-----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, Jd84SJGGL0qM6axYffSebb7ujQko7hLsZfFOqHcf42ZaL7/b4o4P2BkFESA8Pz1m Py7gg4F01s2atY5CMDoRLw== 0000785959-98-000002.txt : 19980327 0000785959-98-000002.hdr.sgml : 19980327 ACCESSION NUMBER: 0000785959-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971226 FILED AS OF DATE: 19980326 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ML MEDIA PARTNERS LP CENTRAL INDEX KEY: 0000785959 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 133221085 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14871 FILM NUMBER: 98574683 BUSINESS ADDRESS: STREET 1: WORLD FINANCIAL CENTER STREET 2: S TOWER-8TH FL CITY: NEW YORK STATE: NY ZIP: 10080 BUSINESS PHONE: 2122366577 MAIL ADDRESS: STREET 1: WORLD FINANCIAL CENTER STREET 2: SOUTH TOWER - 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10080 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 26, 1997 0-14871 (Commission File Number) ML MEDIA PARTNERS, L.P. (Exact name of registrant as specified in its governing Securities registered pursuant to Section 12(b) of the Act: Delaware (State or other jurisdiction of organization) 13-3321085 (IRS Employer Identification No.) World Financial Center South Tower - 14th Floor New York, New York 10080-6114 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 236-6577 Securities registered pursuant to Section 12(b) of the Act: None (Title of Class) Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in a definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Part I. Item 1. Business. Formation ML Media Partners, L.P. (the "Registrant" or the "Partnership"), a Delaware limited partnership, was organized February 1, 1985. Media Management Partners, a New York general partnership (the "General Partner"), is Registrant's sole general partner. The General Partner is a joint venture, organized as a general partnership under New York law, between RP Media Management ("RPMM") and ML Media Management Inc. ("MLMM"). MLMM is a Delaware corporation and an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. and an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). RPMM is organized as a general partnership under New York law, consisting of The Elton H. Rule Company and IMP Media Management Inc. As a result of the death of Elton H. Rule, the owner of The Elton H. Rule Company, the general partner interest of the Elton H. Rule Company may either be redeemed or acquired by a company controlled by I. Martin Pompadur. The General Partner was formed for the purpose of acting as general partner of Registrant. Registrant was formed to acquire, finance, hold, develop, improve, maintain, operate, lease, sell, exchange, dispose of and otherwise invest in and deal with media businesses and direct and indirect interests therein. On February 4, 1986, Registrant commenced the offering through Merrill Lynch of up to 250,000 units of limited partnership interest ("Units") at $1,000 per Unit. Registrant held four closings of Units; the first for subscriptions accepted prior to May 14, 1986 representing 144,990 Units aggregating $144,990,000; the second for subscriptions accepted thereafter and prior to October 9, 1986 representing 21,540 Units aggregating $21,540,000; the third for subscriptions accepted thereafter and prior to November 18, 1986 representing 6,334 Units aggregating $6,334,000; and the fourth and final closing of Units for subscriptions accepted thereafter and prior to March 2, 1987 representing 15,130 Units aggregating $15,130,000. At these closings, including the initial limited partner capital contribution, subscriptions for an aggregate of 187,994.1 Units representing the aggregate capital contributions of $187,994,100 were accepted. During 1989, the initial limited partner's capital contribution of $100 was returned. The Registration Statement relating to the offering was filed on December 19, 1985 pursuant to the Securities Act of 1933 under Registration Statement No. 33-2290 and was declared effective on February 3, 1986 and amendments thereto became effective on September 18, 1986, November 4, 1986 and on December 12, 1986 (such Registration Statement, as amended from and after each such date, the "Registration Statement"). Media Properties As of December 26, 1997, Registrant's investments in media properties consist of: a 50% interest in a joint venture which owns two cable television systems in Puerto Rico and an AM and FM radio station combination and a background music service in Puerto Rico. In October 1997, a sales agreement to sell the radio station combination and the background music service was entered into (see further discussion below); an AM and FM radio station combination in Bridgeport, Connecticut; a corporation which owns an FM radio station in Cleveland, Ohio; and an AM and FM radio station combination in Anaheim, California. Registrant has completed the sale of the following media properties: two radio stations, one located in Tulsa, Oklahoma and the other in Jacksonville, Florida, were sold on July 31, 1990; the Universal Cable systems were sold on July 8, 1992; an AM and FM radio station combination in Indianapolis, Indiana was sold on October 1, 1993; two VHF television stations, one located in Lafayette, Louisiana and the other in Rockford, Illinois, were sold on September 30, 1995 and July 31, 1995, respectively; and four cable television systems located in the California communities of Anaheim, Hermosa Beach/Manhattan Beach, Rohnert Park/Yountville, and Fairfield were sold on May 31, 1996. Puerto Rico Investments Cable Television Investments Pursuant to the management agreement and joint venture agreement dated December 16, 1986 (the "Joint Venture Agreement"), as amended and restated, between Registrant and Century Communications Corp. ("Century"), the parties formed a joint venture under New York law, Century-ML Cable Venture (the "Venture"), in which each has a 50% ownership interest. Century is a publicly held corporation unaffiliated with the General Partner or any of its affiliates. On December 16, 1986 the Venture, through its wholly-owned subsidiary corporation, Century- ML Cable Corporation ("C-ML Cable Corp."), purchased all of the stock of Cable Television Company of Greater San Juan, Inc. ("San Juan Cable"), and liquidated San Juan Cable into C-ML Cable Corp. C-ML Cable Corp., as successor to San Juan Cable, is the operator of the largest cable television system in Puerto Rico. On September 24, 1987, the Venture acquired all of the assets of Community Cable-Vision of Puerto Rico, Inc., Community Cablevision of Puerto Rico Associates, and Community Cablevision Incorporated (collectively, the "Community Companies"), which consisted of a cable television system serving the communities of Catano, Toa Baja and Toa Alta, Puerto Rico, which are contiguous to San Juan Cable. C-ML Cable Corp. and the Community Companies are herein referred to as C-ML Cable ("C-ML Cable"). As of December 26, 1997, C-ML Cable serves 123,990 basic subscribers, passes 284,450 homes and consists of approximately 1,835 linear miles of cable plant. During 1997, Registrant's share of the net revenues of C-ML Cable totaled $29,404,870 (55.2% of operating revenues of Registrant). During 1996, Registrant's share of the net revenues of C-ML Cable totaled $26,342,927 (36.7% of operating revenues of Registrant). During 1995, Registrant's share of the net revenues of C-ML Cable totaled $24,126,675 (22.1% of operating revenues of Registrant). Radio Investments On February 15, 1989, Registrant and Century entered into a Management Agreement and Joint Venture Agreement whereby a new joint venture, Century-ML Radio Venture ("C-ML Radio"), was formed under New York law. Responsibility for the management of radio stations to be acquired by C-ML Radio was assumed by Registrant. On March 10, 1989, C-ML Radio acquired all of the issued and outstanding stock of Acosta Broadcasting Corporation ("Acosta"), Fidelity Broadcasting Corporation ("Fidelity"), and Broadcasting and Background Systems Consultants Corporation ("BBSC"); all located in San Juan, Puerto Rico. The purchase price for the stock was approximately $7.8 million. At the time of acquisition, Acosta owned radio stations WUNO-AM and Noti Uno News, Fidelity owned radio station WFID-FM, and BBSC owned Beautiful Music Services, all serving various communities within Puerto Rico. In February, 1990, C-ML Radio acquired the assets of Radio Ambiente Musical Puerto Rico, Inc. ("RAM"), a background music service. The purchase price was approximately $200,000 and was funded with cash generated by C-ML Radio. The operations of RAM were consolidated into those of BBSC. Effective January 1, 1994, all of the assets of C-ML Radio were transferred to the Venture in exchange for the assumption by the Venture of all the obligations of C-ML Radio and the issuance to Century and Registrant by the Venture of new certificates evidencing partnership interests of 50% and 50%, respectively. The transfer was made pursuant to a Transfer of Assets and Assumption of Liabilities Agreement. At the time of this transfer, Registrant and Century entered into an amended and restated management agreement and joint venture agreement (the "Revised Joint Venture Agreement") governing the affairs of the Venture as revised. Under the terms of the Revised Joint Venture Agreement, Century is responsible for the day-to-day operations of C-ML Cable and Registrant is responsible for the day-to-day operations of C-ML Radio. For providing services of this kind, Century is entitled to receive annual compensation of 5% of C-ML Cable's net gross revenues (defined as gross revenues from all sources less monies paid to suppliers of pay TV product, e.g., HBO, Cinemax, Disney and Showtime) and Registrant is entitled to receive annual compensation of 5% of C-ML Radio's gross revenues (after agency commissions, rebates or discounts and excluding revenues from barter transactions). All significant policy decisions relating to the Venture, the operation of C-ML Cable and the operation of C-ML Radio however, will only be made upon the concurrence of both Registrant and Century. Registrant may require a sale of the assets and business of C-ML Cable or C-ML Radio at any time. If Registrant proposes such a sale, Registrant must first offer Century the right to purchase Registrant's 50% interest in such assets at 50% of the total fair market value of such assets at such time as determined by independent appraisal. If Century elects not to purchase Registrant's 50% interest, Registrant may elect to purchase Century's interest in such assets on similar terms. In October 1997, the Venture entered into a sales agreement to sell C-ML Radio for approximately $11.5 million, subject to closing adjustments. In addition, in connection with such sales agreement, Registrant entered into a Local Marketing Agreement, effective as of October 1, 1997, which, subject to compliance with the rules of the Federal Communications Commission ("Commission" or "FCC"), allows the buyer to program the station. Since there are numerous conditions to closing, including FCC approval, there can be no assurance that the sale will be consummated as contemplated and without consummation the Local Marketing Agreement will be cancelled. Registrant anticipates receiving no proceeds from any resulting sale since any sale proceeds received from the sale of C-ML Radio are required to be applied against the aggregate outstanding senior indebtedness which jointly finances C-ML Radio and C-ML Cable. During 1997, Registrant's share of the net revenues of C-ML Radio totaled $2,051,576 (3.9% of operating revenues of Registrant). During 1996, Registrant's share of the net revenues of C-ML Radio totaled $2,951,028 (4.1% of operating revenues of Registrant). During 1995, Registrant's share of the net revenues of C-ML Radio totaled $2,772,238 (2.5% of operating revenues of Registrant). California Cable Systems In December, 1986, ML California Cable Corporation ("ML California"), a wholly-owned subsidiary of Registrant, entered into an agreement with SCIPSCO, Inc. ("SCIPSCO"), a wholly-owned subsidiary of Storer Communications, Inc. for the acquisition by ML California of four cable television systems servicing the California communities of Anaheim, Hermosa Beach/Manhattan Beach, Rohnert Park/Yountville, and Fairfield and surrounding areas. The acquisition was completed on December 23, 1986 with the purchase by ML California of all of the stock of four subsidiaries of SCIPSCO which at closing owned all the assets of the California cable television systems. The term "California Cable Systems" or "California Cable" as used herein means either the cable systems or the owning entities, as the context requires. On December 30, 1986, ML California was liquidated into Registrant and transferred all of its assets, except its FCC licenses, subject to its liabilities, to Registrant. The licenses were transferred to ML California Associates, a partnership formed between Registrant and the General Partner for the purpose of holding the licenses in which Registrant is Managing General Partner and 99.99% equity holder. On November 28, 1994, Registrant entered into an agreement (the "Asset Purchase Agreement") with Century to sell to Century substantially all of the assets used in Registrant's California Cable Systems. On May 31, 1996, Registrant consummated such sale pursuant to the terms of the Asset Purchase Agreement. The base purchase price for the California Cable Systems was $286 million, subject to certain adjustments including an operating cash flow, as well as, a working capital adjustment, as provided in the Asset Purchase Agreement. On August 15, 1996, Registrant made a cash distribution to limited partners of record on May 31, 1996, of approximately $108.1 million ($575 per Unit) and approximately $1.1 million to its General Partner, representing its 1% share, from net distributable sales proceeds from the sale of the California Cable Systems. Pursuant to the Asset Purchase Agreement and a letter agreement, entered into by Registrant and Century at closing, Registrant deposited $5 million into an indemnity escrow account pending the resolution of certain rate regulation and other matters relating to charges by Registrant to its subscribers for cable service. On June 3, 1997, Registrant received the release of such escrowed proceeds ($5 million and approximately $300,000 of interest earned thereon) generated from the sale of the California Cable Systems. This release of escrowed proceeds, after accounting for certain expenses of Registrant, was included in a cash distribution made to partners on November 25, 1997, in accordance with the terms of the Partnership Agreement. In addition, upon closing of the sale of the California Cable Systems, Registrant set aside approximately $40.7 million in a cash reserve to cover operating liabilities, current litigation, and litigation contingencies relating to the California Cable Systems' operations prior to and resulting from their sale, as well as a potential purchase price adjustment. In accordance with the terms of the Partnership Agreement, any amounts which may be available for distribution from any unused cash reserves, after accounting for certain other expenses of Registrant including certain expenses incurred after May 31, 1996, will be distributed to partners of record as of the date such unused reserves are released, when Registrant determines such reserves are no longer necessary, rather than to the partners of record on May 31, 1996, the date of the sale. Effective August 14, 1997, reserves in the amount of approximately $13.2 million were released and, after accounting for certain expenses of Registrant, in accordance with the terms of the Partnership Agreement, were included in the cash distribution that was distributed to partners on November 25, 1997. As of December 26, 1997, Registrant has approximately $23.3 million remaining in cash reserves to cover operating liabilities, current litigation, and litigation contingencies relating to the California Cable Systems prior to and resulting from their sale. Upon closing, a portion of the sales proceeds of the California Cable Systems were allocated to pay approximately $9.2 million to the General Partner for accrued management fees and expenses as of the date of sale; of this amount, approximately $7.6 million was paid through December 26, 1997. In addition, upon the August 14, 1997 release of reserves, a portion of the reserve was allocated to pay approximately $3.5 million to the General Partner for accrued management fees and expenses as of such date. During 1996, until its sale on May 31, 1996, California Cable Systems generated operating revenues of $24,085,663 (33.5% of operating revenues of Registrant). During 1995, California Cable Systems generated operating revenues of $57,115,752 (52.3% of operating revenues of Registrant). WREX Television Station On April 29, 1987, Registrant entered into an acquisition agreement with Gilmore Broadcasting Corporation, a Delaware corporation ("Gilmore"), for the acquisition by Registrant of substantially all the assets of television station WREX-TV, Rockford, Illinois ("WREX-TV" or "WREX"). The acquisition was consummated on August 31, 1987 for $18 million. On July 31, 1995, Registrant completed the sale to Quincy Newspapers, Inc. ("Quincy") of substantially all of the assets used in the operations of Registrant's television station WREX, other than cash and accounts receivable. The purchase price for the assets was approximately $18.4 million, subject to certain adjustments. A reserve of approximately $2.3 million was established to cover certain purchase price adjustments and expenses and liabilities relating to WREX, and the balance of approximately $16.1 million was applied to repay a portion of the bank indebtedness secured by the assets of WREX and KATC (as defined below). Quincy did not assume certain liabilities of WREX and Registrant will remain liable for such liabilities. On the sale of WREX, Registrant recognized a gain for financial reporting purposes of approximately $8.8 million in 1995. Effective August 14, 1997 approximately $1.8 million, a portion of the reserve established at the time of the WREX-TV sale, was released. In accordance with the terms of the Partnership Agreement, such released reserve amounts, after accounting for certain expenses of Registrant, were included in the cash distribution made to partners on November 25, 1997. In addition, effective December 26, 1997 the remaining reserve established at the time of the WREX sale of approximately $161,000 was released. Thus, during 1997, Registrant recognized a gain on sale of WREX of approximately $2.0 million resulting from the release of reserves and reversal of previous accruals. During 1995, until its sale on July 31, 1995, WREX generated operating revenues of $3,053,336 (2.8% of operating revenues of Registrant). KATC Television Station On September 17, 1986, Registrant entered into an acquisition agreement with Loyola University, a Louisiana non-profit corporation ("Loyola"), for the acquisition by Registrant of substantially all the assets of television station KATC-TV, Lafayette Louisiana ("KATC-TV" or "KATC"). The acquisition was completed on February 2, 1987 for a purchase price of approximately $26.7 million. On September 30, 1995, Registrant completed the sale to KATC Communications, Inc. (the "KATC Buyer") of substantially all of the assets used in the operations of Registrant's television station KATC, other than cash and accounts receivable. The KATC Buyer did not assume certain liabilities of KATC and Registrant will remain liable for such liabilities. The purchase price for the assets was $24.5 million. From the proceeds of the sale, approximately $6.3 million was applied to repay in full the remaining bank indebtedness secured by the assets of KATC and WREX; a reserve of approximately $2.0 million was established to cover certain purchase price adjustments and expenses and liabilities relating to KATC; $1.0 million was deposited into an indemnity escrow account to secure Registrant's indemnification obligations to the KATC Buyer; approximately $7.6 million was applied to pay a portion of accrued fees and expenses owed to the General Partner; and the remaining amount of approximately $7.6 million ($40 per Unit) was distributed to partners in December, 1995. Registrant recognized a gain for financial reporting purposes of approximately $14.0 million on the sale of KATC in 1995. On June 24, 1997, Registrant received the release of escrowed proceeds of $1.0 million (and approximately $100,000 of interest earned thereon) generated from the sale of KATC. In addition, effective August 14, 1997, approximately $1.5 million, a portion of the reserve established at the time of the KATC sale, was released. In accordance with the terms of the Partnership Agreement, the amount of such released reserve and escrowed proceeds, after accounting for certain expenses of Registrant, were included in the cash distribution made to partners on November 25, 1997. In addition, effective December 26, 1997, the remaining reserve established at the time of the KATC sale of approximately $218,000 was released. Thus, during 1997, Registrant recognized a gain on sale of KATC of approximately $1.7 million resulting from the release of reserves and reversal of previous accruals. During 1995, until its sale on September 30, 1995, KATC generated operating revenues of $5,263,423 (4.8% of operating revenues of Registrant). WEBE-FM Radio On August 20, 1987, Registrant entered into an Asset Purchase Agreement with 108 Radio Company, L.P., for the acquisition of the business and assets of radio station WEBE-FM, Westport, Connecticut ("WEBE-FM" or "WEBE") which serves Fairfield and New Haven counties for $12.0 million. During 1997, WEBE-FM generated operating revenues of $7,851,792 (14.8% of operating revenues of Registrant). During 1996, WEBE-FM generated operating revenues of $6,519,197 (9.1% of operating revenues of Registrant). During 1995, WEBE-FM generated operating revenues of $5,949,654 (5.5% of operating revenues of Registrant). Wincom On August 26, 1988, Registrant acquired 100% of the stock of Wincom Broadcasting Corporation ("Wincom"), an Ohio corporation headquartered in Cleveland for $46.0 million. At acquisition, Wincom and its subsidiaries owned and operated five radio stations - WQAL-FM, Cleveland, Ohio; WCKN-AM/WRZX-FM, Indianapolis, Indiana (the "Indianapolis Stations", including the Indiana University Sports Radio Network, which was discontinued after the first half of 1992); KBEZ-FM, Tulsa, Oklahoma; and WEJZ- FM, Jacksonville, Florida. On July 31, 1990, Registrant sold the business and assets of KBEZ-FM and WEJZ-FM to Renda Broadcasting Corp. for net proceeds of approximately $10.3 million. On October 1, 1993, Registrant sold the Indianapolis stations which generated net proceeds in the approximate amount of $6.1 million. All proceeds of the sales were paid to the lender. During 1997, Wincom generated operating revenues of $6,995,768 (13.1% of operating revenues of Registrant). During 1996 Wincom generated operating revenues of $5,428,648 (7.6% of operating revenues of Registrant). During 1995, Wincom generated operating revenues of $5,079,292 (4.7% of operating revenues of Registrant). WICC-AM On July 19, 1989, Registrant purchased all of the assets of radio station WICC-AM located in Bridgeport, Connecticut ("WICC-AM or "WICC") from Connecticut Broadcasting Company, Inc. The purchase price of $6.25 million was financed solely from proceeds of the Wincom-WEBE-WICC Loan. During 1997, WICC-AM generated operating revenues of $2,969,144 (5.6% of operating revenues of Registrant). During 1996, WICC-AM generated operating revenues of $2,494,402 (3.5% of operating revenues of Registrant). During 1995, WICC-AM generated operating revenues of $2,397,808 (2.2% of operating revenues of Registrant). Wincom-WEBE-WICC Loan On July 19, 1989, Registrant entered into an Amended and Restated Credit Security and Pledge Agreement which provided for borrowings up to $35.0 million for use in connection with Wincom- WEBE-WICC (the "Wincom-WEBE-WICC Loan"). On July 30, 1993, Registrant and Chemical Bank (the "Wincom Bank") executed an amendment to the Wincom-WEBE-WICC Loan (the "Restructuring Agreement"), effective January 1, 1993, which cured all previously outstanding defaults pursuant to the Wincom-WEBE-WICC Loan. As of December 31, 1997, Registrant was in default on the Wincom-WEBE-WICC Loan. Registrant and the Wincom Bank are negotiating the terms of a waiver of the default and an amendment to the Wincom-WEBE-WICC Loan that would, among other things, extend the maturity date of the loans to June 30, 1999. Registrant expects to either enter into such amendment or to repay the full amount of principal and interest due under the loan in 1998. Refer to Note 5 of "Item 8. Financial Statements and Supplementary Data" for further information regarding the Wincom-WEBE-WICC Loan. Anaheim Radio Stations On November 16, 1989, Registrant acquired KORG-AM ("KORG")and KEZY-FM ("KEZY") (jointly the "Anaheim Radio Stations" or "KORG/KEZY") located in Anaheim, California, from Anaheim Broadcasting Corporation. The total acquisition cost was approximately $15.1 million. During 1997, the Anaheim Radio Stations generated operating revenues of $3,950,833 (7.4% of operating revenues of Registrant). During 1996, the Anaheim Radio Stations generated operating revenues of $3,750,442 (5.2% of operating revenues of Registrant). During 1995, the Anaheim Radio Stations generated operating revenues of $3,455,853 (3.1% of operating revenues of Registrant). Employees. As of December 26, 1997, Registrant and its consolidated subsidiaries employed approximately 409 persons. The business of Registrant is managed by the General Partner. RPMM, MLMM and ML Leasing Management Inc., all affiliates of the General Partner, employ individuals who perform the management and administrative services for Registrant. COMPETITION. Cable Television Cable television systems compete with other communications and entertainment media, including off-air television broadcast signals that a viewer is able to receive directly using the viewer's own television set and antenna. The extent of such competition is dependent in part upon the quality and quantity of such off-air signals. In the areas served by Registrant's systems, a substantial variety of broadcast television programming can be received off-air. In those areas, the extent to which cable television service is competitive depends largely upon the system's ability to provide a greater variety of programming than that available off-air and the rates charged by Registrant's cable systems for programming. Cable television systems also are susceptible to competition from other multichannel video programming distribution ("MVPD") systems, from other forms of home entertainment such as video cassette recorders, and in varying degrees from other sources of entertainment in the area, including motion picture theaters, live theater and sporting events. In recent years, the level of competition in the MVPD market has increased significantly. Notably, several entities provide high- powered direct broadcast satellite ("DBS") service in the continental United States. In addition, the FCC has adopted polices providing for authorization of new technologies and a more favorable operating environment for certain existing technologies which provide, or have the potential to provide, substantial additional competition to cable television systems. For example, the FCC has revised its rules on multi-channel multi-point distribution service ("MMDS" or "wireless cable") to foster MMDS services competitive with cable television systems, has authorized certain telephone companies to deliver directly to their subscribers video programming over enhanced telephone facilities, and recently authorized a new service, the local multipoint distribution service ("LMDS"), which will employ technology analogous to that used by cellular telephone systems to distribute multiple channels of video programming and other data directly to subscribers. Moreover, the Telecommunications Act of 1996 (the "1996 Act") substantially reformed the Communications Act of 1934, as amended (the "Communications Act") by, among other things, permitting telephone companies to enter the MVPD market through a number of means, including in-region cable systems. Regulatory initiatives that will result in additional competition for cable television systems are described in the following sections. Radio Industry The radio industry is highly competitive and dynamic, and reaches a larger portion of the population than any other medium. There are generally several stations competing in an area and most larger markets have twenty or more viable stations; however, stations tend to focus on a specific target market by programming music or other formats that appeal to certain demographically specific audiences. As a result of these factors, radio is an effective medium for advertisers as it can have mass appeal or be focused on a specific market. While radio has not been subject to an erosion in market share such as that experienced by broadcast television, it was also subject to the depressed nationwide advertising market at the beginning of this decade. Recent changes in FCC multiple ownership rules have led to more concentration in some local radio markets as a single party is permitted to own additional stations or provide programming and sell advertising on stations it does not own. The provisions of the 1996 Act eliminating national ownership caps and easing local ownership caps have accelerated this trend, as described more fully below. Registrant is subject to significant competition, in many cases from competitors whose media properties are larger than Registrant's media properties. LEGISLATION AND REGULATION. Cable Television Industry The cable television industry is extensively regulated by the federal government, some state governments and most local franchising authorities. In addition, the Copyright Act of 1976 (the "Copyright Act") imposes copyright liability on all cable television systems for their primary and secondary transmissions of copyrighted programming. The regulation of cable television systems at the federal, state and local levels is subject to the political process and has been in constant flux over the past decade. This process continues to generate proposals for new laws and for the adoption or deletion of administrative regulations and policies. Further material changes in the law and regulatory requirements, especially as a result of both the 1996 Act and the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), must be expected. There can be no assurance that the Registrant's cable systems will not be adversely affected by future legislation, new regulations or judicial or administrative decisions. The following is a summary of federal laws and regulations materially affecting the cable television industry and a description of certain state and local laws with which the cable industry must comply. Federal Statutes The 1992 Cable Act imposed certain uniform national standards and guidelines for the regulation of cable television systems. Among other things, the legislation regulates the provision of cable television service pursuant to a franchise, specifies a procedure and certain criteria under which a cable television operator may request modification of its franchise, establishes criteria for franchise renewal, sets maximum fees payable by cable television operators to franchising authorities, authorizes a system for regulating certain subscriber rates and services, outlines signal carriage requirements, imposes certain ownership restrictions, and sets forth customer service, consumer protection, and technical standards. The 1996 Act's cable provisions expanded and in some cases significantly modified the rules established by the 1992 Cable Act. Most significantly, the 1996 Act took steps to reduce, or in some cases eliminate, rate regulation of cable systems, while also allowing substantially greater telephone company participation in the MVPD market, as well as promoting cable operator provision of telecommunications services. Violations of the Communications Act or any FCC regulations implementing the statutory laws can subject a cable operator to substantial monetary penalties and other sanctions. Federal Regulations Federal regulation of cable television systems under the Communications Act is conducted primarily through the FCC, although, as discussed below, the Copyright Office also regulates certain aspects of cable television system operation. Among other things, FCC regulations currently contain detailed provisions concerning non- duplication of network programming, sports program blackouts, program origination, ownership of cable television systems and equal employment opportunities. There are also comprehensive registration and reporting requirements and various technical standards. Moreover, pursuant to the 1992 Cable Act, the FCC has, among other things, established regulations concerning mandatory signal carriage and retransmission consent, consumer service standards, the rates for service, equipment, and installation that may be charged to subscribers, and the rates and conditions for commercial channel leasing. The FCC also issues permits, licenses or registrations for microwave facilities, mobile radios and receive-only satellite earth stations, all of which are commonly used in the operation of cable systems. The FCC is authorized to impose monetary fines upon cable television systems for violations of existing regulations and may also suspend licenses and other authorizations and issue cease and desist orders. It is likewise authorized to promulgate various new or modified rules and regulations affecting cable television, many of which are discussed in the following paragraphs. The 1992 Cable Act and the 1996 Act The 1992 Cable Act clarified and modified certain provisions of the Cable Communications and Policy Act of 1984 ("1984 Cable Act"). It also codified certain FCC regulations and added a number of new requirements. Subsequent to the passage of the 1992 Cable Act, the FCC undertook a substantial number of complicated rulemaking proceedings resulting in a host of new regulatory requirements or guidelines. Several of the provisions of the 1992 Cable Act and certain FCC regulations implemented pursuant thereto are still being tested in court. At the same time, a number of provisions have been modified by the 1996 Act. Registrant cannot predict the result of any pending or future court challenges or the shape any still-pending or proposed FCC regulations may ultimately take, nor can Registrant predict the effect of either on its operations. As discussed in greater detail elsewhere in this filing, some of the principal provisions of the 1992 Cable Act include: (1) a mandatory carriage requirement coupled with alternative provisions for retransmission consent as to over-the-air television signals; (2) rate regulations that completely replace the rate provisions of the 1984 Cable Act; (3) consumer protection provisions; (4) a three-year ownership holding requirement; (5) some clarification of franchise renewal procedures; and (6) FCC authority to examine and set limitations on the horizontal and vertical integration of the cable industry. Of these provisions, the 1996 Act sunset certain of the rate regulations in March 1999 and eliminated the three-year ownership requirement. Other provisions of the 1992 Cable Act include: (1) a prohibition on "buy-throughs," an arrangement whereby subscribers are required to subscribe to a program tier other than basic in order to receive certain per-channel or per-program services; (2) requiring the FCC to develop minimum signal standards, rules for the disposition of home wiring upon termination of cable service, and regulations regarding compatibility of cable service with consumer television receivers and video cassette recorders; (3) a requirement that the FCC promulgate rules limiting children's access to indecent programming on access channels; (4) notification requirements regarding sexually explicit programs; and (5) more stringent equal employment opportunity rules for cable operators. Of these provisions, the 1996 Act addresses cable equipment compatibility, as further discussed below. The 1992 Cable Act also contains a provision barring both cable operators and certain vertically integrated program suppliers from engaging in practices which unfairly impede the availability of programming to other multichannel video programming distributors. In sum, the 1992 Cable Act established an entirely new set of regulatory requirements and standards. It is an unusually complicated and sometimes confusing legislative enactment that spawned a multitude of FCC enforcement decisions as well as certain still-to-be concluded FCC proceedings. It also remains subject to certain pending judicial challenges. Adding to the complexity is the 1996 Act, which in some areas mandates additional regulation to that required by the 1992 Cable Act and in other areas modifies or eliminates extant cable laws. Pursuant to the 1992 Cable Act, the FCC promulgated rules and regulations governing the following areas: indecency on leased access channels, obscenity on public, educational and governmental ("PEG") channels, mandatory carriage and retransmission consent of over-the- air broadcast signals, home wiring, equal employment opportunity, tier "buy-throughs," customer service standards, cable television ownership standards, program access, carriage of home shopping stations, and rate regulation. Most of these new regulations went into effect by 1994. However, in November 1993, a three-judge panel of the United States Court of Appeals for the D.C. Circuit found the indecency rules to be unconstitutional and remanded them to the Commission. Subsequently, the United States Court of Appeals for the D.C. Circuit vacated the panel decision pending rehearing and a decision by the full court. On rehearing, the en banc court sustained the Commission's regulations. The Supreme Court ultimately affirmed the provision allowing cable operators to decide whether to carry indecent programming on leased access channels but struck down provisions that would have (i) allowed cable operators to decide whether to carry such programming on PEG channels; and (ii) required cable operators to segregate and block indecent programming allowed on lease access channels. The latter two provisions were struck down on First Amendment grounds for being insufficiently tailored to achieve the legitimate governmental objective of protecting children from exposure to "patently offensive" programming. On March 31, 1997, the Supreme Court, in a 5-4 decision, upheld the must carry provisions of the 1992 Cable Act, finding them to be content-neutral regulations that advance important governmental interests unrelated to the suppression of free speech. The must carry rules promulgated by the Commission to implement the must carry provisions were in effect pending the outcome of the appellate process and will thus remain in effect. On a separate matter, in September 1993 the United States District Court for the District of Columbia found that the horizontal ownership limits called for by the 1992 Cable Act are unconstitutional. The Commission voluntarily stayed the effect of its horizontal ownership rules until final judicial resolution of the issue. Thereafter, petitions for reconsideration were filed with the Commission. In August 1996, the United States Court of Appeals for the District of Columbia Circuit consolidated the appeal of the statutory provision with an appeal of the rules and determined to hold judicial proceedings in abeyance pending the FCC's action on the petitions for reconsideration of the rules. Accordingly, the Commission will be required to review the rules while the constitutionality of the underlying statutes remains