<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
ADELPHIA COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 4841 23-2417713
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
------------
MAIN AT WATER STREET
COUDERSPORT, PENNSYLVANIA 16915
(814) 274-9830
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------
COLIN H. HIGGIN, ESQUIRE
ADELPHIA COMMUNICATIONS CORPORATION
MAIN AT WATER STREET
COUDERSPORT, PENNSYLVANIA 16915
(814) 274-9830
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
CARL E. ROTHENBERGER, JR., ESQUIRE
BUCHANAN INGERSOLL
PROFESSIONAL CORPORATION
21ST FLOOR, 301 GRANT STREET
PITTSBURGH, PENNSYLVANIA 15219
(412) 562-8826
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 7/8 Series B Senior
Notes Due 2007......... $350,000,000 94.5% $330,750,000 $100,228
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(1).
------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION
CROSS REFERENCE SHEET PURSUANT TO RULE 404(a) AND ITEM 501 OF REGULATION S-K,
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION REQUIRED TO BE
INCLUDED THEREIN IN ACCORDANCE WITH PART I OF FORM S-4.
<TABLE>
<CAPTION>
FORM S-4
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN THE PROSPECTUS
---------------------------------------- -------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.. Forepart of Registration Statement; Outside
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front and Outside Back Cover Pages
of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... Forepart of Prospectus; Prospectus Summary;
Risk Factors; Selected Consolidated
Financial Data
4. Terms of the Transaction................ Prospectus Summary; The Exchange Offer;
Description of Senior Notes; Certain
Federal Income Tax Considerations; Risk
Factors
5. Pro Forma Financial Information......... *
6. Material Contracts with Company Being
Acquired................................ *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... *
8. Interests of Named Experts and Counsel.. *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. *
10. Information with Respect to S-3
Registrants............................. *
11. Incorporation of Certain Information by
Reference............................... *
12. Information with Respect to S-2 or S-3
Registrants............................. *
13. Incorporation of Certain Information by
Reference............................... *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN THE PROSPECTUS
---------------------------------------- -------------------------------------------
<S> <C> <C>
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants....... Prospectus Summary; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Legislation and
Regulation
15. Information with Respect to S-3
Companies............................... *
16. Information with Respect to S-2 or S-3
Companies............................... *
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies......... *
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... *
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................. Management; Certain Relationships and
Transactions; The Exchange Offer
</TABLE>
- --------
* Item is omitted because the answer is negative or the item is inapplicable.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 2, 1997
OFFER TO EXCHANGE
9 7/8% SERIES B SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING 9 7/8% SENIOR NOTES DUE 2007
OF
ADELPHIA COMMUNICATIONS CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
Adelphia Communications Corporation ("Adelphia", the "Company", the
"Registrant" or the "Issuer") hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange
$1,000 principal amount of 9 7/8% Series B Senior Notes due 2007 of the
Registrant (the "New Notes") for each $1,000 principal amount of the issued and
outstanding 9 7/8% Senior Notes due 2007 (the "Old Notes," and collectively
with the New Notes, the "Senior Notes"). Interest on the Senior Notes is
payable semi-annually commencing September 1, 1997 with a final maturity date
of March 1, 2007. As of the date of this Prospectus, $350,000,000 aggregate
principal amount of the Old Notes is outstanding. The terms of the New Notes
and the Old Notes are substantially identical in all material respects, except
for certain transfer restrictions and registration rights; and except that
holders of Old Notes are entitled to receive Liquidated Damages (as defined) if
(a) the Registrant fails to file any of the registration statements required by
the Registration Rights Agreement (as defined) on or before the date specified
for such filing, (b) any of such registration statements is not declared
effective by the Securities and Exchange Commission (the "Commission") on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), (c) the Registrant fails to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer registration statement, or (d) a shelf registration statement or the
registration statement of which this Prospectus forms a part (the "Exchange
Offer Registration Statement") is declared effective but thereafter ceases to
be effective or usable in connection with resales of Transfer Restricted
Securities (as defined) during the periods specified in the Registration Rights
Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"). In the event of a Registration Default, the Registrant
is required to pay Liquidated Damages to each holder of Transfer Restricted
Securities for the period that the Registration Default continues, with respect
to the first 90-day period immediately following the occurrence of such
Registration Default, at a rate of 0.25% per annum on the principal amount of
Transfer Restricted Securities held by such holder. Such interest rate will
increase by an additional 0.25% per annum at the beginning of each subsequent
90-day period up to a maximum aggregate increase of 2.0% per annum until such
Registration Defaults have been cured, at which time the interest rate borne by
the Old Notes will be reduced to the original interest rate. See "Description
of Senior Notes-Registration Rights; Liquidated Damages."
(Continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
The Exchange Offer is being made to satisfy certain obligations of the
Registrant under the Registration Rights Agreement, dated as of February 26,
1997, among the Registrant and the Initial Purchaser (the "Registration Rights
Agreement"). Upon consummation of the Exchange Offer, holders of Old Notes
that were not prohibited from participating in the Exchange Offer and did not
tender their Old Notes will not have any registration rights under the
Registration Rights Agreement with respect to such nontendered Old Notes and,
accordingly, such Old Notes will continue to be subject to the restrictions on
transfer contained in the legend thereon.
Based on interpretations by the staff of the Commission with respect to
similar transactions, the Registrant believes that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any holder of such New Notes
(other than any such holder which is an "affiliate" of the Registrant within
the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act")) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business, such holder has no
arrangement or understanding with any person to participate in the
distribution of such New Notes and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes must acknowledge that it will deliver a prospectus in connection with
any resale of its New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of the
New Notes received in exchange for the Old Notes acquired by the broker-dealer
as a result of market-making activities or other trading activities. The
Registrant has agreed that they will make this Prospectus available to any
broker-dealer for use in connection with any such resale for a period of 365
days after the Exchange Date (as defined) or, if earlier, until all
participating broker-dealers have so resold. See "Plan of Distribution."
The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture (as defined). For a more complete
description of the terms of the New Notes, see "Description of Senior Notes."
There will be no cash proceeds to the Registrant from the Exchange Offer. The
New Notes will be senior unsecured indebtedness of Adelphia, will rank pari
passu in right of payment with other unsubordinated indebtedness of Adelphia
and senior in right of payment to all future subordinated indebtedness of
Adelphia. The operations of Adelphia are conducted through its subsidiaries
and, therefore, Adelphia is dependent on the earnings and cash flow of and
distributions from its subsidiaries to meet its debt obligations, including
its obligations with respect to the New Notes. Because the assets of its
subsidiaries constitute substantially all of the assets of Adelphia, and
because the subsidiaries will not guarantee the payment of principal of and
interest on the New Notes, the claims of holders of the New Notes effectively
will be subordinated to the claims of creditors of such entities. As of
December 31, 1996, the New Notes would have been effectively subordinated to
$1.3 billion of indebtedness of Adelphia's subsidiaries. As of December 31,
1996, the total indebtedness of Adelphia's subsidiaries to banks and
institutions, on a consolidated basis, aggregated $1.5 billion.
The Old Notes were originally issued and sold on February 26, 1997 in an
offering of $350,000,000 aggregate principal amount (the "Offering," as
defined). The Offering was exempt from registration under the Securities Act
in reliance upon the exemptions provided by Rule 144A, Section 4(2) and
Regulation S of the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an exemption from the
registration requirements of the Securities Act and applicable state
securities laws is available.
The Registrant has not entered into any arrangement or understanding with
any person to distribute the New Notes to be received in the Exchange Offer,
and to the best of the Registrant's information and belief, each person
participating in the Exchange Offer is acquiring the New Notes in its ordinary
course of business and has no arrangement or understanding with any person to
participate in the distribution of the New Notes to be received in the
Exchange Offer.
2
<PAGE>
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1997, unless extended
(as it may be so extended, the "Expiration Date"), provided that the Exchange
Offer shall not be extended beyond 30 business days from the date of this
Prospectus. The date of acceptance for exchange of the Old Notes for the New
Notes (the "Exchange Date") will be the first business day following the
Expiration Date. Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date; otherwise such tenders are
irrevocable.
Prior to this Exchange Offer, there has been no public market for the Senior
Notes. The Old Notes have traded on the PORTAL Market. If a market for the New
Notes should develop, the New Notes could trade at a discount from their
initial offering price. The Company does not intend to apply for listing of
the New Notes on any securities exchange or in any automated quotation system.
There can be no assurance that an active trading market for the New Notes will
develop.
----------------
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-4 under the Securities Act with respect to the Exchange
Offer. This Prospectus, which is part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Exchange Offer, reference is made to such Registration
Statement and the exhibits and schedules filed as part thereof. The
Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected without charge at the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and will also be available for inspection and copying
at the regional offices of the Commission located at Seven World Trade Center,
13th Floor, New York, New York 10048, and the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission upon payment of certain prescribed fees.
Electronic registration statements made through the Electronic Data Gathering,
Analysis, and Retrieval system are publicly available through the Commission's
Web site (http://www.sec.gov), which is maintained by the Commission and which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE REGISTRANT ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES LAWS OF SUCH JURISDICTION.
3
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements appearing in this Prospectus or
incorporated by reference herein. The Private Securities Litigation Reform Act
of 1995 provides a "safe harbor" for forward-looking statements. Certain
information included or incorporated by reference in this Prospectus, including
Management's Discussion and Analysis of Financial Condition and Results of
Operations, is forward-looking, such as information relating to the effects of
future regulation, future capital commitments and the effects of competition.
Such forward-looking information involves important risks and uncertainties
that could significantly affect expected results in the future from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions, acquisitions and divestitures,
government and regulatory policies, the pricing and availability of equipment,
materials, inventories and programming, technological developments and changes
in the competitive environment in which the Company operates. Persons
participating in this Exchange Offer are cautioned that such statements are
only predictions and that actual events or results may differ materially. In
evaluating such statements, persons participating in this Exchange Offer should
specifically consider the various factors which could cause actual events or
results to differ materially from those indicated by such forward looking
statements. Persons participating in this Exchange Offer should carefully
consider the factors set forth herein under the caption "Risk Factors."
THE COMPANY
The Company is the seventh largest cable television operator in the United
States. As of December 31, 1996, cable television systems owned or managed by
the Company (the "Systems") in the aggregate passed 2,625,337 homes and served
1,856,122 basic subscribers. John J. Rigas, the Chairman, President, Chief
Executive Officer and founder of Adelphia, has owned and operated cable
television systems since 1952.
The Company's owned cable systems (the "Company Systems") are located in ten
states and are organized into seven regional clusters: Western New York,
Virginia, Western Pennsylvania, New England, Eastern Pennsylvania, Ohio and
Coastal New Jersey. The Company Systems are located primarily in suburban areas
of large and medium-sized cities within the 50 largest television markets. As
of December 31, 1996, the Company Systems passed 1,547,512 homes and served
1,131,373 basic subscribers.
The Company also provides, for a fee, management and consulting services to
certain partnerships and certain corporations engaged in the ownership and
operation of cable television systems (the "Managed Partnerships"). John J.
Rigas and certain members of the immediate family, including entities they own
or control (collectively the "Rigas Family") have substantial ownership
interests in the Managed Partnerships. As of December 31, 1996, cable systems
(the "Managed Systems") owned by the Managed Partnerships passed 431,055 homes
and served 312,491 basic subscribers.
In addition to its wholly-owned cable operations, Adelphia has other
significant investments including:
OLYMPUS COMMUNICATIONS, L.P.
The Company owns a 50% voting interest and nonvoting Preferred Limited
Partnership interests entitling the Company to a 16.5% preferred return in
Olympus. Olympus is a joint venture limited partnership between the Company and
subsidiaries of FPL Group, Inc. (together with its subsidiaries, "FPL Group").
Olympus is not a subsidiary of Adelphia or FPL Group. Olympus operates the
largest contiguous cable system in Florida and is located in some of the
fastest growing markets in Florida. As of December 31, 1996, the Olympus
systems passed 646,770 homes and served 412,258 basic subscribers. The
Company's investment in Olympus is
4
<PAGE>
accounted for under the equity method of accounting. On November 12, 1996,
Olympus realized proceeds of $195,500,000 upon the issuance of $200,000,000 in
aggregate principal amount of 10 5/8% Senior Notes due November 15, 2006. The
net proceeds from such offering were used to reduce outstanding bank borrowings
of Olympus' subsidiaries.
HYPERION TELECOMMUNICATIONS, INC.
The Company owns an 88% interest in Hyperion Telecommunications, Inc.
("Hyperion"), a leading Competitive Local Exchange Carrier ("CLEC") that
designs, constructs, operates and manages state-of-the-art, fiber optic
networks and facilities. Hyperion operates one of the largest CLECs in the
United States based upon route miles and buildings connected. Hyperion
currently manages and operates 18 networks, serving 33 cities. As of December
31, 1996, these networks had approximately 3,162 route miles, approximately
151,782 fiber miles and were connected to approximately 1,183 buildings. To
date, seven Lucent 5ESS switches or remote switching modules have been
installed to provide local telephone service with additional 5ESS switches or
remote switching modules planned for the remaining 11 markets by mid-1997.
Hyperion is consolidated in Adelphia's financial results and is currently an
unrestricted subsidiary of Adelphia for purposes of Adelphia's indentures. On
April 15, 1996, Hyperion realized net proceeds of $168,600,000 upon the
issuance of $329,000,000 in aggregate principal amount of 13% Senior Discount
Notes (the "Hyperion Senior Notes") due April 15, 2003 and 329,000 warrants to
purchase an aggregate of 613,427 shares of common stock of Hyperion expiring
April 1, 2001. Net proceeds from such offering were used to repay a portion of
outstanding indebtedness owed to Adelphia, fund capital expenditures, working
capital requirements, operating losses, pro rata investments in operating
companies and pro rata equity investments.
EMPIRE SPORTS NETWORK AND BUFFALO SABRES NHL FRANCHISE AND MARINE MIDLAND ARENA
Empire Sports Network ("Empire") is a majority-owned subsidiary of Adelphia
operating a regional sports television network serving western and central New
York. Empire's most popular programming is the Buffalo Sabres (the "Sabres")
NHL team games and related coverage. Adelphia has made $31,000,000 of preferred
equity investments and loans to Niagara Frontier Hockey, L.P. ("Niagara L.P.")
which holds the NHL Sabres franchise. The Company's investment in Niagara L.P.
is accounted for under the cost method. Niagara L.P. also holds a two-thirds
interest in the Marine Midland Arena complex, a recently opened $130,000,000
sports and entertainment facility capable of seating 18,500 people with 60
luxury suites. The complex holds a right of first refusal for hosting all arena
events in Buffalo.
Adelphia was incorporated in Delaware on July 1, 1986 for the purpose of
reorganizing five cable television companies, then principally owned by the
Rigas Family, into a holding company structure in connection with the initial
public offering of Adelphia's Class A Common Stock. The Company's executive
offices are located at Main at Water Street, Coudersport, Pennsylvania 16915,
and its telephone number is (814) 274-9830.
5
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... Up to $350,000,000 aggregate principal amount
of 9 7/8% Series B Senior Notes due 2007 of
the Company (the "New Notes," and
collectively with the Old Notes, the "Senior
Notes"). The terms of the New Notes and the
Old Notes are substantially identical in all
material respects, except for certain
transfer restrictions, registration rights
and liquidated damages ("Liquidated Damages")
for Registration Defaults relating to the Old
Notes which will not apply to the New Notes.
See "Description of Senior Notes."
The Exchange Offer.......... The Registrant is offering to exchange $1,000
principal amount of New Notes for each $1,000
principal amount of Old Notes. See "The
Exchange Offer" for a description of the
procedures for tendering Old Notes. The
Exchange Offer satisfies the registration
obligations of the Registrant under the
Registration Rights Agreement. Upon
consummation of the Exchange Offer, holders
of Old Notes that were not prohibited from
participating in the Exchange Offer and did
not tender their Old Notes will not have any
registration rights under the Registration
Rights Agreement with respect to such
nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the
restrictions on transfer contained in the
legend thereon.
Tenders, Expiration Date; The Exchange Offer will expire at 5:00 p.m.,
Withdrawal................. New York City time, on , 1997, or
such later date and time to which it is
extended, provided that the Exchange Offer
shall not be extended beyond 30 business days
from the date of this Prospectus. Tender of
Old Notes pursuant to the Exchange Offer may
be withdrawn and retendered at any time prior
to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will be
returned without expense to the tendering
holder as promptly as practicable after the
expiration or termination of the Exchange
Offer.
Federal Income Tax The Exchange Offer will not result in any
Considerations.............. income, gain or loss to the holders of Senior
Notes or the Company for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
Use of Proceeds............. There will be no proceeds to the Company from
the exchange of New Notes for the Old Notes
pursuant to the Exchange Offer.
Exchange Agent.............. Bank of Montreal Trust Company, the Trustee
under the Indenture, is serving as exchange
agent (the "Exchange Agent") in connection
with the Exchange Offer.
6
<PAGE>
CONSEQUENCES OF EXCHANGING OR FAILURE TO EXCHANGE OLD NOTES PURSUANT TO THE
EXCHANGE OFFER
Generally, holders of Old Notes (other than any holder who is an "affiliate"
of the Registrant within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may offer
their New Notes for resale, resell their New Notes, and otherwise transfer
their New Notes without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided such New Notes are acquired
in the ordinary course of the holder's business, such holders have no
arrangement with any person to participate in a distribution of such New Notes
and neither the holder nor any other person is engaging in or intends to engage
in a distribution of the New Notes. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of its New Notes. See "Plan
of Distribution." To comply with the securities laws of certain jurisdictions,
it may be necessary to qualify for sale or register the New Notes prior to
offering or selling such New Notes. The Company is required, under the
Registration Rights Agreement, to register the New Notes in any jurisdiction
requested by the holders, subject to certain limitations. Upon consummation of
the Exchange Offer, holders that were not prohibited from participating in the
Exchange Offer and did not tender their Old Notes will not have any
registration rights under the Registration Rights Agreement with respect to
such nontendered Old Notes, and accordingly, such Old Notes will continue to be
subject to the restrictions on transfer contained in the legend thereon. In
general, Old Notes may not be offered or sold, unless registered under the
Securities Act and applicable state securities laws. See "The Exchange Offer--
Consequences of Failure to Exchange."
7
<PAGE>
SUMMARY DESCRIPTION OF SENIOR NOTES
Issuer................................ Adelphia Communications Corporation
Securities Offered.................... Up to $350,000,000 principal amount
of 9 7/8% Series B Senior Notes due
2007 of the Registrant (the "New
Notes," and collectively with the
Old Notes, the "Senior Notes"). The
terms of the New Notes and the Old
Notes are substantially identical
in all material respects, except
for certain transfer restrictions,
registration rights and Liquidated
Damages for Registration Defaults
relating to the Old Notes which
will not apply to the New Notes.
See "Description of Senior Notes."
Maturity Date......................... The Senior Notes will mature on
March 1, 2007.
Interest.............................. The Senior Notes will bear interest
at a rate of 9 7/8% per annum,
payable semi-annually, in cash on
March 1 and September 1 each year,
commencing September 1, 1997.
Redemption............................ The Senior Notes will not be
redeemable prior to maturity and
will not be subject to any
mandatory redemption or sinking
fund payments.
Ranking............................... The Senior Notes are unsecured
indebtedness of Adelphia ranking
pari passu with other
unsubordinated indebtedness of
Adelphia and senior in right of
payment to any future subordinated
indebtedness of Adelphia. The
operations of Adelphia are
conducted through Adelphia's
subsidiaries and, therefore,
Adelphia is dependent on the
earnings and cash flow of and
distributions from its subsidiaries
to meet its debt obligations,
including its obligations with
respect to the Senior Notes.
Because the assets of its
subsidiaries and other investments
constitute substantially all of the
assets of Adelphia, and because
those subsidiaries and other
investments will not guarantee the
payment of principal of and
interest on the Senior Notes, the
claims of holders of the Senior
Notes effectively will be
subordinated to the claims of
creditors of such entities. As of
December 31, 1996, the Senior Notes
would have been effectively
subordinated to $1.3 billion of
indebtedness of Adelphia's
subsidiaries. As of December 31,
1996 the total indebtedness of
Adelphia's subsidiaries to banks
and institutions, on a consolidated
basis, aggregated $1.5 billion and
total trade payables as of such
date were $84.9 million. The
Company's ability to access the
cash flow of its subsidiaries is
subject to significant contractual
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restrictions. In addition, Olympus
has substantial leverage. See "Risk
Factors--Holding Company Structure;
Restrictive Covenants" and
"Description of Senior Notes."
Certain Covenants..................... The Indenture for the Senior Notes
(the "Indenture") contains certain
restrictions on, among other
things, the incurrence of
indebtedness, mergers and sales of
assets, a change of control, the
payment of dividends on, or the
repurchase of, capital stock of
Adelphia and certain other
restricted payments by Adelphia and
its restricted subsidiaries and
certain transactions with and
investments in affiliates. The
Indenture permits Adelphia's
subsidiaries to incur substantial
additional indebtedness.
Change of Control..................... In the event of a Change of Control
(as defined herein), the Holders of
the Senior Notes will have the
right to require the Company to
purchase their Senior Notes at a
price equal to 100% of the
aggregate principal amount thereof,
plus accrued and unpaid interest
and Liquidated Damages thereon, if
any, to the date of purchase. There
can be no assurance that the
Company will have adequate
financial resources to effect a
required repurchase of the Senior
Notes upon a Change in Control. The
Company's failure to make a
required repurchase of the Senior
Notes upon a Change in Control
would be an Event of Default under
the Indenture.
RISK FACTORS
Prospective participants in the Exchange Offer should consider all of the
information contained in this Prospectus in connection with the Exchange Offer.
In particular, prospective participants should consider the factors set forth
herein under "Risk Factors."
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the
Company and its business in connection with the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act and applicable state
securities laws, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
Based on interpretations by the staff of the Commission with respect to
similar transactions, the Company believes that the New Notes issued pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by any holder of such New Notes (other than any such holder which
is an "affiliate" of the Registrants within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holder's business, such holder has no
arrangement or understanding with any person to participate in the
distribution of such New Notes and neither the holder nor any other person is
engaging in or intends to engage in a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes must acknowledge that it will deliver a prospectus in connection with
any resale of its New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of the
New Notes received in exchange for the Old Notes acquired by the broker-dealer
as a result of market-making activities or other trading activities. The
Company has agreed that it will make this Prospectus available to any broker-
dealer for use in connection with any such resale for a period of 365 days
after the Exchange Date or, if earlier, until all participating broker-dealers
have so resold. See "Plan of Distribution." The New Notes may not be offered
or sold unless they have been registered or qualified for sale under
applicable state securities laws or an exemption from registration or
qualification is available and is complied with. The Registrants are required,
under the Registration Rights Agreement, to register the New Notes in any
jurisdiction requested by the holders, subject to certain limitations.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and has incurred substantial indebtedness to
finance acquisitions and expansion of its operations and, to a lesser extent,
for investments in and advances to affiliates. At December 31, 1996, the
Company's total indebtedness aggregated approximately $2,488,119,000, which
included approximately $1,364,956,000 of subsidiary bank and institutional
debt, $182,212,000 of Hyperion debt and approximately $940,951,000 of
indebtedness of the Company. The Company's total debt has varying maturities
to 2005, including an aggregate of approximately $797,591,000 maturing on or
prior to March 31, 2001. The Company has maintained its public long-term debt
at the holding company level and unrestricted subsidiaries while borrowing in
the private debt markets (e.g., bank and insurance company debt) through the
Company's wholly-owned subsidiaries. The Company's subsidiary financings are
effected through separate borrowing groups, and substantially all of the
indebtedness in these borrowing groups is non-recourse to Adelphia. The
subsidiary credit arrangements have varied revolving credit and term loan
periods and contain separately-negotiated covenants relating to, among other
things, cross-defaults and the incurrence of additional debt for each
borrowing group. In addition, Olympus has substantial leverage. The high level
of the Company's indebtedness will have important consequences to holders of
the Senior Notes, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be
available for general
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corporate purposes or for capital improvements; (ii) the Company's ability to
obtain additional debt financing in the future for working capital, capital
expenditures, acquisitions or for capital improvements may be limited; and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to changes in the industry and economic conditions generally. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
NET LOSSES AND STOCKHOLDERS' DEFICIENCY
The total stockholders' deficiency at March 31, 1996 and at December 31,
1996 was $1,128,239,000 and $1,218,377,000, respectively. The stockholders'
deficiency generally has resulted from the Company's reported net losses which
have been caused primarily by high levels of depreciation and amortization and
interest expense. The Company reported net losses of approximately
$187,860,000, $106,284,000 and $119,894,000, for the years ended March 31,
1994, 1995 and 1996, respectively and $84,699,000 and $90,138,000, for the
nine months ended December 31, 1995 and 1996, respectively. The Company
expects to continue to incur significant net losses for the next several
years. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
For the year ended March 31, 1996 and for the nine months ended December 31,
1996, the Company's earnings were insufficient to cover its fixed charges by
$78,189,000 and $45,293,000, respectively. However, such amounts reflect non-
cash charges totalling $127,319,000 and $115,490,000, respectively, consisting
of depreciation, amortization, and non-cash interest expense on certain
indebtedness of the Company. Historically, the Company's cash generated from
operating activities and borrowings has been sufficient to meet its
requirements for debt service, working capital, capital expenditures, and
investments in and advances to affiliates and the Company has depended on the
availability of additional borrowings to meet its liquidity requirements. The
Company believes that it will continue to generate cash and obtain financing
sufficient to meet such requirements. However, the Company's ability to incur
additional indebtedness is limited by covenants in its indentures and its
subsidiary credit agreements. Adelphia expects that it will be required to
refinance the Senior Notes prior to their maturity. Although in the past the
Company has been able both to refinance its indebtedness and to obtain new
financing, there can be no assurance that the Company would be able to do so
in the future or that, if the Company were able to do so, the terms available
would be favorable to the Company. In the event that the Company were unable
to refinance its indebtedness or obtain new financing under these
circumstances, the Company would likely have to consider various options such
as the sale of certain assets to meet its required debt service, negotiation
with its lenders to restructure applicable indebtedness or other options
available to it under applicable law. There can be no assurance that any such
options would yield net proceeds sufficient to repay the Senior Notes in full.
See "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
HOLDING COMPANY STRUCTURE; RESTRICTIVE COVENANTS
As a holding company, Adelphia holds no significant assets other than its
investments in and advances to its subsidiaries and other investments.
Adelphia's ability to make interest and principal payments when due to holders
of debt of Adelphia is dependent upon the receipt of sufficient funds from its
subsidiaries or other investments. Under the terms of various debt agreements
between the Adelphia subsidiaries and other investments and their respective
lending institutions, upon the occurrence of an event of default (including
certain cross-defaults resulting from defaults under Adelphia's debt
agreements) or unless certain financial performance tests are met, the
Adelphia subsidiaries and other investments are restricted from distributing
funds to Adelphia. The Indenture governing the Senior Notes will not restrict
the Company's subsidiaries or other investments from contractually restricting
their ability to pay dividends to the Company in the future. In addition,
because Adelphia's subsidiaries and other investments do not guarantee the
payment of principal of and interest on debt of Adelphia, the claims of
holders of such debt effectively will be subordinated to the claim of
creditors of such entities. At December 31, 1996, the total amount of long-
term debt of such subsidiaries was $1,364,956,000. See
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<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Senior Notes."
The agreements governing the bank debt of the Company's subsidiaries (the
"Subsidiary Bank Agreements") contain, among other covenants, requirements
that Adelphia's subsidiaries maintain specified financial ratios, including
maximum leverage and minimum interest coverage. The ability of a subsidiary to
comply with such provisions may be affected by events that are beyond
Adelphia's control. The breach of any of these covenants could result in a
default by a subsidiary under its Subsidiary Bank Agreement. In the event of
any such default, lenders party to that Subsidiary Bank Agreement could elect
to declare all amounts borrowed under that Subsidiary Bank Agreement, together
with accrued interest and other fees, to be due and payable. If the
indebtedness under a Subsidiary Bank Agreement were to be accelerated, all
indebtedness outstanding under such Subsidiary Bank Agreement would be
required to be paid in full before such subsidiary would be permitted to
distribute any assets or cash to Adelphia. There can be no assurance that the
assets of Adelphia and its subsidiaries would be sufficient to repay all
borrowings under the Subsidiary Bank Agreements and indebtedness owed to the
other creditors of such subsidiaries in full. In addition, as a result of
these covenants, the ability of Adelphia's subsidiaries to respond to changing
business and economic conditions and to secure additional financing, if
needed, may be significantly restricted, and Adelphia may be prevented from
engaging in transactions that might otherwise be considered beneficial to
Adelphia.
POTENTIAL CONFLICTS OF INTEREST
The Rigas Family holds substantially all of Adelphia's Class B Common Stock
and 91.8% of the combined voting power of both classes of Adelphia's Common
Stock and has the power to elect seven of eight members of Adelphia's Board of
Directors. John J. Rigas and the other executive officers of Adelphia
(including other members of the Rigas Family) hold direct and indirect
ownership interests in the Managed Partnerships, which are managed by the
Company for a fee. Subject to the restrictions contained in the Business
Opportunity Agreement regarding future acquisitions, Rigas Family members and
the executive officers are free to continue to own these interests and acquire
additional interests in cable television systems. Such activities could
present a conflict of interest with the Company in the allocation of
management time and resources of the executive officers. In addition, there
have been and will continue to be transactions between the Company and the
executive officers or other entities in which the executive officers have
ownership interests or with which they are affiliated. The Indenture for the
Senior Notes and indentures under which the 9 7/8% Debentures, 11 7/8%
Debentures, 9 1/2% Notes, 12 1/2% Notes and 10 1/4% Notes of Adelphia were
issued contain covenants that place certain restrictions on transactions
between the Company and its affiliates. See "Certain Relationships and Related
Transactions" and "Description of Senior Notes--Covenants--Limitation on
Transactions with Affiliates."
COMPETITION
The cable television systems owned by the Company compete with other
communications and entertainment media as well as other means of video
distribution including Direct Broadcast Satellite Systems ("DBS") and
Multichannel Multipoint Distribution Systems ("MMDS"). Several companies
recently have launched or have announced their intention to launch, DBS
services that compete with the Company for multichannel video entertainment
customers. In addition, some of the Regional Bell Operating Companies (the
"RBOCs") and other local telephone companies are in the process of entering
the video-to-home business and several have expressed their intention to enter
the video-to-home business. In addition, some RBOCs and local telephone
companies have in place facilities which are capable of delivering cable
television service.
In addition, the Telecommunications Act of 1996 (the "1996 Act") has
repealed the cable/telephone cross-ownership plan, and telephone companies
will now be permitted to provide cable television service within their service
areas. Certain of such potential service providers have greater financial
resources than the Company, and in the case of local exchange carriers seeking
to provide cable service within their service areas, have an installed plant
and switching capabilities, any of which could give them competitive
advantages with respect to cable television operators such as the Company. The
Company cannot predict either the extent to which competition
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<PAGE>
will materialize or, if such competition materializes, the extent of its
effect on the Company. See "Business--Competition" and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
The Company also faces competition from other communications and
entertainment media, including conventional off-air television broadcasting
services, newspapers, movie theaters, live sporting events and home video
products. The Company cannot predict the extent to which competition may
affect the Company. See "Business--Competition" and "--Legislation and
Regulation" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Regulatory and Competitive Matters."
NEED FOR ADDITIONAL FINANCING
The Company's business requires substantial investment on a continuing basis
to finance capital expenditures and related expenses for, among other things,
upgrade of the Company's cable plant (including the need to make cable system
upgrades mandated by franchise authorities), the offering of new services and
the servicing, repayment or refinancing of its indebtedness. The Company will
require significant additional financing, through debt and/or equity
issuances, to meet its capital expenditure plans and to pay its debt
obligations. There can be no assurance that Adelphia will be able to issue
additional debt or obtain additional equity capital on satisfactory terms, or
at all, to meet its future financing needs. See "Business--Technological
Developments" and "Management's Discussion and Analysis of Financial
Conditions and Results of Operations."
REGULATION IN THE TELECOMMUNICATIONS INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, state and local levels, and many aspects of such regulation are
currently the subject of judicial proceedings and administrative or
legislative proposals. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") significantly expanded the
scope of cable television regulation. In particular, pursuant to the 1992
Cable Act, the Federal Communications Commission (the "FCC") adopted
regulations that limit the Company's ability to set and increase rates for the
Company's basic and cable programming service ("CPS") packages and for the
provision of cable television-related equipment. The 1992 Cable Act permits
certified local franchising authorities to order refunds of rates paid in the
previous twelve-month period determined to be in excess of the permitted
reasonable rates. It is possible that rate reductions or refunds of previously
collected fees may be required in the future.
The 1996 Act, which became law on February 8, 1996, materially alters
federal, state and local laws and regulations pertaining to cable television,
telecommunications and other related services and, in particular,
substantially amends the Communications Act of 1934 (the "Communications
Act"). Certain provisions of the 1996 Act could materially affect the growth
and operation of the cable television industry and the cable services provided
by the Company. Although the new legislation may substantially lessen certain
regulatory burdens, the cable television industry may be subject to additional
competition as a result. See "Business--Competition." There are numerous
rulemakings that have been and continue to be undertaken by the FCC which will
interpret and implement the provisions of the 1996 Act. In addition, certain
provisions of the new legislation (such as the deregulation of rates for CPS
packages) will not immediately be effective. Furthermore, certain provisions
of the 1996 Act have been, and likely will be, subject to judicial challenge.
The Company is unable at this time to predict the outcome of such rulemakings
or litigation or the short and long-term effect (financial or otherwise) of
the 1996 Act and FCC rulemakings on the Company.
The cable television industry is subject to state and local regulations and
the Company must comply with rules of the local franchising authorities to
retain and renew its cable franchises, among other matters. There can be no
assurances that the franchising authorities will not impose new and more
restrictive requirements as a condition to franchise renewal.
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<PAGE>
Although the 1996 Act eliminates many legal barriers to entry (i.e.,
telephone companies entering the cable industry and cable companies entering
the telephone industry), the Company cannot assure that rules adopted by the
FCC or state regulators or other legislative or judicial initiatives relating
to the telecommunications industry will not have a material adverse effect on
the Company. In addition, the 1996 Act removes entry barriers for all
companies and could increase substantially the number of competitors offering
comparable services in the Company's potential markets. See "Legislation and
Regulation" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Regulatory and Competitive Matters."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES; POSSIBLE VOLATILITY OF NOTE PRICE
Prior to the Exchange Offer, there has been no public market for the Old
Notes. The Company does not intend to apply for listing of the Senior Notes on
any securities exchange or for inclusion of the Senior Notes in any automated
quotation system, but the Initial Purchaser has applied to the National
Association of Securities Dealers, Inc. to have the Senior Notes designated as
a PORTAL security. Although the Company has been advised by the Initial
Purchaser that it currently intends to make a market in the Senior Notes, it
is not obligated to do so and any such market making activities may be
discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Senior
Notes. If a market for the Senior Notes were to develop, the Senior Notes
could trade at prices that may be higher or lower than their initial offering
price depending upon many factors, including prevailing interest rates, the
Company's operating results and the markets for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of
securities similar to the Senior Notes. There can be no assurance that, if a
market for the Senior Notes were to develop, such a market would not be
subject to similar disruptions.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On February 26, 1997, the Registrant issued $350,000,000 aggregate principal
amount of Old Notes to Smith Barney Inc., the Initial Purchaser. The issuance
was not registered under the Securities Act in reliance upon the exemption
under Rule 144A, Section 4(2) and Regulation S of the Securities Act. In
connection with the issuance and sale of the Old Notes, the Registrant entered
into a Registration Rights Agreement with the Initial Purchaser dated as of
February 26, 1997 (the "Registration Rights Agreement"), which requires the
Registrant to cause the Old Notes to be registered under the Securities Act or
to file with the Commission a registration statement under the Securities Act
with respect to an issue of new notes of the Registrant identical in all
material respects to the Old Notes, and use its best efforts to cause such
registration statement to become effective under the Securities Act and, upon
the effectiveness of that registration statement, to offer to the holders of
the Old Notes the opportunity to exchange their Old Notes for a like principal
amount of New Notes, which will be issued without a restrictive legend and may
be reoffered and resold by the holder without restrictions or limitations
under the Securities Act. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Registrant's obligations thereunder.
Based on no-action letters issued by the staff of the Commission to third
parties, the Registrant believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any holder of such New Notes (other than any such
holder which is an "affiliate" of the Registrant within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such
holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes and neither the holder nor any other person
is engaging in or intends to engage in a distribution of the New Notes. Any
holder who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes cannot rely on such interpretation by the staff
of the Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-
dealer as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Registrants will accept any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined herein). The Registrant will issue a principal
amount of New Notes in exchange for an equal principal amount of outstanding
Old Notes tendered and accepted in the Exchange Offer. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer. The date of
acceptance for exchange of the Old Notes for the New Notes (the "Exchange
Date") will be the first business day following the Expiration Date.
The terms of the New Notes and the Old Notes are substantially identical in
all material respects, except for certain transfer restrictions, registration
rights and Liquidated Damages for Registration Defaults relating to the Old
Notes which will not apply to the New Notes. See "Description of Senior
Notes." The New Notes will evidence the same debt as the Old Notes. The New
Notes will be issued under and entitled to the benefits of the Indenture
pursuant to which the Old Notes were issued.
As of the date of this Prospectus, $350,000,000 aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders.
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<PAGE>
Holders of Old Notes do not have any appraisal or dissenters' rights under
state law or the Indenture in connection with the Exchange Offer. The
Registrant intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered and were not
prohibited from being tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and to be subject to transfer
restrictions, but will not be entitled to any rights or benefits under the
Registration Rights Agreement.
Upon satisfaction or waiver of all the conditions to the Exchange Offer, on
the Exchange Date the Registrant will accept all Old Notes properly tendered
and not withdrawn and will issue New Notes in exchange therefor. For purposes
of the Exchange Offer, the Registrant shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Registrant had
given oral or written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering holders for the purposes of receiving the
New Notes from the Registrant.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents; provided,
however, that the Registrant reserves the absolute right to waive any defects
or irregularities in the tender or conditions of the Exchange Offer. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Notes or substitute Old Notes evidencing the unaccepted
portion, as appropriate, will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination
of the Exchange Offer.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Registrant will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time, on
, 1997, unless the Registrant, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended; provided that the
Exchange Offer shall not be extended beyond 30 business days after the date of
this Prospectus.
In order to extend the Expiration Date, the Registrant will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, prior to 9:00 a.m., New York City
time, on the next business day after the then Expiration Date.
The Registrant reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by the
Registrant to constitute a material change, the Registrant will promptly
disclose such amendment in a manner reasonably calculated to inform the
holders of Old Notes of such amendment.
Without limiting the manner in which the Registrant may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Registrant shall have no obligation to
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<PAGE>
publish, advertise, or otherwise communicate any such public announcement,
other than by making a timely release to an appropriate news agency.
INTEREST ON THE NEW NOTES
New Notes will bear interest at the rate of 9 7/8% per annum, payable semi-
annually, in cash, on March 1 and September 1 of each year, commencing
September 1, 1997.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Registrant will
not be required to exchange any New Notes for any Old Notes, and may terminate
or amend the Exchange Offer before the acceptance of any Old Notes for
exchange, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer
which seeks to restrain or prohibit the Exchange Offer or, in the
Registrant's judgment, would materially impair the ability of the
Registrant to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statute, rule, order or regulation is interpreted,
by any government or governmental authority which, in the Registrant's
judgment, would materially impair the ability of the Registrant to
proceed with the Exchange Offer; or
(c) the Exchange Offer or the consummation thereof would otherwise violate
or be prohibited by applicable law.
If the Registrant determines in its sole discretion that any of these
conditions is not satisfied, the Registrant may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders who tendered
such Old Notes to withdraw their tendered Old Notes, or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Registrant will
promptly disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders, and the Registrant will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such five to ten
business day period.
The foregoing conditions are for the sole benefit of the Registrant and may
be asserted by the Registrant regardless of the circumstances giving rise to
any such condition or may be waived by the Registrant in whole or in part at
any time and from time to time in their sole discretion. The failure by the
Registrant at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right, and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time. Any
determination by the Registrant concerning the events described above shall be
final and binding on all parties.
PROCEDURES FOR TENDERING
The tender of Old Notes by a holder as set forth below and the acceptance
thereof by the Registrant will constitute an agreement between such holder and
the Registrant in accordance with the terms and subject to the conditions set
forth in this Prospectus and in the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must (i) complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the
17
<PAGE>
signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Old Notes (unless such tender is being effected pursuant to
the procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date, or (ii) comply with the guaranteed delivery procedures
described below. Delivery of all documents must be made to the Exchange Agent
at its address set forth herein.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE REGISTRANTS.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering of
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership
may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any Eligible Institution (as defined) unless the
Old Notes tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, such guarantee must be by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes, with the
signature thereon guaranteed by an Eligible Institution. If the Letter of
Transmittal or any Old Notes or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and unless waived by the Registrant, evidence
satisfactory to the Registrant of their authority to so act must be submitted
with the Letter of Transmittal.
Any financial institution that is a participant in the book-entry transfer
facility for the Old Notes, the Depository Trust Company ("DTC"), may make
book-entry delivery of Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account with respect to the Old Notes in accordance
with DTC's procedures for such transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be, or be deemed to be,
transmitted to and received and confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
18
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Registrant in its sole discretion, which
determination will be final and binding. The Registrant reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Registrant's acceptance of which would, in the opinion of counsel for the
Registrant, be unlawful. The Registrant also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Old Notes.
The Registrant's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Registrant shall determine. Although the Registrant intends to notify holders
of defects or irregularities with respect to tenders of Old Notes, neither the
Registrant, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Registrant reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date or, as set forth below under "Conditions," to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase
Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder will also represent to the Registrant (i) that the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the holder, (ii) that neither the holder nor any such
person has an arrangement or understanding with any person to participate in
the distribution of such New Notes and (iii) that neither the holder nor any
such other person is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Registrant, or that if it is an "affiliate," it will
comply with the registration and prospective delivery requirements of the
Securities Act to the extent applicable.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or (iii) who cannot complete the procedures for book-entry
transfer of Old Notes to the Exchange Agent's account with DTC prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder, the
certificate number(s) of such Old Notes (if possible) and the principal
amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within five business trading days after
the Expiration Date, (i) the Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the Old Notes
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, or (ii)
that book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC will be effected and confirmation of such book-entry
transfer will be delivered to the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes in proper form for transfer and all other documents
required by the Letter of Transmittal, or confirmation of book-entry
transfer of the Old Notes into the
19
<PAGE>
Exchange Agent's account at DTC, are received by the Exchange Agent
within five business trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer:
The holder tendering Old Notes exchanges, assigns and transfers the Old
Notes to the Registrant and irrevocably constitutes and appoints the Exchange
Agent as the holder's agent and attorney-in-fact to cause the Old Notes to be
assigned, transferred and exchanged. The holder represents and warrants to the
Registrant and the Exchange Agent that (i) it has full power and authority to
tender, exchange, assign and transfer the Old Notes and to acquire the New
Notes in exchange for the Old Notes, (ii) when the Old Notes are accepted for
exchange, the Registrant will acquire good and unencumbered title to the Old
Notes, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, (iii) it will, upon request, execute and
deliver any additional documents deemed by the Registrant to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Notes and (iv) acceptance of any tendered Old Notes by the Registrant and the
issuance of New Notes in exchange therefor will constitute performance in full
by the Registrant of its obligations under the Registration Rights Agreement
and the Registrant will have no further obligations or liabilities thereunder
to such holders (except with respect to accrued and unpaid Liquidated Damages,
if any). All authority conferred by the holder will survive the death or
incapacity of the holder and every obligation of the holder will be binding
upon the heirs, legal representatives, successors, assigns, executors and
administrators of the holder.
Each holder will also certify that it (i) is not an "affiliate" of the
Registrant within the meaning of Rule 405 under the Securities Act or that, if
it is an "affiliate," it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (ii) is
acquiring the New Notes in the ordinary course of its business and (iii) has
no arrangement with any person or intent to participate in, and is not
participating in, the distribution of the New Notes.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
facsimile transmission or letter indicating notice of withdrawal must be
received by the Exchange Agent at its address set forth herein prior to 5:00
p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having tendered the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn Old Notes or otherwise comply with DTC's
procedures. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Registrant, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect
20
<PAGE>
thereto unless the Old Notes so withdrawn are validly retendered. Any Old
Notes which have been tendered but which are not accepted for payment will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under "Procedures for Tendering" at any
time prior to the Expiration Date.
UNTENDERED OLD NOTES
Holders of Old Notes whose Old Notes are not tendered or are tendered but
not accepted in the Exchange Offer will continue to hold such Old Notes and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Registrant will have
no further obligations to such holders, other than the Initial Purchaser, to
provide for the registration under the Securities Act of the Old Notes held by
them. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected.
EXCHANGE AGENT
Bank of Montreal Trust Company, the Trustee under the Indenture, has been
appointed as Exchange Agent of the Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail, By Facsimile:
by hand or by Overnight Courier Bank of Montreal Trust Company
Bank of Montreal Trust Company Attention: Corporate Trust Department
77 Water Street (212) 701-7684
New York, NY 10005 Confirm by Telephone:
Attention: Corporate Trust Department (212) 701-7653
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Registrant. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers, regular
employees or agents of the Registrant and its affiliates.
The Registrant has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Registrant, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith
and will pay the reasonable fees and expenses of holders in delivering their
Old Notes to the Exchange Agent.
The cash expenses of the Registrant to be incurred in connection with the
Registrant's performance and completion of the Exchange Offer will be paid by
the Registrant. Such expenses include fees and expenses of the Exchange Agent
and Trustee, accounting and legal fees and printing costs, among others.
The Registrant will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however,
certificates representing New Notes or Old Notes for principal amounts not
21
<PAGE>
tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax
is imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, holders of Old Notes that were not
prohibited from participating in the Exchange Offer and did not tender their
Old Notes will not have any registration rights under the Registration Rights
Agreement with respect to such nontendered Old Notes and, accordingly, such
Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act and applicable state
securities laws, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Registrant does not intend to register the Old Notes under the Securities Act.
Based on interpretations by the staff of the Commission with respect to
similar transactions, the Registrant believes that the New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any holder of such New Notes
(other than any such holder which is an "affiliate" of the Registrant within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the New Notes. If any holder has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, the holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
its New Notes. See "Plan of Distribution." The New Notes may not be offered or
sold unless they have been registered or qualified for sale under applicable
state securities laws or an exemption from registration or qualification is
available and is complied with. The Registrant is required, under the
Registration Rights Agreement, to register the New Notes in any jurisdiction
requested by the holders, subject to certain limitations.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
Upon consummation of the Exchange Offer, holders of the Old Notes that were
not prohibited from participating in the Exchange Offer and did not tender
their Old Notes will not have any registration rights under the Registration
Rights Agreement with respect to such nontendered Old Notes and, accordingly,
such Old Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. However, in the event the Company fails to
consummate the Exchange Offer or a holder of Old Notes notifies the Company in
accordance with the Registration Rights Agreement that it will be unable to
participate in the Exchange Offer due to circumstances delineated in the
Registration Rights Agreement, then the holder of the Old Notes will have
certain rights to have such Old Notes registered under the Securities Act
pursuant to the Registration Rights Agreement and subject to conditions
contained therein.
The Registrant has not entered into any arrangement or understanding with
any person to distribute the New Notes to be received in the Exchange Offer,
and to the best of the Registrant's information and belief, each
22
<PAGE>
person participating in the Exchange Offer is acquiring the New Notes in its
ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the New Notes to be received in
the Exchange Offer. In this regard, the Registrant will make each person
participating in the Exchange Offer aware (through this Prospectus or
otherwise) that if the Exchange Offer is being registered for the purpose of
secondary resale, any holder using the Exchange Offer to participate in a
distribution of New Notes to be acquired in the registered Exchange Offer (i)
may not rely on the staff position enunciated in Morgan Stanley and Co. Inc.
(avail. June 5, 1991) and Exxon Capital Holding Corp. (avail. May 13, 1988) or
similar letters and (ii) must comply with registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes
as reflected in the Registrant's accounting records on the Exchange Date.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Registrant. The expenses of the Exchange Offer will be expensed over the term
of the New Notes.
USE OF PROCEEDS
There will be no proceeds to the Registrant from the Exchange Offer.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996, on an actual and as adjusted basis to reflect the sale of
the Senior Notes. This table should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED (B)
---------- ---------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Long-term debt including current maturities (a):
Notes of Subsidiaries to banks................... $ 991,862 $ 782,862
Notes of Subsidiaries to institutions............ 355,300 355,300
Other Debt....................................... 17,794 17,794
---------- ----------
Total Subsidiary Bank and Institutional Debt.... 1,364,956 1,155,956
---------- ----------
13% Senior Discount Notes of Hyperion due 2003... 180,828 180,828
Other Hyperion Debt.............................. 1,384 1,384
---------- ----------
Total Hyperion Debt............................. 182,212 182,212
---------- ----------
Total Subsidiaries' debt....................... 1,547,168 1,338,168
---------- ----------
9 7/8% Senior Notes due 2007..................... -- 347,260
12 1/2% Senior Notes due 2002.................... 400,000 277,000
10 1/4% Senior Notes due 2000.................... 99,280 99,280
11 7/8% Senior Debentures due 2004............... 124,529 124,529
9 7/8% Senior Debentures due 2005................ 128,219 128,219
9 1/2% Senior Pay-In-Kind Notes due 2004......... 188,923 188,923
---------- ----------
Total Parent Debt................................ 940,951 1,165,211
---------- ----------
Total long-term debt including current
maturities.................................... 2,488,119 2,503,379
---------- ----------
Stockholders' equity (deficiency):
Class A Common Stock, $.01 par value, 200,000,000
shares
authorized and 15,364,009 shares outstanding.... 154 154
Class B Common Stock, $.01 par value, 25,000,000
shares
authorized and 10,944,476 shares outstanding.... 109 109
Additional paid-in capital....................... 214,415 214,415
Accumulated deficit.............................. (1,433,055) (1,441,055)
---------- ----------
Total stockholders' equity (deficiency)........ (1,218,377) (1,226,377)
---------- ----------
Total capitalization.......................... $1,269,742 $1,277,002
========== ==========
</TABLE>
- --------
(a) Reference is made to Note 3 to Adelphia's Consolidated Financial
Statements for a description of Notes of Subsidiaries to Banks and
Institutions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
(b) Gives effect to the application of a discount of $2,740 and the estimated
net proceeds of approximately $340,000 from the Offering of the Notes for
the repayment of Notes of Subsidiaries to Banks of approximately $209,000,
and to purchase, redeem or otherwise retire approximately $123,000 in
aggregate principal amount of 12 1/2% Senior Notes plus a premium of
approximately $8,000.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
The selected consolidated financial data as of and for each of the five
years in the period ended March 31, 1996 have been derived from the audited
consolidated financial statements of the Company. These data should be read in
conjunction with the consolidated financial statements and related notes
thereto for each of the three years in the period ended March 31, 1996 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The statement of operations
data with respect to fiscal years ended March 31, 1992 and 1993, and the
balance sheet data at March 31, 1992, 1993 and 1994, have been derived from
audited consolidated financial statements of the Company not included herein.
The statements of operations and balance sheet data as of and for each of the
four years ended March 31, 1996 of Hyperion have been derived from audited
consolidated financial statements of Hyperion not included herein. The
statements of operations and balance sheet data as of and for the year ended
March 31, 1992 of Hyperion is unaudited. The selected consolidated financial
data with respect to the nine months ended December 31, 1995 and 1996, are
unaudited; however, in the opinion of management, such data reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present the data for such interim periods. Operating results for
interim periods are not necessarily indicative of the results that may be
expected for a full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $ 273,630 $ 305,222 $ 319,045 $ 361,505 $ 403,597 $ 296,460 $ 350,575
Direct Operating and
Programming Expenses... 74,787 82,377 90,547 106,993 124,116 90,218 108,466
Selling, General and
Administrative
Expenses............... 44,427 49,468 52,801 63,487 68,357 50,961 61,132
--------- --------- --------- --------- --------- --------- ---------
Operating Income before
Depreciation,
Amortization and Rate
Regulation Expenses.... 154,416 173,377 175,697 191,025 211,124 155,281 180,977
Depreciation and
Amortization........... 84,817 90,406 89,402 97,602 111,031 79,468 89,552
Rate Regulation Charge.. -- -- -- -- 5,300 -- --
--------- --------- --------- --------- --------- --------- ---------
Operating Income ....... 69,599 82,971 86,295 93,423 94,793 75,813 91,425
Interest Income from
Affiliates............. 3,085 5,216 9,188 11,112 10,623 8,875 6,310
Other Income (Expense).. 968 1,447 (299) 1,453 -- -- --
Priority Investment In-
come from Olympus...... 22,300 22,300 22,300 22,300 28,852 18,725 30,632
Cash Interest Expense... (129,237) (164,695) (180,456) (180,942) (194,403) (151,127) (154,826)
Noncash Interest
Expense................ (35,602) (164) (1,680) (14,756) (16,288) (8,032) (25,938)
Equity in Loss of Joint
Ventures............... (52,718) (46,841) (30,054) (44,349) (46,257) (31,319) (44,131)
Gain on Sale of
Investment............. -- -- -- -- -- -- 8,405
--------- --------- --------- --------- --------- --------- ---------
Loss before Income
Taxes, Extraordinary
Loss and Cumulative
Effect of Change in
Accounting Principle
(a).................... (121,605) (99,766) (94,706) (111,759) (122,680) (87,065) (88,123)
Income Tax (Expense)
Benefit................ -- (3,143) (2,742) 5,475 2,786 2,366 64
--------- --------- --------- --------- --------- --------- ---------
Loss before
Extraordinary Loss and
Cumulative Effect of
Change in Accounting
Principle.............. (121,605) (102,909) (97,448) (106,284) (119,894) (84,699) (88,059)
Extraordinary Loss on
Early Retirement of
Debt................... -- (14,386) (752) -- -- -- (2,079)
Cumulative Effect of
Change in
Accounting for Income
Taxes (a).............. -- (59,500) (89,660) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Loss................ $(121,605) $(176,795) $(187,860) $(106,284) $(119,894) $ (84,699) $ (90,138)
========= ========= ========= ========= ========= ========= =========
Ratio of Earnings
Available to Cover
Fixed
Charges (g)............ -- -- -- -- -- -- --
SUMMARY OPERATING DATA
(AT PERIOD END):
Homes passed............ 1,145,308 1,172,755 1,207,425 1,340,808 1,422,077 1,358,116 1,547,512
Basic subscribers....... 825,553 852,335 888,167 975,066 1,039,704 1,002,760 1,131,373
Basic penetration....... 72.1% 72.7% 73.6% 72.7% 73.1% 73.8% 73.1%
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Adelphia excluding Hype-
rion
Total Assets........... $ 925,709 $ 945,277 $1,059,081 $1,232,136 $1,332,310 $1,302,226 $1,453,337
Total Debt............. 1,554,270 1,726,285 1,773,743 1,986,069 2,124,618 2,097,188 2,280,052
Hyperion
Total Assets........... 82 4,316 14,765 23,212 35,269 30,948 174,807
Total Debt............. -- 4,814 19,968 35,541 50,855 49,946 208,067
Adelphia
Total Assets........... 925,791 949,593 1,073,846 1,255,348 1,367,579 1,333,174 1,628,144
Total Debt............. 1,554,270 1,731,099 1,793,711 2,021,610 2,175,473 2,147,134 2,488,119
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA AND FINANCIAL
RATIOS:
Adelphia excluding Hype-
rion
Revenues................ $ 273,630 $ 305,133 $ 318,628 $ 359,776 $ 400,275 $ 293,964 $ 346,964
Operating income before
depreciation
and amortization....... 154,627 174,228 177,655 193,202 213,576 157,038 184,441
Affiliate interest and
priority investment
income................. 25,385 27,516 31,488 33,412 39,475 27,600 36,942
EBITDA (b).............. 180,980 203,191 209,894 228,067 250,451 184,638 221,383
Interest expense........ (164,839) (164,859) (179,972) (192,377) (204,603) (154,981) (160,005)
Capital expenditures.... 52,748 69,025 72,797 89,232 94,005 67,972 71,465
Total debt to EBITDA
(c).................... 8.08 8.34 8.46 8.51 8.29 8.59 7.64
EBITDA to total interest
expense (e)............ 1.10 1.23 1.17 1.19 1.22 1.19 1.38
EBITDA margin (d)....... 66.1% 66.6% 65.9% 63.4% 62.6% 62.8% 63.8%
Operating income before
depreciation and
amortization margin
(f).................... 56.5% 57.1% 55.8% 53.7% 53.4% 53.4% 53.2%
Hyperion
Revenues................ $ -- $ 89 $ 417 $ 1,729 $ 3,322 $ 2,496 $ 3,611
Operating loss before
depreciation
and amortization....... (211) (851) (1,958) (2,177) (2,452) (1,757) (3,464)
Affiliate interest and
priority investment
income................. -- -- -- -- -- -- --
EBITDA (b).............. (211) (851) (1,958) (2,177) (2,452) (1,757) (3,464)
Interest expense........ -- -- (2,164) (3,321) (6,088) (4,178) (20,759)
Capital expenditures.... 60 1,950 3,097 2,850 6,084 4,473 14,950
Total debt to EBITDA
(c).................... -- (2.88) (11.09) (9.09) (25.63) (27.81) (26.50)
EBITDA to total interest
expense (e)............ -- -- (.90) (.66) (.40) (.42) (.17)
EBITDA margin (d)....... -- (956.2%) (469.5%) (125.9%) (73.8%) (70.4%) (95.9%)
Operating loss before
depreciation and
amortization margin (f)
....................... -- (956.2%) (469.5%) (125.9%) (73.8%) (70.4%) (95.9%)
Adelphia
Revenues................ $ 273,630 $ 305,222 $ 319,045 $ 361,505 $ 403,597 $ 296,460 $ 350,575
Operating income before
depreciation
and amortization....... 154,416 173,377 175,697 191,025 211,124 155,281 180,977
Affiliate interest and
priority investment
income................. 25,385 27,516 31,488 33,412 39,475 27,600 36,942
EBITDA (b).............. 180,769 202,340 207,936 225,890 247,999 182,881 217,919
Interest expense........ (164,839) (164,859) (182,136) (195,698) (210,691) (159,159) (180,764)
Capital expenditures.... 52,808 70,975 75,894 92,082 100,089 72,445 86,415
Total debt to EBITDA
(c).................... 8.09 8.41 8.53 8.65 8.35 8.65 8.47
EBITDA to total interest
expense (e)............ 1.10 1.23 1.14 1.15 1.18 1.15 1.21
EBITDA margin (d)....... 66.1% 66.3% 65.2% 62.5% 61.4% 61.7% 62.2%
Operating income before
depreciation and
amortization margin
(f).................... 56.4% 56.8% 55.1% 52.8% 52.3% 52.4% 51.6%
</TABLE>
26
<PAGE>
(a) "Cumulative Effect of Change in Accounting Principle" refers to a change
in accounting principle for Olympus and the Company. Effective January 1,
1993 and April 1, 1993, respectively, Olympus and the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach for financial accounting and reporting for income taxes. The
adoption of SFAS No. 109 resulted in the cumulative recognition of an
additional liability by Olympus and the Company of $59,500 and $89,660,
respectively.
