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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 Fiscal Year Ended December 31, 1996 Commission File
No.
33-72468
33-72468-01
THE HELICON GROUP, L.P.
(Exact name of registrant as specified in its charter)
Delaware 4841
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
22-3248703
(I.R.S. Employer Identification No.)
HELICON CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 4841
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
22-3248702
(I.R.S. Employer Identification No.)
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
(201) 568-7720
(Address, including Zip Code and telephone number,
including area code, of registrants' principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrants: (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the Registrants: Not applicable.
The number of shares outstanding of the common stock of Helicon Capital
Corp.,as of March 31, 1997:100
DOCUMENTS INCORPORATED BY REFERENCE:
Registration Statement No. 33-72468 on Form S-4 effective, February 3, 1994
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Exhibit Index appears on page 40
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TABLE OF CONTENTS
FORM 10-K
PART I PAGE
----
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 20
ITEM 3. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 21
ITEM 6. SELECTED FINANCIAL DATA 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 33
ITEM 11. EXECUTIVE COMPENSATION 35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 39
SIGNATURES
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PART I
ITEM 1. BUSINESS
General
The Helicon Group, L.P. ("THGLP" or the "Company") was organized as a
limited partnership on August 10, 1993 under the laws of the state of Delaware
to consolidate the ownership interests of Helicon Group, Ltd. ("Helicon"),
Terrebonne Cablevision, L.P., Roxboro Cablevision Associates, L.P. and Vermont
Cablevision Associates, L.P. (collectively, the "Predecessor Companies") in
connection with a roll-up plan completed on November 3, 1993 (the "roll-up"). As
a result of the roll-up, the Company acquired substantially all of the operating
assets and agreements of all the cable television systems which were previously
owned by the Predecessor Companies and the stockholders and the partners of the
Predecessor Companies became limited partners of the Company. The Company
operates under the name "Helicon Cable Communications". The general partner of
the Company is Baum Investments, Inc., a Delaware corporation, which is 100%
owned by Mr. Baum. On April 8, 1996, the Company became 99% owned by Helicon
Partners I, L.P. (HPI) and 1% owned by the Baum Investments, Inc., the general
partner, (See "Certain Relationships and Related Transactions" section). The
Company is managed by Helicon Corp., an affiliated management company.
Helicon Capital Corp., a Delaware corporation and a wholly-owned subsidiary
of the Company, was formed solely to be an co-issuer along with the Company of
$115,000,000 aggregate principal amount of 11% Senior Secured Notes (the "Senior
Secured Notes"). Helicon Capital Corp. had nominal assets as of December 31,
1995 and 1996 and had no operations from the date of incorporation to December
31, 1996.
Helicon Telephone Co., a Delaware corporation, is a wholly owned subsidiary
and Helicon Telephone Pennsylvania, LLC, a Pennsylvania limited liability
company, is a 99% owned subsidiary of the Company. Such subsidiaries, along with
certain other 99% owned limited liability companies which have not yet commenced
operations, were formed for the purpose of providing local exchange, intrastate
and interstate telecommunications services. As of December 31, 1996, Helicon
Telephone Co. , Helicon Telephone Pennsylvania, LLC, and the other 99% owned
limited liability companies had nominal assets and had no operations from the
dates of incorporation to December 31, 1996. On December 16, 1996, Helicon
Telephone Company, LLC filed an application with the Pennsylvania Public Utility
Commission for certification as a competitive local exchange carrier in the
service territory of Bentleyville Telephone Company.
The Company operates cable television systems located in Pennsylvania, West
Virginia, North Carolina, Louisiana, Vermont and New Hampshire (the "Systems").
At December 31, 1996, the Company's cable television systems passed
approximately 117,221 homes with 87,496 subscribers (customers). The Company has
typically established itself in a state through a large acquisition and has
added to the initially acquired system through acquisitions of nearby systems
and line extensions. In addition to acquisitions of systems in the ordinary
course of its business, the Company acquired large groups of subscribers in 1989
in Terrebonne and LaFourche, Louisiana and in 1992 in Barre and St. Johnsbury,
Vermont and Haverhill, New Hampshire.
Helicon Corp. is responsible for the day-to-day management of the Systems
pursuant to an existing management agreement. Helicon Corp. is owned and
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controlled by Mr. Theodore Baum. Management fees relating to the Systems are
payable monthly in an amount equal to five percent (5%) of gross revenues from
the operation of the Systems subject to certain limitations.
A cable television system receives television, radio and data signals at
the system's "headend" site by means of over-the-air antennas, microwave relay
systems and satellite earth stations. These signals are then modulated,
amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to deliver a wide variety of channels of television
programming, primarily entertainment and informational video programming to the
homes of subscribers who pay fees for this service generally on a monthly basis.
A cable television system may also originate its own television programming and
other information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified period of time.
The Company's Systems offer customers various levels of cable services
consisting of broadcast television signals of local network affiliates,
independent and educational television stations, a limited number of television
signals from so-called "super stations," numerous satellite-delivered,
non-broadcast channels, programming originated locally by the respective cable
television system and informational displays featuring news, weather, stock
market and financial reports and public service announcements. For an extra
monthly charge, the Systems also offer "premium" television services to their
customers. For an additional event charge, the Systems offer pay-per-view
services consisting of recently released movies and special events including
boxing and wrestling matches, other sporting events and concerts.
A customer generally pays an initial installation charge and fixed monthly
fees for basic, premium and new product tier ("NPT") television services and for
other services (such as the rental of converters or other equipment). Such
monthly service fees constitute the primary source of revenues for the Systems.
The Systems currently offer customers various levels of cable television
services consisting of a combination of broadcast television signals and
satellite television signals.
The service options offered by the Company vary from System to System,
depending upon a System's channel capacity and viewer interests. Rates for
services also vary from market to market and according to the type of services
selected. Since September 1, 1993, when the Federal Communications Commission
(the "FCC") rate regulation commenced, each of the Systems, except the Vermont
System, has offered customers both broadcast services and satellite ("cable
programming") services as its basic package, and super-stations and other
satellite services on a new programming service tier basis, as well as several
premium services. The Vermont System offers both a broadcast basic, an expanded
level of basic with only satellite services, an NPT tier package, as well as
several premium services. Each channel within an NPT package is also available
on an individual a la carte basis.
For an extra monthly charge, the Systems offer "premium" television
services to their customers. These services (such as HBO(R), Cinemax(R),
Showtime(R), The Movie Channel(R), The Disney Channel(R) and regional sports
networks) are satellite-delivered channels that consist principally of feature
films, live sporting events, concerts and other special entertainment features,
usually presented without commercial interruption. Approximately eighty-eight
percent of the subscribers are offered pay-per-view ("PPV") which allow them to
purchase current release movies (after theatrical distribution) and
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other top, live sporting events (primarily boxing and wrestling matches) and
concerts. The Systems receive additional fees from customers for such PPV
programming, the Sega Game Channel and also from the sale of available
advertising spots on advertiser-supported satellite channels. The Systems also
offer home shopping services to their customers, and the Systems share in the
revenues from sales of products in the Systems' service areas.
In recent years, the Company has begun to install converters in the Systems
that can be "addressed" by sending coded signals from the headend over the cable
network. Addressable converters enable the system operator automatically to
change the customer's level of service without visiting the customer's home.
Addressable converters improve system programming flexibility, enable the
operator to simplify its billing procedures, allow customers the option of
changing their levels of service on short notice and enable customers to select
and order pay-per-view programming events using the converter's on-line
capability.
In 1996, the Company began to purchase advanced analog addressable
converters manufactured by General Instrument ("CFT-2200's") in its Pennsylvania
system where it will begin offering the interactive Starsight navigational
program guide in 1997, which enables customers to make on-screen selections of
any programs available.
In March 1996, the Company began providing dial tone Internet Service to
customers in its Pennsylvania system and is planning to offer this service to
some of its other cable systems in 1997.
On April 8, 1996, the Company acquired a 1% equity interest in HPI
Acquisition Co., LLC, a newly formed affiliated entity organized for the purpose
of acquiring and operating cable systems.
On August 1996, the Company entered into a contract with a national paging
company and began offering paging service in its Louisiana cable systems. The
Company is planning to offer paging service to some of its other cable systems
in 1997.
Programming
The United States Congress has enacted the Cable Television Consumer
Protection and Competition Act of 1992 ("the 1992 Cable Act") under which cable
television operators are required to obtain retransmission consent from
commercial broadcast stations, except for established superstations and
noncommercial educational stations ("exempt stations"), in return for the right
to continue to carry their television signals. Alternatively, a local commercial
broadcaster can demand carriage under the 1992 Cable Act's "must-carry"
provisions, although in such event the cable television operator cannot seek
compensation from the local broadcaster for such carriage. Historically, the
Company has not paid fees for retransmission of local broadcast signals other
than mandatory copyright fees. The Company obtained retransmission consents for
the signals of all the commercial broadcast stations which it carries (and which
are not "exempt stations" or stations which invoke must carry provisions) on
terms which will not have a material adverse effect on the Company. Under the
1992 Cable Act, stations must elect "must carry" or retransmission consent every
three years. The next election is in the fall of 1999. The Company does not
anticipate any material changes from the current signal carriage structure.
Helicon Corp., a management company managing the Company's Systems, has
various contracts to obtain basic, satellite and premium programming for the
Systems
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from program suppliers with compensation being generally based on a fixed fee
per customer or a percentage of the gross receipts for the particular service.
Some program suppliers provide volume discount pricing structures and/or offer
marketing support to Helicon Corp. Helicon Corp.'s programming contracts are
generally for fixed periods of time ranging from three to ten years and are
subject to negotiated renewal. Helicon Corp. currently supplies the programming
it receives to THGLP pursuant to a Programming Supply Agreement with THGLP dated
November 3, 1993. THGLP pays to Helicon Corp. only the costs incurred by Helicon
Corp. under the respective programming agreements. No assurances can be given
that Helicon Corp.'s programming costs will not increase substantially in the
near future, or that other materially adverse terms will not be added to Helicon
Corp.'s programming contracts. Management believes, however, that Helicon
Corp.'s relations with its programming suppliers generally are good.
Cable programming costs are expected to continue to increase due to the
additional programming provided to basic customers, increased costs to produce
or purchase cable programming, inflationary increases, regulation and other
factors. Increases in the cost of premium programming services have been offset
in part by additional volume discounts as a result of increases in the number of
customers of the systems managed by Helicon Corp. In 1994, 1995 and 1996,
programming costs as a percentage of revenues were 18.2%, 19.2% and 19.3%
respectively. The 1992 Cable Act permits full recovery of regulated basic and
cable programming tier program cost increases under its rate "price cap"
regulations.
In 1997, Tele-Communications, Inc. will begin offering its digital headend
in the sky ("HITS") package of programming to cable operators. HITS provides
state-of-the-art compression allowing 6-10 digital channels to be carried in
each 6 Mhz channel on the cable system. The Company is investigating the
possibility of launching HITS in one or more of its systems commensurate with
the attempt to acquire bulk rate pricing of digital converters at reasonable
prices.
Cooperative. The Company became a member of the National Cable Television
Cooperative ("NCTC") in 1986. Through the NCTC's 8.0 million subscriber
membership purchasing power, the Company has been able to obtain additional
favorable programming discounts. This has enabled the Company to reduce many of
its programming expenses to levels similar to some of the major cable television
multi-system operators. NCTC has announced that it will attempt to acquire bulk
rate pricing for its members for purchases of digital converters. If NCTC is
successful, the cost of digital converters to the Company will decrease.
Franchises
Cable television systems generally operate under non-exclusive franchises
granted by local governmental authorities. These franchises typically contain
many conditions, such as time limitations on commencement and completion of
construction; conditions of service, including number of channels types of
programming and the provision of free service to schools and certain other
public institutions; and the maintenance of insurance and indemnity bonds and
non-compliance penalties, forfeiture and termination clauses and other material
provisions. Certain provisions of local franchises are subject to Federal
regulation under both the 1984 Cable Act, which created national standards and
guidelines for the regulation of cable television systems, and the 1992 Cable
Act.
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The 1984 Cable Act provides, among other things, for an orderly franchise
renewal process in which renewal of franchise licenses issued by governmental
authorities will not be unreasonably withheld or, if renewal is withheld and the
franchise authority chooses to acquire the system, such franchise authority must
pay the operator either (i) the "fair market value" (without value assigned to
the franchise) for the system covered by such franchise if the franchise did not
exist before the October 1984 effective date of the 1984 Cable Act, or if the
franchise was pre-existing but the franchise agreement did not provide for a
buyout, or (ii) in the case of pre-existing franchises with buyout provisions,
the price set forth in such franchise agreements. In addition, the 1984 Cable
Act establishes comprehensive renewal procedures which require that an incumbent
franchisee's renewal application be assessed on its own merits and not as part
of a comparative process with competing applications. See "Legislation and
Regulation", below. The Company believes that it has good relationships with its
franchising communities. To date, the Company has never had a franchise revoked
for any of the Systems, and no request of the Company for franchise renewals or
extensions has been denied, although such renewed or extended franchises have
frequently resulted in franchise modifications on terms satisfactory to the
Company.
The 1984 Cable Act also established buyout rates for franchises which
post-date the existence of the 1984 Cable Act or pre-date the 1984 Cable Act but
the franchise agreement does not contain buyout provisions; in the event the
franchise is terminated "for cause" and the franchise authority desires to
acquire the system, the franchise authority must pay the operator an "equitable"
price. If the franchise pre-dates the 1984 Cable Act and the franchise agreement
does provide for a buyout in the event of termination, the terms of the
franchise agreement govern. To date, none of the Company's franchises have been
terminated. See "Legislation and Regulation", below.
As of December 31, 1996, the Systems held 84 franchises. These franchises
generally provide for the payment of fees to the issuing authority. Annual
franchise fees imposed on the Systems range up to 5% of the Subscriber revenues
generated by a System. For the past three years, franchise fee payments made by
THGLP have averaged approximately 1.8% of total gross System revenues. Franchise
fees are passed directly through to the customers on their monthly bills.
General business or utility taxes may also be imposed in various jurisdictions.
The 1984 Cable Act prohibits franchising authorities from imposing franchise
fees in excess of 5% of gross revenues and also permits the cable operator to
seek renegotiation and modification of franchise requirements if warranted by
changed circumstances. Most of the Company's franchises can be terminated prior
to their stated expirations for uncured breaches of material provisions.
The following table groups the Company's Subscribers by year of franchise
expiration, where applicable.
Year of Number of Percentage of Number of
Franchise Expiration Subscribers Subscribers Franchises
- -------------------- ----------- ----------- ----------
1997 3,020 3.5% 7
1998-2002 24,146 27.6% 16
2003-2007 33,844 38.7% 37
2008 and after 4,802 5.5% 11
No expiration 16,017 18.3% 13
No Franchise 197 .2% --
Grandfathered under 1984
Cable Act 5,470 6.2% --
----- ------ ---
Total 87,496 100.0% 84
====== ===
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The Company operates certain systems which serve multiple communities and,
in some circumstances, portions of such systems serving approximately 197
subscribers, comprising approximately 0.2% of the Company's subscribers, extend
into jurisdictions for which the Company believes no franchise is necessary. In
addition, the Company has been operating in six communities in West Virginia
without any franchise having been formally issued, although the Company has
applied for the grant of such franchises. In view of the length of time that the
Company has been operating in such communities and the small number of
subscribers located therein, the Company believes that there is no significant
risk that it will be unable to continue operating therein without a franchise.
The non-franchised communities serve 4,384 subscribers, in West Virginia and
1,086 subscribers in Pennsylvania, comprising approximately 6.2% of the
subscribers in all of the Systems.
Competition
The Systems compete with other communications and entertainment media,
including conventional over-the-air local broadcast television service. The
Telecommunications Act of 1996 has increased the potential for competition,
especially from telephone and electric utilities, significantly. (See discussion
of the 1996 Act below). Cable television service was first offered as a means of
improving television reception in markets where terrain factors or remoteness
from major cities limited the availability of over-the-air local broadcast
television. In some of the areas served by the Systems, a substantial variety of
broadcast television programming can be received over-the-air. The extent to
which cable television service is competitive with broadcast stations depends in
significant part upon the cable television system's ability to provide an even
greater variety of programming than that available over-the-air. Cable
television systems also are susceptible to competition from other video
programming delivery systems, from other forms of home entertainment such as
video cassette recorders, and, in varying degrees, from sources of entertainment
in the community, including motion picture theaters, live theater and sporting
events.
The Federal Communications Commission, the principal Federal regulatory
agency with jurisdiction over cable television, is responsible for implementing
Federal policies such as cable television system relations with other
communications media and franchising authorities, cross-ownership, signal
carriage, equal employment opportunity and technical performance.
Cable television systems also may compete with wireless program
distribution services which generally utilize low power microwave frequencies to
transmit television programming over-the-air to subscribers ("MMDS"). The
ability of MMDS to compete with cable television systems has been limited in the
past by the limited amount of frequency capacity. Under amended FCC regulations,
MMDS systems compete more effectively with cable television systems by using
additional frequencies. The Company currently competes with Wireless One, an
MMDS operator in its Terrebonne Parish, Louisiana System. Additional competition
exists from private cable television systems serving condominiums, apartment
complexes and other private residential developments. The operators of these
private systems known as Master Antenna Television ("MATV") and Satellite Master
Antenna Television ("SMATV"), often enter into
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exclusive agreements with apartment building owners or homeowners associations
that preclude operators of franchised cable television systems from serving
residents of such private complexes. Moreover, a private cable television system
normally is free of the regulatory burdens imposed on franchised cable
television systems. Originally, the FCC adopted regulations prohibiting a SMATV
and MATV from being acquired by the surrounding cable operator. Subsequently,
the FCC reversed its policy and now permits such acquisitions. The Company
currently does not compete with SMATV and MATV systems in its areas and only
serves an insignificant number of customers in apartment complexes.
Since the Systems operate under non-exclusive franchises, other operators
(including municipal franchising authorities themselves as well as, telephone
and electric utilities) may obtain permission to build cable television systems
in areas in which the Systems presently operate. To date, there is competition
from other operators in less than 0.5% of the existing mileage in the Company's
franchise areas. In the Fall of 1996, Bentleyville Telephone Company ("BTC"),
which operates local telephone service in the Borough of Bentleyville,
Pennsylvania, began to build a cable system in the Borough of Bentleyville where
the Company services 862 customers and expects to start offering a 42 channel
basic cable service in competition with the company's 62 channel basic cable
service by the middle of February 1997. While the Company believes that it can
compete effectively with BTC by offering more channels in its basic cable
service, there can be no assurance that the Company will be successful in
maintaining all its customers in the area where it competes with BTC. The 1992
Cable Act may facilitate the franchising of second cable television systems and
municipally-owned cable television systems. See "Legislation and
Regulation--1992 Federal Cable Legislation".
In recent years, the FCC has adopted policies for authorizing new
technologies and providing a more favorable operating environment for certain
existing technologies. Such policies have the potential to create substantial
additional competition to cable television systems. These technologies include,
among others, DBS services whereby signals are transmitted by satellite to
receiving facilities located on the premises of the DBS subscribers. Until
recently, DBS systems required the installation of expensive large diameter
antenna which could provide a full range of programming and video services by
accessing C-Band Direct Satellites. However, advances in video transmission
technology have led to the development of smaller diameter antenna. Although
such reasonably priced earth stations designed for private home use now enable
individual households to receive much of the satellite-delivered programming
services formerly available only to cable television subscribers, many satellite
programmers encode their signals in order to allow reception only by means of
authorized decoding equipment and monthly subscriptions are still required for a
DBS dish owner to receive a full range of programming services. Moreover, DBS
does not provide subscribers with local broadcast stations. Over recent months,
the 18 inch dish version of DBS service has been successfully marketed in some
areas where the Company operates Systems. The Company believes, that, compared
to DBS operators, the Company is a lower cost provider of comparable programming
to customers. There is no assurance that DBS operators will not, in the future,
package programming on a more desirable basis for customers and/or lower the
high costs associated with DBS when compared to the cost of obtaining cable
television service. Furthermore, DBS services currently offer customers a large
selection of pay-per-view movies on a 15 to 30 minute start cycle and also offer
the premium service subscriber multiple time slots on different premium
services.
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Federal law requires cable programming vendors under certain circumstances
to offer their programming to operators of DBS, MMDS and other multi-channel
video systems at not unreasonably discriminatory prices. See "Legislation and
Regulation -- 1992 Federal Cable Legislation."
