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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EX-
CHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: October 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EX-
CHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NO.: 0-11478
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TCA CABLE TV, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1798185
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3015 SSE LOOP 323, TYLER, TEXAS 75701
(Address of principal executive offices) (Zip Code)
</TABLE>
(903) 595-3701
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
None None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.10
PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90
days. Yes /X/ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as computed by reference to the average of the closing bid and
asked prices of such stock, as reported by the NASDAQ, on January 6, 1996
($28.875) was $398,854,706. Shares of voting stock held by each officer and
director and by each person who owns 10% or more of the Company's outstanding
voting stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of the registrant's common stock as of
January 6, 1996 was:
24,576,509 shares of common stock.
Documents incorporated by reference: Part III Items 11, 12 and 13 of this
Form 10-K are incorporated herein by reference to the Registrant's definitive
Proxy Statement for its Annual Meeting of Shareholders presently scheduled to be
held March 28, 1996.
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PART I
ITEM 1. BUSINESS
GENERAL
TCA Cable TV, Inc. ("the Company") is engaged in the development, operation
and management of cable television systems.(1) At October 31, 1995, the Company
owned and operated 56 cable television systems which had approximately 545,000
subscribers and managed 2 systems which are owned by affiliated corporations and
had approximately 3,500 subscribers.(2) The Company is listed in industry trade
publications as one of the 20 largest operators of cable television systems in
the United States (including subscribers in managed systems). The Company's
systems are located primarily in smaller markets in Texas, Louisiana, Arkansas,
Mississippi and New Mexico where over-the-air television reception is
unsatisfactory, and the Company intends to continue to concentrate its
activities in these and similar areas.
The Company was organized as a Texas corporation in December, 1981, to
consolidate the ownership of four corporations which had been developing and
operating cable television systems since 1965, 1973, 1975 and 1976,
respectively. Unless the context otherwise requires, all references to "TCA
Cable TV, Inc." and the "Company" in this report shall refer to TCA Cable TV,
Inc. and its predecessors and subsidiaries.
THE CABLE TELEVISION INDUSTRY
Cable television is a service which delivers to the home varied
entertainment and information programming, either as transmitted by licensed
radio and television stations or programming designed specifically for cable
distribution. Radio and television signals are received by "off-air" antennae,
microwave relay systems and satellite earth stations and are modulated and
amplified at an electronic control center, or "headend", for distribution
through a network of aerial or underground coaxial cables or optical fiber to
television sets owned by subscribers. Subscribers generally pay a monthly fee
for the service. Cable systems generally operate under non-exclusive franchises
granted by local or state governmental authorities. The growth of the cable
television industry has been accompanied by a significant number of operator
consolidations.
The cable television industry began in the early 1950's. The industry's
birth and subsequent growth was the result of demand for more stations and
improved reception in areas where over-the-air television reception was
unsatisfactory because of topography or remoteness from broadcast towers. The
use of cable as the means of providing additional television channels and
improved over-the-air reception is now generally referred to as "basic service",
and normally consists of programming available from nearby over-the-air
television channels, public channels and a limited number of channels relayed
from distant cities, and satellite programming. Additional satellite programming
services are offered in a separate "expanded basic" service for an additional
charge. For an additional monthly or individual event charge, cable operators
also provide subscribers a choice of "premium services" (referred to as "Pay TV"
or "Pay-Per-View"), generally consisting of feature films, sporting and other
special entertainment events. The availability of cable specific channels and
premium service has established cable television as an entertainment medium in
addition to fulfilling its original purpose to provide better over-the-air
television reception. This development has led to significant growth of cable
television in larger metropolitan markets. Although the Company offers premium
services and plans to increase its capacity to provide such services, it has no
present plans to acquire or develop new systems in larger metropolitan markets.
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(1) A system includes all areas served from a single administrative office. A
system may include one or more "headends" and the cable properties related
thereto, and one or more communities or franchise areas.
(2) The Company reports its subscribers based on the number of separate accounts
billed. The Company's practice differs from the "subscriber equivalent"
method used by some other cable system operators. The Company estimates that
the use of subscriber equivalents in its reporting would increase its number
of subscribers by approximately 5%.
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The Company believes the cable television industry may derive additional
income in the foreseeable future from the sale of air time to advertisers who
desire access to the television media to promote their products or services.
This revenue source is commonly referred to as advertising income. Revenue from
advertising was approximately 9%, 9% and 7% of total revenue during 1995, 1994
and 1993, respectively.
The Company is continually evaluating the technical and economic
feasibility of providing enhanced or expanded subscriber services and may
provide additional such services in the future. However, the Company cannot
provide assurance that revenue from any of these sources will increase.
DEVELOPMENT OF CABLE SYSTEMS
The following table provides data relative to the last five fiscal years
and indicates the growth of the cable systems owned by the Company. Information
with respect to systems managed by the Company but owned by others is not
included in the table.
<TABLE>
<CAPTION>
PREMIUM SERVICE
BASIC SERVICE -------------------------
----------------------------- PREMIUM
MILES OF HOMES SUBSCRIBERS AS NUMBER UNITS AS %
ACTIVE PASSED BY NUMBER OF % OF HOMES OF PREMIUM OF BASIC
PLANT CABLE SUBSCRIBERS PASSED UNITS SUBSCRIBERS
-------- --------- ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
At October 3l:
1991..................... 9,853 638,265 423,974 66% 230,764 54%
1992..................... 9,953 639,265 438,247 69% 238,360 54%
1993..................... 10,216 649,415 454,832 70% 255,101 56%
1994..................... 10,413 651,250 465,471 71% 321,076 69%
1995..................... 12,671 761,621 545,441 72% 356,836 65%
</TABLE>
Subscriber growth experienced by the Company in recent years has come from
the acquisition of existing systems and the upgrading and development of systems
already owned, rather than from the securing of new franchises or the
construction of new systems. Prior to and upon its acquisition of a system, the
Company conducts a review of the acquired system's cable plant and operating
policies and procedures. On the basis of its review, the Company typically makes
modifications, repairs, upgrades to the plant, and additionally institutes
operating policies and procedures designed to expand the system and improve its
profitability.
The Company intends to continue its emphasis on growth through acquisition
of existing systems. There can be no assurances, however, that the Company will
be able to acquire existing systems in the future on terms as favorable as it
has been able to do in the past. The Company does not currently have any
definitive agreements for the acquisition of any additional systems except for
the partnership formed with Donrey Media Group on December 13, 1995 as discussed
in Note 12 to the financial statements. However, the Company may in the future
acquire additional systems on terms it deems favorable based on evaluations of a
system's selling price relative to subscriber levels and projected cash flows,
among other factors.
In addition to growth resulting from system acquisitions and improvements
made to acquired systems, the Company expects to continue growth through
increased subscriptions caused by population growth in its franchise areas, and
by emphasizing the availability of increased services to its basic subscribers.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations". There can be no assurance, however, that the number of the
Company's subscribers will continue to increase.
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THE SYSTEMS
The following table sets forth information as of October 31, 1995,
regarding the Company's cable systems, all of which are owned by the Company
unless otherwise indicated:
<TABLE>
<CAPTION>
BASIC EQUIVALENT PREMIUM
PLANT SUBSCRIBER BILLING TV HOMES
STATES MILES ACCOUNTS UNITS* UNITS PASSED
----------------------------------------- ------ ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Texas.................................... 4,438 225,989 239,697 142,427 334,609
Louisiana(1)............................. 3,168 135,033 140,312 117,433 183,370
Arkansas................................. 4,430 153,575 159,474 73,009 200,157
New Mexico............................... 194 12,151 12,574 5,877 18,200
Mississippi.............................. 237 13,212 13,852 13,840 18,035
Idaho.................................... 204 5,481 8,042 4,250 7,250
------ ------- ------- ------- -------
TCA owned systems........................ 12,671 545,441 573,951 356,836 761,621
Managed systems.......................... 88 3,528 3,581 2,196 5,410
------ ------- ------- ------- -------
Owned and Managed systems................ 12,759 548,969 577,532 359,032 767,031
====== ======= ======= ======= =======
</TABLE>
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* Equivalent Billing Units, presented here to allow comparison with cable TV
companies which report by this method, are calculated by dividing the basic
service revenue by the base rate on commercial accounts and adding the number
of residential accounts. Multiple-outlet subscribers at rates higher than the
base rate making up the difference.
SYSTEM OPERATING OFFICES (AT OCTOBER 31, 1995)
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Texas: Amarillo, Andrews, Athens, Big Spring, Bryan/College Station,
Conroe, Dalhart, Gatesville, Gladewater, Henderson, Huntsville,
Mineola, Nacogdoches, Paris, Plainview, San Angelo, Snyder,
Sulphur Springs and Victoria.
Louisiana(1): Abbeville, Bastrop, Crowley, DeRidder, Franklin, Lafayette,
Minden, Natchitoches, New Iberia, Patterson, Ruston, St.
Martinville and Winnfield.
Arkansas: Arkadelphia, Batesville, Bentonville, Berryville, El Dorado,
Fayetteville, Harrison, Heber Springs, Helena, Hot Springs
Village, Magnolia, Malvern, McGehee, Mena, Mountain Home, Newport,
Ozark, Pocahontas, Russellville, Siloam Springs and Springdale.
New Mexico: Clovis.
Mississippi: Greenville.
Idaho: Sun Valley.
</TABLE>
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(1) This does not include information relating to the Alexandria, Louisiana
system acquired December 15, 1995, as described in Note 12 to the financial
statements.
SUBSCRIBER SERVICES
The Company offers services to its subscribers that are generally
comparable to those offered by other cable television operators. The basic
service offered by the Company typically includes signals of nearby over-the-air
television stations carrying all four major commercial networks; independent,
specialty and educational stations; sports and educational programming; and
additional satellite programming such as signals of distant independent
stations, news, sports and religious programming, and continuous time, news and
weather information.
The Company offers an additional level of service known as "expanded basic"
service. Under this level of service the Company makes available to subscribers
a variety of packaged programming, including news,
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sports, educational and entertainment channels and programs purchased from
independent suppliers and combined in different formats to appeal to different
tastes. Expanded basic service is provided at an additional monthly charge. A
new product tier, known as the "premier package", is now being introduced in
systems where fiber optic rebuilds are either finished or in some stage of
completion. The new product tier offers five to twelve channels most requested
by customers.
Most of the Company's systems normally offer at least four premium services
while some systems offer additional premium service options. Premium services
include channels such as: The Movie Channel, HBO, Showtime, Cinemax and The
Disney Channel, which offer feature motion pictures, concerts and other special
features without commercial interruption. The Company's services do not include
X-rated motion pictures. The programming provided under premium service, and in
some cases under basic service, is acquired by the Company from independent
suppliers for a fee equal to a specified portion of the amount charged by the
Company for the service. The fees paid by the Company to independent suppliers
are believed by the Company to be comparable to those paid by similarly situated
cable television companies.
Rates charged subscribers vary with the type of service selected. All of
the Company's cable systems are subject to rate regulation. See
"Business-Regulation". The monthly service fee for basic service generally
ranges from $8 to $12. The monthly service fee for expanded basic service
generally ranges from $6 to $13. The Company's average monthly revenue per
subscriber during fiscal 1995 for basic and expanded basic services was $21.42.
A one-time installation fee ranging from $24 to $42 is usually charged to new
subscribers. Monthly charges for equipment furnished to the customer generally
range from $1 to $3. Additionally, the Company generally charges $8.00 to $10.00
per month for each premium subscription service. Premium service charges are
sometimes discounted for multiple services. Subscribers are free to terminate
service at any time.
The Company also services commercial subscribers such as hotels, motels,
hospitals, and apartments. These subscribers are charged a one-time connection
fee, which is usually sufficient to cover the Company's cost of installation.
Commercial subscribers are generally free to terminate service at any time.
MANAGEMENT SERVICES
In addition to operating its own cable television systems, the Company
provides general management services for two systems owned by corporations
affiliated with the Company ("the Affiliated Companies"). The Company's
management services include: accounting, auditing, billing, marketing, computer
operations, purchasing, engineering, and other technical and administrative
support services which the Company performs pursuant to management contracts.
These services are charged to the systems on a fee basis equal to specified
amounts per subscriber for each particular service performed or a specified
percentage of revenue. The intention is to recover the Company's actual costs of
providing the services, plus a profit. Total revenues received by the Company
for management services for fiscal 1995, 1994 and 1993 were $60,388, $53,323 and
$51,220, respectively.
One of the Company's management contracts provides the Company a right of
first refusal with respect to any proposed sales of any of the Affiliated
Company's cable systems or with respect to any cable system acquisition
opportunities which come to the attention of the Affiliated Company subject to
the management contract. The Company does not intend to exercise its rights of
first refusal with respect to relatively small cable systems which are
contiguous to, or in the vicinity of, the systems owned by the Affiliated
Companies.
The Company believes that the terms of its management contracts with
Affiliated Companies are at least as favorable to the Company as could be
obtained with unaffiliated third parties in arm's-length transactions.
FRANCHISES
Each local government authority typically issues a non-exclusive permit or
enacts a non-exclusive franchise ordinance for the construction and operation of
a cable television system within its borders after considering presentations by
competing cable television companies. The Company's franchises normally require
that 2% to 5% of the gross revenues of the cable system be paid to the
franchising authority.
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Effective January 1, 1987, rates charged to subscribers could no longer be
regulated by local authorities in areas where the FCC determined that cable
television systems were subject to "effective competition". Congress in the
Cable Act of 1992 amended the effective competition standard in a manner that
subjects virtually all of the Company's systems to rate regulation. See
"Business-Regulation".
FCC Rules and some franchises generally require approval by the franchising
authority for the sale of a system. See "Business-Regulation". Most of the
Company's franchises can be terminated prior to their stated expiration for
breach of material provisions. The Company holds approximately 210 franchises
with unexpired terms ranging generally from one to 40 years. No one franchise
accounts for more than 10% of the Company's total revenue.
Franchises have historically been renewed for companies that have provided
adequate service and have complied generally with the franchise terms.
Additionally, the Cable Communications Policy Act of 1984 established renewal
procedures designed to protect incumbent franchisees against arbitrary denial of
renewal. The Company believes that it has provided satisfactory levels of
service and has maintained favorable relationships with local communities and
anticipates that all or substantially all of its franchises will be renewed,
although there can be no assurance of such renewals. In addition, other
applicants have an opportunity to compete for the franchise upon its expiration.
See "Competition" below. In connection with a renewal, the franchising authority
may impose different and more stringent terms, the impact of which cannot be
predicted. To date, however, all of the Company's franchises have been renewed
or extended, generally at or prior to their stated expirations, and on modified,
but not unduly burdensome, terms.
In City of Los Angeles v. Preferred Communications, Inc., the U.S. Supreme
Court affirmed a decision that had allowed a challenge to the constitutionality
of the cable television franchise process and which suggested that, where
feasible, franchising authorities must grant access to others seeking to provide
competitive cable television service in a community. If the rationale of the
Preferred Communications case and other similar court decisions is applied
generally to the cable television industry, many cable television operators,
including the Company, may face increased competition from other cable
television operators.
COMPETITION
The Company encounters competition for the acquisition of existing systems
and may encounter similar competition at the time of franchise renewal. The
cable television industry has undergone significant consolidation in recent
years. At the same time, the number of United States communities that have not
awarded cable television franchises has rapidly diminished and the competition
for new franchises and for renewal of existing franchises has intensified.
Furthermore, certain regulations restricting competition in the industry have
recently been relaxed or rescinded, reflecting current and future policy
objectives of the FCC and in Congress to increase competition to cable
television. See "Regulation." As a result of the foregoing, it may be expected
that the Company will encounter increased competition from other entities having
substantially greater resources than the Company.
Competition for the Company's cable services arises from numerous
alternative entertainment and information sources such as movie theaters,
broadcast television stations, direct broadcast satellites and home satellite
receivers, wireless cable systems, video cassette recorders, and other sources
of home entertainment. Advances in communications technology and changes in the
market place are constantly occurring. Due to changes in technology and
regulatory policies encouraging competition, the Company anticipates
significantly increased competition, particularly from recently launched direct
broadcast satellite systems, as well as telephone companies, providing video
programming to subscribers.
REGULATION
General. Cable television systems are regulated extensively by federal,
local and sometimes state authorities. Local and state regulations generally
relate to the awarding of franchises, rate regulation, customer service
standards and other operational requirements.
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FCC REGULATION
General. Federal regulation of cable television systems is effected
primarily through the Federal Communications Commission (FCC). Regulations
promulgated by the FCC contain detailed provisions relating to virtually all
aspects of the cable industry including rate regulation, must carry and
retransmission consent for carriage of broadcast signals, technical standards,
customer service standards, competition, programming, franchise issues,
commercial leased access channels, ownership of cable television systems,
non-duplication of network programming, syndicated program exclusivity, sports
program blackouts, equal employment opportunities, comprehensive reporting
requirements, signal leakage standards and other matters. The FCC is authorized
to impose monetary fines on cable system operators for violations of FCC rules
and may also issue cease and desist orders.
Cable Communications Policy Act of 1984 and the Cable Television Consumer
Protection and Competition Act of 1992
On October 11, 1984, Congress passed the Cable Communications Policy Act of
1984 ("Cable Act of 1984"). A major objective of Congress in passing that law
was to clarify the regulatory relationship between franchisers and cable
operators. On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 ("Cable Act of 1992"), which expands the
scope of cable industry regulation beyond that imposed by the Cable Act of 1984.
Provisions of these laws which the Company believes may have a significant
impact on its operations are summarized below.
Rate Regulation
All of the Company's cable systems are or will be subject to rate
regulation. Pursuant to the Cable Act of 1992 the FCC has established rate
standards and procedures governing regulation of basic cable service rates.
Franchising authorities may "certify" to the FCC that they will follow the FCC
standards and procedures in regulating basic rates and, once such certification
is made, the franchising authorities will assume rate regulation authority over
basic rates. The Cable Act of 1992 also requires that the FCC, upon complaint
from a franchising authority or a cable subscriber, review the "reasonableness"
of rates for additional tiers of cable service. Only rates for premium pay
channels and single event pay-per-view services are excluded entirely from rate
regulation. Additionally, the Cable Act of 1992 imposes rate regulation pursuant
to an FCC formula for the sale and lease of cable equipment such as converters,
remote controls and additional outlets "on the basis of actual cost." It is
impossible to predict the exact impact of rate regulation upon existing and
future rates of the Company, but such rate regulation could result in denial of
requested rate increases and in reduction of existing rate levels.
The Cable Act of 1992 prohibits cable systems which have addressable
technology and addressable converters in place from requiring cable subscribers
to purchase service tiers above the basic level of service as a condition to
purchasing premium movie channels. If cable systems do not have such addressable
technology or addressable converters in place, they are given until December
2002 to comply.
Retransmission Consent
The Cable Act of 1992 establishes a choice for broadcasters between "must
carry" rights (as described below) or "retransmission consent" rights. As of
October 1993, cable operators are required to secure permission from
broadcasters that have selected retransmission consent before retransmitting the
broadcaster's television signals. Local and distant broadcasters can require
cable operators to make payments as a condition to granting such consent for
carriage of the broadcast station on the cable system. This requirement has the
potential of significantly increasing the cost of carriage of broadcast stations
on the Company's cable systems.
Must Carry Requirements
The Cable Act of 1992 imposes obligations to carry "local" broadcast
stations should such stations choose a "must carry" right as opposed to the
"retransmission consent" right described above. Generally, the
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cable operator must dedicate up to approximately one-third of its channel
capacity for carriage of commercial television stations and additional channels
for non-commercial television stations.
Programming Costs and Exclusivity
Pursuant to the Cable Act of 1992 the FCC has adopted regulations regarding
the sale and acquisition of cable programming in which a cable operator has an
attributable interest. The legislation and the subsequent FCC regulations
preclude most exclusive programming contracts, limit to some degree "volume
discounts" for programming that can be offered to affiliated cable operators,
and require that such cable programmers make their programming services
available to competing video technologies such as wireless cable systems and
direct to the home broadcast satellite operators on terms and conditions that do
not discriminate against such competing technologies.
Ownership Restrictions
The Cable Act of 1984 codifies the FCC's regulatory cable cross-ownership
restrictions which restrict common ownership of television broadcasting stations
and cable television systems within the television broadcast station's broadcast
area. Additionally, local telephone companies are prohibited from providing
cable television services within their telephone service areas unless the area
is deemed "rural" or unless a waiver is obtained from the FCC. The FCC has
indicated its intention to expand the rural exemption and to relax the waiver
standards to make it easier for telephone companies to obtain such waivers and
has recommended to Congress elimination of the telephone/cable cross-ownership
restrictions in the Cable Act of 1984. In addition, a number of recent court
decisions have held that the telephone/cable cross-ownership restrictions are
unconstitutional and unenforceable.
The FCC has authorized so-called "video dialtone" services, by which
independent programmers may provide video services to the home over
telephone-provided circuits, thereby by-passing the local cable system. The FCC
has declared that such services would require no local franchise or payment to
the local government authority, and that ruling has been upheld by the courts.
The FCC decision allows telephone companies to acquire a limited financial
interest in programming services, but currently limits their delivery role to
that of a traditional "common carrier." However, the FCC is considering
proposals to reduce the limitations on telephone company involvement in
programming. The FCC's actions, legislation which has passed both Houses of
Congress, and recent court decisions are expected to result in greater
involvement and competition from telephone companies in the cable industry.
Pursuant to the Cable Act of 1992 the FCC has adopted regulations
establishing limits on the number of cable subscribers a person is authorized to
reach through cable systems owned by such person, or in which such person has an
attributable interest, and establishing limits on the number of channels on a
cable system that can be occupied by a video programmer in which a cable
operator has an attributable interest. Additionally, cable operators are
prohibited from selling a cable system within three years of acquisition or
construction of such cable system.
Customer Service/Technical Standards
Pursuant to the Cable Act of 1992 the FCC has adopted regulations
establishing comprehensive standards for customer service and technical system
performance. Franchising authorities are allowed to enforce stricter customer
service requirements than the FCC standards.
Other Provisions
The Cable Act of 1992 contains a host of other regulatory provisions.
Together with the Cable Act of 1984, a comprehensive regulatory framework for
cable television systems has been created. Violation by a cable operator of the
statutory provisions or the rules and regulations of the FCC can subject the
operator to substantial monetary penalties and other significant sanctions.
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The majority of the Cable Act of 1984 remains in place. The Cable Act of
1984 continues to: (a) affirm the right of franchising authorities to award one
or more franchises for cable; (b) require cable television systems with 36 or
more "activated" channels to reserve a percentage of such channels for
commercial use by unaffiliated third parties; (c) permit franchise authorities
to require the cable operator to provide channel capacity, equipment and
facilities for public, educational and government access; (d) provide
subscribers an opportunity to lock out offensive channels from personal
reception; (e) establish a federal policy for use of subscriber lists and
subscriber information; (f) establish civil and criminal liability for
unauthorized reception or interception of programming offered over a cable
television system or satellite delivered services; and (g) contain provisions
governing cable operator's compliance with equal employment opportunity
programs.
Many of the specific obligations imposed on cable television systems under
these laws and regulations are complex, burdensome and will continue to increase
the Company's cost of doing business. Various provisions of the Cable Acts of
1984 and 1992 have been appealed in the courts. The outcome of some of those
appeals and the potential impact on the legislation and the Company is
uncertain. In addition, the constitutionality of various aspects of the cable
television franchising process has been called into question by recent court
decisions. See "Business -- Franchises".
PENDING TELECOMMUNICATIONS LEGISLATION
Both the U.S. Senate and House of Representatives have recently passed the
telecommunications bills and such legislation is likely to be enacted into law
within the next several months. Although the final form of this legislation has
has not yet been determined, it would, if adopted as anticipated, result in very
significant changes in laws and regulations applicable to cable television
companies, telephone companies and many other providers of communications
services. Generally the legislation would eliminate the cross-ownership
restrictions between telephone companies and cable operators subject to certain
conditions. This would permit telephone companies to provide cable television
services to subscribers within their telephone service area over telephone or
other facilities, and cable operators would be permitted to provide telephone
services under certain circumstances. In addition, the legislation would provide
some eventual deregulation of cable television, but would also impose some
additional obligations and expense on cable operators, including higher pole
attachment fees. While the full impact of this legislation cannot be predicted
at this time, the Company anticipates that it will face increased competition
from telephone companies which generally have significantly greater financial
resources than the Company.
COPYRIGHT ACT
Cable television systems are subject to the Copyright Act of 1976 (the
"Copyright Act"). The Copyright Act requires the carrier of television signals
to have a copyright license. The license for television broadcast signals is
compulsory under the provisions of the Copyright Act and subjects the licensee
to compliance with certain copyright and FCC regulations. Additionally, a
semiannual royalty payment must be made to the U.S. Copyright Office and is
generally calculated as a percentage of each system's gross receipts. The U.S.
Copyright Office is empowered to review and increase copyright rates.
Carriage of any television broadcast station by a cable system in a manner
inconsistent with applicable FCC regulations, the Copyright Act, or copyright
regulations can subject the cable system operator to full copyright liability,
including a potential copyright infringement action for material damages and
suspension of the operator's compulsory license. Cable systems do not receive a
compulsory license and are subject to the general copyright laws, with respect
to the transmission of nonbroadcast programming.
Various legislative proposals have been introduced and considered from time
to time in Congress that, if adopted, would materially revise the Copyright Act.
