-----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, NFW35GH5tFwer0uP+Ws02Li6SdCSYt72f2dKowPZR9p2qT2cTGSULYngK/0XcASn 6Z+CSaMQ0DRG+sz4JTdoLQ== 0000861255-98-000003.txt : 19980401 0000861255-98-000003.hdr.sgml : 19980401 ACCESSION NUMBER: 0000861255-98-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLYMPUS COMMUNICATIONS LP CENTRAL INDEX KEY: 0000861255 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 251622615 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-19327 FILM NUMBER: 98583859 BUSINESS ADDRESS: STREET 1: 5 WEST THIRD ST STREET 2: P O BOX 472 CITY: COUDERSPORT STATE: PA ZIP: 16915 BUSINESS PHONE: 8142749830 MAIL ADDRESS: STREET 1: 5 WEST THIRD STREET STREET 2: P O BOX 472 CITY: COUDERSPORT STATE: PA ZIP: 16915 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLYMPUS CAPITAL CORP CENTRAL INDEX KEY: 0000754019 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 251622615 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-19327-01 FILM NUMBER: 98583860 BUSINESS ADDRESS: STREET 1: 5 W THIRD ST STREET 2: P O BOX 472 CITY: COUDERSPORT STATE: PA ZIP: 16915 BUSINESS PHONE: 8142749830 MAIL ADDRESS: STREET 1: 5 WEST THIRD STREET STREET 2: P O BOX 472 CITY: COUDERSPORT STATE: PA ZIP: 16915 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______________ to _____________ Commission File Number: 333-19327 OLYMPUS COMMUNICATIONS, L.P. (Exact name of registrant as specified in its charter) Delaware 25-1622615 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) OLYMPUS CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-2868925 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Main at Water Street Coudersport, PA 16915-1141 (Address of principal executive offices) (Zip code) 814-274-9830 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate 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 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
OLYMPUS COMMUNICATIONS, L.P. OLYMPUS CAPITAL CORPORATION TABLE OF CONTENTS PART I ITEM 1. BUSINESS..................................................................3 ITEM 2. PROPERTIES...............................................................20 ITEM 3. LEGAL PROCEEDINGS........................................................21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................21 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................................22 ITEM 6. SELECTED FINANCIAL DATA..................................................22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................24 ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............32 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................52 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................52 ITEM 11. EXECUTIVE COMPENSATION...................................................53 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................................53 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.........................................................57
PART I ITEM 1. BUSINESS (Dollars in thousands) Introduction Olympus Communications, L.P. ("Olympus" and, collectively with its subsidiaries, the "Company") is a joint venture limited partnership between ACP Holdings, Inc., a wholly-owned subsidiary of Adelphia Communications Corporation (together with its subsidiaries, "Adelphia") and subsidiaries of FPL Group, Inc. (together with its subsidiaries, "FPL Group") with 50% of the outstanding voting interest held by Adelphia and 50% held by FPL Group. Adelphia is the seventh largest cable television operator in the United States serving 1,968,986 basic subscribers and passing 2,759,546 homes through its owned and managed cable systems (including Olympus) as of December 31, 1997. FPL Group is one of the largest public utility holding companies in the United States supplying, through its principal subsidiaries, electrical service throughout most of the east and lower west coasts of Florida. The Company operates the largest contiguous cable system in Florida and is located in some of the fastest growing markets in Florida. As of December 31, 1997, the Company's cable system (the "System") served approximately 498,000 basic subscribers and passed approximately 750,000 homes. In addition to cable television, the Company offers a wide range of communication services including analog and digital cable television, high speed data and Internet access, paging, electronic security monitoring and telephony. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Annual Report on Form 10-K, including Management's Discussion and Analysis of Financial Condition and Results of Operations, is forward-looking, such as information relating to the effects of future regulation, future capital commitments and the effects of competition. Such forward-looking information involves important risks and uncertainties that could significantly affect expected results in the future from those expressed in any forward-looking statements made by, or on behalf of, the Company. These "forward looking statements" can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will," "should," "intends" or "anticipates" or the negative thereof or other variations thereon or comparable terminology or by discussions of strategy that involve risks and uncertainties. These risks and uncertainties include, but are not limited to, uncertainties relating to economic conditions, acquisitions and divestitures, government and regulatory policies, the pricing and availability of equipment, materials, inventories and programming, technological developments and changes in the competitive environment in which the Company operates. Persons reading this Annual Report on Form 10-K are cautioned that forward-looking statements herein are only predictions, that no assurance can be given that the future results will be achieved, and that actual events or results may differ materially as a result of the risks and uncertainties facing the Company. Business Video Services Cable television systems receive a variety of television, radio and data signals transmitted to receiving sites ("headends") by way of off-air antennas, microwave relay systems and satellite earth stations. Signals are then modulated, amplified and distributed primarily through coaxial and fiber optic cable to subscribers, who pay fees for the service. Cable television systems are generally constructed and operated pursuant to non-exclusive franchises awarded by state or local government authorities for specified periods of time. Cable television systems typically offer subscribers a package of basic video services consisting of local and distant television broadcast signals, satellite-delivered non-broadcast channels (which offer programming such as news, sports, family entertainment, music, weather, shopping, etc.) and public, governmental and educational access channels. In addition, premium service channels, which provide movies, live and taped concerts, sports events and other programming, are offered for an extra monthly charge. At December 31, 1997, over 98% of subscribers of the System were also offered pay-per-view programming, which allows the subscriber to order special events or movies and to pay on a per event basis. Local, regional and national advertising time is sold in the majority of the System, with commercial advertisements inserted on certain satellite-delivered non-broadcast channels. Digital video services are now available to Olympus subscribers who lease or purchase a digital converter. Digital TV is a computerized method of defining, transmitting and storing information that makes up a television signal. Since digital signals can be "compressed," Olympus can transmit up to 12 channels in the space currently used to transmit just one analog channel. Digital TV converters are available to approximately 90% of Olympus' customers. Olympus' digital TV subscribers may also receive "multichannel" premium services, such as HBO 1, 2, 3 and 4 from East and West Coast satellite feeds, enhanced Pay-Per-View options with eighteen movie channels, up to 40 channels of CD-quality music from Music Choice and an interactive on-screen program guide to help them navigate the new digital choices. High Speed Data and Internet Access Power Link, the Company's high-speed data service, which includes residential, institutional and business applications, constitutes an alternative to the traditional slower speed data offerings available through Internet Service Providers ("ISPs"). Power Link offers customers speeds greater than those available through a T1 line, at costs that compare to a typical ISP plus a second telephone line. The Company's deep fiber design allows the use of the expanded bandwidth potential of digital compression technology for cable data and video services. High speed cable data services are now available at speeds far in excess of that which is currently available via a 28.8 kilobit per second telephone modem. In addition, using a high speed cable modem and special ethernet card allows the user to bypass telephone lines, does not require the user to log on, and allows for multiple sessions or connections to multiple services simultaneously. The Company currently offers high speed Internet access through the use of one way cable modems, which provides the high speeds of broadband on the data downstream and utilizes a telephone line return path. One way cable modems enable the Company to offer the high speed data service to 100% of its customers, while completing the system buildout of two way broadband plant. The Company also offers traditional dial up Internet access for those customers who initially prefer this method of Internet access to the higher speeds of our broadband network. This establishes the Company as a full service Internet provider and creates a customer base which can be upgraded to the high speed service in the future. Paging The Company began marketing one-way paging services to its subscribers in mid-1995 through an affiliate, Page Time, Inc. ("Page Time"), a wholly-owned subsidiary of Adelphia which makes paging services available to the Company for a fee based on paging subscribers. There currently are approximately 4,000 paging subscribers who pay an average of $10.95 per month. Page Time provides service to its customers via resale arrangements with existing paging network operators. To assure high quality and competitive service for subscribers, Page Time seeks the paging operator with the most comprehensive local coverage in the cable service area. Page Time's marketing efforts are focused on the consumer market which accounts for nearly 65% of the industry's growth. The Company believes it is well positioned to take advantage of that growth by using the Company's existing marketing channels, including local advertising air time and monthly bill inserts, providing the customer with one bill for their cable and paging services and having the ability to provide both local and centralized customer service. The Company also plans to offer two-way messaging services to its customers. Electronic Security Monitoring The Company provided electronic security monitoring services and equipment to approximately 29,000 accounts in Florida as of December 31, 1997. The Company markets its services to both residential and commercial customers. The residential customers represent approximately 85% of its customers and the commercial market represents the remainder. The Company offers these customers video-telemetry systems, intercom and sound systems and other low voltage products. The Company's strategy for marketing electronic security monitoring services and equipment is to leverage all of the distribution channels available through the Company's existing market presence including customer service and billing resources, cable channel advertising, marketing literature, and relationships with developers, builders and homeowners' associations. Telephony Long Distance. In December 1997, the Company launched long distance telephone service on a resale basis. Services offered include state-to-state and in-state long distance, as well as 800 service, international calling, calling card services and debit card services. The Company's sales effort is focused on the consumer market and emphasizes the simplicity and savings of one low monthly rate available 24 hours a day, 7 days a week. The Company is using its existing marketing channels, including local advertising availability in the System, monthly billing insert and outbound telemarketing to market long distance service. Residential. As each portion of the Company's network is upgraded with the deep fiber design, the Company plans to offer digital telephony services to subscribers by purchasing incremental equipment at the headend and the customer premises. Adelphia has completed successful technical trials of cable telephone service in its Toms River, New Jersey and Buffalo, New York networks using the same deep fiber design the Company will deploy in its System. Mobile. The Company intends to develop mobile phone services by using the Company's existing marketing channels, including local advertising air time and monthly bill inserts, providing the customer with one bill for their cable and mobile phone services and having the ability to provide both local and centralized customer service. The Company expects to begin a limited area trial, following which it will gradually roll out service on a broader basis. Initially, mobile phone service will be provided via resale arrangements with existing mobile phone network operators, initially consisting of cellular operators and later possibly including broadband personal communications service ("PCS") operators. Operating Strategy The Company's strategy is to construct and operate a broadband network capable of offering a broad range of telecommunications services and providing superior customer service while maximizing operating efficiencies. The Company intends to continue as a cable television service provider as well as to become the largest single provider of bundled communications services combining cable television service with high speed data and Internet access, paging, electronic security monitoring and telephony in South Florida. The Company expects to achieve these goals through maintaining strong internal growth and continuing investment in its networks. The Company's system is located in some of the fastest growing counties in the United States. The Company's coverage areas also encompass certain regions with attractive demographics, including above average income levels and strong population growth trends. Approximately 25% of the homes in the Company's market areas are located in planned communities which typically provide better cross-marketing opportunities. The Company had internal basic subscriber growth of 3.9% during the 12 months ended December 31, 1997, and expects that the markets it operates in will continue to provide opportunities for growth. The Company considers technological innovation to be an important component of its service offerings and customer satisfaction. The Company intends to continue the upgrade of its network infrastructure to add channel capacity increase digital transmission capabilities and further improve system reliability. As a result, the Company believes it will have one of the most advanced cable network infrastructures in the United States. Management believes the technical level of its system, concentration of its customer base and its affiliation with its partners contribute favorably to the Company's cash flow margin. Recent Development of the System The Company has focused on acquiring and developing systems in markets which have favorable historical growth trends. The Company believes that the strong household growth trends in its System's market areas are a key factor in positioning itself for future growth in basic subscribers. Effective April 1, 1997, Olympus acquired certain cable systems of Tele-Media Company of Southeast Florida, Inc. for an aggregate price of $8,500. These systems served approximately 5,000 subscribers at the date of acquisition located in and around Osceola County, Florida. On June 20, 1997, Olympus acquired the Peninsula Cable systems from Booth American Company for an aggregate price of $10,500. These systems served approximately 6,000 subscribers at the date of acquisition located in and around Madeira Beach, Florida. Olympus completed the acquisition of all of the partnership interests of National Cable Acquisition Associates, L.P. ("National") from Hilton Head Communications, L.P., ("Hilton Head") an entity controlled by the family of John Rigas (principal shareholder of Adelphia), for a purchase price of approximately $118,000. National provides cable service to approximately 57,000 subscribers in Palm Beach County, Florida and also owns limited partnership interests in Tele-Media Investment Partnership, L.P. ("TMIP"). National's operations were consolidated with Olympus for financial reporting purposes effective as of October 1, 1997. On March 2, 1998, Olympus and TMIP entered into a series of agreements to restructure the ownership of TMIP. The restructuring will result in Olympus exchanging its nonconsolidated preferred limited partnership investment in TMIP for 100% ownership of approximately 27,750 subscribers in Palm Beach County, Florida subject to $38,287 in debt and a 75% consolidated general partner interest in TMIP subject to $37,856 in debt. The restructured TMIP will own approximately 40,850 subscribers located principally in Broward County, Florida. Consummation of this transaction is subject to certain closing conditions and regulatory approval. The following table indicates the growth of the Company's System by summarizing the number of homes passed by cable and the number of basic subscribers for each of the five years in the period ended December 31, 1997. The table also indicates the numerical growth in subscribers attributable to acquisitions and the numerical and percentage growth attributable to internal growth. For the period January 1, 1993 through December 31, 1997, 56% of aggregate internal basic subscriber growth for the Company's System was derived from internal growth in homes passed, while the remaining 44% of such aggregate growth was derived from penetration increases. Year Ended December 31, ------------------------------------------------------- 1993 1994 1995 1996 1997 --------- --------- --------- --------- --------- Homes passed (a) Beginning of period (b) 388,965 404,890 415,896 562,330 646,770 Internal growth (c) 15,925 11,006 6,046 23,940 16,459 % Internal growth 4.1% 2.7% 1.5% 4.3% 2.5% Acquired homes passed -- -- 140,388 60,500 86,655 End of period 404,890 415,896 562,330 646,770 749,884 Basic subscribers (d) Beginning of period (b) 195,729 233,411 251,933 343,332 412,260 Internal growth (c) 37,682 18,522 6,352 13,733 16,187 % Internal growth 19.3% 7.9% 2.5% 4.0% 3.9% Acquired subscribers -- -- 85,047 55,195 69,525 End of period 233,411 251,933 343,332 412,260 497,972 Basic penetration (e) 57.6% 60.6% 61.1% 63.7% 66.4% - ---------------------------------- (a) A home is deemed to be "passed" by cable if it can be connected to the distribution system without any further extension of the cable distribution plant. (b) Data included for the South Dade System for all periods presented reflects actual homes passed and basic subscribers. At July 31, 1992, prior to Hurricane Andrew, the South Dade system had 157,992 homes passed by cable and 71,193 basic subscribers, respectively. At December 31, 1993, 1994, 1995, 1996 and 1997, the South Dade system served 60,678, 73,196, 77,407, 85,014 and 89,338 basic subscribers, respectively. On June 30, 1994, the Company sold to Adelphia 85% of the common stock of Northeast Cable Inc. ("Northeast"). Data for Northeast is excluded for all periods presented. (c) The number of additional homes passed or additional basic subscribers not attributable to acquisitions of new cable systems. (d) A home with one or more television sets connected to a cable system is counted as one basic subscriber. (e) Basic subscribers as a percentage of homes passed by cable.
Financial Information The financial data regarding the Company's revenues, results of operations and identifiable assets for each of the Company's last three fiscal years is set forth in, and incorporated herein by reference to, Item 8, Financial Statements and Supplementary Data of this Form 10-K. Technological Developments The Company has made a substantial commitment to the technological development of the System and has actively sought to upgrade the technical capabilities of its cable plant in a cost efficient manner. System development will allow the Company to increase the plant capacity, provide two-way communication and other digital services and at the same time further increase the reliability of the plant. The design of the current System upgrade, when completed, will deploy on average one fiber optic node for every two System plant miles or approximately one fiber node for every 180 homes passed compared to the industry norm of 500 to 1000 homes passed per fiber optic node. The entire System will be upgraded to 750 Mhz comprised of 550 Mhz analog (80 channels) and 200 Mhz digital (400 channels, assuming 12 to 1 compression). The upgraded system will be completely addressable and provide two-way communication capability. The additional bandwidth will enable the Company to offer additional video programming services. The 200 Mhz of digital capacity can be allocated to the new service offerings such as two-way data, telephony and video-on-demand. The Company believes the combination of the 200 Mhz of digital capacity and the relatively low homes passed per fiber node will provide adequate capacity and flexibility to offer any and all of the existing and anticipated services into the foreseeable future with minimal additional capital expenditures. The upgraded System, on average, will include only two active pieces of equipment between the headend and the home. Limiting the number of active pieces of equipment combined with the small number of homes per fiber node reduces the potential for mechanical failure and the number of customers affected by such a failure, all of which provides increased reliability to the customers. Subscriber Services and Rates The Company's revenues are derived principally from monthly subscription fees for various services. Rates to subscribers vary in accordance with the type of service selected. Although service offerings vary across franchise areas because of differences in plant capabilities, each of the areas typically offer services at monthly prices ranging as follows: Service Rate Range ------------------------------------- ------------------ Basic Cable Television $9.00 - $14.00 Premium Cable Television $7.00 - $13.00 Digital Television $9.95 High Speed Internet Access $34.95 - $44.95 Dial-up Internet Access $19.95 Paging $8.95 - $29.95 Electronic Security Monitoring $21.00 - $30.00 In addition, the Company derives revenue from telephony, with rates determined on a usage basis. An installation fee, which the Company may wholly or partially waive during a promotional period, is usually charged to new subscribers. Subscribers are free to terminate services at any time without charge, but often are charged a fee for reconnection or change of service. The Cable Communications Policy Act of 1984 (the "1984 Cable Act," as amended by the 1992 Cable Act), deregulated basic service rates for systems in communities meeting the FCC's definition of effective competition. Pursuant to the FCC's definition of effective competition adopted following enactment of the 1984 Cable Act, substantially all of the Company's franchises were rate deregulated. However, in June 1991, the FCC amended its effective competition standard, which increased the number of cable systems which could be subject to local rate regulation. The 1992 Cable Act contains a new definition of effective competition under which nearly all cable systems in the United States are subject to regulation of basic service rates. Additionally, the legislation (i) eliminates the 5% annual basic rate increase allowed by the 1984 Cable Act without local approval; (ii) allows the FCC to adjudicate the reasonableness of rates for non-basic service tiers, other than premium services, for cable systems not subject to effective competition in response to complaints filed by franchising authorities and/or cable subscribers; (iii) prohibits cable systems from requiring subscribers to purchase service tiers above basic service in order to purchase premium services if the system is technically capable of doing so; (iv) allows the FCC to impose restrictions on the retiering and rearrangement of cable services under certain circumstances; and (v) permits the FCC and franchising authorities more latitude in controlling rates and rejecting rate increase requests. The Telecommunications Act of 1996 (the "1996 Act") ends FCC regulation on nonbasic tier rates on March 31, 1999. For a discussion of FCC rate regulation and related developments, see "Legislation and Regulation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Regulatory and Competitive Matters." Franchises The 1984 Cable Act provides that cable operators may not offer cable service to a particular community without a franchise unless such operator was lawfully providing service to the community on July 1, 1984 and the franchising authority does not require a franchise. The System operates pursuant to franchises or other authorizations issued by governmental authorities, substantially all of which are nonexclusive. Such franchises or authorizations awarded by a governmental authority generally are not transferable without the consent of the authority. As of December 31, 1997, the Company held 144 franchises. Most of these franchises can be terminated prior to their stated expiration by the relevant governmental authority, after due process, for breach of material provisions of the franchise. Under the terms of most of the Company's franchises, a franchise fee (generally ranging up to 5% of the gross revenues of the cable system) is payable to the governmental authority. For the past three years, franchise fee expense incurred by the Company has averaged approximately 4.1% of gross system revenues. The franchises issued by the governmental authorities are subject to periodic renewal. In renewal hearings, the authorities generally consider, among other things, whether the franchise holder has provided adequate service and complied with the franchise terms. In connection with a renewal, the authority may impose different and more stringent terms, the impact of which cannot be predicted. To date, all of the Company's material franchises have been renewed or extended, at or effective upon their stated expiration, generally on modified terms. Such modified terms have not been materially adverse to the Company. The Company believes that all of its material franchises are in good standing. From time to time, the Company notifies the franchising authorities of the Company's intent to seek renewal of the franchise in accordance with the procedures set forth in the 1984 Cable Act. The 1984 Cable Act process requires that the governmental authority consider the franchise holder's renewal proposal on its own merits in light of the franchise holder's past performance and the community's needs and interests, without regard to the presence of competing applications. See "Legislation and Regulation." The 1992 Cable Act alters the administrative process by which operators utilize their 1984 Cable Act franchise renewal rights. Such changes could make it easier in some instances for a franchising authority to deny renewal of a franchise. Competition Although the Company and the cable television industry have historically faced modest competition, the competitive landscape is changing and competition will increase. The Company believes that the increase in competition within its communities will occur gradually over a period of time. At the present time, cable television systems compete with other communications and entertainment media, including off-air television broadcast signals which a viewer is able to receive directly using the viewer's own television set and antenna. The extent to which a cable system competes with over-the-air broadcasting depends upon the quality and quantity of the broadcast signals available by direct antenna reception compared to the quality and quantity of such signals and alternative services offered by a cable system. In many areas, television signals which constitute a substantial part of basic service can be received by viewers who use their own antennas. Local television reception for residents of apartment buildings or other multi-unit dwelling complexes may be aided by use of private master antenna services. Cable systems also face competition from alternative methods of distributing and receiving television signals and from other sources of entertainment such as live sporting events, movie theaters and home video products, including videotape recorders and cassette players. In recent years, the FCC has adopted policies providing for authorization of new technologies and more favorable operating environment for certain existing technologies that provide, or may provide, substantial additional competition for cable television systems. The extent to which cable television service is competitive depends in significant part upon the cable television system's ability to provide an even greater variety of programming than that available off-air or through competitive alternative delivery sources. In addition, certain provisions of the 1992 Cable Act and the 1996 Act are expected to increase competition significantly in the cable industry. See "Legislation and Regulation." The 1992 Cable Act prohibits the award of exclusive franchises, prohibits franchising authorities from unreasonably refusing to award additional franchises and permits them to operate cable systems themselves without franchises. Individuals presently have the option to purchase earth stations, which allow the direct reception of satellite-delivered program services formerly available only to cable television subscribers. Most satellite-distributed program signals are being electronically scrambled to permit reception only with authorized decoding equipment, generally at a cost to the viewer. From time to time, legislation has been introduced in Congress which, if enacted into law, would prohibit the scrambling of certain satellite-distributed programs or would make satellite services available to private earth stations on terms comparable to those offered to cable systems. Broadcast television signals are being made available to owners of earth stations under the Satellite Home View Copyright Act of 1988, which became effective January 1, 1989 for a six-year period. This Act establishes a statutory compulsory license for certain transmissions made by satellite owners to home satellite dishes for which carriers are required to pay a royalty fee to the Copyright Office. This Act has been extended by Congress until December 31, 1999. The 1992 Cable Act enhances the right of cable competitors to purchase nonbroadcast satellite-delivered programming. See "Legislation and Regulation - Federal Regulation." Video programming is now being delivered to individuals by high-powered direct broadcast satellites ("DBS") utilizing video compression technology. This technology has the capability of providing more than 100 channel so programming over a single high-powered DBS satellite with significantly higher capacity available if multiple satellites are placed in the same orbital position. Video compression technology may also be used by cable operators in the future to similarly increase their channel capacity. DBS service can be received virtually anywhere in the United States through the installation of a small rooftop or side-mounted antenna, and it is more accessible than cable television service where a cable plant has not been constructed or where it is not cost effective to construct cable television facilities. DBS service is being heavily marketed on a nationwide basis by several service providers. One DBS service provider is proposing to deliver at least some local television stations via satellite, thus lessening the distinction between cable television and DBS service. Cable communications systems also compete with wireless program distribution services such as multichannel, multipoint distribution service ("MMDS"), commonly called wireless cable systems, which use low-power microwave frequencies to transmit video programming over-the-air to subscribers. There are MMDS operators who are authorized to provide or are providing broadcast and satellite programming to subscribers in areas served by the Company's System. MMDS systems are less capital intensive, are not required to obtain local franchises or to pay franchise fees and are subject to fewer regulatory requirements than cable television systems. MMDS systems' ability to compete with cable television systems has previously been limited by channel capacity, the inability to obtain programming and regulatory delays. Recently, however, MMDS systems have developed digital compression technology which provides for more channel capacity and better signal delivery. Although relatively few MMDS systems in the United States are currently in operation or under construction, virtually all markets have been licensed or tentatively licensed. A series of actions taken by the FCC, including reallocating certain frequencies to wireless services, are intended to facilitate the development of wireless cable television spectrum that will be used by wireless operators to provide additional channels of programming over longer distances. Several Regional Bell Operating Companies acquired interests in major MMDS companies. The Company is unable to predict whether wireless video services will have a material impact on its operations. Additional competition may come from private cable television systems servicing condominiums, apartment complexes and certain other multiple unit residential developments. The operators of these private systems, known as satellite master antenna television ("SMATV") systems, often enter into exclusive agreements with apartment building owners or homeowners' associations which preclude franchised cable television operators from serving residents of such private complexes. However, the 1984 Cable Act gives franchised cable operators the right to use existing compatible easements within their franchise areas upon nondiscriminatory terms and conditions. Accordingly, where there are preexisting compatible easements, cable operators may not be unfairly denied access or discriminated against with respect to the terms and conditions of access to those easements. There have been conflicting judicial decisions interpreting the scope of the access right granted by the 1984 Cable Act, particularly with respect to easements located entirely on private property. Further, while a franchised cable television system typically is obligated to extend service to all areas of a community regardless of population density or economic risk, a SMATV system may confine its operation to small areas that are easy to serve and more likely to be profitable. Under the 1996 Act, SMATV systems can interconnect non-commonly owned buildings without having to comply with local, state and federal regulatory requirements that are imposed upon cable systems providing similar services, as long as they do not use public rights-of-way. The U.S. Copyright Office has concluded that SMATV systems are "cable systems" for purposes of qualifying for the compulsory copyright license established for cable systems by federal law. The FCC has authorized a new interactive television service which will permit non-video transmission of information between an individual's home and entertainment and information service providers. This service will provide an alternative means for DBS systems and other video programming distributors, including television stations, to initiate the new interactive television services. This service may also be used by the cable television industry. The FCC also has initiated a new rulemaking proceeding looking toward the allocation of frequencies in the 28 Ghz range for a new multi-channel wireless video service which could make 98 video channels available in a single market. The Company cannot predict at this time whether competitors will emerge utilizing such frequencies or whether such competition would have a material impact on the operations of cable television systems. The FCC has recently allocated a sizable amount of spectrum in the 31 Ghz band for use by a new wireless service, Local Multipoint Distribution Service ("LMDS"), which among other uses, can deliver over 100 channels of digital programming directly to consumers' homes. The FCC proposes to auction this spectrum to the public this fall, with cable operators and local telephone companies restricted in their participation in this auction. The extent to which the winning licenses in this service will use this spectrum in particular regions of the country to deliver multichannel video programming to subscribers, and therefore provide competition for franchised cable systems, is at this time uncertain. The 1996 Act eliminates the restriction against ownership and operation of cable systems by local telephone companies within their local exchange service areas. Telephone companies are now free to enter the retail video distribution business through any means, such as DBS, MMDS, SMATV or as traditional franchised cable system operators. Alternatively, the 1996 Act authorizes local telephone companies to operate "open video systems" without obtaining a local cable franchise, although telephone companies operating such systems can be required to make payments to local governmental bodies in lieu of cable franchise fees. Up to two-thirds of the channel capacity of an "open video system" must be available to programmers unaffiliated with the local telephone company. The open video system concept replaces the FCC's video dialtone rules. The 1996 Act also includes numerous provisions designed to make it easier for cable operators and others to compete directly with local exchange telephone carriers. With certain limited exceptions, neither a local exchange carrier nor a cable operator can acquire more than 10% of the other entity operating within its own service area. Advances in communications technology, as well as changes in the marketplace and the regulatory and legislative environment, are constantly occurring. Thus, it is not possible to predict the effect that ongoing or future developments might have on the cable industry. The ability of cable systems to compete with present, emerging and future distribution media will depend to a great extent on obtaining attractive programming. The availability and exclusive use of a sufficient amount of quality programming may in turn be affected by developments in regulation or copyright law. See "Legislation and Regulation." The cable television industry competes with radio, television and print media for advertising revenues. As the cable television industry continues to develop programming designed specifically for distribution by cable, advertising revenues may increase. Premium programming provided by cable systems is subject to the same competitive factors which exist for other programming discussed above. The continued profitability of premium services may depend largely upon the continued availability of attractive programming at competitive prices. Telecommunications services which the Company intends to offer in Florida will compete with services offered by Bell South Corporation and by other current and potential market entrants, including other Competitive Local Exchange Carriers ("CLECs"), AT&T, MCI, Sprint and other interexchange or Long Distance Carriers ("IXCs"), cable television companies, microwave carriers, wireless telecommunications providers and private networks built by large end users. A number of potential markets are already served by one or more CLECs. In addition, the major IXCs are expected to offer local telecommunications services in various markets. MCI has announced that it will invest more than $2.0 billion in fiber optic rings and local switching equipment in major metropolitan markets throughout the United States, and AT&T has filed applications with state regulatory authorities for authority to provide local telecommunications services in all 50 states. Employees At February 14, 1998, there were 769 full-time employees of the Company, none of which were covered by collective bargaining agreements. The Company considers its relations with its employees to be good. Legislation and Regulation The cable television industry is regulated by the FCC, some state governments and most local governments. In addition, various legislative and regulatory proposals under consideration from time to time by Congress and various federal agencies may materially affect the cable television industry. The following is a summary of federal laws and regulations affecting the growth and operation of the cable television industry and a description of certain state and local laws. Cable Television/Federal Laws and Regulations Cable Communications Policy Act of 1984 (the "1984 Cable Act") The 1984 Cable Act became effective on December 29, 1984. This federal statute, which amended the Communications Act of 1934 (the "Communications Act"), created uniform national standards and guidelines for the regulation of cable television systems. Violations by a cable television system operator of provisions of the Communications Act, as well as of FCC regulations, can subject the operator to substantial monetary penalties and other sanctions. Among other things, the 1984 Cable Act affirmed the right of franchising authorities (state or local, depending on the practice in individual states) to award one or more franchises within their jurisdictions. It also prohibited non-grandfathered cable television systems from operating without a franchise in such jurisdictions. In connection with new franchises, the 1984 Cable Act provides that in granting or renewing franchises, franchising authorities may establish requirements for cable-related facilities and equipment, but may not establish or enforce requirements for video programming or information services other than in broad categories. Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") On October 5, 1992, Congress enacted the 1992 Cable Act. This legislation effected significant changes to the legislative and regulatory environment in which the cable industry operates. It amended the 1984 Cable Act in many respects. The 1992 Cable Act became effective on December 4, 1992, although certain provisions, most notably those dealing with rate regulation and retransmission consent, became effective at later dates. The legislation also required the FCC to initiate a number of rulemaking proceedings to implement various provisions of the statute. The 1992 Cable Act allows for a greater degree of regulation on the cable industry with respect to, among other things: (i) cable system rates for both basic and certain nonbasic services; (ii) programming access and exclusivity arrangements; (iii) access to cable channels by unaffiliated programming services; (iv) leased access terms and conditions; (v) horizontal and vertical ownership of cable systems; (vi) customer service requirements; (vii) franchise renewals; (viii) television broadcast signal carriage and retransmission consent; (ix) technical standards; (x) subscriber privacy; (xi) consumer protection issues; (xii) cable equipment compatibility; (xiii) obscene or indecent programming; and (xiv) requiring subscribers to subscribe to tiers of service other than basic service as a condition of purchasing premium services. Additionally, the legislation encourages competition with existing cable systems by: allowing municipalities to own and operate their own cable systems without having to obtain a franchise; preventing franchising authorities from granting exclusive franchises or unreasonably refusing to award additional franchises covering an existing cable system's service area; and prohibiting the common ownership of cable systems and co-located MMDS or SMATV systems. The 1992 Cable Act also precludes video programmers affiliated with cable television companies from favoring cable operators over competitors and requires such programmers to sell their programming to other multichannel video distributors. This provision may limit the ability of cable program suppliers to offer exclusive programming arrangements to cable television companies. A number of provisions in the 1992 Cable Act relating to, among other things, rate regulation, have had a negative impact on the cable industry and the Company's business. Telecommunications Acts of 1996 (the "1996 Act") The 1996 Act significantly revised the federal regulatory structure. As it pertains to cable television, the 1996 Act, among other things, (i) eliminates the regulation of certain nonbasic programming services in 1999; (ii) expands the definition of effective competition, the existence of which displaces rate regulation; (iii) eliminates the restriction against the ownership and operation of cable systems by telephone companies within their local exchange service areas; and (iv) liberalizes certain of the FCC's cross-ownership restrictions. The FCC has been conducting a number of rulemaking proceedings in order to implement many of the provisions of the 1996 Act. FCC Regulation The FCC, the principal federal regulatory agency with jurisdiction over cable television, has promulgated regulations covering such areas as the registration of cable systems, cross-ownership between cable systems and other communications businesses, carriage of television broadcast programming, consumer education and lockbox enforcement, origination cablecasting and sponsorship identification, children's programming, the regulation of basic cable service rates in areas where cable systems are not subject to effective competition, signal leakage and frequency use, technical performance, maintenance of various records, equal employment opportunity, and antenna structure notification, marking and lighting. The FCC has the authority to enforce these regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities often used in connection with cable operations. Furthermore, the 1992 Cable Act required the FCC to adopt implementing regulations covering, among other things, cable rates, signal carriage, consumer protection and customer service, leased access, indecent programming, programmer access to cable television systems, programming agreements, technical standards, consumer electronics equipment compatibility, ownership of home wiring, program exclusivity, equal employment opportunity, and various aspects of direct broadcast satellite system ownership and operation. The 1996 Act requires certain changes to various provisions of these regulations. A brief summary of the most material federal regulations as adopted to date follows. Rate Regulation The 1984 Cable Act codified existing FCC preemption of rate regulation for premium channels and optional nonbasic program tiers. The 1984 Cable Act also deregulated basic cable rates for cable television systems determined by the FCC to be subject to effective competition. The 1992 Cable Act substantially changed the statutory and FCC rate regulation standards. The 1992 Cable Act replaced the FCC's old standard for determining effective competition, under which most cable systems were not subject to local rate regulation, with a statutory provision that has resulted in nearly all cable television systems becoming subject to local rate regulation of basic service. The 1996 Act expands the definition of effective competition to cover situations where a local telephone company or its affiliate, or any multichannel video provider using telephone company facilities, offers comparable video service by any means except DBS. Satisfaction of this test deregulates both basic and nonbasic tiers. The 1996 Act ends FCC regulation of nonbasic tier rates on March 31, 1999. The FCC's regulations set standards for the regulation of basic and nonbasic cable service rates (other than per-channel or per-program services). The FCC's original rules became effective on September 1, 1993. The rules have been amended several times. The rate regulations adopt a benchmark price cap system for measuring the reasonableness of existing basic and nonbasic service rates, and a formula for evaluating future rate increases. Alternatively, cable operators have the opportunity to make cost-of-service showings which, in some cases, may justify rates above the applicable benchmarks. The rules also require that charges for cable-related equipment (e.g., converter boxes and remote control devices) and installation services be unbundled from the provision of cable service and based upon actual costs plus a reasonable profit. Local franchising authorities and/or the FCC are empowered to order a reduction of existing rates which exceed the benchmark level for either basic and/or nonbasic cable services and associated equipment, and refunds could be required. The retroactive refund period for basic cable service rates is limited to one year. In general, the reductions for basic and nonbasic cable service rates require an aggregate reduction of up to 17 percent, adjusted forward for inflation and certain other factors, from the rates in force as of September 30, 1992. The regulations also provide that future rate increases may not exceed an inflation-indexed amount, plus increases in certain costs beyond the cable operator's control, such as taxes, franchise fees and increased programming costs. Cost-based adjustments to these capped rates can also be made in the event a cable operator adds or deletes programming channels or completes a significant system rebuild or upgrade. A significant number of franchising authorities have become certified by the FCC to regulate the rates charged by the Company for basic cable service and for associated equipment. Complaints have also been filed with the FCC seeking review of the rates charged for nonbasic cable service. The Company's ability to implement rate increases consistent with its past practices will likely be limited by the regulations that the FCC has adopted. Carriage of Broadcast Television Signals The 1992 Cable Act contains new mandatory carriage requirements. These new rules allow commercial television broadcast stations which are "local" to a cable system (i.e., the system is located in the station's Area of Dominant Influence), to elect every three years whether to require the cable system to carry the station, subject to certain exceptions, or whether the cable system will have to negotiate for "retransmission consent" to carry the station. Local, noncommercial television stations are also given mandatory carriage rights, subject to certain exceptions, within the larger of (i) a 50 mile radius from the station's city of license or (ii) the station's Grade B contour (a measure of signal strength). Unlike commercial stations, noncommercial stations are not given the option to negotiate retransmission consent for the carriage of their signal. In addition, cable systems will have to obtain retransmission consent for the carriage of all "distant" commercial broadcast stations, except for certain "superstations" (i.e., commercial satellite-delivered independent stations such as WTBS). The statutory must-carry provisions for noncommercial stations became effective on December 4, 1992. Must-carry rules for both commercial and noncommercial stations and retransmission consent rules for commercial stations were adopted by the FCC on March 11, 1993. The most recent election between must-carry and retransmission consent for local commercial television broadcast stations was on October 1, 1996. The next election between must-carry and retransmission consent for local commercial television broadcast stations will be October 1, 1999. Channel Set-Asides The 1984 Cable Act permits local franchising authorities to require cable operators to set aside certain channels for public, educational and governmental access programming. The Company believes that none of the System's franchises contain unusually onerous access requirements. The 1984 Cable Act further requires cable systems with thirty-six or more activated channels to designate a portion of their channel capacity for commercial leased access by unaffiliated third parties. The 1992 Cable Act requires leased access rates to be set according to a formula determined by the FCC. The FCC revised the existing rate formula in a way which would significantly lower the rates cable operators could charge. It is possible that such leased access will result in competition to services offered by the Company on the other channels of its cable systems. Competing Franchises Because of inconsistent court rulings, it is not possible at the present time to predict the constitutionally permissible bounds of cable franchising and particular franchise requirements. However, the 1992 Cable Act, among other things, prohibits franchising authorities from unreasonably refusing to grant franchises to competing cable systems and permits franchising authorities to operate their own cable systems without franchises. Cross-Ownership The 1996 Act repealed the restrictions on local exchange telephone companies ("LECs") from providing video programming directly to customers within their local exchange telephone service areas, except in rural areas or by specific waiver of FCC rules. The 1996 Act also authorized LECs to operate "open video systems" without obtaining a local cable franchise, although LECs operating such systems can be required to make payments to local governmental bodies in lieu of cable franchise fees. Where demand exceeds channel capacity, up to two-thirds of the channels on an "open video system" must be available to programmers unaffiliated with the LEC. The 1996 Act eliminated the FCC rule prohibiting common ownership between a cable system and a national broadcast television network. The 1996 Act also eliminated the statutory ban covering certain common ownership interests, operation or control between a television station and cable system within the station's Grade B signal coverage area. However, the parallel FCC rules against cable/television station cross-ownership remains in place, subject to review by the FCC within two years. Finally, the 1992 Cable Act prohibits common ownership, control or interest in cable television systems and MMDS facilities or SMATV systems having overlapping service areas, except in limited circumstances. The 1996 Act exempts cable systems facing "effective competition" from the MMDS and SMATV cross-ownership restrictions. Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of cable systems which a single cable operator can own. In general, no cable operator can have an attributable interest in cable systems which pass more than 30% of all homes nationwide. Attributable interests for these purposes include voting interests of 5% or more (unless there is another single holder of more than 50% of the voting stock), officerships, directorships and general partnership interests. The FCC has stayed the effectiveness of these rules pending the outcome of the appeal from the U.S. District Court decision holding the multiple ownership limit provision of the 1992 Cable Act unconstitutional. The FCC has also adopted rules which limit the number of channels on a cable system which can be occupied by programming in which the cable system's owner has an attributable interest. The limit is 40% of all activated channels. Franchise Transfers The 1992 Cable Act requires franchising authorities to act on any franchise transfer request submitted after December 4, 1992 within 120 days after receipt of all information required by FCC regulations and by the franchising authority. Approval is deemed to be granted if the franchising authority fails to act within such period. Technical Requirements Historically, the FCC has imposed technical standards applicable to the cable channels on which broadcast stations are carried, and has prohibited franchising authorities from adopting standards which were in conflict with or more restrictive than those established by the FCC. The FCC has recently revised such standards and made them applicable to all classes of channels which carry downstream NTSC video programming. Local franchising authorities are permitted to enforce the FCC's new technical standards. The FCC also has adopted additional standards applicable to cable television systems using frequencies in the 108-137 Mhz and 225-400 Mhz bands in order to prevent harmful interference with aeronautical navigation and safety radio services, and has also established limits on cable system signal leakage. Periodic testing by cable operators for compliance with these technical standards and signal leakage limits is required. The Company believes that the System is in compliance with these standards in all material respects. The 1992 Cable Act requires the FCC to update periodically its technical standards to take into account changes in technology. The FCC has adopted regulations to implement the requirements of the 1992 Cable Act designed to improve the compatibility of cable systems and consumer electronics equipment. Pole Attachments The FCC currently regulates the rates and conditions imposed by certain public utilities for use of their poles, unless under the Federal Pole Attachments Act state public service commissions are able to demonstrate that they regulate rates, terms and conditions of the cable television pole attachments. A number of states (including Massachusetts, Michigan, New Jersey, New York, Ohio and Vermont) and the District of Columbia have certified to the FCC that they regulate the rates, terms and conditions for pole attachments. In the absence of state regulation, the FCC administers such pole attachment rates through use of a formula which it has devised and from time to time revises. The 1996 Act directs the FCC to adopt a new rate formula for any attaching party, including cable systems, which offers telecommunications services. This new formula will result in significantly higher attachment rates for cable systems which choose to offer such services. Other Matters FCC regulation also includes matters regarding a cable system's carriage of local sports programming; restrictions on origination and cablecasting by cable system operators; application of the fairness doctrine and rules governing political broadcasts; customer service; home wiring; and limitations on advertising contained in nonbroadcast children's programming. Copyright Cable television systems are subject to federal copyright licensing covering carriage of broadcast signals. In exchange for making semi-annual payments to a federal copyright royalty pool and meeting certain other obligations, cable operators obtain a statutory license to retransmit broadcast signals. 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 location of the cable system with respect to over-the-air television stations. Various bills have been introduced into Congress over the past several years that would eliminate or modify the cable television compulsory license. The FCC has recommended to Congress that it repeal the cable industry's compulsory copyright license. The FCC determined that the statutory compulsory copyright license for local and distant broadcast signals no longer serves the public interest and that private negotiations between the applicable parties would better serve the public. Without the compulsory license, cable operators might need to negotiate rights from the copyright owners for each program carried on each broadcast station in the channel lineup. Such negotiated agreements could increase the cost to cable operators of carrying broadcast signals. The 1992 Cable Act's retransmission consent provisions expressly provide that retransmission consent agreements between television broadcast stations and cable operators do not obviate the need for cable operators to obtain a copyright license for the programming carried on each broadcaster's signal. Copyrighted music performed in programming supplied to cable television systems by pay cable networks (such as HBO) and basic cable networks (such as USA Network) has generally been licensed by the networks through private agreements with the American Society of Composers and Publishers ("ASCAP") and BMI, Inc. ("BMI"), the two major performing rights organizations in the United States. As a result of extensive litigation, ASCAP and BMI are both now required to offer "through to the viewer" licenses to the cable networks which would cover the retransmission of the cable networks' programming by cable systems to their subscribers. Copyrighted music performed by cable systems themselves on local origination channels, PEG channels, and in locally inserted advertising and cross promotional announcements must also be licensed. A blanket license is available from BMI. Cable industry negotiations with ASCAP are still in progress. Cable Television/State and Local Regulation Because a cable television system uses local streets and rights-of-way, cable television systems are subject to state and local regulation, typically imposed through the franchising process. State and/or local officials are usually involved in franchise selection, system design and construction, safety, service rates, consumer relations, billing practices and community related programming and services. Cable television systems generally are operated pursuant to nonexclusive franchises, permits or licenses granted by a municipality or other state or local government entity. Franchises generally are granted for fixed terms and in many cases are terminable if the franchise operator fails to comply with material provisions. The 1984 Cable Act established renewal procedures and criteria designed to protect incumbent franchises against arbitrary denials of renewal. While these formal procedures are not mandatory unless timely invoked by either the cable operator or the franchising authority, they can provide substantial protection to incumbent franchisees. Even after the formal renewal procedures are invoked, franchising authorities and cable operators remain free to negotiate a renewal outside the formal process. Nevertheless, renewal is by no means assured, as the franchisee must meet certain statutory standards. Even if a franchise is renewed, a franchising authority may impose new and more onerous requirements such as upgrading facilities and equipment, although the municipality must take into account the cost of meeting such requirements. The 1992 Cable Act makes several changes to the process under which a cable operator seeks to enforce its renewal rights which could make it easier in some cases for a franchising authority to deny renewal. Franchises usually call for the payment of fees, often based on a percentage of the system's gross subscriber revenues, to the granting authority. Although franchising authorities may impose franchise fees under the 1984 Cable Act, such payments cannot exceed 5% of a cable system's annual gross revenues. In those communities in which franchise fees are required, the Company currently pays franchise fees ranging up to 5% of gross revenues. Franchising authorities are also empowered in awarding new franchises or renewing existing franchises to require cable operators to provide cable-related facilities and equipment and to enforce compliance with voluntary commitments. In the case of franchises in effect prior to the effective date of the 1984 Cable Act, franchising authorities may enforce requirements contained in the franchise relating to facilities, equipment and services, whether or not cable-related. The 1984 Cable Act, under certain limited circumstances, permits a cable operator to obtain modifications or franchise obligations. Upon receipt of a franchise, the cable system owner usually is subject to a broad range of obligations to the issuing authority directly affecting the business of the system. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction, and even from city to city within the same state, historically ranging from reasonable to highly restrictive or burdensome. The 1984 Cable Act places certain limitations on a franchising authority's ability to control the operation of a cable system operator and the courts have from time to time reviewed the constitutionality of several general franchise requirements, including franchise fees and access channel requirements, often with inconsistent results. On the other hand, the 1992 Cable Act prohibits exclusive franchises, and allows franchising authorities to exercise greater control over the operation of franchised cable systems, especially in the area of customer service and rate regulation. The 1992 Cable Act also allows franchising authorities to operate their own multichannel video distribution system without having to obtain a franchise and permits states or local franchising authorities to adopt certain restrictions on the ownership of cable systems. Moreover, franchising authorities are immunized from monetary damage awards arising from regulation of cable systems or decisions made on franchise grants, renewals, transfers and amendments. The specific terms and conditions of a franchise and the laws and regulations under which it was granted directly affect the profitability of the cable television system. Cable franchises generally contain provisions governing charges for basic cable television services, fees to be paid to the franchising authority, length of the franchise term, renewal, sale or transfer of the franchise, territory of the franchise, design and technical performance of the system, use and occupancy of public streets and number and types of cable services provided. The 1996 Act prohibits a franchising authority from either requiring or limiting a cable operator's provision of telecommunications services. Various proposals have been introduced at the state and local levels with regard to the regulation of cable television systems, and a number of states have adopted legislation subjecting cable television systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a character similar to that of a public utility. Attempts in other states to regulate cable television systems are continuing and can be expected to increase. Such proposals and legislation may be preempted by federal statute and/or FCC regulation. To date, Florida has not enacted such state level regulation. However, the Company cannot predict whether Florida will engage in such regulation in the future. The foregoing does not purport to describe all present and proposed federal, state and local regulations and legislation relating to the cable television industry. Other existing federal regulations, copyright licensing and, in many jurisdictions, state and local franchise requirements currently are the subject of a variety of judicial proceedings, legislative hearings and administrative and legislative proposals which could change, in varying degrees, the manner in which cable television systems operate. Neither the outcome of these proceedings nor their impact upon the cable television industry or the System can be predicted at this time. Telephony and Telecommunications/Federal Laws and Regulations The 1996 Act also alters federal, state and local laws and regulations regarding telecommunications providers and services, including the Company, and creates a favorable environment in which the Company may provide telephone and other telecommunications services and facilities. The following is a summary of the key provisions of the 1996 Act that could materially affect the telecommunications business of the Company. The 1996 Act was intended to promote the provision of competitive telephone services and facilities by cable television companies and others. The 1996 Act declares that no state or local laws or regulations may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service. States are authorized to impose "competitively neutral" requirements regarding universal service, public safety and welfare, service quality, and consumer protection. The 1996 Act further provides that cable operators and affiliates providing telecommunications services are not required to obtain a separate franchise from local franchising authorities ("LFAs") for such services. An LFA may not order a cable operator or affiliate to discontinue providing telecommunications services or discontinue operating its cable system on the basis that it has failed to obtain a separate franchise or renewal for the provision of telecommunications services. The 1996 Act prohibits LFAs from requiring cable operators to provide telecommunications service or facilities as a condition of the grant of a franchise, franchise renewal, or franchise transfer, except that LFAs may seek "institutional networks" as part of such franchise negotiations. The 1996 Act provides that, when cable operators provide telecommunications services, LFAs may require reasonable, competitively neutral compensation for management of the public rights-of-way. The LFA must publicly disclose such compensation requirements. The Company believes that it qualifies as a connecting carrier under federal law and therefore does not need FCC certification to provide intrastate service. In the event that it is determined that the Company must seek FCC certification, the Company believes that such certification will be granted by the FCC in a timely manner. The Company may be required to file certain tariffs and reports with the FCC. Interconnection and Other Telecommunications Carrier Obligations To facilitate the entry of new telecommunications providers (including cable operators), the 1996 Act imposes interconnection obligations on all telecommunications carriers. All carriers must interconnect their networks with other carriers and must not deploy network features and functions that interfere with interoperability. LECs also have a set of separate identified obligations beyond those that apply to new entrants: (i) good faith negotiation with those seeking interconnection, (ii) unbundling, equal access and non-discrimination requirements, (iii) resale of services, including "resale at wholesale rates," (iv) notice of changes in the network that would affect interconnection and interoperability and (v) physical collocation unless shown that practical technical reasons, or space limitations, make physical collocation impractical. Under the 1996 Act, individual interconnection rates must be just and reasonable, based on cost, and may include a reasonable profit. Traffic termination charges shall be "mutual and reciprocal." The 1996 Act permits carriers to agree on a "bill and keep" system, but does not require such a system. The 1996 Act contemplates that interconnection agreements will be negotiated by the parties and submitted to a state public service commission ("SPSC") for approval. A SPSC may become involved, at the request of either party, if negotiations fail. If the state regulator refuses to act, the FCC may determine the matter. If the SPSC acts, an aggrieved party's remedy is to file a case in federal district court. The 1996 Act provides for a rural exemption to interconnection requests, but also provides that the exception does not apply where a cable operator makes an interconnection request of a rural LEC within the operator's franchise area. The 1996 Act requires that all telecommunications providers (including cable operators that provide telecommunications services) must contribute equitably to a Universal Service Fund ("USF"), and the FCC may exempt an interstate carrier or class of carriers if their contribution would be minimal under the USF formula. The 1996 Act allows states to determine which intrastate telecommunications providers contribute to the USF. The 1996 Act prohibits geographic end user rate de-averaging to protect rural subscribers' rates. FCC Interconnection Order The FCC recently released its First Report and Order to effectuate the interconnection provisions of the 1996 Act. In general, the FCC's First Report and Order appears favorable to the promotion of competition at the local level. To summarize, the FCC first has asserted broad federal jurisdiction over interconnection issues and the power to bind both state and local governments. The FCC also has established procedures for the negotiation, arbitration and resolution of interconnection agreements. It also has stated that new entrants essentially always benefit from the terms of subsequent interconnection agreements entered into by a given LEC with third parties and cannot waive their "most favored nation" rights in this respect. The FCC also has specified the manner in which actual physical interconnection must be made available to new entrants and, in this connection, has specified the manner in which rates charged to new entrants for physical interconnection must be calculated. The FCC also has set forth the manner in which LECs must make essential network elements available to new entrants for resale, again including the manner in which actual rates are to be calculated. The FCC Report and Order is subject to Petitions for Reconsideration filed at the FCC and Petitions for Review consolidated before the United States Court of Appeals for the Eighth Circuit. Additionally, the Eighth Circuit has granted a stay of the pricing and "most favored nation" provisions of the First Report and Order. The pricing provisions establish price ceilings and default prices for interconnection elements, and the "most favored nation" provision allows carriers to request the LEC to make available to them on the same terms and conditions, any interconnection, service or network element contained in an approved agreement to which the LEC is a party. The stay is limited to certain FCC rules. None of the provisions of the 1996 Act has been stayed. Various parties filed petitions to modify the stay with the Eighth Circuit. On November 1, 1996, the Eighth Circuit modified the stay to exclude certain non-pricing portions of the rules that primarily relate to wireless telecommunications providers. The outcome of these proceedings could affect and impair the Company's ability to provide competitive local exchange services. Internet Services/Federal Laws and Regulations Transmitting indecent material via the Internet was made criminal by the 1996 Act. However, on-line access providers are exempted from criminal liability for simply providing interconnection service; they are also granted an affirmative defense from criminal or other action where in "good faith" they restrict access to indecent materials. These provisions have been challenged in federal court. The 1996 Act further exempts on-line access providers from civil liability for actions taken in good faith to restrict access to obscene, excessively violent or otherwise objectionable material. Telephony and Telecommunications/State Law and Regulation In 1995, the Florida Legislature amended Chapter 362 of Florida Statutes by enacting "An Act Relating to Local Exchange Telecommunications Companies" ("Florida Act") (Chapter 362, Fl. Stat. (1995)). This new law substantially altered Florida law regarding telecommunications providers and services, such as Olympus. The following is a summary of the key provisions of the Florida Act and associated Florida Public Service Commission ("PSC") actions that could materially affect Olympus' telecommunications business. The Florida Act The Florida Act vests in the PSC virtually exclusive jurisdiction over intrastate telecommunications matters. The Florida Act limits municipalities to taxation of certain telecommunications services or management of long distance carriers' occupation of local rights-of-way. The Florida Act further directs the PSC to employ flexible regulatory treatment to ensure the widest possible range of telecommunications services, and provides that new entrants such as the Company are subject to a lesser level of regulatory oversight than LECs. PSC Actions Pursuant to the Florida Act (and the 1996 Act and the FCC's First Report and Order), the PSC is conducting several proceedings to address competitive issues. To summarize, pursuant to the Florida Act, the PSC has adopted rules requiring certification of CLEC Interexchange Telecommunications Service Providers; Operator Service Providers; Alternative Access Vendor Services; and Shared Tenant Services Providers. The Florida Act provides that the PSC shall grant certification to applicants upon a showing of sufficient technical, financial, and managerial capability to provide service in the geographic area proposed to be served. The Company believes that Olympus meets the statutory requirements for PSC certification for any type of intrastate telecommunications service provider, and that any such application process should be completed expeditiously. In addition, like the 1996 Act, the Florida Act requires LECs to interconnect with certified CLECs. Approximately fourteen interconnection agreements have been reached between LECs and CLECs to date, while approximately five CLECs have requested PSC arbitration of stalled agreements. The PSC is obligated under the Florida Act to arbitrate any disputes in no more than 120 days from date of request. As well, the PSC has ordered BellSouth, the state's largest LEC, to unbundle eight network elements for resale by CLECs, and the PSC has ordered favorable interim rates for these elements. The PSC has not yet adopted an order resolving wholesale discounts associated with local service resale. Based on the foregoing, the Company believes that the Florida Act and actions of the PSC to date reflect a generally favorable legal and regulatory environment for new entrants, such as Olympus, to intrastate telecommunications in Florida. ITEM 2. PROPERTIES The Company's principal physical assets consist of cable television operating plant and equipment, including signal receiving, encoding and decoding devices, headends and distribution systems and subscriber house drop equipment for each of its cable television systems. The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. The Company's distribution system consists primarily of coaxial and fiber optic cables and related electronic equipment. Subscriber devices consist of decoding converters. The physical components of cable television systems require maintenance and periodic upgrading to keep pace with technological advances. The Company's cables and related equipment are generally attached to utility poles under pole rental agreements with local public utilities, although in some areas the distribution cable is buried in underground ducts or trenches. See "Legislation and Regulation-Federal Regulation." The Company owns or leases parcels of real property for signal reception sites (antenna towers and headends), microwave facilities and business offices in each of its market areas, and owns most of its service vehicles. Substantially all of the assets of Olympus' subsidiaries are subject to encumbrances as collateral in connection with the Company's credit arrangements, either directly with a security interest or indirectly through a pledge of the stock or partnership interests in the respective subsidiaries. See Note 3 to the Olympus Communications, L.P. consolidated financial statements. The Company believes that its properties, both owned and leased, are in good operating condition and are suitable and adequate for the Company's business operations. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than routine litigation incidental to the business, of which the Company or any of its subsidiaries is a part or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Not applicable. ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands) The selected consolidated financial data as of and for each of the five years in the period ended December 31, 1997 have been derived from the audited consolidated financial statements of the Company. These data should be read in conjunction with the consolidated financial statements and related notes thereto, for each of the three years in the period ended December 31, 1997 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K. The Statement of Operations Data with respect to the years ended December 31, 1993 and 1994, and the balance sheet data at December 31, 1993, 1994, and 1995 have been derived from audited consolidated financial statements of the Company not included herein.