unresolved. Registrant is unable to predict the ultimate outcome of these proceedings or the impact upon its operations of various FCC regulations still being formulated and/or interpreted. As previously noted, under the broad statutory scheme, cable operators are subject to a two-level system of regulation with some matters under federal jurisdiction, others subject strictly to local regulation, and still others subject to both federal and local regulation. Following are descriptions of some of the more significant regulatory areas of concern to cable operators. Franchises The 1984 Cable Act affirmed the right of franchising authorities to award one or more franchises within their jurisdictions and prohibited future cable television systems from operating without a franchise. The 1992 Cable Act provided that franchising authorities may not grant an exclusive franchise or unreasonably deny award of a competing franchise. The 1984 Cable Act also provided that in granting or renewing franchises, franchising authorities may establish requirements for cable-related facilities and equipment but may not specify requirements for video programming or information services other than in broad categories. Under the 1992 Cable Act, franchising authorities are now exempt from money damages in cases involving their exercise of regulatory authority, including the award, renewal, or transfer of a franchise, except for cases involving discrimination on race, sex, or similar impermissible grounds. Remedies are limited exclusively to injunctive or declaratory relief. Franchising authorities may also build and operate their own cable systems without a franchise. The 1984 Cable Act permitted local franchising authorities to require cable operators to set aside certain channels for PEG access programming and to impose a franchise fee of up to 5% of gross annual system revenues. The 1984 Cable Act further required cable television systems with 36 or more channels to designate a portion of their channel capacity for commercially leased access by third parties, which generally is available to commercial and non-commercial parties to provide programming (including programming supported by advertising). As required by the 1992 Cable Act, the FCC adopted rules setting maximum reasonable rates and other terms for the use of such leased channels. In January 1997, the FCC released an order that established a new formula for setting leased access rates. It is anticipated that the new formula will lower the rates programmers must pay to lease capacity on cable systems. The FCC has jurisdiction to resolve disputes over the provision of leased access. The 1996 Act modified the definition of a "cable system" by expanding the so-called "private cable" exemption so that a system serving subscribers without using any public rights-of-way is not a cable system, and need not obtain a local franchise. In 1992, the FCC permitted local exchange carriers to engage in so- called "video dialtone" operations in their local telephone exchange areas pursuant to which neither they nor the programming entities they serve are required to obtain a local cable franchise. However, the 1996 Act repealed the FCC's video dialtone rules and, among other things, enacted a related "open video system" regulation regime. Rate Regulation Under the 1992 Cable Act, cable systems' rates for service and related subscriber equipment are subject to regulation by the FCC and local franchising authorities. However, only the rates of cable systems that are not subject to "effective competition" may be regulated. A cable system is subject to effective competition if one of the following conditions is met: (1) fewer than 30% of the households in the franchise area subscribe to the system; (2) at least 50% of the households in the franchise area are served by two MVPDs and at least 15% of the households in the franchise area subscribe to any MVPD other than the dominant cable system; or (3) a franchising authority for that franchise area itself serves as an MVPD offering service to at least 50% of the households in the franchise area. The 1996 Act added a fourth condition: the mere offering (regardless of penetration) by a local exchange carrier, or an entity using the local exchange carrier's ("LEC") facilities, of video programming services (including 12 or more channels of programming, at least some of which are television broadcasting signals) directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator. Pursuant to FCC rules, the Telecommunications Regulatory Board of Puerto Rico (the "Board") filed for certification to regulate the rates of the cable system operated by the Venture. The cable system operator contested the certification, claiming that it was subject to effective competition, and therefore exempt from rate regulation, because fewer that 30 percent of the households in the system's franchise area subscribe to the system. The Commission denied the operator's petition and the cable operator has filed an application for review of the decision, as well as a request for stay. Under FCC rules, a cable system remains subject to rate regulation until the FCC finds that effective competition exists. The franchising authority for the San Juan Cable System in Puerto Rico has been authorized by the FCC to regulate the basic cable service and equipment rates and charges of the system. The franchising authority has not yet sent a notice to the system to initiate rate regulation. Regulation may result in reduced revenues going forward and in refunds to customers for charges above those allowed by the FCC's rate regulations for up to 12 months retroactively from when the new rates are initiated or the franchising authority issues a potential refund accounting order. Registrant is currently assessing the impact of this regulation. Under the 1992 Cable Act, a local franchising authority may certify with the FCC to regulate the Basic Service Tier ("BST") and associated subscriber equipment of a cable system within its jurisdiction. By law, the BST must include all broadcast signals (with the exception of national "superstations"), including those required to be carried under the mandatory carriage provisions of the 1992 Cable Act, as well as PEG access channels required by the franchise. The FCC has jurisdiction over the cable programming service tier ("CPST"), which generally includes programming other than that carried on the BST or offered on a per-channel or per-program basis. The 1996 Act, however, confines rate regulation to the BST after three years: on March 31, 1999, the CPST will be exempted from regulation. The 1996 Act also modified the rules governing the filing of complaints for rate increases on the CPST. Under the former procedures, mandated by the 1992 Cable Act, subscribers were allowed to file complaints directly with the FCC. Under the new procedure, only a local franchising authority may file an FCC complaint, and then only if the franchising authority receives "subscriber complaints" within 90 days of the effective date of a rate increase. The FCC must issue a final order within 90 days after receiving a franchising authority's complaint. The FCC's rate regulations generally required regulated cable systems to use an FCC-prescribed "benchmark" approach to set initial rates for BSTs and CPSTs. Cable systems ultimately were required to reduce their rates by approximately 17% from the rates in effect on September 30, 1992. Certain modifications of the rules were made for low-price cable systems and systems owned by small operators (operators with a total subscriber base of 15,000 or less and not affiliated with or controlled by another operator). The United States Court of Appeals has upheld these regulations, but these and other rate regulations may be subject to further judicial review, and may be altered by ongoing FCC rulemaking and case-by-case review. Alternatively, cable operators may seek to have their rates regulated under a "cost-of-service" approach, which, much like the method historically used to regulate the rates of local exchange carriers, allows cable system operators to recover through regulated rates their normal operating expenses, and a reasonable return on investment. The final cost-of-service rules ultimately adopted by the FCC: (1) establish an industry-wide 11.25% rate of return, (but the Commission has proposed to use a cable system's actual debt cost and capital structure to determine its final rate of return); (2) establish a rebuttable presumption that 34% of the purchase price of cable systems purchased prior to May 15, 1994 (and not just the portion of the price allocable to intangibles) must be excluded from the rate base; and (3) replaced the presumption of a two-year period for accumulated start-up losses with a case-by-case determination of the appropriate period. The 1996 Act restricted the FCC from disallowing certain operator losses for cost-of-service filings. There are no threshold requirements limiting the cable systems eligible for a cost-of-service showing except that, once rates have been set pursuant to a cost-of- service approach, cable systems may not file a new cost-of-service showing to justify new rates for a period of two years. Having set an initial permitted rate for regulated service using one of the above methodologies, a cable system may adjust its rate going forward either quarterly or annually under the FCC's "price cap" mechanism, which accounts for inflation, changes in "external costs," and changes in the number of regulated channels. External costs include state and local taxes applicable to the provision of cable television service, franchise fees, the costs of complying with certain franchise requirements, annual FCC regulatory fees and retransmission consent fees and copyright fees incurred for the carriage of broadcast signals. In addition, a cable system may treat as external (and thus pass through to its subscribers) the costs, plus a 20 cent per channel mark-up, for channels newly added to a CPST. Through 1997, each cable system was subject to an aggregate cap on the amount it may increase CPST rates due to channel additions. The FCC has also adopted "tier flexibility" rules that allow cable operators to reduce BST rates and take a corresponding, revenue neutral, increase in CPST rates. The FCC's regulatory treatment of "a la carte" packages of channels has been a source of particular regulatory uncertainty for many cable systems. Under the 1992 Cable Act, per-channel and per-program offerings ("a la carte" channels) are exempt from rate regulation. In implementing rules pursuant to the 1992 Cable Act, the FCC likewise exempted from rate regulation packages of a la carte channels if certain conditions were met. Upon reconsideration, however, the FCC tightened its regulatory treatment of these a la carte packages by supplementing its initial conditions with a number of additional criteria designed to ensure that cable systems creating collective a la carte offerings do not improperly evade rate regulation. The FCC later reversed its approach to a la carte packages by ruling that all non-premium packages of channels -- even if also available on an a la carte basis -- would be treated as a regulated tier. To ease the negative effect of these policy shifts on cable systems (and to further mitigate the rate regulations' disincentive for adding new program services) the FCC at the same time adopted rules allowing systems to create currently unregulated "new products tiers", provided that the fundamental nature of preexisting regulated tiers is preserved. The charges for subscriber equipment and installation also are regulated by the FCC and local franchising authorities. FCC rules require that charges for converter boxes, remote control units, connections for additional television receivers, and cable installations must be based on a cable system's actual costs, plus an 11.25% rate of return. The regulations further dictate that the charges for each variety of subscriber equipment or installation charge be listed individually and "unbundled" from the charges for cable service. Pursuant to the 1996 Act, the FCC revised its rules to permit cable operators to aggregate, on a franchise, system, regional, or company level, their equipment costs into broad categories (except for equipment used only to receive a rate regulated basic service tier). In accordance with the intent of the 1992 Cable Act, the FCC has established special rate and administrative treatment for small cable systems and small cable companies. In addition to transition rate relief and streamlined rate reduction approaches to setting initial permitted rates, the Commission has provided for the following relief mechanisms for small cable systems and companies: (1) a simplified cost-of-service approach for small systems owned by small companies in which a per-channel rate below $1.24 is considered presumptively reasonable; and (2) a system of any size owned by a small cable company that incurs additional monthly per subscriber headend costs of one full cent or more for the addition of a channel may recover a 20 cent mark-up, the license fee (if any) for the channel, as well as the actual cost of the headend equipment necessary to add new channels (not to exceed $5,000 per channel) for adding not more than seven new channels through 1997. By these actions, the FCC stated that it has expanded the category of systems eligible for special rate and administrative treatment to include approximately 66% of all cable systems in the United States serving approximately 12% of all cable subscribers. The 1996 Act further deregulated small cable companies: under the 1996 Act, an operator that, directly or through an affiliate, serves fewer than 1% of all subscribers in the United States (approximately 600,000 subscribers) and is not affiliated with an entity whose gross annual revenues exceed $250 million is exempt from rate regulation of the CPST and also of the BST (provided that the basic tier was the only tier subject to regulation as of December 31, 1994) in any franchise area in which that operator serves 50,000 or fewer subscribers. Beginning in late 1995, the FCC demonstrated an increased willingness to settle some or all of the rate cases pending against a multiple system operator ("MSO") by entering into a "social contract" or rate settlement (collectively "social contract/settlement"). While the terms of each social contract/settlement vary according to the underlying facts unique to the relevant cable systems, the common elements include an agreement by an MSO to make a specified subscriber refund (generally in the form of in-kind service or a billing credit) in exchange for the dismissal, with prejudice, of pending complaints and rate proceedings. In addition, the FCC has adopted or proposed measures that may mitigate the negative effect of the Commission's rate regulations on cable systems' revenues and profits, and allow systems to more efficiently market cable service. The FCC implemented an abbreviated cost-of-service mechanism for cable systems of all sizes that permits systems to recover the costs of "significant" upgrades (e.g., expansion of system bandwidth capacity) that provide benefits to subscribers to regulated cable service. This mechanism could make it easier for cable systems to raise rates to cover the costs of an upgrade. The Commission also has proposed an optional rate-setting methodology under which a cable operator serving multiple franchise areas could establish uniform rates for uniform cable service tiers offered in multiple franchise areas. The 1996 Act also provided operator flexibility for subscriber notification of rate and service changes, permitting cable operators to use "reasonable" written means to notify subscribers of rate and service changes; notice need not be inserted in subscriber bills. Prior notice of a rate change is not required for any rate change that is the result of regulatory fee, franchise fee, or any other fee, tax, assessment, or change of any kind imposed by a regulator or on the transaction between a cable operator and a subscriber. The FCC has adopted rules implementing a number of provisions of the 1996 Act and is considering the adoption of others. Pending before the FCC is a petition calling for a freeze on cable rates and increased rate regulation. Congress has also expressed some interest in cable rates and programming costs. In addition, the Chairman of the FCC has expressed concern that the March 31, 1999 sunset for regulation of CPST rates may be unrealistic given that competition to cable has not developed as rapidly as expected following enactment of the 1996 Act. Registrant cannot predict the outcome of FCC or congressional action on these issues. Renewal and Transfer The 1984 Cable Act established procedures for the renewal of cable television franchises. The procedures were designed to provide incumbent franchisees with a fair hearing on past performances, an opportunity to present a renewal proposal and to have it fairly and carefully considered, and a right of appeal if the franchising authority either fails to follow the procedures or denies renewal unfairly. These procedures were intended to provide an incumbent franchisee with substantially greater protection than previously available against the denial of its franchise renewal application. A federal district court in Kentucky, however, upheld a city's denial of franchise renewal because the incumbent cable operator's renewal proposal failed to meet community needs and interests, which the court gave city officials broad discretion in determining. On February 24, 1997, the United States Court of Appeals for the Sixth Circuit upheld the denial of the franchise. The 1992 Cable Act sought to address some of the issues left unresolved by the 1984 Cable Act. It established a more definite timetable in which the franchising authority is to act on a renewal request. It also narrowed the range of circumstances in which a franchised operator might contend that the franchising authority had constructively waived non-compliance with its franchise. Cable system operators are sometimes confronted by challenges in the form of proposals for competing cable franchises in the same geographic area, challenges which may arise in the context of renewal proceedings. In Rolla Cable Systems v. City of Rolla, a federal district court in Missouri in 1991 upheld a city's denial of franchise renewal to an operator whose level of technical services was found deficient under the renewal standards of the 1984 Cable Act. Local franchising authorities also have, in some circumstances, proposed to construct their own cable systems or decided to invite other private interests to compete with the incumbent cable operator. Judicial challenges to such actions by incumbent system operators have, to date, generally been unsuccessful. Registrant cannot predict the outcome or ultimate impact of these or similar franchising and judicial actions. The 1996 Act repealed the anti-trafficking rules of the 1992 Cable Act. Those rules generally prohibited a cable operator from selling a cable system within three years of acquiring or constructing it. Pursuant to the 1992 Cable Act, however, where local consent to a transfer is required, the franchise authority must act within 120 days of submission of a transfer request or the transfer is deemed approved. The 120-day period commences upon the submission to local franchising authorities of information now required on a new standardized FCC transfer form. The franchise authority may request additional information beyond that required under FCC rules. Further, the 1992 Cable Act gave local franchising officials the authority to prohibit the sale of a cable system if the proposed buyer operates another cable system in the jurisdiction or if such sale would reduce competition in cable service. Cable/Telephone Competition and Cross-Ownership Restrictions Prior to the passage of the 1996 Act, an LEC was generally prohibited from owning a cable television system or offering video programming directly to subscribers in the LEC's local telephone service area. This cross-ownership ban had been the subject of a number of successful judicial challenges brought by LECs claiming that the ban violated their constitutional right of free speech. The 1996 Act completely revised the law governing cable and telephone company competition and cross-ownership: the 1996 Act eliminated the cable/telco cross-ownership ban, 214 certification requirement, and all of the FCC's video dialtone ("VDT") rules, but retained (in modified form) the prohibitions on cable/telco buy-outs. In place of these repealed regulations, the 1996 Act gave telephone companies four options for entering into the MVPD market, all four of which are subject to the buy-out provisions: (1) wireless entry (which is not subject to cable regulation); (2) common carrier entry (which is subject to Title II common carrier regulation, but not subject to cable regulation); (3) cable system entry (which is subject to cable regulation); and (4) "open video system" entry, which is a new mode of entry established by the 1996 Act that allows a common carrier to program 33% of its video distribution system, while making the rest of its capacity available to unaffiliated program providers. The hybrid common carrier/cable rules governing open video systems entirely replace the VDT rules. The 1996 Act also provided that elimination of the VDT rules does not require a VDT system that had already been approved by the FCC prior to the enactment of the 1996 Act to terminate operation, although the FCC required such entities to choose one of the four options for regulation available under the 1996 Act. The open video system rules generally subject open video system operators to reduced regulation. For example, such operators are not required to obtain a local franchise, nor are they subject to rate regulation. The FCC has noted, however, that local authorities still maintain control over their rights of way even after the FCC has certified that an entity may operate an open video system. The 1996 Act also limited fees that open video system operators may have to pay to local franchises and clarifies that such operators are not subject to Title II common carrier requirements. Open video system operators, which may include entities other than LECs, are required, however, to comply with certain cable regulations, including the must- carry/retransmission consent requirements and the rules governing carriage of PEG channels. Cable companies are, in certain circumstances, also permitted to operate open video systems. The FCC's new open video system rules: (1) restrict the amount of capacity that a carrier or its affiliates may use to provide programming directly to subscribers; (2) prohibit an open video systems ("OVS") operator from discriminating among video programming providers with regard to carriage; (3) permit an OVS operator to carry on only one channel any video programming service that is offered by more than one programming provider; and (4) prohibit an OVS operator from unreasonably discriminating in favor of itself and its affiliates with regard to material or information provided for the purpose of selecting programming or presenting information to subscribers. Although telephone companies may now provide video programming to their telephone subscribers, the 1996 Act maintains the general prohibition on cable/telco buy-outs. A LEC or any affiliate may not acquire more than a 10% financial interest, or any management interest, in a cable operator serving the LEC's telephone service area. Similarly, a cable operator may not acquire a 10% financial interest, or any management interest, in a LEC providing telephone exchange service within the cable operator's franchise area. Joint ventures between LECs and cable operators to provide video or telecommunications in the same market are also prohibited. The 1996 Act provided for a number of limited exceptions to the buy-out and joint venture prohibitions. These exceptions generally relate to systems in rural areas and small cable systems and LECs. The 1996 Act also authorized the FCC to waive the buy-out and joint venture prohibitions only: (1) if the cable operator or LEC would otherwise be subject to undue economic distress or if benefits to the community clearly outweigh the anticompetitive effects of the proposed transaction; and (2) if the local franchising authority approves of the waiver. The 1996 Act also cleared the way for cable provision of telephony. For example, the 1996 Act preempted cable franchising authority regulation of telecommunications services. Moreover, under the 1996 Act, Title VI (which governs cable operators) does not apply to cable operators' provision of telecommunications services. The 1996 Act also clarified that franchise fees do not include gross revenue derived from the provision of telecommunications services. State regulations that may prohibit the ability to provide telecommunications services are preempted. The 1996 Act also revised the rules governing pole attachments in order to foster competitive telecommunications services and remedy inequity in the current charges for pole attachments. The FCC is considering proposed revisions to its pole attachment rules. Concentration of Ownership: The 1992 Cable Act directed the FCC to establish reasonable limits on the number of cable subscribers a single company may reach through cable systems it owns (horizontal concentration) and the number of system channels that a cable operator could use to carry programming services in which it holds an ownership interest (vertical concentration). The horizontal ownership restrictions of the 1992 Cable Act were struck down by a federal district court as an unconstitutional restriction on speech. Pending final judicial resolution of this issue, the FCC voluntarily stayed the effective date of its horizontal ownership limitations, which would place a 30% nationwide limit on subscribers served by any one entity. Thereafter, a Motion to lift the Stay and Petitions for Reconsideration were filed. A challenge was also brought against the rules in federal court. In August 1996, the United States Court of Appeals for the District of Columbia Circuit decided to hold court proceedings in abeyance pending the Commission's reconsideration of the rules. The FCC's vertical ownership restriction consists of a "channel occupancy" standard which places a 40% limit on the number of channels (up to 75 channels) that may be occupied by services from programmers in which the cable operator has an attributable ownership interest. Further, the 1992 Cable Act and FCC rules restrict the ability of programmers to enter into exclusive contracts with cable operators. Video Marketplace: As required by the 1992 Cable Act, the Commission has issued a series of annual reports assessing the status of competition in the market for the delivery of video programming. The Commission found that cable television continues to dominate the MVPD market in most localities and that cable rates are increasing. However, the Commission concluded that cable's large share of the MVPD market is of concern only to the extent it reflects an inability of consumers to switch to some comparable, alternative video programming source. It also noted that competing distribution technologies have continued to make substantial strides, in particular DBS (see below). The Commission identified several steps it has taken to eliminate or minimize obstacles to competition and will continue to monitor competition in this area. Cable Ownership and Cross-Ownership: The 1996 Act repealed or curtailed several cable-related ownership and cross-ownership restrictions. In addition to the repeal of the anti-trafficking rules (discussed above), the 1996 Act eliminated the broadcast network/cable cross-ownership ban. Although the FCC is allowed to adopt regulations necessary to ensure carriage, channel positioning, and nondiscriminatory treatment of nonaffiliated broadcast stations, it has opted not to impose any such rules at this time. The 1996 Act also eliminated the statutory prohibition on broadcast/cable cross- ownership, but left in place the FCC's rules which continue to restrict the common ownership of cable and television properties in the same market area. When a cable operator faces effective competition, the 1996 Act also eliminates the cable/MMDS and cable/satellite master antenna television facilities ("SMATV") cross- ownership prohibitions. Alternative Video Programming Services Direct Broadcast Satellites: The FCC has authorized the provision of video programming directly to home subscribers through high-powered direct broadcast satellites ("DBS"). DBS systems currently are capable of broadcasting as many as 175 channels of digital television service directly to subscribers equipped with 18-inch receive dishes and decoders. Currently, several entities, including DirecTV, Inc., an affiliate of Hughes Communications Galaxy, United States Satellite Broadcasting Company and EchoStar Satellite Corporation ("EchoStar"), provide DBS service to consumers throughout the country. Other DBS operators hold licenses, but have not yet commenced service. Generally, the signal of local television broadcast stations are not carried on DBS systems. In early 1997, however, Echostar and American Sky Broadcasting ("ASkyB"), a joint venture of MCI Telecommunications Corporation ("MCI") and The News Corporation, proposed to launch a 500- channel service, including local broadcast signals. In response to ASkyB's request for a declaratory ruling that it could deliver broadcast signals within a television station's market, the Copyright Office advised ASkyB that it would accept copyright statements but cautioned that a determination of its eligibility under the cable compulsory license, discussed below, ultimately must be made by the courts. Although the proposed transaction collapsed, the desire among some DBS providers to retransmit local television station signals continues. In response to a petition by Echostar, the Copyright Office has opened a proceeding to determine whether local retransmission of television station signals to subscribers within those stations' local markets is permissible under a separate compulsory copyright license available to satellite distributors. EchoStar has started distributing local signals to major markets, via either off-air antenna to served households or via satellite to unserved households. Following the collapse of the deal to merge ASkyB into Echostar, MCI agreed to sell its DBS authorization to PRIMESTAR Partners, LP, a fixed satellite service similar to DBS, in which the country's five largest cable operators have interests. The transaction has been opposed and regulatory approval for the deal is pending. A Copyright Arbitration Royalty Panel convened this year to recommend adjustments to copyright royalty fees, proposed substantial increases in the DBS retransmission fees, which the Librarian of Congress upheld. Over objections of numerous members of Congress and despite DBS industry efforts to obtain a Stay from the Librarian of Congress and a federal court, the increased fees went into effect on January 1, 1998, making the first payments at the new rates due on July 30, 1998. Registrant cannot predict the effect of existing and future DBS services on its cable television operations. Digital Television: On April 3, 1997, the FCC announced that it had adopted rules that will allow television broadcasters to provide digital television ("DTV") to consumers. The Commission also adopted a table of allotments for DTV, which will provide eligible existing broadcasters with a second channel on which to provide DTV service. Petitions for Reconsideration of the table of allotments are pending. The allotment plan is based on the use of channels 2-51, although it has been proposed that the "core" DTV spectrum will be between channels 2-46 or 7-51. Ultimately, the Commission will recover the channels currently used for analog broadcasting and will decide at a later date the use of the recovered spectrum. The FCC has already reallocated the spectrum comprising channels 60-69 to public safety agencies and other voice and data services. Television broadcasters will be allowed to use their channels according to their best business judgment. Such uses can include data transfer, subscription video, interactive materials, and audio signals, although broadcasters will be required to provide a free digital video programming service that is at least comparable to today's analog service. Broadcasters will not be required to air "high definition" programming or to simulcast their analog programming on the digital channel. Certain volunteer stations in the top ten markets will be on the air with a digital signal by November 1998. Affiliates of the top four networks (ABC, CBS, Fox and NBC) in markets 11-30 will be required to be on the air with a digital signal by November 1, 1999. All other commercial stations are required to construct their digital facilities by May 1, 2002. An Advisory Committee on Public Interest Obligations of Digital Television Broadcasters, established by the President, has been studying what public interest obligations should be imposed on digital broadcasters and is charged with making recommendations as to these obligations to the Vice President. Wireless Cable: The FCC has expanded the authorization of MMDS services to provide "wireless cable" via multiple microwave transmissions to home subscribers. In 1990, the FCC increased the availability of channels for use in wireless cable systems by eliminating MMDS ownership restrictions and simplifying various processing and administrative rules. The FCC also modified equipment and technical standards to increase service capabilities and improve service quality. Since then, the FCC has resolved certain additional wireless cable issues, including channel allocations for MMDS, Operational Fixed Service and Instructional Television Fixed Service ("ITFS") facilities, direct application by wireless operators for use of certain ITFS channels, and restrictions on ownership or operation of wireless facilities by cable entities. The Commission has also proposed amendments to its rules to facilitate the ability of MMDS operators to provide two-way transmission of Internet and other digital high-speed data services. Local Multipoint Distribution Service: In 1992, the FCC proposed a new service, LMDS, which could be used to supply multichannel video, telephony, and other communications services directly to subscribers. This service would operate primarily in the 28 GHz frequency range and, consistent with the nature of operations in that range, the FCC envisioned that LMDS transmitters could serve areas of only six to twelve miles in diameter. Accordingly, it was proposed that LMDS systems utilize a grid of transmitter "cells," similar to the structure of cellular telephone operations. In July 1996, the FCC issued an order designating 1000 MHz of spectrum to accommodate up to two LMDS operators in each community in the United States. Additionally, the FCC proposed allocating an additional 300 MHz of spectrum for LMDS. Auctions for LMDS licenses are scheduled for February, 1998. Registrant cannot predict the timing or ultimate impact of any future LMDS operations. Personal Communications Service: In August 1993, the FCC established rules for a new portable telephone service, the Personal Communications Service ("PCS"). PCS has the ability to compete with landline local telephone exchange services. Among several parties expressing interest in PCS were cable television operators, whose plant structures present possible synergies for PCS operation. In September 1993, the FCC adopted rules for "broadband PCS" service. It allocated 120 MHz of spectrum in the 2 GHz band for licensed broadband PCS services, divided into three 30 MHz blocks (blocks A, B and C) and three 10 MHz blocks (blocks D, E and F). The Commission has also established two different service areas for these blocks based on Rand McNally's Basic Trading Areas and Major Trading Areas. Thus, there are up to six PCS licenses available in each geographic area. The Commission used competitive bidding to assign the PCS licenses and PCS service is starting to emerge in various areas, primarily competing with incumbent cellular telephone operators. During the last year, however, several of the largest C Block bidders have encountered financial trouble and have been unable to make scheduled license payments. The Commission has decided to allow C block licensees to elect one of four options, including meeting existing obligations, relinquishing some spectrum rights in exchange for debt reduction, relinquishing all spectrum rights in exchange for amnesty, or prepayment of the licenses. The Commission has asked Congress for legislation authorizing it to seize licenses from bidders seeking bankruptcy protection. Information and Interexchange Services (Modified Final Judgment): The 1996 Act explicitly superseded the judicial and regulatory regime created by the Consent Decree that terminated the United States v. AT&T antitrust litigation in 1982 (known as the Modification of Final Judgment). The Consent Decree prohibited the Bell Operating Companies and their affiliates (collectively, the "Regional Bells") from, among other things, providing telecommunications services, including certain cable services, across Local Access and Transport Areas as defined in the Consent Decree. A Regional Bell was required to obtain a waiver from the FCC in order to provide such services. The 1996 Act eliminated this requirement. Other Multichannel Video Programming Technologies: Several additional technologies exist or have been proposed that also have the potential to increase competition in the provision of video programming. Currently, many cable subscribers can receive programming received by C-band home satellite dishes or via SMATV. Programming Issues Mandatory Carriage and Retransmission Consent: The 1992 Cable Act required cable operators to carry the signals of local commercial and non-commercial television stations and certain low power television stations. The 1992 Cable Act also included a retransmission consent provision that prohibits cable operators and other multichannel video programming distributors from carrying broadcast stations without obtaining their consent in certain circumstances. The "must carry" and retransmission consent provisions are related in that television broadcasters, on a cable system-by-cable system basis, must make a choice once every three years whether or not to proceed under the must carry rules or to waive that right to mandatory but uncompensated carriage and negotiate a grant of retransmission consent to permit the cable system to carry the station's signal. The most recent required election date was October 1, 1996 with elections taking effect on January 1, 1997. The next required election date is October 1, 1999 with elections taking effect on January 1, 2000. While monetary compensation is possible in return for stations granting retransmission consent, many broadcast station operators have accepted arrangements that do not require payment but involve other types of consideration, such as use of a second cable channel, advertising time, and joint programming efforts. On March 31, 1997, the Supreme Court, in a 5-4 decision, upheld the constitutionality of the must carry provisions of the 1992 Cable Act. As a result, the regulations promulgated by the FCC to implement the must carry provisions remain in effect. Program Content Regulation: In contrast to its deregulatory approach to media ownership, the 1996 Act contained a number of new regulations affecting program content. For example, a cable operator is required to fully scramble or block the audio and video programming of each channel primarily dedicated to the carriage of sexually explicit adult programming or to permit the carriage of such programming to the hours between 10 p.m. and 6 a.m. The