The proposals include, among other things, a significant increase in the rate
structure for royalty fees, imposition of restrictions on carriage of television
broadcast programming and elimination of the compulsory license for cable system
carriage of television broadcast signals. The FCC has recommended to Congress
the elimination of the cable compulsory license and similar recommendations have
been made by other government agencies and interested parties. Although none of
these bills have been enacted, it can be expected that similar proposals to
change the Copyright Act and
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royalty fee structure will be made in the future, and if enacted, could have an
unfavorable impact on the Company.
AVAILABILITY OF SUPPLIES
The Company experiences no difficulty in obtaining equipment or supplies.
EMPLOYEES
On October 31, 1995, the Company had 1,141 full-time employees, none of
whom was represented by a union. The Company has not experienced any work
stoppages and considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company's principal physical assets consist of operating plant and
equipment, including signal receiving apparatus, headends and distribution plant
and equipment for each of its cable television systems. The signal receiving
apparatus typically includes a tower, antennae and ancillary electronic
equipment for reception of over-the-air broadcast television signals, and earth
stations and ancillary electronic equipment for reception of satellite signals.
Headends, consisting of associated electronic equipment necessary for the
reception, amplification and modulation of signals, are located near the
receiving devices. The Company's distribution systems consist of coaxial cables,
optical fibers and related electronic equipment and customer connection devices
(principally converters). The Company owns the receiving equipment, headends and
distribution equipment and property, and owns or leases small parcels of
property for the receiving sites and for business offices.
The Company's cables are generally attached to utility poles covered by
rental agreements with local utility companies, although approximately 15% of
the Company's cables are buried in trenches.
After the expiration of an initial term of one to three years, pole rental
agreements generally are terminable by the utility companies upon six months
notice or less. The Company's activities are dependent upon its pole agreements,
and substantially increased pole attachment fees or the termination of pole
agreements would have a material adverse effect on the Company. Although the
Company believes that any such termination is unlikely and knows of no situation
in which such a termination of rights has been exercised, no assurance can be
given that the utility companies will not attempt to exercise their termination
rights.
The Company believes that its properties are in good condition and are
suitable to and adequate for its business. The physical components of cable
television systems require maintenance and also require upgrading to keep pace
with technological advances.
The Company leases a building in Tyler, Texas, which houses its
headquarters. The building is owned by a corporation controlled by the Chairman
of the Board of Directors of the Company and the Company may cancel the lease at
any time. The Company believes the terms of such lease are at least as favorable
as would be obtainable from a third party lessor. The Company also owns and
leases various offices, tower sites, microwave locations, test equipment and
service vehicles, no one of which is considered material to the Company or its
business.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings arising in the ordinary
course of business, none of which are believed to be material to the Company's
business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Price Range of Common Stock
The Company's common stock is traded in the over-the-counter market and is
quoted on the NASDAQ National Market System under the symbol "TCAT". The
following table shows the range of closing bids for the common stock of the
Company in the over-the-counter market for each fiscal quarter beginning with
the quarter ended January 31, 1994 as reported by NASDAQ. The quotations
represent prices in the over-the-counter market between dealers in securities,
do not include retail markup, markdown or commission and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------------------------------------------------------ ------ ------
<S> <C> <C>
01/31/94.................................................... $29.38 $24.13
04/30/94.................................................... 28.00 18.63
07/31/94.................................................... 23.63 19.38
10/31/94.................................................... 24.88 22.13
01/31/95.................................................... 23.56 21.25
04/30/95.................................................... 27.13 22.25
07/31/95.................................................... 30.75 24.38
10/31/95.................................................... 32.00 28.13
</TABLE>
(b) Approximate Number of Equity Security Holders
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
EQUITY HOLDERS (AS OF
TITLE OF CLASS JANUARY 6, 1996)
--------------------------------------------------------- ---------------------
<S> <C>
Common Stock $0.10 Par Value............................. 3,500
</TABLE>
(c) Dividends
During the fiscal year ended October 31, 1995, cash dividends were paid to
shareholders in the amount of $11,787,622 ($.12 per share paid in January,
April, July and October, 1995). During the prior fiscal year, $10,831,640 in
cash dividends were paid to shareholders ($.11 per share paid in January, April,
July and October, 1994). At the December 13, 1995 regularly scheduled Board of
Directors meeting, a cash dividend of $.14 per share for the quarter ending
January 31, 1996 was declared. This dividend was payable January 10, 1996 to
shareholders of record as of December 27, 1995.
The Board of Directors of the Company intends to continue to declare
comparable dividends and will determine dividend policy, including amounts and
frequency thereof, taking into account, among other things, the amount of funds
legally available, and the Company's earnings, financial condition and other
cash requirements.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
and the notes thereto set forth elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1995 1994(1) 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operations for the periods indicated:
Total Revenues............................ $189,170 $162,300 $152,291 $138,839 $127,090
Costs and Expenses........................ 157,881 141,225 131,842 123,850 118,597
Net Income................................ 31,289 21,075 20,449 14,989 8,493
Earnings per share of Common Stock........ 1.27 0.86 0.83 0.61 0.35
Financial position at the end of the periods
indicated:
Total Assets.............................. 454,089 286,213 288,077 289,889 305,700
Term Debt................................. 262,213 126,447 143,253 163,319 189,252
Total Shareholders' Equity.................. 118,148 98,897 90,251 77,957 70,762
Cash Dividends per Common Share............. 0.48 0.44 0.40 0.34 0.28
</TABLE>
- ---------------
(1) The Company adopted Statement on Financial Accounting Standards No. 109
"Accounting for Income Taxes" during the first quarter of 1994 by
recognizing a one-time cumulative effect adjustment which reduced net
income by $1.9 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following historical table sets forth for the periods indicated certain
items in the Selected Financial Data as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES FOR
YEAR ENDED OCTOBER 31,
-----------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Revenues from:
Basic and expanded basic subscriptions........................ 67.4% 68.5% 71.5%
Premium subscriptions......................................... 17.5 18.0 18.0
Advertising................................................... 9.4 8.5 6.5
Other sources................................................. 5.7 5.0 4.0
----- ----- -----
Total Revenues............................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits.................................. 17.3% 18.1% 17.1%
Programming costs............................................. 23.1 22.5 21.7
Other operating expenses...................................... 3.5 3.6 3.3
Selling, general and administrative........................... 6.3 6.8 6.9
Depreciation and amortization................................. 15.0 20.7 21.9
----- ----- -----
Total operating expenses................................... 65.2% 71.7% 70.9%
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating income................................................... 34.8% 28.3% 29.1%
Other income..................................................... 0.2 1.0 0.2
Interest expense................................................. 7.3 6.0 7.2
Income tax....................................................... 11.2 9.2 8.7
Cumulative effect of change in accounting principle.............. 0.0 1.1 0.0
Net income....................................................... 16.5 13.0 13.4
</TABLE>
RESULTS OF OPERATIONS
General. During the past three years, the Company has experienced increases
in revenues, operating income and net income reflecting increased subscriptions
due to internal growth, the acquisition and construction of additional systems
and subscription rate increases. During the period from November 1, 1992 through
October 31, 1995, revenues, operating income and net income increased at average
annual growth rates of approximately 11%, 22% and 29%, respectively.
1995 COMPARED TO 1994
Fiscal year 1995 revenue increased by 17% over 1994 revenue. Approximately
33% of the revenue increase was the result of increased revenue from existing
customers, 10% from internal growth in the number of subscribers, 20% from
additional advertising revenue and 37% from acquisitions. The Company's revenue
from advertising increased 38%, revenue from basic and expanded basic services
increased 14% and revenue from premium services increased 10%.
Operating expenses increased 6% in 1995 compared to 1994. Programming costs
increased 20%, salaries, wages and benefits 12%, other operating expenses 14%,
selling, general and administrative 7% and depreciation and amortization
decreased 16%.
The Company's other income decreased $1,309,000. Other income for 1994
includes a pre-tax gain of $1,459,000 from the sale of two cable television
properties. Other income also includes losses of $543,000 for 1995 from the
Company's investment in affiliates reported under the equity method.
Interest expense increased 42% as a result of borrowings under the
Company's bank lines of credit and a $100 million private placement, as
described in Note 4 to the financial statements, made to finance the Company's
acquisition of cable television properties.
1994 COMPARED TO 1993
Fiscal year 1994 revenue increased by 7% over 1993 revenue. Approximately
14% of the revenue increase was the result of increased revenue from existing
customers, 36% from internal growth in the number of subscribers, 40% from
additional advertising revenue and 10% from acquisitions. The Company's revenue
from advertising increased 40%, revenue from basic and expanded basic services
increased 2% and revenue from premium services increased 6%.
Operating expenses increased 8% in 1994 compared to 1993. Of the operating
expense increase, 41% was from increases in programming costs, 39% from
salaries, wages and benefits, 9% from other operating expenses, 7% from selling,
general and administrative and 4% from depreciation and amortization.
Programming costs increased 10%, salaries, wages and benefits 12%, other
operating expenses 16%, selling, general and administrative 6% and depreciation
and amortization 1%.
The Company's other income increased $1,342,000. Other income includes a
pre-tax gain of $1,459,000 from the sale of two cable television properties.
Other income also includes losses of $193,000 from the Company's investments in
affiliates reported under the equity method.
Interest expense decreased 11% as a result of the Company's repayment of
term debt.
13
<PAGE> 14
The Company has adopted Statement on Financial Accounting Standards No. 109
"Accounting for Income Taxes" which has changed the Company's method of
accounting for income taxes to an asset and liability method. The Company
adopted FAS 109 during the first quarter of 1994 by recognizing a one-time
cumulative effect adjustment which reduced net income by $1.9 million. Net
income before the cumulative effect of FAS 109 was $23.0 million, a 12% increase
over 1993. Net income after recognition of FAS 109 was $21.1 million, a 3%
increase over 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital expenditures, other than for acquisitions, during
fiscal 1995 were primarily directed at cable system construction, upgrading and
rebuilding and purchases of converters to be furnished to subscribers.
Approximately $39.8 million of internally generated funds was spent for system
upgrading and expansion during fiscal 1995. The Company anticipates no increase
in the amount of capital expenditures needed for system upgrading and expansion
during 1996 compared to 1995. Approximately $150.7 million, $3.1 million and
$6.9 million was spent on acquisitions in fiscal years 1995, 1994 and 1993,
respectively. All of the funds were obtained from bank lines of credit and a
$100 million private placement.
The Company anticipates paying approximately $21 million and $13.8 million
in interest expense and dividends, respectively, during fiscal 1996. The Company
does not anticipate a material negative affect on liquidity on account of the
payment of such items.
The Company's net cash provided by operating activities during the most
recent fiscal year increased to $68.2 million, up from $60.5 million in fiscal
1994 and $58.9 million in fiscal 1993. The increase is a result of additional
subscribers in existing systems, increased revenue per subscriber and
acquisitions, as more fully explained above with respect to the Company's
results of operations.
At October 31, 1995, the Company had $109.7 million borrowed under its
revolving credit agreements with eleven banks which provide for total credit of
up to $228 million. The revolving credit agreements provide for interest at
prime or LIBOR.
During fiscal 1995, 1994 and 1993, the Company borrowed approximately
$315.8 million, $73.7 million and $104.4 million, respectively, and repaid
approximately $180.0 million, $90.5 million and $124.5 million, respectively. At
October 31, 1995, the Company had total outstanding term debt of approximately
$262.2 million, bearing interest at a weighted average rate of approximately
7.3%.
Under terms of the Company's current term debt, the Company will have
scheduled debt maturities of approximately $42.0 million, $12.2 million, $12.0
million, $26.2 million and $18.2 million in fiscal 1996, 1997, 1998, 1999 and
2000, respectively. The Company believes that cash flow from operations and its
ability to obtain financing will be adequate to fund these debt maturities.
Two measures of liquidity are debt to cash flow and interest coverage
ratios. Debt to cash flow is the ratio of debt to operating income before
depreciation and amortization. The Company's debt to cash flow ratio was 2.5 to
1, 1.6 to 1 and 1.8 to 1 at October 31, 1995, 1994 and 1993, respectively.
Interest coverage is the ratio of operating income before depreciation and
amortization to interest expense. The Company's interest coverage ratio was
773%, 816% and 708% for 1995, 1994 and 1993, respectively.
Expenditures for rebuilding, upgrading and maintaining the Company's cable
systems and for converter purchases have been financed principally with cash
flow from operations and through bank borrowings and seller financing.
The Company believes that net cash provided by operating activities and the
Company's ability to obtain additional financing will provide adequate sources
of short-term and long-term liquidity in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are included under Item 14
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
YEAR
FIRST ELECTED
NAME AGE PRESENT OFFICE OR POSITION DIRECTOR
- ------------------------------------------- --- --------------------------------- -------------
<S> <C> <C> <C>
Robert M. Rogers........................... 69 Chairman of the Board of 1981
Directors and Chief Executive
Officer
Fred R. Nichols............................ 49 President, Chief Operating 1981
Officer and Director
Jimmie F. Taylor........................... 42 Vice President, Chief Financial --
Officer and Treasurer
Jerry P. Yandell........................... 57 Vice President -- Operations --
Melvin R. Jenschke......................... 54 Vice President -- Engineering --
Wayne J. McKinney(2)....................... 64 Director 1981
Ben R. Fisch, M.D.(1)...................... 70 Director 1981
James F. Ackerman(2)....................... 71 Director 1981
Kenneth S. Gunter(2)....................... 62 Director 1984
A. W. Riter, Jr.(1)........................ 71 Director 1981
Randall K. Rogers.......................... 36 Director and General Manager 1989
Fred W. Smith.............................. 62 Director 1995
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Stock Option and Compensation Committee
Each of the foregoing persons has served in the above capacities since the
inception of the Company in 1981 unless otherwise indicated. Each director
serves until the next annual meeting of the Company's shareholders or until his
successor is duly elected and qualified. The Company's executive officers serve
at the discretion of the Board of Directors.
Robert M. Rogers founded the Company and each of its subsidiaries and has
served as Chairman of the Board of Directors and CEO of the Company and each of
the Company's subsidiaries since their inception. Mr. Rogers was President of
the Company from its inception in 1981 until September, 1990. Mr. Rogers has
been actively involved in the ownership and operation of cable television
systems since 1954. Mr. Rogers is an officer, director and shareholder of the
Affiliated Companies. He is a member of the cable television Pioneers' Club.
Fred R. Nichols is President, Chief Operating Officer and a director of the
Company. Prior to being named President in September, 1990, Mr. Nichols served
as Executive Vice President and a director of the Company since its inception,
Chief Operating Officer of the Company since December, 1983 and Secretary of the
Company from September, 1984 until December, 1990. He had been Treasurer of the
Company's subsidiaries from 1980 until 1985 when he was named President of TCA
Management Company and all other wholly-owned subsidiaries of the Company,
excluding VPI Communications, Inc. Mr. Nichols is currently Chairman of the
Cable Telecommunications Association (CATA), a trade association of the cable
industry. He is also on the Board of Directors of C-SPAN, a CATV network.
Jimmie F. Taylor is Vice President, Chief Financial Officer and Treasurer.
Prior to being named Vice President in December, 1990, Mr. Taylor served as
Chief Financial Officer and Treasurer of the Company since November 1, 1986. He
had been Controller of the Company's wholly-owned subsidiary, TCA Management
Company, since joining the Company in May, 1984. Immediately prior to joining
the Company, he was employed for nine years in public accounting. Mr. Taylor is
a Certified Public Accountant.
15
<PAGE> 16
Jerry P. Yandell has served as a Vice President of the Company since March
25, 1987. He is Senior Vice President -- Operations of TCA Management Company,
and has been Personnel Director since March, 1979. Immediately prior to joining
the Company, he was employed as Personnel Director for General Electric in
Tyler, Texas, where he had been for eighteen years.
Melvin R. Jenschke has served as a Vice President of the Company since
March 25, 1987. He has been with the Company since 1969 serving in several
capacities prior to becoming Senior Vice President -- Engineering for TCA
Management Company in 1983.
Wayne J. McKinney has been actively engaged in the cable television
business since 1958 and was employed by the Company or its subsidiaries from
1958 until his retirement in January, 1986, serving as a Director and Senior
Vice President -- Engineering of the Company from its inception and as Senior
Vice President or Vice President, Chief Engineer and/or Director of Engineering
of the Company's subsidiaries. Mr. McKinney has been a member of the cable
television Pioneers' Club since 1979, and is a Charter and Senior Member of the
Society of Cable Telecommunications Engineers.
Ben R. Fisch, M.D., has been a director of the Company or its subsidiaries
since 1967. Dr. Fisch has been retired from medical practice in Tyler, Texas
since July, 1986.
A. W. Riter, Jr. retired as Senior Chairman of the Board of Directors of
NCNB Texas -- Tyler, Texas (successor to First RepublicBank Tyler), on September
30, 1988. He had served as Chairman and Chief Executive Officer until June 30,
1988 and held the same positions with First RepublicBank Tyler and its
predecessor, InterFirst Bank Tyler, from August, 1979 to June, 1988 and served
as President of Peoples National Bank (predecessor of InterFirst Bank Tyler)
from 1964 until 1979. Mr. Riter served as a director and Vice President of most
of the Company's subsidiaries from time to time from 1965 to 1974.
James F. Ackerman is President of Cardinal Ventures, LLC in Indianapolis,
Indiana. Cardinal Ventures, LLC is an equity investor in small businesses. Mr.
Ackerman had been President of Jim Ackerman and Associates, Inc., a financial
consulting firm to the cable television industry from October, 1984 to December
31, 1994. From 1973 to December 1, 1984, he was Senior Vice President of A.G.
Becker Paribas, Inc. Mr. Ackerman has been engaged in investment banking
activities with respect to the cable television industry since 1959 and had
served as a partner of Becker Communications Associates, a cable television
investment partnership, from 1973 to 1989. He was also Chairman and Chief
Executive Officer of Cardinal Communications, Inc., an Indiana cable television
operator, a position he had held from 1971 until the company was sold in 1993.
Mr. Ackerman is a former President and Director of the Indiana Cable Television
Association, a past Director of the National Cable Television Association and a
member of the cable television Pioneers' Club.
Kenneth S. Gunter is Chairman and CEO of MT Associates, Inc., San Angelo,
Texas, a broadband communications design and construction contractor. Since
1958, he has served as a senior officer and director of several publicly-held
cable television multiple system operators, including International Cablevision
Corporation, Columbia Cable Systems, Inc., UA-Columbia Cablevision, Inc.,
Rogers-UA Cablesystems, Inc., and United Artists Communications, Inc. He is a
past director of the National Cable Television Association, a Senior Member and
past officer and director of the Society of Cable Telecommunications Engineers,
and a member of the cable television Pioneers' Club.
Randall K. Rogers has been with TCA since 1983, previously serving as
general manager in Big Spring and Huntsville, Texas. Since 1989, Mr. Rogers has
served as general manager of the Company's operations in Bryan/College Station,
Texas. Mr. Rogers is the son of Robert M. Rogers.
Fred W. Smith is Chairman of the Donald W. Reynolds Foundation, one of the
thirty largest private charitable foundations in the United States. Mr. Smith's
entire business career has been with the Donrey Media Group, which he joined in
1951. He served in various capacities until 1993 when he retired as the
company's President and Chief Executive Officer.
The Board of Directors held four meetings during fiscal 1995. The Board of
Directors has two standing committees -- the Audit Committee and the
Compensation and Stock Option Committee.
16
<PAGE> 17
The functions performed by the Audit Committee include: recommending to the
Board of Directors selection of the Company's independent accountants for the
ensuing year; reviewing with the independent accountants and management the
scope and result of the audit; reviewing the independence of the independent
accountants; reviewing actions by management and independent accountants'
recommendations; and meeting with management and the independent auditors to
review the effectiveness of the Company's system of internal control. The Audit
Committee met two times during fiscal 1995.
The Compensation and Stock Option Committee met twice during 1995. The
functions performed by this committee include: reviewing and recommending the
Company's executive salary structure; reviewing the Company's Incentive Stock
Option Plan (and granting options thereunder); recommending directors' fees; and
approving salary and bonus awards to certain key employees.
The information called for by Item 11, Executive Compensation, Item 12,
Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, is hereby incorporated herein by
reference to the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders presently scheduled to be held March 28, 1996, which shall be
filed with the Securities and Exchange Commission within 120 days of the end of
the Registrant's last fiscal year.
17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following consolidated financial statements of TCA Cable TV, Inc. and
Subsidiaries, otherwise includable under Item 8, are included in this Item 14.
<TABLE>
<CAPTION>
PAGES
-------
<S> <C> <C>
14(a)(1) TCA Cable TV, Inc. and Subsidiaries Financial Statements:
(i) Report of Independent Accountants........................................ F1
(ii) Consolidated Balance Sheets as of October 31, 1995 and 1994.............. F2
(iii) Consolidated Statements of Operations for the years ended October 31,
1995, 1994 and 1993...................................................... F3
(iv) Consolidated Statements of Shareholders' Equity for the years ended
October 31, 1995, 1994 and 1993.......................................... F4
(v) Consolidated Statements of Cash Flows for the years ended October 31,
1995, 1994 and 1993...................................................... F5-F6
(vi) Notes to Consolidated Financial Statements............................... F7-F13
14(a)(2) Financial Statement Schedules:
None.
</TABLE>
14(A)(3) EXHIBITS
EXHIBIT
<TABLE>
<S> <C>
2 None.
3(a) Articles of Incorporation and Bylaws. *1
3(b) Articles of Amendment to Articles of Incorporation. *2
3(c) Articles of Amendment to Articles of Incorporation. *2
3(d) Articles of Amendment to Articles of Incorporation. *5
4(a) Form of Stock Certificate. *1
9 None.
10(a) Sample Form of Affiliated Company Management Agreement. *1
10(b) TCA Deferred Savings and Retirement Plan. *4
10(c) Office building lease. *5
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
- ---------
<S> <C>
10(d) TCA Cable TV, Inc. Amended and Restated Incentive Stock Option Plan. *11
10(e) Note Agreement dated as of September 27, 1989 by and between the Prudential
Insurance Company of America and TCA Cable TV, Inc. *6
10(f) Note Agreement dated as of June 23, 1995 by and between the Prudential Insurance
Company of America and TCA Cable TV, Inc. *8
10(g) Credit Agreement dated July 21, 1995 between TCA Cable TV, Inc. , NationsBank of
Texas, N.A. , Texas Commerce Bank National Association and Lenders. *8
10(h) Asset and Purchase Agreement dated January 20, 1995 by and between
Tele-Communications of Arkansas Limited Partnership and Time Warner Entertainment L.
P., through its division Time Warner Cable Ventures. *6
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
- ---------
<S> <C>
10(i) Letter Agreement dated April 24, 1995, between Tele-Communications of Arkansas
Limited Partnership and Time Warner Entertainment Company, L. P., through its
division Time Warner Cable Ventures, amending Asset Purchase Agreement. *9
10(j) Asset and Purchase Agreement dated January 20, 1995 by and between
Tele-Communications of Arkansas Limited Partnership and Time Warner Entertainment L.
P., through its division Time Warner Cable Ventures. *6
10(k) Letter Agreement dated April 24, 1995, between Tele-Communications of Northwest
Arkansas Limited Partnership and Time Warner Entertainment Company, L. P., through
its division Time Warner Cable Ventures, amending Asset Purchase Agreement. *10
10(l) Limited Partnership Agreement of McMillian Partners, L. P. dated January 20, 1995.
*6
10(m) Limited Partnership Agreement of Tele-Communications of Arkansas Limited Partnership
dated January 20, 1995. *6
10(n) Limited Partnership Agreement of Tele-Communications of Northwest Arkansas Limited
Partnership dated January 20, 1995. *6
10(o) Asset Purchase Agreement dated March 24, 1995, between Teleservice Corporation of
America and Marcus Cable of San Angelo, L.P. *7
10(p) Asset Purchase Agreement dated August 28, 1995, between Telecable Associates, Inc.
and Star Cable Associates. *8
10(q) Asset Purchase Agreement dated August 28, 1995, between Telecable Associates, Inc.
and Time Warner Entertainment-Advance/Newhouse Partnership. *8
10(r) General Partnership Agreement by and between TAL Financial Corporation and DR
Partners dated December 13, 1995. *3
11 None.
12 None.
13 None.
16 None.
18 None.
21 Subsidiaries of the Registrant. *3
22 None.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
- ---------
<S> <C>
23 Consent of Coopers & Lybrand L.L.P *3
24 None.
27 Financial Data Schedule. *3
28 None.
99 None.
</TABLE>
- ---------------
*1 Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1, File No. 2-75516, and incorporated by reference herein.
*2 Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8, File No. 33-21901, and incorporated by reference herein.
*3 Filed herewith.
*4 Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8, File No. 2-88892, and incorporated by reference herein.
*5 Previously filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended October 31, 1993, filed January 27, 1994 and incorporated by
reference herein.
*6 Previously filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended October 31, 1994, filed January 30, 1995 and incorporated by
reference herein.
19
<PAGE> 20
*7 Previously filed as an exhibit to Registrant's Form 10-Q for the quarter
ended April 30, 1995, filed June 14, 1995 and incorporated by reference
herein.
*8 Previously filed as an exhibit to Registrant's Form 10-Q for the quarter
ended July 31, 1995, filed September 14, 1995 and incorporated by reference
herein.
*9 Previously filed as an exhibit to Registrant's Form 8-K , filed May 15,
1995 and incorporated by reference herein.
*10 Previously filed as an exhibit to Registrant's Form 8-K , filed May 24,
1995 and incorporated by reference herein.
