-10-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended
December 31, 1993
0-16690
(Commission File Number)
ML MEDIA OPPORTUNITY PARTNERS, L.P.
(Exact name of registrant as specified in its governing
instruments)
Delaware
(State or other jurisdiction of organization)
13-3429969
(IRS Employer Identification No.)
World Financial Center
South Tower - 14th Floor
New York, New York 10080-6114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 236-6577
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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 .
MOPP10K\MOP9310K.DOC
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's
knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Documents incorporated by reference:
Part I - Pages 13 through 22 and 41 through 50 of Prospectus of
Registrant, dated December 11, 1987, filed pursuant to Rule
424(b) under the Securities Act of 1933.
Item l. Business
Formation
ML Media Opportunity Partners, L.P. ("Registrant"), a Delaware
limited partnership, was organized on June 23, 1987. Media
Opportunity Management Partners, a New York general partnership
(the "General Partner"), is Registrant's sole general partner.
The General Partner is a joint venture, organized as a general
partnership under New York law, between RP Opportunity
Management, L.P. ("RPOM") and ML Opportunity Management Inc.,
("MLOM"). MLOM is a Delaware corporation and an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. and an affiliate
of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"). RPOM is organized as a limited partnership under
Delaware law, the general partners of which are EHR Opportunity
Management, Inc., and IMP Opportunity Management Inc. As a
result of the death of Elton H. Rule, the owner of EHR
Opportunity Management, Inc., the general partner interest of
EHR Opportunity Management, Inc. may either be acquired by IMP
Opportunity Management Inc. or its designee. The General
Partner was formed for the purpose of acting as general partner
of Registrant.
Registrant is engaged in the business of acquiring, financing,
holding, developing, improving, maintaining, operating, leasing,
selling, exchanging, disposing of and otherwise investing in and
dealing with media businesses and direct and indirect interests
therein. (Reference is made to Note 9 of "Financial Statements
and Supplementary Data" included in Item 8 hereof for segment
information).
Registrant received initial capitalization of $4,000 and $100
from the General Partner and initial limited partner,
respectively. On January 14, 1988, Registrant commenced the
offering through MLPF&S of up to 120,000 units of limited
partnership interest ("Units") at $1,000 per Unit. The
Registration Statement was filed on July 1, 1987 pursuant to the
Securities Act of 1933 under Registration Statement No. 33-15502
which was declared effective on December 11, 1987
(the "Registration Statement"). On March 23, 1988, Registrant
had its first closing on the sale of 99,131 units of limited
partnership interest, and the General Partner admitted
additional limited partners to Registrant. On April 27, 1988,
Registrant had its second closing on the sale of 13,016 units of
limited partnership interest, and the General Partner admitted
additional limited partners to Registrant. As of December 31,
1993, total limited partners' and General Partner's capital
contributions were $112,147,100 and $1,132,800, respectively.
Reference is made to the prospectus dated December 11, 1987
filed with the Securities and Exchange Commission pursuant to
Rule 424(b)(3) under the Securities Act of 1933. Pursuant to
Rule 12b-23 of the Securities and Exchange Commission's General
Rules and Regulations promulgated under the Securities Exchange
Act of 1934, as amended, the description of Registrant's
business set forth under the heading "Risk and Other Important
Factors" at pages 13 through 22 and under the heading
"Investment Objectives and Policies" at pages 41 through 50 of
the above-referenced prospectus is hereby incorporated herein by
reference.
Media Properties
As of December 31, 1993, Registrant's investments in media
properties consist of various cable television systems in North
Carolina and Maryland, a radio station in Virginia, an ownership
of approximately 4.2% of the stock of a cellular
telecommunications company based in California, a controlling
interest in a broadcast and cable television production company
in California, a minority investment in an affiliated group of
companies based in London, England engaged in programming
distribution and related businesses, and a 51% ownership
interest in a partnership which owns three television stations
in Georgia, Indiana and Missouri. In addition, effective July
1, 1993, Registrant sold the business and assets of IMPLP and
Intelidata (a business information services operation in London,
England) (see below). Additionally, a cable television system
in Virginia (the "Leesburg System") was sold on September 30,
1993 (see below). Information below on the gross revenues
attributable to individual media investments as a percentage of
total Registrant gross revenues relates only to those gross
revenues from media investments in which Registrant had a
greater than 50% ownership interest as of December 31, 1993.
Therefore, the gross revenue percentages outlined below are a
higher percentage than they would be if the consolidated revenue
reflected Registrant's pro-rata share of revenue from non-
consolidated investments.
Windsor Systems
On April 13, 1988, Registrant purchased all of the assets of the
community antenna television systems owned by Windsor
Cablevision, Inc. ("Windsor") serving four communities in North
Carolina (the "Windsor Systems"). As of December 31, 1993, the
Windsor Systems served approximately 2,800 basic subscribers and
passed approximately 90 linear miles of plant. The purchase
price of the Windsor Systems was $4,287,500, of which $1,257,500
was paid for in cash and $3,030,000 was financed by a seller
note (the "Windsor Note") payable over a ten year period in
equal monthly installments of principal and interest, and
bearing interest at a rate of 9% per annum. Payments under the
Windsor Note are secured solely by a security interest in the
assets of the Windsor Systems. Effective June 30, 1992,
Registrant entered into a management agreement with Cablevision
Systems Corporation for the management of the day-to-day
operations and to maintain the books and records of the Windsor
Systems. These responsibilities are subject to the direction and
control of the General Partner. The results of operations of the
Windsor Systems are consolidated into the results of operations
of Registrant.
On November 16, 1993, Registrant entered into an Asset Purchase
Agreement with Tar River Communications, Inc. ("Tar River") to
sell the assets of the Windsor Systems to Tar River for a base
purchase price of $3,240,000, subject to adjustment based on the
number of subscribers to the Windsor Systems on the Closing Date
and the accounts receivable and accounts payable of the Windsor
Systems on the Closing Date. The sale is subject to various
conditions, including consent from the franchising authorities
and extensions of the franchises for the Windsor Systems until
10 years after the Closing Date. The closing is currently
expected to occur in mid-1994.
Registrant is currently unable to determine the impact of the
February 22, 1994 FCC action and previous FCC actions (see
below) on the pending sale of the Windsor systems or the
potential timing of the sale. However, as discussed below, the
FCC actions have had, and will have, a detrimental impact on the
revenues and profits of the Windsor systems.
During 1993, the Windsor Systems had gross revenues totaling
$927,412 (1.5% of gross revenues of Registrant).
During 1992, the Windsor Systems had gross revenues totaling
$898,297 (1.7% of gross revenues of Registrant).
During 1991, the Windsor Systems had gross revenues totaling
$860,779 (2.0% of gross revenues of Registrant).
Refer to Note 2 of "Item 8. Financial Statements and
Supplementary Data" for information regarding defaults under the
Windsor Note, and Registrant's plans with regard to such
defaults.
Maryland Cable Corp.
On May 13, 1988, Registrant entered into a Securities Purchase
Agreement (the "Prime Agreement") with various entities (the
"Prime Sellers") that, directly or indirectly, owned all the
partnership interests in Prime Cable of Maryland Limited
Partnership ("Prime Cable"). Prime Cable owned and operated
cable television systems in the suburban Washington, D.C. areas
of northern Prince George's County, Maryland and Leesburg,
Virginia (herein referred to as the "Maryland Cable Systems" or
the "Systems"). The cable television systems owned and operated
(prior to the sale discussed below) in Leesburg, Virginia is
herein referred to as the "Leesburg System."
The purchase of Prime Cable (the "Acquisition") closed on
November 17, 1988. The purchase price was $198,000,000 of which
approximately $54,152,000 was used to repay Prime Cable's
existing long-term debt and the balance of which was paid to the
Prime Sellers. Registrant also incurred approximately $7,000,000
in financing costs and other transaction fees. Registrant
effected the purchase of Prime Cable through its subsidiaries
Maryland Cable Holdings Corp. ("Holdings") and Maryland Cable
Corp. ("Maryland Cable"), which is wholly-owned by Holdings. To
finance the Acquisition, Registrant arranged the following
financing and commitments:
(i) A $77,500,000 revolving credit line, $73,000,000 of which
was borrowed immediately by Maryland Cable and the balance
of which was borrowed during 1989, and which, on June 30,
1990, converted to a term loan maturing on September 30,
1998, together with a $15,000,000 ten-year term loan from a
group of financial institutions led by Citibank, N.A.
pursuant to a revolving credit and term loan agreement (the
"Maryland Cable Loan Agreement"). Quarterly principal
payments on the $77.5 million loan were scheduled to begin
on September 30, 1990. Maryland Cable did not make its
scheduled quarterly principal repayments of $1,250,000 due
September 30, 1990 and December 31, 1990, nor its scheduled
principal repayments of $1,625,000 due March 31, 1991 and
June 30, 1991. On September 6, 1991 Maryland Cable entered
into an Amended and Restated Credit Agreement (the "Amended
Credit Agreement") relating to its outstanding senior
indebtedness of $92,500,000. Under the Amended Credit
Agreement, Maryland Cable's senior lenders waived all
defaults under the original Maryland Cable Loan Agreement,
changed the maturity date of the loan from September 30,
1998 to December 31, 1993, limited mandatory principal
payments due prior to maturity to quarterly installments of
$250,000 commencing March 31, 1993, required interest to be
paid quarterly until June 1992 and monthly thereafter, and
revised certain financial and operating covenants. The
Amended Credit Agreement also provided for the conversion
to a note (the "Default Interest Note") of $1,595,408 in
default interest that had been incurred as of September 6,
1991. Interest accrued on the Default Interest Note at the
rate of 1.25% over Citibank's base rate until September 30,
1993, when the Default Interest Note was discharged upon
the sale of the Leesburg System (see below). The
obligation had been scheduled to become payable on December
31, 1993. The loans under the Amended Credit Agreement are
secured by liens on essentially all of Maryland Cable's
assets and are guaranteed by Holdings, whose guarantee is
secured by a pledge of all of Maryland Cable's stock.
(ii) Approximately $77,500,000 from the sale by Maryland Cable
of $162,406,000 of Senior Subordinated Discount Notes due
1998 (the "Discount Notes"). The Discount Notes were sold
at an aggregate discount of approximately $84,906,000,
accrued over a five-year period and mature on November 15,
1998; semi-annual cash interest is payable in arrears
beginning May 15, 1994 at an annual rate of 15 3/8%,
compounded semi-annually. The principal amount payable at
maturity of the Discount Notes is $162,406,000 (of which
the entire $162,406,000 is outstanding at December 31,
1993). Prior to November 15, 1993, upon the occurrence of
certain defined events, holders of the Discount Notes could
require redemption of the Discount Notes by Maryland Cable
subject to certain limitations, and Maryland Cable would
have the right to redeem the Discount Notes. The Discount
Notes became redeemable at the option of Maryland Cable, in
whole or in part, on November 15, 1993, initially at 104%
of the principal amount, then declining 2% each year,
ratably, to 100% of the principal amount on or after
November 15, 1995, plus accrued interest to the date of
redemption. The Discount Notes are subordinate to the
obligations under the Amended Credit Agreement.
(iii)$34,200,000 from a capital contribution by Registrant to
Holdings, and $3,800,000 from the sale by Holdings of its
non-voting Class B common stock. Registrant currently owns
all of the capital stock of Holdings, exclusive of the
Class B Common Stock (see below).
Since the Acquisition, the daily operations of the Maryland
Cable Systems have been managed by MultiVision, a cable
television multiple system operator controlled by I. Martin
Pompadur. Mr. Pompadur, Chairman and Chief Executive Officer of
Maryland Cable, Holdings and MultiVision, organized MultiVision
in January 1988 to provide management services to cable
television systems acquired by entities under his control, with
those entities paying cost for those services pursuant to an
agreement to allocate certain costs ("Cost Allocation
Agreement") with MultiVision. Mr. Pompadur is, indirectly, the
general partner of ML Media Partners, L.P., a publicly held
limited partnership ("ML Media"), and Registrant. Each of these
limited partnerships has invested in cable television systems
now managed by MultiVision pursuant to the Cost Allocation
Agreement. The total customer base managed by MultiVision
declined significantly during 1992 as a result of divestitures
by companies other than Registrant which had utilized the
management services of MultiVision, leading to slightly higher
programming prices for all its managed systems, including
Maryland Cable.
Prime Cable acquired the Maryland Cable Systems from affiliates
of Storer Communications, Inc. ("Storer Communications") in
1985. Between December 31, 1985 and December 31, 1993, the
number of homes passed by the Maryland Cable Systems increased
from 101,072 to 140,693, the number of basic subscribers
increased from 48,638 to 76,564, the number of basic subscribers
as a percentage of homes passed (the basic penetration level)
increased from 48.1% to 54.4%, the number of premium service
units decreased from 90,574 to 77,728 and the average monthly
recurring revenue per basic subscriber increased from $25.83 to
$40.34.
On September 30, 1993, Maryland Cable consummated the sale of
the Leesburg System to Benchmark Acquisition Fund I Limited
Partnership (the "Buyer") for a base payment of approximately
$10,180,000, of which $7,250,000 was paid to Citibank, N.A., to
discharge $6,750,000 of bank debt and to pay a fee of $500,000
due in connection with the 1991 amendment to the Maryland Cable
loan agreement. An additional amount of $250,000 was deposited
into an indemnity escrow account for a period of one year.
Following the payment of certain fees and expenses, Maryland
Cable retained approximately $2,480,000 in proceeds and is
entitled to additional payments following the closing based upon
the amount of its accounts receivable, the number of subscribers
served at closing and certain other adjustments. The Buyer is
an affiliate of Benchmark Communications but is not affiliated
with Maryland Cable or Registrant. This sale resulted in an
approximate $4.0 million gain.
In addition, as a result of the payment of $6,750,000 in bank
debt, in accordance with the terms of the Amended Credit
Agreement, the Default Interest Notes of $1,595,408, together
with accrued interest of $252,338, ceased to be an Obligation
(as defined) under the Amended Credit Agreement and was
reflected in the results of operations through the remaining
life of the Amended Credit Agreement. The amount of the Default
Interest Notes forgiven, plus accrued interest forgiven, may be
utilized by the Banks as payment consideration of the exercise
price of the Warrants the Banks hold, in the event of such
exercise, pursuant to the terms of the Amended Credit Agreement.
As of September 30, 1993 (the date of sale of the Leesburg
System), the Leesburg System represented approximately 6.5% of
the basic subscribers of Maryland Cable. In addition, as of
September 30, 1993, the Leesburg System's gross revenues
represented approximately 4% of Maryland Cable's gross revenues.
Refer to Note 14 of "Item 8. Financial Statements and
Supplementary Data" for further discussion.
Maryland Cable is currently in default under its bank credit
agreement by virtue of its failure to pay the principal amount
of its senior bank debt ($85 million) on maturity on December
31, 1993. On January 18, 1994 as a result of the default under
the senior bank debt, the holders of the senior bank debt
exercised their rights under events of default to collect
Maryland Cable's lockbox receipts and apply such receipts
towards the repayment of the outstanding senior bank debt,
related accrued interest, and fees and expenses. As of March 9,
1994, one day prior to the filing of the Prepackaged Plan, the
holders of the senior bank debt applied approximately $4,800,000
in lockbox receipts towards the repayment of the outstanding
senior bank debt. Also, as a result of the default of the
senior bank debt, there is also a default under the Discount
Notes.
On December 31, 1993, Registrant, Maryland Cable, Holdings and
ML Cable Partners (see below) entered into an Exchange Agreement
with Water Street Corporate Recovery Fund I, L.P. (the "Water
Street Fund") providing for the restructuring of Maryland Cable.
The Water Street Fund holds approximately 85% of the outstanding
principal amount of Maryland Cable's Discount Notes, which, as
described below, are currently in default. Also, as of December
31, 1993, another holder of the Discount Notes (representing 7%
of the outstanding principal amount) joined in the Exchange
Agreement.
Pursuant to the Exchange Agreement, holders of the Discount
Notes would exchange their Discount Notes and their Class B
Common Stock of Holdings for all of the partnership interests of
a newly formed limited partnership ("NEWCO") that would acquire
all of the assets of Maryland Cable, subject to the liabilities
of Maryland Cable. Registrant would receive an aggregate of
$2,670,000 in satisfaction of the $3,600,000 in Subordinated
Promissory Notes held by Registrant, plus accrued interest of
approximately $2.7 million and the $5,379,833 in deferred
management fees payable to Registrant, and $100 for its Common
Stock of Holdings. ML Cable Partners, which is 99% owned by
Registrant, would receive payment in full of the $6,830,000
participation it holds in the senior bank debt of Maryland
Cable. In addition, Registrant would be paid upon the
satisfaction of all the terms of the Exchange Agreement a
management fee for managing the Maryland Cable Systems from
January 1, 1994 to the date on which all the terms of the
Exchange Agreement are satisfied, based on the gross revenues of
the Systems during that period. If prior to the date on which
all the terms of the Exchange Agreement are satisfied holders of
the Discount Notes transfer a majority of the outstanding
principal amount of the Discount Notes, Registrant would receive
an additional payment equal to 5% of the amount by which the
Value (as defined) of the Systems exceeds $180,000,000. The
Exchange Agreement also provides for a payment of $500,000 to
MultiVision in settlement of severance and other costs relating
to the termination of MultiVision as manager.
The Exchange Agreement is subject to numerous conditions,
including approval of the holders of at least 99% of the
aggregate principal amount of the Discount Notes, the consent of
the franchising authorities and the Federal Communications
Commission (the "FCC") to the transfer of the Systems to NEWCO,
NEWCO borrowing $100,000,000 to be used to repay Maryland
Cable's senior bank debt, and the agreement from the holders of
the senior bank debt to accept payment of the principal amount
of the senior bank debt and accrued interest thereon, and no
additional fees, interest or other payments for agreeing to
extend the maturity of the senior bank debt beyond December 31,
1993.
As of March 10, 1994, the requisite approvals from the holders
of the Discount Notes and the senior bank debt had not been
received. As a result, as provided for in the Exchange
Agreement, on March 10,1994, Maryland Cable and Holdings filed a
consolidated plan of reorganization of Maryland Cable and
Holdings (the "Prepackaged Plan") under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court-Southern
District of New York. This filing included the Prepackaged
Plan, to which the requisite majority of all impaired creditors
other than the holders of the senior debt had consented. Under
the Prepackaged Plan, Registrant would receive materially the
same aggregate consideration as it would receive under the terms
of the Exchange Agreement.
The Prepackaged Plan filed differs from the Exchange Agreement
most significantly in the treatment of the secured bank debt of
Maryland Cable. Under the Prepackaged Plan, each holder of
Maryland Cable's bank debt would receive deferred cash payments
pursuant to newly issued promissory notes in a principal amount
equal to their proportionate share of the total bank debt,
bearing interest at the same rate as provided for in the
original Amended Credit Agreement with a maturity date of
December 31, 1998 (the original maturity date under the Amended
Credit Agreement). Maryland Cable and the agent for the holders
of Maryland Cable's bank debt are currently negotiating revised
terms for these newly issued promissory notes, however there is
no assurance Maryland Cable and the agent will reach agreement
on these terms. The Exchange Agreement provided for a
forbearance by the holders of the bank debt under the Amended
Credit Agreement and the refinancing or repayment of all
outstanding bank debt obligations upon closing.
There is no assurance that the Prepackaged Plan will be approved
or that the proposed restructuring described in the Prepackaged
Plan will be consummated.
Registrant is currently unable to determine the impact of the
February 22, 1994 FCC action and previous FCC actions (see
below) on the Prepackaged Plan. However, as discussed below,
the FCC actions have had, and will have, a detrimental impact on
the revenues and profits of Maryland Cable.
Cable television systems generally are constructed and operated
under non-exclusive franchises granted by state or local
governmental authorities. These franchises typically contain
many conditions, some of which may be subject to renegotiation
during the term of the franchise, such as service, number of
channels, types of programming and the provision of free service
to schools and certain other public institutions, time
limitations on commencement and completion of construction, and
the maintenance of insurance and indemnity bonds. The
provisions of state and local franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984
(the "Cable Act") and the Consumer Protection and Competition
Act of 1992 (the "1992 Cable Act"). At December 31, 1993,
Maryland Cable held 20 franchises for the Prince George's System
(collectively, the "Franchises"). A Franchise from Prince
George's County accounted for more than half the subscribers
served by the Prince George's System at December 31, 1993. All
of the Franchises are non-exclusive and provide for the payment
of fees to the issuing authority. A non-exclusive franchise
allows other cable operators to build in the same area; no other
cable operators have built cable systems in the franchise areas
of the Maryland Cable Systems, although in two communities
served by Maryland Cable, other parties have requested a
franchise to provide cable television service.
The aggregate franchise fees imposed on the Maryland Cable
Systems by the franchising authorities have averaged 5% of
annual gross system revenues during 1993. The Cable Act
prohibits franchising authorities from imposing franchise fees
in excess of 5% of annual gross system revenues.
All of the franchises were granted to predecessors of Prime
Cable. In connection with its acquisition of the Systems from
Storer Communications, Prime Cable received consents from all of
the franchising authorities for the assignment of the franchises
to it. In connection with the Acquisition, Maryland Cable
obtained consents from all of the franchising authorities,
including Prince George's County, to its acquisition and
liquidation of Prime Cable. Prince George's County reserved the
right to compel full compliance with its franchise and Maryland
Cable expects to continue to discuss various compliance issues
with Prince George's County in the ordinary course of business.
Although Maryland Cable does not believe that the extent to
which it is likely to be required to comply would have an
adverse effect on its business and operations, an effort by
Prince George's County to compel full compliance could have a
material adverse effect on Maryland Cable.
Upon consummation of the Acquisition, Maryland Cable became the
incumbent franchisee and is entitled to operate the Systems
under the franchises until the franchises expire between 1995
and 1998. Maryland Cable will apply for a renewal of each
franchise prior to its expiration, in accordance with the
renewal procedures set forth in the franchise and in the Cable
Act.
Maryland Cable holds two business radio service ("BRS") and
three television receive only ("TVRO") licenses from the FCC,
which are used in connection with the operation of the Maryland
Cable Systems. Maryland Cable uses the frequencies authorized
by its BRS licenses for two-way communication between its
employees; Maryland Cable's TVRO licenses protect the
frequencies used by Maryland Cable's earth stations to receive
satellite delivered programming.
The results of operations of Maryland Cable are consolidated
into the results of operations of Registrant.
During 1993, Maryland Cable had gross revenues totaling
$43,854,112 (70.0% of gross revenues of Registrant).
During 1992, Maryland Cable had gross revenues totaling
$41,770,040 (79.3% of gross revenues of Registrant).
During 1991, Maryland Cable had gross revenues totaling
$40,195,647 (92.9% of gross revenues of Registrant).
WMXN-FM
On May 10, 1989 Registrant purchased all of the assets of radio
station WXRI-FM in Norfolk, Virginia, which it renamed WZCL-FM
upon acquisition and subsequently renamed WMXN-FM ("WMXN-FM").
The purchase price of approximately $5 million was funded solely
with Registrant equity.
Registrant entered into an agreement (the "Option Agreement"),
effective January 25, 1994, with U.S. Radio, Inc. ("U.S. Inc."),
a Delaware corporation, and an affiliated entity, U.S. Radio,
L.P. ("U.S. Radio"), a Delaware limited partnership, neither of
which is affiliated with Registrant. Pursuant to the Option
Agreement, Registrant granted U.S. Inc. an option (the "Call")
to purchase substantially all of the assets used exclusively in
the operation of WMXN-FM (the "Assets") for a cash price of $3.5
million at any time prior to January 15, 1995. Also pursuant to
the Option Agreement, U.S. Inc. granted Registrant the option
(the "Put") to sell the Assets to U.S. Inc. for a cash price of
$3.5 million at any time (a) within 30 days after the expiration
of the Call or (b) within 30 days of the termination by
Registrant of the LMA (see below) as a result of a material
breach of the LMA by U.S. Radio. If the Call or Put is
exercised, Registrant and U.S. Inc. will immediately revise as
necessary and execute an Asset Purchase Agreement which is an
exhibit to the Option Agreement. If the Call or Put is timely
exercised but U.S. Inc. fails to execute the Asset Purchase
Agreement, then, subject to certain conditions, Registrant may
elect to cause U.S. Radio to sell its radio stations WOWI-FM, in
Norfolk, Virginia, and WSVY-AM in Portsmouth, Virginia, together
with WMXN-FM (collectively, the "Stations"), with the first $3.5
million of proceeds from such sale less transaction costs, to be
retained by Registrant. The acquisition of WMXN-FM by U.S.
Inc., and/or the sale of the Stations, is subject to the prior
approval of the FCC. There can be no assurance that the sale of
WMXN-FM or the sale of the Stations will be consummated.
Effective January 31, 1994, Registrant entered into a Time
Brokerage Agreement (the "LMA") with U.S. Radio. The LMA calls
for Registrant to make broadcasting time available on WMXN-FM to
U.S. Radio and for U.S. Radio to provide radio programs to be
broadcast on WMXN-FM, subject to certain terms and conditions,
including the rules and regulations of the FCC. In exchange for
providing broadcasting time to U.S. Radio, Registrant will
receive a monthly fee approximately equal to its cost of
operating WMXN-FM. The LMA will continue until the earlier of:
(i) March 1, 1995 (if neither the Call nor Put has been
exercised); (ii) the consummation of the acquisition of WMXN-FM
by U.S. Inc. pursuant to the Option Agreement; or (iii) the
consummation of a joint sale of the Stations.
The results of operations of WMXN-FM are consolidated into the
results of operations of Registrant.
During 1993, WMXN-FM had gross revenues totaling $1,856,903
(3.0% of gross revenues of Registrant).
During 1992, WMXN-FM had gross revenues totaling $1,729,175
(3.3% of gross revenues of Registrant).
During 1991, WMXN-FM had gross revenues totaling $985,428 (2.3%
of gross revenues of Registrant).
General Cellular Corporation
On May 24, 1989, Registrant entered into a subscription and
purchase agreement (the "Subscription Agreement") to purchase
500,000 shares of Series A Convertible Preferred Stock
("Preferred Stock") of General Cellular Corporation ("GCC") at
$30 per share, for a total subscription of $15 million. GCC is
a California-based owner and operator of cellular telephone
systems.
In 1990, Registrant wrote down the value of its investment in
GCC by $15,000,000, the full value of its preferred stock
investment in GCC, because of GCC's inability at that time to
raise the financing critical to its viability as a going
concern.
On or about July 30, 1991, GCC's primary lender, NovAtel, sold
its loans due from GCC and its rights under the loan agreements
with GCC to an investor group named GCC Holdings Corporation,
which is comprised primarily of Hellman and Friedman and Stanton
Communications, Inc. (the "Investors"). GCC and the Investors
agreed to pursue a plan of reorganization by which most of that
debt would be converted into 90% ownership of GCC.
On October 21, 1991, GCC filed a bankruptcy petition and plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code to
implement this reorganization plan.
On November 1, 1991, in connection with the plan of
reorganization, Registrant sold a $500,000 note that it
purchased on June 15, 1990 to the Investors for $275,000 in
cash.
On March 17, 1992, a plan of reorganization under Chapter 11 of
the U.S. Bankruptcy Code became effective, in which GCC was
recapitalized by an investor group comprised primarily of the
Investors. As part of the plan of reorganization, GCC's
outstanding debt, which had previously been purchased by Hellman
and Friedman, was reduced from approximately $97 million to $20
million. Under the plan, Registrant's 500,000 shares of
Preferred Stock were converted to 199,281 shares of common
stock, prior to the effect of Registrant's exercise of rights
pursuant to a rights offering. The rights offering provided
that existing shareholders, including Registrant, could purchase
additional ownership in GCC. Each right consisted of the right
to purchase from GCC a unit consisting of one share of common
stock and $9.09 in principal amount of senior notes, for a total
unit price of $19.09. On March 4, 1992, Registrant exercised
52,384 rights, for a total price of $1,000,011. By exercising
these rights, Registrant purchased: a) 52,384 shares of common
stock of GCC, which increased Registrant's ownership position in
GCC to 251,665 shares; and b) senior notes with a face value of
$476,171.
On August 19, 1992, GCC redeemed the senior notes, repaying to
Registrant $476,171, plus accrued interest.
On October 26, 1992, GCC completed a second rights offering
pursuant to which existing shareholders, including Registrant,
were issued rights to purchase one additional share of common
stock for each 1.75 shares owned, for a price of $10.00.
Registrant purchased 100,000 additional shares for an investment
of $1,000,000. In addition, Registrant sold 43,809 rights to
purchase shares for a price of $120,000 to an unaffiliated
entity. GCC raised $25,281,000 in the offering to assist it in
completing its business plan of purchasing and operating
clusters of cellular systems in certain geographic areas.
Effective November 3, 1993, Registrant sold 61,160 rights to
purchase shares for a price of $100,000 to several unaffiliated
entities.
As of December 31, 1993, after giving effect to the
recapitalization and the rights offerings, Registrant's 351,665
common shares in GCC equated to an ownership percentage of
approximately 4.2%.
Registrant's investment in GCC is accounted for by the cost
method and is not consolidated into the results of operation of
Registrant.
Paradigm Entertainment
On June 15, 1989, Registrant entered into a Limited Partnership
Agreement (the "Paradigm Agreement") with ML Media Opportunity
Productions, Inc. ("Productions"), the Gary L. Pudney Co. ("GLP
Co."), and Bob Banner Associates Inc. ("Associates") to form
Paradigm Entertainment L.P. ("Paradigm"), a broadcast and cable
television production company based in Beverly Hills,
California. Productions is a corporation, 100% owned by
Registrant, formed to hold a 1% general partnership interest in
Paradigm. Initially, Registrant owned 49% of Paradigm as a
limited partner, while GLP Co. and Associates each had a 25%
ownership share in Paradigm as general partners. GLP Co.
pledged the exclusive services of Gary L. Pudney and Associates
pledged the exclusive services of Bob Banner for the maximum
five-year duration of Paradigm's operations.
Registrant committed to fund up to $10 million to Paradigm, to
be contributed over a period of up to five years. Per the terms
of the original Paradigm Agreement, major decisions affecting
Paradigm were to be made through a management committee
consisting of four members, two of whom were representatives of
Productions. Each decision required a 3/4 majority for
approval. On June 20, 1989, Registrant deposited $5 million in
an interest-bearing account (the "Paradigm Venture Account").
The Paradigm Venture Account was controlled by Productions, and
funds were advanced to Paradigm as needed according to pre-
approved budgets. Upon depletion of the funds deposited into
the Paradigm Venture Account, additional funds were advanced
directly from Registrant to Paradigm (see below). Under the
Paradigm Agreement, the full amount of any investment in
Paradigm by Registrant bears a priority return equal to a
cumulative annually compounded rate of 14% and upon the sale or
dissolution of Paradigm, in the event that sufficient proceeds
are available, Registrant is entitled to the full amount of its
investment in Paradigm plus the appropriate priority return on
that investment prior to any pro rata split of profits among
Registrant, Productions, GLP Co. and Associates.
On May 31, 1991, Registrant, Productions, GLP Co. and Associates
entered into a new agreement (the "Revised Paradigm Agreement")
that amended the original Paradigm Agreement. Under the terms
of the Revised Paradigm Agreement, effective June 16, 1991 the
general partner interests of GLP Co. and Associates in Paradigm
were converted to limited partner interests. GLP Co. and
Associates each retained their 25% ownership in Paradigm and
Registrant retained its 50% beneficial interest. Under the
terms of the Revised Paradigm Agreement, Paradigm retained
ownership of all program concepts developed by Paradigm prior to
June 15, 1991, but assigned the task of further developing these
program concepts to GLP Co. and/or Associates as independent
contractors. Per the Revised Paradigm Agreement, if GLP Co. or
Associates were to develop any new program concepts during the
period in which they were acting as independent contractors for
Paradigm, GLP Co. or Associates would be required to offer
Paradigm the right to finance the production of such program
concepts. Regardless of Paradigm's decision to finance the
further development of the new program concepts, Paradigm will
receive a share of the profits and fees, if any, from such new
program concepts.
The consulting agreements described above expired on December
31, 1991. Effective with the expiration, Associates continued,
without a formal agreement, to develop projects to offer to
Paradigm. As was the case under the Revised Paradigm Agreement,
Registrant had the option of financing such projects in return
for equity interests in such projects. During 1992, Registrant
advanced approximately $1.0 million to Paradigm to fund
Paradigm's operations and the production of its television
programs. Offsetting these advances during 1992, Paradigm
returned to Registrant $2.5 million of such advances, which
Paradigm received from broadcasters as fees for movies produced.
As of December 31, 1993, Registrant had advanced a net amount of
approximately $7.5 million to Paradigm.
Effective June 23, 1992, Paradigm and Associates entered into a
new general partnership agreement forming Bob Banner Associates
Development ("BBAD"). During 1992, pursuant to this new general
partnership arrangement between Paradigm and Associates,
Paradigm advanced approximately $942,000 and Associates advanced
approximately $457,000 to fund BBAD's operations and the
development of certain programming concepts. Initially, Paradigm
owned 67% and Associates owned 33% of BBAD, based on their
capital contributions to BBAD. In addition, Associates
contributed an additional approximately $0.7 million and
Paradigm contributed approximately $0.3 million from existing
cash balances during 1993 to fund BBAD's operations. Registrant
and Associates are continuing to negotiate the terms on which
BBAD would acquire and continue to develop Paradigm's and/or
BBAD's programs and programming concepts.
Through the end of 1993, Paradigm had produced three television
movies which had aired as well as one syndicated series (which
was discontinued after thirteen episodes), and BBAD had produced
one television movie which had aired and one series. BBAD had
also developed other program concepts which may be produced as
either movies or series for television.
In addition to the programs discussed above, BBAD has continued
to develop new program concepts, primarily for other television
movies and series. Registrant continued to monitor the
development of these program concepts to determine BBAD's
additional cash needs. BBAD is not currently producing a
sufficient number of programs to cover overhead costs
indefinitely, although Registrant has not advanced any funds to
Paradigm or BBAD since the second quarter of 1992. Paradigm
and/or BBAD have taken several steps to reduce operating costs,
primarily by reducing the number, and compensation, of
employees. However, Paradigm and BBAD did not operate profitably
during 1993, and are currently dependent on outside sources,
primarily Associates, to finance BBAD's monthly operating costs.
Registrant has elected not to fund such operating costs.
Registrant has no obligation to advance any additional funds to
Paradigm and/or BBAD and actively sought a strategic partner
that would share in meeting Paradigm's and/or BBAD's potential
future funding needs, but was unable to identify such a partner.
Registrant is negotiating with Associates the terms of an
agreement under which Paradigm would retain the three television
movies and the series developed by it and the other projects and
program concepts developed by Paradigm and/or BBAD would be
assigned to Associates for further development at Associates'
expense, while Paradigm would retain a percentage interest in
all such projects and concepts. In any event, Registrant will
most likely recover only a nominal portion, if any, of its
original investment in Paradigm and/or BBAD. Paradigm and/or
BBAD have no liability for borrowed funds. (See Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.)
Commencing in 1992, the results of operations of Paradigm and
BBAD were consolidated into the results of operations of the
Registrant.
During 1993, Paradigm/BBAD had gross revenues totaling
$5,917,189 (9.4% of gross revenues of Registrant).
During 1992, Paradigm/BBAD had gross revenues totaling
$7,746,380 (14.7% of gross revenues of Registrant).
During 1991, Paradigm had gross revenues of $4,211,129, which
were not included in the revenues of Registrant due to the fact
that the results of operations of Paradigm were accounted for on
the equity method of accounting in 1991.
Investments and EMP, Ltd.
On September 1, 1989, Registrant entered into a stockholders
agreement ("the Media Ventures Agreement") with Peter Clark
("Clark") and Alan Morris ("Morris") to form Media Ventures
International, Limited ("Media Ventures"), a United Kingdom
corporation with a mandate to engage in media businesses
including but not limited to: program packaging and
distribution; executive search for the media and entertainment
sector; trade markets and trade publishing; screen entertainment
retailing; and television broadcasting in the United Kingdom.
At closing Registrant held 50%, Clark held 46% and Morris held
4% of the stock of Media Ventures. Registrant subsequently
assigned 1% of its stock in Media Ventures to Morris.
Registrant committed to advance up to $2 million to Media
Ventures or its affiliate, European Media Partners ("EMP"), over
a three year period to fund their operations. The ownership of
EMP parallels that of Media Ventures after the aforementioned
assignment by Registrant of 1% to Morris. As of December 31,
1991, Registrant had advanced all of its original $2.0 million
commitment to Media Ventures.
During 1991, Media Ventures and EMP (together, the "Companies")
and Registrant identified a strategic partner, ALP Enterprises
(a company controlled by Arthur Price, and not affiliated with
Registrant), which agreed in the first quarter of 1992 to invest
up to approximately $700,000 at then-current exchange rates in
EMP, Ltd. pursuant to a restructuring of the Companies which
diluted Registrant's ownership interest in the Companies. In
the restructuring: Media Ventures' name was changed to Media
Ventures Investments Ltd. ("Investments"); a new U.K.
corporation, European Media Partners, Ltd. ("EMP, Ltd."), was
formed; and Investments transferred its ownership in its
programming subsidiary, International Programme Ventures
("IPV"), to EMP, Ltd. For any investments made by ALP
Enterprises in EMP, Ltd., ALP Enterprises will receive from EMP,
Ltd. a preferred return of 6% on its investment plus the return
of its original investment prior to a pro rata distribution of
the proceeds, if any, from the ultimate sale of any of EMP,
Ltd.'s existing and future media businesses. As of December 31,
1993, ALP Enterprises had invested approximately $2 million in
EMP, Ltd. at current exchange rates, including approximately
$1.1 million in Teletext (see below). ALP Enterprises will not
invest any funds in Investments. Registrant is entitled to
receive from Investments a preferred return of 14% on its
original $2 million investment, plus the return of its original
investment prior to the pro-rata distribution of the proceeds,
if any, from the ultimate sale of any of Investments' existing
and future media businesses. Because it lacks funding, and
because its only significant investment, Neomedion (see below),
is likely to generate a nominal return, if any, it is unlikely
that Registrant will recover any of its $2 million investment in
Investments.
Subsequent to the restructuring, EMP, Ltd., through a wholly-
owned subsidiary, acquired VATV, Ltd., a U.K. television program
distributor, for approximately $126,000 in cash at then-current
exchange rates. In addition, during the first quarter of 1992,
Investments and EMP, Ltd. entered into a stock transaction to
acquire a combined 50% interest in Neomedion, Ltd., an existing
U.K. corporation that provides consulting services to the
European media industry, in exchange for shares in Investments
and EMP, Ltd. As a result, Investments and EMP, Ltd. each owned
25% of Neomedion, Ltd. After giving effect to the restructuring
of the Companies and the Neomedion transaction, Registrant owned
36.8% of the common stock of Investments, ALP Enterprises owned
13.8%, Clarendon (a company controlled by the Companies'
founders, Clark and Morris) owned 41.4%, and Charles Dawson, the
founder and head of Neomedion, Ltd., controlled the remaining
8.0%. Registrant also owned 13.8% of the common stock of EMP,
Ltd., ALP Enterprises owned 36.8%, Clarendon owned 41.4%, and
Charles Dawson controlled the remaining 8.0%. The ownership of
EMP, which is dormant, was unaffected by any of the transactions
described above. Clarendon and Charles Dawson are not affiliated
with Registrant.
During 1992, EMP, Ltd. continued its European television
programming distribution operations while searching for
additional investment opportunities in the European media
market. In addition, during the first half of 1992, EMP, Ltd.
became a 10% equity owner in Teletext U.K., Ltd. ("Teletext"), a
newly formed U.K. corporation organized by EMP, Ltd. to acquire
U.K. franchise rights to provide data in text form to television
viewers via television broadcast sidebands. EMP, Ltd. was
actively involved in the initial start-up phase of Teletext, and
ALP Enterprises contributed approximately $1.1 million at then-
current exchange rates to EMP, Ltd. to allow EMP, Ltd. to
acquire the 10% share in Teletext. Teletext took control of the
franchise on January 1, 1993. The day-to-day operations of
Teletext are managed by a newly formed management team; EMP,
Ltd. and its partners monitor Teletext's operations. The other
equity owners of Teletext are not affiliated with Registrant.
On July 30, 1993, EMP, Ltd. sold its Neomedion shares back to
Charles Dawson, while Charles Dawson sold his shares in EMP,
Ltd. back to Clarendon. The stock of Neomedion is now
controlled 75% by Charles Dawson and 25% by Investments. In
addition, after the exchange of shares, EMP, Ltd. was owned
13.8% by Registrant, 45.6% by Clarendon, and 40.6% by ALP
Enterprises.
As of December 31, 1993, the primary ongoing business activities
of Investments and EMP, Ltd. were conducted through EMP, Ltd.'s
television programming subsidiaries, Teletext and Neomedion.
The results of operations of Investments and EMP, Ltd. are not
consolidated into the results of operations of Registrant as the
cost method of accounting is used for Investments and EMP, Ltd.
TCS Television Partners
On January 17, 1990, Registrant entered into a limited
partnership agreement with Riverdale Media Corporation
("Riverdale"), forming TCS Television Partners, L.P. ("TCS").
The agreement was subsequently amended to include Commonwealth
Capital Partners, L.P. ("Commonwealth"),which is not affiliated
with Registrant, as a limited partner. Initially, Riverdale was
the general partner of TCS, and owned 20.01% of the entity.
Registrant and Commonwealth were limited partners owning 41% and
38.99%, respectively. Riverdale contracted with ML Media
Opportunity Consulting Partners, a wholly-owned subsidiary of
Registrant, to provide management services for TCS.
On June 19, 1990, TCS completed its acquisition of three network
affiliated television stations; WRBL-TV, the CBS affiliate
serving Columbus, Georgia; WTWO-TV, the NBC affiliate serving
Terre Haute, Indiana; and KQTV-TV, the ABC affiliate serving St.
Joseph, Missouri.
The purchase price of $49 million, a non-compete payment of $7
million, and starting working capital and closing costs of
approximately $5 million were funded by the sale by TCS of
senior notes totaling $35 million and subordinated notes
totaling $10 million, and by equity contributions of $16
million, of which approximately $8.15 million was contributed by
Registrant.
On December 14, 1992, Registrant concluded agreements to
restructure the debt and ownership arrangements of TCS. TCS had
been unable to generate sufficient funds from operations to meet
fully its original obligations under its note purchase
agreements. TCS's senior debt was amended to reschedule
principal payments, and its subordinated lenders agreed to defer
all scheduled interest and principal payments through December
15, 1995. As payment for a transaction fee, the senior lenders
were issued additional notes, due May 31, 1997, in the amount of
$350,000. Also, upon sale of the stations or retirement of the
debt, the subordinated lenders will receive compensation equal
to 20% (or 25% in some circumstances) of the value of the assets
of TCS after subtracting all outstanding debt. All previous
defaults under the senior and subordinated debt were waived.
The new debt arrangements were structured to provide TCS with
three years following the restructuring in which to improve
operating performance and avoid selling TCS in the then-illiquid
transaction market for broadcast television stations.
Concurrently with the new debt arrangements, the equity partners
in TCS agreed to seek regulatory approval to alter the ownership
structure of TCS. On March 26, 1993, Registrant was granted
such approval by the FCC. As a result, on March 26, 1993,
Registrant and Commonwealth purchased the 20.01% ownership
interest held by Riverdale. On March 26, 1993, a wholly-owned
subsidiary of Registrant became the new sole general partner of
TCS and Registrant's total ownership interest in TCS increased
from 41% to 51% (1% of which is the general partner interest).
Registrant utilized approximately $170,000 of its working
capital reserve to purchase its share of Riverdale's interest.
Refer to Notes 2 and 6 of "Item 8. Financial Statements and
Supplementary Data" for further information regarding TCS' debt.
Beginning March 26, 1993, the results of operations of TCS were
consolidated into the results of operations of Registrant.
During 1991, 1992 and through March 26, 1993, the results of
operations of TCS were not consolidated into the results of
operations of Registrant as the equity method was used. Refer to
Notes 8 and 13 of "Item 8. Financial Statements and
Supplementary Data" for further information regarding the
results of operations of TCS.
Beginning March 26, 1993 through the year ended December 31,
1993, TCS had gross revenues totaling $9,977,792 (15.9% of gross
revenues of Registrant).
International Media Publishing, L.P.
On June 22, 1990, Registrant entered into a limited partnership
agreement, whereby Registrant, ML Media International, Inc.
("MLMI"), Venture Media & Communications, L.P. ("VM&C"), and
Tyler Information Strategies, Inc. ("Tyler") formed
International Media Publishing, L.P. ("IMPLP"), a United States
limited partnership. MLMI is a 100% owned subsidiary of
Registrant that acts as a general partner in IMPLP. VM&C and
Tyler are unaffiliated with Registrant, and were originally
general and limited partners, respectively, in IMPLP. VM&C was
originally responsible for the management of IMPLP's daily
operations. Registrant is a limited partner in IMPLP. IMPLP
was formed primarily to design, publish, market, circulate and
otherwise develop and exploit a newsletter about the media
industry in Europe for distribution in the United States and in
Europe, and to develop related information services businesses.
IMPLP was based and operated in the United States.
International Media Publishing, Inc. ("IMPI"), a wholly-owned
subsidiary of IMPLP, was also formed on June 22, 1990. IMPI
maintained an operation in London that was responsible for
providing editorial services for the products designed,
published, circulated and otherwise developed and exploited by
IMPLP. IMPI received fees from IMPLP for transmitting
editorial data compiled by IMPI in London to IMPLP in the United
States.