(b) Earnings before interest expense, income taxes, depreciation and
amortization, equity in net loss of joint ventures, other noncash charges,
extraordinary loss and cumulative effect of change in accounting principle
("EBITDA"). EBITDA includes affiliate interest and priority investment
income on the Company's investment in Olympus, although there can be no
assurance that such priority investment income will be available to the
Company in the future. EBITDA and similar measurements of cash flow are
commonly used in the cable television industry to analyze and compare
cable television companies on the basis of operating performance, leverage
and liquidity. While EBITDA is not an alternative indicator of operating
performance to operating income or an alternative to cash flows from
operating activities as a measure of liquidity as defined by generally
accepted accounting principles, and, while EBITDA may not be comparable to
other similarly titled measures of other companies, the Company's
management believes EBITDA is a meaningful measure of performance as
substantially all of the Company's financing agreements contain financial
covenants based on EBITDA.
(c) Based on total debt outstanding at the end of the period, divided by
annualized EBITDA for the quarter ending the period presented, the Company
believes that this presentation is consistent with the covenant test which
limits the incurrance of indebtedness in the Indenture for the Notes as
described in "Description of the Notes" and that this ratio is commonly
used for the cable television industry as a measure of leverage.
(d) Percentage represents EBITDA divided by revenues.
(e) Based on EBITDA for the period presented divided by interest expense
recorded for the applicable period.
(f) Percentage represents operating income before depreciation, amortization
and rate regulation expenses divided by revenues.
(g) For purposes of calculating the ratio of earnings available to cover fixed
charges: (i) earnings consist of loss before income taxes and
extraordinary items plus fixed charges excluding capitalized interest and
(ii) fixed charges consist of interest, whether expensed or capitalized
plus amortization of debt issuance costs plus the assumed interest
component of rent expense. For the years ended March 31, 1994, 1995 and
1996, the Company's earnings were insufficient to cover its fixed charges
by $65,997, $69,146 and $78,189, respectively. For the nine months ended
December 31, 1995 and 1996, the Company's earnings were insufficient to
cover its fixed charges by $57,245 and $45,293 respectively.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
Results of Operations
GENERAL
Adelphia earned substantially all of its revenues in each of the last three
fiscal years and in the nine months ended December 31, 1996 from monthly
subscriber fees for basic, satellite, premium and ancillary services (such as
installations and equipment rentals), local and national advertising sales,
pay-per-view programming, home shopping networks and competitive local
exchange telecommunications ("CLEC") services.
The changes in Adelphia's operating results for the quarter ended December
31, 1996, compared to the same period of the prior year, were primarily the
result of acquisitions and the impact of subscriber rate increases which
became effective October 1, 1995 and August 1, 1996. The changes in Adelphia's
results of operations for the years ended March 31, 1995 and 1996, compared to
the same period of the prior year, were primarily the result of acquisitions,
expanding existing cable television operations and, for the year ended March
31, 1996, the impact of increased advertising sales and other service
offerings as well as an increase in cable rates which became effective October
1, 1995.
The high level of depreciation and amortization associated with the
significant number of acquisitions in recent years, the recent upgrading and
expansion of systems and interest costs associated with financing activities
will continue to have a negative impact on the reported results of operations.
Also, significant charges for depreciation, amortization and interest are
expected to be incurred in the future by the Olympus joint venture, which will
also adversely impact Adelphia's future results of operations. Adelphia
expects to report net losses for the next several years.
An 88% owned unrestricted subsidiary of the Company, Hyperion
Telecommunications, Inc. ("Hyperion"), together with its subsidiaries owns
certain investments in CLEC joint ventures and manages those ventures.
Hyperion is an unrestricted subsidiary for purposes of the Company's
indentures. Excluding the impact of Hyperion's operating results, the
Company's EBITDA (see definition below) would increase by $1,941, $2,138,
$2,254 and $3,464 for the years ended March 31, 1994, 1995 and 1996 and the
nine months ended December 31, 1996, respectively. On April 15, 1996, Hyperion
realized net proceeds of $168,600 upon issuance of notes and warrants (see
Liquidity and Capital Resources).
The following table is derived from Adelphia's Consolidated Financial
Statements that are included in this Prospectus and sets forth the historical
percentage relationship to revenues of the components of operating income
contained in such financial statements for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
--------------------------------------
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------- -----------------
1994 1995 1996 1995 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and programming....... 28.4% 29.6% 30.8% 30.4% 30.9%
Selling, general and administrative.... 16.5% 17.6% 16.9% 17.2% 17.4%
------ ------ ------ -------- --------
Operating income before depreciation,
amortization and rate regulation
expenses............................... 55.1% 52.8% 52.3% 52.4% 51.7%
Depreciation and amortization........... 28.0% 27.0% 27.5% 26.8% 25.5%
Rate regulation......................... -- -- 1.3% -- --
------ ------ ------ -------- --------
Operating income........................ 27.1% 25.8% 23.5% 25.6% 26.2%
====== ====== ====== ======== ========
</TABLE>
28
<PAGE>
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1995 WITH NINE MONTHS ENDED
DECEMBER 31, 1996
Revenues. The primary revenue sources, reflected as a percentage of total
revenue, for the nine months ended December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Regulated service and equipment fees............................ 73% 72%
Premium programming fees........................................ 12% 11%
Advertising sales, priority returns and other services.......... 15% 17%
</TABLE>
Revenues increased approximately 18.3% for the nine-month period ended
December 31, 1996 compared with the same period of the prior year. The
increase was attributable to the following:
<TABLE>
<CAPTION>
PERCENTAGE
OF INCREASE
-----------
<S> <C>
Acquisitions.................................................. 41%
Rate increases................................................ 38%
Basic subscriber growth....................................... 8%
Other......................................................... 13%
</TABLE>
Certain rate increases related to regulated cable services were implemented
in substantially all of the Company's Systems on October 1, 1995 and on August
1, 1996. Other non-cable revenues, including strategic service offerings such
as paging and CLEC services, also had a positive impact on revenues for the
nine months ended December 31, 1996. The Company expects to implement rate
increases related to certain regulated cable services in substantially all of
the Company's Systems during the next fiscal year.
Direct Operating and Programming Expenses. Direct operating and programming
expenses, which are mainly basic and premium programming costs and technical
expenses, increased 20.2% for the nine-month period ended December 31, 1996
compared with the same period of the prior year. Such increases were primarily
due to increased operating expenses from acquired systems and increased
programming costs. Because of regulatory limitations on the timing and extent
to which cost increases may be passed on to customers, operating and
programming expenses during the nine-month period ended December 31, 1996 have
increased at a greater magnitude than corresponding revenue increases. As a
result of recent FCC regulatory rulemaking decisions, the Company intends to
implement a systematic program of rate increases to reverse this trend.
Consistent with such a program, the Company increased rates in most markets,
in accordance with FCC guidelines, effective August 1, 1996.
Selling, General and Administrative Expenses. These expenses, which are
mainly comprised of costs related to system offices, customer service
representatives, and sales and administrative employees, increased 20.0% for
the nine-month period ended December 31, 1996 compared with the same period of
the prior year. The increase was primarily due to a $650 write-off of costs in
connection with the postponement of Hyperion's contemplated initial public
offering in November 1996 as well as incremental costs associated with
acquisitions and revenue growth.
Operating Income Before Depreciation and Amortization. Operating income
before depreciation and amortization increased 16.5% for the nine-month period
ended December 31, 1996 compared with the same period of the prior year. The
increase is attributable to a combination of acquisitions, an increase in
subscriber rates and the expansion of other non-cable revenues, partially
offset by increased programming, general and administrative expenses.
Depreciation and Amortization. Depreciation and amortization was higher for
the nine-month period ended December 31, 1996 compared with the prior year
period primarily due to increased depreciation and amortization related to
acquisitions consummated since January 1, 1996.
29
<PAGE>
Priority Investment Income. Priority investment income is comprised of
payments received from Olympus of accrued priority return on the Company's
investment in 16.5% preferred limited partner ("PLP") interests in Olympus.
Priority investment income increased during the nine months ended December 31,
1996 as compared with the prior year period as a result of payment by Olympus
of the entire amount of priority return accrued during such periods.
EBITDA. EBITDA (earnings before interest expense, income taxes, depreciation
and amortization, equity in loss of joint ventures and other non-cash charges)
increased 19.2% for the nine-month period ended December 31, 1996 compared
with the same period of the prior year. The increase is primarily due to the
favorable impact of the acquisition of cable systems, subscriber rate
increases and increased priority investment income from Olympus partially
offset by increased programming, general and administrative expenses. The
impact of acquisitions increased revenues and, to a lesser extent, operating
expenses for the nine months ended December 31, 1996 compared with the same
period of the prior year. While EBITDA is not an alternative to operating
income or an alternative to cash flows from operating activities as a measure
of liquidity, as defined by generally accepted accounting principles and,
while EBITDA may not be comparable to other similarly titled measures of other
companies, the Company's management believes EBITDA is a meaningful measure of
performance as substantially all of the Company's financing agreements contain
financial covenants based on EBITDA.
Interest Expense. Interest expense increased 13.6% for the nine months ended
December 31, 1996 compared with the same period of the prior year. Interest
expense increased due to incremental debt outstanding during the current
period and accretion of original issue discount, partially offset by a
decrease in the average interest rate on outstanding debt compared with the
prior period. Approximately 44% of the increase in interest expense for the
nine months ended December 31, 1996 was attributable to incremental debt
related to acquisitions.
Interest expense includes non-cash accretion of original issue discount and
non-cash interest expense totaling $25,938 for the nine-month period ended
December 31, 1996 compared with $8,032 for the nine-month period of the prior
year. The increase in non-cash interest for the nine-month period ended
December 31, 1996 compared with the same period of the prior year is primarily
due to the accretion of the original issue discount related to the Hyperion
13% Senior Discount Notes which were issued April 15, 1996 (see "Liquidity and
Capital Resources").
Equity in Loss of Joint Ventures. The equity in loss of joint ventures
represents primarily (i) the Company's pro rata share of Olympus' losses and
the accretion requirements of Olympus' PLP interests, and (ii) Hyperion's pro
rata share of its losses in less than majority owned operating partnerships.
The increase in the loss during the nine-month period ended December 31, 1996,
compared with the prior year period, is due to an increase in the Olympus
priority return and an increase in the losses of certain investments in the
CLEC business in which the Company is a less than majority partner partially
offset by improved operating performance in the Olympus partnership.
Gain on Sale of Investment. On May 16, 1996, Hyperion completed the sale of
its 15.7% partnership interest in TCG South Florida to Teleport Communications
Group Inc. for an aggregate sales price of $11,618 resulting in a pre-tax gain
of $8,405 which was recorded in the three months ended June 30, 1996. As part
of the transaction, Hyperion was released from its covenant not to compete
with respect to the South Florida market. Hyperion used the proceeds from the
sale to continue to expand and develop its existing markets, complete new
networks under construction and enter additional markets.
Extraordinary Loss on Early Retirement of Debt. During the nine months ended
December 31, 1996, certain existing indebtedness was repaid resulting in an
extraordinary loss on retirement of debt of $2,079 which primarily represents
the write-off of the remaining deferred debt financing costs associated with
the debt retired.
Net Loss. The Company reported net losses of $84,699 and $90,138 for the
nine-month periods ended December 31, 1995 and 1996, respectively. The
increase in net loss for the current year's nine-month period was
30
<PAGE>
due primarily to increased interest expense, increased equity in loss of joint
ventures and an extraordinary loss on early retirement of debt partially
offset by increased operating income, increased priority investment income
from Olympus and the impact of a gain on sale of an equity investment.
Hyperion Telecommunications, Inc.
An 88% owned unrestricted subsidiary of the Company, Hyperion, together with
its subsidiaries, owns certain investments in CLEC joint ventures and manages
those ventures. Hyperion is an unrestricted subsidiary for purposes of the
Company's indentures. On April 15, 1996, Hyperion realized net proceeds of
$168,600 upon issuance of notes and warrants (see "Liquidity and Capital
Resources"). For further information regarding Hyperion, which also files
reports pursuant to the Securities Exchange Act of 1934, see Hyperion's Form
10-Q for the quarterly period ended December 31, 1996.
Summarized unaudited financial information of Adelphia, Hyperion and
Adelphia excluding Hyperion is as follows:
<TABLE>
<CAPTION>
ADELPHIA ADELPHIA
EXCLUDING EXCLUDING
ADELPHIA HYPERION HYPERION ADELPHIA HYPERION HYPERION
---------- -------- ---------- ---------- -------- ----------
AS OF DECEMBER 31, 1995 AS OF DECEMBER 31, 1996
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total debt.............. $2,147,134 $49,946 $2,097,188 $2,488,119 $208,067 $2,280,052
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 296,460 $ 2,496 $ 293,964 $ 350,575 $ 3,611 $ 346,964
Operating expenses:
Direct operating and
programming........... 90,218 1,878 88,340 108,466 2,339 106,127
Selling, general and
administrative........ 50,961 2,375 48,586 61,132 4,736 56,396
---------- ------- ---------- ---------- -------- ----------
Operating income (loss)
before depreciation and
amortization........... 155,281 (1,757) 157,038 180,977 (3,464) 184,441
Affiliate interest and
priority investment
income................. 27,600 -- 27,600 36,942 -- 36,942
---------- ------- ---------- ---------- -------- ----------
EBITDA (a).............. 182,881 (1,757) 184,638 217,919 (3,464) 221,383
Interest expense........ (159,159) (4,178) (154,981) (180,764) (20,759) (160,005)
Capital expenditures.... 72,445 4,473 67,972 86,415 14,950 71,465
</TABLE>
- --------
(a) Earnings before interest expense, income taxes, depreciation and
amortization, equity in loss of joint ventures and other non-cash charges
("EBITDA"). While EBITDA is not an alternative to operating income as
defined by generally accepted accounting principles, the Company's
management believes EBITDA is a meaningful measure of performance as
substantially all of the Company's financing agreements contain financial
covenants based on EBITDA.
COMPARISON OF THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996
Revenues. The primary revenue sources, reflected as a percentage of total
revenue, for the years ended March 31, 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Regulated service and equipment fees....................... 73% 73% 73%
Premium programming fees................................... 13% 12% 12%
Advertising sales, priority returns and other services..... 14% 15% 15%
</TABLE>
31
<PAGE>
Revenues increased approximately 13.3% for the year ended March 31, 1995 and
11.6% for the year ended March 31, 1996 compared with the prior fiscal year.
The increases were attributable to the following:
<TABLE>
<CAPTION>
PERCENTAGE OF INCREASE
FOR YEAR ENDED
MARCH 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Acquisitions.................................... 87% 36%
Basic subscriber growth......................... 10% 20%
Rate increases.................................. 0% 20%
Advertising sales and other services............ 3% 24%
</TABLE>
Effective October 1, 1995, certain rate increases related to regulated cable
services were implemented in substantially all of the Company's Systems. No
rate increases were implemented during the 1995 fiscal year. Advertising
revenues and revenues derived from other strategic service offerings such as
paging and CLEC services also had a positive impact on revenues for the year
ended March 31, 1996.
Direct Operating and Programming Expenses. Direct operating and programming
expenses, which are mainly basic and premium programming costs and technical
expenses, increased 18.2% and 16.0% for the years ended March 31, 1995 and
1996, respectively, compared with the respective prior years. Such increases
were primarily due to increased operating expenses from acquired systems,
increased programming costs and incremental costs associated with increased
subscribers. Because of regulatory limitations on the timing and extent to
which cost increases may be passed on to customers, operating and programming
expenses during the fiscal years ended 1995 and 1996 have increased at a
greater magnitude than corresponding revenue increases.
Selling, General and Administrative Expenses. These expenses, which are
mainly comprised of costs related to system offices, customer service
representatives, and sales and administrative employees, increased 20.2% and
7.7% for the years ended March 31, 1995 and 1996, respectively, compared with
the respective prior years. The increases were primarily due to incremental
costs associated with acquisitions and subscriber growth. Selling, general and
administrative expenses increased as a percentage of revenues for the year
ended March 31, 1995, as compared with fiscal 1994, primarily due to wage and
benefit increases without a corresponding increase in revenues as a result of
the rate freeze enacted by the 1992 Cable Act. For the year ended March 31,
1996, selling, general and administrative expenses decreased as a percentage
of revenues compared to the prior year, primarily due to the favorable impact
on revenues of the above mentioned October 1, 1995 rate increases.
Operating Income Before Depreciation, Amortization and Rate Regulation
Expenses. Operating income before depreciation, amortization and rate
regulation settlement was $175,697, $191,025 and $211,124 for the years ended
March 31, 1994, 1995 and 1996, respectively. The increase for the year ended
March 31, 1995 was due primarily to the impact of acquisitions, offset by cost
increases at a rate greater than increases in revenues due largely to the
above noted rate freeze. For the year ended March 31, 1996, the increase is
attributable to a combination of acquisitions, an increase in subscriber
rates, internal subscriber growth and the expansion of advertising and other
non-cable services, partially offset by increased programming, general and
administrative costs.
Rate Regulation Expenses. The fiscal year ended March 31, 1996 includes a
$5,300 charge representing management's estimate of the total costs associated
with the resolution of subscriber rate disputes. Such costs include, (i) an
estimate of credits to be extended to customers in future periods of up to
$2,700, (ii) legal and other costs incurred during the fiscal year ended March
31, 1996, and (iii) an estimate of legal and other costs to be incurred
associated with the ultimate resolution of this matter.
Depreciation and Amortization. Depreciation and amortization was higher for
the years ended March 31, 1995 and 1996, compared with the respective prior
year, primarily due to increased depreciation and amortization related to
acquisitions consummated during the years ended March 31, 1994, 1995 and 1996
as well as increased capital expenditures made during the past several years.
32
<PAGE>
Priority Investment Income. Priority investment income is comprised of
payments received from Olympus of accrued priority return on the Company's
investment in PLP Interests in Olympus. Priority investment income increased
during the year ended March 31, 1996 as compared with the prior two fiscal
years due to increased payments by Olympus.
EBITDA. EBITDA (earnings before interest, income taxes, depreciation and
amortization, equity in net loss of joint ventures, other non-cash charges,
extraordinary loss and cumulative effect of change in accounting principle)
amounted to $207,936, $225,890 and $247,999 for the years ended March 31,
1994, 1995 and 1996, respectively. The increase of 8.6% and 9.8% for the years
ended March 31, 1995 and 1996, compared with the respective prior fiscal years
is primarily due to the acquisition of cable systems during the years ended
March 31, 1995 and 1996 and increased priority investment income from Olympus
during the year ended March 31, 1996. Increased revenues and operating
expenses for the years ended March 31, 1995 and 1996, compared with the
respective prior years, primarily reflect the impact of acquisitions
consummated during fiscal 1995 and 1996. While EBITDA is not an alternative to
operating income or an alternative to cash flows from operating activities as
a measure of liquidity, as defined by generally accepted accounting principles
and, while EBITDA may not be comparable to other similarly titled measures of
other companies, the Company's management believes EBITDA is a meaningful
measure of performance as substantially all of the Company's financing
agreements contain financial covenants based on EBITDA.
Interest Expense. Interest expense increased approximately 7.4% and 7.7% for
the years ended March 31, 1995 and 1996, respectively, compared with the
respective prior year. Approximately 56% of the increase for fiscal 1995 was
due to additional interest cost associated with incremental debt related to
acquisitions. For the year ended March 31, 1996, interest expense increased
due to incremental debt outstanding during the period, partially offset by a
decrease in the average interest rate on outstanding debt during fiscal 1996
compared with the prior fiscal year. Approximately 27% of the increase in
interest expense in fiscal 1996 as compared with the prior year was
attributable to incremental debt related to acquisitions. Interest expense
includes non-cash accretion of original issue discount and non-cash interest
expense totaling $1,680, $14,756 and $16,288 for the years ended March 31,
1994, 1995 and 1996, respectively.
Equity in Loss of Joint Ventures. The equity in loss of joint ventures
represents primarily (i) the Company's pro rata share of Olympus' losses and
the accretion requirements of Olympus' preferred limited partner interests,
and (ii) Hyperion's pro rata share of its less than majority owned
partnerships' operating losses. The increase in the year ended March 31, 1995,
compared with the prior year, is primarily attributable to the impact of the
sale by Olympus of Northeast Cable and lower operating margins at Olympus. The
increase in the loss during the year ended March 31, 1996, compared with the
prior year, is due to an increase in the losses of certain investments in the
CLEC business in which the Company is a less than majority partner partially
offset by improved operating performance in the Olympus partnership.
Net Loss. The Company reported net losses of $187,860, $106,284 and $119,894
for the years ended March 31, 1994, 1995 and 1996, respectively. Net loss for
fiscal 1994 included the cumulative effect of the change in accounting of
income taxes by the Company of $89,660. Excluding the effect of this item, net
loss increased by $8,084 for fiscal 1995 compared with the prior fiscal year,
primarily due to an increase in the equity in net loss of joint ventures
(primarily Olympus) and higher non-cash interest expense, partially offset by
higher operating income. The increase in net loss of $13,610 in fiscal 1996
when compared with the prior year was due primarily to an increase in interest
expense and the impact of rate regulation expenses, partially offset by
increased operating income and priority investment income from Olympus.
LIQUIDITY AND CAPITAL RESOURCES
The cable television business is capital intensive and typically requires
continual financing for the construction, modernization, maintenance,
expansion and acquisition of cable systems. During the three fiscal
33
<PAGE>
years in the period ended March 31, 1996 and the nine months ended December
31, 1996, the Company committed substantial capital resources for these
purposes and for investments in Olympus and other affiliates and entities.
These expenditures were funded through long-term borrowings and, to a lesser
extent, internally generated funds. The Company's aggregate outstanding
borrowings as of December 31, 1996 were approximately $2,488 million. The
Company's ability to generate cash to meet its future needs will depend
generally on its results of operations and the continued availability of
external financing.
Capital Expenditures. The Company has developed an innovative fiber-to-
feeder network architecture which is designed to increase channel capacity and
minimize future capital expenditures, while positioning the Company to take
advantage of future opportunities. Management believes its capital
expenditures program has resulted in higher levels of channel capacity and
addressability in comparison to other cable television operators.
In most of its recent upgrades, the Company has utilized a Modified Passive
Network Architecture ("MPNA") which utilizes fiber optic cable as an
alternative to the coaxial cable that historically has been used to distribute
cable signals to the subscriber's home. The MPNA design deploys on average one
fiber node for every two miles of fiber optic cable or approximately one fiber
node for every 180 homes passed. The Company believes this compares favorably
with current industry averages. This deep penetration of fiber optic cable
into the Systems' networks has the advantages of providing increased
reliability to customers, improved bandwidth, and easier implementation of the
return path plant capabilities. This will position the Company to offer
additional video programming services, to utilize the expanded bandwidth
potential of digital compression technology and to meet the anticipated
transmission requirements for high-definition television, digital television,
high-speed data and telephone services.
Capital expenditures for the nine months ended December 31, 1995 and 1996
were $72,445 and $86,415, respectively. Management expects capital
expenditures for the fiscal year ending March 31, 1997 to be approximately
$115 million due to the further expansion of cable plant rebuilds and due to
further expansion by Hyperion. The Company expects the capital expenditures
for fiscal 1998 to be consistent with fiscal 1997.
Capital expenditures for the years ended March 31, 1994, 1995 and 1996 were
$75,894, $92,082 and $100,089, respectively. The increase in capital
expenditures for fiscal 1994, 1995 and 1996, compared to each respective prior
year, was primarily due to the acceleration of the rebuilding of plant using
fiber-to-feeder technology, and expenditures related to faster than expected
growth of Hyperion. See "Business--Competitive Local Exchange Services."
Financing Activities. The Company's financing strategy has been to maintain
its public long-term debt at the parent holding company level while the
Company's consolidated subsidiaries have their own senior and subordinated
credit arrangements with banks and insurance companies. The Company's ability
to generate cash adequate to meet its future needs will depend generally on
its results of operations and the continued availability of external
financing. During the three-year and nine-month period ended December 31,
1996, the Company generally funded its working capital requirements, capital
expenditures, and investments in Olympus and other affiliates and entities
through long-term borrowings primarily from banks and insurance companies,
short-term borrowings, internally generated funds and the issuance of parent
company public debt and equity. The Company generally has funded the principal
and interest obligations on its long-term borrowings from banks and insurance
companies by refinancing the principal with new loans or through the issuance
of parent and subsidiary company debt securities, and by paying the interest
out of internally generated funds. Adelphia has funded the interest
obligations on its public borrowings from internally generated funds.
Most of Adelphia's directly-owned subsidiaries have their own senior credit
agreements with banks and/or insurance companies. Typically, borrowings under
these agreements are collateralized by the stock in and, in some cases, by the
assets of the borrowing subsidiary and its subsidiaries and, in some cases,
are guaranteed by such subsidiary's subsidiaries. At March 31, 1996, and
December 31, 1996, an aggregate of $1,096,675 and $1,243,162, respectively, in
borrowings was outstanding under these agreements. These agreements contain
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certain provisions which, among other things, provide for limitations on
borrowings of and investments by the borrowing subsidiaries, transactions
between the borrowing subsidiaries and Adelphia and its other subsidiaries and
affiliates, and the payment of dividends and fees by the borrowing
subsidiaries. Several of these agreements also contain certain cross-default
provisions relating to Adelphia or other subsidiaries. These agreements also
require the maintenance of certain financial ratios by the borrowing
subsidiaries. In addition, at March 31, 1996 and December 31, 1996, an
aggregate of $128,000 and $104,000, respectively, in subordinated and
unsecured borrowings by Adelphia's subsidiaries was outstanding under credit
agreements containing limitations and restrictions similar to those mentioned
above. See Note 3 to the Adelphia Communications Corporation Consolidated
Financial Statements. The Company is in compliance with the financial
covenants and related financial ratio requirements contained in its various
credit agreements, based on operating results for the period ended December
31, 1996. In addition, as of December 31, 1996, Hyperion had $180,828
outstanding in 13% Senior Discount Notes due 2003 which were issued under a
public indenture dated April 15, 1996.
At December 31, 1996, Adelphia's subsidiaries had an aggregate of $37,000 in
unused credit lines with banks, part of which is subject to achieving certain
levels of operating performance. In addition, the Company had an aggregate
$105,652 in cash and cash equivalents at December 31, 1996 which combined with
the Company's unused credit lines with banks aggregated to $142,652. The
Company has the ability to pay interest on its 9 1/2% Pay-In-Kind Notes by
issuing additional notes totaling approximately $49,400 in lieu of cash
interest payments from January 1, 1997 through February 15, 1999. Based upon
the results of operations of subsidiaries for the quarter ended March 31,
1996, approximately $219,000 of available assets could have been transferred
to Adelphia at March 31, 1996, under the most restrictive covenants of the
subsidiaries' credit agreements. The subsidiaries also have the ability to
sell, dividend or distribute certain assets to other subsidiaries or Adelphia,
which would have the net effect of increasing availability. At December 31,
1996, the Company's unused credit lines were provided by reducing revolving
credit facilities whose revolver periods expire September 30, 2004. The
Company's scheduled maturities of debt total $11,785 for the last three months
of fiscal 1997.
At December 31, 1996, the Company's total outstanding debt aggregated
$2,488,119, which included $940,951 of parent company debt and $1,547,168 of
subsidiary debt. Bank debt interest rates are based upon one or more of the
following rates at the option of Adelphia: prime rate plus 0% to 1.5%;
certificate of deposit rate plus 1.25% to 2.75%; or Eurodollar (or London
Interbank Offered) rate plus 1% to 2.5%. The Company's weighted average
interest rate of notes payable to banks and institutions was approximately
8.25% at December 31, 1996, compared to 8.62% at December 31, 1995. At
December 31, 1996, approximately 39% of subsidiary debt was subject to fixed
interest rates for at least one year under the terms of such debt or
applicable interest rate swap agreements. Approximately 62% of the Company's
total indebtedness is at fixed interest rates as of December 31, 1996.
Adelphia has entered into interest rate swap agreements and interest rate
cap agreements with banks and affiliates to reduce the impact of changes in
interest rates on its bank debt. Adelphia enters into pay-fixed agreements to
effectively convert a portion of its variable-rate debt to fixed-rate debt.
Adelphia enters into receive-fixed agreements to effectively convert a portion
of its fixed-rate debt to variable-rate debt which is indexed to LIBOR.
Interest rate cap agreements are used to reduce the impact of increases in
interest rates on variable rate debt. Adelphia is exposed to credit loss in
the event of nonperformance by the banks and the affiliates. The Company does
not expect any such nonperformance. At March 31, 1996, Adelphia would have had
to pay approximately $14.2 million to settle its interest rate swap and cap
agreements, representing the excess of carrying cost over fair market value of
these agreements. During fiscal 1996, the Company received $11,526 upon
termination of several interest rate swap agreements having a stated notional
principal amount of $270,000. The amount received will be amortized as a
reduction of interest expense through November 1998. Also during fiscal 1996,
the Company received $4,900 and assumed the obligations as a counterparty
under certain interest rate swap agreements with Olympus. These interest rate
swap agreements have a notional principal amount of $140,000 and expire
through November 1998.
On July 28, 1993, Adelphia completed the placement of $110,000 aggregate
principal amount of 10 1/4% Senior Notes Due 2000, Series A. The net proceeds
from this placement were approximately $106,961.
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On January 14, 1994, Adelphia completed a public offering of 9,132,604
shares of Class A Common Stock (the "Stock Offering"). Of the 9,132,604 shares
of Class A Common Stock sold in the Stock Offering, 3,300,000 shares were sold
to the public at $18.00 per share and 5,832,604 shares were sold directly by
Adelphia to partnerships controlled by members of the Rigas Family, at the
public offering price less the underwriting discount. Highland Holdings and
Syracuse Hilton Head Holdings, L.P., ("SHHH") which hold and control the
Managed Systems, purchased 4,374,453 and 1,458,151 of such 5,832,604 shares,
respectively.
On February 15, 1994, the Company issued, in a private placement, $150,000
aggregate principal amount of 9 1/2% Senior Pay-In-Kind ("PIK") Notes Due
2004, Series A. The net proceeds from the 9 1/2% Notes of approximately
$147,000 were used to repay outstanding bank debt of subsidiaries in order to
extend the scheduled maturities of the Company's long-term debt. The Company
has the ability to pay interest on its 9 1/2% PIK Notes by issuing additional
notes totaling approximately $57,906 in lieu of cash interest payments through
February 15, 1999.
In May 1994, Adelphia purchased on the open market $10,000 of its 10 1/4%
Senior Notes due in 2000 at a price of 94.5% of face value plus accrued
interest.
On February 28, 1995, as a part of the Telesat Investment Agreement, FPL
Group Inc. ("FPL") purchased 1,000,000 shares of newly issued Class A Common
Stock for $15,000.
On April 12, 1996, certain subsidiaries of the Company (collectively, the
"Borrowers") entered into a $690,000 financing arrangement consisting of a
$540,000 revolving credit facility maturing December 31, 2003 and a $150,000
term loan facility maturing December 31, 2004. Initial borrowings during April
1996 of $483,000 were used primarily to repay existing indebtedness. Interest
rates charged are based upon one or more of the following rates at the option
of the Borrowers: Eurodollar rate or the greater of the prime rate and the
Federal funds rate plus 1/2 of 1% plus a margin of from 0% to 2% depending
upon the Borrower's senior funded debt ratio. Interest on outstanding
borrowings is generally payable on a quarterly basis. The maximum available
under the revolving credit facility is reduced, in increasing quarterly
amounts, beginning June 30, 1998 through December 31, 2003. The Borrowers pay
a commitment fee of either .375% or .250% per annum (depending upon the
Borrower's senior funded debt ratio) of the unused revolving credit facility
commitments during the term of the agreement. Borrowings under the term loan
facility are payable in installments, in increasing quarterly amounts,
commencing June 30, 1998 and ending on December 31, 2004.
On April 15, 1996, Hyperion realized proceeds, net of discounts, commissions
and other transaction costs, of $168,600 upon issuance of $329,000 aggregate
principal amount of 13% Senior Discount Notes (the "Hyperion Senior Notes")
due April 15, 2003 and 329,000 warrants to purchase an aggregate of 613,427
shares of common stock of Hyperion expiring April 1, 2001. Proceeds of $11,087
were allocated to the value of the warrants. If all warrants were exercised,
the warrants would represent approximately 5.78% of the common stock of
Hyperion on a fully diluted basis. Proceeds, net of discounts, commissions,
and other transaction costs, were used to repay certain indebtedness to
Adelphia, to make loans to certain key Hyperion officers and will be used to
fund Hyperion's expansion of its existing markets, to complete construction of
new networks and to enter additional markets, including related capital
expenditures, working capital requirements, operating losses and investments
in joint ventures.
Acquisitions. On March 10, 1994, the Company purchased a 75% equity interest
in Three Rivers Cable Associates, L.P. ("TR") for $6,000. At the acquisition
date, TR served approximately 15,000 subscribers in Ohio and approximately
3,000 subscribers in Pennsylvania, which are contiguous with existing Company
owned systems. Adelphia has also committed to provide a fully collateralized
$18,000 line of credit, similar to that which would be available to TR had it
borrowed such monies from a commercial bank. At March 31, 1996, there were
outstanding borrowings of $13,164 under this agreement.
On March 31, 1994, Adelphia acquired from Olympus the rights to provide
alternate access in its respective franchise areas and an investment in the
Sunshine Network, L.P. for a purchase price of $15,500. The purchase
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price of the assets resulted in a reduction of amounts due Adelphia of
$15,500. Also, on March 31, 1994, Adelphia acquired from certain Managed
Partnerships the rights to provide alternate access in their respective
franchise areas for a purchase price of $14,000. Additionally, on March 31,
1994, Adelphia purchased real property from Dorellenic and Island Partners,
L.P., partnerships owned by certain executive officers of the Company, for a
total of $14,312.
On April 12, 1994, Adelphia purchased for $15,000 (i) convertible preferred
units in Niagara Frontier Hockey, L.P. (the "Sabres Partnership"), which owns
the Buffalo Sabres National Hockey League ("NHL") Franchise, convertible to a
34% equity interest, and (ii) warrants allowing Adelphia to increase its
interest to 40%. Adelphia has also committed to advance $12,500 to the Sabres
Partnership in the form of 14% convertible capital funding notes. In
connection with the $12,500 commitment, Adelphia's convertible preferred
units' return has been increased to 14%. During the year ended March 31, 1996,
the Company funded $7,681 of the $12,500 and by April 24, 1996, the entire
$12,500 had been funded. The Sabres Partnership manages and will receive
allocations of profits, losses and distributions from the Marine Midland
Arena, a new sports and entertainment facility expected to be completed by the
opening of the 1996-1997 NHL season. Adelphia believes this investment will be
a competitive advantage in the Buffalo cable television market.
On May 12, 1994, Adelphia invested $3,000 for a 20% interest in SuperCable
ALK International, a cable operator in Caracas, Venezuela. In April 1994,
Adelphia invested $4,200 in Commonwealth Security Systems, Inc. in exchange
for an 8.75%, $4,200 convertible note and warrants. The note is convertible
into a 33% fully diluted common equity interest on demand. The warrants
entitle Adelphia to acquire up to a 40% fully diluted common equity interest
for an additional $670.
On June 16, 1994, Adelphia invested $34,000 in TMC Holdings Corporation
("THC"), the parent of Tele-Media Company of Western Connecticut. THC owns
cable television systems which, at the acquisition date, served approximately
43,000 subscribers in western Connecticut. The investment in THC provides
Adelphia with a $30,000 preferred equity interest in THC and a 75% non-voting
common equity interest, with a liquidation preference to the remaining 25%
common stock ownership interest in THC. Adelphia has the right to convert such
interest to a 75% voting common equity interest, with a liquidation preference
to the remaining shareholders' 25% common stock ownership interest, on demand
subject to certain regulatory approvals. The acquisition of THC was accounted
for using the purchase method of accounting. The consolidated statements of
operations and cash flows include the operations of the acquired system from
June 16, 1994. Debt assumed, included in notes payable of subsidiaries to
banks and institutions, was $52,000 at closing.
On June 30, 1994, Adelphia acquired from Olympus 85% of the common stock of
Northeast Cable, Inc. ("Northeast") for a purchase price of $31,875. Northeast
owns cable television systems which, at the acquisition date, served
approximately 36,500 subscribers in eastern Pennsylvania. Of the purchase
price, $16,000 was paid in cash and the remainder resulted in a decrease in
Adelphia's receivable from Olympus. The acquisition of Northeast was accounted
for using the purchase method of accounting. The consolidated statements of
operations and cash flows include the operations of the acquired system since
June 30, 1994. Debt assumed, included in notes payable of subsidiaries to
banks and institutions, was $42,300 at closing.
On November 8, 1994, Page Call, Inc., a company 49.9% owned by Adelphia, was
a successful bidder for three regional narrowband PCS licenses, covering 62%
of the country's population. Page Call, Inc. was recently established to
develop a nationwide paging service. Page Call, Inc.'s aggregate final bid for
the three licenses was $52,900, an amount reduced to $31,800 due to its
"designated entity" status.
On December 27, 1994, Adelphia exchanged its existing investment in TMIP
with a Managed System for a note in the amount of $13,000. No gain or loss was
recognized as a result of this exchange.
On January 10, 1995, Adelphia issued 399,087 shares of Class A Common Stock
in connection with the merger of a wholly-owned subsidiary of Adelphia into
Oxford Cablevision, Inc. ("Oxford"), one of the Terry Family cable systems.
Oxford served approximately 4,200 subscribers at the acquisition date, located
in the
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North Carolina counties of Granville and Warren. The acquisition of Oxford was
accounted for using the purchase method of accounting. The consolidated
statements of operations and cash flows include the operations of the acquired
systems since January 10, 1995. Adelphia assigned the rights to purchase the
stock of the other Terry Family cable systems to a Managed System.
On January 31, 1995, Adelphia acquired Tele-Media Company of Martha's
Vineyard, L.P. ("Martha's Vineyard") for $11,775, a cable system which, at the
acquisition date, served approximately 7,000 subscribers located in Martha's
Vineyard, Massachusetts. The acquisition of Martha's Vineyard was accounted
for using the purchase method of accounting. The consolidated statements of
operations and cash flows include the operations of the acquired system since
January 31, 1995.
On April 12, 1995, Adelphia acquired cable systems from Clear Channels Cable
TV Company located in Kittanning, New Bethlehem and Freeport, Pennsylvania,
for $17,456. These systems served approximately 10,700 subscribers at the
acquisition date. The acquisition of these systems has been accounted for
using the purchase method of accounting. The consolidated statements of
operations and cash flows include the operations of the acquired systems since
April 12, 1995.
On January 9, 1996, Adelphia completed the acquisition of the cable systems
of Eastern Telecom Corporation and Robinson Cable TV, Inc. These systems
served approximately 24,000 subscribers at the acquisition date located in
western Pennsylvania and were purchased for an aggregate price of $43,000. The
acquisition of these systems has been accounted for using the purchase method
of accounting. The consolidated statements of operations and cash flows
include the operations of the acquired systems since January 9, 1996.
On April 1, 1996, Adelphia purchased the cable television operations of
Cable TV Fund 11-B, Ltd. This CATV system was acquired for $84,267 and served
approximately 39,700 subscribers at the acquisition date in the New York
counties of Erie and Niagara. The acquisition was financed through a
combination of debt proceeds from a $200,000 credit facility in which an
Adelphia subsidiary is a co-borrower with an affiliated entity and funds
received through the repayment of amounts previously advanced to related
entities. These amounts may be reborrowed by the related entities in future
periods.
On July 12, 1996, Adelphia acquired all of the cable systems of First
Carolina Cable TV, L.P. These systems served approximately 32,500 subscribers
at the date of acquisition primarily located in Vermont and were purchased for
an aggregate price of $48,500.
Olympus. During the years ended March 31, 1994 and 1995, the Company made
net investments in and advances to Olympus totaling $2,285 and $1,966,
respectively. Such investments and advances provided funds to Olympus for
capital expenditures, for the repayment of debt and for working capital.
During the year ended March 31, 1996, the Company received net distributions
and advances from Olympus totaling $45,599. During the years ended March 31,
1994, 1995 and 1996 and the nine months ended December 31, 1996, the Company
received priority investment income from Olympus of $22,300, $22,300, $28,852
and $30,632, respectively.
On February 28, 1995, Olympus entered into a Liquidation Agreement with the
Gans Family ("Gans"), an Olympus limited partner. Under this Liquidation
Agreement, Gans agreed to exchange their redeemable limited partner interests
in Olympus for the remaining 15% of the common stock of Northeast held by
Olympus. Concurrently with the closing of the Liquidation Agreement, ACP
Holdings, Inc. ("ACP," a wholly owned subsidiary of Adelphia and managing
general partner of Olympus), Olympus, Telesat and certain shareholders of
Adelphia entered into an investment agreement (the "Telesat Investment
Agreement") whereby Telesat contributed to Olympus substantially all of the
assets associated with certain cable television systems, serving approximately
50,000 subscribers in southern Florida, in exchange for general and limited
partner interests of $5, Senior Limited Partner ("SLP") interests of $20,000
and $112,500 of newly issued 16.5% preferred limited partner ("PLP")
interests.
Prior to the Telesat Investment Agreement, Olympus had obligations to
Adelphia for intercompany advances, redeemable PLP interests and accrued
priority return on redeemable PLP interests. In conjunction with
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the Telesat Investment Agreement, Adelphia contributed $49,974 of the
intercompany advances, $51,101 of the existing redeemable PLP interests and
all of the then existing accrued priority return on the redeemable PLP
interests to general partners' equity (deficiency). Adelphia then exchanged
its remaining redeemable PLP interests for $225,000 of new PLP interests.
Also, Senior Debt (as defined in the Telesat Investment Agreement) owed by
Olympus to Adelphia of $40,000 remained outstanding after consummation of the
Telesat Investment Agreement. After this transaction Adelphia holds a 50%
voting interest in Olympus with a Telesat subsidiary as its only other voting
partner in Olympus.
Managed Partnerships. On September 29, 1993, the Board of Directors of the
Company authorized the Company to make loans in the future to the Managed
Partnerships up to an amount of $50,000. During the years ended March 31,
1994, 1995 and 1996, the Company made advances in the net amount of $7,828,
$10,028 and $14,859, respectively, to these and other related parties,
primarily for capital expenditures and working capital purposes.
On October 6, 1993, Adelphia purchased the 14% preferred Class B Limited
Partnership Interest in Syracuse Hilton Head Holdings, L.P. ("SHHH") for
$18,338 from Robin Media Group, an unrelated party. SHHH is a joint venture of
the Rigas Family and Tele-Communications, Inc., whose interests in SHHH are
junior to Adelphia's.
During fiscal 1995, the Company sold its investment in TMIP to SHHH for
$13,000. On January 31, 1995, a wholly owned subsidiary of Adelphia received a
$20,000 preferred investment from SHHH to facilitate the acquisition of cable
properties.
Resources. The Company plans to continue to explore and consider new
commitments, arrangements or transactions to refinance existing debt, increase
the Company's liquidity or decrease the Company's leverage. These could
include, among other things, the future issuance by Adelphia, or its
subsidiaries, of public or private equity or debt and the negotiation of new
or amended credit facilities. These could also include entering into
acquisitions, joint ventures or other investment or financing activities,
although no assurance can be given that any such transactions will be
consummated. The Company's ability to borrow under current credit facilities
and to enter into refinancings and new financings is limited by covenants
contained in Adelphia's indentures and its subsidiaries' credit agreements,
including covenants under which the ability to incur indebtedness is in part a
function of applicable ratios of total debt to cash flow.
During each of the years ended March 31, 1995 and 1996 and the nine months
ended December 31, 1996, the increase in capital expenditures and accounts
payable was primarily attributed to the companies acquired and an increase in
the level of expenditures for new technology and rebuild activity. The
increase in accrued interest and other liabilities from March 31, 1995 to
March 31, 1996 resulted from the deferral of the gain from the termination of
certain interest rate swaps.
The Company believes that cash and cash equivalents, internally generated
funds, borrowings under existing credit facilities, and future financing
sources will be sufficient to meet its short-term and long-term liquidity and
capital requirements. Although in the past the Company has been able to
refinance its indebtedness or obtain new financing, there can be no assurance
that the Company will be able to do so in the future or that the terms of such
financings would be favorable.
Management believes that the telecommunications industry, including the
cable television and telephone industries, continues to be in a period of
consolidation characterized by mergers, joint ventures, acquisitions, sales of
all or part of cable companies or their assets, and other partnering and
investment transactions of various structures and sizes involving cable or
other telecommunications companies. The Company continues to evaluate new
opportunities that allow for the expansion of its business through the
acquisition of additional cable television systems in geographic proximity to
its existing regional markets or in locations that can serve as a basis for
new market areas. The Company, like other cable television companies, has
participated from time to time and is participating in preliminary discussions
with third parties regarding a variety of potential transactions,
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and the Company has considered and expects to continue to consider and explore
potential transactions of various types with other cable and
telecommunications companies. However, no assurances can be given as to
whether any such transaction may be consummated or, if so, when.
INFLATION
In the three fiscal years in the period ended March 31, 1996 and the nine
months ended December 31, 1996, inflation did not have a significant effect on
the Company. Periods of high inflation could have an adverse effect to the
extent that increased borrowing costs for floating-rate debt may not be offset
by increases in subscriber rates. At March 31, 1996, after giving effect to
interest rate hedging agreements, approximately $778,375 of the Company's
total debt was subject to floating interest rates.
OLYMPUS
The Company serves as the managing general partner of Olympus and, as of
December 31, 1996, held $5 of voting general partnership interests
representing, in the aggregate, 50% of the voting interests of Olympus. The
Company also held, as of December 31, 1996, approximately $258,400 aggregate
principal amount of nonvoting PLP interests in Olympus, which entitle the
Company to a 16.5% per annum priority return. The remaining equity in Olympus
consists of voting and non-voting partnership interests held by subsidiaries
of FPL.
On February 28, 1995, Olympus entered into a Liquidation Agreement with the
Gans family ("Gans"), an Olympus limited partner. Under this Liquidation
Agreement, Gans agreed to exchange their redeemable limited partner interests
in Olympus for the remaining 15% of the common stock of Northeast held by
Olympus. Concurrently with the closing of the Liquidation Agreement, ACP,
Olympus, Telesat and certain shareholders of Adelphia entered into the Telesat
Investment Agreement whereby Telesat contributed to Olympus substantially all
of the assets associated with certain cable television systems, serving
approximately 50,000 subscribers in southern Florida, in exchange for general
and limited partner interests of $5, Special Limited Partner ("SLP") interests
of $20,000 and $112,500 of newly issued 16.5% PLP interests.
On March 28, 1996, ACP, Telesat, Olympus, Adelphia and certain shareholders
of Adelphia entered into an agreement which amended certain aspects of the
Olympus Partnership Agreement. The amendment provides for the repayment of
certain amounts owed to Telesat totaling $20,000, the release of certain
obligations of Telesat to Olympus and the reduction of Telesat's PLP and
accrued priority return balances by $20,000. The amendment further provides
for a $40,000 distribution to Adelphia as a reduction of its PLP interests and
accrued priority return. These repayments and distributions were made on March
29, 1996 and were funded through internally generated funds and advances from
an affiliate.
The Olympus limited partnership agreement requires approval by the holders
of 85% of the voting interests for, among other things, significant
acquisitions and dispositions of assets, and the issuance of certain
partnership interests, and also requires approval by the holders of 75% of the
voting interests for, among other things, material amendments to the Olympus
partnership agreement, certain financings and refinancings, certain issuances
of PLP interests, certain transactions with related parties and the adoption
of annual budgets.
On April 3, 1995, Olympus acquired all of the cable and security systems of
WB Cable Associates, Ltd. ("WB Cable") which, at the acquisition date, served
44,000 cable and security monitoring subscribers for a purchase price of
$82,000. WB Cable provides cable services from one headend and security
monitoring services from one location in West Boca Raton, Florida. Of the
purchase price, $77,000 was paid in cash and $5,000 was paid in Adelphia Class
A Common Stock. The acquisition was accounted for under the purchase method of
accounting, and was financed principally through borrowings under an Olympus
subsidiary's credit agreement.
On May 12, 1995, certain Olympus subsidiaries entered into a $475,000
revolving credit facility with several banks, maturing December 31, 2003. The
proceeds at closing were used to repay existing bank debt. At December 31,
1996, $166,000 of unused commitments was available.
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On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.,
which, at the acquisition date, served approximately 50,000 cable and security
monitoring subscribers for a purchase price of $95,800. The purchase price
consists of $40,000 in cash and a $70,000 non-interest bearing discount seller
note due December 30, 1997. This note was recorded at $55,800 at acquisition
and will accrete to the $70,000 face amount. The cash portion of the
acquisition price was financed through borrowings under an Olympus credit
agreement.
On November 12, 1996, Olympus issued $200,000 of 10 5/8% Senior Notes (the
"Olympus Senior Notes") in a private placement. Net proceeds, after payment of
transaction costs, of approximately $195,000 were used to reduce amounts
outstanding on Olympus' subsidiaries' notes payable to banks. Interest is
payable semiannually commencing May 15, 1997. The Olympus Senior Notes are
unsecured and are due November 15, 2006. Olympus may redeem up to $70,000 of
the Olympus Senior Notes at 110.625% of principal through November 6, 1999.
Commencing November 15, 2001, Olympus may redeem the Olympus Senior Notes in
whole or in part at 105.3125% of principal declining annually to par on
November 15, 2004. Holders of the Olympus Senior Notes have the right to
require Olympus to redeem the Olympus Senior Notes at 101% upon a Change of
Control (as defined in the Indenture). The Indenture stipulates, among other
things, limitations on additional borrowings, payment of dividends or
distributions, repurchase of equity interests, transactions with affiliates
and the sale of assets.
The following table is derived from the Olympus Communications, L.P.
Consolidated Financial Statements included in this Prospectus.
SUPPLEMENTAL FINANCIAL DATA FOR OLYMPUS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $93,421 $120,968 $159,870
Business interruption revenue..................... 1,037 -- --
------- -------- --------
Total......................................... 94,458 120,968 159,870
Operating income before depreciation and
amortization..................................... 47,079 53,228 73,459
Depreciation and amortization..................... 36,703 31,953 40,446
Operating income.................................. 10,376 21,275 33,013
Interest expense.................................. (32,262) (36,718) (47,348)
Net loss.......................................... (21,025) (19,391) (10,950)
OTHER FINANCIAL DATA:
Capital expenditures.............................. $23,916 $ 21,498 $ 28,117
Operating margin (a).............................. 49.8% 44.0% 45.9%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets................................................. $533,909 $640,221
Total long-term debt......................................... 419,809 572,713
Limited partners' interests.................................. 396,630 407,669
</TABLE>
- --------
(a) Percentage representing operating income before depreciation and
amortization divided by total revenues.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996--OLYMPUS
Revenues. For the year ended December 31, 1995, revenues increased 28.1%
from the prior year which primarily reflects the impact of the acquisitions of
Telesat and WB Cable during 1995 coupled with the positive
41
<PAGE>
impact of rate increases implemented effective October 1, 1995 and the
internal growth of subscribers. Revenues increased approximately 32.2% for the
year ended December 31, 1996 compared with the prior year primarily due to the
impact of cable systems contributed by FPL Group and the cable systems
acquired from WB Cable during 1995 and Leadership during 1996, and the
positive impact of rate increases implemented during October 1995 and June
1996. Subscriber growth and advertising revenues also contributed to the
increase in revenues during the current period.
Operating Income Before Depreciation and Amortization. For the year ended
December 31, 1995, operating income before depreciation and amortization
increased 13.1% as compared with the prior year. The increase was primarily
due to the increased operating income provided by the Telesat and WB Cable
acquisitions, partially offset by increased programming costs and incremental
costs associated with increased subscribers. For the year ended December 31,
1996, operating income before depreciation and amortization increased 38.0%
compared with the prior year. This increase was primarily due to increased
revenues from acquisitions and rate increases, partially offset by increased
programming and incremental costs associated with increased subscribers as
well as increased operating costs from acquired systems.
Operating Income. For the year ended December 31, 1995, operating income
increased by $10,899 to $21,275. The increase was primarily due to the
incremental operating income of acquired systems, the Telesat and WB Cable
acquisitions, the positive impact of the rate increase discussed above and
lower depreciation and amortization. The increase in operating income to
$33,013 for 1996 was primarily due to the increase in revenues described above
that was only partially offset by increases in operating expenses and
depreciation and amortization resulting mainly from acquisitions.