*11 Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8, File No. 33-61041, and incorporated by reference herein.
14(B) REPORTS ON FORM 8-K:
1. Form 8-K/A filed September 11, 1995, subsequent to the Fayetteville
acquisition (Item 2).
2. Form 8-K/A filed September 13, 1995, subsequent to the San Angelo
acquisition (Item 2).
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
TCA CABLE TV, INC.
(REGISTRANT)
<TABLE>
<S> <C>
Dated: 01/22/96 /s/ ROBERT M. ROGERS
Robert M. Rogers
Chairman and Chief Executive Officer
</TABLE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities and on the date indicated.
<TABLE>
<S> <C>
Dated: 01/22/96 /s/ ROBERT M. ROGERS
Robert M. Rogers,
Chairman and Chief Executive Officer
Dated: 01/22/96 /s/ FRED R. NICHOLS
Fred R. Nichols, President,
Chief Operating Officer and Director
Dated: 01/22/96 /s/ WAYNE J. MCKINNEY
Wayne J. McKinney, Director
Dated: 01/22/96 /s/ BEN R. FISCH
Ben R. Fisch, M.D., Director
Dated: 01/22/96 /s/ KENNETH S. GUNTER
Kenneth S. Gunter, Director
Dated: 01/22/96 /s/ RANDALL K. ROGERS
Randall K. Rogers, Director
Dated: 01/22/96 /s/ A. W. RITER, JR.
A. W. Riter, Jr., Director
Dated: 01/22/96 /s/ JAMES F. ACKERMAN
James F. Ackerman, Director
Dated: 01/22/96 /s/ FRED W. SMITH
Fred W. Smith, Director
Dated: 01/22/96 /s/ JIMMIE F. TAYLOR
Jimmie F. Taylor, Vice President,
Chief Financial Officer and Treasurer
Dated: 01/22/96 /s/ SABRINA A. WARR
Sabrina A. Warr, Controller
TCA Management Company
</TABLE>
21
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
TCA Cable TV, Inc.:
We have audited the consolidated financial statements of TCA Cable TV, Inc.
and Subsidiaries as listed in item 14(a) of this Form 10-K. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TCA Cable TV,
Inc. and Subsidiaries as of October 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1994
the Company changed its method of accounting for income taxes.
COOPERS & LYBRAND L. L. P.
Dallas, Texas
January 23, 1996
F-1
<PAGE> 23
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- -------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Cash.......................................................... $ 1,260,274 $ 2,445,112
------------- -------------
Accounts receivable, subscribers.............................. 7,973,959 4,913,712
------------- -------------
Accounts receivable, other.................................... 879,268 164,904
------------- -------------
Income tax receivable......................................... 932,306 --
------------- -------------
Notes receivable, affiliates.................................. 2,500,000 --
------------- -------------
Investments................................................... 1,680,163 2,223,038
------------- -------------
Property, plant and equipment, at cost:
Land........................................................ 2,888,678 2,661,055
Distribution systems........................................ 293,134,397 243,607,084
Transportation equipment.................................... 7,800,092 6,513,387
Other....................................................... 26,668,443 22,553,063
------------- -------------
330,491,610 275,334,589
Less accumulated depreciation............................... (178,722,319) (162,749,992)
------------- -------------
151,769,291 112,584,597
------------- -------------
Other assets:
Intangibles, net of accumulated amortization of $72,601,115
and $65,132,499, respectively............................ 285,521,922 163,386,733
Prepaid expenses............................................ 1,571,753 494,839
------------- -------------
287,093,675 163,881,572
------------- -------------
$ 454,088,936 $ 286,212,935
============= =============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES 1995 1994
- -------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Accounts payable.............................................. $ 6,496,407 $ 5,357,363
Accrued expenses.............................................. 15,195,324 11,276,727
Subscriber advance payments................................... 3,856,362 3,739,313
Income taxes payable.......................................... -- 495,278
Deferred income taxes......................................... 48,180,000 40,000,000
Term debt..................................................... 262,213,055 126,447,345
------------- -------------
335,941,148 187,316,026
------------- -------------
Contingencies and commitments
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------
Preferred stock, $1.00 par value, 5,000,000 shares authorized;
none issued Common stock, $.10 par value, 60,000,000 shares
authorized; 24,782,121 and 24,733,261 shares issued,
respectively................................................ 2,478,212 2,473,326
Additional paid-in capital.................................... 43,704,988 42,860,849
Retained earnings............................................. 75,768,342 56,266,488
------------- -------------
121,951,542 101,600,663
Less treasury stock at cost, 209,828 and 159,828 shares,
respectively................................................ (3,803,754) (2,703,754)
------------- -------------
118,147,788 98,896,909
------------- -------------
$ 454,088,936 $ 286,212,935
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE> 24
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CATV revenues.................................... $189,170,285 $162,300,265 $152,291,268
Operating expenses:
Salaries, wages and benefits................... 32,814,442 29,341,560 26,102,999
Programming costs.............................. 43,713,752 36,476,851 33,021,761
Other operating expenses....................... 6,641,685 5,807,893 5,026,068
Selling, general and administrative............ 11,835,891 11,086,059 10,470,737
Depreciation and amortization.................. 28,351,802 33,635,939 33,329,644
------------ ------------ ------------
123,357,572 116,348,302 107,951,209
------------ ------------ ------------
Operating income............................... 65,812,713 45,951,963 44,340,059
Other income..................................... 353,221 1,662,688 320,515
Interest expense................................. (13,847,458) (9,747,932) (10,970,889)
------------ ------------ ------------
Income before income taxes..................... 52,318,476 37,866,719 33,689,685
------------ ------------ ------------
Provision for income taxes:
Current........................................ 12,849,000 11,805,000 11,192,000
Deferred....................................... 8,180,000 3,087,114 2,049,000
------------ ------------ ------------
21,029,000 14,892,114 13,241,000
------------ ------------ ------------
Income before cumulative effect of change in
accounting principle........................ $ 31,289,476 $ 22,974,605 $ 20,448,685
Cumulative effect of change in accounting
principle...................................... (1,900,000)
------------ ------------ ------------
Net Income....................................... $ 31,289,476 $ 21,074,605 $ 20,448,685
============ ============ ============
Earnings per common share before cumulative
effect of change in accounting principle....... $ 1.27 $ 0.93 $ 0.83
Cumulative effect of change in accounting
principle...................................... (0.07)
------------ ------------ ------------
Earnings per common share........................ $ 1.27 $ 0.86 $ 0.83
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 25
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ISSUED ADDITIONAL
----------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1992......... 24,608,671 $2,460,867 $40,619,357 $35,420,927 $ (543,754)
Net income...................... 20,448,685
Issuance of common stock........ 70,856 7,086 1,518,026
Stock options exercised......... 27,169 2,717 162,998
Cash dividends at $.40 a
share........................ (9,846,089)
---------- ---------- ----------- ----------- -----------
Balance, October 31, 1993......... 24,706,696 2,470,670 42,300,381 46,023,523 (543,754)
Net income...................... 21,074,605
Issuance of common stock........ 23,179 2,318 525,044
Stock options exercised......... 3,386 338 35,424
Cash dividends at $.44 a
share........................ (10,831,640)
Treasury stock purchased........ (2,160,000)
---------- ---------- ----------- ----------- -----------
Balance, October 31, 1994......... 24,733,261 2,473,326 42,860,849 56,266,488 (2,703,754)
Net income...................... 31,289,476
Issuance of common stock........ 21,336 2,134 551,267
Stock options exercised......... 27,524 2,752 292,872
Cash dividends at $.48 a
share........................ (11,787,622)
Treasury stock purchased........ (1,100,000)
---------- ---------- ----------- ----------- -----------
Balance, October 31, 1995......... 24,782,121 $2,478,212 $43,704,988 $75,768,342 $(3,803,754)
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 26
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers..................... $185,512,723 $162,261,147 $150,933,831
Cash paid to suppliers and employees............. (90,429,159) (79,791,539) (70,640,656)
Other revenue received........................... 612,799 391,800 366,033
Interest paid.................................... (13,246,011) (9,840,838) (11,147,290)
Income taxes paid................................ (14,276,584) (12,522,454) (10,601,029)
------------ ------------ ------------
Net cash provided by operating activities... 68,173,768 60,498,116 58,910,889
------------ ------------ ------------
Cash flows from investing activities:
Payments for purchases of companies and CATV
systems....................................... (150,713,520) (3,116,975) (6,933,460)
Capital expenditures............................. (39,766,039) (28,452,921) (21,658,411)
Loan to affiliate................................ (2,500,000)
Proceeds from sales of assets.................... 1,090,992 1,828,538 58,548
------------ ------------ ------------
Net cash used in investing activities......... (191,888,567) (29,741,358) (28,533,323)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings of term debt.......................... 315,785,939 73,699,990 104,399,999
Repayments of term debt.......................... (180,020,230) (90,506,034) (124,465,451)
Debt issuance costs.............................. (643,750)
Treasury stock purchased......................... (1,100,000) (2,160,000)
Proceeds from stock options exercised............ 295,624 35,762 165,715
Dividends paid................................... (11,787,622) (10,831,640) (9,846,089)
------------ ------------ ------------
Net cash provided by (used in) financing
activities.................................. 122,529,961 (29,761,922) (29,745,826)
------------ ------------ ------------
Net increase (decrease) in cash.................... (1,184,838) 994,836 631,740
Cash at beginning of year.......................... 2,445,112 1,450,276 818,536
------------ ------------ ------------
Cash at end of year................................ $ 1,260,274 $ 2,445,112 $ 1,450,276
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 27
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income.......................................... $31,289,476 $21,074,605 $20,448,685
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense............................. 20,883,186 22,039,964 21,540,573
Amortization expense............................. 7,468,616 11,595,975 11,789,071
(Gain) loss on sale of assets.................... (283,118) (1,463,491) 45,518
Share of losses of affiliates.................... 542,875 192,603
Deferred income taxes............................ 8,180,000 4,987,114 2,049,000
Contribution of common stock to retirement
plan........................................... 553,401 527,362 462,612
(Increase) decrease in prepaid expenses.......... (433,164) 129,034 44,111
Increase in accounts receivable, subscribers..... (3,060,247) (190,688) (1,499,205)
(Increase) decrease in accounts receivable,
other.......................................... (714,364) 296,892 119,676
Increase in income tax receivable................ (932,306)
Increase (decrease) in subscriber advance
payments....................................... 117,049 (145,322) 22,092
Increase in accrued expenses..................... 3,918,597 1,563,226 3,122,860
Increase (decrease) in income taxes payable...... (495,278) (717,454) 590,971
Increase in accounts payable..................... 1,139,045 608,296 174,925
----------- ----------- -----------
Net cash provided by operating activities............. $68,173,768 $60,498,116 $58,910,889
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 28
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION:
TCA Cable TV, Inc. (the "Company" or "TCA") owns and operates cable
television ("CATV") systems in nonurban areas. The consolidated financial
statements include the accounts of TAL Financial Corporation ("TAL"), a
wholly-owned subsidiary of the company, and TAL's wholly-owned subsidiaries: TCA
Management Company; Teleservice Corporation of America; Texas Community
Antennas, Inc.; Texas Telecable, Inc.; TCA Cable of Amarillo, Inc.; Telecable
Associates, Inc.; Delta Cablevision, Inc., Sun Valley Cablevision, Inc., VPI
Communications, Inc., AvComm Corporation, Tele-Communications of Arkansas L.P.
and Tele-Communications of Northwest Arkansas L.P.
All significant intercompany transactions have been eliminated in
consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the related assets as
follows:
<TABLE>
<S> <C>
Distribution systems............................................ 5-15 years
Transportation equipment........................................ 5 years
Other........................................................... 5-32 years
</TABLE>
Maintenance and repair costs are charged to expense as incurred. Major
replacements and betterments are capitalized. Upon sale or retirement, the cost
and accumulated depreciation applicable to the asset is removed from the
accounts and the resulting profit or loss is reflected in income.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. During 1994, the Company adopted Statement on Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("FAS 109"). This statement
requires the use of an asset and liability approach for financial accounting and
reporting for income taxes. Net income for 1994 was reduced $1,900,000 or $.07
per share by the recognition of a one-time cumulative effect adjustment from the
adoption of FAS 109.
Intangibles
Intangible assets including franchises, noncompete agreements and goodwill
are recorded at cost. Intangible assets are amortized on a straight-line basis
over the expected useful lives of the assets which range from 5 to 40 years.
Goodwill represents the excess of the cost of the acquisition over the fair
value of the net assets acquired and is being amortized on a straight-line basis
over 40 years. At each balance sheet date, management assesses whether there has
been a permanent impairment in the value of goodwill by considering current
operating results, trends and prospects.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
F-7
<PAGE> 29
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Investments
Investments in affiliates in which the Company's voting interest is 20% to
50% are accounted for under the equity method. Under this method, the
investment, originally recorded at cost, is adjusted to recognize the Company's
share of the net earnings or losses of the affiliates as they occur rather than
as dividends or other distributions are received. The Company's share of the
results of operations of investees is not material.
3. INTANGIBLE ASSETS:
Intangible assets consists of the following at October 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Covenants not to compete........................ $ 35,441,423 $ 33,152,423
Franchises...................................... 145,192,565 135,991,565
Goodwill........................................ 177,489,049 59,375,244
------------ ------------
358,123,037 228,519,232
Less: Accumulated amortization.................. (72,601,115) (65,132,499)
------------ ------------
$285,521,922 $163,386,733
============ ============
</TABLE>
4. TERM DEBT:
Term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Notes payable to three companies payable in semiannual
installments beginning February 1993, due August 1999, bearing
interest at 9.0%.............................................. $ 52,000,000 $ 68,000,000
Notes payable to five insurance companies payable in annual
installments beginning June 1999, due June 2005, bearing
interest at 7.26%............................................. 100,000,000 0
Revolving bank credit, terminating June 30, 2002, with 20
quarterly commitment reductions commencing September 1997,
with interest at prime or LIBOR, unused portion of
$116,000,000 as of October 31, 1995, with a commitment fee of
1/4% per annum on the unused
portion(a).................................................... 84,000,000 0
Revolving bank credit, terminating June 1996, with interest at
prime or LIBOR, unused portion of $300,000 and $4,000,000 as
of October 31, 1995 and 1994, respectively, with no commitment
fees(a)....................................................... 24,700,000 11,000,000
Revolving bank credit agreements, terminated July 1995, with
interest at prime, LIBOR or a rate based on certificate of
deposit rates, unused portion of $38,000,000 as of October 31,
1994, with a commitment fee of 1/4% per annum on the unused
portion(a).................................................... 0 47,000,000
Other........................................................... 1,513,055 447,345
------------ ------------
$262,213,055 $126,447,345
=========== ===========
</TABLE>
- ---------------
(a) The weighted average interest rate on the Company's revolving bank credit at
October 31, 1995 was 6.64%.
F-8
<PAGE> 30
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. TERM DEBT -- (CONTINUED)
The Company's revolving bank credit agreements and the term loan agreements
contain restrictive covenants including minimum cash flow ratios. Under these
covenants, the Company's dividends, capital expenditures and fixed principal
payments could also be limited.
Scheduled maturities of term debt at October 31, 1995, are as follows:
<TABLE>
<S> <C>
1996........................................................... $ 41,953,161
1997........................................................... 12,234,714
1998........................................................... 12,008,987
1999........................................................... 26,295,642
2000........................................................... 18,291,978
Thereafter..................................................... 151,428,573
------------
$262,213,055
============
</TABLE>
5. TRANSACTIONS WITH AFFILIATES:
TCA Management Company performs all accounting and management services for
two CATV systems owned by affiliated companies (the "affiliated companies").
Revenues received by TCA Management Company from the affiliated companies (which
equal an expense reimbursement plus a profit) are included in CATV revenues and
related expenses are included in operating expenses. These amounts are not
material.
The Company leases its headquarters building from a company partially owned
by an officer and director of TCA. The annual lease expense was $318,515,
$324,784 and $393,744 for 1995, 1994 and 1993, respectively.
The Company purchased distribution system construction services from a
partnership partially owned by a director of the Company. During 1995 and 1994,
transactions with the partnership totaled $4,603,694 and $816,705, all of which
were capitalized. The Company has also guaranteed a $198,000 loan from a bank
for the same partnership.
The Company has a note receivable from TCA Communications, Inc., a 50%
owned affiliate. The note is due in May 1996 with interest at 10%.
6. CONTINGENCIES AND COMMITMENTS:
Annual rental expense for utility poles and tower sites for the years ended
October 31, 1995, 1994 and 1993 was approximately $1,434,000, $1,482,000 and
$1,490,000, respectively.
Rental expense for all rental agreements for the years ended October 31,
1995, 1994 and 1993 was approximately $2,316,000, $2,288,000 and $2,156,000,
respectively.
F-9
<PAGE> 31
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The following is a reconciliation of taxes computed at the statutory
federal income tax rate with the provision for income taxes in the consolidated
financial statements for the three years ended October 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income before income taxes.......................... $52,318,476 $37,866,719 $33,689,684
=========== =========== ===========
Statutory federal rate.............................. 35.0% 35.0% 34.8%
Provision for federal income taxes at the statutory
federal rate...................................... $18,311,467 $13,253,352 $11,735,240
State income taxes.................................. 2,671,414 1,362,000 1,151,936
Amortization of goodwill............................ 272,654 317,300 362,174
Other............................................... (226,535) (40,538) (8,350)
----------- ----------- -----------
Provision for income taxes.......................... $21,029,000 $14,892,114 $13,241,000
=========== =========== ===========
</TABLE>
The deferred income taxes liability balance of $48,180,000 and $40,000,000
at October 31, 1995 and 1994, respectively, is the tax effect of a temporary
difference between allowable depreciation and amortization for tax purposes and
depreciation and amortization provisions under generally accepted accounting
principles. The Company does not have any other material temporary differences
necessitating a provision for deferred income taxes.
8. EARNINGS PER COMMON SHARE:
Earnings per common share are computed using the weighted average number of
shares outstanding during the period, including common stock equivalents:
24,582,447 shares for 1995, 24,638,135 shares for 1994, and 24,638,061 shares
for 1993.
9. SALES AND ACQUISITIONS:
On August 1, 1995, the Company, through a subsidiary, purchased the assets
related to the operation of the cable television system serving approximately
10,000 subscribers in the city of El Dorado, Arkansas from Time Warner Cable
Ventures, a division of Time Warner Entertainment, L.P. The purchase price was
approximately $19 million, $15.4 million of which relates to acquired
intangibles.
On July 1, 1995, the Company, through a subsidiary, acquired substantially
all of the assets used by Marcus Cable of San Angelo, L.P. in the operation of
the cable television systems serving approximately 28,000 subscribers in and
around the following cities, counties, and areas in Texas: San Angelo, Andrews,
Ballinger, Miles, Winters, Goodfellow Air Force Training Center, Andrews County,
and Tom Green County. The cost of the acquisition was approximately $66 million,
$57.8 million of which relates to acquired intangibles.
In May 1995, the Company, through its subsidiaries, acquired substantially
all of the assets used by Time Warner Entertainment Company, L.P. in the
operation of the cable television systems serving approximately 34,000
subscribers in and around the following cities in Arkansas: Fayetteville,
Elkins, Farmington, Greenland, Russellvile, Clarksville, Booneville, Pottsville,
Paris, and the unincorporated areas within the counties in which the foregoing
cities are located. The cost of the acquisition was approximately $66 million,
$56.4 million of which relates to acquired intangibles.
The 1995 acquisitions were paid in cash obtained from the Company's bank
lines of credit and a $100 million private placement.
F-10
<PAGE> 32
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SALES AND ACQUISITIONS -- (CONTINUED)
On July 1, 1994, the Company acquired the assets of the cable television
system serving 411 subscribers in Elm Springs, Arkansas and parts of Springdale,
Arkansas. The cable television system is located adjacent to, and will be
operated by, a currently owned system of the Company. The acquisition was funded
by the payment of $540,465 in cash obtained from operations.
On June 1, 1994, the Company acquired 50% of the common stock of TCA
Communications, Inc. ("TCAC"). TCAC is a new corporation whose initial purpose
is to sell long distance telephone services in the cable television communities
presently served by the Company and in other adjacent markets. The acquisition
was funded by the payment of $2 million in cash obtained from operations. The
remaining 50% of TCAC is owned by a privately held independent telephone
company.
In April, 1994, the Company acquired 80% of the common stock of AvComm
Corporation ("AvComm"), a new company formed to sell telecommunications
services. The purchase price of $160,000 was obtained from operations. In
September, 1994 the Company acquired the remaining 20% of the common stock of
AvComm for $172,800 in cash from operations. The consolidated financial
statements include the accounts of AvComm. All material intercompany
transactions and balances have been eliminated.
In March, 1994, the Company acquired 40% of the stock of Intermedia
Technologies, Inc. The Company also acquired a 40% interest in Intermedia
Technologies, Ltd., a limited partnership engaged in telecommunications
engineering and construction. The remaining 60% of both entities is owned by a
director of the Company and his son. Intermedia Technologies, Inc. is the
general partner of Intermedia Technologies, Ltd. The Company's initial
investment in both entities was $122,333 paid in cash from operations. During
1994, the Company invested an additional $293,308 in Intermedia Technologies,
Ltd.
On March 1, 1994, the Company sold the assets of the cable television
systems serving 807 subscribers in two cities. The sales price was $1,008,750
resulting in a pre-tax gain of approximately $900,000 and an increase in net
income of approximately $549,000 or $0.02 per share.
On December 1, 1993, the Company sold the assets of a cable television
system serving 641 subscribers in one city. The sales price was $769,200
resulting in a pre-tax gain of approximately $559,000 and an increase in net
income of approximately $341,000 or $0.01 per share.
These acquisitions were accounted for as purchases, and accordingly,
results of operations of the acquired assets have been included in the
consolidated financial statements from the dates of acquisition.
The pro forma operating results for the fiscal 1995 and 1994 acquisitions
as though the acquisitions had been made at the beginning of the respective
years are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revenues......................................................... $200,649,929 $180,653,638
Net income....................................................... 30,880,975 20,070,964
Earnings per share............................................... $1.26 $0.81
</TABLE>
F-11
<PAGE> 33
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCENTIVE STOCK OPTION PLAN:
In January 1982, the company adopted an incentive stock option plan for the
benefit of key employees. Under the terms of the plan, options to acquire up to
410,000 shares of common stock may be granted at no less than 100% of the fair
market value on the date of grant.
Transactions during 1995, 1994 and 1993 under this plan are summarized
below:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Options outstanding at beginning of year........................ 152,206 109,728 111,000
Granted....................................................... 66,900 47,300 50,400
Exercised..................................................... (40,747) (4,822) (46,572)
Cancelled..................................................... 0 0 (5,100)
------- ------- -------
Options outstanding at end of year.............................. 178,359 152,206 109,728
======= ======= =======
Options exercisable at end of year.............................. 51,034 67,231 57,353
======= ======= =======
Average price of options:
Granted during year........................................... $25.00 $24.45 $21.00
Exercised during year......................................... 16.81 15.98 15.37
Outstanding at end of year.................................... 22.93 20.38 18.44
</TABLE>
11. DEFERRED SAVINGS AND RETIREMENT PLAN:
Effective September 1, 1983, the company and several of its affiliates
adopted a deferred savings and retirement plan covering all employees with at
least one year of service.
Employees may elect to contribute a portion of their compensation to the
plan with the first one percent of their earnings being mandatory. The company
may contribute up to an amount equal to the employee's contributions but not in
excess of three percent of the employee's earnings. The company anticipates that
all or substantially all of their discretionary and matching contributions will
consist of registered shares of common stock of the company. The company's
contributions for the years ended October 31, 1995, 1994 and 1993 were $553,401,
$527,362 and $462,612, respectively.
12. SUBSEQUENT EVENTS:
At the December 13, 1995 directors' meeting, a cash dividend of $0.14 was
declared. This dividend is to holders of record on December 27, 1995 and payable
on January 10, 1996.
On December 13, 1995, the Company and Donrey Media Group ("Donrey"), a
division of Stephens Group, Inc. of Little Rock, AR, formed a partnership to
combine certain cable television holdings owned by the Company with the systems
owned by Donrey. The new partnership, TCA Cable Partners, will be comprised of
all 22 of the Company's systems in Arkansas and Mississippi and Donrey's five
systems in Arkansas, Oklahoma and California and will serve approximately
224,000 subscribers. The partnership is owned 75% by the Company and 25% by
Donrey and is managed by the Company.
On December 15, 1995, the Company acquired the assets of a cable television
system serving approximately 29,000 subscribers in Alexandria and Pineville,
Louisiana ("Alexandria") through an exchange with Time Warner
Entertainment -- Advance/Newhouse Partnership ("Time Warner"). The transaction
involved the acquisition by the Company of the assets of cable systems located
in North and South Carolina from Star Cable Associates and the simultaneous
exchange of these to Time Warner for Alexandria. The cost of the acquisition was
approximately $63 million, all of which was paid from the Company's bank lines
of credit.