court order staying the FCC rules implementing these provisions has been lifted and the FCC notified cable operators of their obligation to begin complying with the provision and its rules in May 1997. Also, the FCC has adopted regulations requiring the "closed captioning" of programming. The closed captioning rules went into effect January 1, 1998 but the Commission is due to reconsider certain of these obligations. The FCC has requested comment and is considering the appropriate methods and schedules for phasing in video description. Last, the FCC is due to decide whether to approve the voluntary television ratings plan developed by distributors of video programming -- including cable operators -- to identify programming that contains sexual, violent, or other indecent material. If the Commission finds the industry- proposed system unacceptable, the 1996 Act requires it to formulate a government-recommended alternative in conjunction with a nonpartisan advisory committee. Distributors of rated programs are required to transmit these ratings, thereby permitting parents to block the programs. Copyright: Cable television systems are subject to the Copyright Act which, among other things, covers the carriage of television broadcast signals. Pursuant to the Copyright Act, cable operators obtain a compulsory license to retransmit copyrighted programming broadcast by local and distant stations in exchange for contributing a percentage of their revenues as statutory royalties to the Copyright Office. The amount of this royalty payment varies depending on the amount of system revenues from certain sources, the number of distant signals carried, and the locations of the cable television system with respect to off-air television stations and markets. Copyright royalty arbitration panels, to be convened by the Librarian of Congress as necessary, are responsible for distributing the royalty payments among copyright owners and for periodically adjusting the royalty rates. Recently, several types of multichannel video distributors that compete with cable television systems were successful in gaining compulsory license coverage of their retransmission of television broadcast signals. Legislation enacted in 1988 and extended in 1994 provided an alternative compulsory license for satellite distributors through January 1, 2000 and extended permanent coverage of the cable copyright license to "wireless cable" systems (MMDS). The Copyright Office also has ruled that some SMATV systems are eligible for the cable compulsory license. Pursuant to a request by the Chairman of the Senate Judiciary Committee, the Copyright Office examined the compulsory license scheme and submitted a report to the Committee in August 1997. The Copyright Office concluded that the statutorily imposed licensing schemes could not be eliminated at this time, suggested harmonizing the cable and satellite licenses, and amending the statute to allow satellite distributors to retransmit local broadcast signals. These recommendations may serve as the basis for legislation to modify the Copyright Act with respect to these compulsory licensing schemes. The FCC has, in the past, recommended that Congress eliminate the compulsory copyright license for cable retransmission of both local and distant broadcast programming. In addition, legislative proposals have been and may continue to be made to simplify or eliminate the compulsory license. As noted, the 1992 Cable Act required cable systems to obtain permission of certain broadcast licensees in order to carry their signals ("retransmission consent") should such stations so elect. (See "Mandatory Carriage and Retransmission Consent" above). This permission is needed in addition to the copyright permission inherent in the compulsory license. Without the compulsory license, cable operators would need to negotiate rights for the copyright ownership of each program carried on each broadcast station transmitted by the system. Registrant cannot predict whether Congress will act on the FCC or Copyright Office recommendations or similar proposals. Exclusivity: Except for retransmission consent, the FCC imposes no restriction on the number or type of distant (or "non-local") television signals a system may carry. FCC regulations, however, require cable television systems serving more than 1,000 subscribers, at the request of a local network affiliate, to protect the local affiliate's broadcast of network programs by blacking out duplicated programs of any distant network-affiliated stations carried by the system. Similar rules require cable television systems to black out the broadcast on distant stations of certain local sporting events not broadcast locally. The FCC rules also provide exclusivity protection for syndicated programs. Under these rules, television stations may compel cable operators to black out syndicated programming broadcast from distant signals where the local broadcaster has negotiated exclusive local rights to such programming. Syndicated program suppliers are afforded similar rights for a period of one year from the first sale of that program to any television broadcast station in the United States. The FCC rules allow any broadcaster to bargain for and enforce exclusivity rights. However, exclusivity protection may not be granted against a station that is generally available over-the-air in the cable system's market. Cable systems with fewer than 1,000 subscribers are exempt from compliance with the rules. Although broadcasters generally may, under certain circumstances, acquire exclusivity only within 35 miles of their community of license, they may acquire national rights to syndicated programming. The ability to secure national rights is intended to assist so-called "superstations" whose local broadcast signals are then distributed nationally via satellite. The 35-mile limitation has been subject to possible re-examination by the FCC the past several years. Cable Origination Programming: The FCC also requires that cable origination programming meet certain standards similar to those imposed on broadcasters. These standards include regulations governing political advertising and programming, advertising during children's programming, rules on lottery information, and sponsorship identification requirements. Customer Service: Pursuant to the 1992 Cable Act, the FCC has promulgated rules on customer service standards. The standards govern cable system office hours, telephone availability, installations, outages, service calls, and communications between the cable operator and subscriber, including billing and refund policies. Although the FCC has stated that its standards are "self effectuating," it has also provided that a franchising authority wishing to enforce particular customer service standards must give the system at least 90 days advance written notice. Franchise authorities also may agree with cable operators to adopt stricter standards and may enact any state or municipal law or regulation which imposes a stricter or different customer service standard than that set by the FCC. Enforcement of customer service standards, including those set by the FCC, is entrusted to local franchising authorities. Pole Attachment Rates, Inside Wiring, and Technical Standards The FCC currently regulates the rates and conditions imposed by public utilities for use of their poles, unless, under the Federal Pole Attachments Act, a state public service commission demonstrates that it is entitled to regulate the pole attachment rates. The FCC has adopted a specific formula to administer pole attachment rates under this scheme. The validity of this FCC function was upheld by the United States Supreme Court. The 1996 Act revised the pole attachment rules in a number of ways to encourage competition in the provision of telecommunications services and to address inequity in the current pole attachment rates. The FCC currently is considering proposed revisions to its pole attachment rules. Recently the FCC established procedures for the orderly disposition of multiple dwelling unit ("MDU") wiring, making it easier for the owners and residents of a MDU to change video service providers. Additionally, the Commission has sought comment on whether to restrict exclusive agreements for the provision of multichannel video programming services to MDUs. The FCC also has set forth standards on signal leakage. Like all systems, Registrant's cable television systems are subject to yearly reporting requirements regarding compliance with these standards. Further, the FCC has instituted on-site inspections of cable systems to monitor compliance. Any failure by Registrant's cable television systems to maintain compliance with these new standards could adversely affect the ability of Registrant's cable television systems to provide certain services. The 1992 Cable Act empowered the FCC to set certain technical standards governing the quality of cable signals and to preempt local authorities from imposing more stringent technical standards. The FCC's preemptive authority over technical standards for channels carrying broadcast signals has been affirmed by the United States Supreme Court. In 1992, the FCC adopted mandatory technical standards for cable carriage of all video programming, including retransmitted broadcast material, cable originated programs and pay channels. The 1992 Cable Act included a provision requiring the FCC to prescribe regulations establishing minimum technical standards. The FCC has determined that its 1992 rulemaking proceeding satisfied the mandate of the 1992 Cable Act. Those standards focus primarily on the quality of the signal delivered to the cable subscriber's television. In a related vein, the 1996 Act provided that no local franchising authority may prohibit, condition, or restrict a cable system's use of any type of subscriber equipment or any transmission technology. The 1996 Act also limited the FCC to the adoption of only minimal standards to achieve compatibility between cable equipment and consumer electronics (as Congress required the agency to do in the 1992 Cable Act) and to rely on the marketplace for other features, services, and devices. The FCC, however, had already made much progress with regard to compatibility pursuant to its 1992 Cable Act mandate. On May 4, 1994, the Commission released an order implementing the 1992 Cable Act requirements. In this order, the Commission adopted a three-phase plan for achieving compatibility between cable systems and consumer electronics. The Phase I requirements include the following: (1) cable operators are prohibited from scrambling or otherwise encrypting signals carried on the basic tier; (2) cable operators are prohibited from taking actions that would prevent equipment with remote control capabilities from operating with commercially available remote controls; (3) cable operators must offer subscribers supplemental equipment for resolving specific compatibility problems; and (4) cable operators must provide more compatibility information to subscribers. During Phase II, cable operators must use the new "Decoder Interface" standard that is presently being developed. Finally, the third phase of the compatibility plan addresses future standards issues to be raised in a future Notice of Inquiry. A number of cable and electronic company interests have sought reconsideration of this order. Whether and to what extent the provisions of the 1996 Act affect the Commission plan remain unclear to the Registrant. The 1996 Act directs the FCC, in consultation with private standard setting organizations, to prescribe regulations to ensure the commercial availability of converter boxes and other interactive communications equipment used by consumers to access services provided by cable operators and MVPDs. The 1996 Act specifies that the regulations should ensure the availability of such equipment from manufacturers, retailers, and other vendors not affiliated with an MVPD. However, MVPDs are not prohibited from offering such equipment to consumers, provided that they charge separately for equipment and service, and do not subsidize the equipment charge. Once the market for MVPDs and converter equipment is fully competitive, the FCC is required to sunset any pertinent regulations if it determines that such an elimination would promote competition and be in the public interest. The FCC has sought comment on the statutory objectives of the 1996 Act and specific proposals for implementing its requirements. State and Local Regulation Local Authority: Cable television systems are generally operated pursuant to non-exclusive franchises, permits or licenses issued by a municipality or other local governmental entity. The franchises are generally in the nature of a contract between the cable television system owner and the issuing authority and typically cover a broad range of provisions and obligations directly affecting the business of the systems in question. Except as otherwise specified in the Communications Act or limited by specific FCC rules and regulations, the Communications Act permits state and local officials to retain their primary responsibility for selecting franchisees to serve their communities and to continue regulating other essentially local aspects of cable television. The constitutionality of franchising cable television systems by local governments has been challenged as a burden on First Amendment rights but the United States Supreme Court has declared that while cable activities "plainly implicate First Amendment interest" they must be balanced against competing societal interests. The applicability of this broad judicial standard to specific local franchising activities is subject to continuing interpretation by the federal courts. Cable television franchises generally contain provisions governing the fees to be paid to the franchising authority, the length of the franchise term, renewal and sale or transfer of the franchise, design and technical performance of the system, use and occupancy of public streets, and the number and types of cable services provided. The specific terms and conditions of the franchise directly affect the profitability of the cable television system. Franchises are generally issued for fixed terms and must be renewed periodically. There can be no assurance that such renewals will be granted or that renewals will be made on similar terms and conditions. Various proposals have been introduced at state and local levels with regard to the regulation of cable television systems and a number of states have adopted legislation subjecting cable television systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a public utility character. Increased state and local regulations may increase cable television system expenses. Radio Industry The radio industry is also subject to extensive regulation by the FCC, which, among other things, is authorized to issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations, and power; regulate the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and impose fees for processing applications and other administrative functions. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. An application for consent to the assignment of the FCC licenses for WUNO(AM), San Juan, Puerto Rico, and WFID-FM, Rio Piedras, Puerto Rico, to Madifide, Inc. is pending at the FCC. A petition to deny the application was filed in November 1997. The petition questioned whether the buyer should be found qualified to hold the FCC licenses for the stations but raised no questions regarding current ownership of the stations. The 1996 Act completely eliminated the national radio ownership restriction. Any number of AM or FM broadcast stations may be owned or controlled by one entity nationally. The 1996 Act also greatly eased local radio ownership restrictions. As with the old rules, the maximum varies depending on the number of radio stations within the market. In markets with more than 45 stations, one company may own, operate, or control eight stations, with no more than five in any one service (AM or FM). In markets of 30-44 stations, one company may own seven stations, with no more than four in any one service; in markets with 15-29 stations, one entity may own six stations, with no more than four in any one service. In markets with 14 commercial stations or less, one company may own up to five stations or 50% of all of the stations, whichever is less, with no more than three in any one service. This new regulatory flexibility has engendered aggressive local, regional, and/or national acquisition campaigns. Removal of previous station ownership limitations on leading major station groups has increased the competition for and the prices of attractive stations. In 1992, the FCC placed limitations on local marketing agreements ("LMAs") through which the licensee of one radio station provides the programming for another licensee's station in the same market. Stations operating in the same service (e.g., where both stations are AM) and in the same market are prohibited from simulcasting more than 25% of their programming. Moreover, in determining the number of stations that a single entity may control, an entity programming a station pursuant to an LMA is required, under certain circumstances, to count that station toward its maximum even though it does not own the station. The 1996 Act does not alter the FCC's newspaper/broadcast cross- ownership restrictions. However, the FCC is considering whether to change the policy pursuant to which it considers waivers of the radio/newspaper cross-ownership rule. License Grant and Renewal Prior to the passage of the 1996 Act, radio broadcasting licenses generally were granted or renewed for a period of seven years, upon a finding by the FCC that the "public interest, convenience, and necessity" would be served thereby. At the time an application is made for renewal of a radio license, parties in interest may file petitions to deny the application, and such parties, including members of the public, may comment upon the service the station has providing during the preceding license term. In addition, prior to passage of the 1996 Act, any person was permitted to file a competing application for authority to operate on the station's channel and replace the incumbent licensee. Renewal applications were granted without a hearing if there were no competing applications or if issues raised by petitioners to deny such applications were not serious enough to cause the FCC to order a hearing. If competing applications were filed, a full comparative hearing was required. Under the 1996 Act, the statutory restriction on the length of broadcast licenses has been amended to allow the FCC to grant radio broadcast licenses for terms of up to eight years. The 1996 Act also requires renewal of a broadcast license if the FCC finds that (1) the station has served the public interest, convenience, and necessity; (2) there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and (3) there have been no other serious violations which taken together constitute a pattern of abuse. In making its determination, the FCC may still consider petitions to deny but cannot consider whether the public interest would be better served by a person other than the renewal applicant. Instead, under the 1996 Act, competing applications for the same frequency may be accepted only after the Commission has denied an incumbent's application for renewal of license. Applications for the renewal of license of WICC(AM), Bridgeport, Connecticut and WEBE(FM), Westport, Connecticut are pending at the FCC. Petitions to deny the renewal applications are due on or before March 2, 1998. Although Registrant has no reason to believe that these renewal applications will not be granted, it cannot predict the outcome of these proceedings. Alien Ownership Restrictions The Communications Act restricts the ability of foreign entities or individuals to own or hold certain interests in broadcast licenses. Foreign governments, representatives of foreign governments, non-U.S. citizens, representatives of non-U.S. citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations , if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such an affirmative finding only in limited circumstances. Alternative Radio Services In January 1995, the FCC adopted rules to allocate spectrum for satellite digital audio radio service ("DARS"). Satellite DARS systems potentially could provide for regional or nationwide distribution of radio programming with fidelity comparable to compact disks. An auction for satellite DARS spectrum was held in April 1997, and the Commission has issued two authorizations to launch and operate satellite DARS service. The FCC also has undertaken an inquiry into the terrestrial broadcast of DARS signals, addressing, among other things, the need for spectrum outside the existing FM band and the role of existing broadcasters. Further, laboratory testing of a number of competing in-band on-channel DARS technologies, has been done with many of the systems progressing to the next stage of field testing. Registrant cannot predict the impact of either satellite DARS service or terrestrial DARS service on its business. Impact of Legislation and Regulation As detailed above, the cable and radio industries are subject to significant regulation. The foregoing, however, does not purport to be a complete summary of all the provisions of the Communications Act, the 1996 Act, or the 1992 Cable Act, nor of the regulations and policies of the FCC thereunder. Because regulation of the broadcast and cable industries is subject to the political process, it continues to change. Proposals for additional or revised regulations and requirements are pending before and are being considered by Congress and federal regulatory agencies and will continue to be generated. Also, various of the foregoing matters are now, or may become, the subject of court litigation. Registrant cannot predict the outcome of pending regulatory proposals, any future proposals, or any such litigation. Nor can Registrant predict the impact of these on its business. Item 2. Properties. A description of the media properties of Registrant is contained in Item 1 above. Registrant owns or leases real estate for certain transmitting equipment along with space for studios and offices. Registrant believes that the properties owned by the stations and the other equipment and furniture and fixtures owned are in reasonably good condition and are adequate for the operations of the stations. In addition, the offices of RPMM and MLMM are located at 350 Park Avenue - 16th Floor, New York, New York 10022 and at The World Financial Center, South Tower - 14th Floor, New York, New York, 10080-6114; respectively. Item 3. Legal Proceedings. On May 1, 1996, a purported class action lawsuit was filed in Orange County Superior Court against Registrant on behalf of subscribers of Registrant's California Cable Systems serving Anaheim, Villa Park and adjacent areas of unincorporated Orange County, California. This purported class action lawsuit alleged that excessive late fee payments have been charged to such subscribers since April, 1992. The suit sought refunds of late fee payments to subscribers and related interest, damages and legal cost. On September 5, 1997, the Order of the court was signed and filed to give tentative approval to the late fee class action settlement in the amount of $57,500. In December 1997, the Superior Court approved this settlement on behalf of the plaintiff class as required by law, and such settlement offer has subsequently been paid and the case concluded. On August 29, 1997, a purported class action was commenced in New York Supreme Court, New York County, on behalf of the limited partners of Registrant, against Registrant, Registrant's general partner, Media Management Partners (the "General Partner"), the General Partner's two partners, RP Media Management ("RPMM") and ML Media Management Inc. ("MLMM"), Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The action concerns Registrant's payment of certain management fees and expenses to the General Partner and the payment of certain purported fees to an affiliate of RPMM. Specifically, the plaintiffs allege breach of the Partnership Agreement, breach of fiduciary duties, and unjust enrichment by the General Partner in that the General Partner allegedly: (1) improperly deferred and accrued certain management fees and expenses in an amount in excess of $14.0 million, (2) improperly paid itself such fees and expenses out of proceeds from sales of Registrant assets, and (3) improperly paid MultiVision Cable TV Corp., an affiliate of RPMM, supposedly duplicative fees in an amount in excess of $14.4 million. With respect to Merrill Lynch & Co., Inc., Merrill Lynch, MLMM and RPMM, plaintiffs claim that these defendants aided and abetted the General Partner in the alleged breach of the Partnership Agreement and in the alleged breach of the General Partner's fiduciary duties. Plaintiffs seek, among other things, an injunction barring defendants from paying themselves management fees or expenses not expressly authorized by the Partnership Agreement, an accounting, disgorgement of the alleged improperly paid fees and expenses, and compensatory and punitive damages. On December 12, 1997, defendants served a motion to dismiss the complaint and each claim for relief therein. Plaintiffs' response to defendants' motion was served on March 20, 1998. Defendants' reply to plaintiffs' response is due on April 29, 1998. Defendants believe that they have good and meritorious defenses to the action. The Partnership Agreement provides for indemnification, to the fullest extent provided by law, for any person or entity named as a party to any threatened, pending or completed suit by reason of any alleged act or omission arising out of such person's activities as a General Partner or as an officer, director or affiliate of either RPMM, MLMM or the General Partner, subject to specified conditions. In connection with the purported class action filed on August 29, 1997, Registrant has received notices of requests for indemnification from the following defendants named therein: the General Partner, RPMM, MLMM, Merrill Lynch & Co., Inc. and Merrill Lynch. As of December 26, 1997, Registrant accrued approximately $280,000 for legal costs incurred through December 26, 1997, relating to such indemnification. Registrant is not aware of any other material legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters which required a vote of the limited partners of Registrant during the fourth quarter of the fiscal year covered by this report. Part II. Item 5. Market for Registrant's Common Stock and Stockholder Matters. An established public market for Registrant's Units does not now exist, and it is not anticipated that such a market will develop in the future. Accordingly, accurate information as to the market value of a Unit at any given date is not available. As of March 3, 1998, the number of owners of Units was 14,298. Beginning with the December 1994 client account statements, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") implemented new guidelines for reporting estimated values of limited partnerships and other direct investments on client account statements. As a result, Merrill Lynch no longer reports general partner estimates of limited partnership net asset value on its client account statements, although the Registrant may continue to provide its estimate of net asset value to Unit holders. Pursuant to the new guidelines, Merrill Lynch will report estimated values for limited partnership interests originally sold by Merrill Lynch (such as Registrant's Units) two times per year. Such estimated values will be provided to Merrill Lynch by independent valuation services based on financial and other information available to the independent service on (1) the prior August 15th for reporting on December year-end and subsequent client account statements through the following May's month-end client account statements, and on (2) March 31st for reporting on June month-end and subsequent client account statements through the November month-end account statements of the same year. Merrill Lynch clients may contact their Merrill Lynch Financial Consultants or telephone the number provided to them on their account statements to obtain a general description of the methodology used by the independent valuation services to determine their estimates of value. The estimated values provided by the independent services and the Registrant's current net asset value are not market values and Unit holders may not be able to sell their Units or realize either amount upon a sale of their Units. In addition, Unit holders may not realize the independent estimated value or the Registrant's current net asset value amount upon the liquidation of Registrant's assets over its remaining life. Registrant does not distribute dividends, but rather distributes Distributable Cash From Operations, Distributable Refinancing Proceeds, and Distributable Sale Proceeds, to the extent available. In 1995, $7.5 million ($40 per Unit) was distributed to its limited partners and $75,957 to its General Partner from the proceeds of the sale of KATC-TV. In 1996, $108.1 million ($575 per Unit) was distributed to its limited partners and $1.1 million to its General Partner from the proceeds of the sale of California Cable Systems. In 1997, $18.8 million ($100 per Unit) was distributed to its limited partners and $189,893 accrued to its General Partner from the release of (i) certain proceeds that were deposited into escrow upon the sale of KATC-TV; (ii) certain proceeds that were deposited into escrow upon the sale of the California Cable Systems; and (iii) certain reserves previously established upon the sales of KATC-TV, WREX-TV and the California Cable Systems. Item 6. Selected Financial Data.
Year Ended Year Ended Year Ended December 26, December 27, December 29, 1997 1996 1995 Operating revenues $ 53,223,98 $ 71,831,996 $ 109,214,031 3 Gain on sale of the California Cable Systems $ - $ 185,609,191 $ - Gain on sale of television stations $ 3,702,72 $ - $ 22,796,454 5 Net Income $ 19,467,68 $ 189,711,304 $ 21,490,240 8 Net Income per Unit of Limited Partnership Interest $ 102.5 $ 999.04 $ 113.17 2 Number of Units 187,994 187,994 187,994 As of As of As of December 26, December 27, December 29, 1997 1996 1995 Total Assets $ 156,646,17 $ 160,994,824 $ 210,198,496 8 Borrowings $ 54,244,03 $ 60,348,428 $ 182,821,928 8
Year Ended Year Ended December 30, December 31, 1994 1993 Operating revenues $105,910,208 $100,401,671 Net Income/(Loss) $(1,450,756) $ 1,377,340 Net Income/(Loss) per Unit of Limited Partnership Interest $ (7.64 $ 7.25 ) Number of Units 187,994 187,994 As of As of December 30, December 31, 1994 1993 Total Assets $238,330,358 $249,851,937 Borrowings $218,170,968 $232,568,349
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources. As of December 26, 1997, Registrant had $92,872,891 in cash and cash equivalents. Of this amount, approximately $39.1 million is restricted for use at the operating level of the Puerto Rico Systems (as defined below) to fund capital expenditure programs and satisfy future non-recourse debt service requirements (including annual principal payments of $20 million, $10 million of which is Registrant's share, commencing November 30, 1998) and approximately $23.3 million is held in cash to cover operating liabilities, current litigation, and litigation contingencies relating to the California Cable Systems prior to and resulting from their sale. In addition, approximately $16.9 million is being held for use at the operating level of Registrant's other remaining media properties, and all remaining cash and cash equivalents are available to Registrant for uses as provided in the Partnership Agreement. As of December 26, 1997, the amount payable for accrued management fees and expenses owed to the General Partner amounted to approximately $4.5 million. Registrant's ongoing cash needs will be to fund debt service, capital and operating expenditures and required working capital as well as providing for costs and expenses related to the purported class action lawsuit (see below). On November 25, 1997, Registrant made a $100 per $1,000 limited partnership unit ("Unit") cash distribution (less applicable state and federal withholding taxes) totaling $18,799,400. During 1998, $189,893 was paid to the General Partner representing its 1% share. The funds for this distribution were derived from the release of (i) certain proceeds that were deposited into escrow upon the sale of KATC-TV; (ii) certain proceeds that were deposited into escrow upon the sale of the California Cable Systems; and (iii) certain reserves previously established upon the sales of KATC-TV, WREX-TV and the California Cable Systems. In accordance with the terms of the Partnership Agreement, funds received from the release of an indemnity escrow account, after accounting for certain expenses of Registrant, including certain expenses incurred after the original sale, are distributed to partners of record as of the date such unused amounts are released from escrow, rather than to the partners of record as of the date of the sale. In addition, funds from sales reserves are distributed to partners of record as of the date of their release (the date when Registrant determines such reserves are no longer necessary), rather than to partners of record on the date of the sale. Accordingly, the Limited Partners' portion of such distribution was composed of the following: $10.09 per Unit (totaling $1,896,860) from the release of the California Cable Systems escrow account paid to partners of record on June 3, 1997; $5.26 per Unit (totaling $988,848) from the release of the KATC-TV escrow account paid to partners of record on June 24, 1997; and, $84.65 per Unit (totaling $15,913,692) from the release of funds from the various reserve accounts established in connection with the sales of KATC-TV, WREX-TV and the California Cable Systems paid to partners of record on August 14, 1997. As of December 26, 1997, Registrant's operating investments in media properties consisted of a 50% interest in a joint venture (the "Venture"), which owns an FM (WFID-FM) and AM (WUNO-AM) radio station combination and a background music service in San Juan, Puerto Rico ("C-ML Radio"), and 100% of the stock of Century-ML Cable Corporation ("C-ML Cable"; jointly with C-ML Radio, the "Puerto Rico Systems"), which owns and operates two cable television systems in Puerto Rico; an FM (WEBE-FM) and AM (WICC-AM) radio station combination in Bridgeport, Connecticut; an FM (KEZY-FM) and AM (KORG-AM) radio station combination in Anaheim, California, and Wincom Broadcasting Corporation ("Wincom"), a corporation that owns an FM radio station (WQAL-FM) in Cleveland, Ohio. In early October 1997, the Venture entered into an agreement to sell C-ML Radio (see below). Although no assurance can be made concerning the precise timing of the ultimate disposition of Registrant's remaining media properties, Registrant currently anticipates entering into agreements to sell its remaining investments in media properties in 1998. The General Partner currently anticipates that the pendency of the lawsuit, (see below) the claims against Registrant for indemnification, and the related costs, expenses and involvement of management, will adversely affect (a) the timing of the dissolution of Registrant, (b) the timing of the distribution to the limited partners of the net proceeds from the liquidation of Registrant's remaining assets, and (c) the amount of proceeds which may be available for distribution. On May 1, 1996, a purported class action lawsuit was filed in Orange County Superior Court against Registrant on behalf of subscribers of Registrant's California Cable Systems serving Anaheim, Villa Park and adjacent areas of unincorporated Orange County, California. This purported class action lawsuit alleges that excessive late fee payments have been charged to such subscribers since April, 1992. The suit sought refunds of late fee payments to subscribers and related interest, damages and legal costs. On September 5, 1997, the Order of the court was signed and filed to give tentative approval to the late fee class action settlement in the amount of $57,500. In December 1997, the Superior Court approved this settlement on behalf of the plaintiff class as required by law, and such settlement offer has subsequently been paid and the case concluded. On August 29, 1997, a purported class action was commenced in New York Supreme Court, New York County, on behalf of the limited partners of Registrant, against Registrant, Registrant's general partner, Media Management Partners (the "General Partner"), the General Partner's two partners, RPMM and MLMM, Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The action concerns Registrant's payment of certain management fees and expenses to the General Partner and the payment of certain purported fees to an affiliate of RPMM. Specifically, the plaintiffs allege breach of the Partnership Agreement, breach of fiduciary duties, and unjust enrichment by the General Partner in that the General Partner allegedly: (1) improperly deferred and accrued certain management fees and expenses in an amount in excess of $14.0 million, (2) improperly paid itself such fees and expenses out of proceeds from sales of Registrant assets, and (3) improperly paid MultiVision Cable TV Corp., an affiliate of RPMM, supposedly duplicative fees in an amount in excess of $14.4 million. With respect to Merrill Lynch & Co., Inc., Merrill Lynch, MLMM and RPMM, plaintiffs claim that these defendants aided and abetted the General Partner in the alleged breach of the Partnership Agreement and in the alleged breach of the General Partner's fiduciary duties. Plaintiffs seek, among other things, an injunction barring defendants from paying themselves fees or expenses not expressly authorized by the Partnership Agreement, an accounting, disgorgement of the alleged improperly paid fees and expenses, and compensatory and punitive damages. On December 12, 1997, defendants served a motion to dismiss the complaint and each claim for relief therein. Plaintiffs' response to defendants' motion was served on March 20, 1998. Defendants' reply to plaintiffs' response is due on April 29, 1998. Defendants believe that they have good and meritorious defenses to the action. The Partnership Agreement provides for indemnification, to the fullest extent provided by law, for any person or entity named as a party to any threatened, pending or completed suit by reason of any alleged act or omission arising out of such person's activities as a General Partner or as an officer, director or affiliate of either RPMM, MLMM or the General Partner, subject to specified conditions. In connection with the purported class action filed on August 29, 1997, Registrant has received notices of requests for indemnification from the following defendants named therein: the General Partner, RPMM, MLMM, Merrill Lynch & Co., Inc. and Merrill Lynch. As of December 26, 1997, Registrant accrued approximately $280,000 for legal costs incurred through December 26, 1997, relating to such indemnification. Wincom-WEBE-WICC On July 30, 1993, Registrant and the Chase Manhattan Bank (the "Wincom Bank") executed an amendment to the Wincom-WEBE-WICC Loan (the "Restructuring Agreement"), effective January 1, 1993, which cured all previously outstanding principal and interest payments and covenant defaults pursuant to the Wincom-WEBE-WICC Loan. Refer to Note 5 of "Item 8. Financial Statements and Supplementary Data" for further information regarding the Wincom- WEBE-WICC Loan and the Restructuring Agreement. On December 31, 1997, the loans outstanding under the Wincom-WEBE- WICC Loan matured and became due and payable in accordance with their terms. As of that date, $4,244,038 of such amount remained due and payable to the Wincom Bank. As a result of such default, the Wincom Bank has the right to take actions to