes) and, accordingly, the
attorney may:
(aa) do all such things and may execute
all such documents as the attorney considers
necessary or expedient to procure the sale of the
relevant Debentures; and
(bb) receive and give a good discharge
for the purchase price for the Debentures sold;
the proceeds of sale will be held by the Issuer for the
benefit of the relevant Debentureholder subject to a
right on the part of the Issuer to deduct all of its
costs and expenses in selling the relevant Debentures
under this Clause 7.3(b); and
on the entry of the name of the purchaser of the
relevant Debentures in the register of
Debentureholders, the exercise or purported exercise by
the Issuer of its power of sale under this Clause 7.3
will be conclusive and not capable of challenge by any
person.
The Issuer may at any time require any Debentureholder to
notify the Issuer whether or not the Issuer would be
entitled to require the sale of that Debentureholder's
Debentures under Clause 7.3(a). A Debentureholder receiving
such request must give the notice requested within 5
Business Days of receipt of the request. A failure to give
the notice within that period will be deemed to entitle the
Issuer to require the sale of the relevant Debentures as
envisaged in Clause 7.3(a).
Certificates
On redemption of Debentures at any time, the relevant
Debentureholder must deliver the Certificates for the Debentures to
the Issuer for cancellation.
CONVERSION
Debentureholder Conversion
If at any time conversion of the Debentures would not be in
breach of Clause 9, then the Debentureholder may, upon giving at
least 1 Business Day's notice to the Issuer, convert some or all
of its Debentures into fully paid Shares by delivering to the
Issuer a duly completed Conversion Notice.
Issuer Conversion
If at any time Debentures can be converted into Shares
without causing a breach of any Statute, then the Issuer may
upon giving at least 1 Business Day's notice to the relevant
Debentureholder and with the consent of that Debentureholder
convert those Debentures into fully paid Shares.
The Issuer may at any time require any Debentureholder to
notify the Issuer whether or not the Issuer could exercise
its conversion right under Clause 8.2(a) without causing a
breach of any Statute. The Debentureholder receiving such
request must give the notice requested within 5 Business
Days of receipt of the request.
Conversion Mechanics
On the Conversion Date, the Issuer must in relation to a
validly given or required conversion:
redeem, for the paid up amount of the Debenture Face
Value, the Debentures represented by Certificates
delivered to the Issuer;
subject to Clause 8.3(c), issue to the Debentureholder
or its nominee the number of fully paid Shares (having
the same par value as fully paid ordinary shares then
on issue in the Issuer) determined in accordance with
the formula:
S = N x CF
where:
S is the number of fully paid Shares
to be issued;
N is the number of Debentures being
converted; and
CF is the Conversion Factor as at the
Conversion Date; and
on behalf of the Debentureholder, apply the proceeds of
redemption as follows:
(aa) first, towards the par value of the
Shares until those Shares are paid up to the same
extent as Shares on issue immediately prior to the
Conversion Date; and
(bb) second, in full or part payment of
the premium payable in respect of those Shares.
If not previously delivered to the Issuer, on the Conversion
Date, the relevant Debentureholder must deliver to the
Issuer the Certificates for the Debentures to be converted
and notify to whom statements of shareholding are to be
sent.
If on conversion the aggregate number of Shares to which a
Debentureholder is entitled includes a fraction of a Share,
that fraction must be disregarded and the Debentureholder
has no further claim or right to that fraction of a Share.
Subject to the Issuer's articles of association and any
applicable laws or regulation, the Issuer must within 15
Business Days of the relevant Conversion Date dispatch, free
of charge, to the person nominated under Clause 8.3(b) a
statement of shareholding for the Shares issued on
conversion.
Shares issued under this Clause 8 rank equally and form 1
class with the Shares on issue on the Conversion Date except
that no Distribution is payable in respect of such Shares if
and to the extent that a corresponding distribution has
previously accrued and been paid on or otherwise been taken
into account pursuant to these Conditions on or before the
Debentures are converted into such Shares.
If the Issuer's shares on issue on the Conversion Date are
listed for official quotation on the Australian Stock
Exchange, the Issuer must apply for official quotation on
the Australian Stock Exchange Limited of Shares issued under
this Clause 8 forthwith after the issue of those Shares.
COMPLIANCE WITH LAW ON CONVERSION
Conversion Restrictions
A Debentureholder must not convert on its or its nominee's
behalf any of its Debentures and no such purported
conversion has any effect if in doing so it would be in
breach of or would cause any person to be in breach of any
Statute.
Each Debentureholder acknowledges that no conversion rights
come into being prior to satisfaction of the condition
precedent set out in Clause 9.1(a).
Restrictions on First Holder
Century Communications Corp. may not convert any Debenture.
CONVERSION FACTOR
Initial Entitlement
Subject to the adjustments provided for in this Clause 10, the
Conversion Factor for each Debenture is 1.
Consolidation and Sub-Division
Subject to Clause 10.2(b), if at any time prior to the
Conversion Date the nominal value of the issued Shares is
reconstructed as a result of consolidation or sub-division,
then immediately after that consolidation or sub-division,
the Conversion Factor must be adjusted in accordance with
the following formula:
CF = VB x CFB
VA
where:
CF is the Conversion Factor immediately after
the consolidation or sub-division;
VB is the nominal value of a Share before the
consolidation or sub-division;
VA is the nominal value of a Share after the
consolidation or sub-division; and
CFB is the Conversion Factor immediately before
the consolidation or sub-division.
The Conversion Factor will not be adjusted following a
reconstruction in a manner that will result in additional
benefits being conferred on Debentureholders which are not
conferred on the holders of Shares contrary to the Listing
Rules.
ADDITIONAL ENTITLEMENTS
Options and Rights
If an any time prior to the Conversion Date the Issuer
grants any options, rights or placements to all Shareholders
entitling them to subscribe for or purchase any securities
(in this Clause 11.1 called 'Additional Securities'), then
as and from the date that the entitlement to the grant of
those options, rights or placements is determined, each
Debentureholder is entitled to be granted options, rights or
placements in the form of or in respect of Debentures at
such prices and on such terms and conditions (taking into
account the relevant Conversion Factor) as the auditor of
the Issuer determines to be as equivalent as practicable to
those offered to the Shareholders as offered to those
Shareholders and the number of Additional Securities offered
to each Debentureholder must be calculated in accordance
with the following formula:
N = S x (Z x CF)
NS
where:
N is the number of Additional Securities to be
offered to each Debentureholder;
NS is the total number of Shares on issue as at
the date the entitlement to the issue of Additional
Securities is determined;
S is the total number of Additional Securities
offered to Shareholders;
Z is the number of Debentures held by that
Debentureholder immediately before the entitlement to
that Additional Security arose; and
CF is the Conversion factor.
For the purposes of this Clause 11.1, the auditor acts as
expert and not as arbitrator and its determination is final
and binding upon the Issuer and the Debentureholders.
Bonus Issue
If at any time prior to the Conversion Date the Issuer
capitalises any amount of profits or reserves and applies
that amount in paying up in full the nominal value of any
Shares to be issued to any Shareholders, the Issuer must as
at the date of issue of the additional Shares, at no cost to
the Debentureholder, issue to each Debentureholder the
number of additional Debentures, credited as fully paid out
of profits or appropriate reserves, calculated in accordance
with the following formula:
N = S x Z
NS
where:
N is the number of Debentures to be issued to
each Debentureholder;
S is the total number of Shares issued to
Shareholders pursuant to the bonus issue;
NS is the total number of Shares on issue as at
the date the entitlement to the issue of Shares is
determined; and
Z is the number of Debentures held by that
Debentureholder immediately before the entitlement to
that issue of the Shares arose.
Clause 11.2(a) does not apply to Shares issued in lieu of a
cash dividend credited as fully paid out of profits or
reserves.
Rights Issues
If at any time prior to the Conversion Date the Issuer makes any
rights issue offer of Shares to any Shareholders, the Issuer
must, as at the date of making the rights issue offer, offer to
issue to each Debentureholder, Debentures by way of rights on
equivalent price, terms and conditions as apply to the rights
issued to those Shareholders and the number of Debentures offered
to each Debentureholder must be calculated in accordance with the
following formula:
N = S x Z
NS
where:
N is the number of Debentures offered to each
Debentureholder;
S is the total number of Shares offered to
Shareholders pursuant to the rights issue offer;
NS is the total number of Shares on issue as at
the date the entitlement to the issue of Shares is
determined; and
Z is the number of Debentures held by that
Debentureholder immediately before the entitlement to
that rights issue arose.
Fractions
Where the number of Debentures or other securities to which a
Debentureholder is entitled under this Clause 11 is a number
which includes a fraction of a Debenture or security, that
fraction must be disregarded and the Debentureholder has no
further claim or right to that fraction of a Debenture or
security.
Re-Investment Plans
This Clause 11 does not apply to any issue to Shareholders while
Shares are quoted on Australian Stock Exchange Limited where the
issue is made pursuant to a dividend re-investment plan or a
bonus share re-investment plan in lieu of dividends.
ADJUSTMENT TO DEBENTURE FACE VALUE
If the Issuer makes a capital distribution whether by way of cash
payment or distribution of non-cash assets to a Shareholder, then
upon the payment of the relevant Interest in accordance with
Clause 8 the Debenture Face Value must be correspondingly
reduced.
PAYMENTS
All payments to be made by the Issuer in relation to any
Debentures will be made:
after deduction of all withholdings and deductions required
by law; and
by cheque drawn on a bank and mailed at the
Debentureholder's risk to the Debentureholder or to the
first named of joint holders of such Debenture at its
address appearing in the Register, unless the
Debentureholder nominates an account with a bank into which
such payments are to be made in which case payments will be
made by bank transfer of cleared funds into that bank
account.
CALCULATIONS
Any calculations which are required to be made for the
purposes of these Conditions will be made by the auditors of
the Issuer for the time being and will, in the absence of
manifest error be final, conclusive and binding on the
Debentureholders.
The Issuer must notify each Debentureholder of any
adjustments made to the Conversion Factor under Clause 10
within 10 Business Days of the date of the adjustment.
FURTHER RESTRICTIONS ON FOREIGN PERSON
Notwithstanding any other provision of these Conditions:
a Debentureholder who is a Foreign Person must not have
Company Interests as envisaged in the BSA of more than 20%
in a subscription television broadcasting licence owned or
controlled by the Issuer; and
during any period in which a Debentureholder who is a
Foreign Person has Company Interests as envisaged in the BSA
of more than 20% in a subscription television broadcasting
licence owned or controlled by the Issuer:
the rights attaching to the Debentures as set out in
these Conditions shall be suspended to the extent
necessary to avoid such breach; and
the Debentureholder shall not exercise any suspended
rights contained in these Conditions other than to
rectify a breach by any person of the BSA.
REPLACEMENT OF DEBENTURES
If any Certificate is lost, stolen, mutilated, defaced or
destroyed it may be replaced at the registered office of the
Issuer upon payment by the claimant of the expenses incurred
in connection therewith and on such terms as to evidence,
indemnity and security as the Issuer may reasonably require.
Mutilated or defaced Certificates must be surrendered before
replacements will be issued.
NOTICES
Any notice by the Issuer regarding the Debentures will be sent to
the registered address of the Debentureholders recorded in the
Register. Any notices to the Issuer will be sent to the address
of the Issuer shown in the Deed to which these Conditions are
attached.
GOVERNING LAW
The Debentures are governed by and construed in accordance with
the laws of England, United Kingdom.
DUTIES AND TAXES
The Issuer must bear any stamp duty payable on or in connection
with the issue of the Debentures but the Issuer is not
responsible for any duties or taxes which may subsequently become
payable in connection with the transfer, conversion, redemption
or any other dealing with the Debentures.
SCHEDULE 1
CONVERSION NOTICE
To: East Coast Pay Television Pty Limited (A.C.N.
003 546 272)(`Company')
[Name of Debentureholder], being the registered holder of Debentures,
elects to convert the number of Debentures set out below into shares
in East Coast Pay Television Pty Limited (A.C.N. 003 546 272) in
accordance with Clause 8 of the conditions of issue of the Debentures
(`Conditions'):
1. Number of Debentures being converted: [number].
2. Name and address of Shareholders to be entered into the register
in respect of the Shares issued: [name and address].
3. Name and address to which statements of shareholdings should be
sent: [name and address].
Enclosed with this notice are the Certificates for the Debentures to
be converted.
A statutory declaration in the form required by the Conditions duly
sworn by an Officer of [name of Debentureholder] is attached.*
Dated:
_____________________________
SIGNED for and on behalf of
the Debentureholder
*Delete as applicable
Note: Where assignment is proposed followed by conversion, the
above conversion notice must be adapted to apply, mutatis
mutandis, to the proposed assignee.
STATUTORY DECLARATION
CONVERSION OF DEBENTURES
- EAST COAST PAY TELEVISION PTY LIMITED
I, [name] of [address], do solemnly and sincerely declare as follows:
1. I am [position of officer] of [name of Debentureholder]
(`Debentureholder').
2. The Debentureholder holds debentures (`Debentures') issued by
East Coast Pay Television Pty Limited (A.C.N. 003 546 272)
(`Company').
3. The Debentureholder wishes to convert certain of the Debentures
pursuant to the conditions of issue of the Debentures and the
conversion notice to which this declaration is attached
(`Conversion').
4. Following the Conversion, there will not be a breach by the
Debentureholder or the Company or its affiliates of:
(a) any provision of the Broadcasting Services Act 1992;
(b) any provision of the Foreign Acquisitions and Takeovers
Act 1975; or
(c) any other applicable law.
AND I make this solemn declaration in compliance with all statutory
and other requirements of the jurisdiction in which this declaration
is made and subject to the penalties provided thereunder for the
making of false statements in statutory declarations conscientiously
believing the statement contained in this declaration to be true in
every particular.
Declared at [place] on [date].
Before me:
____________________________ _____________________________
Witness Signature
SCHEDULE 2
TRANSFER NOTICE
To: East Coast Pay Television Pty Limited (A.C.N.
003 546 272)(`Company')
[Name of Seller] (`Seller'), being the registered holder of
Debentures, has agreed to sell [number] Debentures to [name of
purchaser] (`Purchaser').
The Purchaser agrees with the Company on its own behalf and with the
Company as trustee for the holders of Senior Indebtedness (as that
term is defined in the Debentures) from time to time, to be bound by
the conditions of issue of the Debentures (`Conditions').
The details of the Purchaser to be entered in the Register are as
follows: [details].
Enclosed with this notice are the Certificates for the Debentures to
be transferred.
A statutory declaration in the form required by the Conditions duly
sworn by an Officer of [name of Purchaser] is attached.
Dated:
_____________________________
SIGNED for and on behalf of
the Seller
_____________________________
SIGNED for and on behalf of
the Purchaser
STATUTORY DECLARATION
TRANSFER OF DEBENTURES
- EAST COAST PAY TELEVISION PTY LIMITED
I, [name] of [address], do solemnly and sincerely declare as follows:
1. I am [position of officer] of [name of purchaser] (`Purchaser').
2. The Purchaser wishes to take a transfer of [number] debentures
(`Debentures') issued by East Coast Pay Television Pty Limited
(A.C.N. 003 546 272) (`Company').
3. [Name of Purchaser] wishes to be registered as the transferee of
the Debentures pursuant to the terms and conditions of issue of
the Debentures and the transfer notice to which this declaration
is attached (`Transfer').
4. Following the Transfer, there will not be a breach by the
Purchaser or the Company or its affiliates of:
(a) any provision of the Broadcasting Services Act 1992;
(b) any provision of the Foreign Acquisitions and Takeovers
Act 1975; or
(c) any other applicable law.
AND I make this solemn declaration in compliance with all statutory
and other requirements of the jurisdiction in which this declaration
is made and subject to the penalties provided thereunder for the
making of false statements in statutory declarations conscientiously
believing the statement contained in this declaration to be true in
every particular.
Declared at [place] on [date].
Before me:
____________________________ _____________________________
Witness Signature
EXHIBIT 10(a)(7)
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of January, 1995, by and between
CENTURY COMMUNICATIONS CORP., a corporation organized and subsisting
under the laws of New Jersey, and whose address for the purposes of
this Agreement is 50 Locust Avenue, New Canaan, CT 06840 (the
"Company"), and DANIEL E. GOLD, an individual, residing at 229
Orchard Way, PA 19066 ("Employee").
W I T N E S S E T H:
WHEREAS:
A. Heretofore and from December 2, 1991 to June 30, 1994,
Employee was employed by the Company in a managerial capacity in its
cable television division;
B. The Company is desirous of once again employing the
Employee, this time as President of its cable television division in
charge of its day-to-day operations, subject to the terms and
conditions set forth herein, and additionally designating employee a
senior vice-president of the Company;
C. The Employee is willing to be employed in such capacity or
such other capacities as may be permitted by this Agreement, and
under all of the terms, provisions and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein set forth and other good and valuable
consideration, the receipt and adequacy of which is mutually
acknowledged, it is agreed by and between the parties as follows:
1. Representations and Warranties
1.1 Employee represents and warrants that he is not subject to
any restrictive covenants or other agreements or legal restrictions
in favor of any person which would in any way preclude, inhibit,
impair or limit his employment by the Company or the performance of
his duties, all as contemplated herein.
2. Employment
2.1 The Company hereby employs Employee and Employee accepts
such employment as president of the Company's cable television
division. In such capacity, Employee shall supervise and be
responsible for the day-to-day domestic (United States, including
without limitation, all territories, possessions and commonwealths)
cable television division, subject to the direction and control of
the chairman of the Company's cable television operations, the chief
executive officer and/or the chief operating officer of the Company
and the Board of Directors of the Company. At the direction of the
chairman of the Company's cable television division, the chief
executive officer, chief operating officer and/or the Board of
Directors of the Company, Employee shall also serve in such other
senior executive and/or administrative capacities with the Company
or any subsidiaries, of the Company ("Subsidiaries" or individually
a "Subsidiary", as hereafter defined), as such officers, officers
and/or Board may determine.
2.2 Subject to Employee's election as such by the Board of
Directors and/or the Board of Directors of one or more Subsidiaries,
Employee agrees to act and serve as an officer of the Company and
all applicable Subsidiaries and, if duly elected, agrees further to
serve and act as a director of the Company and all applicable
Subsidiaries. Without limitation of the foregoing, employee agrees
to acts as a senior Vice President of the Company. Employee agrees
to adhere to all fiduciary duties and responsibilities inherent in
any such office and as an officer of the Company and/or of any of
the Subsidiaries and, if elected, as a director of the Company and
of any Subsidiaries, and to comply with all applicable laws relating
to same.
3. Place of Employment
3.1 Employee shall render his services where and as required by
the Company, it being understood and agreed, however, that
Employee's base of operations shall be the greater Fairfield County,
Connecticut and/or greater New York City areas, and that Employee
shall not be required to render his services on a permanent basis
outside of one or more of said areas. In conformance with the
foregoing and not in limitation thereof, Employee agrees to take
such trips outside said areas, from time to time, as shall be
consistent with or reasonably necessary in connection with his
duties.
4. Term
4.1 The term of this Agreement (the "Term") shall be the
consecutive period commencing January 23, 1995 and expiring on
December 31, 1997. The period from January 23, 1995 to December 31,
1995 shall be deemed to be a full year for the purposes of Section 5
of this Agreement.
4.2 In the event this Employment Agreement has not then been
terminated, the parties hereto agree that within the last six months
of the Term, they shall meet to negotiate the terms and provisions
relating to a renewal or extension of this Agreement, it being
understood and agreed that nothing herein shall obligate either of
the parties to come to agreement with respect to any such renewal or
extension.
5. Compensation
5.1 Subject to prior termination, as compensation for all
services rendered and to be rendered by Employee hereunder and the
fulfillment by Employee of all of his obligations herein, the
Company shall pay Employee upon execution delivery of this
Agreement, the sum of $25,000 and additionally a base salary (the
"Base Salary") at the rate of $225,000 per year for each year of the
Term on such days as the Company normally pays its employees and
subject to such withholdings as may be required by law. The Base
Salary for each of the second and third years of the Term (the
"Applicable Year") shall be increased by the percentage increase in
the Consumer Price Index prepared by the United States Labor
Department for the United States as a whole, or equivalent measure
of increase in the cost of living if such Consumer Price Index is
not then being issued (hereafter sometimes referred to as the
"Consumer Price Index"), for the last calendar month in such
Applicable Year over and above such Consumer Price Index for the
last full calendar month of the year immediately preceding the
commencement of the Applicable Year.
5.2 Nothing herein shall prevent or preclude the Board of
Directors of the Company or the applicable committee of the Board of
Directors, in its sole discretion, and from time to time, from
awarding or granting Employee (i) options to acquire shares of stock
in the Company or (ii) shares of stock in the Company or (iii) any
other incentive or stock related awards in addition to Base Salary.
In this regard, it is acknowledged that effective with the execution
and delivery of this Agreement, employee has been awarded options to
acquire 50,000 shares of the Company's Class A Common Stock under
the company's 1994 Stock Option Plan (the "Option Plan") to vest 20%
at the end of each year, on a cumulative basis and subject to all of
the terms and conditions of the Option Plan and a grant of 15,000
restricted shares under the Company's 1992 Management Equity
Incentive Plan (the "Equity Plan") to vest 20% at the end of each
year on a cumulative basis and subject to all of the terms and
conditions of the Equity Plan.
5.3 The Company agrees that Employee will receive a cash bonus
for each year of the Term that he has fully performed his services
as provided for in this Agreement in an amount up to 50% of
Employee's Base Salary for such particular year, the precise amount
to be determined by the Chairman of the Company's cable television
division or by the compensation committee of the Board of the
Directors of the Company in his or its discretion, it being
understood that in exercising his or its discretion with respect to
whether a bonus should be awarded and the amount thereof, the said
Chairman or the Compensation Committee may consider among other
factors, the contribution of Employee (i) to the growth in revenues,
cash flow and subscribers of the Company and those subsidiaries to
or for which Employee renders service, (ii) in connection with
acquisitions, offering of securities and various financings, and
(iii) to the operations of the Company and its various subsidiaries
as an entity; provided further however in the event the goals set
forth on Schedule "A" are reached during a particular year of the
Term, serious consideration will be given by the Company to the
awarding of a cash bonus for such year, subject to the maximum set
forth above.
6. Reimbursement for Business Expenses
Fringe Benefits
6.1 The Company agrees that all reasonable expenses incurred by
Employee in the discharge and fulfillment of his duties for the
Company, as set forth in Section 2 , will be reimbursed or paid by
the Company upon written substantiation therefor signed by Employee,
itemizing said expenses and containing all applicable vouchers.
Without limitation of the foregoing the Company shall provide
Employee with an automobile for use by Employee in the performance
of his duties and for the maintenance thereof. The automobile shall
be of the type presently being provided to Employee by the Company
and shall be no more than three years old.
6.2 The Company agrees that it will cause Employee to be
insured under such group life, medical, major medical and disability
insurance that the Company may maintain and keep in force from time
to time during the Term for the benefit of all of the Company's
employees, subject to the terms, provisions and conditions of such
insurance and the agreements with underwriters relating to same. It
is understood and agreed that in its discretion the Company from
time to time may terminate or modify any or all of such insurance
without obligation or liability to Employee.
7. Exclusivity
7.1 During the Term, employee agrees to devote his services and
his best energies and abilities, exclusively, to the business and
activities of the Company, including any Subsidiaries, and not
engage or have an interest in or perform services for any other
business or entity of any kind or nature; provided, however, that
nothing herein shall prevent Employee from investing in (but not
rendering services to) other businesses (other than for charitable
organizations, provided same does not interfere with Employee's
performance of his duties hereunder) which are not competitive in
any manner with the business then being conducted by the Company or
any of its Subsidiaries, or in investing in (but not rendering
services to) other businesses which are competitive in any manner
with the business then being constructed by the Company, provided in
the latter instance, that (i) the shares of such business are listed
and traded over either a national securities exchange or in the
over-the-counter market, and (ii) Employee's stock interest or
potential stock interest (based on grants, options, warrants, or
other arrangements or agreements then in existence) in any such
business which is so traded (together with any and all interest,
actual and potential, of all members of Employee's immediate family)
is not a controlling or substantial interest and specifically does
not exceed one percent of the issued and outstanding shares or a one
percentage interest of or in such business.
8. Uniqueness
8.1 Employee agrees that his services hereunder are special,
unique and extraordinary and that in the event of any material
breach or attempted material breach of this Agreement by Employee
including, without limitation, the provisions of Section 9 and 10,
the Company will sustain substantial injury and damage, and Employee
hereby consents and agrees that, in the event of breach hereof, the
Company shall be entitled to injunctive relief against Employee or
any third party to prevent or in respect of any such breach, in
addition to such other rights or remedies available to it.
Employee's said consent and agreement shall not survive the
expiration date set forth in Section 4.1 (December 31, 1997) except
as same relates to any of Employee's obligations pursuant to
Section 9.1 and 10.1 hereof.
9. Trade Secrets
9.1 Employee acknowledges that his employment hereunder will
necessarily involve his understanding of and access to certain trade
secrets and confidential information pertaining to the businesses
and activities of the Company and its Subsidiaries. Accordingly,
Employee agrees that during the period of employment and at all
times thereafter, he will not disclose to any unauthorized third
party any such trade secrets or confidential information and will
not (other than in connection with carrying out his duties) for any
reason remove or retain without the express consent of the Company
any figures or calculations, letters, papers, records or other
information of a type likely to be regarded as confidential. The
provisions of this Section shall survive the termination, for any
reason, of this Agreement or the Employee's employment.
10. Inventions, Creations
10.1 All right, title and interest of every kind and nature
whatsoever in and to inventions, patents, trademarks, copyrights,
films, scripts, ideas, creations, intellectual property and
literary, intellectual and other properties furnished to the Company
or any of its Subsidiaries and/or used in connection with any of
the activities of the Company or any of its Subsidiaries, or with
which Employee is connected or associated in connection with the
performance of his services, shall as between the parties hereto be,
become and remain the sole and exclusive property of the Company or
any of its Subsidiaries, as the case may be, for any and all
purposes and uses whatsoever, regardless of whether the same were
invented, created, written, developed, furnished, produced or
disclosed by Employee or by any other party, and Employee shall have
no right, title or interest of any kind or nature therein or
thereto, or in any results and proceeds therefrom. Employee agrees
during and after the term hereof to execute any and all documents
which the Company may deem necessary and appropriate to effectuate
the provisions of this Section 10.1 and, further, that the
provisions of this Section shall survive the termination, for any
reason, of this Agreement or Employee's employment.
11. Death - Permanent Incapacity
11.1 The death of Employee shall work an immediate termination
of this Agreement, in which event no additional Base Salary shall be
paid to Employee except that the payments of Base Salary to which
Employee would have been entitled to receive were he not deceased
and were he fully performing his obligations hereunder, shall
continue to be paid to his Estate or legal representatives during
the balance of the Term.
11.2 In the event Employee suffers a disability which prevents
him from performing his services hereunder (herein called
"Disability"), and in the event such Disability continues for longer
than 90 consecutive days or 120 days in any 12-month period,
Employee shall be deemed to have suffered a Permanent Incapacity, in
which event the Company shall have the right to terminate this
Agreement upon not less than fifteen days' notice to Employee, and
this Agreement shall terminate on the date set forth therefor in
said notice.
Upon termination of this Agreement by reason of such Permanent
Incapacity, Employee's Base Salary shall continue to be paid to
Employee or his legal representatives during the greater of (i) the
balance of the Term and (ii) a period of not less than 12 months.
11.3 In the event there is a dispute between the parties as to
whether or not Employee has suffered a Permanent Incapacity, same
shall be determined by an impartial physician located in the City of
New York and agreed upon by the parties or, failing agreement within
10 days of a written request therefor by either of the parties to
the other, then such physician as may be designated by the then
acting President of the New York Academy of Medicine or if he fails
or is unable to designate such impartial physician, then one
designated by the Chief of Medicine at one of the following
hospitals located in New York City and selected by the Company: (i)
New York Hospital, (ii) Columbia Presbyterian Hospital, (ii) New
York University (or Tisch) Hospital, (iv) Mt. Sinai Hospital, and if
no such hospital shall designate such physician, as designated by
the American Arbitration Association. The determination of any such
physician shall be final and binding upon the parties hereto.
12. Termination
12.1 In addition to Termination pursuant to Section 11,
Employee's employment hereunder may be terminated for "cause".
"Cause" for purposes of this Agreement shall mean the following:
(i) alcoholism or drug addition materially affecting
Employee's performance, (ii) conviction for a felony involving
moral turpitude, (iii) failure to comply within a period of ten
business days with a reasonable directive of the chief executive
officer, the chief operating officer or the Board of Directors
of the Company relating to Employee's duties or Employee's
performance and consistent with Employee's position, after
written notice that such failure will be deemed to be "cause",
to the extent such failure can be curing within such ten
business days and if not so curable, fails to commence curing
during said ten day period and diligently pursuing the curing of
same until cured, (iv) gross neglect or gross misconduct of
Employee in carrying out his duties under this Agreement,
resulting, in either case, in material economic harm to the
Company, unless Employee believed in good faith that such act or
nonact was in the best interests of the Company and, (v)
misappropriation of corporate assets or corporate opportunity or
other act of dishonesty or breach of fiduciary obligation to the
Company.
12.2 In the event the Company terminates this Agreement and
Employee's employment other than for "cause", and other than for
death or disability, Employee shall be entitled, in addition to
whatever other rights and remedies which may be available to him, to
the following, subject to the applicable provisions of the Company's
1994 Employee Stock Option Plan the Company's 1992 Management Equity
Incentive Plan and other applicable plan: (i) the right to exercise
any stock option in full, whether or not fully exercisable, for the
remainder of the original term of such option, (ii) the balance of
payments of Base Salary, to be paid at the times they would
otherwise have become payable to Employee pursuant to the terms of
this Agreement, (iii) a cash bonus payable for each remaining year
of the term (or fraction of year if termination occurs during a
particular year of the term and a bonus has not previously been paid
to Employee for such year) in an amount equal to the most recently
paid cash bonus paid to Employee. Additionally any restrictions on
shares of stock previously issued to Employee shall be deemed
inoperative and of no further force and effect.
12.3 Employee shall be deemed to have been terminated without
cause if (i) he is not elected a Senior Vice President of the
Company during the term, (ii) his Base Salary is reduced (iii) is
relocated in violation of Section 3.1 or (iv) there has been a
material diminution in the Employee's duties or the assignment to
Employee of duties which are materially inconsistent with his duties
or which materially impair the Employee's ability to function as a
Senior Vice President.
13. Vacation
13.1 Employee shall be entitled to a vacation of four weeks
duration in the aggregate during each year of the Term at times
reasonably agreeable to both Employee and the Company, it being
understood that any portion of such vacation not taken in such year
shall not be available to be taken during any other year.
14. Insurance
14.1 In addition to insurance referenced in Section 6.2,
Employee agrees that the Company or any Subsidiary may apply for and
secure and/or own and/or be the beneficiary of insurance on the
Employee's life or disability insurance (in each instance, in
amounts determined by the Company), and Employee agrees to cooperate
fully in the applying and securing of same, including the submission
to various physical and other examinations and the answering of
questions and furnishing of information as may be required by
various insurance carriers. However, nothing contained herein shall
require the Company to obtain any such life or disability insurance.
15. Miscellaneous
15.1 The Company shall have the right to assign this Agreement
and to delegate all duties and obligations hereunder to any
successor, affiliated or parent company or to any person, firm or
corporation which acquires the Company or substantially all of its
assets, or with or into which the Company may consolidate or merge.
This Agreement shall be binding upon and inure to the benefit of the
permitted successors and assigns of the Company. Employee agrees
that this Agreement is personal to him and may not be assigned by
him.
15.2 This Agreement is being delivered in the State of
Connecticut and shall be construed and enforced in accordance with
the laws of such State applicable to contracts made and fully to be
performed therein, and without any reference to any rules of
conflicts of laws.
15.3 Except as may herein otherwise be provided, all notices,
requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered
personally or if mailed, first class postage prepaid, registered or
certified mail, return receipt requested, or if sent by telecopier
or overnight express delivery service, (a) to Employee at his
address set forth on the facing page hereof or at such other address
as Employee may have notified the Company, sent by registered or
certified mail, return receipt requested, or by telecopier or
overnight express delivery service, or (b) if to the Company, at its
address set forth on the facing page hereof, attention: Office of
the President, or at such other address as the Company may have
notified Employee in writing sent by registered or certified mail,
return receipt requested or by telecopier or overnight express
delivery service, and with a copy to Leavy, Rosensweig & Hyman, 11
East 44th Street, New York, NY 10017 10036 (Attention: David Z.
Rosensweig, Esqs.). Notice shall be deemed given (i) upon personal
delivery, or (ii) on the second business day immediately succeeding
the posting of same, prepaid, in the U.S. mail, (iii) on the date
sent by telecopy if the addressee has compatible receiving equipment
and provided the transmittal is made on a business day during the
hours of 9:00 A.M. to 6:00 P.M. of the receiving party and if sent
on other times, on the immediately succeeding business day, or (iv)
on the first business day immediately succeeding delivery to the
express overnight carrier for the next business day delivery.
15.4 This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
Each party shall deliver such further instruments and take such
further action as may be reasonably requested by the other in order
to carry out the provisions and purposes of this Agreement. This
Agreement represents the entire understanding of the parties with
reference to the transaction set forth herein and neither this
Agreement nor any provision thereof may be modified, discharged or
terminated except by an agreement in writing signed by the party
against whom the enforcement of any waiver, change, discharge or
termination is sought. Any waiver by either party of a breach of
any provision of this Agreement must be in writing and no waiver of
a particular breach shall operate as or be construed as a waiver of
any subsequent breach thereof.