F-12
<PAGE> 34
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues:
1995................................... $43,304,289 $43,953,790 $49,125,564 $52,786,642
1994................................... $39,278,593 $39,848,022 $41,077,677 $42,095,973
Operating income:
1995................................... 15,483,918 15,323,093 15,876,023 19,129,679
1994................................... 11,195,577 10,653,148 11,774,802 12,328,436
Net income:
1995................................... 7,737,164 7,717,958 7,524,512 8,309,842
1994................................... 3,864,484 5,762,913 5,353,891 6,093,317
Earnings per common share:
1995................................... $ 0.31 $ 0.31 $ 0.31 $ 0.34
1994................................... $ 0.16 $ 0.24 $ 0.21 $ 0.25
</TABLE>
Net income for the first quarter of 1994 was reduced $1,900,000 or $.07 per
share by the recognition of a one-time cumulative effect adjustment from the
adoption of FAS 109. See note 2.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash, accounts receivable subscribers, accounts
payable and term debt approximates fair value.
15. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of (FAS 121)
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121")
effective for fiscal years beginning after December 15, 1995. This Statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company plans to adopt FAS 121 during the first quarter of the
fiscal year ending October 31, 1997. Management does not expect the Statement to
have a material impact on the financial statements of the Company.
Accounting for Stock-Based Compensation (FAS 123)
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") effective for fiscal years beginning after December
15, 1995. This Statement establishes a fair value based method of accounting for
stock-based compensation plans. The Company plans to adopt the disclosure only
requirements of FAS 123 during the first quarter of the fiscal year ending
October 31, 1997.
F-13
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2 None.
3(a) Articles of Incorporation and Bylaws. *1
3(b) Articles of Amendment to Articles of Incorporation. *2
3(c) Articles of Amendment to Articles of Incorporation. *2
3(d) Articles of Amendment to Articles of Incorporation. *5
4(a) Form of Stock Certificate. *1
9 None.
10(a) Sample Form of Affiliated Company Management Agreement. *1
10(b) TCA Deferred Savings and Retirement Plan. *4
10(c) Office building lease. *5
10(d) TCA Cable TV, Inc. Amended and Restated Incentive Stock Option Plan. *11
10(e) Note Agreement dated as of September 27, 1989 by and between the Prudential
Insurance Company of America and TCA Cable TV, Inc. *6
10(f) Note Agreement dated as of June 23, 1995 by and between the Prudential Insurance
Company of America and TCA Cable TV, Inc. *8
10(g) Credit Agreement dated July 21, 1995 between TCA Cable TV, Inc. , NationsBank of
Texas, N.A. , Texas Commerce Bank National Association and Lenders. *8
10(h) Asset and Purchase Agreement dated January 20, 1995 by and between
Tele-Communications of Arkansas Limited Partnership and Time Warner Entertainment L.
P., through its division Time Warner Cable Ventures. *6
10(i) Letter Agreement dated April 24, 1995, between Tele-Communications of Arkansas
Limited Partnership and Time Warner Entertainment Company, L. P., through its
division Time Warner Cable Ventures, amending Asset Purchase Agreement. *9
10(j) Asset and Purchase Agreement dated January 20, 1995 by and between
Tele-Communications of Arkansas Limited Partnership and Time Warner Entertainment L.
P., through its division Time Warner Cable Ventures. *6
10(k) Letter Agreement dated April 24, 1995, between Tele-Communications of Northwest
Arkansas Limited Partnership and Time Warner Entertainment Company, L. P., through
its division Time Warner Cable Ventures, amending Asset Purchase Agreement. *10
10(l) Limited Partnership Agreement of McMillian Partners, L. P. dated January 20, 1995.
*6
10(m) Limited Partnership Agreement of Tele-Communications of Arkansas Limited Partnership
dated January 20, 1995. *6
10(n) Limited Partnership Agreement of Tele-Communications of Northwest Arkansas Limited
Partnership dated January 20, 1995. *6
10(o) Asset Purchase Agreement dated March 24, 1995, between Teleservice Corporation of
America and Marcus Cable of San Angelo, L.P. *7
10(p) Asset Purchase Agreement dated August 28, 1995, between Telecable Associates, Inc.
and Star Cable Associates. *8
10(q) Asset Purchase Agreement dated August 28, 1995, between Telecable Associates, Inc.
and Time Warner Entertainment-Advance/Newhouse Partnership. *8
10(r) General Partnership Agreement by and between TAL Financial Corporation and DR
Partners dated December 13, 1995. *3
11 None.
12 None.
13 None.
16 None.
18 None.
21 Subsidiaries of the Registrant. *3
22 None.
23 Consent of Coopers & Lybrand L.L.P *3
24 None.
27 Financial Data Schedule. *3
28 None.
99 None.
</TABLE>
- ---------------
*1 Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1, File No. 2-75516, and incorporated by reference herein.
*2 Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8, File No. 33-21901, and incorporated by reference herein.
*3 Filed herewith.
*4 Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8, File No. 2-88892, and incorporated by reference herein.
*5 Previously filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended October 31, 1993, filed January 27, 1994 and incorporated by
reference herein.
*6 Previously filed as an exhibit to Registrant's Form 10-K for the fiscal
year ended October 31, 1994, filed January 30, 1995 and incorporated by
reference herein.
*7 Previously filed as an exhibit to Registrant's Form 10-Q for the quarter
ended April 30, 1995, filed June 14, 1995 and incorporated by reference
herein.
*8 Previously filed as an exhibit to Registrant's Form 10-Q for the quarter
ended July 31, 1995, filed September 14, 1995 and incorporated by reference
herein.
*9 Previously filed as an exhibit to Registrant's Form 8-K , filed May 15,
1995 and incorporated by reference herein.
*10 Previously filed as an exhibit to Registrant's Form 8-K , filed May 24,
1995 and incorporated by reference herein.
*11 Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8, File No. 33-61041, and incorporated by reference herein.
<PAGE> 1
EXHIBIT 10(r)
================================================================================
GENERAL PARTNERSHIP AGREEMENT
OF
TCA CABLE PARTNERS GENERAL PARTNERSHIP
DATED AS OF DECEMBER 13, 1995
================================================================================
<PAGE> 2
GENERAL PARTNERSHIP AGREEMENT
This General Partnership Agreement is entered into and
effective as of December 13, 1995, by and between DR Partners, a Nevada general
partnership ("Donrey"), and TAL Financial Corporation, a Nevada corporation
("TAL") and a wholly owned subsidiary of TCA Cable TV, Inc., a Texas
corporation ("TCA").
WHEREAS, Donrey and TAL desire to form TCA Cable Partners
General Partnership, the general partnership provided for herein, pursuant to
the Uniform Partnership Act of the State of Delaware; and
WHEREAS, the assets and liabilities of TAL to be transferred
to the Partnership by TAL pursuant to Article IV hereof are presently held and
operated by TAL Entities, and, to avoid the expense and inconvenience of
multiple distributions and assumptions of such assets and liabilities, TAL will
cause such entities to transfer such assets and liabilities directly to the
Partnership on TAL's behalf;
WHEREAS, TCA has agreed to unconditionally guarantee the
obligations of TAL hereunder;
WHEREAS, Donrey and TAL desire to set forth their agreement as
to certain of their respective rights, obligations and interests in the
Partnership herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have
the meanings set forth below:
"Act" shall mean the Uniform Partnership Act of the State of
Delaware.
1
<PAGE> 3
"Agreement" shall mean this TCA Cable Partners General
Partnership Agreement, as it may be amended from time to time in accordance
with the terms hereof.
"Assets" shall mean the Donrey Assets, and the TAL Assets.
"Assumed Donrey Contracts" shall mean the contracts, leases
and other agreements listed on Schedule 1.1 hereto.
"Assumed TAL Contracts" shall mean the contracts, leases and
other agreements listed on Schedule 1.2 hereto.
"Book Value" means, with respect to any asset of the
Partnership, the adjusted basis of such asset as of the relevant date for
federal income tax purposes, except as follows:
(i) the Book Value of any asset contributed by a
Partner to the Partnership shall be the Fair Market Value of such
asset;
(ii) the Book Value of all Partnership assets
(including intangible assets such as goodwill) shall be adjusted to
equal their respective Fair Market Values as of the following times:
(A) the acquisition of an additional interest in
the Partnership by any new or existing Partner in exchange for
more than a de minimis Capital Contribution;
(B) the distribution by the Partnership to a
Partner of more than a de minimis amount of money or
Partnership property as consideration for an interest in the
Partnership; and
(C) the liquidation of the Partnership within the
meaning of Treasury Regulations, Section
1.704-1(b)(2)(iv)(f)(5)(ii); and
(iii) if the Book Value of an asset has been
determined or adjusted pursuant to subsection (i) or (ii) above, such
Book Value shall thereafter be adjusted by the Depreciation taken into
account with respect to such asset for purposes of computing Profits
and Losses and other items allocated pursuant to Section 6.1.
2
<PAGE> 4
The foregoing definition of Book Value is intended to comply
with the provisions of Treasury Regulations, Section 1.704-1(b)(2)(iv) and
shall be interpreted and applied consistently therewith.
"Business" shall mean the business of acquiring, investing,
owning, constructing, maintaining, promoting, selling, disposing and otherwise
operating the Systems.
"Cable Act" shall mean the Cable Television Consumer
Protection and Competition Act of 1992.
"Capital Accounts" shall mean the capital accounts maintained
by the Partnership for each Partner as described in Section 4.1 hereof.
"Capital Contributions" shall mean the contributions made to
the capital of the Partnership by the Partners and credited to their respective
Capital Accounts pursuant to Article IV hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Communications Act" shall mean the Communications Act of
1934, as amended.
"Copyright Act" shall mean the Copyright Act of 1976, as
amended.
"Depreciation" means, for each Fiscal Year or part thereof, an
amount equal to the depreciation, amortization, or other cost recovery
deduction allowable for federal income tax purposes with respect to an asset
for such Fiscal Year or part thereof, except that if the Book Value of an asset
differs from its adjusted basis for federal income tax purposes, the
depreciation, amortization or other cost recovery deduction for such Fiscal
Year or part thereof shall be an amount which bears the same ratio to such Book
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such Fiscal Year or part thereof bears to such adjusted
tax basis. If such asset has a zero adjusted tax basis, the depreciation,
amortization or other cost recovery deduction for each Fiscal Year shall be
determined under a method agreed to by the Partners.
"Distributions" shall mean the distributions from the
Partnership described in Section 6.3 hereof.
3
<PAGE> 5
"Donrey" shall mean DR Partners, a Nevada general partnership.
"Donrey Assets" shall mean all right, title and interest of
Donrey in, to and under all of the assets and properties (of every kind,
character and description wherever located) primarily relating to the operation
of the Donrey Systems, including, without limitation:
(a) all tangible personal property, including but not
limited to tower equipment, antennae, aboveground and underground
cable, distribution systems, headend amplifiers, line amplifiers,
earth satellite receive stations and related equipment, microwave
equipment converters, testing equipment, office equipment, furniture,
fixtures, supplies, inventory, and other physical assets;
(b) the interests in real property owned or leased by
Donrey, including all improvements thereon owned by Donrey;
(c) the Donrey Franchises and Licenses;
(d) the Assumed Donrey Contracts; and
(e) the Donrey Books and Records.
"Donrey Books and Records" shall mean all books and records
(or true and complete copies thereof), including computerized books and records
maintained by Donrey which relate to the Donrey Systems and are necessary for
the Partnership to operate the Donrey Systems after the Effective Time,
including, without limitation, statements of account filed by or on behalf of
Donrey with the U.S. Copyright Office with respect to the Donrey Systems, books
of account, general, financial, tax and personnel records, sales, adverting,
marketing or promotional records and literature and other sales-related
materials with respect to the Donrey Systems, and the Donrey Franchises and
Licenses (including all correspondence, orders or related materials).
"Donrey Disclosure Schedules" shall mean those disclosure
schedules as described in Section 3.6 hereof.
"Donrey Excluded Assets" shall mean the following assets and
properties of Donrey used by Donrey in the operation of the Donrey Systems
which are not being contributed to the Partnership:
4
<PAGE> 6
(a) all accounts receivable;
(b) all cash and cash equivalents on hand or on deposit
in banks;
(c) insurance policies and rights under or arising from
such policies (including pre-paid premiums and receivables);
(d) all rights of Donrey under this Agreement;
(e) any rights of Donrey to the name "DONREY" or any
variation thereof; provided, however, that for a period of one year
from the Effective Time, the Partnership may use any stationary or
billing forms or other Donrey Assets existing on at the Effective Time
bearing the name "Donrey" or which were in stock or ordered on the
Effective Time; and
(f) all assets and properties of Donrey not primarily
relating to or used in the operation of the Donrey Systems.
"Donrey Franchises and Licenses" shall mean the governmental
permits, licenses, registrations, and applications held or filed by Donrey and
required for the ownership of the Donrey Assets and the lawful operation of, or
appropriate with respect to, the Donrey Systems, including, without limitation,
all licenses, permits and authorizations issued or granted by the FCC or any
state or local governmental authority, all franchises, permits, intangible CATV
channel distribution rights, cable television relay service (CARS), domestic
satellite receive only (TVRO), business radio and other licenses, permits or
similar authorizations.
"Donrey Liabilities" shall mean (i) liabilities to be paid or
performed after the Effective Time under the Assumed Donrey Contracts which are
assigned to the Partnership at the Effective Time pursuant to Article IV
hereof, and (ii) all liabilities and obligations arising out of the
Partnership's ownership of the Donrey Assets or operation of the Donrey Systems
after the Effective Time.
"Donrey Systems" shall mean the cable television systems
serving the towns of Bartlesville and Dewey, Oklahoma, Blackwell and Tonkawa,
Oklahoma, Vallejo, California, Guymon, Oklahoma, and Rogers and Little Flock,
Arkansas and unincorporated areas adjacent to the foregoing cities.
5
<PAGE> 7
"Effective Time" shall mean the date and time that Donrey and
TAL make their initial capital contributions pursuant to Article IV hereof.
"Environmental Claim" shall mean any written notice by a
person or entity alleging liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a) the presence, or release into
the environment, of any Material of Environmental Concern in violation of any
Environmental Law at any location or (b) circumstances forming the basis of any
violation of any Environmental Law.
"Environmental Laws" shall mean all federal, state, local and
foreign laws and regulations (including common law) relating to pollution or
protection of the environment (including, ground water, land surface or
subsurface strata), including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, recycling,
reporting or handling of Materials of Environmental Concern and the
construction and siting of facilities.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Fair Market Value" shall mean (i) with respect to the Initial
Capital Contributions, the fair market value thereof as agreed to by the
Partners and set forth on Exhibit B attached hereto, (ii) with respect to any
revaluation of any partnership asset on the books of the Partnership and the
valuation of any asset subsequently contributed to the Partnership or
distributed by the Partnership, the fair market value agreed to by the
Partners, and (iii) with respect to Section 5.2 hereof, the price determined in
accordance with Section 5.3 hereof, at which the Partnership would be sold in
an arm's length transaction between a willing seller and a willing buyer under
no compulsion to buy or sell, but with the expectation of concluding the
purchase or sale within a reasonable time, taking into account all relevant
factors, including, without limitation, the assets and liabilities associated
with the Business, the rights and obligations that would be assigned to and
assumed by any such buyer, and market conditions.
"FCC" shall mean the Federal Communications Commission.
"Fiscal Year" shall have the meaning set forth in Section 2.7
hereof.
6
<PAGE> 8
"Free Cash Flow" shall mean the amount of cash received by the
Partnership from operations, any transaction, and any dividends, interest or
other cash distributions from any Person in which the Partnership has an
interest which is in excess of 100% of the amount of cash reasonably
contemplated by the Budget as being necessary for the cash payment of the
Partnership's operating expenses, debt service, contingencies, budgeted capital
expenditures and anticipated working capital requirements.
"Initial Capital Contribution" shall mean with respect to each
of Donrey and TAL the initial capital contributions made by such Partner
pursuant to Section 4.2 hereof.
"Interest" means, with respect to any Partner at any time,
such Partner's entire beneficial partnership ownership interest in the
Partnership at such time, including such Partner's Capital Account, voting
rights, and right to share in Profits and Losses, Distributions and all other
benefits of the Partnership as specified in this Agreement, together with such
Partner's obligations to comply with all of the terms of this Agreement.
"Jonesboro System" shall mean the cable television system
serving the towns of Jonesboro, Walnut Ridge and Imboden Arkansas and
unincorporated areas adjacent thereto.
"Legal Expenses" of a Person shall mean any and all fees,
costs and expenses of any kind incurred by such Person and its counsel (whether
one or more) in investigating, preparing for, defending against or providing
evidence, producing documents or taking other action with respect to, any
threatened or asserted claim.
"Liens" shall mean any mortgage, security interest, lien,
pledge, escrow, option, right of first refusal, indenture, easement, license,
security agreement or encumbrance of any kind or character.
"Losses" shall mean all losses, damages, liabilities, claims,
out-of-pocket costs and expenses, of any nature or kind, known or unknown,
fixed, accrued, absolute or contingent, liquidated or unliquidated, including,
without limitation, any and all Legal Expenses.
"Management Agreement" shall mean the agreement, dated the
Effective Time substantially in the form attached hereto as Exhibit A, pursuant
to which TCA Management Co. shall manage the Partnership.
7
<PAGE> 9
"Material Contractual Consents" shall mean consents under: (i)
the Donrey Franchises and Licenses; (ii) the TAL Franchises and Licenses; (iii)
pole attachment or joint line agreements, underground conduit agreements,
crossing agreements, construction permits or retransmission consent agreements;
or (iv) any other contracts that contemplate payments by or to Donrey or TAL in
any 12 month period exceeding $50,000 individually or $250,000 in the
aggregate.
"Materials of Environmental Concern" shall mean hazardous
materials, hazardous wastes, hazardous substances, other wastes or contaminants
including, without limitation, newspaper ink, and radio frequency energy, the
handling, storage or disposal of which is governed by Environmental Laws.
"Minimum Gain" with respect to any Fiscal Year of the
Partnership shall mean the minimum gain of the Partnership computed in
accordance with the principles of Treasury Regulations, Section 1.704-2(d) and
(k).
"Nonrecourse Liabilities" shall mean liabilities of the
Partnership for which no Partner bears the economic risk of loss, in accordance
with Treasury Regulations, Sections 1.704-2(b)(3) and 1.752-1(a)(2).
"Partner" shall mean each of Donrey and TAL.
"Partner Nonrecourse Debt" shall mean any nonrecourse debt of
the Partnership (as defined in Treasury Regulations, Section 1.1001 - 2) for
which any Partner bears the economic risk of loss, in accordance with Treasury
Regulations, Sections 1.704-2(b)(4) and 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" shall have the meaning
set forth in Treasury Regulations, Section 1.704 - 2(i)(2).
"Partner Nonrecourse Deductions" shall have the meaning set
forth in Treasury Regulations, Section 1.704-2(i)(2) and as determined in
accordance with Treasury Regulations, Section 1.704-2(k).
"Partnership" shall mean the partnership formed by this
Agreement, which partnership is known as TCA Cable Partners General
Partnership, a Delaware general partnership.
8
<PAGE> 10
"Partnership Interest" shall mean with respect to each
Partner, the percentage ownership interest of such Partner in the Partnership
specified in Section 5.1, as adjusted in accordance with the terms of this
Agreement.
"Person" shall mean any individual, partnership, corporation,
trust or other entity.
"Profits" or "Losses" means, for each Fiscal Year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(a) any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits
or Losses shall be added to such taxable income or loss;
(b) any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulations, Section
1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing
Profits or Losses shall be subtracted from such taxable income or
loss;
(c) in the event the Book Value of any Partnership asset is
adjusted, the amount of such adjustment shall be taken into account as
gain or loss from the disposition of such asset for purposes of
computing Profits or Losses;
(d) upon any distribution of any Partnership asset other than
cash, the distributed asset shall be treated as if it had been sold
for its Fair Market Value and the resulting gain or loss shall be
taken into account as gain or loss from the disposition of the asset
for purposes of computing Profits or Losses;
(e) gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Book Value of the
property disposed of, rather than the adjusted tax basis of such
property;
9
<PAGE> 11
(f) in lieu of the depreciation, amortization or other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Fiscal Year or other period; and
(g) such taxable income or loss shall be deemed not to
include any income, gain, loss, deduction or other item thereof
allocated pursuant to Section 6.1(c).
"Systems" shall mean the Donrey Systems and the TAL Systems.
"TAL Assets" shall mean all right, title and interest of TCA,
TAL or the TAL Entities in, to and under all of the assets and properties (of
every kind, character and description wherever located) primarily relating to
the operation of the TAL Systems, including, without limitation:
(a) all tangible personal property, including but not
limited to tower equipment, antennae, aboveground and underground
cable, distribution systems, headend amplifiers, line amplifiers,
earth satellite receive stations and related equipment, microwave
equipment converters, testing equipment, office equipment, furniture,
fixtures, supplies, inventory, and other physical assets;
(b) the interests in real property owned or leased by
TCA, TAL or the TAL Entities including all improvements thereon owned
by TCA, TAL or the TAL Entities;
(c) the TAL Franchises and Licenses;
(d) the Assumed TAL Contracts;
(e) the TAL Books and Records; and
(f) the right to use the name "TCA" as set forth in
Section 4.2 hereof.
"TAL Books and Records" shall mean all books and records (or
true and complete copies thereof), including computerized books and records
maintained by TCA, TAL or the TAL Entities which relate to the TAL Systems and
are necessary for the Partnership to operate the TAL Systems after the
Effective Time,
10
<PAGE> 12
including, without limitation, statements of account filed by or on behalf of
TCA, TAL or the TAL Entities with the U.S. Copyright Office with respect to
the TAL Systems, books of account, general, financial, tax and personnel
records, sales, adverting, marketing or promotional records and literature and
other sales-related materials with respect to the TAL Systems, and the TAL
Franchises and Licenses (including all correspondence, orders or related
materials).
"TAL Disclosure Schedules" shall mean those disclosure
schedules as described in Section 3.6 hereof.
"TAL Entities" shall mean Teleservice Corporation of America,
a Texas Corporation, Texas Community Antennas, Inc. a Texas corporation, Delta
Cablevision, Inc., an Arkansas corporation, Tele-Communications of Northwest
Arkansas, L.P., a Delaware limited partnership, Tele-Communications of
Arkansas, L.P., a Delaware limited partnership and Telecable Associates, a
Texas corporation.
"TAL Excluded Assets" shall mean the following assets and
properties of TAL used by TCA, TAL or the TAL Entities in the operation of the
TAL Systems which are not being contributed to the Partnership:
(a) all accounts receivable;
(b) all cash and cash equivalents on hand or on deposit in
banks;
(c) insurance policies and rights under or arising from such
policies (including pre-paid premiums and receivables);
(d) all rights of TAL under this Agreement;
(e) any rights of TCA, TAL or the TAL Entities to the name
"TCA" or any variation thereof; provided however that TCA shall
contribute to the Partnership the right to use the name "TCA" as set
forth in Section 4.2; and
(f) all assets and properties of TCA, TAL or the TAL Entities
not primarily relating to or used in the operation of the TCA Systems.
"TAL Franchises and Licenses" shall mean the governmental
permits, licenses, registrations, and applications held or filed by TCA, TAL or
the TAL Entities and required for the ownership of the TAL Assets and the
lawful operation of, or appropriate with respect to, the TAL Systems,
including, without limitation,
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all licenses, permits and authorizations issued or granted by the FCC or any
state or local governmental authority, all franchises, permits, intangible CATV
channel distribution rights, cable television relay service (CARS), domestic
satellite receive only (TVRO), business radio and other licenses, permits or
similar authorizations.
"TAL Liabilities" shall mean (i) liabilities to be paid or
performed after the Effective Time under the Assumed TAL Contracts which are
assigned to the Partnership at the Effective Time pursuant to Article IV
hereof, and (ii) all liabilities and obligations arising out of the
Partnership's ownership of the TAL Assets or operation of the TAL Systems after
the Effective Time.
"TAL Systems" shall mean the cable television systems serving
the towns of Arkadelphia, Arkansas, Batesville, Arkansas, Bentonville,
Arkansas, Berryville, Arkansas, El Dorado, Arkansas, Fayetteville, Arkansas,
Greenville, Mississippi, Harrison, Arkansas, Heber Springs, Arkansas, Helena,
Arkansas, Hot Springs, Arkansas, Mena, Arkansas, McGehee, Arkansas, Magnolia,
Arkansas, Mountain Home, Arkansas, Malvern, Arkansas, Newport, Arkansas, Ozark,
Arkansas, Pocahontas, Arkansas, Russellville, Arkansas, Siloam Springs,
Arkansas and Springdale, Arkansas and unincorpo- rated areas adjacent to the
foregoing cities to be contributed to the Partnership by TAL pursuant to
Article IV hereof.
"Taxes" shall mean all taxes, charges, fees, levies, or other
assessments, including, without limitation, income, net income, profits, gross
receipts, ad valorem, excise, property, sales, gains, transfer, payroll,
employment, severance, withholding, intangibles and franchise taxes, imposed by
the United States or any state, county, local or foreign government or
subdivision or agency thereof, and including any interest, penalties or
additions attributable thereto.
"TCA Management Co." shall mean TCA Management Company, a
Texas corporation, in its capacity as operator of the Partnership pursuant to
the Management Contract.
ARTICLE II
GENERAL PROVISIONS
Section 2.1 Formation. The Partners hereby form a general
partnership pursuant to the laws of the State of Delaware.
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Section 2.2 Name. The name of the Partnership shall be TCA
Cable Partners General Partnership.
Section 2.3 Principal Place of Business. The principal place
of business of the Partnership shall be located at 3015 SE Loop 323, Tyler,
Texas 75701. The principal place of business of the Partnership may be changed
by the Partnership Committee. The Partnership may engage in business in such
place or places as may be permitted by law.