Year Ended December 31, ------------------------------------------------------------- 1993 1994 1995 1996 1997 --------- -------- --------- --------- --------- Statement of Operations Data: Revenues $98,646 $94,458 $120,968 $159,870 $176,363 Direct operating and programming expenses 22,078 22,369 37,494 48,598 56,905 Selling, general and administrative expenses 16,692 18,708 23,912 28,974 32,163 Depreciation and amortization 37,240 36,703 31,953 40,446 43,337 Management fees 4,681 6,302 6,334 8,839 9,566 --------- --------- --------- --------- --------- Operating income 17,955 10,376 21,275 33,013 34,392 Interest expense (24,515) (22,889) (29,217) (40,748) (50,150) Interest expense affiliates (4,955) (9,373) (7,501) (6,600) (6,600) Gain on sale of assets -- -- -- -- 1,522 Other income (expense) 271 585 (15) 401 1,085 --------- --------- --------- --------- --------- Loss before income taxes, extraordinary loss and cumulative effect of change in accounting principle (a) (11,244) (21,301) (15,458) (13,934) (19,751) Income tax benefit (expense) -- 276 (2,824) 2,984 (51) Extraordinary loss (a) -- -- (1,109) -- -- Cumulative effect of change in accounting for income taxes (a) (59,500) -- -- -- -- --------- --------- --------- --------- --------- Net loss $(70,744) $(21,025) $(19,391) $(10,950) $(19,802) ========= ========= ========= ========= ========= Loss per general and limited partners' unit before extraordinary loss and cumulative effect of change in accounting principle $(1,124) $(2,103) $(1,828) $(1,095) $(1,980) Net loss per general and limited partners' unit after priority return and accretion requirements $(12,346) $(8,383) $(8,275) $(7,659) $(9,570) Cash distributions declared per general and limited partners' units $ -- $ -- $ -- $ 5,467 $ --
December 31, ------------------------------------------------------------- 1993 1994 1995 1996 1997 ---------- ---------- --------- --------- --------- Balance Sheet Data: Total assets $458,663 $375,985 $533,909 $640,221 $728,952 Total debt (b) 368,263 314,069 419,809 572,713 673,804 Redeemable Preferred Limited Partner Interests 276,101 276,101 -- -- -- Partners' equity (deficiency) (452,115) (494,105) (18,544) (84,199) (112,217) Year Ended December 31, ----------------------------------------------------------- Other Data and Financial Ratios: 1993 1994 1995 1996 1997 --------- --------- -------- -------- ------- EBITDA (c) $60,147 $53,966 $59,547 $82,699 $88,380 EBITDA Margin (d) 56.8%(e) 56.7%(e) 49.2% 51.7% 50.1% Interest expense 29,470 32,262 36,718 47,348 56,750 Cash provided by operating activities 16,652 20,285 8,161 33,411 21,305 Cash (used for) provided by investing activities (32,959) 19,402 (107,351) (70,444) (51,821) Cash provided by (used for) financing activities 20,628 (50,633) 131,442 30,822 7,604 EBITDA to interest expense (f) 2.04 1.67 1.62 1.75 1.56 Capital Expenditures $23,164 $23,916 $21,498 $28,117 $37,867 (a) "Extraordinary loss" relates to loss on the early retirement of debt. "Cumulative effect of change in accounting for income taxes" refers to a change in accounting principle. Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires an asset and liability approach for financial accounting and reporting for income taxes. SFAS No. 109 resulted in the cumulative recognition of an additional liability by the Company of $59,500. (b) Excludes affiliate debt. (c) Earnings before interest expense, income taxes, depreciation and amortization, management fees, other noncash charges, extraordinary loss and cumulative effect of change in accounting principle ("EBITDA"). EBITDA and similar measurements of cash flow are commonly used in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and liquidity. While EBITDA is not an alternative to operating income as an indicator of operating performance or an alternative to cash flows from operating activities as a measure of liquidity, as defined by generally accepted accounting principles and, while EBITDA may not be comparable to other similarly titled measures of other companies, the Company's management believes EBITDA is a meaningful measure of performance as substantially all of the Company's financing agreements contain financial covenants based on EBITDA. (d) Percentage representing EBITDA divided by revenues. (e) Excludes business interruption revenue allocated from insurance proceeds related to Hurricane Andrew of $9,547 and $1,037 for the years ended December 31, 1993 and 1994, respectively. (f) Based on EBITDA for the period presented divided by interest expense recorded for the applicable period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) Results of Operations General Olympus is a joint venture limited partnership formed under the laws of Delaware with 50% of the outstanding voting interests held by ACP Holdings, Inc., a wholly-owned subsidiary of Adelphia and managing general partner of Olympus. The remaining 50% of the voting interest is held by various wholly-owned subsidiaries of FPL Group. Adelphia and FPL Group also held, as of December 31, 1997, $312,261 and $156,130, respectively, aggregate principal amount of non-voting Preferred Limited Partnership ("PLP") interests in the Company, which provide for a 16.5% per annum priority return. Olympus Capital Corporation, a wholly-owned subsidiary of the Company, was formed solely for the purpose of serving as a co-issuer with Olympus Communications, L.P. of the 10 5/8% Senior Notes due 2006. Olympus Capital Corporation has no substantial assets or liabilities and no operations of any kind and the Indenture, pursuant to which such Senior Notes were issued, limits Olympus Capital Corporation's ability to acquire or hold any significant assets or other properties or engage in any business activities other than in connection with the issuance of the Senior Notes. Olympus earned substantially all of its revenues in each of the last three fiscal years from monthly subscriber fees for basic, satellite, premium and ancillary services (such as installations and equipment rentals), local and national advertising sales, pay-per-view programming, home shopping networks and electronic security monitoring services. Comparison of the Years Ended December 31, 1995, 1996 and 1997 The changes in the Company's results of operations for the year ended December 31, 1996 compared with the year ended December 31, 1995, were primarily the result of acquisitions, expanding existing cable television operations and the impact of increased advertising sales and other service offerings as well as an increase in cable rates implemented during October 1995 and June 1996. The changes for the year ended December 31, 1997, compared with the prior year, were primarily the result of acquisitions, expanding existing cable television operations, the impact of subscriber rate increases which became effective June 1, 1996 and 1997 and vendor price increases for the Company's programming. Refer to Liquidity and Capital Resources - Acquisitions for a discussion of acquisitions. The high level of depreciation and amortization associated with acquisitions and the upgrading and expansion of the cable systems, and interest and placement costs associated with financing activities will continue to have a negative impact on the reported results of operations. The Company expects to report net losses for the foreseeable future. The following table is derived from the Company's consolidated financial statements that are included in this Annual Report on Form 10-K and sets forth the historical percentage relationship to revenues of the components of operating income contained in such financial statements for the periods indicated. Percentage of Revenues Year Ended December 31, 1995 1996 1997 --------- --------- ---------- Revenues 100.0% 100.0% 100.0% Operating expenses: Direct operating and programming 31.0 30.4 32.3 Selling, general and administrative 19.8 18.1 18.2 Depreciation and amortization 26.4 25.4 24.6 Management fees to managing general partner 5.2 5.5 5.4 ------- ------- ------- Operating income 17.6% 20.6% 19.5% ======= ======= ======= Revenues The primary revenue sources, reflected as a percentage of total revenues, were as follows: Year Ended December 31, 1995 1996 1997 --------- --------- --------- Regulated service and equipment fees 74% 73% 74% Premium programming fees 15% 13% 12% Advertising sales and other services 11% 14% 14% Total revenues for the year ended December 31, 1996 increased 32.2% from the prior year, primarily due to the impact of cable systems contributed by FPL Group, the cable systems acquired from WB Cable during 1995 and Leadership during 1996, and the positive impact of rate increases implemented during October 1995 and June 1996. Subscriber growth and advertising revenues also contributed to such increase. Revenues increased approximately 10.3% for the year ended December 31, 1997 compared with the prior year, primarily due to acquisitions, basic subscriber growth and the positive impact of rate increases on June 1, 1996 and June 1, 1997. These increases were partially offset by price reductions on certain services and a decrease in premium programming services and advertising revenues. The increases (decreases) were attributable to the following: Percentage of Increase (Decrease) for the Year Ended December 31, ------------------- 1996 1997 ------ ------ Acquisitions 66% 48% Basic subscriber growth 12% 38% Rate increases 20% 24% Premium programming fees (1%) (11%) Advertising sales and other 3% 1% Direct Operating and Programming Expenses. Direct operating and programming expenses, which are mainly basic and premium programming costs and technical expenses, increased 29.6% and 17.1% for the years ended December 31, 1996 and 1997, respectively, compared with the respective prior years. Such increases were primarily due to increased programming costs and incremental costs associated with increased subscribers as well as increased operating expenses from acquired systems. Acquired systems accounted for approximately 41% and 25% of the increase for the years ended December 31, 1996 and 1997, respectively. Selling, General and Administrative Expenses. These expenses, which are mainly comprised of costs related to system offices, customer service representatives, and sales and administrative employees, increased 21.1% and 11.0% for the years ended December 31, 1996 and 1997, respectively, compared with the respective prior years. The increases were primarily due to incremental costs associated with acquisitions and costs associated with subscriber growth. Acquired systems accounted for approximately 41% and 35% of the increase for the years ended December 31, 1996 and 1997, respectively. Selling, general and administrative expenses declined as a percentage of revenues for the year ended December 31, 1996 and remained constant through December 31, 1997 when compared with the respective prior year which reflects the impact of rate increases and the successful integration of acquired systems with existing operations. EBITDA. EBITDA (earnings before interest expense, income taxes, depreciation and amortization, management fees, other non-cash charges, extraordinary loss and cumulative effect of change in accounting principle) for the year ended December 31, 1996, increased 38.9% as compared with the prior year. The increase was primarily due to the positive effects of the October 1995 and June 1996 rate increases, increased advertising and other service revenues, and the increased operating income provided by cable systems contributed by the FPL Group, and acquired from WB Cable and Leadership, partially offset by increased programming costs and incremental costs associated with increased subscribers. For the year ended December 31, 1997, EBITDA increased 6.9% as compared with the prior year. The increase was primarily due to the positive impact of acquisitions and rate increases on June 1, 1996 and 1997. While EBITDA is not an alternative to operating income as an indicator of operating performance or an alternative to cash flows from operating activities as a measure of liquidity, as defined by generally accepted accounting principles and, while EBITDA may not be comparable to other similarly titled measures of other companies, the Company's management believes EBITDA is a meaningful measure of performance as substantially all of the Company's financing agreements contain financial covenants based on EBITDA. Depreciation and Amortization. Depreciation and amortization was higher for the year ended December 31, 1996 compared with the prior year, primarily due to the effect of acquisitions. For the year ended December 31, 1997, depreciation and amortization increased compared with the prior year primarily due to increased amortization related to acquisitions and to the costs associated with the Company's financing activities. Management Fees to Managing Affiliate. Pursuant to the terms of the Company's Partnership Agreement, the Company pays to Adelphia, on a quarterly basis, an amount representing an allocation of the corporate overhead of Adelphia with respect to the Company for such period, which allocation is based upon the ratio of the Company's cable subscribers to the total cable subscribers owned or managed by Adelphia. Such fees were relatively flat as a percentage of revenues for the years ended December 31, 1996 and 1997 as compared to the respective prior year. Interest Expense. For the years ended December 31, 1996 and 1997, interest expense increased 39.5% and 23.1% compared to the respective prior year. The increase during 1996 was primarily due to increased levels of debt incurred as a result of acquisitions. The increase in interest expense during 1997 was primarily attributable to an increase in the average interest rate on outstanding debt due to the issuance of $200,000 of 10 5/8% Senior Notes on November 12, 1996 and an increase in the average amount of debt outstanding during 1997 as compared with the prior year. Interest Expense-Affiliates. The Company is charged interest on advances due to Adelphia and other affiliates. Such advances were used by the Company for capital expenditures, for repayment of debt and for working capital. For the year ended December 31, 1996, interest expense-affiliates declined 12.0% primarily due to the lower level of advances outstanding during 1996 compared with the year ended December 31, 1995. Interest expense-affiliates was flat for the year ended December 31, 1997 as compared with the prior year. Net Loss. The Company reported net losses of $19,391, $10,950 and $19,802 for the years ended December 31, 1995, 1996 and 1997, respectively. The decline in net loss in 1996 compared to 1995 is primarily due to the impact of rate increases and increased operating income of acquired systems, partially offset by increased programming costs, interest expense and other incremental costs associated with increased subscribers. The increase in net loss for the year ended December 31, 1997 as compared to the prior year was due primarily to increased interest expense. Liquidity and Capital Resources The cable television business is capital intensive and typically requires continual financing for the construction, modernization, maintenance, expansion and acquisition of cable systems. During the three years in the period ended December 31, 1997, the Company committed substantial capital resources for these purposes. These expenditures were funded through long-term borrowings and, to a lesser extent, advances from affiliates and internally generated funds. The Company's aggregate outstanding borrowings as of December 31, 1997 were $673,804. The Company's ability to generate cash to meet its future needs will depend generally on its results of operations and the continued availability of external financing. Capital Expenditures The Company's network architecture is designed to increase channel capacity and minimize future capital expenditures, while positioning the Company to take advantage of future opportunities. Capital expenditures for the years ended December 31, 1995, 1996 and 1997 were $21,498, $28,117 and $37,867 respectively. The increases in capital expenditures for the years ended December 31, 1996 and 1997 compared to the respective prior years were primarily due to the impact of acquired systems and increased investment related to the rebuilding of the Company's cable plant. The Company expects capital expenditures for 1998 to range from $40,000 to $60,000. Financing Activities The Company's ability to generate cash adequate to meet its future needs will depend generally on its results of operations and the continued availability of financing from both its owners and external sources. During the three year period ended December 31, 1997, the Company funded its working capital requirements, capital expenditures, and acquisitions through long-term borrowings primarily from banks and affiliates, issuance of debt securities by Olympus, advances from affiliates and internally generated funds. The Company generally has funded the principal and interest obligations on its long-term borrowings by refinancing the principal with new loans, and by paying the interest out of internally generated funds. Most of Olympus' directly-owned subsidiaries have their own senior credit agreements. Typically, borrowings under these agreements are collateralized by the assets of the borrowing subsidiary and its subsidiaries and, in some cases, are guaranteed by such subsidiary's subsidiaries. At December 31, 1996 and 1997, an aggregate of $309,000 and $427,000, respectively, in borrowings were outstanding under these agreements. These agreements limit, among other things, additional borrowings, investments, transactions with affiliates and other subsidiaries, and the payment of dividends and fees by the subsidiaries. The agreements also require maintenance of certain financial ratios by the subsidiaries. Management believes that the borrowers were in compliance with the agreements' covenants at December 31, 1997. At December 31, 1997, approximately $151,451 of the net assets of subsidiaries would be permitted to be transferred to Olympus in the form of distributions, dividends and loans without the prior approval of the lenders based upon the results of operations of such subsidiaries for the quarter ended December 31, 1997. The subsidiaries are permitted to pay management fees to Olympus or other subsidiaries. Such fees are limited to a percentage of the subsidiaries' revenues. A subsidiary of Olympus is a co-borrower with an affiliate under a $200,000 credit agreement. The subsidiary is permitted to borrow up to $39,500 of the available credit, none of which was included in subsidiary debt as of December 31, 1996 and 1997. In conjunction with the acquisition of the partnership interests of National, another subsidiary of Olympus assumed the obligation for $118,000 of a $350,000 credit agreement of Hilton Head Communications, L.P. ("Hilton Head"). Each of these subsidiaries is liable for all borrowings under the respective credit agreements, although the lenders have no recourse against Olympus other than against Olympus' interest in and the assets of the respective subsidiaries. The amount of borrowings available to Olympus under revolving credit agreements is generally based upon the subsidiaries achieving certain levels of operating performance. Olympus had commitments from banks for additional borrowings of up to $147,750, which included $10,250 also available to affiliates at December 31, 1997, which expire through 2003. Olympus pays commitment fees of .375% of unused principal. Subsidiary debt is due at various dates through 2003. Interest rates are based upon one or more of the following rates at the option of the borrowers: prime rate plus 0% to 1%; certificate of deposit rate plus .875% to 2.25%; or LIBOR rate plus .625% to 2%. At December 31, 1996 and 1997, the weighted average interest rate on subsidiary debt was 7.43% and 7.18%, respectively. Interest is payable quarterly. The rates on 26.9% of Olympus' subsidiary debt were fixed for at least one year through interest rate swap agreements. On November 12, 1996, Olympus issued $200,000 of 10 5/8% Senior Notes (the "Senior Notes"). Net proceeds, after payment of transaction costs, of approximately $195,000 were used to reduce amounts outstanding on Olympus' subsidiary debt. Interest is payable semi-annually. The Senior Notes are unsecured and are due November 15, 2006. Olympus may redeem up to $70,000 of the Senior Notes at 110.625% of principal through November 6, 1999. Commencing November 15, 2001, Olympus may redeem the Senior Notes in whole or in part at 105.3125% of principal declining annually to par on November 15, 2004. Holders of the Senior Notes have the right to require Olympus to redeem their Senior Notes at 101% of principal upon a Change of Control (as defined in the Indenture). The Indenture stipulates, among other things, limitations on additional borrowings, payment of dividends or distributions, repurchase of equity interests, transactions with affiliates and the sale of assets. Olympus has entered into interest rate swap agreements and interest rate cap agreements with banks and an affiliate to reduce the impact of changes in interest rates on its bank debt and its Senior Notes. Olympus enters into pay-fixed agreements to effectively convert a portion of its variable-rate debt to fixed-rate debt. Olympus enters into receive-fixed agreements to effectively convert a portion of its fixed-rate Senior Notes to variable-rate debt which is indexed to LIBOR. Interest rate cap agreements are used to reduce the impact of increases in interest rates on variable rate debt. Olympus is exposed to credit loss in the event of nonperformance by the banks and the affiliate. Olympus does not expect any such nonperformance. At December 31, 1996 and 1997, Olympus would have received approximately $2,571 and $615, respectively, to settle its interest rate swap and cap agreements, representing the excess of fair value over carrying cost of these agreements. Acquisitions On February 28, 1995, Olympus entered into a Liquidation Agreement with the Gans Family ("Gans"), a former Olympus limited partner. Under this Liquidation Agreement, Gans agreed to exchange their redeemable limited partner interests in Olympus for Olympus' investment in Northeast Cable, Inc. Concurrently with the closing of the Liquidation Agreement, ACP Holdings, Olympus, Telesat and certain shareholders of Adelphia entered into an investment agreement (the "Telesat Investment Agreement") whereby Telesat contributed to Olympus substantially all of the assets associated with certain cable television systems, serving approximately 50,000 subscribers in southern Florida, in exchange for general and limited partner interests of $5, Senior Limited partner ("SLP") interests of $20,000 and $112,500 of newly issued 16.5% preferred limited partner ("PLP") interests. Prior to the Telesat Investment Agreement, Olympus had obligations to Adelphia for intercompany advances, redeemable PLP interests, and accrued priority return on redeemable PLP interests. In conjunction with the Telesat Investment Agreement, Adelphia contributed $49,974 of the intercompany advances, $51,101 of the existing redeemable PLP interests and all of the then existing accrued priority return on the redeemable PLP interests to general partners' equity (deficiency). Adelphia then exchanged its remaining redeemable PLP interests for $225,000 of new PLP interests. Also, Senior Debt (as defined in the Telesat Investment Agreement) owed by Olympus to Adelphia of $40,000 remained outstanding after consummation of the Telesat Investment Agreement. On March 28, 1996, ACP Holdings, Telesat, Olympus, Adelphia and certain shareholders of Adelphia entered into an agreement which amended certain aspects of the Telesat Investment Agreement and the Olympus Partnership Agreement. The amendment provided for the repayment of certain amounts owed to Telesat totaling $20,000, the release of certain obligations of Telesat to Olympus and the reduction of Telesat's PLP and accrued priority return balances by $20,000. The amendment further provided for a $40,000 distribution to Adelphia as a reduction of its PLP interest and accrued priority return balances. These repayments and distributions were made on March 29, 1996 and were funded through internally generated funds and borrowings by a subsidiary of Olympus. On April 3, 1995, Olympus purchased all of the cable and security systems of WB Cable Associates, Ltd., ("WB Cable") serving approximately 44,000 cable and security monitoring subscribers for a purchase price of $82,000. WB Cable provides cable service from one headend and security monitoring services from one location in West Boca Raton, Florida. Of the purchase price, $77,000 was paid in cash and $5,000 was paid in Adelphia Class A Common Stock. The acquisition, which was accounted for under the purchase method of accounting, was financed principally through additional borrowings under an Olympus subsidiaries' credit agreement. On January 5, 1996, Olympus acquired all of the southeast Florida cable systems of the Leadership Cable division of Fairbanks Communications, Inc., ("Leadership Cable") which at the acquisition date served approximately 50,000 cable and security subscribers for a purchase price of $95,800. Leadership Cable provides cable service and security services in and around West Palm Beach, Florida. The purchase price consisted of $40,000 in cash and a $70,000 non-interest bearing discount seller note. This note was recorded at $55,800 at acquisition and accreted to the $70,000 face amount. The acquisition was accounted for under the purchase method of accounting. Effective April 1, 1997, Olympus acquired certain cable systems of Tele-Media Company of Southeast Florida, Inc. for an aggregate price of $8,500. These systems served approximately 5,000 subscribers at the date of acquisition located in and around Osceola County, Florida. The acquisition was accounted for under the purchase method of accounting. On June 20, 1997, Olympus acquired the Peninsula Cable systems from Booth American Company for an aggregate price of $10,500. These systems served approximately 6,000 subscribers at the date of acquisition located in and around Madeira Beach, Florida. The acquisition was accounted for under the purchase method of accounting. Olympus completed the acquisition of all of the partnership interests of National from Hilton Head, an entity controlled by the family of John Rigas (principal shareholder of Adelphia), for a purchase price of approximately $118,000. National provides cable service to approximately 57,000 subscribers in Palm Beach County, Florida and also owns limited partnership interests in Tele-Media Investment Partnership, L.P. ("TMIP"). The acquisition was accounted for under the purchase method of accounting and National's operations were consolidated with Olympus for financial reporting purposes effective as of October 1, 1997. On March 2, 1998, Olympus and TMIP entered into a series of agreements to restructure the ownership of TMIP. The restructuring will result in Olympus exchanging its nonconsolidated preferred limited partnership investment in TMIP for 100% ownership of approximately 27,750 subscribers in Palm Beach County, Florida subject to $38,287 in debt and a 75% consolidated general partner interest in TMIP subject to $37,856 in debt. The restructured TMIP will own approximately 40,850 subscribers located principally in Broward County, Florida. Consummation of this transaction is subject to certain closing conditions and regulatory approval. Resources The Company plans to continue to explore and consider new commitments, arrangements or transactions to refinance existing debt, increase the Company's liquidity or decrease the Company's leverage. These could include, among other things, the future issuance by the Company, or its subsidiaries or debt and the negotiation of new or amended credit facilities. These could also include entering into acquisitions, joint ventures or other investment or financing activities, although no assurance can be given that any such transactions will be consummated. The Company's ability to borrow under current credit facilities and to enter into refinancings and new financings is limited by covenants contained in its subsidiaries' credit agreements, including covenants under which the ability to incur indebtedness is in part a function of applicable ratios of total debt to cash flow. The Company believes that cash and cash equivalents, internally generated funds, borrowings under existing credit facilities, and future financing sources will be sufficient to meet its short-term and long-term liquidity and capital requirements. Although in the past the Company has been able to refinance its indebtedness or obtain new financing, there can be no assurance that the Company will be able to do so in the future or that the terms of such financings would be favorable. Management believes that the telecommunications industry, including the cable television and telephone industries, continues to be in a period of consolidation characterized by mergers, joint ventures, acquisitions, sales of all or part of cable companies or their assets, and other partnering and investment transactions of various structures and sizes involving cable or other telecommunications companies. The Company continues to evaluate new opportunities that allow for the expansion of its business through the acquisition of additional cable television systems in geographic proximity to its existing regional markets or in locations that can serve as a basis for new market areas. The Company, like other cable television companies, has participated from time to time and is participating in preliminary discussions with third parties regarding a variety of potential transactions, and the Company has considered and expects to continue to consider and explore potential transactions of various types with other cable and telecommunications companies. However, no assurances can be given as to whether any such transaction may be consummated or, if so, when. Recent Accounting Pronouncements SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," have been issued and are effective for fiscal years beginning after December 15, 1997. SFAS No. 130 defines comprehensive income and outlines certain reporting and disclosure requirements related to comprehensive income. SFAS No. 131 requires certain disclosures about business segments of an enterprise, if applicable. The adoption of SFAS No. 130 and SFAS No. 131 is not expected to have a significant effect on Olympus' financial statements or disclosures. Inflation In the three years in the period ended December 31, 1997, the Company believes that inflation did not have a significant effect on its results of operations. Periods of high inflation could have an adverse effect to the extent that increased borrowing costs for floating-rate debt may not be offset by increases in subscriber rates. At December 31, 1997, after giving effect to interest rate hedging agreements, approximately $312,000 of the Company's total debt was subject to floating interest rates. Regulatory and Competitive Matters The cable television operations of the Company may be adversely affected by changes and developments in governmental regulation, competitive forces and technology. The cable television industry and the Company are subject to extensive regulation at the federal, state and local levels. The 1992 Cable Act significantly expanded the scope of regulation of certain subscriber rates and a number of other matters in the cable industry, such as mandatory carriage of local broadcast stations and retransmission consent, and increased the administrative costs of complying with such regulations. The FCC has adopted rate regulations that establish, on a system-by-system basis, maximum allowable rates for (i) basic and cable programming services (other than programming offered on a per-channel or per-program basis), based upon a benchmark methodology, and (ii) associated equipment and installation services based upon cost plus a reasonable profit. Under the FCC rules, franchising authorities are authorized to regulate rates for basic services and associated equipment and installation services, and the FCC will regulate rates for regulated cable programming services in response to complaints filed with the agency. The Telecommunications Act of 1996 (the "1996 Act") ends FCC regulation of cable programming service tier rates on March 31, 1999. Rates for basic and cable programming services are set pursuant to a benchmark formula. Alternatively, a cable operator may elect to use a cost-of-service methodology to show that rates for basic and cable programming services are reasonable. Refunds with interest will be required to be paid by cable operators who are required to reduce regulated rates. The FCC has reserved the right to reduce or increase the benchmarks it has established. The rate regulations also limit increases in regulated rates to an inflation indexed amount plus increases in certain costs such as taxes, franchise fees, costs associated with specific franchise requirements and increased programming costs. Cost-based adjustments to these capped rates can also be made in the event a cable operator adds or deletes channels or completes a significant system rebuild or upgrade. Because of the limitation on rate increases for regulated services, future revenue growth from cable services will rely to a much greater extent than has been true in the past on increased revenues from unregulated services and new subscribers than from increases in previously unregulated rates. The FCC has adopted regulations implementing all of the requirements of the 1992 Cable Act. The FCC is also likely to continue to modify, clarify or refine the rate regulations. Olympus cannot predict the effect of the 1996 Act or future rulemaking proceedings or changes to the rate regulations. Cable television companies operate under franchises granted by local authorities which are subject to renewal and renegotiation from time to time. Because such franchises are generally non-exclusive, there is a potential for competition with the systems from other operators of cable television systems, including public systems operated by municipal franchising authorities themselves, and from other distribution systems capable of delivering television programming to homes. The 1992 Cable Act and the 1996 Act contain provisions which encourage competition from such other sources. The Company cannot predict the extent to which competition will materialize from other cable television operators, local telephone companies, other distribution systems for delivering television programming to the home, or other potential competitors, or, if such competition materializes, the extent of its effect on the Company. The 1996 Act repealed the prohibition on local telephone exchange carriers ("LECs") from providing video programming directly to customers within their local exchange areas other than in rural areas or by specific waiver of FCC rules. The 1996 Act also authorized LECs to operate "open video systems" ("OVS") without obtaining a local cable franchise, although LECs operating such a system can be required to make payments to local governmental bodies in lieu of cable franchise fees. Where demand exceeds capacity, up to two-thirds of the channels on an OVS must be available to programmers unaffiliated with the LEC. The statute states that the OVS scheme supplants the FCC's "video dialtone" rules. The FCC has promulgated rules to implement the OVS concept, and New Jersey Bell Telephone Company has been granted permission to convert its video dialtone authorization in Dover Township, New Jersey to an OVS authorization. The Company believes that the provision of video programming by telephone companies in competition with the Company's existing operations could have an adverse effect on the Company's financial condition and results of operations. At this time, the impact of any such effect is not known or estimable. The Company also competes with DBS service providers. DBS has been available to consumers since 1994. A single DBS satellite can provide more than 100 channels of programming. DBS service can be received virtually anywhere in the United States through the installation of a small outdoor antenna. DBS service is being heavily marketed on a nationwide basis by several service providers. At this time, any impact of DBS competition on the Company's future results is not known or estimable. Year 2000 Issues The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has recently completed the planning stage of a project that addresses the Year 2000 data processing issues relating to modifications of its mainframe computer applications. Internal and external resources are being used to make the required modifications and perform the necessary tests, all of which is expected to be completed by June 1999. The financial impact of these modifications is not expected to be significant to Olympus' financial statements. In addition, the Company has begun communicating with others with whom it does significant business to determine their Year 2000 Compliance readiness and the extent to which the Company is vulnerable to any third party Year 2000 issues. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and related notes thereto and independent auditors report follow.
INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report..................................................................34 Consolidated Balance Sheets, December 31, 1996 and 1997.......................................35 Consolidated Statements of Operations, Years Ended December 31, 1995, 1996 and 1997...........36 Consolidated Statements of Partners' Equity (Deficiency), Years Ended December 31, 1995, 1996 and 1997............................................................................37 Consolidated Statements of Cash Flows, Years Ended December 31, 1995, 1996 and 1997...........38 Notes to Consolidated Financial Statements....................................................39
INDEPENDENT AUDITORS' REPORT Olympus Communications, L.P.: We have audited the accompanying consolidated balance sheets of Olympus Communications, L.P. and subsidiaries as of December 31, 1996 and 1997, and the related consolidated statements of operations, partners' equity (deficiency), and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these 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 management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Olympus Communications, L.P. and subsidiaries at December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania March 6, 1998 OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, ----------------------- 1996 1997 --------- ---------- ASSETS: Cable systems, at cost, net of accumulated depreciation and amortization: Property, plant and equipment $225,775 $265,783 Intangible assets 350,411 417,559 --------- --------- Total 576,186 683,342 Cash and cash equivalents 26,466 3,554 Subscriber receivables - net 10,491 12,577 Prepaid expenses and other assets - net 27,078 29,479 --------- --------- Total $640,221 $728,952 ========= ========= LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY): Subsidiary debt $309,000 $427,000 Parent debt 200,000 200,000 Other debt 63,713 46,804 Accounts payable 15,122 15,947 Subscriber advance payments and deposits 5,426 7,907 Accrued interest and other liabilities 30,429 25,265 Accrued priority return on preferred limited partner interests 20,476 22,241 Due to affiliates - net 39,667 55,169 Deferred income taxes 40,587 40,836 --------- --------- Total liabilities 724,420 841,169 Commitments and contingencies (Note 5) Partners' equity (deficiency): Limited partners' interests 407,669 488,398 General partners' equity (deficiency) (491,868) (600,615) --------- --------- Total partners' equity (deficiency) (84,199) (112,217) --------- --------- Total $640,221 $728,952 ========= ========= See notes to consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands) Year Ended December 31, ------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Revenues $120,968 $159,870 $176,363 ---------- ---------- ---------- Operating expenses: Direct operating and programming 37,494 48,598 56,905 Selling, general and administrative 23,912 28,974 32,163 Depreciation and amortization 31,953 40,446 43,337 Management fees to managing affiliate 6,334 8,839 9,566 ---------- ---------- ---------- Total 99,693 126,857 141,971 ---------- ---------- ---------- Operating income 21,275 33,013 34,392 ---------- ---------- ---------- Other income (expense): Interest expense (29,217) (40,748) (50,150) Interest expense - affiliates (7,501) (6,600) (6,600) Gain on sale of assets -- -- 1,522 Other (expense) income (15) 401 1,085 ---------- ---------- ---------- Total (36,733) (46,947) (54,143) ---------- ---------- ---------- Loss before income taxes and extraordinary loss (15,458) (13,934) (19,751) Income tax (expense) benefit (2,824) 2,984 (51) ---------- ---------- ---------- Loss before extraordinary loss (18,282) (10,950) (19,802) Extraordinary loss on early retirement of debt (net of income tax benefit of $486) (1,109) -- -- ---------- ---------- ---------- Net loss (19,391) (10,950) (19,802) Priority return on preferred and senior limited partner interests (63,358) (65,644) (75,893) ---------- ---------- ---------- Net loss of general and limited partners after priority return $(82,749) $(76,594) $(95,695) ========== ========== ========== Loss per general and limited partners' unit before extraordinary loss and after priority return $(8,164) $(7,659) $(9,570) Extraordinary loss per general and limited partners' unit on early retirement of debt (111) -- -- ---------- ---------- ---------- Net loss per general and limited partners' unit after priority return $(8,275) $(7,659) $(9,570) ========== ========== ========== See notes to consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) (Dollars in thousands) Total Partners' Limited General Equity Partners Partners (Deficiency) -------------- ------------ ---------- Balance, December 31, 1994 $ -- $(494,105) $(494,105) Intercompany advances converted to general partners' equity (deficiency) -- 49,974 49,974 Redeemable preferred limited partner interests converted to general partners' equity (deficiency) -- 51,101 51,101 Accrued priority return converted to general partners' equity (deficiency) -- 142,300 142,300 Excess of obligation for redeemable limited partner interest over carrying value of investment exchanged to satisfy such obligation -- 4,754 4,754 Excess of ascribed value over historical cost of assets contributed by Telesat -- (86,349) (86,349) Issuance of preferred limited partner interests 376,625 -- 376,625 Issuance of limited and senior limited partner interests 20,005 -- 20,005 Net loss of general and limited partners after priority return -- (82,749) (82,749) Capital distribution -- (100) (100) ------------ ------------ ------------ Balance, December 31, 1995 396,630 (415,174) (18,544) Net loss of general and limited partners after priority return -- (76,594) (76,594) Issuance of preferred limited partner interests 65,711 -- 65,711 Capital distributions (54,672) (100) (54,772) ------------ ------------ ------------ Balance, December 31, 1996 407,669 (491,868) (84,199) Net loss of general and limited partners after priority return -- (95,695) (95,695) Excess of ascribed value over historical cost of assets purchased from affiliate -- (22,752) (22,752) Issuance of preferred limited partner interests 80,729 -- 80,729 Capital contributions -- 9,800 9,800 Capital distributions -- (100) (100) ------------ ------------ ------------ Balance, December 31, 1997 $ 488,398 $ (600,615) $ (112,217) ============ ============ ============ See notes to consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31, ------------------------------------------ 1995 1996 1997 ------------- ------------- ------------- Cash flows from operating activities: Net loss $ (19,391) $ (10,950) $ (19,802) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 22,593 25,507 25,535 Amortization 9,360 14,939 17,802 Extraordinary loss on debt retirement (net of income tax benefit) 1,109 -- -- Gain on sale of assets -- -- (1,522) Accretion of non-interest bearing note -- 6,207 7,993 Deferred taxes, net of effects of acquisitions 2,824 (2,965) 82 Changes in operating assets and liabilities, net of effects of acquisitions: Subscriber receivables (1,026) (2,653) (1,174) Prepaid expenses and other assets (2,505) (16,318) (3,596) Accounts payable 2,729 861 (53) Subscriber advance payments and deposits 581 1,469 1,733 Accrued interest and other liabilities (8,113) 17,314 (5,693) ------------ ------------ ------------ Net cash provided by operating activities 8,161 33,411 21,305 ------------ ------------ ------------ Cash flows from investing activities: Business acquisitions, net of cash acquired (85,853) (42,327) (15,909) Expenditures for property, plant and equipment (21,498) (28,117) (37,867) Proceeds from sale of assets -- -- 1,955 ------------ ------------ ------------ Net cash used for investing activities (107,351) (70,444) (51,821) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from debt 438,000 324,500 15,000 Repayments of debt (336,094) (235,018) (40,541) Costs associated with debt financing (4,872) (6,215) -- Payments of priority returns (37,341) (64,438) (74,129) Amounts advanced from affiliates 32,724 1,054 16,845 Issuance of preferred limited partner interests 39,125 65,711 80,729 Capital contributions -- -- 9,800 Capital distributions (100) (54,772) (100) ------------ ------------ ------------ Net cash provided by financing activities 131,442 30,822 7,604 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents 32,252 (6,211) (22,912) Cash and cash equivalents, beginning of year 425 32,677 26,466 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 32,677 $ 26,466 $ 3,554 ============ ============ ============ Supplemental disclosure of cash flow activity- cash payments for interest $ 38,057 $ 38,283 $ 49,707 ============ ============ ============ See notes to consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) 1. The Partnership and Basis of Presentation: Olympus Communications, L.P. and subsidiaries ("Olympus") is a joint venture limited partnership formed under the laws of Delaware with 50% of the outstanding voting interests held by ACP Holdings, Inc., ("ACP Holdings"), a wholly-owned subsidiary of Adelphia Communications Corporation ("Adelphia") and managing general partner of Olympus. The remaining 50% of the voting interests are held by various Telesat entities ("Telesat") which are wholly-owned subsidiaries of FPL Group, Inc. ("FPL"). Olympus' operations consist primarily of selling video programming which is distributed to subscribers in Florida for a monthly fee through a network of fiber optic and coaxial cables. The consolidated financial statements include the accounts of Olympus and its substantially wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. On February 28, 1995, Olympus entered into a Liquidation Agreement with the Gans Family ("Gans"), an Olympus limited partner. Under this Liquidation Agreement, Gans agreed to exchange their redeemable limited partner interests in Olympus for Olympus' investment in Northeast Cable, Inc. Concurrently with the closing of the Liquidation Agreement, ACP Holdings, Olympus, Telesat and certain shareholders of Adelphia entered into an investment agreement (the "Telesat Investment Agreement") whereby Telesat contributed to Olympus substantially all of the assets associated with certain cable television systems, serving approximately 50,000 subscribers in southern Florida, in exchange for general and limited partner interests of $5, Senior Limited partner ("SLP") interests of $20,000 and $112,500 of newly issued 16.5% preferred limited partner ("PLP") interests. Prior to the Telesat Investment Agreement, Olympus had obligations to Adelphia for intercompany advances, redeemable PLP interests, and accrued priority return on redeemable PLP interests. In conjunction with the Telesat Investment Agreement, Adelphia contributed $49,974 of the intercompany advances, $51,101 of the existing redeemable PLP interests and all of the then existing accrued priority return on the redeemable PLP interests to general partners' equity (deficiency). Adelphia then exchanged its remaining redeemable PLP interests for $225,000 of new PLP interests. Also, Senior Debt (as defined in the Telesat Investment Agreement) owed by Olympus to Adelphia of $40,000 remained outstanding after consummation of the Telesat Investment Agreement. On March 28, 1996, ACP Holdings, Telesat, Olympus, Adelphia and certain shareholders of Adelphia entered into an agreement which amended certain aspects of the Telesat Investment Agreement and the Olympus Partnership Agreement. The amendment provided for the repayment of certain amounts owed to Telesat totaling $20,000, the release of certain obligations of Telesat to Olympus and the reduction of Telesat's PLP and accrued priority return balances by $20,000. The amendment further provided for a $40,000 distribution to Adelphia as a reduction of its PLP interest and accrued priority return balances. These repayments and distributions were made on March 29, 1996 and were funded through internally generated funds and borrowings by a subsidiary of Olympus. On April 3, 1995, Olympus purchased all of the cable and security systems of WB Cable Associates, Ltd. ("WB Cable"), serving approximately 44,000 cable and security monitoring subscribers, for a purchase price of $82,000. WB Cable provides cable service from one headend and security monitoring services from one location in West Boca Raton, Florida. Of the purchase price, $77,000 was paid in cash and $5,000 was paid in Adelphia Class A Common Stock. The acquisition, which was accounted for under the purchase method of accounting, was financed principally through additional borrowings under an Olympus subsidiary credit agreement (see Note 3). On January 5, 1996, Olympus acquired all of the southeast Florida cable systems of the Leadership Cable division of Fairbanks Communications, Inc. ("Leadership Cable"), which at the acquisition date served approximately 50,000 cable and security subscribers, for a purchase price of $95,800. Leadership Cable provides cable service and security services in and around West Palm Beach, Florida. The purchase price consisted of $40,000 in cash and a $70,000 non-interest bearing discount seller note. This note was recorded at $55,800 at acquisition and accreted to the $70,000 face amount (see Note 3). The acquisition was accounted for under the purchase method of accounting. Effective April 1, 1997, Olympus acquired certain cable systems of Tele-Media Company of Southeast Florida, Inc. for an aggregate price of $8,500. These systems served approximately 5,000 subscribers at the date of acquisition located in and around Osceola County, Florida. The acquisition was accounted for under the purchase method of accounting. On June 20, 1997, Olympus acquired the Peninsula Cable systems from Booth American Company for an aggregate price of $10,500. These systems served approximately 6,000 subscribers at the date of acquisition located in and around Madeira Beach, Florida. The acquisition was accounted for under the purchase method of accounting. Olympus completed the acquisition of all of the partnership interests of National Cable Acquisition Associates, L.P. ("National") from Hilton Head Communications, L.P. ("Hilton Head"), an entity controlled by the family of John Rigas (principal shareholder of Adelphia), for a purchase price of approximately $118,000. National provides cable service to approximately 57,000 subscribers in Palm Beach County, Florida and also owns limited partnership interests in Tele-Media Investment Partnership, L.P. ("TMIP"). The acquisition was accounted for under the purchase method of accounting and National's operations were consolidated with Olympus for financial reporting purposes effective as of October 1, 1997. The purchase price was paid through the assumption of liabilities. The following unaudited financial information assumes that all of the aforementioned contribution/acquisition transactions had occurred on January 1, 1995.
Year Ended December 31, --------------------------------------- 1995 1996 1997 ---------- ----------- ---------- Revenues $165,558 $180,899 $191,290 Loss before extraordinary loss and priority return on preferred and senior limited partner interests (34,601) (17,153) (24,688) Net loss of general and limited partners after priority return (99,946) (82,798) (100,582) Net loss per general and limited partners' unit after priority return (9,995) (8,280) (10,058)
2. Summary of Significant Accounting Policies: Subscriber Revenues Subscriber revenues are recorded in the month the service is provided. Subscriber Receivables An allowance for doubtful accounts of $612 and $622 is recorded as a reduction of subscriber receivables at December 31, 1996 and 1997, respectively. Programming Expense Adelphia allocates charges from programmers to affiliates (including Olympus) based on the number of subscribers to each programming service. Property, Plant and Equipment Property, plant and equipment are comprised of the following: December 31, ------------------------------- 1996 1997 -------------- ------------- Operating plant and equipment $315,610 $366,104 Real estate and improvements 4,592 5,786 Support equipment 6,104 7,874 Construction in progress 16,057 28,816 ------------- ------------- 342,363 408,580 Accumulated depreciation (116,588) (142,797) ------------- ------------- $225,775 $265,783 ============= ============= Depreciation is computed on the straight-line method using estimated useful lives of 5 to 12 years for operating plant and equipment and 3 to 20 years for support equipment and buildings. Additions to property, plant and equipment are recorded at cost, which includes amounts for material, applicable labor, and interest. Olympus capitalized interest amounting to $346 for each of the years ended December 31, 1996 and 1997, respectively. Intangible Assets Intangible assets, net of accumulated amortization, are comprised of the following: December 31, ------------------------------- 1996 1997 -------------- ------------- Purchased franchises $306,770 $360,188 Purchased subscriber lists 25,950 36,032 Goodwill 17,691 21,339 ------------- ------------- $350,411 $417,559 ============= ============= A portion of the aggregate purchase price of cable television systems acquired has been allocated to purchased franchises, purchased subscriber lists and goodwill. Purchased franchises and goodwill are amortized on the straight-line method over periods which range from 34 to 40 years. Purchased subscriber lists are amortized on the straight-line method over the average periods that the listed subscribers are expected to receive service from the date of acquisition, which range from 7 to 10 years. Accumulated amortization of intangible assets amounted to $91,165 and $125,178 at December 31, 1996 and 1997, respectively. Other Assets The unamortized amount of deferred debt financing costs included in prepaid expenses and other assets was $10,403 and $9,450 at December 31, 1996 and 1997, respectively. Such costs are amortized over the term of the related debt. At December 31, 1997, prepaid expenses and other assets also includes the Company's limited partnership investment in TMIP of $14,310. Income of $906 from this investment is included in revenues for the year ended December 31, 1997. Asset Impairments Olympus periodically reviews the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable. Measurement of any impairment would include a comparison of estimated future operating cash flows anticipated to be generated during the remaining life of the assets with their net carrying value. An impairment loss would be recognized as the amount by which the carrying value of the assets exceeds their fair value. Noncash Financing and Investing Activities Capital leases entered into during 1995, 1996 and 1997 totaled $341, $1,147 and $415, respectively. Business acquisitions include the acquisition of National which was paid for through the assumption of liabilities (see Note 1). Reference is made to Notes 1 and 4 for descriptions of additional noncash financing activities. Net Loss Per General and Limited Partners' Unit After Priority Return Net loss per general and limited partners' unit after priority return is based upon the weighted average number of general and limited partner units outstanding of 10.0 for all periods presented. Cash and Cash Equivalents Olympus considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Derivative Financial Instruments Net settlement amounts under interest rate swap agreements are recorded as adjustments to interest expense during the period incurred. Franchise Expense The typical term of the Company's franchise agreements upon renewal is 10 years. Franchise fees range from 3% to 5% of subscriber revenue and are expensed currently. Use of Estimates in the Preparation of Financial Statements 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. Recent Accounting Pronouncements SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information," have been issued and are effective for fiscal years beginning after December 15, 1997. SFAS No. 130 defines comprehensive income and outlines certain reporting and disclosure requirements related to comprehensive income. SFAS No. 131 requires certain disclosures about business segments of an enterprise, if applicable. The adoption of SFAS No. 130 and SFAS No. 131 is not expected to have a significant effect on Olympus' financial statements or disclosures. 3. Debt: Subsidiary Debt Subsidiary debt is comprised of amounts due under credit agreements with banks. The amount of borrowings available to Olympus under revolving credit agreements is generally based upon the subsidiaries achieving certain levels of operating performance. Olympus had commitments from banks for additional borrowings of up to $147,750, which included $10,250 also available to affiliates at December 31, 1997, which expire through 2003. Olympus pays commitment fees of .375% of unused principal. Borrowings under these credit arrangements of subsidiaries are collateralized by substantially all of the assets of the respective subsidiaries. These agreements limit, among other things, additional borrowings, investments, transactions with affiliates and other subsidiaries, and the payment of dividends and fees by the subsidiaries. The agreements also require maintenance of certain financial ratios by the subsidiaries. Management believes that the borrowers were in compliance with the agreements' covenants at December 31, 1997. At December 31, 1997, approximately $151,451 of the net assets of subsidiaries would be permitted to be transferred to Olympus in the form of distributions, dividends and loans without the prior approval of the lenders based upon the results of operations of such subsidiaries for the quarter ended December 31, 1997. The subsidiaries are permitted to pay management fees to Olympus or other subsidiaries. Such fees are limited to a percentage of the subsidiaries' revenues. A subsidiary of Olympus is a co-borrower with an affiliate under a $200,000 credit agreement. The subsidiary is permitted to borrow up to $39,500 of the available credit, none of which was included in subsidiary debt as of December 31, 1996 and 1997. In conjunction with the acquisition of the partnership interests of National, another subsidiary of Olympus assumed the obligation for $118,000 of a $350,000 credit agreement of Hilton Head. Each of these subsidiaries is liable for all borrowings under the respective credit agreements, although the lenders have no recourse against Olympus other than against Olympus' interest in the respective subsidiaries. Subsidiary debt is due at various dates through 2003. Interest rates are based upon one or more of the following rates at the option of the borrowers: prime rate plus 0% to 1%; certificate of deposit rate plus .875% to 2.25%; or LIBOR rate plus .625% to 2%. At December 31, 1996 and 1997, the weighted average interest rate on subsidiary debt was 7.43% and 7.18%, respectively. Interest is payable quarterly. The rates on 26.9% of Olympus' subsidiary debt were fixed for at least one year through interest rate swap agreements. Initial borrowings under one of the revolving credit facilities were used to repay then existing notes payable to banks and accrued interest on May 12, 1995. An extraordinary loss on early retirement of debt of $1,109, net of income tax benefit of $486, was recognized for the year ended December 31, 1995, which represents the unamortized deferred financing costs related to such notes at the date of refinancing. Parent Debt On November 12, 1996, Olympus issued $200,000 of 10 5/8% Senior Notes (the "Senior Notes"). Net proceeds, after payment of transaction costs, of approximately $195,000 were used to reduce amounts outstanding on Olympus' subsidiary debt. Interest is payable semi-annually. The Senior Notes are unsecured and are due November 15, 2006. Olympus may redeem up to $70,000 of the Senior Notes at 110.625% of principal through November 6, 1999. Commencing November 15, 2001, Olympus may redeem the Senior Notes in whole or in part at 105.3125% of principal declining annually to par on November 15, 2004. Holders of the Senior Notes have the right to require Olympus to redeem their Senior Notes at 101% of principal upon a Change of Control (as defined in the Indenture). The Indenture stipulates, among other things, limitations on additional borrowings, payment of dividends or distributions, repurchase of equity interests, transactions with affiliates and the sale of assets. Other Debt As of December 31, 1996 and 1997, other debt consists, in part, of purchase money indebtedness and capital leases incurred in connection with the acquisition of, and are collateralized by, certain equipment. The interest rate on such debt is based on the Federal Funds rate plus 1.4% and is adjusted monthly based on changes in the Federal Funds rate. As of December 31, 1996 and 1997, other debt also includes $62,007 and $45,000 regarding the seller note discussed in Note 1. On January 2, 1998, $43,000 was paid and the remaining $2,000 balance is due on December 30, 1998. The following table sets forth the mandatory reductions in principal under all agreements for indebtedness at December 31 of each of the next five years based on amounts outstanding at December 31, 1997: December 31, 1998 $ 56,002 December 31, 1999 19,764 December 31, 2000 60,740 December 31, 2001 105,285 December 31, 2002 121,579 Olympus intends to fund its debt maturities through borrowings under new credit agreements and internally generated funds. Changing conditions in the financial markets may have an impact on how Olympus will refinance its debt in the future. Interest Rate Swaps and Caps Olympus has entered into interest rate swap agreements and interest rate cap agreements with banks and an affiliate (see Note 9) to reduce the impact of changes in interest rates on its bank debt and its Senior Notes. Olympus enters into pay-fixed agreements to effectively convert a portion of its variable-rate debt to fixed-rate debt. Olympus enters into receive-fixed agreements to effectively convert a portion of its fixed-rate Senior Notes to variable-rate debt which is indexed to LIBOR. Interest rate cap agreements are used to reduce the impact of increases in interest rates on variable rate debt. Olympus is exposed to credit loss in the event of nonperformance by the banks and the affiliate. Olympus does not expect any such nonperformance. The following table summarizes the notional amounts outstanding and weighted average interest rate data for all swaps and caps which expire 1998 through 2000. December 31, 1996 1997 Pay Fixed Swaps: Notional amount $115,000 $115,000 Average receive rate 5.64% 5.85% Average pay rate 6.54% 6.54% Receive Fixed Swaps: Notional amount $140,000 $140,000 Average receive rate 7.58% 7.58% Average pay rate 5.55% 5.83% Interest Rate Caps: Notional amount $75,000 $75,000 Average cap rate 7.50% 7.50% 4. Limited Partners' Interests and General Partners' Equity (Deficiency): 16.5% Redeemable PLP Interests The redeemable PLP interests issued to Adelphia, totaling $276,101 at December 31, 1994, were nonvoting, senior to claims represented by other partner interests and provided for a priority return of 16.5% per annum (payable quarterly). In the event that any priority return was not paid when due, such unpaid amounts accrued additional return at a rate of 18.5% per annum. As a result of the February 28, 1995 Telesat Investment Agreement (see Note 1), $225,000 of the redeemable PLP interests were converted to new PLP interests as described below, and $51,101 of the redeemable PLP interests and $142,300 of the unpaid priority return were converted to general partners' equity (deficiency). Redeemable Limited Partner Interests As a result of the Liquidation Agreement entered into on February 28, 1995 between Gans and Olympus, Gans exchanged their redeemable limited partnership interest in Olympus for Olympus' investment in Northeast Cable, Inc. (see Note 1). Preferred, Senior, Limited and General Partnership Interests On February 28, 1995, as a result of the Telesat Investment Agreement (as described in Note 1), $337,500 of new Preferred Limited Partner interests, $20,000 of Senior Limited Partner interests and $5 of Limited Partner interests were issued to Adelphia and Telesat as summarized in the table below.