15.5 "Subsidiaries" or "Subsidiary" shall include and mean any
corporation, partnership or other entity 50% or more of the then
issued and outstanding voting stock is owned directly or indirectly
by the Company in the instance of a Corporation, and 50% or more of
the interest in capital or in profits is owned directly or
indirectly by the Company in the instance of a partnership and/or
other entity, or any corporation, partnership, venture or other
entity, the business of which is managed by the Company or any of
its Subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed and have caused
this Agreement to be executed as of the day and year first above
written.
CENTURY COMMUNICATIONS CORP.
By:/s/ Bernard P. Gallagher
Its President
/s/ Daniel E. Gold
Daniel E. Gold
Exhibit 10(ii)
FRANCHISE AGREEMENT
THIS AGREEMENT is made on the day of 1994
BETWEEN: AUSTRALIS MEDIA LIMITED (A.C.N. 059 741 178) of 100 Bulwara
Road, Pyrmont, NSW 2007 (fax number: (02) 325 7322) (the
`Franchisor')
AND: EAST COAST PAY TELEVISION PTY LIMITED (A.C.N. 003 546
272) of 7th Floor, 80 Clarence Street, Sydney, NSW 2000 (fax
number: (02) 290 3322) (the `Franchisee')
INTRODUCTION
A. The Australis Group carries on or will carry on the business
within Australia of Transmitting the Franchisor's Services
containing the Programs using the Delivery Systems.
B. The Franchisor has agreed to grant to the Franchisee and the
Franchisee has agreed to accept from the Franchisor an exclusive
licence and franchise, during the Term and in the Regions, to
permit and require the Franchisee to use the Equipment, the
Franchisor's Subscriber Management System, the Franchisor's
Proprietary Rights, the Franchisor's Delivery System, the
Franchisor's Services and the Programs in the conduct of the
Business on the terms of this Agreement.
NOW IT IS AGREED as follows:
DEFINITIONS
In this Agreement, unless the context shall otherwise require:
`Accounting Period' means each calendar month;
`ACDC' means the Australian Commercial Disputes Centre limited or
other body then carrying on the functions of that company;
`Act' includes any statute and the listing rules of any stock
market of any securities exchange;
`Advertising' means marketing, advertising and promotion of the
Franchisor's Services as envisaged in Clause 16.1;
`Additional Fixed Fee' means an additional fixed fee calculated
on a per Subscriber basis, equal to the actual cost of operating
the Franchisor's Subscriber Management System plus 10% up to a
maximum additional fixed fee of $4.00 per Subscriber and
provided further that the maximum additional fixed fee is
increased for the financial year commencing 1 July 1995 and for
each subsequent financial year by the percentage increase in the
Consumer Price Index (All Groups - Sydney) between that published
in respect of the period immediately prior to the commencement of
the previous financial year and that published in respect of the
period immediately prior to the expiry of the previous financial
year;
`Agreed Costs' means all amounts paid by the Franchisee:
as direct leasing or rental Costs for the Equipment supplied
to Subscribers (where that Equipment is leased or rented by
the Franchisee);
as depreciation (at the lower of 30% per annum and the
highest rate from time to time permitted for such
depreciation under the Income Tax Assessment Act 1936) of
direct purchase costs for the Equipment supplied to
Subscribers (where that Equipment is purchased by the
Franchisee); and
any Taxes (but not more than the amounts recovered from
Subscribers in respect of Taxes);
`Australis' means Australis Media Limited (A.C.N. 059 741 178);
`Australis Group' means the Franchisor and each of its Controlled
Entities from time to time;
`Bank Account' means the bank account designated by the
Franchisee from time to time for the purposes of this Agreement;
`Benefits' means all discounts, rebates, benefits, subsidies,
incentives or returns;
`BSA' means the Broadcasting Services Act 1992;
`Budget' means the plan and budget provided as envisaged in
Clause 6.5;
`Business' means the Franchisee's business of providing to
subscribers any Services;
`Business Day' means a day when trading banks are open for
business in Sydney;
`Business Names' means the business names used from time to time
by the Australis Group which are specified as Business Names by
the Franchisor;
`CAST Code' means the Code of Conduct established from time to
time by the Confederation of Australian Subscription Television;
`Commencement Date', in relation to each Region, means thc
earlier of:
(a) 31 December 1995 or such later date as is 12 months
after commencement by the Franchisor of Transmission in
Australia of not less than 8 English language subscription
television broadcasting services; and
(b) the date on which occurs the last of each of the
following in relation to that Region:
(i) not less than 8 English language subscription
television broadcasting services (being Franchisor's
Services) are made available by the Franchisor to the
Franchisee as envisaged in Clause 14.1(a);
(ii) means of supply as envisaged in Clause 8 of
the Equipment is made available to the Franchisee, in
sufficient quantities to permit commencement of the
Business in that Region; and
(iii) the date 6 months after not less than 8
new MDS Licences covering more than 50% of the number
of occupied private dwellings within that Region are
issued;
`Committee' means the technical and services committee to be
established as envisaged in Clause 11A;
`Compliance Notes' means guidance notes, instructions or
directions prescribed or specified as envisaged in Clause 13.1;
`Confidential Information' means any information concerning,
relating to or used in connection with any Services, any
Equipment, any Subscriber Management System, any Delivery System,
the Programs, the Software, the business of the Franchisor or the
Business including information of every kind concerning or
relating to customers, suppliers, business transactions, business
methods, accounting and marketing techniques, Transmission of any
Services, technical matters, technology, records, forms, charges,
financial affairs, trade secrets and know-how, other than
information which is in the public domain;
`Controlled Entities' means controlled entities and associated or
related companies under the Corporations Law and affiliates;
`Costs' means when incurred by a party, the actual costs incurred
by that party less the value of all Benefits provided to,
received or derived by that party in connection with the act,
matter or thing in respect of which those costs are incurred;
`Delivery System' means any facilities, systems or technology now
existing or developed after the date of this Agreement for the
Transmission of any Services including satellite, MDS, co-axial
cable or fibre optic systems and including any facilities for
originating, compressing, encrypting, Transmitting or repeating
Transmissions;
`derived' has the meaning given to it for the purposes of the
Income Tax Assessment Act 1936;
`ECT Group' means the Franchisee and each of its Controlled
Entities from time to time;
`Equipment' means the subscriber reception equipment specified
from time to time by the Franchisor, including any replacement
subscriber reception equipment specified as being reasonably
required due to changes in available technology;
`Force Majeure' means a circumstance beyond the reasonable
control of a party which occurs without the fault or negligence
of the party affected and includes civil disturbance or
commotion, strikes, acts of God, war, blockade, revolution, riot,
earthquake, flood, storm, tempest, other natural calamities,
technology or equipment failure or malfunction, prolonged
atmospheric interference with Transmission, non-performance of
any obligation by any third party and legal or governmental
enactment, order, requirement or regulation;
`Franchisee Approvals' means any licences, registrations,
approvals or other requirements necessary or desirable (including
from any governmental agency or under any Act) in order to enable
the Franchisee to act as a licensee and franchisee of the
Franchisor, to use any relevant Delivery System, to provide the
Franchisor's Services to Subscribers and to carry on the
Business, during the Term and in the Regions;
`Franchisee Information' means any Confidential Information
created by or for and belonging to the Franchisee including any
information provided to the Franchisor by the Franchisee pursuant
to Clause 6 and including all information relating to any
Subscriber;
`Franchisee Report' means the monthly report envisaged in Clause
6.2;
`Franchisor Approvals' means any licences, registrations,
approvals or other requirements necessary or desirable (including
from any governmental agency or under any Act) in order to enable
the Franchisor to use the Franchisor's Delivery System and to
provide the Franchisor s Services and the Programs, during the
Term and in the Regions;
`Franchisor's Delivery System' means any Delivery System owned
by, licenced to or used by the Australis Group at any time during
the Tenn for the Transmission of the Franchisor's Services for
access in the Regions;
`Franchisor's Proprietary Rights' includes:
(a) the Trade Marks;
(b) Confidential Information other than the Franchisee
Information;
(c) the Business Names;
(d) copyright and other industrial and intellectual
property rights in all materials (including marketing
materials) supplied by the Franchisor to the Franchisee for
or in connection with the Business;
(e) the Compliance Notes; and
(f) subject to this Agreement, any and all other rights,
titles or interests owned by, licenced to or used by the
Australis Group in respect of the Equipment, the
Franchisor's Subscriber Management System, the Franchisor's
Delivery System, the Software, the Program Guide, the
Franchisor's Services and the Programs;
`Franchisor's Services' means, subject to Clause 3.10, the
Services to be Transmitted by or through the Australis Group
during the Term as specified in Schedule Two, together with any
additional Services which are specified as Franchisor's Services
by the Franchisor from time to time;
`Franchisor's Subscriber Management System' means any Subscriber
Management System owned by, licenced to or used by the Australis
Group for or in connection with the Franchisor's Services in
respect of past, present and prospective subscribers;
`Further Term' means any further term for this Agreement as
envisaged in Clause 24;
`governmental agency' includes all governments and municipal
councils, together with all governmental, quasi-governmental,
council or regulatory ministries, departments, bodies, agencies,
instrumentalities, enterprises and authorities, including the
Australian Broadcasting Authority, the Trade Practices Commission
and the Australian Stock Exchange Limited;
`Group Promotion Service' means the marketing, advertising and
promotion service envisaged in Clause 17.1;
`Gross Revenues' means all amounts derived by the Franchisee as
Subscription Fees;
`Heads of Agreement' means:
(a) the Heads of Agreement between Capacity Pty Limited
(now named Australis Media Holdings Pty Limited) and the
Franchisee (formerly named Suldama Pty Limited) dated 9
January 1993;
(b) the Heads of Agreement between thc Franchisee and
Capacity Pty Limited dated 9 April 1993; and
(c) the Heads of Agreement between Capacity Pty Limited and
Bropeta Pty Limited dated 9 January 1993, assigned to the
Franchisee on 27 October 1993 with the consent of Capacity
Pty Limited;
`Initial Period' means, in relation to each Region, the period of
2 years from the Commencement Date in respect of that Region;
`Insurances' means the necessary and prudent insurances envisaged
in Clause 20.1(a);
`MDS' means microwave multipoint distribution systems regulated
under the Radcom Act;
`MDS Licences' means licences for the operation of MDS
Transmitters issued by the Spectrum Management Agency under the
Radcom Act;
`Minimum Subscriber Level' means, in relation to each Region, the
number from time to time equal to the percentage specified in
Schedule Three of occupied private dwellings within the Region to
which the Franchisor's Services can be provided by use of
satellite, MDS or any other existing means of delivery available
to the Franchisee without any material technical impairment;
`Net Revenues', in an Accounting Period, means Gross Revenues
less Agreed Costs;
`Nominated Customers' means up to 10 persons nominated from time
to time by the Franchisee in each Region, to which the
Franchisor's Services may be provided free of charge;
`Option Agreement' means the Option Agreement of the same date as
this Agreement under which the Franchisee grants to the
Franchisor the right to subscribe for Securities in the
Franchisee representing up to 10% of the economic interest of the
Franchisee;
`Other Agreed Fees' means the following costs:
(a) where an amount is incurred or derived by the Australis
Group as a direct Cost arising out of or in connection with
the Transmission of the Franchisor's Services or the
provision of any other related services to Subscribers, the
Cost for the Australis Group servicing thc Subscribers over
and above the cost for the Australis Group servicing all
subscribers (excluding the Subscribers) as calculated in
accordance with generally accepted Australian accounting
principles (for example: bank and government fees and
charges, postage and stationery costs, telephone subsidies
given to subscribers calling any customer support or
customer service centres operated by the Australis Group
throughout Australia, telephone charges incurred in the
performance of customer support, customer service and
related activities (including customer retention
activities), locked bag costs, direct debit, credit card and
other collection charges, cheque dishonour fees and so on);
(b) the Additional Fixed Fee; and
(c) any other amount incurred or derived by the Australis
Group which is notified in advance by the Franchisor to the
Franchisee and in respect of which the prior written consent
of the Franchisee which shall not be unreasonably withheld
has been obtained (provided that if the Franchisee does not
give its consent in respect of the expenditure of any such
amount the Franchisor shall be relieved of its obligations
under this Agreement to make such expenditure);
`Preferred Customers' means the persons nominated by the
Franchisee in each Region with the prior written consent of the
Franchisor which shall not be unreasonably withheld, to which the
Franchisor's Services may be provided at a discount to the
Recommended Subscription Fee as prescribed by the Franchisor;
`Program Fees' means, in Clause 7.1, in respect of all Costs
(including any residuals and delivery costs) incurred in respect
of any Accounting Period by the Australis Group pursuant to
agreements negotiated at arms' length in respect of the licence
to the Australis Group of the rights to supply the Programs in
Australia by means of the Franchisor's Delivery System to
subscribers, the proportion that the number of Subscribers bears
to the total number of subscribers (including the Subscribers) to
the Franchisor's Services throughout Australia (regardless of
whether such Franchisor Services are offered as part of a package
of Franchisor Services or are offered alone to subscribers),
calculated at the end of that Accounting Period and calculated on
a Service by Service basis;
`Program Guide' means the program guide envisaged in Clause 16.6;
`Programs' means the programming, programs and content included
in the Franchisor's Services including cinematograph films and
sound recordings;
`Radcom Act' means the Radiocommunications Act 1992;
`Recommended Subscription Fee' means the amount recommended by
the Franchisor to be charged in each Region by the Franchisee to
Subscribers in respect of the reception of thc Franchisor's
Services and the lease or rental of any Equipment;
`Region' means each of the areas described in Schedule One and
depicted in the plans attached as Exhibits 1;
`Securities' has the meaning given to it in the Corporations Law;
`Services' means:
(a) broadcasting services;
(b) services providing data or text;
(c) services providing telecommunications;
(d) services that make programs available on demand on a
point-to-point basis including a dial-up service;
(e) services providing the Programs (other than the
services referred to in (a), (d), (f), (g) and (h));
(f) interactive services;
(g) pay-per-view services; and
(h) any other services or programming made available by the
Franchisor or the Franchisee to any subscribers on any
Delivery System (not otherwise referred to in (a) to (g)
above);
`Service Fee' means the monthly fee envisaged in Clause 7.1;
`Software' means the computer software designated by the
Franchisor as the software for the Franchisor's Subscriber
Management System, together with any materials, manuals,
operating releases or other associated or additional information;
`Specifications' means the full specifications for the Subscriber
Management System envisaged in Clause 11.1;
`Specified Period' means the period of 2 years after the end of
the Term;
`Subscriber' means a person who enters into a Subscriber Contract
with the Franchisee, for the supply of the Franchisor's Services;
`Subscriber Contract' means the contract between the Franchisee
and each subscriber for the provision of any Services by the
Franchisee in the form prescribed by the Franchisor for use by
the Franchisor and franchisees generally;
`Subscriber Management System' means the procedures and systems
(including any Confidential Information and any Software) for the
management, administration and servicing of subscribers to any
Services, including procedures or systems for:
(a) responding to enquiries from past, present and
prospective subscribers;
(b) taking orders from present and prospective subscribers;
(c) arranging and scheduling installations of Equipment for
prospective subscriber and removals of Equipment from past
subscribers;
(d) entering, retaining, analysing, retrieving and
reporting on all data concerning subscribers;
(e) recording details of Subscriber Contracts;
(d) invoicing subscribers for Subscription Fees and all
other amounts payable by subscribers for or in connection
with any Services;
(e) collecting Subscription Fees and all other amounts
payable by subscribers for or in connection with any
Services;
(f) authorising the installation of Equipment;
(g) depositing Subscription Fees and all other amounts
payable by subscribers for or in connection with any
Services into the Bank Account;
(h) informing the Franchisee of all services or assistance
reasonably requested by subscribers, including in relation
to:
(i) maintenance, repair, servicing and
replacement of Equipment;
(ii) enquiries concerning Programs or Services;
(iii) complaints;
(i) coding all subscribers in Regions as customers of the
Franchisee;
(j) collating information to be contained in Franchisee
Reports and all management information reports in the same
manner and form as produced in relation to the Franchisor's
other subscribers;
(k) encrypting or otherwise restricting access to any
Services; and
(l) providing to the Franchisee particulars of all matters
referred to in Clause 6.2 insofar as they relate to the
Subscribers, cross-referenced to a subscriber identification
number and a Subscriber Contract number;
`Subscription Fees' means all amounts payable by Subscribers
pursuant to Subscriber Contracts in respect of the reception of
the Franchisor's Services and the lease or rental of any
Equipment;
`Taxes' means any sales taxes, goods or services taxes or other
charges, imposts, expenses or duties which, pursuant to any Act
are levied by any governmental agency on Subscribers or the
Franchisee in respect of the provision, delivery or receipt of
the Franchisor's Services and which are charged directly by the
Franchisee to Subscribers;
`Term' means, in relation to each Region, the period commencing
on the date of this Agreement and ending 10 years after the
Commencement Date and includes the Further Term if granted
pursuant to Clause 24;
`Trade Marks' means the trade marks, service marks, logos and
designs used from time to time by the Australis Group in
connection with the Franchisor's Services which are specified as
Trade Marks by the Franchisor;
`Training Program' means the training program to be provided by
the Franchisor as envisaged in Clause 10;
`Transmission' includes provision, delivery, broadcasting,
diffusion, reproduction, supply and performance;
`Valuers' means either:
(a) 2 duly qualified independent persons nominated as
envisaged in Clause 25.8(a); or
(b) 3 duly qualified independent persons being the 2
persons referred to in sub-paragraph (a) above and a third
person nominated as envisaged in Clause 25.9(a);
as the case may be; and
Words defined in the BSA or in the Copyright Act 1968 shall have
the same meaning in this Agreement.
In this Agreement, unless the context shall otherwise require:
words importing the singular shall include the plural and
vice versa;
all sums are payable in Australian dollars;
Clause headings shall be disregarded;
all warranties shall, during the Term, have the force and
effect of conditions;
all warranties, representations and undertakings survive
completion of this Agreement;
the word 'person' means and includes a natural person, a
company, a governmental agency or other authority or
association (incorporated or unincorporated);
references to any party to this Agreement or any other
document or agreement shall include its successors or
permitted substitutes or assigns;
references to any document or agreement (including this
Agreement) include references to such document or agreement
as amended, novated, supplemented or replaced from time to
time;
except where followed directly by the word `only', the terms
`includes' or `including' will mean `includes, but is not
limited to' and `including, but not limited to'
respectively, it being the intention of the parties that any
enumeration after those words is illustrative and not
exhaustive;
references to Clauses, Annexures, Exhibits and Schedules are
references to Clauses of and annexures, exhibits and
schedules to this Agreement;
references to any legislation or to any section or provision
of any legislation include any statutory modification or
reenactment or any substituted statutory provision and all
ordinances, by-laws, regulations and other statutory
documents issued thereunder;
no rule of construction applies to the disadvantage of a
party because that party was responsible for the preparation
of this Agreement or any part of it;
a reference to conduct includes any omission, statement or
undertaking, whether or not in writing; and
if a word is given a certain meaning or interpretation,
words derived from it or from which it is derived will be
given a corresponding meaning.
Any reference in this Agreement to a calculation or payment being
made in respect of a particular number of subscribers (including
Subscribers) from time to time shall be made by reference to the
number of relevant subscribers as at the end of the applicable
Accounting Period.
CAPACITY OF FRANCHISOR AND FRANCHISEE
The Franchisor agrees to procure that each of the persons or
companies in the Australis Group which from time to time has
rights in relation to the Equipment, the Franchisor's Subscriber
Management System, the Franchisor's Proprietary Rights, the
Software, the Programs, the Franchisor's Services or the
Franchisor's Delivery System will make those rights available to
the Franchisor or will otherwise conduct itself so as to enable
the Franchisor to perform and observe its obligations under this
Agreement in accordance with its terms and as if each of the
companies in the Australis Group were bound by the Agreement as
Franchisor.
The Franchisee agrees to procure that each of the persons or
companies in the ECT Group which from time to time has rights in
relation to the Equipment, any Subscriber Management System, the
Software, the Programs, any Services, any Delivery System or any
other matter relevant to this Agreement will make those rights
available to the Franchisee or will otherwise conduct itself so
as to enable the Franchisee to perform and observe its
obligations under this Agreement in accordance with its terms and
as if each of the companies in the ECT Group were bound by the
Agreement as Franchisee.
APPOINTMENT OF FRANCHISEE
The Franchisor grants to the Franchisee and the Franchisee
accepts from the Franchisor, in respect of each Region during the
Term, subject to and on the terms of this Agreement:
a sole and exclusive licence and franchise:
to supply or offer to supply the Franchisor's Services
and the Equipment; and
to Transmit the Franchisor's Services and the Programs;
and
an exclusive licence and franchise;
to use the Franchisor's Proprietary Rights;
to access and use the Franchisor's Delivery Systems;
and
to access and use the Franchisor's Subscriber
Management System including the Software.
Further to Clause 3.1, the Franchisor agrees with the Franchisee
that the Franchisor shall, in each Region throughout the Term,
procure or make available to the Franchisee, on the terms of this
Agreement:
the Franchisor's Services in the manner as envisaged in
Clause 14;
the Programs incorporated into the Franchisor's Services;
access to means of supply of the Equipment requested by the
Franchisee as envisaged in Clause 8;
access to and use of the Franchisor's Delivery System only
for the delivery of Franchisor's Services to Subscribers and
as envisaged in Clauses 5 and 14;
access to and use of the Franchisor's Subscriber Management
System only for the delivery of Franchisor's Services to
Subscribers;
access to the Training Program as envisaged in Clause 10;
a copy of all marketing, advertising and promotion materials
produced or arranged by the Franchisor as envisaged in
Clause 16 and 17;
a Program Guide relating to the Programs available on the
Franchisor's Services as envisaged in Clause 16.6;
at the discretion of the Franchisor, a copy of all material
information (including Confidential Information) owned by
the Franchisor or otherwise in its possession and not liable
to confidentiality obligations to any other person
reasonably requested by the Franchisee to enable the
Franchisee to perform its obligations under this Agreement
or to carry on the Business insofar as it relates to the
Franchisor's Services; and
at the discretion of the Franchisor, all assistance
reasonably requested by the Franchisee in connection with
the supply of the Franchisor's Services to Subscribers;
Provided that the Franchisee shall reimburse to the Franchisor
any Costs incurred by the Franchisor in providing the things
referred to in subparagraphs (h), (i) or (j) of Clause 3.2.
Subject to the terms of this Agreement and except to the extent
any claim, loss or damage is caused by or in connection with any
act, omission or breach by the Franchisor, the Franchisee agrees
to indemnify and hold harmless the Australis Group against and
from any and all claims, losses and damages (including legal fees
on a solicitor and own client basis) arising out of or in
connection with the conduct of the Business by the Franchisee.
The Franchisor agrees that it shall not, except as envisaged in
Clauses 3.7, 3.8, 3.9, 3.10 or 14, Transmit or grant or permit to
be granted to third parties any licence or right to Transmit in
any manner or by any means whatsoever the Programs or the
Franchisor's Services or any Services, during the Term and in the
Regions, and the Franchisor agrees:
except as envisaged in Clauses 3.9 or 3.10, not to procure
any Subscribers within any Region;
not to denigrate or discriminate against (other than in
exercise of its rights under this Agreement) in any manner
whatsoever the Business or the Franchisee (but for the
purposes of this Clause it shall not be regarded as
discrimination if the Franchisor contracts any other
franchise on terms different to this Agreement including in
relation to the Service Fee); and
not to bid for, acquire or seek to acquire MDS Licences in
any Region at any official public auction or other
allocation instigated or run by any governmental agency,
without the prior written consent of the Franchisee or shall
not in competition (such competition to be bona fide) to the
Franchisee acquire or hold any direct or indirect voting or
economic interest in or otherwise have any board or
management control of holders of MDS Licences in any Region
without prior notice to the Franchisee.
The Franchisee acknowledges that the Australis Group may not from
time to time have exclusive rights to Transmit the Programs,
during the Term and in the Regions, but the Franchisor shall
procure that the Australis Group uses its best endeavours to
acquire such exclusive rights.
If, in accordance with the terms of this Agreement and subject
thereto, any person other than the Australis Group Transmits the
Programs or the Franchisor's Services in the Regions during the
Term (whether or not such Transmissions are received by any
person), such Transmissions shall not be a breach by the
Franchisor of this Agreement nor give rise to any obligation on
the Franchisor to pay to the Franchisee any amount in respect of
any subscriptions paid for such Transmissions provided that the
Franchisor is not in breach of Clause 3.4.
Subject to Clause 3.12A, if, at any time during the Term, the
Australis Group intends to commence any Service (not being a
Franchisor's Service) which may be Transmitted in any Region, the
Franchisor shall give notice of that intention to the Franchisee.
The Franchisor and the Franchisee shall then attempt to negotiate
in good faith a basis on which the Franchisee would acquire the
sole and exclusive licence and franchise for that Service, during
the Term and in each relevant Region. If agreement cannot be
reached between the parties with respect to those matters within
60 days of first notice to the Franchisee, the Franchisor may
specify in an offer terms on which it would be prepared to grant
to the Franchisee the sole and exclusive licence and franchise
for that Service, during the Term and in each relevant Region.
The Franchisee may accept that offer at any time within a further
60 days. If the Franchisee does not accept that offer, the
Franchisor shall be free to supply that Service in each relevant
Region to any other person or by itself on terms no more
favourable than those offered to the Franchisee. In those
circumstances, the Franchisor will be entitled to Transmit that
Service to Subscribers for reception using the Equipment supplied
to those Subscribers as envisaged in this Agreement at no cost to
the Franchisor. If the Franchisee has the right to Transmit a
Service in any Region pursuant to this Clause, the Franchisee
shall, within 15 months from the date of expiry of the period in
which the offer referred to in this Clause could have been
accepted, either:
commence the provision of that Service to its Subscribers;
or
subject to the Franchisor's prior written consent, enter
into a sublicence agreement with a third party for the
provision of that Service in the Regions.
Subject to Clause 3.12A and to Clause 3.7(b) above, this Clause
shall not limit in any way the right of the Australis Group to
commence and operate as a principal and not through a franchise
any Service in Australia, other than in any Region.
If, at any time during the Term, the ECT Group intends to
commence a Service as envisaged in Clause 5.2(x), which may be
Transmitted outside the Regions, the Franchisee shall give notice
of that intention to the Franchisor. The Franchisor and the
Franchisee shall then attempt to negotiate in good faith a basis
on which the Franchisor may acquire the sole and exclusive
licence for that Service during the Term outside the Regions
throughout Australia. If agreement cannot be reached between the
parties with respect to those matters within 60 days of first
notice to the Franchisor, the Franchisee may specify in an offer
terms on which it would be prepared to grant to the Franchisor
the right to acquire the sole and exclusive licence for that
Service during the Term outside the Regions throughout Australia.
The Franchisor may accept that offer at any time within a further
60 days (extended by any time reasonably required by the
Franchisor to obtain necessary approvals from any governmental
agency). If the Franchisor does not accept that offer, the
Franchisee shall be free to supply that Service outside the
Regions throughout Australia to any other person on terms no more
favourable to that person than those offered to the Franchisor.
The Franchisor will consider in good faith permitting the
Franchisee to use the Franchisor's Subscriber Management System
in respect of the Service on reasonable commercial terms, in
respect of subscribers both in and outside the Regions. If the
Franchisor has the right to Transmit a Service outside the
Regions under this Clause 3.8 the Franchisor may, at its sole
discretion enter into a sublicence agreement with a third party
for the provision of that Service outside of the Regions.
Subject to Clause 3.15, if:
the Franchisee does not commence the Transmission of any of
the Franchisor's Services to Subscribers in any Region
within 3 months of the Commencement Date; or
within the period of 4 years from the Commencement Date in
respect of any Region, the Franchisee fails to achieve the
Minimum Subscriber Levels required by Clause 5.2(b);
the Franchisor may, by notice to the Franchisee, terminate the
rights of the Franchisee under this Agreement in respect of that
Region. In the event of any such termination, the provisions of
Clauses 25.6 to 25.11 shall apply mutatis mutandis in respect of
the termination of this Agreement in respect of that Region.
Further, in that event, the Franchisor shall be free to Transmit
the Franchisor's Services and the Programs in the relevant Region
during the Term, including to past Subscribers, or to grant or
permit to be granted to third parties a licence or right to
Transmit in any manner or by any means whatsoever the Programs
and the Franchisor's Services in the relevant Region during the
Term, including to any past Subscribers.
Subject to Cause 3.15, if:
the Franchisee (or a sublicensee appointed pursuant to
Clause 3.12) does not commence the Transmission of any
particular 1 or more of the Franchisor's Services in any
Region within 3 months of the Commencement Date or, in
respect of a Franchisor's Service specified as envisaged in
Clause 3.12, within 15 months of being so specified; or
having commenced Transmission of the Franchisor's Services
in a Region, the Franchisee discontinues such Transmissions
for more than 60 hours in the aggregate during any 1 month
period;
the Franchisor may, by notice to the Franchisee, terminate the
rights of the Franchisee under this Agreement in respect of that
Franchisor's Service in respect of that Region. Further, in that
event, the Franchisor shall be free to Transmit that Franchisor's
Service and the relevant Programs in the relevant Region during
the Term, including to past Subscribers, or to grant or permit to
be granted to third parties a licence or right to Transmit in any
manner or by any means whatsoever the relevant Programs and that
Franchisor's Service in the relevant Region during the Term,
including to any past Subscribers. In no event shall the
Franchisee be liable to the Franchisor for any sublicensee
discontinuing or failing to commence the Transmission of any
Franchisor's Service.
Notwithstanding any other provision of this Agreement, the
Franchisor and the Franchisee agree that this Agreement shall be
deemed to be a separate and independent agreement in relation to
each Region and, without limiting the generality of the
foregoing, any breach by the Franchisee of this Agreement in
relation to a Region shall not affect the Franchisee's rights or
entitlements in connection with any other Region.
If at any time after the date of this Agreement the Franchisor
gives the Franchisee notice that a Service is specified as a
Franchisor's Service, the Franchisee shall, within 15 months from
the date of the notice in each Region, either:
commence the provision of that Franchisor's Service to its
Subscribers; or
subject to the Franchisor's prior written consent, enter
into a sublicence agreement with a third party for the
provision of that Franchisor's Service in the Regions.
3.12A The Franchisor agrees to specify as a Franchisor's Service
each Service Transmitted by the Australis Group from time to time
in respect of which the Australis Group has Transmission rights
in the Regions and which are subscription television broadcasting
services, subscription radio broadcasting services, subscription
television narrowcasting services or subscription radio
narrowcast services (including any pay-per-view or pay per-listen
services).
3.12B Subject to this Agreement, the Franchisor shall not tease
the supply of any Franchisor's Service to the Franchisee if the
same Franchisor's Service is provided by the Franchisor anywhere
in Australia.
Both parties acknowledge that they may not be able to prevent,
and are not responsible or liable for, persons, not being
Subscribers, pirating, receiving or Transmitting the Franchisor's
Transmissions within the Regions during the Term without the
Franchisee's or the Franchisor's consent. However, both parties
agree to use their best endeavours to prevent all pirating within
the Regions.
If at any time the Franchisee refuses to procure any particular
subscriber in any Region, area or suburb without good and
reasonable cause as required by Clause 5.2(q), the Franchisor may
(but shall not be obliged to) procure that subscriber in that
Region, area or suburb, in which case that subscriber or those
subscribers shall be deemed for all purposes to be customers of
the Franchisor notwithstanding any other Clause in this
Agreement.
Notwithstanding any other provision of this Agreement, the
Franchisor shall not be entitled to terminate this Agreement or
to exercise any other right of termination (including pursuant to
Clauses 3.9 or 3.10) if the Franchisee pays to the Franchisor
when due the Service Fee calculated on the basis that the Minimum
Subscriber Level has been achieved or maintained, notwithstanding
that, in fact, the Franchisee may not have achieved or maintained
the Minimum Subscriber Level in any Region.
APPROVALS
The Franchisee shall:
do all things lawfully necessary to seek and obtain all
Franchisee Approvals within the times required in order for
the Franchisee to perform this Agreement;
obtain and pay for and upon request provide copies to the
Franchisor of all Franchisee Approvals;
ensure that all Franchisee Approvals are kept current during
the Term; and
notify the Franchisor promptly and in any event within 2
Business Days if any Franchisee Approval or other
authorisation which is essential to the conduct of the
Business is repealed, revoked or terminated or expires or is
modified or amended in any manner;
Provided that nothing in this Agreement shall oblige the
Franchisee to acquire any MDS Licences or any Delivery System.
The Franchisor shall at the Franchisee's cost give all reasonable
assistance necessary to enable the Franchisee to obtain all
Franchisee Approvals, including to enable the Franchisee (if
required by law to do so) to obtain and maintain licences under
thc BSA.
The Franchisor shall:
do all things lawfully necessary to seek and obtain all
Franchisor Approvals within the times required in order for
the Franchisor to perform this Agreement;
obtain and pay for and provide copies to the Franchisee of
all Franchisor Approvals;
ensure that all Franchisor Approvals are kept current during
the Term; and
notify the Franchisee promptly and in any event within 2
Business Days if any Franchisor Approval or other
authorisation which is essential to the conduct of the
Business is repealed, revoked or terminated or expires or is
modified or amended in any manner.
The Franchisee shall at the Franchisor's cost give all reasonable
assistance necessary to enable the Franchisor to obtain all
Franchisor Approvals, including to enable the Franchisor to
obtain and maintain licences under the BSA.
