-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H3F7E65e8f/KeDhH3vaymXopcRgmHrUXw3vtyRmpc/do9nZi++NcZV5zo89jy2ld YQJnxLChv1cTqt4bsvNljg== 0001019504-98-000003.txt : 19980330 0001019504-98-000003.hdr.sgml : 19980330 ACCESSION NUMBER: 0001019504-98-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIERVISION OPERATING PARTNERS LP CENTRAL INDEX KEY: 0001019504 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 841316775 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-09535 FILM NUMBER: 98575215 BUSINESS ADDRESS: STREET 1: 1777 S HARRISON ST STREET 2: SUITE P-200 CITY: DENVER STATE: CO ZIP: 80210 BUSINESS PHONE: 3037571588 MAIL ADDRESS: STREET 1: 1777 SOUTH HARRISON STREET STREET 2: SUITE P-200 CITY: DENVER STATE: CO ZIP: 80210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIERVISION CAPITAL CORP CENTRAL INDEX KEY: 0001020291 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE LESSORS [6172] IRS NUMBER: 841353734 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-09535-01 FILM NUMBER: 98575216 BUSINESS ADDRESS: STREET 1: 1777 S HARRISON ST STREET 2: SUITE P200 CITY: DENVER STATE: CO ZIP: 80210 BUSINESS PHONE: 3037571588 MAIL ADDRESS: STREET 1: 1777 SOUTH HARRISON STREET STREET 2: SUITE P200 CITY: DENVER STATE: CO ZIP: 80210 10-K 1 FRONTIERVISION OPERATING/FRONTIER VISION CAPITAL SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to_________ Commission file numbers: 333-9535 and 333-9535-01 FrontierVision Operating Partners, L.P. FrontierVision Capital Corporation* (Exact names of Registrants as specified in their charters) Delaware 84-1316775 Delaware 84-1353734 (States or other jurisdiction (IRS Employer Identification Numbers) of incorporation or organization) 1777 South Harrison Street, Suite P-200, Denver, Colorado 80210 (Address of principal executive offices) (Zip Code) (303) 757-1588 (Registrants' telephone number, including area code) 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 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrants' 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] Number of shares of common stock of FrontierVision Capital Corporation outstanding as of March 27, 1998: 100. * FrontierVision Capital Corporation meets the conditions set forth in General Instruction I(1)(a) and (b) to the Form 10-K and is therefore filing with the reduced disclosure format. Documents Incorporated by Reference: None. TABLE OF CONTENTS PART I Item 1. BUSINESS. The Company.................................................................... 4 Business Strategy.............................................................. 4 Development of the Systems .................................................... 6 System Descriptions............................................................ 8 Technological Developments..................................................... 10 The Cable Television Industry.................................................. 11 Programming, Service and Rates................................................. 12 Marketing, Customer Service and Community Relations ........................... 13 Franchises .................................................................... 13 Competition ................................................................... 14 Employees ..................................................................... 17 Legislation and Regulation .................................................... 17 Item 2. PROPERTIES. ................................................................... 23 Item 3. LEGAL PROCEDINGS............................................................... 24 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 24 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................................................ 25 Item 6. SELECTED FINANCIAL DATA........................................................ 25 Item 7. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Introduction................................................................... 27 Results of Operations ......................................................... 28 Liquidity and Capital Resources ............................................... 31 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................................................... 34 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. .................................. 34 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. .......................................... 34
2 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Directors and Executive Officers of FrontierVision Inc......................... 35 Advisory Committee ............................................................ 37 Item 11. EXECUTIVE COMPENSATION. Deferred Compensation Plan..................................................... 37 Compensation Committee Interlocks and Insider Participation ................... 38 Employment Agreement........................................................... 38 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................................................... 39 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................. 40 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. Financial Statements .......................................................... 41 Reports on Form 8-K ........................................................... 44 Exhibits ...................................................................... 44 Financial Statement Schedules ................................................. 44 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY REGISTRANT'S WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE EXCHANGE ACT ................................................................................ 45 GLOSSARY ........................................................................................ 46 FINANCIAL STATEMENTS ............................................................................ F-1 FINANCIAL STATEMENT SCHEDULES ................................................................... S-1 EXHIBITS
3 PART I Item 1. BUSINESS FrontierVision Operating Partners, L.P. and its subsidiaries ("FVOP" or the "Company") own, operate and develop cable television systems in small and medium-sized suburban and exurban communities in the United States. As of December 31, 1997, the Company was one of the twenty largest operators of cable television systems in the United States, owning systems which passed approximately 817,000 homes and served approximately 559,800 basic subscribers (the "Existing Systems"). The Company was organized in 1995 under the laws of the State of Delaware and its headquarters are located at 1777 South Harrison Street, Suite P-200, Denver, Colorado, 80210. Its telephone number is (303) 757-1588 and it may be reached by e-mail at InvestorRel@FVP.com. THE COMPANY The Company seeks to maximize enterprise value by acquiring cable television systems at attractive prices in geographically rational clusters to achieve economies of scale and by improving system management to enhance operating profit. To date, the Company has been highly successful in its acquisition activities. Since closing its first acquisition in November 1995, the Company has completed 20 acquisitions and has established significant critical mass and subscriber density within its targeted geography. The following table illustrates the Company's growth, and operating characteristics of its systems, through December 31, 1997. -------------------------------------------------------- Basic Premium Total Revenue Homes Passed Subscribers Units (In Thousands) ------------------------------------------------------- December 31, 1995 125,300 92,700 35,700 4,369 December 31, 1996 498,900 356,400 152,100 76,464 Decebmer 31, 1997 817,000 559,800 275,400 145,126 The Company has established three primary operating clusters--New England, Ohio and Kentucky--with a fourth, smaller group of cable television systems in the Southeast. As of December 31, 1997, over 85% of the Company's subscribers were within its three primary operating clusters. The Company is currently the second largest MSO in Kentucky, the largest MSO in Maine and the third largest MSO in Ohio. In the Southeast, the Company has accumulated attractive systems which it expects to either consolidate with subsequent system acquisitions, trade for systems within the Company's primary operating regions or divest at favorable prices. BUSINESS STRATEGY The next phase of the Company's business plan will focus on increasing subscriber density within its operating clusters through selective acquisitions, reducing expenses through consolidating business operations, making significant investment and improvements in technical plant and selectively introducing new video and data services. The Company believes it can further enhance the operational and financial performance of its cable systems as well as effectively position the properties for a more widespread rollout of existing and new cable and broadband telecommunications services. To achieve its business objective, the Company pursues the following business strategies: 4 TARGET CLUSTERS IN SMALL AND MEDIUM-SIZED MARKETS. The Company has acquired contiguous clusters of cable television systems serving small and medium-sized suburban and exurban markets which are generally within 50 to 100 miles of larger urban and suburban communities. The Company believes that such markets have many of the beneficial attributes of larger urban and suburban markets, including moderate to high household growth, economic stability, attractive subscriber demographics and favorable potential for additional clustering. Moreover, in such markets, the Company believes that (i) it will face less direct competition given the lower population densities and higher costs per subscriber of installing cable service; (ii) it will maintain higher subscriber penetration levels and lower customer turnover based on fewer competing entertainment alternatives; and (iii) its overhead and operating costs will generally be lower than similar costs incurred in larger markets. GROW THROUGH STRATEGIC AND OPPORTUNISTIC ACQUISITIONS. In seeking to become the consolidator of cable television systems within its targeted geographic areas, the Company has systematically implemented a focused acquisition and consolidation strategy within its three primary operating clusters of New England, Ohio and Kentucky and its systems group in the Southeast. During the fourth quarter of 1997, the Company significantly increased the size and scale of its operating clusters by completing the aquisition of larger cable systems deemed "non-core" by larger MSOs. The Company will continue to pursue both large acquisitions and "fill-in" acquisitions in its operating clusters. The Company believes that such acquisition targets will have diminished strategic value to other prospective buyers given the Company's geographic prominence in these regions. Consequently, the Company believes these acquisition targets can be purchased at favorable prices. IMPLEMENT OPERATING EFFICIENCIES AND INCREASE OPERATING CASH FLOW THROUGH REGIONAL CONSOLIDATION. Upon acquiring a system, the Company implements extensive management, operational and technical changes designed to improve operating efficiencies and increase operating cash flow. By centralizing and upgrading customer support functions, the Company has begun to reduce administrative costs and better manage and train employees, while providing a higher level of customer service than was previously provided by smaller, dispersed offices. Within the Existing Systems, the Company plans to consolidate up to 57 customer service and sales offices into five regional service centers and 17 local payment offices. The Company also seeks to reduce technical operating costs and capital expenditures by consolidating headend facilities. In the Existing Systems, the Company plans to eliminate a significant number of the 246 headends. By serving more subscribers from a single distribution point, the Company has begun to decrease ongoing technical maintenance expenses, improve system reliability and enhance cost-efficiencies in adding new channels and services. PROMOTE AND EXPAND SERVICE OFFERINGS. Because many of the Company's customers received limited service offerings prior to acquisition, the Company believes that a significant opportunity exists to increase service revenue by increasing the programming and pricing options available to its customers. The Company's marketing programs include a mix of basic and premium service packages with an emphasis on appealing to different customer segments in specific local markets in order to maximize customer value, positive perception and overall profitability. Towards this end, the Company has revised basic and tier programming line-ups, launched several lower priced premium channels such as Starz! and Encore, and created premium service package offerings. In April 1997, the Company established a centralized, in-house telemarketing center to telemarket premium service packages to its customers. During 1997, tele-marketers working out of the Company's telemarketing center contacted over 175,000 of the Company's customers, generating over 12,000 sales of premium units. As systems are consolidated and technically enhanced, the Company will also continue to expand addressability, which is currently available to less than 44% of its subscribers, and seek to increase revenues derived from pay-per-view movies and events, as well as new pay services such as interactive video games. With the expanded advertising market delivery afforded by larger, contiguous system clusters, the Company plans to intensify local spot advertising sales efforts. Additionally, the Company successfully introduced digital cable television in two of its systems during the fourth quarter of 1997. Based on favorable early results in these test markets, the Company anticipates a more widespread roll-out of digital programming services during 1998. STRATEGICALLY UPGRADE SYSTEMS. The Company will selectively upgrade its cable systems to increase channel capacities, enhance signal quality and improve technical reliability. The Company believes that such technical 5 upgrades will not only enhance the potential for increasing revenues, but also will improve customer and community relations and further solidify the Company's incumbent position as the preeminent local provider of video services. Over the next five years, the Company intends to establish a technical platform of 750 MHz (110 analog channels) in its larger markets and 400 MHz to 550 MHz (54 to 78 analog channels) in most of its systems. Subsequent to this upgrade plan, over one-half of the Company's subscribers will be served by systems with 550 MHz to 750 MHz plant. Over the same period, the Company plans to invest substantial amounts in new technologies. The Company continually monitors and evaluates new technological developments to anticipate the introduction of new services and program delivery capabilities, such as digital cable television and cable Internet access. As a result, the Company may determine to reallocate the investment of its capital in order to more widely deploy such technology and to make optimal use of its assets. POSITION THE SYSTEMS FOR BROADBAND SERVICES. By implementing a hybrid fiber optic/coaxial cable design ("HFC") across the majority of its cable plant, the Company will effectively position itself for the introduction of new broadband video, voice and data services. Given its fiber-rich local infrastructure and the expanded bandwidth provided by coaxial cable, the Company believes it will enjoy distinct advantages over competitive service providers. Such advantages include higher speed, increased capacity, greater selectivity and better technical reliability. The Company's full service broadband HFC networks will enable it to offer a wide range of new services that include video applications such as digital programming, regional advertising insertion and interactive video games, as well as telecommunications and data services such as cable Internet access, virtual LAN applications, high speed point-to-point data transmission and competitive telephone access. FOCUS ON THE CUSTOMER. The Company continually seeks to provide superior customer service to its customers. Fundamental to this effort is development of technically advanced customer call centers, the establishment of a common billing and customer information platform and the continous improvement of programming and pricing options. To date, the Company has established four state-of-the-art customer call centers which, as of December 31, 1997, handled customer call volume for approximately 85% of the Company's customers. By centralizing customer service at the regional level, all functions that directly impact subscribers, including sales and marketing, customer service and administration, and technical support, are implemented as close to the customer as possible. In addition, as a result of its consolidation efforts, the Company has been able to enhance its customer service by increasing hours of operation for its customer service functions, better coordinating technical service and installation calls, speeding responsiveness to customer inquiries and standardizing maintenance procedures. While centralizing and improving customer service, the Company has opened local payment and technical offices to maintain its local presence and visibility within its communities. Additionally, the Company expects to have converted all of the subscribers within the Existing Systems to a single billing and customer information platform by the end of 1998. As part of the Company's plans to upgrade its acquired cable systems the Company regularly evaluates the programming packages, pricing options and add-on services available to its customers. During 1997, the Company added over 440 new channels of programming and expects to add over 240 new channels during 1998. DEVELOPMENT OF THE SYSTEMS The Company was organized in 1995 to exploit acquisition opportunities in the cable television marketplace created by the confluence of several economic, regulatory, competitive and technical forces. The cable television industry has experienced rapid and continuing consolidation over the last several years for various reasons. Operators have been faced with the need for increased levels of capital expenditures to expand channel capacity and have recently begun to face the threat of competition from new market entrants, including DBS services and telephone company video programming services. Many smaller MSOs, particularly those that were acquisitive during the late 1980's and purchased systems at prices significantly higher than those paid by the Company, sought liquidity for their investors or were constrained from accessing additional capital to upgrade or rebuild aging plant to remain competitive with other video programming providers. More recently, larger MSOs have embarked on their own program of divesting or trading less strategic systems to redirect their resources to major urban and suburban markets. 6 As a result of this supply and demand anomaly, the Company has been able to selectively acquire cable television properties from both small and large MSO's, thereby establishing core geographic clusters and subscriber mass. The aggregate purchase price paid by the Company for the Existing Systems was approximately $952.6 million, representing an average of 8.82 times the Acquisition Cash Flow and $1,657 per subscriber. The following table summarizes the acquisitions of the Existing Systems: ------------------------------------------------------------ Purchase Basic Purchase Price(1) Subscribers Price Per Predecessor Owner Date Acquired (in millions) Acquired(2) Subscriber - ----------------- ------------------------------------------------------------ United Video Cablevision, Inc. (the "UVC Systems ")....... November 9, 1995 $ 120.8 87,400 $1,382 Longfellow Cable Company, Inc. (the "Longfellow Systems ") November 21, 1995 6.1 5,100 1,196 C4 Media Cable Southeast, Limited Partnership (the "C4 Systems")................................................. February 1, 1996 47.6 40,400 1,178 Americable International Maine, Inc. (the "Americable March 29, 1996 4.8 3,350 1,433 Systems ")................................................. Cox Communications (the "Cox Systems ")................... April 9, 1996 136.0 77,200 1,762 Phoenix Grassroots Cable Systems, LLC (the "Grassroots Systems")................................................. August 29, 1996 9.3 7,400 1,257 Triax Southeast Associates, L.P. (the "Triax Systems ")... October 7, 1996 84.7 53,200 1,592 American Cable Entertainment of Kentucky-Indiana, Inc. (the "ACE Systems").......................................... October 9, 1996 146.0 83,250 1,754 SRW, Inc.'s Penn/Ohio Cablevision, L.P. (the "Penn/Ohio Systems ")................................................. October 31, 1996 3.8 3,225 1,178 SRW, Inc.'s Deep Creek Cable TV, L.P. (the "Deep Creek System").................................................. December 23, 1996 3.0 2,175 1,379 Bluegrass Cable Partners, L.P. (the "Bluegrass Systems "). March 20, 1997 9.9 7,225 1,370 Clear Cable T.V., Inc. and B&G Cable T.V. Systems, Inc. (the "Clear/B&G Systems ")........................ March 31, 1997 1.7 1,450 1,172 Milestone Communications of New York, L.P. (the "Milestone Systems").............................................. March 31, 1997 2.8 2,125 1,318 Triax Associates I, L.P. (the "Triax I Systems ")......... May 30, 1997 34.5 20,700 1,667 Phoenix Front Row Cablevision (the "Front Row Systems ").. May 30, 1997 6.8 5,250 1,295 PCI Incorporated (the "Bedford System").................... August 29, 1997 13.5 7,750 1,742 SRW, Inc.'s Blue Ridge Cable Systems, L.P. (the "Blue Ridge Systems").................................................. September 3, 1997 4.1 4,550 901 Harold's Home Furnishings, Inc. (the "Harold's System").... October 31, 1997 1.5 1,480 1,014 A-R Cable Services - ME, Inc. (the "Cablevision Systems").. October 31, 1997 78.2 54,300 1,440 TCI Cablevision of Vermont, Inc. and Westmarc Development Joint Venture (the "TCI-VT/NH Systems")................ December 2, 1997 34.5 22,100 1,561 Cox Communications, Inc. (the "Cox-Central Ohio Systems").. December 19, 1997 203.0 85,400 2,377 -------- ------- ------ Total...................................................... $ 952.6 575,030 $1,657 ======== ======= ======
- ------------ (1) Represents the contract purchase price excluding working capital purchase adjustments and transaction costs. (2) Includes 10,600 subscribers to systems that were sold by the Company in 1996. The Company will continue to make acquisitions of cable systems to expand and improve its existing operating clusters and will continue to dispose of or trade non core cable systems. The Company believes that acquisition oportunities continue to exist among the small and large MSO segments. During 1997, the Company completed an $800 million senior secured credit facility and received approximately $179.9 million in equity contributions from its general and limited partners. Based on its well-defined geography focus, strong market presence and financial capacity, the Company believes that it is well positioned to continue to acquire cable systems at attractive values and meet its growth objective of acquiring 750,000 subscribers. As of January 16, 1998, the Company had entered into four purchase agreements to acquire, for aggregate consideration of approximately $105.8 million, contiguous cable systems or cable systems in close proximity to the Existing Systems. In the aggregate, these systems served approximately 59,300 basic subscribers as of December 31, 1997. Of the total subscribers, approximately 33,900 would be added to the Company's Ohio cluster and approximately 25,400 to the Company's New England cluster. These systems possess technical profiles generally superior to the profiles for the Existing Systems and are generally larger in size. At closing, the Company expects the nine acquired systems to offer an average of 62 analog channels and 450 MHz of capacity. On March 6, 1998, the Company consummated the acquisition of systems in Michigan from TVC-Sumpter Limited Partnership and North Oakland Cablevision Partners Limited Partnership for an aggregate purchase price of $14.2 million. These systems will be integrated into the Company's Ohio cluster. In addition, on December 12, 1997 the Company 7 entered into an asset exchange agreement to obtain two Tennessee systems serving approximately 5,000 subscribers in exchange for three of its Southeast region systems serving approximately 4,300 subscribers in the Southeast region. The Company completed this exchange on March 12, 1998. There can be no assurance that the remaining potential acquisitions will be consummated or that the Company can successfully integrate any acquired business with its existing operations. SYSTEM DESCRIPTIONS The Company's cable television systems consist of three primary clusters--New England, Ohio and Kentucky--with a fourth, smaller group of systems in the Southeast. The following chart provides certain operating and technical profile statistics as of December 31, 1997 for the Company. ----------------------------------------------------------------- New England Ohio Kentucky Southeast Existing Cluster Cluster Cluster Region Systems ----------------------------------------------------------------- Homes passed......................................... 214,900 328,600 170,100 103,400 817,000 Basic subscribers.................................... 142,600 231,500 123,900 61,800 559,800 Basic penetration.................................... 66.4% 70.5% 72.8% 59.8% 68.5% Premium units........................................ 83,900 118,400 47,600 25,500 275,400 Premium penetration.................................. 58.8% 51.1% 38.4% 41.3% 49.2% Average monthly revenue per basic subscriber (1)..... 30.05 33.25 32.59 26.39 31.53 Number of headends................................... 77 80 39 50 246 Percentage of subscribers with at least 54-channel capacity.......................................... 44.4% 77.1% 57.0% 26.1% 58.7%
___________ (1) Average monthly revenue per basic subscriber equals revenue for the month ended December 31, 1997 divided by the number of basic subscribers as of the end of such period. NEW ENGLAND CLUSTER. The systems in the New England cluster passed approximately 214,900 homes and served approximately 142,600 basic subscribers and 83,900 premium units as of December 31, 1997. The New England cluster is comprised primarily of systems located in communities in southern, middle and coastal Maine, central New Hampshire and northern Vermont. Of the Maine systems' approximately 116,000 total subscribers, approximately 90,000 subscribers are located in Bangor and Lewiston and contiguous communities or in nearby coastal communities. In addition, the Company serves resort communities in Maine's Carrabassett Valley that include Sugarloaf/USA and Sunday River. Most of the approximately 19,500 subscribers in New Hampshire are located in Lebanon and surrounding communities, and most of the 7,100 Vermont subscribers are located within 20 miles of Burlington, the state's largest city. The 1996 median household income and projected household growth rates (from 1996 to 2001) in the areas served by the New England Systems exceed U.S. averages for counties with less than 100,000 households ("Comparable Counties"), according to Equifax National Decision Systems, 1996. Approximately 44.4% of the Company's subscribers in the New England cluster are offered at least 54 channels. The Company plans to utilize excess channel capacity by introducing new basic and premium services, increasing penetration of addressable converters, available to only 46.3% of the New England cluster subscribers as of December 31, 1997, and aggressively pursuing spot advertising revenue, which accounted for $0.62 per subscriber per month during the fourth quarter of 1997. The New England cluster's basic penetration rate is 16.9% below the Maine state average penetration rate of 79.8% according to Warren Publishing, Inc.'s Television and Cable Factbook, 1997. OHIO CLUSTER. Systems in the Ohio cluster passed approximately 328,600 homes and served approximately 231,500 basic subscribers and 118,400 premium units as of December 31, 1997. The majority of the subscribers in the Ohio cluster are located in northwest Ohio, extending from the northern suburbs of Toledo south along the Indiana state border, and central Ohio, south and east of suburban Columbus to the Ohio River. The 1996 median household income in the Ohio cluster exceeds U.S. averages for Comparable Counties, according to Equifax National Decision 8 Systems, 1996, although household growth rates in the areas served by the Ohio systems are projected to lag that of Comparable Counties over the next five years. Approximately 77.1% of the Company's subscribers in the Ohio cluster are offered at least 54 channels, including a fiber-to-the-feeder 550 MHz design in Ashland, Kentucky and Newark, Ohio. Although the Ohio cluster's basic penetration rate at December 31, 1997 was above the 1996 Ohio state average of 65.6%, its pay penetration rate was approximately 18.8% below the Ohio state average pay penetration rate of 63.0% according to Warren Publishing, Inc.'s Television and Cable Factbook, 1997. As part of its technical improvement program, the Company plans to increase the deployment of addressable converters, which were available to only 37.3% of the Ohio cluster subscribers as of December 31, 1997, and to more aggressively market pay-per-view and other interactive services such as video games. In addition, the Company plans to leverage its existing centralized advertising facilities and personnel to increase advertising revenue in all of the Ohio cluster, which accounted for $0.86 per subscriber per month during the fourth quarter of 1997. KENTUCKY CLUSTER. The systems in the Kentucky cluster passed approximately 170,100 homes and served approximately 123,900 basic subscribers and 47,600 premium units as of December 31, 1997. A single regional customer service center in Richmond, Kentucky serves all Kentucky subscribers, the majority of which reside in outlying communities of Lexington, Kentucky and Cincinnati, Ohio. The 1996 median household income and the projected growth rates (from 1996 to 2001) in the areas served by the Kentucky systems exceed U.S. averages for Comparable Counties, according to Equifax National Decision Systems, 1996. Approximately 57.0% of the Company's subscribers in the Kentucky cluster are offered at least 54 channels, including fiber-to-the-feeder 550 MHz design systems in Nicholasville, Kentucky and Delhi, Ohio and 750 MHz design systems in Madison, Indiana and Winchester, Kentucky. The Company continues to expend capital to complete a fiber ring surrounding Lexington, Kentucky. When complete, this fiber loop will serve approximately 60,000 subscribers from a single headend facility, interconnecting approximately fifteen existing headend facilities and passing nine colleges and universities. The Kentucky cluster will then be effectively positioned to offer broadband telecommunications and data services such as high speed Internet access, distance learning and point-to-point telephony. The Company plans to utilize excess channel capacity to introduce new basic and premium services to the Kentucky cluster. While the Kentucky cluster's basic penetration rate at December, 1997 was less than the Kentucky state average of 76.9%, its pay penetration rate was approximately 21.0% below the Kentucky state average pay penetration rate of 48.6% according to Warren Publishing, Inc.'s Television and Cable Factbook, 1997. As part of its technical improvement program, the Company also plans to increase the deployment of addressable converters, which were available to only 65.9% of the Kentucky cluster subscribers as of December 31, 1997, and to more aggressively market pay-per-view and other interactive services. Additionally, the Company plans to leverage its existing centralized advertising facilities and advertising sales personnel to increase advertising revenue in all of the Kentucky cluster, which accounted for $1.26 per subscriber per month during the fourth quarter of 1997. SOUTHEAST SYSTEMS. The Company plans to either consolidate further the systems in its Southeast region through acquisitions, trade certain of the systems for properties within its New England, Ohio and Kentucky clusters or sell the systems outright. As such, the Company's operating and capital expenditure plans for the Southeast systems will be limited to maintenance and discretionary projects that will increase the value of the systems to a potential buyer or trading partner. The Southeast systems passed approximately 103,400 homes and served approximately 61,800 basic subscribers and 25,500 premium units as of December 31, 1997. The Southeast systems at December 31, 1997 were comprised of groups of systems located in the following states: (i) Tennessee, serving approximately 19,600 basic subscribers; (ii) North Carolina, serving approximately 14,300 basic subscribers; (iii) Virginia, serving approximately 19,500 basic subscribers; and (iv) Maryland/Pennsylvania, serving approximately 8,400 basic subscribers. The Tennessee systems are located primarily in Greeneville, Tennessee and surrounding communities; the North Carolina systems are located near Rocky Mount, North Carolina; and the Virginia systems are located in 9 north central Virginia between Charlottesville and Winchester and in Eastern Virginia, near Richmond. The Maryland/Pennsylvania systems are located along the Maryland and Pennsylvania border, approximately 120 miles west of Washington, D.C. The 1996 median household income and actual and projected growth rate in the number of households (from 1996 to 2001) in the areas served by the Southeast systems exceed U.S. averages for Comparable Counties, according to Equifax National Decision Systems, 1996. Approximately 26.1% of the current plant design in the Southeast region is at least 54 channels. The Company will continue to evaluate capital expenditures to rebuild and upgrade plant based on the sales or trading status of the Southeast systems. TECHNOLOGICAL DEVELOPMENTS As part of its commitment to customer service, the Company maintains high technical performance standards in all of its cable systems, and systems are selectively upgraded and maintained to maximize channel capacity and to improve picture quality and reliability of the delivery of additional programming and new services. Before committing the capital to upgrade or rebuild a system, management carefully assesses (i) subscribers' demand for more channels, (ii) requirements in connection with franchise renewals, (iii) competing technologies that are currently available, (iv) subscriber demand for other cable and broadband telecommunications services, (v) the extent to which system improvements will increase the attractiveness of the property to a future buyer and (vi) the cost effectiveness of any such capital outlay. The following tables set forth certain information regarding the channel capacities and miles of plant and the average number of subscribers per headend for the Existing Systems as of December 31, 1997. ------------------------------------------------------------------- <220 MHz: 221-399 MHz: 400-549 MHz: 550-750 MHz: Up to 32 33 to 53 54 to 77 78 to 110 Channels Channels Channels Channels Total -------------------------------------------------------------------- Miles of plant 264 10,596 7,699 2,294 20,853 % miles of plant 1.3% 50.8% 36.9% 11.0% 100.0% % of basic subscribers 1.5% 39.8% 40.7% 18.0% 100.0%
------------------------------------------------------------------------------------------ Number of Subscribers Per Headend ------------------------------------------------------------------------------------------- 1,001- 5,001- 10,001- <1,000 5,000 10,000 25,000 >25,001 Total ------------------------------------------------------------------------------------------- # of subscribers 60,430 164,810 109,130 143,080 82,350 559,800 % of subscribers 10.8% 29.4% 19.5% 25.6% 14.7% 100.0%
The Company's Existing Systems have an average capacity of approximately 56 channels and delivered an average of 46 channels of programming to its subscribers as of December 31, 1997. Approximately 60% of the Company's subscribers are served by systems with more than 5,000 subscribers and over 40% are served by systems serving more than 10,000 subscribers. The Company believes that its current excess channel capacity and significant number of larger systems will allow it to cost effectively introduce new service offerings. Approximately 43.9% of the Company's subscribers currently have access to addressable technology. Addressable technology enables the Company, from the office or headend, to change the premium channels being delivered to each subscriber or to activate pay-per-view services. These service level changes can be effectuated without the delay or expense associated with dispatching a technician to the subscriber's home. Addressable technology also reduces premium service theft and allows the Company automatically to disconnect delinquent accounts electronically from the customer service center. The use of fiber optic technology in concert with coaxial cable has significantly enhanced cable system performance. Fiber optic strands are capable of carrying hundreds of video, data and voice channels over extended 10 distances without the extensive signal amplification typically required for coaxial cable. To date, the Company has used fiber to interconnect headends, to eliminate headends by installing fiber backbones and to reduce amplifier cascades, thereby improving both picture quality, system reliability and operational efficiencies. Recently, digital cable television has become commercially viable with technological cost reductions. The Company believes that this development will allow it to increase services to its subscribers. The Company has successfully launched digital cable television service in two of its systems and, based on favorable early results in these test markets, is in the process of installing necessary headend equipment for launches in additional systems. The Company will continue to monitor customer demand and profitability of such digital cable television services to assess the viability of a more wide-spread roll-out during 1998. THE CABLE TELEVISION INDUSTRY A cable television system receives television, radio and data signals that are transmitted to the system's headend site by means of off-air antennas, microwave relay systems and satellite earth stations. These signals are then modulated, amplified and distributed, primarily through coaxial, and in some instances, fiber optic cable, to customers who pay a fee for this service. Cable television systems may also originate their 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 term of years, generally for extended periods of up to 15 years. The cable television industry developed in the United States in the late 1940's and early 1950's in response to the needs of residents in predominantly rural and mountainous areas of the country where the quality of off-air television reception was inadequate due to factors such as topography and remoteness from television broadcast towers. In the late 1960's, cable television systems also developed in small and medium-sized cities and suburban areas that had a limited availability of clear off-air television station signals. All of these markets are regarded within the cable industry as "classic" cable television station markets. In more recent years, cable television systems have been constructed in large urban cities and nearby suburban areas, where good off-air reception from multiple television stations usually is already available, in order to receive the numerous, satellite-delivered channels carried by cable television systems which are not otherwise available via broadcast television reception. Cable television systems offer customers various levels (or "tiers") of cable services consisting of (i) off-air television signals of local network, independent and educational stations, (ii) a limited number of television signals from so-called "superstations" originating from distant cities (such as WGN), (iii) various satellite-delivered, non-broadcast channels (such as Cable News Network ("CNN"), MTV: Music Television ("MTV"), the USA Network ("USA"), Entertainment and Sports Programming Network ("ESPN") and Turner Network Television ("TNT")), (iv) certain programming originated locally by the cable television system (such as public, governmental and educational access programs) and (v) informational displays featuring news, weather, stock market and financial reports and public service announcements. For an extra monthly charge, cable television systems also offer premium television services to their customers. These services (such as Home Box Office (R) ("HBO"), Showtime (R) and regional sports networks) are satellite-delivered channels consisting principally of feature films, live sports events, concerts and other special entertainment features, usually presented without commercial interruption. A customer generally pays an initial installation charge and fixed monthly fees for basic and premium television services and for other services (such as the rental of converters and remote control devices). Such monthly service fees constitute the primary source of revenue for cable television operators. In addition to customer revenue from these services, cable television operators generate revenue from additional fees paid by customers for pay-per-view programming of movies and special events and from the sale of available advertising spots on advertiser-supported programming networks, such as ESPN, MTV and USA. Cable television operators frequently also offer to their customers home shopping services, which pay the systems a share of revenue from sales of products in the systems' service areas. See "--Programming, Services and Rates." 11 PROGRAMMING, SERVICES AND RATES The Company has various contracts to obtain basic and premium programming for its systems from program suppliers whose compensation is typically based on a fixed fee per customer. The Company's programming contracts are generally for a fixed period of time and are subject to negotiated renewal. Some program suppliers provide volume discount pricing structures or offer marketing support to the Company. In particular, the Company has negotiated programming agreements with premium service suppliers that offer cost incentives to the Company under which premium service unit prices decline as certain premium service growth thresholds are met. The Company's successful marketing of multiple premium service packages emphasizing customer value has enabled the Company to take advantage of such cost incentives. In addition, the Company is a member of a programming consortium consisting of small to medium-sized MSOs serving, in the aggregate, over eight million cable subscribers. The consortium was formed to help create efficiencies in the areas of securing and administering programming contracts, as well as to establish more favorable programming rates and contract terms for small to medium-sized operators. The Company intends to negotiate programming contract renewals both directly and through the consortium to obtain the best available contract terms. The Company also has various retransmission consent arrangements with commercial broadcast stations. Some of these consents require direct payment of nominal fees for carriage. In some other instances no payment is required; however, the Company has entered into agreements with certain stations to carry satellite-delivered cable programming which is affiliated with the network carried by such stations. The Company renewed or renegotiated a substantial portion of agreements through December 1999 under substantially the same terms. See "Legislation and Regulation--Must Carry/Retransmission Consent." Although services vary from system to system due to differences in channel capacity, viewer interests and community demographics, the majority of the Company's systems offer a "basic service tier," consisting of local television channels (network and independent stations) available over-the-air and local public, governmental, home-shopping and leased access channels. The majority of the Company's systems offer, for a monthly fee, an expanded basic tier of "superstations" originating from distant cities (such as WGN), various satellite-delivered, non-broadcast channels (such as CNN, MTV, USA, ESPN and TNT) and certain programming originated locally by the cable system (such as public, governmental and educational access programs) providing information with respect to news, time, weather and the stock market. In addition to these services, the Company's systems typically provide one or more premium services purchased from independent suppliers and combined in different formats to appeal to the various segments of the viewing audience, such as HBO (R), Cinemax (R), Showtime (R), The Movie Channel (TM) and Starz!. These services are satellite-delivered channels consisting principally of feature films, original programming, live sports events, concerts and other special entertainment features, usually presented without commercial interruption. Such premium programming services are offered by the Company's systems both on an a la carte basis and as part of premium service packages designed to enhance customer value and to enable the Company's systems to take advantage of programming agreements offering cost incentives based on premium unit growth. Subscribers may subscribe for one or more premium units. Additionally, the Company plans to upgrade certain of its systems with fiber optic cable, which will allow the Company to expand its ability to use "tiered" packaging strategies for marketing premium services and promoting niche programming services. The Company believes that this ability will increase basic and premium penetration as well as revenue per subscriber. Rates to subscribers vary from market to market and in accordance with the type of service selected. As of December 31, 1997, the average monthly rate for the Existing Systems was $24.51 for the basic and expanded basic service tiers. These rates reflect reductions effected in response to the federal re-regulation of cable television industry rates in 1992, and in particular, the FCC's rate regulations implementing the 1992 federal law, which became effective in 1993. A one-time installation fee, which may be waived in whole or in part during certain promotional periods, is charged to new subscribers. Management believes that the Company's rate practices are generally consistent with the current practices in the industry. See "Legislation and Regulation." 12 MARKETING, CUSTOMER SERVICE AND COMMUNITY RELATIONS The Company aggressively markets and promotes its cable television services with the objective of adding and retaining customers and increasing subscriber revenue. The Company actively markets its basic and premium program packages through a number of coordinated marketing techniques, which include (i) direct consumer sales and subscriber audit programs, (ii) direct mail for basic and upgrade acquisition campaigns, (iii) monthly subscriber statement inserts, (iv) local newspaper and broadcast/radio advertising where population densities are sufficient to provide a reasonable cost per sale and (vi) cross-channel promotion of new services and pay-per-view. Towards this end, the Company has established a single centralized telemarketing center to provide the outbound telemarketing support for all operating regions. Using a predictive dialing system platform, the operation will focus on (i) basic and pay unit acquisition, (ii) delinquent account collection activities, (iii) customer satisfaction surveys and (iv) targeted marketing campaigns. The Company is dedicated to providing superior customer service. To meet this objective, the Company provides its customers with a full line-up of programming, a wide variety of programming options and packages, timely and reliable service and improved technical quality. The Company's employees receive ongoing training in customer service, sales and subscriber retention and technical support. In general, following a new installation, a customer service representative will follow up by telephone contact with the subscriber to assess the quality of installation and the service the subscriber is receiving and to ensure overall subscriber satisfaction. Customer service representatives and technicians are also trained to market upgrades or cross-sell services at the point of sale of service. As part of its consolidation efforts, the Company has established centralized customer service facilities, increased hours of operation, and installed state-of-the-art telephone, information and billing systems to improve responsiveness to customer needs. In addition, the Company has retained local payment and technical offices to maintain its local presence and visibility within its communities. Recognizing that strong governmental, franchise and public relations are crucial to the overall success of the Company, the Company aggressively maintains and improves the working relationships with all governmental entities within the franchise areas. Regional management meets regularly with local officials for the purposes of keeping them advised on the Company's activities within the communities, to receive information and feedback on the Company's standing with officials and customers alike and to ensure that the Company can maximize its growth potential in areas where new housing development is occurring or where significant technical plant improvement is underway. The regional management is also responsible for franchise renewal negotiations as well as the maintenance of Company visibility through involvement in various community and civic organizations and charities. In addition, the Company has hired experienced community relations personnel in its New England, Ohio and Kentucky clusters to enhance local visibility and long-term relationships. FRANCHISES Cable television systems are generally constructed and operated 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. The provisions of local franchises are subject to regulation under state and federal law, including the Cable Communications Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable," and together with the 1984 Cable Act, the "Cable Acts") and the Telecommunications Act of 1996 (the "1996 Telecom Act"), as well as the rules, regulations and policies of the Federal Communications Commission (the "FCC") and applicable state agencies. See "Legislation and Regulation." As of December 31, 1997, the Company held 665 franchises. These franchises, most of which are non-exclusive, provide for the payment of fees to the issuing authority. In all of the Existing Systems, such franchise fees are 13 passed through directly to the customers. The Cable Acts prohibit franchising authorities from imposing franchise fees in excess of 5% of gross revenue and also permit the cable system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances. See "Legislation and Regulation." Approximately 98.0% of the Existing System's basic subscribers are in service areas that require a franchise. The table below groups the franchises of the Existing Systems by date of expiration and presents the approximate number and percentage of basic subscribers for each group of franchises as of December 31, 1997. ----------------------------------------------------- Percentage of Percentage of Number of Total Number of Franchised Year of Franchise Expiration Franchises Franchises Subscribers Subscribers ----------------------------------------------------- 1997 through 2001 234 35% 196,100 35% 2002 and thereafter 431 65% 353,000 65% ------- ------- ------- ------- Total 665 100% 549,100 100%
The Cable Acts provide, among other things, for an orderly franchise renewal process in which franchise renewal will not be unreasonably withheld or, if renewal is denied and the franchising authority acquires ownership of the system or effects a transfer of the system to another person, the operator generally is entitled to the "fair market value" for the system covered by such franchise. In addition, the Cable Acts established 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." The Company believes that it generally has very good relationships with its franchising communities. The Company has never had a franchise revoked or failed to have a franchise renewed. In addition, all of the franchises of the Company eligible for renewal have been renewed or extended at or prior to their stated expirations, and no franchise community has refused to consent to a franchise transfer to the Company. COMPETITION Cable television systems face competition from alternative methods of receiving and distributing television signals and from other sources of news, information and entertainment such as off-air television broadcast programming, newspapers, movie theaters, live sporting events, interactive online computer services and home video products, including videotape cassette recorders. The extent to which a cable communications system is competitive depends, in part, upon the cable system's ability to provide, at a reasonable price to customers, a greater variety of programming and other communications services than those which are available off-air or through other alternative delivery sources and upon superior technical performance and customer service. Cable television systems generally operate pursuant to franchises granted on a nonexclusive basis. The 1992 Cable Act prohibits franchising authorities from unreasonably denying requests for additional franchises and permits franchising authorities to operate cable television systems. See "Legislation and Regulation." It is possible that a franchising authority might grant additional franchises to other companies containing terms and conditions more favorable than those afforded the Company. Well-financed businesses from outside the cable industry (such as the public utilities that own the poles to which cable is attached) may become competitors for franchises or providers of competing services. See "Legislation and Regulation." Competition from other video service providers exists in areas served by the Company. In a limited number of the Company's franchise areas, the Company faces direct competition from another franchised cable television system. The availability of reasonably-priced home satellite dish earth stations ("HSDs") enables individual households to receive many of the satellite-delivered program services formerly available only to cable subscribers. The 1992 Cable Act contains provisions, which the FCC implemented with regulations, to enhance the ability of cable competitors to purchase and make available to HSD owners certain satellite-delivered cable programming at 14 competitive costs. The 1996 Telecom Act and FCC regulations implementing that law preempt certain local restrictions on the use of HSDs and roof-top antennae to receive satellite programming and over-the-air broadcasting services. See "Legislation and Regulation." Cable operators also face competition from private satellite master antenna television ("SMATV") systems that serve condominiums, apartment and office complexes and private residential developments. The 1996 Telecom Act broadens the definition of SMATV systems not subject to regulation as a franchised cable television system. SMATV systems offer both improved reception of local television stations and many of the same satellite-delivered program services offered by franchised cable television systems. SMATV operators often enter into exclusive agreements with building owners or homeowners' associations, although some states have enacted laws that authorize franchised cable operators access to such private complexes. These laws have been challenged in the courts with varying results. In addition, some companies are developing and/or offering to these private residential and commercial developments packages of telephony, data and video services. The ability of the Company to compete for customers in residential and commercial developments served by SMATV operators is uncertain. Congress has enacted legislation and the FCC has adopted regulatory policies providing a more favorable operating environment for new and existing technologies that provide, or have the potential to provide, substantial competition to cable television systems. These technologies include, among others, DBS service whereby signals are transmitted by satellite to receiving facilities located on customer premises. Programming is currently available to individual households, condominiums, apartment and office complexes through conventional, medium and high-powered satellites. DBS providers can offer more than 100 channels of video programming to their subscribers and are providing movies, broadcast stations, and other program services comparable to those of cable television systems. The FCC and Congress are presently considering proposals to enhance the ability of DBS providers to gain access to additional programming and to authorize DBS carriers to transmit local signals to local markets. Currently, Primestar Partners (a consortium comprised of cable operators and a satellite company), DirecTV, and EchoStar Communications Corp. ("EchoStar") are providing nation-wide DBS services. There are other companies that are currently providing or are planning to provide domestic DBS services. American Sky Broadcasting ("ASkyB"), a joint venture between MCI Communications Corp. ("MCI") and The News Corporation Limited ("News Corp."), is currently developing high-power DBS services. Primestar, News Corp., MCI and ASkyB recently announced several agreements in which News Corp., MCI and ASkyB will sell to Primestar two satellites under construction and MCI will assign to Primestar (subject to various governmental approvals) an FCC DBS license. The satellites to be sold to Primestar, when operational, are expected to be capable of providing approximately 200 channels of DBS service in the United States. The Primestar partners recently announced an agreement to consolidate their DBS assets into a new publicly traded company. DBS providers provide significant competition to cable service providers, including the Company. Digital satellite service ("DSS") offered by DBS systems currently has certain advantages over cable systems with respect to programming and digital quality, as well as disadvantages that include high up-front customer equipment and installation costs and a lack of local programming, service and equipment distribution. While DSS presents a competitive threat, the Company currently has excess channel capacity available in most of its systems, as well as strong local customer service and technical support, which will enhance its ability to compete. By selectively increasing channel capacities of systems to between 54 and 100 channels and introducing new premium channels, pay-per-view and other services, the Company will seek to maintain programming parity with DSS and magnify competitive service price points. Based on internal tracking of subscriber disconnects, the Company believes it lost less than 2,400 subscribers to DBS during the year ended December 31, 1997. On an annualized basis, this represents less than 0.7% of the subscribers of the Existing Systems as of December 31, 1997. The Company will continue to monitor closely the activity level and the product and service needs of its customer base to counter potential erosion of its market position or unit growth to DSS. Cable television systems also compete with wireless program distribution services such as MMDS, which uses low power microwave frequencies to transmit video programming over the air to customers. Additionally, the FCC adopted new regulations allocating frequencies in the 28 GHz band for a new multichannel wireless video service 15 called Local Multipoint Distribution Service ("LMDS") that is similar to MMDS. The FCC initiated spectrum auctions for LMDS licenses in February 1998. Wireless distribution services generally provide many of the programming services provided by cable systems, and digital compression technology is likely to increase significantly the channel capacity of their systems. Because MMDS and LMDS service requires unobstructed "line of sight" transmission paths, the ability of MMDS and LMDS systems to compete may be hampered in some areas by physical terrain and large buildings. In the majority of the Company's franchise service areas, prohibitive topography and limited "line of sight" access have limited, and are likely to continue to limit, competition from MMDS systems. The Company is not aware of any significant MMDS operation currently within its cable franchise service areas. The 1996 Telecom Act makes it easier for local exchange telephone companies ("LECs") and others to provide a wide variety of video services competitive with services provided by cable systems and to provide cable services directly to subscribers. See "Legislation and Regulation." Various LECs currently are providing video programming services within and outside their telephone service areas through a variety of distribution methods, including both the deployment of broadband wire facilities and the use of wireless transmission facilities. LECs and other companies also provide facilities for the transmission and distribution to homes and businesses of interactive computer-based services, including the Internet, as well as data and other non-video services. Cable television systems could be placed at a competitive disadvantage if the delivery of video, interactive online computer services and other non-video services by LECs becomes widespread, since LECs are not required, under certain circumstances, to obtain local franchises to deliver such services or to comply with the variety of obligations imposed upon cable television systems under such franchises. Issues of cross-subsidization by LECs of video, data and telephony services also pose strategic disadvantages for cable operators seeking to compete with LECs that provide such services. The Company cannot predict the likelihood of success of such video and broadband service ventures by LECs or the impact on the Company of such competitive ventures. The Company believes, however, that the small to medium-sized markets in which it provides or expects to provide cable services are unlikely to support competition in the provision of video and telecommunications broadband services given the lower population densities and high costs per subscriber of installing plant. The 1996 Telecom Act's provision promoting facilities-based broadband competition is primarily targeted at larger markets, and its prohibition on buy-outs and joint ventures between incumbent cable operators and LECs exempts small operators and carriers meeting certain criteria. See "Legislation and Regulation." The Company believes that significant growth opportunities exist for the Company by establishing cooperative rather than competitive relationships with LECs within its service areas, to the extent permitted by law. Competition in the online services area is significant. Recently, a number of large corporations in the telecommunications and technology industries, including the Regional Bell Operating Companies ("RBOCs"), GTE Corporation, Microsoft, Compaq Computer Corporation and Intel Corporation, announced the formation of a working group to accelerate the deployment of Asymmetric Digital Subscriber Line ("ADSL") technology. It is anticipated that ADSL technology will allow Internet access at peak data transmission speeds equal to or greater than that of modems over conventional telephone lines. Bell Atlantic Corporation ("Bell Atlantic") and several other RBOCs recently requested the FCC in separate petitions to fully deregulate packet-switched networks to allow it to provide high-speed broadband services, including online services, without regarding to present LATA boundaries and other regulatory restrictions. Competitors in the online services area include existing Internet service providers, LECs, long distance carriers and others, many of whom have more substantial resources than the Company. The Company cannot predict the likelihood of success of the online services offered by the Company's competitors or the impact on the Company of such competitive ventures. Other new technologies may become competitive with services that cable television systems can offer. The 1996 Telecom Act directed the FCC to establish, and the FCC has adopted, regulations and policies for the issuance of licenses for digital television ("DTV") to incumbent television broadcast licensees. DTV is expected to deliver high definition television pictures, multiple digital-quality program streams, as well as CD-quality audio programming and advanced digital services, such as data transfer or subscription video. The FCC also has authorized television broadcast stations to transmit textual and graphic information useful both to consumers and businesses. The FCC 16 also permits commercial and noncommercial FM stations to use their subcarrier frequencies to provide nonbroadcast services including data transmissions. The FCC established an over-the-air Interactive Video and Data Service that will permit two-way interaction with commercial and educational programming along with informational and data services. The FCC has conducted spectrum auctions for licenses to provide PCS. PCS will enable license holders, including cable operators, to provide voice and data services. Advances in communications technology as well as changes in the marketplace and the regulatory and legislative environments are constantly occurring. Thus, it is not possible to predict the effect that ongoing or future developments might have on the cable industry or on the operations of the Company. EMPLOYEES At December 31, 1997, the Company had approximately 937 equivalent full-time employees, nine of whom belonged to a collective bargaining unit. The Company considers its relations with its employees to be good. LEGISLATION AND REGULATION The Cable Acts and the 1996 Telecom Act amended the Communications Act of 1934 (as amended, the "Communications Act") and established a national policy to guide the development and regulation of cable systems. The 1996 Telecom Act is the most comprehensive reform of the nation's telecommunications laws since the Communications Act. Although the long-term goal of the 1996 Telecom Act is to promote competition and decrease regulation of various communications industries, in the short-term the law delegates to the FCC (and in some cases to the states) broad new rulemaking authority. Principal responsibility for implementing the policies of the Cable Acts and the 1996 Telecom Act is allocated between the FCC and state or local franchising authorities. The FCC and state regulatory agencies are required to conduct numerous rulemaking and regulatory proceedings to implement the 1996 Telecom Act, and such proceedings may materially affect the cable communications industry. The following is a summary of federal laws and regulations materially affecting the growth and operation of the cable communications industry and a description of certain state and local laws. RATE REGULATION. The 1992 Cable Act authorized rate regulation for cable communications services and equipment in communities that are not subject to "effective competition," as defined by federal law. Most cable communications systems are now subject to rate regulation for basic cable service and equipment by local officials under the oversight of the FCC which has prescribed detailed criteria for such rate regulation. The 1992 Cable Act also requires the FCC to resolve complaints about rates for cable programming service tiers ("CPSTs") (other than programming offered on a per channel or per program basis, which programming is not subject to rate regulation) and to reduce any such rates found to be unreasonable. The 1996 Telecom Act eliminates the right of individuals to file CPST rate complaints with the FCC and requires the FCC to issue a final order within 90 days after receipt of CPST rate complaints filed by any franchising authority. The 1992 Cable Act limits the ability of cable television systems to raise rates for basic and certain cable programming services (collectively, the "Regulated Services"). FCC regulations govern rates that may be charged to subscribers for Regulated Services. The FCC uses a benchmark methodology as the principal method of regulating rates for Regulated Services. Cable operators are also permitted to justify rates using a cost-of-service methodology, which contains a rebuttable presumption of an industry-wide 11.25% after tax rate of return on an operator's allowable rate base. Franchising authorities are empowered to regulate the rates charged for monthly basic service, for additional outlets and for the installation, lease and sale of equipment used by subscribers to receive the basic cable service tier, such as converter boxes and remote control units. The FCC's rules require franchising authorities to regulate these rates on the basis of actual cost plus a reasonable profit, as defined by the FCC. Cable operators required to reduce rates may also be required to refund overcharges with interest. The FCC has also adopted comprehensive and restrictive regulations allowing 17 operators to modify their regulated rates on a quarterly or annual basis using various methodologies that account for changes in the number of regulated channels, inflation and increases in certain external costs, such as franchise and other governmental fees, copyright and retransmission consent fees, taxes, programming fees and franchise-related obligations. The Company cannot predict whether the FCC will modify these "going forward" regulations in the future. The 1996 Telecom Act provides for rate deregulation of CPSTs by March 1999, although legislation has been proposed to extend the regulatory period. Deregulation will occur sooner for systems in markets where comparable video programming services, other than DBS, are offered by local telephone companies, or their affiliates, or by third parties using the local telephone company's facilities, or where "effective competition" is established under the 1992 Cable Act. The 1996 Telecom Act also modifies the uniform rate provisions of the 1992 Cable Act by prohibiting regulation of non-predatory bulk discount rates offered to subscribers in commercial and residential developments and permits regulated equipment rates to be computed by aggregating costs of broad categories of equipment at the franchise, system, regional or company level. The 1996 Telecom Act deregulates rates for CPSTs for certain small cable operators immediately and, in certain circumstances deregulates basic services and equipment. The deregulation of a smaller cable operator's rates only applies in franchise areas in which the small cable operator serves 50,000 or fewer subscribers. To qualify for the "small cable operator" rate deregulation under the 1996 Telecom Act, the operator (and its affiliates) must serve in the aggregate less than one percent (currently estimated by the FCC to be approximately 617,000 subscribers) of all U.S. cable television subscribers and may not be affiliated with an entity or group of entities that in the aggregate has annual gross revenue exceeding $250 million. The FCC has adopted interim rules in which it has defined "affiliate" as any entity that has a 20% or greater equity interest in the small cable operator (active or passive) or that holds de jure or de facto control over the small cable operator. The FCC is currently conducting a rulemaking to implement the 1996 Telecom Act's "small cable operator" rate deregulation, including adoption of permanent affiliation standards. In addition to rate deregulation for certain small cable operators under the 1996 Telecom Act, the FCC adopted regulations in June 1995 ("Small System Regulations") pursuant to the 1992 Cable Act that were designed to reduce the substantive and procedural burdens of rate regulation on "small cable systems." For purposes of these FCC regulations, a "small cable system" is a system serving 15,000 or fewer subscribers that is owned by or affiliated with a cable company which serves, in the aggregate, 400,000 or fewer subscribers. Under the FCC's Small System Regulations, qualifying systems may justify their regulated service and equipment rates using a simplified cost-of-service formula. The regulatory benefits accruing to qualified small cable systems under certain circumstances remain effective even if such systems are later acquired by a larger cable operator that serves in excess of 400,000 subscribers. Various franchising authorities and municipal groups have requested the FCC to reconsider its Small System Regulations. The FCC has determined that the 1996 Telecom Act does not require modification of its Small System Regulations. The Company believes that many of the Existing Systems currently satisfy the eligibility criteria under the FCC's Small System Regulations and would therefore be eligible to use the FCC's simplified cost-of-service methodology to justify basic service, CPST and equipment rates if regulated by a franchising authority or the FCC. Because the Company now serves in the aggregate more than 400,000 subscribers, most of the systems acquired from larger MSOs, such as TCI, Cox and Cablevision, generally will not be eligible for rate regulatory treatment as "small cable systems"; however, certain systems acquired from qualified "small cable operators" will be "grandfathered" under the FCC's Small System Regulations and will continue to be eligible to justify regulated rates using the FCC's simplified cost-of-service formula until they serve more than 15,000 subscribers. The Company's basic service rates are currently regulated in 82 communities covering approximately 27% of its subscribers. Additionally, to the Company's knowledge, there are pending at the FCC five CPST rate complaints that generally were filed against the Company's predecessors and that cover approximately 4% of its subscribers. While the Company cannot predict the outcome of the FCC CPST rate proceedings or of any pending local regulation of its basic service rates, the Company believes that the ultimate resolution of local and FCC rate proceedings will not have a material adverse impact on the Company's financial position or its results of operations. 