Registrant originally committed $900,000 and Tyler committed
$50,000 to IMPLP and IMPI to fund start-up costs of the
newsletter and related businesses. Tyler also advanced an
additional $50,000 to a predecessor company of IMPLP. Ownership
of IMPLP was structured to vary over time, with incentives for
VM&C based on improvements in performance. However, based on a
restructuring effective November 1, 1992, VM&C relinquished its
existing, and potential future, ownership in, and control of,
IMPLP, IMPI and their affiliate, Intelidata (see below). After
giving effect to this restructuring, MLMI owned 1% of
IMPLP/IMPI, Registrant owned 92.5% of IMPLP/IMPI, and Tyler
owned 6.5% of IMPLP/IMPI. However, Registrant's entire equity
contribution, which totaled approximately $4.2 million as of
July 1, 1993, as well as Tyler's initial $50,000 contribution,
were required to be returned to Registrant/MLMI and Tyler,
respectively, before additional distributions, if any, were made
to the owners on the percentage basis outlined above. In
addition, pursuant to the restructuring, VM&C relinquished
control of its original 10% stake in Intelidata to Registrant.
In the fourth quarter of 1991, Registrant expanded its European
business information services by assuming control of a division
of Logica plc through a newly formed United Kingdom corporation,
Intelidata Limited ("Intelidata"), at a cost of approximately
$150,000 at then-current exchange rates. Intelidata was owned
100% by Registrant after giving effect to the November 1, 1992
restructuring. Intelidata compiled research studies on European
telecommunications, which it sold primarily to European
companies. Intelidata's operations were directed by the
management of IMPI in London; IMPI and Intelidata operated out
of shared office space. Neither IMPLP/IMPI nor Intelidata were
operating profitably, and all operations were dependent upon
Registrant for capital advances. IMPLP/IMPI and Intelidata
reported a combined net loss of approximately $0.8 million
during 1993.
Effective July 1, 1993, Registrant entered into three
transactions to sell the business and assets of IMPLP/IMPI and
Intelidata. In two separate transactions, Registrant sold the
entire business and substantially all of the assets of
IMPLP/IMPI and a portion of the business and assets of
Intelidata to Phillips Business Information, Inc. ("PBI") for
future consideration based on the revenues of IMPLP/IMPI and the
portion of the Intelidata business acquired by PBI. PBI is not
affiliated with Registrant. At closing, PBI made advances of
$100,000 and $150,000 to IMPLP/IMPI and Intelidata,
respectively, which advances would be recoverable by PBI from
any future consideration payable by PBI to Registrant. In
addition, PBI agreed to assume certain liabilities of IMPLP/IMPI
and Intelidata.
In the third transaction, Registrant sold the remaining business
and assets of Intelidata, which were not sold to PBI, to Romtec
plc ("Romtec") in exchange for future consideration, based on
both the amount of assets and liabilities transferred to Romtec
and the combined profits of the portion of the Intelidata
business acquired by Romtec and another, existing division of
Romtec. In addition, certain liabilities of Intelidata were
assumed by Romtec. Romtec is not affiliated with Registrant.
As a result of the above transactions, Registrant recorded a
writedown of approximately $364,000 of certain assets of
IMPLP/IMPI/Intelidata in the second quarter of 1993 to reduce
Registrant's net investment to a net realizable value of zero.
Subsequent to the sale of the businesses, Registrant advanced
additional funds totaling approximately $0.1 million to
IMPLP/IMPI and Intelidata to fund cash shortfalls resulting from
the pre-sale claims of certain creditors. Registrant
anticipates that it may make additional such advances to
IMPLP/IMPI and Intelidata during 1994. The total of any
Registrant obligations to fund such advances, including certain
contractual obligations, is not currently anticipated to exceed
the amount of the writedown. It is unlikely that Registrant
will recover its investment in IMPLP/IMPI/Intelidata.
As a result of the July 1993 sale, the operations of IMPLP, IMPI
and Intelidata have been classified as discontinued and
therefore are not included in the consolidated gross revenues.
During 1993, IMPLP, IMPI and Intelidata had gross revenues of
$978,359.
During 1992, IMPLP, IMPI and Intelidata had gross revenues
totaling $1,427,157.
During 1991, IMPLP and IMPI had gross revenues totaling
$169,414.
Employees
As of December 31, 1993, Registrant employed approximately 435
persons. The business of Registrant is managed by the General
Partner. RPOM, MLOM and ML Leasing Management Inc., all
affiliates of the General Partner, perform certain management
and administrative services for Registrant.
COMPETITION
Cable Television
Cable television systems compete with other communications and
entertainment media, including off-air television broadcast
signals that a viewer is able to receive directly using the
viewer's own television set and antenna. The extent of such
competition is dependent in part upon the quality and quantity
of such off-air signals. In the areas served by the Maryland
Cable Systems, a substantial variety of broadcast television
programming can be received off-air. In those areas, the extent
to which cable television service is competitive depends largely
upon the system's ability to provide a greater variety of
programming than that available off-air and the rates charged by
the Maryland Cable Systems for programming. Cable television
systems also are susceptible to competition from other multiple-
channel video programming delivery systems, from other forms of
home entertainment such as video cassette recorders, and in
varying degrees from other sources of entertainment in the area,
including motion picture theaters, live theater and sporting
events. On December 17, 1993, the first high-powered direct
broadcast satellite ("DBS") designed to provide nationwide
multiple-channel video programming delivery services was
successfully launched. Service to home subscribers from this
satellite is expected to be available beginning sometime during
the first half of 1994.
In recent years, the FCC has adopted polices providing for
authorization of new technologies and a more favorable operating
environment for certain existing technologies which provide, or
have the potential to provide, substantial additional
competition for cable television systems. For example, the FCC
has revised its rules on MMDS (or "wireless cable") to foster
MMDS services competitive with cable television systems, has
authorized telephone companies to deliver video services through
a common-carrier-based service called "video dialtone," and,
most recently, has proposed a new service, the Local Multipoint
Distribution Service ("LMDS"), which would employ technology
similar to cellular telephone systems for the distribution of
television programming directly to subscribers. Moreover, it
is currently studying the issue of whether telephone companies
should be permitted any direct involvement in video programming.
At the same time, a major legislative initiative is underway in
Congress and within the Clinton-Gore Administration to re-write
the Communications Act of 1934, in order to facilitate
development of the so-called "information superhighway" by,
among other things, encouraging more competition in the
provision of both local telephone and local cable service. One
proposal being considered in this process is whether the current
statutory ban on telephone companies providing cable service
within their own local exchange areas should be eliminated. The
term "information superhighway" generally refers to a
combination of technological improvements or advances that would
give the American public widespread access to a new broadband,
interactive communications system, capable of supplying vast new
quantities of both data and video. Certain other legislative or
regulatory initiatives that may result in additional competition
for cable television systems are described in the following
sections.
The competitive environment surrounding cable television was
further altered during the past year by a series of marketplace
announcements documenting the heightened involvement of
telephone companies in the cable television business. Some of
these involve the purchase of existing cable systems by
telephone companies outside their own exchange areas (such as
the purchase of a large system in Montgomery County, Maryland,
by Southwestern Bell), while others contemplate expanded joint
ventures between certain major cable companies and regional
telephone companies. Although the most prominent development in
this regard, the planned merger of Tele-Communications, Inc.,
the largest cable operator in the country, with Bell Atlantic
Corporation, one of the Bell Operating Companies was terminated
in February, 1994, similar combinations are possible in the
future.
Broadcast Television
Operating results for broadcast television stations are affected
by the availability, popularity and cost of programming;
competition for local, regional and national advertising
revenues; the availability to local stations of compensation
payments from national networks with which the local stations
are affiliated; competition within the local markets from
programming on other stations or from other media; competition
from other technologies, including cable television; and
government regulation and licensing. Due primarily to increased
competition from cable television, with that medium's plethora
of viewing alternatives and from the Fox Network, the share of
viewers watching the major U.S. networks, ABC, CBS, and NBC, has
declined significantly over the last ten years. This reduction
in viewer share has made it increasingly difficult for local
stations to increase their revenues from advertising. The
combination of these reduced shares and the impact of the recent
economic recession on the advertising market, which was
depressed in 1991, resulted in generally deteriorating
performance at many local stations affiliated with ABC, CBS, and
NBC. Although the share of viewers watching the major networks
has recently leveled off or increased slightly, additional
audience and advertiser fragmentation may occur if, as planned,
one or more additional over-the-air broadcast networks is
successfully launched.
Radio Industry
The radio industry is highly competitive and dynamic, and
reaches a larger portion of the population than any other
medium. There are generally several stations competing in an
area and most larger markets have twenty or more viable
stations; however, stations tend to focus on a specific target
market by programming music or other formats that appeal to
certain demographically specific audiences. As a result of
these factors, radio is an effective medium for advertisers as
it can have mass appeal or be focused on a specific market.
While radio has not been subject to an erosion in market share
such as that experienced by broadcast television, it has been
subject to the depressed nationwide advertising market. Recent
changes in FCC multiple ownership rules have led to more
concentration in some local radio markets as a single party is
permitted to own additional stations or provide programming and
sell advertising on stations it does not own.
Registrant is subject to significant competition, in many cases
from competitors whose media properties are larger than
Registrant's media properties.
LEGISLATION AND REGULATION
Cable Television Industry
The cable television industry is extensively regulated by the
federal government, some state governments and most local
franchising authorities. In addition, the Copyright Act of 1976
(the "Copyright Act") imposes copyright liability on all cable
television systems for their primary and secondary transmissions
of copyrighted programming. The regulation of cable television
systems at the federal, state and local levels is subject to the
political process and has been in constant flux over the past
decade. This process continues to generate proposals for new
laws and for the adoption or deletion of administrative
regulations and policies. Further material changes in the law
and regulatory requirements, especially as a result of the 1992
Cable Act (the "1992 Cable Act"), must be expected. There can
be no assurance that the Maryland Cable Systems will not be
adversely affected by future legislation, new regulations or
judicial or administrative decisions.
The following is a summary of federal laws and regulations
materially affecting the cable television industry and a
description of certain state and local laws with which the cable
industry must comply.
Federal Statutes
The Cable Act imposes certain uniform national standards and
guidelines for the regulation of cable television systems.
Among other things, the legislation regulates the provision of
cable television service pursuant to a franchise, specifies a
procedure and certain criteria under which a cable television
operator may request modification of its franchise, establishes
criteria for franchise renewal, sets maximum fees payable by
cable television operators to franchising authorities,
authorizes a system for regulating certain subscriber rates and
services, outlines signal carriage requirements, imposes certain
ownership restrictions, and sets forth customer service,
consumer protection, and technical standards. Violations of the
Cable Act or any FCC regulations implementing the statutory law
can subject a cable operator to substantial monetary penalties
and other sanctions.
Federal Regulations
Federal regulation of cable television systems under the Cable
Act and the Communications Act of 1934 is conducted primarily
through the FCC, although, as discussed below, the Copyright
Office also regulates certain aspects of cable television system
operation. Among other things, FCC regulations currently
contain detailed provisions concerning non-duplication of
network programming, sports program blackouts, program
origination, ownership of cable television systems and equal
employment opportunities. There are also comprehensive
registration and reporting requirements and various technical
standards. Moreover, pursuant to the 1992 Cable Act, the FCC
has, among other things, established new regulations concerning
mandatory signal carriage and retransmission consent, consumer
service standards, the rates that may be charged to subscribers,
and the rates and conditions for commercial channel leasing.
The FCC also issues permits, licenses or registrations for
microwave facilities, mobile radios and receive-only satellite
earth stations, all of which are commonly used in the operation
of cable systems.
The FCC is authorized to impose monetary fines upon cable
television systems for violations of existing regulations and
may also suspend licenses and other authorizations and issue
cease and desist orders. It is likewise authorized to
promulgate various new or modified rules and regulations
affecting cable television, many of which are discussed in the
following paragraphs.
The 1992 Cable Act
In 1992, over the veto of President Bush, the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") was enacted by vote of Congress. The 1992 Cable Act
clarifies and modifies certain provisions of the 1984 Cable Act
as well as codifying certain FCC regulations and adding a number
of new requirements. Implementation of the new legislation was
generally left to the FCC. Throughout 1993 the FCC undertook or
completed a substantial number of complicated rulemaking
proceedings resulting in a host of new regulatory requirements
or guidelines. Several of the provisions of the 1992 Cable Act
and certain FCC regulations implemented pursuant thereto are
being tested in court. Registrant cannot predict the result of
any pending or future court challenges or the shape any still-
pending or proposed FCC regulations may ultimately take, nor can
Registrant predict the effect of either on its operations.
As discussed in greater detail elsewhere in this filing, some of
the principal provisions of the 1992 Cable Act include: (1) a
mandatory carriage requirement coupled with alternative
provisions for retransmission consent as to over-the-air
television signals; (2) rate regulations that completely replace
the rate provisions of the 1984 Cable Act; (3) consumer
protection provisions; (4) a three-year ownership holding
requirement; (5) some clarification of franchise renewal
procedures; and (6) FCC authority to examine and set limitations
on the horizontal and vertical integration of the cable
industry. Other provisions of the wide-ranging 1992 Cable Act
include: a prohibition on "buy-throughs," an arrangement whereby
subscribers are required to subscribe to a program tier other
than basic in order to receive certain per-channel or per-
program services; requiring the FCC to develop minimum signal
standards, rules for the disposition of home wiring upon
termination of cable service, and regulations regarding
compatibility of cable service with consumer television
receivers and video cassette recorders; a requirement that the
FCC promulgate rules limiting children's access to indecent
programming on access channels; notification requirements
regarding sexually explicit programs; and more stringent equal
employment opportunity rules for cable operators. The 1992
Cable Act also contains a provision barring both cable operators
and certain vertically integrated program suppliers from
engaging in practices which unfairly impede the availability of
programming to other multichannel video programming
distributors. In sum, the 1992 Cable Act codifies, initiates,
or mandates an entirely new set of regulatory requirements and
standards. It is an unusually complicated and sometimes
confusing legislative enactment whose ultimate impact depends on
a multitude of FCC enforcement decisions as well as certain yet-
to-be concluded FCC proceedings. It is also subject to pending
and future judicial challenges. Because of these factors, and
the on-going nature of so many highly complicated and uncertain
administrative proceedings, it is only possible, at this
juncture, to simply note the key features of the new law. How
and to what extent most of these individual provisions will
impact Registrant's operations must necessarily await future
developments at the FCC, before the courts, and in the
marketplace.
Although still subject to various reconsideration petitions,
further rulemaking notices, or pending court appeals, the FCC
has adopted new regulations in most areas mandated by the 1992
Cable Act. These include rules and regulations governing the
following areas: indecency on leased access channels, obscenity
on PEG channels, mandatory carriage and retransmission consent
of over-the-air signals, home wiring, equal employment
opportunity, tier "buy-throughs," customer service standards,
cable television ownership standards, program access, carriage
of home shopping stations, and rate regulation. Most of these
new regulations went into effect within the past year, even
though the FCC standards on indecency on certain access channels
were overturned as unconstitutional by the U.S. Court of Appeals
for the District of Columbia Circuit on November 23, 1993, and
the constitutionality of the mandatory carriage provision of the
1992 Cable Act is now pending before the U.S. Supreme Court
(after having been found constitutional by a 2-1 decision of a
special three-judge panel of the U.S. District Court for the
D.C. Circuit on April 8, 1993). The Registrant is unable to
predict the ultimate outcome of these proceedings or the impact
upon its operations of various FCC regulations still being
formulated and/or interpreted.
As previously noted, under the broad statutory scheme, cable
operators are subject to a two- level system of regulation with
some matters under federal jurisdiction, others subject strictly
to local regulation, and still others subject to both federal
and local regulation. Following are descriptions of some of the
more significant regulatory areas of concern to cable operators.
Franchises
The Cable Act affirms the right of franchising authorities to
award one or more franchises within their jurisdictions and
prohibits future cable television systems from operating without
a franchise. The 1992 Cable Act provides that franchising
authorities may not grant an exclusive franchise or unreasonably
deny award of a competing franchise. The Cable Act also
provides that in granting or renewing franchises, franchising
authorities may establish requirements for cable-related
facilities and equipment but may not specify requirements for
video programming or information services other than in broad
categories.
Under the 1992 Cable Act, franchising authorities are now
exempted from money damages in cases involving their exercise of
regulatory authority, including the award, renewal, or transfer
of a franchise, except for cases involving discrimination on
race, sex, or similar impermissible grounds. Remedies are
limited exclusively to injunctive or declaratory relief.
Franchising authorities may also build and operate their own
cable systems without a franchise.
The Cable Act permits local franchising authorities to require
cable operators to set aside certain channels for public,
educational, and governmental ("PEG") access programming and to
impose a franchise fee of up to five percent of gross annual
system revenues. The Maryland Cable Systems provide such access
programming and pay aggregate franchise fees averaging 5.0% of
annual gross system revenues. The Cable Act further requires
cable television systems with 36 or more channels to designate a
portion of their channel capacity for commercially leased access
by third parties, which generally is available to commercial and
non-commercial parties to provide programming (including
programming supported by advertising). Each of the Maryland
Cable Systems has more than 36 channels. The Prince George's
System currently provides commercially leased access.
Commercially leased access can result in competition to the
services offered by the Maryland Cable Systems but has not had
this effect to date. The FCC was required by the 1992 Cable Act
to adopt new rules setting maximum reasonable rates and other
terms for the use of such leased channels. This was done as
part of the FCC's comprehensive cable rate regulation order
released on May 3, 1993. The FCC also has jurisdiction to
resolve disputes over the provision of leased access.
In 1993, the U.S. Supreme Court ended a period of prolonged
confusion over the reach of the 1984 Cable Act's franchising
requirements by rejecting a constitutional challenge to the
Act's definition of "cable system." In FCC v. Beach
Communications, Inc., 113 S. Ct. 2096 (1993), the Court held
that the Act's exemption of certain satellite master antenna
television ("SMATV") systems from general franchising
requirements is rationally related to legitimate policy goals.
Under the terms of the Act, SMATV systems serving more than one
building need not obtain a franchise if the buildings are
commonly owned and are not interconnected by wire using a public
right-of-way. Reversing a 1992 decision of the U.S. Court of
Appeals for the D.C. Circuit, the Supreme Court held that the
distinction drawn between commonly-owned buildings and
separately-owned buildings is constitutionally valid. The
result of this decision is that SMATV systems interconnecting
separately-owned buildings and systems that wire buildings
together using a public right-of-way must obtain a franchise and
comply with the franchising requirements of the Cable Act.
In 1992, the FCC permitted telephone companies to engage in so-
called "video dialtone" operations in their local exchange areas
pursuant to which neither they nor the programming entities they
serve are required to obtain a local cable franchise (see "Video
Dialtone" below).
Rate Regulation
The 1992 Cable Act completely supplants the rate regulation
provisions of the 1984 Cable Act. The 1992 Act establishes that
rate regulation applies to rates charged for the basic tier of
service by any cable system not subject to "effective
competition," which is, in turn, deemed to exist if (1) fewer
than 30 percent of the households in the service area subscribe
to the system, (2) at least 50 percent of the households in the
franchise area are served by two multichannel video programming
distributors and at least 15 percent of the households in the
franchise area subscribe to the additional operator, or (3) a
franchising authority for that franchise area itself serves as a
multichannel video programming distributor offering service to
at least 50 percent of the households in the franchise area.
Under this new statutory definition, the Maryland Cable systems,
like most cable systems in most areas, are not presently subject
to effective competition. The basic tier must include all
signals required to be carried under the 1992 Cable Act's
mandatory carriage provisions, all "PEG" channels required by
the franchise, and all broadcast signals other than
"superstations."
Acting pursuant to the foregoing statutory mandate, the FCC, on
May 3, 1993, released a Report and Order ("Rate Order")
establishing a new regulatory scheme governing the rates for
certain cable television services and equipment. The new rules,
among other things, set certain benchmarks which will enable
local franchise authorities to require rates for "basic service"
(as noted, essentially, local broadcast and access channels) and
the FCC (upon receipt of individual complaints) to require rates
for certain satellite program services (excluding premium
channels) to fall approximately 10% from September 30, 1992
levels, unless the cable operator is already charging rates that
are at a so-called "competitive" benchmark level or it can
justify a higher rate based on a cost-of-service showing. Rates
of all regulated cable systems will then be subject to a price
cap that will govern the extent to which rates can be raised in
the future without a cost-of-service showing. The rules
announced in May 1993, became effective on September 1, 1993,
but remained subject to considerable debate and uncertainty as
several major issues and FCC proceedings awaited resolution.
On February 22, 1994, the FCC adopted a series of additional
measures that expand and substantially alter its cable rate
regulations. Based on FCC news releases dated February 22, the
FCC's major actions include the following: (1) a modification
of its benchmark methodology in a way which will effectively
require cable rates to be reduced, on average, an additional 7%
(i.e., beyond the 10% reduction previously ordered in 1993) from
their September 30, 1992 level, or to the new benchmark,
whichever is less; (2) the issuance of new standards and
requirements to be used in making cost-of-service showings by
cable operators who seek to justify rates above the levels
determined by the benchmark approach; and (3) the clarification
and/or reaffirmation of a number of "going forward" issues that
had been the subject of various petitions for reconsideration of
its May 3, 1993 Rate Order. Several weeks earlier, and partly
in anticipation of these actions, the FCC extended its industry-
wide freeze on rates for regulated cable services until May 15,
1994. It is expected that the new benchmark standards and cost-
of-service rules will become effective prior to the current
termination date of the rate freeze.
In deciding to substantially revise its benchmark methodology
for regulated cable rates, the FCC has actually created two
benchmark systems. Thus, whereas the modified rate regulations
adopted on February 22, 1994 will become effective as of May 15,
1994, regulated rates in effect before that date will continue
to be governed by the old benchmark system.
Under the FCC's revised benchmark regulations, systems not
facing "effective competition" that have become subject to
regulation will be required to set their rates at a level equal
to their September 30, 1992 rates minus a revised "competitive
differential" of 17 percent (a "differential" which, as noted,
was set at 10 percent in the FCC's May, 1993 Rate Order). Cable
operators who seek to charge rates higher than those produced by
applying the competitive differential may elect to invoke new
cost-of-service procedures (discussed below).
In addition to revising the benchmark formula and the
competitive differential used in setting initial regulated cable
rates, the FCC adopted rules to simplify the calculations used
to adjust those rates for inflation and external costs in the
future. The FCC also concluded that it will treat increases in
compulsory copyright fees incurred by carrying distant broadcast
signals as external costs in a fashion parallel to increases in
the contractual costs for nonbroadcast programming. It will
not, however, accord external cost treatment to pole attachment
fees.
In its May 1993 Rate Order the FCC exempted from rate regulation
the price of packages of "a la carte" channels if certain
conditions were met. Upon reconsideration, however, the FCC on
February 22, 1994 effectively tightened its regulatory treatment
of "a la carte" packages by establishing more elaborate criteria
designed to ensure that such practices are not employed so as to
unduly evade rate regulation. Now, when assessing the
appropriate regulatory treatment of "a la carte" packages, the
FCC will consider, inter alia, the following factors as possibly
suggesting that such packages do not qualify for non-regulated
treatment: whether the introduction of the package avoids a
rate reduction that otherwise would have been required under the
FCC's rules; whether an entire regulated tier has been
eliminated and turned into an "a la carte" package; whether a
significant number or percentage of the "a la carte" channels
were removed from a regulated service tier; whether the package
price is deeply discounted when compared to the price of an
individual channel; and whether the subscriber must pay
significant equipment or other charges to purchase an individual
channel in the package. In addition, the FCC will consider
factors that will reflect in favor of non-regulated treatment
such as whether the channels in the package have traditionally
been offered on an "a la carte" basis or whether the subscriber
is able to select the channels that comprise the "a la carte"
package. "A la carte" packages which are found to evade rate
regulation rather than enhance subscriber choice will be treated
as regulated tiers, and operators engaging in such practices may
be subject to forfeitures or other sanctions by the FCC.
In another action, the FCC adopted a methodology for determining
rates when channels are added to or deleted from regulated tiers
and announced that it will treat programming costs as external
costs and that operators may recover the full amount of
programming expenses associated with added channels. Operators
may also recover a mark-up on their programming expenses. These
adjustments and calculations are to be made on a new FCC form
yet to be released.
Several groups representing the cable industry have announced
that they will challenge these and other rate regulation
decisions of the FCC in a federal court of appeals. Registrant
is unable to predict the timing or outcome of any such appeals.
In a separate action on February 22, 1994, the FCC adopted
interim rules to govern cost of service proceedings initiated by
cable operators. Operators who elect to pursue cost of service
proceedings will have their rates based on their allowable
costs, in a proceeding based on principles similar to those that
govern cost-based rate regulation of telephone companies. Under
this methodology, cable operators may recover, through the rates
they charge for regulated cable service, their normal operating
expenses and a reasonable return on investment. The FCC has,
for these purposes, established an interim industry-wide rate of
return of 11.25%. It has also determined that acquisition costs
above book value are presumptively excluded from the rate base.
At the same time, certain intangible, above-book costs, such as
start-up losses (limited to losses actually incurred during a
two-year start-up period) and the costs of obtaining franchise
rights and some start-up organizational costs such as customer
lists, may be allowed. There are no threshold requirements
limiting the cable systems eligible for a cost of service
showing, except that, once rates have been set pursuant to a
cost of service approach, cable operators may not file a new
cost of service showing to justify new rates for a period of two
years. Finally, the FCC notes that it will, in certain
individual cases, consider a special hardship showing (or the
need for special rate relief) where an operator demonstrates
that the rates set by a cost of service proceeding would
constitute confiscation of investment and that some higher rate
would not represent exploitation of customers. In considering
whether to grant such a request, the FCC emphasizes that, among
other things, it would examine the overall financial condition
of the operator and whether there is a realistic threat of
termination of service.
The 1992 Cable Act also prohibits cable operators from requiring
customers to subscribe to any tier of service other than the
basic service tier in order to gain access to programming
offered on a per-channel or per-program basis. This so-called
"anti-buy-through" provision does not apply, however, to systems
that do not have the capacity to offer basic tier customers
programming on a per-channel or per-program basis due to a lack
of addressable converters or other technological limitations.
This exemption may be claimed until a system has been modified
to eliminate the technical impediments, or for a period of ten
years after the enactment of the 1992 law. The FCC also may
grant a cable operator a waiver of the "anti-buy-through"
provision if it determines that compliance with the rule will
require an operator to raise its rates.
Renewal and Transfer
The 1984 Cable Act established procedures for the renewal of
cable television franchises. The procedures were designed to
provide incumbent franchisees with a fair hearing on past
performances, an opportunity to present a renewal proposal and
to have it fairly and carefully considered, and a right of
appeal if the franchising authority either fails to follow the
procedures or denies renewal unfairly. These procedures were
intended to provide an incumbent franchisee with substantially
greater protection than previously available against the denial
of its franchise renewal application. The 1992 Cable Act seeks
to address some of the issues left unresolved by the earlier
Act. It provides a more definite timetable in which the
franchising authority is to act on a renewal request. It also
narrows the range of circumstances in which a franchised
operator might contend that the franchising authority had
constructively waived non-compliance with its franchise.
Cable system operators are sometimes confronted by challenges in
the form of proposals for competing cable franchises in the same
geographic area, challenges which may arise in the context of
renewal proceedings. In Rolla Cable Systems v. City of Rolla, a
federal district court in Missouri in 1991 upheld a city's
denial of franchise renewal to an operator whose level of
technical services was found deficient under the renewal
standards of the 1984 Cable Act. Local franchising authorities
also have, in some circumstances, proposed to construct their
own cable systems or decided to invite other private interests
to compete with the incumbent cable operator. Judicial
challenges to such actions by incumbent system operators have,
to date, generally been unsuccessful. Registrant cannot predict
the outcome or ultimate impact of these or similar franchising
and judicial actions.
The 1992 Cable Act directs that no cable operator may transfer
ownership of a cable system within 36 months (or three-years) of
its acquisition or initial construction. On July 23, 1993, the
FCC released the text of new rules designed to implement this
provision. Under these rules, local franchising authorities are
given primary responsibility to oversee compliance with the
three-year holding requirement by requiring cable systems to
certify (and submit) certain information to the franchiser in
order to demonstrate that the holding requirement does not apply
to a particular transfer. Disputes concerning compliance,
however, will be resolved by the FCC. The 1992 Cable Act also
provides that in cases where the three-year holding period does
not apply, and where local consent to a transfer is required,
the franchise authority must act within 120 days of submission
of a transfer request or the transfer is deemed approved. The
120-day period commences upon the submission to local
franchising authorities of information now required on a new
standardized FCC transfer form. The franchise authority may
request additional information beyond that required under FCC
rules. Further, the 1992 Cable Act gives local franchising
officials the authority to prohibit the sale of a cable system
if the proposed buyer operates another cable system in the
jurisdiction or if such sale would reduce competition in cable
service.
Cable System Ownership Restrictions
Cross-Ownership: The Cable Act prohibits local exchange
telephone companies from owning cable television systems within
their exchange service areas, except in rural areas or by
specific waiver. The Act also prohibits telephone companies
from providing video programming directly to subscribers. The
regulations are of particularly competitive importance because
these telephone companies already own much of the plant
necessary for cable television operation, such as poles, ducts
and rights-of-way. In late 1992, subsidiaries of Bell Atlantic
Corporation filed suit in federal district court in Virginia
against the FCC and United States government, alleging that the
prohibition against video programming is an unconstitutional
restraint of free speech and denial of equal protection. On
August 24, 1993, Judge Ellis of the U.S. District Court for the
Eastern District of Virginia ruled that the cable-telco cross-
ownership prohibition in the Cable Act violated Bell Atlantic's
First Amendment rights. Chesapeake and Potomac Telephone Co. of
Virginia v. United States, No. 92-1751-A (E.D. Va. Aug. 1993).
On September 30, 1993, Judge Ellis clarified the scope of his
decision by ruling that it applies only to Bell Atlantic
Corporation and its telephone company subsidiaries in the mid-
Atlantic states, including Maryland. As a result, other
telephone companies are not free to enter the cable television
business, unless they obtain similar relief from other courts or
unless the Supreme Court upholds the decision on appeal.
Indeed, subsequent to this decision, other Bell Operating
Companies have filed their own constitutional challenges to the
same statutory restriction in other U.S. district courts. In
the meantime, Judge Ellis' decision has been appealed to the
U.S. Court of Appeals for the Fourth Circuit.
The FCC recently relaxed its telephone-cable restrictions to
permit local telephone companies (local exchange carriers) to
offer broadband video services under the so-called video
dialtone approach. In the same proceeding, the FCC ruled that
neither a local exchange carrier nor a separate programming
entity providing service under a video dialtone arrangement
would be required to obtain a local cable franchise. In
addition, the FCC allowed telephone companies to hold financial
interests of up to five percent in co-located cable companies,
and it also recommended that Congress repeal its cross-ownership
ban. The FCC also ruled that interexchange carriers, such as
AT&T, MCI and US Sprint, are not subject to the current
statutory restrictions on telephone company/cable television
cross-ownership. Various aspects of the FCC's video dialtone
and telephone/cable cross-ownership decisions have been appealed
to the U.S. Court of Appeals for the D.C. Circuit by both the
cable industry and certain telephone companies. Registrant
cannot predict the outcome of these appeals.
In 1989, the FCC authorized a limited five-year waiver of its
cable-telephone cross-ownership ban to permit General Telephone
Company of California ("General") to construct coaxial and fiber
optic cable facilities in Cerritos, California, on an
experimental basis. The experiment called for General to lease
the facilities to two customers, Apollo Cablevision ("Apollo"),
the system franchisee, and GTE Service Corporation ("GTE"), an
affiliate of General. GTE proposed to use its leased
facilities, inter alia, to test certain types of cable in
comparison with fiber optic facilities for carriage of voice,
data and video signals (including a "video on demand" service).
The waiver was granted subject to several reporting conditions,
accounting safeguards against unauthorized telephone rate payer
subsidization of the cable experiment, and a requirement that
General contract with another entity to provide the video
programming.
In response to a petition for review filed by the National Cable
Television Association, the U.S Court of Appeals for the D.C.
Circuit, on September 18, 1990, remanded the proceeding to the
FCC because the Commission had failed to explain why Apollo's
corporate parent needed to be involved in construction of the
system, and thereby give rise to a prohibited affiliation.
After an extended period of unsuccessful settlement negotiations
with the parties, the FCC, in July 1992, invited public comment
on what action it should take. On November 9, 1993, the FCC
rescinded both its original waiver in its entirety and GTE's
authority to operate and maintain the coaxial and fiber optic
cable facilities in Cerritos. While this FCC order was to
become effective within 120 days of its release, GTE was
directed to provide the FCC with its specific plan for
compliance within 30 days. In January, 1994, after the FCC
denied GTE's request for stay of this order (or extension of its
deadlines), the U.S. Court of Appeals for the Ninth Circuit
granted a stay pending its resolution of GTE's petition for
review of the FCC rescission order. Registrant cannot predict
the outcome of the pending judicial review proceeding, or the
likelihood of similar waivers being granted to other telephone
companies in the future.
Several bills have been introduced in Congress that would
eliminate the cable/telco cross-ownership ban, subject to
certain conditions. The two most prominent are S.1086,
introduced by Senator Danforth (R-Mo.) and H.R.3636, introduced
by Reps. Markey (D-Ma.) and Fields (R-Tx). These bills
generally provide that a telephone company may provide video
programming service within its franchise area in accordance with
various regulatory safeguards, but may not acquire an existing
cable system. The safeguards in H.R.3636 include a requirement
that video programming service be provided through an affiliate
separate from the telephone operating company, restrictions on
telemarketing, affiliate transactions rules, a requirement that
the telco's video affiliate establish a video platform with up
to 75 percent of its capacity available to unaffiliated program
suppliers, and a prohibition against cross-subsidization. The
safeguards in S.1086 include a separate subsidiary requirement
and a general proscription against cross-subsidization.
Under the 1992 Cable Act, common ownership of a co-located cable
system and MMDS system is prohibited. Further, common ownership
of cable systems and some types of private cable (e.g., "SMATV")
systems is prohibited.
Concentration of Ownership: The 1992 Cable Act directed the FCC
to establish reasonable limits on the number of cable
subscribers a single company may reach through cable systems it
owns ("horizontal concentration") and the number of system
channels that a cable operator could use to carry programming
services in which it holds an ownership interest ("vertical
concentration"). The horizontal ownership restrictions of the
Act were struck down by a federal district court as an
unconstitutional restriction on speech. Pending final judicial
resolution of this issue, the FCC stayed the effective date of
its horizontal ownership limitations, which would place a 30
percent nationwide limit on subscribers by any one entity.
Registrant cannot predict the final version of any such
limitations or their effect on Registrant's operations. The
FCC's vertical restriction consists of a "channel occupancy"
standard which places a 40% limit on the number of channels that
may be occupied by services from programmers in which the cable
operator has an attributable ownership interest. Further, the
Act and FCC rules restrict the ability of programmers to enter
into exclusive contracts with cable operators. Registrant
cannot predict the effect on its operations of these legislative
enactments or the implementing regulations.
Foreign Ownership: A measure was approved by the House in the
1992 Congress to restrict foreign ownership of cable systems,
but was deleted by a House-Senate Conference Committee from the
legislation that subsequently was enacted as the 1992 Cable Act.
Video Marketplace: The FCC has sought public comment in a
general inquiry concerning changes in the nature of the video
marketplace. This proceeding was prompted by a 1991 study by
the FCC's Office of Plans and Policy that called into question
the competitive balance in the video marketplace due in part to
the proliferation of cable services. The inquiry will examine
all federal regulations affecting broadcast television,
including multiple ownership restrictions. The inquiry will
focus on increased competition in the market; technological
advances in delivery of video programming; the ability of
competitors, including cable operators, to rely on revenue from
direct viewer payment in addition to advertising; and the
increase in the availability of national sources of programming.
Registrant cannot predict the outcome of this proceeding. To
date, however, the only new regulatory proposals resulting from
the inquiry have been in the area of television ownership
deregulation. See "Television Industry," below.
FCC Limits on Broadcast Network/Cable Cross-ownership: In 1992,
the FCC modified its ban on broadcast television network
ownership of cable systems. Such ownership now is permitted
provided that network-controlled systems do not constitute more
than (1) 10% of the homes passed nationwide by cable systems,
and (2) 50% of the homes passed by cable within a particular
television Area of Dominant Influence ("ADI"). These
limitations will not apply where the network-owned system
receives competition from another multichannel video service
provider. Registrant is unable to predict the effect upon its
operations of the repeal of the former prohibition.
Alternative Video Programming Services
Wireless Cable: The FCC has expanded the authorization of MMDS
services to provide "wireless cable" via multiple microwave
transmissions to home subscribers. In 1990, the FCC increased
the availability of channels for use in wireless cable systems
by eliminating MMDS ownership restrictions and simplifying
various processing and administrative rules. The FCC also
modified equipment and technical standards to increase service
capabilities and improve service quality. In 1991, the FCC
resolved certain additional wireless cable issues, including
channel allocations for MMDS, Operational Fixed Service ("OFS")
and Instructional Television Fixed Service ("ITFS") facilities,
direct application by wireless operators for use of certain ITFS
channels, and restrictions on ownership or operation of wireless
facilities by cable entities. In 1992, the FCC proposed a new
service, LMDS, which also could be used to supply multichannel
video and other communications services directly to subscribers.
This service would operate in the 28 GHz frequency range and,
consistent with the nature of operations in that range, the FCC
envisions that LMDS transmitters could serve areas of only six
to twelve miles in diameter. Accordingly, it is proposed that
LMDS systems utilize a grid of transmitter "cells," similar to
the structure of cellular telephone operations. In January
1994, the Commission announced that it would issue a Second
Notice of Proposed Rule Making in this proceeding designed to
determine whether it should implement a Negotiated Rule Making
Proceeding to allow participants to reach a consensus on sharing
the 28 GHz band between terrestrial (LMDS) and satellite users.
Registrant cannot predict the outcome of the FCC's proceeding.
Video Dialtone: Telephone company ownership of cable television
systems in the same areas was prohibited by the 1984 Cable Act.
In 1991, however, the FCC modified its rules to allow telephone
companies to play a greater role in delivery of video services
through an arrangement termed "video dialtone." (A U.S.
district court in Virginia subsequently held the cross-ownership
restriction unconstitutional, but the court's ruling is
currently limited only to the particular telephone company
plaintiffs in that case.) Although still largely conceptual,
the video dialtone model would be a common carrier based
service, analogous to the ordinary telephone dialtone, whereby
local telephone companies could provide customers access to
video programming, videotext, videophone and other future
advanced services. In such an arrangement, the telephone
company may provide the facilities to deliver programming to
subscribers, but may not itself provide the programming or
dictate how that programming should be offered. To date,
thirteen video dialtone applications have been filed with the
FCC, with most of the proposals contemplating service areas in
California, the Washington, D.C., metropolitan area, and the
northeast. Some of the first proposals are in the beginning
stages of technical trials.
Personal Communications Service ("PCS"): In August, 1993, the
FCC established rules for a new portable telephone service, the
Personal Communications Service ("PCS"). PCS has potential to
compete with landline local telephone exchange services. Among
several parties expressing interest in PCS were cable television
operators, whose plant structures present possible synergies for
PCS operation. In September 1993, the FCC adopted rules for
"broadband PCS" services. It allocated 120 MHz in the 2 GHz band
for licensed broadband services, and an additional 40 MHz for
unlicensed services. PCS licenses will be granted for Basic
Trading Areas (BTAs) and Major Trading Areas, with up to seven
licenses available in each geographic area. The FCC will use
competitive bidding to assign PCS licenses to licensees. The
auction rules have not yet been finalized, and almost every
aspect of the PCS rules is subject to petitions for
reconsideration. Registrant cannot predict the outcome of these
proceedings. The first PCS licenses are to be issued May 7,
1994.
Information and Interexchange Services (Modified Final
Judgment): The Consent Decree that terminated the United States
v. AT&T antitrust litigation in 1982 (known as the Modified
Final Judgment or "MFJ") prohibited the Bell Operating Companies
and their affiliates (collectively, the "Regional Bells") from,
inter alia, providing "information" and "interexchange
telecommunications" services. The information services
restriction was understood to prohibit the Regional Bells from
owning cable television systems. In 1991, the United States
District Court removed that restriction but stayed the effect of
its decision. The United States Court of Appeals for the
District of Columbia Circuit lifted the stay later that year and
affirmed the removal of the restriction in 1993. The Supreme
Court has denied a petition for writ of certiorari of that
decision. Consequently, the MFJ no longer restricts the
Regional Bells from providing information services.
The interexchange telecommunications restriction in the MFJ
prohibits the Regional Bells from providing telecommunications
services across Local Access and Transport Areas ("LATAs") as
defined in the Consent Decree. The interexchange restriction
has been interpreted as prohibiting the Regional Bells from
operating receive-only earth stations at a cable system headend,
as well as from operating a cable system that crosses a LATA
boundary. In 1993, the U.S. District Court for the District of
Columbia granted Southwestern Bell Corporation a waiver of the
interexchange line of business restriction for the purposes of
acquiring and operating cable systems in Montgomery County,
Maryland, and Arlington County, Virginia. U S West has
requested a waiver of this restriction in connection with its
investment in the cable properties of Time Warner Entertainment
Company.
In addition, all seven Regional Bells have moved for a waiver of
the interexchange line of business restriction to allow them to
provide information services on an interexchange basis. That
motion is currently being reviewed by the U.S. Department of
Justice.
Congress may consider legislation in 1994 that would remove the
interexchange services restriction in whole or in part.
Legislation affecting the MFJ may also specify the terms and
conditions, including regulatory safeguards, pursuant to which
the Regional Bells may provide information and interexchange
services.
There can be no assurance that cable television systems of
Registrant will not be adversely affected by future judicial
decisions or legislation in this area.
Other New Technologies: Several technologies exist or have been
proposed that have the potential to increase competition in the
provision of video programming. Currently, cable subscribers
can receive programming received by home satellite dishes or via
satellite master antenna television facilities ("SMATV"). In
addition, the FCC has authorized nine entities to provide
programming directly to home subscribers through direct
broadcast satellites ("DBS"). On December 17, 1993, two such
parties, Hughes Communications Galaxy ("Hughes"), an affiliate
of the General Motors Company, and Unites States Satellite
Broadcasting Company jointly launched a new high-powered
satellite with 16 transponders, from which they can provide DBS
service to the entire country. Service is expected to begin
sometime during the first half of 1994. Hughes also expects to
launch a second 16-transponder satellite in late Spring 1994.
Another technological development in the making with significant
implications for video programming is "high definition
television" ("HDTV"). A private sector Advisory Panel was
organized by the FCC in 1987 to study various issues relating to
advanced television systems ("ATV"), including HDTV. It is
anticipated that with the assistance and recommendations of this
Advisory Panel the FCC should be in a position to establish a
technical standard for HDTV broadcasting by mid-1995.
Programming Issues
Retransmission Consent and Mandatory Carriage: The 1992 Cable
Act gives television stations the right to withhold permission
for cable systems to carry their signals, to require
compensation in exchange for such permission ("retransmission
consent"), or, alternatively, in the case of local stations, to
demand carriage without compensation ("must carry").
The FCC's implementing regulations required broadcasters to
elect between must-carry and retransmission consent by June 17,
1993, with the choice binding for three years. A broadcast
station has the right to choose must-carry, assuming it can
deliver a signal of specified strength, with regard to cable
systems in its Area of Dominant Influence as defined by the
audience measurement service, Arbitron. Stations electing to
grant retransmission authority were expected to conclude their
consent agreements with cable systems by October 6, 1993, the
date on which systems' authority to carry broadcast signals
without consent expired. While monetary compensation is
possible in return for such consent, many broadcast station
operators accepted arrangements that do not require payment but
involve other types of consideration, such as use of a second
cable channel, advertising time, and joint programming efforts.
The must carry provisions of the FCC's rules have been
challenged as unconstitutional. A special three-judge district
court rejected the challenge. That decision has been appealed,
and the Supreme Court of the United States heard oral argument
in the case on January 12, 1994. Its decision is expected later
this year. Registrant cannot predict the outcome of the case.
Meanwhile, a separate challenge to the retransmission consent
aspect of the 1992 Act was rejected by a Federal district court.
The 1992 Cable Act also requires cable systems to carry a
broadcast television station, at the election of the station, on
the same channel as its broadcast channel, the channel on which
it was carried by the cable system on July 19, 1985, or the
channel on which it was carried on January 1, 1992.
FCC rules formerly required cable television operators to make
available and install A/B switches to those subscribers who
request them. (An A/B switch is an input selector which permits
conversion from reception via the cable television systems to
use of an off-air antenna.) This requirement was abolished by
the 1992 Cable Act.
Copyright: Cable television systems are subject to the
Copyright Act of 1976 which, among other things, covers the
carriage of television broadcast signals. Pursuant to the
Copyright Act, cable operators obtain a compulsory license to
retransmit copyrighted programming broadcast by local and
distant stations in exchange for contributing a percentage of
their revenues as statutory royalties to the U.S. Copyright
Office. The amount of this royalty payment varies depending on
the amount of system revenues from certain sources, the number
of distant signals carried, and the locations of the cable
television system with respect to off-air television stations
and markets. The Copyright Royalty Tribunal ("CRT"), which the
Copyright Office established to distribute royalty payments
generally and to review and adjust royalty rates in limited
situations, recently was replaced by copyright arbitration
royalty panels, to be convened by the Librarian of Congress as
necessary.
In July, 1991, the U.S. Copyright Office affirmed an earlier
decision that satellite carriers and MMDS systems are not "cable
systems" within the meaning of the Copyright Act, and,
therefore, are not entitled to the compulsory licensing scheme
that would allow them to retransmit broadcast signals in
exchange for payment of a fee. Unlike cable entities, these
systems will have to negotiate with the individual copyright
holders for the right to retransmit copyrighted broadcast
signals. Satellite carriers, however, can continue to
retransmit broadcast signals under an alternative compulsory
copyright system until the end of 1994. In response to
Congressional concerns about the ability of these new
technologies to compete with cable, the Copyright Office has
delayed the effective date of its decision in this area until
January 1, 1995. The Copyright Office has also tentatively
ruled that some SMATV systems meet the Copyright Act's
definition of cable system and thus are eligible for a
compulsory license.
