SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 1998
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. For the transition period from ______________ to _____________
Commission File Number: 000-16014
ADELPHIA COMMUNICATIONS
CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2417713
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Main at Water Street
Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip code)
814-274-9830
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At November 13, 1998, 31,258,843 shares of Class A Common Stock, par value $.01
per share, and 10,834,476 shares of Class B Common Stock, par value $.01 per
share, of the registrant were outstanding.
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets - March 31, 1998 and
September 30, 1998............................................................................. 3
Condensed Consolidated Statements of Operations - Three and Six Months Ended
September 30, 1997 and 1998.................................................................... 4
Condensed Consolidated Statements of Cash Flows - Six Months Ended
September 30, 1997 and 1998.................................................................... 5
Notes to Condensed Consolidated Financial Statements............................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................................. 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 24
Item 2. Changes in Securities and Use of Proceeds..................................................... 24
Item 3. Defaults Upon Senior Securities.............................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 24
Item 5. Other Information............................................................................ 25
Item 6. Exhibits and Reports on Form 8-K.............................................................. 25
SIGNATURES............................................................................................. 26
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share amounts)
March 31, September 30,
ASSETS: 1998 1998
- - -------
----------- -----------
<S> <C> <C>
Property, plant and equipment - net $ 918,637 $ 1,149,458
Intangible assets - net 695,104 1,047,288
Cash and cash equivalents 276,895 171,030
U.S. government securities - pledged 70,535 57,201
Investments 127,827 145,647
Preferred equity investment in Managed Partnership 18,338 --
Subscriber receivables - net 30,551 49,088
Prepaid expenses and other assets - net 114,526 110,864
Investment in and amounts due from Olympus -- 30,944
Related party receivables - net 52,258 35,973
----------- -----------
Total $ 2,304,671 $ 2,797,493
=========== ===========
LIABILITIES, PREFERRED STOCK, COMMON STOCK AND
OTHER STOCKHOLDERS' EQUITY (DEFICIENCY):
- - ---------------------------------------
Subsidiary debt $ 1,329,471 $ 1,369,567
Parent debt 1,580,274 1,660,013
Accounts payable 65,019 95,357
Subscriber advance payments and deposits 17,129 19,227
Accrued interest and other liabilities 98,087 90,519
Deferred income taxes 116,351 111,569
----------- -----------
Total liabilities 3,206,331 3,346,252
----------- -----------
Minority interests 27,737 59,836
----------- -----------
Cumulative equity in loss in excess of investment in and amounts
due from Olympus 31,202 --
----------- -----------
Hyperion Redeemable Exchangeable Preferred Stock 207,204 221,251
----------- -----------
Series A Cumulative Redeemable Exchangeable Preferred Stock 148,062 148,148
----------- -----------
Commitments and contingencies (Note 9)
Convertible preferred stock, common stock and
other stockholders' equity (deficiency):
8 1/8% Series C Convertible Preferred Stock ($100,000 liquidation preference) 1 1
Class A Common Stock, $.01 par value, 200,000,000 shares authorized,
20,043,528 and 31,258,843 shares outstanding, respectively 200 313
Class B Common Stock, $.01 par value, 25,000,000 shares authorized,
10,944,476 and 10,834,476 shares outstanding, respectively 109 108
Additional paid-in capital 331,263 744,975
Accumulated deficit (1,647,438) (1,723,391)
----------- -----------
Convertible preferred stock, common stock and
other stockholders' equity (deficiency) (1,315,865) (977,994)
----------- -----------
Total $ 2,304,671 $ 2,797,493
=========== ===========
See notes to condensed consolidated financial statements.
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ----------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 128,990 $ 169,387 $ 251,634 $ 314,143
--------- --------- --------- ---------
Operating expenses:
Direct operating and programming 38,540 56,595 78,213 105,333
Selling, general and administrative 23,472 33,043 45,731 62,154
Depreciation and amortization 33,586 46,083 67,319 84,642
--------- --------- --------- ---------
Total 95,598 135,721 191,263 252,129
--------- --------- --------- ---------
Operating income 33,392 33,666 60,371 62,014
--------- --------- --------- ---------
Other income (expense):
Priority investment income from Olympus 12,000 12,000 23,765 24,000
Other income 610 113 610 1,113
Interest expense - net (62,432) (63,317) (124,169) (126,062)
Equity in loss of Olympus and other joint ventures (14,840) (14,803) (34,038) (33,119)
Equity in loss of Hyperion joint ventures (3,886) (2,614) (6,426) (5,804)
Minority interest in net losses of subsidiaries -- 8,543 -- 14,003
Hyperion preferred stock dividends -- (7,166) -- (14,112)
--------- --------- --------- ---------
Total (68,548) (67,244) (140,258) (139,981)
--------- --------- --------- ---------
Loss before income taxes and extraordinary (loss) gain (35,156) (33,578) (79,887) (77,967)
Income tax (expense) benefit (365) (852) (295) 4,762
--------- --------- --------- ---------
Loss before extraordinary (loss) gain (35,521) (34,430) (80,182) (73,205)
Extraordinary (loss) gain on early retirement of debt -- (1,733) 2,300 (4,337)
--------- --------- --------- ---------
Net loss (35,521) (36,163) (77,882) (77,542)
Dividend requirements applicable to preferred stock (4,550) (6,906) (4,550) (13,812)
--------- --------- --------- ---------
Net loss applicable to common stockholders $ (40,071) $ (43,069) $ (82,432) $ (91,354)
========= ========= ========= =========
Basic and diluted loss per weighted average share of common
stock before extraordinary (loss) gain $ (1.31) $ (1.16) $ (2.92) $ (2.62)
Basic and diluted extraordinary (loss) gain per weighted
average share on early retirement of debt -- (0.05) 0.08 (0.13)
--------- --------- --------- ---------
Basic and diluted net loss per weighted average share
of common stock $ (1.31) $ (1.21) $ (2.84) $ (2.75)
========= ========= ========= =========
Weighted average shares of common stock outstanding
(in thousands) 30,647 35,533 29,066 33,261
========= ========= ========= =========
See notes to condensed consolidated financial statements.
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Six Months Ended September 30,
------------------------------
1997 1998
---------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (77,882) $ (77,542)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 67,319 84,642
Noncash interest expense 22,629 15,803
Noncash dividends -- 14,112
Equity in loss of Olympus and other joint ventures 34,038 33,119
Equity in loss of Hyperion joint ventures 6,426 5,804
Minority interest in losses of subsidiaries -- (14,003)
Extraordinary (gain) loss on early retirement of debt (2,300) 4,337
Decrease in deferred income taxes, net of effect of acquisitions (84) (4,782)
Changes in operating assets and liabilities, net of
effect of acquisitions:
Subscriber receivables (4,281) (15,051)
Prepaid expenses and other assets (431) (2,334)
Accounts payable (837) 29,270
Subscriber advance payments and deposits 395 1,528
Accrued interest and other liabilities (35,745) (7,926)
--------- ---------
Net cash provided by operating activities 9,247 66,977
--------- ---------
Cash flows used for investing activities:
Acquisitions (37,147) (403,851)
Expenditures for property, plant and equipment (80,615) (178,852)
Investments in Hyperion nonconsolidated joint ventures (26,640) (13,516)
Investments in other joint ventures (11,139) (11,472)
Purchase of minority interest in Hyperion -- (15,580)
Investments in U.S. government securities - pledged (83,849) --
Sale of U.S. Government securities - pledged -- 15,312
Amounts invested in and advanced to
Olympus and related parties (55,508) (92,359)
--------- ---------
Net cash used for investing activities (294,898) (700,318)
--------- ---------
Cash flows provided by financing activities:
Proceeds from debt 839,419 335,652
Repayments of debt (636,115) (248,185)
Costs associated with debt financings (18,090) (1,994)
Issuance of redeemable exchangeable preferred stock 147,976 --
Issuance of convertible preferred stock 97,000 --
Premium paid on early retirement of debt -- (3,634)
Issuance of Hyperion Class A common stock -- 205,599
Issuance of Class A common stock -- 275,880
Costs associated with issuances of common stock -- (22,030)
Preferred stock dividends paid -- (13,812)
--------- ---------
Net cash provided by financing activities 430,190 527,476
--------- ---------
Increase (decrease) in cash and cash equivalents 144,539 (105,865)
Cash and cash equivalents, beginning of period 61,539 276,895
--------- ---------
Cash and cash equivalents, end of period $ 206,078 $ 171,030
========= =========
See notes to condensed consolidated financial statements.
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, except per share amounts)
The accompanying unaudited condensed consolidated financial statements
of Adelphia Communications Corporation and its majority owned subsidiaries
("Adelphia" or the "Company") have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission.
In the opinion of management, all adjustments, consisting of only
normal recurring accruals necessary for a fair presentation of the financial
position of Adelphia at September 30, 1998, and the results of operations for
the three and six months ended September 30, 1997 and 1998, have been included.
These condensed consolidated financial statements should be read in conjunction
with Adelphia's consolidated financial statements included in its Annual Report
on Form 10-K for the fiscal year ended March 31, 1998 ("Annual Report"). The
results of operations for the three and six months ended September 30, 1998 are
not necessarily indicative of the results to be expected for the year ending
March 31, 1999.
1. Significant Events Subsequent to the Annual Report:
On April 1, 1998, the Company completed an exchange of cable systems
with Time Warner. The Company exchanged its interests in Mansfield, Ohio area
systems, which served approximately 64,400 subscribers, and approximately
$11,000 cash for interests in systems adjacent to systems owned or managed by
Adelphia in Virginia, New England and New York, which served approximately
70,200 subscribers. No gain or loss was recognized in connection with this
transaction.
On May 8, 1998, Hyperion Telecommunications, Inc. ("Hyperion")
completed an initial public offering ("IPO") of its Class A Common Stock
("Hyperion Stock"). As part of the offering, Adelphia purchased an incremental
3,324,001 shares of Hyperion Stock for $49,900 and converted indebtedness owed
to the Company by Hyperion into 3,642,666 shares of Hyperion Stock. In addition,
Adelphia purchased warrants issued by Hyperion to MCI Metro Access Transmission
Services, Inc., and purchased shares of Hyperion Class B common stock from
certain executive officers of Hyperion for a total purchase price of
approximately $12,580 and $3,000, respectively. Adelphia owns approximately 66%
of the Hyperion common stock on a fully diluted basis and 86% of the total
voting power. Additional net proceeds of $191,411 to Hyperion were received as a
result of the sale of Hyperion Stock to the public. In a related transaction on
June 5, 1998, Hyperion issued and sold 350,000 shares of its Class A Common
Stock at the $16.00 IPO price pursuant to the underwriters' over allotment
option in the IPO. As a result of the IPO, Adelphia's additional paid-in capital
increased approximately $147,000 and minority interests increased approximately
$45,000.
On June 5, 1998, Adelphia acquired cable systems from Cablevision
Systems. These systems served approximately 11,250 subscribers at the date of
acquisition in southern New York and were purchased for an aggregate price of
$11,500. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the financial results of the acquired systems are
included in the consolidated results of Adelphia effective with the date
acquired.
Since April 1, 1998, Hyperion entered into a series of agreements,
totaling $107,000 with Qwest Communications, Williams Communications and several
other fiber optic network providers. These agreements will provide Hyperion with
ownership or an indefeasible right of use to over 8,100 route miles of fiber
optic cable, which will significantly increase its presence in the eastern half
of the United States. Through September 30, 1998, Hyperion has paid $38,239 of
the total due under these agreements, which is included in property, plant and
equipment.
<PAGE>
On July 2, 1998, Adelphia issued $150,000 of 8 1/8% Senior Notes due
2003 (the "Senior Notes"). Net proceeds of approximately $147,300, after payment
of transaction costs, were used to repay debt of subsidiaries. The terms of the
Senior Notes are similar to those of Adelphia's existing publicly held senior
debt.
On July 31, 1998, Adelphia consummated its transaction with
Tele-Communications, Inc. ("TCI") to form a joint venture limited partnership in
the Western New York region (the "Western New York Partnership"). Pursuant to
this agreement, Adelphia contributed its Western New York and Lorain, Ohio
systems totaling approximately 298,000 subscribers and certain programming
assets and $440,000 in debt. Subsidiaries of TCI contributed their cable systems
in Buffalo, New York; Erie, Pennsylvania; and Ashtabula and Lake County, Ohio,
totaling approximately 171,000 subscribers and $228,000 in debt. Adelphia and
TCI hold a 66.7% and 33.3% interest, respectively, in the partnership. Adelphia
manages the partnership and consolidates the partnership's results of operations
for financial reporting purposes beginning on the acquisition date. As part of
this transaction, the joint venture became a party to one of Adelphia's
subsidiaries' revolving credit facilities and repaid the TCI contributed debt
with the borrowings under that revolving credit facility.