18 "ANTI-BUY THROUGH" PROVISIONS. The 1992 Cable Act also requires cable systems to permit customers to purchase video programming offered by the operator on a per channel or a per program basis without the necessity of subscribing to any tier of service, other than the basic service tier, unless the system's lack of addressable converter boxes or other technological limitations do not permit it to do so. The statutory exemption for cable systems that do not have the technological capacity to offer programming in the manner required by the statute is available until a system obtains such capability, but not later than December 2002. The FCC may waive such time periods, if deemed necessary. Most of the Company's cable systems do not have the technological capability to offer programming in the manner required by the statute and currently are exempt from complying with the requirement. MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains broadcast signal carriage requirements that allow local commercial television broadcast stations to elect once every three years to require a cable system to carry the station, subject to certain exceptions, or to negotiate for "retransmission consent" to carry the station. A cable system generally is required to devote up to one-third of its activated channel capacity for the carriage of local commercial television stations pursuant to the mandatory carriage requirements of the 1992 Cable Act. Local noncommercial television stations are also given mandatory carriage rights; however, such stations are not given the option to negotiate retransmission consent for the carriage of their signals by cable systems. Additionally, cable systems are required to obtain retransmission consent for all "distant" commercial television stations (except for commercial satellite-delivered independent "superstations" such as WGN), commercial radio stations and certain low power television stations carried by such systems. In March 1997, the U.S. Supreme Court affirmed a three-judge district court decision upholding the constitutional validity of the 1992 Cable Act's mandatory signal carriage requirements. The FCC will conduct a rulemaking in the future to consider the requirements, if any, for mandatory carriage of digital television signals. The Company cannot predict the ultimate outcome of such a rulemaking or the impact of new carriage requirements of the Company or its business. As a result of the mandatory carriage rules, some of the Company's systems have been required to carry television broadcast stations that otherwise would not have been carried and have caused displacement of possibly more attractive programming. The retransmission consent rules have resulted in the deletion of certain local and distant televisions broadcast stations which various Company systems were carrying. To the extent retransmission consent fees must be paid for the continued carriage of certain television stations, the Company's cost of doing business will increase with no assurance that such fees can be recovered through rate increases. DESIGNATED CHANNELS. The Communications Act permits franchising authorities to require cable operators to set aside certain channels for public, educational and governmental access programming. Federal law also requires a cable system with 36 or more channels to designate a portion of its channel capacity for commercial leased access by third parties to provide programming that may compete with services offered by the cable operator. The FCC has adopted rules regulating: (i) the maximum reasonable rate a cable operator may charge for commercial use of the designated channel capacity; (ii) the terms and conditions for commercial use of such channels; and (iii) the procedures for the expedited resolution of disputes concerning rates or commercial use of the designated channel capacity. The U.S. Supreme Court recently held parts of the 1992 Cable Act regulating "indecent" programming on local access channels to be unconstitutional, but upheld the statutory right of cable operators to prohibit or limit the provision of "indecent" programming on commercial leased access channels. FRANCHISE PROCEDURES. The 1984 Cable Act affirms the right of franchising authorities (state or local, depending on the practice in individual states) to award one or more franchises within their jurisdictions and prohibits non-grandfathered cable systems from operating without a franchise in such jurisdictions. The 1992 Cable Act encourages competition with existing cable systems by (i) allowing municipalities to operate their own cable systems without franchises, (ii) preventing franchising authorities from granting exclusive franchises or unreasonably refusing to award additional franchises covering an existing cable system's service area, and (iii) prohibiting (with limited exceptions) the common ownership of cable systems and co-located MMDS or SMATV systems. The FCC had relaxed its restrictions on ownership of SMATV systems to permit a cable operator to acquire SMATV systems in the operator's existing franchise area so long as the programming services provided 19 through the SMATV system are offered according to the terms and conditions of the cable operator's local franchise agreement. The 1996 Telecom Act provides that the cable/SMATV and cable/MMDS cross-ownership rules do not apply in any franchise area where the cable operator faces "effective competition" as defined by federal law. The 1996 Telecom Act also permits local telephone companies to provide video programming services as traditional cable operators with local franchises. The Cable Acts also provide that in granting or renewing franchises, local authorities may establish requirements for cable-related facilities and equipment, but not for video programming or information services other than in broad categories. The Cable Acts limit franchise fees to 5% of cable system revenue derived from the provision of cable services and permit cable operators to obtain modification of franchise requirements by the franchising authority or judicial action if warranted by changed circumstances. The Company's franchises typically provide for payment of fees to franchising authorities of up to 5% of "revenue" (as defined by each franchise agreement), which fees may be passed on to subscribers. Recently, a federal appellate court held that a cable operator's gross revenue includes all revenue received from subscribers, without deduction, and overturned an FCC order which had held that a cable operator's gross revenue does not include money collected from subscribers that is allocated to pay local franchise fees. The 1996 Telecom Act generally prohibits franchising authorities from (i) imposing requirements in the cable franchising process that require, prohibit or restrict the provision of telecommunications services by an operator, (ii) imposing franchise fees on revenue derived by the operator from providing telecommunications services over its cable system, or (iii) restricting an operator's use of any type of subscriber equipment or transmission technology. The 1984 Cable Act contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. The 1992 Cable Act makes several changes to the renewal process which could make it easier for a franchising authority to deny renewal. Moreover, even if the franchise is renewed, the franchising authority may seek to impose new and more onerous requirements such as significant upgrades in facilities and services or increased franchise fees as a condition of renewal. Similarly, if a franchising authority's consent is required for the purchase or sale of a cable system or franchise, such authority may attempt to impose more burdensome or onerous franchise requirements in connection with a request for such consent. Historically, franchises have been renewed for cable operators that have provided satisfactory services and have complied with the terms of their franchises. The Company believes that it has generally met the terms of its franchises and has provided quality levels of service, and it anticipates that its future franchise renewal prospects generally will be favorable. Various courts have considered whether franchising authorities have the legal right to limit franchise awards to a single cable operator and to impose certain substantive franchise requirements (i.e., access channels, universal service and other technical requirements). These decisions have been inconsistent and, until the U.S. Supreme Court rules definitively on the scope of cable operators' First Amendment protections, the legality of the franchising process generally and of various specific franchise requirements is likely to be in a state of flux. OWNERSHIP LIMITATIONS. Pursuant to the 1992 Cable Act, the FCC adopted rules prescribing national customer limits and limits on the number of channels that can be occupied on a cable system by a video programmer in which the cable operator has an attributable interest. The FCC's horizontal ownership limits have been stayed because a federal district court found the statutory limitation to be unconstitutional. An appeal of that decision is pending and has been consolidated with an appeal of the FCC's regulations which implemented the national customer and channel limitation provisions of the 1992 Cable Act. The 1996 Telecom Act eliminates the statutory prohibition on the common ownership, operation or control of a cable system and a television broadcast station in the same service area and directs the FCC to eliminate its regulatory restrictions on cross-ownership of cable systems and national broadcasting networks and to review its broadcast-cable ownership restrictions to determine if they are necessary in the public interest. Pursuant to the mandate of the 1996 Telecom Act, the FCC eliminated its regulatory restriction on cross-ownership of cable systems and national broadcasting networks and has initiated a formal inquiry to review its broadcast-cable ownership restriction. TELEPHONE COMPANY OWNERSHIP OF CABLE SYSTEMS. The 1996 Telecom Act makes far-reaching changes in the regulation of telephone companies that provide video programming services. The 1996 Telecom Act eliminated 20 federal legal barriers to competition in the local telephone and cable communications businesses, preempted legal barriers to competition that previously existed in state and local laws and regulations and set basic standards for relationships between telecommunications providers. The 1996 Telecom Act eliminated the statutory telephone company/cable television cross-ownership prohibition, thereby allowing LECs to offer video services in their telephone service areas. LECs may provide service as traditional cable operators with local franchises or they may opt to provide their programming over unfranchised "open video systems," subject to certain conditions, including, but not limited to, setting aside a portion of their channel capacity for use by unaffiliated program distributors on a non-discriminatory basis. The 1996 Telecom Act generally limits acquisitions and prohibits certain joint ventures between LECs and cable operators in the same market. There are some statutory exceptions to the buy-out and joint venture prohibitions, including exceptions for certain small cable systems (as defined by federal law) and for cable systems or telephone facilities serving certain rural areas, and the FCC is authorized to grant waivers of the prohibitions under certain circumstances. The FCC adopted regulations implementing the 1996 Telecom Act requirement that LECs open their telephone networks to competition by providing competitors interconnection, access to unbundled network elements and retail services at wholesale rates. Numerous parties appealed these regulations. The U.S. Court of Appeals for the Eighth Circuit, where the appeals were consolidated, recently vacated key portions of the FCC's regulations, including the FCC's pricing and nondiscrimination rules. In January 1998, the U.S. Supreme Court agreed to review the Eighth Circuit's decision. The Company cannot predict the outcome of this litigation or the FCC rulemakings, and the ultimate impact of any final FCC regulations on the Company or its businesses cannot be determined at this time. POLE ATTACHMENT. The Communications Act requires the FCC to regulate the rates, terms and conditions imposed by public utilities for cable systems' use of utility pole and conduit space unless state authorities can demonstrate that they adequately regulate pole attachment rates, as is the case in certain states in which the Company operates. In the absence of state regulation, the FCC administers pole attachment rates through the use of a formula that it has devised. In some cases, utility companies have increased pole attachment fees for cable systems that have installed fiber optic cables and that are using such cables for the distribution of nonvideo services. The FCC concluded that, in the absence of state regulation, it has jurisdiction to determine whether utility companies have justified their demand for additional rental fees and that the Communications Act does not permit disparate rates based on the type of service provided over the equipment attached to the utility's pole. The FCC's existing pole attachment rate formula, which may be modified by a pending rulemaking, governs charges by utilities for attachments by cable operators providing only cable services. The 1996 Telecom Act and the FCC's implementing regulations modify the current pole attachment provisions of the Communications Act by immediately permitting certain providers of telecommunications services to rely upon the protections of the current law and by requiring that utilities provide cable systems and telecommunications carriers with nondiscriminatory access to any pole, conduit or right-of-way controlled by the utility. The FCC recently adopted new regulations to govern the charges for pole attachments used by companies providing telecommunications services, including cable operators. These new pole attachment rate regulations will become effective in February 2001 and any resulting increase in attachment rates resulting from the FCC's new regulations will be phased in equal annual increments over a period of five years beginning in February 2001. The ultimate impact of any revised FCC rate formula or of any new pole attachment rate regulations on the Company or its business cannot be determined at this time. OTHER STATUTORY PROVISIONS. The 1992 Cable Act, the 1996 Telecom Act and FCC regulations preclude a satellite video programmer affiliated with a cable company, or with a common carrier providing video programming directly to customers, from favoring an affiliated company over competitors and require such a programmer to sell its programming to other multichannel video distributors. These provisions limit the ability of cable program suppliers affiliated with cable companies or with common carriers providing satellite-delivered video programming directly to customers to offer exclusive programming arrangements to their affiliates. In December 1997, the FCC initiated a rulemaking to address a number of possible changes to its program access rules. The 1992 Cable Act requires operators to block fully both the video and audio portion of sexually explicit or indecent programming on channels that are primarily dedicated to sexually oriented programming or, alternatively, to carry such programming only at "safe harbor" time periods currently defined by the FCC as the hours between 10 p.m. to 6 a.m. Several adult-oriented cable programmers have challenged the constitutionality of this statutory provision, but the U.S. Supreme 21 Court recently refused to overturn a lower court's denial of a preliminary injunction motion seeking to enjoin the enforcement of this law. The FCC's regulations implementing this statutory provision became effective in May 1997. The Communications Act also includes provisions, among others, concerning horizontal and vertical ownership of cable systems, customer service, customer privacy, marketing practices, equal employment opportunity, obscene or indecent programming, technical standards, and consumer equipment compatibility. OTHER FCC REGULATIONS. The FCC recently revised its cable inside wiring rules to provide a more specific procedure for the disposition of internal cable wiring that belongs to an incumbent cable operator that is forced to terminate its cable services in a multiple dwelling unit ("MDU") building by the building owner. The FCC is also considering additional rules relating to MDU inside wiring that, if adopted, may disadvantage incumbent cable operators. The FCC has various rulemaking proceedings pending that will implement the 1996 Telecom Act; it also has adopted regulations implementing various provisions of the 1992 Cable Act and the 1996 Telecom Act that are the subject of petitions requesting reconsideration of various aspects of its rulemaking proceedings. In addition to the FCC regulations noted above, there are other FCC regulations covering such areas as equal employment opportunity, syndicated program exclusivity, network program nonduplication, closed captioning of video programming, registration of cable systems, maintenance of various records and public inspection files, microwave frequency usage, lockbox availability, origination cablecasting and sponsorship identification, antenna structure notification, marking and lighting, carriage of local sports broadcast programming, application of rules governing political broadcasts, limitations on advertising contained in nonbroadcast children's programming, consumer protection and customer service, ownership of home wiring, indecent programming, programmer access to cable systems, programming agreements, technical standards, consumer electronics equipment compatibility and DBS implementation. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities often used in connection with cable operations. The 1992 Cable Act, the 1996 Telecom Act and the FCC's rules implementing these statutory provisions generally have increased the administrative and operational expenses of cable systems and have resulted in additional regulatory oversight by the FCC and local franchise authorities. The Company will continue to develop strategies to minimize the adverse impact that the FCC's regulations and the other provisions of the 1992 Cable Act and the 1996 Telecom Act have on the Company's business. However, no assurances can be given that the Company will be able to develop and successfully implement such strategies to minimize the adverse impact of the FCC's rate regulations, the 1992 Cable Act or the 1996 Telecom Act on the Company's business. COPYRIGHT Cable systems are subject to federal copyright licensing covering carriage of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their revenue to a federal copyright royalty pool, cable operators can obtain blanket permission to retransmit copyrighted material on broadcast signals. The nature and amount of future payments for broadcast signal carriage cannot be predicted at this time. In a recent report to Congress, the Copyright Office recommended that Congress make major revisions of both the cable television and satellite compulsory licenses to make them as simple as possible to administer, to provide copyright owners with full compensation for the use of their works, and to treat every multichannel video delivery system the same, except to the extent that technological differences or differences in the regulatory burdens placed upon the delivery system justify different copyright treatment. The possible simplification, modification or elimination of the compulsory copyright license is the subject of continuing legislative review. The elimination or substantial modification of the cable compulsory license could adversely affect the Company's ability to obtain suitable programming and could substantially increase the cost of programming that remained available for distribution to the Company's customers. The Company cannot predict the outcome of this legislative activity. Cable operators distribute programming and advertising that use music controlled by the two major music performing rights organizations, the Association of Songwriters, Composers, Artists and Producers ("ASCAP") and Broadcast Music, Inc. ("BMI"). In October 1989, the special rate court of the U.S. District Court for the Southern 22 District of New York imposed interim rates on the cable industry's use of ASCAP-controlled music. The same federal district court established a special rate court for BMI. BMI and certain cable industry representatives recently concluded negotiations for a standard licensing agreement covering the usage of BMI music contained in advertising and other information inserted by operators into cable programming and on certain local access and origination channels carried on cable systems. ASCAP and cable industry representatives have met to discuss the development of a standard licensing agreement covering ASCAP music in local origination and access channels and pay-per-view programming. Although the Company cannot predict the ultimate outcome of these industry negotiations or the amount of any license fees it may be required to pay for past and future use of ASCAP-controlled music, it does not believe such license fees will be material to the Company's operations. STATE AND LOCAL REGULATION Cable systems are subject to state and local regulation, typically imposed through the franchising process, because they use local streets and rights-of-way. Regulatory responsibility for essentially local aspects of the cable business such as franchisee selection, billing practices, system design and construction, and safety and consumer protection remains with either state or local officials and, in some jurisdictions, with both. Cable systems generally are operated pursuant to nonexclusive franchises, permits or licenses granted by a municipality or other state or local government entity. Franchises generally are granted for fixed terms and in many cases are terminable if the franchisee fails to comply with material provisions. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction. Each franchise generally contains provisions governing payment of franchise fees, franchise term, system construction and maintenance obligations, system channel capacity, design and technical performance, customer service standards, franchise renewal, sale or transfer of the franchise, territory of the franchisee, indemnification of the franchising authority, use and occupancy of public streets and types of cable services provided. A number of states subject cable systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a character similar to that of a public utility. Attempts in other states to regulate cable systems are continuing and can be expected to increase. To date, the only state in which the Company currently operates that has enacted such state level regulation is Vermont; however, upon completion of a pending acquisition, the Company will acquire control of several cable systems in the State of Massachusetts and will then be subject to regulation by the Massachusetts Department of Telecommunications and Energy. The Company cannot predict whether any of the other states in which it currently operates will engage in such regulation in the future. State and local franchising jurisdiction is not unlimited, however, and must be exercised consistently with federal law. The 1992 Cable Act immunizes franchising authorities from monetary damage awards arising from regulation of cable systems or decisions made on franchise grants, renewals, transfers and amendments. The foregoing does not purport to describe all present and proposed federal, state, and local regulations and legislation affecting the cable industry. Other existing federal regulations, copyright licensing, and, in many jurisdictions, state and local franchise requirements, are currently the subject of judicial proceedings, legislative hearings and administrative and legislative proposals which could change, in varying degrees, the manner in which cable systems operate. Neither the outcome of these proceedings nor the impact on the cable communications industry or the Company can be predicted at this time. Other bills and administrative proposals pertaining to cable television have previously been introduced in Congress or considered by other governmental bodies over the past several years. It is probable that further attempts will be made by Congress and other governmental bodies relating to the regulation of communications services. Item 2. PROPERTIES The Company's principal physical assets consist of cable television operating plant and equipment, including signal receiving, encoding and decoding devices, headends and distribution systems and customer house drop equipment for each of its cable television systems. The signal receiving apparatus typically includes a tower, antenna, ancillary 23 electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. The Company's distribution system consists primarily of coaxial and fiber optic cables and related electronic equipment. Customer devices consist of decoding converters, which expand channel capacity to permit reception of more than twelve channels of programming. Some of the Existing Systems utilize converters that can be addressed by sending coded signals from the headend over the cable network. See "Business--Technological Developments." The Company owns or leases parcels of real property for signal reception sites (antenna towers and headends), microwave facilities and business offices, and owns most of its service vehicles. The Company believes that its properties, both owned and leased, are in good condition and are suitable and adequate for the Company's business operations. 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 physical components of the Company's systems require maintenance and periodic upgrading to keep pace with technological advances. Item 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or to which any of its properties are subject. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 24 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no established public trading market for the Company's classes of common equity. Item 6. SELECTED FINANCIAL DATA The following tables present selected financial data derived from the Company's financial statements as of December 31, 1997, 1996 and 1995 and for the years ended December 31, 1997 and 1996 and the period from inception (April 17, 1995) through December 31, 1995 which have been audited by KPMG Peat Marwick LLP, independent certified public accountants, and selected unaudited operating data for such periods. The following table also presents combined historical financial data as of and for the years ended December 31, 1996, 1995, 1994 and 1993 for the UVC Systems, the C4 Systems, the Cox Systems, the ACE Systems and the Triax Systems (the "Predecessor Systems"). The summary unaudited combined selected historical financial data are derived from the audited and unaudited historical financial statements of the Existing Systems and should be read in conjunction with the audited financial statements and related notes thereto of the Predecessor Systems and included elsewhere in this Form 10-K. The combined selected financial data set forth below represent the combined results of operations for the systems for the periods during which the systems were not owned by the Company and, accordingly, do not reflect any purchase accounting adjustments or any changes in the operation or management of the systems that the Company has made since the date of acquisition or intends to make in the future. Accordingly, the Company does not believe that such operating results are indicative of future operating results of the Company. 25 ----------------------------------------------------------------------------------------- FVOP Predecessor Systems ----------------------------------------- ------------------------------------------- For the Year For the Year From April 17, For the Year For the Year For the Year Ended Ended 1995(inception) Ended Ended Ended December 31, December 31, to December 31, December 31, December 31, December 31, 1997 1996 1995 1995 (1)(2) 1994 (3)(4) 1993 (3)(4) --------- --------- --------- --------- --------- --------- In thousands, except ratios and operating statistical data STATEMENT OF OPERATIONS DATA: Revenue ........................... $ 145,126 $ 76,464 $ 4,369 $ 109,765 $ 105,368 $ 96,171 Operating expenses ................ 74,314 39,181 2,311 62,098 58,643 52,702 Corporate administrative expenses . 4,418 2,930 127 -- -- -- Depreciation and amortization ..... 64,398 35,336 2,308 42,354 46,345 41,863 Preacquisition expenses ........... -- -- 940 -- -- -- --------- --------- --------- --------- --------- --------- Operating income (loss) ........... 1,996 (983) (1,317) 5,313 380 1,606 Interest expense, net(5) .......... (42,652) (22,422) (1,386) (37,898) (34,506) (31,230) Other income (expense) ............ (1,161) (396) -- (4,409) (2,570) (3,450) Extraordinary item - Loss on early retirement of debt ............. (5,046) -- -- -- -- -- --------- --------- --------- --------- --------- --------- Net income (loss) ................. $ (46,863) $ (23,801) $ (2,703) $ (36,994) $ (36,696) $ (33,074) ========= ========= ========= ========= ========= ========= BALANCE SHEET DATA (END OF PERIOD): Total assets ...................... $ 919,708 $ 549,168 $ 143,512 $ 288,253 $ 228,820 $ 255,108 Total debt ........................ 632,000 398,194 93,159 285,144 263,660 255,319 Partners' capital ................. 263,043 130,003 46,407 Financial Ratios and Other Data: EBITDA(6) ......................... $ 66,394 $ 34,353 $ 991 $ 47,667 $ 46,725 $ 43,469 EBITDA margin(6) .................. 45.7% 44.9% 22.7% 43.4% 44.3% 45.2% Total debt to EBITDA(7) ........... 6.19 EBITDA to interest expense(8) ..... 1.72 Net cash flows from operating activities ........................ $ 26,336 $ 18,911 $ 1,907 Net cash flows from investing activities ........................ (428,064) (418,215) (131,345) Net cash flows from financing activities ........................ 401,502 400,293 132,088 Deficiency of earnings to fixed charges(9) ........................ $ 46,863 $ 23,801 $ 2,703 OPERATING STATISTICAL DATA (END OF PERIOD EXCEPT AVERAGE): Homes passed ...................... 817,000 498,900 125,300 Basic subscribers ................. 559,800 356,400 92,700 Basic penetration ................. 68.5% 71.4% 74.0% Premium units ..................... 275,400 152,100 35,700 Premium penetration ............... 49.2% 42.7% 38.5% Average monthly revenue per basic subscriber(10) .............. $ 31.53 $ 29.73 $ 27.76 - -------------
(1) Includes the combined results of operations of the UVC Systems, the C4 Systems, the Cox Systems, the ACE Systems and the Triax Systems for the year ended December 31, 1995 (except for the UVC Systems, which is for the period ended November 8, 1995). As the results of operations of the UVC Systems are included in the Company's historical results of operations subsequent to the date of the Company's acquisition thereof (November 9, 1995), the amounts do not include $4.2 million in revenue, $2.4 million in operating expenses and $2.2 million in depreciation and amortization (computed after the application of purchase accounting adjustments) attributable to such systems. (2) Includes combined balance sheet data for the UVC Systems as of November 9, 1995, the date of the Company's acquisition thereof, and combined balance sheet data for the C4 Systems, the Cox Systems, the ACE Systems and the Triax Systems as of December 31, 1995, because such acquisitions occurred subsequent to that date. (3)Includes the combined results of operations of the UVC Systems, the C4 Systems, the Cox Systems, the ACE Systems and the Triax Systems for the years ended December 31, 1994 and 1993. (4) Includes combined balance sheet data for the UVC Systems, the C4 Systems, the Cox Systems, the ACE Systems and the Triax Systems as of December 31, 1994 and 1993. (5) Interest expense for December 31, 1997, 1996 and 1995 was net of interest income of $994, $471 and $60 respectively (dollars in thousands). 26 (6) EBITDA is defined as net income before interest, taxes, depreciation and amortization. The Company believes that EBITDA is a meaningful measure of performance because it is commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and liquidity. In addition, the Company's senior bank indebtedness (the "Amended Credit Facility") and the Subordinated Notes Indenture ("FVOP Notes Indenture") contain certain covenants, compliance with which is measured by computations substantially similar to those used in determining EBITDA. However, EBITDA is not intended to be a performance measure that should be regarded as an alternative either to operating income or net income as an indicator of operating performance or to cash flows as a measure of liquidity, as determined in accordance with generally accepted accounting principles. EBITDA margin represents the percentage of EBITDA to revenue. (7) For purposes of this computation, EBITDA for the most recent quarter ended is multiplied by four. This presentation is consistent with the incurrence of indebtedness tests in the FVOP Notes Indenture. In addition, this ratio is commonly used in the cable television industry as a measure of leverage. (8) For purposes of this computation, EBITDA and interest expense for the most recent quarter ended is multiplied by four, including certain pro forma adjustments made to include the effect of debt incurred to purchase those systems acquired by the Company during the quarter. This ratio is commonly used in the cable television industry as a measure of coverage. (9) For purposes of this computation, earnings are defined as income (loss) before income taxes and fixed charges. Fixed charges are defined as the sum of (i) interest costs (including an estimated interest component of rental expense) and (ii) amortization of deferred financing costs. (10) Average monthly revenue per basic subscriber equals revenue for the last month of the period divided by the number of basic subscribers as of the end of such period. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion of the financial condition and results of operations of the Company, the description of the Company's business as well as other sections of this Form 10-K contain certain forward-looking statements. The Company's actual results could differ materially from those discussed herein and its current business plans could be altered in response to market conditions and other factors beyond the Company's control. The Company commenced operations on November 9, 1995 with the acquisition of its first cable television systems. See "Business--Development of the Systems" for a description of the Existing Systems. The Company has operated the Existing Systems for a limited period of time and had no operations prior to November 9, 1995. All acquisitions have been accounted for under the purchase method of accounting and, therefore, the Company's historical results of operations include the results of operations for each acquired system subsequent to its respective acquisition date. The Company's objective is to increase its subscriber base and operating cash flow through selective acquisitions of cable television systems that can be integrated with the Existing Systems and to enhance enterprise value through operating improvements and revenue growth. The Company continues the process of acquiring cable systems, and integrating new systems with its current systems. The Company also continues to invest significant capital for technical enhancement, including the headend equipment needed to launch additional channels contemporaneously with service rate increases which the Company expects to implement over the course of 1998. To date, the Company has eliminated 20 customer service and sales offices and has established four regional customer call centers which, as of year-end, handled customer call volume for approximately 85% of the Company's subscribers. In addition, the Company is offering digital cable television service in two of its systems and will continue to launch such services in 1998. During the fourth quarter of 1997, the Company completed three significant acquisitions, in the process adding approximately 85,400 subscribers to its Ohio cluster and approximately 76,400 subscribers to its New England cluster. The Company currently serves approximately 142,600 subscribers in its New England Cluster, 231,500 subscribers in its Ohio Cluster and 123,900 subscribers in its Kentucky Cluster. In addition, the Company entered into a $800 million Amended Credit Facility which the Company believes gives it sufficient available capital to meet its growth objective of acquiring at least 750,000 subscribers. 27 On March 6, 1998, the Company consummated the acquisition of systems in Michigan from TVC-Sumpter Limited Partnership and North Oakland Cablevision Partners Limited Partnership for an aggregate purchase price of $14.2 million. On March 12, 1998 the Company completed an exchange of cable television systems in the Southeast region with Comcast Cablevision of the South. As of March 25, 1998, the Company had entered into three additional purchase agreements to acquire certain cable television systems, located in Ohio and New England, for aggregate consideration of approximately $91.6 million. The transactions are expected to close during the second and third quarters of 1998. These transactions are subject to customary closing conditions and certain regulatory approvals that are not completely within the Company's control. See Note 4 for more detailed descriptions of the transactions. During mid January of 1998, certain of the communities served by the Company in Maine experienced devastating ice storms. The Company expects to recognize a loss due to service outages and increased labor costs of approximately $925,000 due to the ice storms. Additionally, the Company will expend capital to replace and repair subscriber drops. The Company expects the loss to be isolated to the first quarter of 1998, although the long-term financial effect of the ice storms cannot be determined. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THETHREE MONTHS ENDED SEPTEMBER 30, 1997 The following table sets forth, for the three-month periods ended December 31, 1997 and September 30, 1997, certain statements of operations and other data of the Company. As a result of the Company's limited operating history, the Company believes that its results of operations for the periods presented in this table are not indicative of the Company's future results. ------------------------------------------ Three Months Ended Three Months Ended December 31, 1997 September 30, 1997 ------------------- ------------------- % of % of Amount Revenue Amount Revenue ------- ---- ------- ---- In thousands (unaudited) Revenue ............... $42,740 100.0% $36,750 100.0% Expenses Operating expenses 21,520 50.4 18,332 49.9 Corporate expenses 1,298 3.0 1,071 2.9 ------- ---- ------- ---- EBITDA(1) ............. $19,922 46.6% $17,347 47.2% ======= ==== ======= ==== Basic subscribers...... 559,800 401,300 Premium units.......... 275,400 172,900 - -------------- (1) EBITDA represents operating income (loss) before depreciation and amortization. The Company believes that EBITDA is a meaningful measure of performance because it is commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and liquidity. In addition, the Amended Credit Facility and the FVOP Notes Indenture contain certain covenants, compliance with which is measured by computations substantially similar to those used in determining EBITDA. However, EBITDA is not intended to be a performance measure that should be regarded as an alternative either to operating income or net income as an indicator of operating performance or to cash flows as a measure of liquidity, as determined in accordance with generally accepted accounting principles. The three-month period ended December 31, 1997 is the only period in which the Company operated all of the Existing Systems, although certain systems (the Cablevision Systems, the Harold's System, the TCI-VT/NH Systems and the Cox-Central Ohio Systems) were purchased during the period and are reflected only for that portion of the period that such systems were owned by the Company. The three-month period ended September 30, 1997 represents the integration of all of the Existing Systems (except for the Cablevision Systems, the Harold's System, the TCI-VT/NH Systems and the Cox-Central Ohio Systems), although certain systems (the Blue Ridge 28 Systems and the Bedford Systems) were purchased during the period and are reflected only for that portion of the period that such systems were owned by the Company. The Company consummated the acquisitions of the Cablevision Systems, the TCI-VT/NH Systems and the Cox-Central Ohio Systems during the fourth quarter of 1997, acquiring cable systems serving approximately 85,400 basic subscribers in Ohio and 76,400 subscribers in Maine, New Hampshire and Vermont. Revenue increased 16.3%, or approximately $5.9 million, to approximately $42.7 million for the three months ended December 31, 1997 from approximately $36.8 million for the three months ended September 30, 1997. Operating and corporate expenses increased approximately 17.4% and 21.2%, respectively, for the three months ended December 31, 1997 from the three months ended September 30, 1997. The number of basic subscribers increased approximately 39.5% from 401,300 at September 30, 1997 to 559,800 as of December 31, 1997, and the number of premium units increased approximately 59.3% from 172,900 to 275,400 over the three-month period. Significant growth over the third quarter of 1997 in revenue, operating and corporate expenses, basic subscribers and premium units is primarily attributable to the Company's acquisitions of cable systems during October and December of 1997. As its operations base has developed, the Company has increased its focus on integration of business operations to achieve efficiencies, significant investment in technical plant and promotion of new and existing services to enhance revenues. The impact of certain of these efforts resulted in an increase in EBITDA margin over the course of the year. Overall, the EBITDA margin decreased slightly in the fourth quarter as a result of the integration of the significant acquisitions of the Cablevision Systems, the TCI-VT/NH Systems and the Cox-Central Ohio Systems, however, on a same system basis, the EBITDA margin remained flat at approximately 47%. YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 AND YEAR ENDED DECEMBER 31, 1996 COMPARED WITH PERIOD FROM APRIL 17, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 The following table set forth, for the years ended December 31, 1997 and 1996 and for the period from April 15, 1995 through December 31, 1995, certain statements of operations and other data of the Company. As a result of the Company's limited operating history, the Company believes that its results of operations for the periods presented in this table are not indicative of the Company's future results. ----------------------------------------------------------------------------------- Year Ended Year Ended Period From April 17, 1995 December 31, 1997 December 31, 1996 to December 31,1995 ----------------------- ---------------------- --------------------- % of % of % of Amount Revenue Amount Revenue Amount Revenue --------- ----- --------- ----- --------- ----- In thousands Revenue ........................... $ 145,126 100.0 % $ 76,464 100.0 % $ 4,369 100.0 % Expenses Operating expenses ............ 74,314 51.2 39,181 51.2 2,311 52.9 Corporate expenses ............ 4,418 3.0 2,930 3.9 127 2.9 Depreciation and amortization . 64,398 44.4 35,336 46.2 2,308 52.8 Pre-acquisition expenses ...... -- -- -- -- 940 21.5 --------- ----- --------- ----- --------- ----- Total expenses ......... 143,130 98.6 77,447 101.3 5,686 103.1 --------- ----- --------- ----- --------- ----- Operating income/(loss) ........... 1,996 1.4 (983) (1.3) (1,317) (30.1) Interest expense, net ............. (42,652) (29.4) (22,422) (29.3) (1,386) (31.7) Other expense ..................... (1,161) (0.8) (396) (0.5) -- -- Extraordinary item - Loss on early retirement of debt ............ (5,046) (3.5) -- -- -- -- --------- ----- --------- ----- --------- ----- Net loss .......................... $ (46,863) (32.3)% $ (23,801) (31.1)% $ (2,703) (61.9)% ========= ===== ========= ===== ========= ===== EBITDA ............................ $ 66,394 45.8 % $ 34,353 44.9 % $ 991 22.7 % ========= ===== ========= ===== ========= ===== Basic subscribers ................. 559,800 356,400 92,700 Premium units ..................... 275,400 152,100 35,700
29 YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 Revenue increased to $145.1 million in the year ended December 31, 1997 from $76.5 million in the period ended December 31, 1996. This increase was attributable in part to having a full year of operations from the the acquisition of the following sytems: C4 Systems on February 1, 1996; the Americable Systems on March 29, 1996; the Cox Systems on April 9, 1996; the Grassroots Systems on August 29, 1996; the Triax Systems on October 7, 1996; the ACE Systems on October 9, 1996; the Penn/Ohio Systems on October 31, 1996; and the Deep Creek System on December 23, 1996. Revenue for the year ended December 31, 1997 also reflects operations for the following systems from the date of their respective acquisitions in 1997: the Bluegrass Sytems on March 20, 1997; the Clear/B&G Systems on March 31, 1997; the Milestone Systems on March 31, 1997; the Triax I Systems on May 30, 1997; the Front Row Systems on May 30, 1997; the Bedford System on August 29, 1997; the Blue Ridge Systems on September 3, 1997; the Cablevision Systems on October 31, 1997; the Harold's System on October 31, 1997; the TCI-VT/NH Systems on December 2, 1997 and the Cox-Central Ohio Systems on December 19, 1997. Operating and corporate expenses were reduced to 54.3% of revenue in the year ended December 31, 1997 from 55.1% of revenues in the year ended December 31, 1996 due primarily to the achievement of efficiencies in the corporate office through the elimination of duplicative expenses, such as customer billing, accounting, accounts payable and payroll administration. Depreciation and amortization increased 82.2% as a result of acquisition activity that occurred in 1996 and 1997. Net interest expense increased to $42.7 million from $22.4 million as a result of the higher weighted average drawings on the Company's senior bank indebtedness (the "Senior Credit Facility" prior to December 19, 1997) as well as a result of the inclusion of a full year of interest expense on the Notes. The extraordinary item for the year ended December 31, 1997 represents the write-off of $5.0 million of deferred financing costs related to the early retirement of the Senior Credit Facility. Other expenses for the year ended December 31, 1997 include the retirement of $1.1 million of plant assets in connection with completed upgrade and rebuild projects. In an effort to maximize revenue from existing subscribers, the Company also has established and commenced operations at a centralized, in-house telemarketing center equipped with state-of-the art predictive dialing and communications equipment. The Company's efforts are focused on telemarketing premium services to its subscribers in its New England, Kentucky and Ohio operating clusters. Beginning in April 1997, telemarketers have contacted the Company's subscribers, marketing the Company's "Ultimate TV" package, a premium service package consisting of at least three premium channels. This has resulted in an increase in the number of pay units purchased by those subscribers of approximately 24.5% over the period from inception through December 31, 1997. The Company intends to continue to aggressively market selected premium service packages through its internal telemarketing resources. Other marketing initiatives for the year-ended December 31, 1997 include sales audit remarketing and channel additions and service rate increases in selected cable systems. The Company has also continued its sales audit and door-to-door marketing program, inspecting selected systems to clean up its billing data base, verify homes passed data, market services to potential customers and identify unauthorized subscribers, which the Company attempts to convert to paying subscribers. As a result of such cost efficiencies and the aforementioned acquisitions, EBITDA increased to 45.8% of revenues in the year ended December 31, 1997 from 44.9% of revenues in the year ended December 31, 1996. During the twelve months ended December 31, 1997, (i) the Company's annualized subscriber churn rate (which represents the annualized number of subscriber terminations divided by the weighted average number of subscribers during the period) was approximately 32.0%, and (ii) the average subscriber life implied by such subscriber churn rate was approximately 3.1 years. Churn rates are computed without adjustment for the effects of seasonal subscriber activity and acquisitions and are within the Company's expectations. The Company does not expect churn rates to improve during its acquisition phase. 30 YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE PERIOD FROM APRIL 17, 1995 (INCEPTION) DECEMBER 31, 1995 Revenue increased to $76.5 million in the twelve months ended December 31, 1996 from $4.4 million in the period ended December 31, 1995. This increase was attributable in part to having a full year of operations from the UVC Systems and the Longfellow Systems (both acquired in November 1995). Revenue for the twelve months ended December 31, 1996 also reflect operations for the following systems from the date of their respective acquisitions: the C4 Systems on February 1, 1996; the Americable Systems on March 29, 1996; the Cox Systems on April 9, 1996; the Grassroots Systems on August 29, 1996; the Triax Systems on October 7, 1996; the ACE Systems on October 9, 1996; the Penn/Ohio Systems on October 31, 1996; and the Deep Creek System on December 23, 1996. Operating and corporate expenses were reduced to 55.1% of revenue in the twelve months ended December 31, 1996 from 55.8% of revenues in the period ended December 31, 1995 due primarily to cost-cutting measures implemented by the Company. These efforts included the establishment of centralized regional service centers in Rockland, Maine, Greeneville, Tennessee, Richmond, Kentucky and Chillicothe, Ohio and the elimination of certain customer service offices. Other cost reductions have been realized through the elimination of duplicative expenses, such as customer billing, accounting, accounts payable and payroll administration. The increase in depreciation and amortization expense of $33.0 million from the period ended December 31, 1995 to the year ended December 31, 1996 was a result of the inclusion of a full year of expense for acquisitions completed in 1995 and new acquisitions completed in 1996. Net interest expense increased by $21.0 million due to the higher weighted average debt balance outstanding over the year ended December 31, 1996. As a result of such cost efficiencies and the aforementioned acquisitions, EBITDA increased to 44.9% of revenues in the twelve months ended December 31, 1996 from 22.7% of revenues in the period ended December 31, 1995. LIQUIDITY AND CAPITAL RESOURCES The cable television business generally requires substantial capital for the construction, expansion and maintenance of the delivery system. In addition, the Company has pursued, and intends to pursue in the future, a business strategy which includes selective acquisitions. Since its founding in 1995, the Company's cash from equity investments, bank borrowings and other debt issued by FVOP has been sufficient to finance the Company's acquisitions and, together with cash generated from operating activities, also has been sufficient to meet the Company's debt service, working capital and capital expenditure requirements. The Company intends to continue to finance such debt service, working capital and capital expenditure requirements in the future through a combination of cash from operations, indebtedness and equity capital sources, and the Company believes that it will continue to generate cash and be able to obtain financing sufficient to meet such requirements. The ability of the Company to meet its debt service and other obligations will depend upon the future performance of the Company which, in turn, is subject to general economic conditions and to financial, political, competitive, regulatory and other factors, many of which are beyond the Company's control. On December 19, 1997 the Company amended its existing senior bank indebtedness and entered into an $800.0 million Amended Credit Facility with The Chase Manhattan Bank, as Administrative Agent, J.P. Morgan Securities Inc., as Syndication Agent, CIBC Inc., as Documentation Agent, and the other lenders signatory thereto. The Amended Credit Facility includes a $300.0 million, 7.75-year reducing revolving credit facility (the "Revolving Credit Facility"), a $250.0 million, 7.75-year term loan (the "Facility A Term Loan") and a $250.0 million, 8.25-year term loan (the "Facility B Term Loan"). At December 31, 1997, the Company had no amounts outstanding under the Revolving Credit Facility, $182.0 million outstanding under the Facility A Term Loan and $250.0 million outstanding under the Facility B Term Loan. The weighted average interest rates at December 31, 1997 on the outstanding borrowings under the Facility A Term Loan and the Facility B Term Loan were approximately 8.25% and 8.38%, respectively. The Company has entered into interest rate swap agreements to hedge the underlying LIBOR rate exposure for $170.0 million of borrowings through November 1999 and October 2000. For the year 31 ended December 31, 1997, the Company had recognized an increase to interest expense of approximately $312,200 as a result of these interest rate swap agreements. In general, the Amended Credit Facility requires the Company to use the proceeds from any equity or subordinated debt issuance or any cable system disposition to reduce indebtedness for borrowings under the Amended Credit Facility and to reduce permanently commitments thereunder, subject to certain exceptions permitting the Company to use such proceeds to fund certain permitted acquisitions, provided that the Company is otherwise in compliance with the terms of the Amended Credit Facility. The Amended Credit Facility is secured by a pledge of all limited and general partnership interests in the Company and in any subsidiaries of the Company and a first priority lien on all the tangible and intangible assets of the Company and each of its subsidiaries. In addition, in the event of the occurrence and continuance of an event of default under the Amended Credit Facility, the Administrative Agent is entitled to replace the general partner of the Company with its designee. FrontierVision Holdings, L.P. ("Holdings"), as the general partner of FVOP, guarantees the indebtedness under the Amended Credit Facility on a limited recourse basis. The Amended Credit Facility is also secured by a pledge of all limited and general partnership interests in FVOP and a first priority lien on all the assets of FVOP and its subsidiaries. On October 7, 1996, FVOP issued $200.0 million aggregate principal amount of 11% Senior Subordinated Notes due 2006 (the "FVOP Notes"). The FVOP Notes mature on October 15, 2006 and bear interest at 11%, with interest payments due semiannually commencing on April 15, 1997. The Company paid its first interest payment of $11.5 million on April 15, 1997. The FVOP Notes are general unsecured obligations of the Company and rank subordinate in right of payment to all existing and any future senior indebtedness. In anticipation of the issuance of the FVOP Notes, the Company entered into deferred interest rate setting agreements to reduce the interest rate exposure related to the FVOP Notes. The financial statement effect of these agreements will be to increase the effective interest rate which the Company incurs over the life of the FVOP Notes. Holdings and FrontierVision Holdings Capital Corporation ("Holdings Capital") were formed for the purpose of acting as co-issuers of $237.7 million aggregate principal amount at maturity of 11 7/8% Senior Disount Notes due 2007 (the "Discount Notes"). FrontierVision Partners, L.P. ("FVP"), FVOP's sole general partner, contributed to Holdings, both directly and indirectly, all of the outstanding partnership interests of FVOP prior to the issuance of the Discount Notes on September 19, 1997 (the "Formation Transaction") and therefore, at that time, FVOP and Capital became wholly-owned consolidated subsidiaries of Holdings. Holdings contributed the proceeds of the Discount Notes to FVOP as a capital contribution. During the year ended December 31, 1997, FVOP received approximately $179.9 million of equity contributions from its partners (from FVP prior to September 19, 1997, and Holdings subsequent to September 19, 1997). Such equity contributions and senior debt, along with cash flow generated from operations, have been sufficient to finance capital improvement projects as well as acquisitions. The Company has adequately serviced its debt in accordance with the provisions of the Amended Credit Facility from EBITDA of approximately $66.4 million generated by the Company for the year ended December 31, 1997. In connection with the acquisition of the UVC Systems, the Company issued a subordinated note to UVC in the aggregate principal amount of $7.2 million. Under the terms of the UVC Note, the Company repaid the UVC Note in connection with the closing of the Amended Credit Facility. The Company is in the process of performing a preliminary assessment of the applicability of Year 2000 issues to its business and operations. The Company uses specialized third-party service providers for all subscriber management purposes, including billing, revenue collection and related reporting. These third-party service providers have represented to the Company that Year 2000 issues are being addressed by such providers. The software utilized by 32 the Company's primary third-party billing service will be Year 2000-compatible by the fourth quarter of 1998. As such, the Company does not expect the cost of addressing the Year 2000 issues relative to its billing and revenue-related functions to be a material event. Furthermore, with respect to the managment information system and technical equipment, the Company is uncertain as to the ultimate cost of bringing such items into compliance with Year 2000 issues. However, the Company believes that there will be timely resolution of these issues relevant to its business and operations. CASH FLOWS FROM OPERATING ACTIVITIES Cash flows from operating activities for the year ended December 31, 1997 were $26.3 million compared to $18.9 million for the year ended December 31, 1996. The increase was primarily a result of cable television system operations acquired during 1996 and 1997. Cash flows from operating activities for the year ended December 31, 1996 were $18.9 million compared to $1.9 million for the period from inception (April 17, 1995) through December 31, 1995. The increase was the result of cable television system operations acquired during 1996 as the UVC Systems and the Longfellow Systems were acquired during the fourth quarter of 1995. CASH FLOWS FROM INVESTING ACTIVITIES Investing cash flows were primarily used to fund capital expenditures and acquire cable television systems. Capital expenditures for the year ended December 31, 1997 were approximately $32.7 million compared to approximately $9.3 million for the year ended December 31, 1996. Capital expenditures primarily consisted of expenditures for the construction and expansion of the delivery system, and additional costs were incurred related to the expansion of customer service facilities. The Company invested approximately $392.6 million in acquisitions during the year ended December 31, 1997 compared with approximately $421.5 million for the same period in 1996. The Company had capital expenditures of $9.3 million during the year ended December 31, 1996 compared to $0.6 million for the period from inception (April 17, 1995) through December 31, 1995. The 1996 expenditures primarily consisted of expenditures for the construction and expansion of the delivery system and additional costs were incurred related to the expansion of customer service facilities. In addition, for the year ended December 31, 1996, the Company capitalized approximately $2.0 million attributable to the cost of obtaining certain franchise, leasehold and other long-term agreements. The Company invested approximately $421.5 million in acquisitions during the year ended December 31, 1996 compared with approximately $121.3 million for the period from inception (April 17, 1995) through December 31, 1995. The Company also disposed of cable television systems for net proceeds of $15.1 million in the year ended December 31, 1996. The Company expects to spend a total of approximately $73.0 million over the next two years for capital expenditures with respect to the Existing Systems. These expenditures will primarily be used for (i) installation of fiber optic cable and microwave links which will allow for the consolidation of headends, (ii) analog and digital converter boxes which will allow the Company to more effectively market premium and pay-per-view services, (iii) the continued deployment of coaxial cable to build-out the Existing Systems, (iv) headend equipment for the HITS digital television system and (v) the upgrade of a portion of the Company's cable television distribution systems to, among other things, increase bandwidth and channel capacity. See "Business--Technological Developments." CASH FLOWS FROM FINANCING ACTIVITIES Acquisitions during 1997 were financed with equity contributions from the Company's partners and net borrowings under the Company's senior bank indebtedness. Acquisitions during the year ended December 31, 1996 were financed with equity contributions from the Company's partners, borrowings under the Senior Credit Facility, and issuance of $200.0 million aggregate principal amount of FVOP Notes; acquisitions for the period from inception 33 (April 17, 1995) were financed with equity contributions from the Company's partners and borrowings under the Senior Credit Facility. During the year ended December 31, 1997, the Company had received approximately $179.9 million of equity contributions from its partners as compared with $107.4 million for the year ended December 31, 1996, and $49.1 million for the period from inception (April 17, 1995) through December 31, 1995. The contributions for the year ended December 31, 1997 include net proceeds of approximately $142.3 million received from the issuance of the Discount Notes. From inception through December 31, 1997, FVP had received a total of $199.4 million of equity commitments from its partners and all such equity commitments had been invested in FVP and FVP had contributed substantially all such equity investments to the Company. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements of the Company appear on page F-1 of this Form 10-K. The financial statement schedules required under Regulation S-X are filed pursuant to Item 14 of this Form 10-K, and appear on page S-1 of this Form 10-K. All other schedules are omitted as the required information is not applicable or the information is presented in the financial statements, related notes or other schedules. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During 1996, the Company dismissed its independent public accountants, Arthur Andersen LLP ("AA") and subsequently engaged KPMG Peat Marwick LLP as the Company's principal independent public accountants. The Company had no disagreements with AA since formation and through the date of dismissal, nor did any of AA's reports on the financial statements of the Company contain an adverse opinion or disclaimer of opinion, nor was any report modified as to uncertainty, audit scope, or accounting principle. The change in accountants is fully disclosed in the Company's Form 8-K filed with the SEC on October 29, 1996. 34 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT FVOP's sole general partner is Holdings. Holdings' sole general partner is FVP. FVP's sole general partner is FVP GP, L.P. ("FVP GP"). FVP GP's sole general partner is FrontierVision Inc. Information with respect to the directors and executive officers of FrontierVision Inc. and FrontierVision Capital Corporation, respectively, is set forth below: FRONTIERVISION INC. Name Age Position - ---- --- -------- James C. Vaughn 52 President, Chief Executive Officer and Director John S. Koo 36 Senior Vice President, Chief Financial Officer, Secretary and Director David M. Heyrend 47 Vice President of Engineering Albert D. Fosbenner 43 Vice President - Treasurer William P. Brovsky 41 Vice President of Marketing and Sales James W. McHose 34 Vice President - Finance Richard G. Halle 34 Vice President of Business Development Todd E. Padgett 32 Vice President of Operations FRONTIERVISION CAPITAL CORPORATION Name Age Position - ---- --- -------- James C. Vaughn 52 President, Chief Executive Officer and Director John S. Koo 36 Senior Vice President, Chief Financial Officer, Secretary and Director Albert D. Fosbenner 43 Vice President - Treasurer
JAMES C. VAUGHN, President, Chief Executive Officer and a Director of FrontierVision Inc. and Holdings Capital and a founder of the Company, is a cable television system operator and manager with over 30 years of experience in the cable television industry. From 1987 to 1995, he served as Senior Vice President of Operations for Triax Communications Corp., a top 40 MSO, where he was responsible for managing all aspects of small and medium-sized cable television systems. These systems grew from serving 57,000 subscribers to over 376,000 subscribers during Mr. Vaughn's tenure. Prior to joining Triax Communications, Mr. Vaughn served as Director of Operations for Tele-Communications, Inc. from 1986 to 1987, with responsibility for managing the development of Chicago-area cable television systems. From 1985 to 1986, Mr. Vaughn was Division Manager for Harte-Hanks Communications. From 1983 to 1985, Mr. Vaughn served as Vice President of Operations for Bycom, Inc. From 1979 to 1983, Mr. Vaughn served as Director of Engineering for the Development Division of Cox Cable Communications Corp. From 1970 to 1979, Mr. Vaughn served as Senior Staff Engineer for Viacom, Inc.'s cable division, and a Director of Engineering for Showtime, a division of Viacom International, Inc. JOHN S. KOO, Senior Vice President, Chief Financial Officer, Secretary and a Director of FrontierVision Inc. and Holdings Capital and a founder of the Company, has over eleven years of banking experience in the telecommunications industry. From 1990 to 1995, Mr. Koo served as a Vice President at Canadian Imperial Bank of Commerce ("CIBC"), where he co-founded CIBC's Mezzanine Finance Group, targeted at emerging media and telecommunications businesses. From 1986 to 1990, Mr. Koo was a Vice President at Bank of New England specializing in media finance. From 1984 to 1986, he was a management consultant to the financial services industry. 35 DAVID M. HEYREND, Vice President of Engineering of FrontierVision Inc., has 23 years of cable television engineering management and operations experience. Prior to joining the Company in 1996, Mr. Heyrend served from 1988 to 1995 as Director of Engineering for UVC, where he developed technical standards, employee development programs and oversaw plant construction projects. From 1985 to 1988, as Director of Programs for Tele-Engineering Corporation, he developed and managed broadband LAN projects for clients such as Allen Bradley, Ford Motor Company and TRW. Mr. Heyrend also worked for several years with Daniels & Associates in system technical operations and engineering management. ALBERT D. FOSBENNER, Vice President - Treasurer of FrontierVision Inc. and Capital, has fourteen years of domestic, international and new business cable television experience and is responsible for the Company's accounting, reporting, treasury and information technology activities. Prior to joining the Company in early 1998 Mr. Fosbenner served as the CFO of a Denver-based interactive television network startup company from 1994 to 1997, where he was responsible for all finance, treasury, accounting and administrative functions of the company. From 1991 to 1994 Mr. Fosbenner served (in Norway) as the CFO of Norkabel A/S, a Norwegian cable television MSO (owned by United International Holdings, Inc.) serving 142,000 subscribers. While at Norkabel Mr. Fosbenner was responsible for finance, accounting, treasury, investor relations and MIS. From 1985 to 1991 Mr. Fosbenner worked for both United Cable Television and United Artists Entertainment in a number of financial and operations management positions, including Director of Finance & Administration and Division Business Manager. Mr. Fosbenner is a Certified Public Accountant and a Certified Management Accountant. WILLIAM P. BROVSKY, Vice President of Marketing and Sales of FrontierVision Inc., has fourteen years of cable television experience and is responsible for programming and contract negotiations in addition to overseeing the sales and marketing activities of the Company's operating divisions. Before joining the Company in 1996, Mr. Brovsky managed day-to-day sales and marketing operations from 1989 to 1996 for Time Warner Cable of Cincinnati, serving almost 200,000 subscribers. He also served as Project Manager, supervising all aspects of system upgrades to fiber optics. From 1982 to 1989, Mr. Brovsky served as General Sales Manager for American Television and Communications, where he was responsible for sales, marketing and telemarketing operations for Denver and its suburban markets. JAMES W. MCHOSE, Vice President - Finance of FrontierVision Inc., has over ten years of accounting and tax experience, including six years providing tax, accounting and consulting services to companies engaged in the cable television industry. Through early 1998, Mr. McHose served the Company as the Vice President - Treasurer. Prior to joining the Company in 1996, Mr. McHose was a Senior Manager in the Information, Communications, and Entertainment practice of KPMG Peat Marwick, LLP, where he specialized in taxation of companies in the cable television industry. In this capacity, Mr. McHose served MSOs with over 14 million subscribers in the aggregate. Mr. McHose is a member of the Cable Television Tax Professional's Institute and is a Certified Public Accountant. RICHARD G. HALLE, Vice President of Business Development of FrontierVision Inc. since February 1997, is responsible for the evaluation and development of new businesses including cable modems and Internet access, digital programming delivery, distance learning and alternative telephone access. Prior to joining the Company, from 1995 to 1996 Mr. Halle served as the Vice President of Operations and then as the Vice President of Development at Fanch Communications, a top 20 MSO, where he was initially responsible for the management of an operating region of 100,000 subscribers and subsequently responsible for the planning and deployment of all advanced services including digital television, dial-up Internet access and high speed cable modems. Prior to that, he spent nine years in the banking industry, specializing in media and telecommunications finance. TODD E. PADGETT, Vice President of Operations of FrontierVision Inc., has over six years of project management and corporate finance experience. Through early 1998, Mr. Padgett served the Company as the Vice President - Finance. From 1990 to 1995, Mr. Padgett served as Project Manager for Natural Gas Pipeline Company of America, a subsidiary of MidCon Corp., which is a division of Occidental Petroleum Corporation, where he specialized in developing, evaluating, negotiating and financing natural gas pipeline and international power projects. Mr. Padgett is a Certified Public Accountant and has an MBA from the University of Chicago. 36 ADVISORY COMMITTEE The partnership agreement of FVP provides for the establishment of an Advisory Committee to consult with and advise FVP GP, the general partner of FVP, with respect to FVP's business and overall strategy. The Advisory Committee has broad authority to review and approve or disapprove matters relating to all material aspects of FVP's business. The approval of seventy-five percent (75%) of the members of the Advisory Committee that are entitled to vote on the matter is required in order for the Company to effect any cable television system acquisition. The Advisory Committee consists of four representatives of the Attributable Class A Limited Partners of FVP and one representative of FVP GP. Subject to certain conditions, each of the four Attributable Class A Limited Partners of FVP listed in "Principal Security Holders" is entitled to designate (directly or indirectly) one of the four Attributable Class A Limited Partner representatives on the Advisory Committee. The designees of J.P. Morgan Investment Corporation, 1818 II Cable Corp. (whose designee is selected by two affiliated individuals specified in the FVP Partnership Agreement), Olympus Cable Corp. and First Union Capital Partners Inc. are John W. Watkins, Richard H. Witmer, Jr., James A. Conroy and L. Watts Hamrick, III, respectively. FVP GP's designee is Mr. Vaughn. Item 11. EXECUTIVE COMPENSATION The following table summarizes the compensation paid to FrontierVision Inc.'s Chief Executive Officer and to each of the four remaining most highly compensated officers receiving compensation in excess of $100,000 for services rendered during the fiscal years ended December 31, 1997, 1996 and 1995. SUMMARY COMPENSATION TABLE ---------------------------------------------------- Annual Compensation All Other Name and Principal Position Year Salary Bonus Compensation (1) - --------------------------- ---- --------- -------- ---------------- James C. Vaughn 1997 $305,030 $ 90,000 $ 11,465 President and Chief Executive Officer 1996 283,986 120,000 7,882 1995 169,695 110,000 John S. Koo 1997 179,745 150,000 5,241 Senior Vice President, Chief Financial Officer and Secretary 1996 170,192 111,618 4,760 1995 93,416 90,000 William J. Mahon, Jr. 1997 121,175 25,000 3,761 Vice President of Business Development 1996 13,900 53,350 -- 1995 -- -- -- William P. Brovsky 1997 89,339 49,525 2,730 Vice President of Marketing and Sales 1996 38,750 -- 842 1995 -- -- -- James W. McHose 1997 91,614 41,000 2,834 Vice President - Finance 1996 39,015 22,800 889 1995 -- -- -- ________
(1) Consists of FVP's contributions to the 401(k) Plan and to a key man life insurance plan. DEFERRED COMPENSATION PLAN FVP established the FrontierVision Partners, L.P. Executive Deferred Compensation Plan (the "Deferred Compensation Plan") effective January 1, 1996 to allow key employees the opportunity to defer the payment of compensation to a later date and to participate in any appreciation of FVP's business. The Deferred Compensation Plan is administered by FVP's Advisory Committee. Participation in the Deferred Compensation Plan is limited to 37 James C. Vaughn, John S. Koo and other key executives of FVP or its affiliates approved by the Compensation Committee of the Advisory Committee (the "Compensation Committee"). Under the Deferred Compensation Plan, eligible participants may elect to defer the payment of a portion of their compensation each year up to an amount determined by the Compensation Committee. Any amount deferred is credited to a bookkeeping account, which is credited with interest at the rate of 12% per annum. Each participant's account also has a phantom equity component through which the account will be credited with earnings in excess of 12% per annum to the extent the Net Equity Value of FVP appreciates in excess of 12% per annum during the term of the deferral. Net Equity Value of FVP is determined by multiplying each cable television system's EBITDA for the most recent fiscal quarter by the weighted average multiple of EBITDA paid by FVP to acquire each cable television system; provided that if substantially all of the assets or partnership interests of FVP are sold, Net Equity Value shall be based upon such actual sale price adjusted to reflect any prior distributions to the partners and any payments during the term of the deferral to the holders of certain subordinated notes issued to the limited partners of FVP. Accounts shall be paid following (i) the sale of all of FVP's partnership interests or upon liquidation of FVP, other than sales or liquidations which are part of a reorganization, or (ii) the death or disability of the participant prior to termination of employment with FVP. The Compensation Committee may agree to pay the account in the event the participant incurs a severe financial hardship or if the participant agrees to an earlier payment. There are 11 employees currently participating in the Deferred Compensation Plan, including Messrs. Vaughn and Koo. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION A Compensation Committee of the Advisory Committee of FVP, consisting of Messrs. Watkins and Witmer, as representative of J.P. Morgan Investment Corporation and 1818 II Cable Corp., respectively, sets the compensation of the executive officers of the Company. See "Certain Relationships and Related Transactions." EMPLOYMENT AGREEMENT In connection with the formation of the Company, James. C. Vaughn entered into an employment agreement with FVP, dated as of April 17, 1995 (the "Employment Agreement"). The Employment Agreement expired by its terms as of April 17, 1997. The Employment Agreement provided that Mr. Vaughn would be employed as President and Chief Executive Officer of FVP. The Employment Agreement established a base salary to be paid to Mr. Vaughn each year, subject to annual adjustment to reflect increases in the Consumer Price Index for All Urban Consumers, as published by the Bureau of Labor Statistics of the United States Department of Labor (or, in the event of the discontinuance thereof, another appropriate index selected by FVP, with the approval of the Advisory Committee). In addition, Mr. Vaughn was entitled to annual bonuses of up to $75,000, subject to the attainment of certain performance objectives set forth in the Employment Agreement. Mr. Vaughn agreed not to compete with FVP for the term of his employment with FVP and for an additional period of two years thereafter and to keep certain information in connection with FVP confidential. 38 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of December 31, 1997, (i) the percentage of the total partnership interests of FVP beneficially owned by the directors and executive officers of FrontierVision Inc. and each person who is known to the Company to own beneficially more than 5.0% of any class of FVP's partnership interests and (ii) the percentage of the equity securities of FrontierVision Inc., FVP GP, FVP and Holdings owned by each director or executive officer of FrontierVision Inc. named in the Summary Compensation Table and by all executive officers of FrontierVision Inc. as a group. Holdings was formed as a Delaware limited partnership in August 1997. FVP has contributed its 99.9% general partner interest in FVOP to Holdings in connection with the Formation Transaction. FVP has contributed its 100% interest in FVOP Inc. to Holdings, with the result that FVOP is wholly owned, directly or indirectly, by Holdings. Capital was incorporated in July, 1996 and is a wholly-owned subsidiary of FVOP. It has nominal assets and does not conduct any operations. For a more detailed discussion of the ownership of the Company, see "Certain Relationships and Related Transactions". Name and Address of Beneficial Owners Type of Interest % of Class - ------------------------------------- ---------------- ----------- FrontierVision Partners, L.P. ( "FVP ")(1) General Partner Interest in Holdings (2) 99.90% 1777 South Harrison Street, Suite P-200 Denver, Colorado 80210 FVP GP, L.P. (3) General Partner Interest in FVP 1.00% 1777 South Harrison Street, Suite P-200 Denver, Colorado 80210 J.P. Morgan Investment Corporation Limited Partnership Interest in FVP 22.83% 101 California Street, Suite 3800 (Attributable Class A Limited Partner) San Francisco, CA 94111 Limited Partnership Interest in FVP GP 7.18% 1818 II Cable Corp. Limited Partnership Interest in FVP 23.63% c/o Brown Brothers Harriman & Co. (Attributable Class A Limited Partner) 59 Wall Street Limited Partnership Interest in FVP GP 7.18% New York, NY 10005 Olympus Cable Corp. Limited Partnership Interest in FVP 14.77% Metro Center--One Station Place (Attributable Class A Limited Partner) Stamford, CT 06920 Limited Partnership Interest in FVP GP 7.18% First Union Capital Partners, Inc. Limited Partnership Interest in FVP 15.05% One First Union Center, 5th Floor (Attributable Class A Limited Partner) Charlotte, NC 28288 Limited Partnership Interest in FVP GP 4.31% James C. Vaughn Stockholder of FrontierVision Inc. 66.67% 1777 South Harrison Street, Suite P-200 Limited Partnership Interest in FVP GP 48.78% Denver, Colorado 80210 John S. Koo Stockholder of FrontierVision Inc. 33.33% 1777 South Harrison Street, Suite P-200 Limited Partnership Interest in FVP GP 24.39% Denver, Colorado 80210 All other executive officers and directors as a group 0.00%