Congress established the compulsory license in 1976 to serve as
a means of compensating program suppliers for cable
retransmission of broadcast programming. The FCC has
recommended that Congress eliminate the compulsory copyright
license for cable retransmission of both local and distant
broadcast programming. In addition, legislative proposals have
been and may continue to be made to simplify or eliminate the
compulsory license. As noted, the 1992 Cable Act will require
cable systems to obtain permission of certain broadcast
licensees in order to carry their signals ("retransmission
consent") should such stations so elect. (See "Retransmission
Consent and Mandatory Carriage" above) This permission will be
needed in addition to the copyright permission inherent in the
compulsory license. Without the compulsory license, cable
operators would need to negotiate rights for the copyright
ownership of each program carried on each broadcast station
transmitted by the system. Registrant cannot predict whether
Congress will act on the FCC recommendations or similar
proposals.
Exclusivity: Except for retransmission consent, the FCC imposes
no restriction on the number or type of distant (or "non-local")
television signals a system may carry. FCC regulations,
however, require cable television systems serving more than
1,000 subscribers, at the request of a local network affiliate,
to protect the local affiliate's broadcast of network programs
by blacking out duplicated programs of any distant network-
affiliated stations carried by the system. Similar rules
require cable television systems to black out the broadcast on
distant stations of certain local sporting events not broadcast
locally.
The FCC rules also provide exclusivity protection for syndicated
programs. Under these rules, television stations may compel
cable operators to black out syndicated programming broadcast
from distant signals where the local broadcaster has negotiated
exclusive local rights to such programming. Syndicated program
suppliers are afforded similar rights for a period of one year
from the first sale of that program to any television broadcast
station in the United States. The FCC rules allow any
broadcaster to bargain for and enforce exclusivity rights.
However, exclusivity protection may not be granted against a
station that is generally available over-the-air in the cable
system's market. Cable systems with fewer than 1,000
subscribers are exempt from compliance with the rules. Although
broadcasters generally may acquire exclusivity only within 35
miles of their community of license, they may acquire national
exclusive rights to syndicated programming. The ability to
secure national rights is intended to assist "superstations"
whose local broadcast signals are then distributed nationally
via satellite. The 35-mile limitation is currently under re-
examination by the FCC, which could extend the blackout zone to
a larger area.
Cable Origination Programming: The FCC also requires that cable
origination programming meet certain standards similar to those
imposed on broadcasters. These standards include regulations
governing political advertising and programming, advertising
during children's programming, rules on lottery information, and
sponsorship identification requirements.
Customer Service: On July 1, 1993, following a public
rulemaking proceeding mandated by the 1992 Cable Act, new FCC
rules on customer service standards became effective. The
standards govern cable system office hours, telephone
availability, installations, outages, service calls, and
communications between the cable operator and subscriber,
including billing and refund policies. Although the FCC has
stated that its standards are "self effectuating," it has also
provided that a franchising authority wishing to enforce
particular customer service standards must give the system at
least 90 days advance written notice. Franchise authorities may
also agree with cable operators to adopt stricter standards and
may enact any state or municipal law or regulation which imposes
a stricter or different customer service standard than that set
by the FCC. Enforcement of customer service standards,
including those set by the FCC, is entrusted to local
franchising authorities.
Pole Attachment Rates and Technical Standards
The FCC currently regulates the rates and conditions imposed by
public utilities for use of their poles, unless, under the
Federal Pole Attachments Act, a state public service commission
demonstrates that it is entitled to regulate the pole attachment
rates. The FCC has adopted a specific formula to administer
pole attachment rates under this scheme. The validity of this
FCC function was upheld by the U.S. Supreme Court.
In 1990, new FCC standards on signal leakage became effective.
Like all systems, Registrant's cable television systems are
subject to yearly reporting requirements regarding compliance
with these standards. Further, the FCC has instituted on-site
inspections of cable systems to monitor compliance. Any failure
by Registrant's cable television systems to maintain compliance
with these new standards could adversely affect the ability of
Registrant's cable television systems to provide certain
services.
The Cable Act empowers the FCC to set certain technical
standards governing the quality of cable signals and to preempt
local authorities from imposing more stringent technical
standards. The FCC's preemptive authority over technical
standards for channels carrying broadcast signals has been
affirmed by the U.S. Supreme Court. On March 4, 1992, the FCC
adopted new mandatory technical standards for cable carriage of
all video programming, including retransmitted broadcast
material, cable originated programs and pay channels. The 1992
Cable Act includes a provision requiring the FCC to prescribe
regulations establishing minimum technical standards. The 1992
Cable Act also codified the right of franchising authorities to
seek waivers to impose technical standards more stringent than
those prescribed by the FCC. The FCC has determined that its
1992 rule making proceeding satisfied the mandate of the 1992
Cable Act. The new standards, which became effective December
30, 1992, focus primarily on the quality of the signal delivered
to the cable subscriber's television. Registrant cannot predict
the impact of these new rules upon Registrant's operations.
On December 1, 1993, the FCC released a Notice of Proposed Rule
Making intended to implement the 1992 Cable Act requirements for
compatibility between cable and consumer electronics equipment.
The proposals include the following: (1) requiring cable
operators to provide equipment to enable the operation of TV/VCR
features that make simultaneous use of multiple signals;
(2) giving subscribers the option of having all signals not
requiring a converter passed directly to the TV receiver or VCR;
(3) prohibiting cable systems from scrambling signals on the
basic tier; (4) requiring operators to permit use of
commercially available remote controls; and (5) requiring cable
operators to provide more information to consumers. Registrant
cannot predict the outcome of this proceeding or the specific
impact of such requirements on its operations.
Tax Considerations
Legislation which for the first time would allow amortization of
goodwill and certain intangibles that arise in a business
acquisition for federal income tax purposes was enacted as part
of the Omnibus Budget Reconciliation Act of 1993. The measure
permits intangible "assets" to be amortized over a 15-year
period. The legislation includes certain governmental rights
and licenses -- e.g., cable franchises -- among the intangibles
eligible for such amortization. There is currently pending in
Congress a proposal by Sen. Simon (D-Ill.) to amend the new law
to permit only 75% of the value of such intangibles to be
amortized over a 15-year period. Registrant cannot predict
whether or in what form the Simon proposal will be adopted and
what, if any, impact such changes would have on its operations.
(Additional tax considerations are discussed below in the State
and Local Regulation section.)
At least one cable operator has successfully argued in court
that cable franchises may be depreciated under pre-existing law.
In Tele-Communications, Inc. v. Comm'r of IRS, the U.S. Court of
Appeals upheld the decision of the Tax Court, which had rejected
the argument of the Internal Revenue Service that such
amortization was available only to commercial franchises.
Registrant cannot predict whether the IRS will appeal the
decision to the Supreme Court of the United States or the
outcome of such an appeal.
State and Local Regulation
Local Authority: Cable television systems are generally
operated pursuant to non-exclusive franchises, permits or
licenses issued by a municipality or other local governmental
entity. The franchises are generally in the nature of a
contract between the cable television system owner and the
issuing authority and typically cover a broad range of
provisions and obligations directly affecting the business of
the systems in question. Except as otherwise specified in the
Cable Act or limited by specific FCC rules and regulations, the
Cable Act permits state and local officials to retain their
primary responsibility for selecting franchisees to serve their
communities and to continue regulating other essentially local
aspects of cable television. The constitutionality of
franchising cable television systems by local governments has
been challenged as a burden on First Amendment rights but the
U.S. Supreme Court has declared that while cable activities
"plainly implicate First Amendment interest" they must be
balanced against competing societal interests. The
applicability of this broad judicial standard to specific local
franchising activities is subject to continuing interpretation
by the federal courts.
Cable television franchises generally contain provisions
governing the fees to be paid to the franchising authority, the
length of the franchise term, renewal and sale or transfer of
the franchise, design and technical performance of the system,
use and occupancy of public streets, and the number and types of
cable services provided. The specific terms and conditions of
the franchise directly affect the profitability of the cable
television system. Franchises are generally issued for fixed
terms and must be renewed periodically. There can be no
assurance that such renewals will be granted or that renewals
will be made on similar terms and conditions.
Various proposals have been introduced at state and local levels
with regard to the regulation of cable television systems and a
number of states have adopted legislation subjecting cable
television systems to the jurisdiction of centralized state
governmental agencies, some of which impose regulation of a
public utility character. Increased state and local regulations
may increase cable television system expenses.
Radio Industry
In 1992, the FCC adopted substantial changes to its restrictions
on the ownership of radio stations. The new rules allow a
single entity to control as many as eighteen AM and eighteen FM
stations nationwide. As of September 16, 1994, those maximums
will be increased to twenty AMs and twenty FMs. As to ownership
within a given market, the maximum varies depending on the
number of radio stations within the market. In markets with
fewer than fifteen stations, a single entity may control three
stations (no more than two of which could be FM), provided that
the combination represents less than fifty percent of the
stations in the market. In contrast, in markets with fifteen or
more radio stations, a single entity may control as many as two
AM and two FM stations, provided that the combined audience
share of the stations does not exceed twenty-five percent.
In addition, the FCC placed limitations on local marketing
agreements through which the licensee of one radio station
provides the programming for another licensee's station in the
same market. Stations operating in the same service (e.g., both
stations AM) and the same market are prohibited from
simulcasting more than twenty-five percent of their programming.
Moreover, in determining the number of stations that a single
entity may control, an entity programming a station pursuant to
a local marketing agreement is required to count that station
toward its maximum even though it does not own the station.
In addition to these new radio ownership limitations, the
pending television proceeding described below includes proposals
for further relaxation of the FCC's restrictions on ownership of
television and radio stations within the same area.
Also currently pending are proceedings in which the FCC is
examining alternatives for the possible implementation of
digital audio radio services ("DARS"). DARS systems potentially
could allow delivery of audio signals with fidelity comparable
to compact discs. In a rulemaking proceeding, the Commission is
considering a proposed spectrum allocation for satellite DARS.
There also are four applications on file at the FCC for
satellite DARS licenses. In addition, the FCC has undertaken an
inquiry into the terrestrial broadcast of DARS signals,
addressing, inter alia, the need for spectrum outside the
existing FM band and the role of existing broadcasters.
Registrant cannot predict the outcome of these proceedings.
Television Industry
In June, 1992, the FCC initiated a rule making proceeding
inviting public comment on whether existing television
ownership rules should be revised to allow broadcast television
licensees greater flexibility to respond to growing competition
in the distribution of video programming. Among the proposed
changes are: (1) raising the national television ownership limit
from 12 to as many as 24 stations, perhaps restricted by a
national audience reach maximum higher than the current 25%;
(2) easing restrictions on the ownership by a single entity of
two television stations having overlapping signal contours; and
(3) easing the so-called "one-to-a-market" rule that currently
(with some exceptions) prevents the common ownership of a
television station and one or more radio stations in the same
area. The timetable for completion of the proceeding is not
certain, and Registrant cannot predict whether the changes
proposed will in fact be adopted or the impact of such changes
on Registrant's business. Also pending at the FCC is an inquiry
proceeding examining the possible re-imposition of broadcast
commercial time limitations that were repealed by the FCC in
1984. Registrant cannot predict whether the proceeding will
result in such a proposal or the extent of any such regulation.
In 1987, the FCC initiated a rule making proceeding on advanced
television, which includes high definition television ("HDTV").
With the help of a private sector advisory committee, the
Commission is attempting to establish a technical standard for
HDTV broadcasting by mid-1995. After the standard is set,
existing broadcasters will have three years in which to apply
for a second channel assignment to be used for HDTV broadcasts.
Such broadcasts must begin within six years of the standard-
setting. If these deadlines are not met, existing broadcasters
will be subject to competition for the HDTV channel.
For some period, currently thought to be fifteen years,
broadcasters will broadcast on both their current "NTSC" channel
and their HDTV channel, in a so-called "simulcast" mode. At the
end of the period, all broadcasts on the NTSC channel must
cease, whether or not every broadcaster is broadcasting HDTV.
The use of the HDTV channel sufficient to meet the FCC's minimum
requirements will require construction of new facilities,
including a transmitter, exciter, antenna, and transmission
line. Additional equipment for making the full conversion to
HDTV will include cameras, switchers, tape machines, and the
like.
Item 2. Properties
Maryland Cable Systems
The physical assets of the Maryland Cable Systems comprise the
majority of Registrant's physical assets. The principal
physical assets of the Systems include signal receiving
apparatus, headends, distribution systems and subscriber
connection equipment. The signal receiving apparatus of each
System includes a tower, antenna, ancillary electronic equipment
and earth stations for the reception of satellite signals. Each
Maryland Cable System has one headend, consisting of electronic
equipment necessary for the reception, amplification and
modulation of signals, located near the receiving devices. The
Prince George's System also has three "hub-site" headends, which
can amplify and modulate signals from the main headend but
cannot independently receive satellite delivered signals. The
distribution systems of the Prince George's consist of 1,244
miles of coaxial cables and related electronic equipment.
Subscriber connection equipment consists of house or apartment
drop equipment and decoding converters. Substantially all of
the Systems' decoding converters in Maryland are fully
addressable, which allows the System operator to activate or
terminate services electronically. The physical components of
the Systems require regular maintenance, as well as periodic
upgrading to keep pace with technological advances and
regulatory standards.
The headquarters for the Systems are located in Lanham, Maryland
on a 4.3 acre site owned by Maryland Cable. This facility
contains a 22,000 square foot two-story brick building, which
includes a fully equipped production studio, a small warehouse
and the main headend for the Prince George's System. Maryland
Cable also owns a small building on a one-half acre lot in
Leesburg, Virginia, which contains office space and the headend
for the Leesburg System, and small sites in Prince George's
County for two of its hub-sites.
Maryland Cable leases three locations in Prince George's County,
which include a site for its third hub-site and two fully-
equipped production studios used for local origination and
public access programming.
Maryland Cable and Holdings believe that the properties owned
and leased by Maryland Cable are in reasonably good condition
and adequate for the operation of the Systems.
Maryland Cable holds two BRS and three TVRO licenses from the
FCC that are used in connection with the operation of the
Systems.
The Systems' coaxial cables are generally attached to utility
poles under rental agreements with local public utilities. In
some areas, the distribution cable is buried in underground
ducts or trenches. Most of the pole attachment agreements for
the Systems were initially entered into by predecessors of Prime
Cable. Maryland Cable has received all of the consents to the
assignment of the pole attachment agreements used by the
Systems. Future increases in pole attachment rates cannot be
predicted, but are subject to regulation by the FCC and the
Federal Pole Attachments Act.
Windsor Systems
The principal physical assets of the Windsor Systems include
signal receiving apparatus, one headend, a distribution system
and subscriber connection equipment. The signal receiving
apparatus of the Windsor Systems includes a tower, antennae,
ancillary electronic equipment and earth stations for the
reception of satellite signals. The Windsor Systems has one
headend, consisting of electronic equipment necessary for the
reception, amplification and modulation of signals, located near
the receiving devices. The distribution system of the Windsor
Systems consists of approximately 90 miles of coaxial cable and
related electronic equipment. Subscriber connection equipment
consists of house or apartment drop equipment and decoding
converters. The physical components of the Windsor Systems
require regular maintenance, as well as periodic upgrading to
keep pace with technological advances and regulatory standards.
Registrant leases one location in Williamston, North Carolina
which includes a site for its single headend (expiring in 1998)
and a 2,600 square foot office (expiring in 1994) to serve the
Windsor Systems.
Registrant believes that the properties owned and leased by
Registrant in Williamston are in reasonably good condition and
adequate for the operation of the Windsor System.
Registrant holds two TVRO licenses from the FCC that are used in
connection with the operation of the Windsor System.
The Windsor System's coaxial cables are generally attached to
utility poles under rental agreements with local public
utilities. In some areas, the distribution cable is buried in
underground ducts or trenches. Most of the pole attachment
agreements for the Windsor Systems were initially entered into
by predecessors of Registrant. Registrant has entered into new
pole attachment agreements used by the Windsor Systems. Future
increases in pole attachment rates cannot be predicted, but are
subject to regulation by the FCC and the Federal Pole
Attachments Act.
Norfolk Radio
Registrant's radio station, WMXN-FM in Norfolk, Virginia leases
its office and studio space under a ten year lease which, with
thirty days prior notice, can be canceled after five years upon
payment of a cancellation penalty. The station also leases
space on a tower for its broadcast antenna and space in a
building that houses its transmission equipment. The tower and
building leases expire in 1994 with an option to renew for an
additional five years.
WMXN-FM owns its office furniture, studio equipment, and
transmission equipment. Registrant believes that the properties
leased by WMXN-FM and the furniture and equipment owned by the
station are in reasonably good condition and are adequate for
the operation of the station.
WMXN-FM holds a license from the FCC that is used in connection
with broadcasting operations at the station.
Other Properties
Paradigm and BBAD operate out of leased office space in
California. Paradigm and BBAD own their office furniture and
office equipment. Registrant believes that the properties
leased by Paradigm and BBAD and the furniture and equipment
owned by those companies are in reasonably good condition and
are adequate for the operation of the company.
TCS owns the land and studio buildings at each of its three
locations (Columbus, Georgia; Terre Haute, Indiana; and St.
Joseph, Missouri) as well as broadcasting transmitters, antennas
and towers at each location. In addition, TCS owns technical
broadcasting equipment as well as the furniture and fixtures at
TCS's three stations.
Registrant believes that the properties owned by the stations
and the other equipment and furniture and fixtures owned are in
reasonably good condition and are adequate for the operations of
the stations.
The physical assets of Registrant's remaining investments are
not included in the consolidated balance sheet of Registrant.
Item 3. Legal Proceedings
Refer to "Item 1. Business - Maryland Cable Corp." for
information regarding bankruptcy filing made by Maryland Cable
Corp.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters which required a vote during the fourth
quarter of the fiscal year covered by this report.
Part II
Item 5. Market for Registrant's Common Stock and Stockholder
Matters
A public market for Registrant's Units does not now exist, and
it is not anticipated that such a market will develop in the
future. Accordingly, accurate information as to the market
value of a Unit at any given date is not available.
Effective November 9, 1992, Registrant was advised that Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch" or
"MLPF&S") introduced a new limited partnership secondary service
through Merrill Lynch's Limited Partnership Secondary
Transaction Department ("LPSTD"). This service will assist
Merrill Lynch clients wishing to buy or sell Registrant Units.
As of January 28, 1994, the number of owners of Units was
15,143. Registrant does not distribute dividends, but rather
Distributable Cash From Operations, Distributable Refinancing
Proceeds, and Distributable Sale Proceeds, to the extent
available. On June 6, 1989, Registrant made a federal tax
allowance cash distribution in an amount equal to 33% of the
1988 federal taxable income to all limited partners owning Units
in 1988 in proportion to their federal taxable income from the
ownership of Units. The total amount distributed was
$2,040,121. There have been no distributions since that time.
Item 6. Selected Financial Data
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1989 1990 1991
Total Revenues $ 41,128,616 $ 42,936,437 $ 43,289,706
Losses from
continuing
operations
attributable to
Common
Stockholders/
Partners $(15,838,169) $(43,946,253) $(77,895,462)
Loss from
continuing
operations per
unit of Limited
Partnership
Interest $ (139.81) $ (387.94) $ (687.64)
Number of Units 112,147.1 112,147.1 112,147.1
As of As of DecemberAs of December
December 31, 31, 31,
1989 1990 1991
Total Assets $285,298,872 $250,244,698 $187,061,204
Borrowings $186,721,730 $201,107,698 $212,570,908
Note:Total revenues include operating revenues and interest
income.
Year Ended Year Ended
December 31, December 31,
1992 1993
Total Revenues $ 52,661,661 $ 62,663,710
Losses from
continuing
operations
attributable to
Common
Stockholders/
Partners $(36,364,608) $(33,526,155)
Loss from
continuing
operations per
unit of Limited
Partnership
Interest $ (321.02) $ (295.96)
As of DecemberAs of December
31, 31,
1992 1993
Total Assets $169,777,942 $191,150,624
Borrowings $232,112,727 $285,623,555
Number of Units 112,147.1 112,147.1
Certain items have been restated to conform to 1993 presentation
for discontinued operations.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Liquidity and
Capital Resources
At December 31, 1993, Registrant had $4,978,035 in cash and cash
equivalents, of which $1,456,352 was limited for use at the
operating level and $3,521,683 was Registrant's working capital.
At December 31, 1992, Registrant had $9,801,975 in cash and cash
equivalents, of which $3,132,465 was limited for use at the
operating level and $6,669,510 was Registrant's working capital.
During 1993, Registrant continued its operations phase.
Registrant advanced an additional approximately $0.7 million to
IMPLP/IMPI and its affiliate, Intelidata, prior to the sale of
these businesses and assets in July 1993.
In summary of Registrant's liquidity status, of the
approximately $3.5 million that Registrant has for working
capital, a portion may be utilized to support anticipated
funding needs or possible restructurings, as appropriate, of
Maryland Cable, TCS and its other investments. Registrant has
no contractual commitment to advance funds to any of its
investments except for the commitments described below.
Registrant, in the appropriate circumstances, will consider
utilizing its working capital to fund cash shortfalls or to
restructure the debt of certain of its investments. Registrant
is also pursuing the sale of certain investments. Refer to
"Item 8. Financial Statements and Supplementary Data" for
further information. Any additional use of Registrant's working
capital to support its existing investments is at the discretion
of Registrant except for commitments made by Registrant for
certain obligations of Maryland Cable (to the extent that
Maryland Cable does not discharge those obligations). Although
Registrant has sufficient funds to meet these commitments, it
does not have sufficient cash to meet all of the contractual
obligations of Maryland Cable, nor does it have sufficient cash
to fund indefinitely the cash shortfalls of its other
investments. In addition, the recent regulatory changes
affecting the cable television industry will likely have a
material negative impact on Registrant's liquidity status (see
below).
Maryland Cable
Proposed Restructuring
Maryland Cable is currently in default under its bank credit
agreement by virtue of its failure to pay the principal amount
of its senior bank debt on maturity on December 31, 1993. As a
result of this default of the senior bank debt, there is also a
default under the Discount Notes.
On December 31, 1993, the Partnership, Maryland Cable, Holdings
and ML Cable Partners entered into an Exchange Agreement with
Water Street Corporate Recovery Fund I, L.P. (the "Water Street
Fund") providing for the restructuring of Maryland Cable. The
Water Street Fund holds approximately 85% of the outstanding
principal amount of the 15-3/8% Senior Subordinated Discount
Notes due 1998 (the "Discount Notes") of Maryland Cable, which,
as described below, are currently in default. Also, as of
December 31, 1993, another holder of the Discount Notes
(representing 7% of the outstanding principal amount) joined in
the Exchange Agreement.
Pursuant to the Exchange Agreement, the Water Street Fund and
the other holders of the Discount Notes would exchange their
Discount Notes and their Class B Common Stock of Holdings for
all of the partnership interests of a newly formed limited
partnership ("NEWCO") that would acquire all of the assets of
Maryland Cable, subject to the liabilities of Maryland Cable.
The Partnership would receive an aggregate of $2,670,000 in
satisfaction of the $3,600,000 in Subordinated Promissory Notes
held by Registrant, plus accrued interest of approximately $2.7
million, and the $5,379,833 in deferred management fees payable
to the Partnership, and $100 for its Common Stock of Holdings.
ML Cable Partners, which is 99% owned by Registrant, would
receive payment in full of the $6,830,000 participation it holds
in the senior bank debt of Maryland Cable. In addition, the
Partnership would be paid at closing a management fee for
managing the Maryland Cable Systems from January 1, 1994 to the
date on which all the terms of the Exchange Agreement are
satisfied based on the gross revenues of the Systems during that
period. If, prior to the date on which all of the terms of the
Exchange Agreement are satisfied, holders of the Discount Notes
transfer a majority of the outstanding principal amount of the
Discount Notes, the Partnership would receive an additional
payment equal to 5% of the amount by which the Value (as
defined) of the Systems exceeds $180,000,000. The Exchange
Agreement also provides for a payment of $500,000 to MultiVision
in settlement of severance and other costs relating to the
termination of MultiVision as manager.
The Exchange Agreement is subject to numerous conditions,
including approval by the holders of at least 99% of the
aggregate principal amount of the Discount Notes, the consent of
the franchising authorities and the approval by FCC to the
transfer of the Systems to NEWCO, NEWCO borrowing $100,000,000
to be used to repay Maryland Cable's senior bank debt, and the
agreement from the holders of the senior bank debt to accept
payment of the principal amount of the senior bank debt and
accrued interest thereon, and no additional fees, interest or
other payments for agreeing to extend the maturity of the senior
bank debt beyond December 31, 1993.
As of March 10, 1994, the requisite approvals from the holders
of the Discount Notes and the senior bank debt had not been
received. As a result, as provided in the Exchange Agreement,
on March 10, 1994, Maryland Cable and Holdings filed the
Prepackaged Plan under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court-Southern District of New York.
This filing included the Prepackaged Plan, to which the
requisite majority of all impaired creditors other than the
holders of the senior debt had consented. Under the Prepackaged
Plan, Registrant would receive materially the same aggregate
consideration as it would receive under the terms of the
Exchange Agreement.
The Prepackaged Plan filed differs from the Exchange Agreement
most significantly in the treatment of the secured bank debt of
Maryland Cable. Under the Prepackaged Plan, each holder of
Maryland Cable's bank debt would receive deferred cash payments
pursuant to newly issued promissory notes in a principal amount
equal to their proportionate share of the total bank debt,
bearing interest at the same rate as provided for in the
original Amended Credit Agreement with a maturity date of
December 31, 1998 (the original maturity date under the Amended
Credit Agreement). Maryland Cable and the agent for the holder
of Maryland Cable's bank debt are currently negotiating revised
terms for these newly issued promissory notes, however there is
no assurance that Maryland Cable and the agent will reach
agreement on these terms. The Exchange Agreement provided for a
forbearance by the holders of the bank debt under the Amended
Credit Agreement and the refinancing or repayment of all
outstanding bank debt obligations upon closing.
There is no assurance that the Prepackaged Plan will be approved
or that the proposed restructuring described in the Prepackaged
Plan will be consummated.
On January 18, 1994, as a result of the defaults under the
senior bank debt, the holders of the senior bank debt exercised
their rights under events of default to collect Maryland Cable's
lockbox receipts and apply such receipts towards the repayment
of the outstanding senior bank debt, related accrued interest,
and fees and expenses. As of March 9, 1994, one day prior to
the filing of the Prepackaged Plan, the holders of the senior
bank debt applied approximately $4,800,000 in lockbox receipts
towards the repayment of the outstanding senior bank debt,
related accrued interest, and fees and expenses.
Registrant is currently unable to determine the impact of the
February 22, 1994 FCC action and previous FCC actions on the
Prepackaged Plan (see below).
Impact of Cable Legislation
The future liquidity of Registrant's cable operations, Maryland
Cable and Windsor, is likely to be negatively affected by recent
and ongoing changes in legislation governing the cable industry.
The potential impact of such legislation on Registrant is
described below.
On October 5, 1992, Congress overrode the President's veto of
the Cable Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") which imposes significant new regulations on
the cable television industry. The 1992 Cable Act required the
development of detailed regulations and other guidelines by the
Federal Communications Commission ("FCC"), most of which have
now been adopted but remain subject to petitions for
reconsideration before the FCC and/or court appeals.
On May 3, 1993, the FCC released a Report and Order relating to
the regulation of rates for certain cable television programming
services and equipment. These rules establish certain benchmarks
which will enable local franchise authorities to require rates
for "basic service" (minimally, local broadcast and access
channels) and the FCC (upon receipt of individual complaints) to
require rates for certain satellite program services (excluding
premium channels) to fall approximately 10% from September 30,
1992 levels, unless the cable operator is already charging rates
that are at a so-called "competitive" benchmark level or it can
justify a higher rate based on a cost-of-service showing. Rates
of all regulated cable systems will then be subject to a price
cap that will govern the extent to which rates can be raised in
the future without a cost-of-service showing. Several other key
matters are still pending before the FCC that will ultimately
shape and complete this new regulatory framework for cable
industry rates. For example, in a complicated multi-faceted
document released on August 27, 1993, the FCC simultaneously:
(1) issued a First Order on Reconsideration of the foregoing May
3 rate order (confirming or clarifying certain benchmark rate
methodology issues); (2) adopted a Second Report and Order
(deciding to continue to include systems with less than 30%
penetration in the universe of systems whose rates were used to
establish benchmarks, a decision that, if unchanged, avoids a
potentially downward adjustment of the previously announced
benchmark rates); and (3) issued a Third Notice of Proposed
Rulemaking (addressing such "going forward" issues as how cable
rates should be modified when channels are added or deleted, how
costs incurred for rebuilds should be treated, and whether cable
operators should be required to use the same methodology to
determine rates for both basic and expanded basic tiers). In
addition, a separate yet related rulemaking proceeding was
initiated by the FCC on July 16, 1993 to establish the proposed
standards and certain other ground rules for cost-of-service
showings by cable operators seeking to justify cable rates in
excess of the FCC prescribed benchmark/price cap levels. While
continuing to express a strong preference for its benchmark
approach, the FCC's "Notice of Proposed Rulemaking" in this
proceeding outlines an alternative regulatory scheme that would
combine certain elements of traditional ratebase/rate of return
regulation with a more streamlined approach uniquely tailored to
the cable industry. Comments in response to both the Third
Notice of Proposed Rulemaking and the separate cost-of-service
rulemaking were received by the FCC on or before October 7,
1993. In the meantime, the FCC's overall cable service rate
regulation rules took effect on September 1, 1993, and the
industry-wide freeze on rates for regulated cable service
remains in effect until May 15, 1994. Furthermore, by Order
released September 17, 1993, the FCC initiated an industry-wide
survey of cable rate changes and service restructuring as of the
starting date of its rate freeze (April 5, 1993) and the
effective date of rate regulation (September 1, 1993) in order
to gauge the early effectiveness of its cable rate regulations.
The results of this survey were announced on February 22, 1994.
On February 22, 1994, the FCC adopted a series of additional
measures that expand and substantially alter its cable rate
regulations. Based on FCC news releases dated February 22, the
FCC's major actions include the following: (1) a modification
of its benchmark methodology in a way which will effectively
require cable rates to be reduced, on average, an additional 7%
(i.e., beyond the 10% reduction previously ordered in 1993) from
their September 30, 1992 level, or to the new benchmark,
whichever is less; (2) the issuance of new standards and
requirements to be used in making cost-of-service showings by
cable operators who seek to justify rates above the levels
determined by the benchmark approach; and (3) the clarification
and/or reaffirmation of a number of "going forward" issues that
had been the subject of various petitions for reconsideration of
its May 3, 1993 Rate Order. Several weeks earlier, and partly
in anticipation of these actions, the FCC extended its industry-
wide freeze on rates for regulated cable services until May 15,
1994. It is expected that the new benchmark standards and cost-
of-service rules will become effective prior to the current
termination date of the rate freeze.
In addition to the rate reregulation described above, among
other things, the 1992 Cable Act provides that certain qualified
local television stations may require carriage by cable
operators, or elect to negotiate for payment of fees or other
forms of compensation by the cable operator to the stations in
exchange for allowing retransmission of their signals. The
deadline for making such elections was June 17, 1993.
Negotiations between cable operators and those television
stations which elected to pursue retransmission agreements were
carried out between the foregoing election date and October 6,
1993, the deadline under the 1992 Cable Act for obtaining
retransmission consent. If some type of agreement (either final
or interim pending further negotiations) was not reached by
October 6, 1993, cable operators could have been forced to
discontinue carriage of those television stations which elected
to pursue retransmission consent (see below).
In its May 1993 Rate Order the FCC exempted from rate regulation
the price of packages of "a-la-carte" channels if certain
conditions were met. Upon reconsideration, however, the FCC on
February 22, 1994 effectively tightened its regulatory treatment
of a-la-carte packages by establishing more elaborate criteria
designed to ensure that such practices are not employed so as to
unduly evade rate regulation. Now, when assessing the
appropriate regulatory treatment of a-la-carte packages, the FCC
will consider, inter alia, the following factors as possibly
suggesting that such packages do not qualify for non-regulated
treatment: whether the introduction of the package avoids a
rate reduction that otherwise would have been required under the
FCC's rules; whether an entire regulated tier has been
eliminated and turned into an a-la-carte package; whether a
significant number or percentage of the a-la-carte channels were
removed from a regulated service tier; whether the package price
is deeply discounted when compared to the price of an individual
channel; and whether the subscriber must pay significant
equipment or other charges to purchase an individual channel in
the package. In addition, the FCC will consider factors that
will reflect in favor of non-regulated treatment such as whether
the channels in the package have traditionally been offered on
an a-la-carte basis or whether the subscriber is able to select
the channels that comprise the a-la-carte package. A-la-carte
packages which are found to evade rate regulation rather than
enhance subscriber choice will be treated as regulated tiers,
and operators engaging in such practices may be subject to
forfeitures or other sanctions by the FCC.
In a separate action on February 22, 1994, the FCC adopted
interim rules to govern cost of service proceedings initiated by
cable operators. Operators who elect to pursue cost of service
proceedings will have their rates based on their allowable
costs, in a proceeding based on principles similar to those that
govern cost-based rate regulation of telephone companies. Under
this methodology, cable operators may recover, through the rates
they charge for regulated cable service, their normal operating
expenses and a reasonable return on investment. The FCC has,
for these purposes, established an interim industry-wide rate of
return of 11.25%. It has also determined that acquisition costs
above book value are presumptively excluded from the rate base.
At the same time, certain intangible, above-book costs, such as
start-up losses (limited to losses actually incurred during a
two-year start-up period) and the costs of obtaining franchise
rights and some start-up organizational costs such as customer
lists, may be allowed. There are no threshold requirements
limiting the cable systems eligible for a cost of service
showing, except that, once rates have been set pursuant to a
cost of service approach, cable operators may not file a new
cost of service showing to justify new rates for a period of two
years. Finally, the FCC notes that it will, in certain
individual cases, consider a special hardship showing (or the
need for special rate relief) where an operator demonstrates
that the rates set by a cost of service proceeding would
constitute confiscation of investment and that some higher rate
would not represent exploitation of customers. In considering
whether to grant such a request, the FCC emphasizes that, among
other things, it would examine the overall financial condition
of the operator and whether there is a realistic threat of
termination of service.
Registrant is currently unable to assess the full impact of the
February 22, 1994 FCC action and the 1992 Cable Act upon its
business prospects or future financial results. However, the
rate reductions mandated by the FCC in May of 1993, have had,
and will most likely continue to have, a detrimental impact on
the revenues and profits of Registrant's cable television
operations. Although the impact of the 1992 Cable Act and the
recent FCC actions cannot yet be ascertained precisely, once
fully implemented, certain aspects of the new law may have a
material negative impact on the financial condition, liquidity,
and value of Registrant.
Registrant is also currently unable to determine the impact of
the February 22, 1994 FCC action and previous FCC actions on the
sale of the Windsor systems or the potential timing of such a
sale. However, as discussed above, the FCC actions have had,
and will have, a detrimental impact on the revenues and profits
of Maryland Cable and the Windsor systems.
As an example of the effects of the 1992 Cable Act, in complying
with the benchmark regulatory scheme without considering the
effect of any future potential cost-of-service showing,
Registrant's cable properties, on a franchise by franchise
basis, were required to reduce present combined basic service
rates (broadcast tier and satellite service tier) effective
September 1, 1993. In addition, pursuant to the 1992 Cable Act,
revenue from secondary outlets and from remote control units was
eliminated or reduced significantly. Registrant took certain
actions to seek to defray some of the resulting revenue
declines, which among others included instituting charges for
converters, as permitted by the 1992 Cable Act, offering
programming services on an a-la-carte basis, which services are
not subject to rate regulation, and aggressively marketing
unregulated premium services to those subscribers benefiting
from decreased basic rates. Despite the institution of these
actions by Registrant's cable systems, the rate regulation
required by the 1992 Cable Act had a detrimental impact on the
revenues and profits of Registrant's cable systems. In
addition, Registrant is currently unable to determine whether
its a-la-carte restructuring is in accordance with the terms of
the February 22, 1994 FCC action. The further rate reduction
mandated by the February 22, 1994 FCC action and any limits
imposed by such action on a-la-carte pricing are likely to have
a further detrimental impact on those revenues and profits.
By the October 6 deadline (noted above), Registrant's Maryland
Cable Systems and Windsor Systems had reached agreement with all
broadcast stations within their service areas electing
retransmission consent. In some cases, these agreements
obligate the Maryland Cable Systems and Windsor Systems to carry
additional programming services affiliated with the broadcast
stations. The costs of these additional program services will
not be material to the operations of the Maryland Cable Systems
or the Windsor Systems.
GCC
In 1990, Registrant wrote down the full value of its preferred
stock in GCC of $15,000,000, because of GCC's inability at that
time to raise the financing critical to its viability as a going
concern.
On or about July 30, 1991, GCC's primary lender, NovAtel, sold
its loans due from GCC and its rights under the loan agreements
with GCC to an investor group named GCC Holdings Corporation,
which is comprised primarily of Hellman and Friedman and Stanton
Communications, Inc. (the "Investors"). GCC and the Investors
agreed to pursue a plan of reorganization by which most of that
debt would be converted into 90% ownership of GCC. On October
21, 1991, GCC filed a bankruptcy petition and plan of
reorganization under Chapter 11 of the U.S. Bankruptcy Code to
implement this reorganization plan.
In connection with the plan of reorganization, on November 1,
1991, Registrant sold a $500,000 note it had purchased on June
15, 1990 to the Investors for $275,000 in cash.
GCC's Second Amended Plan of Reorganization, dated December 18,
1991, was confirmed by the bankruptcy court on February 4, 1992.
The plan of reorganization became effective on March 17, 1992.
Under the plan, Registrant's 500,000 shares of Preferred Stock
were converted to 199,281 shares of common stock, equivalent to
an ownership position in GCC of 4.65%, prior to the effect of
the rights offerings (described below). After giving effect to
the senior note offering that was part of the plan of
reorganization, GCC's outstanding debt was reduced from
approximately $97 million to $20 million. The plan of
reorganization, as amended, provided for existing shareholders,
including Registrant, to purchase additional ownership in GCC
through a rights offering. Each right consisted of the right to
purchase from GCC a unit consisting of one share of common stock
and $9.09 in principal amount of senior notes, for a total unit
price of $19.09. On March 4, 1992, Registrant exercised 52,384
rights, for a total price of $1,000,011. By exercising these
rights, Registrant purchased: a) 52,384 shares of common stock
of GCC, which increased Registrant's ownership position in GCC
to approximately 5.69%; and b) senior notes with a face value of
$476,171. On August 19, 1992, GCC redeemed the senior notes,
repaying to Registrant $476,171, plus accrued interest.
On October 26, 1992, GCC completed a second rights offering
pursuant to which existing shareholders, including Registrant,
were issued rights to purchase one additional share of common
stock for each 1.75 shares owned, for a price of $10.00.
Registrant purchased 100,000 additional shares for an investment
of $1,000,000. In addition, in November 1992, Registrant sold
43,809 rights to purchase shares for a price of $120,000 to an
unaffiliated entity. GCC raised $25,281,000 in the offering to
assist it in completing its business plan of purchasing and
operating clusters of cellular systems in certain geographic
areas. Effective November 3, 1993, Registrant sold 61,160
rights to purchase shares for a price of $100,000 to several
unaffiliated entities. As of December 31, 1993, Registrant's
351,665 shares in GCC represented an ownership percentage equal
to approximately 4.2%.
Windsor
Registrant must make equal monthly payments of principal and
interest on the ten-year Windsor Note (see Note 6 in "Item 8.
Financial Statements and Supplementary Data") issued in
connection with the acquisition of Windsor. The outstanding
principal balance of the Windsor Note as of December 31, 1993
was $1,981,654. In July, 1992, Registrant began making monthly
payments on the Windsor Note which were sufficient to pay all
interest due; however, those payments were not sufficient to pay
all of its scheduled monthly installments of principal;
Registrant is therefore in default of the Windsor Note. On June
23, 1992, the holder of the Windsor Note gave Registrant notice
of default, and informed Registrant that it has the ability to
accelerate the maturity of the indebtedness and foreclose on the
assets of Windsor (but not the other assets of Registrant).
During 1993, Windsor's operations did not generate sufficient
cash to service fully its scheduled installments on the Windsor
Note. Registrant does not anticipate advancing any funds to
Windsor.
On November 16, 1993, Registrant entered into an Asset Purchase
Agreement with Tar River Communications, Inc. ("Tar River") to
sell the assets of the Windsor Systems to Tar River for a base
purchase price of $3,240,000, subject to adjustment based on the
number of subscribers to the systems on the Closing Date and the
accounts receivable and accounts payable of the systems on the
Closing Date. The sale is subject to various conditions,
including consent from the franchising authorities and
extensions of the franchises for the systems until 10 years
after the Closing Date. The closing is currently expected to
occur in mid-1994.
Paradigm
Paradigm and/or BBAD are not currently producing a sufficient
number of television programs to cover overhead costs
indefinitely, although Registrant has not advanced any funds to
Paradigm and/or BBAD since the second quarter of 1992. Paradigm
and/or BBAD have taken several steps to reduce operating costs,
primarily by reducing the number, and compensation, of
employees. However, Paradigm and/or BBAD did not operate
profitably during 1993, and are currently dependent on outside
sources, primarily Associates, to finance BBAD's monthly
operating costs. Registrant elected not to fund such operating
costs. Registrant has no obligation to advance any additional
funds to Paradigm and/or BBAD and actively sought a strategic
partner that would share in meeting Paradigm's and/or BBAD's
potential future funding needs, but was unable to identify such
a partner. Paradigm and/or BBAD have no liability for borrowed
funds. Registrant is negotiating with Associates the terms of
an agreement under which Paradigm would retain the three
television movies and the series developed by it, and the other
projects and program concepts developed by Paradigm and/or BBAD
would be assigned to Associates for further development at
Associates' expense, while Paradigm would retain a percentage
interest in all such projects and concepts. In any event,
Registrant will most likely recover only a nominal portion, if
any, of its original investment in Paradigm and/or BBAD. Due in
part to Registrant's unwillingness to advance additional funds
to fund the continuing operating losses and possible winding
down of Paradigm's and BBAD's operating activities, Registrant
recorded in the second quarter of 1993 a writedown of
approximately $516,000 of certain assets of Paradigm and BBAD to
reduce Registrant's net investment to a net realizable value of
zero.
TCS
Although the broadcast television industry experienced overall
growth in advertising revenues in 1993, the industry continues
to be subject to significant volatility in advertising revenues,
especially from national buyers. In part, as a result of
weakness in national advertising revenues at the TCS stations,
TCS was in default of covenants under the note agreements as of
December 31, 1993, and failed to make a scheduled principal
payment of $500,000 due February 28, 1994. In addition, TCS
expects to default on the majority of its scheduled principal
payments for the remainder of 1994 as well as in 1995. TCS is
engaged in negotiations with its note holders, although the
outcome of these negotiations cannot be predicted at this time.
While TCS remains in default, the note holders have the option
to exercise their rights under the notes, which rights include
the right to foreclose on the assets of TCS, but not the other
assets of Registrant. Refer to Notes 2 and 6 of "Item 8.
Financial Statements and Supplementary Data" for further
information regarding TCS debt.
During the fourth quarter of 1992, TCS concluded that there has
been an impairment of the value of the enterprise and, as a
result, wrote-down its intangible assets (goodwill) by a total
of $6 million, which resulted in Registrant's $2,460,000 share
of this write-down.
Investments and EMP, Ltd.
As of December 31, 1993, Registrant had advanced approximately
$2 million to Investments.
During 1993, EMP, Ltd. and its affiliates continued to
distribute television programs. On July 30, 1993, EMP, Ltd.
sold its Neomedion shares back to Charles Dawson, while Charles
Dawson sold his shares in EMP, Ltd. back to Clarendon. The
stock of Neomedion is now controlled 75% by Charles Dawson and
25% by Investments. In addition, after the exchange of shares,
EMP, Ltd. was owned 13.8% by Registrant, 45.6% by Clarendon, and
40.6% by ALP Enterprises.
Investments, EMP, Ltd. and their affiliates are currently
reliant on their cash balances and/or additional funding from
ALP Enterprises or other, as yet unidentified, financing sources
to fund their continuing operations. Furthermore, Registrant
expects to advance no further funds to Investments, EMP, Ltd.,
or their affiliates beyond those funds already advanced by
Registrant. If investments, EMP, Ltd. and their affiliates are
unable to support their operations from current cash balances
and/or additional funding from ALP Enterprises or other, as yet
unidentified, financing sources, Investments and EMP, Ltd. might
be forced to cease their operations. In any event, it is
unlikely that Registrant will recover its $2 million investment
in Investments. Investments, EMP and EMP, Ltd. have no liability
for borrowed funds.
WMXN-FM
During 1993, WMXN-FM generated sufficient revenues to cover its
operating costs (before management fees).
Registrant entered into an Option Agreement, effective January
25, 1994, with U.S. Radio , Inc. ("U.S. Inc."), a Delaware
corporation, and an affiliated entity, U.S. Radio, L.P. ("U.S.
Radio"), a Delaware limited partnership, neither of which is
affiliated with Registrant. Pursuant to the Option Agreement,
Registrant granted U.S. Inc. an option (the "Call") to purchase
substantially all of the assets of WMXN-FM (the "Assets") for a
cash price of $3.5 million at any time prior to January 15,
1995. Also pursuant to the Option Agreement, U.S. Inc. granted
Registrant the option (the "Put") to sell the Assets to U.S.