On August 18, 1998, Adelphia issued 8,190,315 shares of Class A Common
Stock to the public and to the Rigas Family (principal shareholders and officers
of Adelphia). Of this total, 4,100,000 shares were sold to the public at a price
of $32.00 per share, with an underwriting discount of $1.44 per share. The
remaining 4,090,315 shares were sold to entities controlled by the Rigas Family
at the public offering price less the underwriting discount. In a related
transaction on September 14, 1998, the Company issued and sold 615,000 shares of
Class A Common Stock at the offering price of $32.00, with an underwriting
discount of $1.44 per share, pursuant to the underwriters' over-allotment
option. Adelphia realized aggregate net proceeds of $268,038 after deducting
underwriter and other fees.
On September 1, 1998, a majority owned subsidiary Adelphia acquired
cable systems from Marcus Cable. These systems served approximately 62,000
subscribers at the date of acquisition in Connecticut and Virginia and were
purchased for an aggregate price of $150,126. The acquisition was accounted for
under the purchase method of accounting. Accordingly, the financial results of
the acquired systems are included in the consolidated results of Adelphia
effective from the date acquired.
On September 30, 1998, Adelphia merged a subsidiary of the Company with
the subsidiary of TCI that held an interest in Syracuse Hilton Head Holdings,
L.P. ("SHHH, L.P."), an Adelphia managed partnership controlled by the Rigas
Family. Pursuant to the merger agreement, TCI received 2,250,000 newly issued
shares of the Company's Class A Common Stock, $.01 par value, as a result of the
merger. Simultaneously, SHHH, L.P. distributed certain SHHH, L.P. cable systems,
which serve approximately 34,100 subscribers, in Virginia and North Carolina
(the "Virginia and North Carolina Systems") to Adelphia, in exchange for the
interest acquired by Adelphia from TCI as described above, Adelphia's Preferred
equity investment in Managed Partnership and certain affiliate receivables owed
to Adelphia. The Virginia and North Carolina Systems were distributed to
Adelphia without indebtedness.
On November 4, 1998, Hyperion entered into purchase agreements with
subsidiaries of MediaOne of Colorado, Inc. ("MediaOne"), its local partner in
the Jacksonville, FL and Richmond, VA networks, whereby MediaOne will be paid
approximately $82,751 in cash for MediaOne's ownership interest in these
networks. In addition, Hyperion will be responsible for the payment of fiber
lease liabilities due to MediaOne in the amount of approximately $14,500, which
are generally payable over the next ten years. Upon consummation of this
<PAGE>
transaction, which is subject to normal closing conditions and receipt of
regulatory approvals, Hyperion's ownership interest in each of these networks
will increase to 100%.
On November 12, 1998, Adelphia issued $150,000 of 8 3/8% Senior Notes
due 2008 (the "8 3/8% Senior Notes"). Net proceeds of the offering, after
deducting offering expenses, are estimated to be approximately $151,500,
including approximately $3,500 in accrued interest. The proceeds from the
offering were used to repay borrowings under revolving credit facilities of
subsidiaries. The terms of the 8 3/8% Senior Notes are similar to those of
Adelphia's existing publicly held senior debt.
As of November 13, 1998, the Company had full commitments and
subscriptions for a new $700,000 bank credit facility for the Western New York
Partnership, consisting of a $350,000 reducing revolving credit portion and a
$350,000 term loan portion. The closing of this credit facility is expected to
occur by November 23, 1998 and the initial proceeds are expected to be used to
refinance existing indebtedness of the Western New York Partnership.
2. Debt:
Subsidiary Debt:
Subsidiary debt is summarized as follows:
March 31, September 30,
1998 1998
---------- ----------
Notes to banks and institutions $ 827,725 $ 870,845
13% Senior Discount Notes of Hyperion due 2003 215,213 213,124
12 1/4% Senior Secured Notes of Hyperion due 2004 250,000 250,000
Other subsidiary debt 36,533 35,598
---------- ----------
Total Subsidiary debt $1,329,471 $1,369,567
========== ==========
The following information updates to September 30, 1998, unless
otherwise noted, certain disclosures included in Note 3 to Adelphia's
consolidated financial statements contained in the Annual Report:
Commitments for additional borrowings,
as of November 13, 1998 $ 881,500
Weighted average interest rate payable by subsidiaries
under credit agreements with banks and institutions 7.27%
Percentage of subsidiary notes to banks and institutions that
bear interest at fixed rates for at least one year 10.29%
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Parent Debt:
March 31, September 30,
1998 1998
---------- ----------
12 1/2% Senior Notes due 2002 $ 69,838 $ --
10 1/4% Senior Notes due 2000 99,504 99,602
9 7/8% Senior Notes due 2007 347,446 347,539
9 1/4% Senior Notes due 2002 325,000 325,000
10 1/2% Senior Notes due 2004 150,000 150,000
8 3/8% Senior Notes due 2008 149,153 149,182
8 1/8% Senior Notes due 2003 -- 149,253
11 7/8% Senior Debentures due 2004 124,579 124,602
9 7/8% Senior Debentures due 2005 128,407 128,488
9 1/2% Pay-In-Kind Notes due 2004 186,347 186,347
---------- ----------
Total Parent debt $1,580,274 $1,660,013
========== ==========
3. Investments:
Adelphia's nonconsolidated investments are as follows:
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<CAPTION>
March 31, September 30,
1998 1998
--------- ---------
Investments accounted for using the equity method:
Gross investment:
<S> <C> <C>
Hyperion investments in joint ventures $ 66,648 $ 80,164
Page Call, Inc.\Benbow PCS Ventures, Inc. 15,539 17,170
Mobile communications 15,387 17,633
Other 4,705 9,129
--------- ---------
Total 102,279 124,096
--------- ---------
Investments accounted for using the cost method:
Niagara Frontier Hockey, L.P. 40,497 43,100
SuperCable ALK International 3,190 3,190
Programming ventures 1,427 1,470
Mobile communications 2,582 2,807
Other 812 673
--------- ---------
Total 48,508 51,240
--------- ---------
Total investments before cumulative equity in net losses 150,787 175,336
Cumulative equity in net losses (22,960) (29,689)
--------- ---------
Total investments $ 127,827 $ 145,647
========= =========
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4. Related Party Investments and Receivables:
Related party receivables - net represent advances to managed
partnerships, the Rigas Family and Rigas Family controlled entities. No related
party advances are collateralized.
Investment in and amounts due from Olympus is comprised of the
following:
March 31, September 30,
1998 1998
---------------- -----------------
Cumulative equity in loss
over investment in Olympus $ (94,833) $ (99,917)
Amounts due from Olympus 63,631 130,861
---------------- -----------------
$ (31,202) $ 30,944
================ =================
The investment in Olympus represents a 50% voting interest in such
partnership and is being accounted for using the equity method. Summarized
unaudited results of operations of Olympus are as follows:
Nine Months Ended
September 30,
------------------------------------
1997 1998
---------------- -----------------
Revenues $ 126,818 $ 156,497
Net loss (15,020) (15,265)
Net loss of general partners
after priority return (70,783) (80,855)
5. Net Loss Per Weighted Average Share of Common Stock:
Basic net loss per weighted average share of common stock is computed
based on the weighted average number of common shares outstanding after giving
effect to dividend requirements on the Company's preferred stock. Diluted net
loss per common share is equal to basic net loss per common share because the
Company's Convertible Preferred Stock had an antidilutive effect for the periods
presented; however, the Convertible Preferred Stock could have a dilutive effect
on earnings per share in future periods.
6. Supplemental Financial Information:
Cash payments for interest were $108,908 and $134,851 for the six
months ended September 30, 1997 and 1998, respectively. Accumulated depreciation
of property, plant and equipment amounted to $649,527 and $720,989 at March 31
and September 30, 1998, respectively. Accumulated amortization of intangible
assets amounted to $211,967 and $251,306 at March 31 and September 30, 1998,
respectively. Interest expense - net includes interest income of $1,658 and
$7,907 for the three months ended September 30, 1997 and 1998 and $4,102 and
$15,987 for the six months ended September 30, 1997 and 1998, respectively.
Interest income includes interest income from affiliates on long-term loans and
for reimbursement of interest expense on revolving credit agreements related to
short-term borrowings by such affiliates.
<PAGE>
7. Income Taxes:
Income tax (expense) benefit for the three and six months ended
September 30, 1998 was $(852) and $4,762, respectively, which was substantially
comprised of deferred tax.
8. Recent Accounting Pronouncements:
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," has been issued
and is effective for fiscal quarters of fiscal years beginning after June 15,
1999. SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Management of the Company
has not evaluated the impact of SFAS No. 133 on the Company's condensed
consolidated financial statements.
9. Commitments and Contingencies:
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of material commitments and
contingencies.
10. Reclassifications:
Certain prior period amounts have been reclassified to conform with the
current period presentation.
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, is forward-looking, such as information relating to
the effect 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, product acceptance, technological
developments, year 2000 issue and changes in the competitive environment in
which the Company operates.
Adelphia Communications Corporation and its subsidiaries ("Adelphia" or
the "Company") operates primarily in two lines of business within the
telecommunications industry: cable television and related investments
("Adelphia, excluding Hyperion") and competitive local exchange carrier ("CLEC")
telephony ("Hyperion"). The balance sheet data as of March 31, 1998 and
September 30, 1998 and the other data for the three and six months ended
September 30, 1997 and 1998 of Hyperion presented below have been derived from
the consolidated financial statements of Hyperion not included herein.
A majority owned subsidiary of the Company, Hyperion, together with its
subsidiaries owns CLEC networks and investments in CLEC joint ventures and
manages those networks and joint ventures. Hyperion is an unrestricted
subsidiary for purposes of the Company's indentures. 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 September
30, 1998.
Summarized unaudited financial information of Adelphia, Hyperion and
Adelphia, excluding Hyperion is as follows:
Balance Sheet Data:
March 31, September 30,
Adelphia Consolidated 1998 1998
----------- -----------
Total assets $2,304,671 $2,797,493
Total debt 2,909,745 3,029,580
Investments (a) 150,787 175,336
Redeemable preferred stock 355,266 369,399
Convertible preferred stock (liquidation preference) 100,000 100,000
Hyperion
Total assets $ 639,992 $ 846,980
Total debt 528,776 489,815
Investments (a) 66,648 80,164
Redeemable preferred stock 207,204 221,251
Adelphia, excluding Hyperion
Total assets $1,664,679 $2,105,513
Total debt 2,380,969 2,694,765
Investments (a) 84,139 95,172
Redeemable preferred stock 148,062 148,148
Convertible preferred stock (liquidation preference) 100,000 100,000
<PAGE>
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<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ------------------------
1997 1998 1997 1998
--------- --------- --------- -----------
Other Data:
Adelphia Consolidated
<S> <C> <C> <C> <C>
Revenues $ 128,990 $ 169,387 $ 251,634 $ 314,143
Priority income 12,000 12,000 23,765 24,000
Operating expenses (b) 62,012 89,638 123,944 167,487
Depreciation and amortization expense 33,586 46,083 67,319 84,642
Operating income 33,392 33,666 60,371 62,014
Interest expense - net (62,432) (63,317) (124,169) (126,062)
Preferred stock dividends (4,550) (14,072) (4,550) (27,924)
Capital expenditures 37,081 104,597 80,615 178,852
Cash paid for acquisitions 7,638 381,082 37,147 403,851
Cash used for investments 8,920 15,022 37,779 24,988
Hyperion
Revenues $ 2,187 $ 12,098 $ 3,707 $ 19,733
Operating expenses (b) 4,305 17,447 7,865 30,868
Depreciation and amortization expense 2,311 9,843 3,683 15,963
Operating loss (4,429) (15,192) (7,841) (27,098)
Interest expense - net (9,624) (5,371) (16,938) (13,016)
Preferred stock dividends -- (7,166) -- (14,112)
Capital expenditures 7,465 68,231 26,231 111,695
Cash paid for acquisitions 7,638 -- 7,638 --
Cash used for investments 8,609 10,611 26,640 13,516
Adelphia, excluding Hyperion
Revenues $ 126,803 $ 157,289 $ 247,927 $ 294,410
Priority income 12,000 12,000 23,765 24,000
Operating expenses (b) 57,707 72,191 116,079 136,619
Depreciation and amortization expense 31,275 36,240 63,636 68,679
Operating income 37,821 48,858 68,212 89,112
Interest expense - net (52,808) (57,946) (107,231) (113,046)
Preferred stock dividends (4,550) (6,906) (4,550) (13,812)
Capital expenditures 29,616 36,366 54,384 67,157
Cash paid for acquisitions -- 381,082 29,509 403,851
Cash used for investments 311 4,411 11,139 11,472
<FN>
a) Represents total investments before cumulative equity in net losses.
b) Amount excludes depreciation and amortization.
</FN>
</TABLE>
<PAGE>
Adelphia earned substantially all of its revenues in the three and six
months ended September 30, 1997 and 1998 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, high
speed data services and CLEC telecommunications services.