Advances in communications technology and changes in the marketplace are
constantly occurring. Therefore, it is not possible to predict the effect which
ongoing future developments might have on the Systems.
Telephone Company Competition. The Telecommunications Act of 1996, Public
Law 104-104, enacted on February 8, 1996, ("1996 Act") instituted sweeping
changes in the telecommunications industries. The Act has terminated the 1982
federal court consent decree (the "Modified Final Judgment") that settled the
1974 antitrust suit against AT&T, as well as the 1984 Cable Act codification of
the FCC telephone/cable cross-ownership regulations. As a result, long-distance
telephone companies such as AT&T, MCI and Sprint will be able to provide local
exchange service, and the local exchange carriers, including the seven Regional
Bell Operating Companies, GTE and the smaller independent telephone carriers,
will be allowed to provide long-distance service. Telephone companies will be
allowed to provide cable television service either as a franchised cable
operator or as an unfranchised common carrier "open video service" provider.
Telephone Company Entry Into Cable Television. The 1996 Act allows
telephone companies to compete directly with cable operators by repealing the
telephone company-cable television cross-ownership ban, thereby allowing direct
ownership of franchised cable systems. Further, the FCC's "video dialtone"
regulations have been replaced with a more lenient "open video system" or "OVS"
concept. This will allow local exchange carriers ("LEC's"), including the
Regional Bell Operating Companies, to compete with cable both inside and outside
their telephone service areas either as a common carrier OVS provider or as a
fully franchised cable operator. LEC owned programming services are subject to
the FCC's nondiscriminatory program access requirements.
LEC's complying with FCC's OVS regulations will receive relaxed oversight.
The 1996 Act limits the FCC's cable regulations applicable to OVS providers only
to the program access, negative option billing prohibition, subscriber privacy,
EEO, PEG, must-carry and retransmission consent provisions. Cable regulations
regarding franchising, rate regulation, consumer service provisions, leased
access and equipment compatibility will not apply to OVS services but will apply
to LEC provided franchised cable services. Cable copyright provisions will apply
to programmers using OVS. Local franchising authorities may require OVS
operators to pay "franchise fees" only to the extent that the OVS provider or
affiliates provides cable services over the OVS. The Act does not require LEC's
to use separate subsidiaries to provide incidental interLATA video or audio
programming services to subscribers or for their own programming ventures.
In February 1997, the Company began to compete with the Bentleyville
Telephone Company in Bentleyville, Pennsylvania. The Company also anticipates
that, over time, it will become subject to increasing competition from other
telephone companies, either directly as franchised operators or as OVS
providers. This may have a material, but as yet undeterminate, impact on the
Company's operations.
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Buyouts. Although the 1996 Act eliminates the telephone/cable
cross-ownership restrictions, it also contains a general prohibition on LEC
acquisitions of cable systems (in excess of a 10 percent ownership interest).
Cable operators are likewise generally prohibited from acquiring LEC systems,
and joint ventures between cable operators and LEC's are also banned. There are
certain exceptions: Buyouts are permitted where the purchased cable system
serves an area with fewer than 35,000 inhabitants outside an urban area. In
addition, where a LEC purchases a cable system, that system plus any other
system in which the LEC has an interest must serve less than 10 percent of the
LEC's telephone service area. LEC's with less than $100 million in annual
operating revenues may purchase or joint venture with any cable system in its
telephone service area provided the cable system serves no more than 20,000
subscribers of which no more than 12,000 are in an urban area. The 1996 Act also
grants the FCC the power to grant waivers of the buyout provisions in cases
where (1) the cable operator or LEC would be subject to undue economic distress;
2) the system or facilities would not otherwise be economically viable; or (3)
the anticompetitive effects of the proposed transaction are clearly outweighed
by the effect of the transaction in meeting community needs. Joint use of cable
drops is authorized if limited in scope and duration, as determined by the FCC.
The impact upon the Company cannot be predicted at this time.
Cable Entry Into Telecommunications. The 1996 Act substantially eliminates
the barriers to entry into the provision of local telephone exchange service and
other telecommunications services traditionally provided by the local exchange
carrier. It declares that no state or local laws or regulations may prohibit or
have the effect of prohibiting the ability of any entity to provide any
interstate or intrastate telecommunications service. States are authorized to
impose only "competitively neutral" requirements regarding universal service,
public safety and welfare, service quality, and consumer protection. The 1996
Act further provides that cable operators and affiliates providing
telecommunications services are not required to obtain a separate franchise from
local franchising authorities ("LFA's") for such services. LFA's are prohibited
from requiring cable operators to provide telecommunications services or
facilities as a condition to granting a franchise, franchise renewal, or
franchise transfer, except that LFA's can seek "institutional networks" as part
of such franchise negotiations.
The 1996 Act clarifies that traditional cable franchise fees may only be
based on revenues related to the provision of cable television services.
However, when cable operators provide telecommunications services, LFA's may
require reasonable, competitively neutral compensation for management of the
public rights-of-way. The LFA must publicly disclose such compensation
requirements.
As of December 31, 1996, the Company is providing dial tone Internet
Service to 1,500 customers in its Pennsylvania system where it is also testing
high speed (4 Mbps) Zenith cable modems on its two-way plant and (Telco return)
hybrid Cyber City modems manufactured by New Media Communications Ltd. Subject
to the successful testing of these modems, the company plans to launch high
speed modems first in its Pennsylvania system and next in its Vermont systems
prior to any other launches.
Interconnection and Other Telecommunications Carrier Obligations. To
facilitate the entry of new telecommunications providers (including cable
operators), the 1996 Act imposes interconnection obligations on all
telecommunications carriers. All carriers must interconnect their networks with
other carriers and must not deploy network features and functions that interfere
with interoperability. Existing local exchange
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carriers ("LEC's") also have a set of separately identified obligations beyond
those that apply to new entrants: (1) good faith negotiation with those seeking
interconnection; (2) unbundling, equal access and non-discrimination
requirements; (3) resale of services, including "resale at wholesale rates"
(exception for certain low-priced residence services to business customers); (4)
notice of changes in the network that would affect interconnection and
interoperability; and (5) physical collocation unless shown that practical
technical reasons, or space limitations, make physical collocations impractical.
Individual interconnection rates must be just and reasonable, based on cost, and
may include a reasonable profit. As required by the 1996 Act, the FCC adopted
regulations to effectuate these provisions in August 1996. Certain parts of
those regulations relating to intrastate pricing of resale services have been
stayed by the Eighth Circuit Federal Court of Appeals, and most of the remaining
provisions are the subject of requests to the FCC for reconsideration by
affected parties.
On December 16, 1996, Helicon Telephone Pennsylvania, LLC filed an
application with the Pennsylvania Public Utility Commission for certification as
a competitive local exchange carrier in the service territory of Bentleyville
Telephone Company.
The 1996 Act requires that all telecommunications providers (including
cable operators that provide telecommunications services) must contribute
equitably to a Universal Service Fund (USF); the FCC may exempt an interstate
carrier or class of carriers if their contribution would be minimal under the
USF formula. States may determine which intrastate telecommunications providers
contribute to the USF.
Electric Utility Entry Into Telecommunications . The 1996 Act amends the
Public Utilities Holding Company Act and permits registered utility holding
companies and subsidiaries to provide telecommunications services (including
cable television) provided they do so through separate subsidiaries, known as
"exempt telecommunications companies" ("ETC's"). Such ETC's must apply to the
FCC for operating authority. It is expected that many large utility holding
companies, which have already installed fiber backbone for signaling and
metering purposes, will now become significant competitors to both cable
television and telecommunications providers.
Although the Company is unable to predict the extent to which it would be
adversely affected as a result of competition, management sees little likelihood
at this time that, in the aggregate, competition will result in a decreased
number of Subscribers, in decreased revenues or materially increased operating
expenses on a per-subscriber basis.
Employees
At December 31, 1996, the Company had 154 full-time employees. The Company
considers its relations with its employees to be good. In the Company's
Pennsylvania System, 38 employees (17 technical and 21 clerical) are represented
by two unions and are covered by collective bargaining agreements. The
collective bargaining agreement covering technical employees was recently
reviewed and will expire on December 31, 1999 and the collective bargaining
agreement covering clerical employees is scheduled to expire on December 31,
1998. No other employees of the Company are represented by unions.
Page 12 of _____
<PAGE>
Legislation and Regulation
Introduction
The cable television industry is subject to extensive governmental
regulation at the Federal, state and local level. In addition, various
legislative and regulatory proposals, such as tax reform proposals and proposals
to revise the Copyright Act of 1976, may materially affect the cable television
industry. The following is a summary of Federal laws and regulations that
currently materially affect the growth and operation for the cable television
industry, and a description of certain state and local news.
This summary section does not purport to be a summary of all present and
proposed Federal, state and local regulations and legislation relating to the
cable television industry. Other existing Federal regulations, copyright
licensing, and, in many jurisdictions, state and local franchise requirements,
currently are the subject of a variety of judicial proceedings, legislative
hearings, and administrative and legislative proposals which could change, in
varying degrees, the manner in which cable television systems operate. Neither
the outcome of these proceedings nor their impact upon the cable industry or the
Company can be predicted at this time.
1984 Cable Act
Congress enacted the 1984 Cable Act to create uniform national standards
and guidelines for the regulation of cable television systems. Among other
things, the 1984 Cable Act affirmed the right of franchising authorities (state
or local, depending on the practice in individual states) to award one or more
franchises within their jurisdictions. It also prohibited post-1984 Cable Act
cable television systems from operating without a franchise in such
jurisdiction. In connection with new franchises, the 1984 Cable Act provides
that in granting or renewing franchises, franchising authorities may establish
requirements for cable-related facilities and equipment, but may not specify
requirements for video programming or information services other than in broad
categories. Most conditions in the Company's existing franchises were
unaffected.
The 1984 Cable Act preempted local control over rates for premium channels
and optional program tiers, as well as deregulating rates for basic cable
services in areas where the cable operator was subject to "effective
competition" to be defined by the FCC. This scheme was altered significantly by
the 1992 Cable Act, discussed below. The FCC's definition of "effective
competition", the presence of at least three off-air broadcast signals in the
cable community, effectively de-regulated rates for most cable systems.
Although franchising authorities may impose franchise fees under the 1984
Cable Act, such payments cannot exceed 5% of a cable television system's annual
gross revenues. In those communities in which franchise fees are required, the
Company currently pays franchise fees ranging from flat annual fees equal to
less than 1% of gross revenues to fees of 5% of gross revenues. Franchising
authorities are also empowered to require cable operators to provide
cable-related facilities, equipment and, in the case of pre-1984 Cable Act
franchises, services to the public and to enforce compliance with such franchise
requirements and voluntary commitments. When changed circumstances render such
compliance commercially impracticable, however, the 1984 Cable Act requires
franchising authorities to renegotiate franchise requirements and, under certain
circumstances, permits the cable operator to make changes in programming without
local approval.
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<PAGE>
The 1984 Cable Act established renewal procedures designed to protect
incumbent franchisees against arbitrary denials of renewal. This statute
requires that franchising authorities consider a franchisee's past performance
and renewal proposal on their own merits in light of community needs and without
comparison to competing applicants. Nevertheless, renewal is not assured, as the
franchisees must meet certain statutory standards. Moreover, even if a franchise
is renewed, a franchising authority may impose new and more onerous requirements
such as upgrading of facilities and equipment, although the municipality must
take into account the costs of meeting such requirements. Also, the franchising
authority may require higher franchise fees, up to the 5% of annual gross
revenues limit established by the 1984 Cable Act, as a condition of renewal.
The 1984 Cable Act permits local franchising authorities to require cable
television operators to set aside certain channels for public, educational, and
governmental access programming. The 1984 Cable Act further requires cable
television systems with 36 or more channels to designate a portion of their
channel capacity for commercial leased access by third parties. Although there
has been little activity in this area nationally, it is possible that such
leased access will result in competition to services offered over the cable
television system, particularly since the 1992 Cable Act, discussed below,
empowers the FCC to set the rates and conditions for such leased access
channels.
1992 Federal Cable Legislation
Congress enacted the 1992 Cable Act in order to effect significant change
in the regulatory framework under which cable television systems operate. After
the effectiveness of the 1984 Cable Act, rates for cable television service were
unregulated for substantially all of the Systems. One the purposes of the 1992
Cable Act was to re-impose rate regulations for most cable systems.
The 1992 Cable Act requires each cable television system to establish a
basic service tier consisting, at a minimum, of all local broadcast signals and
all non-satellite delivered distant broadcast signals which the system wishes to
carry and all public, educational and governmental access programming. In April
1993 and May 1994, the FCC adopted regulations governing the rates for the basic
service tier. Under the FCC's regulations, cable television systems were
required to reduce existing rates for the basic service tier by up to as much as
17% from the rates in effect on September 30, 1992. Municipalities are also
empowered to regulate, on the basis of actual cost standards developed by the
FCC, the rates charged for the installation and lease of the equipment used by
subscribers to receive the basic service tier (including a converter box, a
remote control unit and, if requested by a subscriber, an addressable converter
box or other equipment required to access programming offered on a per-channel
or per-program basis in addition to accessing regulated basic cable programming)
and the installation and monthly use of connections for additional television
sets.
Under the initial regulations adopted by the FCC under the 1992 Cable Act,
the FCC could, in response to complaints by a subscriber, municipality or other
governmental entity, reduce the rates for tiers of service other than the basic
service tier by as much as 17% from the rates in effect on September 30, 1992,
to the extent those rates exceed a per-channel benchmark established by the FCC.
In response to complaints, the FCC will also regulate, on the basis of actual
cost, the rates for equipment used only to receive these higher tiers. Services
offered on a per-channel or per-program basis are not subject to rate regulation
by either municipalities or the FCC.
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The initial regulations under the 1992 Cable Act provided that future
increases in service rates could not exceed a "price cap", i.e., an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs imposed by non-affiliated programmers. In November 1994, the FCC released
rules allowing recovery of more programming costs for new channels than the
FCC's "price cap" rules. For two years, cable operators were allowed to add up
to six more channels and charge up to $.20 per subscriber per month per channel
plus a "license fee reserve" of $.30, for a total of $1.50. In the third year, a
seventh channel could be added at $.20 per subscriber per month. In 1995, the
Company made use of these "going forward" rules in order to increase its
revenues. In September 1995, the FCC released additional regulations governing
its benchmark "price cap" rate formulas.
In June 1995, the FCC instituted rules granting significant regulatory
relief to "small cable companies" and "small systems", those serving 15,000 or
fewer subscribers owned by companies of 400,000 or fewer subscribers. Such
systems are allowed to use a simplified rate formula which presumes rates up to
$1.24 per channel are reasonable. "Small system" status transfers if the system
is subsequently sold to a large company. Moreover, under the 1996 Act, as
discussed below, the Company qualifies for small cable system status and is
effectively deregulated. In 1996, the Company used these "small cable systems"
rules in order to increase its revenues.
The FCC permits annual, instead of quarterly, rate adjustments without loss
of certain "use or lose" cost items. Another rate adjustment may be made during
the year for new costs, such as new channels added, which may have the affect of
increasing rates.
Additional FCC regulations govern cost of service ("COS") proceedings as an
alternative to the benchmark "price cap" formula. Under the COS procedures,
cable operators may seek to justify rates higher than the benchmark rate
(discussed above) through a cost of service analysis. The COS rules generally
follow traditional public utility rate making procedures including use of
original cost rate base valuation (with limited additions for other costs but
not including acquisition costs), rate of return methodologies and allocation of
costs between parent and operating subsidiaries and between regulated and
non-regulated services. The Company has chosen to use the benchmark procedures
since the Company's prices were found to be generally in line with such
benchmarks.
The FCC "anti-buy through" rules (where a subscriber may purchase basic and
pay services without having to purchase the satellite tier service) apply in any
location where a system may have addressable converters, even if the entire
system is not yet addressable, provided that the addressability is of such a
nature as to permit bypassing the satellite tier. These rules usually come into
play wherever a system has addressable capability. The FCC recently ruled that
the requirement is not applicable to systems subject to effective competition.
Currently, only the Subscribers in the Vermont System may bypass the satellite
tier with addressable converters. All of the Company's other Systems do not have
a separate satellite tier.
Under the 1992 Cable Act, cable television systems may not require
subscribers to purchase any service tier other than the basic tier as a
condition of access to video programming offered on a per-channel or per-program
basis. Cable television
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operators who do not already have the necessary equipment in place to comply
with this requirement are allowed up to ten years, to implement the technology
to facilitate this access. Currently, only the North Carolina System does not
have such technology in place.
In addition, the 1992 Cable Act (i) requires cable television programmers
under certain circumstances to offer their programming to present and future
competitors of cable television such as MMDS, SMATV and DBS operators at not
unreasonably discriminatory prices, (ii) directs the FCC to set standards for
limiting the number of channels that a cable television system operator could
program with programming services controlled by such operator and prohibits new
exclusive contracts with program suppliers without FCC approval, (iii) bars
municipalities from unreasonably refusing to grant additional competitive
franchises, (iv) requires cable television system carriage of local broadcast
stations, or at the option of the broadcaster, requires cable television
operators to compensate broadcast stations for the retransmission of their
programming, and (v) regulates the ownership by cable television operators of
other media such as MMDS and SMATV.
The FCC has imposed new regulations under the 1992 Cable Act in the areas
of customer service, technical standards, compatibility with other consumer
electronic equipment such as "cable ready" television sets and video cassette
recorders, equal employment opportunity, subscriber privacy, rates for leased
access channels, obscenity and indecency, and disposition of a customer's home
wiring.
A number of lawsuits have been filed in federal court challenging the
constitutionality of various provisions of the 1992 Cable Act. The Supreme
Court's decision reviewing , for a second time, a challenge to the
constitutionality of the 1992 Cable Act's must-carry rules, is expected by the
end of June 1997. The Supreme Court has denied review of a Federal Court of
Appeals decision upholding the constitutionality of the rate regulation
provisions of the 1992 Cable Act. The Company cannot predict the outcome of the
remaining suits.
The Telecommunications Act of 1996.
The Telecommunications Act of 1996, Public Law 104-104, ("1996 Act") was
enacted on February 8, 1996. This new law significantly alters federal, state
and local regulation of telecommunications providers and services, including the
cable television industry and the Company. The following is a summary of the key
provisions of the 1996 Act which could materially affect the cable television
industry and the Company.
Competition to Cable Television
(See discussion under the previous topic "Competition")
Cable Rate Regulation. Under the 1996 Act, the Company qualifies for small
cable system status and is effectively deregulated. Immediate CPS tier rate
regulation relief is afforded to "small cable operators", those with fewer than
approximately 600,000 subscribers and less than $250 million gross annual
revenues and with less than 50,000 subscribers in the rate regulated franchise
area. The 1996 Act eliminates, in three years, all rate regulation of any upper
cable program service "CPS" tier service. In the interim, only local franchising
authorities ("LFA's"), not subscribers, are allowed to file complaints with the
FCC relating to CPS tier rates. An LFA complaint must be based
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upon more than one subscriber complaint. The 1996 Act does not disturb existing
or pending CPS tier rate settlements, nor does it eliminate regulation of rates
for Basic Service Tiers (except that cable systems which had, as of December 31,
1994, only one tier of service are fully deregulated).
The 1996 Act expands the definition of "effective competition" to include
any franchise area where a local telephone exchange carrier (or affiliate)
provides video programming services to subscribers by any means other than
through DBS. There is no penetration minimum for the local exchange carrier to
qualify as an effective competitor, but it must provide "comparable" programming
services (12 channels including one broadcast) in the franchise area. All rate
regulation is eliminated where there is the presence of effective competition.
Under the 1996 Act, cable operators may aggregate, on a franchise, system,
regional or company level, equipment costs into broad categories, such as
"converter boxes", regardless of the varying levels of functionality of the
equipment within each such broad category. Additionally, costs of different
types of converters (including non-addressable, addressable, and digital) may be
averaged. The statutory changes will also facilitate the rationalizing of
equipment rates across jurisdictional boundaries. These favorable
cost-aggregation rules do not apply to the limited equipment used by
"Basic-only" subscribers.
Miscellaneous Cable Television Reforms under the 1996 Act
Cable Uniform Rate Requirements. The 1996 Act amends the requirement that
cable rates be uniform throughout a franchise area to exempt situations where
the cable operator faces "effective competition," and by permitting bulk
discounts to multiple dwelling units. The FCC retains jurisdiction to
investigate complaints of "predatory pricing".