Inc. for a cash price of $3.5 million at any time (a) within 30
days after the expiration of the Call or (b) within 30 days of
the termination by Registrant of the LMA (see below) as a result
of a material breach of the LMA by U.S. Radio. If the Call or
Put is exercised, Registrant and U.S. Inc. will immediately
revise as necessary and execute an Asset Purchase Agreement
which is an exhibit to the Option Agreement. If the Call or Put
is timely exercised but U.S. Inc. fails to execute the Asset
Purchase Agreement, then, subject to certain conditions,
Registrant may elect to cause U.S. Radio to sell its radio
stations WOWI-FM, in Norfolk, Virginia, and WSVY-AM in
Portsmouth, Virginia, together with WMXN-FM (collectively, the
"Stations"), with the first $3.5 million of proceeds from such
sale, less transaction costs, to be retained by Registrant. The
acquisition of WMXN-FM by U.S. Inc., and/or the sale of the
Stations, is subject to the prior approval of the FCC. There
can be no assurance that the sale of WMXN-FM or the sale of the
Stations will be consummated.
Effective January 31, 1994, Registrant entered into a Time
Brokerage Agreement (the "LMA") with U.S. Radio. The LMA calls
for Registrant to make broadcasting time available on WMXN-FM to
U.S. Radio and for U.S. Radio to provide radio programs to be
broadcast on WMXN-FM, subject to certain terms and conditions,
including the rules and regulations of the FCC. In exchange for
providing broadcasting time to U.S. Radio, Registrant will
receive a monthly fee approximately equal to its cost of
operating WMXN-FM. The LMA will continue until the earlier of:
(i) March 1, 1995 (if neither the Call nor Put has been
exercised); (ii) the consummation of the acquisition of WMXN-FM
by U.S. Inc. pursuant to the Option Agreement; or (iii) the
consummation of a joint sale of the Stations.
Registrant may choose to advance additional funds to WMXN-FM if
any are required; however, Registrant has no obligation to
advance any additional funds to WMXN-FM and WMXN-FM has no
liability for borrowed funds.
Results of Operations
1993 vs. 1992
Registrant had a net loss from continuing operations in 1993 of
approximately $33.5 million, which was comprised primarily of
the following components: (1) Registrant's net loss recognized
from its investment in Holdings of approximately $25.8 million
which is net of an approximate $4.0 million gain recognized from
the sale of the Leesburg System; (2) Registrant's combined net
loss recognized from its investments in TCS, Paradigm, Windsor
and WMXN-FM of approximately $5.6 million; (3) Registrant's
writedown of approximately $0.5 million of certain assets to a
net realizable value of zero for its investments in Paradigm;
and (4) management fees and other general and administrative
expenses.
Consolidated operating revenue increased from approximately
$52.1 million in 1992 to approximately $62.5 million in 1993 as
a result of: (1) an approximate $2.0 million increase in revenue
generated by Maryland Cable; (2) the consolidation of TCS's
operating revenue in the second, third and fourth quarters of
1993 which generated approximately $10.0 million while 1992
reflected TCS's operations under the equity method of
accounting; and (3) an approximate $0.1 million increase in
revenues generated by WMXN-FM. These increases were partially
offset by a decrease in revenue generated by Paradigm/BBAD of
approximately $1.8 million due to reduced program production
activity. The remaining increases or decreases in property
operating expenses at Registrant's other properties were
immaterial, either individually or in the aggregate.
Consolidated property operating expenses increased from
approximately $26.5 million in 1992 to approximately $29.7
million in of 1993 primarily as a result of: (1) the
consolidation of TCS's operations beginning in the second
quarter of 1993 which reflected approximately $4.6 million in
property operating expenses (equity method of accounting was
utilized in 1992); and (2) an approximate $0.7 million increase
in property operating expenses incurred by Maryland Cable;
partially offset by a decrease of approximately $1.9 million at
Paradigm due to reduced program production activity and a
decrease in operating expenses of approximately $0.2 million at
WMXN-FM.
Consolidated general and administrative expenses increased from
approximately $9.6 million in 1992 to approximately $13.4
million in 1993 as a result of: (1) an approximate $1.3 million
increase in general and administrative expenses at Maryland
Cable; and (2) the consolidation of TCS's operations beginning
in the second quarter of 1993, which contributed approximately
$2.5 million while 1992 reflected TCS's operations under the
equity method of accounting, which records Registrant's share of
revenue net of expenses within the equity in loss of joint
venture caption. The remaining increases or decreases in
general and administrative expenses at Registrant's other
properties were immaterial, either individually or in the
aggregate.
Interest expense (after excluding the effect of the intercompany
interest related to ML Cable) increased from approximately $28.1
million in 1992 to approximately $32.5 million in 1993. The
increase was a result of accrued interest on Maryland Cable's
fully accreted subordinated debt, partially offset by lower
market interest rates on senior debt of Maryland Cable and by
the credit against Maryland Cable's interest expense resulting
from the forgiveness of the Default Interest Notes and the
related accrued interest; and the consolidation of TCS's
operations beginning March 26, 1993 which contributed
approximately $3.7 million of interest expense in 1993.
1992 vs. 1991
Registrant had a net loss from continuing operations in 1992 of
approximately $36.4 million, which was comprised primarily of
the following components: (1) Registrant's net loss recognized
from its investment in Maryland Cable of approximately $28.5
million; (2) equity in net losses of joint ventures of $4.7
million, comprised of a TCS loss of approximately $4.5 million
which includes Registrant's share (approximately $2.5 million)
of a $6 million write-down of intangible assets, and a loss of
approximately $0.2 million from Investments; (3) Registrant's
net loss recognized from its investment in WMXN-FM of
approximately $0.9 million; (4) Registrant's net loss recognized
from its investment in Paradigm of approximately $0.7 million;
(5) Registrant's net loss recognized from its investment in
Windsor of approximately $0.6 million; and (6) management fees
and other general and administrative expenses.
Consolidated operating revenue increased from approximately
$42.0 million in 1991 to approximately $52.1 million in 1992 as
a result of (1) the consolidation of Paradigm's operations in
1992 which generated approximately $7.7 million of revenues in
1992 while 1991 reflected Paradigm's operations under the equity
method of accounting, which records Registrant's share of
revenue net of expenses within the equity in loss of joint
venture caption; (2) an approximate $1.6 million increase in
revenue generated by Maryland Cable; and (3) an approximate $0.7
million increase in revenues generated by WMXN-FM.
Consolidated property operating expenses increased approximately
$8.8 million from approximately $17.7 million in 1991 to
approximately $26.5 million in 1992 primarily as a result of the
consolidation of Paradigm's operations in 1992 which reflected
approximately $8.8 million of property operating expenses.
The following paragraphs discuss in greater depth the results of
operations of Maryland Cable, because Registrant's investment in
Maryland Cable represents its major operating property as of
December 31, 1993. As of December 31, 1993, the Maryland Cable
Systems represented approximately 70% of the consolidated assets
of Registrant and approximately 70% of the consolidated
operating revenues.
Maryland Cable Systems
1993 vs. 1992
For purposes of the following discussion, Maryland Cable is
comprised of the Leesburg System and the remaining systems,
located in Maryland, which are referred to as the Lanham System.
Refer to Note 14 of "Item 8. Financial Statements and
Supplementary Data" for information regarding the sale of the
Leesburg System on September 30, 1993.
For the year ended December 31, 1993, Maryland Cable incurred a
net loss of approximately $25.8 million compared to a net loss
of approximately $28.5 million for the same period in 1992.
This decrease in net loss is primarily due to an approximate
$4.0 million gain on the sale of the Leesburg System and
increased revenues, partially offset by higher interest expense,
property operating expense, general and administrative expense
and depreciation and amortization expense.
Maryland Cable's operating revenues increased approximately 5%
to approximately $43.8 million in 1993 from approximately $41.8
million in 1992. This revenue increase was a net result of a
price increase in basic service and higher levels of average
basic subscribers, partially offset by a decline in revenues due
to the sale of the Leesburg System, as well as lower premium
revenues attributable to fewer premium subscribers.
Maryland Cable's average basic revenue per subscriber per month
increased to $31.02 in 1993 from $29.56 in 1992. The average
basic revenue per Lanham System subscriber per month increased
to $31.33 in 1993 from $29.85 in 1992. These increases were due
primarily to a modest rate increase in January 1993. Maryland
Cable's number of average basic subscribers for 1993 increased
to 78,932 from 77,511 in 1992. The increase in the number of
average basic Maryland Cable subscribers is primarily
attributable to passing additional homes with cable plant,
partially offset by a decrease in subscribers due to the
Leesburg System sale. The number of average basic Lanham System
subscribers for 1993 increased to 75,073 from 72,902 in the same
period in 1992, primarily due to passing additional homes with
cable plant.
The number of Maryland Cable basic subscribers decreased from
78,732 at December 31, 1992 to 76,564 at December 31, 1993 due
primarily to the sale of the Leesburg System on September 30,
1993. Although Maryland Cable's average number of basic
subscribers and gross revenues increased during 1993 as compared
to 1992, Maryland Cable will in the near term experience lower
levels of basic subscribers and revenues as a result of the sale
of the Leesburg System which represented approximately 6.5% of
the basic subscribers and approximately 4% of the gross revenues
of Maryland Cable as of September 30, 1993.
In 1993, Maryland Cable's average premium service units
decreased to 79,510 from an average of 84,344 in 1992. This
decrease was due primarily to the sale of the Leesburg System
and also sluggish local and national economic conditions. In
1993, average Lanham System premium service units decreased to
approximately 77,732 from an average of approximately 81,931 in
1992 due primarily to a sluggish local and national economic
conditions. The cable industry in general has experienced
slowing growth of premium service units and Maryland Cable,
which has a higher ratio of premium service units to basic
subscribers than the industry in general, may be more
significantly affected by the slowing growth trend than the
industry in general.
Maryland Cable's average premium revenue rate in 1993 and 1992
was $9.69 and $9.47, respectively. The average Lanham System
premium revenue rate in 1993 and 1992 was $9.70 and $9.47,
respectively. The increases in rates are primarily attributable
to the institution of a new pricing structure on September 1,
1993 which increased premium service rates on additional outlets
within a household.
Maryland Cable's revenue from pay-per-view services remained
constant at approximately $1.7 million in 1993 and 1992.
Revenue from advertising sales increased to approximately $1.3
million in 1993 from approximately $1.1 million in 1992. The
increase was a result of full staffing in the advertising sales
department following a period of staffing shortages.
Maryland Cable's cable television system expenses (which include
all expenses other than depreciation and amortization,
interest, management fees and expenses, and gain on sale of
assets) increased from 59.0% of revenues in 1992 to 59.4% of
revenues in 1993. This slight increase is primarily
attributable to professional and marketing costs associated with
the implementation of pricing and packaging changes required by
the 1992 Cable Act on September 1, 1993, offset by decreases in
other operating costs. Overall programming costs increased only
slightly due to a decline in premium programming costs
associated with fewer premium subscriptions.
Maryland Cable's depreciation and amortization expense increased
to approximately $15.9 million in 1993 from approximately $15.2
million in 1992. The increase is due to an increase in
depreciation expense resulting from capital expenditures.
Maryland Cable's interest expense (after excluding the effect of
the intercompany interest related to ML Cable) increased to
approximately $28.6 million in 1993 from approximately $27.9
million in 1992. The increase was a result of the accrued
interest on Maryland Cable's fully accreted subordinated debt,
partially offset by lower market interest rates on senior debt
and by the credit against interest expense resulting from the
forgiveness of the Default Interest Notes and related accrued
interest.
1992 vs. 1991
For the year ended December 31, 1992, Maryland Cable incurred a
net loss of approximately $28.5 million as compared to a net
loss of approximately $67.8 million for the same period in 1991.
This decrease in net loss is primarily due to a nonrecurring
$40.0 million write-down of goodwill in 1991, as well as lower
interest expense and higher operating profit. These items were
partially offset by higher depreciation and amortization
expense.
Maryland Cable's operating revenue increased to approximately
$41.8 million for the year ended December 31, 1992 from
approximately $40.2 million for the year ended December 31,
1991. This revenue increase was a net result of price increases
in basic services, and increases in the number of basic
subscribers, partially offset by lower premium service revenue
due to fewer premium subscribers, and lower pay-per-view revenue
attributable to fewer special events.
The number of basic subscribers increased to 78,732 at December
31, 1992 from 76,984 at December 31, 1991 due to passing
additional homes with cable plant. The average number of basic
subscribers for 1992 increased to 77,511 from 75,930 for 1991.
The average basic revenue per subscriber per month increased to
$29.56 in 1992 from $27.38 in 1991 and the average total revenue
per subscriber per month increased to $44.86 in 1992 from $44.01
in 1991, both increases due primarily to price increases in
basic services.
Premium service units decreased to 82,090 (104% premium unit to
basic subscriber ratio) at December 31, 1992 from 86,027 (112%
premium unit to basic subscriber ratio) at December 31, 1991.
The number of average premium units for 1992 decreased to 84,344
in 1992 from 90,154 in 1991. These declines are attributable to
weak national and local economic conditions, and price increases
in basic services. The average premium revenue rate for 1992
and 1991 was $9.47 and $9.49, respectively. Maryland Cable
expects to continue to experience declines in premium service
units.
Revenue from pay-per-view service decreased 18% to approximately
$1.7 million in 1992 from approximately $2.1 million in 1991.
This decrease is primarily attributable to fewer special events
available for viewership in 1992 than in 1991.
Revenue from advertising sales increased 18% to approximately
$1.1 million in 1992 from approximately $1.0 million in 1991, as
a result of in-house marketing efforts.
Cable television system expenses (which include all expenses
other than depreciation, amortization, interest, management fees
and expenses and related expenses) decreased as a percentage of
revenue to 59% in 1992 compared to 61% in 1991. The principal
factors for the decrease in cable television system expenses as
a percentage of revenues were: reduced technical costs due to
replacing contract labor with less expensive in-house labor, and
reduced system supplies and maintenance costs following an
extensive plant improvement project conducted during 1991; and
reduced marketing costs due to scaling back promotional
activities in order to conserve cash (see discussion of
liquidity). Bad debt expense declined significantly for the
second straight year as a result of implementing stricter credit
and collection policies during 1990. Pay-per-view programming
costs declined due to fewer special events occurring in 1992
than in 1991. These expense reductions were offset by increases
in certain costs which vary directly with revenue or
subscribers, such as basic programming and franchise fees.
Interest expense (after excluding the effect of the intercompany
interest related to ML Cable) decreased to approximately $27.9
million in 1992 from approximately $29.5 million in 1991, due to
non-recurring default interest charged on the senior debt in
1991, lower market rates in 1992 than in 1991, and the
expiration of an interest rate swap in December, 1991, offset
partially by greater accretion of the original issue discount on
the Discount Notes.
Depreciation and amortization expense increased to approximately
$15.2 million in 1992 from $12.2 million in 1991 as a result of:
the amortization of costs incurred in connection with the
Amended Credit Agreement which was entered into at the end of
the third quarter of 1991; a change in the estimated useful life
of deferred financing costs in the fourth quarter of 1991 from a
remaining life of 7 years to a remaining life of 2 years; and
the change in the estimated useful life of goodwill in the
fourth quarter of 1991 from a life of 40 years to a life of 20
years.
Statement of Financial Accounting Standards No. 112
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" "SFAS No.
112". This pronouncement, effective in the first quarter of
1994, establishes accounting standards for employers who provide
benefits to former or inactive employees after employment, but
before retirement. These benefits include, but are not limited
to, salary-continuation, disability related benefits including
workers' compensation, and continuation of health care and life
insurance benefits. The statement requires employers to accrue
the obligations associated with service rendered to date for
employee benefits accumulated or vested where payment is
probable and can be reasonably estimated. The effect of
adopting SFAS No. 112 will not be material on Registrant's
financial condition and results of operations.
Item 8. Financial Statements and Supplementary Data
TABLE OF CONTENTS
Page
ML Media Opportunity Partners, L.P.
Independent Auditors' Report 83-84
Consolidated Balance Sheets as of December 31,
1993 and December 31, 1992 85-86
Consolidated Statements of Operations for the
years ended December 31, 1993, December 31, 1992
and December 31, 1991 87-88
Consolidated Statements of Cash Flows for the
years ended December 31, 1993, December 31, 1992
and December 31, 1991 89-92
Consolidated Statements of Changes in Partners'
Capital (Deficit) for the years ended December
31, 1993, December 31, 1992 and December 31,
1991 93
Notes to the Consolidated Financial Statements
for the years ended December 31, 1993, December
31, 1992 and December 31, 1991 94-143
Schedule III - Condensed Financial Information
of Registrant as of December 31, 1993, December
31, 1992 and December 31, 1991 144-150
Schedule V - Property, Plant and Equipment as of
December 31, 1993, December 31, 1992 and
December 31, 1991 151
Schedule VI - Accumulated Depreciation of
Property, Plant and Equipment as of December 31,
1993, December 31, 1992 and December 31, 1991 152
Schedule VIII - Accumulated Amortization of
Intangible Assets and Deferred Charges as of
December 31, 1993, December 31,1992, and
December 31, 1991 153
Schedule X - Supplementary Income Statement
Information for the years ended December 31,
1993, December 31, 1992 and December 31, 1991 154
Schedules not listed are omitted because of the absence of
the conditions under which they are required or because the
information is included in the financial statements or the
notes thereto.
INDEPENDENT AUDITORS' REPORT
ML Media Opportunity Partners, L.P.:
We have audited the accompanying consolidated financial
statements and the related financial statement schedules of ML
Media Opportunity Partners, L.P. (the "Partnership") and its
affiliated entities, listed in the accompanying table of
contents. These financial statements and financial statement
schedules are the responsibility of the Partnership's general
partner. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by the general partner, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Partnership and its affiliated entities at December 31, 1993 and
1992 and the results of their operations and their cash flows
for each of the three years in the period ended December 31,
1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 2, subsequent to December 31, 1993,
Maryland Cable Holdings Corp. ("Holdings") and its wholly-owned
subsidiary, Maryland Cable Corp., filed a plan of reorganization
under Chapter 11 of the Federal Bankruptcy Code. Holdings, a
majority-owned entity, has total assets and operating revenues
comprising 70 percent and 70 percent, respectively, of the
Partnership's consolidated assets and operating revenues in the
accompanying 1993 consolidated financial statements. The
accompanying consolidated financial statements do not purport to
reflect or provide for the consequences of the bankruptcy
proceedings. In particular, such consolidated financial
statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to
satisfy liabilities; (b) as to prepetition liabilities, the
amounts that may be allowed for claims or contingencies, or the
status and priority thereof; (c) as to partners' capital
accounts, the effect of any changes in the capitalization of the
Partnership; or (d) as to the operations, the effect of any
changes that may be made in its business. The outcome of these
matters is not presently determinable.
The accompanying consolidated financial statements have been
prepared assuming that the Partnership will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Partnership's operations have incurred recurring
net losses which have resulted in a partners' deficit. In
addition, if the Partnership is unsuccessful in completing debt
restructurings, it will not be able to satisfy its ongoing
obligations. The ultimate outcome of the foregoing cannot
presently be determined and these circumstances raise
substantial doubt about the Partnership's ability to continue as
a going concern. Management's plans concerning these matters
are also described in Note 2. Accordingly, the consolidated
financial statements do not include adjustments that might
result from the outcome of the uncertainties referred to herein
and in the preceding paragraph.
DELOITTE & TOUCHE
New York, New York
March 22, 1994
ML MEDIA OPPORTUNITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND DECEMBER 31, 1992
Notes 1993 1992
ASSETS:
Cash and cash
equivalents 1,2 $ 4,978,035 $ 9,801,975
Accounts receivable
(net of allowance for
doubtful accounts of
$405,692 at December
31, 1993 and $275,340
at December 31, 1992) 5,173,106 2,293,837
Prepaid expenses and
deferred charges
(net of accumulated
amortization of
$11,990,712 at
December 31, 1993,
and $7,828,872 at
December 31 1992) 1 3,140,868 4,928,377
Property, plant and
equipment(net of
accumulated
depreciation of
$42,681,054 at
December 31, 1993 and
$24,821,936 at
December 31, 1992) 1,2,4 51,065,834 50,291,411
Intangible assets (net
of accumulated
amortization of
$85,360,574 at
December 31, 1993 and
$63,989,829 at
December 31, 1992) 1,2,5 121,975,677 96,768,568
Investment in joint
ventures and common
stock 1,8,10 1,261,666 727,128
Production costs and
other assets 1,2 3,555,438 4,966,646
TOTAL ASSETS 6 $ 191,150,624 $ 169,777,942
(Continued on the following page)
ML MEDIA OPPORTUNITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND DECEMBER 31, 1992
(continued)
Notes 1993 1992
LIABILITIES AND
PARTNERS' DEFICIT:
Liabilities:
Borrowings 2,6 $ 285,623,555 $ 232,112,727
Accounts payable and
accrued liabilities 16,354,374 9,723,892
Net liabilities of
discontinued
operations 15 - 185,611
Deferred revenue 1 - 4,247,495
Subscriber and other
advance payments 429,387 520,375
Total Liabilities 302,407,316 246,790,100
Commitments and
Contingencies 2,3,6,7
Minority interest 3 99,854 26,969
Partners' Deficit:
General Partners:
Capital contributions,
net of offering
expenses 1 1,019,428 1,019,428
Cumulative loss (2,112,501) (1,769,327)
(1,093,073) (749,899)
Limited Partners:
Capital contributions,
net of offering
expenses
(112,147.1 Units of
Limited Partnership 1 100,914,316 100,914,316
Interest)
Tax allowance cash
distribution (2,040,121) (2,040,121)
Cumulative loss (209,137,668) (175,163,423)
(110,263,473) (76,289,228)
Total Partners' Deficit (111,356,546) (77,039,127)
TOTAL LIABILITIES AND
PARTNERS' DEFICIT $ 191,150,624 $ 169,777,942
See Notes to Consolidated Financial Statements
ML MEDIA OPPORTUNITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
NOTE 1993 1992 1991
S
Operating Revenues 1 $ 62,453,885 $ 52,143,892 $ 42,041,854
Operating Expenses:
Property operating
expenses 29,730,657 26,515,117 17,697,058
General and
administrative 7 13,376,340 9,552,676 9,403,245
Depreciation and
amortization 1,4, 18,837,857 16,548,840 15,349,103
5
Management fees 7 3,073,417 2,986,799 2,896,993
Management expense 7 1,197,346 936,356 900,674
Loss on write-down
of Maryland Cable 2 - - 40,000,000
Loss on writedown
of assets 2 515,919 - -
66,731,536 56,539,788 86,247,073
Operating loss from
continuing
operations (4,277,651) (4,395,896) (44,205,219)
Other(Expense)
Income:
Interest expense 6 (32,469,947) (28,104,963) (29,697,998)
Interest income 209,825 517,769 1,247,852
Other expenses (170,054) (140,116) (74,053)
Gain on sale of
assets 14 3,952,407 - -
(28,477,769) (27,727,310) (28,524,199)
Loss from
continuing
operations before
equity in loss of
joint ventures and
minority interest
share of net loss
of consolidated
joint ventures (32,755,420) (32,123,206) (72,729,418)
Equity in loss of
joint ventures 1,8, (1,288,838) (4,720,934) (5,166,044)
13
ML MEDIA OPPORTUNITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
(continued)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
NOTE 1993 1992 1991
S
Minority interest
share of net loss
of consolidated
joint ventures 3 518,103 479,532 -
Loss from
continuing
operations (33,526,155) (36,364,608) (77,895,462)
Loss from
discontinued
operations 15 (791,264) (2,007,742) (1,345,563)
NET LOSS $(34,317,419) $(38,372,350) $(79,241,025)
Per Unit of Limited
Partnership
Interest:
Loss from
continuing
operations $ (295.96) $ (321.02) $ (687.64)
Loss from
discontinued
operations (6.98) (17.72) (11.88)
NET LOSS $ (302.94) $ (338.74) $ (699.52)
Number of Units 112,147.1 112,147.1 112,147.1
See Notes to Consolidated Financial Statements.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
1993 1992 1991
Cash flows from
operating activities:
Net loss $(34,317,419 $(38,372,350) $(79,241,025)
)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 18,837,857 16,548,840 15,349,103
Bad debt reserve
adjustment - - -
Accretion of original
issue discount 19,665,623 19,652,226 16,946,541
Equity in loss of joint
ventures 1,288,838 4,720,934 5,166,044
(Gain) Loss on sale of
assets (3,952,407) - 225,000
Loss on write-down of
assets 515,919 - -
Increase in minority
interest 76,667 - -
Loss on write-down of
Maryland Cable - - 40,000,000
Minority interest share
of net loss (518,103) (479,532) -
Change in operating
assets and liabilities
(net of effects of
acquisition):
ML MEDIA OPPORTUNITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
1993 1992 1991
(Increase) decrease in
accounts receivable 786,816 204,749 (691,750)
Decrease in interest
receivable - - 64,475
(Increase) decrease in
prepaid expenses and
deferred charges (999,609) 16,749 (1,509,309)
(Increase) decrease in
production costs and
other assets 2,871,751 (1,799,525) -
Increase (decrease) in
accounts payable and
accrued liabilities 398,236 (1,721,804) 6,567,835
Increase (decrease) in
subscriber and other
advance payments (86,395) 399,872 (41,584)
ML MEDIA OPPORTUNITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
(continued)
1993 1992 1991
(Decrease) increase in
deferred revenue (4,247,495 2,343,176 290,714
)
Net cash provided by (used
in)operating activities 320,279 1,513,335 3,126,044
Cash flows from investing
activities:
Purchase of property,
plant and equipment (5,266,736) (5,672,494) (5,067,978)
Proceeds from sale of
property, plant and
equipment 10,229,746 - -
Increase in intangible
assets (2,630) (144,379) (556,371)
Other - 1,211,132 -
Investment in joint - (168,750) (3,922,083)
ventures
Investment in GCC stock and
note receivable - (2,000,011) -
Proceeds from
redemption/sale of
note/rights 100,000 596,172 275,000
Net cash used in investing
activities 5,060,380 (6,178,330) (9,271,432)
ML MEDIA OPPORTUNITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
(continued)
1993 1992 1991
Cash flows from financing
activities:
Principal payments on bank
loans (10,204,599) (110,407) (7,078,721)
Capital contributions by
minority joint venture
partners - 506,500 -
Net cash (used in) provided
by financing activities (10,204,599) 396,093 (7,078,721)
Net decrease in cash and
cash equivalents (4,823,940) (4,268,902) (13,224,109)
Cash and cash equivalents
at beginning of year 9,801,975 14,070,877 27,294,986
Cash and cash equivalents
at end of year $ 4,978,035 $ 9,801,975 $ 14,070,877
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
Effective in 1992, the Partnership controls the operations of
Paradigm and consolidates its ownership interest in Paradigm.
Effective in 1993, the Partnership controls the operations of
TCS and as a result consolidated TCS's total assets and total
liabilities.
Effective July 1, 1993, the Partnership sold the business and
assets of IMPLP and Intelidata.
Effective September 30, 1993, Maryland Cable consummated the
sale of the Leesburg System.
See Notes to Consolidated Financial Statements.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992,
AND DECEMBER 31, 1991
General Limited
Partner Partners Total
Balance, December 31,
1990 $ 426,234 $ 40,148,014 $ 40,574,248
1991:
Net Loss (792,410) (78,448,615) (79,241,025)
Partners' Deficit at
December 31, 1991 $ (366,176) $ (38,300,601) $ (38,666,777)
1992:
Net Loss (383,723) (37,988,627) (38,372,350)
Partners' Deficit at
December 31, 1992 $ (749,899) $ (76,289,228) $ (77,039,127)
1993:
Net Loss (343,174) (33,974,245) (34,317,419)
Partners' Deficit at
December 31, 1993 $(1,093,073) $(110,263,473) $(111,356,546)
See Notes to Consolidated Financial Statements.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1992, AND
DECEMBER 31, 1991
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ML Media Opportunity Partners, L.P. (the "Partnership"), was
formed and the Certificate of Limited Partnership was filed
under the Delaware Revised Uniform Limited Partnership Act on
June 23, 1987. Operations commenced on March 23, 1988 with the
first closing of the sale of units of limited partnership
interest. Media Opportunity Management Partners (the "General
Partner") is a joint venture, organized as a general partnership
under New York law, between RP Opportunity Management, L.P., a
limited partnership under Delaware law, and ML Opportunity
Management Inc., a Delaware corporation and an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. The General
Partner was formed for the purpose of acting as general partner
of the Partnership. The General Partner's total capital
contribution was $1,132,800 at December 31, 1993 which
represents 1% of the total Partnership capital contributions.
Pursuant to the terms of the Amended and Restated Agreement of
Limited Partnership, the General Partner is liable for all
general obligations of the Partnership to the extent not paid by
the Partnership. The limited partners are not liable for the
obligations of the Partnership in excess of the amount of their
contributed capital.
The purpose of the Partnership is to acquire, finance, hold,
develop, improve, maintain, operate, lease, sell, exchange,
dispose of and otherwise invest in and deal with media
businesses and direct and indirect interests therein.
As of December 31, 1993, the Partnership's primary investments
consisted of:
90% ownership of Maryland Cable Holdings Corp. ("Holdings"),
which wholly-owns Maryland Cable Corp. ("Maryland Cable"),
which in turn owns cable television systems serving northern
Prince George's County, Maryland (the "Maryland Cable
Systems" or the "System");
99% ownership of ML Cable Partners, which holds a
participation in the senior bank debt of Maryland Cable (see
Note 2);
Ownership of 351,665 shares of common stock (an ownership
percentage of approximately 4.2%) of General Cellular
Corporation ("GCC"), a cellular telecommunications operator
based in California;
51% ownership of TCS Television Partners, L.P. ("TCS"),
which owns all the outstanding common stock of TCS
Television Inc. which owns all the outstanding common stock
of Avant Development Corporation and Fabri Development
Corporation which own and operate three network affiliated
television stations serving Columbus, Georgia; Terre Haute,
Indiana and St. Joseph, Missouri;
100% ownership of WMXN-FM ("WMXN-FM"), a radio station in
Norfolk, Virginia;
50% ownership of Paradigm Entertainment, L.P. ("Paradigm"),
a Beverly Hills, California company involved in the
production of television and cable programming (see Note 13
regarding the allocation of profits and losses) which owns
52% of Bob Banner Associates Development ("BBAD") based upon
capital contributions;
36.8% ownership of Media Ventures Investments, Ltd.
("Investments", formerly Media Ventures International
Limited, "Media Ventures"), a United Kingdom corporation
formed to develop or acquire European media and
entertainment companies; and a 13.8% ownership of European
Media Partners, Ltd. ("EMP, Ltd.");
100% ownership of the Windsor Systems (the "Windsor Systems"
or "Windsor"), cable television systems serving Williamston,
North Carolina and surrounding areas.
Basis of Accounting and Fiscal Year
The Partnership's records are maintained on the accrual basis of
accounting for financial reporting and tax purposes. The
Partnership consolidates its interests in Holdings, WMXN-FM, the
Windsor Systems, TCS and Paradigm/BBAD. Investments, EMP, Ltd.,
and GCC are accounted for on the cost method of accounting. The
Partnership carried its 41% interest in TCS under the equity
method through March 26, 1993 at which date its ownership
interest increased to 51%. The Partnership carried its interest
in Investments under the equity method of accounting in 1992 and
prior years. The Partnership carried its interest in Paradigm
under the equity method of accounting in 1991. The fiscal year
of the Partnership shall be the calendar year.
See Note 15 regarding the discontinued operations of IMPLP/IMPI
and Intelidata.
Certain 1991 and 1992 items have been reclassified to conform to
1993 presentation for discontinued operations.
Barter Transactions
As is customary in the broadcasting industry, the Partnership
engages in the bartering of commercial air time for various
goods and services. Barter transactions are recorded based on
the fair market value of the products and/or services received.
The goods and services are capitalized or expensed as
appropriate when received or utilized. Revenues are recognized
when the commercial spots are aired.
Broadcast Program Rights
The Partnership's television stations' broadcast program rights,
included in other assets, represent license agreements for the
right to broadcast programs which are available at the balance
sheet date. Amortization is recorded on a straight-line basis
over the period of the license agreements or upon run usage.
Revenue Recognition
Operating revenue, as it relates to the cable television
systems, includes earned subscriber service revenues, and
charges for installations and connections. Subscriber services
paid in advance are recorded as income as earned.
Revenues from distribution and television licensing agreements
are recognized when films are available for telecasting in
accordance within the provisions of Statement of Financial
Accounting Standard No. 53.
Production Costs
Film costs are capitalized as incurred. Costs of released
productions and residuals are amortized in the proportion that
revenue bears to the estimated ultimate revenue for each film.
Property and Depreciation
Property, plant and equipment is stated at cost, less
accumulated depreciation. Property, plant and equipment is
depreciated using the straight-line method over the following
estimated useful lives:
Buildings 30 years
Cable television transmission and
distribution systems and related equipment 5-12 years
Other 5-7 years
Initial subscriber connection costs, as related to the cable
television systems, are capitalized and included as part of the
distribution systems. Costs related to disconnects and
reconnects are expensed as incurred. Expenditures for
maintenance and repairs are charged to operating expense as
incurred, and improvements, replacement equipment and additions
are capitalized and depreciated over the remaining life of the
assets.
Intangible Assets and Deferred Charges
Intangible assets and deferred charges are being amortized on a
straight-line basis over various periods as follows:
Goodwill approximately 20-40 years
Franchise life of the franchise
Other Intangibles various
Deferred Charges 3-10 years
The Partnership periodically evaluates the recoverability of
goodwill using consistent objective methodologies. Such
methodologies may include recoverability from cash flows,
recoverability from operating income, recoverability from net
income or fair value determination.
Change in Estimated Useful Life
Concurrent with the write-down in 1991 of intangible assets
(goodwill) for Maryland Cable, the estimated useful life of
goodwill was changed in the fourth quarter of 1991 from a life
of 40 years to a life of 20 years. The effect of this change in
accounting estimate was to increase the 1991 amortization
expense and net loss by $592,000 ($5.23 per unit of limited
partnership interest).
Income Taxes
No provision for income taxes has been made for the Partnership
because all income and losses are allocated to the partners for
inclusion in their respective tax returns. However, the
Partnership owns corporations which are consolidated in the
accompanying financial statements which are taxable entities.
Effective January 1, 1993, the corporations owned by the
Partnership adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). For
the corporations owned by the Partnership which are consolidated
in the accompanying financial statements, SFAS No. 109 requires
the recognition of deferred income taxes for the tax
consequences of differences between the bases of assets and
liabilities for income tax and financial statement reporting,
based on enacted tax laws. Valuation allowances are
established, when necessary, to reduce deferred tax assets to
the amount expected to be realized. For the Partnership, SFAS
No. 109 requires the disclosure of the difference between the
tax bases and the reported amounts of the Partnership's assets
and liabilities (see Note 12).
Interest Rate Exchange Agreement
The differential to be paid or received on the interest rate
exchange agreement is accrued and recognized over the life of
the agreement.
The Partnership was exposed to credit loss in the event of non-
performance by the other parties to interest rate exchange
agreements in connection with Maryland Cable's Amended Credit
Agreement during 1992 and 1993; however, this interest rate
exchange agreement expired in December 1993.
Statement of Cash Flows
Short-term investments which have an original maturity of ninety
days or less are considered cash equivalents. Interest paid in
1993, 1992 and 1991 was $10,708,585, $10,192,232 and $9,571,120,
respectively.
Statement of Financial Accounting Standards No. 112
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" ("SFAS No.
112"). This pronouncement, effective in the first quarter 1994,
establishes accounting standards for employers who provide
benefits to former or inactive employees after employment, but
before retirement. These benefits include, but are not limited
to, salary-continuation, disability related benefits including
workers' compensation, and continuation of health care and life
insurance benefits. The statement requires employers to accrue
the obligations associated with service rendered to date for
employee benefits accumulated or vested where payment is
probable and can be reasonably estimated. The effect of adopting
SFAS No. 112 will not be material on the Partnership's financial
positions and results of operations.
2. Liquidity
At December 31, 1993, the Partnership had approximately
$4,978,035 in cash and cash equivalents, of which $1,456,352 was
limited for use at the operating level and $3,521,683 was the
Partnership's working capital.
At December 31, 1992, the Partnership had approximately
$9,801,975 in cash and cash equivalents, of which $3,132,465 was
limited for use at the operating level and $6,669,510 was the
Partnership's working capital.
Maryland Cable
Proposed Restructuring
Maryland Cable is currently in default under its bank credit
agreement by virtue of its failure to pay the principal amount
of its senior bank debt ($85 million prior to excluding the
effect of the participation of ML Cable) on maturity on December
31, 1993. As a result of this default of the senior bank debt,
there is also a default under the Discount Notes.
On December 31, 1993, the Partnership, Maryland Cable, Holdings
and ML Cable Partners entered into an agreement (the "Exchange
Agreement") with Water Street Corporate Recovery Fund I, L.P.
(the "Water Street Fund") providing for the restructuring of
Maryland Cable. The Water Street Fund holds approximately 85%
of the outstanding principal amount of the 15-3/8% Senior
Subordinated Discount Notes due 1998 (the "Discount Notes") of
Maryland Cable, which, as described below, are currently in
default. Also, as of December 31, 1993, another holder of the
Discount Notes (representing 7% of the outstanding principal
amount) joined in the Exchange Agreement.
Pursuant to the Exchange Agreement, the Water Street Fund and
the other holders of the Discount Notes would exchange their
Discount Notes and their Class B Common Stock of Holdings (see
Note 3) for all of the partnership interests of a newly formed
limited partnership ("NEWCO") that would acquire all of the
assets of Maryland Cable, subject to the liabilities of Maryland
Cable. The Partnership would receive an aggregate of $2,670,000
in satisfaction of the $3,600,000 in Subordinated Promissory
Notes held by the Partnership, plus accrued interest of
approximately $2.7 million, and the $5,379,833 in deferred
management fees payable to the Partnership, and $100 for its
Common Stock of Holdings. ML Cable Partners, which is 99% owned
by the Partnership, would receive payment in full of the
$6,830,000 participation that it holds in the senior bank debt
of Maryland Cable (see Note 6). In addition, the Partnership
would be paid at closing a management fee for managing the
Maryland Cable Systems from January 1, 1994 to the date on which
all the terms of the Exchange Agreement are satisfied, based on
the gross revenues of the Systems during that period. If, prior
to the satisfaction of all of the terms of the Exchange
Agreement, holders of the Discount Notes transfer a majority of
the outstanding principal amount of the Discount Notes, the
Partnership would receive an additional payment equal to 5% of
the amount by which the Value (as defined) of the Systems
exceeds $180,000,000. The Exchange Agreement also provides for
a payment of $500,000 to MultiVision (see Note 7)in settlement
of severance and other costs relating to the termination of
MultiVision as manager.
The Exchange Agreement is subject to numerous conditions,
including approval by the holders of at least 99% of the
aggregate principal amount of the Discount Notes, the consent of
the franchising authorities and the Federal Communications
Commission and to the transfer of the Systems to NEWCO, NEWCO
borrowing $100,000,000 to be used to repay Maryland Cable's
senior bank debt, and the agreement from the holders of the
senior bank debt to accept payment of the principal amount of
the senior bank debt and accrued interest thereon, and no
additional fees, interest or other payments for agreeing to
extend the maturity of the senior bank debt beyond December 31,
1993.
As of March 10, 1994, the requisite approvals from the holders
of the Discount Notes and the senior bank debt had not been
received. As a result, as provided in the Exchange Agreement,
on March 10, 1994, Maryland Cable and Holdings filed a
consolidated plan of reorganization of Maryland Cable and
Holdings (the "Prepackaged Plan") under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court-Southern
District of New York. This filing included a "Prepackaged
Plan", to which the requisite majority of all impaired creditors
other than the holders of the senior debt had consented. Under
the Prepackaged Plan, the Partnership would receive materially
the same aggregate consideration as it would receive under the
terms of the Exchange Agreement.
The Prepackaged Plan filed differs from the Exchange Agreement
most significantly in the treatment of the secured bank debt of
Maryland Cable. Under the Prepackaged Plan, each holder of
Maryland Cable's bank debt would receive deferred cash payments
pursuant to newly issued promissory notes in a principal amount
equal to their proportionate share of the total bank debt,
bearing interest at the same rate as provided for in the
original Amended Credit Agreement with a maturity date of
December 31, 1998 (the original maturity date under the Amended
Credit Agreement). Maryland Cable and the agent for the holders
of Maryland Cable's bank debt are currently negotiating revised
terms for these newly issued promissory notes, however, there is
no assurance that Maryland Cable and the agent will reach
agreement on these terms. The Exchange Agreement provided for a
forbearance by the holders of the bank debt under the Amended
Credit Agreement and the refinancing or repayment of all
outstanding bank debt obligations upon closing.
There is no assurance that the Prepackaged Plan as filed will be
approved or that the proposed restructuring described in the
Prepackaged Plan will be consummated.
On January 18, 1994, as a result of the defaults under the
senior bank debt, the holders of the senior bank debt exercised
their rights under events of default to collect Maryland Cable's
lockbox receipts and apply such receipts towards the repayment
of the outstanding senior bank debt, related accrued interest,
and fees and expenses. As of March 9, 1994, one day prior to
the filing of the Prepackaged Plan, the holders of the senior
bank debt applied approximately $4,800,000 in lockbox receipts
towards the repayment of the outstanding senior bank debt,
related accrued interest, and fees and expenses.
The Partnership is currently unable to determine the impact of
the February 22, 1994 FCC action and previous FCC actions on the
Prepackaged Plan (see below).
Impact of Cable Legislation
The future liquidity of the Partnership's cable operations,
Maryland Cable and Windsor, is likely to be negatively affected
by recent and ongoing changes in legislation governing the cable
industry. The potential impact of such legislation on the
Partnership is described below.
On October 5, 1992, Congress overrode the President's veto of
the Cable Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") which imposes significant new regulations on
the cable television industry. The 1992 Cable Act required the
development of detailed regulations and other guidelines by the
FCC, most of which have now been adopted but remain subject to
petitions for reconsideration before the FCC and/or court
appeals.
On May 3, 1993, the FCC released a Report and Order relating to
the regulation of rates for certain cable television programming
services and equipment. These rules establish certain benchmarks
which will enable local franchise authorities to require rates
for "basic service" (minimally, local broadcast and access
channels) and the FCC (upon receipt of individual complaints) to
require rates for certain satellite program services (excluding
premium channels) to fall approximately 10% from September 30,
1992 levels, unless the cable operator is already charging rates
that are at a so-called "competitive" benchmark level or it can
justify a higher rate based on a cost-of-service showing. Rates
of all regulated cable systems will then be subject to a price
cap that will govern the extent to which rates can be raised in
the future without a cost-of-service showing. Several other key
matters are still pending before the FCC that will ultimately
shape and complete this new regulatory framework for cable
industry rates. For example, in a complicated multi-faceted
document released on August 27, 1993, the FCC simultaneously:
(1) issued a First Order on Reconsideration of the foregoing May
3 rate order (confirming or clarifying certain benchmark rate
methodology issues); (2) adopted a Second Report and Order
(deciding to continue to include systems with less than 30%
penetration in the universe of systems whose rates were used to
establish benchmarks, a decision that, if unchanged, avoids a
potentially downward adjustment of the previously announced
benchmark rates); and (3) issued a Third Notice of Proposed
Rulemaking (addressing such "going forward" issues as how cable
rates should be modified when channels are added or deleted, how
costs incurred for rebuilds should be treated, and whether cable
operators should be required to use the same methodology to
determine rates for both basic and expanded basic tiers). In
addition, a separate yet related rulemaking proceeding was
initiated by the FCC on July 16, 1993 to establish the proposed
standards and certain other ground rules for cost-of-service
showings by cable operators seeking to justify cable rates in
excess of the FCC prescribed benchmark/price cap levels. While
continuing to express a strong preference for its benchmark
approach, the FCC's "Notice of Proposed Rulemaking" in this
proceeding outlines an alternative regulatory scheme that would
combine certain elements of traditional ratebase/rate of return
regulation with a more streamlined approach uniquely tailored to
the cable industry. Comments in response to both the Third
Notice of Proposed Rulemaking and the separate cost-of-service
rulemaking were received by the FCC on or before October 7,
1993. In the meantime, the FCC's overall cable service rate
regulation rules took effect on September 1, 1993, and the
industry-wide freeze on rates for regulated cable service
remains in effect until May 15, 1994. Furthermore, by Order
released September 17, 1993, the FCC initiated an industry-wide
survey of cable rate changes and service restructuring as of the
starting date of its rate freeze (April 5, 1993) and the
effective date of rate regulation (September 1, 1993) in order
to gauge the early effectiveness of its cable rate regulations.
The results of this survey, which could further impact rate
regulation actions by the FCC, were announced on February 22,
1994 (see below).
In addition to the rate reregulation described above, among
other things, the 1992 Cable Act provides that certain qualified
local television stations may require carriage by cable
operators, or elect to negotiate for payment of fees or other
forms of compensation by the cable operator to the stations in
exchange for allowing retransmission of their signals. The
deadline for making such elections was June 17, 1993.
Negotiations between cable operators and those television
stations which elected to pursue retransmission agreements were
carried out between the foregoing election date and October 6,
1993, the deadline under the 1992 Cable Act for obtaining
retransmission consent. If some type of agreement (either final
or interim pending further negotiations) was not reached by
October 6, 1993, cable operators could have been forced to
discontinue carriage of those television stations which elected
to pursue retransmission consent (see below).
On February 22, 1994, the FCC adopted a series of additional
measures that expand and substantially alter its cable rate
regulations. Based on FCC news releases dated February 22, the
FCC's major actions include the following: (1) a modification
of its benchmark methodology in a way which will effectively
require cable rates to be reduced, on average, an additional 7%
(i.e., beyond the 10% reduction previously ordered in 1993) from
their September 30, 1992 level, or to the new benchmark,
whichever is less; (2) the issuance of new standards and
requirements to be used in making cost-of-service showings by
cable operators who seek to justify rates above the levels
determined by the benchmark approach; and (3) the clarification
and/or reaffirmation of a number of "going forward" issues that
had been the subject of various petitions for reconsideration of
its May 3, 1993 Rate Order. Several weeks earlier, and partly
in anticipation of these actions, the FCC extended its industry-
wide freeze on rates for regulated cable services until May 15,
1994. It is expected that the new benchmark standards and cost-
of-service rules will become effective prior to the current
termination date of the rate freeze.