enforce its right under the Wincom-WEBE-WICC Loan including the right to foreclose on the properties of the Wincom-WEBE-WICC group. The Wincom-WEBE-WICC Loan is non-recourse to the other assets of Registrant. Registrant and the Wincom Bank are negotiating the terms of a waiver of the default and an amendment to the Wincom- WEBE-WICC Loan that would, among other things, extend the maturity date of the loan to June 30, 1999. Registrant expects to either enter into such amendment or to repay the full amount of principal and interest due under the loan in 1998. Puerto Rico Radio In October 1997, the Venture entered into a sales agreement to sell C-ML Radio for approximately $11.5 million, subject to closing adjustments. In addition, in connection with such sales agreement, Registrant entered into a Local Marketing Agreement, effective as of October 1, 1997, which, subject to compliance with the rules of the Federal Communications Commission ("Commission" or "FCC"), allows the buyer to program the station. Since there are numerous conditions to closing, including FCC approval, there can be no assurance that the sale will be consummated as contemplated and without consummation the Local Marketing Agreement will be cancelled. Registrant anticipates receiving no proceeds from any resulting sale since any sale proceeds received from the sale of C-ML Radio are required to be applied against the aggregate outstanding senior indebtedness which jointly finances C-ML Radio and C-ML Cable. California Cable Systems On November 28, 1994, Registrant entered into an agreement (the "Asset Purchase Agreement") with Century Communications Corp. ("Century") to sell to Century substantially all of the assets used in Registrant's California Cable Systems. On May 31, 1996, Registrant consummated such sale pursuant to the terms of the Asset Purchase Agreement. The base purchase price for the California Cable Systems was $286 million, subject to certain adjustments including an operating cash flow, as well as, a working capital adjustment, as provided in the Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement and a letter agreement, entered into by Registrant and Century at closing, Registrant deposited $5 million into an indemnity escrow account pending the resolution of certain rate regulation and other matters relating to charges by Registrant to its subscribers for cable service. On June 3, 1997, Registrant received the release of such escrowed proceeds ($5 million and approximately $300,000 of interest earned thereon) generated from the sale of the California Cable Systems. This release of escrowed proceeds, after accounting for certain expenses of Registrant, was included in a cash distribution made to partners on November 25, 1997, in accordance with the terms of the Partnership Agreement. In addition, upon closing of the sale of the California Cable Systems, Registrant set aside approximately $40.7 million in a cash reserve to cover operating liabilities, current litigation, and litigation contingencies relating to the California Cable Systems' operations prior to and resulting from their sale, as well as a potential purchase price adjustment. In accordance with the terms of the Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"), any amounts which may be available for distribution from any unused cash reserves, after accounting for certain other expenses of Registrant including certain expenses incurred after May 31, 1996, will be distributed to partners of record as of the date such unused reserves are released, when Registrant determines such reserves are no longer necessary, rather than to the partners of record on May 31, 1996, the date of the sale. Effective August 14, 1997, reserves in the amount of approximately $13.2 million were released and, after accounting for certain expenses of Registrant, in accordance with the terms of the Partnership Agreement, were included in the cash distribution that was distributed to partners on November 25, 1997. As of December 26, 1997, Registrant had approximately $23.3 million remaining in cash reserves to cover operating liabilities, current litigation, and litigation contingencies relating to the California Cable Systems prior to and resulting from their sale. Year 2000 Compliance Issue The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two digit year is commonly referred to as the Year 2000 Compliance issue. As the year 2000 approaches, such systems may be unable to accurately process certain data-based information. Many businesses may need to upgrade existing systems or purchase new ones to correct the Year 2000 issue. The total costs to Registrant of the Year 2000 Compliance is not anticipated to be material to its financial position or results of operations in any given year. However, there can be no guarantee that the systems of other companies on which Registrant's systems rely will be timely converted, or that a failure to convert by another company or a conversion that is incompatible with Registrant's systems, would not have a material adverse effect on Registrant. Recent Accounting Statements Not Yet Adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued in June 1997 and is effective for financial statements for periods beginning after December 15, 1997. This statement establishes standards for the way public companies report information about operating segments in annual and interim financial statements. Registrant believes its current reporting systems will enable it to comply with the implementation of SFAS No. 131. Impact of Legislation and Regulation The information set forth in the Legislation and Regulation Section of Part I, Item 1. Business, is hereby incorporated by reference and made a part hereof. Forward Looking Information In addition to historical information contained or incorporated by reference in this report on Form 10-K, Registrant may make or publish forward-looking statements about management expectations, strategic objectives, business prospects, anticipated financial performance, and other similar matters. In order to comply with the terms of the safe harbor for such statements provided by the Private Securities Litigation Reform Act of 1995, Registrant notes that a variety of factors, many of which are beyond its control, affect its operations, performance, business strategy, and results and could cause actual results and experience to differ materially from the expectations expressed in these statements. These factors include, but are not limited to, the effect of changing economic and market conditions, trends in business and finance and in investor sentiment, the level of volatility of interest rates, the actions undertaken by both current and potential new competitors, the impact of current, pending, and future legislation and regulation both in the United States and throughout the world, and the other risks and uncertainties detailed in this Form 10-K. Registrant undertakes no responsibility to update publicly or revise any forward- looking statements. Results of Operations. For the years ended December 26, 1997 and December 27, 1996: Net Income. Registrant's net income for the year ended December 26, 1997 was approximately $19.5 million, as compared to net income of approximately $189.7 million for the 1996 period. The decrease in net income for the 1997 period primarily resulted from the gain recognized from the sale of the California Cable Systems during the second quarter of 1996, as well as the effect on operations of such sale and other factors described below. Operating Revenues. During the years ended December 26, 1997 and December 27, 1996, Registrant had total operating revenues of approximately $53.2 million and $71.8 million, respectively. The approximate $18.6 million decrease in operating revenues was primarily due to a decrease of approximately $24.1 million in operating revenues resulting from the sale of the California Cable Systems during the second quarter of 1996, partially offset by an increase in operating revenues at C-ML Cable of approximately $2.2 million as well as a combined increase of approximately $3.4 at the Wincom- WEBE-WICC Group. The increase in operating revenues at C-ML Cable occurred as a result of an increase in the number of basic subscribers during 1997, and implementation of rate increases. The average level of basic subscribers at C-ML Cable increased to 120,664 in 1997 from 116,497 in 1996, and the total number of basic subscribers increased to 123,990 at the end of 1997 from 117,338 at the end of 1996. Total premium subscriptions decreased to 68,445 at the end of 1997 from 75,760 at the end of 1996 at C-ML Cable due to the Disney Channel being switched to the basic channel line-up. The combined increase in operating revenues at the Wincom-WEBE-WICC Group is due to stronger market conditions at all three stations, including higher advertising rates arising from increased ratings. The remaining increases or decreases in operating revenues were immaterial, either individually or in the aggregate. Interest Income. Registrant earned interest income of approximately $3.4 million and $3.7 million during the years ended December 26, 1997 and December 27, 1996, respectively. The decrease is due primarily to interest earned on the lower average cash balances that existed during 1997 and the interest earned on the higher cash balances that existed during 1996 related to the sale of KATC, WREX and the California Cable Systems. Property Operating Expense. During the years ended December 26, 1997 and December 27, 1996, Registrant incurred property operating expenses of approximately $19.2 million and $25.4 million, respectively. Registrant's total property operating expenses decreased by approximately $6.2 million from year to year primarily as a result of the sale of the California Cable Systems during the second quarter of 1996, offset by an increase of approximately $1.2 million at C-ML Cable due to expenses directly related to the increase in operating revenues, as well as increased marketing costs and $1.2 million increase at the combined Wincom-WEBE-WICC Group due to increased sales compensation resulting from higher revenues as well as increased advertising, marketing, and programming expense incurred to combat increased competition. The remaining increases or decreases in property operating expenses at Registrant's other properties were immaterial, either individually or in the aggregate. General and Administrative Expense. During the years ended December 26, 1997 and December 27, 1996, Registrant incurred general and administrative expenses of approximately $7.9 million and $14.1 million, respectively. Registrant's total general and administrative expenses decreased by approximately $6.2 million from year to year primarily as a result of the sale of the California Cable Systems during the second quarter of 1996 as well as a $1.1 million decrease at C-ML Cable due to the recognition of tax benefit items in the current year. The remaining increases or decreases in general and administrative expenses at Registrant's other properties were immaterial, either individually or in the aggregate. Depreciation and Amortization Expense. Registrant's depreciation and amortization expense totaled approximately $7.5 million and $20.2 million during the years ended December 26, 1997 and December 27, 1996, respectively. Registrant's total depreciation and amortization expense decreased by approximately $12.7 million from year to year as a result of the sale of the California Cable Systems during the second quarter of 1996 as well as a decrease at C-ML Cable which primarily resulted from the write-off of certain fixed assets during 1996. The remaining increases or decreases in depreciation and amortization expense at Registrant's other properties were immaterial, either individually or in the aggregate. Interest Expense. Interest expense of approximately $5.1 million and $10.4 million in the years ended December 26, 1997 and December 27, 1996, respectively, represents the cost incurred for borrowed funds utilized to acquire various media properties. The approximate $5.3 million decrease in interest expense is primarily due to the repayment in full of the outstanding borrowings of the California Cable Systems and the Anaheim Radio Stations in 1996. For the years ended December 27, 1996 and December 29, 1995: Net Income. Registrant's net income for the years ended December 27, 1996 was approximately $189.7 million, as compared to net income of approximately $21.5 million for the 1995 period. The increase in net income for the 1996 period primarily resulted from the gain recognized from the sale of the California Cable Systems during the second quarter of 1996, partially offset by the sales of KATC- TV and WREX-TV during 1995, as well as the effect on operations of such sales and other factors described below. Operating Revenues. During the years ended December 27, 1996 and December 29, 1995, Registrant had total operating revenues of approximately $71.8 million and $109.2 million, respectively. The approximate $37.4 million decrease in operating revenues was primarily due to a decrease of approximately $41.3 million in operating revenues resulting from the sale of the California Cable Systems during the second quarter of 1996 and the sales of KATC and WREX during 1995, partially offset by an increase of approximately $2.2 million in operating revenues at C-ML Cable as well as a combined increase of approximately $1.0 million in the Wincom-WEBE-WICC Group. The increase in operating revenues at C-ML Cable occurred as a result of an increase in the number of basic and premium subscribers during 1996, implementation of rate increases and an increase in pay revenue due to both an increase in subscriptions as well as the average pay rate. The average level of basic subscribers at C-ML Cable increased to 116,497 in 1996 from 113,942 in 1995, and the total number of basic subscribers increased to 117,338 at the end of 1996 from 115,655 at the end of 1995. The number of average premium subscriptions at C-ML Cable increased to 74,663 during 1996 from 71,150 during 1995 due to aggressive marketing efforts. Total premium subscriptions increased to 75,760 at the end of 1996 from 73,565 at the end of 1995 at C-ML Cable. The combined increase in operating revenues at the Wincom-WEBE-WICC Group was due to stronger local and national advertising and network revenues resulting from improved ratings at both WEBE-FM and WQAL-FM. The remaining increases or decreases in operating revenues were immaterial either individually or in the aggregate. Interest Income. Registrant earned interest income of approximately $3.7 million and $332,000 during the years ended December 27, 1996 and December 29, 1995, respectively. The increase is due primarily to interest earned on the higher cash balances that existed during 1996 related to the sales of KATC, WREX and the California Cable Systems. Property Operating Expense. During the years ended December 27, 1996 and December 29, 1995, Registrant incurred property operating expenses of approximately $25.4 million and $39.3 million, respectively. Registrant's total property operating expenses decreased by approximately $13.9 million from year to year due primarily as a result of the sale of the California Cable Systems during 1996 and KATC and WREX during 1995. The remaining increases or decreases in property operating expenses at Registrant's other properties were immaterial, either individually or in the aggregate. General and Administrative Expense. During the years ended December 27, 1996 and December 29, 1995, Registrant incurred general and administrative expenses of approximately $14.1 million and $22.5 million, respectively. Registrant's total general and administrative expenses decreased by approximately $8.4 million from year to year due primarily as a result of the sale of the California Cable Systems during the second quarter of 1996 and KATC and WREX during 1995. The remaining increases or decreases in general and administrative expenses at Registrant's other properties were immaterial, either individually or in the aggregate. Depreciation and Amortization Expense. Registrant's depreciation and amortization expense totaled approximately $20.2 million and $28.1 million in the years ended December 27, 1996 and December 29, 1995, respectively. The approximate $7.9 million decrease in Registrant's total depreciation and amortization expense from year to year as a result of the sale of the California Cable Systems during 1996 and KATC and WREX during 1995, offsetting an approximate $3.8 million increase at C-ML Cable which resulted from the write-off of certain fixed assets during 1996. The remaining increases or decreases in depreciation and amortization expense at Registrant's other properties were immaterial, either individually or in the aggregate. Interest Expense. Interest expense of approximately $10.4 million and $19.4 million in the years ended December 27, 1996 and December 29, 1995, respectively, represents the cost incurred for borrowed funds utilized to acquire various media properties. The approximate $9.0 million decrease in interest expense is primarily due to a decrease of approximately $8.8 million related to the combined effect of the full repayment of the outstanding borrowings of the California Cable Systems and of the outstanding borrowings of the television stations in 1995. Additional Operating Information Registrant holds a 50% interest in the Venture, which in turn, through C-ML Cable, passed 284,450 homes, provided basic cable television service to 123,990 subscribers and accounted for 68,445 pay subscriptions as of December 26, 1997. The following table shows the numbers of basic subscribers and pay subscriptions at Registrant's wholly-owned California Cable Systems and at C-ML Cable:
As of As of As of December 26, December 27, December 29, 1997 1996 1995 Homes Passed California Cable Systems (wholly- owned) 0 0 221,256 C-ML Cable (50% owned) 284,450 276,858 272,198 Basic Subscribers California Cable Systems (wholly- owned) 0 0 138,864 C-ML Cable (50% owned) 123,990 117,338 115,655 Pay Subscriptions California Cable Systems (wholly- owned) 0 0 73,500 C-ML Cable (50% owned) 68,445 75,760 73,565
The overall number of homes passed by C-ML Cable increased from the end of 1995 to the end of 1997 due primarily to the extension of cable plant to pass incremental homes, and the number of basic subscribers increased during the same period. This is due to the extension of cable service to pass additional homes, as well as to an increased level of marketing. The number of pay subscriptions at C-ML Cable decreased from the end of 1995 to the end of 1997, primarily due to the Disney channel being switched to the basic channel line-up. As of December 26, 1997, Registrant operated seven radio stations in three cities in the continental United States and one city in Puerto Rico. Each of Registrant's broadcast properties competes with numerous other outlets in its area, with the number of competing outlets varying from location to location. Stations are rated in each market versus competitors based on the number of viewers or listeners tuned to the various outlets in that market. The information set forth below briefly describes, for each station owned by Registrant, the number of competitors that each station faces in its market and the station's ranking in that market, where applicable. Registrant's radio station WQAL-FM in Cleveland, Ohio competes with approximately 25 other radio stations in the Cleveland market according to Arbitron, an accepted industry source. According to Arbitron, the station was ranked number one in the market in terms of listeners 12+ as of the Fall, 1997 rating period. Registrant's radio stations WEBE-FM and WICC-AM in Fairfield County, Connecticut compete with approximately 45 other radio stations in the Fairfield County market according to Arbitron. According to Arbitron, WEBE-FM was ranked number one in Fairfield County and WICC-AM was ranked number one in Bridgeport, Connecticut in terms of listeners 12+ as of the Fall, 1997 rating period. Market rating information was not available from a reliable source for Registrant's radio stations in Puerto Rico. While reliable data is available from Arbitron for Registrant's radio stations in Anaheim, California, this information is not available to Registrant, as it does not subscribe to Arbitron or any other ratings service in the Anaheim market. The above information on competition and ratings for Registrant's broadcast properties may give a distorted view of the success of, or competitive challenges to, each of the properties for a number of reasons. For example, the signals of stations listed as competitors may not be of equal strength throughout the market. In addition, the competitive threat posed by stations that serve essentially the same broadcast area is largely dependent upon factors (e.g., financial strength, format, programming, management, etc.) unknown to or outside the control of Registrant. Finally, rating information is segmented according to numerous demographic groups (e.g., listeners 12+, women 25-34, etc.), some of which are considered more attractive than others by advertisers. Consequently, a station may be ranked highly for one group but not another, with strength in different groups having substantially different impacts on financial performance. For purposes of the discussion above, the most general type of rating was used. Item 8. Financial Statements and Supplementary Data. TABLE OF CONTENTS ML Media Partners, L.P. Independent Auditors' Report Consolidated Balance Sheets as of December 26, 1997 and December 27, 1996 Consolidated Income Statements for the Three Years Ended December 26, 1997 Consolidated Statements of Cash Flows for the Three Years Ended December 26, 1997 Consolidated Statements of Changes in Partners' Capital/(Deficit) for the Three Years Ended December 26, 1997 Notes to Consolidated Financial Statements for the Three Years Ended December 26, 1997 No financial statement schedules are included because of the absence of the conditions under which they are required or because the information is included in the financial statements or the notes thereto. INDEPENDENT AUDITORS' REPORT ML Media Partners, L.P.: We have audited the accompanying consolidated financial statements of ML Media Partners, L.P. (the "Partnership") and its affiliated entities, as listed in the accompanying table of contents. These consolidated financial statements and financial statement schedules are the responsibility of the Partnership's general partner. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the general partner, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Partnership and its affiliated entities as of December 26, 1997 and December 27, 1996 and the results of their operations and their cash flows for each of the three years in the period ended December 26, 1997 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche, LLP. New York, New York March 20, 1998
ML MEDIA PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 26, 1997 AND DECEMBER 27, 1996 1997 1996 ASSETS: Cash and cash equivalents $ 92,872,891 $ 91,591,280 Investments held by escrow agents - 6,244,252 Accounts receivable (net of allowance for doubtful accounts of $328,702 and $798,773, respectively) 5,550,419 6,768,307 Prepaid expenses and deferred charges (net of accumulated amortization of $3,640,331 and $3,481,529, respectively) 1,355,810 984,574 Property, plant and equipment - - net 23,564,815 20,582,046 Intangible assets - net 28,492,491 33,587,880 Assets held for sale 2,906,500 - Other assets 1,903,252 1,236,485 TOTAL ASSETS $156,646,178 $160,994,824 LIABILITIES AND PARTNERS' CAPITAL: Liabilities: Borrowings $ 54,244,038 $ 60,348,428 Accounts payable and accrued liabilities 22,252,266 20,941,830 Subscriber advance payments 1,512,748 1,545,835 Total Liabilities 78,009,052 82,836,093
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ML MEDIA PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 26, 1997 AND DECEMBER 27, 1996 (continued) Notes 1997 1996 Commitments and Contingencies 5,7 Partners' Capital: General Partner: Capital contributions, net of offering expenses 1,708,299 1,708,299 Cash distributions (1,357,734) (1,167,841) Cumulative income 498,724 304,047 849,289 844,505 Limited Partners: Capital contributions, net of offering expenses (187,994 Units of Limited Partnership Interest) 169,121,150 169,121,150 Tax allowance cash distribution (6,291,459) (6,291,459) Cash distributions (134,415,710) (115,616,310) Cumulative income 49,373,856 30,100,845 77,787,837 77,314,226 Total Partners' Capital 78,637,126 78,158,731 TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 156,646,178 $ 160,994,824
See Notes to Consolidated Financial Statements.
ML MEDIA PARTNERS, L.P. CONSOLIDATED INCOME STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 26, 1997 1997 1996 1995 REVENUES: Operating revenues $ 53,223,983 $ 71,831,996 $109,214,031 Interest 3,352,983 3,692,033 332,181 Loss on sale of assets - - (22,802) Gain on sale of the California Cable Systems - 185,609,191 - Gain on sale of WREX 2,005,498 - 8,838,248 Gain on sale of KATC 1,697,227 - 13,958,206 Total revenues 60,279,691 261,133,220 132,319,864 COSTS AND EXPENSES: Property operating 19,201,288 25,351,743 39,301,436 General and administrative 7,858,645 14,142,538 22,457,523 Depreciation and amortization 7,457,623 20,238,004 28,086,433 Interest expense 5,082,776 10,352,597 19,417,987 Management fees 1,211,671 1,337,034 1,566,245 Total costs and expenses 40,812,003 71,421,916 110,829,624 NET INCOME $ 19,467,688 $189,711,304 $ 21,490,240 PER UNIT OF LIMITED PARTNERSHIP INTEREST: NET INCOME $ 102.52 $ 999.04 $ 113.17 Number of Units 187,994 187,994 187,994
See Notes to Consolidated Financial Statements.
ML MEDIA PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 26, 1997 1997 1996 1995 Cash flows from operating activities: Net income $ 19,467,688 $189,711,304 $ 21,490,24 0 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,457,623 20,238,004 28,086,433 Bad debt expense/ (recovery, net) (117,767) 360,989 236,504 Gain on sale of assets - - 22,802 Gain on sale of the California Cable Systems - (185,609,191) - Gain on sale of WREX (2,005,498) - (8,838,248) Gain on sale of KATC (1,697,227) - (13,958,206 ) Changes in operating assets and liabilities: Decrease/(Increase): Short-term investments held by agents - - 6,000,000 Investments held by escrow agents 6,244,252 (5,244,252) (1,000,000) Accounts receivable 683,226 4,387,235 (750,328) Prepaid expenses and deferred charges (536,204) 396,823 197,004 Other assets (680,267) (62,218) 1,468,187 (Decrease)/Increase: Accounts payable and accrued liabilities 7,775,070 (10,445,177) (10,154,531 ) Subscriber advance payments (33,087) (101,592) 214,52 9 Net cash provided by operating activities 36,557,809 13,631,925 23,014,386
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ML MEDIA PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 26, 1997 (continued) 1997 1996 1995 Cash flows from investing activities: Proceeds from sale of - - 30,923 assets Purchase of property, plant and equipment (7,917,343) (8,236,792) (9,282,276) Intangible assets - (10,000) (246,699) Proceeds from sale of the California Cable Systems - 286,000,000 - Payment of costs incurred related to sale of the California Cable Systems (2,455,065) (8,256,285) - Proceeds from sale of KATC - - 24,500,000 Proceeds from sale of WREX - - 18,370,500 Net cash provided by/ (used in) investing activities (10,372,408 269,496,923 33,372,448 ) Cash flows from financing activities: Principal payments on borrowings (6,104,390) (122,473,500) (35,349,040) Cash distributions (18,799,400 (109,188,434) (7,595,717) ) Net cash used in financing activities (24,903,790 (231,661,934) (42,944,757) ) Net increase in cash and cash equivalents 1,281,611 51,466,914 13,442,077 Cash and cash equivalents at beginning of year 91,591,280 40,124,366 26,682,289 Cash and cash equivalents at end of year $ 92,872,891 $ 91,591,280 $ 40,124,366 Cash paid for interest $ 5,614,297 $ 10,772,817 $ 21,384,422
See Notes to Consolidated Financial Statements. ML MEDIA PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL/(DEFICIT) FOR THE THREE YEARS ENDED DECEMBER 26, 1997
General Limited Partner Partners Total 1995: Partners' Deficit as of January 1, 1995 $ (99,669) $ (16,158,993) $ (16,258,662) Net Income 214,902 21,275,338 21,490,240 Cash Distribution (75,957) (7,519,760) (7,595,717) Partners' Capital/ (Deficit) as of December 29, 1995 39,276 (2,403,415) (2,364,139) 1996: Net Income 1,897,113 187,814,191 189,711,304 Cash Distribution (1,091,884) (108,096,550) (109,188,434) Partners' Capital as of December 27, 1996 844,505 77,314,226 78,158,731 1997: Net Income 194,677 19,273,011 19,467,688 Cash Distribution (189,893) (18,799,400) (18,989,293) Partners' Capital as of December 26, 1997 $ 849,289 $ 77,787,837 $ 78,637,126
See Notes to Consolidated Financial Statements. ML MEDIA PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 26, 1997 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ML Media Partners, L.P. (the "Partnership") was formed and the Certificate of Limited Partnership was filed under the Delaware Revised Uniform Limited Partnership Act on February 1, 1985. Operations commenced on May 14, 1986 with the first closing of the sale of units of limited partnership interest ("Units"). Subscriptions for an aggregate of 187,994 Units were accepted and are now outstanding. Media Management Partners (the "General Partner") is a joint venture, organized as a general partnership under the laws of the State of New York, between RP Media Management ("RPMM"), a joint venture organized as a general partnership under the laws of the State of New York, consisting of The Elton H. Rule Company and IMP Media Management, Inc., and ML Media Management Inc. ("MLMM"), a Delaware corporation and an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. The General Partner was formed for the purpose of acting as general partner of the Partnership. The General Partner's total capital contribution amounted to $1,898,934 which represents 1% of the total Partnership capital contributions. Pursuant to the terms of the Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"), the General Partner is liable for all general obligations of the Partnership to the extent not paid by the Partnership. The limited partners are not liable for the obligations of the Partnership in excess of the amount of their contributed capital. The Partnership was formed to acquire, finance, hold, develop, improve, maintain, operate, lease, sell, exchange, dispose of and otherwise invest in and deal with media businesses and direct and indirect interests therein. As of December 26, 1997, the Partnership's operating investments in media properties consisted of: a 50% interest in a joint venture (the "Venture"), which owns an FM (WFID-FM) and AM (WUNO-AM) radio station combination and a background music service in San Juan, Puerto Rico ("C-ML Radio"), and 100% of the stock of Century-ML Cable Corporation ("C-ML Cable", jointly with C-ML Radio, the "Puerto Rico Systems"), which owns and operates two cable television systems in Puerto Rico; an FM (WEBE-FM) and AM (WICC-AM) radio station combination in Bridgeport, Connecticut; an FM (KEZY-FM) and AM (KORG-AM) radio station combination in Anaheim, California; and Wincom Broadcasting Corporation ("Wincom"), a corporation that owns an FM radio station (WQAL-FM) in Cleveland, Ohio. In early October 1997, the Venture entered into an agreement to sell C-ML Radio (see Note 2). Reclassifications Certain reclassifications were made to the 1996 and 1995 financial statements to conform with the current period's presentation. Basis of Accounting and Fiscal Year The Partnership's records are maintained on the accrual basis of accounting for financial reporting and tax purposes. Pursuant to generally accepted accounting principles, the Partnership recognizes revenue as various services are provided. The Partnership consolidates its 100% interest in Wincom; its 99.999% interests in WEBE-FM, WICC-AM, KEZY-FM and KORG-AM and its pro rata 50% interest in the Venture. In addition, the Partnership consolidated KATC-TV, WREX-TV and California Cable Systems prior to their respective dispositions (see Note 2). All intercompany accounts have been eliminated. The fiscal year of the Partnership ends on the last Friday of each calendar year. Cash Equivalents Short-term investments which have an original maturity of ninety days or less are considered cash equivalents. Property and Depreciation Property, plant and equipment is stated at cost, less accumulated depreciation. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives:
Machinery, Equipment and Distribution Systems 5-12 years Buildings 15-30.5 years Other 3-10 years
Initial subscriber connection costs, as it relates to the cable television systems, are capitalized and included as part of the distribution systems. Costs related to disconnects and reconnects are expensed as incurred. Expenditures for maintenance and repairs are charged to operating expense as incurred. Betterments, replacement equipment and additions are capitalized and depreciated over the remaining life of the assets. Intangible Assets and Deferred Charges Intangible assets and deferred charges are being amortized on a straight-line basis over various periods as follows:
Franchise life of the franchise Other Intangibles various Deferred Costs 4-10 years
The excess of cost over fair value of net assets acquired ("Goodwill") in business combinations consummated since inception of the Partnership is being amortized to expense over forty years using the straight-line method. Asset Impairment The Partnership assesses the impairment of assets on a regular basis or immediately upon the occurrence of a significant event in the marketplace or an event that directly impacts its assets. The methodology varies depending on the type of asset but typically consists of comparing the net book value of the asset to either: (1) the undiscounted expected future cash flows generated by the asset, and/or (2) the current market values obtained from industry sources. If the net book value of a particular asset is materially higher than the estimated net realizable value, and the asset is considered to be permanently impaired, the Partnership will write down the net book value of the asset accordingly; however, the Partnership may not write its assets down to a value below the asset-related non-recourse debt. The Partnership relies on industry sources and its experience in the particular marketplace to determine whether an asset impairment is other than temporary. Barter Transactions As is customary in the broadcasting industry, the Partnership engages in the bartering of commercial air time for various goods and services. Barter transactions are recorded based on the fair market value of the products and/or services received. The goods and services are capitalized or expensed as appropriate when received or utilized. Revenues are recognized when the commercial spots are aired. Revenue Recognition Operating revenue, as it relates to the cable television systems, includes earned subscriber service revenues and charges for installation and connections. Subscriber services paid for in advance are recorded as income when earned. Operating revenue, as it relates to the radio broadcasting properties is net of commissions paid to advertising agencies. 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 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. Fair Value of Financial Instruments Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", requires companies to report the fair value of certain on- and off-balance sheet assets and liabilities which are defined as financial instruments. Considerable judgment is required in interpreting data to develop the estimates of fair value. Accordingly, the estimates presented herein are not indicative of the amounts that the Partnership could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Income Taxes The Partnership accounts for income taxes pursuant to SFAS No. 109 "Accounting for Income Taxes". No provision for income taxes has been made for the Partnership because all income and losses are allocated to the partners for inclusion in their respective tax returns. However, the Partnership owns certain entities which are consolidated in the accompanying financial statements which are taxable entities. For entities owned by the Partnership which are consolidated in the accompanying financial statements, SFAS No. 109 requires the recognition of deferred income taxes for the tax consequences of differences between the bases of assets and liabilities for income tax and financial statement reporting, based on enacted tax laws. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. For the Partnership, SFAS No. 109 requires the disclosure of the difference between the tax bases and the reported amounts of the Partnership's assets and liabilities (see Note 11). Recent Accounting Statements Not Yet Adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued in June 1997 and is effective for financial statements for periods beginning after December 15, 1997. This statement establishes standards for the way public companies report information about operating segments in annual and interim financial statements. The Partnership believes its current reporting systems will enable it to comply with the implementation of SFAS No. 131. 2. DISPOSITION OF ASSETS AND PENDING TRANSACTIONS WREX On July 31, 1995, the Partnership completed the sale to Quincy Newspapers, Inc. ("Quincy") of substantially all of the assets used in the operations of the Partnership's television station WREX-TV, Rockford, Illinois ("WREX"), other than cash and accounts receivable. Quincy did not assume certain liabilities of WREX. The purchase price for the assets was approximately $18.4 million, subject to certain adjustments. A reserve of approximately $2.3 million was established to cover certain purchase price adjustments and expenses and liabilities relating to WREX, and the balance of approximately $16.1 million was applied to repay a portion of the bank indebtedness secured by the assets of WREX and KATC (as defined below). On the sale of WREX, the Partnership recognized a gain for financial reporting purposes of approximately $8.8 million in 1995. Effective August 14, 1997, approximately $1.8 million, a portion of the reserve established at the time of the WREX sale, was released. In accordance with the terms of the Partnership Agreement, such released reserve amount, after accounting for certain expenses of the Partnership, were included in the cash distribution made to partners on November 25, 1997. In addition, effective December 26, 1997, the remaining reserve established at the time of the WREX sale of approximately $161,000 was released. Thus, during 1997, the Partnership recognized a gain on sale of WREX of approximately $2.0 million resulting from the release of reserves and reversal of previous accruals. KATC On September 30, 1995, the Partnership completed the sale to KATC Communications, Inc. (the "KATC Buyer") of substantially all of the assets used in the operations of the Partnership's television station KATC-TV, Lafayette, Louisiana ("KATC"), other than cash and accounts receivable. The KATC Buyer did not assume certain liabilities of KATC. The purchase price for the assets was $24.5 million. From the proceeds of the sale, approximately $6.3 million was applied to repay in full the remaining bank indebtedness secured by the assets of KATC and WREX; a reserve of approximately $2.0 million was established to cover certain purchase price adjustments and expenses and liabilities relating to KATC; $1.0 million was deposited into an indemnity escrow account to secure the Partnership's indemnification obligations to the KATC Buyer; approximately $7.6 million was applied to pay a portion of accrued fees and expenses owed to the General Partner; and the remaining amount of approximately $7.6 million ($40 per Unit) was distributed to partners in December, 1995. The Partnership recognized a gain for financial reporting purposes of approximately $14.0 million on the sale of KATC in 1995. On June 24, 1997, the Partnership received the release of escrowed proceeds of $1.0 million (and approximately $100,000 of interest earned thereon) generated from the sale of KATC. In addition, effective August 14, 1997, approximately $1.5 million, a portion of the reserve established at the time of the KATC sale, was released. In accordance with the terms of the Partnership Agreement, the amount of such released reserve and escrowed proceeds, after accounting for certain expenses of the Partnership, were included in the cash distribution made to partners on November 25, 1997. In addition, effective December 26, 1997, the remaining reserve established at the time of the KATC sale of approximately $218,000 was released. Thus, during 1997, the Partnership recognized a gain on sale of KATC-TV of approximately $1.7 million resulting from the release of reserves and reversal of previous accruals. Puerto Rico Radio In October 1997, the Venture entered into a sales agreement to sell C-ML Radio for approximately $11.5 million, subject to closing adjustments. In addition, in connection with such sales agreement, the Partnership entered into a Local Marketing Agreement, effective as of October 1, 1997, which, subject to compliance with the rules of the Federal Communications Commission ("Commission" or "FCC"), allows the buyer to program the station. Since there are numerous conditions to closing, including FCC approval, there can be no assurance that the sale will be consummated as contemplated and without consummation the Local Marketing Agreement will be cancelled. The Partnership anticipates receiving no proceeds from any resulting sale since any sale proceeds received from the sale of C-ML Radio are required to be applied against the aggregate outstanding senior indebtedness which jointly finances C-ML Radio and C-ML Cable. The net assets of C-ML Radio which are to be sold pursuant to the sale agreement have been included in assets held for sale on the accompanying Consolidated Balance Sheet as of December 26, 1997. California Cable On November 28, 1994, the Partnership entered into an agreement (the "Asset Purchase Agreement") with Century Communications Corp. ("Century") to sell to Century substantially all of the assets used in the Partnership's California Cable Operation serving the Anaheim, Hermosa Beach/Manhattan Beach, Rohnert Park/Yountville and Fairfield communities (the "California Cable Systems"). On May 31, 1996, the Partnership consummated such sale pursuant to the terms of the Asset Purchase Agreement. The base purchase price for the California Cable Systems was $286 million, subject to certain adjustments including an operating cash flow, as well as, a working capital adjustment, as provided in the Asset Purchase Agreement. Pursuant to the Asset Purchase Agreement and a letter agreement, entered into by the Partnership and Century at closing, the Partnership deposited $5 million into an indemnity escrow account pending the resolution of certain rate regulation and other matters relating to charges by the Partnership to its subscribers for cable service. On June 3, 1997, the Partnership received the release of such escrowed proceeds ($5 million and approximately $300,000 of interest earned thereon) generated from the sale of the California Cable Systems. This release of escrowed proceeds, after accounting for certain expenses of the Partnership, was included in a cash distribution made to partners on November 25, 1997, in accordance with the terms of the Partnership Agreement. In addition, upon closing of the sale of the California Cable Systems, the Partnership set aside approximately $40.7 million in a cash reserve to cover operating liabilities, current litigation, and litigation contingencies relating to the California Cable Systems' operations prior to and resulting from their sale, as well as a potential purchase price adjustment. In accordance with the terms of the Partnership Agreement, any amounts which may be available for distribution from any unused cash reserves, after accounting for certain other expenses of the Partnership including certain expenses incurred after May 31, 1996, will be distributed to partners of record as of the date such unused reserves are released, when the Partnership determines such reserves are no longer necessary, rather than to the partners of record on May 31, 1996, the date of the sale. Effective August 14, 1997, reserves in the amount of approximately $13.2 million were released and, after accounting for certain expenses of the Partnership, in accordance with the terms of the Partnership Agreement, were included in the cash distribution that was distributed to partners on November 25, 1997. As of December 26, 1997, the Partnership has approximately $23.3 million remaining in cash reserves to cover operating liabilities, current litigation, and litigation contingencies relating to the California Cable Systems prior to and resulting from their sale. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following:
As of As of December 26, December 27, 1997 1996 Land and Improvements $ 549,613 $ 994,026 Buildings 2,070,652 2,330,889 Cable Distribution Systems and Equipment 34,773,035 31,486,992 Other 1,124,352 1,016,181 38,517,652 35,828,088 Less accumulated (14,952,837) (15,246,042) depreciation Property, plant and equipment, net $ 23,564,815 $ 20,582,046
4. INTANGIBLE ASSETS Intangible assets consisted of the following:
As of As of December 26, December 27, 1997 1996 Goodwill $ 41,611,143 $ 43,798,528 Franchises 35,315,562 35,315,562 Other 8,916,911 8,819,911 85,843,616 87,934,001 Less accumulated (57,351,125) (54,346,121) amortization Intangible assets, net $ 28,492,491 $ 33,587,880
5. BORROWINGS The aggregate amount of borrowings as reflected on the Consolidated Balance Sheets of the Partnership is as follows:
As of As of December 26, December 27, 1997 1996 A)C-ML Notes/Credit $ 50,000,000 $ 50,000,000 Agreement B)Restructuring Agreement/Wincom-WEBE-WICC Loan 4,244,038 10,348,428 $ 54,244,038 $ 60,348,428
A) Borrowings under the C-ML Notes bear semi-annual interest at a fixed annual rate of 9.47%. Beginning November 30, 1998, annual principal payments of $20 million, of which the Partnership's share is $10 million (see Note 9), commence and continue thereafter until November 30, 2002. The C-ML Notes require that C-ML Cable maintain certain ratios such as debt to operating cash flow, interest expense coverage and debt service coverage and restricts such items as cash distributions and certain additional indebtedness. Borrowings under the C-ML Notes are nonrecourse to the Partnership and are collateralized with substantially all of the Venture's interest in C-ML Cable and C-ML Radio, as well as by all of the assets of C-ML Cable and C-ML Radio. As of December 26, 1997 and December 27, 1996, outstanding borrowings under the C-ML Notes totaled $100 million, of which the Partnership's share is $50 million. B) On July 30, 1993, the Partnership and Chemical Bank (the "Wincom Bank") executed an agreement amending the Wincom- WEBE-WICC Loan (the "Restructuring Agreement"). The Restructuring Agreement provided for the outstanding principal and interest due the Wincom Bank as of December 31, 1992 (approximately $24.7 million and $2.0 million, respectively) to be divided into three notes as follows: a Series A Term Loan in the amount of $13.0 million; a Series B Term Loan in the amount of approximately $11.7 million; and a Series C Term Loan in the amount of approximately $2.0 million which was forgiven by the Wincom Bank on October 1, 1993 pursuant to the terms of the Restructuring Agreement. The Series A Term Loan bears interest, payable monthly, at the Wincom Bank's Alternate Base Rate plus 1-3/4% with principal payments due quarterly through the final maturity at December 31, 1997. The outstanding balance under the Series A Term Loan was $1,850,901 as of December 26, 1997. The Series B Term Loan bears interest at a rate equal to the Wincom Bank's Alternate Base Rate plus 1-3/4% beginning on April 30, 1994, with interest payments accruing, and payable annually only from Excess Cash Flow. The outstanding balance under the Series B Term Loan was $2,393,137 as of December 26, 1997, and was due on December 31, 1997. On December 31, 1997, the Wincom-WEBE-WICC Loan matured and became due and payable in accordance with their terms. On that date, the Partnership made a partial payment to the Wincom Bank but did not repay the remainder of the Wincom- WEBE-WICC Loan. As a result of such default, the Wincom Bank has the right to take actions to enforce its right under the Wincom-WEBE-WICC Loan including the right to foreclose on the properties of the Wincom-WEBE-WICC group. The Wincom-WEBE-WICC Loan is non-recourse to the other assets of the Partnership. The Partnership and the Wincom Bank are negotiating the terms of a waiver of the default and an amendment to the Wincom-WEBE-WICC Loan that would, among other things, extend the maturity date of the loan to June 30, 1999. The Partnership expects to either enter into such amendment or to repay the full amount of principal and interest due under the loan in 1998. Borrowings under the Wincom-WEBE-WICC Loan are nonrecourse to the Partnership and are collateralized with substantially all of the assets of the Wincom-WEBE-WICC group. After the remaining principal and interest due under the Series A Term Loan and the Series B Term Loan are satisfied in full, any remaining Net Cash Proceeds (as defined in the Restructuring Agreement), from the sale of the stations in the Wincom-WEBE-WICC group will be divided between the Partnership and the Wincom Bank, with the Partnership receiving 85% and the Wincom Bank receiving 15%, respectively. As of December 26, 1997, the annual aggregate amounts of principal payments (inclusive of defaulted principal payments totaling $4,244,038) required for the borrowings as reflected in the Consolidated Balance Sheet of the Partnership are as follows:
Year Ending Principal Amount 1998 $ 14,244,038 1999 10,000,000 2000 10,000,000 2001 10,000,000 2002 10,000,000 Thereafter 0 $ 54,244,038
Based upon the restrictions of the borrowings as described above, approximately $94.0 million of assets are restricted from distribution by the entities in which the Partnership has an interest as of December 26, 1997. 6. TRANSACTIONS WITH THE GENERAL PARTNER AND ITS AFFILIATES During the three years ended December 26, 1997, the Partnership incurred the following expenses in connection with services provided by the General Partner and its affiliates:
1997 1996 1995 Media Management Partners (General Partner): Partnership Mgmt. fee $ 557,979 $ 557,979 $ 557,979 Property Mgmt. fee 653,692 779,055 1,008,266 Reimbursement of Operating Expenses 951,940 799,690 1,039,772 $ 2,163,611 $2,136,724 $ 2,606,017
In addition, the Partnership, through the California Cable Systems, was party to an agreement with MultiVision Cable TV Corp. ("MultiVision"), an affiliate of the General Partner, whereby MultiVision provided the California Cable Systems with certain administrative and day-to-day management services. The California Cable Systems paid for these services at cost. The reimbursed costs incurred by MultiVision on behalf of the California Cable Systems amounted to an aggregate of $804,843, $3,662,649 and $2,629,560 for 1997, 1996 and 1995, respectively. These costs did not include programming costs that were charged, without markup, to the California Cable Systems under an agreement to allocate certain management costs. Certain administrative and day to day management services were provided to the Partnership's radio station investments from RP Radio Management Inc., an affiliate of the General Partner, during the second half of 1996 and all of 1997. The reimbursed costs incurred by RP Radio Management Inc. on behalf of the Partnership's radio station investments totaled $693,929 during 1997 and $143,536 during the second half of 1996. The radio station investments paid for these services at cost. These administrative and day-to-day management services were provided by a third party in prior periods. On December 27, 1997, RP Radio Management Inc. was merged into RP Radio Management LLC, an entity wholly owned by the Partnership. RP Television, an affiliate of the General Partner, provided certain administrative and accounting services to the Partnership's television stations. The television stations paid for these services at cost. The reimbursed cost incurred by RP Television on behalf of the Partnership's television stations totaled $101,371, $82,066 and $189,384 for 1997, 1996 and 1995, respectively. The reimbursed costs related to MultiVision, RP Radio Management Inc., and RP Television are included in the Consolidated Income Statements. From the initial sale proceeds of the California Cable Systems in 1996, the Partnership will remit accrued management fees and expenses owed to the General Partner of approximately $9.2 million, of which $7.6 million was paid through December 26, 1997. As of December 26, 1997, December 27, 1996 and December 29, 1995, the amounts payable to the General Partner for management fees and reimbursement of operating expenses were approximately $4.5 million, $2.3 million and $7.9 million, respectively. 7. COMMITMENTS AND CONTINGENCIES Lease Commitments C-ML Cable rents office and warehouse facilities under various operating lease agreements. In addition, Wincom, the Anaheim Radio Stations, WEBE-FM and WICC-AM lease office space, broadcast facilities and certain other equipment under various operating lease agreements. Prior to their disposition, KATC-TV and the California Cable Systems leased office space, equipment, and space on utility poles under operating leases with terms of less than one year, or under agreements which are generally terminable on short notice. Rental expense was incurred for the three years ended December 26, 1997 as follows:
1997 1996 1995 California Cable Systems $ - $ 199,501 $ 377,186 KATC-TV - - 8,250 WICC-AM 62,457 72,898 105,182 Anaheim Radio Stations 152,016 145,796 136,260 WEBE-FM 199,004 202,730 147,587 Wincom 158,931 148,296 151,477 C-ML Cable 45,075 30,000 30,000 $ 617,483 $ 799,221 $ 955,942
Future minimum commitments under all of the above agreements in excess of one year are as follows:
Year Ending Amount 1998 $ 678,014 1999 616,793 2000 406,324 2001 398,184 2002 361,382 Thereafter 970,444 $3,431,141
Litigation On August 29, 1997, a purported class action was commenced in New York Supreme Court, New York County, on behalf of the limited partners of the Partnership, against the Partnership, the Partnership's general partner, Media Management Partners, the General Partner's two partners, RP Media Management ("RPMM") and ML Media Management Inc. ("MLMM"), Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The action concerns the Partnership's payment of certain management fees and expenses to the General Partner and the payment of certain purported fees to an affiliate of RPMM. Specifically, the plaintiffs allege breach of the Partnership Agreement, breach of fiduciary duties, and unjust enrichment by the General Partner in that the General Partner allegedly: (1) improperly deferred and accrued certain management fees and expenses in an amount in excess of $14.0 million, (2) improperly paid itself such fees and expenses out of proceeds from sales of Partnership assets, and (3) improperly paid MultiVision, supposedly duplicative fees in an amount in excess of $14.4 million. With respect to Merrill Lynch & Co., Inc., Merrill Lynch, MLMM and RPMM, plaintiffs claim that these defendants aided and abetted the General Partner in the alleged breach of the Partnership Agreement and in the alleged breach of the General Partner's fiduciary duties. Plaintiffs seek, among other things, an injunction barring defendants from paying themselves management fees or expenses not expressly authorized by the Partnership Agreement, an accounting, disgorgement of the alleged improperly paid fees and expenses, and compensatory and punitive damages. On December 12, 1997, defendants served a motion to dismiss the complaint and each claim for relief therein. Plaintiffs' opposition to defendants' motion was served on March 20, 1998. Defendants' reply to plaintiffs' response is due on April 29, 1998. Defendants believe that they have good and meritorious defenses to the action. The Partnership Agreement provides for indemnification, to the fullest extent provided by law, for any person or entity named as a party to any threatened, pending or completed suit by reason of any alleged act or omission arising out of such person's activities as a General Partner or as an officer, director or affiliate of either RPMM, MLMM or the General Partner, subject to specified conditions. In connection with the purported class action filed on August 29, 1997, the Partnership has received notices of requests for indemnification from the following defendants named therein: the General Partner, RPMM, MLMM, Merrill Lynch & Co., Inc. and Merrill Lynch. As of December 26, 1997, the Partnership accrued approximately $280,000 for legal costs incurred through December 26, 1997, relating to such indemnification. 8. SEGMENT INFORMATION The following analysis provides segment information for the two main industries in which the Partnership operates. The Cable Television Systems segment consists of the Partnership's 50% share of C-ML Cable and the California Cable Systems until its sale on May 31, 1996. The Television and Radio Stations segment consists of KATC-TV until its sale on September 30, 1995, WREX-TV until its sale on July 31, 1995, WEBE-FM, Wincom, WICC-AM, the Anaheim Radio Stations, and the Partnership's 50% share of C-ML Radio.
Cable Television Television and Radio 1997 Systems Stations Total Operating revenues $ 29,404,870 $ 23,819,113 $ 53,223,983 Interest income 2,316,128 316,026 2,632,154 Operating expenses (16,723,091) (16,327,067) (33,050,158) Operating income before gain on sale of assets 14,997,907 7,808,072 22,805,979 Gain on sale of KATC - 1,697,227 1,697,227 Gain on sale of WREX - 2,005,498 2,005,498 Operating income 14,997,907 11,510,797 26,508,704 Plus: depreciation and amortization 6,143,721 1,313,902 7,457,623 Operating income before depreciation and amortization 21,141,628 12,824,699 33,966,327 Less: depreciation and amortization (6,143,721) (1,313,902) (7,457,623) Operating income $ 14,997,907 $ 11,510,797 26,508,704 Interest income 720,829 Interest expense (5,082,776) Partnership expenses (2,679,069) Net income $ 19,467,688 Identifiable assets $103,606,224 $ 39,334,158 $142,940,382 Partnership assets 13,705,796 Total $156,646,178 Capital expenditures $ 7,731,495 $ 185,848 $ 7,917,343 Depreciation and amortization $ 6,143,721 $ 1,313,902 $ 7,457,623
Cable Television Television and Radio 1996 Systems Stations Total Operating revenues $ 50,428,590 $ 21,143,717 $ 71,572,307 Interest income 1,166,362 346,537 1,512,899 Operating expenses (42,296,680) (16,309,917) (58,606,597) Operating income before gain on sale of assets 9,298,272 5,180,337 14,478,609 Gain on sale of the California Cable Systems 185,609,191 - 185,609,191 Operating income 194,907,463 5,180,337 200,087,800 Plus: depreciation and amortization 18,848,938 1,389,066 20,238,004 Operating income before depreciation and amortization 213,756,401 6,569,403 220,325,804 Less: depreciation and amortization (18,848,938) (1,389,066) (20,238,004) Operating income $194,907,463 $ 5,180,337 200,087,800 Service fee income from C-ML Radio 259,689 Interest income 2,179,134 Interest expense (10,352,597) Partnership expenses (2,462,722) Net income $189,711,304 Identifiable assets $107,467,339 $ 44,693,750 $152,161,089 Partnership assets 8,833,735 Total $160,994,824 Capital expenditures $ 7,833,870 $ 402,922 $ 8,236,792 Depreciation and amortization $ 18,848,938 $ 1,389,066 $ 20,238,004
Cable Television Television and Radio 1995 Systems Stations Total Operating revenues $ 81,242,427 $ 27,971,604 $109,214,031 Operating expenses (65,687,910) (22,878,517) (88,566,427) Operating income before gain/(loss) on sale of assets 15,554,517 5,093,087 20,647,604 Gain on sale of WREX - 8,838,248 8,838,248 Gain on sale of KATC - 13,958,206 13,958,206 Loss on sale of assets (22,802) - (22,802) Operating income 15,531,715 27,889,541 43,421,256 Plus: depreciation and amortization 25,986,951 2,099,482 28,086,433 Operating income before depreciation and amortization 41,518,666 29,989,023 71,507,689 Less: depreciation and amortization (25,986,951) (2,099,482) (28,086,433) Operating income $ 15,531,715 $ 27,889,541 43,421,256 Interest income 332,181 Interest expense (19,417,987) Partnership expenses (2,845,210) Net income $ 21,490,240 Identifiable assets $161,967,792 $ 44,221,535 $206,189,327 Partnership assets 4,009,169 Total $210,198,496 Capital expenditures $ 8,850,903 $ 431,373 $ 9,282,276 Depreciation and amortization $ 25,986,951 $ 2,099,482 $ 28,086,433
9. JOINT VENTURES Pursuant to a management agreement and joint venture agreement dated December 16, 1986 (the "Joint Venture Agreement"), as amended and restated, between the Partnership and Century (the "Venture"), the parties formed a joint venture in which each has a 50% ownership interest. The Venture, through its wholly-owned subsidiary, Century-ML Cable Corp. ("C-ML Cable Corp."), subsequently acquired Cable Television Company of Greater San Juan, Inc. ("San Juan Cable") and liquidated San Juan Cable into C-ML Cable Corp. The Venture also acquired all of the assets of Community Cable-Vision of Puerto Rico, Inc., Community Cablevision of Puerto Rico Associates, and Community Cablevision Incorporated ("Community Companies"), which consisted of a cable television system serving the communities of Catano, Toa Baja and Toa Alta, Puerto Rico, which are contiguous to San Juan Cable. The Community Companies and C-ML Cable Corp. are collectively referred to as C-ML Cable. On February 15, 1989, the Partnership and Century entered into a management agreement and joint venture agreement whereby a new joint venture, Century-ML Radio Venture ("C-ML Radio"), was formed under New York law. Responsibility for the management of radio stations acquired by C-ML Radio was assumed by the Partnership. Effective January 1, 1994, all of the assets of C-ML Radio were transferred to the Venture, in exchange for the assumption by the Venture of all the obligations of C-ML Radio and the issuance to Century and the Partnership by the Venture of new certificates evidencing a partnership interest of 50% and 50%, respectively. The transfer was made pursuant to a Transfer of Assets and Assumption of Liabilities Agreement. At the time of this transfer, the Partnership and Century entered into an amended and restated management agreement and joint venture agreement (the "Revised Joint Venture Agreement") governing the affairs of the Venture as revised. Under the terms of the Revised Joint Venture Agreement, Century is responsible for the day-to-day operations of C-ML Cable and the Partnership is responsible for the day-to-day operations of C- ML Radio. For providing services of this kind, Century is entitled to receive annual compensation of 5% of C-ML Cable's net gross revenues (defined as gross revenues from all sources less monies paid to suppliers of pay TV product, e.g., HBO, Cinemax and Showtime) and the Partnership is entitled to receive annual compensation of 5% of C-ML Radio's gross revenues (after agency commissions, rebates or discounts and excluding revenues from barter transactions). All significant policy decisions relating to the Venture, the operation of C-ML Cable and the operation of C-ML Radio, however, will only be made upon the concurrence of both the Partnership and Century. The Partnership may require a sale of such assets and business of C-ML Cable or C-ML Radio at any time. If the Partnership proposes such a sale, the Partnership must first offer Century the right to purchase the Partnership's 50% interest in such assets being sold at 50% of the total fair market value at such time as determined by independent appraisal. If Century elects to sell either the C-ML Cable or C-ML Radio, the Partnership may elect to purchase Century's interest in such assets being sold on similar terms. The total assets, total liabilities, net capital, total revenues and net income of the Venture as revised are as follows:
December 26, December 27, 1997 1996 Total Assets $ 152,300,00 $ 126,300,000 0 Total Liabilities $ 127,300,00 $ 117,700,000 0 Net Capital $ 25,000,00 $ 8,600,000 0
1997 1996 1995 Total Revenues $ 62,900,000 $ 58,600,000 $ 53,800,000 Net Income $ 16,400,000 $ 500,000 $ 4,600,000
In October 1997, the Venture entered into a sales agreement to sell C-ML Radio for approximately $11.5 million, subject to closing adjustments (see Note 2). 10. FAIR VALUE OF FINANCIAL INSTRUMENTS Assets, including cash and cash equivalents and accounts receivable and liabilities, such as trade payables, are carried at amounts which approximate fair value. The General Partner has been able to determine the estimated fair value of the C-ML Notes based on a discounted cash flow analysis. As of December 26, 1997 and December 27, 1996, the estimated fair value of the C-ML Notes is approximately $104 million and $104 million, respectively, of which approximately 50% of the estimated fair value or $52 million and $52 million, respectively pertains to the carrying amount reflected on the Partnership's Consolidated Balance Sheet. The General Partner has determined that the carrying value of the Restructuring Agreement relating to the Wincom-WEBE-WICC Loan approximates fair value due to the floating rate nature of the outstanding borrowings without giving effect to the 15% equity participation. 11. ACCOUNTING FOR INCOME TAXES Certain entities owned by the Partnership are taxable entities and thus are required under SFAS No. 109 to recognize deferred income taxes. Income taxes consist of the following:
Year Ended December 31, 1997 1996 1995 Current Federal $ 155,331 $ - $ - State 7,100 - - 162,431 - - Deferred Federal (1,777,096) - - State - - - (1,777,096) - - Recorded benefit for income taxes $(1,614,665) $ - $ - The components of the net deferred tax asset are as follows:
As of As of December 26, December 27, 1997 1996 Deferred tax assets: Basis of intangible assets $ 24,168 $ 52,325 Net operating loss carryforward 7,857,921 15,205,078 Alternative minimum tax credit 301,096 228,765 Other 475,092 30,520 8,658,277 15,516,688 Deferred tax liabilities: Basis of property, plant and equipment (26,379) (27,322) Total 8,631,898 15,489,366 Less: valuation allowance (6,854,802) (15,489,366) Net deferred tax asset $ 1,777,096 $ 0
The decrease in the valuation allowance for the year ended December 26, 1997 of approximately $8.6 million relates primarily to the utilization and expiration of net operating loss carryforwards. Management believes that it is more likely than not that it will generate taxable income sufficient to realize a portion of the tax benefit associated with future temporary differences and net operating loss carryforwards prior to their expiration. As of December 26, 1997, the taxable entities have available net operating loss carryforwards of approximately $24.7 million which may be applied against future taxable income of such entities. Such net operating loss carryforwards expire at various dates from 1998 through 2007. For the Partnership, the differences between the tax basis of assets and liabilities and the reported amounts are as follows:
As of As of December 26, December 27, 1997 1996 Partners' Capital - financial statements $ 78,637,126 $ 78,158,731 Differences: Offering expenses 19,063,585 19,063,585 Basis of property, plant and equipment and intangible assets 2,481,101 5,415,192 Cumulative losses of stock investments (corporations) 62,196,213 72,762,062 Management fees 2,931,410 782,653 Other 2,844,149 (8,240,254) Partners' Capital - income tax basis $168,153,584 $167,941,969
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Part III. Item 10. Directors and Executive Officers of the Registrant. Registrant has no executive officers or directors. The General Partner manages Registrant's affairs and has general responsibility and authority in all matters affecting its business. The responsibilities of the General Partner are carried out either by executive officers of RP Media Management or ML Media Management Inc. acting on behalf of the General Partner. The executive officers and directors of RP Media Management and ML Media Management Inc. are: RP Media Management (the "Management Company") Served in Present Capacity Name Since (1) Position Held I. Martin Pompadur 1/01/86 President, Chief Executive Officer, Chief Operating Officer, Secretary, Director Elizabeth McNey Yates 4/01/88 Executive Vice President (1) The Director holds office until his successor is elected and qualified. All executive officers serve at the pleasure of the Director. ML Media Management Inc. ("MLMM") Served in Present Capacity Name Since (1) Position Held Kevin K. Albert 02/19/91 President 12/16/85 Director Robert F. Aufenanger 02/02/93 Executive Vice President 03/28/88 Director Michael E. Lurie 08/10/95 Vice President 08/11/95 Director Steven N. Baumgarten 02/02/93 Vice President David G. Cohen 08/11/95 Vice President Diane T. Herte 08/11/95 Treasurer (1) Directors hold office until their successors are elected and qualified. All executive officers serve at the pleasure of the Board of Directors. I. Martin Pompadur, 62, Director and President of RP Media Management. Mr. Pompadur is also the Chairman and Chief Executive Officer of GP Station Partners which is the General Partner of Television Station Partners, L.P., a private limited partnership that owned and operated four network affiliated television stations. These stations were sold in January 1996 and this partnership is currently in its liquidation phase. Mr. Pompadur is the Chairman and Chief Executive Officer of PBTV, Inc., the Managing General Partner of Northeastern Television Investors Limited Partnership, a private limited partnership which owned and operated WBRE-TV, a network affiliated station in Wilkes-Barre/Scranton, Pennsylvania. This station was sold in January 1998, and is currently in its liquidating phase. Mr. Pompadur is also the President and a Director of RP Opportunity Management, L.P. ("RPOM"), a limited partnership organized under the laws of Delaware, which is indirectly owned and controlled by Mr. Pompadur. RPOM is a partner in Media Opportunity Management Partners, an affiliate of the General Partner, and the general partner of ML Media Opportunity Partners, L.P. which was formed to invest in under performing and turnaround media businesses. Mr. Pompadur is the Principal Executive Officer of ML Media Opportunity Partners, L.P. Mr. Pompadur is also Chief Executive Officer of MultiVision Cable TV Corp. ("MultiVision"), a cable television multiple system operator ("MSO") organized in January 1988 and owned principally by Mr. Pompadur and the estate of Elton H. Rule to provide MSO services to cable television systems acquired by entities under his control. Mr. Pompadur was the Principal Executive Officer and principal owner of RP Radio Management Inc. ("RP Radio"), a company owned principally by Mr. Pompadur to provide administrative and day-to-day management services to Registrant's radio properties. On December 27, 1997, RP Radio Management Inc. was merged into RP Radio Management LLC, an entity wholly owned by Registrant. Mr. Pompadur is a principal owner, member of the Board of Directors and Secretary of Caribbean International News Corporation ("Caribbean"). Caribbean owns and publishes EL Vocero, the largest Spanish language daily newspaper in the United States. Elizabeth McNey Yates, 34, Executive Vice President of RP Media Management, joined RP Companies Inc., an entity controlled by Mr. Pompadur, in April 1988 and has senior executive responsibilities in the areas of finance, operations, administration, acquisitions and dispositions. Ms. Yates is Chief Operating Officer and Executive Vice President of RP Companies, Inc., Executive Vice President of RPOM, Chief Operating Officer and Executive Vice President of RP Radio. In addition, Ms. Yates is the President and Chief Operating Officer of MultiVision. Kevin K. Albert, 45, a Managing Director of Merrill Lynch Investment Banking Group ("ML Investment Banking"), joined Merrill Lynch in 1981. Mr. Albert works in the Equity Private Placement Group and is involved in structuring and placing a diversified array of private equity financings including common stock, preferred stock, limited partnership interests and other equity-related securities. Mr. Albert is also a director of ML Film Entertainment Inc. ("ML Film"), an affiliate of MLMM and the managing general partner of the general partners of Delphi Film Associates IV, V and ML Delphi Premier Partners, L.P.; a director of ML Opportunity Management Inc. ("ML Opportunity"), an affiliate of MLMM and a joint venturer in Media Opportunity Management Partners, the general partner of ML Media Opportunity Partners, L.P.; a director of ML Mezzanine II Inc. ("ML Mezzanine II"), an affiliate of MLMM and sole general partner of the managing general partner of ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II, L.P.; a director of ML Mezzanine Inc. ("ML Mezzanine"), an affiliate of MLMM and the sole general partner of the managing general partner of ML-Lee Acquisition Fund, L.P.; a director of Merrill Lynch Venture Capital Inc. ("ML Venture"), an affiliate of MLMM and the general partner of the Managing General Partner of ML Venture Partners II, L.P. ("Venture II") and ML Oklahoma Venture Partners Limited Partnership ("Oklahoma") and a director of Merrill Lynch R&D Management Inc. ("ML R&D"), an affiliate of MLMM and the general partner of the General Partner of ML Technology Ventures, L.P. Mr. Albert also serves as an independent general partner of Venture II. Robert F. Aufenanger, 44, a Vice President of Merrill Lynch & Co. Corporate Credit and a Director of the Partnership Management Department, joined Merrill Lynch in 1980. Mr. Aufenanger is responsible for the ongoing management of the operations of various real estate and project related limited partnerships for which subsidiaries of ML Leasing Equipment Corp. and Merrill Lynch, Hubbard Inc., affiliates of Merrill Lynch, are general partners. Mr. Aufenanger is also a director of ML Opportunity, MLH Real Estate Inc., an affiliate of MLMM and the general partner of the Associate General Partner of ML/EQ Real Estate Portfolio, L.P., MLH Property Managers Inc., an affiliate of MLMM and the Managing General Partner of MLH Income Realty Partnership VI, ML Film, ML Venture, ML R&D, ML Mezzanine and ML Mezzanine II. Michael E. Lurie, 54, a First Vice President of Merrill Lynch & Co. Corporate Credit and the Director of the Asset Recovery Management Department, joined Merrill Lynch in 1970. Prior to his present position, Mr. Lurie was the Director of Debt and Equity Markets Credit responsible for the global allocation of credit limits and the approval and structuring of specific transactions relating to debt and equity products. Mr. Lurie also served as Chairman of the Merrill Lynch International Bank Credit Committee. Mr. Lurie is also a director of ML Opportunity, ML Film, ML Venture, ML R&D and MLH Real Estate Inc. Steven N. Baumgarten, 42, a Vice President of Merrill Lynch & Co. Corporate Credit joined Merrill Lynch in 1986. Mr. Baumgarten shares responsibility for the ongoing management of the operations of various project related limited partnerships for which subsidiaries of ML Leasing Equipment Corp., an affiliate of Merrill Lynch, are general partners. Mr. Baumgarten is also a director of ML Film. David G. Cohen, 35, a Vice President of Merrill Lynch & Co. Corporate Credit joined Merrill Lynch in 1987. Mr. Cohen shares responsibility for the ongoing management of the operations of various project related limited partnerships for which subsidiaries of ML Leasing Equipment Corp., an affiliate of Merrill Lynch, are general partners. Diane T. Herte, 37, a Vice President of Merrill Lynch & Co. Investment Banking Group since 1996 and previously an Assistant Vice President of Merrill Lynch & Co. Corporate Credit Group since 1992, joined Merrill Lynch in 1984. Ms. Herte's responsibilities include controllership and financial management functions for certain partnerships and other entities for which subsidiaries of Merrill Lynch are the general partner, manager or administrator. Mr. Pompadur and Ms. Yates were each executive officers of Maryland Cable Corp. and Maryland Cable Holdings Corp. at and during the two years prior to the filing by both companies on March 10, 1994 of a consolidated plan of reorganization under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. Maryland Cable Holdings Corp. was at the time of such filings a subsidiary of ML Media Opportunity Partners, L.P. Mr. Aufenanger is an executive officer of Mid-Miami Diagnostics Inc. ("Mid-Miami Inc."). On October 28, 1994 both Mid-Miami Inc. and Mid-Miami Diagnostics, L.P. filed voluntary petitions for protection from creditors under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. An Investment Committee of Registrant was established to have the responsibility and authority for developing, in conjunction with the Management Company, diversification objectives for the investments to be made by Registrant, for reviewing and approving each investment proposed by the Management Company for Registrant and for evaluating and approving dispositions of investments of Registrant. The Investment Committee will also establish reserves for Registrant for such purposes and in such amounts as it deems appropriate. A simple majority vote shall be required for any proposed investment or disposition. The Investment Committee also has the responsibility and authority for monitoring the management of the investments of Registrant by the Management Company. The current members of the Investment Committee are as follows: RPMM Representative MLMM Representatives I. Martin Pompadur Kevin K. Albert Robert F. Aufenanger Item 11.Executive Compensation. Registrant does not pay the executive officers or directors of the General Partner any remuneration. The General Partner does not presently pay any remuneration to any of its executive officers or directors. See Note 6 to the Financial Statements included in Item 8 hereof, however, for amounts paid by Registrant to the General Partner and its affiliates for the three years ended December 26, 1997. Item 12.Security Ownership of Certain Beneficial Owners and Management. As of March 15, 1998, no person was known by Registrant to be the beneficial owner of more than 5 percent of the Units. To the knowledge of the General Partner, as of February 1, 1998, the officers and directors of the General Partner in aggregate own less than 1% of the outstanding common stock of Merrill Lynch & Co., Inc. RP Media Management is owned 50% by IMP Media Management, Inc. and 50% by the Elton H. Rule Company. IMP Media Management, Inc. is wholly-owned by Mr. I. Martin Pompadur and The Elton H. Rule Company is wholly-owned by the Rule Trust. Item 13.Certain Relationships and Related Transactions. Refer to Note 6 to the Financial Statements included in Item 8 hereof, and in Item 1 for a description of the relationship of the General Partner and its affiliates to Registrant and its subsidiaries. Part IV. Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Financial Statements, Financial Statement Schedules and Exhibits. (1) Financial Statements See Item 8. "Financial Statements and Supplementary Data." (2) Financial Statement Schedules No financial statement schedules are included because of the absence of the conditions which require their inclusion or because the required information is included in the financial statements or set forth herein the notes thereto.