The changes in Adelphia's operating results for the three and six
months ended September 30, 1998 compared to the same period of the prior year,
were primarily the result of acquisitions, rate increases and expansion of
existing operations.
The high level of depreciation and amortization associated with the
significant number of acquisitions in recent years, the continued upgrade 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 Olympus, which will adversely impact
Adelphia's future results of operations. Adelphia expects to report net losses
for the next several years.
The following tables set forth certain cable television system data at
the dates indicated for Company Owned, Olympus and Managed Systems. The "Olympus
Systems" are systems currently owned by Olympus. The "Managed Systems" are
affiliated systems managed by Adelphia.
September 30, Percent
----------------------- Increase
1997 1998 (Decrease)
---------- --------- ----------
Homes Passed by Cable
- - ---------------------
Company Owned Systems 1,616,554 2,124,473 31.4%
Olympus Systems 676,910 828,500 22.4%
Managed Systems 428,314 284,716 (33.5%)
---------- ----------
Total Systems 2,721,778 3,237,689 19.0%
========== ==========
Basic Subscribers
- - -----------------
Company Owned Systems 1,177,543 1,530,699 30.0%
Olympus Systems 434,730 551,588 26.9%
Managed Systems 306,314 216,229 (29.4%)
---------- ----------
Total Systems 1,918,587 2,298,516 19.8%
========== ==========
Managed Systems' data, as of September 30, 1998, reflect the sales of
systems consisting of approximately 79,900 and 47,100 homes passed and
approximately 63,400 and 34,100 basic subscribers to Olympus and Adelphia,
respectively.
<PAGE>
The following table is derived from Adelphia's Condensed Consolidated
Statements of Operations that are included in this Form 10-Q and sets forth the
historical percentage relationship to revenues of the components of operating
income contained in such financial statements for the periods indicated.
Three Months Ended Six Months Ended
September 30, September 30,
------------------ ------------------
1997 1998 1997 1998
------- ------- ------- -------
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and programming 29.9% 33.4% 31.1% 33.5%
Selling, general and administrative 18.2% 19.5% 18.2% 19.8%
Depreciation and amortization 26.0% 27.2% 26.8% 26.9%
------ ------ ------ ------
Operating income 25.9% 19.9% 23.9% 19.8%
====== ====== ====== ======
Revenues. The primary revenue sources reflected as a percentage of total
revenues were as follows:
Three Months Ended
September 30,
------------------------------
1997 1998
------------ ------------
Regulated service and equipment 76% 72%
Premium programming 11% 9%
Advertising sales and other services 11% 12%
Competitive local exchange carrier services 2% 7%
Revenues increased approximately 31.3% and 24.8% for the three and six
month periods ended September 30, 1998 compared with the same periods of the
prior year. The increases are attributable to the following:
Three Months Six Months
Ended Ended
September 30, September 30,
1998 1998
------------- --------------
Acquisitions 60% 58%
Basic subscriber growth 4% 4%
Rate increases 20% 24%
Premium programming (4%) (6%)
Competitive local exchange carrier services 13% 10%
Advertising sales and other services 7% 10%
<PAGE>
Effective August 1, 1998, certain rate increases related to regulated
cable services were implemented in substantially all of the Company's systems.
Advertising revenues and revenues derived from other strategic service offerings
such as paging, high-speed data services, long distance and CLEC services also
had a positive impact on revenues for the quarter ended September 30, 1998. 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 46.8% and 34.7% for the three and six month
periods ended September 30, 1998 compared with the same periods of the prior
year. Such increases were primarily due to increased operating expenses from
acquired systems, increased programming costs and incremental costs associated
with increased subscribers. Additionally, Hyperion expenses increased due to
expansion of operations at its network control center, as well as an increase in
the number and size of its networks, which resulted in increased employee
related costs and equipment maintenance costs. The consolidation of the Buffalo,
Syracuse, New Jersey, Louisville, Lexington and Harrisburg networks also
increased Hyperion's costs related to operations.
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 40.8% and
35.9% for the three and six month periods ended September 30, 1998 compared with
the same periods of the prior year. The increases were primarily due to
incremental costs associated with acquisitions, subscriber growth and Hyperion
overhead and network operating and control center cost increases to accommodate
the growth in the number of networks managed and monitored, as well as the
consolidation of the networks mentioned in direct operating and programming
expenses.
Depreciation and Amortization. Depreciation and amortization, excluding
Hyperion, increased 15.9% and 7.9% for the three and six month periods ended
September 30, 1998, respectively, compared with the same periods of the prior
year primarily due to increased depreciation and amortization related to
acquisitions consummated during the years ended March 31, 1997 and 1998, as well
as increased capital expenditures made during the past several years.
Depreciation and amortization, for Hyperion, increased 326% and 333% for the
three and six month periods ended September 30, 1998, respectively. These
increases were primarily a result of increased amortization of deferred
financing costs and increased depreciation resulting from the higher depreciable
asset bases of the Hyperion network operations control center, its wholly owned
networks and the consolidation of several of its networks.
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.
Interest Expense - Net. Interest expense - net, excluding Hyperion,
increased 9.7% and 5.4% for the three and six month periods ended September 30,
1998 compared with the same periods of the prior year. Interest expense - net,
including Hyperion, increased 1.4% and 1.5% for the three and six month periods
ended September 30, 1998, as compared with the same periods of the prior year.
Interest expense increased primarily due to incremental debt related to
acquisitions and the issuance of the Hyperion 12 1/4% Senior Secured Notes.
These increases were offset by Hyperion's interest income on cash balances.
Interest expense includes noncash accretion of original issue discount on the
Hyperion 13% Senior Discount Notes and noncash interest expense totaling $7,908
and $15,803 for the three and six month periods ended September 30, 1998
compared with $15,771 and $22,629 the same periods of the prior year.
<PAGE>
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 less than majority owned partnerships' operating losses.
Minority Interest in Net Losses of Subsidiaries. As a result of
Hyperion's IPO which occurred on May 8, 1998, a portion of Hyperion's net loss
applicable to common stockholders is attributable to minority interests.
Hyperion Preferred Stock Dividends. During the three and six month
periods ended September 30, 1998, Hyperion incurred $7,166 and $14,112 of
expense relating to its 12 7/8% Senior Exchangeable Redeemable Preferred Stock
issued in October 1997.
Extraordinary Loss on Early Retirement of Debt. During the six months
ended September 30, 1998, $69,838 of 12 1/2% Senior Notes due 2002 were redeemed
at 103% of principal and subsidiary debt in the amount of $52,000 was repaid
prior to its maturity, at a premium. Additionally, Hyperion retired $25,160 face
value of its 13% Senior Discount Notes, resulting in a gain. As a result of
these transactions, Adelphia recognized a net extraordinary loss on early
retirement of debt of $4,337.
Income Tax Benefit. Income tax (expense) benefit for the three and six
months ended September 30, 1998 is primarily due to the impact of a change in
tax law which extends the number of years the Company can utilize its net
operating loss carryforward generated in the current fiscal year.
<PAGE>
Liquidity and Capital Resources
The cable television and other telecommunication businesses are capital
intensive and typically require continual financing for the construction,
modernization, maintenance, expansion and acquisition of cable and other
telecommunication systems. The Company historically has committed significant
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
ability to generate cash to meet its future needs will depend generally on its
results of operations and the continued availability of external financing.
The Company has made a substantial commitment to the technological
development of its systems and is aggressively investing in the upgrade of the
technical capabilities of its cable plant in a cost efficient manner. Over 50%
of Adelphia's networks have bandwidth capacity of 550 Mhz or greater. The
Company continues to deploy fiber optic cable and to upgrade the technical
capabilities of its broadband networks in order to increase network capacity,
digital capability, two-way communication and network reliability.
The design of the current system upgrade, when completed, will deploy
on average one fiber optic node for every two system plant miles or
approximately one fiber node for every 180 homes passed compared to the industry
norm of 500 to 1,000 homes passed per fiber optic node. Approximately 75% of the
system will be upgraded to 750 Mhz. Approximately 25% of the plant will remain
at 550 Mhz. The upgraded system will be completely addressable and provide
two-way communication capability. The additional bandwidth will enable the
Company to offer additional video programming services. A portion of the
bandwidth will be allocated to new service offerings such as two-way data,
telephony and video-on-demand. By the end of fiscal 1999, approximately 50% of
customers will be served by two-way cable plant.
Capital expenditures for Adelphia, excluding Hyperion for the six
months ended September 30, 1997 and 1998 were $54,384 and $67,157, respectively.
Capital expenditures, including Hyperion, for the six months ended September 30,
1997 and 1998 were $80,615 and $178,852, respectively. Capital expenditures for
Hyperion for the six months ended September 30, 1998 compared with the six
months ended September 30, 1997, increased primarily due to the upgrade of plant
in markets in which Hyperion purchased its local partners' interests, payments
for indefeasible right of use agreements for fiber optic networks and the
commencement of switching services. The Company expects that capital
expenditures excluding Hyperion for fiscal 1999 will be in the range of
approximately $150,000 to $170,000. Hyperion estimates that it will require
approximately $160,000 to fund anticipated capital expenditures, working capital
requirements, operating losses and investments in its existing and its planned
new networks through the remaining six months of fiscal 1999.
The Company generally has 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 and Hyperion 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 company debt or
equity 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.
<PAGE>
The Company's financing strategy has generally 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 or, for Hyperion, its own public
debt and equity. The Company's public indentures and subsidiary credit
agreements contain covenants that, among other things, require the maintenance
of certain financial ratios (including compliance with certain debt to cash flow
ratios in order to incur additional indebtedness); place limitations on
borrowings, investments, affiliate transactions, dividends and distributions;
and contain certain cross default provisions relating to Adelphia or its
subsidiaries.
At September 30, 1998, the Company's total outstanding debt aggregated
$3,029,580, which included $1,660,013 of parent debt, $489,815 of Hyperion debt
and $879,752 of other subsidiary debt. The Company had aggregate cash and cash
equivalents, unused credit lines with banks and bank commitments of $1,052,530,
as of November 13, 1998. At September 30, 1998, Adelphia's subsidiaries had an
aggregate of $30,000 in unused credit lines with banks and institutions.
Subsequent to September 30, 1998, the Company received commitments from banks
totaling $700,000 for an 8 1/2 year credit facility expected to be completed
during the quarter ended December 31, 1998. Additionally, the Company completed
a public offering of senior notes with net proceeds of $151,500, which were used
to repay borrowings under revolving credit facilities of subsidiaries. In
addition, the Company had an aggregate $171,030 in cash and cash equivalents at
September 30, 1998.
The Company's weighted average interest rate on notes payable to banks
and institutions was approximately 8.96% at September 30, 1997 compared to 7.27%
at September 30, 1998. At September 30, 1998, approximately 10.29% of such debt
was subject to fixed interest rates for at least one year under the terms of
such debt or applicable interest rate swap agreements.
The following table sets forth the mandatory reductions in principal
under all debt agreements for each of the next four years and six months based
on amounts outstanding at September 30, 1998:
Six months ending March 31, 1999 $ 45,887
Year ending March 31, 2000 100,069
Year ending March 31, 2001 236,117
Year ending March 31, 2002 159,930
Year ending March 31, 2003 504,708
Reference is made to Note 1 of the condensed consolidated financial
statements included elsewhere in this Form 10-Q for discussion of significant
events and financings subsequent to March 31, 1998, which is incorporated by
reference herein.
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.
<PAGE>
The Company believes that cash and cash equivalents, internally
generated funds, borrowings under the 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 or telephone 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, 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, or that additional competition from this industry
consolidation will not have an adverse effect on the Company.
Regulatory and Competitive Matters
The cable television operations of the Company may be adversely
affected by changes and developments in governmental regulation, competitive
forces and technology. The cable television industry and the Company are subject
to extensive regulation at the federal, state and local levels. The 1992 Cable
Act significantly expanded the scope of regulation of certain subscriber rates
and a number of other matters in the cable industry, such as mandatory carriage
of local broadcast stations and retransmission consent, and increased the
administrative costs of complying with such regulations. The FCC has adopted
rate regulations that establish, on a system-by-system basis, maximum allowable
rates for (i) basic and cable programming services (other than programming
offered on a per-channel or per-program basis), based upon a benchmark
methodology, and (ii) associated equipment and installation services based upon
cost plus a reasonable profit. Under the FCC rules, franchising authorities are
authorized to regulate rates for basic services and associated equipment and
installation services, and the FCC will regulate rates for regulated cable
programming services in response to complaints filed with the agency. The
Telecommunications Act of 1996 (the "1996 Act") ends FCC regulation of cable
programming service tier rates on March 31, 1999.
Rates for basic and cable programming services are set pursuant to a
benchmark formula. Alternatively, a cable operator may elect to use a
cost-of-service methodology to show that rates for basic and cable programming
services are reasonable. Refunds with interest will be required to be paid by
cable operators who are required to reduce regulated rates. The FCC has reserved
the right to reduce or increase the benchmarks it has established. The rate
regulations also limit increases in regulated rates to an inflation indexed
amount plus increases in certain costs such as taxes, franchise fees, costs
associated with specific franchise requirements and increased programming costs.