CONDUCT OF BUSINESS
During the Term and in each of the Regions, the Franchisee shall
at all times diligently carry on the Business (including
complying with all of its obligations under Clause 5.2) with all
due care and skill and as vigorously, competitively, profitably
and efficiently as possible.
In accordance with this Agreement, the Franchisee shall:
at all times ensure that at least 1 of its directors devotes
his or her full time to the conduct of the Business;
at all times in each Region use its best endeavours to
achieve and maintain the requisite Minimum Subscriber Level;
at all times use its best endeavours to procure Subscribers
in the Regions for the Franchisor's Services;
at all times refer to the Franchisor any prospective
subscribers for the Franchisor's Services outside of the
Regions of which the Franchisee becomes aware;
at all times provide the Franchisor's Services to the
Nominated Customers and the Preferred Customers on the terms
prescribed by the Franchisor;
at all times contract Subscribers (including Nominated
Customers and Preferred Customers) on the terms of the
prescribed Subscriber Contract;
at all times maintain and operate the Bank Account;
on a regular basis as reasonably prescribed by the
Franchisor carry out Advertising and distribute to all
Subscribers a Program Guide;
at all times use the Business Names and the Trade Marks in
connection with the Franchisor's Services as reasonably
prescribed by the Franchisor rh, but not otherwise;
at all times use its best endeavours to provide all of the
Franchisor's Services in each Region, using all Delivery
Systems owned by, licenced to or used by the Franchisee;
at any time, if the Franchisee is unable to provide all of
the Franchisor's Services in any Region, provide only those
Franchisor's Services nominated by the Franchisor in that
Region which shall be (subject to any restrictions on the
Franchisor under any agreement or arrangement with any third
party), the most popular;
at all times Transmit the Franchisor's Services to
Subscribers in their entirety and without interruption, on
the dates and at the times scheduled by the Franchisor;
subject to the Franchisor's delivery of the signal in
accordance with Clause 14, at all times ensure that all
Transmissions originated by the Franchisee have (subject to
receipt from the Franchisor of a signal which permits the
same) a signal quality in the reasonable opinion of the
Franchisor technically equal to or superior to free to air
television in each Region;
at all times hold and deposit into the Bank Account moneys
received from Subscribers properly and promptly and in any
event within 2 Business Days;
at all times comply with all applicable laws and all
conditions and requirements imposed by any governmental
agency or under any Act (including all foreign ownership
requirements imposed by any Act); and
at all times comply with the Compliance Notes and the
reasonable requirements of any CAST Code;
and the Franchisee shall not:
at any time refuse to procure any particular subscriber or
subscribers generally in any Region, area or suburb without
good and reasonable cause;
at any time procure any subscribers outside of the Regions
for the Franchisor's Services;
at any time vary any Subscriber Contract without the prior
written consent of the Franchisor;
subject to the law, at any time charge more or less than the
Recommended Subscription Fee in respect of the reception of
the Franchisor's Services and the lease or rental of any
Equipment;
subject to the law, at any time charge more or less than the
fee recommended by the Franchisor in respect of the purchase
of any Equipment or the provision of the Program Guide or
any other matter;
at any time without the prior written consent of the
Franchisor which shall not be unreasonably withheld, sell,
market or promote the Franchisor's Services with any other
Services;
at any time add to, edit or in any way interfere with the
Franchisor's Services in the form in which they are provided
by the Franchisor to the Franchisee for delivery to
Subscribers;
at any time without the prior written consent of the
Franchisor which shall not be unreasonably withheld Transmit
other Services;
at any time without the prior written consent of the
Franchisor which shall not be unreasonably withheld acquire
or hold any direct or indirect economic or voting interest
in or otherwise have board or management control of any
other franchise granted by the Australis Group or by any
person associated or affiliated with the holder of any
satellite subscription television broadcasting licence; and
at any time without the prior written consent of the
Franchisor which shall not be unreasonably withheld acquire
or hold any direct or indirect economic or voting interest
in or otherwise have board or management control of any
owner or licensee of any Services, any Delivery System or
any Subscriber Management System;
provided however that the Franchisee may:
subject to the BSA, to limitations imposed in the
Franchisor's agreements with third party suppliers of
Programs or Services and to the reasonable requirements of
any CAST Code, insert up to 4 minutes per hour of
advertising or programming per Service into the Franchisor's
Services (the revenue from which shall remain the sole
property of the Franchisee); and
use its own business names, brand names or marks in
connection with the Business as envisaged in Clause 12.
Subject to the terms of this Agreement and except to the extent
that any claim, loss or damage is caused by or in connection with
any act, omission or breach of this Agreement by the Franchisor,
the Franchisee agrees to indemnify and hold harmless the
Australis Group against and from any and all claims, losses and
damages (including legal fees on a solicitor and own client
basis) arising out of or in connection with any breach by the
Franchisee of its obligations under this Agreement including its
particular obligations under Clauses 5.1 and 5.2.
The Franchisor has given no warranty or guarantee as to the
performance or potential performance of the Business or any
benefits which might flow to the Franchisee from carrying on the
Business.
The Franchisee and the Franchisor will co-operate in good faith
to facilitate the use by the Franchisee of any sub-carrier
capacity accessible to the Australis Group which may not be in
use or proposed for use by the Australis Group at any particular
time for the purpose of enabling the Franchisee to operate,
manage and control the Business provided that any arrangements
shall be at no cost to the Franchisor, shall not result in any
loss of revenues by the Australis Group and shall be terminable
on a minimum of 60 days' written notice by the Australis Group.
REPORTS AND RECORDS
The Franchisee shall:
keep complete and proper books and records of all moneys
received and expended, all assets acquired, arising or
disposed of and all liabilities incurred, reduced or
released in connection with the Business;
ensure that those books and records are prepared in
accordance with the requirements of the Corporations Law and
generally accepted Australian accounting principles;
ensure that those books and records show a true and fair
view of all transactions and the financial and contractual
position of the Franchisee and, where applicable, the
Franchisor with respect to the Business;
appropriately organise and store all invoices, timesheets,
bank statements, accounts, agreements and other documents
relating to the Business; and
prior to the establishment of books and records in respect
of the Business, consult with and obtain the prior written
consent of the Franchisor or its auditors as to the form of
those books and records.
Subject to Clause 6.6, the Franchisee shall deliver to the
Franchisor within 14 days after the last day of each Accounting
Period during the Term a report in a form reasonably required by
the Franchisor and duly completed and signed by or on behalf of
the Franchisee. Such report shall, unless otherwise specified by
the Franchisor, show the following information on a Regional and
consolidated (all Regions) basis:
in respect of the Accounting Period:
particulars of subscriber penetrations (including the
numbers, names, addresses and selected payment options
of all new Subscribers, the numbers, names, addresses
and rates of discount of all Nominated Customers and
Preferred Customers and the numbers, names, addresses
and reasons of all persons whose subscriptions have
been terminated or cancelled);
particulars of distribution capacity acquisition and
distribution infrastructure roll-out;
particulars of Subscription Fees (including any
increases or decreases);
particulars of amounts charged as installation costs to
new Subscribers (including any increases or decreases);
particulars of amounts charged as service or
maintenance fees to any Subscribers;
particulars of all other amounts charged to any
Subscribers;
particulars of all service or maintenance calls and all
complaints;
particulars of any action taken and of any enquiries
made by any governmental agency in respect of the
Business and of the outcome of that action or those
enquiries;
particulars of all Gross Revenues, Agreed Expenses and
Net Revenues;
particulars of the Service Fee paid and/or payable; and
particulars of the Other Agreed Fees paid and/or
payable (within the knowledge of the Franchisee);
in respect of the Accounting Period, but by direct
comparison to the immediately preceding Accounting Period
and, in relation to the matters in paragraphs (i) to (iv),
by direct comparison to the forecast for the immediately
succeeding Accounting Period:
numbers of new Subscribers;
numbers of subscriptions terminated or cancelled;
numbers of total Subscribers;
numbers of total Subscribers to other Services
Transmitted by the Franchisee (on a Service by Service
basis);
numbers of service or maintenance calls;
numbers of complaints;
details of performance against the requisite Minimum
Subscriber Levels in each Region:
amounts of Gross Revenues, Agreed Costs, Net Revenues
and a calculation of the Service Fee paid and/or
payable;
amounts of the Other Agreed Fees paid and/or payable
(within the knowledge of the Franchisee); and
particulars of performance against the Budget;
in respect of the period from the commencement of the
current financial year to the end of the Accounting Period:
numbers of new Subscribers;
numbers of subscriptions terminated or cancelled;
numbers of total Subscribers;
numbers of total Subscribers to other Services
Transmitted by the Franchisee (on a Service by Service
basis);
details of performance against the requisite Minimum
Subscriber Levels in each Region;
amounts of Gross Revenues, Agreed Costs, Net Revenue
and a calculation of the Service Fee paid and/or
payable;
amounts of the Other Agreed Fees paid and/or payable
(within the knowledge of the Franchisee); and
particulars of performance against the Budget; and
such other information reasonably prescribed by the
Franchisor in connection with the Franchisee's performance
of this Agreement (including information from time to time
required to be provided to a third party under any
agreement).
Without limiting the generality of Clause 6.2 and subject to
Clause 6.6, the Franchisee shall:
deliver to the Franchisor within 14 days after the last day
of each calendar quarter a quarterly statement of Gross
Revenues, Agreed Costs, Net Revenues and Other Agreed Fees
prepared in accordance with the requirements of the
Corporations Law and generally accepted Australian
accounting principles;
deliver to the Franchisor as soon as available but not later
than 75 days after 30 June of each year an audited annual
report for the previous 12 month period stating numbers of
new and total Subscribers, amounts of Gross Revenues, Agreed
Costs, Net Revenues and Other Agreed Fees and a calculation
of the Service Fee payable compared to the Service Fee paid,
together with such other information reasonably prescribed
by the Franchisor in connection with the Franchisee's
performance of this Agreement, prepared in accordance with
the requirements of Clause 6.1; and
provide to the Franchisor such other reports in form and
substance as shall be reasonably specified from time to time
by the Franchisor.
The Franchisee:
shall give to the Franchisor on request such information and
copies of such documents in relation to its financial
condition or the Business as the Franchisor may reasonably
request;
shall provide the Franchisor and its nominees on request
with unrestricted access to all books, records, statements
and documents maintained or kept by the Franchisee in
connection with the Business and this Agreement including
books, records, statements and documents stored in
computerised form;
shall give to the Franchisor and its nominees on request the
further right to conduct or supervise a physical inspection
of the Business premises and any other premises used by the
Franchisee in connection with the Business;
shall fully co-operate with representatives of the
Franchisor making, conducting, supervising or observing any
inspection under this Clause provided that the inspection
shall not interfere with the normal operation of the
Business;
shall, on notification that the Business does not meet the
specifications, standards and requirements of the
Franchisor, correct such deficiencies within a reasonable
time;
shall give to the Franchisor and its auditors the right at
any time during normal business hours, with prior notice to
the Franchisee, to audit or cause to be audited the books,
records, statements and documents which the Franchisee is
required to permit the Franchisor access to under this
Clause or which the Franchisee is required to maintain under
Clause 6.1; and
shall fully co-operate with the Franchisor or its auditors
conducting any audit and, if any audit should disclose an
understatement of Gross Revenues or Net Revenues for any
period, the Franchisee shall pay to the Franchisor within 10
Business Days after receipt of the audit report, any amount
due as the amount of such understatement and, if any audit
should disclose an understatement of at least 5% of total
Gross Revenues or Net Revenues, the Franchisee shall also
pay to the Franchisor within 10 Business Days after receipt
of the audit report, the cost of such audit;
provided that in each case the Franchisor shall give the
Franchisee not less than 5 Business Days' written notice of any
proposed inspection or audit. Any inspection or audit shall take
place during normal business hours on a Business Day and not more
than once during any 6 month period.
By no later than 1 November 1994 in respect of the 1994-95
financial year, and at least 30 days prior to the commencement of
each new financial year thereafter during the Term, the
Franchisee shall prepare and provide to the Franchisor an annual
income and expenditure budget and marketing plan (`the Budget')
in the form reasonably required by the Franchisor and taking into
account all relevant cost implications in relation to all
Compliance Notes. The Budget shall, unless otherwise specified
by the Franchisor, show the following information on a Regional
and consolidated (all Regions) basis:
in respect of the relevant financial year:
particulars of prospective subscriber penetrations;
particulars of distribution capacity acquisition and
distribution infrastructure roll-out;
estimates of Gross Revenues, Agreed Costs, Net Revenues
and Other Agreed Fees; and
an estimate of the Service Fee payable based on the
estimates in paragraph (iii); and
in respect of the relevant financial year:
particulars of proposed marketing, advertising and
promotion expenditures; and
particulars of proposed marketing, advertising and
promotion strategies.
The Franchisee shall use its best endeavours to comply in all
respects with the Budget.
The Franchisor shall assist thc Franchisee in obtaining all
information or documents required by this Cause 6, to the extent
that such information or documents are in the possession of or
under the control of the Franchisor. Any period of time referred
to in this Clause 6 shall be extended by the period of any delay
in the Franchisor providing to the Franchisee any information or
documents under the control of or in the possession of the
Franchisor.
SERVICE FEE
During the Term, the Franchisee shall pay to the Franchisor a fee
calculated as the higher of:
35% of Net Revenues in respect of all Regions in respect of
each Accounting Period; and
after the Initial Period, 35% of Net Revenues which would
have been earned (deeming there to be no increase in Agreed
Expenses) had the Franchisee complied with Clause 5.2(b) in
respect of all Regions in respect of each Accounting Period;
provided that if from time to time:
the Franchisor has provided to the Franchisee a written
statement of the Program Fees in respect of the Accounting
Period referred to in paragraphs (a) and (b);
a director or the chief executive officer of the Franchisor
has certified that the Franchisor has not received any
Benefits that have not been taken into account for the
purposes of that written statement in determining the
Program Fees; and
the Program Fees specified in the written statement are in
excess of the fee calculated in accordance with paragraphs
(a) and (b);
the Franchisee must pay to the Franchisor an additional fee equal
to that excess in respect of each relevant Accounting Period, to
a maximum of an additional 15% of Net Revenues.
For the purpose of calculating the Service Fee payable under
Clause 7.1, Agreed Costs may be deducted from or set off against
Gross Revenues in the same or other Regions.
The Franchisee shall pay to the Franchisor the Service Fee in
accordance with this Clause. In respect of the first and second
Accounting Periods in respect of which a payment is required to
be made to the Franchisor as envisaged in Clause 7.1, the
Franchisee shall make that payment to the Franchisor at the same
time as providing to the Franchisor the relevant Franchisee
Report, but in any event not later than 14 days after the last
day of the relevant Accounting Period. In respect of each
Accounting Period after the second Accounting Period in respect
of which a payment is required to be made to the Franchisor as
envisaged in Clause 7.1, the following procedure shall apply:
subject to any deduction which the Franchisee is entitled to
make under paragraph (b)(ii), not later than the first
Business Day of the relevant Accounting Period, the
Franchisee shall pay to the Franchisor, as an instalment of
the Service Fee, an amount equal to the Service Fee payable
by the Franchisee to the Franchisor in the next to last
Accounting Period (in respect of which the relevant
Franchisee Report should have been delivered to the
Franchisor by the 14th day of the last Accounting Period);
and
at the same time as providing to the Franchisor the relevant
Franchisee Report:
where the amount paid by the Franchisee to the
Franchisor under paragraph (a) is less than the amount
of the Service Fee for the relevant Accounting Period
calculated as envisaged in Clause 7.1, the Franchisee
shall pay to the Franchisor the amount of the
shortfall; or
where the amount paid by the Franchisee to the
Franchisor under paragraph (a) is not less than the
amount of the Service Fee for the relevant Accounting
Period calculated as envisaged in Clause 7.1, the
Franchisee shall notify the Franchisor that it shall
make a deduction equal to the overpayment from the
amount payable to the Franchisor under paragraph (a) in
the next subsequent Accounting Period and the
Franchisee shall be entitled to make that deduction.
At the same time as providing to the Franchisor the audited
annual report envisaged in Clause 6.3(b), but in any event within
60 days after 30 June of each year:
where the amount paid by the Franchisee to the Franchisor in
respect of the 12 month period to 30 June is less than the
amount of the Service Fee calculated as payable in the
audited annual report, the Franchisee shall pay to the
Franchisor the amount of the shortfall; or
where the amount paid by the Franchisee to the Franchisor in
respect of the 12 month period to 30 June is not less than
the amount of the Service Fee calculated as payable in the
audited annual report, the Franchisee shall request a
repayment from the Franchisor equal to the overpayment and
the Franchisor shall, subject to its rights in Clause 6.4,
repay an amount equal to the overpayment within 14 days
after that request from the Franchisee.
If the Franchisee fails to pay to the Franchisor any moneys
(other than any amounts bona fide in dispute or amounts not able
to be calculated accurately on the otherwise due date) payable
under this Agreement on the due date, including as envisaged in
Clauses 7.3 and 7.6, the Franchisee shall pay to the Franchisor
interest at the rate per annum equal to 4% above the overdraft
rate for amounts in excess of $100,000 charged to the Franchisor
from time to time by its bankers, accruing on a daily basis on
the amount of such moneys from time to time outstanding for the
period commencing on the date on which payment was first due and
ending on the date on which the Franchisor receives payment of
such moneys, such interest to be payable on demand from the
Franchisor.
Fees payable to the Franchisor in respect of pay-per-view
Services, and other Services not forming part of the Franchisor's
Services, shall be negotiated separately by the parties in
accordance with Clause 3.7 and are not included in the Service
Fee.
During the Term, the Franchisee shall pay to the Franchisor all
Other Agreed Fees in accordance with this Clause 7.6, in addition
to the Service Fee payable from time to time. In respect of the
first and second Accounting Periods the Franchisee shall pay the
Additional Fixed Fee to the Franchisor at the same time as
providing to the Franchisor the relevant Franchisee Report, but
in any event not later than 14 days after the last day of the
relevant Accounting Period. In respect of each Accounting Period
after the second Accounting Period the following procedure shall
apply:
subject to any deduction which the Franchisee is entitled to
make under paragraph (b)(ii), not later than the first
Business Day of the relevant Accounting Period, the
Franchisee shall pay to the Franchisor, as an instalment of
the Additional Fixed Fee, an amount equal to the Additional
Fixed Fee payable by the Franchisee to the Franchisor in the
next to last Accounting Period (in respect of which the
relevant Franchisee Report should have been delivered to the
Franchisor by the 14th day of the last Accounting Period);
and
at the same time as providing to the Franchisor the relevant
Franchisee report:
where the amount paid by the Franchisee to the
Franchisor under paragraph (a) is less than the amount
of the Additional Fixed Fee for the relevant Accounting
Period and/or where the Franchisor has provided 14
days' prior notice that the actual costs of operating
the Franchisor's Subscriber Management System in a
previous Accounting Period exceeded the Additional
Fixed Fee paid in that Accounting Period, the
Franchisee shall pay to the Franchisor the amount of
that shortfall (which in the case of the Additional
Fixed Fee will not exceed $4.00 per Subscriber or such
maximum Additional Fixed Fee as is applicable); or
where the amount paid by the Franchisee to the
Franchisor under paragraph (a) is not less than the
amount of the Additional Fixed Fee for the relevant
Accounting Period the Franchisee shall notify the
Franchisor that he shall make a deduction equal to the
overpayment from the amount payable to the Franchisor
under paragraph (a) in the next subsequent Accounting
Period and the Franchisee shall be entitled to make
that deduction.
At the same time as providing to the Franchisor the audited
annual report envisaged in Clause 6.3(b), but in any event within
60 days after 30 June of each year:
where the amount paid by the Franchisee to the Franchisor in
respect of the 12 month period to 30 June is less than the
amount of the Additional Fixed Fee calculated as payable in
the audited annual report, the Franchisee shall pay to the
Franchisor the amount of the shortfall; or
where the amount paid by the Franchisee to the Franchisor in
respect of the 12 month period to 30 June is not less than
the amount of the Additional Fixed Fee calculated as payable
in the audited annual report, the Franchisee shall request a
repayment from the Franchisor equal to the overpayment and
the Franchisor shall, subject to its rights in Clause 6.4,
repay an amount equal to the overpayment within 14 days
after that request from the Franchisee.
The Franchisee shall from time to time pay to the Franchisor any
Other Agreed Fees (other than Additional Fixed Fees which are
payable as provided above) within 14 Business Days after the
Franchisor has provided to the Franchisee a written statement of
any Other Agreed Fees supported, where appropriate, by copies of
invoices. The Franchisor may provide such a written statement to
the Franchisee at any time.
Each of the Franchisor and the Franchisee shall use their best
endeavours to collect Subscription Fees and all other amounts
charged to any Subscribers on a timely basis. If any Subscriber
falls into arrears, the Franchisor shall, at the request of the
Franchisee, disconnect that Subscriber from receiving the
Franchisor's Services in the Regions. The Service Fee payable to
the Franchisor shall not be affected by any bad or doubtful debts
due from Subscribers except to the extent provided for or
permitted by the underlying Program agreements.
All revenues received by the Franchisor or the Franchisee as
Subscription Fees, as payments for the Program Guide or as other
Gross Revenues shall be deposited (without diversion or deduction
other than for payment of applicable bank and government fees and
charges) into the Bank Account.
The Franchisee shall procure that financial support is obtained
in accordance with this Clause 7.9. Upon the Franchisor's
written request but not before 1 November 1994, the Franchisee
shall procure the provision by a reputable financial institution
acceptable to the Franchisor of any additional credit support
including letters of credit (in a form and substance similar to
that required of the Franchisor) in respect of an amount equal to
the Pro Rata Share (as defined below) of any such credit given or
procured by the Australis Group to third parties in respect of
the supply of Programs. The Pro Rata Share is the proportion
that the Minimum Subscriber Level bears to the total number of
occupied private dwellings within Australia (including the
Regions) to which the Franchisor's Services can be provided by
use of satellite, MDS or any other existing means of delivery
available to the Franchisor without any material technical
impairment, calculated at the date of the Franchisor's request.
The Franchisee shall have the right during and for a period of 1
year after the Term to inspect and to audit or cause to be
audited the books, records, statements and documents which the
Australis Group maintain for the purposes of verifying the
Franchisor's determinations and calculations of Program Fees and
Other Agreed Fees. The Franchisee shall give the Franchisor not
less than 5 Business Days' written notice of any proposed
inspection or audit. Any inspection or audit shall take place
during normal business hours on Business Days and not more than
once during any 6 month period. The costs of any audit shall be
paid by the Franchisee except if the Franchisee's auditors find
that the amounts actually due by the Franchisee under this
Agreement for Program Fees or Other Agreed Fees in respect of the
Accounting Periods under review are overstated by an amount in
excess of 5% of the amounts claimed by the Franchisor as due in
respect of those Program Fees or Other Agreed Fees in which event
the Franchisor shall pay the costs of the audit within 10
Business Days after receipt of the audit report. Any amounts
found to have been overpaid by the Franchisee to the Franchisor
by the Franchisee's auditors shall be reimbursed by the
Franchisor to the Franchisee within 14 days.
EQUIPMENT
The Franchisor shall use its best endeavours to procure the
supply to the Franchisee of:
the same Equipment as is available to the Franchisor;
at the same price as is available to the Franchisor;
subject to minimum and maximum order volumes, and to normal
order delays, at the same delivery times as are available to
the Franchisor;
subject to the evaluation by the relevant financier of the
circumstances of the Franchisee (including credit worthiness
and security provision) with the same financing arrangements
as are available to the Franchisor;
with the same warranties and guarantees from the
manufacturers or suppliers as are available to the
Franchisor in respect of the Equipment.
Subject to Clause 8.3, the Franchisee shall have the absolute
discretion to decide whether it will purchase, lease or rent the
Equipment, if available subject to the requirements of the
relevant manufacturer or supplier and financier of the Equipment.
The Franchisee shall not obtain any Equipment from any person
other than the Franchisor or its nominee, so long as the
Equipment is made available to the Franchisee in accordance with
subparagraphs (a), (b), (d) and (e) of Clause 8.1 and are
available for delivery at times reasonably required by the
Franchisee.
The Franchisee shall maintain the Equipment in accordance with
the manufacturer's standards.
The Franchisee shall notify the Franchisor immediately of any
defect or malfunction in the Equipment or of any factor causing
of threatening damage or destruction of the Equipment which will
or is likely to result in interruption or delay of any Service to
Subscribers. In the event of interruption of any of the
Franchisor's Services to Subscribers by reason of the Equipment
malfunctioning or failing, the Franchisee shall promptly and in
any event within 2 Business Days notify the Franchisor and both
parties shall use their best endeavours to locate and install
emergency alternative Equipment (at no cost to the Franchisor
and, where reasonably practicable, at the cost of the Equipment
supplier or manufacturer) to ensure continuous supply of the
Franchisor's Services to Subscribers.
RISK
Risk of loss of or damage to any Equipment ordered or purchased
by the Franchisee shall be borne by the Franchisee at all times.
TRAINING
Subject to Clause 10.4, the Franchisor will conduct Training
Programs to which the nominated employees, agents, contractors
and subcontractors of the Franchisee will be invited during the
Term. The Training Program shall from time to time encompass the
operation, maintenance and use of the Equipment, the Franchisor's
Delivery System, the Franchisor's Subscriber Management System,
the Franchisor's Services and the Software, together with general
business, computer, sales and other techniques involved in
relation to the conduct of the Business, and be of sufficient
standard and frequency to provide the skills and understanding
necessary or desirable to carry on the Business in a businesslike
manner throughout the Term.
The Franchisee shall ensure that its nominated employees, agents,
contractors and subcontractors attend and complete the Training
Program.
The Training Program shall be at locations and for durations as
are reasonably convenient to the Franchisee's nominated
employees, agents, contractors and subcontractors. Sydney shall
be deemed to be a convenient location for this purpose.
The costs of travel, accommodation and meals required by the
Franchisee or its nominated employees, agents, contractors and
subcontractors in attending any such Training Program shall be
borne by the Franchisee. All additional costs of arranging and
conducting the Training Program shall be estimated by the
Franchisor and provided to the Franchisee for approval. Where
any particular costs are not approved by the Franchisee, the
Franchisor shall not be obliged to undertake the relevant action
giving rise to those costs. Otherwise, any such additional costs
shall be borne by the Franchisor and the Franchisee as agreed
between them.
SUBSCRIBER MANAGEMENT SYSTEM
The Franchisee shall use the Franchisor's Subscriber Management
System.
During and, subject to Clause 25, after the Term, all persons
receiving the Franchisor's Services in the Regions shall be
deemed to be Subscribers of the Franchisee and coded in the
Subscriber Management System as such. During and, subject to
Clause 25, after the Term, all data or information concerning the
Subscribers in the Subscriber Management System shall be
Franchisee Information.
The Franchisor shall act as the agent of the Franchisee in
relation to the invoicing and the co-ordination of the collection
of Subscription Fees. All transactions with Subscribers shall
identify the Franchisee in a form and manner reasonably approved
by the Franchisee.
For the Service Fee and the payment of the Other Agreed Fees the
Franchisee shall be entitled to use without any additional cost
the Franchisor's customer support and customer service centres
and to refer the Franchisee's subscribers to those centres for
assistance. However, at its cost the Franchisee shall be
entitled to establish its own customer support and customer
service centres in Regions.
The Franchisee shall not:
use the Software for any purpose other than to operate the
Business in accordance with this Agreement;
sell, rent, lease, lend, sub-licence, transfer or otherwise
dispose of the Subscriber Management System or the Software,
any associated documents, user manuals or operating
releases;
alter, decompile, disassemble or reverse engineer the
Software;
remove or obscure any copyright or trade mark on the
Software;
copy, duplicate or otherwise reproduce the Software;
permit any person to do anything which the Franchisee is not
entitled to do under the provisions of this Agreement; or
infringe any rights of any person in the Software.
The Franchisor's Subscriber Management System will at all times
during the Term perform and do each of those things referred to
in the definition of `Subscriber Management System' in Clause 1.1
of this Agreement in a businesslike manner.
11A. TECHNICAL AND SERVICES COMMITTEE
The Franchisor shall establish a consultative technical and
services committee (`Committee') which will consist of
representatives of the Franchisor, the Franchisee and of each of
the Franchisor's franchisees. Each of the Franchisor and the
Franchisee shall be entitled to nominate one representative to
participate in the Committee which will meet on a regular basis
which in any event shall not be less than once each calendar
quarter. The purpose of the Committee is to exchange views and
information on the Equipment, the Franchisor's Subscriber
Management Service, the Program Guide and on any other matter
which relates to the franchises granted by the Franchisor to the
franchisees and the common interests of each of thc Franchisor
and the franchisees. The Franchisor agrees to give views
expressed and information provided by, and recommendations of,
the Committee due consideration but the Franchisor shall not bc
bound to comply with or act in accordance with any recommendation
or decision of the Committee.
BUSINESS NAMES
The Franchisor agrees to permit the Franchisee to use the
Business Names during the currency of this Agreement. For this
purpose, the Franchisor shall give such consent as is required to
enable the Franchisee to become a registered proprietor or user
of the Business Names in the Regions.
The Franchisee shall display in a prominent manner signs bearing
the relevant Business Name outside each place where the Business
is conducted and at least 1 indoor sign shall also prominently
bear, in lettering of a size and type approved by the Franchisor,
a statement to the effect that the Business is independently
owned and operated by the Franchisee.
The form, design, colour, text and manner of use of the Business
Names on letterhead paper, invoices and other stationery and
documents, in advertising, on signs and in all other ways shall
be subject to the prior written consent of the Franchisor.
The Franchisee shall ensure that all documents bearing the
Business Names shall also bear a statement to the effect that the
Business is independently owned and operated by the Franchisee.
The Franchisee is entitled to use its own business names, brand
names or marks in connection with the Business, but not:
in identifying the Franchisor's Services or the Programs as
its own;
to denigrate or otherwise to bring into disrepute in any
manner whatsoever the Franchisor's Services, the Programs or
the Franchisor; and
in any manner which would or may in the reasonable opinion
of the Franchisor adversely impact the reaction of any
person (including past, present and prospective Subscribers)
to the Franchisor's Services, the Programs or the
Franchisor.
COMPLIANCE NOTES
From time to time during the Term, the Franchisor may prescribe
or specify to the Franchisee guidance notes, instructions or
directions in respect of the carrying on of the Business in
connection with the Franchisor's Services under this Agreement
including regarding accounting, computer operation, Equipment
installation, operation and maintenance, Delivery System
operation and maintenance, the Software, the Franchisor's
Subscriber Management System, technical and operational know-how,
marketing and sales.
The Franchisee shall comply with all requirements and standards
set out in the Compliance Notes as if they were set out in full
in this Agreement provided that, to the extent of any
inconsistency (other than Cause 32.3), this Agreement shall
prevail.
Notwithstanding any other Cause of this Agreement, any procedures
or requirements specified or to be specified in the Compliance
Notes:
shall be reasonable and appropriate having regard to the
Franchisor's Services;
will as far as reasonably practicable be prescribed to
ensure consistent practices by the Franchisor and all
franchisees of the Franchisor;
may be amended by the Franchisee with the prior written
consent of the Franchisor which shall not be unreasonably
withheld to take account of any local circumstances in a
Region; and
shall not be more onerous in its effects on the Franchisee
than on any other franchisee of the Franchisor or on the
Franchisor acting in its capacity as a principal providing
Franchisor's Services.
SERVICE DELIVERY TO FRANCHISEE
The Franchisor shall procure that the Franchisor's Services are
made available, as scheduled by the program supplier, by means of
a broadcast quality signal comprising the Franchisor's Services:
by satellite within the relevant satellite footprint; and
by means other than satellite, at any place selected by the
Franchisee from which the Franchisor's Services are
Transmitted to subscribers, provided that the Franchisee
shall pay all costs (including any necessary deposits or
capital payments) of Transmitting the Franchisor's Services
from that place to any Region.
The Franchisor may, in its absolute discretion, vary the Programs
in the Franchisor's Services provided that the variations apply
to the Franchisor's Services throughout Australia.
The Franchisee shall maintain and service the Equipment and
receive the Franchisor's Services from the Franchisor efficiently
and in a safe and proper environment to ensure the effective
Transmission of the Franchisor's Services to Subscribers.
Subject to Clause 29, if the Franchisor is unable to provide the
Franchisor's Services to the Franchisee for a period of up to 2
hours of scheduled programming in any day for any reason, there
shall be no breach of this Agreement and the Franchisee shall be
entitled to make no claim on the Franchisor for that interruption
of Transmission.
WARRANTIES
The Franchisor warrants to the Franchisee that:
it has full right and power to make and perform this
Agreement;
it owns or is the licensee of all rights of every kind and
character necessary or desirable to enable the Franchisor to
grant to the Franchisee the rights and benefits referred to
in this Agreement and to enable the Franchisee to exercise
any enjoy those rights and benefits without requiring any
further licence or authority from any other person;
the use of the Franchisor's Services and the Programs by the
Franchisee as contemplated in this Agreement will not:
infringe the copyright of any person or constitute any
tort, breach of contract of breach of law; and
will not give rise to any actions for defamation or
invasion of privacy of any person;
the Franchisor will obtain and maintain in good standing all
Franchisor Approvals necessary or desirable to enable the
Franchisor to perform this Agreement and to grant to the
Franchisee the rights and benefits referred to in this
Agreement;
the Programs will comply with the BSA;
the Franchisor's Services will contain identical Programs
throughout Australia (other than advertising, station
promotions, programming times, permitted local content
insertions and other materials prescribed by the
Franchisor);
the Franchisor will refer to the Franchisee any prospective
Subscribers of which the Franchisor becomes aware; and
the Franchisor shall, in respect of all Programs, all
Franchisor's Services and the Franchisor's Delivery System,
use its best endeavours to obtain Transmission rights in
each of the Regions.