- ---------------- (1) FVP's limited partners (owning 99% of the partnership interests therein) are various institutional investors and accredited investors. (2) Holdings' sole limited partner (owning 0.1% of the partnership interests therein) is FrontierVision Holdings, LLC. (3) FVP GP's sole general partner (owning 1% of the partnership interests therein) is FrontierVision Inc., which is owned by James C. Vaughn and John S. Koo. FVP GP's limited partners (owning 99% of the partnership interests therein) consist of various institutional investors, James C. Vaughn and John S. Koo. 39 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company's sole general partner (owning 99.9% of the partnership interests therein) is Holdings. Holdings' sole general partner (owning 99.9% of the partnership interests therein) is FVP. Holdings' sole limited partner (owning 0.1% of the partnership interests therein) is FrontierVision Holdings, LLC, which is a wholly owned subsidiary of FVP. FVP's sole general partner (owning 1% of the partnership interests therein) is FVP GP. FVP's limited partners (owning 99% of the partnership interests therein) consist of J.P. Morgan Investment Corporation, an affiliate of J.P. Morgan Securities Inc., First Union Capital Partners, Inc., an affiliate of First Union Capital Markets Corp., and various institutional investors and accredited investors. FVP GP's sole general partner (owning 1% of the partnership interests therein) is FrontierVision Inc., which is owned by James C. Vaughn and John S. Koo. See "Principal Security Holders." As of December 31, 1997, J.P. Morgan Investment Corporation and First Union Capital Partners, Inc. had committed approximately $44.9 million and $30.0 million, respectively, to FVP, all of which has been contributed to FVP. As of December 31, 1997, FrontierVision Inc. had committed and contributed approximately $19,935 to FVP, representing contributions of approximately $13,290 and $6,645 by James C. Vaughn and John S. Koo, respectively, who are directors of FrontierVision Inc. Such capital commitments were contributed as equity to FVOP in connection with the closing of acquisitions by FVOP, for escrow deposits for acquisitions by FVOP under contract and for FVOP working capital requirements. J.P. Morgan Investment Corporation and First Union Capital Partners, Inc. are "Special Class A" limited partners of FVP. Upon the termination of FVP and in connection with distributions to its partners in respect of their partnership interests, J.P. Morgan Investment Corporation, First Union Capital Partners, Inc. and FVP GP will be entitled to receive "carried interest" distributions or will be allocated a portion of 15% of any remaining capital to be distributed by FVP after certain other distributions are made. J.P. Morgan Securities Inc. acted as placement agent for the initial offering of limited partnership interests of FVP (other than with respect to the investment made by J.P. Morgan Investment Corporation) and the placement of debt securities of FVP and in connection with those activities received customary fees and reimbursement of expenses. J.P. Morgan Securities Inc., The Chase Manhattan Bank, an affiliate of Chase Securities Inc., and CIBC Inc., an affiliate of CIBC Wood Gundy Securities Corp., are agents and lenders under the Amended Credit Facility and have received customary fees for acting in such capacities. In addition, J.P. Morgan Securities Inc., Chase Securities Inc., CIBC Wood Gundy Securities Corp. and First Union Capital Markets Corp. (collectively, the "Underwriters") received compensation in the aggregate of approximately $6.0 million in connection with the issuance of the FVOP Notes and received aggregate compensation in the aggregate of approximately $5.3 million in connection with the issuance of the Discount Notes. There are no other arrangements between the FVOP Underwriters and their affiliates and the Company or any of its affiliates pursuant to which the Underwriters or their affiliates will receive any additional compensation from the Company or any of its affiliates. 40 PART IV Item 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K (A)(1) Financial Statements. The following financial statements are included in Item 8 of Part II: Page FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES Independent Auditors' Report F-3 Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4 Consolidated Statements of Operations for the years ended December 31, 1996 and 1997 and the period from inception (April 17, 1995) through December 31, 1995 F-5 Consolidated Statements of Partners' Capital for the years ended December 31, 1997 and 1996 and the period from inception (April 17, 1995) through December 31, 1995 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 and the period from inception (April 17, 1995) through December 31, 1995 F-7 Notes to Consolidated Financial Statements F-8 FRONTIERVISION CAPITAL CORPORATION Independent Auditors' Report F-18 Balance Sheets as of December 31, 1997 and 1996 F-19 Statement of Operations for the year ended December 31, 1996 and for the period from July 26, 1996 (inception) through December 31, 1996 F-20 Statement of Owner's Equity for the year ended December 31, 1997 and for the period from July 26, 1996 (inception) through December 31, 1996 F-21 Statement of Cash Flows for the year ended December 31, 1997 and for the period from July 26, 1996 (inception) through December 31, 1996 F-22 Note to Financial Statements F-23 UNITED VIDEO CABLEVISION, INC. (SELECTED ASSETS ACQUIRED BY FVOP) Independent Auditors' Report F-24 Divisional Balance Sheets as of November 8, 1995 and December 31, 1994 F-25 Statements of Divisional Operations for the period from January 1, 1995 through November 8, 1995 and for the years ended December 31, 1994 and 1993 F-26 Statements of Divisional Equity for the period from January 1, 1995 through November 8, 1995 and for the years ended December 31, 1994 and 1993 F-27 Statements of Divisional Cash Flows for the period from January 1, 1995 through November 8, 1995 and for the years ended December 31, 1994 and 1993 F-28 Notes to Divisional Financial Statements F-29 ASHLAND AND DEFIANCE CLUSTERS (SELECTED ASSETS ACQUIRED FROM COX COMMUNICATIONS, INC. BY FVOP) Independent Auditors' Report F-32 Combined Statements of Net Assets as of December 31, 1995 and 1994 F-33 Combined Statements of Operations for the eleven-month period ended December 31, 1995, for the one-month period ended January 31, 1995 and for the years ended December 31, 1994 and 1993 F-34 Statements of Changes in Net Assets for the eleven-month period ended December 31, 1995, for the one-month period ended January 31, 1995 and for the years ended December 31, 1994 and 1993 F-35 Combined Statements of Cash Flows for the eleven-month period ended December 31, 1995, for the one-month period ended January 31, 1995 and for the years ended
41 December 31, 1994 and 1993 F-36 Notes to Combined Financial Statements F-37 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP Independent Auditors' Report F-45 Consolidated Balance Sheets as of December 31, 1995 and 1994 F-46 Consolidated Statements of Loss for the years ended December 31, 1995 and 1994 F-47 Consolidated Statements of Partners' Deficit for the years ended December 31, 1995 and 1994 F-48 Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994 F-49 Notes to Consolidated Financial Statements F-50 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. Independent Auditors' Report F-55 Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-56 Statements of Operations for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-57 Statements of Shareholders' Deficiency for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-58 Statements of Cash Flows for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-59 Notes to Financial Statements F-60 TRIAX SOUTHEAST ASSOCIATES, L.P. Report of Independent Public Accountants F-68 Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-69 Statements of Operations for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-70 Statements of Partners' Capital for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-71 Statements of Cash Flows for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-72 Notes to Financial Statements F-73 CENTRAL OHIO CLUSTER (SELECTED ASSETS ACQUIRED FROM COX COMMUNICATIONS, INC. BY FVOP) Independent Auditor's Report F-80 Combined Statements of Net Assets as of September 30, 1997 (unaudited) and December 31, 1996 F-81 Combined Statements of Income for the nine-month periods ended September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and for the year ended December 31, 1996 F-82 Combined Statements of Changes in Net Assets for the nine-month period ended September 30, 1997 (unaudited) and for the year ended December 31, 1996 F-83 Combined Statements of Cash Flows for the nine-month periods ended September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and for the year ended December 31, 1996 F-84 Notes to Combined Financial Statements F-85 (2) Financial Statement Schedules. The following Financial Statement Schedules are submitted herewith: Independent Auditors' Report S-2 Schedule II: Valuation and Qualifying Accounts S-3
42 (3) List of Exhibits. 3.1 Amended and Restated Agreement of Limited Partnership of FVOP. (4) 3.2 Certificate of Limited Partnership of FVOP. (1) 3.9 Certificate of Incorporation of FrontierVision Capital Corporation. (1) 3.10 Bylaws of FrontierVision Capital Corporation. (1) 4.1 Indenture dated as of October 7, 1996, among FrontierVision Operating Partners, L.P., FrontierVision Capital Corporation and Colorado National Bank, as Trustee. (3) 10.1 Senior Credit Facility. (1) 10.2 Employment Agreement of James C. Vaughn. (1) 10.3 Asset Purchase Agreement dated July 20, 1995 between United Video Cablevision, Inc. and FrontierVision Operating Partners, L.P. (1) 10.4 Asset Acquisition Agreement (July 27, 1995 Auction Sale) dated as of July 27, 1995 among Stephen S. Gray in his capacity as Receiver of Longfellow Cable Company, Inc., Carrabassett Electronics and Carrabassett Cable Company, Inc. and FrontierVision Operating Partners, L.P. (1) 10.5 Asset Purchase Agreement dated October 27, 1995 among C4 Media Cable Southeast, Limited Partnership, County Cable Company, L.P. and FrontierVision Operating Partners, L.P. (1) 10.6 Asset Purchase Agreement dated November 17, 1995 among Cox Communications Ohio, Inc., Times Mirror Cable Television of Defiance, Inc., Chillicothe Cablevision, Inc. Cox Communications Eastern Kentucky, Inc. and FrontierVision Operating Partners, L.P. (1) 10.7 Asset Purchase Agreement dated February 27, 1996 between Americable International Maine, Inc. and FrontierVision Operating Partners, L.P. (1) 10.8 Asset Purchase Agreement dated May 16, 1996 among Triax Southeast Associates, L.P., Triax Southeast General Partner, L.P. and FrontierVision Operating Partners, L.P. (1) 10.9 Asset Purchase and Sale Agreement dated June 21, 1996 between HPI Acquisition Co. LLC (assignee of Helicon Partners I, LP) and FrontierVision Operating Partners, L.P. (1) 10.10 Asset Purchase Agreement dated July 15, 1996 between American Cable Entertainment of Kentucky-Indiana, Inc. and FrontierVision Operating Partners, L.P. (1) 10.11 Asset Purchase Agreement dated as of July 30, 1996 between Shenandoah Cable Television Company and FrontierVision Operating Partners, L.P. (1) 10.12 Purchase Agreement dated as of August 6, 1996 between Penn/Ohio Cablevision, L.P. and FrontierVision Operating Partners, L.P. (1) 10.13 Asset Purchase Agreement dated July 19, 1996 between Phoenix Grassroots Cable Systems, L.L.C. and FrontierVision Operating Partners, L.P. (1) 10.14 Amendment No. 1 to Senior Credit Facility. (1) 10.15 Consent and Amendment No. 2 to Senior Credit Facility. (3) 10.16 Asset Purchase Agreement dated May 8, 1997 between A-R Cable Services--ME, Inc. and FrontierVision Operating Partners, L.P. (4) 10.17 Asset Purchase Agreement dated May 12, 1997 between TCI Cablevision of Vermont, Inc., Westmarc Development Joint Venture and FrontierVision Operating Partners, L.P. (4) 10.18 Amended Credit Facility. 10.19 Asset Purchase Agreement dated as of October 15, 1997 between Coxcom, Inc. and FrontierVision Operating Partners, L.P. (4) 12.1 Statement of Computation of Ratios. 16.1 Report of change in accountants. (2) 27.1 Financial Data Schedule as of and for the period ended December 31, 1997. Footnote References (1) Incorporated by reference to the exhibits to the Registrant's Registration Statement on Form S-1, Registration No. 333-9535. (2) Incorporated by reference to the exhibits to the Registrant's Current Report on Form 8-K, File No. 333-9535 dated October 22, 1996. 43 (3) Incorporated by reference to the exhibits to the Registrant's Quarterly Report on Form 10-Q, File No. 333-9535 for the quarter ended September 30, 1996. (4) Incorporated by reference to the exhibits to Holdings and Holdings Capital's Registration Statement on Form S-4, Registration No. 333-36519. (B) Reports on Form 8-K. 1. Item 2, Item 5 and Item 7, Form 8-K dated December 12, 1997. Required financial information and pro forma financial information to be provided in amended filing within 60 days of date of initial filing. 2. Item 7, Form 8-K/A dated December 19, 1997 to provide the required financial information and pro forma financial information. (C) Exhibits. The exhibits required by this Item are listed under Item 14 (A)(3). (D) Financial Statement Schedules. The financial statement schedules required by this Item are listed under Item 14(A)(2). 44 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE EXCHANGE ACT BY REGISTRANT'S WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE EXCHANGE ACT Other than a copy of this Form 10-K, no annual report or proxy material has been or will be sent to security holders of FrontierVision Operating Partners, L.P. or FrontierVision Capital Corporation. 45 GLOSSARY The following is a description of certain terms used in this Form 10-K. ACQUISITION CASH FLOW--Forecasted net income of an acquired system, for a period believed to be appropriate based on the facts and circumstances of a specific acquisition, calculated as of the date of acquisition of such system, before interest, taxes, depreciation, amortization and corporate administrative expenses. The Company believes that Acquisition Cash Flow is a measure commonly used in the cable television industry to analyze and compare the purchase price of cable television systems. However, Acquisition Cash Flow is not intended to be an indicator of actual operating performance and is not determined in accordance with generally accepted accounting principles. A LA CARTE--The purchase of programming services on a per-channel or per-program basis. ADDRESSABILITY--"Addressable" technology permits the cable operator to activate remotely the cable television services to be delivered to subscribers who are equipped with addressable converters. With addressable technology, a cable operator can add to or reduce services provided to a subscriber from the headend site without dispatching a service technician to the subscriber's home. BASIC PENETRATION--Basic subscribers as a percentage of the total number of homes passed in the system. BASIC SERVICE--A package of over-the-air broadcast stations, local access channels and certain satellite-delivered cable television services (other than premium services). BASIC SUBSCRIBER--A subscriber to a cable or other television distribution system who receives the basic level of cable television service and who is usually charged a flat monthly rate for a number of channels. A home with one or more television sets connected to a cable system is counted as one basic subscriber. CABLE PLANT--A network of coaxial and/or fiber optic cables that transmit multiple channels carrying video-programming, sound and data between a central facility and an individual customer's television set. Networks may allow one-way (from a headend to a residence and/or business) or two-way (from a headend to a residence and/or business with a data return path to the headend) transmission. CHANNEL CAPACITY--The number of video programming channels that can be carried over a communications system. CLUSTERING--A general term used to describe the strategy of operating cable television systems in a specific geographic region, thus allowing for the achievement of economies of scale and operating efficiencies in such areas as system management, marketing and technical functions. COAXIAL PLANT--Cable consisting of a central conductor surrounded by and insulated from another conductor. It is the standard material used in traditional cable systems. Signals are transmitted through it at different frequencies, giving greater channel capacity than is possible with twisted pair copper wire, but less than is possible with optical fiber. COMPETITIVE ACCESS PROVIDER (CAP)--A company that provides its customers with an alternative to the local telephone company for local transport of private line, special access services and switched access services. CAPs are also referred to in the industry as alternative access vendors, alternative local telecommunications service providers (ALTS) and metropolitan area network providers (MANs). 46 COST-OF-SERVICE--A general term used to refer to the regulation of prices charged to a customer. Existing prices are set and price increases are regulated by allowing a company to earn a reasonable rate of return, as determined by the regulatory authority. DENSITY--A general term used to describe the number of homes passed per mile of cable plant. DIGITAL COMPRESSION--The conversion of the standard analog video signal into digital signal, and the compression of that signal so as to facilitate multiple channel transmission through a single channel's bandwidth. DIGITAL PROGRAMMING SYSTEM--A programming distribution system under which multiple channels of programming are digitally transmitted via satellite to a cable television system's headend and then retransmitted, using the cable system's existing distribution platform, to subscribers equipped with special digital converters. One such example is the Headend-in-the-Sky digital programming system ("HITS"). The use of the HITS system enables a cable operator to transmit from 6 to 14 digital channels using the same bandwidth as used by a single analog channel and, thus, has the potential to dramatically expand a system's channel capacity. DIRECT BROADCAST SATELLITE (DBS)--A service by which packages of satellite-delivered television programming are transmitted directly into individual homes, each serviced by a single satellite dish. EXPANDED BASIC SERVICE--A package of satellite-delivered cable programming services available only for additional subscription over and above the basic level of television service. FCC--Federal Communications Commission. FIBER OPTICS--Technology that involves sending laser light pulses across glass strands to transmit digital information; fiber is virtually immune to electrical interference and most environmental factors that affect copper wiring and satellite transmissions. Use of fiber optic technology reduces noise on the cable system, improves signal quality and increases system channel capacity and reliability. FIBER OPTIC BACKBONE CABLE--The principal fiber optic trunk lines for a cable system which is using a hybrid fiber-coaxial architecture to deliver signals to customers. FIBER OPTIC TRUNK LINES--Cables made of glass fibers through which signals are transmitted as pulses of light to the distribution portion of the cable television system which in turn goes to the customer's home. Capacity for a very large number of channels can be more easily provided. FIBER-TO-THE-FEEDER--Network topology/architecture using a combination of fiber optic cable and coaxial cable transmission lines to deliver signals to customers. Initially signals are transmitted from the headend on fiber optic trunk lines into neighborhood nodes (an individual point of origination and termination or intersection on the network, usually where electronics are housed) and then from the nodes to the end user on a combination of coaxial cable distribution/feeder and drop lines. The coaxial feeder and drop lines typically represent the operator's "last mile" of plant to the end user. HEADEND--A collection of hardware, typically including satellite receivers, modulators, amplifiers and video cassette playback machines, within which signals are processed and then combined for distribution within the cable network. HOMES PASSED--Homes that can be connected to a cable distribution system without further extension of the distribution network. HFC--Hybrid fiber optic/coaxial cable design, used in a cable television system's distribution plant. 47 Internet--The large, worldwide network of thousands of smaller, interconnected computer networks. Originally developed for use by the military and for academic research purposes, the Internet is now accessible by millions of consumers through online services. LAN--Local Area Network--A communications network that serves users within a confined geographical area, consisting of servers, workstations, a network operating system and a communications link. Microwave Links--The transmission of voice, video or data using microwave radio frequencies, generally above 1 GHz, from one location to another. MMDS--Multichannel Multipoint Distribution Service. A one-way radio transmission of programming over microwave frequencies from a fixed station transmitting to multiple receiving facilities located at fixed points. MSO--A term used to describe cable television companies that are "multiple system operators." New Product Tiers--A general term used to describe unregulated cable television services. Over-The-Air Broadcast Stations--A general term used to describe signals transmitted by local television broadcast stations, including network affiliates or independent television stations, that can be received directly through the air by the use of a standard rooftop receiving antenna. Pay-Per-View--Payment made for individual movies, programs or events as opposed to a monthly subscription for a whole channel or group of channels. PCS--Personal Communications Services, or PCS, is the name given to a new generation of cellular-like telecommunications services which are expected to provide customers new choices in wireless mobile telecommunications using digital technology for voice and data service compared to traditional analog technology. Premium Penetration--Premium service units as a percentage of the total number of basic service subscribers. A customer may purchase more than one premium service, each of which is counted as a separate premium service unit. This ratio may be greater than 100% if the average customer subscribes to more than one premium service unit. Premium Service--An individual cable programming service available only for additional subscription over and above the basic or expanded basic levels of cable television service. Premium Units--The number of subscriptions to premium services which are paid for on an individual basis. Rebuild--The replacement or upgrade of an existing cable system, usually undertaken to improve either its technological performance or to expand the system's channel or bandwidth capacity in order to provide more services. SMATV--Satellite Master Antenna Television System. A video programming delivery system to multiple dwelling units utilizing satellite transmissions. Telephony--The provision of telephone service. Tiers--Varying levels of cable services consisting of differing combinations of several over-the-air broadcast and satellite-delivered cable television programming services. 48 INDEX TO FINANCIAL STATEMENTS Page FrontierVision Operating Partners, L.P. and Subsidiaries Independent Auditors' Report F-3 Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4 Consolidated Statements of Operations for the years ended December 31, 1997 and 1996 and for the period from inception (April 17, 1995) through December 31, 1995 F-5 Consolidated Statements of Partners' Capital for the years ended December 31, 1997 and 1996 and for the period from inception (April 17, 1995) through December 31, 1995 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 and for the period from inception (April 17, 1995) through December 31, 1995 F-7 Notes to Consolidated Financial Statements F-8 FrontierVision Capital Corporation Independent Auditors' Report F-18 Balance Sheets as of December 31, 1997 and 1996 F-19 Statement of Operations for the year ended December 31, 1997 and for the period from July 26, 1996 (inception) through December 31, 1996 F-20 Statement of Owner's Equity for the year ended December 31, 1997 and for the period from July 26, 1996 (inception) through December 31, 1996 F-21 Statement of Cash Flows for the year ended December 31, 1997 and for the period from July 26, 1996 (inception) through December 31, 1996 F-22 Note to the Financial Statements F-23 United Video Cablevision, Inc. (Selected Assets Acquired by FVOP) Independent Auditors' Report F-24 Divisional Balance Sheets as of November 8, 1995 and December 31, 1994 F-25 Statements of Divisional Operations for the period from January 1, 1995 through November 8, 1995 and for the years ended December 31, 1994 and 1993 F-26 Statements of Divisional Equity for the period from January 1, 1995 through November 8, 1995 and for the years ended December 31, 1994 and 1993 F-27 Statements of Divisional Cash Flows for the period from January 1, 1995 through November 8, 1995 and for the years ended December 31, 1994 and 1993 F-28 Notes to Divisional Financial Statements F-29 Ashland and Defiance Clusters (Selected Assets Acquired From Cox Communications, Inc. by FVOP) Independent Auditors' Report F-32 Combined Statements of Net Assets as of December 31, 1995 and 1994 F-33 Combined Statements of Operations for the eleven-month period ended December 31, 1995, for the one-month period ended January 31, 1995 and for the years ended December 31, 1994 and 1993 F-34 Statements of Changes in Net Assets for the eleven-month period ended December 31, 1995, for the one-month period ended January 31, 1995 and for the years ended December 31, 1994 and 1993 F-35 Combined Statements of Cash Flows for the eleven-month period ended December 31, 1995, for the one-month period ended January 31, 1995 and for the years ended December 31, 1994 and 1993 F-36 Notes to Combined Financial Statements F-37
F-1 Page C4 Media Cable Southeast, Limited Partnership Independent Auditors' Report F-45 Consolidated Balance Sheets as of December 31, 1995 and 1994 F-46 Consolidated Statements of Loss for the years ended December 31, 1995 and 1994 F-47 Consolidated Statements of Partners' Deficit for the years ended December 31, 1995 and 1994 F-48 Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994 F-49 Notes to Consolidated Financial Statements F-50 American Cable Entertainment of Kentucky-Indiana, Inc. Independent Auditors' Report F-55 Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-56 Statements of Operations for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-57 Statements of Shareholders' Deficiency for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-58 Statements of Cash Flows for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-59 Notes to Financial Statements F-60 Triax Southeast Associates, L.P. Report of Independent Public Accountants F-68 Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-69 Statements of Operations for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-70 Statements of Partners' Capital for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-71 Statements of Cash Flows for the nine-month period ended September 30, 1996 (unaudited) and for the years ended December 31, 1995, 1994 and 1993 F-72 Notes to Financial Statements F-73 Central Ohio Cluster (Selected Assets Acquired From Cox Communications, Inc. by FVOP) Independent Auditor's Report F-80 Combined Statements of Net Assets as of September 30, 1997 (unaudited) and December 31, 1996 F-81 Combined Statements of Income for the nine-month periods ended September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and for the year ended December 31, 1996 F-82 Combined Statements of Changes in Net Assets for the nine-month period ended September 30, 1997 (unaudited) and for the year ended December 31, 1996 F-83 Combined Statements of Cash Flows for the nine-month periods ended September 30, 1997 (unaudited) and September 30, 1996 (unaudited) and for the year ended December 31, 1996 F-84 Notes to Combined Financial Statements F-85
F-2 INDEPENDENT AUDITORS' REPORT To the Partners of FrontierVision Operating Partners, L.P.: We have audited the accompanying consolidated balance sheets of FrontierVision Operating Partners, L.P. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, partners'capital and cash flows for the years ended December 31, 1997 and 1996 and the period from inception (April 17, 1995 -- see Note 1) through December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FrontierVision Operating Partners, L. P. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997 and 1996 and the period from inception (April 17, 1995 - see Note 1) through December 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado March 16, 1998 F-3 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS In Thousands ------------------------------ December 31, December 31, 1997 1996 --------- --------- ASSETS Cash and cash equivalents $ 3,413 $ 3,639 Accounts receivable, net of allowance for doubtful accounts of $640 and $767 8,071 4,544 Other receivables -- 846 Prepaid expenses and other 2,642 2,231 Investment in cable television systems, net: Property and equipment 247,724 199,461 Franchise cost and other intangible assets 637,725 324,905 -------- -------- Total investment in cable television systems, net 885,449 524,366 -------- -------- Deferred financing costs, net 17,990 13,042 Earnest money deposits 2,143 500 -------- -------- Total assets $919,708 $549,168 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 2,647 $ 1,994 Accrued liabilities 15,126 10,825 Subscriber prepayments and deposits 1,828 1,862 Accrued interest payable 5,064 6,290 Debt 632,000 398,194 -------- -------- Total liabilities 656,665 419,165 -------- -------- Partners' capital: FrontierVision Holdings, L.P. 262,780 129,874 FrontierVision Operating Partners, Inc. 263 129 -------- -------- Total partners' capital 263,043 130,003 Commitments -------- -------- Total liabilities and partners' capital $919,708 $549,168 ======== ========
See accompanying notes to consolidated financial statements. F-4 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS In Thousands -------------------------------------------------------- For the Period From Inception For the Year Ended For the Year Ended (April 17, 1995 -- December 31, December 31, see Note 1) through 1997 1996 December 31, 1995 --------- --------- --------- Revenue $ 145,126 $ 76,464 $ 4,369 Expenses: Operating expenses 74,314 39,181 2,311 Corporate administrative expenses 4,418 2,930 127 Depreciation and amortization 64,398 35,336 2,308 Pre-acquisition expenses -- -- 940 --------- --------- --------- Total expenses 143,130 77,447 5,686 --------- --------- --------- Operating income/(loss) 1,996 (983) (1,317) Interest expense, net (42,652) (22,422) (1,386) Other expense (1,161) (396) -- --------- --------- --------- Loss before extraordinary item (41,817) (23,801) (2,703) Extraordinary item - Loss on early retirement of debt (5,046) -- -- --------- --------- --------- Net loss $ (46,863) $ (23,801) $ (2,703) ========= ========= ========= Net loss allocated to: FrontierVision Holdings, L.P. (General Partner) $ (46,816) $ (23,776) $ (2,700) FrontierVision Operating Partners, Inc. (Limited Partner) (47) (25) (3) --------- --------- --------- $ (46,863) $ (23,801) $ (2,703) ========= ========= =========
See accompanying notes to consolidated financial statements. F-5 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL In Thousands --------------------------------------------------------- FrontierVision FrontierVision Operating Holdings, L.P. Partners, Inc. (General Partner) (Limited Partner) Total --------- --------- --------- Balance, at inception (April 17, 1995) $ -- $ -- $ -- Capital contributions 49,061 49 49,110 Net loss (2,700) (3) (2,703) --------- --------- --------- Balance, December 31, 1995 46,361 46 46,407 Capital contributions 107,289 108 107,397 Net loss (23,776) (25) (23,801) --------- --------- --------- Balance, December 31, 1996 129,874 129 130,003 Capital contributions 179,722 181 179,903 Net loss (46,816) (47) (46,863) --------- --------- --------- Balance, December 31, 1997 $ 262,780 $ 263 $ 263,043 ========= ========= =========
See accompanying notes to consolidated financial statements. F-6 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS In Thousands ---------------------------------------------------------- For the Period From Inception For the Year For the Year (April 17, 1995 -- Ended Ended see Note 1) through December 31, December 31, December 31, 1997 1996 1995 ------- ------- ------- Cash Flows From Operating Activities: Net loss $ (46,863) $ (23,801) $ (2,703) Adjustments to reconcile net loss to net cash flows from operating activities: Extraordinary item - Loss on early retirement of debt 5,046 -- -- Depreciation and amortization 64,398 35,336 2,308 Net loss on disposal of assets 1,104 388 -- Amortization of deferred debt issuance costs 1,492 999 69 Interest expense deferred and included in long-term debt 721 924 -- Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable (582) (1,946) (261) Receivable from seller 846 1,377 -- Prepaid expenses and other (106) (1,266) 75 Accounts payable and accrued liabilities 3,029 3,423 1,637 Subscriber prepayments and deposits (1,523) (2,393) 362 Accrued interest payable (1,226) 5,870 420 ------- ------- ------- Total adjustments 73,199 42,712 4,610 ------- ------- ------- Net cash flows from operating activities 26,336 18,911 1,907 ------- ------- ------- Cash Flows From Investing Activities: Capital expenditures (32,738) (9,304) (573) Pending acquisition costs (146) -- -- Cash paid for franchise costs (406) (2,009) -- Earnest money deposits (2,143) (500) (9,502) Proceeds from disposition of cable television systems -- 15,065 -- Cash paid in acquisitions of cable television systems (392,631) (421,467) (121,270) ------- ------- ------- Net cash flows from investing activities (428,064) (418,215) (131,345) ------- ------- ------- Cash Flows From Financing Activities: Debt borrowings 523,000 137,700 85,900 Payments on debt borrowings (289,845) (33,600) -- Proceeds of issuance of Senior Subordinated Notes -- 200,000 -- Principal payments on capital lease obligations (70) (16) -- Increase in deferred financing fees (11,357) (3,771) (2,922) Offering costs related to Senior Subordinated Notes (129) (7,417 -- Partner capital contributions 179,903 107,397 49,110 ------- ------- ------- Net cash flows from financing activities 401,502 400,293 132,088 ------- ------- ------- Net Increase in Cash and Cash Equivalents (226) 989 2,650 Cash and Cash Equivalents, at beginning of period 3,639 2,650 -- ------- ------- ------- Cash and Cash Equivalents, end of period $ 3,413 $ 3,639 $ 2,650 ======= ======= ======= Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 42,226 $ 15,195 $ 957 ======= ======= =======
See accompanying notes to consolidated financial statements. F-7 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (1) THE COMPANY Organization and Capitalization FrontierVision Operating Partners, L.P. (the "Company" or "FVOP") is a Delaware limited partnership formed on July 14, 1995 for the purpose of acquiring and operating cable television systems. As of December 31, 1997, the Company owned and operated cable television systems in three primary operating clusters - New England, Ohio and Kentucky - with a fourth, smaller group of cable television systems in the Southeast. The Company was initially capitalized in November 1995 with approximately $38 from its sole limited partner, FrontierVision Operating Partners, Inc. ("FVOP Inc."), a Delaware corporation, and approximately $38,300 from its, at the time, sole general partner, FrontierVision Partners, L.P. ("FVP"), a Delaware limited partnership. On September 19, 1997, FrontierVision Holdings, L.P. ("Holdings"), a Delaware limited partnership, and FrontierVision Holdings Capital Corporation ("Holdings Capital") co-issued $237,650 aggregate principal amount at maturity of 11 7/8% Senior Discount Notes due 2007 (the "Discount Notes"). Holdings, a newly-organized holding company, was formed to be the co-issuer of the Discount Notes and to be the new general partner of FVOP. FVP contributed to Holdings, both directly and indirectly, all of the outstanding partnership interests in FVOP immediately prior to the issuance of the Discount Notes (the "Formation Transaction"), and therefore, FVOP and FrontierVision Capital Corporation ("Capital") became wholly owned-consolidated subsidiaries of Holdings. In addition, FVOP Inc., previously a wholly-owned subsidiary of FVP, is now a wholly-owned subsidiary of Holdings. During the year ended December 31, 1997, the Company received additional capital contributions of approximately $179,903 from its partners. This amount includes net proceeds of $142,250 received from the issuance of the Discount Notes, which were contributed by Holdings to FVOP as a capital contribution. The capital contribution from Holdings was used by FVOP to repay certain bank indebtedness of $65,500 with the remainder placed in escrow to finance pending acquisitions. All of the escrow proceeds had been utilized as of December 31, 1997. Prior to the Formation Transaction, FVP allocated certain administrative expenses to FVOP, which are included as capital contributions from its partners. Such expense allocations were approximately $231 and $735 for the years ended December 31, 1997 and 1996, respectively. Capital, a Delaware corporation, is a wholly-owned subsidiary of the Company, and was organized on July 26, 1996 for the sole purpose of acting as co-issuer with the Company of $200 million aggregate principal amount of 11% Senior Subordinated Notes due 2006 (the "Notes"). Capital has nominal assets and does not have any material operations. Allocation of Profits, Losses and Distributions Generally, the Company's Partnership agreement provides that profits, losses and distributions will be allocated to the general partner and the limited partner pro rata based on capital contributions. F-8 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (1) THE COMPANY (continued) Pre-Acquisition Expenses The Company had no substantive operations of its own until the date of the acquisitions described in Note 4. However, FVP, which was formed on April 17, 1995, incurred certain general and administrative costs deemed attributable to FVOP prior to the Company's legal formation. Such expenditures have been reflected in the accompanying financial statements as pre-acquisition expenses as if the Company had incurred those costs directly. In addition, the accompanying balance sheet as of December 31, 1996 reflects earnest money deposits paid by FVP on behalf of the Company related to planned acquisitions. All such amounts have been reflected as capital contributions in the accompanying financial statements. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The accompanying consolidated financial statement include the accounts of FVOP and those of its wholly- owned subsidiaries, Capital, FrontierVision New England Cable, Inc. ("New England") and FrontierVision Access Partners, LLC ("Access"). As of December 31, 1997, New England and Access had no operations. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents For purposes of the financial statements, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Property and Equipment Property and equipment are stated at cost and include the following: distribution facilities, support equipment and leasehold improvements. Replacements, renewals and improvements are capitalized and costs for repairs and maintenance are charged to expense when incurred. The Company capitalized direct labor and overhead related to installation activities of approximately $3,844 and $1,577 for the periods ended December 31, 1997 and 1996. Depreciation is computed on a straight-line basis using an average estimated useful life of 8 years. At the time of ordinary retirements, sales or other dispositions of property, a gain or loss is recognized. Franchise Costs, Covenants not to Compete, Subscriber Lists and Goodwill Franchise costs, covenants not to compete, subscriber lists and goodwill result from the application of the purchase method of accounting to business combinations. Such amounts are amortized on a straight-line basis over the following periods: 15 years for franchise costs (which reflects the Company's ability to renew existing franchise agreements), 5 years for covenants not to compete, 7 years for subscriber lists and 15 years for goodwill. F-9 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The Company periodically reviews the carrying amount of its property, plant and equipment and its intangible assets to determine whether current events or circumstances warrant adjustments to such carrying amounts. If an impairment adjustment is deemed necessary, such loss is measured by the amount that the carrying value of such assets exceeds their fair value. Considerable management judgment is necessary to estimate the fair value of assets, accordingly, actual results could vary significantly from such estimates. Deferred Financing Costs Deferred financing costs are being amortized using the straight line method over the life of the loans. Accumulated amortization at December 31, 1997 and 1996 is $912 and $1,068, respectively. Revenue Recognition Revenue is recognized in the period in which the related services are provided to the subscribers. Derivative Financial Instruments The Company manages risk arising from fluctuations in interest rates by using interest rate swap agreements, as required by its credit agreements. These agreements are treated as off-balance sheet financial instruments. The interest rate swap agreements are being accounted for as a hedge of the debt obligation, and accordingly, the net settlement amount is recorded as an adjustment to interest expense in the period incurred. Income Taxes No provision has been made for federal, state or local income taxes related to the Company because they are the responsibility of the individual partners. The principal difference between results reported for financial reporting purposes and for income tax purposes results from differences in depreciable lives and amortization methods utilized for tangible and intangible assets. Reclassification Certain amounts have been reclassified for comparability. F-10 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (3) INVESTMENT IN CABLE TELEVISION SYSTEMS The Company's investment in cable television systems is comprised of the following: ------------------------------------ December 31, December 31, 1997 1996 --------- --------- Property and equipment $ 297,229 $ 217,148 Less--accumulated depreciation (49,505) (17,687) --------- --------- Property and equipment, net 247,724 199,461 --------- --------- Franchise costs 523,096 258,453 Covenants not to compete 14,983 14,934 Subscriber lists 106,270 41,777 Goodwill 44,702 28,845 --------- --------- 689,051 344,009 Less--accumulated amortization (51,326) (19,104) --------- --------- Franchise costs and other intangible assets, net 637,725 324,905 --------- --------- Total investment in cable television systems, net $ 885,449 $ 524,366 ========= =========
(4) ACQUISITIONS AND DISPOSITIONS Acquisitions The Company has completed several acquisitions since its inception through December 31, 1997. All of the acquisitions have been accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based upon the estimated fair values at the respective dates of acquisition. Such allocations are subject to adjustments as final appraisal information is received by the Company. Amounts allocated to property, plant and equipment and to intangible assets will be respectively depreciated and amortized, prospectively from the date of acquisition based upon the Company's useful lives and amortization periods. The following table lists the acquisitions and the purchase price for each. - ------------------------------------------------------------------------------------------------------------------------------------ Predecessor Owner Primary Location of Systems Date Acquired Acquisition Cost(a) - ------------------------------------------------------------------------------------------------------------------------------------ United Video Cablevision, Inc. Maine and Ohio November 9, 1995 $121,800 Longfellow Cable Company, Inc. Maine November 21, 1995 $6,100 C4 Media Cable Southeast, Limited Partnership ("C4") Virginia and Tennessee February 1, 1996 $47,600 Americable International Maine, Inc. Maine March 29, 1996 $4,800 Cox Communications, Inc. ("Cox") Ohio April 9, 1996 $135,900 Phoenix Grassroots Cable Systems, LLC Maine and New Hampshire August 29, 1996 $9,700 Triax Southeast Associates, L.P. ("Triax") Kentucky and Ohio October 7, 1996 $85,800 American Cable Entertainment of Kentucky-Indiana, Inc. ("ACE") Kentucky and Indiana October 9, 1996 $147,300 SRW, Inc.'s Penn/Ohio Cablevision, L.P. Pennsylvania and Ohio October 31, 1996 $3,800 SRW, Inc.'s Deep Creek Cable TV, L.P. Maryland December 23, 1996 $3,000 Bluegrass Cable Partners, L.P. Kentucky March 20, 1997 $10,400 Clear Cable T.V., Inc. and B&G Cable T.V. Systems, Inc. Kentucky March 31, 1997 $1,800 Milestone Communications of New York, L.P. Ohio March 31, 1997 $3,000 Triax Associates I, L.P. ("Triax I") Ohio May 30, 1997 $34,800 Phoenix Front Row Cablevision Ohio May 30, 1997 $6,900 PCI Incorporated Michigan August 29, 1997 $13,600 SRW, Inc.'s Blue Ridge Cable Systems, L.P. Tennessee and North Carolina September 3, 1997 $4,100 A-R Cable Services - ME, Inc. ("Cablevision") Maine October 31, 1997 $78,600 Harold's Home Furnishings, Inc. Pennsylvania and Maryland October 31, 1997 $1,600 TCI Cablevision of Vermont, Inc. and Westmarc Development Joint Venture ("TCI-VT/NH") Vermont and New Hampshire December 2, 1997 $34,700 Cox Communications, Inc. ("Cox-Central Ohio") Ohio December 19, 1997 $203,700* - ---------------
F-11 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (4) ACQUISITIONS AND DISPOSITIONS (continued) (a) Acquisition cost represents the purchase price allocation between tangible and intangible assets including certain purchase accounting adjustments as of December 31, 1997. * Subject to adjustment. The combined purchase price of certain of these acquisitions has been allocated to the acquired assets and liabilities as follows: ----------------------------------------------------- 1997 1996 1995 Acquisitions(a) Acquisitions(a) Acquisitions --------- --------- --------- Property, plant and equipment $ 48,805 $ 169,240 $ 43,333 Franchise costs and other intangible assets 344,490 268,836 84,595 --------- --------- --------- Subtotal 393,295 438,076 127,928 --------- --------- --------- Net working capital (deficit) (164) (7,107) 542 Less - Earnest money deposits applied (500) (9,502) - Less - Subordinated promissory note to seller - - (7,200) --------- --------- --------- Total cash paid for acquisitions $ 392,631 $ 421,467 $ 121,270 ========= ========= =========
(a) The combined purchase price includes certain purchase price adjustments for acquisitions consummated prior to the respective periods. The Company has reported the operating results of its acquired cable systems from the dates of their respective acquisition. Unaudited pro forma summarized operating results of the Company, assuming the C4, Cox, Triax, ACE, Triax I, Cablevision, TCI-VT/NH and Cox-Central Ohio acquisitions (the "Acquisitions") had been consummated on January 1, 1996, are as follows: --------------------------------------- Year Ended December 31, 1997 --------------------------------------- Historical Pro Forma Results Acquisitions Results --------- --------- --------- Revenue $ 145,126 $ 60,011 $ 205,137 Operating, selling, general and administrative expenses (78,732) (30,486) (109,218) Depreciation and amortization (64,398) (23,960) (88,358) --------- --------- --------- Operating income 1,996 5,565 7,561 Interest and other expenses (48,859) (19,174) (68,033) --------- --------- --------- Net loss $ (46,863) $ (13,609) $ (60,472) ========= ========= ========= --------------------------------------- Year Ended December 31, 1996 --------------------------------------- Historical Pro Forma Results Acquisitions Results --------- --------- --------- Revenue $ 76,464 $ 110,309 $ 186,773 Operating, selling, general and administrative expenses (42,111) (60,990) (103,101) Depreciation and amortization (35,336) (51,660) (86,996) --------- --------- --------- Operating loss (2,341) (3,324) (983) Interest and other expenses (22,818) (38,330) (61,148) --------- --------- --------- Net loss $ (23,801) $ (40,671) $ (64,472) ========= ========= =========
The pro forma financial information presented above has been prepared for comparative purposes only and does not purport to be indicative of the operating results which actually would have resulted had the Acquisitions been consummated on the dates indicated. Furthermore, the above pro forma financial information does not include the effect of certain acquisitions and dispositions of cable systems because these transactions were not material on an individual or aggregate basis. F-12 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (4) ACQUISITIONS AND DISPOSITIONS (continued) As of December 31, 1997, the Company had advanced $30 and $113 to Bluegrass and Front Row, respectively, in the form of letters of credit in connection with the transfer of certain franchises in favor of the Company. On December 12, 1997, the Company entered into an agreement with the shareholders of New England Cable Television of Massachusetts, Inc. ("NECMA") to acquire all of the outstanding stock of NECMA for a price of approximately $43,600. NECMA is a Massachusetts S-Corporation which owns cable television assets in Massachusetts. As of December 31, 1997, the Company had advanced $2,000 as an earnest money deposit related to this transaction. On December 19, 1997, the Company entered into an asset purchase agreement with TCI Cablevision of Ohio, Inc. to acquire certain cable television assets in Ohio for a cash purchase price of $10,000. On January 15, 1998, the Company entered into an asset purchase agreement with TVC-Sumpter Limited Partnership and North Oakland Cablevision Partners Limited Partnership to acquire certain cable television assets in Michigan for a cash purchase price of $14,200. This acquisition was consummated on March 6, 1998. On January 16, 1998, the Company entered into an asset purchase agreement with Ohio Cablevision Network, Inc. to acquire certain cable television assets in Ohio for a cash purchase price of $38,000. Asset Exchange On December 12, 1997, the Company entered into an asset exchange agreement with Comcast Cablevision of the South to exchange certain cable television assets in the Southeast region. This asset exchange was consummated on March 12, 1998. Dispositions The Company has completed two dispositions from its inception through December 1996. On July 24, 1996, the Company sold certain cable television system assets located primarily in Chatsworth, Georgia to an affiliate of Helicon Partners for an aggregate sales price of approximately $7,900. On September 30, 1996, the Company sold certain cable television system assets located in Virginia to Shenandoah Cable Television Company, an affiliate of Shenandoah Telephone Company, for an aggregate sales price of approximately $7,100. F-13 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (5) DEBT The Company's debt was comprised of the following: ---------------------- December 31, December 31, 1997 1996 -------- -------- Bank Credit Facility (a) -- Term loans, interest based on various floating libor rate options (8.33% and 8.60% weighted average at December 31, 1997 and 1996, respectively), payable monthly $432,000 $190,000 11% Senior Subordinated Notes due 2006 (b) 200,000 200,000 Subordinated promissory note to UVC at 11.5% interest, repaid in December 1997 -- 8,124 Other -- 70 -------- -------- Total debt $632,000 $398,194 ======== ========
(a) Bank Credit Facility. As of December 31, 1996, the Company had entered into an amended credit agreement (the "Senior Credit Facility") with a maximum availability of $265.0 million of which $190.0 million was available in term loans and $75.0 million was available as a revolving line of credit. The Company had drawn $190.0 million in term loans as of December 31, 1996. On December 19, 1997, the Company entered into a Second Amended and Restated Credit Agreement (the "Amended Credit Facility") increasing the available senior debt by $535.0 million, for a total availability of $800.0 million. The amount available under the Amended Credit Facility includes two term loans of $250.0 million each ("Facility A Term Loan" and "Facility B Term Loan") and a $300.0 million revolving credit facility ("Revolving Credit Facility"). The Facility A Term Loan and the Revolving Credit Facility both mature on September 30, 2005. The entire outstanding principal amount of the Revolving Credit Facility is due on September 30, 2005, with escalating principal payments due quarterly beginning December 31, 1998 under the Facility A Term Loan. The Facility B Term Loan matures March 31, 2006 with 95% of the principal being repaid in the last two quarters of the term of the facility. Under the terms of the Amended Credit Facility, with certain exceptions, the Company has a mandatory prepayment obligation upon a change of control of the Company and the sale of any of its operating systems. Further, beginning with the year ending December 31, 2001, the Company is required to make prepayments equal to 50% of its excess cash flow, as defined in the Amended Credit Facility. The Company also pays commitment fees ranging from 1/2% - 3/8% per annum on the average unborrowed portion of the total amount available under the Amended Credit Facility. The Amended Credit Facility also requires the Company to maintain compliance with various financial covenants including, but not limited to, covenants relating to total indebtedness, debt ratios, interest coverage ratio and fixed charges ratio. In addition, the Amended Credit Facility has restrictions on certain partnership distributions by the Company. As of December 31, 1997, the Company was in compliance with the financial covenants of the Amended Credit Facility. All partnership interests in the Company and all assets of the Company and its subsidiaries are pledged as collateral for the Amended Credit Facility. F-14 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (5) DEBT (continued) In order to convert certain of the interest payable at variable rates under the Amended Credit Facility to interest at fixed rates, the Company has entered into interest rate swap agreements for notional amounts totaling $170,000, and maturing between November 15, 1999 and October 7, 2000. According to these agreements, the Company pays or receives the difference between (1) an average fixed rate of 5.932% and (2) various available floating rate options applied to the same $170,000 notional amount every three months during the term of the interest rate swap agreement. For the years ended December 31, 1997 and 1996, the Company had recognized an increase in interest expense of approximately $312 and $195, respectively, as a result of these interest rate swap agreements. On October 3, 1997, in order to convert certain of the future interest payable at various rates under future indebtedness, the Company entered into a forward interest rate swap agreement, commencing October 15, 1998, for a notional amount totaling $150,000, maturing on October 15, 2001. According to this agreement, the Company will pay or receive the difference between (1) a fixed rate of 6.115% and (2) a floating rate based on three month libor applied to the same $150,000 notional amount every three months during the term of the interest rate swap agreement. (b) Senior Subordinated Notes On October 7, 1996, the Company issued, pursuant to a public offering (the "Offering"), $200,000 aggregate principal amount of the Notes. Net proceeds from the Offering of $192,500, after costs of approximately $7,500, were available to the Company on October 7, 1996. In connection with the anticipated issuance of the Notes in connection with the Offering, the Company entered into deferred interest rate setting agreements to reduce the Company's interest rate exposure in anticipation of issuing the Notes. The cost of such agreements, amounting to $1,390, are recognized as a component of interest expense over the term of the Notes. The Notes are unsecured subordinated obligations of the Company (co-issued by Capital) that mature on October 15, 2006. Interest accrues at 11% per annum beginning from the date of issuance, and is payable each April 15 and October 15, commencing April 15, 1997. The Subordinated Notes Indenture (the "Indenture") has certain restrictions on incurrence of indebtedness, distributions, mergers, asset sales and changes in control of the Company. J.P. Morgan Investment Corporation and First Union Capital Partners, Inc. ("Equity Holders") are affiliates of the Company, owning in the aggregate, a 37.6% limited partnership interest in FVP. Affiliates of the Equity Holders received underwriting fees of approximately $3.6 million in connection with the issuance of the Notes. F-15 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (5) DEBT (continued) The debt of the Company matures as follows: Year Ended December 31 -- 1998 $ 1,365 1999 8,254 2000 18,455 2001 25,735 2002 33,015 Thereafter 545,176 -------- $632,000 ======== (6) DEFERRED FINANCING COSTS The Company refinanced its Senior Credit Facility in December, 1997. Accordingly, the deferred financing costs related to the initial debt were written off. The effect of this write-off was a $5,046 charge to expense and was recorded as an extraordinary item. Additional costs related to the Amended Credit Facility were recorded as deferred financing costs during 1997. (7) INCOME TAXES Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. Taxable losses reported to the partners are different from those reported in the accompanying statements of operations due primarily to differences in depreciation and amortization methods and estimated useful lives under regulations prescribed by the Internal Revenue Service. A reconciliation between the net loss reported for financial reporting purposes and the net loss reported for federal income tax purposes is as follows: -------------------------------------- 1997 1996 1995 -------- -------- -------- Net loss for financial reporting purposes $(46,863) $(23,801) $ (2,703) Excess depreciation and amortization recorded for income tax purposes (11,678) (15,647) (192) Other temporary differences (643) 326 186 -------- -------- -------- Net loss for federal income tax purposes $(59,184) $(39,122) $ (2,709) ======== ======== ========
(8) FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents approximate their fair value due to the nature and length of maturity of the investments. The estimated fair value of the Company's Amended Credit Facility is based on floating market rates at December 31, 1997; therefore, there is no material difference in the fair market value and the carrying value of such debt instruments. The Notes have an aggregate principal amount of $200,000 with a 11% coupon rate. The current fair value for the Notes at December 31, 1997 is 111% of the face value. F-16 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts In Thousands (9) COMMITMENTS AND CONTINGENCIES The Company has annual commitments under lease agreements for office space, equipment, pole rental and land upon which certain of its towers and antennae are constructed. Rent expense for the years ended December 31, 1997, 1996 and 1995 was $4,065, $2,365 and $194, respectively. Estimated future noncancelable lease payments under such lease obligations subsequent to December 31, 1997 are as follows: Year Ended December 31 -- 1998 $ 873 1999 663 2000 412 2001 218 2002 159 Thereafter 279 ------ $2,604 ====== In October 1992, Congress enacted the Cable Television Consumer and Competition Act of 1992 (the "1992 Cable Act") which greatly expanded federal and local regulation of the cable television industry. The Federal Communications Commission ("FCC") adopted comprehensive regulations, effective September 1, 1993, governing rates charged to subscribers for basic cable and cable programming services which allowed cable operators to justify regulated rates in excess of the FCC benchmarks through cost of service showings at both the franchising authority level for basic service and at the FCC level in response to complaints on rates for cable programming services. The FCC also adopted comprehensive and restrictive regulations allowing operators to modify their regulated rates on a quarterly or annual basis using various methodologies that account for the changes in the number of regulated channels, inflation, and increases in certain external costs, such as franchise and other governmental fees, copyright and retransmission consent fees, taxes, programming fees and franchise related obligations. The FCC has also adopted regulations that permit qualifying small cable operators to justify their regulated service and equipment rates using a simplified cost-of-service formula. As a result of such actions, the Company's basic and tier service rates and its equipment and installation charges (the "Regulated Services") are subject to the jurisdiction of local franchising authorities and the FCC. The Company believes that it has complied in all material respects with the rate regulation provisions of the federal law. However, the Company's rates for Regulated Services are subject to review by the FCC, if a complaint has been filed, or by the appropriate franchise authority if it is certified by the FCC to regulate basic rates. If, as a result of the review process, a system cannot substantiate its rates, it could be required to retroactively reduce its rates to the appropriate benchmark and refund the excess portion of rates received. Any refunds of the excess portion of tier service rates would be retroactive to the date of complaint. Any refunds of the excess portion of all other Regulated Service rates would be retroactive to one year prior to the implementation of the rate reductions. The Company's agreements with franchise authorities require the payment of annual fees which approximate 3% of system franchise revenue. Such franchises are generally nonexclusive and are granted by local governmental authorities for a specified term of years, generally for extended periods of up to fifteen years. F-17 INDEPENDENT AUDITORS' REPORT To The Shareholder of FrontierVision Capital Corporation: We have audited the accompanying balance sheets of FrontierVision Capital Corporation as of December 31, 1997 and 1996 and the related statements of operations, owner's equity and cash flows for the year ended December 31, 1997 and for the period from July 26, 1996 (inception) through December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in all material respects, the financial position of FrontierVision Capital Corporation as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the year ended December 31, 1997 and for the period from July 26 (inception) through December 31, 1996 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado March 16, 1998 F-18 FRONTIERVISION CAPITAL CORPORATION BALANCE SHEETS --------------------------- December 31, December 31, 1997 1996 ----- ----- ASSETS Cash $ 143 $ 188 ----- ----- Total assets $ 143 $ 188 ===== ===== LIABILITIES AND OWNER'S EQUITY Payable to FVOP $ 100 $ 100 Owner's equity: Common stock, par value $.01; 1,000 shares authorized; 100 shares issued and outstanding 1 1 Additional paid-in capital 99 99 Retained deficit (57) (12) ----- ----- Total owner's equity 43 88 ----- ----- Total liabilities and owner's equity $ 143 $ 188 ===== =====
See accompanying note to the financial statements. F-19 FRONTIERVISION CAPITAL CORPORATION STATEMENTS OF OPERATIONS --------------------------------------- For the Period For the Year from July 26, 1996 Ended (Inception) through December 31, December 31, 1997 1996 ---------- ------------- Revenue $ - $ - General and administrative expenses 45 12 ---------- ------------- Net loss $ (45) $ (12) ========== =============
See accompanying note to financial statements. F-20 FRONTIERVISION CAPITAL CORPORATION STATEMENTS OF OWNER'S EQUITY ----------------------------------------------------------- Common Additional Retained Total owner's stock paid-in capital deficit equity ----- ----- ----- ----- Balance, at July 26, 1996 (inception) $ -- $ -- $ -- $ -- Issuance of Common Stock 1 99 -- 100 Net loss -- -- (12) (12) ----- ----- ----- ----- Balance, December 31, 1996 1 99 (12) 88 Net loss -- -- (45) (45) ----- ----- ----- ----- Balance, December 31, 1997 $ 1 $ 99 $ (57) $ 43 ===== ===== ===== =====
See accompanying note to financial statements. F-21 FRONTIERVISION CAPITAL CORPORATION STATEMENTS OF CASH FLOWS -------------------------- For the Period For the Year from July 26, Ended 1996 through December 31, December 31, 1997 1996 ----- ----- Cash flows from operating activities: Net loss $ (45) $ (12) Decrease in receivable from affiliate -- 100 ----- ----- Net cash flows used in operating activities (45) 88 ----- ----- Cash flows from investing activities -- -- ----- ----- Cash flows from financing activities: Advance from FVOP -- 100 ----- ----- Net cash flows from financing activities -- 100 ----- ----- Net increase in cash and cash equivalents (45) 188 Cash and cash equivalents, beginning of period 188 -- ----- ----- Cash and cash equivalents, end of period $ 143 $ 188 ===== =====
See accompanying note to financial statements. F-22 FRONTIERVISION CAPITAL CORPORATION NOTE TO THE FINANCIAL STATEMENTS FrontierVision Capital Corporation, a Delaware corporation, is a wholly owned subsidiary of FrontierVision Operating Partners, L.P. ("FVOP"), and was organized on July 26, 1996 for the sole purpose of acting as co-issuer with FVOP of $200 million aggregate principal amount of the 11% Senior Subordinated Notes. F-23 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of United Video Cablevision, Inc.: We have audited the accompanying divisional balance sheet of United Video Cablevision, Inc. -- Maine and Ohio Divisions as of November 8, 1995 and December 31, 1994, and the related statements of divisional operations, cash flows and equity for the period of January 1, 1995 through November 8, 1995, and for the years ended December 31, 1994 and 1993. These financial statements are the responsibility of the Divisions' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 from 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 our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the divisional financial position of United Video Cablevision, Inc. -- Maine and Ohio Divisions as of November 8, 1995 and December 31, 1994, and the results of its divisional operations and its cash flows for the period ending November 8, 1995, and the years ending December 31, 1994 and 1993 in conformity with generally accepted accounting principles. PIAKER & LYONS, P.C. May 7, 1996 Vestal, NY F-24 UNITED VIDEO CABLEVISION, INC. MAINE AND OHIO DIVISIONS DIVISIONAL BALANCE SHEETS ------------ ------------ November 8, December 31, 1995 1994 ------------ ------------ ASSETS Current Assets Cash and Cash Equivalents $ 75,100 $ 35,461 Accounts Receivable (1) Accounts Receivable, Trade 143,673 206,576 Accounts Receivable, Other 25,980 31,034 Less: Allowance for Doubtful Accounts (53,994) (34,928) ------------ ------------ Net Accounts Receivable 115,659 202,682 ------------ ------------ Prepaid Expenses 165,080 108,045 ------------ ------------ Total Current Assets 355,839 346,188 ------------ ------------ Property, Plant and Equipment-- At Cost Land 61,556 61,223 Buildings and Improvements 1,586,150 1,570,888 Vehicles 2,608,730 2,628,936 Cable Television Distribution Systems 85,010,454 83,296,885 Office Furniture, Tools and Equipment 1,386,288 1,363,828 Less: Accumulated Depreciation (1) (68,243,467) (59,163,656) ------------ ------------ Net Property, Plant and Equipment 22,409,711 29,758,104 ------------ ------------ Intangible Assets Franchise Rights 1,994,336 1,984,349 Non Compete Agreements 71,753 71,753 Other Intangible Assets 1,943,836 1,943,836 Less: Accumulated Amortization (1) (2,930,019) (2,550,708) ------------ ------------ Net Intangible Assets 1,079,906 1,449,230 ------------ ------------ Total Assets $ 23,845,456 $ 31,553,522 ============ ============ LIABILITIES AND DIVISIONAL EQUITY Liabilities Accounts Payable $ -- $ 684,264 Subscriber Deposits and Unearned Income 341,263 401,606 Accrued Franchise Fees 424,312 469,578 Accrued Programming Fees 686,599 513,151 Other Accrued Expenses 1,596,134 1,154,024 ------------ ------------ Total Current Liabilities 3,048,308 3,222,623 ------------ ------------ Divisional Equity 20,797,148 28,330,899 ------------ ------------ TOTAL LIABILITIES AND DIVISIONAL EQUITY $ 23,845,456 $ 31,553,522 ============ ============ See the accompanying notes to divisional financial statements. F-25 UNITED VIDEO CABLEVISION, INC. MAINE AND OHIO DIVISIONS STATEMENTS OF DIVISIONAL OPERATIONS ------------ ------------ ------------ Period from January 1, 1995 For the For the through Year Ended Year Ended November 8, December 31, December 31, 1995 1994 1993 ------------ ------------ ------------ Revenues (1) $ 25,417,064 $ 27,964,550 $ 27,917,090 Operating Expenses Programming 5,350,664 5,717,160 5,361,127 Plant and Operation 3,741,207 4,185,894 3,902,847 General and Administrative 3,754,474 4,415,919 4,628,442 Marketing and Advertising 276,712 248,572 409,890 Corporate Overhead (3) 1,270,072 1,327,127 1,470,702 Depreciation and Amortization (1) 9,625,116 11,225,978 9,960,536 ------------ ------------ ------------ Total Expenses 24,018,245 27,120,650 25,733,544 ------------ ------------ ------------ Operating Income 1,398,819 843,900 2,183,546 ------------ ------------ ------------ Other (Income) Expense Interest Expense (1) 4,086,738 4,892,250 4,960,032 Gain on Sale of Fixed Assets (25,034) (33,835) (33,810) ------------ ------------ ------------ Total Other (Income) Expense 4,061,704 4,858,415 4,926,222 ------------ ------------ ------------ Net Loss $ (2,662,885) $ (4,014,515) $ (2,742,676) ============ ============ ============ See the accompanying notes to divisional financial statements. F-26 UNITED VIDEO CABLEVISION, INC. MAINE AND OHIO DIVISIONS STATEMENTS OF DIVISIONAL EQUITY ------------ ------------ ------------ 1995 1994 1993 ------------ ------------ ------------ Balance, January 1, $ 28,330,899 $ 32,700,089 $ 37,526,944 Net Loss (2,662,885) (4,014,515) (2,742,676) Payments to Corporate Division, Net (4,870,866) (354,675) (2,084,179) ------------ ------------ ------------ Balance, November 8, 1995 $ 20,797,148 ============ Balance, December 31, $ 28,330,899 $ 32,700,089 ============ ============ See the accompanying notes to divisional financial statements. F-27 UNITED VIDEO CABLEVISION, INC. MAINE AND OHIO DIVISIONS STATEMENTS OF DIVISIONAL CASH FLOWS
Period from January 1, 1995 For the For the through Year Ended Year Ended November 8, December 31, December 31, 1995 1994 1993 ---------- ----------- ---------- Increase (Decrease) in Cash and Cash Equivalents Operating Activities Net Loss $(2,662,885) $(4,014,515) $(2,742,676) ---------- ----------- ---------- Adjustments to Reconcile Net Loss to Net Cash Provided by Operations: Depreciation 9,245,805 10,771,263 9,497,062 Amortization of Intangibles 379,311 454,715 463,474 Allowance for Doubtful Accounts 19,066 6,124 (3,077) Gain on Sale of Assets (25,034) (33,835) (33,810) Changes in Operating Assets and Liabilities, Net of Effects from Acquisition of Corporate Entities: Accounts Receivable and Other Receivables 67,957 (132,182) 122,248 Prepaid Expenses (57,035) 13,897 (158,603) Accounts Payable and Accrued Expenses (113,972) (846,244) (52,046) Subscriber Deposits and Unearned Income (60,343) (45,895) (72,253) ---------- ----------- ---------- Total Adjustments 9,455,755 10,187,843 9,762,995 ---------- ----------- ---------- Net Cash Provided by Operating Activities 6,792,870 6,173,328 7,020,319 ---------- ----------- ---------- Investing Activities Purchase of Property, Plant and Equipment (2,037,144) (5,712,592) (5,024,998) Acquisition of Intangible Assets (9,987) (216,154) (1,928) Proceeds from Sale of Assets 164,766 41,789 37,660 ---------- ----------- ---------- Net Cash Used in Investing Activities (1,882,365) (5,886,957) (4,989,266) ---------- ----------- ---------- Payments to Corporate Division, Net (4,870,866) (354,675) (2,084,179) ---------- ----------- ---------- Net Increase (Decrease) in Cash Equivalents 39,639 (68,304) (53,126) Cash and Cash Equivalents at Beginning of Period 35,461 103,765 156,891 ---------- ----------- ---------- Cash and Cash Equivalents at End of Period $ 75,100 $ 35,461 $ 103,765 ========== =========== ========== Supplemental Disclosures of Cash Flow Information: Interest Paid $ 4,086,738 $ 4,892,250 $ 4,960,032 Income Taxes Paid -- -- --