Cost-based adjustments to these capped rates can also be made in the event a
cable operator adds or deletes channels or completes a significant system
rebuild or upgrade. Because of the limitation on rate increases for regulated
services, future revenue growth from cable services will rely to a much greater
extent than has been true in the past on increased revenues from unregulated
services and new subscribers than from increases in previously unregulated
rates.
<PAGE>
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
or future legislative or rulemaking proceedings or changes to the rate
regulations. 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
Adelphia.
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
Because such franchises are generally non-exclusive, there is a potential for
competition with the systems from other operators of cable television systems,
including public systems operated by municipal franchising authorities
themselves, and from other distribution systems capable of delivering television
programming to homes. The 1992 Cable Act and the 1996 Act contain provisions
which encourage competition from such other sources. The Company cannot predict
the extent to which competition will materialize from other cable television
operators, local telephone companies, other distribution systems for delivering
television programming to the home, or other potential competitors, or, if such
competition materializes, the extent of its effect on the Company.
The 1996 Act repealed the prohibition on CLECs 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
CLECs to operate "open video systems" ("OVS") without obtaining a local cable
franchise, although CLECs 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 CLEC. The statute states that the
OVS scheme supplants the FCC's "video dialtone" rules. The FCC has promulgated
rules to implement the OVS concept, and New Jersey Bell Telephone Company has
been granted permission to convert its video dialtone authorization in Dover
Township, New Jersey to an OVS authorization. Recently, New Jersey Bell
telephone company announced it will be shutting down its OVS operation in Dover
Township, New Jersey at the end of the year and RCN has been granted permission
to convert its video dialtone authorization in the Philadelphia Region to an OVS
authorization.
The Company believes that the provision of video programming or other
services by telephone companies in competition with the Company's existing
operations could have an adverse effect on the Company's financial condition and
results of operations. At this time, the impact of any such effect is not known
or estimable.
The Company also competes with DBS service providers. DBS has been
available to consumers since 1994. A single DBS satellite can provide more than
100 channels of programming. DBS service can be received virtually anywhere in
the United States through the installation of a small outdoor antenna. DBS
service is being heavily marketed on a nationwide basis by several service
providers. Although the impact to date has not been material, any future impact
of DBS competition on the Company's future results is not known or estimable.
Year 2000 Issue
The year 2000 issue refers to the inability of computerized systems and
technologies to recognize and process dates beyond December 31, 1999. The
Company is evaluating the impact of the year 2000 issue on its business
applications and its products and services. The evaluation includes a review of
the Company's information technology systems, cable network equipment and other
embedded technologies. A significant portion of the Company's computerized
systems and technologies have been developed, installed or upgraded in recent
<PAGE>
years and are generally more likely to be year 2000 ready. The Company is also
evaluating the potential impact as a result of its reliance on third-party
systems that may have year 2000 issue.
Computerized business applications that could be adversely affected by
the year 2000 issue include:
- - - information processing and financial reporting systems,
- - - customer billing systems,
- - - customer service systems,
- - - telecommunication transmission and reception systems, and
- - - facility systems.
System failure or miscalculation could result in an inability to
process transactions, send invoices, accept customer orders or provide customers
with products and services. Customers could also experience a temporary
inability to receive or use the Company's products and services.
The Company has developed a program to assess and address the year 2000
issue. This program consists of the following
phases:
- - - inventorying and assessing the impact on affected technology and systems,
- - - developing solutions for affected technology and systems,
- - - modifying or replacing affected technology and systems,
- - - testing and verifying solutions,
- - - implementing solutions, and
- - - developing contingency plans.
The Company has substantially completed inventorying and assessing the
affected computerized systems and technologies. The Company is in various stages
of its year 2000 compliance program with respect to the remaining phases as it
relates to the affected systems and technologies.
The Company has engaged a consulting firm familiar with its financial
reporting systems. This firm has developed and tested year 2000 solutions that
the Company is in the process of implementing. The Company expects its financial
reporting systems to be year 2000 compliant by June 1999.
A third-party billing vendor currently facilitates customer billing.
The Company is currently in the process of testing an in-house service ordering,
provisioning, maintenance and billing system that would replace the third-party
billing vendor. The Company expects to have this new system implemented by June
1999. On a contingency basis, the third-party vendor has provided a written
statement that it will certify it is fully year 2000 compliant by June 1999.
Telecommunication plant rebuilds and upgrades in recent years have
minimized the potential impact of the year 2000 issue on the Company's
facilities, customer service, telecommunication transmission and reception
systems. The Company is engaged in a comprehensive internal inventory and
assessment of all hardware components and component controlling software
throughout its telecommunication networks. The Company expects to implement any
hardware and software modifications, upgrades or replacements resulting from the
internal review by June 1999.
Costs incurred to date directly related to addressing the year 2000
issue have not been material. The Company has also redeployed internal resources
to meet the goals of its year 2000 program. The Company currently estimates the
total cost of its year 2000 remediation program to be approximately $2,500.
Although the Company will continue to incur substantial capital expenditures in
the ordinary course of meeting its telecommunications system upgrade goals
<PAGE>
through the year 2000, it will not specifically accelerate its expenditures to
facilitate year 2000 readiness, and accordingly such expenditures are not
included in the above estimate.
The Company has begun communicating with others with whom it does
significant business to determine their year 2000 readiness and to determine the
extent to which the Company is vulnerable to the year 2000 issue related to
those third parties. The Company purchases much of its technology from third
parties. There can be no assurance that the systems of other companies on which
the Company's systems relay will be year 2000 ready or timely converted into
systems compatible with the Company systems. The Company's failure or a
third-party's failure to become year 2000 ready or the Company's inability to
become compatible with third parties with which the Company has a material
relationship, may have a material adverse effect on the Company, including
significant service interruption or outages; however, the Company cannot
currently estimate the extent of any such adverse effects.
The Company is in the process of identifying secondary sources to
supply its systems or services in the event it becomes probable that any of its
systems will not be year 2000 ready prior to the end of 1999. The Company is
also in the process of identifying secondary vendors and service providers to
replace those vendors and service providers whose failure to be year 2000 ready
could lead to a significant delay in the Company's ability to provide its
service to its customers.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
-------------------------------------------------
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on
October 6, 1998. Stockholders entitled to vote a total of 135,258,110
votes out of 137,728,603 votes attributable to all shares of the
Company's outstanding capital stock were represented at the meeting
either in person or by proxy. At such meeting, (a) one director (the
"Class A Director") was elected by vote of the holders of Class A
Common Stock voting as a separate class and (b) seven directors,
("Class A and B Directors") were elected by vote of the holders of
Class A Common Stock and the holders of Class B Common Stock voting
together. The stockholder voting results are as follows:
<TABLE>
<CAPTION>
Class of Broker
Stock Vote for Withheld Non-Votes
-------- ----------- -------- ----------
(a) Class A Director Elected
<S> <C> <C> <C> <C>
Perry S. Patterson Class A 25,616,966 196,384 -
(b) Class A and B Directors Elected
John J. Rigas Class A 25,616,966 196,384 -
Class B 109,444,760 - -
Michael J. Rigas Class A 25,616,966 196,384 -
Class B 109,444,760 - -
Timothy J. Rigas Class A 25,616,966 196,384 -
Class B 109,444,760 - -
James P. Rigas Class A 25,616,966 196,384 -
Class B 109,444,760 - -
Daniel R. Milliard Class A 25,616,966 196,384 -
Class B 109,444,760 - -
Pete J. Metros Class A 25,616,966 196,384 -
Class B 109,444,760 - -
Dennis P. Coyle Class A 25,616,966 196,384 -
Class B 109,444,760 - -
</TABLE>
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
10.01 U.S. Underwriting Agreement between the Registrant and the
Representatives of the U.S. Underwriters named therein, dated August
12, 1998 (Incorporated herein by reference is Exhibit 10.01 from the
Form 8-K of the Registrant for the event dated August 18, 1998) (File
No. 000-16104).
10.02 International Underwriting Agreement between the Registrant and the
Lead Managers of the Managers named therein, dated August 12, 1998
(Incorporated herein by reference is Exhibit 10.02 from the Form 8-K of
the Registrant for the event dated August 18, 1998)(File No.
000-16104).
10.03 Direct Purchase Agreement between the Registrant and Highland
Communications, L.L.C., dated August 12, 1998 (Incorporated herein by
reference is Exhibit 10.03 from the Form 8-K of the Registrant for the
event dated August 18, 1998)(File No. 000-16104).
10.04 Adelphia Communications Corporation 1998 Long-Term Incentive
Compensation Plan (Incorporated herein by reference is Exhibit A to the
Registrant's Proxy Statement for the ........Annual Meeting of
Stockholders on October 6, 1998)(File No. 000-16104).
10.05 Distribution Agreement dated as of August 31, 1998 among Syracuse
Hilton Head Holdings, L.P., Adelphia Communications Corporation and
SHHH Acquisition Corp. (Filed Herewith).
10.06 Second Amendment to Credit Agreement, dated as of April 12, 1996, among
Chelsea Communications, Inc., Kittaning Cablevision Inc., Robinson/Plum
Cablevision L. P., the several banks and financial institutions parties
thereto, and Toronto Dominion (Texas), Inc. as Administrative Agent
(Filed Herewith).
27.01 Financial Data Schedule (supplied for the information of the
Commission).
(b) Reports on Form 8-K:
Form 8-Ks were filed on July 2, 1998, July 6, 1998, July 23, 1998,
August 10, 1998, August 21, 1998 and September 11, 1998, which reported
information under items 5 and 7 thereof. No financial statements were filed with
such Form 8-Ks.
-------------------------------------------------
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADELPHIA COMMUNICATIONS CORPORATION
(Registrant)
Date: November 16, 1998 By: /s/ Timothy J. Rigas
---------------------------------
Timothy J. Rigas
Executive Vice President (authorized
officer), Chief Financial Officer, Chief
Accounting Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR ADELPHIA COMMUNICATIONS CORP. FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 1998
</LEGEND>
<CIK> 0000796486
<NAME> ADELPHIA COMMUNICATIONS CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 171,030
<SECURITIES> 0
<RECEIVABLES> 49,088<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,196,746<F2>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 2,797,493
<CURRENT-LIABILITIES> 0
<BONDS> 3,029,580
0
0
<COMMON> 421
<OTHER-SE> (977,994)
<TOTAL-LIABILITY-AND-EQUITY> 2,797,493
<SALES> 0
<TOTAL-REVENUES> 314,143
<CGS> 0
<TOTAL-COSTS> 252,129
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,062
<INCOME-PRETAX> (77,967)
<INCOME-TAX> (4,762)
<INCOME-CONTINUING> (73,205)
<DISCONTINUED> 0
<EXTRAORDINARY> (4,337)
<CHANGES> 0
<NET-INCOME> (77,542)
<EPS-PRIMARY> (2.75)
<EPS-DILUTED> (2.75)
<FN>
<F1>RECEIVABLES NET OF ALLOWANCE
<F2>PP&E NET OF DEPRECIATION
</FN>
</TABLE>
EXHIBIT 10.05
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement"), made as of
this 31st day of August, 1998 by and among SYRACUSE HILTON HEAD HOLDINGS, L.P.,
a Delaware limited partnership ("SHHH"), ADELPHIA COMMUNICATIONS CORPORATION, a
Delaware corporation ("Adelphia") and SHHH ACQUISITION CORP., a Delaware
corporation ("ACC Subsidiary").
WITNESSETH:
WHEREAS, Adelphia is the Class B Limited Partner in SHHH under
that certain Amended and Restated Partnership Agreement of SHHH dated as of
December 31, 1991, as amended (the "Partnership Agreement");
WHEREAS, TCID-SVHH, Inc., a Delaware corporation
("TCID-SVHH"), is the Class A Limited Partner in SHHH under the Partnership
Agreement;
WHEREAS, ACC Subsidiary has agreed to merge with and into
TCID-SVHH (the "Merger") pursuant to that Agreement and Plan of Merger by and
among TCID-SVHH, ACC Subsidiary, TCI Development Corporation and Adelphia dated
as of August 31, 1998 (the "Merger Agreement");
WHEREAS, TCID-SVHH will be the surviving entity in the Merger
and references herein to ACC Subsidiary herein shall also refer to TCID-SVHH
after completion of the Merger;
WHEREAS, upon completion of the Merger, ACC Subsidiary will be
the Class A Limited Partner in SHHH under the Partnership Agreement;
WHEREAS, upon completion of the Merger, Adelphia intends to
transfer and assign its Class B Limited Partner Interest in SHHH to ACC
Subsidiary; and
WHEREAS, Adelphia and ACC Subsidiary desire that SHHH
distribute and transfer to ACC Subsidiary the Limited Partner interest in SVHH
Cable Acquisition, L.P. (the "SVHH Limited Partner Interest") under that certain
Third Amended and Restated Limited Partnership Agreement dated as of December
31, 1991, as amended (the "SVHH Partnership Agreement") that is currently held
by Hilton Head Communications, L.P., a Delaware limited partnership ("HHC"), in
exchange for ACC Subsidiary's surrender and release to, and the redemption and
cancellation by, SHHH of the Class A and Class B Limited Partner Interests in
SHHH (the "SHHH Limited Partner Interests").