In its May 1993 Rate Order the FCC exempted from rate regulation
the price of packages of "a-la-carte" channels if certain
conditions were met. Upon reconsideration, however, the FCC on
February 22, 1994 effectively tightened its regulatory treatment
of a-la-carte packages by establishing more elaborate criteria
designed to ensure that such practices are not employed so as to
unduly evade rate regulation. Now, when assessing the
appropriate regulatory treatment of a-la-carte packages, the FCC
will consider, inter alia, the following factors as possibly
suggesting that such packages do not qualify for non-regulated
treatment: whether the introduction of the package avoids a
rate reduction that otherwise would have been required under the
FCC's rules; whether an entire regulated tier has been
eliminated and turned into an a-la-carte package; whether a
significant number or percentage of the a-la-carte channels were
removed from a regulated service tier; whether the package price
is deeply discounted when compared to the price of an individual
channel; and whether the subscriber must pay significant
equipment or other charges to purchase an individual channel in
the package. In addition, the FCC will consider factors that
will reflect in favor of non-regulated treatment such as whether
the channels in the package have traditionally been offered on
an a-la-carte basis or whether the subscriber is able to select
the channels that comprise the a-la-carte package. A-la-carte
packages which are found to evade rate regulation rather than
enhance subscriber choice will be treated as regulated tiers,
and operators engaging in such practices may be subject to
forfeitures or other sanctions by the FCC.
In a separate action on February 22, 1994, the FCC adopted
interim rules to govern cost of service proceedings initiated by
cable operators. Operators who elect to pursue cost of service
proceedings will have their rates based on their allowable
costs, in a proceeding based on principles similar to those that
govern cost-based rate regulation of telephone companies. Under
this methodology, cable operators may recover, through the rates
they charge for regulated cable service, their normal operating
expenses and a reasonable return on investment. The FCC has,
for these purposes, established an interim industry-wide rate of
return of 11.25%. It has also determined that acquisition costs
above book value are presumptively excluded from the rate base.
At the same time, certain intangible, above-book costs, such as
start-up losses (limited to losses actually incurred during a
two-year start-up period) and the costs of obtaining franchise
rights and some start-up organizational costs such as customer
lists, may be allowed. There are no threshold requirements
limiting the cable systems eligible for a cost of service
showing, except that, once rates have been set pursuant to a
cost of service approach, cable operators may not file a new
cost of service showing to justify new rates for a period of two
years. Finally, the FCC notes that it will, in certain
individual cases, consider a special hardship showing (or the
need for special rate relief) where an operator demonstrates
that the rates set by a cost of service proceeding would
constitute confiscation of investment and that some higher rate
would not represent exploitation of customers. In considering
whether to grant such a request, the FCC emphasizes that, among
other things, it would examine the overall financial condition
of the operator and whether there is a realistic threat of
termination of service.
The Partnership is currently unable to assess the full impact of
the 1992 Cable Act upon its business prospects or future
financial results. However, the rate reductions mandated by the
FCC in May of 1993, have had, and will most likely continue to
have a detrimental impact on the revenues and profits of the
Partnership's cable television operations. Although the impact
of the 1992 Cable Act cannot yet be ascertained precisely, once
fully implemented, certain aspects of the new law may have a
material negative impact on the financial condition, liquidity,
and value of the Partnership.
As an example of the effects of the 1992 Cable Act, in complying
with the benchmark regulatory scheme without considering the
effect of any future potential cost-of-service showing, the
Partnership's cable properties, on a franchise by franchise
basis, were required to reduce present combined basic service
rates (broadcast tier and satellite service tier) effective
September 1, 1993. In addition, pursuant to the 1992 Cable Act,
revenue from secondary outlets and from remote control units was
eliminated or reduced significantly. The Partnership took
certain actions to seek to defray some of the resulting revenue
declines, which among others included instituting charges for
converters, as permitted by the 1992 Cable Act, offering
programming services on an a-la-carte basis, which services are
not subject to rate regulation, and aggressively marketing
unregulated premium services to those subscribers benefiting
from decreased basic rates. Despite the institution of these
actions by the Partnership's cable systems, the rate regulation
required by the 1992 Cable Act had a detrimental impact on the
revenues and profits of the Partnership's cable systems. In
addition, the Partnership is currently unable to determine
whether its a-la-carte restructuring is in accordance with the
terms of the February 22, 1994 FCC action. The further rate
reduction mandated by the February 22, 1994 FCC action and any
limits imposed by such action on a-la-carte pricing are likely
to have a further detrimental impact on those revenues and
profits.
By the October 6 deadline (noted above), the Partnership's
Maryland Cable Systems and Windsor Systems had reached agreement
with all broadcast stations within their service areas electing
retransmission consent. In some cases, these agreements
obligate the Maryland Cable Systems and the Windsor Systems to
carry additional programming services affiliated with the
broadcast stations. The costs of these additional program
services will not be material to the operations of the Maryland
Cable Systems or the Windsor Systems.
WMXN-FM
During 1993, WMXN-FM generated sufficient revenues to cover its
operating costs (before management fees).
The Partnership entered into an Option Agreement, effective
January 25, 1994, with U.S. Radio, Inc. ("U.S. Inc."), a
Delaware corporation, and an affiliated entity, U.S. Radio, L.P.
("U.S. Radio"), a Delaware limited partnership, neither of which
is affiliated with the Partnership. Pursuant to the Option
Agreement, the Partnership granted U.S. Inc. an option (the
"Call") to purchase substantially all of the assets of WMXN-FM
(the "Assets") for a cash price of $3.5 million at any time
prior to January 15, 1995. Also pursuant to the Option
Agreement, U.S. Inc. granted the Partnership the option (the
"Put") to sell the Assets to U.S. Inc. for a cash price of $3.5
million at any time (a) within 30 days after the expiration of
the Call or (b) within 30 days of the termination by the
Partnership of the LMA (see below) as a result of a material
breach of the LMA by U.S. Radio. If the Call or Put is
exercised, the Partnership and U.S. Inc. will immediately revise
as necessary and execute an Asset Purchase Agreement which is an
exhibit to the Option Agreement. If the Call or Put is timely
exercised but U.S. Inc. fails to execute the Asset Purchase
Agreement, then, subject to certain conditions, the Partnership
may elect to cause U.S. Radio to sell its radio stations WOWI-
FM, in Norfolk, Virginia, and WSVY-AM in Portsmouth, Virginia,
together with WMXN-FM (collectively, the "Stations"), with the
first $3.5 million of proceeds, less transaction costs, from
such sale to be retained by the Partnership. The acquisition of
WMXN-FM by U.S. Inc., and/or the sale of the Stations, is
subject to the prior approval of the FCC. There can be no
assurance that the sale of WMXN-FM or the sale of the Stations
will be consummated.
Effective January 31, 1994, the Partnership entered into a Time
Brokerage Agreement (the "LMA") with U.S. Radio. The LMA calls
for the Partnership to make broadcasting time available on WMXN-
FM to U.S. Radio and for U.S. Radio to provide radio programs to
be broadcast on WMXN-FM, subject to certain terms and
conditions, including the rules and regulations of the FCC. In
exchange for providing broadcasting time to U.S. Radio, the
Partnership will receive a monthly fee approximately equal to
its cost of operating WMXN-FM. The LMA will continue until the
earlier of: (i) March 1, 1995 (if neither the Call nor Put has
been exercised); (ii) the consummation of the acquisition of
WMXN-FM by U.S. Inc. pursuant to the Option Agreement; or (iii)
the consummation of a joint sale of the Stations.
The Partnership may choose to advance additional funds to WMXN-
FM if any are required; however, the Partnership has no
obligation to advance any additional funds to WMXN-FM and WMXN-
FM has no borrowed funds.
TCS
As of December 31, 1993, TCS was in default of covenants under
the note agreements (see Note 6) and failed to make a scheduled
principal payment of $500,000 due February 28, 1994. In
addition, TCS expects to default on the majority of its
scheduled principal payments for the remainder of 1994 as well
as in 1995. TCS is engaged in negotiations with its note
holders, although the outcome of these negotiations cannot be
predicted at this time. While TCS remains in default, the note
holders have the option to exercise their rights under the
notes, which rights include the right to foreclose on the assets
of TCS, but not the other assets of the Partnership.
During the final quarter of 1992, TCS concluded that there had
been an impairment of the value of the enterprise and, as a
result, wrote-down its intangible assets (goodwill) by a total
of $6 million, which resulted in the Partnership's $2,460,000
share of this write-down.
See Note 13 for further discussion related to TCS.
Paradigm/BBAD
Paradigm and/or BBAD are not currently producing a sufficient
number of television programs to cover overhead costs
indefinitely, although the Partnership has not advanced any
funds to Paradigm and/or BBAD since the second quarter of 1992.
Paradigm and/or BBAD have taken several steps to reduce
operating costs, primarily by reducing the number and
compensation of employees. However, Paradigm and/or BBAD did
not operate profitably during 1993, and are currently dependent
on outside sources, primarily Associates, to finance Paradigm's
and/or BBAD's monthly operating costs. The Partnership has
elected not to fund such operating costs. The Partnership has
no obligation to advance any additional funds to Paradigm and/or
BBAD and actively sought a strategic partner that would share in
meeting Paradigm's and/or BBAD's potential future funding needs,
but was unable to identify such a partner. Paradigm and/or BBAD
have no liability for borrowed funds. Registrant is negotiating
with Associates the terms of an agreement under which Paradigm
would retain the three television movies and the series
developed by it, and the other projects and program concepts
developed by Paradigm and/or BBAD would be assigned to
Associates, and Paradigm would retain a percentage interest in
all such projects and concepts. In any event, the Partnership
will most likely recover only a nominal portion, if any, of its
original investment in Paradigm and/or BBAD. Due in part to the
Partnership's unwillingness to advance additional funds to fund
the continuing operating losses and possible winding down of
Paradigm's and BBAD's operating activities, the Partnership
recorded in the second quarter of 1993 a writedown of
approximately $516,000 of certain assets of Paradigm and BBAD to
reduce the Partnership's net investment to a net realizable
value of zero. (see Note 13 for further discussion).
Windsor
The Partnership must make equal monthly payments of principal
and interest on the ten-year Windsor Note (see Note 6) issued in
connection with the acquisition of Windsor. The outstanding
principal balance of the Windsor Note as of December 31, 1993
was $1,981,654. In July, 1992, the Partnership began making
monthly payments on the Windsor Note which were sufficient to
pay all interest due; however, those payments were not
sufficient to pay all of its scheduled monthly installments of
principal; the Partnership is therefore in default of the
Windsor Note. On June 23, 1992, the holder of the Windsor Note
gave the Partnership notice of default, and informed the
Partnership that it has the ability to accelerate the maturity
of the indebtedness and foreclose on the assets of Windsor (but
not the other assets of the Partnership). During 1993,
Windsor's operations did not generate sufficient cash to service
fully its scheduled installments on the Windsor Note. The
Partnership does not anticipate advancing any funds to Windsor.
On November 16, 1993, the Partnership entered into an Asset
Purchase Agreement with Tar River Communications, Inc. ("Tar
River") to sell the assets of the Windsor Systems to Tar River
for a base purchase price of $3,240,000, subject to adjustment
based on the number of subscribers to the Windsor Systems on the
Closing Date and the accounts receivable and accounts payable of
the systems on the Closing Date. The sale is subject to various
conditions, including consent from the franchising authorities
and extensions of the franchises for the Windsor Systems until
10 years after the Closing Date. The closing is currently
expected to occur in mid-1994.
The Partnership is currently unable to determine the impact of
the February 22, 1994 FCC action and previous FCC actions on the
sale of the Windsor systems or the potential timing of such a
sale. However, as discussed above, the FCC actions have had,
and will have, a detrimental impact on the revenues and profits
of the Windsor systems.
Investments and EMP, Ltd.
As of December 31, 1993, Registrant had advanced approximately
$2 million to Investments.
During 1993, EMP, Ltd. and its affiliates continued to
distribute television programs. On July 30, 1993, EMP, Ltd.
sold its Neomedion shares back to Charles Dawson, while Charles
Dawson sold his shares in EMP, Ltd. back to Clarendon. The
stock of Neomedion is now controlled 75% by Charles Dawson and
25% by Investments. In addition, after the exchange of shares,
EMP, Ltd. was owned 13.8% by the Partnership, 45.6% by
Clarendon, and 40.6% by ALP Enterprises.
Investments, EMP, Ltd. and their affiliates are, currently,
reliant on their cash balances and/or additional funding from
ALP Enterprises or other, as yet unidentified, financing sources
to fund their continuing operations. Furthermore, the
Partnership expects to advance no further funds to Investments,
EMP, Ltd., or their affiliates beyond those funds already
advanced. If Investments, EMP, Ltd. and their affiliates are
unable to support their operations from current cash balances
and/or additional funding from ALP Enterprises or other, as yet
unidentified, financing sources, Investments and EMP, Ltd. might
be forced to cease their operations. In any event, it is
unlikely the Registrant will recover its $2 million investment
in Investments. Investments, EMP and EMP, Ltd. have no liability
for borrowed funds (see Note 13 for further discussion).
Summary
In summary of the Partnership's liquidity status, of the
approximately $3.5 million that the Partnership has available
for working capital, a portion may be utilized to support
anticipated funding needs, or possible restructurings, as
appropriate, of Maryland Cable, TCS and its other investments.
The Partnership has no contractual commitment to advance funds
to any of these investments except for the commitments described
below.
The Partnership, in the appropriate circumstances, will consider
utilizing its working capital to fund cash shortfalls or to
restructure the debt of certain of its investments. The
Partnership is also pursuing the sale of certain investments.
Any additional use of the Partnership's working capital to
support its existing investments is at the discretion of the
Partnership except for commitments made by the Partnership for
certain obligations of Maryland Cable (to the extent that
Maryland Cable does not discharge those obligations). Although
the Partnership has sufficient funds to meet these commitments,
it does not have sufficient cash to meet all of the contractual
obligations of Maryland Cable, nor does it have sufficient cash
to fund indefinitely the cash shortfalls of certain of its other
investments. In addition, the recent regulatory changes
affecting the cable television industry will likely have a
material negative impact on the Partnership's liquidity status.
3. MINORITY INTEREST
Maryland Cable
The Partnership owns all of the capital stock of Holdings
exclusive of the Class B Common Stock (see Notes 2 and 6). The
minority interest represents public ownership of the 2,000,000
outstanding shares of Class B Common Stock of Holdings.
Unless prohibited by certain defined events in the Amended
Credit Agreement (see Note 6) and the indenture for the Discount
Notes, Holdings will be required, within 90 days after November
15, 1994, to offer to repurchase for cash all Class B Common
Stock and underlying Common Stock then outstanding in either (i)
a single repurchase transaction or (ii) three annual repurchase
transactions, in the first two of which it will offer to
purchase one-third of the Class B Common Stock and underlying
Common Stock outstanding on November 15, 1994, and in the third
of which it will offer to purchase all Class B Common Stock and
underlying Common Stock then outstanding. The purchase price in
each repurchase transaction will be based on the then
independently appraised value of the Common Stock.
See Note 2 regarding possible effects of the proposed
restructuring of Maryland Cable on the Class B Common Stock.
The minority interest on the balance sheets of the Partnership
as of December 31, 1993 and December 31, 1992 is zero for
Maryland Cable due to the recognition of losses of minority
ownership interests reflected in the prior years.
Paradigm/BBAD
The Partnership's consolidated financial statements include 100%
of the assets, liabilities and results of operations of Paradigm
and its affiliate, BBAD. The Partnership owns a 50% ownership
interest in Paradigm and owns approximately 52% in BBAD through
Paradigm based upon capital contributions. The remaining
approximate 48% in BBAD is owned by Bob Banner Associates, an
entity which is not otherwise affiliated with the Partnership
except as a 25% limited partner in Paradigm. The Partnership's
net loss was decreased by approximately $518,000 and $429,000
for the years ended December 31, 1993 and December 31, 1992 as a
result of the minority interest in BBAD.
TCS
As discussed further in Note 13, on March 26, 1993, the
Partnership's total ownership interest in TCS increased to 51%
and thus the Partnership has included TCS in the consolidated
financial statements as of December 31, 1993.
No minority interest has been recorded for the period or as of
December 31, 1993 due to cumulative losses which have been
incurred and the lack of an obligation on the part of the
minority shareholder to fund such losses.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
December 31, December 31,
1993 1992
Land $ 3,109,182 $ 1,966,500
Buildings 8,648,074 2,237,387
Cable distribution systems
and equipment 78,594,897 68,175,710
Other 3,394,735 2,733,750
93,746,888 75,113,347
Less accumulated
depreciation (42,681,054) (24,821,936)
Property, plant and
equipment, net $51,065,834 $50,291,411
Certain 1993 items include the effects of the consolidation of
TCS as of March 26, 1993.
5. INTANGIBLE ASSETS
Intangible assets consisted of the following:
December 31, December 31,
1993 1992
Goodwill $190,736,257 $153,701,951
Franchise Rights 13,251,181 6,445,241
Other 3,348,813 611,205
207,336,251 160,758,397
Less accumulated
amortization (85,360,574) (63,989,829)
Intangible assets, net $121,975,677 $ 96,768,568
Certain 1993 items include the effects of the consolidation of
TCS as of March 26, 1993.
6. BORROWINGS
At December 31, 1993 and December 31, 1992 the aggregate amount
of borrowings reflected on the balance sheets of the Partnership
is detailed as follows:
December 31, December 31,
1993 1992
A) Amended Credit
Agreement/Maryland Cable
Loan Agreement $ 78,236,097 $ 87,265,408
B) Senior Subordinated Discount
Notes 162,406,000 142,740,377
C) Windsor Note 1,981,654 2,106,942
D) Senior Secured Note-TCS 31,323,000 - (1)
E) Senior Subordinated Secured
Note-TCS 11,326,804 - (1)
F) Senior Secured Fee Note-TCS
350,000 - (1)
Total $285,623,555 $232,112,727
(1) The Partnership accounted for its interest in TCS under the
equity method of accounting in 1992.
A) See Note 2 regarding principal payment defaults under, and
the restructuring of, Maryland Cable's debt.
In connection with the financing of the acquisition of its
cable operation, Maryland Cable entered into a credit
agreement on November 4, 1988 with a group of financial
institutions led by Citibank, N.A. ("the Maryland Cable
Loan Agreement"). As a result of Maryland Cable's
inability to make scheduled payments under this agreement,
on September 6, 1991 Maryland Cable entered into an Amended
and Restated Credit Agreement (the "Amended Credit
Agreement") relating to its outstanding senior indebtedness
of $92,500,000. Under the Amended Credit Agreement,
Maryland Cable's senior lenders waived all defaults under
the original Maryland Cable Loan Agreement, changed the
maturity date of the loan from September 30, 1998 to
December 31, 1993, limited mandatory principal payments due
prior to maturity to quarterly installments of $250,000
commencing March 31, 1993, required interest to be paid
quarterly until June 1992 and monthly thereafter, and
revised certain financial and operating covenants. The
loans under the Amended Credit Agreements are secured by
liens on essentially all of Maryland Cable's assets and are
guaranteed by Holdings, whose guarantee is secured by a
pledge of all of Maryland Cable's stock. During 1993
Maryland Cable paid interest at rates equal to 1.25% over
Citibank's base rate or 2.25% over LIBOR with respect to
$77,500,000, and 3% over Citibank's base rate or 4% over
LIBOR with respect to $15,000,000 of its outstanding senior
indebtedness subject to its obligations under the interest
rate exchange agreement described below.
The Amended Credit Agreement also provided for the
conversion to a note (the "Default Interest Note") of
$1,595,408 in default interest that had been incurred as of
September 6, 1991. Interest accrued on the Default
Interest Note at the rate of 1.25% over Citibank's base
rate until September 30, 1993, when the obligation was
discharged upon the sale of the Leesburg Systems (see Note
14). The amount of debt forgiven and related accrued
interest was amortized as a reduction of interest expense
over the remaining life of the Amended Credit Agreement
(through December 31, 1993). The obligation had been
scheduled to become due on December 31, 1993.
The Amended Credit Agreement generally restricts Maryland
Cable's abilities regarding investments, dispositions,
additional indebtedness, mergers, consolidations, cash
distributions and capital expenditures. Borrowings under
the Amended Credit Agreement are collateralized by
substantially all of the assets of Maryland Cable.
In connection with the Amended Credit Agreement, Holdings
issued Warrants to its senior lenders that are exercisable
at any time prior to December 31, 1998 for up to 10% of
Holdings' common stock (on a fully-diluted basis) and have
antidilution protection. The Warrants are exercisable
prior to a restructuring for nominal consideration and
after a restructuring for an amount determined pursuant to
an agreed formula.
The Warrants and the common stock issuable upon exercise of
the Warrants may be put to Holdings any time after December
31, 1993 or upon certain major corporate events (such as a
change of control, a disposition of a substantial amount of
Maryland Cable's assets or a repayment of all obligations
under the Amended Credit Agreement) and may be called by
Holdings upon or after a repayment of all obligations under
the Amended Credit Agreement. The price payable upon
exercise of a put or a call will be equal to the fair
market value of the common stock issued or issuable upon
exercise of the Warrants, except that prior to December 31,
1993 the price was to be determined on the basis of an
agreed formula.
On September 6, 1991, the Partnership advanced $6,761,700
to ML Cable, an affiliate controlled by the Partnership,
which then purchased a $6,830,000 participation in the
Maryland Cable loan from Maryland Cable's senior lenders.
On December 31, 1988, Maryland Cable entered into a three-
year interest rate exchange agreement on a notional amount
of $27 million under which Maryland Cable received LIBOR
and paid a fixed rate of 9.69%. Maryland Cable also
entered into a five-year interest rate exchange agreement
on a notional amount of $40 million under which Maryland
Cable received LIBOR and paid a fixed rate of 9.745%. In
part due to these agreements, the effective interest rate
on the borrowings under the Amended Credit Agreement was
approximately 5.9% in 1993, 9.15% in 1992 and 11.85% in
1991.
B) See Note 2 regarding defaults under and the restructuring
of Maryland Cable's debt.
In connection with the financing of the acquisition of its
cable operation, Maryland Cable issued approximately $77.5
million of Discount Notes. The Discount Notes will mature
on November 15, 1998 with a maturity value of $162,406,000.
Semi-annual interest payments are due on each May 15 and
November 15, commencing May 15, 1994 at the rate of 15-3/8%
per annum. No interest accrued on the Discount Notes until
November 15, 1993 other than amortization of the original
issue discount which results in an effective interest rate
of 15-3/8%. On November 15, 1993, the Discount Notes
became redeemable at the option of Maryland Cable, in whole
or in part, initially at 104% of the principal amount, then
declining 2% each year, ratably, to 100% of the principal
amount on or after November 15, 1995, plus accrued interest
to the date of redemption. The Discount Notes are
subordinate to obligations under the Amended Credit
Agreement.
No dividends have been paid by Maryland Cable to Holdings.
Such dividends are currently prohibited by the terms of the
Amended Credit Agreement and restricted by the indenture
for the Discount Notes.
C) In connection with the acquisition of the Windsor Systems,
the Partnership issued a note to the seller (the "Windsor
Note") for $3,030,000. The Windsor Note is payable over a
ten-year period in equal monthly installments of principal
and interest, bearing interest at a rate of 9% per annum.
Payments under the Windsor Note are collateralized solely
by a security interest in the assets of the Windsor
Systems. See Note 2 for information regarding defaults
under the Windsor Note and information regarding the
potential sale of the Windsor Systems.
D-E-F)On June 1, 1990, TCS entered into note purchase
agreements, with a group of insurance companies, which
provided for senior secured borrowings of $35 million (the
"Senior Secured Notes") and subordinated secured borrowings
of $10 million (the "Subordinated Notes"). These
commitments, as restructured (see below), require mandatory
payments each year until 1997. The agreements contain
covenants that include requirements to maintain certain
financial tests and ratios (including notes to cash flow
ratio and interest to cash flow ratio) and restrictions and
limitations on capital expenditures, sale of assets,
consulting fees, corporate overhead, investments, and
leases.
TCS also entered into a security and pledge agreement dated
as of June 1, 1990 with a bank, whereby it is a condition
to the purchaser's obligation under the note purchase
agreements that TCS grant to the security trustee a
security interest in and lien upon (i) all of the capital
stock of each corporation which owns or operates one or
more stations and (ii) all of TCS's present and future
right, title and interest in the subsidiary notes, to
secure TCS's indenture obligations.
On December 14, 1992, TCS negotiated agreements to amend
its note agreements. TCS had been unable to generate
sufficient funds from operations to fully meet its
obligations under its note purchase agreements. The Senior
Secured Notes and the Subordinated Notes were amended to
reschedule principal payments. In addition, the amended
agreements contain certain options for required prepayments
and restrictions requiring excess cash to be paid based
upon a calculation outlined within the agreements. As
payment for a transaction fee, the senior lenders were
issued additional notes due May 31, 1997, in the amount of
$350,000 (the "Senior Secured Fee Notes"). Also, upon sale
of the TCS stations or retirement of the debt, the
subordinated lenders will receive compensation equal to 20%
(or 25% in some circumstances) of the value of the assets
of TCS after subtracting all outstanding debt. All
previous defaults under the Senior Secured Notes and the
Subordinated Notes were waived.
Under the amended note agreements, the Senior Secured Notes
and the Senior Secured Fee Notes accrue interest at the
rate of 10.69% per annum payable on the last day of
February, May, August and November. However, TCS has the
option to defer payment of interest on the Senior Secured
Fee Notes until May 31, 1997. All deferred interest will
be compounded quarterly at the stated rate of 10.69%. In
addition, the amended loan agreement required accrued
interest due through December 14, 1992 on the Subordinated
Note of $1,326,804 to be reclassified into the original
Subordinated Note amount of $10,000,000. The restated
Subordinated Note total of $11,326,804 will accrue interest
at the rate of 12.69% per annum compounded quarterly on the
15th of March, June, September and December until either
certain conditions are met (refer to amended note agreement
for specific conditions), or until December 15, 1995.
See Note 2 regarding defaults under the amended TCS loan
agreements.
At December 31, 1993, the annual aggregate amounts of
principal payments required for the borrowings reflected in
the consolidated balance sheet of the Partnership are,
unless accelerated as discussed in Note 2, as follows:
Year Ending Principal Amount
1994 $ 81,195,584
1995 2,656,047
1996 5,589,447
1997 33,625,783
1998 162,556,694
Thereafter -
TOTAL $285,623,555
Based upon the restrictions of debt as described above,
approximately $183 million of assets are restricted from
distribution by the entities in which the Partnership has
an interest.
7. TRANSACTIONS WITH THE GENERAL PARTNER AND ITS AFFILIATES
During the years ended December 31, 1993, 1992, and 1991, the
Partnership incurred the following expenses in connection with
services provided by the General Partner and its affiliates:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1993 1992 1991
Media Opportunity
Management Partners
(General Partner):
Partnership Management
fee $ 838,205 $ 814,582 $ 790,089
Property Management fee 2,235,212 2,172,217 2,106,904
$3,073,417 $2,986,799 $2,896,993
In addition, the Partnership, through the Windsor Systems and
Maryland Cable, entered into an agreement with Multivision, an
affiliate of the General Partner, whereby Multivision provided
the Windsor Systems (through June 29, 1992) and Maryland Cable
with certain administrative services. The reimbursed cost to
the Windsor Systems and Maryland Cable for these services
amounted to $977,414 for the year ended December 31, 1993,
$936,356 for the year ended December 31, 1992 and $900,674 for
the year ended December 31, 1991. These costs do not include
programming costs that are charged to the Windsor Systems and
Maryland Cable under a cost allocation agreement. Effective June
30, 1992, the Partnership entered into a management agreement
with Cablevision Systems Corporation, which is not affiliated
with the Partnership, to manage the day-to-day operations and
maintain the books and records of the Windsor Systems. These
responsibilities are subject to the direction and control of the
General Partner.
The total customer base managed by MultiVision declined
significantly during 1992 as a result of divestitures by
companies other than the Partnership, which had utilized the
managerial services of MultiVision, leading to slightly higher
programming prices for all its managed systems, including the
Maryland Cable and Windsor Systems.
8. SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
The following table presents summarized financial information on
a combined basis of the Partnership's investments that were
accounted for by the equity method. Amounts presented include
the amounts of Investments (for 1991 and 1992 only), the
accounts of Paradigm (for 1991 only) and TCS (for 1991, 1992 and
through March 26, 1993).
At December 31, 1993, TCS and Paradigm are consolidated in the
accompanying financial statements and Investments is accounted
for using the cost method. See Note 13 for further information.
Summary Income Statements:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1993 1992 1991
Net Revenues $ 3,138,783 $ 13,619,640 $ 16,958,033
Costs and Expenses (4,667,568) (24,807,219) (25,053,592)
Net Loss $ (1,528,785) $(11,187,579) $ (8,095,559)
Partnership's equity
in net losses:
A. Paradigm $ - $ - $ (2,505,588)
B. Investments - (227,164) (624,691)
C. TCS (1,288,838) (4,493,770) (2,035,765)
Total Partnership's
equity in net losses $ (1,288,838) $ (4,720,934) $ (5,166,044)
Summary Balance Sheets:
As of
December 31,
1992
Total Assets $49,267,987
Total Liabilities $49,695,656
Total Deficit $ (427,669)
Partnership's Investment:
A. Paradigm $ -
B. Investments (42,173)
C. TCS (634,538)
Total Partnership's Investment in
joint ventures $ (676,711)
9. SEGMENT INFORMATION
The following analysis provides segment information for the main
industries in which the Partnership consolidates its operations.
The Cable Television Systems segment consists of the Windsor
Systems and Holdings. The Television and Radio Stations segment
consists of TCS (commencing as of March 26, 1993) and WMXN-FM.
The Production segment consists of Paradigm (commencing in
1992). The Business Information Services segment consisted of
IMPLP and Intelidata (see Note 15).
Television
Cable and
Television Radio
Systems Stations Production Total
1993
Operating
Revenue $ 44,726,689 11,829,273 5,897,923 $ 62,453,885
Operating
expenses
before gain
on sale of
assets 45,560,189 11,677,753 7,207,351 64,445,293
Gain on sale
of assets (3,952,407) -- -- (3,952,407)
Operating
Income
(Loss) 3,118,907 151,520 (1,309,428 1,960,999
)
Plus:
depreciation
and
16,110,905 2,265,324 20,715 18,396,944
amortization
Operating
income
(loss)
before
depreciation 19,229,812 2,416,844 (1,288,713 20,357,943
and )
amortization
Less:
depreciation
and (16,110,905) (2,265,324) (20,715) (18,396,944)
amortization
Operating
Income $ 3,118,907 $ 151,520 $(1,309,428 1,960,999
(Loss) )
Interest
Income 209,825
Interest
Expense (32,469,947)
Partnership
General
Expenses,
net (2,456,297)
Television
Cable and
Television Radio
Systems Stations Production Total
1993
Continued
Equity in
loss of
joint
ventures (1,288,838)
Minority in
interest
share of
subsidiary
net loss 518,103
Loss from
discontinued
operations
(Business
Information
Services (791,264)
segment)
Net Loss $(34,317,419
)
Identifiable
Assets $137,017,141 $48,598,880 $ 185,269 $185,801,290
Partnership
Assets 5,349,334
Total $191,150,624
Capital
$ 5,331,099 $ 591,454 $ 20,349 $ 5,942,902
Expenditures
Depreciation
and
$ 16,110,905 $ 2,265,324 $ 20,715 18,396,944
Amortization
Partnership
440,913
Amortization
Total $ 18,837,857
Cable
Television
Systems Radio Station Production
1992
Operating Revenue $ 42,668,337 $1,729,175 $ 7,746,380
Operating expenses 43,160,325 2,594,088 8,827,869
Operating loss (491,988) (864,913) (1,081,489)
Plus: depreciation
and amortization 15,761,314 332,757 23,871
Operating income
(loss) before
depreciation and
amortization 15,269,326 (532,156) (1,057,618)
Less: depreciation
and amortization (15,761,314) (332,757) (23,871)
Operating Loss $ (491,988) $ (864,913) $(1,081,489)
Interest Income
Interest Expense
Partnership General
Expenses, net
Equity in loss of
joint ventures
Minority interest in
consolidated joint
ventures
Loss from
discontinued
operations
(Business
Information
Services segment)
Net Loss
Identifiable Assets $152,255,256 $2,689,446 $ 5,539,377
Partnership Assets
Total
Capital Expenditures $ 4,551,563 $ 20,048 $ 165,104
Depreciation and
Amortization $ 15,761,314 $ 332,757 $ 23,871
Partnership
Amortization
Total
Total
1992 Continued
Operating Revenue $ 52,143,892
Operating expenses 54,582,282
Operating loss (2,438,390)
Plus: depreciation and
amortization 16,117,942
Operating income (loss) before
depreciation and amortization 13,679,552
Less: depreciation and
amortization (16,117,942)
Operating Loss $(2,438,390)
Interest Income 517,769
Interest Expense (28,104,963)
Partnership General Expenses, net (2,097,622)
Equity in loss of joint ventures (4,720,934)
Minority interest in consolidated
joint ventures 479,532
Loss from discontinued operations
(Business Information Services
segment) (2,007,742)
Net Loss $(38,372,350)
Identifiable Assets 160,484,079
Partnership Assets 9,293,863
Total $169,777,942
Capital Expenditures $ 4,736,715
Depreciation and Amortization 16,117,942
Partnership Amortization 430,898
Total $ 16,548,840
Cable
Television
Systems Radio Total
Station
1991
Operating
Revenue $ 41,056,426 $ 985,428 $ 42,041,854
Operating
expenses
before
write-down
of Maryland
Cable 39,643,000 4,760,155 44,403,155
Write-down of
Maryland
Cable 40,000,000 - 40,000,000
Operating
Loss (38,586,574) (3,774,727) (42,361,301)
Plus:
depreciation
and
amortization 12,756,853 2,481,837 15,238,690
Operating
loss income
before
depreciation
and
amortization (25,829,721) (1,292,890) (27,122,611)
Less:
depreciation
and
amortization (12,756,853) (2,481,837) (15,238,690)
Operating
Loss $(38,586,574 $(3,774,727) (42,361,301)
)
Interest Income 1,247,852
Interest Expense (29,697,998)
Partnership General
Expenses, net (1,917,971)
Equity in loss of joint
ventures (5,166,044)
Loss from discontinued
operations (Business
Information Services
segment) (1,345,563)
Net Loss $(79,241,025
)
Cable
Television
Systems Radio Total
Station
1991
Continued
Identifiable
Assets $163,526,466 $ 3,116,499 $166,642,965
Partnership
Assets 20,418,239
Total $187,061,204
Capital
Expenditures $ 4,956,315 $ 245,463 $ 5,201,778
Depreciation
and
Amortization $ 12,756,853 $ 2,481,837 15,238,690
Partnership
Amortization 110,413
Total $ 15,349,103
10. Investment in General Cellular Corporation
On May 24, 1989, the Partnership entered into a subscription and
purchase agreement (the "Subscription Agreement") to purchase
500,000 shares of Series A Convertible Preferred Stock
("Preferred Stock") of General Cellular Corporation ("GCC") at
$30 per share, for a total subscription of $15 million. GCC is
a California-based owner and operator of cellular telephone
systems.
In 1990, the Partnership wrote down the value of its preferred
stock in GCC of $15,000,000, because of GCC's inability at that
time to raise the financing critical to its viability as a going
concern.
On March 17, 1992, a plan of reorganization under Chapter 11 of
the U.S. Bankruptcy Code became effective, in which GCC was
recapitalized by an investor group. As part of the plan of
reorganization, GCC's outstanding debt was reduced from
approximately $97 million to $20 million. Under the plan, the
Partnership's 500,000 shares of Preferred Stock were converted
to 199,281 shares of common stock, prior to the effect of the
Partnership's exercise of rights pursuant to a rights offering.
The rights offering provided that existing shareholders,
including the Partnership, could purchase additional ownership
in GCC. Each right consisted of the right to purchase from GCC
a unit consisting of one share of common stock and $9.09 in
principal amount of senior notes, for a total unit price of
$19.09. On March 4, 1992, the Partnership exercised 52,384
rights, for a total price of $1,000,011. By exercising these
rights, the Partnership purchased: a) 52,384 shares of common
stock of GCC, which increased the Partnership ownership position
in GCC to 251,665 shares; and b) senior notes with a face value
of $476,171. On August 19, 1992, GCC redeemed the senior notes,
repaying to the Partnership $476,171, plus accrued interest.
On October 26, 1992, GCC completed a second rights offering
pursuant to which existing shareholders, including the
Partnership, were issued rights to purchase one additional share
of common stock for each 1.75 shares owned, for a price of
$10.00. The Partnership purchased 100,000 additional shares for
an investment of $1,000,000. In addition, the Partnership sold
43,809 rights to purchase shares for a price of $120,000 to an
unaffiliated entity. Additionally, effective November 3, 1993,
the Partnership sold 61,160 rights to purchase shares for a
price of $100,000 to several unaffiliated entities. GCC raised
$25,281,000 in the offering to assist it in completing its
business plan of purchasing and operating clusters of cellular
systems in certain geographic areas.
As of December 31, 1993, after giving effect to the
recapitalization and the rights offerings, the Partnership's
351,665 common shares in GCC equate to an ownership percentage
of approximately 4.2%.
11. FAIR MARKET VALUE
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments",
requires companies to report the fair value of certain on- and
off-balance sheet assets and liabilities which are defined as
financial instruments.
Considerable judgment is necessarily required in interpreting
data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts that the Partnership could realize in a current market
exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
Assets, including cash and cash equivalents and accounts
receivable, and liabilities, such as trade payables, are carried
at amounts which approximate fair value.
Borrowings
As of December 31, 1993, considering the uncertainty of the
Partnership's ability to meet its obligations under the Amended
Credit Agreement, Senior Subordinated Discount Notes, Windsor
Note, and the TCS debt obligations, management believes that
using the Partnership's future cash flows related to debt-
service to estimate the fair value of the loans is not
appropriate. In addition, because of the uncertainty related to
the ultimate outcome of the Partnership's restructuring efforts
(see Note 2), the General Partner considers estimation of the
fair value of these loans based on collateral value and other
methods to be impracticable.
As of December 31, 1992, the General Partner had been able to
estimate the fair value of its loans under the Amended Credit
Agreement/Maryland Cable Loan Agreement and the Windsor Note by
estimating the value of the underlying collateral. Accordingly,
the fair value of these loans approximated their carrying
values.
As of December 31, 1992, considering the uncertainty of the
Partnership's ability to meet its obligations under the Senior
Subordinated Discount Notes, management believed that using the
Partnership's future cash flows related to debt-service to
estimate the fair value of the loans was not appropriate. In
addition, because of the uncertainty related to the ultimate
outcome of the Partnership's restructuring efforts which could
not be predicted at that time (see Note 2), the General Partner
considered estimation of the fair value of this loan based on
collateral value and other methods to be impracticable.
Other Financial Instruments
As discussed in Note 6, the Partnership entered into a swap
agreement in connection with the Maryland Cable Loan Agreement.
The fair value of this agreement was estimated based on the
expected future cash flows. The fair value of this agreement
resulted in a net swap obligation of approximately $2.4 million
as of December 31, 1992. Such swap agreement expired in
December 1993.
The Partnership owns 351,665 shares of common stock of GCC. It
is not practicable to estimate the fair value of this investment
because of the lack of a quoted market price and the inability
to estimate fair value without incurring excessive costs. The
approximate $1.3 million and $1.4 million carrying amount as of
December 31, 1993 and December 31, 1992, respectively,
represents the adjusted cost of the investment, which management
believes is not impaired. No dividends were received during the
years ended December 31, 1993 and December 31, 1992.
12. ACCOUNTING FOR INCOME TAXES
As discussed in Note 1, the corporations owned by the
Partnership adopted SFAS No. 109 effective January 1, 1993. The
cumulative effect of this change in accounting principle is
immaterial and there is no effect on the provision for income
taxes for the current year.
Certain entities owned by the Partnership are taxable entities
and thus are required under SFAS No. 109 to recognize deferred
income taxes. The components of the net deferred tax asset at
December 31, 1993 are as follows:
Deferred tax assets:
Net operating loss carryforward $ 40,896,465
Allowance for doubtful accounts 155,396
41,051,861
Deferred tax liabilities:
Basis of property, plant and equipment (761,871)
Basis of intangible assets (446,103)
( 1,207,974)
Total 39,843,887
Less: valuation allowance (39,843,887)
Net deferred tax asset $ 0
The change in the net deferred tax asset for the year ended
December 31, 1993 amounted to an increase of approximately
$10,400,000 due to an increase in the net operating loss
carryforward offset by a corresponding reduction due to a change
in the valuation allowance.
No provision for income taxes was required for the years ended
December 31, 1992 and 1991.
At December 31, 1993, the taxable entities have available net
operating loss carryforwards which may be applied against future
taxable income. Such net operating loss carryforwards expire at
various dates from 2003 through 2008.
For the Partnership, the differences between the tax bases of
assets and liabilities and the reported amounts at December 31,
1993 are as follows:
Partners' Deficit - financial statements $(111,356,546)
Differences:
Offering expenses 11,346,156
Basis of property, plant and equipment
and intangible assets (31,132,326)
Unrealized loss on common stock investment 15,000,000
Cumulative income (losses) of stock
investments (corporations) 178,371,722
Management fees 2,984,289
Other (1,056,383)
Partners' Deficit - income tax basis $ 64,156,912
13. OTHER INVESTMENTS
TCS
On January 17, 1990, the Partnership entered into a limited
partnership agreement with Riverdale Media Corporation
("Riverdale"), forming TCS. The agreement was subsequently
amended to include Commonwealth Capital Partners, L.P.
("Commonwealth") as a limited partner. Initially, Riverdale was
the general partner of TCS, and owned 20.01% of the entity. The
Partnership and Commonwealth were limited partners owning 41%
and 38.99%, respectively. Riverdale has contracted with ML
Media Opportunity Consulting Partners, a wholly-owned subsidiary
of the Partnership, to provide management services for TCS.
On June 19, 1990, TCS completed its acquisition of three network
affiliated television stations; WRBL-TV, the CBS affiliate
serving Columbus, Georgia; WTWO-TV, the NBC affiliate serving
Terre Haute, Indiana; and KQTV-TV, the ABC affiliate serving St.
Joseph, Missouri (the "TCS Stations"). The purchase price of
$49 million, a non-compete payment of $7 million, and starting
working capital and closing costs of approximately $5 million
were funded by the sale by TCS of senior notes totaling $35
million and subordinated notes totaling $10 million, and equity
of $16 million. The Partnership's total equity contribution and
incurred costs were approximately $8.3 million as of December
31, 1993 (including approximately $170,000 noted below). In
addition, the Partnership had loaned TCS approximately $400,000
for working capital purposes during 1991.
On December 14, 1992, the Partnership concluded agreements to
restructure the debt and ownership arrangements of TCS.
Concurrent with the new debt arrangements (as detailed in Note
6), the equity partners in TCS agreed to seek regulatory
approval to alter the ownership structure of the company. On
March 26, 1993, the Partnership was granted such approval by the
FCC. As a result, on March 26, 1993, the Partnership and
Commonwealth purchased the 20.01% ownership interest held by
Riverdale. On March 26, 1993, a wholly-owned subsidiary of the
Partnership became the new sole general partner of TCS and the
Partnership's total ownership interest in TCS increased from 41%
to 51% (1% of which is the general partner interest). The
Partnership utilized approximately $170,000 of its working
capital reserve to acquire the additional 10% interest.
The Partnership consolidated TCS as of March 26, 1993, the date
it received regulatory approval for the restructuring of the
ownership of TCS. During 1991, 1992 and through March 25, 1993,
the Partnership utilized the equity method of accounting (see
Note 1). The following data was prepared to illustrate the
effects of TCS on the operations of the Partnership:
1993 1992 1991
Total Revenues -
TCS $ 9,977,792 $ -- $ --
Total Expenses -
TCS 13,119,062 -- --
Equity in loss of
joint venture -
TCS (1,288,838) (4,493,770) (2,035,765)
Net Loss - TCS $ (4,430,108) $ (4,493,770) $ (2,035,765)
Therefore, as a result of TCS being consolidated by the
Partnership, the total revenues and total expenses of the
Partnership increased by approximately $10.0 million and $13.1
million, respectively, for the year ended December 31, 1993.
As a result of TCS's operations being consolidated by the
Partnership, the total assets and total liabilities of the
Partnership increased by approximately $46.1 million and $50.4
million, respectively, as of December 31, 1993.
Paradigm/BBAD
On May 31, 1991, the Partnership, Productions, GLP Co. and
Associates entered into a new agreement (the "Revised Paradigm
Agreement") that amended the original Paradigm Agreement. Under
the terms of the Revised Paradigm Agreement, effective June 16,
1991 the general partner interests of GLP Co. and Associates in
Paradigm were converted to limited partner interests. GLP Co.
and Associates each retained their 25% ownership in Paradigm and
the Partnership retained its 50% beneficial interest. Under the
terms of the Revised Paradigm Agreement, Paradigm retained
ownership of all program concepts developed by Paradigm prior to
June 15, 1991, but assigned the task of further developing these
program concepts to GLP Co. and/or Associates as independent
contractors. Per the Revised Paradigm Agreement, if GLP Co. or
Associates were to develop any new program concepts during the
period in which they were acting as independent contractors for
Paradigm, GLP Co. or Associates would be required to offer
Paradigm the right to finance the production of such program
concepts. Regardless of Paradigm's decision to finance the
further development of the new program concepts, Paradigm will
receive a share of the profits and fees, if any, from such new
program concepts.