System Sales. The 1996 Act eliminates the requirement instituted in the
1992 Cable Act that cable systems must be held for three years prior to sale.
Cable System Definition. The definition of a "cable system" is amended so
that competitive providers of video services will be regulated as a definitional
"cable system" only if they use public rights-of-way. This frees many SMATV and
MMDS providers of cable service from the FCC's cable regulations and
restrictions.
Cross-Ownership. In addition to elimination of the telephone/cable
cross-ownership restrictions, the 1996 Act eliminates the broadcast
network/cable cross-ownership restrictions, but leaves in place FCC regulations
prohibiting cross-ownership between local television stations and cable systems.
The FCC is empowered to adopt rules to ensure carriage, channel positioning and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. The MMDS/cable cross-ownership
restrictions are eliminated for cable operators subject to effective
competition.
Must Carry. The 1996 Act preserves must carry rights for local television
broadcasters. The FCC is directed to grant or deny must carry requests within
120 days of complaint filing with the FCC.
Cable Equipment Compatibility, Scrambling Requirements. The 1996 Act
directs an FCC equipment compatibility rulemaking looking toward (1) some form
of common
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design among televisions, VCRs, and cable systems, (2) open competition for all
converter features unrelated to security descrambling, and (3) minimal impact on
unrelated telephone and computer features. The FCC is directed to adopt
regulations which assure the competitive availability of converters ("navigation
devices") from vendors other than cable operators. Any FCC rules in this area
cannot impinge upon signal security concerns or theft of service protections for
cable operators.
The 1996 Act requires cable operators, upon subscriber request, to fully
scramble or block at no charge the audio and video portion of any channel not
specifically subscribed to by a household. Further, cable operators are
obligated to fully scramble or block both the audio and video of all sexually
explicit programming. If the cable operator cannot fully scramble or block its
signal, it must restrain distribution to those hours of the day when children
are unlikely to view the programming.
On March 5, 1996, the FCC adopted an interim "safe harbor" of 10:00 PM to
6:00 AM. It also waived and preempted all notice requirements which would have
prevented immediate compliance. Under the "safe harbor" approach, operators
could continue carrying channels primarily dedicated to sexually explicit adult
programming, even if they were not fully scrambled, as long as the indecent,
sexually explicit programming was limited to the designated late night hours.
Playboy Video Enterprises, Inc. immediately filed a lawsuit challenging the
constitutionality of the scrambling requirement and asking for an immediate
stay. The Federal District Court in Delaware has now issued a temporary
restraining order ("TRO") enjoining the United States, its agents, and anyone
else acting in concert, from enforcing or implementing the new provision. In
November 1996, the three judge federal panel reviewing the case upheld the law
but continued the stay pending Supreme Court review.
Cable Provision of Internet Services. Cable operators are increasingly able
to provide data transmission services. The 1996 Act now makes it unlawful to
transmit indecent material via the Internet or other on-line services. However,
on-line access providers are exempted from criminal liability for simply
providing interconnection service; they are also granted an affirmative defense
from criminal or other action where in "good faith" they restrict access to
indecent materials. The 1996 Act further exempts on-line access providers from
civil liability for actions taken in good faith to restrict access to obscene,
excessively violent or otherwise objectionable material.
Other Federal Regulation
Effective in 1990, the FCC issued new syndicated exclusivity and network
non-duplication rules which enable local television broadcasters to compel cable
television operators to delete certain programming on distant broadcast signals.
Under the rules, all television broadcasters, including independent stations can
compel cable television operators to delete syndicated programming from distant
signals if the local broadcaster negotiated exclusive rights to such
programming. Local network affiliates may insist that a cable television
operator delete a network broadcast on a distant signal. The rules made certain
distant signals a less attractive source of programming for the Systems, since
much of such distant signals' programming may have to be deleted.
The FCC currently regulates the rates and conditions imposed by most public
utilities for use of their poles, unless, under the Federal Pole Attachment Act,
state public service commissions are able to demonstrate that they regulate the
cable
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television pole attachment rates (as is true in certain states in which the
Company does business). In the absence of state regulation, the FCC administers
pole attachment rates though the use of a formula which it has devised. The
validity of this FCC function was upheld by the United State Supreme Court.
The 1996 Act introduces several changes to the regulation of cable pole
attachments that could effect the Company. The FCC is directed to establish a
new formula for poles used by cable operators which will result in higher pole
rental rates. Any increases pursuant to this formula may not begin for 5 years
and will be phased in over a 5 year period thereafter. This new FCC formula does
not apply in states which certify they regulate pole rents. The 1996 Act also
requires pole owners to impute pole rentals to themselves if they offer
telecommunications or cable services. Additionally, cable operators need not pay
for future "makeready" on poles currently used if the makeready is required to
accommodate the attachments of another user, including the pole owner. The
Company cannot predict at this time the effect on future pole rental payments.
Applicable Federal law requires local franchising authorities to file a
certification statement with the FCC prior to regulation of basic service and
equipment rates and also permits certified local authorities to opt out of FCC
benchmark rate regulation and deregulate the basic tier rates in respect of
their own local communities. Of the Company's Systems, certified local
authorities exist in the Vermont System by virtue of the Public Service Board
("PSB") of Vermont, which has elected to regulate the broadcast basic rates of
the Company . The Company has filed the requisite FCC forms with these
communities justifying the rates it charges. Federal law also provides that rate
regulation will cease when there exists "effective competition" in a community
from other multi-channel video program distributors.
Copyright
Cable television systems are subject to Federal copyright licensing,
covering carriage of television broadcast signals. In exchange for contributing
a percentage of their revenues to a Federal copyright royalty pool, cable
television operators obtain a compulsory license to retransmit copyrighted
materials from broadcast signals. Existing Copyright Office regulations require
that compulsory copyright payments be calculated on the basis of revenue derived
from any service tier containing broadcast retransmissions. Although the FCC has
no formal jurisdiction over this area, it has recommended to Congress that the
compulsory copyright scheme be eliminated. The U.S. Copyright Office has
similarly recommended such a repeal. Without the compulsory license, cable
television operators would need to negotiate rights from the copyright owners
for each program carried on each broadcast station in the channel lineup. Such
negotiated agreements could increase the cost to cable television operators of
carrying broadcast signals. Thus, given the uncertain but possible adoption of
this type of copyright legislation, the nature or amount of the Company's future
payments for broadcast signal carriage cannot be predicted at this time.
Cable Television Cross-Ownership Limitations
(See discussion under "Competition" and under "The Telecommunications Act of
1996")
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State and Local Regulations
Cable television systems are generally operated pursuant to franchises,
permits or licenses, issued by a municipality or other local and/or state
government entity. Franchises are usually issued for fixed terms and must
periodically be renewed. Most of the franchises for the Systems were granted on
a nonexclusive basis. The 1992 Cable Act prohibits local authorities from
granting exclusive franchises or unreasonably refusing to award competing
franchises. Each franchise agreement generally contains provisions governing
subscriber charges for basic cable television services, fees to be paid to the
franchising authority, length of the franchise term, renewal and sale or
transfer of the franchise, territory of the franchise, design and technical
performance of the system, use and occupancy of public streets and number of
types of cable television services provided. Though the 1984 Cable Act provides
for certain procedural protections, there can be no assurance that renewals will
be granted or that renewals will be made on similar terms and conditions. See
"1984 Cable Act".
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the jurisdiction
of state governmental agencies. States where the Company operates Systems,
including Vermont and West Virginia, have enacted legislation with respect to
the regulation of cable television systems.
ITEM 2. PROPERTIES
The Company's principal physical asset consist of cable television systems,
including signal-receiving, encoding and decoding electronics, headends,
distribution systems, and subscriber house drop equipment for each of its cable
television systems. The signal receiving apparatus typically includes a tower,
antenna, ancillary electronic equipment, and earth stations for reception of
satellite signals. Headends, consisting of associated electronic equipment
necessary for the reception, amplification and modulation of signals, are
located near the receiving devices. The Company's distribution systems consist
of coaxial and fiber optic cables and related electronic equipment. Subscriber
equipment consists of taps, house drops and converters. The Company owns its
distribution system, various office and studio fixtures, test equipment and
service vehicles. The physical components of the Systems require maintenance and
periodic upgrading to keep pace with technological advances. The Company
considers all of its properties to be in excellent condition.
The Company's cables generally are attached to utility poles under pole
rental agreements with local public utilities, although in some areas the
distribution cable is buried in underground ducts or trenches. The FCC regulates
most pole attachment rates under the Federal Pole Attachment Act. The physical
components of the Systems require maintenance and periodic upgrading to keep
pace with technological advances.
The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices.
The Company believes that its properties, both owned and leased, are in good
condition and in areas suitable and adequate for the Company's business
operations. Management believes that the Company's franchises and licenses in
each of the Township of North Union, Pennsylvania; the City of Uniontown,
Pennsylvania; Terrebonne Parish, Louisiana; and the communities in Vermont
(taken as a whole) are material to the results of operations of the Company.
Additionally, the headend sites
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used by the Systems in such locations are material to the Company regardless of
whether such headend sites are owned or leased; and the Company's private pole
agreements in such locations are material to the Company. Substantially all of
the assets of the Company, including the Systems, are subject to liens of the
Company's lenders.
See "Management -- Certain Relationships and Related Transactions" for a
description of office space leased from an affiliated entity.
The Pennsylvania System serves Uniontown, Shippenville, Mariana and other
contiguous areas of western Pennsylvania. The West Virginia System serves
subscribers throughout western West Virginia and communities surrounding
Charleston, West Virginia. On January 31, 1997, the Company acquired subscribers
in the West Virginia counties of Wirt and Wood, for a purchase price of
$1,052,000. The Vermont/New Hampshire System serves Barre, St. Johnsbury and the
Upper Valley areas of eastern Vermont and Piermont, New Hampshire. In 1994, the
Company was awarded the East Mountpelier franchise in Vermont which is
contiguous to Barre. On January 31, 1995, the Company acquired subscribers in
Bradford, Chelsea, and South Royalton, Vermont which are contiguous to Barre and
Upper Valley, Vermont, for a purchase price of $350,000. The Company applied to
the Vermont Public Service Bureau and has obtained a franchise for the Town of
Tunbridge which is contiguous to South Royalton and Chelsea. The Louisiana
System serves Terrebone, Lafourche and St. Mary's Parish (Amelia) Louisiana. The
North Carolina System serves the City of Roxboro, Person County and the eastern
part of Caswell County in northeastern North Carolina.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary and routine litigation proceedings that
are incidental to the Company's business. Management believes that the outcome
of all pending legal proceedings will not, in the aggregate, have a material
adverse effect on the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information called for by this Item is not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information called for by this Item is not applicable.
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ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth below has been derived from the Financial
Statements of the Company. The data below ($ in 000's) should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this report.
<TABLE>
<CAPTION>
-----------------------------------------------------------
1992(a) 1993(b) 1994 1995 1996
------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data: ($ in 000's)
Revenues $24,044 $29,448 $31,664 $35,225 $38,060
Depreciation and amortization 8,175 10,314 9,453 9,561 10,127
Operating income (loss) (3,759) (1,381) 5,828 7,580 8,144
Interest expense 7,390 9,498 12,477 12,992 13,497
Net loss (10,778) (18,361) (7,343) (5,196) (5,142)
Balance Sheet Data: ($ in 000's)
-----------------------------------------------------------
1992(a) 1993(b) 1994 1995 1996
------- ------- ---- ---- ----
Total assets $68,986 $69,942 $63,207 $60,938 $58,146
Total debt 97,308 117,170 119,104 122,675 124,382
Shareholders' and partners' deficit (33,289) (54,915) (62,258) (67,453) (72,596)
</TABLE>
(a) The 1992 Historical Financial Data include the operating results and assets
relating to Vermont Cablevision Associates, L.P. from August 20, 1992, the
date of acquisition of the Vermont System through December 31, 1992.
(b) 1993 net loss includes an extraordinary item-loss on extinguishment of debt
of $3.7 million.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company incurred a net loss for the fiscal years ended December 31,
1994, 1995 and 1996, respectively. The principal items contributing to the
Company's net losses are the high level of expenses relating to depreciation,
amortization and interest. These expenses are the result of capital expenditures
related to continued expansion and rebuilding of the Systems, the Company's
acquisitions and its financing activities. The Company believes that recurring
net losses are common for cable television companies and expects that such net
losses will continue. The Company believes that working capital generated from
the issuance of the Senior Secured Notes, its amended bank credit facility and
cash flow generated from operations will be sufficient to meet its operating
needs and future commitments. See "Liquidity and Capital Resources" below.
Recent Cable Regulatory Developments.
The Telecommunications Act of 1996, Public law 104-104, enacted on February
8, 1996 ("1996 Act") instituted sweeping changes in the telecommunications
industries and has significantly increased the potential for competition to
cable television, especially from telephone and electric utilities. The Act has
terminated the 1982 federal court consent decree (the "Modified Final Judgment")
that settled the 1974 antitrust suit against AT&T and has eliminated the 1984
Cable Act codification of the FCC telephone cable/cross-ownership regulations.
As a result, long-distance telephone companies such as AT&T, MCI and Sprint will
be able to provide local exchange service, and the local exchange carriers,
including the seven Regional Bell Operating Companies, GTE and the smaller
independent telephone carriers, will be allowed to provide long-distance
service. Telephone companies will be allowed to provide cable television service
either as a franchised cable operator or as an unfranchised common carrier "open
video service" provider.
The 1996 Act allows telephone companies to compete directly with cable
operators by repealing the telephone company-cable television cross-ownership
ban, thereby allowing direct ownership of franchised cable systems. Further, the
FCC's "video dialtone" regulations have been replaced with a more lenient "open
video system" or "OVS" concept. This will allow local exchange carriers
("LEC's"), including the Regional Bell Operating Companies, to compete with
cable both inside and outside their telephone service areas either as common
carrier OVS provider or as a fully franchised cable operator. LEC owned
programming services are subject to the FCC's nondiscriminatory program access
requirements.
The Company anticipates that, over time, it will become subject to
increasing competition from telephone companies, either directly as franchised
operators or as OVS providers. It may also face increasing competition from
electric utilities. This may have a material, but as yet undetermined, impact on
the Company's operations.
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Although the 1996 Act eliminates the telephone/cable cross-ownership
restrictions, it also contains a general prohibition on LEC acquisitions of
cable systems. Cable operators are likewise generally prohibited from acquiring
LEC systems, and joint ventures between cable operators and LEC's are also
banned. There are certain exceptions for rural systems and telephone exchanges
and for small telephone companies: Buyouts are permitted where the purchased
cable system serves an area with fewer than 35,000 inhabitants outside an urban
area. Local exchanges with less than $100 million in annual operating revenues
may purchase or joint venture with any cable system in its telephone service
area provided the cable system serves no more than 20,000 subscribers of which
no more than 12,000 are in an urban area.
The 1996 Act substantially eliminates the barriers to entry into the
provision of local telephone exchange service and other telecommunications
services traditionally provided by the local exchange carrier by preempting
state or local laws or regulations that serve to prohibit the ability of any
entity to provide any interstate or intrastate telecommunications service. The
1996 Act further provides that cable operators and affiliates providing
telecommunications services are not required to obtain a separate franchise from
local franchising authorities for such services. Moreover, local franchising
authorities are prohibited from requiring cable operators to provide
telecommunications service or facilities as a condition to granting of a
franchise, franchise renewal, or franchise transfer, except that they may
require "institutional networks" as part of such franchise negotiations. The
Company has not received any requests by franchising authorities requiring
institutional networks and the Company has no plans to offer such networks.
In the 1992 Cable Act, Congress provided for significant re-regulation of
many aspects of cable television system operations, including mandatory carriage
of certain broadcast signals and regulation of rates by local franchising
authorities and the Federal Communications Commission ("FCC"). Acting pursuant
to the 1992 Cable Act, the FCC imposed several rate freezes on cable systems
initially commencing April 5, 1993, and ultimately extending to February 15,
1994, while it implemented the principal provisions of its regulations. In
February 1994 the FCC further extended its rate freeze to May 15, 1994, at which
time major new rate regulations came into effect. These included a further 7%
reduction in regulated rates on top of the original 10% reduction, new standards
regarding new program service (NPS) tiers, and revised "cost of service"
standards including a presumption of an 11.25% return only on tangible assets.
In May 1995, the FCC adopted rules providing for comprehensive rate regulation
relief for smaller cable systems, including a vastly simplified and liberalized
cost of service formula for calculation of permitted rates. The Company derives
significant revenues from subscriber charges for regulated and unregulated cable
television services. The 1992 Cable Act, the February 1994 changes to the
benchmark calculations, the small system rules and the cost of service
guidelines have not had a material adverse effect on the Company's total
revenues.
While most of the 1992 Cable Act rate regulations for small cable operators
have been superceded by the 1996 Act, the regulations under the 1992 Cable Act
provided that future increases in service rates could not exceed an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs imposed by non-affiliated programmers. In November 1994, the FCC released
its "going forward" rules which are
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designed to allow recovery of more programming costs for new channels than the
FCC's "price cap" rules. Over the following two years, 1995 and 1996, cable
operators were allowed to add up to six more channels and charge up to $.20 per
subscriber per month per channel plus a "license fee reserve" of $.30 per
subscriber per month, for a total of $1.50. In 1997, a seventh channel may be
added at $.20 per subscriber per month. In 1995, the Company made use of these
"going forward" rules in order to increase its revenues. In 1996, the Company
utilized the rate regulations for small cable system operators which allow small
systems to increase rates up to a maximum of $1.24 per channel, as per the 1992
Cable Act.
The 1996 Act significantly alters federal, state and local regulation of
telecommunications providers and services, including the cable television
industry and the Company. Under the 1996 Act the Company qualifies for small
cable system status and is effectively deregulated. Immediate CPS tier rate
regulation relief is afforded to "small cable operators", those with fewer than
approximately 600,000 subscribers and less than $250 million gross annual
revenues and with less than 50,000 subscribers in the rate regulated franchise
area. The 1996 Act eliminates, in three years, all rate regulation of any upper
cable program service "CPS" tier service. In the interim, only local franchising
authorities, not subscribers, are allowed to file complaints with the FCC
relating to CPS tier rates. The 1996 Act does not disturb existing or pending
CPS tier rate settlements which had, as of December 31, 1994, only one tier of
service will be fully deregulated.
The 1996 Act expands the definition of "effective competition" to include
any franchise area where a local telephone exchange carrier (or affiliate)
provides video programming services to subscribers by any means other than
through DBS. There is no penetration minimum for the local exchange carrier to
qualify as an effective competitor, but it must provide "comparable" programming
services (12 channels including one broadcast) in the franchise area. All rate
regulation is eliminated where there is the presence of "effective competition"
Under the 1996 Act, cable operators may aggregate, on a franchise, system,
regional or company level, equipment costs into broad categories, such as
"converter boxes", regardless of the varying levels of functionality of the
equipment within each such broad category. Additionally, costs of different
types of converters (including non-addressable, addressable, and digital) may be
averaged. The statutory changes will also facilitate the rationalizing of
equipment rates across jurisdictional boundaries. These favorable
cost-aggregation rules do not apply to the limited equipment used by
"Basic-only" subscribers.
The 1996 Act amends the requirement that cable rates be uniform throughout
a franchise area to exempt situations where the cable operator faces "effective
competition," and by permitting bulk discounts to multiple dwelling units. The
FCC retains jurisdiction to investigate complaints of "predatory pricing". It
eliminates the requirement instituted in the 1992 Cable Act that cable systems
must be held for three years prior to sale. The definition of "cable system" is
amended so that competitive providers of video services will be regulated as a
definitional "cable system" only if they use public rights-of-way. This frees
many SMATV and MMDS providers of cable service from the FCC's cable regulations
and restrictions. In addition, the elimination of the telephone/cable
cross-ownership restrictions, the 1996 Act eliminates the broadcast
network/cable cross-ownership restrictions, but leaves in place FCC regulations
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prohibiting cross-ownership between local television stations and cable systems.
The FCC is empowered to adopt rules to ensure carriage, channel positioning and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. The MMDS/cable cross-ownership
restrictions are eliminated for cable operators subject to effective
competition.
The 1996 Act preserves must carry rights for local television broadcasters.