Interest Expense. For the year ended December 31, 1995, interest expense
increased 13.8% primarily due to the higher level of debt outstanding. For the
year ended December 31, 1996, interest expense increased 39.5% compared to the
prior year primarily due to increased levels of debt incurred as a result of
acquisitions.
Net Loss. Olympus reported net losses of $21,025, $19,391 and $10,950 for
the years ended December 31, 1994, 1995 and 1996, respectively. The decline in
net loss in 1995 compared to 1994 was primarily due to the increased operating
income of acquired systems, partially offset by increased programming costs
and incremental costs associated with increased subscribers. The decline in
net loss in 1996 compared to 1995 was primarily due to the impact of rate
increases and increased operating income of acquired systems, partially offset
by increased programming costs, interest expense and other incremental costs
associated with increased subscribers.
REGULATORY AND COMPETITIVE MATTERS
The cable television operations of the Company may be adversely affected by
changes and developments in governmental regulation, competitive forces and
technology. The cable television industry and the Company are subject to
extensive regulation at the federal, state and local levels. The 1992 Cable
Act significantly expanded the scope of regulation of certain subscriber rates
and a number of other matters in the cable industry, such as mandatory
carriage of local broadcast stations and retransmission consent, and increased
the administrative costs of complying with such regulations. The FCC has
adopted rate regulations that establish, on a system-by-system basis, maximum
allowable rates for (i) basic and cable programming services (other than
programming offered on a per-channel or per-program basis), based upon a
benchmark methodology, and (ii) associated equipment and installation services
based upon cost plus a reasonable profit. Under the FCC rules, franchising
authorities are authorized to regulate rates for basic services and associated
equipment and installation services, and the FCC will regulate rates for
regulated cable programming services in response to complaints filed with the
agency. The Telecommunications Act of 1996 (the "1996 Act") ends FCC
regulation of cable programming service tier rates on March 31, 1999.
Rates for basic and cable programming services are set pursuant to a
benchmark formula. Alternatively, a cable operator may elect to use a cost-of-
service methodology to show that rates for basic and cable programming
42
<PAGE>
services are reasonable. Refunds with interest will be required to be paid by
cable operators who are required to reduce regulated rates. The FCC has
reserved the right to reduce or increase the benchmarks it has established.
The rate regulations also limit increases in regulated rates to an inflation
indexed amount plus increases in certain costs such as taxes, franchise fees,
costs associated with specific franchise requirements and increased
programming costs. Cost-based adjustments to these capped rates can also be
made in the event a cable operator adds or deletes channels or completes a
significant system rebuild or upgrade. On November 10, 1994, the FCC adopted
an alternative method for adjusting the rates charged for a cable programming
services tier when new services are added. This has allowed cable operators to
increase rates by as much as $1.40 plus programming costs, over a three year
period ending December 31, 1997 to reflect the addition of up to seven new
channels of service on cable programming service tiers. In addition, a new
programming tier can be created, the rate for which would not be regulated as
long as certain conditions are met, such as not moving services from existing
tiers to the new one. Because of the limitation on rate increases for
regulated services, future revenue growth from cable services will rely to a
much greater extent than has been true in the past on increased revenues from
unregulated services and new subscribers than from increases in previously
unregulated rates.
The FCC has adopted regulations implementing all of the requirements of the
1992 Cable Act. The FCC is also likely to continue to modify, clarify or
refine the rate regulations. Adelphia cannot predict the effect of the 1996
Act on future rulemaking proceedings or changes to the rate regulations.
Effective September 1, 1993, as a result of the 1992 Cable Act, Adelphia
repackaged certain existing cable services by adjusting rates for basic
service and introducing a new method of offering certain cable services.
Adelphia adjusted the basic service rates and related equipment and
installation rates in all of its systems in order for such rates to be in
compliance with the applicable benchmark or equipment and installation cost
levels. Adelphia also implemented a program in all of its systems called
"CableSelect" under which most of Adelphia's satellite-delivered programming
services were offered individually on a per channel basis, or as a group at a
price of approximately 15% to 20% below the sum of the per channel prices of
all such services. For subscribers who elected to customize their channel
lineup, Adelphia provided, for a monthly rental fee, an electronic device
located on the cable line outside the home, enabling a subscriber's television
to receive only those channels selected by the subscriber. These basic service
rate adjustments and the CableSelect program were also implemented in all
systems managed by Adelphia. Adelphia believes CableSelect provided increased
programming choices to its subscribers while providing flexibility to Adelphia
to respond to future changes in areas such as customer demand and programming.
Adelphia no longer offers the CableSelect program in any of its systems.
A letter of inquiry was received by an Olympus system regarding the
implementation of this new method of offering services. Olympus responded in
writing to the FCC's inquiry. On November 18, 1994, the Cable Services Bureau
of the FCC issued a decision holding that the "CableSelect" program was an
evasion of the rate regulations and ordered this package to be treated as a
regulated tier. This decision, and all other letters of inquiry decisions,
were principally decided on the number of programming services moved from
regulated tiers to "a la carte" packages. Adelphia appealed this decision to
the full Commission which affirmed the Cable Service Bureau's decision.
Adelphia has sought reconsideration of the decision. On November 18, 1994, the
FCC released amended rules under which, on a prospective basis, any a la carte
package will be treated as a regulated tier, except for packages involving
premium services. An appeal of this decision to the U.S. Court of Appeals for
the D.C. Circuit was unsuccessful.
Certain other cable television companies that utilized a la carte packages
have recently reached settlement/resolution with the FCC on this issue.
Adelphia has discussed such a settlement with the Cable Services Bureau of the
FCC and a proposed settlement of all outstanding rate proceedings, including
"a la carte" packages, has been made available for public comment by the FCC.
Accordingly, results of operations for the fiscal year ended March 31, 1996
included a $5,300 charge representing management's estimate of the total costs
associated with the resolution of this matter. Such costs included, (i) an
estimate of credits to be extended to customers in future periods of up to
$2,700, (ii) legal and other costs incurred during the fiscal year ended March
31, 1996, and (iii) an estimate of legal and other costs to be incurred
associated with the ultimate
43
<PAGE>
resolution of this matter. At December 31, 1996, $3,519 of the charge to
earnings remained in accrued interest and other liabilities. While Adelphia
cannot predict the ultimate outcome or effect of this matter, management of
Adelphia does not expect the ultimate outcome of this matter to have a
material adverse effect on Adelphia's financial position and results of
operations. Also, no assurance can be given as to what other future actions
Congress, the FCC or other regulatory authorities may take or the effects
thereof on the Company. The Company is currently unable to predict the effect
that the amended regulations, future FCC treatment of "a la carte" packages or
other future FCC rulemaking proceedings will have on its business and results
of operations in future periods.
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
Because such franchises are generally non-exclusive, there is a potential for
competition with the systems from other operators of cable television systems,
including public systems operated by municipal franchising authorities
themselves, and from other distribution systems capable of delivering
television programming to homes. The 1992 Cable Act and the 1996 Act contain
provisions which encourage competition from such other sources. The Company
cannot predict the extent to which competition will materialize from other
cable television operators, local telephone companies, other distribution
systems for delivering television programming to the home, or other potential
competitors, or, if such competition materializes, the extent of its effect on
the Company.
FCC rules heretofore permitted local telephone companies to offer "video
dialtone" service for video programmers, including channel capacity for the
carriage of video programming and certain non-common carrier activities such
as video processing, billing and collection and joint marketing agreements.
New Jersey Bell Telephone Company received authorization on July 18, 1994 to
operate a "video dialtone" service in portions of Dover County, New Jersey, in
which the Company serves approximately 20,000 subscribers.
The 1996 Act repealed the prohibition on local exchange telephone companies
("LECs") from providing video programming directly to customers within their
local exchange areas other than in rural areas or by specific waiver of FCC
rules. The 1996 Act also authorized LECs to operate "open video systems"
("OVS") without obtaining a local cable franchise, although LECs operating
such a system can be required to make payments to local governmental bodies in
lieu of cable franchise fees. Where demand exceeds capacity, up to two-thirds
of the channels on an OVS must be available to programmers unaffiliated with
the LEC. The statute states that the OVS scheme supplants the FCC's "video
dialtone" rules. The FCC has promulgated rules to implement the OVS concept,
and New Jersey Bell has been granted permission to convert its video dialtone
authorization to an OVS authorization.
The Company believes that the provision of video programming by telephone
companies in competition with the Company's existing operations could have an
adverse effect on the Company's financial condition and results of operations.
At this time, the impact of any such effect is not known or estimable.
Direct broadcast satellite ("DBS") service became available to consumers
during 1994. A single DBS satellite can provide more than 100 channels of
programming. DBS service can be received virtually anywhere in the United
States through the installation of a small outdoor antenna. DBS service is
being heavily marketed on a nationwide basis by several service providers. The
extent to which DBS will be competitive with cable systems will depend on the
continued availability of reception equipment and programming at reasonable
prices to the consumer.
44
<PAGE>
BUSINESS
INTRODUCTION
Adelphia Communications Corporation ("Adelphia" and, collectively with its
subsidiaries, the "Company") is the seventh largest cable television operator
in the United States. As of December 31, 1996, cable systems owned or managed
by the Company (the "Systems") in the aggregate passed 2,625,337 homes and
served 1,856,122 basic subscribers.
The Company's owned cable systems (the "Company Systems") are located in ten
states and are organized into seven regional clusters: Western New York,
Virginia, Western Pennsylvania, New England, Eastern Pennsylvania, Ohio and
Coastal New Jersey. The Company Systems are located primarily in suburban
areas of large and medium-sized cities within the 50 largest television
markets ("areas of dominant influence" or "ADIs," as measured by The Arbitron
Company). At December 31, 1996, the Company Systems passed 1,547,512 homes and
served 1,131,373 basic subscribers.
The Company owns a 50% voting interest and non-voting preferred limited
partnership interests entitling the Company to a 16.5% priority return in
Olympus Communications, L.P. ("Olympus"). Olympus is a joint venture which
owns cable systems (the "Olympus Systems") located in some of the fastest
growing areas of Florida. The Olympus Systems in Florida form a substantial
part of an eighth regional cluster, Southeastern Florida. The Company is the
managing general partner of Olympus. As of December 31, 1996, the Olympus
Systems passed 646,770 homes and served 412,258 basic subscribers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Olympus."
The Company also provides, for a fee, management and consulting services to
certain partnerships and corporations (the "Managed Partnerships"). John J.
Rigas and certain members of his immediate family, including entities they own
or control (collectively, the "Rigas Family") have substantial ownership
interests in the Managed Partnerships. As of December 31, 1996, cable systems
(the "Managed Systems") owned by the Managed Partnerships passed 431,055 homes
and served 312,491 basic subscribers.
John J. Rigas, the Chairman, President, Chief Executive Officer and majority
stockholder of Adelphia, is a pioneer in the cable television industry, having
built his first system in 1952 in Coudersport, Pennsylvania. Adelphia was
incorporated in Delaware on July 1, 1986 for the purpose of reorganizing five
cable television companies, then principally owned by the Rigas Family, into a
holding company structure in connection with the initial public offering of
its Class A Common Stock, $.01 par value. Prior to 1982, the Company grew
principally by obtaining municipal cable television franchises to construct
new cable television systems. Since 1982, the Company has grown principally by
acquiring and developing existing cable systems. The Company's operations
consist of providing telecommunications services primarily over its broadband
networks. The Company did not have any material foreign operations or foreign
sales in the year ended March 31, 1996.
This Prospectus including Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains certain statements of a forward
looking nature relating to future events or the future financial performance
of the Company which are forward looking statements under Section 27A of the
Securities Act of 1933. Persons reading this Prospectus are cautioned that
such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, readers should specifically
consider the various factors identified in this Prospectus, which could cause
actual events or results to differ materially from those indicated by such
forward looking statements.
Video Services
Cable television systems receive a variety of television, radio and data
signals transmitted to receiving sites ("headends") by way of off-air
antennas, microwave relay systems and satellite earth stations. Signals are
then
45
<PAGE>
modulated, amplified and distributed primarily through coaxial and fiber optic
cable to subscribers, who pay fees for the service. Cable television systems
are generally constructed and operated pursuant to non-exclusive franchises
awarded by state or local government authorities for specified periods of
time.
Cable television systems typically offer subscribers a package of basic
video services consisting of local and distant television broadcast signals,
satellite-delivered non-broadcast channels (which offer programming such as
news, sports, family entertainment, music, weather, shopping, etc.) and
public, governmental and educational access channels.
In addition, digital radio and premium service channels, which provide
movies, live and taped concerts, sports events and other programming, are
offered for an extra monthly charge. At March 31, 1996, over 94% of
subscribers of the Systems were also offered pay-per-view programming, which
allows the subscriber to order special events or movies and to pay on a per
event basis. Local, regional and national advertising time is sold in the
majority of the Systems, with commercial advertisements inserted on certain
satellite-delivered non-broadcast channels.
Competitive Local Exchange Services
The Company is currently offering competitive local exchange
telecommunications ("CLEC") services through an unrestricted subsidiary,
Hyperion Telecommunications, Inc. ("Hyperion"). CLEC carriers can provide
businesses and other large telecommunications consumers with local
telecommunications services and access to long-distance service carriers via
competitive networks that bypass the local telephone company. These
competitive access networks also can complement existing networks by providing
redundant telecommunications service backup and route diversity for their
customers. Hyperion's networks are constructed exclusively with fiber optics
plant designed to provide increased quality service and data integrity
compared to the existing local telephone company's network.
The Company expects passage of the Telecommunications Act of 1996 (the "1996
Act") on February 8, 1996 to substantially expand the market opportunities for
Hyperion and its networks by removing legal barriers to enter the local
exchange telecommunications markets and by requiring the existing local
exchange carrier to negotiate with CLECs on many competitive issues. (Based on
data compiled by the Federal Communications Commission ("FCC"), the Company
believes that passage of the 1996 Act increases the potential market for CLECs
from approximately $26.3 billion to approximately $97.1 billion annually due
to the opening of the market for switched services which will permit CLECs to
offer a full range of local telecommunications services.) In the markets where
Hyperion's networks are currently operating or are under construction, the
addressable market opportunity is estimated to be approximately $4.8 billion,
substantially all of which is currently provided by the incumbent local
exchange carrier. As of December 31, 1996, Hyperion's 18 networks served 33
cities and included approximately 3,162 route miles of fiber optic cable and
were connected to approximately 1,183 buildings.
On April 15, 1996, Hyperion completed a private placement to institutional
investors and realized net proceeds of $168.6 million upon issuance of $329
million aggregate principal amount at maturity of 13% Senior Discount Notes
and warrants to purchase an aggregate of 613,427 common shares of Hyperion. If
all warrants were exercised, the warrants would represent approximately 5.78%
of the common stock of Hyperion on a fully diluted basis. The notes will not
require payment of interest until October 15, 2001, and may not be redeemed
prior to April 15, 2001. Hyperion is using the net proceeds from the offering
to expand its existing markets, to complete construction of new networks, to
enter additional markets, to repay certain indebtedness owed to Adelphia, and
for working capital purposes.
Cable Data Services
Cable data services, which consist of residential, institutional and
business applications, represent a high speed alternative access to the
Internet and other on-line services as compared to traditional telephone based
services. Cable data services, which will be available at speeds up to 300
times faster than that available from 28.8 kilobit per second telephone
modems, require the computer used to be equipped with an ethernet card and an
adjunct cable modem. Other benefits of cable data services include not using
the phone line, no log-on required and use of multiple sessions or connections
to multiple services simultaneously.
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<PAGE>
One-way data service product offerings include data transmitted to either a
home computer or the television set. Currently, all of the Company's cable
plant is capable of providing one-way data transmission to customers. Because
residential data services are highly asymmetrical (some estimates assert that
95% of the data transmission is "downstream" and 5% of the data transmission
is "upstream"), cable modems are being produced that utilize the cable plant
downstream (with speeds as high as the two way service) and a telephone
circuit is used for the upstream data traffic. Television data services are
implemented through advanced analog set-top boxes currently available. Data
can be transmitted to these set-tops and displayed on the television. These
one-way data services are currently being evaluated by the Company for
possible additional product offerings.
Two-way data service requires certain electronics capable of delivering a
signal from the customer back to the Company's headend. As of March 31, 1996,
approximately 29% of the Company Systems have cable plant capable of
delivering two-way data transmission service to its customers. The Company is
currently evaluating which additional product offerings it may introduce, and
the timing of such introduction, to maximize the two-way data service
capability of its cable plant.
Other Services
Adelphia is a 49.9% owner of Page Call, Inc. which was a successful bidder
in November 1994 on three regional narrowband PCS licenses, covering 62% of
the country's population. Page Call, Inc. is currently in discussions to use
its narrowband PCS licenses with a third-party as the basis for a planned
nationwide paging service.
Adelphia began providing wireless messaging services with the formation of
its wholly owned subsidiary, Page Time, Inc. in November 1994. Page Time, Inc.
offers one-way messaging services for resale to the Company's systems and
other multiple system cable operators, by establishing its own reselling
arrangements with existing paging network operators. The Company, Olympus and
Managed Systems currently provide paging services through Page Time to
approximately 12,000 customers.
In April 1994, Adelphia made a $4,200 investment in Lancaster Alarm Company
(d/b/a Commonwealth Security Systems), the largest independent security
company in Pennsylvania. Commonwealth Security Systems provides electronic
security monitoring services to over 25,000 accounts in the Mid-Atlantic
region of the United States. This investment was sold in January 1997. In
September 1995, Olympus contributed its security business customers in
exchange for a 50.36% general and limited partnership interest in Starpoint,
L.P. (d/b/a Checkpoint Ltd.), a security services company providing
residential security services to approximately 23,000 accounts in the state of
Florida as of March 31, 1996.
In addition to the activities described above, the Company has made a
substantial commitment to technological development as a member of Cable
Television Laboratories, Inc., a not-for-profit research and development
company serving the cable industry. The Company has also joined other industry
members in a partnership venture in Digital Cable Radio, a satellite-
delivered, multichannel music service featuring "compact disc" quality sound,
which is marketed as a premium service.
Operating Strategy
The Company's strategy has been to provide superior customer service while
maximizing operating efficiencies. By acquiring and developing systems in
geographic proximity, the Company has been able to realize significant
operating efficiencies through the consolidation of many managerial,
administrative and technical functions. The Systems have consolidated
virtually all of their administrative operations, including customer service,
service call dispatching, marketing, human resources, advertising sales and
government relations into regional offices. Each regional office has a related
technical center which contains the facilities necessary for the Systems'
technical functions, including construction, installations and system
maintenance and monitoring. Consolidating customer service functions into
regional offices allows the Company to provide customer service through better
training and staffing of customer service representatives, and by providing
more advanced telecommunications and computer equipment and software to its
customer service representatives than would otherwise be economically feasible
in smaller systems.
47
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The Company considers technological innovation to be an important component
of cost-effective improvement of its product and customer satisfaction.
Through the use of fiber optic cable and other technological improvements, the
Company has increased system reliability, channel capacity and its ability to
deliver advanced cable television, data transmission and telephony services.
These improvements have enhanced customer service, reduced operating expenses
and allowed the Company to introduce additional services, such as impulse-
ordered pay-per-view programming, which expand customer choices and increase
Company revenues. The Company has developed new cable construction
architecture which allows it to readily deploy fiber optic cable in its
systems. Management believes that the Company is among the leaders of the
cable industry in the deployment of fiber optic cable.
Development of the Systems
The Company has focused on acquiring and developing systems in markets which
have favorable historical growth trends. The Company believes that the strong
household growth trends in its Systems' market areas are a key factor in
positioning itself for future growth in basic subscribers.
Since 1982, the Company has grown principally by acquiring new cable systems
and by developing existing cable systems. On June 16, 1994, Adelphia invested
$34,000 for a majority equity position in TMC Holdings Corporation ("THC"),
the parent of Tele-Media Company of Western Connecticut. THC owns cable
television systems which served approximately 43,000 subscribers at the
acquisition date in Western Connecticut. On June 30, 1994, Adelphia acquired
from Olympus 85% of the common stock of Northeast Cable, Inc. ("Northeast
Cable") for a purchase price of $31,875. Northeast Cable owns cable television
systems which served approximately 36,500 subscribers, at the acquisition
date, in Eastern Pennsylvania. On January 10, 1995, Adelphia issued 399,087
shares of Class A Common Stock in connection with the merger of a wholly-owned
subsidiary of Adelphia into Oxford Cablevision, Inc. ("Oxford"), one of the
Benjamin Terry family (the "Terry Family") cable systems. Oxford served
approximately 4,200 subscribers, at the acquisition date, located in the North
Carolina counties of Granville and Warren. On January 31, 1995, the Company
acquired Tele-Media of Martha's Vineyard, L.P. for $11,775, a cable system
which served, at the date of acquisition, approximately 7,000 subscribers in
Martha's Vineyard, Massachusetts. On April 12, 1995, Adelphia acquired cable
systems from Clear Channels Cable TV Company located in Kittanning, New
Bethlehem and Freeport, Pennsylvania, for $17,456. These systems served
approximately 10,700 subscribers at the acquisition date. On January 9, 1996,
Adelphia completed the acquisition of the cable systems of Eastern Telecom
Corporation and Robinson Cable TV, Inc. for $43,000. These systems served
approximately 24,000 subscribers at the acquisition date located in western
Pennsylvania. On April 1, 1996, Adelphia purchased the cable property of Cable
TV Fund 11-B, Ltd. from Jones Intercable. This system was acquired for $84,000
and served approximately 39,700 subscribers at the acquisition date in the New
York counties of Erie and Niagara. On July 12, 1996, Adelphia acquired cable
systems serving 32,500 subscribers primarily in Vermont from First Carolina
Cable TV, L.P. for $48,500.
On February 28, 1995, ACP Holdings, Inc., a wholly owned subsidiary and
managing general partner of Olympus, certain shareholders of Adelphia, Olympus
and various Telesat Entities ("Telesat"), wholly-owned subsidiaries of FPL
Group, Inc., entered into an investment agreement whereby Telesat agreed to
contribute to Olympus substantially all of the assets associated with certain
cable television systems, which served approximately 50,000 subscribers at
February 28, 1995 in southern Florida, in exchange for general and limited
partner interests and newly issued preferred limited partner interests in
Olympus. On April 3, 1995, Olympus purchased all of the cable and security
systems of WB Cable Associates, Ltd. ("WB Cable") which served approximately
44,000 cable and security monitoring subscribers at the date of acquisition,
for a purchase price of $82,000. WB Cable provides cable service from one
headend and security monitoring services from one location in West Boca Raton,
Florida. On January 5, 1996, Olympus acquired all of the southeast Florida
cable systems of the Leadership Cable of Fairbanks Communications, Inc., which
served approximately 50,000 cable and security monitoring subscribers at the
acquisition date for a purchase price of $95,800.
The Company will continue to evaluate new opportunities that allow for the
expansion of its business through the acquisition of additional cable
television systems in geographic proximity to its existing regional
48
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market areas or in locations that can serve as the basis for new market areas,
either directly or indirectly through joint ventures, where appropriate.
The following table indicates the growth of the Company Systems and Olympus
Systems by summarizing the number of homes passed by cable and the number of
basic subscribers for each of the five years in the period ended March 31,
1996. The table also indicates the numerical growth in subscribers
attributable to acquisitions and the numerical and percentage growth
attributable to internal growth. For the period April 1, 1991 through March
31, 1996, 68% of aggregate internal basic subscriber growth for both the
Company Systems and the Olympus Systems was derived from internal growth in
homes passed, while the remaining 32% of such aggregate growth was derived
from penetration increases.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
COMPANY SYSTEMS:
HOMES PASSED (B)
Beginning of Period... 1,117,401 1,145,308 1,172,755 1,207,425 1,340,808
Internal Growth (c)... 27,907 20,507 10,623 39,012 30,665
% Internal Growth..... 2.5% 1.8% 0.9% 3.2% 2.3%
Acquired Homes Passed. -- 6,940 24,047 94,371 50,604
End of Period......... 1,145,308 1,172,755 1,207,425 1,340,808 1,422,077
BASIC SUBSCRIBERS (D)
Beginning of Period... 800,551 825,553 852,335 888,167 975,066
Internal Growth (c)... 25,002 21,216 17,355 31,651 29,215
% Internal Growth..... 3.1% 2.6% 2.0% 3.6% 3.0%
Acquired Subscribers.. -- 5,566 18,477 55,248 35,423
End of Period......... 825,553 852,335 888,167 975,066 1,039,704
Basic Penetration (e). 72.1% 72.7% 73.6% 72.7% 73.1%
OLYMPUS SYSTEMS (A):
HOMES PASSED (B)
Beginning of Period... 391,342 408,616 386,971 406,753 512,052
Internal Growth (c)... 17,274 (21,645) 19,782 11,911 12,050
% Internal Growth..... 4.4% (5.3%) 5.1% 2.9% 2.4%
Acquired Homes Passed. -- -- -- 93,388 107,500
End of Period......... 408,616 386,971 406,753 512,052 631,602
BASIC SUBSCRIBERS (D)
Beginning of Period... 224,488 237,766 211,025 239,357 306,317
Internal Growth (c)... 13,278 (26,741) 28,332 19,198 9,329
% Internal Growth..... 5.9% (11.2%) 13.4% 8.0% 3.0%
Acquired Subscribers.. -- -- -- 47,762 88,255
End of Period......... 237,766 211,025 239,357 306,317 403,901
Basic Penetration (e). 58.2% 54.5% 58.8% 59.8% 63.9%
</TABLE>
- --------
(a) Data included for the South Dade System at March 31, 1993, 1994 ,1995 and
1996 reflects actual homes passed and basic subscribers. At July 31, 1992,
prior to Hurricane Andrew, the South Dade system had 157,992 homes passed
by cable and 71,193 basic subscribers, respectively. At March 31, 1993,
1994, 1995 and 1996, the South Dade system served 40,999, 65,398, 74,601
and 80,725 basic subscribers, respectively.
Data for the Northeast Cable System is included under Company Systems and
excluded from the Olympus Systems for all periods presented.
(b) A home is deemed to be "passed" by cable if it can be connected to the
distribution system without any further extension of the cable
distribution plant.
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<PAGE>
(c) The number of additional homes passed or additional basic subscribers not
attributable to acquisitions of new cable systems.
(d) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts (such as motels or
apartments) are included on a "subscriber equivalent" basis in which the
total monthly bill for the account is divided by the basic monthly charge
for a single outlet in the area.
(e) Basic subscribers as a percentage of homes passed by cable.
Exclusive of acquisitions, basic subscribers grew 1.3%, 4.0% and 2.2% for
Company, Olympus and Managed Systems, respectively, during the twelve months
ended December 31, 1996, as of which date Company and Olympus Systems passed
1,547,512 and 646,770 homes, and served 1,131,373 and 412,258 basic
subscribers, respectively.
MARKET AREAS
The Systems are "clustered" in eight market areas in the eastern portion of
the United States as follows:
<TABLE>
<CAPTION>
MARKET AREA LOCATION OF SYSTEMS
----------- -------------------
<C> <S>
Southeastern Florida. Portions of southern Dade, Citrus, Orange,
Hillsborough, Palm Beach, Martin and St. Lucie Counties
and Hilton Head, South Carolina
Western New York..... Suburbs of Buffalo and the adjacent Niagara Falls area,
and Syracuse and adjacent communities
Virginia............. Winchester, Charlottesville, Staunton, Richland,
Martinsville and surrounding communities in Virginia,
and South Boston and Elizabeth City, North Carolina
Western Pennsylvania. Suburbs of Pittsburgh and several small communities in
western Pennsylvania
New England.......... Cape Cod communities, South Shore communities (the area
between Boston and Cape Cod, Massachusetts), Martha's
Vineyard, Massachusetts; and Bennington, Burlington,
Rutland and Montpelier, Vermont and surrounding
communities in Vermont and New York, and Seymour,
Connecticut
Eastern Pennsylvania. Suburbs of Philadelphia and suburbs of Scranton
Ohio................. Suburbs of Cleveland and the city of Mansfield and
surrounding communities, Mt. Vernon and portions of
Kalamazoo County, Michigan
Coastal New Jersey... Ocean County, New Jersey
</TABLE>
The following table summarizes by market area the homes passed by cable,
basic subscribers and premium service units for the Systems as of March 31,
1996.
<TABLE>
<CAPTION>
HOMES BASIC BASIC PREMIUM PREMIUM
PASSED SUBSCRIBERS PENETRATION UNITS PENETRATION
--------- ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
COMPANY SYSTEMS:
Western New York......... 297,893 213,068 71.53% 119,381 56.03%
New England.............. 260,542 183,819 70.55% 108,517 59.03%
Virginia................. 228,588 174,019 76.13% 77,354 44.45%
Western Pennsylvania..... 216,052 159,272 73.72% 63,726 40.01%
Ohio..................... 168,332 121,960 72.45% 66,131 54.22%
Coastal New Jersey....... 125,646 98,304 78.24% 53,917 54.85%
Eastern Pennsylvania..... 125,024 89,262 71.40% 60,058 67.28%
--------- --------- -------
TOTAL.................. 1,422,077 1,039,704 73.11% 549,084 52.81%
========= ========= =======
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
HOMES BASIC BASIC PREMIUM PREMIUM
PASSED SUBSCRIBERS PENETRATION UNITS PENETRATION
--------- ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
OLYMPUS SYSTEMS:
Southeastern Florida..... 631,602 403,901 63.95% 200,319 49.60%
========= ========= =======
MANAGED SYSTEMS:
Southeastern Florida..... 177,081 147,476 83.28% 37,523 25.44%
Virginia................. 107,673 71,729 66.62% 33,891 47.25%
Western New York......... 70,178 41,053 58.50% 29,433 71.70%
Western Pennsylvania..... 35,961 25,019 69.57% 8,762 35.02%
Eastern Pennsylvania..... 34,848 23,754 68.16% 23,796 100.18%
--------- --------- -------
TOTAL.................. 425,741 309,031 72.59% 133,405 43.17%
========= ========= =======
TOTAL SYSTEMS:
Southeastern Florida..... 808,683 551,377 68.18% 237,842 43.14%
Western New York......... 368,071 254,121 69.04% 148,814 58.56%
Virginia................. 336,261 245,748 73.08% 111,245 45.27%
New England.............. 260,542 183,819 70.55% 108,517 59.03%
Western Pennsylvania..... 252,013 184,291 73.13% 72,488 39.33%
Ohio..................... 168,332 121,960 72.45% 66,131 54.22%
Eastern Pennsylvania..... 159,872 113,016 70.69% 83,854 74.20%
Coastal New Jersey....... 125,646 98,304 78.24% 53,917 54.85%
--------- --------- -------
TOTAL.................. 2,479,420 1,752,636 70.69% 882,808 50.37%
========= ========= =======
</TABLE>
Technological Developments
The Company has made a substantial commitment to the technological
development of the Systems and has actively sought to upgrade the technical
capabilities of its cable plant in a cost efficient manner. This development
will allow the Company to further increase the reliability of its services, to
increase channel capacity for the delivery of additional programming and to
provide new telecommunications services. Currently, all of the Systems have a
minimum of 35-channel capacity and are capable of delivering one-way data
transmission and digital video services. Further, as of March 31, 1996 over
94% of the subscribers to the Systems are served with "addressable capable"
technology, which permits the cable operator to remotely activate the cable
television services to be delivered to subscribers who are equipped with
addressable converters. With addressable converters, the Company can
immediately add to or reduce the services provided to a subscriber from the
Company's headend site, without the need to dispatch a service technician to
the subscriber's home. Addressable technology has allowed the Company to offer
pay-per-view programming. This technology has assisted the Company in reducing
pay service theft and, by allowing the Company to automatically cut off a
subscriber's service, has been effective in collecting delinquent subscriber
payments.
In most of its recent upgrades, the Company has utilized a Modified Passive
Network Architecture ("MPNA") which utilizes fiber optic cable as an
alternative to the coaxial cable that historically has been used to distribute
cable signals to the subscriber's home. The MPNA design deploys on average one
fiber node for every two miles of fiber optic cable, or approximately one
fiber node for every 180 homes passed. The Company believes this compares
favorably with current industry averages. This deep penetration of fiber optic
cable into the Systems' networks has the advantages of providing increased
reliability to customers, improved bandwidth and easier implementation of the
return path plant capabilities. This will position the Company to offer
additional video programming services, to utilize the expanded bandwidth
potential of digital compression technology and to meet the anticipated
transmission requirements for high-definition television, digital television,
high-speed data and telephone services.
51
<PAGE>
The following table summarizes the status of the cable plant and service
capabilities of the Systems as of March 31, 1996:
STATUS OF CABLE PLANT AT MARCH 31, 1996
<TABLE>
<CAPTION>
COMPANY OLYMPUS MANAGED TOTAL
SYSTEMS SYSTEMS SYSTEMS SYSTEMS
------- ------- ------- -------
<S> <C> <C> <C> <C>
CABLE PLANT CHARACTERISTICS:
Plant miles................................ 20,996 7,267 6,166 34,429
Fiber route miles.......................... 2,394 290 331 3,015
Fiber Strand miles......................... 50,617 7,526 6,877 65,020
Fiber nodes................................ 1,601 110 237 1,948
Homes passed per fiber node................ 888 5,742 1,796 1,273
CHANNEL CAPACITY (PLANT MILES):
Less than 400 Mhz.......................... 5,626 39 2,927 8,592
400 Mhz up to 550 Mhz...................... 7,934 6,051 1,739 15,724
550 Mhz or more............................ 7,436 1,177 1,500 10,113
Total plant miles.......................... 20,996 7,267 6,166 34,429
CHANNEL CAPACITY (PERCENT OF PLANT MILES):
Less than 400 Mhz.......................... 26.8% 0.5% 47.5% 25.0%
400 Mhz up to 550 Mhz...................... 37.8% 83.3% 28.2% 45.6%
550 Mhz or more............................ 35.4% 16.2% 24.3% 29.4%
Total plant miles.......................... 100.0% 100.0% 100.0% 100.0%
SERVICES CAPABILITY (AS A
PERCENT OF TOTAL PLANT MILES):
Digital video.............................. 100.0% 100.0% 100.0% 100.0%
Interactive video (a)...................... 29.0% 9.3% 21.1% 23.4%
One-way data transmission.................. 100.0% 100.0% 100.0% 100.0%
Two-way data transmission (a).............. 29.0% 9.3% 21.1% 23.4%
Residential telephone (a).................. 11.9% 0.0% 9.6% 9.0%
</TABLE>
- --------
(a) Service capability denotes cable plant with sufficient bandwidth and fiber
penetration to provide such services. In some systems, certain electronics
to deliver the return signal would be necessary to provide these services.
The Company estimates that additional capital to install these electronics
would, on average, cost an additional $15 per home passed.
Subscriber Services and Rates
The Company's revenues are derived principally from monthly subscription
fees for basic, satellite and premium services. Rates to subscribers vary from
market to market and in accordance with the type of service selected. Although
services vary from system to system because of differences in channel capacity
and viewer interests, each of the Systems typically offers a basic service
package ranging from $8.00 to $15.00 per month. As described herein, the
Systems currently offer certain satellite services through CableSelect, at
monthly per channel rates ranging from $.10 to $1.25 per channel, and in
discounted packages. The Systems' monthly rates for premium services range
from $7.00 to $13.00 per service. An installation fee, which the Company may
wholly or partially waive during a promotional period, is usually charged to
new subscribers. Subscribers are free to terminate cable service at any time
without charge, but often are charged a fee for reconnection or change of
service.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act," as
amended by the 1992 Cable Act), deregulated basic service rates for systems in
communities meeting the FCC's definition of effective competition. Pursuant to
the FCC's definition of effective competition adopted following enactment of
the 1984 Cable Act, substantially all of the Company's franchises were rate
deregulated. However, in June 1991, the FCC amended its effective competition
standard, which increased the number of cable systems which could be subject
to local rate regulation. The 1992 Cable Act contains a new definition of
effective competition under which nearly all cable systems in the United
States are subject to regulation of basic service rates. Additionally, the
52
<PAGE>
legislation (i) eliminated the 5% annual basic rate increase allowed by the
1984 Cable Act without local approval; (ii) allows the FCC to adjudicate the
reasonableness of rates for non-basic service tiers, other than premium
services, for cable systems not subject to effective competition in response
to complaints filed by franchising authorities and/or cable subscribers; (iii)
prohibits cable systems from requiring subscribers to purchase service tiers
above basic service in order to purchase premium services if the system is
technically capable of doing so; (iv) allows the FCC to impose restrictions on
the retiering and rearrangement of cable services under certain circumstances;
and (v) permits the FCC and franchising authorities more latitude in
controlling rates and rejecting rate increase requests. The 1996 Act ends FCC
regulation on nonbasic tier rates on March 31, 1999. See "Legislation and
Regulation."
For a discussion of the changes in the Company's method of offering services
to its subscribers implemented in September 1993 and recent FCC rate
regulation and related developments, see "Legislation and Regulation" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Regulatory and Competitive Matters."
Franchises
The 1984 Cable Act provides that cable operators may not offer cable service
to a particular community without a franchise unless such operator was
lawfully providing service to the community on July 1, 1984 and the
franchising authority does not require a franchise. The Systems operate
pursuant to franchises or other authorizations issued by governmental
authorities, substantially all of which are nonexclusive. Such franchises or
authorizations awarded by a governmental authority generally are not
transferable without the consent of the authority. As of March 31, 1996, the
Company held 460 franchises, Olympus held 118 franchises and the Managed
Systems held 125 franchises. Most of these franchises can be terminated prior
to their stated expiration by the relevant governmental authority, after due
process, for breach of material provisions of the franchise.
Under the terms of most of the Company's franchises, a franchise fee
(generally ranging up to 5% of the gross revenues of the cable system) is
payable to the governmental authority. For the past three years, franchise fee
payments made by the Company have averaged approximately 2.5% of gross system
revenues.
The franchises issued by the governmental authorities are subject to
periodic renewal. In renewal hearings, the authorities generally consider,
among other things, whether the franchise holder has provided adequate service
and complied with the franchise terms. In connection with a renewal, the
authority may impose different and more stringent terms, the impact of which
cannot be predicted. To date, all of the Company's material franchises have
been renewed or extended, at or effective upon their stated expiration,
generally on modified terms. Such modified terms have not been materially
adverse to the Company.
The Company believes that all of its material franchises are in good
standing. From time to time, the Company notifies the franchising authorities
of the Company's intent to seek renewal of the franchise in accordance with
the procedures set forth in the 1984 Cable Act. The 1984 Cable Act process
requires that the governmental authority consider the franchise holder's
renewal proposal on its own merits in light of the franchise holder's past
performance and the community's needs and interests, without regard to the
presence of competing applications. See "Legislation and Regulation." The 1992
Cable Act alters the administrative process by which operators utilize their
1984 Cable Act franchise renewal rights. Such changes could make it easier in
some instances for a franchising authority to deny renewal of a franchise.
Competition
Although the Company and the cable television industry have historically
faced modest competition, the competitive landscape is changing and
competition will increase. The Company believes that the increase in
competition within its communities will occur gradually over a period of time.
53
<PAGE>
At the present time, cable television systems compete with other
communications and entertainment media, including off-air television broadcast
signals which a viewer is able to receive directly using the viewer's own
television set and antenna. The extent to which a cable system competes with
over-the-air broadcasting depends upon the quality and quantity of the
broadcast signals available by direct antenna reception compared to the
quality and quantity of such signals and alternative services offered by a
cable system. In many areas, television signals which constitute a substantial
part of basic service can be received by viewers who use their own antennas.
Local television reception for residents of apartment buildings or other
multi-unit dwelling complexes may be aided by use of private master antenna
services. Cable systems also face competition from alternative methods of
distributing and receiving television signals and from other sources of
entertainment such as live sporting events, movie theaters and home video
products, including videotape recorders and cassette players. In recent years,
the FCC has adopted policies providing for authorization of new technologies
and more favorable operating environment for certain existing technologies
that provide, or may provide, substantial additional competition for cable
television systems. The extent to which cable television service is
competitive depends in significant part upon the cable television system's
ability to provide an even greater variety of programming than that available
off-air or through competitive alternative delivery sources. In addition,
certain provisions of the 1992 Cable Act and the 1996 Act are expected to
increase competition significantly in the cable industry. See "Legislation and
Regulation."
The 1992 Cable Act prohibits the award of exclusive franchises, prohibits
franchising authorities from unreasonably refusing to award additional
franchises and permits them to operate cable systems themselves without
franchises.
Individuals presently have the option to purchase earth stations, which
allow the direct reception of satellite-delivered program services formerly
available only to cable television subscribers. Most satellite-distributed
program signals are being electronically scrambled to permit reception only
with authorized decoding equipment, generally at a cost to the viewer. From
time to time, legislation has been introduced in Congress which, if enacted
into law, would prohibit the scrambling of certain satellite-distributed
programs or would make satellite services available to private earth stations
on terms comparable to those offered to cable systems. Broadcast television
signals are being made available to owners of earth stations under the
Satellite Home View Copyright Act of 1988, which became effective January 1,
1989 for a six-year period. This Act establishes a statutory compulsory
license for certain transmissions made by satellite owners to home satellite
dishes for which carriers are required to pay a royalty fee to the Copyright
Office. This Act has been extended by Congress until December 31, 1999. The
1992 Cable Act enhances the right of cable competitors to purchase
nonbroadcast satellite-delivered programming. See "Legislation and
Regulation--Federal Regulation."
Video programming is now being delivered to individuals by high-powered
direct broadcast satellites ("DBS") utilizing video compression technology.
This technology has the capability of providing more than 100 channels of
programming over a single high-powered DBS satellite with significantly higher
capacity available if multiple satellites are placed in the same orbital
position. Video compression technology may also be used by cable operators in
the future to similarly increase their channel capacity. DBS service can be
received virtually anywhere in the United States through the installation of a
small rooftop or side-mounted antenna, and it is more accessible than cable
television service where a cable plant has not been constructed or where it is
not cost effective to construct cable television facilities. DBS service is
being heavily marketed on a nationwide basis by several service providers. One
DBS service provider is proposing to deliver at least some local television
stations via satellite, thus lessening the distinction between cable
television and DBS service.
54
<PAGE>
Cable communications systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service ("MMDS"),
commonly called wireless cable systems, which use low-power microwave
frequencies to transmit video programming over-the-air to subscribers. There
are MMDS operators who are authorized to provide or are providing broadcast
and satellite programming to subscribers in areas served by the Company's
Systems. MMDS systems are less capital intensive, are not required to obtain
local franchises or to pay franchise fees and are subject to fewer regulatory
requirements than cable television systems. MMDS systems' ability to compete
with cable television systems has previously been limited by channel capacity,
the inability to obtain programming and regulatory delays. Recently, however,
MMDS systems have developed digital compression technology which provides for
more channel capacity and better signal delivery. Although relatively few MMDS
systems in the United States are currently in operation or under construction,
virtually all markets have been licensed or tentatively licensed. A series of
actions taken by the FCC, including reallocating certain frequencies to
wireless services, are intended to facilitate the development of wireless
cable television spectrum that will be used by wireless operators to provide
additional channels of programming over longer distances. Recently, several
Regional Bell Operating Companies ("BOCs") acquired interests in major MMDS
companies. The Company is unable to predict whether wireless video services
will have a material impact on its operations.
Additional competition may come from private cable television systems
servicing condominiums, apartment complexes and certain other multiple unit
residential developments. The operators of these private systems, known as
satellite master antenna television ("SMATV") systems, often enter into
exclusive agreements with apartment building owners or homeowners'
associations which preclude franchised cable television operators from serving
residents of such private complexes. However, the 1984 Cable Act gives
franchised cable operators the right to use existing compatible easements
within their franchise areas upon nondiscriminatory terms and conditions.
Accordingly, where there are preexisting compatible easements, cable operators
may not be unfairly denied access or discriminated against with respect to the
terms and conditions of access to those easements. There have been conflicting
judicial decisions interpreting the scope of the access right granted by the
1984 Cable Act, particularly with respect to easements located entirely on
private property. Further, while a franchised cable television system
typically is obligated to extend service to all areas of a community
regardless of population density or economic risk, a SMATV system may confine
its operation to small areas that are easy to serve and more likely to be
profitable. Under the 1996 Act, SMATV systems can interconnect non-commonly
owned buildings without having to comply with local, state and federal
regulatory requirements that are imposed upon cable systems providing similar
services, as long as they do not use public rights-of-way. The U.S. Copyright
Office has concluded that SMATV systems are "cable systems" for purposes of
qualifying for the compulsory copyright license established for cable systems
by federal law.
The FCC has authorized a new interactive television service which will
permit non-video transmission of information between an individual's home and
entertainment and information service providers. This service will provide an
alternative means for DBS systems and other video programming distributors,
including television stations, to initiate the new interactive television
services. This service may also be used by the cable television industry.
The FCC also has initiated a new rulemaking proceeding looking toward the
allocation of frequencies in the 28 Ghz range for a new multi-channel wireless
video service which could make 98 video channels available in a single market.
It cannot be predicted at this time whether competitors will emerge utilizing
such frequencies or whether such competition would have a material impact on
the operations of cable television systems.
The 1996 Act eliminates the restriction against ownership and operation of
cable systems by local telephone companies within their local exchange service
areas. Telephone companies are now free to enter the retail video distribution
business through any means, such as DBS, MMDS, SMATV or as traditional
franchised cable system operators. Alternatively, the 1996 Act authorizes
local telephone companies to operate "open video systems" without obtaining a
local cable franchise, although telephone companies operating such systems can
55
<PAGE>
be required to make payments to local governmental bodies in lieu of cable
franchise fees. Up to two-thirds of the channel capacity of an "open video
system" must be available to programmers unaffiliated with the local telephone
company. The open video system concept replaces the FCC's video dialtone
rules. The 1996 Act also includes numerous provisions designed to make it
easier for cable operators and others to compete directly with local exchange
telephone carriers. With certain limited exceptions, neither a local exchange
carrier nor a cable operator can acquire more than 10% of the other entity
operating within its own service area.
Advances in communications technology, as well as changes in the marketplace
and the regulatory and legislative environment, are constantly occurring.
Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable industry. The ability of cable systems to
compete with present, emerging and future distribution media will depend to a
great extent on obtaining attractive programming. The availability and
exclusive use of a sufficient amount of quality programming may in turn be
affected by developments in regulation or copyright law. See "Legislation and
Regulation."
The cable television industry competes with radio, television and print
media for advertising revenues. As the cable television industry continues to
develop programming designed specifically for distribution by cable,
advertising revenues may increase. Premium programming provided by cable
systems is subject to the same competitive factors which exist for other
programming discussed above. The continued profitability of premium services
may depend largely upon the continued availability of attractive programming
at competitive prices.
Employees
At June 22, 1996, there were 2,877 full-time employees of the Company, of
which 106 employees were covered by collective bargaining agreements at three
locations. The Company considers its relations with its employees to be good.
Properties
The Company's principal physical assets consist of cable television
operating plant and equipment, including signal receiving, encoding and
decoding devices, headends and distribution systems and subscriber house drop
equipment for each of its cable television systems. The signal receiving
apparatus typically includes a tower, antenna, ancillary electronic equipment
and earth stations for reception of satellite signals. Headends, consisting of
associated electronic equipment necessary for the reception, amplification and
modulation of signals, are located near the receiving devices. The Company's
distribution system consists primarily of coaxial and fiber optic cables and
related electronic equipment. Subscriber devices consist of decoding
converters. The physical components of cable television systems require
maintenance and periodic upgrading to keep pace with technological advances.
The Company's cables and related equipment are generally attached to utility
poles under pole rental agreements with local public utilities, although in
some areas the distribution cable is buried in underground ducts or trenches.
See "Legislation and Regulation--Federal Regulation."
The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices
in each of its market areas, and owns most of its service vehicles. The
Company also leases certain cable, operating and support equipment from a
corporation owned by members of the Rigas Family. All leasing transactions
between the Company and its officers, directors or principal stockholders, or
any of their affiliates, are, in the opinion of management, on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
Substantially all of the assets of Adelphia's subsidiaries are subject to
encumbrances as collateral in connection with the Company's credit
arrangements, either directly with a security interest or indirectly through a
pledge of the stock in the respective subsidiaries. See Note 3 to the Adelphia
Communications Corporation Consolidated Financial Statements. The Company
believes that its properties, both owned and leased, are in good operating
condition and are suitable and adequate for the Company's business operations.
56
<PAGE>
Legal Proceedings
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company or any of its
subsidiaries is a part of or to which any of their property is subject.
57
<PAGE>
LEGISLATION AND REGULATION
The Company's existing and anticipated businesses are regulated by the FCC,
some state governments and most local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies may materially affect the Company's
existing and anticipated businesses. The following is a summary of federal
laws and regulations affecting the growth and operation of the Company's
existing and anticipated businesses and a description of certain state and
local laws.
CABLE TELEVISION/FEDERAL LAWS AND REGULATIONS
CABLE COMMUNICATIONS POLICY ACT OF 1984 (THE "1984 CABLE ACT")
The 1984 Cable Act became effective on December 29, 1984. This federal
statute, which amended the Communications Act of 1934 (the "Communications
Act"), created uniform national standards and guidelines for the regulation of
cable television systems. Violations by a cable television system operator of
provisions of the Communications Act, as well as of FCC regulations, can
subject the operator to substantial monetary penalties and other sanctions.
Among other things, the 1984 Cable Act affirmed the right of franchising
authorities (state or local, depending on the practice in individual states)
to award one or more franchises within their jurisdictions. It also prohibited
non-grandfathered cable television systems from operating without a franchise
in such jurisdictions. In connection with new franchises, the 1984 Cable Act
provides that in granting or renewing franchises, franchising authorities may
establish requirements for cable-related facilities and equipment, but may not
establish or enforce requirements for video programming or information
services other than in broad categories.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992 (THE "1992
CABLE ACT")
On October 5, 1992, Congress enacted the 1992 Cable Act. This legislation
effected significant changes to the legislative and regulatory environment in
which the cable industry operates. It amended the 1984 Cable Act in many
respects. The 1992 Cable Act became effective on December 4, 1992, although
certain provisions, most notably those dealing with rate regulation and
retransmission consent, became effective at later dates. The legislation also
required the FCC to initiate a number of rulemaking proceedings to implement
various provisions of the statute. The 1992 Cable Act allows for a greater
degree of regulation on the cable industry with respect to, among other
things: (i) cable system rates for both basic and certain nonbasic services,
(ii) programming access and exclusivity arrangements, (iii) access to cable
channels by unaffiliated programming services, (iv) leased access terms and
conditions, (v) horizontal and vertical ownership of cable systems, (vi)
customer service requirements, (vii) franchise renewals, (viii) television
broadcast signal carriage and retransmission consent, (ix) technical
standards, (x) subscriber privacy, (xi) consumer protection issues, (xii)
cable equipment compatibility, (xiii) obscene or indecent programming and
(xiv) requiring subscribers to subscribe to tiers of service other than basic
service as a condition of purchasing premium services. Additionally, the
legislation encourages competition with existing cable systems by: allowing
municipalities to own and operate their own cable systems without having to
obtain a franchise, preventing franchising authorities from granting exclusive
franchises or unreasonably refusing to award additional franchises covering an
existing cable system's service area and prohibiting the common ownership of
cable systems and co-located MMDS or SMATV systems. The 1992 Cable Act also
precludes video programmers affiliated with cable television companies from
favoring cable operators over competitors and requires such programmers to
sell their programming to other multichannel video distributors. This
provision may limit the ability of cable program suppliers to offer exclusive
programming arrangements to cable television companies. A number of provisions
in the 1992 Cable Act relating to, among other things, rate regulation, have
had a negative impact on the cable industry and the Company's business.
Various cable operators have filed actions in the United States District
Court in the District of Columbia challenging the constitutionality of several
sections of the 1992 Cable Act. Pursuant to special jurisdictional provisions
in the 1992 Cable Act, a challenge to the must-carry provisions of the Act was
heard by a three-judge
58
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panel of the District Court. On April 8, 1993, the three-judge court granted a
summary judgment for the government upholding the constitutional validity of
the must-carry provisions of the 1992 Cable Act. That decision was appealed
directly to the U.S. Supreme Court. The plaintiffs in that case unsuccessfully
sought an injunction pending appeal of the District Court's decision. On June
27, 1994, the Supreme Court vacated the District Court decision and remanded
the case for further proceedings. On December 12, 1995, the District Court
again upheld the must-carry provisions. The Supreme Court has recently
affirmed the District Court's decision.
The cable operators' constitutional challenge to the balance of the 1992
Cable Act provisions was heard by a single judge of the District Court. On
September 16, 1993, the court rendered its decision upholding the
constitutionality of all but three provisions of the statute (multiple
ownership limits for cable operators, advance notice of free previews for
certain programming services, and channel set-asides for DBS operators). This
decision was appealed to the U.S. Court of Appeals for the District of
Columbia Circuit. On August 30, 1996, the Court of Appeals sustained the
constitutionality of all provisions except for the multiple ownership limits
and the limit on the number of channels which can be occupied by programmers
affiliated with the cable operator, both of which are being challenged in a
separate appeal.
TELECOMMUNICATIONS ACT OF 1996 (THE "1996 ACT")
The 1996 Act significantly revised the federal regulatory structure. As it
pertains to cable television, the 1996 Act, among other things, (i) eliminates
the regulation of certain nonbasic programming services in 1999, (ii) expands
the definition of effective competition, the existence of which displaces rate
regulation, (iii) eliminates the restriction against the ownership and
operation of cable systems by telephone companies within their local exchange
service areas and (iv) liberalizes certain of the FCC's cross-ownership
restrictions. The FCC has been conducting a number of rulemaking proceedings
in order to implement many of the provisions of the 1996 Act.
FCC REGULATION
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations covering such areas as the
registration of cable systems, cross-ownership between cable systems and other
communications businesses, carriage of television broadcast programming,
consumer education and lockbox enforcement, origination cablecasting and
sponsorship identification, children's programming, the regulation of basic
cable service rates in areas where cable systems are not subject to effective
competition, signal leakage and frequency use, technical performance,
maintenance of various records, equal employment opportunity, and antenna
structure notification, marking and lighting. The FCC has the authority to
enforce these regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. Furthermore, the 1992 Cable Act required the FCC to adopt
implementing regulations covering, among other things, cable rates, signal
carriage, consumer protection and customer service, leased access, indecent
programming, programmer access to cable television systems, programming
agreements, technical standards, consumer electronics equipment compatibility,
ownership of home wiring, program exclusivity, equal employment opportunity,
and various aspects of direct broadcast satellite system ownership and
operation. The 1996 Act requires certain changes to various provisions of
these regulations. A brief summary of the most material federal regulations as
adopted to date follows.
RATE REGULATION
The 1984 Cable Act codified existing FCC preemption of rate regulation for
premium channels and optional nonbasic program tiers. The 1984 Cable Act also
deregulated basic cable rates for cable television systems determined by the
FCC to be subject to effective competition. The 1992 Cable Act substantially
changed the statutory and FCC rate regulation standards. The 1992 Cable Act
replaced the FCC's old standard for determining effective competition, under
which most cable systems were not subject to local rate regulation, with
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a statutory provision that has resulted in nearly all cable television systems
becoming subject to local rate regulation of basic service. The 1996 Act
expands the definition of effective competition to cover situations where a
local telephone company or its affiliate, or any multichannel video provider
using telephone company facilities, offers comparable video service by any
means except DBS. Satisfaction of this test deregulates both basic and
nonbasic tiers. Additionally, the 1992 Cable Act eliminated the 5% annual rate
increase for basic service previously allowed by the 1984 Cable Act without
local approval; required the FCC to adopt a formula, for franchising
authorities to enforce, to assure that basic cable rates are reasonable;
allows 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; prohibits cable television systems from requiring
customers 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 ends FCC regulation of nonbasic tier rates on March 31, 1999.