DISCLOSURE OF ACCOUNTING POLICY: For purposes of the statement of cash flows, the Divisions consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. See the accompanying notes to divisional financial statements. F-28 UNITED VIDEO CABLEVISION, INC. MAINE AND OHIO DIVISIONS NOTES TO DIVISIONAL FINANCIAL STATEMENTS November 8, 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING, POLICIES BUSINESS ACTIVITY The accompanying divisional financial statements include the Maine and Ohio Divisions of United Video Cablevision, Inc. (the "Divisions"). The Divisions are engaged in providing cable television programming services to subscribers in their franchised areas. The Corporate division allocates debt to the operating divisions based upon the respective acquisition and construction costs relative to the debt incurred. Accordingly, interest has been allocated to the operating divisions by the Corporate division in the same manner. For the purpose of the divisional financial statements, debt has been reflected as division equity in the accompanying financial statements under the terms of the agreement with FrontierVision Operating Partners, L.P., as no such debt will be assumed. CONCENTRATIONS OF CREDIT RISK The Divisions' trade receivables are comprised of amounts due from subscribers in varying regions throughout the states. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Divisions' customer base and geographic dispersion. REVENUE RECOGNITION The Divisions recognize service revenues on the accrual basis in the month in which the service is to be provided. Payments received in advance are included in deferred revenue until the month they become due at which time they are recognized as income. CAPITALIZATION AND DEPRECIATION In accordance with Statement No. #51 of the Financial Accounting Standards Board, the Divisions have adopted the policy of capitalizing certain expenses applicable to the construction and operating of a cable television system during the period while the cable television system is partially under construction and partially in service. For the period ended November 8, 1995, the total capitalized costs amounted to $314,347. During 1994 and 1993, the total capitalized costs amounted to $244,276 and $300,429, respectively. The Divisions, for financial reporting purposes, provide depreciation on the straight-line method, which is considered adequate for the recovery of the cost of the properties over their estimated useful lives. For income tax purposes, however, the Divisions utilize both accelerated methods and the accelerated cost recovery system. For the period ended November 8, 1995, the provision for depreciation in the accompanying statements of operations amounted to $9,245,805. For the years ended December 31, 1994 and 1993, the provision amounted to $10,771,263 and $9,497,062, respectively. F-29 UNITED VIDEO CABLEVISION, INC. MAINE AND OHIO DIVISIONS NOTES TO DIVISIONAL FINANCIAL STATEMENTS (continued) (1) SUMMARY OF SIGNIFICANT ACCOUNTING, POLICIES (continued) Depreciation lives for financial statement purposes are as follows: Headend Equipment Tower 12 Years Antennae 7 Years Other Headend Equipment 8 Years Trunk and Distribution Equipment Traps, Descramblers, Converters, Decoders 5 Years Other Trunk and Distribution Equipment 8 Years Test Equipment 5 Years Local Origination Equipment 8 Years Vehicles 3 Years Furniture and Fixtures 10 Years Leasehold Improvements 8 Years Computer and EDP Equipment 5 Years AMORTIZATION The Divisions are amortizing various intangible assets acquired and incurred on a straight-line basis, generally from 5 to 40 years. For the period ended November 8, 1995, the provision for amortization in the accompanying statements of operations amounted to $379,311. For the years ended December 31, 1994 and 1993, the provision amounted to $454,715 and $463,474, respectively. INCOME TAXES The Divisions are a part of United Video Cablevision, Inc. which has elected to be taxed as a small business corporation under "Sub-Chapter S" of the Internal Revenue Code effective January 1, 1987, wherein the stockholders of United Video Cablevision, Inc. are taxed on any earnings or losses of the Company. BAD DEBTS The Divisions have adopted the reserve method for recognizing bad debts for financial statement purposes and continue to utilize the direct write-off method for tax purposes. USE OF ESTIMATES Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. (2) COMMITMENTS The Divisions were committed to annual pole rentals of approximately $823,000 at November 8, 1995 and $830,000 and $832,000 at December 31, 1994 and 1993, respectively, to various utilities. These agreements are subject to termination rights by both parties. The Divisions lease in various systems the land upon which their towers and antennae are constructed. The annual rental payments under these leases amounted to approximately $37,000 at November 8, 1995, approximately $37,000 at December 31, 1994 and approximately $46,000 at December 31, 1993. F-30 UNITED VIDEO CABLEVISION, INC. MAINE AND OHIO DIVISIONS NOTES TO DIVISIONAL FINANCIAL STATEMENTS (continued) (3) MANAGEMENT AGREEMENT WITH RELATED PARTY The Divisions are being provided with certain management and technical services by a related party by means of a management agreement. For the period ended November 8, 1995, the allocated billings amounted to $1,270,072, and for the years ended December 31, 1994 and 1993, billings amounted to $1,327,127 and $1,470,702, respectively. (4) SALE OF DIVISIONS On November 9, 1995, United Video Cablevision, Inc. consummated an agreement by which it sold substantially all of the net assets and associated current liabilities in its Maine and Ohio franchise areas (the Divisions) for approximately $120,500,000. Upon the completion of the transaction, United Video Cablevision, Inc. realized a gain of approximately $100,000,000. F-31 INDEPENDENT AUDITORS' REPORT Cox Communications, Inc.: We have audited the accompanying combined statements of net assets of the combined operations of Cox Communications, Inc.'s ("CCI") cable television systems serving 57 communities in Ashland, Kentucky and Defiance, Ohio (collectively referred to as the "Ashland and Defiance Clusters" or "Successor") whose assets and certain liabilities were acquired by FrontierVision Operating Partners, L.P. on April 9, 1996, as of December 31, 1994 ("Predecessor") and 1995 ("Successor"), and the related combined statements of operations, changes in net assets, and cash flows for the years ended December 31, 1993 and 1994 (Predecessor), for the one-month period ended January 31, 1995 (Predecessor), and for the eleven-month period ended December 31, 1995 (Successor). These financial statements are the responsibility of the Ashland and Defiance Clusters' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Ashland and Defiance Clusters at December 31, 1994 (Predecessor) and 1995 (Successor), and the combined results of its operations and its cash flows for years ended December 31, 1993 and 1994 (Predecessor), for the one-month period ended January 31, 1995 (Predecessor), and for the eleven-month period ended December 31, 1995 (Successor), in conformity with generally accepted accounting principles. As discussed in Note 1, effective February 1, 1995, CCI acquired the Ashland and Defiance Clusters in connection with the acquisition of Times Mirror Cable Television, Inc. DELOITTE & TOUCHE LLP Atlanta, Georgia April 10, 1996 F-32 ASHLAND AND DEFIANCE CLUSTERS COMBINED STATEMENTS OF NET ASSETS In Thousands
-------------------- Successor Predecessor December 31, December 31, 1995 1994 -------- -------- ASSETS Cash $ 188 Accounts Receivable-- Less allowance for doubtful accounts of $43 and $37 $ 1,784 1,563 Amounts Due From Affiliate 5,848 Intercompany Income Taxes Receivable 1,182 Net Plant and Equipment 25,621 18,096 Intangible Assets 110,796 51,210 Other Assets 1,149 580 -------- -------- $146,380 $ 71,637 ======== ======== LIABILITIES AND NET ASSETS Accounts Payable $ 580 $ 692 Accrued Expenses 966 915 Intercompany Income Taxes Payable 2,160 Deferred Income 1,355 1,142 Deferred Income Taxes 7,644 3,147 Other Liabilities 146 99 Amounts Due to Affiliate 52,317 -------- -------- Total liabilities 10,691 60,472 NET ASSETS 135,689 11,165 -------- -------- $146,380 $ 71,637 ======== ========
See notes to combined financial statements. F-33 ASHLAND AND DEFIANCE CLUSTERS COMBINED STATEMENTS OF OPERATIONS In Thousands
----------------------------------------------- Successor Predecessor -------- ---------------------------------- Eleven Months One Month Ended Ended Year Ended December 31, January 31, December 31, --------------------- 1995 1995 1994 1993 -------- -------- -------- -------- REVENUES $ 24,628 $ 2,096 $ 25,235 $ 24,679 Costs and Expenses Operating 8,035 689 7,188 6,773 Selling, general, and administrative 4,919 503 5,507 5,398 Depreciation 5,480 214 3,293 3,413 Amortization 2,727 128 1,830 2,129 -------- -------- -------- -------- Total costs and expenses 21,161 1,534 17,818 17,713 -------- -------- -------- -------- Operating Income 3,467 562 7,417 6,966 Interest Income-- Net 79 434 133 Other-- Net (29) (3) (4) -------- -------- -------- -------- Income Before Income Taxes 3,438 641 7,848 7,095 Income Taxes 3,749 248 3,982 3,559 -------- -------- -------- -------- NET INCOME (LOSS) $ (311) $ 393 $ 3,866 $ 3,536 ======== ======== ======== ========
See notes to combined financial statements. F-34 ASHLAND AND DEFIANCE CLUSTERS COMBINED STATEMENTS OF CHANGES IN NET ASSETS In Thousands PREDECESSOR Balance, January 1, 1993 $ 11,303 Net income for the year ended December 31, 1993 3,536 Dividends to Affiliate (1,570) --------- Balance, December 31, 1993 13,269 Net income for the year ended December 31, 1994 3,866 Dividends to Affiliate (5,970) --------- Balance, December 31, 1994 11,165 Net income for the one month ended January 31, 1995 393 --------- Balance, January 31, 1995 $ 11,558 ========= SUCCESSOR Fair Value of Assets Acquired and Liabilities Assumed from Times Mirror Cable Television, Inc. on February 1, 1995 $ 136,000 Net loss for the eleven months ended December 31, 1995 (311) --------- BALANCE, DECEMBER 31, 1995 $ 135,689 ========= See notes to combined financial statements. F-35 ASHLAND AND DEFIANCE CLUSTERS COMBINED STATEMENTS OF CASH FLOWS In Thousands
----------------------------------------------------------- Successor Predecessor -------- ------------------------------------------ Eleven Months One Month Year Ended Ended Ended December 31, December 31, January 31, ------------------------- 1995 1995 1994 1993 -------- -------- -------- -------- OPERATING ACTIVITIES: Net income (loss) $ (311) $ 393 $ 3,866 $ 3,536 Adjustments to reconcile net income (loss)to net cash provided by operating activities: Depreciation and amortization 8,207 342 5,123 5,542 Deferred income taxes (142) (70) 298 293 (Increase) decrease in accounts receivable (287) 66 114 (45) Increase (decrease) in accounts payable and accrued expenses 467 (360) (214) (92) Income taxes payable (1,182) 31 1,914 (906) Other, net 274 45 162 (61) -------- -------- -------- -------- Net cash provided by operating activities 7,026 447 11,263 8,267 INVESTING ACTIVITIES: Capital expenditures (1,362) (65) (3,795) (6,075) Advances to Affiliate (5,848) -------- -------- -------- -------- Net cash used in investing activities (7,210) (65) (3,795) (6,075) FINANCING ACTIVITIES: Net change in amounts due to Affiliate (386) (1,466) (580) Dividends paid (5,970) (1,570) -------- -------- -------- -------- Net cash used in financing activities (386) (7,436) (2,150) -------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH (184) (4) 32 42 CASH AT BEGINNING OF PERIOD 184 188 156 114 -------- -------- -------- -------- CASH AT END OF PERIOD -- $ 184 188 $ 156 -------- -------- -------- -------- CASH PAID DURING THE PERIOD FOR: interest $ -- $ 79 $ 434 $ 133 -------- -------- -------- --------
See notes to combined financial statements. F-36 ASHLAND AND DEFIANCE CLUSTERS NOTES TO COMBINED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993 AND 1994, ONE MONTH ENDED JANUARY 31, 1995, AND ELEVEN MONTHS ENDED DECEMBER 31, 1995 (1) ORGANIZATION AND BASIS OF PRESENTATION These combined financial statements represent the combined operations of Cox Communications, Inc.'s ("CCI") cable television systems serving 57 communities in Ashland, Kentucky and Defiance, Ohio (collectively referred to as the "Ashland and Defiance Clusters") whose assets and certain liabilities were acquired by FrontierVision Operating Partners, L.P. on April 9, 1996. These cable television systems were acquired by CCI, a majority owned subsidiary of Cox Enterprises, Inc. ("CEI"), from The Times Mirror Company ("Times Mirror") in connection with CCI's acquisition of Times Mirror Cable Television, Inc. ("TMCT") on February 1, 1995. The operations of the Ashland and Defiance Clusters prior to February 1, 1995 are referred to as "Predecessor" and as "Successor" after February 1, 1995. All significant intercompany accounts and transactions have been eliminated in combination. The acquisition of the Ashland and Defiance Clusters was accounted for by the purchase method of accounting, whereby the allocable share of the TMCT purchase price was pushed down to the assets acquired and liabilities assumed based on their fair values at the date of acquisition as follows (thousands of dollars): Net working capital $ (2,836) Plant and equipment 30,022 Deferred taxes related to plant and equipment write-up (4,709) Intangible Assets 113,523 --------- $ 136,000 ========= The historical combined financial statements do not necessarily reflect the results of operations or financial position that would have existed had the Ashland and Defiance Clusters been an independent company. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION The Ashland and Defiance Clusters bill their customers in advance; however, revenue is recognized as cable television services are provided. Receivables are generally collected within 30 days. Credit risk is managed by disconnecting services to customers who are delinquent generally greater than 60 days. Other revenues are recognized as services are provided. Revenues obtained from the connection of customers to the cable television systems are less than related direct selling costs; therefore, such revenues are recognized as received. PLANT AND EQUIPMENT Depreciation is computed using principally the straight-line method at rates based upon estimated useful lives of 5 to 20 years for buildings and building improvements, 5 to 12 years for cable television systems, and 3 to 10 years for other plant and equipment. The costs of initial cable television connections are capitalized as cable plant at standard rates for the Ashland and Defiance Clusters' labor and at actual costs for materials and outside labor. Expenditures for maintenance and repairs are charged to operating expense as incurred. At the time of retirements, sales or other dispositions of property, the original cost and related accumulated depreciation are written off. F-37 ASHLAND AND DEFIANCE CLUSTERS NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) INTANGIBLE ASSETS Intangible assets consist primarily of goodwill and franchise costs recorded in business combinations which is amortized on a straight-line basis over 40 years. The Ashland and Defiance Clusters assess on an on-going basis the recoverability of intangible assets based on estimates of future undiscounted cash flows for the applicable business acquired compared to net book value. INCOME TAXES Through January 31, 1995, the accounts of the Ashland and Defiance Clusters were included in the consolidated federal income tax returns and certain state income tax returns of Times Mirror. Beginning on February 1, 1995, the accounts of the Ashland and Defiance Clusters were included in the consolidated federal income tax returns and certain state income tax returns of CEI. Current federal and state income tax expenses and benefits are allocated on a separate return basis to the Ashland and Defiance Clusters based on the current year tax effects of the inclusion of their income, expenses, and credits in the consolidated income tax returns of Times Mirror, CEI, or based on separate state income tax returns. Deferred income taxes arise from temporary differences between income taxes and financial reporting and principally relate to depreciation and amortization. FEES AND TAXES The Ashland and Defiance Clusters incur various fees and taxes in connection with the operation of their cable television systems, including franchise fees paid to various franchise authorities, copyright fees paid to the U.S. Copyright Tribunal, and business and franchise taxes paid to the States of Ohio and Kentucky. A portion of these fees and taxes are passed through to the Ashland and Defiance Clusters' subscribers. Amounts collected from subscribers are recorded as a reduction of operating expenses. PENSION AND POSTRETIREMENT BENEFITS CCI generally provides defined pension benefits to all employees based on years of service and compensation during those years. CEI provides certain health care and life insurance benefits to substantially all retirees and employees. For employees and retirees of the Ashland and Defiance Clusters, these benefits are provided through the CCI plans. Expense related to these plans is allocated to the Ashland and Defiance Clusters through the intercompany account. The amount of the allocations is generally based on actuarial determinations of the effects of the Ashland and Defiance Clusters employees' participation in the plans. Times Mirror Cable generally provides defined pension benefits to all employees based on years of service and the employee's compensation during the last five years of employment. Prior to December 31, 1992, these benefits were primarily provided under the Times Mirror Cable Television, Inc. Pension Plan (the "Times Mirror Cable Plan") in conjunction with the Times Mirror Employee Stock Ownership Plan. On December 31, 1992, the Times Mirror Cable Plan was merged with the Times Mirror Pension Plan. Net periodic pension expense for 1993 and 1994 was estimated by an actuary under the assumption that the Times Mirror Cable Plan continued to be a stand-alone plan. This expense was allocated to the Ashland and Defiance Clusters based on its salary expense as a percentage of total TMCT salary expense. F-38 ASHLAND AND DEFIANCE CLUSTERS NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed of," was issued. This Statement requires that long-lived assets and certain intangibles be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, with any impairment losses being reported in the period in which the recognition criteria are first applied based on the fair value of the asset. Long-lived assets and certain intangibles to be disposed of are required to be reported at the lower of carrying amount or fair value less cost to sell. CCI, including the Ashland and Defiance Clusters, adopted SFAS No. 121 in the first quarter of 1996. The effect on the combined financial statements upon adoption of SFAS No. 121 was not significant. (3) CASH MANAGEMENT SYSTEM The Ashland and Defiance Clusters participate in CEI's cash management system, whereby the bank sends daily notification of checks presented for payment. CEI transfers funds from other sources to cover the checks presented for payment. Prior to February 1, 1995, the Ashland and Defiance Clusters participated in a similar cash management system with Times Mirror. (4) PLANT AND EQUIPMENT Plant and equipment is summarized as follows (Thousands of Dollars): ----------------------- Successor Predecessor December 31, December 31, 1995 1994 ----------------------- Land $ 5 $ 10 Buildings and building improvements 207 646 Transmission and distribution plant 30,235 34,543 Miscellaneous equipment 343 472 Construction in progress 3 59 -------- -------- Plant and equipment, at cost 30,793 35,730 Less accumulated depreciation (5,172) (17,634) -------- -------- Net plant and equipment $ 25,621 $ 18,096 ======== ======== F-39 ASHLAND AND DEFIANCE CLUSTERS NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (5) INTANGIBLE ASSETS Intangible assets are summarized as follows (Thousands of Dollars): ---------------------------- Successor Predecessor December 31, December 31, 1995 1994 --------- --------- Goodwill $ 113,523 $ 60,907 Other 134 --------- --------- Total 113,523 61,041 Less accumulated amortization (2,727) (9,831) --------- --------- Net intangible assets $ 110,796 $ 51,210 ========= ========= (6) INCOME TAXES Income tax expense (benefit) is summarized as follows (Thousands of Dollars): ------------------------------------------ Successor Predecessor ------- ------------------------------ Eleven Months One Month Year Ended Ended Ended December 31, December 31, January 31, ------------------ 1995 1995 1994 1993 ------- ------- ------- ------- Current: Federal $ 3,054 $ 248 $ 2,866 $ 2,614 State 837 70 818 652 ------- ------- ------- ------- Total current 3,891 318 3,684 3,266 ------- ------- ------- ------- Deferred: Federal (113) (68) 183 250 State) (29 (2) 115 43 ------- ------- ------- ------- Total deferred (142) (70) 298 293 ------- ------- ------- ------- Total income taxes $ 3,749 $ 248 $ 3,982 $ 3,559 ======= ======= ======= ======= The tax effects of significant temporary differences which comprise the net deferred tax liabilities are as follows (Thousands of Dollars): ----------------------- December 31, ----------------------- 1995 1994 ------- ------- Plant and equipment $ 7,942 $ 3,408 Other (298) (261) ------- ------- Net deferred tax liability $ 7,644 $ 3,147 ======= ======= F-40 ASHLAND AND DEFIANCE CLUSTERS NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (6) INCOME TAXES (continued) Income tax expense computed using the United States federal statutory rates is reconciled to the reported income tax provisions as follows:
---------------------------------------------- Successor Predecessor ------- --------------------------------- Eleven Months One Month Year Ended Ended Ended December 31, December 31, January 31, ------------------- 1995 1995 1994 1993 ------- ------- ------- ------- Federal statutory income tax rate 35% 35% 35% 35% Computed tax expense at federal statutory rates on income before income taxes $ 1,203 $ 224 $ 2,747 $ 2,483 State income taxes (net of federal tax benefit) 534 33 560 424 Acquisition adjustments 2,033 44 543 541 1% increase in enacted tax rate 76 Other, net (21) (53) 132 35 ------- ------- ------- ------- Income tax provision $ 3,749 $ 248 $ 3,982 $ 3,559 ======= ======= ======= =======
(7) RETIREMENT PLANS As a result of the acquisition of TMCT by CCI, effective January 1, 1996, CEI established the Cox Communications, Inc. Pension Plan (the "CCI Plan"), a noncontributory defined benefit plan for substantially all of CCI's employees including Ashland and Defiance Clusters' employees. The Ashland and Defiance Clusters employees will become participants in the CCI Plan retroactive to the Merger date of February 1, 1995. The CCI Plan will be established with a transfer of plan assets from CEI and Times Mirror. The CCI Plan assets are expected to have an estimated fair value equal to or greater than the projected benefit obligation attributable to substantially all of the Ashland and Defiance Clusters employees. Prior to February 1, 1995, substantially all of the Ashland and Defiance Clusters' employees participated in a similar defined benefit plan provided by TMCT. Several of the Ashland and Defiance Clusters' employees were covered under a separate defined benefit plan funded by the Communication Workers of America. Assumptions used in the actuarial computations were: --------------------- December 31, --------------------- 1995 1994 1993 ---- ---- ---- Discount rate 7.25% 8.25% 7.50% Rate of increase in compensation levels 5.00 6.00 6.25 Expected long-term rate of return on assets 9.00 9.50 9.75 ---- ---- ---- Total pension expense allocated to the Ashland and Defiance Clusters was $53,000, $44,000, $0, and $64,000 for the years ended December 31, 1993 and 1994, for the one-month period ended January 31, 1995, and the eleven-month period ended December 31, 1995, respectively. Beginning February 1, 1995, CEI provides certain health care and life insurance benefits to substantially all retirees of CEI and its subsidiaries, Postretirement expense allocated to the Ashland and Defiance Clusters by CEI was $14,000 for the eleven months ended December 31, 1995. F-41 ASHLAND AND DEFIANCE CLUSTERS NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (7) RETIREMENT PLANS (continued) The funded status of the portion of the postretirement plan covering the employees of the Ashland and Defiance Clusters is not determinable. The accumulated postretirement benefit obligation for the postretirement plan of CEI substantially exceeded the fair value of assets held in the plan at December 31, 1995. Beginning February 1, 1995, substantially all of the Ashland and Defiance Clusters employees were eligible to participate in the savings and investment plan of CEI. Under the terms of the plan, the Ashland and Defiance Clusters match 50% of employee contributions up to a maximum of 6% of the employee's base salary. Prior to February 1, 1995, the Ashland and Defiance Clusters employees were eligible to participate in a similar savings and investment plan with Times Mirror. The Ashland and Defiance Clusters' expense under the plan was $39,000, $43,000, $3,000, and $44,000 for the years ended December 31, 1993 and 1994, for the one-month period ended January 31, 1995, and the eleven-month period ended December 31, 1996, respectively. (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Ashland and Defiance Clusters borrow funds for working capital and other needs from CEI. Certain management services are provided to the Ashland and Defiance Clusters by CCI and CEI. Such services include legal, corporate secretarial, tax, treasury, internal audit, risk management, benefits administration, and other support services. Prior to February 1, 1995, the Ashland and Defiance Clusters had similar arrangements with Times Mirror. The Ashland and Defiance Clusters were allocated expenses for the years ended December 31, 1993 and 1994, for the one-month period ended January 31, 1995, and the eleven-month period ended December 31, 1995 of approximately $1,040,000, $1,298,000, $117,000, and $1,513,000, respectively, related to these services. Such expenses are estimated by management and are generally allocated based on the number of customers served. Management believes that these allocations were made, on a reasonable basis. However, the allocations are not necessarily indicative of the level of expenses that might have been incurred had the Ashland and Defiance Clusters contracted directly with third parties. Management has not made a study or any attempt to obtain quotes from third-parties to determine what the cost of obtaining such services from third parties would have been. The fees and expenses to be paid by the Ashland and Defiance Clusters are subject to change. The amounts due from affiliate represent the net of various transactions, including those described above. Prior to February 1, 1995, amounts due from/to Times Mirror bore interest at Times Mirror's estimated ten-year financing rate and ranged between 6% and 8% between 1993 and 1994. Interest income for 1993 and 1994 was $133,000 and $434,000, respectively. Effective February 1, 1995, advances to affiliate are noninterest-bearing. In accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," the Ashland and Defiance Clusters have estimated the fair value of its intercompany advances. Given the short-term nature of these advances, the carrying amounts reported in the balance sheets approximate fair value. (9) COMMITMENTS AND CONTINGENCIES The Ashland and Defiance Clusters lease office facilities and various items of equipment under noncancelable operating leases. Rental expense under operating leases amounted to $119,000 and $122,000 for the years ended December 31, 1993 and 1994 and $163,000 for the eleven-month period ended December 31, 1995. Future minimum lease payments as of December 31, 1995 for all noncancelable operating leases are as follows (Thousands of Dollars), F-42 ASHLAND AND DEFIANCE CLUSTERS NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (9) COMMITMENTS AND CONTINGENCIES (continued) 1996 $126 1997 103 1998 59 1999 50 2000 42 Thereafter 4 ---- Total $384 ==== At December 31, 1995, the Ashland and Defiance Clusters had outstanding purchase commitments totaling approximately $2,000. The Ashland and Defiance Clusters are a party to various legal proceedings that are ordinary and incidental to its business. Management does not expect that any legal proceedings currently pending will have a material adverse impact on the Ashland and Defiance Clusters' combined financial position or combined results of operations. (10) RATE REGULATION AND OTHER DEVELOPMENTS In 1993 and 1994, the FCC adopted rate regulations required by the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which utilized a benchmark price cap system, or alternatively a cost-of-service regime, for establishing the reasonableness of existing basic and cable programming service rates. The regulations resulted in, among other things, an overall reduction of up to 17% in basic rates and other charges in effect on September 30, 1992, before inflationary and other allowable adjustments, if those rates exceeded the revised per-channel benchmarks established by the FCC and could not otherwise be justified under a cost-of-service showing. In September 1995, the FCC authorized a new, alternative method of implementing rate adjustments which will allow cable operators to increase rates for programming annually on the basis of projected increases in external costs rather than on the basis of cost increases incurred in the preceding quarter. Many franchising authorities have become certified by the FCC to regulate rates charged by the Ashland and Defiance Clusters for basic cable service and associated basic cable service equipment. Some local franchising authority decisions have been rendered that were adverse to the Ashland and Defiance Clusters. In addition, a number of such franchising authorities and customers of the Ashland and Defiance Clusters filed complaints with the FCC regarding the rates charged for cable programming services. In September 1995, CCI and the Cable Services Bureau of the FCC reached a settlement in the form of a resolution of all outstanding rate complaints covering the CCI, the Ashland and Defiance Clusters, and the former Times Mirror cable television systems. In December 1995, the FCC approved the Resolution which, among other things, provided for refunds ($115,000 to the Ashland and Defiance Clusters' customers) in January 1996, and the removal of additional outlet charges for regulated services from all of the Times Mirror cable television systems, which accounts for a majority of the refund amounts. The resolution also finds that the Ashland and Defiance Clusters' cable programming services tier rates as of June 30, 1995 are not unreasonable. At December 31, 1995, refunds under the resolution were fully provided for in the Ashland and Defiance Clusters' financial statements. F-43 ASHLAND AND DEFIANCE CLUSTERS NOTES TO COMBINED FINANCIAL STATEMENTS (continued) (10) RATE REGULATION AND OTHER DEVELOPMENTS (continued) On February 1, 1996, Congress passed the Telecommunications Competition and Deregulation Act of 1996 ("the 1996 Act") which was signed into law by the President on February 8, 1996, The 1996 Act is intended to promote substantial competition in the delivery of video and other services by local telephone companies (also known as local exchange carriers or "LECs") and other service providers, and permits cable television operators to provide telephone services. Among other provisions, the 1996 Act deregulates the Cable Programming Services ("CPS") tier of large cable television operators on March 31, 1999 and upon enactment, the CPS rates of small cable television operators where a small cable operator serves 50,000 or fewer subscribers, revises the procedures for filing a CPS complaint, and adds a new effective competition test. The 1996 Act establishes local exchange competition as a national policy by preempting laws that prohibit competition in the telephone local exchange and by establishing uniform requirements and standards for entry, competitive carrier interconnection, and unbundling of LEC monopoly services. Both the FCC and state commissions have substantial new responsibilities to promote the 1996 Act's competition policy. Depending on the degree and form of regulatory flexibility afforded the LECs as part of the 1996 Act's implementation, the Ashland and Defiance Clusters' ability to offer competitive telephony services may be adversely affected. The 1996 Act repeals the cable television/telephone cross-ownership ban and allows LECs and other common carriers, as well as cable systems providing local exchange service, to provide video programming services as either cable operators or as open video system ("OVS") operators within their service areas upon certification from the FCC and pursuant to regulations which the FCC is required to adopt. The 1996 Act exempts OVS operators from many of the regulatory obligations that currently apply to cable operators such as rate regulation and franchise fees, although other requirements are still applicable. OVS operators, although not subject to franchise fees as defined by the 1992 Cable Act may be subject to fees charged by local franchising authorities or other governmental entities in lieu of franchise fees. F-44 INDEPENDENT AUDITORS' REPORT The Partners C4 Media Cable Southeast, Limited Partnership Lockney, Texas 79241 We have audited the consolidated balance sheets of C4 Media Cable Southeast, Limited Partnership and its subsidiary (the Partnership) as of December 31, 1995, and 1994, and the related consolidated statements of loss, partners' deficit, and cash flows for the years then ended. 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 consolidated 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 report. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of C4 Media Cable Southeast Limited Partnership and its subsidiary as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 7 to the consolidated financial statements, the Partnership sold substantially all assets on February 1, 1996. The sales price was not sufficient to satisfy the liabilities of the Partnership. The remaining unpaid principal and interest on Senior and Junior loans have been due and payable since September 30, 1990. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans regarding those matters also are described in Note 7. The historical consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Williams, Rogers, Lewis & Co., P.C. Plainview, Texas March 11, 1996 F-45 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 --------------------------- 1995 1994 --------------------------- ASSETS CURRENT ASSETS Cash $ 203,955 $ 204,255 Accounts Receivable, Net 168,823 141,025 Prepaid Expense and Other 211,289 201,952 ------------ ------------ Total Current Assets 584,067 547,232 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT Plant and Equipment 41,057,969 39,251,506 Less: Accumulated Depreciation (20,386,652) (16,172,050) ------------ ------------ Net Property, Plant and Equipment 20,671,317 23,079,456 ------------ ------------ OTHER ASSETS Deposits and Other 17,314 17,899 Franchises, Net 2,967,669 4,031,170 Acquisition Costs, Net 874,863 1,148,913 Covenant Not to Compete -0- -0- ------------ ------------ Total Other Assets 3,859,846 5,197,982 ------------ ------------ Total Assets $ 25,115,230 $ 28,824,670 ============ ============ LIABILITIES AND PARTNERS' DEFICIT CURRENT LIABILITIES Accounts Payable $ 735,138 $ 691,305 Other Current Liabilities 393,423 568,455 Accrued Interest Payable 30,022,386 24,315,384 Notes Payable 60,165,844 60,165,844 ------------ ------------ Total Current Liabilities 91,316,791 85,740,988 ------------ ------------ MINORITY INTEREST (371,926) (268,729) ------------ ------------ PARTNERS' DEFICIT General Partners (65,829,635) (56,647,589) ------------ ------------ Total Liabilities and Partners' Deficit $ 25,115,230 $ 28,824,670 ============ ============ The accompanying notes are an integral part of the financial statements. F-46 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF LOSS December 31, 1995 AND 1994 ----------------------------- 1995 1994 ------------ ------------ REVENUE Cable Service $ 11,755,860 $ 11,231,123 ------------ ------------ EXPENSE Programming Costs 3,003,682 2,602,692 Salaries 1,124,203 1,046,895 Other Operating Expenses 2,607,023 2,642,777 Management Fees 545,641 561,114 Depreciation 4,214,602 4,113,809 Amortization 1,337,551 1,575,551 Interest 8,208,401 7,447,251 ------------ ------------ 21,041,103 19,990,089 ------------ ------------ Loss Before Minority Interest (9,285,243) (8,758,966) Minority Interest in Loss of Subsidiary 103,197 116,472 ------------ ------------ NET LOSS $ (9,182,046) $ (8,642,494) ============ ============ The accompanying notes are an integral part of the financial statements. F-47 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF PARTNER'S DEFICIT For The Years Ended December 31, 1995 and 1994
-------------------------------------------------------- Class A General General Limited Partners Partners Partners Total ----------- ----------- --- ----------- Balance, December 31, 1993 $ (539,910) $(47,465,185) $-0- $(48,005,095) Loss, 1994 (86,425) (8,556,069) -0- (8,642,494) ----------- ----------- --- ----------- Balance, December 31, 1994 (626,335) (56,021,254) -0- (56,647,589) Loss, 1995 (91,820) (9,090,226) -0- (9,182,046) ----------- ----------- --- ----------- BALANCE, DECEMBER 31, 1995 $ (718,155) $(65,111,480) $-0- $(65,829,635) =========== =========== === ===========
The accompanying notes are an integral part of the financial statements. F-48 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995 and 1994
----------------------------- 1995 1994 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES: Net Loss $(9,182,046) $(8,642,494) Adjustments to reconcile net loss to net cash: Minority interest in loss of subsidiary (103,197) (116,472) Depreciation 4,214,602 4,113,809 Amortization 1,337,551 1,575,551 Changes in Assets and Liabilities: Accounts receivable (27,798) 2,330 Prepaid expenses and other (8,752) (7,701) Accounts payable 43,833 20,388 Other liabilities (175,032) 51,392 Accrued interest 5,707,002 3,928,106 ----------- ----------- Net cash provided by operating activities 1,806,163 924,909 ----------- ----------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of plant, equipment and other assets (1,806,463) (854,999) ----------- ----------- Net cash used in investing activities (1,806,463) (854,999) ----------- ----------- Net Increase (Decrease) in Cash (300) 69,910 Cash, Beginning of Year 204,255 134,345 ----------- ----------- Cash, End of Year $ 203,955 $ 204,255 =========== =========== Supplemental Disclosure for Statements of Cash Flows: Cash Paid for Interest 2,470,936 3,519,145 Non-Cash Investing Activities: Deposit added to cost of plant and equipment -0- 39,622
The accompanying notes are an integral part of the financial statements. F-49 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 and 1994 (1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES ENTITIES: C4 Media Cable Southeast, Limited Partnership and its subsidiary (the "Partnership") is a Delaware limited partnership organized to own and operate cable television systems in various communities throughout Virginia, Tennessee, and Georgia. The Partnership provides basic and pay cable television service to approximately 40,500 subscribers in these states. General partners are C4 Media Cable, Inc. and C4 Media Cable Employees Investment Corporation. C4 Media Cable, Inc. also participates as a limited partner. Under a letter agreement dated May 9, 1992, Philips Credit Corporation ("Philips") has exercised its rights under certain pledge agreements to exercise voting control over all partnership interests. Accordingly, effective October 30, 1992, C4 Media Cable, Inc. was replaced by Southeast Cable, Inc., a corporate affiliate of Philips, as the managing general partner. The managing general partner utilized Doucette Management Company ("DMC") as the business manager for the Partnership until December 30, 1993 at which time the management agreement was assigned to Cablevision of Texas III, LP ("CAB III"). See note 4. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of C4 Media Cable Southeast, Limited Partnership and County Cable Company, Limited Partnership of which the Partnership is an 80% owner and general partner. All significant intercompany transactions have been eliminated. REVENUE RECOGNITION: The Partnership recognizes cable service revenue on the accrual basis in the month the cable service is provided. Payments received in advance are included in deferred revenue until the month the service is provided at which time they are recognized as income. PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION: Property, plant and equipment used in the business are stated at cost and depreciated over estimated useful lives generally on the straight line method for financial statement purposes. Expenditures which significantly increase asset values or extend useful lives are capitalized, limited by projected recoverability of such current year expenditures in the ordinary course of business from expected future revenue. The useful lives of property, plant and equipment for purposes of computing depreciation range from 3 to 10 years. FRANCHISES: The company has been granted rights to operate within the locations wherein it has cable television systems. Such franchises grant certain operating rights and impose certain costs and restrictions. The Partnership pays its franchise fees annually on most of its locations based upon either gross or basic service revenues. Franchise fee expense for the years ended December 31, 1995 and 1994 was $327,088 and $303,375, respectively. F-50 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued) Such franchises have varying lives and are renewable at the discretion of the franchise's governing boards. For financial statement purposes, franchise costs acquired in connection with the purchase of cable systems are being amortized over the remaining average lives of the related cable television franchises at the date of acquisition, which approximates 7 to 13 years. Franchise amortization expense for the years ended December 31, 1995 and 1994 was $1,063,501 in each year. ACQUISITION COSTS: Acquisition costs are those costs incurred related to the acquisition of new systems. For financial statement purposes, such costs are amortized by using the straight-line method over 10 years. Amortization expense for acquisition costs for the years ended December 31, 1995 and 1994 was $274,050, and $274,050, respectively. COVENANTS NOT TO COMPETE: The portion of the purchase price of systems allocated to non-competition agreements with former owners is capitalized and amortized by using the straight-line method over the life of the agreements. Amortization expense for non-competition agreements for the year ended December 31, 1994 was $238,000. INCOME TAXES: The partnership does not pay federal income tax, but is a pass through entity so that partners are taxed on their share of partnership earnings. Partnership net income or loss is allocated to each partner under a formula established in the partnership agreement. CASH EQUIVALENTS: For cash flow purposes, cash equivalents are cash and cash items with a maturity of less than 90 days. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. (2) ACCOUNTS RECEIVABLE, NET Following is a summary of accounts receivable at December 31, 1995 and 1994: -------------------------- 1995 1994 --------- --------- Trade Accounts $ 175,671 $ 146,239 Other 281 642 Related Parties (4) -0- 194,873 Less: Allowance for Doubtful Accounts (4) (7,129) (200,729) --------- --------- $ 168,823 $ 141,025 ========= ========= F-51 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) NOTES PAYABLE Following is a summary of notes payable at December 31, 1995 and 1994:
-------------------------- 1995 1994 ----------- ----------- Senior loan payable to Philips, due September 30, 1990, interest due at prime + 2.25%, secured by substantially all assets of the partnership and the pledge of partnership interests. In addition, the loan is collateralized by the pledge of all stock held in C4 Media Cable, Inc. and C4 Media Cable, Employees Investment Corporation by the President and Chairman of C4 Media Cable, Inc. $44,185,831 $44,185,831 Junior Loan payable to Philips, due September 30, 1990 interest due at 20%, secured by substantially all assets of the partnership and the pledge of partnership interests. In addition, the loan is collateralized by the pledge of all stock held in C4 Media Cable, Inc. and C4 Media Cable Employees Investment Corporation by the President and Chairman of C4 Media Cable, Inc. 15,980,013 15,980,013 ----------- ----------- Total $60,165,844 $60,165,844 =========== ===========
The Philips notes contain performance covenants concerning homes passed, subscriber levels, miles of plant, etc., some of which the Partnership had violated as of December 31, 1995 and 1994. Philips has not waived compliance with these provisions. All notes payable and accrued interest to Philips were due September 30, 1990. Philips has not extended the due date of the notes and has the right to demand payment at any time. A significant amount of accrued interest and principle was paid when substantially all operating assets of the Partnership were sold February 1, 1996. See note 7. (4) RELATED PARTY TRANSACTIONS Effective October 30, 1992, C4 Media Cable, Inc. was replaced by Southeast Cable, Inc., a corporate affiliate of Philips, as the managing general partner. Effective May 10, 1992 under the provisions of an agreement with Philips, the Partnership terminated its management agreement with C4 Media Cable, Inc. and entered into a management agreement with DMC for a term extending to December 30, 1993. At December 30, 1993 the management agreement was assigned to CAB III. The agreement provides for fixed fees and the reimbursement of direct expenses incurred on behalf of the Partnership as defined in the agreement. Management fees paid under these agreements for the years ended December 31, 1995 and 1994 were $545,641 and $550,214, respectively. Other fees and expense reimbursements paid under the agreements for the years ended December 31, 1995 and 1994 were $120,000 and are included in Other Operating Expenses. Other related parties include Caribbean Cable TV ("CCTV") and MCT Cablevision ("MCT"). Related party lending was done without independent business judgment, terms, collateral or a method of settlement. Due to the manner in which this lending was done and questions surrounding the collectability of these accounts, all the related party receivables were reserved in the allowance for doubtful accounts prior to 1994 and were written off in 1995. See note 2. Related party receivables at December 31, 1994 were as follows: F-52 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) RELATED PARTY TRANSACTIONS (continued) -------- 1994 -------- CCTV $ 23,965 MCT 35,968 C4 Media Cable, Inc. 134,940 -------- $194,873 ======== The Partnership purchased leasehold improvements from J-D Partnership, Ltd. ("J-D") for the Lockney, Texas office of $5,366 on April 24, 1995. J-D is a limited partnership 99% owned by James and Denise Doucette (Doucette). Doucette is also the managing general partner and owns 62% of CAB III, as well as being the sole stockholder of DMC, an S-Corporation. The Partnership paid a management fee to Doucette of $10,900 for the year ended December 31, 1994. (5) COMMITMENTS The Company has certain obligations under pole rental agreements, tower site leases, etc. for assets utilized in the operation of the systems. These are mostly short term agreements. Expenses charged to operations for the periods ended December 31, 1995 and 1994 were $536,368 and $518,837, respectively, and are included in Other Operating Expenses. (6) CONTINGENCIES The Company is to a significant degree self-insured for risks consisting primarily of physical loss to property and plant. The headend equipment is insured, but the plant itself is not and represents a potential exposure for the Company. Management is of the opinion that the various systems' distance from each other make the likelihood of a complete loss to the plant unlikely. (7) SUBSEQUENT EVENT AND CONSIDERATION OF ABILITY TO CONTINUE AS A GOING CONCERN The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. On February 1, 1996 substantially all assets of the Partnership were sold to FrontierVision Operating Partners, L.P. The agreement had a stated sales price of $48,000,000 and a net payment amount of $46,237,708 after escrow holdback of $1,375,200 and other adjustments. At the date of the auditors' report the Partnership was still liable for the remaining balance of the note payable to Philips with no significant assets to satisfy that liability, and the escrow items remain open. An unaudited pro forma consolidated balance sheet is presented below giving effect to the sale as if it had occurred December 31, 1995 including escrowed items. The pro forma information is presented for the purpose of additional analysis and is not a required part of the basic consolidated financial statements. F-53 C4 MEDIA CABLE SOUTHEAST, LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) SUBSEQUENT EVENT AND CONSIDERATION OF ABILITY TO CONTINUE AS A GOING CONCERN (continued) ------------ Pro Forma Unaudited 1995 ------------ Current Assets $ 685,773 Other Assets 1,392,514 ------------ Total Assets $ 2,078,287 ============ Current Liabilities $ 45,303,939 Partners' Deficit (43,225,652) ------------ Total Liabilities and Partners' Deficit $ 2,078,287 ============ The Partnership has been unable to pay all of its principle and interest as required under its loan agreements since the loans matured September 30, 1990. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The historical consolidated financial statements do not include any adjustments that might result from this sale of assets or this uncertainty. Management has not fully evaluated the options for the Partnership subsequent to the sale. F-54 INDEPENDENT AUDITORS' REPORT American Cable Entertainment of Kentucky-Indiana, Inc. We have audited the accompanying balance sheets of American Cable Entertainment of Kentucky-Indiana, Inc. (the "Company") as of December 31, 1995 and 1994 and the related statements of operations, shareholders' deficiency and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of American Cable Entertainment of Kentucky-Indiana, Inc. as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that American Cable Entertainment of Kentucky-Indiana, Inc. will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is unable to meet its scheduled debt maturity repayments which raises substantial doubt about the Company's ability to continue as a going concern. Consequently, the Company has entered into an agreement to sell substantially all of its assets, has entered into agreements with its creditors who have consented, under certain circumstances, to forbear taking any action against the Company pending the sale of the Company's assets and has filed a prepackaged bankruptcy under Chapter 11 of the Federal Bankruptcy Code. Management's plans in regard to these matters are described further in Note 1. The accompanying financial statements do not purport to reflect or provide for the consequences of the sale of the Company or the filing of the prepackaged bankruptcy. In particular, such financial statements do not purport to show the realizable value of assets or liabilities on a liquidation basis nor do they include any adjustments that might result from the outcome of these uncertainties. The accompanying balance sheet as of September 30, 1996, and the statements of operations, cash flows and shareholders' deficiency for the nine-month period ended September 30, 1996 were not audited by us and, accordingly, we do not express an opinion on them. As described in Note 10, these unaudited financial statements have not been prepared in accordance with Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," which is required under generally accepted accounting principles for entities that have filed petitions with the Bankruptcy Court and expect to reorganize as going concerns under Chapter 11. Pre-petition liabilities subject to compromise by the Bankruptcy Court as of the bankruptcy filing date have not been segregated on the September 30, 1996 balance sheet or reported based on the expected amount of the allowed claims. Expenses directly related to the reorganization of the Company since the filing of the prepackaged bankruptcy have not been separately disclosed and interest on the Company's Step Coupon Senior Subordinated Notes and Junior Subordinated Debentures continued to be accrued during the bankruptcy period although such interest was not probable of being paid in the future. DELOITTE & TOUCHE LLP Stamford, CT March 15, 1996 (Except for Note 1, as to which the date is August 1, 1996.) F-55 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. BALANCE SHEETS
------------- ------------- ------------- September 30, December 31, December 31, 1996 1995 1994 ------------- ------------- ------------- Unaudited ASSETS INVESTMENT IN CABLE TELEVISION SYSTEMS: Land and land improvements $ 247,561 $ 247,561 $ 247,561 Vehicles 1,811,308 1,702,997 1,507,850 Buildings and improvements 1,007,624 998,414 967,794 Office furniture and equipment 812,985 802,377 733,465 CATV distribution systems and related equipment 55,094,378 51,757,161 49,161,506 ------------- ------------- ------------- Total Fixed Assets 58,973,856 55,508,510 52,618,176 Less accumulated depreciation 32,840,157 28,897,790 23,683,730 ------------- ------------- ------------- Total Fixed Assets-- net 26,133,699 26,610,720 28,934,446 Franchise costs-- net 278,753 2,785,425 5,964,805 Subscriber lists-- net 154,331 1,543,307 3,531,021 Covenant not to compete-- net 8,068 80,682 242,045 ------------- ------------- ------------- Investment in cable television systems-- net 26,574,851 31,020,134 38,672,317 GOODWILL-- net 3,499,898 3,579,784 3,686,299 DEFERRED CHARGES-- net 134,767 371,691 963,949 CASH AND CASH EQUIVALENTS 907,718 3,704,823 3,427,849 ACCOUNTS RECEIVABLE-- less allowance for doubtful accounts of $313,661 in 1996, $240,212 in 1995 and $195,736 in 1994 859,836 304,734 276,709 PREPAID AND OTHER 387,763 197,802 194,514 ------------- ------------- ------------- TOTAL ASSETS $ 32,364,833 $ 39,178,968 $ 47,221,637 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' DEFICIENCY LIABILITIES: Notes and loans payable $ 187,404,112 $ 182,430,902 $ 167,707,411 Accrued interest-- Senior debt 0 1,314,032 329,004 Accrued interest -- Senior/Junior Subordinated Debentures 10,537,714 3,068,862 4,345,047 Accounts payable and accrued expenses 5,019,665 4,244,348 3,973,224 Unearned income 146,702 124,109 124,344 Converter deposits 126,852 134,366 136,588 ------------- ------------- ------------- Total Liabilities 203,235,045 191,316,619 176,615,618 ------------- ------------- ------------- COMMITMENTS (See Note 7) SHAREHOLDERS' DEFICIENCY: Capital stock-- all series 10,000 10,000 26 Additional paid-in capital 1,490,000 1,490,000 1,499,974 Deficit (172,370,212) (153,637,651) (130,893,981) ------------- ------------- ------------- Total shareholders' deficiency (170,870,212) (152,137,651) (129,393,981) ------------- ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' $ 32,364,833 $ 39,178,968 $ 47,221,637 ============= ============= ============= DEFICIENCY
See notes to financial statements F-56 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. STATEMENTS OF OPERATIONS
------------ ------------ ------------ ------------ For the Nine Months For the Year For the Year For the Year Ended Ended Ended Ended September 30, December 31, December 31, December 31, 1996 1995 1994 1993 ------------ ------------ ------------ ------------ Unaudited Revenue $ 22,911,386 $ 28,088,127 $ 25,879,525 $ 24,976,818 ------------ ------------ ------------ ------------ Costs and expenses: Operating expenses 8,681,583 10,880,854 9,388,813 8,699,878 Selling, general and administrative expenses 3,884,865 4,948,493 4,912,150 4,743,783 Management fees 696,942 842,644 819,095 749,305 Depreciation and amortization 8,265,739 11,284,315 18,054,371 18,231,734 Expenses incurred in connection with override and forbearance agreements 912,865 557,664 0 0 ------------ ------------ ------------ ------------ Total costs and expenses 22,441,994 28,513,970 33,174,429 32,424,700 ------------ ------------ ------------ ------------ Operating income (loss) 469,392 (425,843) (7,294,904) (7,447,882) Interest expense-- net 19,201,953 22,366,189 20,241,202 18,410,503 Net gain on sale of cable television system and marketable securities 0 48,362 1,266,020 0 ------------ ------------ ------------ ------------ NET LOSS $(18,732,561) $(22,743,670) $(26,270,086) $(25,858,385) ============ ============ ============ ============
See notes to financial statements. F-57 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. STATEMENTS OF SHAREHOLDERS' DEFICIENCY FOR THE NINE MONTHS ENDED September, 1996 Unaudited AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
-------------------------------------------------------------------------------------- Common Stock ------------------------------------------------- Number of Shares Additional Total Issued and Par Paid-in Shareholders' Outstanding Value Capital Deficit Deficiency ---- ------- --- ------- ----------- ------------- ------------- Class Class ---- ------- --- ------- A D A D ---- ------- --- ------- Balance at January 1, 1993 255 $26 $ 1,499,974 $ (78,765,510) $ (77,265,510) Net Loss (25,858,385) (25,858,385) ---- ------- --- ------- ----------- ------------- ------------- Balance at December 31, 1993 255 26 1,499,974 (104,623,895) (103,123,895) Net Loss (26,270,086) (26,270,086) ---- ------- --- ------- ----------- ------------- ------------- Balance at December 31, 1994 255 26 1,499,974 (130,893,981) (129,393,981) Net Loss (22,743,670) (22,743,670) Recapitalization of Common Stock (254) 99,999 (26) $10,000 (9,974) ---- ------- --- ------- ----------- ------------- ------------- Balance at December 31, 1995 1 99,999 0 10,000 1,490,000 (153,637,651) (152,137,651) Net Loss Unaudited (18,732,561) (18,732,561) ---- ------- --- ------- ----------- ------------- ------------- Balance at September 30, 1996 Unaudited 1 99,999 $ 0 $10,000 $ 1,490,000 $(172,370,212) $(170,870,212) ==== ======= === ======= =========== ============= =============
See notes to financial statements F-58 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. STATEMENTS OF CASH FLOWS
------------ ------------ ------------ ------------ For the Nine Months For the Year For the Year For the Year Ended Ended Ended Ended September 30, December 31, December 31, December 31, 1996 1995 1994 1993 ------------ ------------ ------------ ------------ Unaudited CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(18,732,561) $(22,743,670) $(26,270,086) $(25,858,385) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 3,980,667 5,257,085 6,397,956 5,452,940 Amortization 4,285,072 6,027,230 11,656,415 12,778,794 Accretion of discount on step coupon senior subordinated notes 8,583,143 10,171,124 9,519,095 8,189,478 Accretion of discount on junior subordinated debentures 4,429,619 5,416,469 4,820,269 4,231,918 Net gain on sale of cable television system, marketable securities, and other assets 0 (48,362) (1,266,020) Change in assets and liabilities: Decrease (increase) in accounts receivable (555,102) (28,025) (94,868) 23,917 Decrease (increase) in prepaid and other assets (189,961) (3,288) 51,799 (59,414) (Decrease) increase in accounts payable and accrued expenses 775,317 271,124 (414,333) 169,808 (Decrease) increase in accrued interest-senior debt (1,314,032) 985,028 129,505 Increase (decrease) in converter deposits (7,514) (2,222) (237) (9,384) Increase (decrease) in unearned income 22,593 (235) (91,827) 9,518 ------------ ------------ ------------ ------------ Net cash provided by operating activities 1,277,241 5,302,258 4,437,668 4,929,190 ------------ ------------ ------------ ------------ CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to reception and distribution facilities and equipment (3,471,098) (2,933,359) (3,605,498) (5,083,401) Net proceeds from sale of assets 0 48,362 1,523,137 ------------ ------------ ------------ ------------ Net cash used in investing activities (3,471,098) (2,884,997) (2,082,361) (5,083,401) ------------ ------------ ------------ ------------ CASH FLOWS USED IN FINANCING ACTIVITIES: Payments on senior bank loan (229,016) (1,262,542) (309,165) Payments on senior revolving credit facility (55,862) (131,616) (3,668) Payments on senior secured notes (315,121) (742,447) (20,712) Increase in deferred charges 0 (186,563) (598) (Decrease) increase in obligations under capital lease (3,249) (3,682) 7,281 ------------ ------------ ------------ ------------ Net cash used in financing activities (603,248) (2,140,287) (512,827) (598) ------------ ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (2,797,105) 276,974 1,842,480 (154,809) Cash and cash equivalents at beginning of period 3,704,823 3,427,849 1,585,369 1,740,178 ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ 907,718 $ 3,704,823 $ 3,427,849 $ 1,585,369 ============ ============ ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 6,002,809 $ 6,900,613 $ 5,952,791 $ 6,038,557 ============ ============ ============ ============ Cash paid for restructuring costs 912,865 0 0 0 ============ ============ ============ ============
See notes to financial statements F-59 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. NOTES TO FINANCIAL STATEMENTS Unaudited as to September 30, 1996 (1) DEBT MATURITIES AND THE SALE OF THE COMPANY During the fourth quarter of 1995 the Company's senior debt obligations matured without being paid. In addition, the Company failed to make the full payment of interest on the Step Coupon Senior Subordinated Notes which became due in 1995. Prompted by these payment defaults, effective December 31, 1995, the Company, its shareholders, and Kentucky-Indiana Management Company, Inc. ("KYMC"), which acts as manager for the Company, entered into two agreements: a "Forbearance Agreement" with its senior lenders; and an "Override Agreement" with the holders of its Senior Subordinated and Junior Subordinated Notes. Under the terms of the Forbearance Agreement the senior lenders have agreed to forebear in the exercise of their rights and remedies with respect to the payment default described above as well as defaults with respect to certain specified financial covenants, through September 30, 1996 which allows the Company time to sell its assets in an orderly manner. It contains certain financial covenants as well as procedures that the Company and KYMC have agreed to follow during the sales process. Subsequent to September 30, 1996, certain financial covenants, which the Company is currently in default upon, revert back to the terms in the original agreements. The Override Agreement requires that the Company undertake to sell substantially all of its assets, and to enter into a contract for sale and to consummate that sale in accordance with an agreed upon time schedule. It also contains certain financial covenants and procedures to be followed. Effective July 15, 1996, the Company entered into an asset purchase agreement with FrontierVision Operating Partners, L.P. ("FrontierVision") for the sale of substantially all of the assets of the Company for $146 million, subject to certain purchase price adjustments. Due to the expected shortfall of payments to existing creditors from the sale proceeds, the Company filed a prepackaged bankruptcy under Chapter 11 of the Federal Bankruptcy code with the Federal Bankruptcy court on August 1, 1996. Management anticipates the sale to FrontierVision to be consummated in the fourth quarter of 1996, subject to the required regulatory approvals and the approval of the bankruptcy court. As a result of the matters discussed above, Management does not believe that it is practical to estimate the fair value of the Company's debt facilities. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not reflect adjustments or provide for the potential consequences of the sale of the Company's assets. In particular, the financial statements do not purport to show the realizable value of assets on a liquidation basis or their availability to satisfy liabilities. The accompanying balance sheet as of September 30, 1996, the statements of operations, and cash flows for the nine months ended September 30, 1996 and the statement of shareholders' deficiency for the nine months ended September 30, 1996 are unaudited but, in the opinion of management, include all F-60 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. NOTES TO FINANCIAL STATEMENTS Unaudited as to September 30, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) adjustments (consisting only of normal recurring adjustments) which are necessary to present fairly the results for these interim periods in accordance with Generally Accepted Accounting Principles, except as disclosed in Note 10. The interim financial information as of and for the years ended September 30, 1996 included within the notes to the financial statements is also unaudited. FORMATION OF COMPANY On November 7, 1989 cable systems were purchased from Centel Cable Television Company to form Simmons Cable TV of Kentucky-Indiana, Inc. (the "Company"). The Company owns and operates cable systems in Kentucky and Indiana. On April 12, 1994 the Company changed its name to American Cable Entertainment of Kentucky-Indiana, Inc. MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. INVESTMENT IN CABLE TELEVISION SYSTEMS Reception and distribution facilities and equipment additions are stated at cost. Depreciation is provided using the straight-line method over the useful lives of the assets (four to ten years for CATV distribution facilities and related equipment, vehicles, building improvements and office furniture and equipment; forty years for buildings). Included in depreciation expense for the year ended December 31, 1994 were write-offs related to a rebuilt cable system of $942,850. Franchise acquisition costs are amortized over the average remaining term of the franchises as of November 7, 1989 of seven years using the straight-line method, Accumulated amortization of franchise costs at September 30, 1996, December 31, 1995 and 1994 aggregated $21,976,905, $19,470,233 and $16,290,853, respectively. Covenants not to compete are amortized over the life of the agreements (five years). Accumulated amortization of such covenants at September 30, 1996, December 31, 1995 and 1994 aggregated $798,749, $726,315 and $564,772, respectively. Subscriber lists are amortized over seven years. Accumulated amortization of subscriber lists at September 30, 1996, December 31, 1995 and 1994 aggregated $13,759,669, $12,370,693 and $10,382,979, respectively. Deferred charges consist of $882,408 of organizational costs and $3,616,230 of loan acquisition costs at September 30, 1996. The loan acquisition costs are amortized over the average life of the related debt, and organizational costs are amortized over five years. Accumulated amortization at September 30, 1996, December 31, 1995 and 1994 was $4,363,871, $4,126,947 and $3,534,689, respectively. F-61 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. NOTES TO FINANCIAL STATEMENTS Unaudited as to September 30, 1996 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Goodwill is amortized over forty years. Accumulated amortization of goodwill at September 30, 1996, December 31, 1995 and 1994 aggregated $760,711, $680,825 and $574,310, respectively. VALUATION OF INTANGIBLE ASSETS The Company, on an annual basis, undertakes a review and valuation of the net carrying value, recoverability and write-off of all categories of its intangible assets. The Company in its valuation considers current market values of its properties, competition, prevailing economic conditions, government policy including taxation, and the Company's and the industry's historical and current growth patterns, as well as the recoverability of the cost of its intangible assets based on a comparison of estimated undiscounted operating cash flows. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and liquid investments with a maturity of three months or less from the date of purchase. INCOME TAXES The Company has elected to be taxed as an S Corporation under the Internal Revenue Code and, accordingly, pays no federal income taxes. The income or loss of the Company for its tax year is passed through to its shareholder(s) and reported in the income tax returns of the shareholder(s). SUBSCRIPTION REVENUES Subscription revenues received in advance of services rendered are deferred and recorded in income in the period in which the related services are provided. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations or credit risk consist principally of trade receivables. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the immediate or short-term maturity of these financial instruments. Management does not believe it is practicable to estimate the fair value of the Company's debt facilities. (See Note 4). (3) DISPOSITIONS On June 30, 1994 the Company sold its cable television system serving Jackson County, Kentucky. The carrying value of the assets sold at the date of sale, net of accumulated depreciation and amortization was as follows: F-62 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. NOTES TO FINANCIAL STATEMENTS Unaudited as to September 30, 1996 (3) DISPOSITIONS (continued) Reception and distribution facilities and equipment $69,527 Franchise cost 55,714 Goodwill and other intangible assets 50,300 The net loss on this transaction was $157,630, recognized in 1994. Additional proceeds of $48,362 were received in 1995 and recorded as a gain. On October 17, 1994 the Company tendered all of its holding in QVC, Inc., which resulted in a gain of $1,423,650. These transactions are reflected in the statements of operations for the years ended December 31, 1995 and 1994. (4) NOTES AND LOANS PAYABLE Notes and loans payable at September 30, 1996, December 31, 1995 and 1994 are comprised of the following:
------------ ------------ ------------ September 30, December 31, December 31, 1996 1995 1994 ------------ ------------ ------------ Senior Debt Bank Credit Agreement (a) $ 23,199,277 $ 23,428,293 $ 24,690,835 Revolving Credit Facility (b) 5,658,854 5,714,716 5,846,332 Senior Secured Notes (c) 31,921,720 32,236,841 32,979,288 Step Coupon Senior Subordinated Notes (d) 83,593,122 78,016,664 66,137,000 Junior Subordinated Debentures (e) 43,030,789 43,030,789 38,046,675 Capitalized lease obligation 350 3,599 7,281 ------------ ------------ ------------ $187,404,112 $182,430,902 $167,707,411 ============ ============ ============
(a) The Company has a credit agreement with Crestar Bank providing for total borrowings of $25,000,000. This agreement provided for interest up to 1.5 percentage points over the bank's prime rate (or from 1.0 to 2.5 percentage points over LIBOR). Interest only was payable quarterly in arrears on the last day of March, June, September and December, and at the end of any LIBOR borrowing period. The total commitment terminated at its maturity date of October 31, 1995. Upon the payment default at maturity, the default rate of prime plus 4% was charged. Upon the effective date of the Override Agreement, interest is payable monthly at the rate of 11.75% per annum. (b) The Company has a revolving credit facility with Sanwa Business Credit Corporation which originally provided for borrowings of up to $15,000,000. The total commitment was reduced to $7,000,000 in early 1994, and in December 1994, the balance of the unused commitment was terminated. The agreement provided for interest of up to 1.5 points over the Sanwa's prime rate (or from 1.0 to 2.5 percentage points over LIBOR). Interest was payable quarterly in arrears on the last day of March, June, September and December, and at the end of any LIBOR borrowing period. The total commitment terminated at its maturity date of October 31, 1995. Upon the payment default at maturity, the default rate of prime plus 4% was charged. Upon the effective date of the Override Agreement, interest is payable monthly at the rate of 11.75% per annum. F-63 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. NOTES TO FINANCIAL STATEMENTS Unaudited as to September 30, 1996 (4) NOTES AND LOANS PAYABLE (continued) (c) Senior Secured Notes were issued on November 7, 1989 bearing interest at 10.125% and matured November 7, 1995. The interest rate increased to 10.225% effective January 1, 1991. Interest only was payable quarterly in arrears on the last day of March, June, September and December. Upon the payment default at maturity, interest was charged at 12.25%. Upon the effective date of the Override Agreement, interest is payable monthly at the rate of 11.75% per annum. (d) Step Coupon Senior Subordinated Notes due April 30, 1996 were issued on November 7, 1989 in the principal amount of $66,137,000 with a stated interest rate of 15.7472%. Interest accreted and compounded semi- annually through October 31, 1994. Although interest payments of $5,125,618 were payable semi-annually beginning April 30, 1995 until maturity, only $1,300,000 of interest has been paid. These notes were issued with warrants to purchase up to 150 shares of Class C Non-voting Common Stock for an aggregate exercise price of $330,000. As a result of the recapitalization (See Note 5), the number of shares the warrant holders were entitled to purchase was increased to 58,531 shares of the Class C stock. There are certain restrictions as to when the warrants may be exercised, and they expire on November 7, 2001. Total proceeds from the issuance of these warrants amounted to $200,000. Accreted interest was $17,456,122, $11,879,664 and $1,708,540 at September 30, 1996, December 31, 1995 and December 31, 1994, respectively. (e) Junior Subordinated Debentures due October 31, 1997, were issued on November 7, 1989 for $20,800,000, bearing interest at 13.1%. Interest is deferred and compounds annually on September 30 of each year and is payable on the maturity date. On the maturity date, the Company shall pay as additional interest on the Notes, an amount equal to the greater of 4% of net operating income of the Company from November 7, 1989 through and including the maturity date, or 15% of the fair market value of the Company, but in no event shall the amount exceed $2,153,000. Accreted and accrued interest was $29,729,270, $25,299,651 and $19,883,183 at September 30, 1996, December 31, 1995 and December 31, 1994, respectively. These notes were issued with warrants to purchase up to 595 shares of common stock and up to 1,000 shares of 6% non-cumulative preferred stock. These warrants are exercisable in whole or in part through November 7, 1999 for an aggregate exercise price of $2,000,000. Upon exercise, the warrants can be converted into either Class A Voting Stock or Class B Non-Voting Stock at the option of the warrant holder. Shares will be issued in the ratio of .595 shares of common stock to each share of preferred stock. As a result of the recapitalization (See Note 5), the number of shares the warrant holders were entitled to purchase was increased to 233,359 shares of common stock, in the ratio of 233.359 shares of common stock to each share of preferred stock. Total proceeds from the issuance of these warrants amounted to $1,200,000. The Senior Subordinated and Junior Subordinated Notes will continue to earn interest at the rate of 15.5% and 13.1%, respectively, although, unless any of certain specified defaults occur, net proceeds of a sale will be distributed as provided for in the Override Agreement. The Company leased equipment under a lease agreement which is classified as a capital lease. The lease term is 3 years and expires in December, 1996. In 1989 the Company entered into an interest cap agreement and an interest floor agreement covering $25,000,000 of borrowings which expired November 1, 1994. Under the cap agreement, Fleet Bank, (as successor to Bank of New England), made payments to the Company on a quarterly basis in an amount equal to $25,000,000 multiplied by the excess of the then current three month LIBOR rate over 9%. Under the floor agreement, the Company made payments to Crestar Bank on a quarterly basis in an amount equal to $25,000,000 multiplied by the difference between the then current three month LIBOR rate and 8%, to the extent that the three month LIBOR rate is less than 8%. Approximately $793,000 was charged to interest expense and paid in 1994 relating to the floor agreement. F-64 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. NOTES TO FINANCIAL STATEMENTS Unaudited as to September 30, 1996 (4) NOTES AND LOANS PAYABLE (continued) The Senior Debt and Senior Subordinated Notes are secured by substantially all the assets of the Company. The Company's debt agreements contain certain restrictive covenants requiring the maintenance of minimum subscriber levels and certain financial ratios. The Company has not been in compliance with certain covenants in its debt agreements, including the timely payment of principal and interest. (See Note 1). DEBT MATURITIES All of the Company's debt is due upon the consummation of the sale of the Company in accordance with the Forbearance and Override Agreements. (see Note 1). (5) CAPITAL STOCK The Company's Board of Directors adopted a resolution on December 31, 1995 which, among other things, established a new class of common stock (Class D), and authorized the exchange of the outstanding Class A shares for one share of Class A and 99,999 shares of Class D. Additional shares of Class B and Class C stock were authorized as well. The Company's Certificate of Incorporation was amended on February 29, 1996 to reflect these changes. Capital stock of the Company at December 31, 1994 and prior to the December 31, 1995 resolution noted above, consisted of the following: Number of Shares ------------------------- Issued and Authorized Outstanding ---------- ----------- Common Stock Class A-- $.10 par value 850 255 Class B-- $.10 par value 595 Class C-- $.10 par value 150 6% Non-cumulative Preferred Stock $1,000 par value 1,000 Capital stock of the Company after the recapitalization consists of the following at September 30, 1996 and December 31, 1995: Number of Shares ------------------------- Issued and Authorized Outstanding ---------- ----------- Common Stock Class A-- $.10 par value 233,360 1 Class B-- $.10 par value 231,940 Class C-- $.10 par value 58,531 Class D-- $.10 par value 99,999 99,999 6% Non-cumulative Preferred Stock $1,000 par value 1,000 The Class A common stock is voting. The Class B, Class C and Class D shares are non-voting. Class B shares are convertible into Class A shares at a rate of one for one. See Note 4 for disclosure of warrants for unissued capital stock at September 30, 1996, December 31, 1995 and 1994. F-65 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. NOTES TO FINANCIAL STATEMENTS Unaudited as to September 30, 1996 (6) TRANSACTIONS WITH RELATED PARTIES KYMC acts as manager for the Company. In accordance with the management agreement, KYMC is paid a management fee equal to 3% of total revenue (as defined in the management agreement) plus out-of-pocket expenses not to exceed 1% of total revenue. The management fee for the nine months ended September 30, 1996 and the years ended December 31, 1995, 1994 and 1993 was $696,942, $842,644, $819,095 and $749,305 respectively. Included in accounts payable and accrued expenses at December 31, 1994 is a payable in the amount of $151,190 to Scott Cable Communications, Inc. ("Scott"), an affiliated Company, for certain administrative costs paid by Scott on behalf of the Company. (7) COMMITMENTS The Company rents pole space, office space and equipment under operating leases. Future minimum payments, by year and in the aggregate, under noncancelable operating leases with terms of one year or more are as follows: 1996 $132,081 1997 104,417 1998 59,412 1999 56,006 2000 45,182 Thereafter 53,675 -------- Total $450,773 ======== Rent expense for the nine months ended September 30, 1996 and the years ended December 31, 1995, 1994 and 1993 was $165,497, $202,652, $204,164 and $207,901 respectively. (8) 401K RETIREMENT/SAVINGS PLAN The Company's employees are covered by a 401(k) retirement/savings plan covering all employees who meet service requirements. Total plan expenses for the nine months ended September 30, 1996 and the years ended December 31, 1995, 1994 and 1993 was $5,049, $7,660, $5,769 and $7,099, respectively. (9) REGULATORY MATTERS On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which regulates the cable television industry. Pursuant to the 1992 Cable Act, the Federal Communications Commission (the "FCC") has issued numerous regulations which include provisions regarding rates and other matters. As a result of these rules, the Company was required to reduce many of its basic service rates effective September 1, 1993, and again on August 1, 1994. On June 5, 1995, the FCC extended regulatory relief to small cable operators. All of the Company's cable systems qualified for this regulatory relief, which allows for greater flexibility in establishing rates (including increases). On February 8, 1996, Congress enacted the 1996 Telecommunications Act which, among other things, immediately deregulated all levels of service except broadcast basic service for small cable operators for which all of the Company's cable systems qualified. F-66 AMERICAN CABLE ENTERTAINMENT OF KENTUCKY-INDIANA, INC. NOTES TO FINANCIAL STATEMENTS Unaudited as to September 30, 1996 (10) Sale of the Company's Cable Television Systems and Emergence from Bankruptcy (Unaudited) As described in Note 1, the Company filed a prepackaged bankruptcy under Chapter 11 of the Federal Bankruptcy Code on August 1, 1996. The prepackaged bankruptcy, which was agreed to by the Company, the Company's Step Coupon Senior Subordinated Noteholders and the Company's Junior Subordinated Noteholders, called for, among other things: the sale of the Company's cable television systems to FrontierVision; the payment in full of the Senior Debtholders from the proceeds of the sale; the payment in full of trade creditors in the ordinary course of business; and the allocation of the remaining sale proceeds among the Step Coupon Senior Subordinated Noteholders, the Junior Subordinated Noteholders and KYMC. On October 9, 1996 the Company consummated the sale of its cable television systems to FrontierVision for $146 million, subject to certain purchase price adjustments and effectively emerged from the prepackaged bankruptcy. Senior Debtholders and trade creditors were paid in full as a result of the prepackaged bankruptcy. Step Coupon Senior Subordinated Noteholders, Junior Subordinated Noteholders and KYMC, with aggregate debt of $137,161,625, at September 30, 1996 were paid $78,343,097, as a result of the prepackaged bankruptcy. During the nine months ended September 30, 1996 the Company incurred expenses totaling $912,865 in connection with the Forbearance Agreement, the Override Agreement and in connection with the reorganization of the Company under Chapter 11. Under Generally Accepted Accounting Principles, entities in reorganization under the bankruptcy code are required to comply with the provisions of Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which requires, among other things: a segregation of liabilities subject to compromise by the Bankruptcy Court as of the bankruptcy filing date; the reporting of prepetition liabilities on the basis of the expected amount of the allowed claims; and separate disclosure of expenses directly related to the reorganization of the Company. Given the sale of the Company's cable television systems and the Company's emergence from bankruptcy on October 9, 1996, the Company's unaudited financial statements as of and for the nine months ended September 30, 1996 have not been prepared in accordance with SOP 90-7. These unaudited interim financial statements have been prepared in accordance with the basis of presentation indicated in Note 2. F-67 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Triax Southeast Associates, L.P.: We have audited the accompanying balance sheets of Triax Southeast Associates, L.P. (a Delaware limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' capital and cash flows for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Triax Southeast Associates, L.P. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years ended December 31, 1995, 1994 and 1993, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, February 27, 1996. F-68 TRIAX SOUTHEAST ASSOCIATES, L.P. BALANCE SHEETS