NOW, THEREFORE, in consideration of the foregoing and of the
mutual representations, warranties, covenants and promises contained herein, and
intending to be legally
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bound hereby, the parties hereto represent, warrant, covenant and agree as
follows:
ARTICLE I
DISTRIBUTION AND TRANSFER OF SVHH LIMITED PARTNER
INTEREST 1.1 Transfer of SVHH Limited Partner Interest.
(a) At the Closing (as defined below), SHHH
shall distribute, convey, transfer and assign to ACC Subsidiary and ACC
Subsidiary shall accept and acquire from SHHH, the SVHH Limited Partner Interest
free and clear of any and all liens, encumbrances, pledges, charges or
restrictions of any nature except for restrictions arising under the SVHH
Partnership Agreement.
(b) At the Closing, SHHH shall deliver to ACC
Subsidiary such assignments and other good and sufficient instruments of
transfer and conveyance as shall be reasonably deemed necessary or appropriate
by ACC Subsidiary to vest in or confirm to ACC Subsidiary good and valid title
to the SVHH Limited Partner Interest.
1.2 Transfer Taxes.
SHHH shall pay all stamp, sales, income, realty
transfer or other taxes, federal, state or local, imposed on SHHH, and ACC
Subsidiary shall pay all such taxes imposed on ACC Subsidiary, in respect of any
and all transfers pursuant to the terms of this Agreement, notwithstanding the
fact that one party may act as agent for the other party in the collection and
remittance of any such taxes.
1.3 Effect of Transfer.
The parties hereto acknowledge and agree that they
shall, for accounting purposes only, treat the transfer and distribution of the
SVHH Limited Partner Interest hereunder as effective July 1, 1998.
ARTICLE II
REDEMPTION AND ADJUSTMENT
2.1 Redemption.
At the Closing, as consideration for the
distribution, assignment and transfer of the SVHH Limited Partner Interest, ACC
Subsidiary shall withdraw as a Limited Partner and remit and assign to SHHH for
redemption and cancellation, all of ACC Subsidiary's right, title and interest
as a Class A and Class B Limited Partner of SHHH, and SHHH hereby shall receive,
accept and so cancel the SHHH Limited Partner Interests.
2.2 Adjustment.
At the Closing, all of the interests of the remaining
partners immediately after the Closing shall be adjusted to reflect the
redemption and cancellation of the SHHH Limited Partner Interests.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHHH
SHHH represents and warrants to ACC Subsidiary that the
following statements are true and correct as of the date hereof and will also be
true and correct on the Closing Date (as hereinafter defined) as follows:
3.1 Organization.
SHHH is a limited partnership, duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full partnership power and authority to engage in its business and
operations, to continue such business and operations as conducted at present, to
enter into this Agreement and perform the terms of this Agreement. SHHH is duly
qualified to conduct business and is in good standing in those jurisdictions
where the conduct of its business or the nature of its assets makes such
qualification necessary.
3.2 Authorization of Agreement.
SHHH and all of its partners (other than TCID-SVHH,
Inc.) have taken all necessary action to authorize and approve this Agreement,
the consummation of the transactions contemplated hereby and the performance by
SHHH of all of the terms and conditions hereof on its part to be performed. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and the fulfillment and compliance with the terms and
conditions hereof do not and will not: (a) violate any provisions of any
judicial or administrative order, award, judgment or decree applicable to SHHH;
(b) conflict with, result in a breach of or constitute a default under the
Partnership Agreement or Certificate of SHHH or any other agreement or
instrument to which SHHH is a party or by which SHHH is bound; (c) create or
impose any lien, charge, encumbrance, or restriction upon the SVHH Limited
Partner Interest or the Systems (as hereinafter defined) in contravention of any
agreement or instrument to which SHHH is a party or by which SHHH is bound; and
(d) create a right in any person to accelerate payment of the principal of any
indebtedness due from SHHH nor increase the amount of any interest over that
therefore payable in respect thereof. This Agreement has been duly authorized,
executed and delivered by SHHH and constitutes a legal, valid and binding
obligation of SHHH. All of the approvals and consents required for SHHH to
consummate the transactions contemplated hereby have been obtained except for
(i) any filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, (ii) the consent of the Class A Limited Partner which shall be
obtained upon completion of the Merger, (iii) any consent or approval under that
certain Credit Agreement dated December 27, 1994, among HHC as borrower, the
Lenders from time to time parties thereto, Canadian Imperial Bank of Commerce,
acting through its New York agency ("CIBC-NYA") and The Toronto-Dominion Bank
("TD") as Managing Agents, CIBC-NYA, as Documentation Agent, TD, as Syndication
Agent, First Union National Bank of North Carolina and Societe Generale, as
Agents, Credit Lyonnais, as Co-Agent and CIBC-NYA, as Administrative gent (as
the same may be hereafter supplemented, replaced, modified or amended from time
to time (the "HHC Credit Agreement").
3.3 Title to SVHH Limited Partner Interest.
SHHH will have on the Closing Date good and valid title to the SVHH Limited
Partner Interest, and SHHH has full power, authority and the absolute right to
transfer the SVHH Limited Partner Interest free and clear of any and all liens,
charges, pledges, encumbrances or restrictions of any nature except for
restrictions arising under the SVHH Partnership Agreement. The
- 3 -
<PAGE>
SVHH Limited Partner Interest represents the only limited partner interest in
SVHH and SVHH Holdings, Inc. holds the only general partner interest in SVHH.
3.4 Litigation.
There is no litigation, at law or in equity, nor any
proceedings before any commission or other governmental authority, pending, or
to the best of SHHH's knowledge, threatened against SHHH which would prevent or
restrict SHHH's right or ability to consummate the transfer of the SVHH Limited
Partner Interest or the other transactions as contemplated herein.
3.5 SVHH Systems.
At the Closing Date, SVHH will own good and
marketable title to the cable televisions systems operating in Virginia and
North Carolina (the "Systems"). As of June 30, 1998, the Systems had 32,290
Equivalent Basic Subscribers and, as of the Closing Date, there shall not be
less than 32,290 Equivalent Basic Subscribers. The term "Equivalent Basic
Subscribers" shall mean the number obtained by adding (i) the number of first
outlet residential subscribers for basic CATV service of Systems who have made
at least one monthly payment for service at the normal monthly rate for basic
service, to (ii) the result obtained by dividing the aggregate of the gross
monthly billing from bulk subscribers who have made at least one monthly payment
for service at the normal monthly rate by $11.95.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACC
SUBSIDIARY ACC Subsidiary represents and warrants to SHHH that
the following statements are
true and correct as of the date hereof and will also be true and correct, as of
the Closing Date, as follows:
4.1 Organization.
ACC Subsidiary is a corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to engage in its business and
operations, to continue such business and operations as conducted at present, to
enter into this Agreement and perform the terms of this Agreement. ACC
Subsidiary is duly qualified to conduct business and is in good standing in
those jurisdictions where the conduct of its business or the nature of its
assets makes such qualification necessary.
4.2 Authorization of Agreement.
ACC Subsidiary has taken all necessary action to
authorize and approve this Agreement, the consummation of the transactions
contemplated hereby and the performance by ACC Subsidiary of all of the terms
and conditions hereof on its part to be performed. The execution and delivery of
this Agreement, the consummation of the transactions contemplated hereby and the
fulfillment and compliance with the terms and conditions hereof do not and will
not: (a) violate any provisions of any judicial or administrative order, award,
judgment or decree applicable to ACC Subsidiary, or (b) conflict with, result in
a breach of or constitute a default under the Articles of Incorporation or
Bylaws of ACC Subsidiary or any other agreement or instrument to which ACC
Subsidiary is a party or by which it is bound, (c) create or impose any lien,
charge, encumbrance, or restriction upon the SHHH Limited Partner Interests in
contravention of any agreement or instrument to which ACC Subsidiary is a party
or by which ACC Subsidiary is bound; and (d) create a right in
- 4 -
<PAGE>
any person to accelerate payment of the principal of any indebtedness due from
ACC Subsidiary nor increase the amount of any interest over that theretofore
payable in respect thereof. This Agreement has been duly authorized, executed
and delivered by ACC Subsidiary and constitutes a legal, valid and binding
obligation of ACC Subsidiary. All of the approvals and consents required for ACC
Subsidiary to consummate the transaction contemplated hereby have been obtained.
4.3 Title to Interests.
ACC Subsidiary will have on the Closing Date good and
valid title to the SHHH Limited Partner Interests, and ACC Subsidiary has full
power, authority and the absolute right to transfer the SHHH Limited Partner
Interests free and clear of any and all liens, charges, pledges, encumbrances or
restrictions of any nature except for restrictions arising under the SHHH
Partnership Agreement.
4.4 Litigation.
There is no litigation, at law or in equity, or any
proceedings before any commission or other governmental authority, pending or,
to the best knowledge of ACC Subsidiary, threatened against ACC Subsidiary which
would prevent or restrict ACC Subsidiary's right or ability to consummate the
transfer and redemption of ACC Subsidiary's Limited Partner interests in SHHH or
the other transactions contemplated herein.
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING; HSR ACT FILING
5.1 Maintenance of Business.
SHHH covenants and agrees with Adelphia and ACC
Subsidiary that from the date hereof to and including the Closing Date it shall
cause SVHH to continue to operate the Systems, maintain the assets and
properties of the Systems and to keep all of its business books, records and
files, all in the ordinary course of business in accordance with past practices
consistently applied. SHHH shall not permit SVHH to sell, transfer or assign any
assets except in the ordinary course of business and for full and fair value and
except for the distribution of the Hilton Head, South Carolina cable television
system to HHC.
5.2 Consummation of Agreement.
Each of SHHH and Adelphia and ACC Subsidiary shall
use its commercially reasonable efforts to perform and fulfill all obligations
and conditions on its part to be performed and fulfilled under this Agreement,
to the end that the transactions contemplated by this Agreement shall be fully
carried out.
5.3 HSR Act Filing.
The parties shall cooperate with each other to file a
notification and report form with the Pre-Merger Notification Office of the
Federal Trade Commission and with the Antitrust Division of the Department of
Justice pursuant to the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976,
as amended, and the rules and regulations thereunder (collectively, the "HSR
Act"). The costs of such filing will be paid equally by SHHH and ACC Subsidiary.
- 5 -
<PAGE>
5.4 Transfers Prior to Closing.
Prior to the Closing Date, (i) SVHH shall transfer
and distribute the Hilton Head, South Carolina cable television system assets to
Hilton Head Communications, L.P.; and (ii) Hilton Head Communications, L.P.
shall transfer and distribute the SVHH Limited Partner Interest to SHHH.
ARTICLE VI
CONDITIONS TO CLOSING - ADELPHIA AND ACC SUBSIDIARY
6.1 Conditions to Obligations of Adelphia and ACC Subsidiary.
The obligations of Adelphia and ACC Subsidiary to consummate
the transfer and redemption of the SHHH Partnership Interests at Closing shall
be subject to the satisfaction of the following conditions precedent, except to
the extent waived by Adelphia and ACC Subsidiary in writing:
(a) All of the representations and warranties of
SHHH contained in this Agreement shall be true and correct in all material
respects at and as of the Closing Date as though such representations and
warranties were made at and as of such time; SHHH shall have performed and be in
compliance in all material respects with all of the covenants, agreements, terms
and provisions set forth herein on its part to be observed or performed, and no
event which would constitute a breach of the terms of this Agreement on the part
of SHHH shall have occurred and be continuing at the Closing Date.
(b) SHHH shall have executed and delivered to
Adelphia and ACC Subsidiary on the Closing Date a Certificate, dated that date,
in form and substance reasonably satisfactory to Adelphia and ACC Subsidiary to
the effect that the conditions set forth in each of the provisions of Section
6.1(a) of this Agreement have been satisfied in full.
(c) All documents and other items required to be
delivered hereunder to Adelphia and ACC Subsidiary at or prior to Closing shall
have been delivered or shall be tendered at the Closing.
(d) On the Closing Date, no suit, action or
other proceeding shall be pending or threatened before any court or other
governmental agency against SHHH or Adelphia or ACC Subsidiary in which the
consummation of the transactions contemplated by this Agreement are sought to be
enjoined.
(e) All notification and report forms required
to be filed on behalf of the parties to this Agreement with the FTC and the DOJ
under the HSR Act and rules thereunder shall have been filed, and the waiting
period required to expire under the HSR Act and rules thereunder, including any
extension thereof, shall have expired or early termination of the waiting period
shall have been granted.