The FCC's regulations set standards for the regulation of basic and nonbasic
cable service rates (other than per-channel or per-program services). The
FCC's original rules became effective on September 1, 1993. The rules have
been amended several times. The rate regulations adopt a benchmark price cap
system for measuring the reasonableness of existing basic and nonbasic service
rates, and a formula for future rate increases based on inflation and
increases in certain costs. Alternatively, cable operators have the
opportunity to make cost-of-service showings which, in some cases, may justify
rates above the applicable benchmarks. The rules also require that charges for
cable-related equipment (e.g., converter boxes and remote control devices) and
installation services be unbundled from the provision of cable service and
based upon actual costs plus a reasonable profit. Local franchising
authorities and/or the FCC are empowered to order a reduction of existing
rates which exceed the benchmark level for either basic and/or nonbasic cable
services and associated equipment, and refunds could be required. The
retroactive refund period for basic cable service rates is limited to one
year. A significant number of franchising authorities have become certified by
the FCC to regulate the rates charged by the Company for basic cable service
and for associated equipment. Six complaints have also been filed with the FCC
seeking review of the rates charged for nonbasic cable service. However, the
FCC has made available for public comment a proposed settlement of these
outstanding rate proceedings. The Company's ability to implement rate
increases consistent with its past practices will likely be limited by the
regulations that the FCC has adopted.
CARRIAGE OF BROADCAST TELEVISION SIGNALS
The 1992 Cable Act contains new mandatory carriage requirements. These new
rules allow commercial television broadcast stations which are "local" to a
cable system (i.e., the system is located in the station's Area of Dominant
Influence), to elect every three years whether to require the cable system to
carry the station, subject to certain exceptions, or whether the cable system
will have to negotiate for "retransmission consent" to carry the station.
Local, noncommercial television stations are also given mandatory carriage
rights, subject to certain exceptions, within the larger of (i) a 50 mile
radius from the station's city of license or (ii) the station's Grade B
contour (a measure of signal strength). Unlike commercial stations,
noncommercial stations are not given the option to negotiate retransmission
consent for the carriage of their signal. In addition, cable systems will have
to obtain retransmission consent for the carriage of all "distant" commercial
broadcast stations, except for certain "superstations," (i.e., commercial
satellite-delivered independent stations such as WTBS). The 1992 Cable Act
also eliminated, effective December 4, 1992, the FCC's regulations requiring
the provision of input selector switches. The statutory must-carry provisions
for noncommercial stations became effective on December 4, 1992. Must-carry
rules for both commercial and noncommercial stations and retransmission
consent rules for commercial stations were adopted by the FCC on March 11,
1993. The must-carry requirement for commercial stations went into effect on
June 2, 1993, and any stations for which retransmission consent had not been
obtained (other than must-carry stations, non-commercial stations and
superstations) had to be dropped as of
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October 6, 1993. The most recent election between must-carry and
retransmission consent for local commercial television broadcast stations was
on October 1, 1996. A number of stations previously carried by the Company's
cable television systems elected retransmission consent. The Company was able
to reach agreements with broadcasters who elected retransmission consent and
has therefore not been required to pay cash compensation to broadcasters for
retransmission consent or been required by broadcasters to remove broadcast
stations from the cable television channel line-ups. The Company has, however,
agreed to carry some services (e.g., ESPN2 and a new service by FOX) in
specified markets pursuant to retransmission consent arrangements which it
believes are comparable to those entered into by most other large cable
operators.
CHANNEL SET-ASIDES
The 1984 Cable Act permits local franchising authorities to require cable
operators to set aside certain channels for public, educational and
governmental access programming. The Company believes that none of the
Systems' franchises contain unusually onerous access requirements. The 1984
Cable Act further requires cable systems with thirty-six or more activated
channels to designate a portion of their channel capacity for commercial
leased access by unaffiliated third parties. While the 1984 Cable Act
presently allows 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. The FCC has recently revised the existing
rate formula in a way which will significantly lower the rates cable operators
have been able to charge. It is possible that such leased access will result
in competition to services offered by the Company on the other channels of its
cable systems.
COMPETING FRANCHISES
Questions concerning the ability of municipalities to award a single cable
television franchise and to impose certain franchise restrictions upon cable
television companies have been considered in several recent federal appellate
and district court decisions. These decisions have been somewhat inconsistent
and, until the U.S. Supreme Court rules definitively on the scope of cable
television's First Amendment protections, the legality of the franchising
process and of various specific franchise requirements is likely to be in a
state of flux. It is not possible at the present time to predict the
constitutionally permissible bounds of cable franchising and particular
franchise requirements. However, the 1992 Cable Act, among other things,
prohibits franchising authorities from unreasonably refusing to grant
franchises to competing cable systems and permits franchising authorities to
operate their own cable systems without franchises.
CROSS-OWNERSHIP
The 1996 Act repealed the 1984 Cable Act's prohibition on local exchange
telephone companies ("LECs") providing video programming directly to customers
within their local exchange telephone service areas, except in rural areas or
by specific waiver of FCC rules. The 1996 Act also authorized LECs to operate
"open video systems" without obtaining a local cable franchise, although LECs
operating such systems can be required to make payments to local governmental
bodies in lieu of cable franchise fees. Where demand exceeds channel capacity,
up to two-thirds of the channels on an "open video system" must be available
to programmers unaffiliated with the LEC.
The 1996 Act eliminated the FCC rule prohibiting common ownership between a
cable system and a national broadcast television network. The 1996 Act also
eliminated the statutory ban covering certain common ownership interests,
operation or control between a television station and cable system within the
station's Grade B signal coverage area. However, the parallel FCC rules
against cable/television station cross-ownership remains in place, subject to
review by the FCC within two years. Finally, the 1992 Cable Act prohibits
common ownership, control or interest in cable television systems and MMDS
facilities or SMATV systems having overlapping service areas, except in
limited circumstances. The 1996 Act exempts cable systems facing "effective
competition" from the MMDS and SMATV cross-ownership restrictions.
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Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of
cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more
than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single Holder
of more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the U.S. District Court decision
holding the multiple ownership limit provision of the 1992 Cable Act
unconstitutional.
The FCC has also adopted rules which limit the number of channels on a cable
system which can be occupied by programming in which the cable system's owner
has an attributable interest. The limit is 40% of all activated channels.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on any franchise
transfer request submitted after December 4, 1992 within 120 days after
receipt of all information required by FCC regulations and by the franchising
authority. Approval is deemed to be granted if the franchising authority fails
to act within such period.
TECHNICAL REQUIREMENTS
Historically, the FCC has imposed technical standards applicable to the
cable channels on which broadcast stations are carried, and has prohibited
franchising authorities from adopting standards which were in conflict with or
more restrictive than those established by the FCC. The FCC has recently
revised such standards and made them applicable to all classes of channels
which carry downstream NTSC video programming. Local franchising authorities
are permitted to enforce the FCC's new technical standards. The FCC also has
adopted additional standards applicable to cable television systems using
frequencies in the 108-137 MHz and 225-400 MHz bands in order to prevent
harmful interference with aeronautical navigation and safety radio services,
and has also established limits on cable system signal leakage. Periodic
testing by cable operators for compliance with these technical standards and
signal leakage limits is required. The Company believes that the Systems are
in compliance with these standards in all material respects. The 1992 Cable
Act requires the FCC to update periodically its technical standards to take
into account changes in technology. The FCC has adopted regulations to
implement the requirements of the 1992 Cable Act designed to improve the
compatibility of cable systems and consumer electronics equipment. These
regulations, inter alia, 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.
POLE ATTACHMENTS
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles, unless under the Federal Pole
Attachments Act state public service commissions are able to demonstrate that
they regulate rates, terms and conditions of the cable television pole
attachments. A number of states (including Massachusetts, Michigan, New
Jersey, New York, Ohio and Vermont) and the District of Columbia have
certified to the FCC that they regulate the rates, terms and conditions for
pole attachments. In the absence of state regulation, the FCC administers such
pole attachment rates through use of a formula which it has devised and from
time to time revises. The 1996 Act directs the FCC to adopt a new rate formula
for any attaching party, including cable systems, which offers
telecommunications services. This new formula will result in significantly
higher attachment rates for cable systems which choose to offer such services.
OTHER MATTERS
FCC regulation also includes matters regarding a cable system's carriage of
local sports programming; restrictions on origination and cablecasting by
cable system operators; application of the fairness doctrine and
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rules governing political broadcasts; customer service; home wiring; and
limitations on advertising contained in nonbroadcast children's programming.
COPYRIGHT
Cable television systems are subject to federal copyright licensing covering
carriage of broadcast signals. In exchange for making semi-annual payments to
a federal copyright royalty pool and meeting certain other obligations, cable
operators obtain a statutory license to retransmit broadcast signals. The
amount of this royalty payment varies, depending on the amount of system
revenues from certain sources, the number of distant signals carried, and the
location of the cable system with respect to over-the-air television stations.
The Copyright Office has commenced a proceeding aimed at examining its
policies governing the consolidated reporting of commonly owned and contiguous
cable systems. The present policies governing the consolidated reporting of
certain cable systems have often led to substantial increases in the amount of
copyright fees owed by the systems affected. These situations have most
frequently arisen in the context of cable system mergers and acquisitions.
While it is not possible to predict the outcome of this proceeding, any
changes adopted by the Copyright Office in its current policies may have the
effect of reducing the copyright impact of certain transactions involving
cable company mergers and cable system acquisitions.
Various bills have been introduced into Congress over the past several years
that would eliminate or modify the cable television compulsory license. At the
request of Congress, the Copyright Office has commenced an inquiry into
possible revisions of the compulsory license. Without the compulsory license,
cable operators might need to negotiate rights from the copyright owners for
each program carried on each broadcast station in the channel lineup. Such
negotiated agreements could increase the cost to cable operators of carrying
broadcast signals. The 1992 Cable Act's retransmission consent provisions
expressly provide that retransmission consent agreements between television
broadcast stations and cable operators do not obviate the need for cable
operators to obtain a copyright license for the programming carried on each
broadcaster's signal.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) has generally been licensed by the networks through private
agreements with the American Society of Composers and Publishers ("ASCAP") and
BMI, Inc. ("BMI"), the two major performing rights organizations in the United
States. As a result of extensive litigation, ASCAP and BMI are both now
required to offer "through to the viewer" licenses to the cable networks which
would cover the retransmission of the cable networks' programming by cable
systems to their subscribers.
Copyrighted music performed by cable systems themselves on local origination
channels, PEG channels, and in locally inserted advertising and cross
promotional announcements must also be licensed. A blanket license is
available from BMI. Cable industry negotiations with ASCAP are still in
progress.
CABLE TELEVISION/STATE AND LOCAL REGULATION
Because a cable television system uses local streets and rights-of-way,
cable television systems are subject to state and local regulation, typically
imposed through the franchising process. State and/or local officials are
usually involved in franchise selection, system design and construction,
safety, service rates, consumer relations, billing practices and community
related programming and services.
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and
in many cases are terminable if the franchise operator fails to comply with
material provisions. The 1984 Cable Act established renewal procedures and
criteria designed to protect incumbent franchises against arbitrary denials of
renewal. While these formal procedures are not mandatory unless timely invoked
by either
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the cable operator or the franchising authority, they can provide substantial
protection to incumbent franchisees. Even after the formal renewal procedures
are invoked, franchising authorities and cable operators remain free to
negotiate a renewal outside the formal process. Nevertheless, renewal is by no
means assured, as the franchisee must meet certain statutory standards. Even
if a franchise is renewed, a franchising authority may impose new and more
onerous requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements. The
1992 Cable Act makes several changes to the process under which a cable
operator seeks to enforce its renewal rights which could make it easier in
some cases for a franchising authority to deny renewal.
Franchises usually call for the payment of fees, often based on a percentage
of the system's gross subscriber revenues, to the granting authority. Although
franchising authorities may impose franchise fees under the 1984 Cable Act,
such payments cannot exceed 5% of a cable system's annual gross revenues. In
those communities in which franchise fees are required, the Company currently
pays franchise fees ranging up to 5% of gross revenues. Franchising
authorities are also empowered in awarding new franchises or renewing existing
franchises to require cable operators to provide cable-related facilities and
equipment and to enforce compliance with voluntary commitments. In the case of
franchises in effect prior to the effective date of the 1984 Cable Act,
franchising authorities may enforce requirements contained in the franchise
relating to facilities, equipment and services, whether or not cable-related.
The 1984 Cable Act, under certain limited circumstances, permits a cable
operator to obtain modifications of franchise obligations.
Upon receipt of a franchise, the cable system owner usually is subject to a
broad range of obligations to the issuing authority directly affecting the
business of the system. The terms and conditions of franchises vary materially
from jurisdiction to jurisdiction, and even from city to city within the same
state, historically ranging from reasonable to highly restrictive or
burdensome. The 1984 Cable Act places certain limitations on a franchising
authority's ability to control the operation of a cable system operator and
the courts have from time to time reviewed the constitutionality of several
general franchise requirements, including franchise fees and access channel
requirements, often with inconsistent results. On the other hand, the 1992
Cable Act prohibits exclusive franchises, and allows franchising authorities
to exercise greater control over the operation of franchised cable systems,
especially in the area of customer service and rate regulation. The 1992 Cable
Act also allows franchising authorities to operate their own multichannel
video distribution system without having to obtain a franchise and permits
states or local franchising authorities to adopt certain restrictions on the
ownership of cable systems. Moreover, franchising authorities are immunized
from monetary damage awards arising from regulation of cable systems or
decisions made on franchise grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws and
regulations under which it was granted directly affect the profitability of
the cable television system. Cable franchises generally contain provisions
governing charges for basic cable television services, fees to be paid to the
franchising authority, length of the franchise term, renewal, sale or transfer
of the franchise, territory of the franchise, design and technical performance
of the system, use and occupancy of public streets and number and types of
cable services provided. The 1996 Act prohibits a franchising authority from
either requiring or limiting a cable operator's provision of
telecommunications services.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, even to the exclusion
of local community regulation. Some of these states regulate jointly and
impose regulation of a character similar to that of a public utility. Attempts
in other states to regulate cable television systems are continuing and can be
expected to increase. Such proposals and legislation may be preempted by
federal statute and/or FCC regulation. To date, the states in which the
Company operates that have enacted such state level regulation are New York,
New Jersey, Massachusetts and Vermont. The Company cannot predict whether
other states in which it currently operates, or in which it may acquire
systems, will engage in such regulation in the future.
The foregoing does not purport to describe all present and proposed federal,
state and local regulations and legislation relating to the cable television
industry. Other existing federal regulations, copyright licensing and, in
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many jurisdictions, state and local franchise requirements currently are the
subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying
degrees, the manner in which cable television systems operate. Neither the
outcome of these proceedings nor their impact upon the cable television
industry or the Company can be predicted at this time.
TELEPHONY AND TELECOMMUNICATIONS/FEDERAL LAWS AND REGULATIONS
The 1996 Act also alters federal, state and local laws and regulations
regarding telecommunications providers and services, including the Company,
and creates a favorable environment in which the Company may provide telephone
and other telecommunications services and facilities. The following is a
summary of the key provisions of the 1996 Act that could materially affect the
telecommunications business of the Company.
The 1996 Act was intended to, inter alia, promote the provision of
competitive telephone services and facilities by cable television companies
and others. The 1996 Act declares that no state or local laws or regulations
may prohibit or have the effect of prohibiting the ability of any entity to
provide any interstate or intrastate telecommunications service. States are
authorized to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
The 1996 Act further provides that cable operators and affiliates providing
telecommunications services are not required to obtain a separate franchise
from local franchising authorities ("LFAs") for such services. An LFA may not
order a cable operator or affiliate to discontinue providing
telecommunications services or discontinue operating its cable system on the
basis that it has failed to obtain a separate franchise or renewal for the
provision of telecommunications services. The 1996 Act prohibits LFAs from
requiring cable operators to provide telecommunications service or facilities
as a condition of the grant of a franchise, franchise renewal, or franchise
transfer, except that LFAs may seek "institutional networks" as part of such
franchise negotiations.
The 1996 Act provides that, when cable operators provide telecommunications
services, LFAs may require reasonable, competitively neutral compensation for
management of the public rights-of-way. The LFA must publicly disclose such
compensation requirements.
The Company believes that it qualifies as a connecting carrier under federal
law and therefore does not need FCC certification to provide intrastate
service. In the event that it is determined that the Company must seek FCC
certification, the Company believes that such certification will be granted by
the FCC in a timely manner. The Company may be required to file certain
tariffs and reports with the FCC.
INTERCONNECTION AND OTHER TELECOMMUNICATIONS CARRIER OBLIGATIONS
To facilitate the entry of new telecommunications providers (including cable
operators), the 1996 Act imposes interconnection obligations on all
telecommunications carriers. All carriers must interconnect their networks
with other carriers and must not deploy network features and functions that
interfere with interoperability. LECs also have a set of separate identified
obligations beyond those that apply to new entrants: (i) good faith
negotiation with those seeking interconnection, (ii) unbundling, equal access
and non-discrimination requirements, (iii) resale of services, including
"resale at wholesale rates," (iv) notice of changes in the network that would
affect interconnection and interoperability and (v) physical collocation
unless shown that practical technical reasons, or space limitations, make
physical collocation impractical.
Under the 1996 Act, individual interconnection rates must be just and
reasonable, based on cost, and may include a reasonable profit. Traffic
termination charges shall be "mutual and reciprocal." The 1996 Act permits
carriers to agree on a "bill and keep" system, but does not require such a
system.
The 1996 Act contemplates that interconnection agreements will be negotiated
by the parties and submitted to a state public service commission ("SPSC") for
approval. A SPSC may become involved, at the request of either party, if
negotiations fail. If the state regulator refuses to act, the FCC may
determine the matter. If the SPSC acts, an aggrieved party's remedy is to file
a case in federal district court. The 1996 Act provides for a
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rural exemption to interconnection requests, but also provides that the
exception does not apply where a cable operator makes an interconnection
request of a rural LEC within the operator's franchise area.
The 1996 Act requires that all telecommunications providers (including cable
operators that provide telecommunications services) must contribute equitably
to a Universal Service Fund ("USF"), and the FCC may exempt an interstate
carrier or class of carriers if their contribution would be minimal under the
USF formula. The 1996 Act allows states to determine which intrastate
telecommunications providers contribute to the USF. The 1996 Act prohibits
geographic end user rate deaveraging to protect rural subscribers' rates.
FCC INTERCONNECTION ORDER
The FCC recently released its First Report and Order/1/ to effectuate the
interconnection provisions of the Act. In general, the FCC's First Report and
Order appears favorable to the promotion of competition at the local level. To
summarize, the FCC first has asserted broad federal jurisdiction over
interconnection issues and the power to bind both state and local governments.
The FCC also has established procedures for the negotiation, arbitration and
resolution of interconnection agreements. It also has stated that new entrants
essentially always benefit from the terms of subsequent interconnection
agreements entered into by a given ILEC with third parties and cannot waive
their "most favored nation" rights in this respect. The FCC also has specified
the manner in which actual physical interconnection must be made available to
new entrants and, in this connection, has specified the manner in which rates
charged to new entrants for physical interconnection must be calculated. The
FCC also has set forth the manner in which ILECs must make essential network
elements available to new entrants for resale, again including the manner in
which actual rates are to be calculated.
The FCC Report and Order is subject to Petitions for Reconsideration filed
at the FCC and Petitions for Review consolidated before the United States
Court of Appeals for the Eighth Circuit. Additionally, the Eighth Circuit has
granted a stay of the pricing and "most favored nation" provisions of the
First Report and Order. The pricing provisions establish price ceilings and
default prices for interconnection elements, and the "most favored nation"
provision allows carriers to request the ILEC to make available to them on the
same terms and conditions, any interconnection, service or network element
contained in an approved agreement to which the ILEC is a party. The stay is
limited to certain FCC rules. None of the provisions of the 1996 Act has been
stayed. Various parties filed petitions to modify the stay with the Eighth
Circuit. On November 1, 1996, the Eighth Circuit modified the stay to exclude
certain non-pricing portions of the rules that primarily relate to wireless
telecommunications providers. The outcome of these proceedings could affect
and impair the Company's ability to provide competitive local exchange
services.
INTERNET SERVICES/FEDERAL LAWS AND REGULATIONS
Transmitting indecent material via the Internet is made criminal by the 1996
Act. However, on-line access providers are exempted from criminal liability
for simply providing interconnection service; they are also granted an
affirmative defense from criminal or other action where in "good faith" they
restrict access to indecent materials. These provisions have been challenged
in federal court. The 1996 Act further exempts on-line access providers from
civil liability for actions taken in good faith to restrict access to obscene,
excessively violent or otherwise objectionable material.
TELEPHONY AND TELECOMMUNICATIONS/STATE LAW AND REGULATION
Adelphia's nonconsolidated joint venture, Olympus Communications, L.P., has
systems in Florida. In 1995, the Florida Legislature amended Chapter 362 of
Florida Statutes by enacting "An Act Relating to Local Exchange
Telecommunications Companies" ("Florida Act") (Chapter 362, Fl. Stat. (1995)).
This new law
- --------
1 Implementation of the Local Competition Provisions of the Telecommunications
Act of 1996, CC Docket No. 96-98, Report and Order, FCC 96-325 (rel. Aug. 8,
1996) ("FCC Report and Order").
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substantially altered Florida law regarding telecommunications providers and
services, such as Olympus. The following is a summary of the key provisions of
the Florida Act and associated Florida Public Service Commission ("PSC")
actions that could materially affect Olympus' telecommunications business.
THE FLORIDA ACT
The Florida Act vests in the PSC virtually exclusive jurisdiction over
intrastate telecommunications matters. The Florida Act limits municipalities
to taxation of certain telecommunications services or management of long
distance carriers' occupation of local rights-of-way. The Florida Act further
directs the PSC to employ flexible regulatory treatment to ensure the widest
possible range of telecommunications services, and provides that new entrants
such as the Company are subject to a lesser level of regulatory oversight than
ILECs.
PSC ACTIONS
Pursuant to the Florida Act (and the federal Act and the FCC's First Report
and Order), the PSC is conducting several proceedings to address competitive
issues. To summarize, pursuant to the Florida Act, the PSC has adopted rules
requiring certification of Alternative Local Exchange Companies ("ALEC"),
Interexchange Telecommunications Service Providers; Operator Service
Providers; Alternative Access Vendor Services; and Shared Tenant Services
Providers. The Florida Act provides that the PSC shall grant certification to
applicants upon a showing of sufficient technical, financial, and managerial
capability to provide service in the geographic area proposed to be served.
The Company believes that Olympus meets the statutory requirements for PSC
certification for any type of intrastate telecommunications service provider,
and that any such application process should be completed expeditiously. In
addition, like the federal Act, the Florida Act requires ILECs to interconnect
with certified ALECs. Approximately fourteen interconnection agreements have
been reached between ILECs and ALECs to date, while approximately five ALECs
have requested PSC arbitration of stalled agreements. The PSC is obligated
under the Florida Act to arbitrate any disputes in no more than 120 days from
date of request. As well, the PSC has ordered BellSouth, the state's largest
ILEC, to unbundle eight network elements for resale by ALECs, and the PSC has
ordered favorable interim rates for these elements. The PSC has not yet
adopted an order resolving wholesale discounts associated with local service
resale.
Based on the foregoing, the Company believes that the Florida Act and
actions of the PSC to date reflect a generally favorable legal and regulatory
environment for new entrants, such as Olympus, to intrastate
telecommunications in Florida.
67
<PAGE>
MANAGEMENT
The directors and executive officers of Adelphia are contained below. All of
the following directors are currently directors who were first elected or
appointed as directors in 1986 except for Mr. Dennis Coyle. Mr. Coyle was
first elected as a director of the Company in 1995.
PERRY S. PATTERSON
AGE 79
Perry S. Patterson became a director of Adelphia on September 9, 1986. Since
1977, Mr. Patterson has practiced law in Coudersport, Pennsylvania. From 1975
to 1977, Mr. Patterson served as President Judge of the Court of Common Pleas
of the 55th Judicial District in Potter County, Pennsylvania. He was a partner
of the law firm of Kirkland & Ellis, in Chicago, Illinois and Washington, D.C.
from 1950 to 1973. Mr. Patterson attended Georgetown University and graduated
from Northwestern University Law School in 1941.
JOHN J. RIGAS
AGE 72
John J. Rigas is the founder, Chairman, President and Chief Executive
Officer of Adelphia and is President of most of its subsidiaries. Mr. Rigas
has served as President or general partner of most of the constituent entities
which became wholly-owned subsidiaries of Adelphia upon its formation in 1986,
as well as the cable television operating companies acquired by the Company
which were wholly or partially owned by members of the Rigas Family. Mr. Rigas
has owned and operated cable television systems since 1952. Among his business
and community service activities, Mr. Rigas is Chairman of the Board of
Directors of Citizens Bank Corp., Inc., Coudersport, Pennsylvania and a member
of the Board of Directors of the Charles Cole Memorial Hospital. He is a
director of the National Cable Television Association and a past President of
the Pennsylvania Cable Television Association. He is also a member of the
board of directors of C-SPAN and the Cable Advertising Bureau, and is a
Trustee of St. Bonaventure University. He graduated from Rensselaer
Polytechnic Institute with a B.S. in Management Engineering in 1950.
John J. Rigas is the father of Michael J. Rigas, Timothy J. Rigas and James
P. Rigas, each of whom currently serves as a director and executive officer of
the Company.
MICHAEL J. RIGAS
AGE 43
Michael J. Rigas is Executive Vice President of Adelphia and Executive Vice
President of most of its subsidiaries. Since 1981, Mr. Rigas has served as a
Senior Vice President, Vice President, general partner or other officer of
Adelphia and the constituent entities which became wholly-owned subsidiaries
of Adelphia upon its formation in 1986, as well as the cable television
operating companies acquired by the Company which were wholly or partially
owned by members of the Rigas Family. From 1979 to 1981, he worked for
Webster, Chamberlain & Bean, a Washington, D.C. law firm. Mr. Rigas graduated
from Harvard University (magna cum laude) in 1976 and received his Juris
Doctor degree from Harvard Law School in 1979.
TIMOTHY J. RIGAS
AGE 40
Timothy J. Rigas is Executive Vice President and also serves as Chief
Financial Officer and Treasurer of Adelphia and Executive Vice President of
most of its subsidiaries. Since 1979, Mr. Rigas has served as a Senior Vice
President, Vice President, General partner or other officer of Adelphia and
the constituent entities which became wholly-owned subsidiaries of Adelphia
upon its formation in 1986, as well as the cable television operating
companies acquired by the Company which were wholly or partially owned by
members of the Rigas
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<PAGE>
Family. Mr. Rigas graduated from the University of Pennsylvania, Wharton
School, with a B.S. degree in Economics (cum laude) in 1978.
JAMES P. RIGAS
AGE 39
James P. Rigas is Executive Vice President of Adelphia and Executive Vice
President of most of its subsidiaries. Since February 1986, Mr. Rigas has
served as a Vice President or other officer of Adelphia and the constituent
entities which became wholly-owned subsidiaries of Adelphia upon its formation
in 1986, as well as the cable television operating companies acquired by the
Company which were wholly or partially owned by members of the Rigas Family.
Mr. Rigas graduated from Harvard University (magna cum laude) in 1980 and
received a Juris Doctor degree and an M.A. degree in Economics from Stanford
University in 1984. From June 1984 to February 1986, he was a consultant with
Bain & Co., a management consulting firm.
DANIEL R. MILLIARD
AGE 49
Daniel R. Milliard is Senior Vice President and serves as Secretary of
Adelphia and most of its subsidiaries, and as President of a subsidiary,
Hyperion Telecommunications, Inc. Since 1982, Mr. Milliard served as Vice
President, Secretary and/or General Counsel of Adelphia and the constituent
entities which became wholly-owned subsidiaries of Adelphia, as well as the
cable television operating companies acquired by the Company which were wholly
or partially owned by members of the Rigas Family. He served as outside
general counsel to the Company's predecessors from 1979 to 1982. Mr. Milliard
graduated from American University in 1970 with a Bachelor of Science degree
in Business Administration. He received an M.A. degree in Business from
Central Missouri State University in 1971, where he was an Instructor in the
Department of Finance, School of Business and Economics, from 1971-1973, and
received a Juris Doctor degree from the University of Tulsa School of Law in
1976. He is a director of Citizens Bank Corp., Inc. in Coudersport,
Pennsylvania and is President of the Board of Directors of the Charles Cole
Memorial Hospital.
PETE J. METROS
AGE 56
Pete J. Metros became a director of Adelphia on November 4, 1986. Mr. Metros
has been President and a member of the Board of Directors of Rapistan Demag
Corporation, a subsidiary of Mannesmann AG, since December 1991. From August
1987 to December 1991, he was President of Rapistan Corp., the predecessor of
Rapistan Demag Corporation, and of Truck Products Corp., both of which were
major subsidiaries of Lear Siegler Holdings Corp. From 1980 to August 1987,
Mr. Metros was President of the Steam Turbine, Motor & Generator Division of
Dresser-Rand Company. From 1964 to 1980, he held various positions at the
General Electric Company, the last of which was Manager--Manufacturing for the
Large Gas Turbine Division. Mr. Metros is also on the Board of Directors of
Borroughs Corporation of Kalamazoo, Michigan. Mr. Metros received a BS degree
from the Georgia Institute of Technology in 1962.
DENNIS P. COYLE
AGE 58
Dennis P. Coyle is General Counsel and Secretary of FPL Group, Inc. and
Florida Power & Light Company. Mr. Coyle was named General Counsel of FPL
Group, Inc. and Florida Power & Light Company in 1989, and assumed the
additional title and responsibilities of Secretary of such companies in 1991.
He graduated from Dartmouth College in 1960 and received his law degree from
Columbia University in 1965. In an investment agreement with respect to
Olympus Communications, L.P. ("Olympus," a joint venture of the Company),
John, Michael, Timothy and James Rigas have agreed to vote a sufficient number
of shares of the Company's Class A Common Stock to elect to the Board a
nominee of Telesat Cablevision, Inc., which is the Company's joint venture
partner in Olympus. Mr. Coyle is the nominee of Telesat Cablevision, Inc.,
which is an indirect, wholly-owned subsidiary of FPL Group, Inc.
69
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid by the Company for services rendered during the Company's last three
fiscal years in the period ended March 31, 1996 to the Company's Chief
Executive Officer and the four most highly compensated executive officers
whose compensation exceeded $100,000 in salary and bonus during fiscal 1996:
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
ALL OTHER
FISCAL SALARY COMPENSATION(A)(B)
NAME AND PRINCIPAL POSITION YEAR ($) ($)
- --------------------------- ------ ------- ------------------
<S> <C> <C> <C>
John J. Rigas................................. 1996 641,963 474,495
Chairman, President and 1995 595,933 293,750
Chief Executive Officer 1994 576,153 119,750
Michael J. Rigas.............................. 1996 205,948 10,750
Executive Vice President, 1995 124,658 10,950
Operations 1994 124,658 10,750
Timothy J. Rigas.............................. 1996 205,948 10,750
Executive Vice President, Chief 1995 124,658 10,950
Financial Officer and Treasurer 1994 124,658 10,750
James P. Rigas................................ 1996 205,948 11,201
Executive Vice President, 1995 124,658 11,250
Strategic Planning 1994 124,658 10,750
Daniel R. Milliard............................ 1996 207,474 5,250
Senior Vice President and 1995 187,412 5,350
Secretary 1994 183,484 5,250
</TABLE>
- --------
(a) Fiscal 1996, 1995 and 1994 amounts include: (i) life insurance premiums
paid during each respective fiscal year by the Company under employment
agreements with John J. Rigas, Michael J. Rigas, Timothy J. Rigas, James
P. Rigas and Daniel R. Milliard, in premium payment amounts of $200,000,
$10,000, $10,000, $10,451, and $4,500, respectively, during fiscal 1996,
$293,000, $10,200, $10,200, $10,500 and $4,600, respectively, during
fiscal 1995, and $119,000, $10,000, $10,000, $10,000 and $4,500,
respectively, during fiscal 1994, on policies owned by the respective
named executive officers; (ii) $250,829 for John J. Rigas which represents
the dollar value of the benefit of the whole-life portion of the premiums
paid by the Company during fiscal 1996 pursuant to a split-dollar life
insurance arrangement projected on an actuarial basis; (iii) $22,916 for
John J. Rigas which represents payments by the Company during fiscal 1996
pursuant to a split-dollar life insurance arrangement that is attributable
to term life insurance coverage; and (iv) $750 in Company matching
contributions for each executive officer under the Company's 401(k)
savings plan for each of fiscal 1996, 1995 and 1994. The amounts shown
above do not include transactions between the Company and certain
executive officers or certain entities which are privately owned in whole
or in part by the executive officers named in the table. See "Certain
Transactions."
In accordance with an agreement related to the split-dollar insurance life
arrangement referred to above, the Company will be reimbursed for all
premiums paid related to such arrangement upon the earlier of death of both
the insured and his spouse or termination of the insurance policies related
to such arrangement.
(b) Does not include the value of certain non-cash compensation to the named
individuals which did not exceed the lesser of $50,000 or 10% of such
individuals' total annual salary shown in the table.
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<PAGE>
All of the executive officers are eligible to receive bonuses of Class A
Common Stock under the Company's Restricted Stock Bonus Plan, as amended, and
options to purchase Class A Common Stock under the Stock Option Plan of 1986,
as amended, to be awarded or granted at the discretion of the Bonus Committee
(as defined therein) and Option Committee (as defined therein), respectively,
subject to certain limitations on the number of shares that may be awarded to
each executive officer under each of the Plans. No awards were made under
either the Restricted Stock Bonus Plan or the Stock Option Plan of 1986 during
fiscal 1996.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
During fiscal 1996, each of the named executive officers had an employment
agreement with the Company which is automatically renewable each year unless
one party gives the other prior notice and which provides among other things
for compensation review by the Compensation Committee, the insurance premium
payments listed in note (a)(i) to the Summary Compensation Table above, and
benefits. In addition, under such employment agreements, upon termination of
such employment for any reason other than "for cause," each of the executive
officers will be entitled to receive severance pay equal to three months of
their salary plus the amount of insurance premiums payable under such
officer's employment agreement which, as of April 1, 1996, in the aggregate in
the case of John J. Rigas would be approximately $157,000.
As of March 4, 1997, Mr. Milliard entered into an employment agreement with
Hyperion Telecommunications, Inc., an 88% owned subsidiary of the Company, and
terminated his employment agreement with Adelphia. Mr. Milliard serves as
President and Chief Operating Officer of Hyperion. Mr. Milliard's employment
agreement with Hyperion provides for base salary, annual cash bonuses based on
achievement, stock options and stock bonuses, certain employee benefits and
certain change-in-control and other provisions, and expires on March 31, 2001
unless terminated earlier pursuant to its terms. Mr. Milliard will continue to
serve as a director, senior vice president and secretary of Adelphia, although
he will receive no additional compensation for serving in such capacities.
During fiscal 1996 the Company paid the annual premiums related to a split-
dollar life insurance arrangement for joint and survivor life insurance
coverage for John J. Rigas and his spouse. Upon the earlier of the death of
Mr. Rigas and the death of his spouse or the termination of the arrangement,
the Company will recover all of the premiums previously paid by the Company.
The compensation related to such arrangement is derived as described in notes
(a)(ii) and (iii) to the Summary Compensation Table above.
BOARD OF DIRECTORS COMPENSATION
Directors who are not also employees of the Company each receive
compensation from the Company for services as a director at a rate of $750
plus reimbursement of expenses for each Board and committee meeting attended.
Directors who are employees of the Company do not receive any compensation for
services as a director or as a member of Board committees.
71
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, based on information available to the
Company as of April 1, 1997, certain information with respect to the
beneficial ownership of Class A Common Stock and Class B Common Stock by each
director or nominee for director, all executive officers and directors of
Adelphia as a group, and each person known to Adelphia to own beneficially
more than 5% of such Common Stock. Unless otherwise noted, the individuals
have sole voting and investment power. The business address of each such 5%
beneficial owner named below, unless otherwise noted, is Main at Water Street,
Coudersport, Pennsylvania 16915.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF SHARES OF PERCENT OF
CLASS A CLASS A CLASS B CLASS B
COMMON COMMON COMMON COMMON
NAME AND ADDRESSES STOCK STOCK STOCK STOCK
- ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
John J. Rigas............. (a) (b) 5,883,004(c) 53.8%
Michael J. Rigas.......... (a) (b) 1,915,970(c) 17.5%
Timothy J. Rigas.......... (a) (b) 1,915,970(c) 17.5%
James P. Rigas............ (a) (b) 1,151,634(c) 10.5%
Daniel R. Milliard........ 1,000(d) (e) -- --
Perry S. Patterson........ 3,250 (e) -- --
Pete J. Metros............ 100 (e) -- --
Dennis P. Coyle........... -- (e) -- --
All executive officers and
directors
as a group (eight
persons)................. 17,463,285(a)(c) (b) 10,572,731(c) 96.6%
Syracuse Hilton Head
Holdings, L.P............ 2,398,151(f) 14.9% -- --
Main at Water Street
Coudersport, Pennsylvania
16915
Highland Holdings......... 4,415,953(g) 27.4% -- --
Main at Water Street
Coudersport, Pennsylvania
16915
Ellen K. Rigas............ (h) (i) 371,762(c) 3.4%
Main at Water Street
Coudersport, Pennsylvania
16915
The Capital Group
Companies, Inc........... 1,177,500(j) 7.3% -- --
333 South Hope Street
Los Angeles, California
90071
Telesat Cablevision, Inc.. 1,091,399(k) 6.8% -- --
700 Universe Blvd.
Juno Beach, Florida 33408
</TABLE>
- --------
(a) The holders of Class B Common Stock are deemed to be beneficial owners of
an equal number of shares of Class A Common Stock because Class B Common
Stock is convertible into Class A Common Stock on a one-to-one basis. In
addition, the following persons own or have the power to direct the voting
of shares of Class A Common Stock in the following amounts: John J. Rigas,
431,800 shares--71,700 shares directly and 360,100 shares through Syracuse
Hilton Head Holdings, L.P. ("SHHH"); Michael J. Rigas, 193,500 shares--200
shares directly and 193,300 shares through SHHH; Timothy J. Rigas, 193,500
shares--200 shares directly and 193,300 shares through SHHH; James P.
Rigas, 193,300 shares indirectly through SHHH. John J. Rigas shares voting
power with his spouse with respect to 106,300 of such shares held through
SHHH. Each of John J. Rigas, Michael J. Rigas, Timothy J. Rigas and James
P. Rigas also share voting and dispositive power with respect to 4,415,953
shares of Class A Common Stock held by Highland Holdings, and 1,458,151
shares of Class A Common Stock held by SHHH. See notes (f) and (g) below.
(b) After giving effect to the conversion solely by each individual holder of
all of his Class B Common Stock into Class A Common Stock and including
all shares of Class A Common Stock currently held by such
72
<PAGE>
individual holder or over which such individual holder has or shares voting
or investment power as disclosed in note (a) above or note (f) below, the
percentage of Class A Common Stock owned by John J. Rigas, Michael J.
Rigas, Timothy J. Rigas and James P. Rigas, and by all executive officers
and directors as a group (eight persons), would be 58.0%, 48.4%, 48.4%,
46.1% and 65.4%, respectively. Further, after giving effect to an
additional 4,966,540 shares of Class A Common Stock of which John J. Rigas
has the right to direct the voting in the election of directors pursuant to
the Class B Stockholders Agreement discussed in the paragraph following
this table (and assuming the parties to such agreement converted their
Class B Common Stock into Class A Common Stock), as to all of which
additional shares John J. Rigas disclaims beneficial ownership, the
percentage of Class A Common Stock owned by John J. Rigas would be 65.8%.
(c) The amounts shown include 97,949 of the same shares which are owned of
record by Dorellenic, and such shares are only included once for "All
executive officers and directors as a group." The named Rigas individuals
have shared voting and investment power with respect to these shares.
(d) Daniel R. Milliard shares voting and investment power with his spouse with
respect to these shares.
(e) Less than 1%.
(f) SHHH, Doris Holdings, L.P. ("Doris"), the general partner of SHHH, and
Eleni Acquisition, Inc., the general partner of Doris, are affiliates of
John J. Rigas, Michael J. Rigas, Timothy J. Rigas and James P. Rigas, each
of whom has shared voting and investment power with respect to the shares
held by SHHH. In addition, through irrevocable proxies, each of the above-
named individuals shares with SHHH the power to vote or direct the vote of
such number of shares of Class A Common Stock held by as is specified in
note (a) above.
(g) Highland Holdings ("Highland") is a general partnership, the general
partners of which include John J. Rigas, Michael J. Rigas, Timothy J.
Rigas, James P. Rigas and Ellen K. Rigas, each of whom is deemed to share
voting and investment power with respect to the shares held by Highland.
(h) As a holder of Class B Common Stock, Ellen K. Rigas is deemed to be the
beneficial owner of an equal number of shares of Class A Common Stock
because Class B Common Stock is convertible into Class A Common Stock on a
one-to-one basis. In addition, Ellen K. Rigas owns 1,600 shares of Class A
Common Stock directly and shares voting and investment power with respect
to 4,415,953 shares of Class A Common Stock held by Highland. See note (g)
above. Ellen K. Rigas is the daughter of John J. Rigas.
(i) After giving effect to the conversion of all of Ellen K. Rigas' Class B
Common Stock into shares of Class A Common Stock and including all shares
of Class A Common Stock held by Ellen K. Rigas or over which Ellen K.
Rigas has or shares voting or investment power as discussed in note (h)
above, the percentage of Class A Common Stock owned by Ellen K. Rigas
would be 29.0%.
(j) According to a Schedule 13G and other information provided to the Company,
certain operating subsidiaries of the named entity have sole dispositive
power with respect to all of such shares, and sole voting power with
respect to 97,500 of such shares. An operating subsidiary of the named
entity, Capital Research and Management Company, exercises sole
dispositive power with respect to 1,080,000 of such shares.
(k) According to a Schedule 13D, the named entity shares voting and
dispositive power over the shares with FPL Group Capital, Inc., the parent
of Telesat Cablevision, Inc., FPL Group, Inc., the parent of FPL Group
Capital, Inc., and Cable L.P. I, Inc. and Telesat Cablevision of South
Florida, Inc., subsidiaries of Telesat Cablevision, Inc. Telesat
Cablevision, Inc. is the Company's joint venture partner in Olympus and is
also a holder of in excess of five percent of the Company's Class A Common
Stock. The consent of both the Company and Telesat Cablevision, Inc. is
required under the Olympus partnership agreement for certain material
transactions. Mr. Dennis P. Coyle, is the nominee of Telesat for election
to the Board of Directors of the Company.
73
<PAGE>
John J. Rigas, Michael J. Rigas, Timothy J. Rigas, James P. Rigas, Ellen K.
Rigas, Daniel R. Milliard, Dorellenic and the Company have entered into a
Class B Stockholders Agreement providing that such stockholders shall vote
their shares of Common Stock for the election of directors designated by a
majority of voting power (as defined in the Agreement) of the shares of Common
Stock held by them. The Class B Stockholders Agreement also provides that, in
the absence of the consent of the holders of a majority of the voting power of
the shares of Common Stock owned by the parties to the Agreement, (i) none of
the stockholder parties may sell, assign or transfer all or any part of their
shares of Common Stock in a public sale (as defined in the Agreement) without
first offering the shares to the other parties to the Agreement and (ii) no
stockholder party may accept a bona fide offer from a third party to purchase
shares of such stockholder without first offering the shares to the Company
and then to the other parties to the Class B Stockholders Agreement. In
addition, each party has certain rights to acquire the shares of Common Stock
of the others under certain conditions. John J. Rigas has also entered into a
Stock Purchase Agreement with the other holder of Class B Common Stock who is
not a party to the Class B Stockholders Agreement which gives John J. Rigas
certain rights to acquire the shares of Common Stock of such stockholder under
certain conditions.
74
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
MANAGEMENT SERVICES
During the fiscal years ended March 31, 1994, 1995 and 1996, the Company
provided management services for certain cable television systems not owned by
the Company, including managed partnerships ("Managed Partnerships") in which
John J. Rigas, Michael J. Rigas, Timothy J. Rigas, James P. Rigas, Daniel R.
Milliard and Ellen K. Rigas had varied ownership interests. Ellen K. Rigas is
the daughter of John J. Rigas. These services included supervision of
technical and business operations, accounting, marketing, programming,
purchasing, field engineering and other technical and administrative nonfield
services. During these periods, the Managed Partnerships paid the Company five
to six percent of system revenues for such services. Other fees were charged
by the Company to the Managed Partnerships during these periods for goods and
services including mark-ups on the Company's volume purchases of equipment,
pay programming and other goods and services. In addition, the Managed
Partnerships charged the Company for system and corporate costs during these
periods. The net fees and expenses charged by the Company to Managed
Partnerships amounted to $3,728,000, $7,225,000 and $3,062,000 for fiscal
1994, 1995 and 1996, respectively. The Company believes that these fees were
no less favorable than the fees which the Company believes it could obtain in
similar transactions with unrelated third parties.
REAL ESTATE
During fiscal 1994, 1995 and 1996, the Company leased from Dorellenic (a
partnership owned principally by the Company's executive officers) certain
real estate used in connection with the operations of the Company. The
partners of Dorellenic are John J. Rigas, Michael J. Rigas, Timothy J. Rigas,
James P. Rigas and Ellen K. Rigas. The leases were for varying terms,
generally provided for monthly rental payments equal to fair market value
rentals, and were no less favorable than the terms of leases which the Company
believes it could obtain from unrelated third parties. The Company pays all
operating expenses in connection with the leased property. Real estate rental
payments to Dorellenic totaled $391,000, $97,000 $127,000 for fiscal 1994,
1995 and 1996, respectively.
Effective March 31, 1994, loan balances of $639,000 and $2,882,000 were
repaid to the Company with respect to financing provided previously by the
Company to Dorellenic and Island Partners (a partnership composed of members
of the Rigas family), respectively, for the purchase of property by such
partnerships.
As of March 31, 1994, the Company purchased various parcels of real estate,
including headquarters and office sites, headend sites and other real estate
used in connection with the Company's operations, from Dorellenic and Island
Partners for an aggregate purchase price of $14,312,000, subject to adjustment
based on the completion of fair market appraisals. Also as of March 31, 1994,
the Company acquired from certain Managed Partnerships the rights to provide
alternate access telecommunications services on such partnerships' cable plant
and in such partnerships' respective franchise areas for an aggregate purchase
price of $14,000,000, subject to adjustment based on the completion of fair
market appraisals.
EQUIPMENT LEASES
The Company leases certain operating and support equipment from Dorellenic
and a corporation which is wholly owned by members of the Rigas Family, for
which it made aggregate lease payments of $606,000, $594,000 and $560,000 in
fiscal 1994, 1995 and 1996, respectively. Of these leases, $1,415,000,
$933,000 and $451,000 in principal amount was capitalized by the Company for
financial reporting purposes at March 31, 1994, 1995 and 1996, respectively.
Such lease payments equal the lessor's borrowing costs or lease payments to
unrelated third parties for such equipment. The Company also pays all
operating costs incurred with respect to such equipment. These lease
arrangements are expected to continue; however, the terms of such leases may
be revised in the future to reflect fair market value rates, but will be no
less favorable than the terms of the leases which the Company believes it
could obtain from unrelated third parties.
75
<PAGE>
LOANS TO AND FROM AFFILIATES
Certain loans to and from the Company by or to affiliates (which do not
include Olympus) as of March 31, 1994, 1995 and 1996 are summarized below.
Interest is charged on such loans to affiliates at rates which ranged from
6.75% to 16.50%, 6% to 9%, and 7.5% to 15% for the years ended March 31, 1994,
1995 and 1996, respectively.
Total interest income on loans to affiliates, excluding Olympus, aggregated
$2,883,000, $3,174,000 and $4,023,000 for fiscal 1994, 1995 and 1996,
respectively. In addition, net settlement amounts under interest rate swap
agreements with the Managed Partnerships, recorded as adjustments to interest
expense during the period incurred, increased the Company's interest expense
by $826,000 for fiscal 1996 and decreased the Company's interest expense by
$1,263,000 and $50,000 for fiscal 1994 and 1995, respectively.
Net receivables due from the Managed Partnerships for advances made by the
Company for the construction and acquisition of cable television systems and
for working capital purposes, including accrued interest thereon, were
$11,184,000, $24,746,000 and $39,870,000 at March 31, 1994, 1995 and 1996,
respectively. The Company made loans to Managed Partnerships during fiscal
1994 in the net amount of $20,000,000, for the purpose of a Managed
Partnership acquiring from unrelated parties cable television systems serving
Palm Beach County, Florida, of which $15,000,000 was outstanding at March 31,
1994.
During fiscal 1994 and 1995, the Company made net advances of $10,355,000
and $9,466,000 to Dorellenic. During fiscal 1996 the Company received net
payments on advances of $265,000 from Dorellenic. At March 31, 1994, 1995 and
1996, net receivables from Dorellenic (including accrued interest) were
$15,274,000, $24,740,000 and $24,475,000. Amounts advanced to Dorellenic were
primarily used for working capital purposes.
During fiscal 1990 and 1991, the Company loaned an aggregate $255,000 to
Daniel R. Milliard and an unaffiliated third party, pursuant to several
revolving term and term notes, for capital expenditures and working capital
purposes. As of March 31, 1996, the outstanding amount of these loans was
$205,000.
On an end-of-quarter basis, the largest aggregate amount of net outstanding
loans and advances receivable from affiliates (directors, executive officers
and five-percent shareholders) or entities they control, including John J.
Rigas, Michael J. Rigas, Timothy J. Rigas, James P. Rigas, Ellen K. Rigas,
Daniel R. Milliard, Dorellenic and/or the Managed Partnerships during fiscal
1994 was $31,579,000 at December 31, 1993, during fiscal 1995 was $61,917,000
at December 31, 1994, and during fiscal 1996 was $64,550,000 at March 31,
1996. At March 31, 1994 and 1995, such aggregate net amount was $26,663,000
and $49,691,000, respectively.
CO-BORROWING AGREEMENT
On March 29, 1996, a subsidiary of the Company entered into a $200,000,000
loan agreement with a Managed Partnership and an Olympus subsidiary, as co-
borrowers.
BUSINESS OPPORTUNITIES
The Company's executive officers have entered into a Business Opportunity
Agreement, dated July 1, 1986 (the "Business Opportunity Agreement"), under
which they have agreed not to acquire an interest (except that such persons
may, individually for their own account, engage in regular portfolio trading
of publicly traded securities of companies in the cable television industry)
in any cable television system except: cable television systems which they or
their affiliates (excluding the Company) owned, in whole or in part, operated
or had agreed to acquire as of July 1, 1986; any expansions of such systems
within the same county or an adjacent county (except for systems which are
also contiguous to Company-owned systems); and systems which the Company
elects not to acquire under its right of first refusal described below and any
expansions of such systems within the same county or an adjacent county
(except for systems which are also contiguous to Company-owned systems).
Otherwise, the executive officers will first offer to the Company the
opportunity to acquire or invest in
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any cable television system or franchise therefor or interest therein that is
offered or available to them. If a majority of the Company's Board of
Directors, including a majority of the independent directors, rejects such
offer, the executive officers may acquire or invest in all of such cable
television systems or franchises therefor or interest therein or with others
on terms no more favorable to them than those offered to the Company.
The Company elected not to exercise its right of first refusal with respect
to the acquisition of cable systems in Florida which were purchased in June
1993 by a Managed Partnership. The Company did purchase the 14% preferred
Class B Limited Partnership Interest in SHHH, a Managed Partnership, from an
unaffiliated third party for $18,338,000 on October 6, 1993. During fiscal
1995, the Company sold its $13,000,000 partnership interest in Tele-Media
Investment Partnership, L.P. to a Managed Partnership, sold $20,000,000 in
preferred stock in one of its subsidiaries to a Managed Partnership in
connection with an acquisition, and elected not to exercise its right of first
refusal with respect to the acquisition of a small North Carolina cable system
which was acquired by a Managed Partnership. The Company's executive officers
may from time to time evaluate and, subject to the Company's rights and
covenants in the Company's loan agreements and indentures, may acquire cable
television systems or interests therein for their own accounts separately or
along with the Company and/or other joint venture parties.
Except for the limitations on the ownership of cable television systems as
described herein, the executive officers of Adelphia and their affiliates are
not subject to limitations with respect to their other business activities and
may engage in other businesses related to cable television or other
telecommunications media. The executive officers will devote as much of their
time to the business of the Company as is reasonably required to fulfill the
duties of their offices.
In the event that any executive officer (or his affiliate) decides to offer
for sale (other than to another executive officer or his or another executive
officer's family member, trust or family controlled entity) for his account,
his ownership interest in any cable television system or franchise, he or it
will (subject to the rights of third parties existing at such time) first
offer such interests to the Company. Such selling person or entity has a
unilateral option to elect to require that, if the Company accepts such offer,
up to one half of the consideration for his or its interest would consist of
shares of Class B Common Stock, which shares will be valued at the prevailing
market price of the Class A Common Stock, and the remainder would consist of
shares of Class A Common Stock and/or cash. If a majority of the Company's
independent directors rejects such offer, the executive officer (or his
affiliate) may sell such interest to third parties on terms no more favorable
to such third parties than those offered to the Company.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement, as amended, between the Company
and the holders of Class B Common Stock, John J. Rigas has the right, subject
to certain limitations, to require the Company to register shares of the
Company's Common Stock owned by him for sale to the public and pay the
expenses (except for Mr. Rigas' counsel fees) of such registration on five
occasions selected by him (subject to certain limitations intended to prevent
undue interference with the Company's ability to distribute its securities)
during a fourteen-year period which began in December 1986. The other holders
of Class B Common Stock have the right to participate, at the option of John
J. Rigas, as selling stockholders in any such registration initiated by John
J. Rigas. The holders of Class B Common Stock also have unlimited rights to
participate as selling stockholders in any registered public offering
initiated by the Company and require the Company to pay their expenses (except
counsel fees). Such rights of participation are subject to limitation at the
discretion of the managing underwriter of such offering.
In January 1994, Adelphia entered into an agreement with the Rigas Family
pursuant to which certain Managed Partnerships controlled by members of the
Rigas Family purchased from Adelphia 5,832,604 shares of Class A Common Stock,
at the price offered to the public less the underwriting discount, or $17.145
per share. In connection with such transaction, Adelphia entered into a
Registration Rights Agreement with Salomon Brothers Inc. as lender to the
Rigas Family pursuant to which the 5,832,604 shares were registered for sale
by
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Salomon Brothers as pledgee in the event that the Rigas Family were unable to
repay the related margin loan indebtedness to Salomon Brothers.
OLYMPUS MATTERS
On February 28, 1995, the Company and certain of its subsidiaries and
Telesat Cablevision, Inc. and certain of its subsidiaries ("Telesat") entered
into an Investment Agreement and an amended and restated partnership agreement
for Olympus Communications. L.P. See "Management's Discussion and Analysis of
Results of Operation and Financial Condition" for information on the
investment and related partnership transactions. The consent of both the
Company and Telesat is required under the Olympus partnership agreement for
certain material transactions. As noted earlier, Mr. Dennis Coyle is the
nominee of Telesat for election to the Board of Directors of the Company.
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DESCRIPTION OF SENIOR NOTES
GENERAL
The New Notes, like the Old Notes, will be issued pursuant to the Indenture,
dated February 26, 1997 (the "Indenture"), among the Company and Bank of
Montreal Trust Company, as trustee (the "Trustee"). The terms of the Senior
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act"). The terms of the New Notes are substantially identical to the
Old Notes in all material respects (including interest rate and maturity),
except that (i) the New Notes will not be subject to the restrictions on
transfer (other than with respect to holders that are broker-dealers, persons
who participated in the distribution of the Old Notes or affiliates) and (ii)
the Registration Rights Agreement covenants regarding registration and the
related Liquidated Damages (other than those that have accrued and were not
paid) with respect to Registration Defaults will have been deemed satisfied.