------------------------------------------------------------- December 31, September 30, ------------------------------------ 1996 1995 1994 ------------ ------------ ------------ Unaudited ASSETS Cash $ 852,907 $ 3,380,723 $ 699,077 Receivables, net of allowance of $7,747, $29,985 and $52,302 at September 30, 1996 and December 31, 1995 and 1994, respectively 703,356 600,866 542,832 Prepaid Expenses 100,628 167,908 174,821 Inventory -- 346,274 444,624 Property, Plant and Equipment, net 35,966,591 38,761,227 36,496,820 Purchased Intangibles, net 8,292,119 9,542,002 10,105,115 Other Assets, net 959,186 933,591 1,118,718 ------------ ------------ ------------ TOTAL ASSETS $ 46,874,787 $ 53,732,591 $ 49,582,007 ============ ============ ============ LIABILITIES AND PARTNERS' CAPITAL Accrued Interest Expense $ 24,924 $ 258,223 $ 168,559 Accounts Payable and Other Accrued Expenses 1,611,149 1,710,636 1,962,757 Subscriber Prepayments and Deposits 58,724 71,105 42,470 Payable to Affiliates 274,686 239,021 227,355 Debt 37,242,965 42,546,539 35,787,218 ------------ ------------ ------------ Total Liabilities 39,212,448 44,825,524 38,188,359 Partners' Capital: General Partner (63,376) (50,929) (26,063) Limited Partners 7,725,715 8,957,996 11,419,711 ------------ ------------ ------------ TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 46,874,787 $ 53,732,591 $ 49,582,007 ============ ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. F-69 TRIAX SOUTHEAST ASSOCIATES, L.P. STATEMENTS OF OPERATIONS
----------------------------------------------------------------------------------- Nine Months Ended December 31, September 30, ----------------------------------------------------------- 1996 1995 1994 1993 ------------- ------------- ------------- ----------- Unaudited REVENUES $ 14,520,733 $ 17,780,041 $ 15,057,652 $ 7,810,891 ------------ ------------ ------------ ----------- EXPENSES: Programming 2,892,862 3,400,604 2,661,058 1,128,730 Operating, selling, general and administrative 3,953,135 5,104,803 4,489,003 2,268,325 Overhead expenses paid to affiliate 221,847 211,993 176,705 74,393 Management fees paid to affiliate 726,036 888,996 752,882 390,545 Depreciation and amortization 5,505,387 7,344,035 6,252,573 3,307,310 ------------ ------------ ------------ ----------- 13,299,267 16,950,431 14,332,221 7,169,303 Operating Income 1,221,466 829,610 725,431 641,588 Loss on sale of assets 244,180 -- -- -- Interest Expense, net 2,222,014 3,316,191 2,359,980 1,056,256 ------------ ------------ ------------ ----------- NET LOSS $ (1,244,728) $ (2,486,581) $ (1,634,549) $ (414,668) ============ ============ ============ ===========
The accompanying notes to financial statements are an integral part of these statements. F-70 TRIAX SOUTHEAST ASSOCIATES, L.P. STATEMENTS OF PARTNERS' CAPITAL
------------------------------------------------------ General Limited Partner Partners Total -------- ------------ ------------ Balances, December 31, 1992 $ (5,571) $ 6,448,436 $ 6,442,865 Contributions -- 7,000,000 7,000,000 Net loss (4,147) (410,521) (414,668) -------- ------------ ------------ Balances, December 31, 1993 (9,718) 13,037,915 13,028,197 Net loss (16,345) (1,618,204) (1,634,549) -------- ------------ ------------ Balances, December 31, 1994 (26,063) 11,419,711 11,393,648 Net loss (24,866) (2,461,715) (2,486,581) -------- ------------ ------------ Balances, December 31, 1995 (50,929) 8,957,996 8,907,067 Net loss unaudited (12,447) (1,232,281) (1,244,728) -------- ------------ ------------ Balances, September 30, 1996 unaudited $(63,376) $ 7,725,715 $ 7,662,339 ======== ============ ============
The accompanying notes to financial statements are an integral part of these statements. F-71 TRIAX SOUTHEAST ASSOCIATES, L.P. STATEMENTS OF CASH FLOWS
------------------------------------------------------------- Nine Months Ended Years Ended December 31, September 30, -------------------------------------------- 1996 1995 1994 1993 ----------- ----------- ----------- ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,244,728) $(2,486,581) $(1,634,549) $ (414,668) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 5,505,387 7,344,035 6,252,573 3,307,310 Write-off of assets 9,111 (Increase) decrease in receivables, net (102,490) (58,034) 6,042 (345,197) (Increase) decrease in prepaid expenses 67,280 6,913 (128,309) (20,657) (Decrease) increase in accrued interest expense (233,299) 89,664 26,923 (45,894) (Decrease) increase in accounts payable and other accrued expenses (99,487) (252,121) 803,714 274,125 (Decrease) increase in subscriber prepayments and deposits (12,381) 28,635 (3,886) 17,495 (Decrease) increase in payable to affiliates 35,665 11,666 72,286 30,849 ----------- ----------- ----------- ------------ Net cash flows from operating activities 3,925,058 4,684,177 5,394,794 2,803,363 ----------- ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of properties, including purchased intangibles (184,000) (6,065,116) (74,203) (25,342,487) Purchase of property, plant and equipment (1,420,160) (2,369,183) (3,643,894) (1,269,346) Proceeds from sale of property, plant and 108,043 equipment -- -- -- -- (Increase) decrease in inventory 346,274 98,350 263,815 (610,502) Increase in franchise costs and other assets (183,457) (10,387) (121,663) -- ----------- ----------- ----------- ------------ Net cash flows from investing activities (1,333,300) (8,346,336) (3,575,945) (27,222,335) ----------- ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings -- 9,400,000 1,000,000 19,400,000 Repayment of borrowings (5,020,000) (2,880,000) (2,500,000) (1,400,000) Partners' contributions -- -- -- 7,000,000 Cash paid for loan costs -- (66,520) (117,107) (340,789) Repayment of capital lease obligations (99,574) (109,675) (60,007) (24,725) ----------- ----------- ----------- ------------ Net cash flows from financing activities (5,119,574) 6,343,805 (1,677,114) 24,634,486 ----------- ----------- ----------- ------------ NET INCREASE IN CASH (2,527,816) 2,681,646 141,735 215,514 CASH, beginning of period 3,380,723 699,077 557,342 341,828 ----------- ----------- ----------- ------------ CASH, end of period $ 852,907 $ 3,380,723 $ 699,077 $ 557,342 =========== =========== =========== ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 2,549,048 $ 3,268,546 $ 2,333,057 $ 1,102,150 =========== =========== =========== ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisitions with capital leases $ -- $ 164,996 $ 233,047 $ 66,236 =========== =========== =========== ============ Note issued for acquisition of properties $ -- $ 184,000 $ -- $ -- =========== =========== =========== ============
The accompanying notes to financial statements are an integral part of these statements. F-72 TRIAX SOUTHEAST ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS (1) THE PARTNERSHIP ORGANIZATION AND CAPITALIZATION Triax Southeast Associates, L.P. (the "Partnership") is a Delaware limited partnership formed January 23, 1992 for the purpose of acquiring, constructing, owning, and operating cable television systems, located primarily in Kentucky, North Carolina, West Virginia and Ohio. The Partnership was capitalized and commenced operations on July 28, 1992, with $7,000,000 of limited partner contributions and a $70,000 demand non-interest bearing note from its general partner, Triax Southeast General Partner, L.P. ("Southeast, G.P."). Triax Investors Southeast, L.P. ("Investors"), a limited partnership in which Triax Southeast Associates, Inc. ("Southeast Inc."), a Delaware corporation, is the general partner, contributed $1,000,000 to the Partnership. Southeast Inc. is a wholly owned subsidiary of Triax Communications Corporation ("TCC"), a Delaware corporation. Southeast Inc. contributed capital of $1,000,000 and a $59,500 demand non-interest bearing note to Investors for a general partnership interest. In addition, Southeast Inc. contributed a $700 demand non-interest bearing note to Southeast, G.P. for a general partnership interest. Investors contributed a $59,500 demand non-interest bearing note for a limited partner interest in Southeast, G.P. On December 15, 1993, the Partnership Agreement was amended to reflect additional capital contributions of $7,000,000 by certain limited partners. Southeast Inc. contributed $1,250,000 to Investors, who in turn contributed an additional $1,250,000 to the Partnership. The Partnership Agreement, as amended, provides that at any time after April 30, 1997, upon notice from a majority of the limited partners that they desire to cause a sale of the Partnership's assets and business (or all of the interests in the Partnership), TCC may purchase all of the Partnership's assets and business (or all of the interests in the Partnership), subject to the approval of the majority of limited partners. In addition, after July 31, 1998, each limited partner who has made capital contributions in excess of $1,000,000 may cause the sale of the Partnership's assets and business and liquidation of the Partnership. The above dates may be extended to 1998 or 1999 to coincide with the revised termination date of one of the limited partner's partnership agreement, if and when the limited partner extends the termination date. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS Profits The Partnership Agreement, as amended, provides that profits will be allocated as follows: (i) 1% to the general partner and 99% to the limited partners until profits allocated to them equal losses previously allocated; (ii) to the limited partners until the limited partners have been allocated profits equal to a 12% per annum cumulative preferred return on their capital contributions plus the amount of losses previously allocated; then, (iii) 20% to the general partner and 80% to the limited partners. F-73 TRIAX SOUTHEAST ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS (1) THE PARTNERSHIP (continued) Losses The Partnership Agreement, as amended, provides that losses will be allocated 1% to the general partner and 99% to the limited partners, except no losses shall be allocated to any limited partner which would cause the limited partner's capital account to become negative by an amount greater than the limited partner's share of the Partnership's "minimum gain" (the excess of the Partnership's nonrecourse debt over its adjusted basis in the assets encumbered by nonrecourse debt), as defined, plus any amount of Partnership debt assumed by the limited partner or any amount the limited partner is obligated to contribute to the Partnership; then 100% to the general partner. Distributions The Partnership Agreement, as amended, provides that Distributable Cash, as defined, will be distributed as follows: (i) to the partners in proportion to their Capital Contribution Accounts, as defined, until the balances are reduced to zero; (ii) to the limited partners until the limited partners have received a 12% per annum cumulative preferred return on their capital contributions and then, (iii) 20% to the general partner and 80% to the limited partners. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INTERIM FINANCIAL STATEMENTS The financial statements and related footnote disclosures as of September 30, 1996 and for the nine months ended September 30, 1996 are unaudited. In management's opinion, the unaudited financial statements as of September 30, 1996 and for the nine months ended September 30, 1996 include all adjustments necessary for a fair presentation. Such adjustments were of a normal recurring nature. REVENUE RECOGNITION Revenues are recognized in the period the related services are provided to the subscribers. INCOME TAXES No provision has been made for federal, state or local income taxes because they are the responsibility of the individual partners. The principal difference between net income or loss for income tax and financial reporting purposes results from the use of accelerated depreciation for tax purposes. F-74 TRIAX SOUTHEAST ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) INVENTORY Inventory is carried at historical cost, which approximates market value, and consists primarily of installation materials and addressable trap changers. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Replacements, renewals and improvements are capitalized and costs for repairs and maintenance are charged directly to expense when incurred. The Partnership capitalized a portion of technician and installer salaries to property , plant, and equipment which amounted to approximately $299,692 for the nine months ended September 30, 1996 and $283,000 and $422,000 for the years ended December 31, 1995 and 1994, respectively. Depreciation and amortization are computed using the straightline method over the following estimated useful lives:
------------------------------------------------------------- December 31, September 30, ----------------------------- 1996 1995 1994 Life ------------ ------------ ------------ ------------ Unaudited Property, plant and equipment $ 52,400,285 $ 51,188,466 $ 43,704,363 5-10 years Less: Accumulated depreciation (16,433,694) (12,427,239) (7,207,543) ------------ ------------ ------------ $ 35,966,591 $ 38,761,227 $ 36,496,820 ============ ============ ============
PURCHASED INTANGIBLES Purchased intangibles are being amortized using the straight-line method over the following estimated useful lives:
---------------------------------------------------------- December 31, September 30, ----------------------------- 1996 1995 1994 Life ------------ ------------ ------------ -------- Unaudited Franchise costs $ 13,026,848 $ 13,026,720 $ 11,832,807 10 years Noncompete agreements 850,000 850,000 1,700,000 3 years ------------ ------------ ------------ 13,876,848 13,876,720 13,532,807 Less: Accumulated amortization (5,584,729) (4,334,718) (3,427,692) ------------ ------------ ------------ $ 8,292,119 $ 9,542,002 $ 10,105,115 ============ ============ ============
During 1995, the Partnership wrote-off approximately $1,000,000 of noncompete agreements, and the associated accumulated amortization, as the noncompete agreements had expired. IMPAIRMENT OF LONG-LIVED ASSETS The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS 121 is required to be adopted by the Company in fiscal 1996. Management believes the adoption of SFAS 121 will not have a material impact on the financial statements. F-75 TRIAX SOUTHEAST ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) OTHER ASSETS Other assets are being amortized using the straight-line method over the following estimated useful lives: ------------------------------------------------------- December 31, September 30, --------------------------- 1996 1995 1994 Life ----------- ------------ ------------ -------- Unaudited Loan costs $ 1,111,608 $ 1,111,608 $ 1,084,999 5 years Organization costs 441,435 441,435 441,435 5 years Other 187,204 3,875 -- 10 years ----------- ----------- ---------- 1,740,247 1,556,918 1,526,434 Less: Accumulated amortization (781,061) (623,327) (407,716) ----------- ----------- ---------- $ 959,186 $ 933,591 $1,118,718 =========== =========== ========== (3) ACQUISITIONS On February 28, 1995, the Partnership acquired certain cable television systems and related assets of Rodgers Cable TV, Inc. ("Rodgers"). The purchase price of approximately $5,700,000, including closing costs, was accounted for by the purchase method of accounting and allocated as follows: Property, plant and equipment $4,580,000 Franchise costs 1,019,400 Non-compete 100,600 ---------- Total cash paid $5,700,000 ========== On March 31, 1995, the Partnership acquired cable television systems and related assets of Green Tree Cable T.V., Inc. The purchase price of approximately $570,000, including closing costs, was accounted for by the purchase method of accounting. On December 15, 1993, the Partnership acquired cable television systems and related assets of C4 Media Cable South, L.P. for approximately $17 million, and on December 21, 1993, acquired additional cable television system assets and related liabilities of Charter Cable, Inc. for approximately $6.5 million. Acquisition-related fees totaled approximately $700,000. The acquisitions were financed by additional limited partners' contributions of $7 million, the drawdown by the Partnership of $17.6 million under its amended Revolving Credit and Term Loan and available cash of $750,000. The acquisitions were accounted for by the purchase method of accounting and allocated as follows: Property, plant and equipment $20,144,000 Franchise costs 2,756,000 Non-compete 600,000 ----------- Total cash paid $23,500,000 =========== F-76 TRIAX SOUTHEAST ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS (4) DEBT Debt consisted of the following at September 30, 1996, and December 31, 1995 and 1994, respectively.
---------------------------------------------- December 31, September 30, ----------------------------- 1996 1995 1994 ------------ ------------ ----------- Unaudited Revolving Credit and Term Loan, interest payable quarterly based on varying interest rate options $37,000,000 $42,020,000 $35,500,000 Note Payable to seller -- 184,000 -- Vehicle leases 242,965 342,539 287,218 ----------- ----------- ----------- $37,242,965 $42,546,539 $35,787,218 =========== =========== ===========
The Revolving Credit and Term Loan Agreement, as amended through February 28, 1995 (the "Revolver"), is collateralized by all property, plant and equipment, inventory and accounts receivable of the Partnership and all rights under present and future permits, licenses and franchises. On September 30, 1995, the outstanding principal was converted into a term loan with quarterly payments from December 31, 1995 through June 30, 2002. Commencing in 1996, within 120 days after the close of the fiscal year, the Partnership must make a mandatory prepayment in an amount equal to 50% of the excess cash flow, as defined, for the prior year. A commitment fee of 1/2% per annum is charged on the daily unused portion of the commitment amount. The Partnership entered into LIBOR interest rate agreements with the banks related to the Revolver. The Partnership fixed the interest rate on $40 million at 7.21% for the period from June 4, 1996 to August 5, 1996. The remaining outstanding balance bears interest at prime plus 1%. On July 1, 1994 the Partnership paid $135,000 for an interest rate cap of 7% on the LIBOR rate on $18 million effective July 1, 1994 through July 1, 1996, and on March 27, 1995, paid $62,000 for an interest rate cap of 7.5% on the LIBOR rate on $10 million effective March 27, 1995 through March 27, 1997. The loan agreement contains certain covenants, the more significant of which include leverage and interest coverage ratios and limitations on capital expenditures. Debt maturities required as of December 31, 1995 are as follows: Year Amount --------------------- 1996 $ 3,174,759 1997 4,731,241 1998 5,578,235 1999 6,842,304 2000 7,920,000 Thereafter 14,300,000 ----------- $42,546,539 =========== (5) RELATED PARTY TRANSACTIONS TCC provides management services to the Partnership for a fee equal to 5% of gross revenues, as defined. The Partnership incurred management fees totaling $726,036 for the nine months ended September 30, 1996, and $888,996, $752,882 and $390,545 in 1995, 1994 and 1993, respectively. F-77 TRIAX SOUTHEAST ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS (5) RELATED PARTY TRANSACTIONS (continued) TCC also allocates certain overhead expenses to the Partnership, based on proportionate subscriber revenues, which primarily relate to employment costs, which expenses are limited to 1.25% of gross revenues. These overhead expenses amounted to $168,609 for the nine months ended September 30, 1996, and $211,993, $176,705 and $74,393 in 1995, 1994 and in 1993, respectively. TCC was paid acquisition fees of $235,000 in 1993 related to the acquisition of certain assets. Such fees are included in purchased intangibles in the accompanying balance sheets. TCC may be paid a disposition fee of 1% of the sales price of the Partnership after certain approvals of the limited partners, and after certain other conditions are met. The Partnership purchases programming from TCC at TCC's cost, which includes volume discounts TCC might earn. (6) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents approximates fair value because of the nature of the investments and the length of maturity of the investments. The estimated fair value of the Partnership's debt instruments are based on borrowing rates that would be equal to existing rates, therefore, there is no material difference in the fair market value and the current value. (7) REGULATORY MATTERS In October 1992, Congress enacted the Cable Television Consumer and Competition Act of 1992 (the "1992 Cable Act") which greatly expanded federal and local regulation of the cable television industry. In April 1993, the Federal Communications Commission ("FCC") adopted comprehensive regulations, effective September 1, 1993, governing rates charged to subscribers for basic cable and cable programming services (other than programming offered on a per-channel or per-program basis). The FCC implemented regulation which allowed cable operators to justify regulated rates in excess of the FCC benchmarks through cost of service showings at both the franchising authority level for basic service and to the FCC in response to complaints on rates for cable programming services. On February 22, 1994, the FCC issued further regulations which modified the FCC's previous benchmark approach, adopted interim rules to govern cost of service proceedings initiated by cable operators, and lifted the stay of rate regulations for small cable systems, which were defined as all systems serving 1,000 or fewer subscribers. On November 10, 1994, the FCC adopted "going forward" rules that provided cable operators with the ability to offer new product tiers priced as operators elect, provided certain limited conditions are met, permit cable operators to add new channels at reasonable prices to existing cable programming service tiers, and created an additional option pursuant to which small cable operators may add channels to cable programming service tiers. In May 1995, the FCC adopted small company rules that provided small systems regulatory relief by implementing an abbreviated cost of service rate calculation method. Using this methodology, for small systems seeking to establish rates no higher than $1.24 per channel, the rates are deemed to be reasonable. F-78 TRIAX SOUTHEAST ASSOCIATES, L.P. NOTES TO FINANCIAL STATEMENTS (7) REGULATORY MATTERS (continued) In February 1996, the Telecommunications Act of 1996 was enacted which, among other things, deregulated cable rates for small systems on their programming tiers. To date, the FCC's regulations have not had a material adverse effect on the Partnership due to the lack of certifications by the local franchising authorities. F-79 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Cox Communications, Inc. We have audited the accompanying combined statement of net assets of Cox Communications, Inc.'s ("CCI") Central Ohio Cluster as of December 31, 1996, and the related combined statements of income, changes in net assets, and cash flows for the year then ended. These financial statements are the responsibility of CCI's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Cox Communications, Inc.'s Central Ohio Cluster at December 31, 1996, and the combined results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Note 1, CCI sold the assets and certain liabilities of the Central Ohio Cluster. DELOITTE & TOUCHE LLP August 29, 1997 (December 19, 1997 as to the second paragraph in Note 1) Atlanta, Georgia F-80 CENTRAL OHIO CLUSTER COMBINED STATEMENTS OF NET ASSETS ------------------------------------- September 30, December 31, 1997 1996 -------------------------------- (Unaudited) (Thousands of Dollars) ASSETS Cash $ 28 $ 239 Accounts receivable, less allowance for doubtful accounts of $87 and $66 2,511 2,310 Net plant and equipment 24,278 24,512 Intangible assets 148,284 151,263 Other assets 853 1,448 -------- -------- Total assets $175,954 $179,772 ======== ======== LIABILITIES AND NET ASSETS Accounts payable and accrued expenses $ 667 $ 1,245 Deferred income 1,416 1,430 Deferred income taxes 62,294 63,442 Other liabilities 399 191 Amounts due to Affiliates 29,571 35,107 -------- -------- Total liabilities 94,347 101,415 Net assets 81,607 78,357 -------- -------- Total liabilities and net assets $175,954 $179,772 ======== ========
See notes to combined financial statements. F-81 CENTRAL OHIO CLUSTER COMBINED STATEMENTS OF INCOME ---------------------------------------------------------- Nine Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 1997 1996 1996 ---------- -------------- ------------- (Unaudited) (Unaudited) (Thousands of Dollars) Revenues $ 25,486 $ 23,389 $ 31,749 Costs and expenses: Operating 8,387 7,371 10,132 Selling, general and administrative 3,408 3,772 5,143 Depreciation 3,735 3,579 4,846 Amortization 2,979 2,979 3,972 ----- ----- ----- Operating income 6,977 5,688 7,656 Interest expense with affiliates (1,443) (1,851) (2,346) Other, net (25) 6 5 ----- ----- ----- Income before income taxes 5,509 3,843 5,315 Income taxes (2,259) (1,576) (2,176) ----- ----- ----- Net income $ 3,250 $ 2,267 $ 3,139 ===== ===== =====
See notes to combined financial statements. F-82 CENTRAL OHIO CLUSTER COMBINED STATEMENTS OF CHANGES IN NET ASSETS --------------------- (Thousands of Dollars) --------------------- Balance at December 31, 1995 $ 75,218 Net income 3,139 ------ Balance at December 31, 1996 78,357 Net income (Unaudited) 3,250 ------ Balance at September 30, 1997 (Unaudited) $ 81,607 ====== See notes to combined financial statements. F-83 CENTRAL OHIO CLUSTER COMBINED STATEMENTS OF CASH FLOWS ---------------------------------------------------- Nine Months Nine Months Ended Ended Year Ended September 30, September 30, December 31, 1997 1996 1996 --------------- -------------- ----------- (Unaudited) (Unaudited) (Thousands of Dollars) Cash flows from operating activities Net income $ 3,250 $ 2,267 $ 3,139 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,735 3,579 4,846 Amortization 2,979 2,979 3,972 Deferred income taxes (1,148) (1,245) (1,849) (Increase) decrease in accounts receivable (201) 155 (120) Decrease in other assets 595 348 206 Increase (decrease) in accounts payable and accrued expenses (592) 289 803 Other, net 208 (20) (42) -------- -------- -------- Net cash provided by operating activities 8,826 8,352 10,955 -------- -------- -------- Cash flows from investing activities Capital expenditures (3,501) (2,549) (2,939) -------- -------- -------- Net cash used in investing activities (3,501) (2,549) (2,939) -------- -------- -------- Cash flows from financing activities Decrease in amounts due to Affiliates (5,536) (4,933) (7,777) -------- -------- -------- Net cash provided by financing activities (5,536) (4,933) (7,777) -------- -------- -------- Net increase (decrease) in cash (211) 870 239 Cash at beginning of period 239 -- -- -------- -------- -------- Cash at end of period $ 28 $ 870 $ 239 ======== ======== ======== Cash paid during the period for: Interest $ 17 $ 11 $ 14 Income taxes 788 852 905
See notes to combined financial statements. F-84 CENTRAL OHIO CLUSTER NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of and for the Nine Months Ended September 30, 1997 is unaudited) (1) ORGANIZATION AND BASIS OF PRESENTATION The combined financial statements represent the combined operations of Cox Communications, Inc.'s ("CCI") cable television systems serving eight communities in Central Ohio (collectively referred to as the "Central Ohio Cluster"). These cable television systems were acquired by CCI, an indirect 75.3% owned subsidiary of Cox Enterprises, Inc. ("CEI"), from the Times Mirror Company ("Times Mirror") in connection with CCI's acquisition of Times Mirror Cable Television, Inc. ("TMCT") on February 1, 1995. The historical combined financial statements do not necessarily reflect the results of operations or financial position that would have existed had the Central Ohio Cluster been an independent company. All significant intercompany accounts and transactions have been eliminated in the combined financial statements of the Central Ohio Cluster. On December 19, 1997, CCI sold the assets and certain liabilities of the Central Ohio Cluster to FrontierVision Operating Partners, L.P. for approximately $204.0 million. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Central Ohio Cluster bills its customers in advance; however, revenue is recognized as cable television services are provided. Receivables are generally collected within 30 days. Credit risk is managed by disconnecting services to customers who are delinquent generally greater than 75 days. Other revenues are recognized as services are provided. Revenues obtained from the connection of customers to the cable television systems are less than related direct selling costs; therefore, such revenues are recognized as services are provided. Plant and Equipment Depreciation is computed using principally the straight-line method at rates based upon estimated useful lives of five to 20 years for building and building improvements, five to 12 years for cable television systems and three to 10 years for other plant and equipment. The costs of initial cable television connections are capitalized as cable plant at standard rates for the Central Ohio Cluster's labor and at actual cost for materials and outside labor. Expenditures for maintenance and repairs are charged to operating expense as incurred. At the time of retirement, sale or other disposition of property, the original cost and related accumulated depreciation are written off. Intangible Assets Intangible assets consist of goodwill and cable television franchise rights recorded in connection with the acquisition of the Central Ohio Cluster from TMCT and are amortized on a straight-line basis over 40 years. The Central Ohio Cluster assesses on an on-going basis the recoverability of intangible assets based on estimates of future undiscounted cash flows for the applicable business acquired compared to net book value. The Central Ohio Cluster also evaluates the amortization period of intangible assets to determine whether events or circumstances warrant revised estimated of useful lives. F-85 CENTRAL OHIO CLUSTER NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of and for the Nine Months Ended September 30, 1997 is unaudited) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of Long-Lived Assets Effective January 1, 1996, the Central Ohio Cluster adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires that long-lived assets and certain intangibles be reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, with any impairment losses being reported in the period in which the recognition criteria are first applied based on the fair value of the asset. Long-lived assets and certain intangibles to be disposed of are required to be reported at the lower of carrying amounts or fair value less cost to sell. Income Taxes The accounts of the Central Ohio Cluster are included in the consolidated federal income tax return and certain state income tax returns of CEI. Current federal and state income tax expenses and benefits have been allocated on a separate return basis to the Central Ohio Cluster based on the current year tax effects of the inclusion of its income, expenses and credits in the consolidated income tax returns of CEI or based on separate state income tax returns. Deferred income tax assets and liabilities arise from temporary differences in the financial reporting and income tax basis of assets and liabilities. These differences primarily result from property and intangible assets. Fees and Taxes The Central Ohio Cluster incurs various fees and taxes in connection with the operations of its cable television systems, including franchise fees paid to various franchise authorities, copyright fees paid to the U.S. Copyright Tribunal and business and franchise taxes paid to the State of Ohio. A portion of these fees and taxes are passed through to the Central Ohio Cluster's subscribers. Amounts collected from subscribers are recorded as a reduction of operating expenses. Pension, Postretirement and Postemployment Benefits CCI generally provides defined pension benefits to substantially all employees based on years of service and compensation during those years. CCI also provides certain health care and life insurance benefits to substantially all retirees and employees through certain CEI plans. Expense related to the CCI and CEI plans is allocated to the Central Ohio Cluster through the intercompany account. The amount of the allocations is generally based on actuarial determinations of the effects of the Central Ohio Cluster employees' participation in the plans. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-86 CENTRAL OHIO CLUSTER NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of and for the Nine Months Ended September 30, 1997 is unaudited) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The unaudited combined financial statements as of and for the nine months ended September 30, 1997 and 1996, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for this period. Operating results for nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the entire year. (3) CASH MANAGEMENT SYSTEM The Central Ohio Cluster participates in CEI's cash management system, whereby the bank sends daily notification of checks presented for payment. CEI transfers funds from other sources to cover the checks presented for payment. (4) PLANT AND EQUIPMENT ----------------- ----------------- September 30, December 31, 1997 1996 -------- --------- (In Thousands) Land $ 313 $ 311 Buildings and building improvements 990 1,033 Transmission and distribution plant 43,531 41,329 Miscellaneous equipment 2,343 1,478 Construction in progress 531 825 -------- -------- Plant and equipment, at cost 47,708 44,976 Less accumulated depreciation (23,430) (20,464) -------- -------- Net plant and equipment $ 24,278 $ 24,512 ======== ======== (5) INTANGIBLE ASSETS ---------------------------------- September 30, December 31, 1997 1996 ---------- --------- (In Thousands) Goodwill $ 158,876 $ 158,876 Less accumulated amortization (10,592) (7,613) --------- --------- Net intangible assets $ 148,284 $ 151,263 ========= ========= F-87 CENTRAL OHIO CLUSTER NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of and for the Nine Months Ended September 30, 1997 is unaudited) (6) INCOME TAXES Current and deferred income tax expenses (benefits) are as follows: ------------------------------------------ Nine months ended Year ended September 30, 1997 December 31, 1996 ------- ------- (In Thousands) Current: Federal $ 2,906 $ 3,289 State 520 736 ------- ------- Total current 3,426 4,025 ------- ------- Deferred: Federal (1,119) (1,385) State (48) (464) ------- ------- Total deferred (1,167) (1,849) ------- ------- Net income tax expense $ 2,259 $ 2,176 ======= ======= Income tax expense differs from the amount computed by applying the U.S. statutory federal income tax rate (35%) to income (loss) before income taxes as a result of the following items: ------------------------------------------- Nine months ended Year ended September 30, 1997 December 31, 1996 ------ ------ (In Thousands) Computed tax expense at federal statutory rates on income before income taxes $1,928 $1,860 State income taxes, net of federal tax benefit 307 177 Other, net 24 139 ------ ------ Net income tax expense $2,259 $2,176 ====== ======
Significant components of the net deferred tax liability consist of the following: --------------------------------------- Nine months ended Year ended September 30, 1997 December 31, 1996 -------- -------- (Thousands of Dollars) Plant and equipment $ (5,618) $ (5,787) Franchise rights (57,569) (58,638) Other 893 983 -------- -------- Net deferred tax liability $(62,294) $(63,442) ======== ======== (7) RETIREMENT PLANS Qualified Pension Plan Effective January 1, 1996, CCI established the Cox Communications, Inc. Pension Plan (the "CCI Plan"), a qualified noncontributory defined benefit pension plan for substantially all of CCI's employees including the Central Ohio Cluster's employees. Plan assets consist primarily of common stock, investment- F-88 CENTRAL OHIO CLUSTER NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of and for the Nine Months Ended September 30, 1997 is unaudited) (7) RETIREMENT PLANS (CONTINUED) grade corporate bonds, cash and cash equivalents and U.S. government obligations. The CCI Plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with CCI and compensation rates near retirement. The funded status of the portion of the CCI Plan covering the employees of the Central Ohio Cluster is not determinable. The fair value of the CCI Plan assets was greater than the projected benefit obligation as of December 31, 1996. Total pension expense attributable to the Central Ohio Cluster employees' participation in the CCI Plan was $33,000 for the nine month period ended September 30, 1997 and $158,000 for the year ended December 31, 1996. The assumptions used in the actuarial computations at December 31, 1996 were: Discount rate 7.75% Rate of increase in compensation levels 5.50% Expected long-term rate of return on plan assets 9.00% Other Retirement Plans CEI provides certain health care and life insurance benefits to substantially all retirees of CEI and its subsidiaries. Postretirement expense allocated to the Central Ohio Cluster by CEI was $13,000 for the nine month period ended September 30, 1997 and $15,000 for the year ended December 31, 1996. CEI has been contributing additional amounts to the Cox Pension Plan Trust to fund health care benefits pursuant to Section 401(h) of the Internal Revenue Code. CEI is funding benefits to the extent contributions are tax deductible. In general, retiree health benefits are paid as covered expenses are incurred. The funded status of the postretirement plan covering the employees of the Central Ohio Cluster is not determinable. The accumulated postretirement benefit obligation for the postretirement plan of CEI substantially exceeded the fair value of assets held in the Cox Pension Plan Trust at December 31, 1996. In addition, substantially all of Central Ohio Cluster's employees are eligible to participate in the savings and investment plan of CEI. Under the terms of the plan, the Central Ohio Cluster matches 50% of employee contributions up to a maximum of 6% of the employee's base salary. The Central Ohio Cluster's expense under the plan was $57,000 for the nine-month period ended September 30, 1997 and $83,000 for the year ended December 31, 1996. (8) TRANSACTIONS WITH AFFILIATED COMPANIES The Central Ohio Cluster borrows funds for working capital and other needs from CCI. Certain management services are provided to the Central Ohio Cluster by CCI and CEI. Such services include legal, corporate secretarial, tax, treasury, internal audit, risk management, benefits administration and other support services. The Central Ohio Cluster was allocated expenses for the nine months ended September 30, 1997 and for the year ended December 31, 1996 of approximately of $604,000 and $1,320,000, respectively, related to these services. Allocated expenses are based on management's estimate of expenses related to the services provided to the Central Ohio Cluster in relation to those provided to other divisions of CCI and CEI. Management believes that these allocations were made on a reasonable basis. However, the allocations are not necessarily indicative of the level of expenses that might have been incurred had the Central Ohio Cluster contracted directly with third parties. Management has not made a F-89 CENTRAL OHIO CLUSTER NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of and for the Nine Months Ended September 30, 1997 is unaudited) (8) TRANSACTIONS WITH AFFILIATED COMPANIES (CONTINUED) study or any attempt to obtain quotes from third parties to determine what the cost of obtaining such services from third parties would have been. The fees and expenses to be paid by the Central Ohio Cluster various transactions, including those described above. At December 31, 1996 and September 30, 1997, outstanding amounts due to affiliates bear interest at fifty basis points above CCI's commercial paper borrowings. This rate as of September 30, 1997 and December 31, 1996 was 6.32% and 6.6%, respectively. In accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," the Central Ohio Cluster has estimated the fair value of its intercompany advances and notes payable. Given the short-term nature of these advances, the carrying amounts reported in the statements of net assets approximate fair value. (9) COMMITMENTS AND CONTINGENCIES The Central Ohio Cluster leases office facilities and various items of equipment under noncancelable operating leases. Rental expense under operating leases amounted to $259,000 for the nine month period ended September 30, 1997 and $331,000 for the year ended December 31, 1996. Future minimum lease payments as of September 30, 1997 for all noncancelable operating leases are as follows: 1997 $ 18 1998 40 1999 31 2000 31 2001 31 2002 7 ------ Total $ 158 ====== The FCC has adopted rate regulations required by the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). Beginning in September 1995, the FCC authorized a method of implementing rate adjustments which allows cable operators to increase rates for programming annually on the basis of proposed increases in external costs rather than on the basis of cost increases incurred in the preceding quarter. Local franchising authorities have the ability to obtain certification from the FCC to regulate rates charged by the Central Ohio Cluster for basic cable services and associated basic cable services equipment. In addition, the rates charged by the Central Ohio Cluster for cable programming services ("CPS") can be regulated by the FCC should any franchising authority of the Central Ohio Cluster file rate complaints with the FCC. To date, the local franchising authorities for the Central Ohio Cluster have not become certified by the FCC to regulate rates for basic cable service and associated basic cable services equipment and no complaints have been filed by customers with the FCC regarding rates charged for CPS. Though rates for basic and CPS are presently not regulated, management of the Central Ohio Cluster believes the rates charged for basic and CPS comply in all material respects with the 1992 Cable Act and that should such rates become regulated in the future the impact on the financial position and results of operation of the Central Ohio Cluster would not be material. F-90 CENTRAL OHIO CLUSTER NOTES TO COMBINED FINANCIAL STATEMENTS (Information as of and for the Nine Months Ended September 30, 1997 is unaudited) (9) COMMITMENTS AND CONTINGENCIES (CONTINUED) On February 1, 1996, Congress passed the Telecommunications Act of 1996 (the "1996 Act"), which was signed into law by the President on February 8, 1996. Among other provisions, the 1996 Act deregulates the CPS tier of large cable television operators on March 31, 1999 and upon enactment, the CPS rates of small cable television operators, where a small cable operator serves 50,000 or fewer subscribers, revises the procedures for filing a CPS complaint and adds a new effective competition test. F-91 FINANCIAL STATEMENT SCHEDULES FRONTIERVISION OPERATING PARTNERS, L.P. PAGE Independent Auditors' Report S-2 Schedule II: Valuation and Qualifying Accounts S-3 S-1 INDEPENDENT AUDITORS' REPORT Under date of March 16, 1998, we reported on the consolidated balance sheets of FrontierVision Operating Partners, L.P. and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of operations, cash flows and partners' capital for the years ended December 31, 1997 and 1996 and the period from inception (April 17, 1995 see Note 1) through December 31, 1995, as contained in this annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedule on Page S-3. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Denver, Colorado March 16, 1998 S-2 FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Amounts in Thousands -------------------------------------------------------- Charge to Beginning Costs and Deductions/ Balance at of Period Expenses Writeoffs End of Period -------------------------------------------------------- Allowance for uncollectible trade receivables: Period from inception (April 17, 1995) through December 31, 1995 $ -- 58 (18) 40 Year ended December 31, 1996 $ 40 1,072 (345) 767 Year ended December 31, 1997 $ 767 1,761 (1,888) 640
See accompanying independent auditors' report. S-3 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized, on March 27, 1998. FRONTIERVISION OPERATING PARTNERS, L.P. By: FrontierVision Holdings, L.P., its general partner, By: FrontierVision Partners, L.P., its general partner By: FVP GP, L.P., its general partner By: FrontierVision Inc., its general partner By: /s/ JAMES C. VAUGHN -------------------- James C. Vaughn President and Chief Executive 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 Registrants and in the capacities and on the dates indicated. FRONTIERVISION OPERATING PARTNERS, L.P. Signature Title Date /s/ JAMES C. VAUGHN President and Chief March 27, 1998 - ------------------------ Executive Officer (Principal James C. Vaughn Executive Officer) /s/ JOHN S. KOO Senior Vice President and Chief March 27, 1998 - ------------------------ Financial Officer (Principal John S. Koo Financial Officer) /s/ ALBERT D. FOSBENNER Vice President and Treasurer March 27, 1998 - ------------------------- (Principal Accounting Officer) Albert D. Fosbenner FRONTIERVISION CAPITAL CORP. /s/ JAMES C. VAUGHN President and Chief March 27, 1998 - ------------------------- Executive Officer, Director James C. Vaughn (Principal Executive Officer) /s/ JOHN S. KOO Senior Vice President and Chief March 27, 1998 - ---------------- Financial Officer, Director John S. Koo (Principal Financial Officer) /s/ ALBERT D. FOSBENNER Vice President and Treasurer March 27, 1998 - ------------------------- (Principal Accounting Officer) Albert D. Fosbenner EX-10.18 2 AMENDED CREDIT FACILITY ************************************************************ FRONTIERVISION OPERATING PARTNERS, L.P. ----------------------------- SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December 19, 1997 $800,000,000 ------------------------------ THE CHASE MANHATTAN BANK, as Administrative Agent, and J.P. MORGAN SECURITIES INC., as Syndication Agent and CIBC Inc., as Documentation Agent ************************************************************ TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only. Page Section 1. Definitions and Accounting Matters.................................................................. 1 1.01 Certain Defined Terms............................................................................ 1 1.02 Accounting Terms and Determinations.............................................................. 33 1.03 Types of Loans................................................................................... 34 1.04 Subsidiaries; Designation of Unrestricted Subsidiaries........................................... 34 Section 2. Commitments, Loans and Prepayments.................................................................. 35 2.01 Loans 35 2.02 Borrowings....................................................................................... 38 2.03 Changes of Commitments........................................................................... 38 2.04 Commitment Fee................................................................................... 39 2.05 Lending Offices.................................................................................. 39 2.06 Several Obligations; Remedies Independent........................................................ 39 2.07 Loan Accounts; Promissory Notes.................................................................. 40 2.08 Optional Prepayments and Conversions or Continuations of Loans................................... 40 2.09 Mandatory Prepayments and Reductions of Commitments.............................................. 41 Section 3. Payments of Principal and Interest.................................................................. 45 3.01 Repayment of Loans............................................................................... 45 3.02 Interest 48 Section 4. Payments; Pro Rata Treatment; Computations; Etc..................................................... 49 4.01 Payments 49 4.02 Pro Rata Treatment............................................................................... 50 4.03 Computations..................................................................................... 51 4.04 Minimum Amounts.................................................................................. 51 4.05 Certain Notices.................................................................................. 51 4.06 Non-Receipt of Funds by the Administrative Agent................................................. 52 4.07 Sharing of Payments, Etc......................................................................... 53 Section 5. Yield Protection, Etc............................................................................... 55 5.01 Additional Costs................................................................................. 55 5.02 Limitation on Types of Loans..................................................................... 56 5.03 Illegality....................................................................................... 57 5.04 Treatment of Affected Loans...................................................................... 57 5.05 Compensation..................................................................................... 58 5.06 U.S. Taxes....................................................................................... 59
(i) Page Section 6. Conditions Precedent................................................................................ 61 6.01 Effectiveness.................................................................................... 61 6.02 Scheduled Acquisition Loans...................................................................... 64 6.03 Initial and Subsequent Loans..................................................................... 65 6.04 Determinations by Lenders........................................................................ 66 Section 7. Representations and Warranties...................................................................... 66 7.01 Corporate Existence.............................................................................. 66 7.02 Financial Condition.............................................................................. 66 7.03 Litigation....................................................................................... 67 7.04 No Breach........................................................................................ 67 7.05 Action........................................................................................... 68 7.06 Approvals........................................................................................ 68 7.07 Use of Credit.................................................................................... 68 7.08 ERISA............................................................................................ 68 7.09 Taxes............................................................................................ 69 7.10 Investment Company Act........................................................................... 69 7.11 Public Utility Holding Company Act............................................................... 69 7.12 Material Agreements and Liens.................................................................... 69 7.13 Environmental Matters............................................................................ 70 7.14 Capitalization................................................................................... 70 7.15 Subsidiaries, Etc................................................................................ 70 7.16 True and Complete Disclosure..................................................................... 71 7.17 Franchises....................................................................................... 71 7.18 The CATV Systems................................................................................. 72 7.19 Rate Regulation.................................................................................. 75 7.20 Scheduled Acquisition Agreement.................................................................. 76 Section 8. Covenants of the Company............................................................................ 76 8.01 Financial Statements Etc......................................................................... 76 8.02 Litigation....................................................................................... 79 8.03 Existence, Etc................................................................................... 80 8.04 Insurance........................................................................................ 80 8.05 Prohibition of Fundamental Changes............................................................... 81 8.06 Limitation on Liens.............................................................................. 85 8.07 Indebtedness..................................................................................... 86 8.08 Investments...................................................................................... 87 8.09 Restricted Payments.............................................................................. 89 8.10 Certain Financial Covenants...................................................................... 90 8.11 [INTENTIONALLY OMITTED].......................................................................... 92 8.12 Interest Rate Protection Agreements.............................................................. 92 8.13 Subordinated Indebtedness; Other Equity Interests................................................ 93
(ii) Page 8.14 Lines of Business................................................................................ 94 8.15 Transactions with Affiliates..................................................................... 94 8.16 Use of Proceeds.................................................................................. 95 8.17 Certain Obligations Respecting Restricted Subsidiaries........................................... 95 8.18 Modifications of Certain Documents............................................................... 96 8.19 Certain Obligations Respecting the Collateral.................................................... 97 Section 9. Events of Default................................................................................... 98 Section 10. The Agents.........................................................................................103 10.01 Appointment, Powers and Immunities..............................................................103 10.02 Reliance by Administrative Agent................................................................104 10.03 Defaults........................................................................................104 10.04 Rights as a Lender..............................................................................104 10.05 Indemnification.................................................................................105 10.06 Non-Reliance on Administrative Agent and Other Lenders..........................................105 10.07 Failure to Act..................................................................................106 10.08 Resignation or Removal of Administrative Agent..................................................106 10.09 Consents under Other Loan Documents.............................................................106 10.10 The Syndication Agent and Documentation Agent...................................................107 10.11 Control Affiliates of Lenders...................................................................107 Section 11. Miscellaneous......................................................................................107 11.01 Waiver 107 11.02 Notices107 11.03 Expenses, Etc...................................................................................108 11.04 Amendments, Etc.................................................................................109 11.05 Successors and Assigns..........................................................................110 11.06 Assignments and Participations..................................................................110 11.07 Survival........................................................................................113 11.08 Captions........................................................................................113 11.09 Counterparts....................................................................................113 11.10 Governing Law; Submission to Jurisdiction.......................................................113 11.11 Waiver of Jury Trial............................................................................114 11.12 Treatment of Certain Information; Confidentiality...............................................114 11.13 Limitation of Liability.........................................................................115
(iii) Schedules and Exhibits SCHEDULE I - Schedule of Commitments SCHEDULE II - Material Agreements and Liens SCHEDULE III - Subsidiaries and Investments SCHEDULE IV - Franchises SCHEDULE V - Litigation SCHEDULE VI - Certain Matters Related to CATV Systems SCHEDULE VII - Certain Matters Related to Financial Statements SCHEDULE VIII - Certain Environmental Matters SCHEDULE IX - Certain Equity Rights SCHEDULE X - Certain Adjustments to EBITDA SCHEDULE XI - Financial Statements with Respect to CATV Systems Acquired Pursuant to Scheduled Acquisitions EXHIBIT A - Form of Assignment and Acceptance EXHIBIT B - Form of Quarterly Officer's Report EXHIBIT C-1 - Copy of Security Agreement EXHIBIT C-2 - Copy of Amendment No. 1 to Security Agreement EXHIBIT C-3 - Form of Amendment No. 2 to Security Agreement EXHIBIT D-1 - Copy of Partner Pledge Agreement EXHIBIT D-2 - Copy of Amendment No. 1 to Partner Pledge Agreement EXHIBIT D-3 - Copy of Amendment No. 2 to Partner Pledge Agreement EXHIBIT D-4 - Form of Amendment No. 3 to Partner Pledge Agreement EXHIBIT E-1 - Copy of Stock Pledge Agreement EXHIBIT E-2 - Copy of Amendment No. 1 to Stock Pledge Agreement EXHIBIT E-3 - Copy of Amendment No. 2 to Stock Pledge Agreement EXHIBIT E-4 - Copy of Amendment No. 3 to Stock Pledge Agreement EXHIBIT F - Form of Subsidiary Guarantee Agreement EXHIBIT G - Form of Opinion of Counsel to the Obligors EXHIBIT H - Form of Opinion of Special New York Counsel to Chase EXHIBIT I - Form of Confidentiality Agreement (iv) Credit Agreement SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 19, 1997, between: FRONTIERVISION OPERATING PARTNERS, L.P., a limited partnership duly organized and validly existing under the laws of the State of Delaware (the "Company"); each of the lenders that is a signatory hereto identified under the caption "Lenders" on the signature pages hereto and each lender that becomes a "Lender" after the date hereof pursuant to Section 11.06(b) hereof (individually, a "Lender" and, collectively, the "Lenders"); THE CHASE MANHATTAN BANK, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"); J.P. MORGAN SECURITIES INC., as syndication agent (in such capacity, the "Syndication Agent") and CIBC INC., as documentation agent (in such capacity, the "Documentation Agent" and, together with the Syndication Agent and the Administrative Agent, the "Agents"). The Company, certain of the Lenders (the "Existing Lenders"), the Administrative Agent, the Syndication Agent and CIBC Inc., as Co-Agent, are parties to an Amended and Restated Credit Agreement dated as of April 9, 1996 (as heretofore modified and supplemented and in effect on the date of this Agreement, the "Existing Credit Agreement") providing, subject to the terms and conditions thereof, for the making of revolving credit and term loans to the Company. The parties hereto now wish to amend the Existing Credit Agreement by, among other things, increasing the amount of credit available thereunder to $800,000,000 (to finance, inter alia, the Scheduled Acquisitions and the Subsequent Acquisitions (as hereinafter defined) of various cable television systems and the payment of fees, commissions, and expenses payable in connection therewith and for the ongoing working capital requirements of the Company and its Subsidiaries), by adding the additional Lenders as parties thereto and by amending certain of the other provisions thereof and, in that connection, wish to amend and restate the Existing Credit Agreement in its entirety. Accordingly, the parties hereto hereby agree that the Existing Credit Agreement shall, as of the date hereof (but subject to the satisfaction of the conditions precedent specified in Section 6 hereof), be amended and restated in its entirety as follows: Section 1. Definitions and Accounting Matters 1.01 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): 1 "Acquired System" shall have the meaning assigned to such term in Section 8.05(b) hereof. "Acquisition Agreements" shall mean, collectively, the Scheduled Acquisition Agreements and each Subsequent Acquisition Agreement. "Acquisitions" shall mean, collectively, the Scheduled Acquisitions and the Subsequent Acquisitions. "Acquisition Environmental Surveys" shall mean, with respect to any Acquisition, environmental surveys and assessments prepared by a firm of licensed engineers (familiar with the identification of toxic and hazardous substances), based upon physical on-site inspections by such firm of each of the sites and facilities to be owned by the Company and its Subsidiaries (after giving effect to such Acquisition), as well as an historical review of the uses of such sites and facilities. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" shall mean any Person that directly or indirectly controls, or is under common control with, or is controlled by, the Company and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person that owns directly or indirectly securities having 5% or more of the voting power for the election of directors or other governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Company or any of its Restricted Subsidiaries and (b) none of the Wholly Owned Restricted Subsidiaries of the Company shall be Affiliates. "Applicable Lending Office" shall mean, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the 2 Administrative Agent and the Company as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" shall mean, with respect to the Loans of any Class, or with respect to commitment fee, the respective rates indicated below for Loans of such Type, or for commitment fee, opposite the applicable Debt Ratio indicated below for such Payment Period: Incremental Facility and Tranche A Tranche B Debt Revolving Loans Term Loan Term Loan Ratio: Base Rate Eurodollar Base Rate Eurodollar Base Rate Eurodollar Commitment Fee - ------------------------------------------------------------------------------------------------------------------------------------ $ 6.50x .................... 1.000% 2.250% 1.000% 2.250% 1.125% 2.375% .375% <6.50x ..................... .750% 2.000% .750% 2.000% 1.125% 2.375% .375% and $6.00x <6.00x ..................... .500% 1.750% .500% 1.750% 1.125% 2.375% .375% and $5.50x <5.50x ..................... .250% 1.500% .250% 1.500% .875% 2.125% .250% and $5.00x <5.00x ..................... .125% 1.375% .125% 1.375% .875% 2.125% .250% and $4.50x <4.50x ..................... .000% 1.250% .000% 1.250% .875% 2.125% .250% and $4.00x <4.00x ..................... .000% 1.125% .000% 1.125% .875% 2.125% .250%