- 6 -
<PAGE>
(f) The Merger shall have been completed in
accordance with the Merger Agreement.
(g) Adelphia or its designee shall have acquired
all of the outstanding capital stock of SVHH Holdings, Inc.
(h) SVHH shall have distributed the Hilton Head,
South Carolina cable television system assets to HHC.
(i) The consents and approvals set forth in
Section 3.2 hereof shall have been obtained.
(j) Adelphia and ACC Subsidiary shall have
received a fairness opinion from Daniels & Associates, Inc. as to the
transactions contemplated hereby which shall be acceptable to Adelphia and ACC
Subsidiary.
ARTICLE VII
CONDITIONS TO CLOSING - SHHH
7.1 Conditions to Obligations of SHHH.
The obligations of SHHH to consummate the transfer of the SVHH
Partnership Interest at Closing shall be subject to the satisfaction of the
following conditions precedent, except to the extent waived by Adelphia and ACC
Subsidiary in writing:
(a) All of the representations and warranties of
ACC Subsidiary contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date as though such representations
and warranties were made at and as of such time, and ACC Subsidiary shall be in
compliance in all material respects with all of the covenants, agreements, terms
and provisions set forth herein on its part to be observed and performed, and no
event which would constitute a breach of the terms of this Agreement on the part
of ACC Subsidiary shall have occurred and be continuing at the Closing Date.
(b) ACC Subsidiary shall have executed and
delivered to SHHH on the Closing Date a Certificate, dated that date, in form
and substance reasonably satisfactory to SHHH to the effect that the conditions
set forth in each of the provisions of Section 7.1(a) of this Agreement have
been satisfied in full.
(c) On the Closing Date, no suit, action or
other proceeding shall be pending or threatened before any court or other
governmental agency against SHHH or Adelphia or ACC Subsidiary in which the
consummation of the transactions contemplated by this Agreement are sought to be
enjoined.
(d) All notification and report forms required
to be filed on behalf of the parties to this Agreement with the FTC and the DOJ
under the HSR Act and rules thereunder shall have been filed, and the waiting
period required to expire under the HSR Act and rules
- 7 -
<PAGE>
thereunder, including any extension thereof, shall have expired or early
termination of the waiting period shall have been granted.
(e) The Merger shall have been completed in
accordance with the Merger Agreement.
(f) SVHH shall have distributed the Hilton Head,
South Carolina cable television system assets to HHC.
(g) The consents and approvals set forth in
Section 3.2 hereof shall have been obtained.
ARTICLE VIII
CLOSING
8.1 Date and Location.
The consummation of the transfer of the SVHH Limited
Partner Interest and the transfer and redemption of SHHH Limited Partner
Interests shall constitute the "Closing". Unless otherwise mutually agreed to by
the parties, the Closing shall take place at 10:00 a.m., local time, at the
offices of Buchanan Ingersoll Professional Corporation, 301 Grant Street, 20th
Floor, Pittsburgh, PA 15219. The parties agree to close the transactions
contemplated by this Agreement within five (5) days after all of the conditions
to Closing have been satisfied or waived, whichever shall later occur, which
specified date and time shall constitute the "Closing Date". The effective date
of the withdrawal of ACC Subsidiary and redemption and cancellation of the SHHH
Limited Partner Interests, and the distribution of the SVHH Limited Partner
Interest shall be at the close of business on the Closing Date. Notwithstanding
the foregoing, this Agreement may be terminated pursuant to Section 9.4 hereof
if the Closing has not occurred by December 31, 1998.
8.2 Actions to be taken by SHHH at Closing.
At Closing, SHHH shall take all actions required to
be taken hereunder and SHHH shall deliver to ACC Subsidiary:
(a) such assignments and other good and
sufficient instruments of transfer and conveyance as shall be reasonably deemed
necessary or appropriate by ACC Subsidiary to vest in or confirm to ACC
Subsidiary good and valid title to the SVHH Limited Partner Interest;
(b) all of the approvals and consents required
hereunder of all necessary parties and governmental authorities to the
distribution, transfer and assignment of the SVHH Limited Partner Interest, the
withdrawal of ACC Subsidiary and redemption by SHHH, and the consummation of the
transactions contemplated hereunder; and
(c) such other documents and certificates as
required to be delivered hereunder.
8.3 Actions to be taken by ACC Subsidiary at Closing.
At Closing, ACC Subsidiary shall take all actions
required to be taken hereunder and shall deliver, or cause to be delivered, to
SHHH:
(a) all of the approvals and consents required
hereunder of all necessary parties and governmental authorities to the transfer
and assignment of the SHHH Limited Partner
- 8 -
<PAGE>
Interests, the withdrawal of ACC Subsidiary and redemption by SHHH of the SHHH
Limited Partner Interests, and the consummation of the transactions contemplated
hereunder; and
(b) such documents and certificates required to
be delivered hereunder or reasonably deemed necessary or appropriate by SHHH.
8.4 Net Liabilities of SVHH.
SHHH hereby represents, warrants and covenants to ACC
Subsidiary that on the Closing Date the Net Liabilities of SVHH (as defined
below) will be equal to $14,845,000. The term "Net Liabilities of SVHH" shall
mean the number equal to (x) the sum of the total liabilities of SVHH (as
defined and determined in accordance with GAAP) on the Closing Date less (y) the
sum of the current assets of SVHH (as defined and determined in accordance with
GAAP, except that inventory shall not be included as a current asset) on the
Closing Date.
On or before 90 days after the Closing Date, SHHH
shall deliver to ACC Subsidiary a final calculation of the Net Liabilities of
SVHH calculated as of the Closing Date (the "Final Calculation"), together with
such supporting documentation as ACC Subsidiary may reasonably request. Should
ACC Subsidiary dispute SHHH's Final Calculation, ACC Subsidiary shall promptly,
but in no event later than 60 days after receipt of the Final Calculation (the
"Grace Period"), deliver to SHHH written notice describing in reasonable detail
the dispute, together with ACC Subsidiary's determination as to the Final
Calculation in reasonable detail. If the dispute is not resolved by the parties
within 20 days from the date of receipt by SHHH of written notice from ACC
Subsidiary, the parties agree to engage promptly the Pittsburgh, Pennsylvania
office of Price Waterhouse or, if unavailable, another "big five" accounting
firm mutually acceptable to ACC Subsidiary and SHHH (the "Independent
Accountant"), to resolve the dispute within 30 days after such engagement. The
Independent Accountant's determination shall be final and binding on the
parties. All fees and costs of the Independent Accountant shall be borne pro
rata by SHHH and ACC Subsidiary in proportion to the difference between the
Independent Accountant's determination of the Net Liabilities of SVHH on the
Closing Date and each of SHHH's and ACC Subsidiary's determination of the Net
Liabilities of SVHH on the Closing Date. ACC Subsidiary shall not dispute SHHH's
Final Calculation unless SHHH's computation of the Net Liabilities of SVHH on
the Closing Date differs from ACC Subsidiary's computation by more than
$1,000.00. If ACC Subsidiary fails to notify SHHH prior to the expiration of the
Grace Period that it disputes SHHH's Final Calculation, SHHH's Final Calculation
shall be deemed to be accepted by ACC Subsidiary and shall be final and binding
on the parties.
Upon the final and binding determination of the Net
Liabilities of SVHH on the Closing Date, (i) if the Net Liabilities of SVHH on
the Closing Date are less than $14,845,000, SHHH and ACC Subsidiary shall cause
SVHH to assume additional liabilities in an amount equal to such difference and
(ii) if the Net Liabilities of SVHH on the Closing Date are greater than
$14,845,000, SHHH and ACC Subsidiary shall cause SHHH to assume liabilities of
SVHH in an amount equal to such difference.
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<PAGE>
ARTICLE IX
TERMINATION
9.1 Termination by Mutual Agreement.
This Agreement may be terminated prior to Closing by
mutual written agreement of Adelphia and ACC Subsidiary and SHHH. In such event,
this Agreement shall terminate and neither Adelphia and ACC Subsidiary nor SHHH
shall have any further obligation or liability to the other hereunder, except
that Section 13.6 of the Agreement shall survive and continue in full force and
effect notwithstanding such termination.
9.2 Adelphia's and ACC Subsidiary's Default.
In the event that the transactions contemplated by
this Agreement are not consummated on the Closing Date (if and as extended) due
to Adelphia's or ACC Subsidiary's failure or refusal to close, and all of the
conditions specified in Article VI shall have been satisfied, SHHH shall be
entitled to pursue any and all of its equitable and legal causes of action
against Adelphia and ACC Subsidiary.
9.3 SHHH's Default.
In the event that the transactions contemplated by
this Agreement are not consummated on the Closing Date (if and as extended) due
to SHHH's failure or refusal to close and all of the conditions specified in
Article VII shall have been satisfied, Adelphia and ACC Subsidiary shall be
entitled to pursue any and all of its equitable and legal causes of action
against SHHH.
9.4 Termination by Adelphia and ACC Subsidiary or SHHH.
This Agreement may be terminated by Adelphia and ACC
Subsidiary or SHHH at any time after December 31, 1998 (the "Termination Date")
in the event that any condition set forth in Articles VI or VII hereof has not
been satisfied or tendered by the party owing performance or waived by the party
for whose benefit the condition is intended, and upon such termination, and
unless due to a default under Section 9.2 or 9.3, neither Adelphia or ACC
Subsidiary nor SHHH shall have any further obligation or liability to the other
hereunder, except that Section 13.6 of this Agreement shall survive and continue
in full force and effect notwithstanding such termination.
ARTICLE X
NOTICE
10.1 Addresses for Notice.
All notices and other communications hereunder shall
be in writing and deemed to have been duly given if: (a) mailed, first class,
registered or certified mail, return receipt requested, postage prepaid; (b)
delivered by courier or overnight courier providing written evidence of receipt
for hand delivery; or (c) transmitted via telecopy:
To SHHH:
Syracuse Hilton Head Holdings, L.P.
Main at Water Street
Coudersport, PA 16915
Attention: James M. Kane
Fax: 814-274-7098
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With a copy to:
Colin Higgin, Esquire
Main at Water Street
Coudersport, PA 16915
Fax: 814-274-6586
To Adelphia and ACC Subsidiary:
Adelphia Communications Corporation
Main at Water Street
Coudersport, PA 16915
Attention: James M. Kane
Fax: 814-274-7098
With copies to:
Colin Higgin, Esquire
Main at Water Street
Coudersport, PA 16915
Fax: 814-274-6586
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<PAGE>
and
Bruce I. Booken, Esquire
Buchanan Ingersoll Professional Corporation
301 Grant Street
One Oxford Centre, 20th Floor
Pittsburgh, PA 15219
Fax: 412-562-1041
Any party to this Agreement may change the address of the
party to which all communications and notices may be sent hereunder by
addressing notices of such change in the manner provided.
10.2 Effectiveness of Notice.
Notice shall be deemed received the same day (when
delivered personally), three (3) days after mailing (when sent by registered or
certified mail), and the next business day (when sent by facsimile transmission
or when delivered by overnight courier. Any party to this Agreement may change
the address of the party to which all communications and notices may be sent
hereunder by addressing notices of such change in the manner provided.
ARTICLE XI
ARBITRATION
Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in the
Commonwealth of Pennsylvania, in accordance with articles of the American
Arbitration Association for Commercial Arbitration, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
therefor.
ARTICLE XII
LAWS GOVERNING
The construction and interpretation of this Agreement and the
rights of the parties shall be governed by the laws of the Commonwealth of
Pennsylvania, without regard to its conflicts of laws provisions.
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<PAGE>
ARTICLE XIII
MISCELLANEOUS
13.1 Survival of Representations and Warranties.
SHHH and ACC Subsidiary acknowledge that the
representations, warranties, covenants and agreements of SHHH and ACC Subsidiary
contained in this Agreement form an integral part of the consideration given to
ACC Subsidiary and to SHHH, without which ACC Subsidiary would be unwilling to
accept and receive the distribution, assignment and conveyance of the SVHH
Limited Partner Interest, and SHHH would be unwilling to distribute, assign and
transfer, the SVHH Limited Partner Interest. Notwithstanding any investigation
and review made by SHHH or ACC Subsidiary pursuant to this Agreement, SHHH and
ACC Subsidiary agree that all of the representations, warranties, covenants and
agreements of SHHH and ACC Subsidiary contained in this Agreement or in any
exhibit, statement, report, certificate or other document or instrument required
to be delivered pursuant to this Agreement shall survive the making of this
Agreement, any investigation or review made by or on behalf of the parties
hereto and the Closing hereunder; provided that the representations and
warranties contained in this Agreement shall expire and be extinguished one year
after the Closing Date except for representations and warranties relating to
title and ownership, which shall survive forever.
13.2 Counterparts.
This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
13.3 Assignment.
This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties; provided,
however, that ACC Subsidiary may assign this Agreement to one of its
subsidiaries or other affiliates.