The FCC is directed to grant or deny must carry requests within 120 days of
complaint filing with the FCC. The 1996 Act directs an FCC equipment
compatibility rulemaking looking toward (1) some form of common design among
televisions, VCRs, and cable systems, (2) open competition for all converter
features unrelated to security descrambling, and (3) minimal impact on unrelated
telephone and computer features. The FCC is directed to adopt regulations which
assure the competitive availability of converters ("navigation devices") from
vendors other than cable operators. Any FCC rules in this area cannot impinge
upon signal security concerns or theft of service protections for cable
operators.
The 1996 Act requires cable operators, upon subscriber request, to fully
scramble or block at no charge the audio and video portion of any channel not
specifically subscribed to by a household. Further, cable operators are
obligated to fully scramble or block both the audio and video of all sexually
explicit programming. If the cable operator cannot fully scramble or block its
signal, it must restrain distribution to those hours of the day when children
are unlikely to view the programming. On March 5, 1996, the FCC adopted an
interim "safe harbor" of 10:00 PM to 6:00 AM. It also waived and preempted all
notice requirements which would have prevented immediate compliance. Under the
"safe harbor" approach, operators could continue carrying channels primarily
dedicated to sexually explicit adult programming, even if they were not fully
scrambled, as long as the indecent, sexually explicit programming was limited to
the designated late night hours.
Playboy Video Enterprises, Inc. immediately filed a lawsuit challenging the
constitutionality of the scrambling requirement and asking for an immediate
stay. The Federal District Court in Delaware has now issued a TRO. The Order
enjoins the United States, its agents, and anyone else acting in concert, from
enforcing or implementing the new provision. The Court concluded: Even if the
Government has a compelling interest in shielding minors from adult programming,
given the length of time the problem has existed and the protective devices
already in place, the public interest does not override the irreparable harm
that will be suffered by Playboy and the adult-oriented cable television
industry if temporary relief is not granted.
The TRO will last only until the case is heard by a three judge federal
panel, which is expected very shortly. For now the decision frees cable
operators from new scrambling restrictions and bodes well for a favorable ruling
in the future.
The 1996 Act introduces several changes to the regulation of cable pole
attachments that could have an effect on the Company. The FCC is directed to
establish a new formula for poles used by cable operators which will result in
higher pole rental rates. Any increases pursuant to this formula may not begin
for 5 years and will be phased in over a 5 year period thereafter. This new FCC
formula does not apply in states which certify they regulate pole rents. The
1996 Act also requires pole owners
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to impute pole rentals to themselves if they offer telecommunications or cable
services. Additionally, cable operators need not pay for future "makeready" on
poles currently used if the makeready is required to accommodate the attachments
of another user, including the pole owner.
All the provisions of the 1996 Act are the subject of FCC rulemakings
looking toward the implementation or clarification of the statutory dictates.
The Company is unable at this time to assess the impact of those regulations on
its operations.
The Public Service Board of Vermont has elected to regulate the broadcast
basic rates of the Company . The Company has filed the requisite FCC forms with
these communities justifying the rates it charges.
Results of Operations
Twelve Months Ended December 31, 1996 Compared to Twelve Months Ended
December 31, 1995.
Revenues. Revenues increased $2,835,017 or 8.0% to $38,059,737. The
increase in revenues was primarily attributed to increase in basic service
rates, internal subscriber growth, new program service revenues, non-cable
internet service revenues (acquired March 22, 1996) and strong growth in
advertising revenue. The average monthly cable revenue per basic subscriber
increased from $33.89 in 1995 to $36.07 in 1996. The $2.18 increase reflected
primarily i) an increase of $1.81 in basic cable revenues; ii) an increase of
$.06 due to the new program services; iii) an increase of $.36 in advertising
revenue; iv) a decrease of $.09 in premium subscription revenue; and v) an
increase of $.04 in other services.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $1,579,233 or 9.9% to
$17,540,669. Approximately half of this increase reflected additional expenses
for new and expanded programming services including costs related to the
non-cable internet service. The balance of the increase in expenses was
consistent with the growth in revenues and subscribers, coupled with general
cost increases. As a percentage of revenues, operating, marketing, general and
administrative expenses increased from 45.3% in 1995 to 46.1% in 1996. This
increase was attributed to the introduction of the non-cable internet service
whose costs outpaced its revenues.
Depreciation and Amortization. Depreciation and amortization expenses
increased $566,242 or 5.9% to $10,127,200, primarily as a result of $490,640
higher depreciation charges relating to capital expenditures made in 1995 and
1996, and $75,602 higher amortization expenses reflecting the full year effect
of amortizing certain intangible costs which were incurred in 1995.
Management Fee Charged by Affiliate. Management fee expenses increased
$141,751 or 8.0% to $1,902,987, consistent with the increase in revenues.
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Corporate and Other Expenses. Corporate and other expenses decreased
$16,036 or 4.4% to $345,297 primarily due to higher gains from asset sales.
Operating Income. Operating income for the twelve months ended December 31,
1996 increased $563,827 or 7.4% to $8,143,584 from the $7,579,757 operating
income in the comparable 1995 period. The improvement in operating results was
due to increased profits on higher revenues.
Interest Expense. Interest expense increased $504,656 or 3.9% to
$13,496,610 primarily as a result of monthly interest payments on the note due
to the Principal Owner which resumed in November 1995, as per the terms of the
Senior Secured Notes, higher cash interest expense on the Senior Secured Notes,
which after November 1, 1996 pay interest at the rate of 11% per annum, offset
in part by lower non-cash interest expense attributed to the original issue
discount on the Senior Secured Notes which became fully amortized on November 1,
1996.
Interest Income. Interest income decreased $5,991 or 2.8% to $210,544.
Twelve Months Ended December 31, 1995 Compared to Twelve Months Ended
December 31, 1994.
Revenues. Revenues increased $3,560,513 or 11.2% to $35,224,720. The
increase in revenues was primarily attributed to increase in basic service
rates, internal subscriber growth, the growth in NPS Tier revenues and strong
growth in advertising revenue. The average monthly revenue per basic subscriber
increased from $31.20 in 1994 to $33.89 in 1995. The $2.69 increase reflected
primarily i) an increase of $1.42 in basic revenues; ii) an increase of $.53 due
to the new NPS Tiers; iii) an increase of $.44 in advertising revenue; iv) a
decrease of $.03 in premium subscription revenue; and v) an increase of $.33 in
other services.
Operating, Marketing, General and Administrative Expenses. Operating,
marketing, general and administrative expenses increased $1,688,456 or 11.8% to
$15,961,436. Approximately 55.0% of this increase reflected additional expenses
for new and expanded programming services; increased marketing efforts to
promote new value-added programming services and maintain the growth in
subscribers; and, higher data processing and subscriber billing costs associated
with the Partnership's upgraded billing system. The balance of the increase in
expenses was consistent with the growth in revenues and subscribers, coupled
with general cost increases. As a percentage of revenues, operating, marketing,
general and administrative expenses increased from 45.1% in 1994 to 45.3% in
1995.
Depreciation and Amortization. Depreciation and amortization expenses
increased $107,634 or 1.1% to $9,560,958, primarily as a result of $579,415
higher depreciation charges relating to capital expenditures made in 1994 and
1995, offset in part by $471,781 less amortization expenses in the current
period because certain assets became fully amortized.
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Management Fee Charged by Affiliate. Management fee expenses increased
$178,027 or 11.2% to $1,761,236, consistent with the increase in revenues.
Corporate and Other Expenses. Corporate and other expenses decreased
$165,073 or 31.4% to $361,333 primarily due to lower professional fees and the
absence of certain bank fees incurred in 1994 which did not recur in 1995.
Operating Income. Operating income for the twelve months ended December 31,
1995 increased $1,751,469 or 30.1% to $7,579,757 from the $5,828,288 operating
income in the comparable 1994 period. The improvement in operating results was
due to increased profits on higher revenues.
Interest Expense. Interest expense increased $515,272 or 4.1% to
$12,991,954 primarily as a result of borrowing under the 1994 Credit Facility,
higher non-cash interest expense related to the amortization of the original
issue discount on the Senior Secured Notes and the payment of interest on the
note due to the Principal Owner which resumed in November 1995, as per the terms
of the Senior Secured Notes.
Swap Retirement Costs. On February 25, 1994, the Partnership recognized a
$941,671 loss on the early termination of a five-year reverse swap agreement it
had entered into in connection with the issuance of the Senior Secured Notes.
The loss represented the decline in value from December 31, 1993.
Interest Income. Interest income decreased $30,838 to $216,535 primarily
due to lower cash balances offset in part by the effects of higher interest
rates.
Liquidity and Capital Resources
The cable television business requires substantial financing for
construction, expansion and maintenance of the cable plant as well as for
acquisitions. The Company has historically financed its capital needs and
acquisitions through long-term debt and, to a lesser extent, through cash
provided from operating activities. The general availability of bank financing
has been variable over recent years. In 1993, the Company refinanced its 1992
Credit Facility by issuing $115,000,000 aggregate principal amounts 11% Senior
Secured Notes due 2003. In 1994, the Company utilized its available cash and
also entered into a credit facility with another bank consisting of $2,500,000
three year term loan facility, under which $1,497,223 was outstanding at
December 31, 1996 and a $2,500,000 one-year line of credit facility with a bank
bearing interest at Prime Plus 1.5%, none of which was outstanding at December
31, 1996, secured by all the assets of the Company (the "1994 Credit Facility").
On February 23, 1996, the 1994 Credit Facility was amended to include an
additional loan facility of $318,000 and extended to May 31, 1996. On June 28,
1996, the term loan of the 1994 Credit Facility was extended to May 31, 1997.
(See Credit Agreements of the Company, below).
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The Company operates at low and sometimes negative working capital
levels. This is primarily due to account payable balances which often include
significant amounts for capital expenditures. Such payables are paid when due
from available cash balances, including cash generated from operations up to the
date of payment. When necessary, to fund significant capital items, the Company
borrowed under its 1994 Credit Facility.
Cash flows provided by operating activities amounted to $2,407,644,
$6,066,378 and $7,375,875 for the years ended December 31, 1994, 1995 and 1996,
respectively. In 1995, cash generated from operations increased from 1994
primarily due to the absence of any losses from interest rate swap agreements
and increased profits on higher revenues. In 1996, cash generated from
operations increased from 1995 primarily due to increased profits on higher
revenues, higher accounts payable balances, higher accrued interest and lower
receivables from subscribers.
Net cash used in investing activities amounted to $6,309,310, $7,483,249
and $4,799,240 for the years ended December 31, 1994, 1995 and 1996,
respectively and included the following:
o In 1994, the Company incurred $5,886,530 in capital expenditures related to
the expansion and rebuilding of the Systems and incurred $429,677 in other
deferred costs.
o In 1995, the Company incurred $6,561,044 in capital expenditures related to
the expansion and rebuilding of the systems, paid $350,000 in connection
with the acquisition of the property, plant and equipment and intangibles
of adjacent cable television systems and incurred $578,655 in other
deferred costs.
o In 1996, the Company incurred $4,771,631 in capital expenditures related to
the expansion and rebuilding of the systems, paid $40,000 in connection
with the acquisition of equipment and intangibles of a telephone dial-up
internet access provider and incurred $9,556 in other deferred costs.
Net cash provided by financing activities amounted to $2,293,483 and
$996,290 for the years ended December 31, 1994 and 1995, respectively, while net
cash used in financing activities amount to $810,262 for the year ended December
31, 1996, which included the following:
o In 1994, the Company had $300,000 in borrowings under the new 1994 Credit
Facility with Fleet Bank and made $481,891 in principal repayments under
the Company's equipment credit facilities (See Credit Agreements of the
Company, below). On February 25, 1994, the Company terminated the five year
reverse swap thereby ending the requirement to maintain a cash collateral
account.
o In 1995, the Company had $2,850,000 in borrowings and $1,100,000 in
principal repayments under the new 1994 Credit Facility with Fleet Bank,
made $402,729 in principal repayments under the Company's equipment credit
facilities (See Credit Agreements of the Company, below).
o In 1996, the Company had $400,000 in borrowings and $952,777 in principal
repayments under the 1994 Credit Facility with Fleet Bank, made $446,808 in
principal repayments under the Company's equipment credit facilities (see
Credit Agreements of the Company, below).
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o Advances to other affiliates and repayments of such advances result from
management fees and other reimbursable expenses.
Credit Agreements of the Company. On December 31, 1996, the Company had
cash and cash equivalents of $5,751,189 and the following credit arrangements:
(i) $115,000,000 aggregate principal amount of 11% Senior Secured Notes due
2003; (ii) the 10% Note due August 20, 2000 to Simmons Communications Company,
L.P. in the amount of $1,851,604 (the original principal amount plus accrued
interest thereon through September 30, 1996); (iii) $5,000,000 principal amount
in favor of Mr. Baum pursuant to a Prime Plus 2% Subordinated Note which has no
due date and may only be repaid, subject to the passage of certain limiting
tests prior to repayment of the Notes; (iv) $2,500,000 three year term loan
facility, with a $1,497,223 balance outstanding, and a $2,500,000 one-year line
of credit facility with a bank bearing interest at Prime Plus 1.5%, none which
was outstanding, secured by all the assets of the Company (on February 23,1996,
this 1994 Credit Facility was amended and extended to May 31, 1996 and on June
28, 1996, the term loan of the 1994 Credit Facility was again extended to May
31, 1997); (v) $75,000 of Prime Subordinated Notes due July 31, 1997 in favor of
a non-affiliated third party pursuant to a Non-Negotiable Subordinated
Promissory Note; and (vi) $958,440 of certain other equipment credit facilities
with various due dates not exceeding five years. The principal cash payments
required under the Company's outstanding indebtedness for the fiscal years ended
December 31, 1997, 1998, 1999 and 2000 are estimated to aggregate $1,954,292,
$243,399, $198,040, and $1,975,422, respectively. The Company intends to use
available cash and cash generated from operating activities to make such debt
service payments. The principal cash payments required under the Company's
outstanding indebtedness for the fiscal years ended December 31, 2001 are
estimated to aggregate $25,011,114. The Company intends to use available cash
generated from operating activities to make such debt service payments or
refinance its indebtedness to satisfy such obligations.
In the past, the Company has committed substantial capital resources for
(i) construction and expansion of existing Systems, (ii) routine replacement of
cable television plant, (iii) increase in the channel capacity of certain of its
Systems, (iv) acquisition of certain Systems, and (v) increase in the percentage
of its Systems which are equipped with addressable technology. In 1994, 1995 and
1996 capital expenditures, excluding acquisitions, totaled $5,886,530,
$6,561,044 and $4,771,631, respectively.
The Company has budgeted approximately $5,600,000 for capital expenditures
for the Systems during 1997, which includes $1,500,000 for rebuilding portions
of the West Virginia, Pennsylvania, North Carolina and Vermont Systems, $600,000
for extensions on the Systems, $450,000 for Internet access and $3,050,000 for
converters, customer installation material, and other capital expenditures. The
Company believes it will have sufficient cash to fund all such capital
expenditures. In addition, on January 31, 1997, the Company acquired a West
Virginia cable system for $1,052,000 in cash.
The Company believes that available working capital, the 1994 Credit
Facility and cash flows generated from operations will be sufficient to allow it
to meet its planned capital expenditures, meet its debt obligations and cover
its other short and long term liquidity needs. Also, while the Company presently
sees no reason to do so, it could adjust scheduled capital expenditures if the
Company's liquidity position so warrants.
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Inflation
Certain of the Company's expenses, such as those for wages and benefits,
for equipment repair and replacement, and for billing and marketing, increase
with general inflation. However, the Company does not believe that its financial
results have been, or will be, adversely affected by inflation, provided that it
is able to increase its service rates periodically.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this report
on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors, executive and key officers of Helicon Corp. and Baum
Investments, Inc., the general partner of the Company, are set forth below.
Name Age Position with Baum Investments and Helicon Corp.
Theodore B. Baum 62 Chairman of the Board of Directors; Chief
Executive Officer; and President
Gregory A. Kriser 46 Chief Operating Officer; Executive Vice President
Herbert J. Roberts 43 Chief Financial Officer; Treasurer; Senior Vice
President
David M. Baum 35 Senior Vice President of Operations
Thomas Gimbel 54 Vice President of Engineering
Ruth Baum 59 Vice President; Director
George S. Psyllos 43 Vice President and Corporate Controller
Richard Hainbach 44 Secretary
Mr. Baum has been Chief Executive Officer and President of Helicon Corp.
since 1974. Mr. Baum is a 32-year veteran of the cable television industry. He
is a former owner and Chief Operating Officer of Cable Information Systems, a
company engaged in the ownership and operation of cable television systems. In
June 1977, Mr. Baum founded the Company under the name Fayette Cablevision
Company.
Mr. Kriser has been Executive Vice President and Chief Operating Officer of
Helicon Corp. since 1985. Mr. Kriser currently is a director of the Cable
Telecommunications Association and Cable in the Classroom and a member of the
National Academy of Cable Programming. Prior to joining Helicon Corp. in January
1985, Mr. Kriser had nine years management experience in the cable industry,
including positions with UA Columbia Cablevision (1976-1977), Teleprompter
Corporation (1977), Showtime Entertainment, Inc. (1977-1979), Satellite Vision
Systems Partners (1983-1984) and United Satellite Communications, Inc. (1984).
In addition, Mr. Kriser founded his own firm, GK Communications Corporation, a
consulting firm to cable firms requiring financial, marketing, franchising and
operations planning in major markets, which he served as President from
1979-1983.
Mr. Roberts joined Helicon Corp. as Senior Vice President, Chief Financial
Officer and Treasurer in January 1990. Previously he was Vice President of
Prudential-Bache Capital Funding. Prior to joining Prudential-Bache in early
1988, he worked for the CBS Television Network where he had overall
responsibility for the financial management of CBS's efforts in New Ventures
such as CBS/Blackhawk Cable Systems, SportsChannel/American Movie
Classics/Bravo, CBS CableConnects and CBS Broadcast International. Before
joining CBS in 1981, he spent five years in public accounting with Touche Ross
and Arthur Young.
Mr. David Baum became Senior Vice President of Operations in January 1996.
Previously, Mr. Baum was the Vice President of Marketing/Programming at Helicon
Corp. since October 1989 when he rejoined the Company. In 1988, Mr. Baum was
self employed as a real estate developer. Mr. Baum assisted in the construction
of THGLP's cable television system in southwestern Pennsylvania between 1978 and
1981. In 1981 and 1982, he managed his own cable television marketing company.
Mr. David Baum is the son of Mr. and Mrs. Baum.
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Mr. Gimbel has been the Vice President of Engineering of Helicon Corp.
since February 1989. Mr. Gimbel formerly was Chief Operating Officer of Fidelity
Systems, Inc., a cable and telephone construction company. His prior
affiliations also include Vice President of Engineering at Cablevision
Industries, Inc. and Vice President, Systems Manager of Comcast Cablevision of
Philadelphia. He has been active in the Society of Cable Television Engineers
and the National Cable Television Association engineering committee. Mr. Gimbel
is a licensed professional quality engineer.
Mrs. Ruth Baum became a director and a Vice President of Helicon Corp. in
July 1991. For more than two years prior thereto, Mrs. Baum was a passive
investor in various cable television properties. She has acted as an advisor to
Mr. Baum in connection with his varied cable interests. Mrs. Baum is the wife of
Mr. Baum and the mother of David Baum.
Mr. George Psyllos is the Vice President and Corporate Controller of
Helicon Corp. Mr. Psyllos joined Helicon Corp. in December 1990. Prior to
joining Helicon Corp., Mr. Psyllos held various financial management positions
in Sea-Land Service Inc. (1988-1990), Purolator Courier Corp. (1980-1988), and
Price Waterhouse & Co., LLC (1977-1980). Mr. Psyllos has been a Certified Public
Account (CPA) since 1980 and is a member of the American Institute of CPA's and
the New Jersey Society of CPA's.
Mr. Richard Hainbach became the Secretary and General Counsel of Helicon
Corp. in January 1996. Previously he was Vice President and General Counsel of
Multi-Vision Cable TV Corp. Mr. Hainbach has more than nine years of legal
experience in the cable industry. Prior to that, he was in private legal
practice in New York City.
Page 34 of _____
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Compensation to the principal executive officers is paid by Helicon Corp.
from management fees paid to Helicon Corp., pursuant to the management agreement
between the Company and Helicon Corp. The executive officers of Helicon Corp.
are also executive officers of Baum Investments, Inc.
Summary Compensation Table
The following table summarizes the compensation paid during 1994, 1995 and
1996 to the five highest paid executive officers of Helicon Corp.