For purposes hereof, a "Payment Period" shall mean (i) initially, the period commencing on the Effective Date to but not including the first Quarterly Date thereafter for which financial statements for the first fiscal quarter of the Company ending on or after the date three months after the Effective Date are available, provided that in no event shall the initial Payment Period end prior to June 30, 1998 and (ii) thereafter, the period commencing on a Quarterly Date to but not including the immediately following Quarterly Date. The Debt Ratio for the initial Payment Period shall be deemed to be greater than 6.50x. The Debt Ratio for any Payment Period after the initial Payment Period shall be determined on the basis of a certificate of a Senior Officer setting forth a calculation of the Debt Ratio as at the last day of the fiscal quarter immediately preceding such Payment Period (i.e. the Debt Ratio for the Payment Period commencing June 30, 1998 shall be determined 3 on the basis of the Debt Ratio as at March 31, 1998, the Debt Ratio for the Payment Period commencing September 30, 1998 shall be determined on the basis of the Debt Ratio as at June 30, 1998 and so forth), each of which certificates shall be delivered together with the financial statements for the fiscal quarter on which such calculation is based. Anything in this Agreement to the contrary notwithstanding, the Applicable Margin shall be the highest rates provided for above for the respective Class and Type of Loan, (i) during any period when a Specified Default shall have occurred and be continuing, or (ii) if the certificate of a Senior Officer shall not be delivered as provided above prior to the beginning of any Payment Period (but only, in the case of this clause (ii), with respect to the portion of such Payment Period prior to the delivery of such certificate). "A-R Acquisition" shall mean the acquisition by the Company of CATV Systems in Maine from A-R Cable Services-ME, Inc. ("A-R"), pursuant to the Asset Purchase Agreement dated as of May 8, 1997 between A-R and the Company, which acquisition was consummated on October 31, 1997. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 11.06 hereof), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as amended from time to time. "Base Rate" shall mean, for any day, a rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Loans" shall mean Loans that bear interest at rates based upon the Base Rate. "Basic Documents" shall mean, collectively, the Loan Documents and the Scheduled Acquisition Agreements. "Basle Accord" shall mean the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time or any replacement thereof. 4 "Business Day" shall mean any day (a) on which commercial banks are not authorized or required to close in New York City and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, that is also a day on which dealings in Dollar deposits are carried out in the London interbank market. "Capital Expenditures" shall mean, for any period, expenditures (including, without limitation, the aggregate amount of Capital Lease Obligations incurred during such period) made by the Company or any of its Restricted Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs and excluding also any Acquisition) during such period computed in accordance with GAAP. "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Casualty Event" shall mean, with respect to any Property of any Person, any loss of or damage to, or any condemnation or other taking of, such Property for which such Person or any of its Restricted Subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation in an aggregate amount exceeding $1,000,000. "CATV System" shall mean any cable distribution system that receives broadcast signals by antennae, microwave transmission, satellite transmission or any other form of transmission and that amplifies such signals and distributes them to Persons who pay to receive such signals. "Change of Control" shall mean that the Company or FrontierVision Capital shall be required pursuant to the provisions of the Senior Subordinated Debt Documents (or any other agreement or instrument relating to or providing for any other Subordinated Indebtedness), or FrontierVision Holdings or FrontierVision Holdings Capital Corporation under the Senior Discount Debt Documents, shall be required, to redeem or repurchase, or make an offer to redeem or repurchase, all or any portion of the Subordinated Indebtedness, or the Senior Discount Debt, as a result of a change of control (as defined in the Senior Subordinated Debt Documents or any other agreement or instrument relating to or providing for any other Subordinated Indebtedness or the Senior Discount Debt Documents). 5 "Chase" shall mean The Chase Manhattan Bank and its successors. "Class" shall have the meaning assigned to such term in Section 1.03 hereof. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral" shall have the meaning assigned to such term in the Security Agreement. "Collateral Account" shall have the meaning assigned to such term in Section 4.01 of the Security Agreement. "Commitments" shall mean, collectively, the Revolving Credit Commitments, the Facility A Term Loan Commitments, the Facility B Term Loan Commitments and the Incremental Facility Term Loan Commitments. "Continue", "Continuation" and "Continued" shall refer to the continuation pursuant to Section 2.08 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "Control Affiliate" shall mean, with respect to any Person (the "Relevant Person"), (a) any Subsidiary of the Relevant Person, (b) any other Person of which the Relevant Person is a Subsidiary and (c) any other Person that is a Subsidiary of the Person referred to in the immediately preceding clause (b). "Convert", "Conversion" and "Converted" shall refer to a conversion pursuant to Section 2.08 hereof of one Type of Loans into another Type of Loans, which may be accompanied by the transfer by a Lender (at its sole discretion) of a Loan from one Applicable Lending Office to another. "CoxCom" shall mean CoxCom, Inc. "CoxCom Acquisition" shall mean the proposed acquisition by the Company of CATV Systems in Ohio from CoxCom pursuant to the CoxCom Acquisition Agreement. "CoxCom Acquisition Agreement" shall mean the Asset Purchase Agreement dated as of October 15, 1997 by and among the Company, as "Buyer" and CoxCom, as "Seller", as amended as of December 19, 1997, and as the same shall, subject to Section 8.18 hereof, be further modified and supplemented and in effect from time to time. 6 "Debt Ratio" shall mean, as at any date (but subject in any event to the provisions of Section 8.10(e) hereof), the ratio of: (a) the sum of the aggregate amount of all Indebtedness of the Company and its Restricted Subsidiaries and all letters of credit contemplated by Section 8.07(e) hereof, but excluding all performance bonds contemplated by said Section) as at such date to (b) the product of EBITDA for the fiscal quarter ending on, or most recently ended prior to such date times four. "Debt Service" shall mean, for any period, the sum, for the Company and its Restricted Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) in the case of Loans under this Agreement, the aggregate amount of payments of principal of such Loans that, giving effect to Commitment reductions or terminations scheduled to be made during such period pursuant to Section 2.03 hereof, were required to be made pursuant to Section 3.01 hereof during such period plus (b) in the case of all other Indebtedness, all regularly scheduled payments or prepayments of principal of such Indebtedness (including, without limitation, the principal component of any payments in respect of Capital Lease Obligations) made or payable during such period plus (c) all Interest Expense for such period (excluding, however, non-cash amortization of loan facility fees and other deferred debt costs, in each case to the extent included in determining Interest Expense for such period). "Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "Disposition" shall mean any sale, assignment, transfer or other disposition of any Property (whether now owned or hereafter acquired) by the Company or any of its Restricted Subsidiaries to any other Person, excluding (1) any sale, assignment, transfer or other disposition of Property described in clause (i) of Section 8.05(c) hereof to the extent the aggregate fair market value of all such Property so disposed of by the Company and its Restricted Subsidiaries during the term of this Agreement does not exceed $20,000,000, and (2) any sale, assignment, transfer or other disposition of Property described in clause (ii) or (iii) of Section 8.05(c) hereof. "Disposition Investments" shall have the meaning assigned to such term in Section 8.08(i)hereof. "Dollars" and "$" shall mean lawful money of the United States of America. 7 "Eastern Cable" shall mean Eastern Cable Corporation, Inc. "Eastern-Kentucky Acquisition" shall mean the proposed acquisition by the Company of CATV Systems in Kentucky from Eastern Cable pursuant to the Eastern Cable Acquisition Agreement. "Eastern Cable Acquisition Agreement" shall mean the Asset Purchase Agreement to be entered into by and among the Company, as "Buyer" and Eastern Cable, as "Seller", for a purchase price not to exceed $2,800,000, as the same shall, subject to Section 8.18 hereof, be modified and supplemented and in effect from time to time. "EBITDA" shall mean, for any period, the sum, for the Company and its Restricted Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) gross operating revenue for such period derived in the ordinary course of business in respect of the CATV Systems of the Company and its Restricted Subsidiaries (including revenues arising from second outlets and remotes and advertising revenues, and including pay-per-view revenues and installation fees, but excluding interest income and unusual items) minus (b) all operating expenses for such period, including, without limitation, technical, programming, selling and general administration expenses incurred by the Company and its Restricted Subsidiaries during such period, but excluding (to the extent included in operating expenses) depreciation, amortization, Interest Expense, any non-cash charges (including, without limitation, non-cash pension expenses and any Tax Payment Amount for the relevant period) plus (c) transaction costs (including, without limitation, legal expenses, brokerage commissions, investment banking fees and the like) incurred in connection with (w) the Previous Acquisitions and the Scheduled Acquisitions and this Agreement and the other transactions that are contemplated hereby to occur on or before the Effective Date, (x) any Subsequent Acquisition, (y) the incurrence of the Subordinated Indebtedness or (z) the incurrence of the Senior Discount Debt, in the case of each of the foregoing clauses (w), (x), (y) and (z), to the extent the same are (A) paid within twelve months of the date the respective event giving rise to such transaction costs shall occur, and (B) expensed and not capitalized. For purposes hereof, "gross operating revenue" and "operating expenses" shall both be determined exclusive of extraordinary and non-recurring gains or losses, and any gains or losses from the sale of assets. For purposes of determining EBITDA: 8 (A) for periods prior to the date of the A-R Acquisition, EBITDA for each day during such period attributable to the CATV Systems acquired pursuant to the A-R Acquisition shall be deemed to be equal to $22,710.00 (determined by the Company as provided in Schedule X hereto); (B) for periods prior to the date of the TCI-NE Acquisition, EBITDA for each day during such period attributable to the CATV Systems acquired pursuant to the TCI-NE Acquisition shall be deemed to be equal to $11,024.00 (determined by the Company as provided in Schedule X hereto); (C) for periods prior to the date of the Harolds Acquisition, EBITDA for each day during such period attributable to the CATV Systems acquired pursuant to the Harolds Acquisition shall be deemed to be equal to $617.00 (determined by the Company as provided in Schedule X hereto); (D) for periods prior to the date of the CoxCom Acquisition, EBITDA for each day during such period attributable to the CATV Systems acquired pursuant to the CoxCom Acquisition shall be deemed to be equal to $52,319.00 (determined by the Company as provided in Schedule X hereto); (E) for periods prior to the date of the TCI-Ohio Acquisition, EBITDA for each day during such period attributable to the CATV Systems acquired pursuant to the TCI-Ohio Acquisition shall be deemed to be equal to $13,903.00 (determined by the Company as provided in Schedule X hereto); (F) for periods prior to the date of the Eastern-Kentucky Acquisition, EBITDA for each day during such period attributable to the CATV Systems acquired pursuant to the Eastern-Kentucky Acquisition shall be deemed to be equal to $1,316.00 (determined by the Company as provided in Schedule X hereto); and (G) for periods prior to the date of the NECMA-NE Acquisition, EBITDA for each day during such period attributable to the CATV Systems acquired pursuant to the NECMA-NE Acquisition shall be deemed to be equal to $13,683.00 (determined by the Company as provided in Schedule X hereto). For all purposes of this Agreement (other than for purposes of EBITDA as used in the definition of Excess Cash Flow), if during any period for which EBITDA is being determined the Company or any of its Restricted Subsidiaries shall have made any acquisition or disposition of any CATV System (but excluding the CATV Systems acquired pursuant to the Acquisitions referred to in clauses (A) through (G) above), then EBITDA shall be 9 determined on the basis of the actual results of operations of the Company and its Restricted Subsidiaries for such period, adjusted by: (I) in the case of a Subsequent Acquisition the aggregate Purchase Price of which is less than or equal to $50,000,000, such amount as the Company shall determine, reasonably and in good faith, to be appropriate to reflect the effect of the relevant acquisitions and dispositions during such period (and the Company shall, promptly following the consummation of such Acquisition, notify the Administrative Agent (which shall notify the Lenders thereof promptly) of such amount); and (II) in the case of a Subsequent Acquisition the aggregate Purchase Price of which exceeds $50,000,000, such amounts as the Company and the Majority Lenders shall agree to be appropriate to reflect the effect of the relevant acquisitions and dispositions during such period (provided that, in the absence of such an agreement between the Company and the Majority Lenders, EBITDA shall be determined on a pro forma basis for such period as if the relevant acquisition or disposition had been made or consummated on the first day of such period, whether or not such first day shall occur prior to the Effective Date). "Effective Date" shall mean the date on which the conditions to effectiveness set forth in Section 6.01 hereof shall have been satisfied or waived. "Environmental Claim" shall mean, with respect to any Person, any written or oral notice, claim, demand or other communication (collectively, a "claim") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Laws" shall mean any and all present and future Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, 10 contaminants,chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "Equity Rights" shall mean, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "Equivalent Basic Subscribers" shall mean, as at any date, the sum of (a) the number of Subscribers who subscribe to a CATV System at the regular basic monthly subscription rate for such CATV System to a single household Subscriber (exclusive of "secondary outlets", as such term is commonly understood in the cable television industry), plus (b) the number of Subscribers determined by dividing the aggregate dollar monthly amount billed to bulk Subscribers (hotels, motels, apartment buildings, hospitals and the like that pay for cable television service provided to their guests and/or tenants), by the regular basic monthly subscription rate for basic service charged by the CATV System in which such bulk Subscriber is located. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Company is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Company is a member. "Eurodollar Base Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Markets Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time 11 for any reason, then the Eurodollar Base Rate with respect to such Eurodollar Loan for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of Chase in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Eurodollar Loans" shall mean Loans that bear interest at rates based on rates referred to in the definition of "Eurodollar Base Rate" in this Section 1.01. "Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to the Eurodollar Base Rate for such Loan for such Interest Period divided by 1 minus the Reserve Requirement (if any) for such Loan for such Interest Period. "Event of Default" shall have the meaning assigned to such term in Section 9 hereof. "Excess Cash Flow" shall mean, for any period, the sum for the Company and its Restricted Subsidiaries (determined without duplication) of (a) EBITDA for such period minus (b) Fixed Charges for such period plus (c) cash receipts during such period in respect of any extraordinary or non-recurring gains to the extent not constituting Net Available Proceeds minus (d) cash payments during such period in respect of any extraordinary or non-recurring losses minus (e) for any period during which the Company would be permitted to make a Restricted Payment pursuant to clause (b) of Section 8.09 hereof, the amount of interest accrued during such period by FrontierVision Holdings and FrontierVision Holdings Capital Corporation in respect of the Senior Discount Debt. "Excluded Franchise" shall mean any Franchise for any CATV System owned by the Company or any of its Restricted Subsidiaries that either (a) has a remaining term of three years or less (determined as at the date of acquisition thereof) or (b) is not material to the operations of the Company and its Restricted Subsidiaries taken as a whole (as determined by the Majority Lenders in their sole discretion). "Excluded Real Property" shall mean any real property (including any leasehold interest in real property) held by the Company or any of its Restricted Subsidiaries unless (a) such real property (or such leasehold interest) is material to the operations of the Company and its Restricted Subsidiaries taken as a whole and (b) such real property (if consisting of a leasehold interest) has a remaining term of more than three years (determined as at the date of acquisition thereof). 12 "Existing Credit Agreement" shall have the meaning assigned to such term in the recitals to this Agreement. "Existing Lenders" shall have the meaning assigned to such term in the recitals to this Agreement. "Facility A Term Loan Commitment" shall mean, as to each Facility A Term Loan Lender, the obligation of such Lender to make Facility A Term Loans in an aggregate principal amount up to but not exceeding the amount set opposite the name of such Lender on Schedule I hereto under the caption "Facility A Term Loan Commitment" or, in the case of a Person that becomes a Facility A Term Loan Lender pursuant to an assignment permitted under Section 11.06(b) hereof, as specified in the respective instrument of assignment pursuant to which such assignment is effected (as the same may be reduced from time to time pursuant to Section 2.03 hereof or increased or reduced from time to time pursuant to assignments permitted under Section 11.06(b) hereof). The original aggregate principal amount of the Facility A Term Loan Commitments is $250,000,000. "Facility A Term Loan Commitment Termination Date" shall mean June 30, 1998. "Facility A Term Loan Lenders" shall mean, (a) on the date hereof, the Lenders having Facility A Term Loan Commitments on Schedule I hereto and (b) thereafter, the Lenders from time to time holding Facility A Term Loans and Facility A Term Loan Commitments after giving effect to any assignments thereof permitted by Section 11.06(b) hereof. "Facility A Term Loans" shall mean the loans provided for by Section 2.01(b) hereof. "Facility B Term Loan Commitment" shall mean, as to each Facility B Term Loan Lender, the obligation of such Lender to make Facility B Term Loans in an aggregate principal amount up to but not exceeding the amount set opposite the name of such Lender on Schedule I hereto under the caption "Facility B Term Loan Commitment" or, in the case of a Person that becomes a Facility B Term Loan Lender pursuant to an assignment permitted under Section 11.06(b) hereof, as specified in the respective instrument of assignment pursuant to which such assignment is effected (as the same may be reduced from time to time pursuant to Section 2.03 hereof or increased or reduced from time to time pursuant to assignments permitted under Section 11.06(b) hereof). The original aggregate principal amount of the Facility B Term Loan Commitments is $250,000,000. 13 "Facility B Term Loan Commitment Termination Date" shall mean January 30, 1998. "Facility B Term Loan Lenders" shall mean, (a) on the date hereof, the Lenders having Facility B Term Loan Commitments on Schedule I hereto and (b) thereafter, the Lenders from time to time holding Facility B Term Loans and Facility B Term Loan Commitments after giving effect to any assignments thereof permitted by Section 11.06(b) hereof. "Facility B Term Loans" shall mean the loans provided for by Section 2.01(c) hereof. "FCC" shall mean the Federal Communications Commission or any governmental authority substituted therefor. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged to Chase on such Business Day on such transactions as determined by the Administrative Agent. "Fixed Charges" shall mean, for any period, the sum, for the Company and its Restricted Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the aggregate amount of Debt Service for such period plus (b) the aggregate amount of taxes paid or payable in respect of the income or profit of the Company and its Subsidiaries for such period plus (c) Capital Expenditures made by the Company and its Restricted Subsidiaries during such period (other than Capital Expenditures made with the proceeds of Indebtedness permitted under Section 8.07(f) hereof) plus (d) the Tax Payment Amount for such period plus (e) the amount of Restricted Payments made to FrontierVision Holdings to pay cash interest expense in respect of the Senior Discount Debt. "Fixed Charges Ratio" shall mean, as at any date (but subject in any event to the provisions of Section 8.10(e) hereof), the ratio of (a) product of (x) the sum of EBITDA for the fiscal quarter ending on or most recently ended prior to such date and (but without duplication of the provisions of Section 8.10(e)) all interest income of the Company and its 14 Restricted Subsidiaries for such fiscal quarter times (y) four to (b) Fixed Charges for the period of four fiscal quarters ending on or most recently ended prior to such date. "Franchise" shall mean a franchise, license, authorization or right by contract or otherwise to construct, own, operate, promote, extend and/or otherwise exploit any CATV System operated or to be operated by the Company or any of its Restricted Subsidiaries granted by any state, county, city, town, village or other local or state government authority or by the FCC. The term "Franchise" shall include each of the Franchises set forth on Schedule IV hereto. "FrontierVision" shall mean FrontierVision Operating Partners, Inc., a Delaware corporation. "FrontierVision Capital" shall mean FrontierVision Capital Corporation, a Delaware corporation and a Wholly Owned Subsidiary of the Company. "FrontierVision Holdings" shall mean FrontierVision Holdings, L.P., a Delaware limited partnership. "FrontierVision Inc." shall mean FrontierVision Inc., a Delaware corporation. "FrontierVision LP" shall mean FrontierVision Partners, L.P., a Delaware limited partnership or any corporation formed for the purpose of succeeding to the assets and liabilities of FrontierVision LP in connection with a public offering or offerings by FrontierVision LP of equity interests under one or more effective registration statements under the Securities Act of 1933, as amended. "GAAP" shall mean generally accepted accounting principles applied on a basis consistent with those that, in accordance with the last sentence of Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. "General Partner" shall mean FrontierVision Holdings and such other Person or Persons as may be a general partner of the Company from time to time. "Guarantee" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services 15 primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a correlative meaning. "Harolds Acquisition" shall mean the acquisition by the Company of CATV Systems in Pennsylvania and Maryland from Harolds Cable Television, Inc. ("Harolds") pursuant to the Asset Purchase Agreement dated as of October 15, 1997 between Harolds and the Company, which acquisition was consummated on October 31, 1997. "Hazardous Material" shall mean, collectively, (a) any petroleum or petroleum products, flammable materials, explosives, radioactive materials, asbestos, urea formaldehyde foam insulation, and transformers or other equipment that contain polychlorinated biphenyls ("PCB's"), (b) any chemicals or other materials or substances that are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "Incremental Facility Availability Period" shall mean the period from and including the Effective Date to but excluding the Quarterly Date falling on or nearest to December 31, 1999. "Incremental Facility Commitment" shall mean, with respect to each Incremental Facility Lender and for any Series thereof, the commitment, if any, of such Lender to make Incremental Facility Loans of such Series (as the same may be reduced from time to time pursuant to Section 2.03 hereof or increased or reduced from time to time pursuant to assignments permitted under Section 11.06(b) hereof). The amount of each Lender's Incremental Facility Commitment of any Series shall be determined in accordance with the provisions of Section 2.01(d) hereof. The aggregate amount of the Incremental Facility Commitments of all Series shall not exceed $200,000,000. "Incremental Facility Lenders" shall mean, in respect of any Series of Incremental Facility Loans, the Lenders from time to time holding Incremental Facility Loans and Incremental Facility Commitments of such Series after giving effect to any assignments thereof permitted by Section 11.06(b) hereof. 16 "Incremental Facility Loans" means the Loans provided for by Section 2.01(d) hereof. "Indebtedness" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money or capitalized leases) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person. "Information Memorandum" shall mean the confidential Senior Financing Memorandum dated November 1997 prepared by the Company in connection with the syndication of the Loans and Commitments hereunder. "Initial Equityholders" shall mean, collectively, (i) J.P. Morgan Investment Corp., (ii) 1818 II Cable Corp., (iii) Olympus Cable Corp., (iv) First Union Capital Partners, Inc., (v) any Control Affiliate of any of the foregoing entities and (vi) any limited partnership of which any Control Affiliate of any of the foregoing entities is the sole general partner (so long as the aggregate equity interests of FrontierVision LP that shall have been transferred to all such limited partnerships by any such entity shall not exceed 25% of the aggregate equity interests held by such entity in FrontierVision LP). "Interest Coverage Ratio" shall mean, as at any date (but subject in any event to the provisions of Section 8.10(e) hereof), the ratio of: (a) the product of (x) the sum of EBITDA for the fiscal quarter ending on, or most recently ended prior to such date and all interest income for the Company and its Restricted Subsidiaries for such fiscal quarter (including, without limitation, all interest payable to the Company in respect of the cash and investments, if any, held in the Collateral Account during such fiscal quarter) times (y) four to (b) Interest Expense for the period of four fiscal quarters ending on or most recently ended prior to such date (excluding, however, non-cash amortization of loan 17 facility fees and other deferred debt costs, in each case to the extent included in determining Interest Expense for such period). "Interest Expense" shall mean, for any period, the sum, for the Company and its Restricted Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all interest in respect of Indebtedness (including, without limitation, the interest component of any payments in respect of Capital Lease Obligations) accrued or capitalized during such period (whether or not actually paid during such period) plus (b) the net amount payable (or minus the net amount receivable) under Interest Rate Protection Agreements during such period (whether or not actually paid or received during such period). Notwithstanding the foregoing, if during any period for which Interest Expense is being determined the Company shall have made or consummated any Acquisition (including, without limitation, the Scheduled Acquisitions and the Previous Acquisitions), then "Interest Expense" shall be determined on a pro forma basis as if such Acquisition (and any Indebtedness incurred by the Company or any of its Restricted Subsidiaries in connection with such Acquisition) had been made or consummated on the first day of such period (whether or not such first day shall occur prior to the Effective Date). "Interest Period" shall mean, with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or Converted from a Base Rate Loan or (in the event of a Continuation) the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter (or, to the extent determined to be available by each Lender in its sole discretion, nine or twelve months thereafter), as the Company may select as provided in Section 4.05 hereof, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest Period for any Revolving Credit Loan would otherwise end after the Revolving Credit Commitment Termination Date, such Interest Period shall end on the Revolving Credit Commitment Termination Date; (ii) no Interest Period for any Facility A Term Loan may commence before and end after any Principal Payment Date, unless, after giving effect thereto, the aggregate principal amount of the Facility A Term Loans having Interest Periods that end after such Principal Payment Date shall be equal to or less than the aggregate principal amount of the Facility A Term Loans scheduled to be outstanding after 18 giving effect to the payments of principal required to be made on such Principal Payment Date; (iii) no Interest Period for any Facility B Term Loan may commence before and end after any Principal Payment Date, unless, after giving effect thereto, the aggregate principal amount of the Facility B Term Loans having Interest Periods that end after such Principal Payment Date shall be equal to or less than the aggregate principal amount of the Facility B Term Loans scheduled to be outstanding after giving effect to the payments of principal required to be made on such Principal Payment Date; (iv) no Interest Period for any Incremental Facility Loan of any Series may commence before and end after any Principal Payment Date, unless, after giving effect thereto, the aggregate principal amount of the Incremental Facility Loans of such Series having Interest Periods that end after such Principal Payment Date shall be equal to or less than the aggregate principal amount of the Incremental Facility Loans of such Series scheduled to be outstanding after giving effect to the payments of principal required to be made on such Principal Payment Date; (v) each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (vi) notwithstanding clauses (i), (ii), (iii) and (iv) above, no Interest Period shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loan would otherwise be a shorter period, such Loan shall not be available hereunder for such period. "Interest Rate Protection Agreement" shall mean, for any Person, an interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "Investment" shall mean, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another 19 Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person), but excluding any such advance, loan or extension of credit having a term not exceeding 90 days arising in connection with the sale of programming or advertising time by such Person in the ordinary course of business; (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person; or (d) the entering into of any Interest Rate Protection Agreement. "Lien" shall mean, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement and the other Loan Documents, a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "Limited Partner" shall mean FrontierVision and such other Person or Persons as may be a limited partner of the Company from time to time. "Loan Documents" shall mean, collectively, this Agreement and the Security Documents. "Loans" shall mean, collectively, the Revolving Credit Loans, the Facility A Term Loans, the Facility B Term Loans and the Incremental Facility Loans. "Majority Facility A Term Loan Lenders" shall mean Lenders having more than 50% of the aggregate outstanding principal amount of the Facility A Term Loans, at such time (or, if the Facility A Term Loans shall not have been made, the aggregate outstanding principal amount of the Facility A Term Loan Commitments at such time). "Majority Facility B Term Loan Lenders" shall mean Lenders having more than 50% of the aggregate outstanding principal amount of the Facility B Term Loans, at such time (or, if the Facility B Term Loans shall not have been made, the aggregate outstanding principal amount of the Facility B Term Loan Commitments at such time). "Majority Incremental Facility Lenders" shall mean, with respect to any Series of Incremental Facility Loans, Lenders having more than 50% of the aggregate outstanding principal amount of the Incremental Loans of such Series, at such time (or, if the Incremental Facility Loans of such Series shall not have been made, the aggregate outstanding principal amount of the Incremental Facility Commitments of such Series at such time). 20 "Majority Lenders" shall mean Lenders having more than 50% of the sum of (i) the aggregate amount of the Revolving Credit Commitments at such time (or, if the Revolving Credit Commitments shall have terminated, the aggregate amount of the Revolving Credit Loans at such time) plus (ii) the aggregate outstanding principal amount of the Facility A Term Loans, at such time (or, if the Facility A Term Loans shall not have been made, the aggregate outstanding principal amount of the Facility A Term Loan Commitments at such time) plus (iii) the aggregate outstanding principal amount of the Facility B Term Loans, at such time (or, if the Facility B Term Loans shall not have been made, the aggregate outstanding principal amount of the Facility B Term Loan Commitments at such time) plus (iv) the aggregate outstanding principal amount of the Incremental Facility Loans, at such time (or, if the Incremental Facility Loans shall not have been made, the aggregate outstanding principal amount of the Incremental Facility Commitments at such time). "Majority Revolving Credit Lenders" shall mean Lenders having more than 50% of the aggregate amount of the Revolving Credit Commitments at such time (or, if the Revolving Credit Commitments shall have terminated, the aggregate amount of the Revolving Credit Loans at such time). "Margin Stock" shall mean "margin stock" within the meaning of Regulations G, T, U and X. "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition, prospects, liabilities or capitalization of the Company and its Restricted Subsidiaries taken as a whole, (b) the ability of the Company to perform its obligations under any of the Loan Documents to which it is a party, (c) the validity or enforceability of any of the Loan Documents, (d) the rights and remedies of the Lenders and the Administrative Agent under any of the Loan Documents or (e) the timely payment of the principal of or interest on the Loans or other amounts payable in connection therewith. "Mortgages" shall mean, collectively, one or more mortgages, deeds of trust or collateral assignments of leasehold interest, in form and substance satisfactory to the Administrative Agent, to effect a Lien on real property or leasehold interests in the State where the respective Property to be covered by such instrument is located, executed by the respective Obligor that is the owner or lessee of such Property in favor of the Administrative Agent (or, in the case of a deed of trust, in favor of a trustee for the benefit of the Administrative Agent and the Lenders) pursuant to the Existing Credit Agreement, or Section 8.19 hereof, as the case may be, covering the respective fee or leasehold interests owned by such Obligor, as said mortgages, deeds of trust and collateral assignments of leasehold interests shall be modified and supplemented and in effect from time to time. 21 "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA. "NAIC" shall mean the National Association of Insurance Commissioners. "NECMA-NE" shall mean New England Cablevision of Massachusetts, Inc. "NECMA-NE Acquisition" shall mean the proposed acquisition by the Company of CATV Systems in Massachusetts and New Hampshire from NECMA-NE pursuant to the NECMA-NE Acquisition Agreement. "NECMA-NE Acquisition Agreement" shall mean the Stock Purchase Agreement dated as of December 12, 1997 by and among FrontierVision Cable New England, Inc., as "Buyer" and the shareholders of NECMA-NE, as "Seller", as the same shall, subject to Section 8.18 hereof, be modified and supplemented and in effect from time to time. "Net Available Proceeds" shall mean: (i) in the case of any Disposition, the amount of Net Cash Payments received in connection with such Disposition; and (ii) in the case of any Casualty Event, the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by the Company and its Restricted Subsidiaries in respect of such Casualty Event net of (A) reasonable expenses incurred by the Company and its Restricted Subsidiaries in connection therewith and (B) contractually required repayments of Indebtedness to the extent secured by a Lien on such Property and any income and transfer taxes payable by the Company or any of its Restricted Subsidiaries in respect of such Casualty Event. "Net Cash Payments" shall mean, with respect to any Disposition, the aggregate amount of all cash payments received by the Company and its Restricted Subsidiaries directly or indirectly in connection with such Disposition, whether at the time of such Disposition or after such Disposition under deferred payment arrangements or Investments entered into or received in connection with such Disposition (but excluding, in the event such Disposition consisted in whole or in part of an exchange of CATV Systems, any cash and cash equivalents derived from the operation of the CATV Systems acquired as part of such exchange); provided that: 22 (a) Net Cash Payments shall be net of (i) the amount of any legal, accounting, regulatory, title and recording tax expenses, commissions and other fees and expenses paid by the Company and its Restricted Subsidiaries in connection with such Disposition and (ii) any Tax Payment Amount estimated by the Company to be payable as a result of such Disposition, and (b) Net Cash Payments shall be net of any repayments by the Company or any of its Restricted Subsidiaries of Indebtedness to the extent that (i) such Indebtedness is secured by a Lien on the Property that is the subject of such Disposition and (ii) such Indebtedness is repaid in connection with such Disposition. "Notes" shall mean the promissory notes that may be executed and delivered upon request by any Lender pursuant to Section 2.07(d) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same may be modified and supplemented and in effect from time to time. "Obligors" shall mean, collectively, the Company, each Partner Pledgor under and as defined in the Partner Pledge Agreement, each Stock Pledgor under and as defined in the Stock Pledge Agreement and, effective upon the execution and delivery of any Subsidiary Guarantee Agreement, each Restricted Subsidiary of the Company so executing and delivering such Subsidiary Guarantee Agreement. "Other Equity Interests" shall mean limited partnership interests issued by the Company in accordance with Section 8.13 hereof. "Other Pledge Agreement" shall mean a pledge agreement executed and delivered by a holder of Other Equity Interests in favor of the Administrative Agent in accordance with Section 8.13(a)(iii) hereof. "Pari Passu Obligations" shall mean, collectively, (a) the obligations of the Company in respect of Interest Rate Protection Agreements between the Company and a Lender (or a Control Affiliate of a Lender) permitted under Section 8.08(g) hereof and (b) any Indebtedness of the Company or any of its Restricted Subsidiaries to any Lender permitted under Section 8.07(e) hereof. "Partner Pledge Agreement" shall mean the Partner Pledge Agreement dated as of November 9, 1995 between the Partner Pledgors referred to therein and the Administrative Agent (a copy of which is attached as Exhibit D-1 hereto), as amended by a Amendment No. 1 thereto (a copy of which is attached as Exhibit D-2 hereto), as further amended by Amendment No. 2 thereto (a copy of which is attached as Exhibit D-3 hereto), as the same shall be amended by Amendment No. 3 thereto in substantially the form attached 23 as Exhibit D-4 hereto and as the same shall be further modified and supplemented and in effect from time to time. "Partners" shall mean, collectively, the General Partners and the Limited Partners of the Company from time to time. "Partnership Agreement" shall mean the Amended and Restated Agreement of Limited Partnership of FrontierVision Operating Partners, L.P. dated as of September 19, 1997 by and between the Partners as the same shall, subject to Section 8.18 hereof, be further modified and supplemented and in effect from time to time. "Pay TV Units" shall mean the aggregate number of premium or pay television services to which Subscribers subscribe. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Acquisition Amount" shall mean, with respect to any Acquisition to be consummated on any date, the sum of (a) $150,000,000 plus (b) the aggregate amount of cash and investments held by the Administrative Agent on such date in the Collateral Account plus (c) the Reserved Commitment Amount on such date. "Permitted Investments" shall mean: (a) direct obligations of the United States of America, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States of America, or of any agency thereof, in either case maturing not more than 90 days from the date of acquisition thereof; (b) certificates of deposit issued by any bank or trust company organized under the laws of the United States of America or any state thereof and having capital, surplus and undivided profits of at least $500,000,000, maturing not more than 90 days from the date of acquisition thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's Ratings Services, a Division of McGraw Hill, Inc., or Moody's Investors Service, Inc., respectively, maturing not more than 90 days from the date of acquisition thereof; and (d) Investments in money market funds whose assets consist primarily of Investments of the types described in the foregoing clauses (a), (b) and (c) rated as investment grade or better; in each case so long as the same (x) provide for the payment of principal and interest (and not principal alone or interest alone) and (y) are not subject to any contingency regarding the payment of principal or interest. "Person" shall mean any individual, corporation, company, voluntary association, partnership, limited liability company, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). 24 "Plan" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "Post-Default Rate" shall mean a rate per annum equal to 2% plus the Base Rate as in effect from time to time plus the Applicable Margin for Base Rate Loans, provided that, with respect to principal of a Eurodollar Loan that shall become due (whether at stated maturity, by acceleration, by optional or mandatory prepayment or otherwise) on a day other than the last day of the Interest Period therefor, the "Post-Default Rate" shall be, for the period from and including such due date to but excluding the last day of such Interest Period, 2% plus the interest rate for such Loan as provided in Section 3.02(b) hereof and, thereafter, the rate provided for above in this definition. "Previous Acquisitions" shall mean, collectively, the A-R Acquisition, the TCI-NE Acquisition and the Harolds Acquisition. "Prime Rate" shall mean the rate of interest from time to time announced by Chase at the Principal Office as its prime commercial lending rate. "Principal Office" shall mean the principal office of Chase, located on the date hereof at 1 Chase Manhattan Plaza, New York, New York 10081. "Principal Payment Date" shall mean each Quarterly Date commencing with December 31, 1998 through and including March 31, 2006. "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Purchase Price" shall mean with respect to any Subsequent Acquisition, an amount equal to the sum of (i) the aggregate consideration, whether cash, Property or securities (including, without limitation, any Indebtedness incurred pursuant to Section 8.07(f) hereof and the fair market value of any CATV Systems being transferred by the Company or any of its Restricted Subsidiaries in exchange for the CATV Systems being acquired in such Subsequent Acquisition), paid or delivered by the Company and its Restricted Subsidiaries in connection with such Subsequent Acquisition plus (ii) the aggregate amount of liabilities of the acquired business (net of current assets of the acquired business) that would be reflected on a balance sheet (if such were to be prepared) of the Company and its Restricted Subsidiaries after giving effect to such Subsequent Acquisition. "Qualified Public Offering" shall mean an offer or offerings of equity interests of FrontierVision LP under one or more effective registration statements under the Securities 25 Act of 1933, as amended, such that, after giving effect thereto, (i) at least 20% of the aggregate equity interests in FrontierVision LP on a fully diluted basis (i.e., giving effect to the exercise of any warrants, options and conversion and other rights) has been sold pursuant to such offerings, and (ii) such offerings result in aggregate cash proceeds being received by FrontierVision LP of at least $50,000,000 exclusive of underwriter's discounts and other expenses. "Quarterly Dates" shall mean the last Business Day of March, June, September and December in each year, the first of which shall be the first such day after the date hereof. "Quarterly Officer's Report" shall mean a quarterly report of a Senior Officer with respect to Equivalent Basic Subscribers, homes passed, revenues per Subscriber and Pay TV Units, substantially in the form of Exhibit B hereto. "Register" shall have the meaning assigned to such term in Section 11.05 hereof. "Regulations A, D, G, T, U and X" shall mean, respectively, Regulations A, D, G, T, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "Regulatory Change" shall mean, with respect to any Lender, any change after the date hereof in Federal, state or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of lenders including such Lender of or under any Federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority (including the NAIC) charged with the interpretation or administration thereof. "Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Reorganization" shall mean the formation of a corporation for the purpose of succeeding to the assets and liabilities of FrontierVision LP in connection with a public offering or offerings by FrontierVision LP of equity interests under one or more effective registration statements under the Securities Act of 1933, as amended. 26 "Reserve Requirement" shall mean, for any Interest Period for any Eurodollar Loan, the average maximum rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any Regulatory Change with respect to (i) any category of liabilities that includes deposits by reference to which the Eurodollar Base Rate is to be determined as provided in the definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets that includes Eurodollar Loans. "Reserved Commitment Amount" shall have the meaning assigned to such term in Section 2.01(a)hereof. "Restricted Payment" shall mean with respect to (i) any portion of any partnership interest (whether general or limited) in the Company, (ii) any warrants, options or other rights to acquire any such partnership interest or (iii) any payments to any Person (such as "phantom stock" payments) where the amount thereof is calculated with reference to fair market or equity value of the Company or any Restricted Subsidiary, all partnership distributions of the Company (in cash, Property or obligations) thereon, or other payments or distributions on account thereof, or the setting apart of money for a sinking or other analogous fund therefor, or the purchase, redemption, retirement or other acquisition thereof. The term "Restricted Payment" shall include, without limitation, any distributions or payments made by the Company to the Partners for the purpose of enabling the Partners (or their direct or indirect owners) to pay federal, state or local income taxes in respect of taxable income of the Company attributable to the Partners (or such owners). "Restricted Subsidiary" shall mean any Subsidiary of the Company other than an Unrestricted Subsidiary. "Revolving Credit Commitment" shall mean, as to each Revolving Credit Lender, the obligation of such Lender to make Loans in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set opposite the name of such Lender on Schedule I hereto under the caption "Revolving Credit Commitment" or, in the case of a Person that becomes a Revolving Credit Lender pursuant to an assignment permitted under Section 11.06(b) hereof, as specified in the respective instrument of assignment pursuant to which such assignment is effected (as the same may be reduced at any time or from time to time pursuant to Section 2.03 hereof or increased or reduced from time to time pursuant to assignments permitted under Section 11.06(b) hereof). The aggregate original principal amount of the Revolving Credit Commitments is $300,000,000. 27 "Revolving Credit Commitment Termination Date" shall mean the Quarterly Date falling on or nearest to October 31, 2005. "Revolving Credit Lenders" shall mean (a) on the date hereof, the Lenders having Revolving Credit Commitments on Schedule I hereto and (b) thereafter, the Lenders from time to time holding Revolving Credit Loans and Revolving Credit Commitments after giving effect to any assignments thereof permitted by Section 11.06(b). "Revolving Credit Loans" shall mean the loans provided for in Section 2.01(a) hereof. "Scheduled Acquisitions" shall mean, collectively, the TCI-Ohio Acquisition, the CoxCom Acquisition, the Eastern-Kentucky Acquisition and the NECMA-NE Acquisition. "Scheduled Acquisition Agreements" shall mean, collectively, the (i) TCI-Ohio Acquisition Agreement, (ii) the CoxCom Acquisition Agreement, (iii) the Eastern-Kentucky Acquisition Agreement and (iv) the NECMA-NE Acquisition Agreement. "Security Agreement" shall mean the Security Agreement dated as of November 9, 1995 between the Company, the other Securing Parties from time to time party thereto and the Administrative Agent (a copy of which is attached as Exhibit C-1 hereto), as amended by a Amendment No. 1 thereto (a copy of which is attached as Exhibit C-2 hereto), as the same shall be amended by Amendment No. 2 thereto in substantially the form attached as Exhibit C-3 hereto and as the same shall be further modified and supplemented and in effect from time to time. "Security Documents" shall mean, collectively, the Security Agreement, the Partner Pledge Agreement, the Stock Pledge Agreement, the Subsidiary Guarantee Agreements, the Mortgages and the Other Pledge Agreements, and all Uniform Commercial Code financing statements required by the Security Agreement, the Partner Pledge Agreement, the Stock Pledge Agreement, the Subsidiary Guarantee Agreements, the Mortgages and the Other Pledge Agreements to be filed with respect to the security interests in personal Property and fixtures created pursuant to the Security Agreement, the Partner Pledge Agreement, the Stock Pledge Agreement, the Subsidiary Guarantee Agreements, the Mortgages and the Other Pledge Agreements. "Sellers" shall mean, collectively, (a) with respect to the TCI-Ohio Acquisition, TCI-Ohio, (b) with respect to the CoxCom Acquisition, CoxCom, (c) with respect to the Eastern-Kentucky Acquisition, Eastern-Kentucky, (d) with respect to the NECMA-NE Acquisition, shareholders of NECMA-NE and (e) with respect to any 28 Subsequent Acquisition, the owner of, the stock (or other ownership interests) of the entity that owns, or the assets of, the CATV System to be acquired by the Company or any of its Restricted Subsidiaries pursuant to such Subsequent Acquisition, as the case may be. "Senior Debt Ratio" shall mean, as at any date (but subject in any event to the provisions of Section 8.10(e) hereof), the ratio of: (a) the sum of the aggregate amount of all Indebtedness of the Company and its Restricted Subsidiaries (excluding all Subordinated Indebtedness and performance bonds contemplated by Section 8.07(f) hereof but including all letters of credit contemplated by said Section) as at such date to (b) the product of EBITDA for the fiscal quarter ending on, or most recently ended prior to such date times four. "Senior Discount Debt" shall mean the Indebtedness of FrontierVision Holdings and FrontierVision Holdings Capital Corporation in respect of the notes issued pursuant to Senior Discount Debt Indenture. "Senior Discount Debt Documents" shall mean the Senior Discount Debt Indenture, the securities or other instruments evidencing the Senior Discount Debt and all other documents, instruments and agreements executed and delivered in connection with the original issuance of the Senior Discount Debt, in each case, as the same shall, subject to Section 8.18 hereof, be modified and supplemented and in effect from time to time. "Senior Discount Debt Indenture" shall mean the Indenture dated as of September 19, 1997 entered into by FrontierVision Holdings, L.P. and FrontierVision Holdings Capital Corporation, as Issuers, and Colorado National Bank, as trustee, as the same shall, subject to Section 8.18 hereof, be modified and supplemented and in effect from time to time. "Senior Officer" shall mean (i) the president, chief financial officer or other executive officer of FrontierVision Inc., acting for and on behalf of the Company (directly or indirectly through one or more general partnerships) or (ii) following the Reorganization, the president, chief financial officer or other executive officer of FrontierVision LP. "Senior Subordinated Debt Documents" shall mean the Senior Subordinated Debt Indenture, the securities or other instruments evidencing the Subordinated Indebtedness and all other documents, instruments and agreements executed and delivered in connection with the original issuance of the Subordinated Indebtedness, in each case, as the same shall, 29 subject to Section 8.18 hereof, be modified and supplemented and in effect from time to time. "Senior Subordinated Debt Indenture" shall mean the Indenture dated as of October 7, 1996 among the Company and FrontierVision Capital, as Issuers, and Colorado National Bank, as Trustee, as the same shall, subject to Section 8.18 hereof, be modified and supplemented and in effect from time to time. "Series" shall have the meaning assigned to such term in Section 2.01(d) hereof. "Specified Default" shall mean, collectively, any Event of Default under Section 9(a), 9(b), 9(c), 9(e)(i), 9(f), 9(g), 9(h), 9(i), 9(m), 9(n) or 9(o) hereof. "Stock Pledge Agreement" shall mean the Stock Pledge Agreement dated as of November 9, 1995 between the Stock Pledgors referred to therein and the Administrative Agent, (a copy of which is attached as Exhibit E-1 hereto), as amended by a Amendment No. 1 thereto (a copy of which is attached as Exhibit E-2 hereto), as further amended by a Amendment No. 2 thereto (a copy of which is attached as Exhibit E-3 hereto), as the same shall be amended by Amendment No. 3 thereto in substantially the form attached as Exhibit E-4 hereto and as the same shall be further modified and supplemented and in effect from time to time. "Subordinated Indebtedness" shall mean the Indebtedness of the Company and FrontierVision Capital in respect of the senior subordinated notes of the Company and FrontierVision Capital due 2006 issued pursuant to Senior Subordinated Debt Indenture. "Subscriber" shall mean a Person who subscribes to one or more of the cable television services of the Company and its Restricted Subsidiaries and includes both Equivalent Basic Subscribers and Persons who subscribe to Pay TV Units, but excluding each such Person whose account is more than 90 days past due. "Subsequent Acquisition" shall mean any acquisition permitted under Section 8.05(b)(iv) hereof (including, without limitation, the Scheduled Acquisitions). "Subsequent Acquisition Agreement" shall mean each asset purchase agreement, stock purchase agreement or other acquisition agreement pursuant to which a Subsequent Acquisition shall be consummated, as the same shall, subject to Section 8.18 hereof, be modified and supplemented and in effect from time to time. 30 "Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Subsidiary Guarantee Agreement" shall mean a Subsidiary Guarantee Agreement substantially in the form of Exhibit F hereto by a Restricted Subsidiary of the Company in favor of the Administrative Agent, as the same shall be modified and supplemented and in effect from time to time. "Subsidiary Guarantor" shall mean any Restricted Subsidiary of the Company that executes and delivers the Subsidiary Guarantee Agreement. "Tax Payment Amount" shall mean, for any period, an amount equal to the aggregate amount of Federal, state and local income taxes the Company and its Subsidiaries would have paid in respect of such period in the event they were corporations (other than an "S corporation" within the meaning of Section 1361 of the Code) for such period and all prior periods filing consolidated income tax returns with the Company as the "common parent" (within the meaning of Section 1504 of the Code). "TCI-NE Acquisition" shall mean the acquisition by the Company of CATV Systems in New Hampshire and Vermont from TCI Cablevision of Vermont, Inc. and Westmarc Development Joint Venture (collectively, "TCI-NE") pursuant to the Asset Purchase Agreement dated as of May 12, 1997 between TCI-NE and the Company, which acquisition was consummated on December 2, 1997. "TCI-Ohio" shall mean, collectively, TCI Cablevision of Ohio, Inc. and Ohio Cablevision Network, Inc. "TCI-Ohio Acquisition" shall mean the proposed acquisition by the Company of CATV Systems in Ohio from TCI-Ohio pursuant to the TCI-Ohio Acquisition Agreement. "TCI-Ohio Acquisition Agreement" shall mean the Asset Purchase Agreement dated on or about December 19, 1997, in substantially the form of the draft thereof dated December 18, 1997, between TCI-Ohio and the Company, as the same shall, subject to Section 8.18 hereof, be modified and supplemented and in effect from time to time. 31 "Term Loan Commitments" shall mean, collectively, the Facility A Term Loan Commitments and the Facility B Term Loan Commitments. "Term Loans" shall mean, collectively, the Facility A Term Loans and the Facility B Term Loans. "Type" shall have the meaning assigned to such term in Section 1.03 hereof. "Unrestricted Subsidiary" shall mean any Subsidiary of the Company that (a) shall have been designated as an "Unrestricted Subsidiary" in accordance with the provisions of Section 1.04 and (b) any Subsidiary of an Unrestricted Subsidiary. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. "U.S. Person" shall mean a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under any laws of the United States of America or any State thereof, or any estate or trust that is subject to Federal income taxation regardless of the source of its income. "U.S. Taxes" shall mean any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States of America or any taxing authority thereof. "UVC" shall mean United Video Cablevision, Inc. "UVC Notes" shall mean, collectively, (a) the promissory note of the Company in favor of UVC executed and delivered by the Company in an aggregate principal amount of $7,200,000 and (b) any PIK Notes (under and as defined in such promissory note) executed and delivered thereunder as provided therein, as the same shall be modified and supplemented and in effect from time to time. "Wholly Owned Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are directly or indirectly owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. 32 1.02 Accounting Terms and Determinations. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent and the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared, in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Administrative Agent and the Lenders hereunder (which, prior to the delivery of the first financial statements under Section 8.01 hereof, shall mean the financial statements referred to in Section 7.02(i) hereof). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest annual or quarterly financial statements furnished to the Lenders pursuant to Section 8.01 hereof (or, prior to the delivery of the first financial statements under Section 8.01 hereof, used in the preparation of the financial statements referred to in Section 7.02(i) hereof) unless: (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Lenders shall so object in writing within 30 days after delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 8.01 hereof, shall mean the financial statements referred to in Section 7.02(i) hereof). (b) The Company shall deliver to the Administrative Agent and the Agents at the same time as the delivery of any annual or quarterly financial statement under Section 8.01 hereof (i) a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of subsection (a) above and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. 33 (c) To enable the ready and consistent determination of compliance with the covenants set forth in Section 8 hereof, the Company will not change the last day of its fiscal year from December 31 of each year, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 and September 30 of each year, respectively. (d) Whenever making determinations under this Agreement of the amount of income taxes payable during any period by the Company and its Subsidiaries, the amount of such taxes shall be deemed to include the Tax Payment Amount for such period. 1.03 Types of Loans. Loans hereunder are distinguished by "Class" and by "Type". The "Class" of a Loan refers to whether such Loan is a Revolving Credit Loan, a Facility A Term Loan, a Facility B Term Loan or an Incremental Facility Loan of a particular Series, each of which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. Loans may be identified by both Class and Type. Incremental Facility Loans and Incremental Facility Commitments shall be classified by Series, each of which shall be considered a separate Class. 1.04 Subsidiaries; Designation of Unrestricted Subsidiaries. (a) The Company may at any time designate any of its Subsidiaries (including any newly acquired or newly formed Subsidiary) be an Unrestricted Subsidiary for purposes of this Agreement, by delivering to the Administrative Agent a certificate of a Senior Officer (and the Administrative Agent shall promptly forward a copy of such certificate to each Lender) attaching a copy of a resolution of the Company setting forth such designation and stating that the conditions set forth in this Section 1.04 have been satisfied with respect to such designation, provided that no such designation shall be effective unless (i) at the time of such designation and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, (ii) at the time of such designation the Company would be permitted to make an Investment (assuming the effectiveness of such designation) pursuant to Section 8.08(k) hereof, (iii) at the time of such designation and after giving effect thereto, no Subsidiary of an Unrestricted Subsidiary is a Restricted Subsidiary, (iv) at the time of such designation and after giving effect thereto, any Subsidiary that is a Restricted Subsidiary under the Senior Subordinated Debt Indenture shall also be a Restricted Subsidiary under this Agreement and (v) no Event of Default would have existed with respect to Section 8.10 hereof as at the previous Quarterly Date had such Subsidiary been an Unrestricted Subsidiary at such time. Neither the Company nor any Restricted Subsidiary shall at any time (1) provide credit support for, subject any of its property or assets (other than the equity interests of any Unrestricted Subsidiary) to the satisfaction of, or guarantee any Indebtedness 34 of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (2) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (3) be directly or indirectly liable for any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary, except, in the case of clause (1) or (2), to the extent otherwise permitted under the terms of this Agreement. (b) The Company may revoke any designation of a Subsidiary as an Unrestricted Subsidiary by delivering to the Administrative Agent a certificate of a Senior Officer (and the Administrative Agent shall promptly forward a copy of such certificate to each Lender) attaching a copy of a resolution of the Company setting forth such revocation and stating that the conditions set forth in this Section 1.04 have been satisfied with respect to such revocation, provided that no such revocation shall be effective unless (i) at the time of such revocation and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such revocation would, if incurred at such time, have been permitted to be incurred under this Agreement. (c) The parties hereto hereby agree that FrontierVision Access Partners L.L.C., a Delaware limited liability company, is hereby designated an Unrestricted Subsidiary; the Company hereby represents and warrants to the Administrative Agent and the Lenders that the requirements of this Section 1.04 with respect to such designation have been satisfied. Section 2. Commitments, Loans and Prepayments. 2.01 Loans. (a) Revolving Credit Loans. Each Revolving Credit Lender severally agrees, on the terms and conditions of this Agreement, to make revolving credit loans to the Company in Dollars during the period from and including the Effective Date to but not including the Revolving Credit Commitment Termination Date in an aggregate principal amount (as to all Revolving Credit Loans held by such Lender) at any one time outstanding up to but not exceeding the amount of the Revolving Credit Commitment of such Lender as in effect from time to time. Subject to the terms and conditions of this Agreement, during such period the Company may borrow, repay and reborrow the amount of the Revolving Credit Commitments by means of Base Rate Loans and Eurodollar Loans and may Convert Loans of one Type into Loans of another Type (as provided in Section 2.08 hereof) or 35 Continue Eurodollar Loans from one Interest Period to the next Interest Period (as provided in Section 2.08 hereof). Anything herein to the contrary notwithstanding, no Revolving Credit Loans may be made hereunder on the Effective Date unless the Company shall be simultaneously borrowing Facility A and Facility B Term Loans hereunder in an aggregate amount equal to the original Facility A and Facility B Term Loan Commitments hereunder. Proceeds of Revolving Credit Loans shall be available for any use permitted under Section 8.16 hereof, provided that, in the event that as contemplated by Section 2.09(f) hereof, the Company shall prepay Revolving Credit Loans from the proceeds of a Disposition hereunder, then an amount of Revolving Credit Commitments equal to the amount of such prepayment (herein the "Reserved Commitment Amount") shall be reserved and shall not be available for borrowings hereunder except and to the extent that the proceeds of such borrowings are to be applied to make Subsequent Acquisitions permitted under Section 8.05(b) hereof or to make prepayments of Loans under Section 2.09(d)(y)(B) hereof. The Company agrees, upon the occasion of any borrowing of Revolving Credit Loans hereunder that is to constitute a utilization of any Reserved Commitment Amount, to advise the Administrative Agent in writing of such fact at the time of such borrowing, identifying the amount of such borrowing that is to constitute such utilization, the Subsequent Acquisition in respect of which the proceeds of such borrowing are to be applied and the reduced Reserved Commitment Amount to be in effect after giving effect to such borrowing. (b) Facility A Term Loans. Each Facility A Term Loan Lender severally agrees, on the terms and conditions of this Agreement, to make term loans to the Company in Dollars during the period from and including the Effective Date to but not including the Facility A Term Loan Commitment Termination Date in an aggregate principal amount up to but not exceeding the then unused amount of the Facility A Term Loan Commitment of such Lender. Subject to the terms and conditions of this Agreement (including, without limitation, paragraph (e) below), the Company may Convert Facility A Term Loans of one Type into Facility A Term Loans of another Type (as provided in Section 2.08 hereof) or Continue Eurodollar Loans from one Interest Period to the next Interest Period (as provided in Section 2.08 hereof). Anything herein to the contrary notwithstanding, no Facility A Term Loans shall be made hereunder unless prior thereto (or concurrently therewith) Facility B Term Loans in an aggregate amount equal to the full original amount of the Facility B Term Loan Commitments shall have been made under Section 2.01(c) hereof. Facility A Term Loans borrowed and repaid prior to the Facility A Term Loan Commitment Termination Date may not be reborrowed. Proceeds of Facility A Term Loans hereunder shall be available for any use permitted under Section 8.16 hereof. 36 (c) Facility B Term Loans. Each Facility B Term Loan Lender severally agrees, on the terms and conditions of this Agreement, to make term loans to the Company in Dollars during the period from and including the Effective Date to but not including the Facility B Term Loan Commitment Termination Date in an aggregate principal amount up to but not exceeding the then unused amount of the Facility B Term Loan Commitment of such Lender. Subject to the terms and conditions of this Agreement (including, without limitation, paragraph (e) below), the Company may Convert Facility B Term Loans of one Type into Facility B Term Loans of another Type (as provided in Section 2.08 hereof) or Continue Eurodollar Loans from one Interest Period to the next Interest Period (as provided in Section 2.08 hereof). Facility B Term Loans borrowed and repaid prior to the Facility B Term Loan Commitment Termination Date may not be reborrowed. Proceeds of Facility B Term Loans hereunder shall be available for any use permitted under Section 8.16 hereof. (d) Incremental Facility Loans. In addition to borrowings of Term Loans and Revolving Credit Loans, at any time during the Incremental Facility Availability Period the Company may from time to time request the Lenders offer to enter into commitments to make additional term loans to the Company hereunder, which commitment of any Lender shall not be less than $5,000,000 and not greater than $200,000,000. In the event that one or more of the Lenders offer, in their sole discretion, to enter into such commitments, and such Lenders and the Company agree as to the amount of such commitments that shall be allocated to the respective Lenders making such offers and the fees (if any) to be payable by the Company in connection therewith, such Lenders shall become obligated to make Incremental Facility Loans under this Agreement in an amount equal to the amount of their respective Incremental Facility Commitments. The Incremental Facility Loans to be made pursuant to any such agreement between the Company and one or more Lenders in response to any such request by the Company shall be deemed to be a separate "Series" of Incremental Facility Loans for all purposes of this Agreement. Anything herein to the contrary notwithstanding, (i) the minimum aggregate principal amount of Incremental Facility Commitments entered into pursuant to any such request (and, accordingly, the minimum aggregate principal amount of any Series of Incremental Facility Loans) shall be $50,000,000 and (ii) the aggregate principal amount of all Incremental Facility Commitments and Incremental Facility Loans shall not exceed $200,000,000. Incremental Facility Term Loans borrowed and repaid prior to but not including the Quarterly Date falling on or nearest to December 31, 1999 may not be reborrowed. 37 (e) Certain Limitations on Eurodollar Loans. No more than fifteen separate Interest Periods in respect of Eurodollar Loans of all Classes may be outstanding at any one time. (f) Treatment of Loans Outstanding under Existing Credit Agreement. In the event that any "Revolving Credit Loans", or "Facility A" or "Facility B Term Loans" under the Existing Credit Agreement shall remain outstanding on the Effective Date, then such loans shall be continued as Revolving Credit Loans, or Facility A or Facility B Term Loans hereunder, as applicable, and the Lenders hereunder shall, on the Effective Date, take such actions, and make such adjustments among themselves, as shall be necessary so that such loans are held hereunder ratably in accordance with their respective Revolving Credit Commitments, and Facility A and Facility B Term Loan Commitments, as applicable. On the Effective Date, the Company shall cause to be paid to each Lender party to the Existing Credit Agreement, all amounts that would be owing to such Lender under Section 5.05 of the Existing Credit Agreement as if the "Loans" of such Lender under the Existing Credit Agreement were being repaid on the Effective Date, whether or not any such loans are actually repaid on the Effective Date. 2.02 Borrowings. The Company shall give the Administrative Agent notice of each borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m. New York time on the date specified for each borrowing hereunder, each Lender shall make available the amount of the Loan or Loans to be made by it on such date to the Administrative Agent, at an account maintained by the Administrative Agent with Chase at the Principal Office and notified to the Company, in immediately available funds, for account of the Company (or, at such other account as the Administrative Agent may designate). The amount so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the same, in immediately available funds, in an account of the Company designated by the Company and maintained with Chase at the Principal Office (or, in such other manner as the Company may reasonably specify to the Administrative Agent). 2.03 Changes of Commitments. (a) The aggregate amount of the Revolving Credit Commitments shall be automatically reduced to zero on the Revolving Credit Commitment Termination Date. (b) The Company shall have the right at any time or from time to time (i) so long as no Revolving Credit Loans are outstanding to terminate the Revolving Credit Commitments, (ii) so long as no Incremental Facility Loans of a Series are outstanding to terminate the Incremental Facility Commitments of such Series or (iii) to reduce the aggregate unused amount of the Revolving Credit Commitments or Incremental Facility 38 Commitments of any Series, as applicable; provided that (x) the Company shall give notice of each such termination or reduction as provided in Section 4.05 hereof and (y) each partial reduction shall be in an aggregate amount at least equal to $5,000,000 (or a larger multiple of $1,000,000). (c) Any portion of the Facility A and Facility B Term Loan Commitments not used on the Facility A and Facility B Term Loan Commitment Termination Date shall be automatically terminated on the Facility A and Facility B Term Loan Commitment Termination Date. Any portion of the Incremental Facility Commitments of any Series not used during the Incremental Facility Availability Period shall be automatically terminated on the last day of the Incremental Facility Availability Period. (d) The Commitments once terminated or reduced may not be reinstated. 2.04 Commitment Fee. The Company shall pay to the Administrative Agent for account of each Lender a commitment fee on the daily average unused amount of the respective Commitments of such Lender (including, without limitation, the Reserved Commitment Amount), for the period from and including the date hereof to but not including the date such Commitment is terminated, at a rate per annum equal to the Applicable Margin. Accrued commitment fees shall be payable on the Effective Date, on each Quarterly Date and on the date the relevant Commitments are terminated. Notwithstanding anything to the contrary contained herein or in the Existing Credit Agreement, the accrued commitment fee payable under Section 2.04 of the Existing Credit Agreement shall be payable on the Effective Date. 2.05 Lending Offices. The Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. 2.06 Several Obligations; Remedies Independent. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but neither any Lender nor the Administrative Agent shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender, and (except as otherwise provided in Section 4.06 hereof) no Lender shall have any obligation to the Administrative Agent or any other Lender for the failure by such Lender to make any Loan required to be made by such Lender. The amounts payable by the Company at any time hereunder to each Lender shall be a separate and independent debt and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement, and it shall not be necessary for any other Lender or the Administrative Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 39 2.07 Loan Accounts; Promissory Notes. (a) Maintenance of Loan Accounts by Lenders. Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (b) Maintenance of Loan Accounts by Administrative Agent. The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (c) Effect of Entries. The entries made in the accounts maintained pursuant to paragraph (a) or (b) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Loans in accordance with the terms of this Agreement. (d) Promissory Notes. Any Lender may request that Loans of any Class made by it be evidenced by a promissory note. In such event, the Company shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent (and which does not alter the rights or obligations of the parties to this Agreement). Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 11.06 hereof) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). 2.08 Optional Prepayments and Conversions or Continuations of Loans. Subject to Section 4.04 hereof, the Company shall have the right to prepay Loans, to Convert Loans of one Type into Loans of another Type or to Continue Eurodollar Loans from one Interest Period to the next Interest Period, at any time or from time to time, provided that: 40 (a) the Company shall give the Administrative Agent notice of each such prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and, upon the date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder); (b) except to the extent necessary to comply with the requirements of clause (c) below, Eurodollar Loans may be prepaid or Converted only on the last day of an Interest Period for such Loans; (c) any Conversion or Continuation of Eurodollar Loans shall be subject to the provisions of Section 2.01(e) hereof; (d) prepayments of any Term Loan shall be effected in such manner so that the Term Loans of both Classes (and, to the extent that Incremental Loans are outstanding, the Incremental Loans of all Series) are concurrently prepaid ratably in accordance with the respective outstanding principal amounts thereof and the aggregate principal amount of all such concurrent prepayments is at least equal to the amounts specified in Section 4.04 hereof; and (e) prepayments of Term Loans and of Incremental Facility Loans shall be applied to the installments of principal thereof ratably in accordance with the respective amounts of such installments. Notwithstanding the foregoing, and without limiting the rights and remedies of the Lenders under Section 9 hereof, in the event that any Event of Default shall have occurred and be continuing, the Administrative Agent may (and at the request of the Majority Lenders shall) suspend the right of the Company to Convert any Loan into a Eurodollar Loan, or to Continue any Eurodollar Loan, in which event all Loans shall be Converted (on the last day(s) of the respective Interest Periods therefor) into Base Rate Loans. 2.09 Mandatory Prepayments and Reductions of Commitments. (a) Casualty Events. Upon the date 365 days following the receipt by the Company of the proceeds of insurance, condemnation award or other compensation in respect of any Casualty Event affecting any Property of the Company or any of its Restricted Subsidiaries (or upon such earlier date as the Company or such Restricted Subsidiary, as the case may be, shall have determined not to repair or replace the Property affected by such Casualty Event), the Company shall prepay the Loans in an aggregate amount, if any, equal to 100% of the Net Available Proceeds of such Casualty Event not theretofore applied (or committed to be applied pursuant to executed construction contracts or equipment orders) to 41 the repair or replacement of such Property, such prepayment to be effected in each case in the manner and to the extent specified in paragraph (f) of this Section 2.09. Nothing in this paragraph (a) shall be deemed to limit any obligation of the Company and its Restricted Subsidiaries pursuant to the Security Agreement to remit to the Collateral Account the proceeds of insurance, condemnation award or other compensation received in respect of any Casualty Event, and the Administrative Agent shall release such proceeds to the Company in the manner and to the extent provided in Section 4.01(d) of the Security Agreement. (b) [INTENTIONALLY OMITTED] (c) Excess Cash Flow. Not later than the date 90 days after the end of each fiscal year of the Company, commencing with Excess Cash Flow for the fiscal year ending December 31, 2001, the Company shall prepay the Loans in an aggregate amount equal to the excess of (A) 50% of Excess Cash Flow for such fiscal year over (B) the aggregate amount of voluntary prepayments of Term Loans and Incremental Facility Loans made during such fiscal year pursuant to Section 2.08 hereof (other than that portion, if any, of such prepayments applied to installments of the Term Loans and Incremental Facility Loans falling due in such fiscal year), such prepayment to be effected in each case in the manner and to the extent specified in paragraph (f) of this Section 2.09. Notwithstanding the foregoing, no prepayment shall be required under this paragraph (c) if, at the last day of the last two fiscal quarters of any fiscal year the Debt Ratio shall have been less than 5.00 to 1. (d) Sale of Assets. Without limiting the obligation of the Company to obtain the consent of the Majority Lenders pursuant to Section 8.05 hereof to any Disposition not otherwise permitted hereunder, the Company agrees, two Business Days prior to the occurrence of any Disposition in which the fair market value of the Property that is the subject of such Disposition is greater than or equal to $10,000,000, to deliver to the Administrative Agent and the other Agents a statement, certified by a Senior Officer, in reasonable detail of the estimated amount of the Net Available Proceeds of such Disposition, in which event the Company will prepay the Loans as follows: (i) on the date of such Disposition, in an aggregate amount equal to 100% of the actual Net Available Proceeds of such Disposition received by the Company and its Restricted Subsidiaries on the date of such Disposition; and (ii) thereafter, quarterly, on the date of the delivery by the Company to the Administrative Agent pursuant to Section 8.01 hereof of the financial statements for each quarterly fiscal period or (if earlier) the date 45 days after the end of such quarterly fiscal period, to the extent the Company or any of its Restricted Subsidiaries 42 shall receive Net Available Proceeds during such quarterly fiscal period in cash under deferred payment arrangements or Investments entered into or received in connection with any Disposition, an amount equal to (A) 100% of the aggregate amount of such Net Available Proceeds minus (B) any transaction expenses associated with such Disposition and not previously deducted in the determination of Net Available Proceeds plus (or minus, as the case may be) (C) any other adjustment received or paid by the Company or such Restricted Subsidiary pursuant to the respective agreements giving rise to such Disposition and not previously taken into account in the determination of the Net Available Proceeds of such Disposition, provided that, if prior to the date upon which the Company would otherwise be required to make a prepayment under this clause (ii) with respect to any quarterly fiscal period the aggregate amount of such Net Available Proceeds received in cash shall aggregate an amount that will require a prepayment of $10,000,000 or more under this clause (ii) with respect to such quarterly fiscal period, then the Company shall immediately make a prepayment under this clause (ii) in an amount equal to such required prepayment. Prepayments of Loans shall be effected in each case in the manner and to the extent specified in paragraph (f) of this Section 2.09. Notwithstanding the foregoing, the Company shall not be required to make a prepayment pursuant to this paragraph (d) with respect to the Net Available Proceeds from any Disposition (including, without limitation, the Dispositions permitted under Section 8.05(c)(iv) hereof) in the event that the Company advises the Administrative Agent at the time the Net Available Proceeds from such Disposition are received that it intends to reinvest such Net Available Proceeds into replacement assets pursuant to a transaction permitted under Section 8.05(b) hereof, so long as: (x) such Net Available Proceeds are either (i) held by the Administrative Agent in the Collateral Account pending such reinvestment, in which event the Administrative Agent need not release such Net Available Proceeds except upon presentation of evidence satisfactory to it that such Net Available Proceeds are to be so reinvested in compliance with the provisions of this Agreement or (ii) applied by the Company to the prepayment of Revolving Credit Loans hereunder (in which event the Company agrees to advise the Administrative Agent in writing at the time of such prepayment of Revolving Credit Loans that such prepayment is being made from the proceeds of a Disposition and that, as contemplated by Section 2.01(a) hereof, a portion of the Revolving Credit Commitments hereunder equal to the amount of such prepayment gives rise to a Reserved Commitment Amount that shall be available hereunder only for purposes of making Subsequent Acquisitions under Section 8.05(b) hereof), 43 (y) the Net Available Proceeds from any Disposition are in fact so reinvested within twelve months of such Disposition (it being understood that, in the event Net Available Proceeds from more than one Disposition are paid into the Collateral Account or applied to the prepayment of Revolving Credit Loans as provided in clause (x) above, such Net Available Proceeds shall be deemed to be released (or, as the case may be, Revolving Credit Loans utilizing the Reserved Commitment Amount shall be deemed to be made) in the same order in which such Dispositions occurred and, accordingly, (A) any such Net Available Proceeds so held for more than twelve months shall be forthwith applied to the prepayment of Loans and reductions of Commitments as provided above and (B) any Reserved Commitment Amount that remains so unutilized for more than twelve months shall, subject to the satisfaction of the conditions precedent to such borrowing in Section 6.03 hereof, be utilized through the borrowing by the Company of Revolving Credit Loans the proceeds of which shall be applied to the prepayment of Loans and reductions of Commitments as provided in paragraph (f) of this Section 2.09) and (z) the aggregate amount of Net Available Proceeds (together with investment earnings thereon) so held at any time by the Administrative Agent pending reinvestment as contemplated by this sentence, together with the aggregate amount of the Reserved Commitment Amount, shall not at any time exceed $150,000,000 or such greater amount as the Majority Lenders may otherwise agree. As contemplated by Section 4.01 of the Security Agreement, nothing in this paragraph (d) shall be deemed to obligate the Administrative Agent to release any of such proceeds from the Collateral Account to the Company for purposes of reinvestment as aforesaid upon the occurrence and during the continuance of any Event of Default. (e) Change of Control. If any Change of Control shall occur, then, concurrently with the occurrence of the event giving rise to such Change of Control, the Company shall prepay the Loans in full and the Commitments shall be automatically reduced to zero. (f) Application. Upon the occurrence of any of the events described in the above paragraphs of this Section 2.09, the amount of the required prepayment shall be applied to the prepayment of the Facility A Term Loans, the Facility B Term Loans and the Incremental Facility Loans of each Series ratably in accordance with the respective then-outstanding aggregate amounts of such Commitments and Loans and after the prepayment in full of the outstanding Facility A Term Loans, Facility B Term Loans and the Incremental Facility Term Loans, to the reduction of the Revolving Credit Commitments (and to the simultaneous prepayment of the Revolving Credit Loans in an amount equal to such required reduction of Revolving Credit Commitments). Each such prepayment of Term 44 Loans shall be applied to the Facility A Term Loans, the Facility B Term Loans and the Incremental Facility Loans of each Series ratably in accordance with the respective aggregate outstanding principal amounts thereof, and to the installments of principal thereof ratably in accordance with the respective amounts of such installments. Section 3. Payments of Principal and Interest. 