The consulting agreements described above expired on December
31, 1991. Effective with the expiration, Associates continued,
without a formal agreement, to develop projects to offer to
Paradigm. As was the case under the Revised Paradigm Agreement,
the Partnership had the option of financing such projects in
return for equity interests in such projects. During 1992, the
Partnership advanced approximately $1.0 million to Paradigm to
fund Paradigm's operations and the production of its television
programs. Offsetting these advances during 1992, Paradigm
returned to the Partnership $2.5 million of such advances, which
Paradigm received from broadcasters as fees for movies produced.
As of December 31, 1993, Registrant had advanced a net amount of
approximately $7.5 million to Paradigm.
Effective June 23, 1992, Paradigm formed a general partnership
with Associates to start a new production company, BBAD.
Pursuant to this new general partnership arrangement between
Paradigm and Associates, during 1992 Paradigm advanced
approximately $942,000 and Associates advanced approximately
$457,000 to fund BBAD's operations and the development of
certain programming concepts. Initially, Paradigm owned 67% and
Associates owned 33% of BBAD, based on their capital
contributions to BBAD. In addition, Associates contributed an
additional approximately $0.7 million and Paradigm contributed
approximately $0.3 million from existing cash balances during
1993 to fund BBAD's operations. As of December 31, 1993,
Paradigm owns 52% and Associates owns 48% based upon their
capital contributions and certain adjustments. The Partnership
and Associates are continuing to negotiate the terms on which
BBAD would acquire and continue to develop Paradigm's and/or
BBAD's programs and programming concepts.
Through the end of 1993, Paradigm had produced three television
movies which had aired as well as one syndicated series (which
was discontinued after thirteen episodes), and BBAD had produced
one television movie which had aired and one series. BBAD had
also developed other program concepts which may be produced as
either movies or series for television.
In addition to the programs discussed above, BBAD has continued
to develop new program concepts, primarily for other television
movies and series. The Partnership continued to monitor the
development of these program concepts to determine BBAD's
additional cash needs. BBAD is not currently producing a
sufficient number of programs to cover overhead costs
indefinitely, although the Partnership has not advanced any
funds to Paradigm or BBAD since the second quarter of 1992.
Paradigm and/or BBAD have taken several steps to reduce
operating costs, primarily by reducing the number, and
compensation, of employees. However, Paradigm and BBAD did not
operate profitably during 1993, and are currently dependent on
outside sources, primarily Associates, to finance BBAD's monthly
operating costs. The Partnership has elected not to fund such
operating costs. In any event, the Partnership will most likely
recover only a nominal portion, if any, of its original
investment in Paradigm and/or BBAD. The Partnership has no
obligation to advance any additional funds to Paradigm and/or
BBAD and actively sought a strategic partner that would share in
meeting Paradigm's and/or BBAD's potential future funding needs,
but was unable to identify such a partner. The Partnership is
negotiating with Associates the terms of an agreement under
which Paradigm would retain the three television movies and the
series developed by it, and the other projects and program
concepts developed by Paradigm and/or BBAD would be assigned to
Associates for further development at Associates' expense, while
Paradigm would retain a percentage interest in all such projects
and concepts. Paradigm and/or BBAD have no liability for
borrowed funds.
The Partnership consolidated Paradigm in 1992. Prior to this
the Partnership utilized the equity method of accounting. The
following data was prepared to illustrate the effects of
Paradigm on the operations of the Partnership:
1993 1992 1991
Total Revenues-
Paradigm $ 5,917,189 $ 7,746,380 $ --
Total Expenses,
net of minority
interest-Paradigm
(6,689,248) $(8,398,789) $ --
Equity in loss of
joint venture-
Paradigm -- -- (2,505,588)
Net Loss-Paradigm $ (772,059) $ (652,409) $(2,505,588)
Investments and EMP, Ltd.
On September 1, 1989, the Partnership entered into a
stockholders agreement ("the Media Ventures Agreement") with
Peter Clark ("Clark") and Alan Morris ("Morris") to form Media
Ventures International, Limited ("Media Ventures"), a United
Kingdom corporation with a mandate to engage in media businesses
including but not limited to: program packaging and
distribution; executive search for the media and entertainment
sector; trade markets and trade publishing; screen entertainment
retailing; and television broadcasting in the United Kingdom.
At closing the Partnership held 50%, Clark held 46% and Morris
held 4% of the stock of Media Ventures. The Partnership
subsequently assigned 1% of its stock in Media Ventures to
Morris. The Partnership committed to advance up to $2 million
to Media Ventures or its affiliate, European Media Partners
("EMP"), over a three year period to fund their operations. The
ownership of EMP parallels that of Media Ventures after the
aforementioned assignment by the Partnership of 1% to Morris. As
of December 31, 1991, the Partnership had advanced all of its
original $2.0 million commitment to Media Ventures.
During 1991, Media Ventures and EMP (together, the "Companies")
and Registrant identified a strategic partner, ALP Enterprises
(a company controlled by Arthur Price, and not affiliated with
the Partnership), which agreed to invest up to approximately
$700,000 at then-current exchange rates in EMP, Ltd. pursuant to
a restructuring of the Companies which diluted the Partnership's
ownership interest in the Companies. In the restructuring:
Media Ventures' name was changed to Media Ventures Investments
Ltd. ("Investments"); a new U.K. corporation, European Media
Partners, Ltd. ("EMP, Ltd.") was formed; and Investments
transferred its ownership in its programming subsidiary,
International Programme Ventures ("IPV"), to EMP, Ltd. For any
investments made by ALP Enterprises in EMP, Ltd., ALP
Enterprises will receive from EMP, Ltd. a preferred return of 6%
on its investment plus the return of its original investment
prior to a pro rata distribution of the proceeds, if any, from
the ultimate sale of any of EMP, Ltd.'s existing and future
media businesses. As of December 31, 1993, ALP Enterprises had
invested approximately $2 million in EMP, Ltd. at current
exchange rates, including approximately $1.1 million in Teletext
(see below). ALP Enterprises will not invest any funds in
Investments. The Partnership is entitled to receive from
Investments a preferred return of 14% on its original $2 million
investment, plus the return of its original investment prior to
the pro-rata distribution of the proceeds, if any, from the
ultimate sale of any of Investments' existing and future media
businesses. Because it lacks funding, and because its only
significant investment, Neomedion (see below), is likely to
generate a nominal return, if any, it is unlikely that the
Partnership will recover any of its $2 million investment in
Investments.
Subsequent to the restructuring, EMP, Ltd., through a wholly-
owned subsidiary, acquired VATV, Ltd., a U.K. television program
distributor, for approximately $126,000 in cash at then-current
exchange rates. In addition, during the first quarter of 1992,
Investments and EMP, Ltd. entered into a stock transaction to
acquire a combined 50% interest in Neomedion, Ltd., an existing
U.K. corporation that provides consulting services to the
European media industry, in exchange for shares in Investments
and EMP, Ltd. As a result, Investments and EMP, Ltd. each owned
25% of Neomedion, Ltd. After giving effect to the restructuring
of the Companies and the Neomedion transaction, the Partnership
owned 36.8% of the common stock of Investments, ALP Enterprises
owned 13.8%, Clarendon (a company controlled by the Companies'
founders, Clark and Morris) owned 41.4%, and Charles Dawson, the
founder and head of Neomedion, Ltd., controlled the remaining
8.0%. The Partnership also owned 13.8% of the common stock of
EMP, Ltd., ALP Enterprises owned 36.8%, Clarendon owned 41.4%,
and Charles Dawson controlled the remaining 8.0%. The ownership
of EMP, which is dormant, was unaffected by any of the
transactions described above. Clarendon and Charles Dawson are
not affiliated with the Partnership.
During 1992, EMP, Ltd. continued its European television
programming distribution operations while searching for
additional investment opportunities in the European media
market. In addition, during the first half of 1992, EMP, Ltd.
became a 10% equity owner in Teletext U.K., Ltd. ("Teletext"), a
newly formed U.K. corporation organized by EMP, Ltd. to acquire
U.K. franchise rights to provide data in text form to television
viewers via television broadcast sidebands. EMP, Ltd. was
actively involved in the initial start-up phase of Teletext, and
ALP Enterprises contributed approximately $1.1 million at then-
current exchange rates to EMP, Ltd. to allow EMP, Ltd. to
acquire the 10% share in Teletext. Teletext took control of the
franchise on January 1, 1993. The day-to-day operations of
Teletext are managed by a newly formed management team; EMP,
Ltd. and its partners monitor Teletext's operations. The other
equity owners of Teletext are not affiliated with the
Partnership.
On July 30, 1993, EMP, Ltd. sold its Neomedion shares back to
Charles Dawson, while Charles Dawson sold his shares in EMP,
Ltd. back to Clarendon. The stock of Neomedion is now
controlled 75% by Charles Dawson and 25% by Investments. In
addition, after the exchange of shares, EMP, Ltd. was owned
13.8% by the Partnership, 45.6% by Clarendon, and 40.6% by ALP
Enterprises.
As of December 31, 1993, the primary ongoing business activities
of Investments and EMP, Ltd. were conducted through EMP, Ltd.'s
television programming subsidiaries, Teletext and Neomedion.
14. DISPOSITION OF ASSETS
Sale of the Leesburg Systems
On September 30, 1993, Maryland Cable consummated the sale of
the Leesburg System to Benchmark Acquisition Fund I Limited
Partnership (the "Buyer") for a base payment of approximately
$10,180,000, of which $7,250,000 was paid to Citibank, N.A., to
discharge $6,750,000 of bank debt and to pay a fee of $500,000
due in connection with the 1991 amendment to the Maryland Cable
Loan agreement. An additional amount of $250,000 was deposited
into an indemnity escrow account for a period of one year.
Following the payment of certain fees and expenses, Maryland
Cable retained approximately $2,480,000 in proceeds and may be
entitled to additional payments following the closing based upon
the amount of its accounts receivable, the number of subscribers
served at closing and certain other adjustments. The Buyer is
an affiliate of Benchmark Communications but is not affiliated
with Maryland Cable or the Partnership. This sale resulted in
an approximate $4.0 million gain.
In addition, as a result of the payment of $6,750,000 in bank
debt, in accordance with the terms of the Amended Credit
Agreement, the Default Interest Notes of $1,595,408, together
with accrued interest of $252,338, ceased to be an Obligation
under the Amended Credit Agreement (as defined therein) (see
Note 6). These Obligations would have come due on December 31,
1993. The amount of the Default Interest Notes forgiven, plus
accrued interest forgiven, may be utilized by the Banks as
payment consideration of the exercise price of the Warrants the
Banks hold, in the event of such exercise, pursuant to the terms
of the Amended Credit Agreement (see Note 6 regarding Warrants).
The amount of debt forgiven and related accrued interest was
amortized as a reduction of interest expense over the remaining
life of the Amended Credit Agreement (through December 31,
1993).
15. DISCONTINUED OPERATIONS
Effective July 1, 1993, the Partnership entered into three
transactions to sell the business and assets of IMPLP/IMPI and
Intelidata (the Business Information Services Segment). In two
separate transactions, the Partnership sold the entire business
and substantially all of the assets of IMPLP/IMPI and a portion
of the business and assets of Intelidata to Phillips Business
Information, Inc. ("PBI") for future consideration based on the
revenues of IMPLP/IMPI and the portion of the Intelidata
business acquired by PBI. PBI is not affiliated with the
Partnership. At closing, PBI made non reference advances of
$100,000 and $150,000 of royalties to IMPLP/IMPI and Intelidata,
respectively, which advances would be recoverable by PBI from
any future royalties payable by PBI to the Partnership. In
addition, PBI agreed to assume certain liabilities of IMPLP/IMPI
and Intelidata.
In the third transaction, the Partnership sold the remaining
business and assets of Intelidata, which were not sold to PBI,
to Romtec plc ("Romtec") in exchange for future consideration,
based on both the amount of assets and liabilities transferred
to Romtec and the combined profits of the portion of the
Intelidata business acquired by Romtec and another, existing
division of Romtec. In addition, certain liabilities of
Intelidata were assumed by Romtec. Romtec is not affiliated
with the Partnership.
As a result of the above transactions, the Partnership recorded
a writedown of approximately $364,000 of certain assets of
IMPLP/IMPI and Intelidata in the second quarter of 1993 to
reduce the Partnership's net investment to a net realizable
value of zero. Subsequent to the sale of the businesses, the
Partnership advanced additional funds totaling approximately
$0.1 million to IMPLP/IMPI and Intelidata to fund cash
shortfalls resulting from the claims of certain creditors. The
Partnership anticipates that it may make additional such
advances to IMPLP/IMPI and Intelidata during 1994. The total of
any Partnership obligations to fund such advances, including
certain contractual obligations, is not currently anticipated to
exceed the amount of the writedown. It is unlikely that the
Partnership will recover its investment in IMPLP/IMPI
/Intelidata.
As of July 1, 1993 (the date of sale), the Partnership had
advanced approximately $4.2 million to IMPLP/IMPI and Intelidata
to fund operating activities.
The net liabilities of discontinued operations on the
Consolidated Balance Sheet include the net liabilities of
IMPLP/IMPI and Intelidata. The prior year's consolidated
financial statements have been restated to present IMPLP/IMPI
and Intelidata as discontinued operations.
Net liabilities of discontinued operations were $0 and $185,611,
as of December 31, 1993 and December 31, 1992, respectively.
The 1992 amount consisted of: cash and cash equivalents;
accounts receivable; prepaid expenses; property, plant and
equipment; intangible assets; accounts payable and accrued
liabilities; and deferred revenue. Total assets in 1992 were
$868,475, and total liabilities were $1,054,086.
The results of IMPLP/IMPI and Intelidata have been reported
separately in the Consolidated Statements of Operations as
discontinued operations. Summarized results of the discontinued
operations of this segment are as follows:
1993 1992 1991
Operating Revenues $ 978,359 $ 1,427,157 $ 169,414
Less: Operating Expenses 1,382,727 3,394,257 1,503,549
Operating Loss (404,368) (1,967,100) (1,334,135)
Other Expenses, net (386,896) (40,642) (11,428)
Loss from discontinued
operations $ (791,264) $(2,007,742) $(1,345,563)
16. PRO FORMA DATA (Unaudited)
The following proforma data was prepared to illustrate the
estimated effects on the operations of the Partnership of the
potential future divestiture of Maryland Cable, Windsor and WMXN-
FM on the Consolidated Balance Sheet and Consolidated Statement
of Operations as of and for the year ended December 31, 1993:
December 31,
1993 Maryland Cable Windsor
Total Assets $ 191,150,624 $(134,524,125) $(2,493,016)
Total Liabilities $ 302,507,170 $(247,890,373) $(2,805,332)
Total Partners'
Deficit $(111,356,546) $ 113,366,248 $ 312,316
Total Operating
Revenues $ 62,453,885 $ (43,799,277) $ (927,412)
Net Loss $( 34,317,419) $ 24,261,818 $ 86,141
Pro Forma
Giving Effect
to
WMXN-FM Divestitures
Total Assets $(2,512,609) $ 51,620,874
Total Liabilities $ (300,154) $ 51,511,311
Total Partners' Capital $(2,212,455) $ 109,563
Total Operating Revenues $(1,856,903) $ 15,870,293
Net Loss $ 227,959 $ (9,741,501)
*These figures are net of all intercompany balances and
transactions which are eliminated in consolidation.
17. Subsequent Event
As discussed in Note 2, on March 10, 1994 Maryland Cable
and Holdings filed a Prepackaged Plan under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court- Southern
District of New York.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993 AND DECEMBER 31, 1992
SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ML Media Opportunity Partners, L.P.
Condensed Balance Sheets
as of December 31, 1993 and December 31, 1992
NOTES 1993 1992
ASSETS:
Cash and cash equivalents 3 $ 3,521,683 $ 6,669,510
Advances to Subsidiaries 42,094 620,467
Interest receivable 7,644 14,681
Prepaid expenses and
deferred charges 297,954 738,867
Investment in Subsidiaries 1,2 (114,516,638) (84,682,022)
TOTAL ASSETS $(110,647,263) $ (76,638,497)
LIABILITIES AND PARTNERS'
CAPITAL:
Liabilities:
Accounts payable and accrued
liabilities $ 709,283 $ 400,630
Partners' Deficit:
General Partner:
Capital contributions, net
of offering expenses 1,019,428 1,019,428
Cumulative loss
(2,112,501) (1,769,327)
(1,093,073) (749,899)
Limited Partners:
Capital contributions, net
of offering expenses
(112,147.1 Units of Limited
Partnership Interest) 100,914,316 100,914,316
Tax allowance cash
distribution (2,040,121) (2,040,121)
Cumulative loss (209,137,668) (175,163,423)
(110,263,473) (76,289,228)
Total Partners' Deficit (111,356,546) (77,039,127)
TOTAL LIABILITIES AND
PARTNERS' DEFICIT $(110,647,263) $ (76,638,497)
See Notes to Condensed Financial Statements.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993, DECEMBER 31, 1992, DECEMBER 31, 1991
SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Cont'd
ML Media Opportunity Partners, L.P.
Condensed Statements of Operations
For the Years Ended December 31, 1993, December 31, 1992,
and December 31, 1991
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
NOTES 1993 1992 1991
REVENUES:
Interest $ 130,302 $ 517,769 $ 1,247,852
COSTS AND EXPENSES:
General and
administrative 19,930 1,390 235,320
Amortization 440,913 430,898 110,413
Management fees to
general partner 3,073,417 2,986,799 2,896,993
Other 167,354 140,116 74,053
Total cost and
expenses 3,701,614 3,559,203 3,316,779
Share of
subsidiaries'
loss from
continuing
operations 1,2 (29,954,843) (33,323,174) (75,826,535)
Loss from
continuing
operations (33,526,155) (36,364,608) (77,895,462)
Loss from
discontinued
operations of
subsidiaries (791,264) (2,007,742) (1,345,563)
NET LOSS 2 $(34,317,419) $(38,372,350) $(79,241,025)
See Notes to Condensed Financial Statements.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Cont'd)
ML Media Opportunity Partners, L.P.
Condensed Statements of Cash Flow
For the Years Ended December 31, 1993, December 31, 1992,
and December 31, 1991
1993 1992 1991
Cash flows from
operating activities:
Net loss $(34,317,419) $(38,372,350) $(79,241,025)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Amortization 440,913 430,898 110,413
Loss on sale of note - - 225,000
Change in assets and
liabilities:
Decrease in investment
in subsidiaries 30,746,107 35,330,916 77,172,098
(Increase)/decrease in
interest receivable 7,037 (3,116) 64,475
(Increase) in prepaid
expenses and deferred
charges - - (133,255)
(Decrease)/increase in
accounts payable and
accrued liabilities 308,653 (16,911) 340,217
Net cash used in
operating activities (2,814,709) (2,630,563) (1,462,077)
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
SCHEDULE III CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Cont'd)
ML Media Opportunity Partners, L.P.
Condensed Statements of Cash Flow
For the Years Ended December 31, 1993, December 31, 1992,
and December 31, 1991
1993 1992 1991
Cash flows from
investing activities:
Advances from (to)
subsidiaries 578,373 (122,916) (412,810)
Proceeds from sale of
note - - 275,000
Net investment in
subsidiaries (911,491) (2,660,423) (12,855,248)
Net cash used in
investing activities (333,118) (2,783,339) (12,993,058)
Net decrease in cash
and cash equivalents (3,147,827) (5,413,902) (14,455,135)
Cash and cash
equivalents at
beginning of year 6,669,510 12,083,412 26,538,547
Cash and cash
equivalents at end of
year $ 3,521,683 $ 6,669,510 $ 12,083,412
See Notes to Condensed Financial Statements.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
Schedule III CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Cont'd
ML Media Opportunity Partners, L.P.
Notes To Condensed Financial Statements
For the Years Ended December 31, 1993
December 31, 1992, and December 31, 1991
1. Organization
ML Media Opportunity Partners, L.P. (the "Partnership") wholly
owns WMXN-FM and the Windsor Systems. The Partnership also has
a 90% interest in Holdings (see Note 2), a 93.5% interest in
IMPLP/IMPI and a 100% interest in Intelidata (see Note 14), a
50% interest in Paradigm, a 37% interest in Investments, a 49%
interest in EMP, a 14% interest in EMP, Ltd., and a 51% interest
in TCS. All of the preceding investments and the Partnership's
other majority-owned subsidiaries shall herein be referred to as
the "Subsidiaries." The Partnership carries its interest in GCC
at cost.
2. Investment in Subsidiaries
The Partnership's investment in the Subsidiaries is accounted
for under the equity method in the accompanying condensed
financial statements.
The following is a summary of the financial position and results
of operations of the Subsidiaries (included in consolidated
financial statements).
December 31, December 31,
1993 1992
Assets $ 187,281,249 $ 162,602,892
Liabilities (301,797,887) (247,284,914)
Investment in Subsidiaries $(114,516,638) $ (84,682,022)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1993 1992 1991
Revenues $ 62,533,408 $ 52,143,892 $ 42,041,854
Partnership's share of
subsidiaries' loss from
continuing operations $(29,954,843) $(33,323,174) $(75,826,535)
Partnership's share of
discontinued operations
of subsidiaries (791,264) (2,007,742) (1,345,563)
Partnership's share of
subsidiaries' net loss $(30,746,107) $(35,330,916) $(77,172,098)
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
Schedule III CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ML MEDIA OPPORTUNITY PARTNERS, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993
DECEMBER 31, 1992, AND DECEMBER 31, 1991
3. Cash and Cash Equivalents
At December 31, 1993, the Partnership had $3,521,683 in cash and
cash equivalents of which $597,467 was invested in banker
acceptances and $2,854,509 was invested in commercial paper. In
addition, the Partnership had $69,707 invested in cash and
demand deposits.
At December 31, 1992, the Partnership had $6,669,510 in cash and
cash equivalents of which $272,861 was invested in banker
acceptances and $6,371,200 was invested in commercial paper. In
addition, the Partnership had $25,449 invested in cash and
demand deposits.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
Schedule V Property, Plant and Equipment
Balance at Retirements Balance at
Beginning of and Other End of
Period Period Additions Changes Period
1993 $75,113,347 $22,675,116 (2) $(4,041,575) $93,746,888
1992 $70,523,323 $ 4,581,722 $ 8,302 (1) $75,113,347
1991 $65,491,725 $ 5,201,778 $ (170,180) $70,523,323
(1) Retirements and Other Changes includes the effect of
consolidating the operations of Paradigm in 1992 in the
amount of $154,993 (see Note 8).
(2) Additions includes the effect of consolidating the
operations of TCS commencing in the second quarter of 1993
in the amount of $16,727,898 (see Note 8).
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993, DECEMBER 31, 1992
AND DECEMBER 31, 1991
Schedule VI Accumulated Depreciation of Property, Plant and
Equipment
Balance at Retirements Balance at
Beginning of and Other End of
Period Period Additions Changes Period
1993 $24,821,936 $19,513,128 (2) $(1,654,010) $42,681,054
1992 $17,933,910 $ 6,914,549 $(26,523)(1) $24,821,936
1991 $11,590,644 $ 6,418,677 $(75,411) $17,933,910
(1) Retirements and Other Changes includes the effect of
consolidating the operations of Paradigm in 1992 in the
amount of $70,871 (see Note 8).
(2) Additions includes the effect of consolidating the
operations of TCS commencing in the second quarter of 1993
in the amount of $11,415,948 (see Note 8).
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1992, DECEMBER 31, 1992
AND DECEMBER 31, 1991
Schedule VIII Accumulated Amortization of Intangible Assets,
Prepaid Expenses and Deferred Charges
Additions
Charged to
Costs and
Balance at Expenses or Balance at
Period Beginning of Other Deductions and End of
Period Accounts Other Period
Intangible Assets
1993 $63,989,829 $22,582,183(2) $ (1,211,438) $85,360,574
1992 $58,024,203 $ 5,965,626 $ 0 $63,989,829
1991 $10,645,720 $ 7,378,483 $40,000,000(1) $58,024,203
Prepaid Expenses and Deferred Charges
1993 $7,828,872 $ 4,185,294(3) $ (23,454) $11,990,712
1992 $4,160,207 $ 3,668,665 $ 0 $ 7,828,872
1991 $1,751,796 $ 1,551,943 $ 856,468 $ 4,160,207
(1) Due to the $40,000,000 write-down of Maryland Cable's
goodwill.
(2) Additions to "Intangible Assets" includes the effect of
consolidating the operations of TCS commencing in the
second quarter of 1993 in the amount of $15,695,763 (see
Note 8).
(3) Additions to "Prepaid Expenses and Deferred Changes"
includes the effect of consolidating the operations of TCS
commencing in the second quarter of 1993 in the amount of
$331,037 (see Note 8).
ML MEDIA OPPORTUNITY PARTNERS, L.P.
AS OF DECEMBER 31, 1993, DECEMBER 31, 1992 AND DECEMBER 31, 1991
Schedule X Supplementary Income Statement Information
Column A Column B
Charged to
costs and
Item expenses
For the Year For the Year For the Year
Ended Ended Ended
December 31, December 31, December 31,
1993 1992 1991
Maintenance and repairs $1,019,613 $803,316 $ 914,557
Taxes, other than
payroll and income
taxes $ 965,464 $977,259 $ 869,561
Royalties $ 194,788 $ 46,367 $ 0
Advertising costs $ 709,747 $507,520 $ 709,992
Item 9. Changes in and Disagreement with Accountants and
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Partnership
Registrant has no executive officers or directors. The General
Partner manages the Registrant's affairs and has general
responsibility and authority in all matters affecting its
business. The responsibilities of the General Partner are
carried out either by executive officers of EHR Opportunity
Management, Inc. and IMP Opportunity Management, Inc. as general
partners of RP Opportunity Management, L.P. or executive
officers of ML Opportunity Management Inc., acting on behalf of
the General Partner. The executive officers and directors of RP
Opportunity Management, L.P. and ML Opportunity Management Inc.
are:
RP Opportunity Management, L.P. (the "Management Company")
Served in Present
Name Capacity Since (1) Position Held
Director and President
I. Martin Pompadur 6/15/87 IMP Opportunity Management
Executive Vice President
Elizabeth McNey Yates 4/01/88 IMP Opportunity Management
ML Opportunity Management Inc. ("MLOM")
Served in Present
Name Capacity Since (1) Position Held
Kevin K. Albert 2/19/91 President
6/22/87 Director
Robert F. Aufenanger 2/02/93 Executive Vice President
3/28/88 Director
Robert W. Seitz 2/02/93 Vice President
2/01/93 Director
James K. Mason 2/01/93 Director
Steven N. Baumgarten 2/02/93 Vice President
David G. Cohen 3/07/94 Treasurer
(1) Directors hold office until their successors are elected
and qualified. All executive officers serve at the pleasure
of the Board of Directors of the respective entity.
I. Martin Pompadur, 58, is the Chairman and Chief Executive
Officer of GP Station Partners which is the General Partner of
Television Station Partners, L.P. a private limited partnership
that owns and operates four network affiliated television
stations. He is the Chairman and Chief Executive Officer of
PBTV, Inc., the Managing General Partner of Northeastern
Television Investors Limited Partnership, a private limited
partnership which owns and operates WBRE-TV, a network
affiliated station in Wilkes-Barre Scranton, Pennsylvania. Mr.
Pompadur also is a Chairman and Chief Executive Officer of U.S.
Cable Partners, a general partner of U.S. Cable Television
Group, L.P. ("U.S. Cable"). U.S. Cable owns and operates cable
systems in ten states. He is also the President and a director
of RP Media Management ("RPMM"), a joint venture which is a
partner in Media Management Partners ("MMP"), an affiliate of
the General Partner and the general partner of ML Media
Partners, L.P., which presently owns two network affiliated
television stations, several cable television systems and
several radio stations. Mr. Pompadur is the Chief Executive
Officer of ML Media Partners, L.P. Mr. Pompadur is also Chief
Executive Officer of MultiVision Cable TV Corp. ("Multivision"),
a cable television multiple system operator ("MSO") owned
principally by Mr. Pompadur to provide MSO services to cable
television systems acquired by entities under his control. Mr.
Pompadur is a principal owner, member of the Board of Directors
and Secretary of Caribbean International News Corporation
("Caribbean"). Caribbean owns and publishes EL Vocero, the
largest Spanish language daily newspaper in the U.S. He is a
principal shareholder in Hunter Publishing Company, Inc., the
general partner of Hunter Publishing Limited Partnership,
publisher of monthly trade magazines. Mr. Pompadur served as
president of Ziff Corporation from 1977 through 1982. Ziff
Corporation was the holding company for Ziff-Davis Publishing
Company, one of the world's largest publishers of special
interest and business publications, as well as Ziff-Davis
Broadcasting Company, operator of six network affiliated
television stations. Before joining Ziff Corporation, Mr.
Pompadur was with ABC, Inc. for 17 years. At ABC, he was a
member of the Board of Directors and also served in the
following capacities: General Manager of the Television
network; Vice President of the Broadcast Division; and President
of the Leisure Activities Group, which included ABC Publishing,
Records, Music Publishing and Motion Picture theaters.
Elizabeth McNey Yates, 31, joined RP Companies Inc., an entity
controlled by Mr. Pompadur, in April 1988 and has senior
executive responsibilities in the areas of finance, operations,
administration and acquisitions. Prior to joining Mr. Pompadur,
Ms. Yates was employed in Merrill Lynch Investment Banking's
Partnership Finance Department, where she was actively involved
in structuring and implementing public partnership offerings and
in monitoring investments made by Merrill Lynch managed
partnerships. Ms. Yates is an Executive Vice President of RPMM
and Senior Vice President of MMP.
Kevin K. Albert, 41, a Managing Director of Merrill Lynch
Investment Banking Group ("ML Investment Banking"), joined
Merrill Lynch in 1981. Mr. Albert works in the Equity Private
Placement Group and is involved in structuring and placing a
diversified array of private equity financings including common
stock, preferred stock, limited partnership interests and other
equity-related securities. Mr. Albert has a B.A. and an M.B.A.
from the University of California, Los Angeles. Mr. Albert is
also a director of Maiden Lane Partners, Inc. ("Maiden Lane"),
an affiliate of the General Partner and the general partner of
Liberty Equipment Investors - 1983; a director of Whitehall
Partners Inc. ("Whitehall"), an affiliate of MLOM and the
general partner of Liberty Equipment Investors L.P. - 1984; a
director of ML Media Management Inc. ("ML Media"), an affiliate
of MLOM and a joint venturer of Media Management Partners, the
general partner of ML Media Partners, L.P.; a director of ML
Film Entertainment Inc. ("ML Film"), an affiliate of MLOM and
the managing general partner of the general partners of Delphi
Film Associates, Delphi Film Associates II, III, IV, V and ML
Delphi Premier Partners, L.P.; a director of MLL Antiquities
Inc. ("MLL Antiquities"), an affiliate of MLOM and the
administrative general partner of The Athena Fund II, L.P.; a
director of ML Mezzanine II Inc. ("ML Mezzanine II"), an
affiliate of MLOM and sole general partner of the managing
general partner of ML-Lee Acquisition Fund II, L.P. and ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P.; a director of
ML Mezzanine Inc. ("ML Mezzanine"), an affiliate of MLOM and the
sole general partner of the managing general partner of ML-Lee
Acquisition Fund, L.P.; a director of Merrill Lynch Energy
Investments Inc. ("MLEI"), an affiliate of MLOM and the general
partner of Merrill Lynch Energy Partners I, L.P., Merrill Lynch
Energy Partners II A, L.P. and Merrill Lynch Energy Partners II
B, L.P.; a director of Merrill Lynch Venture Capital Inc. ("ML
Venture"), an affiliate of MLOM and the general partner of the
Managing General Partner of ML Venture Partners I, L.P.
("Venture I"), ML Venture Partners II, L.P. ("Venture II"), and
ML Oklahoma Venture Partners Limited Partnership ("Oklahoma"); a
director of Merrill Lynch R&D Management Inc. ("ML R&D"), an
affiliate of MLOM and the general partner of the General Partner
of ML Technology Ventures, L.P.; and a director of MLL
Collectibles Inc. ("MLL Collectibles"), an affiliate of MLOM and
the administrative general partner of The NFA World Coin Fund,
L.P. Mr. Albert also serves as an independent general partner
of Venture I and Venture II.
Robert F. Aufenanger, 40, a Vice President of Merrill Lynch &
Co. Corporate Strategy, Credit and Research and a Director of
the Partnership Management Department, joined Merrill Lynch in
1980. Mr. Aufenanger is responsible for the ongoing management
of the operations of the equipment and project related limited
partnerships for which subsidiaries of ML Leasing Equipment
Corp., an affiliate of Merrill Lynch, are general partners. Mr.
Aufenanger was previously Controller of Merrill Lynch Leasing
Inc. from 1982 through 1984 and had worked for the international
public accounting firm of Ernst & Whinney from 1975 to 1980.
Mr. Aufenanger has a B.S. from St. John's University, is a New
York State licensed C.P.A. and is a member of the American
Institute of Certified Public Accountants and the N.Y.S. Society
of Certified Public Accountants. Mr. Aufenanger is also a
director of Maiden Lane, Whitehall, ML Media, ML Film, MLL
Antiquities, ML Venture, ML R&D, MLL Collectibles and ML
Mezzanine and ML Mezzanine II.
Robert W. Seitz, 47, is a First Vice President of Merrill Lynch
& Co. Corporate Strategy, Credit and Research and a Managing
Director within the Corporate Credit Division of Merrill Lynch.
Mr. Seitz is the Private Client Senior Credit Officer and also
is responsible for the firm's Partnership Management and Asset
Recovery Management Departments. Prior to his present
assignment, Mr. Seitz was a Managing Director and the Senior
Credit Officer of the Merrill Lynch Public Finance Group, and
before that, manager of Western Hemisphere Business Development
for the Merrill Lynch International Banks. Prior to joining
Merrill Lynch, Mr. Seitz served as a Vice President and Unit
Head in Corporate Banking at Citibank, N.A. for ten years. Mr.
Seitz holds an MBA in Finance and Marketing from the University
of Rochester and a Bachelor of Arts in Psychology from
Gettysburg College. Mr. Seitz is also a director of Maiden
Lane, Whitehall, ML Media, ML Venture, ML R&D, ML Film, MLL
Antiquities, and MLL Collectibles.
James K. Mason, 41, a Managing Director of ML Investment
Banking, is a senior member of the Telecom, Media and Technology
group. He joined Merrill Lynch Investment Banking in 1978. Mr.
Mason is responsible for advising Merrill Lynch's entertainment
and media industry clients on such matters as financings,
divestitures, restructurings, mergers and acquisitions. Prior
to joining Merrill Lynch, Mr. Mason was involved in news and
production at Metromedia Inc.'s WNEW-TV and at Capital Cities'
WTVD-TV. He also was station manager for the NBC-TV affiliate
in Raleigh-Durham, North Carolina. Mr. Mason has two B.A.
degrees from Duke University, and an M.B.A. from Columbia
University Graduate School of Business. Mr. Mason is also a
director of ML Media.
Steven N. Baumgarten, 38, a Vice President of Merrill Lynch &
Co. Corporate Strategy, Credit and Research, joined Merrill
Lynch in 1986. Mr. Baumgarten shares responsibility for the
ongoing management of the operations of the equipment and
project related limited partnerships for which subsidiaries of
ML Leasing Equipment Corp., an affiliate of Merrill Lynch, are
general partners. Mr. Baumgarten was previously Manager of
Financial Analysis for the same group from 1986 through 1988.
Mr. Baumgarten has an MBA from New York University, a J.D. from
the Boston University School of Law and a B.A. from the State
University of New York at Stony Brook. Mr. Baumgarten is a
member of the Bar in the state of Massachusetts and is a member
of the American Bar Association.
David G. Cohen, 31, an Assistant Vice President of Merrill Lynch
& Co. Corporate Strategy, Credit and Research, joined Merrill
Lynch in 1987. Mr. Cohen's responsibilities include
controllership and financial management functions for certain
partnerships for which subsidiaries of ML Leasing Equipment
Corp., an affiliate of Merrill Lynch, are general partners.
Prior to joining Merrill Lynch, Mr. Cohen worked for the
international public accounting firm of Arthur Andersen & Co.
from 1984 through 1987. Mr. Cohen has a B.S. from the
University of Maryland and is a New York State Certified Public
Accountant.
Item 11. Executive Compensation
The Partnership does not pay the executive officers or directors
of the General Partner any remuneration. The General Partner
does not presently pay any remuneration to any of its executive
officers or directors. See Note 7 to the Financial Statements
included in Item 8 hereof, however, for sums paid by Registrant
to affiliates for the years ended December 31, 1993, December
31, 1992 and December 31, 1991.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
As of February 1, 1994, no person was known by the Registrant to
be the beneficial owner of more than 5 percent of the Units.
To the knowledge of the General Partner, as of February 1, 1994,
no person is the beneficial owner of 5% or more of the
outstanding common stock of Merrill Lynch & Co., Inc.
IMP Opportunity Management, Inc. is 100% owned by Mr. I. Martin
Pompadur.
Item 13. Certain Relationships and Related Transactions
Refer to Note 7 to the Financial Statements included in Item 8
hereof, and in Item 1 for a description of the relationship of
the General Partner and its affiliates to Registrant and its
subsidiaries.
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Financial Statements, Financial Statement Schedules
and Exhibits
Financial Statements and Financial Statement Schedules
See Item 8. "Financial Statements and Supplementary
Data".
Exhibits Incorporated by Reference
3.1 Certificate of Limited Exhibit 3.1 to the
Partnership Partnership's Form S-1 the
Partnership Statement (File
No. 33-15502)
3.2 Amended and Restated Exhibit 3.2 to the
Agreement of Limited Partnership Partnership's Annual Report
on Form 10-K for the fiscal
year ended December 31, 1987
(File No. 33-15502)
10.1.1 Exchange Agreement Exhibit 10.1 to Form 8-K
dated December 31, 1993. Report dated January 12, 1994
10.1.2 Consolidated Exhibit to Form 8-K Report
Prepackaged Plan of dated March 10, 1994
Reorganization of Maryland Cable
Corp. and Maryland Cable Holdings
Corp.
10.1.3 Letter Agreement to Exhibit 10.1 to Registrant's
Purchase and Sell all of the Annual Report on Form 10-K
Assets of the community antenna for the fiscal year ended
television systems owned by December 31, 1988 (File No.
Windsor Cablevision, Inc. between 33-15502)
Williamston Cable Television,
Inc. and Windsor Cablevision,
Inc. dated as of March 7, 1988.
10.1.4 Agreement between TCS, Exhibit 10.1 to Form 8-K
Registrant, Commonwealth Capital Report dated December 14,
Partners, L.P., and other 1992 (File No. 0-16690)
parties, dated December 14, 1992.
10.1.5 Management Agreement Exhibit 10.1.1 to
dated as of June 30, 1992 between Registrant's Annual Report on
ML Media Opportunity Partners, Form 10-K for the fiscal year
L.P. and Cablevision Systems ended December 31, 1992 (File
Corporation. No. 0-16690)
10.2 Promissory Note from Exhibit 10.2 to Registrant's
Williamston Cable Television, Annual Report on Form 10-K
Inc. to Windsor Cablevision, Inc. for the fiscal year ended
December 31, 1988 (File No.
33-15502)
10.2 Services Agreement between Exhibit 10.2 to Form 8-K
Registrant, TCS Management Corp., Report dated December 14,
and Commonwealth Capital 1992 (File 0-16690)
Partners, L.P., dated December
14, 1992.
10.2.1 Asset Purchase Exhibit 10.2.1 to
Agreement dated November 16, 1993 Registrant's Quarterly Report
between Tar River Communications, on Form 10-Q for the quarter
Inc. and Registrant. ended September 30, 1993
(File No. 0-16690)
10.3.1 Securities Purchase Exhibit 28.1 to Registrant's
Agreement dated May 13, 1988 Quarterly Report on Form 10-Q
relating to Prime Cable Systems. for the quarter ended June
30, 1988 (File No. 0-16690)
10.3.2 Amendment No. 1 to Exhibit 2(b) to Amendment No.
Securities Purchase Agreement, 2 to the Registration
dated as of October 21, 1988. Statement of Maryland Cable
Corp. (File No. 33-23679)
10.3.3 Amendment No. 2 to Exhibit 2(c) to Maryland
Securities Purchase Agreement, Cable Corp.'s Annual Report
dated as of October 28, 1988. on Form 10-K for the fiscal
year ended December 31, 1989
(File No. 33-23679)
10.3.4 Purchase and Sale Exhibit 10.3.4 to
Agreement dated January 22, 1993 Registrant's Annual Report on
between Maryland Cable Corp. and Form 10-K for the fiscal year
Benchmark Acquisition Fund I ended December 31, 1992 (File
Limited Partnership. No. 0-16690)
10.4 Credit Agreement dated Exhibit 28.2 to Registrant's
November 4, 1988 between Maryland quarterly Report on Form 10-Q
Cable Corp., and Citibank, N.A., for the quarter ended June
as agent. 30, 1988 (File No. 0-16690)
10.5 Maryland Cable Corp. to Exhibit 4(a) to Maryland
Security Pacific National Trust Cable Corp.'s Annual Report
Company (New York) Trustee - on Form 10-K for the fiscal
Indenture Dated as of November year ended December 31, 1989
15, 1988 - $162,406,000 Senior (File No. 33-23679)
Subordinated Discount Notes due
1988.
10.6 Asset Purchase Agreement Exhibit 10.6 to Registrant's
dated December 21, 1988 by and Annual Report on Form 10-K
between CBN Continental for the fiscal year ended
Broadcasting Network, Inc., and December 31, 1988 (File No.
ML Media Opportunity Partners, 33-15502)
L.P.
10.7 Agency and Cost Allocation Exhibit 10(a) to Maryland
Agreement, as amended. Cable Corp.'s Annual Report
on Form 10-K for the fiscal
year ended December 31, 1989
(File No. 33-23679)
10.8 Fee Sharing Agreement Exhibit 10(b) to Maryland
between ML Media Opportunity Cable Corp.'s Annual Report
Partners, L.P. and Maryland Cable on Form 10-K for the fiscal
Corp. year ended December 31, 1989
(File No. 33-23679)
10.9 Subordination Agreement by Exhibit 28(a) to Maryland
and among ML Media Opportunity Cable Corp.'s Annual Report
Partners, L.P., Maryland Cable on Form 10-K for the fiscal
Corp. and Security Pacific year ended December 31, 1989
National Trust Company (New York) (File No. 33-23679)
as trustee.
10.10.1 Guaranty of Cellular Exhibit 10.10.1 to
Holdings, Inc. dated May 19, Registrant's Quarterly Report
1989. on Form 10-Q for the quarter
ended June 30, 1989 (File No.
0-16690)
10.10.2 Security and Pledge Exhibit 10.10.2 to
Agreement between Cellular Registrant's Quarterly Report
Holdings, Inc. and ML Media on Form 10-Q for the quarter
Opportunity Partners, L.P. dated ended June 30, 1989 (File No.
as of May 19, 1989. 0-16690)
10.10.3 Subscription and Exhibit 10.10.3 to
Purchase Agreement 666,667 shares Registrant's Quarterly Report
of Series A Convertible Preferred on Form 10-Q for the quarter
Stock of General Cellular corp. ended June 30, 1989 (File No.
Dated as of May 19, 1989. 0-16690)
10.10.4 Certificate of Exhibit 10.10.4 to
Designations, Preferences, and Registrant's Quarterly Report
Relative Rights of Series A on Form 10-Q for the quarter
Convertible Preferred Stock of ended June 30, 1989 (File No.
General Cellular Corporation. 0-16690)
10.10.5 Registration Rights Exhibit 10.10.5 to
Agreement Dated as of May, 19, Registrant's Quarterly Report
1989 between General Cellular on Form 10-Q for the quarter
Corp. and ML Media Opportunity ended June 30, 1989 (File No.
Partners, L.P. 0-16690)
10.11 Limited Partnership Exhibit 10.11 to Registrant's
Agreement between Bob Banner Quarterly Report on Form 10-Q
Associates, the Gary L. Pudney for the quarter ended June
Co. and ML Media Opportunity 30, 1989 (File No. 0-16690)
Productions, Inc. and ML Media
Opportunity Partners, L.P.
10.12 Stockholders Agreement Exhibit 10.12 to Registrant's
dated as of September 1, 1989 Annual Report on Form 10-K
among Mediaventures International for the fiscal year ended
Limited, ML Media Opportunity December 31, 1991
Partners, L.P., Peter Clark and (File No. 0-16690)
Alan Morris.
10.13 Limited Partnership Exhibit 10.13 to Registrant's
Agreement of European Media Annual Report on Form 10-K
Partners dated as of September 1, for the fiscal year ended
1989 among Mediaventures Limited, December 31, 1991
ML Media Opportunity Europe, Inc. (File No. 0-16690)
and ML Media Opportunity
Partners, L.P.
10.14 Stock Purchase Exhibit 10.14 to Registrant's
Agreement dated as of January 17, Annual Report on Form 10-K
1990 between Malcolm Glazer and for the fiscal year ended
TCS Television Partners, L.P. December 31, 1991
(File No. 0-16690)
10.15 Limited Partnership Exhibit 10.15 to Registrant's
Agreement of TCS Television Annual Report on Form 10-K
Partners, L.P. dated January 17, for the fiscal year ended
1990 between Riverdale Media December 31, 1991
Corp. and ML Media Opportunity (File No. 0-16690)
Partners, L.P.