Section 2.4 Agent for Service of Process. The agent for
service of process for the Partnership and its address shall be the Chairman of
the Partnership and the address of the Partnership's principal place of
business, respectively. The agent for service of process may be changed by the
Partnership Committee.
Section 2.5 Purpose. The purpose of the Partnership shall be
to engage in and conduct the Business and to do any and all acts and things
which may be necessary, incidental or convenient to carry on the Business as
contemplated by this Agreement. The Partnership may engage in any business
other than the Business as the Partnership Committee may determine pursuant to
Section 3.4 hereof.
Section 2.6 Term. The term of the Partnership shall be from
the Effective Time through twenty-five (25) years from the Effective Time,
unless extended by the unanimous consent of the Partners or dissolved as
provided herein.
Section 2.7 Fiscal Year. Unless the Partnership Committee
shall at any time determine otherwise, the fiscal year of the Partnership shall
end on October 31.
ARTICLE III
MANAGEMENT
Section 3.1 Partnership Committee.
(a) Except as otherwise expressly provided in this Agreement,
complete and exclusive power to direct and control the business affairs of the
Partnership is delegated to a Partnership Committee (the "Partnership
Committee"), which will initially consist of five members (the "Members").
Donrey will appoint two Members, who will serve at the pleasure of, and who may
be replaced at the
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designation of, Donrey, and TAL will appoint three Members who will serve at
the pleasure of, and who may be replaced at the designation of, TAL. TAL shall
select one of its appointees to serve as Chairman.
(b) The Partnership Committee hereby delegates to TCA
Management Co. the authority to manage the day to day affairs of the Business
in accordance with and to the extent provided in this Agreement, the Management
Agreement and the Budget (as hereinafter defined). The Partnership Committee
shall instruct TCA Management Co. not to take any action on behalf of the
Partnership which is not so authorized by the Management Agreement, the Budget
or the Partnership Committee.
Section 3.2 Partnership Committee Meetings.
(a) Meetings of the Partnership Committee may be called at
any time by any Member on at least five business days written notice, stating
the purpose of the requested meeting, but must be held at least once each
fiscal quarter.
(b) Members may participate in a meeting of the Partnership
Committee by means of conference telephones or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at such
meeting.
(c) Members may act by written consent provided that at least
four Members have signed such consent or counterparts thereof.
Section 3.3 Voting. On any matter on which a vote is taken,
each of the Members shall have one vote; provided however, that (i) with
respect to a determination by the Partnership Committee to seek indemnification
against a Partner pursuant to Section 8.2 hereof, the Members appointed by the
Partner against whom the Partnership is seeking indemnification shall have no
vote, (ii) with respect to a determination by the Partnership Committee to
institute legal proceedings against a Partner pursuant to Section 4.6(b)
hereof, the Members appointed by the Partner against whom the Partnership is
instituting legal proceedings shall have no vote, and (iii) if one of the
Members of a Partner is not present at a meeting, the Member of such Partner
who is present shall be entitled to cast the absent Member's vote. No action
may be taken at a meeting of the Partnership Committee unless a quorum for the
transaction of business consisting four Members is present. All actions by the
Partnership Committee shall require the affirmative vote of three Members on
the Partnership Committee except that any determination to seek indemnification
against
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a Partner pursuant to Section 8.2 hereof or to institute legal proceedings
against a Partner pursuant to Section 4.6(b) hereof or to make a claim against
TCA pursuant to its guarantee of TAL's obligations hereunder shall only require
one vote.
Section 3.4 Management.
(a) Except as otherwise provided in this Agreement, the
Partnership Committee shall be responsible for taking all actions not otherwise
delegated to TCA Management Co. pursuant to the terms of the Management
Agreement, the Budget and Section 3.4(b) hereof.
(b) The Partnership Committee shall adopt on or before
October 31 of each Fiscal Year an annual budget setting forth the Partnership's
proposed expenditures for repair, maintenance and operations and for expansion
and other capital expenditures for the next fiscal year (as supplemented or
amended from time to time by the unanimous vote of the Partnership Committee,
the "Budget"). The business and affairs of the Partnership shall be conducted
in accordance with the terms of the Budget. Notwithstanding any other
provision of this Agreement, the following actions shall require the unanimous
approval of the Partners:
(i) the adoption of the Budget for all years after
the fiscal year ending October 31, 1996;
(ii) the approval of capital expenditures not
provided for in the Budget in excess of $500,000 in the aggregate
during any fiscal year;
(iii) the incurrence by the Partnership of
indebtedness not provided for in the Budget in excess of $500,000 in
the aggregate during any fiscal year;
(iv) the institution or settlement of any litigation
or arbitration with third parties in excess of $150,000;
(v) the commitment of the Partnership to any
arrangement, contract or agreement which creates a liability of the
Partnership or invoices an expenditure of funds by the Partnership not
provided for in the Budget, in excess of $500,000 in the aggregate,
during any fiscal year;
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(vi) the leasing of real or personal property by the
Partnership not provided for in the Budget if the total payments
during the term of the lease exceed $500,000;
(vii) the approval of the annual and quarterly
financial statements which approval will not be unreasonably withheld;
(viii) the advancement or lending of any funds of
the Partnership, or on behalf of the Partnership, the guarantee of a
loan to any other Person, in each case not provided for in the Budget
where the dollar amount involved exceeds $150,000;
(ix) the call for additional Capital Contributions
to the Partnership not provided for in the Budget;
(x) the admission of new partners to the
Partnership;
(xi) except as required by law, a change in the
financial accounting or tax principles used by the Partnership;
(xii) a sale, transfer or encumbrance of a Partner's
interest in the Partnership, other than (w) a bona fide pledge of a
Partner's Partnership Interest to any financial institution or
institutions as security for the extension of financing to such
Partner by such institution or institutions, (x) a transfer of
Donrey's Partnership Interest to Stephens Group, Inc. ("Stephens
Group") or any of its affiliates, or (y) a transfer of TAL's
Partnership Interest to TCA or any of its affiliates; provided,
however, that no such transfer by a Partner of its Partnership
Interest shall relieve such Partner of its obligations under Article
VIII hereunder;
(xiii) the dissolution, liquidation, merger,
consolidation or other business combination of the Partnership not
provided for in the Budget;
(xiv) the creation of any mortgage, pledge,
consensual lien or other security interest or the sale, transfer,
assignment or other disposition of any assets or properties of the
Partnership, in each case not provided for in the Budget and in excess
of $500,000 in the aggregate during any fiscal year;
(xv) the amendment of this Agreement;
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(xvi) the approval of distributions not provided for
in the Budget or contemplated by Section 6.3 hereof;
(xvii) except for the Management Agreement, entering
into agreements or material transactions between the Partnership and
(a) either Partner or any associate, affiliate, subsidiary of such
Partner, (b) a director or executive officer of TCA Management Co.;
(xviii) changing the scope of the Business in a
manner not contemplated by the Budget;
(xix) (a) the disposition of any of the Donrey
Assets in a manner which shall have an adverse tax consequence on
Donrey or its affiliates, or (b) the disposition of any of the TAL
Assets in a manner which shall have an adverse tax consequence on TAL
or its affiliates;
(xx) the termination, amendment or modification of
the Management Agreement;
(xxi) committing or causing the Partnership to
create or enter into, any corporation, partnership, joint venture,
association, trust or other business entity or the acquisition,
directly or indirectly, of any assets from or any participation in any
other Person not provided for in the Budget;
(xxii) the selection of the Partnership's
independent accountants which accountants shall be Coopers & Lybrand,
L.L.P. for the fiscal year ended October 31, 1996; and
(xxiii) causing or permitting any Person to take any
action which, if it had been taken by the Partnership, would require a
unanimous vote of the Members pursuant to any of the foregoing.
Section 3.5 Insurance. The Partnership shall carry or cause
to be carried on its behalf with carriers acceptable to the Partnership
Committee all property, liability and workers' compensation insurance and such
other insurance as shall be required under applicable mortgages, leases,
agreements, and other instruments and statutes or as determined by the
Partnership Committee in at least such coverage amounts as to be agreed upon by
the parties hereto on or prior to the Effective Time unless otherwise
determined by the Partnership Committee. All such insurance policies shall
provide coverage to the Partners as named insureds.
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Section 3.6 Delivery of Schedules. On or before January 15,
1996, each of TAL and Donrey shall deliver to the other the TAL Disclosure
Schedules and the Donrey Disclosure Schedules, respectively.
ARTICLE IV
CAPITAL ACCOUNTS, CAPITAL CONTRIBUTIONS AND WITHDRAWALS
Section 4.1 Capital Accounts.
(a) A Capital Account shall be maintained for each Partner in
accordance with federal income tax accounting principles and Treasury
Regulations, Section 1.704-1(b)(2)(iv). This Section 4.1 is intended to comply
with such principles and requirements and shall be interpreted consistently
therewith. The initial balance of each Partner's Capital Account shall be the
Fair Market Value (net of liabilities secured by the contributed asset which
the Partnership is treated as assuming or taking subject to under Section 752
of the Code) of the Initial Capital Contribution of each Partner as set forth
on Exhibit B hereto. Subsequent to the date of this Agreement, each Capital
Account shall be:
(i) increased by (1) the amount of the cash
contribution to the capital of the Partnership by such Partner, (2)
the Fair Market Value of property contributed to the Partnership by
such Partner on the date of such contribution (net of any liabilities
secured by such contributed property that the Partnership is
considered to assume or take subject to under Section 752 of the
Code), (3) the distributive share of the Partnership's Profits, as
allocated to such Partner pursuant to Sections 6.1(a) and (b) hereof
and (4) any positive adjustment to such Capital Account by reason of
an adjustment to the Book Value of Partnership assets;
(ii) decreased by (1) the amount of all cash
distributions to such Partner pursuant to this Agreement, (2) the Fair
Market Value of property distributed to such Partner (net of any
liabilities secured by such property that the Partner is considered to
assume or take subject to under Section 752 of the Code), (3) the
distributive share of the Partnership's Losses, as allocated to such
Partner pursuant to Sections 6.1(a) and (b) hereof and (4) any
negative adjustment to such Capital Account by reason of an adjustment
to the Book Value of Partnership Assets; and
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(iii) otherwise adjusted to comply with the
requirements of Treasury Regulations, Section 1.704-1(b)(2)(iv).
Section 4.2 Initial Capital Contributions.
(a) (i) At the Effective Time, Donrey shall contribute
to the capital of the Partnership and shall sell, convey, transfer and
assign to the Partnership, all of the right, title and interest of
Donrey in and to the Donrey Assets and the Partnership shall assume
the Donrey Liabilities.
(ii) Notwithstanding anything in this Agreement to
the contrary, Donrey shall retain title to, and possession of, and
Donrey shall not sell, assign, convey, transfer or deliver any right,
title or interest of Donrey in or to the Donrey Excluded Assets.
(b) (i) At the Effective Time, TAL shall contribute, or
cause to be contributed, to the capital of the Partnership and shall
sell, convey, transfer and assign, or cause to be sold, conveyed,
transferred or assigned, to the Partnership, (x) all of the right,
title and interest of TCA, TAL and the TAL Entities in and to the TAL
Assets and (y) a non-exclusive, royalty free license to use for the
duration of the Partnership all rights of TCA, TAL and the TAL
Entities in and to the name "TCA" and the Partnership shall assume
the TAL Liabilities.
(ii) Notwithstanding anything in this Agreement to
the contrary, TCA, TAL and the TAL Entities shall retain title to, and
possession of, and TCA, TAL and the TAL Entities shall not sell,
assign, convey, transfer or deliver any right, title or interest of
TCA, TAL or the TAL Entities in or to the TAL Excluded Assets.
(c) Exhibit B hereto sets forth the adjusted tax basis and
the Fair Market Value of the assets to be contributed by each Partner
to the Partnership.
Section 4.3 The Closing; Termination Prior to the Effective
Time.
(a) Upon the terms and subject to the conditions contained in
this Agreement, the closing of the transactions contemplated by Section 4.2
hereof shall take place at the offices of Jackson & Walker, L.L.P., 901 Main
Street, Dallas, Texas at 9:30 a.m., local time on the third business day
following the day on which
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the conditions set forth in Section 4.5 hereof are satisfied or waived, or at
such other date, time and place as the parties hereto may otherwise agree.
(b) This Agreement may be terminated at any time prior to the
Effective Time:
(i) by mutual consent of Donrey and TAL;
(ii) by either Donrey or TAL if the Initial Capital
Contributions shall have not been made pursuant to Section 4.2 of this
Agreement on or before June 30, 1996 (unless the failure to so
consummate the Initial Capital Contributions on or before such date
shall be due to the wilful action or failure to act of the party
seeking to terminate this Agreement); or
(iii) by either Donrey or TAL if either such party
notifies the other in writing within five business days of the receipt
of the TAL Disclosure Schedules and the Donrey Disclosure Schedules,
as the case may be, that such schedules disclosed unanticipated and
material matters that in the good faith judgment of such party are
unexpectedly materially adverse to the business, financial condition
or results of operations of the assets to be contributed to the
Partnership by such other party.
(c) Upon termination of this Agreement pursuant to Section
4.3(b) hereof, this Agreement will forthwith become null and void; except that
Sections 13.3 and 13.13 hereof shall survive such termination and that
termination of this Agreement will not relieve either party of any liability
for wilful breach of any covenants or agreements hereunder.
(d) Donrey and TAL will each use commercially reasonable
efforts to cause its Initial Capital Contribution to be made in accordance with
Section 4.2 of the Agreement.
Section 4.4 Deliveries at the Effective Time. In order to
effect the Initial Capital Contributions (a) Donrey shall execute and deliver
to the Partnership (i) such general and specific bills of sale, endorsements,
assignments, deeds and such other good and sufficient instruments of conveyance
and transfer as shall be necessary to vest in the Partnership good and
marketable title to the Donrey Assets, and (ii) all other documents,
instruments and writings required to be delivered by Donrey to the Partnership
pursuant to this Agreement or otherwise required in connection herewith, (b)
TAL shall execute and deliver, or cause to be executed and
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delivered, to the Partnership (i) such general and specific bills of sale,
endorsements, assignments, deeds and such other good and sufficient instruments
of conveyance and transfer as shall be necessary to vest in the Partnership
good and marketable title to the TAL Assets and (ii) all other documents,
instruments and writings required to be delivered by or on behalf of TAL to the
Partnership pursuant to this Agreement or otherwise required in connection
herewith, (c) the Partnership shall execute and deliver to Donrey an assumption
agreement pursuant to which the Partnership shall assume the Donrey
Liabilities, and (d) the Partnership shall execute and deliver to TAL an
assumption agreement pursuant to which the Partnership shall assume the TAL
Liabilities.
Section 4.5 Conditions to Contributions.
(a) The respective obligations of each of Donrey and TAL
to make its Initial Capital Contribution shall be subject to the following
conditions:
(i) The absence of any effective injunction,
writ, preliminary restraining order of a court of competent
jurisdiction directing that the transactions provided for herein may
not be consummated.
(ii) All approvals of the FCC, any state or local
communications authority necessary to the consummation of the
transactions contemplated hereby and all Material Contractual Consents
as set forth on Schedule 4.5(a)(ii) shall have been obtained on terms
and conditions reasonably satisfactory to Donrey and TAL.
(iii) No action, suit, proceeding or investigation
by or before any court, administrative agency or other governmental
authority shall have been instituted (i) to restrain, prohibit or
invalidate the transactions contemplated by this Agreement, (ii) which
seeks material or substantial damages by reason of completion of such
transaction or (iii) which may materially affect the right of the
Partnership to own, operate or control after the Effective Time all or
any material portion of the Donrey Assets or the TAL Assets.
(iv) The Partnership shall have entered into a
Management Agreement with TCA Management Co., pursuant to which TCA
Management Co. will manage the business of the Partnership, the terms
and conditions of such Management Agreement to be satisfactory to each
of Donrey and TAL.
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(v) The Partnership shall have entered into
appropriate lease arrangements with Donrey covering the premises
occupied by the Vallejo and Bartlesville Donrey Systems, the terms and
conditions of such lease arrangements to be satisfactory to each of
Donrey and TAL.
(vi) Donrey and TAL shall have agreed upon the
Budget for the Partnership for the period commencing with the
Effective Time and ending on October 31, 1996.
(vii) Donrey and TAL shall have agreed upon the
insurance coverage amounts referred to in Section 3.5 hereof.
(viii) Each of Donrey and TAL shall have provided to
the other a copy of Exhibit B to the Partnership Agreement that
updates the adjusted tax basis information to the Effective Time.
(b) The obligations of Donrey to effect the transactions
contemplated hereby shall be further subject to the fulfillment of the
following additional conditions, any one or more of which may be waived by
Donrey:
(i) TAL shall have performed and complied in all
material respects with the agreements contained in this Agreement
required to be performed and complied with by it at or prior to the
Effective Time.
(ii) The representations and warranties of TAL set
forth in this Agreement shall be true and correct in all material
respects as of the Effective Time as if made at and as of the
Effective Time and Donrey shall have received a certificate to that
effect signed by an executive officer of TAL.
(iii) Donrey shall have received the necessary
consents under the loan agreement, dated August 20, 1993 between
Donrey and NationsBank, N.A., as Agent (the "Loan Agreement"), in each
case on terms and conditions satisfactory to Donrey in its sole
discretion.
(c) The obligations of TAL to effect the transactions
contemplated hereby shall be further subject to the fulfillment of the
following additional conditions, any one or more of which may be waived by TAL:
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(i) Donrey shall have performed and complied in
all material respects with the agreements contained in this Agreement
required to be performed and complied with by it at or prior to the
Effective Time.
(ii) The representations and warranties of Donrey
set forth in this Agreement shall be true and correct in all material
respects as of the Effective Time as if made at and as of the
Effective Time and TAL shall have received a certificate to that
effect signed by an executive officer of Donrey.
(iii) TCA shall have received the necessary
consents under (a) the Credit Agreement dated July 21, 1995 among TCA,
the lenders party thereto, NationsBank of Texas, N.A., as
Administrative Agent and Managing Agent and Texas Commerce Bank,
National Association, as Managing Agent, (b) the Restated Credit
Agreement between TCA and NationsBank of Texas, N.A. dated September
26, 1995, (c) the Note Agreement dated September 27, 1989 between TCA
and The Prudential Insurance Company of America, and (d) the Note
Agreement dated June 23, 1995 among TCA, The Prudential Insurance
Company of America, Pruco Life Insurance Company, The Variable Annuity
Life Insurance Company, American General Life Insurance Company and
The Franklin Life Insurance Company, in each case on terms and
conditions satisfactory to TAL in its sole discretion.
Section 4.6 Additional Capital Contributions by Partners.
(a) (i) Any call for additional Capital Contributions must be
approved by the unanimous consent of the Partnership Committee. In
the event of such approval, the Partnership Committee shall notify the
Partners of the amount of additional Capital Contribution required
from each, determined in accordance with the relative amounts of their
Partnership Interest, and the date by which such additional Capital
Contribution shall be made to the Partnership. Such additional
Capital Contributions when made shall increase the Partner's Capital
Account.
(ii) In the event that either Partner fails to make the
required additional Capital Contribution under this Section 4.6, the
other Partner may at its sole option make such payment which shall be
treated as an additional Capital Contribution and shall increase its
own Capital Account in the manner set forth below. The non-defaulting
Partner shall have the right, in exchange for contributing the
defaulted capital to the Partnership, to adjust
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its Partnership Interest to reflect the contribution of the defaulted
amount in accordance with the provisions of Section 4.7 hereof. Any
such payment by the non-defaulting Partner shall render the rights of
the Partnership against the defaulting Partner set forth in Section
4.6(b) ineffective as to such nonpayment.
(b) The Partners agree that the prompt payment of Capital
Contributions hereunder is of the essence and that the failure to make such
payments as provided herein will cause substantial injury to the Partnership
and the other Partner and that the amount of damages caused by such injury will
be difficult to calculate. Accordingly, the Partners agree that in the event
that either Partner fails to pay any required Capital Contribution to the
Partnership promptly when due, the Partnership Committee shall give such
defaulting Partner written notice thereof, and if such defaulting Partner shall
fail to make such required payment in full within seven (7) days following the
mailing of such notice or such longer period as the Partnership Committee may
elect, the Partnership may commence legal proceedings against such defaulting
Partner to collect the due and unpaid payment of all amounts due as a Capital
Contribution and the payment of all costs and expenses of collection incurred
by the Partnership (including Legal Expenses).
Section 4.7 Adjustment of Partnership Interests Upon
Additional Capital Contributions. In the event that a Partner makes an
additional Capital Contribution pursuant to Section 4.6(a)(ii) or that TAL
makes an additional Capital Contribution pursuant to 4.8 hereof, the
Partnership Interests of TAL and Donrey shall be adjusted to reflect such
contribution. Such adjustment shall be achieved by (i) first, restating the
Capital Accounts of the Partners to reflect the Fair Market Value of the assets
of the Partnership, (ii) second, crediting to the Capital Accounts the amounts
contributed pursuant to the additional Capital Contributions, and (iii) third,
recomputing the Partnership Interests on the basis of the ratio of the Capital
Account balances to one another.
Section 4.8 Jonesboro System. In the event that TAL or any
affiliate thereof purchases the Jonesboro System prior to or after the
Effective Time, TAL shall contribute the assets related to the Jonesboro System
(the "Jonesboro Assets") to the capital of the Partnership on terms and
conditions to be agreed upon among TAL, Donrey and the Partnership. In the
event such parties are unable to agree on such terms and conditions, TAL or
such affiliate thereof shall have no obligation to make such contribution and
the Partnership shall have no obligation to accept such contribution.
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Section 4.9 Withdrawals of Capital Accounts. Except for
Distributions contemplated by the provisions of Article VI hereof, no Partner
shall be entitled to withdraw any amount from its Capital Account prior to the
dissolution of the Partnership.
Section 4.10 Interest on Capital Accounts. No interest or
compensation shall be paid on or with respect to the Capital Account or Capital
Contributions of any of the Partners.
Section 4.11 Transferees. A permitted transferee of all or a
part of an interest in the Partnership will succeed to the Capital Account of
the transferor that is attributable to the transferred interest, as such
Capital Account existed at the effective date of such transfer.
ARTICLE V
PARTNERSHIP INTERESTS
Section 5.1 Partnership Interest. The Partnership Interests
of TAL and Donrey shall be 75% and 25%, respectively. The Partnership Interests
shall be subject to adjustment after the Effective Time in accordance with the
terms of this Agreement.
Section 5.2 Transfer of Partnership Interest.
(a) Except as expressly provided by this Agreement, no
Partner shall, directly or indirectly, sell, assign, transfer, exchange,
mortgage, pledge, grant a security interest in, or otherwise dispose of or
encumber its interest in the Partnership or any part thereof without the prior
written consent of the other Partner, the consent of which may be granted or
denied in its sole and absolute discretion. Any purported transfer of any
interest of a Partner in the Partnership or any part thereof not in compliance
with this Section 5.2 shall be void and of no force or effect, and the
transferring Partner shall be liable to the other Partner and the Partnership
for all liabilities, obligations, damages, losses, costs and expenses
(including reasonable attorneys' fees and court costs) arising as a result of
such noncomplying transfer. Notwithstanding the foregoing, (i) either Partner
may make a bona fide pledge of its Partnership Interest to any financial
institution or institutions as security for the extension of financing to such
Partner by such financial institution or institutions.
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(b) From January 5, 2006 to the termination of the
Partnership in accordance with the terms of this Agreement (the "Call Period"),
TAL shall have the right to purchase (the "Call") from Donrey and Donrey shall
be required to sell to TAL all but not less than all of Donrey's Partnership
Interest. If TAL elects to exercise the Call it shall send written notice
thereof in the manner set forth in Section 11.1 hereof (the date of such notice
being hereafter referred to as the "Call Notice Date") to Donrey during the
period commencing January 5, 2004 and expiring upon the termination of the
Partnership in accordance with the terms of this Agreement. Subject to the next
succeeding sentence, the purchase price for Donrey's Partnership Interest
pursuant to this Section 5.2(b) shall be equal to the amount derived from
multiplying (i) Donrey's Partnership Interest on the Call Notice Date by (ii)
the Fair Market Value of the Partnership on the Call Notice Date. The closing
of the purchase shall take place at the principal offices of the Partnership
not later than the 30th day following the determination of the purchase price
for Donrey's Partnership Interest pursuant to Section 5.3 hereof, subject to
applicable law.
(c) From January 5, 2006 to the termination of the
Partnership in accordance with the terms of this Agreement (the "Put Period"),
Donrey shall have the right to sell to TAL and TAL shall be required to
purchase (the "Put) from Donrey all but not less than all of Donrey's
Partnership Interest. If Donrey elects to exercise the Put it shall send
written notice thereof in the manner set forth in Section 11.1 hereof (the date
of such notice being hereafter referred to as the "Put Notice Date") to TAL
during the period commencing January 5, 2004 and expiring upon the termination
of the Partnership in accordance with the terms of this Agreement. The
purchase price for Donrey's Partnership Interest pursuant to this Section
5.2(c) shall be equal to the amount derived from multiplying (i) Donrey's
Partnership Interest on the Put Notice Date by (ii) the Fair Market Value of
the Partnership on the Put Notice Date. The closing of the purchase shall take
place at the principal offices of the Partnership not later than the 30th day
following the determination of the purchase price for Donrey's Partnership
Interest pursuant to Section 5.3 hereof, subject to applicable law.