3.01 Repayment of Loans. (a) The Company hereby promises to pay to the Administrative Agent for account of each Revolving Credit Lender the entire outstanding principal amount of such Lender's Revolving Credit Loans, and each Revolving Credit Loan shall mature, on the Revolving Credit Commitment Termination Date. (b) The Company hereby promises to pay to the Administrative Agent for account of the Facility A Term Loan Lenders the principal of the Facility A Term Loans in twenty-eight installments payable on the Principal Payment Dates set forth below as follows, each such installment to be in an amount equal to the percentage of the aggregate principal amount of the Facility A Term Loans outstanding on the Facility A Term Loan Commitment Termination Date set forth opposite such Principal Payment Date: Percentage of Aggregate Principal Principal Payment Date Amount Outstanding December 31, 1998 0.75% March 31, 1999 ... 0.75% June 30, 1999 .... 0.75% September 30, 1999 0.75% December 31, 1999 2.00% March 31, 2000 ... 2.00% June 30, 2000 .... 2.00% September 30, 2000 2.00% December 31, 2000 3.00% March 31, 2001 ... 3.00% June 30, 2001 .... 3.00% September 30, 2001 3.00% 45 December 31, 2001 4.00% March 31, 2002 ... 4.00% June 30, 2002 .... 4.00% September 30, 2002 4.00% December 31, 2002 5.00% March 31, 2003 ... 5.00% June 30, 2003 .... 5.00% September 30, 2003 5.00% December 31, 2003 6.50% March 31, 2004 ... 6.50% June 30, 2004 .... 6.50% September 30, 2004 6.50% December 31, 2004 3.75% March 31, 2005 ... 3.75% June 30, 2005 .... 3.75% September 30, 2005 ... 3.75% (c) The Company hereby promises to pay to the Administrative Agent for account of the Facility B Term Loan Lenders the principal of the Facility B Term Loans in twenty-eight installments payable on the Principal Payment Dates set forth below as follows, each such installment to be in an amount equal to the percentage of the aggregate principal amount of the Facility B Term Loans outstanding on the Facility B Term Loan Commitment Termination Date set forth opposite such Principal Payment Date: Percentage of Aggregate Principal Principal Payment Date Amount Outstanding December 31, 1999 0.2075% March 31, 2000 ... 0.2075% June 30, 2000 .... 0.2075% September 30, 2000 0.2075% December 31, 2000 0.2075% March 31, 2001 ... 0.2075% June 30, 2001 .... 0.2075% September 30, 2001 0.2075% 46 December 31, 2001 0.2075% March 31, 2002 ... 0.2075% June 30, 2002 .... 0.2075% September 30, 2002 0.2075% December 31, 2002 0.2075% March 31, 2003 ... 0.2075% June 30, 2003 .... 0.2075% September 30, 2003 0.2075% December 31, 2003 0.2075% March 31, 2004 ... 0.2075% June 30, 2004 .... 0.2075% September 30, 2004 0.2075% December 31, 2004 0.2125% March 31, 2005 ... 0.2125% June 30, 2005 .... 0.2125% September 30, 2005 0.2125% December 31, 2005 45.0000% March 31, 2006 ... 50.0000% (d) The Company hereby promises to pay to the Administrative Agent for account of the Incremental Facility Lenders the principal of the Incremental Facility Loans in twenty-six installments payable on the Principal Payment Dates set forth below as follows, each such installment to be in an amount equal to the percentage of the aggregate principal amount of the Incremental Facility Term Loans outstanding on the Quarterly Date falling on or nearest to December 31, 1999 set forth opposite such Principal Payment Date (and each such payment to be applied ratably to each Series of Incremental Facility Loans): Percentage of Aggregate Principal Principal Payment Date Amount Outstanding December 31, 1999 0.2075% March 31, 2000 0.2075% June 30, 2000 0.2075% September 30, 2000 0.2075% December 31, 2000 0.2075% 47 March 31, 2001 0.2075% June 30, 2001 0.2075% September 30, 2001 0.2075% December 31, 2001 0.2075% March 31, 2002 0.2075% June 30, 2002 0.2075% September 30, 2002 0.2075% December 31, 2002 0.2075% March 31, 2003 0.2075% June 30, 2003 0.2075% September 30, 2003 0.2075% December 31, 2003 0.2075% March 31, 2004 0.2075% June 30, 2004 0.2075% September 30, 2004 0.2075% December 31, 2004 0.2125% March 31, 2005 0.2125% June 30, 2005 0.2125% September 30, 2005 0.2125% December 31, 2005 45.0000% March 31, 2006 50.0000% 3.02 Interest. The Company hereby promises to pay to the Administrative Agent for account of each Lender interest on the unpaid principal amount of each Loan made by such Lender for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) during such periods as such Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) plus the Applicable Margin and (b) during such periods as such Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan for such Interest Period plus the Applicable Margin. Notwithstanding the foregoing, the Company hereby promises to pay to the Administrative Agent for account of each Lender interest at the applicable Post-Default Rate on any 48 principal of any Loan made by such Lender and on any other amount payable by the Company hereunder to or for account of such Lender, that shall not be paid in full when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each Interest Period therefor and, if such Interest Period is longer than three months, at three-month intervals following the first day of such Interest Period, and (iii) in the case of any Loan, upon the payment or prepayment thereof or the Conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid or Converted), except that interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Administrative Agent shall give notice thereof to the Lenders to which such interest is payable and to the Company. Notwithstanding anything to the contrary contained herein or in the Existing Credit Agreement, accrued interest payable under Section 3.02 of the Existing Credit Agreement with respect to any of the "Loans" outstanding thereunder shall be paid on the Effective Date. Section 4. Payments; Pro Rata Treatment; Computations; Etc. 4.01 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Company under this Agreement and under any other Loan Document, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Administrative Agent at an account maintained by the Administrative Agent with Chase at the Principal Office as notified to the Company (or, at such other account as the Administrative Agent may designate), not later than 2:00 p.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) Any Lender for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment that is not made by such time to any ordinary deposit account of the Company with such Lender (with notice to the Company and the Administrative Agent), provided that such Lender's failure to give such notice shall not affect the validity of such debit. 49 (c) The Company shall, at the time of making each payment under this Agreement for account of any Lender, specify to the Administrative Agent (which shall so notify the intended recipient(s) thereof) the Loans or other amounts payable by the Company hereunder to which such payment is to be applied (and in the event that the Company fails to so specify, or if an Event of Default has occurred and is continuing, the Administrative Agent may distribute such payment to the Lenders for application in such manner as it or the Majority Lenders, subject to Section 4.02 hereof, may determine to be appropriate). (d) Each payment received by the Administrative Agent under this Agreement for account of any Lender shall be paid by the Administrative Agent promptly to such Lender, in immediately available funds, for account of such Lender's Applicable Lending Office for the Loan or other obligation in respect of which such payment is made. (e) If the due date of any payment under this Agreement would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.02 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing of Loans of a particular Class (including of a particular Series of Incremental Facility Term Loans) from the Lenders under Section 2.01 hereof shall be made from the relevant Lenders, each payment of commitment fee under Section 2.04 hereof in respect of Commitments of a particular Class shall be made for account of the relevant Lenders, and each termination or reduction of the amount of the Commitments of a particular Class under Section 2.03 hereof shall be applied to the respective Commitments of such Class of the relevant Lenders, pro rata according to the amounts of their respective Commitments of such Class; (b) except as otherwise provided in Section 5.04 hereof, Eurodollar Loans of any Class (including of a particular Series of Incremental Facility Term Loans) having the same Interest Period shall be allocated pro rata among the relevant Lenders according to the amounts of their respective Revolving Credit, Facility A Term Loan Commitments, Facility B Term Loan Commitments and Incremental Facility Commitments of the relevant Series (in the case of the making of Loans) or their respective Revolving Credit Loans, Facility A Term Loans, Facility B Term Loans and Incremental Facility Loans of the relevant Series (in the case of Conversions and Continuations of Loans); (c) each payment or prepayment of principal of Loans, of any Class by the Company shall be made for account of the relevant Lenders pro rata in accordance 50 with the respective unpaid principal amounts of the Loans of such Class held by them; and (d) each payment of interest on Loans of any Class by the Company shall be made for account of the relevant Lenders pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Lenders. 4.03 Computations. Interest on Loans and commitment fee shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.04 Minimum Amounts. Except for mandatory prepayments made pursuant to Section 2.09 hereof and Conversions or prepayments made pursuant to Section 5.04 hereof, each borrowing, Conversion and partial prepayment of principal of Base Rate Loans shall be in an aggregate amount at least equal to $500,000 or a larger multiple of $100,000 and each borrowing, Conversion and partial prepayment of Eurodollar Loans shall be in an aggregate amount at least equal to $2,000,000 or a larger multiple of $1,000,000 (borrowings, Conversions or prepayments of or into Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period). If any Eurodollar Loans would otherwise be in a lesser principal amount for any period, such Loans shall be Base Rate Loans during such period. 4.05 Certain Notices. Notices by the Company to the Administrative Agent of terminations or reductions of the Commitments and of borrowings, Conversions, Continuations and optional prepayments of Loans and Classes of Loans, of Types of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Administrative Agent not later than 11:00 a.m. New York time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: 51 Number of Business Notice Days Prior Termination or reduction of Commitments 3 Borrowing or prepayment of, or Conversions into, Base Rate Loans 1 Borrowing or prepayment of, Conversions into, Continuations as, or duration of Interest Period for, Eurodollar Loans 3 Each such notice of termination or reduction shall specify the amount and the Class of the Commitments to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or optional prepayment shall specify the Class of Loans (including, if applicable, the particular Series of Incremental Facility Term Loans) to be borrowed, Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing, Conversion, Continuation or optional prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Administrative Agent shall promptly notify the Lenders of the contents of each such notice. In the event that the Company fails to select the Type of Loan, or the duration of any Interest Period for any Eurodollar Loan, within the time period and otherwise as provided in this Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. 4.06 Non-Receipt of Funds by the Administrative Agent. Unless the Administrative Agent shall have been notified by a Lender or the Company (the "Payor") prior to the date on which the Payor is to make payment to the Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be made by such Lender hereunder or (in the case of the Company) a payment to the Administrative Agent for account of one or more of the Lenders hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required 52 Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if the Payor has not in fact made the Required Payment to the Administrative Agent, the recipient(s) of such payment shall, on demand, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "Advance Date") such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Administrative Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid, provided that if neither the recipient(s) nor the Payor shall return the Required Payment to the Administrative Agent within three Business Days of the Advance Date, then, retroactively to the Advance Date, the Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (i) if the Required Payment shall represent a payment to be made by the Company to the Lenders, the Company and the recipient(s) shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Post-Default Rate (without duplication of the obligation of the Company under Section 3.02 hereof to pay interest on the Required Payment at the Post-Default Rate), it being understood that the return by the recipient(s) of the Required Payment to the Administrative Agent shall not limit such obligation of the Company under said Section 3.02 to pay interest at the Post-Default Rate in respect of the Required Payment and (ii) if the Required Payment shall represent proceeds of a Loan to be made by the Lenders to the Company, the Payor and the Company shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment pursuant to whichever of the rates specified in Section 3.02 hereof is applicable to the Type of such Loan, it being understood that the return by the Company of the Required Payment to the Administrative Agent shall not limit any claim the Company may have against the Payor in respect of such Required Payment. 4.07 Sharing of Payments, Etc. (a) The Company agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option (to the fullest extent permitted by law), to set off and apply any deposit (general or special, time or demand, provisional or final), or other indebtedness, held by it for the credit or account of the Company at any of its offices, in Dollars or in any other 53 currency, against any principal of or interest on any of such Lender's Loans or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such deposit or other indebtedness are then due to the Company), in which case it shall promptly notify the Company and the Administrative Agent thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender shall obtain from the Company payment of any principal of or interest on any Loan of any Class owing to it or payment of any other amount under this Agreement or any other Loan Document through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from the Administrative Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Loans of such Class or such other amounts then due hereunder or thereunder by the Company to such Lender than the percentage received by any other Lender, it shall promptly purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans of such Class or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans of such Class or such other amounts, respectively, owing to each of the Lenders. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Company agrees that any Lender so purchasing such a participation (or direct interest) may, to the fullest extent permitted by law, exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Company. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.07 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.07 to share in the benefits of any recovery on such secured claim. 54 Section 5. Yield Protection, Etc. 5.01 Additional Costs. (a) The Company shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs that such Lender determines are attributable to its making or maintaining of any Eurodollar Loans or its obligation to make any Eurodollar Loans hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such Loans or such obligation, resulting from any Regulatory Change that: (i) shall subject any Lender (or its Applicable Lending Office for any of such Loans) to any tax, duty or other charge in respect of such Loans or changes the basis of taxation of any amounts payable to such Lender under this Agreement in respect of any of such Loans (excluding changes in the rate of tax on the overall net income of such Lender or of such Applicable Lending Office by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate for such Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including, without limitation, any of such Loans or any deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof), or any commitment of such Lender (including, without limitation, the Commitments of such Lender hereunder); or (iii) imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities) or its Commitments. If any Lender requests compensation from the Company under this Section 5.01(a), the Company may, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender thereafter to make or Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable), provided that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Company shall pay directly to each Lender from time to time on request such amounts as such Lender may determine to be necessary to compensate such Lender (or, without duplication, the bank holding company of which such Lender is a 55 subsidiary) for any costs that it determines are attributable to the maintenance by such Lender (or any Applicable Lending Office or such bank holding company), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any court or governmental or monetary authority (including the NAIC) (i) following any Regulatory Change or (ii) implementing any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) hereafter issued by any government or governmental or supervisory authority (including the NAIC) implementing at the national level the Basle Accord, of capital in respect of its Commitments or Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender (or any Applicable Lending Office or such bank holding company) to a level below that which such Lender (or any Applicable Lending Office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request). (c) Each Lender shall notify the Company of any event occurring after the date hereof entitling such Lender to compensation under paragraph (a) or (b) of this Section 5.01 as promptly as practicable, but in any event within 45 days, after such Lender obtains actual knowledge thereof; provided that (i) if any Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs incurred from and after the date 45 days prior to the date that such Lender does give such notice and (ii) each Lender will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, except that such Lender shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Lender will furnish to the Company a certificate setting forth the basis and amount of each request by such Lender for compensation under paragraph (a) or (b) of this Section 5.01. Determinations and allocations by any Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) of this Section 5.01, or of the effect of capital maintained pursuant to paragraph (b) of this Section 5.01, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. 5.02 Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Base Rate for any Interest Period: 56 (a) the Administrative Agent determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (b) if the related Loans are Revolving Credit Loans, the Majority Revolving Credit Lenders, if the related Loans are Facility A Term Loans, the Majority Facility A Term Loan Lenders, if the related Loans are Facility B Term Loans, the Majority Facility B Term Loan Lenders, or if the related Loans are Incremental Facility Loans of any Series, the Majority Incremental Facility Lenders of such Series determine, which determination shall be conclusive, and notify the Administrative Agent that the relevant rates of interest referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not likely adequately to cover the cost to such Lenders of making or maintaining Eurodollar Loans for such Interest Period; then the Administrative Agent shall give the Company and each Lender prompt notice thereof and, so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate Loans in accordance with Section 2.08 hereof. 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder (and, in the sole opinion of such Lender, the designation of a different Applicable Lending Office would either not avoid such unlawfulness or would be disadvantageous to such Lender), then such Lender shall promptly notify the Company thereof (with a copy to the Administrative Agent) and such Lender's obligation to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be applicable). 5.04 Treatment of Affected Loans. If the obligation of any Lender to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Lender's Eurodollar Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Eurodollar Loans (or, in the case of a Conversion resulting from a circumstance described in Section 5.03 hereof, on such earlier date as such Lender may specify to the Company with a copy to the Administrative Agent) and, unless and until such 57 Lender gives notice as provided below that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Eurodollar Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Eurodollar Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Eurodollar Loans shall be made or Converted into Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into Eurodollar Loans shall remain as Base Rate Loans. If such Lender gives notice to the Company with a copy to the Administrative Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the Conversion of such Lender's Eurodollar Loans pursuant to this Section 5.04 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans of the same Class made by other Lenders are outstanding, such Lender's Base Rate Loans of the same Class shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Base Rate and Eurodollar Loans of such Class are allocated among the Lenders ratably (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments of such Class. 5.05 Compensation. The Company shall pay to the Administrative Agent for account of each Lender, upon the request of such Lender through the Administrative Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense that such Lender determines is attributable to: (a) any payment, mandatory or optional prepayment or Conversion of a Eurodollar Loan made by such Lender for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 9 hereof) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 6 hereof to be satisfied) to borrow a Eurodollar Loan from such Lender on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have 58 accrued on the principal amount so paid, prepaid, Converted or not borrowed for the period from the date of such payment, prepayment, Conversion or failure to borrow to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan that would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest that otherwise would have accrued on such principal amount at a rate per annum equal to the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Lender). Without limiting the generality of the foregoing, on the Effective Date, the Company shall pay to the Administrative Agent for account of the Existing Lenders under the Existing Credit Agreement any amounts that would be payable under Section 5.05 of the Existing Credit Agreement assuming any "Eurodollar Loans" outstanding thereunder had been paid in full on the Effective Date. 5.06 U.S. Taxes. (a) The Company agrees to pay to each Lender that is not a U.S. Person such additional amounts as are necessary in order that the net payment of any amount due to such non-U.S. Person hereunder after deduction for or withholding in respect of any U.S. Taxes imposed with respect to such payment (or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will not be less than the amount stated herein to be then due and payable, provided that the foregoing obligation to pay such additional amounts shall not apply: (i) to any payment to any Lender hereunder unless such Lender is, on the date hereof (or on the date it becomes a Lender hereunder as provided in Section 11.06(b) hereof) and on the date of any change in the Applicable Lending Office of such Lender, entitled to submit and does submit pursuant to Section 5.06(c) either (A) a Form 1001 (relating to such Lender and entitling it to a complete exemption from withholding on all interest to be received by it hereunder in respect of the Loans) or a Form 4224 (relating to all interest to be received by such Lender hereunder in respect of the Loans), or (B) in the case of a Lender not treated as a bank for regulatory, tax or other legal purposes in any jurisdiction, (1) a certificate under penalties of perjury that such Lender is not a bank, a holder of equity of the Company or a controlled foreign corporation related to the Company for purposes of section 881(c)(3) of the Code or a conduit entity within the meaning of United States Treasury Regulations section 1.881-3 and (2) a duly completed Internal Revenue Service Form W-8; or 59 (ii) to any U.S. Taxes imposed solely by reason of the failure by such non-U.S. Person (or, if such non-U.S. Person is not the beneficial owner of the relevant Loan, such beneficial owner) to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of America of such non-U.S. Person (or beneficial owner, as the case may be) to the extent it is legally entitled to do so if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Taxes. For the purposes of this Section 5.06(a), (A) "Form 1001" shall mean Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the United States of America, (B) "Form 4224" shall mean Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States of America (or in relation to either such Form such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States of America to document a claim to which such Form relates) and (C) "Form W-8" shall mean Form W-8 (Certificate of Foreign Status of the Department of Treasury of the United States of America). Each of the Forms referred to in the foregoing clauses (A), (B) and (C) shall include such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States of America to document a claim to which such Form relates. (b) Within 30 days after paying any amount to the Administrative Agent or any Lender from which it is required by law to make any deduction or withholding, and within 30 days after it is required by law to remit such deduction or withholding to any relevant taxing or other authority, the Company shall deliver to the Administrative Agent for delivery to such non-U.S. Person evidence satisfactory to such Person of such deduction, withholding or payment (as the case may be). (c) Each Lender that is not a U.S. Person agrees, to the extent it is entitled to an exemption from (or reduction of) the amount of withholding of U.S. Taxes from interest payments hereunder, to furnish to the Company on or prior to the date hereof (or the date on which it becomes a Lender as provided in Section 11.06(b) hereof) two copies of Form 1001, Form 4224 or Form W-8 (as applicable), and any other form reasonably requested by the Company which such Lender may lawfully deliver that is necessary or required to establish such exemption (or reduction). 60 Section 6. Conditions Precedent. 6.01 Effectiveness. The effectiveness of this Agreement (and the amendment and restatement of the Existing Credit Agreement to be effected hereby), and the obligation of any Lender to make its initial Loan hereunder are subject to (i) the condition precedent that such effectiveness shall occur on or before December 31, 1997, and (ii) the receipt by the Administrative Agent of the following documents, each of which shall be satisfactory to the Administrative Agent (and to the extent specified below, to the Majority Lenders) in form and substance: (a) Corporate and Partnership Documents. Certified copies of the Partnership Agreement and of the charter and by-laws (or equivalent documents) of each of the Company, the Restricted Subsidiaries, the General Partner, the Limited Partner, FrontierVision LP, FVP GP, L.P. and FrontierVision Inc. (hereinafter for purposes of this Section 6.01(a) and 8.17(a)(iii) hereof collectively referred to as the "Credit Parties") and of all partnership and corporate authority for the Credit Parties (including, without limitation, board of director resolutions and evidence of the incumbency, including specimen signatures, of officers for each Credit Party) with respect to the execution, delivery and performance of such of the Basic Documents to which such Credit Party is intended to be a party and each other document to be delivered by such Credit Party from time to time in connection herewith and the Loans hereunder (and the Administrative Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from such Credit Party, as the case may be, to the contrary). (b) Officer's Certificate. A certificate of a Senior Officer, dated the Effective Date, to the effect set forth in the first sentence of Section 6.03 hereof. (c) Opinion of Counsel to the Company. An opinion, dated the Effective Date, of Edwards & Angell, counsel to the Obligors, substantially in the form of Exhibit G hereto and covering such other matters as the Administrative Agent or any Lender may reasonably request (and the Company hereby instructs such counsel to deliver such opinion to the Lenders and the Administrative Agent). (d) Opinion of Special New York Counsel to Chase. An opinion, dated the Effective Date, of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase, substantially in the form of Exhibit H hereto (and Chase hereby instructs such counsel to deliver such opinion to the Lenders). (e) Amendment No. 2 to Security Agreement. Amendment No. 2 to the Security Agreement, in substantially the form of Exhibit C-3 hereto, duly executed 61 and delivered by the Company and the Administrative Agent. In addition, the Company shall have taken such other action as the Administrative Agent shall have requested in order to perfect the security interests created pursuant to the Security Agreement (other than perfection of security interests in fixtures (under and as defined in the Uniform Commercial Code) and Motor Vehicles (under and as defined in the Security Agreement)) to the extent such filings have not already been effected pursuant to the Existing Credit Agreement, including, without limitation, delivering to the Administrative Agent, for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements. (f) Amendment No. 3 to Partner Pledge Agreement. Amendment No. 3 to the Partner Pledge Agreement, in substantially the form of Exhibit D-4 hereto, duly executed and delivered by FrontierVision and FrontierVision Holdings and the Administrative Agent. In addition, FrontierVision and FrontierVision Holdings shall have taken such other action as the Administrative Agent shall have requested in order to perfect the security interests created pursuant to the Partner Pledge Agreement (to the extent such action has not already been taken pursuant to the Existing Credit Agreement), including, without limitation, delivering to the Administrative Agent, for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements. (g) Amendment No. 3 to Stock Pledge Agreement. Amendment No. 3 to the Stock Pledge Agreement, in substantially the form of Exhibit E-4 hereto, duly executed and delivered by FrontierVision Holdings and the Administrative Agent. In addition, FrontierVision Holdings shall have taken such other action as the Administrative Agent shall have requested in order to perfect the security interests created pursuant to the Stock Pledge Agreement (to the extent such action has not already been taken pursuant to the Existing Credit Agreement), including, without limitation, delivering to the Administrative Agent, for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements. (h) Repayment of UVC Notes. Evidence that prior to or concurrently with the making of the initial Loans hereunder, the principal of and interest on, and all other amounts owing in respect of the UVC Notes shall have been paid in full. (i) Debt Ratio. Evidence that, as of the Effective Date and after giving effect to the Loans hereunder to be outstanding on the Effective Date, the Debt Ratio shall not exceed 6.75 to 1, and the Administrative Agent shall have received a certificate of a Senior Officer to such effect. 62 (j) Insurance. Certificates of insurance evidencing the existence of all insurance required to be maintained by the Company and its Restricted Subsidiaries pursuant to Section 8.04 hereof and the designation of the Administrative Agent as the loss payee or additional named insured, as the case may be, thereunder to the extent required by said Section 8.04, such certificates to be in such form and contain such information as is specified in said Section 8.04. In addition, the Company shall have delivered to the Administrative Agent a certificate of a Senior Officer setting forth the insurance obtained by it in accordance with the requirements of Section 8.04 and stating that such insurance is in full force and effect and that all premiums then due and payable thereon have been paid. (k) Solvency Certificate. A certificate from a Senior Officer, to the effect that, as of the Effective Date and immediately after giving effect to the Loans hereunder to be outstanding on the Effective Date and to the other transactions contemplated hereunder to occur on or before the Effective Date, (i) the aggregate value of all Properties of the Company and its Restricted Subsidiaries at their present fair saleable value (i.e., the amount that may be realized within a reasonable time, considered to be six months to one year, either through collection or sale at the regular market value, conceiving the latter as the amount that could be obtained for the Property in question within such period by a capable and diligent businessman from an interested buyer who is willing to purchase under ordinary selling conditions), exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of the Company and its Restricted Subsidiaries, (ii) the Company and its Restricted Subsidiaries will not, on a consolidated basis, have an unreasonably small capital with which to conduct their business operations as heretofore conducted and (iii) the Company and its Restricted Subsidiaries will have, on a consolidated basis, sufficient cash flow to enable them to pay their debts as they mature. Such certificate shall also state that the financial projections and underlying assumptions contained in such analyses were at the time made, and on the Effective Date are, fair and reasonable and accurately computed. (l) Other Documents. Such other documents as the Administrative Agent or the Majority Lenders or special New York counsel to Chase may reasonably request. The effectiveness of this Agreement (and the amendment and restatement of the Existing Credit Agreement contemplated hereby) and the obligation of any Lender to make its initial Loan hereunder is also subject to the payment by the Company of such fees as the Company shall have agreed to pay to any Lender or the Administrative Agent in connection herewith, including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase, in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents 63 and the making of the Loans hereunder (to the extent that statements for such fees and expenses have been delivered to the Company). 6.02 Scheduled Acquisition Loans. The obligation of any Lender to make any Loan hereunder the proceeds of which are to be applied to finance in whole or in part the purchase price of any of the Scheduled Acquisitions are subject to the receipt by the Administrative Agent of the following documents, each of which shall be satisfactory to the Administrative Agent (and to the extent specified below, to the Majority Lenders) in form and substance: (a) Acquisition Environmental Surveys. To the extent obtained by the Company in connection with such Scheduled Acquisition, copies of Acquisition Environmental Surveys in form and substance satisfactory to the Administrative Agent reflecting that the CATV Systems being acquired pursuant to such Scheduled Acquisition will not be subject to any material environmental liabilities. (b) Pro Forma Balance Sheet. A pro forma balance sheet of the Company and its Restricted Subsidiaries as at the last day of a fiscal quarter ending within three months prior to the date of such Scheduled Acquisition, and the related pro forma statement of income and retained earnings (deficit) and cash flow for the immediately preceding three-month period, giving effect to such Scheduled Acquisition and the Loans hereunder being made in connection with such Scheduled Acquisition, in form and providing such details as are reasonably satisfactory to the Administrative Agent, together with (x) a reconciliation of the information provided in such pro forma financial statements to the Debt Ratio determined for purposes of Section 6.02(e) hereof and (y) a certificate of a Senior Officer stating that said financial statements fairly present the pro forma financial condition of the Company as at such date and for such period in accordance with GAAP, after giving effect to such Scheduled Acquisition and such Loans. (c) Consummation of Acquisitions. Evidence that such Scheduled Acquisition shall have been (or shall be simultaneously) consummated in all material respects in accordance with the terms of the respective Scheduled Acquisition Agreement (except for any modifications, supplements or waivers thereof, or written consents or determinations made by the parties thereto, that shall be satisfactory to the Majority Lenders), and the Administrative Agent shall have received a certificate of a Senior Officer to such effect. In addition, promptly following the consummation of such Scheduled Acquisition the Company shall deliver to the Administrative Agent true and complete copies of the documents delivered in connection with the closing of such Scheduled Acquisition pursuant to such Scheduled Acquisition Agreement, including, to the extent counsel for the respective Seller(s) are willing to deliver the same (and, 64 in that connection, the Company agrees to use its reasonable commercial efforts to obtain the same), copies of the legal opinions delivered to the Company pursuant to such Scheduled Acquisition Agreement in connection with such Scheduled Acquisition, together with a letter from each Person delivering such opinion (or authorization within such opinion) authorizing reliance thereon by the Administrative Agent and the Lenders. (d) Repayment of Indebtedness. Evidence that the principal of and interest on, and all other amounts owing in respect of, any Indebtedness of any entity acquired pursuant to such Scheduled Acquisition (or that would be secured by Liens on the Property being acquired in such Scheduled Acquisition) shall have been paid in full and such Liens shall have been released (in each case to the extent such Indebtedness would not be permitted hereunder). (e) Debt Ratio. Evidence that, as of the date of such Scheduled Acquisition and after giving effect to the Loans hereunder to be outstanding on the Effective Date, the Debt Ratio shall not exceed 6.75 to 1, and the Administrative Agent shall have received a certificate of a Senior Officer to such effect. (f) Security Documents. Such Uniform Commercial Code financing statements, as the Administrative Agent shall have requested in order to perfect the security interests created pursuant to the Security Agreement in the Property being acquired pursuant to such Scheduled Acquisition (other than perfection of security interests in fixtures (under and as defined in the Uniform Commercial Code) and Motor Vehicles (under and as defined in the Security Agreement)). (g) Other Documents. Such other documents as the Administrative Agent or the Majority Lenders or special New York counsel to Chase may reasonably request. 6.03 Initial and Subsequent Loans. The obligation of the Lenders to make any Loan to the Company upon the occasion of each borrowing hereunder (including the initial borrowing) is subject to the further conditions precedent that, both immediately prior to the making of such Loan and also after giving effect thereto and to the intended use thereof: (a) no Default shall have occurred and be continuing; and (b) the representations and warranties made by the Company in Section 7 hereof, and by each Obligor in each of the other Loan Documents to which it is a party, shall be true and complete on and as of the date of the making of such Loan with the same force and effect as if made on and as of such date (or, if any such 65 representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). Each notice of borrowing by the Company hereunder shall constitute a certification by the Company to the effect set forth in the preceding sentence (both as of the date of such notice and, unless the Company otherwise notifies the Administrative Agent prior to the date of such borrowing, as of the date of such borrowing). 6.04 Determinations by Lenders. For purposes of determining compliance with the conditions specified in Sections 6.01 and 6.02 hereof, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or be acceptable or satisfactory to the Majority Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the initial Loan hereunder specifying its objection thereto, and such Lender shall not have made available to the Administrative Agent such Lender's ratable portion of such Loan. Section 7. Representations and Warranties. The Company represents and warrants to the Administrative Agent and the Lenders that: 7.01 Corporate Existence. Each of the Company and its Restricted Subsidiaries: (a) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could (either individually or in the aggregate) have a Material Adverse Effect. 7.02 Financial Condition. The Company has heretofore furnished to the Administrative Agent and the other Agents the following financial statements: (i) audited statements of income, partners capital and cash flows of the Company for the fiscal year ended December 31, 1996, and the related balance sheet of the Company as at the end of such fiscal year; 66 (ii) unaudited statements of income, partners capital and cash flows of the Company for the nine-month period ended September 30, 1997, and the related balance sheet of the Company as at the end of such fiscal period; and (iii) financial statements with respect to each of the CATV Systems being acquired pursuant to the Scheduled Acquisitions as set forth in Schedule XI hereto. None of the Company nor any of its Subsidiaries has on the date hereof any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheets as at said dates and except as disclosed in Schedule VII hereto. Since December 31, 1996, there has been no material adverse change in the consolidated financial condition, operations, business or prospects (x) of the Company and its Restricted Subsidiaries taken as a whole from that set forth in said financial statements as at said date referred to in clause (i) above, or (y) of the CATV Systems (taken as a whole) to be purchased by the Company on or before the Effective Date from that set forth in said financial statements referred to in clause (iii) above. 7.03 Litigation. Except as disclosed in Schedule V hereto, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the Company) threatened against the Company or any of its Subsidiaries or against any Seller with respect to any Scheduled Acquisition (and in respect of which the Company would be obligated after giving effect to such Scheduled Acquisition), that, if adversely determined could (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. 7.04 No Breach. None of the execution and delivery of this Agreement and the other Basic Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof will (a) conflict with or result in a breach of, or require any consent under, (i) the Partnership Agreement, the partnership agreement of the General Partner or the partnership agreement of its general partner or the partnership agreement of its general partner or the charter or by-laws of its general partner, or (ii) any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency (except as otherwise provided in Section 7.06 hereof), or (iii) any agreement or instrument to which the General Partner or the Company or any of its Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject (except for any such conflict, breach or unobtained consent that could not have a Material Adverse Effect and that could not result in any liability of any Agent or any Lender), or (b) constitute a default under any such agreement or instrument (except for any such default that could not have a Material Adverse Effect and that could not result in any liability of any Agent or any Lender), or (c) except for 67 the Liens created pursuant to the Security Documents, result in the creation or imposition of any Lien upon any Property of the General Partner, the Company or any of its Subsidiaries pursuant to the terms of any such agreement or instrument. 7.05 Action. The Company has all necessary partnership power, authority and legal right to execute, deliver and perform its obligations under each of the Basic Documents to which it is a party; the execution, delivery and performance by the Company of each of the Basic Documents to which it is a party have been duly authorized by all necessary partnership action on its part; and this Agreement has been duly and validly executed and delivered by the Company and constitutes, and each of the other Basic Documents to which it is a party when executed and delivered will constitute, its legal, valid and binding obligation, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 7.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by the Company of this Agreement or any of the other Basic Documents to which it is a party or for the legality, validity or enforceability hereof or thereof, except for (i) filings and recordings in respect of the Liens created pursuant to the Security Documents, (ii) the authorizations, approvals, consents, filings and registrations contemplated by the Acquisition Agreements (each of which shall have been made or obtained on or before the date of the closing of the respective acquisition thereunder, to the extent required under the respective Acquisition Agreement to be obtained before such date) and (iii) the exercise of remedies under the Security Documents (and the creation of a valid security interest in Franchises and the other Collateral as contemplated by the Security Agreement and 8.19 hereof) may require the prior approval of the FCC or the issuing municipalities or States under one or more of the Franchises. 7.07 Use of Credit. None of the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of the Loans hereunder will be used to buy or carry any Margin Stock. 7.08 ERISA. Each Plan, and, to the knowledge of the Company, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no event or condition has occurred and is continuing as 68 to which the Company would be under an obligation to furnish a report to the Administrative Agent under Section 8.01(e) hereof. 7.09 Taxes. The Company and the General Partner are partnerships for Federal income tax purposes. The Company and its Subsidiaries (and the General Partner) have filed all Federal income tax returns and all other material tax returns and information statements that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Subsidiaries. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. The Company has not given or been requested to give a waiver of the statute of limitations relating to the payment of any Federal, state, local and foreign taxes or other impositions. 7.10 Investment Company Act. Neither the Company nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.11 Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.12 Material Agreements and Liens. (a) Part A of Schedule II hereto is a complete and correct list of each credit agreement, loan agreement, indenture, purchase agreement, guarantee, letter of credit or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, the Company or any of its Subsidiaries, outstanding on the date hereof, or that (after giving effect to the transactions contemplated hereunder to occur on or before the Effective Date) will be outstanding on the Effective Date, the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $5,000,000, and the aggregate principal or face amount outstanding or that may become outstanding under each such arrangement is correctly described in Part A of said Schedule II. (b) Part B of Schedule II hereto is a complete and correct list of each Lien securing Indebtedness of any Person outstanding on the date hereof, or that (after giving effect to the transactions contemplated hereunder to occur on or before the Effective Date) will be outstanding on the Effective Date, the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $5,000,000 and covering any Property of the 69 Company or any of its Subsidiaries, and the aggregate Indebtedness secured (or that may be secured) by each such Lien and the Property covered by each such Lien is correctly described in Part B of said Schedule II. 7.13 Environmental Matters. Each of the Company and its Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. Each of such permits, licenses and authorizations is in full force and effect and each of the Company and its Subsidiaries is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. On the date hereof, except as set forth in Schedule VIII hereto, there are no underground storage tanks or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility owned, operated or leased by the Company. 7.14 Capitalization. The Company has heretofore delivered to the Administrative Agent and the other Agents a true and complete copy of the Partnership Agreement; the only General Partner of the Company on the date hereof is FrontierVision Holdings and the only Limited Partner of the Company on the date hereof is FrontierVision. As of the date hereof, except as set forth on Schedule IX hereto, (x) there are no outstanding Equity Rights with respect to the Company and (y) there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any partnership or other equity interests in the Company nor are there any outstanding obligations of the Company or any of its Subsidiaries to make payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market value or equity value of the Company or any of its Subsidiaries. 7.15 Subsidiaries, Etc. (a) Set forth in Part A of Schedule III hereto is a complete and correct list of all of the Subsidiaries of the Company as of the date hereof (or as of the most recent date such Schedule shall be supplemented pursuant to Section 8.05(b)(iv)(J)), or that will be Subsidiaries of the Company on the date of any Scheduled Acquisition (after giving effect to such Scheduled Acquisition) together with, for each Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such 70 Subsidiary and (iii) the nature of the ownership interest held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed in Part A of Schedule III hereto, (x) each of the Company and its Subsidiaries owns, or will own on the date of any such supplement (or the date of any Scheduled Acquisition), free and clear of Liens, and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Part A of Schedule III hereto, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly, issued fully paid and nonassessable and (z) there are no outstanding Equity Rights with respect to such Person. (b) Set forth in Part B of Schedule III hereto is a complete and correct list of all Investments (other than Investments of the type referred to in paragraphs (b), (c) and (e) of Section 8.08 hereof) held by the Company or any of its Subsidiaries in any Person on the date hereof, or that will be held on the Effective Date (after giving effect to the transactions contemplated hereunder to occur on or before the Effective Date) and, for each such Investment, (x) the identity of the Person or Persons holding such Investment and (y) the nature of such Investment. Except as disclosed in Part B of Schedule III hereto, each of the Company and its Subsidiaries owns (or will own, after giving effect to the transactions contemplated hereunder to occur on or before the Effective Date), free and clear of all Liens (other than Liens created pursuant to the Security Documents), all such Investments. 7.16 True and Complete Disclosure. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Company to the Administrative Agent or any Lender in connection with the negotiation, preparation or delivery of this Agreement and the other Loan Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole (together with the Information Memorandum) do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by the Company and its Subsidiaries to the Administrative Agent and the Lenders in connection with this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been disclosed herein, in the other Loan Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Lenders for use in connection with the transactions contemplated hereby or thereby. 7.17 Franchises. Set forth in Schedule IV hereto is a complete and correct list of all Franchises (identified by issuing authority, franchisee and expiration date) owned 71 by the Company and its Subsidiaries as of the date hereof (or as of the most recent date such Schedule shall be supplemented pursuant to Section 8.05(b)(iv)(J) hereof), or that (after giving effect to each Scheduled Acquisition) will be owned by the Company and its Subsidiaries. Each of the Company and its Subsidiaries possesses or has the right to use or will possess or have the right to use on the date hereof (or, as applicable, on the date of any such supplement or Scheduled Acquisition after giving effect thereto) all such Franchises, and all copyrights, licenses, trademarks, service marks, trade names or other rights, including licenses and permits granted by the FCC, agreements with public utilities and microwave transmission companies, pole or conduit attachment, use, access or rental agreements and utility easements that are necessary for the conduct of the CATV Systems of the Company and its Subsidiaries, except for such of the foregoing the absence of which could not reasonably be expected to have a Material Adverse Effect on the Company or any of its Subsidiaries, and each of such Franchises, copyrights, licenses, patents, trademarks, service marks, trade names and rights is (or on the date of any such supplement or Scheduled Acquisition, after giving effect thereto) in full force and effect and no material default has occurred and is continuing thereunder. No approval, application, filing, registration, consent or other action of any local, state or federal authority is required to enable the Company or any of its Subsidiaries to take advantage of the rights and privileges intended to be conferred by any Franchise, except for approvals, applications, filings, registrations, consents or other actions that (if not made or obtained) could not reasonably be expected to have a Material Adverse Effect on the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has received any notice from the granting body or any other governmental authority with respect to any breach of any covenant under, or any default with respect to, any Franchise. Complete and correct copies of all Franchises (other than those relating to communities covered by the provisions of Section 505.91 of the Ohio Revised Code) have heretofore been delivered to the Administrative Agent. 7.18 The CATV Systems. (a) Each of the Company and its Subsidiaries, and the CATV System owned by it on the date hereof (or that, after giving effect to any Scheduled Acquisition or Subsequent Acquisition will be owned by it), are (or, in the case of any CATV System acquired in a Scheduled Acquisition or a Subsequent Acquisition, will on the date of such Scheduled Acquisition or Subsequent Acquisition be) in compliance with all applicable federal, state and local laws, rules and regulations, including without limitation, the Telecommunications Act of 1996, the Communications Act of 1934, as amended, the Cable Communications Policy Act of 1984, the Cable Television Consumer Protection and Competition Act of 1992, the Copyright Act of 1976, as amended, and the rules and policies of the FCC and the United States Copyright Office, including, without limitation, rules and laws governing system registration, use of aeronautical frequencies and signal carriage, equal employment opportunity, cumulative leakage index testing and reporting, signal leakage, and 72 subscriber privacy, except to the extent that the failure to so comply with any of the foregoing could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing (except to the extent that the failure to comply with any of the following could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect and except as set forth in Schedule VI hereto: (i) the communities included in the areas covered by the Franchises have been registered with the FCC; (ii) all of the periodic performance tests on such CATV Systems required under the rules and policies of the FCC have been performed and the results of such tests demonstrate satisfactory compliance with the applicable requirements being tested in all material respects; (iii) such CATV Systems currently meet or exceed the technical standards set forth in the rules and policies of the FCC, including, without limitation, the leakage limits contained in 47 C.F.R. Section 76.605(a)(11); (iv) such CATV Systems are being operated in compliance with the provisions of 47 C.F.R. Sections 76.610 through 76.619 (mid-band and super-band signal carriage), including 47 C.F.R. Section 76.611 (compliance with the cumulative signal leakage index); (v) where required, appropriate authorizations from the FCC have been obtained for the use of all aeronautical frequencies in use in such CATV Systems and such CATV Systems are presently being operated in compliance with such authorizations (and all required certificates, permits and clearances from governmental agencies, including the Federal Aviation Administration, with respect to all towers, earth stations, business radios and frequencies utilized and carried by such CATV Systems have been obtained); (vi) all notices to subscribers of such CATV Systems and such CATV Systems required by the rules and policies of the FCC have been provided; (vii) such CATV Systems are in compliance with Part V of Title VI of the Communications Act of 1934, as amended, as well as any and all rules and policies adopted by the FCC to implement said Part V; and 73 (viii) such CATV Systems are in compliance with the provisions of the Communications Decency Act of 1996 in effect, as well as any and all FCC rules and policies in effect to implement said Act. (b) All notices, statements of account, supplements and other documents required under Section 111 of the Copyright Act of 1976, as amended, and under the rules of the Copyright Office with respect to the carriage of off-air signals by the CATV Systems owned by the Company and its Subsidiaries have been duly filed, and the proper amount of copyright fees have been paid on a timely basis, and each such CATV System qualifies for the compulsory license under Section 111 of the Copyright Act of 1976, as amended, except to the extent that the failure to so file or pay could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. (c) Except as set forth on Schedule VI hereto, the carriage of all off-air signals by the CATV Systems owned by the Company and its Subsidiaries on the date hereof (or that, after giving effect to any Scheduled Acquisition or Subsequent Acquisition will be owned by it), are (or, in the case of any CATV System acquired in a Scheduled Acquisition or Subsequent Acquisition, will on the date of such Scheduled Acquisition or Subsequent Acquisition be) permitted by valid retransmission consent agreements or by must-carry elections by broadcasters, except to the extent the failure to obtain any of the foregoing could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. (d) Each of the Company and its Subsidiaries and each Seller have complied with their respective obligations with regard to protecting the privacy rights of any past or present customers of the CATV Systems owned by the Company and its Subsidiaries on the date hereof (or, of the CATV Systems acquired in any Scheduled Acquisition or Subsequent Acquisition on the date of such Scheduled Acquisition or Subsequent Acquisition), except to the extent that the failure to so comply could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. (e) None of the Company nor its Subsidiaries has been denied EEO certification by the FCC, and no FCC proceedings against any such Person in respect of EEO violation are pending or, to the Company's knowledge, threatened. (f) The assets of the CATV Systems owned by the Company and its Subsidiaries on the date hereof (or, of the CATV Systems acquired in any Scheduled Acquisition or Subsequent Acquisition on the date of such Scheduled Acquisition or Subsequent Acquisition), are adequate and sufficient for all of the current operations of such CATV System. 74 7.19 Rate Regulation. Each of the Company and its Subsidiaries have each reviewed and evaluated in detail the FCC rules currently in effect (the "Rate Regulation Rules") implementing the rate regulation provisions of the Cable Television Consumer Protection and Competition Act of 1992 as amended by the Telecommunications Act of 1996 (as so amended, the "Rate Regulation Act"). Based upon such review and completion by the Company and its Subsidiaries of all applicable worksheets contemplated by the Rate Regulation Rules for each CATV System owned by the Company and its Subsidiaries on the date hereof (or, for the CATV Systems acquired in any Scheduled Acquisition or Subsequent Acquisition on the date of such Scheduled Acquisition or Subsequent Acquisition): (i) none of such CATV Systems is (or, after giving effect to such Acquisition will be) subject to effective competition as of the date hereof; (ii) except as set forth in Schedule VI hereto, no franchising authority has notified the Company or any of its Subsidiaries or any Seller of its application to be certified to regulate rates as provided in Section 76.910 of the Rate Regulation Rules; (iii) except as set forth in Schedule VI hereto, no franchising authority has notified the Company or any of its Subsidiaries or any Seller that it has been certified and has adopted regulations required to commence regulation as provided in Section 76.910(e)(2) of the Rate Regulation Rules; (iv) except to the extent that a franchising authority or the FCC regulates rates pursuant to the Rate Regulation Rules, such CATV Systems may continue to charge their current rates in compliance with the Rate Regulation Act and the Rate Regulation Rules; (v) such CATV Systems are otherwise in material compliance with the Rate Regulation Act and the Rate Regulation Rules applicable to them; (vi) no reduction of rates or refunds to subscribers is required thereunder as of the date hereof; and (vii) except as set forth on Schedule VI hereto on the date hereof (or on the date of any such supplement to such Schedule pursuant to Section 8.05(b)(iv)(J) hereof), such CATV Systems are not subject to any complaint at the FCC by any franchising authority concerning rates for cable programming services, and neither the Company nor any of its Subsidiaries is aware of any threat of or basis for the filing of any such complaint. 75 7.20 Scheduled Acquisition Agreements. The Company has heretofore delivered to the Administrative Agent and the other Agents a true and complete copy of each Scheduled Acquisition Agreement (except the Eastern Cable Acquisition Agreement) (including all modifications or supplements to each thereof) and each of such Scheduled Acquisition Agreements (except the Eastern Cable Acquisition Agreement) has been duly executed and delivered by each party thereto and is in full force and effect. Section 8. Covenants of the Company. The Company covenants and agrees with the Lenders and the Administrative Agent that, so long as any Commitment or Loan is outstanding and until payment in full of all amounts payable by the Company hereunder: 8.01 Financial Statements Etc. The Company shall deliver to the Administrative Agent (in sufficient copies for each Lender, to the extent such items are prepared for public distribution or filing) and the other Agents: (a) as soon as available and in any event within 45 days after the end of each quarterly fiscal period of each fiscal year of the Company, consolidated statements of income, changes in partners' capital and cash flows of the Company and its Subsidiaries (and, separately stated, for the Company and its Restricted Subsidiaries) for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets of the Company and its Subsidiaries (and, separately stated, for the Company and its Restricted Subsidiaries) as at the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the corresponding periods in the preceding fiscal year (except that, in the case of balance sheets, such comparison shall be to the last day of the prior fiscal year), accompanied by a certificate of a Senior Officer, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries (or the Company and its Restricted Subsidiaries, as the case may be), in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments), provided that the requirements of this Section 8.01(a) with respect to financial statements of the Company and its Subsidiaries may be satisfied by delivery by the Company (in accordance with this Section 8.01(a)) of the Company's quarterly report filed on Form 10-Q with the Securities and Exchange Commission; (b) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, consolidated statements of income, changes in partners' capital and cash flows of the Company and its Subsidiaries (and, separately stated, for the Company and its Restricted Subsidiaries) for such fiscal year and the related 76 consolidated balance sheets of the Company and its Subsidiaries (and, separately stated, for the Company and its Restricted Subsidiaries) as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated figures for the preceding fiscal year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries (or the Company and its Restricted Subsidiaries, as the case may be) as at the end of, and for, such fiscal year in accordance with generally accepted accounting principles, and a statement of such accountants to the effect that, in making the examination necessary for their opinion, nothing came to their attention that caused them to believe that the Company was not in compliance with Sections 8.07, 8.08, 8.09 or 8.10 hereof as at the end of such fiscal year, insofar as such Sections relate to accounting matters in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year, provided that the requirements of this Section 8.01(b) with respect to financial statements of the Company and its Subsidiaries may be satisfied by delivery by the Company (in accordance with this Section 8.01(b)) of the Company's annual report filed on Form 10-K with the Securities and Exchange Commission; (c) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, that the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the partners of the Company or FrontierVision generally, or to holders of Subordinated Indebtedness generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after the Company knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a Senior Officer setting forth details respecting such event or condition and the action, if any, that the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to the PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(c) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which the PBGC has not by regulation waived the requirement of Section 4043(a) of 77 ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Company or an ERISA Affiliate to terminate any Plan; (iii) the institution by the PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the Company or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Company or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (f) within 45 days after the end of each quarterly fiscal period of the Company, a Quarterly Officer's Report as at the end of such period; (g) promptly after the Company knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable 78 detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken or proposes to take with respect thereto; and (h) from time to time such other information regarding the financial condition, operations, business or prospects of the Company or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or the Administrative Agent may reasonably request. The Company will furnish to the Administrative Agent and the other Agents, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a Senior Officer (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Sections 8.07(e), 8.07(f), 8.09 and 8.10 hereof, and a calculation of the Debt Ratio and Senior Debt Ratio, as of the end of the respective quarterly fiscal period or fiscal year. The Administrative Agent shall promptly, upon delivery by the Company, deliver to each Lender the documents provided for in this Section 8.01. 8.02 Litigation. The Company will promptly give to the Administrative Agent and the other Agents notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Company or any of its Subsidiaries or any of their Franchises, except proceedings that, if adversely determined, could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company will give to the Administrative Agent and the other Agents (i) notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, the Company or any of its Subsidiaries and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation that, if adversely determined, could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect and (ii) copies of any notices received by the Company or any of its Subsidiaries under any Franchise of a material default by the Company or Subsidiary in the performance of its obligations thereunder. 79 8.03 Existence, Etc. The Company will, and will cause each of its Restricted Subsidiaries (except in the case of clause (c) below which shall apply to all Subsidiaries) to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (provided that nothing in this Section 8.03 shall prohibit any transaction expressly permitted under Section 8.05 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could (either individually or in the aggregate) have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied; and (f) permit representatives of any Lender or the Administrative Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Administrative Agent (as the case may be). 8.04 Insurance. The Company will, and will cause each of its Subsidiaries to, maintain insurance with financially sound and reputable insurance companies, and with respect to Property and risks of a character usually maintained by corporations engaged in the same or similar business similarly situated, against loss, damage and liability of the kinds and in the amounts customarily maintained by such corporations, provided that the Company will in any event maintain (with respect to itself and each of its Restricted Subsidiaries) casualty insurance and insurance against claims for damages with respect to defamation, libel, slander, privacy or other similar injury to person or reputation (including misappropriation of personal likeness), in such amounts as are then customary for Persons engaged in the same or similar business similarly situated (such insurance to cover, with 80 respect to any business acquired pursuant to any Acquisition, claims arising out of events occurring prior to the date of such acquisition), and shall designate the Administrative Agent as loss payee with respect to any such casualty insurance covering tangible Property. 