The Franchisee warrants to the Franchisor that:
it has full right and power to make and perform this
Agreement; and
the Franchisee will (if required by law or a governmental
agency to do so) obtain and maintain in good standing all
Franchisee Approvals.
The Franchisor agrees to indemnify and hold harmless the
Franchisee against and from any and all claims, losses and
damages (including legal fees on a solicitor and own client
basis) arising out of or in connection with any breach by the
Franchisor of its obligations under this Agreement.
ADVERTISING BY FRANCHISEE
The Franchisee shall undertake for its own account and at its own
cost marketing, advertising and promotion of the Franchisor's
Services, during the Term and throughout the Regions.
The Franchisee may also undertake for its own account and at its
own cost marketing, advertising and promotion of the Business
(including other Services Transmitted by the Franchisee).
The Franchisee shall use the Franchisor's marketing, advertising
and promotion materials in any Advertising where prescribed by
the Franchisor, but in addition may use its own advertising,
marketing and promotion materials.
The Franchisee may use the Business Names and the Trade Marks in
any Advertising.
The Franchisee shall, subject to this Agreement:
devote its best endeavours towards increasing the number of
Subscribers to the Franchisor's Services;
not, in any Advertising, make any representation or give any
warranty with respect to the Franchisor's Services or the
Franchisor other than those which are authorised in writing
by the Franchisor; and
not hold out any additional Services Transmitted by the
Franchisee as the Franchisor's Services.
If a program guide (`Program Guide') is prescribed by the
Franchisor for use by the Franchisee, the Franchisee shall use
its best endeavours to sell that Program Guide to Subscribers at
the recommended retail price (if any). The Franchisee may insert
into the Program Guide (by way of insertion, supplement or
wraparound) details of other Services Transmitted by the
Franchisee and other information, advertising and materials
authorized by the Franchisor, but may not otherwise add to,
delete from or change the form or substance of the prescribed
Program Guide. The revenue from such insertions shall remain the
sole property of the Franchisee. The Franchisor shall procure
that the prescribed Program Guide is made available to the
Franchisee at the same Cost incurred by the Franchisor being the
Costs incurred in the production and printing of the Program
Guide.
16A. FRANCHISOR'S ADVERTISING REVENUE
Subject only to Clauses 5.2(aa) and 16.6, the Franchisee
acknowledges that all advertising revenues derived from the sale
of advertising in respect of the Programs, the Franchisor's
Services and the Program Guide (other than revenue from
advertising procured by the Franchisee and contained in the
Franchisee's insertion, supplement or wrap-around, which revenue
remains the property of the Franchisee) is solely the property of
the Franchisor and the Franchisee has no interest in our claim
over such advertising revenue.
PROMOTION BY FRANCHISOR
Subject to Clause 17.4, the Franchisor shall provide a marketing,
advertising and promotion service in respect of the Franchisor's
Services and the Franchisor's Delivery System in Australia for
the benefit of the Franchisee and other franchisees of the
Franchisor.
The Group Promotion Service shall:
be under the control of the Franchisor; and
encompass local, provincial, statewide and nationwide
marketing, advertising and promotion materials.
Subject to Clause 17.4, all advertising, marketing or promotion
envisaged in Clause 17 and referring specifically to the Regions
shall make reference to the Franchisee if reference is made to
any particular franchisee.
The Franchisee may contribute towards the Group Promotion Service
an annual levy prescribed by the Franchisor (which shall be the
Pro Rata Share (as defined in Clause 7.9) of the contribution of
the Franchisor). Any such contribution shall be made on demand
and in advance. If the Franchisee elects not to make such
contribution, the Franchisor shall be relieved of its obligations
under Clause 17.
CONFIDENTIALITY
The Franchisee undertakes to the Franchisor to maintain in
confidence the terms of this Agreement and all Confidential
Information disclosed to it under or in connection with this
Agreement and to take reasonable precautions to ensure that its
employees, agents, contractors, subcontractors, sublicensees,
accountants, solicitors and other advisers keep this information
confidential.
The Franchisor undertakes to the Franchisee to maintain in
confidence the terms of this Agreement and all Franchisee
Information disclosed to it under or in connection with this
Agreement and to take reasonable precautions to ensure that its
employees, agents, contractors, subcontractors, sublicensees,
accountants, solicitors and other advisers keep this information
confidential.
The Franchisee shall not use or attempt to use any Confidential
Information for its own purposes (other than in connection with
the Business) or for the purposes of any person other than the
Franchisor.
The Franchisor shall not use or attempt to use any Franchisee
Information for its own purposes or for the purposes of any
person other than the Franchisee.
Nothing in this Clause 18 shall prevent a party from:
disclosing information in any manner required by law or in
accordance with a requirement of a governmental agency;
disclosing information in confidence to that party's
bankers, accountants, solicitors or other advisers for the
purpose of obtaining advice or in relation to their work
with respect to that party;
disclosing information in respect of a Subscriber, to that
Subscriber in the day-to-day operation of the respective
business of the Franchisor and the Franchisee or at that
Subscriber's reasonable request or direction;
disclosing or providing for use of information in respect of
Subscribers to third party program suppliers where required
under any agreement with that third party; or
disclosing information which is in or enters the public
domain other than through breach of this Agreement;
The Franchisor agrees to use its best endeavours to include as a
term in all agreements with third party program suppliers that
any Franchisee Information disclosed to that program supplier
will not be used in any manner except for confirming the
Franchisor's compliance with the relevant agreement.
FRANCHISOR'S PROPRIETARY RIGHTS
The rights granted by this Agreement to use the Franchisor's
Proprietary Rights and to conduct the Business are:
for the duration only of the Term;
subject to the provisions of this Agreement;
for the purposes of the conduct of the Business only; and
not capable of assignment to or use by other persons except
as provided in this Agreement.
If, at any time, the Franchisor has registered or has lodged an
application for registration of a Business Name or Trade Mark,
the Franchisor and the Franchisee shall enter into an appropriate
agreement authorising the Franchisee to use the Business Name or
Trade Mark, during the Term and in the Regions, in such form as
the Franchisor reasonably requires. If there is any
inconsistency between any such agreement and this Agreement, this
Agreement shall prevail.
Any and all of the Franchisor's Proprietary Rights are and remain
the sole property of the Franchisor. The Franchisee shall not in
any way question, claim or dispute the Franchisor's Proprietary
Rights or the ownership thereof.
The Franchisee shall promptly and in any event within 2 Business
Days notify the Franchisor of any and all apparent infringements
of the Franchisor's Proprietary Rights, any Franchisor Approvals
or any Act relevant to the Franchisor's Services by third parties
which come to the notice of the Franchisee. The Franchisor shall
have the sole right to determine whether:
any action shall be brought, maintained, compromised or
disposed of in respect of any infringement; and
the Franchisee shall be joined in such action at the cost of
the Franchisor. The Franchisee shall co-operate in the
conduct of any action brought by the Franchisor to the full
extent reasonably requested by the Franchisor.
If any action for or claim of infringement or alleged
infringement of the Franchisor's Proprietary Rights, any
Franchisor Approvals, any Franchisee Approvals or any Act
relevant to the Franchisor's Services is brought or threatened by
a third party against the Franchisee, the Franchisee shall
promptly and in any event within 2 Business Days notify the
Franchisor of the pending action, claim or alleged infringement.
The Franchisor shall have the sole right to control any
subsequent litigation relating to that action, claim or alleged
infringement. The Franchisee shall co-operate in the conduct of
any such litigation to the full extent reasonably requested by
the Franchisor, at the cost of the Franchisor.
Unless otherwise agreed in writing by the Franchisor, the
Franchisee shall not, during the Term or after the expiration,
termination or assignment of this Agreement, use or adopt any
name, trade name, trading style or commercial designation which
incorporates any of the Business Names or Trade Marks, or words
or symbols contained in them.
The Franchisor shall:
indemnify and keep the Franchisee indemnified from any
claims and any costs (including legal fees and
disbursements) incurred in connection thereto) made against
the Franchisee arising out of the right to trade under the
Business Names and the Trade Marks, arising out of the use
or enjoyment by the Franchisee in accordance with this
Agreement of the Franchisor's Proprietary Rights or arising
out of any action or claim in respect of the Franchisor's
Proprietary Rights or any Franchisor's Approvals whether
such claims are successful against the Franchisee or not;
and
subject to its discretions in Clauses 19.4, 16.1 and 19.5,
promptly and in any event within 2 Business Days take all
reasonable steps it considers necessary in order to protect
the Business Names and Trade Marks from being infringed by
any third party.
INSURANCES
Each party may:
maintain and keep in force during the Term all necessary and
prudent insurances to a prudent level of cover including
adequate employer indemnity (including any insurance which
that party is required to effect pursuant to any workers
compensation or similar legislation), Equipment, motor
vehicle, professional indemnity, defamation, property
replacement, public liability, product liability, fire,
theft and burglary;
ensure that all policies of Insurance name the other party
as an additional named insured; and
promptly and in any event within 2 Business Days pay all
premiums on each policy of Insurance as they become due and
payable;
Provided that if a party fails to obtain insurance in accordance
with this Clause 20.1, that party shall be solely responsible for
the losses or damages which would have been covered by insurance
in accordance with this Clause.
The Franchisee shall provide to the Franchisor:
a copy of each policy or a certificate of currency of each
policy of Insurance and any other relevant information
thereto from time to time as specified by the Franchisor;
and
30 days' written notice prior to the termination or
cancellation of any policy of Insurance.
The Franchisor or its nominees may inspect the Franchisee's
insurance file at the Franchisee's principal business premises at
any time on reasonable notice.
ASSIGNMENT
The Franchisee may not assign this Agreement without the prior
written consent of the Franchisor which shall not be unreasonably
withheld (if the Franchisee is not in breach of this Agreement
and the proposed assignee is in the opinion of the Franchisor of
sufficient standing with sufficient business experience, aptitude
and financial resources to own and operate the Business in
accordance with this Agreement and in co-operation with the
Franchisor).
Unless shares in the Franchisee are listed on a stock market or
any securities exchange in Australia, the United States of
America or the United Kingdom for the time being, the Franchisee
shall not without the prior written consent of the Franchisor
which shall not be unreasonably withheld issue or permit the
transfer of any of its Securities in any manner which has or may
have the effect of directly or indirectly altering the effective
control of the Franchisee or which has or may have the effect
that the shareholders of the Franchisee at the date of this
Agreement will hold or control less than 51% of the voting rights
in the capital of the Franchisee.
The Franchisor may not assign this Agreement without the prior
written consent of the Franchisee which shall not be unreasonably
withheld provided that the Franchisor is not in breach of this
Agreement and the proposed assignee is, in the opinion of the
Franchisee, capable of performing this Agreement.
Clauses 21.1 and 21.3 shall not prohibit the assignment of this
Agreement by either party to a Controlled Entity of that party,
where that Controlled Entity assumes the obligations of the party
under this Agreement.
CODES OF PRACTICE
To the full extent permitted by law, the Franchising Code of
Practice is expressly negatived and shall not apply to this
Agreement or the respective obligations of the parties under it.
Subject to this Agreement, each party agrees to comply at all
times with any CAST Code.
RESOLUTION OF DISPUTES
Subject to Clauses 23.2 and 23.5, any dispute, controversy or
claim arising out of or in connection with this Agreement shall
be settled by mediation administered by the ACDC and the
following provisions shall apply:
the mediation shall be conducted at Sydney;
the mediator shall be selected by the Franchisor and the
Franchisee from a panel of mediators nominated by the ACDC
and, failing agreement within 14 days as to a mediator, by
the Secretary-General for the time being of the ACDC; and
each of the parties shall be entitled to be represented by 1
duly qualified legal practitioner or other representative in
addition to an executive of the party whether legally
qualified or not.
If the dispute, controversy or claim is not resolved by mediation
pursuant to Clause 23.1 within 21 days of the appointment of the
mediator (or such longer period as is agreed between the
Franchisor and the Franchisee) either party may refer the
dispute, controversy or claim to arbitration administered by the
ACDC and the following provisions shall apply:
the arbitration shall be conducted at Sydney;
subject to Clause 23.2(e), the arbitration shall be
conducted in accordance with the current Rules for the
Conduct of Commercial Arbitrations issued by the Institute
of Arbitrators Australia;
the arbitrator shall be selected by the Franchisor and the
Franchisee from a panel of arbitrators nominated by the ACDC
and, failing agreement within 14 days as to an arbitrator,
by the Secretary-General for the time being of the ACDC (the
arbitrator shall be a person other than the mediator who has
conducted the mediation pursuant to Clause 23.1);
each of the parties shall be entitled to be represented by 1
duly qualified legal practitioner or other representative in
addition to an executive of the party whether legally
qualified or not; and
examination of witnesses by the parties and by the
arbitrator shall be permitted, but compliance with the rules
of evidence shall not be required.
The costs of any mediation pursuant to Clause 23.1 or arbitration
pursuant to Clause 23.2 shall be borne equally by the Franchisor
and the Franchisee, who shall also each bear their own costs.
A party proposing to exercise its rights under Clause 23.1 shall
promptly and in any event within 2 Business Days notify the other
in accordance with the terms of this Agreement.
Clause 23.1 shall not apply to any dispute:
arising after this Agreement has expired or has been
rescinded or terminated;
concerning whether this Agreement has been validly rescinded
or terminated (including the determination of whether or not
an Event of Default has occurred); or
where a party is seeking an injunction or other equitable
relief to prevent the other from breaching any provision of
this Agreement.
RENEWAL OF TERM
If:
the Franchisee desires to take a renewed licence and
franchise in respect of the Franchisor's Services in respect
of the Regions for a further term of 10 years;
the Franchisee not later than the date falling 6 months
prior to the last day of the Term gives to the Franchisor
written notice of the Franchisee's desire to take a renewed
Franchise for the Further Term;
on the date of the renewal notice under Clause 24.1(b) and
on the last day of the Term the Franchisee is not in breach
of this Agreement and the Franchisor has not given written
notice of that breach to the Franchisee (or if such breach
is capable of remedy and is not remedied within a reasonable
time following the giving of such notice);
the Franchisee has duly and punctually paid the Service Fee
and all other amounts due to the Franchisor under this
Agreement during the Term; and
the Franchisee has paid the Service Fees in accordance with
this Agreement;
the Franchisor, at the Franchisee's cost, shall grant to the
Franchisee a renewal of this Agreement for the further term of 10
years, subject to the terms provided for in Clause 24.2.
The agreement for the Further Term shall contain the same terms
as are contained in this Agreement, subject to the following:
appropriate amendments to the commencement date and term in
those Clauses which refer to Commencement Date and Term; and
with the exception of the Further Term set out in Clause
24.1.
TERMINATION OF AGREEMENT
The occurrence of any of the following is an Event of Default
under this Agreement in relation to the relevant Region:
a breach of a material term of this Agreement;
without limiting the generality of Clause 25.1, Clause 3.9
applies in respect of at least 2 Regions;
without limiting the generality of Clause 25.1, the
Franchisee fails to comply with any applicable law or any
condition or requirement imposed by any governmental agency
or under any Act (including any foreign ownership
requirement imposed by any Act);
the Franchisee failed to rectify any Event of Default or any
breach of this Agreement within the requisite period of
notice from the Franchisor to the Franchisee as envisaged in
Clause 25.2;
any material representation, warranty or statement made by
the Franchisee to the Franchisor becomes untrue or
inaccurate, irrespective of whether the Franchisee has
disclosed this to the Franchisor,
an order is made for the winding up or dissolution of the
Franchisee or a resolution is passed for the winding up or
dissolution of the Franchisee other than for the purposes of
a reconstruction or amalgamation on terms approved by the
Franchisor,
a receiver or receiver and manager, official manager,
administrator, trustee or similar officer is appointed over
all of the assets or undertaking of the Franchisee;
any mortgage, charge, encumbrance or other security interest
over any of the assets of the Franchisee is enforced;
a distress, attachment or other execution is levied or
enforced on or against any asset of the Franchisee;
the Franchisee ceases to carry on its Business;
the Franchisee is unable to pay its debts as and when they
fall due or is deemed unable to pay its debts under any
applicable legislation (other than as a result of a failure
to pay a debt or claim which is the subject of a good faith
dispute);
the Franchisee enters into or resolves to enter into any
arrangement, composition or compromise with or assignment
for the benefit of its creditors generally or any class of
its creditors or proceedings are commenced to sanction any
such arrangement, composition or compromise other than for
the purposes of a reconstruction or amalgamation on terms
approved by the Franchisor;
any Franchisee Approval or other authorisation which is
essential to the conduct of the Business in its totality is
repealed, revoked or terminated or expires or is modified or
amended in such a manner as to prohibit delivery of the
Franchisor's Services to Subscribers on the terms of this
Agreement, and is not replaced by another sufficient
authorisation;
the Franchisee is in breach of a material term of the Option
Agreement; and
any other event or series of events, whether related or not,
occurs (including any material adverse change in the
business, assets or financial condition of the Franchisee)
which in the reasonable opinion of the Franchisor would
materially and adversely affect the ability of the
Franchisee to comply with all of any of its material
obligations under this Agreement.
If an Event of Default or other breach of this Agreement occurs
the Franchisor may (but is not obliged to) issue a notice in
writing to the Franchisee requiring the Franchisee to rectify:
an Event of Default specified in Clause 25.1(a) and 25.1(k)
within 7 days of the notice;
an Event of Default specified in Clause 25.1(c) within 21
days of the notice or within the requisite period of notice
given by the applicable governmental agency or prescribed
under the applicable Act, whichever is the earlier, or
an Event of Default specified in Clauses 25.1(b), 25.1(e),
25.1(n), 25.1(o) or other breach of this Agreement within 21
days of the notice.
If an Event of Default specified in Clauses 25.1(d), 25.1(f),
25.1(g), 25.1(h), 25.1(i), 25.1(j) or 25.1(m) occurs or the
Franchisee fails to rectify any other Event of Default within the
applicable time specified in Clause 25.2, the Franchisor may, by
notice in writing to the Franchisee, terminate this Agreement and
the Franchisee's rights under this Agreement in relation to the
relevant Region or Regions.
The Franchisor may terminate this Agreement to the extent that
any Franchisor Approval or other authorisation which is essential
to the delivery of the Franchisor's Services to the Franchisee
and the performance of the Franchisor's obligations under this
Agreement is repealed, revoked or terminated or expires or is
modified or amended in such a manner as to prohibit the
Franchisor's delivery of the Franchisor's Services to the
Franchisee or the performance of the Franchisor's obligations
under this Agreement, and is not replaced by another sufficient
authorisation.
Termination, expiration or assignment of this Agreement by any
means whatsoever shall have no effect on the provisions of Clause
25.6, on the liability for damages or otherwise of any party for
breach of this Agreement, on the obligation of any party or for
payment of moneys due under this Agreement or on any provision,
express or implied, which is intended to survive the termination,
expiration or assignment of this Agreement.
On termination or expiration (other than at the end of the
Further Term) of this Agreement then, in relation to each
relevant Region:
all rights of the Franchisee pursuant to this Agreement
shall terminate including with respect to the Franchisor's
Services and the Programs;
the Franchisee shall execute all documents and do all acts
and things as may be necessary or required by the Franchisor
in order more effectually to vest in and to secure to the
Franchisor the rights granted to the Franchisee but
terminated under this Agreement (including to return to the
Franchisor full title in and registered ownership of the
Business Names and the Trade Marks);
the Franchisee shall discontinue the use of all the
Franchisor's Proprietary Rights;
the Franchisee shall confirm in writing to the Franchisor
that use of the Franchisor's Proprietary Rights has been
discontinued;
subject to paragraph (g), the Franchisee shall deliver to
the Franchisor or, at the Franchisor's request, destroy in
the Franchisor's or its nominee's presence, all advertising,
signs and other items bearing the Business Names and Trade
Marks and all documents and other materials under the
control of the Franchisee which contain the Confidential
Information or the Franchisor's Proprietary Rights or which
otherwise relate to the Franchisor's Services;
the Franchisee shall retain all business records (including
ledgers, sales reports, accounts and cheques) for at least 6
years (or such longer period as may be required by law) and
shall keep the Franchisor advised of the location of such
records;
the Franchisee shall pay all amounts owing to the Franchisor
on demand;
the Franchisee shall provide all reports and records and
permit access and audit as required under Clause 6 and make
all payments due under Clause 7 (as and when payable) during
the Specified Period as if this Agreement had not been
terminated, expired or assigned;
the Franchisee shall not be entitled to supply the
Franchisor's Services or the Programs to the Subscribers,
nor to use the Franchisor's Delivery System;
the Franchisor shall have a lien over and shall be entitled
to retain in its possession all of the Franchisee's assets
in its possession in the event that there are amounts owing
to the Franchisor by the Franchisee or where an Event of
Default has occurred and has not been remedied by Court
order or judgment or otherwise except that the foregoing
shall not apply if an action or proceeding has been
commenced only in relation to the items referred to in
Clause 23.5;
without limiting the generality of any other Clause of this
Agreement, Clauses 18, 19.6, 25.5 to 25.12 and 26 shall
survive termination, expiration or assignment of this
Agreement;
the Franchisee shall notify all Subscribers of the
termination, expiration or assignment of this Agreement in
the form prescribed by the Franchisor; and
the Franchisor shall deliver to the Franchisee all things,
documents and other all materials under the control of the
Franchisor which form part of the Franchisee's Information.
After termination pursuant to Clause 25.3 or expiration of the
Term, in respect of all Regions, the Franchisor shall have an
option to purchase from the Franchisee, at the discretion of the
Franchisor, all (but not part only) of the assets of the Business
which relate to the provision of Franchisor's Services (which
shall be determined by the Franchisor at its sole discretion) and
which are owned and used by the Franchisee in the performance of
its obligations under this Agreement (`the Offered Assets'). For
this purpose, immediately after termination or expiration of this
Agreement, the Franchisee shall or, in default, the Franchisor
may (but is not obliged to) obtain valuations in accordance with
Clause 25.8 of all of the Offered Assets. Such valuations shall
be obtained by the Franchisee and provided to the Franchisor
within 30 days after termination or expiration of this Agreement.
The Franchisor shall have 60 days from receipt of the valuations
in which to exercise its option under this Clause 25.7. The
option shall be exercised by the Franchisor in accordance with
Clause 25.9.
The valuations envisaged in Clause 25.7 shall be obtained as
follows:
within 3 Business Days of termination or expiration of this
Agreement, the Franchisor and the Franchisee shall each
nominate a duly qualified independent person to provide a
valuation of the Offered Assets;
within 3 Business Days of termination or expiration of this
Agreement, the Franchisee shall provide to the Franchisor a
list of all Offered Assets which it in good faith determines
are Offered Assets (which the Franchisor shall be entitled
to verify as complete using its rights under Clause 6) and
if the Franchisee fails to provide such a list within the
time specified, the Franchisor may select certain (and not
all) of the Franchisee's assets and despite clause 25.7 such
assets shall be deemed to be Offered Assets;
within 5 Business Days of termination or expiration of this
Agreement, the Franchisee shall or, in default, the
Franchisor may (but shall not be obliged to) provide to the
Valuers the verified list of Offered Assets provided by the
Franchisee, together with instructions in accordance with
paragraph (d) on the conduct of the valuation;
the Valuers shall be instructed as follows:
each valuation shall, as far as possible, be prepared
independently of the other;
each valuation shall separately identify the value
attributed to each Offered Asset or, where more
appropriate in the opinion of each Valuer, each class
of Offered Asset;
each valuation shall be made of the price at which all
the Offered Assets might reasonably be expected to be
sold on the day immediately preceding termination or
expiry of this Agreement assuming:
a willing, but not anxious, buyer and seller;
a reasonable period within which to negotiate the
sale, having regard to the nature and situation of
the asset or class of asset and the state of the
market for assets of the same kind;
the Offered Assets are reasonably exposed to the
relevant market;
no account is taken of the value or other
advantage or benefit, additional to market value,
to the buyer incidental to ownership of the asset
being valued;
(D) the Franchisee has sufficient
resources to allow a reasonable period for the
exposure of the Offered Assets for sale; and
a goodwill component may (in appropriate
circumstances) be attached to the value of the
Offered Assets;
each valuation shall be completed as soon as reasonable
practicable and, in any event, within 21 days of
instructions being given to the relevant Valuer;
if the relevant Valuer requires any additional
information, the relevant Valuer should promptly and in
any event within 2 Business Days request it from the
Franchisee with a copy to the Franchisor;
the Valuers shall each act as an independent expert,
not as an arbitrator;
the costs of the Valuers shall be borne equally by the
Franchisee and the Franchisor; and
in all other respects, each Valuer shall decide what
procedures shall be followed in order to establish and
complete the respective valuations of the assets;
at all times the Franchisee and the Franchisor shall provide
all information and assistance reasonably requested by the
Valuers on a timely basis to enable the Valuers to provide
the valuations within the time period envisaged in Clause
25.7;
on receipt of the valuations from the Valuers, the
Franchisee shall provide the valuations to the Franchisor;
on receipt of the accounts from the Valuers, the Franchisee
and Franchisor shall each pay half of the costs of the
Valuer in preparing the valuations; and
the valuations provided by the Valuers shall be conclusive
and final and binding on the parties (except in the case of
manifest error).
The option provided to the Franchisor in Clause 25.7 may be
exercised in respect of all (but not part only) of the Offered
Assets. The exercise price shall be the average of the 2
valuations obtained under Clause 25.8 except that if the
discrepancy between the valuations obtained from the 2 Valuers
appointed under Clause 25.8(a) is greater than 20% of the
average:
the 2 Valuers shall appoint a third duly qualified
independent person to provide a valuation of the Offered
Assets;
the third Valuer will provide a valuation in all respects in
accordance with and on the same terms as specified in Clause
25.8 including Clause 25.8(h); and
the exercise price shall be the average of the 3 valuations
obtained in accordance with Clause 25.8.
The option may be exercised by the Franchisor by notice to the
Franchisee given at any time during the period envisaged in
Clause 25.7. the notice shall specify:
the Offered Assets of the Business which the Franchisor
wishes to purchase from the Franchisee (being the entire
verified list of assets envisaged in Clause 25.8(c)); and
the exercise price to be paid by the Franchisor in respect
of the exercise of the option; and
the date, time and place at which completion of the purchase
shall take place, in which respect the date shall be a date
not less than 14 days or more than 30 days after the date on
which the notice of exercise is given to the Franchisee.
At completion, the Franchisee shall deliver the assets the
subject of the purchase, together with all title and other
incidental documents, against payment by bank cheque of the
exercise price in respect of the assets. The Franchisee warrants
to the Franchisor as at completion that it has absolute and
unencumbered title to the assets subject to the purchase. The
Franchisee undertakes to assist the Franchisor to minimise stamp
duty on the purchase of the assets as required by the Franchisor
and as lawfully permitted (including by the sale of companies
holding assets rather than by sale of the assets themselves).
At the same time as exercising the option envisaged in Clauses
25.7 to 25.9, the Franchisee shall assign to the Franchisor any
leases, licences or other rights in respect of any real or
personal property used by the Franchisee in the performance of
its obligations under this Agreement (including any MDS Licences)
which the Franchisor requests the Franchisee to assign, subject
to the requirements of any lessor, licensor or other person and
to the law. Where it is not possible for such leases, licences
or other rights to be assigned to the Franchisor, the Franchisee
shall use its best endeavours to procure that the benefit of such
leases, licences or other rights requested by the Franchisor are
made available to the Franchisor to the fullest extent possible.
For the purposes of enabling the Franchisor to determine which
leases, licences or other rights it may elect to require the
Franchisee to assign to it, the Franchisee shall provide
particulars of all leases, licences or other rights used by the
Franchisee in the performance of its obligations under this
Agreement within 30 days after termination or expiration of this
Agreement (which the Franchisor shall be entitled to verify as
complete using its rights under Clause 6). The Franchisee
undertakes to assist the Franchisor to minimise stamp duty on the
assignment of any leases, licences or other rights as required by
the Franchisor and as lawfully permitted.
The Franchisor may deduct and withhold from the purchase price
for any assets referred to in Clause 25.7 all amounts whatsoever
due to the Franchisor by the Franchisee and under this Agreement.
The Franchisee and the Franchisor shall co-operate together in
good faith and shall each use their best endeavours to procure
any approvals, consents or authorisations required from
shareholders (of the Australis Group or the ECT Group), from any
governmental agency or under any Act for the purposes of
performing their obligations under Clause 25.7 to 25.11 on a
timely basis (including, where relevant, the obtaining of waivers
of any Act).
RESTRAINT
From the date of this Agreement to the Commencement Date in a
particular Region, the Franchisee shall not Transmit any Services
in that Region without the prior written consent of the
Franchisor.
From the date of this Agreement to the date of termination,
expiration or assignment of this Agreement, the Franchisee shall
not be directly or indirectly involved in the establishment,
operation or provision to any person of access to or use of any
Delivery System or Subscriber Management System outside the
Regions.
Subject to Clause 3.8, from the date of this Agreement to the
date 6 months after the termination, expiration or assignment of
this Agreement, the Franchisee shall not Transmit any Service
outside of the Regions.
From the date of this Agreement to the date 2 years after the
termination, expiration or assignment of this Agreement, the
Franchisee shall not Transmit any Programs in or outside the
Regions sourced from a person other than the Franchisor in
respect of which the Franchisor has only a non-exclusive licence
in respect of any area within Australia.
FURTHER ASSURANCE
The parties shall do all acts and things and enter into such
other agreements as are not inconsistent with the provisions of
this Agreement to effect the intention and purpose of this
Agreement.
POWER OF ATTORNEY
Effective upon the occurrence of an Event of Default referred to
in Clauses 25.1(f), 25.1(g), 25.1(j) or 25.1(l), the Franchisee
irrevocably appoints the Franchisor and each director and
secretary of the Franchisor jointly and each of them severally as
the attorney of the Franchisee, who shall have the power in the
name of the Franchisor or of the Franchisee at any time or times
after the date of this Agreement at the cost of the Franchisee:
to perform all acts and things which the Franchisee is
liable to do under this Agreement, a requirement of any
governmental agency or any Act; and
to sign all forms necessary to remove the name of the
Franchisee from any register as the persons conducting the
Business under any of the Business Names or as the
registered user of any of the Trade Marks.
The Franchisee shall indemnify and keep indemnified the
Franchisor, its directors and officers against the consequences
of any act, document or thing of or done by the attorney in the
name of the Franchisee except in the instance where such act,
document or thing is a consequence of the negligence or wilful
default of the attorney or any such aforementioned person.
FORCE MAJEURE
Notwithstanding any other Clause of this Agreement, the
obligations of a party imposed by this Agreement and any time
requirements under this Agreement shall be suspended during the
time and to the extent that that party is prevented from or
delayed in complying with that obligation by Force Majeure.
Each party shall, on becoming aware of Force Majeure, immediately
inform the other party and use its best efforts to remedy that
Force Majeure or to procure alternative means reasonably
available to enable performance of this Agreement to continue as
if no Force Majeure had occurred.
NOTICES
Any request, order, notification, document, consent or other
communication to be given by any party to another shall be in
writing and shall be deemed to be sufficiently given if sent by
pre-paid registered mail or facsimile transmission to the address
or facsimile number set out following the name of that party at
the commencement of this Agreement (or such other address or
facsimile number which is notified under this Clause).
Any such request, order, notification, document, consent or
communication if sent by pre-paid registered mail shall be deemed
to be received by the party to whom it is addressed on the next
Business Day after posting or if sent by facsimile transmission
shall be deemed to be received by the party to whom it is
addressed on receipt by the sender of the confirmation at the
conclusion of the transmission.
GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of and applicable in the State of New South Wales
and the parties submit to the jurisdiction of the Federal and
State courts within that State.
MISCELLANEOUS
This Agreement shall bind the parties and their successors and
assigns.
This Agreement supersedes all and any previous agreements oral or
written in respect of the franchise between the Franchisee and
the Franchisor (including the Heads of Agreement) and shall
constitute the entire agreement between the parties and there are
no understandings, representations or warranties of any kind
between the parties except as expressly set out in this
Agreement. Accordingly, the Heads of Agreement are terminated
and shall be of no further force or effect.
This Agreement shall not be amended except by an instrument in
writing signed by the parties and stating the parties' intent to
amend this Agreement accordingly.
The failure of either party to exercise or its delay in
exercising any right, power or privilege available to it under
this Agreement shall not operate as a waiver or preclude any
other or further exercise of such right, power or privilege or
the exercise by that party of any other right, power or privilege
under this Agreement.
No agreement, warranty or undertaking contained in this Agreement
shall merge on execution or completion of this Agreement, but
shall continue after each party has performed their obligations
as provided in this Agreement.
Nothing contained in this Agreement shall constitute a
partnership, joint venture or association of any kind between the
Franchisor and the Franchisee or render them liable for the debts
or liabilities incurred by the other. In particular, the
Franchisee will be solely responsible for all loss or damage
arising out of the operation of the Business or arising out of
the acts or omissions of the Franchisee, its employees, agents,
contractors, subcontractors, sublicensees, accountants,
solicitors and other advisers in any context and the Franchisee
agrees to indemnify and hold harmless the Australis Group against
and from any and all such claims, losses and damages (including
legal fees on a solicitor and own client basis).
The parties shall bear their own costs arising out of the
preparation of this Agreement, except that the Franchisee shall
bear any stamp duty chargeable on this Agreement and any document
created pursuant to it.