<TABLE>
<CAPTION>
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Compensation
- --------------------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Theodore B. Baum 1996 $62,700 (1 $-0- $994,770 (2 $15,555 (5
Chief Executive Officer; 1995 61,200 (1 -0- 962,250 (2 -0-
President 1994 60,600 (1 -0- 942,250 (2 -0-
Gregory A. Kriser 1996 202,539 $50,000 87,750 (3 -0-
Executive Vice President 1994 178,000 -0- 87,720 (3 -0-
1995 168,000 -0- 87,617 (3 -0-
Herbert J. Roberts 1996 198,211 $50,000 40,785 (3 -0-
Senior Vice President; Chief 1995 174,000 -0- 40,770 (3 -0-
Financial Officer; Treasurer 1994 165,000 -0- 40,609 (3 -0-
David M. Baum 1996 204,464 $150,000 (4 1,300 -0-
Vice President 1995 175,000 -0- 1,180 -0-
1994 160,000 -0- 1,180 -0-
Thomas Gimbel 1996 131,557 $30,000 (3 24,825 (3 -0-
Vice President 1995 114,000 -0- (3 24,755 (3 -0-
1994 108,000 -0- (3 24,610 (3 -0-
</TABLE>
- ----------
1) Includes payments made by Helicon Corp. pursuant to a current employment
agreement with Mr. Baum. The employment agreement provides for annual
compensation of $62,700 with certain escalation provisions therein. Under his
employment agreement, Mr. Baum is engaged as the Chief Executive Officer of
Helicon Corp. and its affiliates. Helicon Corp. also has a consulting
arrangement with Elizabeth Baum, the daughter of Mr. and Mrs. Baum, pursuant to
which Ms. Baum was paid $67,500 for her legal services as Assistant Secretary of
Helicon Corp. Ruth Baum, Mr. Baum's wife, is employed by Helicon Corp. as its
Vice President at an annual salary of $62,700.
2) Includes $935,000, $955,000 and $987,500 of consulting fees paid in 1994,
1995 and 1996 respectively, to TR Cable Consultants, a company owned by Theodore
and Ruth Baum.
3) Includes consulting fees which have historically been paid by the Company,
pursuant to consulting agreements between the Company and the individual
consultants. Such consulting services have principally taken the form of
strategic oversight and business planning.
4) Payment of the bonus was to Cable Marketing Group, a company owned by David
M. Baum and his wife, Sande Baum.
5) Represents the premium paid by Helicon Corp. pursuant to Mr. Baum's
employment agreement which requires Helicon Corp. to provide $3.0 million of
life insurance on Mr. Baum with the beneficiary of the policy to be designated
by Mr. Baum.
Compensation of Directors
No Director of Baum Investments, Inc., (the general partner of the Company) or
Helicon Corp. is presently compensated for any services provided as a director.
Page 35 of _____
<PAGE>
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Each of Messrs. Kriser, Roberts and Gimbel have a consulting agreement with
the Company which is disclosed in the footnotes to the summary compensation
table. Additionally, in the event of a voluntary retirement or withdrawal of a
limited partner of Helicon Partners I, L.P. which is controlled by a member of
the management of the Company other than Theodore Baum or his immediate family,
the Company has the right, and in the event of an involuntary retirement, the
obligation, to purchase the partnership interests controlled by such member of
management. The purchase price for such interests is the fair market value or
the amount, if any, owed by such partners or their controlling shareholders to
Theodore Baum under certain promissory notes. The purchase price is payable by
delivery of the Company's subordinated note and, under certain circumstances,
also partly in cash; all as more fully set forth in the Company's Agreement of
Limited Partnership.
Board Compensation Committee Report on Executive Compensation
For the 1994, 1995 and 1996 fiscal years, the Company had no compensation
committee. The Company is controlled by Mr. Theodore Baum, the Chairman of the
Board of Directors, Chief Executive Officer and President of Helicon Corp. and
Baum Investments; and the compensation of the Company's executive officers is
determined by Mr. Baum subject to the approval of the boards of directors of
Helicon Corp. and Baum Investments.
Page 36 of _____
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of interests
in the Company owned by the Company's management and certain beneficial owners.
HPI owns 99% of the interests in the Company. With the exception of Baum
Investments, Inc. which has both a direct and indirect ownership interest in the
Company, all beneficial ownership interests in the Company are owned indirectly
through HPI. Other than as set forth below, no person or entity beneficially
owns more than 5.0% of the limited partnership interests in the Company.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Type of Interest Ownership
------------------------------------ ---------------- ---------
<S> <C> <C>
Baum Investments, Inc. (1) General Partner 1.990%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
Helicon Corp. (1) Limited Partner .594%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
Helicon Group Ltd. (1) Limited Partner 61.320%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
TREDD Investors (1) Limited Partner 15.583%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
TREDD TWO (1) Limited Partner 16.721%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
Theodore B. Baum (2) Limited Partner 95.208%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
Gregory A. Kriser (3) (6) Limited Partner 2.307%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
Herbert J. Roberts(4) (6) Limited Partner .990%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
Thomas Gimbel(5) (6) Limited Partner .495%
630 Palisade Avenue
Englewood Cliffs, New Jersey 07632
Sandler Capital Management (7) Warrant Holder 8.368%
767 Fifth Avenue
New York, New York 10153
SunAmerica Investments, Inc. (7) Warrant Holder 13.947%
1 SunAmerica Center
Los Angeles, California 90067
All Directors and Officers as a Group (6 persons) 100.00%
</TABLE>
- ----------
(1) Mr. Baum, Chief Executive Officer and President of the Company, owns all of
the outstanding stock of Baum Investments, Inc., the sole general partner of the
Company, and together with Ruth Baum, beneficially owns all of the stock of
Helicon Group Ltd. and the trust interests in TREDD Investors and TREDD TWO.
Baum Investments, Inc. also owns a 1.0% general partnership interest in HPI, and
thus owns an additional indirect .99% limited partnership interest in the
Company.
(2) Includes 1.00% general partnership interest held by Baum Investments, Inc.,
61.320% limited partnership interest held by Helicon Group Ltd., 15.583% limited
partnership interest held by TREDD Investors, 16.721% limited partnership
interests held by TREDD Two, a .594% limited partnership interest held by
Helicon Corp. and an .99% limited indirect partnership interest held by Baum
Investments, Inc.
(3) Represents the 2.307% limited partnership interest held by GAK Cable, Inc.
All of the outstanding shares of GAK Cable Inc., are owned by Gregory A. Kriser.
(4) Represents the .990% limited partnership interest held by Roberts Cable
Corp. All of the outstanding shares of Roberts Cable Corp. are beneficially
owned by Herbert J. Roberts.
(5) Represents the .495% limited partnership interest held by Gimbel Cable Corp.
All of the outstanding shares of Gimbel Cable Corp. are owned by Thomas Gimbel.
(6) Disclaims beneficial ownership.
(7) Indirect limited partnership ownership through warrants to acquire interests
in HPI. Disclaims beneficial ownership.
Page 37 of _____
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 8, 1996, the existing limited partners of The Helicon Group, L.P.
("THGLP") exchanged (the "Exchange") their limited partnership interests in
THGLP for all Class A Common Limited Partnership Interests and Preferred
Partnership Interests in Helicon Partners I, L.P. ("HPI"). As a result of this
Exchange, THGLP became 99% owned by HPI (HPI now owns all of the limited
partnership interests in THGLP and Baum Investments, Inc. continues to be the
general partner of THGLP and to own a 1.00% general partnership interest in
THGLP). The previous limited partners of the THGLP presently own 100% of the
limited partnership interests of HPI, subject to dilution upon exercise of the
warrants issued in connection with the Exchange, see Footnote 14 "Other Events".
Helicon Corp. is responsible for the day-to-day management of the Systems
pursuant to the existing management agreement with the Company , and in such
capacity has executive decision making authority, subject to the control of Baum
Investments. Helicon Corp. is owned and controlled by Mr. Baum, the owner of
Baum Investments which is the general partner of the Company . The initial term
of the existing management agreement between the Company and Helicon Corp.
expires in November 2003 with the provision for automatic renewal in consecutive
ten-year periods unless otherwise terminated. Management fees relating to the
Systems are payable monthly in an amount equal to 5% of revenues from the
operation of the Systems subject to certain limitations.
The office building in Pennsylvania is leased by the Company from a Company
owned by Mr. and Mrs. Baum. This lease covers approximately 10,000 square feet
of space and continues through May 2005 at a triple net rent of approximately
$5,200 per month plus certain adjustments. The Company believes that the terms
of the lease are at least as favorable as could be obtained from third parties.
Mr. Baum has contributed, directly or indirectly, unsecured, non-interest
bearing personal promissory notes (the "Baum Notes") in the aggregate principal
amount of $30.5 million to the capital of the Company. Although the Baum Notes
are unconditional, they do not become payable except (i) in amounts starting at
$19.5 million through December 15, 1994 and increasing thereafter in
installments to a maximum of $30.5 million on December 16, 1996 and (ii) at such
time after such dates as the Company's creditors shall have exhausted all claims
against the Company's assets. Mr. Baum contributed the Baum Notes in order to
enhance the overall creditworthiness of the Company. Mr. Baum is the beneficial
owner of 96.17% of the equity interests of the Company, the enhancement of the
Company's creditworthiness confers a benefit on him.
Page 38 of _____
<PAGE>
Pursuant to the management agreement (see Item 14.3 "Exhibits") between
Helicon Corp. and the Company, during 1994, 1995 and 1996 the Company was
charged management fees of $1.6 million, $1.8 million, and $1.9 million,
respectively. Management fees are calculated based on the gross revenues of the
Systems. Additionally, during 1994, 1995 and 1996, the Partnership was also
charged $789,996, $639,477, and $980,000 respectively, for certain costs
incurred by this related party on their behalf.
TR Cable Consultants, a company owned by Theodore and Ruth Baum, received
aggregate consulting fees of $935,000, $955,000 and $987,500 from Helicon Corp.
in respect of consulting services provided by TR Cable Consultants to Helicon
Corp. for the year ended December 31, 1994, 1995 and 1996, respectively. As
executive officers of Helicon Corp., Theodore and Ruth Baum were paid salaries
by Helicon Corp. with respect to their executive officer and administrative
functions. Their compensation for non-executive officer and administrative
functions, such as services performed with respect to the investigation of
potential acquisitions and expansion of existing Systems by the Company and the
development of marketing and financing strategies, was paid in the form of a
consulting fee to TR Cable Consultants.
On November 3, 1993, the Company implemented a roll-up plan to consolidate
the ownership of the Systems previously held by the Predecessor Companies, to
simplify the capital structure of such Predecessor Companies and increase the
operating financial flexibility of the Systems. The roll-up plan was achieved by
the transfer to the Company of substantially all the assets of such Predecessor
Companies in exchange for equity interests in the Company in connection with
which the Company assumed substantially all the obligations of such Predecessor
Companies.
Certain members of the Company's management borrowed funds from Mr. Baum in
connection with their indirect purchase of limited partnership interests in
Helicon Partners I, L.P. See Item 11 "Executive Compensation -- Employment
Contracts, Termination of Employment and Change-in-Control Arrangements" for
disclosure regarding such arrangements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of Form 10-K
1. Financial Statements
The following information is contained in the Financial section of this
Annual Report for the fiscal year ended December 31, 1996 (see Page F-1 of
this Report).
o Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1996
o Consolidated Statements of Operations for each of the three years ended
December 31, 1996
Page 39 of _____
<PAGE>
o Consolidated Statements of Changes in Partners' Deficit for each of the
three years ended December 31, 1996
o Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1996
o Notes to the Consolidated Financial Statements
2. Financial Statement Schedules
The information called for by this item is either not applicable or
included in the Consolidated Financial Statements or Notes thereto.
3. Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
3.1 Certificate of Limited Partnership of the Company
filed August 10, 1993 (filed as Exhibit 3.1 to
Registration Statement No. 33-72468 on Form S-4
effective February 3, 1994 and incorporated herein
by reference).
3.2 Agreement of Limited Partnership of the Company
dated as of November 3, 1993 (filed as Exhibit 3.2
to Registration Statement No. 33-72468 on Form S-4
effective February 3, 1994 and incorporated herein
by reference).
3.3 Articles of Incorporation of HCC filed August 11,
1993 (filed as Exhibits 3.3 to Registration
Statement No. 33-72468-01 on Form S-4 effective
February 3, 1994 and incorporated herein by
reference).
3.4 Bylaws of HCC (filed as Exhibit 3.4 to
Registration Statement No. 33-72468-01 on Form S-4
effective February 3, 1994 and incorporated herein
by reference).
4.1 Indenture dated as of October 15, 1993 between the
Company, HCC and Shawmut Bank Connecticut,
National Association as Trustee, relating to the
11% Series A Senior Secured Notes due 2003 and the
11% Series B Senior Secured Notes due 2003 of the
Company and HCC (containing, as exhibits,
specimens of the Series A Notes and the Series B
Notes)(filed as Exhibit 4.1 to Registration
Statement No. 33-72468 on Form S-4 effective
February 3, 1994 and incorporated herein by
reference).
4.2 Placement Agreement dated as of October 21, 1993
relating to the 11% Series A Senior Secured Notes
due 2003 of the Company and HCC (filed as Exhibit
4.2 to Registration Statement No. 33-72468 on Form
S-4 effective February 3, 1994 and incorporated
herein by reference).
4.3 Registration Rights Agreement dated as of November
3, 1993 relating to the 11% Series A Senior
Secured Notes due 2003 of the Company and HCC
(filed as Exhibit 4.3 to Registration Statement
No. 33-72468 on form S-4 effective February 3,
1994 and incorporated herein by reference).
Page 40 of _____
<PAGE>
4.4 Form of Letter of Transmittal (field as Exhibit
4.4 to Registration Statement No. 33-72468 on Form
S-4 effective February 3, 1994 and incorporated
herein by reference).
4.5 Security Agreement dated as of November 3, 1993
relating to the security interest granted in the
Collateral (filed as Exhibit 4.5 to Registration
Statement No. 33-72468 on Form S-4 effective
February 3, 1994 and incorporated herein by
reference).
4.6 Cash Collateral Account, Security Pledge and
Assignment Agreement dated as of November 3, 1993
relating to the deposit of certain proceeds of
collateral into the Account (filed as Exhibit 4.6
to Registration Statement No. 33-72468 on Form S-4
effective February 3, 1994 and incorporated herein
by reference).
10.1 Limited Recourse Promissory Note in the principal
amount of $24,000,000 granted by Theodore B. Baum
in favor of the Company (filed as Exhibit 10.1 to
Registration Statement No. 33-72468 on Form S-4
effective February 3, 1994 and incorporated herein
by reference).
10.2 Limited Recourse Promissory Note in the principal
amount of $6,500,000 granted by Theodore B. Baum
in favor of Baum Investments, Inc. and assigned to
the Company (filed as Exhibit 10.2 to Registration
Statement No. 33-72468 on Form S-4 effective
February 3, 1994 and incorporated herein by
reference).
10.3 Amended and Restated Note in the principal amount
of $1,390,791.52 granted by the Company in favor
of Simmons Communications Company, L.P. (filed as
Exhibit 10.3 to Registration Statement No.
33-72468 on Form S-4 effective February 3, 1994
and incorporated herein by reference).
10.4 10% Subordinated Note dated August 20, 1992 in the
principal amount of $1,250,000 granted by Vermont
Cablevision Associates, L.P. in favor of Simmons
Communications Company, L.P. marked "Amended,
Restated & Replaced 11/3/93" (filed as Exhibit
10.4 to Registration Statement No. 33-72468 on
Form S-4 effective February 3, 1994 and
incorporated herein by reference).
10.5 13% Subordinated Note dated August 20, 1992 in the
principal amount of $2,250,000 granted by Vermont
Cablevision Associates, L.P. in favor of Simmons
Communications Company, L.P. marked "Paid 11/3/93"
(filed as Exhibit 10.5 to Registration Statement
No. 33-72468 on Form S-4 effective February 3,
1994 and incorporated herein by reference).
10.6 Assumption and Guarantee of Non-Negotiable
Subordinated Note in the Original Principal Amount
of $500,000 payable to Swapan K. Bose (filed as
Exhibit 10.5 to Registration Statement No.
33-72468 on Form S-4 effective February 3, 1994
and incorporated herein by reference).
Page 41 of _____
<PAGE>
10.7 Amended and Restated Promissory Note in the
principal amount of $5,000,000 granted by the
Company in favor of Theodore B. Baum (filed as
Exhibit 10.7 to Registration Statement No.
33-72468 on Form S-4 effective February 3, 1994
and incorporated herein by reference).
10.8. Management Agreement dated November 2, 1993
between the Company and Helicon Corp. (filed as
Exhibit 10.8 to Registration Statement No.
33-72468 on Form S-4 effective February 3, 1994
and incorporated herein by reference).
10.9 Programming Supply Agreement dated November 3,
1993 between the Company and Helicon Corp. (filed
as Exhibit 10.9 to Registration Statement No.
33-72468 on Form S-4 effective February 3, 1994
and incorporated herein by reference).
10.10 Amended and Restated Consulting Agreement dated
October 1, 1993 among Helicon Corp., HGL, the
Company and Thomas Gimbel (filed as Exhibit 10.10
to Registration Statement No. 33-72468 on Form S-4
effective February 3, 1994 and incorporated herein
by reference).
10.11 Amended and Restated Consulting Agreement dated
October 1, 1993 among Helicon Corp., HGL, the
Company and Gregory A. Kriser (filed as Exhibit
10.11 to Registration Statement No. 33-72468 on
Form S-4 effective February 3, 1994 and
incorporated herein by reference).
10.12 Amended and Restated Consulting Agreement dated
October 1, 1993 among Helicon Corp., HGL, the
Company and Herbert Roberts (filed as Exhibit
10.12 to Registration Statement No. 33-72468 on
Form S-4 effective February 3, 1994 and
incorporated herein by reference).
10.13 Letter Agreement dated October 21, 1993 between
the Company and the Bank of New York (filed as
Exhibit 10.13 to Registration Statement No.
33-72468 on Form S-4 effective February 3, 1994
and incorporated herein by reference).
10.14 Loan Agreement dated as of December 19, 1994 by
and among the Company, HCC and Fleet Bank (filed
as Exhibit 10.14 to Form 10-K filed on April 12,
1995 and incorporated herein by reference).
10.15 Security Agreement dated as of December 19, 1994
by and among the Company, HCC and Fleet Bank
(filed as Exhibit 10.15 to Form 10-K filed on
April 12, 1995 and incorporated herein by
reference).
10.16 Affiliate Subordination Agreement dated as of
December 19, 1994 by and among HCC, the Company,
Helicon Corp., Baum Investments, Inc., Theodore B.
Baum and Fleet Bank (filed as Exhibit 10.16 to
Form 10-K filed on April 12, 1995 and incorporated
herein by reference).
Page 42 of _____
<PAGE>
Page
----
10.17. Intercreditor Agreement dated as of December 19,
1994 by and among the Company, HCC, Fleet Bank and
Shawmut Bank Connecticut, National Association
(filed as Exhibit 10.17 to Form 10-K filed on
April 12, 1995 and incorporated herein by
reference).
10.18 Letter Agreement dated as of December 19, 1994
between the Company and Fleet Bank (filed as
Exhibit 10.18 to Form 10-K filed on April 12, 1995
and incorporated herein by reference).
10.19 First Amendment to Loan Agreement dated as of
February 23, 1996 by and among the Company, HCC
and Fleet Bank. 45
10.20 Second Amendment to Loan Agreement dated as of
June 28, 1996 by and among the Company, HCC and
Fleet Bank. 55
21. List of Subsidiaries of Registrants (filed as
Exhibit 21 to Registration Statement No. 33-72468
on Form S-4 effective February 3, 1994 and
incorporated herein by reference).
22. Financial Data Schedule. 81
b) Current Reports on Form 8-K
None
c) Exhibits (See Item 14(a)3 above)
d) Financial Statements
Not applicable.
Page 43 of _____
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this Report to be signed
on their behalf by the undersigned, thereunto duly authorized.
Dated: March 21, 1997 THE HELICON GROUP, L.P.
(Registrant)
By: Baum Investments, Inc., its general partner
By: /s/ Theodore B. Baum
--------------------------------------------
Theodore B. Baum
President
By: /s/ Herbert J. Roberts
--------------------------------------------
Herbert J. Roberts
Senior Vice President
(Principal Financial and Accounting Officer)
Dated: March 21, 1997 HELICON CAPITAL CORP.