8.05 Prohibition of Fundamental Changes. (a) Mergers and Consolidations, Etc. The Company will not, nor will it permit any of its Restricted Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); provided that, subject to Section 8.14 hereof, and so long as after giving effect thereto no Default shall have occurred and be continuing hereunder, (i) any Subsidiary of the Company may be merged into or consolidated with the Company or any Subsidiary Guarantor so long as the Company or a Subsidiary Guarantor is the continuing or surviving party, (ii) any Subsidiary of the Company may liquidate or dissolve into the Company or any Subsidiary Guarantor and (iii) the Company and its Restricted Subsidiaries may enter into the transactions permitted under clause (iv) of paragraph (b) below. (b) Acquisitions. The Company will not, nor will it permit any of its Restricted Subsidiaries to, acquire any business or Property from or capital stock of, or be a party to any acquisition of, any Person except: (i) the Scheduled Acquisitions; (ii) purchases of equipment, programming rights and other Property to be sold or used in the ordinary course of business; (iii) Capital Expenditures; and (iv) the Company and its Wholly Owned Restricted Subsidiaries may acquire any CATV System, and the related assets (any such CATV System being hereinafter referred to as an "Acquired System"), whether by way of an exchange of CATV Systems, the purchase of assets or stock, by merger or consolidation or otherwise, so long as: (A) the aggregate Purchase Price of all such acquisitions (other than CATV Systems acquired pursuant to Scheduled Acquisitions) shall not exceed the Permitted Acquisition Amount and the aggregate Purchase Price of any individual such acquisition (other than a CATV System acquired pursuant to Scheduled Acquisitions) shall not exceed $150,000,000; 81 (B) such acquisition (if by purchase of stock or other ownership interests) shall be effected in such manner so that the acquired entity becomes a Wholly Owned Subsidiary of the Company; (C) no later than (1) thirty days prior to the consummation of such acquisition (or such earlier date as shall be five Business Days after the execution and delivery thereof), the Company shall have delivered to the Administrative Agent executed counterparts of the respective Acquisition Agreement pursuant to which such acquisition is to be consummated (and forms, to the extent agreed to, of any other agreements, including any management, non-compete, employment, option or other material agreements to be executed in connection with the closing thereunder), any schedules to such agreements or instruments and (promptly upon their becoming available) all other material ancillary documents to be executed or delivered in connection therewith, (2) promptly following request therefor, copies of such other information or documents relating to such acquisition as the Administrative Agent, or the Majority Lenders (through the Administrative Agent), shall have requested, and (3) promptly following the consummation of such acquisition, certified copies of the agreements, instruments and documents referred to in the foregoing clause (1) as shall have been executed and delivered in connection therewith; (D) the agreements, instruments and other documents referred to in the foregoing clause (C) shall, except to the extent otherwise consented to by the Majority Lenders, provide that: (1) the entire amount of the consideration payable by the Company and its Restricted Subsidiaries in connection with such acquisition (other than (x) customary post-closing adjustments, escrow and purchase price holdback and indemnity obligations, (y) Indebtedness incurred in connection with such acquisition that is permitted under Section 8.07(f) hereof and (z) Other Equity Interests issued to the relevant Seller or Sellers in connection with such acquisition in accordance with Section 8.13 hereof) shall be payable on the date of such acquisition, (2) neither the Company nor any of its Restricted Subsidiaries shall, in connection with such acquisition, assume or remain liable in respect of (x) any Indebtedness of the Seller or Sellers of such Acquired System (or the entity owning such Acquired System) except for Indebtedness permitted under Section 8.07(f) hereof or (y) other 82 obligations of the Seller or Sellers of such Acquired System, except for obligations incurred by the respective Seller in the ordinary course of business in operating such CATV System and that are necessary or desirable to the continued operation of such CATV System (and, in the event such Acquired System (or the entity owning such Acquired System) is obligated in respect of any Indebtedness or other obligations not permitted under the foregoing subclauses (x) or (y), then concurrently with such acquisition any such Indebtedness or other obligations shall be released as to the assets or entity being so acquired) and (3) all Property to be acquired in connection with such acquisition (or that is owned by the Seller of such Acquired System on the date of such acquisition) shall be free and clear of any and all Liens, except to the extent permitted by Section 8.06 hereof (and in the event any such Property is subject to any Lien not permitted by this clause (3) then concurrently with such acquisition such Lien shall be released); (E) to the extent applicable, the Company shall have complied with the provisions of Sections 8.17 and 8.19 hereof, including, without limitation, (1) delivery to the Administrative Agent of the certificates evidencing the capital stock or other ownership interests of any new Restricted Subsidiary acquired pursuant to such acquisition, accompanied by undated stock or other powers executed in blank and (2) delivery to the Administrative Agent of the agreements, instruments, opinions of counsel and other documents required under Section 8.17 hereof; (F) immediately prior to such acquisition and after giving effect thereto, no Default shall have occurred or be continuing; (G) after giving effect to such acquisition the Company shall be in compliance with Section 8.10 hereof (the determination of such compliance to be calculated on a pro forma basis), as at the end of and for the period of four fiscal quarters most recently ended prior to the date of such acquisition for which financial statements of the Company and its Restricted Subsidiaries are available, under the assumption that such acquisition shall have occurred, and any Indebtedness in connection therewith shall have been incurred, at the beginning of the applicable period, and under the assumption that interest for such period had been equal to the actual weighted average interest rate in effect for the Loans hereunder on the date of such acquisition, and the 83 Company shall have delivered to the Administrative Agent a certificate of a Senior Officer showing such calculations in reasonable detail to demonstrate such compliance; (H) in connection with such acquisition, if requested by the Administrative Agent, or the Majority Lenders (through the Administrative Agent), the Company shall have delivered to the Administrative Agent an Acquisition Environmental Survey, in form and substance reasonably satisfactory to the Majority Lenders reflecting that the Acquired System will not be subject to any material environmental liabilities; (I) to the extent requested by the Administrative Agent, or the Majority Lenders (through the Administrative Agent), the Company shall have delivered evidence satisfactory to the Administrative Agent and the Majority Lenders that the Company and its Restricted Subsidiaries will not become liable, contingently or otherwise, in respect of any material tax or ERISA liability of the Seller of the Acquired System as a result of such acquisition; and (J) the Company shall have delivered to the Administrative Agent (which shall promptly forward copies thereof to each Lender) a revised Part A of Schedule III hereto, and revised Schedules IV and VII hereto, such that after giving effect to such acquisition, the representations set forth in Sections 7.15(a), 7.17, 7.18, 7.19 and 7.20 hereof (assuming that each reference to the Effective Date therein referred to the date such acquisition is consummated (after giving effect thereto)) shall be true and complete as of such date. (c) Dispositions. The Company will not, nor will it permit any of its Restricted Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or a substantial part of its business or Property, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests), but excluding: (i) obsolete or worn-out Property, tools or equipment no longer used or useful in its business, (ii) any equipment, programming rights or other Property sold or disposed of in the ordinary course of business and on ordinary business terms, 84 (iii) any such conveyance, sale, lease, transfer or other disposition by any Restricted Subsidiary of the Company to the Company or to any other Restricted Subsidiary of the Company, and (iv) dispositions of one or more CATV Systems (whether for cash or for Disposition Investments, and including dispositions in exchange for other CATV Systems), so long as the aggregate fair market value of the CATV Systems disposed of in all such dispositions shall not exceed $150,000,000. 8.06 Limitation on Liens. The Company will not, nor will it permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except: (a) Liens created pursuant to the Security Documents; (b) Liens in existence on the date hereof and listed in Part B of Schedule II hereto, and Liens on cash and cash equivalents securing obligations of the Company in respect of Interest Rate Protection Agreements, so long as the aggregate fair market value of the cash and cash equivalents subject to such Liens does not exceed $3,000,000; (c) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or that are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or the affected Restricted Subsidiaries, as the case may be, in accordance with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings and Liens securing judgments but only to the extent for an amount and for a period not resulting in an Event of Default under Section 9(j) hereof; (e) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (f) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases, statutory obligations, surety and appeal bonds, performance bonds (including, without limitation, performance bonds required pursuant to the 85 terms of any Franchise) and other obligations of a like nature incurred in the ordinary course of business; (g) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto that, in the aggregate, are not material in amount, and that do not interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries with respect to any CATV System or CATV Systems that in the aggregate provide service to more than 5% of Subscribers of the Company and its Restricted Subsidiaries (determined as at any date); (h) Liens upon real and/or tangible personal Property acquired after the date hereof (by purchase, construction or otherwise) by the Company or any of its Restricted Subsidiaries, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such Property; provided that (i) no such Lien shall extend to or cover any Property of the Company or such Restricted Subsidiary other than the Property so acquired and improvements thereon and (ii) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the fair market value (as determined in good faith by a Senior Officer) of such Property at the time it was acquired (by purchase, construction or otherwise); and (i) Liens on the Investments permitted under Section 8.08(k). 8.07 Indebtedness. The Company will not, nor will it permit any of its Restricted Subsidiaries to, create, incur or suffer to exist any Indebtedness except: (a) Indebtedness to the Lenders hereunder; (b) Indebtedness outstanding on the date hereof and listed in Part A of Schedule II hereto (excluding, however, following the making of the initial Loans hereunder, Indebtedness to be repaid with the proceeds of such Loans, as indicated on said Schedule II); (c) Indebtedness of the Company and FrontierVision Capital in respect of Subordinated Indebtedness in an aggregate original principal amount not exceeding $200,000,000, and subordinated Guarantees of such Subordinated Indebtedness by 86 Restricted Subsidiaries of the Company pursuant to the Senior Subordinated Debt Documents; (d) Indebtedness of Restricted Subsidiaries of the Company to the Company or to other Restricted Subsidiaries of the Company; (e) Indebtedness of the Company and its Restricted Subsidiaries in respect of letters of credit or performance bonds required pursuant to the terms of Franchises or other agreements to which the Company or any of its Restricted Subsidiaries may be parties, so long as the aggregate amount thereof does not exceed $50,000,000 at any one time outstanding; and (f) additional Indebtedness of the Company and its Restricted Subsidiaries (including, without limitation, Capital Lease Obligations and other Indebtedness secured by Liens permitted under Sections 8.06(h) hereof) up to but not exceeding $25,000,000 at any one time outstanding. Anything in this Agreement to the contrary notwithstanding, the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly Guarantee any Indebtedness of FrontierVision Holdings or FrontierVision Holdings Capital Corporation if, as a result thereof, the Company or any of its Restricted Subsidiaries would become obligated under the Senior Discount Debt Indenture to Guarantee the obligations of FrontierVision Holdings and FrontierVision Holdings Capital Corporation in respect of the Senior Discount Debt. 8.08 Investments. The Company will not, nor will it permit any of its Restricted Subsidiaries to, make or permit to remain outstanding any Investments except: (a) Investments outstanding on the date hereof and identified in Schedule III hereto; (b) operating deposit accounts with banks; (c) Permitted Investments; (d) escrow or deposit accounts established in connection with the Scheduled Acquisitions or Subsequent Acquisitions, so long as the funds held in such accounts are held in the form of cash or Permitted Investments; (e) Investments by the Company and its Restricted Subsidiaries in the Company and its Restricted Subsidiaries; 87 (f) Investments constituting Subsequent Acquisitions by the Company and its Restricted Subsidiaries made in accordance with Section 8.05(b)(iv) hereof; (g) Interest Rate Protection Agreements entered into in the ordinary course of the Company's financial planning and not for speculative purposes (including Interest Rate Protection Agreements entered into in accordance with Section 8.12 hereof); (h) loans to employees of the Company or any of its Restricted Subsidiaries or Affiliates in an aggregate amount (as to all such employees) up to $5,000,000 at any one time outstanding; (i) Investments (collectively, "Disposition Investments") received in connection with any Disposition by the Company or any of its Restricted Subsidiaries permitted hereunder and representing all or a part of the non-cash portion of the consideration received by the Company and its Restricted Subsidiaries pursuant to such Disposition, provided that (i) the aggregate amount of Disposition Investments received in connection with any single Disposition shall not exceed 25% of the fair market value of the consideration received in connection therewith, and the aggregate amount of Disposition Investments received in connection with all Dispositions shall not exceed $75,000,000 and (ii) the respective certificates and notes evidencing such Disposition Investments are delivered in pledge to the Administrative Agent pursuant to the Security Agreement; (j) the Guarantees referred to in Section 8.07(c) hereof; and (k) additional Investments (including, without limitation, Investments in Unrestricted Subsidiaries) in an aggregate amount up to but not exceeding $25,000,000 at any one time outstanding or, following the date upon which the Debt Ratio shall have been less than 5.00 to 1 as at the last day of two or more consecutive fiscal quarters in an aggregate amount up to but not exceeding $50,000,000, it being understood that the Company shall not be required to pledge any of such Investments as collateral security pursuant to the Security Documents. For purposes of the foregoing clause (k), the aggregate amount of an Investment at any one time shall be deemed to be equal to (A) the aggregate amount of cash, together with the aggregate fair market value of property, loaned, advanced, contributed, transferred or otherwise invested that gives rise to such Investment minus (B) the aggregate amount of dividends, distributions or other payments received in cash in respect of such Investment, provided that the amount of an Investment shall not in any event be reduced by reason of any write-off of such Investment. 88 8.09 Restricted Payments. The Company will not, nor will it permit any of its Restricted Subsidiaries to, make any Restricted Payment at any time, except that so long as at the time thereof and after giving effect thereto no Default shall have occurred and be continuing, the Company may: (a) make Restricted Payments to its Partners during any fiscal quarter in an amount equal to the Tax Payment Amount for the immediately preceding fiscal quarter, so long as (i) at least fifteen days prior to making any such Restricted Payment, the Company shall have delivered to the Administrative Agent and the other Agents notification of the amount of the Restricted Payment to be made during such fiscal quarter and (ii) on or prior to April 12 of each fiscal year the Company shall have delivered to the Administrative Agent and the other Agents a statement from the Company's independent certified public accountants setting forth a detailed calculation of the aggregate Tax Payment Amount for the prior fiscal year and showing the amount of each individual Restricted Payment made during such fiscal year and all prior Restricted Payments made pursuant to this Section 8.09; (b) after the earlier of (i) December 31, 2001 or (ii) the date upon which the Debt Ratio shall have been less than 5.00 to 1 as at the last day of two or more consecutive fiscal quarters (except for periods after the Debt Ratio shall be greater than 5.00 to 1, unless the Debt Ratio shall again be less than 5.00 to 1 as at the last day of two or more consecutive fiscal quarters), the Company may make Restricted Payments in an amount necessary to enable FrontierVision Holdings and FrontierVision Holdings Capital Corporation to make payments in respect of the Senior Discount Debt; (c) make Restricted Payments to its Partners in cash to enable FrontierVision Holdings to pay out-of-pocket accounting fees, legal fees and the like in an aggregate amount not exceeding $200,000 during any fiscal year; and (d) make Restricted Payments to its Partners in cash in an aggregate amount up to but not exceeding $25,000,000 during the term of this Agreement, provided that to the extent the aggregate amount of such Restricted Payments shall exceed $5,000,000, such Restricted Payment shall not be made unless the Debt Ratio as at the last day of the two most recent fiscal quarters shall have been less than 5.00 to 1, it being understood that the amount of Restricted Payments that may be made pursuant to any of the above clauses (a) through (d) shall be exclusive of the amount of Restricted Payments that may be made pursuant to any of the other of the above clauses (a) through (d). Nothing herein shall be deemed to prohibit the payment of dividends, distributions or other amounts 89 by any Restricted Subsidiary of the Company to the Company or to any other Restricted Subsidiary of the Company. 8.10 Certain Financial Covenants. (a) Senior Debt Ratio. The Company will not permit the Senior Debt Ratio (determined in accordance with Section 8.10(e) hereof) to exceed the following respective ratios at any time during the following respective periods: Period Ratio From the Effective Date through and including June 29, 1999 5.50 to 1 From June 30, 1999 through and including December 30, 1999 5.25 to 1 From December 31, 1999 through and including December 30, 2000 5.00 to 1 From December 31, 2000 through and including December 30, 2001 4.50 to 1 From December 31, 2001 and at all times thereafter 4.00 to 1 (b) Debt Ratio. The Company will not permit the Debt Ratio (determined in accordance with Section 8.10(e) hereof) to exceed the following respective ratios at any time during the following respective periods: 90 Period Ratio From the Effective Date through and including June 29, 1999 6.75 to 1 From June 30, 1999 through and including December 30, 1999 6.50 to 1 From December 31, 1999 through and including December 30, 2000 6.25 to 1 From December 31, 2000 through and including December 30, 2001 5.50 to 1 From December 31, 2001 and at all times thereafter 5.00 to 1 (c) Interest Coverage Ratio. The Company will not permit the Interest Coverage Ratio (determined in accordance with Section 8.10(e) hereof) to be less than the following respective ratios at any time during the following respective periods: Period Ratio From the Effective Date through and including June 29, 1999 1.50 to 1 From June 30, 1999 through and including December 30, 1999 1.75 to 1 From December 31, 1999 and at all times thereafter 2.00 to 1 91 (d) Fixed Charges Ratio. The Company will not permit the Fixed Charges Ratio (determined in accordance with Section 8.10(e) hereof) to be less than the following respective ratios at any time during the following respective periods: Period Ratio From the Effective Date through and including December 31, 1998 1.00 to 1 From January 1, 1999 and at all times thereafter 1.05 to 1 (e) Computations of Ratios. Solely for purposes of computing the Senior Debt Ratio, Debt Ratio, Interest Coverage Ratio and Fixed Charges Ratio for purposes of this Section 8.10: (i) Indebtedness shall be deemed to exclude obligations in respect of undrawn letters of credit, performance bonds and similar instruments issued or accepted by banks and other financial institutions in the ordinary course of business of the Company and its Restricted Subsidiaries; and (ii) at any time when proceeds of a Disposition are held by the Administrative Agent in the Collateral Account, the amount of Loans outstanding hereunder at such time shall be deemed to be net of the balance of the cash and investments held in the Collateral Account at such time. 8.11 [INTENTIONALLY OMITTED] 8.12 Interest Rate Protection Agreements. The Company will within 90 days of the Effective Date (to the extent necessary after taking into account the Interest Rate Protection Agreements entered into pursuant to the requirements of Section 8.12 of the Existing Credit Agreement) enter into, and thereafter maintain in full force and effect, one or more Interest Rate Protection Agreements with one or more of the Lenders (and/or with a bank or other financial institution having capital, surplus and undivided profits of at least $500,000,000), as to a notional principal amount that (taken together with all existing Interest Rate Protection Agreements and the fixed interest rate on the Subordinated Indebtedness) will equal 50% of the then outstanding aggregate principal amount of all Indebtedness of the Company and its Subsidiaries; such Interest Rate Protection Agreements shall cover the three-year period commencing on the Effective Date, so that the Company effectively limits, 92 in a manner satisfactory to the Majority Lenders, the weighted interest rate of the Loans to an interest rate satisfactory to the Majority Lenders. 8.13 Subordinated Indebtedness; Other Equity Interests. (a) The Company may, after the date of this Agreement, issue limited partnership interests: (1) to one or more Sellers as all or part of the Purchase Price of CATV Systems acquired in Subsequent Acquisitions; (2) to officers and employees of the Company and its Restricted Subsidiaries; and (3) to other Persons for cash, in each case provided that (i) the agreements, instruments and other documents evidencing or representing such limited partnership interests expressly provide that no payments of any Restricted Payments in respect thereof may be made at any time prior to the payment in full in cash of the principal of and interest on, and all other amounts owing in respect of, the Loans and other obligations hereunder and under the other Loan Documents, (ii) none of the Company's Restricted Subsidiaries is contingently or otherwise obligated in respect thereof, (iii) such limited partnership interests shall be pledged to the Administrative Agent for the benefit of the Lenders to secure the obligations of the Company hereunder and under the other Basic Documents and to secure the Pari Passu Obligations and (iv) both immediately prior thereto and after giving effect to the issuance thereof no Default shall have occurred and be continuing (and the Administrative Agent shall have received a certificate of a Senior Officer to such effect), all on terms and conditions, and pursuant to documentation, in form and substance satisfactory the Majority Lenders. (b) The Company will not, nor will it permit any of its Restricted Subsidiaries to, purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Subordinated Indebtedness, except for regularly scheduled payments or prepayments of principal and interest in respect thereof required pursuant to the instruments evidencing such Subordinated Indebtedness. The Company will not, nor will it permit any of its Restricted Subsidiaries to, purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any Restricted Payment or other payment in respect of, any Other Equity Interest. 93 (c) The Company will not, nor will it permit any of its Restricted Subsidiaries to, purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Senior Discount Debt, except for regularly scheduled payments or prepayments of principal and interest in respect thereof required pursuant to the instruments evidencing such Senior Discount Debt to the extent as permitted under Section 8.09(b) hereof. 8.14 Lines of Business. The Company will not, nor will it permit any of its Restricted Subsidiaries to, engage to any substantial extent in any line or lines of business activity other than the business of owning and operating CATV Systems and related businesses. 8.15 Transactions with Affiliates. Except as expressly permitted by this Agreement, the Company will not, nor will it permit any of its Restricted Subsidiaries to, directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any Property to an Affiliate; (c) merge into or consolidate with or purchase or acquire Property from an Affiliate; (d) make any contribution towards, or reimbursement for, any Federal income taxes payable by any Partner (or the holders of any direct or indirect ownership interest in any Partner) in respect of income of the Company; or (e) enter into any other transaction directly or indirectly with or for the benefit of an Affiliate (including, without limitation, Guarantees and assumptions of obligations of an Affiliate); provided that, notwithstanding the foregoing: (x) any Affiliate who is an individual may serve as a director, officer or employee of the Company or any of its Restricted Subsidiaries and receive reasonable compensation for his or her services in such capacity, (y) the Company and its Restricted Subsidiaries may enter into transactions (other than extensions of credit by the Company or any of its Restricted Subsidiaries to an Affiliate) providing for the leasing of Property, the rendering or receipt of services (other than investment banking services, unless the advisory committee or board of directors, as the case may be, of FrontierVision LP shall have approved such services) or the purchase or sale of equipment, programming rights, advertising time and other Property in the ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to the Company and its Restricted Subsidiaries as the monetary or business consideration that would obtain in a comparable transaction with a Person not an Affiliate and (z) any Lender (and any Control Affiliate of a Lender) may extend credit to the Company and its Restricted Subsidiaries, enter into Interest Rate Protection Agreements with the Company and its Restricted Subsidiaries or provide other services (other than 94 investment banking services, which shall be governed by clause (y) above) to the Company and its Restricted Subsidiaries in the ordinary course of business of such Lender (and such Control Affiliate), in each case to the extent that the Company and the respective Restricted Subsidiary are permitted to engage in such transaction hereunder and the monetary or business consideration arising therefrom would be substantially as advantageous to the Company and its Restricted Subsidiaries as the monetary or business consideration that would obtain in a comparable transaction with a Person not an Affiliate. 8.16 Use of Proceeds. The Company will use the proceeds of the Loans hereunder (i) to finance the Scheduled Acquisitions and Subsequent Acquisitions, (ii) to finance payments of fees, commissions and expenses in connection with the Acquisitions, (iii) to pay the principal of and interest on, and all other amounts owing in respect of the UVC Notes on the Effective Date and (iv) for general business purposes (in compliance with all applicable legal and regulatory requirements, including, without limitation, Regulations G, T, U and X and the Securities Act of 1933 and the Securities Exchange Act of 1934 and the regulations thereunder); provided that (i) any borrowing of Revolving Credit Loans hereunder that would constitute a utilization of any Reserved Commitment Amount shall be applied solely to make Subsequent Acquisitions permitted under Section 8.05(b)(iv) hereof, or to make prepayments of Loans under Section 2.09(d)(y)(B) hereof and (ii) neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any of the proceeds of any Loans hereunder. 8.17 Certain Obligations Respecting Restricted Subsidiaries. (a) Subsidiary Guarantors. In the event that the Company or any of its Restricted Subsidiaries shall form or acquire any Subsidiary after the Effective Date (after obtaining any necessary consent of the Lenders), then (unless such new Subsidiary is an Unrestricted Subsidiary) the Company shall cause, and shall cause its Restricted Subsidiaries to cause, such Subsidiary to: (i) execute and deliver to the Administrative Agent a Subsidiary Guarantee Agreement in the form of Exhibit F hereto (and, thereby, to become a "Subsidiary Guarantor", and an "Obligor" hereunder and a "Securing Party" under the Security Agreement); (ii) deliver the shares of its stock accompanied by undated stock powers executed in blank to the Administrative Agent, and to take other such action, to the extent required under Section 8.19 hereof (including, without limitation, executing and delivering such Uniform Commercial Code financing statements and Mortgages covering the Property owned or leased by such Restricted Subsidiary), as shall be necessary to create and perfect valid and enforceable first priority Liens (other than perfection of 95 security interests in fixtures (under and as defined in the Uniform Commercial Code) and Motor Vehicles (under and as defined in the Security Agreement) and subject to Liens permitted under Section 8.06 hereof) on substantially all of the Property of such new Subsidiary as collateral security for the obligations of such new Subsidiary under the Subsidiary Guarantee Agreement, and (iii) deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by each Credit Party pursuant to Section 6.01 hereof on the Effective Date or as the Administrative Agent shall have reasonably requested. (b) Ownership of Subsidiaries. The Company will, and will cause each of its Restricted Subsidiaries to, take such action from time to time as shall be necessary to ensure that each of its Restricted Subsidiaries is a Wholly Owned Subsidiary. In the event that any additional shares of stock or other ownership interests shall be issued by any Restricted Subsidiary, the Company agrees forthwith to deliver to the Administrative Agent pursuant to the Security Agreement the certificates evidencing such shares of stock or other ownership interests, accompanied by undated stock or other powers executed in blank and to take such other action as the Administrative Agent shall request to perfect the security interest created therein pursuant to the Security Agreement. (c) Certain Restrictions. Other than the Senior Subordinated Debt Documents, the Company will not permit any of its Restricted Subsidiaries to enter into, after the date hereof, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens, the declaration or payment of dividends, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of Property. (d) FrontierVision Capital. FrontierVision Capital will own no Property, will have no Indebtedness (other than its Guarantee of Indebtedness hereunder and Indebtedness in respect of the Subordinated Indebtedness), will have no operations (other than de minimis operations incidental to its activities in connection with the foregoing) and, in furtherance of the foregoing, will not make any expenditures or incur any liabilities other than those consistent with and reasonably necessary in the conduct of its business as contemplated by this Section 8.17(d). 8.18 Modifications of Certain Documents. The Company will not consent to any modification, supplement or waiver of any of the provisions of (i) any Senior Subordinated Debt Document or any other agreement, instrument or other document evidencing or relating to Subordinated Indebtedness (other 96 than a supplement to the Senior Subordinated Debt Indenture executed in connection with a subordinated Guarantee of Subordinated Indebtedness by Restricted Subsidiaries of the Company) or any Senior Discount Debt Document, (ii) any Scheduled Acquisition Agreement either to increase the aggregate consideration payable by the Company thereunder or any other provision of such Agreements (or of any agreement executed in connection therewith) to the extent the same would materially adversely affect the Lenders or the Administrative Agent (or the rights of the Lenders or the Administrative Agent under any of the Loan Documents), or (iii) the Partnership Agreement or, following the execution and delivery thereof, any Acquisition Agreement for any Subsequent Acquisition (or any agreements executed in connection with any Subsequent Acquisition) to the extent the same would materially adversely affect the Lenders or the Administrative Agent (or the rights of the Lenders or the Administrative Agent under any of the Loan Documents), without in each case, the prior consent of the Administrative Agent (with the approval of the Majority Lenders). 8.19 Certain Obligations Respecting the Collateral. (a) The Company will from time to time use reasonable efforts to obtain consents of municipal franchising authorities necessary to create and perfect a valid and enforceable first priority Lien on the Franchises from time to time held by the Company and its Restricted Subsidiaries, so that to the maximum extent practicable the Lien of the Administrative Agent created therein pursuant to the Security Agreement will be such a valid and enforceable first priority Lien on all of the Franchises (other than Excluded Franchises) of the Company and its Restricted Subsidiaries. (b) In the event that after the Effective Date, the Company or any of its Restricted Subsidiaries shall acquire any real property interests, whether owned or leased (other than an Excluded Real Property), the Company will, and will cause such Restricted Subsidiary to, promptly (and in any event within 30 days of the acquisition thereof) execute and deliver to the Administrative Agent a Mortgage (in recordable form and in such number of copies as the Administrative Agent shall have requested) covering such Property, together with any necessary consents to such Mortgages by the respective lessors, to the extent that the respective leasehold property shall be material and the Administrative Agent or the Majority Lenders shall have requested the Company to obtain such consents. 97 Section 9. Events of Default. If one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) The Company shall default in the payment when due (whether at stated maturity or upon mandatory or optional prepayment) of any principal of or interest on any Loan, any fee or any other amount payable by it hereunder or under any other Loan Document; or (b) The Company or any of its Restricted Subsidiaries shall default in the payment when due of any principal of or interest on any of its other Indebtedness aggregating $5,000,000 or more; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level specified in relation to the par value thereof; or the Company shall default in the payment when due of any amount aggregating $500,000 or more under any Interest Rate Protection Agreement; or any event specified in any Interest Rate Protection Agreement shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit, termination or liquidation payment or payments aggregating $5,000,000 or more to become due; or (c) FrontierVision Holdings or FrontierVision Holdings Capital Corporation shall default in the payment when due of any principal of or interest on any note evidencing Senior Discount Debt; or any event specified in any note, agreement, indenture or other document evidencing or relating to such Senior Discount Debt shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of the notes evidencing such Senior Discount Debt (or a trustee or agent on behalf of such holder or holders) to cause, such notes to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to their stated maturity; or (d) Any representation, warranty or certification made or deemed made herein or in any other Loan Document (or in any modification or supplement hereto or thereto) by any Obligor, or any certificate furnished to any Lender or the Administrative Agent pursuant to the provisions hereof or thereof, shall prove to have been 98 false or misleading as of the time made or furnished in any material respect; or any representation or warranty made in any of the Scheduled Acquisition Agreements shall prove to have been false or misleading as of the time made or furnished in any material respect that could reasonably be expected to result in a Material Adverse Effect; or (e) Any of the following shall occur: (i) the Company shall default in the performance of any of its obligations under any of Sections 8.01(g), 8.05, 8.06, 8.07, 8.08, 8.09, 8.10, 8.12, 8.13, 8.15, 8.17 or 8.18 hereof; (ii) any Securing Party shall default in the performance of any of its obligations under Section 5.02 of the Security Agreement; (iii) any Partner Pledgor shall default in the performance of its obligations under Section 5.02 of the Partner Pledge Agreement; (iv) any Stock Pledgor shall default in the performance of its obligations under Section 4.02 of the Stock Pledge Agreement; or (v) the Company shall default in the performance of its obligations hereunder, or any Obligor shall default in the performance of its obligations under any other Loan Document to which it is a party, and such default shall continue unremedied for a period of thirty or more days after notice thereof to the Company by the Administrative Agent or any Lender (through the Administrative Agent); or (f) The Company or any of its Restricted Subsidiaries, or any of its General Partners, shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (g) The Company or any of its Restricted Subsidiaries, or any of its General Partners, shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (h) A proceeding or case shall be commenced, without the application or consent of the Company or any of its Restricted Subsidiaries, or any of its General Partners, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Company, any such Restricted Subsidiary or General Partners (as the case may be) or of all or any substantial part of its Property or (iii) similar relief in respect of the Company, any such Restricted Subsidiary or General Partner (as the case may be) under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, 99 judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Company, any such Restricted Subsidiary or General Partner shall be entered in an involuntary case under the Bankruptcy Code; or (i) The Company or any of its General Partners shall be terminated, dissolved or liquidated (as a matter of law or otherwise) or proceedings shall be commenced by any Person (including the Company or any such General Partner) seeking the termination, dissolution or liquidation of the Company or General Partner; or (j) A final judgment or judgments for the payment of money of $5,000,000 or more in the aggregate (exclusive of judgment amounts fully covered by insurance where the insurer has admitted liability in respect of such judgment) or of $12,000,000 or more in the aggregate (regardless of insurance coverage) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Company or any of its Subsidiaries, or any of its General Partners, and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company, the relevant Subsidiary or General Partner (as the case may be) shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (k) An event or condition specified in Section 8.01(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall incur or in the opinion of the Majority Lenders shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or the PBGC (or any combination of the foregoing) that, in the determination of the Majority Lenders, would (either individually or in the aggregate) have a Material Adverse Effect; or (l) A reasonable basis shall exist for the assertion against the Company or any of its Subsidiaries, or any predecessor in interest of the Company or any of its Subsidiaries or Affiliates, of (or there shall have been asserted against the Company or any of its Subsidiaries) an Environmental Claim that, in the judgment of the Majority Lenders is reasonably likely to be determined adversely to the Company or any of its Subsidiaries, and the amount thereof (either individually or in the aggregate) is reasonably likely to have a Material Adverse Effect (insofar as such amount is payable by the Company or any of its Subsidiaries but after deducting any portion thereof that is reasonably expected to be paid by other creditworthy Persons jointly and severally liable therefor); or 100 (m) Any one or more of the following events shall occur and be continuing: (i) FrontierVision Holdings shall cease to either (x) own partnership interests in the Company representing at least 99.9% of the aggregate partnership interests in the Company not constituting Other Equity Interests or (y) be the sole general partner of the Company; or at any time FrontierVision and holders of Other Equity Interests shall cease to be the sole limited partners of the Company, or FrontierVision LP shall cease to own, directly or indirectly through one or more Wholly-Owned Subsidiaries, all of the equity interests in FrontierVision Holdings; or (ii) either James Vaughn or John S. Koo shall, for any reason, cease to be actively involved in the day to day management and operation of the Company and its Subsidiaries (and Persons with equivalent knowledge and experience in the cable television industry reasonably acceptable to the Majority Lenders are not appointed to replace one or both of the them within 90 days thereof); or (iii) prior to a Qualified Public Offering, either (x) the Initial Equityholders shall cease to own, collectively, on a fully-diluted basis (in other words, giving effect to the exercise of any warrants, options and conversion and other rights), equity interests representing at least 51% of the aggregate fair market value (or, if greater, the aggregate liquidation value) of the equity interests of all classes of FrontierVision LP or (y) James Vaughn or John S. Koo shall sell, transfer, hypothecate or otherwise dispose of more than 50% of their direct or indirect economic interest in FrontierVision LP (other than any transfer to the spouse of either of such individuals, to his immediate family members, or to trusts for the benefit of such spouse or immediate family members); or (iv) after a Qualified Public Offering either (x) any person or group (within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 13(d) and 14(d) of the Exchange Act (other than the Initial Equityholders) becomes, directly or indirectly, in a single transaction or in a related series of transactions by way of merger, consolidation or other business combination or otherwise, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 30% of the equity interest of FrontierVision LP on a fully-diluted basis (in other words, giving effect to the exercise of any warrants, options and conversion and other rights) or (y) James Vaughn or John S. Koo shall sell, transfer, hypothecate or otherwise dispose of more than 50% of their direct or indirect economic interest in FrontierVision LP (other than any transfer to the spouse of either of such individuals, to his 101 immediate family members, or to trusts for the benefit of such spouse or immediate family members); or (n) Except for Franchises that cover in the aggregate fewer than 5% of the Subscribers of the Company and its Restricted Subsidiaries (determined as at the last day of the most recent fiscal quarter for which a Quarterly Officers' Report shall have been delivered), one or more Franchises relating to the CATV Systems of the Company and its Restricted Subsidiaries shall be terminated or revoked such that the Company or the respective Restricted Subsidiary is no longer able to operate such Franchises and retain the revenue received therefrom; or the Company or the respective Restricted Subsidiary or the grantors of such Franchises shall fail to renew such Franchises at the stated expiration thereof such that the Company or the respective Restricted Subsidiary is no longer able to operate such Franchises and retain the revenue received therefrom; or (o) The Liens created by the Security Documents shall at any time not constitute a valid Lien on substantially all of the collateral intended to be covered thereby, or shall not constitute a perfected Lien (or, with respect to any Properties acquired in any Acquisition, shall not constitute a perfected Lien within five Business Days after the consummated of such Acquisition) on substantially all of such collateral, to the extent perfection by filing, registration, recordation or possession is required herein or therein, on substantially all of the Property of the Company and its Restricted Subsidiaries as contemplated herein and in the other Loan Documents, in favor of the Administrative Agent, free and clear of all other Liens (other than Liens permitted under Section 8.06 hereof or under the respective Security Documents) or, except for expiration in accordance with its terms, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by the Company; THEREUPON: (1) in the case of an Event of Default other than one referred to in paragraph (g) or (h) of this Section 9 with respect to the Company or FrontierVision, the Administrative Agent may and, upon request of the Majority Lenders, will, by notice to the Company, terminate the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company hereunder (including, without limitation, any amounts payable under Section 5.05 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company; and (2) in the case of the occurrence of an Event of Default referred to in paragraph (g) or (h) of this Section 9 with respect to the Company or FrontierVision, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company hereunder (including, without limitation, any amounts payable under Section 5.05 hereof) shall 102 automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company. Section 10. The Agents. 10.01 Appointment, Powers and Immunities. Each Lender hereby appoints and authorizes the Administrative Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement and of the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 10.05 and the first sentence of Section 10.06 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee for any Lender; (b) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not, except to the extent expressly instructed by the Majority Lenders with respect to collateral security under the Security Documents, be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. 103 10.02 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telegram or cable) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Majority Lenders or, if provided herein, in accordance with the instructions given by the Majority Revolving Credit Lenders, the Majority Facility A Term Loan Lenders, the Majority Facility B Term Loan Lenders, the Majority Incremental Facility Lenders of a Series, or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 10.03 Defaults. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Administrative Agent has received notice from a Lender or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall (subject to Section 10.07 hereof) take such action with respect to such Default as shall be directed by the Majority Lenders or, if provided herein, the Majority Revolving Credit Lenders, the Majority Facility A Term Loan Lenders, the Majority Facility B Term Loan Lenders or the Majority Incremental Facility Lenders of a Series, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Majority Lenders, the Majority Revolving Credit Lenders, the Majority Facility A Term Loan Lenders, the Majority Facility B Term Loan Lenders, the Majority Incremental Facility Lenders of a Series, or all of the Lenders. 10.04 Rights as a Lender. With respect to its Commitments and the Loans made by it, Chase (and any successor acting as Administrative Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. Chase (and any successor acting as Administrative Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other 104 business with the Company (and any of its Subsidiaries or Affiliates) as if it were not acting as the Administrative Agent, and Chase (and any such successor) and its affiliates may accept fees and other consideration from the Company for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 10.05 Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed under Section 11.03 hereof, but without limiting the obligations of the Company under said Section 11.03) ratably in accordance with the aggregate principal amount of the Loans held by the Lenders (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Administrative Agent (including by any Lender) arising out of or by reason of any investigation in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Company is obligated to pay under Section 11.03 hereof, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Administrative Agent. 10.06 Non-Reliance on Administrative Agent and Other Lenders. Each Lender agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or under any other Loan Document. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Company of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the Properties or books of the Company or any of its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder or under the Security Documents, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company or any of its Subsidiaries (or any of their affiliates) that may come into the possession of the Administrative Agent or any of its affiliates. 105 10.07 Failure to Act. Except for action expressly required of the Administrative Agent hereunder and under the other Loan Documents, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 10.05 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 10.08 Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Company, and the Administrative Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right (after consultation with the Company) to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, that shall be a bank that has an office in New York, New York with a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. 10.09 Consents under Other Loan Documents. Except as otherwise provided in Section 11.04 hereof with respect to this Agreement, the Administrative Agent may, with the prior consent of the Majority Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Loan Documents, provided that, without the prior consent of each Lender, the Administrative Agent shall not (except as provided herein or in the Security Documents) release any collateral or otherwise terminate any Lien under any Security Document providing for collateral security, agree to additional obligations being secured by such collateral security (unless the Lien for such additional obligations shall be junior to the Lien in favor of the other obligations secured by such Security Document, in which event the Administrative Agent may consent to such junior Lien provided that it obtains the consent of the Majority Lenders thereto), alter the relative priorities of the obligations entitled to the benefits of the Liens created under the Security Documents or release any guarantor under any Security Document from its guarantee obligations thereunder, except that no such consent shall be required, and the Administrative Agent 106 is hereby authorized (and, the Administrative Agent hereby agrees with the Company) to, release any Lien covering Property (and release any such guarantor) that is the subject of either a disposition of Property permitted hereunder or a disposition to which the Majority Lenders have consented. 10.10 The Syndication Agent and Documentation Agent. Except as expressly provided herein, neither the Syndication Agent nor the Documentation Agent shall have any rights or obligations under this Agreement or any of the other Loan Documents except (in the case of the Documentation Agent) in its capacity as a "Lender" hereunder. 10.11 Control Affiliates of Lenders. Each Lender hereby agrees with the Administrative Agent that, to the extent any of such Lender's Control Affiliates shall be entitled to the benefits of any of the collateral security or guaranties provided pursuant to any of the Security Documents, such Lender will cause such Control Affiliate to perform and be bound by the provisions of this Section 10 as if such Control Affiliate constituted a Lender hereunder and had appointed the Administrative Agent as its agent for purposes of the Security Documents; in taking any action hereunder at the instruction or authorization of any Lender (including any such action taken at the instruction or authorization of the Majority Lenders), the Administrative Agent shall be entitled to conclusively presume that the instruction or authorization of a Lender constitutes a like instruction or authorization of each Control Affiliate of such Lender entitled to the benefits of the Security Documents. Section 11. Miscellaneous. 11.01 Waiver. No failure on the part of the Administrative Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 11.02 Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Company, to it at 1777 South Harrison Street, Suite P-200, Denver, Colorado 80210, attention of John S. Koo, Senior Vice President and Chief Financial Officer (Telecopy No. 303-757-6105) with a copy to Edwards & Angell, 101 Federal Street, Boston, Massachusetts 02110, attention of Stephen O. Meredith, Esq. (Telecopy No. 617-439-4170); 107 (b) if to the Administrative Agent, to The Chase Manhattan Bank, 1 Chase Manhattan Plaza, 8th Floor, New York, New York 10081, attention Loan and Agency Services Group (Telecopy No. 212-552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Thomas G. Malone and David G. Staples (Telecopy No. 212-270-1848 or 212-270-4584); and (c) if to a Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 11.03 Expenses, Etc. The Company agrees to pay or reimburse each of the Lenders and the Administrative Agent for: (a) all reasonable out-of-pocket costs and expenses of the Agents (including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase) in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents and the making of the Loans hereunder and (ii) the negotiation or preparation of any modification, supplement or waiver of any of the terms of this Agreement or any of the other Loan Documents (whether or not consummated); (b) all reasonable out-of-pocket costs and expenses of the Lenders and the Administrative Agent (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Default and any enforcement or collection proceedings resulting therefrom, including, without limitation, all manner of participation in or other involvement with (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 11.03; (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Loan Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Security Document or any other document referred to therein; and (d) all costs, expenses and other charges in respect of title insurance procured with respect to the Liens created pursuant to the Mortgages. The Company hereby agrees to indemnify the Administrative Agent, the Syndication Agent and each Lender and their respective directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them (including, without limitation, any and all losses, 108 liabilities, claims, damages or expenses incurred by the Administrative Agent to any Lender, whether or not the Administrative Agent or any Lender is a party thereto) arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to the Loans hereunder or any actual or proposed use by the Company or any of its Subsidiaries of the proceeds of any of the Loans hereunder, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). Without limiting the generality of the foregoing, the Company will indemnify the Administrative Agent and each Lender from, and hold the Administrative Agent and each Lender harmless against, any losses, liabilities, claims, damages or expenses described in the preceding sentence (including any Lien filed against any Property covered by the Mortgages or any part of the Mortgage Estate thereunder in favor of any governmental entity, but excluding, as provided in the preceding sentence, any loss, liability, claim, damage or expense incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) arising under any Environmental Law as a result of the past, present or future operations of the Company or any of its Subsidiaries (or any predecessor in interest to the Company or any of its Subsidiaries), or the past, present or future condition of any site or facility owned, operated or leased at any time by the Company or any of its Subsidiaries (or any such predecessor in interest), or any Release or threatened Release of any Hazardous Materials at or from any such site or facility, excluding any such Release or threatened Release that shall occur during any period when the Administrative Agent or any Lender shall be in possession of any such site or facility following the exercise by the Administrative Agent or any Lender of any of its rights and remedies hereunder or under any of the Security Documents, but including any such Release or threatened Release occurring during such period that is a continuation of conditions previously in existence, or of practices employed by the Company and its Subsidiaries, at such site or facility. 11.04 Amendments, Etc. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by the Company and the Majority Lenders, or by the Company and the Administrative Agent acting with the consent of the Majority Lenders, and any provision of this Agreement may be waived by the Majority Lenders or by the Administrative Agent acting with the consent of the Majority Lenders; provided that: (a) no modification, supplement or waiver shall, unless by an instrument signed by all of the Lenders or by the Administrative Agent acting with the consent of all of the Lenders: (i) increase, or extend the term of any of the Commitments, or extend the time or waive any requirement for the reduction or termination of any of the Commitments, (ii) extend the date fixed for the scheduled payment of principal of or interest on any Loan or any fee hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon or any fee is payable hereunder, (v) alter the manner in which payments or prepayments of principal, interest or other 109 amounts hereunder shall be applied as between the Lenders or Classes of Loans, (vi) alter the terms of this Section 11.04, (vii) modify the definition of the term "Majority Lenders", "Majority Revolving Credit Lenders", "Majority Facility A Term Loan Lenders", "Majority Facility B Term Loan Lenders" or "Majority Incremental Facility Lenders" or modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof, or (viii) waive any of the conditions precedent set forth in Section 6.01 hereof; and (b) any modification or supplement of Section 10 hereof, or of any of the rights or duties of the Administrative Agent hereunder, shall require the consent of the Administrative Agent. Anything in the Agreement to the contrary notwithstanding, no waiver or modification of any provision of this Agreement that has the effect (either immediately or at some later time) of enabling the Company to satisfy a condition precedent to the making of a Revolving Credit Loan or Incremental Facility Loan of any Series shall be effective against the Revolving Credit Lenders or Incremental Facility Lenders of such Series for purposes of the Revolving Credit Commitments and Incremental Facility Commitments of such Series unless the Majority Revolving Credit Lenders and Majority Incremental Facility Lenders of such Series shall have concurred with such waiver or modification. 11.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 11.06 Assignments and Participations. (a) The Company may not assign any of its rights or obligations hereunder without the prior consent of all of the Lenders and the Administrative Agent. (b) Each Lender may assign any of its Loans and its Commitments (but only with the consent of each of the Administrative Agent, the Syndication Agent and the Company, which consents shall not be unreasonably withheld or delayed); provided that: (i) no such consent by such Agents shall be required in the case of any assignment to another Lender; (ii) except to the extent such Agents and the Company shall otherwise consent, any such partial assignment (other than to another Lender) shall be in an amount at least equal to $5,000,000; (iii) each such assignment by a Lender of its Revolving Credit Loans or Revolving Credit Commitment shall be made in such manner so that the same portion of 110 its Revolving Credit Loans and Revolving Credit Commitment is assigned to the respective assignee; (iv) each such assignment by a Lender of its Facility A Term Loans or Facility A Term Loan Commitment shall be made in such manner so that the same portion of its Facility A Term Loans and Facility A Term Loan Commitment is assigned to the respective assignee; (v) each such assignment by a Lender of its Facility B Term Loans or Facility B Term Loan Commitment shall be made in such manner so that the same portion of its Facility B Term Loans and Facility B Term Loan Commitment is assigned to the respective assignee; (vi) each such assignment by a Lender of its Incremental Facility Loans of any Series or Incremental Facility Commitment of any Series shall be made in such manner so that the same portion of its Incremental Facility Loans and Incremental Facility Commitment of such Series is assigned to the respective assignee; and (vii) upon each such assignment, the assignor and assignee shall deliver to the Company and each of such Agents an Assignment and Acceptance in the form of Exhibit A hereto and the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and (viii) any consent of the Company otherwise required under this paragraph (b) shall not be required if an Event of Default has occurred and is continuing. Upon execution and delivery by the assignor and the assignee to the Company and the Administrative Agent of an Assignment and Acceptance, and upon consent thereto by such Agents to the extent required above, the assignee shall have, to the extent of such assignment (unless otherwise consented to by the Company and such Agents), the obligations, rights and benefits of a Lender hereunder holding the Commitment(s) and Loans (or portions thereof) assigned to it and specified in such Assignment and Acceptance (in addition to the Commitment(s) and Loans, if any, theretofore held by such assignee) and the assigning Lender shall, to the extent of such assignment, be released from the Commitment(s) (or portion(s) thereof) so assigned. Upon each such assignment the assigning Lender shall pay the Administrative Agent an assignment fee of $3,500. (c) A Lender may sell or agree to sell to one or more other Persons (each a "Participant") a participation in all or any part of any Loans held by it, or in its Commitments, provided that such Participant shall not have any rights or obligations under this Agreement or any other Loan Document (the Participant's rights against such Lender in respect of such 111 participation to be those set forth in the agreements executed by such Lender in favor of the Participant). All amounts payable by the Company to any Lender under Section 5 hereof in respect of Loans held by it, and its Commitments, shall be determined as if such Lender had not sold or agreed to sell any participations in such Loans and Commitments, and as if such Lender were funding each of such Loan and Commitments in the same way that it is funding the portion of such Loan and Commitments in which no participations have been sold. In no event shall a Lender that sells a participation agree with the Participant to take or refrain from taking any action hereunder or under any other Loan Document except that such Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase or extend the term of such Lender's Commitments or extend the amount or date of any scheduled reduction of such Commitments pursuant to Section 2.03 hereof, (ii) extend the date fixed for the payment of principal of or interest on the related Loan or Loans or any portion of any fee hereunder payable to the Participant, (iii) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee or (iv) consent to any modification, supplement or waiver hereof or of any of the other Loan Documents to the extent that the same, under Section 10.09 or 11.04 hereof, requires the consent of each Lender. (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 11.06, any Lender may (without notice to the Company, the Agents or any other Lender and without payment of any fee) assign and pledge all or any portion of its Loans to secure obligations of such Lender, including any such assignment or pledge to a Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank and any Lender may assign all or any portion of its rights under this Agreement and its Loans to an affiliate. No such assignment or pledge shall release the assigning Lender from its obligations hereunder. (e) A Lender may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 11.12(b) hereof. (f) Anything in this Section 11.06 to the contrary notwithstanding, no Lender may assign or participate any interest in any Loan held by it hereunder to the Company or any of its Affiliates or Subsidiaries without the prior consent of each Lender. (g) The Administrative Agent, acting for this purpose as an agent of the Company, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the 112 Register shall be conclusive, and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (h) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. 11.07 Survival. The obligations of the Company under Sections 5.01, 5.05, 5.06 and 11.03 hereof, and the obligations of the Lenders under Section 10.05 hereof, shall survive the repayment of the Loans and the termination of the Commitments and, in the case of any Lender that may assign any interest in its Commitments or Loans hereunder, shall survive the making of such assignment, notwithstanding that such assigning Lender may cease to be a "Lender" hereunder. In addition, each representation and warranty made, or deemed to be made by a notice of any Loan, herein or pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any Loan, any Default that may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender or the Administrative Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such Loan was made. 11.08 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 11.09 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 11.10 Governing Law; Submission to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. The Company hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), and of any other appellate court in the 113 State of New York, for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Company hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. 11.11 Waiver of Jury Trial. EACH OF THE COMPANY, THE AGENTS AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.12 Treatment of Certain Information; Confidentiality. (a) The Company acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Company or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Lender or by one or more subsidiaries or affiliates of such Lender and the Company hereby authorizes each Lender to share any information delivered to such Lender by the Company and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such subsidiary or affiliate, it being understood that any such subsidiary or affiliate receiving such information shall be bound by the provisions of paragraph (b) below as if it were a Lender hereunder. Such authorization shall survive the repayment of the Loans and the termination of the Commitments. (b) Each of the Lenders and the Agents agree (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking or other lending practices, any non-public information supplied to it by any Obligor pursuant to this Agreement or any other Loan Document to which it is party that is identified by such Obligor as being confidential at the time the same is delivered to the Lenders or the Agents, provided that nothing herein shall limit the disclosure of any such information (i) after such information shall have become public (other than through a violation of this Section 11.12), (ii) to the extent required by statute, rule, regulation or judicial process, (iii) to counsel for any of the Lenders or the Agents, (iv) to bank examiners (or any other regulatory authority, including the NAIC, having jurisdiction over any Lender or the Agents), or to auditors or accountants, (v) to the Agents or any other Lender (or to Chase Securities, Inc. or J.P. Morgan Securities Inc.), (vi) in connection with any litigation to which any one or more of the Lenders or the Agents is a party, or in connection with the enforcement of rights or remedies hereunder or under any other Loan Document, (vii) to a subsidiary or affiliate of such Lender as provided in paragraph (a) above 114 (viii) or to any Person who evaluates, approves, structures or administers the Loans on behalf of a Lender and who is subject to this confidentiality provision or (ix) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Lender a Confidentiality Agreement for the benefit of the Company substantially in the form of Exhibit I hereto (or executes and delivers to such Lender an acknowledgement to the effect that it is bound by the provisions of this Section 11.12(b), which acknowledgement may be included as part of the respective assignment or participation agreement pursuant to which such assignee or participant acquires an interest in the Loans hereunder); provided, further, that in no event shall any Lender or the Administrative Agent be obligated or required to return any materials furnished by the Company. The obligations of each Lender under this Section 11.12 shall supersede and replace the obligations of such Lender under the confidentiality letter in respect of this financing signed and delivered by such Lender to the Company prior to the date hereof; in addition, the obligations of any assignee that has executed a Confidentiality Agreement in the form of Exhibit I hereto shall be superseded by this Section 11.12 upon the date upon which such assignee becomes a Lender hereunder pursuant to Section 11.06(b) hereof. 11.13 Limitation of Liability. Anything herein or in any of the other Loan Documents to the contrary notwithstanding, the Lenders and the Agents shall have no recourse to the assets of any of the direct or indirect general or limited partners of the Company (including, without limitation, FrontierVision Holdings, except to the extent that FrontierVision Holdings has pledged its assets pursuant to the Security Documents, to which it is a party, and FrontierVision LP) with respect to the obligations of the Company under this Agreement or any of the other Loan Documents. 115 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. FRONTIERVISION OPERATING PARTNERS, L.P. By: FrontierVision Holdings, L.P., as general partner of FrontierVision Operating Partners, L.P. By: Frontiervision Partners, L.P., as general partner of FrontierVision Holdings, L.P. By: FVP GP, L.P., as general partner of FrontierVision Partners, L.P. By: FrontierVision Inc., as general partner of FVP GP, L.P. By____________________________ Title: By its signature below each Subsidiary Guarantor (i) consents to this Agreement and confirms that the obligations of the Company under this Agreement and under the Notes (if any) and in respect of Pari Passu Obligations are entitled to the benefits of the Subsidiary Guarantee Agreement executed by each Subsidiary Guarantor, respectively, (and shall constitute "Guaranteed Obligations" (as defined in such Subsidiary Guarantee Agreement) under and for all purposes of such Subsidiary Guarantee Agreement and (ii) together with the Administrative Agent (acting with the consent of the Majority Lenders under the Existing Credit Agreement) agrees that references in such Subsidiary Guarantee Agreement to the "Credit Agreement" shall be deemed to be references to this Agreement. FRONTIERVISION CAPITAL FRONTIERVISION CABLE NEW ENGLAND, INC. CORPORATION By____________________________ By____________________________ Title: Title: 116 LENDERS THE CHASE MANHATTAN BANK MORGAN GUARANTY TRUST COMPANY OF NEW YORK By_________________________ By_________________________ Title: Title: CIBC INC. By_________________________ Title: BANK OF MONTREAL, CHICAGO BRANCH FIRST NATIONAL BANK OF CHICAGO By_________________________ By_________________________ Title: Title: FIRST UNION NATIONAL BANK THE LONG-TERM CREDIT BANK OF JAPAN, LTD., By_________________________ By_________________________ Title: Title: UNION BANK OF CALIFORNIA FLEET NATIONAL BANK By_________________________ By_______________________ Title: Title: 117 CO_PERATIEVE CENTRALE ABN AMRO BANK N.V. RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By_________________________ By_______________________ Title: Title: BANKBOSTON, N.A. THE BANK OF NEW YORK By_________________________ By________________________ Title: Title: DRESDNER BANK AG CREDIT LYONNAIS NEW YORK AND GRAND CAYMAN BRANCHES By_________________________ Title: By_________________________ Title: By_________________________ Title: MELLON BANK, N.A. BANQUE PARIBAS By_________________________ By_________________________ Title: Title: By_________________________ Title: 118 PNC BANK, NATIONAL ASSOCIATION ROYAL BANK OF CANADA By_________________________ By_________________________ Title: Title: CITIZENS BANK OF RHODE ISLAND BANQUE NATIONALE DE PARIS By_________________________ By_________________________ Title: Title: By_________________________ Title: U.S. BANK NATIONAL ASSOCIATION, CRESTAR BANK DBA COLORADO NATIONAL BANK By_________________________ By_________________________ Title: Title: FIRST HAWAIIAN BANK THE FUJI BANK, LIMITED By_________________________ By_________________________ Title: Title: 119 GENERAL ELECTRIC CAPITAL CORPORATION INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY By_________________________ By_________________________ Title: Title: THE MITSUBISHI TRUST & BANKING THE SUMITOMO BANK, LIMITED CORPORATION By_________________________ Title: By_________________________ Title: SUNTRUST BANK, CENTRAL FLORIDA, N.A. NATEXIS BANQUE BFCE By_________________________ Title: By_________________________ Title: By_________________________ Title: KZH HOLDING CORPORATION III VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By_________________________ By_________________________ Title: Title: PILGRIM AMERICA PRIME RATE TRUST MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By_________________________ By_________________________ Title: Title: 120 OCTAGON CREDIT INVESTORS LOAN THE TRAVELERS INSURANCE COMPANY PORTFOLIO (A UNIT OF THE CHASE MANHATTAN BANK) By_________________________ By_________________________ Title: Title: CREDIT AGRICOLE INDOSUEZ PFL LIFE INSURANCE COMPANY By_________________________ By_________________________ Title: Title: By_________________________ Title: ROYALTON COMPANY BY: PACIFIC INVESTMENT MANAGEMENT COMPANY AS ITS INVESTMENT ADVISOR By_________________________ Title: 121 THE CHASE MANHATTAN BANK, J.P. MORGAN SECURITIES INC., as Administrative Agent as Syndication Agent By_________________________ By_________________________ Title: Title: CIBC INC., as Documentation Agent By_________________________ Title: EX-12.1 3 STATEMENT OF COMPUTATION OF RATIOS EXHIBIT 12.1 FrontierVision Operating Partners, L.P. Computation of Ratio of Earnings to Fixed Charges (Dollars in thousands) For the Period From Inception For the Year Ended For the Year Ended (April 17, 1995) to December 31, 1997 December 31, 1996 December 31, 1996 -------- -------- ----- Net Loss .......................... $(46,863) $(23,801) $(2,703) Add (Deduct): Income Tax Provision (Benefit) -- -- -- Less: Minority Interest -------- -------- ----- Pre Tax Income (Loss) ............. (46,863) (23,801) (2,703) Add: Fixed Charges Interest ..................... 44,007 23,210 1,451 -------- -------- ----- 44,007 23,210 1,451 -------- -------- ----- $ (2,856) $ (591) $(1,252) ======== ======== ===== Fixed Charges ..................... $ 44,007 $ 23,210 $ 1,451 ======== ======== ===== Ratio of Earnings to Fixed Charges ...................... N/A N/A N/A Deficiency of Earnings to Fixed Charges ...................... $ 46,863 $ 23,801 $ 2,703
EX-27.1 4 FDS -- DECEMBER 31, 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-K. 0001019504 FRONTIERVISION OPERATING PARTNERS, LP 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 3,413 0 8,711 (640) 0 14,126 247,724 0 919,708 24,665 632,000 0 0 0 263,043 919,708 0 145,126 0 74,314 4,418 0 42,652 (46,863) 0 (46,863) 0 0 0 (46,863) 0 0 PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION.
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