The Senior Notes are subject to all such terms, and holders of Senior Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified by reference to the Indenture,
including the definitions therein of certain terms used below. A copy of the
Indenture and Registration Rights Agreement is available as set forth under
"Available Information." The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions." As used
in this section, the term "Company" refers only to Adelphia Communications
Corporation and not to its subsidiaries.
As of the date of this Prospectus, $350,000,000 principal amount of the Old
Notes was outstanding.
The Indenture authorizes the issuance of up to $600,000,000 in aggregate
principal amount of the Senior Notes. The Senior Notes are general senior
unsecured obligations of Adelphia and are effectively subordinate in right of
payment to the liabilities of Adelphia's subsidiaries. See "Subordination to
Subsidiary Debt" and "Certain Definitions" below.
The Senior Notes will mature on March 1, 2007. Adelphia will pay interest on
the Senior Notes on March 1 and September 1 of each year, commencing September
1, 1997, to the persons who are registered holders at the close of business on
the February 15 and August 15 immediately preceding the interest payment date.
The Senior Notes will not be redeemable prior to the maturity date.
The Indenture and the existing indentures under which the 12 1/2% Senior
Notes due 2002 (the "12 1/2% Notes"), the 10 1/4% Senior Notes due 2000 (the
"10 1/4% Notes"), the 9 1/2% Senior Pay-In-Kind Notes due 2004 (the "9 1/2%
Notes"), the 11 7/8% Senior Debentures due 2004 (the "11 7/8% Debentures") and
the 9 7/8% Senior Debentures due 2005 (the "9 7/8% Debentures") of Adelphia
were issued contain covenants which may afford holders of Senior Notes, the 12
1/2% Notes, the 10 1/4% Notes, the 9 1/2% Notes, the 11 7/8% Debentures and
the 9 7/8% Debentures certain protections regarding leverage and the
incurrence of indebtedness. These include covenants which limit the amount of
additional indebtedness that may be incurred by Adelphia and its subsidiaries,
which restrict mergers and consolidations by Adelphia unless after giving
effect to the transaction the consolidated fixed charge ratio of the surviving
entity satisfies certain compliance tests, and which require such Senior
Notes, the 12 1/2% Notes, the 10 1/4% Notes, the 9 1/2% Notes, 11 7/8%
Debentures and 9 7/8% Debentures to be secured equally and ratably with other
indebtedness in certain circumstances where Adelphia creates or assumes liens
on its property or assets in connection therewith. See "Covenants" below.
On the date of the Indenture, the only Unrestricted Subsidiaries of Adelphia
are Hyperion and Global Cablevision, Inc.
The Senior Notes are not redeemable and there is no mandatory redemption or
sinking fund prior to maturity.
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RANKING
The New Notes will be senior unsecured indebtedness of Adelphia, will rank
pari passu in right of payment with other unsubordinated indebtedness of
Adelphia and senior in right of payment to all future subordinated
indebtedness of Adelphia. The operations of Adelphia are conducted through its
subsidiaries and, therefore, Adelphia is dependent on the earnings and cash
flow of and distributions from its subsidiaries to meet its debt obligations,
including its obligations with respect to the New Notes. Because the assets of
its subsidiaries constitute substantially all of the assets of Adelphia, and
because the subsidiaries will not guarantee the payment of principal of and
interest on the New Notes, the claims of holders of the New Notes effectively
will be subordinated to the claims of creditors of such entities. As of
December 31, 1996, the New Notes would have been effectively subordinated to
$1.3 billion of indebtedness of Adelphia's subsidiaries. As of December 31,
1996, the total indebtedness of Adelphia's subsidiaries to banks and
institutions, on a consolidated basis, aggregated $1.5 billion. See "Risk
Factors--Holding Company Structure; Restrictive Covenants."
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Adelphia and the Initial Purchaser entered into the Registration Rights
Agreement on February 26, 1997 (the "Closing Date"). Pursuant to the
Registration Rights Agreement, Adelphia agreed to use its reasonable efforts
to file with the Commission on or prior to 90 days after the Closing Date the
Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to the Exchange Notes. Upon the effectiveness of
the Exchange Offer Registration Statement, Adelphia will offer to the Holders
of Transfer Restricted Securities pursuant to the Exchange Offer who are able
to make certain representations the opportunity to exchange their Transfer
Restricted Securities for New Notes. If (i) Adelphia is not required to file
the Exchange Offer Registration Statement or permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any Holder of Transfer Restricted Securities
notifies Adelphia on or prior to the 20th Business Day following consummation
of the Exchange Offer that it (a) is prohibited by law or Commission policy
from participating in the Exchange Offer or (b) may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (iii) any Holder
of Transfer Restricted Securities is a broker-dealer and holds Senior Notes
acquired directly from Adelphia or an affiliate of Adelphia, and shall so
notify Adelphia, Adelphia will file with the Commission a Shelf Registration
Statement to cover resales of the Senior Notes by the Holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. Adelphia will use its best
efforts to cause the applicable registration statement to be declared
effective by the Commission within the applicable time period. For purposes of
the foregoing, "Transfer Restricted Securities" means each Old Note until (i)
the date on which such Old Note has been exchanged by a person other than a
broker-dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a broker dealer in the Exchange Offer of a Note for a New Note,
the date on which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on
which such New Note has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Senior Note is distributed to the public pursuant to
Rule 144 under the Securities Act. Notwithstanding the foregoing, at any time
after Consummation (as defined in the Registration Rights Agreement) of the
Exchange Offer, Adelphia may allow the Shelf Registration Statement to cease
to be effective and usable if (i) the Board of Directors of Adelphia
determines in good faith that such action is in the best interests of
Adelphia, and Adelphia notifies the Holders within a certain period of time
after the Board of Directors of Adelphia makes such determination or (ii) the
prospectus contained in the Shelf Registration Statement contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided that the period referred to in
the Registration Rights Agreement during which the Shelf Registration
Statement is required to be effective and usable will be extended by the
number of days during which such registration statement was not effective or
usable pursuant to the foregoing provisions.
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The Registration Rights Agreement provides that (i) Adelphia will use its
reasonable efforts to file an Exchange Offer Registration Statement with the
Commission on or prior to 90 days after the Closing Date, (ii) Adelphia will
use its best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 180 days after the Closing
Date (which 180-day period shall be extended for a number of days equal to the
number of Business Days, if any, that the Commission is officially closed
during such period), (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, Adelphia will commence the Exchange Offer
and use its best efforts to issue on or prior to 30 days after the date on
which the Exchange Offer Registration Statement was declared effective by the
Commission, New Notes in exchange for all Old Notes tendered prior thereto in
the Exchange Offer and (iv) if obligated to file the Shelf Registration
Statement, Adelphia will use its best efforts to file the Shelf Registration
Statement with the Commission on or prior to 60 days after such filing
obligation arises and to cause the Shelf Registration Statement to be declared
effective by the Commission on or prior to 90 days after such filing
obligation arises. If (a) Adelphia fails to file either of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) either of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for
such effectiveness (the "Effectiveness Target Date"), (c) Adelphia fails to
consummate the Exchange Offer within 30 days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement, or (d) subject to
the last sentence of the preceding paragraph, the Shelf Registration Statement
or the Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then, subject to the last
sentence of the preceding paragraph, Adelphia will pay Liquidated Damages to
each Holder of Transfer Restricted Securities, with respect to the first 90-
day period immediately following the occurrence of such Registration Default,
in an amount equal to 0.25% per annum on the principal amount of Old Notes
constituting Transfer Restricted Securities held by such Holder. The amount of
the Liquidated Damages will increase by an additional 0.25% per annum with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of 2.0% per annum on
the principal amount of Old Notes constituting Transfer Restricted Securities.
All accrued Liquidated Damages will be paid by Adelphia in cash on each
Damages Payment Date to the Global Note Holder (and any Holder of Certificated
Securities who has given wire transfer instructions to Adelphia at least 10
Business Days prior to the Damages Payment Date) by wire transfer of
immediately available funds and to all other Holders of Certificated
Securities by mailing checks to their registered addresses. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Old Notes will be required to make certain representations to
Adelphia (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
by reference to, all the provisions of the Registration Rights Agreement, a
copy of which will be available upon request to Adelphia.
Except as described below under "--Modification of Indenture," the Old Notes
and the New Notes will be considered collectively to be a single class for all
purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and repurchase offers, and for purposes of this
"Description of the Senior Notes" (except under this caption, "--Registration
Rights; Liquidated Damages") all reference herein to "Senior Notes" shall be
deemed to refer collectively to the Old Notes and any New Notes, unless the
context otherwise requires.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for
the full definition of all such terms as well as any other capitalized terms
used herein for which no definition is provided.
"Affiliate" means a Person (i) which directly or indirectly through one or
more intermediaries controls, or is controlled by, or is under common control
with, Adelphia, (ii) which beneficially owns or holds 10% or more of any class
of the voting Capital Stock of Adelphia, or (iii) of which 10% or more of the
voting Capital Stock is beneficially owned or held by Adelphia, a Restricted
Subsidiary or an Unrestricted Subsidiary of Adelphia. Without limitation, an
Affiliate also includes any director or executive officer of Adelphia. As used
herein, "Affiliate" shall not include a Restricted Subsidiary.
"Aggregate Excess Restricted Investments" means for any fiscal quarter the
aggregate of Excess Restricted Investments with respect to the Restricted
Investments in all of the Unrestricted Subsidiaries and Affiliates of
Adelphia.
"Allowable Securities" means (i) cash equivalents, (ii) common or preferred
Capital Stock in a Person which (x) has Investment Grade Senior Debt or (y)
whose ratio of Indebtedness plus Preferred Stock to Annualized Pro Forma
EBITDA is less than 7.75:1, or (iii) debt securities issued by a Person which
(x) has Investment Grade Senior Debt or (y) whose Leverage Ratio is less than
7.75:1, provided that the securities in (ii)(y) and (iii)(y) above shall only
be deemed to be Allowable Securities if the principal business of the Person
is owning and operating cable television systems.
"Annualized Pro Forma EBITDA" means, with respect to any Person, (i) such
Person's Pro Forma EBITDA for the latest fiscal quarter multiplied by four,
minus (ii) in the case of Adelphia only, Adelphia's Aggregate Excess
Restricted Investments for such fiscal quarter.
"Asset Sale" means the sale, transfer or other disposition (other than to
Adelphia or any of its Restricted Subsidiaries) in any single transaction or
series of related transactions of (a) any Capital Stock of or other equity
interest in any Restricted Subsidiary, (b) all or substantially all of the
assets of Adelphia or of any Restricted Subsidiary, or (c) all or
substantially all of the assets of a Company System or part thereof serving at
least 5,000 basic subscribers, a division, line of business or comparable
business segment of Adelphia or any Restricted Subsidiary.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of corporate stock, partnership
interests or any other participation, right or other interest in the nature of
an equity interest in such Person or any option, warrant or other security
convertible into any of the foregoing.
"Capital Stock Sale Proceeds" means the aggregate net sale proceeds
(including the fair market value of property, other than cash, as determined
by an independent appraisal firm) received by Adelphia from the issue or sale
(other than to a Subsidiary) by Adelphia of any class of its Capital Stock on
or after January 1, 1993 (including Capital Stock of Adelphia issued after
January 1, 1993 upon conversion of or in exchange for other securities of
Adelphia).
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting principles
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with generally accepted accounting
principles.
"Change of Control" means such time as (i) (a) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than
the Rigas Family and its Affiliates, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of more than 35% of the total
voting power required to elect or designate for election a majority of
Adelphia's Board of Directors and attaching to the then outstanding
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voting Capital Stock of Adelphia and (b) the Rigas Family, together with its
Affiliates, is not at such time the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 35% of the total voting power
required to elect or designate for election a majority of Adelphia's Board of
Directors and attaching to the then outstanding voting Capital Stock of
Adelphia, or (ii) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted Adelphia's Board
of Directors (together with any new directors whose election by Adelphia's
Board of Directors or whose nomination for election by Adelphia's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved or approved by
the Rigas Family and its Affiliates at a time when they had the right or
ability by voting right, contract or otherwise to elect or designate for
election a majority of Adelphia's Board of Directors) cease for any reason to
constitute a majority of the directors then in office.
"Change of Control Triggering Event" means the occurrence of both a Change
of Control and a Rating Decline.
"Consolidated Fixed Charge Ratio" means, for any Person, for any period, the
ratio of (i) Annualized Pro Forma EBITDA to (ii) Consolidated Interest Expense
for such period multiplied by four.
"Consolidated Interest Expense" means, for any Person, for any period, the
amount of interest in respect of Indebtedness (including amortization of
original issue discount, amortization of debt issuance costs, and non-cash
interest payments on any Indebtedness and the interest portion of any deferred
payment obligation and after taking into account the effect of elections made
under any Interest Rate Agreement, however denominated, with respect to such
Indebtedness), the amount of Redeemable Dividends and the interest component
of rentals in respect of any Capitalized Lease Obligation paid, accrued or
scheduled to be paid or accrued by such Person during such period, determined
on a consolidated basis in accordance with generally accepted accounting
principles. For purposes of this definition, interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by such Person to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with generally accepted accounting principles
consistently applied.
"Cumulative Credit" means the sum of (i) Capital Stock Sale Proceeds plus
(ii) cumulative EBITDA of Adelphia from and after January 1, 1993 to the end
of the fiscal quarter immediately preceding the date of a proposed Restricted
Payment, or, if such cumulative EBITDA for such period is negative, minus the
amount by which such cumulative EBITDA is less than zero.
"Cumulative Interest Expense" means the aggregate amount of Consolidated
Interest Expense paid, accrued or scheduled to be paid or accrued by Adelphia
from January 1, 1993 to the end of the fiscal quarter immediately preceding a
proposed Restricted Payment, determined on a consolidated basis in accordance
with generally accepted accounting principles.
"EBITDA" means, for any Person, for any period, an amount equal to (A) the
sum of (i) consolidated net income for such period (exclusive of any gain or
loss realized in such period upon an Asset Sale), plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing consolidated net income and any provision
for taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period, plus (iv) depreciation for such
period on a consolidated basis, plus (v) amortization of intangibles for such
period on a consolidated basis, plus (vi) any other non-cash items reducing
consolidated net income for such period, minus (B) all non-cash items
increasing consolidated net income for such period, all for such Person and
its Subsidiaries determined in accordance with generally accepted accounting
principles consistently applied, except that with respect to Adelphia each of
the foregoing items shall be determined on a consolidated basis with respect
to Adelphia and its Restricted Subsidiaries only.
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"Excess Restricted Investment" means, with respect to any particular
Unrestricted Subsidiary or Affiliate of Adelphia for a fiscal quarter, the
lesser of the amounts described in the following clauses (i) and (ii), or, if
such amounts are equal, such amount:
(i) the aggregate amount of any Restricted Investments (other than the
Initial Investment) made by Adelphia or any Restricted Subsidiary with
respect to such Unrestricted Subsidiary or Affiliate and during the
twelve-month period ending on the last day of such fiscal quarter;
(ii) cash income received during such quarter by Adelphia with respect to
its Restricted Investments in such Unrestricted Subsidiary or
Affiliate multiplied by four;
and provided that cash income from a particular Restricted Investment shall be
included only (x) if cash income has been received by Adelphia with respect to
such Restricted Investment during each of the previous two fiscal quarters, or
(y) if the cash income derived from such Restricted Investment is attributable
to Allowable Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Indebtedness" is defined to mean (without duplication), with respect to any
Person, any indebtedness, secured or unsecured, contingent or otherwise, which
is for borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), or evidenced
by bonds, notes, debentures or similar instruments or representing the balance
deferred and unpaid of the purchase price of any property (excluding, without
limitation, any balances that constitute subscriber advance payments and
deposits, accounts payable or trade payables, and other accrued liabilities
arising in the ordinary course of business) if and to the extent any of the
foregoing indebtedness would appear as a liability upon a balance sheet of
such Person prepared in accordance with generally accepted accounting
principles, and shall also include, to the extent not otherwise included (i)
any Capitalized Lease Obligations, (ii) obligations secured by a lien to which
the property or assets owned or held by such Person is subject, whether or not
the obligation or obligations secured thereby shall have been assumed, (iii)
guaranties of items of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) in the case of Adelphia, Preferred
Stock of its Restricted Subsidiaries and (v) obligations of any such Person
under any Interest Rate Agreement applicable to any of the foregoing.
Notwithstanding the foregoing, Indebtedness shall not include any interest or
accrued interest until due and payable.
"Initial Investment" means the Restricted Investment in a Person made by
Adelphia or a Restricted Subsidiary that first results in such Person becoming
an Unrestricted Subsidiary or Affiliate of Adelphia, except that in the case
of Olympus, "Initial Investment" shall mean any Restricted Investment made in
Olympus since February 22, 1994, but only to the extent that such Restricted
Investment when aggregated with the other Restricted Investments made in
Olympus since such date does not exceed $25,000,000.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
"Investment Grade Senior Debt" means, with respect to any Person,
Indebtedness of such Person which has been rated with an investment grade
rating by Moody's or Standard & Poor's.
"Leverage Ratio" is defined as the ratio of (i) the outstanding Indebtedness
of a Person and its Subsidiaries (or in the case of Adelphia, its Restricted
Subsidiaries) divided by (ii) the Annualized Pro Forma EBITDA of such Person.
"Lien" means with respect to any property or assets of Adelphia (it being
understood that for purposes of this definition property or assets of Adelphia
do not include property or assets of any Subsidiary of Adelphia) any mortgage
or deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance,
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preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including without limitation, any Capitalized Lease Obligation, conditional
sale, or other title retention agreement having substantially the same
economic effect as any of the foregoing) except for (i) liens for taxes,
assessments or governmental charges or levies on property if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings; (ii) liens
imposed by law, such as carriers', warehousemen's and mechanics' liens and
other similar liens arising in the ordinary course of business which secure
payment of obligations not more than sixty (60) days past due or are being
contested in good faith and by appropriate proceedings; (iii) other liens
incidental to the conduct of its business or the ownership of its property and
assets which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit and which do not in the aggregate
materially detract from the value of its property or assets or materially
impair the use thereof in the operation of its business; (iv) utility
easements, building restrictions and such other encumbrances or charges
against real property as are of a nature generally existing with respect to
properties of a similar character; or (v) liens arising upon entry of a
confession of judgment in Pennsylvania courts in connection with borrowings
not in excess of $1,000,000 in aggregate.
"Permitted Investments" means, for any Person, Restricted Investments made
on or after February 22, 1994 consisting of (i) advances for less than one
year issued in the ordinary course of business for working capital purposes or
for the purchase of property, plant and equipment in an amount not to exceed
$5,000,000 in the aggregate outstanding, (ii) with respect to a Restricted
Investment in Olympus, $25,000,000 plus the aggregate amount of cash income
received by Adelphia from Olympus, minus the aggregate amount of all
Restricted Investments made since February 22, 1994, with respect to Olympus,
(iii) $20,000,000 plus the cash proceeds from the sale or redemption of, or
income from, any Restricted Investments made on or after January 1, 1993,
minus the aggregate amount of all Restricted Investments (excluding Restricted
Investments made with respect to Olympus) since January 1, 1993, (iv) non-cash
Restricted Investments made with the non-cash proceeds from the sale or
redemption of, or income from, any Restricted Investments, or (v) an amount
which, at the time of such Restricted Investment, does not exceed the amount
of Restricted Payments that could then be made by Adelphia and its Restricted
Subsidiaries under the covenant set forth under "Limitations on Restricted
Payments"; provided further that no Restricted Investments may be made under
(ii), (iii), (iv) or (v) unless pro forma for such Restricted Investment
Adelphia could incur $1 of debt under the first paragraph of the covenant set
forth under "Limitation on Indebtedness."
"Permitted Refinancing Indebtedness" means any renewals, extensions,
substitutions, refinancings or replacements of any Indebtedness, including any
successive extensions, renewals, substitutions, refinancings or replacements
so long as (i) the aggregate amount of Indebtedness represented thereby is not
increased by such renewal, extension, substitution, refinancing or
replacement, (ii) in the case of Indebtedness of Adelphia, the average life
and the date such Indebtedness is scheduled to mature is not shortened and
(iii) in the case of Indebtedness of Adelphia, the new Indebtedness shall not
be senior in right of payment to the Indebtedness that is being extended,
renewed, substituted, refinanced or replaced.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of such
Person as determined on a consolidated basis in accordance with generally
accepted accounting principles consistently applied after giving effect to the
following: (i) if, during or after such period, such Person or any of its
Subsidiaries shall have made any Asset Sale, Pro Forma EBITDA of such Person
and its Subsidiaries for such period shall be reduced by an amount equal to
the Pro Forma EBITDA (if positive) directly attributable to the assets which
are the subject of such Asset Sale for the period or increased by an amount
equal to the Pro Forma EBITDA (if negative) directly attributable thereto for
such period and (ii) if, during or after such period, such Person or any of
its Subsidiaries completes an acquisition of any Person or business which
immediately after such acquisition is a Subsidiary of such Person or whose
assets are held directly by such Person or a Subsidiary of such Person, Pro
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Forma EBITDA shall be computed so as to give pro forma effect to the
acquisition of such Person or business; and provided further that, with
respect to Adelphia, all of the foregoing references to "Subsidiary" or
"Subsidiaries" shall be deemed to refer only to a "Restricted Subsidiary" or
"Restricted Subsidiaries" of Adelphia.
"Rating Date" means the date which is 90 days prior to the earlier of (i) a
Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention of Adelphia to effect a Change of Control.
"Rating Decline" means the occurrence of the following on, or within 90 days
after, the date of public notice of the occurrence of a Change of Control or
of the intention by Adelphia to effect a Change of Control (which period shall
be extended so long as the rating of the Notes is under publicly announced
consideration for possible downgrade by Moody's or Standard & Poor's): (a) in
the event the Notes are rated by either Moody's or Standard & Poor's on the
Rating Date as Investment Grade Senior Debt, the rating of the Notes by both
Moody's and Standard & Poor's Corporation shall be below Investment Grade
Senior Debt; or (b) in the event the Notes are rated below Investment Grade
Senior Debt by both Moody's and Standard & Poor's on the Rating Date, the
rating of the Notes by either Moody's or Standard and Poor's shall be
decreased by one or more gradations (including gradations within rating
categories as well as between rating categories).
"Redeemable Dividend" means, for any dividend with regard to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any Person, any Capital Stock that
by its terms or otherwise is required to be redeemed or is redeemable at the
option of the holder at any time prior to the maturity of the Notes.
"Restricted Investment" means any advance, loan, account receivable (other
than an account receivable arising in the ordinary course of business), or
other extension of credit (excluding, however, accrued and unpaid interest in
respect of any advance, loan or other extension of credit) or any capital
contribution to (by means of transfers of property to others, payments for
property or services for the account or use of others, or otherwise), any
purchase or ownership of any stocks, bonds, notes, debentures or other
securities (including, without limitation, any interests in any partnership or
joint venture) of, or any bank accounts with or guarantee of any Indebtedness
or other obligations of, any Unrestricted Subsidiary or Affiliate of Adelphia.
"Restricted Payment" means (i) any dividend or distribution (whether made in
cash, property or securities), on or with respect to any shares of Capital
Stock of Adelphia or Capital Stock of any Subsidiary which is consolidated
with Adelphia in accordance with generally accepted accounting principles
consistently applied, except for any dividend or distribution which is made
solely to Adelphia or another Subsidiary or dividends or distributions payable
solely in shares of Common Stock of Adelphia, or (ii) any redemption,
repurchase, retirement or other direct or indirect acquisition of (a)
Indebtedness of Adelphia which is subordinate in right of payment to the
Notes, except by exchange for or out of the proceeds of the substantially
concurrent issuance of Permitted Refinancing Indebtedness or from the proceeds
of a sale of Capital Stock by Adelphia or (b) shares of Capital Stock of
Adelphia or any warrants, rights or options to directly or indirectly purchase
or acquire any such Capital Stock of Adelphia or any securities exchangeable
for or convertible into any such shares, other than options issued or shares
purchased or granted under Adelphia's Stock Option Plan of 1986 or Adelphia's
Restricted Stock Bonus Plan, from any employee of Adelphia or any of its
Subsidiaries who, together with any Person that, directly or indirectly,
controls (other than by virtue of being directly or indirectly the employer of
such employee), is controlled by or is under common control with such
employee, owns less than 1% of the outstanding Capital Stock of Adelphia,
except for the purchase, redemption, retirement or other acquisition of any
shares of Adelphia's Capital Stock by exchange for, or out of the proceeds of
the substantially concurrent sale of, other shares of its Capital Stock other
than any capital stock which, by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable), or upon the
happening of any event, matures
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or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof, in whole or in
part, on or prior to March 1, 2007.
"Restricted Subsidiary" means (a) any Subsidiary of Adelphia, whether
existing on or after the date of the Indenture, unless such Subsidiary is an
Unrestricted Subsidiary or shall have been classified as an Unrestricted
Subsidiary by a resolution adopted by the Board of Directors of Adelphia and
(b) an Unrestricted Subsidiary which is reclassified as a Restricted
Subsidiary by a resolution adopted by the Board of Directors of Adelphia,
provided that on and after the date of such reclassification such Unrestricted
Subsidiary shall not incur Indebtedness other than that permitted to be
incurred by a Restricted Subsidiary under the provisions of the Indenture.
"Rigas Family" means collectively John J. Rigas and members of his immediate
family, any of their respective spouses, estates, lineal descendants, heirs,
executors, personal representatives, administrators, trusts for any of their
benefit and charitable foundations to which shares of Adelphia's Capital Stock
beneficially owned by any of the foregoing have been transferred.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which
more than 50% of the total voting power of the Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the
direction of the management and policies of such entity by contract or
otherwise if in accordance with generally accepted accounting principles such
entity is consolidated with the first-named Person for financial statement
purposes.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary, (b) any Subsidiary of Adelphia which is classified after the date
of the Indenture as an Unrestricted Subsidiary by a resolution adopted by the
Board of Directors of Adelphia and (c) any subsidiary which as of the date of
the Indenture has been declared an Unrestricted Subsidiary by a resolution
adopted by the Board of Directors of Adelphia; provided that a Subsidiary
organized or acquired after the date of the Indenture may be so classified as
an Unrestricted Subsidiary only if immediately after the date of such
classification, any investment by Adelphia and its Restricted Subsidiaries in
such Subsidiary made at the time of the organization or acquisition of such
Subsidiary would be a Restricted Investment permissible under the Indenture.
The Trustee shall be given prompt notice by Adelphia of each resolution
adopted by its Board of Directors under this provision, together with a copy
of each such resolution adopted.
SUBORDINATION TO SUBSIDIARY DEBT
All liabilities of Adelphia's subsidiaries will be effectively senior in
right of payment to the Senior Notes. As of December 31, 1996, the total
indebtedness of such subsidiaries to banks and institutions, on a consolidated
basis, aggregated approximately $1.5 billion. See "Risk Factors--Holding
Company Structure; Restrictive Covenants."
COVENANTS
The Indenture contains, among others, the following covenants. Except as
otherwise specified, all of the covenants described below appear in the
Indenture.
Limitation on Indebtedness. The Indenture provides that Adelphia will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, issue, assume or become liable for, contingently or otherwise
(collectively an "incurrence"), any Indebtedness (other than the $350,000,000
of Senior Notes originally issued under the Indenture) unless, after giving
effect to such incurrence on a pro forma basis, Indebtedness of Adelphia and
its Restricted Subsidiaries, on a consolidated basis, shall not be more than
the
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product of the Annualized Pro Forma EBITDA for the latest fiscal quarter
preceding such incurrence for which financial statements are available,
multiplied by 8.75.
Notwithstanding the above, the Indenture does not limit the incurrence of
Indebtedness which is incurred by Adelphia or its Restricted Subsidiaries for
working capital purposes or capital expenditures with respect to plant,
property and equipment of Adelphia and its Restricted Subsidiaries in an
aggregate amount not to exceed $50,000,000. Further, the Indenture does not
limit Permitted Refinancing Indebtedness, subject to the provisions of the
covenant set forth under "Limitation on Restricted Payments."
Limitation on Restricted Payments. The Indenture provides that, so long as
any of the Senior Notes remain outstanding, Adelphia shall not make, and shall
not permit any Restricted Subsidiary to make, any Restricted Payment (as
defined above) if (a) at the time of such proposed Restricted Payment, a
Default or Event of Default shall have occurred and be continuing or shall
occur as a consequence of such Restricted Payment, or (b) immediately after
giving effect to any such Restricted Payment, the aggregate of all Restricted
Payments which shall have been made on or after January 1, 1993 (the amount of
any Restricted Payment, if other than cash, to be based upon fair market value
as determined in good faith by Adelphia's Board of Directors whose
determination shall be conclusive) would exceed an amount equal to the greater
of (i) the sum of $5,000,000 or (ii) the difference between (a) the Cumulative
Credit (as defined above) and (b) the sum of the aggregate amount of all
Restricted Payments, and all Permitted Investments made pursuant to clause (v)
of the definition of "Permitted Investments," made on or after January 1, 1993
plus 1.2 times Cumulative Interest Expense (as defined above).
Mergers and Consolidations. The Indenture provides that Adelphia may not
consolidate with, merge with or into, or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction
or a series of related transactions), to any Person unless: (i) Adelphia shall
be the continuing Person, or the Person (if other than Adelphia) formed by
such consolidation or into which Adelphia is merged or to which the properties
and assets of Adelphia are transferred shall be a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all of the obligations of Adelphia under the Senior Notes and the Indenture,
and the obligations under the Indenture shall remain in full force and effect;
(ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iii) immediately after giving effect to such transaction on a
pro forma basis for the most recent quarter, the pro forma Consolidated Fixed
Charge Ratio of the surviving entity shall be at least 1:1; provided that, if
the Consolidated Fixed Charge Ratio of Adelphia for the most recent quarter
preceding such transaction is within the range set forth in Column A below,
then the pro forma Consolidated Fixed Charge Ratio of the surviving entity
after giving effect to such transaction shall be at least equal to the greater
of the percentage of the Consolidated Fixed Charge Ratio of Adelphia for the
most recent quarter preceding such transaction set forth in Column B or the
ratio set forth in Column C below:
<TABLE>
<S> <C> <C>
A B C
----- ----- ------
1.1111:1 to 1.4999:1 90% 1.00:1
1.5 and higher 80% 1.35:1
</TABLE>
and provided, further, that if the pro forma Consolidated Fixed Charge Ratio
of the surviving entity is 2:1 or more, the calculation in the preceding
proviso shall be inapplicable and such transaction shall be deemed to have
complied with the requirements of such proviso.
In connection with any consolidation, merger or transfer contemplated by
this provision, Adelphia shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
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Limitations on Investment in Affiliates and Unrestricted Subsidiaries. After
the date of the Indenture, Adelphia may not, nor will Adelphia allow any
Restricted Subsidiary to, make a Restricted Investment other than by way of
Permitted Investments unless pro forma for such Restricted Investment the
Leverage Ratio of Adelphia does not exceed 7.75:1.
Covenant to Secure Notes Equally. The Indenture provides that except for
Liens created or assumed by Adelphia in connection with the acquisition of
real property or equipment to be used by Adelphia in the operation of its
business which do not secure Indebtedness in excess of the purchase price of
such real property or equipment, Adelphia covenants that, if it shall create
or assume any Lien upon any of its property or assets, whether now owned or
hereafter acquired, it will make or cause to be made effective provisions
whereby the Notes will be secured by such Lien equally and ratably with all
other Indebtedness of Adelphia secured by such Lien, as long as any such other
Indebtedness of Adelphia shall be so secured. The restriction imposed by this
covenant shall not apply with respect to a Lien, including a pledge of Capital
Stock of a Subsidiary or an Affiliate, to secure Indebtedness which is an
obligation of such Subsidiary or Affiliate and not an obligation of Adelphia.
Limitation on Transactions with Affiliates. The Indenture provides that
Adelphia will not, and will not permit any Restricted Subsidiary to, engage in
any transaction with any Affiliate upon terms which would be any less
favorable than those obtainable by Adelphia or a Restricted Subsidiary in a
comparable arm's-length transaction with a person which is not an Affiliate.
The Indenture provides that Adelphia will not, and will not permit any
Restricted Subsidiary to, engage in any transaction (or series of related
transactions) involving in the aggregate $1,000,000 or more with any Affiliate
except for (i) the making of any Restricted Payment, (ii) any transaction or
series of transactions between Adelphia and one or more of its Restricted
Subsidiaries or between two or more of its Restricted Subsidiaries (provided
that no more than 5% of the equity interest in any of its Restricted
Subsidiaries is owned by an Affiliate), and (iii) the payment of compensation
(including, without limitation, amounts paid pursuant to employee benefit
plans) for the personal services of officers, directors and employees of
Adelphia or any of its Restricted Subsidiaries, so long as the Board of
Directors of Adelphia in good faith shall have approved the terms thereof and
deemed the services theretofore or thereafter to be performed for such
compensation or fees to be fair consideration therefor; and provided further
that for any Asset Sale, or a sale, transfer or other disposition (other than
to Adelphia or any of its Restricted Subsidiaries) of an interest in a
Restricted Investment, involving an amount greater than $25,000,000, such
Asset Sale or transfer of interest in a Restricted Investment is for fair
value as determined by an opinion of a nationally recognized investment
banking firm filed with the Trustee. Notwithstanding the foregoing, the
Indenture provides that such provision will not prohibit any such transaction
which is determined by the independent members of the Board of Directors of
Adelphia, in their reasonable, good faith judgment (as evidenced by a Board
Resolution filed with the Trustee) to be (a) in the best interests of Adelphia
or such Restricted Subsidiary, and (b) upon terms which would be obtainable by
Adelphia or a Restricted Subsidiary in a comparable arm's-length transaction
with a Person which is not an Affiliate.
Limitation on Sale of Assets. The Indenture provides that neither Adelphia
nor a Restricted Subsidiary shall sell an asset (including Capital Stock of
Restricted Subsidiaries) or reclassify a Restricted Subsidiary existing on the
date of the Indenture as an Unrestricted Subsidiary (a "Reclassification")
unless (a) in the case of an asset sale, (i) at least 75% of the net proceeds
received by Adelphia or such Restricted Subsidiary is in cash, cash
equivalents or common or preferred Capital Stock or debt securities issued by
a Person which has Investment Grade Senior Debt, and (ii) cash proceeds from
the asset sale are used to reduce debt and such debt reduction results in
Adelphia's Leverage Ratio being lower pro forma after such asset sale than
prior to such asset sale, or (b) in the case of an asset sale or
Reclassification, pro forma for such asset sale or Reclassification the
Indebtedness of Adelphia and its Restricted Subsidiaries, on a consolidated
basis, shall not be more than 7.75 multiplied by Annualized Pro Forma EBITDA,
provided that in no case under either clause (a) or (b) shall Adelphia
undertake an asset sale or Reclassification, if pro forma for such an asset
sale or Reclassification Adelphia and its Restricted Subsidiaries would be the
owners of fewer than 75% of the cable systems (measured on the basis of basic
subscribers as of February 22, 1994) owned by Adelphia and its Restricted
Subsidiaries as
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of February 22, 1994, provided however, that Adelphia and its Restricted
Subsidiaries may sell additional assets of up to 10% of assets held as of
February 22, 1994 if the consideration received from such sale is (i) cash
which is used within 12 months to purchase additional systems of equivalent
value or (ii) other cable systems of equivalent value.
Change of Control Offer. Within 50 days of (i) the proposed occurrence of a
Change of Control or (ii) the occurrence of a Change of Control Triggering
Event, Adelphia shall notify the Trustee in writing of such proposed
occurrence or occurrence, as the case may be, and shall make an offer to
purchase (the "Change of Control Offer") the Senior Notes at a purchase price
equal to 100% of the principal amount thereof plus any accrued and unpaid
interest thereon to the Change of Control Payment Date (as hereinafter
defined) (the "Change of Control Purchase Price") in accordance with the
procedures set forth in this covenant.
Within 50 days of (i) the proposed occurrence of a Change of Control or (ii)
the occurrence of a Change of Control Triggering Event, Adelphia also shall
(a) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United
States and (b) send by first-class mail, postage prepaid, to the Trustee and
to each holder of the Senior Notes, at his address appearing in the register
of the Senior Notes maintained by the Registrar, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment,
provided that a Change of Control Triggering Event has occurred and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 50 days from the date such
notice is mailed and no later than 15 days after the date of the
corresponding Change of Control Triggering Event) (the "Change of
Control Payment Date");
(3) that any Senior Note not tendered will continue to accrue interest;
(4) that, unless Adelphia defaults in the payment of the Change of Control
Purchase Price, any Senior Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(5) that holders accepting the offer to have their Senior Notes purchased
pursuant to a Change of Control Offer will be required to surrender
the Notes to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day preceding the
Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the Senior Notes delivered
for purchase, and a statement that such holder is withdrawing his
election to have such Senior Notes purchased;
(7) that holders whose Senior Notes are being purchased only in part will
be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered, provided that
each Senior Note purchased and each such new Senior Note issued shall
be in an original principal amount in denominations of $1,000 and
integral multiples thereof; and
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance.
Notwithstanding any other provision of this covenant, in the case of a
notice of a Change of Control Offer that is being furnished by Adelphia with
respect to a proposed Change of Control that has not yet actually occurred,
the Company may specify in such notice that holders of the Senior Notes shall
be required to notify Adelphia, by a date not later than the date (the
"Proposed Change of Control Response Date") which is 30 days
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from the date of such notice, as to whether such holders will tender their
Senior Notes for payment pursuant to the Change of Control Offer and to notify
Adelphia of the principal amount of such Senior Notes to be so tendered (with
the failure of any holder to so notify Adelphia within such 30-day period to
be deemed an election of such holder not to accept such Change of Control
Offer). In such event, Adelphia shall have the option, to be exercised by a
subsequent written notice to be sent, no later than 15 days after the Proposed
Change of Control Response Date, to the same Persons to whom the original
notice of the Change of Control Offer was sent, to cancel or otherwise effect
the termination of the proposed Change of Control and to rescind the related
Change of Control Offer, in which case the then outstanding Change of Control
Offer shall be deemed to be null and void and of no further effect.
On the Change of Control Payment Date, Adelphia shall (a) accept for payment
Senior Notes or portions thereof tendered pursuant to the Change of Control
Offer, (b) deposit with the Paying Agent money sufficient to pay the purchase
price of all Senior Notes or portions thereof so tendered and (c) deliver or
cause to be delivered to the Trustee Senior Notes so accepted together with an
Officers' Certificate stating the Senior Notes or portions thereof tendered to
Adelphia. The Paying Agent shall promptly mail to each holder of Senior Notes
so accepted payment in an amount equal to the purchase price for such Senior
Notes, and the Trustee shall promptly authenticate and mail to such holder a
new Senior Note equal in principal amount to any unpurchased portion of the
Senior Notes surrendered; provided that each such new Senior Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
There shall be no purchase of any Senior Notes pursuant to this covenant if
there has occurred (prior to, on or after, as the case may be, the tender of
such Senior Notes pursuant to the Change of Control Offer, by the holders of
such Senior Notes) and is continuing an Event of Default. The Paying Agent
will promptly return to the respective holders thereof any Senior Notes (a)
the tender of which has been withdrawn in compliance with the Indenture or (b)
held by it during the continuance of an Event of Default (other than a default
in the payment of the Change of Control Purchase Price with respect to such
Senior Notes).
Because a "Change of Control" for purposes of this covenant is defined in
terms of "beneficial ownership" (as defined in Rule 13d-3 under the Exchange
Act) of voting power, there may be circumstances in which the Rigas Family
could beneficially own (for purposes of Rule 13d-3) more than 35% of the
outstanding voting Capital Stock of Adelphia through options, warrants or
other purchase rights while directly holding 35% or less of the total voting
power required to elect or designate for election a majority of Adelphia's
Board of Directors, without a Change of Control Triggering Event occurring.
Further, a change in the composition of the Board of Directors of Adelphia
could occur without the occurrence of a Change of Control Triggering Event if
either the election or the nomination of the new directors was approved by
two-thirds of the continuing directors or by the Rigas Family and its
Affiliates. See "Certain Definitions--Change of Control."
The indentures for the 12 1/2% Notes, the 10 1/4% Notes, the 9 1/2% Notes,
the 11 7/8% Debentures and the 9 7/8% Debentures, which together represent
outstanding indebtedness in the aggregate principal amount of approximately
$941,000,000 as of December 31, 1996, provide that Adelphia must make an offer
to purchase such Notes and Debentures, respectively, at a purchase price equal
to 100% of the principal amount thereof, plus any accrued but unpaid interest
thereon, in the event of circumstances identical to those which trigger a
Change of Control Offer under this covenant. In addition, the credit
agreements of Adelphia's subsidiaries generally contain provisions under which
circumstances that would trigger a Change of Control Offer under this covenant
would constitute an event of default under such credit agreements. In the
event that Adelphia is required to purchase 12 1/2% Notes, the 10 1/4% Notes,
the 9 1/2% Notes, 11 7/8% Debentures, 9 7/8% Debentures the 10 1/4% Notes, the
9 1/2% Notes, and Senior Notes in accordance with such provisions, and the
indebtedness under such subsidiary credit agreements were to be accelerated,
the source of funds for such purchases or payments will be Adelphia's
available cash, cash generated from Adelphia's operating activities, and other
sources including borrowings, asset sales or equity sales. There can be no
assurance that sufficient funds would be available to make any required
repurchases under the Indenture and under the indentures for the 12 1/2%
Notes, the 10 1/4% Notes, the 9 1/2% Notes, the 11 7/8% Debentures 12 1/2% and
the 9 7/8% Debentures or any such required payments under such credit
agreements. Although in the past Adelphia has been able to both refinance its
indebtedness or
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obtain new financing, there can be no assurance that Adelphia would be able to
do so under such circumstances or that, if Adelphia were able to do so, the
terms would be favorable to Adelphia. In the event that Adelphia is required
to make a Change of Control Offer, Adelphia will comply with all applicable
tender offer rules including Rule 14e-1 under the Exchange Act, to the extent
applicable.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of the Senior Notes; (ii) default for
30 days in payment of any interest on the Notes; (iii) default by Adelphia in
the observance or performance of any other covenant in the Senior Notes or the
Indenture for 60 days after written notice from the Trustee or the holders of
not less than 25% in aggregate principal amount of the Senior Notes then
outstanding; (iv) failure to pay when due principal, interest or premium
aggregating $10,000,000 or more with respect to any Indebtedness of Adelphia
or any Restricted Subsidiary or the acceleration of any such Indebtedness
which default shall not be cured or waived, or such acceleration shall not be
rescinded or annulled, within ten days after written notice as provided in the
Indenture; (v) any final judgment or judgments for the payment of money in
excess of $10,000,000 shall be rendered against Adelphia or any Restricted
Subsidiary and shall not be discharged for any period of 60 consecutive days
during which a stay of enforcement shall not be in effect; or (vi) certain
events involving bankruptcy, insolvency or reorganization of Adelphia or any
Restricted Subsidiary with liabilities of greater than $10,000,000 under
generally accepted accounting principles as of the date of such bankruptcy,
insolvency or reorganization. The Indenture provides that the Trustee may
withhold notice to the holders of the Senior Notes of any default (except in
payment of principal or interest on the Senior Notes) if the Trustee considers
it to be in the best interest of the holders of the Senior Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Senior Notes
then outstanding may declare to be immediately due and payable the principal
amount of all the Senior Notes then outstanding plus accrued but unpaid
interest to the date of acceleration; provided, however, that after such
acceleration but before a judgment or decree based on acceleration is obtained
by the Trustee, the holders of a majority in aggregate principal amount of
outstanding Senior Notes may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the nonpayment of
accelerated principal or interest, have been cured or waived as provided in
the Indenture. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, such amount with respect
to all of the Senior Notes shall be due and payable immediately without any
declaration or other act on the part of the Trustee or the holders of Senior
Notes.
The holders of a majority in principal amount of the Senior Notes then
outstanding shall have the right to waive any existing default or compliance
with any provision of the Indenture or the Senior Notes and to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee, subject to certain limitations specified in the Indenture.
No holder of any Senior Note will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the outstanding Senior Notes shall have made written
request and offered reasonable indemnity to the Trustee to institute such
proceeding as a trustee, and unless the Trustee shall not have received from
the holders of a majority in aggregate principal amount of the outstanding
Senior Notes a direction inconsistent with such request and shall have failed
to institute such proceeding within 60 days. However, such limitations do not
apply to a suit instituted by a holder of a Senior Note for enforcement of
payment of the principal of or interest on such Senior Note on or after the
respective due dates expressed in such Senior Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides Adelphia may elect either (a) to defease and be
discharged from any and all obligations with respect to the Senior Notes
(except for the obligations to register the transfer or exchange of
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such Senior Notes, to replace temporary or mutilated, destroyed, lost or
stolen Senior Notes, to maintain an office or agency in respect of the Senior
Notes and to hold monies for payment in trust) ("defeasance") or (b) to be
released from its obligations with respect to the Senior Notes under certain
covenants contained in the Indenture and described above under "Covenants"
("covenant defeasance"), upon the deposit with the Trustee (or other
qualifying trustee), in trust for such purpose, of money and/or U.S.
Government Obligations which through the payment of principal and interest in
accordance with their terms will provide money, in an amount sufficient to pay
the principal of and interest on the Senior Notes, on the scheduled due dates
therefor in accordance with the terms of the Indenture. Such a trust may only
be established if, among other things, Adelphia has delivered to the Trustee
an Opinion of Counsel (as specified in the Indenture) to the effect that the
holders of the Senior Notes or persons in their positions will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred. Such
opinion, in the case of defeasance under clause (a) above, must refer to and
be based upon a private ruling of the Internal Revenue Service concerning the
Senior Notes or a ruling of general effect published by the Internal Revenue
Service.
MODIFICATION OF INDENTURE
From time to time, Adelphia and the Trustee may, without the consent of
holders of the Notes, amend the Indenture or the Senior Notes or supplement
the Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, issuing up to
$250,000,000 in aggregate principal amount of additional Senior Notes pursuant
to the Indenture and curing any ambiguity, defect or inconsistency, or making
any other change that does not materially and adversely affect the rights of
any holder. The Indenture contains provisions permitting Adelphia and the
Trustee, with the consent of holders of at least one-half in principal amount
of the outstanding Senior Notes, to modify or supplement the Indenture or the
Senior Notes, except that no such modification shall, without the consent of
each holder affected thereby, (i) reduce the amount of Senior Notes whose
holders must consent to an amendment, supplement, or waiver to the Indenture
or the Senior Notes, (ii) reduce the rate of or change the time for payment of
interest on any Senior Note, (iii) reduce the principal of or change the
stated maturity of any Senior Note, (iv) make any Senior Note payable in money
other than that stated in the Senior Note or change the place of payment from
New York, New York, (v) change the amount or time of any payment required by
the Senior Notes or provide for the redemption of the Senior Notes prior to
maturity, (vi) waive a default on the payment of the principal of, interest
on, or redemption payment with respect to any Senior Note, or (vii) take any
other action otherwise prohibited by the Indenture to be taken without the
consent of each holder affected thereby.
REPORTS TO HOLDERS
So long as Adelphia is subject to the periodic reporting requirements of the
Exchange Act it will continue to furnish the information required thereby to
the Commission and to the holders of the Senior Notes. The Indenture provides
that even if Adelphia is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Senior Notes, it will
nonetheless continue to furnish such information to the Commission (at such
time as it would be required to file such reports under the Exchange Act) and
to the Trustee and the holders of the Senior Notes (within 15 days thereafter
as required by the Indenture) as if it were subject to such periodic reporting
requirements.
COMPLIANCE CERTIFICATE
Adelphia will deliver to the Trustee on or before 105 days after the end of
its fiscal year and on or before 50 days after the end of its second fiscal
quarter in each year an Officer's Certificate stating whether or not the
signers know of any Default or Event of Default that has occurred. If they do,
the certificate will describe the Default or Event of Default and its status.
THE TRUSTEE
Bank of Montreal Trust Company is to be the Trustee under the Indenture and
has been appointed by Adelphia as Registrar and Paying Agent with regard to
the Notes. Bank of Montreal Trust Company also serves
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as Registrar and Paying Agent and Trustee under the indentures with respect to
the 12 1/2% Senior Notes, the 10 1/4% Notes, the 9 1/2% Notes, the 11 7/8%
Debentures and the 9 7/8% Debentures. The Indenture provides that, except
during the continuance of an Event of Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the
existence of an Event of Default, the Trustee will exercise such rights and
powers vested in it under the Indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes will initially be issued in the form of one or more registered
notes in global form (the "New Global Note," and together with the global
notes representing the Old Notes, the "Global Note") or in certificated form.
The New Global Note will be deposited on the Exchange Date with, or on behalf
of, the Depositary and registered in the name of the Global Note Holder. See
"Exchange Offer."
DTC has advised the Company that DTC is a limited-purpose trust company that
was created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The
Participants include securities brokers and dealers (including the Initial
Purchaser), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests and
transfer of ownership interests of each actual purchaser of each security held
by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the
principal amount of the Global Notes and (ii) ownership of such interests in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Notes). Holders
are advised that the laws of some states require that certain persons take
physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such persons will be limited to such extent. Because DTC can act only on
behalf of Participants, which in turn act on behalf of Indirect Participants
and certain banks, the ability of a person having beneficial interests in a
Global Note to pledge such interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such interests.
Payments in respect of the principal of and premium and Liquidated Damages,
if any, and interest on a Global Note registered in the name of DTC or its
nominee will be payable by the Trustee to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the Senior
Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company, the Trustee nor any agent of
the Company or the Trustee has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Notes or
(ii) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants. DTC has advised the Company that
its current practice, upon receipt of any payment in respect of securities
such as the Senior Notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the payment date, in
amounts proportionate to their respective holdings in the principal amount of
beneficial interests in the relevant security as shown on
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the records of DTC unless DTC has reason to believe it will not receive
payment on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Senior Notes will be governed by
standing instructions and customary practices and will be the responsibility
of the Participants or the Indirect Participants and will not be the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Senior Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED SENIOR NOTES
A Global Note is exchangeable for definitive Senior Notes in registered
certificated form if (i) DTC (a) notifies the Company that it is unwilling or
unable to continue as depositary for the Global Note and the Company thereupon
fails to appoint a successor depositary or (b) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Senior Notes in certificated form or (iii) there shall have occurred and be
continuing an Event of Default or any event which after notice or lapse of
time or both would be an Event of Default with respect to the Senior Notes. In
addition, beneficial interests in a Global Note may be exchanged for
certificated Senior Notes upon request but only upon at least 20 days prior
written notice given to the Trustee by or on behalf of DTC in accordance with
its customary procedures. In all cases, certificated Senior Notes delivered in
exchange for any Global Note or beneficial interests therein will be
registered in the names, and issued in any approved denominations, requested
by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend unless the Company
determines otherwise in compliance with applicable law.
EXCHANGE OF CERTIFICATED SENIOR NOTES FOR BOOK ENTRY NOTES
Senior Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the
Trustee a written certificate (in the form provided in the Indenture) to the
effect that such transfer will comply with the appropriate transfer
restrictions applicable to such Senior Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Senior Notes, and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Note Holder or
the Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Senior Notes
represented by the Global Notes (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of
immediately available funds to the accounts specified by the Global Note
custodian. With respect to Senior Notes issued in definitive form, the Company
will make all payments of principal, premium, interest and Liquidated Damages,
if any, by mailing a check to each such Holder's registered address, provided
that all payments with respect to Senior Notes have an aggregate principal
amount of $1,000 or more, the Holders of which have given wire transfer
instructions to the Company at least ten business days prior to the applicable
payment date, will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof. See "--
Principal, Maturity and Interest." The Senior Notes represented by the Global
Notes are expected to be eligible to trade in DTC's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such notes
will, therefore, be required by DTC to be settled in immediately available
funds. The Company expects that secondary trading in the Certificated Notes
also will be settled in immediately available funds.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of the Old Notes for the New Notes,
but does not purport to be a complete analysis of all potential tax effects.
The discussion is based upon the United States Internal Revenue Code of 1986,
as amended, (the "Code"), Treasury Regulations, Internal Revenue Service
("IRS") rulings and pronouncements and judicial decisions now in effect, all
of which are subject to change at any time by legislative, judicial or
administrative action. Any such changes may be applied retroactively in a
manner that could adversely affect a holder of the New Notes. The following
discussion assumes that holders hold the Old Notes and the New Notes as
capital assets within the meaning of Section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to the positions of the Company discussed below. There can be no
assurance that the IRS will not take a different position concerning the tax
consequences of the exchange of the Old Notes for the New Notes or that any
such position would not be sustained.
The tax treatment of a holder may vary depending on his or its particular
situation or status. This summary does not address the tax consequences to
taxpayers who are subject to special rules such as insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign entities
and individuals, persons holding Old Notes or New Notes as a part of a hedging
or conversion transaction or a straddle and holders whose "functional
currency" is not the U.S. dollar, or aspects of federal income taxation that
may be relevant to a prospective investor based upon such investor's
particular tax situation. In addition, the description does not consider the
effect of any applicable foreign, state, local or other tax laws.
EACH HOLDER SHOULD CONSULT HIS OR ITS OWN TAX ADVISER AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OR IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE
The exchange of the New Notes for Old Notes should not constitute a
recognition event for federal income tax purposes. Consequently, no gain or
loss should be recognized by holders upon receipt of the New Notes. For
purposes of determining gain or loss upon the subsequent exchange of New
Notes, a holder's basis in the New Notes will be the same as a holder's basis
in the Old Notes exchanged therefor. Holders should be considered to have held
the New Notes from the time of their original acquisition of the Old Notes. As
used herein, the term "Senior Note" refers to both an Old Note and a New Note
received in exchange therefor.
INTEREST ON THE NEW NOTES
A holder of a New Note will be required to report as income for federal
income tax purposes interest earned on a New Note in accordance with the
holder's method of tax accounting. A holder of a New Note using the accrual
method of accounting for tax purposes is, as a general rule, required to
include interest in ordinary income as such interest accrues. A cash basis
holder must include interest in income when cash payments are received by (or
made available to) such holder.
MARKET DISCOUNT
If a holder acquired an Old Note at a market discount (i.e., at a price less
than the stated redemption price at maturity of the Old Note), the Old Note is
subject to the market discount rules of the Code unless the market discount is
de minimis. Market discount is de minimis if it is less than one quarter of
one percent of the principal amount of the Old Note multiplied by the number
of complete years to maturity after the holder acquired the Old Note. If the
holder exchanges an Old Note that has more than de minimis market discount for
a New Note, the New Note also will be subject to the market discount rules of
the Code. New Notes purchased by a
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subsequent purchaser also will be subject to the market discount rules if the
New Notes are purchased with more than a de minimis amount of market discount.
Notes that have more than de minimis market discount are herein referred to as
"Market Discount Notes."
Any gain recognized on the maturity or disposition of a Market Discount Note
will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on the Market Discount Note. Alternatively,
a holder may elect to include market discount in income currently over the
life of the Market Discount Note. Such an election shall apply to all debt
instruments with market discount acquired by the holder on or after the first
day of the first taxable year to which the election applies. This election may
not be revoked without the consent of the IRS.
Market discount will accrue on a straight-line basis unless the holder
elects to accrue market discount on a constant yield to maturity basis. Such
an election shall apply only to the Market Discount Note with respect to which
it is made and may not be revoked without the consent of the IRS. A holder who
does not elect to include market discount in income currently generally will
be required to defer deductions for interest on borrowings allocable to a
Market Discount Note in an amount not exceeding the accrued market discount on
the Market Discount Note until the maturity or disposition of the Market
Discount Note.