(3) Exhibits Incorporated by Reference to 3.1 Amended and Restated Certificate Exhibit 3.1 to Registrant's Form S- of Limited Partnership 1 the Registration Statement (File No. 33-2290) 3.2.1 Second Amended and Restated Exhibit 3.2.1 to Registrant's Agreement of Limited Partnership Annual Report on Form 10-K for the dated May 14, 1986 fiscal year ended December 26, 1986 (File No. 0-14871) 3.2.2 Amendment No. 1 dated February Exhibit 3.2.2 to Registrant's 27, 1987 to Second Amended and Annual Report on Form 10-K for the Restated Agreement of Limited fiscal year ended Partnership December 26, 1986 (File No. 0-14871) 10.1.1 Joint Venture Agreement dated Exhibit 10.1.1 to Registrant's July 2, 1986 between Registrant Annual Report on Form 10-K for the and Century Communications fiscal year ended Corp.("CCC") December 26, 1986 (File No. 0-14871) 10.1.2 Management Agreement and Joint Exhibit 10.1.2 to Registrant's Venture Agreement dated December Annual Report on Form 10-K for the 16, 1986 between Registrant and fiscal year ended CCC (attached as Exhibit 1 to December 26, 1986 Exhibit 10.3) (File No. 0-14871) 10.1.3 Management Agreement and Joint Exhibit 10.1.3 to Registrant's Venture Agreement dated as of Annual Report on Form 10-K for February 15, 1989 between the fiscal year ended Registrant and CCC December 30, 1988 (File No. 0-14871) 10.1.4 Amended and Restated Management Exhibit 10.1.4 to Registrant's Agreement and Joint Venture Annual Report on Form 10-K for the Agreement of Century/ML Cable fiscal year ended Venture dated January 1, 1994 December 31, 1993 between Century Communications (File No. 0-14871) Corp. and Registrant 10.2.1 Stock Purchase Agreement dated Exhibit 28.1 to Registrant's July 2, 1986 between Registrant Form 8-K Report dated and the sellers of shares of December 16, 1986 Cable Television Company of (File No. 33-2290) Greater San Juan, Inc. 10.2.2 Assignment dated July 2, 1986 Exhibit 10.2.2 to Registrant's between Registrant and Century- Annual Report on Form 10-K for the ML Cable Corporation ("C-ML") fiscal year ended December 26, 1986 (File No. 0-14871) 10.2.3 Transfer of Assets and Exhibit 10.2.3 to Registrant's Assumption of Liabilities Annual Report on Form 10-K for the Agreement dated January 1, 1994 fiscal year ended between Century-ML Radio December 31, 1993 Venture, Century/ML Cable (File No. 0-14871) Venture, Century Communications Corp. and Registrant 10.3 Amended and Restated Credit Exhibit 10.3.5 to Registrant's Agreement dated as of March 8, Annual Report on Form 10-K for the 1989 between Citibank, N.A., fiscal year ended Agent, and C-ML December 30, 1988 (File No. 0-14871) 10.3.1 Note Agreement dated as of Exhibit 10.3.1 to Registrant's December 1, 1992 between Century-Annual Report on Form 10-K for the ML Cable Corporation, Century/ML fiscal year ended Cable Venture, Jackson National December 25, 1992 Life Insurance Company, The (File No. 0-14871) Lincoln National Life Insurance Company and Massachusetts Mutual Life Insurance Company 10.3.2 Second Restated Credit Agreement Exhibit 10.3.2 to Registrant's dated December 1, 1992 among Annual Report on Form 10-K for the Century-ML Cable Corporation, fiscal year ended Century/ML Cable Venture and December 25, 1992 Citibank (File No. 0-14871) 10.3.3 Amendment dated as of September Exhibit 10.3.3 to Registrant's 30, 1993 among Century-ML Cable Quarterly Report on Form 10-Q Corporation, the banks parties for the quarter ended to the Credit Agreement, and September 24, 1993 Citibank, N.A. and Century/ML (File No. 0-14871) Cable Venture 10.3.4 Amendment dated as of December Exhibit 10.3.4 to Registrant's 15, 1993 among Century-ML Cable Annual Report on Form 10-K for the Corporation, the banks parties fiscal year ended to the Credit Agreement, and December 31, 1993 Citibank, N.A. and Century/ML (File No. 0-14871) Cable Venture 10.4 Pledge Agreement dated December Exhibit 10.4 to Registrant's 16, 1986 among Registrant, CCC, Annual Report on Form 10-K for the and Citibank, N.A., Agent fiscal year ended December 26, 1986 (File No. 0-14871) 10.5 Guarantee dated as of December Exhibit 10.5 to Registrant's 16, 1986 among Registrant, CCC Annual Report on Form 10-K for the and Citibank, N.A., Agent fiscal year ended December 25, 1987 (File No. 0-14871) 10.6 Assignment of Accounts Exhibit 10.6 to Registrant's Receivable dated as of December Annual Report on Form 10-K for the 16, 1986 among Registrant, CCC fiscal year ended and Citibank, N.A., Agent December 25, 1987 (File No. 0-14871) 10.7 Real Property Mortgage dated as Exhibit 10.7 to Registrant's of December 16, 1986 among Annual Report on Form 10-K for the Registrant, CCC and Citibank, fiscal year ended N.A., Agent December 30, 1988 (File No. 0-14871) 10.8 Stock Sale and Purchase Exhibit 28.1 to Registrant's Agreement dated as of December Form 8-K Report dated 5, 1986 between SCIPSCO, Inc. December 23, 1986 and ML California Cable Corp. (File No. 33-2290) ("ML California") 10.8.1 Asset Purchase Exhibit 2 to Registrant's Agreement dated as of NovemberForm 8-K Report dated 28, 1994 among Registrant andNovember 28, 1994 Century Communications Corp.(File No. 0-14871) 10.9 Security Agreement dated as of Exhibit 10.10 to Registrant's December 22, 1986 among Annual Report on Form 10-K for the Registrant, ML California and BA fiscal year ended December 26, 1987 (File No. 0-14871) 10.10 Assets Purchased Agreement dated Exhibit 28.1 to Registrant's as of September 17, 1986 between Form 8-K Report dated Registrant and Loyola University February 2, 1987 (File No. 33-2290) 10.11 Asset Acquisition Agreement Exhibit 28.1 to Registrant's dated April 22, 1987 between Form 8-K Report dated Community Cable-Vision of Puerto October 14, 1987 Rico Associates, Community Cable-(File No. 33-2290) Vision of Puerto Rico, Inc., Community Cable-Vision Incorporated and Century Communications Corp., as assigned 10.12 Asset Purchase Agreement dated Exhibit 2.1 to Registrant's April 29, 1987 between Form 8-K Report dated Registrant and Gilmore September 16, 1987 Broadcasting Corporation (File No. 33-2290) 10.13 License Holder Pledge Agreement Exhibit 2.5 to Registrant's dated August 27, 1987 by Form 8-K Report dated Registrant and Media Management September 15, 1987 Partners in favor of (File No. 33-2290) Manufacturers Hanover 10.14 Asset Purchase Agreement dated Exhibit 28.1 to Registrant's August 20, 1987 between 108 Form 8-K Report dated Radio Company Limited January 15, 1988 Partnership and Registrant (File No. 33-2290) 10.15 Security Agreement dated as of Exhibit 28.3 to Registrant's December 16, 1987 between Form 8-K Report dated Registrant and CNB January 15, 1988 (File No. 33-2290) 10.16 Asset Purchase Agreement dated Exhibit 10.25 to Registrant's as of January 9, 1989 between Annual Report on Form 10-K for the Registrant and Connecticut fiscal year ended Broadcasting Company, Inc. December 30, 1988 ("WICC") (File No. 0-14871) 10.17.1Stock Purchase Agreement dated Exhibit 28.2 to Registrant's June 17, 1988 between Registrant Quarterly Report on Form 10-Q and the certain sellers referred for the quarter ended to therein relating to shares of June 24, 1988 capital stock of Universal Cable (File No. 0-14871) Holdings, Inc. ("Universal") 10.17.2Amendment and Consent dated July Exhibit 2.2 to Registrant's 29, 1988 between Russell V. Form 8-K Report dated Keltner, Larry G. Wiersig and September 19, 1988 Donald L. Benson, Universal (File No. 0-14871) Cable Midwest, Inc. and Registrant 10.17.3Amendment and Consent dated July Exhibit 2.3 to Registrant's 29, 1988 between Ellsworth Form 8-K Report dated Cable, Inc., Universal Cable September 19, 1988 Midwest, Inc. and Registrant (File No. 0-14871) 10.17.4Amendment and Consent dated Exhibit 2.4 to Registrant's August 29, 1988 between ST Form 8-K Report dated Enterprises, Ltd., Universal September 19, 1988 Cable Communications, Inc. and (File No. 0-14871) Registrant 10.17.5Amendment and Consent dated Exhibit 2.5 to Registrant's September 19, 1988 between Form 8-K Report dated Dennis Wudtke, Universal Cable September 19, 1988 Midwest, Inc., Universal Cable (File No. 0-14871) Communications, Inc. and Registrant 10.17.6Amendment and Consent dated Exhibit 10.26.6 to Registrant's October 14, 1988 between Down's Annual Report on Form 10-K Cable, Inc., Universal Cable for the fiscal year ended Midwest, Inc. and Registrant December 30, 1988 (File No. 0-14871) 10.17.7Amendment and Consent dated Exhibit 10.26.7 to Registrant's October 14, 1988 between SJM Annual Report on Form 10-K Cablevision, Inc., Universal for the fiscal year ended Cable Midwest, Inc. and December 30, 1988 Registrant (File No. 0-14871) 10.17.8Bill of Sale and Transfer of Exhibit 2.6 to Registrant's Assets dated as of September 19, Form 8-K Report dated 1988 between Registrant and September 19, 1988 Universal Cable Communications (File No. 0-14871) Inc. 10.18 Credit Agreement dated as of Exhibit 10.27 to Registrant's September 19, 1988 among Annual Report on Form 10-K Registrant, Universal, certain for the fiscal year ended subsidiaries of Universal, and December 30, 1988 Manufacturers Hanover Trust (File No. 0-14871) Company, as Agent 10.19 Stock Purchase Agreement dated Exhibit 10.28 to Registrant's October 6, 1988 between Annual Report on Form 10-K Registrant and the certain for the fiscal year ended sellers referred to therein December 30, 1988 relating to shares of capital (File No. 0-14871) stock of Acosta Broadcasting Corp. 10.20 Stock Purchase Agreement dated Exhibit 28.1 to Registrant's April 19, 1988 between Quarterly Report on Form 10-Q Registrant and the certain for the quarter ended sellers referred to therein June 24, 1988 relating to shares of capital (File No. 0-14871) stock of Wincom Broadcasting Corporation 10.21 Subordination Agreement dated as Exhibit 2.3 to Registrant's of August 15, 1988 among Wincom, Form 8-K Report dated the Subsidiaries, Registrant and August 26, 1988 Chemical Bank (File No. 0-14871) 10.22 Management Agreement dated Exhibit A to Exhibit 10.30.2 above August 26, 1988 between Registrant and Wincom 10.22.1Management Agreement by and Exhibit 10.22.1 to Registrant's between Fairfield Quarterly Report on Form 10-Q Communications, Inc. and for the quarter ended Registrant and ML Media June 25, 1993 Opportunity Partners, L.P. dated (File No. 0-14871) May 12, 1993 10.22.2Sharing Agreement by and among Exhibit 10.22.2 to Registrant's Registrant, ML Media Opportunity Quarterly Report on Partners, L.P., RP Companies, Form 10-Q for the quarter ended Inc., Radio Equity Partners, June 25, 1993 Limited Partnership and (File No. 0-14871) Fairfield Communications, Inc. 10.23 Amended and Restated Credit, Exhibit 10.33 to Registrant's Security and Pledge Agreement Quarterly Report on dated as of August 15, 1988, as Form 10-Q for the quarter ended amended and restated as of July June 30, 1989 19, 1989 among Registrant, (File No. 0-14871) Wincom Broadcasting Corporation, Win Communications Inc., Win Communications of Florida, Inc., Win Communications Inc. of Indiana, WEBE Associates, WICC Associates, Media Management Partners, and Chemical Bank and Chemical Bank, as Agent 10.23.1Second Amendment dated as of Exhibit 10.23.1 to Registrant's July 30, 1993 to the Amended and Quarterly Report on Restated Credit, Security and Form 10-Q for the quarter ended Pledge Agreement dated as of June 25, 1993 August 15, 1988, as amended and (File No. 0-14871) restated as of July 19, 1989 and as amended by the First Amendment thereto dated as of August 14, 1989 among Registrant, Wincom Broadcasting Corporation, Win Communications Inc., Win Communications Inc. of Indiana, WEBE Associates, WICC Associates, Media Management Partners, and Chemical Bank and Chemical Bank, as Agent 10.24 Agreement of Exhibit 10.34 to Registrant's Consolidation, Extension,Quarterly Report on Amendment and Restatement of theForm 10-Q for the quarter ended WREX Credit Agreement and KATCJune 30, 1989 Credit Agreement between (File No. 0-14871) Registrant and Manufacturers Hanover Trust Company dated as of June 21, 1989 10.25 Asset Purchase Agreement between Exhibit 10.35 to Registrant's ML Media Partners, L.P. and Quarterly Report on Anaheim Broadcasting Corporation Form 10-Q for the quarter ended dated July 11, 1989 September 29, 1989 (File No. 0-14871) 10.26 Asset Purchase Agreement between Exhibit 10.36 to Registrant's WIN Communications Inc. of Annual Report on Form 10-K Indiana, and WIN Communications for the fiscal year ended of Florida, Inc. and Renda December 28, 1990 Broadcasting Corp. dated (File No. 0-14871) November 27, 1989 10.26.1Asset Purchase Agreement between Exhibit 10.26.1 to Registrant's WIN Communications of Indiana, Quarterly Report on Form 10-Q Inc. and Broadcast Alchemy, L.P. for the quarter ended dated April 30, 1993 June 25, 1993 (File No. 0-14871) 10.26.2 Joint Sales Exhibit 10.26.2 to Registrant's Agreement between WIN Quarterly Report on Communications of Indiana, Inc.Form 10-Q for the quarter ended and Broadcast Alchemy, L.P.June 25, 1993 dated May 1, 1993 (File No. 0-14871) 10.27 Credit Agreement dated as of Exhibit 10.39 to Registrant's November 15, 1989 between ML Quarterly Report on Form 10-Q Media Partners, L.P. and Bank of for the quarter ended America National Trust and June 29, 1990 Savings Association (File No. 0-14871) 10.27.1 First Amendment and Exhibit 10.27.1 to Registrant's Limited Waiver dated as ofAnnual Report on Form 10-K February 23, 1995 to the Amendedfor the fiscal year ended and Restated Credit AgreementDecember 30, 1994 dated as of May 15, 1990 among(File 0-14871) ML Media Partners, L.P. and Bank of America National Trust and Saving Association, individually and as Agent 10.28 Asset Purchase Agreement dated Exhibit 10.38 to Registrant's November 27, 1989 between Win Quarterly Report on Form 10-Q Communications and Renda for the quarter ended Broadcasting Corp. June 29, 1990 (File No. 0-14871) 10.29 Amended and Restated Credit Exhibit 10.39 to Registrant's Agreement dated as of May 15, Quarterly Report on Form 10-Q 1990 among ML Media Partners, for the quarter ended L.P. and Bank of America June 29, 1990 National Trust and Saving (File No. 0-14871) Association, individually and as Agent 10.30 Stock Purchase Agreement between Exhibit 10.40.1 to Registrant's Registrant and Ponca/Universal Quarterly Report on Form 10-Q Holdings, Inc. dated as of April for the quarter ended 3, 1992 March 27, 1992 (File No. 0-14871) 10.30.1Earnest Money Escrow Agreement Exhibit 10.40.1 to Registrant's between Registrant and Quarterly Report on Form 10-Q Ponca/Universal Holdings, Inc. for the quarter ended dated as of April 3, 1992 March 27, 1992 (File No. 0-14871) 10.30.2Indemnity Escrow Agreement Exhibit 10.40.2 to Registrant's between Registrant and Form 8-K Report dated July 8, 1992 Ponca/Universal Holdings, Inc. (File No. 0-14871) dated as of July 8, 1992 10.30.3Assignment by Registrant in Exhibit 10.40.3 to Registrant's favor of Chemical Bank, in its Form 8-K Report dated July 8, 1992 capacity as agent for itself and (File No. 0-14871) the other banks party to the credit agreement dated as of September 19, 1988, among Registrant, Universal, certain subsidiaries of Universal, and Manufacturers Hanover Trust Company, as agent 10.30.4Confirmation of final Universal Exhibit 10.40.4 to Registrant's agreements between Registrant Quarterly Report on Form 10-Q and Manufacturers Hanover Trust for the quarter ended Company, dated April 3, 1992 September 25, 1992 (File No. 0-14871) 10.30.5Letter regarding discharge and Exhibit 10.40.5 to Registrant's release of the Universal Quarterly Report on Form 10-Q Companies and Registrant dated for the quarter ended July 8, 1992 between Registrant September 25, 1992 and Chemical Bank (as successor, (File No. 0-14871) by merger, to Manufacturers Hanover Trust Company) 10.31.1Asset Purchase Agreement dated Exhibit 10.1 to Registrant's May 25, 1995 with Quincy Form 8-K dated Newspapers, Inc. to sell May 25, 1995 substantially all of the assets (File No. 0-14871) used in the operations of the Registrant's television station WREX-TV, Rockford, Illinois 10.31.3Asset Purchase Agreement dated Exhibit to Registrant's June 1, 1995 with KATC Form 8-K Report dated Communications, Inc., to sell June 1, 1995 substantially all of the assets (File No. 0-14871) used in the operations of Registrant's television station KATC-TV, Lafayette, Louisiana 10.32 Asset Purchase Agreement dated Exhibit to Registrant's November 28, 1994 with Century Form 8-K Report dated Communications Corp., to sell November 28, 1994 substantially all of the assets (File No. 0-14871) used in Registrant's California Cable Systems. 10.33 Letter Agreement dated May 31, Exhibit to Registrant's 1996 between Registrant and Form 8-K Report dated Century Communications Corp. May 31, 1996 (File No. 0-14871) 10.34 Asset Purchase Agreement dated October 9, 1997 with Madifide, Inc., to sell substantially all of the assets used in the operations of Registrant's C-ML Radio. 18.1 Letter from Deloitte, Haskins & Exhibit 18.1 to Registrant's Sells regarding the change in Annual Report on Form 10-K accounting method, dated March for the fiscal year ended 30, 1989 December 30, 1988 (File No. 0-14871) 27.0 Financial Data Schedule to Form 10-K Report for the fiscal year ended December 26, 1997 99 Pages 12 through 19 and 38 Prospectus dated February 4, 1986, through 46 of Prospectus dated filed pursuant to Rule 424(b) February 4, 1986, filed pursuant under the Securities Act of 1933, to Rule 424(b) under the as amended Securities Act of 1933, as (File No. 33-2290) amended (b) Reports on Form 8-K. On February 5, 1998, Registrant filed with the Securities and Exchange Commission a Current Report on Form 8-K dated December 31, 1997. This current report contained details regarding the maturity of the Wincom- WEBE-WICC Loan and negotiations with the Wincom Bank. (c) Exhibits. See (a) (3) above. (d) Financial Statement Schedules. See (a) (2) above. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ML MEDIA PARTNERS, L.P. By: Media Management Partners General Partner By: ML Media Management Inc. Dated: March 26, 1998 /s/ Kevin K. Albert Kevin K. Albert Director and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant in the capacities and on the dates indicated. RP MEDIA MANAGEMENT Signature Title Date /s/ I. Martin Pompadur President, Secretary March 26, 1998 (I. Martin Pompadur) and Director (principal executive officer of the Registrant) /s/Elizabeth McNey Yates Executive Vice March 26, 1998 (Elizabeth McNey Yates) President ML MEDIA MANAGEMENT INC. Signature Title Date /s/ Kevin K. Albert Director and March 26, 1998 (Kevin K. Albert) President /s/ Robert F. Aufenanger Director and March 26, 1998 (Robert F. Aufenanger) Executive Vice President /s/ Michael E. Lurie Director and Vice March 26, 1998 (Michael E. Lurie) President /s/ Diane T. Herte Treasurer (principal March 26, 1998 (Diane T. Herte) financial officer and principal accounting officer of the Registrant)
EX-27 2 ART. 5 FDS FOR THE YEAR ENDED 1997 10-K
5 This schedule contains summary financial information extracted from the year end 1997 Form 10K Consolidated Balance Sheets and Consolidated Statements of Operations as of December 26, 1997, and is qualified in its entirety by reference to such financial statements. 1,000
12-MOS DEC-26-1997 DEC-27-1996 92,873 0 5,879 329 0 0 38,518 14,9536 156,646 0 54,244 0 0 0 78,637 156,646 0 60,280 0 35,729 0 0 5,083 19,468 0 19,468 0 0 0 19,468 102.52 0
EX-10.34 3 ASSET PURCHASE AGREEMENT Between CENTURY - ML CABLE VENTURE and MADIFIDE, INC. Dated October 9, 1997 ASSET PURCHASE AGREEMENT Dated October 9, 1997 The parties to this agreement are Century-ML Cable Venture, a New York joint venture (the "Seller"), and MADIFIDE, Inc., a Puerto Rico corporation (the "Buyer"). The Seller owns and operates the two radio stations (the "Stations") and the background music service ("BMS") listed on schedule 1. Simultaneously with the execution of this agreement, the Seller and the Buyer are entering into a Time Brokerage Agreement (the "LMA Agreement") pursuant to which the Seller will make the facilities of the Stations and BMS available to the Buyer for broadcast of their respective programming and will provide the commercial time on the Stations to the Buyer for sale to advertisers effective as of October 1, 1997 (the "Effective Date"). The Seller desires to sell to the Buyer substantially all of the assets used in the operations of the Stations and BMS and the Buyer desires to purchase those assets, on the terms and conditions contained in this agreement. Accordingly, it is agreed as follows: 1. Sale and Purchase of Assets. 1.1 Sale of Assets to Buyer. At the closing, Seller shall sell and assign to the Buyer, and the Buyer shall purchase and acquire, all of the business of the Seller relating to the Stations and BMS and all of the assets of the Seller used in the operations of the Stations and BMS (excluding only the assets referred to in section 1.2) as those assets exist on the Closing Date (as defined in section 3.1). Except as otherwise provided in section 1.2, the assets of the Stations and BMS to be sold and assigned (collectively, the "Assets") include, but are not limited to, the following: (a) all broadcast licenses (the "FCC Licenses") for the Stations and BMS issued by the Federal Communications Commission (the "Commission") and any other permits and authorizations (and applications for any of them) relating to the operation of the Stations and BMS, including, but not limited to, those listed on schedule 1.1(a); (b) all equipment including computers and office equipment, transmitting towers, transmitters, supplies, vehicles, furniture, fixtures and leasehold improvements, improvements on land being acquired by the Buyer pursuant to section 1.1(c), any tapes and compact discs owned by the Stations and BMS, and all other tangible personal property, wherever located, that is owned by the Seller and used in the operation of the Stations and BMS, including, but not limited to, the items listed on schedule 1.1(b); (c) all real property owned by the Seller relating to the Stations, including, but not limited to, the property listed on schedule 1.1(c); (d) all rights of the Seller under leases and other agreements relating to the business and operations of the Stations and BMS, to the extent that those rights relate to the period after 12:00 Midnight on the Closing Date, including, but not limited to (i) all agreements relating to the sale of broadcast and advertising time reflected in the sales projection report previously delivered to Buyer, (ii) the leases and other agreements listed on schedules 4.13 and 4.14, (iii) the agreements relating to the news broadcast network, Noti Uno, listed on schedule 4.13; and (iv) any other leases and other agreements relating to the business and operations of the Stations and BMS that are entered into consistent with the provisions of section 6.2 (and with the prior written consent of Buyer) between the date of this agreement and the Closing Date; (e) all promotional materials, trademarks, trade names, logos, copyrights, whether or not registered (and all issued registrations and pending applications for registration of any of them), jingles, slogans and other tangible and intangible personal property relating to the Stations and BMS (including, but not limited to, the trademarks, trade names and logos listed on schedule 1.1(e) and all of the Seller's rights to use the call letters "WUNO(AM)" and "WFID-FM"), together with the good will of the business associated with those trademarks, trade names, logos and copyrights; (f) all of the Seller's rights in connection with any "barter" transactions and "trade" agreements relating to the Stations and BMS; (g) all of the Seller's rights under manufacturers' and vendors' warranties relating to items included in the Assets and all similar rights against third parties relating to items included in the Assets; and (h) all files, including, but not limited to, public files, logs and business records of every kind relating to the operations of the Stations and BMS, including, but not limited to, programming information and studies, technical information and engineering data, news and advertising studies or consulting reports, sales correspondence, lists of advertisers, promotional materials, and credit and sales records. 1.2 Excluded Assets. The following assets used in the operations of the Stations and BMS shall be retained by the Seller and shall not be sold or assigned to the Buyer: (a) all cash, bank accounts, certificates of deposit, commercial paper, treasury bills and notes and all other marketable securities as of 12:00 Midnight on the Closing Date; (b) all accounts receivable (the "Accounts Receivable") of the Stations and BMS for broadcast time and services provided by the Seller prior to the Effective Time (as defined below) (except that any amounts included in accounts receivable with respect to "barter" transactions or "trade" agreements shall not be excluded from the sale); (c) any lease or other agreement as to which consent to assignment is required but cannot be obtained; (d) the account books of original entry and general ledgers and all partnership records of the Seller, including tax returns and transfer books; (e) any lease or other agreement required to be listed on schedule 4.13 or 4.14 and not listed on that schedule; (f) any rights under "trade" agreements with the cable system owned by the Seller; and (g) the assets listed on schedule 1.2(g) and any other assets of the Seller not used in connection with the operation of the Stations and BMS. 2. Purchase Price. 2.1 Amount and Payment of Consideration. As full consideration for the Assets, including the covenant not to compete pursuant to the Non-competition Agreement referred to in section 8.3, at the closing the Buyer shall (a) pay to Seller, in accordance with section 2.2, a purchase price of $11,537,500, subject to adjustment as provided in section 2.5 ; and (b) as sume, and agree to pay, perform and discharge (subject to the provisions of the LMA Agreement and the apportionment provisions of section 2.5) all of the obligations of the Seller relating to the operations of the Stations and BMS that arise after 12:00 Midnight on the Closing Date under those leases and other agreements relating to the operations of the Stations and BMS assigned to the Buyer pursuant to sections 1.1(d) and 1.1(f) (except as provided in section 6.8 herein). 2.2 Payment of Purchase Price. The aggregate purchase price for the Assets shall be paid as follows: (a) At the closing, the Buyer shall deliver to Banco Santander (the "Escrow Agent") an amount equal to $593,125 (the "Indemnity Escrow Amount"), to be held by the Escrow Agent in an interest bearing account pursuant to the terms of an escrow agreement (the "Indemnity Escrow Agreement") in the form of exhibit 2.2(a) which shall be executed on the Closing Date. The Indemnity Escrow Amount shall be paid in accordance with the terms of such escrow agreement to (i) the Buyer if it is determined that the Buyer is entitled to indemnification payments under section 9.2 (a) of this agreement, or (ii) the Seller to the extent the Buyer is not determined to be entitled to any such payments. (b) If the application (the "Application") granted by the Commission to increase the authorized nighttime broadcast power for one of the Stations ("WUNO(AM)") from 1 kW to 2.30kW does not become final prior to the closing, then, at the closing, Buyer shall deliver to the Escrow Agent an amount equal to $296,563 (the "Broadcast Power Escrow Amount"), to be held by the Escrow Agent until December 31, 1998 in an interest bearing account pursuant to the terms of an escrow agreement (the "Broadcast Power Escrow Agreement") in the form of exhibit 2.2(b) which shall be executed on the Closing Date. The Broadcast Power Escrow Amount shall be paid in accordance with the terms of such escrow agreement to (i) the Seller if the Application becomes final prior to December 31, 1998, less $50,000, or Buyer's actual legal, engineering and other costs, if any, associated with the Application, whichever is less, which amount shall be paid to Buyer or (ii) the Buyer if the Application has not become final prior to December 31, 1998. Any prosecution of the Application before the Commission shall proceed in accordance with section 6.11. (c) At the closing, or on December 31, 1997, whichever is earlier, the Buyer (or if on December 31, 1997, the Seller) shall deliver to the Escrow Agent the Volume Discount Escrow Amount as provided in section 6.4(d) and at the Effective Time the Seller shall deliver the Employee Benefit Escrow Amount as provided in section 6.8(d). (d) At the closing, the Buyer shall deliver to the Seller, by wire transfer of immediately available funds or by delivery of a bank or certified check in immediately available funds, an amount which, together with the Indemnity Escrow Amount, the Broadcast Power Escrow Amount (if any), the Volume Discount Escrow Amount (if funded by Buyer) and the Employee Benefit Escrow Amount (if funded by Buyer), equals the purchase price of $11,537,500. 2.3 Deposit; Seller's Liquidated Damages. Upon execution of this agreement, the Buyer shall deliver to the Escrow Agent a letter of credit for $1,300,000 (the "Seller's Liquidated Damages Escrow Amount"), to be held by the Escrow Agent pursuant to the terms of an escrow agreement in the form of exhibit 2.3 which is being executed simultaneously with the execution of this agreement and subject to the following: (a) If the purchase of the Assets under this agreement is not consummated as a result of a material breach by the Buyer of any of its material obligations under this agreement (and the Seller has not breached any of its material obligations under this agreement), the Seller shall be entitled to the Seller's Liquidated Damages Escrow Amount (together with any interest thereon) to compensate the Seller as liquidated damages resulting to the Seller from such breach, and consequently Buyer shall not be subject to any further liabilities as a result thereof. (b) If the purchase of the Assets under this agreement is not consummated due to the nonfulfillment of any of the conditions in section 7.1 or for any other reason except the Buyer's default in the performance of any of its material obligations under this agreement, the Seller shall not be entitled to the Seller's Liquidated Damages Escrow Account (or any interest thereon) and, promptly after the termination of this agreement, the Seller's Liquidated Damages Escrow Account (together with any interest thereon) shall be paid by the Escrow Agent to the Buyer. 2.4 Limitation on Assumption of Liabilities. Except as provided in section 2.1(b) and in the LMA Agreement, Buyer shall not assume, and shall not pay, perform or discharge, any liabilities, contingent or otherwise, or any obligations of the Seller relating to the Stations and BMS, and the Seller shall pay and perform any such liabilities or obligations. 2.5 Apportionment. The Seller shall be entitled to all income earned or accrued and shall be responsible for all liabilities and obligations incurred or payable in connection with the operations of the Stations and BMS through 12:00 Midnight on the day preceding the Effective Date of the LMA Agreement (the "Effective Time") and the Buyer shall be entitled to all income earned or accrued and, subject to the provisions of section 2.4, shall be responsible for all liabilities and obligations incurred or payable in connection with the operations of the Stations and BMS after the Effective Time. All overlapping items of income or expense shall be apportioned (based on the actual number of days before and after the Effective Time) between the Seller and the Buyer, as of the Effective Time, in accordance with generally accepted accounting principles. Items to be apportioned include, but are not limited to, the following: (1) advance payments received from advertisers prior to the Effective Time for services to be rendered in whole or in part after the Effective Time; (2) prepaid expenses arising from payments made for services prior to the Effective Time if all or part of the services have not been received or used prior to the Effective Time (for example, rents paid in advance for a rental period extending beyond the Effective Time); (3) liabilities, customarily accrued, arising from expenses incurred but unpaid as of the Effective Time (excluding severance pay, vacation pay, sick pay or similar items, which are covered by section 6.8, and employee claims and other liabilities otherwise specifically provided for in this agreement); frequency discounts; utility services; rent (including property taxes payable under leases assumed by the Buyer); property taxes relating to real property interests assigned to the Buyer; sales commissions; various business and professional services; and licensing fees, including prior years' adjustments; and (4) personal property taxes and utility charges related to the Stations and BMS. 2.6 Determination of Apportionments. Prior to the closing, the Seller shall estimate all apportionments pursuant to section 2.5 and the purchase price payable at the closing pursuant to section 2.2 shall be adjusted based on the estimate. Within 60 days after the Closing Date, the Seller shall determine all apportionments pursuant to section 2.5 (based on the actual number of days before and after the Effective Time) and shall give notice to Buyer of its determination and deliver a statement of its determination to the Buyer (which statement shall set forth in reasonable detail the basis for those determinations); the Buyer shall have 30 days after the notice from Seller to review the Seller's determination, and within 10 days after such 30-day period the Buyer shall notify the Seller of any dispute with the Seller's determination and the Buyer shall pay to the Seller, or the Seller shall pay to the Buyer, as the case may be, the net amount due as a result of the final determination of the apportionments (or, if there is any dispute, the undisputed amount). If the Buyer disputes the Seller's determinations, the parties shall confer with regard to the matter and an appropriate adjustment and payment shall be made as agreed upon by the parties (or, if they are unable to resolve the matter within 30 days after Buyer's notice to Seller, a firm of independent certified public accountants shall be designated by the parties, which firm's decision on the matter shall be binding and whose fees and expenses shall be borne 50% by the Seller and 50% by the Buyer). If the parties fail to agree on the accountants, the accountants shall be KPMG Peat Marwick LLP. 2.7 Allocation of Purchase Price. Prior to the closing, Buyer and Seller shall negotiate in good faith an allocation of the purchase price for the Assets among the Assets. If the Buyer and the Seller are unable to agree upon an allocation of the purchase price for the Assets, the allocation shall be determined by a firm of independent certified public accountants designated by the parties. If the parties fail to agree on the accountants, the accountants shall be KPMG Peat Marwick LLP, whose fees shall be borne 50% by the Seller and 50% by the Buyer. Notwithstanding the foregoing, the parties agree that $1,000,000 of the purchase price is allocable to the covenant not to compete in the Non-competition Agreement referred to in section 8.3 and that $1,100,000 of the purchase price is allocable to the real property listed in Schedule 4.4(a). 3. Closing. 3.1 Date of Closing. The closing under this agreement shall take place at such place as may be mutually agreeable to the Buyer and the Seller on the fifth business day after the conditions specified in sections 7.1(c) and 7.2(c) have been fulfilled (or waived), or such other date as the parties may mutually agree upon. The date on which the closing is held is referred to in this agreement as the "Closing Date." At the closing, the parties shall execute and deliver the documents referred to in section 8. 