Adelphia Telesat Total ------------- ------------- ------------- 16.5% Preferred Limited Partner Interests $225,000 $112,500 $337,500 16.5% Senior Limited Partner Interests -- 20,000 20,000 General and Limited Partner Interests -- 5 5 ------------ ------------ ------------ Total $225,000 $132,505 $357,505 ============ ============ ============
In addition, on various dates during the years ended December 31, 1995, 1996 and 1997, additional Preferred Limited Partner interests were issued for cash of $39,125, $65,711 and $80,729, respectively. The Preferred Limited Partner interests are nonvoting, do not participate in the profits and losses of Olympus and provide for a priority return of 16.5% per annum (payable quarterly). In the event that any priority return is not paid when due, such unpaid amounts accrue additional return at a rate of 16.5% per annum. The Senior Limited Partner interests held by Telesat are nonvoting, senior to claims represented by all other partner interests and provide for a priority return of 16.5% per annum (payable quarterly). In the event that any priority return is not paid when due, such unpaid amounts accrue additional return at a rate of 16.5% per annum. Allocation of Profits, Losses and Distributions On and after February 28, 1995, profits and losses of Olympus for income tax purposes are allocated 99% to the limited partner of Olympus and 1% to the managing general partner of Olympus until the aggregate profits allocated to the limited partner equals the aggregate losses allocated to the limited partner, at which time the managing general partner receives two-thirds, and the limited partner of Olympus receives one-third of the net income and losses of Olympus. As specified in the partnership agreement, allocations will be made in the following order to the holders of the: (i) Senior Limited Partner Interests; (ii) Special Limited Partner Interests, if any; and (iii) Preferred Limited Partner Interests. Such allocations will equal a return of their capital plus 16.5% per annum priority return less any priority return previously paid. After such allocations, distributions by Olympus will be made in the following order: (i) 99% of any remaining amount will be distributed two-thirds to the managing general partner and any partner holding voting units acquired directly or indirectly from the managing partner, pro rata, and one-third to partners holding the remaining voting units; and (ii) thereafter pro rata to all partners holding voting units. At December 31, 1997, 10 voting units were outstanding of which five were held by ACP Holdings, the managing general partner, and five were held by Telesat, the general and limited partners. 5. Commitments and Contingencies: Olympus rents office space, tower sites, and space on utility poles under leases with terms which are generally less than one year or under agreements that are generally cancelable on short notice. Total rental expense under all operating leases aggregated $1,379, $1,495 and $1,614 for 1995, 1996 and 1997, respectively. In connection with certain obligations under existing franchise agreements, Olympus obtains surety bonds guaranteeing performance to municipalities and public utilities. Payment is required only in the event of nonperformance. Olympus has fulfilled all of its obligations such that no payments under surety bonds have been required. Through July 26, 1996, Olympus had a program to self insure for casualty and business interruption insurance. This program was part of an aggregate agreement between Olympus and its subsidiaries in which Olympus provided insurance for casualty and business interruption claims of up to $10,000 and $20,000 per claim, respectively, for each subsidiary. Effective July 26, 1996, Olympus is insured by an outside party for casualty and business interruption. The cable television industry and Olympus are subject to extensive regulation at the federal, state and local levels. Pursuant to the 1992 Cable Act, which significantly expanded the scope of regulation of certain subscriber rates and a number of other matters in the cable industry, the FCC has adopted rate regulations that establish, on a system-by-system basis, maximum allowable rates for (i) basic and cable programming services (other than programming offered on a per-channel or per-program basis), based upon a benchmark methodology, and (ii) associated equipment and installation services based upon cost plus a reasonable profit. Under the FCC rules, franchising authorities are authorized to regulate rates for basic services and associated equipment and installation services, and the FCC will regulate rates for regulated cable programming services in response to complaints filed with the agency. The original rate regulations became effective on September 1, 1993. Several amendments to the rate regulations have subsequently been added. The FCC has adopted regulations implementing virtually all of the requirements of the 1992 Cable Act. The FCC is also likely to continue to modify, clarify or refine the rate regulations. The Telecommunications Act of 1996 (the "1996 Act") deregulates the rates for cable programming services on March 31, 1999. Olympus cannot predict the effect of the 1996 Act on future rulemaking proceedings or changes to the rate regulations. 6. Employee Benefit Plans: Olympus participates in an Adelphia savings plan (401(k)) which provides that eligible full-time employees may contribute from 2% to 20% of their pre-tax compensation subject to certain limitations. Olympus matches contributions not exceeding 1.5% of each participant's pre-tax compensation. During the years ended 1995, 1996 and 1997 no significant matching contributions were made by Olympus. 7. Taxes on Income: Certain wholly-owned subsidiaries of Olympus are corporations that file separate federal and state income tax returns. At December 31, 1997, these subsidiaries had net operating loss carryforwards for federal income tax purposes of approximately $185,500 expiring through 2012. The partnership investments of Olympus are tax entities in which the filing of returns and related tax liabilities are the responsibility of the individual owners. Deferred income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss and tax credit carryforwards. The tax effects of significant items comprising Olympus' net deferred tax liability as of December 31, 1996 and 1997 are as follows: December 31, --------------------------- 1996 1997 ------------ ------------ Deferred tax liabilities: Differences between book and tax basis of property, plant and equipment and intangible assets $91,703 $90,777 ----------- ----------- Deferred tax assets: Operating loss carryforwards 71,145 71,391 Other 47 123 Valuation allowance (20,076) (21,573) ----------- ----------- Subtotal 51,116 49,941 ----------- ----------- Net deferred tax liability $40,587 $40,836 =========== =========== The net change in the valuation allowance for the year ended December 31, 1997 was an increase of $1,497. The income tax (expense) benefit for the years ended December 31, 1995, 1996 and 1997 is as follows: Year Ended December 31, ------------------------------------------- 1995 1996 1997 -------------- ------------ ------------- Federal: Current $ -- $ 19 $ -- Deferred (2,184) 2,386 (46) State: Current -- -- 31 Deferred (640) 579 (36) ------------ ------------ ------------ $ (2,824) $ $2,984 $ (51) ============ ============ ============ Reconciliations between the statutory federal income tax rate and Olympus' effective income tax rate as a percentage of loss before income taxes and extraordinary loss are as follows: Year Ended December 31, -------------------------------- 1995 1996 1997 ---------- --------- --------- Statutory federal income tax rate (35%) (35%) (35%) Change in valuation allowance (5%) 26% 8% Operating losses passed through to partners 54% (9%) 27% State taxes, net of federal benefit 4% (3%) - % -------- -------- -------- Effective income tax rate 18% (21%) - % ======== ======== ======== 8. Disclosures about Fair Value of Financial Instruments: Included in Olympus' financial instrument portfolio are cash, notes payable to banks, Senior Notes and interest rate swaps and caps. The carrying values of the notes payable to banks approximate their fair values at December 31, 1997. The fair value of the Senior Notes exceeded their carrying cost by $0 and $22,000 at December 31, 1996 and 1997, respectively. At December 31, 1996 and 1997 Olympus would have received approximately $2,571 and $615, respectively, to settle its interest rate swap and cap agreements, representing the excess of fair value over carrying cost of these agreements. The fair values of the debt and interest rate swaps and caps were based upon quoted market prices of similar instruments or on rates available to Olympus for instruments of the same remaining maturities. 9. Transactions with Related Parties: Olympus has an agreement with a subsidiary of Adelphia which provides for the payment of management fees by Olympus. The amount and payment of these fees is subject to restrictions contained in the partnership agreements. During the year ended December 31, 1995, Olympus paid Adelphia a fee totaling $646 in connection with the acquisition of Leadership Cable. Olympus has periodically received funds from and advanced funds to Adelphia and other affiliates. Olympus was charged $7,501, $6,600 and $6,600 of interest on such net payables for 1995, 1996 and 1997, respectively. At December 31, 1997, Olympus had interest rate swaps with an affiliate for a notional amount of $140,000 for Receive Fixed Swaps. These swaps expire at various dates in 1998. The net effect of these interest rate swaps was to decrease interest expense by $244, $2,554 and $2,308 in 1995, 1996 and 1997, respectively. Effective October 1, 1997, Olympus completed the acquisition of all of the partnership interests of National from Hilton Head Communications, L.P., an entity controlled by the family of John Rigas (principal shareholder of Adelphia), for a purchase price of approximately $118,000 (see Note 1). 10. Quarterly Financial Data (unaudited): The following tables summarize the financial results of Olympus for each of the quarters in the years ended December 31, 1996 and 1997:
Three Months Ended -------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ----------- ----------- ------------- Year ended December 31, 1996: Revenues $39,088 $39,336 $40,180 $41,266 ---------- ---------- ---------- ------------ Operating expenses: Direct operating and programming 12,402 11,582 11,943 12,671 Selling, general and administrative 7,145 6,753 7,032 8,044 Depreciation and amortization 9,573 10,028 10,409 10,436 Management fees to managing affiliate 2,009 2,100 2,263 2,467 ---------- ---------- ---------- ------------ Total 31,129 30,463 31,647 33,618 ---------- ---------- ---------- ------------ Operating income 7,959 8,873 8,533 7,648 ---------- ---------- ---------- ------------ Other income (expense): Interest expense (9,460) (10,929) (9,612) (10,747) Interest expense - affiliates (1,650) (1,650) (1,650) (1,650) Other income (expense) 122 (5) 46 238 ---------- ---------- ---------- ------------ Total (10,988) (12,584) (11,216) (12,159) ---------- ---------- ---------- ------------ Loss before income taxes (3,029) (3,711) (2,683) (4,511) Income tax benefit 610 598 412 1,364 ---------- ---------- ---------- ------------ Net loss (2,419) (3,113) (2,271) (3,147) Priority return on preferred and senior limited partner interests (17,222) (15,550) (16,235) (16,637) ---------- ---------- ---------- ------------ Net loss of general and limited partners after priority return $(19,641) $(18,663) $(18,506) $(19,784) ========== ========== ========== ============ Net loss per general and limited partners' unit after priority return $(1,964) $(1,866) $(1,851) $(1,978) ========== ========== ========== ============
Three Months Ended -------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ----------- ----------- ------------- Year ended December 31, 1997: Revenues $41,411 $42,173 $43,235 $49,544 ---------- ---------- ---------- ------------ Operating expenses: Direct operating and programming 13,869 13,912 13,604 15,520 Selling, general and administrative 7,511 7,545 7,976 9,131 Depreciation and amortization 9,939 9,982 10,579 12,837 Management fees to managing affiliate 2,357 2,390 2,261 2,558 ---------- ---------- ---------- ------------ Total 33,676 33,829 34,420 40,046 ---------- ---------- ---------- ------------ Operating income 7,735 8,344 8,815 9,498 ---------- ---------- ---------- ------------ Other income (expense): Interest expense (11,434) (11,538) (12,506) (14,672) Interest expense - affiliates (1,650) (1,650) (1,650) (1,650) Gain on sale of assets -- -- -- 1,522 Other (expense) income (44) 181 252 696 ---------- ---------- ---------- ------------ Total (13,128) (13,007) (13,904) (14,104) ---------- ---------- ---------- ------------ Loss before income taxes (5,393) (4,663) (5,089) (4,606) Income tax benefit (expense) 75 50 -- (176) ---------- ---------- ---------- ------------ Net loss (5,318) (4,613) (5,089) (4,782) Priority return on preferred and senior limited partner interests (18,006) (18,473) (19,284) (20,130) ---------- ---------- ---------- ------------ Net loss of general and limited partners after priority return $(23,324) $(23,086) $(24,373) $(24,912) ========== ========== ========== ============ Net loss per general and limited partners' unit after priority return $(2,332) $(2,309) $(2,437) $(2,492) ========== ========== ========== ============
11. Subsequent Events: On March 2, 1998, Olympus and TMIP entered into a series of agreements to restructure the ownership of TMIP. The restructuring will result in Olympus exchanging its nonconsolidated preferred limited partnership investment in TMIP for 100% ownership of approximately 27,750 subscribers in Palm Beach County, Florida subject to $38,287 in debt and a 75% consolidated general partner interest in TMIP subject to $37,856 in debt. The restructured TMIP will own approximately 40,850 subscribers located principally in Broward County, Florida. Consummation of this transaction is subject to certain closing conditions and regulatory approval. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Executive Officers of the Registrant The directors and executive officers of the Adelphia subsidiary which is the managing general partner of the Company, ACP Holdings, Inc. ("ACP Holdings"), and members of the Operating Committee of the Company ("OC") are: Name Age Position John J. Rigas......................... 73 Chairman and Director of ACP Holdings Michael J. Rigas...................... 44 Executive Vice President and Director of ACP Holdings Timothy J. Rigas...................... 41 Executive Vice President, Treasurer and Director of ACP Holdings and member of OC James P. Rigas........................ 40 Executive Vice President and Director of ACP Holdings Daniel R. Milliard.................... 50 Senior Vice President, Secretary and Director of ACP Holdings James R. Brown........................ 35 Vice President of ACP Holdings Leslie J. Gelber...................... 41 Member of OC John J. Rigas is Chairman of ACP Holdings and is the founder, Chairman, Chief Executive Officer and President of Adelphia. Mr. Rigas has owned and operated cable television systems since 1952. Among his business and community service activities, Mr. Rigas is Chairman of the Board of Directors of Citizens Bank Corp., Inc., Coudersport, Pennsylvania and a member of the Board of Directors of the Charles Cole Memorial Hospital. He is a director of the National Cable Television Association and a member of its Pioneer Association and a past President of the Pennsylvania Cable Television Association. He is also a member of the board of directors of C-SPAN and the Cable Advertising Bureau, and is a Trustee of St. Bonaventure University. He graduated from Rensselaer Polytechnic Institute with a B.S. in Management Engineering in 1950. John J. Rigas is the father of Michael J. Rigas, Timothy J. Rigas and James P. Rigas, each of whom currently serves as a director and executive officer of ACP Holdings. Michael J. Rigas is an Executive Vice President of ACP Holdings, Executive Vice President, Operations of Adelphia and a Vice President of Adelphia's other subsidiaries. He has been with Adelphia since 1981, and with ACP Holdings since its inception in 1989. From 1979 to 1981, he worked for Webster, Chamberlain & Bean, a Washington, D.C. law firm. Mr. Rigas graduated from Harvard University (magna cum laude) in 1976 and received his J.D. degree from Harvard Law School in 1979. Timothy J. Rigas is an Executive Vice President and Treasurer of ACP Holdings, Executive Vice President, Chief Financial Officer and Treasurer of Adelphia, and a Vice President of Adelphia's other subsidiaries. He has been with Adelphia since 1979, and with ACP Holdings since its inception in 1989. Mr. Rigas graduated from the University of Pennsylvania, Wharton School, with a B.S. degree in Economics (cum laude) in 1978. James P. Rigas is an Executive Vice President of ACP Holdings, Executive Vice President, Strategic Planning of Adelphia and a Vice President of Adelphia's other subsidiaries. He has been with Adelphia since 1986, and with ACP Holdings since its inception in 1989. Mr. Rigas graduated from Harvard University (magna cum laude) in 1980 and received a J.D. degree and an M.A. degree in Economics from Stanford University in 1984. From June 1984 to February 1986, he was a consultant with Bain & Co., a management consulting firm. Daniel R. Milliard is Senior Vice President and Secretary of ACP Holdings, President and Secretary of Hyperion, a majority owned subsidiary of Adelphia, and Senior Vice President and Secretary of Adelphia and its subsidiaries. He has been with Adelphia since 1982. He served as outside general counsel to Adelphia's predecessors from 1979 to 1982, and with ACP Holdings since its inception in 1989. Mr. Milliard graduated from American University in 1970 with a B.S. degree in Business Administration. He received an M.A. degree in Business from Central Missouri State University in 1971, where he was an Instructor in the Department of Finance, School of Business and Economics, from 1971-1973, and received a Juris Doctor degree from the University of Tulsa School of Law in 1976. He is a director of Citizens Bank Corp., Inc. in Coudersport, Pennsylvania and is President of the Board of Directors of the Charles Cole Memorial Hospital. James R. Brown is Vice President of ACP Holdings and Vice President of Finance of Adelphia and its other subsidiaries. He has been with Adelphia since 1984. Mr. Brown graduated with a B.S. degree in Industrial and Management Engineering from Rensselaer Polytechnic Institute in 1984. Leslie J. Gelber is a member of the Company's Operating Committee. Additionally, he is Senior Vice President of FPL Energy, Inc., a wholly-owned subsidiary of FPL Group Inc. He served as Chairman of Telesat Cablevision, Inc. from 1991 until its contribution to the Company in 1995. He has been with FPL Group since 1978. Mr. Gelber graduated from Alfred University in New York in 1977 with a B.S. degree in Economics. He received an M.B.A. degree in Business Administration from the University of Miami in 1978. The Partnership Agreement of the Company establishes an Operating Committee which is comprised equally of members designated by ACP Holdings, and FPL Group. The Operating Committee meets quarterly to review the business and operations of the Company. In addition, the Operating Committee reviews and evaluates the historic operating performance of the Company against its budget and the historic operating performance of the System under its management agreements. ITEM 11. EXECUTIVE COMPENSATION Neither the Company nor ACP Holdings has any employment contracts in effect with the executive officers of ACP Holdings, including any compensatory plans or arrangements resulting from the resignation, retirement or other termination of such executive officers of ACP Holdings. Each of the executive officers of ACP Holdings is an executive officer of Adelphia. As executive officers of Adelphia, such individuals are parties to employment contracts with Adelphia and are compensated by Adelphia in accordance with the decisions of the Compensation Committee of the Board of Directors of Adelphia. Pursuant to the Partnership Agreement, the Company pays Adelphia a management fee representing an allocation of the corporate overhead of Adelphia which includes a portion for executive salaries. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ACP Holdings serves as the managing general partner of the Company and holds voting general partnership interests representing 50% of the voting interests of the Company. FPL Group through subsidiaries holds general and limited partnership interests representing the remaining 50% of the voting interests. Adelphia and FPL Group also held through their subsidiaries, as of December 31, 1997, $312.3 million Preferred Limited Partner ("PLP") interests and $156.1 million PLP interests, respectively, which provide for a 16.5% per annum priority return, and $55.2 million and $20.0 million in indebtedness and Senior Limited Partnership ("SLP") interests in the Company, respectively. The address of Adelphia and the Company is Main at Water Street, Coudersport, Pennsylvania 16915. The telephone number for both is 814-274-9830. The address of FPL Group, Cable GP, Inc. and Cable LP III, Inc. is 11760 Highway 1, Suite 600, North Palm Beach, Florida, 33408. The Partnership Agreement The Company is a limited partnership formed under the laws of the state of Delaware. The following summary of certain of the terms of the Second Amended and Restated Limited Partnership Agreement dated as of February 28, 1995, as amended by amendments dated as of September 1, 1995, March 29, 1996 and June 27, 1996 (the "Partnership Agreement") is qualified in its entirety by the Partnership Agreement, copies of which are available upon request therefor from the Company. Terms used in this summary and not otherwise defined shall have the meaning ascribed thereto in the Partnership Agreement. The Company was formed for the general purpose of engaging in the media, telecommunications and communications business including, without limitation, the acquisition of cable television systems and interests engaged therein, the competitive access/alternate access business, electronic security monitoring and any other activity necessary, appropriate, desirable or incidental thereto, subject to obtaining Partner consents, if any, required under the terms of the Partnership Agreement. An objective and the intent of the Company and its Partners, through themselves and through the Company and their respective parent entities and affiliates is to seek, explore, identify and promote areas of potential further joint venturing, cooperation, investment, strategic alliance and enterprise among the Partners with respect to the media, telecommunications and communications business, including without limitation potential areas such as personal communication services, alternate access and other telephone services, and fiber optics applications generally, subject to obtaining Partner consents, if any, required under the terms of the Partnership Agreement. ACP Holdings is the Managing General Partner and a Preferred Limited Partner of the Company. The Partnership Agreement provides that the Managing General Partner shall own at least fifty percent of the aggregate general and limited partnership voting interests ("Units") of the Company. ACP Holdings is also a Preferred Limited Partner of the Company holding non-voting PLP. In the aggregate, ACP Holdings owns 50% of the Units. Cable GP, Inc., which is beneficially owned by FPL Group, is a General Partner of the Company and Cable LP III, Inc., which is also beneficially owned by FPL Group, is a Limited Partner, a non-voting Senior Limited Partner and a Preferred Limited Partner of the Company holding non-voting PLP. In the aggregate, these FPL Group companies own 50% of the Units. The Managing General Partner has the sole right to manage and control the affairs of the Company and its direct affiliates and is authorized and empowered to carry out and implement any and all of the purposes of the Company pursuant to the terms of the Partnership Agreement. The Company pays to Adelphia, on a quarterly basis, an amount representing an allocation of the corporate overhead of Adelphia and its subsidiaries with respect to the Company for such period, which allocation is based generally upon the ratio of the Company's cable subscribers to the total cable subscribers owned or managed by Adelphia. The Company is entitled to receive the benefits (on an average cost basis) of any programming or purchasing agreements available to Adelphia or one of its affiliates if such benefits are permitted to be passed through to the Company. The Company has also agreed not to contract with or enter into any contract with an electric utility without first making such opportunity available to FPL Group and its affiliates. Although the Partnership Agreement does not prohibit the Partners from engaging in or possessing an interest in other business ventures or activities of any nature and description, there are certain limitations on the activities of the Partners, including (i) prior to any Partner or its affiliates acquiring a direct or indirect beneficial ownership interest in a cable system (other than as a passive investor in a cable system of less than one percent of the outstanding equity interests in any publicly traded person) in the state of Florida or in any cable system outside of the state of Florida within 100 miles of any head-end site of the Company, such cable system shall be offered to the Company, (ii) any transaction between the Company and the Managing General Partner or its affiliates must be on terms at least as favorable to the Company as those available to unrelated parties, (iii) certain transactions (as described below) must be approved by a Majority-in-Interest of the Partners and (iv) certain transactions (as described below) must be approved by a Super Majority-in-Interest of the Partners. The following transactions require the approval of a Majority-in-Interest of the Partners (more than 75% of the Units) (i) any amendment to the Partnership Agreement, (ii) election of an additional or substitute Managing General Partner, (iii) dissolution or liquidation, (iv) incorporation, (v) borrowings or refinancings of borrowings in excess of $5,000,000, (vi) the issuance of any PLP or SLP interests, (vii) adoption or amendment of the annual operating budget or capital budget of the Company, subject to certain exceptions, (viii) transactions with Partners or their affiliates not otherwise specifically permitted by the Partnership Agreement, (ix) change or reorganization of the Company into any other legal form of organization, (x) loaning of funds of the Company or acting as a Guarantor except as permitted by the Partnership Agreement, (xi) admission of new partners, (xii) the selection of a new independent certified public accountant and (viii) the acquisition of less than 95 percent of any other company or partnership. The approval of a Super Majority-in-Interest of the Partners (more than 85% of the Units) of the Company is required to approve (i) the filing on behalf of the Company of a petition in bankruptcy or insolvency, (ii) the sale, trade, exchange or other disposition of assets of the Company other than in the ordinary course of business and other than transactions involving less than 5,000 cable subscribers per fiscal year, (iii) the purchase or other acquisition from a third-party owner of any CATV systems or subscribers other than line or plant extensions or other transactions involving less than 5,000 cable subscribers, (iv) any call for additional Capital Contributions beyond that expressly permitted by the Partnership Agreement and (iv) the issuance of any partnership Units in the Company or General Partner, Limited Partner or Managing General Partner Interests. The term of the Company is until December 31, 2019, although, on or after February 28, 2001, FPL Group partners may force a buy-out or sale of their partnership interests to ACP Holdings by delivering a written offer to buy or sell their Units. In addition, under certain circumstances prior to the end of such term, if a disagreement occurs over a Fundamental Issue, at the election of the Managing General Partner, the Partners have certain buy-sell rights regarding their partnership interests in the event that the dispute cannot be resolved. A "Fundamental Issue" under the Partnership Agreement includes any of the following matters for which the Managing General partner has sought required approval from the other Partners of Olympus but such approval has not been granted: material amendments to the Partnership Agreement; annual operating or capital budgets that have been proposed but not approved for at least one year; the election of a substitute or additional Managing General Partner; certain financings; a change to the Partnership's legal form of organization; the admission of a new partner to the Partnership; and significant sales or dispositions of assets. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to the Partnership Agreement, the Company pays to Adelphia, on a quarterly basis, an amount representing an allocation of the corporate overhead of Adelphia and its subsidiaries with respect to the Company for such period, which allocation is based generally upon the ratio of the Company's cable subscribers to the total cable subscribers owned or managed by Adelphia. Amounts of such fees paid for 1997 were $9.6 million. The Company has periodically received funds from and advanced funds to Adelphia and Syracuse Hilton Head Holdings, L.P. and Highland Holdings, partnerships controlled by the Rigas family. The Company was charged $6.6 million of interest on such net payables for 1997. Amounts outstanding to Adelphia and its affiliates were $55.2 million as of December 31, 1997. At December 31, 1997, the Company has interest rate swaps with Adelphia for a notional amount of $140.0 million for receive fixed swaps. These swaps expire at various dates in 1998. The net effect of these interest rate swaps was to decrease interest expense by $2.3 million in 1997. On March 29, 1996 Telesat Acquisition Limited Partnership ("Telesat"), a subsidiary of Olympus, and Global Acquisition Partners, L.P., a subsidiary of Adelphia, were added as co-borrowers to a $200 million credit facility of Highland Video Associates, L.P. ("Highland Video"), a partnership controlled by the Rigas family. Telesat is permitted to borrow up to $39.5 million of the available credit, none of which was included in subsidiary debt at December 31, 1997. The Company pledged its partnership interests in Telesat in favor of the banks at the time Telesat was added as a co-borrower. Olympus completed the acquisition of all of the partnership interests of National Cable Acquisition Associates, L.P. ("National") from Hilton Head Communications, L.P., an entity controlled by the family of John Rigas, for a purchase price of approximately $118.0 million. National provides cable service to approximately 57,000 subscribers in Palm Beach County, Florida and also owns limited partnership interests in Tele-Media Investment Partnership, L.P. The acquisition was accounted for under the purchase method of accounting and National's operations were consolidated with Olympus for financial reporting purposes effective as of October 1, 1997. The purchase price was paid through the assumption of liabilities. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Financial Statements, schedules and exhibits not listed have been omitted where the required information is included in the consolidated financial statements or notes thereto, or is not applicable or required. (a)(1) A listing of the consolidated financial statements, notes and independent auditors' report required by Item 8 are listed on page 33 of this Annual Report on Form 10-K. (2) Financial Statement Schedules: The following are included in this Report: Schedule I -- Condensed Financial Information of the Registrant Schedule II -- Valuation and Qualifying Accounts (3)Exhibits Exhibit No. Description - ----------- 3.1 Certificate of Limited Partnership of Olympus Communications, L.P., together with all amendments thereto. (Incorporated herein by reference is Exhibit 99.03 to Adelphia Communications Corporation's Current Report on Form 8-K dated December 16, 1996.) (File Number 0-16014) 3.2 Certificate of Incorporation of Olympus Capital Corporation (Incorporated herein by reference is Exhibit 99.01 to Adelphia Communications Corporation's Current Report on Form 8-K dated December 16, 1996). (File Number 0-16014) 3.3 Bylaws of Olympus Capital Corporation (Incorporated herein by reference is Exhibit 99.02 to Adelphia Communications Corporation's Current Report on Form 8-K dated December 16, 1996). (File Number 0-16014) 3.4 Olympus Communications, L.P. Second Amended and Restated Limited Partnership Agreement, dated as of February 28, 1995. (Incorporated herein by reference is Exhibit 10.32 of the Adelphia Communications Corporation's Annual Report on Form 8-K for the fiscal year ended March 31, 1995.) (File Number 0-16014) 3.5 First Amendment to the Olympus Communications, L.P. Second Amended and Restated Limited Partnership Agreement, dated September 1, 1995 (Incorporated herein by reference is Exhibit 10.33 to Adelphia Communications Corporation's Annual Report on Form 10-K/A for the fiscal year ended March 31, 1996.) (File Number 0-16014) 3.6 First Amendment to the Olympus Communications, L.P. Second Amended and Restated Limited Partnership Agreement, dated March 29, 1996 (Incorporated herein by reference is Exhibit 10.34 to Adelphia Communications Corporation's Annual Report on Form 10-K/A for the fiscal year ended March 31, 1996.) (File Number 0-16014) Exhibit No. Description - -------------- 3.7 Second Amendment to the Olympus Communications, L.P. Second Amended and Restated Limited Partnership Agreement, dated June 27, 1996 (Incorporated herein by reference is Exhibit 10.35 to Adelphia Communications Corporation's Annual Report on Form 10-K/A for the fiscal year ended March 31, 1996.) (File Number 0-16014) 4.1 Indenture, dated as of November 12, 1996, between the Registrants and Bank of Montreal Trust Company (Incorporated herein by reference is Exhibit 10.02 to Adelphia Communications Corporation's Current Report on Form 8-K dated December 16, 1996). (File Number 0-16014) 4.2 Form of Note (contained in Indenture filed as Exhibit 4.1). 10.1 Purchase Agreement Dated as of November 6, 1996 between the Registrants and Goldman, Sachs & Co. (the "Purchasers") (Incorporated herein by reference is Exhibit 10.01 to Adelphia Communications Corporation's Current Report on Form 8-K dated December 16, 1996). (File Number 0-16014) 10.2 Revolving Credit Facility among Adelphia Cable Partners, L.P., Southeast Florida Cable, Inc., West Boca Acquisition Limited Partnership and Toronto-Dominion (Texas), Inc., as Administrative Agent, dated May 12, 1995. (Incorporated herein by reference is exhibit 10.03 to Adelphia Communications Corporation's Current Report on Form 8-K dated June 30, 1995). (File Number 0-16014) 10.3 Amended Credit Agreement, dated as of March 29, 1996, among Highland Video Associates L.P., Telesat Acquisition Limited Partnership, Global Acquisition Partners, L.P., the various financial institutions as parties thereto, Bank of Montreal as syndication agent, Chemical Bank as documentation agent, and the Bank of Nova Scotia as administrative agent. (Incorporated herein by reference is Exhibit 10.37 to Adelphia Communications Corporation's Current Report on Form 8-K dated June 19, 1996). (File Number 0-16014) 10.4 Term Note for $70,000,000 dated January 4, 1996 from Leadership Acquisition Limited Partnership payable to Fairbanks Communications, Inc. due on December 30, 1997 (Incorporated herein by reference is Exhibit 10.05 to Adelphia Communications Corporation's Current Report on Form 8-K dated December 16, 1996). (File Number 0-16014) 10.5 Agreement of Guaranty and Suretyship, dated January 4, 1996, by Olympus Communications, L.P. regarding the Term Note contained in Exhibit 10.06 herein (Incorporated herein by reference is Exhibit 10.6 to Adelphia Communications Corporation's Current Report on Form 8-K dated December 16, 1996). (File Number 0-16014) Exhibit No. Description - ------------- 10.6 Form of Management Fee Subordination Agreement (contained as Annex A in Indenture filed as Exhibit 4.1 herein). 10.7 Asset Purchase Agreement dated as of June 8, 1995 between Olympus Communications, L.P., a Delaware limited partnership, Fairbanks Communications, Inc., an Indiana corporation, and Leadership Security Services, Inc., a Florida corporation. (Incorporated herein by reference is Exhibit 10.01 to Adelphia Communications Corporation's Current Report on Form 8-K dated January 3, 1997) (File Number 0-16014) 10.8* Purchase and Sale Agreement dated December 23, 1997 by and among NCAA Holdings, Inc. and Hilton Head Communications, L.P. and Olympus Communications, L.P. and Olympus Communications Holdings, LLC (Filed herewith) 10.9 Registration Rights Agreement dated as of November 12, 1996, between the Registrants and the Purchasers (Incorporated herein by reference is Exhibit 10.04 to Adelphia Communications Corporation's Current Report on Form 8-K dated December 16, 1996). (File Number 0-16014) 21.1* Subsidiaries of the Registrant. 27.1* Financial Data Schedule. *Filed herewith.