10.16 First Amendment to Exhibit 10.16 to Registrant's
Credit Agreement dated as of Annual Report on Form 10-K
November 14, 1989 by and among for the fiscal year ended
Maryland Cable Corp., and December 31, 1991
Citibank, N.A., as Agent. (File No. 0-16690)
10.17 Second Amendment to Exhibit 10.17 to Registrant's
Credit Agreement dated March 30, Annual Report on Form 10-K
1990 by and among Maryland Cable for the fiscal year ended
Corp. and Citibank, N.A., as December 31, 1991
Agent. (File No. 0-16690)
10.18 Security and Pledge Exhibit 10.18 to Registrant's
Agreement between General Annual Report on Form 10-K
Cellular Corporation and ML Media for the fiscal year ended
Opportunity Partners, L.P. dated December 31, 1991
as of June 15, 1990. (File No. 0-16690)
10.19 Employment Agreement Exhibit 10.19 to Registrant's
dated June 22, 1990 between Annual Report on Form 10-K
Jessica J. Josephson and for the fiscal year ended
International Media Publishing, December 31, 1991
Inc. (File No. 0-16690)
10.19.1 Agreement dated Exhibit 10.19.1 to
November 1, 1992 between Venture Registrant's Annual Report on
Media and Communications, L.P., Form 10-K for the fiscal year
ML Media Opportunity Partners, ended December 31, 1992
L.P., Jessica J. Josephson, (File No. 0-16690)
International Media Strategies,
Inc. and International Media
Publishing, L.P.
10.20 Limited Partnership Exhibit 10.20 to Registrant's
Agreement of International Media Annual Report on Form 10-K
Publishing L.P. dated June 22, for the fiscal year ended
1990. December 31, 1991
(File No. 0-16690)
10.20.1 Bill of Sale and Exhibit 10.20.1 to
Agreement dated as of July 16, Registrant's Quarterly Report
1993 between International Media on Form 10-Q for the quarter
Publishing, L.P. and Phillips ended June 30, 1993
Business Information Inc. (File No. 0-16690)
10.20.2 Bill of Sale and Exhibit 10.20.2 to
Agreement dated as of July 16, Registrant's Quarterly Report
1993 between Intelidata Limited on Form 10-Q for the quarter
and Phillips Business Information ended June 30, 1993
Inc. (File No. 0-16690)
10.20.3 Sale and Purchase Exhibit 10.20.3 to
Agreement dated as of August 6, Registrant's Quarterly Report
1993 between Intelidata Limited on Form 10-Q for the quarter
and Romtec plc. ended September 30, 1993
(File No. 0-16690)
10.21 TCS Television Exhibit 10.21 to Registrant's
Partners, L.P. Note Purchase Annual Report on Form 10-K
Agreement dated June 1, 1990. for the fiscal year ended
December 31, 1991
(File No. 0-16690)
10.22 Amended and Restated Exhibit 10.22 to Registrant's
Credit Agreement dated as of Annual Report on Form 10-K
September 6, 1991, among Maryland for the fiscal year ended
Cable Corp., Maryland Cable December 31, 1991
Holdings Corp. and Citibank, N.A. (File No. 0-16690)
as Agent.
10.23 Participation Agreement Exhibit 10.23 to Registrant's
dated as of September 6, 1991, Annual Report on Form 10-K
among ML Cable Partners, L.P. and for the fiscal year ended
Citibank, N.A., as Agent. December 31, 1991
(File No. 0-16690)
10.24 Limited Partnership Exhibit 10.24 to Registrant's
Agreement of ML Cable Partners, Annual Report on Form 10-K
L.P. dated as of September 4, for the fiscal year ended
1991. December 31, 1991
(File No. 0-16690)
10.25 Certificate of Limited Exhibit 10.25 to Registrant's
Partnership of ML Cable Partners, Annual Report on Form 10-K
L.P. for the fiscal year ended
December 31, 1991
(File No. 0-16690)
10.26 Warrant Purchase Exhibit 10.26 to Registrant's
Agreement dated as of September Annual Report on Form 10-K
6, 1991, among Maryland Cable for the fiscal year ended
Holdings Corp. and Citibank, December 31, 1991
N.A., as Agent. (File No. 0-16690)
10.27 Class A Warrant to Exhibit 10.27 to Registrant's
Purchase Common Stock of Maryland Annual Report on Form 10-K
Cable Holdings corp., dated for the fiscal year ended
September 6, 1991. December 31, 1991
(File No. 0-16690)
10.28 Amended and Restated Exhibit 10.28 to Registrant's
Subordination Agreement dated as Annual Report on Form 10-K
of September 6, 1991, among for the fiscal year ended
Registrant, Maryland Cable Corp., December 31, 1991
Maryland Cable Holdings Corp. and (File No. 0-16690)
Citibank, N.A. as Agent.
10.29 Amendatory Agreement, Exhibit 10.29 to Registrant's
dated as of September 6, 1991Annual Report on Form 10-K
among Maryland Cable Corp.,for the fiscal year ended
Maryland Cable Holdings Corp.,December 31, 1991
and Citibank, N.A. as Agent.(File No. 0-16690)
10.30 Amended and Restated Exhibit 10.30 to Registrant's
Guaranty to Maryland Cable Corp., Annual Report on Form 10-K
dated as of September 6, 1991, by for the fiscal year ended
Citibank, N.A. as Agent, and December 31, 1991
Maryland Cable Holdings Corp. (File No. 0-16690)
10.31 Agent's Fee Agreement Exhibit 10.31 to Registrant's
dated as of September 6, 1991, Annual Report on Form 10-K
between Citibank, N.A. and for the fiscal year ended
Maryland Cable Corp. December 31, 1991
(File No. 0-16690)
10.32 Co-Sale Agreement dated Exhibit 10.32 to Registrant's
as of September 6, 1991, among Annual Report on Form 10-K
Registrant and Maryland Cable for the fiscal year ended
Holdings Corp. December 31, 1991
(File No. 0-16690)
10.33 Agreement for the Sale Exhibit 10.33 to Registrant's
and Purchase of Information Annual Report on Form 10-K
Research Division of Logica UK for the fiscal year ended
Limited, dated December 17, 1991. December 31, 1991
(File No. 0-16690)
10.34 Memorandum and Articles Exhibit 10.34 to Registrant's
of Association of Intelidata Annual Report on Form 10-K
Limited, dated as of October 18, for the fiscal year ended
1991. December 31, 1991
(File No. 0-16690)
10.35 Agreement among Bob Exhibit 10.35 to Registrant's
Banner Associates, The Gary L. Annual Report on Form 10-K
Pudney Co., ML Media Opportunity for the fiscal year ended
Productions, Inc., and Registrant December 31, 1991
for withdrawal of Bob Banner (File No. 0-16690)
Associates and the Gary L. Pudney
Co. as General Partners from
Paradigm Entertainment L.P. dated
May 31, 1991.
10.35.1 Partnership Agreement Exhibit 10.35.1 to
dated June 23, 1992 among Bob Registrant's Annual Report on
Banner Associates, Inc. and Form 10-K for the fiscal year
Paradigm Entertainment, L.P. ended December 31, 1992
(File No. 0-16690)
10.36a Articles of Association Exhibit 10.36a to Form 10-Q
of Media Ventures Investments for the quarter ended March
Ltd. 31, 1992
(File No. 0-16690)
10.36b Special Resolution of Exhibit 10.36b to Form 10-Q
Media Ventures Investments Ltd. for the quarter ended March
31, 1992
(File No. 0-16690)
10.36c Articles of Association Exhibit 10.36c to Form 10-Q
of European Media Partners, Ltd. for the quarter ended March
31, 1992
(File No. 0-16690)
10.36d Special Resolution of Exhibit 10.36d to Form 10-Q
European Media Partners, Ltd. for the quarter ended March
31, 1992
(File No. 0-16690)
10.36e Certificate of Exhibit 10.36e to Form 10-Q
Incorporation on Change of Name for the quarter ended March
(various). 31, 1992
(File No. 0-16690)
10.36f Resolution of Exhibit 10.36f to Form 10-Q
Investment by ALP Enterprises in for the quarter ended March
European Media Partners, Ltd. 31, 1992
(File No. 0-16690)
10.36g Resolution of initial Exhibit 10.36g to Form 10-Q
ownership structure of European for the quarter ended March
Media Partners, Ltd. 31, 1992
(File No. 0-16690)
10.36h Agreement to transfer Exhibit 10.36h to Form 10-Q
of International Programme for the quarter ended March
Ventures Limited to European 31, 1992
Media Partners, Ltd. (File No. 0-16690)
10.36i Agreement for the Sale Exhibit 10.36i to Form 10-Q
and Purchase of 50% of the issued for the quarter ended March
Share Capital of Neomedion Ltd. 31, 1992
(File No. 0-16690)
10.36j Listing of Shareholders Exhibit 10.36j to Form 10-Q
at May 14, 1992 of Mediaventures for the quarter ended March
Investments Ltd., European Media 31, 1992
Partners, Ltd. and Neomedion Ltd. (File No. 0-16690)
10.37 Management Agreement by Exhibit 10.37 to Quarterly
and between Fairfield Report on Form 10-Q for the
Communications, Inc. and ML Media quarter ended June 30, 1993
Partners, L.P. and Registrant (File No. 0-16690)
dated May 15, 1993.
10.37.1 Sharing Agreement by Exhibit 10.37.1 to Quarterly
and among ML Media Partners, Report on Form 10-Q for the
L.P., Registrant, RP Companies, quarter ended June 30, 1993
Inc., Radio Equity Partners, (File No. 0-16690)
Limited Partnership and Fairfield
Communications, Inc.
10.37.2 Option Agreement by and
between U.S. Radio, Inc. and
Registrant relating to station
WMXN-FM dated January 25, 1994.
10.37.3 Time Brokerage
Agreement by and between U.S.
Radio, L.P. and Registrant
relating to station WMXN-FM dated
January 25, 1994.
99.1 Pages 13 through 21 and 41 Exhibit 28.1 to Registrant's
through 50 of Prospectus of the Annual Report on Form 10-K
Partnership dated December 31, for the fiscal year ended
1987, filed pursuant to Rule December 31, 1987
424(b) under the Securities Act (File No. 33-15502)
of 1933.
99.2 Pages 12 through 15, 17, 18, Exhibit 28.2 to Registrant's
22 through 25, 41 through 53 and Annual Report on Form 10-K
55 through 72 of Prospectus for for the fiscal year ended
Maryland Cable Corp.'s offering December 31, 1988
of $162,406,000 Senior (File No. 33-15502)
Subordinated Discount Notes due
1998 and Maryland Cable Holdings
Corp.'s offering of 2,000,000
Shares of Class B common Stock.
99.3 Form 8-K Current Report for Exhibit 28.3 to Registrant's
ML Media Opportunity Partners, Quarterly Report on form 10-Q
L.P. dated November 17, 1988. for the quarter ended
September 29, 1989
(File No. 0-16690)
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
By: Media Opportunity Management Partners
General Partner
By: ML Opportunity Management Inc.
Dated: March 31, 1994 /s/ Kevin K. Albert
Kevin K. Albert
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of Registrant in the capacities and on the dates
indicated.
RP OPPORTUNITY MANAGEMENT, L.P.
By: IMP Opportunity Management Inc.
a general partner
Signature Title Date
/s/ I. Martin Pompadur Director and March 31, 1994
(I. Martin Pompadur) President(principal
executive officer of the
Registrant)
ML OPPORTUNITY MANAGEMENT INC. ("MLOM")
Signature Title Date
Each with respect to
MLOM unless otherwise
noted)
/s/ Kevin K. Albert Director and March 31, 1994
(Kevin K. Albert) President
/s/ Robert F. Aufenanger Director and March 31, 1994
(Robert F. Aufenanger) Executive Vice
President
/s/ James K. Mason Director March 31, 1994
(James K. Mason)
/s/ Robert W. Seitz Director and Vice March 31, 1994
(Robert W. Seitz) President
/s/ David G. Cohen Treasurer March 31, 1994
(David G. Cohen) (principal accounting
officer and principal
financial officer of
the Registrant)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
By:Media Opportunity Management
Partners
General Partner
By:ML Opportunity Management Inc.
Dated: March , 1994
Kevin K. Albert
Director and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of Registrant in the capacities and on the dates
indicated.
RP OPPORTUNITY MANAGEMENT, L.P.
By:IMP Opportunity Management Inc.
a general partner
Signature Title Date
Director and March , 1994
(I. Martin Pompadur) President(principal
executive officer)
ML OPPORTUNITY MANAGEMENT INC. ("MLOM")
Signature Title Date
Director and March , 1994
(Kevin K. Albert) President
Director and March , 1994
(Robert F. Aufenanger) Executive Vice
President
Director March , 1994
(James K. Mason)
Director and Vice March , 1994
(Robert W. Seitz) President
Treasurer March , 1994
(David G. Cohen) (principal accounting
officer and principal
financial officer of
the Registrant)
- - ------------------------------------------------------------
- - ----------------------------------------
TIME BROKERAGE AGREEMENT
- - ------------------------------------------------------------
- - -----------------------------------------
by and between
US RADIO, L.P.
and
ML MEDIA OPPORTUNITY PARTNERS, L.P.
relating to
Station WMXN-FM
Norfolk, Virginia
Dated as of January ___, 1994
TABLE OF CONTENTS
Section Heading
Page
SECTION 1
BROKERAGE OF STATION AIR TIME . . . . . . . . . . . . .
. . . 2
1.1.Scope. . . . . . . . . . . . . . . . . . . . .
. . . 2
1.2.Term . . . . . . . . . . . . . . . . . . . . .
. . . 3
1.3.Consideration. . . . . . . . . . . . . . . . .
. . . 3
1.4.Authorization. . . . . . . . . . . . . . . . .
. . . 4
SECTION 2
OPERATION . . . . . . . . . . . . . . . . . . . . . . .
. . . 4
2.1.Licensee Responsibility. . . . . . . . . . . .
. . . 4
2.2.Broker Responsibility. . . . . . . . . . . . .
. . . 6
2.3.Broadcast Output . . . . . . . . . . . . . . .
. . . 7
2.4.Advertising and Programming; Sales and Trade
Agreements 7
2.5.Assumption of Other Contracts. . . . . . . . .
. . . 8
SECTION 3
COMPLIANCE WITH REGULATIONS . . . . . . . . . . . . . .
. . . 10
3.1.Licensee Authority . . . . . . . . . . . . . .
. . . 10
3.2.Cooperation Between Licensee and Broker. . . .
. . . 10
3.3.Station Identification and Promotion. . . . .
. . . 11
3.4.Payola/Plugola.. . . . . . . . . . . . . . . .
. . . 11
3.5.Political Advertising. . . . . . . . . . . . .
. . . 12
3.6.Regulatory Changes . . . . . . . . . . . . . .
. . . 13
SECTION 4
STATION BROADCASTS. . . . . . . . . . . . . . . . . . .
. . . 13
4.1.Station Broadcast Guidelines . . . . . . . . .
. . . 13
4.2.Licensee Control of Programming. . . . . . . .
. . . 13
4.3.Right to Use the Programs. . . . . . . . . . .
. . . 15
4.4. Rejection of Programming. . . . . . . . . . .
. . . . . 15
4.5.Program Recordkeeping and Other Procedures.. .
. . . 15
SECTION 5
TERMINATION AND REMEDIES UPON DEFAULT . . . . . . . . .
. . . 16
5.1.Termination by Either Party. . . . . . . . . .
. . . 16
5.2.Broker's Remedies. . . . . . . . . . . . . . .
. . . 17
5.3.Liabilities Upon Termination of This
Agreement.. . . 18
5.4.Arbitration. . . . . . . . . . . . . . . . . .
. . . 18
SECTION 6
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . .
. . . 19
6.1.Broker's Indemnification.. . . . . . . . . . .
. . . 19
6.2.Licensee's Indemnification.. . . . . . . . . .
. . . 20
6.3.Procedure for Indemnification. . . . . . . . .
. . . 20
6.4.Dispute Over Indemnification.. . . . . . . . .
. . . 22
SECTION 7
COLLECTION OF ACCOUNTS RECEIVABLE . . . . . . . . . . .
. . . 22
SECTION 8
STATUS OF EMPLOYEES . . . . . . . . . . . . . . . . . .
. . . 24
8.1. . . . . . . . . . . . . . . . . . . . . . . .
. . . 24
8.2. . . . . . . . . . . . . . . . . . . . . . . .
. . . 25
SECTION 9
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . .
. . . 26
9.1.Assignment . . . . . . . . . . . . . . . . . .
. . . 26
9.2.Brokerage. . . . . . . . . . . . . . . . . . .
. . . 26
9.3.Counterparts.. . . . . . . . . . . . . . . . .
. . . 27
9.4.Entire Agreement.. . . . . . . . . . . . . . .
. . . 27
9.5.Headings.. . . . . . . . . . . . . . . . . . .
. . . 27
9.6.Third Parties. . . . . . . . . . . . . . . . .
. . . 27
9.7.Indulgences. . . . . . . . . . . . . . . . . .
. . . 27
9.8.Counsel. . . . . . . . . . . . . . . . . . . .
. . . 28
9.9.Severability.. . . . . . . . . . . . . . . . .
. . . 28
9.10.Governing Law . . . . . . . . . . . . . . . .
. . . 28
9.11.Confidentiality.. . . . . . . . . . . . . . .
. . . 29
9.12.No Partnership or Joint Venture.. . . . . . .
. . . 29
9.13.Licensee Certification. . . . . . . . . . . .
. . . 29
9.14.Broker Certification. . . . . . . . . . . . .
. . . 30
9.15.Notices.. . . . . . . . . . . . . . . . . . .
. . . 30
TIME BROKERAGE AGREEMENT
This Time Brokerage Agreement ("Agreement") is made and
entered into this ____ day of January, 1994, by and between
ML MEDIA OPPORTUNITY PARTNERS, L.P., a Delaware limited
partnership (the "Licensee") and US RADIO, L.P., a Delaware
limited partnership (the "Broker").
WITNESSETH THAT:
WHEREAS, Licensee owns and operates FM broadcast
station WMXN-FM, 105.3 MHz, Norfolk, Virginia (the
"Station") pursuant to licenses issued by the Federal
Communications Commission (the "FCC"); and
WHEREAS, Broker desires to provide radio programs in
conformity with this Agreement and all rules, regulations,
and policies of the FCC to Licensee for broadcast on the
Station; and
WHEREAS, Licensee desires to make broadcasting time on
the Station available to Broker on terms and conditions
which conform to FCC rules, regulations, and policies and to
this Agreement; and
WHEREAS, Licensee and US Radio V, Inc., a Delaware
corporation ("Optionee") have concurrently entered into an
Option Agreement (the "Option Agreement") under which
Licensee has granted Optionee an option to purchase the
Station (the "Call") and Optionee has granted to Seller an
option to require Optionee to purchase the Station from
Seller under certain circumstances (the "Put"), subject to
prior FCC approval;
WHEREAS, if the Call or Put are exercised but Optionee
fails to consummate the purchase of the Station in
accordance with the terms of the Asset Purchase Agreement
attached as Exhibit 1 to the Option Agreement, Licensee may
cause Broker to sell its Stations WOWI-FM, Norfolk,
Virginia, and WSVY-AM, Portsmouth, Virginia jointly with the
Station to a third party ("Joint Sale") in accordance with
the terms of the Option Agreement;
NOW, THEREFORE, in consideration of the mutual promises
and covenants contained herein, the parties, intending to be
legally bound, agree as follows:
SECTION 1
BROKERAGE OF STATION AIR TIME
1.1. Scope. Licensee shall make available to Broker
the Station's air time, as set forth in this Agreement, for
broadcast of the programs produced or selected by Broker.
Broker may provide entertainment programming of its
selection, complete with commercial matter, news, public
service announcements, and other suitable programming for
broadcast on the Station. Notwithstanding the foregoing,
Licensee shall utilize such time as Licensee may require for
the broadcast of news, public affairs, public service
announcements, and other informational programming provided
by Licensee that is responsive to the needs and interests of
its community of license and service area, which programming
shall be broadcast at least 2 hours a week; provided,
however, that Licensee shall not reserve time for its own
programming between 5:00 a.m. and 10:00 a.m. or 3:00 p.m.
and 8:00 p.m. on weekdays. Licensee hereby initially
designates the hours set forth on Attachment C hereto for
such use. It is understood and agreed that in the event of
a local, state or national emergency or circumstances that
Licensee in good faith believes necessary to satisfy the
public interest, Licensee reserves the right to preempt
programming time to broadcast programs and/or announcements
on a non-commercial basis. Licensee will use its best
efforts to notify Broker in advance of such preemptions. In
addition, Broker shall broadcast, at Licensee's request, up
to two (2) thirty-second announcements each day containing
any material of Licensee's choice at such times as are
mutually agreeable to Licensee and Broker. Broker shall
also consider in good faith including in its programming
such other public service announcements as Licensee may from
time to time suggest.
1.2. Term. This Agreement shall commence on January
31, 1994 (the "Commencement Date) and, unless sooner
terminated in accordance with the terms hereof, shall
continue for an initial term ending on the earliest of (i)
March 1, 1995, if neither the Call nor Put have been
exercised pursuant to the Option Agreement, (ii) the
consummation of the sale of the Station to Optionee pursuant
to the Option Agreement, or (iii) the consummation of a
Joint Sale of the Station and Optionee's stations to a third
party pursuant to the Option Agreement.
1.3. Consideration. In consideration for the air time
made available by Licensee hereunder, Broker shall, subject
to the terms and conditions hereof, pay Licensee by check on
or before the first (1st) day of the calendar month for
which payment is due the sum of Forty-Two Thousand Dollars
($42,000) for each month during the term of this Agreement,
prorated as appropriate for any partial months.
1.4. Authorization. Licensee and Broker each represent
to the other that it is legally qualified, empowered, and
able to enter into this Agreement, that this Agreement has
been duly approved by all necessary actions of its partners,
that this Agreement is its legally binding obligation,
enforceable in accordance with the terms hereof, and that
this Agreement does not constitute a breach or default under
its limited partnership agreement or certificate or any
other agreement by which it is bound.
SECTION 2
OPERATION
2.1. Licensee Responsibility.
(a) Nothing herein shall be construed to grant to
Broker the power or authority to control or direct the
operation of the Station. Whenever on the premises of the
Station, Broker's employees and agents shall at all times be
subject to the direction and control of Licensee, its
general manager and other employees or agents. The parties
acknowledge and agree that Broker shall broadcast its
programming from the Station studio located at Riverside
Corporate Center, 240 Corporate Blvd., Suite 105, Norfolk,
Virginia.
(b) Licensee shall be responsible for, and pay in a
timely manner, all real estate taxes and/or rental payments
on the real property upon which the Station's antenna system
and/or studio facilities are located, and all personal
property taxes and/or rental payments on the Station
equipment owned or rented by Licensee. Licensee shall also
be responsible for the cost of maintaining the Station's
studio, transmitter, and antenna equipment. Licensee shall
employ its own general manager and such support staff as is
necessary to oversee the operation of the Station. Licensee
shall be responsible for the salaries, taxes, insurance, and
related costs for all of Licensee's employees. Licensee
shall maintain replacement value insurance coverage on the
Station's transmitter, transmitter building, towers, antenna
system, and studio equipment, and, in the event of any loss
or damage to such property, Licensee shall use the proceeds
of such insurance policies to replace, restore, or repair
the lost or damaged property. Licensee shall cooperate with
Broker, at Broker's expense, in making such arrangements as
Broker shall reasonably request to deliver Broker's
programming from any remote location to the Station's
transmitter site.
(c) Licensee shall be responsible for the Station's
compliance with all applicable provisions of the
Communications Act of 1934, as amended, the rules,
regulations, and policies of the FCC, and all other
applicable laws, including, without limitation, laws
relating to equal employment opportunity (as applied to
Licensee's employees), human exposure to radiofrequency
radiation, and the safety of air navigation. Licensee
represents that it now holds all licenses and other permits
and authorizations necessary for the operation of the
Station as presently conducted (including all FCC licenses,
permits, and authorizations), and that it will maintain such
licenses, permits, and authorizations in full force and
effect throughout the term of this Agreement, unimpaired by
any acts or omissions of Licensee. Licensee represents that
there is not now pending or, to Licensee's knowledge,
threatened, any action by the FCC or other party to revoke,
cancel, suspend, refuse to renew, or modify adversely any of
the licenses, permits, or authorizations necessary for the
operation of the Station.
2.2. Broker Responsibility. Broker shall employ and be
responsible for the salaries, taxes, insurance, and related
costs for all personnel employed by Broker in connection
with the production or supply of the programs provided to
the Station hereunder, and all other costs incurred by
Broker in providing and broadcasting such programs,
including telephone service at the studio and the cost of
all utilities to operate the Station during the term of this
Agreement and all other costs incurred in connection with
broadcasts by the Station other than those for which
Licensee is responsible under Sections 2.1(b) or 2.1(c).
Broker shall also be responsible for all expenses incurred
in the origination and/or delivery of Broker's programming
to the Station's transmitter site, all music licensing fees
and assessments with respect to the broadcast of Broker's
programming by the Station (including but not limited to
those charged by ASCAP, BMI, SESAC or similar
organizations), and all publicity or promotional expenses
incurred by Broker. Broker shall maintain broadcaster's
errors and omissions insurance with respect to all
programming to be broadcast by Broker over the Station, with
such insurance carriers and such policy limits as are
reasonably acceptable to Licensee, and shall name Licensee
as an additional insured on all such insurance policies.
Broker shall provide evidence of such insurance coverage to
Licensee.
2.3. Broadcast Output. Licensee represents that the
Station's transmitting equipment has been maintained in
accordance with good engineering standards necessary to
deliver a high-quality stereo signal, complies in all
material respects with all applicable laws and regulations
(including the requirements of the Communications Act and
the rules, regulations, policies, and procedures of the
FCC), and is operating with the full facilities currently
authorized by the FCC for the Station. So long as this
Agreement remains in effect, Licensee shall take no action
that results in a materially adverse degradation in the
present quality of the Station's broadcast output (normal
and reasonable down-time for maintenance, repair, and
replacement of equipment excepted).
2.4. Advertising and Programming; Sales and Trade
Agreements. All contracts, advertising, agreements,
purchase orders, and other similar documents and instruments
negotiated and executed by Broker in connection with its
programming of the Station, sales, advertising, exploitation
and promotion on or after the Commencement Date shall be in
the name of Broker, and Broker shall not represent in any
fashion that Broker is the licensee or owner of the Station.
Broker will be entitled to all revenue from the sale of
advertising or program time on the Station, except for
revenues from advertising or program time sold by Licensee
for the hours of operation and announcements reserved by
Licensee in Section 1.1. All advertising contracts entered
into by Licensee prior to the Commencement Date for
commercial time to be broadcast after the Commencement Date
(for cash or trade) shall be performed by Broker, and Broker
shall be entitled to all revenue from such cash contracts
and all trade to be delivered after the Commencement Date
from such trade contracts; any cash prepayments with respect
to such commercial time shall be paid over by Licensee to
Broker, but Licensee shall have no obligation to Broker with
respect to any trade received with respect to such
commercial time prior to the Commencement Date. A complete
schedule of such advertising contracts, both cash and trade,
showing the amount of cash and trade already collected from
the advertisers, is attached hereto as Attachment D.
2.5. Assumption of Other Contracts. Licensee shall
assign to Broker and Broker shall assume, as of the
Commencement Date, the contracts listed in Attachment G (the
"Contracts"). In the event that this agreement expires or
is terminated for any reason and neither the sale of the
Station to Optionee nor the Joint Sale of the Station and
Optionee's stations to a third party is consummated pursuant
to the Option Agreement, then the Contracts shall be
reassigned to and assumed by Licensee upon the expiration or
termination of this Agreement.Licensee shall use its best
efforts to obtain any consents required to assign the
Contracts to Broker. Notwithstanding any provision of this
Agreement to the contrary, this Agreement shall not
constitute an agreement to assign any contract, if (i) an
attempted assignment, without the consent required for such
assignment, would constitute a breach thereof or in any way
have a material adverse effect on Licensee's or Broker's
rights thereunder, and (ii) such consent is not obtained by
Licensee prior to the Commencement Date. If any such
required consent is not obtained, or if an attempted
assignment would be ineffective or would adversely affect
Licensee's rights thereunder so that Broker would not
receive all such rights and benefits after the Commencement
Date, Licensee shall cooperate in any arrangement Broker may
reasonably request to provide Broker with Licensee's rights
and benefits under any such contract, including enforcement
for the benefit of Broker of any rights of Licensee against
any other party thereto arising out of the breach or
cancellation thereof by such party or otherwise. With
respect to any contracts that require the consent of third
parties for assignment, but for which the consent of such
third parties has not been obtained as of the Commencement
Date, Broker shall assume Licensee's obligations to be
performed under those agreements only for the period after
the Commencement Date during which Broker receives the
benefits that Licensee was entitled to receive under such
agreements as of the Commencement Date. Licensee shall
attempt to negotiate cancellations of the agreements listed
in Attachment H in consultation with Broker, and Broker
shall reimburse Licensee for any cancellation fees incurred
by Licensee in cancelling those agreements.
SECTION 3
COMPLIANCE WITH REGULATIONS
3.1. Licensee Authority. Broker recognizes that
Licensee has an obligation to broadcast programming that
covers issues of public importance in Norfolk, Virginia and
other communities within the Station's service area. The
parties intend that Licensee will use a substantial portion
of the air time reserved to it under Section 1.1 above to
satisfy these public service obligations.
3.2. Cooperation Between Licensee and Broker. Both
parties shall cooperate in the broadcast of emergency
information over the Station, and Licensee retains the right
to preempt Broker's programming in case of an emergency.
Licensee shall maintain a main studio within the Station's
principal community contour and maintain its local public
inspection file in its community of license. Licensee
agrees that all reports and applications (including
ownership reports and renewal applications) required to be
filed with the FCC or any other governmental agency,
department or body in respect of the Station will be filed
in a timely manner and will be true and complete and
accurately present the information contained therein and, to
the extent required, will be kept in the public inspection
file of the Station.
3.3. Station Identification and Promotion. Licensee
will retain all rights to the call letters WMXN or such
other call letters as may be used by Licensee for the
Station and will ensure that proper station identification
announcements are made in accordance with FCC rules and
regulations. Broker shall include in the programs it
delivers for broadcast an announcement in a form
satisfactory to Licensee at the beginning of each hour of
such programs to identify WMXN or such other call letters as
may be used by Licensee, as well as any other announcements
required by the rules and regulations of the FCC. Broker
shall submit to an officer or employee of Licensee
designated by Licensee upon execution of this agreement
(which person may be changed by Licensee from time to time
thereafter) any promotional material, including on-air give-
aways and other contests, for approval by Licensee at least
two (2) business days prior to use of such promotional
material by Broker. Licensee shall have the right to
approve or reject such promotional material; provided,
however, that if Licensee neither approves nor rejects such
promotional material within two (2) business days after its
submission by Broker, such material shall be deemed approved
by Licensee and may be aired by Broker.
3.4. Payola/Plugola. Broker agrees that neither it nor
any of its employees or agents will accept any compensation
or any kind of gift or gratuity of any kind whatsoever,
regardless of its value or form, including but not limited
to a commission, discount, bonus materials, supplies or
other merchandise, services or labor, whether or not
pursuant to written contracts or agreements between them and
merchants or advertisers, unless, to the extent required by
the FCC, the payer is identified in the program as having
paid for or furnished such consideration. Broker agrees
annually, or more frequently upon the request of Licensee,
to provide Licensee with Payola/Plugola Affidavits
substantially in the form attached hereto as Attachment E.
3.5. Political Advertising. Licensee will oversee and
take ultimate responsibility with respect to the provision
of equal opportunities, lowest unit charge, and reasonable
access to political candidates, and compliance with the
political broadcast rules of the FCC. Broker shall
cooperate with Licensee to assist Licensee in its compliance
with the political broadcast rules of the FCC. Broker shall
supply such information promptly to Licensee as may be
necessary to comply with the lowest unit charge and
political recordkeeping requirements of federal law. To the
extent that Licensee believes necessary, in its sole
discretion, Broker shall release advertising availabilities
to Licensee to permit it to comply with the political
broadcast rules of the FCC, including but not limited to
Section 315 of the Communications Act of 1934, as amended;
provided, however, that revenues received by Licensee as a
result of such a release of advertising time shall promptly
be remitted to Broker.
3.6. Regulatory Changes. In the event of the issuance
of any order or decree of an administrative agency or court
of competent jurisdiction, including without limitation any
material change or clarification in FCC rules, policies, or
precedent, which would cause this Agreement to be in
violation of any applicable law, the parties will use their
respective best efforts to negotiate in good faith any
modifications of this Agreement that may be necessary to
comply fully with such order or decree.
SECTION 4
STATION BROADCASTS
4.1. Station Broadcast Guidelines. Licensee has
adopted and will enforce certain programming guidelines (the
"Guidelines"), a copy of which appears as Attachment A
hereto. Broker agrees and covenants to comply with the
Guidelines and with all rules, regulations and policies of
the FCC that pertain to Broker's programming.
4.2. Licensee Control of Programming. Notwithstanding
the grant to Broker of the rights set forth in Section 1.1
hereof, Licensee shall retain full authority and control
over the operation of the Station at all times during the
term of this Agreement consistent with its obligations as an
FCC licensee. Licensee acknowledges that it is familiar
with the type of programming Broker intends to provide and
has determined that the broadcast of such programming on the
Station would serve the public interest. Broker agrees to
use its best efforts to consult with Licensee in the
creation and/or selection of programming to ensure that such
programming includes material that is responsive to the
problems, needs and interests of the community of Norfolk,
Virginia, as those problems, needs and interests are made
known to Broker by Licensee. Upon execution of this
agreement, Licensee shall specify an officer or employee of
Licensee with whom Broker shall consult on the foregoing
matters (which person may be changed by Licensee from time
to time thereafter). Licensee shall retain control over the
policies and programming of the Station, including, without
limitation, the right to decide whether to accept or reject
any of the Broker's programming (including but not limited
to advertisements) for broadcast by the Station, in advance
of or during such broadcasts, and the authority to preempt
any of such programming for other programming deemed by
Licensee, in its sole discretion, to be of greater national,
regional, or local importance, or necessary to promote the
needs, interests, issues and desires of the Station's
community of license and service area; provided, however,
that Licensee shall use its best efforts to give Broker
prior notice of Licensee's objections to Broker's proposed
programming, including the basis for such objection, and a
reasonable opportunity to substitute acceptable programming.
Licensee shall be entitled to review on a confidential basis
any programming material relating to Station broadcasts,
including Broker's play-list, commercial schedule and
schedule of public service announcements, as Licensee may
reasonably request. Licensee and Broker shall cooperate in
an effort to avoid conflicts regarding programming.
4.3. Right to Use the Programs. Broker represents and
warrants to Licensee that Broker has full authority to
broadcast its programming on the Station, and that Broker
shall not broadcast any material in violation of the
copyright laws. All music supplied by Broker shall be: (i)
licensed by ASCAP, SESAC or BMI; (ii) in the public domain;
or (iii) cleared at the source by Broker. Licensee will
maintain ASCAP, BMI and SESAC licenses as necessary.
4.4. Rejection of Programming. In the event Licensee
rejects programming from Broker pursuant to the terms of
this Agreement for any reason other than Broker's failure to
comply with the Guidelines and Broker does not substitute
programming acceptable to Licensee, then the payments
otherwise due Licensee pursuant to Section 1.3 shall be
reduced by an amount computed in accordance with Attachment
B for each hour or fraction of an hour that Broker is not
able to broadcast its programs as a result of such
rejection.
4.5. Program Recordkeeping and Other Procedures.
Broker shall, upon request by Licensee, provide Licensee
with information with respect to certain of Broker's
programs which should be included in Licensee's quarterly
issues and programs lists. Licensee shall also maintain the
Station's logs, receive and respond to telephone inquiries,
and control and oversee any remote control point for the
Station. Broker will immediately serve Licensee with notice
and a copy of any letter of complaint Broker receives
concerning any program for Licensee's review and inclusion
in the Station's public inspection file. Licensee will
immediately serve Broker with notice and a copy of any
letters of complaint it receives concerning any program.
SECTION 5
TERMINATION AND REMEDIES UPON DEFAULT
5.1. Termination by Either Party. In addition to other
remedies available at law or equity, this Agreement may be
terminated as set forth below by either Licensee or Broker
by at least ten (10) days prior written notice to the other
if the party seeking to terminate is not then in material
default or breach hereof, upon the occurrence of any of the
following:
(a) this Agreement is declared invalid or illegal
in whole or substantial part by an order or decree of an
administrative agency or court of competent jurisdiction,
and the parties are unable to modify this Agreement so that
it complies with such order or decree; or
(b) if Licensee loses its broadcast authority; or
(c) the other party is in material breach of its
obligations hereunder, under the Option Agreement or under
the Asset Purchase Agreement executed pursuant to the Option
Agreement, and has failed to cure such breach within ten
(10) days after receiving written notice thereof from the
non-breaching party; provided, however, that if the breach
is one that cannot be cured with reasonable diligence within
ten (10) days, but could be cured within an additional sixty
(60) days and the breaching party is diligently attempting
to cure the breach, then the non-breaching party may not
terminate this Agreement on account of such breach until
such additional sixty (60) day period has elapsed without a
cure; or
(d) if the Option Agreement is terminated by
either party for any reason or if the Asset Purchase
Agreement is terminated by either party for any reason and
the forced sale remedy in Section 4 of the Option Agreement
is not exercised by Seller; or
(e) if all of the calls, puts and other options
granted in the Option Agreement expire without having been
exercised; or
(f) at any time upon the mutual written consent of
both parties.
5.2. Broker's Remedies. In addition to the termination
rights set forth in Section 5.1:
(a) If the Station is operated at less than
ninety percent (90%) of its licensed effective radiated
power (main or auxiliary) (a "Specified Event") for a total
of more than seventy-two (72) hours, whether or not
consecutive, during any period of thirty (30) consecutive
days, or if there are three (3) or more Specified Events
each lasting more than four (4) consecutive hours, during
any period of thirty (30) consecutive days, Licensee shall
assign or pay over to Broker all proceeds of the business
interruption insurance maintained by Licensee less any
reduction in the monthly LMA payment by Broker pursuant to
Section 5.2(b). Licensee shall maintain throughout the term
of this agreement business interruption insurance in an
amount sufficient to compensate Broker fully for any losses
it may incur as a result of such degradation or
interruptions in service.
(b) Upon the occurrence of a Specified Event, the
monthly payment otherwise due under Section 1.3 hereof shall
be reduced by an amount computed in accordance with
Attachment B for each hour or fraction of an hour that such
Specified Event occurs or continues.
5.3. Liabilities Upon Termination of This Agreement.
Following termination or expiration of this Agreement for
any reason, including Broker's acquisition of the Station,
Broker shall be solely responsible for all liabilities,
debts and obligations accrued from the sale of air time or
use of the Station's facilities by Broker including, without
limitation, accounts payable, barter agreements, tradeout
agreements, and unaired advertisements.
5.4. Arbitration. Any dispute arising out of or
related to this Agreement that Licensee and Broker are
unable to resolve by themselves shall be settled by
arbitration in Washington, D.C., by a panel of three (3)
arbitrators. Licensee and Broker shall each designate one
independent arbitrator, and the two arbitrators so
designated shall select the third arbitrator. The persons
selected as arbitrators need not be professional
arbitrators, and persons such as lawyers, accountants,
brokers, and bankers shall be acceptable. Before
undertaking to resolve the dispute, each arbitrator shall be
duly sworn faithfully and fairly to hear and examine the
matters in controversy and to make a just award according to
the best of his or her understanding. The arbitration
hearing shall be conducted in accordance with the commercial
arbitration rules of the American Arbitration Association.
The written decision of a majority of the arbitrators shall
be final and binding on Licensee and Broker. The costs and
expenses (including reasonable attorneys' fees) of the
arbitration proceeding shall be assessed between Licensee
and Broker in a manner to be decided by a majority of the
arbitrators, and the assessment shall be set forth in the
decision and award of the arbitrators. Judgment on the
award, if it is not paid within thirty (30) days, may be
entered in any court having jurisdiction over the matter.
No proceeding based upon any claim arising out of or related
to this Agreement shall be instituted in any court by
Licensee and Broker against the other except (i) an action
to compel arbitration pursuant to this Section, or (ii) an
action to enforce the award of the arbitration panel
rendered in accordance with this Section.
SECTION 6
INDEMNIFICATION
6.1. Broker's Indemnification. Broker shall indemnify,
defend, and hold harmless Licensee from and against any and
all claims, losses, costs, liabilities, damages, FCC fines
or forfeitures, and expenses (including reasonable legal
fees and other expenses incidental thereto) of every kind,
nature, and description, including but not limited to those
relating to copyright infringement, libel, slander,
defamation or invasion of privacy, arising out of (i)
Broker's actions as Broker or Broker's broadcasts under this
Agreement; (ii) any misrepresentation or breach of any
warranty of Broker contained in this Agreement; and (iii)
any breach of any covenant, agreement, or obligation of
Broker contained in this Agreement.
6.2. Licensee's Indemnification. Licensee shall
indemnify, defend, and hold harmless Broker from and against
any and all claims, losses, costs, liabilities, damages, FCC
fines or forfeitures, and expenses (including reasonable
legal fees and other expenses incidental thereto) of every
kind, nature, and description, arising out of (i) Licensee's
actions as licensee or Licensee's broadcasts under this
Agreement; (ii) any misrepresentation or breach of any
warranty of Licensee contained in this Agreement; and (iii)
any breach of any covenant, agreement or obligation of
Licensee contained in this Agreement.
6.3. Procedure for Indemnification. The party seeking
indemnification under this Section ("Indemnitee") shall give
the party from whom it seeks indemnification ("Indemnitor")
prompt notice, pursuant to Section 8.13, of the assertion of
any such claim; provided, however, that the failure to give
notice of a claim within a reasonable time shall relieve the
Indemnitor of liability only to the extent that it is
materially prejudiced thereby. Promptly after receipt of
written notice, as provided herein, of a claim by a person
or entity not a party to this Agreement, the Indemnitor
shall assume the defense of such claim; provided, however,
that (i) if the Indemnitor fails, within a reasonable time
after receipt of written notice of such claim, to assume the
defense thereof, the Indemnitee shall have the right to
undertake the defense, compromise, and settlement of such
claim on behalf of and for the account and risk of the
Indemnitor, subject to the right of Indemnitor (upon
notifying the Indemnitee of its election to do so) to assume
the defense of such claim at any time prior to the
settlement, compromise, judgment, or other final
determination thereof, (ii) if in the reasonable judgment of
the Indemnitee, based on the advice of its counsel, a direct
or indirect conflict of interest exists between the
Indemnitee and the Indemnitor, the Indemnitee shall (upon
notifying the Indemnitor of its election to do so) have the
right to undertake the defense, compromise, and settlement
of such claim on behalf of and for the account and risk of
the Indemnitor (it being understood and agreed that the
Indemnitor shall not be entitled to assume the defense of
such claim), (iii) if the Indemnitee in its sole discretion
so elects, it shall (upon notifying the Indemnitor of its
election to do so) be entitled to employ separate counsel
and to participate in the defense of such claim, but the
fees and expenses of counsel so employed shall (except as
contemplated by clauses (i) and (ii) above) be borne solely
by the Indemnitee, (iv) the Indemnitor shall not settle or
compromise any claim or consent to the entry of any judgment
that does not include as an unconditional term thereof the
grant by the claimant or plaintiff to each Indemnitee of a
release from any and all liability in respect thereof, and
(v) the Indemnitor shall not settle or compromise any claim
in any manner, or consent to the entry of any judgment, that
could reasonably be expected to have a material adverse
effect on the Indemnitee.
6.4. Dispute Over Indemnification. If upon
presentation of a claim for indemnity hereunder the
Indemnitor does not agree that all, or part, of such claim
is subject to the indemnification obligations imposed upon
it pursuant to this Agreement, it shall promptly so notify
the Indemnitee. Thereupon, the parties shall attempt to
resolve their dispute, including where appropriate, reaching
an agreement as to that portion of the claim, if any, which
both concede is subject to indemnification. To the extent
that the parties are unable to reach some compromise, either
party may unilaterally submit the matter for determination
by arbitration in accordance with Section 5.4.
SECTION 7
COLLECTION OF ACCOUNTS RECEIVABLE
Licensee hereby assigns to Broker, for purposes of
collection only, all of the cash accounts receivable of
Licensee arising from Licensee's operation of the Station
prior to the Commencement Date (the "Accounts Receivable").
Broker shall use such efforts as are reasonable and in the
ordinary course of business to collect those Accounts
Receivable for a period of one hundred twenty (120) days
following the Commencement Date (the "Collection Period").
This obligation, however, shall not extend to the
institution of litigation, employment of counsel, or any
other extraordinary means of collection. So long as those
Accounts Receivable are in Broker's possession, neither
Licensee nor its agents shall institute litigation for the
collection of any amounts due thereunder. All payments
received by Broker during the Collection Period from any
person obligated with respect to any of the Accounts
Receivable shall be applied first to Licensee's account and
only after full satisfaction thereof to Broker's account;
provided, however, that if the customer specifically
instructs Broker to apply such payment to amounts owed by
such customer to Broker, Broker may apply such payments to
its own invoices; and provided further that if during the
Collection Period any account debtor contests the validity
of its obligation with respect to any Account Receivable,
then Broker may return that Account Receivable to Licensee
after which Licensee shall be solely responsible for the
collection thereof. Broker shall not have the right to
compromise, settle, or adjust the amounts of any of the
Accounts Receivable without Licensee's prior written
consent. Within fifteen (15) days following the expiration
of each month during the Collection Period, Broker shall
furnish Licensee with a list of Accounts Receivable
collected during that month accompanied by a payment equal
to the amount of such collections, less any salesperson's,
agency, and representative commissions applicable thereto
that are deducted and paid by Broker from the proceeds of
such collections. Any Accounts Receivable that are not
collected during the Collection Period or any Accounts
Receivable that are more than 120 days past due that
Licensee requests to be assigned to Licensee shall be
reassigned to Licensee after which Broker shall have no
further obligation to Licensee with respect to the Accounts
Receivable; provided, however, that all funds subsequently
received by Broker (without time limitation) that can be
specifically identified, whether by accompanying invoice or
otherwise, as a payment on the Accounts Receivable shall be
promptly paid over or forwarded to Licensee.