AMORTIZABLE BOND PREMIUM
A holder that purchased an Old Note for an amount in excess of its principal
amount may elect to treat such excess as "amortizable bond premium," in which
case the amount required to be included in the holder's income each year with
respect to interest on the Old Note will be reduced by the amount of
amortizable bond premium allocable (based on the yield to maturity of the Old
Note) to such year. If a holder made an election to amortize bond premium with
respect to an Old Note and exchanges the Old Note for a New Note pursuant to
the Exchange Offer, the election will apply to the New Note. A holder who
exchanges an Old Note for which an election has not been made for a New Note,
and a subsequent purchaser of a New Note, may also elect to amortize bond
premium if the holder acquired the Note for an amount in excess of its
principal amount. Any election to amortize bond premium shall apply to all
bonds (other than bonds the interest on which is excludable from gross income)
held by the holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the holder, and is irrevocable
without the consent of the IRS.
DISPOSITION OF THE NOTES
Subject to the market discount rules discussed above, a holder of Senior
Notes will recognize gain or loss upon the sale, redemption, retirement or
other disposition of such securities equal to the difference between (i) the
amount of cash and the fair market value of the property received (except to
the extent attributable to the payment of accrued interest) and (ii) the
holder's adjusted tax basis in the securities. Gain or loss recognized will be
capital gain or loss provided the Notes are held as capital assets by the
holder, and will be long-term capital gain or loss if the holder has held such
securities (or is treated as having held such securities) for more than one
year.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Holders of the Senior Notes may be subject to backup withholding at a rate
of 31% with respect to interest paid on the Senior Notes unless such holder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the requirements of the backup
withholding rules.
The Company will report to the holders of the Senior Notes and the IRS the
amount of any "reportable payment" for each calendar year and amount of tax
withheld, if any, with respect to payments on the Senior Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER
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SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT
OF THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF THE SENIOR NOTES (INCLUDING
THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS).
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes
acquired as a result of market-making activities or other trading activities.
The Company has agreed that it will make this Prospectus available to any
broker-dealer for use in connection with any such resale for a period of 365
days after the Expiration Date or until all participating broker-dealers have
so resold.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concession from any
such broker-dealer and/or the purchasers of any New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant
to the Exchange Offer and any broker-dealer that participates in a
distribution of New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of New Notes and
any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The Company has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer, and
to the best of the Company's information and belief, each person participating
in the Exchange Offer is acquiring the New Notes in its ordinary course of
business and has no arrangement or understanding with any person to
participate in the distribution of the New Notes to be received in the
Exchange Offer.
LEGAL MATTERS
The validity of the New Notes will be passed upon on behalf of the Company
by Buchanan Ingersoll Professional Corporation, Pittsburgh, Pennsylvania.
EXPERTS
The consolidated financial statements of Adelphia and its subsidiaries as of
March 31, 1995 and 1996, and for each of the three years in the period ended
March 31, 1996, and the consolidated financial statements of Olympus
Communications, L.P. and its subsidiaries as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996 included
in this Prospectus and the related financial statement schedules of Adelphia
and its subsidiaries included elsewhere in the registration statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement,
and have been so included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets, March 31, 1995 and 1996 and unaudited
December 31, 1996........................................................ F-3
Consolidated Statements of Operations, Years Ended March 31, 1994, 1995
and 1996, and unaudited Nine Months Ended December 31, 1995 and 1996..... F-4
Consolidated Statements of Stockholders' Equity (Deficiency), Years Ended
March 31, 1994, 1995 and 1996, and unaudited Nine Months Ended December
31, 1996................................................................. F-5
Consolidated Statements of Cash Flows, Years Ended March 31, 1994, 1995
and 1996, and unaudited Nine Months Ended December 31, 1995 and 1996..... F-6
Notes to Consolidated Financial Statements................................ F-7
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
Independent Auditors' Report.............................................. F-25
Consolidated Balance Sheets, December 31, 1995 and 1996................... F-26
Consolidated Statements of Operations, Years Ended December 31, 1994,
1995, and 1996........................................................... F-27
Consolidated Statements of Partners' Equity (Deficiency), Years Ended
December 31, 1994, 1995 and 1996......................................... F-28
Consolidated Statements of Cash Flows, Years Ended December 31, 1994, 1995
and 1996................................................................. F-29
Notes to Consolidated Financial Statements................................ F-30
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
Adelphia Communications Corporation:
We have audited the accompanying consolidated balance sheets of Adelphia
Communications Corporation and subsidiaries as of March 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for each of the three years in the period ended
March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Adelphia Communications
Corporation and subsidiaries at March 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended March 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the consolidated financial statements, effective
April 1, 1993, the Company changed its method of accounting for income taxes.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 28, 1996
F-2
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
---------------------- DECEMBER 31,
1995 1996 1996
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cable television systems, at cost, net of
accumulated depreciation and
amortization:
Property, plant and equipment........... $ 518,405 $ 560,376 $ 636,077
Intangible assets....................... 546,116 568,898 642,348
---------- ---------- ----------
Total................................. 1,064,521 1,129,274 1,278,425
Cash and cash equivalents................. 5,045 10,809 105,652
Investments............................... 48,968 68,147 95,774
Preferred equity investment in Managed
Partnership.............................. 18,338 18,338 18,338
Subscriber receivables--net............... 20,433 23,803 30,345
Prepaid expenses and other assets--net.... 48,352 52,658 70,821
Related party receivables--net............ 49,691 64,550 28,789
---------- ---------- ----------
Total................................. $1,255,348 $1,367,579 $1,628,144
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY):
Notes payable of subsidiaries to banks and
institutions............................. $1,086,350 $1,224,675 $1,347,162
12 1/2% Senior Notes due 2002............. 400,000 400,000 400,000
10 1/4% Senior Notes due 2000............. 99,011 99,158 99,280
11 7/8% Senior Debentures due 2004........ 124,470 124,502 124,529
9 7/8% Senior Debentures due 2005......... 127,994 128,118 128,219
9 1/2% Senior Pay-In-Kind Notes due 2004.. 164,370 180,357 188,923
13% Senior Discount Notes of Unrestricted
Subsidiary due 2003...................... -- -- 180,828
Other debt................................ 19,415 18,663 19,178
Accounts payable.......................... 42,872 66,668 84,861
Subscriber advance payments and deposits.. 16,494 14,706 15,158
Accrued interest and other liabilities.... 87,751 99,106 110,696
Deferred income taxes..................... 110,139 106,209 106,026
---------- ---------- ----------
Total liabilities..................... 2,278,866 2,462,162 2,804,860
---------- ---------- ----------
Commitments and contingencies (Note 4)
Cumulative equity in loss (less than) in
excess of investment
in and amounts due from Olympus.......... (11,943) 33,656 41,661
---------- ---------- ----------
Stockholders' equity (deficiency):
Class A Common Stock, $.01 par value,
50,000,000 (1995) and 200,000,000 (1996)
shares authorized, respectively;
14,906,691 (1995) and 15,364,009 (1996)
shares outstanding, respectively........ 149 154 154
Class B Common Stock, $.01 par value,
25,000,000 shares authorized and
10,944,476 shares outstanding........... 109 109 109
Additional paid-in capital............... 211,190 214,415 214,415
Accumulated deficit...................... (1,223,023) (1,342,917) (1,433,055)
---------- ---------- ----------
Total stockholders' equity
(deficiency)......................... (1,011,575) (1,128,239) (1,218,377)
---------- ---------- ----------
Total................................. $1,255,348 $1,333,923 $1,628,144
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 319,045 $ 361,505 $ 403,597 $ 296,460 $ 350,575
--------- --------- --------- --------- ---------
Operating expenses:
Direct operating and
programming.......... 90,547 106,993 124,116 90,218 108,466
Selling, general and
administrative....... 52,801 63,487 68,357 50,961 61,132
Depreciation and
amortization......... 89,402 97,602 111,031 79,468 89,552
Rate regulation....... -- -- 5,300 -- --
--------- --------- --------- --------- ---------
Total................ 232,750 268,082 308,804 220,647 259,150
--------- --------- --------- --------- ---------
Operating income........ 86,295 93,423 94,793 75,813 91,425
--------- --------- --------- --------- ---------
Other income (expense):
Interest income from
affiliates........... 9,188 11,112 10,623 8,875 6,310
Other income.......... (299) 1,453 -- -- --
Priority investment
income from Olympus.. 22,300 22,300 28,852 18,725 30,632
Interest expense...... (182,136) (195,698) (210,691) (159,159) (180,764)
Equity in loss of
joint ventures....... (30,054) (44,349) (46,257) (31,319) (44,131)
Gain on sale of
investment........... -- -- -- -- 8,405
--------- --------- --------- --------- ---------
Total................ (181,001) (205,182) (217,473) (162,878) (179,548)
--------- --------- --------- --------- ---------
Loss before income
taxes, extraordinary
loss and
cumulative effect of
change in accounting
principle.............. (94,706) (111,759) (122,680) (87,065) (88,123)
Income tax (expense)
benefit................ (2,742) 5,475 2,786 2,366 64
--------- --------- --------- --------- ---------
Loss before
extraordinary loss and
cumulative effect of
change in accounting
principle.............. (97,448) (106,284) (119,894) (84,699) (88,059)
Extraordinary loss on
early retirement of
debt................... (752) -- -- -- (2,079)
Cumulative effect of
change in accounting
for
income taxes........... (89,660) -- -- -- --
--------- --------- --------- --------- ---------
Net loss................ $(187,860) $(106,284) $(119,894) $ (84,699) $ (90,138)
========= ========= ========= ========= =========
Loss per weighted
average share of common
stock before
extraordinary loss and
cumulative effect of
change in accounting
principle.............. $ (5.66) $ (4.32) $ (4.56) $ (3.22) $ (3.35)
Extraordinary loss per
weighted average share
on early retirement of
debt................... (0.04) -- -- -- (0.08)
Cumulative effect per
weighted average share
of change in accounting
for income taxes....... (5.21) -- -- -- --
--------- --------- --------- --------- ---------
Net loss per weighted
average share of common
stock.................. $ (10.91) $ (4.32) $ (4.56) $ (3.22) $ (3.43)
========= ========= ========= ========= =========
Weighted average shares
of common stock
outstanding
(in thousands)......... 17,221 24,628 26,305 26,303 26,308
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL STOCKHOLDERS'
COMMON COMMON PAID-IN ACCUMULATED EQUITY
STOCK STOCK CAPITAL DEFICIT (DEFICIENCY)
------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1993. $ 44 $109 $ 60,112 $ (928,879) $ (868,614)
Issuance of Class A
Common Stock
on January 14, 1994.... 91 -- 155,872 -- 155,963
Excess of purchase price
of acquired assets over
predecessor owners'
book value............. -- -- (17,553) -- (17,553)
Net loss................ -- -- -- (187,860) (187,860)
---- ---- -------- ----------- -----------
Balance, March 31, 1994. 135 109 198,431 (1,116,739) (918,064)
Issuance of Class A
Common Stock
on January 10, 1995.... 4 -- 3,588 -- 3,592
Issuance of Class A
Common Stock
on February 28, 1995... 10 -- 14,851 -- 14,861
Excess of purchase price
of acquired assets over
predecessor owners'
book value............. -- -- (5,680) -- (5,680)
Net loss................ -- -- -- (106,284) (106,284)
---- ---- -------- ----------- -----------
Balance, March 31, 1995. 149 109 211,190 (1,223,023) (1,011,575)
Issuance of Class A
Common Stock
on April 3, 1995....... 5 -- 4,995 -- 5,000
Excess of purchase price
of acquired assets over
predecessor owners'
book value............. -- -- (1,770) -- (1,770)
Net loss................ -- -- -- (119,894) (119,894)
---- ---- -------- ----------- -----------
Balance, March 31, 1996. 154 109 214,415 (1,342,917) (1,128,239)
Net loss (unaudited).... -- -- -- (90,138) (90,138)
---- ---- -------- ----------- -----------
Balance, December 31,
1996 (unaudited)....... $154 $109 $214,415 $(1,433,055) $(1,218,377)
==== ==== ======== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(187,860) $(106,284) $(119,894) $ (84,699) $ (90,138)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depreciation.......... 56,370 66,064 70,890 50,812 55,618
Amortization.......... 33,032 31,538 40,141 28,656 33,934
Noncash interest
expense.............. 1,680 14,756 16,288 8,032 25,938
Equity in loss of
joint ventures....... 30,054 44,349 46,257 31,319 44,131
Rate regulation....... -- -- 2,700 -- --
Gain on sale of
investment........... -- -- -- -- (8,405)
Extraordinary loss on
debt retirement...... 752 -- -- -- 2,079
Loss on disposal of
property............. 1,051 -- -- -- --
Cumulative effect of
change in accounting
for
income taxes......... 89,660 -- -- -- --
Increase (decrease) in
deferred income
taxes, net of effects
of acquisitions...... 2,061 (5,975) (3,930) (3,544) (183)
Changes in operating
assets and
liabilities, net of
effects of
acquisitions and
divestitures:
Subscriber
receivables......... (155) (478) (3,370) (7,061) (6,466)
Prepaid expenses and
other assets........ (16,288) (21,152) (14,465) (21,187) (12,879)
Accounts payable..... 5,871 14,789 23,796 30,279 18,116
Subscriber advance
payments and
deposits............ (1,134) 699 (1,788) (3,041) 452
Accrued interest and
other liabilities... 11,858 10,630 7,662 3,803 (1,191)
--------- --------- --------- --------- ---------
Net cash provided by
operating activities... 26,952 48,936 64,287 33,369 61,006
--------- --------- --------- --------- ---------
Cash flows from
investing activities:
Cable television
systems acquired...... (21,681) (70,256) (60,804) (17,846) (136,370)
Expenditures for
property, plant and
equipment............. (75,894) (92,082) (100,089) (72,445) (86,415)
Investments in other
joint ventures........ (8,890) (38,891) (24,333) (13,785) (36,750)
Preferred equity
investment in Managed
Partnership........... (18,338) -- -- -- --
Amounts invested in and
advanced (to) from
Olympus and related
parties............... (45,285) (46,046) (4,236) (27,360) 4,568
Alternate access rights
acquired.............. (27,000) -- -- -- --
Proceeds from sale of
investment............ -- -- -- -- 11,618
--------- --------- --------- --------- ---------
Net cash used for
investing activities... (197,088) (247,275) (189,462) (131,436) (243,349)
--------- --------- --------- --------- ---------
Cash flows from
financing activities:
Proceeds from debt..... 744,770 155,314 273,508 226,469 903,865
Repayments of debt..... (690,232) (38,107) (138,694) (110,645) (622,358)
Costs associated with
debt financing........ (4,961) (2,759) (3,875) -- (15,408)
Issuance of Class A
Common Stock.......... 155,963 14,861 -- -- --
Proceeds from
subsidiary's issuance
of warrants........... -- -- -- -- 11,087
--------- --------- --------- --------- ---------
Net cash provided by
financing activities... 205,540 129,309 130,939 115,824 277,186
--------- --------- --------- --------- ---------
Increase (decrease) in
cash and cash
equivalents............ 35,404 (69,030) 5,764 17,757 94,843
Cash and cash
equivalents, beginning
of period.............. 38,671 74,075 5,045 5,045 10,809
--------- --------- --------- --------- ---------
Cash and cash
equivalents, end of
period................. $ 74,075 $ 5,045 $ 10,809 $ 22,802 $ 105,652
========= ========= ========= ========= =========
Supplemental disclosure
of cash flow activity--
Cash payments for
interest.............. $ 178,840 $ 193,206 $ 198,369 $ 147,111 $ 152,384
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company and Basis for Consolidation
Adelphia Communications Corporation and subsidiaries ("Adelphia") owns,
operates and manages cable television systems and other related
telecommunications businesses. Adelphia's operations consist primarily of
selling video programming which is distributed to subscribers for a monthly
fee through a network of fiber optic and coaxial cables. These services are
offered in the respective franchise areas under the name Adelphia Cable
Communications.
The consolidated financial statements include the accounts of Adelphia and
its more than 50% owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
During the years ended March 31, 1995 and 1996, Adelphia consummated several
acquisitions, each of which was accounted for using the purchase method.
Accordingly, the financial results of each acquisition have been included in
the consolidated results of Adelphia effective with the date acquired. A
description of the acquisitions is provided below.
On June 16, 1994, Adelphia invested $34,000 in TMC Holdings Corporation
("THC"), the parent of Tele-Media Company of Western Connecticut. THC owns
cable television systems which, at the acquisition date, served approximately
43,000 subscribers in western Connecticut. The investment in THC provides
Adelphia with a $30,000 preferred equity interest in THC and a 75% non-voting
common equity interest, with a liquidation preference to the remaining 25%
common stock ownership interest in THC. Adelphia has the right to convert such
interest to a 75% voting common equity interest, with a liquidation preference
to the remaining shareholders' 25% common stock ownership interest, on demand
subject to certain regulatory approvals. Debt assumed, included in notes
payable of subsidiaries to banks and institutions, was $52,000 at closing.
On June 30, 1994, Adelphia acquired from Olympus 85% of the common stock of
Northeast Cable, Inc. ("Northeast") for a purchase price of $31,875. Northeast
owns cable television systems which, at the acquisition date, served
approximately 36,500 subscribers in eastern Pennsylvania. Of the purchase
price, $16,000 was paid in cash and the remainder resulted in a decrease in
Adelphia's receivable from Olympus. Debt assumed, included in notes payable of
subsidiaries to banks and institutions, was $42,300 at closing.
On January 10, 1995, Adelphia issued 399,087 shares of Class A Common Stock
in connection with the merger of a wholly-owned subsidiary of Adelphia into
Oxford Cablevision, Inc. ("Oxford"), one of the Terry Family cable systems. At
the acquisition date, Oxford served approximately 4,200 subscribers located in
the North Carolina counties of Granville and Warren.
On January 31, 1995, Adelphia acquired a majority equity position in Tele-
Media Company of Martha's Vineyard, L.P. for $11,775, a cable system which, at
the acquisition date, served approximately 7,000 subscribers located in
Martha's Vineyard, Massachusetts.
On April 12, 1995, Adelphia acquired cable systems from Clear Channels Cable
TV Company located in Kittanning, New Bethlehem and Freeport, Pennsylvania,
for $17,456. These systems served approximately 10,700 subscribers at the date
of acquisition.
On January 9, 1996, Adelphia completed the acquisition of the cable systems
of Eastern Telecom Corporation and Robinson Cable TV, Inc. These systems
served approximately 24,000 subscribers at the acquisition date located in
western Pennsylvania and were purchased for an aggregate price of $43,000.
F-7
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Investment in Olympus Joint Venture Partnership
The investment in the Olympus joint venture partnership comprises both
limited and general partner interests. The general partner interest represents
a 50% voting interest in Olympus Communications, L.P. ("Olympus") and is being
accounted for using the equity method. Under this method, Adelphia's
investment, initially recorded at the historical cost of contributed property,
is adjusted for subsequent capital contributions and its share of the losses
of the partnership as well as its share of the accretion requirements of the
partnership's interests. The limited partner interest represents a preferred
interest ("PLP interests") entitled to a 16.5% annual return.
The PLP interests are nonvoting, are senior to claims of certain other
partner interests, and provide for an annual priority return of 16.5%. Olympus
is not required to pay the entire 16.5% return currently and priority return
on PLP interests is recognized as income by Adelphia when received.
Correspondingly, equity in net loss of Olympus excludes accumulated unpaid
priority return (see Note 2).
Subscriber Revenues
Subscriber revenues are recorded in the month the service is provided.
Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1995 1996 1996
--------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Operating plant and equipment............ $ 786,917 $ 863,957 $ 946,866
Real estate and improvements............. 46,453 51,147 57,262
Support equipment........................ 28,242 30,076 31,530
Construction in progress................. 77,026 105,158 146,593
--------- ---------- ---------
938,638 1,050,338 1,182,251
Accumulated depreciation................. (420,233) (489,962) (546,174)
--------- ---------- ---------
$ 518,405 $ 560,376 $ 636,077
========= ========== =========
</TABLE>
Depreciation is computed on the straight-line method using estimated useful
lives of 5 to 12 years for operating plant and equipment and 3 to 20 years for
support equipment and buildings. Additions to property, plant and equipment
are recorded at cost which includes amounts for material, applicable labor and
overhead, and interest. Capitalized interest amounted to $1,345, $1,736 and
$1,766 for the years ended March 31, 1994, 1995 and 1996, respectively.
Intangible Assets
Intangible assets, net of accumulated amortization, are comprised of the
following:
<TABLE>
<CAPTION>
MARCH 31,
----------------- DECEMBER 31,
1995 1996 1996
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Purchased franchises.......................... $493,249 $465,983 $481,170
Goodwill...................................... 38,805 58,377 66,705
Non-compete agreements........................ 13,495 11,240 14,641
Purchased subscriber lists.................... 567 33,298 79,832
-------- -------- --------
$546,116 $568,898 $642,348
======== ======== ========
</TABLE>
F-8
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
A portion of the aggregate purchase price of cable television systems
acquired has been allocated to purchased franchises, purchased subscriber
lists, goodwill and non-compete agreements. Purchased franchises and goodwill
are amortized on the straight-line method over 40 years. Purchased subscriber
lists are amortized on the straight-line method over periods which range from
5 to 10 years. Non-compete agreements are amortized on the straight-line
method over their contractual lives which range from 4 to 12 years.
Accumulated amortization of intangible assets amounted to $107,914, $137,012
and $162,127 at March 31, 1995 and 1996 and December 31, 1996, respectively.
Cash and Cash Equivalents
Adelphia considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Interest on liquid investments
was $2,020, $1,230 and $1,859 for the years ended March 31, 1994, 1995, and
1996, respectively.
Investments
The equity method of accounting is generally used to account for investments
in affiliates which are greater than 20% but not more than 50% owned. Under
this method, Adelphia's initial investment is recorded at cost and
subsequently adjusted for the amount of its equity in the net income or losses
of its affiliates. Dividends or other distributions are recorded as a
reduction of Adelphia's investment. Investments in affiliates accounted for
using the equity method generally reflect Adelphia's equity in their
underlying assets.
Investments in entities in which Adelphia's ownership is less than 20% and
investments greater than 20% in which Adelphia does not influence the
operating or financial decisions of the entity are generally accounted for
using the cost method. Under the cost method, Adelphia's initial investment is
recorded at cost and subsequently adjusted for the amount of its equity in net
income or losses of the investee only to the extent distributed by the
investee as dividends or other distributions. Dividends received in excess of
earnings subsequent to the date the investment was made are recorded as
reductions of the cost of the investment.
Adelphia's nonconsolidated investments are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Investments accounted for using the equity
method:
Gross investment:
CLEC ventures............................ $15,764 $28,754 $47,748
Page Call, Inc........................... 6,915 11,187 14,176
Other.................................... 2,847 800 1,451
Cumulative equity in net losses........... (1,458) (6,814) (9,901)
------- ------- -------
Total.................................. 24,068 33,927 53,474
------- ------- -------
Investments accounted for using the cost
method:
Niagara Frontier Hockey, L.P.............. 15,000 22,681 27,690
Commonwealth Security, Inc................ 4,200 4,200 4,200
SuperCable ALK International.............. 3,000 3,171 3,171
Programming ventures...................... 2,700 2,806 2,920
Mobile communications..................... -- 680 3,559
Other..................................... -- 682 760
------- ------- -------
Total.................................. 24,900 34,220 42,300
------- ------- -------
Total investments......................... $48,968 $68,147 $95,774
======= ======= =======
</TABLE>
F-9
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
On April 12, 1994, Adelphia purchased for $15,000 (i) convertible preferred
units in Niagara Frontier Hockey, L.P., (the "Sabres Partnership") which owns
the Buffalo Sabres National Hockey League ("NHL") Franchise, convertible to a
34% equity interest and (ii) warrants allowing Adelphia to increase its
interest to 40%. Adelphia has also committed to advance $12,500 to the Sabres
Partnership in the form of 14% convertible capital funding notes. In
connection with the $12,500 commitment, Adelphia's convertible preferred
units' return has been increased to 14%. During the year ended March 31, 1996,
the Company funded $7,681 of the $12,500 and by April 24, 1996, the entire
$12,500 had been funded. The Sabres Partnership manages and receives
allocations of profits, losses and distributions from the Marine Midland
Arena, a new sports and entertainment facility completed for the opening of
the 1996-1997 NHL season. Adelphia believes this investment will be a
competitive advantage in the Buffalo cable television market.
Subscriber Receivables
An allowance for doubtful accounts of $3,503, $1,216 and $1,239 has been
deducted from subscriber receivables at March 31, 1995 and 1996, and December
31, 1996, respectively. The decrease in the allowance for doubtful accounts as
of March 31, 1996 resulted from a change in procedure for writing off doubtful
accounts. This change had no effect on bad debt expense.
Amortization of Other Assets and Debt Discounts
Deferred debt financing costs, included in prepaid expenses and other
assets, and debt discounts, a reduction of the carrying amount of the debt,
are amortized over the term of the related debt. The unamortized amounts
included in prepaid expenses and other assets were $23,355, $25,274 and
$33,637 at March 31, 1995 and 1996 and December 31, 1996, respectively.
Franchise Expense
The typical term of Adelphia's franchise agreements upon renewal is 10
years. Franchise fees range from 3% to 5% of subscriber revenues and are
expensed currently.
Asset Impairments
Adelphia periodically reviews the carrying value of its long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying value of assets may not be recoverable. Measurement of any impairment
would include a comparison of estimated future operating cash flows
anticipated to be generated during the remaining life of the assets with their
net carrying value. An impairment loss would be recognized as the amount by
which the carrying value of the assets exceeds their fair value.
Noncash Financing and Investing Activities
Capital leases entered into during the year ended March 31, 1994 totaled
$7,186. There were no material capital leases entered into during the years
ended March 31, 1995 and 1996. Reference is made to Notes 1, 2, 5 and 9 for
descriptions of additional non-cash financing and investing activities.
Derivative Financial Instruments
Net settlement amounts under interest rate swap agreements are recorded as
adjustments to interest expense during the period incurred.
F-10
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Information
In the opinion of management, the accompanying unaudited interim financial
information as of December 31, 1996 and for the nine months ended December 31,
1995 and 1996 contains all adjustments, consisting of only normal recurring
accruals necessary for a fair presentation of the data as of such date and for
such periods. This information does not include all footnotes which would be
required for complete financial statements prepared in accordance with
generally accepted accounting principles. The results of operations for the
nine months ended December 31, 1996 are not necessarily indicative of the
results to be expected for the year ending March 31, 1997.
Reclassifications
Certain March 31, 1994, 1995 and 1996 amounts have been reclassified to
conform with the December 31, 1996 presentation.
2. RELATED PARTY INVESTMENTS AND RECEIVABLES:
Related party receivables--net represent advances to Managed Partnerships
(see Note 9), the Rigas family (principal shareholders and officers of
Adelphia) and Rigas family controlled entities. No related party advances are
collateralized.
The following table summarizes the investments in and (receivables) from
Olympus:
<TABLE>
<CAPTION>
MARCH 31,
----------------- DECEMBER 31,
1995 1996 1996
-------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Cumulative equity in loss over investment
in Olympus................................ $ 48,688 $93,563 $96,081
Amounts due from Olympus................... (60,631) (59,907) (54,420)
-------- ------- -------
$(11,943) $33,656 $41,661
======== ======= =======
</TABLE>
On February 28, 1995, ACP Holdings, Inc., a wholly-owned subsidiary of
Adelphia, and the managing general partner of Olympus, certain shareholders of
Adelphia, Olympus and various Telesat Entities ("Telesat"), wholly-owned
subsidiaries of FPL Group, Inc., entered into an investment agreement whereby
Telesat contributed to Olympus substantially all of the assets associated with
certain cable television systems, serving approximately 50,000 subscribers in
southern Florida, in exchange for general and limited partner interests and
newly issued preferred limited partner interests in Olympus. Prior to the
Telesat Investment Agreement, Olympus had obligations to Adelphia for
intercompany advances, preferred limited partner ("PLP") interests, and
priority return on PLP interests. In conjunction with the Telesat Investment
Agreement, Adelphia converted a portion of the intercompany advances, a
portion of the existing PLP interests and all of the existing accrued priority
return on the PLP interests, to capital contributions. At March 31, 1994, 1995
and 1996 and December 31, 1996, Adelphia owned $276,101, $225,000, $222,860
and $258,442 in Olympus PLP Interests, respectively.
F-11
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
On March 28, 1996, ACP, Telesat, Olympus, Adelphia and certain shareholders
of Adelphia entered into an agreement which amended certain aspects of the
Olympus Partnership Agreement. The amendment provides for the repayment of
certain amounts owed to Telesat totaling $20,000, the release of certain
obligations of Telesat to Olympus and the reduction of Telesat's PLP and
accrued priority return balances by $20,000. The amendment further provides
for a $40,000 distribution to Adelphia as a reduction of its PLP interests and
accrued priority return. These repayments and distributions were made on March
29, 1996 and were funded through internally generated funds and advances from
an affiliate.
On March 31, 1994, Adelphia acquired from Olympus the rights to provide
alternate access in its respective franchise areas and an investment in an
unaffiliated partnership for a purchase price of $15,500. The purchase price
of the assets resulted in a corresponding reduction of amounts due Adelphia.
The $15,400 excess of the purchase price over Olympus' book value has been
recorded by Adelphia as an additional investment in Olympus.
The major components of the financial position of Olympus as of March 31,
1995 and 1996, and December 31, 1995 and 1996, and the results of operations
for the three months ended March 31, 1995 and 1996, and the years ended
December 31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Property, plant and equipment--
net........................... $ 181,705 $ 221,381 $ 203,129 $ 225,775
Total assets................... 425,813 625,243 533,909 640,221
Notes payable to banks......... 298,309 514,500 419,000 309,000
10 5/8% Senior Notes due 2006.. -- -- -- 200,000
Total liabilities.............. 411,299 706,239 552,453 724,420
Limited partners' interests.... 337,500 334,290 396,630 407,669
General partners' equity
(deficiency).................. (342,991) (435,291) (415,174) (491,868)
Statement of Operations Data:
Revenues....................... $ 23,920 $ 39,088 $ 120,968 $ 159,870
Operating income............... 3,449 8,265 21,275 33,013
Net loss....................... (5,497) (2,845) (19,391) (10,950)
Net loss of general and limited
partners after priority return
and accretion requirements.... (22,224) (20,067) (82,749) (76,594)
</TABLE>
On October 6, 1993, Adelphia purchased the preferred Class B Limited
Partnership Interest in Syracuse Hilton Head Holdings, L.P. ("SHHH"), a
Managed Partnership, for a price of $18,338 from Robin Media Group, an
unrelated party. SHHH is a joint venture of the Rigas Family and Tele-
Communications, Inc. ("TCI") and owns systems managed by Adelphia. The Class B
Limited Partnership Interest has a preferred return of 14% annually which is
payable on a current basis at the option of SHHH, and is senior in priority to
the partnership interests of the Rigas family and TCI. Preferred return on the
Class B Limited Partner Interest in SHHH totaled $2,654 and $2,645 and is
included in revenues for the years ended March 31, 1995 and 1996,
respectively.
F-12
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In September 1993, the Board of Directors of Adelphia authorized Adelphia to
make loans in the future to the Managed Partnerships up to an amount of
$50,000. During the year ended March 31, 1994, Adelphia made loans in the net
amount of $15,000 to SHHH, to facilitate the acquisition of cable television
systems serving Palm Beach County, Florida from unrelated parties. During
fiscal year 1995, Adelphia sold its investment in TMIP to SHHH for $13,000. On
January 31, 1995, a wholly owned subsidiary of Adelphia received a $20,000
preferred investment from SHHH to facilitate the acquisition of cable
properties from Tele-Media Company of Delaware.
3. DEBT:
Notes Payable of Subsidiaries to Banks and Institutions
Notes payable of subsidiaries to banks and institutions are comprised of the
following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
1995 1996 1996
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Credit agreements with banks payable
through 2004
(weighted average interest rate 8.16%,
7.51% and 7.03% at
March 31, 1995 and 1996, and December
31, 1996, respectively)................. $ 584,250 $ 758,975 $ 991,862
10.66% Senior Secured Notes due 1996
through 1999............................ 250,000 245,000 165,000
9.95% Senior Secured Notes due through
1997.................................... 9,600 3,200 --
10.80% Senior Secured Notes due 1996
through 2000............................ 45,000 36,000 36,000
10.50% Senior Secured Notes due 1997
through 2001............................ 16,000 16,000 12,800
9.73% Senior Secured Notes due 1998
through 2001............................ 37,500 37,500 37,500
10.25% Senior Subordinated Notes due 1996
through 1998............................ 72,000 56,000 32,000
11.85% Senior Subordinated Notes due 1998
through 2000............................ 60,000 60,000 60,000
11.13% Senior Subordinated Notes due 1999
through 2002............................ 12,000 12,000 12,000
---------- ---------- ----------
$1,086,350 $1,224,675 $1,347,162
========== ========== ==========
</TABLE>
The amount of borrowings available to Adelphia under its revolving credit
agreements is generally based upon the subsidiaries achieving certain levels
of operating performance. Adelphia had commitments from banks for additional
borrowings of up to $301,000 at March 31, 1996 (including the effects of the
refinancing and the acquisition of cable operations discussed in Note 11) and
$37,000 at December 31, 1996 which expire through 2004. Adelphia pays
commitment fees of up to .5% of unused principal.
Borrowings under most of these credit arrangements of subsidiaries are
collateralized by a pledge of the stock in their respective subsidiaries, and,
in some cases, by assets. These agreements stipulate, among other things,
limitations on additional borrowings, investments, transactions with
affiliates and other subsidiaries, and the payment of dividends and fees by
the subsidiaries. They also require maintenance of certain financial ratios by
the subsidiaries. Several of the subsidiaries' agreements, along with the
notes of the parent company, contain cross default provisions. At March 31,
1996 approximately $219,000 of the net assets of subsidiaries would be
permitted to be transferred to the parent company in the form of dividends,
priority return and loans without the prior approval of the lenders based upon
the results of operations of such subsidiaries for the quarter ended March 31,
1996. The subsidiaries are permitted to pay management fees to the parent
company or other subsidiaries. Such fees are limited to a percentage of the
subsidiaries' revenues.
F-13
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Bank debt interest rates are based upon one or more of the following rates
at the option of Adelphia: prime rate plus 0% to 1.5%; certificate of deposit
rate plus 1.25% to 2.75%; or LIBOR plus 1% to 2.5%. At March 31, 1995 and
1996, and December 31, 1996, the weighted average interest rate on notes
payable to banks and institutions was 9.33%, 8.36% and 8.25%, respectively. At
December 31, 1996, the rates on 31% of Adelphia's notes payable to banks and
institutions were fixed for at least one year through the terms of the notes
or interest rate swap agreements.
12 1/2% Senior Notes due 2002
On May 14, 1992, Adelphia issued at face value to the public $400,000
aggregate principal amount of unsecured 12 1/2% Senior Notes due May 15, 2002.
Interest is due on the notes semi-annually. The notes, which are effectively
subordinated to all liabilities of the subsidiaries, contain restrictions on,
among other things, the incurrence of indebtedness, mergers and sale of
assets, certain restricted payments by Adelphia, investments in affiliates and
certain other affiliate transactions. The notes further require that Adelphia
maintain a debt to annualized operating cash flow ratio of not greater than
8.75 to 1.00, based on the latest fiscal quarter, exclusive of the incurrence
of $50,000 in additional indebtedness which is not subject to the required
ratio. Adelphia may redeem the notes in whole or in part on or after May 15,
1997, at 106% of principal, declining to 100% of principal on or after May 15,
1999.
10 1/4% Senior Notes due 2000
On July 28, 1993, Adelphia issued $110,000 aggregate principal amount of
unsecured 10 1/4% Senior Notes due July 2000. Interest is due on the notes
semi-annually. The notes which are effectively subordinated to all liabilities
of the subsidiaries, contain restrictions and covenants similar to the
restrictions on the 12 1/2% Senior Notes. The notes are not callable prior to
the maturity date of July 15, 2000. During fiscal 1995, $10,000 of notes were
retired through open market purchases.
11 7/8% Senior Debentures due 2004
On September 10, 1992, Adelphia issued to the public $125,000 aggregate
principal amount of unsecured 11 7/8% Senior Debentures due September 2004.
Interest is due on the debentures semi-annually. The debentures, which are
effectively subordinated to all liabilities of the subsidiaries, contain
restrictions and covenants similar to the restrictions on the 12 1/2% Senior
Notes. Adelphia may redeem the debentures in whole or in part on or after
September 15, 1999, at 104.5% of principal, declining to 100% of principal on
or after September 15, 2002.
9 7/8% Senior Debentures due 2005
On March 11, 1993, Adelphia issued 9 7/8% Senior Debentures due March 2005
in the aggregate principal amount of $130,000. Interest on the debentures is
payable semi-annually. The debentures, which are effectively subordinated to
all liabilities of the subsidiaries, contain restrictions and covenants
similar to the restrictions on the 12 1/2% Senior Notes. The debentures are
not redeemable prior to the maturity date of March 1, 2005.
9 1/2% Senior Pay-In-Kind Notes due 2004
On February 15, 1994, Adelphia issued $150,000 aggregate principal amount of
unsecured 9 1/2% Senior Pay-In-Kind Notes due February 2004. On or prior to
February 1999, all interest on the notes, which is due semi-annually, may at
the option of Adelphia be paid in cash or through the issuance of additional
notes valued at 100% of their principal amount. The notes will bear cash
interest from February 1999 through maturity. The notes which are effectively
subordinate to all liabilities of the subsidiaries contain restrictions and
covenants similar to the 12 1/2% Senior Notes. Adelphia may redeem the notes
in whole or in part on or after February 15, 1999, at 103.56% of principal,
declining to 100% of principal on or after February 15, 2002.
F-14
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13% Senior Subordinated Notes due 1996
On February 14, 1994, Adelphia redeemed all of the 13% Senior Subordinated
Notes for 100% of the $100,000 aggregate principal amount.
Maturities of Debt
Maturities of debt for the four years and three months after December 31,
1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Three months ended March 31, 1997................................... $ 11,785
Year ended March 31, 1998........................................... 177,846
Year ended March 31, 1999........................................... 217,791
Year ended March 31, 2000........................................... 138,269
Year ended March 31, 2001........................................... 251,900
</TABLE>
The maturities of debt listed above have been adjusted to reflect changed
maturity dates resulting from repayment of certain debt during April 1996 from
borrowings under a new credit facility (see Note 11). Management intends to
fund Adelphia's requirements for maturities of debt through borrowings under
new and existing credit arrangements and internally generated funds. Changing
conditions in the financial markets may have an impact on how Adelphia will
refinance its debt in the future.
Interest Rate Swaps and Caps
Adelphia has entered into interest rate swap agreements and interest rate
cap agreements with banks, Olympus and Managed Entities to reduce the impact
of changes in interest rates on its debt. Several of Adelphia's credit
arrangements include provisions which require interest rate protection for a
portion of its debt. Adelphia enters into pay-fixed agreements to effectively
convert a portion of its variable-rate debt to fixed-rate debt to reduce the
risk of incurring higher interest costs due to rising interest rates. Adelphia
enters into receive-fixed agreements to effectively convert a portion of its
fixed-rate debt to a variable-rate debt which is indexed to LIBOR to reduce
the risk of incurring higher interest costs in periods of falling interest
rates. Interest rate cap agreements are used to reduce the impact of increases
in interest rates on variable rate debt. Adelphia is exposed to credit loss in
the event of nonperformance by the banks, by Olympus or by the Managed
Entities. Adelphia does not expect any such nonperformance. The following
table summarizes the notional amounts outstanding and weighted average
interest rate data, based on variable rates in effect at March 31, 1995 and
1996, for all swaps and caps which expire 1996 through 1998.
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Pay Fixed Swaps
Notional amount.......................................... $396,000 $416,000
Average receive rate..................................... 6.19% 5.68%
Average pay rate......................................... 7.50% 7.94%
Receive Fixed Swaps
Notional amount.......................................... $406,000 $108,500
Average receive rate..................................... 6.77% 6.66%
Average pay rate......................................... 6.30% 5.74%
Interest Rate Caps
Notional amount.......................................... -- $50,000
Average cap rate......................................... -- 9.00%
</TABLE>
F-15
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
During fiscal 1996, Adelphia received $11,526 upon termination of several
interest rate swap agreements having a stated notional principal amount of
$270,000. The amount received will be amortized as a reduction of interest
expense through November 1998. At March 31, 1996 and December 31, 1996, the
unamortized balance is $10,027. Also during fiscal 1996, the Company received
$4,900 and assumed the obligations as a counterparty under certain interest
rate swap agreements with Olympus. These interest rate swap agreements have a
notional principal amount of $140,000 and expire through November 1998.
4. COMMITMENTS AND CONTINGENCIES:
Adelphia rents office and studio space, tower sites, and space on utility
poles under leases with terms which are generally less than one year or under
agreements that are generally cancelable on short notice. Total rental expense
under all operating leases aggregated $3,988, $4,356 and $4,687 for the years
ended March 31, 1994, 1995 and 1996, respectively.
In connection with certain obligations under franchise agreements, Adelphia
obtains surety bonds guaranteeing performance to municipalities and public
utilities. Payment is required only in the event of nonperformance. Adelphia
has fulfilled all of its obligations such that no payments under surety bonds
have been required.
During the period July 1, 1993 through July 26, 1996, Adelphia had a program
to self insure for casualty and business interruption insurance. This program
was part of an agreement between Adelphia and each of its subsidiaries in
which Adelphia provided insurance for casualty and business interruption
claims of up to $10,000 and $20,000 per claim, respectively, for each
subsidiary of Adelphia. Effective July 26, 1996, Adelphia is insured by an
outside party for casualty and business interruption.
The cable television industry and Adelphia are subject to extensive
regulation at the federal, state and local levels. Pursuant to the 1992 Cable
Act, which significantly expanded the scope of regulation of certain
subscriber rates and a number of other matters in the cable industry the FCC
has adopted rate regulations that establish, on a system-by-system basis,
maximum allowable rates for (i) basic and cable programming services (other
than programming offered on a per-channel or per-program basis), based upon a
benchmark methodology, and (ii) associated equipment and installation services
based upon cost plus a reasonable profit. Under the FCC rules, franchising
authorities are authorized to regulate rates for basic services and associated
equipment and installation services, and the FCC will regulate rates for
regulated cable programming services in response to complaints filed with the
agency. The original rate regulations became effective on September 1, 1993.
Several amendments to the rate regulations have subsequently been added.
The FCC has adopted regulations implementing all of the requirements of the
1992 Cable Act. The FCC is also likely to continue to modify, clarify or
refine the rate regulations. The Telecommunications Act of 1996 (the "1996
Act") deregulates the rates for cable programming services on March 31, 1999.
Adelphia cannot predict the effect of the 1996 Act on future rulemaking
proceedings or changes to the rate regulations.
Effective September 1, 1993, as a result of the 1992 Cable Act, Adelphia
repackaged certain existing cable services by adjusting rates for basic
service and introducing a new method of offering certain cable services.
Adelphia adjusted the basic service rates and related equipment and
installation rates in all of its systems in order for such rates to be in
compliance with the applicable benchmark or equipment and installation cost
levels. Adelphia also implemented a program in all of its systems called
"CableSelect" under which most of Adelphia's
F-16
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
satellite-delivered programming services were offered individually on a per
channel basis, or as a group at a price of approximately 15% to 20% below the
sum of the per channel prices of all such services. For subscribers who
elected to customize their channel lineup, Adelphia provided, for a monthly
rental fee, an electronic device located on the cable line outside the home,
enabling a subscriber's television to receive only those channels selected by
the subscriber. These basic service rate adjustments and the CableSelect
program were also implemented in all systems managed by Adelphia. Adelphia
believes CableSelect provided increased programming choices to its subscribers
while providing flexibility to Adelphia to respond to future changes in areas
such as customer demand and programming. Adelphia no longer offers the
CableSelect Program in any of its systems.
A letter of inquiry, one of at least 63 sent by the FCC to numerous cable
operators, was received by an Olympus system regarding the implementation of
this new method of offering services. Olympus responded in writing to the
FCC's inquiry. On November 18, 1994, the FCC released amended rules under
which, on a prospective basis, any a la carte package will be treated as a
regulated tier, except for packages involving premium services. Also, on
November 18, 1994, the Cable Services Bureau of the FCC issued a decision
holding that the "CableSelect" program was an evasion of the rate regulations
and ordered this package to be treated as a regulated tier. This decision, and
all other letters of inquiry decisions, were principally decided on the number
of programming services moved from regulated tiers to "a la carte" packages.
Adelphia has appealed this decision to the full Commission which affirmed the
Cable Service Bureau's decision. Adelphia has sought reconsideration of the
decision.
Certain other cable television companies that utilized a la carte packages
have recently reached settlement/resolution with the FCC on this issue.
Adelphia believes that in view of this experience with other operators,
resolution of these differences is possible, consistent with the terms and
conditions of those earlier resolutions. Adelphia has engaged in discussions
with the Cable Services Bureau of the FCC regarding a settlement of all
outstanding rate proceedings involving "a la carte" packages. A proposed
settlement has been made available for public comment by the FCC. Accordingly,
results of operations for the fiscal year ended March 31, 1996 include a
$5,300 charge representing management's estimate of the total costs associated
with the resolution of this matter. Such costs include, (i) an estimate of
credits to be extended to customers in future periods of up to $2,700, (ii)
legal and other costs incurred during the fiscal year ended March 31, 1996,
and (iii) an estimate of legal and other costs to be incurred associated with
the ultimate resolution of this matter. At March 31, 1996 and December 31,
1996, $3,800 and $3,519, respectively, of the charge to earnings remained in
accrued interest and other liabilities. While Adelphia cannot predict the
ultimate outcome or effect of this matter, management of Adelphia does not
expect the ultimate outcome of this matter to have a material adverse effect
on Adelphia's financial position and results of operations. Also, no assurance
can be given as to what other future actions Congress, the FCC or other
regulatory authorities may take or the effects thereof on the Company. The
Company is currently unable to predict the effect that the amended
regulations, future FCC treatment of "a la carte" packages or other future FCC
rulemaking proceedings will have on its business and results of operations in
future periods.
5. STOCKHOLDERS' EQUITY (DEFICIENCY):
Adelphia has no convertible securities or other common stock equivalent
securities outstanding.
Public Offering of Class A Common Stock on January 14, 1994
On January 14, 1994, Adelphia sold 9,132,604 shares of Class A Common Stock.
Of the 9,132,604 shares, 3,300,000 shares were sold to the public at $18.00
per share, with an underwriting discount of $.855 per share.
F-17
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Partnerships controlled by the family of John J. Rigas, President and Chief
Executive Officer of Adelphia, purchased the other 5,832,604 shares at the
public offering price less the underwriting discount. Net proceeds to Adelphia
after offering expenses aggregated $155,963.
Stock Issued During Fiscal 1995
On January 10, 1995, Adelphia issued 399,087 shares of Class A Common Stock
in connection with the acquisition of Oxford (see Note 1). On February 28,
1995, 1,000,000 shares of Class A Common Stock were sold to FPL Group, Inc.
for $15.00 per share.
Stock Issued During Fiscal 1996
On April 3, 1995, Olympus purchased from Adelphia, through a charge to its
receivable balance with Adelphia, 457,300 shares of Adelphia Class A Common
Stock for $5,000. Olympus used the stock in the acquisition of the cable and
security systems of WB Cable Associates, Ltd.
Preferred Stock
The Certificate of Incorporation of Adelphia authorizes 5,000,000 shares of
Preferred Stock, $.01 par value. None have been issued.
Common Stock
The Certificate of Incorporation of Adelphia authorizes two classes of
common stock, Class A and Class B. Holders of Class A Common Stock and Class B
Common Stock vote as a single class on all matters submitted to a vote of the
stockholders, with each share of Class A Common Stock entitled to one vote and
each share of Class B Common Stock entitled to ten votes, except (i) for the
election of directors and (ii) as otherwise provided by law. In the annual
election of directors, the holders of Class A Common Stock voting as a
separate class, are entitled to elect one of Adelphia's directors. In
addition, each share of Class B Common Stock is automatically convertible into
a share of Class A Common Stock upon transfer, subject to certain limited
exceptions. In the event a cash dividend is paid, the holders of Class A
Common Stock will be paid 105% of the amount payable per share for each share
of Class B Common Stock.
Upon liquidation, dissolution or winding up of Adelphia, the holders of
Class A Common Stock are entitled to a preference of $1.00 per share. After
such amount is paid, holders of Class B Common Stock are entitled to receive
$1.00 per share. Any remaining amount would then be shared ratably by both
classes.
Restricted Stock Bonus Plan
Adelphia has reserved 500,000 shares of Class A Common Stock for issuance to
officers and other key employees at the discretion of the Compensation
Committee of the Board of Directors. The bonus shares will be awarded without
any cash payment by the recipient unless otherwise determined by the
Compensation Committee. Shares awarded under the plan vest over a five year
period. No awards have been made under the plan.
Stock Option Plan
Adelphia has a stock option plan, which provides for the granting of options
to purchase up to 200,000 shares of Adelphia's Class A Common Stock to
officers and other key employees of the Company and its
F-18
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
subsidiaries. Options may be granted at an exercise price equal to the fair
market value of the shares on the date of grant. The plan permits the granting
of tax-qualified incentive stock options, in addition to non-qualified stock
options. Options outstanding under the plan may be exercised by paying the
exercise price per share through various alternative settlement methods. No
stock options have been granted under the plan.
6. EMPLOYEE BENEFIT PLANS:
Adelphia has a savings plan (401(k)) which provides that eligible full-time
employees may contribute from 2% to 20% of their pre-tax compensation subject
to certain limitations. Adelphia makes matching contributions not exceeding
1.5% of each participant's pre-tax compensation. Adelphia's matching
contributions amounted to $305, $343 and $350 for the years ended March 31,
1994, 1995 and 1996, respectively.
7. TAXES ON INCOME:
Adelphia and its corporate subsidiaries file a consolidated federal income
tax return, which includes its share of the subsidiary partnerships and joint
venture partnership results. At March 31, 1996, Adelphia had net operating
loss carryforwards for federal income tax purposes of approximately $1.1
billion expiring through 2011. Depreciation and amortization expense differs
for tax and financial statement purposes due to the use of prescribed periods
rather than useful lives for tax purposes and also as a result of differences
between tax basis and book basis of certain acquisitions.
Adelphia adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," effective April 1, 1993. Under SFAS No.
109, deferred tax assets and liabilities are recognized for differences
between the financial statement amounts of assets and liabilities and their
respective tax bases. The cumulative effect of adopting SFAS No. 109 at April
1, 1993 was to increase the net loss by $89,660 for the year ended March 31,
1994. The effect of adopting SFAS No. 109 on loss before extraordinary loss
and cumulative effect of a change in accounting principle was not significant
for the year ended March 31, 1994.
As a result of applying SFAS No. 109, $110,498 of previously unrecorded
deferred tax benefits from operating loss carryforwards incurred by Adelphia
were recognized at April 1, 1993 as part of the cumulative effect of adopting
the statement. Under prior accounting, a portion of these benefits would have
been recognized as a reduction of income tax expense from continuing
operations in the year ended March 31, 1994.
F-19
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The tax effects of significant items comprising Adelphia's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
APRIL 1, MARCH31,
--------- -------------------------------
1993 1994 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Differences between book and
tax basis of property, plant
and equipment and intangible
assets...................... $ 192,444 $ 210,816 $ 232,639 $ 234,312
Other........................ 8,401 9,703 11,783 --
--------- --------- --------- ---------
Subtotal................... 200,845 220,519 244,422 234,312
--------- --------- --------- ---------
Deferred tax assets:
Reserves not currently
deductible.................. 687 15,576 12,326 14,467
Operating loss carryforwards. 307,001 337,924 381,377 415,121
--------- --------- --------- ---------
307,688 353,500 393,703 429,588
Valuation allowance.......... (196,503) (224,702) (259,420) (301,485)
--------- --------- --------- ---------
Subtotal................... 111,185 128,798 134,283 128,103
--------- --------- --------- ---------
Net deferred tax liability... $ 89,660 $ 91,721 $ 110,139 $ 106,209
========= ========= ========= =========
</TABLE>
The net change in the valuation allowance for the years ended March 31, 1995
and 1996 was an increase of $34,718 and $42,065, respectively.
Income tax (expense) benefit for the years ended March 31, 1994, 1995 and
1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
Current............................................. $ (681) $ (500) $(1,144)
Deferred............................................ (2,061) 5,975 3,930
------- ------ -------
Total............................................. $(2,742) $5,475 $ 2,786
======= ====== =======
</TABLE>
A reconciliation of the statutory federal income tax rate and Adelphia's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate............... 35% 35% 35%
Change in valuation allowance................... (30%) (31%) (37%)
State taxes, net of federal benefit............. (2%) 4% (1%)
Other........................................... (6%) (3%) 5%
------ ------ ------
Effective income tax (expense) benefit rate..... (3%) 5% 2%
====== ====== ======
</TABLE>
8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Included in Adelphia's financial instrument portfolio are cash, notes
payable, debentures and interest rate swaps and caps. The carrying values of
notes payable approximate their fair values at March 31, 1995 and 1996. The
carrying cost of the public notes and debentures at March 31, 1995 and 1996 of
$915,845 and $932,135, respectively, exceeded their fair value by $95,628 and
$1,420, respectively. At March 31, 1995 and 1996, Adelphia would have been
required to pay approximately $6,929 and $14,225, respectively, to settle its
interest
F-20
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
rate swap and cap agreements, representing the excess of carrying cost over
fair value of these agreements. The fair values of the debt and interest rate
swaps and caps were based upon quoted market prices of similar instruments or
on rates available to Adelphia for instruments of the same remaining
maturities.
9. RELATED PARTY TRANSACTIONS:
Adelphia currently manages cable television systems which are principally
owned by Olympus and limited partnerships in which certain of Adelphia's
principal shareholders who are executive officers have equity interests (the
"Managed Partnerships").
Adelphia has agreements with Olympus and the Managed Partnerships which
provide for the payment of fees to Adelphia. The aggregate fee revenues from
Olympus and the Managed Partnerships amounted to $2,946, $7,293, $2,700 and
$1,868 for the years ended March 31, 1994, 1995 and 1996 and the nine months
ended December 31, 1996, respectively. In addition, Adelphia was reimbursed by
Olympus and Managed Partnerships for allocated corporate costs of $4,021,
$4,521, $7,517 and $11,760 for the years ended March 31, 1994, 1995 and 1996
and the nine months ended December 31, 1996, respectively, which have been
recorded as a reduction of selling, general and administrative expense.
Adelphia leases from a partnership and a corporation owned by principal
shareholders who are executive officers support equipment under agreements
which have been accounted for as capital leases. These obligations, which are
included in other debt, amounted to $933, $451 and $128 at March 31, 1995 and
1996, and December 31, 1996, respectively. Adelphia also leases from this
partnership certain buildings under operating leases. Rent expense under these
operating leases aggregated $391, $97 and $127 for the years ended March 31,
1994, 1995 and 1996, respectively.
Net settlement amounts under interest rate swap agreements with Olympus and
the Managed Partnerships recorded as adjustments to interest expense during
the period incurred, decreased Adelphia's interest expense by $1,920 and $173
for the years ended March 31, 1994 and 1995, respectively, and increased
interest expense by $826 for the year ended March 31, 1996 and $2,862 for the
nine months ended December 31, 1996.
On March 31, 1994, Adelphia acquired from certain Managed Partnerships the
rights to provide alternate access in their respective franchise areas for a
purchase price of $14,000. Additionally, on March 31, 1994, Adelphia purchased
real property from certain partnerships owned by principal shareholders who
are executive officers for a total of $14,312. The purchase of the assets
resulted in a reduction of amounts due Adelphia of $28,312. Since these asset
purchases are transactions among entities under common control, they have been
recorded by Adelphia based upon the predecessor owners' book value. The
$17,553 excess of the purchase price of these assets over the predecessor
owners' book value has been recorded as a direct charge to Adelphia's
additional paid-in capital.