13.4 Entire Agreement.
This Agreement is an integrated document, contains
the entire agreement between the parties, wholly cancels, terminates and
supersedes any and all previous and/or contemporaneous oral agreements,
negotiations, commitments and writings between the parties hereto with respect
to such subject matter. No change, modification, extension, termination, notice
of termination, discharge, abandonment or waiver of this Agreement or any of the
provisions hereof, nor any representation, promise or condition relating to this
Agreement, shall be binding upon the parties hereto unless made in writing and
signed by the parties hereto.
13.5 Captions.
The captions of Sections hereof are for convenience
only and shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
13.6 Expenses.
Except as otherwise expressly provided herein, SHHH
and ACC Subsidiary each will pay all costs and expenses, including any and all
legal and accounting fees, of its performance and compliance with all agreements
and conditions contained herein on its part to be performed or complied with.
13.7 Further Assurances.
The parties agree to execute, acknowledge, deliver
and file, or cause to be executed, acknowledged, delivered and filed, all
further instruments, agreements or documents as may be necessary to consummate
the transactions provided for in this Agreement and to do all further acts
necessary to carry out the purpose and intent of this Agreement.
13.8 No Waiver.
No term or condition of this Agreement shall be
deemed to have been waived,
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<PAGE>
nor shall there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with the waiver or
estoppel. No written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of the term
or condition for the future or as to any act other than that specifically
waived. The waiver by any party of any other party's breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach, and the failure of any party to exercise any right or remedy shall not
operate or be construed as a waiver or bar to the exercise of such right or
remedy upon the occurrence of any subsequent breach. No delay on the part of a
party in exercising a right, power or privilege hereunder shall operate as a
waiver thereof. No waiver on the part of a party of a right, power or privilege,
or a single or partial exercise of a right, power or privilege, shall preclude
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies of this Agreement are cumulative and are not exclusive
of the rights or remedies that a party may otherwise have at law or in equity.
13.9 Severability.
If any one or more of the provisions of this
Agreement is held invalid, illegal or unenforceable, the remaining provisions of
this Agreement shall be unimpaired, and the invalid, illegal or unenforceable
provision shall be replaced by a mutually acceptable valid, legal and
enforceable provision which comes closest to the intent of the parties.
13.10 Binding Effect.
This Agreement shall be for the benefit of, and shall
be binding upon, the parties and their respective heirs, personal
representatives, executors, legal representatives, successors and permitted
assigns.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized corporate officers on the day
and year first above written.
SYRACUSE HILTON HEAD HOLDINGS, L.P.
By: Doris Holdings, L.P., General Partner
By: Eleni Acquisition, Inc.
By: /s/ Michael J. Rigas
Title: Executive Vice President
ADELPHIA COMMUNICATIONS CORPORATION
By: /s/ Michael J. Rigas
Title: Executive Vice President
SHHH ACQUISITION CORPORATION
By: /s/ Michael J. Rigas
Title:Executive Vice President
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<PAGE>
ACKNOWLEDGMENT
The undersigned hereby acknowledge that certain actions are required to
be taken pursuant to Section 5.4 of the foregoing Agreement and hereby agree to
take such actions in order to effectuate the terms and provisions of such
Section 5.4.
HILTON HEAD COMMUNICATIONS, L.P.
By: NCAA Holdings, Inc., General Partner
By: /s/ Michael J. Rigas
Title: Executive Vice President
SVHH CABLE ACQUISITION, L.P.
By: SVHH Holdings, Inc., General Partner
By: /s/ Michael J. Rigas
Title: Executive Vice President
<PAGE>
Exhibit 10.06
SECOND AMENDMENT TO CREDIT AGREEMENT
AND ASSUMPTION AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND ASSUMPTION
AGREEMENT (this "Amendment"), dated effective as of July 31, 1998 (the
"Effective Date"), is entered into by and among (i) CHELSEA COMMUNICATIONS,
INC., a Delaware corporation ("Chelsea"), NORTHEAST CABLE, INC., a Delaware
corporation ("Northeast"), KITTANNING CABLEVISION INC., a Delaware corporation
("Kittanning"), ROBINSON/PLUM CABLEVISION, L.P., a Pennsylvania limited
partnership ("Robinson/Plum"), CHELSEA COMMUNICATIONS, LLC, a Delaware limited
liability company ("Chelsea LLC"), PARNASSOS, L.P. a Delaware limited
partnership ("Parnassos"), (ii) the several Lenders (hereinafter defined)
parties hereto, (iii) TORONTO DOMINION (TEXAS), INC., NATIONSBANK, N.A.
(successor by merger to NationsBank of Texas, N.A.), THE CHASE MANHATTAN BANK
(successor by merger to Chemical Bank), THE BANK OF NOVA SCOTIA and CIBC INC.,
as the Managing Agents (herein so called), (iv) NATIONSBANK, N.A. (successor by
merger to NationsBank of Texas, N.A.), as the Documentation Agent (herein so
called), (v) THE CHASE MANHATTAN BANK (successor by merger to Chemical Bank) as
the Syndication Agent (herein so called) and (vi) TORONTO DOMINION (TEXAS),
INC., as the Administrative Agent (herein so called). Capitalized terms used and
not otherwise defined herein shall have the meanings ascribed to them in the
hereinafter described Credit Agreement, as amended by this Amendment.
RECITALS
A. Chelsea, Northeast, Kittanning and Robinson/Plum, the
several Lenders parties thereto, the Managing Agents, the Documentation Agent,
the Syndication Agent and the Administrative Agent entered into that certain
Credit Agreement dated as of April 12, 1996 (as amended, modified, restated,
supplemented, renewed, extended, rearranged or substituted from time to time,
the "Credit Agreement").
B. Chelsea, Northeast, Kittanning, Robinson/Plum, Chelsea LLC,
the several Lenders parties thereto, the Managing Agents, the Documentation
Agent, the Syndication Agent and the Administrative Agent entered into that
certain First Amendment to Credit Agreement and Assumption Agreement, dated
effective as of June 30, 1998, whereby Chelsea LLC became a "Borrower" under the
Credit Agreement.
C. Chelsea, Northeast, Kittanning, Robinson/Plum and Chelsea
LLC (the "existing Borrowers") have requested that the Lenders add Parnassos as
an additional "Borrower" under the Credit Agreement.
D. Parnassos, the existing Borrowers, the Lenders parties
hereto, which Lenders constitute the Required Lenders necessary under the Credit
Agreement to effect the amendment of the Credit Agreement intended hereby,
desire to enter into this Amendment in order to add Parnassos as a "Borrower"
under the Credit Agreement and to evidence Parnassos'
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assumption of all of the Obligations now existing or hereafter created
thereunder, subject to the terms and conditions set forth herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. AMENDMENTS TO CREDIT AGREEMENT
Subject to the terms and conditions set forth herein, and in
reliance upon the representations and warranties of the existing Borrowers and
Parnassos herein contained, the existing Borrowers, Parnassos and the Lenders
parties hereto hereby agree as follows:
(a) Amendment to Add Additional Borrower. The Credit Agreement
is amended hereby to add Parnassos as a "Borrower" thereunder for all purposes.
Accordingly, Parnassos, the existing Borrowers, the Lenders and the Agents are
hereby bound, from and after the Effective Date, by all of the terms, provisions
and respective obligations of such parties to each other set forth in the Credit
Agreement to the same extent as if Parnassos had originally been a "Borrower"
under the Credit Agreement.
(b) Amendment to Definitions.
(i) The definition of "Borrower" set forth in Section
1.1 of the Credit Agreement is hereby deleted in its entirety and is
replaced with the following:
""Borrower" means, Chelsea, Northeast, Kittanning,
Robinson, Chelsea LLC and Parnassos."
(ii) The definition of "Borrower Change of Control"
set forth in Section 1.1 of the Credit Agreement is hereby deleted in
its entirety and is replaced with the following:
""Borrower Change of Control" means (a) the failure
of ACC to (i) own, directly or indirectly, at least 75% of the
voting Capital Securities of each Borrower (other than
Parnassos), (ii) own, directly or indirectly, at least 662/3%
of the voting Capital Securities of Parnassos and (iii)
possess, directly or indirectly, the power to direct or cause
the direction of the management and policies of each Borrower,
whether through ownership of Capital Securities of such
Borrower, by contract or otherwise, or (b) the failure of TCI
Communications, Inc. (or any successor of TCI Communications,
Inc. due solely to its change from a corporation to a limited
liability company) to own, directly or indirectly, at least
331/3% of the voting Capital Securities of Parnassos."
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(iii) The following definition is hereby added to
Section 1.1 of the Credit Agreement in the appropriate alphabetical
order:
""Parnassos" means Parnassos, L.P. a Delaware limited
partnership.
(c) Amendment to Schedules to Credit Agreement. Schedule 4.2
and Schedule 4.14 to the Credit Agreement are hereby deleted in their entirety
and replaced by Schedule 4.2 and Schedule 4.14 attached hereto, respectively.
Section 2. ASSUMPTION
Parnassos, jointly and severally with the other Borrowers,
hereby expressly and unconditionally (a) promises to pay, guarantees, ratifies,
assumes and agrees to perform all of the Obligations (whether now existing or
hereafter created) under the Credit Agreement and the other Loan Documents,
including, without limitation, any Obligations outstanding as of the Effective
Date under Sections 2.1, 2.2 and 2.19 of the Credit Agreement, all as if
Parnassos had been an original party to the Credit Agreement and (b) assumes the
obligation to, and guarantees, the due and punctual performance and observance
of all of the obligations to be performed and provisions to be observed by a
"Borrower" under the Credit Agreement and the other Loan Documents. Parnassos
specifically acknowledges and agrees hereby that the foregoing assumptions
pertain to all Obligations (whether now existing or hereafter created) under the
Credit Agreement and the other Loan Documents notwithstanding that a portion of
such Obligations are outstanding as of the Effective Date of this Amendment.
Section 3. REPRESENTATIONS AND WARRANTIES
To induce the Lenders parties hereto to enter into this
Amendment, Parnassos and the existing Borrowers hereby jointly and severally
represent and warrant to the Agents and the Lenders as follows:
(a) Authorization; No Contravention. The execution, delivery
and performance by Parnassos and each of the existing Borrowers of this
Amendment has been duly authorized by all necessary corporate, limited liability
company and partnership action, as applicable, and does not and will not (i)
contravene the terms of any Charter Documents of any Loan Party, (ii) conflict
with or result in any breach or contravention of, or the creation of any Lien
under, any document evidencing any Contractual Obligation to which any Loan
Party is a party or any order, injunction, writ or decree of any Governmental
Authority to which such Loan Party is a party or its property is subject or
(iii) violate any Requirement of Law.
(b) Governmental Authorization. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by Parnassos or any of the existing Borrowers
of this Amendment.
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(c) Binding Effect. This Amendment constitutes the legal,
valid and binding obligation of Parnassos and each of the existing Borrowers,
enforceable against each in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles
relating to enforceability.
(d) No Default. No Default or Event of Default exists under
the Loan Documents. As of the date hereof, no Loan Party is in default under or
with respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a Material
Adverse Effect, or that would, if such default had occurs after the date hereof,
give rise to an Event of Default under the Credit Agreement.
(e) Full Disclosure. As of the date hereof, all information
that has been made available to the Agents or any Lender by or on behalf of
Parnassos or any of the existing Borrowers in connection with the transactions
contemplated herein is, taken together, true and correct in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements maintained
therein not materially misleading in light of the circumstances under which such
statements were made.
(f) Representations and Warranties. The representations and
warranties set forth in the Credit Agreement and the other Loan Documents are
true and correct (both as to the existing Borrowers and as to Parnassos) in all
material respects on and as of the date hereof, both before and after giving
effect to this Amendment.