Section 5.3 Fair Market Value Determination. The Partners
shall, within ten business days of a notice under Section 5.2 of this Agreement
requiring a determination of the Fair Market Value, try by mutual agreement
among themselves to determine the Fair Market Value of the Partnership. If the
Partners fail to agree upon the Fair Market Value within such ten business
days, then the Partners shall, within three business days, by mutual agreement
select a nationally recognized investment banking firm (the "Investment
Advisor") to evaluate the
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Partnership assets and to determine in good faith within 60 days of the
engagement of the Investment Advisor the Fair Market Value of the Partnership.
If the Partners fail to agree upon an Investment Advisor, within 10 business
days each Partner shall select a nationally recognized investment banking firm
and such appointees shall be instructed to agree within five business days of
their selection on a nationally recognized investment banking firm who shall be
the Investment Advisor for purposes of this Agreement. The Partners shall bear
equally the fees of the Investment Advisor. The Investment Advisor shall be
instructed to deliver written notice to the Partners immediately upon its
determination of such Fair Market Value, and such determination shall be final
and binding on the Partners.
Section 5.4 Assignment of Interest in Distributions.
Notwithstanding the provisions of Section 5.2 hereof, and except as required by
law, a Partner may assign all or a portion of its interest in its right to
receive Distributions to any entity or person without the consent of the other
Partner. An assignee of an interest in distributions does not become an
additional or a substituted Partner and shall have no right to require any
information or account of the Partnership's transactions, to inspect the
Partnership books, or to vote on any of the matters as to which a Partner would
be entitled to vote under this Agreement.
ARTICLE VI
PROFITS AND LOSSES AND DISTRIBUTIONS
Section 6.1 Allocation of Profits, Gains and Losses.
Commencing at the Effective Time and continuing until the termination of the
Partnership, all Profits and Losses for each Fiscal Year, shall be allocated to
the Capital Accounts of the Partners as provided in Sections 6.1(a) and (b):
(a) Profits and Losses. After any special allocations
required to be made by Section 6.1(b) have been made for each Fiscal Year, all
remaining Profits or Losses from the operations of the Partnership for each
Fiscal Year shall be allocated between the Partners in proportion to their
respective Partnership Interests.
(b) Special Rules. Notwithstanding the general allocation
rules set forth in Section 6.1(a), the following special allocation rules shall
apply under the circumstances described.
(i) Minimum Gain Chargeback. If there is a net
decrease in Minimum Gain during a Fiscal Year, each Partner will be
allocated items
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of Partnership income and gain for such year (and, if necessary, for
subsequent years) equal to that Partner's share of the net decrease in
Partnership Minimum Gain (within the meaning of Treasury Regulations,
Section 1.704-2(g)(2)). This provision is intended to comply with
the Minimum Gain Chargeback requirements of Treasury Regulations,
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Partner Nonrecourse Deductions. Partner
Nonrecourse Deductions shall be allocated to the Partners who bear the
economic risk of loss for a Partner Nonrecourse Debt that gave rise to
those deductions in accordance with Treasury Regulations, Section
1.704-(2)(i)(1).
(iii) Partner Nonrecourse Debt Minimum Gain
Chargeback. If there is a net decrease during a Fiscal Year in the
Partner Nonrecourse Debt Minimum Gain during any Fiscal Year any
Partner who has a share of the Partner Nonrecourse Debt as provided in
Treasury Regulations, Section 1.704-2(i)(5) shall be allocated items
of Partnership income and gain for such Fiscal Year in such amounts
and in such manner as required under Treasury Regulations, Section
1.704-2(i)(4). This provision is intended to comply with the minimum
gain chargeback requirement of Treasury Regulations, Section
1.702(i)(4) and shall be interpreted consistently therewith.
(iv) Limited Effect and Interpretation. The
special rules set forth in Sections 6.1(b)(i), (ii) and (iii) (the
"Regulatory Allocations") shall be applied only to the extent required
by applicable Treasury Regulations for the resulting allocations
provided for in this Section 6.1, taking into account such Regulatory
Allocations, to be respected for federal income tax purposes. The
Regulatory Allocations are intended to comply with the requirements of
Treasury Regulations, Sections 1.704-1(b), 1.704-2 and 1-752-1 through
1.752-5 and shall be interpreted and applied consistently therewith.
(v) Curative Allocations. The Regulatory
Allocations may not be consistent with the manner in which the
Partners intend to divide the Partnership Profits, Losses and similar
items. Accordingly, Profits, Losses and other items will be
reallocated among the Partners in a manner consistent with Treasury
Regulations, Sections 1.704-1(b) and 1.704-2 so as to negate as
rapidly as possible any deviation (after taking into account any
expected future Regulatory Allocations pursuant to Sections 6.1(b)(i)
and 6.1(b)(iii)), from the manner in which Partnership Profits,
Losses and other items are
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intended to be allocated among the Partners pursuant to Section 6.1(a)
that is caused by the Regulatory Allocations.
(vi) Change in Regulations. If the Treasury
Regulations incorporating the Regulatory Allocations are hereafter
changed or if new Treasury Regulations are hereafter adopted, and such
changed or new Treasury Regulations, in the opinion of independent tax
counsel for the Partnership, make it necessary to revise the
Regulatory Allocations or provide further special allocation rules in
order to avoid a significant risk that a material portion of any
allocation set forth in this Article VI would not be respected for
federal income tax purposes, the Partners shall make such reasonable
amendments to this Agreement as, in the opinion of such counsel, are
necessary or desirable, taking into account the interests of the
Partners as a whole and all other relevant factors, to avoid or reduce
significantly such risk to the extent possible without materially
changing the amounts allocable and distributable to any Partner
pursuant to this Agreement.
(vii) Change in Partners' Partnership Interests.
If there is a change in any Partner's share of the Profits, Losses or
other items of the Partnership during any Fiscal Year, allocations
among the Partners shall be made in accordance with their interests in
the Partnership from time to time during such Fiscal Year in
accordance with Code section 706, using the closing-of-the-books
method, except that Depreciation shall be deemed to accrue ratably on
a daily basis over the entire Fiscal Year during which the
corresponding asset is owned by the Partnership if such asset is
placed in service prior to or during the Fiscal Year.
(c) Tax Allocations.
(i) In General. Except as set forth in Section
6.1(c)(ii), allocations for tax purposes of items of income,
gain, loss, deduction, and credits, and basis therefor, shall
be made in the same manner as allocations for Capital Accounts
purposes set forth in Sections 6.1(a) and (b). Allocations
pursuant to this Section 6.1(c) are solely for purposes of
federal, state and local income taxes and shall not affect or
in any way be taken into account in computing, any Partner's
Capital Account or share of Profits, Losses, other items or
distributions pursuant to any provision of this Agreement.
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(ii) Special Rules.
(I) Elimination of Book/Tax Disparities.
Items of depreciation, amortization, and gain or loss with
respect to any contributed property, or with respect to
revalued property where Partnership property is revalued
pursuant to Treasury Regulations, Section
1.704-1(b)(2)(iv)(f), computed for tax purposes, shall be
allocated to the Partners under the "traditional method with
curative allocations" as provided in Treasury Regulations,
Section 1.704-3(c); provided, that to the extent permitted by
Treasury Regulations, Section 1.704-3(c), such curative
allocations shall (i) only be made from (A) items of
Partnership depreciation, amortization and other cost recovery
deductions, computed for tax purposes, and (B) items of
income, gain or loss, computed for tax purposes, recognized by
the Partnership upon disposition of the contributed or
revalued property, and (ii) in addition to being made (from
the items specified in clause (i) above) to the extent
necessary to offset the effect of the "ceiling rule" for a
current taxable year shall also be made to the extent
necessary to offset the effect of the ceiling rule for prior
taxable years in accordance with the second sentence of
Treasury Regulations, Section 1.704-3(c)(3)(ii) and Treasury
Regulations, Section 1.704-3(c)(3)(iii)(B). This provision
is intended to comply with the requirements of Code section
704(c) and Treasury Regulations, Sections
1.704-1(b)(iv)(2)(d)(3) and 1.704-3, and shall be interpreted
consistently therewith.
(II) Allocation of Items Among Partners.
Except as otherwise provided in Section 6.1(c)(ii)(I), each
item of income, gain, loss and deduction and all other items
governed by Code section 702(a) shall be allocated among the
Partners in proportion to the allocation of Profits, Losses
and other items to the Partners hereunder, provided that any
gain recognized from any disposition of a Partnership asset
that is treated as ordinary income because it is attributable
to the recapture of any depreciation or amortization shall be
allocated among the Partners in the same ratio as the prior
allocations of Profits, Losses or other items that included
such depreciation or amortization, but not in excess of the
gain otherwise allocable to each Partner.
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(III) Tax Credits. Any tax credits shall
be allocated among the Partners in accordance with Treasury
Regulations, Section 1.704-1(b)(4)(ii), unless the applicable
Code provision shall otherwise require.
(d) Conformity of Reporting. The Partners are aware of the
income tax consequences of the allocations made by Section 6.1(c) and hereby
agree to be bound by the provisions of Section 6.1(c) in reporting their shares
of Partnership profits, gains, income, losses, deductions, credits and other
items for income tax purposes.
(e) Restoration of Negative Capital Accounts. Except as
required in Section 9.3 hereof or as may be required by law, or in respect of
any negative balance resulting from a distribution which is in contravention of
this Agreement, no Partner with a negative balance in its Capital Account shall
have any obligation to the Partnership or to the other Partner to restore such
negative balance.
Section 6.2 Allocation to Transferred Partnership Interests.
Subject to Section 5.2, income, gains, losses, deductions and credits allocated
to an interest in the Partnership assigned or issued during a Fiscal Year shall
be allocated to each entity or person who was the holder of the Interest in the
Partnership during an interim period in respect of which the books of the
Partnership shall be closed, or in any other manner permitted by the Code and
selected by the Partnership Committee. The effective date of the assignment
shall be (a) in the case of a voluntary assignment, the actual date the
assignment is recorded on the books of the Partnership, or (b) in the case of
involuntary assignment, the date of the operative event.
Section 6.3 Distributions.
(a) (i) In respect of each month the Partnership shall
distribute to the Partners, an amount equal to the estimated Free Cash
Flow for such month as set forth in the Budget, such Distribution to
be made within ten business days of the end of such month.
(ii) In respect of each fiscal quarter the
Partnership will distribute to the Partners the quarterly Free Cash
Flow, if any, in excess of the monthly Distributions made during such
fiscal quarter pursuant to clause (i) above or if such monthly
Distribution(s) were in excess of the actual Free
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Cash Flow for such quarter subsequent monthly Distribution(s) will be
appropriately reduced in an amount to be agreed upon by the Partners.
(iii) Except as provided in Section 9.2,
Distributions made pursuant to this Section 6.3 shall be made to the
Partners ratably in proportion to their respective Partnership
Interests.
(b) Any other provision of this Agreement to the contrary
notwithstanding, no Distribution shall be made which would render the
Partnership insolvent or which is prohibited by the terms of any Partnership
indebtedness.
ARTICLE VII
TAX MATTERS AND REPORTS
Section 7.1 Filing of Tax Returns. The Partnership
Committee, at the expense of the Partnership, shall prepare and file, or cause
the accountants of the Partnership to prepare and file, a federal information
tax return in compliance with Section 6031 of the Code and any required state
and local income and other tax and information returns for each tax year of the
Partnership. TAL shall act as the Tax Matters Partner of the Partnership as
that term is defined in Section 6231(a)(7) of the Code. The Tax Matters
Partner shall promptly advise the other Partner of audits or other actions by
the Internal Revenue Service. The Tax Matters Partner shall consult with and
carry out the decisions of the Partnership Committee regarding all tax matters.
The Tax Matters Partner may not contest, settle or otherwise compromise
assertions made by the auditing agent or other representative of the Internal
Revenue Service without the unanimous approval of the Partnership Committee.
Section 7.2 Tax and Financial Reports to Current and Former
Partners. Within the due date (including extensions thereof) of the
Partnership information tax returns, the Partnership shall prepare and mail, or
cause its accountants to prepare and mail, to each Partner a report setting
forth in sufficient detail such information as is required to be furnished to
Partners by law (e.g., Section 6031(b) of the Code and regulations thereunder)
and as shall enable such Partner to prepare its federal, state and local income
tax or informational returns in accordance with the laws, rules and regulations
then prevailing. Annual audited financial statements will be distributed to
the Partners within 75 days after the end of each Fiscal Year. The Partners
will receive unaudited quarterly financial
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statements within forty-five (45) days after the end of the first three
quarters and monthly operating reports within ten (10) days after the end of
each month.
Section 7.3 Books and Records; Independent Audit. Complete
books and records accurately reflecting the accounts, business, transactions,
Capital Accounts and Partners of the Partnership shall be maintained and kept
by the Partnership Committee at the Partnership's principal place of business.
The books and records of the Partnership shall be open at reasonable business
hours on prior appointment for inspection and copying by the Partners. The
books and records of the Partnership shall be audited by certified public
accountants selected in accordance with Section 3.4.
Section 7.4 Method of Accounting. The books and accounts of
the Partnership shall be maintained both for financial reporting purposes and
for income tax purposes. The financial books of the Partnership shall be kept
on the accrual basis of accounting in accordance with generally accepted
accounting principles, consistently applied. Notwithstanding the foregoing,
the Capital Accounts of the Partners shall be determined and maintained in
accordance with the provisions of Section 4.1. The books and records of the
Partnership shall be open to inspection, examination and audit by each Partner.
Section 7.5 Withholding. Notwithstanding any other provision
of this Agreement, the Partnership Committee is authorized to take any action
that it determines to be necessary or appropriate to cause the Partnership to
comply with any federal, state and local withholding requirement with respect
to any allocation, payment or Distribution by the Partnership to any Partner or
other entity or person. All amounts so withheld shall be treated as
Distributions to the Partners. If any such withholding requirement with
respect to any Partner exceeds the amount distributable to such Partner under
this Agreement, or if any such withholding requirement was not satisfied with
respect to any amount previously allocated or distributed to such Partner, such
Partner and any successor or assignee with respect to such Partner's interest
in the Partnership hereby indemnifies and agrees to hold harmless the Partners
and the Partnership for such excess amount or such withholding requirement, as
the case may be.
Section 7.6 Tax Elections. Upon the request of any Partner,
the Partnership will make the election under Section 754 of the Code in
accordance with applicable Treasury Regulations thereunder for the first Fiscal
Year in which such election could apply. In addition to the foregoing, the
Partnership Committee shall, in its sole discretion, determine whether to make
any other available tax elections
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and select any other appropriate tax accounting methods and conventions for any
purpose under this Agreement.
ARTICLE VIII
INDEMNIFICATION AND EXCULPATION
Section 8.1 Indemnification of the Partners.
(a) The Partnership shall indemnify and hold harmless the
Partners and any partner, officer, employee, agent or affiliate of a Partner
and any employee or agent of the Partnership and/or the legal representatives
of any of them, and each other person who may incur liability as a partner or
otherwise in connection with the management of the Partnership or any
corporation or other entity in which the Partnership has an investment, against
all liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him or it in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, in which he
or it may be involved or with which he or it may be threatened, while a Partner
or serving in such other capacity or thereafter, by reason of its being or
having been a Partner, or by serving in such other capacity, except with
respect to any matter which constitutes willful misconduct, bad faith, gross
negligence or reckless disregard of the duties of his office, or criminal
intent. The Partnership shall have the right to approve any counsel selected
by any indemnitee and to approve the terms of any proposed settlement. The
Partnership shall advance to a Partner and any partner, officer, employee,
agent or affiliate of a Partner or the Partnership reasonable attorneys' fees
and other costs and expenses incurred in connection with the defense of any
such action or proceeding upon receipt of an undertaking by or on behalf of the
party receiving such advance to repay such advance if it shall ultimately be
determined that the party receiving such advance is not entitled to
indemnification under this Agreement. Each Partner hereby agrees, and each
partner, officer, employee, agent or affiliate of the Partner or the
Partnership shall agree in writing prior to any such advancement, that in the
event he or it receives any such advance, such indemnified party shall
reimburse the Partnership for such fees, costs and expenses to the extent that
it shall be determined that he or it was not entitled to indemnification under
this Section 8.1(a). The rights accruing to a Partner and each partner,
officer, employee, agent or affiliate of a Partner or the Partnership under
this Section 8.1(a) shall not exclude any other right to which it or they may
be lawfully entitled; provided, that any right of indemnity or reimbursement
granted in this Section 8.1(a) or to which any indemnified party
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may be otherwise entitled may only be satisfied out of the assets of the
Partnership and no withdrawn Partner shall be personally liable with respect to
any such claim for indemnity or reimbursement. Notwithstanding any of the
foregoing to the contrary, the provisions of this Section 8.1(a) shall not be
construed so as to provide for the indemnification of a Partner or any partner,
officer, employee, agent or affiliate of a Partner or the Partnership for any
liability to the extent (but only to the extent) that such indemnification
would be in violation of applicable law or such liability may not be waived,
modified or limited under applicable law, but shall be construed so as to
effectuate the provisions of this Section 8.1(a) to the fullest extent
permitted by law.
(b) The Partnership shall indemnify and hold harmless Donrey
and any partner, officer, employee, agent or affiliate of Donrey from and
against all Losses arising out of or resulting from the Donrey Liabilities.
(c) The Partnership shall indemnify and hold harmless TAL and
any partner, officer, employee, agent or affiliate of TAL from and against all
Losses arising out of or resulting from the TAL Liabilities.
Section 8.2 Indemnification of the Partnership.
(a) Donrey shall indemnify and hold the Partnership harmless
from and against, and shall reimburse the same for, all Losses which may be
claimed or assessed against it, or to which it may be subject, in connection
with any and all claims, suits or asserted Losses which arise from or are
related to the inaccuracy or incompleteness of any representation or warranty
of Donrey contained in or made pursuant to this Agreement.
(b) Donrey shall indemnify and hold the Partnership harmless
from and against, and shall reimburse the same for all Losses arising out of or
relating to the ownership and operation of the Donrey Systems on or prior to
the Effective Time.
(c) TAL shall indemnify and hold the Partnership harmless
from and against, and shall reimburse the same for, all Losses which may be
claimed or assessed against it, or to which it may be subject, in connection
with any and all claims, suits or asserted Losses which arise from or are
related to the inaccuracy or incompleteness of any representation or warranty
of TAL contained in or made pursuant to this Agreement.
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(d) TAL shall indemnify and hold the Partnership harmless
from and against, and shall reimburse the same for all Losses arising out of or
relating to the ownership and operation of the TAL Systems on or prior to the
Effective Time.
(e) The party seeking indemnification under Sections 8.2 and
8.1 (the "Indemnified Party") agrees to give the party that would be obligated
to provide such indemnification (an "Indemnifying Party") prompt written notice
of any claim, assertion, event or proceeding by or in respect of a third party
of which it has knowledge concerning any liability or damage as to which it may
request indemnification hereunder. With respect to claims for indemnification
brought pursuant to this Section 8.2 and Section 8.1, the Indemnifying Party
shall have the right to direct, through counsel of its own choosing, the
defense or settlement of any such claim or proceeding at its own expense, which
counsel shall be reasonably satisfactory to the Indemnified Party. If the
Indemnifying Party elects to assume the defense of any such claim or proceeding
pursuant to this Section 8.2 or Section 8.1, the Indemnified Party may
participate in such defense, but in such case the expenses of the Indemnified
Party incurred in connection with such participation shall be paid by the
Indemnified Party; provided, however, that the Indemnifying Party shall be
responsible for such expenses if the Indemnified Party reasonably concludes
that counsel selected by the Indemnifying Party has a conflict of interest.
The Indemnified Party shall cooperate with the Indemnifying Party in the
defense or settlement of any such claim, assertion, event or proceeding. If
the Indemnifying Party elects not to compromise or defend such claim or
proceeding or contests its obligation to indemnify under this Section 8.2,
Section 8.1(b) or Section 8.1(c), the Indemnified Party hereof may pay,
compromise or defend such claim or proceeding at the Indemnifying Party's
expense. Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnified Party may settle or compromise any claim over the objection of the
other; provided, however, that consent to settlement or compromise shall not be
unreasonably delayed or withheld.
Section 8.3 Survival of Representations. All representations
and warranties contained in this Agreement or in any Schedule or Exhibit
delivered pursuant hereto shall terminate on the second anniversary of the
Effective Time; provided, however, that the representations and warranties set
forth in Sections 10.1(a), 10.1(b), 10.1(c), and 10.1(d) and 10.2(a), 10.2(b).
10.2(c) and 10.2(d) shall survive in perpetuity. Notwithstanding anything to
the contrary contained herein, all representations and warranties made by the
Partners in this Agreement or in any Schedule or Exhibit delivered pursuant
hereto, and the liability of any party with respect thereto, shall not
terminate with respect to any claim, whether or not fixed as to liability or
liquidated as to amount, with respect to which such party has been given
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written notice stating the nature of the claim prior to the date on which any
such representation and warranty expires.
Section 8.4 Exculpation. Any Partner and any partner,
officer, employee, agent or affiliate of a Partner or the Partnership shall not
be liable to any Partner or the Partnership for mistakes of judgment or for
action or inaction which such Partner or any such partner, officer, employee,
agent or affiliate of such Partner or the Partnership reasonably believed to be
in the best interests of the Partnership unless such action or inaction
constitutes willful misconduct, bad faith, gross negligence or reckless
disregard of his or its duties, or criminal intent. Each Partner may (on its
own behalf or on the behalf of any partner, officer, employee, agent or
affiliate thereof) consult with counsel, accountants and other experts in
respect of the Partnership's affairs and such Partner (or such partner,
officer, employee, agent or affiliate thereof) shall be fully protected and
justified in any action or inaction which is taken in accordance with the
advice or opinion of such counsel, accountants or other experts, provided that
they shall have been selected with reasonable care. Notwithstanding any of the
foregoing to the contrary, the provisions of this Section 8.4 shall not be
construed so as to relieve (or attempt to relieve) a Partner and any partner,
officer, employee, agent or affiliate of a Partner or the Partnership of any
liability, to the extent (but only to the extent) that such liability may not
be waived, modified or limited under applicable law, but shall be construed so
as to effectuate the provisions of this Section 8.4 to the fullest extent
permitted by law.
ARTICLE IX
TERMINATION AND DISSOLUTION
Section 9.1 Events of Dissolution. The Partnership shall
dissolve upon (i) bankruptcy, insolvency or appointment of a trustee or
receiver to manage the affairs of a Partner, (ii) dissolution being required by
operation of law (including the occurrence of an event specified under the laws
of Delaware as one effecting a dissolution) or judicial decree, (iii) the
unanimous consent of the Partners or (iv) the sale, transfer or other
disposition of substantially all of the assets of the Partnership. Without the
unanimous consent of the Partners, each Partner agrees not to voluntarily
withdraw as a Partner and if any of such Partners effects such withdrawal in
violation of this Agreement, the Partnership may recover damages for breach of
this Agreement. Upon dissolution of the Partnership, the Partnership Committee
shall wind up the affairs of the Partnership and, subject to the provisions of
Section 9.2, use its best efforts to reduce to cash or cash equivalents such
assets of the
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Partnership as it deems advisable, discharge the liabilities of the Partnership
and terminate the Partnership as a partnership.
Section 9.2 Order of Dissolution. In settling accounts after
dissolution, the assets of the Partnership shall be applied and distributed as
expeditiously as possible in the following order of priority:
(a) to the payment of the costs of winding up the affairs of,
liquidating and dissolving the Partnership, including, without limitation,
expenses of selling assets of the Partnership, discharging the liabilities of
the Partnership, distributing the assets of the Partnership and terminating the
Partnership as a partnership in accordance with Section 9.1 hereof;
(b) to creditors, including a Partner to the extent of any
outstanding loan or advance;
(c) to the establishment of reasonable reserves to provide
for any contingent or unforeseen liabilities or obligations to creditors; and
(d) to those Partners with positive Capital Account balances
(in proportion to such Capital Account balances).
Section 9.3 Capital Account Deficits. If a Partner has a
deficit balance in its Capital Account following the liquidation of the
Partnership or its interest therein, as determined after taking into account
all Capital Account adjustments made for the taxable year of the Partnership
during which such liquidation occurs, such Partner shall be unconditionally
obligated to restore the amount of such deficit balance to the Partnership by
the end of such taxable year (or, if later, within 90 days after the date of
such liquidation). The amount so restored shall be paid to creditors of the
Partnership or distributed to other Partners in accordance with their positive
capital account balances pursuant to Section 9.2.
Section 9.4 Timing Requirements. In the event the
Partnership is "liquidated" within the meaning of Treasury Regulations, Section
1.704-1(b)(2)(ii) (g) distributions shall be made pursuant to Section 9.2 to
the Partners who have positive Capital Account balances in compliance with
Treasury Regulations, Section 1.704-1(b)(2)(ii)(b)(2). If all Partners agree
in their sole discretion, a portion of the distribution that would otherwise be
made pursuant to the preceding sentence may be:
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(a) distributed to a trust established for the benefit of the
Partners for the purposes of liquidating Partnership assets, collecting amounts
owed to the Partnership, and paying any contingent or unforeseen liabilities or
obligations of the Partnership arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the Partners
from time to time, in the reasonable discretion of the trustee, in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the Partners pursuant to this Agreement; or
(b) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such
withheld amounts shall be distributed to the Partners as soon as practicable
and the other requirements of Treasury Regulations, Section
1.704-1(b)(2)(ii)(b) shall be met.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
Section 10.1 Representations and Warranties of Donrey.