(Registrant)
By: /s/ Theodore B. Baum
--------------------------------------------
Theodore B. Baum
President
By: /s/ Herbert J. Roberts
--------------------------------------------
Herbert J. Roberts
Senior Vice President
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
BAUM INVESTMENTS, Inc.,
as general
partner of
THE HELICON GROUP, L.P.
/s/ Theodore B. Baum President (Principal Executive March 21, 1997
- -------------------- Officer); Director
Theodore B. Baum
/s/ David M. Baum Senior Vice President; March 21, 1997
- -------------------- Director
David M. Baum
HELICON CAPITAL CORP.
/s/ Theodore B. Baum President (Principal Executive March 21, 1997
- -------------------- Officer); Director
Theodore B. Baum
/s/ David M. Baum Senior Vice President; March 21, 1997
- -------------------- Director
Page ____ of _____
<PAGE>
Exhibit 10.19
FIRST AMENDMENT TO
LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (hereinafter referred to as the
"Amendment") is entered into as of the 23rd day of February, 1996 by and between
FLEET BANK, a New York banking corporation with an office at 1051 Union Avenue,
Newburgh, New York 12550 (the "Bank"); and THE HELICON GROUP, L.P., a Delaware
limited partnership (the "Company"), and HELICON CAPITAL CORP., a Delaware
corporation ("HCC"), each with their principal office at 630 Palisade Avenue,
Englewood Cliffs, New Jersey 07632 (the Company and HCC or hereinafter
collectively referred to as the "Borrowers").
The Borrowers and the Bank are parties to that certain Loan Agreement dated
December 19, 1994 (the "Agreement") pursuant to which the Borrowers are indebted
to the Bank. Such indebtedness is evidenced by the Borrowers' Secured Term Note
in the principal amount of $2,500,000, dated December 19, 1994 (the "Term
Note"), and the Borrowers' Secured Line of Credit Note in the principal amount
of $2,500,000, dated December 19, 1994 (the "Line of Credit Note") (The Term
Note and the Line of Credit Note shall hereinafter be collectively referred to
as the "Notes"). The outstanding balance of the Line of Credit Note is presently
$0 and the outstanding balance of the Term Note is presently $2,050,000. The
Borrowers' obligations under the Notes and the Agreement are secured by the
Security Documents referred to in and executed in connection with the Agreement
(the "Security Documents").
The Borrowers have recently incurred certain expenses with regard to the
Borrowers' upgrading of their computer billing system (the "System Upgrade"). In
connection therewith, the Borrowers have requested that the Bank extend to the
Borrowers, in accordance with the terms and conditions set forth herein and in
the Agreement, an additional loan facility in the principal amount of $318,000,
and the Bank has agreed to such payment subject to the terms hereof. The
Borrowers hereby agree and acknowledge that all proceeds of such additional loan
facility shall be utilized to pay a substantial portion of the expenses incurred
by the Borrowers with regard to the System Upgrade.
Borrower has also requested that the Maturity Date of the Line of Credit
Loan be extended from November 30, 1995 to May 31, 1996 and the Bank has agreed
to such request.
Subject to the terms and conditions set forth in this Amendment and set
forth in the Agreement, the Bank is willing to: (i) extend the maturity of the
Line of Credit Note to May 31, 1996; and (ii) extend the above-described
additional $318,000 loan facility to the Borrowers.
Page 44 of _____
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and for good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Bank and the Borrowers hereby agree as follows:
1. Acknowledgment of Recitals. The Bank and the Borrowers hereby
acknowledge that the recitals set forth above are true and accurate, and are, by
this reference, incorporated herein.
2. Capitalized Terms. Capitalized terms used but not defined herein shall
have the meanings ascribed to such terms in the Agreement.
3. Extension of Maturity. The parties hereto agree and acknowledge that the
date for final payment in full of the Line of Credit Note is hereby extended to
May31, 1996 and that the Agreement and the Line of Credit Note a hereby amended
to reflect such extension.
4. Amended Definitions. The definitions of the terms "Line of Credit Note",
"Notes", "Loans" and "Maturity Date" in Section 1.01of the Agreement are hereby
amended to read as follows:
"Line of Credit Note" shall mean the Amended and Restated Line of Credit
Note issued by the Borrowers to the Bank on the Amendment Date to evidence
the Line of Credit Loan. Such note shall be in the form of Exhibit A-2
annexed hereto with all blanks appropriately completed.
"Loans" shall mean the loans made by the Bank to the Borrowers pursuant to
this Agreement, including the Term Loan, the Equipment Loan and the Line of
Credit Loan.
"Maturity Date" shall mean May 31, 1996.
"Notes" shall mean the Term Note, the Equipment Note and the Line of Credit
Note.
5. Additional Definitions. The following new definitions are hereby added
to Section 1.01 of the Agreement in the appropriate alphabetical sequence:
"Amendment" shall mean the Amendment To Loan Agreement by and between the
Borrowers and the Bank, dated the Amendment Date.
"Amendment Date" shall mean February 23, 1996.
"Equipment Loan" shall mean the term loan by the Bank to the Borrowers
pursuant to Section 2.O1A of this Agreement.
Page 45 of _____
<PAGE>
"Equipment Note" shall mean the secured term promissory note, dated the
Amendment Date, issued by the Borrowers to the Bank in the original
principal amount of $238,000, in the form of Exhibit A-3 annexed hereto and
made a part hereof, with all blanks appropriately completed."
6. Equipment Loan. The Agreement is hereby amended by adding thereto the
following new Section 2.O1A immediately following Section 2.01:
"2.0lA. Equipment Loan.
(a) Equipment Loan. Subject to the terms and conditions set forth in this
Agreement, on the Amendment Date (or on later date or dates pursuant to this
Section 2.O1A) the Bank shall make a term loan to the Borrowers (the "Equipment
Loan") in the amount of Three Hundred Eighteen Thousand Dollars ($318,000).
(b) Equipment Note. The Equipment Loan shall be evidenced by the Equipment
Note and shall bear interest, mature and be payable as set forth in the
Equipment Note and in this Agreement.
(c) Repayment of Equipment Loan. The Equipment Loan shall be repaid in
sixty (60) consecutive monthly payments of principal, payable on the last day of
each month, beginning on March 31, 1996 and ending on February 28, 2001, with
the first 59 payments to be in the amount of Five Thousand Three Hundred Dollars
($5,300), and the final payment to be in an amount equal to the remaining
principal due under the Equipment Loan.
(d) Use of Proceeds of Equipment Loan. The parties hereby agree and
acknowledge that the sole use of the proceeds of the Equipment Loan shall be to
pay the expenses incurred by the Borrowers in connection with the System
Upgrade."
7. Paragraph (a) of Section 2.03 of the Agreement is hereby amended to read
in its entirety as follows:
"(a) Voluntary Prepayments. The Borrowers may at any time pay or
prepay the outstanding principal balance of the Term Note, the Equipment
Note and/or the Line of Credit Note, in whole or in part from time to time,
without premium or penalty, upon not less than two (2) Business Days prior
written notice to the Bank, so long as each prepayment or reduction is in
an amount equal to or exceeding Fifty Thousand Dollars ($50,000), or if
less, the unpaid principal balance of the Term Note, the Equipment Note
and/or the Line of Credit Note, as the case may be."
Page 46 of _____
<PAGE>
8. Paragraph (b) of Section 2.03 of the Agreement is hereby amended to read
in its entirety as follows:
"(b) Application of Prepayments. Prepayments of the Loans shall be
applied first to any overdue interest under the Notes, then to the
outstanding principal of the Line of Credit Note, then to the next
succeeding scheduled payments of the principal of the Equipment Note,
and finally to the next succeeding scheduled payments of the principal
of the Term Note".
9. The last sentence of Paragraph (b) of Section 2.11 of the Agreement is
hereby amended to read in its entirety as follows:
"The covenants contained in this Section shall survive until all of
the Loan (i.e, Line of Credit Loan, Equipment Loan or Term Loan) has
been paid in full."
10. Paragraph (a) of Section 4.01 of the Agreement is hereby amended to
read in its entirety as follows:
"(a) Representations and Warranties True. The representations and
warranties set forth in Article III hereof and in the Security
Documents shall be true and correct in all material respects on and as
of the date hereof and the Amendment Date and shall be true and
correct in all material respects as of the date the initial Advance is
made and as of the date an initial advance is made with regard to the
Term Note and/or the Equipment Note."
11. The introductory Paragraph to Section 4.02 of the Agreement is hereby
amended to read in its entirety as follows:
"4.02. Subsequent Loans.
The Bank shall have no obligation to make any subsequent advance of
the Term Loan or the Equipment Loan or any subsequent Advance of the
Line of Credit Loan unless the following conditions are satisfied:"
12. Paragraph (a) of Section 4.02 of the Agreement is hereby amended to
read in its entirety as follows:
"(a) Representations and Warranties True. The representations and
warranties set forth in Article III hereof and in the Security
Documents shall be true and correct in all material respects as of the
date such Advance is made and as of the date an advance is made with
regard to the Term Note and/or the Equipment Note."
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<PAGE>
13. The Agreement is hereby amended by deleting the form attached to the
Agreement as Schedule A-2 and inserting in lieu thereof the form attached to
this Amendment as Schedule 1.
14. The Agreement is hereby amended by adding thereto Exhibit A-3 in the
form attached to this Amendment as Schedule 2.
15. The Borrowers hereby represent that Exhibit C to the Agreement remains
accurate and complete as of the date hereof.
16. Reaffirmation of Representations and Warranties. To induce the Bank to
enter into this Amendment, the Borrowers hereby represent and warrant to the
Bank that on the date hereof, there exists neither an "Event of Default" under
the Agreement, as amended hereby (or any other agreement or document executed
pursuant thereto), nor any event which would constitute such an Event of Default
but for the passage of time or for the giving of notice or both. The Borrowers
hereby reaffirm and restate that all representations and warranties set forth in
Sections 3.01 through 3.27 of the Agreement, as amended hereby, are true and
correct as of the date hereof. For the purposes of such restated representations
and warranties, all references herewith the "Agreement" shall be deemed to refer
to the Agreement as amended hereby, and the use of "hereunder", "herein" and
words of similar import shall be deemed to refer to the Agreement as amended
hereby, and all references to the Notes shall be deemed to refer to the Line of
Credit Note, the Term Note and the Equipment Note. All covenants and agreements
by the Borrowers contained in Articles V and VI of the Agreement, and all Events
of Default and remedies contained in Article VII of the Agreement, and all
defined terms contained in Agreement, are, except to the extent amended hereby,
incorporated into this Amendment by reference as though specifically set forth
herein.
17. Authority to Execute. The Borrowers hereby represent and warrant to the
Bank (which representation and warranty shall be deemed to be incorporated into
the Agreement), that the execution, delivery and performance by the Borrowers of
this Amendment and the Equipment Note have been duly authorized by all required
partnership and/or corporate action of the Borrowers and its partners and will
not conflict with or constitute a violation of the Company's Agreement of
Limited Partnership or Certificate of Limited Partnership, any of HCC's
governing documents, or any other instrument or agreement to which either of the
Borrowers is a party, or by which either of the Borrowers is bound; and this
Amendment and the Notes (including the Equipment Note) constitute the valid and
binding obligations of the Borrowers, enforceable in accordance with their
terms.
Page 48 of _____
<PAGE>
18. Conditions Regarding the Amendment. In addition to the other conditions
set forth in Article IV of the Agreement, the Bank's obligations under this
Amendment are subject to the following conditions:
(a) The Borrowers and the Bank shall have executed and delivered this
Amendment;
(b) The Borrowers shall have executed and delivered to the Bank the
Equipment Note in the form attached hereto as Exhibit 2; and
(c) The Borrowers shall have delivered to the Bank: (i) a written
consent of the General Partner of the Company authorizing the execution and
delivery by the Company of this Amendment and the Equipment Note; (ii) a written
consent of the board of directors of HCC authorizing the execution and delivery
by HCC of this Amendment and the Equipment Note; and (iii) any and all other
documents and instruments required by the Bank in connection therewith.
19. Expenses. The Borrowers will pay to the Bank all out-of-pocket
expenses, costs and charges incurred by the Bank (including reasonable fees and
disbursements of counsel) in connection with the preparation and implementation
of this Amendment.
20. Security Documents. The Borrowers hereby confirm that the Security
Documents that secure the Notes shall continue in full force and effect to
secure Borrowers' obligations under the Notes (including, without limitation,
the Equipment Note) and the Agreement, as amended hereby, and all other
obligations of the Borrowers to the Bank, whether now existing or hereafter
arising.
21. Continuing Effect of Agreement, Notes. Except as amended hereby, the
Agreement, all Security Documents and all other documents securing, guaranteeing
or assuming obligations under the Agreement, the Notes (as amended), and all
indebtedness incurred pursuant thereto, and all other instruments or documents
executed in connection with the Agreement, shall remain in full force and
effect, shall continue to secure the Notes and the Agreement (as amended hereby)
and are, in all respects, hereby ratified.
Page 49 of _____
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
Borrowers:
HELICON CAPITAL CORP.
By: /s/ Herbert J. Roberts
-----------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
THE HELICON GROUP, L.P.
By its General Partner,
Baum Investments, Inc.
By: /s/ Herbert J. Roberts
-----------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
Bank:
FLEET BANK
By: /s/ Michael DiSalvo
-----------------------------------
Michael DiSalvo
Vice President
Page 50 of _____
<PAGE>
SCHEDULE 1
EXHIBIT A-2
AMENDED AND RESTATED SECURED LINE OF CREDIT NOTE
$2,500,000 February 23,
1996
FOR VALUE RECEIVED, HELICON CAPITAL CORP., a Delaware corporation and THE
HELICON GROUP, L.P., a Delaware limited partnership (collectively the
"Borrowers"), do hereby promise jointly and severally to pay to the order of
FLEET BANK, a New York banking corporation with an office at 1051 Union Avenue,
Newburgh, New York (the "Lender"), on May 31, 1996, the principal sum of Two
Million Five Hundred Thousand Dollars ($2,500,000), or, if less, the outstanding
amount of Advances by the Lender to the Borrowers under Section 2.02 of the Loan
Agreement by and between the Borrowers and the Lender, dated December 19, 1994,
as amended by that Amendment to Loan Agreement, dated February 23, 1996 (as so
amended, the "Loan Agreement"), as evidenced by the Loan Account referred to
therein, together with interest as provided in the Loan Agreement on any and all
principal amounts remaining unpaid hereunder from time to time, from the date
hereof until payment in full hereof, payable monthly in arrears, computed on the
average daily principal balance in the Borrowers' Loan Account as provided in
the Loan Agreement. Interest shall be calculated on the basis of a three hundred
sixty-five (365) day year counting the actual number of days elapsed. Both
principal and interest are payable in lawful money of the United States of
America at any office of the Bank in immediately available funds.
Notwithstanding any other terms or conditions hereof, in no event shall the
amount of interest paid or agreed to be paid to the Lender hereunder exceed the
maximum interest rate permissible under applicable law. If, for any reason,
fulfillment of any obligation of the Borrowers shall result in such maximum
interest rate being exceeded, then such obligation, automatically and without
action or notice by the Lender, shall be reduced to such maximum valid amount
and any amount received by the Lender in excess thereof shall be applied to the
reduction of principal outstanding and not to interest.
This Note is the Line of Credit Note referred to in, and is entitled to the
benefits of, the Loan Agreement. Reference is made to the Loan Agreement
regarding certain rights as to the repayment and the acceleration of the
maturity hereof. If this Note is not paid when due and is placed by the holder
hereof in the hands of an attorney for collection, through legal proceedings or
otherwise, the Borrowers will pay a reasonable attorneys' fee to the holder
hereof together with the reasonable costs and expenses of collection.
Page 51 of _____
<PAGE>
The Borrowers and any guarantor(s) hereof (collectively, the "Obligors")
and each of them: (i) waive presentment, demand, notice of demand, protest,
notice of protest and notice of nonpayment and any other notice required by law
to be given to any of Obligors in connection with the delivery, acceptance,
performance, default or enforcement of this Note, or of any endorsement or
guaranty of this Note, or of any document or instrument evidencing any security
for the payment of this Note; and (ii) consent to any and all delays,
extensions, renewals or other modifications of this Note, or waivers of any term
hereof, or the release or discharge by the Lender of any of the Obligors, or any
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of the Lender, or any indulgence effected by the
Lender from time to time and in one or more instances (without notice to or
further assent from any of the Obligors), and agree that no such action, failure
to act or failure to exercise any right or remedy on the part of the Lender
shall in any way affect or impair the obligations of any of the Obligors or be
construed as a waiver by Lender of, or otherwise affect, any of Lender's rights
under this Note, or under any endorsement or guaranty of this Note, or under any
document or instrument evidencing any security for the payment of this Note.
This Note is delivered in and shall be construed under the internal laws
(and not the law of conflicts) of the State of New York, and in any litigation
in connection with, or enforcement of, this Note or of any endorsement or
guaranty of this Note or any security given for the payment hereof, the
Obligors, and each of them, HEREBY CONSENT TO AND CONFER PERSONAL JURISDICTION
UPON COURTS OF THE STATE OF NEW YORK OR OF THE FEDERAL GOVERNMENT, AND EXPRESSLY
WAIVE ANY OBJECTIONS AS TO VENUE IN ANY OF SUCH COURTS, AND AGREE THAT SERVICE
OF PROCESS MAY BE MADE ON THE OBLIGORS BY MAILING A COPY OF THE SUMMONS TO THEIR
RESPECTIVE ADDRESSES. The Obligors, and each of them hereby further expressly
WAIVE ANY RIGHT TO TRIAL BY JURY of any claim, demand, action or cause of
action: (i) arising under this Note or any other instrument, document or
agreement executed or delivered in connection herewith; or (ii) in any way
connected with or incidental to the dealings of the Obligors or the Lender or
any of them with respect to this Note or any other instrument, document or
agreement executed or delivered in connection herewith, or the transactions
related hereto or thereto, in each case regardless of whether the claim, demand,
action or cause of action: (x) is now existing or hereafter arises; and (y)
sounds in contract or tort or otherwise; AND THE OBLIGORS HEREBY AGREE AND
CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY A COURT TRIAL WITHOUT A JURY AND THAT THE LENDER MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE OBLIGORS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Page 52 of _____
<PAGE>
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed
by their duly authorized representatives as of the day and year set forth above.
WITNESS: THE HELICON GROUP, L.P.
By its general partner,
Baum Investments, Inc.
By: /s/ Herbert J. Roberts
---------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
HELICON CAPITAL CORP.
By: /s/ Herbert J. Roberts
---------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
Page 53 of _____
<PAGE>
SCHEDULE 2
EXHIBIT A-3
SECURED EOUIPMENT NOTE
$318,000 February 23, 1996
FOR VALUE RECEIVED, HELICON CAPITAL CORP., a Delaware corporation and THE
HELICON GROUP, L.P., a Delaware limited partnership (collectively the
"Borrowers"), do hereby promise jointly and severally to pay to the order of
FLEET BANK, a New York banking corporation with an office at 1051 Union Avenue,
Newburgh, New York 12550 (the "Lender"), the principal sum of Three Hundred
Eighteen Thousand Dollars ($318,000), or, if less, the principal amount loaned
by the Lender to the Borrowers under Section 2.OlA of the Loan Agreement
referenced below, in Fifty-nine (59) consecutive monthly installments of $5,300
each, payable on the last business day of each month commencing on March 31,
1996, with a final (60th) installment on February 28, 2001 of all remaining
principal amounts outstanding hereunder.
The Borrowers shall also pay interest on the principal amount from time to
time outstanding hereunder at the rate per annum equal to one and one-half
percent (1 1/2%) in excess of the rate announced by the Bank from time to time
as its prime rate (the "Prime Rate"), with such rate changing on the effective
date of each change in the Prime Rate. Such rate is subject to increase upon
default as provided in that certain Loan Agreement by and between the Borrowers
and Lender, dated December 19, 1994, as amended by that certain First Amendment
to Loan Agreement dated February 23, 1996 (as so amended, the "Loan Agreement").
Interest shall be calculated on the basis of a three hundred sixty-five (365)
day year counting the actual number of days elapsed. Both principal and interest
are payable in lawful money of the United States of America at the office of the
Lender set forth above in immediately available funds.
Notwithstanding any other terms or conditions hereof, in no event shall the
amount of interest paid or agreed to be paid to the Lender hereunder exceed the
maximum interest rate permissible under applicable law. If, for any reason,
fulfillment of any obligation of the Borrowers shall result in such maximum
interest rate being exceeded, then such obligation, automatically and without
action or notice by the Lender, shall be reduced to such maximum valid amount
and any amount received by the Lender in excess thereof shall be applied to the
reduction of principal outstanding and not to interest.