Section 4. CONDITIONS PRECEDENT
The effectiveness of this Amendment is subject to the
satisfaction in full of each of the following conditions precedent, each in a
manner satisfactory to the Administrative Agent:
(a) Loan Documents. The Administrative Agent shall have
received each of the following, in sufficient number for each Lender, except
where otherwise noted, and in form and substance satisfactory to the
Administrative Agent:
(i) this Amendment, duly executed and delivered on
behalf of each existing Borrowers and Parnassos by one or more
Responsible Officers as required by such Person's Charter Documents;
(ii) Second Amended and Restated Revolving Credit
Notes, each dated as of the Effective Date, executed and delivered by
Parnassos in substitution and replacement of the previously outstanding
Amended and Restated Revolving Credit Notes, which Second Amended and
Restated Revolving Credit Notes shall be payable to the order of each
of the Revolving Credit Lenders in the respective appropriate principal
amounts of each Revolving Credit Lenders' respective Revolving Credit
Commitment;
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(iii) Second Amended and Restated Term Notes, each
dated as of the Effective Date, executed and delivered by Parnassos, in
substitution and replacement of the previously outstanding Amended and
Restated Term Notes, which Second Amended and Restated Term Notes shall
be payable to the order of each of the Term Loan Lenders in the
respective appropriate principal amounts of each Term Loan Lenders'
respective Term Loan Commitments;
(iv) an Assignment of Partnership Interests with
respect to the partnership interests of the Partners in Parnassos,
dated the Effective Date, duly executed and delivered on behalf of each
Partner by one or more Responsible Officers as required by each such
Partner's respective Charter Documents;
(v) a Management Subordination Agreement, dated the
Effective Date, duly executed and delivered on behalf of Parnassos and
any Managers party to a Management Agreement with Parnassos by one or
more Responsible Officers of Parnassos and such Managers, as required
by their respective Charter Documents;
(vi) a Supplement to the Affiliate Subordination
Agreement, dated as of April 12, 1996, among Chelsea, Northeast,
Kittanning and Robinson/Plum, each Restricted Subsidiary of such
Persons from time to time party thereto, each Affiliate of such Persons
and Restricted Subsidiaries (other than any other Borrower or any other
Restricted Subsidiary) from time to time party thereto and the
Administrative Agent, dated the Effective Date and duly executed and
delivered on behalf of Parnassos by one or more Responsible Officers as
required by its Charter Documents; and
(vii) a Supplement to the Intercompany Indebtedness
Subordination Agreement, dated as of April 12, 1996, by and among
Chelsea, Northeast, Kittanning and Robinson/Plum, the Restricted
Subsidiaries of such Persons, and the Administrative Agent, such
supplement to be dated the Effective Date and duly executed and
delivered on behalf of Parnassos by one or more Responsible Officers as
required by its Charter Documents.
(b) Related Agreements. The Administrative Agent shall have
received, with a counterpart for each Lender, a complete and correct copy of
each Management Agreement not previously delivered to the Administrative Agent,
duly certified as of the Effective Date as a complete and correct copy thereof,
including all amendments, modifications or assignments thereof, by a Responsible
Officer of the Borrower or Restricted Subsidiary party thereto.
(c) Borrowing Certificate. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate executed by each
Borrower (including Parnassos) by a Responsible Officer of such Borrower (or the
General Partner of such Borrower), dated the Effective Date, substantially in
the form of Exhibit 5.1(d) to the Credit Agreement, with appropriate insertions
and attachments, reasonably satisfactory in form and substance to the
Administrative Agent.
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(d) Partnership Proceedings. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of a
Responsible Officer of Adelphia Western New York Holdings, L.L.C. ("Adelphia
Western"), dated the Effective Date, certifying that pursuant to the Charter
Documents of Parnassos, Adelphia Western has the power to execute and deliver,
on behalf of Parnassos, and to authorize Parnassos to perform its obligations
pursuant to (i) this Amendment, the Credit Agreement as amended hereby, and each
of the other Loan Document to which Parnassos is a party and (ii) the assumption
of the Obligations contemplated hereunder.
(e) Incumbency Certificates. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of a
Responsible Officer of each partner of Parnassos, dated the Effective Date, as
to the incumbency and signature of the officers of such partners of Parnassos
executing any Loan Document on behalf of such partners which certificate shall
be in form and substance reasonably satisfactory to the Administrative Agent,
executed by the President or any Vice President and the Secretary or any
Assistant Secretary of the Responsible Officer of such partners.
(f) Charter Documents. The Administrative Agent shall have
received, with a counterpart for each Lender, complete and correct copies of the
Charter Documents of Parnassos and of each partner of Parnassos, certified as of
the Effective Date as complete and correct copies thereof, including all
amendments, modifications, revocations, recisions, terminations and assignments,
by a Responsible Officer of each partner of Parnassos.
(g) Legal Opinions.
(i) The Administrative Agent shall have received
within five Business Days of the Effective Date, with a counterpart for
each Lender, the executed legal opinion of Buchanan Ingersoll
Professional Corporation, counsel to the Borrowers and the
Subsidiaries, substantially in the form of Exhibit 5.1(l)(i) to the
Credit Agreement as such matters apply to Parnassos and its execution,
delivery and performance of this Amendment, the Credit Agreement as
amended hereby, and each other Loan Document to which Parnassos is a
party. Such legal opinion shall cover such other matters incident to
the transactions contemplated by this Amendment and the Credit
Agreement as amended hereby as the Administrative Agent may reasonably
require.
(i) The Administrative Agent shall have received,
with a counterpart for each Lender, an executed legal opinion of Colin
H. Higgin, Esq., Deputy General Counsel of the Borrowers, substantially
addressing the matters contained in Exhibit 5.1(l)(ii) to the Credit
Agreement as such matters apply to Parnassos and its execution,
delivery and performance of this Amendment, the Credit Agreement as
amended hereby, and each other Loan Document to which Parnassos is a
party. Such legal opinion shall cover such other matters incident to
the transactions contemplated by this Amendment and the Credit
Agreement as amended hereby as the Administrative Agent may reasonably
require.
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(h) Lien Searches. The Administrative Agent shall have
received the results of a recent search by a Person satisfactory to the
Administrative Agent, of the Uniform Commercial Code, judgment and tax lien
filings which may have been filed with respect to personal property of
Parnassos, and the results of such search shall show no Liens against the
personal property of Parnassos other than Permitted Liens and shall otherwise be
satisfactory to the Administrative Agent.
(i) Insurance. The Administrative Agent shall have received
certificates of insurance and other evidence in form and substance satisfactory
to it that all of the requirements of Section 6.5 of the Credit Agreement shall
have been satisfied.
(j) Authorization Statement and Transaction Statement. The
Administrative Agent shall have received executed copies of the Authorization
Statement and the Transaction Statement, in the forms attached to the Assignment
of Partnership Interests of the Partners in the referenced above as Exhibit A
and Exhibit B, respectively, each executed by the appropriate Responsible
Officers of the respective parties thereto.
(k) UCC Financing Statements. All UCC financing statements
deemed necessary or appropriate by the Administrative Agent to perfect the Liens
in favor of the Administrative Agent for the benefit of the Lenders, duly
executed by the appropriate Loan Party, to be recorded with the appropriate
filing offices.
Section 5. MISCELLANEOUS
(a) Ratification and Confirmation of Loan Documents. Each of
the undersigned hereby acknowledge and agree that, except as specifically
amended hereby, the Credit Agreement and other Loan Documents remain in full
force and effect and each of the same are hereby ratified and confirmed, and the
execution and delivery of this Amendment shall not, except as expressly provided
herein, operate as an amendment or waiver of any right, power or remedy of the
Agents or the Lenders under the Credit Agreement or any other Loan Document or
operate as an approval of the terms and conditions of any other agreement of the
Borrowers or any Subsidiary.
(b) Headings. Section and subsection headings in this
Amendment are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
(c) Fees and Expenses. The existing Borrowers and Parnassos
jointly and severally agree to pay on demand all reasonable costs and expenses
of the Administrative Agent in connection with the preparation, reproduction,
execution and delivery of this Amendment and the other Loan Documents described
herein, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Administrative Agent.
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(d) APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW PRINCIPLES.
(e) Counterparts. This Amendment may be executed in any number
of counterparts (including by facsimile) and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument; signature pages (including facsimile signature pages)
may be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[Remainder of Page Intentionally Left Blank; Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
CHELSEA COMMUNICATIONS, INC.
By:/s/ James Brown
Name:James Brown
Title:Vice President
NORTHEAST CABLE, INC.
By:/s/ James Brown
Name:James Brown
Title:Vice President
KITTANNING CABLEVISION, INC.
By:/s/ James Brown
Name:James Brown
Title:Vice President
ROBINSON/PLUM CABLEVISION, L.P.
By: Kittanning Cablevision, Inc.,
its General Partner
By:/s/ James Brown
Name:James Brown
Title:Vice President
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CHELSEA COMMUNICATIONS, LLC
By: Adelphia Communications Corporation,
its Sole Member
By:/s/ James Brown
Name:James Brown
Title:Vice President
PARNASSOS, L.P.
By: Adelphia Western New York Holdings,
L.L.C., its general partner
By: Adelphia Communications
Corporation, its Sole Member
By:/s/ James Brown
Name:James Brown
Title:Vice President
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LENDERS AND AGENTS:
TORONTO DOMINION (TEXAS), INC.,
as Managing Agent, Administrative Agent and
as a Lender
By:/S/ Neva Nesbitt
Name:Neva Nesbitt
Title:Vice President
NATIONSBANK, N.A.,
as Managing Agent, Documentation Agent and as
a Lender
By:/s/ Pamela S. Kurtzman
Name:Pamela S. Kurtzman
Title:Vice President
THE CHASE MANHATTAN BANK,
as Managing Agent, Syndication Agent and as
a Lender
By:/s/ John J. Huber III
Name:John J. Huber III
Title:Managing Director
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THE BANK OF NOVA SCOTIA,
as Managing Agent and as a Lender
By:/s/ Terry K. Fryett
Name:Terry K. Fryett
Title:Authorized Signatory
CIBC INC.,
as Managing Agent and as a Lender
By:/s/ Michele E. Roller
Name:Michele E. Roller
Title:Executive Director
ABN AMRO BANK N.V.
By:/s/ Gregory D. Amoroso
Name:Gregory D. Amoroso
Title:Group Vice President
By:/s/ Louis K. McLinden, Jr.
Name:Louis K. McLinden, Jr
Title:Vice President
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FIRST UNION NATIONAL BANK
By:/s/ Mark K Misenheimer
Name:Mark K. Misenheimer
Title:Vice President
BANK OF AMERICA NT & SA
By:/s/ Carl F. Salas
Name:Carl F. Salas
Title:Vice President
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By:/s/ Emile Elnems
Name:Emile Elnems:
Title:Vice President
SOCIETE GENERALE
By:/s/ Elaine Khalil
Name:Elaine Khalil
Title:Vice President
PNC BANK, NATIONAL ASSOCIATION
By:/s/ Jeffrey E. Hauser
Name:Jeffrey E. Hauser
Title:Vice President
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VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME
TRUST
By:/s/ Jeffrey W. Mallet
Name:Jeffrey W. Mallet
Title:Senior Vice President and Director
FLEET NATIONAL BANK
By:/s/ Russ J. Lopinto
Name:Russ J. Lopinto
Title:Vice President
FLEET BANK, N.A.
By:/s/ Russ J. Lopinto
Name:Russ J. Lopinto
Title:Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:/s/ Christian Giordano
Name:Christian Giordano
Title:Vice President
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
14
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By:/s/ Joseph P. Matteo
Name:Joseph P. Matteo
Title:Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,L.P.,
as Investment Advisor
By:/s/ Joseph P. Matteo
Name:Joseph P. Matteo
Title:Authorized Signatory
BANK OF MONTREAL, CHICAGO BRANCH
By:/s/ Karen Klapper
Name:Karen Klapper
Title:Director
OCTAGON LOAN TRUST
By: Octagon Credit Investors, as Manager
By:/s/ Andrew D. Gordon
Name:Andrew D. Gordon
Title:Managing Director
15
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CREDIT LYONNAIS NEW YORK BRANCH
By:/s/ John J. Judge
Name:John J. Judge
Title:Vice President
UNION BANK OF CALIFORNIA, N.A.
By:/s/ Sonia L. Isaacs
Name:Sonia L. Isaacs
Title:Vice President
THE SUMITOMO BANK, LIMITED
By:
Name:
Title:
CRESTAR BANK
By:/s/ Thomas C. Palmer
Name:Thomas C. Palmer
Title:Vice President
16
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THE SAKURA BANK, LIMITED
By:/s/Yoshikazu Nagura
Name:Yoshikazu Nagura
Title:Vice President
COMMERCIAL LOAN FUNDING TRUST I
By: Lehman Commercial Paper Inc., not in its
individual capacity but soley as
administrative agent
By:/s/ Michele Swanson
Name:Michele Swanson
Title:Authorized Sinatory
ML CBO IV (CAYMAN) LTD.
By: Highland Capital Management, L.P.
as Collateral Manager
By:/s/ Mark K. Okada CFA
Name:Mark K. Okada CFA
Title:Executive Vice President
Highland Capital Management
L.P.
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By:/s/ Payson F. Swaffield
Name:Payson F. Swaffield
Title:Vice President
17
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AERIES FINANCE LTD.
By:/s/ Ian David Moore
Name:Ian David Moore
Title:Director
CAPTIVA FINANCE LTD.
By:/s/ David Egglishaw
Name:David Egglishaw
Title:Director
PAMCO CAYMAN LTD.
By: Protective Asset Management Company,
as Collateral Manager
By:/s/ Mark K. Okada CFA
Name:Mark K. Okada CFA
Title:Executive Vice President
Highland Capital Management
L.P.
18
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SCHEDULE 4.2
JURISDICTIONS OF FORMATION AND QUALIFICATION
[TO BE COMPLETED BY BORROWERS]
19
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SCHEDULE 4.14
SUBSIDIARIES
[TO BE COMPLETED BY BORROWERS]
20
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