Without limitation to the Franchisor's rights to withhold its
consent or refuse to act on reasonable grounds, where the
Franchisor is required not to unreasonably withhold its consent
or is required to act reasonably, in all circumstances the
Franchisor shall be deemed to be acting reasonably if it
withholds its consent or refuses to act on the grounds that what
is proposed to be done will have a detrimental impact on the
Franchisor's name and its business of providing and franchising
Franchisor's Services or any other Services.
SCHEDULE ONE
Regions
Region Map
The area of Northern New South Wales Exhibit 1
The area of Southern New South Wales Exhibit 1
The area being the whole of Tasmania
SCHEDULE TWO
Franchisor's Services
Any subscription television broadcasting service or any subscription
radio broadcasting service:
(a) provided, procured or supplied by the Franchisor in respect of
which the Franchisor has Transmission rights in the Regions at
any time; or
(b) provided by the Franchisor or third parties pursuant to a
contract or arrangement between the Franchisor and third parties
and in respect of which the Franchisor has Transmission rights in
the Regions; or
any subscription television narrowcasting services provided by the
Franchisor to subscribers as at the date of this Agreement.
SCHEDULE THREE
Minimum Subscriber Levels
Period Minimum Subscriber Level
%
During the Initial Period (Years 0 0%
to 2)
During the period after the end of 5%
the Initial period for a further 2
years (Years 2 to 4)
During the period after the 10%
preceding period for a further 2
years (Years 4 to 6)
During the period after the 18%
preceding period for a further 2
years (Years 6 to 8)
During the period after the
preceding period for a further 2 30% or, if lower, the
years (Years 8 to 10) percentage from time to
time equal to the
percentage calculated as
s/p times 90%, where S
equals the total number
of subscribers to the
Franchisor's Services
(excluding the
Subscribers) and P equals
the total number of
occupied private
dwellings within
Australia (excluding the
Regions) to which the
Franchisor's Services can
be provided by use of
satellite, MDS or any
other existing means of
delivery available to the
Franchisor without any
material technical
impairment, calculated at
the end of the relevant
Accounting Period
Thereafter (Years 10 to 20) 30% or, if higher, the
percentage from time to
time equal to the
percentage calculated as
s/p times 90%, where S
equals the total number
of subscribers to the
Franchisor's Services
(excluding the
Subscribers) and P equals
the total number of
occupied private
dwellings within
Australia (excluding the
Regions) to which the
Franchisor's Services can
be provided by use of
satellite, MDS or any
other existing means of
delivery available to the
Franchisor without any
material technical
impairment, calculated at
the end of the relevant
Accounting Period
EXECUTED as an agreement.
THE COMMON SEAL of )
AUSTRALIS MEDIA LIMITED )
(A.C.N. 059 741 178) is affixed in )
accordance with its articles of )
association )
.........................................
Signature of authorised person
........................................
Signature of authorised person
.........................................
Print name of authorised person
........................................
Print name of authorised person
.........................................
Office held
........................................
Office held
COMMON SEAL of EAST )
COAST PAY TELEVISION PTY )
LIMITED (A.C.N. 003 546 272) is )
affixed in accordance with its articles )
of association )
........................................
........................................
Signature of authorised person Signature of authorised person
........................................
........................................
Print name of authorised person Print name of authorised person
........................................
........................................
Office held Office held
EAST COAST PAY TELEVISION PTY. LIMITED
(A.C.N. 003 546 272)
Level 7, 80 Clarence Street, Sydney 2000, Australia
Tel: 61 (2) 290 3355 Fax: 61 (2) 290 3322
Australis Media Limited 8th. July 1994
100 Bulwara Road
Pyrmont
NSW 2007
Dear Sir,
We refer to the Franchise Agreement (`the Franchise Agreement') dated
of even date herewith and made between Australis Media Limited
(`Australis') and the East Coast Pay Television Pty. Limited (`ECT').
This letter has been executed for the purpose of inducing the parties
hereto to enter into the Franchise Agreement.
Words and expressions defined in the Franchise Agreement shall have
the same meaning when used in this letter. Clauses 1, 2, 3, 4, 5, 6,
7 and 8 below of this letter should be read and construed as forming
part of the Franchise Agreement for so long as Century Communications
Corp (`Century') has Relevant Interest in ECT. Clauses 9, 10 and 11
shall apply until the Franchise Agreement expires, is terminated or is
assigned.
For the purpose of this letter, Century shall be deemed to have a
Relevant Interest in ECT if Century directly or indirectly through
Controlled Entities (i) owns 25% or more of the issued Securities of
ECT, or (ii) owns 20% or more of the issued Securities of ECT and has
management responsibility of or for ECT.
Unless and until Century ceases to have a Relevant Interest in ECT the
parties agree that:
All references to Minimum Subscriber level, shall in relation to
any Region, mean the actual number of Subscribers for such
Region.
The provisions of clause 3.8 shall not apply in relation to the
holder of the A Licence.
The provisions of sub-paragraphs (a), (b), (c), (f), (s), (t),
(u), (v), (x), (y) and (z) of clause 5.2 shall not apply.
The provisions of sub-paragraphs (b), (c), (d), (e), (h), (i),
(k), (m) and (o) of clause 25.1 shall not apply.
The provisions of subparagraph (a) of clause 25.1 shall only
apply in relation to a breach which is not capable of remedy, and
(in relation to a breach which is capable of remedy), shall only
apply in the event that such breach has not been remedied within
a reasonable period of notice from Australis specifying that
breach.
The provisions of clause 21.2 shall not apply.
The Franchisee shall be obliged to notify the Franchisor of the
occurrence of any Event of Default or breach of the Franchise
Agreement promptly upon becoming aware of the same.
The first paragraph of clause 25.2 shall be amended to read:
"If an Event of Default or other breach of this Agreement occurs
the Franchisor shall issue a notice in writing to the Franchisee
requiring the Franchisee to rectify."
In addition, for the purpose of the Franchise Agreement, and for
any agreement or arrangements to be entered into by AML in
connection with the A Satellite Licence, AML confirms and agrees
that, subject to the law and the requirements of any governmental
agency:
(i) AML consents to ECT and Century holding direct or indirect
economic and voting interests (including shares or debentures) in each
other, or having common board or management control;
(ii) AML consents to ECT having an interest in the A Satellite
Licence; and
(iii) AML consents to any arrangements between ECT and
Century and their subsidiaries in connection with the listing on any
stock market of the securities of any of them.
AML confirms that AML agrees to amend from time to time the
Franchise Agreement, and to act in any way in connection with the
A Satellite Licence, to ensure that all applicable laws and
requirements of governmental agencies are observed.
AML confirms that the Franchise Agreement will be amended to
extend to the Franchisee the benefit of any better commercial
terms offered to any other Franchisee in Australia of the
Franchisor's Services.
This letter shall be governed by and construed in accordance with the
laws of New South Wales and the parties hereto submit to the
jurisdiction of the courts of New South Wales in relation thereto.
Your acknowledgement to and acceptance of the foregoing terms shall be
signified by signing and returning this letter to us.
Yours faithfully,
For and on behalf of
East Coast Pay Television Pty. Limited
We hereby accept the terms contained in this letter,
For and on behalf of
Australis Media Limited
AUSTRALIS
MEDIA
LIMITED
A.C.N. 059 741 178
The Directors
East Coast Pay Television Pty Limited
Level 7
55 Grafton Street
Bondi Junction NSW 2022
Dear Sirs
Ancillary Letter to the Franchise Agreement
TNC Heads of Agreement
We refer to the Ancillary Letter between us dated 8 July 1994 (which
amended the Franchise
Agreement between us dated 8 July 1994). Words used in this letter
have the same definition as in the Franchise Agreement. "We" means the
Australis Group. "You" means the ECT Group.
As you are aware, the Franchise Agreement entitles you to enjoy on an
exclusive basis in the Regions certain rights and benefits in
connection with the activities of the Australis Group (including the
rights to or benefits of the Franchisor's Services, the Programs, the
Equipment, other Services, the Franchisor's Delivery System, the
Subscriber Management System and the Franchisor's Proprietary Rights).
We made the TNC Heads of Agreement with Foxtel (a joint venture formed
between Telstra Corporation Limited ("Telstra") and The News
Corporation Limited) and others on 9 March 1995 in which we granted to
Foxtel the right to distribute by cable the Franchisor's Services,
including in the Regions.
You agree that you will make no objection to or claim in respect of
the TNC Heads of Agreement on the basis that we both now agree to all
of the following:
When you enter into the proposed Cable Distribution
Agreement with Foxtel authorising Foxtel to distribute
Services produced or provided by the ECT Group (including
the four A Licence Services) throughout Australia by cable,
including in the Regions:
references in the TNC Heads of Agreement to the `Galaxy
Package' shall mean the four B Licence Services and
shall not include any Services provided by the ECT
Group to us; and
the side letter to the TNC Heads of Agreement dated 8
March 1995 addressed from me to WF Blount for Telstra
shall have no force or effect and will not be relied on
by anyone.
We will confirm these matters with Foxtel. Once agreed,
these matters will form part of our long form agreements
with Foxtel.
You will remain exclusively entitled to the rights and
benefits otherwise given to you under the Franchise
Agreement in the Regions, but we are entitled to grant to
Foxtel in the TNC Heads of Agreement the non-exclusive right
(or, if you have agreed to grant to Foxtel the exclusive
right to distribute Services produced or provided by the ECT
Group in thc Regions, the exclusive right) to distribute our
Franchisor's Services by cable in the Regions, on the basis
that we will pay to you or at your direction all Profit that
we make from Foxtel with respect to the Franchisor's
Services in the Regions. `Profit' shall mean all Gross
Revenues and Benefits payable to us in respect of Foxtel
subscribers in the Regions, less only the actual costs
incurred by us in providing those things to Foxtel
(calculated on a per subscriber basis across all Foxtel
subscribers to the Services in the Regions). You agree that
you will not distribute the Franchisor's Services to or
through any cable system not owned by you.
The following additional amendments are made to the
Franchise Agreement:
until such time as the costs for each subscriber's
Equipment is fully recouped, items (a) and (b) in the
definition of `Agreed Costs' are agreed to be A$7 per
subscriber per month;
all reporting and payment obligations under the
Franchise Agreement which were less than 30 days are
varied to require those reports and payments to be
given or made not later than 30 days after the last day
of the relevant Accounting Period. In particular, you
will not be bound to pay `on account' as set out in
clauses 7.3 and 7.6;
the definition of `Additional Fixed Fee' is amended to
delete the mark-up of 10%;
the definition of `Term' is varied to an initial period
of 15 years, with a 10 year further term as provided in
Clause 24; and
we will use our best endeavours to procure the supply
of Equipment, goods and services to you as envisaged in
Clause 8 of the Franchise Agreement, at the same total
cost and terms as are available to us, subject to other
volumes, credit, security and financing provisions.
Where access Equipment is held by us we will endeavour
to make this available to you at our cost.
If we intend to grant any Franchise in the State of Western
Australia and we are unable to agree a franchise agreement
with Kerry Stokes or any entity controlled by him, we will
give you first refusal, and last matching offer, to enter
into that franchise agreement. Neither the Ancillary Letter
nor this letter shall apply to such franchise agreement.
The Option Agreement entered into as of 8 July 1994 is
varied to reduce our entitlement to Option Securities to 2%
(after reduction in accordance with Clause 3.5), with a
commensurate reduction in the Option Price. You and we agree
to determine the precise amount of the reduced Option Price
within 14 days of the date of this letter. You agree to
provide to us all information reasonably necessary to assist
us to determine that reduced Option Price with you.
I have signed below to confirm the agreement of the Australis
Group to all of the above, which shall become effective only
when:
representatives of the ECT Group and Foxtel execute the
Cable Distribution Agreement; and
the parties to the Cable Distribution Agreement receive
an authorisation, approval or notification from the
Trade Practices Commission and the Australian
Broadcasting Authority that they have no objection to
the Cable Distribution Agreement between the ECT Group
and Foxtel.
The above conditions may not be waived by you. After
satisfaction of these conditions, the Ancillary Letter, the
Option Agreement and the TNC Heads of Agreement shall be deemed
amended as set out above.
Yours sincerely
AUSTRALIS MEDIA LIMITED
Per: Rodney F Price - Chairman
Please sign below to confirm the agreement of the ECT Group.
Agreed and accepted:
EAST COAST PAY TELEVISION PTY LIMITED
Per: Bernard P Gallagher - Director
EXHIBIT 10(jj)
OPTUS NETWORKS PTY LIMITED
("Optus")
AUSTRALIS MEDIA LIMITED
and
CONTINENTAL CENTURY PAY TV PTY LIMITED
(together, "Customer")
OPTUS-CUSTOMER SERVICE AGREEMENT
TABLE OF CONTENTS
Page
Interpretation 1
Application of Table A 2
Preference Shares 2
Registration of Transfers 2
Broadcasting Services Act - Limitation on Ownership 3
Power to Buy Back Shares 5
Number of Directors 5
No Share Qualification 6
Quorum at Meetings 6
Chairman 6
Circular Resolutions 6
Defects in Appointments 6
Powers to Declare Dividends and Pay Interest 7
Differential Dividends 7
Telephone Meetings of Directors 8
Proprietary Company Restrictions 8
Alterations to Table A 8
Articles of Subsidiaries 8
Special Resolutions 8
General Meetings 9
Quorum at General Meetings 9
Indemnity of Officers 9
Insurance of Officers 9
Meaning of 10
SERVICES 1
THE AGREEMENT 2
CONDITIONS SUBSEQUENT 2
DEFINITIONS AND INTERPRETATION 3
PROVISION OF SERVICES 1
OPERATING TERM 1
CHARGES AND BILLING 2
THE AGREEMENT DOCUMENTS 4
MAINTENANCE 4
VARIATIONS TO UPLINK EIRP 5
RELOCATION OF SATELLITE COMPONENTS 5
RELOCATION OF SATELLITES 6
No clause. 6
SERVICE FAILURE AND RESTORATION 6
LICENSES 8
CUSTOMER OBLIGATIONS 8
INDEMNITIES 11
LIABILITY 14
INTERRUPTIONS AND REBATES 16
TERMINATION 20
FORCE MAJEURE 22
CONFIDENTIALITY 23
GENERAL 24
NOTICES 25
DISPUTE RESOLUTION 26
PROVISIONS RELATING TO INDEMNITIES 27
GOVERNING LAW AND JURISDICTION 27
Annexure A - Equipment
Annexure B - Warranted Service Performance Levels
Annexure C - Customer Equipment Specifications and Performance
Levels
OPTUS-CUSTOMER SERVICE AGREEMENT
THIS AGREEMENT made the ____ day of _______________ 1994
BETWEEN
OPTUS NETWORKS PTY LIMITED ACN 008 570 330 having its principal
office at 101 Miller Street, North Sydney, New South Wales, 2060
("Optus")
AND
AUSTRALIS MEDIA LIMITED ACN 059 741 178 of 100 Bulwara Road,
Pyrmont, New South Wales, 2009 and CONTINENTAL CENTURY PAY TV PTY
LIMITED ACN 059 914 840 of Level 40, 50 Bridge Street, Sydney,
New South Wales (together, the "Customer")
RECITALS
A. Optus is licensed as a general carrier pursuant to the
Telecommunications Act 1991 (Cth) ("Act").
B. Australis Media Limited and Continental Century Pay TV Pty
Limited each directly or indirectly holds a satellite
subscription television broadcasting licence issued under
the Broadcasting Services Act 1992 (Cth) which authorises
the provision of subscription television broadcasting
services via satellite.
C. The Customer provides or proposes to provide subscription
broadcasting television services to consumers via satellite.
D. Optus has agreed to provide the Services to the Customer on
the terms and conditions of this Agreement.
NOW IT IS HEREBY AGREED as follows:
SERVICES
Subject to the terms and conditions of this Agreement Optus
and the Customer agree that Optus will provide to the
Customer the Services and the Customer will pay to Optus the
charges for such Services.
THE AGREEMENT
This Agreement between the parties comprises:
this document headed Optus-Customer Service Agreement;
the attached Terms and Conditions;
the attached Customer Services Plan.
If there is any conflict between any of the documents
referred to above then such conflict will be resolved
according to the documents' precedence in the order in which
they are listed.
CONDITIONS SUBSEQUENT
Australis Media Limited ("Australis") shall on or before 1
November 1994:
assign all of its right, title and interest in this
Agreement to the holder of satellite subscription
television broadcasting licence "B" ("Licensee");
procure that the Licensee accepts such assignment and
agrees to be bound by the terms of this Agreement as
though named in this Agreement in the place of
Australis;
provide a guarantee by Australis or such Related Body
Corporate of Australis as shall be reasonably
acceptable to Optus of the performance by the Licensee
of its obligations under this Agreement, substantially
in the form of Attachment 1; and
provide a certificate by Australis or other guarantor
acceptable to Optus, as the case may be, substantially
in the form of Attachment 2.
If the conditions specified in clause 3.1 are not satisfied
by 1 November 1994 or such later date as Optus may agree,
Optus shall be entitled by notice given to the Customer in
accordance with clause 21.1 of the Terms and Conditions to
terminate this Agreement.
Continental Century Pay TV Pty Limited consents to the
assignment contemplated in clause 3.1 and shall use its
reasonable endeavours to facilitate such assignment.
SIGNED FOR AND ON BEHALF OF )
OPTUS NETWORKS PTY LTD )
by Robert Mansfield )
in the presence of )
____________________________________
__________________________________
Witness Robert Mansfield
SIGNED FOR AND ON BEHALF OF )
AUSTRALIS MEDIA LIMITED )
by Neil Gamble )
in the presence of )
____________________________________
__________________________________
Witness Neil Gamble
SIGNED FOR AND ON BEHALF OF )
CONTINENTAL CENTURY PAY TV )
PTY LIMITED )
by Vanda Gould )
in the presence of )
____________________________________
__________________________________
Witness Vanda Gould
ATTACHMENT 1
GUARANTEE
In consideration of Optus Networks Pty Limited ("Optus")
entering into a Customer Services Agreement dated 14 October
1994 between Optus, Australis Media Limited ("Guarantor")
and Continental Century Pay TV Pty Limited ("Agreement") at
the request of the Guarantor and payment of the sum of $20,
receipt of which is acknowledged by Optus, the Guarantor:
unconditionally and irrevocably guarantees to Optus on
demand the due and punctual performance by the holder
of satellite subscription television broadcasting
licence "B" ("Licensee") of all its obligations under
the Agreement; and
indemnifies Optus from and against any liabilities
which may be incurred or sustained by Optus in
connection with any default or delay by the Licensee in
the due and punctual performance of any of its
obligations under the Agreement.
Liability unaffected by other events
The liability of the Guarantor under this clause is not
affected by any act, omission or thing which, but for this
provision, might in any way operate to release or otherwise
exonerate or discharge the Guarantor from any of its
obligations including (without limitation) the grant to the
Licensee or any other person of any time, waiver or other
indulgence, or the discharge or release of the Licensee or
any other person from any obligation.
Continuing guarantee and indemnity
This clause shall:
extend to cover this Agreement as amended, varied or
replaced, whether with or without the consent of the
Guarantor; and
be a continuing guarantee and indemnity and shall
remain in full force and effect for so long as the
Licensee has any liability or obligation to Optus under
this Agreement and until all of those liabilities or
obligations have been fully discharged.
ATTACHMENT 2
CERTIFICATE CONCERNING GUARANTEE
It is certified that:
At a duly constituted meeting of the directors of Australis
Media Limited ACN 059 741 178 ("the Company"), resolutions
were duly passed to authorise the Managing Director of the
Company to execute on behalf of the Company a guarantee
("Guarantee") in favour of Optus Networks Pty Limited
("Optus"), in relation to the performance by the holder of
satellite subscription television broadcasting licence "B"
from time to time of its obligations under a Customer
Service Agreement between Optus, the Company and Continental
Century Pay TV Pty Limited.
At that meeting, the directors considered the issue of
benefit to the Company as a result of the giving of the
Guarantee. The directors were unanimously of the view that
the giving of the Guarantee did result in a satisfactory
benefit to the Company which justified the Company granting
the Guarantee.
The Company is not in liquidation nor is it liable to be
wound up nor is there any action pending against the Company
for its liquidation or any meeting called for the purpose of
proposing its liquidation.
There are no proceedings pending in any Court against the
Company.
The Company has not received any notice under section 460 of
the Corporations Law nor any notice of appointment of
receiver, manager, official manager or provisional
liquidator.
The Company has no liabilities other than normal current
trading debts and in particular has no outstanding
liabilities to the Commissioner of Taxation in respect of
outstanding group tax or any other liability.
The Company is not a trustee of any trust fund or
settlement.
No charge over any of the assets or undertaking of the
Company is in existence.
The copy of the Memorandum and Articles of Association
annexed and marked with the letter "A" is a true and
complete copy of the Memorandum and Articles of Association
of the Company as at the date of this declaration.
The Company acknowledges that Optus is relying upon the
correctness of the above representations and statements and
that it is on the basis of those representations and
statements and in reliance on the Guarantee that Optus has
agreed to enter into the Customer Service Agreement.
Dated this day of October 1994
____________________________________
Director
____________________________________
Director
TERMS AND CONDITIONS
DEFINITIONS AND INTERPRETATION
In these Terms and Conditions and, if the context so
requires, elsewhere in the Agreement:
"Agreement" means all the documents specified in paragraph 2
of the document headed Optus - Customer Service Agreement to
which these Terms & Conditions are attached;
"AUSTEL" means the Australian Telecommunications Authority
or its successor;
"B-Series Satellite" means a member of the second generation
of Satellites launched or planned for launch (commencing in
1992) for the purposes of the business conducted by Optus
and known generally as the B-Series Satellites;
"Bank" means an organisation authorised to conduct banking
business under the Banking Act 1959 (Cth);
"Business Day" means any date on which Banks are open for
business in Sydney excluding Saturdays, Sundays and public
holidays;
"Business Hours" means between the hours of 9.00am and
5.00pm on a day which is a Business Day;
"Commencement Date" means, in respect of a Service, the
later of:
the date referred to as such in respect of that Service
in the Customer Services Plan;
the date on which Optus certifies to the Customer in
writing that the tests specified in the Testing
Protocol in respect of that Service have been performed
and that the relevant minimum standards specified in
the Testing Protocol have been achieved; and
such other date as Optus and the Customer may in
writing agree;
"Consumer Equipment" means any equipment which may be owned
or leased by, or otherwise provided to, consumers of
broadcasting and television services including, without
limitation, signal reception equipment;
"Continuity Discount" means, in relation to a Service, the
amount of any discount against Optus" charges for that
Service available to the Customer under the relevant Tariff
(whether or not described as a "continuity discount")
determined by referenced to the length of the period agreed
by Optus and the Customer in which the Service is to be
provided.
"Contribution Component" means, in respect of a Service, the
component of that Service referred to as such in the
relevant Tariff;
"Cumulative Annual Availability Benchmark" means in respect
of a signal comprising part of a Service Component, the
cumulative annual availability benchmark specified in
respect of that signal in Annexure B.
"Customer Associates" means:
(a) the Customer's officers, employees, agents,
contractors, sub-contractors and consultants; and
(b) parties (other than Optus) to whom the Customer
directly or indirectly resells or provides capacity of
whole or part of a Service and the officers, employees,
consultants, agents, contractors and sub-contractors of
such parties,
and includes customers of Optus when acting in such
capacities;
"Customer Conduct" means any breach of this Agreement by the
Customer and any act or omission (including negligent and
other tortious acts or omissions) of the Customer or a
Customer Associate in connection with the use of a Service
or the System (including, without limitation, acts or
omissions of the type listed in clauses 14.2 and 14.9) other
than an act performed or omission made without negligence in
accordance with the provisions of this Agreement or a
direction given from time to time by Optus;
"Customer Equipment" means:
(a) any equipment which may be owned or leased by, or
otherwise provided to, the Customer (excluding receive
only earth stations licensed by the Federal Department
of Communications and the Arts or AUSTEL or any other
body having appropriate jurisdiction to provide the
Customer's services through transmitters and also
excluding Consumer Equipment); or
(b) any service which may be provided by a third party
to the Customer,
and which is used in connection with the Services or the
System;
"Customer Services Plan" means the document which identifies
operational parameters, origins and destinations of the
Customer's Services as amended from time to time in
accordance with this Agreement. A copy of the Customer
Services Plan at the date of this Agreement has been signed
for identification by the parties;
"Digicipher II" means the Digital Television Compression
System referred to in Appendix 5 of the Digital Transmission
Standard as at 3 May 1994;
"Digital Transmission Standard" means the digital
transmission standard for Australian satellite subscription
television broadcasting services agreed by satellite
subscription television broadcasting licensees "A" and "B"
and declared by the Minister for Communications and the Arts
pursuant to Section 94(1) of the Broadcasting Services Act,
1992 (Cth) on 3rd May 1994 as amended or replaced from time
to time;
"Distribution Component" means, in respect of a Service, the
component of that Service referred to as such in the
relevant Tariff;
"DTH Component" means, in respect of a Service, the
component of that Service referred to as such in the
relevant Tariff;
"EIRP" means effective isotropic radiated power, as defined
in AUSTEL Technical Standard TS 020-1991 (as amended or
replaced from time to time);
"Emergency" means any event or circumstance in which Optus
reasonably considers that urgent or immediate action is
required in relation to the System or any one or more System
Components in order to:
(a) maintain or maximise the provision of Services or
the provision of services to other customers of Optus
in accordance with warranted levels;
(b) prevent any temporary or permanent failure of or
damage to, the System or any one or more System
Components; or
(c) preserve the integrity of the System for the
provision of services to any or all of Optus'
customers;
"Financial Year" means a year commencing on 1st July
immediately after midnight of 30th June and ending at
midnight on the following 30th June;
"Force Majeure Event" affecting a person means anything
outside that persons's reasonable control, including but not
in any way limited to:
(a) acts of god or the public enemy; national
emergencies, asteroids or other space calamity; use of
atomic weapons or nuclear fusion or fission;
radioactive contamination; insurrection; riot, hostile
or warlike action in peace or war; sabotage;
(b) strikes, lockouts, labour disputes, work
stoppages, embargoes or any other labour difficulties;
(c) Government Action.
"Government Action" means any action or inaction of, or any
law, order, proclamation, regulation, ordinance, demand or
requirement lawfully made by, any government or any
department, authority, commission or lawful representative
of any government or any civil or military authority;
"Gross Negligence" has the meaning specified in clause 1.3;
"HomeCast 1 Service" means the Optus Homecast Service as
described in the Optus Homecast Service Tariff in force as
at the date of this Agreement comprising the DTH Component
or a combination of the DTH Component with either or both of
the Contribution Component and the Distribution Component;
"HomeCast 2 Service" means the service replacing the
HomeCast 1 Service and comprising the HomeCast 1 Service
varied in such manner as shall be appropriate to reflect the
adoption in the DTH Component of a multiplexing system and
baseband coding system conforming with Digicipher II;
"Interest Rate" means a rate 2% above:
(a) the Reference Rate published by Australia and New
Zealand Banking Group Limited ("ANZ"); or
(b) if the ANZ ceases to publish the Reference Rate or
for any reason the Reference Rate cannot be determined
in respect of all or part of the period in respect of
which interest is to be calculated , the indicator
lending rate published by any Bank nominated by Optus,
in effect during the period in respect of which interest is
to be calculated;
"Interference" means electromagnetic radiation emanating
from any source (including, without limitation, the emission
of signals from a Satellite or any other space satellite,
the emission of spurious signals from defective equipment,
unauthorised transmissions to a Satellite, and the
interaction of two or more signals authorised for
transmission to a Satellite) having or capable of having a
detrimental effect on the Satellite Component of one or more
Services or on the Satellite component of any one or more
services provided to any customer of Optus;
"Interruption" means any occasion on which a Service or a
signal comprising part of a Service Component fails to meet
the Warranted Service Performance Levels and "Interrupted"
has a corresponding meaning;
"Level 1 Service" means:
(a) a Service in respect of which the level of service
priority designated in the Customer Services Plan is
"level 1"; and
(b) any service provided by Optus to another customer
by means of a Transponder, in respect of which the
level of service priority designated in the customer
services plan for that customer (or otherwise
applicable to that service) and described in the
relevant tariff approved by AUSTEL from time to time is
"level 1" or "Premium";
"Level 2 Service" means:
(a) a Service in respect of which the level of service
priority designated in the Customer Services Plan is
"level 2"; and
(b) any service provided by Optus to another customer
by means of a Transponder, which is not a Level 1
Service;
"Licences" means all licences (including class licences
administered by AUSTEL and, where required by AUSTEL,
registration under any relevant class license), authorities,
consents, approvals or permits which the Customer is
required to hold or to have obtained in order to lawfully
transmit or receive Telecommunications Traffic or to provide
subscription television broadcasting services via satellite;
"Losses" means all losses, damages (including damage to
persons or property), claims, liabilities, demands (whether
in contract or tort and whether direct, indirect,
foreseeable, consequential or economic) and all expenses,
legal or otherwise, of whatever kind and nature;
"Maintenance" means such tests, adjustments or modifications
to or in relation to any System Component, and all other
acts and things, as may accord with good satellite and
telecommunications practice for the maintenance from time to
time of the System in efficient working order;
"month" means a calendar month;
"Non-penalty Rebateable Interruption" means:
a Rebateable Interruption of the type specified in
clause 6.1(a) (to the extent that the Interruption does
not exceed the agreed duration of Maintenance),
clause 6.1(b) (Emergency Maintenance), clause 8.3
(relocation or repolarisation) or clause 9.2 (removal
or relocation of satellite or variation of orbit
characteristics); and
a Rebatable Interruption resulting from any Force
Majeure Event affecting Optus or any person engaged by
Optus to supply equipment (including computer software)
or to perform services on its behalf.
"Operating Term" means the term of this Agreement as
specified in clause 3.1;
"Optus" means Optus Networks Pty Limited, its successors and
assigns;
"Optus Associates" means officers, employees, consultants,
agents, contractors or sub-contractors of Optus or any
Related Body Corporate of Optus, including customers of
Optus or any Related Body Corporate of Optus when acting in
such capacities;
"Optus Equipment" means all equipment which forms part of
the System other than a Transponder and a Satellite carrying
a Transponder;
"Optus Operating Procedures" means the document setting out
the technical standards and day to day operating procedures
for the coordination of access to the System, as varied,
amended, cancelled or replaced by Optus from time to time.
"Partial HomeCast 1 Service" means a temporary service
comprising the HomeCast 1 Service DTH Component (limited to
one Transponder only and providing a maximum of five digital
video channels) or, if so agreed by Optus and the Customer,
comprising a combination of such DTH Component (as so
limited) with either or both of the Contribution Component
and the Distribution Component of the HomeCast 1 Service.
Such service shall be deemed, for the purposes of clause 11
of this Agreement, to be a HomeCast 1 Service and shall
cease to be provided on commencement of the HomeCast 1
Service;
"Priority Date" means:
for any Service in operation or specified in the
Customer Services Plan at the date of this Agreement,
the date midway between the Commencement Date in
respect of that Service and the date of actual
commencement of that Service, except that the Priority
Date for the HomeCast 2 Service shall be 1 December
1994;
for services neither in operation nor identified in the
Customer Services Plan at the date of this Agreement,
the date on which provision of the relevant Service
commences;
for a service provided by means of a Transponder by
Optus to another customer, the priority date of that
service as computed in accordance with the relevant
tariff approved by AUSTEL from time to time or any
relevant agreement.
"Priority Service" means, in relation to a Level 2 Service:
any Level 1 Service; and
any Level 2 Service having a higher priority ranking
(determined in accordance with any relevant tariff
approved by AUSTEL from time to time or any relevant
agreement);
"Rebatable Interruption" means (notwithstanding any
provision of any relevant Tariff) an Interruption arising
from any cause other than:
Sun Transit, rain, storm or hail;
a suspension or cessation of a Service pursuant to
clause 13.4 except where Optus has incorrectly
determined that any Customer Equipment or any
transmission of Telecommunications Traffic by the
Customer caused the Interference that resulted in the
suspension or cessation;
any act or omission by the Customer or a Customer
Associate other than an act performed or omission made
in accordance with the provisions of this Agreement or
performed or made at the direction of Optus or its
officers;
the failure or malfunction of equipment (including
Customer Equipment), computer software, power supply
(including the power supply to Optus Equipment situated
in the Customer's premises), facilities or services:
_ (i) operated or provided by the Customer or a Customer
Associate, or
(ii) operated or provided to the Customer by
any third party;
provided that, such failure or malfunction has not
been caused by a negligent act or omission of Optus or
an Optus Associate or, in the case of Customer
Equipment situated in Optus' premises, the failure of
the power supply,
except that an Interruption shall not be a Rebatable
Interruption during any period in which Optus is delayed or
prevented from taking remedial action in respect of that
Interruption by reason of:
any request by the Customer. Optus shall consult with
the Customer where Optus determines that compliance
with such a request may delay or prevent remedial
action;
any act or omission of the Customer or a Customer
Associate; or
a reasonable determination by Optus or a Related Body
Corporate of Optus that such remedial action will
adversely affect services provided to other customers
of Optus.
"Rebate Year" means, in respect of a Service, the period of
twelve months commencing on the Commencement Date in respect
of that Service and each period of twelve months commencing
on an anniversary of such Commencement Date.