F-21
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following tables summarize the financial results of Adelphia for each of
the quarters in the years ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
-------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Year ended March 31, 1995:
Revenues...................... $84,020 $90,795 $92,737 $93,953
Operating expenses:
Direct operating and
programming................. 24,896 26,632 27,644 27,821
Selling, general and
administrative.............. 14,693 15,117 16,409 17,268
Depreciation and
amortization................ 21,489 25,267 26,043 24,803
-------- -------- -------- --------
Total...................... 61,078 67,016 70,096 69,892
-------- -------- -------- --------
Operating income............. 22,942 23,779 22,641 24,061
-------- -------- -------- --------
Other income (expense):
Interest income from
affiliates.................. 2,369 2,386 2,912 3,445
Other income................. 593 270 76 514
Priority investment income
from Olympus................ 5,575 5,575 5,575 5,575
Interest expense............. (46,913) (48,412) (49,668) (50,705)
Equity in loss of joint
ventures.................... (12,634) (8,984) (8,744) (13,987)
-------- -------- -------- --------
Total...................... (51,010) (49,165) (49,849) (55,158)
-------- -------- -------- --------
Loss before income taxes...... (28,068) (25,386) (27,208) (31,097)
Income tax (expense) benefit.. (1,223) 1,119 (1,214) 6,793
-------- -------- -------- --------
Net loss...................... $(29,291) $(24,267) $(28,422) $(24,304)
======== ======== ======== ========
Net loss per weighted average
share of common stock........ $ (1.20) $ (0.99) $ (1.16) $ (0.97)
======== ======== ======== ========
Weighted average shares of
common stock outstanding (in
thousands)................... 24,452 24,452 24,452 25,175
======== ======== ======== ========
</TABLE>
F-22
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
-------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Year ended March 31, 1996:
Revenues....................... $ 96,921 $ 97,082 $102,457 $107,137
-------- -------- -------- --------
Operating expenses:
Direct operating and
programming.................. 28,522 29,630 32,066 33,898
Selling, general and
administrative............... 16,870 17,110 16,981 17,396
Depreciation and amortization. 27,624 26,165 25,679 31,563
Rate regulation............... -- -- -- 5,300
-------- -------- -------- --------
Total....................... 73,016 72,905 74,726 88,157
-------- -------- -------- --------
Operating income............... 23,905 24,177 27,731 18,980
-------- -------- -------- --------
Other income (expense):
Interest income from
affiliates................... 3,410 3,378 2,087 1,748
Other income.................. -- -- -- --
Priority investment income
from Olympus 5,575 6,575 6,575 10,127
Interest expense.............. (53,124) (52,754) (53,281) (51,532)
Equity in loss of joint
ventures..................... (11,054) (9,629) (10,636) (14,938)
-------- -------- -------- --------
Total....................... (55,193) (52,430) (55,255) (54,595)
-------- -------- -------- --------
Loss before income taxes....... (31,288) (28,253) (27,524) (35,615)
Income tax benefit............. 1,044 195 1,127 420
-------- -------- -------- --------
Net loss....................... $(30,244) $(28,058) $(26,397) $(35,195)
======== ======== ======== ========
Net loss per weighted average
share of
common stock.................. $ (1.15) $ (1.07) $ (1.00) $ (1.34)
======== ======== ======== ========
Weighted average shares of
common stock outstanding (in
thousands).................... 26,294 26,308 26,308 26,308
======== ======== ======== ========
</TABLE>
11. SUBSEQUENT EVENTS (THROUGH DATE OF INDEPENDENT AUDITORS' REPORT):
On April 1, 1996, Adelphia purchased the cable television operations of
Cable TV Fund 11-B, Ltd. This CATV system was acquired for $84,267 and served
approximately 39,700 subscribers at the acquisition date in the New York
counties of Erie and Niagara. The acquisition was financed through a
combination of debt proceeds from a $200,000 credit facility in which an
Adelphia subsidiary is a co-borrower with an affiliated entity and funds
received through the repayment of amounts previously advanced to related
entities. These amounts may be reborrowed by the related entities in future
periods. The acquisition has been accounted for using the purchase method.
Accordingly, the financial results of the acquired operations have been
included in the consolidated results of Adelphia effective from the date
acquired.
On April 12, 1996, certain subsidiaries of the Company (collectively, the
"Borrowers") entered into a $690,000 financing arrangement consisting of a
$540,000 revolving credit facility maturing December 31, 2003 and a $150,000
term loan facility maturing December 31, 2004. Initial borrowings during April
1996 of $483,000 were used primarily to repay existing indebtedness. Interest
rates charged are based upon one or more of the following rates at the option
of the Borrowers: Eurodollar rate or the greater of the prime rate and the
Federal funds rate plus 1/2 of 1% plus a margin of from 0% to 2% depending
upon the Borrower's senior funded debt
F-23
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS TO THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS
UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ratio. Interest on outstanding borrowings is generally payable on a quarterly
basis. The maximum available under the revolving credit facility is reduced,
in increasing quarterly amounts, beginning June 30, 1998 through December 31,
2003. The Borrowers pay a commitment fee of either .375% or .250% per annum
(depending upon the Borrower's senior funded debt ratio) of the unused
revolving credit facility commitments during the term of the agreement.
Borrowings under the term loan facility are payable in installments, in
increasing quarterly amounts, commencing June 30, 1998 and ending on December
31, 2004.
On April 15, 1996, an 89% owned subsidiary of Adelphia, Hyperion
Telecommunications, Inc. ("Hyperion"), realized proceeds, net of discounts,
commissions and other transaction costs, of $168,600 upon issuance of $329,000
aggregate principal amount of 13% Senior Discount Notes (the "Hyperion Senior
Notes") due April 15, 2003 and 329,000 warrants to purchase an aggregate of
613,427 shares of common stock of Hyperion expiring April 1, 2001. Proceeds of
$11,087 were allocated to the value of the warrants. If all warrants were
exercised, the warrants would represent approximately 5.78% of the common
stock of Hyperion on a fully diluted basis. Proceeds, net of discounts,
commissions, and other transaction costs were used to repay certain
indebtedness to Adelphia, to make loans to certain key Hyperion officers and
will be used to fund Hyperion's expansion of its existing markets, to complete
construction of new networks and to enter additional markets, including
related capital expenditures, working capital requirements, operating losses
and investments in joint ventures.
On May 16, 1996, Hyperion completed the sale of its 15.7% partnership
interest in TCG South Florida to Teleport Communications Group Inc. for an
aggregate sales price of $11,618 resulting in a pre-tax gain of $8,405. As
part of the transaction, Hyperion was released from its covenant not to
compete with respect to the South Florida market. Hyperion plans to use the
proceeds from the sale to continue to expand and develop its existing markets,
complete new networks under construction and enter additional markets.
12. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS'
REPORT:
On July 12, 1996, Adelphia acquired all of the cable systems of First
Carolina Cable TV, L.P. These systems served approximately 32,500 subscribers
at the date of acquisition primarily located in Vermont and were purchased for
an aggregate price of $48,500 in cash. The acquisition has been accounted for
using the purchase method. Accordingly, the financial results of the acquired
systems have been included in the consolidated results of Adelphia effective
from the date acquired.
On February 26, 1997, Adelphia issued $350,000 of 9 7/8% Senior Notes (the
"Senior Notes") in a private placement. Net proceeds, after payment of
transaction costs, of approximately $340,000 were used to reduce amounts
outstanding on Adelphia's subsidiaries' notes payable to banks and to
purchase, redeem or otherwise retire a portion of Adelphia's 12 1/2% Senior
Notes due 2002. Interest is payable semi-annually commencing September 1,
1997. The Senior Notes are unsecured and are due March 1, 2007. Holders of the
Senior Notes have the right to require Adelphia to redeem their Senior Notes
at 100% upon a Change of Control (as defined in the Indenture). The Indenture
stipulates, among other things, limitations on additional borrowings, payment
of dividends or distributions, transactions with affiliates and the sale of
assets. The indenture also provides for payment to the note holders of
liquidated damages of up to 2% per annum of the Senior Notes principal if
Adelphia does not file a registration statement or cause such registration
statement to become effective within a prescribed time period with respect to
an offer to exchange the Senior Notes for a new issue of debt securities
registered under the Securities Act of 1933, with terms substantially the same
as those of the Senior Notes. The new issue of debt securities is expected to
be recorded at the same carrying value as the Senior Notes and, accordingly,
no gain or loss is expected to be recognized.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
Olympus Communications, L.P.:
We have audited the accompanying consolidated balance sheets of Olympus
Communications, L.P. and subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, partners' equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Olympus Communications, L.P.
and subsidiaries at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 26, 1997
F-25
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS:
Cable systems, at cost, net of accumulated depreciation
and amortization:
Property, plant and equipment......................... $ 203,129 $ 225,775
Intangible assets..................................... 280,873 350,411
--------- ---------
Total............................................... 484,002 576,186
Cash and cash equivalents............................... 32,677 26,466
Subscriber receivables--net............................. 7,838 10,491
Prepaid expenses and other assets--net.................. 9,392 27,078
--------- ---------
Total............................................... $ 533,909 $ 640,221
========= =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY):
Notes payable to banks.................................. $ 419,000 $ 309,000
10 5/8% Senior Notes due 2006........................... -- 200,000
Other debt.............................................. 809 63,713
Accounts payable........................................ 14,261 15,122
Subscriber advance payments and deposits................ 3,957 5,426
Accrued interest and other liabilities.................. 12,992 30,429
Accrued priority return on preferred limited partner
interests.............................................. 19,269 20,476
Due to affiliates--net.................................. 38,613 39,667
Deferred income taxes................................... 43,552 40,587
--------- ---------
Total liabilities................................... 552,453 724,420
Commitments and contingencies (Note 5)
Partners' equity (deficiency):
Limited partners' interests........................... 396,630 407,669
General partners' equity (deficiency)................. (415,174) (491,868)
--------- ---------
Total partners' equity (deficiency)................. (18,544) (84,199)
--------- ---------
Total............................................... $ 533,909 $ 640,221
========= =========
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues........................................ $ 93,421 $120,968 $159,870
Business interruption revenue................... 1,037 -- --
-------- -------- --------
Total........................................ 94,458 120,968 159,870
-------- -------- --------
Operating expenses:
Direct operating and programming............... 22,369 37,494 48,598
Selling, general and administrative............ 18,708 23,912 28,974
Depreciation and amortization.................. 36,703 31,953 40,446
Management fees to Managing Affiliate.......... 6,302 6,334 8,839
-------- -------- --------
Total........................................ 84,082 99,693 126,857
-------- -------- --------
Operating income................................ 10,376 21,275 33,013
-------- -------- --------
Other income (expense):
Interest expense............................... (22,889) (29,217) (40,748)
Interest expense--affiliates................... (9,373) (7,501) (6,600)
Other income (expense)......................... 585 (15) 401
-------- -------- --------
Total........................................ (31,677) (36,733) (46,947)
-------- -------- --------
Loss before income taxes and extraordinary loss. (21,301) (15,458) (13,934)
Income tax benefit (expense).................... 276 (2,824) 2,984
-------- -------- --------
Loss before extraordinary loss.................. (21,025) (18,282) (10,950)
Extraordinary loss on early retirement of debt
(net of income tax benefit of $486)............ -- (1,109) --
-------- -------- --------
Net loss........................................ (21,025) (19,391) (10,950)
Priority return on preferred and senior limited
partner interests.............................. (61,923) (63,358) (65,644)
Net loss allocated to redeemable limited
partners....................................... 5,000 -- --
Accretion requirement of redeemable limited
partners....................................... (5,885) -- --
-------- -------- --------
Net loss of general and limited partners after
priority return and accretion requirements..... $(83,833) $(82,749) $(76,594)
======== ======== ========
Loss per general and limited partners' unit
before extraordinary loss and after priority
return and accretion requirements.............. $ (8,383) $ (8,164) $ (7,659)
Extraordinary loss per general and limited
partners' unit on early retirement of debt..... -- (111) --
-------- -------- --------
Net loss per general and limited partners' unit
after
priority return and accretion requirements..... $ (8,383) $ (8,275) $ (7,659)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
LIMITED GENERAL PARTNERS' EQUITY
PARTNERS PARTNERS (DEFICIENCY)
-------- --------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1993............... $ -- $(452,115) $(452,115)
Excess of sale price over carrying
value of assets
sold to affiliates.................... -- 41,943 41,943
Net loss of general partner after
priority return and accretion
requirements.......................... -- (83,833) (83,833)
Capital distribution................... -- (100) (100)
-------- --------- ---------
Balance, December 31, 1994............... -- (494,105) (494,105)
Intercompany advances converted to
general
partners' equity (deficiency)......... -- 49,974 49,974
Redeemable preferred limited partner
interests
converted to general partners' equity
(deficiency).......................... -- 51,101 51,101
Accrued priority return converted to
general
partners' equity (deficiency)......... -- 142,300 142,300
Excess of obligation for redeemable
limited partner interest over carrying
value of investment exchanged to
satisfy such obligation............... -- 4,754 4,754
Excess of ascribed value over
historical cost
of assets contributed by Telesat...... -- (86,349) (86,349)
Issuance of preferred limited partner
interests............................. 376,625 -- 376,625
Issuance of limited and senior limited
partner interests..................... 20,005 -- 20,005
Net loss of general and limited
partners
after priority return................. -- (82,749) (82,749)
Capital distribution................... -- (100) (100)
-------- --------- ---------
Balance, December 31, 1995............... 396,630 (415,174) (18,544)
Net loss of general and limited
partners
after priority return................. -- (76,594) (76,594)
Issuance of preferred limited partner
interests ............................ 65,711 -- 65,711
Capital distributions.................. (54,672) (100) (54,772)
-------- --------- ---------
Balance, December 31, 1996............... $407,669 $(491,868) $ (84,199)
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(21,025) $ (19,391) $ (10,950)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation................................ 19,132 22,593 25,507
Amortization................................ 17,571 9,360 14,939
Extraordinary loss on debt retirement
(net of income tax benefit)................ -- 1,109 --
Accretion of non-interest bearing note...... -- -- 6,207
Changes in operating assets and
liabilities, net of effects of
acquisitions and divestitures:
Subscriber receivables.................... 398 (1,026) (2,653)
Prepaid expenses and other assets......... (2,722) (2,505) (16,318)
Accounts payable.......................... 4,590 2,729 861
Subscriber advance payments and deposits.. 368 581 1,469
Accrued interest and other liabilities.... 3,333 (8,113) 17,314
Deferred business interruption proceeds..... (1,037) -- --
Deferred income taxes....................... (323) 2,824 (2,965)
-------- --------- ---------
Net cash provided by operating activities...... 20,285 8,161 33,411
-------- --------- ---------
Cash flows from investing activities:
Business acquisitions, net of cash acquired... -- (85,853) (42,327)
Expenditures for property, plant and
equipment.................................... (23,916) (21,498) (28,117)
Proceeds from sale of assets to affiliates.... 43,318 -- --
-------- --------- ---------
Net cash provided by (used for) investing
activities.................................... 19,402 (107,351) (70,444)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from debt............................ -- 438,000 324,500
Repayments of debt............................ (11,871) (336,094) (235,018)
Costs associated with debt financing.......... -- (4,872) (6,215)
Payments of priority returns.................. (22,300) (37,341) (64,438)
Amounts advanced (to) from affiliates......... (16,362) 32,724 1,054
Issuance of preferred limited partner
interests.................................... -- 39,125 65,711
Capital distributions......................... (100) (100) (54,772)
-------- --------- ---------
Net cash (used for) provided by financing
activities.................................... (50,633) 131,442 30,822
-------- --------- ---------
(Decrease) increase in cash and cash
equivalents................................... (10,946) 32,252 (6,211)
Cash and cash equivalents, beginning of year... 11,371 425 32,677
-------- --------- ---------
Cash and cash equivalents, end of year......... $ 425 $ 32,677 $ 26,466
======== ========= =========
Supplemental disclosure of cash flow activity--
Cash payments for interest.................... $ 31,377 $ 38,057 $ 38,283
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE PARTNERSHIP AND BASIS OF PRESENTATION:
Olympus Communications, L.P. and subsidiaries ("Olympus") is a joint venture
limited partnership formed under the laws of Delaware with 50% of the
outstanding voting interests held by ACP Holdings, Inc., ("ACP Holdings"), a
wholly-owned subsidiary of Adelphia Communications Corporation ("Adelphia")
and managing general partner of Olympus. As described below, effective
February 28, 1995, the remaining 50% of the voting interest is held by various
Telesat entities ("Telesat") which are wholly-owned subsidiaries of FPL Group,
Inc. ("FPL"). Olympus' operations consist primarily of selling video
programming which is distributed to subscribers in Florida for a monthly fee
through a network of fiber optic and coaxial cables.
The consolidated financial statements include the accounts of Olympus and
its substantially wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
On June 30, 1994, Adelphia acquired from Olympus 85% of the common stock of
Northeast Cable, Inc. ("Northeast") for a purchase price of $31,875 and
assumption of notes payable to banks of $42,300. Northeast owns cable
television systems serving approximately 36,500 subscribers in eastern
Pennsylvania. Of the purchase price, $16,000 was paid in cash and the
remainder resulted in a decrease in Olympus' then existing amount payable to
Adelphia. No gain or loss was recognized on this transaction. The consolidated
statements of operations and cash flows for Olympus include the operations of
Northeast for the six months ended June 30, 1994.
On February 28, 1995, Olympus entered into a Liquidation Agreement with the
Gans Family ("Gans"), an Olympus limited partner. Under this Liquidation
Agreement, Gans agreed to exchange their redeemable limited partner interests
in Olympus for the remaining 15% of the common stock of Northeast held by
Olympus. Concurrently with the closing of the Liquidation Agreement, ACP
Holdings, Olympus, Telesat and certain shareholders of Adelphia entered into
an investment agreement (the "Telesat Investment Agreement") whereby Telesat
contributed to Olympus substantially all of the assets associated with certain
cable television systems, serving approximately 50,000 subscribers in southern
Florida, in exchange for general and limited partner interests of $5, Senior
Limited Partner ("SLP") interests of $20,000 and $112,500 of newly issued
16.5% preferred limited partner ("PLP") interests.
Prior to the Telesat Investment Agreement, Olympus had obligations to
Adelphia for intercompany advances, redeemable PLP interests, and accrued
priority return on redeemable PLP interests. In conjunction with the Telesat
Investment Agreement, Adelphia contributed $49,974 of the intercompany
advances, $51,101 of the existing redeemable PLP interests and all of the then
existing accrued priority return on the redeemable PLP interests to general
partners' equity (deficiency). Adelphia then exchanged its remaining
redeemable PLP interests for $225,000 of new PLP interests. Also, Senior Debt
(as defined in the Telesat Investment Agreement) owed by Olympus to Adelphia
of $40,000 remained outstanding after consummation of the Telesat Investment
Agreement.
On March 28, 1996, ACP Holdings, Telesat, Olympus, Adelphia and certain
shareholders of Adelphia entered into an agreement which amended certain
aspects of the Telesat Investment Agreement and the Olympus Partnership
Agreement. The amendment provided for the repayment of certain amounts owed to
Telesat totaling $20,000, the release of certain obligations of Telesat to
Olympus and the reduction of Telesat's PLP and accrued priority return
balances by $20,000. The amendment further provided for a $40,000 distribution
to Adelphia as a reduction of its PLP interest and accrued priority return
balances. These repayments and distributions were made on March 29, 1996 and
were funded through internally generated funds and borrowings by a subsidiary
of Olympus (see Note 3).
F-30
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On April 3, 1995, Olympus purchased all of the cable and security systems of
WB Cable Associates, Ltd. ("WB Cable") serving approximately 44,000 cable and
security subscribers for a purchase price of $82,000. WB Cable provides cable
service from one headend and security services from one location in West Boca
Raton, Florida. Of the purchase price, $77,000 was paid in cash and $5,000 was
paid in Adelphia Class A Common Stock. The acquisition, which was accounted
for under the purchase method of accounting, was financed principally through
additional borrowings under Olympus subsidiaries' credit agreement (see Note
3).
On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.
("Leadership Cable"), which at the acquisition date, served approximately
50,000 cable and security subscribers for a purchase price of $95,800.
Leadership Cable provides cable service and security services in and around
West Palm Beach, Florida. The purchase price consisted of $40,000 in cash and
a $70,000 non-interest bearing discount seller note due December 30, 1997.
This note was recorded at $55,800 at acquisition and will accrete to the
$70,000 face amount. The acquisition was accounted for under the purchase
method of accounting.
The following unaudited financial information assumes that all of the
aforementioned contribution/ acquisition transactions had occurred at the
beginning of each of the years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Revenues................................................... $145,177 $146,264
Loss before extraordinary loss and priority return on
preferred and senior limited partner interests............ (24,539) (27,534)
Net loss of general and limited partners after priority
return.................................................... (87,347) (92,882)
Net loss per general and limited partners' unit after
priority return........................................... (8,735) (9,288)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Subscriber Revenues
Subscriber revenues are recorded in the month the service is provided.
Subscriber Receivables
An allowance for doubtful accounts of $411 and $612 is recorded as a
reduction of subscriber receivables at December 31, 1995 and 1996,
respectively.
Programming Expense
Adelphia allocates charges from programmers to affiliates (including
Olympus) based on the number of subscribers to each programming service. In
1994 Adelphia allocated charges from programmers to affiliates (including
Olympus) based on cost reductions under programming contracts from incremental
subscribers, as well as the number of subscribers to each programming service,
the effect of which was to reduce programming expense by $3,250.
F-31
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Operating plant and equipment............................... $272,968 $315,610
Real estate and improvements................................ 4,564 4,592
Support equipment........................................... 5,102 6,104
Construction in progress.................................... 12,026 16,057
-------- --------
294,660 342,363
Accumulated depreciation.................................... (91,531) (116,588)
-------- --------
$203,129 $225,775
======== ========
</TABLE>
Depreciation is computed on the straight-line method using estimated useful
lives of 5 to 12 years for operating plant and equipment and 3 to 20 years for
support equipment and buildings. Additions to property, plant and equipment
are recorded at cost which includes amounts for material, applicable labor,
and interest. Olympus capitalized interest amounting to $346 for each of the
years ended December 31, 1995 and 1996, respectively.
Intangible Assets
Intangible assets, net of accumulated amortization, are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
<S> <C> <C>
1995 1996
-------- --------
Purchased franchises....................................... $254,186 $306,770
Goodwill................................................... 13,661 17,645
Purchased subscriber lists................................. 12,951 25,950
Non-compete agreements..................................... 75 46
-------- --------
$280,873 $350,411
======== ========
</TABLE>
A portion of the aggregate purchase price of cable television systems
acquired has been allocated to purchased franchises, purchased subscriber
lists, non-compete agreements and goodwill. Purchased franchises and goodwill
are amortized on the straight-line method over periods which range from 34 to
40 years. Purchased subscriber lists are amortized on the straight-line method
over the average periods that the listed subscribers are expected to receive
service from the date of acquisition, which range from 7 to 10 years. The non-
compete agreements are amortized over their contractual lives, which range
from 2 to 5 years. Accumulated amortization of intangible assets amounted to
$78,940 and $91,165 at December 31, 1995 and 1996, respectively.
Amortization of Other Assets
Deferred debt financing costs are amortized over the term of the related
debt. The unamortized amount included in prepaid expenses and other assets was
$4,964 and $10,403 at December 31, 1995 and 1996, respectively.
F-32
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Asset Impairments
Olympus periodically reviews the carrying value of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of assets may not be recoverable. Measurement of any impairment
would include a comparison of estimated future operating cash flows
anticipated to be generated during the remaining life of the assets with their
net carrying value. An impairment loss would be recognized as the amount by
which the carrying value of the assets exceeds their fair value.
Noncash Financing and Investing Activities
Capital leases entered into during 1995 and 1996 totaled $341 and $1,147,
respectively. There were no material capital leases entered into during 1994.
Reference is made to Notes 1 and 4 for descriptions of additional noncash
financing and investing activities.
Net Loss Per General and Limited Partner Unit After Priority Return
Net loss per general and limited partner unit after priority return and
accretion requirements is based upon the weighted average number of general
and limited partner units outstanding of 10.0 for all periods presented.
Cash and Cash Equivalents
Olympus considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Derivative Financial Instruments
Net settlement amounts under interest rate swap agreements are recorded as
adjustments to interest expense during the period incurred (see Note 3).
Franchise Expense
The typical term of the Company's franchise agreements upon renewal is 10
years. Franchise fees range from 3% to 5% of subscriber revenues and are
expensed currently.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. DEBT:
Notes Payable to Banks
Notes payable to banks of Olympus' subsidiaries is comprised of amounts
drawn under credit agreements with banks, which totaled $419,000 and $309,000
at December 31, 1995 and 1996, respectively.
On May 12, 1995, certain Olympus subsidiaries (the "Borrowers") entered into
a $475,000 revolving credit facility with several banks, maturing December 31,
2003. Interest rates charged are based upon one or more of the following
options: prime rate plus 0% to .75% or Eurodollar rate plus .625% to 1.75%.
The weighted average interest rate on notes payable to the banks, including
the effect of interest rate hedging arrangements, was 7.11%
F-33
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
and 6.51% at December 31, 1995 and 1996, respectively. Interest on outstanding
borrowings is generally payable on a quarterly basis.
Initial borrowings under the revolving credit facility were used to repay
the Borrowers' existing notes payable to banks and accrued interest. An
extraordinary loss on early retirement of debt of $1,109, net of income tax
benefit of $486, was recognized for the year ended December 31, 1995 which
represents the unamortized deferred financing costs related to such notes at
the date of refinancing.
Borrowings under this credit arrangement are collateralized by substantially
all of the assets of the Borrowers. The agreement limits, among other things,
additional borrowings, investments, transactions with affiliates, payment of
distributions and fees, and requires the maintenance of certain financial
ratios by the Borrowers. At December 31, 1996, management believes that the
Borrowers were in compliance with the agreement's convenants. The agreement
also provides that advances and contributions from affiliates may be returned
to the affiliate to the extent contributed or advanced from the closing date
of the loan.
The amount of actual borrowings available under the facility is based upon
achieving certain levels of operating performance. The Borrowers will pay
commitment fees at the annual rate of .375% on unused principal. The credit
facility provides for mandatory reductions in the revolving loan commitment,
in increasing quarterly amounts, commencing June 30, 1997 through December 31,
2003. On the dates of such mandatory commitment reductions, the Borrowers are
obligated to repay outstanding loans in excess of the remaining total
commitment.
On March 29, 1996, an affiliate of Olympus (the "Affiliate") amended and
restated its $200 million credit agreement with several banks maturing
September 30, 2004 to include Global Acquisition Partners, L.P., ("Global") (a
subsidiary of Adelphia) and Telesat Acquisition, L.P. ("Telesat Acquisition")
(a subsidiary of Olympus) as co-borrowers (the Affiliate, Telesat Acquisition
and Global collectively, the "Borrowing Group"). Initial borrowings of $39,500
by Telesat Acquisition under the credit agreement were used to pay a portion
of the distributions to Adelphia and Telesat (see Note 1). The terms of the
agreement permit Telesat Acquisition to borrow up to $39,500. Borrowings under
this credit arrangement are collateralized by substantially all of the assets
of the Borrowing Group. Each of the co-borrowers is liable for all borrowings
under this credit agreement although the lenders in this credit agreement have
no recourse against Olympus other than Olympus' interest in Telesat
Acquisition. The agreement stipulates, among other things, limitations on
additional borrowings, investments, transactions with affiliates, payments of
dividends and fees, and requires the maintenance of certain financial ratios
by the Borrowing Group. At December 31, 1996, management believes that the
Borrowing Group was in compliance with the agreement's convenants. The
agreement also provides that advances and contributions from affiliates may be
returned to the affiliates to the extent contributed or advanced from the
closing date of the loan. Interest rates charged are based upon one or more of
the following options: (1) prime rate plus 0% to 1%, (2) LIBOR plus .75% to
2%, or (3) the certificate of deposit rate plus .875% to 2.125%.
The amount of actual borrowings under the facility is based upon achieving
certain levels of operating performance. The Borrowing Group will pay
commitment fees at the annual rate of .375% on unused principal. The credit
agreement provides for mandatory reductions in the revolving loan commitment,
in increasing quarterly amounts, commencing December 31, 1998 through
September 30, 2004. On the dates of such mandatory commitment reductions, the
Borrowing Group is obligated to repay outstanding loans in excess of the
remaining total commitment.
F-34
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Approximately $166.2 million of the net assets of Olympus' subsidiaries
would be permitted to be transferred to Olympus in the form of dividends and
loans without the prior approval of the lenders based upon the results of
operations of such subsidiaries for the three months ended December 31, 1996.
The subsidiaries are permitted to pay management fees to Olympus or other
subsidiaries. Such fees are limited to a percentage of the subsidiaries'
revenues.
10 5/8% Senior Notes
On November 12, 1996, Olympus issued $200,000 of 10 5/8% Senior Notes (the
"Senior Notes") in a private placement. Net proceeds, after payment of
transaction costs, of approximately $195,000 were used to reduce amounts
outstanding on Olympus' subsidiaries' notes payable to banks. Interest is
payable semi-annually commencing May 15, 1997. The Senior Notes are unsecured
and are due November 15, 2006. Olympus may redeem up to $70,000 of the Senior
Notes at 110.625% of principal through November 6, 1999. Commencing November
15, 2001, Olympus may redeem the Senior Notes in whole or in part at 105.3125%
of principal declining annually to par on November 15, 2004. Holders of the
Senior Notes have the right to require Olympus to redeem their Senior Notes at
101% upon a Change of Control (as defined in the Indenture). The Indenture
stipulates, among other things, limitations on additional borrowings, payment
of dividends or distributions, repurchase of equity interests, transactions
with affiliates and the sale of assets. The Indenture also provides for
payment to the note holders of liquidated damages of up to 2% per annum of the
Senior Notes principal if Olympus does not file a registration statement or
cause such registration statement to become effective within a prescribed time
period with respect to an offer to exchange the Senior Notes for a new issue
of debt securities registered under the Securities Act of 1933, with terms
substantially the same as those of the Senior Notes. The new issue of debt
securities is expected to be recorded at the same carrying value as the Senior
Notes and, accordingly, no gain or loss is expected to be recognized.
Management intends to fund Olympus' debt maturities through borrowings under
new credit agreements and internally generated funds. Changing conditions in
the financial markets may have an impact on how Olympus will refinance its
debt in the future.
Other Debt
As of December 31, 1995 and 1996, other debt consists of purchase money
indebtedness and capital leases incurred in connection with the acquisition
of, and are collateralized by, certain equipment. The interest rate on such
debt is based on the Federal Funds rate plus 1.4% and is adjusted monthly
based on changes in the Federal Funds rate. As of December 31, 1996, other
debt also includes the seller note, due December 30, 1997, discussed in Note
1.
The following table sets forth the mandatory reductions in principal under
all agreements for indebtedness at December 31 for each of the next five years
based on amounts outstanding at December 31, 1996:
<TABLE>
<S> <C>
December 31, 1997................................................. $62,007
December 31, 1998................................................. --
December 31, 1999................................................. --
December 31, 2000................................................. 38,250
December 31, 2001................................................. 80,750
</TABLE>
F-35
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Interest Rate Swaps and Caps
Olympus has entered into interest rate swap agreements and interest rate cap
agreements with banks and an affiliate (see Note 9) to reduce the impact of
changes in interest rates on its bank debt and its Senior Notes. Olympus
enters into pay-fixed agreements to effectively convert a portion of its
variable-rate debt to fixed-rate debt. Olympus enters into receive-fixed
agreements to effectively convert a portion of its fixed-rate debt to
variable-rate debt which is indexed to LIBOR. Interest rate cap agreements are
used to reduce the impact of increases in interest rates on variable rate
debt. Olympus is exposed to credit loss in the event of nonperformance by the
banks and the affiliate. Olympus does not expect any such nonperformance. The
following table summarizes the notional amounts outstanding and weighted
average interest rate data for all swaps and caps which expire 1996 through
2000.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
PAY FIXED SWAPS
Notional amount............................................. $155,000 $115,000
Average receive rate........................................ 5.88% 5.57%
Average pay rate............................................ 6.76% 6.48%
RECEIVE FIXED SWAPS
Notional amount............................................. $140,000 $140,000
Average receive rate........................................ 7.58% 7.58%
Average pay rate............................................ 5.77% 5.55%
INTEREST RATE CAPS
Notional amount............................................. $75,000 $75,000
Average cap rate............................................ 7.50% 7.50%
</TABLE>
4. LIMITED PARTNERS' INTERESTS AND GENERAL PARTNERS' EQUITY (DEFICIENCY):
16.5% Redeemable PLP Interests
The redeemable PLP interests issued to Adelphia, totaling $276,101 at
December 31, 1994, were non-voting, senior to claims represented by other
partner interests and provided for a priority return of 16.5% per annum
(payable quarterly). In the event that any priority return was not paid when
due, such unpaid amounts accrued additional return at a rate of 18.5% per
annum. As a result of the February 28, 1995 Telesat Investment Agreement (see
Note 1), $225,000 of the redeemable PLP interests were converted to new PLP
interests as described below, and $51,101 of the redeemable PLP interests and
$142,300 of the unpaid priority return were converted to general partners'
equity (deficiency).
Redeemable Limited Partner Interests
As a result of the Liquidation Agreement entered into on February 28, 1995
between Gans and Olympus, Gans exchanged their redeemable limited partnership
interest in Olympus for 15% of the common stock of Northeast (see Note 1).
F-36
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The following summarizes activity related to the redeemable limited partners
for the three years ended December 31, 1996:
<TABLE>
<S> <C>
Balance, December 31, 1993.............................................. $ 5,000
Net loss allocated to redeemable limited partners..................... (5,000)
Accretion requirements to redeemable limited partners................. 5,885
-------
Balance, December 31, 1994.............................................. 5,885
Exchange of redeemable limited partner interests...................... (5,885)
-------
Balance, December 31, 1995 and 1996..................................... $ --
=======
</TABLE>
Preferred, Senior, Limited and General Partnership Interests
On February 28, 1995, as a result of the Telesat Investment Agreement (as
described in Note 1), $337,500 of new Preferred Limited Partner interests,
$20,000 of Senior Limited Partner interests and $5 of Limited Partner
interests were issued to Adelphia and Telesat as summarized in the table
below:
<TABLE>
<CAPTION>
Adelphia Telesat Total
-------- -------- --------
<S> <C> <C> <C>
16.5% Preferred Limited Partner Interests............ $225,000 $112,500 $337,500
16.5% Senior Limited Partner Interests............... -- 20,000 20,000
General and Limited Partner Interests................ -- 5 5
-------- -------- --------
Total.............................................. $225,000 $132,505 $357,505
======== ======== ========
</TABLE>
In addition, on various dates during the years ended December 31, 1995 and
1996, additional Preferred Limited Partner interests were issued for cash of
$39,125 and $65,711, respectively.
The Preferred Limited Partner interests are non-voting, do not participate
in the profits and losses of the partnership and provide for a priority return
of 16.5% per annum (payable quarterly). In the event that any priority return
is not paid when due, such unpaid amounts accrue additional return at a rate
of 16.5% per annum.
The Senior Limited Partner interests held by Telesat are non-voting, senior
to claims represented by all other partner interests and provide for a
priority return of 16.5% per annum (payable quarterly). In the event that any
priority return is not paid when due, such unpaid amounts accrue additional
return at a rate of 16.5% per annum.
On March 28, 1996, ACP Holdings, Telesat, Olympus, Adelphia and certain
shareholders of Adelphia entered into an agreement which amended certain
aspects of the Telesat Investment Agreement and the Olympus Partnership
Agreement. The amendment provides for the repayment of certain amounts owed to
Telesat totaling $20,000, the release of certain obligations of Telesat to
Olympus and the reduction of Telesat's PLP and accrued priority return
balances by $20,000. The amendment further provides for a $40,000 distribution
to Adelphia as a reduction of its PLP and accrued priority return balances.
These repayments and distributions were made on March 29, 1996 and were funded
through internally generated funds and borrowings by a subsidiary of Olympus.
F-37
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Allocation of Profits, Losses and Distributions
Prior to February 28, 1995, the general partner and limited partners of
Olympus generally shared in net income and losses of Olympus based upon their
respective percentage ownership of partnership voting units except for certain
special allocation provisions set forth in the Olympus partnership agreement
in effect at the time. As specified in the partnership agreement, after the
holders of the PLP interests received a return of their capital plus 16.5% per
annum priority return, distributions by Olympus were made in the following
order: (i) to partners holding voting units (other than Adelphia) until each
partner received an 18% compounded return on its investment; (ii) to Adelphia
until it received an 18% compounded return on its investment in the voting
units; (iii) to Adelphia as managing general partner, to the special limited
partners and to the partners holding voting units until each partner holding
voting units received a 24% compounded return on its investment; and (iv) to
Adelphia as managing general partner, to the special limited partners and to
the partners holding voting units.
On and after February 28, 1995, profits and losses of Olympus for income tax
purposes are allocated 99% to the limited partner of Olympus and 1% to the
managing general partner of Olympus until the aggregate profits allocated to
the limited partner equals the aggregate losses allocated to the limited
partner, at which time the managing general partner receives two-thirds, and
the limited partner of Olympus receives one-third of the net income and losses
of Olympus. As specified in the partnership agreement, allocations will be
made in the following order to the holders of the: (i) Senior Limited Partner
Interests; (ii) Special Limited Partner Interests, if any, and (iii) Preferred
Limited Partner Interests. Such allocations will equal a return of their
capital plus 16.5% per annum priority return less any priority return
previously paid. After such allocations, distributions by Olympus will be made
in the following order: (i) 99% of any remaining amount will be distributed
two-thirds to the managing general partner and any partner holding voting
units acquired directly or indirectly from the managing partner, pro rata, and
one-third to partners holding the remaining voting units and; (2) thereafter
pro rata to all partners holding voting units. At December 31, 1996, 10 voting
units were outstanding of which five were held by ACP Holdings, the managing
general partner; and five were held by Telesat, the general and limited
partners.
5. COMMITMENTS AND CONTINGENCIES:
Olympus rents office space, tower sites, and space on utility poles under
leases with terms which are generally less than one year or under agreements
that are generally cancelable on short notice. Total rental expense under all
operating leases aggregated $1,036, $1,379 and $1,495 for 1994, 1995 and 1996,
respectively.
In connection with certain obligations under existing franchise agreements,
Olympus obtains surety bonds guaranteeing performance to municipalities and
public utilities. Payment is required only in the event of nonperformance.
Olympus has fulfilled all of its obligations such that no payments under
surety bonds have been required.
During the period July 1, 1993 through July 26, 1996, Olympus had a program
to self insure for casualty and business interruption insurance. This program
was part of an aggregate agreement between Olympus and its subsidiaries in
which Olympus provided insurance for casualty and business interruption claims
of up to $10,000 and $20,000 per claim, respectively, for each subsidiary.
Effective July 26, 1996, Olympus was insured by an outside party for casualty
and business interruption.
F-38
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The cable television industry and Olympus are subject to extensive
regulation at the federal, state and local levels. Pursuant to the 1992 Cable
Act, which significantly expanded the scope of regulation of certain
subscriber rates and a number of other matters in the cable industry, the FCC
has adopted rate regulations that establish, on a system-by-system basis,
maximum allowable rates for (i) basic and cable programming services (other
than programming offered on a per-channel or per-program basis), based upon a
benchmark methodology, and (ii) associated equipment and installation services
based upon cost plus a reasonable profit. Under the FCC rules, franchising
authorities are authorized to regulate rates for basic services and associated
equipment and installation services, and the FCC will regulate rates for
regulated cable programming services in response to complaints filed with the
agency. The original rate regulations became effective on September 1, 1993.
Several amendments to the rate regulations have subsequently been added.
The FCC has adopted regulations implementing virtually all of the
requirements of the 1992 Cable Act. The FCC is also likely to continue to
modify, clarify or refine the rate regulations. The Telecommunications Act of
1996 (the "1996 Act") deregulates the rates for cable programming services on
March 31, 1999. Olympus cannot predict the effect of the 1996 Act on future
rulemaking proceedings or changes to the rate regulations.
Effective September 1, 1993, as a result of the 1992 Cable Act, Olympus
repackaged certain existing cable services by adjusting rates for basic
service and introducing a new method of offering certain cable services.
Olympus adjusted the basic service rates and related equipment and
installation rates in all of its systems in order for such rates to be in
compliance with the applicable benchmark or equipment and installation cost
levels. Olympus also implemented a program in all of its systems called
"CableSelect" under which most of Olympus's satellite-delivered programming
services were offered individually on a per channel basis, or as a group at a
price of approximately 15% to 20% below the sum of the per channel prices of
all such services. For subscribers who elected to customize their channel
lineup, Olympus provided, for a monthly rental fee, an electronic device
located on the cable line outside the home, enabling a subscriber's television
to receive only those channels selected by the subscriber. These basic service
rate adjustments and the CableSelect program were also implemented in all
systems managed by Olympus. Olympus believes CableSelect provided increased
programming choices to its subscribers while providing flexibility to Olympus
to respond to future changes in areas such as customer demand and programming.
Olympus no longer offers the CableSelect program in any of its systems.
A letter of inquiry, one of at least 63 sent by the FCC to numerous cable
operators, was received by Olympus regarding the implementation of this new
method of offering services. Olympus responded in writing to the FCC's
inquiry. On November 18, 1994, the FCC released amended rules under which, on
a prospective basis, any a la carte package will be treated as a regulated
tier, except for packages involving premium services. Also, on November 18,
1994, the Cable Services Bureau of the FCC issued a decision holding that the
"CableSelect" program was an evasion of the rate regulations and ordered this
package to be treated as a regulated tier. This decision, and all other
letters of inquiry decisions, were principally decided on the number of
programming services moved from regulated tiers to "a la carte" packages.
Olympus has appealed this decision to the full Commission which affirmed the
Cable Service Bureau's decision. Olympus has sought reconsideration of the
decision.
Certain other cable television companies that utilized a la carte packages
have recently reached settlement/resolution with the FCC on this issue.
Olympus believes that in view of this experience with other operators,
resolution of these differences is possible, consistent with the terms and
conditions of those earlier resolutions. Adelphia has engaged in discussions
with the Cable Services Bureau of the FCC regarding a settlement of all
outstanding rate proceedings involving "a la carte" packages, including those
offered by the Olympus systems. A proposed settlement has been made available
for public comment by the FCC. Management
F-39
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
currently estimates there will not be any significant costs to Olympus
associated with the resolution of this matter. While Olympus cannot predict
the ultimate outcome or effect of this matter, management of Olympus does not
expect the ultimate outcome of this matter to have a material adverse effect
on Olympus's financial position and results of operations. Also, no assurance
can be given as to what other future actions Congress, the FCC or other
regulatory authorities may take or the effects thereof on Olympus. Olympus is
currently unable to predict the effect that the amended regulations, future
FCC treatment of a la carte packages or other future FCC rulemaking
proceedings will have on its business and results of operations in future
periods.
6. EMPLOYEE BENEFIT PLANS:
Olympus participates in an Adelphia savings plan (401(k)) which provides
that eligible full-time employees may contribute from 2% to 20% of their pre-
tax compensation subject to certain limitations. Olympus matches contributions
not exceeding 1.5% of each participant's pre-tax compensation. During the
years ended 1994, 1995 and 1996, no significant matching contributions were
made by Olympus.
7. TAXES ON INCOME:
Certain wholly-owned subsidiaries of Olympus are corporations that file
separate federal and state income tax returns. At December 31, 1996, these
subsidiaries had net operating loss carryforwards for federal income tax
purposes of approximately $184,000 expiring through 2011.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards.
The tax effects of significant items comprising Olympus' net deferred tax
liability as of December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Differences between book and tax basis of property, plant
and equipment and intangible assets..................... $ 93,740 $ 91,703
-------- --------
DEFERRED TAX ASSETS:
Operating loss carryforwards............................. 66,395 71,145
Other.................................................... (51) 47
Valuation allowance...................................... (16,156) (20,076)
-------- --------
Subtotal............................................... 50,188 51,116
-------- --------
Net deferred tax liability................................. $ 43,552 $ 40,587
======== ========
</TABLE>
The net change in the valuation allowance for the year ended December 31,
1996 was an increase of $3,920.
F-40
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The income tax benefit (expense) for years ended December 31, 1994, 1995 and
1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995 1996
---- ------- ------
<S> <C> <C> <C>
Federal:
Current.................................................. $-- $ -- $ 19
Deferred................................................. 234 (2,184) 2,386
State:
Current.................................................. -- -- --
Deferred................................................. 42 (640) 579
---- ------- ------
$276 $(2,824) $2,984
==== ======= ======
</TABLE>
Reconciliations between the statutory federal income tax rate and Olympus'
effective income tax rate as a percentage of loss before income taxes and
extraordinary loss are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.......................... (35%) (35%) (35%)
Change in valuation allowance.............................. 25% (5%) 26%
Operating losses passed through to partners................ 9% 54% (9%)
State taxes, net of federal benefit........................ 0% 4% (3%)
--- --- ---
Effective income tax rate.................................. (1%) 18% (21%)
=== === ===
</TABLE>
8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Included in Olympus' financial instrument portfolio are cash, notes payable
and interest rate swaps and caps. The carrying values of the notes payable
approximate their fair values at December 31, 1996. At December 31, 1995 and
1996, Olympus would have received approximately $3,034 and $2,571,
respectively, to settle its interest rate swap and cap agreements,
representing the excess of fair value over carrying cost of these agreements.
The fair values of the debt and interest rate swaps and caps were based upon
quoted market prices of similar instruments or on rates available to Olympus
for instruments of the same remaining maturities.
9. TRANSACTIONS WITH RELATED PARTIES:
Olympus has an agreement with a subsidiary of Adelphia which provides for
the payment of management fees by Olympus. The amount and payment of these
fees is subject to restrictions contained in the partnership agreements. Prior
to January 1, 1995, Olympus also reimbursed Adelphia for direct operating
costs, which amounted to $1,477 for 1994. During the year ended December 31,
1995, Olympus paid Adelphia a fee totaling $646 in connection with the
acquisition of Leadership Cable.
Olympus has periodically received funds from and advanced funds to Adelphia
and other affiliates. Olympus was charged $9,373, $7,501 and $6,600 of
interest on such net payables for 1994, 1995 and 1996, respectively.
F-41
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
At December 31, 1996, Olympus had interest rate swaps with an affiliate for
a notional amount of $140,000 for Receive Fixed Swaps. These swaps expire at
various dates through 1998. The net effect of these interest rate swaps was to
decrease interest expense by $0, $244 and $2,554 in 1994, 1995 and 1996,
respectively.
Olympus has agreements with affiliates to provide for the payment of
management fees to Olympus equal to a percentage of the affiliates' revenues.
Such fees, which are included in revenues, amounted to $1,356, $29 and $50 for
1994, 1995 and 1996, respectively.
On March 31, 1994, Olympus sold to Adelphia, rights to provide alternate
access in its franchised areas and an investment in an unaffiliated
partnership for a purchase price of $15,500. The sale resulted in the
reduction of a payable to Adelphia of $15,500. Due to the common control of
these entities, the excess of the sale price over Olympus' carrying value has
been credited directly in general partners' equity (deficiency).
On June 30, 1994, Olympus sold to Adelphia 85% of the common stock of
Northeast Cable, Inc., a wholly-owned subsidiary, for a selling price of
$31,875 and assumption of notes payable to banks of $42,300. Adelphia paid
$16,000 in cash and the remainder resulted in a decrease of Adelphia's then
existing receivable from Olympus.
F-42
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING
LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE REGISTRANT. NEI-
THER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLI-
CATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE REGISTRANT SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANY-
ING LETTER OF TRANSMITTAL CONSTITUTES AN OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 3
Prospectus Summary........................................................ 4
The Exchange Offer........................................................ 6
Summary Description of Senior Notes ...................................... 8
Risk Factors.............................................................. 10
The Exchange Offer........................................................ 15
Use of Proceeds........................................................... 23
Capitalization............................................................ 24
Selected Consolidated Financial Data...................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business.................................................................. 45
Legislation and Regulation................................................ 58
Management................................................................ 68
Certain Relationships and Transactions.................................... 75
Description of Senior Notes............................................... 79
Certain Federal Income Tax Considerations................................. 96
Plan of Distribution...................................................... 98
Legal Matters............................................................. 98
Experts................................................................... 98
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ADELPHIA
COMMUNICATIONS
CORPORATION
9 7/8% SENIOR NOTES
DUE 2007, SERIES B
----------------
PROSPECTUS
----------------
MAY 2, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides in general that
a corporation may indemnify its directors, officers, employees or agents
against expenditures (including judgments, fines, amounts paid in settlement
and attorneys' fees) made by them in connection with certain lawsuits to which
they may be made parties by reason of their being directors, officers,
employees or agents and shall so indemnify such persons against expenses
(including attorneys' fees) if they have been successful on the merits or
otherwise. The bylaws of Adelphia provide for indemnification of the officers
and directors of Adelphia to the full extent permissible under Delaware law.
Adelphia's Certificate of Incorporation also provides, pursuant to Section
102(b)(7) of the Delaware General Corporation Law, that directors of Adelphia
shall not be personally liable to Adelphia, respectively, or its stockholders
for monetary damages for breach of fiduciary duty as a director for acts or
omissions, provided that directors shall nonetheless be liable for breaches of
the duty of loyalty, bad faith, intentional misconduct, knowing violations of
law, unlawful distributions to stockholders, or transactions from which a
director derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Purchase Agreement dated as of February 21, 1997 between the
Registrant and Smith Barney Inc. (Incorporated herein by reference
is Exhibit 10.02 to Adelphia Communications Corporation's Current
Report on Form 8-K dated May 1, 1997). (File Number 0-16014)
3.1 Certificate of Incorporation of Adelphia Communications
Corporation (Incorporated herein by reference is Exhibit 3.01 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995). (File Number 0-16014)
3.2 Bylaws of Adelphia Communications Corporation (Incorporated herein
by reference is Exhibit 3.02 to Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1994). (File Number 0-
16014)
4.1 Indenture, dated as of February 26, 1997, between the Registrant
and Bank of Montreal Trust Company with respect to the
Registrant's 9 7/8% Senior Notes Due 2007 (Incorporated herein by
reference is Exhibit 4.01 to Registrant's Current Report on Form
8-K dated May 1, 1997). (File Number 0-16014)
4.2 Form of Note with respect to the Registrant's 9 7/8% Senior Notes
Due 2007 (contained in Indenture filed as Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of February 26, 1997,
between the Registrant and the Initial Purchaser with respect to
the Registrant's 9 7/8% Senior Notes Due 2007 (Incorporated herein
by reference is Exhibit 10.01 to Registrant's Current Report on
Form 8-K dated May 1, 1997). (File Number 0-16014)
4.4 First Supplemental Indenture, dated as of May 4, 1994, with
respect to Registrant's 9 1/2% Senior Pay-In-Kind Notes Due 2004
(Incorporated herein by reference is Exhibit 4.01 to Registrant's
Current Report on Form 8-K dated May 5, 1994.)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.5 Indenture, dated as of February 22, 1994, with respect to
Registrant's 9 1/2% Senior Pay-In-Kind Notes Due 2004
(Incorporated herein by reference is Exhibit 4.05 to Registration
Statement No. 33-52513 on Form S-4.)
4.6 Indenture, dated as of July 28, 1993, with respect to Registrant's
10 1/4% Senior Notes Due 2000 (Incorporated herein by reference is
Exhibit 4.01 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.)
4.7 Amended and Restated Indenture, dated as of May 11, 1993, with
respect to Registrant's 9 7/8% Senior Debentures Due 2005
(Incorporated herein by reference is Exhibit 4.01 to Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31,
1993.)
4.8 Indenture, dated as of September 2, 1992, with respect to the
Registrant's 11 7/8% Senior Debentures Due 2004 (Incorporated
herein by reference is Exhibit 4.03 to Registration Statement No.
33-52630 on Form S-1.)
4.9 Indenture, dated as of May 7, 1992, with respect to the
Registrant's 12 1/2% Senior Notes Due 2002 (Incorporated herein by
reference is Exhibit 4.03 to Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1992.)
5.1** Opinion of Buchanan Ingersoll Professional Corporation.
10.1 Class B Common Stockholders Agreement (Incorporated herein by
reference is Exhibit 10.01 to Registration Statement No. 33-6974
on Form S-1.)
10.2 Joinder to Class B Common Stockholders Agreement (Incorporated
herein by reference is Exhibit 10.02 to Registrant's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994.)
10.3 Registration Rights Agreement and Amendment to Registration Rights
Agreement (Incorporated herein by reference are Exhibit 10.02 to
Registration Statement No. 33-6974 on Form S-1 and Exhibit 10.35
to Registration Statement No. 33-25121 on Form S-1.)
10.4 Form of Management Agreement for Managed Companies (Incorporated
herein by reference is Exhibit 10.04 to the Registrant's Annual
Report on Form 10-K for fiscal year ended March 31, 1996.)
10.5 Management Agreement--Montgomery Cablevision Associates, L.P.
(Incorporated herein by reference is Exhibit 10.08 to Registration
Statement No. 33-6974 on Form S-1.)
10.6 Management Agreement--Adelphia Cablevision Associates of Radnor,
L.P. (Incorporated herein by reference is Exhibit 10.09 to
Registration Statement No. 33-6974 on Form S-1.)
10.7 Stock Option Plan of 1986, as amended (Incorporated herein by
reference is Exhibit 10.07 to Registration Statement No. 33-46551
on Form S-1.)
10.8 Restricted Stock Bonus Plan, as amended (Incorporated herein by
reference is Exhibit 10.08 to Registration Statement No. 33-46551
on Form S-1.)
10.9 Business Opportunity Agreement (Incorporated herein by reference
is Exhibit 10.13 to Registration Statement No. 33-3674 on Form S-
1.)
10.10 Employment Agreement between the Company and John J. Rigas
(Incorporated herein by reference is Exhibit 10.14 to Registration
Statement No. 33-6974 on Form S-1.)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 Employment Agreement between the Company and Daniel R. Milliard
(Incorporated herein by reference is Exhibit 10.15 to Registration
Statement No. 33-6974 on Form S-1.)
10.12 Employment Agreement between the Company and Timothy J. Rigas
(Incorporated herein by reference is Exhibit 10.16 to Registration
Statement No. 33-6974 on Form S-1.)
10.13 Employment Agreement between the Company and Michael J. Rigas
(Incorporated herein by reference is Exhibit 10.17 to Registration
Statement No. 33-6974 on Form S-1.)
10.14 Employment Agreement between the Company and James P. Rigas
(Incorporated herein by reference is Exhibit 10.18 to Registration
Statement No. 33-6974 on Form S-1.)
10.15 Agreement Regarding Management Fees relating to the subsidiaries
of Chauncey Communications Corporation (Incorporated herein by
reference is Exhibit 10.16 of Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1991.) (File Number 0-
16014)
10.16 Form of Note Agreement, dated as of August 1, 1990, relating to
the 10.66% Senior Secured Notes due August 1, 1998 of Chauncey
Communications Corporation (Incorporated herein by reference is
Exhibit 10.01 of Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990.) (File Number 0-16014)
10.17 Amendatory Agreement regarding Chauncey Communications Corporation
10.66% Senior Secured Note Agreement, dated as of August 6, 1991
(Incorporated herein by reference is Exhibit 10.02 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1991.) (File Number 0-16014)
10.18 $50,000 Term Note and Pledge Agreement between Adelphia
Communications Corporation as lender and Daniel R. Milliard, dated
October 1, 1988 (Incorporated herein by reference is Exhibit 10.03
of Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991.) (File Number 0-16014)
10.19 $205,000 Revolving Term Note and Pledge Agreement among Adelphia
Communications Corporation as lender, Daniel R. Milliard and David
Acker (Incorporated herein by reference is Exhibit 10.04 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991.) (File Number 0-16014)
10.20 Olympus Communications, L.P. Second Amended and Restated Limited
Partnership Agreement, dated as of February 28, 1995.