SECTION 8
STATUS OF EMPLOYEES
8.1. Attached hereto as Attachment F is a list of
those employees of Seller to whom Broker will offer
employment at the Station upon commencement of this
Agreement. Licensee hereby consents to such offers of
employment. Broker shall not assume the status of an
employer or a joint employee of, or incur or be subject to
any liability or obligation with respect to, any of
Licensee's employees unless and until actually hired by
Broker. Licensee shall be solely responsible for any and
all liabilities and obligations Licensee may have to its
employees (including but not limited to those liabilities
and obligations accrued during Licensee's employment of
those employees that are hired by Broker after the execution
of this Agreement); provided, however, that for those
employees listed on Attachment F who accept Broker's offer
of employment and enter into Broker's employment, Broker
shall assume (i) any obligation to pay severance to those
employees in the event that Broker later terminates their
employment, including any severance obligation that accrued
before Broker hires such employees in an amount not
exceeding $35,000 in the aggregate, and (ii) any obligation
for vacation pay accrued from and after January 1, 1994.
Licensee shall comply with the provisions of the Worker
Adjustment and Retraining and Notification Act and similar
laws, if applicable, and shall be solely responsible for any
and all liabilities, penalties, fines, or other sanctions
that may be assessed or otherwise due under such laws on
account of the dismissal or termination of any Station
employees by Licensee.
8.2. The parties agree that Licensee shall continue to
employ its current news director or, in the event her
employment is terminated, a qualified successor news
director and that she shall be responsible for the
production of Licensee's news and public affairs or any
special event programming broadcast pursuant to Section 1.1
or any other provision of this Agreement. During all of the
news director's working hours when she is not engaged in the
production of Licensee's news and public affairs
programming, the Licensee shall make such news director
available to Broker so that Broker can utilize him or her in
the production and broadcast of Broker's programming.
During all hours when such news director is being utilized
by Broker, he or she shall be subject to the supervision of
Broker's program director. Broker shall reimburse Licensee
for such news director's
salary, payroll taxes and benefits in an amount not
exceeding Thirty-Five Hundred Dollars ($3,500) per month;
provided, however, that if the current news director's
employment is terminated and Licensee replaces her, Broker
shall be entitled to utilize such successor news director
and shall be obligated to reimburse Licensee for the
successor's salary, payroll taxes and benefits in an amount
not exceeding Thirty-Five Hundred Dollars ($3,500) per month
only if the successor is reasonably acceptable to Broker.
SECTION 9
MISCELLANEOUS
9.1. Assignment. Neither party may assign its rights
or obligations to a third party without the express written
consent of the other party; provided, however, that Broker
may, without the consent of Licensee, assign this Agreement
and all of its rights and obligations hereunder to any
entity controlled by Ragan A. Henry.
9.2. Brokerage. The parties represent to each other
that no media or other broker, agent or finder was involved
in this transaction or the proposed sale of the Station to
Broker other than Kalil & Co., which was retained by
Licensee. Licensee shall be responsible for any brokerage
commission or other fees payable to Kalil & Co. in
connection with the sale of the Station to Broker. Licensee
and Broker shall indemnify and hold each other harmless from
and against any claim from any broker, agent or finder on
account of any agreement, understanding or arrangement
alleged to have been made by such party in connection with
this transaction.
9.3. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and
the same instrument.
9.4. Entire Agreement. This Agreement and the
Attachments hereto embody the entire agreement and
understanding of the parties regarding the subject matter
hereof and supersede any and all prior agreements,
arrangements, and understandings relating to matters
provided for herein.
9.5. Headings. The headings in this Agreement are for
convenience only and will not control or affect the meaning
or construction of the provisions of this Agreement.
9.6. Third Parties. Nothing in this Agreement, whether
express or implied, is intended: (i) to confer any rights or
remedies on any person other than Licensee, Broker, and
their respective successors and permitted assignees; (ii) to
relieve or discharge the obligations or liability of any
third party, or (iii) to give any third party any right of
subrogation or action against either Licensee or Broker.
9.7. Indulgences. Unless otherwise specifically agreed
in writing to the contrary: (i) the failure of either party
at any time to require performance by the other of any
provision of this Agreement shall not affect such party's
right thereafter to enforce the same; (ii) no waiver by
either party of any default by the other shall be taken or
held to be a waiver by such party of any other preceding or
subsequent default; and (iii) no extension of time granted
by either party for the performance of any obligation or act
by the other party shall be deemed to be an extension of
time for the performance of any other obligation or act
hereunder.
9.8. Counsel. Each party has been represented by its
own counsel in connection with the negotiation and
preparation of this Agreement and, consequently, each party
hereby waives the application of any rule of construction
that would otherwise be applicable in connection with the
interpretation of this Agreement, including but not limited
to any rule of construction to the effect that any
provisions of this Agreement shall be interpreted or
construed against the party whose counsel drafted the
provision.
9.9. Severability. If any term of this Agreement is
illegal or unenforceable at law or in equity, the validity,
legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or
impaired thereby. Any illegal or unenforceable term shall
be deemed to be void and of no force and effect only to the
minimum extent necessary to bring such term within the
provisions of applicable law and such term, as so modified,
and the balance of this Agreement shall then be fully
enforceable.
9.10. Governing Law. The obligations of Licensee
and Broker are subject to applicable federal, state and
local law, rules and regulations, including, but not limited
to, the Communications Act of 1934, as amended, and the
rules, regulations and policies of the FCC. The
construction and performance of this Agreement will be
governed by the laws of the Commonwealth of Virginia
excluding the choice of law rules utilized in that
jurisdiction, except to the extent governed by federal law.
9.11. Confidentiality. The parties agree to keep
the terms of this Agreement confidential. The parties will
not publicize the existence of this Agreement, except that
the parties will issue a joint press release about the
existence of this Agreement and will cooperate to inform
their respective employees of the existence of this
Agreement. Notwithstanding the foregoing, the parties shall
file this Agreement with the FCC to enable the FCC to
conduct such review of the Agreement as it deems appropriate
and may make any disclosure required by the Federal
securities laws or deemed necessary or appropriate by US
Radio, Inc. in public offering documents distributed in
connection with a public offering of its common stock.
9.12. No Partnership or Joint Venture. This
Agreement is not intended to be and shall not be construed
as a Partnership or Joint Venture Agreement between the
parties. Except as otherwise specifically provided in this
Agreement, neither party to this Agreement shall be
authorized to act as agent of or otherwise represent or bind
the other party to this Agreement.
9.13. Licensee Certification. Licensee hereby
certifies that it shall maintain ultimate control over the
Station's facilities, including specifically control over
the Station's finances, personnel and programming.
9.14. Broker Certification. Broker hereby
certifies that the arrangement contemplated by this
Agreement complies with the provisions of Paragraphs (a)(1)
and (e)(1) of Section 73.3555 of the FCC Rules.
9.15. Notices. Any notice, demand, or request
required or permitted to be given under the provisions of
this Agreement shall be in writing and shall be deemed to
have been duly delivered on the date of personal delivery or
on the date of receipt, if mailed by registered or certified
mail, postage prepaid and return receipt requested, to the
following addresses, or to such other address as a party may
request, in the case of Licensee, by notifying Broker, and
in the case of Broker, by notifying Licensee:
To Licensee: ML Media Opportunity Partners, L.P.
350 Park Avenue - 16th floor
New York, NY 10022
Attn: I. Martin Pompadur
Copy to: Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, NY 10036
Attn: Bertram A. Abrams, Esq.
To Broker: Ragan A. Henry
Chairman and Chief Executive Officer
US Radio Group, Inc.
1234 Market Street
Philadelphia, PA 19107
Copy to: Marilyn D. Sonn
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5339
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first written above.
LICENSEE:
ML MEDIA OPPORTUNITY PARTNERS, L.P.
By: __________________________________
BROKER:
US RADIO, L.P.
By: US Radio Group, Inc., General Partner
By: _________________________________
Ragan A. Henry
Chairman and Chief Executive Officer
ATTACHMENT A
Programming and Operational Guidelines
Broker agrees to cooperate with Licensee in the
broadcasting of programs conforming to the requirements of
the Communications Act of 1934, as amended, the rules and
regulations of the FCC, and the Licensee's policies. In
this connection, Broker acknowledges that it has been given
a copy of the relevant portions of the Licensee's
"Operations Manual" which, among other things, sets forth
certain policies with respect to news programming, contests,
lotteries, false and deceptive programming, hoaxes and
pranks, indecent programming, advertising copy and other
matters. Broker agrees to use its best efforts to cooperate
with Licensee in order to ensure that all programming
supplied by Broker under this Agreement is fully consistent
with Licensee's own written policies, as well as all
applicable FCC rules, regulations and policies affecting
advertising and programming content.
In addition, in an effort to further clarify Station
policy under this Agreement, Licensee and Broker have
developed the following additional written guidelines which
Broker agrees to observe in the preparation, production and
broadcasting of programs on the Station:
1. Controversial Issues. Any discussion of
controversial issues of public importance shall be
reasonably balanced with the presentation of representative
contrasting viewpoints in the course of Station's overall
programming; no attacks on the honesty, integrity, or like
personal qualities of any person or group of persons shall
be made during the discussion of controversial issues of
public importance; and during the course of political
campaigns, programs are not to be used as a forum for
editorializing about individual candidates. If such events
occur, Licensee may require that responsive programming be
aired.
2. Respect for Religious Beliefs and Practices. The
subject of religion and references to particular faiths,
tenets, and customs shall be treated with respect at all
times. Programs shall not be used as a medium for attack on
any faith, denomination, or sect or upon any individual or
organization.
3. No Plugola or Payola. The mention of any business
activity or "plug" for any commercial, professional or other
related endeavor, except where contained in an actual
commercial message of a sponsor, is prohibited. No
commercial messages ("plugs") or undue references shall be
made in programming presented over the Station to any
business venture, profit-making activity or other interest
(other than noncommercial announcements for bona fide
charities, church activities or other public service
activities) in which Broker is directly or indirectly
interested without the same having been approved in advance
by the Licensee's General Manager and such broadcast being
announced as sponsored material.
4. Political Election Procedures. At least ninety
(90) days before the start of any primary or regular
election campaign, Broker will review with Licensee's
General Manager the policies and practices Broker will
follow with respect to the sale of time to candidates for
public office and/or their supporters to make certain that
such policies and practices conform to all applicable laws
and Station policy.
5. Credit Terms Advertising. Pursuant to rules of
the Federal Trade Commission, no advertising of credit terms
shall be made over the Station beyond mention of the fact
that, if desired, credit terms are available.
6. No Illegal Announcements. No announcements or
promotions prohibited by federal or state law or regulation
of any lottery or game will be made over the Station. Any
game, contest, or promotion relating to or to be presented
over the Station must be fully stated and explained in
advance to Licensee, which reserves the right in its sole
discretion to reject any game, contest, or promotion.
7. Programming Prohibitions. Broker shall not
broadcast any of the following programs or announcements:
(a) False Claims. False or unwarranted claims for
any product or service.
(b) Unfair Imitation. Infringements of another
advertiser's rights through plagiarism or unfair imitation
of either program idea or copy, or any other unfair
competition.
(c) Commercial Disparagement. Any disparagement
of competitors or competitive goods.
(d) Profanity. Any programs or announcements that
are slanderous, obscene, profane, vulgar, repulsive or
offensive, either in theme or in treatment.
(e) Descriptions of Bodily Functions. Any
programming which describes in a repellant manner bodily
functions, or symptomatic results of internal disturbances.
(f) Unauthenticated Testimonials. Any
testimonials which cannot be authenticated.
(g) Conflict Advertising. Any advertising matter
or announcement which may, in the opinion of Licensee, be
injurious or prejudicial to the interest of the public, the
Station, or honest advertising and reputable business in
general.
* * *
Licensee may waive any of the foregoing regulations in
specific instances if, in its opinion, good broadcasting in
the public interest would be served thereby.
In any case where questions of policy or interpretation
arise, Broker should submit the same to Licensee for
decision before making any commitments in connection
therewith.
ATTACHMENT B
In order to compute the rebate to which Broker is
entitled under Sections 4.4 and 5.2(b) of the Agreement,
multiply the per hour value for the time period involved, as
set forth below in Column 3, by the number of hours affected
during the corresponding day-part.
Day Part
Column 1
Allocated Percentage of Monthly Compensation
Column 2
Hours during Time
Period Per Month
Column 3
Value of Time Per Hour*
Monday-Friday, 5:00 a.m.-10:00 a.m.; 3:00 p.m.-7:00 p.m.
55%
180
$128.00
Monday-Friday, 10:00 a.m.-3:00 p.m.; Saturday-Sunday, 9:00
a.m.-5:00 p.m.
25%
164
$64.00
Monday-Friday, 7:00 p.m.-midnight
15%
100
$63.00
Saturday-Sunday, 5:00 p.m.-midnight
5%
56
$37.50
Monday-Friday, midnight-5:00 a.m.; Saturday-Sunday, midnight-
9:00 a.m.
0%
172
0
*Based on $42,000 monthly compensation
Example: If Licensee preempts 4 hours and 30 minutes of
time during the M-F, 10:00 a.m.-3:00 p.m. day-part, Broker
will be entitled to a rebate of 4.5 x $64.00 = $288.00
ATTACHMENT C
Hours Designated for Licensee's Use
Sunday, 8:00 a.m. to 9:00 a.m., rebroadcast from 11:00 p.m.
- - - 12:00 midnight
Four one-minute "Street Beat" segments between 6:00 a.m. and
12:00 midnight, Monday-Friday, not including the "drive
time" hours specified in Section 1.1 of the Time Brokerage
Agreement.
ATTACHMENT D
Schedule of Advertising Contracts
ATTACHMENT E
County of ________________
State of Virginia
Anti-Payola/Plugola Affidavit
________________________, being first duly sworn,
deposes and says as follows:
1. I am ________________ [title/position] for US
Radio, L.P. ("Broker").
2. I have acted in the above capacity since
____________ (date).
3. No matter has been provided by Broker for
broadcast by Station WMXN-FM for which service, money or
other valuable consideration has been directly or indirectly
paid, or promised to, or charged, or accepted, by me from
any person, which matter at the time so broadcast has not
been announced or otherwise indicated as paid for or
furnished by such person.
4. So far as I am aware, no matter has been provided
by Broker for broadcast by Station WMXN-FM for which
service, money or other valuable consideration has been
directly or indirectly paid, or promised to, or charged, or
accepted, by Station WMXN-FM by the Broker, or by any
independent contractor engaged by the Broker in furnishing
programs, for any person, which matter at the time so
broadcast has not been announced or otherwise indicated as
paid for or furnished by such person.
5. In the future, I will not pay, promise to pay,
request or receive any service, money or other valuable
consideration, direct or indirect, from a third-party in
exchange for the influencing of, or the attempt to
influence, the preparation or presentation of broadcast
matter on Station WMXN-FM except where the matter so
broadcast has been announced or otherwise indicated as paid
for or furnished by such third-party at the time of the
broadcast.
6. Except as may be reflected in Paragraph 7 hereof,
neither I, my spouse, nor any member of my immediate family
has any present, direct or indirect ownership interest in
any entity engaged in the following business activities
(other than an investment in a corporation whose stock is
publicly held), serves as an officer or director of, whether
with or without compensation, or serves as an employee of
any entity engaged in the following business or activities:
(a) the publishing of music;
(b) the production, distribution (including wholesale
and retail sales outlets), manufacture or exploitation of
music, films, tapes, recordings or electrical transcriptions
of any program material intended for radio broadcast use;
(c) the exploitation, promotion or management of
persons rendering artistic, production and/or other services
in the entertainment field;
(d) the ownership or operation of one or more radio or
television stations other than a station owned by the Broker
or its affiliates;
(e) the wholesale or retail sale of records intended
for public purchase; and
(f) the sale of advertising time other than on Station
WMXN-FM or any station owned by the Broker or its
affiliates.
7. A full disclosure of any such interest referred to
in Paragraph 6 above is as follows:
_____________________________________________________
_____________________________________________________
_____________________________________________________
______________________________
Affiant
Subscribed and sworn to before me
this ____ day of ______________, 1994.
_________________________________
Notary Public
My commission expires: ______________________
ATTACHMENT F
Employees of Licensee to Whom Broker
Will Offer Employment
(see attached list)
ATTACHMENT G
Other Contracts Assumed
ATTACHMENT H
Contracts to be Cancelled
OPTION AGREEMENT
January 25, 1994
The parties to this agreement are ML Media Opportunity
Partners, L.P., a Delaware limited partnership ("ML Media"), US
Radio V, Inc., a Delaware corporation ("US Radio"), and US Radio,
L.P., a Delaware limited partnership ("L.P.").
ML Media and US Radio are parties to a Time Brokerage
Agreement (the "LMA Agreement") dated January __, 1994 pursuant
to which ML Media will make the facilities of radio station WMXN-
FM, Norfolk, Virginia (the "Station"), available to US Radio for
broadcast of its programming and will provide the commercial time
on the Station to US Radio for sale to advertisers.
ML Media wishes to provide to US Radio an option to
purchase substantially all of the assets used exclusively in the
operation of the Station (the "Assets") and US Radio wishes to
provide to ML Media an option to sell the Assets to US Radio,
each on the terms and conditions of this agreement.
It is therefore agreed as follows:
1. Option to Purchase. ML Media hereby grants to US
Radio an option (the "Call") to purchase the Assets from ML Media
pursuant to an asset purchase agreement in substantially the form
attached to this agreement as exhibit 1 (the "Asset Purchase
Agreement") for a purchase price of $3,500,000, exercisable at
any time prior to January 15, 1995 (the "Outside Date"), by
notice of exercise given by US Radio to ML Media.
2. Option to Sell. US Radio hereby grants to ML Media
an option (the "Put") to sell the Assets to US Radio pursuant to
the Asset Purchase Agreement for a purchase price of $3,500,000,
exercisable at any time (a) within 30 days after the Outside Date
if the Call has not previously been exercised, or (b) within 30
days after the termination by ML Media of the LMA Agreement as a
result of a material breach of the LMA Agreement by US Radio.
The Put shall be exercisable by notice of exercise given by ML
Media to US Radio; provided, however, that the Put may only be
exercised if the representations and warranties by ML Media in
section 6 are still true and correct in all material respects on
the date of exercise (other than as a result of any action or
inaction by US Radio pursuant to the LMA Agreement).
3. Procedure After Exercise Option. If the Call is
exercised by US Radio pursuant to section 1 or the Put is
exercised by ML Media pursuant to section 2, ML Media and US
Radio shall immediately update to the extent necessary the
schedules attached to the Asset Purchase Agreement (it being
understood that US Radio shall not be obligated to execute the
Asset Purchase Agreement if any change in the schedules (other
than as a result of any action or inaction by US Radio pursuant
to the LMA Agreement) has a material adverse effect on the Assets
or the business of the Station), and shall each execute the Asset
Purchase Agreement within 10 days after the date of exercise of
the Call or the Put.
4. Failure or Breach by US Radio. If (a) the Call or
the Put is timely exercised but US Radio fails to execute the
Asset Purchase Agreement within the period specified in section 3
for any reason other than a material breach by ML Media of this
agreement, or (b) the closing under the Asset Purchase Agreement
is not held for any reason other than (1) a breach by ML Media of
the Asset Purchase Agreement or the LMA Agreement, (2) the non-
fulfillment of any of the conditions to the Buyer's obligation to
close specified in sections 7.1(a), (b), (g) or (h) of the Asset
Purchase Agreement, or (3) the non-fulfillment of the condition
specified in section 7.1(c) of the Asset Purchase Agreement as a
result of any conduct or alleged conduct by Seller (but not
resulting from any conduct or alleged conduct of Buyer) then, in
addition to all of its other remedies against US Radio for such
failure or against L.P. pursuant to the Guaranty referred to in
section 5, ML Media may elect, by notice to L.P., to cause L.P.
to offer to sell its radio stations WOWI-FM, Norfolk, Virginia,
and WSVY-AM, Portsmouth, Virginia, together with the Station as a
package (the three stations together, the "Stations"). In that
event, L.P. and ML Media shall promptly retain Kalil & Co., Inc.
to assist in the sale of the Stations. L.P. and ML Media shall
be required to accept the best offer or offers to purchase the
Stations that they receive within three months after the notice
from ML Media, except that they shall not be obligated to accept
any offer that is not reasonable based on the financial condition
of the Stations and the market for radio stations generally; if
they do not receive a reasonable offer or offers within that
three month period they shall be required to accept the best
offer or offers they receive within the next three months.
Regardless of the price received for the Stations, ML Media shall
receive the first $3,500,000 cash out of the proceeds of the sale
of the Stations and LP shall receive the balance of the proceeds.
L.P. and ML Media shall each cooperate with each other in all
respects relating to the sale of the Stations, and shall jointly
negotiate with the buyer or buyers and execute an asset purchase
agreement or agreements providing for the sale of the Stations.
L.P. hereby grants to ML Media an irrevocable power of attorney
to execute an asset purchase agreement or agreements and any
related documents on L.P.'s behalf provided that (1) L.P. fails
to do so within a reasonable period of time and (2) the terms of
the asset purchase agreement or agreements are consistent with
the terms of the offer accepted and otherwise customary for the
sale of radio stations.
5. Guaranty. In order to induce ML Media to enter
into this agreement and the Asset Purchase Agreement, L.P. hereby
unconditionally guarantees to ML Media the due and timely
performance of all of US Radio's obligations (the "Obligations")
under this agreement and, if the Put or Call is exercised, under
the Asset Purchase Agreement.
L.P. waives presentment, demand, protest and all
notices with respect to the Obligations and waives any notice of
the acceptance of this guaranty.
L.P. consents that, without notice to or further assent
by L.P., any of the Obligations may from time to time be
extended, amended or released by ML Media as it may deem
advisable, none of which shall impair or affect the obligations
of L.P. under this guaranty.
This guaranty shall be construed as an absolute and
unconditional guarantee of payment, and the obligations of L.P.
under this guaranty shall be direct and primary obligations. ML
Media shall not be required to make any demand upon US Radio or
to pursue or exhaust any of its rights or remedies against US
Radio prior to making any demand on or invoking any of its rights
and remedies against L.P. In furtherance of the foregoing, ML
Media may proceed, at one time or successively, jointly or
severally, against both US Radio and L.P. or against either of
them without affecting any of the obligations of L.P. under this
guaranty.
6. Representations and Warranties by ML Media. ML
Media represents and warrants to US Radio and L.P. as follows:
6.1 Organization and Authority. ML Media is a
limited partnership duly organized, validly existing and in good
standing under the law of Delaware. ML Media has the full
partnership power and authority to enter into and to perform this
agreement and to own and operate the Station.
6.2 Authorization of Agreement. The execution,
delivery and performance of this agreement and the Asset Purchase
Agreement by ML Media has been duly authorized by all necessary
partnership action of ML Media, and this agreement constitutes,
and upon execution the Asset Purchase Agreement will constitute,
a valid and binding obligation of ML Media enforceable against ML
Media in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
6.3 Consents of Third Parties. Subject to
receipt of the consents and approvals referred to in schedule
6.3, the execution, delivery and performance of this agreement
and the Asset Purchase Agreement by ML Media will not (i)
conflict with the certificate of limited partnership or the
partnership agreement of ML Media and will not conflict with, or
result in a breach or termination of or constitute a default
under, any lease, agreement, commitment or other instrument, or
any order, judgment or decree to which ML Media is a party or by
which ML Media is bound, or (ii) constitute a violation by ML
Media of any law applicable to ML Media or the Station. No
consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority is
required on the part of ML Media in connection with the
execution, delivery and performance of this agreement or the
Asset Purchase Agreement, except for the approval of the Federal
Communications Commission ("FCC") referred to in section 6.1 of
the Asset Purchase Agreement.
6.4 Title to Assets. Except as set forth on
schedule 6.4, ML Media has, and at the closing under the Asset
Purchase Agreement US Radio will receive, good and marketable
title to all of the Assets free and clear of any security
interest, lien or other encumbrance (except for the lien, if any,
of current taxes not yet due and payable).
6.5 FCC Licenses. ML Media lawfully obtained and
lawfully holds the broadcast licenses for the Station issued by
the Commission (the "FCC Licenses") and all other material
permits and authorizations necessary for the operations of the
Station, and each of the FCC Licenses is, and all such permits
and authorizations are, in full force and effect, and are subject
to no conditions by the FCC other than those that appear on their
face. The FCC Licenses comprise all of the FCC licenses, permits
and authorizations necessary for ML Media to own and operate the
Station as currently operated. Schedule 6.5 contains a true and
complete list of the FCC Licenses currently in effect and all
such permits and authorizations currently in effect necessary for
the operation of the Station (showing, in each case, the
expiration date), true and complete copies of which have been
delivered by ML Media to US Radio. Except as set forth on
schedule 6.5, no application, action or proceeding is pending for
the renewal or modification of any of the FCC Licenses or any of
such permits or authorizations, and no application, action or
proceeding is pending or, to the best of ML Media's knowledge,
threatened that may result in the denial of the application for
renewal, the revocation, modification, nonrenewal or suspension
of any of the FCC Licenses or any of such permits or
authorizations, the issuance of a cease-and-desist order, or the
imposition of any administrative or judicial sanction with
respect to the Station that may materially adversely affect the
rights of US Radio under any such FCC Licenses, permits or
authorizations after the closing under the Asset Purchase
Agreement.
6.6 Call Letters. The Station has the right to
the use of its call letters, viz., "WMXN", pursuant to the rules
and regulations of the Commission.
6.7 Operations of the Station. The Station is
being operated by ML Media in all material respects in accordance
with the FCC Licenses and in compliance with the Communications
Act of 1934 and the rules and regulations thereunder. The
operation of the Station by ML Media is in compliance in all
material respects with all applicable federal, state and local
laws, rules, regulations and policies.
6.8 Financial Statements. ML Media has pre-
viously delivered to US Radio the unaudited balance sheets of the
Station as of December 31, 1992 and September 30, 1993, and the
related unaudited statements of operations. These financial
statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and
fairly present in all material respects the financial position
and the results of operations of the Station as of the dates and
for the periods indicated. From September 30, 1993 through the
date of this agreement, there has been no material adverse change
in the business, assets or condition (financial or otherwise) of
the Station that would make those financial statements misleading
in any material respect.
6.9 Absence of Certain Changes. Since September
30, 1993, ML Media has operated the business of the Station in
the usual and ordinary course and substantially consistent with
its past practice with respect to the Station (except for
entering into the LMA Agreement), and, except as set forth on
schedule 6.9:
(a) ML Media did not, with respect to the
Station, enter into any transaction or incur any liability or
obligation that was entered into or incurred other than in the
ordinary course of the business of the Station;
(b) ML Media did not sell or transfer any of
the assets of the Station other than in the ordinary course of
business consistent with past practice;
(c) ML Media did not incur any indebtedness
with respect to the Station other than indebtedness to trade
creditors incurred in the ordinary course of business; and
(d) through the date of this agreement, ML
Media did not grant or agree to grant any increase in any rate or
rates of salaries or compensation or other benefits or bonuses
payable to employees of the Station, except for increases in
accordance with ML Media's past employment practices, and did not
grant or agree to effect any changes in ML Media's management
personnel policies or employee benefits.
6.10 Intangible Assets. Schedule 6.10 contains a
complete list of the trademarks, trade names, logos, jingles,
slogans and other intellectual property used by ML Media in the
operation of the Station. ML Media owns, free and clear of any
security, lien or other encumbrance, each of the trademarks,
trade names, logos, jingles, slogans and other intellectual
property listed on schedule 6.10. To the best of ML Media's
knowledge, ML Media is not operating the Station in a manner that
infringes in any material respect any patent, copyright,
trademark or other intellectual property right of any third party
or otherwise violates in any material respect the rights of any
third party, and no claim has been made or threatened against it
alleging any such violation. To the best of ML Media's
knowledge, there has been no material violation by others of any
right of ML Media in any trademark, trade name, logo, jingle,
slogan or other intellectual property right used in the operation
of the Station.
6.11 Litigation; Compliance with Laws. Except as
set forth on schedule 6.11, there is no claim, litigation,
proceeding or governmental investigation pending or, to the best
of the knowledge of ML Media, threatened, or any order,
injunction or decree outstanding, against ML Media or the Assets,
which if adversely determined might (i) have a material adverse
effect on the Assets or the operations of the Station, (ii) delay
approval by the Commission of the transactions contemplated by
the Asset Purchase Agreement, or (iii) prevent the consummation
of the transactions contemplated by the Asset Purchase Agreement.
ML Media is in compliance in all material respects with all laws,
regulations and ordinances and all other requirements of any
governmental body or court relating to the Assets or the
operations of the Station, and no notice has been received by ML
Media or its partners, officers or directors alleging any
violation thereof.
6.12 List of Agreements, etc. Schedules 6.12 and
6.13 together contain, with respect to agreements entered into by
or on behalf of ML Media with respect to the Station, a complete
list of: (a) all commitments and other agreements for the
purchase of any materials, supplies or equipment; (b) all notes
and agreements relating to any indebtedness of ML Media; (c) all
leases or other rental agreements; (d) all employment and
consulting agreements to which ML Media is a party; (e) all
collective bargaining agreements to which ML Media is a party;
and (f) all other agreements, commitments and understandings
(written or oral) that require payment or performance by ML
Media.
6.13 Agreements Regarding Employees. Except as
set forth in schedule 6.13, ML Media is not a party to nor bound
by, with respect to the employees of the Station, any fringe
benefit or other non-cash compensation plan, or any pension,
thrift, annuity, retirement, stock option, stock purchase,
savings, profit sharing or deferred compensation plan or
agreement, or any bonus, vacation, holiday, severance, sick
leave, group insurance, health or other personal insurance or
other incentive or benefit contract, plan or arrangement. Except
as set forth on schedule 6.13, no employee of ML Media who
performs services for the Station is represented by any union or
other collective bargaining agent and there are no collective
bargaining or other labor agreements with respect to any such
employee.
6.14 Status of Agreements. Except as set forth
on schedule 6.14, ML Media is not in default, and, to the best of
ML Media's knowledge, no other party is in default under any
agreement referred to in section 6.12 or 6.13, nor to the best of
ML Media's knowledge has any event occurred that, with the lapse
of time or the election by either party, would result in a
default under any such agreement, in any case where such default
would have a material adverse effect upon the operation of the
Station, and each of those agreements is in full force and
effect.
6.15 Insurance. Schedule 6.15 contains a
complete list of all of ML Media's insurance policies relating to
the operation of the Station, specifying the policy limit, type
of coverage, location of the property covered, annual premium,
premium payment date and expiration date of each of the policies.
6.16 Equipment. All of the tangible personal
property of the Station is serviceable, in reasonably good
operating condition (reasonable wear and tear excepted), and is
not in imminent need of repair or replacement. All items of
transmitting and studio equipment (i) have been maintained in a
manner consistent with generally accepted standards of good
engineering practice, and (ii) will permit the Station to operate
in accordance with the terms of the FCC Licenses.
6.17 Real Property. The only real property
interests (the "Real Property") relating to the operation of the
Station are the lease of the studio space (the "Studio Space")
located at Riverside Corporate Center, 240 Corporate Boulevard,
Suite 105, Norfolk, Virginia, and the lease of space on the tower
for the Station's antenna (the "Antenna Space") and space (the
"Transmitter Space") in the transmitter building (the
"Transmitter Building") located at 5414 Nansemond Parkway,
Suffolk, Virginia. ML Media has valid and subsisting leasehold
interests for the Studio Space, the Antenna Space and the
Transmitter Space. ML Media has and, after the Closing under the
Asset Purchase Agreement US Radio will have, full legal and
practical access to the Real Property. There are no
encroachments upon the Transmitter Building by any buildings,
structures, or improvements located on adjoining real estate. To
the best of ML Media's knowledge, the Transmitter Building does
not encroach upon adjoining real estate, and the Transmitter
Building is constructed in conformity with all "set-back" lines,
easements and other restrictions or rights of record, and all
applicable building and safety codes and zoning ordinances.
There are no pending or, to the best of ML Media's knowledge,
threatened condemnation or eminent domain proceedings that may
affect the Real Property. To the best of ML Media's knowledge,
there are no structural defects in the tower, structures and
other improvements on which the Antenna is located or in the
Transmitter Building. The lease pursuant to which ML Media
leases the Antenna Space and the Transmitter Space (or a
memorandum thereof) will be duly recorded in the land records of
the jurisdiction where such real estate is located prior to the
Closing under the Asset Purchase Agreement.
6.18 Environmental Protection. Neither the
ownership nor operation of the Station or the Assets by ML Media
violates in any material respect any law or regulation of any
governmental authority relating to pollution or protection of the
environment, including without limitation any law or regulation
relating to emissions, discharges, releases or threatened
releases of Hazardous Substances into ambient air, surface water,
groundwater, land and other environmental media ("Environmental
Law"). "Hazardous Substances" means any hazardous or toxic
waste, substance or material, as those or similar terms are
defined in or for purposes of any applicable federal, state or
local Environmental Law, and include without limitation any
asbestos or asbestos-related products, oils or petroleum-derived
compounds, CFCs, or PCBs. Without limiting the generality of the
foregoing, (i) no Hazardous Substances are located in or about
the Studio Space, the Antenna Space or the Transmitter Space in
quantities that violate applicable law in any material respect or
could result in any material liability of ML Media to any third
party, and the Studio Space, the Antenna Space and the
Transmitter Space have not previously been used by ML Media, or
to the best of ML Media's knowledge, any other person for the
manufacture, refining, treatment, storage, or disposal of any
Hazardous Substances; (ii) no Hazardous Substances are being or
have been by ML Media, or, to the best of ML Media's knowledge,
by any other person, emitted, discharged or released, directly or
indirectly, into the environment from the Studio Space, the
Antenna Space or the Transmitter Space in quantities that violate
applicable law in any material respect or could result in any
material liability of ML Media to any third party; (iii) to the
best of its knowledge, ML Media is not liable for cleanup or
response costs with respect to any present or past emission,
discharge, or release of any Hazardous Substances from the Studio
Space, the Antenna Space or the Transmitter Space; and (iv) no
"underground storage tank" (as that term is defined in
regulations promulgated by the federal Environmental Protection
Agency) is used in the operation of the Station.
6.19 Insolvency Proceedings. No insolvency
proceedings of any character, including without limitation
bankruptcy, receivership, reorganization, composition or
arrangement with creditors, voluntary or involuntary, affecting
ML Media or the Assets are pending or threatened. ML Media has
not made an assignment for the benefit of creditors or taken any
action with a view to, or that would constitute a valid basis
for, the institution of any such insolvency proceedings. On the
Closing Date under the Asset Purchase Agreement, ML Media (i)
will have sufficient capital to carry on its business and
transactions as then carried on, (ii) will be able to pay its
debts as they mature or become due, and (iii) will own assets the
fair market value of which will be greater than the sum of all
liabilities of ML Media not specifically assumed by US Radio
pursuant to the terms of the Asset Purchase Agreement.
7. Representations and Warranties by US Radio and
L.P. US Radio and L.P. jointly and severally represent and
warrant to ML Media as follows:
7.1 Organization. US Radio is a corporation duly
organized and validly existing and in good standing under the law
of the state of Delaware , L.P. is a limited partnership duly
organized, validly existing and in good standing under the law of
the state of Delaware, and each of US Radio and L.P. has the full
power and authority to enter into and perform this agreement
(and, in the case of US Radio, the Asset Purchase Agreement) in
accordance with its terms.
7.2 Authorization of Agreement. The execution,
delivery and performance by each of them of this agreement (and,
in the case of US Radio, the Asset Purchase Agreement) have been
duly authorized by all necessary corporate or partnership action,
as the case may be, and this agreement constitutes (and, in the
case of US Radio, the Asset Purchase Agreement will constitute) a
valid and binding obligation of each of them enforceable against
each of them in accordance with its terms, except as may be
limited by bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights in general and subject to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
7.3 Consents of Third Parties. The execution,
delivery and performance by each of them of this agreement (and,
in the case of US Radio, the Asset Purchase Agreement) will not
(a) conflict with its certificate of incorporation or by-laws or
certificate of limited partnership or partnership agreement, as
the case may be, and will not conflict with or result in the
breach or termination of, or constitute a default under, any
lease, agreement, commitment or other instrument, or any order,
judgment or decree to which either of them is a party or by which
either of them is bound, or (b) constitute a violation by either
of them of any law or regulation applicable to either of them.
No consent, approval or authorization of, or designation,
declaration or filing with, any governmental authority is
required on the part of either of them in connection with the
execution, delivery and performance of this agreement (or, in the
case of US Radio, the Asset Purchase Agreement) except for the
approval of the FCC referred to in section 6.1 of the Asset
Purchase Agreement.
7.4 Litigation. There is no claim, litigation,
proceeding or governmental investigation pending or, to the best
of their knowledge, threatened, or any order, injunction or
decree outstanding, against either of them or any of their
affiliates that would prevent the consummation of the
transactions contemplated by the Asset Purchase Agreement.
7.5 Buyer's Qualification. To the best of their
knowledge, US Radio is legally, financially and otherwise
qualified under the rules and regulations of the Commission and
the Communications Act of 1934, as amended, to become the owner,
operator and licensee of the Station, L.P. having terminated its
time brokerage agreement with the licensee of WSVY-FM, Windsor,
Virginia.
7.6 Financial Capability. US Radio or L.P. has
the financial resources necessary to consummate the transactions
contemplated by the Asset Purchase Agreement. L.P. has delivered
to ML Media an audited balance sheet as of December 31, 1992 and
an unaudited balance sheet as of September 30, 1993, and the
related statements of operations. These financial statements
have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and fairly
present in all material respects the financial position and the
results of operations of L.P. as of the dates and for the periods
indicated.
8. Operations of the Station. From the date of this
agreement through the Closing Date under the Asset Purchase
Agreement, subject to the terms of the LMA Agreement, ML Media
shall (i) maintain all of the FCC Licenses in full force and
effect, (ii) not enter into any lease, agreement or other
commitment that would have to be listed on schedule 6.12 without
the prior written consent of US Radio, (iii) operate the Station
in the normal and usual manner and in material compliance with
all applicable laws, regulations and orders of the Commission and
other governmental authorities, (iv) use the Assets only for the
operation of the Station, maintain the Assets in substantially
their present condition (reasonable wear and tear in normal use
and damage due to unavoidable casualty excepted), and promptly
give US Radio written notice of any unusual or materially adverse
developments of which it has knowledge with respect to the Assets
or the business or operations of the Station, (v) except to the
extent assumed pursuant to the LMA Agreement, perform all
agreements listed in schedule 6.12 without default and pay all
accounts payable in a timely manner; provided, however, that ML
Media may dispute, in good faith and through appropriate
proceedings, any alleged obligation of ML Media, and (vi) not (a)
sell or otherwise dispose of any Assets except in the ordinary
course of business and only if any property disposed of is
replaced by property of like or better value, quality and utility
prior to the Closing under the Asset Purchase Agreement; or (ii)
cancel, terminate, modify, amend, or renew any of the agreements
listed in schedule 6.12 without US Radio's prior written consent.
9. Further Agreements of the Parties.
(a) Environmental Audit. US Radio shall
have the right, at its option, to conduct a Phase I environmental
assessment of the Studio Space, the Antenna Space and the
Transmitter Space within 90 days after the date of this
agreement. This environmental assessment shall be conducted by a
qualified environmental engineer or consulting firm in accordance
with Part X of the Federal National Mortgage Association's
Delegated Underwriting and Servicing Guide. In the event that US
Radio elects to conduct such an environmental assessment, if any
environmental condition on or affecting the Studio Space, the
Antenna Space or the Transmitter Space shall be revealed as a
result of the environmental assessment that would either (i)
materially impair the use of the Studio Space, the Antenna Space
or the Transmitter Space for the continued operation of the
Station as currently operated by ML Media, or (ii) subject US
Radio to any material liability for fines, penalties, or cleanup
or response costs if US Radio consummates the transactions
contemplated by this agreement and the Asset Purchase Agreement,
then US Radio may elect, by notice to ML Media given within 15
days after receipt of the assessment, to terminate this agreement
and the LMA Agreement; provided, however, that such termination
shall not be effective if ML Media elects, within 15 days after
the termination notice from US Radio, to remedy and does remedy
such environmental condition prior to the closing under the Asset
Purchase Agreement to the extent that such condition no longer
(i) materially impairs the use of the Studio Space, the Antenna
Space or the Transmitter Space for the continued operation of the
Station as currently operated by ML Media, or (ii) subjects US
Radio to any material liability for fines, penalties, or clean-up
or response costs. Buyer shall commission and pay for any
environmental assessment. Buyer's failure to commission the
environmental assessment in time to permit its completion within
90 days shall be deemed a waiver of this provision and of US
Radio's right to terminate this agreement and the LMA Agreement
pursuant to this section.
(b) Title Insurance. Within 60 days after
the date of this agreement, ML Media shall obtain and deliver to
US Radio a commitment(s) of a title insurance company reasonably
satisfactory to US Radio (the "Title Company") agreeing to issue
to US Radio at the closing under the Asset Purchase Agreement, at
standard rates, an ALTA lessee's extended coverage title
insurance policy insuring its leasehold estate in the Antenna
Space and the Transmitter Space, with no exceptions that may
materially impair the use of the Antenna Space or the Transmitter
Space or have a material adverse effect on the value of the lease
of the Antenna Space and the Transmitter Space. If ML Media is
unable to obtain a commitment on such terms, ML Media shall
notify US Radio and US Radio may elect, by notice to ML Media
given within 15 days after the notice from ML Media, to terminate
this agreement and the LMA Agreement; provided, however, that
such termination shall not be effective if ML Media elects,
within 15 days after the termination notice from U.S. Radio to
eliminate and does eliminate prior to the Closing under the Asset
Purchase Agreement any such exception. At Closing under the
Asset Purchase Agreement, ML Media shall deliver to US Radio an
affidavit or indemnification agreement that shall be sufficient
to cause the Title Company to affirmatively insure U.S. Radio
against the existence of outstanding rights that could form the
basis for mechanic's, materialmen's or similar liens, unrecorded
documents, claims of parties in possession, and judgments,
bankruptcies or other charges against any persons whose names are
the same as or similar to ML Media's name.
10. Miscellaneous.
10.1 Notices. Any notice or other communication
under this agreement shall be in writing and shall be considered
given when delivered personally or by FAX, one day after being
given to a recognized overnight delivery service or four days
after being mailed by registered mail, return receipt requested,
to the parties at the addresses set forth below (or at such other
address as a party may specify by notice to the other):
if to US Radio or L.P., to it at:
1234 Market Street
Philadelphia, Pennsylvania 19107
Attention: Ragan A. Henry
Chairman and Chief Executive
Officer
with a copy to:
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, NW
Washington, DC 20036
Attention: Marilyn D. Sonn, Esq.
if to ML Media, to it at:
ML Media Opportunity Partners, L.P.
350 Park Avenue
16th Floor
New York, New York 10022
Attention: I. Martin Pompadur
with a copy to:
Proskauer Rose Goetz & Mendelsohn
1585 Broadway
New York, New York 10036
Attention: Bertram A. Abrams, Esq.
10.2 Entire Agreement. This agreement, including
the schedules and exhibits, contains a complete statement of all
the arrangements between the parties with respect to its subject
matter, supersedes any previous agreement among them relating to
that subject matter, and cannot be changed or terminated orally.
10.3 Headings. The section headings of this
agreement are for reference purposes only and are to be given no
effect in the construction or interpretation of this agreement.
10.4 Governing Law. This agreement shall be
governed by and construed in accordance with the law of the
Commonwealth of Virginia, without reference to its rules as to
choice of law, and the Communications Act of 1934 to the extent
applicable.
10.5 Separability. If any provision of this
agreement is invalid or unenforceable, the balance of this
agreement shall remain in effect.
10.6 Assignment. No party may assign any of its
rights or delegate any of its duties under this agreement without
the consent of the others; provided, however, that US Radio may
assign this agreement to any partnership or corporation
controlled by Ragan A. Henry provided that (a) such entity makes
the representations and warranties in section 7, and (b) such
assignment does not delay the closing under the Asset Purchase
Agreement.
10.7 Publicity. Except as required by applicable
law or as US Radio may reasonably determine in connection with
the registration statement being filed in connection with an
initial public offering, no party shall issue any press release
or other public statement regarding the transactions contemplated
by this agreement without consulting with the others.
10.8 Specific Performance. The parties
acknowledge that the Station is of a special, unique and
extraordinary character, and that any breach of this agreement by
any party could not be compensated for by damages. Accordingly,
if any party breaches its obligations under this agreement the
other shall be entitled, in addition to any other remedies that
it may have, subject to obtaining approval of the Commission, to
enforcement of this agreement by a decree of specific performance
requiring the other to fulfill its obligations under this
agreement.
10.9 Risk of Loss. If there is any material loss
or damage to the Assets prior to the Closing under the Asset
Purchase Agreement, ML Media shall, prior to the Closing under
the Asset Purchase Agreement, repair or replace the Assets to
their condition prior to the loss or damage at ML Media's sole
expense.
10.10 Exclusive Dealings. For so long as this
agreement remains in effect, neither ML Media nor any person
acting on ML Media's behalf shall solicit or initiate any offer
from, or conduct any negotiations with, any person concerning the
acquisition of the Station by any person other than the Buyer (or
Buyer's permitted assignee), except as provided in section 4.
ML MEDIA OPPORTUNITY PARTNERS, L.P.
BY: MEDIA OPPORTUNITY MANAGEMENT
PARTNERS
BY: RP OPPORTUNITY MANAGEMENT,
L.P.
BY: IMP OPPORTUNITY MANAGEMENT,
INC.
By:____________________________________
US RADIO V, INC.
By:____________________________________
US RADIO, L.P.
By:___________________________________