"Regulation" means any regulation, order, determination or
other statutory instrument under the Broadcasting Services
Act 1992 (Cth), the Telecommunications Act 1991 (Cth) the
Radiocommunications Act 1992 (Cth) or any other Act which
regulates telecommunications or any aspect of the provisions
of Services and any regulation, order, directive or
determination by a Minister of the Crown, AUSTEL, the
Australian Broadcasting Authority, the Spectrum Management
Agency or any other person or body having appropriate
jurisdiction;
"Related Body Corporate" has the same meaning as in section
9 of the Corporations Law;
"Satellite" means a space satellite launched for the
purposes of the business conducted by Optus or which is used
by Optus for such purposes;
"Satellite Component" means, in respect of a Service, that
part of the Service provided by means of Satellite;
"Services" means the Partial HomeCast 1 Service, the
HomeCast 1 Service and the HomeCast 2 Service and "Service"
means any of them;
"Service Component" means any one of the Contribution
Component, the Distribution Component and the DTH Component;
"Service Description" means, in respect of a Service, the
description of that Service set out in the relevant Tariff;
"Service Failure" means:
in relation to a service, an Interruption where Optus
reasonably determines that (disregarding any right
Optus may have to discontinue another service in order
to restore that Service) Optus has no readily available
means to restore that Service; and
in relation to a service provided to another customer,
any occasion on which that service fails to meet the
warranted service performance levels in respect of that
service, as specified in the relevant tariff approved
by AUSTEL from time to time or in any relevant
agreement, where Optus reasonably determines that
(disregarding any right Optus may have to discontinue
another service in order to restore that service) Optus
has no readily available means to restore that service.
"System" is the means (including one or more Satellite
Components) by which Optus provides services (including the
Services) to its customers;
"System Components" means any equipment or facilities
forming part of the System, including Transponders and
Satellites;
"Sun Transit" means any period during which electromagnetic
radiation from the sum causes and Interruption;
"Tariff" means, in respect of a Service, the tariff approved
by AUSTEL from time to time in respect of that Service.
"Telecommunications Traffic" means sounds, images, data or
signals which are transmitted or received by means of a
telecommunications service as defined in the
Telecommunications Act 1991 (Cth);
"Testing Protocol" means the testing protocol signed by
Optus and the Customer for the purposes of identification;
"Transponder" means that part of a Satellite which is
capable of receiving, amplifying, translating and re-
transmitting Telecommunications Traffic;
"Transponder Service" means a Service any part of which is
provided by means of a Transponder;
"Warranted Service Performance Levels" means:
in respect of the Partial HomeCast 1 Service, the
performance standards specified in Annexure B, insofar
as applicable;
in respect of the HomeCast 1 Service, the performance
standards specified in Annexure B;
in respect of the HomeCast 2 Service, such performance
standards as Optus shall reasonably determine in
consultation with the Customer, which shall in all
material respects be no less favourable to the Customer
than the performance standards applicable in respect of
the HomeCast 1 Service immediately prior to the first
provision of the HomeCast 2 Service.
1.2 Notwithstanding that this Agreement may deal with the
provision of more than one Service and that in certain
respects such Service is individually referred to, this
Agreement will comprise a single Agreement, which is not
intended to be and will not be construed as containing a
separate agreement in respect of each Service.
3 For the purpose of this Agreement, negligence will
constitute "gross negligence" only if a negligent act or
omission occurs and Optus or an Optus Associate (as the case
may be) either committed the act or allowed the omission to
occur in reckless disregard of the consequences of the act
or omission.
4 Words importing the singular number include the plural and vice
versa and words importing the masculine, feminine or neuter
gender will include the other genders. Marginal notes and
headings will not affect the construction of this Agreement. Any
references to statutes or regulations made pursuant to such
statutes will be to such statutes and regulations as amended or
substituted from time to time. All references to times will be
to Australian Eastern Standard Time. Any reference to "person"
or "persons" in this Agreement will include the Commonwealth of
Australia, a State thereof and any company, corporation or other
bodies corporate and any agency, authority or instrumentality of
any State (or of the Commonwealth of Australia) of whatsoever
nature or kind and howsoever named or called, and any association
or any partnership.
PROVISION OF SERVICES
Subject to the Customer Services Plan and the terms and
conditions of this Agreement, Optus will during the Operating
Term provide the Services to the Customer. The obligation of
Optus to provide a Service shall commence on the Commencement
Date in respect of the relevant Service. The Customer shall be
entitled to observe the conduct of the tests specified in the
Testing Protocol.
Optus will, except insofar as any failure to meet the Warranted
Service Performance Levels is due to a failure by the Customer to
comply with its obligations under this Agreement including,
without limitation, the Customer's obligation under clause
13.1(g), meet with the Warranted Service Performance Levels for
each Service from the commencement of provision of that Service
until this Agreement is terminated in respect of that Service or
expiration of the Operating Term whichever first occurs.
Optus and the Customer shall consult in good faith concerning any
proposed changes to the Digital Transmission Standard in
connection with the introduction of the HomeCast 2 Service and
Optus shall use its reasonable endeavors to ensure that a Tariff
is filed (and maintained) facilitating the provision of the
HomeCast 1 Service and the HomeCast 2 Service.
Optus shall ensure that the price initially payable by the
Customer for the provision of not more than 10 HomeCast 2 Service
channels under the Tariff first filed in relation to the HomeCast
2 Service shall be no higher than the price payable by the
Customer for the HomeCast 1 Service at the Commencement Date of
the HomeCast 2 Service.
Optus and the Customer shall as soon as reasonably practicable
negotiate in good faith (and implement) a transition plan
governing the practical steps to be taken by Optus and the
Customer to facilitate the adoption of Digicipher II and the
provision of the HomeCast 2 Service.
Optus shall not be obliged to provide the HomeCast 2 Service
until such transition plan has been finalized to its reasonable
satisfaction, including the extent, if any, of the responsibility
of Optus in relation to Interruptions associated with the
transition.
OPERATING TERM
Subject to earlier termination in accordance with this Agreement,
the term of this Agreement shall commence on the date of this
Agreement and expire on the tenth anniversary of the Commencement
Date in respect of the Service first provided under this
Agreement.
Notwithstanding any other provision of this Agreement, the
Customer shall be entitled on not less than six months' prior
written notice to Optus given in accordance with clause 21.1
(which notice shall not be given prior to the expiration of the
initial 2.5 years of the Operating Term) to require that Optus
cease to provide the Contribution Component to the Customer.
CHARGES AND BILLING
The Customer shall pay all Optus' charges in accordance with this
clause 4. The obligation of the Customer to pay Optus' charges
in respect of a Service shall commence on the Commencement Date
of that Service.
Optus' charges in respect of any Service (exclusive of any
duties, taxes (including without limitation any value added,
consumption or goods and services tax) or similar imposts which
may in future be imposed on a payment for a Service) shall be:
in respect of the partial HomeCast 1 Service:
(i) 50% of the amount of Optus' charges at the
relevant time in respect of the DTH Component under the
Optus HomeCast Service Tariff in force at the date of
this agreement; and
(ii) if Optus and the Customer agree that the
Service will include either or both of the Contribution
Component and the Distribution Component of the
HomeCast 1 Service, 100% of the amount of Optus'
charges at the relevant time in respect of the relevant
Service Component or Components, as the case may be,
under the Optus HomeCast Service Tariff in force at the
date of this agreement.
in respect of the HomeCast 1 Service:
(i) the amount set out in the Tariff in respect
of that Service as in force at the date of this
Agreement, as increased from time to time in accordance
with clause 4.3; or
(ii) if Optus subsequently files a Tariff which
specifies an amount in respect of that Service which is
lower than the amount referred to in paragraph (i), the
amount set out in such subsequently filed Tariff, as
increased from time to time in accordance with clause
4.3;
in respect of HomeCast 2 Service:
(i) subject to clause 2.4, the amount set out in
the Tariff in respect of that Service as in force at
the date of commencement of that Service, as increased
from time to time in accordance with clause 4.3; or
(ii) if Optus subsequently files a Tariff which
specifies an amount in respect of that Service which is
lower than the amount referred to in paragraph (i), the
amount set out in such subsequently filed Tariff, as
increased from time to time in accordance with clause
4.3;
(a) Not later than 1 April in each calendar year during the
Operating Term ("Review Date") Optus will (subject to
paragraph (b)) give notice to the Customer ("Review Notice")
of Optus' charges for the following Financial Year. The
charges specified in a Review Notice shall not exceed the
charges applicable in the Financial Year current at the
Review Date by a percentage greater than the percentage
change in the All Groups Consumer Price Index (weighted
average of eight capital cities ("CPI") published by the
Australian Bureau of Statistics or its successor between the
December quarter of the Financial Year current at the Review
Date and the previous December quarter.
If the publication of the CPI in respect of the December
quarter of any Financial Year is delayed beyond 1 April in
that Financial Year, Optus shall be entitled to issue the
Review Notice at any time within 30 days following such
publication. Pending issue of a Review Notice, the Customer
shall continue to pay Optus' charges at the rate applicable
in the Financial Year in which, were it not for such delay,
Optus would have been required pursuant to paragraph (a) to
issue the Review Notice. The Customer shall within 30 days
following the delayed issue of a Review Notice pay to Optus
the amount (if any) by which the amount payable by the
Customer in accordance with Optus' charges specified in the
Review Notice for the relevant Financial Year exceeds the
amount actually paid to Optus by the Customer in respect of
the provision of Services between the commencement of the
relevant Financial Year and the issue of the Review Notice.
If the publication of the CPI is discontinued Optus and the
Customer shall negotiate in an effort to determine an
appropriate substitute index and if Optus and the Customer
are unable to agree then the president or other senior
executive officer of the Institute of Chartered Accountants
(New South Wales Division) may be requested by either party
to determine a substitute index and his or her determination
shall be final and binding on the parties. In so acting,
the president or other senior executive officer shall be
deemed to be acting as an expert and not as an arbitrator
and the costs of the president or other senior executive
office of so acting shall be borne equally between Optus and
the Customer.
During the Operating Term, Optus' charges for a Service will be
payable in advance on or before the first business day of each
month.
Notwithstanding clause 4.4:
the Customer has paid to Optus a deposit of $425,000
("Deposit"). The Deposit (together with 50% of the amount
of interest which would notionally have been earned on the
Deposit had it been invested for 12 months following the
Commencement Date in respect of the Service first provided
under this Agreement at the annual rate of 5% ("Interest
Entitlement")) shall be applied against Optus' charges in
respect of the provision of the Services following the first
anniversary of the Commencement Date in respect of the
Service first provided under this Agreement (to the intent
that the Deposit and the Interest Entitlement shall be
credited against Optus' charges in respect of the provision
of the Services during the month immediately following that
anniversary), but shall not otherwise be refunded or applied
for the benefit of the Customer; and
the Customer shall on 18 October 1994 provide to Optus an
unconditional, irrevocable bank guarantee issued by a Bank
in an amount not less than $1,475,000. Optus shall be
entitled from time to time to call on the bank guarantee
where, during the period of 12 months following the
Commencement Date in respect of the Service first provided
under this Agreement, Optus becomes entitled to terminate
this Agreement but shall only do so to the extent that Optus
provides to the Customer copies of receipts, invoices or
other evidence of payment of amounts, or the incurring of
cost, expense or liability (including, without limitation,
reasonable salary costs), in connection with the carrying
our by, for, or on behalf of Optus of work preparatory to
providing the Services to the Customer. Optus shall return
the bank guarantee to the Customer within 14 days after such
period of 12 months ends.
The Customer acknowledges that, having regard to the substantial
costs incurred by, for or on behalf of Optus in carrying out work
preparatory to providing the Services to the Customer, the
requirement under this clause for payment of the Deposit and the
entitlement of Optus under this clause to have recourse to the
bank guarantee, is fair and reasonable.
Optus will invoice the customer before the start of each month
detailing the charges for each Service, any other charges and any
rebate of charges for each Service.
All payments by the Customer will be made into a bank account
nominated by Optus from time to time or by cheque in favour of
Optus or its nominee and delivered to Optus' principal or
nominated office in New South Wales. The obligation of the
Customer to make a payment pursuant to this Agreement will be
discharged on the date on which payment is made to Optus or the
nominated bank account or the date on which the cheque payment is
received at Optus' principal or nominated office in New South
Wales unless the payment is not cleared through the banking
system.
Without prejudice to Optus' other rights under this Agreement; if
any amount payable by the customer pursuant to the Agreement is
not paid when due, that amount will bear interest, calculated at
the Interest Rate and compounding monthly, from the due date of
payment until the actual date of payment.
THE AGREEMENT DOCUMENTS
The Customer is aware at the date of this Agreement of the terms
and conditions, specifications and details set out in the
documents which comprise this Agreement.
MAINTENANCE
Optus shall be entitled at any time and from time to time to
carry out maintenance. In this regard:
subject to paragraph (b), Optus will consult with the
Customer prior to carrying out any Maintenance and will
carry out the relevant Maintenance at times and for
durations as may be agreed between Optus and the Customer
(such agreement not to be unreasonably withheld). Optus
will use its reasonable endeavours to avoid carrying out
maintenance during such peak viewing times as may be
notified by the Customer to Optus in accordance with clause
21.3 from time to time. The period of any Interruption
arising from such Maintenance shall (unless falling within
one of the exceptions in the definition of the term
"Rebateable Interruption") be a Rebateable Interruption; and
if Maintenance is required as a result of an emergency,
optus will endeavour to minimise the period of any
consequent Interruptions. such Interruption shall (unless
falling within one of the exceptions in the definition of
the term "Rebateable Interruption") be a Rebateable
Interruption.
VARIATIONS TO UPLINK EIRP
If the Customer elects to use an earth station other than one
provided by Optus, then, to compensate for possible changes in
satellite transponder characteristics, Optus may at any time and
from time to time give notice to the Customer in accordance with
clause 21.3, either advising an increase to or directing a
reduction in the uplink EIRP of any earth station used by the
Customer or otherwise requiring compliance with Optus' Operating
Procedures. The Customer will comply with any such direction
either:
forthwith, if Optus determines that an Emergency exists or
where there is Interference to services provided to third
parties; or
within a reasonable time, in any other circumstances.
Optus shall endeavour to maximise the period of any notice given
pursuant to clause 7.1 and shall consult with the Customer before
issuing a direction pursuant to clause 7.1 (except in cases of
Emergency).
The issuing of a direction by Optus pursuant to clause 7.1 shall
not operate to diminish the Warranted Service Performance Levels.
RELOCATION OF SATELLITE COMPONENTS
Optus will not, except in cases of Emergency or with the consent
of the Customer, change the orbit location or polarisation of
transmit beams of a Satellite Component used in the provision of
any Service. In this regard:
if relocation or repolarisation is required as a result of
an Emergency, Optus will use its best endeavours (subject to
its obligations in respect of any Priority Service) to
restore the relevant Service or Services without reduction
of service quality or need for equipment modification; and
in the case of any relocation or repolarisation undertaken
with the consent of the customer, Optus will consult with
the Customer prior to carrying out any relocation or
repolarisation which may have an adverse effect on the
Customer in an endeavour to minimise any such adverse
effect.
Optus will at its own cost comply with any reasonable request to
assist the Customer to determine the means by which any
adjustment or modification to Customer Equipment should be
carried out consequent upon any relocation or repolarisation
referred to in clause 8.1.
Subject to any subsequent agreement to the contrary (including
without limitation the terms on which the customer grants its
consent to Optus pursuant to clause 8.1) Optus shall not bear any
costs, losses or expenses incurred by any person as a result of
or in connection with any replacement, adjustments or
modifications to Customer Equipment or Consumer Equipment which
is or are consequent upon any relocation or repolarisation
referred to in clause 8.1. Any Interruption which is consequent
upon such relocation or repolarisation shall (unless falling
within one of the exceptions in the definition of the term
"Rebateable Interruption") be a Rebateable Interruption.
In any adjustment, change in uplink EIRP, modification,
relocation or repolarisation occurs pursuant to clauses 6, 7 or
8, the customer Services Plan will be deemed to be appropriately
amended with effect from the time such event occurs or is
required to occur in accordance with this Agreement (whichever is
the earlier) or, if any other time is agreed between Optus and
the Customer, with effect from that other time.
RELOCATION OF SATELLITES
Subject to clause 8 and to the continuing obligation of Optus to
provide the Services in accordance with the Warranted Service
Performance Levels from the orbit location and with the
polarisation of transmit beams specified in the Customer Services
Plan, Optus may at any time and from time to time remove a
Satellite from the System or relocate a Satellite from one orbit
location to another or vary the orbit characteristics of a
Satellite. Optus will consult with the Customer prior to any
such relocation, removal or variation and will provide reasonable
details concerning the specifications of any replacement
Satellite.
Any Interruption which is consequent upon an action taken by
Optus pursuant to clause 9.1 shall (unless falling within one of
the exceptions in the definition of the term "Rebateable
Interruption") be a Rebateable Interruption.
No clause.
SERVICE FAILURE AND RESTORATION
Subject to this Agreement, in the event of a Service Failure in
respect of a Service, Optus will use its best endeavours to
restore the Service in accordance with the relevant Tariff and,
subject to Optus' obligations in respect of any Priority Service,
to do so without reduction of service quality or need for
equipment modification.
Notwithstanding clause 11.1 and any other provision of this
Agreement or any Tariff, Optus shall not be obliged in the event
of Service Failure or in any other circumstances to remove any
Satellite from the System or to relocate any satellite from one
orbit location to another or to vary the orbit characteristics of
any Satellite.
In no circumstances shall Optus be entitled to discontinue a
Level 1 Service in order to restore another service or to
discontinue a Level 2 Service provided to the Customer in order
to restore a Level 2 Service provided to any other customer.
If a Service Failure occurs in relation to a Level 1 Service,
Optus may discontinue a Level 2 Service provided to the Customer
in order to restore in whole or in part that Level 1 Service, but
shall not do so where the relevant Level 1 Service may be fully
restored by discontinuation of one or more Level 2 Services
having a lower priority ranking than the Level 2 Service provided
to the Customer. Such discontinuation shall (unless falling
within one of the exceptions in the definition of the term
"Rebateable Interruption") constitute a Rebateable Interruption.
Optus shall keep the Customer informed of the number of Priority
Services in respect of each Level 2 Service provided to the
Customer.
If a Level 2 Service has an earlier Priority Date than another
Level 2 Service, it shall be deemed to have a higher priority
ranking than that other service. If a Level 2 Service has the
same Priority Date as another Level 2 Service, Optus shall be
entitled in its absolute discretion to determine the priority
ranking as between those Level 2 Services.
If the Customer has not terminated this Agreement pursuant to
clause 17.8 following a Service Failure which Optus has been
unable to restore and Optus determines at any time after the
occurrence of such event that the Service may be restored or that
an alternative service may be provided to the Customer, then
Optus will:
give a notice to the Customer, in accordance with clause
21.3, stating:
a. the technical specifications of the proposed Service or
alternative service;
b. any proposed amendment to the Agreement which may be
required as a result of the proposed restoration;
c. the effect of the proposed restoration on any Service;
d. Optus' proposed charges for the Service or alternative
service, following restoration;
e. the proposed date on which the Service or alternative
service would be available to the Customer; and
f. the date by which the customer is required to notify
Optus whether or not the proposed restoration is to proceed as
proposed or as otherwise agreed. Such date will be reasonable
having regard to all the circumstances; and
consult with the Customer to assist the Customer in making
its final decision as to the acceptability of the proposed
restoration.
The Customer will notify Optus whether or not it will accept the
proposed restoration by the date specified in the notice referred
to in paragraph (a)(vi).
If more than one service is affected by the events set out in
clause 11.6 and Optus determines that a Transponder which may be
used for the purpose of restoration or provision of an
alternative Satellite Component is available, then:
if only the Customer's Satellite Components are affected,
the Customer will determine the priority ranking between
those Satellite Components; or
if another customer's Satellite Components are affected,
Optus will determine the priority ranking in accordance with
clauses 11.3, 11.4 and 11.5.
If a Transponder or part of a Transponder providing a Satellite
Component is required to restore a Priority Service, a minimum of
15 minutes notice of such requirement will be given by Optus in
accordance with clause 21.3. Optus will, however, endeavor to
give the longest possible notice which it is reasonably able to
give.
LICENSES
The Customer shall at its cost:
obtain any Licenses which the Customer is required to obtain
in order to use the Services; and
throughout the Operating Term comply with, observe and
maintain every License in good standing.
If at any time the Customer does not have the necessary Licenses,
the Customer will not use the Services for which the Licenses are
required.
CUSTOMER OBLIGATIONS
The Customer must:
comply with all statutes, Regulations and any other
regulatory requirement, including the requirement of any
body having competent jurisdiction, in relation to the
System, the System Components and the Services;
not transmit a signal to a Satellite otherwise than in
accordance with this Agreement;
act in accordance with any reasonable direction given by
Optus which may remedy an Interruption. If the Interruption
is caused by any act or omission by the Customer or a
Customer Associate, the Customer shall bear the costs of
complying with any such direction. Notwithstanding any
other provision of this Agreement, if the Customer fails to
comply with such a direction, the Interruption shall not be
a Rebateable Interruption;
not use a Service for the purpose of carrying on a business
of providing facilities for telecommunications between other
persons in a manner contrary to law;
use its best endeavours to procure that the use of any
Customer Equipment or any other equipment or services used
by the Customer or a Customer Associate does not Interfere
with the System or the System Components and accords with
all relevant regulatory standards including, without
limitation, standards determined by AUSTEL pursuant to the
Telecommunications Act 1991 (Cth) or included in any
relevant class license issued pursuant to the
Telecommunications Act 1991 (Cth). Optus shall consult with
the Customer at the Customer's reasonable request concerning
the use of Customer Equipment or other equipment or services
by the Customer or a Customer Associate, having regard to
the Customer's obligations under this paragraph;
ensure that all Customer Associates are at all relevant
times duly Licensed; and
ensure that any Customer Equipment specified in Annexure C
meets the specifications and performance levels specified in
Annexure C.
Subject to the provisions of any agreement for the provision of
Services to, or the use of Services by, Optus, if the provision
of Services to, or the use of Services by, a Customer Associate,
or any failure by the Customer to comply with its obligations
under this Agreement, causes:
a failure of any Service to meet the Warranted Service
Performance Levels;
an Interruption of any Service; or
a failure by Optus to perform its obligations under this
Agreement,
then, notwithstanding any other provision of this Agreement, the
Customer has no remedy against Optus pursuant to this Agreement
or otherwise and the Customer is not relieved of any of its
obligations under this Agreement.
If Optus reasonably determines that:
any Customer Equipment or any equipment or services used by
a Customer Associate or any transmission of
Telecommunications Traffic by the Customer or a Customer
Associate Interferes with the System or any System
Component; or
any Customer Equipment installed on Optus' premises is not
maintained and operated in conformity with Annexure A and
statutory requirements (including without limitation in
regard to safety),
in addition to any of its other rights under this Agreement,
Optus shall be entitled to give notice to the Customer in
accordance with clause 21.3 identifying the apparent cause of the
Interference and the relevant failure to conform with Annexure A
or statutory requirements and requiring the Customer to remedy
the cause of the Interference or to conform with Annexure A or
the statutory requirements (as applicable ) within the time
specified in the notice. Such time will be reasonable in all the
circumstances.
If the Customer has not remedied the cause of the Interference or
conformed with Annexure A or the statutory requirements (as
applicable) within the time specified in the notice referred to
in clause 13.3, Optus may give notice to the Customer in
accordance with clause 21.3 stating that:
Optus will forthwith suspend any Service which is a cause of
the Interference; or
the Customer is required to cease forthwith to use any
Service which is a cause of the Interference.
If, pursuant to clause 13.4, any Service is suspended or the
Customer ceases using any Service, Optus will, if it determines
that the reason for the suspension or cessation has ceased:
forthwith remove the suspension; or
forthwith permit the Customer to resume using the Service if
notice was given pursuant to clause 13.4(b).
The obligations of the Customer and Optus in regard to Customer
Equipment on Optus' premises and Optus Equipment on the
Customer's premises are set out in Annexure A to these Terms and
Conditions.
Without detracting from any other obligation of the Customer or
any remedy of Optus pursuant to this Agreement, the Customer will
not, unless otherwise provided in this Agreement, be relieved of
its obligations to pay Optus' charges as they fall due
notwithstanding:
any failure on the part of the Customer to install in a
timely manner or maintain any of the Customer Equipment
unless caused by any failure by Optus to comply with its
obligations under this Agreement;
a failure to renew any License, the cancellation or
suspension of any License; or
any suspension or cessation referred to in clause 13.4.
Notwithstanding any other provision of this Agreement, the
Customer shall not assign or novate its rights under this
Agreement to any person or entity ("Assignee") unless the
Assignee has agreed to be bound by the terms of this Agreement as
varied from time to time as though named in this Agreement as to
the Customer.
The Customer shall, whenever it has a requirement for the
provision of telecommunications services (except where the
relevant telecommunications services are for use in an area in
which Optus and the Customer are in direct competition), use its
reasonable endeavours to give Optus (and any Optus Associate
nominated by Optus) reasonable opportunity to offer to provide
those services.
The Customer agrees to consult with Optus six weeks prior to
seeking any insurance in respect of consequential loss or
business interruption arising in connection with failure of a
Satellite or a Transponder located on a Satellite.
If at any time the Customer changes premises, the Customer shall
bear all costs incurred by Optus in relation to the
disconnection, removal, replacement, modification and
reinstallation of Optus Equipment in or from the Customer's
premises and in or to the Customer's new premises. Optus shall
use its reasonable endeavours to ensure that such costs are
minimized.
INDEMNITIES
Subject to the limitations specified in clause 14.5, the
Customer indemnifies and agrees to keep indemnified Optus and
every Optus Associate from and against any and all Losses which
Optus or an Optus Associate may suffer or incur as a result of
or in connection with Customer Conduct.
Without limitation, the indemnity contained in clause 14.1 shall
apply to all Losses suffered or incurred as a result of or in
connection with Customer Conduct which occurs in or in relation
to any of the following situations:
the use in connection with the System or a Service of any
device, including without limitation, any invention, which
causes or is alleged to cause an infringement of a patent
except where the use of the device results from a direction
or authorization by Optus or an officer of Optus;
the transmission, reception or attempted transmission or
reception of any Telecommunications Traffic or any failure
to receive or transmit Telecommunications Traffic to or for
the benefit of the Customer, the Customer Associate or any
other person;
the Customer's use of or inability to use or manner of use
of a Service or the System or the provision of any service
by the Customer as part of such use;
the failure to carry any Telecommunications Traffic or the
transmission of any Telecommunications Traffic by error or
containing any error intended to be carried or transmitted
by, to or for the benefit of the Customer;
the loss of any data or information intended to be carried
or transmitted by, to or for the benefit of the Customer;
the failure by the Customer or any third party to encrypt
any Telecommunications Traffic;
the transmission by or on behalf of the Customer to a person
of any of the Customer's Telecommunications Traffic when
that person was not intended by the Customer to receive the
Telecommunications Traffic, or the failure of the Customer
to transmit any of the Customer's Telecommunications Traffic
to a person when that person was intended by the Customer to
receive the Telecommunications Traffic;
the emission of ionising radiation, radioactive
contamination or microwave radiation; or
the use, installation, maintenance, testing or removal of
any of the Customer Equipment which may be in Optus'
premises or any of the Optus Equipment which may be in the
Customer's premises.
The indemnity contained in clause 14.1 shall operate in relation
to Customer Conduct occurring in or in relation to the situation
specified in clause 14.2(h) whether or not any of the
circumstances referred to in that paragraph have been
contributed to by an act or omission of Optus or an Optus
Associate, unless such an act or omission constitutes wilful
misconduct or negligence.
The indemnity contained in clause 14.1 shall operate in relation
to Customer Conduct occurring in or in relation to the situation
specified in clause 14.2(i) whether or not any of the
circumstances referred to in that paragraph have been
contributed to by an act or omission of Optus or an Optus
Associate unless such act or omission constitutes wilful
misconduct or negligence.
If:
the Customer elects to use an earth station in connection
with any Service, other than an earth station provided by
Optus, the maximum amount which may be recovered under the
indemnity contained in clause 14.1, in respect of:
a. subject to sub-clause (a)(ii), a breach, act or
omission comprising the relevant Customer Conduct shall be
limited to $50,000,000; or
b. a series of related breaches, acts or omissions
comprising the relevant Customer Conduct, which taken together
gave rise to the same event in which or by virtue of which the
Loss was suffered by Optus, shall be limited to $50,000,00.
the Customer does not elect to use an earth station in
connection with any Service, other than an earth station
provided by Optus, the maximum amount which may be recovered
under the indemnity contained in clause 14.1, in respect of:
a. subject to sub-clause (b)(ii), a breach, act or
omission comprising the relevant Customer Conduct shall be
limited to $5,000,000; or
b. a series of related breaches, acts, or omissions
comprising the relevant Customer Conduct, which taken together
gave rise to the same event in which or by virtue of which
the Loss was suffered by Optus, shall be limited to $5,000,000.
If for any reason any one or more of the exclusions of liability
set out in clause 15 are void, invalid or ineffective in
relation to any claim, demand, action or proceeding made or
brought by a Customer Associate or any person claiming by or
through the Customer which is in any way referable to the
provision or use by any person of the Services ("Associate
Claim"), the Customer indemnifies and agrees to keep indemnified
Optus from and against any and all Losses which Optus may suffer
or incur as a result of or in connection with each Associate
Claim.
The Customer:
except to the extent that the relevant Losses are
attributable to the wilful misconduct or negligence of Optus
or an Optus Associate, indemnifies and agrees to keep
indemnified Optus from and against any and all Losses which
Optus may suffer or incur as a result of or in connection
with any claim, demand, action or proceeding made or brought
by any officer, employee or agent of the Customer or of any
Customer Associate which is in any way referable to the
provision or use by any person of the Services ("Employee
Claim"); and
irrevocably waives all rights (other than rights arising in
relation to wilful misconduct or negligence of Optus or an
Optus Associate) it may at any time and from time to time
have (or would, but for this clause, have had) against Optus
or any Optus Associate in relation to or in connection with
any Employee Claim.
Optus:
except to the extent that the relevant Losses are
attributable to the wilful misconduct or negligence of the
Customer or a Customer Associate, indemnifies and agrees to
keep indemnified the Customer from and against any and all
Losses which the Customer may suffer or incur as a result of
or in connection with any claim, demand, action or
proceeding made or brought by any officer, employee or agent
of Optus or of any Optus Associate which is in any way
referable to the provision or use by any person of the
Services ("Employee Claim"); and
irrevocably waives all rights (other than rights arising in
relation to wilful misconduct or negligence of the Customer
or a Customer Associate) it may at any time and from time to
time have (or would, but for this clause, had had) against
the Customer or any Customer Associate in relation to or in
connection with any Employe Claim.
The Customer indemnifies and agrees to keep indemnified Optus
and every Optus Associate from and against any and all Losses
which Optus or an Optus Associate (directly or indirectly) may
suffer or incur arising from or in connection with any
transmission or reception by or for and on behalf of the
Customer or a Customer Associate of Telecommunications Traffic
(other than Telecommunications Traffic transmitted by Optus
which has not been provided to Optus by the Customer, or the
transmission of which has not been requested or otherwise
authorised by the Customer) which:
infringes any trade mark, patent, copyright, design or other
intellectual property right of any person whatsoever;
is of a defamatory, libellous or slanderous nature; or
breaches any statute or Regulation of any government of the
Commonwealth of Australia or any State or Territory of
Australia including, but not limited to the Broadcasting
Services Act 1992, the Radiocommunications Act 1992 and the
Telecommunications Act 1991.
LIABILITY
Notwithstanding any other provision of this Agreement, Optus
will not be liable to the Customer, a Customer Associate or to
any person claiming by or through the Customer under this
Agreement for damage or injury to property or persons, including
sickness and death, arising from the following:
ionising radiation or radioactive contamination;
war, invasion, acts of foreign enemy or hostilities (with or
without the declaration of war);
civil war, rebellion, revolution, insurrection, military or
usurped power;
exposure to microwave radiation unless caused by the wilful
misconduct or negligence of Optus or an Optus Associate;
the use, installation, maintenance, testing or removal of
any of the Customer Equipment which may be in Optus'
premises or any of the Optus Equipment which may be in the
Customer's premises unless caused by the wilful misconduct
or negligence of Optus or an Optus Associate;
confiscation, nationalisation, requisition or destruction of
or damage to any property of the Customer by or under any
order of a government or public or local authority;
any Force majeure Event affecting Optus not listed above.
Notwithstanding any other provision of this Agreement, Optus
will not be liable to the Customer, a Customer Associate or any
other person claiming by or through the Customer, for any damage
whether foreseeable or not, (no matter how that damage may
arise, including, without limitation, by an act or omission of
Optus or an Optus Associate (unless such act or omission
constitutes wilful misconduct or negligence) suffered as a
result of:
any errors occurring in the transmission of any
Telecommunications Traffic intended to be carried or
transmitted by, to or for the benefit of the Customer; or
the loss of any data or information intended to be carried
or transmitted by, to or for the benefit of the Customer; or
the transmission or reception by the Customer, a Customer
Associate or any third party of Telecommunications Traffic
or any other signal; or
the failure by the Customer or any third party to encrypt
any Telecommunications Traffic; or
a person other than the Customer receiving any of the
Customer's Telecommunications Traffic when that person was
not intended by the Customer to receive the
Telecommunications Traffic, or a person other than the
Customer failing to receive any of the Customer's
Telecommunications Traffic when that person was intended by
the Customer to receive the Telecommunications Traffic.