SCHEDULE I (Page 1 of 4) OLYMPUS COMMUNICATIONS, L.P. Condensed Information as to the Financial Position of the Registrant (Dollars in thousands) December 31, ----------------------------- 1996 1997 -------------- ------------- ASSETS: Investment in cable television subsidiaries $260,628 $266,933 Other assets - net 5,782 5,505 ------------ ------------ Total $266,410 $272,438 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY): 10 5/8% Senior Notes due 2006 $200,000 $200,000 Other debt 62,007 45,000 Unsecured notes and payables to cable television subsidiaries and affiliates, net 51,926 103,626 Accrued priority return on PLP interests 20,476 22,241 Accrued interest and other liabilities 16,200 13,788 ------------ ------------ Total liabilities 350,609 384,655 Total partners' equity (deficiency) - [see consolidated financial statements included herein for details] (84,199) (112,217) ------------ ------------ Total $266,410 $272,438 ============ ============ See notes to condensed financial information of the Registrant.
SCHEDULE I (Page 2 of 4) OLYMPUS COMMUNICATIONS, L.P. Condensed Information as to the Operations of the Registrant (Dollars in thousands) Year Ended December 31, ---------------------------------------- 1995 1996 1997 ------------ ------------ ------------ INCOME: Income from subsidiaries and affiliates $3,512 $7,613 $5,451 ----------- ----------- ----------- EXPENSES: Operating expenses and fees to subsidiaries 69 166 225 Amortization 123 91 660 Interest expense -- 2,892 25,414 Interest expense to subsidiaries and affiliates 12,287 11,660 13,522 Management fees to Managing Affiliate 6,334 8,839 9,566 ----------- ----------- ----------- Total 18,813 23,648 49,387 ----------- ----------- ----------- Loss before equity in net loss of subsidiaries and extraordinary loss (15,301) (16,035) (43,936) Equity in net (loss) income of subsidiaries (2,981) 5,085 24,134 ----------- ----------- ----------- Loss before extraordinary loss (18,282) (10,950) (19,802) Extraordinary loss on early retirement of debt (1,109) -- -- ----------- ----------- ----------- Net loss $(19,391) $(10,950) $(19,802) =========== =========== =========== See notes to condensed financial information of the Registrant.
SCHEDULE I (Page 3 of 4) OLYMPUS COMMUNICATIONS, L.P. Condensed Information as to the Cash flows of the Registrant (Dollars in thousands) Year Ended December 31, --------------------------------------- 1995 1996 1997 ------------ ------------ ------------ Cash flows from operating activities: Net loss $(19,391) $(10,950) $(19,802) Adjustments to reconcile net loss to net cash used for operating activities: Equity in net loss (income) of subsidiaries 2,981 (5,085) (24,134) Extraordinary loss on debt retirement 1,109 -- -- Amortization 123 91 660 Accretion of non-interest bearing note -- -- 7,993 Change in operating assets and liabilities, net of effects of acquisitions: Other assets (996) 624 (385) Accrued interest and other liabilities 994 15,153 (2,412) ----------- ----------- ----------- Net cash used for operating activities (15,180) (167) (38,080) ----------- ----------- ----------- Cash flows from investing activities: Investment in subsidiary (20,997) (160,000) (5,020) Advances from subsidiaries and related parties 36,218 17,091 51,700 ----------- ----------- ----------- Net cash provided by (used for) investing activities 15,221 (142,909) 46,680 ----------- ----------- ----------- Cash flows from financing activities: Capital distribution -- (54,672) -- Payments of priority returns (37,341) (64,438) (74,129) Proceeds from debt -- 200,000 -- Repayments of debt -- -- (25,000) Costs associated with debt financing -- (5,350) -- Issuance of preferred limited partner interests 39,125 65,711 80,729 Capital contributions -- -- 9,800 ----------- ----------- ----------- Net cash provided by (used for) financing activities 1,784 141,251 (8,600) ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents 1,825 (1,825) -- Cash and cash equivalents, beginning of year -- 1,825 -- ----------- ----------- ----------- Cash and cash equivalents, end of year $1,825 $ -- $ -- =========== =========== =========== Supplemental disclosure of cash flow activity - Cash payments for interest $12,287 $11,660 $31,080 =========== =========== =========== See notes to condensed financial information of the Registrant.
SCHEDULE I (Page 4 of 4) OLYMPUS COMMUNICATIONS, L.P. Notes to Condensed Financial Information of the Registrant (Dollars in thousands) 1. Notes Payable to Subsidiaries and Affiliates: Olympus Communications, L.P. ("Olympus") has periodically received funds from and advanced funds to subsidiaries and affiliates. These affiliate balances, some of which eliminate upon preparation of consolidated financial statement, totaled $51,926 and $103,626 at December 31, 1996 and 1997, respectively. Olympus paid $12,287, $11,660 and $13,522 of interest expense on certain of these net payables to subsidiaries and affiliates during 1995, 1996 and 1997, respectively. Interest was charged at rates ranging from 5.7% to 16.5%.
SCHEDULE II OLYMPUS COMMUNICATIONS, L.P. VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance Charged at to Costs Balance Beginning and Deductions- at End of Period Expenses Write-Offs of Period ----------- ----------- ----------- ----------- Year Ended December 31, 1995 Allowance for Doubtful Accounts $1,660 $2,930 $4,179 $411 ========== ========== ========== ========== Year Ended December 31, 1996 Allowance for Doubtful Accounts $411 $3,775 $3,574 $612 ========== ========== ========== ========== Year Ended December 31, 1997 Allowance for Doubtful Accounts $612 $3,836 $3,826 $622 ========== ========== ========== ==========
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. OLYMPUS COMMUNICATIONS, L.P. By: ACP HOLDINGS, INC Managing General Partner March 31, 1998 By: /s/ Timothy J. Rigas Timothy J. Rigas, Executive Vice President, Treasurer, Principal Accounting Officer and Principal Financial Officer of ACP Holdings, Inc. OLYMPUS CAPITAL CORPORATION March 31, 1998 By: /s/ Timothy J. Rigas Timothy J. Rigas, Executive Vice President, Treasurer, Principal Accounting Officer and Principal Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on the dates indicated. March 31, 1998 /s/ John J. Rigas John J. Rigas, Chairman and Director of ACP Holdings, Inc. and President and Director of Olympus Capital Corporation March 31, 1998 /s/ Timothy J. Rigas Timothy J. Rigas, Executive Vice President, Treasurer, Principal Financial Officer, Director and Principal Accounting Officer of ACP Holdings, Inc.and Olympus Capital Corporation March 31, 1998 /s/ Michael J. Rigas Michael J. Rigas, Executive Vice President and Director of ACP Holdings, Inc.and Olympus Capital Corporation March 31, 1998 /s/ James P. Rigas James P. Rigas, Executive Vice President, and Director of ACP Holdings, Inc. and Olympus Capital Corporation March 31, 1998 /s/ Daniel R. Milliard Daniel R. Milliard, Senior Vice President and Director of ACP Holdings, Inc. and Senior Vice President and Secretary of Olympus Capital Corporation EX-21.01 2 EXHIBIT 21.1 List of Subsidiaries of Olympus Communications L.P.1 OLYMPUS COMMUNICATIONS, L.P. (a Delaware limited partnership) ADELPHIA CABLE PARTNERS, L.P. (99.98% general partnership interest) (a Delaware limited partnership) Key Biscayne Cablevision (50% general partnership interest) (a Pennsylvania general partnership) Southeast Florida Cable, Inc. (a Florida corporation) Palm Beach Group Cable Inc. (a Florida corporation) Palm Beach Group Cable Joint Venture (50% general partnership interest)(a Florida general partnership) South Florida Cable Advertising (14.28571% general partnership interest) (a Florida general partnership) Timotheos Communications, L.P. (a Delaware limited partnership)2 OLYMPUS CAPITAL CORPORATION (a Delaware corporation) LEADERSHIP ACQUISITION LIMITED PARTNERSHIP (100% general and limited partnership interests held by Olympus and its wholly-owned subsidiaries) (a Delaware limited partnership) NATIONAL CABLE ACQUISITION ASSOCIATES, L.P. (100% general and limited partnership interests held by Olympus and its wholly-owned subsidiaries) (a Delaware limited partnership) TELESAT ACQUISITION LIMITED PARTNERSHIP (100% general and limited partnership interests held by Olympus and its wholly-owned subsidiaries) (a Delaware limited partnership) WEST BOCA ACQUISITION LIMITED PARTNERSHIP (100% general and limited partnership interests held by Olympus and its wholly-owned subsidiaries) (a Delaware limited partnership) Starpoint, Limited Partnership (50.36% limited partnership interest) (a Pennsylvania limited partnership) Cable Sentry Corporation (a Florida corporation) Automatic Alarms Company, Inc. (a Florida corporation) West Boca Security, Inc. (a Delaware corporation) - -------- 1 Ownership of subsidiaries is indicated by indentations. Ownership of each subsidiary is 100% unless otherwise indicated parenthetically or by footnote. 2 Adelphia Cable Partners, L.P. and Olympus Communications, L.P. own 99.9% and .1%, respectively, of the partnership interests of Timotheos Communications, L.P. (a Delaware limited partnership). EX-27 3
5 Financial Data Schedule for Olympus Communications L.P. for the twelve months ended December 31, 1997. Information is only included for Olympus Communications (a registrant) and does not include information for Olympus Capital Corp., which has no operations. 0000861255 OLYMPUS COMMUNICATIONS LP 1,000 12-MOS DEC-31-1997 DEC-31-1997 3,554 0 12,577 0 0 0 265,783 0 728,952 0 673,804 0 0 0 (112,217) 728,952 0 176,363 0 141,971 0 0 50,150 (19,751) (51) (19,802) 0 0 0 (19,802) 0 0 Receivables net of Allowance PP&E net of Depreciation
EX-10.8 4 Exhibit 10.8 PURCHASE AND SALE AGREEMENT by and among NCAA HOLDINGS, INC. and HILTON HEAD COMMUNICATIONS, L.P. and OLYMPUS COMMUNICATIONS, L.P. and OLYMPUS COMMUNICATIONS HOLDINGS, L.L.C.
TABLE OF CONTENTS Page ARTICLE I PURCHASE AND SALE OF PARTNERSHIP INTERESTS.............................................................2 1.1 Transfer and Sale of National General Partnership Interest.......................................2 1.2 Transfer and Sale of National Limited Partnership Interest.......................................2 1.3 Transfer of TMIP Limited Partnership Interest....................................................2 ARTICLE II PURCHASE PRICE; CLOSING DATE..........................................................................3 2.1 Purchase Price...................................................................................3 2.2 Allocation of Purchase Price; Section 754 Election; Other Tax Matters............................3 2.3 Adjustment to Purchase Price.....................................................................3 2.4 Expenses.........................................................................................4 2.5 Closing; Date and Location.......................................................................4 ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................................................5 3.1 Organization.....................................................................................5 3.2 Authorization of Agreement.......................................................................5 3.3 Title to National General Partnership Interest...................................................5 3.4 Litigation.......................................................................................6 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HHC.................................................................6 4.1 Organization.....................................................................................6 4.2 Authorization of Agreement.......................................................................6 4.3 Title to National Limited Partnership Interest...................................................7 4.4 Litigation.......................................................................................7 ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS..............................................................7 5.1 Financial Statements.............................................................................7 5.2 Franchises.......................................................................................8 5.3 Compliance with Laws.............................................................................9 5.4 Subscribers......................................................................................9 5.5 Taxes............................................................................................9 5.6 No Adverse Change...............................................................................10 5.7 Compliance with FCC and Other Requirements......................................................10 5.8 Non-Infringement................................................................................12 5.9 Accounts Receivable.............................................................................12 5.10 Litigation.....................................................................................12 5.11 Insurance......................................................................................12 5.12 Partnership Assets.............................................................................13 5.13 Employee Benefits..............................................................................13 5.14 Accuracy of Information........................................................................15 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF OLYMPUS............................................................15 6.1 Organization....................................................................................15 6.2 Authorization of Agreement......................................................................16 6.3 Litigation......................................................................................16 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF OLYMPUS HOLDINGS..................................................16 7.1 Organization....................................................................................16 7.2 Authorization of Agreement......................................................................17 7.3 Litigation......................................................................................17 ARTICLE VIII CONDUCT OF BUSINESS PENDING CLOSING; HSR ACT FILING................................................17 8.1 Maintenance of Business.........................................................................17 8.2 Consummation of Agreement.......................................................................17 8.3 HSR Act Filing..................................................................................18 ARTICLE IX CONDITIONS TO CLOSING - BUYERS.......................................................................18 9.1 Conditions to Obligations of Buyers.............................................................18 ARTICLE X CONDITIONS TO CLOSING - SELLERS.......................................................................19 10.1 Conditions to Obligations of Sellers...........................................................19 ARTICLE XI CLOSING 20 11.1 Actions to be taken by Sellers at Closing......................................................20 11.2 Actions to be taken by Buyers at Closing.......................................................20 ARTICLE XII INDEMNIFICATION.....................................................................................20 12.1 Survival of Representations and Warranties.....................................................20 12.2 Indemnification................................................................................20 12.3 Indemnification with Respect to Third-Party Claims.............................................21 ARTICLE XIII TERMINATION........................................................................................24 13.1 Termination by Mutual Agreement................................................................24 13.2 Buyers' Default................................................................................25 13.3 Sellers' Default...............................................................................25 13.4 Termination by Buyer or Seller.................................................................25 ARTICLE XIV NOTICE 25 14.1 Addresses for Notice...........................................................................25 14.2 Effectiveness of Notice........................................................................27 ARTICLE XV LAWS GOVERNING;VENUE.................................................................................27 ARTICLE XVI MISCELLANEOUS........................................................................................27 16.1 Counterparts...................................................................................27 16.2 Assignment.....................................................................................28 16.3 Entire Agreement...............................................................................28 16.4 Captions.......................................................................................28 16.5 Expenses.......................................................................................28 16.6 Confidentiality................................................................................28 16.7 Further Assurances.............................................................................28 16.8 No Waiver......................................................................................29 16.9 Severability...................................................................................29 16.10 Binding Effect................................................................................29 16.11 WAIVER OF JURY TRIAL..........................................................................29
PURCHASE AND SALE AGREEMENT THIS AGREEMENT is made this 23rd day of December, 1997, by and among NCAA Holdings, Inc., a Delaware corporation ("NCAA"), Hilton Head Communications, L.P., a Delaware limited partnership ("HHC") (NCAA and HHC are sometimes hereinafter referred to as the "Sellers"), Olympus Communications, L.P., a Delaware limited partnership ("Olympus"), and Olympus Communications Holdings, L.L.C., a Delaware limited liability company ("Olympus Holdings") (Olympus and Olympus Holdings are sometimes hereinafter referred to as the "Buyers"). WITNESSETH: WHEREAS, NCAA owns a one percent (1%) general partnership interest (the "National General Partnership Interest") in National Cable Acquisition Associates, L.P., a Delaware limited partnership (the "Partnership); and WHEREAS, HHC owns a ninety-nine percent (99%) limited partnership interest (the "National Limited Partnership Interest") in the Partnership (the National General Partnership Interest and the National Limited Partnership Interest sometimes are referred to herein collectively as the "Partnership Interests"); and WHEREAS, subject to the terms and conditions of this Agreement, NCAA desires to sell, and Olympus desires to purchase, the National General Partnership Interest; and WHEREAS, subject to the terms and conditions of this Agreement, HHC desires to sell the National Limited Partnership Interest, and Olympus and Olympus Holdings each desire to purchase that portion of the National Limited Partnership Interest such that immediately following the Closing (as defined below) Olympus will have a ninety-eight and nine tenths percent (98.9%) limited partnership interest in the Partnership (a "98.9% National Limited Partnership Interest") and Olympus Holdings will have a one tenth percent (.1%) limited partnership interest in the Partnership (a ".1% National Limited Partnership Interest"); and WHEREAS, HHC owns a limited partnership interest (the "TMIP Limited Partnership Interest") in Tele-Media Investment Partnership, L.P., a Delaware limited partnership ("TMIP"); and WHEREAS, on or prior to the Closing Date (as defined in Section 2.5), HHC will assign and transfer to the Partnership the TMIP Limited Partnership Interest. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I PURCHASE AND SALE OF PARTNERSHIP INTERESTS 1.1 Transfer and Sale of National General Partnership Interest. On the Closing Date, NCAA shall sell, assign and transfer to Olympus, and Olympus shall purchase and acquire from NCAA, all of the National General Partnership Interest, (including, without limitation, all of its rights, title and interests as a general partner in the Partnership and all of its rights, title and interests in and to the net profits and net losses of the Partnership, its capital account in the Partnership, all rights to fees and reimbursement of expenses and all distributions of cash or other property that may be made by the Partnership, all with respect thereto) free and clear of any and all liens, encumbrances, pledges, options, charges or restrictions of any nature except for Permitted Liens (as defined in Section 3.3). 1.2 Transfer and Sale of National Limited Partnership Interest. On the Closing Date, HHC shall sell, assign and transfer to: (a) Olympus, and Olympus shall purchase and acquire, free and clear of any and all liens, encumbrances, pledges, options, charges or restrictions of any nature except for Permitted Liens, that portion of the National Limited Partnership Interest (including, without limitation, all of its rights, title and interests as a limited partner in the Partnership and all of its rights, title and interests in and to the net profits and net losses of the Partnership, its capital account in the Partnership, all rights to fees and reimbursement of expenses and all distributions of cash or other property that may be made by the Partnership, all with respect thereto) necessary so that immediately following the Closing Olympus will have a 98.9% National Limited Partnership Interest; and (b) Olympus Holdings, and Olympus Holdings shall purchase and acquire, free and clear of any and all liens, encumbrances, pledges, options, charges or restrictions of any nature except for Permitted Liens, that portion of the National Limited Partnership Interest (including, without limitation, all of its rights, title and interests as a limited partner in the Partnership and all of its rights, title and interests in and to the net profits and net losses of the Partnership, its capital account in the Partnership, all rights to fees and reimbursement of expenses and all distributions of cash or other property that may be made by the Partnership, all with respect thereto) necessary so that immediately following the Closing Olympus Holdings will have a .1% National Limited Partnership Interest. 1.3 Transfer of TMIP Limited Partnership Interest. On or before the Closing Date, HHC shall assign and transfer to the Partnership the TMIP Limited Partnership Interest (including, without limitation, all of its rights, title and interests as a limited partner in TMIP and all of its rights, title and interests in and to the net profits and net losses of TMIP, its capital account in TMIP, all rights to fees and reimbursement of expenses and all distributions of cash or other property that may be made by TMIP, all with respect thereto), free and clear of any and all liens, encumbrances, pledges, options, charges or restrictions of any nature except for Permitted Liens. ARTICLE II PURCHASE PRICE; CLOSING DATE 2.1 Purchase Price. At the Closing, in consideration of the sale of the Partnership Interests,Buyers shall pay to Sellers One Hundred Eighteen Million Dollars ($118,000,000.00) (the "Purchase Price"), subject to adjustment as provided in Section 2.3 below. The amount of the Purchase Price to be paid at the Closing by each of Olympus and Olympus Holdings shall be determined by the mutual agreement of Olympus and Olympus Holdings. 2.2 Allocation of Purchase Price; Section 754 Election; Other Tax Matters. (a) The Purchase Price shall be allocated among the Partnership's assets in the manner mutually agreed to by all of the parties on the Closing Date and shall be set forth on Schedule 2.2. The allocation of the Purchase Price among the Partnership's assets agreed to by the parties shall be used for all purposes by the parties. The Sellers shall cause the Partnership to file on a timely basis elections under Section 754 of the Internal Revenue Code of 1986, as amended (the "Code"), on the federal income tax returns of the Partnership for the taxable year of the Partnership ending on the Closing Date and, to the extent necessary, comparable elections on the state income tax returns of the Partnership, copies of all such returns and any extensions of time to file such returns shall be provided to the Buyers upon the filing of such returns and extensions. The provisions of this Section shall survive the consummation of the transactions contemplated by this Agreement. (b) For all taxable periods of the Partnership that end on or before the Closing Date, the Sellers shall cause to be prepared and filed with all applicable authorities all Tax returns, reports and forms required to be filed. 2.3 Adjustment to Purchase Price. The Purchase Price shall be: (i) decreased by an amount equal to the Net Liability Adjustment (as hereinafter defined) to the extent such Net Liability Adjustment is a negative amount as of October 1, 1997 or (ii) increased by an amount equal to the Net Liability Adjustment to the extent such Net Liability Adjustment is a positive amount as of October 1, 1997. For purposes hereof, the Net Liability Adjustment shall be the number obtained by subtracting (x) the sum of all liabilities of the Partnership (as defined and determined in accordance with generally accepted accounting principles ("GAAP")) on October 1, 1997, from (y) the sum of the current assets of the Partnership (as defined and determined in accordance with GAAP) on October 1, 1997. The Net Liability Adjustment shall be determined on the Closing Date by the mutual agreement of the parties and shall be in accordance with GAAP. In the event the parties do not mutually agree upon the Net Liability Adjustment on the Closing Date, on or before 60 days after the Closing Date, Sellers shall deliver to Buyers a final calculation of the Net Liability Adjustment (the "Final Calculation"), together with such supporting documentation as Buyers may reasonably request. Should Buyers dispute Sellers' Final Calculation, Buyers shall promptly, but in no event later than 45 days after receipt of the Final Calculation (the "Grace Period"), deliver to Sellers written notice describing in reasonable detail the dispute, together with Buyers' determination as to the Final Calculation in reasonable detail. If the dispute is not resolved by the parties within 20 days from the date of receipt by Sellers of written notice from Buyers, the parties agree to engage promptly the Pittsburgh, Pennsylvania office of Price Waterhouse or, if unavailable, another "big five" accounting firm mutually acceptable to Sellers and Buyers (the "Independent Accountant") to resolve the dispute within 30 days after such engagement. The Independent Accountant's determination shall be final and binding on the parties. All fees and costs of the Independent Accountant shall be borne equally by Buyers and Sellers. Buyers shall not dispute Sellers' Final Calculation unless Sellers' computation of the Final Calculation differs from Buyers' computation by more than $1,000.00. If Buyers fail to notify Seller prior to the expiration of the Grace Period that it disputes Sellers' Final Calculation, Sellers' Final Calculation shall be deemed to be accepted by Buyers and shall be final and binding on the parties. 2.4 Expenses. Any transfer, documentary, sales, use, registration, and other such Taxes (as defined below) and related penalties, interest or additions thereto, and recording or filing fees imposed upon the sale, assignment and delivery of the Partnership Interests and the other transactions contemplated hereby shall be paid by the Sellers. 2.5 Closing; Date and Location. The consummation of the transfer of the Partnership Interests to Buyers and the receipt of the consideration therefor by Sellers shall constitute the "Closing." Unless otherwise mutually agreed to by the parties, the Closing shall take place at 10:00 a.m., local time, at the offices of Buchanan Ingersoll Professional Corporation, 301 Grant Street, 20th Floor, Pittsburgh, PA 15219. The parties agree to close the transactions contemplated by this Agreement within five (5) days after all of the conditions to Closing have been satisfied or waived, whichever shall later occur, which specified date and time shall constitute the "Closing Date." The effective date of the sale of the Partnership Interests shall be October 1, 1997. Notwithstanding the foregoing, this Agreement may be terminated pursuant to Section 13.4 hereof if the Closing has not occurred by September 30, 1998. ARTICLE III REPRESENTATIONS AND WARRANTIES OF NCAA NCAA REPRESENTS AND WARRANTS TO BUYERS THAT THE FOLLOWING STATEMENTS AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS FOLLOWS: 3.1 Organization. NCAA is a corporation, duly organized and validly existing under the laws of the State of Delaware with full power and authority to engage in its business and operations, to enter into this Agreement and perform the terms of this Agreement. NCAA is duly qualified to conduct business and is in good standing in those jurisdictions where the conduct of its business or the nature of its assets makes such qualification necessary. 3.2 Authorization of Agreement. The Board of Directors of NCAA has taken all necessary corporate action to authorize and approve as to NCAA individually and as a general partner of HHC this Agreement, the consummation of the transactions contemplated hereby and the performance by NCAA of all of the terms and conditions hereof on its part to be performed. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment and compliance with the terms and conditions hereof do not and will not: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to NCAA; (b) conflict with, result in a breach of or constitute a default under the Certificate of Incorporation or By-laws of NCAA or any other agreement or instrument to which NCAA is a party or by which NCAA is bound; (c) create or impose any lien, charge, encumbrance, or restriction upon the National General Partnership Interest in contravention of any agreement or instrument to which NCAA is a party or by which NCAA is bound; or (d) create a right in any person to accelerate payment of the principal of any indebtedness due from NCAA nor increase the amount of any interest over that theretofore payable in respect thereof. This Agreement has been duly authorized, executed and delivered by NCAA and constitutes a legal, valid and binding obligation of NCAA. All of the approvals and consents required for NCAA to consummate the transactions contemplated hereby have been obtained. 