Except as set forth on the Donrey Disclosure Schedules, Donrey hereby
represents and warrants to TAL as follows, and acknowledges that TAL is relying
on such representations and warranties in entering into this Agreement:
(a) Organization. Donrey is a partnership duly formed and
validly existing under the laws of Nevada, and has the partnership power and
authority to own and operate the Donrey Systems and to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
(b) Authority. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on Donrey's behalf.
(c) Execution and Delivery. This Agreement and any other
agreements or instruments executed and delivered pursuant hereto to which
Donrey is a party have been (or, when executed and delivered, will be) duly
executed and delivered by, and constitute (or, when executed and delivered,
will constitute) legal, valid and binding obligations of it enforceable against
Donrey in accordance with their terms, subject as to enforcement to applicable
bankruptcy, insolvency,
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reorganization, moratorium and other laws of general application, both at law
and in equity, affecting the rights of creditors generally.
(d) No Violations. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will (i) violate, conflict with or result in any breach of any provision of
Donrey's partnership agreement, (ii) violate, conflict with, result in a breach
of any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, lease, contract, agreement or other instrument or
commitment or obligation to which Donrey or any of its properties may be bound
or affected or to which it is a party or is bound or result in the creation of
any Lien upon any of the properties included in the Donrey Assets or (iii)
violate any order, writ, injunction, decree, judgment, ruling, law, notice of
violation, rule or regulation of any court, public body or authority or any
other restriction of any kind or character, applicable to Donrey or any of the
Donrey Assets.
(e) Consents and Approvals. Except as set forth on Schedule
10.1(e) hereto, there is no requirement applicable to Donrey to make any filing
with, or to obtain any permit, authorization or consent or approval of, any
governmental or regulatory authority as a condition to the lawful consummation
of the transactions contemplated hereby.
(f) Title to Properties; Encumbrances.
(i) Schedule 10.1(f)(i) contains descriptions of all
material items of tangible personal property and real property
included in the Donrey Assets, which comprise all material items of
tangible personal property and real property used by Donrey to operate
the Donrey Systems. Except as described in the following sentence,
Donrey has good, valid, and marketable title to (or in the case of
leased assets, a valid leasehold interest in) all of the property
included in the Donrey Assets and validly holds all necessary state,
local and federal authorizations, including FCC licenses or permits,
and local franchises required to operate the Donrey Systems in the
manner in which they are currently being operated and the issuance of
such authorizations are no longer subject to administrative or
judicial review. None of such properties or assets is subject to any
Lien of any kind (whether absolute, accrued, contingent or otherwise),
except (a) as set forth in Schedule 10.1(f)(i) hereto, and (b) minor
imperfections of title and encumbrances, if any, which are not
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<PAGE> 42
substantial in amount, do not materially detract from the value of the
property or assets subject thereto and do not impair the operation of
the Donrey Systems. When considered as a whole, the Donrey Assets are
in good working condition. All items of cable plant and headend
equipment included in the Donrey Assets (a) have been maintained in a
manner consistent with generally accepted standards of good
engineering practice and (b) will permit the Donrey Systems to operate
in all material respects in accordance with the terms of the Donrey
Franchises and Licenses.
(ii) Schedule 10.1(f)(ii) sets forth a true and
complete list of all of the Donrey Franchises and Licenses. Each of
the Donrey Franchises and Licenses listed on Schedule 10.1(f)(ii) is
valid and in full force and effect. No event has occurred with
respect to any of the authorizations which permits, or after notice or
lapse of time would permit, revocation or termination thereof or would
result in any other material impairment of the rights of the holder of
such authorizations that would have a material adverse effect on the
business of the holder of such authorization. Donrey has filed as
required by the appropriate franchising authorities all appropriate
requests for renewal under the Communications Act within 30 to 36
months prior to the expiration of each of the Donrey Franchises and
Licenses, with respect to the Donrey Franchises and Licenses. Except
as disclosed in Schedule 10.1(f)(ii) hereto, each of the Donrey
Systems is currently in compliance in all material respects with all
of the Donrey Franchises and Licenses. No party holding any such
authorization has any knowledge that any of its authorizations listed
on Schedule 10.1(f)(ii) will not be renewed in the ordinary course or,
where applicable, the facilities regulated by such authorization will
not be constructed and put into commercial service within the
applicable time period.
(g) Financial Information. Donrey has delivered to TAL an
unaudited balance sheet of the Donrey Systems as of December 31, 1994 and
September 30, 1995 and unaudited statements of operations of the Donrey Systems
for the year ended December 31, 1994 and the nine months ended September 30,
1995. The statements of operations and the balance sheet were prepared in
accordance with generally accepted accounting principles, consistent with past
practice and present fairly the results of operations and financial condition
of the Donrey Systems as of and for the periods indicated.
(h) No Adverse Change. Since September 30, 1995, (i) there
has not been any material adverse change in the Donrey Assets or in the
financial condition
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or operation of the Donrey Systems, and (ii) the Donrey Assets and the
financial condition and operations of the Donrey Systems have not been
materially and adversely affected as a result of any fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation or
otherwise.
(i) Litigation. Except as set forth on Schedule 10.1(i)
hereto, there is no suit, action, charge, claim, inquiry, investigation or
proceeding pending or, to the best knowledge of Donrey, threatened against or
affecting the Donrey Systems or the ability of Donrey to perform its
obligations under this Agreement, nor, to the best knowledge of Donrey, is
there any valid basis for any such suit, action, charge, claim, inquiry,
investigation or proceeding, nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding affecting the Donrey Systems.
(j) Compliance with Legal Requirements. Donrey owns and
operates, and has owned and operated, its properties and assets, and carries on
and conducts, and has carried on and conducted, its business in material
compliance with all federal, foreign, state or local laws, statutes,
ordinances, rules or regulations (including the Communications Act, the
Copyright Act and the Cable Act and the rules and regulations promulgated
thereunder) or any court or administrative order or process.
(k) Environmental Matters.
(i) Donrey is in compliance in all material respects
with all applicable Environmental Laws applicable to the Donrey
Systems. To the best knowledge of Donrey, there are no circumstances
that may prevent or interfere with compliance with such Environmental
Laws in all material respects in the future. Donrey has not received
any communication (written or oral), whether from a governmental
authority, citizens group, employee or otherwise, that alleges that
Donrey is not in full compliance with Environmental Laws applicable to
the Donrey Systems. All material permits and other governmental
authorizations applicable to the Donrey Systems currently held by
Donrey pursuant to the Environmental Laws are identified in Schedule
10.1(k)(i).
(ii) Except as set forth on Schedule 10.1(k)(ii)
hereto, there is no Environmental Claim pending or threatened against
Donrey with respect to the Donrey Systems or, to the best knowledge of
Donrey, against any person or entity whose liability for any
Environmental Claims Donrey has or may have retained or assumed either
contractually or by operation of law.
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(iii) Except as set forth on Schedule 10.1(k)(iii)
hereto, to the best knowledge of Donrey, there are no past or present
actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge or
disposal of any Material of Environmental Concern, that could form the
basis of any Environmental Claim against Donrey with respect to the
Donrey Systems or against any person or entity whose liability for any
Environmental Claim Donrey has or may have retained or assumed either
contractually or by operation of law.
(iv) Without in any way limiting the generality of
the foregoing, (a) to the best knowledge of Donrey, all on-site and
off-site locations where Donrey has stored or disposed Materials of
Environmental Concern in connection with the Donrey Systems are
identified in Schedule 10.1(k)(iv), (b) no underground storage tanks
are located on property owned or leased by Donrey with respect to the
Donrey Systems, (c) to the best knowledge of Donrey, except as set
forth on Schedule 10.1(k)(iv), there is no asbestos contained in or
forming part of any building, building component, structure or office
space owned or leased by Donrey with respect to the Donrey Systems in
violation of any applicable Environmental Laws, and (d) to the best
knowledge of Donrey, except as set forth on Schedule 10.1(k)(iv), no
polychlorinated biphenyls (PCBs) are used or stored at any property
owned or leased by Donrey with respect to the Donrey Systems in
violation of any applicable Environmental Laws.
(l) Donrey Assets Necessary to Donrey Systems. The Donrey
Assets include all rights, properties, leases, licenses, permits, contracts and
equipment and other assets necessary to permit the Partnership to operate the
Donrey Systems as presently operated, and other than the Donrey Assets being
transferred to the Partnership at the Effective Time and the Donrey Excluded
Assets, there are no other assets or properties owned by Donrey or any
affiliate, stockholder or third party which are reasonably necessary to operate
the Donrey Systems as presently operated.
(m) Taxes. Donrey has timely filed or caused to be filed, or
will file or cause to be filed, all federal, state, local and foreign tax
returns required to be filed by it with respect to or which include the Donrey
Systems on or prior to the Effective Time (all such returns being true correct
and complete) and has duly paid all Taxes due or claimed to be due from it from
any taxing authority with respect to or imposed upon the Donrey Systems for any
period on or prior to the Effective
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Time, other than Taxes that are being contested in good faith through
appropriate proceedings and for which an adequate accrual has been established.
(n) ERISA.
(i) Schedule 10.1(n) hereto sets forth a true and
complete list of each employee benefit plan, program, arrangement or
agreement that is maintained (or contributed to), or was maintained
(or contributed to) at any time during the six (6) years immediately
preceding the date of this Agreement (the "Donrey Plans"), by Donrey
or by any trade or business, whether or not incorporated, which
together with Donrey would be deemed a "single employer" within the
meaning of section 4001 of ERISA. A copy of each Donrey Plan has been
made available to TCA.
(ii) Each of the Donrey Plans has been written,
operated and administered in substantial compliance with all
applicable laws (including, without limitation, ERISA and the Code);
each of the Donrey Plans intended to be "qualified" within the meaning
of section 401(a) of the Code is so qualified; no Donrey Plan is
subject to section 412 of the Code or to Title IV of ERISA.
(iii) All contributions or other amounts due and
payable from Donrey to (or under) any Donrey Plan prior to the
Effective Time have been, or will be, paid on or before the Effective
Time. There are no pending, threatened or anticipated claims (other
than routine claims for benefits) by, on behalf of or against any of
the Donrey Plans or any trusts related thereto.
(iv) No Donrey Plan provides benefits (including,
without limitation, death or medical benefits, whether or not insured)
to the current or former employees covered thereunder after their
retirement or other termination of service (other than (i) coverage
mandated by applicable law, (ii) death benefits or retirement benefits
under any tax-qualified retirement plan, or (iii) benefits the costs
of which are borne by the employee (or the employee's beneficiary)).
(v) Except as contemplated by Section 11.1(b)(i),
the consummation of the transactions contemplated by this Agreement
will not accelerate the time of payment or vesting under any Donrey
Plan and will not increase the amount of compensation payable to any
employee covered thereunder.
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(o) Employees.
(i) There are no collective bargaining agreements
applicable to any persons employed by Donrey that render services in
connection with the Donrey Systems, and Donrey has no duty to bargain
with any labor organization with respect to any such persons. There
are not pending any unfair labor practice charges against Donrey, nor
any demand for recognition, or any other request or demand from a
labor organization for representative status with respect to any
persons employed by Donrey that render services in connection with the
Donrey Systems.
(ii) Donrey is not a party to any employment
agreement, written or oral, relating to employees of the Donrey
Systems which cannot be terminated at will by Donrey and, except as
set forth on Schedule 10.1(n), Donrey has not had and does not
currently have any pension or profit sharing or other employee benefit
plan relating to employees of the Systems.
Section 10.2 Representations and Warranties of TAL. Except
as set forth on the TAL Disclosure Schedules, TAL hereby represents and
warrants to Donrey as follows, and acknowledges that Donrey is relying on such
representations and warranties in entering into this Agreement:
(a) Organization. TAL is a corporation duly organized,
validly existing and in good standing under the laws of Nevada, has the
corporate power and authority to cause the TAL Entities to convey the TAL
Systems to the Partnership pursuant to Section 4.2 of this Agreement and to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
(b) Authority. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on TAL's behalf.
(c) Execution and Delivery. This Agreement and any other
agreements or instruments executed and delivered pursuant hereto to which TCA,
TAL or the TAL Entities are parties have been (or, when executed and delivered,
will be) duly executed and delivered by, and constitute (or, when executed and
delivered, will constitute) legal, valid and binding obligations of it
enforceable against TCA, TAL or the TAL Entities in accordance with their
terms, subject as to enforcement to applicable bankruptcy, insolvency,
reorganization, moratorium and
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other laws of general application, both at law and in equity, affecting the
rights of creditors generally.
(d) No Violations. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will (i) violate, conflict with or result in any breach of any provision of the
certificate of incorporation, bylaws or partnership agreements of TCA, TAL and
the TAL Entities, (ii) violate, conflict with, result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, lease, contract, agreement or other instrument or
commitment or obligation to which TCA, TAL or the TAL Entities or any of their
respective properties may be bound or affected or to which they are parties or
are bound or result in the creation of any Lien upon any of the properties
included in the TAL Assets or (iii) violate any order, writ, injunction,
decree, judgment, ruling, law, notice of violation, rule or regulation of any
court, public body or authority or any other restriction of any kind or
character, applicable to TCA, TAL or the TAL Entities or any of the TAL Assets.
(e) Consents and Approvals. Except as set forth on Schedule
10.2(e) hereto, there is no requirement applicable to TCA, TAL or the TAL
Entities to make any filing with, or to obtain any permit, authorization or
consent or approval of, any governmental or regulatory authority as a condition
to the lawful consummation of the transactions contemplated hereby.
(f) Title to Properties; Encumbrances.
(i) Schedule 10.2(f)(i) contains descriptions of all
material items of tangible personal property and real property
included in the TAL Assets, which comprise all material items of
tangible personal property and real property used by TCA, TAL or the
TAL Entities to operate the TAL Systems. Except as described in the
following sentence, TCA, TAL or the TAL Entities have good, valid, and
marketable title to (or in the case of leased assets, a valid
leasehold interest in) all of the property included in the TAL Assets
and validly hold all necessary state, local and federal
authorizations, including FCC licenses or permits, and local
franchises required to operate the TAL Systems in the manner in which
they are currently being operated and the issuance of such
authorizations are no longer subject to administrative or judicial
review. None of such properties or assets is subject
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<PAGE> 48
to any Lien of any kind (whether absolute, accrued, contingent or
otherwise), except (a) as set forth in Schedule 10.2(f)(i) hereto, and
(b) minor imperfections of title and encumbrances, if any, which are
not substantial in amount, do not materially detract from the value of
the property or assets subject thereto and do not impair the operation
of the TAL Systems. When considered as a whole the TAL Assets are in
good working condition. All items of cable plant and headend
equipment included in the TAL Assets (a) have been maintained in a
manner consistent with generally accepted standards of good
engineering practice and (b) will permit the TAL Systems to operate in
all material respects in accordance with the terms of the TAL
Franchises and Licensees.
(ii) Schedule 10.2(f)(ii) sets forth a true and
complete list of all of the TAL Franchises and Licenses. Each of the
TAL Franchises and Licenses listed on Schedule 10.2(f)(ii) is valid
and in full force and effect. No event has occurred with respect to
any of the authorizations which permits, or after notice or lapse of
time would permit, revocation or termination thereof or would result
in any other material impairment of the rights of the holder of such
authorizations that would have a material adverse effect on the
business of the holder of such authorization. TCA, TAL or the TAL
Entities have filed as required by the appropriate franchising
authorities all appropriate requests for renewal under the
Communications Act, within 30 to 36 months prior to the expiration of
each of the TAL Franchises and Licenses, with respect to the TAL
Franchises and Licenses. Except as disclosed in Schedule 10.2(f)(ii)
hereto, each of the TAL Systems is currently in compliance in all
material respects with all of the TAL Franchises and Licenses. No
party holding any such FCC authorization has any knowledge that any of
its authorizations listed on Schedule 10.2(f)(ii) will not be renewed
in the ordinary course or, where applicable, the facilities regulated
by such authorization will not be constructed and put into commercial
service within the applicable time period.
(g) No Adverse Change. Since September 30, 1995, (i) there
has not been any material adverse change in the TAL Assets or in the financial
condition or operation of the TAL Systems, and (ii) the TAL Assets and the
financial condition and operations of the TAL Systems have not been materially
and adversely affected as a result of any fire, explosion, accident, casualty,
labor trouble, flood, drought, riot, storm, condemnation or otherwise.
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(h) Litigation. Except as set forth on Schedule 10.2(h)
hereto, there is no suit, action, charge, claim, inquiry, investigation or
proceeding pending or, to the best knowledge of TAL, threatened against or
affecting the TAL Systems or the ability of TCA, TAL or the TAL Entities to
perform their obligations under this Agreement, nor, to the best knowledge of
TAL, is there any valid basis for any such suit, action, charge, claim,
inquiry, investigation or proceeding, nor is there any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or arbitrator outstanding affecting the TAL Systems.
(i) Compliance with Legal Requirements. TCA, TAL and the TAL
Entities own and operate, and have owned and operated, their properties and
assets, and carry on and conduct, and have carried on and conducted, their
business in material compliance with all federal, foreign, state or local laws,
statutes, ordinances, rules or regulations (including the Communications Act,
the Copyright Act and the Cable Act and the rules and regulations promulgated
thereunder) or any court or administrative order or process.
(j) Environmental Matters.
(i) TCA, TAL and the TAL Entities are in compliance
in all material respects with all applicable Environmental Laws
applicable to the TAL Systems. To the best knowledge of TAL, there
are no circumstances that may prevent or interfere with compliance
with such Environmental Laws in all material respects in the future.
None of TCA, TAL or the TAL Entities has received any communication
(written or oral), whether from a governmental authority, citizens
group, employee or otherwise, that alleges that TCA, TAL or the TAL
Entities are not in full compliance with Environmental Laws applicable
to the TAL Systems. All material permits and other governmental
authorizations applicable to the TAL Systems currently held by TCA,
TAL and the TAL Entities pursuant to the Environmental Laws are
identified in Schedule 10.2(j)(i).
(ii) Except as set forth on Schedule 10.2(j)(ii)
hereto, there is no Environmental Claim pending or threatened against
TCA, TAL or the TAL Entities with respect to the TAL Systems or, to
the best knowledge of TAL, against any person or entity whose
liability for any Environmental Claims TCA, TAL or the TAL Entities
have or may have retained or assumed either contractually or by
operation of law.
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(iii) Except as set forth on Schedule 10.2(j)(iii)
hereto, to the best knowledge of TAL, there are no past or present
actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge or
disposal of any Material of Environmental Concern, that could form the
basis of any Environmental Claim against TCA, TAL or the TAL Entities
with respect to the TAL Systems or against any person or entity whose
liability for any Environmental Claim TCA, TAL or the TAL Entities
have or may have retained or assumed either contractually or by
operation of law.
(iv) Without in any way limiting the generality of
the foregoing, (a) to the best knowledge of TAL, all on-site and
off-site locations where TCA, TAL or the TAL Entities have stored or
disposed Materials of Environmental Concern in connection with the TAL
Systems are identified in Schedule 10.2(j)(iv), (b) no underground
storage tanks are located on property owned or leased by TCA, TAL or
the TAL Entities with respect to the TAL Systems, (c) to the best
knowledge of TAL, except as set forth on Schedule 10.2(j)(iv), there
is no asbestos contained in or forming part of any building, building
component, structure or office space owned or leased by TCA, TAL or
the TAL Entities with respect to the TAL Systems in violation of any
applicable Environmental Laws, and (d) to the best knowledge of TAL,
except as set forth on Schedule 10.2(j)(iv), no poly- chlorinated
biphenyls (PCBs) are used or stored at any property owned or leased by
TCA, TAL or the TAL Entities with respect to the TAL Systems in
violation of any applicable Environmental Laws.
(k) TAL Assets Necessary to TAL Systems. The TAL Assets
include all rights, properties, leases, licenses, permits, contracts and
equipment and other assets necessary to permit the Partnership to operate the
TAL Systems as presently operated, and other than the TAL Assets being
transferred to the Partnership at the Effective Time and the TAL Excluded
Assets, there are no other assets or properties owned by TCA, TAL or the TAL
Entities or any affiliate, stockholder or third party which are reasonably
necessary to operate the TAL Systems as presently operated.
(l) Taxes. TCA, TAL or the TAL Entities have timely filed or
caused to be filed, or will file or cause to be filed, all federal, state,
local and foreign tax returns required to be filed by them with respect to or
which include the TAL Systems on or prior to the Effective Time (all such
returns being true correct and complete) and have duly paid all Taxes due or
claimed to be due from them from any taxing authority with respect to or
imposed upon the TAL Systems for any
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period on or prior to the Effective Time, other than Taxes that are being
contested in good faith through appropriate proceedings and for which an
adequate accrual has been established.
(m) ERISA
(i) Schedule 10.2(m) hereto sets forth a true and
complete list of each employee benefit plan, program, arrangement or
agreement that is maintained (or contributed to), or was maintained
(or contributed to) at any time during the six (6) years immediately
preceding the date of this Agreement (the "TAL Plans"), by TCA, TAL or
the TAL Entities or by any trade or business, whether or not
incorporated, which together with TCA, TAL or the TAL Entities would
be deemed a "single employer" within the meaning of section 4001 of
ERISA. A copy of each TAL Plan has been made available to Donrey.
(ii) Each of the TAL Plans has been written,
operated and administered in substantial compliance with all
applicable laws (including, without limitation, ERISA and the Code);
each of the TAL Plans intended to be "qualified" within the meaning of
section 401(a) of the Code is so qualified; no TAL Plan is subject to
section 412 of the Code or to Title IV of ERISA.
(iii) All contributions or other amounts due and
payable from TCA, TAL or the TAL Entities to (or under) any TAL Plan
prior to the Effective Time have been, or will be, paid on or before
the Effective Time. There are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or
against any of the TAL Plans or any trusts related thereto.
(iv) No TAL Plan provides benefits (including,
without limitation, death or medical benefits, whether or not insured)
to the current or former employees covered thereunder after their
retirement or other termination of service (other than (i) coverage
mandated by applicable law, (ii) death benefits or retirement benefits
under any tax-qualified retirement plan, or (iii) benefits the costs
of which are borne by the employee (or the employee's beneficiary)).
(v) The consummation of the transactions
contemplated by this Agreement will not accelerate the time of payment
or vesting under any TAL
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Plan and will not increase the amount of compensation payable to any
employee covered thereunder.
(n) Employees.
(i) There are no collective bargaining agreements
applicable to any persons employed by TCA, TAL or the TAL Entities
that render services in connection with the TAL Systems, and none of
TCA, TAL or the TAL Entities has any duty to bargain with any labor
organization with respect to any such persons. There are not pending
any unfair labor practice charges against TCA, TAL or the TAL
Entities, nor any demand for recognition, or any other request or
demand from a labor organization for representative status with
respect to any persons employed by TCA, TAL or the TAL Entities that
render services in connection with the TAL Systems.
(ii) Except as set forth on Schedule 10.2(n), none
of TCA, TAL or the TAL Entities is a party to any employment
agreement, written or oral, relating to employees of the TAL Systems
which cannot be terminated at will by TCA, TAL or the TAL Entities
and, except as set forth on Schedule 10.2(m), none of TCA, TAL or the
TAL Entities has had or currently has any pension or profit sharing or
other employee benefit plan relating to employees of the Systems.
ARTICLE XI
EMPLOYEE MATTERS
Section 11.1 Post-Closing Obligations to Employees.
(a) Employment, Benefits and Compensation, Generally.
(i) As used in this Section 11.1, the term
"Employees" shall mean and include any employee of Donrey who is actively
working for the Donrey Systems as of the Effective Time and any employee of
Donrey who is absent as of the Effective Time on short-term disability,
Workers' Compensation or an authorized leave (such as maternity, military,
family and medical leaves or other leaves where return to work is subject to
statutory requirements), but was actively working for Donrey Systems
immediately prior to such absence. As used in this Section 11.1, the term "TCA
Employees" shall mean and include any Employee who shall have
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accepted an offer of employment made by TCA Management Co. in accordance with
Section 11.1(b)(ii) hereof and the term "Non-TCA Employees" shall mean and
include any Employee who shall have received such an offer of employment but
declined the offer.
(ii) As of the Effective Time, TAL shall cause TCA
Management Co. to offer employment in substantially comparable positions to all
Employees active as of the Effective Time who pass TCA Management Co.'s normal
drug test for applicants. The employment of any active Employee who accepts
the terms of employment so offered will commence at 12:01 A.M. on the day
immediately after the Effective Time. When any Employee who is absent from
Donrey on short-term disability or Workers' Compensation on the Effective Time
is released therefrom in writing by the Employee's physician to return to
active employment, TAL shall cause TCA Management Co. to offer immediate
employment (upon receipt of such release) to such Employee, in a position
substantially comparable to that which the Employee occupied before such
absence but only at such time as the Employee is medically capable to perform
the essential functions of the position occupied immediately before such
absence. Employment in substantially comparable positions will be offered to
those Employees seeking to return from any authorized leave. TAL shall not be
required to cause TCA Management Co. to offer re-employment nor have any other
obligation with respect to individuals who are on long-term disability as of
the Effective Date.
(iii) TAL will cause TCA Management Co. to pay a
base salary to each TCA Employee which is at least equal to the base salary
being paid to such individual by Donrey immediately prior to the Effective
Time. TAL will cause TCA Management Co. to maintain, without interruption,
employee compensation and benefit plans, programs, policies and arrangements
(including fringe benefits) that, in the aggregate, will provide benefits and
compensation to the TCA Employees that are, at any time after the Effective
Time, no less favorable than those provided to comparably situated other
employees of TAL, TCA Management Co. or the Partnership.