Notwithstanding any other provision of this Agreement, Optus
will not be liable, either in contract or in tort, to the
Customer, a Customer Associate or to any other person claiming
by or through the Customer for:
any Interruption caused by or due to any act or omission
(except where done at the direction of Optus or an officer
of Optus) of the Customer or a Customer Associate or by or
due to equipment, facilities or services operated by the
Customer, a Customer Associate or their respective officers,
employees, servants or agents, contractors or subcontractors
or consultants; or
any loss of revenue or profits or any indirect or
consequential damage or any indirect or consequential
economic loss, whether foreseeable or not, arising from;
a. Optus' performance or non-performance of its
obligations under this Agreement; or
b. the exercise by Optus of its rights to terminate this
Agreement in its entirety or in respect of any Service; or
c. any other act or omission of Optus or an Optus
Associate which has caused any damage or loss to the Customer, a
Customer Associate or any other person claiming by or through the
Customer,
whether or not any such damage or loss arises from an act or
omission of Optus or an Optus Associate including, without
limitation, an act or omission which is negligent (unless such
act or omission constitutes Gross Negligence or wilful
misconduct).
Subject to clause 15.5, the Warranted Service Performance
Levels, any relevant Tariff and the Customer Services Plan, all
express or implied statements, terms or conditions whether
arising by virtue of statute or otherwise relating to the
fitness for any purpose or performance of any equipment or
materials supplied in connection with any Service or the System
are expressly excluded.
Nothing in this clause 15 will exclude, restrict or modify any
condition, warranty, right or liability implied in this
Agreement or protected by law where to do so would render this
clause void.
To the extent, if any, that:
Optus or an Optus Associate is liable in tort to the
Customer or any other person; and
AUSTEL has made a determination of the maximum amount
recoverable in tort in relation to an act done or omission
made in relation to the supply of Services,
the liability of Optus and the Optus Associates is limited to
the maximum amount so determined.
The Customer acknowledges that, except where the relevant
Interruption is caused by the wilful misconduct or negligence of
Optus or an Optus Associate, the only liability of Optus to the
Customer, a Customer Associate or any person claiming by or
through the Customer in respect of an Interruption shall be the
liability to provide a rebate of its charges in accordance with
clause 16 of this Agreement and that, in particular, Optus shall
not be liable in respect of an interruption to pay damages for
breach of the Warranted Service Performance Levels.
INTERRUPTIONS AND REBATES
Minimisation
Subject to this Agreement, Optus must use its best endeavours to
minimise the period of any Interruption. Optus shall endeavour
to notify the Customer of each Interruption and shall notify the
Customer of each Interruption which occurs in relation to the
DTH Component and which continues for longer than one minute.
Optus shall discuss with the Customer in good faith the reasons
for any such Interruption and the expected duration of any such
Interruption. Optus undertakes to keep the Customer informed of
Optus' best estimate of the timing of restoration of any Service
which is Interrupted.
DTH Component signals
If one or more Rebateable Interruptions (other than Non-penalty
Rebateable Interruptions) occur during a Rebate Year in respect
of one or more signals comprising part of the DTH Component THEN
the following provisions shall apply in respect of each signal
so Interrupted:
if the aggregate duration of such Rebateable Interruptions
exceeds the Cumulative Annual Availability Benchmark in
respect of the relevant signal, Optus will provide a rebate
of its charges equal to one-half of one day's charges for
the DTH Component;
if the aggregate duration of such Rebateable Interruptions
is at least twice the Cumulative Annual Availability
Benchmark in respect of the relevant signal, Optus will
provide a further rebate (in addition to the rebate
specified in paragraph (a)) of its charges at three times
the rate specified in paragraph (a); and
if the aggregate duration of such Rebateable Interruption is
at least three times the Cumulative Annual Availability
Benchmark in respect of the relevant signal:
a. Optus will provide a further rebate (in addition to the
rebates specified in paragraphs (a) and (b)) at seven times the
rate specified in paragraph (a) to the intent that, subject to
sub-paragraph (ii), the total maximum rebate per DTH Component
signal for any Rebate Year shall be equal to eleven times the
rate specified in paragraph (a); and
b. Optus will provide a further rebate equal to one-half
of that portion of Optus' charges in respect of the DTH Component
which is referable to the aggregate duration of such Rebateable
Interruptions (less the period equal to three times the
Cumulative Annual Availability Benchmark in respect of the
relevant signal).
Distribution Component signals
If one or more Rebateable Interruptions (other than Non-penalty
Rebateable Interruptions) occur during a Rebate Year in respect
of one or more signals comprising part of the Distribution
Component THEN the following provisions shall apply in respect
of each signal so Interrupted:
if the aggregate duration of such Rebateable Interruptions
exceeds the Cumulative Annual Availability Benchmark in
respect of the relevant signal, Optus will provide a rebate
of its charges equal to one-twelfth of one day's charges for
the Distribution Component;
if the aggregate duration of such Rebateable Interruptions
is at least twice the Cumulative Annual Availability
Benchmark in respect of the relevant signal, Optus will
provide a further rebate (in addition to the rebate
specified in paragraph (a)) of its charges at three times
the rate specified in paragraph (a); and
if the aggregate duration of such Rebateable Interruptions
is at least three times the Cumulative Annual Availability
Benchmark in respect of the relevant signal:
a. Optus will provide a further rebate (in addition to the
rebates specified in paragraphs (a) and (b)) at seven times the
rate specified in paragraph (a) to the intent that, subject
to sub-paragraph (ii), the total maximum rebate per
Distribution Component signal for any Rebate Year shall be
equal to eleven times the rate specified in paragraph (a); and
b. Optus will provide a further rebate equal to one-
twelfth of that portion of Optus' charges in respect of the
Distribution Component which is referable to the aggregate
duration of such Rebateable Interruptions (less the period
equal to three times the Cumulative Annual Availability
Benchmark in respect of the relevant signal).
Contribution Component signals
If one or more Rebateable Interruptions (other than Non-penalty
Rebateable Interruptions) occur during a Rebate Year in respect
of one or more signals comprising part of the Contribution
Component THEN the following provisions shall apply in respect
of each signal so Interrupted:
if the aggregate duration of the Rebateable Interruptions
exceeds the Cumulative Annual Availability Benchmark in
respect of the relevant signal, Optus will provide a rebate
of its charges equal to one-quarter of one day's charges in
respect of the Contribution Component;
if the aggregate duration of such Rebateable Interruptions
is at least twice the Cumulative Annual Availability
Benchmark in respect of the relevant signal, Optus will
provide a further rebate (in addition to the rebate
specified in paragraph (a)) of its charges at three times
the rate specified in paragraph (a); and
if the aggregate duration of the Rebateable Interruptions is
at least three times the Cumulative Annual Availability
Benchmark in respect of the relevant signal:
a. Optus will provide a further rebate (in addition to the
rebates specified in paragraphs (a) and (b)) at seven times the
rate specified in paragraph (a) to the intent that the total
maximum rebate per Contribution Component signal for any
Rebate Year shall be equal to eleven times the rate specified
in paragraph (a).
b. Optus will provide a further rebate equal to one-
quarter of that portion of Optus' charges in respect of the
Contribution Component which is referable to the aggregate
duration of such Rebateable Interruptions (less the period
equal to three times the Cumulative Annual Availability
Benchmark in respect of the relevant signal).
Multiple Signal Interruptions
If one or more Rebateable Interruptions (other than Non-penalty
Rebateable Interruptions) occur during a Rebate Year in respect
of one or more signals comprising part of a Service Component
(other than any signal in respect of which Optus has already
incurred a liability to provide a rebate under clauses 16.2,
16.3 or 16.4) and the aggregate duration of such Rebateable
Interruptions exceeds the Cumulative Annual Availability
Benchmark in respect of signals of that type, Optus will provide
a rebate of its charges equal to:
if the relevant Interruptions have occurred in respect of
signals comprising part of the DTH Component, one-half of
one day's charges for the DTH Component;
if the relevant Interruptions have occurred in respect of
signals comprising part of the Distribution Component, one-
twelfth of one day's charges for the Distribution Component;
if the relevant Interruptions have occurred in respect of
signals comprising part of the Contribution Component, one-
quarter of one day's charges for the Contribution Component.
Non-penalty rebates
If at any time there occurs a Non-penalty Rebateable
Interruption in respect of a signal forming part of a Service
Component:
the duration of that Non-penalty Rebateable Interruption
shall not be included in any calculation for the purposes of
clauses 16.2, 16.3, 16.4 or 16.5; and
Optus will, for each signal so Interrupted, provide a rebate
equal to:
a. in the case of a signal forming part of the DTH
Component, one-half;
b. in the case of a signal forming part of the
Distribution Component, one-twelfth;
c. in the case of a signal forming part of the
Distribution Component, one-quarter,
of that portion of Optus' charges in respect of the
Service Component of which the relevant signal forms part
referable to the duration of that Non-penalty Rebateable
Interruptions.
Rate of accrual of charges
For the purpose of determining any rebate to be provided under:
clauses 16.2, 16.3, 16.4 or 16.5, Optus' charges shall,
subject to paragraph (L), be deemed to accrue on a daily
basis; and
clauses 16.2(c)(ii), 16.3(c)(ii), 16.4(c)(ii) or 16.6,
Optus' charges shall be deemed to accrue on an hourly basis.
Variations in number of signals
As at the date of this agreement, the DTH Component comprises
two signals, the Distribution Component comprises twelve
signals, and the Contribution Component comprises four signals.
If at any time:
the number of signals comprising the DTH Component is
varied, any reference in this clause 16 in the context of
the DTH Component to "one-half" shall be deemed to have been
replaced by a reference to a fraction, the numerator of
which shall be one (1), and the denominator of which shall
be equal to the number of signals comprising the DTH
Component at the relevant time;
the number of signals comprising the Distribution Component
is varied, any reference in this clause 16 in the context of
the Distribution Component to "one-twelfth" shall be deemed
to have been replaced by a reference to a fraction, the
numerator of which shall be one (1), and the denominator of
which shall be equal to the number of signals comprising the
Distribution Component at the relevant time; and
the number of signals comprising the Contribution Component
is varied, any reference in this clause 16 in the context of
the Contribution Component to "one-quarter" shall be deemed
to have been replaced by a reference to a fraction, the
numerator of which shall be one (1), and the denominator of
which shall be equal to the number of signals comprising the
Contribution Component at the relevant time.
Monthly payments
Optus shall promptly following the end of each month provide to
the Customer a credit note representing the amount of any rebate
to which the Customer has become entitled in that month.
Refund of pre-payment
if Optus considers that a Service or Service Component the
subject of a Rebateable Interruption cannot be restored earlier
than 60 days after the commencement of the Interruption, it will
forthwith refund to the Customer the proportionate amount of any
advance payment applicable to the period for which Optus
estimates the Rebateable Interruption will continue. Such
estimate will be the best estimate Optus can make having regard
to all the information which is available regarding he
Interruption.
TERMINATION
In addition to the rights of termination referred to elsewhere
herein, this Agreement may be terminated pursuant to the
provisions of this clause 17.
The Customer may by giving notice to Optus in accordance with
clause 21.1 terminate this Agreement:
pursuant to clauses 17.3, 17.4, 17.8 or 18.2; or
if Optus has breached any of the material terms of this
Agreement and has failed to remedy that breach within 21
days or any other period that the Customer and Optus may
agree after the date on which the Customer has given notice
to Optus specifying the breach and requiring Optus to remedy
it.
The Customer may terminate this Agreement with effect from
either the 4th or the 7th anniversary of the Commencement Date
in respect of the Service first provided under this Agreement by
not less than twelve months prior notice given to Optus in
accordance with clause 21.1. Such notice of termination shall
be of no effect unless the Customer, before giving such notice
to Optus, has demonstrated to Optus that the Tariff in respect
of the relevant Service will not be comparable (plus or minus
5%) with charges made by an alternative satellite service
provider (the identity of whom shall be disclosed by the
Customer to Optus at the time of such demonstration) over the
balance of the Operating Term in respect of a service
substantially equivalent in all material respects to the
relevant Service.
Subject to this clause 17, the Customer may terminate this
Agreement forthwith by giving notice to Optus in accordance with
clause 21.1 if a receiver or receiver and manager is appointed
over any of the property or assets of Optus, or if a liquidator
or provisional liquidator or administrator is appointed to Optus
(other than for the purposes of amalgamation or reconstruction
or corporate reorganisation) or if Optus enters into any
arrangement with its creditors or any class of creditors (other
than for the purposes of amalgamation or reconstruction or
corporate reorganisation).
Optus may, by giving notice to the Customer in accordance with
clause 21.1 terminate this Agreement pursuant to clauses 17.6,
17.7 or 17.8.
Subject to this clause 17, Optus may terminate this Agreement
forthwith by giving notice to the Customer in accordance with
clause 21.1 if:
the Customer fails to pay any charges due to Optus within 21
days after the date on which Optus has given notice to the
Customer that the charges are due and unpaid; or
the Customer has breached any of the material terms of this
Agreement (including without limitation its obligations
under clause 12, but excluding the failure to pay any
charges on due date) and has failed to remedy that breach
within 21 days or any other period that Optus and the
Customer may agree after the date on which Optus has given
notice to the Customer specifying the breach and requiring
the Customer to remedy it.
Subject to this clause 17, Optus may terminate this Agreement
forthwith by giving notice to the Customer in accordance with
clause 21.1 if a receiver or receiver and manager is appointed
over any of the property or assets of the Customer, or if a
liquidator or provisional liquidator or administrator is
appointed to the Customer (other than for the purposes of
amalgamation or reconstruction or corporate reorganisation) or
if the Customer enters into any arrangement with its creditors
or any class of creditors (other than for the purposes of
amalgamation or reconstruction or corporate reorganisation).
Notwithstanding any other provision of this Agreement, each of
Optus and the Customer shall be entitled by notice given to the
other in accordance with clause 21.1 to terminate this Agreement
if:
a Rebateable Interruption occurs in relation to one or more
signals comprising the DTH Component and continues for a
period of not less than 336 hours; or
two or more Rebateable Interruptions occur in relation to
one or more signals comprising the DTH Component during any
period of twelve consecutive months and have an aggregate
duration of not less than 336 hours.
If this Agreement is terminated in respect of a Service:
by the Customer pursuant to clause 17.3 or 17.8; or
by Optus pursuant to clauses 17.6 or 17.7
the Customer shall within 30 days after the date of termination
pay to Optus a sum equal to the difference between the amount of
the Continuity Discount received by the Customer in respect of
that Service, up to the date of termination, and the amount to
which the Customer would have been entitled had the Continuity
Discount in respect of that Service applied up to a maximum of 5
years only. The parties acknowledge that such payment
represents a genuine pre-estimate of relevant loss.
If this Agreement is terminated in respect of a Service by the
Customer pursuant to 18.2, the Customer shall within 30 days
after the date of termination pay to Optus a sum equal to 50% of
the difference between the amount of the Continuity Discount
received by the Customer in respect of that Service, up to the
date of termination, and the amount to which the Customer would
have been entitled had the Continuity Discount in respect of
that Service applied up to a maximum of 5 years only. The
parties acknowledge that such payment represents a genuine pre-
estimate of relevant loss.
If Optus lawfully terminates this Agreement, Optus may subject
to this Agreement recover all damages as it would be entitled in
law or in equity to recover whether the damages arise as a
result of the Customer's breach or arise out of the termination
by Optus of this Agreement or otherwise.
If the Customer lawfully terminates this Agreement, the Customer
may subject to this Agreement recover all damages as it would be
entitled in law or in equity to recover whether the damages
arise as a result of Optus' beach or arise out of the
termination by the Customer of this Agreement or otherwise.
Subject to any other provisions of this Agreement, if this
Agreement terminates for any reason, such termination shall be
without prejudice to any antecedent right or obligation of the
parties under this Agreement.
Notwithstanding termination of this Agreement in respect of any
Service:
the Customer will not be entitled to any refunds or rebates
other than rebates referred to in clause 16 and a refund of
any payments made in advance in respect of the provision of
Services after the date of termination;
the obligations of the Customer and where applicable Optus
pursuant to clauses 14, 17.15 and 19 will continue; and
the provisions of clause 20.6 will continue to apply.
If any Customer Equipment is situated in Optus' premises or any
Optus equipment is situated in the Customer's premises, upon
termination of this Agreement the parties will comply with the
termination provisions in Annexure A.
FORCE MAJEURE
Notwithstanding any other provision of this Agreement or any
relevant Tariff Optus will not be liable for any failure to
fulfil any term of this Agreement in respect of any Service nor,
subject to clause 17.8, will it or the Customer be entitled to
terminate this Agreement if fulfillment is delayed, prevented,
restricted or interfered with by reason of any Force Majeure
Event affecting Optus or any person engaged by Optus to supply
equipment (including computer software) or to perform services
on its behalf.
If at any time the Customer is by reason of any Force Majeure
Event rendered unable to use a Serve for the transmission of
Telecommunications Traffic (other than test patterns or such
other transmissions as Optus may agree):
the Customer shall not by reason of that event be relieved
from its obligation to pay Optus' charges;
if such event continues for a period of not less than 90
days and the Customer is not in default in performing its
obligation to pay Optus' charges the Customer may forthwith
terminate this Agreement by giving notice to the other in
accordance with clause 21.1;
the Customer will give the earliest possible notice of the
Force Majeure Event and its effect to Optus. That notice
will also set out, insofar as it is known to the Customer,
the expected duration of the Force Majeure Event. The
Customer agrees to exercise all reasonable diligence to
remedy or cause to be remedied any event which is capable of
remedy; and
Nothing in this clause will require the Customer or any
person engaged by it to settle any difficulty referred to in
paragraph (b) of the definition of Force Majeure Event on
terms which the Customer or that person, in its sole
discretion, does not consider satisfactory.
If Optus or any person engaged by it to supply equipment
(including computer software) or to perform services on its
behalf, is affected by any Force Majeure Event:
For the duration of the event Optus will if possible in all
the circumstances, provide the Customer with the best
estimates available to Optus of when the Services will be
restored and undertakes to keep the Customer informed of
progress towards restoral of the Service; and
Nothing in this clause will require Optus or any person
engaged by it to settle any difficulty referred to in
paragraph (b) of the definition of Force Majeure Event on
terms which Optus or that person, in its sole discretion,
does not consider satisfactory.
CONFIDENTIALITY
(a) Optus and the Customer must not at any time, including
at any time after the termination of this Agreement,
disclose to any person, firm or corporation, without the
prior consent in writing of the other party, the contents of
this Agreement or any confidential information relating to
the business or trade secrets of the other party, and
without limiting the generality of the foregoing, any
information acquired by Optus or the Customer through the
Customer's use of the any Service and any information
contained in the Customer Services Plan.
Each of the parties agrees to take reasonable steps to
ensure that its employees, officers, servants, contractors,
sub-contractors, consultants and agents observe this
requirement of non-disclosure.
The obligations referred to in clause 19.1 will not apply to
information which:
is published or otherwise is generally available in the
public domain other than through the default of any of the
parties;
is received by the parties from a third party having a bona
fide right to disclose the same;
is required to be given pursuant to a governmental or
judicial requirement or order or a requirement of any body
having competent jurisdiction.
The obligations arising from this clause 19 will not prevent
either Optus or the Customer from disclosing the content of this
Agreement to its bankers, other financiers, insurers or legal
advisers provided that the contents of the Customer Services
Plan will not be disclosed without the prior written consent of
the Customer or Optus (as the case may be), which will not be
unreasonably withheld.
GENERAL
This Agreement constitutes the entire agreement between the
Customer and Optus in relation to the provision of the Services.
Any previous negotiations, representation, warranties,
arrangements and statements are merged herein and otherwise are
hereby excluded and cancelled except in so far as the parties
may expressly state otherwise in writing.
If any part of this Agreement is void or unenforceable that part
will be severable from and not affect the enforceability of the
remaining provision.
The waiver by Optus or the Customer of any breach or non-
observance of any of the terms of this Agreement will not be
construed as a general waiver. Any waiver will relate only to
the particular breach or non-observance in respect of which it
was made.
No waiver of any breach or of any of the terms hereof will be
effective unless that waiver is in writing and signed by the
parties against whom such waiver is claimed. No waiver of any
breach will be deemed a waiver of any other or subsequent
breach.
Optus is entitled to assign its rights, entitlements and
obligations under this Agreement to its successors with the
consent of the Customer (such consent not to be unreasonably
withheld), and its rights and entitlements under this Agreement
or any part thereof to any third party. The Customer shall be
entitled to assign its rights and entitlements under this
Agreement with the consent of Optus (such consent to be
unreasonably withheld).
Save for rebates referred to in clause 16, refunds of any
payments made in advance in respect of the provision of Services
after the date of termination of this Agreement and any amounts
payable by Optus to the Customer in respect of services provided
to Optus, the Customer will not be entitled to any right of set-
off, whether in law or in equity, against Optus' charges, or any
other amounts which may be due to Optus under this Agreement, in
respect of any amounts which the Customer may claim are payable
by Optus to the Customer (including, without limitation, claims
for damages resulting from the breach, repudiation, frustration
or termination of this Agreement).
Unless otherwise provided in this Agreement, no amendment or
modification to this Agreement will be effective unless that
amendment or modification is embodied in writing and signed by
each of the parties.
This agreement may be executed in any number of counterparts and
all those counterparts taken together are regarded as one
instrument.
The Customer shall bear and be responsible for all stamp duty
charged or chargeable in respect of this Agreement.
In this Agreement, unless the contrary intention appears:
an agreement, obligation, liability, representation,
warranty, guarantee or indemnity in favour of 2 or more
persons is for the benefit of them jointly and severally;
an agreement, obligation, liability, representation,
warranty, guarantee or indemnity given or undertaken by 2 or
more persons binds them and is given jointly and severally;
and, in particular, where two or more persons comprise the
Customer:
an agreement, obligation, liability, representation,
warranty, guarantee or indemnity in favour of the Customer
is for the benefit of those persons jointly and severally;
and
an agreement, obligation, liability, representation,
warranty, guarantee or indemnity given or undertaken by the
Customer binds those persons jointly and severally.
If there is any inconsistency between this Agreement and any
relevant Tariff, this Agreement shall prevail to the extent of
any such inconsistency.
NOTICES
Subject to clause 21.3, and unless otherwise specifically
provided in this Agreement, all notices, consents, requests and
other communications or documents authorised or required to be
given by or pursuant to this Agreement ("Notices") will be given
in writing by facsimile, prepaid post or hand to the relevant
party at its facsimile number or address appearing in this
clause;
If to the Customer:
Address: 100 Bulwara Road,
Prymont NSW 2000
Telephone: (02) 325-7333
Facsimile: (02) 325-7322
If to Optus:
Address: The Account Executive
National Media Sales
Optus Centre
Optus Communications Pty Limited
101 Miller Street
NORTH SYDNEY NSW 2060
Telephone: (02) 342-6864
Facsimile: (02) 342-6988
A Notice is deemed to have been given to the party to whom it
was sent:
in the case of hand delivery, on delivery during Business
Hours;
in the case of prepaid post, two Business Days after the
date of despatch; and
in the case of facsimile transmission, at the time of
despatch if, following transmission, the sender received a
transmission confirmation report or, if the sender's
facsimile machine is not equipped to issue a transmission
confirmation report, the recipient confirms in writing that
the Notice has been received.
Notices given in accordance with this clause will be given by
facsimile or telephone and will be identified by a unique number
provided by Optus.
Notices given by telephone will be deemed given at the time
recorded on the service docket or log book of notices or the
Customer's equivalent as having been made or attempted. A
Notice sent by facsimile will be deemed to have been given at
the time of despatch if, following transmission, the sender
received a transmission confirmation report or, if the sender's
facsimile machine is not equipped to issue a transmission
confirmation report, the recipient confirms in writing that the
notice has been received.
Notices given under this clause will be given:
to the Customer:
ATTENTION: Duty Master Control Operator
TELEPHONE: (02) 325 7452
FACSIMILE (02) 325 7455
to Optus:
ADDRESS: Senior Network Engineer,
Broadcast Operations Centre
TELEPHONE: (02) 486 3477
FACSIMILE (02) 450 2935
Any party may change its address (referred to in either clause
21.2 or clause 21.3) for receipt of Notices, at any time by
giving notice thereof in accordance with clause 21.1 to the
other parties.
Where the Customer comprises two or more persons:
a Notice given by the Customer in accordance with clauses
21.1 shall not be valid or effective unless signed for and
on behalf of the Customer by a duly authorised
representative of each of the persons comprising the
Customer;
a Notice given by the Customer in accordance with clause
21.3 shall not be valid or effective unless given by a
person whose name appears on a list of "authorised
personnel" given in accordance with clause 21.1 by the
Customer to Optus from time to time for this purpose; and
where Optus has given a Notice to the Customer in accordance
with clause 21.1, or has, in accordance with clause 21.3,
given a Notice to a person appearing on the list of
"authorised personnel" referred to in paragraph (b), Optus
shall not be obliged to give separate Notice to the persons
comprising the Customer.
DISPUTE RESOLUTION
Before resorting to external dispute resolution mechanisms the
parties shall attempt to settle by negotiation any dispute in
relation to this Agreement including by referring the matter to:
the Managing Director of Optus; and
the Managing Directors of the persons comprising the
Customer.
In the event of a dispute referred to in clause 22.1 any action,
decision or determination made by Optus will stand and be
accepted by the Customer until the determination of the dispute.
All parties undertake to facilitate the expeditious
determination of any dispute.
PROVISIONS RELATING TO INDEMNITIES
Duty to Mitigate
Any party which is granted the benefit of an indemnity under
this Agreement ("Indemnified Party") shall use all reasonable
endeavours to mitigate any liability the subject of the
indemnity.
Notification and Assistance
If an Indemnified Party becomes aware of facts or circumstances
which may cause it to make a claim under an indemnity granted
under this Agreement, the Indemnified Party must promptly notify
the party which granted the indemnity ("Grantor") of those facts
and circumstances and use all reasonable endeavours to enable
the Grantor at its own cost to dispute the alleged liability or
commence proceedings or defend any claim against a third party
with respect to the alleged liability. The Indemnified Party
must provide the Grantor with reasonable assistance (at the
Grantor's cost) with respect to any such dispute, proceedings or
claim.
GOVERNING LAW AND JURISDICTION
This Agreement will be governed by and construed in accordance
with the laws of the State of New South Wales and the parties
hereby irrevocably submit to the non-exclusive jurisdiction of
the courts of that State.
Exhibit 10(mm)
ADVISORY AND OVERSIGHT AGREEMENT
THIS ADVISORY AND OVERSIGHT AGREEMENT (the "Agreement") is made
as of the ___ day of February, 1995, between CENTURY AUSTRALIA PTY
LIMITED, an Australian corporation ("Century Australia"), whose
address for purposes of this Agreement is 50 Locust Avenue, New
Canaan, Connecticut 06840, and CENTURY AUSTRALIA COMMUNICATIONS CORP.,
a Nevada corporation ("Special Advisor" or "Century Nevada"), whose
address for purposes of this Agreement is 50 Locust Avenue, New
Canaan, Connecticut 06840.
R E C I T A L S
Century Australia has an economic interest in Continental
Century Pty, Ltd. ("Concen") and through Concen, an economic interest
in Concen's subsidiary Continental Century Pay TV Pty Limited
("CCPTV"), the owner of the subscription television License A for the
Commonwealth of Australia ("License A") .
Concen and CCPTV are contemplating offering video, audio,
programming and other services and distributing such services to
subscribers in the Commonwealth of Australia through License A, MDS
and other means of carriage that are currently and may hereafter
become available.
Each of Century Australia, Concen and CCPTV, itself and
through subsidiaries or affiliates, may hereafter engage in additional
activities.
Heretofore and under date of March 1, 1994, Century
Communications Corp., a Texas Corporation ("Century Texas") and parent
of Century Nevada, entered into a Management Agreement with Century
Australia, which Agreement was assigned by Century Texas to Century
Nevada and which Agreement is being replaced in its entirety by this
Agreement. Century Australia now desires to retain the Special
Advisor to act in an oversight and advisory capacity in connection
with the business and activities of Concen and CCPTV referenced in
Recitals B and C (which business and activities are sometimes referred
to as the "Services and Business") and with responsibility for the
general day-to-day operations and oversight of the Services and the
Business, all on the terms and conditions hereinafter set forth.
Special Advisor represents that it has the competence to carry out its
responsibilities hereunder and will act in the best interests of
Century Australia.
NOW, THEREFORE, in consideration of the mutual covenants and
promises hereinafter set forth, the parties hereto agree as follows:
Appointment. Effective upon the date hereof, Century
Australia hereby appoints Special Advisor in an advisory and oversight
capacity in connection with the Services and the Business with the
Special Advisor having responsibility for supervision of the Business,
and Special Advisor hereby accepts the appointment on the terms and
conditions hereinafter set forth.
Term and Territory of the Agreement.
The term of this Agreement shall commence on the date
hereof and terminate on the date which is ninety nine (99) years from
the date hereof (the "Term") except that the first year of the Term
shall be a period of ten months.
This Agreement shall apply throughout the Commonwealth
of Australia including, without limitation, any territories and areas
where Concen or CCPTV offers the Services or any of them at any time
during the Term.
Responsibilities of Special Advisor. Special Advisor's
responsibilities with respect to the Services shall include, without
limitation, the following (and Special Advisor shall have the power
and authority to take any actions for and on behalf of Concen and
CCPTV and to execute in the name of Concen and CCPTV any instruments
necessary to perform the following): provided, however, that to the
extent any of the following responsibilities constitutes a "Material
Transaction" as set forth in the Ninth Schedule of the Auction
Agreement (as hereafter defined), same shall be exercisable by the
Board of Directors of Century Australia and not by the Special Advisor
unless the Board of Directors elects not to exercise one or more of
said responsibilities.
Causing the purchase of or entering into purchase
agreements with respect to, any and all materials, supplies, machinery
and equipment necessary for the operation and maintenance of the
Services or any of them and for the construction or installation of
any additions to or replacements thereof;
Entering into any and all agreements with third parties
to supply services required for the operation, maintenance,
construction, expansion or replacement of the Services, including, but
not limited to, agreements with program suppliers, data processing
organizations, advertising agencies, marketing and/or sales persons or
organizations, installers, general and other contractors,
subcontractors, or others as are deemed by Special Advisor to be
necessary for the operation, maintenance or improvement of the
Services, and overseeing all performances under such agreements;
Supervising and maintaining the accounting group of
Concen, CCPTV and Century Australia (the "Australia Accounting Group")
in keeping or causing to be kept all necessary books and records in
accordance with generally accepted Accounting Principles of Australia;
Selecting, employing, supervising, instructing,
discharging, and otherwise managing all employees of the Services and
the Business and any agents or independent contractors considered by
Special Advisor to be necessary for the operation, maintenance or
improvement of the Services;
Causing to be purchased and maintained in effect such
policies of insurance as the Board of Directors of Concen, CCPTV and
Century Australia may determine;
Supervising the Concen, CCPTV, and the Century
Australia Accounting Groups in preparation of operating and capital
improvements budgets (the "Budgets") for approval by the Board of
Directors of Century Australia covering the next fiscal year of the
Services and in preparing a Business Plan in respect of such period;
Providing programming and administration services, such
as:
(i) periodic evaluation of the
programming activities of the Services and
recommendations for the improvement or
modification of program offerings or alignments;
and
(ii) programming contract
administration, including the authority and
responsibility (A) to negotiate with program
suppliers the terms of programming contracts for
programming to be supplied to and telecast or
carried as part of the Services, (B) to enter into
programming contracts on behalf of Concen and
CCPTV, (C) for the billing of subscribers for
programming services, (D) for the processing of
programming billings of programming suppliers and
(E) for acting as agent for Century Australia with
respect to programming matters,
Carrying out all negotiations with unions, whether
relating to elections, contracts, grievances or other matters and
assisting in the preparation of union contracts if any are required;
Participating with Century Australia before all
governmental authorities with respect to any matter necessary or
desirable; and
Performing all other advisory services which
Manager/Advisor may deem necessary or desirable for the efficient
operation of the Services and/or Business.
Special Advisor Fee; Reimbursement of Expenses.
For each year of the Term, payable as hereinafter set
forth, Special Advisor shall be entitled to receive from Century
Australia for its services as advisor of and in an oversight capacity
over the Services and Business a fee equal to the greater of (i)
US$1,000,000 and (ii) the percentage of the aggregate of the gross
revenues emanating from the Services or Business (the "Business and
Service Gross Revenues") for such year set forth in Schedule "A"
annexed. "Business and Service Gross Revenues" shall be determined in
accordance with "Generally Accepted Accounting Principles", as such
term is understood and applied in the United States, without deduction
of any kind or nature but excluding (i) any sales or similar tax on
fees from subscribers; and (ii) fees paid directly from subscribers to
third parties (that is other than Century Australia, or any of its
subsidiaries or affiliated companies) for equipment rental which is
both not owned and not leased by Concen, CCPTV or Century Australia.
Payments with respect to the management fee shall be made monthly in
arrears, not more than 50 days after the end of each quarter annual
period commencing with the date of this Agreement and interest shall
accrue on unpaid balances at the rate of 13.5% per annum.
Copies of the determination by the Century Australia
Accounting Group shall be prepared as soon as practicable after (but
in no event more than 45 days after) the end of each quarter annual
period. Within 120 days after the end of each calendar year Century
Australia shall cause its independent public certified or chartered
accountants to determine the Business and Service Gross Revenues for
that year and the management fee payable to Special Advisor that year
and to deliver a copy to Special Advisor. Within 10 days after
receipt by Century Australia of the accountants' determination (which
shall be final and binding on Century Australia and Special Advisor)
Century Australia shall pay to Special Advisor (or Special Advisor
shall repay to Century Australia) the amount by which the management
fee for the year payable to Special Advisor as determined by the
accountants exceeds (or is less than) the amount paid to Special
Advisor for that year.