3.3 Title to National General Partnership Interest. NCAA has good and valid title to the National General Partnership Interest, and NCAA has full power, authority and right to transfer the National General Partnership Interest free and clear of any and all liens, charges, pledges, options, encumbrances or restrictions of any nature except for liens, charges, pledges, encumbrances and restrictions under (a) that certain Credit Agreement dated December 27, 1994, among HHC as borrower, the Lenders from time to time parties thereto, Canadian Imperial Bank of Commerce, acting through its New York agency ("CIBC-NYA") and The Toronto-Dominion Bank ("TD") as Managing Agents, CIBC-NYA, as Documentation Agent, TD, as Syndication Agent, First Union National Bank of North Carolina and Societe Generale, as Agents, Credit Lyonnais, as Co-Agent and CIBC-NYA, as Administrative Agent (as the same may be hereafter supplemented, replaced, modified or amended from time to time) and (b) the Limited Partnership Agreement of the Partnership (collectively, "Permitted Liens"). 3.4 Litigation. There is no litigation, at law or in equity, nor any proceedings before any commission or other governmental authority, pending, or to the best of NCAA's knowledge, threatened against NCAA which would prevent or restrict NCAA's right or ability to consummate the transfer of the National General Partnership Interest as contemplated herein. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HHC HHC REPRESENTS AND WARRANTS TO BUYERS THAT THE FOLLOWING STATEMENTS AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS FOLLOWS: 4.1 Organization. HHC is a limited partnership duly formed and validly existing under the laws of the State of Delaware with full power and authority to engage in its business and operations, to enter into this Agreement and perform the terms of this Agreement. NCAA is the sole general partner of HHC. HHC is duly qualified to conduct business and is in good standing in those jurisdictions where the conduct of its business or the nature of its assets makes such qualification necessary. 4.2 Authorization of Agreement. HHC has taken all necessary partnership action to authorize and approve this Agreement, the consummation of the transactions contemplated hereby and the performance by HHC of all of the terms and conditions hereof on its part to be performed. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment and compliance with the terms and conditions hereof do not and will not: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to HHC; (b) conflict with, result in a breach of or constitute a default under the Limited Partnership Agreement of HHC or any other agreement or instrument to which HHC is a party or by which HHC is bound; (c) create or impose any lien, charge, encumbrance, or restriction upon the National Limited Partnership Interest in contravention of any agreement or instrument to which HHC is a party or by which HHC is bound; or (d) create a right in any person to accelerate payment of the principal of any indebtedness due from HHC nor increase the amount of any interest over that theretofore payable in respect thereto. This Agreement has been duly authorized, executed and delivered by HHC and constitutes a legal, valid and binding obligation of HHC. All of the approvals and consents required for HHC to consummate the transactions contemplated hereby have been obtained. 4.3 Title to National Limited Partnership Interest. HHC has good and valid title to the National Limited Partnership Interest, and HHC has full power, authority and right to transfer the National Limited Partnership Interest free and clear of any and all liens, charges, pledges, options, encumbrances or restrictions of any nature except for Permitted Liens. 4.4 Litigation. There is no litigation, at law or in equity, nor any proceedings before any commission or other governmental authority, pending, or to the best of HHC's knowledge, threatened against HHC which would prevent or restrict HHC's right or ability to consummate the transfer of the National Limited Partnership Interest as contemplated herein. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLERS SELLERS JOINTLY AND SEVERALLY REPRESENT AND WARRANT TO BUYERS THAT THE FOLLOWING STATEMENTS AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS FOLLOWS: 5.1 Financial Statements. True, complete and correct copies of the unaudited balance sheet of the Partnership as of December 31, 1996, and the related statement of income for the fiscal year ended December 31, 1996, and the unaudited balance sheet of the Partnership as at September 30, 1997, and the related statement of income for the nine month period ended September 30, 1997, certified by the Partnership's Chief Financial Officer are attached as Schedule 5.1. Such financial statements accurately reflect the income, expenses, liabilities, equity and assets of the Partnership at the date thereof. The above-referenced financial statements, including the notes thereto, if any: (a) are in accordance with the respective books and records of the Partnership; (b) are true and correct and, subject to normal year-end adjustments, present fairly the financial condition of the Partnership as of the date of such financial statements and its results of operations for the periods then ended; and (c) except as indicated in the notes to such financial statements, have been prepared in accordance with GAAP, consistently applied with prior periods, and can be reconciled with the financial records maintained, and the accounting methods applied, by the Partnership for Tax (as defined below) purposes. Except as provided in such financial statements, or as fully disclosed in Schedule 5.1, the Partnership has no liabilities or obligations (whether accrued, absolute, contingent, whether due or to become due or otherwise) which might be or become a charge against the assets of the Partnership, including any "loss contingencies" considered "probable" or "reasonably possible" within the meaning of the Financial Accounting Standard Board's Statement of Financial Accounting Standards No. 5, except trade payables and similar liabilities and obligations incurred in the ordinary and regular course of business since the date of such financial statements. 5.2 Franchises. (a) Listed and identified on Schedule 5.2 attached hereto are all of the existing governmental authorizations for construction, maintenance and operation of the CATV systems of the Partnership (individually, a "Franchise" and collectively, the "Franchises") presently held by the Partnership and the political entity or authority which has granted each Franchise. All governmental authorizations necessary or required for the construction, maintenance and operation of the CATV systems of the Partnership have been obtained by the Partnership, and are listed and identified in Schedule 5.2. All such agreements, statutes, ordinances, resolutions, licenses or permits granting the Franchises are validly existing, legally enforceable obligations of the Partnership and, to the best knowledge of Sellers, are validly existing, legally enforceable obligations of the other parties thereto, in accordance with their terms, granted and renewed in accordance with all applicable federal, state and local laws, and the Partnership is validly and lawfully operating under the provisions of the franchises and applicable law. Further, the Partnership has obtained in accordance with all federal, state and local laws all Franchises required for the lawful operation of the CATV systems of the Partnership. Except as set forth on Schedule 5.2, none of the political entities or authorities which have granted a Franchise have been, or have applied to be, certified to regulate the CATV rates charged by the Partnership pursuant to the Cable Television Consumer Protection and Competition Act of 1992 and the Rules and Regulations of the Federal Communications Commission ("FCC"). Each of the Franchises expires on the dates set forth on Schedule 5.2 attached hereto. The Partnership has duly complied with all of the terms and conditions of the Franchises and has not done or performed any act which would invalidate or impair its rights under, or give to the granting authority the right to terminate, the Franchises. There is no pending assertion or claim that operations pursuant to any Franchise have been improperly conducted or maintained. All construction of distribution plant required by any of the Franchises has been completed in accordance with the terms of such Franchise. (b) True, complete and correct copies of the Franchises, all amendments, assignments and consents thereto and the latest rate change approval, if any, to the date hereof have been delivered by Sellers to Buyers. (c) All of the approvals and consents required by the Franchises to consummate the transactions contemplated by this Agreement have been obtained by the Partnership. 5.3 Compliance with Laws. The Partnership is in compliance in all material respects with all applicable foreign, federal, state and local laws, rules, regulations, orders, writs, injunctions, ordinances or decrees of any governing authority, federal, state or local court, or of any municipal or governmental departments, commission, board, bureau, agency or municipality having jurisdiction over it or its CATV systems. 5.4 Subscribers. As of October 1, 1997, the Partnership had 57,606 Equivalent Basic Subscribers and, as of the Closing Date, there shall not be less than 57,447 Equivalent Basic Subscribers. The term "Equivalent Basic Subscribers" shall mean the number obtained by adding (i) the number of first outlet residential subscribers for basic CATV service of the Partnership who have made at least one monthly payment for service at the normal monthly rate for basic service, to (ii) the result obtained by dividing the aggregate of the gross monthly billing from bulk subscribers who have made at least one monthly payment for service at the normal monthly rate by $11.95. 5.5 Taxes. The Partnership has (i) duly filed all federal, state, local and foreign tax returns and other reports required to be filed, and has timely paid and will pay all Taxes (as defined below) with respect to its businesses that have become or may become due and payable by it except such amounts as are being contested diligently and in good faith and are not in the aggregate material and (ii) received no written notice of, nor do the Sellers have any knowledge of, any notice of deficiency or assessment, or proposed deficiency or assessment, from any taxing authority with respect to the Partnership's businesses. There are no property, sales, use or franchise fee or tax audits pending with respect to the Partnership's businesses. There are no unpaid Taxes which are or could become a lien on the Partnership's assets, nor are there any Tax liens filed against the Partnership's assets. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any items of Taxes of the Partnership, and neither the Partnership nor its partners have requested any extension of time within which to file any Tax return, which return has not yet been filed. Neither the Partnership nor the Sellers have been notified that any taxing authority intends to audit the Partnership. The earliest year for which the Internal Revenue Service may assess deficiencies against the Partnership is 1994. The charges, accruals and reserves with respect to Taxes on the books of the Partnership are adequate (as determined in accordance with GAAP). All Taxes that the Partnership is or was legally required to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper governmental authority. All individuals that the Partnership treats as independent contractors are not "employees" (within the meaning of Section 3121(d)(2)(1) of the Code or Section 3(6) of ERISA) for purposes of any federal, state or local Taxes. There is no dispute or claim as to Tax liability of any other person or entity as to which the Partnership may be liable or have an indemnification obligation. "Tax" or "Taxes" means all levies and assessments of any kind or nature imposed by any governmental authority including, but not limited to, all income, sales, use, ad valorem, value added, franchise, severance, net or gross proceeds, withholding, payroll, employment, regulatory assessments, gross receipts, occupation, excise or property taxes, together with any interest thereon and any penalties, additions to Tax or additional amounts applicable thereto. 5.6 No Adverse Change. There has been no material adverse change in the assets or financial condition or operations of the Partnership or its businesses since September 30, 1997 other than changes arising from matters of a general economic nature or matters caused by or arising from legislation, rulemaking or regulation affecting the cable television industry generally, and since September 30, 1997, the assets and financial condition and operations of the Partnership and its businesses have not been materially and adversely affected as a result of any fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God or public force, or otherwise. 5.7 Compliance with FCC and Other Requirements. 5.7.1 The Partnership is permitted under all applicable Franchises and FCC rules, regulations and orders to distribute the transmissions (whether television, satellite, radio or otherwise) of video programming or other information that the Partnership makes available to subscribers of its CATV systems and to utilize all carrier frequencies generated by the operation of its CATV systems, and is licensed to operate all the facilities required by law to be licensed including, without limitation, any business radio and any cable television relay service system being operated as part of the Partnership's CATV systems. No written requests have been received by the Partnership during the three years preceding the date of this Agreement from the FCC, the United States Copyright Office or any other person or entity challenging or questioning the right of the Partnership to operate its CATV systems or any FCC-licensed or registered facility used in conjunction with the Partnership's operation of its CATV systems. Except for such noncompliance that would not, individually or in the aggregate, have a material adverse effect on the Partnership or operation of its CATV systems, the Partnership's operation of its CATV systems is in compliance with the FCC's rules and regulations and the provisions of the Communications Act of 1934, as amended. The Partnership has not violated any laws or any duty or obligation with regard to protecting the privacy rights of any past or present subscribers of the Partnership's CATV systems. 5.7.2 The Partnership has conducted all system and microwave performance tests and all Cumulative Leakage Index ("CLI") related tests required with respect to its CATV systems. The Partnership has (i) maintained appropriate log books and other recordkeeping which accurately reflect in all material respects all results required to be shown thereon; (ii) to the extent required by the rules and regulations of the FCC, corrected any radiation leakage of its CATV systems required to be corrected in connection with the Partnership's monitoring obligations under the rules and regulations of the FCC and (iii) otherwise complied with all applicable CLI rules and regulations in connection with the operation of its CATV systems, except for such noncompliance that would not, individually or in the aggregate, have a material adverse effect on the Partnership or operation of its CATV systems. 5.7.3 The Partnership has deposited with the United States Copyright Office all statements of account and other documents and instruments, and paid all royalties, supplemental royalties, fees and other sums to the United States Copyright Office required under the Copyright Act with respect to the business and operation of its CATV systems as are required to obtain, hold and maintain the compulsory copyright license for cable television systems prescribed by Section 111 of the Copyright Act. The Partnership is in compliance with the Copyright Act and the rules and regulations of the Copyright Office with respect to operation of its CATV systems except for such noncompliance that would not, individually or in the aggregate, have a material adverse effect on the Partnership or operation of its CATV systems. The Partnership is entitled to hold and does hold the compulsory copyright license described in Section 111 of the Copyright Act, which compulsory copyright license is in full force and effect and has not been revoked, canceled, encumbered or adversely affected in any manner. 5.74 All broadcast television signals carried by the Partnership's CATV systems are carried either pursuant to the must-carry requirements or pursuant to executed retransmission consent agreements. 5.7.5 The operation of the Partnership's CATV systems has not and does not violate the Communications Act of 1984, as amended, the Cable Communications Policy Act of 1984, as amended, or the Cable Television Consumer Protection and Competition Act of 1992, as amended (collectively, the "Cable Act"), except for violation(s) which, individually or in the aggregate, reasonably could not be expected to have a material adverse effect on the Partnership or its CATV systems. Upon the written request of Buyers, Sellers will deliver promptly after the date hereof to Buyers complete and correct copies of all reports and filings for the past three years made or filed pursuant to the Cable Act, the Communications Act or FCC rules or regulations with respect to operation of the Partnership's CATV systems, copies of the Partnership's correspondence with any governmental authority relating to rate regulation generally or specific rates charged to subscribers of the Partnership's CATV systems including, without limitation, copies of all complaints filed with the FCC and any other documentation supporting an exemption from the rate regulation provisions of the Cable Act. Upon the written request of Buyers, Sellers will provide to Buyers true and complete copies of all requests for franchise renewal relating to the Franchises which have been filed since 1994 with governmental authorities. 5.8 Non-Infringement. To Sellers' knowledge, the Partnership's operation of its CATV systems as currently conducted does not infringe upon, or otherwise violate, the rights of any person or entity in any copyright, trade name, trademark right, service mark, service name, patent, patent right, license, trade secret or franchise, and there is not pending or, to the Sellers' knowledge, threatened any action with respect to any such infringement or breach. 5.9 Accounts Receivable. The Partnership is the true and lawful owner of its accounts receivable and has good title to each account receivable, free and clear of all liens, charges, pledges, encumbrances or restrictions of any nature, except for Permitted Liens, with absolute right to transfer any interest therein. Each account receivable of the Partnership is (i) a valid obligation of the account debtor enforceable in accordance with its terms and (ii) in all material respects, a true and correct statement of the account for merchandise actually sold and delivered to, or for actual services performed and accepted by, such account debtor. 5.10 Litigation. Except for litigation and judgments affecting the cable television industry generally, there is no litigation, at law or in equity, or any proceedings before any court, commission or other governmental authority or mediation or arbitration, pending or, to the best knowledge of Sellers, threatened against the Partnership which (i) could impair materially the ability of the parties to consummate the transactions contemplated by this Agreement, (ii) could materially and adversely affect the Partnership, its assets or its ability to operate its CATV systems or (iii) could result in the termination, modification, suspension or limitation on the Partnership's material rights or obligations with respect to the Franchises, licenses held by the Partnership or material contracts of the Partnership. There is no suit, action or other proceeding pending before any court or other governmental agency against the Partnership to enjoin transfer of the Partnership Interests to the Buyers. 5.11 Insurance. The Partnership has maintained and is maintaining with financially responsible insurance companies insurance with respect to the Partnership's employees and assets insuring the Partnership against such casualties and contingencies and of such types and amounts as are reasonably adequate for the size and scope of the Partnership's business and as otherwise required by the contracts and Franchises to which the Partnership is a party. All self-insurance arrangements by or affecting the Partnership are described on Schedule 5.11, including any reserves established thereunder. The Partnership has received no notification from any insurance carrier denying or disputing any claim made by the Partnership, denying or disputing any coverage for any claim, denying or disputing the amount of any claim or regarding the possible cancellation of any policies. The Partnership has not received (i) any notice of cancellation of any policy, (ii) any notice that any issuer of such policy has filed for protection under applicable bankruptcy laws or is otherwise in the process of liquidating or has been liquidated, (iii) any other indication that such policies are no longer in full force and effect or that the issuer of any such policy is no longer willing or able to perform its obligations thereunder, or (iv) any refusal of coverage or any notice that a defense will be afforded with reservation of rights. All premiums due on such policies have been paid, and the aggregate amount of all claims under such policies do not exceed policy limits. The Partnership has given notice to the insurers of all claims that may be insured thereunder. 5.12 Partnership Assets. The Partnership owns or leases all tangible and intangible rights, properties and assets used in the operations of its business. The Partnership does not hold fee title to any real property. No other affiliate of Partnership or its partners owns any assets used in the operations of the Partnership's business. The Partnership has valid leasehold interests in all leased real and personal property, and good title to all other Partnership assets. All material Partnership assets are free and clear of any and all liens, charges, pledges, encumbrances or restrictions of any nature except for Permitted Liens and except as provided otherwise in the immediately following sentence. The Partnership has good and valid title to it limited partnership interest (the "TMIP Limited Partnership Interest") in Tele-Media Investment Partnership, L.P., a Delaware limited partnership ("TMIP"), free and clear of any and all liens, charges, pledges, options, encumbrances or restrictions of any nature except for (a) Permitted Liens and (b) liens, charges, pledges, options, encumbrances and restrictions under that certain Amended and Restated Agreement of Limited Partnership of TMIP dated as of August 21, 1992, as amended (the "TMIP Partnership Agreement"). Since October 1, 1997, the Partnership has not been obligated or required pursuant to the terms and conditions of the TMIP Partnership Agreement to make any additional capital contribution to the capital of TMIP. Since October 1, 1997, (a) no distributions have been made to the Partnership in respect of the TMIP Limited Partnership, (b) neither TMIP nor the Partnership has made payment of any indebtedness, and (c) there have not been any transactions between the Partnership and any affiliates thereof other than those which are on an arm's length basis.. 5.13 Employee Benefits. (a) All employment agreements, bonus, deferred compensation, stock purchase, stock option, pension, profit sharing, retirement, severance, medical, dental, disability, life insurance, and other employee benefit plans, funds, programs or arrangements which have been maintained, established or contributed to by the ERISA Employer (collectively the "Plans"), have been made available to the Buyer and are listed in Schedule 5.13. For purposes hereof, ERISA Employer means Sellers and any entity which is a member of a controlled group within the meaning of Section 414(b), (c), (m) or (o) of the Code. Schedule 5.13 also identifies each Plan which constitutes (i) an "employee pension benefit plan" ("Pension Plan") as such term is defined in Section 3(2)(A) of ERISA, (ii) an "employee welfare benefit plan" ("Welfare Plan") as such term is defined in Section 3(1) of ERISA, or (iii) a "multiemployer plan" ("Multiemployer Plan"), as such term is defined in Section 4001(a)(3) of ERISA. The ERISA Employer does not and has not participated in any employee benefit plan maintained by or subscribed to by any other employer. (b) Each Plan has been administered, including the filing of IRS Form 5500 Series, summary plan descriptions and other applicable documents, in accordance with its terms, ERISA, the Code, and all applicable federal and state laws. (c) Full payment has been or will be made of all amounts that the ERISA Employer is required, under applicable law or under any Plan or any agreement relating to any Plan as to which the ERISA Employer is a party, to contribute to each Plan as of the Closing Date. There have been no contributions to any Plan in any form other than cash. No accumulated funding deficiency (as defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code), whether or not waived, exists with respect to any Plan. There will be no change on or before the Closing Date in the operation of any Plan or documents under which any such Plan is maintained that will result in an increase in the liabilities under such Plan. (d) No assets of any Plan are invested, directly or indirectly, in any obligation or security of the ERISA Employer or its affiliates, or in real or personal property of the ERISA Employer or its affiliates. With respect to any Plan, no insurance contract, annuity contract or other agreement or arrangement with any financial or other organization would impose a penalty, discount or other reduction on account of the withdrawal of assets from such organization or the change in investment of such assets. (e) Neither the ERISA Employer nor any of its affiliates has incurred or expects any liability to the Pension Benefit Guaranty Corporation ("PBGC"), except for required premium payments, which payments incurred or accrued up to and including the Closing Date have been or will be timely paid by the ERISA Employer. Neither the ERISA Employer nor any of its affiliates has ceased operations at any facility or withdrawn from any Pension Plan in a manner which could subject it to liability under Sections 4062, 4063 or 4064 of ERISA, and there have been no events which might give rise to any liability of the ERISA Employer or its affiliates to the PBGC under Title IV of ERISA or which could be anticipated to result in any claims being made against the Buyers by the PBGC. No Reportable Event (as such term is defined in Section 4043 of ERISA) has occurred with respect to any Pension Plan. Neither the ERISA Employer nor any of its affiliates has incurred any withdrawal liability (including any contingent or secondary withdrawal liability) within the meaning of Section 4201 and 4204, nor avoided withdrawal liability by virtue of compliance with Section 4204, of ERISA with respect to any Multiemployer Plan. (f) Neither the ERISA Employer, its affiliates nor any other person has engaged in any transaction with respect to any Plan which would subject the Partnership or any of its affiliates to a tax, penalty or liability for prohibited transactions under ERISA or the Code, and no director, officer or employee of the Partnership or any of its affiliates, to the extent that he is a fiduciary with respect to any Plan, has breached any of his responsibilities or obligations imposed upon fiduciaries under Title I of ERISA or which would result in any claim being made under, by or on behalf of any Plan. (g) No action has been taken, nor has there been any failure to take any action, nor is any action or failure to take action anticipated, that would subject any person (including but not limited to any Plan, any fiduciary of a Plan, the Partnership and its affiliates) to any liability for any income, excise or other tax or penalty with respect to the operation of, or any transactions with, any Plan. (h) There is no pending, or to the best knowledge of the Sellers, threatened litigation concerning any Plan, and there have been no written or oral communications concerning any Plan with the IRS, Department of Labor or any other federal, state or local government entity. 5.14 Accuracy of Information. No representation, statement or information made or furnished by the Sellers to the Buyers, including those contained in this Agreement and the various Schedules attached to this Agreement and the other information and statements referred to in this Agreement and furnished by the Sellers to the Buyers pursuant to this Agreement, contains or shall contain any untrue statement of a material fact or omits or shall omit any material fact necessary to make the information contained in this Agreement and the schedules not misleading. There is no fact known to the Sellers that has specific application to the Partnership and that materially adversely affects the assets, business, prospects, financial condition or results of operations of the Partnership that has not been set forth in this Agreement. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF OLYMPUS OLYMPUS REPRESENTS AND WARRANTS TO SELLERS THAT THE FOLLOWING STATEMENTS AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS FOLLOWS: 6.1 Organization. Olympus is a limited partnership duly formed and validly existing under the laws of the State of Delaware and is duly qualified and in good standing in those jurisdictions where the conduct of its business or the nature of its assets makes such qualification necessary. Olympus has full power and authority to own and lease its properties and to conduct its business as and where such properties are now owned or leased and such business is now being conducted. Olympus has full power and authority to acquire and own the National General Partnership Interest and the 98.9% National Limited Partnership Interest. 6.2 Authorization of Agreement. Olympus has taken all necessary partnership action to authorize and approve this Agreement, the consummation of the transactions contemplated hereby and the performance by Olympus of all of the terms and conditions hereof on its part to be performed. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment and compliance with the terms and conditions hereof do not and will not: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to Olympus, or (b) conflict with any of the provisions of the Limited Partnership Agreement of Olympus, or (c) conflict with, result in a breach of or constitute a default under any agreement or instrument to which Olympus is a party or by which it is bound. This Agreement has been duly authorized, executed and delivered by Olympus and constitutes a legal, valid and binding obligation of Olympus. 