(Incorporated herein by reference is Exhibit 10.32 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995.)
10.21 Credit, Security and Guaranty Agreement among UCA Corp. and
certain of its Affiliates and First Union National Bank of North
Carolina as Administrative Agent, dated as of March 15, 1995.
(Incorporated herein by reference is Exhibit 10.32 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995.)
10.22 Revolving Credit Facility among Adelphia Cable partners, L.P.,
Southwest Florida Cable, Inc., West Boca Acquisition Limited
Partnership and Toronto-Dominion (Texas), Inc., as Administrative
Agent, dated May 12, 1995. (Incorporated herein by reference is
Exhibit 10.03 to Registrant's Current Report on Form 8-K dated
June 30, 1995.)
10.23 Credit Agreement, dated as of October 27, 1995, among Plato
Communications, Inc. Northeast Cable, Inc., Robinson/Plum
Cablevision L.P., the several other banks and other financial
institutions from time to time parties to this agreement and
Chemical Bank, as Administrative Agent. (Incorporated herein by
reference is Exhibit 10.35 to Registrant's Current Report on Form
8-K dated December 7, 1995.)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.24 Credit Agreement, dated as of April 12, 1996, among Chelsea
Communications, Inc., Kittanning Cablevision Inc., Robinson/Plum
Cablevision L.P., the several banks and financial institutions
parties thereto, and Toronto Dominion (Texas), Inc. as
Administrative Agent. (Incorporated herein by reference is Exhibit
10.36 to Registrant's Current Report on Form 8-K dated June 3,
1996.)
10.25 Amended Credit Agreement, dated as of March 29, 1996, among
Highland Video Associates L.P., Telesat Acquisition Limited
Partnership, Global Acquisition Partners, L.P., the various
financial institutions as parties thereto, Bank of Montreal as
syndication agent, Chemical Bank as documentation agent, and the
Bank of Nova Scotia as administrative agent. (Incorporated herein
by reference is Exhibit 10.37 to Registrant's Current Report on
Form 8-K dated June 19, 1996.)
10.26 Purchase Agreement dated as of April 10, 1996 between Hyperion
Telecommunications, Inc. and Bear Stearns & Co. Inc., Chase
Securities Inc. and NationsBanc Capital Markets, Inc.
(Incorporated by reference is Exhibit 1.1 to Registration
Statement No. 333-06957 on Form S-4 filed for Hyperion
Telecommunications, Inc.)
10.27 Indenture, dated as of April 15, 1996, between Hyperion
Telecommunications, Inc. and Bank of Montreal Trust Company.
(Incorporated by reference is Exhibit 4.1 to Registration
Statement No. 333-06957 on Form S-4 filed for Hyperion
Telecommunications, Inc.)
10.28 Registration Rights Agreement dated as of April 15, 1996, between
Hyperion Telecommunications, Inc. and the Initial Purchasers.
(Incorporated by reference is Exhibit 4.3 to Registration
Statement No. 333-06957 on Form S-4 filed for Hyperion
Telecommunications, Inc.)
10.29 Warrant Agreement dated as of April 15, 1996, by and among
Hyperion Telecommunications, Inc. and Bank of Montreal Trust
Company. (Incorporated by reference is Exhibit 10.13 to
Registration Statement No. 333-06957 on Form S-4 filed for
Hyperion Telecommunications, Inc.)
10.30 Warrant Registration Rights Agreement dated as of April 15, 1996,
by and among Hyperion Telecommunications, Inc. and the Initial
Purchasers. (Incorporated by reference is Exhibit 10.14 to
Registration Statement No. 333-06957 on Form S-4 filed for
Hyperion Telecommunications, Inc.)
10.31 First Supplemental Indenture, dated as of September 11, 1996,
between Hyperion Telecommunications, Inc. and Bank of Montreal
Trust Company (Incorporated herein be reference is Exhibit 4.2 of
Hyperion Telecommunications, Inc.'s Registration Statement No.
333-13663 on Form S-1.)
10.32 Form of 13% Hyperion Telecommunications, Inc. Senior Discount
Notes (Incorporated herein by reference is Exhibit 4.3 to Hyperion
Telecommunications Inc.'s Registration Statement No. 333-13663 on
Form S-1.)
10.33 Hyperion Telecommunications, Inc. Long-Term Compensation Plan
(Incorporated herein by reference is Exhibit 10.17 to Hyperion
Telecommunications Inc.'s Registration Statement No. 333-13663 on
Form S-1.)
10.34 Purchase Agreement, dated as of November 6, 1996, between Olympus
Communications, L.P., Olympus Capital Corporation and Goldman,
Sachs & Co. (Incorporated herein by reference is Exhibit 10.01 to
Registrant's Current Report on Form 8-K dated December 16, 1996.)
10.35 Indenture, dated as of November 12, 1996, between Olympus
Communications, L.P., Olympus Capital Corporation and Bank of
Montreal Trust Company (Incorporated herein by reference is
Exhibit 10.02 to Registrant's Current Report on Form 8-K dated
December 16, 1996.)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.36 Form of Note (contained in Indenture filed herein as Exhibit
10.35) (Incorporated herein by reference is Exhibit 10.03 to
Registrant's Current Report on Form 8-K dated December 16, 1996.)
10.37 Registration Rights Agreement among Charles R. Drenning, Paul D.
Fajerski, Randolph S. Fowler, Adelphia Communications Corporation
and the Company (Incorporated herein by reference is Exhibit 10.18
to Hyperion Telecommunications, Inc.'s Registration Statement No.
333-13663 on Form S-1.)
10.38 Registration Rights Agreement between Adelphia Communications
Corporation and the Company (Incorporated herein by reference is
Exhibit 10.19 to Hyperion Telecommunications, Inc.'s Registration
Statement No. 333-13663 on Form S-1.)
10.39 First Amendment to the Olympus Communications, L.P. Second Amended
and Restated Limited Partnership Agreement, dated September 1,
1995 (Incorporated herein by reference is Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended March 31, 1996.)
10.40 First Amendment to the Olympus Communications, L.P. Second Amended
and Restated Limited Partnership Agreement, dated March 29, 1996
(Incorporated herein by reference is Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended March 31, 1996.)
10.41 Second Amendment to the Olympus Communications, L.P. Second
Amended and Restated Limited Partnership Agreement, dated June 27,
1996 (Incorporated herein by reference is Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended March 31, 1996.)
12.1** Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant (Incorporated herein by reference
is Exhibit 21.01 to Registrant's Annual Report on Form 10-K for
fiscal year ended March 31, 1996.)
23.1** Consent of Buchanan Ingersoll Professional Corporation (contained
in its opinion filed as Exhibit 5.1 hereto).
23.2** Consent of Deloitte & Touche LLP.
24.1** Power of Attorney (appearing on Signature Page).
25.1** Form T-1 Statement of Eligibility of Trustee.
99.1** Form of Letter of Transmittal and Notice of Guaranteed Delivery.
</TABLE>
- --------
*To be filed by amendment.
**Filed herewith.
(b) Financial Statement Schedules.
The following are included in Part II of this Registration Statement:
Schedule I--Condensed Financial Information of the Registrant
Schedule II--Valuation and Qualifying Accounts
II-5
<PAGE>
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes to respond to requests for information that
is incorporated by reference into the Prospectus pursuant to Item 4, 10(b),
11, or 13 of the Form S-4, within one business day of receipt of such request,
and to send the incorporated documents by first-class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the registrant undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of a Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed part of the Registration Statement as of the time it was
declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at such
time shall be deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
II-6
<PAGE>
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) ((S)230.424(b) of this chapter), if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (3)(i) and (3)(ii) above do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement.
(4) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(6) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coudersport,
Commonwealth of Pennsylvania, on the 2nd day of May, 1997.
ADELPHIA COMMUNICATIONS CORPORATION
By:/s/ Timothy J. Rigas
----------------------------------
Timothy J. Rigas
Executive Vice President and
Treasurer
POWER OF ATTORNEY
Known All Men By These Presents that each person whose signature appears
below constitutes and appoints Michael J. Rigas, Timothy J. Rigas and James P.
Rigas, and each of them, such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and revocation, for such person and in
such person's name, place and stead, in any and all amendments (including
post-effective amendments to this Registration Statement) and to file the same
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute of substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
/s/ John Rigas Chairman, President and May 2, 1997
- ----------------------------- Chief Executive Officer
John Rigas
/s/ Michael J. Rigas Executive Vice President and May 2, 1997
- ----------------------------- Director
Michael J. Rigas
/s/ Timothy J. Rigas Executive Vice President, May 2, 1997
- ----------------------------- Chief Accounting Officer,
Timothy J. Rigas Treasurer, Chief Financial
Officer and Director
/s/ James P. Rigas Executive Vice President and May 2, 1997
- ----------------------------- Director
James P. Rigas
/s/ Daniel R. Milliard Senior Vice President, May 2, 1997
- ----------------------------- Secretary and Director
Daniel R. Milliard
II-8
<PAGE>
SIGNATURE TITLE DATE
/s/ Dennis P. Coyle Director May 2, 1997
- -----------------------------
Dennis P. Coyle
/s/ Pete J. Metros Director May 2, 1997
- -----------------------------
Pete J. Metros
/s/ Perry S. Patterson Director May 2, 1997
- -----------------------------
Perry S. Patterson
II-9
<PAGE>
SCHEDULE I (PAGE 1 OF 4)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE FINANCIAL POSITION OF THE REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS:
Investment in cable television subsidiaries.......... $ 218,708 $ 380,016
Property and equipment--net.......................... 27,540 27,808
Cash and cash equivalents............................ 80 3,097
Other assets--net.................................... 68,692 57,901
Notes and receivables from cable television
subsidiaries and related parties--net............... 43,033 --
----------- -----------
Total............................................ $ 358,053 $ 468,822
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Losses and distributions in excess of investments in
and net advances to cable television subsidiaries... $ 275,044 $ 377,454
Unsecured notes and payables to cable television
subsidiaries and related parties.................... 128,382 215,366
Other debt........................................... 9,476 8,485
12 1/2% Senior Notes due 2002........................ 400,000 400,000
10 1/4% Senior Notes due 2000........................ 99,011 99,158
11 7/8% Senior Debentures due 2004................... 124,470 124,502
9 7/8% Senior Debentures due 2005.................... 127,994 128,118
9 1/2% Senior Pay-In-Kind Notes due 2004............. 164,370 180,357
Accrued interest and other liabilities............... 40,881 63,621
----------- -----------
Total liabilities................................ 1,369,628 1,597,061
Stockholders' equity (deficiency)--[see consolidated
financial statements included herein for details]... (1,011,575) (1,128,239)
----------- -----------
Total............................................ $ 358,053 $ 468,822
=========== ===========
</TABLE>
See note to condensed financial information of the Registrant.
S-1
<PAGE>
SCHEDULE I (PAGE 2 OF 4)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE OPERATIONS OF THE REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
INCOME:
Income from subsidiaries and affiliates....... $ 53,004 $ 72,413 $ 55,277
--------- --------- ---------
EXPENSES:
Operating expenses and fees to subsidiaries... 2,710 1,044 2,156
Depreciation and amortization................. 3,610 5,179 5,942
Interest expense to subsidiaries and
affiliates................................... 5,893 4,371 14,645
Interest expense to others.................... 88,724 103,367 107,829
--------- --------- ---------
Total..................................... 100,937 113,961 130,572
--------- --------- ---------
Loss before equity in loss of subsidiaries.... (47,933) (41,548) (75,295)
Equity in net loss of subsidiaries before
cumulative effect of change in accounting
principle.................................... (49,515) (64,736) (44,599)
--------- --------- ---------
Loss before extraordinary loss and cumulative
effect of change in accounting principle..... (97,448) (106,284) (119,894)
Extraordinary loss on early retirement of debt
cumulative effect of change in accounting
principle.................................... (752) -- --
Cumulative effect of change in accounting
principle.................................... (89,660) -- --
--------- --------- ---------
Net loss...................................... $(187,860) $(106,284) $(119,894)
========= ========= =========
</TABLE>
See note to condensed financial information of the Registrant.
S-2
<PAGE>
SCHEDULE I (PAGE 3 OF 4)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED INFORMATION AS TO THE CASH FLOWS OF THE REGISTRANT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(187,860) $(106,284) $(119,894)
Adjustments to reconcile net loss to net
cash used for operating activities:
Equity in loss of subsidiaries............. 49,515 64,736 44,599
Cumulative effect of change in accounting
for income taxes.......................... 89,660 -- --
Extraordinary loss on debt retirement...... 752 -- --
Depreciation and amortization.............. 3,396 5,179 5,942
Noncash interest expense................... 363 14,756 16,288
Loss on disposal of property............... 214 -- --
Change in operating assets and liabilities,
net of effects of acquisitions:
Other assets.............................. (6,877) (52,096) (6,832)
Accrued interest and other liabilities.... 4,956 12,523 22,107
--------- --------- ---------
Net cash used for operating activities........ (45,881) (61,186) (37,790)
--------- --------- ---------
Cash flows from investing activities:
Investments in and advances to subsidiaries.. (72,642) (53,087) (103,497)
Amounts (advanced to) repayments from
subsidiaries and related parties............ (182,900) 108,772 146,617
Expenditures for property, plant and
equipment................................... (11,772) (447) (161)
--------- --------- ---------
Net cash (used for) provided by investing
activities................................... (267,314) 55,238 42,959
--------- --------- ---------
Cash flows from financing activities:
Proceeds from debt........................... 258,674 3,300 1,100
Repayments of debt........................... (101,450) (12,213) (3,252)
Issuance of Class A Common Stock............. 155,963 14,861 --
--------- --------- ---------
Net cash provided by (used for) financing
activities................................... 313,187 5,948 (2,152)
--------- --------- ---------
(Decrease) increase in cash and cash
equivalents.................................. (8) -- 3,017
Cash and cash equivalents, beginning of year.. 88 80 80
--------- --------- ---------
Cash and cash equivalents, end of year........ $ 80 $ 80 $ 3,097
========= ========= =========
Supplemental disclosure of cash flow
activity--Cash payments for interest......... $ 84,904 $ 103,454 $ 103,965
========= ========= =========
</TABLE>
See note to condensed financial information of the Registrant.
S-3
<PAGE>
SCHEDULE I (PAGE 4 OF 4)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTE TO CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
(DOLLARS IN THOUSANDS)
1. NOTES PAYABLE TO SUBSIDIARIES:
Adelphia Communications Corporation ("Adelphia") has partially funded its
acquisitions and capital needs through borrowings and advances from
subsidiaries. Adelphia had issued to certain of its cable television
subsidiaries and related parties unsecured demand notes payable in the
principal amount of $215,366 at March 31, 1996. The notes, which eliminate
upon preparation of consolidated financial statements, provide for interest at
rates ranging from 3% to 16%, are due upon demand five years after March 31,
1996, and provide that non-payment of principal or interest is not an event of
default.
S-4
<PAGE>
SCHEDULE II
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED
AT TO COSTS BALANCE
BEGINNING AND DEDUCTIONS-- AT END
OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
--------- -------- ------------ ---------
<S> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1994
Allowance for Doubtful Accounts....... $2,016 $3,975 $2,388 $3,603
====== ====== ====== ======
YEAR ENDED MARCH 31, 1995
Allowance for Doubtful Accounts....... $3,603 $3,846 $3,946 $3,503
====== ====== ====== ======
YEAR ENDED MARCH 31, 1996
Allowance for Doubtful Accounts....... $3,503 $5,827 $8,114 $1,216
====== ====== ====== ======
</TABLE>
S-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Purchase Agreement dated as of February 21, 1997 between the
Registrant and Smith Barney Inc. (Incorporated herein by reference
is Exhibit 10.02 to Adelphia Communications Corporation's Current
Report on Form 8-K dated May 1, 1997). (File Number 0-16014)
3.1 Certificate of Incorporation of Adelphia Communications
Corporation (Incorporated herein by reference is Exhibit 3.01 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995). (File Number 0-16014)
3.2 Bylaws of Adelphia Communications Corporation (Incorporated herein
by reference is Exhibit 3.02 to Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1994). (File Number 0-
16014)
4.1 Indenture, dated as of February 26, 1997, between the Registrant
and Bank of Montreal Trust Company with respect to the
Registrant's 9 7/8% Senior Notes Due 2007 (Incorporated herein by
reference is Exhibit 4.01 to Registrant's Current Report on Form
8-K dated May 1, 1997). (File Number 0-16014)
4.2 Form of Note with respect to the Registrant's 9 7/8% Senior Notes
Due 2007 (contained in Indenture filed as Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of February 26, 1997,
between the Registrant and the Initial Purchaser with respect to
the Registrant's 9 7/8% Senior Notes Due 2007 (Incorporated herein
by reference is Exhibit 10.01 to Registrant's Current Report on
Form 8-K dated May 1, 1997). (File Number 0-16014)
4.4 First Supplemental Indenture, dated as of May 4, 1994, with
respect to Registrant's 9 1/2% Senior Pay-In-Kind Notes Due 2004
(Incorporated herein by reference is Exhibit 4.01 to Registrant's
Current Report on Form 8-K dated May 5, 1994.)
4.5 Indenture, dated as of February 22, 1994, with respect to
Registrant's 9 1/2% Senior Pay-In-Kind Notes Due 2004
(Incorporated herein by reference is Exhibit 4.05 to Registration
Statement No. 33-52513 on Form S-4.)
4.6 Indenture, dated as of July 28, 1993, with respect to Registrant's
10 1/4% Senior Notes Due 2000 (Incorporated herein by reference is
Exhibit 4.01 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.)
4.7 Amended and Restated Indenture, dated as of May 11, 1993, with
respect to Registrant's 9 7/8% Senior Debentures Due 2005
(Incorporated herein by reference is Exhibit 4.01 to Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31,
1993.)
4.8 Indenture, dated as of September 2, 1992, with respect to the
Registrant's 11 7/8% Senior Debentures Due 2004 (Incorporated
herein by reference is Exhibit 4.03 to Registration Statement No.
33-52630 on Form S-1.)
4.9 Indenture, dated as of May 7, 1992, with respect to the
Registrant's 12 1/2% Senior Notes Due 2002 (Incorporated herein by
reference is Exhibit 4.03 to Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1992.)
5.1** Opinion of Buchanan Ingersoll Professional Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.1 Class B Common Stockholders Agreement (Incorporated herein by
reference is Exhibit 10.01 to Registration Statement No. 33-6974
on Form S-1.)
10.2 Joinder to Class B Common Stockholders Agreement (Incorporated
herein by reference is Exhibit 10.02 to Registrant's Annual Report
on Form 10-K for the fiscal year ended March 31, 1994.)
10.3 Registration Rights Agreement and Amendment to Registration Rights
Agreement (Incorporated herein by reference are Exhibit 10.02 to
Registration Statement No. 33-6974 on Form S-1 and Exhibit 10.35
to Registration Statement No. 33-25121 on Form S-1.)
10.4 Form of Management Agreement for Managed Companies (Incorporated
herein by reference is Exhibit 10.04 to the Registrant's Annual
Report on Form 10-K for fiscal year ended March 31, 1996.)
10.5 Management Agreement--Montgomery Cablevision Associates, L.P.
(Incorporated herein by reference is Exhibit 10.08 to Registration
Statement No. 33-6974 on Form S-1.)
10.6 Management Agreement--Adelphia Cablevision Associates of Radnor,
L.P. (Incorporated herein by reference is Exhibit 10.09 to
Registration Statement No. 33-6974 on Form S-1.)
10.7 Stock Option Plan of 1986, as amended (Incorporated herein by
reference is Exhibit 10.07 to Registration Statement No. 33-46551
on Form S-1.)
10.8 Restricted Stock Bonus Plan, as amended (Incorporated herein by
reference is Exhibit 10.08 to Registration Statement No. 33-46551
on Form S-1.)
10.9 Business Opportunity Agreement (Incorporated herein by reference
is Exhibit 10.13 to Registration Statement No. 33-3674 on Form S-
1.)
10.10 Employment Agreement between the Company and John J. Rigas
(Incorporated herein by reference is Exhibit 10.14 to Registration
Statement No. 33-6974 on Form S-1.)
10.11 Employment Agreement between the Company and Daniel R. Milliard
(Incorporated herein by reference is Exhibit 10.15 to Registration
Statement No. 33-6974 on Form S-1.)
10.12 Employment Agreement between the Company and Timothy J. Rigas
(Incorporated herein by reference is Exhibit 10.16 to Registration
Statement No. 33-6974 on Form S-1.)
10.13 Employment Agreement between the Company and Michael J. Rigas
(Incorporated herein by reference is Exhibit 10.17 to Registration
Statement No. 33-6974 on Form S-1.)
10.14 Employment Agreement between the Company and James P. Rigas
(Incorporated herein by reference is Exhibit 10.18 to Registration
Statement No. 33-6974 on Form S-1.)
10.15 Agreement Regarding Management Fees relating to the subsidiaries
of Chauncey Communications Corporation (Incorporated herein by
reference is Exhibit 10.16 of Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1991.) (File Number 0-
16014)
10.16 Form of Note Agreement, dated as of August 1, 1990, relating to
the 10.66% Senior Secured Notes due August 1, 1998 of Chauncey
Communications Corporation (Incorporated herein by reference is
Exhibit 10.01 of Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990.) (File Number 0-16014)
10.17 Amendatory Agreement regarding Chauncey Communications Corporation
10.66% Senior Secured Note Agreement, dated as of August 6, 1991
(Incorporated herein by reference is Exhibit 10.02 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1991.) (File Number 0-16014)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.18 $50,000 Term Note and Pledge Agreement between Adelphia
Communications Corporation as lender and Daniel R. Milliard, dated
October 1, 1988 (Incorporated herein by reference is Exhibit 10.03
of Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991.) (File Number 0-16014)
10.19 $205,000 Revolving Term Note and Pledge Agreement among Adelphia
Communications Corporation as lender, Daniel R. Milliard and David
Acker (Incorporated herein by reference is Exhibit 10.04 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991.) (File Number 0-16014)
10.20 Olympus Communications, L.P. Second Amended and Restated Limited
Partnership Agreement, dated as of February 28, 1995.
(Incorporated herein by reference is Exhibit 10.32 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995.)
10.21 Credit, Security and Guaranty Agreement among UCA Corp. and
certain of its Affiliates and First Union National Bank of North
Carolina as Administrative Agent, dated as of March 15, 1995.
(Incorporated herein by reference is Exhibit 10.32 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995.)
10.22 Revolving Credit Facility among Adelphia Cable partners, L.P.,
Southwest Florida Cable, Inc., West Boca Acquisition Limited
Partnership and Toronto-Dominion (Texas), Inc., as Administrative
Agent, dated May 12, 1995. (Incorporated herein by reference is
Exhibit 10.03 to Registrant's Current Report on Form 8-K dated
June 30, 1995.)
10.23 Credit Agreement, dated as of October 27, 1995, among Plato
Communications, Inc. Northeast Cable, Inc., Robinson/Plum
Cablevision L.P., the several other banks and other financial
institutions from time to time parties to this agreement and
Chemical Bank, as Administrative Agent. (Incorporated herein by
reference is Exhibit 10.35 to Registrant's Current Report on Form
8-K dated December 7, 1995.)
10.24 Credit Agreement, dated as of April 12, 1996, among Chelsea
Communications, Inc., Kittanning Cablevision Inc., Robinson/Plum
Cablevision L.P., the several banks and financial institutions
parties thereto, and Toronto Dominion (Texas), Inc. as
Administrative Agent. (Incorporated herein by reference is Exhibit
10.36 to Registrant's Current Report on Form 8-K dated June 3,
1996.)
10.25 Amended Credit Agreement, dated as of March 29, 1996, among
Highland Video Associates L.P., Telesat Acquisition Limited
Partnership, Global Acquisition Partners, L.P., the various
financial institutions as parties thereto, Bank of Montreal as
syndication agent, Chemical Bank as documentation agent, and the
Bank of Nova Scotia as administrative agent. (Incorporated herein
by reference is Exhibit 10.37 to Registrant's Current Report on
Form 8-K dated June 19, 1996.)
10.26 Purchase Agreement dated as of April 10, 1996 between Hyperion
Telecommunications, Inc. and Bear Stearns & Co. Inc., Chase
Securities Inc. and NationsBanc Capital Markets, Inc.
(Incorporated by reference is Exhibit 1.1 to Registration
Statement No. 333-06957 on Form S-4 filed for Hyperion
Telecommunications, Inc.)
10.27 Indenture, dated as of April 15, 1996, between Hyperion
Telecommunications, Inc. and Bank of Montreal Trust Company.
(Incorporated by reference is Exhibit 4.1 to Registration
Statement No. 333-06957 on Form S-4 filed for Hyperion
Telecommunications, Inc.)
10.28 Registration Rights Agreement dated as of April 15, 1996, between
Hyperion Telecommunications, Inc. and the Initial Purchasers.
(Incorporated by reference is Exhibit 4.3 to Registration
Statement No. 333-06957 on Form S-4 filed for Hyperion
Telecommunications, Inc.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.29 Warrant Agreement dated as of April 15, 1996, by and among
Hyperion Telecommunications, Inc. and Bank of Montreal Trust
Company. (Incorporated by reference is Exhibit 10.13 to
Registration Statement No. 333-06957 on Form S-4 filed for
Hyperion Telecommunications, Inc.)
10.30 Warrant Registration Rights Agreement dated as of April 15, 1996,
by and among Hyperion Telecommunications, Inc. and the Initial
Purchasers. (Incorporated by reference is Exhibit 10.14 to
Registration Statement No. 333-06957 on Form S-4 filed for
Hyperion Telecommunications, Inc.)
10.31 First Supplemental Indenture, dated as of September 11, 1996,
between Hyperion Telecommunications, Inc. and Bank of Montreal
Trust Company (Incorporated herein be reference is Exhibit 4.2 of
Hyperion Telecommunications, Inc.'s Registration Statement No.
333-13663 on Form S-1.)
10.32 Form of 13% Hyperion Telecommunications, Inc. Senior Discount
Notes (Incorporated herein by reference is Exhibit 4.3 to Hyperion
Telecommunications Inc.'s Registration Statement No. 333-13663 on
Form S-1.)
10.33 Hyperion Telecommunications, Inc. Long-Term Compensation Plan
(Incorporated herein by reference is Exhibit 10.17 to Hyperion
Telecommunications Inc.'s Registration Statement No. 333-13663 on
Form S-1.)
10.34 Purchase Agreement, dated as of November 6, 1996, between Olympus
Communications, L.P., Olympus Capital Corporation and Goldman,
Sachs & Co. (Incorporated herein by reference is Exhibit 10.01 to
Registrant's Current Report on Form 8-K dated December 16, 1996.)
10.35 Indenture, dated as of November 12, 1996, between Olympus
Communications, L.P., Olympus Capital Corporation and Bank of
Montreal Trust Company (Incorporated herein by reference is
Exhibit 10.02 to Registrant's Current Report on Form 8-K dated
December 16, 1996.)
10.36 Form of Note (contained in Indenture filed herein as Exhibit
10.35) (Incorporated herein by reference is Exhibit 10.03 to
Registrant's Current Report on Form 8-K dated December 16, 1996.)
10.37 Registration Rights Agreement among Charles R. Drenning, Paul D.
Fajerski, Randolph S. Fowler, Adelphia Communications Corporation
and the Company (Incorporated herein by reference is Exhibit 10.18
to Hyperion Telecommunications, Inc.'s Registration Statement No.
333-13663 on Form S-1.)
10.38 Registration Rights Agreement between Adelphia Communications
Corporation and the Company (Incorporated herein by reference is
Exhibit 10.19 to Hyperion Telecommunications, Inc.'s Registration
Statement No. 333-13663 on Form S-1.)
10.39 First Amendment to the Olympus Communications, L.P. Second Amended
and Restated Limited Partnership Agreement, dated September 1,
1995 (Incorporated herein by reference is Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended March 31, 1996.)
10.40 First Amendment to the Olympus Communications, L.P. Second Amended
and Restated Limited Partnership Agreement, dated March 29, 1996
(Incorporated herein by reference is Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended March 31, 1996.)
10.41 Second Amendment to the Olympus Communications, L.P. Second
Amended and Restated Limited Partnership Agreement, dated June 27,
1996 (Incorporated herein by reference is Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K/A for the fiscal year
ended March 31, 1996.)
12.1** Computation of Ratio of Earnings to Fixed Charges.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
21.1 Subsidiaries of the Registrant (Incorporated herein by reference
is Exhibit 21.01 to Registrant's Annual Report on Form 10-K for
fiscal year ended March 31, 1996.)
23.1** Consent of Buchanan Ingersoll Professional Corporation (contained
in its opinion filed as Exhibit 5.1 hereto).
23.2** Consent of Deloitte & Touche LLP.
24.1** Power of Attorney (appearing on Signature Page).
25.1** Form T-1 Statement of Eligibility of Trustee.
99.1** Form of Letter of Transmittal and Notice of Guaranteed Delivery.
</TABLE>
- --------
*To be filed by amendment.
**Filed herewith.
<PAGE>
EXHIBIT 5.1
May 2, 1997
Adelphia Communications Corporation
Main at Water Street
Coudersport, PA 16915
Dear Sirs:
We have acted as counsel to Adelphia Communications Corporation, a
Delaware corporation ("Adelphia" or the "Registrant"), in connection with the
proposed exchange (the "Exchange") by the Company of 9-7/8% Series B Senior
Notes Due 2007 ("New Notes") for an equal principal amount of its outstanding
9-7/8% Senior Notes Due 2007 ("Old Notes").
In connection with the proposed Exchange, we have examined the
Certificate of Incorporation of Adelphia, the Bylaws of Adelphia, the relevant
corporate proceedings of the Registrant, the draft Registration Statement on
Form S-4 covering the proposed Exchange (the "Registration Statement"),
including the Prospectus filed as a part of the Registration Statement, the
Indenture dated February 26, 1997 with respect to the Old Notes and New Notes
(the "Indenture"), and such other documents, records, certificates of public
officials, statutes and decisions as we considered necessary to express the
opinions contained herein. In the examination of such documents, we have assumed
the genuiness of all signatures and the authenticity of all documents submitted
to us as originals and the conformity to the original documents of all documents
submitted to us as certified or photostatic copies.
We understand that the New Notes are to be issued to the holders of the
Old Notes in the Exchange and are to be available for resale by such holders,
all in the manner described in the Prospectus which is a part of the
Registration Statement and in the Indenture.
Based on the foregoing, we are of the opinion that:
1. The issuance of the New Notes to the holders of the Old Notes
pursuant to the terms of the Exchange and the Indenture have
been duly authorized by proper corporate action of the
Registrant.
2. When the Registration Statement shall have been declared
effective by order of the Securities and Exchange Commission
and the New Notes have been duly issued to and exchanged for
the Old Notes in accordance with the terms of the Exchange, the
Indenture and the Registration Statement, such New Notes will
be validly issued and will constitute binding obligations of
the Registrant, subject, as to enforcement, (i) to any
applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws relating to or affecting creditors' rights
and remedies generally and (ii) to general principles of
judicial discretion and equity, including principles of
commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding
at law or in equity).
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to any reference to us in the Prospectus which is a
part hereof.
Sincerely,
BUCHANAN INGERSOLL
PROFESSIONAL CORPORATION
By: /s/ Carl E. Rothenberger, Jr.
Carl E. Rothenberger, Jr.
<PAGE>
EXHIBIT 12.1
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE
YEAR ENDED MARCH 31, MONTHS
--------------------------------------------------- ENDED
DECEMBER 31,
1992 1993 1994 1995 1996 1996
--------- -------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Loss before Income
Taxes,
Extraordinary Loss and
Cumulative Effect of
Change in Accounting
Principle............ $(121,605) $(99,766) $(94,706) $(111,759) $(122,680) $(88,123)
Add: Fixed Charges,
Excluding Capitalized
Interest............. 168,909 170,376 187,439 200,927 217,170 186,901
Equity in loss of
joint ventures....... 52,718 46,841 30,054 44,349 46,257 44,131
--------- -------- -------- --------- --------- --------
Net Earnings Available
for Fixed Charges...... 100,022 117,451 122,787 133,517 140,747 142,909
--------- -------- -------- --------- --------- --------
Fixed Charges:
Interest expense...... 164,839 164,859 182,136 195,698 210,691 180,764
Capitalized interest.. 1,498 1,009 1,345 1,736 1,766 1,301
Amortization of debt
issuance costs....... 2,781 4,155 3,987 3,792 4,917 4,795
Interest portion of
rent expense......... 1,289 1,362 1,316 1,437 1,562 1,342
--------- -------- -------- --------- --------- --------
Total Fixed Charges..... 170,407 171,385 188,784 202,663 218,936 188,202
--------- -------- -------- --------- --------- --------
Ratio of Earnings to
Fixed Charges.......... -- -- -- -- -- --
Deficiency in Earnings
Required to Cover Fixed
Charges................ $ 70,385 $ 53,934 $ 65,997 $ 69,146 $ 78,189 $ 45,293
========= ======== ======== ========= ========= ========
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
Adelphia Communications Corporation:
We consent to the use in this Registration Statement of Adelphia
Communications Corporation on Form S-4 of our report dated June 28, 1996
(which expresses an unqualified opinion and includes an explanatory paragraph
relating to a change in method of accounting for income taxes) and our report
dated March 26, 1997 on our audits of the financial statements of Adelphia
Communications Corporation and subsidiaries and of Olympus Communications,
L.P. and subsidiaries, respectively, appearing in the Prospectus, which is a
part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
Our audits of the financial statements of Adelphia Communications
Corporation and subsidiaries referred to in our aforementioned report also
included the financial statement schedules of Adelphia Communications
Corporation listed in Item 21(b). These financial statement schedules are the
responsibility of Adelphia Communications Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
May 2, 1997
<PAGE>
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of a Trustee
Pursuant to Section 305(b)___
BANK OF MONTREAL TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-4941093
(State of incorporation or organization (I.R.S. employer
if not a U.S. national bank) identification no.)
77 Water Street
New York, New York 10005
(Address of trustee's principal executive offices) (Zip code)
Mark F. McLaughlin
Bank of Montreal Trust Company
77 Water Street, New York, NY 10005
(212) 701-7602
(Name, address and telephone number of agent for service)
____________________________________
ADELPHIA COMMUNICATIONS CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 23-2417713
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
Main at Water Street
Coudersport, Pennsylvania 16915
(Address of principal executive offices)
______________________________________
9 7/8% Senior Notes, Due 2007
(Title of Indenture Securities)
================================================================================
<PAGE>
- 2 -
Item 1. General Information.
--------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of New York
33 Liberty Street, New York N.Y. 10045
State of New York Banking Department
2 Rector Street, New York, N.Y. 10006
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with the Obligor.
------------------------------
If the obligor is an affiliate of the trustee, describe each
such affiliation.
The obligor is not an affiliate of the trustee.
Item 4. Trusteeships under Other Indentures.
------------------------------------
If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or participation
in any other securities, of the obligor are outstanding, furnish
the following information:
(a) Title of the securities outstanding under each such other
indenture.
Adelphia Communications Corporation and Bank of Montreal Trust
Company, Trustee Indenture dated as of May 7, 1992, $400,000,000
principal amount Adelphia Communications Corporation 12-1/2%
Senior Notes due May 15, 2002.
Adelphia Communications Corporation and Bank of Montreal Trust
Company, Trustee Indenture dated as of September 2, 1992,
$125,000,000 principal amount Adelphia Communications Corporation
11-7/8% Senior Debentures due September 15, 2004.
Adelphia Communications Corporation and Bank of Montreal Trust
Company, Trustee Indenture dated as of July 28, 1993, $110,000,000
principal amount Adelphia Communications Corporations 10-1/4%
Senior Notes due July 15, 2000.
Adelphia Communications Corporation and Bank of Montreal Trust
Company, Trustee Indenture dated as of March 11, 1993,
$130,000,000 principal amount Adelphia Communications Corporation
9-7/8% Senior Debentures due March 1, 2005.
Adelphia Communications Corporation and Bank of Montreal Trust
Company, Trustee Indenture dated as of February 22, 1994,
$150,000,000 principal amount Adelphia Communications Corporation
9-1/2% Senior Pay-In-Kind Notes due February 15, 2004.
<PAGE>
-3-
(b) A brief statement of the facts relied upon as a basis for the
claim that no conflicting interest within the meaning of Section
310 (b) (1) of the Act arises as a result of the trusteeship under
any such other indenture, including a statement as to how the
indenture securities will rank as compared with the securities
issued under such other indenture.
The indenture to be qualified and the indenture(s) referred to in
paragraph A above are wholly unsecured and rank pari passu.
Item 16. List of Exhibits.
-----------------
List below all exhibits filed as part of this statement of eligibility.
A Copy of Organization Certificate of Bank of Montreal Trust Company
to transact business and exercise corporate trust powers;
incorporated herein by reference as Exhibit "A" filed with Form
T-1 Statement, Registration No. 33-46118
B. Copy of the existing By-Laws of Bank of Montreal Trust Company;
incorporated herein by reference as Exhibit "B" filed with Form
T-1 Statement, Registration No. 33-46118
C. The consent of the Trustee required by Section 321(b) of the Act;
incorporated herein by reference as Exhibit "C" with Form T-1
Statement, Registration No. 33-46118
D. A copy of the latest report of condition of Bank of Montreal Trust
Company published pursuant to law or the requirements of its
supervising or examining authority, attached hereto as Exhibit "D"
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Bank of Montreal Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on May 2, 1997.
BANK OF MONTREAL TRUST COMPANY
By /s/ Therese Gaballah
-------------------------------
Therese Gaballah
Assistant Vice President
<PAGE>
EXHIBIT "D"
STATEMENT OF CONDITION
BANK OF MONTREAL TRUST COMPANY
NEW YORK
------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Due From Banks $ 740,801
-----------
Investment Securities:
State & Municipal 16,888,571
Other 100
-----------
Total Securities 16,888,671
-----------
Loans and Advances
Federal Funds Sold 4,300,000
Overdrafts 3,591
-----------
Total Loans and Advances 4,303,591
-----------
Investment in Harris Trust, NY 7,516,776
Premises and Equipment 173,475
Other Assets 2,304,743
-----------
TOTAL ASSETS $31,928,057
===========
LIABILITIES
Trust Deposits $ 8,602,958
Other Liabilities 784,769
-----------
TOTAL LIABILITIES 9,387,727
-----------
CAPITAL ACCOUNTS
Capital Stock, Authorized, Issued and
Fully Paid - 10,000 Shares of $100 Each 1,000,000
Surplus 4,222,188
Retained Earnings 17,289,810
Equity - Municipal Gain/Loss 28,332
-----------
TOTAL CAPITAL ACCOUNTS 22,540,330
TOTAL LIABILITIES
AND CAPITAL ACCOUNTS $31,928,057
===========
</TABLE>
I, Mark F. McLaughlin, Vice President, of the above-named bank do hereby
declare that this Report of Condition is true and correct to the best of my
knowledge and belief.
Mark F. McLaughlin
December 31, 1996
We, the undersigned directors, attest to the correctness of this
statement of resources and liabilities. We declared that it has been examined
by us, and to the best of our knowledge and belief has been prepared in
conformance with the instructions and is true and correct.
Sanjiv Tandon
Kevin O. Healey
Steven R. Rothbloom
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
for
9-7/8% Senior Notes Due 2007
of
Adelphia Communications Corporation
Pursuant to the Exchange Offer in Respect of
All of their Outstanding 9-7/8% Senior Notes due 2007
for
9-7/8% Senior Notes due 2007, Series B
Pursuant to the Prospectus Dated 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE
EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN PRIOR TO
THE EXPIRATION DATE.
To: Bank of Montreal Trust Company, Exchange Agent
By Registered or Certified Mail, By Facsimile
Hand or Overnight Courier Attention: Corporate Trust Department:
Bank of Montreal Trust Company (212) 701-7684
77 Water Street
New York, NY 10005 Confirm by Telephone:
Attention: Corporate Trust Department (212) 701-7653
Delivery of this Letter of Transmittal to an address, or transmission via
telegram, telex or facsimile, other than as set forth above will not constitute
a valid delivery. The instructions contained herein should be read carefully
before this Letter of Transmittal is completed.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR OLD NOTES
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR OLD
NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
By execution hereof, the undersigned acknowledges receipt of the Prospectus
(the "Prospectus"), dated , 1997, of Adelphia Communications
Corporation (the "Issuer"), which, together with this Letter of Transmittal and
the Instructions hereto (the "Letter of Transmittal"), constitute the Issuer's
offer (the "Exchange Offer") to exchange $1,000 principal amount of its 9-7/8%
Series B Senior Notes due 2007 (the "New Notes") that have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus constitutes a part, for each
$1,000 principal amount of its outstanding 9-7/8% Senior Notes due 2007 (the
"Old Notes"), upon the terms and subject to the conditions set forth in the
Prospectus.
The Company has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer, is
acquiring the New Notes in its ordinary course of business and has no
arrangement or understanding with any person to participate in the distribution
of the New Notes to be received in the Exchange Offer.
This Letter of Transmittal is to be used by Holders if : (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders; (ii) tender of Old Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in the Prospectus under "The Exchange
Offer-Procedures for Tendering" by any financial
<PAGE>
institution that is a participant in DTC and whose name appears on a security
position listing as the owner of Old Notes (such participants, acting on behalf
of Holders (as defined below), are referred to herein, together with such
Holders, as "Acting Holders"); or (iii) tender of Old Notes is to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer-Guaranteed Delivery Procedures." Delivery of documents
to DTC does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Old Notes are registered on the books of the Issuer or any other
person who has obtained a properly completed bond power from the registered
Holder or (ii) whose Old Notes are held of record by DTC and who desires to
deliver such Old Notes by book entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
All capitalized terms used herein and not defined herein shall have the
meaning ascribed to them in the Prospectus.
The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 8 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES
MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tenders of Old Notes will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof.
-2-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Certificate Aggregate
Number(s)* (Attach Principal
Name(s) and Address(es) of Holder(s) signed list if Amount Tendered (if
(Please fill in, if blank) necessary) less than all)**
- ------------------------------------------------------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
- ------------------------------------------------------------------------------------------------
TOTAL PRINCIPAL AMOUNT OF OLD NOTES TENDERED
- ------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer
** Need not be completed by Holders who wish to tender with respect
to all Old Notes listed. See Instruction 2.
- ------------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
---------------------------------------------
DTC Book-Entry Account No.:
------------------------------------------------
Transaction Code No.:
------------------------------------------------------
If Holders desire to tender Old Notes pursuant to the Exchange Offer and
(i) certificates representing such Old Notes are not lost but are not
immediately available, (ii) time will not permit this Letter of Transmittal,
certificates representing such Old Notes or other required documents to reach
the Exchange Agent prior to the Expiration Date or (iii) the procedures for
book-entry transfer cannot be completed prior to the Expiration Date, such
Holders may effect a tender of such Old Notes in accordance with the guaranteed
delivery procedures set forth in the Prospectus under "The Exchange Offer-
Guaranteed Delivery Procedures."
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Holder(s) of Old Notes:
-----------------------------------------
Window Ticket No. (if any):
------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
------------------------
Name of Eligible Institution that Guaranteed Delivery:
---------------------
DTC Book-Entry Account No.:
------------------------------------------------
If Delivered by Book-Entry Transfer,
Name of Tendering Institution:
---------------------------------------------
Transaction Code No.:
------------------------------------------------------
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
---------------------------------------------------------------------------
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms of the Exchange Offer, the undersigned hereby tenders
to the Issuer the principal amount of Old Notes indicated above. Subject to and
effective upon the acceptance
-4-
<PAGE>
for exchange of the principal amount of Old Notes tendered in accordance with
this Letter of Transmittal, the undersigned sells, assigns and transfers to, or
upon the order of, the Issuer all right, title and interest in and to the Old
Notes tendered hereby. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent and its agent and attorney-in-fact (with full
knowledge that the Exchange Agent also acts as the agent of the Issuer and as
Trustee under the Indenture for the Old Notes and the New Notes) with respect to
the tendered Old Notes with full power of substitution to (i) deliver
certificates for such Old Notes to the Issuer, or transfer ownership of such Old
Notes on the account books maintained by DTC, together, in either such case,
with all accompanying evidences of transfer and authenticity to, or upon the
order of, the Issuer and (ii) present such Old Notes for transfer on the books
of the Issuer and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms of the
Exchange Offer. The power of attorney granted in this paragraph shall be deemed
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are acquired by the Issuer. The
undersigned also acknowledges that this Exchange Offer is being made in reliance
upon an interpretation by the staff of the Securities and Exchange Commission
that the New Notes issued in exchange for the Old Notes pursuant to the Exchange
Offer may be offered for resale, resold and otherwise transferred by the holders
thereof (other than any such holder that is an "affiliate" of the Issuer within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
the distribution of such New Notes. The undersigned acknowledges that if he or
she is participating in the Exchange Offer for the purpose of distributing the
New Notes, the undersigned must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of the New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Old Notes and the
undersigned represents that such Old Notes were acquired as a result of market-
making activities or other trading activities and acknowledges that it will
deliver a prospectus in connection with any resale of such New Notes, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned represents that (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such Holder's
business, (ii) such Holder has no arrangements with any person to participate in
the distribution of such New Notes and (iii) such Holder is not an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Issuer or, if such
Holder is an affiliate, that such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
-5-
<PAGE>
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuer to be necessary or
desirable to complete the assignment and transfer of the Old Notes tendered
hereby.
For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted validly tendered Old Notes when, as and if the Issuer has given oral or
written notice thereof to the Exchange Agent. If any tendered Old Notes are not
accepted for exchange pursuant to the Exchange Offer for any reason,
certificates for any such unaccepted Old Notes will be terminated (except as
noted below with respect to tenders through DTC), without expense, to the
undersigned at the address shown below or at a different address shown below or
at a different address as may be indicated under "Special Issuance Instructions"
as soon as practicable following the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation under this Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, successors and
assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer-Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Issuer upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in such event in the case of
Old Notes tendered by DTC, by credit to the account at DTC). Similarly, unless
otherwise indicated under "Special Delivery Instructions," please send the
certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and any certificates for Old Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned's signatures, unless, in either event,
tender is being made through DTC. In the event that both "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and return any Old Notes not tendered or not exchanged in
the name(s) of, and send said certificates to, the person(s) so indicated. The
undersigned recognizes that the Issuer has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to transfer
any Old Notes from the name of the registered holder(s) thereof if the Issuer
does not accept for exchange any of the Old Notes so tendered.
-6-
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF OLD NOTES REGARDLESS
OF WHETHER OLD NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Old Notes
exactly as their name(s) appear(s) on certificate(s) for Old Notes or, if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as the owner of Old Notes, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below under "Capacity" and submit evidence satisfactory to the
Issuer of such person's authority to so act. See Instruction 3 herein.
If the signature appearing below is not of the registered Holder(s) of the
Old Notes, then the registered Holder(s) must sign a valid proxy.
X Date:
---------------------------------- -----------------------------------
X Date:
---------------------------------- -----------------------------------
Signature(s) of
Holder(s) or
Authorized Signatory
Name(s): Address
--------------------------- ---------------------------------
--------------------------- ---------------------------------
(Please Print) (Including Zip Code)
Capacity: Area Code and Telephone No.:
-------------------------- ------------
Social Security No.:
---------------
SIGNATURE GUARANTEE (See Instruction 3 herein)
Certain Signatures Must Be Guaranteed by an Eligible Institution
- --------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- --------------------------------------------------------------------------------
(Address (Including zip code) and Telephone Number
(including area code) of Firm)
- --------------------------------------------------------------------------------
(Authorized Signature)
- ------------------------------------------------------------------------------
(Printed Name)
- ------------------------------------------------------------------------------
(Title)
Date:
--------------------
-7-
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instuctions 3 and 4 herein) (See instructions 3 and 4 herein)
To be completed ONLY if To be completed ONLY if
certificates for Old Notes in a certificates for Old Notes in a
principal amount not tendered are principal amount not tendered or
to be issued in the name of, or the not accepted for purchase or the
New Notes issued pursuant to the New Notes issued pursuant to the
Exchange Offer are to be issued to Exchange Offer are to be sent to
the order of, someone other than someone other than the person or
the person or persons whose persons whose signature(s)
signature(s) appear(s) within this appear(s) within this Letter of
Letter of Transmittal or issued to Transmittal or to an address
an address different from that different from that shown in the
shown in the box entitled box entitled "Description of Old
"Description of Old Notes" within Notes" within this Letter of
this Letter of Transmittal, of if Transmittal.
Old Notes tendered by book-entry
transfer that are not accepted for
purchase are to be credited to an
account maintained at DTC.
Name:.............................. Name:..............................
(Please Print) (Please Print)
Address:........................... Address:...........................
(Please Print) (Please Print)
................................... ...................................
Zip Code Zip Code
................................... ...................................
Taxpayer Identification or Taxpayer Identification or
Social Security Number Social Security Number
-8-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Offer
1. Delivery of this Letter of Transmittal and Old Notes. The certificates
for the tendered Old Notes (or a confirmation of a book-entry into the Exchange
Agent's account at DTC of all Old Notes delivered electronically), as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile hereof and any other documents required by this Letter of Transmittal
must be received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date. The method of delivery
of the tendered Old Notes, this Letter of Transmittal and all other required
documents to the Exchange Agent is at the election and risk of the Holder and,
except as otherwise provided below, the delivery will be deemed made only when
actually received by the Exchange Agent. Instead of delivery by mail, it is
recommended that the Holder use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assume timely delivery. No Letter
of Transmittal or Old Notes should be sent to the Issuer.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal or any other documents required hereby to the Exchange Agent prior
to the Expiration Date must tender their Old Notes and follow the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution; (ii) prior
to the Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder of the Old Notes, the certificate number or numbers of
such Old Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five business days
after the Expiration Date, this Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes (or a confirmation
of electronic delivery of book-entry delivery into the Exchange Agent's account
at DTC) and any of the required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile hereof), as well as all other
documents required by this Letter of Transmittal and the certificate(s)
representing all tendered Old Notes in proper form for transfer (or a
confirmation of electronic mail delivery of book-entry delivery into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
five business days after the Expiration Date, all as provided in the Prospectus
under the caption "Guaranteed Delivery Procedures." Any Holder of Old Notes who
wishes to tender his Old Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration
Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right
-9-
<PAGE>
to reject any and all Old Notes not properly tendered or any Old Notes the
Issuer's acceptance of which would, in the opinion of counsel for the Issuer, be
unlawful. The Issuer also reserves the right to waive any irregularities or
conditions of tender as to particular Old Notes. The Issuer's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
this Letter of Transmittal) will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
must be cured within such time as the Issuer shall determine. Neither the
Issuer, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes,
nor shall any of them incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering Holders of Old Notes, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
2. Partial Tenders. Tenders of Old Notes will be accepted in all
denominations of $1,000 and integral multiples in excess thereof. If less than
the entire principal amount of any Old Notes is tendered, the tendering Holders
should fill in the principal amount tendered in the third column of the chart
entitled "Description of Old Notes." The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, Old Notes for the principal amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Old Notes is not tendered, Old Notes for
the principal amount of Old Notes not tendered and a certificate or certificates
representing New Notes issued in exchange of any Old Notes accepted will be sent
to the Holder at his or her registered address, unless a different address is
provided in the appropriate box on this Letter of Transmittal or unless tender
is made through DTC, promptly after the Old Notes are accepted for exchange.
3. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Old Notes tendered and the certificate(s) for New Notes
issued in exchange thereof is to be issued (or any untendered principal amount
of Old Notes is to be reissued) to the registered Holder, such Holder need not
and should not endorse any tendered Old Note, nor provide a separate bond power.
In any other case, such Holder must either properly endorse the Old Notes
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of
-10-
<PAGE>
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuer,
evidence satisfactory to the Issuer of their authority so to act must be
submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered Holder (including any participant in
DTC whose name appears on a security position listing as the owner of Old Notes)
who has not completed the box set forth herein entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" or (ii) for
the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. Transfer Taxes. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
6. Waiver of Conditions. The Issuer reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
7. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instruction.
8. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may
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<PAGE>
be directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Certificate Surrendered Old Notes Tendered Old Notes Accepted
- -----------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
Delivery Prepared by __________ Check by __________ Date __________
- -----------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
Notice of Guaranteed Delivery
for Tender of
9-7/8% Senior Notes due 2007
(the "Old Notes")
of
ADELPHIA COMMUNICATIONS CORPORATION
This form, or one substantially equivalent hereto, must be used to tender
Old Notes pursuant to the Exchange Offer described in the Prospectus dated
___________, 1997 (the "Prospectus") of Adelphia Communications Corporation
(the "Company"), if a holder of Old Notes cannot deliver a Letter of Transmittal
to the Exchange Agent listed below (the "Exchange Agent") or cannot either
deliver the Old Notes to be tendered or complete the procedure for book-entry
transfer prior to 5:00 P.M., New York City time, on _______, 1997 or such later
date and time to which the Exchange Offer may be extended (the "Expiration
Date"). This form, or one substantially equivalent hereto, must be delivered by
hand or sent by facsimile transmission or mail to the Exchange Agent, and must
be received by the Exchange Agent on or prior to the Expiration Date. See "The
Exchange Offer - Procedures for Tendering" in the Prospectus. Capitalized terms
used herein and not defined herein shall have the meanings ascribed thereto in
the Prospectus.
To: Bank of Montreal Trust Company, Exchange Agent
By Mail, by Hand or Overnight Delivery:
Bank of Montreal Trust Company
77 Water Street
New York, NY 10005
Attn: Corporate Trust Department
By Facsimile:
(212) 701-7684
Confirm by Telephone:
(212) 701-7653
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via facsimile other than as set forth above does
not constitute a valid delivery.
-13-
<PAGE>
Ladies and Gentlemen:
The undersigned hereby represents that he or she is the holder of the Old
Notes indicated below and that the Letter of Transmittal cannot be delivered to
the Exchange Agent and/or either the certificates representing such Old Notes
cannot be delivered to the Exchange Agent or the procedure for book-entry
transfer cannot be completed prior to the Expiration Date. The undersigned
hereby tenders the Old Notes indicated below pursuant to the guaranteed delivery
procedures set forth in the Prospectus and the Letter of Transmittal, receipt of
which is hereby acknowledged.
Name(s) of Tender Holder(s):
----------------------------------------------------
- --------------------------------------------------------------------------------
Please Print or Type
- --------------------------------------------------------------------------------
Signature
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone Number(s):
------------------------------------------------------------
Name(s) in which Old Notes are registered:
--------------------------------------
- --------------------------------------------------------------------------------
Certificate No(s). Principal Amount
(if applicable)* Transferred
-------------------- ----------------
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
_______________
*Need not be completed by book-entry holders.
-14-
<PAGE>
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or a correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby guarantees that the
undersigned will deliver to the Exchange Agent the certificates representing the
Old Notes being tendered hereby in proper form for transfer (or a confirmation
of book-entry transfer of such Old Notes, into the Exchange Agent's account at
the book-entry transfer facility) with delivery of a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, all within five business
days after the Expiration Date.
Name of Firm
----------------------- -----------------------------------
Authorized Signature
Address Name
---------------------------- -------------------------------
Please Print or Type
Title
- ----------------------------------- ------------------------------
Zip Code
Telephone No. Dated:
---------------------- -----------------------------
The institution that completes this form must communicate the guarantee to
the Exchange Agent and must deliver the certificates representing any Old Notes
(or a confirmation of book-entry transfer of such Old Notes into the Exchange
Agent's account at the book-entry transfer facility) and the Letter of
Transmittal to the Exchange Agent within the time period shown herein. Failure
to do so could result in a financial loss to such institution.
-15-