Century Australia shall pay or reimburse Special
Advisor for out-of-pocket expenses for travel, lodging and meals for
its personnel and for out-of-pocket fees and expenses to third parties
(e.g., accountants and attorneys) and similar expenses, and all other
expenses, including personnel and overhead costs incurred in
performing its services as Special Advisor of the Services and
Business.
Termination.
This Agreement may not be terminated prior to the end of the
Term except by the mutual written consent of both Special Advisor and
Century Australia.
Indemnification.
Century Australia shall indemnify, defend and hold harmless
Special Advisor and its affiliates (and their respective officers,
directors, partners, employees and affiliates) from any claims, costs,
damages (including consequential damages), losses or expenses
(including reasonable attorneys' fee) arising out of or relating to
this Agreement or Special Advisor's performance of its
responsibilities under this Agreement except where attributable to the
gross negligence or willful misconduct of Special Advisor. Neither
Special Advisor nor any of its affiliates (nor any of their respective
officers, directors, partners, employees or affiliates) shall be
liable, in damages or otherwise, to Century Australia for any error of
judgment or other act or omission performed or omitted by Special
Advisor under or otherwise in respect of this Agreement, except if
such error of judgment or other act or omission results from its
willful misconduct or gross negligence in which event Century
Australia shall indemnify and hold ECT harmless from liabilities
arising from such gross negligence or wilful misconduct. All of the
obligations of Special Advisor hereunder have been undertaken by
Special Advisor solely for the benefit of Century Australia and
nothing set forth in this Agreement shall (or shall be deemed to)
grant to any other person any interest (whether as a third party
beneficiary or otherwise) herein.
General.
Further Assurances. The parties covenant and agree that
each will do all acts and things and execute all deeds and documents
and other writings as are from time to time reasonably required for
the purpose of or to give effect to this Agreement.
Governing Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New South Wales, Australia.
Each party irrevocably submits to the exclusive
jurisdiction of the courts of New South Wales and Century Nevada
agrees that service of all writs, process and summonses in such
jurisdiction may be made upon the person listed opposite its name in
the Schedule "B" hereto.
Each party irrevocably waives any objection to the
venue of any legal process on the basis that the process has been
brought in an inconvenient forum.
Each party irrevocably waives any immunity in respect
of its obligations under this Agreement that it may acquire from the
jurisdiction of any court or any legal process for any reason
including, but not limited to, the service of notice, attachment prior
to judgment, attachment in aid of execution or execution.
Severability. Any provision of this Agreement which is
illegal, void by law or unenforceable by law will be ineffective to
the extent only of that illegality, voidness by law or
unenforceability by law without invalidating the remaining provisions.
In such event, the parties shall negotiate in good faith and shall
conclude a new provision which is not illegal, void by law or
unenforceable and which provides and will provide Century Australia
and Special Advisor, as the case may be, with the same benefits and
participation that are provided for by the provision which is or
deemed to be illegal, void or unenforceable.
Notice. Any notice to be serviced in connection with
this Agreement shall be in writing (which shall include telex and
facsimile) and any notice or other correspondence under or in
connection with this Agreement shall be delivered to the address of
that party shown in this Agreement or as otherwise notified by the
relevant addressee marked (in the case of a corporate body) for the
attention of its President or transmitted by facsimile or by first
class mail in each case to the address marked as aforesaid, or by
overnight air courier.
Any notice or correspondence shall be deemed to have been
served as follows:
(a) in the case of delivery, on delivery;
(b) in the case of service by first class mail,
on the fifth business day after the day on which it was
posted;
(c) in the case of facsimile transmission (`Fax')
on the date transmitted if transmitted on a business
day of the addressee and during the addressee's normal
business hours and if not so transmitted on the first
business day of the addressee, immediately following
the transmittal provided in all instances that the
sender retains the Fax receipt of dispatch;
(d) in the case of transmission by overnight
courier, on the second business day after transmitted.
For the purpose of this paragraph the following are the Fax
numbers of the parties hereto:
(a) Century Australia - 612 330 8111 (Australia)
(b) Special Advisor - 203 972 2013 (United
States)
Copies of notices or correspondence to Century Australia shall be
delivered to:
Leavy Rosensweig & Hyman
11 East 44th Street
New York, NY 10017
Attn: David Z. Rosensweig, Esq.
Fax No. (212) 983-2537
and copies of notices or correspondence to Special Advisor shall be
delivered to:
Leavy Rosensweig & Hyman
11 East 44th Street
New York, NY 10017
Attn: David Z. Rosensweig, Esq.
Fax No. (212) 983-2537
Formal Public Announcements. Each of the parties
agrees that neither it nor any of its related parties shall make any
formal public announcement or disclosure to any person in relation to
this Agreement or information of which it has become aware in
connection with this Agreement unless it first consults with and
obtains the agreement in writing of the other party, which agreement
shall not be unreasonably withheld, provided that:
(i) following such consultation no
party shall be entitled to withhold agreement in
the case of a public announcement or notification
where and to the extent that the same is required
by law or the applicable listing rules of any
stock exchange; and
(ii) a party shall be entitled to make
such disclosures to the directors, secretary,
professional advisers and bankers of that party
and its related parties so long as the party uses
all reasonable endeavors to ensure that the
matters disclosed arc kept confidential.
Modification. This Agreement may not be modified,
amended, added to or otherwise varied except by a document in writing
signed by each of the parties or signed on behalf of each party by a
director under hand.
Assignments.
(i) Neither party shall assign, novate,
mortgage, charge, or otherwise transfer all or any
part of its rights or delegate any of its
obligations under this Agreement without the prior
written consent of the other party; provided,
however, that Manager may assign its rights and
delegates its obligations hereunder to any of its
Affiliates without the consent of Century
Australia.
(ii) This Agreement shall be binding on
and inure to the benefit of each party and its
respective successors and permitted assigns.
No Partnership. Nothing contained in this Agreement
shall constitute a partnership, joint venture or association of any
kind between any of the parties or render any of those persons liable
for the debts or liabilities incurred by any other person.
Entire Agreement. This Agreement sets forth all of the
promises, covenants, agreements, conditions and understandings between
the parties hereto, with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions pertaining thereto, express
or implied, oral or written, except as contained herein.
Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original for all
purposes, but all of which taken together shall constitute only one
agreement.
Waiver. Either party may (a) extend the time for the
performance of any of the obligations or other acts of the other party
to this Agreement, or (b) waive compliance by the other party with any
of the agreements or conditions contained herein or any breach
thereof. Any agreement on the part of any party to any such extension
or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. No waiver of any breach of this
Agreement shall be held or construed to be a waiver of any other
subsequent or antecedent breach of this Agreement.
Recitals. The recitals are part of this Agreement.
Definitions.
"Affiliate" shall mean, with respect to any person, any
other person controlling, controlled by or under common control with
such person, with "control" for such purpose meaning the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of a person, whether through the
ownership of voting securities or voting interests, by contract or
otherwise.
"MDS" means multipoint distribution services or channels.
"Auction Agreement" means the certain Deed dated July 12,
1994 by and among Century Australia Pty Limited, Century
Communications Corp., Century Australia Communications Corp. and East
Coast Pay Television Pty. Limited.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year first above written.
CENTURY AUSTRALIA PTY LIMITED
By:
Its
CENTURY COMMUNICATIONS CORP.
(a Texas corporation)
By:
Its
SCHEDULE "A"
to
MANAGEMENT AGREEMENT
The percentage to be utilized in Section 4(a)
For each of the first two years of the Term: 5%
For each of the third, fourth, fifth, sixth, seventh
and eighth years of the Term: 4%
For each of the ninth and tenth years of the Term: 3%
For each year of the Term after the tenth year: 2%
Schedule B
PROCESS AGENT
Sly & Weigall
Gold Fields House
Circular Quay
Sydney, NSW 2001
Telephone: 230-8000
Facsimile: 330-8111
Exhibit 10(nn)
ADVISORY AND TECHNICAL SERVICES AGREEMENT
THIS ADVISORY AND TECHNICAL SERVICES AGREEMENT (the
"Agreement") is made as of the ___ day of February, 1995 by and among
EAST COAST PAY TELEVISION PTY LTD. ("ECT"), with its registered
address at Level 7, 80 Clarence Street, Sydney 2000, Australia, and
CENTURY AUSTRALIA COMMUNICATIONS CORP., a Nevada corporation whose
address for the purposes of this Agreement is 50 Locust Avenue, New
Canaan, CT 06840 ("Century Nevada").
R E C I T A L S
ECT (which for the purposes of this Agreement is deemed to
include ECT and its subsidiaries, now or hereafter created) has or
contemplates having the authority to offer video, audio and other
services pursuant to the A License and to distribute such services via
MDS and has or contemplates having the right to offer and distribute
video, audio and other services and certain programming services
owned, controlled or utilized by Australis (as defined) pursuant to a
certain franchise granted to it by Australis under date of July 8,
1994.
ECT is also engaged in other activities, itself and through
various subsidiaries and affiliates and may hereafter engage in
additional activities, itself and through subsidiaries and affiliates.
The business and services and activities of ECT referenced
in Recitals A and B are sometimes referenced to as the Services and
the Business.
ECT wishes to retain Century Nevada as advisor ("Advisor")
with respect to the Services with responsibility for the general
day-to-day operations and oversight of the Services and the Business,
all on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
promises hereinafter set forth, the parties hereto agree as follows:
Appointment. Effective upon the date hereof, ECT hereby
appoints Century Nevada as Advisor of the Services and the Business
with responsibility for the day-to-day operations of the Services and
for the supervision of the Business, and Century Nevada accepts the
appointment on the terms and conditions hereinafter set forth.
Special Advisor represents that it has the competence to carry out its
responsibilities hereunder and will act in the best interests of ECT.
Term and Territory of the Agreement.
The term of this Agreement shall commence on the date
hereof and terminate on the date which is 99 years from the date
hereof (the "Term").
This Agreement shall apply throughout the Commonwealth
of Australia including, without limitation, any territories and areas
where ECT offers the Services on any of them at any time during the
Term.
Responsibilities of Century Nevada. Century Nevada's
responsibilities as Advisor with respect to the Services shall
include, without limitation, the following, and Century Nevada shall
have the power and authority to take any actions for and on behalf of
ECT and to execute in the name of ECT any instruments necessary to
perform the following, provided however that to the extent any of the
following responsibilities constitutes a "Material Transaction" as set
forth in the Ninth Schedule of the Auction Agreement (as hereafter
defined), same shall be exercisable by the Board of Directors of ECT
and not by the Advisor, unless the Board of Directors elects not to
exercise one or more of said responsibilities:
Causing the purchase of or entering into purchase
agreements with respect to any and all materials, supplies, machinery
and equipment necessary for the operation and maintenance of the
Services or any of than and for the construction or installation of
any additions to or replacements thereof;
Entering into any and all agreements with third parties
to supply services required for the operation, maintenance,
construction, expansion or replacement of the Services, including, but
not limited to, agreements with program suppliers, data processing
organizations, advertising agencies, marketing and/or sales persons or
organizations, installers, general and other contractors,
subcontractors, or others as are deemed by Century Nevada to be
necessary for the operation, maintenance or improvement of the
Services, and overseeing all performances under such agreements;
Supervising and maintaining the accounting group of ECT
(the "ECT Accounting Group") in keeping or causing to be kept all
necessary books and records in accordance with generally accepted
accounting principles of Australia;
Selecting, employing, supervising, instructing,
discharging, and otherwise managing all employees of the Services and
the Business and any agents or independent contractors considered by
Century Nevada to be necessary for the operation, maintenance or
improvement of the Services;
Causing to be purchased and maintained in effect such
policies of insurance as the Board of Directors of ECT may determine;
Supervising the ECT Accounting Group in preparation of
operating and capital improvements budgets (the "Budgets") for
approval by the Board of Directors of ECT covering the next fiscal
year of the Services and in preparing a business plan in respect of
such period;
Providing programming and administration services, such
as:
(i) periodic evaluation of the programming
activities of the Services and recommendations for the
improvement or modification of program offerings or
alignments; and
(ii) programming contract administration,
including the authority and responsibility (A) to
negotiate with program suppliers the terms of
programming contracts for programming to be supplied to
and telecast or carried as pan of the Services, (B) to
enter into programming contracts on behalf of ECT, (C)
for the billing of subscribers for programming
services, (D) for the processing of programming
billings of programming suppliers and (E) for acting as
agent for ECT with respect to programming matters;
Carrying out all negotiations with unions, whether
relating to contracts, grievances or other matters and assisting ECT's
attorneys in the preparation of contracts if any are required;
Participating with ECT before all governmental
authorities with respect to any matter necessary or desirable; and
Performing all other advisory services which Century
Australia may deem necessary or desirable for the efficient operation
of the Services and/or Business.
Advisory Fee; Reimbursement of Expenses.
For each year of the Term, payable as hereinafter set
forth, Century Nevada shall be entitled to receive from ECT for its
services as Advisor of the Services and Business a fee equal to the
greater of (1) US$1,000,000 and (ii) the percentage of the total ECT
Gross Revenues of the Services and Business for such year as set forth
in Schedule "A" annexed. The term "ECT Gross Revenues" means the
aggregate of all revenues of the Services and Business in accordance
with Generally Accepted Accounting Principles, as such term is
understood and applied in the United States, without deduction of any
kind or nature, but excluding (i) any sales tax on fees from
subscribers; (ii) fees paid directly from subscribers to third parties
(that is other than to ECT or any of its subsidiaries or affiliated
companies) for equipment rental, and the cost of equipment not owned
or not leased by ECT; and (iii) those amounts for the applicable time
periods which were included in determining "Business and Service Gross
Revenues;" for the purpose of ascertaining the fee Century Nevada is
entitled to receive pursuant to that certain Advisory and Oversight
Agreement, dated February ___, 1995, between Century Australia Pty
Limited and Century Nevada Communications Corp. (the "Oversight
Agreement") and if not excluded would be included in determining "ECT
Gross Revenues". The fee payable to Century Nevada under this
Agreement for serving as Advisor of the Services and Business
hereunder shall be in addition to and not offset by fees Century
Nevada is to receive under the Oversight Agreement. Payments with
respect to the fee to Century Nevada as Advisor shall be made monthly
in arrears, not more than 50 days after the end of each quarter annual
period commencing with the date of this Agreement and interest shall
accrue on unpaid balances at the rate of 13.5% per annum.
Copies of the determination by the ECT Accounting Group
shall be prepared as soon as practicable after (but in no event more
than 45 days after) the and of each quarter annual period. Within 120
days after the end of each calendar year ECT shall cause its
independent public certified or chartered accountants to determine the
Gross Revenues for that year and the advisory fee payable to Century
Nevada for that year and to deliver a copy to Century Nevada. Within
10 days after receipt by ECT of the accountants' determination (which
shall be final and binding on ECT and Century Nevada) ECT shall pay to
Century Nevada (or Century Nevada shall repay to ECT) the amount by
which the advisory fee for the year payable to Century Nevada as
determined by the accountants exceeds (or is less than) the amount
paid to Century Nevada for that year.
ECT shall pay or reimburse Century Nevada for
out-of-pocket expenses for travel, lodging and meals for its personnel
and for out-of-pocket fees and expenses to third parties (e.g.,
accountants and attorneys) and similar expenses, and all other
expenses, including personnel and overhead costs incurred in
performing its services as Advisor of the Services and Business.
Termination.
This Agreement may not be terminated prior to the end of the
Term except by the mutual written consent of both ECT and Century
Nevada.
Indemnification.
ECT shall indemnify, defend and hold harmless Century Nevada
and its affiliates (and their respective officers, directors,
partners, employees and affiliates) from any claims, costs, damages
(including consequential damages), losses or expenses (including
reasonable attorneys' fee) arising out of or relating to this
Agreement or Century Nevada's performance of its responsibilities
under this Agreement except where attributable to the gross negligence
or willful misconduct of Century Nevada. Neither Century Nevada nor
any of its affiliates (nor any of their respective officers,
directors, partners, employees or affiliates) shall be liable, in
damages or otherwise, to ECT for any error of judgment or other act or
omission performed or omitted by Century Nevada under or otherwise in
respect of this Agreement, except if such error of judgment or other
act or omission results from its willful misconduct or gross
negligence in which event Century Nevada shall indemnify and hold ECT
harmless from liabilities arising from such gross negligence or wilful
misconduct. All of the obligations of Century Nevada hereunder have
been undertaken by Century Nevada solely for the benefit of ECT and
nothing set forth in this Agreement shall (or shall be deemed to)
grant to any other person any interest (whether as a third party
beneficiary or otherwise) herein.
General.
Further Assurances. The parties covenant and agree
that each will do all acts and things and execute all deeds and
documents and other writings as are from time to reasonably required
for the purpose of or to give effect to this Agreement.
Governing Law and Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of New South
Wales.
Each party irrevocably submits to the exclusive
jurisdiction of the courts of New South Wales and Century Nevada
agrees that service of all writs, process summonses in such
jurisdiction may be made upon the person listed opposite its name in
the Schedule "B" hereto.
Each party irrevocably waives any objection to the
venue of any legal process on the basis that the process has been
brought in an inconvenient forum.
Each party irrevocably waives any immunity in respect
of its obligations under this agreement that it may acquire from the
jurisdiction of any court or any legal process for any reason
including, but not limited to, the service of notice, attachment prior
to judgment, attachment in aid of execution or execution.
Severability. Any provision of this Agreement which is
illegal, void by law or unenforceable by law will be ineffective to
the extent only of that illegality, voidness by law or
unenforceability by law without invalidating the remaining provisions.
In such event, the parties shall negotiate in good faith and shall
conclude a new provision which is not illegal, void by law or
unenforceable and which provides and will provide Century Nevada and
ECT, as the case may be, with the same benefits and participation that
are provided for by the provision which is or deemed to be illegal,
void or unenforceable.
Notice. Any notice to be service in connection with
this Agreement to be in writing (which shall include telex and
facsimile) and ny notice or other correspondence under or in
connection with this Agreement shall be delivered to the address of
that party shown in this Agreement or as otherwise notified by the
relevant addressee marked (in the case of a corporate body) for the
attention of its President or transmitted by facsimile or by first
class mail in each case to the address marked as aforesaid, or by
overnight air courier.
Any notice or correspondence shall be deemed to have been
served as follows:
(a) in the case of delivery, on delivery;
(b) in the case of service by first class mail, on the
fifth business day after the day on which it was posted,
(c) in the case of facsimile transmission ("Fax") on the
date transmitted if transmitted on a business day of the addressee and
during the addressee's normal business hours and if not so transmitted
on the first business day of the addressee, immediately following the
transmittal provided in all instances that the sender retains the Fax
receipt of dispatch;
(d) in the case of transmission by overnight courier, on
the second business day after transmitted.
For the purpose of this paragraph the following are the Fax
numbers of the parties hereto:
(a) Century Nevada - 612 330 8111 (Australia)
(b) ECT: 61 2 290 3322 (Australia)
Copies of notices or correspondence to Century Nevada shall be
delivered to:
Leavy Rosensweig & Hyman
11 East 44th Street
New York, NY 10017
ATTN: David Z. Rosensweig, Esq.
Fax number 212 983 2537
and copies of notices or correspondence to ECT shall be delivered to:
Michael E. Fitzgerald, Esq.
Le Saint Andre
20 Boulevard de Suisse
MC 98000, Monaco
Fax # (33) 93 25 6759
Formal Public Announcements. Each of the parties
agrees that neither it nor any of its related parties shall make any
formal public announcement or disclosure to any person in relation to
this Agreement or information of which it has become aware in
connection with this Agreement unless it first consults with and
obtains the agreement in writing of the other party, which agreement
shall not be unreasonably withheld, provided that:
(i) following such consultation no party shall be
entitled to withhold agreement in the case of a public
announcement or notification where and to the extent
that the same is required by law or the applicable
listing rules of any stock exchange; and
(ii) a party shall be entitled to make such
disclosures to the directors, secretary, professional
advisers and bankers of that party and its related
parties so long as the party uses all reasonable
endeavors to ensure that the matters disclosed are kept
confidential.
Modification. This Agreement may not be modified,
amended, added to or otherwise varied except by a document in writing
signed by each of the parties or signed on behalf of each party by a
director under hand.
Assignments.
(i) Neither party shall assign, novate, mortgage,
charge, or otherwise transfer all or any part of its
rights or delegate any of its obligations under this
Agreement without the prior written consent of the
other party; provided, however, that Century Nevada may
assign its rights and delegates its obligations
hereunder to any of its Affiliates without the consent
of ECT.
(ii) This Agreement shall be binding on and enure
to the benefit of each party and its respective
successors and permitted assigns.
No Partnership. Nothing contained in this Agreement
shall constitute a partnership, joint venture or association of any
kind between any of the parties or render any of those persons liable
for the debts or liabilities incurred by any other person.
Entire Agreement. This Agreement sets forth all of the
covenants, agreements, conditions and understandings between the
parties hereto, with respect to the subject matter hereof, and
supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions pertaining thereto, express
or implied, oral or written, except as contained herein.
Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original for all
purposes, but all of which taken together shall constitute only one
agreement.
Waiver. Either party may (a) extend the time for the
performance of any of the obligations or other acts of the other party
to this Agreement, or (b) waive compliance by the other party with any
of the agreements or conditions contained herein or any breach
thereof. Any agreement on the part of any party to any such extension
or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. No waiver of any breach of this
Agreement shall be held or construed to be a waver of any other
subsequent or antecedent breach of this Agreement.
Recitals. The recitals are deemed part of this
Agreement.
Definitions.
"A License" means satellite subscription television
broadcasting license A to be issued under the Act.
"Affiliate" shall mean, with respect to any person, any
other person controlling, controlled by or under common
control with such person, with "control" for such purpose
meaning the possession, directly or indirectly, of the power
to direct or cause the direction of the management and
policies of a person, whether through the ownership of
voting securities or voting interests, by contract or
otherwise.
"Australis" means Australis Media Limited, an
Australian corporation.
"MDS" means all of those multipoint distribution
services or channels owned, controlled or operated by ECT or
any Affiliate of ECT, or licensed to ECT by Australis from
time to time.
"Auction Agreement" means the certain Deed dated July
12, 1994 by and among Century Australia Pty Limited, Century
Communications Corp., Century Australia Communications Corp.
and East Coast Pay Television Pty Limited.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year first above written.
EAST COAST PAY TELEVISION PTY LTD.
By:
Its
CENTURY COMMUNICATIONS CORP.
By:
Its
SCHEDULE "A"
to
ADVISORY AND TECHNICAL SERVICES AGREEMENT
The percentage to be utilized in Section 4(a)
For each of the first two years of the Term: 5%
For each of the third, fourth, fifth, sixth, seventh
and eighth years of the Term: 4%
For each of the ninth and tenth years of the Term: 3%
For each year of the Term after the tenth year: 2%
Schedule B
PROCESS AGENT
Sly & Weigall
Gold Fields House
Circular Quay
Sydney, NSW 2001
Telephone: 230 8000
Facsimile: 330-8111
<TABLE>
EXHIBIT 11
CENTURY COMMUNICATIONS CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K ANNUAL REPORT
For the Three Years Ended May 31, 1996
COMPUTATION OF LOSS PER COMMON SHARE
<CAPTION>
1996 1995 1994
(In thousands, except per share data)
<S> <C> <C> <C>
Primary and fully diluted:
Net loss $ (102,117) $ (82,625) $ (41,927)
Dividend requirement on subsidiary convertible
redeemable preferred stock 4,256 4,419 5,838
Loss applicable to common shares $ (106,373) $ (87,044) $ (47,765)
Average number of common shares and common
share equivalents outstanding:
Average number of common shares
outstanding during the year (B) 73,748 86,277 89,381
Add common share equivalents - Options
to purchase common stock - net (B) 519 607 832
Average number of common shares and common
shares equivalents outstanding (B) 74,267 (A) 86,884 (A) 90,213 (A)
Loss per common share (B) $ (1.43) (A) $ (1.00) (A) $ (.53) (A)
(A)In accordance with Accounting Principles Board Opinion No. 15, the inclusion of common
share equivalents in the computation of earnings per share need not be considered if the
reduction in earnings per share is less than 3% or the effect is antidilutive. Therefore,
loss per common share and common share equivalent as shown on the Consolidated
Statements of Operations for the three years ended May 31, 1996 do not include
common share equivalents as their effect is antidilutive.
(B)All share and per share amounts have been adjusted for the three 5% stock distributions
issued on November 30, 1992, August 6, 1993 and July 2, 1993 and the three 3% stock
dividends issued on July 3, 1992, March 22, 1993 and October 28, 1993.
</TABLE>
EXHIBIT 21
Subsidiaries of Century Communications Corp.
State of
Name of Corporation Organization
Century Communications Corp. Texas
Badger Holding Corp. Delaware
Century Cable Management Corp. Connecticut
Century Norwich Corp. Connecticut
FAE Cable Management Corp. Delaware
Century Australia Communications Corp. Nevada
Century Oregon Cable Corp. Delaware
Century Cable Holding Corp. New York
Century Radio Corp. Delaware
Century Microwave Corp. Delaware
Century Investment Holding Corp. Delaware
S/T Cable Corp. Delaware
Century Southwest Cable Television, Inc. Delaware
Century Washington Cable Television Inc. Delaware
Century Ohio Cable Television Corp. Delaware
Century Wyoming Cable Television Corp. Delaware
Century Cable of Southern California California
Century Cable of Northern California California
Century Indiana Corp. Wyoming
Valley Video Inc. New York
Century Virginia Corp. Delaware
Century Huntington Company Delaware
Century Trinidad Cable Television Corp. Delaware
Century Kansas Cable Television Corp. Delaware
Rentavision of Brunswick Inc. Georgia
Paragon Cable Television, Inc. Wisconsin
Paragon Cablevision Construction Corp. Wisconsin
Paragon Cablevision Management Corp. Wisconsin
Century New Mexico Cable Television Corp. Delaware
Century Investors, Inc. Delaware
Century Pacific Cable TV Inc. Delaware
Century Mendocino Cable Television Inc. Delaware
Century Berkshire Cable Corp. Delaware
Century Enterprise Cable Corp. Delaware
Century Shenango Cable Television, Inc. Delaware
Century Mississippi Corp. Delaware
Century Mountain Corp. Delaware
Century Cullman Corp. Delaware
Century Alabama Corp. Delaware
State of
Name of Corporation Organization
Century Lykens Cable Corp. Delaware
Century Carolina Corp. Delaware
Wilderness Cable Company West
Virginia
Owensboro on the Air, Inc. Kentucky
Cowlitz Cablevision Inc. Washington
Sentinel Communications of Muncie, Indiana, Inc. Indiana
Huntington CATV, Inc. Indiana
Century Warrick Cable Corp. Delaware
Grafton Cable Company W. Virginia
Star Cable Inc. W. Virginia
Imperial Valley Cablevision, Inc. Texas
Yuma Cablevision, Inc. Texas
Mickelson Media, Inc. Minnesota
Warrick Cablevision Inc. Indiana
Mickelson Media of Florida, Inc. Florida
E.& E. Cable Service, Inc. W. Virginia
Westover T.V. Cable Co., Incorporated W. Virginia
Enchanted Cable Corporation New Mexico
Century Realty Corp. Delaware
CCC-I, Inc. Delaware
CCC-II, Inc. Delaware
Star Cablevision, Inc. Georgia
Century Federal, Inc. California
Century Cellular Holding Corp. New York
CT Investment Corp. Delaware
Century Programming Ventures Corp. Nevada
Centennial Cellular Corp. Delaware
Century Roanoke Cellular Corp. Delaware
Century Roanoke Cellular Corp. Virginia
Century Elkhart Cellular Corp. Delaware
Century Michiana Cellular Corp. Delaware
For each of the first two years of the Term: 5%
For each of the third, fourth, fifth, sixth, seventh
and eighth years of the Term: 4%
For each of the ninth and tenth years of the Term: 3%
For each year of the Term after the tenth year: 2%
Virginia
Century Rural Cellular Corp. Delaware
Century OCN Programming, Inc. Delaware
State of
Name of Corporation Organization
Century Montgomery Cellular Corp. Delaware
Century Beaumont Cellular Corp. Delaware
Century Yuma Cellular Corp. Delaware
Century Cellular Realty Corp. Delaware
Century Yuma Paging Corp. Delaware
El Centro Cellular Corporation Delaware
Century Indiana Cellular Corp. Delaware
Citizens Cellular Telephone Company of Coconino Delaware
Citizens Cellular Telephone Company of Del Norte Delaware
Citizens Cellular Telephone Company of Modoc Delaware
Citizens Cellular Telephone Company of Lawrence Delaware
Citizens Cellular Telephone Company
of Sacramento Valley Delaware
Citizens Cellular Telephone Company
of San Francisco Delaware
Michiana Metronet, Inc. Indiana
South Bend Metronet, Inc. Indiana
Elkhart Metronet, Inc. Indiana
Bauce Communications, Inc. Oregon
Hendrix Electronics, Inc. California
Century El Centro Cellular Corp. California
Bauce Communications of Beaumont, Inc. Oregon
Hendrix Radio Communications, Inc. California
Century Michigan Cellular Corp. Delaware
Centennial Microwave Corp. Delaware
Centennial Jackson Cellular Corp. Delaware
Centennial Randolph Cellular Corp. Delaware
Centennial Beauregard Cellular Corp Delaware
Alexandria Cellular License Corp. Delaware
Alexandria Cellular Corp. Delaware
Centennial Ashe Cellular Corp. Delaware
Centennial Caldwell Cellular Corp. Delaware
Centennial Louisiana Holding Corp. Delaware
Centennial DeSoto Cellular Corp. Delaware
Centennial Claiborne Cellular Corp. Delaware
Iberia Cellular Telephone Company, Inc. Washington
Centennial Morehouse Cellular Corp. Delaware
Centennial Hammond Cellular Corp. Delaware
Centennial Lake Charles Cellular Corp. Delaware
Centennial Asia Pacific Cellular Holding Corp. Nevada
Mega Comm, Inc. Delaware
Centennial Clinton Cellular Corp. Delaware
Centennial Clay Cellular Corp. Delaware
State of
Name of Corporation Organization
Lambda Communications, Inc. Puerto Rico
Century Telecommunications Venture Corp. Delaware
Century International Holding Corp. Nevada
Century Western Cable Corp. Nevada
Century Granite Cable Television Corp. Delaware
Centennial Michigan RSA 6 Cellular Corp. Delaware
Centennial Michigan RSA 7 Cellular Corp. Delaware
Pullman TV Cable Co., Inc. Washington
Century Colorado Springs Corp. Delaware
Century Shasta Cable Television Corp. Delaware
Century Southwest Colorado Cable Television Corp. Delaware
Century Island Associates, Inc. Delaware
CDA Cable, Inc. Idaho
Southwest Colorado Cable, Inc. Delaware
Century Island Cable Television Corp. Delaware
Kootenai Cable, Inc. Delaware
Centennial Virginia RSA 2 Cellular Corp. Virginia
Century Valley Cable Corp. Delaware
Century Bay Area Cable Corp. Delaware
Century Advertising, Inc. Delaware
Century Programming, Inc. Delaware
Century Alabama Holding Corp. Delaware
Century International Investment Corp. Nevada
Centennial Puerto Rico Wireless Corporation Delaware
Lambda PCS Corp. Nevada
COG Creations Corp. Nevada
COG Creations Holding Corp. Nevada
Century Programming Ventures Holding Corp. Nevada
Centennial Lafayette Cellular Corp. Louisiana
Lafayette Communications, Inc. Delaware
Lambda Realty Corp. Delaware
Centennial Benton Harbor Cellular Corp. Delaware
Century Australia Telecommunications Corp. Delaware
CCC III, Inc. Delaware
Century Voice and Data Communications, Inc. Nevada
Century Advertising Sales Corp. Delaware
Joint Venture or Partnership Organization
Century Venture Corporation Delaware
Century-ML Cable Venture
Century-ML Cable Corporation Delaware
Charlottesville Cellular Partnership
Franem Cable Company
Citizens Century Cable Television Venture
Century Colorado Springs Partnership Delaware
Centennial Cellular Tri-State Operating Partnership New York
Lafayette Cellular Telephone Partnership
____________
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Century Communications Corp.:
We consent to the incorporation by reference in Registration
Statement No. 33-50779 of Century Communications Corp. on Form S-3
of our report dated August 23, 1996, appearing in the annual Report
on Form 10-K of Century Communications Corp. for the year ending May
31, 1996, and to the reference to us under the heading "Experts" in
the Prospectus, which is part of the Registration Statement.
Deloitte & Touche LLP
Stamford, Connecticut
August 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> May-31-1996
<PERIOD-END> May-31-1996
<CASH> 164,592
<SECURITIES> 53,069
<RECEIVABLES> 41,002
<ALLOWANCES> 3,008
<INVENTORY> 0
<CURRENT-ASSETS> 212,226
<PP&E> 651,607
<DEPRECIATION> 433,909
<TOTAL-ASSETS> 2,234,909
<CURRENT-LIABILITIES> 156,234
<BONDS> 0
<COMMON> 1,053
0
182,813
<OTHER-SE> (449,066)
<TOTAL-LIABILITY-AND-EQUITY> 2,234,909
<SALES> 495,274
<TOTAL-REVENUES> 495,274
<CGS> 108,403
<TOTAL-COSTS> 469,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,215
<INCOME-PRETAX> (144,860)
<INCOME-TAX> (34,326)
<INCOME-CONTINUING> (110,534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (102,117)
<EPS-PRIMARY> (1.44)
<EPS-DILUTED> 0
</TABLE>