3.2 Outside Date for Closing. If the closing has not occurred by June 30, 1998, either the Seller or the Buyer may terminate this agreement by notice to the other; upon such termination, neither of the parties shall have any liability of any kind arising out of this agreement other than for any liability resulting from its breach of this agreement prior to termination. If the closing is postponed pursuant to section 11 of this agreement, the date referred to in the previous sentence shall be extended by the period of the postponement. 4. Representations and Warranties by the Seller. The Seller represents and warrants to the Buyer as follows: 4.1 The Seller's Organization and Authority. The Seller is a general partnership duly organized and validly existing under the law of New York and has the full power and authority under New York law and its partnership agreement to enter into and to perform this agreement and to own and operate the Stations and BMS in Puerto Rico. 4.2 Authorization of Agreement. The execution, delivery and performance of this agreement by the Seller have been duly authorized by all necessary partnership action of the Seller and this agreement constitutes a valid and binding obligation of the Seller enforceable against it in accordance with its terms, except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.3 Consents of Third Parties. Subject to receipt of the consents and approvals referred to in schedule 4.3, the execution, delivery and performance of this agreement by the Seller will not (i) conflict with the partnership agreement of the Seller and will not conflict with, or result in a breach or termination of, or constitute a default under, any lease, agreement, commitment or other instrument, or any order, judgment or decree, to which the Seller is a party or by which the Seller is bound or to which any of the Assets is subject; (ii) constitute a violation by the Seller of any law applicable to the Seller; or (iii) result in the creation of any lien, claim, charge or encumbrance ("Lien") upon any of the Assets. No consent, approval or authorization of, or designation, declaration or filing with, any governmental authority is required on the part of the Seller in connection with the execution, delivery and performance of this agreement, except for the filings referred to in section 6.1. 4.4 Title to Assets. (a) All real property owned by the Seller included in the Assets (the "Real Property") is listed in schedule 4.4(a). Except as listed in schedule 4.4(a), Seller has not received any notice that there is any material violation of any laws, ordinances or regulations with respect to any Real Property. Except as set forth on schedule 4.4(a) and except for property leased pursuant to leases and agreements listed on schedule 4.13, the Seller has, and at the closing the Buyer will receive, valid title to all of the personal property and intangible property included in the Assets, free and clear of any Lien (except for the lien, if any, of current taxes not yet due and payable). The Seller has, and will convey to the Buyer on the Closing Date, good and marketable fee simple title to the Real Property, free and clear of any Liens, except as set forth on schedule 4.4(a) and except for the lien, if any, of current taxes not due and payable and for imperfections of title and easements that will not in any material respect adversely affect or impair the Buyer's continued use of the property or detract in any material respect from the value of the property to the Buyer (collectively "Permitted Liens"). (b) No condemnation proceeding is in existence concerning any of the Real Property; there is no existing notice covering future condemnation; and Seller has no reason to believe that the Real Property will be condemned. (c) Except as disclosed in schedule 4.4(a), the improvements on the Real Property do not violate in any material respect the provisions of any applicable building codes, fire regulations, building restrictions, or other governmental ordinances, orders or regulations. Except as disclosed in schedule 4.4(a), the Real Property is zoned so as to permit the present commercial uses of the Real Property. Except as disclosed in schedule 4.4(a), there are no outstanding variances or special permits affecting the Real Property or the uses thereof. All of the Real Property (including all improvements and fixtures thereon and appurtenances thereto) is in reasonably good condition and repair, ordinary wear and tear in normal usage excepted, and is adequate and suitable in all material respects in accordance with general industry practices for the purposes for which it is currently used. (d) The transmitting facilities of the Stations, including the towers, antennae, guy line, anchors, ground systems and all other related buildings, structures and appurtenances, are located entirely within the confines of the Real Property. (e) To the best of Seller's knowledge, all utilities required for the operation of the Real Property and improvements thereon either enter the Real Property through adjoining public streets, or if the utilities pass through adjoining private land, the utilities do so in accordance with valid easements. (f) To the best of Seller's knowledge, there are not now any notices of violations of law or ordinances, orders or requirements noted in or issued by any federal department or any department of the Commonwealth of Puerto Rico or the applicable city or any prosecutions in any federal, Commonwealth or city court on account thereof, affecting the Real Property. (g) Except as set forth on schedule 4.4(a), the Real Property is freely accessible directly from public streets, or by the use of adjoining private land, which access through the private land is done in accordance with valid public or private easements, and any such private easements are now in full force and effect, and conveyable to Buyer as a part of the Real Property. 4.5 FCC Licenses. The Seller holds the FCC Licenses and all other material permits and authorizations necessary for or used in the operations of the Stations and BMS, and each of the FCC Licenses is, and all such permits and authorizations are, in full force and effect. Schedule 1.1(a) contains a true and complete list of the FCC Licenses currently in effect and all such permits and authorizations (showing, in each case, the expiration date). Except as set forth on schedule 4.5, no application, action or proceeding is pending for the renewal or modification of any of the FCC Licenses or any of such permits or authorizations, and no application, action or proceeding is pending or, to the best of Seller's knowledge, threatened that may result in the denial of the application for renewal, the revocation, modification, nonrenewal or suspension of any of the FCC Licenses or any of such permits or authorizations, the issuance of a cease-and-desist order, or the imposition of any administrative or judicial sanction with respect to the Stations or BMS that may materially adversely affect the rights of the Buyer under any such FCC Licenses, permits or authorizations. 4.6 Call Letters. The Seller has the right to the use of the call letters "WUNO(AM)" and "WFID-FM," pursuant to the rules and regulations of the Commission. 4.7 Operation of the Stations and BMS. The Stations and BMS are being operated in all material respects in accordance with the FCC Licenses and in compliance with the Communications Act of 1934 and the rules and regulations thereunder. 4.8 Financial Statements. The Seller has pre viously delivered to the Buyer the unaudited balance sheets of the Stations and BMS as of December 31, 1995 and December 31, 1996 and the unaudited balance sheets of the Stations and BMS as of August 31, 1996 and August 31, 1997, and the related statements of operations for the years and eight-month periods then ended. Except as set forth on schedule 4.8, all of those financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, are in accordance with Seller's books and records, and fairly present in all material respects the financial position and the results of operations of the Stations and BMS as of the dates and for the periods indicated. 4.9 Absence of Certain Changes. Since August 31, 1997 the Seller has operated the business of the Stations and BMS in the usual and ordinary course and substantially consistent with its past practice with respect to the Stations and BMS, and, except as set forth on schedule 4.9, through the date of this agreement: (a) There has been no material adverse change in the business or operations of the Stations and BMS, except that the revenues and operating cash flow of the Stations and BMS for 1997 to date are approximately 9% and 15%, respectively, lower than for the comparable period of 1996; (b) The Seller has not, with respect to the Stations and BMS, entered into any transaction or incurred any liability or obligation that is material to the business or operation of the Stations and BMS except in the ordinary course of its business consistent with past practice; (c) The Seller has not sold or transferred any of the assets of the Stations and BMS other than in the ordinary course of business consistent with past practice; (d) The Seller has not incurred any indebtedness with respect to the Stations and BMS other than indebtedness to trade creditors incurred in the ordinary course of business consistent with past practice; and (e) The Seller has not granted or agreed to grant any increase in any rate or rates of salaries or compensation or other benefits or bonuses payable to employees of the Stations and BMS, except for increases in accordance with the Seller's past employment practices, and has not granted or agreed to effect any changes in the Seller's management personnel, policies or employee benefits. 4.10 Tangible Property. Except as set forth on schedule 4.10, all equipment and other tangible assets to be sold to Buyer pursuant to this agreement is in reasonably good operating condition and in reasonably good condition of maintenance and repair. All items of transmitting and studio equipment permit the Stations and BMS and any auxiliary facilities to operate in all material respects in accordance with the terms of the FCC Licenses, the rules and regulations of the Commission, and all other applicable federal, Commonwealth and local statutes, ordinances, rules and regulations. 4.11 Intangible Assets. Schedule 1.1(e) contains a complete list of the trademarks, trade names, logos, jingles and slogans used by the Seller in the operation of the Stations and BMS. Except as set forth on Schedule 4.11, the Seller owns, free and clear of any Liens, each of the trademarks, trade names, logos, jingles and slogans listed on schedule 1.1(e). The Seller is not operating the Stations and BMS in a manner that infringes in any material respect any patent, copyright or trademark of any third party or otherwise violates in any material respect the rights of any third party, and no claim has been made or threatened against it alleging any such violation. To the best of Seller's knowledge, there has been no material violation by others of any right of the Seller in any trademark, trade name, logo, jingle or slogan used in the operation of the Stations and BMS. 4.12 Litigation; Compliance with Laws. Except as set forth on schedule 4.12, there is no claim, litigation, proceeding or governmental investigation pending or, to the best of Seller's knowledge, threatened, or any order, injunction or decree outstanding, against the Seller relating to the Stations or BMS or the Assets, which if adversely determined might (i) have a material adverse effect on the operations of the Stations or BMS, (ii) materially delay approval by the Commission of the transactions contemplated by this agreement, or (iii) prevent the consummation of the transactions contemplated by this agreement. Except as set forth on schedule 4.12, to the best of the Seller's knowledge, the Seller is not in violation of any law, regulation or ordinance or any other requirement of any governmental body or court with respect to the operation of the Stations and BMS, which violation would have a material adverse effect upon the operations or business of the Stations or BMS, and no notice has been received by the Seller alleging any such violation. Seller is not in default with respect to any order, writ, injunction or decree of any Federal, Puerto Rico, municipal or other governmental department in any case, domestic or foreign. 4.13 List of Agreements, etc. Schedules 4.13 and 4.14 together contain, with respect to the Stations and BMS, a complete list of: (a) all agreements for the purchase of materials, supplies or equipment, other than agreements that were entered into in the ordinary course of business and involve an expenditure by the Seller of less than $10,000 for any one commitment or two or more related commitments; (b) all notes and agreements relating to any indebtedness of the Seller that is secured by any of the Assets, other than the Note Agreement dated as of December 1, 1992 (the "Note Agreement"); (c) all leases or other rental agreements under which the Seller is either lessor or lessee related to the operations or business of the Stations and BMS; (d) all "barter" and "trade" agreements; (e) all collective bargaining agreements; and (f) all other agreements (written or oral) that require payment by the Seller of more than $10,000 individually (or $30,000 in the aggregate) or cannot be terminated by the Seller on less than 30 days notice without liability. True and complete copies of all written leases, commitments and other agreements referred to on schedules 4.13 and 4.14 have been delivered to the Buyer. 4.14 Agreements Regarding Employees. Except as set forth in schedule 4.14, the Seller is not a party to or bound by any fringe benefit or other non-cash compensation plan, or any pension, thrift, annuity, retirement, savings, profit sharing or deferred compensation plan or agreement, or any bonus, vacation, holiday, sick leave, group insurance, health or other personal insurance or other incentive or benefit agreement, plan or arrangement. Except as set forth on schedule 4.14, the Seller does not have any severance policy and no employee of the Station is entitled to any severance payment, either by law or by agreement, upon the termination of his or her employment. Except as set forth on schedule 4.14, no employee of the Stations or BMS is represented by any union or other collective bargaining agent and there are no collective bargaining or other labor agreements with respect to any employee of the Stations or BMS. 4.15 Status of Agreements. All leases and other agreements to be assumed by the Buyer were entered into in the ordinary course of the business of the Stations and BMS. Each of the agreements and leases referred to in section 4.13 and each of the benefit agreements, plans or arrangements referred to in section 4.14 is presently in full force and effect in accordance with its terms and, except as set forth on schedule 4.15, the Seller is not in material default, and, to the best of the Seller's knowledge, no other party is in material default under any agreement referred to in section 4.13 or 4.14. No party to any of the leases and other agreements referred to in sections 4.13 and 4.14 has made, asserted or has any defense, setoff or counterclaim under any of those agreements or has exercised any option granted to it to cancel or terminate its agreement, to shorten the term of its agreement, or to renew or extend the term of its agreement and the Seller has not received any notice to that effect. 4.16 Insurance. Schedule 4.16 contains a complete list of all of the Seller's insurance policies relating to the operation of the Stations and BMS specifying the policy limit, type of coverage, location of the property covered, annual premium, premium payment date and expiration date of each of the policies. Seller has not been refused insurance by any carrier during the past five years. 4.17 Labor Matters. Except as set forth on schedule 4.17, with respect to the Stations and BMS (a) there is no unfair labor practice charge or complaint against the Seller pending before the National Labor Relations Board, Department of Labor of the Commonwealth of Puerto Rico or any similar Federal or local agency, any state labor relations board or any court or tribunal and, to the best of Seller's knowledge, none is or has been threatened; (b) there is no labor strike, dispute, request for representation, slowdown or stoppage actually pending against or affecting the Seller and, to the best of Seller's knowledge, none is or has been threatened; (c) no grievance which might have a material adverse effect on the conduct of the operations of the Stations or BMS taken as a whole or any arbitration proceeding arising out of or under any collective bargaining agreement is pending and, to the best of Seller's knowledge, none is or has been threatened; (d) the businesses of the Stations and/or BMS are in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and are not engaged in any unfair labor practice; (e) there is no pending, or, to the best knowledge of Seller, threatened, material grievance, and (f) no material charges with respect to or relating to the operation of the Stations or BMS are pending before the Equal Employment Opportunity Commission or any state, Commonwealth or local agency responsible for the prevention of unlawful employment practices. Seller has conducted its business in compliance in all material respects with all Federal and local laws, rules and regulations related to or affecting employment and employment practices, including terms and conditions of employment and wages and hours. Seller has complied in all material respects with laws and regulations of, and has timely paid all workmen's compensation insurance premiums to, the State Insurance Fund Administration, and Seller has timely paid any and all payments for its employees with respect to payroll withholding taxes and any other salary withholding obligation, vacation time, Christmas bonus and any other payment which such employees were entitled to receive pursuant to the law or otherwise for or related to the period since the date of employment by Seller of such employees. Notwithstanding anything to the contrary herein, Seller shall be responsible for all obligations as employer to all its employees (with the exception of termination compensation to Covered Employees (as defined in section 6.8 hereto) for which Buyer will be responsible) regarding any claim that may arise under any applicable labor or labor related law or regulation to all employees employed by Seller during the period of their employment by Seller. 4.18 Environmental Matters. With respect to (i) the real property owned or leased by Seller and used exclusively in the operations of the Stations and BMS or (ii) the operations of the Stations and BMS: (a) To the best of Seller's knowledge, Seller and all of the real property is in compliance in all material respects with all federal, state and local laws relating to pollution, the protection of human health or the environment, including, but not limited to, laws relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern. "Materials of Environmental Concern" means chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products. (b) To the best of Seller's knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, but not limited to, the release, emission, discharge or disposal of any Material of Environmental Concern, that could form the basis of any material claim against, or any material violation by, Seller or either Station or BMS (or, after the closing, the Buyer). (c) Except as set forth on schedule 4.18, to the best of Seller's knowledge, (1) there are no underground storage tanks located on the real property owned or leased by Seller, (2) there is no asbestos contained in or forming part of any building, building component, structure or office space owned or leased by Seller, (3) no polychlorinated biphenyls (PCBs) are used or stored at any real property owned or leased by Seller, (4) none of the electrical equipment located at the real property owned or leased by Seller contains any PCBs, and (5) there are no on-site or off-site locations where Seller has stored, disposed or arranged for the disposal of Materials of Environmental Concern. 4.19 ERISA. Schedule 4.19 lists each "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") sponsored or maintained by the Seller, the Stations or BMS for the benefit of employees of the Stations or BMS. 4.20 Commission Reports. All material returns, reports and statements required to be filed by the Seller with the Commission relating to the Stations and BMS have been filed and complied with and are complete and correct in all material respects as filed. 4.21 Finders, Brokers. Neither Seller nor anyone acting on its behalf has taken any action that, directly or indirectly, would obligate Buyer to anyone acting as broker, finder, financial advisor or in any similar capacity in connection with this agreement or any of the transactions contemplated hereby. 4.22 Ordinary Course of Business. Seller has continued to conduct and is currently conducting the operations of the business of the Stations and of BMS in substantially the same manner as they were conducted in 1996. 4.23 Tax and Other Returns or Filings. All material tax returns, reports, statements and other similar filings required to be filed by Seller with respect to any and all Puerto Rico, federal, state, local and foreign taxes, assessments, interest, penalties, deficiencies, fees and other governmental charges or impositions relating to the operations of the Stations and BMS (the "Tax Returns") (including without limitation all income tax, unemployment compensation, social security, payroll, disability, sales and use, excise, privilege, property, ad valorem, franchise, license and any other tax or similar governmental charge or imposition under the laws of Puerto Rico, the United States or any state of or municipal and/or political subdivision thereof or any foreign country or political subdivision thereof relating to the operations of the Stations and BMS) (the "Taxes") have been filed or will be filed on time with the appropriate governmental agencies in all jurisdictions in which such Tax Returns are required to be filed, and all such Tax Returns properly reflect or will properly reflect the liabilities of Seller for Taxes, for the periods, property or events covered thereby. All material Taxes, including without limitation those which are called for by the Tax Returns, or heretofore claimed to be due by any taxing authority from Seller with respect to the operations of the Stations or BMS have been properly accrued or paid. Seller has not received any notice of assessment or proposed assessment in connection with any Tax Returns, and there are no pending tax examinations or tax claims asserted against Seller with respect to the operations of the Stations or BMS or any of the Assets. Seller has not extended or waived the application of any statute of limitations of any jurisdiction regarding the assessment or collection of any Taxes. Except as listed in schedule 4.23, there are no tax liens on any of the Assets. Seller has made or will make all material deposits required by law to be made with respect to withholding and other employment taxes. 4.24 Compliance with Law; Authorizations. Except as indicated in schedule 4.24, Seller is in compliance in all material respects with each law, ordinance or governmental rule or regulation to which Seller's operations of the Stations and BMS and/or the Assets are subject (the "Regulations"). Seller owns, holds, possesses or lawfully uses in the operation of the businesses of the Stations and of BMS all material franchises, licenses, permits and other authorizations (the "Authorizations") which are necessary for it to conduct the same as they are currently being conducted or for the use and ownership of the Assets. All of the Authorizations are listed in schedule 4.24. Seller, to the best of its knowledge, is not in default nor has it received any notice or claim of default with respect to any Authorizations. To the best of Seller's knowledge, all of the Authorizations should be renewable by Seller by their terms or in the ordinary course of business without the need to comply with any special qualification procedures or to pay any amount other than routine filing fees. Seller shall reasonably cooperate with Buyer in connection with Buyer's application for the transfer, renewal or issuance of any Authorization, provided that Seller's cooperation shall not be deemed to include or require actual expenditure of funds by Seller. 4.25 Utility Services. The water, telephone, electric and sewer utility services currently available to the Real Property are adequate for the present use of the Real Property in the conduct of the businesses of the Stations and of BMS, and Seller knows of no condition that may result in the termination of the present access from the Real Property to such services. 50 Representations and Warranties by the Buyer. The Buyer represents and warrants to the Seller as follows: 5.1 The Buyer's Organization and Authority. The Buyer is a corporation duly organized and validly existing under the law of the Commonwealth of Puerto Rico and has the full power and authority to enter into and perform this agreement and to own and operate the Stations and BMS. 5.2 Authorization of Agreement. The execution, delivery and performance of this agreement by the Buyer have been duly authorized by all necessary action of the Buyer and this agreement constitutes a valid and binding obligation of the Buyer enforceable against it in accordance with its terms, except as may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 Consents of Third Parties. The execution, delivery and performance of this agreement by the Buyer will not (a) conflict with the Buyer's certificate of incorporation or by- laws and will not conflict with or result in the breach or termination of, or constitute a default under, any lease, agreement, commitment or other instrument, or any order, judgment or decree, to which the Buyer is a party or by which the Buyer is bound or (b) constitute a violation by the Buyer of any law applicable to it. No consent, approval or authorization of, or designation, declaration or filing with, any governmental authority is required on the part of the Buyer in connection with the execution, delivery and performance of this agreement, except for the filings referred to in section 6.1. 5.4 Litigation. There is no claim, litigation, proceeding or governmental investigation pending or, to the best of the Buyer's knowledge, threatened, or any order, injunction or decree outstanding, against the Buyer or any of its affiliates that would prevent the consummation of the transactions contemplated by this agreement. 5.5 Buyer's Qualification. To the best of Buyer's knowledge, it is legally, financially and otherwise qualified under the rules and regulations of the Commission and the Communications Act of 1934, as amended, to become the owner, operator and licensee of the Stations and BMS. 5.6 Finders, Brokers. Except as provided in section 12.2, neither Buyer nor anyone acting on its behalf has taken any action that, directly or indirectly, would obligate Seller to anyone acting as broker, finder, financial advisor or in any similar capacity in connection with this agreement or any of the transactions contemplated hereby. 60 Further Agreements of the Parties. 6.1 Filings. As soon as practicable, but in no event later than five days after the date of this agreement, the parties shall file with the Commission an application requesting consent to the transactions contemplated by this agreement; the parties shall with due diligence take all reasonable steps necessary to expedite the processing of the application and to secure such consent or approval. Each party shall bear its own costs and expenses (including the fees and disbursements of its counsel) in connection with the preparation of the portion of the application to be prepared by it and in connection with the processing of that application. All filing and grant fees relating to the transfer of the FCC Licenses, if any, paid to the Commission, shall be split equally between Buyer and Seller. 6.2 Operations of the Stations and BMS. From the date of this agreement through the Closing Date, subject to the terms of the LMA Agreement: (a) The Seller shall operate the business of the Stations and BMS in the usual and ordinary course and substantially consistent with past practices and in substantial conformity with (i) the FCC Licenses, the Communications Act of 1934, and the rules and regulations of the Commission, and (ii) all other material laws, ordinances, regulations, rules or orders relating to the operations of the Stations and BMS; (b) The Seller shall use reasonable efforts, consistent with its past practices, (i) to preserve the business organization of the Stations and BMS intact and to preserve the goodwill and business of the advertisers, suppliers and others having business relations with the Stations and BMS, (ii) to retain the services of the employees of the Stations and BMS as may be agreed upon between Buyer and Seller, and (iii) to preserve all trademarks, trade names, service marks and copyrights and related registrations of the Stations and BMS, and all slogans and logos, owned by them or in which they have any rights; (c) The Seller shall not, except in the ordinary course and substantially consistent with past practice, (i) enter into any transaction or incur any liability or obligation that is material to the business or operations of the Stations or BMS or (ii) sell or transfer any of the assets relating to the Stations or BMS, other than assets that have worn out or been replaced with other assets of equal or greater value or assets that are no longer needed in the operation of the Stations or BMS; (d) The Seller shall not, except with the Buyer's prior written approval, (i) enter into or renew any lease or other agreement relating to the Stations or BMS that, if entered into prior to the date of this agreement, would have been required to be included on schedule 4.13 or 4.14 (or that would require receipt of a consent or approval required to be included on schedule 4.3), (ii) enter into any new time sale agreement for the Stations or BMS, (iii) cause or take any action to allow any material lease or other agreement relating to the Stations or BMS to lapse (other than in accordance with its terms), to be modified in any adverse respect, or otherwise to become impaired in any material manner, (iv) grant or agree to grant any general increases in the rates of salaries or compensation payable to employees of the Stations or BMS except for increases to be given consistent with past practices, (v) grant or agree to grant any specific bonus or increase to any executive or management employee of the Stations or BMS whose total annual compensation after the increase would be at an annual rate in excess of $50,000 except in the ordinary course of business and consistent with past practices, or (vi) provide for any new pension, retirement or other employment benefits for employees of the Stations or BMS or any increase in any existing benefits, establish any new employee benefit plan or amend or modify any existing employee benefit plan, or otherwise incur any obligation or liability under any employee benefit plan materially different in nature or amount from obligations or liabilities incurred during similar periods in prior years; (e) The Seller shall (i) maintain all of its assets relating to the Stations and BMS in customary repair, maintenance and condition, except to the extent of normal wear and tear, and repair or replace, consistently with past practice and subject to the provisions of section 11 hereof, any asset that may be damaged or destroyed, and (ii) maintain or cause to be maintained insurance on the assets and business of the Stations and BMS as described in section 4.16; and (f) Seller agrees that it will keep in effect until the Closing Date, without reduction in amount unless a material increase in premium is commanded, all insurance coverages maintained by Seller with respect to the business of the Stations and/or BMS, provided however, that the above provision shall not be deemed to impede any carrier from exercising any legal right which it may have to reduce or withdraw any coverage it may have granted originally under the particular policy. 6.3 No Control. Subject to the terms of the LMA Agreement and section 6.2 of this agreement, (a) between the date of this agreement and the Closing Date, the Buyer shall not, directly or indirectly, control, supervise or direct, or attempt to control, supervise or direct, the operations of the Stations or BMS, and (b) such operations shall be solely the responsibility of the Seller and shall be in its complete discretion. 