(iv) For purposes of determining eligibility and
vesting under all employee benefit plans, programs, policies, arrangements and
fringe benefits of TCA, TAL, TCA Management Co. or the Partnership
(collectively, the "TCA Plans"), TCA Employees shall be given credit for all
service with Donrey and its affiliates and predecessors to the same extent as
such service was credited for such purposes by Donrey. Additionally, in the
case of any TCA Plan which is an "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA), if a TCA Em-
52
<PAGE> 54
ployee was participating in the analogous Donrey plan as of the Effective Time,
such TCA Employee shall immediately participate in the TCA Plan, to the extent
permitted by applicable law.
(v) Nothing in this Section 11.1 shall be deemed to
require the employment of any TCA Employee to be continued for any particular
period of time after the Effective Time. However, if the employment of any TCA
Employee in a given position shall be terminated by TCA Management Co. without
the prior written consent of the TCA Employee within the one-year period
immediately following the Effective Time and if such termination is) without
"Cause" (as defined in this Section 11.1(a)(v)) and is not the result of the
TCA Employee's (x) retirement on or after age 65, (y) death or (z) development
of a physical or mental condition making the TCA Employee unable to
substantially perform all the TCA Employee's duties, TAL shall use its best
efforts to offer the TCA Employee immediate employment in a substantially
comparable position within TCA Management Co. For purposes of this Section
11.1(a)(v), "Cause" shall mean (x) a TCA Employee's willful and continued
failure to adequately perform substantially all his or her duties as a TCA
Employee, or (y) a TCA Employee's willful engagement in conduct which is
demonstrably and materially injurious to the employer, monetarily or otherwise.
(vi) Donrey shall give TAL reasonable access to any
and all records necessary to administer all TCA Plans for the TCA Employees.
(vii) Donrey shall be responsible for, and shall
cause to be discharged and satisfied in full, all amounts owed by Donrey prior
to the Effective Time to any current or prior employee, including (i) wages,
salaries and severance, (ii) amounts owed pursuant to any employment, incentive
compensation or bonus agreements, or (iii) other benefits or payments on
account of termination. Additionally, Donrey shall be responsible for, and
shall cause to be discharged and satisfied in full, all compensation and
benefit amounts (including any severance or termination pay) owed by Donrey to
Non-TCA Employees at or after the Effective Time. Donrey shall indemnify TAL,
TCA Management and the Partnership, and hold each of them harmless from any
amounts described in this Section 11.1(a)(vii).
(viii) Donrey shall assume full responsibility and
liability for offering and providing "continuation coverage" to any "covered
employee" or "qualified beneficiary" who is covered by a "group health plan"
sponsored, maintained or contributed to by Donrey and who has experienced a
"qualifying event" or is receiving such "continuation coverage" prior to the
Effective Time. Donrey shall also assume full responsibility and liability for
offering and providing "continuation
53
<PAGE> 55
coverage" to any "covered employee" or "qualified beneficiary" who is covered
by a "group health plan" sponsored, maintained or contributed to by Donrey who
experiences a "qualifying event" at the Effective Time. TCA Management Co.
shall assume full responsibility and liability at the Effective Time for
offering and providing "continuation coverage" to any TCA Employee and his or
her other "qualified beneficiaries" who are covered by a "group health plan"
sponsored, maintained or contributed to by TCA Management Co. and who
experience a "qualifying event" after the Effective Time. Continuation
coverage, covered employee, qualified beneficiary, qualifying event and group
health plan shall have the meanings given such terms under Section 4980B of the
Code and Section 601 et seq. of ERISA. Donrey shall hold TAL, TCA Management
and the Partnership, and any entity required to be combined with any or all of
them under Section 414 of the Code ("Affected Parties") harmless from and fully
indemnify such Affected Parties against any losses incurred or suffered by such
Affected Parties which arise under a group health plan sponsored, maintained or
contributed to by Donrey as a result of any action or omission of Donrey prior
to the Effective Time. TAL shall hold Donrey and any entity required to be
combined with Donrey under Section 414 of the Code ("Donrey Affected Parties")
harmless from and fully indemnify such Donrey Affected Parties against any
losses incurred or suffered by such Donrey Affected Parties which arise under a
group health plan sponsored, maintained or contributed to by TCA Management Co.
as a result of a qualifying event occurring after the Effective Time with
respect to an Employee who becomes a TCA Employee or his or her other qualified
beneficiaries.
(b) Donrey Retirement Plan - Vesting and Asset Transfer.
(i) Donrey shall cause the account balances as of
the Effective Time of all Employees who are participants in the Donrey
Retirement Savings Plan (together with any predecessor plans which are part of
such plan, the "Donrey Retirement Plan") as of the Effective Time to be
completely vested as of the Effective Date.
(ii) Donrey shall cause to be transferred from the
Donrey Retirement Plan to the TCA Deferred Savings and Retirement Plan (the
"TCA Savings Plan") the liability for the account balances of all the TCA
Employees who were participants in the Donrey Retirement Plan as of the
Effective Time ("Retirement Plan Employees"), together with assets which are
reasonably acceptable to the trustee of the TCA Savings Plan and the aggregate
fair market value of which is equal to such liability, and TAL shall cause TCA
to cause the TCA Savings Plan to accept such transfer (the acceptance of the
liability being conditioned upon the asset
54
<PAGE> 56
transfer); provided, however, that the amount of the asset transfer shall be
reduced by the aggregate amount of any payments and distributions made in
accordance with Section 11.1(b)(iii) hereof from the Donrey Retirement Plan to
or on behalf of Retirement Plan Employees between the Effective Time and the
date of the asset transfer. Donrey and TAL shall cause TCA to adopt the
resolutions required to make (and shall cause the Donrey Retirement Plan and
the TCA Savings Plan, respectively, to be amended, if necessary, to permit)
such transfer of assets and liabilities, preserving benefits protected by
Section 411(d)(6) of the Code and Section 204(g) of ERISA. The asset transfer
shall take place as soon as practicable after the Effective Time; provided,
however, that in no event shall such transfer take place until the later of the
following occurs: (A) the mutual exchange of favorable determination letters
from the Internal Revenue Service (the "IRS") with respect to the qualification
of the Donrey Retirement Plan and the TCA Savings Plan, respectively, under
Section 401(a) of the Code, as amended to comply with changes to the
qualification requirements of Section 401(a) of the Code made by the Tax Reform
Act of 1986 and other recent legislation and regulations, or if a determination
letter taking into account the provisions of the Tax Reform Act of 1986 and all
subsequent legislation has not yet been received, then a determination letter
taking into account all tax laws up until the enactment of the Tax Reform Act
of 1986 may be furnished in lieu thereof, provided that, in addition, an
acceptable representation from the respective plan administrator is furnished
that an application for a determination letter taking into account all required
tax law changes to date has been applied for (or will be applied for), that the
respective plan administrator will take whatever actions the IRS requires to
issue a favorable determination letter, that the respective plan has, at all
times, been in operational compliance with all tax laws and that any amendments
necessary to comply with such tax legislation have been (or will be) adopted in
a timely manner, and (B) the receipt of any necessary governmental approval or
filing of necessary governmental reports including but not limited to IRS Form
5310-A.
(iii) Pending the completion of the asset transfer
described in this Section 11.1(b), Donrey and TAL shall make arrangements for
any required payments or distributions to the Retirement Plan Employees from
the Donrey Retirement Plan. Donrey and TAL shall provide each other with
access to information reasonably necessary in order to carry out the provisions
of this paragraph. Donrey and TAL shall each use their commercially reasonable
efforts to satisfy promptly the conditions for such transfer and to implement
such transfer as soon as practicable following the Effective Time.
55
<PAGE> 57
(iv) Notwithstanding any provision hereof to the
contrary, TCA Management Co. shall have no obligation to permit the TCA Savings
Plan to accept a transfer of assets and liabilities from the Donrey Retirement
Plan if such transfer would jeopardize the tax qualification of the TCA Savings
Plan.
(c) Medical and Welfare Plan Obligations.
(i) TAL agrees to cause TCA Management Co. to waive
any limitations for preexisting conditions under its medical care plan with
respect to the TCA Employees. With respect to long-term disability coverage
for the TCA Employees, TCA agrees to cause TCA Management Co. to waive any
limitations for preexisting conditions except any condition for which a TCA
Employee received treatment (or was diagnosed) within three (3) months before
the TCA Employee's date of hire by TCA Management Co. and which caused the TCA
Employee to become disabled within twelve (12) months after such date of hire.
(ii) Donrey shall pay all claims for medical and
dental benefits covered by any of its medical and dental care plans which
relate to care services rendered on or before the Effective Time, regardless of
when such claims may be filed and to the extent such plans would honor such
claims in accordance with their terms under their administrative procedures
established prior to the signing of this Agreement. In the calendar year which
includes the Effective Time, TAL shall cause TCA Management Co. to honor any
deductible and out-of-pocket expenses incurred by TCA Employees and their
beneficiaries under Donrey's medical plans during the portion of the calendar
year preceding the Effective Time, to the extent that information regarding
such amounts is provided by Donrey to TCA Management Co.
(iii) TAL shall cause TCA Management Co. to assume
the obligations of Donrey with respect to vacation time of TCA Employees which
has been accrued, but not taken, as of the Effective Time.
ARTICLE XII
ARBITRATION
Section 12.1 Arbitration. Each of the Partners agrees to
submit to binding arbitration any and all differences and disputes which may
arise out of or are related to this Agreement, except for any dispute arising
out of the failure of a
56
<PAGE> 58
Partner to make a required Capital Contribution. Prior to initiating
arbitration, the Partners shall first meet face- to-face to effect a resolution
of the differences. Any differences which the Partners are unable to resolve
in such face-to-face meeting shall be heard and finally settled in
Fayetteville, Arkansas or in any other location mutually agreed upon by the
parties, by binding arbitration in accordance with the Commercial Rules of the
American Arbitration Association. Such arbitration shall be initiated in the
Fayetteville, Arkansas office of the American Arbitration Association. Any
award entered in any such arbitration shall be final, binding, and may be
entered and enforced in any court of competent jurisdiction. The arbitrator
shall make such orders, conduct and schedule all proceedings in connection with
the arbitration so that final arbitration commences no less than thirty (30)
days and concludes no later than seventy-five (75) days after a party files the
initial notice of arbitration, and so that the final arbitration award is made
and delivered to the parties within ninety (90) days after the filing of the
initial notice of arbitration. Nothing herein contained shall be construed as
preventing any party from instituting legal or equitable action in any
jurisdiction against any of the other parties for temporary or similar
provisional relief to the full extent permitted under the laws applicable to
this Agreement, or any such other written agreement between the parties or the
performance hereof or thereof or otherwise pending final settlement of any
dispute, difference or question by arbitration. Any such provisional relief
may be modified or amended in any way by the arbitrator at any time after his
appointment. Each Partner shall pay the expenses of their own representatives,
if any, and shall share all other costs of such arbitration, including the fees
and expenses of the arbitrators.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Notices. Each Partner shall promptly give
written notice to the other Partner upon becoming aware of the occurrence or,
to its knowledge, a pending or threatened occurrence, of any event which would
cause or constitute a breach of any of its representations, warranties or
covenants contained or referenced in this Agreement and will use its best
efforts to prevent or promptly remedy the same. All notices or other
communications to parties under this Agreement shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, telegram, telex, facsimile transmission or other standard
form of telecom- munications, or by registered or
57
<PAGE> 59
certified mail or Federal Express delivery, postage prepaid, return receipt
requested, addressed as follows:
If to Donrey:
DR Partners
3600 Wheeler Avenue
Fort Smith, Arkansas 72901
Attention: Darrell W. Loftin
With copies to:
Stephens Group, Inc.
111 Center Street, Suite 2300
Little Rock, Arkansas 72203
Attention: David Knight, Esq.
and
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: J. Michael Schell, Esq.
If to TAL:
TAL Financial Corporation
c/o TCA Cable TV, Inc.
3015 SSE Loop 323
Tyler, Texas 75713
Attention: Randall L. Clark
With a copy to:
Jackson & Walker, L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
Attention: James S. Ryan, III
58
<PAGE> 60
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section 13.1.
Section 13.2 Governing Law. This Agreement and the
Partnership created hereby shall be governed by and construed accordance with
the laws of the State of Delaware. The parties further agree that any action
relating to this Agreement shall be instituted and prosecuted in the Courts of
the County of New Castle in the State of Delaware, and each party hereto hereby
consents to the jurisdiction of said Courts and waives any right or defense
relating to such jurisdiction and venue.
Section 13.3 Confidentiality. No Partner shall during the
period such Partner is a Partner and at any time after such Partner has ceased
to be a Partner, disclose any confidential or proprietary information with
respect to the Partnership to any Person, except (i) with the prior written
consent of the other Partners; (ii) to the extent necessary to comply with law
or the valid order of a court of competent jurisdiction, in which event the
party making such disclosure shall so notify the other Partners as promptly as
practicable (and, if possible, prior to making such disclosure) and shall seek
confidential treatment of such information; (iii) as part of its normal
reporting or review procedure to its parent company, if any, or partners, its
auditors and its attorneys and other representatives; provided, that, such
Partner shall be responsible for the compliance of its parent company, if any,
or partners, auditors, attorneys and representatives with the provisions of
this Section 13.3; (iv) in connection with the enforcement of such Partner's
rights hereunder; (v) with respect to disclosures to an affiliate of, or
professional advisor to, such Partner in connection with the performance by
such Partner of its obligations hereunder; provided, that, such Partner shall
be responsible for the compliance of its affiliates or professional advisors
with the provisions of this Section 13.3; and (vi) to a prospective purchaser
of all or a portion of such Partner's Partnership Interest in connection with a
sale thereof in accordance with the terms of this Agreement; provided, that,
such prospective purchaser agrees to be bound by the provisions of this Section
13.3. Except as provided in the immediately preceding sentence, no Partner,
nor any of its affiliates, shall, during the periods referred to therein, use
any confidential or proprietary information with respect to the Partnership.
Section 13.4 Amendments. This Agreement may be modified or
amended only by an instrument in writing signed by all of the Partners.
Section 13.5 Entire Agreement. Except as provided herein,
this instrument constitutes the entire agreement between the Partners with
respect to the
59
<PAGE> 61
Partnership and supersedes all prior agreements, understandings, offers and
negotiations, oral or written.
Section 13.6 Waiver of Partition. Each Partner hereby
irrevocably waives any and all rights that it may have to maintain an action
for partition of any of the Partnership property.
Section 13.7 Consents. All consents, agreements and
approvals required or permitted by this Agreement shall be in writing and a
signed copy thereof shall be filed and kept with the books of the Partnership.
Section 13.8 Successors; No Third Party Beneficiaries.
Subject to Section 5.4, all rights and duties of the Partners hereunder shall
inure to the benefit of and be binding upon their respective successors and
assigns other than as contemplated by Article VIII hereof, neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto thereto any rights or remedies hereunder or
thereunder.
Section 13.9 Further Assurances. Each party hereto agrees to
execute and deliver all such other and additional instruments and documents and
to do such other acts and things as may be necessary or expedient to create the
Partnership, carry out the business of the Partnership or effectuate this
Agreement.
Section 13.10 Headings. The Article and Section headings
herein are for convenience of reference only and shall not affect the meaning
or interpretation of any provision hereof.
Section 13.11 Severability. Each provision of this Agreement
shall be considered severable and if for any reason any provision which is not
essential to the effectuation of the basic purposes of the Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable
and contrary to the Act or existing or future applicable law, such invalidity
shall not impair the operation of or affect those provisions of this Agreement
which are valid. In that case, this Agreement shall be construed so as to
limit any term or provision so as to make it enforceable or valid within the
requirements of any applicable law, and in the event such term or provision
cannot be so limited, this Agreement shall be construed to omit such invalid or
unenforceable provisions.
Section 13.12 Survival. Except as expressly provided in this
Agreement, all indemnities and reimbursement obligations made pursuant to this
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<PAGE> 62
Agreement shall survive dissolution and liquidation of the Partnership until
expiration of the longest applicable statute of limitations (including
extensions and waivers) with respect to the matter for which a party would be
entitled to be indemnified or reimbursed, as the case may be.
Section 13.13 Brokers. Donrey represents and warrants to
TAL, and TAL represents and warrants to Donrey, that neither it nor any party
acting on its behalf has incurred any liability, either express or implied, to
any "broker" or "finder" or similar person in respect of any of the
transactions contemplated hereby. TAL agrees to indemnify Donrey against, and
hold it harmless from, and Donrey agrees to indemnify TAL against, and hold it
harmless from, any liability, cost or expense (including, but not limited to,
fees and disbursements of counsel) resulting from any agreement, arrangement or
understanding made by such party with any third party for brokerage or finders'
fees or other commissions in connection with this Agreement or the transactions
contemplated hereby.
Section 13.14 Access. Between the date hereof and the
Effective Time, each of TAL and Donrey will (i) provide to the other and its
representatives, during normal working hours, full access to the premises,
property, files, books, records, documents, and other information of or
concerning the TAL Systems and the Donrey Systems, (ii) furnish to the other
and its representatives financial, technical and operating data and other
information pertaining to the business and property of the TAL Systems and the
Donrey Systems, and (iii) permit the other and its representatives to conduct
reasonable interviews of the employees, sales representatives and auditors of
the TAL Systems and the Donrey Systems; provided, however, that any such
investigation will be conducted in such a manner as not to interfere
unreasonably with the operation of the business of the TAL Systems and the
Donrey Systems. Between the date hereof and the Effective Time, each of TAL and
Donrey will promptly notify the other in writing of (a) any default under any
material Assumed Donrey Contract or material Assumed TAL Contract or (b) any
material adverse change in the business, financial condition or results of
operations of the Donrey Systems or the TAL Systems, in each case taken as a
whole.
Section 13.15 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Partners have executed this
Partnership Agreement as of the date first above written.
DR PARTNERS
By: Stephens Holding Company,
general partner
By: /s/ C. Ray Gash
------------------------------
Title: Vice President
---------------------
Name: C. Ray Gash
---------------------
TAL FINANCIAL CORPORATION
By: /s/ Fred R. Nichols
------------------------------
Title: President
---------------------
Name: Fred R. Nichols
---------------------
62
<PAGE> 64
EXHIBIT B
INITIAL CAPITAL CONTRIBUTIONS
Adjusted Tax Basis* Fair Market Value
------------------ -----------------
TAL Systems 116,279,455 326,250,000
Donrey Systems 26,541,365 108,750,000
----------- -----------
142,820,820 435,000,000
_____________
* As of November 30, 1995
63
<PAGE> 65
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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Page
----
<S> <C>
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.1 Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
Section 2.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----
Section 2.3 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
---------------------------
Section 2.4 Agent for Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------------------------
Section 2.5 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-------
Section 2.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----
Section 2.7 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------
ARTICLE III - MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.1 Partnership Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
---------------------
Section 3.2 Partnership Committee Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------
Section 3.3 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------
Section 3.4 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----------
Section 3.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------
Section 3.6 Delivery of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
---------------------
ARTICLE IV - CAPITAL ACCOUNTS, CAPITAL CONTRIBUTIONS AND WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.1 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
----------------
Section 4.2 Initial Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------------------------
Section 4.3 The Closing; Termination Prior to the Effective Time . . . . . . . . . . . . . . . . . . . . . 19
----------------------------------------------------
Section 4.4 Deliveries at the Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------------------
Section 4.5 Conditions to Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------------------------
Section 4.6 Additional Capital Contributions by Partners . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------------------------------------------
Section 4.7 Adjustment of Partnership Interests Upon Additional Capital Contributions . . . . . . . . . . . 24
-------------------------------------------------------------------------
Section 4.8 Jonesboro System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----------------
Section 4.9 Withdrawals of Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------------------------
Section 4.10 Interest on Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
----------------------------
Section 4.11 Transferees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-----------
ARTICLE V - PARTNERSHIP INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Partnership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------------------
Section 5.2 Transfer of Partnership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------------------------------
</TABLE>
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<TABLE>
<S> <C>
Section 5.3 Fair Market Value Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------------------------------
Section 5.4 Assignment of Interest in Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------------------------------------
ARTICLE VI - PROFITS AND LOSSES AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.1 Allocation of Profits, Gains and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------------------------------------
Section 6.2 Allocation to Transferred Partnership Interests . . . . . . . . . . . . . . . . . . . . . . . . 31
-----------------------------------------------
Section 6.3 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
-------------
ARTICLE VII - TAX MATTERS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.1 Filing of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
---------------------
Section 7.2 Tax and Financial Reports to Current and Former Partners . . . . . . . . . . . . . . . . . . . 32
--------------------------------------------------------
Section 7.3 Books and Records; Independent Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
------------------------------------
Section 7.4 Method of Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
--------------------
Section 7.5 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-----------
Section 7.6 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-------------
ARTICLE VIII - INDEMNIFICATION AND EXCULPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.1 Indemnification of the Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------------------------
Section 8.2 Indemnification of the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
----------------------------------
Section 8.3 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
---------------------------
Section 8.4 Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-----------
ARTICLE IX - TERMINATION AND DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.1 Events of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
---------------------
Section 9.2 Order of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------------------
Section 9.3 Capital Account Deficits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
------------------------
Section 9.4 Timing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-------------------
ARTICLE X - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.1 Representations and Warranties of Donrey . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------------------------------------
Section 10.2 Representations and Warranties of TAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
-------------------------------------
ARTICLE XI - EMPLOYEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.1 Post-Closing Obligations to Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
-------------------------------------
ARTICLE XII - ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 12.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
-----------
</TABLE>
ii
<PAGE> 67
<TABLE>
<S> <C>
ARTICLE XIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 13.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-------
Section 13.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
-------------
Section 13.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
---------------
Section 13.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
----------
Section 13.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
----------------
Section 13.6 Waiver of Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
-------------------
Section 13.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------
Section 13.8 Successors; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
----------------------------------------
Section 13.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
------------------
Section 13.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------
Section 13.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
------------
Section 13.12 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------
Section 13.13 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
-------
Section 13.14 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
------
Section 13.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
------------
</TABLE>
iii
<PAGE> 68
<TABLE>
<S> <C>
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Affected Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Assumed Donrey Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Assumed TAL Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Assumed TCA Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Cable Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Call . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Call Notice Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Call Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Copyright Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Donrey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Donrey Affected Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Donrey Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Donrey Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Donrey Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Donrey Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Donrey Franchises and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Donrey Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Donrey Retirement Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Donrey Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Environmental Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
iv
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<TABLE>
<S> <C>
Free Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Initial Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investment Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Jonesboro System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Legal Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Management Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Material Contractual Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Materials of Environmental Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Minimum Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Non-TCA Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Nonrecourse Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Partner Nonrecourse Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Partner Nonrecourse Debt Minimum Gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Partner Nonrecourse Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Partnership Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Partnership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Put Notice Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Put Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Retirement Plan Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TAL Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TAL Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TAL Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TAL Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TAL Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TAL Franchises and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TAL Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TAL Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<TABLE>
<S> <C>
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
TCA Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
TCA Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
TCA Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TCA Franchises and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TCA Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TCA Management Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TCA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
TCA Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
TCA Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
vi
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
FORM 10-K -- JANUARY 6, 1996
TAL Financial Corporation, a Nevada corporation and a wholly-owned
subsidiary of the Company. The following companies are wholly-owned subsidiaries
of TAL Financial Corporation:
<TABLE>
<CAPTION>
CORPORATION STATE OF INCORPORATION
- -------------------------------------------------------------------------- ----------------------
<S> <C>
TCA Management Company.................................................... Texas
Teleservice Corporation of America........................................ Texas
Texas Community Antennas, Inc............................................. Texas
Texas Telecable, Inc...................................................... Texas
TCA Cable of Amarillo, Inc................................................ Texas
Telecable Associates, Inc................................................. Texas
Delta Cablevision, Inc.................................................... Arkansas
Sun Valley Cablevision, Inc............................................... Idaho
VPI Communications, Inc................................................... Texas
AvComm Corporation........................................................ Texas
Tele-Communications of Arkansas L. P...................................... Delaware
Tele-Communications of Northwest Arkansas L. P............................ Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of TCA Cable TV, Inc. on Form S-8 (File Nos. 2-82934, 2-88892, 33-21901,
33-49172, 33-33898, 33-55895 and 33-61041) and Form S-3 (File Nos. 33-61616,
33-44289 and 33-40273) of our report dated January 23, 1996 on our audits of the
consolidated financial statements of TCA Cable TV, Inc. and Subsidiaries as of
October 31, 1995 and 1994, and for the years ended October 31, 1995, 1994, and
1993, which report is included in this Annual Report on Form 10-K, and which
report includes an explanatory paragraph describing the change in method of
accounting for income taxes in 1994.
COOPERS & LYBRAND L. L. P.
Dallas, Texas
January 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 1,260,274
<SECURITIES> 0
<RECEIVABLES> 7,973,959
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 330,491,610
<DEPRECIATION> 178,722,319
<TOTAL-ASSETS> 454,088,936
<CURRENT-LIABILITIES> 0
<BONDS> 262,213,055
<COMMON> 2,478,212
0
0
<OTHER-SE> 115,669,576
<TOTAL-LIABILITY-AND-EQUITY> 454,088,936
<SALES> 0
<TOTAL-REVENUES> 189,170,285
<CGS> 0
<TOTAL-COSTS> 43,713,752
<OTHER-EXPENSES> 79,643,820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,847,458
<INCOME-PRETAX> 52,318,476
<INCOME-TAX> 21,029,000
<INCOME-CONTINUING> 31,289,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,289,476
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
</TABLE>