6.3 Litigation. There is no litigation, at law or in equity, or any proceedings before any commission or other governmental authority, pending or, to the best knowledge of Olympus, threatened against Olympus which would prevent or restrict the right or impair the ability of Olympus to consummate the transactions contemplated by this Agreement. There is no suit or action or other proceeding pending before any court or other governmental agency against Olympus to enjoin the consummation of the transaction contemplated hereby. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF OLYMPUS HOLDINGS OLYMPUS HOLDINGS REPRESENTS AND WARRANTS TO SELLERS THAT THE FOLLOWING STATEMENTS AND REPRESENTATIONS ARE TRUE AND CORRECT AS OF THE DATE HEREOF AND WILL ALSO BE TRUE AND CORRECT ON THE CLOSING DATE, AS FOLLOWS: 7.1 Organization. Olympus Holdings is a limited liability company duly formed under the laws of the State of Delaware and is duly qualified and in good standing in those jurisdictions where the conduct of its business or the nature of its assets makes such qualification necessary. The sole member of Olympus Holdings is Olympus. Olympus Holdings has full power and authority to own and lease its properties and to conduct its business as and where such properties are now owned or leased and such business is now being conducted. Olympus Holdings has full power and authority to acquire and own a .1% National Limited Partnership Interest. 7.2 Authorization of Agreement. Olympus Holdings has taken all necessary action to authorize and approve this Agreement, the consummation of the transactions contemplated hereby and the performance by Olympus Holdings of all of the terms and conditions hereof on its part to be performed. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and the fulfillment and compliance with the terms and conditions hereof do not and will not: (a) violate any provisions of any judicial or administrative order, award, judgment or decree applicable to Olympus Holdings; or (b) conflict with any of the provisions of the articles of organization or the operating agreement of Olympus Holdings; or (c) conflict with, result in a breach of or constitute a default under any agreement or instrument to which Olympus Holdings is a party or by which it is bound. This Agreement has been duly authorized, executed and delivered by Olympus Holdings and constitutes a legal, valid and binding obligation of Olympus Holdings. 7.3 Litigation. There is no litigation, at law or in equity, or any proceedings before any commission or other governmental authority, pending or, to the best knowledge of Olympus Holdings, threatened against Olympus Holdings which would impair materially the ability of Olympus Holdings to consummate the transactions contemplated by this Agreement. There is no suit or action or other proceeding pending before any court or other governmental agency against Olympus Holdings to enjoin the consummation of the transaction contemplated hereby. ARTICLE VIII CONDUCT OF BUSINESS PENDING CLOSING; HSR ACT FILING 8.1 Maintenance of Business. Sellers covenant and agree with Buyers that from the date hereof to and including the Closing Date that they shall cause the Partnership to continue to operate its CATV systems, maintain the assets and properties of the Partnership and to keep all of its business books, records and files, all in the ordinary course of business in accordance with past practices consistently applied. Sellers shall not permit the Partnership to sell, transfer or assign any assets except in the ordinary course of business and for full and fair value. 8.2 Consummation of Agreement. Each of Sellers and Buyers shall use its commercially reasonable efforts to perform and fulfill all obligations and conditions on its part to be performed and fulfilled under this Agreement, to the end that the transactions contemplated by this Agreement shall be fully carried out. 8.3 HSR Act Filing. The parties shall cooperate with each other to file a notification and report form with the Pre-Merger Notification Office of the Federal Trade Commission and with the Antitrust Division of the Department of Justice pursuant to the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended, and the rules and regulations thereunder (collectively, the "HSR Act"). The costs of such filing will be paid equally by the Sellers and Buyers. ARTICLE IX CONDITIONS TO CLOSING - BUYERS 9.1 Conditions to Obligations of Buyers. The obligations of Buyers to consummate the purchase of the Partnership Interests at Closing shall be subject to the satisfaction of the following conditions precedent, except to the extent waived by Buyers in writing: (a) All of the representations and warranties of the Sellers contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as though such representations and warranties were made at and as of such time; each of the Sellers shall have performed and be in compliance in all material respects with all of the covenants, agreements, terms and provisions set forth herein on its part to be observed or performed, and no event which would constitute a breach of the terms of this Agreement on the part of each such Seller shall have occurred and be continuing at the Closing Date. (b) Each of Sellers shall have executed and delivered to Buyers on the Closing Date a Certificate, dated that date, in form and substance reasonably satisfactory to Buyers to the effect that the conditions set forth in each of the provisions of Section 9.1(a) of this Agreement have been satisfied in full. (c) All documents and other items required to be delivered hereunder to Buyers at or prior to Closing shall have been delivered or shall be tendered at the Closing. (d) On the Closing Date, no suit, action or other proceeding shall be pending or threatened before any court or other governmental agency against Sellers or Buyers in which the consummation of the transactions contemplated by this Agreement are sought to be enjoined. (e) All notification and report forms required to be filed on behalf of the parties to this Agreement with the FTC and the DOJ under the HSR Act and rules thereunder shall have been filed, and the waiting period required to expire under the HSR Act and rules thereunder, including any extension thereof, shall have expired or early termination of the waiting period shall have been granted. ARTICLE X CONDITIONS TO CLOSING - SELLERS 10.1 Conditions to Obligations of Sellers. The obligations of the Sellers to consummate the sale of the Partnership Interests at Closing shall be subject to the satisfaction of the following conditions precedent, except to the extent waived by Sellers in writing: (a) All of the representations and warranties of Buyers contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as though such representations and warranties were made at and as of such time, and each of Buyers shall be in compliance in all material respects with all of the covenants, agreements, terms and provisions set forth herein on its part to be observed and performed, and no event which would constitute a breach of the terms of this Agreement on the part of each such Buyer shall have occurred and be continuing at the Closing Date. (b) Each of Buyers shall have executed and delivered to Sellers on the Closing Date a Certificate, dated that date, in form and substance reasonably satisfactory to Sellers to the effect that the conditions set forth in each of the provisions of Section 10.1(a) of this Agreement have been satisfied in full. (c) Buyers shall have delivered the Purchase Price, as adjusted, to Sellers in accordance with Section 2.1. (d) On the Closing Date, no suit, action or other proceeding shall be pending or threatened before any court or other governmental agency against Sellers or Buyers in which the consummation of the transactions contemplated by this Agreement are sought to be enjoined. (e) All notification and report forms required to be filed on behalf of the parties to this Agreement with the FTC and the DOJ under the HSR Act and rules thereunder shall have been filed, and the waiting period required to expire under the HSR Act and rules thereunder, including any extension thereof, shall have expired or early termination of the waiting period shall have been granted. (f) All documents and other items required to be delivered hereunder to Sellers at or prior to Closing shall have been delivered or shall be tendered at Closing. ARTICLE XI CLOSING 11.1 Actions to be taken by Sellers at Closing. At Closing, each of the Sellers shall take all actions required to be taken by it hereunder and Sellers shall deliver to Buyers (a) all of the approvals and consents required hereunder of all necessary parties and governmental authorities for the transfer and sale of the Partnership Interests and the consummation of the transactions contemplated hereunder, and (b) such other documents and certificates as required to be delivered hereunder including, but not limited to, an Assignment of Partnership Interest in the form of Exhibit A. 11.2 Actions to be taken by Buyers at Closing. At Closing, each of the Buyers shall take all actions required to be taken by it hereunder and each of Buyers shall deliver, or cause to be delivered, to Sellers all such documents and certificates as are required to be delivered hereunder. ARTICLE XII SURVIVAL AND INDEMNIFICATION 12.1 Survival of Representations and Warranties. All representations, warranties, covenants, indemnities and agreements contained herein shall survive the consummation of the transactions provided for in this Agreement; provided that the representations and warranties contained in this Agreement shall expire and be extinguished one year after the Closing Date except for representations and warranties relating to (i) title and ownership, which shall survive forever, (ii) environmental matters, which shall survive for three years, (iii) financial statement matters which shall survive for two years and (iv) tax matters, which shall survive until the expiration of the statute of limitations with respect to liabilities related thereto. 12.2 Indemnification. (a) Sellers, jointly and severally shall indemnify and hold Buyers, and each of them, harmless from and against, on a net after Tax basis, any and all claims, liabilities, damages, losses, deficiencies, suits, proceedings, mediations, arbitrations, judgments, deficiencies, assessments, investigations and expenses including, without limitation, reasonable attorneys' fees and expenses and costs of suit whether suit is instituted or not and, if instituted, whether at any trial or appellate level, and whether raised by the parties hereto or a third party, incurred or suffered by the Buyers or any of them (individually, a "Loss" and collectively, "Losses") arising from, in connection with or as a result of (i) any inaccurate representations and warranties made by the Sellers or any of them, (ii) any and all breaches of covenants and agreements made by or on behalf of the Sellers or any of them in this Agreement and (iii) regardless of whether it may also constitute a breach or violation under Section 12.2(a)(i) or (ii), the operation, management or ownership of the Partnership, arising out of or related to the period on or prior to the Closing Date except for any obligations and liabilities taken into account under Section 2.3 hereof and for obligations arising out of the business activities of the Partnership subsequent to the Closing Date; provided that in connection with the indemnification provided for in this Section, Sellers shall not be obligated to indemnify Buyers for Losses subject to indemnification thereunder once the total amount of Losses for which Sellers have provided indemnification under this Section equals the Purchase Price ("Sellers' Cap"). Notwithstanding the foregoing of this Section, Buyers shall not be entitled to be indemnified by Sellers for any Losses under this Section arising out of any single claim or aggregate claims until the total amount of all such Losses suffered or paid by Buyers exceeds $500,000 ("Sellers' Basket"). Buyers shall then be entitled to be indemnified under this Section for all such Losses, including those Losses in the Sellers' Basket. (b) Buyers, jointly and severally shall indemnify and hold Sellers, and each of them, harmless from and against, on a net after Tax basis, any and all Losses arising from, in connection with or as a result of (i) any inaccurate representations made by the Buyers or any of them, and (ii) any and all breaches of covenants and agreements made by or on behalf of the Buyers or any of them in this Agreement; provided that Buyers shall not be obligated to indemnify Sellers for Losses subject to indemnification hereunder until the total amount of Losses for which Buyers are to provide indemnification hereunder equals $500,000 ("Buyers' Basket") and then Sellers shall be entitled to be indemnified under this Section for all such Losses, including those Losses in the Buyers' Basket.. 12.3 Indemnification with Respect to Third-Party Claims. (a) Definition. As used herein, a "Third-Party Claim" means a Loss or potential Loss for which indemnification is claimed by any of Buyers or Sellers (the "Indemnitee") under the provisions of this Article XII and which is consequent to a claim against the Indemnitee by a person, corporation, association, partnership or other business organization, or an individual, or a government, any political subdivision thereof or a governmental agency by commencement against the Indemnitee of a legal action, proceeding or investigation, or receipt by the Indemnitee of an assertion of a claim for which indemnification may be appropriate pursuant to this Article XII by Buyers, Sellers, or any of them as the case may be (the "Indemnitor"). (b) Notice of Claim. The Indemnitee will give notice of a Third-Party Claim to the Indemnitor, stating the nature thereof and enclosing copies of any complaints, summons, written assertion of such Third-Party Claim or similar document. No claim for indemnification on account of a Third-Party Claim shall be made and no indemnification therefor shall be available under this Article XII until the Indemnitee shall have given initial written notice of its claim to the Indemnitor. (c) Retention of Counsel by the Indemnitor. Except as hereinafter provided, the Indemnitor shall engage counsel to defend a Third-Party Claim, and shall provide notice to the Indemnitee not later than 15 business days following delivery by the Indemnitee to the Indemnitor of a notice of a Third-Party Claim, such notice to include an acknowledgment by the Indemnitor that it will be liable in full to the Indemnitee for any Losses in connection with such Third-Party Claim. The Indemnitee will reasonably cooperate with such counsel at the sole cost and expense of Indemnitor. The Indemnitor will cause such counsel to consult with the Indemnitee as appropriate as to the defense of such claim, and the Indemnitee may, at its own expenses, participate in such defense, assistance or enforcement, but the Indemnitor shall control such defense, assistance or enforcement. The Indemnitor will cause such counsel engaged by the Indemnitor to keep the Indemnitee informed at all times of the status of such defense, assistance or enforcement. (d) Employment of Counsel by the Indemnitee. (i) Notwithstanding the provision of Section 12.3(c), the Indemnitee shall have the right at the sole cost and expense of Indemnitor to engage counsel and to control the defense of a Third-Party Claim if the Indemnitor shall not have notified the Indemnitee of its appointment of counsel and control of the defense of a Third-Party Claim pursuant to Section 12.3(c) within the time period therein provided. (ii) Notwithstanding the engagement of counsel by the Indemnitor, the Indemnitee shall have the right, at its own expense, to engage counsel to participate jointly with the Indemnitor in, and to control jointly with the Indemnitor, the defenses of a Third-Party Claim if (A) the Third-Party Claim involves remedies other than monetary damages and such remedies, in the Indemnitee's reasonable judgment, could have an effect on the conduct of the Indemnitee's business, or (B) the Third-Party Claim relates to acts, omissions, conditions, events or other matters occurring after the Closing Date as well as to acts, omissions, conditions, events or other matters occurring prior to the Closing Date, or (C) the Third Party Claim involves monetary damages which could exceed Sellers' Cap or (D) if in any such Third-Party Claim, the named parties to any such proceeding (including any impleaded parties) include both the Indemnitee and the Indemnitor or if the Indemnitor proposes that the same counsel represent both the Indemnitor and the Indemnitee and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. (iii) If the Indemnitee chooses to exercise its right to appoint counsel under this Section 12.3(d), the Indemnitee shall deliver notice thereof to the Indemnitor setting forth in reasonable detail why it believes that it has such right and the name of the counsel it proposes to employ. The Indemnitee may deliver such notice at any time that the conditions to the exercise of such right appear to be fulfilled, it being recognized that in the course of litigation, the scope of litigation and the amount at stake may change. The Indemnitee shall thereupon have the right to appoint such counsel. (iv) The reasonable fees and expenses of counsel and any accountants, experts or consultants engaged by the Indemnitee in accordance with Section 12.3(d)(i) in connection with defending a Third-Party Claim shall be paid by the Indemnitor in accordance with the provisions of this Article XII. If the Indemnitee's employment of counsel is for a Third-Party Claim of the type described in subdivision (ii)(B) or (ii)(C) of this Section 12.3(d), then subject to the provisions of Section 12.3(e), the amount of fees and expenses so payable by the Indemnitor shall be that fraction of the aggregate of such fees and expenses, the numerator of which is the portion of the amount of any judgment on, or settlement of, such Third-Party Claim for which the Indemnitee is indemnified pursuant to this Article XII and the denominator of which is the total amount of such judgment or settlement, but provided further, if such defense of a Third-Party Claim is successful (in the sense that as a consequence thereof, there is no Loss (other than such fees and expenses) for which the Indemnitee is indemnified pursuant to this Article XII), the Indemnitee and the Indemnitor will attempt in good faith to reach an agreement on the amount of such fees and expenses so payable by the Indemnitor. (e) Settlement of Third-Party Claims. (i) The Indemnitor may settle any Third-Party Claim solely involving monetary damages only if (A) the amount of such settlement is to be paid entirely by the Indemnitor pursuant to this Article XII and (B) Indemnitee is fully released from the Third-Party Claim. (ii) The Indemnitor will not enter into a settlement of a Third-Party Claim which involved a non-monetary remedy or which will not be paid entirely by the Indemnitor pursuant to this Article XII without the written consent of the Indemnitee (which consent shall not be unreasonably withheld, delayed or conditioned). (iii) As to any Third-Party Claim of the type described in subsection (ii)(B) or subsection (ii)(C) of Section 12.3(d), the Indemnitee and the Indemnitor shall consult as to any proposed settlement. If the Indemnitee notifies the Indemnitor that it wishes to accept a proposed settlement and the Indemnitor is unwilling to do so, if the amount for which the Third-Party Claim is ultimately resolved is greater than the amount of which the Indemnitee desired to settle, then (A) the Indemnitee shall be liable only for the amount, if any, which it would have paid had the Third-Party Claim been settled as proposed by the Indemnitee, and (B) all reasonable attorneys' fees and expenses and costs of suit incurred by the Indemnitee subsequent to the time of the proposed settlement shall be paid or reimbursed by the Indemnitor. (iv) In determining whether to accept or reject any settlement proposal, each party shall act in good faith and with due regard for the reasonable commercial and financial interests of the other. (f) Claims as to Which Indemnification is Partially Payable. Notwithstanding the foregoing, in the event of any settlement of, or final judgment with respect to, a Third-Party Claim which relates to acts, omissions, conditions, events or other matters occurring both before and after the Closing Date, the Indemnitee and the Indemnitor shall negotiate in good faith as to the portion of such Third-Party Claim as to which such indemnification is payable. (g) Cooperation, etc. The Indemnitee and the Indemnitor shall reasonably cooperate with one another in good faith in connection with the defense, compromise or settlement of any claim or action. Without limiting the generality of the foregoing, the party controlling the defense or settlement of any matter shall take steps reasonably designed to ensure that the other party and its counsel are informed at all times of the status of such matter. Neither party shall dispose of, compromise or settle any claim or action in a manner that is not reasonable under the circumstances and in good faith. The Indemnitor and Indemnitee shall enter into such confidentiality and other non-disclosure agreements as the Indemnitee or Indemnitor, as the case may be, shall reasonably request in order to protect trade secrets and other confidential or proprietary information of the Indemnitee or Indemnitor, as the case may be. ARTICLE XIII TERMINATION 13.1 Termination by Mutual Agreement. This Agreement may be terminated prior to Closing by mutual written agreement of Sellers and Buyers. In such event, this Agreement shall terminate and neither Buyers nor Sellers shall have any further obligation or liability to the other hereunder, except that Sections 16.5 and 16.6 of the Agreement shall survive and continue in full force and effect notwithstanding such termination. 13.2 Buyers' Default. In the event that the transactions contemplated by this Agreement are not consummated on the Closing Date (if and as extended) due to Buyers' failure or refusal to close, and all of the conditions specified in Article IX shall have been satisfied, this Agreement shall be automatically terminated. 13.3 Sellers' Default. In the event that the transactions contemplated by this Agreement are not consummated on the Closing Date (if and as extended) due to Sellers' failure or refusal to close and all of the conditions specified in Article X shall have been satisfied, Buyers shall be entitled to pursue any and all of its equitable and legal causes of action against Sellers. 13.4 Termination by Buyer or Seller. This Agreement may be terminated by Buyer or Seller at any time after September 30, 1998 (the "Termination Date") in the event that any condition set forth in Articles IX or X hereof has not been satisfied or tendered by the party owing performance or waived by the party for whose benefit the condition is intended, and upon such termination, and unless due to a default under Section 13.3, neither Buyers nor Sellers shall have any further obligation or liability to the other hereunder, except that Sections 16.5 and 16.6 of this Agreement shall survive and continue in full force and effect notwithstanding such termination. ARTICLE XIV NOTICES 14.1 Addresses for Notice. All notices and other communications hereunder shall be in writing and deemed to have been duly given if: (a) mailed, first class, registered or certified mail, return receipt requested, postage prepaid; (b) delivered by courier or overnight courier providing written evidence of receipt for hand delivery; or (c) transmitted via telecopy: To Buyers: Olympus Communications, L.P. Main at Water Street Coudersport, PA 16915 Attention: Facsimile: With copies to: Mr. Leslie J. Gelber Cable GP, Inc. 11760 U.S. Highway One Suite 600 North Palm Beach, Florida 33408 Facsimile: 561-691-3615 and Abigail C. Watts-Fitzgerald, P.A. Steel Hector & Davis LLP 200 S. Biscayne Boulevard, Suite 4000 Miami, Florida 33131-2398 Facsimile: 305-577-7001 To Sellers: Hilton Head Communications, L.P. Main at Water Coudersport, PA 16915 Attention: President Facsimile: (814) 274-6586 With copies to: Colin Higgin, Esquire Adelphia Communications Corporation Main at Water Coudersport, PA 16915 Facsimile: 814-274-6586 and Bruce I. Booken, Esquire Buchanan Ingersoll Professional Corporation 301 Grant Street, 20th Floor Pittsburgh, PA 15219 Facsimile: 412-562-1041 14.2 Effectiveness of Notice. Notice shall be deemed received the same day (when delivered personally), three (3) days after mailing (when sent by registered or certified mail), and the next business day (when sent by facsimile transmission or when delivered by overnight courier. Any party to this Agreement may change the address of the party to which all communications and notices may be sent hereunder by addressing notices of such change in the manner provided. ARTICLE XV LAWS GOVERNING; VENUE The construction and interpretation of this Agreement and the rights of the parties shall be governed by the laws of the State of Florida,, without regard to its conflicts of laws provisions. The parties hereby irrevocably agree to submit all suits, actions and proceedings arising out of or relating to this Agreement or any transactions contemplated hereby to the exclusive jurisdiction of the United States District Court for the Southern District of Florida or if jurisdiction is not available therein the jurisdiction of any state court in Palm Beach County, State of Florida, and waive any and all objections to such jurisdiction or venue that they may have under the laws of any state or country including, without limitation, any argument that jurisdiction, situs and/or venue are inconvenient or otherwise improper. Each party further agrees that process may be served upon such party in any manner authorized under the laws of the United States or Florida, and waives any objections that such party may otherwise have to such process. ARTICLE XVI MISCELLANEOUS 16.1 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument. Delivery of executed signature pages hereof by facsimile transmission shall constitute effective and binding execution and delivery thereof. 16.2 Assignment. This Agreement may not be assigned by any party hereto without the prior written consent of the other parties. 16.3 Entire Agreement. This Agreement is an integrated document, contains the entire agreement between the parties, wholly cancels, terminates and supersedes any and all previous and/or contemporaneous oral agreements, negotiations, commitments and writings between the parties hereto with respect to its subject matter. No change, modification, extension, termination, notice of termination, discharge, abandonment or waiver of this Agreement or any of the provisions hereof, nor any representation, promise or condition relating to this Agreement, shall be binding upon the parties hereto unless made in writing and signed by the parties hereto. All references to this Agreement shall include the Schedules and Exhibits. 16.4 Captions. The captions of Sections hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 16.5 Expenses. Except as otherwise expressly provided herein, each party hereto will pay all costs and expenses, including any and all legal and accounting fees, of its performance and compliance with all agreements and conditions contained herein on its part to be performed or complied with. Sellers, on one hand, and Buyers, on the other hand, shall each pay one-half of all filing fees payable under the HSR Act. 16.6 Confidentiality. After the Closing, the Sellers hereby agree to hold in strict confidence all business and other information relating to the Partnership and its businesses and, except as otherwise required by law or as to information which becomes publicly available, not to disclose or otherwise reveal any such confidential information to any other person or entity without in each instance the prior written consent of the Buyers. 16.7 Further Assurances. The parties agree to execute, acknowledge, deliver and file, or cause to be executed, acknowledged, delivered and filed, all further instruments, agreements or documents as may be necessary to consummate the transactions provided for in this Agreement and to do all further acts necessary to carry out the purpose and intent of this Agreement. 16.8 No Waiver. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with the waiver or estoppel. No written waiver shall be deemed a continuing waiver unless specifically stated therein, and each waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of the term or condition for the future or as to any act other than that specifically waived. The waiver by any party of any other party's breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach, and the failure of any party to exercise any right or remedy shall not operate or be construed as a waiver or bar to the exercise of such right or remedy upon the occurrence of any subsequent breach. No delay on the part of a party in exercising a right, power or privilege hereunder shall operate as a waiver thereof. No waiver on the part of a party of a right, power or privilege, or a single or partial exercise of a right, power or privilege, shall preclude further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies of this Agreement are cumulative and are not exclusive of the rights or remedies that a party may otherwise have at law or in equity. 16.9 Severability. If any one or more of the provisions of this Agreement is held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision which comes closest to the intent of the parties. 16.10 Binding Effect. This Agreement shall be for the benefit of, and shall be binding upon, the parties and their respective heirs, personal representatives, executors, legal representatives, successors and permitted assigns. 16.11 WAIVER OF JURY TRIAL. IF LITIGATION IS BROUGHT TO ENFORCE THIS AGREEMENT, THE PARTIES KNOWINGLY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM HAS TO A TRIAL BY JURY. THE PARTIES AGREE THIS PROVISION IS A MATERIAL INDUCEMENT TO THE PARTIES' ENTERING INTO THIS AGREEMENT. [Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. NCAA HOLDINGS, INC. By: /s/ Michael J. Rigas HILTON HEAD COMMUNICATIONS, L.P. By: NCAA Holdings, Inc., General Partner By: /s/ Michael J. Rigas OLYMPUS COMMUNICATIONS, L.P. By: ACP Holdings, Inc., Managing General Partner By: /s/ Michael J. Rigas OLYMPUS COMMUNICATIONS HOLDINGS, L.L.C. By: Olympus Communications, L.P., its sole member By: ACP Holdings, Inc.,Managing General Partner By: /s/ Michael J. Rigas -----END PRIVACY-ENHANCED MESSAGE-----