6.4 Accounts Payable; Accounts Receivable. (a) Not later than 10 days after the Effective Time, the Seller shall furnish to Buyer a list of any Accounts Receivable outstanding as of the Effective Time and of any accounts payable ("Accounts Payable") that are payable by Seller after the Effective Time; it being understood that Buyer is not a collection agent and that Buyer will not obtain a license as a collection agency. For a period of 120 days after the Effective Time, Buyer shall on a best effort basis and without other compensation collect the Accounts Receivable, net of any applicable agency commission or prompt payment discount, and Buyer shall pay the Accounts Payable for Seller. Within 15 days after the last day of each calendar month during the 120 day period, Buyer shall remit to Seller the amount collected by Buyer during that month with respect to the Accounts Receivable (net of sales commissions payable and paid to agencies or employees of the Stations and BMS or brokers) less the amount paid by Buyer with respect to the Accounts Payable and Buyer shall provide Seller with a report setting forth the Accounts Receivable collected by Buyer during that particular month and the Accounts Payable paid by Buyer during that particular month (and if the amount of the Accounts Payable paid exceeds the net amount of the Accounts Receivable collected, Seller shall promptly pay such excess to Buyer). Buyer shall furnish Seller with such records and other information as Seller may reasonably require to verify the amounts collected by Buyer with respect to the Accounts Receivable or paid with respect to the Accounts Payable. (b) For the purpose of determining amounts collected by Buyer with respect to the Accounts Receivable (other than the Accounts Receivable from the account debtors listed on schedule 6.4(a) (the "120 Day Debtors")), (i) in the absence of a bona fide dispute between such an account debtor of the Seller or its representative and the Seller, all payments by such account debtor shall first be applied to Accounts Receivable due from such account debtor (it being understood that for the purposes of this section an account debtor will be deemed to be the ultimate beneficiary of the broadcasting time generated by a particular purchase, that is, for example, in the case of a purchase undertaken by an advertising agency, on behalf or for the benefit of a particular client, the client for whom the particular purchase was undertaken shall be deemed to be the account debtor for purposes of this section), and (ii) any amount received by Buyer which is from an account debtor who claims, or whose representative claims, to have a bona fide dispute with Seller shall be deemed to have been received with respect to the accounts receivable due Buyer to the extent of such dispute. For the purpose of determining amounts collected by Buyer with respect to Accounts Receivable from 120 Day Debtors, each payment from that Debtor shall be applied as indicated by the Debtor in making the payment (and, if the Debtor does not indicate, the Buyer shall request that the account debtor indicate how the payment is to be applied). (c) Buyer shall not be required to retain a collection agency, bring any suit, or take any other action out of the ordinary course of business to collect any of the Accounts Receivable. Buyer shall not compromise, settle or adjust the amount of any of the Accounts Receivable without the written consent of Seller. By the same token, during the afore referred 120 day period after the Effective Time, Seller shall not threaten to sue, sue or engage any collection agency or any collection procedure of any kind with regard to any account included in the Accounts Receivable other than any account owed by any 120 Day Debtor who is not a current client of the Stations or BMS at the time such action is taken, provided that Seller gives Buyer 10 days prior notice of such proposed action and Buyer does not notify Seller within that 10-day period that the 120-Day Debtor is a current client of the Stations or BMS. (d) Each advertising agency placing time on the Stations is entitled to a volume discount for calendar year 1997 if it purchases a minimum amount (the "Minimum Amount") of time on the Stations during that year, as set forth on schedule 6.4(d). At the closing (or on December 31, 1997, whichever is earlier), Buyer (or, if on December 31, 1997, Seller) shall deliver to the Escrow Agent an amount equal to 9/12 of the aggregate volume discount Seller paid to advertising agencies with respect to calendar year 1996, or $215,627 (the "Volume Discount Escrow Amount). The Volume Discount Escrow Amount shall be held by the Escrow Agent pursuant to the terms of an escrow agreement in the form of exhibit 6.4(d) hereto. If the amount of time on the Stations purchased by any advertising agency in all of calendar year 1997 exceeds the Minimum Amount, then (1) Buyer shall pay the entire volume discount for 1997 to the agency before April 30, 1998, and (2) Buyer shall notify Seller of the payment, and Buyer may withdraw from the Volume Discount Escrow Amount an amount equal to the volume discount on the amount of time on the Stations purchased by that agency prior to the Effective Date of the LMA Agreement determined as provided below. Subject to the provisions of Sections 3.01 and 4.01 of the escrow agreement referred to above, to the extent amounts are not paid to advertising agencies as provided in the preceding sentence or claimed by advertising agencies before April 30, 1998, the remainder shall be paid to Seller. For purposes of the foregoing, the volume discount portion of the total volume discount paid to a particular agency that will correspond to Seller shall be an amount which bears the same ratio to such total volume discount as the gross revenues sold by the Station to the particular agency during calendar year 1997 through the Effective Date of the LMA Agreement bears to the total annual gross revenues sold by the Stations to the particular agency for all of calendar year 1997. 6.5 Access to Information. Prior to the closing, the Buyer and its representatives may make such investigation of the property, assets and businesses of the Stations and BMS as it may desire, and the Seller shall give to the Buyer and to its counsel, accountants and other representatives, upon reasonable notice, full access during normal business hours throughout the period prior to the closing to all of the assets, books, commitments, agreements, records and files of the Seller relating to the Stations and BMS, except that Buyer shall do no environmental testing without the consent of Seller, which consent shall not be unreasonably withheld, and the Seller shall furnish to the Buyer during that period all documents and copies of documents and information concerning the businesses and affairs of the Stations and BMS as the Buyer reasonably may request. The Buyer shall hold, and shall cause its representatives to hold, all such information and documents and all other information and documents delivered pursuant to this agreement confidential and, if the purchase and sale contemplated by this agreement is not consummated for any reason, shall return to the Seller all such information and documents and any copies as soon as practicable, and shall not disclose any such information (that has not previously been disclosed and generally made available to the public other than by Buyer or its representatives, provided that the source of such disclosure is not bound by a confidentiality agreement (whether written or oral) with the Seller) to any third party unless required to do so pursuant to a request or order under applicable laws and regulations or pursuant to a subpoena or other legal process. The Buyer's obligations under this section shall survive the termination of this agreement. 6.6 Consents; Assignment of Agreements. The Seller shall use reasonable efforts (but shall not be required to make any payment) to obtain at the earliest practicable date all consents and approvals referred to in section 4.3. If, with respect to any lease or agreement to be assigned to the Buyer, a required consent to the assignment is not obtained (and, accordingly, pursuant to section 1.2(c), the lease or agreement is excluded from the sale to the Buyer), the Seller shall so advise Buyer (and advise Buyer from time to time prior to the Closing of its efforts to obtain such consent), use reasonable efforts to keep it in effect and give the Buyer the benefit of it to the same extent as if it had been assigned, and the Buyer shall perform Seller's obligations under the agreement relating to the benefit obtained by the Buyer. Nothing in this agreement shall be construed as an attempt to assign any agreement or other instrument that is by its terms nonassignable without the consent of the other party. 6.7 Title Insurance; Transfer and Recording Fees. The Buyer shall pay any stamp or transfer taxes, real or personal property taxes or recording fees payable in connection with the sale of the Assets, and any fees for title insurance on the fee interest acquired by the Buyer pursuant to this agreement. The Seller shall pay the internal revenue stamps to be affixed to the original of the deed of purchase and sale of the Real Property and shall pay the notarial fees corresponding to the same. The Buyer shall choose the notary public that will draft and execute the deed of purchase and sale. The Buyer shall pay the internal revenue stamps to be affixed on the certified copy of the deed of purchase and sale and the recording fees payable in connection with the deed of purchase and sale. 6.8 Employees. (a) Employment. The Buyer shall employ those employees listed on schedule 6.8(a) at the Effective Time or on the Closing Date as indicated on schedule 6.8(a). The Buyer shall have no obligation to offer employment to the one employee indicated on schedule 6.8(a). (b) Employee Benefits Generally. The Buyer shall provide all employees of the Seller that become employees of the Buyer ("Covered Employees") all accrued vacation and sick leave, Christmas bonus and similar benefits provided for and funded by Seller in the Accrued Benefit Escrow Amount referred to in section 6.8(d). Buyer shall also provide the Covered Employees employee benefits that in the aggregate are no less favorable than those benefits provided by Seller to the Covered Employees as of the Effective Time and Buyer shall give to each Covered Employee past service credit for purposes of eligibility and vesting under all employee benefit plans for employees of the Buyer (and past service credit for all purposes, including the amount of benefits, under the severance, vacation, sick pay and similar policies of the Buyer). In no event shall Buyer be obligated for any benefit or perquisite of employment which derives from the employment relationship between Seller and its employees or the termination thereof (except termination compensation for Covered Employees who are terminated by Buyer), including but not limited to severance payment, labor or employment law related claims, benefits or perquisites provided by Seller pursuant to any benefit plan, insurance contract, employment or other benefit arrangement either under Federal or Puerto Rico laws. Seller thus shall indemnify Buyer and hold Buyer harmless of and from any and all claims, expenses, actions, causes of action, damages or losses incurred or suffered by Buyer in connection with claims by any persons or any agency, whether public or private, related to any such labor matters, under any applicable law or regulation. (c) Medical Benefits. The Buyer shall provide all Covered Employees (and their dependents) with medical benefit coverage similar to that provided by Seller to those Employees prior to the Effective Time. The Buyer shall use reasonable efforts (without incurring any disbursement or payment obligation of any sort) to cause its plan(s) to waive any pre- existing condition exclusions and waiting periods (except to the extent that such exclusions would have then applied or waiting periods were not satisfied under Seller's medical plan) and to credit or otherwise consider any monies paid (or accrued) under Seller's medical plan by Covered Employees (or their dependents) since January 1, 1997 toward any deductibles, co-pays or other maximums under its plan(s) during the first plan year. The Buyer shall be responsible for satisfying its obligations under Section 601 et seq. of ERISA and Section 4980B of the Internal Revenue Code to provide continuation coverage ("COBRA") to any Covered Employee in accordance with law and shall provide COBRA coverage to any employees of the Seller not employed by the Buyer at the Effective Time or at the Closing, as the case may be (and to any former employees of the Seller being provided COBRA coverage by Seller at the Effective Time), to the extent required by COBRA. (d) Accrued Benefits. Seller shall be responsible for all vacation pay, sick pay, Christmas bonus and similar benefits accruing through the Effective Date of the LMA (collectively "Accrued Benefits") to all Covered Employees. Buyer and Seller estimate that the maximum liability of Seller for Accrued Benefits to Covered Employees is $219,925 (the "Accrued Benefit Escrow Amount"). At the Effective Time, Seller shall deliver to the Escrow Agent the Accrued Benefit Escrow Amount to be held by the Escrow Agent pursuant to the terms of an escrow agreement in the form of Exhibit 6.8(d). Buyer may, after notice to Seller, withdraw from the Accrued Benefit Escrow Amount any amounts paid by Buyer to employees of Seller with respect to Accrued Benefits, as provided in the escrow agreement. To the extent amounts are not paid to Covered Employees from the Accrued Benefit Escrow Amount, the amount remaining on December 31, 1998 and unclaimed shall be paid to Seller. (e) Employment Agreement. Seller has entered into an employment agreement with Jose Pagan, as general manager of the Stations, and Buyer shall assume the agreement at the Effective Time. 6.9 Expenses. Each party shall bear its own expenses incurred in connection with the negotiation and pre paration of this agreement and in connection with all obligations required to be performed by it under this agreement, except where specific expenses have been otherwise allocated by this agreement. 6.10 Financial Statements and Information. During the term of the LMA Agreement, the Buyer shall provide to the Seller monthly financial statements relating to the Stations and BMS and any other financial information with respect to the Stations and BMS as the Seller may reasonably request. 6.11 Application for Increased Power. Until the closing, the Seller and its Commission counsel, Wiley, Rein & Fielding, shall continue to prosecute the Application to increase the authorized nighttime broadcast power of WUNO(AM) from 1 kW to 2.30 kW. If the Application is still pending on the Closing Date, the Buyer and its Commission counsel shall continue to prosecute the Application thereafter, but Seller and its Commission counsel may continue to participate in the prosecution of the Application. Buyer shall not seek to increase the authorized nighttime power for WUNO(AM) to 5 kW unless and until the increase to 2.30 kW has become final. 6.12 Other Action. Each of the parties to this agreement shall use its best efforts to cause the fulfillment at the earliest practicable date of all of the conditions to the obligations of the parties to consummate the sale and purchase under this agreement. 6.13 Further Assurances. At any time and from time to time after the closing, each of the parties shall, without further consideration, execute and deliver to the other such additional instruments and shall take such other action as the other may request to carry out the transactions contemplated by this agreement. For a period of three years after the closing, each party shall grant the other reasonable access during normal business hours upon reasonable prior notice to the books and records of that party for the purpose of complying with any applicable law or governmental rule or request relating to the period during which the other party operated the Station or as otherwise reasonably required. 70 Conditions Precedent to Closing. 7.1 Conditions Precedent to the Obligations of the Buyer. The Buyer's obligation to consummate the purchase under this agreement is subject to the fulfillment, at or prior to the closing, of each of the following conditions (any of which may be waived in writing by the Buyer): (a) all representations and warranties of the Seller under this agreement shall be true at and as of the time of the closing with the same effect as though those representations and warranties had been made again at and as of that time, except to the extent any failure to be true results from the operations of the Stations and BMS by Buyer during the term of the LMA Agreement and with such exceptions as do not have a material adverse effect on the operations or business of the Stations and BMS taken as a whole; (b) the Seller shall have performed and complied in all material respects with all obligations, covenants and conditions required by this agreement to be performed or complied with by it prior to or at the closing; (c) the Commission shall have given all requisite approvals and consents, without any condition or qualification materially adverse to the Buyer or the operations of the Stations and BMS taken as a whole, to the assignment of the FCC Licenses to the Buyer and the acquisition of control of the Stations and BMS by the Buyer as provided in this agreement and such approvals shall have become a Final Order (as defined below); (d) the Seller shall have duly received, without any condition materially adverse to the Buyer, all consents and approvals referred to in schedule 7.1(d); (e) there shall not be in effect an in junction or restraining order issued by a court of competent jurisdiction in an action or proceeding against the consummation of the transactions contemplated by this agreement; and (f) the Buyer shall have been furnished with a certificate of an officer of the Seller, dated the Closing Date, in form and substance reasonably satisfactory to the Buyer, certifying to the fulfillment of the conditions set forth in sections 7.1(a) and (b). For the purpose of this agreement, "Final Order" means action by the Commission (a) which has not been vacated, reversed, stayed, set aside, annulled or suspended, (b) with respect to which no appeal, request for stay, or petition for rehearing, reconsideration or review by any party or by the Commission on its motion, is pending, and (c) as to which the time for filing any such appeal, request, petition, or similar document for the reconsideration or review by the Commission on its own motion under the express provisions of the Communications Act of 1934 and the rules and regulations of the Commission, has expired (or if any such appeal, request, petition or similar document has been filed, a Commission order has been upheld in a proceeding pursuant thereto and no additional review or reconsideration may be sought). 7.2 Conditions Precedent to the Obligations of the Seller. The Seller's obligation to consummate the sale under this agreement is subject to the fulfillment, at or prior to the closing, of each of the following conditions (any of which may be waived in writing by the Seller): (a) all representations and warranties of the Buyer under this agreement shall be true at and as of the time of the closing with the same effect as though those representations and warranties had been made at and as of that time, with such exceptions as do not in the aggregate have a material adverse effect on the ability of the Buyer to consummate the transactions contemplated by this agreement; (b) the Buyer shall have performed and complied in all material respects with all obligations, covenants and conditions required by this agreement to be performed or complied with by it prior to or at the closing; (c) the Commission shall have given all requisite approvals and consents, without any condition or qualification materially adverse to the Seller, to the assignment of the FCC Licenses to the Buyer and the acquisition of control of the Stations and BMS by the Buyer as provided in this agreement, and such approvals shall have become a Final Order; (d) the lenders under the Note Agreement shall have released their lien on substantially all of the Assets; (e) there shall not be in effect an in junction or restraining order issued by a court of competent jurisdiction in an action or proceeding against the consummation of the transactions contemplated by this agreement; and (f) the Seller shall have been furnished with a certificate of an officer of the Buyer, dated the Closing Date, in form and substance reasonably satisfactory to the Seller, certifying to the fulfillment of the conditions set forth in sections 7.2(a) and (b). 80 Transactions at the Closing. 8.1 Documents to be Delivered by the Seller. At the closing, the Seller shall deliver to the Buyer the following: (a) such bills of sale, assignments, deeds or other instruments of transfer and assignment, and such termination letters and satisfactions of mortgages and chattel mortgages, all in form and substance reasonably satisfactory to the Buyer and its counsel, as shall be effective to vest in Buyer title to the Assets in accordance with section 4.4; (b) an opinion of Proskauer Rose LLP, counsel to the Seller, dated the Closing Date, in form reasonably acceptable to the Buyer and its counsel; (c) an opinion of Wiley, Rein & Fielding, Commission counsel to the Seller, dated the Closing Date, in form reasonably acceptable to the Buyer and its counsel; (d) the certificate referred to in section 7.1(f); (e) copies of all consents and approvals received pursuant to section 6.6; and (f) a copy of resolutions of the managing general partner of the Seller authorizing the execution, delivery and performance of this agreement by the Seller, certified as of the Closing Date and reflecting that such resolutions were duly adopted and are in full force and effect. 8.2 Documents to be Delivered by the Buyer. At the closing, the Buyer shall deliver to the Seller the following: (a) wire transfer of funds or a bank or certified check in the amount provided in section 2.2(d); (b) instruments, in form and substance reasonably satisfactory to the Seller and its counsel, pursuant to which the Buyer shall assume the obligations of the Seller to be assumed by the Buyer pursuant to section 2.1(b); (c) an opinion of Totti and Rodriguez-Diaz, counsel to the Buyer, dated the Closing Date, in form reasonably acceptable to the Seller and its counsel; (d) a copy of resolutions of the board of directors of the Buyer authorizing the execution, delivery and performance of this agreement by the Buyer, and a certificate of the secretary or an assistant secretary of the Buyer, dated the Closing Date, that such resolutions were duly adopted and are in full force and effect; and (e) the certificate referred to in section 7.2(f). 8.3 Documents Executed at Closing. At the closing, the Buyer and the Seller shall execute and deliver the Indemnity Escrow Agreement, the Broadcast Power Escrow Agreement (if applicable) and a Non-competition Agreement in the form of exhibit 8.3 and, if the Closing is after December 31, 1997, a Volume Discount Escrow Agreement. 90 Survival of Representations and Warranties; Indemnification. 9.1 Survival. All representations, warranties, covenants and agreements of the Seller and the Buyer contained in this agreement shall survive the Closing Date. Neither party shall, however, have any liability for misrepresentation or breach of warranty, covenant or agreement hereunder except to the extent that notice of a claim is asserted in writing and delivered to the other party not later than the first anniversary of the closing (or the fifth anniversary of the closing in the case of any claim asserted against Buyer by any employee of Seller arising under any applicable labor or labor related law or representation with respect to the employment of such employee by Seller prior to the Effective Date of the LMA Agreement). Any notice of a claim for misrepresentation or breach of warranty, covenant or agreement shall state specifically the representation or warranty, covenant or agreement with respect to which the claim is made, the facts giving rise to an alleged basis for the claim, and the amount of liability asserted against the other party by reason of the claim. The consummation by the Seller or the Buyer of the purchase and sale contemplated by this agreement with knowledge of a misrepresentation or breach of warranty by the other party shall be considered a waiver of any claim with respect to that misrepresentation or breach of warranty. 9.2 Indemnification. (a) Subject to sections 9.1 and 9.3, the Seller shall indemnify and hold harmless the Buyer against all loss, liability, damage or expense (including reasonable fees and expenses of counsel) (together, "Losses"), that the Buyer may suffer, sustain or become subject to as a result of (i) any misrepresentation by the Seller or any breach by the Seller of any warranty, covenant or other agreement contained in this agreement, (ii) the failure by the Seller to pay, perform or discharge when due any of the Seller's obligations, liabilities, agreements or commitments not assumed by the Buyer pursuant to this agreement, (iii) any liability under any agreement assumed by the Buyer pursuant to section 2.1(b) but not listed on schedule 4.12 or 4.13, and (iv) any claim with respect to the termination of any of the employees of the Seller who do not become Covered Employees or any claim by any employee of Seller relating to the period such employee was employed by Seller. (b) Subject to section 9.1, the Buyer shall indemnify and hold harmless the Seller against all Losses that the Seller may suffer, sustain or become subject to as a result of (i) any misrepresentation by the Buyer or any breach by the Buyer of any warranty, covenant or other agreement contained in this agreement, (ii) the failure by Buyer to pay, perform or discharge any of the obligations arising after 12:00 Midnight on the Closing Date under those leases and other agreements assigned to Buyer pursuant to sections 1.1(d) and (f), as provided in section 2.1, and (iii) any claim by any of the Covered Employees relating to the period such employee was employed by Buyer. (c) If any claim is made against the Buyer that, if sustained, would give rise to a liability of the Seller under this agreement, or otherwise, the Buyer promptly shall cause notice of the claim to be delivered to the Seller and shall afford the Seller and its counsel, at the Seller's expense, the opportunity to defend or settle the claim. If such notice and opportunity are not given, or if notice is given but the claim is settled without the Seller's consent, which consent shall not be unreasonably withheld, the Seller shall not have any liability to the Buyer with respect to the claim. The Buyer shall cooperate with the Seller in the defense of the claim and may, at its own expense, participate in the defense, but complete control of the defense shall remain with the Seller. The Seller shall give notice to the Buyer prior to settlement of any claim, and the Seller shall not settle any claim in a manner that would have an adverse effect on the operation of the Stations or BMS, without the consent of the Buyer, which consent shall not be unreasonably withheld. (d) If any claim is made against the Seller that, if sustained, would give rise to a liability of the Buyer under this agreement, or otherwise, the Seller promptly shall cause notice of the claim to be delivered to the Buyer and shall afford the Buyer and its counsel, at the Buyer's expense, the opportunity to defend or settle the claim. If such notice and opportunity are not given, or if notice is given but the claim is settled without the Buyer's consent, the Buyer shall not have any liability to the Seller with respect to the claim. The Seller shall cooperate with the Buyer in the defense of the claim and may, at its own expense, participate in the defense, but complete control of the defense shall remain with the Buyer. 9.3 Limitation on Liability. Notwithstanding anything to the contrary in this agreement; (a) the Seller shall not be liable to the Buyer for misrepresentation or breach of warranty or for indemnification pursuant to section 9.2(a)(iii) or 9.2(a)(iv) except to the extent that the aggregate amount of loss, liability, damage and expense incurred as a result of all such misrepresentations and breaches of warranty or for such indemnification exceeds in the aggregate the sum of $75,000; (b) the aggregate liability of the Seller to the Buyer for indemnification or otherwise under this agreement shall be limited solely to the Indemnity Escrow Amount; and (c) except as provided in section 12.10, the Buyer shall have no other recourse against the Seller or any partner of Seller with respect to such indemnity obligations or otherwise arising under this agreement. Notwithstanding the foregoing, the Seller shall indemnify and hold harmless the Buyer against all out-of-pocket costs and expenses (including reasonable fees and expenses of counsel) resulting from any claims asserted against Buyer or the Assets by any third party unrelated to Buyer resulting solely from the operations of the Stations and BMS prior to the Effective Date of the LMA Agreement. 10. Termination. 10.1 Termination. Except with respect to provisions that expressly survive termination, this agreement may be terminated: (a) by written agreement of the Buyer and the Seller; (b) by the Seller, by notice to the Buyer, if the LMA Agreement is terminated as a result of a breach by the Buyer; (c) by the Buyer or the Seller, by notice to the other, if at any time prior to the Closing Date any event shall have occurred or any state of facts shall exist that renders any of the conditions to its obligations as provided in this agreement incapable of fulfillment; (d) by the Buyer as provided in section 11; or (e) by the Buyer or the Seller, by notice to the other, if the Commission designates for a hearing the application for Commission consent contemplated by this agreement. 10.2 Liability. The termination of this agreement under section 10.1(b), (c) or (d) shall not relieve any party of any liability for breach of this agreement prior to the date of termination. 11. Risk of Loss. The risk of loss or damage to any of the Assets shall be on the Seller prior to the closing and thereafter shall be on the Buyer. If any material Asset is damaged or destroyed prior to the Closing Date (any such event being referred to as an "Event of Loss"), the Seller shall immediately notify Buyer in writing of the Event of Loss. The notice shall specify with particularity the loss or damage incurred, the cause of the Event of Loss, if known or reasonably ascertainable, and the applicable insurance coverage. If the Seller elects to repair, replace or restore the Asset and the Asset so damaged or destroyed cannot be completely repaired, replaced or restored by the scheduled date of the closing but can be accomplished within 90 days after that date, the date of the closing shall be postponed for up to that 90-day period to allow the Seller an opportunity to repair, replace or restore the Asset. If the Seller does not elect to repair, replace or restore the Asset or if the repair, replacement or restoration cannot be accomplished within that 90-day period, the Buyer may elect, by written notice to the Seller within 20 days after the Buyer has received notice that an Event of Loss has occurred or that the repair, replacement or restoration cannot be so completed: (a) to close the transaction on the scheduled date of the closing and accept the damaged Asset as is (together with all insurance proceeds paid or payable with respect to the Event of Loss) ; or (b) to terminate this agreement without liability, in which event the Escrow Agent shall return Seller's Liquidated Damage Escrow Amount to Buyer. If the date of the closing is postponed beyond the time specified in section 3.2, the parties shall amend their application or applications to the Commission to request an extension of the date of closing. 12. Miscellaneous. 12.1 Notices. Any notice or other communication under this agreement shall be in writing and shall be considered given when delivered personally or when mailed by registered mail, return receipt requested, to the parties at the addresses set forth below (or at such other address as a party may specify by notice to the other): to the Buyer, to it at: 24th Street and Munoz Marin Avenue P.O. Box 487 Caguas, Puerto Rico 00726 with a copy to: Juan Rodriguez Diaz, Esq. Edificio Union Plaza Avenida Ponce De Leon 416 Suite 1200 Hato Rey, PR 00918 if to Seller, to it at: 350 Park Avenue 16th Floor New York, New York 10022 Attention: I. Martin Pompadur with a copy to: Proskauer Rose LLP 1585 Broadway New York, New York 10036 Attention: Lawrence H. Budish, Esq. 12.2 Brokers. Each of the Buyer and the Seller represents and warrants to the other that it has not retained or dealt with any broker or finder in connection with the transactions contemplated by this agreement, except that the Buyer has retained and shall pay the fees payable to Rumbaut and Company pursuant to a separate agreement between Buyer and Rumbaut and Company. 12.3 Entire Agreement. This agreement, including the schedules and exhibits, contains a complete statement of all the arrangements between the parties with respect to its subject matter, supersedes any previous agreement between them relating to that subject matter, and cannot be changed or terminated orally. Except as specifically set forth in this agreement, there are no representations or warranties by either party in connection with the transactions contemplated by this agreement. 12.4 Headings. The section headings of this agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this agreement. 12.5 Governing Law. This agreement shall be governed by and construed in accordance with the law of the Commonwealth of Puerto Rico applicable to agreements made and to be performed in Puerto Rico. 12.6 Separability. If any provision of this agreement is invalid or unenforceable, the balance of this agreement shall remain in effect. 12.7 Assignment. No party may assign any of its rights or delegate any of its duties under this agreement prior to the Closing without the consent of the other except that the Buyer may assign its rights and delegate its duties to an affiliate provided such assignment does not delay Commission approval of the transactions contemplated by this agreement. This agreement shall be binding upon and inure to the benefit of the parties hereto, their successors and permitted assigns. 12.8 Publicity. Except as required by applicable law, no party shall issue any press release or other public statement regarding the transactions contemplated by this agreement without consulting with the other. 12.9 Knowledge. As used in this agreement, the phrase "to the best of Seller's knowledge" means the knowledge of I. Martin Pompadur, Elizabeth McNey Yates, Ray Edwards, Jr. or Jose Pagan. 12.10 Specific Performance. The Seller acknowledges that the Assets are of a special, unique and extraordinary character, and that any breach of this agreement by the Seller could not be compensated for by damages, and the Seller agrees that the Buyer's right to specific performance is essential to protect the rights of the Buyer hereunder. Accordingly, if the Seller breaches its obligations under this agreement, the Buyer shall be entitled, in addition to any other remedies that it may have, subject to obtaining any necessary approval of the Commission, to enforcement of this agreement by a decree of specific performance requiring the Seller to fulfill its obligations under this agreement. 12.11 Counterparts. This agreement may be executed in any number of counterparts, which together shall constitute one and the same instrument. MADIFIDE, INC. By:____________________ Name: Title: CENTURY-ML CABLE VENTURE By:____________________ Name: Title: Table of Contents Page 1. Sale and Purchase of Assets 1 1. Sale of Assets to Buyer 1 1.2 Excluded Assets 3 2. Purchase Price 3 2.1 Amount and Payment of Consideration. 3 2.2 Payment of Purchase Price 4 2.3 Deposit; Seller's Liquidated Damages 5 2.4 Limitation on Assumption of Liabilities 6 2.5 Apportionment 6 2.6 Determination of Apportionments 7 2.7 Allocation of Purchase Price 7 3. Closing 8 3.1 Date of Closing 8 3.2 Outside Date for Closing 8 4.1 The Seller's Organization and Authority 8 4.2 Authorization of Agreement 8 4.3 Consents of Third Parties 8 4.4 Title to Assets 9 4.5 FCC Licenses 10 4.6 Call Letters 11 4.7 Operation of the Stations and BMS 11 4.8 Financial Statements 11 4.9 Absence of Certain Changes 11 4.10 Tangible Property 12 4.11 Intangible Assets 12 4.12 Litigation; Compliance with Laws 13 4.13 List of Agreements, etc. 13 4.14 Agreements Regarding Employees 13 4.15 Status of Agreements 14 4.16 Insurance 14 4.17 Labor Matters 14 4.18 Environmental Matters 15 4.19 ERISA 16 4.20 Commission Reports 16 4.21 Finders, Brokers 16 4.22 Ordinary Course of Business 17 4.23 Tax and Other Returns or Filings 17 4.24 Compliance with Law; Authorizations 17 4.25 Utility Services 18 5. Representations and Warranties by the Buyer 18 5.1 The Buyer's Organization and Authority 18 5.2 Authorization of Agreement 18 5.3 Consents of Third Parties 19 5.4 Litigation 19 5.5 Buyer's Qualification 19 5.6 Finders, Brokers 19 6. Further Agreements of the Parties 19 6.1 Filings 19 6.2 Operations of the Stations and BMS 20 6.3 No Control 21 6.4 Accounts Payable; Accounts Receivable 21 6.5 Access to Information 24 6.6 Consents; Assignment of Agreements 24 6.7 Title Insurance; Transfer and Recording Fees 25 6.8 Employees 25 6.9 Expenses 27 6.10 Financial Statements and Information 27 6.11 Application for Increased Power 27 6.12 Other Action 27 6.13 Further Assurances 28 7. Conditions Precedent to Closing 28 7.1 Conditions Precedent to the Obligations of the Buyer 28 7.2 Conditions Precedent to the Obligations of the Seller 29 8. Transactions at the Closing 30 8.1 Documents to be Delivered by the Seller 30 8.2 Documents to be Delivered by the Buyer 31 8.3 Documents Executed at Closing 31 9. Survival of Representations and Warranties; Indemnification 31 9.1 Survival 31 9.2 Indemnification 32 9.3 Limitation on Liability 33 10. Termination 34 10.1 Termination 34 10.2 Liability 34 11. Risk of Loss 34 12. Miscellaneous 35 12.1 Notices 35 12.2 Brokers 36 12.3 Entire Agreement 36 12.4 Headings 36 12.5 Governing Law 36 12.6 Separability 36 12.7 Assignment 37 12.8 Publicity 37 12.9 Knowledge 37 12.10 Specific Performance 37 12.11 Counterparts 8
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