This Note is the Equipment Note referred to in, and is entitled to the
benefits of, the Loan Agreement. Reference is made to the Loan Agreement
regarding certain rights as to the repayment and the acceleration of the
maturity hereof. If this Note is not paid when due and is placed by the holder
hereof in the hands of an attorney for collection, through legal proceedings or
otherwise, the Borrowers will pay a reasonable attorneys' fee to the holder
hereof together with the reasonable costs and expenses of collection.
Page 54 of _____
<PAGE>
The Borrowers and any guarantor(s) hereof (collectively, the "Obligors")
and each of them: (i) waive presentment, demand, notice of demand, protest,
notice of protest and notice of nonpayment and any other notice required by law
to be given to any of Obligors in connection with the delivery, acceptance,
performance, default or enforcement of this Note, or of any endorsement or
guaranty of this Note, or of any document or instrument evidencing any security
for the payment of this Note; and (ii) consent to any and all delays,
extensions, renewals or other modifications of this Note, or waivers of any term
hereof, or the release or discharge by the Lender of any of the Obligors, or any
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of the Lender, or any indulgence effected by the
Lender from time to time and in one or more instances (without notice to or
further assent from any of the Obligors), and agree that no such action, failure
to act or failure to exercise any right or remedy on the part of the Lender
shall in any way affect or impair the obligations of any of the Obligors or be
construed as a waiver by Lender of, or otherwise affect any of Lender's rights
under this Note, or under any endorsement or guaranty of this Note, or under any
document or instrument evidencing any security for the payment of this Note.
This Note is delivered in and shall be construed under the internal laws
(and not the law of conflicts) of the State of New York, and in any litigation
in connection with, or enforcement of, this Note or of any endorsement or
guaranty of this Note or any security given for the payment hereof, the
Obligors, and each of them, HEREBY CONSENT TO AND CONFER PERSONAL JURISDICTION
UPON COURTS OF THE STATE OF NEW YORK OR OF THE FEDERAL GOVERNMENT, AND EXPRESSLY
WAIVE ANY OBJECTIONS AS TO VENUE IN ANY OF SUCH COURTS, AND AGREE THAT SERVICE
OF PROCESS MAY BE MADE ON THE OBLIGORS BY MAILING A COPY OF THE SUMMONS TO THEIR
RESPECTIVE ADDRESSES. The Obligors, and each of them, hereby further expressly
WAIVE ANY RIGHT TO TRIAL BY JURY of any claim, demand, action or cause of
action: (i) arising under this Note or any other instrument, document or
agreement executed or delivered in connection herewith; or (ii) in any way
connected with or incidental to the dealings of the Obligors or the Lender or
any of them with respect to this Note or any other instrument, document or
agreement executed or delivered in connection herewith or the transactions
related hereto or thereto, in each case regardless of whether the claim, demand,
action or cause of action: (x) is now existing or hereafter arises; and (y)
sounds in contract or tort or otherwise; AND THE OBLIGORS HEREBY AGREE AND
CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY A COURT TRIAL WITHOUT A JURY AND THAT THE LENDER MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE OBLIGORS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Page 55 of _____
<PAGE>
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed by
their duly authorized representatives as of the day and year set forth above.
WITNESS: THE HELICON GROUP, L.P.
By its general partner,
Baum Investments, Inc.
By: /s/ Herbert J. Roberts
---------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
HELICON CAPITAL CORP.
By: /s/ Herbert J. Roberts
---------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
Page 56 of _____
<PAGE>
Exhibit 10.20
SECOND AMENDMENT TO
LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (hereinafter referred to as the
"Amendment") is entered into as of the 28th day of June, 1996 by and between
FLEET RANK, a New York banking corporation with an office at l051 Union Avenue,
Newburgh, New York 12550 (the "Bank"); and THE HELICON GROUP, L.P. a Delaware
limited partnership (the "Company"), and HELICON CAPITAL CORP., a Delaware
corporation ("HCC"), each with their principal office at 630 Palisade Avenue,
Englewood Cliffs, New Jersey 07632 (the Company and HCC or hereinafter
collectively referred to as the "Borrowers").
The Borrowers and the Bank are parties to that certain Loan Agreement dated
December 19, 1994, as amended by a First Amendment To Loan Agreement dated
February 23, 1996 (as so amended, the "Agreement") pursuant to which the
Borrowers are indebted to the Bank. Such indebtedness is evidenced by the
Borrowers' Secured Term Note dated December 19, 1994 in the principal amount of
$2,500,000 with a present outstanding balance of $2,050,000 (the "Term Note"),
the Borrowers' Amended and Restated Secured Line of Credit Note dated February
23, 1996 in the principal amount of $2,500,000 with a present outstanding
balance of $400,000 (the "Line of Credit Note") and the Borrowers' Secured
Equipment Note in the principal amount of $318,000 (the "Equipment Note") (The
Term Note, the Line of Credit Note and the Equipment Note are hereinafter
collectively referred to as the "Notes").
The Line of Credit Note matured on May 31, 1996, and the Borrower has
requested that the Maturity Date of the Line of Credit Loan be extended to May
31, 1997. The Borrower has also requested that the outstanding balance of the
Line of Credit Note ($400,000) be moved to the Term Note through a final advance
of $400,000 under the Term Note that will be used to pay off the present balance
of the Line of Credit Note. The Bank has agreed to such requests subject to the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, and for good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Bank and the Borrowers hereby agree as follows:
1. Acknowledgment of Recitals, The Bank and the Borrowers hereby
acknowledge that the recitals set forth above are true and accurate, and are, by
this reference, incorporated herein.
2. Capitalized Terms. Capitalized terms used but not defined herein shall
have the meanings ascribed to such terms in the Agreement.
Page 57 of _____
<PAGE>
3. Extension of Maturity. The parties hereto agree and acknowledge that
the date for final payment in full of the Line of Credit Note is hereby extended
to May 31, 1997 and that the Agreement and the Line of Credit Note are hereby
amended to reflect such extension. All other terms of the Agreement relating to
Line of Credit Loans shall remain in effect.
4. Amended Definitions. The definitions of the terms "Maturity Date" and
"Term Note" in Section 1.01 of the Agreement are hereby amended to read as
follows:
"Term Note" shall mean the Term Note issued by the Borrowers to the Bank on
the Second Amendment Date to evidence the Term Loan, such note to be in the
form of Exhibit A-l annexed hereto, with all blanks appropriately
completed. The Term Note replaces a term note issued on December 19, 1994
in the principal amount of $2,500,000.
"Maturity Date" shall mean May 31, 1997.
5. Additional Definitions. The following new definitions are hereby added
to Section 1.01 of the Agreement in the appropriate alphabetical sequence:
"Second Amendment" shall mean the Second Amendment To Loan Agreement
by and between the Borrower and the Bank, dated the Second Amendment Date.
"Second Amendment Date" shall mean June 28, 1996.
6. Amendment To Section 2.01.
Section 2.01 of the Loan Agreement is hereby amended to read as
follows:
2.01.Term Loan.
(a) Term Loan. Subject to the terms and condition. contained in this
Agreement, the Bank shall make a term loan to the Borrowers (the "Term
Loan") in the amount of Two Million Four Hundred Fifty Thousand Dollars
($2,450,000). If the Borrowers so request, the Term Loan may be advanced in
stages as and when requested by the Borrowers in writing to the Bank,
provided that (i) each such advance of the Term Loan shall be in the amount
of at least $100,000 and (ii) no advances of the Term Loan shall be made
after June 28, 1996. The Borrowers acknowledge as of the Second Amendment
Date that a final advance under the Term Loan in the amount of $400,000 has
been made on the Second Amendment Date and the proceeds of such advance
have been applied to reduce the balance of the Line of Credit Note to zero
on the Second Amendment Date, said transaction having been accomplished
internally by the Bank. The Borrowers acknowledge that as of the Second
Amendment Date as a result of such transaction the outstanding balance of
the Term Note is $2,450,000, and the Bank has no obligation to make further
loans under the Term Note.
Page 58 of _____
<PAGE>
(b) Term Note. The Term Loan shall be evidenced by the Term Note and
shall bear interest, mature and be payable as set forth in the Term Note
and in the Agreement.
(c) Repayment of Term loan. The Term Loan shall be repaid in eighteen
(18) consecutive monthly payments of principal, payable on the last day of
each month, beginning on June 30, 1996 and ending on November 30, 1997,
with the first 17 payments to be in the amount of $136,111, and the final
payment to be in the amount of all remaining principal of the Term Loan.
(d) Use of Proceeds of Term Loan. The proceeds of the Term Loan shall
be used only for Capital Expenditures of the Borrowers in connection with
the Systems, provided that the final advance of the Term Loan on the Second
Amendment Date (in the amount of $400,000) shall be applied on the Second
Amendment Date to reduce to zero the outstanding balance of the Line of
Credit Note.
7. Replacement of Exhibit A-1; Replacement of Term Note.
Exhibit A-1 to the Loan Agreement is hereby replaced by Exhibit A-1
attached to this Amendment. Simultaneously herewith the Borrowers shall execute
and deliver to the Bank the term note in the form attached hereto as Exhibit A-1
to replace the existing term note, but the replacement term note shall not
constitute a novation of the existing term note. All references in the Loan
Agreement and the Security Documents to the "Term Note" shall mean the term note
issued on the Second Amendment Date in the principal amount of $2,450,000, and
all references to the "Notes" shall be deemed to refer to the Line of Credit
Note, the Term Note issued on the Second Amendment Date in the principal amount
of $2,450,000, and the Equipment Note. The Bank's obligations hereunder shall
not be effective until the replacement Term Note has been executed and delivered
by the Borrowers and delivered to the Bank.
8. Reaffirmation of Representations and Warranties. To induce the Bank to
enter into this Amendment, the Borrowers hereby represent and warrant to the
Bank that on the date hereof, there exists neither an "Event of Default" under
the Agreement, as amended hereby (or any other agreement or document executed
pursuant thereto), nor any event which would constitute such an Event of Default
but for the passage of time or for the giving of notice or both
9 Authority to Execute. The Borrowers hereby represent and warrant to the
Bank (which representation and warranty shall be deemed to be incorporated into
the Agreement), that the execution, delivery and performance by the Borrowers of
this Amendment have been duly authorized by all required partnership and/or
corporate action of the Borrowers and its partners and will not conflict with or
constitute a violation of the Company's Agreement of Limited Partnership or
Certificate of Limited Partnership, any of HCC's governing documents, or any
other instrument or agreement to which either of the Borrower's is a party, or
by which either of the Borrowers is bound; and this Amendment constitutes the
valid and binding obligations of the Borrowers, enforceable in accordance with
their terms.
Page 59 of _____
<PAGE>
10. Continuing Effect of Agreement. Except as amended hereby, the Agreement, all
Security Documents and all other documents securing, guaranteeing or assuming
obligations under the Agreement, the Notes (as amended), and all indebtedness
incurred pursuant thereto, and all other instruments or documents executed in
connection with the Agreement, shall remain in full force and effect, shall
continue to secure the Notes and the Agreement (as amended hereby) and are in
all respects hereby ratified.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written
Borrowers:
HELICON CAPITAL CORP.
By: /s/ Herbert J. Roberts
---------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
THE HELICON GROUP, L.P.
By its General Partner,
Baum Investments, Inc.
By: /s/ Herbert J. Roberts
---------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
Bank:
FLEET BANK
By: /s/ Michael DiSalvo
---------------------------------
Michael DiSalvo
Vice President
Page 60 of _____
<PAGE>
EXHIBIT A-1
SECURED TERM NOTE
$2,450,000 June 28, 1996
FOR VALUE RECEIVED, HELICON CAPITAL CORP., a Delaware corporation and THE
HELICON GROUP, L.P., a Delaware limited partnership (collectively the
"Borrowers"), do hereby promise jointly and severally to pay to the order of
FLEET BANK, a New York banking corporation with an office at 1051 Union Avenue,
Newburgh, New York 12550 (the "Lender"), the principal sum of Two Million Four
Hundred Fifty Thousand Dollars ($2,450,000), in seventeen (17) consecutive
monthly installments of $136,1l1 each, payable on the last business day of each
month commencing June 30, 1996, with a final (18th) installment on November 30,
1997 of all remaining principal amounts outstanding hereunder.
The Makers shall also pay interest on the principal amount from time to
time outstanding hereunder at the rate set forth in the Loan Agreement dated
December 19, 1994, as amended, between Borrower and Lender (the "Loan
Agreement"). Interest shall be calculated on the basis of a three hundred
sixty-five (365) day year counting the actual number of days elapsed. Both
principal and interest are payable in lawful money of the United States of
America at the office of the Lender set forth above in immediately available
funds.
Notwithstanding any other terms or conditions hereof, in no event shall the
amount of interest paid or agreed to be paid to the Lender hereunder exceed the
maximum interest rate permissible under applicable law. If, for any reason,
fulfillment of any obligation of Borrowers shall involve the exceeding of such
maximum, then such obligation, automatically and without action or notice by
Lender, shall be reduced to such maximum valid amount and any amount received by
Lender in excess thereof shall be applied to the reduction of principal
outstanding and not to interest.
This Note is the Term Note referred to in, and is entitled to the benefits
of, the Loan Agreement. This Note replaces, but is not a novation of, a term
note issued by Borrowers to Lender on December 19, 1994 in the principal amount
of $2,500,000. Reference is made to the Loan Agreement for rights as to the
prepayment hereof and the acceleration of the maturity hereof. If this Note
shall not be paid when due and shall be placed by the holder hereof in the hands
of an attorney for collection, through legal proceedings or otherwise, the
Borrowers will pay a reasonable attorneys' fee to the holder hereof together
with. reasonable costs and expenses of collection Borrowers and any guarantor
hereof (collectively "Ob1igors") and each of them: (i) waive presentment,
demand, notice of demand, protest, notice of protest and notice of nonpayment
and any other notice required to be given under the law to any of Obligors, in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, of any endorsement or guaranty of this Note or of any document or
instrument evidencing any security for payment of this Note and (ii) consent to
any and all delays, extensions, renewals or other modifications of this Note or
waivers of any term hereof or release or discharge by Lender of any of Obligors
or release, substitution or exchange of any security for the payment hereof or
the failure
Page 61 of _____
<PAGE>
to act on the part of Lender or any indulgence shown by Lender from time to time
and in one or more instances (without notice to or further assent from any of
Obligors), and agree that no such action, failure to act or failure to exercise
any right or remedy, on the part of Lender shall in any way affect or impair the
obligations of any Obligors or be construed as a waiver by Lender of, or
otherwise affect, any of Lender's rights under this Note, under any endorsement
or guaranty of this Note or under any document or instrument evidencing any
security for payment of this Note.
This Note is delivered in and shall be construed under the internal laws
(and not the law of conflicts) of the State of New York, and in any litigation
in connection with1 or enforcement of, this Note or of any endorsement or
guaranty of this Note or any security given for payment hereof, obligors, and
each of them, CONSENT TO AND CONFER PERSONAL JURISDICTION ON COURTS OF THE STATE
OF NEW YORK OR OF THE FEDERAL GOVERNMENT, AND EXPRESSLY WAIVE ANY OBJECTIONS AS
TO VENUE IFN ANY OF SUCH COURTS, AND AGREE THAT SERVICE OF PROCESS MAY BE MADE
ON OBLIGORS BY MAILING A COPY OF THE SUMMONS TO THEIR RESPECTIVE ADDRESSES.
Obligors, and each of them, hereby further expressly WAIVE ANY RIGHT TO TRIAL BY
JURY of any claim, demand, action or cause of action (a) arising under this Note
or any other instrument, document or agreement executed or delivered in
connection herewith, (b) in any way connected with or incidental to the dealings
of Obligors or Lender or any of them with respect to this Note or any other
instrument, document or agreement executed or delivered in connection herewith,
or the transactions related hereto or thereto, in each case whether now existing
or hereafter arising and whether sounding in contract or tort or otherwise; AND
OBLIGORS HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT LENDER MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF OBLIGORS TO THE WAIVER OF THEIR RIGHT TO
TRIABL BY JURY.
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed by
their duly authorized representatives of the day and year set forth above.
WITNESS: THE HELICON GROUP, L.P.
By its general partner,
Baum Investments, Inc.
By: /s/ Herbert J. Roberts
- ---------------------------- ---------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
HELICON CAPITAL CORP.
By: /s/ Herbert J. Roberts
- ---------------------------- ---------------------------------
Name: Herbert J. Roberts
Title: Senior V.P., CFO, Treasurer
Page 62 of _____
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES COVERED BY INDEPENDENT AUDITORS' REPORT
(ITEM 14(A))
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 F-3
Consolidated Statements of Operations for each of the three years
ended December 31, 1996 F-4
Consolidated Statements of Changes in Partners'
Deficit for each of the three-years ended December 31, 1996 F-5
Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1996 F-6
Notes to Consolidated Financial Statements F-8
All other schedules have been omitted because the required information either is
not applicable or is shown in the consolidated financial statements or notes
thereto.
F-1
<PAGE>
Independent Auditor's Report
The Partners
The Helicon Group, L.P.:
We have audited the consolidated financial statements of The Helicon Group, L.P.
and wholly owned incorporated entities as listed in the accompanying index.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Helicon Group,
L.P. and wholly owned incorporated entities as of December 31, 1995 and 1996 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
March 14, 1997
F-2
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Consolidated Balance Sheets
December 31, 1995 and 1996
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
----------------- ----------------
<S> <C> <C> <C>
ASSETS (notes 8 and 9)
Cash and cash equivalents (note 2) $ 3,984,816 5,751,189
Receivables from subscribers 915,563 795,568
Prepaid expenses and other assets 851,028 959,916
Property, plant and equipment, net (notes 3, 4, and 11) 29,343,270 28,887,133
Intangible assets and deferred costs, net (notes 3 and 5) 25,843,688 21,751,852
----------------- ----------------
Total assets $60,938,365 58,145,658
================= ================
Liabilities and Partners' Deficit
Liabilities:
Accounts payable $2,795,738 2,907,235
Accrued expenses 540,103 518,625
Subscriptions received in advance 393,024 371,464
Accrued interest 1,770,572 2,155,526
Due to principal owner (note 7) 5,000,000 5,000,000
Senior secured notes, net of unamortized discount of
$1,778,684 in 1995 (note 8) 113,221,316 115,000,000
Loans payable to bank (note 9) 2,050,000 1,497,223
Other notes payable (note 11) 2,403,912 2,885,044
Due to affiliates (note 6) 216,981 406,304
----------------- ----------------
Total liabilities 128,391,646 130,741,421
----------------- ----------------
Commitments (notes 8, 11 and 13)
Partners' deficit (note 12):
Accumulated partners' deficit (67,452,281) (72,594,763)
Less capital contribution receivable (1,000) (1,000)
----------------- ----------------
Total partners' deficit (67,453,281) (72,595,763)
----------------- ----------------
Total liabilities and partners' deficit $60,938,365 58,145,658
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Consolidated Statements of Operations
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------------- --------------- ---------------
<S> <C> <C> <C>
Revenues $ 31,664,207 35,224,720 38,059,737
----------------- --------------- ---------------
Operating expenses:
Operating expenses (note 13) 8,331,861 9,403,668 10,213,044
General and administrative expenses (notes 6 and 13) 5,052,813 5,476,416 6,177,970
Marketing expenses 888,306 1,081,352 1,149,655
Depreciation and amortization 9,453,324 9,560,958 10,127,200
Management fee charged by affiliate (note 6) 1,583,209 1,761,236 1,902,987
Corporate and other expenses (note 7) 526,406 361,333 345,297
----------------- --------------- ---------------
Total operating expenses 25,835,919 27,644,963 29,916,153
----------------- --------------- ---------------
Operating income 5,828,288 7,579,757 8,143,584
----------------- --------------- ---------------
Interest expense (notes 7 and 10) (12,476,682) (12,991,954) (13,496,610)
Loss on interest rate swap agreements (note 10) (941,671) - -
Interest income 247,373 216,535 210,544
----------------- --------------- ---------------
(13,170,980) (12,775,419) (13,286,066)
----------------- --------------- ---------------
Net loss $ (7,342,692) (5,195,662) (5,142,482)
================= =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Consolidated Statement of Changes in Partners' Deficit
Years Ended December 31, 1994, 1995, and 1996
<TABLE>
<CAPTION>
Partners' deficit
----------------------------------------- Capital
General Limited Contribution
Partner Partners receivable Total
------- -------- ---------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ (182,610) (54,731,317) (1,000) (54,914,927)
------------------- ----------------- --------------- ----------------
Net loss (73,427) (7,269,265) - (7,342,692)
------------------- ----------------- --------------- ----------------
Balance at December 31, 1994 (256,037) (62,000,582) (1,000) (62,257,619)
------------------- ----------------- --------------- ----------------
Net loss (51,957) (5,143,705) - (5,195,662)
------------------- ----------------- --------------- ----------------
Balance at December 31, 1995 (307,994) (67,144,287) (1,000) (67,453,281)
------------------- ----------------- --------------- ----------------
Net loss (51,425) (5,091,057) - (5,142,482)
------------------- ----------------- --------------- ----------------
Balance at December 31, 1996 $ (359,419) (72,235,344) (1,000) (72,595,763)
=================== ================= =============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss ($7,342,692) (5,195,662) (5,142,482)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 9,453,324 9,560,958 10,127,200
(Gain) loss on sale of equipment 4,369 (6,450) (20,375)
Interest on other notes payable added to principal 139,460 153,025 168,328
Amortization of debt discount 1,738,328 1,942,730 1,778,684
Change in operating assets and liabilities:
(Increase) decrease in receivables from subscribers (90,764) (86,988) 119,995
Increase in prepaid expenses and other assets (194,855) (8,492) (108,888)
Increase (decrease) accounts payable and accrued expenses 594,465 (249,726) 90,019
Increase in subscriptions received in advance (7,899) (46,615) (21,560)
(Decrease) increase in accrued interest (32,092) 3,598 384,954
Decrease in accrued loss under interest
rate swap agreement (1,854,000) - -
----------- ----------- -----------
Total adjustments 9,750,336 11,262,040 12,518,357
----------- ----------- -----------
Net cash provided by operating activities 2,407,644 6,066,378 7,375,875
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (5,886,530) (6,561,044) (4,771,631)
Proceeds from sales of equipment 6,897 6,450 21,947
Cash paid for net assets of cable television systems acquired - (350,000) -
Cash paid for net assets of internet business acquired - - (40,000)
Increase in intangible assets and deferred costs (429,677) (578,655) (9,556)
----------- ----------- -----------
Net cash used in investing activities (6,309,310) (7,483,249) (4,799,240)
----------- ----------- -----------
Cash flows from financing activities:
Decrease in restricted cash 2,502,770 - -
Proceeds from bank loans 300,000 2,850,000 400,000
Repayment of bank loans - (1,100,000) (952,777)
Repayment of other notes payable (481,891) (402,729) (446,808)
Advances to affiliates (2,046,246) (1,317,392) (2,750,376)
Repayments of advances to affiliates 2,018,850 966,411 2,939,699
----------- ----------- -----------
Net cash provided by (used in) financing activities 2,293,483 996,290 (810,262)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (1,608,183) (420,581) 1,766,373
Cash and cash equivalents at beginning of period 5,013,580 3,405,397 2,984,816
----------- ----------- -----------
Cash and cash equivalents at end of period $ 3,405,397 2,984,816 4,751,189
=========== =========== ===========
</TABLE>
F-6
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Consolidated Statements of Cash Flows, (Continued)
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------------ ---------------- ----------------
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid $10,630,986 10,892,601 11,164,645
================== ================ ================
Other non-cash items:
Acquisition of property, plant and equipment through
issuance of other notes payable $237,858 128,111 759,612
================== ================ ================
Investment in HPI Acquisition Co., LLC, through issuance
of a note payable $1,000
================
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
December 31, 1994, 1995 and 1996
1. Organization and Nature of Business
The Helicon Group, L.P. (the "Partnership" or the "Company") was organized
as a limited partnership on August 10, 1993 under the laws of the state of
Delaware to consolidate the ownership interests of Helicon Group, Ltd.
("Helicon"), Terrebonne Cablevision, L.P., Roxboro Cablevision Associates,
L.P. and Vermont Cablevision Associates, L.P. (collectively, the
"Predecessor Companies") in connection with a roll-up plan completed on
November 3, 1993 (the "roll-up"). As a result of the roll-up, the
Partnership acquired substantially all of the operating assets and
agreements of all the cable television systems which were previously owned
by the Predecessor Companies and the stockholders and the partners of the
Predecessor Companies became limited partners of the Partnership.
The Partnership operates cable television systems located in Pennsylvania,
West Virginia, North Carolina, Louisiana, Vermont and New Hampshire. On
April 8, 1996, the Company became 99% owned by Helicon Partners I, L.P.
(HPI) and 1% owned by the Baum Investments, Inc., the general partner. The
Company is managed by Helicon Corp., an affiliated management company.
2. Summary of Significant Accounting Policies
a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Partnership and its wholly owned incorporated entity,
Helicon Capital Corp. ("HCC"). HCC had nominal assets as of December
31, 1995 and 1996 and had no operations from the date of incorporation
to December 31, 1996. All intercompany accounts have been eliminated
in consolidation.
b) Partnership Profits, Losses and Distributions
Under the terms of the Company's partnership agreement, profits,
losses and distributions of the Partnership will be made to each
partner pro-rata based on their respective partnership interest.
(Continued)
F-8
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
2. (Continued)
c) Revenue Recognition
The Partnership recognizes revenues as cable television services are
provided to subscribers. Subscription revenues billed in advance for
services are deferred and recorded as income in the period in which
services are rendered.
d) Property, Plant and Equipment
Property, plant and equipment are carried at cost and are depreciated
using the straight-line method over the estimated useful lives of the
respective assets.
e) Intangible Assets and Deferred Costs
Intangible assets and deferred costs are carried at cost and are
amortized using the straight-line method over the estimated useful
lives of the respective assets. The Partnership periodically reviews
the amortization periods of their intangible assets and deferred
costs. The Partnership evaluates whether there has been a permanent
impairment in the value of these assets by considering such factors
including projected undiscounted cash flows, current market conditions
and changes in the cable television industry that would impact the
recoverability of such assets, among other things.
f) Income Taxes
No provision for Federal or state income taxes has been made in the
accompanying consolidated financial statements since any liability for
such income taxes is that of the Partnership's partners and not of the
Partnership. Certain assets have a basis for income tax purposes that
differs from the carrying value for financial reporting purposes,
primarily due to differences in depreciation methods. As a result of
these differences, at December 31, 1995 and 1996 the net carrying
value of these assets for financial reporting purposes exceeded the
net basis for income tax purposes by approximately $14,700,000 and
$15,100,000, respectively.
g) Cash and Cash Equivalents
Cash and cash equivalents, consisting of amounts on deposit in money
market accounts, checking accounts and certificates of deposit, were
$3,984,816 and $5,751,189 at December 31, 1995 and 1996, respectively.
For purposes of the statements of cash flow, certificates of deposit
with maturities of over 90 days, included above, amounted to
$1,000,000 at December 31, 1993, 1994, 1995 and 1996, and were not
considered cash equivalents.
(Continued)
F-9
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
h) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
i) Disclosure about Fair Value of Financial Instruments
Cash and Cash Equivalents, Receivables, Accounts Payable and Accrued
Expenses.
The carrying amounts reported in the consolidated balance sheets for
cash and cash equivalents, current receivables, notes receivable and
accounts payable approximate fair values. The carrying value of
receivables with maturities greater than one year have been
discounted, and if such receivables were discounted based on current
market rates, the fair value of these receivables would not be
materially different than their carrying values.
Senior Secured Notes and Long-term Debt
For the Senior Secured Notes, fair values are based on quoted market
prices. See Note 8 for fair values of long-term debt. For long-term
debt, their values approximate carrying value due to the short term
maturity of the debt and/or fluctuating interest.
3. Acquisitions
On January 31, 1995, the Partnership acquired a cable television, serving
approximately 1,100 subscribers in the Vermont communities of Bradford,
South Royalton and Chelsea. The aggregate purchase price was approximately
$350,000 and was allocated to the net assets acquired which included
property and equipment and intangible assets.
On March 22, 1996, the Partnership acquired the net assets of a telephone
dial-up internet access provider, serving approximately 350 customers in
and around the area of Uniontown, Pennsylvania. The aggregate purchase
price was approximately $40,000.
On January 31, 1997, the Partnership acquired a cable television system,
serving approximately 823 subscribers in the West Virginia counties of Wirt
and Wood. The aggregate purchase price was approximately $1,052,000 and was
allocated to the net assets acquired which included property and equipment
and intangible assets.
(Continued)
F-10
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
4. Property, Plant and Equipment
Property, plant and equipment is summarized as follows at December 31:
<TABLE>
<CAPTION>
Estimated
useful life
1995 1996 in years
---- ---- --------
<S> <C> <C> <C>
Land $96,689 $96,689 -
Cable television system 62,345,422 66,618,787 5 to 20
Office furniture and fixtures 344,287 418,047 5 and 10
Vehicles 1,903,500 2,304,077 3 and 5
Building 61,071 272,996 5 and 10
Building and leasehold
improvements 315,992 341,736 1 to 5
Computers 1,353,448 1,729,593 5 and 10
--------- ---------
66,420,409 71,781,925
Less accumulated depreciation (37,077,139) (42,894,792)
------------ ------------
$29,343,270 $28,887,133
=========== ===========
</TABLE>
5. Intangible Assets and Deferred Costs
Intangible assets and deferred costs are summarized as follows at December
31:
<TABLE>
<CAPTION>
Estimated
useful life
1995 1996 in years
---- ---- --------
<S> <C> <C> <C>
Covenants not-to-compete $13,158,422 $13,168,422 5 and 10
Franchise agreements 19,650,889 19,650,889 9 to 17
Goodwill 1,703,760 1,703,760 20 and 40
Subscriber lists 16,529,630 16,541,413 6 to 18
Financing costs 4,455,474 4,455,478 8 to 10
Organization and other costs _1,825,780 _1,835,332 5 to 10
---------- ----------
57,323,955 57,355,294
Less accumulated amortization (31,480,267) (35,603,442)
------------ ------------
$25,843,688 $21,751,852
=========== ===========
</TABLE>
6. Transactions with Affiliates
Amounts due from/to affiliates result from management fees, expense
allocations and temporary non-interest bearing loans. The affiliates are
related to the Company common-ownership.
(Continued)
F-11
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
6. (Continued)
During 1994, 1995 and 1996 the Partnership was charged management fees of
$1,583,209, $1,761,236 and $1,902,987 respectively. Management fees are
calculated based on the gross revenues of the systems. Additionally, during
1994, 1995 and 1996, the Partnership was also charged $789,996, $639,477,
and $980,000 respectively, for certain costs incurred by this related party
on their behalf.
7. Due to Principal Owner
Mr. Theodore Baum, directly or indirectly, is the principal owner of 96.17%
of the general and limited partnership interests of the Partnership (the
"Principal Owner"). Due to Principal Owner consists of $5,000,000 at
December 31, 1995 and 1996. Beginning on November 3, 1993, interest on the
$5,000,000 due to the Principal Owner did not accrue and in accordance with
the provisions of the Senior Secured Notes was not paid for twenty four
months. Interest resumed on November 3, 1995 (see Note 8). The principal
may only be repaid thereafter subject to the passage of certain limiting
tests under the covenants of the Senior Secured Notes. Prior to the
issuance of the Senior Secured Notes, amounts due to Principal Owner bore
interest at varying rates per annum based on the prime rate and were due on
demand. These amounts due to the Principal Owner are subject and
subordinate to the prior payment of the amounts due to banks under the 1994
credit agreement described in note 9. Interest expense includes none in
1994, $91,076 in 1995 and $521,701 in 1996 related to this debt.
8. Senior Secured Notes
On November 3, 1993, the Partnership and HCC (the "Issuers"), through a
private placement offering, issued $115,000,000 aggregate principal amount
of 11% Senior Secured Notes due 2003 (the "Senior Secured Notes"), secured
by substantially all the assets of the Company. The Senior Secured Notes
were issued at a substantial discount from their principal amount and
generated net proceeds to the Issuers of approximately $105,699,000.
Interest is payable on a semi-annual basis in arrears on November 1 and May
1, beginning on May 1, 1994. The Senior Secured Notes bore interest at a
rate of 9-1/2% until the Partnership's registration statement to register
the Senior Secured Notes with the Securities and Exchange Commission became
effective on February 3, 1994. After that date and until November 1, 1996
the Senior Secured Notes bear interest at the rate of 9% per annum. After
November 1, 1996, the Senior Secured Notes bear interest at the rate of 11%
per annum. The discount on the Senior Secured Notes has been amortized over
the term of the Senior Secured Notes so as to result in an effective
interest rate of 11% per annum.
(Continued)
F-12
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
8. (Continued)
The Senior Secured Notes may be redeemed at the option of the Issuers in
whole or in part at any time on or after November 1, 1997 at the redemption
price of 108% reducing ratably to 100% of the principal amount, in each
case together with accrued interest to the redemption date. The Issuers are
required to redeem $25,000,000 principal amount of the Senior Secured Notes
on each of November 1, 2001 and November 1, 2002. The indenture under which
the Senior Secured Notes were issued contains various restrictive
covenants, the more significant of which are, limitations on distributions
to partners, the incurrence or guarantee of indebtedness, the payment of
management fees, other transactions with officers, directors and
affiliates, and the issuance of certain types of equity interests or
distributions relating thereto.
9. Loans Payable - Bank
On December 19, 1994, the Partnership and HCC entered into a loan agreement
with a bank pursuant to which the bank agreed to make a $2,500,000
three-year term loan facility and a $2,500,000 one-year line of credit
facility available to the Partnership and HCC. This facility is secured by
all the assets of the Company. The use of proceeds from such loans shall be
used for general corporate purposes including capital expenditures.
Interest is payable at prime plus 1.5%. At December 31, 1995 and 1996,
there were no borrowings under the line of credit loan and the amounts
outstanding under the term loan were $2,050,000 and $1,497,223,
respectively, (on February 23, 1996, the 1994 Credit Facility was amended
and extended to May 31, 1996 and on June 28, 1996, the term loan of the
Facility was again extended to May 31, 1997). The term loan is payable in
eighteen equal installments beginning in June 1996. Amounts due the
Principal Owner are subject and subordinate to the repayment of these
loans.
10. Interest Rate Swap Agreements
The Partnership enters into interest rate swap agreements under which the
Partnership is the fixed rate payer and interest rate cap agreements that
reduce the Partnership's exposure to interest rate risk. Such agreements
are accounted for as hedges of the associated liabilities and the
differences to be paid or received are included in interest expense on a
settlement basis. The Partnership also enters into interest rate swap
agreements under which it is the floating rate payer, which does not reduce
its exposure to interest rate risk. Such agreements are accounted for on a
mark-to-market basis.
(Continued)
F-13
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
10. (Continued)
Concurrent with the issuance of the Senior Secured Notes in November 1993,
the Partnership entered into an interest rate swap agreement with a
notional amount of $57,500,000 under which the Partnership paid interest at
a floating rate and received interest at a fixed rate. The swap did not
reduce interest rate risk and accordingly was accounted for on a
mark-to-market basis in accordance with the Partnership's accounting
policy. The mark-to market loss of this swap of approximately $1,854,000 as
of December 31, 1993 was recorded as a loss in the 1993 consolidated
financial statements. The Partnership terminated this agreement on February
25, 1994 at a loss of $2,795,671. The additional loss of $941,671 that
occurred after December 31, 1993 is reflected as an expense in 1994.
Interest rate swap and cap transactions generally involve the exchange of
fixed and floating rate interest payment obligations without the exchange
of the underlying notional principal amount. Interest rate swap
transactions contain varying degrees of off-balance sheet interest rate
risk whereby changes in the market values of the underlying instrument may
be in excess of the amounts recognized in the accompanying consolidated
statements of operations. Both types of transactions involve the risk of
counterpart nonperformance under the terms of the contract. Because of the
credit standing of the financial institutions which were parties to these
transactions, the Partnership does not believe there was any material risk
of counterpart nonperformance.
(Continued)
F-14
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
11. Other Notes Payable
Other Notes payable consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Promissory note in consideration for acquisition of a cable television
system, accruing interest at 10% per annum on principal and accrued
interest which is added to principal on certain specified dates; interest
becomes payable on January 1, 1998 and the principal is payable in full
in August 20, 2000 $1,683,276 $1,851,604
Subordinated promissory note payable in connection with the acquisition of
a limited partner's interest in a Predecessor Company, payable in 20
quarterly installments of $25,000, plus interest at the prime lending
rate (which was 8.5% and 8.25% at December 31, 1995 and 1996,
respectively) through October 31, 1997 175,000 75,000
Installment note, collateralized by computer equipment and payable in 60
monthly installments of $6,184, including interest at 8% per annum,
through December 18, 1997 136,766 71,131
Installment note, collaterilized by computer equipment and payable in 60
monthly installments of $5,300, including interest at Prime Plus 1.5% per
annum, through February 28, 2001 -- 265,000
Installment notes, collateralized by vehicles and payable in monthly
installments, at interest rates between 5.5% to 11.25% per annum, through
February 17, 1999 408,870 622,309
---------- ---------
$2,403,912 2,885,044
========== =========
</TABLE>
(Continued)
F-15
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
11. (Continued)
Principal payments due on the above notes payable are summarized as follows
at December 31, 1996:
Year ending December 31 Amount
----------------------- ------
1997 457,069
1998 243,399
1999 198,040
2000 1,975,422
2001 11,114
------
$2,885,044
==========
12. Partners' Deficit
In connection with the roll-up, the Principal Owner contributed a
$6,500,000 unsecured, non-interest bearing personal promissory note due on
demand to the general partner of the Partnership. Additionally, the
Principal Owner contributed to the Partnership an unsecured, non-interest
bearing personal promissory note in the aggregate principal amount of
$24,000,000 (together with the $6,500,000 note, the "Baum Notes"). The Baum
Notes have been issued for the purpose of the Partnership's credit
enhancement. Although the Baum Notes are unconditional, they do not become
payable except (i) in increasing amounts presently up to $19,500,000 and in
installments thereafter to a maximum of $30,500,000 on December 16, 1996
and (ii) at such time after such dates as the Partnership's creditors shall
have exhausted all claims against the Partnership's assets.
(Continued)
F-16
<PAGE>
THE HELICON GROUP, L.P. AND WHOLLY OWNED
INCORPORATED ENTITIES
Notes to Consolidated Financial Statements
13. Commitments
The Partnership leases telephone and utility poles on an annual basis. The
leases are self renewing. Pole rental expense for the years ended December
31, 1994, 1995 and 1996 was $445,881, $464,875 and $508,669, respectively.
In connection with certain lease and franchise agreements, the Partnership,
from time to time, issues security bonds.
The Partnership utilizes certain office space under operating lease
agreements which expire at various dates through May 2005 and contain
renewal options. At December 31, 1996 the future minimum rental commitments
under such leases were as follows:
Year ending December 31 Amount
----------------------- ------
1997 $79,200
1998 79,200
1999 75,200
2000 69,600
2001 69,600
Thereafter 234,200
-------
$607,000
Rent expense was $88,649 in 1994, $88,160 in 1995 and $92,512 in 1996.
14. Other Events
On April 8, 1996, the existing limited partners of the Company exchanged
(the "Exchange") their limited partnership interests in the Company for all
Class A Common Limited Partnership Interests and Preferred Partnership
Interests in Helicon Partners I, L.P. ("HPI"). As a result of this
Exchange, the Company became 99% owned by HPI (HPI now owns all of the
limited partnership interests in the Company and Baum Investments, Inc.
which continues to be the general partner of the Company and to own a 1.00%
general partnership interest in the Company. The previous limited partners
of the Company presently own 100% of the limited partner interests of HPI,
subject to dilution upon exercise of the warrants of HPI that it issued to
third party investors in connection with the Exchange.
On April 8, 1996, the Company acquired a 1% interest in HPI Acquisition
Co., LLC ("HPIAC"), a Delaware limited liability company for $1,000. The
balance of HPIAC is owned by HPI. HPIAC was formed to acquire interests in
cable television systems and related businesses. The Company's 1% interest
in HPIAC's net loss to date is not material.
F-17
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<NAME> THE HELICON GROUP, L.P.
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<PERIOD-END> DEC-31-1996
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<ARTICLE> 5
<CIK> 0000915772
<NAME> THE HELICON GROUP, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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